Submitted by Eric Peters, CIO of One River Asset Management
"Judging by bond markets around the world, economic Armageddon - or something awfully close to it - is just around the corner." - SocGen, September 5, 2019
“It’s difficult to describe markets,” said the CIO, reflecting on his decades of trading. “For what seems like forever, markets behaved in ways that reflected shifting expectations about central bank activity, economic trends, and profit potential, but that's changing,” he said. “Now markets shift direction on a tweet then reverse on some comment. And nearly all of it is political." But even politics are different now.
"Yet through it all, global interest rates are collapsing like an economic calamity looms."
* * *
“It is a bowl of water that might help put out a fire that has just started,” said young Jimmy Sham, describing Carrie Lam’s withdrawal of Beijing’s extradition legislation. “But it is now useless in the face of what has become a forest fire,” continued Jimmy, one of many leaders in Hong Kong’s burning rebellion. Naturally, the government hopes that by meeting the protestor’s principal demand, cries for further action will soften.
But that’s not how crowds work. Hong Kong’s emboldened freedom fighters have another four demands to go. Behind them lay more still. And far in the distance, beyond the event horizon, lay their ultimate objective, barely spoken of today, democratic revolution in China.
“Public discontent extends far beyond the bill,” conceded Carrie Lam, exuding a manufactured calm, withdrawing the bill, “It covers political, economic and social issues, including problems relating to housing and land supply, income distribution, social justice and mobility.” No doubt she’s right.
All revolutions are sparked by such failures of government. But this one goes further. Hong Kong will fully revert to Chinese rule in 28 years, which means its citizens will be subjected to Beijing’s political oppression. Today’s young protestors will suffer its retribution as they enter middle age, images of their rebellious youth forever swirling in servers. The only hope for Hong Kong’s young freedom fighters is a Chinese political revolution between now and 2047. And with that inferno as their only escape, each concession by Carrie Lam’s government will be met with calls for another, then another.
Just as each central bank rate cut is followed by the market’s demand for another, then another. It’s what has begun in the US. And what will soon start in Europe. With central bankers in both economies cutting rates, exuding a manufactured calm, when in fact they’re terrified that what little they have left will be useless in the face of a forest fire.
* * *
The clock is ticking, he thought, gazing out at 35,000 feet. Above was the most perfect blue. Far below, concealed by clouds, lay Hong Kong. In tumult. He’d always admired the rebels, the risk takers. They’re our salvation, our liberators, without them nothing changes. And since the protests had started, he marveled at the brave young souls who dare defy Beijing and its puppet, Carrie Lam.
The British returned Hong Kong to the Chinese in 1997 under Deng Xiaoping’s ‘one country, two systems’ principle, which enshrined capitalism, rule of law, and certain rights and freedoms for fifty years. That seemed like a long time. And back in 1997, conventional wisdom assumed democracy was the destiny of all great nations - so every effort was made to integrate China into the global trading system to speed their political transformation.
But twenty-two years in, Western democracies in shambles, China’s unparalleled economic ascent allowed the communist party dictatorship to consolidate power, strengthen its grip, spread its gospel. Beijing’s ‘Made in China 2025’ economic plan is advancing its dominance of tomorrow’s technologies. Its ‘Belt and Road’ initiative is extending its global influence. And while these are slow moving efforts, barely visible to the world in any given month or year, for Hong Kong (and Macau) the clock is ticking.
Its citizens are unique – of all the people in the world only they can be certain that if they do not rebel, they’ll lose their freedom in 2047. It has sharpened their minds. And it should sharpen ours too. Throughout the West, we should be equally terrified of losing our freedom. Without a sustained struggle to maintain our privacy and civil liberties, the creep of today’s surveillance state (and surveillance corporations) will consume us, control us, quieting tomorrow’s rebels, crushing our risk takers, before they can save us from tyranny.