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Todd Harrison: Isolationism is the Other Side of Globalization


Random Thoughts on a Freaky Friday

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Minyan DP writes to Todd:

Hi Todd -

I was just wondering from all the headlines today in the WSJ (Russia bans food imports from West, Argentina files suit against US, etc.) that this seems to be heading toward the dreaded "isolationism" theme that you talked about in the past with regard to global risk.  Any current thoughts on this, or am I reading too much into these headlines?

Still lovin' the 'Ville.  Keep up the good work!

Yes, these situations, while distinct and disparate, are connected through the lens of social mood.  If you remember back to 2008, we spoke of two potential paths for the global economy.  The first was "taking our medicine," which would have allowed for debt destruction, asset class deflation and a higher dollar.  It would have been painful but we would have gotten through it in one form or another.

The second and chosen path was "drugs that masked the symptoms," which was the same behavior that got us into the crisis in the first place.  More liquidity, asset class reflation, dollar devaluation (offset in large part by the troubles in Europe)...all leading to "tricky trifecta" of societal acrimony, social unrest and geopolitical conflicts.  This is where we are now; it is a very slippery slope.

I remember 1999 as the markets began their parabolic frolic and "globalization" was the rhyme to the reason--remember China being the savior of the global economy?  Well, the opposite of globalization is isolationism and protectionism and that's what we're seeing play through in spades.  The end-goal of war isn't killing each other, it's economic destruction and unfortunately, those are the levers being pulled on the world stage.

Will social mood and risk appetites shape the financial markets?  I would think so but I've been wrong while operating through that lens and as we know, prudence has been punished by under-performance.  That's a big reason why I've been trading surgically--in and out of positions; that way, I can trip but not fall.  Risk management hasn't been rewarded; instead, it's created a self-fulfilling upside prophecy that few see ending anytime soon.

So, in answer to your question, yes it's all related but it remains to be seen how it manifests.  The easiest trade on the board is to hug your loved ones and maintain some perspective while it all plays out.

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Twitter: @todd_harrison

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