May you live in interesting times, The Wheel of Fortune
Leitmotif 8: Global entropy tips over the Complexity cascade
The Wheel of Fortune Tarot card signifies change, cycles, inevitable fate.
I noted in Leitmotif 1 of this series that the economic outlook remains solid if uneven, assuming that there are no serious political or geopolitical disruptions. But, unfortunately, the risks around the latter are unusually high. It’s easy to dismiss geopolitical risks as ever present and never really relevant, a market panic that can be reliably faded.1 A land war in Europe, seemingly unthinkable before 2022, broke out with little durable effect on markets; ditto the rapidly escalating Middle East conflagration that threatens a large share of global crude supply and has raised the costs of Eurasian shipping. Afghanistan, Iraq (twice), Yugoslavia, Vietnam, Korea: the entire post-World War II period tells you to ignore the risk and buy the dip. Yet, if you read Global entropy: Enter the dragons or much of this series on the 2024 outlook, you know that I am quite concerned that “this time is different”.
The difference is that all the above instances took place within the post-War liberal order (PWLO) and its Pax Americana, whereas 2024 has the potential to be a watershed year in history, like 1789 or 1914, that demarcates the transition from one international order to another. Buying the dip in the French Revolution or in World War I would have led to financial ruin.2 As I described in Enter the dragons, while the PWLO has been undergoing Global entropy for 30 years, it remains extant. Yet, accelerating international disorder has the potential to bring about a Complexity cascade into a rapid and perhaps climactic end to the PWLO. A violent finale will have more obvious effects on the global economy and asset prices. But even a whimpering end likely will radically change perceptions of risk across countries and asset classes. In this final instalment of the May you live in interesting times series, I explain why 2024 may be a watershed and what that means for markets.