Grand Palace Guard, Bangkok, February 2020 After spending three plus weeks in February traveling Southeast Asia, VIEW had originally thought to pen a piece entitled something like "Traveling in the Age of Coronavirus". Enough big and little things about being on the road had changed that VIEW thought that would be more interesting than the originally planned first-hand view of Southeast Asian markets. While there were plenty first-hand insights about airport thermal scanners and hand sanitizer uncovered in the South Korea to Thailand itinerary, the "VIRUS" has swiftly come to steer everyone's thinking to more profound topics such as personal safety, quarantines, economic disasters and functioning capital markets. While trying to peer somewhat farther out on the event horizon from where the next "cluster" will materialize, whether the local Costco is out of toilet paper or whether the equity market has bottomed, it has become clear to VIEW that COVID-19 has accelerated a larger shift already underway globally. This change is quite simply the coming to an end of the latest cycle of globalism. Indeed, COVID-19 looks to have catalyzed the pace of change and possibly caused an inflection in shifts already underway, many of which have already been causing substantial friction among electorates, governments and individuals. To be clear, VIEW looks at cycles in terms of rate of change, not just levels, and this one has clearly peaked and its cycle of societal influence looks to be set to accelerate to the downside. VIEW's thinking had been that this cycle's "Last Globalist" title would fall to a human, say Chancellor Merkel, President Barack Obama or Prime Minister David Cameron. Essentially, some politician who would be the last to turn out the lights on the multi-decade wave of internationalism. Now VIEW thinks the "label" should go to COVID-19, as it has clearly gone global but likely may be the last big globalist of this cycle. Post the second World War, what we know today as the European Union began to form up, with a slew of component agreements put in place by various states, essentially forging the structure of a pan-European government that defined its relationship to its members across legal, political and economic vectors. Things were buttoned down for most of Europe with the introduction of the Euro in 1999 and the European Central Bank (ECB) in 1998. In Asia, China and its 1.4 billion people joined the WTO in 2001, six years after Hong Kong in 1995. The dissolution of the Soviet bloc at the beginning of the 1990's likewise freed up smaller central European states looking for a new group of friends to attach to, in a relationship that was clearly more consensual than the previous Soviet system. So, away the world went in the 1990's, riding on the increasing ubiquity of the Internet, lowered barriers to trade and human movement, a massive re-orientation of the multi-national supply chain toward Asia, generally decreasing US interest rates, internationalization of the US dollar as a funding currency and an increased willingness to consider goals of organizations such as the EU and UN more on par with an individual country's national interests. In this note, VIEW is not interested in judging the merits of globalization or its consequences, rather asserting where we stand on the cycle of its influence politically, commercially and culturally. If we are on the backside of the globalization wave, when was the peak? As with any zeitgeist cycle, there is no one particular event or day that marks its nadir or apex. That said, for VIEW, 2008 can stake a claim as the peak. That year, Beijing hosted the Olympic games with the motto "One World, One Dream", having invested heavily to show visitors the country had arrived as a serious economic power. The United States elected Barack Obama, surely more of an internationalist than either his predecessor or successor. Chinese GDP growth, although still nominally high, was cresting as its rate of change was declining for the first year since 2001. The S&P 500 fell -38.5% in 2008 amid the Global Financial Crisis (GFC), from which global GDP trend growth has since not recovered to pre-GFC levels. Global trade and foreign investment measures recorded the last of six consecutive years of robust growth in 2008 or had already peaked and would see the first year of decline. If 2008 was the peak in the globalist cycle, what does the backside of the cycle look like? And ultimately, why is COVID-19 not the opportunity for a renewed sense of internationalism? And if not, is it not more an accelerator to not so much disengagement but rather engagement under different rules? The sign posts pointing to a slowing of cosmopolitanism's momentum are highly visible. After the shocking 2016 leave vote in Britain, PM Boris Johnson scored one of the most convincing Conservative Party victories since 1979, with Britain leaving the EU in January 2020. Also in 2016, Donald Trump assumed the US presidency, blindsiding the consensus political class on a platform decidedly focused inward. On the European continent and in Asia, more nationalistic political parties have either strengthened or come to power since 2008, such as in Austria, China, India, Hungary and the Philippines. The Middle East/Africa/Europe refugee crisis has continued to cause friction among states within the EU, ebbing and flowing but continually testing the affected governments' relationships with Brussels and their own desire to secure borders. The Paris Climate Agreement, arguably one of the globalists' major goals, was weakened substantially in 2017 with the announced withdrawal by the world's second largest carbon emitter, the United States. The Joint Comprehensive Plan of Action, dealing with Iran's nuclear weapons capacity was likewise abandoned by the US in 2018. Also that year, in what affected a ~$600 billion aggregate trade relationship, the first in a series of tariffs were imposed by the US against China, effectively beginning a deep trade war between the countries, long brewing to those who were watchful. These events alone combine to convince VIEW there is negative rate of change in globalism's cycle and an offsetting rise in decentralization and nationalism. If so, will COVID-19 serve to halt this trend, as some have already called for, or will it be a catalyst for further de-globalization? The differing success rates between countries and US states in dealing with the effects of COVID-19 may lead some to conclude the more coordination the better, very much like the EU reaction to its chronic debt crisis largely known by the forced austerity of the Greeks. In fact, in the past few days certain former politicians in Europe have called on what amounts to the formation of a temporary global government to deal with the pandemic. Not only does VIEW believe this sort of idea will utterly fail to gain traction, the very idea of an increase in centralization of powers across national borders appears to make no sense given the way the virus is being dealt with globally. In the US, the centralization of the testing process at the federal level exposes all the individual states to the quality of the execution ability of one single entity. In risk management terms, this is concentration risk the downside of which has been exposed. Centralization nearly always stifles innovation, hence if a problem needs innovative solutions, the structure with which you approach it matters. And since a pandemic such as COVID-19 is a unique threat, innovative solutions need to be brought to bear. VIEW believes the electorates at the state or national level will accord favor to those executives who successfully advocate for their immediate constituents and would view unfavorably subjugation of these executives to a more centralized power. In those cases where things are perceived to have not gone as well, VIEW would assign more political risk to these individual executives, not the structure within which they operate. In short,when the dust settles, the public view on the effectiveness of organizations such as the WHO or CDC would be hard pressed to improve but we can already see "heroes" emerging that are excelling at leadership and innovation, virtually all outside of the transnational or centralist organizations to which globalists would want to accord control but instead at the individual national, state or human level. COVID-19 exposes concentration risk on another dimension, the supply chain. The entire re-orientation of the manufacturing supply chain towards Asia over the past several decades has had numerous consequences. Yes, the decrease in manufacturing employment in countries such as the US has been well documented and we continue to argue today how much job loss has come from robotics as opposed to off-shoring. Whatever the cause, seasonally adjusted year end 2019 manufacturing employment sits -31% below 1980 levels while non-manufacturing employment roles are +93% higher. That said, the elimination of much of the supply chain in the US in terms of not only finished goods assembly but component sourcing creates significant risk exposure to a disruption in the free movement of goods. This is the sort of risk that happens slowly then blows out all at once. Much has been written about the why on this but VIEW considers the current pandemic as accelerating the move to re-shore some capabilities and sourcing. Whether it is shortage of respirators, reagents or protective healthcare gear, having some in-border control of your supply lines as an insurance policy will likely be seen as increasingly important. It may also become increasingly attractive to consumers in the US, where a Made in USA label could actually regain a measure of cachet and command even a slight premium. We have yet to see the longer-term societal effects of the unprecedented lock-downs in effect across much of the world and the economic chaos imminent. VIEW would posit an idea that may seem counter-intuitive. Of course, the Internet makes global communications much easier and enables commercial enterprise relationships to be somewhat maintained, as well as keeping our personal lives constantly entwined. But this is actually not novel. Putting engineers in India to write code for a fraction of what it would cost in the West or holding virtual meetings is something commonplace across companies from multi-nationals to independent contractors. And five year-olds use smartphones for video chats arguably better than they can ride a bicycle. What is now different with COVID-19 is that the affects of the pandemic are truly local and the premium we are all according the ability to see our families, shop for what we need and congregating for social, business and religious reasons in our city, town or village seems to have risen to the top of our priority stack. Sure, we want to travel again but things that are immediate seem more pressing, both in terms of time and space. Globalization may have enabled the spread of COVID-19 but VIEW suggests localization will power society through this in how individuals treat those in need in our immediate communities, solve problems at the source and generate solutions organically. VIEW thinks the people will notice this and it will drive increased sense of local community, nearly opposite of the "One World, One Dream" message from Beijing in 2008. dar
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