Populism faces its darkest hour

But as its rightwing variant flags, the leftwing version could surge

Gideon Rachman

Could this be the year that populism pops? In 2016, the votes for Brexit and Donald Trump stunned the political establishments in the UK and the US. But 2019 stands a good chance of being the year that the populist project crumbles into incoherence, as it becomes increasingly clear that bad ideas have bad consequences.

The optimistic claims made for Brexit in 2016 have already collapsed. Theresa May’s deal with the EU has been denounced as a betrayal by most of the erstwhile leaders of the Leave campaign. But a “no-deal” Brexit, which many Leavers now advocate, threatens to bring hardship and humiliation in its wake; while a decision to hold a second referendum would be an even starker retreat from the peak populism of three years ago.

The prospects for the American branch of the populist project look no more appealing. Mr Trump’s poll ratings are sinking again and the stock market — his chosen measure of success — has plummeted. The Robert Mueller investigation will report soon and could trigger impeachment proceedings. Perhaps most dangerously for the president, senior Republicans are getting restive following setbacks in the midterm elections and the resignation of Jim Mattis as defence secretary.

But while it is tempting to argue that populism has peaked, it is also premature. There are three main reasons for this. The first is that, although populist policies are running into trouble, the underlying economic and cultural forces that drove the movement are still there. Second, populism comes in both rightwing and leftwing forms. While the rightwing version is struggling in the US and the UK, the leftwing variant could gather force this year.

The third reason is that populism is now a global phenomenon. Populist politicians are in power from Brasília to Budapest and from Rome to Manila. The Italian and Brazilian elections of 2018 were particularly significant. The governments of the largest country in Latin America and of a major western European nation are run by populist parties.

Jair Bolsonaro, the president of Brazil, has adopted several of the rhetorical themes of Trumpism, including denunciations of China, “globalism” and cultural elites. But Mr Bolsonaro, unlike his North American role model, could have a honeymoon period in 2019, with business and consumer confidence rising, partly because of his promise of liberal economic reforms.

Matteo Salvini, the face of Italian populism, could also have a good year. Italy seems to have averted a confrontation with the European Commission over the country’s budget deficit, and many Italians relish having a government that takes a more aggressive stance towards Brussels. If Mr Salvini’s League party does well in the elections to the European Parliament in May, he could trigger an election at home, allowing the League to emerge as the dominant political force in Italy. The weakness of the country’s public finances means that Italian populism is vulnerable to a market-led backlash. But, for the moment, Mr Salvini’s stock is still rising.

Many populist leaders have heaped praise on Mr Trump. So the impeachment of the US president would certainly have an effect on the morale of populists around the world, as would the implosion of Brexit. But even if the Anglo-American advance guard of populism runs into trouble, the global forces driving the movement still look strong. Fear of migration, economic insecurity and cultural conservatism are still a potent cocktail. The appeal to a simpler-seeming past will continue to be made. Damares Alves, the minister for women in the Bolsonaro government, vowed last week that in the new Brazil “boys wear blue and girls wear pink”.

Cultural issues fuel the populism of the right. Meanwhile, the leftwing variant of populism will continue to stress minority rights and economics. The coming year could prove to be fruitful for the left populists. The race to be the next Democratic nominee for the US presidency has begun. Most of the energy in the party seems to be on its “progressive” wing, exemplified by Elizabeth Warren, Bernie Sanders and Alexandria Ocasio-Cortez. These are politicians who attack the rich and privileged in a way that used to be taboo in mainstream US politics.

In Britain, the post-Brexit blues could easily present Jeremy Corbyn with the chance to become prime minister. A Corbyn victory in Britain would inspire left-populists around the world, much as Brexit persuaded rightwing populists (including the Trump campaign) that history was moving in their direction.

The populism of the left has an important Latin American branch. The election of Andrés Manuel López Obrador as president of Mexico in 2018 was greeted enthusiastically by the far-left all over the world. Mr Corbyn, once an enthusiastic fan of Venezuela’s Hugo Chávez, is an old friend of Mr López Obrador and was a guest of honour at his inauguration.

Pragmatic centrists will suspect that both the Mexican and Brazilian experiments with populism will ultimately fare about as well as Brexit and the Trump presidency. But the centre needs some new tunes. Politicians like France’s president Emmanuel Macron, whose response to populism is to play the old music, just louder, risk being drowned out. Populism is in trouble, but the populist moment has not passed.

Accountability for Brexit

A defeat for Theresa May leaves Parliament in charge. 

By The Editorial Board

A handout video-grabbed still image shows Prime Minister Theresa May reacting after MPs announced the result after the decisive Brexit vote at the parliament, London, Jan. 15.
A handout video-grabbed still image shows Prime Minister Theresa May reacting after MPs announced the result after the decisive Brexit vote at the parliament, London, Jan. 15. Photo: parliamentary recording unit han/Shutterstock

One of the better arguments for Brexit was that leaving the European Union would reinvigorate Britain’s centuries-old Parliament. Brexiters got their wish Tuesday evening, as a vote against Theresa May’s withdrawal plan has dragged Brexit back into the Parliament—and the rough if essential process of democratic self-government.

Members snubbed Mrs. May’s proposed departure plan 202-432, the worst legislative defeat for a Prime Minister in living memory. The practical consequences are anyone’s guess. Labour Party leader Jeremy Corbyn immediately submitted a no-confidence motion, which will be voted on Wednesday. The motion is likely to fail for now, but a motion could succeed in the weeks ahead, perhaps triggering a new national election and the risk that the radical Mr. Corbyn could become Prime Minister.

As for Brexit, the now-dead deal, negotiated between Mrs. May and Brussels, would have provided a transition period after Brexit formally takes effect March 29; limited the danger of trade disruptions for business; and safeguarded the still-fragile peace in Northern Ireland. It almost certainly represents the best deal Britain will get from the EU. But Brexiteers think it sacrifices too much national autonomy and precludes trade deals with nations other than the EU.

Alternatives at this point include a so-called hard Brexit, in which Britain would crash out of the EU in March with no arrangements in place for trade facilitation or the rights of Britons living elsewhere in Europe; or some form of no Brexit, either temporarily via an extension of the current negotiating period or permanently via a parliamentary vote or a second referendum.

Support in Parliament for those options isn’t any greater than for Mrs. May’s deal. Calls now are growing for a second referendum to offer lawmakers a political bailout from this mess. That’s the worst possible plan. It would be dogged by controversy over which question—and which options—to put on the ballot. It also would likely exacerbate the deep divisions that the Brexit debate has opened within British society.

Mrs. May can best serve Britain now by admitting her Brexit strategy of trying to appease all factions within her Conservative Party has failed. Replacing her with a staunch Brexiteer such as former Foreign Minister Boris Johnson won’t resolve the underlying economic or political tensions Brexit has exposed.

But it would encourage more political accountability by precluding Brexiteers from carping that this experiment would work if only they were in charge. A new PM probably wouldn’t get a better deal from Brussels, in which case the Brexiteers would have to make the case for a hard Brexit or fall back on Mrs. May’s terms.

Alternatively, Parliament could choose a Remain leader who would delay, soften or even cancel Brexit. Brexiteers would howl about subversion of the democratic will expressed in the 2016 referendum, and they’d have a point. But lawmakers were also elected, and they represent millions of voters who don’t want the disruption that a hard Brexit would cause. They could plausibly conclude that the motives for Brexit votes in 2016 were so complex, or claims in support of Brexit so wildly unrealistic, that their constituents are best served by backtracking on the policy.

The larger point is that any Brexit solution now must run through the Parliament. Mrs. May’s error was to approach Brexit as a matter to be decided by the country’s executive leadership and then rubber stamped by lawmakers—which, ironically enough, is how the EU practices democracy.

Brits who voted to “take back control” wanted none of that, and now they’ve got the opportunity for their representatives to find some manner of Brexit (or otherwise) that Britain can accept. As more than one famous British ruler would have said, get on with it.

Housing Market Is Canary in Interest-Rate Coal Mine

Mortgage rates aren’t up by much but home sales are down, signaling how dependent on low rates the U.S. economy has become

By Justin Lahart
A builder works on a home under construction in Denver last summer. The past year wasn’t a good one for the U.S. housing market.
A builder works on a home under construction in Denver last summer. The past year wasn’t a good one for the U.S. housing market. Photo: David Zalubowski/Associated Press

The funk in the housing market could be an important signal about the U.S. economy’s sensitivity to rising interest rates. So could any rebound now that rates have retreated somewhat.

Last year wasn’t a good one for housing. Through October (the most recent data available, thanks to the government shutdown), sales of new single-family homes were down 12% from a year earlier. Sales of previously owned homes were down by 7% through November. New-home construction slowed, home-price gains moderated and sentiment among home builders’ slipped to a three-year low.

One important culprit appears to be higher borrowing costs driven by the Federal Reserve’s interest-rate increases. The average rate on a 30-year fixed-rate mortgage climbed to as much as 4.9% in November, its highest level since 2011, versus 4% at the start of the year. For a $500,000 mortgage, that boosted the monthly payment by $266 to $2,654. The mortgage rate has since fallen to 4.5%.

Still, the market reaction was somewhat surprising. Today’s rate is still low by historical standards and most home buyers, benefiting from a strong jobs market, should be able to shoulder the increased burden. But since rates were as low at 3.4% as recently at 2016, some homeowners have a strong incentive to stay put, much as they might want to move. This suggests that housing may have grown dependent on the low-rate environment that has prevailed since the 2008 financial crisis.
There are other factors affecting the housing market such as last year’s tax bill, which limited deductibility for mortgage interest and state and local taxes. And since most home buyers focus more on monthly payments than the price of the house, home sales will slow further or prices will fall until payments even out.

But the bigger concern is that the whole economy has become dependent on low rates and that housing is just the first area to show it. Auto sales, which were bolstered by years of easy financing, have leveled off. The biggest risk could be for corporations, which saw big debt buildups during the last decade. Rising rates—and the lower tax-deductibility businesses get from borrowing—threaten to not only make companies more cautious about debt-financed investments or acquisitions, as they have with consumers, but may also make it hard for some heavily indebted companies to fund operations and or even stay afloat.

The Fed is worried enough about the economy’s rate sensitivity that it expects to slow its tightening campaign. At the same time, though, policy makers have to be concerned that continuing to feed the economy’s low-rate addiction could endanger its health. Housing may just have been the start. This year could exhibit more withdrawal symptoms.

Rewriting the Future of Work

Three common assumptions skew economists' forecasts of automation’s impact on employment. Addressing each is essential to protect workers’ rights and change the fatalistic storyline of the prevailing narrative.

Bruno Dobrusin  

people solar panel robot

TORONTO – Much has been written about the “future of work,” and much of it makes for gloomy reading. Study after study predicts that automation will upend entire industries and leave millions unemployed. A 2013 paper by two Oxford professors even suggested that machines could replace 47% of jobs in the United States within “a decade or two.”

Conclusions like these sustain the narrative that the future will inevitably be jobless. And yet this view is favored primarily by the corporate sector and supported by negative trends in the so-called gig economy; workers and trade unions have played little role in the conversation. If that were to change, the future of work could look very different.

Three common assumptions skew forecasts of automation’s impact on employment. Addressing each is essential to protect workers’ rights and change the fatalistic storyline of the prevailing narrative.

The first assumption is that fully automated jobs will displace workers in the near future. This view is little more than conjecture, and even those using the same data can draw different conclusions. For example, a 2017 McKinsey study, drawing on similar datasets as the 2013 Oxford research, found that only 5% of jobs in the US could be fully automated, but that about 60% of American jobs could be partly automated. In other words, automation does not mean that human work must disappear, only that it could become more productive.

If anything, current trends underscore why it is important to democratize how technology is built into business processes. When major corporations introduce innovations to speed up production – like handsets to time warehouse workers in Amazon’s facilities – the unintended consequence can be a decline in productivity. For many workers, the way that technology is adopted may be more relevant than the technology itself.

The second assumption is that automation will not benefit most workers. But people and politics – not machines – will determine how workers fare. If we accept the view that technology will increase overall productivity (a point that remains disputed given the low levels of productivity growth in OECD countries during the last decade), then workers and political leaders could focus on advocating for a better work-life balance. The fight for an eight-hour workday was waged more than a century ago, and the spaces created by the current discussion allow for negotiating a shorter working week. Some unions are already doing this; more should follow.

Finally, despite the hype, automation is not the most pressing issue for labor. Technology can be disruptive, but the biggest concerns for workers today are the ones they feel most directly: underemployment, precarious employment, and stagnant wages. According to the International Labor Organization’s 2018 “World Employment Social Outlook,” 1.4 billion people worldwide are in “vulnerable forms of employment” in the informal sector, compared to 192 million who are unemployed.

To be sure, today’s new technologies are affecting workers in adverse ways. That has always been true, and people will continue to be displaced from one economic sector to another. But while technological innovation creates new opportunities, today’s gig economy, in particular, reflects how it can also weaken employees’ rights and increase economic insecurity. Workers’ fears are real, which is why the labor movement has been fighting to defend workers in vulnerable situations. Expanding the concept of Just Transition, currently used in climate-related dislocations, to technology-related disruptions would be a valuable innovation for ensuring that automation leaves no one behind.

But we should not accept the anxious narrative of a workless world. Technology and economic development are contested fields, and unions should focus on improving workplace conditions, organizing workers in new industries, and challenging the authoritarian business models that give employees little say over how their companies function.

Positive signs are emerging. Labor organizing is growing in the services sector. Employees are lobbying for better pay in some of the world’s largest corporations. And workers in the US are demanding – and often receiving – a living wage. The next step is to ensure that the effects of automation feature more prominently in union organizing. The future of work is not predetermined; the story is still being written. The most important question, as always, is who gets to wield the pen.

Bruno Dobrusin is coordinator of the One Million Climate Jobs campaign at the Green Economy Network.

Did The Fed Just End The Bear Market?

by: Victor Dergunov
- Chair Powell indicated the Fed is much more dovish than previously perceived.

- With the "Fed Put" essentially back on the table, the recent bear market may have just turned into a compelling buying opportunity by the Fed.

- Also, it's not just the Fed, other constructive fundamental, psychological, and technical factors are emerging.

- Stocks needed a catalyst to move higher, and now they appear to have the necessary ammunition to proceed with their rise.

- Sentiment is improving, and will likely continue to strengthen going forward, which may enable stocks to continue to appreciate over the next 3-6 months, possibly longer.

Source: imgflip.com
The Fed Just Put An End To The Bear Market
The S&P 500/SPDR S&P 500 Trust ETF (SPY) dipped into official “bear market” territory late last year, declining by as much as 20.2% at one point. However, this may turn out to be the shortest-lived bear market in history, as the Fed’s infamous put is essentially back on the table.
SPY 1-Year
Source: StockCharts.com
Due to the Fed’s notably more dovish stance, coupled with other constructive short to intermediate term catalysts, sentiment is likely to improve considerably, and stocks are likely to rally substantially higher from here. In fact, the Fed may have just turned the bear market into another generous buying opportunity in equities.
About SPY
SPY is the first major and most popular ETF in the world. It's designed to mimic the exact movement of the S&P 500. The SPY index fund has roughly $240 billion in net assets, and each share in the fund represents a fraction of the holdings.
SPY provides investors with exposure to the S&P 500 index, which is widely regarded as the most significant stock market average for U.S. equities. Since SPY essentially tracks the exact movements of the S&P 500, I will use SPY and the S&P 500 interchangeably throughout this article.
What’s With the Fed?
It’s difficult to overstate just how impactful Fed policy is on markets and the overall economy. So much stems from the Fed’s actions, like borrowing costs, bond yields, credit standards, liquidity, economic growth, and perhaps most importantly for the stock market, sentiment.
It wasn’t so long ago that the Fed seemed committed to normalizing rates further (above 3%), and keeping the unwind of its balance sheet on “autopilot”. However, this policy path was putting significant strain on the economy as it was essentially pulling liquidity out of the system by raising borrowing costs, and introducing excess treasuries into the bond market. This created various consequences that began to suppress economic activity, and stocks took notice.
Some segments of the economy began to show substantial signs of an economic slowdown, some corporate earnings began to falter, the S&P 500 along with other major averages took a nose dive, talks of a bear market and a recession started to surface, and even the president seemed upset.
So, who’s at fault? Well, some market participants believe it’s the Fed. After all, if the Fed had taken its foot off the tightening gas pedal earlier, perhaps markets would not be going through this slowdown, and stock prices would not have imploded in the fourth quarter of last year.
Source: CNBC.com
Reportedly, President Trump even contemplated firing the Fed chair following the Fed’s latest rate hike which sent stocks into a tailspin. Now, I’m not suggesting that the President will or even can fire the Fed chairman. There appears to be no precedent for such action, and chair Powell has since said he would not resign, even if the President asked him to.
However, it isn’t about the President, it’s about Powell, and whether the current Fed chair wants to be remembered as the person responsible for pushing the U.S. economy off a cliff due to unreasonable monetary policy. The likely answer is no, and just like that, the “Fed Put” is firmly back on the table once again.

The Fed’s Unprecedented 180

Chair Powell struck a very different note on Friday, as he essentially capitulated across the board. “The Fed will now be patient in regards to interest rates”, meaning there may not be any hikes at all in 2019. Suddenly, the balance sheet unwind isn’t on autopilot any more. In fact, chair Powell mentioned that “We (the Fed) wouldn’t hesitate to change it (monetary policy) and that would include the balance sheet”. Powell also said, “the Fed is able to adjust policy quickly and flexibly”, suggesting that the Fed may be ready to cut rates, and this may happen a lot sooner than later according to markets.
Remarkably, if we look at the Fed funds rate trajectory one year from now probabilities point to the funds rate being at or lower than it is today. So, the market is no longer expecting 2-3 rate hikes from the Fed this year. The market is expecting zero rate hikes or possibly even a rate cut or two this year.
Source: CMEGroup.com
Currently, there is about a 57% chance rates will remain the same, a 32.2% chance they will be a quarter point lower, a 7.2% chance they will be a half a point lower, and only a 2.9% chance they will be a quarter of a point higher one year from now.
What this Means for Stocks
The Fed Put is back on the table, which means that markets believe the Fed will act to support asset prices, much as it has throughout the last decade, since the recovery began in 2009. This means the Fed is extremely unlikely to raise rates again in this cycle, it may lower rates at any time, may put its QT program on hold, and yes, may even implement new rounds of QE if needed.
This eliminates a significant portion of the uncertainty from the equation. Stock markets hate uncertainty, and the fact that the Fed “gets it”, and is ready to act should improve sentiment substantially going forward.
Therefore, what we’ve seen transpire in stocks over the past several months is probably no longer the start of a bear market, but is much likelier the conclusion of a significant correction instead. Stocks needed a comprehensive catalyst to move higher, and the Fed likely provided the badly needed stimulus with its unprecedented 180-degree shift in monetary policy outlook.
Due to the significant shift in policy outlook, there appears to be a strong probability that the stock market rally can continue from here. It is now likely, that absent any extremely detrimental unforeseen challenges, stocks could stage a powerful rally in the first half of 2019.
Furthermore, the Fed is not alone, other favorable elements capable of propelling stocks higher in the near term are aligning as well.
Blowout Jobs Numbers
Although jobs are a lagging indicator, the most recent report was stellar, and does suggest that the economy was functioning at a relatively high level very recently. Nonfarm payrolls surged by 312,000 in December, a 77% beat over the consensus 176,000 number, quite remarkable.
Furthermore, wages grew by a very health 3.2% YoY, implying that the consumer’s salaries expanded nicely, which should reflect positively on consumer confidence, and overall spending.
Wage growth was tied with October, for the best month in nearly a decade. Amongst the top gainers were sectors like construction, manufacturing, healthcare, and restaurants, illustrating signs of a relatively healthy and somewhat vibrant economy.
Also, it’s not just jobs numbers, much of the financial data coming in recently, including consumer sentiment, personal spending, manufacturing, and even housing has been coming in as or better than expected in recent weeks.
Corporate Earnings Could Surprise
Another factor that is likely to support the recently adopted rally in stocks are corporate earnings.
Earnings season is about to kick off into full swing, and many companies' bars have been lowered by previously revised earnings, and/or expectations of a slowing economic atmosphere.
This phenomenon, coupled with the continuation of the relatively constructive economic data, suggests that the earnings slowdown may not be as significant as some had envisioned. In fact, it is possible, likely even, that this earnings season may be quite strong, with many companies likely to beat their EPS estimates.
Trade Agreement Likely Imminent
Another potential constructive element to consider is the formulation of a trade deal with China.
Almost nobody wants a prolonged trade war. It’s bad for business, bad for President Trump’s reelection aspirations, but perhaps most of all, it’s extremely bad for China. The U.S. imports far more products from China than China imports from the U.S., therefore, the Chinese economy has a lot more to lose and is therefore far more effected by the ongoing trade war between the two nations.
Source: Time.com
Plus, the pressure is on the President to deliver a trade deal, and to end this trade skirmish before it begins to deeply effect the U.S. economy and stocks in general. Donald Trump is known for being a businessman, was elected on many promises about improving the economy, and never forgets to take a victory lap when the stock market goes up. Likewise, when stocks decline, it casts an enormous shadow over his entire administration and questions his productiveness while in office. It certainly decreases his chances of being reelected as well.
Therefore, the pressure is on the President to get a deal done, and get one done soon.
Incidentally, China’s leader also finds himself in a tight spot where a deal needs to get done, as China’s economy is beginning to show signs of a slowdown, and the U.S. appears to be in a better position to withstand a trade war. Thus, a deal is likely to get done, and it will likely get done soon, as it serves the interests of both countries, as well as both presidents, and stocks should benefit as a result.
Technical Forces
Yet, another factor suggesting the S&P 500’s rally is likely to continue is the overall technical image surrounding stocks.
SPX 5-Year
The S&P 500 declined by 20.2% from a high in early October to a low in early December. This is essentially borderline between the start of a bear market, or the end of a deep correction. In any case, the SPX became incredibly oversold in the process, registering its highest volume day in at least 5 years.
On December 23rd, in an incredibly volatile trading session which saw an intraday move of over 100 points, roughly 5 billion shares traded in S&P 500 companies. This is more than double the daily average.
Moreover, this was the day prior to the shortened day before Christmas which capped the month’s epic decline, during which the S&P 500 crashed by 16% from 2,800, all the way down to 2,346 in just 3 weeks. During these last two days of the decline, the SPX moved by more than 150 points, or roughly 6%, these were the days of panic and capitulation.
Additionally, the SPX made a clear retest of this level the day after Christmas day, when markets reopened, and then went on to close at the highs of the session, in a clear reversal day, a day in which the SPX moved by more than 125 points or 5% intraday. This kind of price action is strongly suggestive of at least a firm short- to intermediate-term bottom in stocks.
Sentiment Shift Occurring
The Fed is a master at shifting sentiment because of the enormous influence it wields over the economy, and sentiment is an incredibly important psychological force that moves markets. The Fed’s openness and apparent flexibility to a policy reversal, coupled with the alignment of constructive fundamental and technical elements, are very likely to shift sentiment to a much more positive tone going forward. Therefore, SPY and stocks in general are likely to move higher going forward.
The Bottom Line: We Just Got Our Catalysts
Last month it wasn’t quite clear what catalysts would prevent stocks from going into a bear market, and what factors, if any, would enable the S&P 500 to move substantially higher once a short-term bottom had occurred. The Fed seemed hard-set on continuing its tightening path, some economic data appeared very sluggish, there was a certain degree of pessimism hanging over corporate earnings, and overall sentiment seemed rather abysmal.
However, now that the “Fed Put” is back on the table, and several constructive fundamental, technical, and psychological elements have emerged, it appears the market may have the badly needed catalysts it needed to substantially improve sentiment and ultimately send stocks higher over the next several months.
I expect the S&P 500 can have a productive Q1, and the rally may spill over into Q2 as well.
Overall, the first half of 2019 may prove to be a good period to own stocks.
Nevertheless, the economy and the stock market are still likely to face some economic headwinds in the latter half of 2019, and in 2020. The Fed cannot fix all the problems in the economy. While a policy shift will likely prolong the current economic expansion by a few quarters, a recession is still likely to materialize, possibly as early as late 2019 or early to mid-2020.