Sept 26, 2018
Back in March, when looking at the latest political wave sweeping across Europe, Deutsche Bank’s Jim Reid wrote a report which observed that “it’s hard to get away from the fact that populism is currently going through an explosion in support at present” of which today’s vote of no confidence of Swedish prime minister Lofven was just the latest example. DB focused on Europe, as shown in the following chart, and noted that high double-digit youth unemployment has become a hotbed for anti-establishment sentiment, which has everything to do with the economy, and lack of opportunities.
The German bank then warned that the “liberal world order” is in jeopardy, and concluded rather ominously:
As of now the rise in populism hasn’t yet destabilised markets however we find it difficult to get away from the fact that uncertainty levels are bound to remain high while such power brokers remain in major elections. Indeed the unpredictability of Trump’s policies is such an example, with the recent tariff threats which have subsequently escalated market concerns about a trade war being one. At a time when global central banks are moving towards an unprecedented era of tightening and dealing with years of massive asset purchases, risks from rising populist support has the ability to seriously disturb the prevailing equilibrium of the last few years and subsequently markets.
Fast forward to today, when Bank of America strategist Barnaby Martin tackles the thorny issue of ascendant populism, which he attributes to the “lost decade” following Lehman’s collapse and what he dubs the “era of hubris” – a time when the richest 1% has seen its collective wealth surpass $100 trillion.
Martin begins by reminding us that a decade ago, “the collapse of Lehman Brothers sent shock waves through financial markets” to which the response was an unprecedented…