“If Trump is serious and brings about the end of the late and lamentable era of globalization, the economic shockwaves will be considerable, and a great deal of wealth is going to redistribute itself.”
John Michael Greer (Ecosophia)
“The wind of change is blowing through this continent. Whether we like it or not, this growth of national consciousness is a political fact.”
British Prime Minister Harold Macmillan
In 1960 the then British Prime Minister, Harold Macmillan, made a famous speech to the South African parliament warning of a wind of change sweeping the African continent as independence movements swept to power from the old colonial empires. It was one of those watershed moments in world history which couldn’t be stopped as the South African apartheid regime eventually realised in the 1980’s.
My view is that we are living through a similar era of massive change, driven in part by the disruptive forces of man-made climate change, worsening resource scarcity and a global debt super-cycle which nearly destroyed the financial system in 2008. The election of President Trump, something I predicted, was a critical moment in accelerating the process of collapse of the liberal international order.
This post will be a review of where we are on Brexit, the Trump presidency and global situation and where I see things going over the rest of this decade.
The Brexit vote was the first major tremor against the established political and economic status quo which so benefited the privileged classes of the developed world. Whilst the lower socio-economic classes experienced stagnating wages, driven in part by mass migration from within and outside the European Union (EU) the privileged classes benefited from higher housing prices, cheaper imported labour including nannies, plumbers and so on as a huge influx of hard working migrants drove down the costs of goods and services. The Leave vote was the moment a majority of the British population decided enough was enough.
One of the reasons the British have never had a violent revolution for the past few centuries is that it’s ruling elite have had the common sense to adapt rather than resist pressure from below. The decision by both the main parties, Labour and Conservative, to campaign to leave the single market underscores this shared recognition that being able to control immigration flows from the EU was a pressing concern for many British voters.
The Corbyn electoral surge in the May general election last year was also a rebellion against the establishment and the current way our economy is organised. For significant parts of the electorate, Jeremy Corbyn message of economic radicalism offered hope that some of the wealth accrued by the big corporations and the wealthy would be redistributed to the bottom 80% of the population. For those Brits who reside in the grim world of zero-hour contracts, Orwellian warehouses and high personal debt, capitalism holds no benefits to them. For those readers who think I am exaggerating I recommend that they read this review in the conservative Spectator magazine on how the other half live in modern Britain.
My central massage is that the Brexit and Corbyn political breakthroughs are two sides of the same coin, that is, the overwhelming desire for change in the current political and economic structure from the majority of the population. And this is happening across the developed world.
The recent elections in Italy have seen a massive surge in support for the populist parties of the Five Star Movement and the Lega gaining over half the vote. We will see if my prediction, at the beginning of the year, that the centre-right parties will be able to form a coalition government comes to pass but the scale of the anti-establishment vote shook the Italian and European political classes.
What was particularly striking was that 75% of young Italians voted for populist parties. Not surprising considering they are the “lost generation” coming to adulthood in an era of economic depression, mass unemployment and a failed euro experiment. As Ambrose Evans Pritchard notes in his article, this populist uprising will likely lead to an Italian government defying the EU on fiscal rules, banking codes, and migrant policies. Change is coming to the eurozone.
The rebellion in Italy, the rise of the nationalist AfD within Germany (which I explored last year) and the slow death of President Macron’s ambitious eurozone reform agenda all point to a softer Brexit outcome by March 2019. It is overwhelmingly in the economic self-interest of the major EU powers for an amicable divorce settlement with Great Britain. I concur with the forecast by the German investment bank Berenberg, who have predicted a “semi-soft Brexit” outcome.
What on earth is a semi-soft Brexit? To quote the bank, “the UK stays close enough to EU rules for many goods and some services to avoid a hard border in Ireland. UK remainers could support a deal that keeps the UK partly aligned with the EU while the Brexiteers could back such an agreement as it would offer the UK some room to pursue its non-EU ambitions. The UK and the EU could probably find a solution the Irish question – possibly a bespoke customs arrangement.” The recent proposals by the European parliament for a broader association agreement between the EU and the UK points to the same semi-soft outcome.
The British political class will be engrossed in the Brexit negotiations going into the end of this decade and much could happen, including a fall of the May government or early elections that could upend the current status quo. It is for this reason alone that it is too early to make a definite forecast on the likely outcome of the next general election, due by 2022.
However, assuming that an eventual semi-soft Brexit outcome is finalised by December 2020 (the end of the transition period) under the current government, it is likely that Prime Minister Theresa May will stand down shortly afterwards, to pave the way for a new leader to make their mark before returning to the country. The only Conservative politician who could transform the Tory party’s prospects is the Scottish leader Ruth Davidson who seems most in touch with the “struggling middle” who will be key to the general election. If she becomes the next female and first lesbian prime minister in a post-Brexit Britain, the Tories have a fighting chance to remain in power for a third term in office. If not, it looks more likely then not that Jeremy Corbyn’s Labour party will win the election.
I predicted at the beginning of the year that President Trump’s Republican party will remain in control of the House and Senate during the mid-term elections in November 2018. I stand by that prediction.
President Trump’s recent announcements on steel and aluminium trade tariffs has led to a howl of outrage from free traders but has been massively popular in the country. According to one poll, “about 83 percent of Americans said they supported Trump’s effort to level the playing field on foreign trade”. Trade tariffs can be a potent weapon in shielding American manufacturing from overseas imports and helping rebuild the Rust Belt industrial base across the flyover states which are key to re-election in 2020.
A recent poll published by Rasmussen illustrates the massive shift in public opinion within America on the issue of globalisation. When asked if it is “more important to keep manufacturing jobs in the United States or to keep prices low for American consumers,” a dominant 68% said it’s more important to keep manufacturing jobs in the U.S. Folks, this is a game-changer.
To put it simply, the majority of Americans support an economically nationalist tariff oriented economic strategy geared to the re-building of America’s manufacturing economy. As Greer notes in the quotation at the top of this post, if Trump goes through with his agenda, it will be the end of globalisation itself.
Whether or not the Orange Caesar carries through with his threat to impose tariffs across a range of industries, including cars, it is already causing tremors within Europe and beyond. An entire generational business model is under threat and already, German car manufacturers are panicking at the prospect of being priced out of their top two markets, the UK and America. My own view is that it is likely that an increasingly confident President Trump will impose his economic and foreign policy vision over the next two years, resulting in a likely re-election of President Trump in November 2020.
The global markets are entering the late cycle of the bull market which historically favours commodity related stocks, including oil and gold. It is for this reason I continue to think that oil will rise to 80 dollars this year which will be one facet within a rising commodity super cycle over the next couple of years.
In regards to the crypto market, it is likely that we will see continued volatility within this market over the two months before a major rise in prices from May onwards as institutional investors start to pour trillions into the new market. By the end of the year, investors will likely be kicking themselves that they didn’t take advantage of the depressed prices within the crypto sector during the early months of 2018. The emergence of the crypto-currencies and the underlying blockchain technology is a reminder of how technology is disrupting traditional industries.
I intend to carry on writing my series on technology and how it will impact the world in the coming decades and this will be the subject of my next post on FI.
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