South Africa, Mexico, the United Kingdom and the European Parliament are all having elections over the next 6 weeks. Individually, each of them has consequences for the United States and their own regions. Combined, they could very easily have a massive global impact. Will the South Africans continue their drift into the Chinese and Russian orbits? Will Mexico continue to move further away from the center, as it has under its current President? Will the United Kingdom be able to stop its decade-long slide? What happens if the European Parliament goes from being a very liberal organization to very conservative?
John Norris (00:30):
Well, hello again everybody. This is John Norris at Trading Perspectives. As always, we have a good friend, Sam Clement. Sam, how are you doing?
Sam Clement (00:36):
I’m doing great, John. How are you doing?
John Norris (00:38):
I’m doing fantastically and perhaps everyone around the world is doing fantastically. A lot of people over the next couple of weeks are going to the polls to decide their country’s future. Here we are recording on the 29th of May, and if I’m not mistaken, South Africans have already been to the polling stations. Mexicans are going to the polling stations this Sunday, or whereabouts this Sunday. The E.U is having its election this summer, actually, I think the first or second week in June. And then of course we have the UK election, the snap election, in July.
Now these are all very big elections which has some very real ramifications for global economic policy, global economic activity, and really for U.S. diplomacy. And yet here we are in the United States and a lot of people probably don’t know all this is going on.
We’re a little bit too preoccupied with the Mavs and the Wolves and the NBA championship. We’re a little too preoccupied with whatever’s going on with Donald Trump down in downtown Manhattan. We’re preoccupied with ourselves and just really aren’t noticing the world around us. However, these elections have real consequences.
Sam Clement (01:50):
And our election as well. I mean, that’s coming up in a few months from now, which is crazy…
John Norris (01:58):
A game of Russian roulette.
Sam Clement (02:00):
Yes. But you’re right, and we’ve talked about this changing trends politically in a lot of countries and I think we’re still in that process of, you mentioned South Africa, this pendulum – possibly changing from one side to another with parties that have been in power for 30 plus years and maybe people getting tired of it. And so I think we’ve talked about it a little bit, kind of expanding on this trend is: people are getting kind of tired of status quo it seems like.
John Norris (02:31):
Well, I’m going to tell you, I’m going to start with the elections almost in chronological order and talk about the one in South Africa coming up, the ANC, the African National Congress, the political party of Nelson Mandela has been in power, I mean almost monopoly of times ever since they achieved independence from the Apartheid regime of the Bowers and all that stuff back in the 1994, thereabouts. And really the first decade or so after the ANC came to power, there was sort of a freeing up of foreign capital. The economy did make improvements, but really since that time, and I’m going to loosely define that time, the end of Mandela’s presidency, maybe the first year or two of Mbeki’s presidency, but since that time, South African economy by just about every measure has underperformed and underperformed in a pretty significant way.
(03:24):
And from some of the stuff that I have read, local South Africans are saying we got rid of the apartheid whites, but we just replaced them with someone else. Someone who darker skin. Because all they have done really to a lot of people in South Africa, the ANC has just simply taken over where the whites left off and not much has changed for the average South African on the ground. And we take a look, here we are in 2024, the economy has dramatically underperformed. They can’t get electrical power to its manufacturing facilities. You have some politicians out there like Malema, who is the head of the EFF, which is polling at around 10 to 15%, who is an outright Marxist who says he is going to nationalize everything and kick the white people out, all that stuff. It’s a very fractured election. The ANC might hold on to between 40 and 50% of the vote, but there’s a very real possibility that it’s going to have to do some power sharing.
It’d be very interesting to see when you’ve been in power for three decades and then you have to be in a power sharing arrangement, just what kind of attitude you take. And I don’t think it’s going to end up well.
Sam Clement (04:35):
Yeah, They’re lower parliament, which is where the president’s decided they’ve had a majority, like you said, for three decades.
John Norris (04:44):
A very firm grip…
Sam Clement (04:44):
They need 201 of 400 or more to decide the president. And you’re exactly right. When that lower body who decides the presidency no longer has the 201, you have to start doing a little power brokering and figuring out what it’s going to take, what concessions it’s going to take, and who the best party to take the concessions from to remain in power (I guess is still the best term?) even though you’re not fully in power if you’re making concessions.
John Norris (05:13):
Well, the reason why this is so important, and a lot of Americans and even people in Western Europe can sit there and say that’s all the way at the other side of the world. It’s important because it is historically over the last 30 years and even prior to that, it’s been really Sub-Saharan Africa’s primary economic engine. Yes, there was apartheid, but it was a relatively industrialized country by and large, a lot of western institutions generally pro-west in its outlook on the world. Despite a lot of the sanctions and really during the Mandela administration still decidedly pro-West, but maybe not quite as much. And now recently under Ramaphosa and before that with Zuma, you’ve seen Pretoria shift closer and closer to the Russian and China orbits. And really it was the first country to open up to the Belt and Road initiative. It has recently been accused of selling arms to Russia during the Ukrainian war. And for all intents and purposes, Americans might think of South Africa as this sort of benign country at the bottom of the world with which we have friendly relations.
Frankly, our diplomacy with them right now is about as strained as it ever has been. The economy is not in free fall, but it’s not doing what it should. And it’s really, I would say if this election doesn’t work out – very right for a revolution and very right to become a satellite or puppet state of either China, most probably, or Russia secondarily.
Sam Clement (06:56):
I think the main thing with South Africa for me is that I’ve almost already started to view it as a Global South country. The divide between the Global North and Global South; South, largely being Russia and China – and Iran, I guess. Not that they’re at the extremes of a Russia or an Iran, but that’s clearly the direction that they’ve been headed. They are more aligned with that side.
John Norris (07:21):
I would say from what I’ve read, and I wasn’t even terribly aware of much of this until about a month ago, but the more I’ve read, the more I realize these guys really aren’t terribly much allies of the United States any longer.
This election is very important. We can’t have that country really fall completely into chaos, which there’s some elements of that going on. I’m not trying to disrespect South Africa, it’s got a lot of potential. It’s failing to live up to it over the last 20 years and it needs some stability. And frankly, it needs less corruption and it needs greater adherence to the rule of law: strong individual property rights. It also needs development of human capital and access to reliable and efficient energy. Right now, a lot of those things are failing in that country. So that’s the reason why this election is very important. It’s important to the U.S. for diplomatic and even economic reasons, and it’s very important to that section of the world.
MEXICO
Next up is Mexico. After six years of AMLO, here we have someone that is considered to be AMLO’s disciple, if not protege. Or some would say female clone. Sam, what do you think?
Sam Clement (08:33):
That seems to be, at least what the headlines are implying. And I think she’s in a balancing act, because he’s largely pretty popular, I would say.
John Norris (08:43):
I think his approval ratings are around 60%,
Sam Clement (08:45):
And our president’s approval ratings have been in the 40s. And so she’s trying to play off that … and then I think hopefully try and push herself apart and say, well, we will be a little more analytical and what have you, but largely that’s how she’s going to get elected if she does.
John Norris (09:03):
Well, what’s curious about her is a lot of people in the media are making out the symbolic, the symbolism of … this is being the first female to be elected president of Mexico, and I think that’s pretty much a foregone conclusion. But she’s also would be the first Jewish person to be elected as president of Mexico. And frankly, when you think of Mexican presidents, you don’t think of the name Cheong coming up there, but that’s what her name is. And when I take a look at really everything that’s gone on in Russia during the time of AMLO…
Sam Clement (09:39):
MEXICO.
John Norris (09:40):
Why did I say Russia? Well, when I think of everything that’s gone on in Mexico really over the last six years and primarily even maybe the six years previous to that during, what is it? Nieto came before him or I think so?
John Norris (09:56):
Mexico in a lot of ways has underperformed. I would tell you that you take a look at the data and maybe from unbiased eyes or something like that, you would say, well no it hadn’t, look at the data. It’s done ok… but it hasn’t underperformed. I would tell you the reason why I think it’s underperformed is while AMLO has done some good infrastructure, particularly in the south and southeast section of the country, it has had the potential to really crush it. That’s the thing, potential energy. It’s the potential to really crush it.
It’s done okay. It’s kind of like someone that has the ability, it’s like an Aaron Judge. Aaron Judge plays all 162 games, which is never going to happen by the way. But if Aaron Judge, if he hits 25 home runs and has 80 RBIs.
Sam Clement (10:52):
It’s pretty good season for an average person.
John Norris (10:54):
It’s a pretty good season for an average person, the third hitter for the Yankees, and then the guy you pay
Sam Clement (11:00):
What? Hundreds of millions.
John Norris (11:03):
I would say Mexico in a lot of ways has been performing sort of like Aaron Judge hitting 25 and having 80 RBIs.
Sam Clement (11:09):
And that potential energy is, I would say almost growing. It’s becoming greater compared to some other countries and the fact that we’re talking about onshoring industries and largely the ports were such an issue and getting stuff from across oceans, they’re across an imaginary border where you can drive it across. The cost of labor is extremely cheap and arguably cheaper than it is in China. There’s all these reasons why it could be a lot of what we’ve seen out of China’s economic growth engine.
John Norris (11:44):
Well, and that’s the whole deal, particularly after the pandemic and if not the pandemic alone, then President Xi in China’s really just ham fisted economic policies and people beginning to question the rule of law and individual property rights coming out of Beijing. A lot of U.S. manufacturers, a lot of U.S. suppliers, a lot of just U.S. companies are looking for the proverbial China plus one. I need a supplier other than China. Mexico obviously would be right there. Brazil would be right there.
Sam Clement (12:15):
Just screaming.
John Norris (12:16):
Yeah, it’s picked up some, but a lot of companies are just going, eh, I’ll just go ahead and just rely on China. That is what’s going on, and India will be the one that ultimately probably has the greatest impact for that.
Sam Clement (12:33):
The geographical part though, it should be massively important. I mean that’s really the biggest unique that they have in terms of trade relations with the United States. I would argue.
John Norris (12:50):
One would imagine.
Sam Clement (12:51):
I mean the shipping times are minuscule
John Norris (12:55):
Shipping times? You drive a truck.
Sam Clement (12:57):
The rail.
John Norris (12:59):
The beast I think as they call that railway from Guatemala.
Sam Clement (13:02):
You have so much potential for energy. The cost of labor is not a big detractor. You have all these reasons, especially when we’re talking about a period of onshoring. Yeah, there’s some industries where we can’t really onshore / don’t want to onshore. Probably that’s the next logical option if they can get the rule of law, property rights, gangs under control. Cartels, what have you, under control.
John Norris (13:30):
And these are all big “ifs,” and I think a lot of people would probably say Mexico has maybe not lived up to its full potential or is squandering a wonderful opportunity? I would say our state here in Alabama has done that on plenty of occasions, and it’s kind of strange from the outside looking in. You’re saying Mexico should be growing five, 6% per year.
Sam Clement:
Yeah, I’m going to say at least.
John Norris:
At least, and not three to four. And a lot of that has to do with what we’ve talked about. AMLO is for all intents and purposes, kicked out the private sector from the energy sector … remains be seen whether or not Mexico City is going to be able to efficiently run the energy sector. Global experience has been that central governments don’t do a very good job with that historically, historically. Historically. Maybe they’ll be great.
(14:21):
However, we’ll just have to see how this works. Sheinbaum is not going to come in and really reverse anything that AMLO has done over the last six years. Matter of fact, could very easily even make it take it to the next level. She views herself as a progressive. She is very left-leaning economic policies, and we’ll see whether or not at least the economic growth. I’m dubious, but you never know.
THE UNITED KINGDOME
Alright, next up the UK election. This is a favorite one of mine and Sam’s because really, listen, we love the United Kingdom here in this country. I love the United Kingdom.
Sam Clement (15:02):
You know I do. The number one place to travel to.
John Norris (15:03):
There is an old joke, but for the United Kingdom, but for the British, we’d all be speaking a language we couldn’t understand. It’s not very funny, is it?
Sam Clement (15:12):
Not really.
John Norris (15:13):
But we have our rule of law, we have common law, we have a lot of our institutions stem from the United Kingdom, and yet what we’ve seen over the United Kingdom over the last decade, for all intents and purpose purposes, I would say… as an American, from the outside looking in, I would say your United Kingdom has fallen back pretty significantly.
Sam Clement (15:37):
I kind of view it as a company that has swapped CEOs or what have you, and tried different things and just time after time has corporate mismanagement. And that’s kind of what we’ve seen at a higher level. And we talked about it before we started recording this. At this point, given their circumstances, I am not sure how you efficiently solve their problems.
John Norris (16:02):
They’re manifold.
Sam Clement (16:05):
If you try and solve one problem, it’s going to make another problem worse.
John Norris (16:10):
Listen, I agree with you. I’m not a huge fan of Sunak, As you well know. Overeducated individual, that’s how I view him. And everything he has done has led me to believe that my assessment of him is correct. However, I would tell you the man was dealt a horrible hand of cards and he was dealt a bad hand and I would say he’s played the hand poorly. And as a result, the conservative party’s going to get absolutely crushed in July.
Sam Clement (16:39):
20 point margins,
John Norris (16:40):
23 point margins, and this was not long ago… Labor was about to die out
Sam Clement (16:47):
It was a dying party.
John Norris (16:48):
Jeremy Corbyn, who used to be the head of the Labor Party, was really kind of a flake. He was far left, I mean incredibly. And the Labor just got crushed in the last primary election. Since then, it has just been misstep after misstep after misstep instead of lowering, I mean drastically after Brexit, drastically cutting corporate income tax levels to attract capital. They did kind of the opposite.
Just really I stand back, just going, what are you thinking? And they just have not done it. And right now, when you take a look at the United Kingdom…. I mean just the gifts that the UK has given to the world in a lot of ways, and a lot of people say colonialism, but I would say just in terms of culture, in terms of literature, in terms of music, maybe not so much food, but in terms of just so much- which has made the world a better place- We have the British think for it.
However, I’m afraid that if something doesn’t happen relatively soon in that country, it’s going to continue to fade into relative global irrelevance.
Sam Clement (17:52):
Well, and we’ve talked about it, if the UK was a stock chart, it would have been trending in the wrong direction for
John Norris (18:01):
It would look like Ford or GM. I mean it’s Ford.
Sam Clement (18:03):
Yeah, maybe. Yeah. Standard Oil.
John Norris (18:09):
Well, yeah, that’s kind of the way they are.
Sam Clement (18:12):
But they were THE global superpower for hundreds of years.
John Norris (18:17):
Listen, World War I and World War II completely bled them dry. They, they’ve got an excuse for the decline of their global empire without a doubt. No excuse over the last 20 to 30 years to not have better economic politics. You can’t blame that all in World War II. You just can’t do that. And you can’t blame the recent Torie party conservatives behaving very strangely over the last decade. You would think that they were Labor the way that they’ve managed and it’s been very confusing, and that’s part of the reason why they’re going to get kicked out. And this does have the political implications to the United States because United Kingdom has been the US’s primary global ally, really since World War I. For all intents and purposes. People could say it sided with the Union during the American Civil War, didn’t get involved in the Spanish American War, but for all intents and purposes, since World War I, it’s been our primary ally.
What happens in the UK is still very important, and so we want to make sure that that special relationship continues. However, that special relationship will work best for the United States if the United Kingdom is a more powerful country, a more economically advanced country, and isn’t sort of the weaker sibling, the weak sibling that we just kind of boss around, which I think the Brits think we already do anyhow, however, everyone benefits from a stronger Britain in our relationship.
Sam Clement (19:46):
I was about to say, I think the world is a better place with a stronger Britain.
John Norris (19:51):
I think so too.
Sam Clement (19:52):
That kind of duopoly almost that you may have had in the past. I think America is still the greater player, especially after World War II.
John Norris:
We are larger
Sam CLement:
…with more resources and we’re not an island, and then there’s a lot of reasons. That’s fine, but this kind of duopoly of power with other substantial global allies I think was a healthy spot for especially kind of this global north. And I’m not sure who it is now. I guess it’s still them by default?
John Norris (20:26):
It’s still them by default
Sam Clement (20:28):
Because EU is not really,
John Norris (20:31):
In any event, I think you see where we’re going with this. We’re really pulling for the UK new labor seems a lot different than Jeremy Corbyn’s version of Labor. It almost seems to be whatever the conservatives are supposed to be, so I don’t know what’s going to there. All we know is the world’s going to be a better place if the UK can get out of its doldrums.
The EUROPEAN UNION
Last up, and we’re going kind of along here. We’re not going to spend too much time on this as the EU election, which is coming up deciding the EU parliament, and this has people in Brussels, the bureaucrats horribly worried because it seems as though a lot of the voting members in the EU, a lot of those countries are shifting further and further to the right. France is noticeable among them. I think if Macron had to run against Le Pen today, I think Le Pen’s party might win. Take a look at Maloni down in Italy. The Germans are still kind of wavering in the middle, but Poland has shifted to the right. It was the far right. It’s still right. We all know about Orban and Hungary and really you take a look across the entire continent, you’re seeing a shift to the right, which is not good for the EU’s bureaucracy because I would say that is one of the more progressive and liberal institutions in continental Europe.
Sam Clement (21:54):
I think you said it perfectly. A lot of the trends have been towards, probably against the EU as a whole.
John Norris (22:02):
And so if you have a bunch of right leaders coming in there, it could very easily weaken the bureaucracy coming out of Brussels… lead to some measure of nationalism. It’s going to take more than four years or however long the election cycles are. But that right there, that one election, I’d say in my estimation, is not getting anywhere near the press that it needs to because a seat change in the global outlook or mindset of the EU Parliament has long lasting ramifications or wide ranging ramifications across the global economy.
Sam Clement (22:41):
I agree.
John Norris (22:41):
Perfect. Alright, so you, we’ve got four big elections coming up. Maybe you heard about some of them for the first time here. And by all means, please understand that when Sam and I are talking about this stuff, it’s our opinions only and not necessarily those of Oakworth Capital Bank or any of its other associate shareholders, directors, stakeholders, anything like that. It’s just me and Sam. Alright, fair enough, fair enough. Alright guys, thank you so much. We always love to hear from you. Also, if you have any comments or questions, please by all means, let us know. You can always drop us a line at Trading or you can leave us a review on the podcast out of your choice. Of course, if you’re interested in reading more or hearing more of what we got to say or how we think, you can always go to oakworth.com. Take a look underneath the thought leadership tab to find access or links to all kinds of exciting information, including previous episodes of Trading Perspectives, links to our podcast or our blog slash newsletter Common Sense, and then also to our quarterly pieces called Macro and Market. It’s Individual components and a bunch of good stuff that our advisory group throws out there as well. All right, Sam, anything else on this exciting topic?
Sam Clement
That’s all I got.
John Norris
That’s all I’ve got today too. Y’all take care.