On Monday night the reality soap opera that is the White Horse delivered an almost unimaginable plot twist. The excitingly-named and expletively-driven Anthony Scaramucci was ignominiously deposed as Communications Chief only 10 days after the President announced his appointment. Indeed, in the Alice in Wonderland world in which we live, he actually left the job 15 days before he officially started. Court jester commentators thus had a field day, comparing White House turnover to an episode of Game of Thrones. Blondemoney’s father even departed promptly from the pub in order to catch the news. Truly it is must-see viewing for everyone when the office of the most powerful man in the world indulges in gossip-strewn self-immolation.
Before anyone gets on their high horse about degradation of the office, perhaps there should be a sidebar discussion on matters such as Monica Lewinsky’s dress or the Watergate tapes. That doesn’t concern us, however. What should concern us is that risky assets rallied hard, and particularly US assets, after the Republican clean sweep in November’s elections. Some of it because of an already burgeoning global reflationary force; some of it because the Republicans were expected to rip up, revolutionise and reform the tax system.
Eight months on and what do we have? Intractable and endless pained attempts to repeal Obamacare, let alone agreement on what to replace it with. Distractions about collusion with Russia. Sabre rattling over North Korea. Executive orders that inflame but don’t solve. Certainly nothing concrete that could boost the economy. Which is what the markets are supposed to discount, is it not?
Some argue that a navel-gazing government can be good for the economy. With politicians distracted by their own in-fighting, they meddle less, leaving an economy to find its own equilibrium. The excellent Janan Ganesh in the FT yesterday urges us to ‘enjoy the caress of weak government‘.
Theresa May has been hamstrung from doing anything too disastrous on Brexit, he argues, as a kind of quasi Cabinet government has broken out; ‘a precarious administration can fumble its way to more sensible outcomes than a leader who has what the French president Emmanuel Macron calls “Jupiterian” power.’
Perhaps this is why the White House’s regular reality TV “You’re Fired!” slot is greeted with barely a shrug by financial markets. Who cares about the President reordering the pawns on the chessboard, if it keeps him out of trouble?
There is one big reason: Power abhors a vacuum.
A team without a leader will eventually seek a new leader. The team disintegrates. The centrifugal force imposed by a leader harnesses the team. Without it, it will become unstable. It’s a bold step to consider the UK’s current governing powers as “cabinet government”, rather than just ‘a succession of Cabinet Ministers outlining mutually exclusive ideas about Brexit’ (as one of m’learned political friends puts it). With no discipline from the top, each minister is incentivised to go for the jugular and capture the power. Hence endless rounds of briefing and counter-briefing from the ever-more ideologically-bereft Dodo-ministers of Hammond, Johnson, Fox and Davis. We haven’t even seen this get into full swing yet. At some stage the realisation that the clock is ticking down on the UK’s inability to negotiate Brexit will hit the market hard. As will the understanding that the risk of a new government is not zero. In a minority government, the key is to carry the confidence of the public with you. So, as public mood ebbs and wails, things that seem unimaginable now can easily happen later. Tory dissenters, egged on by a pitchfork anti-hard-Brexit mob, join Corbyn to call a vote of no confidence and then form a new government within the 14 days required by the Fixed Term Parliament Act so as to avoid an election? Don’t count it out.
Meanwhile Trump is not mucking about with the chess pieces just to amuse himself between rounds of golf. He’s constantly testing the levers of power. Trying to bully and then coerce healthcare reform didn’t work. Travel bans didn’t work. At some point he’s going to stumble on the one that does. And that one is foreign policy.
Remember the MOAB dropped in Afghanistan on ISIS in April?
That came out of nowhere. For all the sniggering about Russia, or gossiping about his kids, this man still does have power. Indeed the greatest curb on a President’s power is the burden of expectation. Note that pretzel-choking George W Bush enacted massive tax cuts and war in Iraq, while Nobel Peace Prize-winning Obama’s healthcare reform may not survive. To borrow a Bush-ism, misunderestimating The Donald would not be wise. He’s already half way through a war of words with China over North Korea. Even the well-respected former Secretary of State Condoleezza Rice doesn’t believe N Korea can ever even get close to the possibility of having nuclear missiles. She has said that the US would have no choice but to stop them.
Let’s put this imminent threat of war, and collapsing governments, to one side. If I told you the last 9 days in the S&P has seen the lowest realised volatility in two decades, you probably wouldn’t care. Or be surprised. You might go out and sell some more volatility. It’s the summer. Central Bank aggregated balance sheets are still growing. Passive money is still buying any dips. So who cares? Putting this political nonsense to one side is the de facto stock position for stock investors.
It’s just reality TV soap opera nonsense, right?
Except the central banks are pulling back….
The passive money may eventually pull back….
If the politics becomes less of a game and more of a reality.
Anyone for a nice game of global thermonuclear war?
Reality TV is just about to get real.