By Michael Every of Rabobank
Former President Trump is launching a new social media platform called TRUTH. Ironically, this DC-rattling news came days after DC Comics changed Superman’s motto from “Truth, justice, and the American way” to “Truth, justice, and a better tomorrow.” Perhaps “truth” will need to be dropped to prevent free advertising. Or Facebook’s metaverse rebrand will be to “Tomorrow”.
Superman, first published in 1938, was created by two Jewish-Americans, hence his name, Kal-El, at a time when the world was wracked with anti-Semitism: Kristallnacht came seven months later. He represented the US immigrant experience – arriving from a shattered planet, thriving, and using his strength to fight for the “American way”. To kids in the UK, that part of the slogan never made sense to us: did Superman care about capitalism? Today he does: the financial logic of appealing to a foreign audience is the perfect symbol of the pro/anti-globalisation thread in US politics, as well as broader changes in the country’s view of itself.
One can argue the last thing needed in a deeply polarized America arguing over social justice, and not sure about its way, is another social media platform – for Trump. Those thinking that way can be reassured that perhaps it will fizzle out, or the 400% surge in the shares of the SPAC controlling TRUTH is a grubby money grab with no viable tech. However, Facebook is accused of manipulating news feeds; Twitter openly suppresses news and bans people – just a year ago, it blocked the Hunter Biden’s laptop story, as did most of the mainstream media; YouTube gets to decide what scientists get to say about science; and Instagram just removed a post stating scientific fact. Are we really in ‘safe hands’ at present? Is truth capable of emerging?
There is a larger point here for markets beyond swings in tech shares. They only have a genuine social function if they allow price discovery. When *everyone* can play, the balance of buyers and sellers will eventually settle on what the agreed price of a resource, product, or service should be. Is this system perfect? No! Large players bully smaller ones – and almost all US shares are now owned by the rich. We also see market failures: water is cheap despite the fact that we will all die without it; the price of carbon is a key issue – as China digs all the coal it possibly can ahead of COP26; and not even America would be stupid enough to fight a war using ‘market forces’. Even so, well-regulated markets are the best mechanism we have for settling things. Name one better.
It’s also a positive if those regulators are neutral, which is why it’s nice to see the Fed finally banning its senior staff from personal stock and bond trading. Will this cut down on the quality of potential future candidates? Not if $250,000 after-dinner speech fees are still available. Senator Warren is still opposing Fed Chair Powell’s renomination: does this trading ban give him cover?
But do we have true price discovery in markets when, if you follow the white rabbit, central banks tell us what bond yields are, and throw in countless billions of liquidity every month, which then benchmarks other asset prices higher, while governments corral markets more aggressively?
One asks, as US stocks hit fresh record highs despite inflation soaring and labor striking; the RBA steps in to protect its yield curve target, hitting bond bears; Chinese tech shares rally sharply as the state that said it would not allow powerful private tech monopolies is now seen as not meaning it; and as Evergrande somehow made an $83.5m bond coupon payment today, despite having no money and no property sales, showing the central bank wants to keep it afloat – for now.
“What’s that worth?”
“Very, very little.”
“Central banks are buying it, and maybe the government wants us to buy it.”
“Oh, I will too then. We are good at market analysis, aren’t we?”
Perhaps that’s partly why ideas are censored so lightly today as the ‘American way’, despite the First Amendment – because it’s consistent with the market backdrop. You don’t need to worry about what’s true and what isn’t, or what’s value or isn’t. Just press the button and get the treat. Or don’t, and get the electric shock.
In short, for those recoiling at the idea of TRUTH –whose name is indeed ridiculous— take succor from the knowledge that, like markets, the marketplace of ideas does not have any viable long-run replacements. As Czech dissident, then President, Havel advised in ‘The Power of the Powerless’: “Keep the company of those who seek the truth – run from those who found it.”
On which note, allow me to move to the awkward truths of geopolitics to conclude. The Financial Times today discusses ‘What China’s hypersonic test launch reveals about the global arms race’, underlining it has spooked the Pentagon…into announcing it just tested hypersonic missiles too. Despite the fact it did so back in 2011, and the tech has been around for decades. If China is developing more nuclear capability, it isn’t doing so for a nuclear war. It’s not mad. It’s to ensure in a conventional war, the US could not escalate to a nuclear threat unilaterally.
So, MAD (mutually assured destruction). Yet that could mean *conventional* military power would matter most. Who does the regional strength/production dynamic favor, and as time passes? The fat tail risks should be clear, but markets won’t see them. The upside ones are the prospect of more US defense spending – which is really ‘the American way’.
Even Senator Manchin, who is fine with a genuine zero dollars Biden stimulus bill, and Senator Sinema, who won’t raise taxes, may agree to that.
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