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Karina's Column

An insider’s view on the City of London and beyond

The fear moving markets


Heinz Bude & Pascal Lamy

Investors are anxious. Many markets are down by anything from 8%- 10% this month. As central banks withdraw from quantitative easing, institutions are pulling money out of financial markets, resulting in a vicious downward spiral.

But anxiety isn’t just in the markets, where investors have been on tenterhooks waiting for a Black Swan event to turn the bull into a bear (how ironic that instead it is mainly the much-heralded end of excess liquidity instead). Anxiety is widespread in our developed societies. Fear is the defining emotion of the last few years, and it is relevant on a personal and political front, and ultimately on the market front.

Personal Fear

There has been, and continues to be, so much fundamental change that not only are the much-talked about left-behind afraid, so are the middle classes. In fact, tell me who you are and I will tell you, gentle reader, what you (and I) fear.

Heinz Bude, a leading sociologist in Germany, sums up the change by writing that “our mode of social integration is shifting from the promise of advancement to the threat of exclusion…Anxiety springs from the knowledge that everything is open but nothing is meaningless. Our entire lives seem to be on the line at every single moment.” A drunken rant on Twitter and 280 characters mark the end of a decades-old successful career. A student accuses a respected teacher of sexual abuse, and the veracity of the story is irrelevant: the pedagogue’s vocation lies in tatters.

The fear among the low earners, who Professor Bude calls the new service proletariat, is well-documented. Be it the mishandling of Universal Credit in the UK to the Amazon warehouse packer’s zero hour contracts, a descent into total poverty and social exclusion is a stumble away.

They are not the only ones living with apprehension. The professor writes about ‘Silicon Valley capitalism’, which leaves us no breathing space as it transforms everyday life into productive, symbolic, social or economic capital. “Most people feel this optimization pressure not only in their job but also in their family life, free time – in their lives as a whole, actually,” he points out in Society of Fear, first published in German in 2014.

How many steps does your FitBit say you took today? In fact, haven’t you run a couple of marathons on different continents? You retired as a full partner in your respected law firm, but the concept of achievement can no longer be centred solely on a career. Have you since not helped raise a sunken school from the ashes of failure into a top performing one, or sailed across the Atlantic in record time? Are your children – who you are very close to – not entrepreneurs or Heads of Fundraising at some worthy charity?

For the younger generations, millenials and Generation Z, smaller pensions, larger debts, lower wages and less secure jobs are the dreaded norm. Mental health problems are rising among the young, all the way down the age scale to schoolchildren, with suicide the biggest cause of death for 24 to 30 year olds.

Political Fear

On the political side, fear of immigration and its effects on cultural identity, allied to the spectre or reality of job loss, is the one of the major issues. This helps explain the emergence of Donald Trump in the US, Brexit in the UK, Viktor Orban in Hungary. It also helps explain the rise of a votable far right party in Germany, the AfD, which stands at 13% in the polls.

“German stability is over, “ says a top German Parliamentarian involved in foreign policy. “Germany is joining the European normality: the emergence of a far right, weakening of the centre and fragmentation. Centre parties used to garner 90% of the vote. Now it is only 53%.”

Whatever the criticisms of Germany’s leadership in Europe, on balance it has been a force for good. Angela Merkel’s decision to step down as party leader now and as Chancellor in 2021 is piece-meal and too late in the day, for Germany is paralysed by Italian-style coalitions which will likely have a dire effect on Europe and and international diplomacy.

Similarly, US global leadership has been much criticised, but a weakened country lead by a policy-free, media manipulator is a fearsome beast – not least because he has test-driven the new model of politician for other would-be autocrats.

On a global basis, “the level of tension is unprecedented and it stems from one place, Washington,” says Pascal Lamy, former Director General of the World Trade Organisation. Speaking at the London School of Economics, he mentioned two possibilities. Either President Trump, with his damaging attacks on allies and opponents, is intent on getting rid of globalisation and the rules based global system, or he is looking to transform it for the benefit of the US.

In either case, the definining geopolitical issue of our age is China, and not only in its rivalry with the US. Will China moderate its exceptionalism to fit in with a global system, or will it strike out on its own more, asked Lamy rhetorically. He fears that the power of its social credit system, an Orwellian mass surveillance rating of every citizen’s behaviour, makes the latter more likely. In fact, from the beginning of the year China has forced all foreign companies operating in the country to have a social credit code. Those who contravene it – as retailer Muji did in labelling Taiwan a country – have major fines imposed.

Meanwhile, dire threats of climate change, mass migration, terrorism, chemical and biological warfare or a nuclear holocaust come at a time when transnational cooperation is weakened, as is the credibility of institutions like the judiciary and the legislature, while the word “expert” has morphed from encomium to insult.

Market Fear

It is relatively easy to name the factors that affect markets. It is infinitely more difficult to get the timing right. Geopolitical risk has been increasing since Donald Trump’s investiture, but this was more than offset by excess liquidity and the promise of his tax cuts and infrastructure spending. Now US GDP growth is starting to slow. It rose 3.5% in the third quarter of 2018 from 4.2% for the prior quarter.

BlackRock, the behemoth of asset managers, announced mid-month that inflows to its funds fell to a two-year low in the last quarter. Investor anxiety about missing out on a rising market is giving way to fear of being caught overexposed to risky assets. How this pans out for markets – especially with extensive ETF investment – is beyond the knowledge of this columnist, but the widespread fear in our societies could all too easily turn to panic.