Rabobank: You Really Couldn’t Make This Stuff Up… And Who Is Having The Last Laugh

By Michael Every of Rabobank

Not Just American Hustle

US oil prices are soaring due to a cyber-attack Friday on a key pipeline, which has disabled it with no fixed date to restart operations. The ‘good’ news is this is the work of a criminal group called Darkside, who just want money. Quite the American hustle. The bad news is it shows how vulnerable economies are to this kind of sabotage at a time when we are hardly short of state actors willing and able to perpetrate it due to heightened geopolitical tensions.

On which, China’s Global Times has threatened China could attack Australia with ICBMs should it get involved in a conflict in the South China Sea, a risk featured prominently in the Aussie media of late. The paper’s editor argues: “Given that Australian hawks keep hyping or hinting that Australia will assist the US military and participate in war once a military conflict breaks out in the Taiwan Straits [NB This is not an ‘if’ conflict breaks out], and the Australian media outlets have been actively promoting the sentiment, I suggest China make a plan to impose retaliatory punishment against Australia. The plan should include long-range strikes on the military facilities and relevant key facilities on Australian soil if it really sends its troops to China’s offshore areas and combats against the PLA. In addition to making the plan, China should also reveal this plan through non-official channels to deter the extreme forces of Australia and prevent them from taking the risk and committing irresponsible actions.” Perhaps it just did: and do markets grasp that underlying reality? No, as the AUD is still firm. There’s still too much hustling to be done to worry about clearly sign-posted events like the above.

For example, we now live in a world where Elon Musk appearing on Saturday Night Live is a source of trading action, with the price of Dogecoin slumping 30% –destroying USD billions in ‘wealth’– after Musk dumped the joke crypto rather than pumping it. According to some online critics, that was the funniest part of the show. Yet Sunday then saw Dogecoin recover on news that Musk’s SpaceX will launch a moon mission in 2022 carrying a mini-satellite…paid for entirely with Dogecoin. (“To infinity, and beyond!”)

You really couldn’t make this stuff up: and who is having the last laugh? Yet this is not so amusing for an SEC already flagging it will act on crypto, and watching Saturday trading, and a collapse and bounce in a crypto asset prompted by an individual just fined $20m and forced to step down as his own company’s chair over Tweets prompting securities fraud charges. Forget about space: this is a dog eat Doge world in the end.

Perhaps some crypto can be kept afloat by another long-running institutional joke: China is now saying it will open its capital market…in 2035. Bloomberg also reports that so far the eCNY is a flop with users on its trial run, and argues “Even if authorities ultimately convince –or compel–  citizens to embrace the digital yuan, it’s far from clear they can do the same with international consumers and businesses already wary of China’s capital controls, Communist Party-dominated legal system and state surveillance mechanisms.” Well, quite, and all very much as repeatedly flagged here over the years. Obviously, a 14-year wait for an open capital account won’t help the eCNY much. Then again, other news underlines this may be as much about compelling as convincing – and that could pivot around how the Taiwan situation plays out.

Amazingly, I have had to list all of the above before we even get to Friday’s shocking US payrolls number, which came in at only 266K when the market had expected 1,000K, with March revised down from 916K to 770K. Obviously this release blew market bets about Fed tapering and inflation out of the water. (There is a lot of that about, it seems.) Indeed, there is now a stronger view that central banks can carry on pumping asset markets and commodity prices –and so headline CPI– in the hope this will magically generate wage inflation. It’s either an amazing fumble or hustle: opinions vary. Meanwhile, from a US Treasury Secretary who knows that (long) game well, the message is that the bad payrolls number means a need for more federal social spending. The problem is that there is a lot of anecdotal evidence that the reason more people are not returning to the jobs that have re-opened for them is not “fear”, but that the combination of welfare packages they are currently on pay more than their old jobs did. If so, what we are seeing in real time is the impact of a high level Universal Basic Income (UBI) – and how is that working out for the economy? About as well as Dogecoin over the weekend.

Firms aren’t going to raise wages when they know the stimulus checks run out soon (and as labor generally has no bargaining power): but they can’t re-open until the workers come back. Yet if the government believes the lack of re-opening requires extended stimulus, then theoretically we can all sit like this for a long time, with no economic hustle or bustle. It’s ironic that just as central banks can’t see their miserly policy towards labor doesn’t work, Keynesianism Redux can’t see its generous policy maybe doesn’t always work either.

Talking of labor not working, the UK Labour Party is again pulling itself apart in response to an electoral hammering, while the sleaze-ridden Tory Party (just going by headlines in the Tory press) is riding high with a promise of letting people “Live Local and Prosper”. In short, the state will invest to stop the drift of young people to big cities by offering them opportunities at home. IS this just a political hustle?

Well, it is logical: the votes of the many outweigh the votes of the few, or the one. Yet it’s political-economy, Jim, but not as we know it: one consistent with Brexit – rebalancing between economies, and rebalancing within economies. Can it be done, and weren’t the Tories the ones who did the exact opposite in all their previous years in power? Hard to say, and yes, they were – but they are now not seen as the incumbents by voters due to the Brexit rebranding. Crucially, the Overton Window has moved: British people don’t want to have to do so in order to live decent lives, a sentiment hard to disagree with unless you are already successful, based in London, and/or believe “because markets” is always the way to go. If this becomes a global meme, markets will be forced to pay attention. Even the ones based in London.

Yet before anyone starts to think that global leadership is learning anything, the UK are leading the way on travel bubbles for all-important summer holidays (rather than trying to sell Hartlepool weekend breaks, etc. – surely preferable to the Falklands, which is on the 12-country UK Green List). This potentially matters hugely because even as vaccination rates are high and Covid cases are low in the UK, scientists are warning the most dangerous thing to now do is allow populations to mix –like you do on holiday– and spread new virus variants, some of which are already coming closer to finding their way around some of the vaccines we don’t have enough of. Yes, open up at home, is the message; but take it slow and steady on the international front. Instead, we seem keen to repeat the error of 2020 on the travel front.

Then again, we are repeating the same old errors on many fronts.