Current themes of focus
This post is a bird’s eye view of what narratives and themes I’m focusing on and where I see returns being generated this year. This newsletter has traditionally been about taking positions in futures with time horizons of days to months. This year, I think the market will reward investors who hold through noise rather than traders who cycle in and out. I expect several sectors and indices to produce returns that approach triple digits, and I want to be positioned for those moves. As a result, I am paying more attention to my long-term portfolio, and several of the themes below are also reflected in my longer-horizon holdings.
Geopolitics > monetary policy
U.S. yields traded in a broad range with little sustained direction last year, and I expect that pattern to persist as competing narratives take turns driving positioning. The bullish case for Treasuries is that inflation and labor remain soft enough to give the Fed cover to cut policy rates into the 2.5%–3.0% range. The bearish case is that sovereign holders continue to reduce exposure to dollars, fiat, and government bonds. If that trend accelerates, term premia should rise and cap how far Treasury yields can fall.
My attention is mostly on geopolitics. Last year, the April tariff shock and the Israel–Iran conflict produced some of my strongest trading months, and I expect the same dynamic to recur. U.S.–China competition is now shaping economic policy through a grab for critical resources, the push to build national champions, and a willingness to use distortive fiscal and industrial tools. Volatility should be concentrated in assets tied to strategic choke points such as commodities, energy, and semiconductors.
Beneficiaries: commodities, resource companies
Hard stick > diplomacy
Soft power is out and kinetic power is in. Venezuela is unlikely to be the last country to face a direct intervention by a global superpower this year. Trump’s removal of Maduro from his compound was a clear signal that the post–Cold War assumptions around the international rules-based order are no longer reliable.
Markets have a habit of dismissing military risk until it becomes unavoidable. When the U.S. warned that Russia would invade Ukraine, markets did not take it seriously. When naval assets began positioning near Venezuela, markets largely shrugged again. Going forward, threats of military action deserve more weight, and traders should pay closer attention to how military assets are deployed and where logistics are being built. I also think the odds of a China–Taiwan conflict over the next few years have risen. China is stockpiling resources, including oil, and it has just carried out its largest military exercise to date around Taiwan.
Beneficiaries: Defense stocks, precious metals
Dedollarization and reduction of government bond holdings
After Maduro’s extraction, Trump threatened Mexico, Greenland, Colombia, and Iran. Mexico was, until recently, both an economic partner and a political ally. That raises a basic question for reserve managers: why hold a large share of national savings in a currency and financial system that can be used as leverage with little warning? I expect diversification away from dollars and government bonds to continue, and in some cases to accelerate.
Beneficiaries: Gold and silver are the only alternatives to fiat for reserve managers (sorry bitcoin)
Debasement of fiat and central bank independence
Debasement and dedollarization are related, but they are not the same phenomenon. Debasement is a policy choice aimed at reducing the real burden of government debt over time. Dedollarization is a portfolio choice by reserve managers responding to debasement risk, sanctions risk, and broader geopolitical considerations.
Contrary to popular opinion, the Fed has been doing the opposite of debasing the dollar since 2022. They reduced their balance sheet (until recently) and kept real interest rates high and restrictive. Trump’s tariff posture and his treatment of allies and adversaries encourage reserve diversification, and his pressure campaign against Powell and other hawkish officials raises the perceived risk of policy being subordinated to politics. With today’s news of a Justice Department inquiry into Powell, alongside the prospect of a Trump appointee joining the Fed in May, I expect the debasement narrative to become a central market focus this year.
Japan is another place to watch. Prime Minister Takaichi, an Abenomics adherent, is seeking to consolidate power and has floated the idea of snap elections. If she strengthens her mandate, Japan may lean harder into reflation. Japan already runs one of the loosest monetary stances in the developed world, with policy rates still well below core inflation.
Beneficiaries: precious metals and other commodities, cyclical and equities ex-US
Losers: USD, JPY
Fiscal dominance
The US, Japan, Germany, and China are all expected to stimulate fiscally this year. This should keep global growth supported and help equities outside of the US perform. It may also help fuel a commodities bull market that is only starting to broaden out beyond precious metals.
Beneficiaries: global equities, commodities
EM outperformance
There’s a good chance that EM outperforms the US this year due to lower valuations and historically depressed positioning compared to US megacaps. EM also tends to outperform when the dollar weakens and the Fed loosens policy, trends I expect to continue this year. I have some long-term positions in EWZ (MSCI Brazil ETF) and EWY (MSCI South Korea ETF).
Brazil is coming off a period of high inflation and their central bank will be cutting rates from a nosebleed peak of 15%. Politics is still a wildcard as president Lula is seeking reelection in October and it’s uncertain who will challenge him, but global macro should be a tailwind.
EWY is heavily concentrated, with Samsung and SK Hynix making up a 46% of the index. Both companies are major beneficiaries of the high-bandwidth memory bottleneck in AI hardware, and that has driven strong outperformance in recent years. Despite the surge, valuations remain more reasonable than U.S. AI hardware peers, with Samsung and SK Hynix trading around 28x and 15x earnings. Korea also has an important policy tailwind: regulators are implementing reforms aimed at raising return on equity, improving corporate governance, and increasing shareholder returns. At the market level, Korea still trades in the low-teens forward P/E range, which leaves room for a re-rating if these reforms translate into sustained capital return and better capital discipline.
Beneficiaries: EEM, EWY, EWZ, and other EM ETFs
It’s late and I’m running out of time, so I’ll stop here and follow up with a part two later this week.
Disclaimer: The content of this newsletter is provided for informational and educational purposes only and should not be construed as professional financial advice, investment recommendations, or a solicitation to buy or sell any securities or instruments. The newsletter is not a trade signaling service and the author strongly discourages readers from following his trades without experience and doing research on those markets. The author of this newsletter is not a registered investment advisor or financial planner. The information presented on this newsletter is based on his own research and experience, and should not be considered as personalized investment advice. Any investment or trading decisions you make based on the content of this newsletter are at your own risk. Past performance is not indicative of future results. All investments carry the risk of loss, and there is no guarantee that any trade or strategy discussed in this newsletter will be profitable or suitable for your specific situation. The author of this newsletter disclaims any and all liability relating to any actions taken or not taken based on the content of this newsletter. The author of this newsletter is not responsible for any losses, damages, or liabilities that may arise from the use or misuse of the information provided.