May you live in interesting times, The Hierophant (reversed)

Leitmotif 6: American political instability

The Hierophant Tarot card, upside down, signifies rebellion, subversiveness, new approaches

The upcoming US presidential election represents a very different risk to markets from those taking place in other countries in the crowded 2024 political schedule.  The familiarity of markets with both candidates and polls showing them neck-and-neck means that it is unlikely to surprise or represent a radical turn in many of the policies that markets care about, e.g. China “de-risking”, deficit spending, fracking, and the Fed.

While many worry this is an election about democracy itself, that likely reflects overblown rhetoric (from both sides).  Ample polls and studies show that Americans are becoming increasingly tribal, loathsome of the other side, and convinced their own side is the one fighting for democracy and freedom.  To this tinderbox, elites on both sides, jostling for power, are spewing rhetorical sparks that threaten conflagration.  They’re not the only arsonists: foreign adversaries are throwing matches too.

The real risk represented by the 2024 election is that it precipitates, either in its lead-up, or more likely its wake, a descent into political instability or worse.  Both the probability and extent of that path are uncertain, but that is the risk that markets should focus on.

(Note: A free version of this piece, excluding value-added market insights, is available, published as Problems in Bananastan, 4 February 2024.)