Brexit, Trump....What Next?

Brexit, Trump....What Next?

I don’t have an extensive knowledge of Chinese curses, but one I do know is the expression ‘May you live in interesting times’. This curse is based on the fact that in human history, ‘interesting times’ have tended to coincide with upheaval, disorder and conflict. In many of the developed parts of the world we have had an unprecedented period of relative calm and stability, and in this post I will look at the changing political scene over the last few months, what it forebodes and whether ‘interesting times’ lay ahead.

My last post back in June on the eve of the Brexit decision spelt out the situation ahead of the critical vote regarding the future of Britain, and concluded that an independent Britain, free of the diktats of the European Union was a better option than being saddled to a flawed euro project that would shortly be going over the edge of a cliff. It is now clear that a majority of the voters agreed with that sentiment as the Leave camp won the vote by a slim margin of 51.9% to 48.1%.

Any hope that a result would bring an end to the bitter disagreements between the two sides however has completely evaporated, with the following weeks and months being marked by political turmoil within Britain, increasingly hostile comments from some European politicians and an ongoing legal challenge designed to prevent the British Prime Minister Theresa May from triggering a formal exit without the approval of Parliament. The binding referendum may not end up as binding as the ‘Leave’ voters envisaged.

Whilst the Brexit aftermath held the news headlines for a while, it was soon relegated as the race for the US Presidency took centre stage. The contest has been compelling viewing right from the start. From the nominee process, through the race itself and the final vote, with the Trump victory coming as a complete surprise to so many people and the subsequent reaction so similar to that in Britain post Brexit.

So are there similar themes with these two results and can a greater understanding of that connection shed some light on what we will face over the next few years? 

The simple answer to those questions is yes.

For the specifics of our current issues we need to go back to the start of the 1980’s. As we are all aware, the decades since have witnessed a huge number of changes in many aspects of people’s lives, but some have been particularly influential:

·        a massive uplift in housing values leading to wealth for some, but increasing financial strain for many others;

·        a general movement in manufacturing and production jobs from developed to less developed countries leading to a reduction in the number of jobs available for the lowest skilled;

·        an increase in mass migration as a result of religious and geo-political tensions leading to increased competition for lower grade work, stagnant wage growth and most importantly, an increase in racial and religious intolerance;

·        an increase in the ‘consumer society’, with the stampede for new, more or better, fostering general dissatisfaction with one’s lot.

·        an upsurge in the level and extent of political corruption leading to an increasingly angry and discontented electorate.

Obviously these trends have not influenced every country, region or individual equally, but they have provided the driving force that has led to this division within our societies.

If we now look back at the Brexit vote, it is easy to see where these Leave voters came from. They were the huge numbers of people that have seen their living standards drop, their jobs dry up, their neighbourhoods forever changed by massive immigration, their power to change the system stolen from them by lying, corrupt politicians on all sides; and their cries of complaint silenced by a political elite that didn’t want to hear it, and that actively labelled as ‘racist’ anyone that voiced it. Locked into this cycle of despair, is it any wonder that when an opportunity came about for a protest vote they grabbed it with both hands and said ‘Up Yours!’ to the establishment.

If we now apply this thinking to the US election the parallels are obvious. Trump won because he got the protest vote from those Americans that are not doing well. The regional voting split in both Brexit and the US elections bear this out. With Brexit it was the areas that have been hit hardest that voted to leave, and the harder they have had it over the last few years the higher the leave vote. With the US it was the same story. After years upon year of elections creating absolutely no change for the majority of the working class in the US, finally there was an opportunity to vote for a non-establishment figure, and they took it.

Yes, I know that Trump ran as a Republican, but in reality he is an independent because his wealth allows him to be. With every other president they are already in somebody’s pocket before they even get to the Whitehouse. From the moment they walk through the doors of the Whitehouse they lose any ability to reform the system, whether they were genuinely minded to or not. It’s Trump’s ability to act independently along with comments like ‘draining the swamp’ that scared the Republican elite into supporting Hillary against Trump and the interests of their own party. They would rather have seen a Democrat in the Whitehouse than see someone finally get a grip on the corruption and end their gravy train. This is precisely the kind of behaviour that many voters are sick and tired of, and only reinforced their belief that a vote for change was needed.

We can now see that it is the leaving behind, economically speaking, of a large part of society that creates the conditions for what will follow. As the wealth gap widens over many years, the feelings of disenchantment and animosity grow, resulting first in disengagement from and an apathy towards the political process, but finally in feelings of anger and rebellion that manifests in large voter turnouts and support for change in the political system that has failed them.

If we now look around the world we can see that there are numerous countries that mirror what Britain and the United States have experienced over the last thirty years, and their populations will likely be feeling the same way. The opinion polls in many European countries are supporting this view, with support for independent or anti-establishment parties rising steadily. The upcoming elections in France, Netherlands and Germany will likely reshape Europe in a way that would have felt unthinkable only a year ago.

 I think there is a distinct probability that the voters in these countries express their dissatisfaction with all that has occurred over the last few years and vote out the incumbents, replacing them with politicians of a more nationalist, populist persuasion. This will put Europe in the bizarre position of a European Union strongly pursuing a federalist agenda, whilst the member countries move increasingly away from it.

In theory this shouldn’t be a problem, as the agenda for the European Union could be redrafted to better represent the changing outlook of its member states. However, back in the real world, the European Union has been pursuing its own agenda for years, and could care less about the opinion of the average European citizen. We could easily therefore be in the position of the European Union heading in one direction, whilst the people of Europe head increasingly in the other. This is not a recipe for a happy ending, and unless the elite of the European Union accept that they are at odds with the will of the peoples of Europe, then it threatens to pull Europe apart.

When and if that time comes, we would like to think that these people in power could accept the result of the democratic process, however much at odds it is with their own personal views, and however detrimental to their personal ambitions. However, Brexit and Trump’s election have shown us that it is unlikely to be the case. These people of influence and power do not relinquish control easily, especially when it means an end to their time at the feeding trough.

But wider still, the reaction we have seen from those on the losing sides in the aftermath of those two events paints a very unpleasant picture of what we can expect. We seem to have lost the ability to put ourselves in someone else’s shoes. To see the world from their perspective and understand those things that have shaped their decision making, even if we disagree with it. The wailing and gnashing of teeth and the level of vitriol from some of those on the losing sides has been incredible. The sense of loss, of frustration and fury at the defeat has seen some verbal attacks of an intensity and ferocity that seems completely disproportionate. We are seeing almost no attempt to understand why the majority of people voted how they did and simply resorting to labeling all of them racists, red-necks etc. Instead of coming together and moving forward, opinion is polarizing further, and creating rifts that will be hard to heal.

In the case of President Trump, it’s his lack of credibility that prevents many opponents from accepting his victory. The view shared by many of his opponents that he is a sexist, misogynist, racist, narcissistic, egotist means they are still dumbfounded as to how anyone could vote for him. They don’t see him as a good candidate or as a viable president of the US, and certainly not the best person for the job. But on this issue they are really missing the point. The majority of people didn’t vote for Trump (or Brexit for that matter) because they weighed up the arguments and thought that was the right decision. Instead, they saw what the establishment wanted and voted against it. It was a protest vote, pure and simple. In fact in regards to the US election, had Donald Duck been running rather than Donald Trump he would still have got in because it wasn’t a vote for anything, but against the establishment. And there was no greater establishment figure than Hillary Clinton.

In the big scheme of things it is pointless to debate whether Trump is the right man for the job. Will he be a good President? Judging by how he acted throughout the election process, almost certainly not. But would Hillary have been any better? That depends on where you are in the societal pecking order, but the answer is probably better for some, not for others.

 It is important to realise however that irrespective of who is running the show, the outcome is baked in the cake. Those Americans that have been left behind and been silent for so long, have finally woken up and spoken, and the word was ENOUGH. They are not going to go away. And no amount of dragging the chain by those in power that have profited for so long will prevent it happening. Whether it is Trump or whoever follows him, the momentum for change is building. It is the same situation in Britain, and the trend will move throughout Europe to the rest of the world.

Brexit may have been the first indicator that something was different, but Trump’s election has shown that it was not a one off. The opportunities for citizens to express their disapproval will come thick and fast this year, and it will likely have some profound effects in ways we are only just beginning to understand. 

It would seem that ‘interesting times’ do indeed lie ahead.

The Markets

As you can probably guess, these trends will have huge impacts on financial markets. My long term views of rising Stock Markets, US Dollar, Precious Metals and Global Interest Rates are partially derived from my big picture view of the wider global economy. I am overdue for an update on these markets but I felt this post was important in establishing the political backdrop we will face.

I hope to get another post out by early February.

Regards

Paul