In 1774, the Continental Congress was convened to inaugurate what is known as a novus ordo seclorum (new order of the ages). Two years later, the Declaration of Independence will start the greatest experiment in liberty and rights that has ever been attempted on planet Earth. Was it a radical movement? Absolutely! Was it a movement that turned the status quo upside down? Without a doubt! Was it a movement in compliance and obedience to the ruling government and parliament? Far from it! But if it were not for that rebellious act of those courageous souls, the liberalism that has crowned the US and the West with the pursuit of self-evident truths, then the miracle that the West enjoys would not even be a dream.
In human history, there have been many well-known rivalries: Alexander the Great and Darius III; Hanibal and Scipio Africanus; Julius Caesar and Pompey; King Henry III and Thomas Becket; Aaron Burr and Alexander Hamilton; Napoleon and Wellington; Pancho Villa and Zapata; Stalin and Trotsky; Mao and Chiang Kai-Shek; President Truman and General MacArthur, and many others. However, the one that I believe resembles our time is the rivalry between William Gladstone and Benjamin Disraeli.
In market terms, this rivalry can be approximated using the yields on stocks and bonds, as shown below.
Following the collapse of the Soviet Union, and for about twelve years, the yield on the 10-year Treasury exceeded the earnings yield on stocks, which could be considered the natural order of yield patterns. Following that period, and with the emergence of derivative products (whose notional value rose from $50 billion to 700+ trillion between the late 1990s and today), the practice of securitization and collateralization of assets (including toxic ones) advanced easy money policies that were accommodated by financial repression orchestrated by the central banks. The result has been financially engineered prosperity bought on credit (exploding private and public debts), reflected in bubbles and valuations that could be considered absurd.
Human history is the story of all peoples’ alienation from their rights. The radical American experiment put self-evident, universal human rights endowed by God at the epicenter of life. Needless to say, such radicalism was opposed even within America and the rights of slaves and women (among others) were denied. However, enlightened leaders have been emerging to fight and cash the check of rights envisioned by the Declaration of Independence. The ideas of John Locke started taking shape in that radical American miracle which proclaimed that “virtue is not hereditary”, that nobles have no divine rights, and that aristocracy should reflect the crowning of the best based on merit and virtue and not on unearned privileges. This is how the pursuit of happiness takes place within the parameters of rights and liberty. Thomas Jefferson wrote that public education “should be rendered by liberal education worthy to receive, and able to guard the sacred deposit of the rights of their fellow citizens, and …should be called to that charge without regards to wealth, birth, or other accidental condition or circumstance.” Where does identity politics fit into that framework?
When threats to that ongoing radical, exceptional experiment are taking place by despotic notions of enslaving the Bill of Rights, then courageous voices need to rise in order to condemn, isolate, and silence those threats no matter where they come from. Otherwise, atrocities will take place, apathy will prevail, moral cancer will spread, and catastrophe will become inevitable.
The Glorious Revolution of 1688 overturned the divine rights of kings in England and gave wings to the American Revolution. On the 100th anniversary of the Declaration of Independence, the American Revolution returned the favor to British politics. In 1876, William Gladstone published his book titled Bulgarian Horrors and the Question of the East. Gladstone’s rivalry with Disraeli is well known (the latter served as prime minister twice, while Gladstone served four times as prime minister). By 1874, Gladstone had retired from politics, however, he was well-respected for his moral stand regarding truth and justice. He could not stand the massacre and atrocities committed by the Ottomans against the Bulgarians which were tolerated by the Disraeli government. It was time for him as a statesman to rise against the outrageous moral indifference to those atrocities. For three years, Gladstone traveled the country and gave passionate speeches using the Bulgarian issue to denounce the policies of the Disraeli government and the slaughtering of thousands of innocent civilians. By 1880, the people elected him prime minister for the second time, and after that, he was re-elected two more times. Last Thursday, in our weekly Geopolitics & the Day Afterpublication we asked: What is happening in Bulgaria? https://blacksummitfg.com/geopolitics-the-day-after-74/
Time to return to the valuation question: When analysts look at the graph above, they assess that the valuation gap between bonds and stocks is rising and that either the economy needs a soft landing (so that interest rates fall without jeopardizing profits), or that the economy should continue growing without producing inflation. Given the particulars of equity valuations, earnings, softening of sales and hiring, as well as the domestic and international developments, we remain cautious about that divergence which historically doesn’t justify a soft landing (of course, there is always a first-time).
Before we close, let’s look at another graph:
As can be clearly seen from the graph above, commodities have not been so cheap (relative to the S&P 500) for over half a century now. This chart tells us that the ratio between the S&P GSCI Commodity Index and the S&P 500 is at the lowest point since 1970. For us, this is a signal for a potential reversal.
While I was drafting this commentary, I was exchanging ideas with a good friend in London who suggested that nowadays Gladstone might have been canceled, and rather than having the Ottomans, we may consider those who are bearing Russian and Chinese gifts while the West turns a blind eye thinking it can deal with such matters after the Russian invasion of Ukraine is resolved. As they say, those who forget the lessons of history…
Revisiting the Novus Ordo Seclorum: Valuations and Rivalries
Author : John E. Charalambakis
Date : May 14, 2024
John E. Charalambakis
In 1774, the Continental Congress was convened to inaugurate what is known as a novus ordo seclorum (new order of the ages). Two years later, the Declaration of Independence will start the greatest experiment in liberty and rights that has ever been attempted on planet Earth. Was it a radical movement? Absolutely! Was it a movement that turned the status quo upside down? Without a doubt! Was it a movement in compliance and obedience to the ruling government and parliament? Far from it! But if it were not for that rebellious act of those courageous souls, the liberalism that has crowned the US and the West with the pursuit of self-evident truths, then the miracle that the West enjoys would not even be a dream.
In human history, there have been many well-known rivalries: Alexander the Great and Darius III; Hanibal and Scipio Africanus; Julius Caesar and Pompey; King Henry III and Thomas Becket; Aaron Burr and Alexander Hamilton; Napoleon and Wellington; Pancho Villa and Zapata; Stalin and Trotsky; Mao and Chiang Kai-Shek; President Truman and General MacArthur, and many others. However, the one that I believe resembles our time is the rivalry between William Gladstone and Benjamin Disraeli.
In market terms, this rivalry can be approximated using the yields on stocks and bonds, as shown below.
Following the collapse of the Soviet Union, and for about twelve years, the yield on the 10-year Treasury exceeded the earnings yield on stocks, which could be considered the natural order of yield patterns. Following that period, and with the emergence of derivative products (whose notional value rose from $50 billion to 700+ trillion between the late 1990s and today), the practice of securitization and collateralization of assets (including toxic ones) advanced easy money policies that were accommodated by financial repression orchestrated by the central banks. The result has been financially engineered prosperity bought on credit (exploding private and public debts), reflected in bubbles and valuations that could be considered absurd.
Human history is the story of all peoples’ alienation from their rights. The radical American experiment put self-evident, universal human rights endowed by God at the epicenter of life. Needless to say, such radicalism was opposed even within America and the rights of slaves and women (among others) were denied. However, enlightened leaders have been emerging to fight and cash the check of rights envisioned by the Declaration of Independence. The ideas of John Locke started taking shape in that radical American miracle which proclaimed that “virtue is not hereditary”, that nobles have no divine rights, and that aristocracy should reflect the crowning of the best based on merit and virtue and not on unearned privileges. This is how the pursuit of happiness takes place within the parameters of rights and liberty. Thomas Jefferson wrote that public education “should be rendered by liberal education worthy to receive, and able to guard the sacred deposit of the rights of their fellow citizens, and …should be called to that charge without regards to wealth, birth, or other accidental condition or circumstance.” Where does identity politics fit into that framework?
When threats to that ongoing radical, exceptional experiment are taking place by despotic notions of enslaving the Bill of Rights, then courageous voices need to rise in order to condemn, isolate, and silence those threats no matter where they come from. Otherwise, atrocities will take place, apathy will prevail, moral cancer will spread, and catastrophe will become inevitable.
The Glorious Revolution of 1688 overturned the divine rights of kings in England and gave wings to the American Revolution. On the 100th anniversary of the Declaration of Independence, the American Revolution returned the favor to British politics. In 1876, William Gladstone published his book titled Bulgarian Horrors and the Question of the East. Gladstone’s rivalry with Disraeli is well known (the latter served as prime minister twice, while Gladstone served four times as prime minister). By 1874, Gladstone had retired from politics, however, he was well-respected for his moral stand regarding truth and justice. He could not stand the massacre and atrocities committed by the Ottomans against the Bulgarians which were tolerated by the Disraeli government. It was time for him as a statesman to rise against the outrageous moral indifference to those atrocities. For three years, Gladstone traveled the country and gave passionate speeches using the Bulgarian issue to denounce the policies of the Disraeli government and the slaughtering of thousands of innocent civilians. By 1880, the people elected him prime minister for the second time, and after that, he was re-elected two more times. Last Thursday, in our weekly Geopolitics & the Day After publication we asked: What is happening in Bulgaria? https://blacksummitfg.com/geopolitics-the-day-after-74/
Time to return to the valuation question: When analysts look at the graph above, they assess that the valuation gap between bonds and stocks is rising and that either the economy needs a soft landing (so that interest rates fall without jeopardizing profits), or that the economy should continue growing without producing inflation. Given the particulars of equity valuations, earnings, softening of sales and hiring, as well as the domestic and international developments, we remain cautious about that divergence which historically doesn’t justify a soft landing (of course, there is always a first-time).
Before we close, let’s look at another graph:
As can be clearly seen from the graph above, commodities have not been so cheap (relative to the S&P 500) for over half a century now. This chart tells us that the ratio between the S&P GSCI Commodity Index and the S&P 500 is at the lowest point since 1970. For us, this is a signal for a potential reversal.
While I was drafting this commentary, I was exchanging ideas with a good friend in London who suggested that nowadays Gladstone might have been canceled, and rather than having the Ottomans, we may consider those who are bearing Russian and Chinese gifts while the West turns a blind eye thinking it can deal with such matters after the Russian invasion of Ukraine is resolved. As they say, those who forget the lessons of history…