The article is only indirectly about crypto, rather about Trump, macro, fiscal policy and such "boring" things. But precisely these factors are fundamental for crypto.
First of all:
Much of what I write below is largely already anticipated by the market and partly priced in. In general, many of the points are speculative and I expect to be wrong in some cases. I also want to emphasize that I am not a professional - your opinion or expectations are probably worth as much, if not more, than my assessments.
My goal is to not just focus on issues that are highlighted by the media and the market, but to keep a broader overall picture in mind.
Summary:
-Interest rates & inflation:
Long-term interest rates currently look a little too low, although they have risen sharply in the last month, as has the USD. However, a rebound could come in the short term. Higher interest rates could weigh on risky investments and equities in general. In my view, the Fed is already acting in a rather stimulative manner, which is why interest rate cuts this year would be a mistake. The economic data will be difficult for the FED to interpret.
-Trump and the market:
Trump will probably want to strengthen the stock market, which could trigger a "risk-on" mood in the short term. However, I think that his punitive tariff policy, deportations and interventions in the energy market will be less extreme than he has indicated. His unpredictable policies and rhetoric could still cause volatility in the long term.
-Europe & Asia:
Europe has catch-up potential due to likely stimulus measures and a need to invest, but remains uncertain. In the short term, the euro could gain strength (in relation to the USD), while China reacts to punitive tariffs by devaluing the yuan. US alliances or countries with a lower risk of punitive tariffs could see increased investment to circumvent punitive tariffs.
-ROI on AI-MAG7 and political stimulus:
Without the AI trend, we would not have seen the growth expectation expansion over the last two years. That's why I think the market now wants to see ROI to justify expectations on AI-MAG7. We may not see inflation-adjusted growth in the$VUSA (+0,08%) S&P500/ AI-MAG7 this year if margins decline and the political stimulus does not materialize as anticipated (but I don't think so).
-Trends & AI:
Hyperscaler infrastructure scaling will slow. Nvidia could offer an entry opportunity in the event of margin pressure due to a declining supply deficit. MAG7s remain dominant and are leveraging their market position to expand into new business models and generate future growth. However, the premium will diminish if no quick ROI becomes visible.
-Market Valuation:
The US market is highly overvalued by historical standards, mainly due to MAG7. Passive investments in ETFs further concentrate capital and reduce the flexibility of the market and make the S&P and NASDAQ dependent on the MAG7
Now a little more detail:
Interest rates, inflation and the FED
The current interest rate level remains a key issue. I have the impression that long-term interest rates are currently still a little too low, even if I expect a small rebound in the short term - for example in TLT (16Y US Gov Bonds), whose price has already fallen sharply. However, if interest rates continue to rise, risky investments in particular could come under pressure.
The Fed finds itself in a dilemma. Its task of ensuring price stability is being made considerably more difficult by political influences, particularly under a possible new Trump presidency. I estimate the neutral rate (the interest rate that is neither stimulative nor restrictive) at around 4 %whereas the FED puts it at 3 % - a mistake in my view. I do not currently see the Fed's monetary policy as restrictive, but believe that we are already stimulating. I therefore believe that interest rate cuts this year are not only unnecessary, but a potential mistake.
I assume that the Fed will generally tend towards low interest rates and is more likely to act too late when it comes to raising interest rates. Although it will again emphasize that it will act "data-dependent", I see a problem here: the underlying economic data could prove deceptive due to volatility and uncertainty.
Another critical point is the possible misinterpretation of the impact of AI on the labor market. If efficiency gains from AI are misinterpreted as weakness in the labor market, interest rate cuts could be seen as justified, which could further exacerbate the inflation problem. I consider a scenario of a weakening labour market and simultaneously rising inflation to be realistic - a dangerous state of affairs, as a labour market burdened by AI cannot be stabilized by lower interest rates. This would further fuel inflation.
Possible waves of inflation
I think we could be facing another wave of inflation, depending on the catalysts that trigger it. I see the following factors as possible drivers, most of which may already be partially priced in:
1.Inflation expectationswhich are self-reinforcing and lead to further inflation.
2.Migration policy
3.Energy wars and their impact on commodity prices.
4.Trade wars (punitive tariffs and deglobalization).
5.The impact of AI on the labor market and their potential misinterpretation.
6.Government Spending
7.Confidence in the USD
Trump and the market
Historically, the risk premium for US presidents is often heavily priced in at the beginning of their term of office and decreases over the years.
I assume that Trump will do everything in his power to keep the US equity market and the USD strong. It is conceivable that he will introduce catalysts that could boost the purchasing power of companies and consumers in the US almost immediately. In the short term, this could be celebrated by Wall Street in a massive "risk-on" mode. At the same time, however, I see negative factors, as the policy under Trump could presumably turn out to be quite experimental. However, the capital market needs planning certainty and these uncertainties could lead to repeated volatility.
I think that the alpha this year, especially in selected US midcaps as well as in short-term and volatile high-risk-on segments. It is important to note that we are currently in a different starting position than during Trump's first term. I therefore believe that fewer punitive tariffs and deportations can be rationally implemented.
I also suspect that it was in Trump's interest to keep market sentiment depressed before he took office so that he could claim a strong performance later on. Furthermore, I think that Trump's "drill, baby, drill" policy has stabilized inflation expectations. Without these expectations, inflation figures might have risen more strongly. However, OPEC has taken appropriate countermeasures, which limited the effects.
Europe & Asia
Sentiment in Europe still seems to be at a low. Nevertheless, I see valuation potential through possible stimulus measures and the expectation of a coming European CAPEX boom. However, the ROI of such measures remains uncertain. An additional positive stimulus could come from a Chinese stimulus that could benefit European companies.
In the short term, I expect a slight strengthening of the euroas the USD has recently strengthened so quickly and expectations of interest rate cuts in the US have fallen sharply. At the same time, China could try to devalue the devalue the yuan furtherto counteract potential punitive tariffs.
I also see that oversupply in Europe due to punitive tariffs could tempt the ECB to keep interest rates low. This could keep the cost of capital low and thus boost the economy and consumption. In addition, increased investment in countries of the US allianceinstead of directly in the USA could be used to circumvent punitive tariffs.
The combination of European stimulus, stronger global demand and a possible devaluation of the yuan offers opportunities, but also risks. European companies could be in a favorable position, provided that the ECB ensures stable framework conditions.
I will write another article on Europe soon, as there is a lot to say here. I will look at this separately.
How can my investment generate profits?
1.Dividends:
Direct distributions that provide stability.
2.Inflation-adjusted earnings growth:
Companies that grow in real terms and thus also create long-term value.
3.Expansion of expectations (P/E):
Companies, especially expensive growth stocks, must not only grow but also exceed market expectations in order to generate profits.
Example: If you invest in$PLTR (-2,3%) Palantir because you are convinced of growth, that is not enough. Growth must be stronger than the market currently expects.
Historically, the expectations, measured by the Shiller P/E ratio, are very high. Only during the dotcom bubble in 2000 and 2020 were the multiples higher.
These high valuations are largely driven by the 10 largest stocks. Globally, this makes the US market by far the most expensive market not only in terms of P/E, but also in terms of other metrics such as P/Sales, P/Book, P/Cashflow and P/Dividend.
When I think I will buy/sell:
1.External shocks or flash crashes:
If there are no fundamental doubts about the business model, I see such events as buying opportunities.
2.Interest rate policy:
I do not expect the Fed to cut interest rates this year and believe it would be a mistake. Europe and China, on the other hand, could or should take stimulating measures.
3.Volatility:
I expect a volatile year in which tensions and uncertainties could bring short-term burdens. Although I think political escalations are unlikely, they cannot be ruled out.
Trends and AI
-Long-term effects of AI:
AI will revolutionize industries, create efficiency and reduce jobs. In the short term, however, high investments without a direct ROI could weigh on the markets. Good entry opportunities could arise at such times.
-Equal-Weighted vs. MAG7-Weighted S&P 500:
I expect the Equal-Weighted S&P 500 to perform similarly to the MAG7-Weighted Index should CAPEX fail to deliver a quick ROI.
-AI-CAPEX:
Demand will shift from the "first tiers" (MAG7) to the "second tiers" as investors want to see ROI on existing investments first. Should margins and prices at Nvidia come under pressure due to a declining supply deficit, entry opportunities could arise.
-MAG7 and its dominance:
MAG7 will continue to use their barriers to entry to scale into new business models. They could experience margin pressure in the short term, but build up monopoly-like positions in niches in the long term.
-LLMs and SaaS:
LLMs could enhance SaaS products. While margins could come under pressure in the short term, I see long-term opportunities to buy dominant monopolies relatively cheaply.
Investment principles
1.Avoid FOMO:
Do not chase trends. Greed is a counter-indicator - staying calm helps to avoid impulsive decisions.
2.Catalysts for undervaluation:
- Bogus disruption by new competitors.
- Bogus regulatory measures against monopolies.
- Geopolitical uncertainties that build up short-term pressure.
3.Rebalancing:
I will adjust my portfolio regularly as I expect strong fluctuations between risk-on and risk-off.
Market observation
The market appears historically overvalued, especially in the USA. Capital is increasingly concentrated in MAG7 and flows passively into ETFs. This development reduces the market's flexibility and harbors long-term risks. At the same time, we are in an unusually long bull market that has been driven by massive stimulus and future expectations. We have all never seen a real bear market!
⁉️Disclaimer:
Once again at the end: everything remains speculative of course. I am not a professional and do not have an Edge. This is just my personal opinion and an attempt to summarize the most likely scenarios for me so that I can take informed long-term action. Of course, this is not investment advice, but simply my personal thought process.
I will be writing a separate post on crypto, specifically BTC, soon.
In addition, I will also write a post on the trades I want to make this year, including the logic and strategy behind them.
If I have forgotten anything relevant, please let me know. There's no point in everyone thinking for themselves. You have nothing to lose by commenting your opinion - so go for it!
