By Michael Every of Rabobank

As expected, escalation continues on multiple fronts, but de-escalation might be closer on one: Hezbollah (meaning Iran) had agreed to a US-proposed ceasefire with Israel “with comments.” If so, this reflects Tehran’s stance towards the incoming Trump administration: “Let’s negotiate.” Where that leads also remains to be seen. On the other hand, as we wait for Ukraine’s first ATACMS attack up to 300kms into Russia, the latter’s TV showed all the European countries its nukes can destroy. Sabre-rattling, yes, but worth thinking about, and noting here, over the price of a given financial asset.

Against that backdrop, another two key data cable connecting Finland and Germany and Sweden and Lithuania have somehow been severed. EU Foreign Policy boss Borrell bowed out saying: "We are in a transition... but the world doesn't stop. On the contrary, it accelerates, but in the wrong direction. More and more, the forces that challenges us require a quicker reaction from the EU… Trump represents an opportunity for the Europeans - not only to wake up… but to use our capacity and our system of working in order to make a clear voice in the world stage.” Following which he said that on ‘EU red line’ Chinese military drones being sent to Russia, "This report is not a report produced by my services, so I don't know what is the feasibility of this report." That’s a clear voice on the world stage: just not one anybody takes seriously. The ECB’s Lagarde later urged Europe to listen to Draghi and make itself one big economy, not many national ones, as “the world economy is fragmenting into geopolitical blocs centred around the largest economies.” So far that hasn’t prompted any major new thinking from European leaders though, just rhetoric.

In the US, the search for a Treasury Secretary continues: who can be mercantilist abroad, go-go capitalist at home, and reassure markets who hate the former -when the US does it - that they know what they are doing? And who also likes crypto given the Trump media group is apparently to bid for a key crypto trading platform, adding to the view that the sector has some form of president-elect backing. There are many thoughts on what this might mean, but on tariffs note the following two headlines:

This continues my hypothesis that the way we think about things is changing radically, which will change what we *do*: and markets will follow. This wouldn’t be the first time such changes have happened, even if they are the first time for many individuals in markets now.

For example, in a recent interview industry veteran Grant Williams bewailed the following: "I kind of mourned the change in capital markets as a means to allocate capital over the long-term, to productive use, that will provide a steady long-term return on capital and will help grow a business. That’s what this was all about when I got into it 40 years ago, and I don’t recognize it anymore. I don’t have any of the conversations I have today that I had 20 years ago, 30 years ago, 40 years ago - none. All people want to know about is the stock price. And that comes down also to CEOs of companies. The business is the stock price these days. And once you do that, once you change, this business to be about the stock price, you change every incentive that has been developed over hundreds of years of capitalism about how to build a sustainable business, how to reinvest profits, and grow a business."

Sadly true: now add socio-economic/political polarisation and national security crises and think if things stay the same or change.

Relatedly, Foreign Policy notes ‘Russia's Plans to Replace the Dollar Are Going Nowhere’, with the last BRICS meeting in Kazan seeing Moscow push: BRICS Pay (so visitors from BRICS countries can pay in Russia); BRICS Clear (to circumvent Euroclear, Clearstream, etc.); BRICS (Re)Insurance (vs. restrictions on Russian-owned aircraft and ships); a BRICS ratings agency; the BRICS Cross-Border Payments Initiative (to facilitate payments between BRICS countries in their own FX); and, most of all, BRICS Bridge, to dump US/SWIFT intermediaries for international transactions made with BRICS central bank digital currencies. The latter would allow BRICS to avoid Western sanctions, monitor their economies, and control them as needed while “establishing a digitalized global financial architecture - betting that controlling emerging standards in the sector will enable them to weaponize global finance in the future.”

However, because doing this burns bridges with the US and West, “Interest from other BRICS members was so lukewarm that the scheme did not even make it into the final summit communiqué.” Again, a certain type of thinker says, “I was right not to pay any attention!” Another type notes, “Russia is unlikely to stop pressing, however: Developing non-Western financial mechanisms is an almost existential imperative for Moscow - and it highlights how finance has become a new arena for great-power competition.” Indeed, alongside control of physical supply chains –because it’s “uneconomic” or “bad economics” for the West to respond- the wheels will continue to slowly turn towards an eventual global change/rupture.

So, why are so few looking at the above trends and producing better integrated analysis? Partly because of what Mr. Williams said, partly as beans won’t count themselves, and partly due to what Branko Milanovic notes in his own recent pithy commentary: “At times, I think how incredibly trivial and boring many top economists are when they write about contemporary politics. Like they have never read Ricardo, Marx, Walras, Pareto, Schumpeter, Keynes, Kalecki... Why are their writings so banal? They are afraid - afraid to say anything original because, of course, original is no good. They do not know how to write well. They do not know history and politics. They are boring people with boring lives. Choose.”