What The Incoming "Strong Men" Mean For The Global Economy

Putin: Strong. Decisive. Homicidal. | ZEROFiltered

When Filipino President Rodrigo Duterte called Barack Obama a “son of a whore”the Western media recoiled in horror. The response from the mainstream media was both unimaginative and expected.“The guy’s clearly an idiot,” they said, “a lunatic with no sensitivity who serves only to prove the stereotype about third world banana republic crackpots.” Thank God we in the developed world don’t have that to worry about, right? Right??

Now I’m aware that media personalities are not typically selected on the basis of intelligence, and I try to make allowances for that but if there ever was a country the West should be paying close attention to it’s the Philippines.

Anyone still sheltered in the warm milk and cookies fiction that pervades the mainstream media should be paying close attention to what is happening over in the land of coconuts and karaoke, and more importantly, why it’s happening.

To begin with, let’s take a look at some quotes because the parallels as you’ll see are striking.

All of the “featured guests” promise a fierce response to threats, all appear “strong” and all are experiencing rising popularity in an environment of fear, economic uncertainty, and a pervasive lack of direction exhibited by the status quo.

Exhibit 1:

Rodrigo Duterte is certainly the most colourful example. The Philippines has been plagued by endemic corruption and violence associated with warring drug cartels, which unsurprisingly has left the citizens in a permanent state of fear.

Big problems require big solutions, right? Duterte’s statement on coming to power sums up his fierce strong man rhetoric:

“I will be a dictator against all bad guys, evil, I will do it even at the cost of my position or my life. I won’t stop. That’s a solemn commitment.”

His political campaign certainly did nothing to pander to what is “politically correct”. He took the concept, doused it in gasoline, and lit a match.

Rodrigo Duterte

With a 91% popularity rating his outright flagrant disdain for what is deemed politically correct aids rather than detracts from his popularity. He is a foul-mouthed womaniser who doesn’t bother trying to hide the fact and says whatever he feels like saying.

These traits, so completely at odds with the clutch of podium donuts typically found inhabiting the halls of power who, instead pretend not to be womanisers (“I did not have sexual relations with that woman”), act as reinforcements of honesty and credibility, or at least the perception of them.

What can be more “honest” and politically incorrect than this?

“I don’t give a shit about anybody observing my behaviour.”

Exhibit 2:

Over in the land of croissants, snails, and frogs we have the National Front party whose president Marine Le Pen is the daughter of longtime leader of the National Front Jean Marie Le Pen:

“’Monseigneur Ebola’ could sort out Europe’s immigration issue in three months.” — Jean Marie Le Pen

Marine Le Pen

Exhibit 3:

Over in Hungary the immensely popular prime minister Victor Orban is no stranger to saying what is deemed politically incorrect.

Viktor Orban

Exhibit 4:

When it comes to strong men, the ever popular Vladimir Putin needs no introduction.

“Sometimes it seems to me that certain European leaders want to be more Muslim than the Prophet Mohammed.”

Vladimir Putin Obey The Law

Exhibit 5:

Germany, where Angela Merkel is presiding over a disintegrating EU, a Eurozone debt crisis that refuses to go away, and a refugee crisis strangely coinciding with a tidal wave of terror attacks, rapes, and unprecedented crime, is finding a wave of popular support for Frauke Petry’s AFD party. 

“Use firearms if necessary” to “prevent illegal border crossings, Armed force is there as a last resort. No policeman wants to fire on a refugee and I don’t want that either. But police must stop refugees entering German soil.”

frauke

Exhibit 6:

And over in the good ol’ US of A the clown show that is the US presidential debate offers “strong man” Trump.

“I think if this country gets any kinder or gentler, it’s literally going to cease to exist.”

“Listen, you motherfuckers, we’re going to tax you 25 percent!” — on China, Las Vegas speech, 2011

Donald Trump on terrorists

You might be wondering how this is relevant to you as an investor. Unfortunately it matters a lot. In fact, one of the sharpest guys I know is paying very close attention to this.

Years ago, while still swimming with the sharks suits in the corporate world, I worked with an exceptionally talented trader. The guy, whose name I’ll keep from these pages, is a sentiment trader who knows how to gauge and measure sentiment better than anyone I’ve ever met.

Being an intensely private individual he will unfortunately never grace these pages in anything but an alias, and while we talk in private you won’t hear him on any of my recorded conversations. What I can tell you is that last week he sent me a very interesting list of “identifiers” he’s focussed on.

Now, sentiment traders normally look at volatility, high/low ratios, bullish percentages, moving averages, and the like. And what he sent me had none of those things. I rang him up to discuss and asked him why he wasn’t looking at the usual stuff. He replied, “There’s no juice left in those metrics, the efficiency of those metrics has largely broken down”.

What he is looking at are macro socio-economic and political factors globally, which is kind of like having a plumber suddenly become interested in knitting. Highly unusual.

His trading methodology and timeframes have been drastically changed to accomodate this new market environment, and he is currently spending a lot of time gauging sentiment in the topics mentioned above.

We discussed the consequences and knock on effects of this, and if my friend is even half right they promise to be profound. I, on the other hand, can’t disagree and have come to the same conclusions, albeit from a different angle.

So what are the consequences of the rising popularity amongst “strong” political figures?

The capital flows that we’ve been experiencing may well be about to shift quite quickly and the first step to protecting ourselves is in fact understanding what world we may be entering and what it may look like.

Now I could write an essay on the ramifications but let me provide you with 3 important things to watch out for:

  1. Political cohesion and stability can no longer be relied upon as politics becomes inward looking with everything from trade deals to central bank swap lines being renegotiated or cancelled altogether.
  2. Global coordinated central bank action. The era of global coordinated monetary policy which we’ve been experiencing since the GFC, especially with the three largest players (ECB, FED and BOJ), will be looked back upon with nostalgia by the current clutch of central bankers who muddy the halls of power. Policy will increasingly be driven with greater sensitivity to nationalist rather than international concerns, which brings me to…
  3. Liquidity in the financial system which has stemmed from easing monetary policy is already contracting. In a world where derivatives traverse borders, connecting financial systems like never before, a liquidity crisis presents enormous tail risk in a leveraged world.

This, my friends, is where I believe “the juice” is.

And so in a world where conventional investing metrics are passing the proverbial baton to these factors, a good understanding of these shifting dynamics is vital.

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