Peak Everything

Thoughts on whether we have passed peak Trump, peak stocks, peak populism and peak Farage plus how to fight back against the ethno-nationalists

Photo by David Maunsell on Unsplash

Here is this week’s newsletter. A warm welcome to new subscribers. Thanks as always to the generous paid subscribers whose support makes this worthwhile. If you find these posts helpful, please do consider joining them. At the very least, forward it to anyone you think might be interested. I look forward as always to your comments and feedback. And please do email me if you have questions or ideas for future posts.

• Peak Trump: SCOTUS to the rescue?

• Peak Stocks: Beware of speculators

• Peak Populism: Dutch courage

• Peak Farage: Telling the truth

• Empress Theophano: Bridging divides

  ---

1. Peak Trump

Only the very brave or the very foolish would predict the political demise of Donald Trump. Even so, it is worth asking in the light of the drubbing received by the Republican Party in elections last week whether the US president has passed the peak of his powers - and what that might mean for the economy.

As Matthew Continetti noted in the WSJ, the Democratic wave extended well beyond the high profile victory of Zohran Mamdani, the self-styled democratic socialist, in New York; it also “ flooded Republican safe harbours”:

Democrats flipped at least 13 seats in Virginia’s House of Delegates. They plan to use their governing trifecta—control of the governor’s mansion and both legislative chambers—to redraw the state’s congressional map in their favor. New Jersey Democrats will enjoy their largest Assembly majority in 52 years. And Georgia Democrats won two seats on the Public Service Commission, the state’s utility board. No Democrat has served on it since 2007.

All of that, of course, bodes ill for Trump and the Republicans ahead of next year’s mid-term elections. According to the predictions markets, which according to the New York Times proved far more accurate than pollsters in forecasting the results, traders now put Democrats’ chances of taking control of the House of Representatives next year at 71%, up double digits from a week ago.

Can Trump restore his party’s fortunes before he is rendered a lame duck - or worse? That would require him to address the issue of “affordability”. The high cost of living - including rent, electricity and groceries - was the common theme linking all of the Democratic victories, according to Politico. Yet as Continetti notes:

The president rarely talks affordability. He prefers to announce that inflation is dead and defeated. He points to falling gasoline prices. Yet relief is fleeting. It can’t compensate for the rising cost of groceries, housing and healthcare. What’s more, his policies that restrict the supply of goods and labor, such as tariffs and mass deportations, make the problem worse. So does badgering the Fed to cut rates before inflation is tamed.

Yet help may be at hand for Trump and the Republicans from some unlikely quarters. As Edward Luce noted in the FT, China may have ridden inadvertently to his rescue:

The previous week in South Korea, Trump struck a one-year truce with Xi Jinping on the US-China trade war… Trump now has a strong incentive to declare similar wins on other trade wars. In that regard, Tuesday night was also a good one for Brazil, India, Canada and other targets of Trump’s ire.

There there is the Supreme Court, which last week began hearings on the legality of his tariff wars. As previously discussed, (see Don’t Tell SCOTUS), the implications of the challenge to Trump’s use of the International Emergency Economic Powers Act to wage economic war on the rest of the world are far-reaching. It is thus no surprise that some of the conservative justices sounded highly sceptical of the constitutionality of his actions in their questioning. By striking down the tariffs, the court might be doing Trump a favour.

---

2. Peak Stocks

Almost as reckless as predicting peak Trump is predicting peak stocks. Yet for a few days last week, it appeared as if the AI bubble might finally be bursting. Close to $1 trillion was wiped off the value of eight of the most valuable AI-related stocks — including Nvidia, Meta, Palantir and Oracle - in the worst week for tech stocks since President Donald Trump’s “liberation day” tariffs in April. Some of those losses were pared back in trading on Friday, but the tech heavy Nasdaq index still ended the week down four percent.

What was interesting about the sell-off was that it appeared to lend credence to the observation made here last week about the role of retail investors in fuelling the bubble (see The Gen Z Put). As James Mackintosh noted in the Wall Street Journal, the plunge told us something about what’s been going on:

For anyone who hasn’t been paying attention, the answer can be summed up in one word: Speculation.

The more speculative an asset, the harder it fell on Tuesday. Big Tech and artificial intelligence, penny shares, retail-investor favorites, and crypto all dropped together. Gold fell too, failing in its role as a haven asset after attracting lots of new buyers with a big rise this year.

In fact, as James noted, the sell-off in the most speculative assets had started last month. What changed last week was that it spread to the biggest companies:

Palantir—one of the most expensive stocks on the planet at 30 times forecast revenue—plummeted 8% despite better-than-expected quarterly results… Tesla fell the most among the Mag7, and not coincidentally is the most popular Big Tech stock with retail traders.

Smaller stocks that have an AI sheen and are popular with retail investors were hit extremely hard. SoundHound AI plunged 12%, Bigbear.ai 9% and C3.AI and Symbotic both 8%. Some non-AI stocks popular with retail also suffered: Plug Power dropped 8% as it continues to unwind a six-week near-tripling in price, while Robinhood Markets and Coinbase both dropped 7%.

Of course, this does not mean that the bubble is even close to bursting. As James reminds us, there are always bays as they continue to inflate. “In January 2000 there were five daily losses of more than 3% in the Nasdaq, the most of any month since October 1987’s Black Monday crash. Yet the Nasdaq gained another 28% before peaking in early March 2000.”

Nonetheless, it does reinforce the point made last week that the employment outlook - and thus saving rates - of the Gen Z investors who have been piling into the markets for speculative assets may be as relevant to the outlook for the stock market as the performance of the companies themselves (see Showhorse Time).

In that respect, it is worth noting that US consumer sentiment tumbled to near the lowest on record last week as the government shutdown weighed on the economic outlook. The bull case for US stocks is that the Fed will come forward with rate cuts to prevent the growing weakness in the jobs market from accelerating. The bear case is that it won’t be enough.

---

3. Peak Populism

If last week it became possible to imagine we had passed peak Trump, could the same be said for right-wing populism in Europe? There was much excitement at the surprise outcome of last month’s Dutch parliamentary elections which saw the centrist D66 party come equal first. But to see this as evidence of peak populism in the Netherlands would be a misreading of the situation, according to Armida van Rij, senior research fellow at the Centre for European Reform:

While the [far right] PVV lost seats, it achieved its second-best electoral performance ever. At the same time, the far-right vote splintered. There were big wins for JA21, a PVV-light party with equally extreme ideas but presenting themselves as more palatable to the electorate and other parties: 30 per cent of PVV voters in 2023 switched to JA21. Support also increased for the far-right Forum for Democracy (FvD). Taken together, these two parties account for the PVV’s losses, and overall the far-right bloc has gained an extra seat.

The far-right combined now has 42 seats in the Dutch parliament, representing more than a quarter of the votes. In 2021, it had only 28 seats or 19 per cent. Looking back further, the trendline is one of steady growth of support. At the same time, D66’s 26 seats also make it the smallest ‘winner’ of any election ever – over 80 per cent of the electorate did not vote for this party.

What’s more, Geert Wilders’s PVV only lost seats because other parties refused to work with it, not because they disapproved of its policies but because they saw it as unreliable, having brought down the previous government. In fact, says van Rij, other parties have increasingly adopted positions taken by far right parties, with the result that many parties stood on manifestos that contained policies that the Netherlands Bar Association considered contrary to the rule of law:

In fact, out of the only three parties whose entire manifesto met the minimum standards for rule of law and sound democratic governance, two are insignificant political forces due to their size (Volt and the Animal Party), and the third lost a fifth of its seats (GL/PvDA).

All this could make it hard for D66 to form a centrist government. Its charismatic young leader, Rob Jetten, must convince the centre-right VVD to enter into a coalition with the centre-left, rather than hold out for a right-wing government that includes the far right JA21. Given the centrality of the Netherlands to many of Europe’s strategic challenges, a great deal is riding on whether he succeeds.

---

4. Peak Farage

On the other hand, there are other straws in the wind that may suggest right-wing populism is peaking. In the UK, much of the political attention last week was focused on a very odd breakfast-time speech by chancellor Rachel Reeves that appeared designed to prepare the country for significant tax rises in the budget at the end of the month. But arguably more significant was a speech by Nigel Farage the day before in which the Reform leader repudiated his party’s previous promise of reckless tax cuts and embraced fiscal discipline.

As my former Times colleague Hugo Rifkind noted, it feels as if, with this sudden outbreak of realism on all sides, something may be changing in British politics:

It is as if, abruptly, our politicians are more afraid to lie than they are to tell the truth. Because, until now, they’ve been routinely speaking nonsense to us for the better part of a decade.

It remains to be seen whether Farage can gain any electoral advantage by this decision to don the unfamiliar cloak of responsibility. Just because he has chosen to be more realistic does not mean others will feel obliged to do so. As noted last week (see Broken Model), the most significant recent political development in Britain has been the surge in support for the Greens, under their new charismatic left-wing leader Zack Polanski. The party is now running second in some polls behind Reform ahead of Labour and, buoyed by the success of its ideological ally Mamdami in New York, will no doubt double down on its socialist agenda.

This could spell trouble for Farage. According to a new analysis by Bloomberg, Reform Reform would capture almost all the parliamentary seats containing England’s 50 poorest neighbourhoods. But the Greens are catching up fast with the two parties now taking almost half the votes in the most deprived areas between them. As Labour and Reform embrace fiscal responsibility, will that open the door further to the Greens? Perhaps peak right-wing populism will lead to a resurgence of left-wing populism.

Finally, on the subject of European right-wing populism, I recommend this piece in Foreign Policy on Peter Magyar, who based on current polls just might defeat Viktor Orban in next year’s Hungarian election. As in the US (and the Netherlands and Britain), what is driving opposition to the incumbent government is Hungary’s cost-of-living crisis. Between 2022 and 2024, the country experienced one of the highest inflation rates in the EU.

Whether Magyar, who has his own flaws as a candidate, can turn this discontent into an election win in a country whose institutions and media have been hollowed out by Orban over many years is another matter.

---

5. Empress Theophano

I spent a few days last week in Thessaloniki in Greece, where I attended the award ceremony for this year’s Empress Theophano prize. This award, now in its sixth year, recognises “individuals or organisations that have made an outstanding contribution to bridging divides between peoples, nations and ideologies, thereby enhancing understanding of Europe’s common values”. This year’s laureate was Europa Nostra, the pan-European citizen-led movement to protect Europe’s cultural and natural heritage.

The Empress Theophano was a Byzantine princess who was married to the Holy Roman Emperor in the 10th century and for some years was ruler of medieval Germany as Empress-regent for her son, Otto III. She was highly enlightened for her time, helping foster advances in education and customs that laid the ground for the empire’s flourishing culture in the middle ages. As such, she is a terrific symbol of pan-European understanding, bridging east and west, north and south.

Meanwhile Thessaloniki is an ideal city to host such an award. Today, it may be the rather unremarkable second city of the Hellenic Republic, but for much of its more than 2,000 year history it was the second city of two great empires - the Byzantine and Ottoman - and a melting pot of religions, languages and cultures. Indeed, for nearly 500 years it was Europe’s only majority jewish city, after the Ottoman’s gave refuge to the jews of Spain after their expulsion in 1492.

But the first the Muslims were driven out in the population exchanges following the Balkan Wars of the early 20th century. Then almost the entire jewish population was sent to the death camps by the Nazis during the German occupation. Thessaloniki’s glorious but tragic past is brilliantly evoked in Mark Mazower’s Salonica, City of Ghosts, published in 2004.

Now Thessaloniki is once again emerging as a European cultural hub. It is home to 11 universities, including Aristotle University, the largest in Greece, as well as over 150,000 of students, and is a top destination for Erasmus students. It also hosts an international film festival that is going on now. It is fitting that this city, scarred by the very worst of 20th century nationalism and ethnic violence, should now be at the forefront of an initiative to promote pan-European understanding.

Finally, Europa Nostra struck me as an inspired choice of laureate. As its president said in his acceptance speech, we are living at a time when nationalists are once again trying to hijack our histories and heritage for their own ideological ends. It has therefore never been more important to preserve and defend Europe’s common heritage, as exemplified by Empress Theohano and Thessaloniki itself.

Indeed, what makes Europa Nostra such a worthy recipient of an award to celebrate common European understanding is that it transcends the European Union to embrace the entire continent. I first became aware of it when sharing a long car journey a few years ago with the leader of its Serbian operations. She told me that as a pro-European who had grown pessimistic that her country would ever join the EU, she saw defending Serbia’s European heritage as the best way to maintain its European identity.

As a Brit, I found myself today in a similar position. In the fight against today’s nationalists and ethno-nationalists, heritage is an important battleground. Congratulations to the Empress Thephano Foundation and Europa Nostra on the important work that they are doing.