Dear Investors,
Economic Introduction
As a global macro investor, I’ve witnessed countless market shifts, but what we’re experiencing now is something different.
Currencies are fluctuating wildly, economic tides are reversing, and stock markets are reacting with intense volatility.
If you want to protect and grow your wealth in this environment, understanding the forces at play is non-negotiable.
Over the last six months, the US dollar has tumbled nearly 5%, marking one of its biggest declines in over a decade.
The Japanese yen has surged 2%, regaining its status as a safe-haven currency, while the Swedish krona has climbed 1.9%, fueled by inflation surprises and the European Union’s €800 billion defense spending initiative.
But this is just the beginning. What happens next could reshape global finance as we know it.
Will the dollar continue to fall, pushing capital into alternative assets? Will we see an even more fragmented world economy?
How will investors position themselves for what’s coming next?
We are at a crossroads – are you positioned correctly for what’s coming next? Let’s break it down step by step.
The US Dollar Is Slipping – Will It Get Worse?
The once-dominant dollar is faltering. In February alone, it dropped 0.9% against the G10 average. But why?
Economic cracks are forming. Retail sales plunged 1.2% in a single month, consumer sentiment slumped from 54.2 to 49.7, and PMI services slipped below the critical 50 threshold to 49.7, signaling contraction.
These aren’t just numbers – they’re warnings.
Then, there’s the interest rate landscape. The yield on 10-year US Treasuries has slid from 4.1% in December to 3.7% in February.
Meanwhile, the Federal Reserve is signaling at least three rate cuts in 2025, meaning further downward pressure on the dollar.
This isn’t just a short-term trend.
If inflation proves stickier than expected, or if economic weakness forces the Fed into more aggressive rate cuts, we could see another 5-10% decline in the dollar over the next 12 months.
When the dollar weakens, alternative assets thrive.
Gold, for example, has already surged 7.5% this year, touching $2,135 per ounce.
If the dollar decline accelerates, we could see gold breaking through the $2,300 mark by year-end.
If you hold dollar-denominated assets, you need to be thinking about currency hedging.
A weaker dollar boosts international equities, commodities, and select emerging markets, making now the time to reassess your portfolio exposure.
The New Economic Order
For decades, globalization was a one-way street – more trade, more integration, more efficiency. That era is over.
From 1980 to 2008, global trade soared, rising from 30% to nearly 60% of global GDP.
But since the 2008 financial crisis, trade growth has stalled, and recent geopolitical tensions have made things even worse.
We’re witnessing a regionalization of trade. The US has imposed tariffs on China, Mexico, and Canada, and the European Union could be next.
The IMF now projects global trade growth to slow from 3.2% in 2024 to just 2.1% in 2025.
This isn’t just an economic shift – it’s an investment shift. The winners will be the countries and companies that can adapt.
Supply chains are realigning, and new trade partnerships are forming. If you’re still investing as if the world is as interconnected as it was in 2015, you’re missing the bigger picture.
For instance, Mexico is seeing a surge in foreign direct investment, up 14% year-over-year, as companies shift manufacturing closer to the U.S.
This trend, known as “nearshoring,” could create a massive boom for Latin American economies in the coming years.
Stock Market – Where’s the Smart Money Going?
Stock market volatility has been relentless. The S&P 500 is down 4.5% year-to-date, with some sectors getting hammered more than others.
- Tech stocks have plummeted 10.4%, suffering from valuation compression.
- Consumer discretionary stocks are down 13.2%, reflecting weaker consumer sentiment.
- Utilities and energy stocks, on the other hand, are up +1.0% and +0.9%, benefiting from a shift to defensive assets.
But here’s where it gets interesting – valuations are starting to look attractive.
The S&P 500’s forward P/E ratio sits at 19.3x, still above its 10-year median of 17.5x, but financials and industrials are nearing fair value.
This is where the smart money is moving. Cash-heavy companies with strong balance sheets are primed for outperformance, while highly-leveraged, speculative stocks could continue to struggle.
The key now is sector selection. The market isn’t offering blanket opportunities – it’s about identifying which industries will thrive in this new cycle.
Value Investing in Europe – The Hidden Opportunity
For years, value investing took a backseat to growth. But in the Eurozone, value stocks have quietly been outperforming.
Over the past five years, the MSCI EMU Value Index has returned 11.4% annually, outpacing both the core index (11.0%) and the growth index (10.3%).
Banks have been leading the charge. A year ago, Eurozone banks were trading at a P/E of just 6.0x – far below their 10-year average of 10.5x.
Fast forward to today, and the MSCI EMU Banks Index is up 14.8% over the past year.
If you’re looking for exposure outside the U.S., European value stocks might be one of the most overlooked opportunities in the market right now.
What You Should Be Doing Right Now
So, what’s the game plan? Here’s what you need to do:
First, watch the US dollar. If it continues to decline, gold and emerging markets could see massive upside. Gold has already broken past $2,100 per ounce.
Second, diversify regionally. The world isn’t as interconnected as it once was.
Countries like Mexico, benefiting from supply chain shifts, could emerge as big winners.
Finally, shift toward value sectors. Defensive sectors like utilities and energy have been resilient, but European value stocks – especially in financials and industrials – are still undervalued.
If your portfolio is heavily weighted toward growth stocks, now is the time to start shifting toward companies with solid balance sheets and strong cash flows.
The Next Economic Move Is Yours
We’re in a new era of investing. The old playbook won’t work anymore.
The US dollar is under pressure.
Global trade is fragmenting. Stock market leadership is shifting. If you’re still investing based on the trends of the last decade, you’re already behind.
The next 12 months could be defining for global investors. Are you positioned correctly? The time to act is now.