Overall, November has been relatively quiet, and I apologize for this newsletter being shorter than usual. Unfortunately, there isn’t much to discuss this time around and I’d rather maintain a high standard of quality than pad the content with unnecessary words just to reach the typical length.

Geopolitical tensions brought nuclear concerns back into the headlines, the market reacted sharply to Trump’s tweets, and the ongoing drama around tariffs both fueled and rattled investor confidence. As if that weren’t enough, Thanksgiving was marked by a “yentervention,” serving as a sharp reminder to macro tourists that the yen hasn’t quietly disappeared from relevance. Also, speaking of Japan, the Japanese bank Shikoku bank has pledged to commit seppuku if fraud are to be found and staff have to personally reimburse it. I’m not even joking. Speak about taking integrity seriously.

Before diving into the details of individual economies, I’d like to address some feedback about my recent newsletters. I’ve been told they’ve made me come across as a left-wing liberal. Let me assure you, nothing could offend me more. While I am skeptical of the current Trump administration—largely because I oppose populism and believe Trump in 2024 is a far cry from the Trump of 2016—I remain firmly right-wing and share alignment with many conservative principles. Please, let’s not cause my spine to shiver like that again.

United States

Unfortunately, there isn’t much new to report regarding the economic data, as it largely reflects the same trends we’ve observed before. Consequently, my conclusions remain unchanged: a recession is unlikely over the next six months, and the Federal Reserve should slow the pace of its rate cuts. The “look ahead” will be the focus of December’s newsletter, but I can already offer a preliminary view: fewer rate cuts in 2025, with adjustments likely to be in increments of 25 basis points rather than 50.

While economic data continues to reflect a resilient job market, there are significant structural issues that render a substantial portion of it effectively nonexistent. Entry-level roles are the hardest hit, but the problem extends beyond this category. Indeed, the modern job market is plagued by fake job postings, applicant tracking systems (ATS) that automatically reject candidates, and application processes that are becoming increasingly time-consuming while offering increasingly lower salaries. As a result, the overall system is in disarray. I’ve been highlighting these issues for months now, and frankly, I’m surprised they haven’t yet surfaced in broader economic data. However, I believe it’s only a matter of time. What initially seemed like a problem isolated to tech and finance roles is now spilling over into other sectors. As this trend grows, so too does the awareness and discussion surrounding it.

Meanwhile, tariffs have been a hot topic lately. Trump has proposed a 25% tariff on imports from Mexico and Canada, an additional 10% on imports from China, and even 100% tariffs on BRICS nations if they dare to create a new currency to replace the “mighty U.S. dollar.” This approach aligns with Trump’s perspective on trade: unlike free-market liberals, he doesn’t view global free trade as the ultimate driver of human progress. For Trump, free trade is a tool to be used only when it benefits American interests; when it doesn’t, he sees traditional protectionist measures as entirely justified.

Predictably, such policies are bullish for the USD, though they don’t necessarily bode well for the economy. Indeed, tariffs are not paid by the exporting company but by the importer, who covers them at customs, and by the time these goods reach store shelves, their prices have significantly increased. Given that labor costs are far higher in the U.S. than in countries like China, producing these goods domestically is often unprofitable. The end result? Consumers bear the burden of higher prices, making tariffs inherently inflationary. It’s basically just an additional tax the population has to pay.

Just look at the historical example: when Trump imposed tariffs in his first term of office between 2017 and 2020, economic studies suggested that most of the impact was felt by US consumers (read more).

While this is more about geopolitical power dynamics than economics, it does raise a contradiction, because imposing steep tariffs while simultaneously aiming to reduce inflation feels inconsistent. This dynamic is yet another reason I believe the Fed will approach rate cuts with far greater caution next year.

Regardless, I believe many people don’t remember what it was like to trade during Trump’s presidency. I do, even though I was just starting out at the time. The basic investment framework under Trump’s administration could be summarized as follows:

1. He would say something extreme or unexpected, causing sharp market reactions. A prime example of this would be the announcement of tariffs, as we saw over the past few days.
2. Other countries or members of the U.S. government would step in, attempting to find common ground.
3. Eventually, a compromise would be reached, and the markets would recover, relieved.

It’s important to note that, aside from being a politician, Trump is first and foremost a businessman. Being unpredictable and extreme is just part of the game. The negotiation tactics he honed in the business world are used as political strategies too, which is why his presidency felt “different” compared to those of career politicians—he understands how the world operates at a practical level. The great Silvio Berlusconi, in Italy, was exactly the same. I’d suggest everyone who hasn’t already to read “The Art of the Deal” to gain a better understanding of his thought process.

Crypto

Finally, as much as I dislike crypto, I can’t ignore what’s happening there. Bitcoin is closing in on $100k—a milestone that would be quite ironic if this cycle’s peak falls just short of it. Meanwhile, Dogecoin has surged 150% since the elections, thanks to the new government arm’s acronym being DOGE. And, in display of pure idiocracy, we now have steamers threatening to shoot fish unless their tokens get pumped. It’s a wild and absurd scenario—highly profitable, sure, but idiocracy nonetheless.

I’m not bringing up crypto just to dunk on it, though: what really interests me are the broader economic implications. Trump has taken a vaguely pro-crypto stance, the crypto lobby poured over $100 million into the U.S. elections, and rumors are swirling about a “Bitcoin strategic reserve.”

If you’re unfamiliar with the matter, this proposed reserve would task the Treasury and the Federal Reserve with buying a million bitcoins over the next five years and holding them for at least 20 more. To fund this, the surplus that the Fed typically remits to the Treasury would instead be spent on Bitcoin. The fact that the Fed currently returns nothing to the Treasury isn’t a problem, apparently. Indeed, the bill also includes a provision requiring Fed banks to revalue their gold certificates to the current market price of gold and remit the difference—again, to buy Bitcoin.

Cool. So why would anyone actually do this?

The irony here is delicious. For Bitcoin purists, this program would be both a victory and a defeat. On one hand, government recognition would validate their “monopoly money”. On the other, it would undermine their ideals by propping up Bitcoin with a state-sponsored program.

From a practical standpoint, a Bitcoin reserve would probably appreciate in value—if only because of dollar-denomination dynamics and our inflationary economic system. That’s the core thesis: by the end of the lockup period, the U.S. would own 5% of the “world’s most valuable asset”. But this idea rests on the shaky assumption that Bitcoin’s rise is inevitable. Supporting arguments often loop back on themselves—Bitcoin is valuable because Trump supports it, and Trump supports it because it’s valuable.

Ultimately, I believe a Bitcoin reserve would be idiotic. A Treasury holding a million Bitcoins would be trapped by its own portfolio, as the Congress could never impose monetary controls on Bitcoin mining or trading without instantly tanking the price of its own assets.

Far from a strategic resilience play for the U.S., this reserve would serve only the traders already invested in Bitcoin.

Europe

Europe seems to be enjoying all the excitement recently, as UniCredit stands out with its proactive approach despite the dormant M&A market. As you may recall from September, the bank strategically acquired a 20% stake in Commerzbank through the savvy use of derivatives. Now, UniCredit has set its sights on Banco BPM, aiming to further consolidate the European banking system under its umbrella.

UniCredit has made an unsolicited offer for Banco BPM, proposing 0.175 newly issued shares for each share in its smaller rival. This bid values Banco BPM at approximately €10.2 billion. Over the coming weeks, CEO Andrea Orcel is scheduled to meet with Credit Agricole, Banco BPM’s largest shareholder, to discuss the proposal.

Speaking of French banks, the market has presented us with yet another opportunity to buy at a discount, as France is again in the midst of political turbulence. It’s now been almost six months that French stocks have been under pressure due to persistent concerns over the country’s budgetary situation: you would expect investors to find a new reason to sell after a while, but here we are. As you may remember, after the European elections, the market reacted negatively to fears of a potential right-wing surge, which threatened fiscal stability. The result of that was an election, that elected weak government with no absolute majority.

So what’s the issue now? The core issue lies in the difficulty of passing the budget. Indeed, the lack of an absolute majority means that every decision and legislative progress necessitates delicate negotiations with the RN or the Nouveau Front Populaire bloc. Compounding the challenge, France’s strained public finances require Prime Minister Barnier to make tough and unpopular decisions to achieve the ambitious goal of reducing the deficit from 6% to 5% of GDP in 2024. With limited options, Barnier has signaled he may invoke Article 49.3 of the constitution, which allows the government to pass legislation without a parliamentary vote but leaves it vulnerable to a vote of no confidence. Such vulnerability is being leveraged by Le Pen to make several significant budgetary concessions, for example by abandoning plans to raise electricity taxes in 2025.

All in all, it’s a mess, and unsurprisingly this precarious situation has rattled markets: French government bond yields are now comparable to those of Greece—a startling development given the stark differences in creditworthiness between the two nations—and the spread between France’s ten-year bond yield and Germany’s reached 90bps, its highest since the bloc’s sovereign debt crisis 12 years ago.

However, despite this, I remain firmly in the “nothing ever happens” camp, and am using the current environment as an opportunity to increase my exposure to French banks. Just to give you an idea, BNP Paribas alone now accounts for 4.20% of my investment portfolio. Please, continue to sell, so that I can keep buying for cheap.

China

A significant yet underreported development this month is China’s decision to issue USD-denominated sovereign bonds after a hiatus of more than three years. Interestingly, rather than Hong Kong—its traditional venue—China chose Saudi Arabia for this issuance.

The bond issuance, worth up to $2 billion, was met with extraordinary demand, attracting nearly $40 billion in orders from investors—a subscription rate of almost 20 times. By comparison, US Treasury auctions typically see oversubscription rates of 2x to 3x. The yields were equally striking: $1.25 billion in three-year bonds were sold at a yield of 4.274%, just 1bp above US Treasuries, while $750 million in five-year bonds carried a yield only 3bps higher. These represent the tightest spreads for any Chinese sovereign dollar issuance in the past 30 years.

In other words, China is now borrowing at nearly the same rate as the US government.

On the surface, $2 billion is insignificant for one of the world’s largest economies. However, the combination of an unprecedented oversubscription rate and yields on par with US Treasuries underscores the deeper implications. As a benchmark, even countries with AAA credit ratings usually pay 10-20bps above US Treasuries when issuing USD-dominated bonds.

The choice of venue for the bond sale is equally important. Sovereign bonds are rarely issued in Riyadh, with major financial centers like New York, London, or Hong Kong being the norm. By issuing dollar bonds in Saudi Arabia—a central player in the global dollar system—China is signaling its ability to operate as an alternative manager of dollar liquidity within the heart of the petrodollar network. This benefits Saudi Arabia as well, providing it with an opportunity to diversify its reserves by investing in Chinese government bonds instead of US Treasuries.

Perhaps most significantly, this issuance demonstrates that China can leverage the American currency as a tool against the US itself. If China begins scaling up its issuance, moving from $2 billion to tens or even hundreds of billions, it could directly compete with the US Treasury in the global dollar market. Countries like Saudi Arabia could recycle their dollar reserves into Chinese bonds, creating a parallel dollar system where China—not the US—controls part of the global flow of dollars. While the US would still print the dollars, China would increasingly influence where they circulate.

This development poses serious challenges for the US. A straightforward response might involve sanctioning countries or institutions that purchase Chinese dollar bonds, but this would underscore the political risks associated with dollar-denominated assets. Such actions would likely accelerate global efforts to diversify reserves away from the dollar, exacerbating the problem. Alternatively, the Federal Reserve could raise interest rates to make US Treasuries more attractive, but this would increase borrowing costs at a time when the US is grappling with significant deficits, creating further economic strain. Even if rates were raised, China could simply match them, given its ability to borrow at near-parity with the US.

The US could also restrict China’s access to dollar-clearing mechanisms, but this would risk fracturing the global financial system and undermining the dollar’s role as the world’s reserve currency—a scenario the US is keen to avoid.