By Michael Every of Rabobank
Build Back Bitter
As often repeated, this is not an equity-focused Daily. However, when all the focus is on equities, it deserves comment. What we are currently seeing, as a wag on Twitter put it, is how to REALLY Occupy Wall Street; and you get their attention and you get the whole system’s attention.
Millions of stuck-at-home day-traders are using their US government stimulus cheques and savings to coordinate market moves to push up the price of small stocks being heavily shorted by hedge funds, and even blowing the latter up in the process. It’s David vs. Goliath, wild, anarchic, of questionable legality, and guaranteed to end in tears. Bloomberg refers to it this morning as “a vestigial legacy of Trumpism and the populist backlash against ‘the elites’”. Indeed, this development must be seen as an inadvertent revolutionary backlash to the neoliberal “normal”, albeit one in the tradition of pushing any system to its logical limits to expose its own ridiculous inconsistencies rather than trying to fight against it.
Yes, on one level this is what happens when tens of millions of people are locked down and given stimulus cheques to play with. But it’s also what happens if tens of millions of people grow up seeing that outside of Wall Street (and Tech), there are no jobs that pay as well and tax as little as playing with asset prices; when TV is full of ads for stock-trading and how amazing it is to be rich, rather than anything about public service and communities or culture; when homes and rents are unaffordable, and quality public housing no longer gets built; and when even Joe Public talks about the fact that Wall Street has had central banks channel billions of dollars at them every day for years, and get bailed out when things go wrong. In short, it seems that Joe Public is telling Wall Street what it thinks of their expensive suits, TV prognostications, and insider circles –which Elizabeth Warren just called a rigged game while wagging a finger at both them and Joe Public– and is saying “Let’s cut out the middle man!”
There is the true revolution, of sorts. Nobody on Wall Street really cares about a crowd with signs outside an office building saying ‘Occupy Wall Street’, it seems: the system just carries on regardless. But let’s all be forced to imagine a neoliberal market utopia where nobody does anything except day-trade in a co-ordinated fashion 24/7, in an entire economy driven entirely by asset-price manipulation, and with a central bank propping the system up with printed money when it wobbles. Ridiculous? Sure!! But that’s the financialised system we’ve built – for a lucky few. This just exposes how dysfunctional the system is.
Yes, what is happening will end in tears. Revolutions eat their own young – and so do asset bubbles, which this certainly is. But our whole system will end in tears too if it doesn’t change rapidly. US 10-year yields are already testing back below 1% again, and that’s just on a knee-jerk response, not fully grasping that simply looking down and saying “Why, the peasants are revolting!” “Yes, aren’t they?” solves nothing.
The *systemic* solution to this all is unlikely to be censoring social media chat rooms where day-traders meet – though the r/ WallStreetBets server hosting these public stock discussions just shut them down for “hate speech”, “glorifying violence”, and “spreading disinformation”, with no mention at all of “financial fraud”. (The first two are of course terrible things that should be utterly condemned.) Nor will it be via corralling day-trading while such platforms and wall-to-wall ads to get rich day-trading still exist. So maybe they will need to try arresting stock analysts for “spreading rumours”, as has been tried (apparently successfully?) elsewhere in recent years: is that the way our managed, hyper-liquid markets have to be man-managed now?
That’s one way we all meet in the middle, I suppose. Ironically, the post-Keynesians also argue that if the government won’t use central bank hyper-liquidity for MMT to provide proper jobs with proper wages and proper homes and infrastructure (as is also being de facto tried to some extent in the previously alluded to geography) then we won’t get Build Back Better but, as they say in New Zealand, Build Back Bitter. Then again, the Austrian School argues to just turn the taps off and really go the whole bitter fruit route.
Yet as we prevaricate between bad options and worse, the clock is ticking. Those day-traders are still out there and won’t just go away. With no good jobs or homes to go back to, why should they? And the Fed just made clear it’s going to be the same “throw money at the Wall (Street), and see what sticks” policy for a long time ahead (see here for more from Philip Marey).
Meanwhile, Build Back Bitter is already in action. The EU is continuing to rattle sabres about virus vaccine deliveries that must go to it and not the UK, where it is made, the economic nationalism it purportedly stands in opposition to (small print: unless it isn’t good for France or Germany). As post-Brexit supply chains shift, 1 in 5 requested cargoes from France to the UK are reportedly being rejected, and a survey in a British tabloid says half of respondents plan to buy more British brands now: at least that opens to door to British MMT if it wanted to. Moreover, the EU will grant “financial equivalence” to US clearing houses, not British, in a geopolitical message as subtle as the deeper New Zealand-China FTA announced on Australia Day. That’s a blow to the City, but does not give the EU any real “strategic autonomy” boost at all.
Yesterday also saw the ECB flag that it could cut rates again, which would open the door to the risk of other central banks following suite and then on to a cycle of currency wars (on top of the day-trading Wall Street uprising underway), which the EU is of course officially opposed to as well. EUR today is off the low of that news, but is still holding under 1.21 and looking to see just how risk-off the mess in US stocks is going to get before moving much further. Historically, need one point out that popular unrest and economic nationalism usually comes as a bundle with this kind of FX war action? The missing component in the toxic cocktail in also of course missing in the EU – military rearmament. But not to worry(?!), because everyone else except Europe is doing that on steroids.
“The Roaring 20s” meme is only weeks old; as is my mockery of it, and my asking “Can you count to 30s?”
Thu, 01/28/2021 – 16:16