from Intelligent investor weekend:-The Passionate Intensity of...

from Intelligent investor weekend:-

The Passionate Intensity of JD Vance

The most important thing we learnt this week was the US Republican Party's succession plan: JD Vance was chosen by Donald Trump not just as his running mate, but as the future of the party - and unless Joe Biden bows out quickly, the country. Whether the Republicans win this year or not, it was a profoundly important event, but as things stand, they will win, so even more so.

In his acceptance speech this week, Vance buried the neoliberalism of Reagan and Thatcher. A few quotes from the speech make the point:

"The absurd cost of housing is the result of so many failures. And it reveals so much about what's broken in Washington. I can tell you exactly how it happened. Wall Street barons crashed the economy and American builders went out of business."

"We're done, ladies and gentlemen, catering to Wall Street. We'll commit to the working man."

"We're done sacrificing supply chains to unlimited global trade."

Yeats' poem gets a solid workout these days and the bit most often quoted is "the centre cannot hold" to signify a victory of extremism, but I think the most relevant for what's happening in the United State are the last two lines, repeated below again:

The best lack all conviction, while the worst

Are full of passionate intensity.

It also feels like the blood-dimmed tide is about to be loosed, but not with "mere anarchy", but rather the opposite - some kind of tyranny. As things stand, Donald Trump now will become King of the US again next year, and his pick for Deputy King - Vice President - is more "passionately intense" than he is.

Unlike Trump, Vance comes across as someone who genuinely believes what is coming out of his mouth. That's reinforced by his 2016 book, Hillbilly Elegy. The speech and the book put him more firmly with conventional right-wing politicians like Marine Le Pen, Victor Orban and Georgia Meloni than the unpredictable narcissist, Trump.

We read JD Vance's Hillbilly Elegy in my book club in March 2019. The book had been published in 2016 and our consensus view back then was that it was interesting, and worth reading, but not a good book. Its thrust is that if one person can make it out of the poverty and dysfunction of Appalachia, anyone can - that poverty is a choice. It slotted right into Trumpian zeitgeist at the time, even though Vance himself was supposedly an ardent never-Trumper. It was, in short, a job application, and he got the job.

We didn't know it but as we were reading his book that March, he was switching sides. He was still in venture capital at the time, having launched a fund called Narya Capital in Cincinnati but was already thinking about going into politics.

In 2021, he ran for the Senate, won the primary in May 2022, and was sworn in as a Senator in January last year. In the meantime, Peter Thiel took him to visit the Godfather, Donald Trump, at Mar-a-Lago, and he apologised for saying such mean things about him (and may have kissed his ring).

He then became a full Trumpist, fundraising for January 6 rioters and now says that had he been vice-president in 2020, he would have carried out Trump's demand to overturn the election result.

The choice of Vance and the current likelihood that Trump/Vance will win in November means investors must prepare for a very aggressive agenda over the next four years and what's more, start looking at Vance as the intellectual force behind the incoming leadership of the United States, and the Republican candidate in 2028.

Vance doesn't seem to have been directly involved in Project 2025, the organisation led by the Heritage Foundation that is preparing for a full takeover of the civil service. But he is its flag-bearer in waiting.

In a podcast interview with George Stephanopoulos, Vance said that Trump should "fire every single mid-level bureaucrat" in the US government and "replace them with our people." If the courts attempt to stop this, Vance says, Trump should simply ignore the law.

Vance believes the current government is so corrupt that radical, authoritarian steps are justified. Jack Beauchamp in Vox wrote this week that "he sees himself as the avatar of America's virtuous people, whose political enemies are interlopers scarcely worthy of respect. He is a man of the law who believes the president is above it."

Kevin Roberts, the president of the right-wing Heritage Foundation and the driving force behind Project 2025, said that Vance "is absolutely going to be one of the leaders — if not the leader — of our movement."

To some extent, what might be called Vancism is still evolving, and Trump's narcissism might mean that he gets sidelined like Mike Pence, and most VPs before Pence. But at this stage, the intellectual foundation of this movement that he embodies is a combination of cultural conservatism and government activism.

It is the natural home for poor Christian conservatives who were left behind by neoliberalism's focus on the free market and, with the benefit of hindsight, was the inevitable destination of Trumpism.

What will it mean for a second Trump presidency? Well, it looks the market will no longer be viewed as the best way to run an economy, with the state seen as better at directing resources for the interests of the people.

There will be greater protectionism, restricted immigration, and America first procurement. Whether Trump and Vance take the step of enforcing greater controls on the labour market and make housing and healthcare a right rather than a privilege for the wealthy, is unclear. But they will probably have to match protectionism with some greater control of wages, as Australia did with the Harvester Judgement of 1907.

Climate change policies will be abandoned, and other totems of cultural conservatism will be embraced: abortion restrictions, even if they head back to state-level regulation, along with opposition to diversity and inclusion.

It's hard to imagine either Vance or Trump being a modern-day FDR with a kind of right-wing version of the New Deal, but it looks like the state activism of FDR will be part of their administration. Roosevelt set the global political consensus for four decades, until Milton Friedman killed it with neoliberalism, which then lasted another four decades, but was already coming to an end as a result of the pandemic and all the government intervention that entailed.

What it means for the US dollar status as the world's reserve currency is harder to pick. That wasn't something the United States chose - it happened because other countries decided they were more comfortable holding it than any other currency, or gold, and its status was confirmed when Saudi Arabia agreed to price its oil in US dollars, which gave the US effective financial control of energy alongside OPEC.

Trump and Vance want a lower dollar to help revitalise American industry and at the same time the days of the US dollar's pre-eminence as the world's reserve currency are coming to an end, as the world's autocracies look to get out from under.

The problem for the new administration is that although many of the things that made America great, and dominant, are gone, as the MAGA slogans assert, at least one remains: Silicon Valley, and the utter dominance of global technology by the Magnificent Seven companies and the supremacy of the US in artificial intelligence. China is catching up and has achieved pre-eminence in electric vehicles and renewable energy, but they're a long way behind in AI and robotics.

Maybe Trump and Vance will emulate the other Roosevelt - Teddy - and break up the big corporations, which would certainly achieve the aim of bringing down the US dollar and produce the desired rebirth of manufacturing.

But it would also pull the rug out from under the sharemarket, which is now entwined with the fortunes of those big tech companies. If the Republicans go after them as well as Wall Street, equities are in for a bear market.