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An unlikely mix of populism and conservatism has abruptly shaken up financial markets.
For decades, globalization and free trade supported companies and boosted stock prices. After the 2008 crisis, slow growth and inflation led central banks to inject record amounts of stimulus into markets. This created a “new normal” for traders, where the direction of trading was controlled by expectations of monetary policy. In sum, it was boring.
In just a few months, that’s all changed. The Brexit vote and Donald Trump’s election have made traders expect a surge in spending. Throwing skepticism to the winds, they’ve poured money into stocks, sending the S&P 500 and Nasdaq to record highs, while dumping safer government bonds ($1 trillion in the week after the US election).
But this is irrational. The politicians promising this spending spree are right-wingers, better known for strict adherence to tight budgets. And Trump’s plans to double US economic growth don’t square with the global rollback in free trade that he seems to want.
Right now the stock rally is mostly benefitting American markets at the expense of export-dependent markets in Asia. How long that disconnect can continue is unclear. And bank shares are soaring on Trump’s promise of regulatory cuts, but leniency for the creators of the financial crisis won’t enthrall voters.
The conflict between the populist majorities in the US and UK and the conservatism of the governing elites will at some point come to a head. This week’s UK budget statement hinted at that, showing that the rhetoric of an economy “for everyone” cannot be met by action.
In reality, Brexit will worsen the living standards of the poorest, and further aggrieve many people who voted for it. In the US, Trump is fighting(paywall) to stop companies moving jobs to Mexico. If he fails, he could lose some of his support even before his term begins.
Five things on Quartz we especially liked
Handling Trump: An instruction manual from Italy. The corrupt, vainglorious Silvio Berlusconi held on to power for as long as he did because his opponents didn’t grasp that he thrived off being attacked. Trump is the same, writes Annalisa Merelli, and if liberals let his personality dominate the public discourse, they may be stuck with him for a very long time.
China and Rwanda’s curious relationship. Rwanda is a tiny, landlocked country with few natural resources, hardly an obvious target of interest for an economic behemoth. Lily Kuo explains how Rwanda upends the normal preconceptions of China’s interest in Africa and showcases a healthier economic relationship—but also a disturbing political one.
The best times to drive before and after Thanksgiving. If you were stuck in traffic on your way to or from a family gathering, you might want to consult David Yanofsky’s maps before next year. Analyzing traffic logs from 8,500 monitoring sites around the US, he unearths when, and where, are the safest times to undertake one of the US’s biggest annual migrations.
The obscure statistic that explains the rise of Donald Trump. Not many people pay attention to the job-to-job transition rate. But as Eshe Nelson explains, it’s a good lens through which to view the evolution of the American workforce and the resentment that caused this year’s election upset.
Demonetization: Been there, done that, got the crisis. India’s recent withdrawal of high-value notes from circulation was an attempt to curb the shadow economy. But, writes Rahul Menon, a look at other countries that have demonetized in the past shows such moves usually damage trust and do long-term damage to the economy.
Five things elsewhere that made us smarter
How to talk to aliens. An interview with two academic linguists about Arrival, the sci-fi film about a linguist tasked with decoding an alien language. Some of the film’s ideas are—surprise!—wrong. But their critique explains quite well the actual challenges in making contact with creatures when you can’t even be sure their language has such a thing as a question.
Jack Bogle on the index fund “revolution.” In a fascinating, wide-ranging interview with Michael Regan of Bloomberg, the 87-year-old founder of Vanguard discusses the state of the markets and the passive-investing revolution that he launched with the first index fund in the 1970s, “shifting the allocation of stock market returns away from Wall Street and toward Main Street.” And the disruption is only beginning, he says.
How dodgy companies pretend to be legit. A small former steel town in northern England has become a hub for online porn, gambling, and assorted scams. Its residents “serve” as directors for over a thousand international companies, which, by registering in the UK, gain a veneer of respectability for their murky business. Alasdair Pal and Himanshu Ojha at Reuters dig into the legal muck.
Lessons on autocracy for the US press. Normally used to lecturing the rest of the world about media freedom and ethics, under Donald Trump American journalists will now get a taste of life elsewhere, writes Nic Dawes, head of Human Rights Watch’s media division. Get used, he says, to endless lawsuits, limited access, being stigmatized as “the opposition,” and interference from regime-friendly plutocrats.
Is the right really anti-science? Conservatives have been criticized for denying global warming, blocking stem-cell research, and doubting evolution. But in City Journal, John Tierny points out the hypocrisy of liberals who oppose genetic modification, think only big government can deal with global warming, and fall for scientific groupthink. Some of his claims are contentious, but he raises an interesting question: Are liberals really the pro-science camp?
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