Septimius Severus founded the Roman dynasty that carried his name in the year A.D. 193. That year is known as the “year of the five emperors.”  The year began after the erratic rule by Emperor Commodus (who was murdered on the last day of the year 192). His successor Pertinex was assassinated by Praetorians in March of 193, after refusing to give in to their demands. Following his assassination, the Praetorian Guard auctioned off the throne. Senator Didius Julanius won by offering 25,000 sesterces per soldier (four of them were equivalent to one silver denarius). His first act was to debase the denarius in order to make good on his promises. He was dead by June 1^st of that year, by Septimius Severus who offered more pay and debased the denarius even more.  More murders follow. By the end of the year A.D. 194 the denarius had been debased by 36%. Assessing Severus, Edward Gibbon wrote: “Posterity, who experienced the fatal effects of his maxims and example, justly considered him as the principal author of the decline of the Roman Empire.”

When we take a look at the political developments around the world, we observe rising fragmentation. Let’s quickly remind ourselves of what has occurred in the last several weeks and months:

The European situation seems to be in disarray, as pointed below:

• Brexit will change the economic landscape of the EU, which may not only split the UK (Scottish secession) but also revive Northern Ireland conflicts.
• Italy is paralyzed and its economic affairs (from debt to productivity) point to significant problems down the road. The best option might be stagnation.
• Germany’s growth is marginal at best while Chancellor Merkel’s influence is diminishing.
• Hungary, Poland and possibly Romania (under the new leadership of another Orban) are in constant conflict with the rest of the EU members.
• Spain just had its fourth election in four years and the coalition government under formation may not survive for more than 18 months. Sixteen parties now are represented in the Parliament! Moreover, the Catalan movement that seeks independence may become a coalition partner!
• Extreme right-wing parties along with populists, nationalists, and protectionists are rising and are undermining political cohesiveness. People are searching for alternatives and are willing to go to extremes.
• In France, a weak president warns that Europe is on the edge of a precipice, at a time when demonstrators remind the country that it is fragmented along social lines.
• The failure of the EU to approve ascension talks for western Balkan countries could inflate tension and revive the Balkanization spirit.

The Asian and Middle East picture is not promising either:

• The demonstrations in Hong Kong are intensifying. The Financial Times writes that it may signify President Xi’s failure. The situation in the last few days seem chaotic.
• Chinese economic and financial figures disappointed. Whether we are talking about industrial production, credit creation, non-performing loans, or overall economic activity the fact is that the Chinese economy is experiencing a significant slowdown.
• The economic situation in India is also challenging. Consumer and business confidence are declining while the banking sector has become even more fragile.
• Japan continues down its path of stagnation while its trade conflict with S. Korea gets worse.
• Demonstrations and political conflict in Pakistan are weakening the government. Let’s not forget that Pakistan is one of the most dangerous places around the world, while the sensitive area of Kashmir may erupt any moment which could bring the nations of India and Pakistan into another war.
• Fuel price hikes (as a result of the sanctions) between 50-150% in Iran have resulted in major demonstrations.
• Iraq moves from turmoil to turmoil. Hundreds of people are dead in clashes during the demonstrations.
• The Lebanese government has resigned after demonstrations. The makeup and history of the country leaves it ripe for another sectarian conflict.
• The situation in Israel is worsening after the recent attacks and counterattacks between the Israelis and the Palestinians, especially after Monday’s decision by the US to recognize settlements in the West Bank as legal.
• Turkey’s actions and violations of international law in Syria and the Eastern Mediterranean may result in sanctions imposed by the US Congress.

When we review the situation in North and South America, we observe another picture of rising conflicts and tensions:

• President Trump’s troubles related to impeachment are intensifying. The House outcome is almost certain (impeachment) while the Senate’s verdict in an open trial is not necessarily certain. The resulting polarization could weaken economic stability.
• The situation in Chile is not improving. Demonstrations continue, political instability is rising and demands for more government spending is an everyday phenomenon.
• Bolivia’s situation is uncertain. Sectarian conflict is experiencing a revival while the government is semi-functional.
• Argentina may have a new populist government. However, inflationary pressures are expected to intensify while debt restructuring will destabilize the economy.
• The popularity of the governments in Brazil and Mexico are declining while demands for government spending grow.
• Venezuela continues to be a hopeless case which has spread to Colombia and other neighboring countries.

At the same time, multinational institutions that built an era of unparalleled growth and prosperity since WWII are being questioned and undermined from within.

• Multilateralism is being replaced by bilateralism which, by default, undermines stability.
• The leadership of the US is non-constructive and, in several cases, undermines the structural foundation of the world it shaped since WWII.
• China and its global ambitions to control assets around the world, and its push to control financial flows especially via digital currencies could undermine financial stability by undermining the greenback.
• The belligerent Russia is now controlling the border of NATO in Syria! Putin’s popularity is declining and the Russian economy may face renewed declines in economic activity while the ruble takes another hit.
• Iran stands by to hit Saudi Arabia again given the toll and effects of sanctions on its economy.

When we review the above sample of political and geopolitical developments along with the fact that politicians, the press, some academics, and even central bankers are preparing the pubic for debt monetization in the name of MMT (Modern Monetary Theory), we are coming to the conclusion that rising conflicts and demands may end up resulting in higher inflation by the end of 2020 and early 2021. If that were to materialize, then the bond/debt market will experience a shock which will be transmitted into the equities market and at that point all outcomes are possible.