“Open the markets!”, one widely-followed member of the finance Twitterati joked (sort of), late Saturday evening, after Bernie Sanders triumphed in the Nevada caucuses.
In what The New York Times described as a “show of might”, Bernie presided over a veritable landslide. He barely bothered to allude to his competition while speaking to supporters in San Antonio.
“We have just put together a multigenerational, multiracial coalition, which is not only going to win in Nevada it’s going to sweep the country”, he said. “No campaign has a grass-roots movement like we do”.
Betting markets now give Hillary Clinton better odds on the nomination than Elizabeth Warren who, just six months ago, was the arguable frontrunner.
Bernie’s Nevada flex comes on the heels of similarly strong (if not overwhelming) showings in Iowa and New Hampshire, and also amid reports that the Kremlin is attempting to bolster his campaign.
US officials briefed both Sanders and Donald Trump on the situation this month.
“I don’t care, frankly, who Putin wants to be president”, Bernie said. “My message to Putin is clear: stay out of American elections, and as president I will make sure that you do”.
For his part, Trump is predictably irritated by reports that Putin is once again angling to assist his campaign. Or maybe it’s more accurate to say the US president is irritated that the information was delivered to lawmakers and also to the public.
There’s no mystery here. Moscow is simply angling to implement the same strategy they employed (with more than a little success) in 2016. As The Washington Post puts it, “the prospect of two rival campaigns both receiving help from Moscow appears to reflect what intelligence officials have previously described as Russia’s broader interest in sowing division in the United States and uncertainty about the validity of American elections”.
That’s not a partisan assessment, and, as Robert Mueller was happy to inform lawmakers during his testimony in July, it’s hardly surprising. The Kremlin sees an opportunity to further divide America, inflame tensions and foster the kind of vitriolic politics that has created what amounts to an existential crisis of civility in American democracy.
Is it lamentable? Absolutely. But it’s important to note that Moscow’s fingerprints have shown up on everything from the Catalan separatist movement to Brexit to AfD’s efforts to bring back the far-right in Germany. This is a global espionage effort on Russia’s part, and the only thing that makes America different is that the populace is, on balance, more susceptible to it, in part due to years upon years of intellectual decline among the average voter. Misinformation campaigns don’t have to be very sophisticated when large swaths of the electorate are objectively ignorant. The rest of the country, meanwhile, is so fed up with seeing their fellow countrymen/women fall hook, line and sinker, for lies and nonsense, that they’ve given up trying to reason with their neighbors.
In any event, if Sanders is the nominee, market participants are likely to recoil, or at least that’s the consensus view among… well, among market participants.
And that strikes at the heart of a key consideration which is often lost on traders, investors and economists. The reaction in financial assets to a given political turn is not preordained by some set of immutable laws or eternal truths. Some things are indisputable. For example, repealing the Trump tax cuts would dent corporate earnings and almost surely lead to a de-rating of US equities. But beyond that, nothing is set in stone.
I continually emphasize to readers that irrespective of any near-term tumult, there is a very strong argument to be made that, over the longer-haul, removing the albatrosses of student debt repayment and skyrocketing monthly health insurance premiums from the necks of those with the highest marginal propensity to consume would be an economic boon of epic proportions for an economy that lives and dies by the consumer.
As far as the deficit goes, the bottom line is that inflation is the only constraint. Without getting too far into the weeds of economic history, let’s not forget that it was de-regulation, unbridled capitalism and faith in the wisdom of “independent” central banks that brought us the financial crisis.
Subsequently, an unwillingness to rethink things left central banks as the only game in town when it came to reflating the global economy. Austerity measures adopted in Europe were – let’s face it – a wholesale disaster, and now here we are, more than a decade on from the crisis, with sluggish growth, no inflation, negative rates and central banks buying up everything from government bonds to ETFs to corporate debt issued to finance Louis Vuitton’s purchase of diamonds. Consider these passages from a Bloomberg Opinion piece:
Bernard Arnault, the boss of LVMH Moet Hennessy Louis Vuitton SE, exceeded even his own incredibly low yield expectations in his company’s giant bond sale this week — which included the biggest corporate issue in euros since 2016. The luxury giant raised 7.5 billion euros ($8.3 billion) and 1.55 billion pounds ($2 billion), over a range of maturities from two to 11 years, to help finance its $16 billion purchase of Tiffany & Co.
Two of the five euro tranches were placed at negative yields, meaning investors are paying single A-rated LVMH to borrow money. Arnault’s expectations back in November for yields from the sale of “between 0% and 1%” have been surpassed. Even the 11-year tranche has a coupon of just 0.45%. M&A has never been cheaper.
[The company’s] three-year bond, issued last year, has moved negative in yield.
France’s richest man can thank the European Central Bank for this state of affairs. The restart of its 189 billion-euro Corporate Sector Purchasing Program has driven credit spreads ever lower. While the central bank wants to lessen the funding costs of European companies — and local subsidiaries of global firms — to make it easier for them to invest, it may not have been meaning to help a French luxury behemoth snap up an American jewelry icon.
That, folks, is absurd. And it speaks to just how far afield we are.
Somehow, we’ve reached a point where it makes total sense for central banks to effectively provide the financing for a manufacturer of luxury handbags to purchase $16 billion worth of diamonds, but anyone calling for the world’s richest economy to adopt universal healthcare is deemed “crazy”.
Given all of that, it’s hardly clear that “Crazy Bernie” (to quote Trump) is the “crazy” one.
With the price Phillips curve having apparently ceased to function and the “3Ds” poised to provide a structural drag on inflation in perpetuity, is it really “crazy” to suggest that governments which print reserve currencies pivot away from policy prescriptions that open the door to absurd outcomes like that described above by Bloomberg?
Is it “nuts” to suggest that, instead, developed economies transition to monetary-fiscal partnerships that fund meaningful change and make a difference in everyday people’s lives?
Maybe so. Maybe that’s totally “crazy”.
If so, I guess the next “logical” step is for Mark Zuckerberg to place some negative-yielding debt with the Fed in order to finance a buyout of Ferrari.