Attack the Week (ATW)
April 20, 2025
Sunday Thoughts
I’m putting down thoughts just before I’m off to a family Easter feast, which I will be thoroughly enjoying. A warm welcome to all new subscribers who are helping to grow this space. I am ever so grateful for your support. A reminder that I am currently running a 20% off on all subscriptions until the end of the month.
I believe that current market pricing is masking the vast range of possibilities this current regime shift can take. It makes sense; how do you price something nobody has experienced before? History teaches us that momentous shifts typically begin with a sense of denial as tectonic shifts unfold. The real moves are still ahead.
Regime shifts are fascinating yet often tumultuous periods, where paradigms are challenged, old norms are upended, and new opportunities emerge for those who can adapt swiftly. Looking back at the 1930s and the post-Bretton Woods era since 1971 provides examples of how these transitions unfold. The Great Depression shattered the prevailing economic order. Initially, many clung to traditional beliefs, hoping for a return to stability. However, those who recognised the need for new approaches in policy and business thrived amidst the chaos. Innovations in economic theory, such as Keynesian economics, emerged to guide governments through unprecedented challenges. Industries that adapted quickly to new consumer demands and technological advancements.
Similarly, the collapse of the Bretton Woods system in 1971 marked a seismic shift in global finance. Fixed exchange rates gave way to floating currencies, and the gold standard was abandoned. Initially, there was scepticism and resistance, as institutions and individuals struggled to grasp the implications. Yet, those who embraced the flexibility of floating exchange rates and adapted their investment strategies flourished. This period saw the rise of financial innovations, from derivatives to globalised capital markets, reshaping the landscape of international finance.
The vast complexities of today's global macro landscape are about to be tested. Let’s face it, nobody knows the direction or endpoint of the current geopolitical, social, and economic shake-up. The biggest mistake you can make, in my humble opinion, would be to ignore it. As such, it's paramount to be prepared and learn from what history can teach us. wrote an outstanding piece on previous tariff episodes, which admittedly have occurred nearly 100 years ago, but still, it’s worth considering some of the parallels.
The best case is that all this political push will fizzle out as everyone realises that the real costs of changes to monetary and global imbalances are simply too high to bear. What if not? I know I will be preparing for change and will, of course, always share my thoughts and investment implications with my subscribers. For now, my macro roadmap is still dominated by the following broad thoughts:
The US Dollar continues to weaken
U.S. stocks on an index level will likely re-rate lower
I don’t call the end of US exceptionalism. For it to end, you need an alternative. I don’t see exceptionalism elsewhere. US companies are still the best in the world.
Rotation might continue, but the bulk of non-US equity outperformance is behind us
Lower trade deficits and still elevated budget deficits mean steeper US yield curves
Inflationary pressures might persist in the short-to-medium term. US Treasuries might not offer you the same diversification in a stagflationary environment unless we enter a recession
Real assets, like precious metals, should continue to do relatively well
The willingness of the US president to instil change, however, is almost never-ending and should make us all listen. His latest comments about firing the FOMC Chair do not bode well. Questioning the very cornerstone of a well-functioning financial and monetary system is not something markets will take lightly. Independent central banking was brought in to provide confidence and stability. Just look at Turkey to see what happens if those anchors are being removed.
Let’s now read Macro D’s latest thinking before briefly scanning the week’s upcoming calendar. We then revisit some charts, which give us some interesting setups. As always, we conclude with a review of the output from our asset allocation model.
Wishing you all a very Happy Easter! May this season bring you peace, joy, and renewed hope. Enjoy the time with loved ones and embrace the opportunities that lie ahead. Happy holidays!