History tells us that when the globe enters periods of great complexity the risk of wars is increased.
But history also signals that at times of uncertainty (particularly when the US president-elect says the US dollar is too high) the gold price rises. Gold has been rising strongly and continued that trend last night.
So let’s go through some of the forces and how they are impacting the globe. And I will add my guess at the future----a future that will be made a lot clearer when President Trump makes his inauguration speech on Saturday morning (AEDT).
We start with last night’s Brexit map from British Prime Minister Theresa May. She is going to try and keep the UK together while negotiating a free-trade agreement with Europe including a financial services agreement.
The Germans and the French will initially see this as the chance to engineer a shift of British banking and industry to Europe. And they will be looking for substantial exit fees by asking Britain to pay big sums as part of a free-trade agreement that includes financial services. For example, Europe will want Britain to share unpaid budget appropriations including enormous pensions liabilities; future contractual and other spending commitments; joint pledges to stand behind outstanding EU bailout loans and the costs of dismantling a nuclear site. This would be offset by a share of European Union assets — a possible total bill of €30 billion and rising.
But then enter Theresa May’s “best mate” Donald Trump.
It so happens that Germany and other European countries are in a state of great nervousness because Russia clearly wants to break up NATO, looking to put pressure on former Soviet satellites like the Baltic states and Poland.
Trump will try and do a deal with Russia but he will also require Germany and France to pay much more of the NATO defence bill. That makes Britain essential to European security. I am not predicting the outcome but Theresa May will be able to play very hard ball on a European free trade deal, thanks to Vladimir Putin and Donald Trump.
And don’t forget that the combination of a European currency that is too high for the likes of Italy and many others in the EU, a broken banking system, a bloated bureaucracy with too many rules and a migration headache of enormous proportions means that there is a real chance that Europe itself will not hold together.
Indeed last night it was not so much what Theresa May said but the conviction and clarity with which she said it that triggered the rally in sterling.
But the sterling rally was also a reflection of a sharp fall in the US dollar as president-elect Donald Trump keeps waving the higher tariffs flag and countries like China and Mexico respond by threatening a trade war.
And in the China negotiation Trump will take a much tougher line over the South China Sea than his predecessor and as part of that negotiation Trump has thrown the status of Taiwan into the melting pot.
But remember on the other side Trump is planning to lower taxes to bring home the massive US dollars that are parked overseas as part of his “make America great again” campaign.
And so each day we watch share, bond and currency markets grapple with these monumental forces. There is enormous shorting taking place in shares, currency and bonds so if rises start taking place the shorters cover. Falls are multiplied by shorters selling into the market. The fall in the US dollar last night was multiplied by shorting just as the rise in sterling was multiplied by short covering.
Donald Trump is learning how he can move markets and cause companies to make decisions they had not planned on.
The combination of Trump, Brexit, European migration, terror and broken European banks plus an aggressive China and Russia means that 2017 is going to be devoted to rewriting the rule book.
The 2018 year will be very different.
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Fasten those safety belts. This is going to be a bumpy ride because there are so many new forces impacting the world at the same time.