By Michael Every of Rabobank
Things Red and Blue
As expected, former President Trump was acquitted in his second impeachment trial over the weekend as only 7, not 17, Republicans voted with the 50 Democratic senators to convict. As also expected, this provides no political closure. Roses are red, violets are blue….and the two flowers don’t want to be in the same bouquet judging from the rhetoric flying around. Indeed, it’s more brickbats all round.
As noted weeks ago, a Republican civil war post Trump now begins in full. Senate Minority Leader Mitch McConnell castigated him while voting to acquit; the Republicans who voted to convict face local party censure; and Trump himself put out a public statement (not over Twitter, obviously) that the MAGA movement has “only just begun”. The US now enters an 18-month-plus period in which Trumpists may try to primary Republican Congressional candidates to deliver both the party and a Congressional majority to MAGA populism in 2022. The global implications of this very national struggle will likely be enormous.
Meanwhile, it’s hardly roses all round elsewhere:
Melbourne is into lockdown again, and Auckland too;
We just had the worst UK recession for 300 years, alongside warnings the British economy will collapse if the government forces firms to repay the vast sums lent to them in 2020 merely to stand still, and as the government still refuses to commit to a timetable to roll back lockdowns;
The White House has stated its “deep concerns” over the WHO’s investigation into the origin of Covid in China, suggesting US global reengagement will mean a struggle over control of such key multilaterals;
Russia says it is prepared to cut links with the EU if the latter imposes Magnitsky sanctions on it, quoting Vegetius: "If you want peace, you must prepare for war". Although whether this includes stopping gas flows in a bitterly cold winter or not (as US prices explode higher) remains unclear, it *is* clear that the EU is never prepared for war of any kind;
On the trade side of which, the US is not going to drop tariffs on EU wine and cheese and other food imports any time soon, just as it isn’t on Chinese products; and
Tanks are rolling into the streets in Myanmar and the internet being shutdown despite the imposition of US sanctions on Burmese generals (and the alleged arrival of both Chinese and Russian “advisors”), showing the limits of US power in Asia.
But central–bank liquidity is still guaranteed come what may, so global markets don’t care at all for such boring brickbats. For them it’s all bouquets all day long. As such, is it any surprise that bubble indicators are starting to flash red all over, from record low US junk bond yields to record negative investment grade bond real yields, to the ‘Buffet index’ of US stock capitalisation to USD GDP? Or that Japan’s Nikkei just hit 30,000 for the first time since 1990? Which is a telling lesson in how long it takes to finally blow a bubble big enough to replace the one Japan blew back in the 1980s: and consider that as we are all told that we are turning more and more Japanese all over.
This central fact was summed up in rare creative fashion by the ECB yesterday, which in Trumpian fashion decided to use Twitter to communicate with the following tweet (which is not a joke):
“Roses are red, violets are blue; We’ll keep financing conditions favourable; ‘Til the crisis is through.” #ECBmyvalentine
Regular readers probably know that this particular Daily is never one to shy away from a rhyming poem challenge thrown down by a central bank. Indeed, we dream of the day the Fed challenges us to a limerick contest over policy:
“There was a young man from D.C.; Who dabbled too much in QE;
Up went all asset prices; Ending up with a crisis;
That crushed all of his authority.”
Or perhaps “Feeling much like our groins met his knee”; or
“Leaving crypto still THE place to be”, given what Bitcoin is going again, and who looks like following its vapour trail into the ether; or even
“What then for our democracy?”, to get all 1930s, which seems particularly appropriate given the whole ‘Roaring 20s’ nonsense out there as the current market meme du jour. But I digress: simply allow me to respond to the ECB in romantic, rhyming-poem kind:
“Roses are red, violets are blue; Do you really need Twitter; For forward guidance anew?”
“Roses are red, violets are blue; It’s US *fiscal* policy; That’s got us all a stew.”
“Roses are red, violets are blue; Do you really believe; Germans will do that too?”
“Roses are red, violets are blue; Your promise means nothing; If long rates go up too.”
“Roses are red, violets are blue; If you peg down the yield curve; Does it say ‘free market’ to you?”
“Roses are red, violets are blue; Then explain what your FX; Will concurrently do.”
“Roses are red, violets are blue; Time to flush all econ textbooks; Straight down the loo.”
“Roses are red, violets are blue; You don’t know what you’re doing; It’s sad, but it’s true”
“Roses are red, violets are blue; This will all get political; Expect real hullabaloo.”
“Roses are red, violets are blue; Many voters hate QE; So they’ll soon hate you too.”