One week after Council on Foreign Relations president Richard Haass wrote an op-ed in which he waved farewell to the world he helped create, saying “Goodbye, Liberal World Order.” Then overnight, one of Wall Street’s most original, if underappreciated analysts, Macquarie’s Victor Shvets, gave his own unique take on this increasingly sensitive topic, injecting a dose of his unique pragmatism, in a note that one could say has a silver lining based on the title: “The end of liberal order: De-globalization drift; but no wars, yet.” Unfortunately, in a world in which almost every analyst sounds increasingly as skeptical as this website has been for the past 9 years, that’s as far as the optimism goes, as the following note reveals.

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The end of liberal order: De-globalization drift; but no wars, yet

Investors continue to search for order; there is none

Investors seem to be striving to find order and pattern in a world that has neither. It is only human to search for patterns as without some order, there are no investment strategies. Instead, it becomes a world dominated by noise. Whether it is Trump tariffs, CBs (incessant debate – ‘too dovish or too hawkish?’) or Facebook and the role of social media, investors embark on a fairly meaningless task of calculating likely damages while trying to rationalize these actions within confines of conventional economic theory (trade is good; lack of it is bad). As a result, there is a growing chorus of shrill voices about onset of trade wars and/or need for deep regulatory changes. Similarly, any widening of spreads (however small) is almost immediately interpreted as the onset of major liquidity contraction. In a modern world of signals, noise & AIdriven re-pricing, reality is just ‘fake news’ (or basically facts you don’t like).

De-globalization is a fact of life; both trade & capital

Amongst all the noise, it is still useful to examine the latest trade news with some degree of realism. First, de-globalization has been a fact of life for more than a decade. There are already ~50,000 cases outstanding with WTO, with members introducing various anti-dumping duties & non-tariff measures. This is more than double the case load of ’08, and it is bound to grow exponentially; the US is not even the greatest offender. The liberal trade order had died at least a decade ago. Second, global economy is no longer driven by conventional trade, with elasticity close to one (trade to incremental GDP) vs. ~2x in ‘80s-90s.

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