Michael Hintze believes Populism matters to markets.
For those unfamiliar with the name Michael Hintze, British-Australian businessman, is an investor and founder of the hedge fund company, CQS and he has a net worth of approximately US$1.8.
Michael Hintze, in his latest letter to his clients, argues that politics that has mass public appeal and seeks to shape government policy also has a wide-reaching impact on investment portfolios.
Michael Hintze is a big fish in a big pond. He has been cited in the press as one of the highest-paid people in the City of London.
“Populism matters. It is driving politically inspired market volatility, and therefore economic as well as political change”
Michael Hintze believes Populism matters to markets because most of the market volatility experienced recently has been politically driven
“Populism matters. It is driving politically inspired market volatility, and therefore economic as well as political change” wrote Michael Hintze in his latest note to his clients.
Michael Hintze has connected the rise of street protests across the world with “deep dissatisfaction with inequitable distribution in society.”
The populist movement, where ordinary folks turn-away in droves from mainstream political parties that they perceive as self-serving, for the global elites has gone global.
“A deep dissatisfaction with inequitable distribution in society” is setting the tone of public policy, and creating new political parties or reinvigorating old ones, wrote Michael Hintze.
“A deep dissatisfaction with inequitable distribution in society”
MICHAEL HINTZE (reason for rise of street protests)
Michael Hintze believes Populism matters is not a lonely voice in the wilderness
Indeed, Ray Dalio’s 1930s analogue which highlights a large wealth gap and political polarity as one of just a few similarities of the 1930s and today.
Michael Hintze believes Populism matters because in extreme cases it can lead to an authoritarian leader dictating policies and procedures
“In some countries, it has brought populists into government and to power. In every country it is shaping policy as the traditional parties and even autocratic leaders respond,” said Michael Hintze.
This year 2019 has seen a wave of populist protests taking hold in countries spanning the globe, from Hong Kong to Spain, Chile, Ecuador, and France. Populist voters have benefited US President Donald Trump, Philippine President Rodrigo Duterte, Brazilian President Jair Bolsonaro, and parties such as AfD in Germany, the Brexit Party in Britain, the Freedom Party in Austria, the AMLO in Mexico, and the Lega in Italy.
“”Populists seek to influence public policy, and they are often successful” – Michael Hintze
Michael Hintze believes Populism matters because it results in higher government indebtedness as populist government’s promise what their nation can’t afford.
“The most visible economic impact is an increase in government spending funded by a rise in government indebtedness and potentially higher taxation,” wrote Michael Hintze.
Monetary policy is also influenced by the populist government’s is another reason why Michael Hintze believes Populism matters
An emerging potential consequence of populism is the rise of Modern Monetary Theory (MMT), which is a temptation for politicians to “spend their way to happiness and power”, wrote Michael Hintze.
“For the immediate future, particularly with the current global political imperative for growth, there is support for MMT-type initiatives” added Michael Hintze.
MMT argues that the government should use fiscal policy to achieve full employment and advocates the idea that new money should be created to fund government purchases.
MMT is a controversial policy with the main risk being that the creating of liquidity can cause inflation, particularly as the economy reaches full employment. But advocates of MMT point out that inflation can be tackled by raising taxes and issuing bonds to remove excess money from the system. Moreover, these proponents argue that bond investors aren’t bidding up the interest rate on US government debt despite President Donald Trump’s extraordinary fiscal profligacy.
Populist governments have a tendency to run larger public deficits which is some cases is funded by MMT. These expansionary policies put stress on the nation’s currency.
Michael Hintze believes Populism matters because MMT’s close cousin, “helicopter money”, is also circulating in the halls of the European Central Bank, which is headquartered in Frankfurt. Massive monetary easing which consists of Quantitative easing QE and negative interest rates which have been successful in propelling asset prices. However, conventional monetary policy has failed to fuel economic growth and inflation. Helicopter money, the people’s QE might be required to prevent a social catastrophe brought about by the rapid displacement of workers due to increasing automation and AI advancements of the fourth industrial revolution.
Helicopter money entails the monthly transfer of ECB funds directly into the bank accounts of every eurozone citizen, to push inflation back towards the 2 percent target.
“Currency markets will be the final arbiter. In a quantitative easing world, the fiat currency system is a faith system. The primary risk is a break in that faith, that belief” – Michael Hintze
So we are in the twilight zone experiment that we should watch carefully and be mindful of. Particular attention should be made on the stress MMT, helicopter money will have on the central bank’s fiat currency.
Michael Hintze is skeptical about MMT. “It relies on investors maintaining faith in the currencies of countries engaged in it” wrote Michael Hintze.
But if the world’s major central banks all embrace MMT there will be no place to hide, assuming that their powers to fix every asset price through the derivatives market remains intact.
Michael Hintze believes Populism matters because of the ultimate impact it will have on the fiat currency
Michael Hintze warns that the fiat currency system is a faith system.
“Currency markets will be the final arbiter. In a quantitative easing world, the fiat currency system is a faith system. The primary risk is a break in that faith, that belief” he says.
“Amongst major global economies, Japan is at the forefront of unconventional monetary policies, and faith in the yen has not broken, but my sense is we are at the beginning of an experiment that we should watch carefully and be mindful of,” wrote Michael Hintze.
Michael Hintze believes Populism matters and so too does Former IMF chief economist Olivier Blanchard
Commenting about helicopter money Blanchard wrote, “Implementation would raise operational, legal and political challenges.” But populist governments have been elected to break with the status quo.