Davos Dispatch: World Order on Edge

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29:50we're back with prof g markets let's talk about this mark carney speech because this was probably the most pivotal moment at the conference um i mean the central message is basically that the American hegemony doesn't really work anymore, that America's abusing its power and that this era of globalization that seemed to work isn't working. Let's just listen to some of the highlights. We are in the midst of a rupture, not a transition. Great powers have begun using economic integration as weapons. Tariffs is leverage. Financial infrastructure is coercion. Supply chains as vulnerabilities to be exploited.

30:29The middle powers must act together because if we're not at the table, we're on the menu. This is not sovereignty. It's the performance of sovereignty while accepting subordination. So it seems like the takeaway, and I'd be interested to know if everyone agrees with this at Davos, but the way the world is set up, our globalist world where we have all of these relationships and we all kind of get along with these trade alliances and we're part of these communities and, you know, we're shipping stuff over from China and shipping stuff over to China and everyone's sharing each other's stuff, that that no longer works.

31:06That we're transitioning into a more nationalist world where it's sort of every man for himself. And I guess the thing that is striking is that this is the thing that the US has been pushing. Like, we want this. And then the president of Canada comes out and says, well, yeah, if you guys are bailing on this, then okay, we can't do this anymore. This doesn't work if you guys don't sign up for it. What has been the reactions from Davos? What did you make of that speech? Like I said, I thought it was the best speech at Davos. I love that line. He said, this is not a transition, it's a rupture. What was the line there?

31:43I thought he was just an incredibly impressive, eloquent man. I hope at some point, one of the things about America is it does tend to ping back and forth between different parties and different sort of thought leadership. And I'd like to think the next president is going to be incredibly intelligent. and Mark Carney is that kind of guy. He wrote that speech himself. To be fair though, and this was kind of Neil Ferguson's whole thing was, I mean, and I think there's some truth to this. The EU has been free riding off the US's defense spending, assuming they don't have to spend for military for defense.

32:24I mean, to a certain extent, we're by far the largest contributor to NATO. And I get that a war on Europe would be bad for everybody, but it'd be really bad for the Europeans. And the fact that the U.S. has been providing this defense umbrella so they can spend more money on their seniors and social citizens, and, you know, quite frankly, that is not, that's asymmetric. That is not fair. I think Trump got that right. I just hope that the music matches the words here and they begin coordinating and commanding the space they occupy. And one of the masters in the universe in the finance world said something really powerful last night.

33:01He said, look, the difference between Europe and the U.S., as I said, simply put, is our capital markets. And the EU is just not holding its own. from an economic standpoint. In France, from an incentive standpoint, in France now, pensioners make more money than working-age people. We keep talking about how the U.S. keeps voting seniors more money, that old people can be voting themselves more money. Take that times two or three, and that's what Europe is like. And talking a big game about Ukraine, I mean, I think some of the nations have really stepped up, but others have not. And so I think there's some truth.

33:41There's a kernel of truth. Now, the question is, is it going to help anybody? The way I think of it is just economically. The most powerful nation will be the one with the biggest GDP. I think we're about 25 % of the world's GDP, but we were the operating system for 60 or 70 % of it, which made us unchallengeable. The biggest mistake I believe that Trump administration is making is believing that a power that controls 25 % of the world's GDP, or 30 % even, maybe it's a third, can muscle around everyone. Our ability to muscle around everyone was to check with our other limbs, other great democracies, where they would take our lead.

34:16But if they say we're out and you're now just a third of the world's GDP and a third is somewhere in the middle, not knowing what the fuck to do based on your blood sugar level, and a third is, quote unquote, is our adversaries, whether it's China or Russia, that's a terrible place to be. And I feel like they just don't understand the basics of math and game theory. Well, I think that you can point out the the EU's reliance on the US for defense spending without threatening to invade their territories. Like, you can make that point and get somewhere with it without pissing everyone off, and further than pissing everyone off, literally threatening military action.

34:57And then obviously going back on it, because we saw Taco and Trump appears to just, in the middle of that speech realize, oh yeah, maybe I shouldn't invade, maybe that's not a good idea. But in terms of the consequences of this behavior and this delivery of that point, it does seem that this is, I mean, we've said this before, this is sending our allies into our adversaries' arms. This is basically pitting the rest of the world against America. Canada and China just struck a new deal. So did the UK. They're preparing a new deal with China, EU, and India just struck a deal, the EU and Mexico have a new deal.

35:38As we've said, like, deals are happening. They're just not happening with us. And I think the question becomes, what's next in this story? Like, agreed, Europe and the relationship with America, questions should be asked, as they always should be asked. You know, we should be investigating what is the real dynamic here? Who has the leverage? Is someone getting more out of the relationship than the other? but now that we've escalated things the way we have, it could be that the rest of the world just decides, you know what? We can't trust these Americans. And in fact, you know, Neil Ferguson makes the point, like, well, who are you going to trust, China?

36:18It's like, maybe. In fact, that appears to be what these nations and these nations' leaders are doing right now. That appears to be what Keir Starmer is pursuing with China at the moment. And then there's the question of what power do they actually have over us? And this is the big question. I'm not sure they have much, but people are asking the question. There's this question of a coordinated attack on our debt, which is more and more relevant because just this past November, foreign holdings of US treasuries hit a record high. And the holders that had the biggest increases were the UK, Japan, Belgium, Canada, people are asking the question, could they just sell our debt as China was doing earlier on and just explode our interest rates?

37:05Maybe they could. Could they just sell their holdings of U.S. stocks? Again, I don't think they will, because as you say, U.S. stocks are very important. I don't think you can just back out of that and expect things to be all right. So I guess the question would be, what could Europe do in response to America? Or what could the rest of the world do? Could they coordinate with Canada and could they coordinate with Japan and perhaps China and launch an attack on America in some way? Is that even probable or likely? Is that even worth talking about? What do you think? It's hard to even imagine or outline something to damage America, but they're not, Europe is still not a union and this is unionizing them, so to speak.

37:50But the prime minister, I think it's the prime minister, president of Finland, very powerful voice. But okay, who speaks for the EU? I just don't. Is it Macron with his cool glasses? We know it's not Starmer. Who is it? Is it Lagarde? I mean, who? Is it Mark Carney? Fair point. He seems to be representative of the whole movement. If I were of him, I would have stood on stage with Mark Carney and said, you know, Mark has shown real leadership around this issue and have the head of the, you know, the EU and all the member nations saying, these are the actions we're taking. And we've decided to divest 10 to 20 % of our holdings of treasuries.

38:33We've decided as we no longer can count on this as a reserve currency, we're creating a new trading block of Western nations that doesn't include the US. But they – how you defeat an enemy is you atomize them. You fragment them. And the EU has already fragmented. Also, the EU has not shown a willingness to sacrifice. They've not – they're like, oh, wait, cut pensions such that we can increase our military budget? No way. I mean, you know, so look, the core competence of Russia and the reason why they're invading Europe and we might end up with a terrible peace that just schedules the next war is while there is financial support, you know, if somebody was invading Canada and threatening – if Cuba all of a sudden invaded another nation proximate to us, I think we would put American troops on the ground.

39:26So I think the EU is, you know, Europe is not a union. They do not speak with one voice. They need to. Then they need to identify that leader. And two, and you're right, it might be Carney. They need to massively increase their military spending. They claim they're doing it. So far, there's not a lot of evidence they're actually doing it. And then I would outline a series of, you know, a series of responses. A lot of people say they've been more mature. They haven't responded. I don't know. I think the only thing that the Trump administration understands this point and the only way you treat a bully is at some point you just got to turn around and kick him in the nuts, even if he's bigger than you, and see what happens.

40:06So unification, picking one voice to speak with, and outlining a series of actions that are sequential, not all at once. But I think our vulnerability is around our debt. You can't be in this kind of debt without vulnerabilities. And everyone says China is the biggest owner. It's not. It's Japan. But combined, but combined, the EU is in Britain. But these guys cannot command the space they occupy because they're not the largest. They're not the second largest economy in the world, which they would be in aggregate. There is there a series of kind of one off economies. There's the seven dwarves.

40:41None of them can. You know, it's like the the fourth, the sixth, the ninth, the 14th, the 22nd economy. they don't it's as if if we get split up and new york decides to become a finance hub with its own currency and texas becomes an energy economy and the the midwestern states become a manufacturing economy trading with canada none of those nations would be able to dictate or strike back at china but we have a united states of america with one military whether you like them or not one president that speaks for us and commands, you know, our economic policy and our military. The EU is just theoretically a union.

41:21Yeah, I think that definitely comes out at conferences like this, where, you know, Trump is swinging his dick around in various ways. And then everyone from Europe kind of gets together and they get up on a stage and they stand in front of a podium and they say, this will not stand this is not acceptable and emmanuel macron gets up there with his aviator glasses and sort of waves his fist around and talks about these ideas about how this is a problem and i agree like at a certain point it's like okay what are you going to do about it is it just going to be another speech in front of another congregation of white people in suits and ties or are you actually going to take some action you know i think a similar thing could be said about Trump, where he makes these threats and he does move markets because he's so erratic and also because he's so much more powerful than anyone else on this stage.

42:17But then ultimately, he doesn't really do much about it. For example, this taco situation. He says, I'm going to put these tariffs up. We're going to take Greenland. We're going to use any means necessary. And then he shows up to the conference and he says, no, no, no, we won't use force. And actually, no, we figured out a framework of the deal. And so actually, no, it's fine. We're not going to do the tariffs anyway. You could make the argument that even he is not really getting anything done himself.

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43:42Having State Farm help you create a competitive price when you choose to bundle home and auto. Bundling, just another way to save with a personal price plan. Like a good neighbor, State Farm is there. Prices are based on rating plans that vary by state. Coverage options are selected by the customer. Availability, amount of discounts and savings, and eligibility vary by state. feeding the fam isn't easy but we got you with any slam and meal deals starting at 5.99 full meals for everyone like a grand slam burrito for grandpa and a super slam for super mom get to denny's now valid at participating locations for dine-in or denny's.com limited time offer additional restrictions may apply at some locations we're back with property markets if you look at the polling data right now and i think this is probably relevant to what we saw in Davos.

44:31Trump currently has the worst approval rating of any second-term president in history except for Nixon. So people do not trust him right now. And I don't think the kinds of things he's doing in Europe, where not only does he look untrustworthy, he also looks weak because he's chickening out. That's how everyone is describing it. And then we're seeing similar numbers coming from the Gen Z group, which I also think is interesting, Trump's net approval rating among Gen Z is now at negative 32%. Compare that to February of last year, about a year ago, the number was plus 10%. So we're seeing just a decimation of his favorability on various issues.

45:20And I think a big question going forward is like, what did that speech in Davos and what did this Tarko do to his legacy? What did it do to his popularity in America? Are people watching what's happening in Switzerland? And do they care? It seems like they probably do. Yeah, and we're closer to it than most people. But I mean, a couple observations. One, I think people are incorrectly saying that this is the end of globalization and it's a retreat to regional or spheres of influence. I would argue Trump's rhetoric is expediting globalization just without us. And that is free trade barriers are coming down.

46:00It's making for strange bedfellows. I got to think that the EU and Latin America and nations in Africa are really looking to trade right now, to establish alliances, free trade zones, political alliances across border. People aren't saying, well, the operating system of America is weakening, so we should withdraw and go inward. They're saying, no, we just need new partners. And I think this has created a level of promiscuity and willingness to say, okay, we won't place taxation on your wine here in Chile, France, because you have a wine industry you're trying to protect. We want to have more free trade and we want to be less dependent on selling our wines into America.

46:42And the way you do that is by both of us lowering trade barriers and agreeing to get along. And so I think globalization is actually on super drive or overdrive right now because there's so much economic benefit to it. It's just that all the supply chains are being rooted around us. And then the thing I would push back on a little bit, though, I mean, one, Trump is hugely unfavorable. This doesn't appear to be working. But every time we take a poll, everything goes down. It just seems like people are just getting disgusted with institutions in power. The Democrats aren't doing much better. and the reality is, and I hate to admit this, this isn't just a rogue Trump because he's got 53 Republican senators who all of them seem to be kind of, I mean, we celebrate one of them maybe saying, you know, Bill Cassidy, I'm a doctor.

47:30He realizes how dangerous and stupid RFK Jr. is, but he doesn't actually fucking do anything about it because he's still scared of Trump. So the majority of U.S. senators are still kind of, walking in step with the president, and they're elected. But don't you think people are beginning to see that quite viscerally? Don't you think the cowardice is becoming almost too big to ignore, too obvious to Americans? And I think someone who's doing a great job of pointing that out is Gavin Newsom. I mean, you look at his speech at Davos compared to these other leaders who seem to kind of tiptoe around the problem.

48:13I mean, he's being bold. And as you say, you know, I forget the words you use, but I think the word that I would use would be aura. His aura is big, it's strong. He presents as powerful now because he actually is standing up. And it seems that that actually is a winning move now, not this cowardice and sycophantry that we've gotten so tired of and so used to. I mean, Scott Besson, every time he gets on stage, He looks like a total fool. And I think people are seeing that because it's so obvious how weak these people are. So to see someone present a vision of strength to have an actual spine, to have stones, to have balls, that's quite interesting.

48:57That's quite compelling right now. Yeah, I see it on the Democratic side, at least in some form. I would still argue they haven't shown real testicles. I'd be drawing up all sorts of criminal indictments and reminding people the statute. The statute of limitations for murder is never. And I would be coming out and saying, I believe the following ICE agents are probably guilty of reckless endangerment of life and perhaps second-degree murder. And I plan to try and encourage our Department of Justice to investigate them when we have a real Department of Justice. I want to remind our ICE agents that the statute of limitations on murder is never.

49:30And there's no such thing as absolute immunity. It doesn't exist. But I haven't seen I haven't heard a Democrat do that or propose it in a way and show up at Minnesota or large gatherings of ICE and say, hey, guys, I just want to communicate something about this this law I'm planning to pursue on January of 2029. So just think about, you know, just think about what you're doing. Anyways, and I don't see a lot of it. I still don't see a lot of it on the Republican side. I don't see the backbone. We celebrate small instances of it and we highlight it. But I don't, unfortunately yet, I don't see a lot of the cracks we've all been waiting for.

50:11in my view, if you're honest about this, they're not. I mean, I believe what he's done has shown that he's reckless, putting us in real harm's way, physical danger, increased the likelihood of a nuclear conflict, bad for the economy. I think corrupt, he's increased his net worth by $1.2 billion. I think under any other president, a democratic president, this would be cause for impeachment. And you would need, we have 47 senators, it would get through the House, probably. Would it now? I don't know. But then you need 66 senators, etc. You would need 19 Republican senators. If eight or 10 Republican senators showed up and said, boss, you are fucking out of control and you need to dial it back.

50:54Or if they bring up impeachment, we'll be eight or 10 of the 16. I think he would, I think Susie Wiles would whisper in his ear, okay, hey, you need to dial it back. All of them were scared to do that because if one or two said, he's like, I'm primarying you and I'm still the man and I'll get you kicked out and you won't get reservations at your favorite place in DC. So I see an incredible, I see, you know, if you were to write a book about Republican leadership right now in the Senate would be profiles and cowardice. I mean, supposedly they're all saying behind the scenes, this guy's off the rails, but they won't fucking do anything about it.

51:29I mean, well, boss, that's why you're elected. You're elected to do the hard things when it's hard or to do the right thing when it's hard. I think one interesting question, you actually are behind the scenes. I mean, Davos is as far into the swamp as you could perhaps get. I mean, I'm astounded by the cowardice on both sides. I'm astounded by the cowardice in business leadership as well. I'm sort of astounded, you know, sometimes I'll do like a media hit and they'll be like, oh, like, is it okay if we talk about Trump? Like, can we talk about something that he said? I'm like, yeah, obviously.

52:09Like, that's totally fine. I'm very surprised with how scared everyone is, with the extent to which people seem to want to tiptoe around these issues. You're in the room right now. Is that the vibe in the room? Are people being kind of hesitant and concerned and holding themselves back when it comes to expressing their true opinions on the issue? I think American senators and special interest groups are afraid because Donald Trump, like any strong man, has figured out the algorithm is to reward your allies with monetary compensation, whether it's the kids of Howard Lutnick who get an investment in their shit coin from the UAE after we agree to let the UAE have our most sophisticated chips.

52:55I mean, just I can't even I just can't even imagine what would have happened if Obama tried a fraction of this shit. Unbelievable. So and then also to punish your enemies, to go after them and really try and make their lives miserable, including threatening prison, having FBI agents raid your house at early in the morning if they don't like former security advisor John Bolton, what you've said. So that's working. I think people are really intimidated. The Europeans, I would describe the meetings I've been in. They're just so damn polite. they don't there's so many americans in the room it's the end of them they're also trying to curry favor with a lot of these startups to build offices in their regions they don't want to cut off their nose despite their face so they're incredibly i won't even say you know they just demonstrate a lot of grace and they're very polite um but i wouldn't describe it as they're kowtowing or scared of them they're just these people are just very dignified these people like all went to prep school in Switzerland and are, you know, they eat with the right fork.

53:59Isn't that the problem, though? It's almost like that's the problem. It's like these people, they're too polite, they're too sheltered. And we've got this wrecking bull who's fucking everything up wherever he goes. And everyone's too polite to do anything about it, to confront the problem, to say things as they really mean it. That's got to be one of the biggest obstacles in the way of Europe is their own politeness, that they're not willing to just say what they think. They could have said, look, Carney, you've captured the moment. We want you to turn up the volume. And during your speech, we want two things.

54:39One, at the end, we want you to outline a series of actions. And we're going to have all 27 member states of the EU sitting behind you. That's what I would have done. and uh but yeah it's all sort of they're polite and atomized and all trying to get anthropic to open their next office in helsinki so and it's true also you got to give it to you got it right now american innovation doesn't seem to be sputtering it doesn't you know it it's people i was with jamant taneja the guy who runs general catalyst they're making enormous bets enormous his bets. I mean, these guys, these guys have balls the size of fucking Mars.

55:24They're making multi-billion dollar bets on things and in different areas and healthcare and defense tech. And, you know, it's like, okay, what, you know, Germany feels like it's paralyzed by the fact that it's waking up to the notion that it's getting the shit kicked out of it on a manufacturing level from China. I mean, they're just like, okay, how do we deal with that? That's probably bigger threat to Germany right now is China. Anyway, this is, I mean, just saying it, my blood pressure goes up. This is very, very unsettling. I do think this might be a pivot point that, okay, we've kind of had it with these guys.

56:03Christine Lagarde walking out on the commerce secretary is a pretty big deal. So anyways, anyway, I'm not supposed to say anyways. anyway. I like anyways. We will be discussing this more on another episode, but you've got more to do at Davos. So let's take a look at the week ahead. We will see consumer confidence in January. The Federal Reserve will make its first interest rate decision of the year on Wednesday. It's also a huge earnings week. We will see reports from Microsoft, Meta, Apple, Tesla, ASML, UnitedHealth, Boeing, Starbucks, Lockheed Martin, Blackstone, ExxonMobil, and Chevrolet. Scott, this is the part where I ask you for a prediction.

56:50I would love for a prediction on what is going to happen with this Greenland Europe situation, but I get that it's fresh, so you can pass on that. But if you have one, I'd love to hear it. I think Greenland Europe is nothing but just unnecessary self-inflicted injury that further cements our brand as chaotic and coercive versus alliances. I also think it's a bit of a distraction from what is a more significant action. And this is my prediction. I think the U.S. is going to strike Iran imminently. I think if you look at ship movements and things like boring stuff like movements of the aircraft that refuel bombers and fighter aircraft, I think there's a lot of military movements in the Middle East right now.

57:40This is all public information. The USS Abraham Lincoln Aircraft Carrier Strike Group is transiting from the South China Sea towards the U.S. Central Command Area. We have 15 fighter jets and HIMARS have been repositioned in the region. And this might just be because it's hot there right now and they want to be ready. But I think Trump loves the flex and the recognition and the macho riz he earned from his actions in Venezuela. And also, Neil Ferguson said something I agree with, and that is, if there aren't military strikes from the U.S. and we don't weigh in against the regime with probably coordinating with Israel, he put the likelihood that the regime stands at 90%.

58:29And just given the opportunity, given that we have a president who loves to flex the military, and given the vulnerability right now of the regime, and if Trump can take credit for toppling the Islamic Republic, I think that's a pretty significant win. so whether you think it's a good idea or not I happen to think it's a great idea and it just infuriates me that no one seems to give a shit about Iran in the US when they have been one of the most oppressive misogynistic cultures of the last century so anyways in sum I think that we're going to see military strikes against the Islamic Republic in the next couple weeks this episode was produced by Claire Miller and Alison Weiss Mia Silverio is our research lead Our research associates are Isabella Kinsel, Dan Chalon, and Chris O'Donohue.

59:24Benjamin Spencer is our engineer. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. Tune in tomorrow for a fresh take on the markets.

59:52In kind reunion As the world turns And the dark flies In love

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