A Three Body Problem - for US Politics

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March 22, 2024
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As well as being a new Netflix series (based on hugely popular SciFi series from China), the key feature of a three body problem according to Wikipedia is that, Unlike two-body problems, no general closed-form solution exists,[1] as the resulting dynamical system is chaotic for most initial conditions, and numerical methods are generally required.

Applied to the US Election system - usually a two body problem - the introduction of a third body (party) has the ability to create a chaotic system.

Dr Pippa Malmgrem is a highly unusual writer, being both a Washington insider and an out of the box thinker. As such I find her substack extremely interesting and a must read. In particular, this latest post in which she points out that the peculiarities of the US Electoral system are such that it is now quite credible to suggest that the next US President could actually be Robert F Kennedy Jnr.

How exactly? Well, according to Dr Pippa,

Dr Pippa’s Pod and Pen

As she previously pointed out, if RFK flips just one state and Trump at least 2, then Biden won’t get to 270 votes. RFK jnr has formed a party called ‘We the people’, riffing on the first lines of the constitution, which has attracted a lot of attention, not least from former Google chair and ex wife of Sergei Brin, Nicole Shannahan, who Dr Pippa thinks will be his VP. Her thesis is that, echoing Marshall Mcluen ‘the medium is the message’ and that Clinton won using TV (especially Saturday night live), Obama won with the relatively new YouTube and Trump of course with Twitter. RFK’s podcast with Joe Rogan attracted 30 million views and is one reason why he is far better known with the podcast generation than the media establishment concede, but bringing Google and its AI algos into the tent to compete with Nancy Pelosi and the Octogenarians is an intriguing thought.

‘We the people’ could emulate Macron’s ‘En Marche’ and upend the traditional two party system

Also interestingly, Dr Pippa has previously noted that historically  the US loves an outsider candidate. George Bush was seen as unassailable until a little known Arkansas Governor (helped by a split vote due to independent Ross Perot) broke through with only 43% of the vote. Equally, the ‘unknown’ Obama beat Hilary Clinton to the nomination and then establishment Romney and McCain to the Presidency. Even Bush jnr was seen as an outsider, while Jeb, the insider, was defeated by the latest outsider, Donald Trump. With almost half the US electorate polling as ‘independent’ and the numbers of ‘never Trumpers’ and ‘never Bidens’ growing rapidly, a none of the above candidate could do very well, and if Dr Pippa’s logic on the contingent Election holds good, maybe even win the Presidency.

Interesting to watch the betting markets, where RFK junior is now 32 to 1, while Gavin Newsom, who had been coming in sharply as a Biden replacement candidate, has backed out to 60 to 1. As to the financial markets, it’s difficult to see how this scenario is being priced in anywhere. Yet.

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Market Thinking May 2024

After a powerful run from q4 2023, equities paused in April, with many of the momentum stocks simply running out of, well, momentum and leading many to revisit the old adage of 'Sell in May'. Meanwhile, sentiment in the bond markets soured further as the prospect of rate cuts receded - although we remain of the view that the main purpose of rate cuts now is to ensure the stability of bond markets themselves. The best performance once again came from China and Hong Kong as these markets start a (long delayed) catch up as distressed sellers are cleared from the markets. Markets are generally trying to establish some trading ranges for the summer months and while foreign policy is increasingly bellicose as led by politicians facing re-election as well as the defence and energy sector lobbyists, western trade lobbyists are also hard at work, erecting tariff barriers and trying to co-opt third parties to do the same. While this is not good for their own consumers, it is also fighting the reality of high quality, much cheaper, products coming from Asian competitors, most of whom are not also facing high energy costs. Nor is a strong dollar helping. As such, many of the big global companies are facing serious competition in third party markets and investors, also looking to diversify portfolios, are starting to look at their overseas competitors.

Market Thinking April 2024

The rally in asset markets in Q4 has evolved into a new bull market for equities, but not for bonds, which remain in a bear phase, facing problems with both demand and supply. As such the greatest short term uncertainty and medium term risk for asset prices remains another mishap in the fixed income markets, similar to the funding crisis of last September or the distressed selling feedback loop of SVB last March. US monetary authorities are monitoring this closely. Meanwhile, politics is likely to cloud the narrative over the next few quarters with the prospect of some changes to both energy policy and foreign policy having knock on implications for markets/

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