Blain’s Morning Porridge – 27^th November, 2023: The Rise of the Right and it’s consequences for Markets

“The only thing necessary for the triumph of evil is for good men to say nothing.”

Events of the last few weeks highlight a new instability for markets. The Rise of the Right has implications in terms of investment priorities, law and markets, bonds and currencies, multiple consequences and the future outlook for economies.

Who will make me a price on Nigel Farage becoming UK premier sometime in the next 7 years?

Who will give me a “double” on Trump and Farage leading their respective nations sometime before 2029?

These are not questions I ask lightly. A very good chum asked me weeks ago and I said – implausible. Today? Not so sure. I’m certainly not asking because Farage is currently performing, feasting on kangaroo scrotums, on TV’s I’m a Celebrity… Get me out of here. (I have no interest to watch myself, but I’m told Farage is doing it with the bravado a man who loves to bask in the spotlight – and for £1.5mm.) I ask because Farage becoming premier would raise some very serious questions for markets.

(Disclaimer: I met Nigel Farage at a lunch and then quaffed pints with him. He’s a really, really interesting chap. He’s very engaging. But, so was Boris…. Nuff said I think.)

Maybe I doth protest too much, but we ignore the possibilities and consequences of Farage and his backers at our peril. The headline’s in yesterday’s Sunday Times here in the UK were about Lee Anderson (Tory Party Chairman) being offered a sizable bung (used fifties perhaps?) to defect to the Far Right Reform UK party: “a lot of money, I mean a lot of money” he said. Apparently… the going rate for Tory MP’s to defect to Reform is £400k – five year’s salary for any political plodder fearing he/she will shortly lose their seat.

Farage is honorary President of Reform UK – formerly the Brexit party. He makes no secret he wants back into politics. He is a clever populist – yet despite his undoubted almost hero-status, he flies below where the conventional political radars are looking on the threat board. The received political debate in the UK is about how terrible the current government is, and how the UK electorate will dismiss them; disgusted by the infighting, failure to deliver on policy promises, and the sniff of corruption and decay. The question the political pundits ask is how large the likely Labour victory in next year’s general election will be. (The last possible date is January 25^th 2025!)

Nobody “serious” in UK political analysis perceives Farage to be much more than a gifted political disruptor of limited consequence. Nobody thinks a right-wing sweep into vacant positions of power is possible here in the UK. Just like it wasn’t possible in the USA. The thing about populist surprises is they are all about being surprised! Doh!

One potential scenario is the Conservatives will be so crushed at the coming election they will turn to Farage as the populist leader they need to rebuild voter numbers. The bounds between the Tory Right and the Far Right are wafer-thin. If Labour self-destructs in office (entirely possible if the left-wing act like the Tory Reform Group did while blocking Brexit compromise), or a deep recession loses a wobbly Labour administration the next election – then it’s conceivable Farage on the Tory inside could lead a rejuvenated right-leaning party to victory..

Political dreaming… or nightmare? Your call. If it happens it will accommodate all the Dodgies currently funding Reform. But it will never happen in the UK. Never. Ever?

What if we are watching the wrong things entirely?

Populism needs two factors to succeed:

• The first is collapse in trust in the current political status quo. Political strategists assume voters peeved at the failure of the Tories will automatically vote Labour – what if they don’t rate Labour either. That’s a message the far right are pushing hard – “all current politicians have let you down”.
• The second is a cause. The UK Right has a cause. 10-years ago it was Brexit – and that ended up well for nobody.

The past week should have been an eye-opener in terms of the political dynamics in Western Democracies:

• Judging from the shock and surprise in the media, no one in the Anglo-political commentariat thought it possible the Right Wing was set to dominate Dutch politics. Geert Wilder’s Party for Freedom won 23% of the vote and 37 seats out of 150 in a victory that overturned any illusion the Netherlands’ politics are dull, boring or predictable.
• No one expected a domestic incident on a Dublin Street would morph into a night of organised rioting by Irish Right Wing thugs pushing an expel immigrants agenda. More riots in France as a young boy is killed in a standoff between immigrants and the police, triggering more unrest in the sink-estates.
• Hardline Libertarian Tantric Sex Coach Javier Milei won the Argentina presidential election on promises of smashing the state, dollarisation of the economy, while wielding a chainsaw at debates, despite having no previous political experience.
• To the incandescent fury of UK conservatives, UK net immigration rose to 745,000 in 2022-23. I.2 million people came into the UK, and 557K left. Net migration is nearly double pre-Covid levels. Less than 5% of immigrants come to the UK illegally. Yet 64% of Tory voters believe migration is the number one crisis in the UK.
• No one bats an eyelid when Trump repeats his big lie, promises to build walls and “root out the communists, marxists, fascists, and the radical left thugs that live like vermin, that lie and steal and cheat on elections.” Seriously… who would do such a thing?

In case you have missed it: Right-Wing parties are in the ascendant. Trump is leading in US polls. Across Europe from the AfD in Germany, Vox in Spain, The Finns, Le Pen in France, and many, many others are poling north of 25%. They are united by a common thread: Migration. They stand as a block in the EU.

Thus far most right-wing parties, like Giorgia Meloni’s Brothers of Italy, have been forced to water down the rhetoric in office. Geert Wilder has toned back on his Islamophobia to build support for inclusion in the next Dutch Coalition. But what happens when authoritarian Right-Wing Parties win outright control?

• What would that mean for sovereign bond markets if new governments decide to the take back control of central banks, deciding outright control of monetary and fiscal policy is required for their political agendas?
• What happens to economic efficiency when staying in power becomes the driver of the state?
• How does confidence in markets and growth survive in periods of populism?
• What’s the outlook for European growth if the EU curdles in a sea of anti-European national governments?
• What happens in time of crises? Geopolitical or others? Will you put your trust in climate deniers to solve the issues of extreme climate events? The Reform Party is not adverse to funding from the climate science deniers.

All these issues would raise significant challenges to the economic tripod of stable currencies, sustainable bond markets, and political competency that support and encourage stable growth. There are also plenty of clues from history.

I’d start with Adam Tooze’s The Wages of Destruction – the making and breaking on the Nazi Economy – highlighting how bad strategy was but one aspect of defeat. It was Germany’s failing economy that was as responsible for losing the war. The same lessons are evident in the collapse of the Soviet Union on the back of endemic corruption, and the economic bureaucratic unravel in China today. A Right Wing USA may not become Gilead overnight, but the first step; the supreme court removing the right of women to make choices over their bodies, has already been enacted.

Whatever we think, the economic histories show Capitalist democratic nations that bicker between left and right politics, supported by free markets are generally the worst form of economic management – except for absolutely anything else! Yep, Capitalism and Democracy works.

The Right won’t stand down. Arguments against migration are expressed as blunt racist threats to our “way of life”, or in apparently reasonable debates about the “failure of multiculturalism” and the inability of migrants to “integrate”. Migration is a very different threat where its waves of genuine refugees trying to enter Eastern Europe or fears of too many “different” people on the Tube. In the next few years, expect to see the rhetoric of anti-migration expressed in the same planned way as the seeds of Brexit were implanted into the economy: Blame the migrant. Blame the migrant.

Rule one in life: its never anyone’s fault but your own.

I’ve been peeved myself by the wokery that surrounds the topic – a few years ago I was told to my face I’d lost a regular slot on a prestigious radio show for being “Pale, Male and Stale”: dismissed for the crime of being three privileged minorities in a single body!

The Right Wing loves migration. It’s a gift that keeps on giving. It’s an easy cause to turn incendiary and into a vote winner. History shows it’s oh-so-easy to fuel fear by pointing to religion, skin-colour, eye-shape, language, or dress to equate “different” with “danger”. It’s not a big step to add sexual or gender preferences to the mix. From there anything becomes possible – including denial of the right of reply.

Back in the UK… According to the UK’s Office for National Statistics (ONS) 80% of migrants into the UK now hail from non-EU nations. A Conservative remainer (not as rare as you might think), told me: “This is terrible. While millions of Europeans have returned home, we’ve simply replaced them with Indians, Pakistanis, Zimbabweans and Nigerians.”  (Borderline racist, but he missed the point when I reminded him his party has been running the UK immigration policies for the last 14 years.)

According the University of Oxford’s Migration Observatory – a neutral and independent analytics and data provider on migration – in 2022 the UK saw net migration from Europe of -51K, after decades of positive migration. Since Brexit net European migration into the UK has declined over 80%. The UK has turned hostile on Europe: 53% of people refused entry at UK borders are EU citizens. The number of EU citizens at UK universities is down 53% since Brexit. EU citizens in UK employment is declining – less than 8% now. Since 2019 the number of Poles living in the UK has fallen 30% to 700k.  Poland may overtake the UK in terms of GDP.

Current Non-EU migration numbers are distorted by Ukraine refugees, and British non-residents from Hong Kong. These are unlikely to remain long-term factors. In 2021, 14.4% of the UK’s population, 9.5 million people, were born outside the UK. That number has increased from 9% in 2004. About half of non-EU migrants to the UK came for family reasons – while EU migrants came here to work. Most non-EU migrants eventually become UK citizens, while EU migrants typically retained their original citizenship – although that has changed post Brexit.  48% of the UK’s foreign-born population live in London or the South East. In 2022-23 253k Indians came to the UK, along with 141k Nigerians, 89k Chinese and 55k Pakistanis. Many of them are now working for the NHS.

For the record, I reckon migration has historically been a good thing. The success of the UK from 1066 onwards has come from successive waves of migration and absorbing them into mainstream society, fuelling growth and technological revolutions. We think the first Blain came to the UK as a man-at-arms in the Army of William the Bastard – who changed his moniker to William the Conqueror after the Battle of Senlac Hill. Nearly 25% of Londoners who claim 3 generations living in the smoke have French Huguenot blood. Our current prime minister shows how well Indians can integrate themselves well.

The problem is said to be assimilation. Its easy to point at a mosque as an example of non-integration – but it’s just a church of a different design with another name. It’s easy to blame the Holy Koran – because foreign lands were never conquered by the sword, waving torches and the Bible. (US readers: Sarcasm Alert.)

Yet, that is the story the right feed to the electorate. Nope. We are all as bad as each other.

Five Things to Read This Morning:

Businessweek How Elon Musk Spent Three Years Falling Down a Red-Pilled Rabbit Hole

FT                    House of Lords Report calls for Bank of England reform after inflation failures

WSJ                 Investors are Hungry for Risk – and Holding Record Cash Sums

Bberg               China’s Remore Deserts Are Hiding An Energy Revolution

FT                    Markets in 2024: Investors bet on déjà vu all over again

Out of time, and back to the day job

Bill Blain

Market Strategist, Author of the Morning Porridge