A Great Variety Of Moron Symptoms Appear

By Michael Every of Rabobank

A great variety of moron symptoms appear

Like Gramsci, look around and see the old is dying and the new cannot be born; see the great variety of morbid symptoms appearing as a result; and the greater variety of moron symptoms.

• AI is not the new tech bubble, honest, even if there appears to be a staggering degree of artificiality in the intelligence it’s showing to us. (Presumably, it’s ‘impossible to tell’ if this Daily is ‘as bad as Hitler or Stalin’, because it contains statements some readers may not agree with.)
• At the start of year three of the Ukraine War, President Macron just presided over a meeting of EU powers, stated, “We will do everything needed” to stop Russia winning, yet delivered no new weapons, while also declaring there was no consensus to send in EU troops on the ground, “but in terms of dynamics, nothing can be ruled out.” Really? Because I can rule that out right now.
• In the Red Sea crisis, as flagged, analysis by Sea-Intelligence shows the need to move empty containers back to producers has grown 2.5 times faster than that to move full containers out. That isn’t good for global logistics, just as it wasn’t during Covid. Neither are reports of a shortage of oil (and LNG) tankers due to longer routes being taken. Meanwhile, the Houthis may have cut key Asia-Europe internet cables: Moody’s, who say Suez is having no inflationary impact, even as half of UK businesses are feeling its effects, will only notice when they can’t order lunch at a swipe. (Stick to UNCTAD’s ‘Navigating Troubled Waters’ on this issue.)
• And on lunch, a US fast food chain is to experiment with surge pricing models: its burgers will now get more expensive at mealtimes. I’m sure the BLS team are onto this trend, if it spreads, and will show it means lower prices, when adjusted for eating when not hungry, right?

But let’s not get distracted by micro-Gramscis of hot air, Houthis, and hunger-pangs when the kilo-Gramscis are in understanding what a changing geopolitical and geoeconomic order means.  

A Financial Times op-ed says ‘our global trade system is in desperate need of an overhaul’, repeating my old argument that Ricardo’s free trade comparative advantage theory itself admits it won’t work in a world of mobile global capital, which we censor, as we do Smith arguing the “invisible hand” actually keeps investors’ money circulating domestically. Yes, our system is now more imbalanced thanks to China, even as a global bifurcation away from it is underway. But there will be no joint overhaul, and things will likely be resolved via Western protectionism. In short, Trump started a trade war; Biden extended it; Trump, if he wins, now threatens a return to full US mercantilism. If you work in economics and/or markets and you don’t understand what that means, you are in desperate need of an overhaul.

In narrow terms, the market is again seeing America First means Dollar First regardless of narratives about gold, or BRICS, or, as I put it to Jim Rickards, of countries throwing bricks of gold at each other. That’s even more the case if the Fed isn’t rushing to cut rates. After more comments from Schmid noting, “further disinflation will need to come from services,” that, “we may need to cool demand further to tame price pressures,” and that moderating US wage growth was needed to get back to 2% CPI, not only should we look to the RBNZ meeting tomorrow, but try to imagine if the next set of US payrolls and CPI prints come in hot again. If the three 25bp rate cuts our ahead-of-the-curve Fed watcher Philip Marey --and, belatedly, the market-- expects for 2024 then get pushed back from June, how close to, or after, the US election can the Fed move without being seen as political?

Yet US mercantilism, alluded to by the FT, shakes every market box and every asset tree. On this front, Michael Pettis, asks ‘Can Trade Intervention Lead to Freer Trade?’ and “Doesn’t an expansion of global trade always benefit the countries that participate in international trade and, more generally, the global economy?” He answers, “No,” before showing why this is so, logically.

• Only capital controls, not tariffs, can stop foreign purchases of US assets to prevent mirroring trade surpluses: that’s the Ricardo (and Smith) argument in another form.
• The US should only impose tariffs on mercantilists while holding to free --but balanced-- trade with likeminded countries. That would shake Japan and Europe and mean global bifurcation, as the FT yesterday notes, ‘China plans to reshape trade on its own terms’.
• If the US acts like this, the dollar’s global reserve currency status would be broken. Yet that doesn’t mean it would collapse. Nothing could replace it, and in a mercantilist world where it’s harder to get trade dollars --with massive offshore Eurodollar debts to repay-- the buck would remain essential, and more expensive.

Pettis also makes clear Wall Street would suffer in this scenario, which US capital controls obviously entail. That’s as Bloomberg notes ‘Xi Crackdown on ‘Hedonistic’ Bankers Fuels Industry Brain Drain’, which sounds like the common prosperity so many on Wall Street tried to sell me as ‘regulatory reform’; and ‘Beijing warns China’s US$63 trillion financial sector: serve the real economy and enrich lives’, as state media tells the financial sector to focus on supporting the real economy and refrain from “fake financial innovation,” or Marx’s “productive” over “fictitious capital”… and so more mercantilism. Meanwhile, both the US and Europe governments are begging their financial sectors to invest in the real economy, particularly in defence goods, not to speculate on assets: clearly, things will have to change if the West is to keep up.

Indeed, former ECB President Draghi recently noted, “Many profound changes have taken place in the last few years in the global economic order. These changes have a variety of consequences, one of which is clear… that we’ll have to invest an enormous amount in a relatively short time in Europe,“ underlining the need for “bold action to cover the cost” of the green, digital, *and* defence transitions. That’s trillions of Euros a year – covered how, exactly? And US maritime expert John Konrad favours disbanding the US army and rebuilding the US Navy and merchant marine to cement its global economic power, while removing income taxes and relying on tariffs for revenue, as was originally the US model.   

So, yes, the old is dying and the new cannot be born; and we have a great variety of morbid symptoms appearing as a result. And if you think none of these will happen in whole or in part, and perhaps soon, or that you can play both sides forever as it does, then you are suffering from a great variety of moron symptoms.

For an example, McKinsey has been dragged into a scandal after it was revealed it helped counsel China on a mercantilist industrial policy initiative that raised tensions with the US, while presumably also working with US firms and politicians to downsize and offshore American production, as it the industry norm. The firm is now being threatened with the potential loss of US government contracts, while how much of a future it, or any Western management consultant, holds in a China focused on the real, not fictitious or hedonistic, economy remains to be seen.