Barring some kind of dramatic turn (which I suppose we should all just assume is coming given what we’ve seen in December), Friday is likely to be a “random musings” day from me.
We’re still mired in the holidays (and only a hermit like myself would use the word “mired” in the same sentence as “holidays”) and the flow of interesting analyst commentary has slowed to a trickle.
Trump is (still) shrieking on Twitter but as mentioned early Friday morning, his rantings have become so cartoonish that it’s “beyond parody”, as it were. It’s impossible to lampoon his border crusade in terms that make his tweets any funnier than they are of their own accord.
So, “random musings” it is. Bloomberg was out with a decent piece on Friday that couched the DAX’s horrible year in terms of de-globalization. I’d say “creeping” de-globalization, but that adjective no longer cuts it. Trump (and the semi-global populist upsurge more generally) have turned the de-globalization knob up to a Spinal Tap-ish “11”.
As we’ve been at pains to explain nearly every day since this site’s inception, de-globalization is a highly undesirable phenomenon. Globalization is being used as a scapegoat by political opportunists to “explain” the plight of the middle class in Western democracies. Blaming globalization is an easy “out” for folks who are laboring (figuratively and literally) under stagnating wages and the psychological overhang of what they perceive to be a generally hopeless future defined by increasing levels on inequality and a lack of upward mobility. Of course that ignores the myriad utilitarian arguments in favor of globalization and that’s the real tragedy of the de-globalization push.
In any event, before I get too far off the tracks, let me steer this back to the DAX which, as Bloomberg notes, is something of a proxy for global trade sentiment. 2018 is the worst year for the index since the crisis and the six-year winning streak (which is now over) was the longest on record.
A snapshot of the breakdown shows how acute the pain was for some index constituents.
Chinese equities are obviously another casualty of the de-globalization push as manifested in Trump’s ill-conceived trade war. The SHCOMP is the worst-performing major benchmark on the planet this year, down some 25%.
Of course Chinese stocks have other problems besides the trade war. Just pulling one out of the (full) hat, the ongoing effort to squeeze leverage out of the shadow banking complex is turning the screws on margin debt which remains subdued and fell further over the course of H2.
China’s economy was already decelerating before Trump’s trade war, but he has made things immeasurably worse. Remember, China is the veritable engine of global growth, trade and credit creation and Trump has effectively thrown a monkey wrench into it. That, ultimately, will be to the detriment of the entire world.
And for what? To reduce the trade deficit with China? That’s meaningless and even if you assume it does mean something, China has logged record surplus after record surplus since Trump started really pushing the envelope.
Again, the above are just some random thoughts that may or may not be useful as you try to comprehend what went “wrong” in 2018. What seems indisputable is that de-globalization is a path to ruin, and if/when this push continues to drive the train further off the tracks, don’t say Xi Jinping didn’t try to warn you.
We’ll leave you with an infographic from Goldman and a few links to more in-depth posts on all of the above.
Read more on trade, populism and the suspension of disbelief
The nostalgia of greatness and the deconstruction of a déjà vu (NotesFromDisgraceland)