India: Carefully Seizing the Day

India’s aspiration of rivalling China for regional political and economic supremacy may seem to have been ruined by the Corona pandemic’s intervention. Prime Minister Narendra Modi’s stated goal of growing India into a $5 trillion economy appears more distant than ever. Of all the world’s major economies, India has suffered most in the wake of the viral outbreak which prompted the government to order and maintain an exceptionally strict national lockdown. The International Monetary Fund (IMF) expects the country’s GDP to contract by 10.3 percent. Before the outbreak, India enjoyed the tail end of a sustained growth spurt and was slated to add 4 percent or more to its output in 2020.

Earlier this month, market watchers expressed disbelief when the Modi Administration unveiled, belatedly though with great fanfare, its emergency support package, promising to inject all of $10 billion into the $2.7 trillion economy to encourage consumer spending and help cash-strapped states. The amount represents, if anything, a rounding error and only stands out for its diminutive size.

In her presentation, Finance Minister Nirmala Sitharaman emphasised the government’s unwavering commitment to fiscal prudence. However, this year’s budget deficit is likely to hit 13 percent of GDP as revenues collapse. Sitharaman did boost capital expenditure with an extra $3.4 billion for infrastructure projects. Meanwhile, states can tap a $1.6 billion credit facility to catch up on outstanding bills and other unmet liabilities.

Shopping Spree

Keeping with tradition, New Delhi also came up with an intricate scheme to permit some civil servants and workers at state-owned companies to use their holiday and travel allowances for a spending spree instead. Government employees may also access a Rs10,000 ($135) credit line, payable in ten easy instalments, to spruce up the festive season.

Almost incessantly, New Delhi expresses hope and confidence that the battered economy may soon return to buoyancy, exuberant or otherwise, as the daily infection rate earlier this week dropped to a 3-month low. A government panel of experts said that the outbreak has now peaked and may be fully checked by February. However, independent observers cast doubt on the rosy picture. At the Indian Institute of Management, Health Economist Rijo John wonders how anybody can say that the pandemic is on the wane: “We may have peaked for now, but that doesn’t exclude the possibility of future surges.”

The Indian Council of Medical Research concluded in August that about 6.6 percent of the country’s 1.4 billion inhabitants had already been infected by the novel virus. Most analysts agree that probably only 5 percent of infections are confirmed and reported. As the pandemic spreads outwards from the cities into the countryside, the presumption is that official numbers may continue to decline whilst the number of unreported cases increases.

The Modi Administration is anxious to step on the economic accelerator and cash in on China’s troubles. India makes no secret of its ambition to replace its northern neighbour and nemesis as manufacturing hub and starting point of rerouted global supply chains. The country seeks to leverage its comparatively good credentials in governance, transparency, and the rule of law. Though by most Western standards India may still have some catching up to do, the country is eons ahead of the secretive Middle Kingdom and its opaque laws and peculiar corporate ethics.

India’s biggest pull is, of course, its regionally unrivalled strength in engineering, bristling as it does with untold cohorts of smart, talented, and eager graduates who deliver stellar work for a fraction of the cost in Europe or the US. Not confined behind a draconian firewall or deprived from participation in lively debates with their peers, Indian engineers are much more part of the globalised world than their Chinese colleagues.

Urgency

The debate about the future of economic policy has gained an extra layer of urgency after forecasters warned that an estimated 200 million Indians may slip back into poverty, erasing the social advances of two decades. The government has so far been reluctant to prop up domestic demand, which represents 60 percent of GDP, via a more aggressive fiscal and monetary response.

Contrary to central banks in other major markets, the Reserve Bank of India (RBI) has pursued a quantitative easing ‘lite’ policy and repeatedly resorted to ‘Operation Twist’ – now in its fourth iteration – by buying up government bonds with long maturities and selling those with short tenors in an attempt to drive down yields. This form of yield control was pioneered by the US Federal Reserve in the 1960s and rediscovered during the global financial crisis of the late 2000s. The advantage these swaps is that their net impact on the bank’s balance sheet is zero.

Under Governor Shaktikanta Das, the RBI has become somewhat of a cash cow for the government by funding the gaping budget deficit through higher dividend pay outs and the transfer of excess reserves – raising questions about the bank’s independence. Former RBI deputy governor Viral Acharya views the transfers as the ‘creeping monetisation’ of the deficit and quit his job last year over the undermining of the bank’s independence.

Development Economist Jayati Ghosh of the Jawaharlal Nehru University in New Delhi is not optimistic: “This is probably the worst situation Indian has been in since independence. People have no money, and no-one is going to invest when there is no market.” Ghosh fears that the country may lose its cherished place as the world’s fifth largest economy after GDP slumped by 23.9 percent in Q2.

Though many of India’s problems predate Modi, his administration has done little to noticeably improve the business climate. Whilst the country has steadily moved upwards on the World Bank’s Ease-of-Doing-Business ranking, fundamental issues such as complex land ownership legislation, restrictive labour laws, and the staggering lengths of red tape that straitjacket even the simplest of business propositions have remained largely unaddressed.

Modi’s impulsiveness has compounded the problems. His well-advised but ill-executed currency reform (or purge) that invalidated 90 percent of the country’s paper currency in 2016 was meant to stamp out corruption and encourage digital payments. Instead, it left people and businesses strapped for cash and severely disoriented – and steered the economy towards the doldrums.

Ticket to Ride

Likewise, Modi’s imposition of a strict national lockdown on March 24 instantly caused a Great Migration of city dwellers who feared they might starve whilst imprisoned in slums and decided to flee the urban death trap and head back to their villages, spreading the coronavirus as they walked, pedalled, or hitchhiked to the countryside. Most economist consider this snap-decision the root cause of India’s twin crises – the 8 million recorded covid-19 cases and the economic meltdown.

Yet, the Modi Administration is not entirely without options. Standard & Poor’s just reaffirmed India’s sovereign credit rating at BBB- with a stable outlook – the lowest classification that still is investment grade – and expects the country to bounce back vigorously in 2021. With China much out of favour in the United States – and unlikely to benefit from a possible Biden victory – and increasingly unpopular in Europe, India holds a golden ticket.

The country is unreservedly popular, deemed inoffensive, and considered a natural friend and ally by many in the US and Europe. Whilst Modi does possess a recalcitrant streak, his shenanigans bear no comparison to those of the iron-fisted authoritarians of Russia and China. If he plays his card(s) right, India’s moment may arrive before long. That is, of course, an ‘if’ of monumental size.


When It Pours, Rainy Day Funds Help – A Little

[caption id="attachment_17686" align="alignright" width="300"] Congressional Budget Office - via LinkedIn[/caption]

Both the United States and the United Kingdom have joined the increasingly crowded ranks of countries sustaining a debt load equal to, or greater than, their national income. The US Congressional Budget Office has warned that over the next decade, the fiscal deficit will rise to 5.4 percent, more than triple its historic average of 1.5 percent.

In the UK, the national debt ballooned from 74.5 percent in 2010, when the Conservative Party reclaimed No. 10, to 84.7 percent in March, at the end of the 2019-20 fiscal year and just before the pandemic clamped down on economic growth. A full decade of modest, yet consistent, economic growth was wasted as the Conservatives – again – failed to live up to their reputation for fiscal rectitude.

Elsewhere in Europe, governments – including those corralled into the much maligned ‘Club Med’ – managed to turn deficits into surpluses and pay down debts. At the end of last year, the debt-to-GDP ratio of European Union averaged out at 79.3 percent with 16 of its (then) 28 member states meeting the Maastricht Treaty criteria that impose, amongst others, a debt ceiling of 60 percent. The same applies to pre-pandemic fiscal accounts with 15 EU member states and all four associated EFTA members registering a surplus.

The well-travelled traditional paths to deficit and debt reduction – economic growth, spending cuts, and printing money – are presently cut off and likely to remain so for the next two years or so. Even though these escape routes are blocked, both the International Monetary Fund (IMF) and World Bank have been clamouring for the immediate opening of fiscal spigots to keep corona-hit economies on life support, ready to snap back to growth once the emergency is over.

However, the monetary toolboxes of the US Federal Reserve, the Bank of England (BoE), and the European Central Bank (ECB) have largely been depleted. No matter how much freshly-minted cash is thrown at economies, most refuse to show any sign of inflation – a sure-fire precursor to, and engine of, growth when applied in moderation.

Not Now

World Bank Chief Economist Carmen Reinhart in early October urged countries to fill their war chest with new debt to fight the pandemic. A former Harvard professor who researched the economic impact of financial crises with economist and chess grandmaster Kenneth Rogoff, also of Harvard, Reinhart argues that during a war, costs are largely irrelevant: “You figure out how to pay for it afterwards.”

Reinhart recognises that emerging market economies have a lower tolerance for debt than advanced ones and predicts a major debt crisis once the pandemic has run its course: “The pandemic and its economic impact present a crisis with no historic precedent. We are at levels not seen since the 1930s. This is why we need to talk about debt write-offs.”

Reinhart worries about the opacity of the global debt markets which tabulates mostly bond issuances but largely ignores bilateral lending which often involves contracts with non-disclosure clauses: “As a consequence, the private debt market and multilateral lenders are working on the assumption that debts are lower [than they really are].”

Emerging economies depending on outside financing have seen conditions worsen considerably over the past few months as investors departed and capital flows reversed, hampering central banks whilst they try to keep loose monetary policies in place as part of their response to the pandemic. The central banks of Hungary and Turkey have started to raise interest rates as the forint and lira came under pressure. Brazil, South Africa, and Russia also suffered a sharp devaluation of their currency which signals a tightening of financial conditions and a possible future cash crunch.

Raising Debt

According to numbers compiled by the Institute of International Finance (IIF), emerging market countries have raised $145 billion on bond markets since the start of the year in addition to another $630 billion raised domestically. These countries benefitted from the trillions in liquidity provided by the Fed, ECB, and other central banks, and from the emergency credit facilities set up by the IMF and World Bank.

Due to the relatively short maturities of most new bonds issued by EM countries, a debt crisis seems all but inevitable. IMF Deputy Director of Strategy, Policy, and Review Jeronim Zettelmeyer warns that the number of countries at high risk of a financial crisis has increased dramatically: From 3 to 8 for advanced economies, and from 15 to 35 for emerging markets. According to Zettelmeyer, a few countries have already lost access to bond markets and may be in trouble.

These early indicators of trouble ahead didn’t stop IMF Managing Director Kristalina Georgieva from repeating Fyodor Dostoyevsky’s advice, dispensed in Crime and Punishment: Only one thing matters – to be able to dare. On a side note: the novel’s protagonist Raskolnikov, wrecked by guilt, ultimately confesses and is sentenced to eight years of penal servitude in Siberia. There are, perhaps, too many parallels for comfort as memories of ‘lost decades’ resurface.

Europe

Almost as soon as the pandemic’s scope became clear, the European Union unceremoniously ditched the financial constraints to which the nineteen eurozone member states were subjected. Almost sheepishly, Brussels followed Germany’s cue after Berlin scrapped its ‘schwarze null’ policy which outlawed deficit spending. Europe’s ‘frugals’ almost immediately flexed their financial muscle and embraced a ‘whatever-it-takes’ philosophy to weather the storm. The display of shock-and-awe financial fiscal firepower is expected to tack an average of 15 percentage points to the ‘frugals’’ debt-to-GDP ratio. That said, not a single one of the EU’s six Triple A member states is expected to lose its prized top rating.

The UK is, however, a different story as the country not only battles the pandemic but must also face the imminent end of the Brexit transition period during which it maintained unfettered access to the EU’s single market. If a trade deal is forthcoming, it is expected to be a skeleton agreement to which ‘opt-ins’ may be attached over the months and years ahead – undoubtedly involving tortuous and possibly acrimonious negotiations.

Without much in the way of financial buffers or wriggle room built up when times were still good, Chancellor of the Exchequer Rishi Sunak is exploring the edges of the possible, including a possible tax hike to be unveiled in his November budget.

With the Treasury leaking like a sieve, both literally and figuratively, a series of instantly controversial proposals have emerged, including a cut in pension tax relief and increases in capital gains and corporation taxes. The latter, it is whispered, could go up from 19 percent to as much as 24 percent. The rate adjustments seek to raise an extra £20 billion for the fight against covid-19. Meanwhile, the Office of National Statistics (ONS) revealed that the UK national debt broached the £2-trillion mark for the first time ever and will soon equal the country’s annual economic output.

Over in the EU, all eyes are trained on the rather dismal performance of the price index which continues to slump into deflationary territory. Earlier this week, ECB President Christine Lagarde announced that the eurozone suffered its third consecutive month of deflation. ECB policymakers are concerned that the eurozone may emulate Japan with a scenario of negative interest rates, sub-zero inflation, and weak growth.

The silver lining to this gloomy picture was provided by the surprisingly strong economic bounce back – almost 10 percent – registered over the third quarter. However, 2020’s final quarter promises to disappoint as most EU member states were forced to reimpose restrictions, ranging from symbolic to draconian, and order the closure of public venues in response to the pandemic’s equally forceful bounce back. Given the darkening outlook, Lagarde is likely to intervene in early December with yet another stimulus package – hoping, if not expecting, a different outcome.


Tales of Shopkeepers, Trolley Cops, and Markets

[caption id="attachment_17710" align="alignright" width="300"] The Welsh border. Photograph: Jude Rogers.[/caption]

Shopkeepers in Wales have reported a disconcerting increase in the number of scarcely clad patrons visiting their premises, often sporting nothing more than underpants and a facemask. The quasi-streakers roaming the aisles of Welsh grocery stores and pharmacies are on a mission to highlight the absurdity of the ‘firebreak’ lockdown ordered by the devolved government of First Minister Mark Drakeford which outlaws the in-store sale of ‘non-essentials’ – including clothing.

The official list of approved essentials offers case study, as fascinating as horrifying, of micromanagement and its many ills: Socks are included on the list of basic necessities, but tights, stockings, and shoes somehow didn’t make the cut. Magazines and newspapers may be sold, but not books which are imprisoned on shelves cordoned off with black and yellow crime scene tape.

Toilet paper is, of course, essential to the preservation of dignified human life as are greeting cards and stationery, though DVDs, video games, and boardgames – or anything else that could provide wholesome family entertainment during prolonged periods of house arrest – are verboten, save for beer and liquor.

Sanitary pads and baby formula were initially excluded as well until a mighty spat erupted that prompted the hapless first minister to backtrack and recommend shopkeepers use their ‘discretion’ on the selling of non-essentials. The Welsh government’s shopping list has now been amended to include cling film, kitchen foil, clothes, nappies, baby toys, and a range of sanitary products, amongst others.

Trolley Cops

Still, earlier today rumours circulated that the sale of pumpkins was being banned by zealous checkout assistants over suspicions that shoppers could use the winter squash for other than nutritional purposes. This probably falls roundly, as it were, in the fake news category but credible reports over ‘trolley cops’ inspecting customers’ groceries for contraband and ordering the summary expulsion of any item not officially sanctioned, illustrate the utter madness that has been unleashed by the Corona Pandemic.

The world as it existed up to March has been replaced by an at times dystopian reality that now has regional governments emit edicts to regulate the minutia of civil life. Whilst only a handful of vociferous fringe dwellers continues to deny the need for lockdowns and other restrictions on mobility – and rebels against such measures – most governments fail to lead by example and are somehow unable to properly communicate their grand strategy – if they have one – for countering the pandemic.

Earlier this month, British Prime Minister Boris Johnson launched his world-beating ‘moonshot’ with the inevitable aplomb and fanfare that such an event mandates, only to watch it misfire almost instantly. Outsourced to private contractors, engaged on terms shrouded in secrecy, the government’s national test-and-trace programme has turned into an embarrassing £12 billion fiasco. One company even managed to insert a ‘no penalty’ clause in its £410 million government contract, ensuring it gets paid in full even if targets are missed. And that was what happened: In September, the company managed to trace just 58.6 percent of the positive contacts where it had promised to reach 80 percent ‘or more’. It soon transpired that management had hastily mobilised a small army of untrained teenagers to do the tracing – on zero-hour contracts.

The Fringe

Given the sheer amount of bumbling, it is a small wonder that more people have not joined the fringe where the suspicion reigns that corona is part of some sinister conspiracy hatched to deprive citizens of their freedoms. However, encouragement may be sourced from the fact that many governments have been unable to organise even a proper call centre. Plotting a sinister global power grab in deep secrecy seems a few bridges too far for the present cohort of political luminaries.

The ineptitude is, thankfully, not limited to the UK. Earlier this week, the track-and-trace network that was set up to map the spread of the novel virus in Berlin – a corona hotspot – collapsed, prompting state Health Minister Dilek Kalayci to ask people who tested positive to self-quarantine and urge all those they have been in contact with to do likewise – before contacting the authorities.

Whilst France prepares for its second full-blown lockdown and Germany tightens the restrictions on social mobility, European markets took a nosedive as investors belatedly realised that the thrilling third quarter was nothing more than a dead-cat bounce. By mid-week, Europe’s benchmark Stoxx 600 had accumulated a 6 percent loss over just three days of trading.

In the US, the S&P 500 on Wednesday recorded its biggest single-day loss since June and retreated 3.5 percent whilst on course for its worst weekly performance since the March market crash. The bear sentiment soon infected the commodities market whilst portfolio managers sounded the alarm and warned in rare unison that a second full lockdown would raise questions about the corporate survival rate in particularly hard-hit sectors such as the airline, cruise, hospitality, and live entertainment industries.

The oil and natural gas sector is also being crushed by a marked slowdown in demand, and the attendant slump in prices, plus the rapid ascendancy of renewables. So far this year, the sixteen oil and gas blue chips included in the Stoxx 600 have seen their market capitalisation tumble by an average of 53 percent. An estimated €360 billion in value went up in smoke. Shell, Repsol, Eni, and BP have each lost more than 60 percent of their value in barely ten months. This week, shares in Shell touched a 25-year low. Investors have not been overly impressed by solemn pledges to green the industry and promises to that effect were met with either incredulity or indifference.

Next week promises to be little better with markets expected to hold their collective breath as the US elects a president. The possibility of a contested outcome pushed the Vix volatility index to 40.7, more than double its long-term average.

Saving Bookstores

There is, however, also a bit of good news to report. Readers in the US and Europe rescued two of the world’s most iconic bookstores. After its owner Nancy Bass Wyden revealed that her Strand Bookstore on the corner of Broadway and East 12th Street in Manhattan was facing extinction, booklovers rushed to the rescue and placed more than 25,000 online orders over the weekend, bringing in well over $200,000 in sales and briefly crashing the website while surfing the stock of new, used, and rare books.

Founded in 1927 by Benjamin Bass, a Lithuanian immigrant, with $300 in cash, the Strand Bookstore survived world wars, market crashes, the Great Depression, and the rise and fall of big box stores and e-books. The grand store even held its own against behemoth online retailers. With 18 miles of books spread over four floors, the distinctive store employed 188 staff before the pandemic. Most have been furloughed. Ms Bass Wyden promised that the Strand Bookstore would remain open until after the festive season when she will re-evaluate its prospects.

In Paris, France, the equally iconic Shakespeare and Company bookshop was also saved by loyal patrons. On Wednesday the store’s management revealed that it had burned through all its savings after suffering a loss in revenue of 80 percent since the first wave of the pandemic struck. Store manager Sylvia Whitman asked customers ‘who can afford it’ to order books online. She has since been deluged with orders.

Shakespeare and Company is a Paris landmark made famous by writers such as F Scott Fitzgerald, Ernest Hemingway, TS Eliot, James Joyce, Allen Ginsberg, and James Baldwin – amongst a many other erudite greats who not only bought books at the store but also shacked up in between the stacks and rows of literature for days and weeks on end. In return for a place to spend the night (and the day), they’d help sort new arrivals and offer advice to patrons. Over the decades, the ‘socialist utopia masquerading as a bookstore’ welcomed more than 30,000 ‘tumbleweeds’ as the literary strays are affectionately known.


Big Tech Five Cash In on Pandemic

Big Tech is on a high. Yesterday, four of the five FAAAM giants published their quarterly results and surprised Wall Street analysts with a stronger than expected revenue growth over Q3. Year-on-year, the quartet (Facebook, Alphabet, Amazon, and Apple) registered an 18-percent leap of sales to $227 billion, beating forecasts by four percentage points. After-tax profits registered a 31 percent hike to come in at $39 billion.

Big tech handsomely outperformed the overall market with S&P 500 companies jointly suffering a 2 percent decline in revenues, and earnings taking a 17 percent hit. Microsoft, the granddaddy of the group, reported its quarterly results on Wednesday and was promptly castigated by investors who shore 4 percent off the company’s stock price even though revenue and earnings numbers also surpassed expectations, albeit narrowly.

Though these internet companies posted stellar results, most investors got spooked by the disconcerting rise in covid-19 cases and the uncertainties surrounding next Tuesday’s US election and more particularly the senate races. Should democrats manage to reclaim control of both the presidency and the senate, and keep their majority in the house, markets anticipate an outsized stimulus bill to be enacted within days of Joe Biden moving into the White House.

The present administration’s inability to successfully negotiate a major follow-up support package, coupled to the unforeseen ferocity of the pandemic’s second wave, brought the bears out of their den.

Sapped Out

Software and cloud services provider SAP sparked the rout, losing $28 billion in market capitalisation in a single day, after it warned that revenue would suffer well into next year. Investors who has previously cosied up to tech stocks as a safe bet in troubled times, suddenly appreciated that their herd mentality had propelled prices into the stratosphere and realised that whatever goes up must eventually come down. Analysts were quick to caution investors that any FAAAM company showing any sign of pandemic-induced stress – no matter how insignificant – would instantly bring the market to its knees.

Bears point to a tech bubble that may have reached its maximum bulk on September 2 with a sudden and sharp surge in call options, and a widely shared euphoria that bordered on mass hysteria. Since then, the tech-tilted Nasdaq 100 has retreated by some 10 percent. Earlier this month, Intel reported a surprise drop in chip sales to datacentres leading some analysts to suspect that the wild and exciting frontier of cloud-computing may have reached its limit with server farms putting the brake on expansion plans.

That would dovetail seamlessly with Netflix’ rather embarrassing failure to deliver the number of new subscribers expected by the market, casting renewed doubts on the company’s ability to keep up double-digit growth, especially considering that pandemic lockdowns deliver captive audiences. That window of opportunity will close once the stay-in-place orders lapse – as they eventually must. That said, analysts have been rather hard on Netflix, considering that the streaming provider expanded its global paid subscriber base to 192.9 million (up 27.3% from Q3 2019), just 2.8 million short of expectations that were, perhaps, tainted by the euphoria prevalent at the time they were raised.

Showstopper

The streaming industry’s rapid pace of expansion is being slowed considerably by the sector’s inability to generate content. Corona restrictions have shut down film production in many parts of the world. Netflix has a slight edge over its competition – Disney+, Apple TV+, HBO, et al – because the company’s portfolio or ready-to-stream content is well filled, if not positively bulging.

Looking at the actual results posted, and ignoring broader market sentiment induced by other factors, the message is clear as the proverbial bell: Online is hot and, yes, offline is not. The Corona pandemic has provided a windfall to an already booming industry. Jointly, the Big Tech Five represent a market capitalisation in excess of $5 trillion – or roughly 25 percent of US GDP – with Apple’s $2tn+ valuation alone worth more than the entire FTSE 100 constellation of corporates (approx. £1.7tn).

As the new normal ushered in by the pandemic speeds up the shift to online business, the tech juggernauts will prove hard to stop. The landmark US antitrust suit against Alphabet (Google’s parent company) and the Federal Trade Commission’s investigation of Facebook may take years to wind their way through the courts and reach any sort of conclusion. It took the European Commission fourteen years (1993-2007) to investigate and successfully sue Microsoft over violation of EU competition (antitrust) law, resulting in fines totalling €777 million. However, by the time a verdict was reached, most of the world had moved on from Windows Media Player – the original bone of contention.

The US Department of Justice (DoJ) has wisely chosen to limit its case against Alphabet to the contractual arrangements it maintains with platform manufacturers to keep Google’s search engine, and ancillary services such as Google Maps and Gmail, as the default on new mobile phones and tablets running on its own Android operating system. Annually, Alphabet pays an estimated $30 billion to keep its pole position on these devices. By keeping its case simple, prosecutors hope to present the courts with the closest equivalent to an open-and-shut case. Alphabet rejects the DoJ claim outright. Senior Vice-President of Global Affairs Kent Walker compares Google’s payments to the money breakfast cereal makers pay for prime shelf space at supermarkets. Law professor Randal Picker of the University of Chicago agrees and says the case is probably not going to be an ‘easy win’ for the DoJ.

Pinprick

Given the sheer heft of the Big Tech Five, any fine imposed at the conclusion of a possible future trial is likely to represent little more than a pinprick. A much more painful approach is being considered by the EU regulators who are drawing up a ‘hit list’ of some 20 large IT companies which will be subjected to tough rules aimed at curbing their market dominance.

Any internet company that controls such a large share of the market that competitors cannot operate without using its platform will be added to the list. Though internal discussions are ongoing, there is broad consensus around the need to limit the power of companies ‘too big to care’.

The European Commission is not planning to impose fines – which the Big Tech Five have come to consider part of the cost of doing business – but seeks powers to force internet companies to open up their platforms and, if nothing else works, to break them up. In parallel, the EU is also drafting an updated Digital Services Act which will force internet companies to assume editorial responsibility for the content posted on their platforms. The new act may also plug the loopholes that enable tech companies to dodge taxes in the countries where they conduct business.

As the stage is slowly set for a clash of titans on both sides of the Atlantic, Big Tech continues to grow on the back of the novel corona virus. Earlier this week, Amazon sent out a warning to investors that it may prove difficult to process the avalanche of orders expected to deluge fulfilment centres over the holiday season. Though the company is currently going through its biggest-ever investment cycle, it proves nearly impossible to keep up with consumer demand.

Amazon is pouring untold billions into its distribution network which now accounts for more than half of total capital expenditure. Over the last year, the company’s warehouse acreage has increased by 50 percent, as has its transport capacity which now includes a fleet of 64 cargo planes in Amazon Prime Air livery. There is truly no stopping Big Tech as it soars to heights barely imaginable. Yet, Newton’s Law of Universal Gravitation has not been suspended, a fact that could and should offer a few sobering thoughts.


Corporate America Weighing Its Options, Drifting Towards Biden

It’s the elephant in the room, quite literally, that most CEOs would prefer to quietly sulk in the far corner rather than upset their rickety apple cart, already wobbling under the strain of the Corona Pandemic. Just about the last thing corporate America needs is for the Republican Party to mobilize ‘lawyers, guns, and money’ to contest the outcome of tomorrow’s vote.

Though traditionally a big tent (tepee?) party just as their Democrat cousin/nemesis, the Republican split between its blue collar, flag waving, bible thumping, and gun toting constituency and the well-heeled, urban, pragmatic, and sophisticated element contains the seed of serious discord, if not a clash of interests.

Perhaps president Donald Trump’s greatest accomplishment was to keep the two factions firmly in the red tent. He not just pandered to both but delivered the goods as well: The MAGA crowd got a few miles of border wall, a small tax cut, and frequent nods of approval whilst the urbanites were showered with a stock market bonanza, a slashing of annoying red tape, and major reductions to their tax liabilities.

Still, the president’s incessant stoking of controversy, his undignified tweeting of quasi vulgarities, and his embarrassing self-aggrandisement has the more cosmopolitan Republican wing worried that their party may have been hijacked by the demographic branded ‘deplorable’ by Hillary Clinton four years ago – a touché moment that may well have cleared the way to the White House for her opponent.

Awkward Honeymoon

The Party of Business never embraced Trump the way with the same excitement the Party of Power did. Invited to join the administration’s advisory councils, most CEOs bit their lips in the idle hope that their sage words might have a mildly benevolent impact. That awkward honeymoon lasted for about a year after which a trickle of desertions turned into a stampede by CEOs anxious, if not desperate, to mitigate the risk of being associated with a possibly bigoted president.

Wal-Mart CEO Doug McMillon rebuked the president for his monumentally inept handling of the August 2017 Charlottesville Incident where a nazi-sympathiser rammed his vehicle into a crowd of protesters, killing one and wounding several others. President Trump refused to condemn the attack, instead decrying the violence ‘on many sides’ before muttering ‘racism is evil’ – only to revert a day later by loudly wondering why the counter-protesters came ‘armed with clubs’ to the Unite the Right rally organised by assorted groups of racists, latter-day confederates, neo-nazis, and doomsday private militias.

Mr McMillon immediately distanced himself and his company from this public relations disaster by reminding Mr Trump that he missed a ‘critical opportunity’ to help bring the country together by ‘unequivocally’ rejecting white supremacism.

After ‘Charlottesville’, corporate luminaries such as Bob Iger (Disney), Elon Musk (Tesla), Brian Krzanich (Intel), and Ken Frazier (Merck), amongst many others, couldn’t get to the exit fast enough, prompting the hapless president to quickly disband his Strategic and Policy Forum in an attempt to save face. Predictably, the ‘deplorables’ cheered ever so loud: Who needs experts when you have genius in charge?

Problems for Solutions

A poll commissioned by Yale University amongst CEOs of major corporations shows that 77 percent plan to vote for Joe Biden. However, a UBS survey of entrepreneurs found that some 55 percent favour Mr Trump. The reason most often given is the present administration’s rollback of cumbersome regulation. The 2017 corporate tax cut was also appreciated. Yet, CEOs of large companies were jarred by Mr Trump’s insistence on looking for problems to fit his solutions. The estranging of trading partners from Europe to China and the tightening of restrictions on skilled immigration have not played well in boardrooms.

“There’s a lot more to having a favourable business climate than just having a lower tax rate,” says Sarah Bonk of Business for America, a partnership of companies working towards better government. Ms Bonk explains that CEOs resent Trump for forcing them to speak out on issues they’d rather ignore such as racism, foreign policy, and climate change: “Most CEOs don’t want to think about politics and would like government to just get on with tackling whatever societal issues demand attention.” Business leaders, she emphasises, need predictability but instead see a failure of government to solve big problems. Ms Bonk agrees that said failure predates the Trump Administration though the increased polarisation in Washington adds to the gridlock and is having ‘tangible negative consequences’.

The US Chamber of Commerce is unhappy as well and irked by partisan tug of war that prevented the release of a third fiscal stimulus package to offer succour to businesses and families affected by the pandemic. The chamber, a conservative bastion, has inched towards the centre and endorsed a record 30 Democrats for the House of Representatives, instead of the token handful, whilst still sanctioning no less than 192 Republican hopefuls.

Corporate Endorsements

Mr Trump received 15 public endorsements from CEOs of companies included in the S&P 500 large-cap index though MarketWatch tabulated twice that number for Mr Biden. Remarkably, former News Corp CEO James Murdoch, son of the disruptive and über-conservative Australian media mogul, has given the Democrat frontrunner his blessing. In July, Mr Murdoch resigned from the News Corp board of directors citing disagreements over its editorial line.

Even as Mr Biden handsomely outpaced Mr Trump in raising cash for his campaign, pundits warn against reading too much into this: Most execs lavishly fund whichever party happens to lead the polls – effectively buying access to the next president – whilst hedging their bets against an election day upset by shovelling a bit of cash to the underdog as well.

Whilst analysts at Moody’s and Goldman Sachs agree that a Biden Administration offers better prospects for sustained economic growth, research by PwC and UBS uncovered rising levels of anxiety amongst CEOs. In particular, the imminent end to the ultra-low tax Trump Era has corporations concerned as do Democrat promises on healthcare reform, environmental regulation, and checks on the sprawl of Big Tech.

Some business leaders also fear the end of their exuberant – if not magical – stock market ride which has, of late, helped to cloak dismal and inferior corporate performance, and sponsored a major disconnect between Wall Street and the real economy as played out on Mean Street.

Yet, the ‘other side’ offers a likewise unattractive palette of possibilities ranging from a mismanaged public health emergency to trade wars and a further alienation of global partners and allies.

However, corporate America is perhaps most vexed by the possibility of a president clinging to power beyond his sell-by date and the tsunami of uncertainty and risk such an electoral stalemate would deliver, up to and including civil unrest. That is most decidedly not good for business.


US Investment Analysts Have Moved On from Trump

Wall Street doesn’t believe in miracles. In anticipation of a ‘blue wave’, US investors pushed the blue-chip S&P 500 up as the nation decides on the next occupant of the White House. With some 100 million votes already cast, pundits almost unanimously discard the possibility of an eleventh hour upset, pointing to the impressive – although perhaps not commanding – lead of Democrat hopeful Joe Biden in the latest polls.

Mr Biden’s edge is about twice as large as the one that seemed to usher Hilary Clinton into the seat of power four years ago. Though Donald Trump has been a fathomless fount of surprises, market analysts do not think he’s able to snatch victory from the jaws of defeat.

On a whirlwind tour of key ‘battleground’ states – apparently Americans cannot supress their need to paint just about everything in the language of war – Mr Trump yesterday sounded quite desperate, at one point warning Pennsylvania Governor Tom Wolf that he was being watched closely: “We have a lot of eyes on the governor and his friends.”

Mr Trump also cautioned volunteer poll workers that counting votes after election day could prove ‘physically dangerous’. He went on to predict street violence should official results not be forthcoming within hours of the polls closing. Twitter immediately flagged Mr Trump’s comments as ‘disputed or misleading’. No US state has ever formally declared a victor on election day.

Trinity of Power

Overseas investors took the hint from US premarket trading and pushed stocks higher across the globe. The European bellwether Stoxx 600 gained 1.7 percent whilst MSCI’s Asia-Pacific index added 1 percent on the buoyancy of China and Hong Kong exchanges. Investors are excited at the prospect of a blue wave that will see the Democrats reclaim full control over the US trinity of political power: The presidency, senate, and house of representatives.

Markets expect a new administration to fast track a shock-and-awe stimulus package of unprecedented magnitude to support families and businesses throughout the pandemic and lay the groundwork for a major public works initiative to upgrade and update the country’s dilapidated infrastructure. Pundits in Washington suspect that Mr Biden will push for nothing less than a New Deal 2.0 to make up for his modest personal charisma, deploying a rather novel and refreshing ‘acta non verba’ mantra.

In a sign of returning confidence in a less hectic post-election normal, the Vix volatility index, which tracks market jitters, retreated 6 points from its October high to settle at 36, still almost twice its long-run average of 20. This elevated level of volatility has renewed interest in macro hedge funds to replace fixed income as an equity portfolio diversifier.

Of late, investors have turned sour on the bond market which many consider overpriced after successive interest rate cuts and the strong demand for quality paper from funds seeking a safe haven in turbulent times.

With limited upside potential, bonds are no longer considered an adequate hedge against a stock market sell-off. George Soros-style macro hedge funds span different asset and instrument classes, ranging from currencies and commodities to options and futures, and are actively managed to cash in on broad market moves sparked by major political or economic events – such as the US election or the Corona Pandemic. These funds usually perform well when investors dump risky assets. As such, macro hedge funds are at their best at times of heightened market volatility.

Heading South in Tandem

Whilst the FTSE All-Share index plunged from a mid-February high of 4,256 to a late-March low of 2,727, the HFRI Macro Hedge Fund index rose 2 percent. However, the countercyclical hedge doesn’t always hold: During the 2008 market commotion in the wake of the Lehman Brothers collapse, macro hedge funds failed monumentally, losing 19 percent of their value on average and causing many spooked investors to look elsewhere for solace. Conversely, macro hedge funds hold little excitement when the bulls have it, producing only lacklustre returns.

In a letter to investors seen by the Financial Times, US hedge fund guru and activist investor Paul Singer bluntly states that bonds are no longer a good ‘diversifier’ or even a ‘reducer’ of risk. Mr Singer warned that stocks and bonds may well go south at the same time, exposing investors loyal to the traditional 60/40 portfolio split to a painful double whammy.

Mr Singer seemed particularly worried that a Biden Administration could undo President Trump’s mega tax break for corporate America, arguably his greatest accomplishment. A rate hike from 21 percent to 28 percent, as considered by some of Mr Biden’s policy advisors, would reduce the earnings of S&P 500 companies by an estimated 9 percent, before factoring in spill over costs and ancillary damage.

Oil and gas companies have most to fear from a Biden win. The Democrat hopeful is determined to ‘transition away’ from hydrocarbons and unveiled a $2 trillion four-year plan to cut harmful emissions and electrify mobility. Mr Biden also want to retighten clean air standards slackened by the present administration and slash federal subsidies to the sector. Moreover, Mr Biden is expected to outlaw fracking on federal lands. Pummelled by the pandemic, and by the shift towards renewables, the oil majors’ market capitalisation has suffered considerably with the S&P 500 Integrated Oil and Gas index shrinking by almost 50 percent since the start of the year.

Back to Black

Meanwhile, the world largest asset manager remains bullish on the US economy and is convinced that the anticipated blue wave will lift all boats. Earlier this week, BlackRock upgraded the weight of inflation-protected assets and instruments in its portfolios to the detriment of treasury paper and the dollar, signalling that the firm expects a large fiscal stimulus to fuel both growth and inflation. However, Wells Fargo Senior Strategist Michael Schumacher sounded a note of caution: “The size of the stimulus bill rises or falls with the size of the potential Democrat majority in the senate. Not all blue waves are created equal.”

Remarkably, dissonant noises are increasingly hard to detect on Wall Street. Listening to both pundits and analysts of considerable repute leaves the impression that President Trump has already been relegated to the dustbin of history, adorned with the shameful epitaph of ‘one-termer’.

That begs the question: What if Democrats win by just a sliver or, improbable as analysts may think, Mr Trump pulls off yet another surprise victory? Worse still: What if the election results in a political limbo with both parties rallying their lawyers to dispute the outcome. Even as sheets of plywood are hastily attached to storefronts and the national guard is mobilised to back up local police forces in case of civil strife, Wall Street prefers to ignore all those ominous signs and looks instead at the bright side of life – and the many upsides of wishful thinking. Fanciful, perhaps, but not by no means devoid of reason.


Lord Waverley: Comprehensive UK Trade Policy Strategy for ‘a New Beginning’

The countdown to the United Kingdom embarking on a new chapter has begun. As I write, there are still many unknowns, the most pressing of which is whether we embark with or without a trade deal.

Uncertainty will prevail until that has been finalised. Trade affects every walk of life: food, goods and services, public services. Jobs and investment in our communities all depend on the UK having successful trade relations with the rest of the world, but to get it right means doing trade differently.

There are essential strategies that should be under consideration. It is time to take stock of what has not worked on trade, and to put it to right so we can build back towards a greener, more sustainable, inclusive economy.

It is time to look at these issues with fresh eyes and to bring a more inclusive approach to finding solutions. The UK is an innovative nation, rich in expertise and ideas and international networks. The challenge is to align our efforts into a shared endeavour covering all aspects of trade.

It starts with having the right approach to trade governance to ensure that everyone — business, consumers, workers, academics and civil society — has a voice. We must be fully transparent and democratic in what we do. Only then will we build trust to deliver better outcomes.

It also starts with bringing together all aspects of trade and looking at the issues in a more holistic way. This is essential for an independent trading nation outside the European Union.

We are not there yet. Gaps in trade governance exist where some constituencies have a voice, but others do not. There are gaps in key strategy areas such as trade in services, and a lack of clarity and connectivity between trade policy, climate, and sustainability. It is of concern to some that we are launching into major trade negotiations without a clear strategy on what we are trying to achieve, and how. These gaps in skills and capabilities have been delegated to the EU for the past 40 years.

UK trade accounts for 30 percent of GDP. Creating a conducive international trading environment, having balanced relations with our trading partners, attracting foreign investment, providing the best possible export support and access to trade finance, ensuring trade — these things are helping us deliver our ambitions. The need to become net-zero on carbon emissions while maintaining high standards is also in the mix. Policy is not simply about supporting exports; it is about all aspects of trade.

Never has creating an inclusive and sustainable approach for trade mattered more to the prospects and prosperity of the UK. In Parliament, we have launched the All-Party Parliamentary Group (APPG) for Trade and Export Promotion, which I have the honour of co-chairing.

The group will bring the voices of business, unions, consumers, academics, NGOs and civil society together into the heart of the national debate to create a genuinely collaborative effort to build consensus around the issues that matter and, crucially, deliver better outcomes from trade.

The APPG is strengthened by having as vice-chairs cross-party representation and recognition of the UK: Scotland, Wales, Northern Ireland and the nine regions of England. The group was founded on exactly this vision: to bring international trade policy, trade promotion, investment, and trade finance under one roof and into an inclusive and representative forum. This allows us to look at issues in a way that offers the best chance of delivering better solutions and outcomes. Parliament can, and must, provide oversight and hold government to account in a way that builds confidence and trust.

The new APPG is ably supported with a secretariat run by an organisation that lives and breathes trade, the International Chamber of Commerce. The collaborative approach with shared endeavour will assist in driving our collective prosperity. It is a unique opportunity to rebuild our economy and our trading links in a fairer and more sustainable way.

Written and evidence sessions will begin in earnest in the new year. In the meantime, we are probing government on a range of issues: the need for a review of the regulatory framework to tackle the $3-5tn trade finance gap, the importance of maintaining standards and rights, trade deals, and transparency on the use of development funds to help accelerate the digitalisation of emerging economies.

Consultation has begun on a core programme and an ambitious outreach programme for the UK regions and parliamentary counterparts in other countries. We will also be reaching out to UK business organisations around the world to invite them to participate. There is plenty to consider. A rethink on the role of government and how we strengthen private sector capability, for example, should also be on the table for discussion.

A new Clause in the Trade bill, currently running its course in Parliament, has been proposed that would require Ministers to report to Parliament on how the benefits of new Free Trade Agreements are to be realised, including the trade and export promotion strategies they intend to adopt. After debate Government responded by agreeing to this in a two- year cycle. This is a commendable initiative to ensure the voice of business and those organisations that speak for and represent it are heard. Lord Lansley, having moved his amendments, concluded that...:”businesses can see how the Government will put resources behind the strategy to help them be more successful in the markets they are looking to in the year, or two, or three, ahead. That is what they critically want: stability in a strategy from government and the resources that they know they can rely on to get into those markets and support them.” This will bring understanding and trust by the private sector in a process that has lain dormant for 40 years.

The private sector plays a larger role in trade support in G7 counterpart countries. There is much to learn from countries such as Japan, which has a highly effective partnership between government and private sector. Too much is often asked and expected of government. Operating as an independent nation means government and public funds need to be focused where they add most value — in areas such as trade policy, negotiations, strategic sector support and capacity building.

This is a team endeavour. The time has now come to cast divisions aside and to work together for the common good.

About the Author

[caption id="attachment_13312" align="aligncenter" width="300"] Author: Lord Waverley[/caption]

Lord (JD) Waverley
Independent Member
House of Lords

Twitter: @LordWaverley

LinkedIn: linkedin.com/in/jdwaverley


Oops, He Did It Again?

[caption id="attachment_17771" align="alignright" width="300"] President Donald Trump[/caption]

Oops, he did it again. The choir of commentators that almost unanimously predicted a Biden landslide has been caught singing from the wrong hymn sheet. Though the outcome of yesterday’s US vote is still very much up in the air, President Donald Trump did much better than any poll had predicted, turning the election in a nail-biting affair with cliff hangers to follow.

Overnight, the much-anticipated blue wave turned into a pink ripple. By early morning, all that remained was slack water. The initially high-spirited reporting on CNN, the standard bearer of mainstream media, gradually gave way to wonder and doubt as the ‘magic wall’ slowly turned red – and did its rather silly name proud in the process.

The impeccable composure and gravitas of the assorted analysts and talking heads ebbed away slowly in the wee hours of the morning whilst they frenetically tapped and swiped the US map to unearth obscure backwaters where a red-to-blue flip might yet take place. As the sun was rising over New England, such a flip did occur in the Badger State and ushered its ten electoral votes into the Biden camp.

However, Wisconsin may yet revert to red for it apparently takes local officials all of two days to tally the state’s 3.5 million or so votes – ‘slow and arduous work’, according to one in-the-know CNN commentator who also helpfully pointed out that the difference between both candidates is razor thin there. Such deep insights – and there were a great many of them – must surely have kept audiences glued to the screen.

A Pinch of Magic

After this momentary surge in fortune, gloom staged an implacable comeback as Nevada promptly flipped the other way, delivering its six electoral votes to the Trump camp. It was back to the drawing board for the analysts who proceeded to tap, swipe, and pinch their magic wall to explore a mind-numbing range of ‘what if’ scenarios involving Pennsylvania, Michigan, and Georgia, amongst a host of others.

The dreary spectacle was interrupted, and livened up, by President Trump who strutted onto the White House stage to the tune of Hail to the Chief and went on to tell the nation that he had basically won the vote and would be sending in his lawyers to stop anyone from proving otherwise. Ever true to himself, Mr Trump accused his opponent of trying to ‘steal victory’ by insisting all mail-in ballots are counted. The president only wants the count to proceed in Arizona, which he hopes to paint red, but not elsewhere. Pennsylvania, with twenty electoral votes and the mother of all battleground states, could yet turn blue when its 1.4 million or so remaining mail-in ballots have been properly tabulated.

As the Democrats watched their landslide unravel, the party’s hopes of regaining control of the senate faded as well after its candidates failed to unseat Republican senators in South Carolina and Iowa. Though Republican incumbents were ousted in Arizona and Colorado, Alabama was lost, resulting in a net gain of plus one for the Democratic Party which needs two more seats if it is to prevent a possible Biden Administration from becoming a lame duck even before it takes office. If the party wishes to dish out a similar predicament to a Trump Administration it needs to secure an extra senate seats, because the vice-president may cast a vote in case of a tie.

Clueless in New York

Investors did not know what to make of the uncertain outcome and were caught short on bets placed to leverage a decisive Biden victory and the attendant multi-trillion-dollar economic stimulus package they had already factored in. The prospect of a divided government with a Republican-controlled senate and a Democrat in the White House is widely considered the worst possible outcome for business.

The post-vote reality drove fund managers back to US treasury paper and gave a boost to the dollar. As demand spiked in early morning trading, the yield on the benchmark 10-year T-bill dropped from 0.9 percent to 0.78 percent before reclaiming some of the ground lost. The dollar strengthened alongside bonds and rose 0.3 percent against the euro, and a fraction more against the Japanese yen.

Should the Republicans hold on to their senate majority, a sizeable fiscal stimulus package to revive a flatlining economy is unlikely to emerge, placing the burden of sparking a recovery squarely on the shoulders of the Federal Reserve. Market analysts quickly surmised that given the scenario presently unfolding, monetary policy is back in the limelight with a spectre of yield curve control and negative interest rates looming large. One irritable trader snapped: “Markets got what they really didn’t want, with a lot of uncertainty.”

In Tuesday after-hour trading, US stock features inched 2 percent higher only to beat a hasty overnight retreat once the first projections started trickling in. Dow futures bounced all over as traders sought to make sense of the news. The NYSE opened in a limbo with light trading and remained there for most of the morning although Nasdaq offered a bit more excitement as a few brave bulls staged a minor run on Big Tech. In Europe, the Stoxx 600 seesawed through the trading day.

Semantics

The prevailing sentiment amongst most market watchers was that nothing good will come out of the US election. A second term for Mr Trump will likely weaponize international trade, undermine multilateralism, drive a deeper wedge between the US and its allies and partners, and burden the Fed with a task it is no longer equipped for. Monetary policy initiatives to alleviate downward economic pressures caused by the Corona Pandemic will, if anything, propel asset prices even further into the stratosphere, delivering a windfall for Wall Street but heralding the downfall of Main Street. This election result – essentially a hung government – may reduce the Trump-Biden toss-up to a question of semantics.


The Book That Trump Rewrote

[caption id="attachment_17792" align="alignright" width="300"] The White House[/caption]

The lesson learnt from the 2020 US election is that 2016 was not a fluke. The surprise triumph of Donald Trump four years ago did not represent a momentary lapse of reason, but rather signalled the demise of the traditional drivers of American politics and the attendant change in voter attitudes.

Whilst the Republican leadership spotted the shift early – and flew with it – Democrats proved rather slow on the uptake. Former Vice-President Joe Biden may yet eke out a victory as the vote count crawls towards a conclusion, his party’s performance at the polls has been far from convincing.

Biden will likely face a hostile senate dominated by irate Republicans and an ether glowing red-hot with fuming talk radio hosts, angrily milking the ‘stolen election’ fib for the next four years by which time it will probably have become a well-established alt-truth, ingrained deeply in the nation’s political lore.

Hart’s Heart

In 1988, the front-runner for Democratic presidential ticket, Gary Hart, dropped out of the race after revelations of extramarital affairs. Whilst a senator for Colorado (1975-1987), Hart regularly reached out across the aisle, receiving much praise for his principled politics including from firebrand Republican Senator Barry Goldwater who called him the ‘most honest and moral’ man he’d ever met. Hart’s spectacular fall from grace was sprang from a simple premise: A man who lies to his wife will likely lie to the American public as well.

Fast forward a generation to realise how quaint and trivial the triggers of Hart’s downfall seem today. New York Times fact checkers tabulated well over 10,000 dubious statements proffered by a US president who, incidentally, has a rather stressful and expensive liaison with marital vows. The newspaper stopped scrutinising Trump’s words in April 2019, considering the job an exercise in futility due to the overwhelming volume of doubtful claims emanating from the White House.

The Democratic Party’s attempt to counterbalance their thundering opponent with a candidate of impeccable character, donned in considered reason, and draped with the regalia of moderation has backfired. It may have been a cheap shot, but President Trump did have a point when he christened Biden ‘Sleepy Joe’.

Rambling Man

The man who may shortly move into 1600 Pennsylvania Avenue NW has many qualities, but – alas – charisma is not one of them. Speaking outside his campaign headquarters in Wilmington, Delaware, on election day, Biden drove the assembled reporters to near desperation by rambling on – drone-like – about his youth and how he first found out about systemic racism and how horrified he was by this discovery and how he tried to help his poor downtrodden black friends and how it all left an indelible imprint on his young impressionable mind and how… …yawn.

Against this uninspiring automaton of political correctness, the Republicans launched an unguided missile ready to go ballistic at a moment’s notice and with a take-no-prisoners and spare-me-the-details attitude. Trump is a man of his time where Biden is not. However, that says more about the zeitgeist than it does about either Trump or Biden.

A great many Americans, given as they are to swagger, extravagance, and individualism, recognise in Trump a kindred spirit – a man fighting the machine and, more importantly, a rebel without a cause: Don Quixote meets James Dean. Angered and a little unhinged by a world moving at warp speed as it zooms past, almost half of US voters have embraced a recast of American Noir leaving the other half to wonder what is wrong with them.

Unless Biden manages to deliver the goods – i.e. provides an economy that roars ahead whilst coming to terms with the narrow moral dimension of US politics 2.0 – he will spend a miserable four years in Washington. Should Democrats wish to maintain and expand their feeble grip on power, they must nibble away at a Republican constituency that apparently is quite forgiving on the excesses of strong leadership. Biden may want to take a leaf from the book that Trump rewrote, unwittingly or otherwise, in particular on the power of the word.

Truth or Dare

French Sun King Louis XIV famously declared l’état c’est moi. President Trump tweaked that to Mine Is the Truth. Repeat anything often enough and it eventually becomes the truth. Throughout the ages, propagandists have lived by this singular insight into the causes of mass delusion. George Orwell, the unlikely socialist hero of American conservatives, owes his lasting fame to it as well.

Happily, when applied with moderation, propaganda works wonders for the economy. Its markets rise, float, or sink on perception as evidenced by the closely watched purchasing manager indices. The first job of the US president, once the election has been sorted and the oath of office has been taken, is to get a handle on the pandemic and kickstart the economy.

Trump wants to fire the venerable Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases since 1984, and reopen the country for business by ignoring the presence of the corona virus whilst trusting that a vaccine may arrive – US Cavalry-style – at the eleventh hour.

Biden proposes an equally gung-ho approach, though from a different angle, starting with a third federal stimulus package of unprecedented scope and cost. To enact such a package, Biden must somehow cow, cajole, or otherwise bend the Republican-controlled senate to his will. However, the political honeymoon that traditionally follows the inauguration of a new administration is no longer. Republican senators, quite possibly egged on by a former president furiously tweeting from the side-line, will not shirk their responsibility of making life as hard as possible for a ‘blue’ president.

Investors may want to prepare for continued market volatility – and a drop, possibly precipitous – of asset prices. After trillions in quantitative easing, equity markets no longer reflect a verifiable reality, but rather a set of alt-truths not unlike the ones that move politics. Nothing is quite what it seems, and facts disguised by fanciful perception have a habit of popping out at the most inopportune moment.


President Trump Silenced by Major Networks

Whilst you were not looking the five largest US tech companies added some $700 billion to their combined market cap since election day. The slightly muddled new political order taking shape in Washington is expected to benefit Big Tech. It heralds a standoff between the White House and the US Senate with little chance of enacting sweeping legislation to curb the power wielded by the likes of Google, Facebook, Amazon, Apple, and Microsoft.

The tech bulls are also emboldened by the absence of a ‘techlash’. Facebook in particular seems to have learnt from its mishandling of the 2016 vote and cleaned up its act by blocking hashtags that were spreading misinformation about the vote count. The social network is also adding ‘friction’ to its sharing function and plans to ‘demote’ content on its news feed that contains dubious election-related claims. On the eve of the vote, Facebook had already suspended political advertising. On Thursday, Facebook took down ‘Stop the Steal’, alleging the group – which attracted almost 320,000 members in under 24 hours – had been set up with the specific purpose of ‘delegitimising’ the electoral process. The company’s moderators also detected ‘worrying calls’ for violence.

Though a minnow by comparison, Twitter received praised for consistently flagging dubious claims and outright lies posted by politicians, pundits, and private users alike. Tweeting from the White House, where he spent most of yesterday sulking and conferring with lawyers, President Trump suffered the ignominy of watching eight of his messages labelled either ‘disputed’ or ‘misleading’. Meanwhile, his aides were desperately trying to keep their boss off the air to save him further embarrassment. It was not to be. Trump burst out of confinement in the early evening to accuse the Democrats of committing ‘fraud’ and trying to ‘steal’ the election.

Outfoxed

At this point, only seconds into the president’s improv performance, all major television networks switched back to their anchors with ABC’s David Muir asking the reporter on the scene to help ‘discern what he is talking about’. MSNBC anchor Brian Williams could not control his rolling eyes and deadpanned that there has been no Trump victory that ‘we know of’. CNBC’s Shepard Smith explained that his network was interrupting the president’s speech ‘because what he is saying in large part is absolutely untrue’.

Though both CNN and Fox News carried Trump’s speech in full, their reporters immediately followed up with rigorous fact checking and flagged the full range of unsubstantiated claims made during the presentation. Fox News, which the US president is known to watch assiduously during his waking hours, has replaced CNN as Trump’s whipping boy of choice. The network was the first to call Arizona for Biden and doggedly refused to back down even after the irate president demanded a retraction from Fox Corporation owner and chairperson Rupert Murdoch who reportedly got annoyed and hung up the phone.

Though Fox News’ notoriously opinionated primetime talking heads bravely continued to parrot the White House line, the network’s newsroom stuck to a more ‘fair and balanced’ approach with several journalists challenging Trump’s claims and assertions. Shut out of most mainstream media channels, the president turned to the rabblerousing online Breitbart News Network, sharing a number of its more colourful stories via Twitter.

It is an article of faith amongst comms professionals that they will stand by their protégé right up to the edge of the precipice – at which point their sense of self-preservation requires them to step back and let go. For all its prestige, power, and pizzaz, the White House is no exception. Public interventions by top presidential aides have all but ceased whilst leading Republicans are stealthily moving away from their now tainted president, creating as much distance as political etiquette and expediency allow. Not a single Republican senator has supported Trump’s scattershot claims of wholesale election fraud.

Steep Hill

Though bipartisanship is no longer a given on many, if not most, of the most pressing issues facing the nation, the US political system as such is proving robust and resilient. Unproven claims of fraud, often based on nothing more than flimsy affidavits, have already been laughed out of court in Nevada and Pennsylvania. Opting for a third time lucky approach, Trump’s lawyers filed a new petition in the Keystone State to invalidate ballots that arrived by mail after election day. The US Supreme Court considered and turned back the case twice before. Eleventh hour Republican appointee Amy Coney Barrett declined to weigh in. She did, however, join her five conservative peers in a statement that the court could still consider the case when asked to do so.

Litigation and recounts are not expected to tip the balance in Trump’s favour. The Pennsylvania case affects at most a few thousand ballots whilst recounts seldom move the final tally by more than a couple of hundred votes either way. Should Biden remain on his present path to victory, he’ll likely secure 300+ electoral votes – 30 or so more than needed to credibly claim victory and too steep a hill to climb for the incumbent.

Also, whilst you may have been looking elsewhere, the number of corona infections has continued to rise with the US on Friday reporting more than 100,000 new cases for the second consecutive day. The news prompted Federal Reserve Chairperson Jay Powell to express ‘particular concern’. Powell cautioned that even without lockdown, economic activity could take a hit as consumer curtail spending.

Dr Anthony Fauci, long-time head of the National Institute of Allergy and Infectious Diseases and whom President Trump repeatedly threatened to fire, already in June told a senate committee that the US case rate could top 100,000 absent a robust outbreak containment policy.

Gone Rogue

Yesterday, the über-conservative podcast of former Trump strategist and whisperer Steve Bannon was permanently banned from Twitter and suspended on Facebook after he called for the beheading of Dr Fauci and FBI Director Christopher Way. Bannon suggested both severed heads be placed atop pikes and displayed outside the White House. Bannon was released on a $5-million bond after being arrested on August 20. He has been charged with defrauding donors to his non-profit group dedicated to building the border wall. Prosecutors allege that Bannon diverted $1 million to his private accounts. A spokesperson for Bannon denied that the former White House advisor had gone rogue and explained that his comments were merely of a ‘metaphorical nature’.


Trumpism 2.0: Message to Survive Delivery Malfunction

[caption id="attachment_17820" align="alignright" width="300"] President Donald Trump[/caption]

A disconnect between the medium and Trump's message deprived the incumbent President of a second term in office. However, seventy million voters cannot be wrong – or ignored. A sizeable part of the US electorate that didn’t burst into celebration on Saturday, after Pennsylvania turned blue and prompted the major networks to call the election for Joe Biden, has the medium to blame for its loss.

Most Republicans chose the message rather than the messenger. Christian conservatives overlooked Trump’s many peccadillos to focus on his pro-life stance. Blue collar workers discounted the president’s silver spoon origins to cheer his defence of legacy industries. Establishment conservatives showed disdain for the man’s uncouth style but did appreciate his deference to privilege and class. Libertarians disregarded Trump’s love affair with potentates abroad but cherished his push for small government at home.

Business leaders recognised an entrepreneurial poser but rejoiced the president’s generous tax breaks. And, finally, flag-waving and gun-toting ‘patriots’ refused to entertain any thoughts about possible collusion with foreign powers but couldn’t be more excited about the president’s clamp down on immigration and his impeccable second amendment credentials. Nearly all Republican constituencies feared an imminent breakdown of law and order should Antifa and like-minded riffraff gain a toehold in a White House ‘occupied’ by bleeding heart liberals.

Poor Medium

For all but a handful of Republicans the poor medium was an acceptable price to pay in order to save Trump's message. A surprising number of ‘Reagan and Trump Democrats’ also stuck to their guns. The anticipated blue wave, presumably riding on popular indignation over Trump’s rather unpresidential mannerism, was reduced to a ripple with vox populi agreeing up to a point but wisely imposing congressional limits on the president-elect’s freedom of action.

The January senatorial twin run-off election in Georgia – which was carried by Biden on the thinnest of margins – offers Democrats but a glimmer of hope: Any whiff of the incoming administration catering to the combative progressive agenda as espoused by New York Congressperson Alexandria Ocasio-Cortez will likely reaffirm the Republicans’ control of the US Senate.

Trump may have lost the election; Trumpism – defined as an almost anarchical mistrust of government – is alive, well, and here to stay. The 45th US president was not the systemic hiccup many held him to be. Though his abrasive rhetoric was certainly out of line, his manifest failure to at least pay lip service to national unity is what ultimately did him in. Most Americans value strength and decisiveness in their president, but also look at the White House for a sense of national purpose, expecting its occupant to keep the nation on an even keel and somewhat together.

Though charismatically rather underwhelming, Biden has built his 47-year career in Washington on reaching out to opponents, meeting them halfway, and being as good as his word. A political operator par excellence, the president-elect realises that anger seldom yields results whereas the pursuit of consensus often does. Hopefully, Biden also realises that he embodies the Washington establishment – a quality that raises suspicion amongst a great many voters who had elected Trump to ‘drain the swamp’ instead of Hilary Clinton who represented said swamp – and must act swiftly to address those lingering misgivings.

Downfall

Almost forgotten in the euphoria of the present moment, Trump entered 2020 on a high. He had survived impeachment, appointed an impressive cohort of conservative judges, disassembled the Islamic State without resorting to overt war, and honoured his promise to limit immigration. Most important of all, he got the economy firing on all cylinders with Wall Street breaking records and unemployment hitting rock bottom.

This American idyll was rudely disturbed by the onset of the Corona pandemic which Trump initially dismissed as nothing more than a harmless flu that would soon peter out, if not ‘magically’ disappear. As the outbreak quickly ripped through the nation, he continued to hold that line; resorting to statistical gimmickry to bend the curve downwards, suggesting a miraculous vaccine would bring immediate salvation, and even proposing bleach as a possible remedy – all the while ridiculing public health experts and branding them ‘alarmists’ and ‘fear mongers’.

After he succumbed to the virus last month and was admitted to a military hospital for treatment with experimental drugs, many Americans realised the error of the president’s ways and woke up to the fact that the pandemic was real – and not a sinister plot hatched by the ‘deep state’. Though the US election did not turn into a referendum on the Corona pandemic, as Democrats had hoped, the glaringly obvious federal mishandling of the emergency did dissipate Trump’s aura of infallibility. After that, no degree of angry tweeting by the president – and his tone became increasingly acerbic, bordering the lunatic – could put humpty dumpty back together again.

Second Chances

A forgiving nation by nature, and always eager to offer second chances, Americans usually have little time for losers and even less for sore losers. Trump was no different, but with an unpleasant twist. Between 1991 and 2009, his hotel and casino businesses filed six times for bankruptcy protection to offload and renegotiate debt.

In early September, the Atlantic Monthly revealed that the president last year told staff members whilst on a visit to France that he did not see the point of visiting the Aisne-Marne American Cemetery near Paris because ‘it is filled with losers’. Unperturbed, he continued to brand the 1,811 US marines fallen in the Battle of Belleau Wood ‘suckers’ for getting killed. Already in 2015, Trump poured scorn on the war record of the late Senator John McCain who languished five years in a North Vietnamese prisoner camp, saying: “He’s not a war hero. I like people who weren’t captured.”

Trump must now own the insults he hurled at others. Conveniently or otherwise, he seems to have forgotten his December 30, 2014, tweet in which he posited that winners are differentiated from losers in how they react to new twists of fate. Perhaps the tweet has been misinterpreted all along and implies that winners must stick to their narrative, come what may.

Trump, now on the verge of turning into a sore loser, did captured the moment – the contradictory and singularly complex zeitgeist of the present – to near perfection. His message still resonates with more the than 70 million voters who distrust mealy-mouthed politicians. In 2016, the electorate got perhaps more than it had bargained for. Biden will undoubtedly tilt the scales towards a much more reasoned equilibrium. He may, however, wish to rein in the more excitedly progressive wing of his Democratic Party lest Trump’s message be relayed to someone smart enough to lend it an air of style.


Lucrezia Reichlin: Data Pioneer Hopes for a New Era of Economic Co-operation

[caption id="attachment_17823" align="alignright" width="300"] London Business School economics Professor &
Now-Casting Economics Chairman & Co-founder: Lucrezia Reichlin[/caption]

Italian economist Lucrezia Reichlin is recognised as one of the pioneers of big data.

Reichlin made history as the first female director-general of research at the European Central Bank (ECB), and currently teaches economics at London Business School.

The Rome native decided to pursue economics at an early age. “Economics is a part of everybody’s life,” she says, “so it is important to understand how income is generated, how it is distributed, how an economy grows, or why some economies are doing better than others, why some countries are doing better than others.”

Reichlin left Italy to complete a doctorate programme at New York University then went on to teach at the Université Libre de Bruxelles for 10 years. It was there, with her colleague and future co-founder Domenico Giannone, that she began the research that led to the foundation of her economics company, Now-Casting.

The two academics coined an economic term with their title (“now-casting” is a contraction of now and forecasting) and provided a methodology for its implementation. Now-casting is defined as the prediction of the present and the very near future, and an analysis of the very recent past. “More broadly we can define it as the exercise of reading, through the lenses of a model, the flow of data-releases in real time,” Reichlin explains.

Policy makers and private investors trust Now-Casting to create accurate and timely economic forecasts from a diverse collection of hard and soft data-input sources, incorporating everything from employment figures and industrial surveys to consumer feedback and social-media posts. It’s a fully automated process which continuously updates.

“If there is a signal to be picked up in the economic data-flow, the Now-Casting model tends to pick it up weeks or months before other forecasts,” the company says. The service provides “a clear and up-to-the-minute gauge of the real economy” as well as “a transparent and quantitative way to read the news flow”.

Today, Reichlin is a non-executive member of AGEAS Insurance Group and Messaggerie Italiane, as well as a trustee of the International Financial Reporting Standards and the Centre for Economic Policy Research. She is also a fellow of prestigious institutions such as the British Academy, and is a regular contributor to international publications. Her cross-sector experience in academia, policymaking and private enterprise gives depth and clout to her opinion.

“The current geopolitical context should reinforce Europe’s motivation to bolster its crisis-management capacity,” Reichlin warned in the pages of the Project Syndicate media organisation. She reminded readers of the international co-operation that predominated when the US and Europe were on friendlier terms, and currency swap lines could be quickly established to stabilise economies.

“Today, by contrast, isolationism is on the rise, with the US taking the lead,” she wrote in March. “The US Federal Reserve consulted no one before implementing its recent emergency interest-rate cut. One shudders to think what would happen if European banks urgently needed dollar funding in this context.”

The pandemic has caused shockwaves for families, industries, and social liberties. It has affected every aspect of our lives, and Reichlin believes the road to recovery will be a long one.

“The COVID-19 crisis has laid bare our lack of resilience, not only in terms of health, but also with regard to the environment and social protection,” she says. “Given this, the EU needs to invest not only in supporting economic recovery, but also in building a more resilient society based on our core values.

“Despite European countries’ shortcomings, they lead the world in terms of social protection and individual rights. They should build on these strengths in order to create fairer, smarter, more sustainable societies. Every aspect of the EU’s pandemic-response strategies should be designed with an eye toward those goals.

“The European Union has always advanced on the back of crises. In this sense, the COVID-19 outbreak could represent a chance for the EU to create a powerful crisis-management mechanism, which pools members’ resources and channels them toward a co-ordinated fiscal policy.”


Markets Move in Anticipation of Boom Times

[caption id="attachment_17836" align="alignright" width="300"] President-elect Joe Biden[/caption]

Yesterday, equity markets the world over went near-ballistic on the news that an effective vaccine had been developed to tame and possibly defeat the novel coronavirus. Already buoyed by Joe Biden’s win in the US presidential election, markets moved even higher after Pfizer announced that a vaccine jointly developed with Germany’s BioNTech was found to be 90 percent effective in late stage trials involving about 43,000 participants.

Pfizer CEO Albert Bourla called the findings ‘a great day for science and humanity’. BioNTech co-founder Ugur Sahin added that the trial result was ‘the best possible outcome’. Dr Anthony Fauci, head of the US National Institute of Allergy and Infectious Diseases, expressed surprise at the vaccine’s 90-percent effectiveness rate and called that ‘just extraordinary’. President-elect Biden remained cautious and warned that it will be ‘many more months’ before every American has been vaccinated and the pandemic brought to an end.

Even though his government didn’t fund Pfizer’s research and development outlays, President Donald Trump sought to claim credit for the breakthrough which he described as an accomplishment of his administration. The pharmaceutical giant immediately moved to distance the company from the White House’s pr-spiel with Senior Vice-President Kathrin Jansen stating bluntly that Pfizer has never taken any money from the US government.

Markets move

Immediately after the news broke, ecstatic investors pushed the blue-chip S&P 500 index up by 3.9 percent at which point profit-taking algorithms kicked in and pulled the index down a few notches for an intraday gain of 1.2 percent. The Russell 2000 index of small caps, said to better reflect the real economy as experienced on Main Street, barrelled ahead and closed the trading day on a 3.7 percent high. The Nasdaq retreated 1.5 percent as investors weighed the impact on tech stocks of an imminent return to societal and economic normality.

The exuberance was tempered, to some degree, by warnings that a global vaccine remains distant as limited production volumes are set to become the next bottleneck. Pfizer’s Bourla revealed that his company can manufacture some 50 million doses of the vaccine this year and an additional 1.3 billion in 2021.

Both the US and Europe have pre-ordered large numbers of doses of the vaccine which will help them move relatively quickly towards herd immunity. Next year’s economic outlook has brightened considerably with analysts expecting a surge in consumer spending as demand pent up during the lockdowns is released. The bulls have it as investors are drawn to stocks that took a severe beating during the pandemic. Shares in airlines, cruise operators, and hospitality companies were amongst the biggest winners in yesterday’s rally.

Rousing start

With global reflation trade off to a rousing start, commodity prices benefitted as well. Emerging market currencies also left the doghouse whilst the dollar and gold lost steam as the demand for safe haven options became less pressing. The yield on the benchmark 10-year US T-bill shot up to 0.9 percent with market watchers predicting a further rise to 1.5 percent should the post-pandemic recovery take off in earnest. Financial stocks rallied too as a result of this rosy panorama.

However, not everyone is convinced that 2021 is destined to turn into a growth fest. Bearish analysts point to the already high valuation of the stock market and wonder how much upside is left before gravity begins exerting its pull. They also argue that the arrival of an effective vaccine was all but a given and has already been factored into the market. Nay-sayers fear moreover that the prospect of an end to the pandemic may prompt governments to withdraw emergency relief to businesses and families sooner rather than later, possibly derailing or delaying an economic take-off.

Wonk Power

US President-elect Joe Biden plans to present Congress with a comprehensive aid bill within hours of taking office on January 20 and expects to get it approved in ten days’ time. Biden promises to free up to $25 billion for vaccine manufacturing and wants to invoke the Defense Production Act to bolster the country’s capacity to produce personal protective equipment.

Although the Trump Administration has so far refused to release the funds and facilities usually awarded to the president-elect and his transition team, Biden is not waiting for a nod from General Services Administrator Emily Murphy, a Trump appointee and self-described ‘wonk’, and is moving ahead from his Delaware headquarters.

Murphy has the sole power to release $6.3 million in federal funds to the transition team and provide secure offices and full access to federal departments and agencies. Biden has been shut out of the State Department which normally routes secure lines to the winning candidate for congratulatory calls from foreign leaders.

Since her appointment in 2017, the GSA administrator has courted controversy by giving ‘incomplete and possibly misleading’ testimony to Congress regarding her role in White House decision making on the proposed move of the FBI headquarters which was halted by Trump who reportedly feared that a commercial developer could turn the vacated J Edgar Hoover Building at 935 Pennsylvania Avenue into a luxury hotel – and take business away from the Trump International located one block down the street. Murphy also has been slow in releasing GSA documents pertaining to the lease of the Old Post Office building and its site – now home to Trump International – to DJT Holdings, a company owned by the US president through a revocable trust.

Aides to the president-elect mull a lawsuit to force the GSA to release funds and facilities to the incoming administration’s transition team. The nonpartisan Center for Presidential Transition, a thinktank of former administrators that helps lay the groundwork for new administrations, urged Trump to ‘immediately begin’ the post-election process and release the resources available under the Presidential Transition Act. In a public message released on Sunday, the centre’s advisory board notes that the president-elect needs to recruit some 4,000 political appointees, including 1,250 whose nomination requires confirmation by the senate.

You’re Fired!

According to bestselling author Michael Lewis, whose 2018 book The Fifth Risk describes the chaotic transfer of power to the Trump team two years earlier, the present administration may be largely unaware of the importance of a smooth transition. At the time, the outgoing Obama Administration had prepared detailed briefs on each federal department and agency, and provided a complete infrastructure for the incoming team, although literally nobody showed up, with some departments waiting for weeks on end after the inauguration to meet the first batch of Trump appointees.

In a recording obtained by news website Axios, Director John McEntee of the White House Presidential Personnel Office warns that any political appointee looking for a new job outside the administration will be instantly terminated. Yesterday, that fate befell Defence Secretary Mark Esper who was summarily dismissed from his job by a Trump tweet. According to White House sources, Trump lost confidence in Esper a few weeks ago after he flatly refused to order the army to intervene in the street protests then taking place in a number of cities, citing the Posse Comitatus Act of 1878 which prevents the use of the military to enforce domestic policy.