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The GERM Report

Jan 21, 2019 8:55:27 AM EST
By: Dan Graeber

Welcome to The GERM Report by Dan Graeber, a commentary on the intersection between geopolitical events and the price of oil. GERM stands for Geopolitical Energy and Risk Monitoring. Our indicator is based on the expected price volatility by the end of the current trading week.

Risk level: Orange

RED: Severe (+/- 4%) ORANGE: High (+/- 2%) YELLOW: Elevated (+/- 1%) BLUE: Guarded (+/- ½%)

THE BOOSTER SHOT

  • Chinese GDP validates signs of a systemic slowdown.
  • The liberal world order is eroding.
  • Promoting the general welfare is out of political fashion.

The financial and political leaders of the world gather this week at the Swiss resort town of Davos for the World Economic Forum (WEF) with the liberal order under threat. WEF leadership ahead of the summit acknowledged that the capacity for the modern political elite to work together as a community is somewhat constrained, yet saw that most of the public still sees a benefit in non-zero sum actions. Since the fundamental strain of Pax Americana was laid down in the early 20th century, the liberal order was a political objective. But now if, as a WEF survey finds, the public wants collaboration but political leaders stand in the way, the liberal world order is eroding.

OPEC posturing on market stability last week and hopes of a US-Chinese trade war stalemate competed with the longest partial government shutdown in US history. The price for Brent crude oil closed Friday at $62.70 per barrel, marking a 3.7 percent increase on the week.

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A survey from the WEF ahead of this week's summit in Davos offers a snapshot of the current political climate. Around 80 percent of the survey’s respondents told pollsters they felt that all countries can improve more or less at the same pace through collaboration. That’s a perception of the non-zero sum order advanced by the collaborative doctrine of liberalism. Liberalism aimed to mute the conflicts that grew out of competition through sharing. In this system, if one political entity does well, others should follow suit because of the bonds of interconnectivity.  If a political entity does well, its constituents should also succeed. When asked if their governments were enacting the laws and regulations necessary to have the chance to succeed, more than half of the respondents said no.

“What we see with this research is that, while the international community’s capacity for concerted action appears constrained, the overwhelming desire of the global public is for leaders to find new ways to work together that will allow them to cooperate on these critical shared challenges we all face,” Klaus Schwab, founder and executive chairman of the World Economic Forum, said.

If this desire is real, then the political elite of the world are out of touch. If the political elite are not inclined to provide for the general welfare, but instead are driven by power alone, then the concerns about the “consuming ambition” and the “mask of benevolence” laid out by Rousseau in his discourse on inequality must hold true.

“Abuses are inevitable and their consequences devastating in every society where the public interest and the laws have no natural force and are constantly attacked by the personal interest and passions of the leader and his followers,” Rousseau wrote.

Once the standard bearer for liberalism, the US federal shutdown leaves that podium empty at the WEF. Woodrow Wilson more than a century ago spoke of the desire for an “unselfish commonwealth.” With the abundance of political narcissism, the elite today are driven by the desire to put themselves on the pedestal of their own egos. Oligarchies have no room for unselfish behavior.

The trade week begins a bit on the light side because of a federal holiday in the United States honoring civil rights leader Martin Luther King Jr. The rest of the world is in full swing, however, and focused on fourth quarter GDP in the Chinese economy, which came in at its lowest point in a quarter century. Chinese economic cooling adds to the systemic indicators pointing to a global slowdown. On Monday, the IMF supported this with a downbeat global assessment. More foreboding signs could be revealed later in the week with initial jobless claims in the United States. But it may be more about rhetoric this week than data as the global elite try to salvage the remnants of the liberal world order from the ruins of populism. Hyperbole may be the driver this week, necessitating an Orange alert.

About the Author

Dan Graeber

is Chief Editor at ClipperData. He specializes in exploring the intersection between geopolitical events and the price of oil.

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