Good morning. Today is the second of three Unhedged x Chartbook collaborations with Adam Tooze.adam in cover This week in New York Magazine, that means Ethan and I got famous by proxy.

This week’s theme is “The End of Globalization as We Know It”. Debates spanning geopolitics, finance and economics have become loosely linked in recent years, suggesting that the status quo is changing over the past 30 or 40 years. Old: rising liberal democracy and free trade, low interest rates, low inflation and high stock valuations, especially in technology. NEW: Populism, trade barriers, higher interest rates and inflation, and valuations under pressure.

Are we in a real transition moment? Below, Adam casts doubt on conventional wisdom, most recently in Larry Fink’s annual letter to BlackRock shareholders.end chart book, Ethan and I think there are good reasons to think that tectonic plates are moving under the market and the economy. The changes may be nascent, and it’s impossible to predict where they’ll go, but the ground is rumbling regardless.

Email us: [email protected] and [email protected].

Adam Tooze: Deglobalization may be more rhetoric than substance

Larry Fink Annual Letter to BlackRock Shareholders Last week sparked a series of debates about Vladimir Putin’s invasion of Ukraine, the future of globalization, supply chains, inflation and the implications for investors. This is a sign of the times. Fink’s previous letters are known for their focus on the climate crisis and ESG.

Now, like the rest of us, Fink and the asset manager feel compelled to react to Russia’s war on Ukraine.

This letter diagnoses what I call the “multi-crisis” of our time in the book turn off (To borrow the words of former European Commission President Jean-Claude Juncker).

“The consequences of this war are not limited to Eastern Europe,” Fink argues. “They are superimposed on top of an epidemic that is already having a profound impact on political, economic and social trends. That impact will reverberate in ways we can’t predict for decades to come.”

For Fink, Putin’s aggressive behavior questioned the history that made up his company’s entire development:

In the early 1990s, as the world emerged from the Cold War, Russia was welcomed into the global financial system and gained access to global capital markets. . . the world benefits from the global peace dividend and the expansion of globalization. These powerful trends have accelerated international trade, expanded global capital markets, boosted economic growth, and helped significantly reduce poverty in countries around the world.

It was during this time that we started building BlackRock 34 years ago. We’re seeing the rise of globalization and growth in capital markets driving the need for technology-driven asset management that we think we can bring to our clients.

BlackRock’s IPO in 1999, months after the 1998 Russian financial crisis helped put Putin in power.

Now, Fink claims, Russia’s attack on Ukraine “has ended the globalization we’ve experienced over the past 30 years. We’ve seen connections between countries, companies, and even people strained by two years of the pandemic. It It left many communities and people feeling isolated and looking inward. I believe this has contributed to the polarization and extremist behavior we see across society today.”

Fink advocates that investors have a responsibility to address these ominous trends by addressing ESG issues over the long term. In response to Putin’s aggression, he is now advocating something more radical: a deliberately orchestrated global capital strike.

“The invasion prompted nations and governments to join forces to sever financial and commercial ties with Russia,” Fink declared. “In support of the unwavering commitment of the Ukrainian people, they united to wage an ‘economic war’ against Russia. . . these actions by the private sector are a testament to the power of capital markets: how markets provide for those who work constructively within the system capital, and how quickly they can turn away those who operate outside the system. . . This ‘economic war’ shows how we can fight violence and aggression when companies come together with the support of their stakeholders what an achievement.”

It’s a terrific call, but Fink doesn’t stop at the awesome responsibility it implies. After all, if you’re calling for an economic war against the Putin regime, why stop there?

Instead, he leads us back to more familiar, less edgy territory:

Russia’s aggression in Ukraine and its subsequent decoupling from the global economy will prompt companies and governments around the world to reassess their dependencies and reanalyze their manufacturing and assembly footprints – something Covid has already prompted many to do.

While reliance on Russian energy is in the spotlight, companies and governments will also take a broader look at their reliance on other countries.

Which of the “other countries” Fink had in mind was unspoken. But he went on to argue that “manufacturing hubs in Mexico, Brazil, the United States or Southeast Asia,” all of which could be safe bets that could benefit from a production shift.

“This decoupling will inevitably create challenges for companies, including higher costs and pressure on margins,” Fink warned. This would be “inherent” inflation.

As Fink points out, U.S. inflation is at its highest level in 40 years, putting a huge strain on low-income workers in particular. This puts central banks in a “dilemma they haven’t faced in decades”. Central banks must choose whether to tolerate higher inflation or slow economic activity and employment to bring inflation down quickly. “

exist chart book This morning, Robert Armstrong and Ethan Wu picked up where Funk left off. They powerfully summarize the forces that promise to end globalization as we know it and accelerate inflation.

But comparing Unhedged’s data-rich shots with Fink’s waving, I wonder if Fink’s ambiguity really isn’t the point. What if we made BlackRock’s letter less of an analysis than an exercise in corporate diplomacy, which in its evasion suggests the opposite of what the headlines suggest?

Do we really believe BlackRock is abandoning globalization as we know it? After all, Putin’s blatant aggression and angry tirade makes a very convenient hook to the narrative about the crisis of globalization.

Russia’s behavior can be outrageous. But its economic weight is limited. BlackRock’s risk here is minimal, as Fink is happy to remind his shareholders. From a global perspective, how much is at stake in an economic war against Russia?

At the same time, talking about Putin saves Fink from having to talk about the real fault line in the global economy: the embarrassment between China and the United States. In fact, if you’re interested in maintaining your business in China, as BlackRock is, the less talk about this confrontation, the better.

Speaking of supply chains, what does Putin’s war in Ukraine really have to do with it? It is commodities (wheat, corn, etc.) and energy that put the economy at risk from the war. As far as the supply chain is concerned, the most severe disruption was the supply of wiring harnesses from the Ukrainian factory to German automakers BMW and Mercedes. An important component, no doubt, but hardly a sign of a new era in economic history.

As Armstrong and Wu pointed out, we are facing a major threat to a really important supply chain, but in microelectronics, the challenge is not from Russia, but from the US government, which has decided to let the technology enter the battlefield. like its competitors Pioneer, BlackRock forced into painful asset disposals due to U.S. sanctions.

Armstrong and Wu noted that many U.S. business lobby groups have turned against China. But that’s not what it’s saying for BlackRock or any other big player in the U.S. financial industry.George Soros may insist that BlackRock made a strategic mistake in continuing to invest in China, but the asset manager has shown no sign of flinching. Well, in the wake of the Ukraine event, the talk of the end of globalization may be just a murky picture.

Unhedged ends with a great conversation with Larry Summers, a longtime Unhedged and Chartbook supporter.

As Summers pointed out to Armstrong and Wu, no matter how wise or foolish their (pessimistic) views on the future of globalization and inflation are, the big players in the market won’t share it:

Current prices strongly imply that the current inflation spike and interest rates will subside soon and the old world of “secular stagnation” will re-emerge. This is most evident in the fed funds futures curve, which suggests that rate hikes will stop below 3% sometime next year, after which the policy will weaken.

BlackRock, in its most recent Q2 2022 Macro OutlookShare common market views.

It’s a weird cognitive dissonance: talking as if you recognize headwinds rather than pricing. Maybe hope they don’t become a reality after all.

I think a similar situation applies to globalization more generally. There’s a lot of talk about reshoring and rebuilding supply chains, but far less action on the ground.Apple, to take the most prominent example, actually Increased reliance on China last year.

At least for now, there is a frenzy about Russia’s attack on Ukraine ending globalization because we know it should be taken with a grain of salt.

Imagine Fink supporting an economic war against China! When this no longer looks “non-planetary”, we’ll know we’re really in a new world.

a good book

don’t sleep in usa real estate market. People looking to buy a home this year “will face the biggest payment shock we’ve seen in over 40 years”.