Christian Takushi, Macro Economist & Geopolitical Strategist, Zurich – 27 October 2018.
As promised we only release our research when our analysis deviates from consensus.
Events in Washington and the Middle East over the past few days triggered this report. Before I share our latest analysis on the US Political Process and Global Security, I begin with some of the other developments that we are closely following – especially Brazil:
- The second largest economy in the Americas – after the USA – is electing a new President today. Our analysis points clearly to a sweeping victory for the conservative candidate Mr. Bolsonaro. Brazil, the fortress of liberal Socialism in Latin America and the engine of the protectionist-Socialist Mercosur block is making a historic shift today. Millions of Brazilians are turning their backs on a liberal Policy Mix that brought them subsidised education, consumption, transportation & health care, .. but also runaway lawlessness, corruption and a dramatic deterioration of security. Under the four successive liberal Socialist governments corruption, crime and violence reached indeed unprecedented levels. As a result, Brazilians are now embracing a candidate the wants a swift return to the rule of law and traditional family values. If Brazil confirms this shift to the right, it would mean that the two most populous nations and biggest economies in North & South America have turned to a rather conservative course that makes Security a central issue. The parallels to the USA are not perfect, but overwhelming. The probably biggest similarity that analysts and the media overlook the most is the growing role of religion. It is Christians that may play a decisive role today, similar to or bigger than the one they played in November 2016 in the United States. The biggest voting block today is evangelical Christians that in some estimates make up already 30% of the Brazilian population. More than 2/3 of them want to vote for Mr. Bolsonaro. Just as American voters elected a candidate that promised to put an end to illegal mass immigration, Brazilians are about to elect a candidate that wants to return security to Brazil with a hard line and harsher methods. At the same time, law-abiding citizens should be able to own guns and defend themselves. In the background: Brazil is experiencing a Christian revival; and millions of evangelicals want to bring Mr. Bolsonaro, a Catholic, into power. This shift in Brazil will have consequences for the geopolitical and economic balance in the Americas. The giant Mercosur block could see a shift to the center or a split – in any event, challenging the successful Pacific Alliance of Chile, Mexico (which just shifted left), Peru and Colombia. Washington is about to gain a powerful geopolitical ally in Latin America. Businesses and foreign investors are likely to expect and discount a significant improvement in both corporate earnings and competitiveness.
- The United States has pulled out of the Intermediate-Range Nuclear Forces Treaty (INF). The US Military was convinced Russia has violated the Treaty and is deploying such nuclear missiles. Moscow has denied this repeatedly and stayed its course. I think Russia needed to rearm in response to NATO encirclement and China’s own massive nuclear build-up. With China leading numerous other nations in deploying ever more mid-range ballistic missiles, the Pentagon was de-facto forced to catch up in order to keep the military balance. We have warned for years of a massive Global Arms Race. It is here. Over the past few days several governments have had to look at the Security of the Sea Lanes on which their trade & energy supply depend. To the frustration of the EU – after having dismantled her Armed Forces and losing Britain as a member – all strategic Sea Lanes are protected and ruled by the US Navy.
- BREXIT is turning into a showdown within the Conservative Party. Brexiteers accuse Mrs. May of scheming a Soft Brexit Plan with the EU in order to make sure Britain remains tied to the EU. But the lamenting on the Conservative bench comes too late in my opinion. They handed the government to a committed EU-supporter and leader of their liberal wing (Mrs May) and cannot turn the ship in the last minute. Mr. Johnson and Mr. Rees Mogg are amongst those outsmarted by Mrs. May. Barring any new surprises, a soft Brexit is currently more likely than a No Deal. Mrs. May and Mr. Barnier may have both agreed to delay a deal to reduce the probability of a Hard Brexit.
- The rise of Turkey and Iran received an unexpected boost. The mysterious and tragic death of Mr. Khashoggi, a prominent Saudi journalist, at the Saudi embassy in Istanbul has allowed Ankara to reassert its strategic drive to lead the Islamic world. The European Union’s embrace of Teheran (arch enemy of Ryad) is also being boosted. One of my key predictions for this new century has been that the EU will embrace Iran and enable the rise of Turkey. This is unfolding before us.
- Mid Terms: In the USA the consensus of experts bets on a Democrat takeover. I see it tighter than that, with a somewhat late trend in favour of GOP. If they would vote today, the Dems would carry the House, but voting is in about 10 days. A long time in US elections seasons. I make the case that barring a bad turn of events at the US Southern border next week, the Republicans have a chance to stage a late unexpected surprise – holding on to the House.
Three developments in the USA are worth mentioning:
a) Trump’s Job Approval is hitting a record of almost 45. You may say this is not much, but he won the General Elections2016 with a personal approval rating of justMoreover, statistically, Presidential approval ratings of 45 or better do impact Mid Term races. Trump’s rating is rising just ..
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Christian Takushi MA UZH, Macro Economist & Geopolitical Strategist, Zurich – 27 October 2018
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