As The Tri Polar World Turns: The Stoic Strategy
1550 words, a 4 minute read as we distill 6500 words & 27 charts from over 20 distinct research sources.
Exec Summary
How best to invest in the whirlwind that is Trump 2.0?
We reached back to the Ancient Greeks and the Stoic philosophy, identifying the premeditation of evil as job one – imagine all possible outcomes and fear none.
We develop three ancillary principles to support this investment strategy. First, pay no attention whatsoever to what Trump or his Cabinet/advisors say. We believe it is a complete waste of valuable time given Trump will say anything at any time about anything.
We believe the ability to disregard Trump’s verbiage represents an investing superpower, allowing one to focus on what counts while competitors waste time trying to decipher the signal from the noise – pro tip – there is no signal.
Second principle, we want to pay attention to what Trump does, not what he says. He is an old guy and so we expect him to do what he did in his first term, namely seek to cut taxes.
As such, tariffs can be seen as fund raising for tax cuts while DOGE represents the spending cut side of the same coin. Both are designed to boost tax cut potential.
What’s based, as the kids say, is that all this effort exists solely in the service of furthering tax cuts for the wealthiest Cabinet in American history. What’s even more based is that these efforts are achieved by assaulting the very segments of Govt (USAID, CFPB) these folks don’t like – thus they get to bake and eat their own cake.
Third, we want to pay action not to the news but to the market reaction to the news. Forget about tariff talk; what are Chinese equities doing, what are Mexican, European, in fact what are most non US equities doing? They are outperforming the S&P.
So, having imagined all scenarios, been disciplined enough to ignore the Trump chatter and savvy enough to focus on the market rather than the news what do we see?
We see a TPW of regional competition across the three existential areas of AI, Climate & Defense. The spending to support this competition underpins our global growth Long Cycle thesis which in turn supports our global equity bull market belief via the earnings channel.
The recent breakout of commodities supports the growth cycle POV, the recent break out of non US equity: ACWX, EFA and EEM, support our view that the non US equities are taking the leadership baton from the US.
US exceptionalism is under question, as DeepSeek punctures the myth of US tech dominance. We look for USD weakness as capital repatriation takes hold. It makes no sense for the US to upset its neighbors and bondholders with $9T in UST to roll over this year alone.
We expect USD weakness ahead as foreign capital, the most OW US financial assets ever, to gradually return home, unnerved by US chaos, worried about a possible US policy mistake and recognizing that policies are improving in Europe, in Japan, in China while assets are cheaper, under owned and starting to OP.
USD weakness will act as a tailwind for continued Commodity and non US equity OP. Our Global Multi Asset (GMA) model remains OW global equities with an OW in non US equity focused mainly in EM equity led by China. We remain deeply UW FI and doubleweight in Commodities.
CLIMATE
President Trump is pulling the US out of the Paris Club Accord, reversing much of the Biden Admin’s clean energy efforts and seeking an additional 3 mbpd of fossil fuel production. That’s pretty much all one needs to know about the US climate effort.
Europe is moving as France seeks to leverage its nuclear power capacity to attract domestic and foreign AI and data center demand.
China continues to lead the clean energy revolution – its efforts a poster child for the new industrial policy mix of public and private partnership to leverage fiscal and monetary policy to lead the global competition. Its focus now shifts from quantity to quality.
ECONOMICS
The US has a very narrow path to raise tariff revenues without raising inflation, particularly given rising inflation expectations and goods prices both. Likewise, it will struggle to cut spending without dampening growth.
We expect the global growth gap between the US and the rest to begin to narrow as the US fiscal impulse starts to wane just as it picks up in Europe (Germany) and in Asia (China/Japan).
Germany needs to fight economic stagnation while China fends off deflation. Japan continues with its exit from deflation. Signposts include the upcoming German elections, China NPC meeting and Japan’s Shunto wage round.
POLITICS
We expect the CDU/CSU to lead Germany post elections and note that easing the debt brake is favored by a majority of voters.
As the tariff picture clarifies we expect China to accelerate efforts to shift its growth profile from export quantity to quality and domestic demand growth.
US Sec Rubio says the US won’t attend the upcoming G 20 meeting in S Africa while Defense Sec Hegseth throws Ukraine under the bus before peace negotiations even start.
The US withdraws from the Paris Club, muses about taking over Gaza, withdraws from the WHO, skips the G 20 & gives away other countries territory before negotiations begin. We should not be surprised when the ROW decides to move on and takes its capital with it.
The Trump honeymoon is already over – Pew Research polling shows a 51% disapproval rate with DOGE and Musk polling in similar territory. FT headlines how the Trump trades are unwinding while Tesla’s stock is off 25% from its post-election high.
POLICY
From a TPW perspective raising 25% tariffs on Mexico and Canada is the exact opposite of what one wants to do in a world of regional deepening and regional competition .Jim Farley, Ford CEO: “what we’re seeing is a lot of costs and a lot of chaos. A 25% tariff across the Mexico and Canadian border will blow a hole in the US industry that we have never seen.”
Europe is getting the message it needs to stand on its own – the estimated cost to rebuild the Ukraine and establish a more robust European Defense force is estimated at roughly $3T. Its now or never for Europe.
Asia continues to integrate with China exporting more to SE Asia than to the US. China production continues to move offshore, mirroring what the US did with NAFTA some 30 years ago in establishing low cost production platforms within its region.
We anticipate a dog fight in the US fiscal battle; expecting little in the way of tariff revenue raise and a similar outcome from the DOGE spending cut effort. Much is performative when substantive is what’s required.
The performative vs substantive take is most visible in the immigration space where televised raids in Aurora Colorado, a right wing fever dream, resulted in 400 ICE agents making one, yes, one arrest.
MARKETS
Its all about the E and earnings continue to be robust with JPM reporting Q4 US EPS up 11% Y/y, up 2% in Europe and up a whopping 21% in Japan. US and ACWI flirt with new highs while ACWX, EFA and EEM break out.
We note KWEB’s big move (up over 20% past one month) as the world cottons on to the opportunity in China tech. We loved David Tepper’s CNBC comments when asked about how he is hedging tariff risk on his long China tech positions: “My hedge is I don’t care”. We are with him.
Within our Global Mutli Asset (GMA) model we remain positioned with an OW to global equities with a focus in the US on financials, SCs ( big winners from Big Cap Tech puncture), semis & power producers as part of our AI allocation.
We are OW non US equity including European banks, Japanese equities and a heavy OW to EM equity led by our China OW split between large caps and tech.
We remain deeply UW FI and zero weighted UST which remain in a secular bear market. The spending required to compete in AI, Climate and Defense requires Govt spending and fiscal support. As such it makes no sense to us to own long duration DM Sovereign debt. We are long credit, especially EM credit which like EM equity offers attractive yield and capital appreciation potential.
We continue to watch the USD as a potential tailwind for our Commodity OW as well as our non US equity and especially EM equity OW. The fact that the USD has weakened over the past month as Trump lays out his tariff book speaks volumes to us.
Additional signposts to watch include the Chinese bond market. We expect it to reverse its recent strong rally as core CPI continues to accelerate (now up 5 months in a row). A bond reversal here – much as we have seen in the JGB market will signal success in the fight against deflation and support a domestic investor reallocation out of Chinese bonds into stocks.