“We Will Never Again See the World That We Left Behind One Month Ago”

Stéphane Audoin Rouzeau, Scowcroft Institute of International Affairs

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Both the Great War and the possibility of a pandemic (however near or far in the future) had been predicted, but there is always a cognitive dissonance between the event predicted and the event that takes place. Stéphane Audoin Rouzeau, a historian of the Great War, believes we have entered a “time of war” as the world grapples with the Covid-19 pandemic. There are many similarities in sentiment between the Great War and the Covid-19 crisis. First being that the weekend before “confinement” and the couple of days before the official beginning of the Great War, there was such heightened anticipation that we didn’t focus on anything other than the virus and “what was inconceivable the day before became possible the day after.” Furthermore, we do not know when the crisis is going to end, we just hope that it will be over “soon”; time becomes infinite in times of war. As history teaches us, when times of crisis do come to an end, the “day after” never resembles the “day before.” The question is, will the day after be full of hope or a time of great difficulty? Rouzeau says there will be those that feel as though they’ve defeated the disease while others will suffer defeats. If the cost is heavy, the aftershock could be horrific, especially when thinking of the poorest countries. In his discussion, Rouzeau warns that the seeds of a political crisis were being planted even before Covid-19. There may be a suspension of political conflict during the crisis, as there was during the Great War, but each player has an interest in foregoing conflict momentarily so as to reap the benefits later. If we are not careful, the pandemic could spiral the world into a period of merciless political fighting. 

It’s Time to Build Cash to Take Advantage of Stocks’ Coming Tumble

Randall Forsyth, Barron’s
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With the S&P 500 closing above its previous record this week, the divide between the equity market and the real economy remains stark. In the intervening days between the lows of March 23 and today, the S&P has seen a rebound of more than 50% while millions of Americans have lost their jobs, and tens of thousands have lost their lives to the coronavirus pandemic. While past rallies have seen continued growth into the next year, analysts see a different outcome this time. A high degree of public participation and a severe disconnect between the market and its underlying fundamentals demonstrate bubble-like qualities, a significant concern given the historical tendency for correction in the markets during the fall months. While such a downturn would likely not start a new bear market, several advisors have suggested liquidating some winners and rotating the cash into healthcare and lagging sectors like energy and financials. With so little certain about the future, caution remains the word of the wise.

Disclaimer: The information provided here is for general informational purposes only and should not be considered individualized investment advice.

The decoupling of the US and China has only just begun

Gideon Rachman, Financial Times 
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Many hope that a decoupling between the world’s two largest economies – the US and China – is far from a reality. However, it is already spreading beyond technology and into finance. A fundamental shift in behavior has occurred, in which strategic/political rivalry overrides business logic and economic incentives. As the author puts it, “both sides are now locked into a retaliatory logic.” Banking and finance has emerged as a new field of conflict. The US has begun deploying financial sanctions on government officials in Hong Kong and Xinjiang while adding more and more Chinese companies to the blacklist. Wall Street banks have made a large profit listing Chinese companies on the stock exchange. As more listings are banned in the future, they may have to rely on the forbearance of the US’ and China’s governments. Eventually, a decoupling will affect every industry and every multinational corporation as supply chains are disrupted and American and Chinese law is changed. It is becoming increasingly difficult for big business to stay neutral as tensions rise. 

I Was Sanctioned by China 

Michael Abramowitz – President, Freedom House; The Atlantic
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The recent sanctions levied by the US and China against each other give a telling indication of the tensions beneath the surface: the former sanctions aim to punish violations of human rights while the latter aims to silence those raising red flags about those violations. While this kind of ideological bullying has traditionally been confined to domestic voices, the CCP has demonstrated an increasing willingness to harass foreign critics with tactics ranging from direct threats to manipulating foreign media to censorship of movies and college campuses. American citizens in Hong Kong have been held accountable for their speech in the US and can no longer safely travel for fear of extradition and decades of prison time. Chinese agents have been documented attempting to influence voices in the US, Uighur refugees have received threats from security officials, and news outlets and activist groups have been subjected to cyberattacks. The response from Beijing has consistently been to assert the principles of sovereignty and noninterference in domestic affairs while pointing out the US’s own shortcomings. While the US has protections in place to protect democracy against injustice and inequity, China has been working to demolish those instruments at home and abroad.

Abramowitz concludes his article with this thought: “That the CCP routinely breaks Chinese laws and international commitments by violating the rights of people in mainland China and Hong Kong is appalling enough. The regime certainly should not be permitted to do the same in the United States, or any other country.”