In the ninth instalment of our ‘Longview Conversations With’ podcast, CEO Chris Watling returns to the influence of politics on financial markets (after last episode’s deep dive into the topic with Wolfgang Munchau, former FT European Editor).
In this episode, with Mike O’Sullivan, we discuss the ‘end of globalisation’, the ‘crisis of democracy’ and the ‘interregnum’ years between the last phase of globalisation and the next one. In other words, how is this volatile world likely to resolve itself, and what will this year’s elections mean for the global economy and global financial markets.
Michael O’Sullivan is an economist and investor. He has twenty years’ experience in global financial markets, most recently as Chief Investment Officer in the International Wealth Management Division of Credit Suisse, where he worked for twelve years. He now advises several asset management & fintech companies.
He is also the author of ‘The Levelling’ (Public Affairs), which outlines what’s next in politics, economics, finance and geopolitics in the post globalisation era. Recently he has co-authored ‘L’Accord du Peuple’ (Calmann-Levy) and made the BBC 4 radio documentary Waking up to World Debt (https://www.bbc.co.uk/sounds/play/m001styj). He has taught finance and economics at Oxford University and Princeton University.
In prior podcasts we have discussed the bull and bear cases for China, de-dollarisation, ‘What might break’ given the significant Fed tightening, Kondratieff waves, global asset allocation, and commercial real estate.”
Buy Mike’s Book Here: https://thelevelling.blog/
Visit Our Website: https://www.longvieweconomics.com/
00:00 Intro
01:54 Brexit, Trump, Noise & Disruption
03:33 Ireland & Globalisation
4:58 Economic & Political Cycles
6:18 Shock Events & The End Of An Era
8:03 Uncertainty & The New World Order
10:00 Come To Terms With 30 Years Of Globalisation
11:50 Debt
15:00 China
16:30 The US
18:18 (Lack Of) Productivity
20:02 How Do We Resolve This?
21:44 What This Does To Politics
25:20 The Future Of Debt
27:00 Indebtedness And Extreme Ideas
30:00 Immigration
31:25 Crisis Of Democracy
33:30 Experiments With Democracy
37:00 Treaty Of Westphalia
39:50 Multipolar World
42:30 What The NWO Could Look Like
45:20 Emerging Economies
47:30 BRICS
51:00 What This Means For Investors
55:05 Change In Portfolios
57:45 Currencies
58:30 Chinese Economy
01:00:35 Reaction To A Debt Crisis
01:02:30 French Election
01:05:50 Dynamics Of French Politics
01:07:35 French & European Economy
01:10:02 US Election
01:11:20 US Economy
#longvieweconomics #longviewconversations #globalisation #democracy #LePen #frenchelection #finance #investment #geopolitics #china #debt #france #trump #biden
in 1924 so exactly 100 years to years ago in London you have the Dos conference um when Germany went to Britain and France and said You know guys we have too much debt can you forgive us some of that debt um and they said yes and then they went to America and said you know can you forgive us some of our debt so you had this debt conference and my very very speculative idea is that we may end up in another world debt conference [Music] welcome to Long View conversations with our regular podcast where we talk to people in the world of Finance geopolitics economics actors throughout the the global financial markets and and get their take on life um I’m actually thrilled to introduce Mich Sullivan to you today who’s on the screen with me now Mike welcome it’s lovely to see you Chris thank you very much I’m I’m a big big fan of view so uh very pleased very flattered to to be on the uh on the the podcast well it’s an absolute pleasure we’re going to have a lovely fantastic conversation there’s a lot of topics um Mike um for those who don’t know him has got a an awful lot of fantastic history in markets as an economist as an investor uh he’s currently senior advisor at westc and moonfare moonfare I believe is a private Equity platform that you might tell us a bit about um and um 20 years of experience with the likes of credit S as a as a CIO very senior in that organization and of course author of a fantastic book called The leveling and also involved in a documentary coming out on BBC Radio 4 I believe about waking up to World debt which we’ll get into I’m sure over the course of this conversation and also a member of the world’s economic forums Council on the new economy and multiple degrees and multiple attributes over over the years so Mike really good to have you on um thanks Chris and um really really looking forward to this conversation so I appreciate it um so let let let me introduce the the topic and um the conversation with with a quote from your book Mike the opening two paragraphs that I’m going to read um we should be very familiar to you the book of course called the leveling uh chapter one brexit Trump noise and disruption um and I’m going to read the first two paragraphs so that our world is changing at a tectonic level is close to undeniable yet we often do not seem able to see beyond headline grabbing events of recent years the election of Donald Trump brexit and new governments in Mexico and Italy to name a few I should just mention this B book was published in 2019 these events simply represent the Smashing of the old order they are the detonators the wrecking B of the system that has grown up since the fall of Communism the leveling is about how the center of gravity in our world societies and economies is changing the confusion those changes create and the ideas that will help bring new structure to what is a disordered World absolutely fantastic opening couple of paragraphs and I you know I want to I want to I want to kick off really this discussion with really in a sense probably the question is can you expand um I mean in a sense your book is in part about globalization is over uh can you outline that theme and and then we’ll get into where we go from here yeah so so uh Chris says investors are not used to looking back uh this is the one time maybe in my career I’m glad someone has brought up something I’ve done in the past where where I’ve sort of got it right um I I’ll give you a bit of History because uh I’ve had this fascination with globalization for a long time so I started my life as an academic then moved to to investing um but kept writing books and the first two books I did were on Ireland and globalization one was called Ireland and the global question and the the reason for this is that you know sadly Ireland had this long history of economic underperformance but around the 90s it changed uh dramatically we saw the uh the rise of us multinationals investing in Ireland our society began to to change became more europeanized um and curious about these changes I I I started to put them together and and you know at the time Ireland was um beted as the most globalized country in the world in the 90s 2000s ironically uh countries like Chile China were sending envoys to Ireland to learn its secret and that that as you know that’s always a bad sign because then the the economy came it’s a perfect sign of hubris and I think uh uh Aran was on several Economist magazine covers as being Europe’s uh Shining Light so again uh always a time to uh to sell uh but the passage of globalization through Ireland fascinated me and then I in the leveling took it a bit bit further and may maybe just for for folks who know Long View very well what I like about Long View is you had this idea of regimes in Market that the market is in a risk taking regime or it’s in a risk go regime and what I’m also interested is is in these super long cycles of uh economic and political regimes and we’ve had two such regimes in history around globalization so one from 1870 to about 1912 which ended very badly uh War economic crisis Etc and the other one we’ve had from Fall of Communism to I would say I mean if you ask me to put a a date or an event it’s the the snuffing out of democracy in Hong Kong um democracy is part of the rise of globalization um Hong Kong for a long time has had very close links to the west to Britain in particular and it’s been a a representative of This Global uh trading order uh so the fact that the Chinese have introduced their security laws and sort of you know silently but uh malevolently I think taken Hong Kong into their own domain is is sort of that’s a wall coming down um on globalization so just to be clear you would date that as um sort of two or three years ago I forget exactly when that law came in but is that is that the point in Hong Kong that’s your thinking so that’s if you yeah so I think the bookends of globalization would be the fall of the Berlin wall and then the fall of Hong Kong’s democracy and and as you you noted at the start lots of events uh preceding that that were shocks to the system um brexit Trump Etc we have we have the contagion of that in in in France today we we chat about that later on um and and I think what’s interesting is that many of us we’re probably roughly the same age you know people have had their their careers during that area of globalization uh London as a city has thrived during that period so we’re we’re we’re used to this we’re used to a period of or we had been used to a period of kind of low inflation geopolitical Cal uh International TR trade and finance and this is the interesting thing is to begin to attune our mindsets to the fact that this is changing we’re going back to something that’s maybe more representative of the history of the last two or 300 years in terms of how economies and and politics uh tend to work together yeah it’s interesting you say that because I I remember um like you said we we you know we sort of got going in the ’90s in in in our careers after the fall of the Bing War when the peace divid dividend was at work and I remember I used to have this chart of the S&P 500 and I would put on these great political events that had happened over over the last few decades and until I don’t know 10 15 years ago it all none of the events really mattered yeah exactly they they really the S&P just went up it might have gone down for a day or two but basically it Shrugged it off now I mean some people would say the S&P is still going up of course it is but you think of the European crisis for example as a very significant geopolitical event that really did a lot of damage uh to those economies and that market and so on so so it’s interesting so globalization is over it’s uh bookended uh its end is bookended by the Hong Kong introduction of security laws uh which seems very reasonable I’m sure people could pick different dates but that seems to me very sensible in in in in what it says about China and um the multi-polar world that’s coming and then you have this Theory we’re in the sort of interregnum um we’re you know we’re trying to find our way into the new Global World Order describe the internum as you see it and um how that plays out yeah so we we have I I think in today’s world which is heavily saturated by social media I think people have a uh a desire maybe a need for uh certainty and Framing and the problem with the interdum is that it’s not certain it’s it’s very noisy uh it’s very chaotic and there are lots of things that are are falling down on one hand and lots of things that are being being built up um the the word which is a lovely word internum comes from the period in British history in the middle of the the the 17th century when uh Charles I first had been beheaded then you had this experiment with democracy up to Charles the II so it was a period of experiment experimentation uh of uncertainty of of of turmoil um fittingly we now have another King Charles for this internum so the the internum is really a sort of an in between phase and I know you like these long cycles of of Economics as well and if you look at at at some of that theory you know the the fourth turning I think they Al they would all suggest that this interum will last maybe 15 years or so and I I would break it it’s very hard to to give people a clear answer as to what it is but I I would break it into uh two parts at least so one is the uh the coming to terms with the excesses of the last 30 years of globalization so there would be climate damage the accumulation of massive levels of uh debt and maybe artificial relationships in the financial markets like the effect of of QE um and then also the crisis of democracy that we are in at the moment so that’s sort of the the bad stuff that we have to overcome and we have to to get this detrius out of the way before we can move on to the next thing and then the next thing is going to be based around new technologies uh AI is very prominent in the public Consciousness um but the same thing is true of uh genetics um we’ll also need to create new institutions to Marshal these new behaviors and new technologies in the same way the IMF World Bank Etc were were created about a hundred years ago um and then a bit like football there’s a sort of League table aspect of of the rise and fall of Nations which is really being accelerated so when globalization started I think the British economy was bigger than China and India uh now it’s dropping back behind those and you know around the world you’ve all these uh countries and economies and stories that are really rising up from um Indonesia to Poland as a as a power um in in Europe so it’s a fascinating time it’s challenging uh there’s an awful lot up for grabs the Rivalry between China and the US would be instructive what kind of world system do we have as one one of of of rules or is it one based on on hard power so it’s interesting I mean there’s a lot to unpick in in in that and um and in that internum let let’s start with the the indebtedness theme because I know you’ve been doing a lot of of work on this we’ve discussed this you and I many times in the past the the sort of debt super cycle or um you know as we were writing about yesterday we live in a a a debt financed uh monetary system that just needs more debt to grow the world economy or that seems to be the way it plays out how does this get resolved because it’s not just you know there there’s some there’s a little bits of pieces of good news the UK and US household balance sheets Del leverag for the last 15 years relative to the economy anyway um you know us corporates aren’t particularly leveraged actually when you look at it in net net of cash but the but the but the world in agrego we have this sort of theme we call it P the debt parcel there’s one part of the world in every economic expansion that’s always leveraging up aggressively and of course this last phase has been China uh where the numbers are staggering um you know private sector debts GDP in 2008 in China 100% now 300 and something per. in absolute you know R nimi numbers it’s 44 trillion just in the private sector to I think 35400 trillion in 15 years so staggering numbers of debt and of course China happens to be the worst offender in the last decade but there’s a government in debt in this and around the world and we’ve all been focused on the US Treasury and the amount of debt that’s come there so so how does this get resolved how does this play out from here loads loads of stuff to to unpack and and by the way the uh the BBC for radio documentary is out so if you if people want to listen to it it’s uh you know type in waking up to World debt um great contributors people like Barry ienr um Ryan uh Rajiv as well um so it’s real real real fantastic we and we’ll put the link we’ll put the link in the um under under under the video what what is what is scary is if you um go back to the go back let’s say 200 250 years in in economic history and you look at debt to GDP so the the the leading countries of the world are the most indebted they have ever been except the the world wars which was an emergency and then interestingly the aftermath of the uh Napoleonic Wars um and that that’s interesting because the way in which Britain resolved its debt load and and reconfigured its um its economy was it was effectively the The Genius of pit William pit the the younger uh meant that it had the financial and economic power and flexibility to surpass France as the European and world power in the 19th century so I think the first thing to flag is that all the big economic zones uh the US China Japan uh France uh and and England are heavily indebted and there there’s a geopolitical element because whichever of them can get rid of that debt the most quickly and most efficiently will be at a Head Start in in the race to be the the superpower of the 21st century on China specifically China is very curious it reminds me a bit of Ireland in the uh 2000s because Ireland at the time didn’t have much government debt but it had huge um badly formed private debt which was then taken onto the government balance sheet and the issue with with China today for for us in sitting in London today is that the transparency on the Chinese economy and policy um is it’s getting worse I mean I’ve got various friends there and and other places you can sort of get get a sense as to what’s going on but the the the level of transparency for westerners as to what’s happening in China is is is is really not great and that makes it makes it harder um and I know the Chinese are are are super Vigilant uh on this and they’re looking around the rest of the world at how other countries have resolved their their debt loans and I think eventually the Chinese bond market will deepen and become more sophisticated but this is this is this is an almost existential event for China because the the the the contract between the Chinese government and the people is that the government gives them prosperity in return for their silence but then if you have hundreds of millions of people who eventually don’t have a job and who are uh who have weak personal balance sheets that that’s a huge issue politically so I think this is this is probably the most interesting case um you mentioned then the the US um and interesting for the us as an Empire today and as the dominant Empire there has never been an Empire that has survived where it pays more on interest payments than military spending us spends a lot of money on on military spending so again that gives you a sense of the the existential and geopolitical element here and my my own worry and I know you’ve written lots of stuff on on reforming the city and reforming Finance is that the accumulation of debt is correlated with a lot of things it’s it’s correlated with if you you can do a chart of debt GDP worldwide with um the excess Global temperature so they they they fit nicely on a chart together so the world’s got hotter as we’ve taken on more debt yes you’re not suggesting their causal you’re just it’s coincident I think it’s say I I think it’s coincidental um and what is also interesting is that debt has increased as productivity has decreased so we’re on the cusp of a an election in the UK and I think the the really profound economic issue in the UK is productivity and how to get that get that back um and I feel that the the Western economies are a bit like an aging athlete that’s you know losing his or her speed and is kind of taking substance taking taking on debt effectively to um to to to look better um and and then the the other thing to to make this more more uh complex I think is that uh central banks are conniving in the accumulation of debt um they’ve managed to suppress the signals from debt markets I think um and in Japan they have become the debt Market themselves and in the Bank of Japan is as you often point out it is the bond market it’s eaten the bond market at this stage so what is that but where does that leave us because you remind me of um two things actually as you say that the sort of famous rogoff and Reinhardt once government debt to GDP gets over 90% yeah productivity tails off and is is impacted and and you can see why that might be the government’s too involved in the economy and it’s typically less productive it certainly reminds me of that and then I’m reminded and this might feed a bit more into the the Democratic crisis theme but the my my sort of you know fa favorite worry stat if you like about the UK is we have 9.1 million people so let no let me get the numbers is right soorry we have 20 so we get 12 million people on pensions that they they receive from the government we’ve got 6 million people employed by the government and we’ve got about 6 million people either unemployed or on disability benefits so it’s 24 million people and then of adult age and then you have um 27 million people who work in the private sector and pay taxes and two of them at 2 million that 27 don’t pay taxes so it’s 25 play 24 so from democracy’s point of view if you’re very sort of sort of raw about it you know turkeys don’t vote for Christmas yeah uh you know so there’s as many people are going to vote for the government simply because they’re effectively paid for by the government as there is people who work in the private sector some of whom will vote for more handouts so how does that how does that how does this get resolved this indebtedness because as you say productivity is dwindling and the government is is is giving out the candy and it just seems harder and harder to get elected in a democracy to deal with this problem yeah so it it I I I give you one very speculative um scenario as to how it gets resolved in a second but I think until it gets resolved what is going to happen is that debt a bit like climate damage it becomes part of our lives and again glob when when globalization got got going um that was the time when the euro is being formed and we we’re all told told about the master criteria you can’t have debt to GDP above 60% or else and we had the Asian crisis when you know debt levels were actually not that big at the time the US had debted GDP of 40% so in a way you and I are conditioned to think that oh if if a country passes its um let’s say 80 90% then then we should instinctively jerk expect a a crisis and the fact that that hasn’t happened to me suggests that the the world economy and the financial system is is sort of evolving around these debt loads uh so we have the rise of the private credit Market we have enormous numbers of fexs in London who are doing B now um pay later so that keeps it going and maybe stores up the risks for later and I think until we get to later debt will uh change politics in a number of uh important ways um it it will severe diminish uh fiscal space so governments won’t really be able to do very much to in a kinan way stimulate the uh the the economy that’s been the case in France for a long time it probably be the case early on I think for labor and what that does then for politicians it pushes them to fight another terrain um probably on the issues of identity value immigration again France is probably the the example I think the UK is interesting and that the labor government will probably introduce a level of boring cam to policy making which I think would be good for uh the economy um it’s already very clear that the promises that they were making maybe a year ago on green energy spending um can’t be met by the government balance sheet so I think what we will see is we will see um governments and really big investors be it Sovereign wealth funds the big pension funds in the US and Canada do a lot of this stuff together um and I think that’s kind of the plan uh for GB energy is that they they try and act as a a focal point for some of these uh these International investors so that’s kind of how we get by with all this debt load in in the interim and I don’t think there’s any um magic uh solution to that then the textbook Solutions are inflation growth is obviously my favorite one which I think is why productivity is so important education uh rule of law all that sort of stuff needs to be rediscovered by by Western governments and then we come potentially to an end game so um if we go back to the the first period of globalization ended in whatever 1912 um you had the accumulation of financial risks you had the the first world war and then afterwards part of that in 19 1924 so exactly 100 years years ago in London you had the Dos conference um when Germany went to Britain and France and said You know guys we have too much debt can you forgive us some of that debt um and they said yes and then they went to America said you know can you forgive us some of our debt so you have this debt conference and my very very speculative idea is that we may end up in another world debt conference uh and I think it could happen somewhere with a good bar like the the Raffles hotel in Singapore because it’s sort of a it’s a geopolitical midpoint between the US and and China uh where the great Powers get together and this kind of carving up of uh debt and repackaging of debt Etc because it’s it’s very hard to see how all of the big economies um can reduce debt at the same time and the the final point to make is that INF financial markets when everyone does something at the same time that can produce a a brilliant trade or or Trend um as the US Banks were doing in the 2000s in the housing market the mortgage Market but the fact that they’re all doing the same thing uh eventually just that accumulates that risk and it makes an end solution um a lot more dramatic so so so you are you saying we’re in the phase now when everyone’s doing the same thing or are you saying that might come after this debt conference uh we’re so we are in the phase now where everyone is doing the same thing um China will accumulate more debt because it’s absorbing more private debt um the US it seems is minded is in a mindset to to increase its debt and not to cut its uh its uh its fiscal deficit and and and I think if Trump is the next president that will become even more uh difficult yeah um I think in Europe Britain and France are probably at the limit of their debt and will be be be constrained in what they what they can do um and then Japan is just heavily indebted so we’re we’re we’re we’re still I think at the margin accumulating debt uh across the nations of the world um and that will go go I think that will go on until there is some crisis and I suspect that crisis will come with a flaw in one of these magic Solutions so the magic one of the magic solutions that central banks just just suppress and Hoover up this that um and that could be Japan you just get this you know terrible move in in in the Yen and then people begin to price in balance sheet risk to other currencies that that’s just a a very speculative kind of scenario um I don’t think we’re we’re we’re there yet we probably need to be provoked by another leg higher in in inflation maybe what about I mean there must be other ways this might there obviously are other ways it might play out as you said it’s very speculative but the other the other aspect I think is quite interesting of this is you know this idea that indebtedness leads to poor productivity outcomes which is essentially what we’ve been talking about and that and and of course poor productivity outcomes means the majority of the population have poor real wage growth yeah you know so those two correlate pretty well productivity and real wage growth for middle and lower uh lower incomes not the Super Rich but so um and and I would I would argue that’s a massive contributor to divisive politics so is there not a path that you know we you know and we’ve seen it in Europe it’s becoming increasingly right-wing um more of that in France at the moment you think about Europe Holland’s rightwing Italy Austria Germany the FD AR rising and and in France they could well be winning election and we’ll get on to that but is this not um part of what’s underpinning this and could there could there not therefore be a different scenario whereby a more extreme party comes up with more extreme policy outcomes that for either kickstarts a crisis or in some other way changes the system is that something you see as plausible in a way it’s I mean I I I think doing all the good things in a policy point of view are difficult because they don’t win votes they’re hard to you know so productivity trying to explain to Tik Tok how you would increase productivity and and and and then asking people for the patience to for ow that to happen is a big ask to today’s and and increasingly our politicians if you look at AR and France Etc they’re young they’ve never worked outside politics very social media driven um so I do think that that’s actually a policy um problem um I think what is interesting is that if you look around Europe um you have productive so France has actually got a decent level of productivity so do some of these small open economies Switzerland Sweden Etc um and most of them are still moving to uh the right uh for different reasons I think not less to do with economics more to do with things like immigration identity um so I’m I’m not entirely sure about that link my my my fundamental personal belief is that the factors that determine productivity um most of which are public goods like education uh and the rule of law are also the things that make for good democracies and stable open economies um and and I think at the margins you have you have them you you have more of the rise of uh uncivil politics and and kind of extreme politics where some of those public assets are are are uh degraded do you not think that I mean I understand the um immigration is is one of the Hot Drivers of of of the the rightwing the extreme right wing and so on but do you not think that if um middle income was was growing in its wealth it would be less concer I mean it’s an easy blame immigration that’s the point yeah whereas actually uh immigration on the whole probably adds to growth and mostly contributes to society uh it’s generally a positive economically but it’s not a positive in terms of in terms of people’s wealth and their their sense of of public services and the deterioration of public services and the wealth all go back to the fact is a lack of productivity so they I think they must be linked um indirectly or you know in some senses directly they are so so maybe the US is a is a better example because um you’ve had for for a a big chunk of American society until recently you’ve had the hollowing out of uh real incomes and for for large chunks of the economy you’ve had the hollowing out of of productivity and actually American productivity is is only just beginning to to pick up and and get going again um and I think there are big chunks of America where where that argument is is is true actually yes and maybe the UK as well um okay let well let’s push on so this this Democratic crisis how um give us some more color on that and how you see that playing out going forwards in this inter egum and then we can get on to the positives I suppose yeah so and this is this is the thing about the interdum is that you know not not to be gloomy but you have to kind of deal with all the the bad stuff before you can move on to the uh the the exciting stuff so I I think the idea of democracy is fundamentally linked to globalization so no surprised that the end of globalization comes with the crisis of democracy and many of the things that are um provoking electorates today are things you could call the the side effects of deglobalization so the return of inflation we we’ve not had inflation during globalization we have it in uh in big chunks now um stress and security worries about wars and conflicts um immigration because of climate damage and conflicts as uh as well um and you know having grown up and lived in a number of democracy I’m personally very very attached to it and and there is this idea that for the first time ever uh politicians in democracies are for whatever reason vandalizing their own democracy so I think if you you ask people around the world for their view on British democracy it’s a it’s a very very positive view people here would would would maybe be uh less positive given what’s happened in the last um the the last 10 years um and I do think it’s fair to say that Johnson Etc have vandalized some of the institutions of the the country a rise in corruption the same is true of uh Donald Trump and the states and I think even for you go back to the last whatever 100 years it was always an article of faith for republicans and Democrats that the the Constitution the idea of the founding fa fathers um The Federalist Papers all that stuff was was sacred and could not be trampled on and could not be uh abused and traduced uh unfortunately that’s the case uh today and and maybe half of the American population will vote for somebody who disregards all of that so that that that’s um it’s a it’s a really big uh worry and I think if you’ve traveled and you you’ve seen countries where uh democracy doesn’t uh exist but people really want it Iran is is a good example um you get a sense as to how how precious it is um and I think around the world there are lots of really interesting experiments with democracy some Germany people are using uh technology to vote at the the city level in Ireland our our citizens assembly model is is famous um so so there’s a lot of things happening bottom up um one one point Chris just to to give people a bit of context so the reason I call the book The leveling is uh from a an obscure but highly important uh group of English people in the uh uh sort of the 1640s um I think here we go look this this this will cheer you up this will probably cheer you up ah yes exactly yeah yeah yeah yes there you go yeah yes and this is this is a a brilliant and mad period in English History um because around 16 to to kind of jump a bit but around 1648 you know you had the end of the 30 Years War huge things happening around Europe the the formation of the nation state in England that was less relevant but um the the King King Charles had been captured stuck in the in the tower and for the first time probably ever in a European country people said oh you know we we might have a democracy what should it be like so they and the Army decamped down to to Putney and you had the potne debates and that was written up as uh and and for those that don’t know London that well partney is down the river basically as you down the river moving as you’re moving sort of West out of L uh sorry uh my compass is not good but West West out Southwest yeah so worth if you’re in London looking for a walk along the top paath head down go to St Mary’s Church um and I think it’s one of the most important uh moments in in English History and one of the most underestimated as well so the the point of saying all this is that there are so many people today in multiple countries who are frustrated with politics frustrated with how their country is going and some of them get on Twitter and they they they get into a vital and whatever and I thought that the um the views of the the lers and Putney debates which are expressed in these documents called the agreement of the people which are are short uh they’re very realistic uh and pragmatic I thought that’s a really good representation of people writing down what they want from democracy and one we should think about today so that that’s why I I’ve introduced the theme of the the the levelers into the book but that’s sorry I’ve gone completely off no no that’s fascinating because you’re quite right there was a wonderful period in British history where democracy as you say was established uh and Powers were arrested from the King and um and the people therefore had more of a say through parliamentary procedures that came into being so um it was it was an incredibly important moment and I think you I think in your book you spin that into the is that piece of West failure around that time I believe is that correct um do you want to give us a bit of color on that because that kind of there’s there’s parallels with today you know you argue we maybe need to go to a global debt conference some form of global debt forgiveness uh the great power sitting down together and discussing these issues and cleaning the system up so talk to us about how the the Peace of West failure played played through into into Global or european politics primarily I suppose yeah so so so the the treaty West failure was so so something must have happened in sort of 1648 because you had all these you know massively consequential events in in England and across uh Europe so the the pce of West failure effectively brought brought to an end the 30 Years War uh which was a multifaceted War it was a war of of religions of of of protestantism uh of the Catholics of War of princes uh if you look at a map of ger at the time Germany was divided into all these tiny little uh Prince prining States um and and the same was true I think across the the rest of of of Europe so it was kind of like a know Europe was owned by these family businesses and the these um princelings and the the Treaty of West failure it did a number of things that allowed these princes to um Accord to their their own religion without without controversy but effectively it founded the idea of the nation states and from that period Then you had the the sort of the coalescing of all these little State lets into these big regions and big countries um so geopolitically it was a huge thing and then in subsequent years you begun to get these um uh rivalries and these cooperations between these uh new uh nation states and it was it was also I think the the effectively the formation of formal diplomacy between between countries um and and at the nation state level formal uh agreements and then we we got into sort of the uh the the 18th century 19th century which was a you know an era of great power uh contest amongst the the big European powers so something similar is happening today so we we’ve had this world order America’s been the dominant power for the last 70 80 years uh we have kind of the the Washington consensus we have World Institution like the World Bank the IMF which are in some respects have done what they were supposed to do um others like the World Trade Organization have a crisis of legitimacy um and are probably defunct at this stage so there’s a need I think to recreate the the rules of the game of the international uh order there’s definitely this kind of contest going on we’re in this idea of a multi-polar world where you’ve got three or four kind of polls and how how I Define that is that it’s not just that they’re big and strong like America and China but they do things in very very different ways so if you look at the internet I mean America’s Got The Magnificent Seven it’s got the the big companies of the internet um China has uh total control over it over its internet so Google’s internet share in China between 2006 to 2016 went from party percent to zero uh so it’s got this Waller on the internet but it has a very vibrant um uh internet or e-commerce economy uh and then in Europe we don’t have the big internet joints but we do have uh good internet regulation um which people scoff at I mean I think it would actually be good for our for our kids and we’re now seeing the deployment of course of the the Digital Services act in Europe as well um so so the point is that you have these big regions who are going down their own path when it comes to security economic models technological models America still well out in in um in the lead they have this uh existential struggle for power with China and I think that’s happening a bit over our heads in Europe um and the UK there there are not many people I think who are aware of the intensity of the Rivalry between America and China and the kind of things they’re doing to uh you know to effectively to knobble each other and and to put boundaries around uh what each other is doing it’s interesting you say that yeah I think you’re you’re you’re you’re quite right I was uh at a dinner in New York of of politicians and finance people in April and you you can it’s palpable that rivalry in that dinner America China in a way that it isn’t when one goes to dinner with those kind of people in Europe it’s less obvious so how does all this feed into future new institutions there’s obviously the bricks is emerging do you have a sense so you talked about the World Bank is uh wto’s defunct and um the old institutions the sort of uh League of Nations that birthed out of that came the you know the IMF and and uh and the UN where where are we going now how’s the world order what what is scen what sort of scenario can you see as we look forward so I I think in terms of Institutions Chris I think the world institutions will become uh less relevant and less powerful the World Trade Organization is is a good example it’s it’s effectively uh defunct and what will happen as you will probably have more biot trilateral agreements between the US the EU uh and and China they kind of sort it out themselves for financial institutions uh I I think a couple of things will will happen um one is that the you have regionalization um so Asia already has its own Development Bank what is going to be fascinating is if and when China has a a debt crisis and then resulting from that develops its own debt markets will they still use a kind of a western template for corporate governance or will they have corporate governance with heavy Chinese characteristics um and that would be a big thing I think in terms of it’ll be a big thing for international investors a big thing for uh Capital flows uh and portfolio flows around the world so and and and I think my my my instinct is that a lot of this will be more Regional than um than than Global um I think central banks risk becoming caught up in this that they become sort of the battleships the monetary battleships uh in this world order and that they are forced to politicize or geopoliticians um as this great power rivalry intensifies and it will surely um intensify and there is you know on the western side there there’s and you you read it about almost every day now there are efforts by China Russia North Korea Iran to just to to poke away at and and and destabilize Western societies and and democracies in in lots of ways that are just um sapping in terms of resource uh and energy um you know just just I mean today there’s a sense in in America I think that the uh one of the things that’s happening is that there are multiple theaters of conflict opening up around the world where America is necessarily being drawn in and part of that just part of it is is is to distract America and kind of tie it down in multiple ways so that’s not a terribly optimistic uh View for the future it’s probably one more that corresponds more to the the post West failure world of kind of great power competition and competition of methods and approaches of the big regions um one one region we haven’t haven’t spoke about and I think I think part of the the problem with these discussions on globalization is that we always focus on Europe America China and as a friend of mine said you know what about the other 75% um because you have all of these in terms of population you mean in terms of population because you you have all all of these big populous uh economies some of them really successful Indonesia uh some of them very ambitious now like um you know uh Ethiopia Rwanda Kenya um and some of them again very successful as emerging growth uh models uh many in Asia Poland I think is is is emerging as a as a really interesting power in in Europe so what what do all of these countries do and what do they think and and what’s their role in this world order um and some of them will sort of say well you know we we’ve watched the evolution of the western model we think democracy and rules is the way to go with our own characteristics others uh manifestly and you’ve got some cases in uh in South America uh are saying well you know we we probably need power centralized in one person and we need to weaken our constitution um and we need to follow the the the Chinese model because that’s obviously what works in terms of growth so in these countries and it’s again not something that’s picked up a lot on there is this debate as to what is the econom economic model to follow uh and then the other thing which is I think I find irritating and condescending is the idea of the global South that you take all these countries and you sort of put them into a box and that they’re all the same because the problem is they are they highly different um and and so far they don’t really have a coordination mechanism so that’s one of the very very interesting things for the future is you know will countries like uh Nigeria Malaysia who are geographically different different culturally very different will they find ways of of coordinating so that they can be more powerful and that probably doesn’t necessitate the the UN Etc so that that’s a big open question is is not part of that the potential for the bricks institutions to start playing that role of a coordinator of of nonwestern um you know historically globally powerful and still still globally powerful Nations so pick it picking up because of course the bricks has been expanding as we know I mean there more countries are affiliated with it it’s like a I mean I don’t want to use the term Global South because you quite you quite rightly disparaged it but um but but but it is picking up that geography um with members from South America now uh from from the Middle East from Africa I think um and of course through Asia it it has and I think some of those countries are hedging their bets because the two of the big countries in the bricks uh Russia and China um you know they have shown they they show more and more clearly what they’re true intent is that and and and again I think the fact that it is a dilemma for these countries uh as to which side to choose shows that perhaps they’re they’re hedging but I I think an alliance involving Russia and China doesn’t really do anything great for the future economic model of again Malaysia or some of these countries but if surely if you export to these places if you’re a big exporter to China as many people are you in some ways you have little Limited choice you you have limited Choice um exactly and um I think you limited choice in terms of trading with them I think you you have a a much bigger Choice as to how you develop your own country and what your vision for your own country is and I think debates in many of these countries are actually uh very Pro and and and uh very mixed so there’s a few a few things going on so one is we have new uh geopolitical gang So within the bricks group you have the the CH the Shanghai cooperation organization which is sort of the the anti-western countries um Iran is an observer Russia China um India is a formal member but not that active um and then in in in in sort of uh facing off against that then you have the um uh Japan Australia the US uh and and and UK so there’s all these kind of gangs forming the the the region that’s interesting to me as well is India and the Emirates um and I think in the period of globalization you’ve had two Miracles China’s a miracle economy um the uh the Emirates is a miracle I mean I I remember when I first started my career going to uh I think it was Abu Dhabi there was maybe three towers there uh in the desert um and now it’s it’s it’s flourish so I think there is there is potential for another kind of geopolitical poll between India India as kind of the the body and then the Emirates uh on top and and they have signed they are beginning to sign more uh collaboration agreements and have trade routes and they’re probably at the stage where France and Germany were in the 60s you know kind of coal and steel uh cooperation they’re not at the stage yet of having the same rules and modus operand because they’re quite different but that could be an interesting uh balance to some of the other bigger parties around the world so multi-polar world so let’s let’s just take this uh you know the clock’s obviously ticking and we want to get into what all this means for investors and and actually more specifically as well as we go into this year there’s a ton of elections coming up um you’ve already mentioned them France uh starting this weekend the UK next month and then of course America in November and one or two others do you how how as an investor how do you how does one go about thinking about those things and uh how does one go about investing in this world of you know uh multiple crises or heavily indebted world as you as you describe it where the stability is kind of gone from the from the 90s and from the period of globalization so I I think Chris what is interesting that geopolitics hasn’t mattered to markets for a long time right um You and actually you’ve had these geopolitical trends like the rise of the bricks and the bricks funds and ETFs that that have been interesting thematic and structural Trends it is it is mattering more I think because we have inflation so we have so that QE is probably less powerful it can dull Market uh signals less um and I kind of divide the world into um doped and non-doped assets so you might cynically argue that some of the um you know the NASDAQ and the tech stocks are kind of artificial because you have this massive option activity you have uh uh the often the effect of of of central banks so currencies are definitely one way of playing um geopolitics and I think currencies are a good indicator of the health of a country the Turkish l in the last couple of years is um is is a great example um I I think also what is what’s interesting you mentioned moonfare at the start is in the private investment World Private Equity venture that’s getting bigger and bigger uh as public markets shrink a bit and they become more distorted um and in the private Equity world and Venture world you are seeing very strict rules that a us or even European VC or private Equity manager will not invest in or with Chinese investors so you you you I think the sense of this uh multi-polar world is actually more palpable um the second thing is a lot of the Technologies in that that are going to to build dominance uh you know could be Quantum Computing um defense AI you know all this you know totally mindboggling and dazzling uh technology um that’s happening in the the private asset market and what is interesting is that a lot of it is being pushed by governments as well and I think Europe is at an interesting juncture where it has to catch up with the US um and China and more resource will be um will be put into that um and then I think if you are you can you know you can do the same if you are a public markets investor you’re probably getting in a little bit a little bit uh later and then the final thing is on on on debt um and I guess if we wanted to wait for the debt crisis we could be waiting for some time uh there was a famous German Economist called rudiger dornbush who um kind of made his name on developed an Emerging Market crisis of the 80s and ’90s and he said you know these bubbles they go on for much longer than you think and then they turn much more quickly than you think yes um and trying to to to pick up that turn I think is is is going to be very very difficult very hard so so what do you do as an investor then you’ve got say you’ve got your you know you’re you’re you’re advising a pension fund who um obviously has Global ass and diversification H how how do you avoid these these blowups or can you can you simply not is it more case of managing what what what occurs do do you you probably remember this Chris um with the credit spe Research Institute we used produced something called the um investment returns yearbook which is kind of a you know long long with two profs uh Eloy Dimson and Paul Marsh and and how how I answer that question is I put up a chart of the uh the the country in the sector market cap of stock markets in the 19 in sorry 1900 so at the time um I think the US stop market was about 20% or less actually about 15% of World Market Cap the UK was 25% um the biggest sector by a long shot was Railways and you just ask people then to say well H how how that has evolved over time because you know some of the economies in there have been strong but they haven’t but ized and they’ve um like Germany gone down the route of family businesses and Bank lending as opposed to developing a really big stock market and I think it’s a really good way of thinking about how the the portfolio of the future uh will evolve so if I was to go to the the pension fund or to uh a well-off person I would say that in the future your portfolio of the future will probably have more very very low margin uh Public Market investments in Cor bonds equities um a lot of it is ETFs because I think the active space is just being squeezed for lots of different reasons um on a 10year basis you’re probably going to end up having more um what’s now Emerging Market debt but it would become developed Market debt um a lot of that could be China you know China potentially could be the the new kind of Lynch pen of the bond markets in the way the treasury market is today there’s just a huge question mark over this I think China has to evolve massively um institutionally for for that to happen and then I think you probably have a much much bigger chunk of of of private markets private Equity Venture as those Industries grow and they capture a lot of the The Innovation and economies um you I think people will probably have one or two% of their portfolio in in crypto or Bitcoin not because it’s an economic asset because it’s just a thing um highly call I suspect with the with the NASDAQ um but there is just a it’s becoming institutionalized now um and then I I suspect a couple of the smaller currencies in the world may maybe not disappear but they become diminished as um investing currencies and what do you mean by the smaller currency you mean something like the British pound or you mean could even be could even be the pound the Crona Etc um which maybe become um harder to invest in for international investors so but um so so it’s interesting what you say about China because you know clearly there’s one school of thought that China is going to rule the waves and um and so on and and develop this great big bond market and become a great investable beast but the the trends have been going the other way certainly for Western investors which is where most of the capital is still um in the last two years there’s many I know many investors in America in particular who who won’t invest in China full stop it’s now um being deemed um uninvestable for geopolitical and security reasons if you like or or something along those lines so and also on top of that we talked about all that debt in China it’s got a tough I mean I would argue it’s in a balance sheet recession yeah uh and it’s become it’s becoming a bit like very similar to Japan post 199 so it’s got a long workout period so even looking 10 years out it seems to me that’s quite a big ask to see China as emerging as a a significant or more significant part of a portfolio yeah that that that’s so I agree with much of what you said and I and I subscribe to you that the dollar will remain the worlds there is there is this community of people who think that the dollar is going to to disappear and um I think one of the main reasons it won’t is that the the financial and banking infrastructure of the world is its American institutions um and it would be very very hard to supplant that particularly with corporate governance issues around many of the the the Chinese Asian uh institutions so 10 years is maybe optimistic um if you go back to the euro Zone uh debt crisis and also go back to pit the younger in 1802 or whatever it was um the way in which you resolve a debt crisis is incredibly incredibly important for what happens uh next you know you can have um you can have a sort of lost decade or or lost uh 20 years economically um or you can take the hard medicine um and you know turn things but on that but on that point I mean it strikes me that China you know the the signs at the moment they do not want to take the hard medicine so they’re in the long drawn out uh resolution they are in I I think they’re in the phase of I mean I I think from what I know they are absolutely alive to they’re different to the Europeans in 2019 where there was just broad denial that anything could happen to the euro Zone and that there would be a a debt crisis and and or a really painful debt crisis I think that was that was not on the um the agenda for European policy makers and you you saw with all of these um uh uh Euro Zone conferences that they they needed more Market pain to to um resolve it the example I give you is the is the um the the Brady Bond scheme in Latin America so um had the privilege to know um one of the Architects uh David Mulford of the the Brady Bond plan and he was The Negotiator with all of the Latin American governments and he said it took about seven years to get the agreement and he said the agreement only came when um all of those countries were were completely beaten down and they realized that there was nothing else to do that you know the the debt crisis wouldn’t go away yeah so I I I think you’re right in that sense and and this is when when when financial markets turn on you it’s it’s it’s really vicious so I think the Chinese are between this point where they they recognize the problem um the solution I think would be it’s very complex because U they had this tight contract with the people uh they have to keep an eye on um this kind of idea of China as a dominant power and having a debt crisis can can upset that in in in many many different ways um so I think it’s it’s just very difficult for for them it’s a big issue isn’t it it’s not obvious how because like you say they have a contract with the people which means taking losses and cleaning up the system is very very hard to do and and maintain sort of legitimacy as as the party so it’s not obvious they’re going to take that option so it becomes long and drawn out um which is interesting so let’s let’s just just just bring us bring this into land let’s just talk about the US election uh and maybe the French election um I I don’t think we need to talk too much about the UK election because I don’t think it’s going to make that much difference yeah um but let’s let’s start with France and end with America how how do you think France plays out in terms of as an investor what do you need to think about as we we move so with it we’re recording 27th of June the the first round of Elections is this coming weekend and then the second round is the week after H how should investors think about France and this election what does it mean for their portfolio so anyone listening Chris in the last hour won’t have picked this up in my accent but I’m I’m an honorary French man so I’ve lived in Paris for a long time 13 years have a my family is have French um you have a French passport Do you have a European passport well you have a European one anyway so probably it doesn’t really matter I suppose I am getting more and more questions as to whether I should get a French passport and I think this the next week or so will will will probably be be decisive in that but um so I live in the in in the center of Paris and I see uh you know it’s it’s a great City I see many things happen there and I’ve just written a a book on French democracy which came out a couple of months ago with a a French friend of mine um so we’re we’re we’re in the in the sort of French in the th of it I’m doing an event next Friday in at kind of the French Davos on Democracy so that’s going to be an interesting context from a Market’s point of view I am sadly more pessimistic than many of the investors I I’ve spoken to um I think macaron has done something unusual uh in that he has injured his country and that’s not something French presidents do and this is a divisive election that that French people do not want to happen and his hope is that he would recompose the center and and what he’s done he’s evacuated it to the two extremes and from an economics point of view neither of those two extremes is experienced in policymaking neither of them likes financial markets neither of them likes investors neither of them likes anglophone investors and the idea of globalization and and I think a lot of this is is is not sufficiently picked up on so I I fearing a kind of a some macro shock of sorts because the two scenarios now is you have a minority government led by the with some people from the the kind of the right and maybe all civil servants to give it a veneer of uh respectability or you have a kind because and I don’t think the farle will will will be in a position to form a government you have a constitutional crisis with a uh a sort of government of technocrats and France is is a hyper hyper technocratic country it’s the most elite country I’ve ever known which is why if you’re not part of the elite you get very frustrated you have to go and protest and I I I the more I think about French democracy the more I understand that um so there’s no good outcome I think um the only good outcome is that you get this technocratic approach that just Parks Economic Policy um is is there not a is there not a scenario where by um you know that uh as you say the sort of the the right wi lot get in and you have um essent you have a sort of a standoff with the president and nothing really gets done you you can have a standoff with the Pres so so I think Macon macron is massively unpopular as a result of this and there are on the radio yesterday morning in France they had a constitutional expert talking about the Dynamics on around which he might resign so that it’s it’s a tiny tailor risk but people are talking about it um and I think he you could have that and they could cohabitate for a while um and I think also France being the leader in Europe on foreign policy and and and the army military um he is very much diminished now so I expect other countries like Poland maybe Italy to kind of have have incrementally more power um so I I think you could have that situation and I think in that situation the um if they’re wise they would be they just wouldn’t do very much on the economy and they’ probably focus on things like security immigration uh which would embed their their vote and credibility in the eyes of of many French people yeah so so actually when you know when we really boil it down to investing you one’s watching those spreads of French oats French government bonds over over buns uh they’ve sort of been stable in the last week they blew out the week before that I think they got out to about 80 BBS didn’t they something like that from sort of 20 or 30 before before before the European elections and maon called called the uh the French election where where so that’s the barometer where where might they go to would you have any sense on that because you know we know that the ECB is sitting there as a back stop as in when it chooses to but we also know that um they don’t want to be seen playing politics they also want to be seen to influence fiscal plans and you know there’s a level they intervene at where there’s probably volatility and and and and and sort of in markets in general as a result of that spread Waring where where where do you think do you have any sense on where it might go to it’s a difficult question I know yeah it could um so I I think ECB is already quite politicized actually and that that is I think Christine Lard has played role in that she’s not a a career Economist or Central Banker uh and however her political skills have been very useful at times but nonetheless the bank has become politicized there is very little appetite within the ECB and other European governments to help France in the context of a ROM government um and I think you probably want to get to a stage where spreads really get blown out where other countries that are doing very well like Spain and GRE GRE are beginning to suffer and where it looks like one or two of the French banks are really in Peril so I think we’re we’re we’re well off the ECB um intervening would have to be kind of uh an emergency situation I think and and also to the to to institutional Europe and kind of the Europe of the center that kind of Crisis would be valuable because it would show that markets don’t like the Extremes in politics and we to kind of you know Chu them out effectively so okay so actually if if one was a a sort of a speculative Trader that that’s actually probably a very good trade on the back I mean all the polls favor the um leen’s lot and um and that hasn’t changed in the last 10 days as far as I can see no I mean I I I I think they will be um they have the best they’ll probably have with with the help of others 40 something perc in in the parliament yeah yeah so they they they they win um and so yeah okay interesting um so what about the American election let’s let let’s end on that because I know that that as I said the clock’s ticking we’ve got a big election coming up in November there are there are Stark differences between Trump and Biden what do you see as the key themes as investor in that election so I I think the key themes post the election um so so they’re they’re both known quantities in terms of their their policy more more Biden and I think what doesn’t get a lot of credit is just the coherence of policy across the Biden government between economic security foreign policy very it’s probably the most coherent government America’s had in in a very very long time um and I think people would like that to uh to continue um I I think as an investor you are probably more focused on Trump and you’re more focused on some of the noise and chaos around Trump and I think the first thing I would say is I think he has much less scope uh on the upside this time than he did you know when he came in he cut taxes and there was the you know people were were were manically trading S&P futures around the news flow kind of the US China trade War um so I think it’s probably a lot less upside in that and and I think valuations as well just generally speaking are are uh at a at a peak um I think an early trade was certainly be around other currencies like the Yen a lot of the Trump advisers I think Robert lighthiser are one of those writing books about um how other countries are effectively devaluing to hurt the American economy so I think there are and I think you you was at last Friday Chris you did something on currency volatility and the long run value of the dollar um so actually I think Trump will be a test of that if he gets in um and you might want to have a basket of weaker International currencies versus the uh the dollar uh trades on on currency volatility so that that’s definitely one the other one which will be controversial is what is Trump going to do about the deficit and how do you you play that because you know the the the theoretical economists at the IMF have said that well you know us could resolve its deficit overnight if it just had the same tax rates as the other G7 countries which we know is politic impossible in the states um so he’s in a difficult position I think in terms of the uh the the deficit and whether the bond market begins to um to express a view on that and and I think he he some of his public comments around that could become quite chaotic yeah but also the idea to add to that um not to ad be sorry but to add to that the idea that the these comments that are coming out from his advisor about managing the fed and uh changing the guard at the FED which plays into uh Bond issuance and managing the the you know the um the bond market basically so yeah that could be quite interesting in terms of where it plays into the currency exactly and again you know you and I probably our first taste of Central Banking was watching outen Greenspan where the Fed was sacran uh as it was on Ben Bernan and the Fed was clever and intelligent and on top of the markets um so the idea that that because and so Trump is effectively politicized the the Supreme Court so the idea that he would do the same to the FED um takes us back to before the 1970s in America um and that’s the kind of thing I think people might enjoy it at the start because they they might say oh well there’s a there’s a a cheap Money Trade going to to happen here and that all trade all tail risks will be flattened so I think that will be the first reaction unfortunately for for for monetary purists uh of a trump government that he’s going to to kick out some of the the economists and the the independent people um but I think very soon could actually lead to you know big dollar volatility um big rate volatility as well and again the US is up up against it in terms of its debt levels fascinating well I mean Mike that’s been tremendous you know from the the 1600s through to a couple of bouts of globalization to the to the levelers to modern day investing and and how to play elections in France and America Absolut wonderful thank you very much for very wide ranging thank you Chris enj fascinating discussion I really appreciate it and and thank you for your time really appreciate it thanks thank you