We begin this week’s newsletter by examining the outcome of several elections around the globe, including Japan, Georgia, and Bulgaria. Next, we turn our focus to the fraught world of investing, as gold and Bitcoin rise while volatility remains elevated. We then explore the potential technologies and developments that may change the world, from Chinese EVs to Ozempic. Finally, we conclude with a discussion of the effects of the U.S. election on the domestic and global economy.

Global Elections

Japan’s ruling LDP coalition loses majority for first time since 2009

Nikkei Staff Writers, Nikkei

Georgian opposition dismayed by western response to ‘stolen’ election 

Anastasia Stognei and Ben Hall, Financial Times

Bulgarian politics remains deadlocked after election

Marton Dunai, Financial Times

After Elections, Newfound Uncertainty in Japan and Georgia 

The Editors, World Politics Review

Recent elections across the globe have reshaped political landscapes and injected uncertainty into international affairs. In Japan, the long-dominant Liberal Democratic Party (LDP) experienced a significant setback in the October 27, 2024, general election, losing its majority in the lower house of parliament for the first time in 15 years. This unexpected outcome throws the future of Prime Minister Shigeru Ishiba’s government into question just a month after he assumed office. While the LDP remains the largest party with 191 seats, its coalition with Komeito secured only 215 seats, falling short of the 233 needed for a majority in the 465-seat chamber. This defeat stems from public anger over a political funding scandal involving numerous LDP lawmakers. It could lead to political instability as various parties vie to form a new government. The main opposition, the Constitutional Democratic Party (CDP), led by Yoshihiko Noda, saw a surge in support, winning 148 seats, and is now poised to play a crucial role in shaping Japan’s political future.

Meanwhile, in the Caucasus region, parliamentary elections in Georgia have sparked controversy and international concern. Despite widespread reports of voter intimidation, ballot stuffing, and fraud, the ruling Georgian Dream (GD) party, led by the influential oligarch Bidzina Ivanishvili, claimed a resounding victory with 54% of the vote. This outcome has drawn condemnation from the Georgian opposition, which has refused to recognize the results and accused the GD of stealing the election. President Salome Zourabichvili, who has emerged as a vocal critic of the GD’s authoritarian tendencies, has appealed for Western intervention to challenge the legitimacy of the election. Her calls for action highlight the deep political divisions within Georgia and raise concerns about the country’s democratic trajectory. The international community, including the EU and the US, has expressed reservations about the fairness of the elections, but their response has been cautious, further fueling frustration among the opposition, which sees the West’s reluctance to intervene as a betrayal. Adding to the complexity, Hungary’s Prime Minister Viktor Orbán, whose country currently holds the rotating EU presidency, has openly endorsed the Georgian Dream’s victory, showcasing a stark division within the EU on how to approach the situation. In Bulgaria, parliamentary elections resulted in a familiar political deadlock. Former Prime Minister Boyko Borisov’s center-right Gerb party emerged as the largest party with 26% of the vote, but this fell short of a majority, extending the country’s prolonged political instability. With no clear path to forming a stable government, Bulgaria faces continued uncertainty, jeopardizing its aspirations to join the Eurozone and undermining its efforts to combat corruption and strengthen the rule of law. These elections highlight the challenges facing democracies around the world, from political scandals and democratic backsliding to the rise of populist leaders and the erosion of public trust in institutions.

Investing Perils

What the surging price of gold says about a dangerous world 

The Economist

Wall Street Whiplash Schools Traders on Fragile Modern Markets 

Denitsa Tsekova and Isabelle Lee, Bloomberg

The Stock Market Enters the Danger Zone 

Jacob Sonenshine, Barron’s

Trump Trades — Bitcoin Is Boss, Bonds at a Loss

John Authers, Bloomberg

 The global economy is grappling with a multitude of challenges in late 2024, creating an environment of heightened risk and uncertainty. This has prompted investors to seek refuge in traditional safe haven assets like gold, pushing its price up by 38% to a record-breaking $2,700 per troy ounce. The Russia-Ukraine war, which began in 2022, is a major driver of this trend, as it has not only destabilized global markets but also revealed the potential for the “weaponization” of reserves held in Western currencies. Central banks are responding by diversifying their holdings, with countries like China, Turkey, and India significantly increasing their gold reserves. Adding to the demand, family offices, which manage the wealth of the ultra-rich, are increasingly turning to gold as a hedge against currency devaluation and surging prices. The appeal of gold extends beyond central banks and institutional investors, with China and India, representing a fifth of the world’s economic output, driving half of all consumer purchases of physical gold.

The surge in gold is paralleled by a resurgence in Bitcoin, which recently crossed the $70,000 mark, a 71% increase since the beginning of 2024. This renewed interest in Bitcoin is attributed, in part, to Donald Trump’s potential return to the White House. Trump’s previous embrace of protectionist policies and his recent pronouncements on cryptocurrency regulation have made him a favorite among Bitcoin enthusiasts. The expectation is that a Trump victory would lead to a more favorable regulatory environment for cryptocurrencies, further fueling their growth. However, financial markets remain fragile, as evidenced by the VIX index’s recent record-breaking volatility swing in August 2024. The S&P 500, after experiencing a significant downturn, rebounded to post its largest weekly gain since November 2024. The volatility extended to this past week, with the S&P 500 slipping 0.4% and the Dow Jones Industrial Average dropping 2.3%, breaking both indices’ six-week winning streaks, while the Nasdaq Composite rose 0.9%, marking its seventh straight week of gains. Bond yields surged, with the 10-year Treasury yield increasing from 4.08% to 4.22%, as investors recalibrated rate expectations amid inflation and employment growth concerns, raising the possibility of fewer rate cuts and additional market strain in the weeks surrounding Election Day. This prevalence of volatility highlights the delicate balance of the global economy, with investors reacting swiftly to shifting political and economic tides, seeking opportunities in alternative assets like gold and Bitcoin while navigating the uncertainties of traditional markets.

The Future of Technology

Arkansas May Have Vast Lithium Reserves, Researchers Say 

Ivan Penn and Rebecca F. Elliott, New York Times

BYD Is Winning the Global Race to Make Cheaper EVs 

Gabrielle Coppola and Danny Lee, Bloomberg

It’s not just obesity. Drugs like Ozempic will change the world 

The Economist

Recent technological advancements and pharmaceutical breakthroughs are poised to reshape the global landscape, impacting industries, economies, and individual lives. In the realm of electric vehicles (EVs), BYD, a Chinese company led by Wang Chuanfu and Stella Li, is rapidly expanding its global reach. BYD has entered 95 markets with plans for assembly plants in 10 countries across three continents. Their success is fueled by a focus on affordable EVs, utilizing their innovative Blade battery technology, a lithium iron phosphate (LFP) design that emphasizes safety and cost-effectiveness. However, BYD’s expansion has encountered resistance, particularly in the US and the EU, where policymakers have imposed tariffs of 100% and 17%, respectively, on Chinese-made EVs to protect domestic industries. Undeterred, BYD is sidestepping these tariffs through strategic localization, evidenced by their plan to build a $1 billion plant in Turkey to take advantage of the country’s customs-union agreement with the EU.

Beyond the rise of BYD, the discovery of vast lithium reserves in Arkansas in October is significant not only for the global EV market, as lithium is a critical raw material for EV batteries, but also for the lithium market overall. The Smackover Formation, a geological formation previously known for its oil and gas production, is estimated to hold between five and 19 million tons of lithium dissolved in underground brine, potentially exceeding the world’s current demand. This discovery could diminish reliance on traditional lithium producers like Australia, South America, and China, shifting the balance of power in the EV supply chain. Meanwhile, the pharmaceutical industry is experiencing a revolution of its own with the emergence of GLP-1 receptor agonists like Ozempic, initially developed for diabetes treatment. These drugs have demonstrated impressive results in combating obesity and are being studied for their potential to address a range of other health concerns, including cardiovascular and kidney disease, Alzheimer’s, and addiction. The widespread adoption of GLP-1 drugs could dramatically improve global health outcomes while generating substantial cost savings for healthcare systems and economic benefits from a healthier workforce.

American Political Economy

How Trump tariff threats might plunge Mexico into recession and stoke immigration 

Kate Linthicum, LA Times

What Is Behind the Rise in Bond Yields? Look to Powell, Not Trump.

Randall W. Forsyth, Barron’s

‘The US presidential campaign resembles an unfunded quest for a lost paradise’

Stéphane Lauer, Le Monde

The 2024 US presidential election presents a stark picture of fiscal irresponsibility, with leading candidates Donald Trump and Kamala Harris seemingly unconcerned with the country’s already dire budgetary situation. The US is projected to reach a budget deficit of $2 trillion in 2024, representing a staggering 6% of its GDP. Presently, the national debt has ballooned to over $34 trillion – 125% of GDP – a level exceeding that seen at the close of World War II. This fiscal crisis, driven by an aging population and an ever-widening chasm between government spending and revenue, is nonetheless absent from the campaign rhetoric. Both candidates are instead focused on populist pledges of increased spending, with Trump’s plans estimated to worsen the deficit by $7.5 trillion over the next decade, while Harris’s would add $3.5 trillion. This disdain for fiscal responsibility is a troubling ideological shift in both the Republican and Democratic parties, where fiscal discipline has been sacrificed for political gain.

This disregard for sound policy extends to trade policy as well. Trump, continuing his protectionist stance, has proposed a 20% tariff on all US imports, with a further 50% specifically targeting Chinese goods. These tariffs, while potentially generating $331.1 billion in revenue, would likely trigger global trade wars, destabilizing the international economy. Mexico, whose economy is heavily reliant on exports to the US, is particularly susceptible to these tariffs and could be plunged into recession as a result. Adding to the economic uncertainty is the recent rise in bond yields, with the 10-year Treasury yield hitting 4.25% after a sharp 0.6 percentage point jump. This surge is driven by fears of inflation, particularly in light of the Federal Reserve’s decision to cut interest rates despite a strong economy. The Fed’s move, seemingly at odds with prevailing economic conditions, has spooked investors, who see it as potentially fueling inflation. The confluence of these factors paints a worrisome picture of the US political economy, where short-term political maneuvering appears to be taking precedence over long-term economic stability.