Tag: #MAGA

The End of Globalization?

Globalization End

I’m not one to indulge in predicting radical transformations to the world order. As a rule, change remains slow and while its end can’t always be guessed, its direction is often telegraphed. So, while I’m reluctant to make any grand pronouncements about the future after the lockdowns and life resumes a more normal trajectory (like people no longer working in offices!), I think there is enough evidence today to say that the globalized world is under heavy threat.

The COVID-19 global pandemic has highlighted some strategic weaknesses that must be addressed, and that governments will be unlikely to tolerate into the future. Chief among them is the large dependence on China as a source of medical supplies, including 80% of global face mask supplies and (at least in the US) 30% of personal protective equipment.

We might assume that this is a problem with China, but it isn’t. This is actually a problem with globalization and how dependent it is on a global leadership structure. As supply chains have become global their operation depends on a strong global framework that keeps trade open and coordinates needs across borders. That means that there must also be leadership that can fight (more metaphorically than literally) to keep those chains open in a crisis. That role has been traditionally occupied by the United States, but under Trump’s management the country has taken a big step back from such a global leadership role with other nations making a similar retreat.

As the coronavirus was starting to make inroads in Europe and North America it became impossible to get masks from China, regardless of which factories made them (Medicom, a Canadian manufacturer has three factories in China but none of those masks ever made it back to our borders) as the Chinese government simply requisitioned all masks for their population. Other countries have also taken similar steps, restricting the transportation of some drugs and medical supplies. Finally, in a moment of clarity for Canadians regarding their relationship with the US, Trump invoked a Korean War era law to halt the sale of N95 masks to Canada. That was eventually rescinded, but the message was received loud and clear. Nations have no friends, only interests.

This is true with large international organizations as well. The World Health Organization is facing a lot of scrutiny over its early handling of the pandemic and for its perceived subservience towards China. The WHO, which can only operate in China with the government’s permission, had limited access to people on the ground in Wuhan, accepted the Chinese explanation of no “human to human” transmission, and in respecting the Chinese position on Taiwan can not engage or work with the Taiwanese government to understand how they have very successfully curbed the outbreak. All this has raised eyebrows about how useful this group is. In the past this might prompt more engagement from its largest backers, the United States, and fought for reforms to improve its responses. That’s not the case today, as instead Trump has opted to cease funding to the WHO as both a retaliatory act and a way to shift focus from his own administration.

For sometime globalization has been coming under increasing pressure as a result of the erosion of industrial domestic manufacturing, inequality, and populism. But the pandemic seems to be hastening that process as opposed to repairing it. At a time when a global coordinated effort is desperately needed, no nation is inclined to fill that role. This effect has been described by political scientist Ian Bremmer in his book Every Nation For Itself as a “G-Zero World”, a world with no global leader.

That role has traditionally fallen to the United States, which has seen its own prosperity connected to considerable soft power. But as domestic issues and populism have risen voters of wealthy Western nations have become increasingly inward turning. Some might think that China would fill that role, but China is too nakedly self-interested in its own ambitions, making it difficult for nations to embrace the country’s “help”. Meanwhile, as other nations continue to develop economically they are growing less willing to accept the terms of IMF and World Bank help, and more committed to their own national wants.

Whenever the world begins its return to normal we should expect countries to decouple some of their supply chains from China purely for the public good when it comes to health and medical supplies. But other businesses are taking note that during this crisis they have also been held hostage by China. Apple intends to have its new budget phone assembled in Brazil, and the ongoing trade war with China (now rapidly turning into a cold war) is unlikely to be eased when this is put behind us. Instead we should expect it to accelerate.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc

Why Can’t Markets Be Calmed?

A series of bad days, a moment of respite, and then more selling. This was the story of 2008, and it lasted for months. The rout lasted until finally investors felt that enough was going to be done to save the economy that people stopped selling. Massive quantitative easing, an interest rate at 0%, aggressive fund transfers, bailouts to whole industries, and the election of a president who seemed to embody the idea of “hyper competence”. That’s what it took to save the economy in 2008. Big money, an unconditional promise to save businesses and people, and the rejection of a political party that oversaw the bungled early handling of a crisis and had lost the public confidence.

I don’t think Donald Trump has never had been viewed as hyper competent. I doubt even his most ardent supporters see him as incredibly clever, but instead a thumb in the eye of “elites” who have never cared to take their concerns seriously, and to an establishment that seemed incapable of making politics work. Trump was a rejection of the status quo and a “disruptor in chief”. A TV game show host who played the role of America’s most sacrosanct character, the self made man, asked now to play the same role in politics.

There’s nothing I need to cover here you don’t already know. A history of bad business dealings, likely foreign collusion to win an election, surrounded by sycophants and yes men with little interest or understanding of the machines they have been put in charge of, and an endless supply of criminal charges. Like a dictator his closest advisors are members of his own family, and perhaps more shockingly he fawns over and publicly admires the dedications of respect other dictators get from their oppressed populations. Never has a person been so naked in their desires and shortfalls as Donald Trump.

Markets have played along with this charade because Trump seemed, if anything, largely harmless to them. Indifference to the larger operation of the government and the laser like focus on reduced regulations and tax cuts made Trump agreeable to the Wall Street set. If he could simply avoid a war and keep the economy humming, Trump was a liveable consequence of “good times”. Until the coronavirus issue, Trump had not done terribly. The economy wasn’t exactly humming. It had a bad limp due to a trade war with China. It had a chest cold because wealth inequality was continuing to worsen despite decreasing unemployment. And its general faculties were diminished as issues around health care, deficit spending, and other aspects of the society began to languish. But as far as unhealthy bodies go, the American economy still had its ever strong beating heart, the American consumer.

Whatever name you prefer; COVID-19, the coronavirus, SARS-CoV-2, or the #Chinesevirus (as Trump is now busy trying to get it renamed) has exposed the fault lines in the administration and the danger of such blinkered thinking by Wall Street. Having spent the last few weeks downplaying the severity of the outbreak and hoping China would be able to contain it, until finally, grudgingly, acknowledging its seriousness. Markets have suddenly come face to face with a problem that bluster and bravado can’t fix. Trump is a political liability for markets, and his leadership style, which is heavy on cashing in on good times with little management for rainy days, means that markets may not really have any faith that he can properly address these problems.

Other efforts to calm markets, largely through the federal reserve, have not reassured anyone. Two emergency rate cuts are not going to fix the economy but did spook investors globally (it did signal to banks that they should take loans to cover potential shortfalls). The promise of a massive set of repo loans to provide liquidity will keep markets open and lubricated, but again won’t save jobs and won’t prop up the physical economy. What will fix markets is an end to the pandemic, a problem with the very blunt solutions of “social distancing”, “self isolation” and the distant hope of a vaccine.

What investors are facing are three big problems. First, that we don’t know when the virus will be contained. Optimistically it could be a month. Realistically it could be three. Pessimistically people are talking about the rest of the year. Even under the best conditions we are also likely facing a recession in most parts of the globe, and even then stimulus spending and financial help won’t be as effective until people can leave their homes and partake in the wider market (postponing tax filings and allowing deferrals on mortgages are good policies for right now, but at some point we need to spend money on things). But the last problem is one of politics. The Trump administration is uniquely incompetent, has shown little interest in the mechanisms of government, and in a particularly vicious form of having something come back to bite you, dismantled the CDC’s pandemic response team.

The best news came last week, when it seemed a switch had been flicked and the general population suddenly grasped the urgency of the situation and people began self isolating and limiting social engagements (I am now discounting Florida from this statement). Those measures have only been strengthened by government action over the last few days. Similarly, while I write this, Trudeau has announced a comprehensive financial package to come to the aid of small businesses and Canadian families. All this is welcome news, and I expect to see more like this over the coming weeks as Western governments take a more robust and wide ranging response to the crisis. So there is just one issue still unaddressed. The political mess in Washington.

I can’t say that markets will improve if Trump is voted out of office, but its hard to imagine that they could be made worse by his exit. Markets, and the investors that drive them, are emotional and it is confidence, the belief that things will be better tomorrow, that allow people to invest. Trump promised a return to “good times”, to Make America Great Again, and it is his unique failings that have left it, if anything, poorer.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

by The Walker Report of Walker Wealth Management and Aligned Capital Partners Inc