Overview
A good sense of the road ahead makes the driving much easier. This installment provides our best thoughts on the future environment.
I. Political Environment
The polls indicate that Mr. Trump leads President Biden by several points, and most importantly, Mr. Trump leads in the swing states. The recent New York fine of $450+ million was a major blow Mr. Trump, even if it goes to appeal. Additional cases could issue yet more blows to his finances and reputation. However, it’s not all bad news financially for Mr. Trump. His stake in Digital World Acquisition Corp, based on today’s prices, is worth close to $4 billion.
Mr. Trump’s opponent, President Biden, will have some difficulty repeating his 2020 “quiet” campaign due to the inherent media attention associated with the White House. Adding to the uncertainty is the impact of RFK Jr.
Commentary: A felony conviction of Mr. Trump will probably swing some voters. However, perhaps only Mr. Trump can defeat himself.
II. Inflation
Due to the massive federal debt, the path of least resistance is some Quantitative Easing (i.e., the Fed’s purchasing of Treasury offerings) particularly in an effort to keep funding costs under control. Additionally, with 2024 being an election year, there will be pressure on the Fed to maintain moderate interest rates. Argentina is the latest case of QE¹.
Commentary: To a great extent, the storm has passed and with the decline in the 10-year treasuries, funding costs are likely to moderate.
III. Operating Cost
Over the next several years operating costs are likely to decline from a variety of sources. Self-driving vehicles will ease transportation costs, robots are likely to ease manufacturing costs, and ChatGPT and other AI are likely to ease service costs.
A novel implementation of AI to reduce service costs was made clear last week when OpenAI announced Sora, a tool to produce convincingly realistic video content on demand². The tool was so compelling that Tyler Perry paused an $800 studio expansion³. Perhaps one of the most compelling future applications will be using AI to code using natural language, removing the need for years of coding experience⁴.
Commentary: Perhaps these developments are coming at an ideal time with the retirement of Baby Boomers and declining birth rates. AI in particular has the potential to be massively disruptive to service-based economies like those in the West as well as to those countries which have focused on low-cost service labor (e.g. India).
IV. Wars
This is probably the largest drag on the global economy over the next several years as nations seem fit to settle differences via blows rather than negotiations. While the U.S. has attempted to pull back from “endless wars”, doing so is difficult.
Commentary: The weakness of regimes in North Korea and China probably make them more rather than less likely to take rash actions.
Sources
[1] https://www.wsj.com/economy/central-banking/argentina-is-a-textbook...
[2] https://www.youtube.com/watch?v=HK6y8DAPN_0
[3] https://www.theguardian.com/technology/2024/feb/23/tyler-perry-halts-800m...
[4] https://www.cnbc.com/2023/05/30/everyone-is-a-programmer-with-generative-ai-nvidia-ceo-.html
https://www.youtube.com/watch?v=_-wjA4XlBl4
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