Rabo: There’s a lot of garbage in this US election.

Michael Every

Dare I say, "Garbage"?

Global Daily

Market Comments by Michael Every

There’s a lot of garbage in this US election. There were two recent examples from the Republican stage, then from the White House; now Trump is driving a garbage truck wearing a hi-vis orange vest. We also can’t fail to notice hi-vis rhetoric from the media. Not just Whoopi Goldberg on The View; the Financial Times’s US national editor Edward Luce (son of Baron Luce), and the paper’s Editor-in-Chief Martin Wolf, are openly calling Trump “fascistic,” the former saying Americans aren’t bothered by it so the republic may be in danger, the latter implying Trump won’t leave the White House if he wins. These are extraordinary claims from a paper that takes itself extraordinarily seriously; and even as everyone agrees we are heading for a moment of extraordinary volatility, that requires extraordinary clarity of thought and speech. Yes, Trump offends a great many people; as does this kind of rhetoric - such escalation does not deescalate anything. Assume the FT is right: if Trump wins, will the paper scream to get out of US assets, or how to make money under “fascism”? Assume the FT is wrong: how are we supposed to take them seriously if they drop the ‘F’ bomb (or ‘H’ bomb) then say “Oops”?

As some worry about The-Boys-From-Brazil-ification of the US, more cogent financial criticism flows from pointing out the inherent contradiction between a “Peronist” Trump populism (i.e., “economic independence,” “social justice,” and “political sovereignty”) and Milei-style slash-and-burn $2 trillion cuts to government being flagged by Elon Musk. Answers, anyone?

Relatedly, 2WAY (whose objective election analysis makes both sides see half the country disagrees with them, and they all have to live together) just interviewed Trump economic policy advisor Bessent, who has taught economic history at Yale. He argues US debt was out of control due to government spending, threatening “European-style malaise,” and at the 80th anniversary of Bretton Woods, “we are on the verge of a major international realignment,” involving “trade, currency, defence, and values”. He adds his personal motivation is to build a system that works for a multiracial working-class party previously left behind by the global economy. You might not believe him, but as electoral schtick Trump is literally driving around in a garbage truck.

Bessent thinks the US must grow its way out of debt (which the last GDP print would back if it wasn’t driven by it), requiring deregulation - and, logically, a better net export position. He wants the fiscal deficit back to 3% by 2028. His favourite central banker is Volcker (not Schacht). He also called 60% tariffs on China “maximalist” while stressing something I flagged in 2016: if you impose high tariffs for a future date (e.g., January 2027), you get a surge in supply-side capex, then tariffs have little effect as you don’t import those goods. Yes, the US would still import many goods with a 10% tariff, but Bessent expects this to be partly offset by dollar appreciation. That’s still inflationary with tight labour markets and deportations of undocumented workers: but it’s also higher US growth/lower world growth, higher dollar/weaker everything else.

Or is this all garbage?

As some pointed out yesterday, markets are expecting the Fed to cut rates again next week with GDP at 2.8%, ADP employment at 233K, consumer confidence up, stocks, home prices, gold, bitcoin, and the national debt all at record highs, and core CPI over 3% for 41 months, the longest stretch since the early 1990s. But this isn’t garbage, or any kind of paradigm that can eventually lead to political extremism. No, it’s a carefully calibrated global system designed by deeply moral experts and operated by geniuses.

Looking globally, yesterday’s UK budget, reviewed here in detail by Stefan Koopman, saw big tax increases (not for workers, but to employ workers) and big fiddling with fiscal rules to ensure the government can invest bigly. If the state uses those funds productively, we have one set of macro and sociopolitical outcomes. If it doesn’t, we have another. It will also be interesting to contrast whatever our base case of a Trump presidency might bring with what a Starmer premiership does for the UK. The world will be watching Les Anglos to see which approach works better.

The BOJ left rates unchanged at 0.25% today, with the instability in local politics providing another good reason to pause. That applies all over, it seems – yet doesn’t re: the Fed.

In geopolitics, the thought of a Trump White House is seeing escalation to ensure when inevitable calls for de-escalation come, each side is in a better position.

[Ukraine]

In Ukraine, The Economist puts it that, “Ukraine is fighting for survival, not for victory”, as the US can no longer keep supplying arms at the pace needed – no need to ask if Europe can nearly three years in. This isn’t Trump, but Biden, and Harris would face the same constraints; the supply side is all that matters in a West dominated by economic advisors who only see the demand side.

In the East, South Korea is offering to bridge that gap with its missiles if North Korean troops appear in Ukraine. That risks widening the war to Asia, indirectly at least. [EDIT- Don’t call it a world war yet]

[Israel-Iran]

In the Middle East, Israel told Lebanese to leave the Hezbollah heartland city of Baalbek, but is considering a ceasefire on the proviso the militia retreats north over the Litani river, the Lebanese army takes control of south Lebanon, which Hezbollah rules, the flow of arms from Syria is stopped so it cannot rearm, and UN peacekeepers keep the peace. The odds of this being adhered to are low, but that doesn’t mean a piece of paper can’t be signed ahead. Yet Iran is threatening a “definitive and painful” response to Israel before the US election for its recent attack (the one they said didn’t do any damage): and Israel is making it clear they can hit lots more targets at will if Iran wants to play that game again. The fat tail risk here remains that this isn’t just rhetoric; and in Gaza, Hamas has again rejected a ceasefire offer because it still sees more strategic benefits from trying to whip up a regional conflagration it can take advantage of.

[China Sanctions the US]

Meanwhile, a US drone-maker has been sanctioned by China for supplying Ukraine’s army: it now can’t use Chinese suppliers for tech inputs or critical components, batteries being a particular issue. This is a huge issue. Until now, it has been the West which has dominated sanctions through the power of their consumer markets and the global role of the US dollar: now, China is showing it can do the same to turn off supply of goods as required. The only logical Western response is surely a very rapid, very large diversification of global supply chains away from China: because what/who might be next, and regarding which geopolitical flashpoint? As the Financial Times bewailing the rise of authoritarianism will nonetheless tell us, this shouldn’t involve any moves towards tariffs or such nastiness.

However, in the supply-side BRICS, it’s not all sunshine either. On their planned grains exchange, key buyer Saudi Arabia is planning to try and grow more itself. Russia has stopped publishing detailed inflation data in an over-heating war economy, which if sustained joins a long list of data series now national security, so off limits; and Russian media states Moscow has been unable to pay its dues to the Shanghai Cooperation Organisation because they want it in dollars, which it can’t do because of US financial sanctions. When the SCO takes payments in Chinese goods, this all goes away. At the end of the day, is it better to control the financial side of things or the physical? [EDIT- which is easier to replicate? (not obvious) ]

And which of the two is a better platform for a rapid shift to then have the best of both? [EDIT- supply chains are payment chains in reverse. Broken supply chains cause inflation. Broken Payment chains cause recession]

One really needs to sift through a lot of garbage to find the key questions, if not answers, in all the current market chatter and pearl-clutching.

Full report attached