Neo-Fascism Is Outperforming Everywhere And That’s Bad News For Corporate Profits: The Geopolitical — Stock Market Connection
Atop the political earthquakes in Sweden and Italy the comeback of hyperbolic Trumpist Jair Bolsonaro in Brazil signals that neo-fascism is here to stay. Conservatism isn’t in ascendance but Left-wing failure is too obvious for voters, so millions are holding their noses and voting against the core values. And since both sides stand for statism the results are dismal both from a humanitarian standpoint and the hard-edged reality of corporate profits. This year’s bear market reflects the political malaise and with today’s unappetizing jobs report the bear market rally is ending in anticipation of bad profit guidance to come. While the volatility risk premium points to a higher market over the next few days, my technical reading of key stocks in the S&P 500 is bearish and I see a stairstep pattern of lower lows extending into next week. Yesterday's cross-asset action brought one positive factor for US stocks. Inflation expectations are stabilizing based on measures of Treasuries and TIPS. But there were also several negative factors across global asset classes. Oil is pointing to stagflationary conditions. The US yield curve is rising and in the current context that is bearish. Expect the S&P 500 to fall over the next few days.
Elections in Europe point to the age-old left-wing conundrum: having nothing positive to say about government efforts to deal with the environment, geopolitics, domestic inequality and immigration, the Left can little more than go negative on the Right. This can work with the economy is ok, but fails miserably when people seek answers rather than a choice between two devils in the name of democracy.
Foreign Policy notes “As every Swedish schoolchild who studied Nazi Germany knows, brown is a color associated with fascism. (The Sturmabteilung, the original Nazi paramilitary wing, was also known as Braunhemden, the brownshirts.) The smearing almost worked. Instead, their fascist-scare rhetoric propelled the far-right Sweden Democrats to a stunning result—taking nearly 21 percent of the vote and becoming the country’s second-largest party—and helped the center-right bloc win an unexpected victory.”
The reason the venerable Social Democrats failed to stem neo-fascism in Sweden is not just economic blues, but the dreaded combination of recession and an asset bubble. Nothing fuels populism like monetary fiascos since populists can do nothing but rage at those currently in power. It was the economic double-negative of recession and the mortgage bubble-burst that turned America against the GOP in 2008 to elect an African-American leftist, and it was Obama’s failure to prioritize economic growth (rather than healthcare finance) that turned the same Americans against his earnest and dignified politics toward the inarticulate bumptious forerunner of Trumpism, the Tea Party. Populism has now felled the elegant and limpid Swedes and brought in neo-fascists as a reaction to the bursting of the Swedish real estate market and the Social Democrats’ impotence to do anything about it.
The Business Times of Scandinavia notes “SBB, as Samhallsbyggnadsbolaget i Norden AB is more commonly known, has become the second-most shorted stock in Europe, with bearish bets running at 35 per cent of its free float, according to data compiled by S&P Global Market Intelligence. The scenario is based on concerns that SBB piled on too much debt in the boom years to create a portfolio of about 2,500 properties across the Nordic region. The Stockholm-based company is positioned as the canary in the coal mine for Europe’s teetering real estate market. With Swedish housing prices projected to fall as much as 20 per cent in one of the world’s bubbliest property markets, its business model faces renewed pressure.”
The right wing will continue ascending in Europe because the Left conflates democracy with statism and so fails to create a path to economic growth. This intellectual error arises because genuine democracy is participative, and to fuel meaningful participation the Left would have to persuade people to reprioritize routine life into time consuming participation in neighborhood caucuses, official town halls and yearly voting campaigns. This is absurd, hence the Left offers hoary nostrums instead of persuasive policies. And when their reality-bending policy prescriptions make them look like vote-seeking mountebanks they go negative on the Right and hope the economy helps them out. In Sweden and Italy, the economy didn’t help, and this bodes ill for more conservative nations to their East and West.
The prospects for America are no better. Biden stands for statism and hortatory moralizing straight out of the Jimmy Carter playbook. The effect of statism is to reduce the natural rate of economic growth, since only far leftists have confidence in government programs to correct capitalism or redistribute wealth and income. And when debt rates are high this statism crowds out private sector investment. This can be seen in the debt-to-GDP data from 2000 onwards, where higher federal debt following the GFC coincided with lower private sector debt. Given Biden’s use of executive orders and jawboning to attentuate business profits in favor of labor and socio-ecological goals, the result is low expected growth. And as millions of American workers respond to Biden’s pro-labor policies with non-participation in the labor market, the Fed is now on the warpath to raise the unemployment rate and thwart any sense of statism in the home.
The results of this miscoordination at the national level will be seen next week in earnings reports. I see a chorus of negative guidance emanating from small and large firms alike, indicating slowing global growth and concerns about the future of the global capitalist system. Lower lows in the S&P follow as we crash through last Friday’s awful close.
My current positions include a large cash position, Goldman Sachs (GS), 3M (MMM), Pfizer (PFE), Starbucks (SBUX), and the inverse levered ETF SPXU, all of which still nets out to a meaningful short position in equities.