Virtue Signals vs. Noise

By Michael Every of Rabobank

Virtue Signals vs. Noise

At the World Cup on Monday, the Iranian team captain told the world’s press that he sympathized with the protestors being shot by his government before all his players refused to sing their national anthem at the start of the game vs. England. Goodness knows what they are risking. The English, Welsh, and Dutch teams were told by FIFA that if they wore ‘One Love’ armbands, as they had said they would do regardless of the consequences, then they would receive automatic yellow cards. So they didn’t wear them. The contrast between ‘yellow’ European virtue signals and the lack of Iranian noise during their national anthem was deafening.

Sadly, the West loves cost-free gestures: Bankman-Fried is on record stating if one mouths the right empty shibboleths, one can do whatever one wants – he should know. Where people have less freedom they risk imprisonment, torture, invasion, and death in making gestures about it – and because it isn’t on TikTok (which the FBI says should be banned in the US) or Twitter (which US/European liberals say should be banned in the US/Europe), it’s as if it didn’t happen.

You might not think this matters for markets, but it does.

First, it projects geopolitical, economic, and cultural weakness at a time of a clash (sorry, “extreme competition”) between systems. If you run from a yellow card, what about a red flag?

Second, it makes for bad policy that fails to address the root causes of many problems. “If you don’t stand for something you will fall for anything,” as the saying goes.

  • Look at the massive swing in energy prices yesterday, with oil up and down on whispers and denials of Saudi production increases. At one point, the drop was so sharp I worried Qatar might not get through to the end of the World Cup without turning the lights off. Then I recalled it’s an LNG superpower, and that contract supplies of that commodity are sold out until 2026. Sorry poor countries, you will go cold/hungry so richer states who messed up their own energy mix don’t; but somebody might wear an armband about you if it’s cost-free to do so.
  • The Financial Times reports on anti-war protests in Europe, quoting a 30-year old saying, “Ordinary Germans are paying.” How nice that he doesn’t get imprisoned, tortured, invaded, or killed for his view. Yet what the young man misses is that ordinary Ukrainians are paying for the war in that regard, and there is a realpolitik argument they are doing so partly because of German energy, foreign, and trade policy (which some in the German government want to change, and Chancellor Scholz doesn’t – it worked so well with Russia it obviously needs to be copied and pasted elsewhere: just months ago Tehran was flavor of the month).
  • Europe continues to favor imports of LNG over its own domestic gas supply, as the US echoes with oil. One can say this is to avoid sending the wrong climate signals; but does climate change not happen if gas/oil is produced abroad?
  • Central banks bravely told us interest rates didn’t need to rise, even as fiscal policy went into overdrive with no pushback from them, as they instead focused on social justice; then bravely raising rates so high that recession looms, hitting the poor hardest. Now some in central banks bravely say they can cut rates when global markets can move energy prices up or down 5% in a day, meaning any pivots would see supply-side inflation return with a vengeance.
  • Wall Street bravely asset-sweated staffing levels in key infrastructure like US railways to the point that unions are now in a position to press ahead with a national strike that could cripple the economy, seeing output collapse and supply chains crippled.
  • The UK Prime Minister bravely rejects any attempt at rebuilding his economy’s failing links to global supply chains because a hardcore of his MPs reject any attempt to walk away from a utopian economic model that every other policy the same government is introducing stands in almost total contrast with.
  • Just imagine a top US university bravely agreeing not to help foreign spies access US defence technology while refusing to share the names of who they did share it with, and whose funding they have shared.
  • Hypothetically, a CEO bulks up a corporate stable with popular IP; hires key staff who bravely devalue that IP; steps down; is bravely brought back to replace a successor unable to fire those hires by the board; and the only noise is loud applause.

Third, a faith that costs you nothing is worthless in the long run. Almost all global cultures have the concept of sacrifice embedded in their core belief systems: painful rituals, trials, or ceremonies one has to pass through; donations one has to make; things one must reject or deny oneself; penalties to be paid. It should be obvious why – there is no such thing as a free lunch, or at least there is no such thing as a sustainable society or company built on freeloading lunches.

Markets used to understand that too. They knew that you needed to have skin in the game. If you made a bad trade or call, you lost part of your own money; if you made a good one, you and your investors both benefitted. Now, after years of central bank QE on top of decades of less direct interest-rate driven Wall Street bailouts, most global asset managers only care about meeting benchmark: “So we lost 20% this year? So did everyone else; give me my bonus, please.”

Right now the market is split between those who believe the Fed under Powell will ‘do an England’, and those who don’t. By this I mean to take off the virtue signalling armband and pivot rather than pay any real penalty, not to lose on penalties, which the real England team are likely to do; and the Fed’s armband is the old-fashioned professed virtue of real markets, moral hazard, and low inflation. (Oh, and US dollar/US hegemony: but the Big Boys talking about “decolonization” don’t talk about that, obviously; in the same way 99% of Americans aren’t aware they just drew 1-1 with little Wales.)

Given most large players in US markets are institutionally neck-deep in armbands, they don’t believe Powell can really mean what he says, and that he is prepared to see the implied painful trials ahead – painful for them, obviously, and for him personally.

Yet some, like the Iranian football team, are prepared to stand up for their principles. Powell is also independently wealthy. He may not care about after-dinner speaking fees or the D.C. cocktail circuit. The next speech from him is a previously unscheduled one on 30 November: are the odds of a pivot about as high as him supporting the Iranian protestors, or is that armband about to come off – and oil prices go back up? It’s up to you to separate virtue signals from real noise.

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