Week signals: Is the confidence trick over?
Plus: watch points for Russia, the US, China, India, Europe, and the BRICS.
Hello,
In this edition of Week Signals:
IN REVIEW. Fragmentation at the heart of finance; the corrosion of unpredictability; and the paucity of alternatives.
UP AHEAD. Putin reigns on his parade; April’s CPI awaits; Trump goes to China as Modi goes to Europe; and the BRICS gather in Delhi.
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The Week in Review: Trust no one
The week began with “Project Freedom”, a mission to get ships out of Hormuz as a “humanitarian” gesture. It ended with the de facto collapse of the Hormuz ceasefire. What Donald Trump referred to as an Iranian “love tap” gave way to Iranian strikes on the UAE (we, embarrassingly, misheard this as a “love trap” and proceeded to craft an entire edition around that – but what is a love tap anyway?). Not so much love as war.
But in a week of gaffes, outrages, and distractions – or a week like any other – perhaps the really shocking thing was the blatant market manipulation seen early Wednesday morning. And don’t just take our word for it. Economist Paul Krugman has done a pretty good analysis on the whole thing. Citing analysis from former M&A banker Adam Kobeissi, Krugman noted $920 million worth of crude shorts placed just over an hour before the latest Axios report on a (possibly fictitious) Iran-US memorandum to end the war. Blame the journalist or the leaker or someone else, but this wasn’t garden-variety insider trading.
We don’t need to go into the specifics here, but the event does join the dots to what may be not only the week’s other major theme, but the major theme of the year, if not the decade: the growing insider dealing and manipulation at the heart of modern capitalism, despite (or because of) all the technologies designed to counter it: 24/7 markets, new prediction platforms, ultra-cheap retail trading accounts, and the blockchain.
US bank notes, for those who still carry them, contain the motto “In God we trust”. The dollar is no longer backed by gold, but it is backed by 11 nuclear aircraft carrier groups and the implicit understanding that this legal tender is worth something, and that the US will honour its commitments. There’s a reason why a US dollar is worth more than a Zimbabwean dollar (the $100 trillion note, until it was removed from circulation, had no motto but a waterfall and buffalo on the reverse, which says it all). And there’s a reason why, for all the criticisms of the hard currency crowd, we continue to price almost everything in it (even, for now, Middle Eastern oil).
Yet beyond the silent thief of inflation, common to virtually all currencies, it’s increasingly apparent that something more insidious has emerged at the heart of modern US-centric finance. The Ancient Romans had their debasement, reducing the amount of silver in a coin. The Bourbon French had their système de Law, in which a nation’s balance sheet was essentially turned into a scam. Modern America, beyond non-fungible tokens and Bernie Madoff, now has something to beat them all: the second Trump presidency.