Fordham: The U.S. exceptionalism trade may be over

Key Concepts:

• Geopolitical Risk Supercycle: A period of significantly elevated and sustained geopolitical risks.
• Geopolitical Risk vs. News Flow: Differentiating between short-term news events and underlying, structural geopolitical risks.
• Geopolitics Lens: Applying geopolitical considerations to investment decisions.
• Safe Havens: Assets or markets perceived as safe during times of uncertainty (e.g., gold).
• US Exceptionalism Trade: The belief that the US offers unique investment opportunities due to its economic and political stability.
• Aggregate Indicator: A composite measure of geopolitical risk derived from open-source data.
• Projection of Power: Actions taken by countries to extend their influence beyond their borders.

1. The Geopolitical Risk Supercycle

• Tina argues that we are entering a new geopolitical risk supercycle, characterized by a significant increase in risk events since 2010 (almost tripled).
• The research substantiates that geopolitical risks can be measured and have been rising, predating events like the Liberation Day tariffs.
• The key point is that geopolitical risk is not merely news flow or noise but a measurable and impactful factor for investors.

2. Investment Strategies in a Risky World

• Investors need to apply a "geopolitics lens" to their decision-making process.
• There's a trend of investors "piling into gold" as a traditional safe haven.
• Sectors like defense are benefiting from the increased focus on security.
• There's renewed interest in Europe and even the UK, despite Brexit, as well as other countries perceived as offering more policy certainty and political stability than the US.
• This raises questions about whether the "US exceptionalism trade" is over.

3. Measuring Geopolitical Risk

• The research involves creating an "aggregate indicator" of geopolitical risk.
• This indicator draws from existing open-source data.
• The goal is to provide a more accurate picture of geopolitical risks than backward-looking tools.
• Geopolitical risk is defined as what countries do to project power beyond their borders.
• The increased use of tariffs and sanctions, particularly under the Trump administration, is seen as a manifestation of this geopolitical competition.

4. Tariffs and Sanctions as Geopolitical Tools

• The President's tariff policy should be read through the lens of geopolitical risk.
• The use of tariffs is intended to increase US competitiveness.
• The increased use of tariffs and sanctions is a key indicator of the rising geopolitical risk environment.

5. Conclusion

• The main takeaway is that geopolitical risk is a measurable and growing factor that investors need to consider.
• Traditional investment strategies may need to be re-evaluated in light of this new geopolitical landscape.
• The research provides tools and frameworks for understanding and measuring geopolitical risk, enabling investors to make more informed decisions.