MacroVoices #438: Marko Papic – U.S. Presidential Race Risks & Market Complications

Date: July 25, 2024
Host: Erik Townsend
Guest: Marko Papic, Chief Strategist at BCA Research

Episode Overview

This episode features a deep-dive conversation between Erik Townsend and geopolitical strategist Marko Papic on the extraordinary risks and complications the 2024 U.S. Presidential race poses for the markets. The discussion covers the fallout from President Biden's sudden withdrawal, heightened polarization and conspiracy thinking in American society, the recent failed assassination attempt against Donald Trump, and the implications for both U.S. domestic stability and global financial markets.

The show leans into candid, sometimes uncomfortable, but vital analysis of political risk, the likelihood of civil unrest or further political violence, the potential for shifts in policy and party leadership, and concrete guidance for investors attempting to price these rare macro variables into portfolios.

Key Discussion Points & Insights

1. Extraordinary Uncertainty in the U.S. Political System

• [03:00]
  • Biden’s Absence & Withdrawal: As of recording (Tuesday before air), President Biden has been absent from public view for six days following a COVID diagnosis. Amid speculation and rumors—including false reports of his death or incapacitation—a statement is tweeted announcing his withdrawal from the race.
  • Historic Precedent: Erik notes the last comparable situation was in 1968 with LBJ’s televised withdrawal, which contrasts sharply with today’s opaque communications.
  • Quote:

    "This is not normal operations for the United States of America." – Erik Townsend [06:30]

2. Secret Service Failures and Political Violence Risk

• [08:08]
  • Recent Failures: Secret Service Director Kimberly Cheadle, initially adamant about not resigning, ultimately steps down under pressure following the failed Trump assassination attempt, revealing internal confusion and a lack of readiness.
  • Polarization: Erik underscores that Trump's open-air campaigning is higher risk, while Biden is less exposed. The mood is “polarized and toxic,” with even public figures voicing regret the assassination attempt failed.
  • Quote:

    "At least to her credit, you know, 24 hours later, but she did then realize what the words ‘accepting total responsibility’ mean, and so she resigned." – Marko Papic [10:21]

3. Conspiracy Thinking and Social Fabric Erosion

• [11:21]
  • Conspiracy Prevalence: A poll cited suggests 30% of Democrats believe the Trump assassination attempt was a hoax. Erik and Marko agree on the dangers of such widespread misinformation across both parties.
  • Macro Consequence:

    "Those are the ingredients for civil war. I hate to say it, but they are." – Erik Townsend [13:24]

  • Marko’s Take: He sees it as a recipe for “continued suboptimal political outcomes,” driven by hyper-motivated primary voters guided by ideological zeal and misinformation.
  • Quote:

    "A third of the electorate is making decisions based on not just poor information, but, you know, really propaganda. Not even propaganda... it's almost more grassroots nuttiness." – Marko Papic [15:12]

4. Polarization & Risk of Further Political Violence

• [16:55]
  • Repeat Attempts: Erik stresses that high polarization and demonstrated security lapses raise the probability of further attempts on Trump:

    "It seems to me that all of the ingredients are there for someone to try, try again ... I think the probability of someone somewhere attempting in some way to kill President Trump again before the election has got to be at least 50%." – Erik Townsend [18:48]

  • Marko’s Framework: Secular polarization—rising since 2014—has already translated into policy (fiscal handouts) and inflation. He argues that the deeper macro consequence is ongoing social unrest driving profligate policy, not tradeable tactical events like an assassination attempt.
  • Quote:

    "We have come to a point in American history where it's 2024 and you have an anti-establishment candidate who is at higher risk of being assassinated... but the secular reality is that we've been living in that kind of a world for the past eight to ten years." – Marko Papic [21:20]

5. Civil War Risk and 'State Capacity'

• [26:13]
  • Institutional Resilience: Marko pushes back on comparisons to Yugoslavia, citing U.S. “state capacity”—the overwhelming strength of American institutions (military, law enforcement)—as a major mitigating factor.
  • Quote:

    "I don't see a civil war breaking out. I don't think you can have an organic civil war in the United States, America, because state capacity ... is overwhelmingly powerful." – Marko Papic [26:16]

6. Global Macroeconomic Implications of U.S. Instability

• [26:24]
  • Dollar System Risk: Erik speculates that a mega-crisis (successful assassination) could spark a global loss of confidence, accelerating dedollarization and raising U.S. borrowing costs in a vicious cycle.
  • Marko’s Response: He points out these trends are already happening—rising debt, chronic deficits, declining USD reserve share—driven by social and political unrest, not one-off events.
  • Quote:

    "We are in a process of U.S. domestic political volatility that's been acting already, that there has already been an outcome, and that outcome has been the inflation that we live in today." – Marko Papic [29:20]

7. Election 2024: Candidate Dynamics and Market Impact

• [33:20]
  • Kamala Harris as Candidate: Marko critiques Harris as a “suboptimal” candidate with underwhelming primary and legislative performance, suggesting Democrats may regret anointing her by default instead of holding a convention contest.
  • Historical Parallel: Discussion of 1968 Democratic convention violence and how the party’s risk aversion may actually backfire this year.
  • Quote:

    "I think the Democrats are just saying ... let's just package and resell Kamala Harris as the obvious choice, which I think is a very, very big mistake." – Marko Papic [36:51]

8. Translating Political Risk for Portfolio Construction

• [38:32]
  • Potential Market Scenarios:
    • Short-term: Expect markets to bid up Harris’s candidacy, reducing Trump’s win probability, but this may reverse after debates or poor Harris performance.
    • Long-term: The real risk is a sweep by either party, eroding policy checks and balances and potentially triggering bond market or currency routs like the UK’s “Liz Truss” episode or France’s snap election fallout.
  • Marko’s Warning:

    "A sweep is a risk because it's about material constraints to policy. And a sweep means the President will have no constraints." [48:53]

    • Macro context matters: pro-growth policy (e.g., tax cuts) could be inflationary, not bullish, in 2025’s environment.
    • Recent ‘Trump certainty’ week in July: Risk assets sold off; the narrative of a Trump win may not be as bullish as some believe.

9. Investor Action and Herding Behavior

• [44:42]
  • Erik on Hedging: He’s not interested in trading on the outcome, but in hedging event risk (e.g., violence, delayed elections, constitutional crisis).
  • Nick Galarnik (Postgame): Market is already moving into risk-off mode, with increased volatility, expanding option premiums, and signs of systematic flows possibly presaging liquidity shocks.
  • Quote:

    "As the emotion and hysteria drains out of the system, I think these cooler heads are going to realize that left tail risks just got a whole lot bigger." – Erik Townsend [63:57]

Notable Quotes & Memorable Moments

• On Macro Investing & Politics:

  "If you're going to fast forward, you're not a macro investor. I'm sorry. The world we live in today is one where politics and geopolitics is increasingly becoming very relevant to asset returns." – Marko Papic [13:59]

• On Secular Polarization & Inflation:

  "We live in the inflationary world we do because American policymakers don't know how to legislate ... so what they do is hose the population down with handouts." – Marko Papic [20:58]

• On Harris as Democratic Standard-Bearer:

  "Her legislative and career accomplishments are, you know, I would say in the bottom 50% of policymakers in the United States of America." – Marko Papic [33:27]

• On the Biggest Market Risk:

  "We don't need tax cuts, we don't need growth. We probably need some budget consolidation, we probably need some austerity policies. And it's not clear to me that policymakers of either party are going to do that unless they're forced to by the markets." – Marko Papic [52:29]

• On Democratic Party Avoiding Contention:

  "The Democratic Party had a chance to have some fun with that convention, but clearly they've gone the other way because ... they've been telling the American public that this election will determine ... the future of democracy in America." – Marko Papic [55:51]

Timestamps for Key Segments

• Market Recap & Macro Scoreboard: [00:56 – 02:52]
• Introduction to Feature Interview & US Election Setup: [03:00 – 06:49]
• Secret Service Discussion / Political Violence Risk: [08:08 – 11:20]
• Conspiracy Belief & Societal Division: [13:35 – 16:55]
• Event Risk and Civil War Scenario: [16:55 – 26:13]
• Dollar System and Global Ramifications: [26:24 – 33:02]
• Kamala Harris Candidacy & 1968 Parallels: [33:20 – 38:01]
• Portfolio Risks: Election Scenarios & Market Outcomes: [38:32 – 52:29]
• Marko Papic’s New Role at BCA Research: [53:26 – 55:16]
• Postgame: Market Technicals, Hedges & Sector Analysis: [57:02 – 77:36]
  • Key Trading Levels & Volatility Discussion: [64:49 – 76:41]
  • Outlook for Commodities (Gold, Uranium): [74:20 – 80:45]

Investor Takeaways

• Heightened Event and Political Risk: The U.S. 2024 election season poses extraordinary risks, not just on a candidate-vs-candidate basis, but in the form of structural instability, legitimacy crises, and left-tail “black swan” events, which the market is only starting to price.
• Hedging Over Directional Bets: Erik and guests emphasize the importance of “left tail” hedges rather than betting directionally on a specific candidate.
• Watch for Checks & Balances: The greatest financial risk is a single-party sweep, reducing legislative restraint and spiking policy uncertainty.
• Secular Trend Over Tactical Shock: Marko Papic argues that investors should focus less on trying to trade unpredictable events and more on the structural, secular forces—polarization, fatiguing democracy, and fiscal indiscipline—that are producing today’s inflation and macro volatility.
• Macro Context Matters: Policies that were bullish in 2016 (e.g., Trump’s tax cuts) may now be inflationary and thus bearish, given today’s very different macro environment.

Concluding Thoughts

Papic and Townsend deliver a bracing assessment of market risk in the heat of a historically volatile U.S. election. Investors are well-advised to resist both “tactical event” trading and narratives that rely on past patterns (like Trump’s first-term rally), taking a wider-lens macro view. The conversation also reminds listeners that real macro investing demands grappling with the political and institutional fabric of the society—however messy or uncomfortable.

For further information:

• Marko Papic's work: BCA Research GeoMacro
• Follow Marko on Twitter: @MarkoPapic

Prepared by MacroVoices Podcast Summarizer – All context, analysis, and quotes are drawn from the episode transcript in original language and tone.