In the RIT Capital Partners 2014 annual report, the head of Rothschild family banking empire warned that “the geopolitical situation is most dangerous since WWII.” A year later, Baron Jacob Rothschild repeated his warning about the outcome of “what is surely the greatest experiment in monetary policy in the history of the world”. In August 2017 with markets still behaving irrationally he cautioned that “share prices have in many cases risen to unprecedented levels at a time when economic growth is by no means assured.”
Little did he know at the time that, driven by High Frequency Trading, computer algorithms and a quasi religious blind faith in technology they would keep rising, but related to that, he also made another warning which the market has so far ignored:
The period of monetary accommodation may well be coming to an end. Geopolitical problems remain widespread and are proving increasingly difficult to resolve.
In the latest half-year commentary from RIT Capital Partners published yesterday, Lord Rothschild made his sternest warning to date, this time focusing on the global economic system that was established after WWII to create a new world order, and which he believes is now in jeopardy.
The billionaire banker, who has been likened to a Bond villain because of the extent of the Rothschild banking empire’s influence, pointed to the US-China trade war, which is really a US versus Russia, China and Iran currency war, and the Eurozone crisis, with the resurgence of nationalism threatening the European Unity project after the UK’s Brexit vote, as the key problems putting economic order at risk, and the lack of a “common approach” — a reference to the gradual unwind of global thinking in the wake of President Trump — that has made “co-operation today much more difficult”:
“In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order.”
It wasn’t clear if he was referring to the post-war fiat money standard that emerged once FDR devalued the dollar relative to gold, and then fixed a price for the yellow metal, a tenuous link that was subsequently destroyed by Nixon who finally took the US off the gold standard, or the primacy of the dollar which emerged as the world’s reserve currency after the end of WWII, paving the way for the US to bid for global hegemony, but whenever one of the people who profited handsomely from the “post war world order” warns it may be on its last legs, it may be time to worry.
Either way it is hard to believe that Rothschild is a stupid man, although living in an elitist bubble he may be detached from reality, but his comments suggest that he is unaware the great mass of people have woken up to the fact that globalisation can only benefit the elite in the west, while diminishing the educated populations of developed nations in favour of buying the loyalty of uneducated third world multitudes with handouts and cheap gadgets.
With global risks growing after politicians and the banking cartel have kicked the can down the road for several years by printing money, how is Rothschild positioned? He writes that “in the circumstances our policy is to maintain our limited exposure to quoted equities and to enter into new commitments with great caution” and indeed, in the first half, RIT had a net quoted equity exposure of only 47%, historically low. The reason: the iconic banking family is concerned that the 10-year bullish cycle and market rally could finally be ending.
While Rothschild noted that “many of the world’s economies have enjoyed a broad-based acceleration not seen since the aftermath of the financial crisis of 2008, with as many as 120 countries seeing stronger growth last year” he also cautioned that “we continue to believe that this is not an appropriate time to add to risk. Current stock market valuations remain high by historical standards, inflated by years of low interest rates and the policy of quantitative easing which is now coming to an end.”
One potential risk is Europe, where debt levels have reached “potentially destructive levels”.
Quite so, but the growth we have seen since the 2008 crash has not been organic growth but has occurred mainly because interest rates at which governments lend to banks (by selling bonds to fund their deficits,) have been artificially maintained at suicidally low levels. This has enabled banks to borrow at a quarter or a half per cent, and use their borrowings to buy bonds with a fixed rate of three or three and a half per cent (or higher for nations with weaker economies.) These bonds often give a higher yield as it is possible to buy them at a discount. You may think these are lousy profit margins but volumes have to be considered.
A few years ago there was a big kerfuffle from people who think they are on the left, but are really supporters of globalist authoritarianism. They were kicking up about introducing a ‘Financial Transfer Tax’ to deal with the problem of third world poverty and growing wealth gaps in the developed nations. The idea was that every time money moved, a half percent tax would be added. “It’s only half a per cent, what difference will it make” the do - gooders wailed.
The financial markets work in a unit called basis points (bips in market jargon), a bip being one hundredth of one per cent. Margins of 24 or 30 bips are acceptable on major trades. And if you work out what one per cent of a billion is, you will understand that 30 bips profit is not a day’s (or even year’s) wage. The Financial Transfer Tax would have wiped out the financial markets as we know them, thus plunging the world into chaos.
The real problem now, and much as I hate to agree with him, is as Rothschild says, that the markets are grossly overvalued. And the main reason for that is automation of trading systems. Bundles of stocks, that would have taken days or weeks to turn over can now be traded several times in a day, and the algorithms are programmed to respond to triggers in ways that guarantee overall growth in the system.
The Baron’s comment about the lack of a common approach, assumed by many to be a swipe at Donald Trump, but more likely a reference to the resurgence of nationalism across the developed world as the failures of corporate dominance and multicultural societes become obvious, is very significant. Jacob Rothschild is a prominent member of the notorious Bilderberg Group when the rich and powerful meet politicians and influential figures to advise them on this ‘common approach’ for solving the world’s problems.
And if anyone thinks the solutions proposed by these billionaire bankers and business managers will serve the greatest good of the greatest number, I’m sorry but you haven’t been living on this planet recently.