Blain’s Morning Porridge – June 27 2022: The End of American Exceptionalism Has Wide Market Consequences
“They all hate us anyhow, so let’s drop the big one now.. let’s drop the big one now.”
This morning: The US just took another step towards the end of the Age of American Exceptionalism. It will have major consequences on markets and geopolitics. The West has limited time to prepare for some profound changes.
But first…
Thanks to everyone who sponsored the Walking With The Wounded/Shard Capital Team competing in the Round the Island Race. We came 17th in a fleet of 100 yachts, but that was mainly due to one silly error – we mis-hoisted the spinnaker (wrapping a halyard around the forestay), meaning we could not gybe, and had to let all our lines run completely free to drop it into the sea when we reached the Bembridge turning mark. Messy, very wet, and wasted us about 12 minutes to recover to sail from the ocean, and then a further 20 mins sailing slower than other boats as we re-rigged it all! But all done calmly without drama! We should have been top 10!
But none of that really matters. It was a fantastic day and great fun.
You can still contribute: https://www.justgiving.com/fundraising/Bill-Blain1 if you care to support this deserving charity by making a donation.
Each morning I try to be objective about markets – using facts and numbers to show how they are likely to perform. Often, I have to be subjective – using the numbers to draw insights on what they foretell. But sometime, just occasionally, we get moments that are pivotal in the direction of history. One such moment just occurred. It markets a key turning point in the global picture and outlook.
According to polls 67% of American women are opposed to the US Supreme Court removing their right to own and control their own bodies. They will feel bitterly betrayed this morning. Abortion is an emotive subject – and will further deeply polarise the US. Who will the Supreme Court move on next? Same sex marriage? LGBTQ rights? Unravelling race equality acts?
The real issue is how the guardians of the US constitution, the Supreme Court, has become become deeply politicised – successively packed with conservatives who don’t reflect demographics or electoral trends.. It will take a generation to unwind. The republicans are delighted to flex and demonstrate their power, confirming it’s their agenda running the country… whatever the national vote said.
Therein lies the kernel of their own destruction. They really do believe in themselves – despite how bad it looks. I read one comment justifying the decision: “this will actually favour the republican vote because [catholic] Hispanic voters favour anti-abortion rules”, wrote a Republican man. MAGA will be achieved in the court room if the people reject it…
Its entirely up to America to decide what it wants for itself. We won’t tell them what to do, or how wrong they are.
Yet. for the rest of the World, it’s a significant moment. It confirms the end of American Exceptionalism. It confirms the need to work out what the new future looks like.
The reality of the Supreme Court decision is the rock of American hegemony just crumbled a little more. The effect on the global economy will be substantial. It’s another sign of democracy dying, and the mythos of the American Age is fading. The reality is the US is being drained of the soft-power it once exerted; its attractiveness has waned. It’s splendour looks increasingly jaded. Civil rights, gun crime, drugs – you name it and the US looks weak. When we look towards the US we no longer see liberty, freedom and opportunity – but something more dark and increasingly authoritarian.
The world’s attitude to the US is changing. The West may be united on Ukraine, but global support is noticeably lacking. 35 nations abstained from voting against Russia at the UN. The Middle East and India see Ukraine as a European problem, and a crisis as much of America’s making. As the West lectures the Taliban on schooling girls, the Republican party move the US closer to a dystopian version of the Handmaid’s Tale of gender subjugation.
As the World increasingly rejects America, then America will reject the rest of the World. Time is limited. The Republican Administration, run by Trump, or kow-towing to him, will likely pull the US from Nato and isolate itself. That’s going to become increasingly clear over the next few years. The dollar, the primacy of Treasuries… will leave a massive hole at the centre of the global trading economy.
Really tough for Europe. As we seek alternative energy sources, what happens when Trump 2.1 proves as pernicious as Putin and shuts off supplies?
The supreme court decision was clearly timed to come at the Nadir of this US political cycle – a weak president likely to lose the mid-terms in November – when the Roe vs Wade news will be off the front pages. It means the damage to the Republicans in the Mid-Term Elections could be limited – they will still make the US essentially ungovernable from the next 3 years.
If the US was a corporate, it would be a massive fail on corporate governance. But its not. It’s the current dominant global economy and currency. It can’t be ignored.
In my time I’ve looked at how events can change history. Rome debasing its currency to pay the legions was one source of economic instability that ultimately led to the Dark Ages, or how dramatic wage inflation following the Black Death triggered migration to cities and the onset of the merchantile and industrial ages. The last 200 years has been the rise of the commercial age and all the attendant struggles as nations fought for economic supremacy.
What will replace America?
History is about moving forward. It doesn’t happen in a straight line. This year is a great example of what’s going to look a blip in markets in future history books. But I suspect it will be more famous as the year the ending of the US Age become apparent.
Halfway through through 2022 and its been interesting – in the Chinese sense of the word.. I still think it’s likely to get worse before it gets better. So many bubbles have popped, easy money is deflating, inflation is rampant, central banks are concerned and confused, and the world remains less stable and more difficult to understand.
Last week the market staged a wheezing recovery of sorts, but it doesn’t feel sustainable. It feels this market has more to digest. Many stocks still look overvalued, the inflation effects are not fully computed into price expectations, and the bond market hasn’t unravelled as much as I reckon it shall.
Yet, the upside is coming – it always is. The trick is to know when. This is what markets do. They get Euphoric. Then they Correct. This time it’s more painful than usual, because there is simply so much more to correct.
Basically, it’s business as normal them, overlaid with increasing geopolitical stress and doubt. Trying to predict what all the uncertainty means in terms of the risks of inflation/stagflation/recession on earnings, corporate balance sheets and just how central banks will/can react.
Politics.. dashed if I can be bothered reading anything about Boris Johnson anymore. Apparently, he’s planning to be in power for decades. Gone by Christmas one hopes. The EU talking big and doing whatever it takes to support Ukraine is positive – but let’s see how long the EU can deliver.
I’m told the big trade in distressed debt is Russia’s newly defaulted debt – in the expectation the EU will be forced to re-engage on Soviet energy. Long Russia, Long Italy? There’s a barbell made in hell…
Five Things To Read This Morning
FT – Hedge Funds braced for further stock market turmoil
WSJ – Value Investors Bet Recent Market Leadership is Just the Start
BBerg – Russia Defaults on Foreign Debt for First Time Since 1918
FT – Abortion in America – The Road to rolling back Roe vs Wade
BBerg – Britain’s Battered Economy is Sliding Towards a Breaking Point
Out of time, and back to the day job…
Bill Blain
Strategist Shard Capital
Good to see a Randy Newman quote!
Here is a whole song that still sums up all that is wrong with the USA;
“It’s Money That Matters”
Of all of the people that I used to know
Most never adjusted to the great big world
I see ’em lurking in bookstores
Workin’ for the public radio
Carryin’ their babies around in sacks on their backs
Movin’ careful and slow
It’s money that matters
Hear what I say
It’s money that matters
In the U.S.A
All of these people are much brighter than I
In any fair system they would flourish and thrive
But they barely survive
They eke out a living
They barely survive
When I was a young boy, maybe thirteen
I took a hard look around me, asked “What does it mean?”
So I talked to my father; he didn’t know
I talked to my friend; he didn’t know
I talked to my brother; he didn’t know
I talked to everybody that I knew
It’s money that matters
Now, you know that it’s true
It’s money that matters
Whatever you do
I talked to a man lived up on the county line
I was washin’ his car with a friend of mine
He was a little fat guy in a red jumpsuit
I said, “That looks kinda funny”; he said, “I know it does too –
But I got a great big house on the hill here
Great big blonde wife inside it
Great big pool in my back yard
Another great big pool beside it!
Sonny, it’s money that matters
Hear what I say
It’s money that matters
In the U.S.A
It’s money that matters
Now, you know that it’s true
It’s money that matters
Whatever you do”
Much to agree with.
“What will replace America?”
Not a hypothetical.
Well first there will be China Block and Us block in 2 unrelated worlds. The US has smartly recognised that it cannot operate in a truly multi-polar world. That means (post Ukraine and the big ditch dug between Rich Europe and Russia/China) that we, UK & EU are now America.
Then either China wins and we US colonies spend 50 years trying to be allowed to trade with China again or the Thucydides Trap snaps and nuclear war ends all.
“The West may be united on Ukraine, but global support is noticeably lacking. 35 nations abstained from voting against Russia at the UN. ”
35 nations representing 51% of the worlds pop.
Ukraine has forced EU into Us block. It has made most neutrals very very wary of being a friend of the US (like Ukraine was). China seem like saints right now.
“The real issue is how the guardians of the US constitution, the Supreme Court, has become become deeply politicised ”
Yes though I would turn it around. The US legislature has become entirely de-politicised because of too many checks and balances and because politics is mostly about avoiding vote losers, not supporting vote winners (Trump bucked the trend briefly). The administration can do what it likes. But overtly political matters get decided on by the Supreme court on the basis of how a 1973 or a 2022 Supreme court judge might interpret what the 1787 Constitution was meant to mean back in 1787.
It is quite incredible that Abortion law is not discussed in Congress or Senate.
Democracy is not served by a majority of politicised supreme court justices naysaying a majority of the voters…. 59% of all Americans are against this.
Democracy is not served to the 67% of women who fundamentally object to this legalised trampling over their rights, turning the clock back 50 years, and being denied control of the bodies and life opportunities by 4 conservative white Men and a Trump picked Catholic woman.
Not being an American, but with a passing familiarity with the law and the system behind the US’s version of it, I understood the Supreme Court’s role was to be:
A court of last resort
A court of judicial review
A court to protect civil rights and liberties and to strike down laws that violate the constitution
A court to limit the power of government from harming the populace, to ensure all minorities are equally protected..
It seems curious to me at how this dramatic revision of Women’s rights has been achieved. The decision clearly does not reflect not the wishes of the democratic polity, but the personal opinions of justices. As such it allows a minority to overcome the rights of the majority. Which the constitution is supposed to protect you from?
Had an elected government campaigned for office on the basis of over-turning Roe vs Wade with the promise of new laws, then the court could clearly have opined the law was legal and did not violate the constitution, and even stretch their judgement to say it does not harm or take advantage of women… (despite the fact it clearly takes away agency from them.) Were Republicans honest enough to have campaigned on this basis – then if they won, they would have had the right to set America on its path to becoming the The Republic of Gilead in order to please the fundamentalist Christian Right (which incidentally… is of diminishing importance!)
But they didn’t put it to the people. They’ve got this done because the actuarial demographic reality of elderly judges gave Trump the opportunity to brazenly stuff the Supreme Court. Its regressive. The court is a court of review. It does not have an direct ambit to set or overturn judicially established precedent that’s been in place for 50 years – except on the basis they now think its unconstitutional… because they think so. They have done so although it does not represent the consensus of the nation they claim to protect.
Very much agree. But it see it as a legislative failure not a court failure.
Not sure that Trump stuffed the court anymore than anyone else (and in the administration his unwillingness to appoint anyone worked against him – essentially he did not have an army of political appointees waiting in think tanks and lobbying consultancies for the Trump victory – unlike Biden/Obama/Bush).
The US lead the trend to govern by covert action and not through open legislation. But it is present everywhere – the EU does the same. It leads to anti-elitism (aka populism) like Trump and Brexit, and not least because inequality gets ignored.
9% inflation and the Train Drivers are offered 3%. 35 years ago that was what Politics was all about. Front 4 pages of the newspapers.
I’m talking broadsheets of course. (I wonder, if everyone WFHs and there are no trains running anyway, can we go back to broadsheet newspapers?)
You couldn’t be more wrong. The Supreme Court did not outlaw abortion. It simply returned the issue to the individual States. As it should have been all along. This means less federal influence in a State’s ability to regulate itself. That is one of the things that makes America Exceptional. We just got stronger my friend. Power to the people!
Yeah.. sure..
Lol, that made me chuckle.
The travesty is that in the 50+ years the legislature never passed a law protecting the idea of right to an abortion.
As the USA leaves center stage, because there is no dominant player, all the bigger local players try to assert themselves. Yes Europe is in a bad situation because of their resource issues and lack of political direction. If Europe was smart it would have started it’s common defense in earnest in year 1 of Trump’s reign. The writing was on the wall.
“The most precious of all possessions is power over ourselves.”
-John Locke
According to polls, over 99% of people love responding to polls!
I love reading your daily thoughts Mr Blain but remember your sources are important. “According to polls 67% of American women are opposed to the US Supreme Court removing their right to own and control their own bodies.” I’m not a betting man but I bet I’ll be retired (hopefully 10-15 more years) long before CNN or CNBC forms its next unbiased poll. If you have the stomach to read social media without taking it too seriously, yes you might agree with this. If you talk to the average person though, they either A) didn’t know this happened; B) don’t care or C) are paying attention to know that the court did its job of limiting federal government power by pointing out the constitution didn’t give it the authority to make this law – thus kicking it down to the states. The biggest result of this ruling, assuming the death threats to the justices are just threats of course, will be more migration within the states – if that. I struggle to imagine someone in an economic situation to where they feel an abortion is the best option having the ability to move TO california or new york or any of the once great cities bent on self immolation.
If anything, this ruling is actually an improvement for democracy by moving the rule making bodies closer to their constituencies. Less of a onesizefitsall approach for government is always better. I’m not an Englishman but I’ll try to make a parallel example with a series of questions. Say there’s a pothole on mainstreet in your small town. How likely would that be to get fixed promptly if the responsible governing board is in your town? In London? In Brussels? or in Washington DC/Beijing/Moscow/Sydney if we had a global government? I don’t know your personal feelings on the appropriate size of government, but it’s no stretch of the imagination that the more local you make it, the better it will reflect the will of the people affected by the decisions they make.
American logic…
The original problem with Roe is that is was a fabricated right invented in 1973 because the court the influenced by the politics of the day. Reflecting democratic desires of the day is the job of legislatures – not the courts. The 1973 court erred in its judgement and the issue has been contentious ever since – because it wasn’t properly decided (it’s widely accepted that the constitutional “right” was found/invented by the ’73 court). They achieved a legislative policy outcome that the Legislature could not achieve democratically at the time. They did it because they – the 1973 justices – thought it a better policy than what currently existed. They did what the current court is being criticized for. The original sin, however, is the original ruling, which bastardized legal reasoning to arrive at an outcome outside the purview of the court’s authority. The 1973 court damaged the court’s legitimacy. The 2022 court is restoring the damage to the court’s role and reputation in terms of its constitutional authority in the framework of the American system. Abortions legally exist in the U.S. – let’s not forget that. The 2022 court put the issue back to the legislatures – the people – to decide how they are to be governed going forward. We can pass laws and perhaps pass a constitutional amendment to enshrine the right of abortion/choice. I’m personally agnostic on the issue at the national level but am more concerned with the legitimacy of our legal framework. The 1973 decision was awful and it further allowed for political lobbying of the court to accomplish ends that the legislative (democratic) process could not achieve.
I’m certainly glad that Europe seems to have things figured out though. It’s a very sophisticated, sober and wise place. Very good at lecturing. Perhaps they will save the West. Don’t get me started with the American Left and Democrat Party and their never-ending brand of identity & division politics…….