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Monday, September 27, 2010

Just how volatile are global politics right now?

Very, it turns out.

Labour now polls even or possibly ahead of the Tories in the UK just four months or so after the most recent election. http://itn.co.uk/6ec09e8f6e13a874aa91c427f4437806.html

Normally I would say ignore politics, but I think what you may be seeing in a number of countries is a move by many democracies toward being ungovernable. That is a risk that we have to keep in mind as the economies of the developed world remain languid. Germany's government is precariously positioned and that is unlikely to improve. The same goes for Australia's. One basic rule of history that I remind myself of when there are situations like this one is that it doesn't necessarily have to end well.

We still haven't seen any headlong plunges toward protectionism by any major parties around the world in order to garner votes, but that's certainly a possibility. It would be a big vote getter in countries that are convinced that all they have to do is improve their trade balance to grow their economies. However, given that all countries seem to be trying to collectively devalue their currencies, it is a possibility trade protections will start popping up. One serious aggravating factor there is that China operates behind somewhat of a trade wall while most of its trade partners are as open as any economies have ever been.

If we do see parties start to flap their gums about protectionism, suddenly even low yielding bonds would look attractive. We aren't there yet, but we could be before long.

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