Way back when I was a long-haired undergraduate principally concerned with drinking and curing virginity I was faced with writing an essay titled something along the lines of “Should government lead or reflect public opinion?”. Having watched Donald’s acceptance speech at the Republican National Convention in Columbus last night, I wondered whether that question is the defining difference between the respective stances of Trump and his presumptive Democrat opponent Hilary Clinton.
If so, then the question can be drawn much further. What about Brexit or, on a broader base, is the swing across much of the Western world away from mainstream political parties and towards “populism” not exactly that? Only the West? Isn’t Putin’s Russia, with its leader’s unparalleled popularity, a text-book example of that and do the events in Turkey not, to a significant extent, display the same features?
There is, however, a matter along these lines right in our midst which has been sent to test us. Matteo Renzi, the Italian prime minister, is facing three challenges. The first is the malaise of the country’s banks, Monte dei Paschi ahead of all but not at all on its own; the second is the constitutional referendum in October; and thirdly, not entirely unrelated to the latter, the rising support for the wildly anti-establishment and eurosceptic Five Star Movement . Should the referendum fail and should Renzi make good on his promise to step down, then it is entirely feasible that Five Star could win subsequent elections.
Although “populism” is being stamped by the political press, which is very much an integral part of the established elite as something odious and highly suspect, it is most likely doing nothing more than reflecting the way in which the political class has left the mass of the people behind in its race to create what it thinks is right. Trump stuck a dagger right into the Achilles’ heel when he spoke of the failings of political correctness and its Orwellian belief that by changing the language, one can change the people.
Is the rise against the establishment, when broken down, possibly no more than a revolt against political correctness? One could spend much time arguing the point but then something quietly revolutionary took place yesterday and in the most unlikely of locations. During an otherwise unremarkable post-ECB meeting press briefing Mario Draghi very quietly and tacitly backed Renzi’s request to use state aid to support the banks rather than having to resort of bailing-in small investors. He said “a public backstop is a measure that would be very useful…” while going on to qualify the statement by repeating the need for other more conventional measures. So now we have the head of the ECB, which is itself the keystone of the grand European project, effectively supporting the breach of its own rules.
In the meanwhile our own prime minister has been to Paris. Whether he was simply charmed by Kitten Heels or whether he had, prior to her arrival received a very thorough under-the-table kicking in the shins from Berlin will never be known but President Francois “Qui? Moi?” Hollande struck a very different tone with respect to Brexit than he had just a matter of hours earlier. In order not to have done a total volte face, the words Hollande used to suggest that he had taken on board that Brexit could not be effected overnight, were not the same as those uttered by Mutti Merkel 24 hours earlier but it was clear that a slower, orderly exit is preferable to a speedier disorderly one.
Four weeks ago today we woke up to the unexpected referendum outcome and much has happened since, both in markets and in the real economy. I attended a small local classic car event last night where I met up with its founder who happens to be one of my closer friends in these parts. Having spent most of his life running the family’s industrial businesses he sold out a few years ago and now heads, as CEO, the respective industry association. He has spent most of the past years flitting from the UK to Brussels and back and was due to become president of the Europe-wide lobby group. That’s gone!
He spoke of how busy he is with daily meetings on the subject of Brexit and he commented that nobody has yet been able to give him one possible positive outcome of Brexit. The fact is that the people’s choice to leave was a moral and not an economic one. Moral decisions are not and cannot ever be taken on economic grounds. That is what defines them as moral. After 30 years of morals being subjected to the needs and desires of business and finance, the tables have been turned. The global financial crisis demonstrated exactly what happens when ethics become subsidiary to profits. The swing to the political fringe is the price being paid as the pendulum overshoots the other way.
In case you didn’t notice, there was the US debt clock ticking above the stage in Columbus. Had it not been for the billions and billions of fines that the Americans have imposed on foreign companies, that number would of course be a lot higher. Does anyone else get the feeling that the arrest of HSBC’s Mark Johnson for allegedly front-running a forex trade smacks a little bit of a last roll of the dice to get some more foreign fines into the Treasury coffers? Until every single manager involved in the management buy-out of a publicly listed company is behind bars for insider trading, which is what it effectively is, I think the pathological pursuit of bankers for having picked up the phone to a friend who happens to work for the competition must stop. The forex market is unregulated and front-running is, unless I am mistaken, not an offence in that market. Cairn Energy might feel aggrieved and even ripped off but I question whether there is a legal case. However, having watched the US TV series “Billions”, I put nothing beyond American prosecutors when it comes to wanting to catch their man. Is it time for RICO?
Alas, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. It has been a pretty lousy summer so far – I’ve just started cropping broad beans (fava beans to our transatlantic cousins, the ones one can enjoy with a fine bottle of Chianti) which normally come good at or around July 4 – but I have great hopes for the coming weeks. State schools in the UK break up for the holidays today and the summer lull can officially begin. Most brokers and traders tell me the summer lull seemingly began on January 1 and they are now expecting the best part of seven weeks of deep coma. I would not be so sure. The serious lack of liquidity can lead to either torpor or to mindless volatility. Over the years I have experienced both and I will be here watching…..