Rabobank: Suddenly Every Geopolitical Shock Is Rising To The Surface

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by Tyler Durden
Monday, Sep 20, 2021 - 09:15 AM

By Michael Every of Rabobank

To be Frank, you are being herberts

I spent the weekend mulling over energy, monopoly, trade, supply chains, fundamentalism, geopolitics, betrayal, and war. Coincidentally, I also watched the new Dune, which was pretty, but like watching sand dry. (The 1984 Spice Diver fan-edit better reflects more of the epic novel.)

The second major geopolitical shock in weeks, AUKUS (where Australia is now talking about leasing nuclear subs in order to get them ASAP), has seen France recall its ambassadors to the US and Australia and cancel a summit with the Swiss president, after the latter opted for US F-35s over French fighter jets. There are even suggestions about France leaving NATO ‘s integrated command (again), and France says EU trade talks with Australia are now “unthinkable”. In short, the Franks are being herberts, say some observers.

This is partly due to Macron wanting to show voters he is still Le Kwitzatz-haderach in next year’s presidential election. However, it is also a reaction to dashed French hopes for ‘middle powers’ to band together in our Great Power world. And what is the rest of the EU to do if even the mighty French can be so discarded? Listen to geostrategists, and it’s now time to choose sides, with consequences – or to go it alone in a dog-eat-dog world in which Europe is out-scaled and outflanked and outgunned from both West and East. “The sleeper must awaken” either way.

The UK may have re-found a role back in old stomping grounds, but that does not help it with soaring gas prices (or Europe for that matter). With two UK fertilizer plants shut, CO2 shortfalls may mean looming meat shortages on top of other food items already not on shelves; and higher energy bills; and higher taxes; and Xmas presents not likely to arrive. Additionally, the government is not recognising vaccinations from most other countries except the EU and US, opening a Pandora’s Box. We also see PM BoJo flagging the return of Imperial measures, as in the US, despite the phenomenal cost involved if this were to be done properly. Which reminds me of another political sci-fi epic, ‘Brazil’, and the line: “They’ve gone metric again without telling us!” 

The New York Post claims AOC’s “Tax the Rich” Met-Gala dress was produced by a designer who owes $100,000 in back taxes and whose “Ex-staffers blasted the operation as a sweatshop that relied on legions of unpaid interns working full-time jobs.” That, as House Speaker Pelosi says capitalism “has not served our economy as well as it should. You cannot have a system where the success of some springs from the exploitation of the workers and springs from the exploitation of the environment and the rest, and we have to correct that.” Whether very-wealthy Pelosi is an agent of change or embodies that lack of service is a matter of vigorous social media debate. The ongoing dance over the debt ceiling also continues as normal in DC. Worse, the Senate parliamentarian has reportedly ruled immigration policy cannot be included in reconciliation for the $3.5trn social spending bill, which may see progressive opposition to its progress on the passage, as well as that of the bipartisan infrastructure bill. In other words, even as the US economy loses momentum, the fiscal side is perhaps not going to be stepping up.

‘Baron’ Vladimir, Putin not Harkonnen, saw his United Russia party retain its parliamentary majority helped by: tactics like the video of someone hiding behind a flag literally stuffing votes into a ballot box; a crackdown on the opposition; and YouTube helping to take down opposition videos showing how to best vote tactically. YouTube does like taking things down, doesn’t it?

Meanwhile, on what markets hope is another planet entirely, but isn’t, China has told Wall Street it stands behind its tech crackdown; and Evergrande is giving discounted property to pay off creditors, a throwback to the last days of the USSR. Thursday may see outright default on debt payments, and while the financial impact is likely to be limited, the real economy impact is far less likely to be.

Notably, the universe of Dune is set in 10,191, and is vastly more advanced than our own, but it is not capitalist, but feudal. Frank Herbert really was a visionary, sadly. As Bloomberg underlines today, “The Global Housing Market is Broken, and It’s Dividing Entire Countries”. This late-to-the-party view presumes decades of deliberate asset-price, not wage-price inflation was a bug and not a feature.

The parallels between Dune’s feuding feudal institutions and ours are also clear. ‘Spice’ was oil (laced with LSD) in 1965 when the book was published, but nowadays may be cobalt or lithium, or chilled meats or garden sheds, given strained logistics. The Landsraad is the UN General Assembly, which kicks off this week. CHOAM is OPEC+. The Spacing Guild are our oligopoly of global shippers. The Bene Gesserit sisterhood’s secret machinations to guide governments and create a super-being they can control are the WEF. Human-computer mentats are traders and economists. But where is the parallel to the real power of today - central banks?

On which, Fed-member stock-trading news, which triggered an ethics investigation, has been eclipsed by reports Fed Chair Powell held $1.3 - 2.5m of muni bonds purchased pre-Covid --“a small portion of his total reported assets”-- which were part of the asset pool the Fed bought in 2020. Do we recall in 2009 the New York Fed’s Friedman resigned due to a stock-purhcase scandal, or that in 2017 Lacker resigned over leaks to funds of the Fed’s internal deliberations made in 2012? So are there serious issues at the Fed? Is there sand in ‘Dune’? On which note, is this part of a nefarious plan to see Brainard at the Fed instead of Powell, or just coincidence?

Of course, market mentats don’t care as long as the spice of QE is flowing: “It is by QE alone I set markets in motion. It is by the juice of CBs that trades acquire speed, the reputation acquires stains, the stains become a warning. It is by QE alone I set markets in motion.” So will the Fed keep staining things? On Wednesday we find out what they have to say about QE tapering: please see Philip Marey’s Fed note here. Markets will then understand where real power lies in the universe: which is the Fed. Until the Fed finds out where the real power lies – which is politicians, who are themselves controlled by, and yet can force control of, supply-chain monopolies. Which follow national security, for those powerful enough to force them to change. And we are back to AUKUS.

Dune is an instruction manual of intersecting power balances. However, it is almost impossible to film properly. More so when the sequels see the son of the baby-faced ‘hero’ who starts a jihad that kills billions fuse himself with a sand-worm to become a dictator for 3,500 years, entertained by an endless procession of clones of Duncan “Aquaman” Idaho, which must get pretty tedious given how he is portrayed in the latest movie version. What every screen adaptation of Dune also fails to adequately convey are the underlying messages: 1) Look after the planet; 2) Do not trust A.I. (“Thou shalt not make a machine in the likeness of a man’s mind.”); and 3) Do not trust political leaders, no matter how charismatic. Very libertarian for a feudal system.

And now back to the mantra: “It is by QE alone I set markets in motion. It is by the juice of CBs that trades acquire speed, the reputation acquires stains, the stains become a warning. It is by QE alone I set markets in motion.”