Clearly, investors see the coming year as one of change. I am asked with some frequency my predictions about what part of our economy will break first. The expectation is that the cracks we all see will accelerate into some type of economic explosion. I, too, see cracks in the wall, but I think they act more like a pressure relief vehicle than evidence of impending doomsday.

The first pressure relief comes from the unwinding of political tension within companies. Initiatives based on Environmental Social Governance (ESG) and its cousin, Diversity, Equity, and Inclusion (DEI), are being unwound, as they should be. According to a recent Wall Street Journal article, CEO speeches that include ESG language are down by 80%. This is good news since favoring one group over another has always been a bad idea, even with good intentions. The Supreme Court’s Harvard Admissions decision spelled doom for racial preferences across the board. The unwinding of internal policing seeking social equity spells good news for shareholders. Merit will make its way back into the calculus, but not without gnashing of teeth.

The second trend that will unravel in 2024 is the trend toward company globalization; I think that will accelerate if Trump wins in November. Several companies have made announcements about pulling back on their aspirations for global dominance in their respective markets. I noticed the announcement from Holcim, the $50 billion cement producer, last week. They are splitting the company up to “deglobalize” the brand. Management believes that their global presence is a hindrance to growth, not a source of it. Globalization can result in paralysis in decision-making, requiring many governments to weigh in on each strategic choice.

The third reversal has to do with the Electric Vehicles (EVs). The marketplace seems to realize that electrification has its limitations. Cold weather snaps sap battery life, putting electric cars on the grid to charge more often. At the same time, the heating demand from homes increases, showing the frailty of the electric grid. This makes the argument that we are a long way from a broad energy transition away from fossil fuels. I recently met a propeller mechanic on a hunting trip. He gets shuttled across the country to work on failing windmills. He was criticizing the industry for how inefficient the windmills are and how much service they require. They are also expensive and have far less life than predicted; the blades fail and are not recyclable. There are numerous blade burial graveyards around the country where old blades are plowed underground in landfills. On a recent trip to South Dakota where I saw thousands of windmills, I was amazed at how many were still while others were spinning. Now I know why.

Each of these concepts has been forced into our economy top-down by idealogues and politicians banking on the excess in the system to allow for self-congratulatory but damaging “progress.” We’re finding that our capitalist economic system doesn’t tolerate contaminants, and the cracks we see are the system expelling them.

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