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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Political Cicadas - no change in the product, just the sales team

The habit of spending long periods underground before re-emerging is not limited to the Cicada, for while this year sees the coincidence of the 13 year year Cicada cycle and the 17 year one, something that last happened 221 years ago, it is also 17 years sine Tony Blair was last in power and 13 since Francois Holland (likely PM in the French Hung Parliament) was. Both now look to be re-emerging to ensure continuity of policies that never really went away. The key sources of protest across Europe - crippling expensive wars against Russia and Climate change as well as uncontrolled immigration have only been addressed in the doubling down - the first thing UK PM Starmer did was fly to Washington to offer more money to NATO, while his Chancellor promised more money for Net Zero. Meanwhile, the left alliance put together to thwart Le Pen is even more pro immigrant than Macron. For markets, there is no prospect of lower spending and every prospect of higher taxes - the only 'Change' visible but not the one promised. The Technocrats and Globalists expecting this 'democracy' means that the populous will go quietly will be disappointed, especially with the arrival in the Autumn (once the Cicadas have gone) of the great populist, anti open border, anti net zero and anti war populist Donald Trump.

Market Thinking July 2024

The scorecard for the first half puts Equities, commodities and Gold in the top half of the table, with cash and fixed income in the lower half. This is consistent with the steady but uninspiring macro backdrop and positioning ahead of a tricky H2 from a political perspective. The anomaly of the Market Cap weighted SPX out-performing the equal weighted SPW by over 10% points tells us both that the SPX is no longer telling us anything about the US economy and that this excess return is for taking (considerable) concentration risk. Meanwhile, with Bond analysts 'pivoting from the Pivot' the fixed income markets have calmed down a little and leaving The Donald' rather thna 'The Fed' as likely the biggest policy influence on Markets over the next 12 months. In particular, we would look out for a 'Trump Plaza Acord" early next year, 40 years after the last one- something the FX markets aren't talking about, but the asset allocators seem to be (at least subconsciously) pricing in.

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