GeoMacro

Special Report

In this Special Report, GeoMacro Strategist Marko Papic argues that the Trump administration is flirting with high risk / low reward. Triggering a recession may be the end goal of the White House, but borrowing costs are not declining as much as they ought to be while President Trump’s political capital is on thin ice. Most recessions are caused by a “murder weapon.” It is rare that this weapon can be holstered. This may be one of those times.

Investors should not chase the rally in European defense names any further. Too much good news has been priced in too quickly.

Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.

President Trump may not avoid recession. If he does, he faces stagflation, given tariffs, counter-tariff stimulus, and the missing ingredient: an oil price spike.

The ports that BlackRock acquired on both sides of the Panama Canal appear to be a bargain in terms of the entry valuation. But are the risks being appropriately compensated? In this prefatory report, we prepare investors for our upcoming Infrastructure reports, which will highlight geopolitical risk factors in this private asset class rarely encountered in others.

Stock market has continued to sell off as investors try to price President Trump’s trade policy, geopolitical volatility, global manufacturing slowdown, and the apparently cavalier attitude by the White House regarding the risk of a recession. At the same time, it is interesting that the USD and Big Tech have taken a beating – two assets that were supposed to be insulated from the risk of a global trade war. So, what is happening?

Fears of Europe’s decline due to Russian aggression and shifting US policy are overblown. President Trump’s tough stance on Ukraine is a strategic move to consolidate domestic support, not an abandonment of Europe, while Russia’s threat is exaggerated. As Europe responds with higher defense spending, stronger market integration, and greater political unity, investors should overweight European defense stocks and position for Europe’s broader market outperformance.

Are you sure you are in a trade war-induced selloff and/or recession? Or, is America – writ large – the bubble? Fed a steady dose of fiscal profligacy over the past five years, the US economy and its various associated assets have become fat and complacent. As such, the end of the fiscal gravy train – our signature macro call for 2025 – is what is causing the underlying weakness, with the Big Tech – the biggest beneficiary of US Exceptionalism – now buckling. Our message? The tech bros are lying to you. The AI revolution is not positive for Big Tech, not at their current valuation. Play the rotation, even if a (mild) recession may be afoot, as we have been saying throughout 2024.

Trump will pull back from the trade war when stocks approach bear market territory. He will not withdraw from NATO. Favor European stocks on fiscal policy.

Our defensive strategy for 2025 is coming to fruition so we are re-initiating some of our defensive and risk-off trades. Tariff implementation, hurdles in the tax bill, and geopolitical shocks are materializing in the near term.