Commentary

I must say that I am pleased with how some growth stocks are performing so far in 2025. There is clearly a “flight to quality” underway, and stocks with positive analyst revisions appear to be the big winners. This is obviously a great omen as we approach the upcoming earnings announcement season.

Rising bond yields delayed the Santa Claus Rally, which may turn into a powerful “January Effect,” if we see long-term bond rates meander lower. Bond vigilantes have caused Treasury yields to rise over the last month. These bond vigilantes have been pushing the narrative that the Trump tariffs will be inflationary, but the reality is that a strong U.S. dollar is causing commodity prices and imported goods to decline since China’s deflation and slow growth will likely keep import prices low. Also, I suspect that incoming Treasury Secretary Scott Bessent will be able to push Treasury yields lower.

Here are the most important market news items and what this news means:

• As evidence of some of the deflation in the world, Chinese long-term bond yields recently fell below Japanese long-term bond yields. China’s leaders pledged to adopt a “moderately loose” monetary policy in 2025, in the first shift of stance after 14 years of upholding a “prudent” policy. Due to the fact that China is masking big banking problems due to bad real estate loans and a shrinking population, China is expected to become the new Japan and be characterized by low interest rates for decades.

• An Arctic Blast is underway, and multiple states have declared a state of emergency. As a result, travel will be treacherous in many states, and natural gas prices will remain high due to record demand. Higher natural gas prices naturally encourage drilling, plus Trump 2.0’s “drill baby drill” policies should boost natural gas production and LNG exports.

• It will be interesting to see how the balance of power may shift in Canada during the next election. Canadian Prime Minister Justin Trudeau resigned as the leader of the Liberal Party but will stay on until March 24th, when a successor can be appointed. Trudeau never recovered from his visit to Mar-a-Lago and Donald Trump’s tweet that Canada could become a “51st state.” Ironically, conservative provinces like Alberta and Saskatchewan were open to becoming part of the United States.

• Greenland is also back in play and is open to becoming part of the United States as its 51st state. All this is happening before Trump 2.0 commences. After the inauguration, Donald Trump is expected to launch a “shock and awe” campaign that shocks the world and many folks in the U.S. All these reforms are expected to boost the “velocity of money,” which is how fast money changes hands. Essentially, the higher the velocity of money, the more economic prosperity rises.

• When you look around the world, chaos reigns. The latest example is that British Prime Minister, Keir Starmer, and his Energy Secretary, Ed Miliband, are now prohibiting new licenses for major energy companies to boost exploration in the North Sea, which will hurt Scotland and renew calls for independence from stupid policies emanating from 10 Downing Street. No matter how much green energy a country adds in Northern Europe, that green energy fizzles during the winter months when the sun does not shine for more than a few hours and the wind blows significantly less. So even though Britain is following Germany to install even more wind and solar, when half of British households have to be subsidized to help pay their expensive power bills, something is horribly wrong.

• The new British ambassador to the U.S., Lord Peter Mandelson, has been openly hostile in his Donald Trump commentary and has been dubbed the “Prince of Darkness” by the British media. I suspect that Mandelson may have met his match in negotiating tariffs under Trump 2.0, but the biggest disagreement may be over Ukraine, which recently hurt itself when it decided not to renew the transit fees it received from Russia to transport natural gas through Ukraine that supplied Austria, the Czech Republic, Hungary and Slovakia. As a result, Ukraine may now need even more international aid after losing almost a billion dollars in annual transit fees.

• Britain is much more vested in supporting Ukraine, while Donald Trump thinks the Russia/Ukraine conflict is a horrible waste of lives and infrastructure that cannot be replaced. As a result, the “special relationship” that Britain and the United States have shared is now in jeopardy, especially if Lord Mandelson remains the ambassador to the U.S.

• I hope investors are now realizing why the U.S. dollar is so strong, while most other countries are fledging or in a recession. The euro will soon “break a buck” relative to the U.S. dollar in the upcoming months. Additionally, the British pound may fall to 1.15 relative to the U.S. dollar this year. What a strong U.S. dollar does is that it impedes the sales in the multi-international stocks in the S&P 500, where approximately half of their revenue is outside the United States. As a result, domestic stocks tend to prosper during a strong U.S. dollar environment, especially small-to-mid capitalization companies.

• Trump 2.0 should be very exciting for the U.S. economy. The manufacturing sector, which has contracted for 25 of the past 26 months according to the Institute of Supply Management (ISM), showed some signs of life in December when the ISM new orders component rose to the highest level in over two years. If Trump 2.0 fixes the beleaguered manufacturing sector with “drill baby drill” and other pro-business policies, then 4 percent annual U.S. GDP growth is possible. If Trump 2.0 ends the fighting between Ukraine and Russia, where both sides have depleted each other’s troops, and everyone has been a loser, then a “peace dividend” could ensue, and even 5 percent annual GDP growth is briefly possible. Finally, a strong U.S. dollar also makes commodities and imported goods cheaper, so again, I am not worried about any inflationary impact from tariffs.

Overall, I hope you are excited for 2025. We are about to prosper from another exciting earnings announcement season. Trump 2.0 will stimulate the U.S. economy and end senseless wars. Essentially, the United States is about to throw its economic weight around and slap tariffs on countries that do not practice free trade. The immediate impact has been a surging U.S. dollar, which helps to suppress inflation on commodities and imported goods. Bond yields are soon anticipated to decline as inflation fizzles, and central banks around the world will continue to intervene to shore up weak currencies as well as cut key interest rates to stimulate economic growth. Our Fed will continue to follow other central banks, like the ECB, and cut up to four times in 2025.

*Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.