Entry Points
Guessing what's coming next feels like I've got a foot on an electric cable, the tension vibrating. I will share my hunches and be brief because Kate Capital launches tomorrow and my attention is on that. As always, THIS IS NOT INVESTMENT ADVICE. INVESTING IS RISKY AND OFTEN PAINFUL. DO YOUR OWN RESEARCH.
My central case:
Politics/Geopolitics
Harris wins, split Congress. We all know it's close. A third party candidate, abortion, low gas prices and a reluctance by independent voters to embrace a second Trump term all seem like they could tip the odds (just barely) in her favor.
If I’m wrong and Trump wins, that opens the range of outcomes. Every investment choice (stock, bond, commodity, currency) will require an additional analysis around the impact of tariffs, which will be retaliatory and chaotic. Don't forget the 20% stock downturn the last time this happened.
China may want to put a floor on its deflationary deleveraging, but the fiscal package needed to do so is really, really big and so far no meaningful numbers have been released. The lack of true price discovery means it is hard for anyone, including China’s leadership, to know what is actually going on with real estate and bad debt. A real estate crash followed by tariffs may equal currency war.
Europe is economically weak and they are the one place seeking to fiscally consolidate. This is bearish for growth. EM is getting more risky, a permanent state of "emerging."
Ukraine is an expensive stalemate. A Trump win would inject unpredictability and put Taiwan into play. A Harris victory will lead to a more multi-lateral approach to Ukraine and Taiwan but not necessarily a solution to either in part because US government finances are already stretched.
Assets
Knee-jerk reaction to Harris win: stocks down. Markets have priced in Trump (stocks up, bonds down), but are shifting in the last 48 hours. Expect volatile. If stocks puke/bonds rally on a Harris victory, I imagine it will be short-lived.
Longer-term, bonds are complicated. Are we in the pre-2008 Global Financial Crisis (GFC) world where short rates anchor at nominal growth (5%!) or the post GFC world where there is chronically weak private sector borrowing and short rates anchor at 2%? It's looking more like the pre-GFC world, absent a recession (not in sight) or a fiscal tightening (not in sight in most places). Cash rates are near 5% and the US economy seems surprisingly good.
Commodities are hard to read because of China. China is a key buyer and we can’t tell what is really going on in the economy for the reasons I noted above.
Currency is boring, absent a tariff war, in which case volatility will rise sharply.
The tech shifts are just getting going BUT no one, including the people doing the AI spending, know quite what AI will end up doing or if it will be profitable. The internet, combustion engines, railroads and canals were also expensive and their productivity impacts weren't obvious at the time. Investors and entrepreneurs are taking a leap, which is exciting but can end in terrible pain. That’s the nature of productivity shifts.
I see plenty of opportunities and am mindful of entry points.
Good luck with your launch!