Beyond populist rhetoric lies QE reality
Dissatisfaction.
Have you noticed that Policy has never been so polarising, and Populism has never been so popular?
People are dissatisfied.
Over the past few years we’ve witnessed the Brexit referendum in the UK and the recent separation from the EU. We’ve watched the elections of Donald Trump, India’s Narendra Modi, Mexico’s Andrés Manuel López Obrador and Brazil’s Jair Bolsonaro – all playing populist tunes like pied pipers seeking to capture the hearts and minds of their followers.
Last year in the UK we witnessed the unseating of Theresa May and the ascendancy of the populist Brexit-focused Boris Johnson (egged on by UKIP).
Just in the last week we’ve seen Sinn Féin claim election victory in the Irish elections, cementing itself as the populist choice (winning a massive 24.5% of first preferences) and agitating to form Government with the other parties.
Scottish First Minister Nichola Sturgeon has been warming up the bagpipe for another independence referendum, which many Scots feel would counter the 2014 decision, given Scotland’s wish to remain in the EU puts a new complexion on the argument.
We’ve also seen non-populist Angela Merkel’s CDU successor for Chancellor, Annegret Kramp-Karrenbauer, step down and decline to contest the Chancellery, further strengthening the far right’s populist ascendancy in Germany.
In France, we are seeing far rightist Marine Le Pen rebrand as the leader of the warmer and fuzzier Rassemblement National. Her message is simple: it’s either her, or chaos (referring to the yellow vest riots under Macron); and not unlike Trump and Johnson she is preaching control of immigration, economic patriotism and so-called rational and reasonable protectionism.
Nationalism mobilises.
Hammering home anti-elite patriotic and nationalistic ideas and support for the struggling and homeless along with lashings of xenophobia appears to mobilise growing sections of the population, It is this sort of rhetoric that has propelled many of these leaders in the popularity stakes.
So much so, that following Donald Trump’s post-impeachment acquittal and his cries of crooked cops, liars, shifty actors and the like, his approval rating is reportedly now at 49% - the highest ever. And, that’s after an impeachment! He may be unstoppable going into the 2020 election given the shambolic state of the Democrats after their failed first attempt to remove him from office.
Me Too, Greta, Malala et.al.
On top of this, many concerned people are taking matters into their own hands.
This includes growing populist movements for social, gender and animal equality, environmental activism and many others.
People are mobilising through strikes, marches and social media platforms.
It is their right.
U.S. mercantilism has returned.
On an economic basis, populist behaviour is replacing ‘establishment’ politics and this is having a massive impact on trade and capital flows.
Indeed, diplomatic globalisation including the dismantling of trade barriers and tariffs over the past 4 or 5 decades has been replaced by protectionism, imperialism and mercantilism over the past 4 or 5 years - principally driven by the U.S., and its fear of China.
With some exceptions (e.g., Japan) the new normal is blunt instrument warfare (tariffs, bans, investment reviews) aimed at influencing comparative advantages via currency relativities, trade, technology and people flows and nationalism. In turn, this is impacting on global GDP.
In the past, risk markets responded to this differently.
In the past, this would have been enough to hobble financial markets.
But, that was before QE Infinity.
Today, interest rates are far too low and liquidity is far too abundant for populist events to make more than a day or two of difference in risk markets. There’s simply too much funky money in search of yield and growth, which inflation can no longer provide. Destination? Equities.
U.S. tax breaks and cash repatriation amnesties have not served the masses,
regardless of the populist rhetoric, but they have funded buy-backs and stock
speculation and underwritten risk assets.
In this kind of environment, the whole market moves up, multiples expand, and risk is largely repriced/ignored.
Breakfast, lunch and dinner - and then some.
Mobilising people by way of populist rhetoric is on a high – but QE, which started as Bernanke, Geithner and Paulson’s get out of jail card after sub-prime hobbled the U.S., is on a bigger high and has become the real opiate of the people.
QE eats populism for breakfast, lunch and dinner - and then some.
In fact, it’s eating the world and there’s no easy-to-digest diet on the horizon.
Mike
NextLevelCorporate is a leading financial & strategic corporate advisory firm with a multi-decade track record that speaks for itself. Helping clients in all industries to prepare for, respond to and deliver transformative corporate finance strategies and transactions in and out of Australia, is our passion.