Lemonade or Kool-Aid?

"How Lemony Snickets!" So one might think looking at financial press headlines over the past few days. Yet there is one other common theme, which I will address at the end of this list.

The collapsed Francis Scott Key Baltimore bridge, besides the loss of life, underlines how damaging the absence of key infrastructure is: US and global trade will get snarled for some time as 52m tons of cargo annually, 1.3m tons of farm and construction equipment, 2.5m tons of coal, large quantities of lumber, gypsum, nearly a million cars --and everyone who lives in the Baltimore area-- face disruption. This incident looks like a power failure on the Maersk-chartered, Singapore-owned, Indian-crewed ship, on top of generational under-investment in infrastructure and the dull institutions that allow economies to work vs. the firms/consultancies which milk the profits from it. However, national security experts had already warned in future wars the US is involved in, and/or terrorist attacks, the risk is of similar sabotage episodes, especially given the prevalence of foreign crews and ships entering the US daily. The US is completely unprepared for this threat, apart from recent action on removing Chinese cranes in US ports. And Europe is arguably just as vulnerable.

The US and Japan just signed the biggest change to their security treaty for 60 years in the face of a threat from China and North Korea: the US may move operational control of forces in Japan from the current base in Hawaii. Such treaty changes are not undertaken lightly, or for no reason. As I've said recently, strategists need to look at logistics for signals, not economists.

The Congressional Budget Office says the US risks a Lizz Truss-style bond collapse if it doesn't change its "unprecedented" fiscal trajectory. Yet this misses one key thing: the Bank of England, in some eyes, deliberately precipitated the Gilts market EM-style sell-off, either because of a sudden passing phase of economic orthodoxy or, possibly, because the government was talking about reforming the Bank of England. It's unlikely the Fed is going to walk away from the US Treasury: the direction of travel, particularly after the next change of FOMC Chair, could well be the opposite, and in fact may have to – though that has its own market implications.