Whether the USA?

Blain’s Morning Porridge – Feb 15 2021: Whether the USA?

“Revenge is profitable, gratitude is expensive…”

As all readers of the Morning Porridge know, I am a boundlessly happy pessimist possessed of a cheery disposition. But, I should probably warn you; this morning I’m not happy. In fact, I’m pretty miserable – stuck in endless groundhog days of lockdown. The weather is dreich and dull. I can’t watch the TV news without an overwhelming need to throw something sharp and heavy at it. And, over the weekend my sporting expectations – which gave hope and meaning, direction and lift to my increasingly pointless existence – took a major dunt.

In the Rugby 6 Nations Scotland dominated 80% of the play, but come away with 48% of the points versus Wales. In the sailing, the UK’s America’s Cup challenger, Britannia is now 0-4 down in a first to seven race series in the Prada cup with Italy’s Luna Rossa ahead. The pretty Italian boat is marginally faster and is very well sailed, leaving Sir Ben Ainslie’s equally skilled crew struggling in its wake. And now Auckland, venue for the event, has been plunged into lockdown. And, to make it worse, the snow in Cortina on the BBC’s Ski Sunday looked wonderful.

Woe, Wow and thrice Woe.

Thankfully, there is plenty of interesting stuff going on in the office…

Back in the real world…

On Friday I got a couple of emails following my note on Megatrends, suggesting I might have missed the really big one: the End of America as a Global Superpower and the End of the Dollar.

I laughed and poured scorn on idea:

First, the global recovery from the Pandemic is likely to be strong and robust. As the de facto global currency, the dollar will thrive. The US is already poised for an acceleration: Goldman were on the wires last week suggesting 6.8% recovery growth this year, and 4.5% in 2022, with the Fed standing poised with easy money. The risks of inflation remain muted, “economic overheating” (as some have cautioned against) would be a good-thing, while for all the talk of confidence in the dollar collapsing because of excessive debt… everywhere has excessive debt these days. Get used to it.

Second, I suggested the US is militarily and economically more than able to square off on global competition with China. Geopolitics will be a critical market factor over the coming decade. It won’t just be China. The US faces multiple trade challenges from Europe, Russia and even India. With a new US administration of grown-ups, I’m fairly  confident the damage of the last four years might be undone. Biden has begun the process of regaining trust, regathering America’s allies and rebuilding confidence in the USA globally.

Third, American business is well placed to sustain its reputation for exceptionalism, and combine its global leadership with the revolution in new technologies like robotics, AI, 3-D and the rest, to lead the globe in the adoption of new innovation.

It all looks very positive..….

But.. what if the US naysayers are right?

Maybe the US has reached the end of its particular line in the history books – 100 years in the spotlight, and now the focus has shifted. Where the US goes next is really up the Americans, and after the weekend, I am beginning to question their collective ability to engage or rebuild their global relevance. It’s a mix of politics and businesses, and whether the US can break out of its current internal fixation.

Mr Trump’s “grace and composure” (US Readers – unsubtle sarcasm alert), after surviving his second impeachment vote is a hint of what is coming: MAGA II – this time its personal. The first Trump interregnum was chaotic, unfocused and did untold damage to the US globally. It’s second coming could be more structured, coalescing around an extreme right-wing perspective of what America should be. It would confirm US disengagement.

Already we are hearing daughter-in-law Lara is earmarked for a senate seat in 2022. 74% of Republican votes still favour him – according to weekend polls. There are only 2 short years for Biden to grab the electorate and align them, or face nullity.

“Trumpism” looks to be developing into a full-blown political creed designed to appeal to its very clearly defined supporter base. MAGA II won’t be pretty: isolationist, protectionist, and authoritarian – but will appeal directly to American’s wondering what went wrong with the dream. It’s a recipe for further division and gridlock through the Covid recovery.

The question is: can America heal its splintered political system any time soon? On the evidence presented over the weekend… No.

Trump has riven the Republican Party to its core. A few brave souls voted his guilt, but more Republican senators found themselves trapped – voting not to impeach, while mouthing they would have liked to. The ire of Trump supporters is going to dominate the GOP – making any kind of consensus with Biden’s administration a long shot. Any Republican hopeful knows Trump’s first order is to purge HISparty of disloyalty. Anti-trump Republicans will be harried out of office and replaced with clones more biddable from Mar-a-Largo. It’s happening.

It matters not whether Trump ever gets back. His mantle will pass to others. There may even be worse outcomes than President Erik or Ivanka – and that is a terrifying prospect for global leaders and businesses contemplating long-term business relationships with the US. IT will play right into the hands of China offering greater stability.

Trump was bad enough, but what if Elon Musk decides not to move to Mars and takes a pop at the presidency? At what stage does the White House become just like the Roman Empire?

America’s looming tumble into crisis is not just about the Republicans.  The Democratic heartlands of New York, California and Chicago which are seeing their tax-base hollowed out as businesses and the money flees. There is lots of talk about rich hedge funds fleeing to Palm Beach, but when jobs exit to Texas, the prospects for inner cities already struggling with homelessness, mental illness on the streets and rising crime – at a time when what’s left of the middle classes are looking to exit to WFH from the burbs – are crashing. State governments seem powerless to reverse the trends, turning it into another political conflict in the US.

It’s too easy to portray the US sliding into deeper division as the GOP veers further right and the Democrats are perceived to be sliding to the socialist left. Its looking like political civil war.

US business also faces long-term pressure. The image of the US as a mature, stable and robust democracy is wobbling. The world’s perception of US business was once rosy. In the 1960s America was the home of glitzy cars, the jet-set’s airliners, and Hollywood glamour. By the 1990s it had morphed into the computer age, the sophistication that became Apple, spawned internet giants like Amazon and the dot.com moment, and the dominance of US finance.

But now, the American business model is increasingly tarnished – once admired companies like Boeing now sum up everything that failed about capitalism. (Sure, there are plenty of superb US firms, but one bad apple…) The intertwined conflicts between social media, fake news, and the ownership of data are morphing into increased distrust of big tech and increased calls for regulation. The US economy may be expanding, but the myth that everyone could expect to better than their parents has been buried by the unwaged slavery of the GIC economy, and massive and rising income inequality.

Of course, it’s not just the US that is suffering. In a remarkably short time frame the world has become increasingly less globalised. As the UK is finding with Europe, when doors close.. they close. The UK is now excluded from all aspects of European finance. We might have written the rules, but now our financial businesses are deemed unsafe for Europe. It’s the same for our food exports – its laughable a scallop dredged from Channel by a French trawler is more safe and EU compliant than a scallop from exactly the same place landed by a UK boat. But rules are rules.

Economies that once looked outward will find themselves increasingly blocked – reinforcing the move to focus internally.

Do I really think the US is in serious trouble? Could be. It could well be… but so is everywhere else.

Five Things to Read This Morning

Torygraph – Pandemic to push deficit to £295 bln, but Sunak “must keep spending”

FT – Markets brimming with investor optimism on US Economy

BBerg – Warren Buffett’s Favourite Valuation Metric is Ringing an Alarm

WSJ – A week inside the WallStreetBets Forum that Launched the GameStop Frenzy

ZH – Exposing the RobinHood Scam: How Much Citadel paid for your orders

I shall have cheered up by tomorrow.. Out of time, and back to the day job..

Bill Blain

Strategist, Shard Capital