There for a time, the story of 2025 was US underperformance.
On some vectors anyway, Donald Trump’s determination to recast global trade and commerce should’ve been bullish for US assets. But the specter of an authoritarian US executive bent on remaking America in the image of Viktor Orban’s so-called “illiberal democracy” in Hungary spooked investors, as did Trump’s strident (if not formal) disavowal of the country’s mutual defense obligations, particularly in Europe.
Trump’s every word and deed raised new questions about the rule of law in America, and every day seemed to bring new evidence to support the worst fears of critics who spent Trump’s first term fretting about democratic backsliding and the institution of autocracy in D.C.
And look, if you dispute any of that — i.e., if you’re inclined to scoff at any part of that description of Trump’s first six months in office — you can f-ck right on off. Seriously. I’ve got no use for you anymore. This is all factual and it’s plain as day.
Also — and I say this regularly — it’s all spelled out in Project 2025. It’s literally right there, written out for you in plain English to read. All you had to do to be an informed voter (and if you voted for Trump, you weren’t informed) is pull yourself away from your social media feed and read it. But I dare say not one in 100 people who defend Trump’s presidency have read Project 2025, or any part of it, even to this day.
That’s damning in the extreme for Wall Street strategists, because there’s a lot in that document which pertains explicitly and directly to fiscal policy, monetary policy and a lot of other things besides, which are absolutely critical to market strategy. Imagine that: There was (and still is) a blueprint sitting out there which outlined, in exhaustive detail, what was in store for policy under a new US president and Wall Street by and large didn’t read it. Certainly not the rank and file which produces research and “strategy” notes.
And they still haven’t read it. I can tell because of the way they write. It’s painfully obvious, and on the off chance I’m not being clear enough, let me spell it out: If you’re advising clients on market strategy in the “Trump 2.0” era and you haven’t read Project 2025 all the way through, you’re laughably derelict and ought to be fired. Only you won’t (be fired), because your boss hasn’t read it either and so is just as willfully blind as you. And you know what they say about the blind leading the blind: It always works out great.
Anyway, as Ezra Klein noted this week, it’s too late now. We’re past the Steve Bannon “muzzle velocity” stage and into “the authoritarian consolidation stage” of Trump’s presidency. This is lost. Democracy in America is no more. If you disagree, you aren’t paying attention, don’t know what you’re talking about or, most likely, both.
The good news for investors is that authoritarian consolidation is calmer than muzzle velocity, at least until the muzzles start literally flashing in one of the cities where Trump’s deployed the US military. Having accepted, consciously or not, the reality of autocracy in America, investors have learned to like USD assets again.
The figure below shows you the reversal in the “sell America” equities trade which defined the first six months of 2025. The red bars are the ratio of the MSCI USA index to the global benchmark stripping out US shares.
The light gray-shaded area’s a reminder: US underperformance in and around the escalatory phase of Trump’s tariff rollout ran into the double-digits when measured on a two-month rolling basis.
Some of the recovery (who knows, maybe all of it) is attributable to the resumption of the big US tech bull-bubble. But DeepSeek aside, it’s not exactly as if anyone doubted US tech dominance earlier this year. Rather, investors were attempting to price America’s spiraling reputational crisis.
Now, nearly nine months into the first authoritarian government in American history, investors are resigned to the demise of the world’s first truly successful post-antiquity experiment in representative government. The figure below shows you the same resignation process in bonds.
That’s the cumulative rolling performance gap between sovereign bonds issued by developed market governments other than the US and US Treasurys. The former began to outperform the latter dramatically in and around “Liberation Day,” but the gap’s shrinking.
The only thing that hasn’t started to recover is the dollar itself, and that’s a lot more to do with the likely narrowing of rate differentials and growth disparities than it is rule of law concerns.
So… I don’t know. Farewell American democracy, I guess. We hardly knew ye. As long as the financial assets hold up, it’s water under the Key Bridge.
We’re human, we love confirmation bias. US markets have worked in investors’ interests for a long time, overlooking a few hiccups from which they recovered quickly on an historical basis. Liberation day scared us, then we looked around for other options and decided to stay right where we are. It’s not pretty. Actually the whole thing is ugly as hell. There are a few, very few strands of hope left, but they’re directly in the king’s sights and will most likely fall before the end of 2025. The odds of having an election in 2026 is rapidly heading to zero. I can’t figure out why most Americans don’t give a damn. The globe is warming, country infrastructure gets worse everyday, water and food quality are poor, the administrative state is on life support, health care is expensive and often subpar unless you have lots of bucks and citizens continue to load up on guns, all while Trump continues to build a personal police force called ICE. What could go wrong. “You don’t know what you’ve got until it’s gone” – trite but true.
We’ll always have elections. Even the USSR had elections. The illusion of choice is a powerful motivator.
It’s pretty obvious why they don’t care – stocks go up. The people that don’t own stocks care – the people that do could care less. More AI bubble please, more gold, more crypto scams.
It’s purely a market based decision
H hasn’t used the laundry-pile analogy for some time (it’s a cyclical device) but it seems apt here. With respect to private-sector securities, US assets will likely remain the cleanest shirt in the laundry pile in any MAGAnomic global recession scenario. Stonks gonna stonk.
Capitulation to authoritarianism is more clearly signaled in Treasury yields where there’s no doubt that the market has cozied up to the US again.
Is there a breaking point for the latter behavior? At the very least I’d expect sovereigns to divest of treasuries to reduce US leverage over them. No doubt they’re scrabbling to find (and to legally authorize) alternatives.
The border-less country of Billionaire, also known as Wealth, which has always had power in the US, has finally had enough of ‘representative democracy’ as the threat of even small tax increases and rules to prevent them from dumping dioxin, pcb’s and mercury in poor neighborhoods and having the middle class dare to tell THEM what they can and cannot do (‘deep state’ after all is Billionaire for ‘middle-class’). So the threat of accountability was all it took to finally take any illusion the middle-class had any other purpose but to bail out their bad bets, pay most the taxes, provide exit liquidity, and war funds as well as provide a farm to grow girls and boys to be used up as sex toys and status symbols beyond the Rolexes, Bentley’s and Gucci bags. When Trump pardoned Blagovovich, that was all you really needed to see for what was coming.
I found you and your writing before you started this blog, and signed up instantly your pay wall went up as the only liberal voice I found in finance. I hope in the future, you can write more to us than to the lost MAGA credit middle managers and car lot dealers you seem to think are reachable. How will we survive this bullshit Wealth has forced on us, so we can get or stay rich, and hopefully reunite to take freedom back? I have found the people who voted for Trump are unmoved by losses, and keep shouting TDS. I yell back that they have STD syndrome. “Sucking Trumps Dick.” Fact is a large proportion of a populace is genetically on the authoritarian follower spectrum. Nothing you can do can change that. I just hope the killing fields every far right wing power has inflicted never shows up here. But in that, history is bleak.
Thanks again for keeping the torch aloft. You’re not alone.
+1
The killing fields are already upon us. Trump loves the idea (and finality) of killing. He doesn’t quite know how he will do it inside our borders (LA is a test, along with Chicago soon), but he practices on drug boats, illegals and the like to test the reaction in his base. Believe me he has a target list to start out on.
Trump watched too many 80s action movies (except the ones about Russians). Why shouldn’t the good guys just gun down the bad guys? Look at them with their shifty eyes and different ethnicities!
Unfortunately, Trump also seems to possess the plot armor of an 80s action hero.
I believe we are experiencing a “Sochi honeymoon”. Trump himself is not a the ballot in ’26. The biggest fireworks will occur after the ’28 Olympics on the run-in to the Nov. election.
Trump cult is on the ballot in 2026. Hopefully some sanity will drill into the brains of enough of us to say Whoa !
There were no bears when Hoover won in 1928 and havinf a business mane in charge was Wall Steet’s dream. Nixon won 49 states in 1972 and Barron’s could fin no predictors of a down martket. Trump was hailed as the Billionaire’s hero. Everyone ‘that counts’ is long (there are no big buyers left) and what we are seeing is distribution in the old historical sense. Trump will fail, but he could make the economy a shambles – hopefully not a Gaza.
The implications are frightening. Maybe everyone throughout history has felt this way: but I believe our best times were in the past.
Known knowns, known unknowns and unknown unknowns in our future. Keeping 12-24 months of living expenses in not quite, but pretty close to, “cash”.
I’ll be man enough to type it and say it – I voted for Trump. I didn’t like Harris and didn’t think she would make a good president. And I have read Project 2025 and did not think Trump would implement it, and if he did, just a few rando pieces for the red meat base.
And boy was I wrong. It started with “it’s just talk” and then moved to “what is he doing” and then moved to “is everyone else this dumb to believe this nonsense”
So yes you are right. And what makes me mad is a combination of “why do stocks and bonds keep enabling this” and “why won’t someone, anyone, push back even once and see what happens”
“So yes you are right.”
Of course I am. How could I not be? …..
So true, so sad