By Michael Every of Rabobank
Play stupid games, win stupid prizes
My generation we grew up being told that ‘sticks and stones may break my bones, but words can never hurt me’. Western culture of course changes with each generation: now free speech is considered violence by some. There’s a whole thing happening at Twitter in particular about it. Expect it to get louder now actual money might be on the table.
And do we get free speech back, or another billionaire plaything that dies in darkness, like CNN+ just did after three weeks and $100m down the drain?Yet sometimes there obviously *is* a link between words and broken bones. Mike Tyson just repeatedly punched a man on a plane… because he repeatedly insulted a former boxing world heavyweight champion. The Russians say, “Play stupid games, win stupid prizes.” And, boy, are there some stupid games --and words-- out there. And some stupid plans and game-plans.
Relatedly, Tyson also once opined, “Everyone has a plan until they get punched in the face.” On Wednesday, markets tried to plan for “peak inflation”; on Thursday, they were punched in the face, US stocks slumping (S&P -1.5%) and bond yields soaring (US 2s +10bp at the close, 10s +8bp, and 30s +6bp).
In Fed-speak: Daly said rates could rise in 25bp, 50bp, or 75bp steps, so jabs, upper-cuts, and ear-biting, respectively; Bullard warned, “The bond market is not looking like a safe place to be”; and Powell backed a one-two of 50bp hikes, which is now priced in. His goal is also “to get inflation down without a recession”. That’s like saying you want your opponent’s boxing gloves to hit the canvas but not the actual boxer. It’s a plan. Those are words. Just stupid ones.
Meanwhile, there were many words spoken yesterday about punches, directly and indirectly.
China launched a pilot private pension reform scheme that, if successful, will increase private savings when the world needs more Chinese household consumption and less Chinese national savings. (China’s household income share of GDP is too low by design: this is not addressed at all by said pilot scheme.)
Xi Jinping, at the Boao Asia Forum, proposed a new "global security initiative" based on the principle of "indivisible security": no state should strengthen its security at the expense of another’s; the world should respect the sovereignty and territorial integrity of all countries; and the "legitimate" security concerns of all. Peace in our time? No. One’s country’s security is often another’s insecurity unless there is agreement about the umbrella both are under. Russia argues it is fighting Ukrainian Nazism; Ukraine says it is suffering Russian imperialism. Which argument prevails in this new global security initiative? Do you have to ask? Since 1999, Russia has talked of an agreement with Ukraine based on the same principle of "indivisible security", so China is backing the Russian position. Indeed, this new "global security initiative" is the usual pushback against NATO, the Quad, AUKUS, etc.
Meanwhile, Hua Ping, a senior researcher at a think-tank led by a former PLA Major-General, recently stated: “The China-US showdown is not a question of if, but of when, how, and on what scale. We must not only forsake the delusion of a "peaceful rise" free of struggle, but we must also abandon the unfulfilled aspiration to achieve reunion solely through peaceful means.”
He added:
”The issue of Taiwan is a duel of fates that concerns the rise and fall of the country and the survival of the nation.” That sounds very Russia-Ukraine. Worse, “America's growing paranoia about its declining hegemony may force it to make a desperate move, like a cornered dog. Our window of opportunity to take action against the US is closing. We must urgently prepare to recover Taiwan before, not after, the Sino-American showdown.”
In his eyes, the US will fight China both militarily and via: “1) financial strangulation; 2) cyber paralysis; 3) biocide - a desperate attempt to begin a genocidal war with clandestine, low-cost but highly lethal biochemical weapons; and 4) political manipulation.” Yet even tacitly admitting that a naval blockade would be on the cards(?), and after watching sanctions against Russia, the key conclusion was “…to deliver a devastating blow and achieve the battle's objectives in the shortest amount of time.”
China’s Minister of Defence, who only just started speaking to his US counterpart again, yesterday also underlined Beijing will “resolutely safeguard national sovereignty, security and territorial integrity” vis-à-vis Taiwan, while urging him not to “smear or threaten China” over Ukraine. Yet US Deputy Secretary of State Sherman, visiting Brussels, just did exactly that. Moreover, Sherman, tank-like not ‘Tankie’, added:
"Beijing is seeking to undermine the very system that they benefited from to return instead to a system where might-makes-right and big nations can coerce smaller countries into acting against their own interests… I could give dozens of examples of PRC actions that seek to undermine nations' political autonomy to coerce businesses decision-making, to literally steal IP and trade secrets to hunt down and silence human rights defenders and religious minorities who left.... Do we want to trust in each other to embrace our ability to come together and solve our common challenges to recognise our mutual humanity and build a better world? Or do we want to be at war and in conflict with each other?”
When asked if the US has plans if China provides concrete support to Russia, Sherman replied: "They've seen what we've done in terms of sanctions, export controls designations, with Russia... it should give them some idea of the menu from which we could choose, if China were to provide material support. We also sat down with China and explained our sanctions, so they know what they are and how they work. So we're trying to be very transparent here.
I don't want to give a sense that everything with the PRC is a war. We don't want to start another cold war. We don't want conflict. We don't want miscalculation. We want channels of communication. We hope there are areas there can be cooperation. But make no mistake, I believe President Xi has made a decision about what he wants PRC to be in the world. And it's a very different vision than we have in this room."
Back in Boao, we heard, yet again, that “unilateral sanctions don’t work”, and neither does decoupling (unless China is doing it). Sherman and EU Foreign Affairs Secretary General Sannino jointly talk to the press today after the US and EU talk China.
In other rings, on India, Sherman had this to say: "India is an incredibly consequential country for us all, it's a messy democracy but so are we... they're a young democracy. They are very worried about China, and they understand their military built on Russian weapons probably doesn't have a future based on Russia." Coincidentally(?), today former Indian PM Singh argues “This is India’s moment of reckoning”, cautions against rushing into local FX arrangements for trading with Russia, and says India has more to gain from access from the West. Including weapons?
UK PM BOYO Johnson, now in India, will have to face a Commons inquiry over whether he lied to parliament after No.10 withdrew an attempt to force Conservative MPs to delay a new Partygate investigation: it was a humiliating climbdown after what threatened to be a constitutional crisis, and does not bode well for the PM – or the constitution. Two more Tory MPs just publicly called for him to quit, including one prominent Brexiteer stating, “The PM now should be long gone. Really, the PM should just know the gig’s up.” That’s words *and* a punch to the face: and questions about not just what BOYO’s stupid game-plans ever were, but what the UK’s are in a rapidly-changing world.
In Germany, Chancellor Scholz both delayed the issuance and trimmed the contents of a catalogue of weaponry his country is offering to Ukraine: “Ah, you ordered the gun, we thought you wanted the gum!” This speaks to Germany’s discomfort in accepting the world has changed and it hasn’t, yet, because it costs a lot, and this time they have to pay for it, not others. However, when the punches start flying, acting tough and not moving does not usually end well. Sometimes the big guys go down hardest, especially the ones in bad shape. (“For me it’s a full-time job, now behave yourself.”) As German PPI hit 30.9% y/y, the highest since 1949(!), the Financial Times talks of Germany’s ‘Worst crisis since the second world war’ as it ‘prepares for a Russian gas embargo’. Does selling gum not guns help?
Of course, markets will find all of this too punchy. They will focus on inoffensive words. For example, ‘good’ news like China’s regulators telling local institutional investors to boost stock holdings. After all, nothing says ‘healthy stock market’ like the state telling you that you can’t sell and must buy, right? Will that plan work? Did it in 2015? The Financial Times today reports ‘Wall St banks set on Shanghai expansion despite lockdown disruption’, and other major disruptions present and future. Well, of course they are. Got to play the stupid game!
Yet consumers from China to America are feeling punch-drunk. In just the last few days we saw Eurozone consumer confidence drop back to -18.7, approaching Covid lows. UK GfK Consumer confidence crashed to -38, lower than during the 2020 Covid peak panic, because at least we had state fiscal support then, or in 2008: indeed, this feels worse for ordinary people than 2008 because that crisis was initially centred on pampered stupid-game lunch-time-boxercise City/Wall Street folk – until the idiotic tightening of fiscal policy kicked in.
So, what is one to make of all of this? Hooray for free speech(?); but words can lead to violence in the real world and in markets. Too many are playing stupid games - some will soon win stupid prizes. Everyone has a plan until they get punched in the face - and everyone is being punched in the face, even if some are in denial about it.
So, surely, the key defense is to ask who is best placed to take, and give, a punch? (Are you?) Or who is all jaw-jaw not war-war? (Are you?) Or who has a glass jaw? (Do you?) Those should surely be the thoughts to keep in your corner.
You might not like the message – but please don’t bite my ear off about it.