Geopolitics

Long-dated bond yields rose another 48 bps since our last missive, quite a move in just a month. And yet, equities have remained resilient. This suggests that the move in bond yields is due to sanguine economic forces, not fiscal profligacy or inflation fears. In addition, the war in Iran is subsiding, partly because the Fed itself has conspired against it. Will President Trump restart the conflict regardless? Perhaps, however, the constraints are mounting against the White House foreign policy. We remain bullish on equities and reaffirm our view that investors with a long-term horizon should be nibbling at the current level of yields.

To make sure that our bearish clients are happy, we pivot to the risk of higher tax rates in the US. Specifically, we try to answer the question of when markets price higher tax rates.

The Trump-Xi summit does not imply concrete benefits to US-China trade. Strategic tensions persist, forcing China to increase fiscal stimulus in 2027. 

Dear Friends,Does the world need an 87-page deck? Probably not. But you're getting it regardless. We are itching to turn bond bullish and we remain equity bulls for now. Are there risks to these views, you bet. Thus the 87 pages. Plenty for bulls and bears alike. But if you were to pin us down to the main risk in 2027, it would be a combination of Midterm Dem sweep and end of Iran war. End of Iran war? Yes, indeed. If the economy can withstand high interest rates and gasoline prices today (Chart of the Month), what is it going to do next year if both abate? The Fed does not have an inflation problem today, but it may next year. For an in depth analysis of these topics, read my full Here, There, and Everywhere Chartpack.