Below are some of the most interesting things I came across this week.

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Investors are still behaving as if the world has not changed at all when, in fact, everything has changed. “Globalization, rising trade, and capital liberalization was the dominant geopolitical and economic paradigm for decades. That paradigm is over and is being replaced with modern mercantilism. This presents an urgent threat to markets and investment portfolios,” reports Bridgewater.

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Foreign investors are just as vulnerable to this shift as domestic ones. “Based on Federal Reserve flow of funds data, foreign investors (as of the end of 2024) are as overweight US stocks compared to bonds more than they ever have been since the Nifty Fifty era of the 1960s,” writes Simon White.

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The critical issue here is the very thing that was most responsible for driving exceptional corporate profitability in recent years has now gone into reverse. “US corporations generated ‘supernormal’ profits by cashing in on the appeal of American brands and outsourcing production to nations with the cheapest costs. Now the biggest beneficiaries of globalisation are likely to be the big losers of America’s trade offensive,” writes Ruchir Sharma.

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Moreover, any further decline in foreign appetite for treasuries only makes that market more dependent upon the highly-leveraged basis trade. As one hedge fund manager tells The Financial Times, “For sure it makes it more unstable, 100 per cent. But the issue is the Treasury market is unstable. It’s unstable because there is a lot of supply [of US government debt].”

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Together, these issues help to explain the strength in the gold price recently. As The Daily Shot notes, “Gold prices have broadly tracked the growth of the US money supply and federal debt over the past two decades, reinforcing their role as a hedge against monetary and fiscal expansion,” and, of course, geopolitical and economic paradigm shifts as appear to be underway today.

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