Saturday, April 14, 2018

Sympathy For The Donald

"I shouted, "who killed the Kennedys", when after all it was you and me" 
- Sympathy for the Devil, Rolling Stones

I think we all see where I'm going with this...

Whenever Trump does anything that his base doesn't like, they blame "the Deep State" - this amorphous society of conspiratorial elites who frequently and annoyingly co-opt their beloved sock-puppet-in-chief. When Trump bans Muslims or destroys Obamacare, he gets full credit. But when he blows up the budget with anything except tax cuts, that is the "Deep State" at work.

Unfortunately, there is no organized Deep State - beyond the fear-driven belief in the now-collapsing status quo. To quote Gore Vidal, in the United States of Amnesia:

"America's elite don't have to conspire, because they all think alike. The president of General Motors and the president of Chase Manhattan Bank really are not going to disagree much on anything, nor would the editor of the New York Times disagree with them. They were raised to think the same way"

In other words, a Roman Circus is not a conspiracy, except of like-minded dunces. Global chaos on a scale never before seen in history, is the exact opposite of a coherent "plan". Today's paranoid should be far more concerned by the total absence of semblant control, careening inexorably towards anarchy. And far more dangerous than any deep state is America's profound affliction with amnesia. For example, when Iran is roundly depicted as the evil empire in the Middle East, it was long ago forgotten that the U.S. controlled Iran for almost thirty years before the Shah of Iran was overthrown. It's also forgotten that Saddam Hussein was originally installed and supported by the U.S., specifically in the war against Iran. And that the chemical weapons used on the Kurds by Saddam were provided by the U.S. Or that the U.S. supported Al Qaeda and Bin Laden against the Russians in Afghanistan. Or that the U.S. supported the Taliban as well. Or that Saudi Arabians were responsible for 9/11. Or that when the Baathists were expelled from Iraq, they fled to Syria to create ISIS. Or that the Iraq war set-off the largest mass migration in human history, featuring a staggering 1 million Syrian refugees fleeing to Germany. None of that matters, as long as there is a recently plausible excuse for violence.

"Mr. Trump expresses outrage at the violence inflicted on civilians there and has the power to alleviate at least some suffering by allowing Syrians to pursue new lives in the United States. He does just the opposite, having admitted just 44 Syrian refugees in the first six months of the current fiscal year, a more than 99 percent decrease from the 5,800 admitted in the same span last year."

On a more philosophical note, I had an epiphany recently, that whereas human beings are meant to age, it's something altogether worse when nation states age. Japan is the ultimate example. The land of the setting sun. That is a country trapped in an endless cycle of stagnation and inertia for almost thirty years straight. The older population having a stranglehold on the political system. Likewise in the U.S., the Baby Boomers have the majority of political clout both in population terms, but even more so in terms of financial control over politicians. Which explains why the amnesia factor is now at level '11', with respect to failed policy actions and inertia.

When the CBO announced this week that the tax cut is going to explode the deficit. The report was met with a collective shrug. There was more concern over debt and deficits thirty years ago during Reagan's term than there is now. 

In this respect, I AM grateful for the wrecking-ball-in-chief. Japan never had a leader who was as uniquely ignorant and reckless as Trump. And I mean that in a good way. Sometimes you have to break shit, before you can fix it. 

Which is the long way around to getting us back to the markets and the wholly fabricated "global synchronized reflation". The fourth one since 2008.

"Fortunately", we already know by looking at Japan, where global yields are heading. Specifically in the U.S. In this cycle, Japanese yields began at their highest point and then steadily fell to below 0%.

All while the amnesiacs were sold global synchronized reflation:

Overlaying the U.S. 10 year, we see that in 2016, U.S. yields reached 1.4% which is lower than Japanese yields were in 2008. Meaning that we already know where U.S. yields are ultimately heading via infinite QE, Japan-style.

The real question on the table is how long yields will remain at 0% once the concept of a universal basic income is universally embraced.

In summary, amnesia has no place in pricing risk assets. Because that's how shit breaks. 

And when it does break, some of us already know where things are headed.