WHAT TO SHORT SELL

The world is changing because voters want change

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I am going to assume that you have read my last post on “Why I Stopped Short Selling” and you are familiar with the idea that we are moving to a pro-labour world from a pro-capital world.

Why I stopped short selling and managing money was that I realised some of my base assumptions were wrong. My first assumption that markets trump politics. What did that mean in practice? Central banks may target policies to create inflation, but unless markets cooperated, there would be no inflation. It also meant that overvalued exchange rates, or currency pegs would always correct typically to the downside.

These seemed like self-evident parts of financial markets, but the reality is that they were policy choices. Governments chose to allow currencies to float freely. Governments chose to allow the free movement of capital and investment. Governments chose to allow unemployment to rise to allow the efficient allocation of labour. Governments chose to privatise large parts of the economy and reduce the power of organised labour. And why did governments choose to do this? Because it was what voters wanted. Both left- and right-wing governments from 1980 through to 2015 espoused these policies and reaped electoral success.

In 1970s as the negatives of inflation and high interest rates caused voters to move away from pro-labour politicians, the negatives of income inequality and stagnant wage growth has caused voters to move back to pro-labour politicians. I would classify both Trump and Biden as pro-labour politicians, who are a stark break with Regan, Bush, Clinton, Bush and Obama. Likewise, Boris Johnson was a stark break with Thatcher, Major, Blair, Brown, Cameron and May. Likewise, Xi is a stark break with Deng, Jiang and Hu.

The first assumption that I have changed in my model is that politics trumps economics. If you don’t agree with that assumption, then you will disagree with many of the conclusions below.

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