Living in Surreal Times


I just returned from a retreat in Devonshire Countryside, which culminated in a visit to Wistman’s Woods, the oldest oak woodland in England. Legend has it that it was the sacred grove of the druids. It really is a mystical and surreal place, with moss growing all over the twisted branches of the ancient trees and the stony floor of the woodland.

Events in the “civilized world” are also becoming more surreal. Since I last wrote, the political race in the US seems to have narrowed to a battle between a billionaire property mogul/reality TV presenter and a long-term insider who is being investigated by the FBI.  A Supreme Court Justice has died in mysterious circumstances with no autopsy; the Japanese government has issued 10 year bonds at negative rates (you pay them to lend them money!?); Europe seems to be closer to some climactic point in the refugee crisis; and the possibility of Britain leaving the EU has risen significantly.  I am sure I have missed other things. We continue to move to a major inflection point in human history.

As I write, on Super Tuesday, stock markets in the US are surging. It seems that they are jumping on the bounce in oil prices. I suspect that the recent bounce is merely a typical bear market rally, and that we will be hit hard again at some point in the future. The new bond king Gundlach seems to agree–he bought some equities when they were extremely oversold a number of weeks ago (we noted this condition as well) and then just sold the position. “I am bearish. There are just wiggles and jiggles in the markets.”

Financial assets, particularly stocks, are still very expensive from a historical perspective and the economic data around the world is still poor and pointing to recession.

 Economic Data

Today the Financial Times ran a story about how poorly economists have forecasted recessions:

“Even in early 2008, when markets were crashing, a survey of leading forecasters by the Philadelphia branch of the Federal Reserve showed that none predicted negative growth for the US that year. Now, despite evidence that the world economy is near to another recession, a similar survey shows that not one of the 40 leading economists believes there will be a US downturn this year….

The analysis company Ned Davis Research has shown that “economists, as a consensus, called exactly none” of the last seven recessions, dating back to 1970.”

Last week we learnt that world trade fell 14% last year–the first time since 2009. And manufacturing data in the world is still worsening–70% of countries are seeing their PMIs fall month to month:


Although the oil price has bounced I don’t see this as a particularly optimistic phenomenon. And besides, many miners and energy companies around the world are operating at very lousy prices to just pay off interest payments.

There needs to be a significant amount of debt write downs around the world, which will have severe implications for the stocks and financial institutions. Just look at commodity traders Noble Group and Glencore, which just had a massive write down. I will probably write about this again in future posts but it’s an example of the transmission effect of the commodity bust to the financial economy.

[Today Moody’s has just warned that global speculative-grade corporate defaults will increase by more than 30% in 2016 reaching the highest level since 2009.]

“Weapons of Mass Confiscation”

What is scary to me is that the modus operandi of Central Banks has not changed: they are moving towards further intervention. Milton Friedman famously said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” I think it’s been pretty clear that QE hasn’t worked so far–even the research departments of many central banks themselves have admitted that.

The next phase of central banking intervention is the introduction of negative interest rates. A number of countries including Japan have moved already. This week Japan actually issued 10-year bonds at negative interest rates for the first time ever. This is where the US is heading. The dark side of negative interest rates is that many establishment economists and bankers are now suggesting that governments ban cash. Recently Peter Boockvar wrote that “I am now calling negative interest rates: Weapons of Mass Confiscation.”

The rationale is that if negative deposit rates ultimately came about–or depositors foresaw them –then people would withdraw their money from banks and store it in safety deposit boxes or in some other form. Governments would have better control over your money if we moved to cashless societies. Some commentators and policymakers–like Larry Summers–are suggesting that getting rid of cash is to help fight terrorism. Others like Martin Wolf are being a little more honest and saying what it is really for.  This fear is probably been one key driver of gold this year.


As I expected, Trump continues to gain in the polls–and he is poised to come out No 1 in Super Tuesday for the GOP.  In a talk I gave last year in Hong Kong making forecasts for the next decade, I actually spoke about President Trump to laughter in the audience. This is becoming a real possibility now. Larry Summers this week wrote that “It is a reflection of the political psychology of frustration – people see him as responding to their fears about the modern world order, an outsider fighting for those who have been left behind.” Clearly, people are very unhappy about the current political system.

Its very interesting to see how all the mainstream media have lined up against him. As a reader in the Wall St Journal wrote today:

“Never seen so many editorials in New York Times, Washington Post and WSJ against one candidate in my life…”

Something is clearly bothering powerful interests a lot. As an Englishman with “no dog in this race” I found it quite intriguing, so much so that I started to fact check a lot of the articles being written about him and the entire transcripts of his interviews.

As someone that naturally disliked Trump’s egomaniacal and untactful comments, I was surprised to find that there is a huge amount of misinformation against him. [It is slightly similar to Jeremy Corbyn in the UK who is also not really from the system.]

Some think that perhaps its because Trump is talking about many sensitive topics that the mainstream media won’t touch such as TPP/TPIP; the open border policy; the Saudi involvement in 9-11; auditing the Federal Reserve; etc. etc.

If I was an American voter and desired small government I would probably have supported Ron and Rand Paul but the Trump phenomenon is quite interesting.

It looks like the Democrat machine (and Wall St) is still backing Clinton despite the email affair and Benghazi. But I do get a strong sense that Americans are somewhat fed up with war (among many other things!).  I thought the resignation of the Vice Chair of the DNC to get behind Sanders was interesting:

According to an email obtained by Politico, Gabbard told her fellow DNC officers “after much thought and consideration, I’ve decided I cannot remain neutral and sit on the sidelines any longer.”

“There is a clear contrast between our two candidates with regard to my strong belief that we must end the interventionist, regime change policies that have cost us so much,” she wrote. “This is not just another ‘issue.’ This is THE issue, and it’s deeply personal to me. This is why I’ve decided to resign as Vice Chair of the DNC so that I can support Bernie Sanders in his efforts to earn the Democratic nomination in the 2016 presidential race.”

The race between Clinton and Sanders will be close but Clinton has the upper hand. Although this Presidential race is becoming fascinating, I suspect it will not reverse some of the major cycles that have turned: including financial markets and society.


I have only been back here for a few weeks but immigration and the possibility of a Brexit are HUGE issues and one can hear people in bars and cafes everywhere talking about them. This week many have warned about the possibility of the Schengen system further breaking down imminently.  Wolfgang Munchau of the Financial Times has written about key risks to the EU:

“The EU is at risk of four fractures. I do not expect all of them to happen but I would be surprised if none did. The first is a north-south break-up over refugees. The so-called Schengen system of passport-free travel, in which 26 European countries take part, could be suspended indefinitely or become a miniature version comprising just Germany, France, and the Benelux countries. Italy would not be part of it. A second north-south fault line is the euro. Nothing has changed here. Echoes of the Eurozone crisis linger on and the Greek position is as unsustainable today as it was last summer. The third is an east-west divide. Will the open societies of Western Europe want to be tied into an ever-closer union with the likes of Mr. Orban or the other nationalists in central or Eastern Europe? Finally, there is Brexit. There is no way of knowing the outcome of the British referendum. The opinion polls are as useless as they were during last year’s general election.”

I am thinking about travelling across Europe to places like Germany again to get a better sense on the ground.

Tomorrow I have the delight of spending the day with two quantum physicists, exploring one of the other major revolutions that we are experiencing, the one in science. The interesting thing about this one is that is really challenges how we perceive reality–in fact, the first discoveries in quantum mechanics were made nearly 100 years ago and the implications are yet to be fully embraced by science or society. I will be writing up some of my thoughts at the Emerging Future Institute soon.


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