The Federal Reserve is Cornered

Unless you live on a remote Greek island, you will have noticed that the U.S. is slowly but surely transitioning from a market economy to a political economy, joining the ranks of China, Russia and many other countries who cherish the emergence of a refactored new multipolar world order.

In a market economy, supply, demand and central banks determine the allocation of capital. In a political economy, governments and their executive branches steer savings and credit where they want it to be.

Donald Trump is the Chief Executive Officer of this new far reaching political economy in the U.S. One of his goals is to corner the Federal Reserve while he set in motion a tsunami of executive orders and the reshoring of U.S. sponsored factories.

So, what Jay Powell and members of the Federal Reserve think, say or do this year, well, we don't really care and neither should you.

You should rather turn your attention and focus on what Treasury Secretary Scott Bessent and the "Other VPs" of this administration have to say and try to anticipate their next moves (such as Banking deregulation which we expect will benefit SMID-CAPS).

We expect that most market participants will be slow to understand this rather subtle but yet very radical shift.

Within the next 3 to 6 months, interest rate policies and the rate of inflation are, in our opinion, much less important than the Key Performance Indicators (KPIs) set by the Trump administration, including the following KPIs:

• Federal revenue up;

• Federal expenses down;

• Federal deficit stable to down;

• Yields down;

• Mortgage rates down;

• Oil down;

• CPI stable;

• Lending affordability up;

• Regulation down;

• Public workforce employment down;

• Private sector employment up;

• DOGE relative success;

• Tax down;

• Foreign investments up;

• USD down;

• etc.

If most of these KPIs are achieved, we expect that smart money will learn to trust the rather unconventional game plan set in motion by the Trump administration, and tolerate a more chaotic narrative as part of negotiations tactics that benefit U.S. interests, while looking to support US exceptionalism once again.

It is clear that the Trump administration wants to address the working class extensive problems (living paycheck by paycheck, poor education, low accessibility to housing ownership, drugs, no financial assets, etc.) that have been aggravated by the global trade policies of previous U.S. administrations with the shift of blue collar jobs from the US to China and to the Global South.

In order to achieve its focus on "Fixing the Working Class", the Trump administration will have to adopt a narrative that aims to "smoothly" deflate the financial asset bubble and steer investments and savings towards real assets and bonds. Therefore, it is hard to remain bullish on U.S. equities given these circumstances.

The Financial Asset Bubble vs Real Assets

Stock Market Gains for the Wealthiest Americans

In the meantime, expect lots of volatility in markets.

We maintain our neutral to short-neutral bias in equities and currently have low exposure to long equities and crypto-assets.

Currencies and commodities do offer more short term profit potential.

Good night and good luck!