2025 Forecast
The Credit Strategist - January 2025
I remind myself every time I engage in this annual “foot-in-mouth” exercise that even Ted Williams in his best year only hit .400, meaning he failed 60% of the time. An even better example may be Roger Federer, who despite winning 80% of his matches, won only 53% of the points he played. Investing is not merely about the percentage of correct calls that you make, but which correct calls you make. Success is based on getting the big things right, not everything right.
Successful investing is also based on an understanding that everything is connected in today’s world – economics, domestic politics, geopolitics, culture, and technology. The Credit Strategist spends so much time discussing domestic and foreign policy because the financial markets are significantly impacted by what happens in areas beyond markets. That is particularly true of credit markets that are driven by macroeconomic forces. Constructing a world view rather than just a market view has been the gravamen of this newsletter since its founding 25 years ago. You can’t understand markets apart from the world in which they function.
The world is facing the most fragile economic and geopolitical landscape since the Second World War. Fortunately, despite the significant challenges facing America, President Trump is inheriting a much stronger hand than he bequeathed President Biden. The United States enters 2025 in a much stronger position than its strategic rivals due to bold action and courage on the part of its allies (particularly Israel but also Ukraine) and the miscalculations of others (Iran and Russia). Whether by design or luck (I suspect it is a combination of both), the Biden Administration leaves President Trump with a much stronger hand geopolitically and economically than it inherited four years ago or that Mr. Trump inherited eight years ago. This stronger hand is hardly fool proof, however, and the Trump Administration must make smart decisions to preserve and enhance American hegemony while addressing America’s serious spending/debt crisis, geopolitical threats, failing immigration policy, horrifying gun violence, and the collapse of behavioral norms and values. How these challenges are addressed will not merely affect American but global financial markets.
With the proviso that the world’s tenuous geopolitical and debt situations render forecasts particularly unreliable today, the following are my best judgments of what will happen over the next twelve months.
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