Surveying the range of analyst’s forecasts for the stock market in 2025, there are two camps: those who see a market bubble and expect the market to fall 70% and those who see Artificial Intelligence fomenting a new industrial revolution forecasting higher S&P500 returns. Both forecasts are anchored on convincing arguments.

The World Economy. Most countries need to borrow over the next few years to finance their governments. The US must refinance $7.8 trillion this year. The anticipated supply of debt is raising long-term bond yields despite the Federal Reserve’s 1.0% interest rate cuts. Yields are rising because a greater supply of bonds lowers prices and raises yields causing anxiousness about inflation.

Higher interest rates increase debt service burden and add to the difficulties in the Banking, Commercial Real Estate, and Housing sectors which the US relies upon for key drivers of growth. Higher interest rates can also trigger a shift in investor sentiment out of stocks and in to cash and bonds.

The US Dollar’s Reserve Currency status is tremendously advantageous for US, but since we have a record-high debt over $36 trillion, a robust economy is crucial to maintain the “full faith and credit” allegiance of bond buyers as Russia & China have undertaken steps using an alternative international trade payment system bypassing the US Dollar.

President Trump appears to be initiating “Beggar-thy-Neighbor” policies that will increase protectionism, shift demand away from imports, and move manufacturing back to the US in order to improve US finances. The risk is that his policies may instead create greater anti-US sentiment. The most consequential of which would be incenting retaliatory initiatives against the US, perhaps aligning countries to use a common CBDC instead of Dollars via the Mbridge alternative to the SWIFT system for international trade and payment.

Geopolitics. Looking at the evolving geopolitical landscape, it is clear the US has been positioning to defend its reserve currency status first by dropping the London Interbank Offering Rate (LIBOR) for loans in favor of its own Secured Overnight Financing Rate (SOFR)—finally completed at the end of June last year. The Bank For International Settlements (BIS), the central bank of central banks, then made Gold a Tier 1 Asset (Dollar substitute) for banking reserves and subsequently worked with China, UAE, and Thailand to test and implement interoperability among multiple CBDCs to facilitate direct cross-border payments between central banks and financial intermediaries across different jurisdictions with new software called mBridge—an alternative to the SWIFT system using CBDCs and blockchain technology. The US then discovered mBridge was the payment system Russia, China, Saudi Arabia, Iran, Brazil, India, and South Africa are using to bypass sanctions & trade amongst themselves.

Since the BIS together with the IMF favor deployment of a Central Bank Digital Currency (CBDC) to control money (see https://www.youtube.com/watch?v=rpNnTuK5JJU) and China, Russia, and Middle East dictator governments want to surveil and control their citizens, this mutual compact worked for all parties including Europe. Our best guess is the EU whose central banks are insolvent, view CBDCs as a next logical step, moving up one more level just as was done at the Bretton Woods Convention after WWII when the Dollar was made the Reserve Currency and the Central banks were created to guarantee each nation’s bank liabilities. With today’s proposed arrangement, the IMF would guarantee insolvent Central bank debts at the world level using the IMF’s CBDC.

Considered together, this series of circumstantial events warrant serious investigation of two important question sets: First: Are US allies and foes alike working together to replace the Dollar with a single Central Bank Digital Currency (CBDC)? Why did the BIS offer Gold as an alternative to the Dollar? Secondly: Did the US Treasury agree and contribute money to this enterprise development? Were US representatives left out of mBridge details that were underway? And were US representatives asleep at the wheel such that a colossal undertaking was discovered only after its implementation?

Regardless of the answers, the collective actions certainly appear contrary to US national interests and freedoms. They also shed new light on Trump’s targeted warnings that: “losing the Dollar’s reserve currency would make the US go to third world country status the way our country is run.”

Our Assessment. President Trump is taking the helm of our government with many serious problems long in the making by both parties. We assess his stated policy initiative as follows:

Energy is a key component necessary to make and transport goods. It is the most important driver of inflation. Lowering energy prices, ending Ukraine & Middle East war spends, reducing regulation, and reallocating wasteful spending will lessen the rate of debt accumulation putting downward pressure on inflation while fueling greater GDP growth. Lower inflation alongside improved economic growth unshackles the Fed to lower interest rates further. These improvements support higher commercial real estate values, alleviate FDIC insolvency, and ease concerns about US debt levels. A robust economy and strong dollar compared to the rest of the world should also slow the de-Dollarization move. Should chaos ensue, the Dollar’s safe-haven status should favor the US Dollar.

However, Trump 2.0 has potential problems as well. For example, putting tariffs on nations and their goods opens the door for lobbying to remove them and therefore increases political corruption. Unleashed corporate free-for-alls lead to needed regulations. Furthermore, if the Trump administration acts as a hegemon using Executive powers to dictate policy usurping other nation’s sovereignty, these actions will foster resentment. Unfortunately, indications already hint at a hegemony bent judging from his press conferences on Greenland, Panama, and Canada. We don’t
disagree in principle with mercantile benefits of Mr. Trump reasonings, but even a benevolent dictator is still a dictator and policies that don’t respect national sovereignty, ignores property rights, and dictates a rule of law they don’t follow themselves is doomed.

President Trump’s plan to use aggressive Tariffs as a bargaining tool against allies and foes is a mercantilist approach arguably justifiable given US debt levels that require corrective action to get our finances on sound footing and maintain our currency’s status. However, the “Greater Good” is
served not by solely employing an ‘US versus THEM’ political-economic approach, but by a strategy also recognizing there are interdependencies among nations. As economist Dr. Mohamed El-Erian of Pimco so candidly states: You cannot outpace the world without at some point having the
consequences of living in a bad neighborhood.” Best policies elevate other countries over time to a higher level rather than exploiting their weaknesses and saves yourself from living in an unhealthy neighborhood.

Investment Focus. We expect chaotic Presidential pronouncements (and tweets) that create shock and awe. This may lead to a roller coaster ride in both stocks and bonds but particularly in the technology sector which means in all major indices. We are not in the Bubble camp, nor do we see a
doomsday correction, stagflation, a hard landing, or hyper-inflation assuming Trump’s economic policies are implemented. We will closely monitor whether the administration dampens the US’s hegemon approach, as we deem it integral to Trump’s promise to end our forever wars and prevent
WW3. We will adhere to our proactive methodology and employ a barbell format should portfolio metrics move into a Contraction phase as indicated by our Market & Business Cycle algorithm. On one side of the barbell we’ll favor old school value providing liquidity, stable value income, and cash/treasuries (Defense) and on the other innovative growth, quality management, and optionality (Offense) while keeping a hyena-like focus on capital protection. Should portfolio risk breach our guardrail thresholds we will take corrective action. This also means we will favor liquidation over taxes. Remember money management is not an exact science, but a probability distribution guided by management tools and sound judgment. Investment success comes by keeping your headspace while not losing too much because the reward-for-risk opportunity is unfavorable.