The United States is facing a heavy budgetary burden. A deficit of 2 trillion US dollars, equivalent to 7% of GDP, is the result of spending of 7 trillion dollars compared to revenues of only 5 trillion dollars. This situation carries the risk of triggering a recession that could spread to the entire economy. Initial data already points to an increase in Arbeitslosenanträge im District of Columbia which is seen as an early indicator of an economic slowdown.
There are currently 3 scenarios for reducing the deficit to 3% of GDP:
- Nominal economic growth of 10% per year: However, this would involve a highly inflationary development and would hardly be politically viable, as the population is already suffering from current price increases.
- Increase in government revenue by 1 trillion dollars: As tax cuts have been the focus in the past (especially under Trump), tariffs, for example, which currently stand at 2-3%, would have to be raised to around 30%, but this could further increase inflationary pressure and exacerbate trade conflicts.
- Spending cuts of 1 trillion dollars: Given that $4 trillion for social benefits (pensions & healthcare) is considered politically untouchable and the $1 trillion interest burden could only be reduced by falling yields, which seems unrealistic if the FED pauses interest rates, the only option left would be to cut the defense budget, by $1 trillion, as well as budgets in areas such as energy, education &transportation.
These austerity measures have contributed to the rise of more populist movements (DOGE & Elon Musk) calling for a reduction in the size of government. Signaling the end of the era of excessive US fiscal commitment. At the same time, market signals, such as the outperformance defensiver Sektoren (consumer goods up 8% last month) and the 30% decline in US homebuilder equities since October, point to growing concerns about economic growth.
2. the Riyadh agreement as a potential turning point
The international geopolitical landscape is increasingly dominated by energy realism. The Trump-Administration faces a dilemma. Lower oil prices would be necessary to combat inflation, but an increase of US-Ölproduktion by 3 million barrels per day - to a total of 16 million - is unrealistic, as shale oil production has only increased by around 1 million barrels in the last three years.
A possible solution could be an agreement in Riyadh with OPEC+:
- OPEC+, in Vienna, could reverse the currently implemented production cuts of 5-6 million barrels per day in return for the lifting of sanctions against Russia and military security guarantees for the Gulf states.
- Such an agreement would accelerate the return to the classic Petrodollar System in which the proceeds from oil exports are reinvested in bonds.
The implementation of this scenario would have far-reaching consequences: Cheaper energy prices could dampen inflation, stabilize global bond markets and strengthen international equities, especially in Europe and EM. At the same time, Europe could be forced to overcome its dependencies on China (in the export sector), the US (in the security sector) and Russia (in energy supply).
3 Europe, China and the cyclical economic recovery
While the US is struggling with structural weaknesses, other regions offer attractive investment opportunities:
- Europe: After the German elections, populist parties, currently representing 29.57% of the vote, may not achieve the necessary one-third majority to create a fiscal stimulus measure, which is also quite speculative. Such a stimulus would strengthen the DAX and the Euro Stoxx50, especially in combination with possibly falling oil prices and extensive reconstruction plans in Ukraine.
- China: "Rising" real estate prices (in January, 24 out of 70 cities recorded price increases or stability in prices) and a possible consumption upswing (with retail sales rising more than 6% year-on-year) could attract international investors. For 2025, the Chinese government is planning targeted measures to promote consumption, including trade subsidies, increased social benefits and incentives for newborns. An acceleration in global purchasing managers' indices (PMI) would also boost demand for Chinese industrial products.
- Japan and South Korea: Both countries are benefiting cyclically from a recovery in the global manufacturing industry, particularly in the semiconductor sector. This includes blue-collar chips such as $ADI (-8,18%) , $MCHP (-9,76%) & $TXN (-7,04%) .
4. technology sector and limited liquidity reserves
The position of the Magnificent 7 is increasingly losing strength, partly due to the rise of Chinese AI providers such as DeepSeek. In addition, the weakness of US homebuilder stocks signals declining consumer power, with Hypothekenanträgen and have recovered again.
Another warning signal is the low liquidity reserve: the share of Barmitteln in Fondsportfolios is only 3.5%, the lowest level since 2010, which makes the markets more susceptible to corrections. Since the "sell signal" in December, the Magnificent 7 has lost 5%, while the MSCI ACWI has gained 2% - a clear indication of a Rotation in internationale Märkte.
5. investment recommendations
- A stronger weighting of long-term bonds, such as 30-year US government bonds, seems sensible, as a flattening of the yield curve & international demand (due to petrodollar recycling) could lead to falling yields.
- Buy the dip offers opportunities to enter export-oriented companies and cyclical sectors, especially in the US & China
- A focus on defensive sectors such as consumer and healthcare as well as blue-collar semiconductors is recommended, as these could benefit from a recovery in the purchasing managers' indices.
- Gold can be recommended as a hedge against geopolitical risks, while a cautious positioning in oil is advisable, as the upcoming OPEC+ negotiations could lead to increased volatility.
