For the money, not the few

Wealth managers are promising business-class service for the masses

Banks, brokers and tech buffs vie to look after common people’s $72trn stash of cash

Linda, a 54-year-old event consultant in Los Angeles, is neither disorganised nor innumerate. Ask about her finances, however, and you lose her for two hours. She opens her current (checking) account on a mobile app, then cites a rainy-day fund at another bank. She has 14 credit cards, five mortgages, six insurance policies and several pensions with ex-employers.

Ranks of pinstriped advisers have long helped the very rich to invest, minimise tax and pass money down the generations. Everyone else has had to work it out on their own. “People’s relationship with money is broken,” says Martin Gronemann of red Associates, which uses anthropology to advise businesses. It reckons that personal finances are a bigger source of stress than worries about crime or health.

Now, however, financial firms are competing to democratise wealth management. On December 8th Goldman Sachs, which used to shun clients with less than $25m, said its robo-adviser could soon serve clients with as little as $5,000 to invest. And on December 14th Vanguard, an asset manager with nearly $6trn under management, teamed up with Alipay, a Chinese tech giant, to counsel customers with at least 800 yuan ($114).

The wealth-management sector is fragmented and ripe for disruption. ubs, the global leader, has a 3% market share and is the only firm in the top four in each of Europe, Asia and America.

The industry remains technophobic, says Charlotte Ransom, a Goldman Sachs veteran now at Netwealth, a challenger. Advisers spend half their time on tasks that could be automated. According to ey, a consultancy, only 56% of clients fully understand the fees they pay.

The industry stratifies customers in a manner rather similar to airlines.

“Affluent” clients, with between $300,000 and $1m in assets, get premium-economy treatment.

They may talk to advisers by phone, but banks will do all they can to keep them out of branches.

Investment options are limited to ready-made funds.

“High-net-worth” clients, with up to $15m, fly business class, picking stocks and chatting in person with named advisers.

Flying private are the “ultra-high-net-worth” individuals, who have access to venture capital and currency hedges, with exclusive dinners, golf outings and so on as cherries on top.

Whereas high-net-worth individuals typically pay no more than 1% of assets in fees each year, the mass affluent often pay over 2%—the average yield of s&p 500 stocks—for inferior service. Cattle class gets no service at all. Saving for retirement is the second-biggest financial commitment most adults ever make (after buying a home), says James McManus of Nutmeg, a British fintech. Yet most do it with no help.

That leaves a lot of money on the table. According to Oliver Wyman, a banking consultancy, the affluent, with $21trn in assets, and those below them, with $51trn, have as much to invest between them as high-net-worth individuals. The problem is that advisers, branches and time are costly. Most private banks deem portfolios below $2m barely profitable.

Yet three factors are conspiring to bring that figure down. The first is technology. In 2001 Credit Suisse tried to go budget with a pan-European online network. But the cost quintupled to €500m ($447m), in part because it relied on huge servers. Today data are in the cloud, and firms can bolt on apps instead of coding everything.

Second, the top of the pyramid is getting crowded. Banks love wealth management, with its high returns and low need for capital. As they have all tried to expand their high-net-worth offerings, competition has squeezed margins. The market value of a panel of 100-odd wealth managers has dropped by 15% in the last year, using Bloomberg data.

Third, negative interest rates are eroding the money held by the masses, about half of which is in cash deposits. So clients are crying for help.

That has sparked a race between banks, fintechs and investment firms. Wealth managers need several strengths to succeed, says Matthias Memminger of Bain, a consultancy: technology, trusted brands, marketing dollars and a human touch. Private banks have the last three, but score poorly on it. They also fear cannibalising their high-net-worth business. ubs shut its robo-adviser in 2018, a year after launch. Investec, a bank, folded its own in May.

Startups have the opposite profile. Their robo-advisers generate recommendations by asking simple questions, keeping fees down. They allow customers to buy fractions of shares, and net out orders to reduce trading costs. But their brands are weaker, so acquiring customers costs more. And clients entrust them with only smallish sums. Launched in 2011, Nutmeg manages just £1.9bn ($2.5bn), and Wealthfront, a decade-old American firm, $22bn.

Brokers and asset managers also have good technology, which they use to compile data and execute trades. They pile clients’ money into cheap exchange-traded funds and have cut fees to rock-bottom, hoping to cross-sell premium products. Charles Schwab’s robo-adviser manages $41bn; Vanguard’s, $140bn. But their expertise lies in manufacturing investment products, not distributing them. They help people pursue single investment goals, not plan their financial life.

To tick all the boxes, contenders are combining forces. In May Goldman Sachs paid $750m for United Capital, a tech-savvy manager. It has also invested in Nutmeg. BlackRock has backed Scalable Capital, a digital service whose robo-adviser is used by banks including ing and Santander. Insurers are jumping in, too. Nucoro, a fintech, recently said that it would power Swiss Risk & Care. Allianz has tied up with Moneyfarm, a British robo-adviser.

The logical endpoint is financial platforms—perhaps super-apps that sit on smartphones—which would let customers stitch their patchwork of financial products back together. But the model has not yet been tested by rough economic weather. Volatility makes financial clients prize human contact, says Christian Edelmann of Oliver Wyman.

The consultancy reckons the average cost-to-income ratio for the biggest wealth managers would jump from 77% to 91% in a recession. It remains to be seen how well mass-market wealth managers will perform in a downturn.

Why I’m sticking with stocks in 2020

The balance of probabilities suggests a higher risk premium in fixed income next year

Joseph Little

FILE PHOTO: European Union flags flutter outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo
The global policy pivot — with more than 15 major central banks including the ECB (above) cutting rates this year — has been the single most important driver of strong returns © Reuters

The strong performance of financial markets in 2019 might seem counter-intuitive. After all, investor sentiment has been bearish for most of the year. But the key reason for solid returns — central bankers’ policy pivot towards further monetary easing — reveals an important truth about how markets work and provides some clues about what might come next.

The backdrop to 2019 has been what we call the age of uncertainty. Political instability and recession worries have dominated investors’ thinking and tempted them into cautious strategies, with large cash weights in their asset allocations. That has proved to be a costly decision as markets have performed strongly across the board, with positive returns in fixed income, equity and alternatives.

There is, of course, more than just one reason behind this impressive performance. A lot of the rhetoric from politicians, for example, was more about threats than action. What is more, many risk asset classes started the year at quite beaten-up prices after a sell-off at the end of 2018. However, it is the global policy pivot — with more than 15 major central banks cutting rates this year — that has been the single most important driver of strong returns.

This monetary easing, which was the opposite to what economists anticipated at the start of 2019, pushed interest rate expectations significantly lower — a shift that warranted a re-pricing of risk across the full range of asset classes.

So, what comes next?

Many of the key questions from 2019 remain unanswered as we head into the new year. Are we approaching the end of the economic cycle? Will political tensions continue to undermine growth and profits? That uncertainty creates an ongoing challenge for the economy today — and it continues to constrain the private sector’s “animal spirits”. It makes it difficult to predict a phase of strong, synchronised global growth emerging in 2020.

But it is not all bad news. The baseline scenario remains reasonably favourable: one of slow and steady growth, linked to robust labour markets and some carry-over from this year’s policy easing. What is more, sustained low inflation means that the prevention of recession is likely to continue to dominate policymakers’ decision-making, rather than concerns over cyclical overheating. If anything, policy is skewed towards further modest easing.

In this environment, though, investors need to be realistic. Based on our research, long-term investment returns already are set to be quite mediocre: for example, the expected return on global equity today, over the longer term, is only 6.5 per cent before inflation. That means asset class returns in 2020 could be some way shy of 2019’s bumper performance. One way around that arithmetic is if markets re-price themselves again.

There are two ways that such a re-pricing can occur. First, if we see a further round of unexpected policy easing, and second, if there is a compression in the risk premium — the required reward for taking risk — in asset classes.

Interest rates are where the action has been in 2019. It seems unwise to expect a repeat performance. That means better than expected market returns would need to be delivered from falling perceptions of risk pushing asset prices higher. However, the risk premium in many asset classes already looks low. It is negative when it comes to long-term government bonds and has compressed significantly in credit. If anything, the balance of probabilities suggests a higher risk premium in fixed income going forward, especially if policymakers begin to make more use of fiscal stimulus.

That leaves us with equities and equity-like asset classes. Perhaps surprisingly, after a year of strong performance in 2019, the global equity risk premium is still above long-run norms — we measure it at 4.5 per cent today versus a historic average of 4 per cent.

So, while overall prospective returns look low, equities still appear attractively priced, compared with alternatives. This is not a guarantee of success. But what it does mean is that if events play out more favourably than economists expect, stocks could do well again in 2020.

Strong performance in 2019 against a bearish news cycle might seem surprising, but it is not. The fundamental truth about how investment markets work has not changed.

Market action is driven by cash flows, interest rates and asset class risk premia. That disciplined way to think about expected returns remains really important in these uncertain times. As we head into 2020, we need to be realistic.

But sticking with stocks still makes sense.

The writer is global chief strategist at HSBC Global Asset Management

The Beginning of the End of Tax Secrecy

As social pressures on companies build, Shell has voluntarily published the taxes it pays in each country

By Rochelle Toplensky

While President Trump has battled to keep his tax returns private, global companies are deciding to go public with the taxes they pay—or don’t pay—before they are forced.

This week, Royal Dutch Shellvoluntarily published its revenue, profit, taxes and other business details in each of 98 countries. The disclosure aligns with a drive by the energy company, which often attracts criticism from environmental activists, to present itself as forward-thinking, transparent and socially-minded.

That didn’t stop the information feeding a predictable host of headlines in the U.K., where the company is partly based, that it didn’t pay taxes in the country (because of losses carried forward and tax refunds). In the U.S., Shell accrued $137 million of tax—a rate of 8%.

This kind of detailed reporting is required by tax authorities in about 100 countries including the U.S. since 2017, based on rules agreed by the Organisation for Economic Cooperation and Development, but it is rarely made public. Shell is hoping to entice others to follow its lead. Mobile-phone company Vodafonepublished similar information earlier in the year.

Companies that don’t jump may soon be pushed. Economy ministers from European Union countries are considering a proposal that would require all large companies with total revenue of more than €750 million ($834 million) operating in the bloc to publish the information annually. The Global Reporting Initiative, an organization that establishes sustainability standards, recently agreed to include a similar requirement.

The information may prove useful to investors in helping them understand companies better. Warnings that the public disclosure could give rivals insight into a company’s competitive advantages are likely overdone—unless a firm’s skill is avoiding tax. It is true that the information may be too complex for some media and civil groups to properly understand, but that doesn’t prevent a lot of other very complex disclosure.

Greater transparency could also spur reform efforts and reduce incentives for complex tax arrangements. Investors should probably brace for higher tax rates as pressure builds for companies to follow Shell’s example. The EU has required all large EU-headquartered banks and extractive industries, such as mining companies, to publish some country-by-country information publicly since 2014. An academic study of the European banking sector concluded that banks with activities in tax havens paid a higher effective tax rate after the reporting requirements came into force.

Companies, investors and states all agree that it is best to find a global solution to the problem of aggressive tax planning. The OECD is focused on reforming the rules that allocate corporate taxing rights to countries to try to better incorporate digital earnings and assets. Nearly 140 countries are involved.

Progress has been slow as the overhaul could change states’ tax revenue and their ability to attract investment. Hopes had been high for an agreement next year, but there are indications that the U.S. may be getting cold feet.

Corporate tax reform at a global level is no sure thing, but it says something that some companies want to get ahead of the transparency trend.

China’s Enigmatic Loan to Belarus

By: Ekaterina Zolotova


Rather than continue drawn-out negotiations for a Russian loan, Belarus on Monday signed an agreement with the China Development Bank for a five-year, $500 million loan.
From an economic perspective, this case is of little interest, since Chinese loans are a common practice in the countries of the post-Soviet space, especially if the country is included in China’s Belt and Road Initiative.

But from a geopolitical perspective, this could be a significant event. Belarus is integral to the balance of power in Eastern Europe, and any disruption or interference can change the behavior of Russia and the West.

The thorny question, then, is why China is disturbing this balance with moves that apparently help Belarus to reduce its dependence on Russia – especially just days before an important meeting between the presidents of Russia and Belarus – which is sure to annoy the Kremlin and please the West.

No Strings Attached

The economy of Belarus is not going through the best of times. Changes to Russian tax policy – a so-called tax maneuver – are expected to cost Belarus more than $10 billion by 2024, including a direct hit to the budget of nearly $3.24 billion. (Despite an agreement reached by Moscow and Minsk on a “compensation” scheme for the tax maneuver, Moscow will not return the full amount. Russian subsidies could amount to $1.5 billion.)

Moreover, Minsk owes some $3.8 billion in 2020 in foreign loan repayments and interest, and it is looking for ways to refinance previous credit payments without relying on Russia and increasing Russia’s leverage over it. Belarus’ geopolitical strategy hangs on balancing Russian influence with the promise of greater cooperation with Europe.

Falling too firmly into the Russian camp would undermine the strategy and put Belarus squarely in Russia’s pocket. One need only look at the recent loan issue for a demonstration of what that might look like. In February, Minsk asked Moscow for $600 million.

The Kremlin agreed in April, but it linked the transfer to progress on the integration of the two countries as part of the Union State. (Negotiations on the $200 million seventh tranche of a loan from the Eurasian Fund for Stabilization and Development were also cut short.)

So in the summer, because of the lack of progress in negotiations with Russia, the Belarusian Ministry of Finance turned to the China Development Bank for the money.

China and Belarus have recently been interacting more and more intensively. In fact, this is not the first Chinese loan to Belarus. In 2015, the China Development Bank and the Development Bank of the Republic of Belarus signed a credit agreement worth $700 million.

Belarus received from China another approximately $450 million in 2016, $300 million in 2017, and $500 million in 2018. Two other agreements were concluded in April 2019: The China Development Bank provided $110 million to Belarusbank, and the Export-Import Bank of China allocated about $70 million to state-owned Belarusian Railway.

Most of the Chinese loans and investments go to finance joint projects between Belarus and China (like the BelGee automobile assembly plant, the Vitebsk hydroelectric station, the Great Stone industrial park and the Minsk-Gomel high-speed rail project), which significantly increases China's position as an important trading partner for Belarus.

In 2018, bilateral trade grew by 17.1 percent, to $3.5 billion, making China Belarus' third-largest trading partner. When Moscow over the past decade restricted Belarusian agricultural products' access to the Russian market, Chinese imports helped pick up the slack. In 2018, for example, as the value of Russia’s imports of Belarusian milk and dairy products fell to $578 million, an approximately 20 percent decline from the previous year, China bought $60 million worth of the same goods – a more than 900 percent increase.

China is also giving Belarus a boost in military procurement, which traditionally is Russia’s sphere. The headline project is the joint creation of the Polonez multiple launch rocket system, which could be deployed against tank groups and infantry dispersed over large areas.

Simply put, another Chinese loan to Belarus couldn’t be called unexpected. But this latest loan, unlike the others before it, is unconditional; the funds can go anywhere and are not required to be invested in Chinese projects or used to refinance previous Chinese loans. This is highly unusual for China, whose loans typically fall into one of two categories – soft loans and commercial loans – and which are normally secured or guaranteed by the government of the borrowing country.

Previous Chinese loans to Belarus were intended to set up joint projects, with the condition that the Chinese component of the project would be at least 50 percent, or financed state programs with the participation of Chinese partners. For example, funds allocated for the modernization of the railway in Belarus and the purchase of 18 trains immediately went to Chinese suppliers.

Winners and Losers

It isn’t clear yet how Belarus will use the loan, but there are two main possibilities. One is that Minsk could pay off some previous Chinese loans coming due in 2020. In this case, the loan wouldn’t ultimately be a significant deviation from China’s usual practice, in that the funds would return to China.

Still, this would serve as a reminder of China’s growing economic influence in Belarus – not to mention a potential Chinese debt trap. The other possibility is that the new loan could be used to refinance loans from Russia.

This would be significant in that it would slightly reduce Moscow’s leverage over Minsk. Russia owns about 50 percent of Belarusian foreign debt, amounting to some $7.5 billion to $8 billion out of a total debt of $16.6 billion as of Nov. 1.

In trying to understand why Beijing attached no conditions to this loan, it’s worth considering which countries the loan benefits. The main beneficiaries of a decline in Russian influence over Belarus – aside from Belarus itself – would be Poland and the United States.

Neither the U.S. nor the European Union is willing to antagonize the Kremlin by providing credit to Belarus. No such impediment exists for China. Since the U.S. and China are still negotiating a trade agreement, this could be interpreted as a small concession by Beijing as part of the phase-one deal, or it could be linked to sanctions relief for North Korea.

But we don’t think that China is interested in driving a wedge between Russia and Belarus to satisfy the United States, particularly since any help to the U.S. in containing Russia only frees up Washington to focus more on containing China.

Of course, it’s also true that Belarus occupies an important geographical position, the last piece needed to link China’s Belt and Road Initiative to Europe. But since China sees Russia as a much more important partner than Belarus, it is not in Beijing’s interest to anger Moscow.

The trade turnover between Russia and China is many times that between Belarus and China, plus Russia-China trade has been growing steadily in recent years – by 2.2 percent in 2016 compared to the year before, by 20.8 percent in 2017 and by 27.1 percent in 2018.

Russian exports to China in 2018 amounted to $56 billion, while Belarusian exports were worth only $480 million. From January to October 2019, agricultural imports from Russia grew by 12.4 percent in annual terms, and automobile exports from China to Russia grew by more than 66 percent.

There’s also the recently inaugurated Power of Siberia gas pipeline, which will increase Chinese reliance on Russian gas.

For now, Belarus can rejoice that it found the additional funds – and on favorable terms, with less politicized conditions.

From Minsk’s perspective, the loan will significantly strengthen its negotiating position with Moscow, enabling the country to attain better terms when its president meets with Russian President Vladimir Putin on Friday to hammer out a deal on energy prices, subsidies and economic integration.

The Kremlin, for its part, is unlikely to react to the Chinese loan.

But if Moscow starts to suspect ill intentions on the part of Beijing, it will think carefully about how to express its dissatisfaction.

The Collapse of Neoliberalism

The long-dominant ideology brought us forever wars, the Great Recession, and extreme inequality. Good riddance.

By Ganesh Sitaraman

Welcome to the Decade From Hell, our look back at an arbitrary 10-year period that began with a great outpouring of hope and ended in a cavalcade of despair.

With the 2008 financial crash and the Great Recession, the ideology of neoliberalism lost its force. The approach to politics, global trade, and social philosophy that defined an era led not to never-ending prosperity but utter disaster. “Laissez-faire is finished,” declared French President Nicolas Sarkozy. Federal Reserve Chairman Alan Greenspan admitted in testimony before Congress that his ideology was flawed. 

In an extraordinary statement, Australian Prime Minister Kevin Rudd declared that the crash “called into question the prevailing neoliberal economic orthodoxy of the past 30 years—the orthodoxy that has underpinned the national and global regulatory frameworks that have so spectacularly failed to prevent the economic mayhem which has been visited upon us.”

For some, and especially for those in the millennial generation, the Great Recession and the wars in Iraq and Afghanistan started a process of reflection on what the neoliberal era had delivered. Disappointment would be an understatement: the complete wreckage of economic, social, and political life would be more accurate. In each of these arenas, looking at the outcomes that neoliberalism delivered increasingly called into question the worldview itself.

Start with the economy. Over the course of the neoliberal era, economies around the world have become more and more unequal. In the United States, the wealthiest 1 percent took home about 8.5 percent of the national income in 1976. After a generation of neoliberal policies, in 2014 they captured more than 20 percent of national income. 

In Britain, the top 1 percent captured more than 14 percent of national income—more than double the amount they took home in the late 1970s. The story is the same in Australia: The top 1 percent took about 5 percent of national income in the 1970s and doubled that to 10 percent by the late 2000s. As the rich get richer, wages have been stagnant for workers since the late 1970s. Between 1979 and 2008, 100 percent of income growth in the U.S. went to the top 10 percent of Americans. The bottom 90 percent actually saw a decline in their income.

During the neoliberal era, the racial wealth gap did not fare much better. In 1979, the average hourly wage for a black man in the U.S. was 22 percent lower than for a white man. By 2015, the wage gap had grown to 31 percent. For black women, the wage gap in 1979 was only 6 percent; by 2015, it had jumped to 19 percent. 

Homeownership is one of the central ways that families build wealth over time, yet homeownership rates among African Americans in 2017 were as low as they were before the civil rights revolution, when racial discrimination was legal.

It is also worth putting the 2008 economic crash into perspective—both historical and global. Between 1943 and the middle of the 1970s, the number of bank failures in the country was minimal—never getting above single digits in any given year. Deregulation of the savings and loan associations brought widespread failures and bailouts in less than a decade. Deregulation of Wall Street brought the epic crash of 2008 in less than a decade.

This shouldn’t have been too much of a surprise, as neoliberal policies had already wreaked havoc around the world. Looking back at the 1997 Asian financial crisis, the economist Joseph Stiglitz comments that “excessively rapid financial and capital market liberalization was probably the single most important cause of the crisis”; he also notes that after the crisis, the International Monetary Fund’s policies “exacerbated the downturns.” 

Neoliberals pushed swift privatization in Russia after the Cold War, alongside a restrictive monetary policy. The result was a growing barter economy, low exports, and asset-stripping, as burgeoning oligarchs bought up state enterprises and then moved their money out of the country.

Despite its alleged commitment to market competition, the neoliberal economic agenda instead brought the decline of competition and the rise of close to monopoly power in vast swaths of the economy: pharmaceuticals, telecom, airlines, agriculture, banking, industrials, retail, utilities, and even beer. 

A study by The Economist found that between 1997 and 2012, two-thirds of industries became more concentrated. Even centrist think tanks like the Brookings Institution have recognized the dangerous rise of monopolies and argued that the concentration of economic power brings with it higher prices for consumers, increased economic inequality, and a less dynamic economy.

Rising economic inequality and the creation of monopolistic megacorporations also threaten democracy. In study after study, political scientists have shown that the U.S. government is highly responsive to the policy preferences of the wealthiest people, corporations, and trade associations—and that it is largely unresponsive to the views of ordinary people. 

The wealthiest people, corporations, and their interest groups participate more in politics, spend more on politics, and lobby governments more. Leading political scientists have declared that the U.S. is no longer best characterized as a democracy or a republic but as an oligarchy—a government of the rich, by the rich, and for the rich.

The neoliberal embrace of individualism and opposition to “the collective society,” as Margaret Thatcher put it, also had perverse consequences for social and political life. Humans are social animals. But neoliberalism rejects both the medieval approach of having fixed social classes based on wealth and power and the modern approach of having a single, shared civic identity based on participation in a democratic community. 

The problem is that amid neoliberalism’s individualistic rat race, people still need to find meaning somewhere in their lives. And so there has been a retreat to tribalism and identity groups, with civic associations replaced by religious, ethnic, or other cultural affiliations.

To be sure, race, gender, culture, and other aspects of social life have always been important to politics. But neoliberalism’s radical individualism has increasingly raised two interlocking problems. First, when taken to an extreme, social fracturing into identity groups can be used to divide people and prevent the creation of a shared civic identity. Self-government requires uniting through our commonalities and aspiring to achieve a shared future.

When individuals fall back onto clans, tribes, and us-versus-them identities, the political community gets fragmented. It becomes harder for people to see each other as part of that same shared future. 

Demagogues rely on this fracturing to inflame racial, nationalist, and religious antagonism, which only further fuels the divisions within society. Neoliberalism’s war on “society,” by pushing toward the privatization and marketization of everything, thus indirectly facilitates a retreat into tribalism that further undermines the preconditions for a free and democratic society.

The second problem is that neoliberals on right and left sometimes use identity as a shield to protect neoliberal policies. As one commentator has argued, “Without the bedrock of class politics, identity politics has become an agenda of inclusionary neoliberalism in which individuals can be accommodated but addressing structural inequalities cannot.” 

What this means is that some neoliberals hold high the banner of inclusiveness on gender and race and thus claim to be progressive reformers, but they then turn a blind eye to systemic changes in politics and the economy. Critics argue that this is “neoliberal identity politics,” and it gives its proponents the space to perpetuate the policies of deregulation, privatization, liberalization, and austerity. Of course, the result is to leave in place political and economic structures that harm the very groups that inclusionary neoliberals claim to support.

The foreign policy adventures of the neoconservatives and liberal internationalists haven’t fared much better than economic policy or cultural politics. The U.S. and its coalition partners have been bogged down in the war in Afghanistan for 18 years and counting. Neither Afghanistan nor Iraq is a liberal democracy, nor did the attempt to establish democracy in Iraq lead to a domino effect that swept the Middle East and reformed its governments for the better. 

Instead, power in Iraq has shifted from American occupiers to sectarian militias, to the Iraqi government, to Islamic State terrorists, and back to the Iraqi government—and more than 100,000 Iraqis are dead. 

Or take the liberal internationalist 2011 intervention in Libya. The result was not a peaceful transition to stable democracy but instead civil war and instability, with thousands dead as the country splintered and portions were overrun by terrorist groups. On the grounds of democracy promotion, it is hard to say these interventions were a success. And for those motivated to expand human rights around the world, it is hard to justify these wars as humanitarian victories—on the civilian death count alone.

Indeed, the central anchoring assumptions of the American foreign policy establishment have been proven wrong. Foreign policymakers largely assumed that all good things would go together—democracy, markets, and human rights—and so they thought opening China to trade would inexorably lead to it becoming a liberal democracy. 

They were wrong. They thought Russia would become liberal through swift democratization and privatization. They were wrong. They thought globalization was inevitable and that ever-expanding trade liberalization was desirable even if the political system never corrected for trade’s winners and losers. They were wrong. These aren’t minor mistakes. And to be clear, Donald Trump had nothing to do with them. All of these failures were evident prior to the 2016 election.

In spite of these failures, most policymakers did not have a new ideology or different worldview through which to comprehend the problems of this time. So, by and large, the collective response was not to abandon neoliberalism. 

After the Great Crash of 2008, neoliberals chafed at attempts to push forward aggressive Keynesian spending programs to spark demand. President Barack Obama’s advisers shrank the size of the post-crash stimulus package for fear it would seem too large to the neoliberal consensus of the era—and on top of that, they compromised on its content. About one-third of the stimulus ended up being tax cuts, which have a less stimulative effect than direct spending. 

After Republicans took back the Congress in 2010, the U.S. was forced into sequestration, a multiyear austerity program that slashed budgets across government, even as the country was only beginning to emerge from the Great Recession. The British Labour Party’s chancellor of the Exchequer said, after the 2008 crash, that Labour’s planned cuts to public spending would be “deeper and tougher” than Margaret Thatcher’s.

When it came to affirmative, forward-looking policy, the neoliberal framework also remained dominant. Take the Obamacare health care legislation. Democrats had wanted to pass a national health care program since at least Harry Truman’s presidency. But with Clinton’s failed attempt in the early 1990s, when Democrats took charge of the House, Senate, and presidency in 2009, they took a different approach. 

Obamacare was built on a market-based model that the conservative Heritage Foundation helped develop and that Mitt Romney, the Republican governor of Massachusetts, had adopted. It is worth emphasizing that Obamacare’s central feature is a private marketplace in which people can buy their own health care, with subsidies for individuals who are near the poverty line. 

There was no single-payer system, and centrists like Senator Joe Lieberman blocked the creation of a public option that might coexist and compete with private options on the marketplaces. Fearful of losing their seats, centrists extracted these concessions from progressives. Little good it did them. 

The president’s party almost always loses seats in midterm elections, and this time was no different. For their caution, centrists both lost their seats and gave Americans fewer and worse health care choices. Perhaps the bigger shock was that courageous progressive politicians who also lost in their red-leaning districts, like Virginia’s Tom Perriello, actually did better than their cautious colleagues.

On the right, the response to the crash went beyond ostrichlike blindness in the face of the shattering of the assumptions undergirding their public policy views. Indeed, most conservatives seized the moment to double down on the failed approaches of the past. The Republican Party platform in 2012, for example, called for weaker Wall Street, environmental, and worker safety regulations; lower taxes for corporations and wealthy individuals; and further liberalization of trade. 

It called for abolishing federal student loans, in addition to privatizing rail, western lands, airport security, and the post office. Republicans also continued their support for cutting health care and retirement security. After 40 years moving in this direction—and with it failing at every turn—you might think they would change their views. But Republicans didn’t, and many still haven’t.

Although neoliberalism had little to offer, in the absence of a new ideological framework, it hung over the Obama presidency—but now in a new form. Many on the center-left adopted what we might call the “technocratic ideology,” a rebranded version of the policy minimalism of the 1990s that replaced minimalism’s tactical and pragmatic foundations with scientific ones. 

The term itself is somewhat oxymoronic, as technocrats seem like the opposite of ideologues. But an ideology is simply a system of ideas and beliefs, like liberalism, neoliberalism, or socialism, that shapes how people view their role in the world, society, and politics. As an ideology, technocracy holds that the problems in the world are technical problems that require technical solutions. 

It is worth pointing out what this implies: First, it means that the structure of the current system isn’t broken or flawed; it thus follows that most problems are relatively minor and can be fixed by making small tweaks in the system. 

Second, the problems are not a function of deep moral conflicts that require persuading people on a religious, emotional, or moral level. Instead, they are problems of science and fact, in which we can know “right” answers and figure out what works because there is consensus about what the end goals are. 

Together, the result is that the technocratic ideology largely accepts the status quo as acceptable.

The technocratic ideology preserves the status quo with a variety of tactics. We might call the first the “complexity canard.” Technocrats like to say that entire sectors of public policy are very complicated and therefore no one can propose reforms or even understand the sector without entry into the priesthood of the technocracy. 

The most frequent uses of this tactic are in sectors that economists have come to dominate—international trade, antitrust, and financial regulation, for example. The result of this mind-set is that bold, structural reforms are pushed aside and highly technical changes adopted instead. 

Financial regulation provides a particularly good case, given the 2008 crash and the Great Recession. When it came time to establish a new regulatory regime for the financial sector, there wasn’t a massive restructuring, despite the biggest crash in 70 years.

Instead, for the most part, the Dodd-Frank Act was classically technocratic. It kept the sector basically the same, with a few tweaks here and there. There was no attempt to restructure the financial sector completely. Efforts to break up the banks went nowhere. 

No senior executives went to jail. With the exception of creating the Consumer Financial Protection Bureau, most reforms were relatively minor: greater capital requirements for banks or increased reporting mandates. Where proponents claimed they were doing something bold, Dodd-Frank still fell prey to the technocratic ideology. 

The Volcker Rule, for example, sought to ban banks from proprietary trading. But instead of doing that through a simple, clean breakup rule (like the one enacted under the old Glass-Steagall regime), the Volcker Rule was subject to a multitude of exceptions and carve-outs—measures that federal regulators were then required to explain and implement with hundreds of pages of technical regulations.

Dodd-Frank also illustrates a second tenet of the technocratic ideology: The failures of technocracy can be solved by more technocracy. Whenever technocratic solutions fail, the answer is rarely to question the structure of the system as a whole. Instead, it is to demand more and better technocrats. 

Those who acknowledge that voting for the Iraq War was a mistake regretted not having better intelligence and postwar planning. Rare was the person who questioned the endeavor of policing vast regions of the world simultaneously with little knowledge of the local people, customs, or culture. All that was needed was better postwar planning, they said: It was a technical, bureaucratic problem.

Dodd-Frank created the Financial Stability Oversight Council, a government body tasked with what is called macroprudential regulation. What this means is that government regulators are supposed to monitor the entire economy and turn the dials of regulation up and down a little bit to keep the economy from another crash. But ask yourself this: Why would we ever believe they could do such a thing? 

We know those very same regulators failed to identify, warn about, or act on the 2008 crisis. We know markets are dynamic and diverse and that regulators can’t have full information about them. And we know regulators are just as likely as anyone else to be caught up in irrational exuberance or captured by industry. 

Instead of establishing structural rules for permissible financial activities, even if they are a little bit overbroad or underinclusive, Dodd-Frank, once again, put its faith and our fates in the hands of technocrats.

We should not be surprised by these dynamics. The arc of neoliberalism followed a pattern common in history. In the first stage, neoliberalism gained traction in response to the crises of the 1970s. It is easy to think of Thatcherism and Reaganism as emerging fully formed, springing from Zeus’s head like the goddess Athena. 

But it is worth remembering that Thatcher occasionally pulled her punches. Rhetorically, she would champion the causes of the right wing. But practically, her policies would often fall short of the grand vision. For example, she refused to allow any attempt to privatize the Royal Mail and the railways. She even preferred to use the word denationalization to privatization, thinking the latter unpatriotic and far too radical. The central problem, as she noted in her memoirs, was that “there was a revolution still to be made, but too few revolutionaries.”

A similar story can be told of Ronald Reagan. Partly because he faced a Democratic House of Representatives, conservative radicals were occasionally disappointed with the extent to which the Reagan administration pushed its goals. Under Ronald Reagan, William Niskanen writes, “no major federal programs … and no agencies were abolished.” The Intergovernmental Panel on Climate Change was created during the Reagan administration, and President Reagan signed a variety of environmental laws. Early leaders were not as ideologically bold as later mythmakers think.

In the second stage, neoliberalism became normalized. It persisted beyond the founding personalities—and, partly because of its longevity in power, grew so dominant that the other side adopted it. Thus, when the Tories ousted Thatcher and replaced her with John Major, they unwittingly made Thatcherism possible. 

Major wanted to offer Britain “Thatcherism with a human face,” and he set himself to smoothing out the rough edges. The result was to consolidate and advance the neoliberal project in Britain. When Major was elected in his own right, in 1992, he got more votes than Thatcher ever had—and more than Tony Blair received in 1997. As Major himself noted, “1992 killed socialism in Britain.… Our win meant that between 1992 and 1997 Labour had to change.”

The American story is similar. Reagan passed the torch to George H.W. Bush. Although Bush was not from Reagan’s political camp within the Republican Party (he had challenged Reagan for the presidency in 1980 and was viewed with skepticism by the true believers), Bush moved to embrace Reaganism in his campaign commitments. At the same time, with the losses of Carter in 1980, Walter Mondale in 1984, and Michael Dukakis in 1988, Democrats began to think they had to embrace neoliberalism as a path out of the political wilderness.

Eventually, however, the neoliberal ideology extended its tentacles into every area of policy and even social life, and in its third stage, overextended. The result in economic policy was the Great Crash of 2008, economic stagnation, and inequality at century-high levels. In foreign policy, it was the disastrous Iraq War and ongoing chaos and uncertainty in the Middle East.

The fourth and final stage is collapse, irrelevance, and a wandering search for the future. With the world in crisis, neoliberalism no longer has even plausible solutions to today’s problems. As an answer to the problems of deregulation, privatization, liberalization, and austerity, it offers more of the same or, at best, incremental and technocratic “nudges.” The solutions of the neoliberal era offer no serious ideas for how to confront the collapse of the middle class and the spread of widespread economic insecurity. 

The solutions of the neoliberal era offer no serious ideas for how to address the corruption of politics and the influence of moneyed interests in every aspect of civic life—from news media to education to politics and regulation. The solutions of the neoliberal era offer no serious ideas for how to restitch the fraying social fabric, in which people are increasingly tribal, divided, and disconnected from civic community. 

And the solutions of the neoliberal era offer no serious ideas for how to confront the fusion of oligarchic capitalism and nationalist authoritarianism that has now captured major governments around the world—and that seeks to invade and undermine democracy from within.

In 1982, as the neoliberal curtain was rising, Colorado Governor Richard Lamm remarked that “the cutting edge of the Democratic Party is to recognize that the world of the 1930s has changed and that a new set of public policy responses is appropriate.” 

Today, people around the world have recognized that the world of the 1980s has changed and that it is time for a new approach to politics. 

The central question of our time is what comes next.

From the book The Great Democracy by Ganesh Sitaraman. Copyright © 2019 by Ganesh Sitaraman. Reprinted by permission of Basic Books, New York, NY. All rights reserved.

Ganesh Sitaraman is a professor at Vanderbilt Law School and the author of The Great Democracy: How to Fix Our Politics, Unrig the Economy, and Unite America.

Fed’s U-Turn on Assets Faces a Year-End Test

To halt money-market volatility the Fed flooded markets with cash—and it accumulated assets. But at year’s end some banks may limit lending.

By Nick Timiraos

The Federal Reserve has pumped hundreds of billions of dollars into money markets to avoid volatility. Fed Chairman Jerome Powell. Photo: ERIC BARADAT/Agence France-Presse/Getty Images

The Federal Reserve over the last three months has flooded money markets with hundreds of billions of dollars in cash to avoid a repeat of volatility that roiled cash markets in September.

The success of the moves—which reversed roughly half of the Fed’s shrinkage of its asset portfolio over the prior two years—will encounter a test around Dec. 31. That is when some financial institutions could face incentives from regulations to limit their lending, which could cause supply and demand imbalances for cash.

Fed officials have said they believe deposits by banks held at the Fed, called reserves, grew scarce enough in mid-September to put pressure on an obscure but important lending rate in the market for repurchase agreements, or repos. Banks and other firms use repos as a way to borrow cash for short periods, pledging government securities as collateral.

“You can flood the markets with reserves but are the reserves going to be redistributed to the corners of the markets that need it? That’s the big question,” saidWard McCarthy,chief financial economist at financial-services company Jefferies LLC.

To prevent a squeeze from happening again, Fed officials have been buying short-term Treasury bills from financial institutions to put more reserves back into the financial system.

They also have conducted daily injections of liquidity into markets.

Altogether, those operations could add nearly $500 billion in net liquidity to markets around Dec. 31.

The end of the year is an important date because large banks could limit lending activities in derivatives and repo markets to guard against extra regulatory burdens.

For these banks, their lending profile on Dec. 31 is used to determine how much equity capital they must raise against their liabilities.

In the last few years, repo rates have typically been no more than a 10th of a percentage point above or below the Fed’s benchmark rate, but on Dec. 31, 2018, they widened by 2.75 percentage points.

This spread grew again on Sept. 17 after large payments of corporate taxes and Treasury auction settlements the day before resulted in a major transfer to the government of cash held in the banking system. This flow of payments reduced reserves.

“The markets acted as though reserves had become scarce,” Fed ChairmanJerome Powellsaid at a Dec. 11 news conference.

The September episode prompted the Fed to intervene in markets to prevent reserves from declining further. The central bank announced plans to provide overnight and 14-day loans in the repo market, and by mid-October had agreed on a scheme to keep reserves from declining further by purchasing $60 billion a month in Treasury bills.

“Their response has been very effective,” said Priya Misra, head of interest-rate strategy at TD Securities.

“They were quick to acknowledge reserves dropped too low. They were very humble, and that level of humility is good to see.”

The September market stress may have also focused financial institutions that rely on repo funding to lock in financing ahead of the end of the year.

“There is some evidence that people are getting their ducks in a row,” saidSeth Carpenter, chief U.S. economist at UBS Group AG and a former official at the Fed and the Treasury Department. He said he sees a one-in-three chance of repo-market issues at year-end.

If there were going to be destabilizing money-market pressures on Dec. 31 they should be cropping up now, saidMark Cabana,head of short-term interest-rate strategy research at Bank of America. “The concerns in my own mind have cooled significantly,” he said.

The Fed added hundreds of billions of dollars in reserves to the banking system earlier this decade when it purchased Treasury and mortgage securities to stimulate the economy when short-term interest rates were near zero. It began draining these reserves in 2017 by allowing more of those assets to mature without replacing them.

It stopped doing so in July, after cutting short-term rates in response to worries about the global growth outlook.

Reserves are a liability against assets on the Fed’s balance sheet, and they can decline when the Fed holds its balance sheet steady if other liabilities rise.

This is precisely what happened in August and early September, after the Treasury Department began rebuilding its general account—maintained at the Fed—after Congress suspended the federal borrowing limit. This cash balance is one of several liabilities on the Fed’s balance sheet that had been growing, further squeezing reserves out of the system.

Fed officials are also trying to determine whether postcrisis rules meant to assure major banks have a sufficient cash cushion to weather a crisis have led banks to hoard reserves, aggravating the September market tumult.

The episode caught Fed officials by surprise in part because they didn’t think reserves had grown especially scarce.

As the Fed fine-tunes its response to money-market volatility, its officials face a broader tension. They want to avoid spikes in the repo market—such as those related to the year-end funding pressures—that could interfere with their ability to set short-term interest rates.

But they don’t necessarily see their job as to eliminate volatility entirely from short-term lending markets. One risk: Stamping out volatility during normal times could yield more volatility when shocks hit.

“You do want to create room for repo rates to vary again, and create a margin where normal market forces can play out,” saidLou Crandall,chief economist at financial-research firm Wrightson ICAP.

What the Fed is doing right now, he said, appears designed to provide a guardrail for markets as the central bank and Wall Street learn more about any unexpected side effects from changes in market structure and regulation after years in which the Fed maintained a larger asset portfolio.

“We are going to be in an era for the next couple of years in which…money markets can experience severe distortions that are just inefficient,” Mr. Crandall said.

Football needs an industrial strategy

Proposals for a European super league would simply redistribute value upwards

Robin Harding

Soccer Huddle
© James Ferguson

Insane, selfish, money-oriented and egotistical: football’s grandees could have been talking about the professional game in general but were, on this occasion, describing Real Madrid president Florentino Perez’s idea for a breakaway league of top European clubs. Liverpool manager Jürgen Klopp summed up fan feeling about change to the traditional schedule more concisely. “Absolute bollocks,” he pronounced.

Nonetheless, money-spinning plans for new international football competitions keep popping up, because the game’s most powerful clubs would gain. At a time of global concern about inequality, and national concern about keeping economic activity at home, football is a fascinating case study in how the rules of the game determine the distribution of rewards, and whether they are captured by labour (players), capital (club owners) or nations in the form of taxation. The particulars of football are unique, but the issues are common to many industries that work in co-operative systems, from finance and law to high technology.

Proposals for a European super league would redistribute value upwards, to the best players and the biggest clubs; away from countries with popular leagues, such as England and Spain; and from players as a group towards the owners of clubs. This goes against not just the romance and sporting integrity of football, but against the public interest, and against the national interest of several European countries. Industrial strategy is in fashion again, at least when it comes to batteries for electric cars. Perhaps nations need an industrial strategy for football.

The economic advantages of getting it right are immense. In the 2017/18 season, clubs in the English Premier League paid a wage bill of £2.5bn, according to Deloitte. All of the activity is onshore, so no matter how skilful the accountants, football’s finest send about half their pay to the UK exchequer. In economic terms, stars such as Kevin de Bruyne and Paul Pogba are among the most productive individuals on the planet. You want them paying tax in your country.

English football is also an exporter. The Premier League’s overseas broadcast rights bring in £1.4bn a year, and many of the team shirts bear adverts aimed at markets abroad. And that is before counting the hundreds of millions of pounds pumped in by owners such as Chelsea’s Roman Abramovich and Sheikh Mansour at Manchester City. Historically, however, the cash flows to owners are modest. Only a few clubs (step forward Manchester United) are popular enough to pay dividends while remaining competitive on the pitch.

That is not a result of folly or chance. It is how the game works — or at least how it used to. Sports feature a powerful winner-takes-all effect: their rewards are for winning, not for hours put in. Cristiano Ronaldo will play just as much football for €10m as a journeyman does for €100,000; Liverpool need play no more games to win the league than to finish last. What the rules of a league determine is the premium for winning and how the rest of the rewards are shared out.

Economic features that promote high wages and low profits in European football include competition between different national leagues, the lack of salary caps beyond so-called “Financial Fair Play” and relegation of the bottom teams each season to a lower league. These structures create powerful incentives for owners to spend as much as possible on players. If you do not, others will, and you may get relegated. In the American version of football, by contrast, salary caps prevent any arms race on wages, nobody gets relegated and franchises can relocate if it is profitable to do so. The returns for US team owners are therefore far superior.

In Germany, member ownership under the “50+1” rule constrains wages and profits for the benefit of fans, but that structure is under pressure from the same forces encouraging a European super league. One reason for English football’s popularity is relatively equitable sharing of broadcast revenues, leading to competitive matches, although recent changes are redistributing income upwards.

A European super league would look more like US sports. Top clubs and players would gain at the expense of well-loved teams left behind in national leagues. Small countries might get a lucrative team or two, but nations such as England would lose their disproportionate share of professional revenue and taxes. With no real competitor, a super league would find it easier to institute a salary cap, and might need one for balance. A cross-border game could end up like tennis or Formula One, where most players are so peripatetic they can reside in Monaco and pay no income tax in the countries that cheer them on.

What would a football industrial policy look like? The goal is to create a game played within your borders but watched globally, with as much value as possible in easily taxed forms such as wages. Nations should want leagues that share revenues among their members, to create an exciting, competitive product. They should be wary of salary caps.

Most of all, they should not be indifferent. A European super league is not an invention from which its creators would deserve to gain, but a device that moves money between players and owners, or from one country to another. Nothing is ineluctable. The outcome is decided by the rules of the game.

Goldman and JPMorgan tweak repo operations to limit Basel impact

Banks crucial to short-term lending market find fresh ways to trade it

Joe Rennison in London and Laura Noonan in New York

FILE - In this Aug. 5, 2019, file photo trader Timothy Nick, right, works on the floor of the New York Stock Exchange. Mutual fund managers are making the most of the shaky stock market, which has provided them an opportunity to prove themselves and lure back investors who dumped them in recent years. Nearly half of all actively managed U.S. stock funds turned in better returns than their average index-fund peer for the 12 months through June, according to fund tracker Morningstar. (AP Photo/Richard Drew, File)
© AP

Goldman Sachs and JPMorgan have found ways to keep trading in the $1.2tn US repo market while limiting regulatory burdens, potentially easing a cash crunch at the turn of the year.

Both banks are key players in the repo market, exchanging cash for high-quality collateral like US government debt — a vital financing tool that hit trouble amid a squeeze on funding a couple of months ago, which sent borrowing rates sharply higher.

Some analysts are braced for further turmoil in coming days, as lenders have tended to rein in repo activities around year-ends. That is when global regulators take snapshots of banks’ balance sheets to assess whether they have enough capital to keep trading through a big hit to the financial system.

However, in recent months Goldman has begun to mimic repo trading using derivatives known as total return swaps that carry lower capital requirements than regular repo trades, according to people familiar with the bank’s shift.

JPMorgan, meanwhile, has been encouraging its clients to use so-called “sponsored repo” deals, where a clearing house sits in between trades and allows dealers to net transactions off against each other, according to people with direct knowledge of the bank’s strategy.

Analysts said that the efforts of both banks, while designed to minimise their own capital requirements, should have the effect of alleviating cash pressures in the market.

Both banks have “taken steps to be ahead of the game at year-end,” said Jeff Drobny, chief executive officer of Garda Capital Partners, a hedge fund manager.

“It’s sensible.”The New York Federal Reserve has been injecting money into the repo market for about three months, in an attempt to prevent interest rates moving outside the central bank’s target range.

This month the Fed announced plans to inject almost half a trillion dollars into the market over the end of the year to keep markets ticking over.Goldman and JPMorgan declined to comment.

Each bank trades almost $200bn in the repo market each day, according to data from the Federal Reserve. Both banks were on course to cross into a higher bracket, giving them a higher capital surcharge, when scores were last published at the end of the third quarter.

The banks — which are both “globally systemically important banks” or GSIBs, in the eyes of the Basel Committee on Banking Supervision — have until the end of the year to reduce capital-intensive trading activity if they are to avoid such a penalty.

Goldman’s new strategy centres on reducing secured financing like repo for non-US clients, such as hedge funds domiciled abroad, said the people. Such operations attract heavy capital charges under Basel’s capital rules.

Total return swaps offer a way for hedge funds to replicate highly leveraged Treasury investments away from the repo market.

The returns tied to a Treasury are created synthetically without owning the security, allowing funds to increase potential profits without borrowing more cash via repos.JPMorgan’s shift achieves a similar goal.

Typically, the bank would source cash through the repo market from investors such as money market funds, and then lend this out to other clients such as hedge funds.

Through sponsored repo, the bank’s capital costs are reduced because the bank faces the Fixed Income Clearing Corporation on both sides.

Another benefit is that the FICC is classed as a domestic counterparty under the GSIB rules, so trades with non-US investors can receive more favourable capital treatment.

“We believe sponsored repo cannibalises less efficient forms of repo, ultimately freeing up capital and creating more capacity for banks to provide liquidity to the fixed-income markets,” JPMorgan analysts wrote in a research report earlier this year.

If History Repeats, Gold Is Headed To $8,000

by: Jason Hamlin


- Gold is in a well-defined uptrend channel with higher lows and recently higher highs.

- The $420 move in the price of gold from the bottom in late 2015 represents a gain of 40% in just under four years.

- The current bull market cycle in gold is nearly four years old but hasn't broken out of the gates yet.

The gold price bottomed in late 2015 around $1,050 per ounce.
It has since advanced to a high of $1,555 in early September, followed by a pullback to the current price of $1,470.
Gold is in a well-defined uptrend channel with higher lows and recently higher highs.
The breakout above $1,360 this summer was significant, and we have seen follow-through buying.
The $420 move in the price of gold from the bottom in late 2015 represents a gain of 40% in just under four years.

While this is a respectable gain, it only scratches the surface of the potential move ahead.
To understand why, let's take a look at the last two major bull markets in gold.
From 1971 to 1980, the gold price rocketed from a low of $35 to briefly peak at a high of around $850 ($678 high on the weekly chart) for a gain of just over 2,000%. It was closer to 850% in inflation-adjusted terms.
Gold Price, Source
Of course, this massive move was driven by the abandonment of the gold standard window by Nixon, a stampede into gold as a safe haven from double-digit inflation, oil price shocks, a weak dollar, and political instability that made investors fearful and nervous.

Fast forward to 2001 and we can see that gold made another impressive move from $250 to a weekly high of $1,825 ($1,920 daily) over the course of roughly the same time period.
This represents a gain of around 600% in that decade or 450% in inflation-adjusted terms.
Gold Price, Source
The current bull market cycle in gold is nearly four years old but hasn't broken out of the gates yet.
The 40% move higher since the start of 2016 is a modest advance relative to the last two bull markets.
The gold price is moving higher today, so the chart below shows a 38% gain since the bottom.

The price would still need to go up roughly 15x (1,400%) to match the 1970's bull market, which would take the price to over $22,000! Or it would need to go up another 5.5x (450%) to $8,000 to match the magnitude of gains from the 2001-2011 bull market.
Put simply, the gold price has an explosive move ahead if the current bull cycle is to come anywhere close to the magnitude of the past two bull cycles.
While we don't have runaway inflation (yet), and we aren't facing a closing of the gold convertibility window as Nixon did in 1971, we do have quite a few factors that should be supportive of the gold price going forward.
These include record debt and deficits, a record-high debt-to-GDP ratio, interest rates dropping toward zero, the Federal Reserve expanding their balance sheet at twice the pace it was during QE3 (just don't call it QE!), the Fed intervening in various markets to provide emergency liquidity, a crisis in confidence in governments and political unrest worldwide, the potential for the impeachment of the United States President, elevated geopolitical tensions between world powers, a global de-dollarization movement that is accelerating, slowing economic growth, historically overvalued equity markets, a record-low commodity-to-equities ratio and record-high total stock market cap to GDP ratio.
U.S. Debt-to-GDP, Source
If anything, the underlying conditions that caused the gold price to spike 20x in the 1970s could be viewed as even worse today. We have a massive derivatives issue and corporate debt problem that many view as ticking time bombs. This grand experiment with fractional reserve fiat paper money being used as a world reserve currency is likely coming to an end.
As it does, people will move toward forms of money with a limited supply that are not controlled by centralized authorties. Whether this is gold-backed money, digital currency from a tech giant or increased usage of Bitcoin for reserves and international exchange, the legacy financial system is on the way out.
Assuming another 10-year bull cycle for gold, there are just over six years left in the current move and upside of 5x to 15x the current price. In this environment, cash flows for quality mining stocks will absolutely explode and provide investors with leveraged returns. At a modest projection of just 2x leverage, there exists the potential for 10x to 30x returns in gold mining stocks over the next 5 to 6 years!