Tag: news

By Mish Shedlock of MishTalk

Why is the choice between shutting down the border and no controls at all? And what about demographics? Fertility rates?

Immigration Talks We Should Be Having

Eurointelligence discusses the Immigration Talks We Should Be Having.

The ideas also apply to the US.

Last week, the European Commission set out its ambitions to strike a deal with Lebanon, to stop asylum-seekers reaching the EU from there. Giorgia Meloni [Italy’s Pime Minister] now spends so much time in Tunisia, where the EU signed another agreement to limit migration, that she should consider buying a time-share in Bizerte.

Fabio Panetta, the Banca d’Italia’s governor, recently made a welcome intervention on this. He made a point which you do not hear very often: that without more immigration, the EU will sink demographically. That will mean both its economic and fiscal situation becoming unsustainable. According to Panetta, a common EU-level policy is necessary. Migrants, legally or not, come into the EU as a whole. Even if they are legally restricted to one member state, practically speaking there is often little to stop them moving across borders in a border-free Schengen area.

In Panetta’s own home country, the situation is especially bad. Italy’s total fertility rate is now 1.25 as of 2021. This is far below the so-called replacement level of 2.1, which is necessary to keep a country’s population stable. The only thing stopping its population from cratering is the immigration it receives already. Even if the government could stumble on a way to increase the total fertility rate to replacement level, something virtually no developed country has managed, there would still be inertia.

This basic demographic reality is acute in Italy, but not unique to it. The only countries mitigating it so far are those that accept high numbers of immigrants and integrate them into the workforce, like the UK, Spain, and Portugal. Yet it is something politicians skirt around, for fear that their voters are not prepared to hear the truth.

What you end up with is a worst-of-both-worlds situation. Politicians, especially if they act on their own and not on the EU level, cannot get a handle on irregular migration and asylum-seekers, despite repeatedly promising to. All they accomplish is raising the issue’s salience, while driving disillusioned voters to the far-right.

But on the other hand, they dodge the other side of the coin, the need to accept and properly integrate migrants to keep demographic, and fiscal, balances stable. Until governments are prepared to acknowledge these trade-offs, we should be wary of the feasibility of any commitments they make to consolidate public finances in the long term.

US Fertility Rate

The lead image is from MacroTrends.

The following snip is from VOX.

In the US, the birth rate has been falling since the Great Recession, dropping almost 23 percent between 2007 and 2022. Today, the average American woman has about 1.6 children, down from three in 1950, and significantly below the “replacement rate” of 2.1 children needed to sustain a stable population. In Italy, 12 people now die for every seven babies born. In South Korea, the birth rate is down to 0.81 children per woman. In China, after decades of a strictly enforced one-child policy, the population is shrinking for the first time since the 1960s. In Taiwan, the birth rate stands at 0.87.

The US numbers from VOX are a bit low. The lead chart is more current but I like the VOX discussion. Were it not for immigration, the US population would be in decline.

Is that necessarily a bad thing? At what point does increasing population become a Ponzi scheme due to the energy and food needs?

There are a lot of questions and the only thing everyone seems to agree on is that uncontrolled migration is bad. Even Biden admits that, but he is unwilling to do anything about it.

Progressive Irony

Progressives want open borders but they also want guaranteed living wages, clean energy, slave reparations, a right to shelter, a right to free health care, and net zero carbon. The goals are incompatible.

In the next 5 years employment in age groups 60+ will drop by ~12.5 million

On March 21, I commented In the next 5 years employment in age groups 60+ will drop by ~12.5 million

Due to age demographics, I expect employment in age groups 60 and over to decline by about 12.5 million. Let’s go over the math to see how I arrived at that number.

Government + Social Assistance Accounted for Nearly 60% of Job Growth in 2023

On January 5, I noted Government + Social Assistance Accounted for Nearly 60% of Job Growth in 2023

The welfare state is booming along with social assistance for illegal immigrants.

Family Formation

Taking a step back from immigration policy, why is it that family formation is so low? The unfortunate answer is Fed policy and fiscal policy is so inflationary, that young adults have come to expect they will be worse off than their parents.

If so, and that seems accurate, this will be the first time in US history.

Importantly, houses are too expensive. Zoomers and younger millennials are angry over housing costs. And millions of illegal immigrants need a home and services.

Rent is so expensive and anger so high over housing costs that People Who Rent Will Decide the 2024 Presidential Election

Finally, a recurring theme: The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate

The Fed is largely responsible for the housing mess and Biden/Congress is responsible for the rest.

Yet Biden refuses to do anything lest he upset the Progressives who want open borders, guaranteed living wages, clean energy, a right to shelter, a right to free health care, and net zero carbon.

Authored by Stephen Katte via The Epoch Times,

Dr. Anthony Fauci is locked in to testify before the Select Subcommittee on the Coronavirus Pandemic on June 3, his first public hearing since retiring as the president’s chief medical advisor in 2022.

Subcommittee Chair Brad Wenstrup (R-Ohio) announced in an April 24 press release that Dr. Fauci agreed to appear late last year.

“Retirement from public service does not excuse Dr. Fauci from accountability to the American people,” Mr. Wenstrup said.

“On June 3, Americans will have an opportunity to hear directly from Dr. Fauci about his role in overseeing our nation’s pandemic response, shaping pandemic-era policies, and promoting singular questionable narratives about the origins of COVID-19.”

Dr. Fauci testified in a closed door hearing in January.

According to Mr. Wenstrup, Dr. Fauci has already admitted “to serious systemic failures in our public health system,” which he says deserves “further investigation.”

Mr. Wenstrup says among other revelations, Dr. Fauci has said the six feet apart social distancing guidance, recommended by federal health officials and used to shut down small businesses across the country, “’sort of just appeared,” and was likely not based on scientific data.

During the two-day January hearing, Dr. Fauci revealed he signed off on every foreign and domestic NIAID grant without personally reviewing the proposals.

He also admitted that America’s vaccine mandates, which he promoted, could increase the public’s vaccine hesitancy in the future.

Lab Leak—Not So Far-Fetched

At the same time, Dr. Fauci said the lab leak hypothesis around COVID-19’s origins might not be a conspiracy theory, despite his previous very public assertions that it was.

The lab leak theory claims that SARS-CoV-2, the virus that causes COVID-19, was developed at the Wuhan Institute of Virology (WIV) and was accidentally leaked. In the years since COVID first appeared, this hypothesis has been gaining steam, with even the former head of the Chinese Center for Disease Control and Prevention (China CDC) saying it can’t be ruled out as an option.

Mr. Wenstrup claimed that during the previous hearing, Dr. Fauci said he “did not recall” specific COVID-19 information and conversations relevant to the Select Subcommittee’s investigations over 100 times.

A full transcript is expected to be released before the public hearing in June.

Mr. Wenstrup believes the testimony shared so far “raises significant concerns about public health officials and the validity of their policy recommendations during the COVID-19 pandemic.”

“We also learned that he believes the lab leak hypothesis he publicly downplayed should not be dismissed as a conspiracy theory,” he said.

“As the face of America’s public health response to the COVID-19 pandemic, these statements raise serious questions that warrant public scrutiny,” Mr. Wenstrup added.

Following Dr. Fauci’s hearing, the select subcommittee will also hold a public hearing with EcoHealth Alliance president Dr. Peter Daszak on May 1.

Mr. Wenstrup said it “will serve as a crucial component of our investigation into the origins of COVID-19 and provide essential background ahead of Dr. Fauci’s public hearing.”

“We look forward to both Dr. Fauci’s and Dr. Daszak’s forthcoming and honest testimonies, and appreciate their willingness to voluntarily appear before the Select Subcommittee for public hearings.”

The US military’s ambitious project to erect a large pier off Gaza’s coast (all within a war zone) to allow maritime shipments of humanitarian aid to Palestinians is off to a rocky start, after new reports that the construction site has come under fire.

UN officials were reportedly present at the location on Thursday when it came under attack by unknown gunmen, forcing the visiting delegation to take cover. Hamas has previously warned that it plans to resist any foreign military entity on Gaza’s territory, which would include the US forces constructing the pier. The Israel Defense Forces (IDF) issued a statement blaming Palestinian terrorists for the attack (either Hamas or PIJ/Islamic Jihad), which included the launching of mortars.

“Members of a terror group in the Gaza Strip launched mortars at an under-construction pier for a US-led project to bring aid into the Palestinian enclave yesterday, the military says,” as cited in Times of Israel. “The mortar attack occurred as United Nations officials were touring the site with Israeli troops on the coast of central Gaza, the IDF says in response to a query on the incident.”

Officials said there were no casualties, but the IDF rushed the visiting UN officials to shelter. The UN subsequently also acknowledged the unprecedented attack on the site.

“The terrorist organizations continue to systematically harm humanitarian efforts while risking the lives of UN workers, while Israel allows the supply of aid to the residents of the Gaza Strip,” the IDF added in its statement.

During his March State of the Union address, President Biden formally ordered the Pentagon to conduct an “emergency mission” to expand US humanitarian access to the Gaza Strip using a maritime route. He described that a port will be built by the US military, and will utilize a temporary pier to get supplies from ships to the people of Gaza.

Via Middle East Eye

Iranian military commanders and high-ranking officials have warned they could change their approach in developing the country’s nuclear program after increasing tensions with Israel, implicitly announcing their readiness to take it into a military phase.

Before the recent direct military confrontation with Israel, Iran had always insisted that its nuclear program solely had peaceful goals. This stance dramatically changed in recent weeks. Javad Karimi Qudousi, a member of the Iranian parliament’s National Security and Foreign Policy Commission, on Monday implicitly claimed that Iran was only one week away from its first nuclear weapon test. The lawmaker wrote on X: “If the order is issued, it will be one week before the first test.” 

Karimi Qudousi did not mention Ayatollah Ali Khamenei, but such an order would come from supreme leader who has a final say in all matters in Iran.

On Tuesday, in two videos posted on X, he stressed that the targets of Iran’s potential military nuclear program would not only be Israel but also European countries supporting Tel Aviv.

Moreover, hours after the Israeli attack on an air force base in Isfahan last Friday, Ahmad Haqtalab, the commander of the Nuclear Centers Protection and Security Corps, suggested the same idea. “It is possible and conceivable to revise the nuclear doctrine and policies of the Islamic Republic of Iran and deviate from previous considerations,” he was quoted as saying.

On Monday, the Javan daily, affiliated with the Islamic Revolutionary Guard Corps (IRGC), highlighted Haqtalab’s remarks, adding “Israel has taken this threat seriously and retreated from their [aggressive] stances.”

Teacher given 11 years for teaching Kurdish language

A teacher in the Kurdish regions of Iran has been handed an 11-year prison sentence by the Islamic Revolutionary Court for his role in establishing a cultural centre where the Kurdish language was taught, local media reported.

Soma Pourmohammadi, a Kurdish language educator and a board member of the Nozhin cultural and social organisation in Sanandaj, received the lengthy sentence along with exile in two separate cases. 

According to the verdict delivered on Saturday, he was convicted of “forming groups and factions with the intention of disrupting the security of the country” and given a 10-year prison term and exile to Kermanshah prison. 

Prior to this ruling, another court had sentenced Pourmohammadi to one year suspended imprisonment for “disturbance of public order”.

The Nozhin Social-Cultural Association, an independent cultural group, has been actively engaged in various cultural endeavors over recent years, including conducting free Kurdish language classes in different Kurdish cities.

Despite several languages such as Kurdish, Turkish, and Balouchi being spoken in different parts of Iran, Farsi remains the country’s only official language. 

https://t.co/hudKW8YQLk
UN nuclear chief: Iran is just weeks away to have enough enriched uranium to make a nuclear bomb

— Charlie (@Charlie007Girl) April 25, 2024

Private jet imports spark controversy

While government authorities have banned the import of many goods, such as expensive mobile phones, due to the economic crisis, the import of private jets has become the center of public attention.

Focus on the issue began when the head of the Civil Aviation Organisation, Mohammad Mohammadi Bakhsh, told the Ilna news agency: “The purchase and sale of seven-seater jet planes is open to the public. Many people are currently utilizing this option, including businessmen, officials, sports teams, and economic teams.”

The announcement sparked a widespread backlash in local media, with both reformist and conservative outlets criticizing it. 

On Monday, the pro-reformist daily Etemad published an article under the headline: “Goods for those who are better than us,” questioning why the purchase and sale of private jets was permitted for a select class amid the country’s economic crisis.

“Why, in the current tight currency situation where many goods are categorized as ‘luxury’ and importation is prohibited, is the purchase and sale of private jets unrestricted for a privileged few? This perpetuates inequality in society,” said the daily. The newspaper also demanded transparency, urging authorities to disclose the names of individuals who own private jets.

Rokna, another Farsi-language media outlet, characterized the publication of this news as emblematic of the profound social class divide. “While the purchase and sale of jet aircraft has been liberalized, the general public lacks the means to afford even a domestic car,” Rokna highlighted.

A reduced geopolitical risk premium for Brent crude this week is likely one of the main drivers resulting in the largest daily outflows for the US Oil Fund ETF. Tensions between Iran and Israel have subsided in recent days, and it’s entirely possible the White House is busy mediating both sides to ensure a wider conflict doesn’t rocket Brent prices above $100/bbl.

Bloomberg data shows that the US Oil Fund experienced the most massive daily outflow ever on Tuesday, with investors pulling a record $376 million, exceeding the outflow of $323 million set in 2009. Though as the chart below shows, there was a huge inflow just a day or two ago…

“The timing of this activity coincides with a general easing of immediate tension in the Middle East over the weekend,” John Love, chief executive officer of USCF Investments, told Bloomberg. USCF Investments is the firm that manages USO. 

What happened here? USO’s total assets decoupled and negatively diverges from oil prices (a similar picture to what we have seen in gold as physical demand soars as paper demand ebbs). 

Love said, “Given how high tensions were prior to the strike, it’s likely this was an event-driven selloff.”

Brent crude prices topped $91/bbl in early April and traded above the $90/bbl level through the mid-point of April as Iran and Israel volleyed missiles and bombs at each other in an unprecedented escalation between the two countries. However, the turmoil appeared more or less theatrics than anything else. Prices have since faded to the $87-$88/bbl level. 

“Brent crude oil prices have retreated from their recent highs following a perceived de-escalation in the Israel-Iran conflict, and we continue to expect prices to remain range-bound over the coming months given current fundamentals,” Goldman’s Jenny Grimberg wrote in a note to clients on Wednesday. 

Grimberg shifted up her Brent price floor to $75bbl from the previous line of $70/bbl to reflect OPEC’s increasingly strong influence on the market, softening US supply, a more robust demand outlook, and ongoing geopolitical risks. She also adjusted her price forecasts for 2H24/2025 to $86-$82/bbl (from $85-$80/bbl).

“That said, we maintain our $90/bbl ceiling on prices, owing partly to ample OPEC+ spare capacity, which limits upside price risk,” she added. 

On Thursday, in a separate note, MUFG Bank’s Ehsan Khoman outlined a “reduced geopolitical risk premium” impacting Brent prices but said, “a broader risk-off tone is being overshadowed by bullish US crude inventory numbers, with front-end Brent pricing consolidating below the USD90/b handle.”

Khoman pointed out that oil bulls are sitting comfortably with prices over the 50-day moving average of $86/bbl.

He expects Brent to trade between the $80/bbl and $100/bbl range for the rest of the year primarily because of “effective OPEC+ market management” on the supply side, adding that the lingering risk remains geopolitics in the Middle East. 

That said, the largest USO daily outflow ever is likely not an ominous sign of a major trend change in crude prices but rather just a cooling of the geopolitical risk premium. A combination of lingering threats in the Middle East and OPEC+ market management will keep prices elevated. 

Baltimore City filed a lawsuit against the owner and operator of the container ship that crashed into the Francis Scott Key Bridge last month, causing it to collapse. 

Attorneys for Baltimore’s mayor and City Council claim the bridge collapse was caused by “negligence of the vessel’s crew and shoreside management,” according to the Washington Post. 

In the early morning hours of March 26, the Dali, a 213-million-pound container ship owned by Grace Ocean Private Limited and managed by Synergy Marine PTE LTD., lost power and slammed into one of the main pillars of the 1.6-mile long Key Bridge, instantly crumpling the bridge and blocking the only shipping channel in and out of the Port of Baltimore. 

“The Dali slammed into the bridge, causing the bridge’s immediate collapse, killing at least six individuals, destroying Baltimore property, and bringing the region’s primary economic engine to a grinding halt,” the city said in court filings. 

“None of this should have happened,” the attorneys said, adding, “Reporting has indicated that, even before leaving port, alarms showing an inconsistent power supply on the Dali had sounded. The Dali left port anyway, despite its clearly unseaworthy condition.”

Earlier this month, Grace Ocean and Synergy Marine submitted a request in federal court to cap their potential liability at $43.6 million. Baltimore on Monday requested that the court dismiss the companies’ petition to limit liability.

The court filing also called the crew of the Dali “incompetent” and lacked proper skill or training, adding they were “inattentive to their duties” and “failed to comply with local navigation customs.”

The source of the “inconsistent power supply” has yet to be identified, and the Federal Bureau of Investigation and the US Coast Guard have launched a criminal investigation into the crash. 

Meanwhile, the city of Baltimore failed to install fender systems to prevent ships from crashing into the bridge. These fenders could have prevented the collapse. 

Why did the city, county, or whoever manages the bridge fail to install fender systems? Were progressive lawmakers in the city and state too distracted with their socialist agenda to focus on upgrading critical infrastructure? 

Authored Robert Burrows via BondVigilantes.com,

Renowned for its role as a hedge against economic uncertainty and inflation, gold has long captivated investors. One key factor influencing gold’s price is the relationship between real yields and inflation. Over the long term, gold has protected one against the pernicious effects of inflation and remains a powerful diversifier within an investment portfolio:

Source: M&G, Bloomberg, 23 April 2024

Real yields, also known as inflation-adjusted yields, represent the return on an investment after accounting for inflation. They are calculated by subtracting the inflation rate from the nominal yield of a financial instrument, such as a government bond. Real yields provide a more accurate measure of an investor’s purchasing power and the true return on their investment. Historically, gold prices have exhibited an inverse correlation with real yields. When real yields are low or negative, indicating that inflation-adjusted returns on fixed-income investments are meagre or eroded by inflation, investors seek alternative stores of value, such as gold. Conversely, when real yields are high, offering attractive returns relative to inflation, the opportunity cost of holding gold increases, leading to downward pressure on the gold price.

The below chart demonstrates this general trend:

Source: M&G, Bloomberg, 23 April 2024

While the trend is not perfect, the following chart demonstrates that correlations have been negative for the bulk of the time:

Source: M&G, Bloomberg, 23 April 2024

So why is gold going up? If these correlations hold and real yields are moving higher, the gold price should be trending lower. There is something else at play. Investors will generally point to global instability, with geopolitical concerns being obvious. The other would be the challenging fiscal backdrop of many major economies, which I have written about. These concerns are well founded; however, they do not seem to be showing up in other risk assets.

BBB US corporates are trading at their all-time tights, so there is nothing to see here:

Source: M&G, Bloomberg, 23 April 2024

Volatility is not exploding, as shown by the volatility index VIX:

Source: M&G, Bloomberg, 23 April 2024

A quick look at China shows some interesting developments. We know why interest rates have gone up: to combat inflation. However, yields may still be pressured higher due to countries selling down their treasury reserves. China, for example, has been reducing its treasury reserves for some years. This is not the sole reason for higher yields but will be a contributory factor. The below chart shows Chinese treasury reserves falling plotted against the 10-year treasury yield (inverted):

Source: M&G, Bloomberg, 23 April 2024

Where are these funds going? Bolstering gold reserves it would seem…

Source: M&G, Bloomberg, 23 April 2024

…, and China is not alone in this thinking:

Source: M&G, Bloomberg, 23 April 2024

We have witnessed many responses with the onset of the war in Ukraine, one of which is sanctions. The sanctions have attempted to lock out a country from its reserves. The West’s freezing of Russia’s gold and forex reserves in response to the conflict appears to have triggered this shift. More recently, there have been threats to confiscate Russian reserves and use these funds to support Ukraine’s efforts. This will undoubtedly make other countries somewhat nervous, especially those not 100% aligned with the West’s worldview. 

Clearly, the Gold price is influenced by a multitude of factors, and one cannot point to any one single issue. However, it doesn’t seem as though gold is currently being bought for its safe-haven appeal at this stage. Where would the gold price be if the Fed starts cutting and the geopolitics worsen?

$1.027 million...or about 16 bitcoin.

That’s what the infamous ‘Buy Bitcoin’ scribble drawing on a yellow legal pad, once held up at a televised Congressional testimony behind Federal Reserve Chair Janet Yellen, just sold for at auction, according to Bloomberg. 

The report notes that the sign quickly became iconic in the crypto community, symbolizing the industry’s revival. Bitcoin’s price soared from about $2,300 to a peak of nearly $74,000 in March, boosted by major financial firms like Fidelity and BlackRock.

As retail interest came around, early Bitcoin memorabilia like the pad regained popularity. NFTs…well, not so much.

An anonymous buyer secured the item with a bid of 16 Bitcoin on the auction site Scare City, the report notes, although a temporary glitch suggested a mistaken bid of $6.4 million before correction.

Give them a break. After all, not everyone is on the bitcoin to USD conversion standard just yet…

But if the price of the pad is any indicator, interest in the crypto remains hot. 

“The page with the sign drawing was removed from the notepad shortly after the hearing. It has since been reattached with clear archival wire,” the item’s description read at the auction. 

Christian Langalis, a 22-year-old intern at the Cato Institute, created the sign during a 2017 House Financial Service Committee hearing featuring Janet Yellen. After being televised, Langalis was escorted out. The auctioned item, described as “Ink Drawing on Legal Pad,” also includes his notes from the session.

By Michael Every of Rabobank

The Golden Path

USD/JPY is at 155, a fresh 34-year high, with the Yen slumping 10.2% year-to-date and suggestion that intervention may not come until we get to 160, a level last seen in 1986. USD/CAD is off recent lows at 1.37 but under pressure (as noted by Christian Lawrence): some suggest the Loonie could fall as far as 2 (so CAD/USD at 0.5) a decade from now. So, a higher US dollar. Which FX dominoes haven’t fallen yet, and when might they?

Australian CPI data suggest it will be hard to cut rates in 2024, as the median Sydney house price moves up to A$1.6m with them at 4.35%. Mexican CPI surprised to the upside, also suggesting further rate cuts may not roll out as had been priced in. Bank Indonesia shocked markets with a 25bp rate hike to 6.25% to try to relieve downwards pressure on IDR. So, what looks like higher rates for longer than had been expected. What breaks where, and when?

Geopolitical tensions will also be higher for longer. Europe made a dawn raid on a Chinese firm as Politico says: ‘EU to China: Open your public markets or we’ll close ours’. US Secretary of State Blinken is in Beijing against headlines warning of US sanctions on Chinese banks for helping Russia. President Biden signed the TikTok divest-or-ban bill, which Bloomberg warns will see China target US firms in kind. US military aid is already flowing to Taiwan, Ukraine, and Israel: the US is planning to convert old Pacific oil platforms to military bases; Ukraine was striking Russian energy targets even before it got access to new, longer-range US missiles; and Israel is closer to moving against Hamas in Rafah and Hezbollah in Lebanon, if not Iran (for now). The New Statesman echoes warnings made here since the mid-2010s: ‘The age of danger: order is breaking down as the great powers take sides in multiple wars’.

Economic policy also continues to get more populist: although it has no chance of happening, President Biden has proposed a 44.6% capital gains tax, the highest in US history, and a 25% tax on unrealized gains by high net-worth individuals. More realistic, perhaps, France’s opposition has proposed financing the country’s green transition with entirely with QE.

Let’s be frank, it’s hard to see a ‘Golden Path’ for markets ahead. It’s even harder to see ‘The Golden Path’ – a global economic system that allows maximum market/personal freedoms, yet with minimal inequality both domestically and internationally, and so socioeconomic and geopolitical stability. Yet absent that Path, we end up Hamiltonianism or mercantilism, economic war, real war, and a Great-Power-struggle ‘age of danger’.

Bloomberg just made reference to this (‘Geostrategy Industrial Complex Is a Win-Win’) vis-à-vis the real economy, noting corporate and foreign policy elites are talking more to each other, “which is good for both sides”. Yet financial markets continue to ignore foreign policy elites! Where are the macro forecasts adjusted for a world of Great Power struggles? Most still look remarkably similar to ones without that backdrop. (By contrast, note our ‘geopolitical’ work on Europe’s growth and inflation.) Where are the FX, rates, equity, credit, commodity, and property scenarios for a world of Great Power struggles? Again, most still look remarkably similar to ones without that backdrop – correct me if I am wrong, but it seems only our Fed watcher Philip Marey is predicting Trump tariffs would be a roadblock to ongoing Fed cuts in 2025.

Let’s be Frank Herbert.

Bloomberg also praises Hollywood’s ‘Dune 2’ for predicting the future better than Fukuyama for its old-and-new high-tech, feuding Great Houses struggling for control of the Spice without which the economy can’t function, as religion sweeps people to violent jihad. That comparison is true, but there is a deeper parallel to our present situation. Those who have read the Dune series repeatedly know all that backdrop supports two central overarching themes:

• First: “Don’t follow charismatic leaders.” Paul Atreides is no hero: he is directly responsible for the deaths of 61 billion people.

• Second: “The Golden Path.” Paul doesn’t have the stomach to follow through on what he needs to do for mankind, but his son, Leto II, does. **SPOILER ALERT** He fuses himself with a sandworm to become a dictator for 3,500 years, destroying Spice, space travel, and the economy, to teach people “a lesson they will remember in their bones”: that once they can break free of his reign, which he eventually allows, they should become as diverse and far-flung as possible to never allow anyone or anything to threaten them in their entirety again.

The conflict between humanity’s stated desire for peace and their actual need for volatility is the central message of the Dune series.

We built a centralised neoliberal global system that repressed volatility as QE Spice flowed. But while Great Houses thrived, and some got very rich selling shadow-bank Spice derivatives, that system only increased, not decreased, our fundamental vulnerabilities to key threats. Returning to a world of Great Power struggles may ironically create healthier economic systems and societies over time, in some respects.

True, that likely won’t allow such free markets. But while we need some volatility to get stronger –think of Taleb’s anti-fragility– we don’t need other kinds, like a sandworm swallowing us whole (or the financial market equivalent as past vol-repression has to be unwound), or people launching jihads at home or abroad. Which there is rather too much of right now.

So, Trump fusing with a sandworm may teach us all a geopolitical lesson “in our bones”: does his orange skin reflect excess McMelange consumption even if his eyes aren’t blue-in-blue?

Back to markets: the God Emperor of Dune, Leto II, maintains a complete monopoly on melange, the real currency in the universe; but apart from that, the books don’t say much about rates or FX. I’m just not sure what the Golden Level of rates is on our Golden Path. Then again, neither do central banks. And financial markets mostly have their heads deep in the sand.