Geopolitical Risk Is Back To Cold War Highs

One month ago, Deutsche Bank made a startling observation: populism has risen to the highest level since World War II.

Commenting on the shocking outcome in the recent Italian elections in which anti-establishment parties got a majority of the vote, DB's credit strategist Jim Reid said that "it's hard to get away from the fact that the overall result was another resounding vote for populism. Indeed over 50% of votes submitted was for a populist party, including of course the party with the largest percentage - the Five Star Movement - and a possible kingmaker in subsequent coalition talks - the Northern League."

The chart below shows Deutsche Bank's global populism index updated for the Italian election result. It shows that the percentage of votes for populist parties on a population weighted basis is around 32% - a level its largely held since the Trump inspired surge in 2016. In fact, you have to go all the way back to the WWII period to find the last time that populism had such support.

A focus on just on Europe shows that the continent with the high double-digit youth unemployment has become a hotbed for anti-establishment sentiment, which has everything to do with the economy, and lack of opportunities, and nothing to do with Russian operatives, much to Samantha Power's chagrin.

Reid's troubling conclusion is that "it's hard to get away from the fact that populism is currently going through an explosion in support at present." Reid also notes that while the above index excludes a vote for Jeremy Corbyn's Labour party but "one could certainly argue that some of his more radical views and policies are populist in nature." And if DB were to include Corbyn's support in the 2017 UK General Election "then our index edges above 35%, eclipsing the 1940s highs, and to the highest since the turn of the 20th century."

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Over the weekend, in a just as troubling segue following last week's geopolitical events, Barclays looked at the variety of events that took place recently and found that, in addition to soaring populist sentiment - as per Deutsche Bank - "geo-political risk is back at Cold War Highs."

Here's Barclays' commentary on the soaring convergence of these two very troubling trends:

The US Office of Foreign Assets Control (OFAC) designated United Company Rusal PLC, a eurobond issuing-entity, as a specially designated national (SDN). This is significant, as US persons owning debt and equity of the entity will have to divest their holdings by May 7, 2018 under a General Licence. This unprecedented step had a significant effect on Russian asset prices, with the RUB falling by 12% against the US dollar from peak to through.

The political rhetoric between Russia and the US continued to heat up throughout the week. The US, UK and France announced that they would take action in response to an alleged chemical weapons attack in Syria sanctioned by the government. And, while Russia stated that it would protect Syria from any western missile strikes, the US stated  hat missile strikes were a likely response to this atrocity, regardless of the threat from Russia. Such rhetoric continued to escalate rapidly and, we think suggests the risk of further political turmoil in the Middle East. The evolution of these events could influence President Trump’s decision on whether or not to extend waivers on Iran sanctions on 12 May 2018.

China attempted to de-escalate the trade dispute with the US this week. At the Boao Forum, President Xi stated that China intends to ease local market access for countries that follow international trade rules, while strengthening intellectual property protection. The PBOC’s Governor Yi Gang also proposed new financial reforms, including easing limits on foreign ownership in the financial services sector. While CNY devaluation was mentioned by some senior officials, but could be counter-productive in light of the US Treasury’s report on currency manipulation due on 15 April. We think that China will likely leave room for negotiation and cooperation, while responding with tit-for-tat retaliation threats if needed.

Commenting on the convergence of these troubling trends, One River's CIO Eric Peters had this to say:

... the future always seems to magically find a way to tackle today’s biggest problem. Take mass unemployment, which is often tackled by war. Or excessive debt, which leads to inflation/default. Or political desperation/division, which leads to both war and inflation.

But it’s not all grim, after all, war leads to peace. And debt default leads to economic renaissance.

Of course, today’s greatest problem is inequality, which leads to populism. And populism can itself be a real problem, which eventually leads to greater equality, sometimes through war, or taxation.

We're not sure if to read that last sentence as optimistic, or as a warning of World War III.


Invalid Username eclectic syncretist Sun, 04/15/2018 - 18:33 Permalink

Even though im usually the cynic, I do believe in this case the timing had more to do with military tactics.

Attacking someone in the hours just before sunrise ensures the most sluggish response. 

That it was also good for the stock markets, was probably a nice side benefit, but then again... They could not be certain there would even be a stock market, if things had escalated to a nuclear degree as a result of their attack.

In reply to by eclectic syncretist

Deep Snorkeler Sun, 04/15/2018 - 18:21 Permalink

I'm hyper-ventilating into a paper bag.

I fear another US techno-military comedy costing $trillions.

I live in the predesigned hell-project known as the Trump Matrix.

His white eye-bags fill me with a sense of doom.

Invalid Username Sun, 04/15/2018 - 18:29 Permalink

We ARE on the verge of a nuclear war.

Make no mistake.

USA, UK and France seem determined to push and push and push Russia, until a hot war is sparked, which could spiral out of control VERY quickly, ending up with total nuclear war.

I for one would like to know what planet they plan to live on, when this one is a radioactive trash heap?

garcam123 Invalid Username Sun, 04/15/2018 - 23:31 Permalink

Ask somebody who gives a fuck....I'm an old guy now....had all the ass and adventure I'm gonna have...I'm just waitin for the event to return to stardust!  Fuck these assholes....hope the second missile hits me in the chest!

Isn't there something in religion about 72 pounds of tectonic weed?.....or was it ass......I'll take the weed....them bitches be bitchin all fuckin day!


In reply to by Invalid Username

WTFUD Sun, 04/15/2018 - 18:38 Permalink

That orgy under Yeltsin gave the West a little taster and it's more than tempting for Deep State. If Trump had a clue the US could buy-in and Build something on a Project by Project Basis; thrash out some Quality Deals.

If i can't have it, neither will you pram/doll/toys psychotic attitude, seems the order of the day.


silverer Sun, 04/15/2018 - 21:55 Permalink

This was all predicted by Joel M. Skousen in May of 2010. It's all right on schedule. According to Joel, we can expect the nuclear war to be sometime soon. Some partial excerpts:
The Yamantau Mountain complex is not far from Russia's main nuclear weapons lab facility, Chelyabinsk-70. Honest military analysts suspect that Yamantau's huge 400-square-mile underground complex houses nuclear warhead and missile storage sites, launch control, and several full-blown nuclear weapons factories--all designed to continue production after a nuclear war begins. The US has no equivalent to such extensive protected production facilities. According to Ken Timmerman, the Russian government has provided no fewer than 12 separate and contradictory explanations for the site, none of which are believed to be credible.
Russia also has a massive national command and control system dispersed among three different hardened underground locations. Besides Yamantau Mountain, there is the Yavinsky Mountain underground complex and the Sherapovo bunker site, south of Moscow. Sherapovo is the primary command center for Russia's "civilian" leaders. The Kremlin is connected to Sherapovo and other bunkers by a secret subway line. Once at Sherapovo, they can conduct the war effort using a highly redundant communications system "allowing the leadership to send orders and receive reports through the wartime management structure," according to a 1988 Pentagon report.

It is my considered opinion that the Russians do not want to begin their massive attack on the West with a conventional flow of armaments and troop build-up in Europe. These types of precursor movements would be easily detected by US and European reconnaissance satellites. Neither do the Russians want to destroy Europe if they don't have to. I believe that Russia is planning a massive preemptive nuclear strike on US and British military facilities sometime toward the end of this current decade--precisely because such a strike would decapitate Western military power within two days, with little loss to Russia, and instill fear in the rest of the world.

I do not believe the intended strike is imminent. It is my estimate that the Russians won't be ready to strike until sometime after 2015 and probably no later than 2022, despite ongoing preparations for war. Here's why: Despite the continual stockpiling of core supplies and other evidence of war preparations referenced in the excellent and ongoing work of J R Nyquist, the Russians lack several elements that would ensure success, and they won't strike until everything is in place.
First, they desire to make sure that the US disarms as many of our nuclear missiles as possible. They have already succeeded in getting US leaders to complete the unilateral disarmament of the feared MX intercontinental ballistic missiles (ICBMs). These 50 blockbuster ICBMs were located in hardened silos surrounding the Four Corners area of Wyoming, Colorado, Nebraska and South Dakota have now all been dismantled.