Emerging market credit spreads are tightening while developed markets' are widening. This divergence is not a fundamental mispricing but is explained by unique, positive developments in specific sovereigns like post-election Argentina and bonds in Venezuela on hopes of restructuring.

The U.S. is more likely to follow Argentina's path: currency inflation, populist policies funded by deficit spending, and an eventual economic collapse leading to a century of stagnation. This is a more insidious threat than a dramatic revolution.

Given the unreliability of polling, markets will wait for tangible results before reacting. The composition of congress will be the first concrete signal, with a divided or right-leaning legislature seen as a positive check on executive power. This could trigger currency rallies well before the final presidential outcome is known.

When national debt grows too large, an economy enters "fiscal dominance." The central bank loses its ability to manage the economy, as raising rates causes hyperinflation to cover debt payments while lowering them creates massive asset bubbles, leaving no good options.

To escape a debt crisis without total collapse, a nation must delicately balance four levers: austerity (spending less), debt restructuring, controlled money printing, and wealth redistribution. According to investor Ray Dalio, most countries fail to find this balance, resulting in an "ugly deleveraging" and societal chaos.

With the exception of Brazil's BRL, investor positioning in Latam currencies is not over-extended. This means the magnitude of currency moves should be similar in either a government continuity or transition scenario, creating a balanced risk profile rather than a one-sided vulnerability to a specific political outcome.

While overall EM credit spreads are near post-GFC tights, making value scarce, Argentina stands out. Following positive legislative election results, its sovereign debt has rallied significantly but remains wide compared to its own history and peer countries, suggesting substantial room for further performance in an otherwise expensive market.

When countries run large, structural government deficits, their policy options become limited. Historically, this state of 'fiscal dominance' leads to the implementation of capital controls and other financial frictions to prevent capital flight and manage the currency, increasing risks for investors.

Instead of ineffective grants to incumbents, the US should leverage its world-leading capital markets. By providing lightweight government backstops for private bank loans—absorbing partial default risk—it can de-risk private investment and unlock the massive capital needed for new factories without distorting market incentives.