Rabobank’s Michael Every and the incomparable Zoltan Pozsar may not agree about the plausibility of any “New Monetary World Order” thesis, but they appear to be on the same page about at least one thing: Markets are too sanguine about down-the-road inflation outcomes given geopolitical tensions.
According to what The Washington Post dryly described as an “unusually blunt memo,” Air Force general Mike Minihan, who oversees America’s fleet of transport and refueling aircraft, suggested troops should accelerate combat preparations. “I hope I am wrong,” Minihan wrote in the memo, which was first described by NBC. He went on,
My gut tells me we will fight in 2025. Xi secured his third term and set his war council in October 2022. Taiwan’s presidential elections are in 2024 and will offer Xi a reason. United States’ presidential elections are in 2024 and will offer Xi a distracted America. Xi’s team, reason and opportunity are all aligned for 2025.
That’s pretty foreboding. If it turns out to be accurate, markets will be a secondary concern. But the point is just that expectations for a gradual normalization of inflation and thereby policy settings could be misplaced.
In late December, Pozsar said that, “I don’t think five-year forward, five-year rates are pricing the future correctly: Breakevens appear to be blind to geopolitical risks.”
On Monday, while editorializing around Gen. Minihan’s warning, Rabo’s Every exhorted market participants to pay attention. “If you cover the Fed or the ECB, or pensions or potatoes, or stocks or bonds, [the war] headline warns current projections could be more dramatically wrong in 2025 than they were in 2022,” he wrote. And then:
Of course, market analysts can never say what will happen in geopolitics. Yet the standard procedure in research is to note such a headline and say, “That’s wrong!” — with no professional experience in such matters; or to pretend one did not see it; or to say, “We don’t (know how to) look at such issues,” and, rightly, “We can’t price for them,” … and so to continue to project what one does know about and can price for; like Fed rate cuts and asset markets rallying. But is that really a good way to project things?
I can answer that latter question: No, it’s not a good way to project things, but as Every tacitly conceded, Wall Street is constrained in its capacity to preemptively include global conflicts and nuclear war in rates strategy pieces. Suffice to say Pozsar is an anomaly in that regard, and in many other regards too.
Of course, Minihan might’ve just been “lobbying for even higher Pentagon budgets,” as Every went on to say, but that too is inflationary, as is friend-shoring.
I can’t deny the possibilities described above. I get the point. But aside from assuring the destruction of their country and culture, to what gain can such pea-brained goals be rewarding for the seven mental dwarfs that now run China. These mindless totalitarians would rather enable their own country to be destroyed and make the entire world a difficult place to live and survive?
Certainly, with Putin invading Ukraine, we know what a totalitarian jackass looks like. Now Xi wants to follow Putin’s example? If so, Xi is diving into the same pool of delusion in which Putin can barely keep his head above water.
One can see how the totalitarian perspective, the idea of domination and control, can lead fools to imagine themselves having the capacity to export their domination. But that’s such a ridiculously tall order. Korea, Japan, Australia, New Zealand, and perhaps India would not abide. The US is already positioning in the Philippines. Japan is enlarging its navy. And with this warning you shared this morning, the US is only going to build its forward operating capabilities.
The Chinese could potentially choose a different course. It’s not as if they have nothing else to offer the world. But if this prediction comes to be, the leadership of China is short on imagination and long on self-harm.
For at least a decade I have been wondering about China and Siberia- I think China has a revanchist vision like Russia, and this makes Putin truly oblivious- he is opening the tent to China when they are the true threat, not Nato…..I guess Patrushev is an idiot too….