By Michael Every of Rabobank
Goliath vs. Goliath
“And there came out from the camp of the Philistines a champion named Goliath of Gath, whose height was six cubits and a span. He had a helmet of bronze on his head, and he was armed with a coat of mail, and the weight of the coat was five thousand shekels of bronze. And he had bronze armour on his legs, and a javelin of bronze slung between his shoulders. The shaft of his spear was like a weaver's beam, and his spear's head weighed six hundred shekels of iron.”
- 1 Samuel 17
David vs. Goliath: most of us know the basics of that Biblical story well, which is why it always rings true to us, psychologically. We have some of that dynamic playing out in places today. Yet just as importantly, we also have a series of Goliath vs. Goliath battles going on.
US core PCE inflation spiked to 3.4% y/y on Friday, but one could interpret it more benignly if one strips out base effects, etc., etc., – which some takes did. However, ongoing supply-led inflation is nowhere near ending, with shipping container prices still rising sharply. Somebody is going to be paying for that for many months to come. Of course, markets will keep gargling the “transitory” bong water right up until the Goliath at the Fed panics, but it does not mean that inflation scaled for Gath isn’t being seen. Lumber may be going down like a giant with a stone embedded in its forehead, but many other things are not.
President Biden has been forced into a political U-turn over his public pledge to only sign an infrastructure bill if it came to his desk along with the American Families Plan: now he says he will sign the infrastructure bill alone, after Republican support for the suddenly-2-for-1 package crumbled. There were other U-turns over the weekend too: on the Golan Heights; and as the US military attacked Iran-backed militias in Iraq, even as negotiations over the Iran nuclear deal continue. And in the background, Trump political rallies are back even without Facebook and Twitter: the first in Ohio got 2 -3 million online viewers, apparently. What does that portend?
In a very different camp to Trump, Dr Bret Weinstein has escalated his free-speech/thought feud with YouTube, moving to a new Odysee platform and stating he intends to rally others as a collective ‘David’ to slingshot a stone at the internet Goliath. (He states Elhanan actually killed the Biblical giant: or do unelected, opaque online ‘fact checkers’ dispute it?) This as major US tech antitrust legislation moves through Congress, and a reformer is in place at the FTC. Imagine the ripples if this all goes somewhere meaningful.
On Covid, there is yet another Aussie lockdown in Sydney and Darwin, where vaccination programs have dawdled, and the dreaded Covid Delta variant has somehow managed to sneak in despite closed borders. On one hand that is further dovish fuel for the RBA ahead of its next meeting: yet that presumes they were ever seriously contemplating being hawkish anyway. Trying to be the David pointing out that the Aussie establishment Goliath likes equally giant house prices is not really a winning strategy: only stones and slingshots await.
In Europe, as with Aussie housing regulators, the Guardian reports “the spectacle of a genuine collapse, a panic-fright. Welcome to the anatomy of a bottling…a world of stumbles, flaps and panics.” It is referring specifically to the defeat of the Dutch national football team (“an orange soufflé”); but this also applies to the humiliating Franco-German climb-down over their proposed EU-Russia summit. President Macron claims he is confused why Central and Eastern Europe trusts the US more than the EU on defense: how many French and German soldiers are stationed in Poland, Bulgaria, Romania, or the Baltics? The same Guardian headline applies to the wipe-out for Macron’s party in French regional elections - and for the Far Right of Le Pen, who failed to make any gains. And it could apply to Chancellor Merkel lobbying to refuse EU entry to all Brits, vaccinated or not, which is also going to be rejected by EU members who get to set their own (tourist) entry requirements.
On a more worrying front - literally - Bloomberg reports India has moved 50,000 troops to the Chinese border, and now has 200,000 stationed there in “an historic shift towards an offensive military posture against the world’s second-biggest economy”. While previous deployments were aimed at blocking Chinese intrusions, the latest reportedly allows “Indian commanders more options to attack and seize territory in China if necessary in a strategy known as an ‘offensive defence.’” This is in response to a Chinese build-up, including the construction of airfields, runway buildings, bomb-proof bunkers, fighter jets, long-range artillery, and tanks. Markets will ignore the very fat tail risks inherent in two Asian Goliaths acting like this because of the liquidity provided by the US central-bank giant - yet the latter has no real sway in this sphere.
Meanwhile, top-secret UK military plans were just left at a bus stop, in the same weekend that Health Secretary had to resign for passionately kissing one of his staff, thus breaking both his marriage vows and his own Covid rules. Staying in the UK, authorities have just banned Binance, striking another blow against all things Crypto. The only thing to really note on this is that between the two sides (crypto day-traders and central banks/regulators), David is ultimately going to lose for once – yet ironically thinks he is the Goliath.
In China, not only has Hong Kong’s Apple Daily media closed down (by not being allowed to pay its staff salaries), but this morning the former chief editorial writer was arrested at the airport, and has been charged with “collusion with a foreign power”. The White House has already put out a statement attacking the closure of Apple Daily – and two top US senators were already pushing for the US to impose further sanctions over the issue under US legislation that makes such steps obligatory: how will they react to this development? Of course, were new sanctions to be seen, all foreign firms complying would now be in open breach of China’s countervailing law. Tellingly, over the weekend the CEO of US sportswear giant Nike stated his company “is a brand of China and for China” – which generated a withering response from Senator Cruz over what “Just Do It” means.
As I said at the beginning, most/many working in markets have an individual deep-seated psychological/moral belief that David wins vs. Goliath - but in reality they usually trade as if Goliaths win endlessly and effortlessly. They also have no idea about how to trade two Goliaths going at it. They don’t want to imagine that one logically has to win – or that Gath has to be divided if it is to be a draw. Simple memes like our current “buy all of the things because central banks” won’t hold in that kind of environment.
Neither will greedily working out the current market price of five thousand shekels of bronze and six hundred shekels of iron.