It is that time of the year when all investors look back at the past 12 months and try to anticipate what is in store for the next 12. At this time last year, investors were navigating through the fog of the year of political hell, which did not disappoint in terms of political and economic events. Ultimately, these events led to the notorious partisan-driven FED pivot on September 18, 2024, while the U.S. economy remained in an inflationary boom throughout the year. This environment prompted gold and stocks to significantly outperform cash and bonds, as is typically the case during an inflationary boom.
CPI adjusted return in USD of Gold (blue line); S&P 500 index (red line); Bloomberg US Ag Total Return Index (green line); Bloomberg US Treasury Bills 1-3 months Index (purple) in 2024.
As 2024 is in the books, it is time to look ahead and anticipate what Wall Street bankers and their parrots are not telling their clients. To be fair, most of these investment outlooks written by Wall Street bankers are not designed to make their clients wealthier but to promote Wall Street own interests.
Even though forecasting is a difficult task, and portfolio management is not solely about forecasting but also about risk management and adapting to the environment to deliver the appropriate risk adjusted return. In this context, there are 10 bold predictions investors should not ignore as they look ahead to the next 12 months.
The FED will resume rate hikes before December 31, 2025.
In 2024, the FOMC delivered irrelevant rate cuts that culminated in a predictably hawkish tone at its final meeting of the year, as the FED began to factor in the impact of tariffs on the U.S. business cycle. Investors should remember that this is not the first time the FED has embarked on an interest rate cut cycle while the U.S. economy was in an inflationary boom. Indeed, a similar scenario occurred during the 2007–2009 interest rate cut cycle. As tariff threats are likely to initially create monetary illusions and push the S&P 500-to-gold ratio below its 7-year moving average, investors should recall that when the S&P 500-to-gold ratio fell below its 7-year moving average—followed by the S&P 500-to-WTI ratio—rate hikes soon followed to combat monetary illusion, ultimately triggering economic busts. If Powell and the FED truly aim to preserve the USD's status as the reliable reserve currency and curb inflation for the supposed interest of the American citizens, a policy reversal with rate hikes in 2025 seems inevitable.
Upper Panel: S&P 500 to Gold ratio (yellow line); 84-months Moving average of S&P 500 to Gold ratio (red line); FED Fund Rate (axis inverted; green line); Lower Panel: S&P 500 to WTI ratio (blue line); 84-months moving average of S&P 500 to WTI ratio (red line); FED Fund Rate (axis inverted; green line).
The Dow will outperform the Nasdaq.
Savvy investors know that two market ratios determine the stage of the business cycle: the S&P 500-to-Oil ratio and its position relative to its 7-year moving average, and the Gold-to-U.S. Treasury ratio and its position relative to its 7-year moving average. Equity investors will note that when the US economy is in an inflationary boom, as it has been since October 2023, the Nasdaq outperforms the Dow Jones. However, with rising risks of the U.S. transitioning from an inflationary boom to an inflationary bust with the implementation of tighter trade and immigration policies under the 47th U.S. president, investors should take note that in such an environment, as observed between January 2022 and October 2023, the Dow outperforms the Nasdaq.
Upper Panel: S&P 500/Oil ratio (blue line); 84 months Moving Average of the S&P 500/Oil ratio (red line); Second Panel: Gold/Bond ratio (green line); 84 months Moving Average of the S&P Gold/Bond ratio (red line); Third Panel: Dow Jones 12-months Rate of Change (yellow histogram); Fourth Panel: Nasdaq 100 12-months Rate of Change (purple histogram); Lower Panel: Relative performance of Dow Jones to Nasdaq index (orange line).
The US energy sector will outperform the Magnificent 7.
Savvy investors also know that when the US economy is in an inflationary boom, as it has been since October 2023, energy-consuming sectors—proxied by the IT sector and more narrowly by the "Magnificent 7"—outperform energy-producing sectors, which can be proxied by the energy sector. However, as tariffs are implemented and the so-called ‘Trump rally’ morphs into ‘Trump Stagflation,’ and as the US economy transitions from an inflationary boom to an inflationary bust, energy-producing sectors will outperform energy-consuming sectors. While Wall Street bankers continue to spread the mistaken belief that the over-owned and idolized ’Magnificent 7’ will remain the leaders of equity market trends, savvy investors who understand that 2025 will see the US fall into an inflationary bust will look to sell the rips in the Magnificent 7 and buy the dips in the unloved and under-owned energy sector.
Upper Panel: S&P 500/Oil ratio (blue line); 84 months Moving Average of the S&P 500/Oil ratio (red line); Second Panel: Gold/Bond ratio (green line); 84 months Moving Average of the S&P Gold/Bond ratio (red line); Third Panel: Bloomberg Mag 7 Index 12-months Rate of Change (yellow histogram); Fourth Panel: S&P 500 Energy Index 12-months Rate of Change (purple histogram); Lower Panel: Relative performance of Bloomberg Mag7 index to S&P 500 Energy index (orange line).
The US 30-Year Yield rise above 6.0%.
With the US government facing more than $10.0 trillion in debt to refinance in 2025 alone, and with tariffs and tighter immigration policies set to be implemented once the 47th US president is eventually inaugurated on January 20th, the FED may be tempted, or even forced, at some point to implement yield curve control to preserve the health of the US banking system and maintain a semblance of importance and credibility. It should be clear to any savvy investor with a modicum of common sense that the US economy's shift from an inflationary boom to an inflationary bust will push the US 30-year yield significantly higher, exceeding 6% before December 31, 2025. Everyone with a modicum of knowledge know that not only the FED doesn’t control the long end of the curve but the 30-year yield is what impact interest cost for entrepreneurs and consumers who are contracting loan to grow their business of engage into a mortgage to buy a car or a house, meaning that a much higher US 30-year yield will make the stagflationary vibes to spread among key sectors such discretionary spending and real estate. In this environment, investors will want to avoid any exposure to the US financial sector, which has historically underperformed in periods of structurally higher US 30-year yields.
Upper Panel: S&P 500/Oil ratio (blue line); 84 months Moving Average of the S&P 500/Oil ratio (red line); Second Panel: Gold/Bond ratio (green line); 84 months Moving Average of the S&P Gold/Bond ratio (red line); Third Panel: US 30-Year Yield (purple line); Lower Panel: Relative performance of S&P 500 index to S&P 500 Financial index (orange line).
The USD Index (DXY) will reach new century highs, (i.e. exceeding 121).
Savvy investors understand that the implementation of tariffs will not only spread stagflationary vibes worldwide, since all economies are interconnected, but will ultimately trigger a ‘Trump Stagflation.’ They also recognize that this environment will attract more foreign investment into the US, driving higher U.S. yields. Additionally, rising geopolitical uncertainties in Europe, the Middle East., and Asia will contribute to the strengthening of the USD against all fiat currencies. However, while the USD strengthens against fiat currencies, it will continue to weaken against the one asset with no counterparty risk and that serves as the ultimate hedge against government and war risks: physical gold. In this context, savvy investors should not be surprised to see the USD index reach its 21st-century high (above 121) before the end of 2025.
Upper Panel: S&P 500/Oil ratio (blue line); 84 months Moving Average of the S&P 500/Oil ratio (red line); Second Panel: Gold/Bond ratio (green line); 84 months Moving Average of the S&P Gold/Bond ratio (red line); Lower Panel: USD Index (DXY Index) (purple line).
The Yen will trade above 200 against the USD.
Nobody needs to be an expert in economics to recognize that governments in the misleadingly called developed countries have been living on borrowed time, a trend that has only worsened since the start of the decade. This suggests that governments, not the private sector, are likely to be at the epicentre of the next financial crisis in these nations. Among these so-called developed countries, Japan is likely to be the first to face a sovereign debt crisis, followed by Europe, and ultimately the United States by the end of this decade. In this context, while the Bank of Japan may attempt to signal its commitment to combating the return of inflation, the reality is that US-Japan interest rate differentials may not narrow as widely expected. With U.S. 10-year yields rising and Japan heading into an inflationary bust—followed closely by the US—the Japanese yen is poised to become an inevitable collateral casualty of these trends, exacerbated by the looming prospect of a Japanese financial doom loop.
JPY/USD FX rate (blue line); Spread between US 10-Year Yield and Japan 10-Year Yield (red line).
Physical gold will outperform Bitcoin.
Investors who have studied the business cycle throughout history understand that there is only one asset class that has preserved wealth during inflationary times, particularly during inflationary busts, and that provides a hedge against government actions and the rising risks of wars: PHYSICAL GOLD. While Wall Street and even politicians, who will do whatever it takes to be elected, have sold the idea to uneducated YOLO investors that Bitcoin is an antifragile asset, the reality is that Bitcoin, like other cryptocurrencies, is the biggest scam ever created by authoritarian governments. Ben Franklin once said, ‘Our new Constitution is now established; everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.’ Part of the problem has been the uneducated propaganda against the Federal Reserve's money printing, with blame directed at the bankers as if it should be in the hands of politicians. This has distorted the very definition of money. They blame the FED for inflation instead of the politicians who claim they can spend as much as they want and that it's the FED’s job to make it non-inflationary. Throughout centuries, money has taken many forms, from seashells and gold to things of value such as bronze, grain, and sheepskins. When it comes to durable money, it typically has practical use, utilitarian value. The reality is that Bitcoin is nothing more than an investment tool created as a leveraged, energy-consuming asset that will underperform gold, just as energy-consuming sectors tend to underperform energy-producing sectors once the US economy shifts from an inflationary boom to an inflationary bust, as occurred between January 2022 and October 2023.
Upper Panel: S&P 500/Oil ratio (blue line); 84 months Moving Average of the S&P 500/Oil ratio (red line); Second Panel: Gold/Bond ratio (green line); 84 months Moving Average of the S&P Gold/Bond ratio (red line); Lower Panel: 12-months Rate of Change of the Gold to Bitcoin ratio (blue histogram).
The Eurozone will implement capital controls.
Outside of Japan, which is expected to experience the first significant crisis among the wrongly called developed markets, Europe will not only be the region most impacted by the implementation of tariffs by the 47th U.S. president but will also have to deal with rising political instability. Recent events in France and Germany have shown that lame-duck governments are impotent in implementing the necessary reforms to avoid an inevitable sovereign debt crisis. In this context, investors should not only avoid the European banking sector but also be aware of the rising risk in the Eurozone of implementing capital controls to prevent a complete meltdown of its financial sector. Wars drive capital out of conflict zones into safer environments, creating investment opportunities elsewhere. For example, without World Wars I and II, capital might never have shifted from Europe to America, making New York the global financial capital instead of London. In addition to geopolitical tensions that may intensify inflationary pressures, investors should also be wary of the looming great wall of debt in countries like France. The need to refinance existing debt by issuing new debt in a tightening liquidity environment would ultimately trigger a sovereign debt crisis. Capital controls in economic zones directly affected by wars, such as Europe and the Middle East, seem inevitable in this context.
A ‘Volcanic Climate Lockdown’ will be enforced.
Anyone with a basic understanding of the business cycle knows that economic prosperity depends on access to cheap, abundant energy. The climate change narrative, particularly in Europe and blue states like California, has hindered this access. Instead of global warming, the Earth is entering a Solar Minimum, a period of quiet solar activity with fewer sunspots and less intense solar events. Solar Cycle 25, which began in December 2019, marks the 25th cycle since 1755. It is expected to continue until around 2030. Predictions for Cycle 25 range from weak, potentially leading to a Maunder Minimum-like state, to stronger cycles. The cycle began with reversed magnetic polarity sunspots, signalling the start of Solar Cycle 25. The risk of catastrophic volcanic eruptions increases during grand solar minima and maxima, cooling the Earth and triggering centennial-scale glacier growth and famine. Data from the past 8,000 years show an inverse correlation (R = -0.72, P = 0.002) between 500-year sunspot averages and large volcanic eruptions, with eruptions increasing as solar activity declines. The strongest correlation appears during the last 2,500 years, coinciding with the lowest 500-year sunspot averages in 7,500 years. While the incoming US president recognizes the need for energy independence and dismisses the climate change scam, the reality is that the solar cycle could trigger a climate-driven lockdown, similar to a volcanic eruption cycle, as a new source of supply disruption for food and basic necessities.
https://www.spaceweatherlive.com/en/solar-activity/solar-cycle.html
A new proxy war between NATO and the Global South will erupt on the Korean peninsula.
While the 47th U.S. president-elect has boasted on the campaign trail about his ability to end the forever bankers’ wars in Eastern Europe and the Middle East in less than 24 hours through his ‘art of the deal,’ the reality is that, once elected, he and his team have shown increasing interest in striking Iran and have proposed continuing military aid to Ukraine, contingent upon other European NATO members increasing their contributions to NATO to 5% of their GDP. Meanwhile, while all eyes were on Mar-a-Lago, the political environment in Europe dramatically deteriorated, with the French and German governments collapsing within weeks of the election of the 47th U.S. president. Looking east, the lame-duck South Korean president went so far as to declare martial law to maintain power, citing a ‘false flagged’ interference from the North in domestic politics. While the two Koreas are already engaged in a proxy war in Ukraine, anyone with a modicum of common sense knows that desperate men will do desperate things to stay in power. As South Korea's politicians join the ranks of desperate, lame-duck politicians among NATO which seeks to expand its influence on the Asian shores, aiming to find more reasons to supply US weapons to countries bordering the expanding mercantilist Global South, the next escalation in the global conflict cycle will inevitably occur on the Korean Peninsula. This conflict will not only spark a new proxy war between the Malthusian NATO countries and the mercantilist Global South, but it will also exacerbate shortages, particularly in semiconductors. South Korea is the second-largest semiconductor manufacturer in the world after Taiwan. Samsung Electronics, South Korea's multinational tech giant, is one of the largest companies globally in terms of revenue and semiconductor production. Samsung acts both as an Integrated Device Manufacturer (IDM), making semiconductors for its own products, and as a foundry, producing semiconductors for other companies. Semiconductors from Samsung and other companies like SK Hynix are South Korea's largest exports, comprising 15% of the country's total exports in 2023.
https://worldpopulationreview.com/country-rankings/semiconductor-manufacturing-by-country
In this context, while the future is uncertain and unpredictable, investors should always prepare for the worst and hope for the best. Investors should also never forget that, in the worst-case scenario of an inflationary bust, gold, not government bonds, remains the antifragile asset to hold. Among equities, investors will need to shift from energy-consuming sectors like IT to energy-producing sectors like oil and gas. This shift will occur in an environment where investors must increasingly prioritize the Return OF Capital over the Return ON Capital.
Read more and discover how to trade it here: https://themacrobutler.substack.com/p/2025-crystal-ball-10-bold-predict…
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