By Michael Every of Rabobank
Elon and Eloi
It was just a few short weeks ago that governments in Australia and the UK were congratulating themselves on how they had performed under Covid-19, and both were enthusiastically looking ahead to getting life back to normal. Today Victoria, Australia is under new lockdown and Melbourne faces six weeks of virus curfews, while in the UK a state of emergency has been declared in Manchester, a trial balloons have been floated to cut-off London from the rest of the country if needs be --which we were recently told would never happen-- and for the over 50s to have to stay at home to allow everyone younger to get back to normal - which were again told would never happen. Oh, for a time machine back to when all was well with the world! (Which was a time when the virus was still out of control in the US, and Brazil, and Mexico, and India, and South Africa, but never mind.)
On which note, the dwindling band of US-China optimists who can remember how recently “Chimerica” was the future should note that the US has placed new Magnitsky sanctions on China over the treatment of Uighurs in Xinjiang. This time it is not just individuals but the Xinjiang Production and Construction Corps (XPCC), a paramilitary organization that employs almost 12% of Xinjiang's total population, is involved in the production of one-third of China's cotton, and which data show back in 2014 comprised 17% of the Xinjiang’s economy. That’s a move with huge implications – and potentially even for Hong Kong, where the September LegCo election has been cancelled, a move dubbed possibly illegal by its bar association.
Meanwhile, the sword of Damocles hangs over the head of Chinese apps in the US. President Trump has made it clear that TikTok is either going to be banned outright or forced to divest to an American owner: and it is also being reported that the ubiquitous WeChat may go the same way. If that were to occur, and given Western alternatives are banned in China, it literally stops much US-China on-line communication. Decoupling it is then; and despite July having seen a surge in Chinese imports of US agricultural goods. Not that China isn’t doing its part on that front, aside from app banning. General Secretary Xi Jinping declared late last month that the economic situation is “complicated and grave”, and spoke of the need for a “dual circulation” approach to growth: this means a focus on the vast domestic market over exports - and importing less too. Because you must contract imports if you are going to see lower exports and still want to maintain a trade surplus.
On a more meta-level, a time machine might also be needed when one sees the “This is so 2020” headline that Elon Musk has been invited by the Egyptian government to come and see that the pyramids were not built by aliens. Presumably Musk is too buy landing astronauts or preparing for his cage-fight with Johnny Depp.
Of course, it was H.G Wells who first wrote of ‘The Time Machine’ back in the late 1800s, a novel which bears a quick summary here for those unfamiliar with it. A British Time Traveller travels from Wells’ time to London in 802,701AD, where he meets the Eloi, a society of small, elegant, childlike adults. They live in small communities within large and futuristic yet slowly deteriorating buildings, and adhere to a fruit-based diet. His efforts to communicate with them are hampered by their lack of curiosity or discipline. He concludes the entire planet has become a garden, with little trace of human society or engineering from the hundreds of thousands of years prior. The Time Traveller theorizes that intelligence is the result of and response to danger; with no real challenges facing the Eloi, they have lost the spirit, intelligence, and physical fitness of humanity at its peak.
Later in the dark, he is approached menacingly by the Morlocks, ape-like troglodytes who live in darkness underground and surface only at night. Exploring the Morlocks' dwellings, he discovers the machinery and industry that makes the above-ground paradise of the Eloi possible. He alters his theory, speculating that the human race has evolved into two species: the leisured classes have become the ineffectual Eloi, and the downtrodden working classes have become the brutal light-fearing Morlocks. Who says that old-school science fiction isn’t about society (or prophetic)?
We should all consider The Time Machine’s lessons as we drift through ‘Eloi’ markets rife with a lack of curiosity and discipline, and where spirit and intelligence appear absent. Especially as danger is still all-too real, albeit due to efforts --quite understandably-- being made to prevent the emergence of future Morlocks in the first place.
Meanwhile, as millions get ready to stay at home again because of the virus we had beaten just weeks ago, and some speculate that an Eloi-esque policy of a universal basic income might be a solution to that problem, let’s consider another work of science fiction from 80 years after Wells, 2000AD’s Judge Dredd. In that dystopian future there is no working class anymore because there is no work, just mass unemployment in post-apocalypse megacities, and a struggle to maintain any kind of social control over a bored-and-frustrated-to-madness population forced to live on a utilitarian universal income. Police, judge, jury, and executioner are now combined in one role to keep control: a bit like social media, eh?
Note that while this might seem a silly season summer Daily, the underlying points it makes are deadly serious. What will our society look like ahead? The odd couple or decoupled? Elois lie Elon, and more Morlocks, or not? And if not, how and what instead? Those are questions markets should ask a lot more frequently than “Is the USD going up or down?” if they want to understand whether the USD will be going up or down.
And for those Eloi who can’t be bothered to do the reading, the recent news-flow pointing to imminent changes both within and between our societies suggests the Greenback might be close to finding a floor, and it being EM FX’s turn to start to swoon again.