“A week is a long time in politics” was the insight of former UK premier Harold Wilson. It is tempting to think that the events of the past week – a terrorist massacre in France: an attempted army coup in Turkey: a fatal US sniper attack: the overnight emergence of a new government with new policies in the UK – confirm Wilson’s remark.
But sadly, these were not just isolated, once-off incidents. They are just the latest examples of the increasingly volatile, uncertain, complex and ambiguous world in which we now live. Instead, the comment of Russian revolutionary leader VI Lenin seems more relevant:
“There are decades when nothing happens and there are weeks when decades happen”
One super-critical issue is that for the past 20 years, policymakers have chosen to ignore today’s unprecedented level of demographic change – the fact that a New Old 55+ generation is emerging for the first time in history. Instead they have claimed that the arrival of 1bn people in this cohort between 2000 – 2030 is simply “business as usual”. Similarly, they have greeted the collapse of fertility rates – now well below replacement levels in most major economies – with just a shrug of the shoulders.
They have effectively created a fictional “La-La Land” where central banks believe they can create economic growth simply by printing money and reducing interest rates. But now, this fiction is being exposed for all to see:
- If the economy is going well, social and political issues tend to be downplayed
- People don’t want to risk losing what they have, and hope their lives will improve
- But when the economy starts going badly, then people have less to lose
The core economic issue is that the fundamentals of the global economy have been undermined by debt. The alchemists at the central banks have promised NICE decades stretching out into the future, offering us Non-Inflationary Constant Expansion. But today, it is becoming increasingly obvious that all the debt they have created – already 3x the size of the global economy – can never be repaid.
Trust in our political elites is therefore falling. And more and more people are becoming uncomfortably aware that there will be many more Losers than Winners in the coming years – many pensioners, for example, will find that the promises they were made, will not be fulfilled. And we all hope to live to be pensioners, one day.
A reader wrote to me recently asking the following question, which highlights just one of the many areas of major uncertainty in today’s world – currency volatility:
“I was wondering if you could talk more about what you think the effect will be on different world currencies as central banks continue to print money. Do you think the dollar will strengthen? Will it collapse with the S&P 500? What will happen to the euro and pound as Brexit intensifies? If the dollar collapses, will that change your outlook on the oil price? I’d also love to hear your opinion on gold and whether it is commodity or a currency – and what do you see happening to it as the Great Unwinding occurs?”
This is a key issue, with major implications for governments, companies and ourselves as individuals. The fact that questions like this are now being asked so often, by so many people in so many different parts of the world, tells us something very important is happening.
It confirms we are now living in a VUCA world, where Volatility, Uncertainty, Complexity and Ambiguity dominate – and where politicians’ focus on “soundbite analysis” fails to recognise there are no easy answers to the problems we face.
The issue of currency values is particularly important, as these are supposed to “take the strain” of balancing supply and demand in today’s economy. I will return to it in a future post. And please do let me know at email@example.com about other questions that you have.
WEEKLY MARKET ROUND-UP
My weekly round-up of Benchmark prices since the Great Unwinding began is below, with ICIS pricing comments:
Brent crude oil, down 55%
Naphtha Europe, down 55%. “Naphtha market is over-supplied. US gasoline blending demand poor”
Benzene Europe, down 54%. “Healthy derivative demand and balanced regional availability was keeping numbers buoyant into August”
PTA China, down 40%. “PTA ops rate at operational units remain high ahead of G20 shutdowns”
HDPE US export, down 33%. “Chines market players’ confidence was dampened amid continuous weak demand and sparse deals in the market. Thus, prices are expected to soften in the following week as some traders might need to lower their offers in a bid to move more cargoes.”
US$ Index, up 19%
S&P 500 stock market index, up 11%