Photo Credit: Avshalom Sassoni/Flash90
Israelis protest against the judicial reform at Habima Square in Tel Aviv, January 28, 2023.

On Sunday night, a Twitter user named Phelix posted: “It’s becoming clear that a gang of organized criminals aims to collapse the economy and leave saving accounts holders destitute and without their pensions. These criminals must be immediately investigated, tried, and thrown in prison for many years. In addition, confiscate all the capital and assets they have accumulated. Is there anyone in the new government making sure this story is investigated? @itamarbengvir.”

OK, the above is what you and I normally call a conspiracy theory, very long on casting accusations and very short on facts. So, as is always the case, the best response is to go looking for facts. If you’re impatient, you’re invited to scroll all the way down to my speculation as to who stands to benefit from this hullabaloo. I would read the facts first.


Despite two days of gains abroad, the markets in Israel have been falling in recent days. The sector that took the biggest hit is banking, with declines of over 4% in the banks’ index.

What was behind this sharp drop in value, when, according to most predictions, the Shekel was expected to rise in value by close to 2%?

The thing that drove down the Israeli economy in general and the banks’ stocks, in particular, is known in Israel as the “Economists’ Protest.”

Last Tuesday, the Governor of the Bank of Israel, Prof. Amir Yaron, warned Prime Minister Benjamin Netanyahu of the consequences of his government’s reform of the justice system, in light of warnings from the rating agencies, as well as conversations he had with investors at the Davos conference from which he had just returned.

This was followed by a mammoth petition, signed by 352 economists as of last Friday. Now, the term “economists” in this context includes no experts who actually buy and sell stuff on the market, only academics. As the petition opens: “We, lecturers in the fields of economics and management, express our deep concern given the government’s moves that are expected to harm the independence of the judicial system and the public service, and which in our estimation will cause unprecedented damage to the Israeli economy.”

Eynat Guez, CEO and Co-Founder of Papaya Global. / Eynat Guez’s Facebook

I point out the fact that the folks who signed the petition don’t do economics, only teach it, because the folks who do buy and sell stuff on the world’s stock exchanges appear a whole lot less concerned. But before we go there, let me remind you that last Friday I reported (Rich Hi-Tech Leftist Trying to Start a Run on the Economy to Avenge Justice Reform) that Eynat Guez, CEO and Co-Founder of Papaya Global, a billion-dollar Israeli software company, a regular feature in anti-Netanyahu demonstrations and a declared enemy of Justice Minister Yariv Levin’s reform of the justice system in Israel, last Thursday, announced that Papaya Global was withdrawing all its funds from Israeli banks in response to the reform, explaining: “This is a painful but necessary business step.”

This aggressive attack on the Israeli economy by someone who had been and still is nurtured by the country’s generous support for the hi-tech sector is a step beyond petitions by academics who dislike change.

On the other hand, world economists who don’t have a pony in the political race in Israel sound a whole lot less frightened and/or angry:

JP Morgan’s most recent Israel Rates Trading, for instance, opens: “We have had some increased noise in recent days on the developing political situation in Israel,” including the Netanyahu government’s “controversial judicial reform,” the government’s plan to allow discrimination against gay people, criticism from the left of the judicial reform, and the demonstrations against it by “hundreds of thousands of Israelis.” In other words, JPM does not conceal any of the facts on the ground and, in the case of how many protesters show up in front of Habima Saturday nights, even rounds up the numbers upwards.

And still, with all of that being said, the report’s evaluation of market implications is: “Our ultimate takeaway is that this is largely noise and doesn’t change the fundamental bullish picture for ILS rates,” and, “Israeli institutions are very strong, and for them to be degraded to such an extent that needs to have some level of risk premia in local assets is something we think plays out over years, i.e., it shouldn’t have an immediate impact.”

Conclusion: “We think it’s worth fading these moves to add to 5-year receivers.”

There was even a small scandal in Israel when some on the left started declaring and spreading rumors that the bullish JPM statements were fake, in order to attack the economic reports that went against their agenda. But it was easy enough to confirm that the JPM statements were real and the left were lying.

Meanwhile, the economics research department at investment bank Goldman Sachs last Friday warned that the Israeli government’s planned judicial reforms could harm the shekel. But look at the internal contradictions in this assessment:

Throughout the pandemic period, the Israeli shekel has stood out as a currency that is particularly driven by global, rather than domestic, factors. In particular, even as domestic political developments themselves remained volatile in recent years, going long USD/NIS has consistently ranked as our top-ranked FX hedge against a global equity drawdown and, for many years now ‘global tech stocks down, USD/NIS up’ has been a steady rule of thumb, indicating that it is global equity developments, rather than domestic political ones, that are key to a forward-looking view on the shekel.” It was followed by: “Over the past six months, these trends have broadly continued.”

In other words, the Israeli economy is not influenced by what’s going on in Israel, but by world events.

Now check the next paragraph:

Judicial reforms proposed by Prime Minister Benjamin Netanyahu’s government have sparked concern among some investors, including locals, that the reforms could reduce judicial independence in Israel, and that––for example, by eventually reducing FDI (foreign direct investment) or tech sector growth in Israel––the shekel may become more subject to domestic policy risks than it has been in recent years. In line with these concerns, USD/NIS has seen a notable deviation this week from its typical correlation with global tech indices.”

In other words, some local Israeli investors are worried, which includes the CEO of Discount Bank, Uri Levin, who was spotted demonstrating in the streets against the judicial reform.

And after all that is said and put to rest, the Goldman Sachs experts say: “But perhaps most importantly, there are few signs that recent developments would affect the institutional hedging behavior of local investors, which likely underpins the striking correlation between USD/NIS and global tech stocks that have driven the shekel for years. Overall, while the recent increase in political uncertainty is concerning and could continue to be reflected in some further shekel weakness over the short-term, the fundamental links that have been established between USD/NIS and global tech stocks will take time to erode.”

You want more views from economists who don’t teach at TAU and Bar Ilan? How about Barclays’ macro research dated January 20, 2023? Titled, “Israel – New wave of political turmoil,” the short report reads: “The political crisis in Israel has intensified as plans to reform the judiciary that would significantly reduce the Supreme Court’s power have been unveiled. We think this adds a slight risk of a new coalition crisis, while social unrest and disagreements over Cabinet roles will likely keep tensions high in the medium term.”

So far, a clear and honest assessment of current Israeli politics. Conclusion? “Although the situation remains tense, we see limited implications for Israel’s economy, with the exception of the new government’s fiscal policy, which we think is likely to increase spending in the 2023 budget amid discussions of economic plans to fight the rising cost of living. This could fuel inflation and lead to ‘more rigid interest path’ from the Bank of Israel.”

So, are rich leftist Israelis shorting the banks, downgrading bank stocks through a media campaign featuring Chicken Little and her “the sky is falling” predictions on the Israeli economy because new judges will be appointed by more lawmakers than sitting judges?

I don’t believe Israeli professors of economics are capable of this kind of diabolical thinking and planning. And as I pointed out in my report on Eynat Guez pulling her Papaya Global’s money out of Israeli banks, Papaya will suffer from the move in several different ways: it will have to transfer back money to pay its 208 Israeli employees with shekel deposits; and Guez will likely face a very angry board of directors and furious investors, some of whom have already taken to the airwaves to say how inappropriate the move was.

On the other hand, and to write this I must put on my official conspiracy theorist’s pointy, black velvet hat: I’d like to mention the name of one George Soros, a renowned hater of Israel who funds many anti-Israel endeavors, and whose biggest claim to fame is as “The Man Who Broke the Bank of England” because of his short sale of $10 billion worth of British pounds, netting him a profit of $1 billion during the 1992 Black Wednesday UK currency crisis.

I admit that the fact that Israeli banks’ values have dropped 4% while world banks are gaining does not in itself suggest a conspiracy, and so, unlike Phelix from Twitter, I’m not calling for the criminals to be immediately investigated, tried, and thrown in prison for many years.

Would be fun to watch, though…

Oh, and while we’re at it, if you have some money to invest, I hear Israeli bank stocks are down 4%, what are you waiting for?


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