He's not the Messiah, he's a very naughty boy

An Easter sermon for market millenarians

It was more than a decade ago – at the height of the European debt crisis – that I first encountered the concept of patternicity in Michael Shermer’s The Believing Brain: How We Construct Beliefs and Reinforce Them As Truths.

Why do we interpret crosses in coffee granules or dollar-shaped clouds as celestial signals, he asked. Why do we find it easier to accept poltergeists over forgetfulness or conspiracies over single shooters and Moon landings? We do this, says Shermer, because our brains are hard-wired to look for patterns rather than coincidences. To our ancestors, sudden movements in the tall grass could be the wind or a trick of the light, but they could also be a tiger. Overreaction to the first assumption would have embarrassed a hunter-gatherer, but underreaction to the second would have been fatal. Patternicity made evolutionary sense and, as our brains developed, always and everywhere, we added agenticity – a default belief that these patterns could only be the (benevolent or malevolent) work of gods, devils, or cabals.

I was lucky (or was I?) to stumble across these concepts when I did because it helped me understand agentistic thinking in financial markets. It may surprise you to learn how endemic this is. Patternicity should be, of course, since finding patterns to anticipate how assets will re-price on an event, decision, or comment is macro investment ground zero. But what amazed me was how frequently I came across agenticity. Not only were easily explained decisions ascribed to elaborate geopolitical theories, but policymakers were assumed to take those decisions with profound historical, strategic, and economic insight. One I’ll never forget weaved together the European Central Bank, Angela Merkel, Vladimir Putin, and – I kid you not – the defection of the Stanley family at the Battle of Bosworth in 1485.

On reflection, I shouldn’t have been amazed. This, too, is natural selection. Hedge fund professionals are exceptionally clever and financially motivated. This, combined with their inherent patternicity, means they tend to assume all economic actors – from the rich man in his castle to the poor man at his gate – think the same way. Spend enough time in marketworld and these twin icities rub off on you. This, I believe, explains the teleologies now bouncing around the market commentariat – especially, of course, on X – to explain Donald Trump’s seemingly inexplicable and self-harming economic policy. All of them are fed by Stephen Miran’s 35-page job application for the chairmanship of Trump’s Council of Economic Advisers: A User’s Guide to Restructuring the Global Trading System. But, even without Miran’s “recipe book”, marketworld could have been relied upon to turn a painfully ordinary clientelist and kleptocratic project into multi-dimensional chess.

The road to Mar-a-Lago

There are many grand narrators and, for the sake of brevity and fear of a dialogue of the deaf with X-anon, I won’t name names. Instead, I’ll set out a broad theory they seem to share: that even if Trump is a venal fool, the strategic minds around him are using his blunt force to restore market forces to the US after decades of mono-party statism and impose fairness and morality on the world financial system.

The most sophisticated millenarian tale goes like this … Protected by tariffs, the Trump administration will reconstruct Capitalism In One Country through aggressive privatisation, a regulatory bonfire, and revive a buccaneering 19th-century risk culture modelled by the Trump family’s transparent grift. The tariff shock, its partial suspension, and Trump’s call to buy the dip was a controlled demolition of the equities market that exposed its vulnerabilities. Greater understanding of Russia’s fear of NATO, combined with generalised tariff threats, softened up Europe and other democratic allies, who are now queuing up for deals with the US on Washington’s terms. By the summer, China will be alone against a new free-world alliance built around American power rather than multilateral institutions. Indeed, the US will be so powerful that it can afford to start shedding the “exorbitant privilege” or burden of being the world’s pre-eminent reserve currency and government-bond market. Chinese currency undervaluation will be broken, and world leaders will be summoned to Trump’s Mar-a-Lago palace to agree to a managed dollar depreciation. In return for their security guarantees, traditional non-Chinese buyers of US debt will pay tribute to the Lord of the G-Seven Kingdoms by selling short-term assets and purchasing long-term bonds. The dollar will weaken, making re-shored US manufacturing exports cheaper, while long-term interest rates will also fall, feeding a rebalanced, non-inflationary economy, generating real jobs for real men, and ending decades of Chinese economic blackmail.

Plain-vanilla Orbánism

Debunking exquisite agentist stories like this is impossible. You’ll be dismissed as naïve or superficial in your analysis if you shake your head at tales of virtuoso strategic vision and tactical skill that would shame Machiavelli. Admittedly, I have sometimes wondered whether I was too cynical and missing the big picture. During one of these dark tea times of the soul, in the middle of the Greek crisis, I worried about overusing a particular source. Instead of expecting him to set aside time to educate me on what was going on in meetings, I would impress him with my own take. I put together a brilliant and original 800-word assessment of the state of play and the path out of the crisis. What do you think, I asked. Within an hour, he replied: “You give us far too much credit; the people who will decide this aren’t thinking beyond the weekend”.

Just because Miran and a couple of others inside the administration have seen the future and think it works, doesn’t mean they can make it happen or that Trump and the rest of his entourage share their vision. Just on a practical level, the plan as conceived is being badly mishandled: allies are being alienated rather than assembled against China, while a loss of faith in US assets has already driven down the dollar while pushing up US interest rates. But, of course, the problem isn’t poor implementation; it’s the Principal, his family, and his closest allies. They have no intention of assembling free-market democracies against China. There’s nothing they despise more than a small-l liberal, small-d democrat.

Instead of a revolution in the global trade and financial system, a much simpler and well-trodden alternative pattern fits Trumponomics much more neatly. This is an American version of the two-tier Hungarian capitalism described by Gábor Scheiring in his 2020 book The Retreat of Liberal Democracy. In this model, multinationals operate in world markets and domestic, protected capital is captured by the politically connected - the opposite outcome to that expected by the intellectual elect. Trump’s disordered mind and fast-fading popularity may end his courtiers’ experiment early, but if they don’t, you can be sure that any privatisations will be rigged for friends and family. One besotted fellow traveller claims that “if their vision fails, so will their portfolios". Really? They control the timing of state announcements, the regulators, and have a queue of willing mega-investors keen to share a sure thing or buy influence and protection. They’re the House and the House never loses. As for the tariffs, they have two purposes. The first is to scratch Trump’s 40-year itch; he just loves tariffs and no evidence will dissuade him. The second is extraction. Tariffs, especially those imposed under the guise of a national emergency, are designed according to the whims of the president. Governments and businesses have to come to Trump for concessions and exemptions and that allows for payment in kind.

There's nothing clever going on here. It’s just creeping authoritarianism combined with clientelist and kleptocratic capitalism. It's been done many times before. Just not in America.