Rabobank Asks How Bloomberg Would Have Covered WW2
Wed, 09/02/2020 – 10:56
By Michael Every of Rabobank
I was catching up with an old friend last night and discussing, among other things, the current state of the world and how markets react to it. I remarked to him that I had long wanted to write a Daily underlining both how serious the potential developments taking place around us are, and how utterly banal and/or facile so much of the market commentary on said events is. Not only doesn’t it see the forest for the trees, it doesn’t even try to see the trees, because it’s too busy looking at all the ‘green’.
The idea I long had in mind was along the lines of “How Bloomberg would have covered World War Two”.
For example, in the run-up to the war there would have been much op-ed tut-tutting about the slide into protectionism, and into currency wars, and the risk of a slide into socialism in the West – just as there is today about the same things. (Note the ECB’s Lane yesterday said they don’t look at the exchange rate, but the 1.20 level in EUR/USD “matters”: that is called looking at the exchange rate, and it looks like the FX fightback may have begun. Indeed, right on cue Bloomberg is today calling out all the arguments in favour of selling EUR and buying USD that were as true yesterday as they are today – apart from the ECB’s verbal intervention.)
That kind of pre-war article would have been balanced by op-eds saying that take away the ‘rough edges’ and Mr Hitler wasn’t all bad, and look at all his new Autobahns and trains running on time, and why should we want to fight a war at all? Which, believe it or not, many Western papers actually did write for years (see here and here). They don’t like to mention it, of course: history is written by the winners, and look who does all the writing.
Once war was declared, we would probably have had 24 hours of sombre headlines.
Then, presuming there was no war-time censorship–unlikely given we already have press censorship and self-censorship today, and we are not even at war–and given that there would never have been the patience for a six-year, gruelling, barbarous conflict, within a week we would have had at least one voice asking: ‘Is it time to buy central Berlin property?’; and, of course, ‘Should we be getting back into stocks?’
As the years rolled by, this would no doubt have been followed by deep, rigorous structural analysis of the existential clash underway along the lines of ‘Uniforms: who wears them better?’, and ‘The Battle of Stalingrad is so mid-1941’ right the way through to its bitter end in February 1942, when the switch would have then been to wondering when the Stalin regime might be re-opening for tourism.
Then, with final victory in 1945, it would have been back to railing against post-war reconstruction and social spending, and the overall rigidities of the Bretton Woods architecture set up specifically to prevent the kind of economic and financial instability that had led to WW2, as well railing against the financial repression needed to pay off the war debt – just like today again, in fact.
So that was already my plan. Then I open Bloomberg today and see the main morning headline is “The Triads”, which is not talking about the crime syndicate, but rather that “China Boosts Nuke Capabilities: Pentagon”.
Bloomberg breezily notes China is closer to joining the nuclear “triad” club, an elite group currently made up only of Russia and the US, who can deploy nukes via planes, or via land, or from the sea. “China is set to at least double its nuclear warhead stockpile over the next decade and has boosted its ability to reunify with Taiwan by force,” Bloomberg quotes the Pentagon as saying. But here comes the good news: “Defence officials may use the news to press American lawmakers to fund an upgrade of the US arsenal,” the coverage concludes. In other words, lots more spending! Go long nukes! And yay trade deals, I suppose!
Meanwhile, US stocks are at a record high, and the Fed owns a third of the US mortgage market and rising.
Life imitating art imitating life.
Just to underline, we all face a staggering range of health, social, economic, financial, political, and environmental problems. Many of them will require difficult local solutions, and the largest, difficult global ones. All of them are going to be very, very expensive to fix. Yet the dizzying expense of more nuclear weapons is apparently a priority. And when I say dizzying, I mean it. These things are expensive.
In “Atomic Audit” (1998), Stephen Schwartz claims the US had spent USD5 trillion since 1940 on developing and maintaining its nuclear arsenal even though it hasn’t built a new one since the 1990s; President Obama agreed a USD1 trillion maintenance and upgrade package back over the next 30 years around five years ago: this is now likely to get a major boost. China is also going to have to find vast sums to fund its new nukes; and don’t think Russia will allow itself to get left behind.
It would be nice to think that this can be a repeat of the 1980s, where we started with an arms race and ended with the end of the Cold War. Somehow I doubt everyone in every country will be seeing it in those terms. Quite the opposite, in fact. And it’s certainly very unlikely that this will see any 1980’s style interest rates anywhere: rather lower forever will rule.
Indeed, consider Australia, who is increasing its defence budget by 40% over the next decade to prepare for a “poorer, more dangerous world”. They just saw Q2 GDP collapse 7.0% q/q vs. expectation of a 6% drop, marking the first technical recession in 29 years. Bloomberg notes Bloomberg-ily that “the recovery already underway” may be complicated by the viral resurgence and the lockdown in Victoria; and, I may add, a trade war; and no Chinese tourists; and a wobbly housing market. In the same way The Battle of Stalingrad was “complicated” by the other side.
Over the Tasman, the RBNZ Governor was again making it clear today that he wants looser monetary policy, and that rates could go negative. Looking at the shift in the RBA’s language as it left rates on hold yesterday–the key policy wording was changed to a pledge to maintain “highly” accommodative, not just accommodative, policy settings as long as is required, and that the bank “continues to consider how further monetary measures could support the recovery”–one wonders when they will eventually start beating the same drum too.
Anyway, back to another day of radioactive markets.