It’s the moment of truth for the silent majority

First Brexit, then Trump, then Matteo Salvini, then Jair Bolsonaro and now Merkel is leaving after dismal results in German regional elections. Add in a Saudi assassination, a far-right Austrian, Hungarian and Polish axis in the EU and a constitutional change to make President Xi Jinping the new President for life…It has not been a good few years for the supposedly growing moderate majority of the world’s population, who apparently long for non-ideological, pragmatic and technocratic policymaking.

In Latin America, North America, Africa, Europe, the Middle East and Asia, populists are in vogue and established parties are reeling. The CDU and SPD in Germany are increasingly shadows of their former glory, but even they’ve fared better than the total annihilation of the French Republican and Socialist parties, not to mention Forsa Italia or the Socialist Party in Italy. Indeed, few social liberal democratic parties are doing well in any global context, nevermind a European one.

All of this poses a paradox. The world today is infinitely richer than at any previous point in history. There are no new ideological positions for developing a global economy, that have shown any evidence of gaining greater popularity than capitalism. Nor is there any sign that the world has become more violent or that global health has gotten worse. Indeed, to objective analysts the world seems to be doing really rather well. It is this analysis that is part of the problem.

Believers in centre ground politics believe that the majority of voters and citizens are rational. Given sufficient education, economic opportunity and information, political centrists maintain that the world will become less religious, less racist, less sexist, less LGBTQ-phobc and will prefer government policies set by highly educated panels of experts. Indeed the whole theory of modern liberal democracy and centrist movements like New Labour depends on these assumptions being true. But if they are true, why don’t we see people talking in favour of them, standing up for them and voting for these ideas, parties, movements and centrist leaders?

The answer, according to believers of centrist politics, is that the “silent majority” want centrist policies, ideas, parties and people, but they do not want to actively engage in the process. According to this theory, as soon as a candidate occupies the centre ground, where it has been abandoned, they will succeed. Indeed, the election of Emmanuel Macro and En Marche is held up as the perfect illustration of this phenomenon. The problem is that its wrong.

Politics is fundamentally a spectrum. There is no such defined place as “the left” and “the right”. What there is however, is a tendancy for society to cluster at points along the spectrum. Contrary to theories about centrist politics, they do not gather at the centre. Indeed, the reason why there exists a dominant political left party and political right party in every global democracy is because the number of people who truly seek out a “middle ground” is extremely small. Thus by focusing on the middle ground as a political tactic, parties actually alienate the majority of their constituency by chasing a small vote. This can work in an extremely tribal political system, where party loyalties is seen as a badge of identity and is often more important than the parties actual policies. But in the long run, parties that focus only on the centre lose touch with their base. This is the problem facing democracies today.

En Marche is the wrong lesson to learn. Electing a party consisting of a re-hash of Socialist and Republican candidates, run by a former socialist minister, who was ultimately pushed into power by a French public who were loath to support the National Front, is not an endorsement of technocracy and centrism. Indeed, the fact that Macron now has lower public opinion polling than his predecessor did (Macron now has the record for the most unfavorable reviews of any French President in the history of the French republic), shows that his political movement has little real support. Nor has the USA done any better. Rather than creating a fracture in the political right, the Republican party has embraced as its leader a dangerous egotist, whose attempts to sow division and hatred will leave scars across the national landscape that will outlast his own hotel chain.

There is a better way.

True democracies focus on addressing politics and how people feel. Worrying about trigger words, safe spaces, what is political acceptable to discuss and avoiding giving a “platform to hate” are terrible tactics that will end in misery and failure. What is actually needed is for centrist voters and politicians to hold their breath and dive into public discussions on anything and everything. Failing to engage with a problem is more dangerous than ignoring it. Nowhere is this guidance clearer than in the unmitigated disaster than is the European Union’s immigration policy and that of its individual member states (including the UK).

 

Governance is not meant to be easy. It is a service, not a stepping point for another career. The politics of the centre has believed that it is easier to talk about complex topics behind closed doors, amongst small groups of PHd armed individuals and then to return to the public eye with a flourish and say “we have studied and can empirically prove that this is the optimal way forward”. To anyone who has actually worked in business (and spoiler here, many centrists politicans and technocrats have not), the idea that you can make significant changes happen without buy-in and engagement with key stakeholders is laughable. If you do not explain the problem to people and talk about what the solutions are, then the idea will get nowhere.

Small steps could help moderate political forces take to move their agendas forward. Explaining a complex concept in an accessible way is among the most powerful. The impact of Blue Planet II on public and corporate attitudes to plastic has been phenomenal. Just as the original Al Gore film, an Inconvenient Truth, also helped transform the global climate debate. But real change cant be done by a film, documentary, art installation or music video. Certainly not on their own. Real change needs families, friends, co-workers and residents of communities to actually sit down and talk. Importantly, they need to get off their phone and do it in person.

In 2017 Heineken captured this idea with a wonderful video called Open Your World: https://www.youtube.com/watch?v=etIqln7vT4w but turning an ad campaign into reality would do more than help sell beers.

It may be the case that the world is full of a silent, moderate majority. But if they don’t talk to each other and the wider world, there is only one obvious outcome. Political parties and their voters will move away from centre ground politics.

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Wham, Bham, thank you Ma’am! – Financial Market chaos in 2018

On the 5th of February 2018, the Dow Jones witnessed its largest one-day point decline in its 120-year history. In total, the 30 largest US listed companies from across the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) dropped 4.6%, a percentage decline not seen since the eurozone crisis in August 2011. Nor was the Dow alone.

As investors across the world saw the roaring US stock market come to a violent halt, stock markets in Asia and Europe started to collapse as well.

Why? What went so badly wrong that the world suddenly lost its cool and within a week almost all global indices had fallen by 6%-12%?

Most of the news for 2018 actually looked pretty great.

The IMF had upgraded global growth forecasts for 2017, 2018 and 2019, while claiming that the world was about to witness the “‘broadest’ upsurge in global growth since 2010”. Global Mergers & Acquisition activity was at its highest since the dot.com boom over 17 years ago, the eurozone grew at its fastest rate in a decade and manufacturing growth has exploded across the US, Europe and the UK.

Given these factors, many retail investors and ordinary people reasonably asked the question: “Why did everything collapse and what should I do with my money now”? In an attempt to answer the first part, we have to begin with separating the event itself (the stock market collapse), and the reasons behind the crash (the fundamentals).

There are many different and authoritative views on this issue, including a very easy and concise piece by Bloomberg available here. My take is below:

With interest rates at record lows, the stock-market continuing to grow at breakneck speed and the global economy expanding, people have thrown caution to the wind and invested in the stock markets. In fact, January 2018 witnessed record levels of investment in the stock-market, as confidence took over and people from all walks of life began to invest. This is where the problem started.

Everyone in the stock market had been waiting for a fall. But knowing when it would come had been a significant challenge. If investors left too early, they would be potentially giving up the chance to make more money. If they left too late, they may lose everything. On January 29th and 30th, the first investors lost their calm and pocketed their gains and as January came to a close, the US stock market saw two days of consecutive decline and its largest fall since May 2017 (a small blip in comparison to what would happen later).

But why were the professional investors sceptical of the market? Here again we must return to expectations.

The aim of a professional investor is to generate returns that exceed what could be earned by investing in a risk-free asset. In simple terms “risk free” usually means bank deposits and the bonds of the worlds most financial secure markets (US, UK, Switzerland, German). The reason they are “risk free” is because most bank deposits are covered by insurance and because these governments are considered financially prudent enough to guarantee that any money owed to investors will always be repaid. Naturally this sounds like a great deal for investors. Put your money into a bond and earn a guaranteed amount of interest. What is not to like? Well the problem is that after the financial crisis too many investors thought that this was a good idea and so as the demand for bonds increased, their price increased. To cut a long story short, when the price of a bond increases the interest (read return) gets smaller. This is where the problem started.

Risk free bonds are the benchmark for professional investors. The expectation is to beat the risk free rate and the more risk the investor is asked to take, the bigger the return they expect (over the risk free rate). But if the risk free rate is extremely low, then risky investments can look increasingly attractive if investors cannot reach their target return through traditional investments. Pension funds are an excellent example of this. Prior to 2008 a pension fund would expect to pay 3% of all its funds under management out to its retirees every year. Therefore, as long as the pension fund could earn over 3% the fund would meet its obligations. Conveniently several types of government bond from the UK, USA and across leading economies were paying around 5% prior to 2008, allowing pension funds to make a 2% profit and meet all of their commitments, with minimal risk. But the financial crisis and ultra-low interest rates changed everything.

 As interest rates dropped to nearly 0% (in some cases negative), investors like pension funds, were forced to find other ways to generate their returns and so they piled into property, real assets (gold, oil, etc) and stocks. Accordingly, the stock market exploded. It didn’t matter that a company was now generating 3% return a year (compared to 5%) because its share price had risen. The alternative was a 1% government bond.

So back to 2018, the key question for investors was this: when would interest rates rise sufficiently that large money managers would sell their stocks? After all, if the interest rate rises then the return from the stock must price in tandem at every step. But that cannot happen forever.

So the magic number was 3%. Specifically, investors began to believe that rising wage inflation in the US at the end of January would increase the interest rate on US ten-year debt to 3%. If inflation was high, the US Federal Reserve would increase rates and money managers would sell their stocks. In Germany the same thing happened when the largest German workers union negotiated an inflation busting pay rise in February, leading to significant stock market declines in the US stock market (the 2nd worst performer after the Dow Jones).

What next?

The financial markets have broadly calmed following their collapse at the start of the month, but the truce remains uneasy. It is clear that investors remain extremely uncertain whether the sharp decline in share prices remains the only price “correction” that we shall see for the year, or if it is merely an early warnings tremor before a larger financial earthquake later in the year. On this question, expert opinion is fiercely divided.

However, for people interested in following the stock market closely its worth looking at whether any of the large companies, famously called “Unicorns” choose to finally go public this year. Traditionally private companies go public when they believe that valuations are at record highs, not when they believe that there is space to grow. So if you see AirBnB, Uber or even Spotify go public, then maybe consider putting some more cash in the bank and out of the stock market.

Important disclaimer here: This piece merely reflects the views of the author and should not be considered as financial guidance or advice.

Trump’s exit from the Presidency

Could the Trump presidency end with a faked illness and a presidential pardon? This is the question I have been asking myself recently and increasingly I am convinced that this is the most rational route I can see. So how would that actually look, why would the administration follow this route and how would it play out?

Let’s review where we are.

The current president clearly did not intend to win the election. While it was already widely suspected, the fact that Michael Wolff has audio recordings from the White House and staff confirming this is significant. Moreover, Trump is now at risk of having either his son or his son-in-law impeached by an ongoing FBI investigation.

But before we continue, here is a very brief recap for those who have no idea what is going on:

Since the Trump presidency began a series of scandals and rumours have swirled around whether Trump or his team received political and/or financial support from Russia. These have exploded as an investigation led by the Justice Department’s Special Counsel Robert Mueller have repeatedly detained and charged key members of the Trump team. Thus far three campaign officials have pleaded guilty to various misdemeanors and the question is whether they will reveal even more information on the senior members of Trump’s circle, in return for reduced sentences. If you’d like a far more detailed explanation, Vox and the NYT have two great pieces linked here.

The concern then is that Trump, already embroiled in scandals, now risks losing a very close family member to a story that is intimately tied to his own name and brand – the election of Trump as the President. But why cant he just pardon Jared Kushner or Donald Trump Jnr? Better yet, why not fire Mueller? The answer is the Republican party itself.

The Republican party leadership are distraught. They have held all three branches of government for a year, yet failed to repeal Obamacare and only managed an overhaul of the tax bill by ignoring every Democrat and out of internal desperation for a “win”. Even worse, the Republican President has called several African countries “shitholes” in a congressional meeting on immigration, openly admitted that he can do what he wants with women because he is famous and has defended White Supremacists. To add insult to injury he risks starting a war in North Korea and he has destroyed US credibility on trade. By weakening the WTO through failure to appoint key figures, ending both the TTIP and the TPP treaties, renegotiating NAFTA and imposing unilateral tariffs, Trump is managing to undermine the Republican brand on a core issue – trade and economic prosperity.

In short, Republican loyalty to the President is non-existent at the executive level. The only thing holding both Trump and the party together is the electoral base of radical republicans who first elected Trump in the US primaries. But while they may protect Trump from attacks from the establishment Republicans, that doesn’t mean they would attack the establishment if Trump voluntarily left the post.

This leads me to my current hypothesis: Trump wants to leave and save face in the process. Trump also wants the risk of criminal charges to be removed, without him having to make the move himself. Meanwhile the Republican party want a smooth transition of power from Trump to Pence, with an agreement that the radical wing that Trump/Bannon pander too, will support a more moderate Republican platform. In such a scenario, it is perfectly plausible that the administration will wait until inside news reaches them that criminal charges are being drawn up against the closest members of the Trump family. Then the pieces on the chess board move.

In the weeks before charges are brought, Trump will appear in public less frequently and news of medical treatments will be leaked to the press. In the final two weeks, Trump will officially be “treated” for a series of “undisclosed illnesses” and charges will be officially brought against Trump’s circle. Pence will strike a deal with the Republican leadership and the Trump family that he will pardon all involved parties, but for this to work the charges have to be issued. Trump’s inner circle, whether it is Trump Jnr or Jared, will have to take the fall and accept all responsibility for the actions.

With the investigation concluded and charges brought, Trump can now resign on ill health and Pence can pardon the family on the grounds of political inference by Mueller. Besmirching his name may not be accepted by many, but it will placate the Trump base and help them to save face as they leave office. Then we will have a Pence Presidency.

At any rate, this is just a thought. Let me know what you think.

All the wrong issues

Despite 7 years of stagnant economic growth in Europe, austerity in Britain and growing inequality in the US, the political left has never looked weaker. That is a problem. All good political systems require competition of ideas to help both sides refine and improve the policies which they offer their electorates. In the founding of any democracy it is widely acknowledged that a failure to create two equal political parties, who can act as counterweights to one another, is essential. Some even believe that if the Russian Communist party had split into two parties in 1990, one moderate and the other traditionalist, it would have fundamentally changed the trajectory of Russian democracy.

But why are the political left so weak? The answer is that they are focusing on all the wrong issues. LGTBQQ rights, climate change, religious tolerance and gender equality are important issues in making our world a better place. But they are not the reason why people decide to vote for one party or another at the ballot box. Hillary Clinton did not lose because every Trump voter is a climate-denier, racist, misogynistic homophobe who wishes to punishes poor people. Though there were likely many of those too. But the reality is that people vote for bread and butter issues and as Bill Clinton once famously quipped, it’s often about “the economy stupid”.

Politicians in the modern era have a tendancy to focus on issues that are at best tangental and at worst, irrelevant, to the day-to-day lives of most citizens. Climate change is a huge issue, one that I passionately seek to help fix every day. But it isn’t something you can explain or resolve in a tweet. It also is something that is extremely hard to explain to citizens that work 9am – 5pm in an office. The same is true with the rise of identity politics issues. It is morally clear that Donald Trump’s ban on transgender service in the military is wrong, but if democrats think that they will win votes over these issues then they are misguided. As sympathetic as the ordinary citizen is to the suffering of others, it takes more than the empathy that one may feel from an article or a youtube clip to vote for a political party that is also raising your taxes or restricting your social rights.

If we acknowledge that the issues championed by left wing parties are the wrong issue to win elections and political power, then intuitively one must ask why parties cover these issues. In part the answer lies in the  membership base and in part it is a feature of the social media age. Political parties draw their strength from loyal members, who contribute funds as well as time to help win elections and in exchange they are granted an input into the policy making process. Today though, members are no longer content with “an input”. Grass root activists, inspired by social justice movements like Occupy Wall Street and other online anarchist strctures, are seeking to rebuild the entire political governance of their parties. In doing so, the parties are sacrificing external clarity of message for the ostensible goal of greater internal cohesion, as all factions and members feel more engaged in the policy creation process.

In the social media age, these internal struggles play out across the public sphere and muddle the waters. Moreover, the areas of greatest acrimony and therefore greatest publicity, are not issues of inequality or climate change (where agreement is much stronger) but rather the extent of engagement with identity politics issues. These topics, ranging from the appropriate use of social pronouns (if such a thing still exists), towards use of public facilities (notably toilets) and removing statues, hold no interest to the vast majority of society but they are fought though they are an existential battle, by left wing activists across social media platforms. In the maelstrom all other issues are lost. The conservatives in the US understand this well. Breitbart, Fox and other right wing activist groups are easily able to distract the political left from delivering clear messages on inequality, healthcare and the economy by effectively trolling the political left with social politic clickbait. Milo Yiannopolous andDonald  Trump are experts at this.

Many could contest that the political left is stronger than it has been portrayed, but the success of Jeremy Corbyn in the UK and Macron in France is misleading. Macron was the ultimate example of the “lesser of many evils vote”, a product ofthe disastrous   Socialist government election process, a crippling leadership scandal in the Republican party and a desperation to keep the National Front out of power. Corbyn is even stranger. A product of the anger felt by many in the UK who suffered disproportionally from the reduction of public spending in social services and a rising anger that the system is rigged which came from the financial crisis. Such anger against elites is ironically why Corbyn and Macron share so many similarities with Trump, in that they are all populists that are riding a wave of anger against the perceived liberal, effete elite. But the perceived success of these leaders is due to electoral circumstance, not the strength of their political positions.

Jeremy Corbyn persuaded young students that their debt would be removed, while sending two contrasting visions of Brexit to Labour voters in the north and labour voters in the south. Macron did even less. It is perhaps unsurprising therefore that Macron’s popularity has dropped faster than any French president in the last 20 years. Meanwhile Labour may being riding high in the polls, but Jeremy Corbyn still polls as a “less trusted to govern” leader than Theresa May. A leader that lost an election and is expected to be removed in the next 12 months.

In politics there is a disctinction between doing the right thing because its right and doing it because it looks right. The Conservative party in the UK will never outliberal the Liberal Democrats and they will never be seen as more progressive than parties whose foundations were built on championing the rights of excluded groups in society. Similarly the Labour party and Democratic party will never win over aspirational voters, who want a better quality of life by championing social issues as their primary selling point.

The obsession with social politics issues is a problem for the political systems of western liberal democracies. If we can’t move on from it and focus on the bigger picture issues that affect the day-to-day lives of millions, citizens will start to wonder what democracy is doing for them anyway. Confused onlookers from China and Sinagpore may be asking that already.

The politics beneath the noise

Whenever people ask me for my opinion of US politics at present, what always strikes me is how little is actually happening. While the press covers Trump’s regular tweets, public gaffes and the inevitable criticisms of his actions, the most interesting aspect of Trump’s presidency is how little in reality is happening.

Let’s start with the economy. While the US market certainly has been caught up in the “animal spirits” surrounding Trump’s proposed fiscal stimulus boost, few analysts have actually looked at how this would work in practise. For starters, Trump’s long expressed desire to boost US energy infrastructure is trapped in a permanent limbo until the number of FERC appointees rises from its present 2/5 to 3/5 or more. At present, the lack of a “quorum” for the US energy regulatory agency means that no energy projects can be approved at a federal level until a new appointee is selected and approved by the senate. That is still a long time away. Next consider how Federal fiscal stimulus actually works: The US federal government does not contract for infrastructure projects within states, rather the states themselves manage the process. Thus as most states are heavily indebted at present, it is highly questionable whether a large financial giveaway from the federal government would lead to increased infrastructure spending (it is far more likely the funds would be used to pay down debt). But beyond even the potential for a stimulus lies the more significant question of whether congress would even approve such a bill. With the Republican party still heavily influenced by the Tea Party, it certainly shouldn’t be assumed that tax cuts and increased spending is a given.

On healthcare, the picture is similar. While people expected a bonfire of medicare “repeal and replace” style, there have been no plans put to the public, the President or Congress that provide a clue about how Republicans will do this. Moreover, the few suggestions that have been raised are politically toxic with Republicans. These include aspects around Medicaid/medicare cuts and non-discrimination provisions (very popular with voters and hated by the US health insurance lobby). With the senate at 52-48 Republican, no democrat support for reform and division in the Republican House of Representatives. Reform here also seems unlikely.

Regarding defence, the Trump administration is remarkably consistent with previous administrations, including Obama. Additional military support in Iraq, statements of support to Japan and South Korea, Covert ops in the Arabian Peninsula and commitments to spend more on defence. So far, so Republican. Even on NATO, an area often attacked by Trump in his speeches and tweets, the actual messaging to Europe has been more focused on “we value NATO, but you need to pay more”. This again is hardly new. In fact, the last five Secretaries of defence (under Bush and Obama) have said the same thing publicly.

On law and social justice, the reality of what is happening is also far less controversial than the noise. The reforms to H1B visa are one example. While portrayed as a Trump attack on skilled labour, the area has been under review for years, with Obama considering raising the minimum required salary to $110,000 and Trump considering similar numbers. Even the delay in processing within 90 days, appears to be more a product of overworked government agencies than a specific anti-migrant move. Trump’s choice of Supreme Court nominee is also a good example. Despite the criticism in left wing circles, Neil Gorsuch was approved to his current position by a unanimous senate vote (including all Democrats) and was in fact a Bush Jnr era appointee. Moreover, Gorsuch is a replacement for a previously Republican supreme court position (he is even seen as a perfect model of the last figure), thus ensuring the balance in the court has barely shifted since Obama.

None of this is to say that the noise and tone of the Trump administration is not having a significant impact on America’s standing in the world and how people in America view themselves and their fellow citizens. However, it is striking how much focus and attention the tone and voice of a world leader receives, rather than the reality of what is happening on the ground.

A final observation I would share is how little resistance there is within the States to the actions of the President. While a number of states are certainly fighting specific actions, such as the travel ban executive order, there is a remarkable lack of strategy behind those who oppose Trump. For one thing, there is no meaningful discussion of candidates who could revive the Democrat party and provide a real leadership challenge to Trump. Nor is there any clear sign of a moderate Republican leader coming through the ranks. One challenge may be the desperate lack of new faces in both parties, but it is interesting that no US political figure seems like a ready replacement for the President. Interestingly as well, the momentum of protests appears to have petered out entirely. In Washington DC, the protest momentum after the inauguration seemed to be growing, but now there has been little to no real action. In part because, I suspect, there are few well organised and funded organisations that are able to sustain the momentum. Instead those in the nation who oppose Trump appear numb and subdued. A tragedy for democracy, and perhaps an answer to the question of whether Trump would seek a second term (and win).