A charismatic leader confounds expert opinion, and is elected on a platform of taking on a rent-seeking establishment, foreign enemies and restoring the country to former glory. Public pressure is applied to private firms in order to influence investment decisions. Budget-busting fiscal stimulus is on the agenda even with high debt levels. Despite a sceptical elite, the self-styled "greatest jobs President God ever created" is taken seriously, if not literally.
The scenario above may be new to the US, but has been seen before in emerging markets, where larger-than-life characters abound.
Investor reaction has not always been positive.
President Erdogan likens currency traders to terrorists? The lira tumbles. President Rousseff ignores a widening deficit? Government bond yields spike. President Chavez reneges on signed treaties? Capital flows out of Caracas.
In a world of limited resources, the cost of economic populism is felt in financial markets, and the initial sugar rush often ends with a trip to the dentist. Turkey's central bank hikes rates aggressively. Brazil adopts a 20-year fiscal straightjacket. Venezuela sends scarce dollars to foreign debtors instead of medicine suppliers.
Commenting on his country's controversial leader, the Philippines central bank Governor said "the decibel level may have risen but if you look at the facts, the economy is still doing very well." Asset prices are not. Since President Duterte assumed office, the Filipino stock market has shed 13% in US$ terms, lagging behind an 8% gain in EM equities over that period.
American exceptionalism.
Investors' increased scrutiny of Emerging Markets is justified. Their leaders are less powerful, but have more agency. Their institutions are younger and less sturdy. If a kitman can manage Bayern Munich to the German title, the same is true of steering the American economy to success. Diverse, large and innovative; without significant shocks, it tends toward healthy expansion.
Warren Buffett has previously noted that "for 240 years, it has been a terrible mistake to bet against America".
Today, as the world's oldest democracy celebrates the peaceful transfer of power, investors see little reason to challenge that.
We think that is a good punt.
Indeed, America's economic outlook appears increasingly bright. But the uncertainty around it has risen too.
Fathom Consulting is a London-based research house supplying macro research and advice on the macro economy and financial markets to a number of the world’s leading corporate and financial institutions, governments and policy groups. This article is a re-post of an item in their "Thank Fathom it's Friday" column. It is here with permission.
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A DAY IN THE LIFE OF JOE REPUBLICAN
"Joe gets up at 6 a.m. and fills his coffeepot with water to prepare his morning coffee. The water is clean and good because some tree-hugging liberal fought for minimum water-quality standards.
With his first swallow of water, he takes his daily medication. His medications are safe to take because some stupid commie liberal fought to ensure their safety and that they work as advertised.
All but $10 of his medications are paid for by his employer's medical plan because some liberal union workers fought their employers for paid medical insurance - now Joe gets it too.
He prepares his morning breakfast, bacon and eggs. Joe's bacon is safe to eat because some girly-man liberal fought for laws to regulate the meat packing industry.
In the morning shower, Joe reaches for his shampoo. His bottle is properly labeled with each ingredient and its amount in the total contents because some crybaby liberal fought for his right to know what he was putting on his body and how much it contained.
Joe dresses, walks outside and takes a deep breath. The air he breathes is clean because some environmentalist wacko liberal fought for the laws to stop industries from polluting our air.
He walks on the government-provided sidewalk to subway station for his government-subsidized ride to work. It saves him considerable money in parking and transportation fees because some fancy-pants liberal fought for affordable public transportation, which gives everyone the opportunity to be a contributor.
Joe begins his work day. He has a good job with excellent pay, medical benefits, retirement, paid holidays and vacation because some lazy liberal union members fought and died for these working standards. Joe's employer pays these standards because Joe's employer doesn't want his employees to call the union.
If Joe is hurt on the job or becomes unemployed, he'll get a worker compensation or unemployment check because some stupid liberal didn't think he should lose his home because of his temporary misfortune.
It is noontime and Joe needs to make a bank deposit so he can pay some bills.
Joe's deposit is federally insured by the FDIC because some godless liberal wanted to protect Joe's money from unscrupulous bankers who ruined the banking system before the Great Depression.
Joe has to pay his underwritten mortgage and his below-market federal student loan because some elitist liberal decided that Joe and the government would be better off if he was educated and earned more money over his lifetime.
Joe also forgets that in addition to his federally subsidized student loans, he attended a state funded university.
Joe is home from work. He plans to visit his father this evening at his farm home in the country. He gets in his car for the drive. His car is among the safest in the world because some America-hating liberal fought for car safety standards to go along with the tax-payer funded roads.
He arrives at his boyhood home. His was the third generation to live in the house financed by Farmers' Home Administration because bankers didn't want to make rural loans.
The house didn't have electricity until some big-government liberal stuck his nose where it didn't belong and demanded rural electrification.
He is happy to see his father, who is now retired. His father lives on Social Security and a union pension because some wine-drinking, cheese-eating liberal made sure he could take care of himself so Joe wouldn't have to.
Joe gets back in his car for the ride home, and turns on a radio talk show. The radio host keeps saying that liberals are bad and conservatives are good.
He doesn't mention that the beloved Republicans have fought against every protection and benefit Joe enjoys throughout his day.
Joe agrees:
"We don't need those big-government liberals ruining our lives! After all, I'm a self-made man who believes everyone should take care of themselves, just like I have."
Poor old Joe."
~Written by John Gray Cincinnati, Ohio
I know what Yvil means when he thinks this piece is 'rubbish' and I certainly got that impression before I read the article again, carefully digesting each sentence. I think the article needs to be fleshed out a bit more as one is left feeling it was a bit of a rush job. It would have been good to introduce the initials EM when first mentioning 'emerging markets' as I didn't make the connection later and resorted to using my google-fu skills to find out what it meant.
That said I agree with the sentiment and conclusion of the argument which is that second rate countries with new populist leaders often have disastrous financial outcomes however the US is a first rate country, even exceptional, and is likely to be successful regardless.
The ascendancy of Trump is an extraordinary thing and thus the outcome is still uncertain. My gut feeling is that he will be good for business. It is like a rightful high-born ruler has been returned to power after a long absence. Even though Trump is not exactly high-born he is the next best thing when it comes to America. He comes across as regal and mighty, even super-human, yet truly caring about the people in a familial way. This is a good thing in my opinion as he is also beholden to no one and doesn't have a chip on his shoulder. Just what you need in a leader. He can focus on making America, the people, great again without pursuing a hidden, or even an unconscious, agenda.
Up until Trump the West certainly seemed to be on the path toward the Nietzschean 'Last Man' scenario, the antithesis of the over-man, a society tired of life, lacking a sense of destiny, taking no risks and seeking only comfort and security. Even the Pope said Europe was tired and used this to justify the welcoming of waves of asylum seekers to replace the Europeans. It is possible that Trump is an actual over-man, larger than life, his whole life history preparing him for this moment. Scholars study Thus Spake Zarathustra and young men often go gaga over its message yet maybe they fail to see an actual occurrence when it finally arrives. However the ordinary people sensed it, drawn, almost inexplicably as if by magic, toward the 'high-energy' and against all the odds Trump seized the position of most powerful man in the world.
Against all odds, & against the forces of globalism, & the combined opposition of media, Trump won the election.
Now he will be facing this opposition while in power. So far he seems positive for business & jobs.
He has the New Zealander Chris Liddell on his team as well!
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