Geo Political Risk

[Davexl]

What's at stake:

Will Intel build it's massive new chip-fab facility, before China retakes Taiwan (and the majority of global complex chip-fab manufacturing)...

Intel inside Ohio

https://www.bloomberg.com/features/2...%20algorithms.

[Ferg]

https://www.britannica.com/topic/list-of-wars-2031197

Lists of Wars

An interesting link but it is terribly incomplete. I think it is trying to show a geometric progression in the number of wars but it missing a LOT of historical wars. This is just a list of the ones before 1000AD:
https://en.wikipedia.org/wiki/List_of_wars:_before_1000

In particular it is missing the campaign of Alexander where there are a number of tremendous battles at Tyre, Gaugamela, Issus, Bactria and India. Each battle on it's own is gripping reading - the ingenuity and generalmanship displayed was outstanding.
https://en.wikipedia.org/wiki/Wars_o...nder_the_Great

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

0:00 I've had three key arguments over the past X number of years. The first one was that we were heading back towards the kind of protectionism / mercantilism and geopolitical problems that I'm describing and that's been a long run call.
The second one and I think actually one of your guests recently Lyn Alden was referring to it is that developed markets now look more like emerging markets.

Then the last point is what you just said that if you understand the totality of this which comes from classical economic thinking, rather than contemporary neoclassical or more financially based thinking it's the great granddaddy of the topic that we normally discuss day in day out. It is going to get much more complicated, much more complicated. In fact, it even becomes similar to the kind of logic of strategy that more military-minded thinkers like Edward Luttwak who's a great read by the way speaks about. That if you do something as an investor it could actually be the complete opposite of what you need to be doing that you have to be thinking about what's the other side thinking while I'm doing this. And there's always a degree of that in markets but it's going to become much, more so as everything becomes geostrategic.

3:58 What's your current assessment of the global economy and financial markets?

Well, markets and the global economy are actually two completely different things so I have to give you two completely different answers. Markets are continuing to try and look for the upside in everything and in many respects I think a lot of markets are in la la land.

But the actual global economy itself is really at a crossroads in many, many respects. And I can't recall a time in the 25 years I've been doing this job where it's less certain what lies ahead of us, which direction we're going to take. And I think one of the important aspects of that which we can unpack I hope is that the direction we're going to take may vary by geography and that becomes a very complicated thing to forecast. It's not just is it going to get better, is it going to get worse etc. It can do both at the same time.

It's going to be kind of like a patchwork quilt. There's going to be some parts that do better than other parts. There's going to be Balkanization of alliances and some parts of world will do one thing, some parts will do another.

If I'm remembering correctly generally you see the global economy kind of bifurcating into what you've defined as the west and the global south, where nations increasingly favor mercantilism with its protectionist agenda, versus the globalization trend that's been driving the global economy for the past couple of decades. Did I capture that correctly?

I think it's even easier if we just say the west and the rest. This is an argument I've been making for many years. It's not a recent one. But recent developments have accelerated it. I was making this argument 10 years ago effectively that this is where we would be stumbling towards. We have what you could call variable geometry or variable geography of who might sit where, but the overarching trend is as you correctly say towards more what we now call industrial policy which is a term that's really coming back in a in a big way, protectionism and or mercantilism.

So protectionism is pretty clear in the name you're trying to protect something that you've got. You've got an industry already you want to keep hold of it because either it's important for national security and that's very often the case or all the good jobs and technology and spillovers are there. You want to retain that comparative advantage going forward. Now of course everybody wants the good job.

8:38 So that's protectionism and you might be surprised to know that even Adam Smith, who we all kind of refer to as the first real economist in some respects and also the godfather of everything free market he openly said that if a company or a firm in your country is doing something that's important for national security and you can't rely on your neighbours to be doing that, maybe every other company should be taxed to help keep them in business.

So, Adam Smith completely advocated that in The Wealth of Nations which we completely overlook today. So that's your protectionist argument which is this is important for me, let's look after it. Then you have mercantilism.

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

9:39 Now Smith was completely opposed to mercantilism. Mercantilism is basically a mega version of protectionism. It's the difference between being a patriot and being an ultra nationalist if you will, in terms of where the spectrum of ideas goes. Which is I'm going to export as much as I can and I want to import as little as I possibly can. And I want to just bank the cash or the gold in the old days because if I control the money supply I control everything. Now, do we have some mercantilist economies out there in the world today and I would hope viewers are nodding their head and going yep we sure do.

And you can't push back against a mercantilist with free trade. That's been one of my long run theories I've been arguing for year after year. And therefore I always said even free traders re Smith are going to convert back towards protectionism to try and fight mercantilism. Now they may not become mercantilism themselves. That's a whole another step beyond where you're trying to run as large a surplus and minimize imports but at the very least you're not going to give up certain industries. You're going to do everything you can to keep them and I think that's both logical necessary and it's inevitable at this stage.

11:04 I maybe oversimplifying things here but is it maybe fair to think of protectionism as we want to take care of our interests versus mercantilism is let screw everybody else?
Yeah that's, a great way of looking at it and obviously one can teeter into the other. And if you're an exporter to a country that's got a good competitive sector and suddenly you're shut out of that particular country or that sector because the other country says hey this is important to us, well it's going to feel like mercantilism to you.

But the way you can judge if it is or it isn't at root is if you're exporting a whole lot more because you retain that sector, or you're not importing as much because you retain that sector, is your trade pretty balanced? Do you export pretty much as much as you import? If you're specializing in one sector are you giving up another to allow yourself to say okay so we need this, we don't need that, we're happy to buy that from you, that's how you get your comparative advantage. And let me just segue to one other little quote that I want to share here this is another one that I've been arguing with my colleagues and with interlocutors in the market for decades.

12:27 If you read David Ricardo who came up with comparative advantage theory. And I don't know an economist who isn't wedded to that idea. Ricardo if you remember back in the mist of time, he was looking at England making cloth and Portugal making wine, swapping each for each other and he said you should specialize just in one.
The math of that is compelling. Ricardo also said of course England, the capitalists in England would much rather produce the wine and the cloth in Portugal because it's cheaper, they would benefit from doing that. But they'll never do that because everybody knows no capitalist will ever let their money leave their hands in their country and go to a foreign country with dirty foreigners who you don't trust because anything might happen to your money. So that will never happen.

So, in other words Ricardo himself builds in the case that if you have mobile global capital, and guess what we have? Mobile global capital. The free trade system breaks down because every capitalist will try and put all the production in just one country where it's cheapest. Everything will become destabilized and you start tiptoeing towards either mercantilism or a backlash of protectionism in the other country.

Let's go back to Adam Smith. You've heard of the invisible hand right? If you read Smith he only uses that phrase three times in his whole body of works, three times.
The first time he's referring to the movement of the stars across the sky. Nothing to do with markets.
The second time he says the rich can't help spending money on the poor because when they spend it trickles down through society. Fair enough there's your trickle down theory. Although he contradicts that in other places later. That might be close to how we interpret it.

The third time he says no capitalist will ever invest their money abroad because an invisible hand will make sure they keep it close to home. So, actually Smith said the invisible hand, said you should never invest in China if you're American, or in Russia if you're German etc. Do you think we teach any of that in economics classes to today? No! And then you wonder why we stumble into protectionism and trade war and geopolitics.

So, do you see then as the regression that we have right now, the unwinding of globalization really as inevitable if one describes to the validity of the economic theories of Smith and Ricardo and others? That we basically been so we've basically been deluding ourselves for the past couple of decades that's been your fundamental argument?
Completely, I mean look at long run history. Long run history is all about mercantilism and or protectionism and or geopolitics. So that's not changing and that's not going to change going forward.

We had a beautiful little window post World War II and it took World War II to do it where we had a US and western centric system which worked for the West. A third of the world was Communist and not involved, and a third of the world was in the global south or the rest pretty socialist, pretty closed and selling the west cheap commodities most of the time which fueled a lot of our boom.

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

16:16 And then after the Cold War finished then we had a brief window where we thought right free trade. Let's edit out all the annoying ideological inconsistencies from our theory, in our textbooks which I've just pointed to and maybe we bring everyone into this big tent, we'll never have any more war, any more conflict, any more arguments over who's running a trade surplus and who's running a trade deficit, no more mercantilism, no more protectionism, mana from heaven, utopia. Well, it was nonsense. It was never going to last and obviously now all the fundamental imbalances that we've built up in multiple dimensions, on multiple fronts whether it's inequality, debt, trade surpluses, trade deficits, environmental problems, geopolitics. They're all conflating together.

17:05 I think I know your answer but was the attempt to do that noble or naïve?
Completely naïve. I mean it doesn't hurt that it made rich people richer. That's one of the reasons why we did it. So, if you had been economics Tsar back at the time you would have said guys yeah sounds nice but bad idea, going to come back to bite us, and we should focus more on the more natural order of things which is that free trade can't push back on mercantilism. So to a certain extent protectionist strategy and leaning on what you do best and largely making other trade-offs in your economy that's the natural order. And it seems like you think that where the pendulum is going to be swinging back over the arc of at least the next decade plus correct or maybe the rest of our lifetimes.

I think so. I mean if you eliminate the possibility of everyone re-embracing free trade and I think we can eliminate that. Then all you're left with is the spectrum of how far down the road you go and whether you fight fire with full fire, like real mercantilism or whether you just stop at protectionism with industrial policy which is linked to trade policy that these sectors are ours, those sectors are yours And one of the clashes we see fundamentally now is the US attempting to say hey look we're protectionist, which you clearly are now, you're clearly protectionist, and we want these sectors. And Chips a great example of that right?

Completely and the irony being on the other hand the US is being fairly transparent about that we're now protectionist and you have mercantilists of two different forms. On one hand you have China obviously and on the other you have Germany great sinners in this regard too as well. They always export never import. And they're preaching to the US the joys of free trade and saying you know no, no, Adam Smith, Adam Smith. And China was just this week talking about David Ricardo and comparative advantage when they're doing everything they can with subsidies and industrial policy. And in Germany's case repressing domestic demand to ensure that for every 100 Goods they export they only import 50 or 70 and in China's case as low down the value chain as possible.

It seems like this is going to be more big trade alliances. I mean basically the west and the rest to a certain extent. The US and Canada are going to try to keep their allies as happy as they can while still playing to their protectionist priorities and correct me if you if you disagree with what I'm saying.

No I think that's the outcome and it's the outcome for the simple reason that what you need to produce at the end of this, and I put emphasis on the word produce, is you need to have an economy that doesn't just reduce inequality, that doesn't just reduce the necessity for more, more and more and more debt, which is completely linked to this deterioration of the industrial backbone and you know blue collar jobs, it's all linked together.

What you need to do is have an economy which can produce stuff on a scale that can compete with others. So, if you're talking about competing with China, which is just a phenomenal production machine you need to have the US and Canada and Mexico who by the way just this week suggested they're going to be raising tariffs on Chinese products coming into Mexico. So, you can see that draw bridge is being raised as Mexico moves towards the US and Canada and then the only real pivot point is who jumps in to that team. Now Australia is in, Japan is in, South Korea is in, the Philippines is in, and that's all got a defense network umbrella to it. Pivot point is the UK although they're in AUKUS so they're kind of leaning in that direction although as a Brit let me tell you we don't have any idea where we're going in the UK at the moment we are just rudderless and then Europe.

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

22:16 And Europe is the big question. Is Europe going to join the west or the rest, or is it going to think it can do it by itself that's really the big turning point?.

23:06 Well let me be very clear Europe doesn't talk with one voice. It never has, it never will and that's part of its problem of course and that's going to get worse going forward because on this critical point three camps are really important within the European sphere.

The first one is France. France has form in terms of being a global player. They're still on the UN Security Council, they've got a trifecta of nuclear delivery systems. They're a big powerful important economy and they think of themselves still in a Napoleonic sense.
So France is important and France likes to think Europe could become a big France. I think they're wrong, but they're pushing for that.
So France doesn't think they're part of Europe. They think Europe's part of France is what you're saying.
Yeah and if they could get all of Europe to be like France, with France leading it possibly they could do something so that's the first camp.

24:34 The second camp is the newer members who joined 20 years ago in Eastern and Central Europe and the guys who just joined NATO in Scandinavia. They're pro US to their bone marrow, because they live right next door to and they're well aware of the fact that the western Europeans are very, very big on the European family of Nations until it looks like western Europeans might have to fight and die to protect eastern Europeans at which point there's a very awkward silence of should we really have let them in the EU, is there some kind of associate membership we can give them. Let me assure you this is a thing.
So, the east and the north will lean towards the US. Poland in particular has already asked to station US nuclear missiles in Poland. Okay that's how pro US they are. That could be a whole Cuban missile crisis by the way.

Then you got the third camp Germany. Now I want to be very careful in what I say because I can sometimes be a little bit too harsh. I don't think the Germans have had decent geopolitical leadership with complete freedom other than being under a US umbrella where they had a very narrow spectrum of what they could do since Bismarck. So, we're talking the 19th century not even the 20^th. It's ridiculous how far back you have to go to find a Germany which was confident and fully independent and which didn't then make the most egregious of errors in terms of who it became friends with, and or what it did. And if you listen to the conversations within national security circles and more let's call them national conservative circles within Europe people are pulling their hair out that Germany learned nothing in terms of how it dealt with Russia and was burned on that front and is still hoping to reconcile with Russia at some point soon secretly, and is meanwhile doubling down on China despite the fact that everyone around it is trying to decouple or saying this isn't a very good strategy and it will come back to bite you.

27:08 In a nutshell German foreign policy is set by the largest German firms who see what's good for them not what's good for Germany and by the way the same is true in America. You could argue and the same is true in other countries which have large corporates which dominate. There's academic evidence to back this up as well as just anecdote.

That Germany, Europe's biggest economy, one of, if not the most critical player is kind of leaning towards the rest or is dreaming of leaning towards the rest. They don't know what to do. I mean they don't have a clear game plan but if you said to them look you have to accept you're not going to be part of the rest, there's going to be a hard break that would be a very, very hard sell to Germany. A very, very hard sell indeed. And so how is Europe collectively going to make that decision when the east of it would say we're Atlanticists through and through. France would say look we're Gaullists and everyone follow me.

And Germany says we just want to sell cars, which by the way they're not doing a very good job of anymore. Even the German market is being flooded with Chinese vehicles. You're actually starting to see German manufacturers say maybe we should just collaborate with China more which in an industrial setting may make sense but it speaks for the problem - are they going to try and protect that sector?

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

30:05 So do you expect a lot of kind of geopolitical chess and strategizing and strong arming to kind of draw the hard lines between the west and the rest?

Enormously so, and look everything at this point is linked because when you're playing this game you're playing for very, very high stakes for the long term and of course it's going to affect markets. It's going to affect investment decisions but you have to be cognizant of the fact that the irony is you can get wiped out by following what you think is the right trend. Let's say for example you say right we're going to have reshoring, we're going to have onshoring, we're going to have industrial policy, which we are absolutely, that's the case.

30:58 What are the takeaways from that? Well first of all, it's inflationary so anyone trying to sell you that we're going to be back in a low inflation world that's pretty unlikely because that process of trying to drag production and supply chains back from where we've moved them for the past 40 years is inflationary. You're having to basically redo everything from scratch.

It's going to invert a lot of things that we took for granted, like for example how many kids think I'm going to go and get a degree at a US Ivy league university in golf course studies or something and then you know there's a six or seven digit salary waiting for me. There's not going to be any need for that within the kind of economy that you're talking about. You need to be going back into engineering. It'll be much more trade driven. So all the jobs that were being poo pooed in the past are the ones where the real money is going to be going forward with a lag.
I'm a frivolous app designer. Wonderful, what does that do for national security? Not a lot, bye-bye we don't need you. So that's an inversion and then if you think okay as an investor look I can see this coming so I'm just going to go for the sectors which are national security. Sometimes you'll be right.

But equally if you look at the benchmark from China which we will have to copy to a certain extent you don't want too big profits being made by these firms because that profit isn't necessarily good for the company unless they're plowing it straight back into capital investment. So, actually you can have governments saying yeah we want much, much more activity here but we don't want wild profits, we just want loads and loads of investment, and a low and steady rate of return thank you very much. So, it's it's not Eldorado, it's just very, very necessary.

So that could be a completely counterintuitive argument that what is necessary doesn't give you a good return. I believe you think the future is going to be much more targeted, much more surgical, which is we really want this industry to do well because we need it for our national interests. Let's stimulate that, we may have to starve these others to be able to do that and they might even stimulate that sector, but they might have reasons to say but we don't want that sector to get plump with profits. We want those spoils to be redistributed elsewhere, and so that is a much more complicated world as an investor because you really have to not just think of specific companies and the global, the general macro situation you've got to think of all these other different layers.

Sounds like you're saying the era we're entering is going to a much more intellectually challenging era for investors because you're going to have to factor in a lot more variables.
Well you've just said it much better than I could.

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

36:53 You have to be thinking about what's the other side is thinking while I'm doing this and there's always a degree of that in markets, but it's going to become much, much more so much more so as everything becomes geostrategic.

I think that is one of the essential takeaways from you, you need to be hedged and you need to be very thoughtful about everything you're doing because the world is changing and it's changing faster than many of us can keep up with.

38:25 Where are we in in the unfolding of this bifurcation that you see between the west and the rest and the move to protectionism and more mercantilism, in other words what inning would you put it in and there are nine innings in an American baseball game?
So, we're probably like in the second inning. Okay so we're pretty early on and you can tell because the debate that's currently happening very much in America and it's happening on the Democrats side and the Republican side simultaneously but in different ways is what are we and what aren't we allowed to do. And it's starting to bleed across into all different areas like we've recently had that Wall Street Journal report that Trump if he wins the election he's thinking about removing FED independence.
Well that that's part and parcel purely hypothetically by the way of strands of what you've heard me saying in past chats that you would have to have a much more political Central Bank understanding, we help this sector, we don't help that sector, we want more of this, we want less of that, swap lines for those guys because they're our friends, no swap lines for those guys because they're not, and that is overtly political and it's naive to think it isn't.

40:35 I'm not sure if it (freezing Russia's financial assets) was the smartest strategy to do it now, because it does massively exacerbate our problems and it does massively accelerate the dynamic we already have which is of the other side saying well okay what are we going to put our money into then if we can't keep it in US dollar assets. Let's put it in something else and of course they're going to put it into hard assets which is a whole different investment thesis.

But if we're not going to do that let's put it into more physical production so that we can make more stuff, which let's be frank has military spillovers and very often is directly militarily targeted so that without having to fire a bullet we're in a position so that the other side understands if things ever get really bad we win and therefore we can scare them away.
So you massively accelerate the impulse to what needed to be done but maybe could have been done more slowly. Now it's going to have to be done faster and in a more disruptive manner.

42:39 We've got the west we've got the rest. Does one side have an advantage, a greater advantage here?
Well both teams or sides have enormous potential strengths and huge potential weaknesses and right now through pretty poor management for generations the west is not doing very well. In previous conversations I've said that we had the strongest hand in history, the strongest card hand in history and we just keep throwing away aces, just like who needs an ace.

But yeah we're making tremendous mistakes and the academic record of looking at this from the past really raises some warning flags because the other side has also enormous demographic weakness, enormous problems with debt, enormous problems of trust, enormous problems left, right and center. But what they do have is an enormous stock of commodities to hand right now which are only going to grow in importance going forward. They've got a lot of real stuff, they own real stuff and they can produce much more than we can right now.

Now their problem besides the internal weaknesses which they have is, if they're really going to cross their rubicon and say well all this stuff is for basically let me be blunt blowing up you rather than anything else. We're not going to be buying from them anymore. So, once you do that you've got a lot of excess stuff and what are you going to do with it. Then you got a lot of excess unemployment if you don't do anything with it. So, it's not as if there's a smooth easy path out of this for either side because if there were we'd be doing it already. I'm not trying to underplay how bad the situation is in the west.

44:55 It's bad, really bad but one thing is also true. That if you are the net importer in this scenario who isn't producing anything. You've been predated on by a mercantilist which we have. If you're going to shift back to protectionism, if you do it right it's a world of hurt for the mercantilist not for the protectionist. But you've got to do it right.

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

45:38 I think Brent Johnson has a similar view which is look you can criticize the US all you want we've certainly made lots of blunders, but at the end of the day we have these amazingly powerful assets including the US dollar on a relative basis to the other world fiat currencies. And he basically just says to the critics look on whatever issue you want to come after me do you not think that if we finally got our act together and just decided that this was a priority that we couldn't just crush everybody on key dimension X.

One of the things that I hear you saying is you have got to do it right, and that it's a lot easier to change policy than it is things like geography or demographic. You can't you can't suddenly make your country have different national borders, or you can't invent resources it doesn't have, or you can't magically print up you know a doubling of your working age population, so it's a lot easier to change bad policy into good policy.

47:08 It's probably going to be done like almost as a last resort, it's probably going to take a lot of pain before we finally say okay let's do it the right way. I think we are moving closer to that point where it starts to happen and if we're looking ahead to the US election later this year that itself could be a point of praxis because let's say we get Biden coming back in again. Well, we know what we're going to get. We're going to get an amplification and an acceleration of what we're seeing now. The kind of policies which are already moving in that direction. He can't back off of that. You have to do more, it snowballs. That's just logical and at the same time if you say okay so it's Trump not Biden he's even more radical. Trump would totally accelerate that on steroids on stilts.

48:03 I mean it's extremely difficult to be bearish the dollar from an investment perspective when you either have creeping protectionism which is dollar positive or what could be all-out mercantilism. Because that's Brent's argument too if you're going to go to mercantilism how do you get the dollars to pay back your offshore dollar debt? Where do they come from? That offshore dollar debt is enormous and it sits there unless you're going to blow that entire pool of assets up, like boom everyone defaults. Yeah, well good luck to the entire global financial system and trading system. I hope you've got something in your back pocket ready to move goods from A to B because everything just blew up.

If it's not going to blow up how do you service it? So that's why the narrowing the US trade deficit strengthens the US, it doesn't just bring industry back, it doesn't just narrow inequality which does, it doesn't just help deal with debt problems because the bigger the deficit the bigger the debt, no it also helps strengthen your geopolitical arm which is why you will get a queue of economists coming out to say it's the wrong thing to do.

49:20 So Michael we make you the economic Tsar what would your strategy be? Would it be do protectionism?

If you address all the problems and say what won't work that's my methodology. What will not work demonstrably and logically whatever's left no matter how much you don't like it that's what you have to do. And it is what you were summarizing my view on earlier which is do protectionism right not mercantilism. Do protectionism right and do that with whatever policy levers you have to use. For example, if you if you have to say zero interest rate loans for this particular sector but everyone else has five and a half percent you do that.

Yeah, if you have to do that you do that, because the alternative is worse. The alternative is basically a continual de-industrialization, growing inequality, growing polarization, growing destabilization, growing radicalization and the signs are evident, the flashing red indicators and a whole broad range of disciplines and areas that it ends in a very, very bad place.

51:40 And even in Europe, just as a parallel we've now had the former president of the ECB the European Central Bank Mario Draghi, former technocratic prime minister of Italy, none more let's use the word globalist, none more elite, none more insider than him, come out and say what Europe needs to do hybrid policy – protectionism, industrial policy strategy along those lines. And the implication being a higher interest rate for some, and lower interest rate for others.

And even the president of the ECB now, Lagarde a year ago she alluded to the same thing. Government and central banks holding hands to try and achieve a geopolitical goal. And that's the only way. She said you'll get low inflation that's how they're justifying it. But there are other ways to justify it.

[moka]

https://www.youtube.com/watch?v=nEzAycbL2wM
Investing Will Be A LOT More Complicated From Here Due To Geopolitics | Michael Every, Rabobank. 06/06/24
Michael Every is Global Strategist at Rabobank, and joins us from Thailand.

52:42 But also for protectionism to work well yes it's going to be more kind of command and control. But you need to have the populist bought in to the national good like okay we're going to be in this era where we're being told we have to make sacrifices over here to help things over here and it's going to become a little bit less about how do I get as much as I can get and live a Kardashian lifestyle. And it's more like I'm an American or I'm a German or whatever and we're all working towards some greater national good here.

And again a broad range of commentators from a broad spectrum of disciplines are underlining the fact that if you don't do it fairly soon it's not only going to be just elite kids at universities waving flags shouting I am Hamas or we are Hama. You know that everyone needs to be saying no we're American. In America that can mean many different things to many different people as can being German, being British whatever but if we can't rally together those sacrifices and tradeoffs are going to be harder to make and they are going to be hard to make and obviously the people who are going to hate it the most are going to be the ones who do best out of the current system. They'll be the ones kicking and screaming and saying no, no, nothing should change and they they're pretty powerful. They have a lot of influential and intellectual voices but they're wrong. And I do think they will lose over time but if they don't it will just make things far worse before we get there.

55:41 There are clear implications which is that making that sectoral choice within equities is going to be harder and harder to do even if you understand the thematic envelope of reshoring, onshoring reindustrialization etc. There will be clearly areas where you can make good money from that and there'll be others where you shouldn't expect to make too much good money because that's just not going to be allowed. But from a from an overarching perspective it is going to be inflationary.

56:11 We haven't really spoken about the FED other than what Trump is threatening to do but it does not argue for an environment in which inflation just effortlessly drifts back to 2% again and FED funds rate can come down and we go back to the golden path that many would like us to be on. I don't see that as being the most likely scenario at all. The question is how far we veer away from that either because everything goes badly wrong and rates have to come down a very long way which some people think or that they have to stay relatively far higher for far longer than many had been trying to sell us on well in an era of secularly higher inflation.

57:43 Commodities you have to be careful of because you get two different effects happening. On one level they can be squeezed and or demanded and that obviously pushes them higher but you have to be prepared for the fact that every now and then the government will step in and say right we're going to crush that price because geopolitically we need that price to come down. And that can be from an opposing side saying I'm want to bankrupt you so therefore I'm gonna try and push the price that commodity down. Or as we've seen happen recently this year in some metals the key producers of that metal notice the likes of Europe saying ah we'd actually like to try and get our foot in the door in that industry, you know to develop a bit of strategic autonomy. And they say right let's just flood the market. I'll take a loss for six months or a year just to push everyone else out of business just to show them they can't compete economically then I'll jack the price up again in 2025.

58:36 So you've got to be able to ride out those waves and again that comes back to a geopolitical mindset of understanding who's trying to dominate what and what tricks they'll use to do it. And it's not always a high price, sometimes it's a low one.

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