The U.S. — The next decade
Transitioning to the next 1st Turning in a Fiscal Dominance Regime
Updated: 12/11/24
In Sep, 2024, the Federal Reserve surprisingly cut rate by an “oversized” 1/2% (as opposed to the customary 1/4%) in total absence of liquidity or solvency events, — ostensibly because the labor market was weakening. Just 2 weeks later, the government released surprisingly robust labor statistics, belying the Fed’s action. While financial market participants are still left befuddled, I have come to realize that quietly, the country’s economic condition had already transitioned from monetary dominance to fiscal dominance, and the Treasury is now in the driver’s seat with the Federal Reserve in the back seat. Contrary to its “red herring” mandate, the Fed’s job is NOT to contain inflation and attain near-full employment. It is to keep liquidity of the Treasury bond market — the foundation of global banking— stable and orderly (a la the Bank of England’s stabilization of the UK Gilt market during Liz Truss’ shortened tenure). In other words, the Fed’s job one is to keep the Treasury volatility (as measured by the MOVE index) within a “normal” zone:
Monetary dominance is a condition where the physical economy is regulated primarily by bank lending. Abundant and cheap money made available by the banking system (“lending money into existence”) will stimulate economic growth; scarce and expensive money will do the opposite. And the Fed (central bank, — the bank of banks), by controlling both the quantity and cost of money via its monetary policies, effectively regulated the physical economy. The same control also allows the Fed to create in excess of economic growth (evidenced by growing debt-to-GDP ratio) and thus inflate asset prices, benefitting bankers and the rich. This described the period from the 1980s to 2020, in which the Fed (and virtually all central banks of a debt-based fiat-currency world) make money (debt) free by way of Zero Interest Rate Policy and plentiful by way of unbridled Quantitative Easing (printing out of thin air).
In Q2 2020, Biden increased the national debt in a “shock and awe” fashion from $23T to a whopping $35T (first in response to Covid, and subsequently in his bid for re-election). In U.S. history, such vertical climb in debt-to-GDP ratio only happened in war-time.
The now gargantuan $35T of government (or public) debt translates to over $1 trillion of annual interest payment obligation by the US government, — more than the defense budget of $800B. With tax receipts falling far short of making this annual interest payment after other mandatory expenditures, the Treasury is now caught in a “debt trap”, — having to continually issue ever more government debt just to pay ever growing interest payments going forward. This clearly unsustainable condition is what forces the U.S. out of a monetary dominance period that lasted over 4 decades into a new fiscal dominance period (that is likely to last equally long).
Historically, fiscal dominance followed post-war periods, where the government “unwinds” unsustainable debt, partly through “stealth default” and partly through stimulative programs to have the economy organically “grow out of debt”. Notice the circled V-shaped inflections (from monetary dominance to fiscal dominance). The effect of this government policy changes (as recently as 2022) tends to be abrupt:
Fiscal dominance is a condition in which the physical economy is regulated primarily by government deficit spending on stimulus programs (“spending money into existence”). This typically is accompanied by the targeting of strategic industries for stimulus, like semiconductors right now. In doing so, the government aims to foment price and wage inflation (which explains why long bond yields are rising in response) while the Fed exercises Financial Repression (running a negative real rate policy, — consistently keeping interest rates below the rate of inflation). The end objective of this “joint effort” is to gradually get out of the existing “debt trap” by increasing tax receipts to make interest payments, while imperceptibly “inflating away” existing debt over time by paying interest with debased currency.
To get the ball rolling, the government will continue to issue more debt, financed by the Fed printing more money out of thin air (thus creating inflation). Part of the debt is used in stimulus programs for the economy, thus creating nominal economic growth and increasing tax receipts. Debt fueled growth — as opposed to growth spurred by rising demographics or productivity—has low efficacy (it now takes $2.50 in new debt to generate $1 of GDP growth) and debases the currency. This why low-income households are having so much trouble keeping up with CPI inflation, while the rich enjoys the benefits of asset inflation.
Meanwhile, interest rates will naturally rise with inflation (because lenders demand more interest to compensate for loss of purchasing power in future dollars). But whenever rates rise above a certain level, the Fed will exercise stealth QE (buying bonds with money printed out of thin air) to drive rates below inflation rate. This is the essence of financial repression, — evidenced by a “smoothed” rise of the benchmark 10Y yield:
Problem with negative real rate (financial repression) policy, however, is that it chases away capital: No profit-motivated investor — whether private or sovereign — is willing to consistently lose purchasing power holding U.S. Treasury bonds. Death of the Petrodollar System (i.e. increasingly more countries are buying oil in currencies other than the US dollar and oil revenue is no longer recycled into US Treasury bonds as a silo but instead, in gold) is the overt recognition by all other nations that Triffin’s Dilemma has finally arrived, — the U.S. dollar and all other fiat currencies are no longer money because too much of them had been printed out of thin air, with still much more to come. Fiat currencies will continue to function as medium of exchange, but will cease being the store of value. This is why in the past two years, global central banks have been frantically accumulating gold, driving its price up sharply. They do so to hedge their U.S. Treasury holdings whose values are diminishing with a rapidly debasing U.S. dollar.
As the following long term gold chart shows gold prices have risen sharply in the very short time. To the extent the last up-leg was in part driven by speculators, expect their profit-taking to bail out a collapsing stock market in the first half of 2025, — but I doubt gold price will retrace as low as 1,728 as I annotated. I suspect 2,400 is a more likely target. Thereafter, gold will resume uptrend with negative real interest rates, — just as it did in the 1940s-1980s period.
As of Sep 2024, the yield curve is inverted: Short term T-bills are yielding 5% and 10 year T-bonds are yielding 4%. It makes sense for the Treasury to issue more long-dated debt at lower cost of interest. But not so fast. Virtually all financial institutions around the world hold U.S. Treasury bonds as the most pristine collateral. (“Liquidity” is loaned into existence based on this sliver of collateral.)
When yields go up, collateral value goes down, thereby reducing global liquidity (see explanation in later paragraphs). This will cause financial markets (including the grossly overvalued US equity market) to crash. And for banks holding collateral acquired at much lower cost, unrealized losses mount and insolvency looms (hence the Silicon Valley bank scare back in March 2023).
The Treasury cannot risk that, so it purposely avoids issuing long dated Treasury bonds, thus creating artificial scarcity and keeping bond yields low (i.e. it is doing stealth “yield curve control”). Instead, it issues more and more short term Treasury notes and bills, at higher interest costs which it has to roll over sooner. Money market funds will simply flow out of the Reverse Repo Facility (the Treasury's “slush fund”, if you will) to these new T-Bills (with no auctions involved).
Circling back to my opening paragraph, I think this is why the Fed cut the Fed Funds Rate aggressively, — to mitigate the higher interest costs as much as possible. As well, think of liquidity as assets/duration. Shorter duration (having to refinance more often) for the same amount of assets actually increases liquidity for the financial system.
Going forward, the Fed’s job sitting in the back seat of the car is to keep real rates negative (necessary condition to inflate away existing debt) but nominally high enough to attract buyers of new debt. It does this by buying or selling Treasuries along the yield curve, funded in part by its Reverse Repo Facility (a slush fund, if you will — just like the Treasury’s “General Account”). Money Market funds flood the RRP when the Fed offers to pay attractive interest and drain from the RRP when better rates are available elsewhere (such as T-bills right now).
To the extent the short term Treasury notes and bills are purchased with money borrowed at commercial banks (think Fractional Reserve Banking), money is “borrowed into existence” to fund the Treasury. Put another way, stealth monetization (aka QE) is going on, just not through the Fed, but through the commercial banking system. By the most convoluted of logic, reckless government deficit spending — financed with more expensive debt — not only does not deplete money supply but actually creates more! This speaks to the very essence of fiat currencies: They are credit and not money by nature.
Not only that, by holding more short term bills and notes, banks reduce their duration risk when yields rise in a fiscal dominance regime. Illiquid banks and overpriced equity market are both kept afloat. But as more and more of this government debt is jammed down the throat of banks (a la the Japan playbook), they have to sell something else to fund the purchase. The something else is grossly overpriced U.S. equities:
To the extent purchases of these notes and bills (in a highly liquid “cash equivalent” market) are made by “foreign” buyers, don’t mistake them for foreign central banks (as in historical cases of long bond purchases) but highly leveraged speculators (read: hedge funds) based in tax haven domiciles like Luxemburg, the Cayman Islands, Ireland, etc. This drives up volatility of the Treasury market (as measured by the MOVE index), — because speculators do not hold Treasury notes/bills as “store of value” but trade in-and-out of them per liquidity needs. As previously explained, the Fed works closely with the Treasury to regulate this volatility.
Meanwhile, total private (household + enterprise + bank) debt in the U.S. roughly equals total public debt. “Maturity roll” of enterprise and bank debt (think commercial real estate with >50% vacancy whose loans roll every 5 years) needs to be refinanced with global liquidity. One of the biggest funding sources of global liquidity is the world's largest savings pool — the “Mrs. Watanabe’s” of Japan — desperately seeking better yields in US assets, — especially when the US dollar keeps rising against the Japanese Yen. This dynamic is known as the Yen Carry Trade. If the dollar weakens against the Yen, then the Yen Carry Trade will unwind (i.e. investment in U.S. stocks will be liquidated and repatriated back home), — shrinking global liquidity.
Global liquidity is the sum of “funds” (debt, not true money) held at all financial institutions (including central banks) in the world (see earlier inverted pyramid). A big part of this is made up of sovereign bonds (U.S. Treasuries, German Bund, etc.) held as collateral (also debt, not true money) at all financial institutions. This collateral can be easily be converted in the repo market (the “pawn shop of sovereign bonds”) into investable “cash” (debt, not true money). 70% of private debt has an average maturity of 4 years and the biggest “maturity wall” will appear in 2025. Magically, global liquidity has been on a 4Y up and 1Y down cycle, in sync with the Business Cycle (translation: Liquidity — or the availability of debt — grows and shrinks with economies); and the current cycle also looks to peak in 2025:
Global liquidity has been the fuel that kept the grossly overpriced equity market “propped up”. Even if it doesn’t contract but simply expand at decelerated rate, the equity market will crash (most likely in 2025). $6T of T-bills and $4T of T-bonds and T-Notes at ~2% rate have to be rolled in 2025. This huge demand will starve liquidity otherwise available for the equity market. Liquidity is created by rising (asset) prices. When asset prices drop, liquidity disappears. Meanwhile, in a debt-based fiat currency world, liquidity grows with orderly servicing and repayment of debt. When debt defaults, liquidity disappears with debt write-offs. Over-leveraged mal-investments by private equity/credit firms (now a bigger industry than banks), — particularly in the form of bad loans to the battered commercial real estate sector — can easily trigger a liquidity crunch thus asset (including equities) price drop.:
Chart-wise, the following Dow Jones Industrial chart suggests the end of the current 80-year 4-Turning Cycle is nigh. Much of the incessant rise in the equity market was due to the “Yen Carry Trade”, as explained earlier. Then there was massive buying of Treasury bonds by China (recycling of current account surpluses), which kept bond yields low and discounted cash flow (thus valuation) high for U.S. equities. This encouraged increase of leverage (per earlier discussed rising debt-to-GDP ratio) for stock buybacks, further driving up equity prices.
The extremely overvalued stock market has been propped up solely by global liquidity. If only for the reason that while debt grows exponentially (and cannot stop doing so) the global liquidity cycle (primarily because of oscillating central bank policies in reaction to the business cycle) is coming to an end, the equity market will crash in 2025. China’s now massive selling of Treasury bonds (to raise U.S. dollars in dealing with their own deflationary depression) will accelerate the crash by driving long bond yields up and equity prices down.
How far down will the crash take the DJI? Normally, I would say minimally to the 38% retracement level of ~26,272. Problem is, there is literally over a quadrillion dollars of derivatives rigging the stock market (inverted pyramid diagram). A 38% retracement of the stock market would bankrupt most financial institutions. The authorities will close financial markets before that happens.
For good measure, corporate insiders have already positioned themselves appropriately for a crash in 2025:
Warren Buffett’s Berkshire Hathaway is of the same mind (see chart below). Unlike cash, sovereign bonds held as collateral at financial institutions are not fungible (because different issues have different market prices). This is the reason for unrealized losses on banks’ books a la Silicon Valley Bank (and of late, B of A — which caused Buffet to dump his shares in mass). It took 16 days of bank-run nearly two decades ago for Washington Mutual to finally close its door. It took only one day for Silicon Valley bank to meet the same fate because the bank run was done at the speed of light with smartphones. Can you imagine AI initiated bank-runs without human intervention, or “non performing” commercial real estate loans at private credit firms being forcibly marked to market? These threats remain prime candidate for Black Swan triggers for a stock market crash.
In the physical economy, recession is already in progress irrespective of phony government data and pre-election “happy talk” by mainstream media “press-titutes” (mouthpieces of their corporate masters, who do no independent investigation of their own). Circling back to the opening paragraph, one may ask: “How can that be if labor statistics are robust?” Answer: “labor statistics are manipulated”. In truth, we are losing high-paying full time jobs (a la tens of thousands of layoffs by Big Tech firms) and part time jobs are exploding (people are taking on multiple low-paying part time jobs to make ends meet). Further, virtually all new full time jobs are created by the Biden government in his bid for re-election. (Government jobs produce nothing; the incoming Musk/Ramaswamy DOGE will take care of this drain on the economy.)
This recession is unlike any recession in the past. The Fed’s unprecedented rate hike (from 0% to over 5% in a short year between 2021 and 2022) was both depressive and stimulative at once. Small to medium-size businesses which rely heavily on bank loans suffered greatly and their stocks declined accordingly. Cash-rich mega companies, by contrast, benefitted from extraordinary interest income. Their stocks rose accordingly. The Fed created a bifurcated equity market (which melted up in value incessantly because of disproportionate weighting of large cap stocks, even though by count many more stocks declined than rose). It also created a bifurcated economy in which certain sectors are in recession whereas others are actually growing, thus creating a “rolling recession” not well captured by statistics.
Nonetheless, recessions start with hiring freeze (already happened in the second-half of 2024), which drives declining earnings forecasts (happening as I write), followed by stock market crash soon after. Remember, Trump’s incoming Secretary of Treasury (Scott Bessent) will be working hand-in-glove with Elon musk’s “DOGE” initiative to curtail Biden’s unbridled government deficit spending. This will further depress corporate profit (earnings forecasts) and expedite the stock market crash in 2025. Alas, the market euphoria after Trump’s November election will likely be proven a mere “sugar high”:
Economic recession still has a long way to go (see following chart) and ends only with maximum unemployment. Expect a lot more pain on Main Street in 2025.
Remember, employment is the last domino to fall in progression towards recession per the H-O-P-E framework:
Delinquencies, foreclosures, and home price collapse in the real estate sector follow unemployment pretty closely. In addition, there are these additional drivers of inventory increase (thus price decline): Institutional investors rotating out of this “asset class”; the “silver tsunami”, the AirB&B dump, and “under water” private equity bail (e.g. Blackstone dumping their holdings at losses in Florida, Texas, Arizona, et al), and forced sale due to unaffordable, escalating property tax and insurance costs.
Now let's discuss the all-important linchpin to relative performance of all asset classes, — the US Dollar (because it is the reserve currency that drives global capital and trade flows). A strong USD causes global liquidity problems and necessitate the selling of Treasuries, driving rates up, risk asset prices and tax receipts down, and exacerbate the fiscal dominance predicament. For that reason and the fact that he wants to revitalize US exports, Trump wants a lower USD.
The impending recession actually helps his cause because recessions are deflationary so they typically drive long bond rates down, taking the USD down with it. Further, the Fed will hyper-print in response to recession, further debasing the USD.
As it turns out, the USD moves in 20-year cycles. It moves up for approximately 10 years when “money (USD) is tight” all over the world and/or money flows to dollar-based assets during financial bubbles in the United States or for flight to safety reasons. It then moves down for approximately 10 years when global economies (particularly emerging countries) are booming and/or financial bubbles are bursting in the United States.
Net flows of foreign capital into U.S. dollar assets already peaked in 2022 and has been on steady decline. (Retail traders— the “dumbest of money”— have been replacing this to keep driving the stock market up since then.)
The US dollar looks poised for another decade-long down cycle from here.
“So what does all this mean to me as an ordinary citizen (and amateur investor)?”, you ask. Well, the upcoming decade will be defined by ending of the current 4th Turning with financial markets crash and recession in 2025–2026; and starting the next 1st Turning with “green shoots” of energy renaissance, reindustrialization, and global monetary reset.
First, “cash is king” during recession (because all other assets are falling in price). But here’s the catch: The world has come to realize during the current 4th Turning that perpetual refinancing old debt with new debt has resulted in forever debased fiat currencies. Witness the U.S. dollar in permanent decline of purchasing power since the 1920s:
No doubt, fiat currencies will continue as media of exchange, but they are no longer recognized as store-of-value. “Cash” in a fiat (the very word means “just trust me”) currency is nothing more than an IOU whose worth is subject to manipulation, debasement, even confiscation by the counterparty who issued that IOU. Meanwhile, the flip side of that IOU — debt — is a claim on future income to be earned by future generations. Cash in a fiat currency therefore, is “bad money” to be used but not kept. It is to be converted into “good money” (gold, Bitcoin, real properties, physical commodities, equities etc.) for “storage”. This explains the massive purchases of gold by Asian central banks of late, driving the meteoric rise in gold price.
Even before the recent price rise, gold has been rising alongside equities the whole time. The rise in both is really more of a statement about (protection against) a falling US dollar. Note that despite the stock market (SPX)’s spectacular rise throughout the entire 80-year 4-turning cycle (see earlier chart) it has actually gone nowhere for the latter 56 years of that eighty year cycle, when priced in gold (i.e. adjusted for inflation). This is because during pronounced inflationary periods, equity values drop in gold (i.e. inflation adjusted) terms:
It is becoming increasingly obvious even to Main Street investors that gold — the original “proof of work” (mining); the new “silo” for energy (think BRIC nations buying oil from Russia and settling in gold instead of the US dollar); the new neutral reserve asset replacing US Treasuries— should have been the “anchor” in every portfolio all along. This is especially true during periods of a decline in U.S. dollar (as previously discussed) because one needs another currency (that strengthens against the dollar) to hedge dollar-based assets (including cash) held in one's portfolio. Gold is the best of all currencies.
Alas, buying, authenticating and holding physical gold in one’s personal possession is troublesome. So is buying and holding Bitcoin in “cold storage”. For those who cannot be troubled, just do “Bills and Chill”, — earn 5% in short-term Treasury Bills during the 2025 to 2026 recession.
In garden variety recessions, long bonds (TLT) are the go to investment. But given foreign investors are already shunning U.S. Treasuries (for all the reasons already discussed) and imminent global monetary reset, I would avoid them.
Second, since the government aims to foment inflation during fiscal dominance (as previously discussed), “passive index investing (buying the S&P 500 index and go to sleep) will no longer work post-2025 to 2026 recession. One must be an informed “stock picker”. As legendary investor Howard Marks puts it, “Profitable investing is not buying the best assets at any price, but buying even mediocre assets priced much below their intrinsic values” (needless to say, figuring out the intrinsic value is key).
The entire next decade of transition from the current 4th Turning to the next 1st Turning will feature “all roads lead to inflation”, — what with de-globalization, reshoring, demographic decline, curtailed immigration, not to mention “hyper print” (in response to recession) by the Fed all happening at the same time.
Question is, will it be inflationary boom (reflation) or inflationary bust (stagflation)?
The answer depends on the availability of cheap and abundant energy with which to propel a major industrial renaissance and unleash great productivity gains from AI.
The last 4-Turning 80-year cycle was all about the gestation, actualization (3rd Turning of this cycle), and decline (4th Turning of this cycle) of the Age of Great Moderation brought about by globalization (Thomas Friedman's Flat Earth). The rise in geopolitical tension is palpable as de-globalization ends this cycle and begins another Age of Discord. Resolution of this tension will become obvious in the next decade via revitalization of the military, strategic geopolitical repositioning, achieving technological dominance, and formulation of cohesive economic statecraft in a new, multipolar world order. Driving both the military and technological objectives will be (multiple forms of) energy. I see energy as the single most important sector over the next decade.
Trump understands this and promises “drill baby drill”. But results won't happen overnight and will likely take a decade. So I think stagflation will reign in the next decade (transitioning to reflation in the following decade). Stagflation implies depression (prolonged period of below-trend growth whether recession by NBER definition or not). Employment will continue to deteriorate with corporate profit margin, so there is no way the Fed will hike rates no persistent inflation is. Further, there can be little doubt that Trump will pressure the Fed to lower rates if only to accommodate fiscal regime deficits (as previously explained).
Ergo, term-out (i.e. extend duration of) Treasury holdings up to five years, — especially when 10TB yield reaches 5%.
Long before stagflation ends, high quality integrated oil and gas companies will become prime investment targets (for both domestic consumption and export considerations). The energy sector will see the highest return when we enter reflation (quadrant 2) for the obvious reason of demand exceeding supply. But one should start establishing a core position in the sector even before the stock market bottoms in 2025 -2026, considering the sector is already at a historical low now in overall stock market weighting:
As well, with oil no longer priced in US dollars but in gold (because BRICS nations are already purchasing oil from Russia and Saudi in native currencies, but settling in gold), the U.S. will be incented to hasten its nuclear renaissance. Now is the time to take a core position in small modular reactor (SMR) players as the essential enabler of AI (and crypto mining). Cloud service providers (aka data center hosting services) are obviously also attractive investment targets post stock market crash.
Trump may pressure Japan into some kind of Plaza Accord 2.0 deal to kick off the impending decade-long USD down cycle (as previously discussed). Regardless, a declining USD will ease pressure on the Eurodollar market and boost growth in emerging economies, starting a commodity super-cycle. Previous USD cycles have shown that when the US dollar is weak, real (physical) assets do well and paper assets will do poorly. Indeed, the last decade had been kind to U.S. stocks and bonds. We are now heading into a decade where commodities will outperform. Gold has already led and other commodities will follow. Pay special attention to the copper to gold ratio (and also the oil to gold ratio) inflecting up as a leading indicator for the commodity super-cycle. (As well, gold miners will likely start outperforming gold sometime during the next decade.)
A special category of commodity to pay attention to is food. Given China's predicament over the next decade, I strongly suspect it will face food shortage as an issue. I can see Trump devising clever fiscal policies to stimulate the export of food as another piece of the economic statecraft puzzle. I would start building core positions during the 2025-2026 market crash in well-run food producing companies.
If Trump imposes tariffs meaningfully in 2025 as he threatened, USD will strengthen against other currencies, — which is not what he wants (as previously discussed). I see the Trump tariffs as means to statecraft toward global monetary reset. The BRICS nations have been attempting their own cross-border trade/capital flow, payment/settlement system, — unchained from the US dollar with its own stabilization mechanism (replacing the IMF and World Bank). Trump clearly wants to derail this attempt and prevent the world from going multipolar. MAGA is about extending the American hegemony — now 248-year-old — beyond the 250 years average lifespan of any preceding western hegemony (except for the Byzantine Empire which lasted an exceptional 1,000 years because of its adoption of subsidiarity):
To the extent the threat of tariffs also encourages foreign establishment of manufacturing inside the United states (to avoid tariffs), it will promote reindustrialization and significant improvement in trade deficit (which in turn will reduce budget deficit). Look to upstream suppliers to exponential tech growers (as well as the defense industry). These would be the “old economy” industrials (e.g. heavy equipment and machinery, electrical components, etc.). Incorporate these into one’s portfolio even before recession ends.
Key to Trump’s success will be a smooth global monetary reset that ends the 4-decade-long reckless debt culture and that starts a new “honest” monetary system. This will doubtlessly include the adoption of a global digital currency system and some form of stealth debt jubilee (some suspect his “talking up cryptos” as a sly way to extinguish Treasuries with inflated StableCoins). Who knows? Maybe the monetary reset will features de-financialization, — radically restructuring the casino that is Wall Street. As well, proper practice of statecraft will require the setting of quantity-and-price of money in accordance to the Treasury’s fiscal policies. For instance, just as tariffs act as a tax on foreign adversaries, high interest rates suck global capital away from them (albeit raising the USD at the same time). Perhaps Trump would do it as a one time thing and wisely invest the capital in strategic industries rather than squandering it on inflating financial assets for the rich (as has been the case since the GFC in 2008). In any case, it stands to reason for Trump to take “independence” away from the Fed.
Leading up to this global monetary reset will be Trump’s highly disruptive tariff wielding, budget slashing, and growth spurring programs that he must implement well ahead of the Nov 2026 midterm election (lest he risks the Republican Party being wholesale swept out of Congress). Therefore, expect rapid fireworks (read: Max pain a la Milei) straight out of the Jan 2025 inauguration gate (watch the MOVE index like a hawk for early warning of stock market crash).
We'll see about the success of Trump’s Blitzkrieg, but certainly an extremely weak German and French (with dissolution of the EU a likely feature of this 4th Turning’s end) will make his global wheeling and dealing easier.
Behind Trump’s reindustrialization initiative may also be a tectonic strategic shift toward supporting the fiefdoms of Big Tech and the military industrial complex (consistent with the need to revitalize the military in preparation for a new Age of Discord, as discussed earlier), and weakening the fiefdoms of Big Finance (read: increasing the physical component and reducing the financial component of GDP), Big Pharma, and the intelligence agencies. Recruiting Elon Musk will clearly give the U.S. a head start on combating rapid demographic decline with productivity gains from AI applications, crypto adoption, quantum computing and other technologies.
Elon is a man of great imagination whose vocabulary does not include the word “impossible”. He named his company Tesla in honor of Nikola Tesla, whose vision was to wirelessly transmit power all over the world. Elon’s Starlink — a satellite internet constellation operated by SpaceX — already provides low-cost, high-speed internet to remote locations all around the world. With expertise in both solar and space technologies, who is to say he won’t harvest solar energy in Texas then beam it up to space then back down to Europe (think of Germany’s industrial collapse due to energy shortage) to significantly boost US export?
Other sectors that outperform during reflation are those with pricing power — like materials, commodities, consumer staples, healthcare, and real estate. But I see no rush in taking core positions in the next decade. Overall return of the stock market is likely to be muted in the next decade, considering the phenomenal return of the last decade. Remember Bob Farrell's first rule of investing.
