US economy

History rhymes


As I write this note, the US and China are apparently about to ink a trade deal. The financial markets are, predictably, rising off the back of hopes for such a deal (or should I say, the algorithmic trading programs designed to look for good news about China are pushing the markets up). That has buoyed the spirits of our president, who tweeted yesterday: “Stock Market Up Big Today. A New Record. Enjoy!” At least he didn’t say bigly . . .

While I’m the first one to hope that such a deal is for real, even if it is, it doesn’t solve the US-China trade/tech conflict, which as I’ve written too many times, is existential.

It also doesn’t solve the bigger issue in the market today, which is that the corporate debt bubble is starting to burst. SoftBank, the oversized Japanese venture fund that helped to inflate values and expectations for Uber and WeWork (both have disappointed), is looking shaky. A few days ago its founder Masayoshi Son had to stand up if front of a group of hostile investors and media (which is how they do earnings season in Japan) and announce a $4.6bn writedown on WeWork. Although the FT’s own Alphaville blog says that Son has impressive plans to rehabilitate it, in a piece that I think might be satire.

In any case, the whole thing underscores the fact that there is a ton of debt out there in the world right now — about $60tn more of it than before the financial crisis — much of it corporate, and opaque. SoftBank’s Vision Fund, backed by Saudi Arabian money, is a case in point — its balance sheet is unfathomable. It’s hard to know how the fallout from our tech-driven corporate debt bubble will play out, but the size of it makes me pretty sure that the current record market highs aren’t going to last.

Paul Tudor Jones interviewing Ray Dalio at the Greenwich Economic Forum November 5th 2019
© Olivier Kpognon/Greenwich Economic Forum

Together, the two news stories put me in mind of a recent LinkedIn post from Bridgewater’s Ray Dalio (pictured above), who has been doing a deep dive on how the political and economic trends of the 1920s and 1930s chime with today. In both cases, you started with people (and companies) living beyond their means, which brewed up a bubble and a financial crisis. Politicians, attempting to stem losses, print money and try to devalue their currency to encourage exports. Trade conflict ensues. Global trade flattens. Populism rises.

He sums all this up with a little series of icons and arrows: Trade Imbalances > Financial Crisis > Currency War > Trade War. And a headline that reads “You Are Here”. What happens next? In the 1930s, as Dalio points out, it was a hot war. We aren’t there, obviously. But I’m also sceptical that any surface deal with China about tariff levels fundamentally changes the fact that there’s quite a lot of rhyming with the past at the moment.

Rather than asking Ed (who is in the wrong timezone for responses at the moment) to chime in here, I’m going to turn this issue over to Swampians. What historical parallels are we overplaying or underplaying at the moment? Please send in your thoughts and we’ll pick up on those of most relevance — and don’t worry, we haven’t forgotten your ever-important cocktail ideas — we’ll be preparing the winning concoction in a video soon.

Recommended reading

  • I have been doing a lot of podcasts this week as part of my book promotion efforts, and one that I’ve come across that I really love is “Hidden Forces”, hosted by Demetri Kofinas. You can expect to see my picture here soon, but in the meantime check out this very cool conversation with Andrew Marantz.
  • Forbidden work love is in the news this week following McDonald’s firing of its chief executive for an office relationship. The FT covers the waterfront on the topic.
  • And finally, don’t miss this wonderful Wall Street Journal front page piece on (yet another) college scandal — this time, it’s universities trafficking in student data to bolster their own perceived exclusivity.

Your feedback

We’d love to hear from you. You can email the team on swampnotes@ft.com, contact Ed on edward.luce@ft.com and Rana on rana.foroohar@ft.com, and follow them on Twitter at @RanaForoohar and @EdwardGLuce



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