A Three Body Problem - for US Politics

1 min
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 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/

Gold and Goldilocks

Bond markets are changing their views on Fed policy based on the high frequency data, seemingly unaware that the major variable the Fed is watching is the bond markets themselves. After the funding panic of last September and the regional bank wobble last March, the twin architects of US monetary policy (the Fed is now joined by the Treasury) are focussing on Bond Market stability as their primary aim. Politicians meanwhile, having seen how the bond markets ended the administration of UK Premier Liz Truss in September 2022 are keenly aware that it is not just "the Economy stupid", but the Economy and the markets that they need to manage the narrative for both voters and markets. They all need a form of Goldilocks - either good or bad, but not so good or so bad as to trigger either the markets to sell off or the authorities to react. Investors, meanwhile, conscious of the precarious balancing act Goldilocks requires, are increasingly looking at Gold.

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