The second month of the year tested the patience of every market practitioners: for the normies, because many retail-followed names crashed hard and the market dived; for the professionals, because we had to bear all of their hysteria on our timelines.
And since the amount of panic I’ve seen these days reached levels not seen since 2022, let’s get one thing straight: the US is not in a recession, nor there is anything pointing to one being behind the corner. Easy way to prove it? Go read the transcripts of Visa and Mastercard’s earnings.
Big tech also reported earnings this month, and judging by the market reaction, one would think they massively disappointed. The reality? They didn’t.
Take Alphabet, for example: the stock is down nearly 20% from its highs, while the Nasdaq 100 is down roughly 5% over the same period. So, why is that? The company has been punished because its CapEx estimate is higher than expected. But that’s due to the fact that they have so much demand they can’t meet it all, necessitating infrastructure expansion. Yet, the stock is being sold off hard: make it make sense. Amazon and Microsoft are seeing the same strong demand for cloud computing and are also investing heavily in CapEx for those segments.
So, two things are clear. First, Alphabet stock at this price is a steal, and I’ve increased my position. Second, the market is declining due to macro concerns, not micro issues, and any idiosyncratic risks are having a disproportionately large impact on share prices compared to what they would normally have.
The dynamics of a risk-on versus risk-off environment are different, and those who fail to recognize this distinction are setting themselves up for disappointing results.
United States
It’s been two months since Trump took office, and basically everything related to the United States—whether it’s economic data, politics, foreign policy, or the state of society as a whole—is now directly influenced by the individual headlines of Trump’s speeches or tweets. In a way, the White House has turned into a reality show, and we, as market practitioners, are forced to absorb all this often irrelevant information simply because there’s no way to predict when market-impacting news will come out.
As much as I hate to talk about politics here, bear with me, because it’s impossible not to discuss it in such an environment. If you only want to read the economic considerations, feel free to skip to the next section.
For those who aren’t online 24/7, the Epstein files have been partially released—and the word partially is doing a lot of heavy lifting. There’s essentially nothing in them that wasn’t already leaked before. But at this point, everyone understands that these releases are just a talking point.
They treat these files like a form of virtue signaling. Instead of actually releasing meaningful documents, they send out binders with logos and titles for influencers to pose with and post on social media—treating files related to an international child trafficking ring as if they were Pokémon cards. It’s insane. And it’s not just the influencers; the GOP isn’t taking it seriously either.
In fact, the official House Judiciary GOP account tweeted in all caps that the files had been released—only to attach a link that turned out to be a rickroll. The post remained up for hours before it was deleted, proving it wasn’t a “mistake” or a “hack”—it was completely intentional.
They keep teasing these releases, but nothing ever really comes of them.
I am right-wing, as I believe everyone knows well by now, and I agree with many points brought up by the Republicans (even though, as an Italian living in Europe, none of it affects me in any meaningful way). But honestly, I hate how nothing is taken seriously anymore. From Elon Musk buying his way into the White House and launching new government arms as memes (DOGE could have been named anything else), to the POTUS and his wife rug-pulling shitcoins, to the government making a 2011-style Reddit joke out of some of the most serious and disgusting files in American history.
I’m tired. I’m really tired.
Aside from this, another important event is what happened last week during the meeting with Zelenskyy at the White House, as it provided a key lesson in dealmaking. In Italian, we have a saying: “I panni sporchi si lavano in famiglia”, which roughly translates to “dirty clothes are washed in-house”. If Zelenskyy had raised the same exact points with the President and Vice President privately, that would have been fine, but he didn’t. Instead, he chose to make a scene in front of the media, portraying himself as entitled and ungrateful in front of the country that is helping his nation the most. Bad move—beggars can’t be choosers.
Regardless of one’s views on the Ukraine-Russia conflict, there are two key takeaways from yesterday’s meeting that I believe are important for geopolitical considerations:
- Zelenskyy doesn’t want peace, he simply wants to use American support as leverage in negotiations;
- Whether or not a peace treaty is signed, Zelenskyy’s role as a leader is effectively finished.
However, tying back to the earlier points, the very fact that this entire high-school drama played out in front of the media—with world leaders speaking over each other and the entire propaganda machine turning it into a TV show—is a sad state of affairs.
Federal Reserve
The reason why the markets are falling, other than simply because it is in their nature to do so every once in a while, is that traders are concerned about growth prospects. And understandably so: the growth outlook is entirely dependent on the effects of tariffs and deficit reduction, and both are far too complex to be reliably modeled. This uncertainty translates into volatility, which increases risk exposure and leads to a reduction in such exposure. It shouldn’t be news that uncertainty is bearish for risk assets.
However, thinking this will affect monetary policy in any way, shape, or form is misguided. The same uncertainty that elite banks face in forecasting the economic effects of these policies is present among Fed economists as well, and any decision directly affecting rates at this point remains hazardous.
This doesn’t mean they can’t make that decision, but if rates get cut, that won’t be the rationale. They need something more solid to justify such a move, as monetary policy is very fragile, dependent on credibility, and frequently changing positions is a sure way to destroy your credibility and render monetary policy entirely ineffective.
That being said, I still believe the Federal Reserve won’t cut rates this year. I’m not going to hold onto this position forever—if data comes out that disproves my thesis, I’ll adjust accordingly. Yet, as of now, there is no real reason to expect a cut. If they do, it will either be politically motivated or preemptive. In any case, even if they decide to cut, it will likely be signaled through speeches and headlines well before it actually happens.
Additionally, people have started talking about QE again, but expecting its return anytime soon is wishful thinking. In reality, there are only two scenarios where QE could make a comeback. The first is a severe recession—one so deep that the Fed not only cuts rates to zero but also needs additional stimulus, making QE necessary. The second would require Powell to defy both historical precedent and the Fed’s own guidance by choosing QE over simply cutting rates further when that option is still available.
In short, if QE were to happen now, markets would crash so hard that you’d regret ever hoping for it.
Europe
The month started with JD Vance breaking into Monaco saying the EU is against free speech and that it actually is a 1984-like censorship hell. He was right. Very little to say on that.
As expected, recent events at the White House regarding Ukraine have had a direct impact on Europe, making this the key topic of discussion. Without U.S. support—which now seems to have waned following the recent diplomatic fallout—nearly 75% of NATO’s defense spending is effectively off the table. While the United Kingdom, the second-largest contributor, has pledged strong support for Ukraine, its $66 billion defense budget pales in comparison to the U.S.’s $860 billion. And while European leaders have publicly rallied behind Ukraine in a coordinated show of support, the reality is stark: if Ukraine is struggling even with full American backing, it has virtually no chance without it.
The reality is that European nations cannot meaningfully increase their support for Ukraine beyond symbolic gestures—interviews and tweets—because further spending is deeply unpopular. At a time when people are growing angrier and poorer, making such a politically costly decision would be unwise. And even if it were popular, there is very little room for European defense spending to grow without resorting to debt or tax hikes that would cut to the bone. Europe is, in effect, deindustrializing, with near-zero economic growth. On one hand, high energy costs are eroding business competitiveness, leading to job losses. On the other, a widening skills gap and an expanding population of social security-dependent asylum seekers are straining the economy and draining the system. To make matters worse, most of the continent’s militaries remain heavily reliant on American hardware.
Europe can continue to virtue signal—and it will—but it doesn’t hold the cards.
Some may argue, “But if Ukraine loses, Putin will invade the rest of Europe!”—yet that scenario is highly unlikely: if Russia had any real intention of launching a full-scale invasion of the continent, it would have done so already. That hasn’t happened because territorial conquest isn’t the primary objective. Instead, the rare earth minerals in Eastern Ukraine are far more strategically valuable than any grand imperialist ambition of taking over a crumbling open-air museum.
Given these realities, it’s reasonable to expect peace talks to emerge soon. Of course, the terms will be worse for Ukraine than any previous negotiations—beggars can’t be choosers. But a treaty is coming. The market seems to agree: European banks, which have long been favored by Russian oligarchs, have been rallying hard in recent weeks.
And let me be clear—this is not to say that Europe is doomed: I firmly believe our continent still has a path to greatness, if we act quickly. However, achieving it requires a shift in mindset. Europe must move away from ideology-driven decisions and embrace rational, pragmatic governance. Our countries should be managed with the same efficiency, strategy, and adaptability as businesses—because, at the end of the day, that’s precisely what they are.
Speaking of popular choices, Germany just held elections—and given that it remains the largest economy in Europe, these elections are quite significant. Even before diving into the implications of the results, this is one of the best examples of a phantom border. Not only does the election map show a clear East-West divide between the former FRG and GDR, but even Berlin remains visibly split between East and West.
Now, what were the results? With the highest voter turnout since German reunification in 1990, the CDU/CSU emerged as the clear winner, securing 28.5% of the vote—which makes Friedrich Merz the likely successor to Olaf Scholz as chancellor. However, the AfD still managed to secure 20.5%, marking a significant shift in the political landscape and, more importantly, continuing the right-wing wave sweeping across Europe.
But now come the challenges. The CDU/CSU can’t govern alone, and Merz has ruled out a coalition with the AfD. This means the most likely scenario is a CDU/CSU-SPD coalition—but such a government would be weak, with only a narrow majority. On top of that, while both parties share some common ground (such as supporting infrastructure investment), they diverge on key issues like the debt brake, migration policy, climate policy, and social policies. And historically, grand coalitions achieve nothing—believe me, I’m Italian, I know better.
From a purely economic perspective, here are some key priorities likely to shape policy:
- Lowering corporate taxes to 25% and providing tax relief for low- and middle-income earners
- Cutting red tape and bureaucracy to stimulate investment and economic growth
- Potentially creating special funds for infrastructure, possibly up to €100 billion over five years
There’s also a likelihood of modestly relaxing the debt brake, potentially raising the structural deficit ceiling from 0.35% to 0.5% of GDP. Additionally, three special funds of €100 billion each may be created for defense, infrastructure, and education.
United Kingdom
As expected, earlier this month, the Bank of England (BoE) cut rates by 25bps. The majority of members who voted for this 25bps reduction had differing views, with one noting that the disinflation process remained on track, despite an anticipated near-term uptick, alongside signs of weakening activity and a looser labor market. What was surprising, however, was that the ultra-hawkish Mann not only joined the consensus in voting for a cut but also outdid most of the board by voting for a 50bps reduction.
Among the dissenters, one of the two believed that a more activist approach at this meeting would send a clear signal of appropriate financial conditions for the UK, “even as monetary policy would need to remain restrictive for some time to anchor inflation expectations.”
In the accompanying policy statement, the MPC reiterated that policy will remain “restrictive for a sufficiently long period,” while emphasizing a “gradual and careful” approach to rate cuts—an addition not present in previous statements.
In the Monetary Policy Report (MPR), the 1-3 year inflation forecasts were revised upwards, with UK inflation now expected to peak at 3.7% in Q3 2025, compared to the previous forecast of 2.8% in Q3. Inflation is now seen returning to target in Q4 2027. This reminds me a bit of the “two more weeks” narrative from 2020, as we’ve now been expecting inflation to return to target within two years for the past three years. Regarding growth, the bank slashed its 2025 GDP forecast by half, now projecting just 0.75% growth.
At the follow-up press conference, Governor Bailey refrained from offering any explicit policy signals, stating that the BoE is taking a meeting-by-meeting approach and is not on a pre-set path. The Governor also remarked that the anticipated rise in inflation is largely due to factors not directly linked to pressures within the UK economy, and these factors are expected to be temporary. In a subsequent interview, the Governor warned markets not to place too much emphasis on individual members’ votes.
As of now, the market is pricing in roughly two more rate cuts by the end of the year.
Argentina
Finally, let’s close this update with Argentina. As if the rug-pull by the POTUS last month wasn’t enough, another world leader decided to do the same: Argentina’s libertarian president, Javier Milei, who have found himself at the center of a scandal after promoting a memecoin that surged in value before crashing, prompting calls for impeachment and lawsuits.
Milei marketed the coin, LIBRA, on Twitter, just minutes after it began trading. The coin’s value quickly skyrocketed to over $4, only to plummet below $0.50 shortly after. Needless to say not many people were happy with this 90% drop.
But what’s crazy is that Milei effectively promoted a coin with no substantial backing, encouraging fans worldwide to invest in what he claimed could support the growth of Argentina. Millions of dollars poured in from speculative buyers, he cashed out, and let the market crash. Afterward, he deleted the tweet, seemingly trying to erase any trace of the incident and hoping the whole situation would fade away.
In a later interview, he had the nerve to claim “I didn’t pump it, I just shared it”. This statement, however, hardly fits the reality of what happened. He didn’t just “share” a coin—he actively marketed it, made it part of his public persona, and led people to believe in its potential.
The whole situation is maddening. It’s hard to find words that fully capture the sheer irresponsibility of this, especially given the current state of global leadership.
Again, it’s a sad state of affairs.