Monthly Barometer

A divergent economic picture. Interest rates higher for longer. Trump’s unpredictability could turn US good news to bad. How sustainable is MAGA inspired investment strategy? A tough road ahead for China. The climate paradox: as climate crises rage, green policies go into retreat. The rise and rise of singledom.

• A DIVERGENT GLOBAL ECONOMIC PICTURE. The US continues to do better than expected, the EU is stalling (except for southern Europe), and China may become embroiled in a deflationary spiral. The global economy as a whole: facing a low growth – high debt conundrum. At this moment, the monumental uncertainty generated by Trump’s raft of announcements, particularly with respect to tariffs, is leading to higher long-term interest rates, even though short-term rates are decreasing (an exceptional occurrence). Nobody knows how ‘Maganomics’ will pan out. Equity investors are bullish. Bond investors and economists are bearish. In the short-term, equity investors may be proven right. In the long-term, they won’t.
• RATES: DEFINITELY HIGHER FOR LONGER. The relentless rise in government bond yields in much of the world (the US rate on10-y notes is within sight of the 5% threshold) will inflict collateral damage on the wider economy by making borrowing more expensive for consumers and businesses alike. Since rising debt to GDP ratios are widespread, investors are becoming increasingly ‘obsessed’ with fiscal and budgetary policies. In 2025, bond vigilantes will never be far away. Besides, the structural reasons underpinning high interest rates – ageing and decline in fertility rates, de-globalization, geopolitical turmoil and the green imperative – won’t go away either.
• THE UNPREDICTABILITY REGIME. Everybody is trying to decrypt what Trump will really do. In truth, nobody knows, probably not even the President himself. His bombastic assertions and ‘style’ of governance mean that we’ll all live in a new regime of radical uncertainty. Geopolitically, Trump’s world is a jungle in which a simple law applies: the big eat the small. The ‘liberal international order’ may have been maddeningly hypocritical, but it’ll be missed!
• US: GOOD NEWS COULD TURN INTO BAD NEWS. On 20^th January, President Trump will inherit a buoyant economy in which the unemployment rate just fell to 4.1%. Some of Trump’s campaign promises (less regulation, less taxes) have already unleashed animal spiritsthat will sustain strong GDP growth in the short-term. However, In the longer term, Trump 2.0 is likely to worsen the two things households care the most about – inflation, and housing (30-y mortgages currently stand at around a 7% high). He’ll also make national debt worse, which will lead to higher interest rates.
• CHINA – “VERY ARDUOUS”. On the last day of 2024, President Xi Jinping said that the country faces a “very arduous” year of reform and warned that “the journey of Chinese modernization” would include “choppy waters, and even dangerous storms.” Escaping deflation and Japanification will be China’s top priority this year, but monetary easing and fiscal stimulus (irrespective of their size) cannot solve the problem of low consumer demand because they are mostly directed at the supply side of the economy. Prices are falling as households lacking confidence pare back spending. Changing this is no small feat.
• ADJUSTING TO CHAOS. For direct and financial investors, political and geopolitical risks and uncertainty will play a much greater role in asset returns than at any time in recent history. Short-term investors have put substantial amounts of capital in expensive US assets (like the USD and the magnificent 7) and other assets that benefit from a MAGA effect (like Crypto or Tesla), which has resulted in the value of the top 15 US companies being roughly equivalent to the Chinese and European equity markets combined. The fundamental question for investors: is this sustainable and do I want to be long US MAGA and US ‘exceptionalism’, or short?
• PREPARING FOR EXTREME WEATHER DISASTERS. Every month brings more evidence that the world has entered the age of climate disasters: more intense storms, bigger floods, hotter and longer heat waves, more destructive wildfires, and deeper droughts. A rising number of climate scientists assert that climate change could be vastly more disruptive than anticipated, with scenarios like a weakening or progressive collapse of AMOC (Atlantic Meridional Overturning Circulation) now considered plausible. The recent firestorms in California show that the economic costs of extreme weather disasters are colossal. As private sector insurers retreat from the market, these cost will have to be borne by taxpayers.
• CLIMATE POLITICS BACKTRACKING EVERYWHERE. Despite the rising acuteness and acceleration of the climate and nature crises, green policies are about to go sharply into reverse. President Trump’s policies are already proving contagious, either by design or ‘capillarity’. All over the world, green policies are in the process of being watered down (at best), reigned in or simply reversed. This is true for both governments (the US of course, but also in Australia, Canada and the EU) and companies (like all the major US banks departing from the UN backed Net Zero Banking Alliance). In “How We Sold Our Future: The Failure to Fight Climate Change”, the sociologist Jens Beckert explains why the necessary measures and policies required to fight climate change haven’t been taken yet and won’t be taken. Green growth is possible, but not at the scale required to address the challenge. Sobering. Going forward, adaptation will matter more than mitigation.
• THE RISE OF SINGLEDOM. Fertility rates are collapsing globally, not only because married women (and couples) decide to have fewer children, but also because of fewer couples. In short: relationship rates are trending down. In the US, the proportion of single-person households has grown from less than 6% in 1960 to roughly 30% today; and in capital cities like Stockholm and others, the proportion can reach 60% or more. The rise of singledom is a worldwide phenomenon, expected to grow by almost 50% before 2040, and concerning mostly people with low disposable incomes. It is part of the ‘ageing – collapsing fertility rates’ global megatrend, but with a distinct twist in terms of investment implications: (1) more small housing in urban areas, (2) greater focus on leisure & entertainment, luxury, travel and hospitality, and wellness.
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