The future of world order

Francis J. Gavin contends the post‑World War II order is ill‑suited to contemporary challenges—what he calls 'problems of plenty' (climate catastrophe, pandemics, inequality, digital misinformation) coupled with demographic decline—and sets out five assumptions and four scenarios for 2035–2040. He argues that while many partial orders (finance, travel, nuclear non‑proliferation, standards) remain resilient, legitimacy pressures could produce outcomes from a muddled continuity to regional fragmentation, renewed great‑power war, or catastrophic planetary crises, with a modest preference for a 'trundling along' baseline of muddled management and periodic crises.

Analysis

Market structure: The article implies a multi-speed world where ‘partial orders’ (finance, tech, travel) persist while security and macro orders stress — winners include defense primes (LMT, RTX, GD), cybersecurity (PANW, CRWD), and incumbents of consumer digital services (SPOT, NFLX) that rely on resilient network effects; losers are global-transport/leisure (AAL, IAG, airline ETF JETS), trade-sensitive manufacturing and discretionary retailers. Expect pricing power to bifurcate: premium cyber/defense earns 5–15% real revenue growth in a fragmented world while commoditized exporters face margin compression of 200–500bp over 12–36 months.

Risk assessment: Tail risks are asymmetric — low-probability systemic shocks (great-power war, catastrophic pandemic, rapid climate tipping) would send VIX +200–400% and core bond yields tumbling or spiking depending on flight-to-quality; immediate shocks (days) favor cash/gold, short-term (weeks–months) favor volatility hedges, long-term (years) favor real assets and defense/cyber exposure. Hidden dependencies: supply-chain nationalism can quickly crater revenue for global luxury and airline OEM suppliers; catalysts include a Taiwan incident, escalatory Russian moves, or a novel pandemic strain.

Trade implications: Tactical portfolio: favor 2–3% longs in LMT/RTX (defense), 1–2% in PANW/CRWD (cyber), and 1–2% core long in SPOT as a defensive digital consumer play; pair long SPOT (1–2%) vs short JETS (1%) over 3–9 months. Allocate 2–4% to GLD as tail insurance and buy 9–12 month 25-delta puts on ACWI equal to 3% notional for systemic crash protection.

Contrarian angles: Consensus overweights China-tech or broad EM risk; what’s missing is aging-demography driven secular stagnation in growth-sensitive cyclicals — travel and high-PE global consumer names are underpriced to downside. Reaction is underdone in defense/cyber and overdone in long-duration secular growth defensives if rates reprice; historical parallels to 1970s malaise suggest value in quality industrials and real assets rather than tech-only bets.

Key Decisions for Investors

• Establish a 2–3% long position split LMT/RTX (60/40) using 12-month 5–10% OTM call spreads to limit cash outlay; target total return +15–30% if defense budgets rise 3–7% over 12–36 months.
• Allocate 2–4% portfolio to gold (GLD or physical) and add 0.5% in 6–12 month call options on GLD as asymmetric tail hedge; increase to 5% if Brent > $100 or VIX > 30 for more than 10 trading days.
• Initiate a pair trade: long SPOT 1–2% of portfolio (benefit from resilient streaming) financed by a 1% short position in airline ETF JETS or AAL, horizon 3–9 months; hedge the short with 3-month puts if travel demand rebounds >10% vs baseline.
• Purchase 9–12 month 25-delta puts on MSCI ACWI sized to 3% notional as systemic-crash insurance; if SPX falls >10% within 60 days, add another 2% notional protection and reweight into defense/cyber names.