The scenario laid out by the report seems like a good one for bonds and currencies, less so for stocks. For all the economic damage of populist policies like tariffs, immigration restrictions and anti-bank policies, the 2010s was a great time for the stock market. War, and threat of war, means weapons. Defanging the elite is a form of deregulation. Partisan gridlock makes raising taxes difficult and increases the voice of big companies. An authoritarian elite consensus is likely to impose medicine such as higher taxes, especially on investors and companies, strong environmental controls, increased pay and benefits for workers and more constraints on creditors and landlords. While those policies have benefits for some groups, they’re generally negative ones for equity investors.
Most investors today are focused on protecting themselves from the consequences of populism and partisanship: inflation, confiscation, government default, war and trade restrictions. Those are real risks, but so is the opposite, an authoritarian global consensus with little respect for rights and elections. Investors have to be careful not to fight the last war.
Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of "The Poker Face of Wall Street." He may have a stake in the areas he writes about.
This column was provided by Bloomberg News.