We look at signs of the end of the post WWII settlement, at the harassing of the Federal Reserve and what Trump winning looks like (not great).
Rift or just a crack ?
There are two world views, either Trump is old, transient, ineffective, resisted, an anachronism, lucky to beat two accidental female candidates.
In which case once we find the new Obama, normal service resumes. I think markets broadly like that, accept it, see Trump as the derided outsider. I think I concur, but should I?
It is not just the man, but also the slow cracking of the assumed liberal settlement it implies.
I still think the discussed loss of NATO is nonsense, and largely I think rearmament is an unaffordable spoof. But slowly it has moved to big new high-tech investments. I look at the scale of the South Korean and Turkish sales to so many European states, and it all starts to look pretty real. It is new money, for systems, not old stockpiles of explosives.
I didn’t believe nuclear power could survive green hostility, and the extraordinary planning costs of doing anything novel in the UK. But there again, the rather eccentric Centrica, very green in its outlook, is putting serious cash into new reactors.
While another pillar of the old order has collapsed, with barely a murmur, lapped at and then destroyed by the new waves of militarism; international development has abruptly crumbled to dust, killed by Labour, not the Tories.
And China, we want to see Xi as the problem, not the symptom, but their steadfast support for Russia is looking long term. Before it was just diverted trade, sanction busting, but the giant new gas pipeline to take Siberian gas, is a serious commitment to a changed world.
I am not quite willing to say the same for climate change, we saw how quickly it snapped back with Biden, but living with carbon is now being accepted more widely.
The thought behind the deed
And below this is political thought, we can write off Trump etc as populists, but there is a genuine crack. It is between those who believe enough tax will salve all the world’s ills, who believe in enforced equality of outcomes, who believe peace and universal human rights are the inevitable destination. This has been the prevailing wisdom for so long, and clearly there are those, who now question the outcome, if this is the cost.
While that came with a natural desire to paint those with lofty ideals as the good guys, as opposed to the materialists, the selfish, the corrupt opponents.
But that too is crumbling; I was reading Polly Toynbee, The Only Way Is Up (2024) on the political situation, part manifesto, part vitriol. Who does this quote refer to? “Law-breaking, quickfire dismissals of leaders, and warped choices made on tax, spend and public services”.
Oddly, not Starmer.
In which case the old liberal order is not only economically impossible, with serious money going to things it hates, but the moral standing of its advocates is shattering too.
If they are all the same, this ends the good guy/bad guy dichotomy.
Can Kemi Badenoch survive?
Badenoch is facing a key party conference; I would argue she’s done well.
Steadied the ship, with a high level of party fund raising (something Reform has failed at) and reduced a record opinion poll gap with Labour, to almost zero in a year, after a historic defeat.
Danny Kruger for all the noise, is not the fault line. Born with a silver spoon, son of the celebrity cook, Prue Leith, money has eased his path. He exudes the soft intensity of the forever useless. Eton and Edinburgh, journalism, political researcher, charity organiser. Not that bright but very earnest, his 19th Century vision of family and church resonated well in the Party. A loss to Kemi? No. She shares the beliefs, but adds realism and the need for tough choices.
She needs both wings of her party, when both now have other credible, electable homes. So quiet competence, a sort of Starmer before the Fall is needed. And a lot of humility, the electorate won’t go back to her, if a choice exists in the centre ground.
Although it looks likely Starmer will talk right, act left, the same ineffectual compromise that blew up the Tories.
Bear baiting
And what of Jerome Powell, the last lion of an old order, bearded in his cage by the baiting hordes?
It was a sad sight to see the old man batting away impertinent questions from prime time TV, and fumbling with the economics.
Was the lack of labour demand related to the lack of labour supply? It would be a first. With the supply in question being illegal migrants. A strange argument.
What is apparent is he still expects inflation to rise from tariffs, still expects employment to fall as profit margins weaken, still can’t be bothered to read the 1930’s papers on price and volume adjustments neutralising tariffs, let alone more modern evidence of supply chain switching.
He still can’t explain growth being better than he feared.
Image from Wikimedia Commons.
Powell still oversees an organisation with no red and blue squadrons, just 500 PhDs, numbers now planning to be cut back to 2010 levels. Still incapable of understanding currency effects (another inflation source), but also why other currencies (especially China) are keen to soften.
But there was still something rather nasty about the White House putting its own staffer on the Federal Reserve to vote for five interest rate cuts this year. The barbarians are sitting at the banquet.
In the real world, the data don’t justify a cut. But nor do they justify the current level. So, a quarter point is the right answer, for a wrong reason.
But I therefore don’t see a lot more, and I do see trying to collapse the dollar, the White House’s desire, as pretty unsettling for overseas investors. They clearly don’t care much about long bond rates, but if they cut that much, no one will want their short-term debt either.
If Trump prevails, global (non US) markets will keep rising, if he loses, sitting in fixed interest and the mega caps is fine. That is quite a split.
And the rhythm of markets suggests after a rising six months; something will cause a dip in the next six.
Just how it goes.