We've just seen huge market volatility. This week promises more given it’s month and quarter end with key positioning, portfolio reallocation, and short squeezes all in play. On top of that, the news continues to underline the central thesis: that the ‘one size fits all/one world for all’ neoliberal/liberal/’new normal’ system is collapsing.
Red v Blue
Friday’s US Supreme Court overruling of Roe v Wade was a shock despite having been flagged in an unprecedented leak. It was leading news on Bloomberg and the Financial Times because it exposes US fault-lines. Overturning a near-50 year constitutional precedent means we have US inflation and monetary policy which echoes the 1980s, a pre-Roe status of 1973, and polarization that echoes the 1960s, 1930s, 1880s, 1860s, and 1830s.
The optimistic view is that the US can work this out politically, as the rest of the West has. USA Today stresses: ‘The Supreme Court has now given millions of citizens rather than nine justices the power to decide.’ Tellingly, last week the Court reaffirmed the Second Amendment right to bear (concealed) arms and saw the first gun control legislation in decades too.
The pessimistic take is things get worse. Justice Thomas -- not the other five anti-Roe justices -- floated roll-backs of other constitutional rights, as did the dissenting Court minority. Twitter has (unbanned) calls for violence, burning down the Court, or killing justices, following the recent arrest for attempted murder of a man targeting Justice Kavanaugh. Some politicians say they will defy the Court, that it has no legitimacy, or they will now pack it. Some media echo this, and claim civil war looms. It’s likely hyperbole, but this is what one expects in an ‘winner takes all’ emerging market, not a constitutional liberal democracy claiming to lead a global struggle vs. autocracy.
It is unlikely markets are going to treat Treasuries or the US dollar as EM assets on the basis of what happened on Friday. Yet the long-run market impact could be significant. Justice Thomas, in an interview with The Federalist, stressed the importance of the Supreme Court pressing ahead to roll back “the administrative state” and Federal agencies, who:
“…have the executive power, the enforcement power, they have administrative judges to adjudicate, so they have all three. And the question for us is, where do they fit in the constitutional structure?... If we simply defer to the agencies,… aren’t we doing precisely what happened when it came to the royal courts of the pre-Revolutionary era?... You’ve got this creation that sits over here outside the Constitution, or beyond the Constitution. How does it fit within our constitutional structure?”
One wonders where the imperial Fed sits in this view.