The Rising Moron Premium

By Michael Every of Rabobank

Colorfully, a Financial Times op-ed just talked of America’s rising ‘moron premium’ in markets. However, it’s written by the neoliberal neoclassical-economics neocon school that many neutral observers see as having created the conflating problems now being dealt with in a way the FT sees as moronic. Indeed, there is a lot of that premium about globally.

Markets loved the big rise in US consumer confidence yesterday, which is largely being put down to the 90-day US-China tariff pause. Yet does that mean the tariff pause is now the norm rather than, as stated, a PAUSE?

On trade, Wolfgang Munchau says the threatened 50% tariff on the EU is there to make the 20% one before it look good, and others add Europe still needs to freeze China out to get a US deal; China is doubling down on its neo-mercantilist strategy, irritating even a Europe looking for other options; and while India and the US just signaled that a bilateral trade deal is close, which is positive, it’s not the world order the FT wants.

At the same time, the Wall Street Journal notes, ‘The Self-Driving Truck Startup That Siphoned Trade Secrets to Chinese Companies’, where: “Some officials now believe the US has erred in trusting Chinese entities to abide by such agreements.”

Moreover, Bloomberg notes ‘Glass Plant Shows How US Can Revive Manufacturing’ with actual evidence that: “Yes, the US can manufacture products competitively. Tariffs to offset China’s subsidies also help. No, it won’t take an army of factory workers. But it will take a lot of technicians and trade professionals [and] new technology run by software and robots.” Not Chinese memes of obese Americans struggling to assemble electronics without the advantage of what the New York Times describes as the Asian advantage of “small hands.”

Also in markets, no sooner did The Economist warn of long-end bonds selling off than the Bank of Japan suggested issuing fewer long maturities and global long yields tumbled again. However, does anyone think the flood of new issuance about to hit us globally just disappeared? Something will have to be done as military spending soars: less social spending; more taxation; more issuance at other maturities; more QE; yield curve control; off-book spending via state investment banks or leveraged sovereign wealth funds; something-something stablecoins and Bitcoin; or a fusion daisy-chaining central bank buying of each other’s bonds.

However, the IMF just allowed the UK Chancellor to “refine” her fiscal rules to prevent more tax hikes or spending cuts ‘unless shocks arise’. I’m sure this let-me-wipe-that-egg-off-your-face largesse will be extended to all parties globally, whether they are FT op-ed fans or not.

Meanwhile, in geopolitics — which any fool can see now drives markets — President Trump warned President Putin that he’s “playing with fire” and if not for him, “lots of really bad things would have already happened to Russia, and I mean REALLY BAD”. The threat is clearly of US sanctions ahead, which could certainly light fires under some markets if acted on. Imagine no Russian energy or wheat, just for two examples. Explain to me what the world looks like then without using the word “crisis”.

On the other hand, Trump reportedly also told Israel’s Netanyahu to avoid steps that undermine Iran nuclear talks, as the market waits for an OPEC+ is about to unleash a flood of new oil supply.

Eyebrows should also be raised by Greenland — with an army of two men, a flashlight, and a dog called Colin — telling both the EU and the US to hurry to invest in its minerals or it will turn to China. Perhaps they and Micronesia can set up a committee to solve our global problems?

In domestic politics, US universities — which were just flagged by the Fed Chair as strategic assets, alongside a call for students to “stand up for democracy”, obviously all about a 2% CPI target rather than an issue that will see more friction between the White House and the Fed– are reported by the WSJ to be prepping to achieve even higher investment returns on their soon-to-be-taxed endowment funds. Let’s see who gets an A and who just uses an AI. That’s as a Harvard professor is fired for manipulating data on dishonesty (really!), and US embassies globally are told to stop foreign student interviews – not just for Harvard.

Circling back, it’s surely not unrelated that Bloomberg is noting ‘Asia’s 'Sell America’ Moment Threatens $7.5 Trillion Investment’. Because if you can’t send your kids to Harvard as a status symbol, what are you going to do?

But where is Asia going to put its stock of cash if so: which ‘lucky’ economy is going to see its currency pushed through the ceiling, and its export industries through the floor, and far larger trade deficits, and far greater political polarisation? Apparently, Europe if one listens to the ECB’s Lagarde, who just claimed this is all a “prime opportunity” for it. Well, that’s one way to view it, and the FT and Economist op-ed writers, with their glorious track records of success, would be right behind them.

Meanwhile, another FT op-ed argues that as AI is introduced in offices ‘Professionals are losing control of their work’ as “Tools which monitor, direct or organise processes may reduce the scope for employees to try new ways of doing things.” It’s not as if the old way of doing things was getting great results either in some cases but, yes – what could go wrong here, right?

Not using an AI, a summary of Aussie CPI today could be “Oops!” given we recently got a 25bp RBA rate cut with talk of 50bp having been discussed, which is already revving up the housing bulls… and we just saw headline CPI for April at 2.4% y-o-y, a tick higher than expected, and trimmed mean at 2.8%, up from 2.7% (with no market consensus). Nearby in New Zealand we got the expected RBNZ 25bp rate cut down to 3.25%, but without a unanimous vote behind it, and with the Bank’s projections including at least one more of the same ahead.