
Well, 2024 departs as the ghost of Christmas past. It leaves the US stock market posting stellar gains, especially in tech. Nividia and the related "magnificent 7" have bolstered 401K's for US citizens. The market impetus accelerated in November, following Donald Trump on his comeback campaign.
Make no mistake, Trump winning is good for America. Had he lost to Kamala Harris by a small margin, its impossible to know the level of domestic unrest and violence the US could be in right now. In that scenario, a deep national fissure on the American ideal was opening.
The US is a country with widespread gun ownership and with voter polarisation at extremes. A "Stop the Steal 2" campaign resulting in violence is easy to imagine. "Stop the Steal 1" was dangerous enough – no-one needs the sequel. So, Trump's win has saved us staring and potentially falling into the abyss.
The new President who is consistent in following through on threats has already been busy. His cabinet picks and promised disruption is already well signalled. From Robert Kennedy in Health to Elon Musk and Vik Ramaswamy in "DOGE" - the office of government efficiency, new and unconventional thinking is about to be unleased on domestic institutions of the federal government.
The FED will likely not move in synch with Trump as much as he would like. But the 25 basis point interest rate cut just passed, does help him and is timely. With inflation "tamed" another 25 basis point interest rate reduction from the FED in the 1st half of 2025 is anticipated by followers of the market.
However, the extraordinary valuation of US equities are unlikely to persevere as more rational assessment in 2025 of "Trump's bump" comes to bear. Talk of tariffs, taking back Panama, buying Greenland and related musings from Trump, in his America First agenda, are all fine and well. But even those who detest globalisation recognise we live in an interconnected world.
Trade cuts both ways. So President Trump is playing round 1 in this part of "the art of the deal". His pronouncements are often vitriolic and exaggerated. His decisions, as with the appointment of US supreme court justices, are often strategic and impactful.
Post inauguration, stand by for a blizzard of Presidential decrees. Trump knows that optimism is an elusive elixir, but one which drives investment. Aside from "drill baby drill", Trump cannot avoid involving himself in discussions around Ukraine and Israel. His contribution to ameliorate the appalling destruction arising from both conflicts is keenly awaited and feared to some extent, especially in progressing Ukrainian capitulation to Moscow.
He arrives at an opportune moment. Russia has suffered reversal in Syria. China finds itself preoccupied with inflating its stagnating economy. Iran, a stone in Israeli and US shoes, is now also grappling with defeats for Hezbollah, as well as facing an Israeli leadership and military, intent on neutralising threats to Tel Aviv.
Trump's Abraham Accords, which were a notable win in supporting middle eastern peace, must now be honed further. Thus, a continued charm offensive to position Qatar, UAE and Jordan as bulwarks against militant Islam. Syria's new leaders present an opportunity, even if the leaders are proscribed by the US as terrorists. Every conflict resolution begins with talking to the enemy.
America's “feel good” is offset by Europe's “feel bad”. Germany and France, two pillars in Europe find their electorates fractious. An emergent right wing, dissatisfied with economic circumstances and intolerant of immigration, has found fertile ground across Europe.
Incumbent governments in France, Germany and the UK have found themselves beset with expulsion or vastly reduced authority post election, with opinion polls placing their right wing and left wing opponents in stronger positions than they have held in decades.
German automotive manufacturing is stressed as cheap and well-built Chinese EV's flood their export and domestic markets. EU tariffs on Chinese EV's are just the presage to Tariffs and Trade-offs...I believe this is set to become the dominant economic theme of 2025.
The Chip wars between the US and China especially, are contaminating the global trade in rare earth metals, (in which China's exports are supreme). Incongruous elements, unknown to most people, are intrinsic to the AI world, as well as essential for the defence industry. America wishes and needs to lead in both. A military showdown with China over Taiwan, or any other reason is off the cards as long as Trump is in power. The next wars are techno-industrial and not military per se. Thus, who leads here is the global superpower. An America first agenda will not send troops to Taipei, to thwart Chinese ambitions some 8,000 miles away.
Rather, dominance in the missile, space, AI and software industries, will offer the most advanced economy the edge. Despite China's rampant progress on electrification and industrialisation, there is still a window whereby US scientific advance, if protected, can surpass China's again. Trump understands winning is a binary mindset.
The past decades of the world's and US trade with China came at the expense of immense technical transfer of intellectual know-how from west to east. Thus, the western alliance and America have some work to do, to agree what should be a strategy to limit China's hegemony over the world's manufacturing in future. All whilst recognising China’s importance to the global economy.
In the short term, Europe has chosen to erect trade barriers via tariffs on Chinese EV's. Trump has yet to formalise his penalties for perceived state subsidy by China to its EV industry, never mind Chinese imports to the USA in general. Tariffs will slow BYD's advance in Europe, even if they start to locate EU manufacturing on the continent. But tariff's cut both ways. China's response will emerge.
In the USA, talk of immense tariffs on Chinese goods has already made Bejing limit access to its rare earth metals to “friendly nations”. As Newton observed, every action has an equal and opposite reaction.
Franco-German economic challenge bodes well for EU interest rate decline. The EU central bank has always acted preferentially towards its major countries first, as with the Irish, Greek and Portuguese bailouts. The EU needs a weaker currency and lower interest rates to stimulate EU commerce. This is what's coming. Watch out for more ECB interest rate cuts in 2025.
The population demographics in Europe, the level of dependence, costs of employment, social care and pensions, drag against EU economic performance. Europe's inertia, its costs and social model, means innovation is low and slow - change comes painfully. The Western world is in a demographic battle with major countries with population growth. India, Mexico, Africa, Indonesia all have large restless populations, many happy to take a chance on emigration for a better life.
Economic migration has bolstered ageing economies. If the spigot of cheaper available labour is turned off, employment costs rise. This is the dilemma for advanced economies. Population decline kills economic growth. Cue the government incentives in France, South Korea and Italy, operating to incentivise increased household births. But all to little effect, such is the costs of affording a family, especially a larger one.
The UK is worthy of European study. The decline of the UK over several years can be traced to demographics, Brexit and the challenge of reinventing regions, where jobs displacement due to globalisation, occurs at scale.
Whilst British mines closed and manufacturing in the north of England declined, London became a financial superpower. As is common, economic subvention from the capital to the regions masked further decline over time. Skills depletion, migration of talent south and reduced educational attainment in the remaining population all played a part.
Today, one finds it hard in parts of the North of England, to imagine what industries can proliferate successfully. High social care costs and skills gaps make external investment hard to attract, especially in today's hyper competitive market for mobile foreign investment.
Domestic British wealth has ample investment opportunities. London property and US equities are hard to ignore. Returns have been excellent. But neither is of much help to the north. Proposals to allow UK pension funds invest more in high risk UK assets are welcome, but not enacted.
The new UK labour government gets the gong for the worst start in 2024. During the period where Trump's dystopian invective regarding the US in general and Ohio specifically, (as a place where immigrants were eating the dogs), Sir Keir Starmer and Rachel Reeves with lightning speed, were squandering their political capital. Despite Trump's whinging and histrionics, the US economy was growing, responding to the stimulus of President Biden's inflation reduction act. Not so in the UK, however.
Labours arrival included a bleak and dreary economic assessment designed to further damage the outgoing Tory party. Tedious talk of a £20 billion black hole allied to a depressing narrative ignored the fact that black holes can distort gravity and bend light.. ....someone should have told Rachel and Sir Kier.
In response to this operating deficit, Labour chose to borrow more to resolve their junior doctor's pay dispute, close out their rail and train driver's dispute and invest further into the yawning grasping black hole that is the UK's NHS. The costs along with borrowings, would naturally, be funded by tax increases on employers indirectly, through increased national insurance contributions.
In one fell swoop, Labour who have had extended time to learn finance 101 on the benches of opposition, arrived with the stunning idea that growth would be achieved by borrowing to invest in less productive sides of the economy, whilst in tandem, penalising industry and job creation. The mantra of billions "missing" in Whitehall, whilst splurging the available cash on Labour's sacred cows, did as one might anticipate. Employers, investors and voters all curbed their spending post election...cue an economic flatline.
Labour's growth plan includes planning reform - easier, faster planning for home building. More investment in renewables, talking up the future stimulating effects of their public spending increases and enhancing trade relationships with Europe and the USA.
However, Labour have inherited a declining London stock exchange, smaller and stagnating. London outside of Europe has suffered.
Labour’s leaders squandered reputation, when exposed for accepting gifts and hospitality from party donors. The period since has done nothing to enhance their economic credentials. They do deserve credit for maintaining law and order and a robust response to far right actors and hooligans after an unseemly set of summer riots. But should they need to raise taxes to shore up their current fiscal position, the backlash from those who voted for change will be seismic.
In short, Labour have lost the initiative provided by a thumping electoral win to set a new direction, to embrace economic realities and outline to its population the road to be taken. Trump who is no lover of Labour and his team, undoubtedly, will not make the same mistakes. Theirs will be different ones.
Recent Immigration statistics to the UK are disappointing. Illegal immigration levels are higher than previously feared. Not just via small boats, but in lorries across the channel too. The UK's failed Rwanda policy, to deport migrants, whilst their applications for asylum were considered, demonstrates to other countries the complexities of turning away migrants once they arrive.
I predict 2025 will be the year of Immigration and the thorny problems of deportation and immigration policy in the USA and later in Europe. It will begin with Trump and another revisiting of the Southern US Wall. But German elections are likely to ignite the issue closer to home.
But more unsettling will be if America arrests and deports immigrants deemed to be illegal. Deportations on the scale Trump is promising, will move the ground on migration and immigration policy globally.
How should developed countries respond to those fleeing war and persecution? How many migrants should any country accept? What are to be the rules for rich countries, who face a tsunami of aspiring migrants who wish to arrive and start a new life?
The fact is, that Europe is ageing. Our wealth is predicated on new workers replacing those retired, funding their predecessor’s pension and the state, through their taxes.
But what if the costs of retirees and social welfare dwarf economic output? How long can debt be used to shore up social payments, as policies are proposed and debated but not implemented to address the structural deficit apparent?
It is not right wing or racist to ask questions as to how far do countries wish to go in broadening their population diversity? The greater the costs of ageing and social care, the greater will be the economic need to invite migrants. This will happen by necessity to expand the workforce, where productivity cannot be improved. Europe is already on that journey. The US and the UK have preceded us for many years. Thus, what we can see and learn from their experiences is essential scholarship for any serious political party.
2025 must follow the AI path we are on. The tech titans have led in the development of large language models (LLM), AI platforms such as ChatGBT. The combined investment in software and hardware to support such models has created a feeding frenzy by investors to be inside the next big thing - industry 4.0, the next industrial revolution, take your pick. Rise of the machines perhaps?
A close relative has joined a tech behemoth developing Agentic AI. Unlike OpenAI's ChatGBT, which is an LLM that can write you considered answers and reports from the web, Agentic AI will be an agent, capable of integrating query and decision across your APP's. So, you wish to avail of late value deals skiing? Ask the Agentic AI to identify deals within your budget, preferences and calendar and execute a booking subject to your approval.
Now you find yourself skiing with flights, transfers, accommodation and ski passes delivered seamlessly to your phone. Best of all!? No call centres, no salespeople, no agents, conversations or hassle.
Now scale such capabilities across the domains of your life. No need for any customer support...ever!! All mundane tasks can be handed off and the AI learns. As your preferences get tailored, your experience improves.
Once your financial details, your calendar and work apps and your preferences are captured, the agentic AI acts as your personal Digital Assistant to address how you live, work and operate.
If this sounds like “Orwell’s 1984”, it is, but not yet. The enslavement of humanity by machine remains theoretical. But the enslavement of the populace by governments using digital information controls is already with us - China has been manipulating its population for years. So too, Russia and North Korea.
So, one hopes Western democracies, as they move to enhanced digital oversight, will also ensure the checks and balances on AI, provide the benefits without the downsides. Expect AI regulation as a topic to rise in discussions alongside present debates around social media control.
Make no mistake, AI stocks are on a tear and will continue - the winners and losers may change, but this next level of technology is here and it will grow. Those who cannot master it may become mastered by it. Significant layoffs in administration roles across industry are inevitable, but the full impact on jobs and employment remains to be seen.
Of greater concern should be the power needs of this technology. The electrical infrastructure globally to accommodate AI and support electric fleets is still way below par. I expect small scale nuclear power generation will continue to attract support. Renewables such as wind and solar must expand hugely. However, balanced grids will need nuclear and fossil fuel powered generation to operate effectively. Rolls Royce have shown some decent credentials here.
Nivida and Tesla have been two big winners from Trump's election. Engineers are value creators and engineers will be needed in huge numbers to support AI's roll-out.
Elon Musk has disrupted car manufacturing, the EV industry and space travel. Who would bet against him if listened to, in a White House deeply conscious of America's economic and geopolitical vulnerabilities?
Hence, by turns, Bitcoin, Tesla, SpaceX, social media and AI are all going to get further headlines in the first 6 months of next year. Trump's return has also brought Musk inside the machinery of government. Musk, allegedly scuppered the initial bipartisan
democrat-republican funding agreement to keep government open, via a series of tweets, some inaccurate on his platform - X. That aside, however long Musk can survive in Trump's orbit, his sort of thinking and impact on established policy is enormous. The ramifications could be lasting. Industry types have long wanted a seat at the political table. Only time will tell what the results will be. But to assume that this time it is different, may be a viable viewpoint.
Ireland came through its November election, with the centre holding. Unlike other countries across the world, where incumbents were ousted, Ireland voted back a status quo government - arguably centre left, but with a balancing ambition for industrial progress. The economy is in rude health compared to a decade ago. Stellar corporation tax returns and a solid indigenous economic performance have driven a large financial surplus. The labour force has grown, driven by immigration. However beneath the veneer burnished by a €14Bn tax award from the European Court of Justice, against Apple for back taxes, structurally Ireland is buckling.
Housing is unaffordable and in short supply. Years of under-supply in social and affordable housing have frozen a generation out of the property market. Infrastructure especially power and water are deeply stretched. New data centre connections are deferred. Drinking water for Dublin will need new supply from the Shannon river, located on the opposte edge of the island.
Progressive moves by government to support the lower paid, have added to employment costs. Post Covid hangovers in some sectors, especially hospitality have led to numerous firms closing. Costs of operating are eye-watering as expanded government regulations across almost all aspects of life, have introduced inertia across the economy. Remarkably the government is operating a deep structural deficit, which strong corporation tax returns have covered. Any impact to these returns could mean Irish politicians discussing an economic black hole here in the future.
Having admirably adapted to Brexit, the arrival of Trump in the White House for Ireland is as welcome as a vaccine jab. The fear being, that Trump wishes to inoculate US firms from further extensive Foreign Direct Investment into Ireland. US investment into Ireland over decades, has meant not only a generous tax take from multinational jobs, but immense corporate tax revenues, especially in firms where Ireland has the global mandate outside the USA and captures margin from international sales.
Ireland is small. The domestic population is 5.4million. Thus, FDI contributions have been outsized. With the war in Ukraine, immigration, and the arrival of international protection applicants from across the world, the impact on Ireland's social make up has been dramatic.
As Ireland must support migrants to shore up deficits in its healthcare and tech industries, our larger cities are becoming cosmopolitan. Small communities of individual ethnic groups are increasing. London especially has experienced this dynamic before. The Irish department of social protection who administer the welfare and social system, can learn much from the UK experience.
This year, 2024, saw the first coordinated and noisy protests from the far right, fighting immigration and fomenting strife via social media. This is a familiar playbook. But as with everywhere else, immigration policy is rising high on the domestic agenda. Hopefully a new government can set out a direction and clearer policies to assuage domestic voters concerns that immigration is being monitored and properly coordinated. The far right will continue to share disinformation to paint immigration as bad and immigrants as competitors for Irish based opportunity.
Of concern to me entering 2025, is how a new government will consider and address Trump 2.0. Our civil service is well developed, and our department of Foreign Affairs is well regarded. But I believe we have made some recent missteps. Ireland in recognising Palestine as a state (along with Spain and Norway) without preconditions, damaged Ireland-Israeli relations badly.
A more pragmatic approach perhaps, would have been to travel with the EU, or insist such recognition would be a quid pro quo for Israeli hostage release from Gaza. Whilst we have a proud history of peacekeeping with the UN, travelling ahead of our global partners seemed to me foolhardy and unwise.
Hezbollah, who rule Gaza and who were behind the 7th of October attacks, which caused the worst loss of Jewish life since the holocaust, are not a regime anyone can countenance doing business with. Offering state recognition, when Hezbollah were leading the campaign to free Palestine, smacked of legitimising terrorism and somehow created the perception that Ireland is a supporters of Hezbollah's war against Israel, when in fact the intention was to support the Palestinian people, by adding credence to a two state solution.
The Israeli response to 7/10 and its actions across Gaza have been appalling. The scale of suffering and loss of life of civilians in Gaza is unconscionable. However, the roots to this conflict go back decades. The actors involved include the US, Iran and the intransigent Jordan and Egypt who border the area, each having blood ties to many of the people who live in Palestine.
Thus, we achieved little to nothing via our recognition, but progressed a route whereby the Israeli embassy in Dublin has been closed by Tel Aviv. We have seen verbal spats between Irish Ministers and our President with Israeli leaders. Now, at a moment when the US backs Israel almost unconditionally and Trump, a strong supporter of Israel, returns to the White House, Ireland finds itself at a distance from important friends.
These same friends we will no doubt seek to engage with, in the event any emerging US policies are damaging to Ireland.
The new Irish government will include most likely a constellation of regional independent members of Parliament. Normally these TD's represent local issues and are often elected by constituencies rebelling against the main parties via a protest vote candidate, or on locally specific platforms. But the rural independents as they are called, are mainly centrist politically and economically.
It should be relatively easy to agree a programme of government that binds the two main parties and some independents into a 5 year programme of coalition government with a decent majority. I see it agreed and operating by mid to late January and expect it to be stable for up to 5 years.
I am hopeful but not optimistic, that revisions to the tax code to widen the income tax base may become a government priority. The hollowing out of tax revenues, removing contributions from lower earners in favour of higher taxes on higher earners, is a mistake I believe.
Ireland already has amongst the most progressive tax codes in the OECD for personal income. The redistribution of wealth and its transfer by tax deduction, from the rich towards the poor, has been acknowledged to be very efficient in Ireland.....in other words, a policy that fights wealth inequality.
The Irish left and progressive thinkers vociferously lobby for easements of the tax burden on the lower paid, enhancements to free housing and medical care and support for pensions in retirement. The list of existing state "entitlements" is not only impressive, but in turn, has fed increased individual expectations at a societal level, that government should subvent and pay for further social services and supports.
Investment in health and education have been immense. But social media amplifies a narrative that almost nowhere in the financial disbursements government makes, is the funding sufficient, targetted or effective. This commentary ignores the enormous levels of support provided across society already, for special needs and interest groups. No analysis or literal justification is provided. Rather soundbites and slogans, in an effort to win the war of ideas and thereby subsequently the levers of power.
When one considers at the foundation of the state, there was no social welfare, unemployment benefit or widow's support, we have come a long way.
In order to further cement their popularity, the left argue that lower paid workers should pay no tax whatsoever. They also argue for enhanced unemployment support. These demands are packaged as “entitlements” that are personally due to affected people. They argue they are easily afforded and should be paid for by "the wealthy". In the past, lobbying to have a right to housing enshrined in the constitution as a human right never progressed to material consideration. But the recent referenda to change the constitution on the family and a woman's place in the home, (both of which were defeated) and refused by the electorate, but backed by the main political parties, point to a political system often captivated by "demonstration policies", designed to curry favour with vocal groups, but not fully considered against their long term implications.
Already since the last economic crash, we are back to a scenario where a minority of citizens are paying the bulk of income tax and many citizens pay no income tax whatsoever.
I believe every citizen over 18 years of age should be a taxpayer, whether they are a student, working, unemployed, retired, on welfare or on disability benefits. As working and pensioners already pay tax, it is quite easy to increase welfare and social care payments by a modest amount and then withdraw the corresponding amount as tax at source. While this may sound like a three card trick - adding income and deducting the same amount in the same payment, consider the implications?
In such a system, everyone is deemed a contributor towards the state's support. Each according to their means. The contribution is visible on the weekly payslip or support slip. All recipients have a tax number and are inside the tax net. When the economic cycle varies, the tax contribution by specific groups can be adjusted, to align optimally for the maximum benefit to everyone. This seems to me to be a “demonstration policy” with no downside and positive long term effects…but what do I know?!
What I do know, is along with my friends and family, we are all a year older.
We have come through another year and prepare to welcome the next, with all its challenges and opportunity. We have no certainties, only that obstacles must be faced and there will be many. We have lost some very good friends along the way. Their passing has been painful, but we are enriched for having known them and we carry their memory forward.
I am bullish at least, for the 1st half of 2024 on specific US stocks which align to the AI goldrush and the corresponding infrastructure stocks to support electrification for AI. These must surely be a good long term bet I think. EU stocks are better value and a stimulus package for Europe may raise values for some infrastructure and energy providers.
Trump’s policies could be negative, but he understands the virtue of winning, so I think his main policies will seek to enhance US trade and power imminently. Fracking, oil, defence, AI and manufacturing will all get support. As to what his health secretary may do to food and pharma stocks is anyone’s guess? But short of a pandemic, vaccine makers are probably out of favour.
US equities have never been more over-valued in general. A correction and a steep one to the DOW and NASDAQ seem to be indicated, if merely by some reversion towards the historic mean valuation metric. Whether that happens, ( I believe it will), and over what time frame is anyone’s guess. A slow deflation of the hype balloon would be best, but a crash, is always likely. This is one scenario Trump must work to avoid. For President Biden is already walking into history. Trump with control of both houses and a triumphant and reborn Republican Party will be unable to repudiate events on his watch from now on.
So, we conclude where we started – “The Return of the Man!!” There has not been in recent history, certainly in the TV era since the 1960’s, a candidate like Trump. He is not a politician nor an insider in political terms, in the manner of so many of his predecessors.
He is a complete outlier and in winning again, has confounded pundits, analysts and experts. He is in fact the outsider’s outsider…so different to the system he inhabits and so disdainful of its operations, that his promise to break large parts of it is sincere. Moreover, he carries a grudge. The endless humiliations he has endured in court appearances during this campaign, no doubt, have created a range of individuals, against whom he intends to target his executive powers.
He is also the TV President. No-one more than he, is activated on a daily basis by social media. His postings on Truth Social and previously on X, have allowed him build a communication directly with large parts of the population, without fact-checking, sanity checking or sense-checking. He is a media renegade who has been handed, via his office, untold influence over modern media platforms, including those in the US where CEO's are already kowtowing to him, whilst US networks and mainstream publishers anticipate, correctly, future bruising encounters with him.
This will be a Presidency like no other. The individual in the office is like no other. In the background are cadres of Trump supporters, family members, corporate executives, sports personalities, media influencers and seasoned politicians, who hope some of "the Donald’s" fairy dust will sprinkle on them. JD Vance appears foremost now. Perhaps Don Junior, but who knows?
How Trump navigates the temptations of great office, with its great power and the unlimited ego stroking and compliments to which is so susceptible awaits us. Decisions with enormous consequences must be addressed. We can not fathom what an ageing US President in his final term in office might think or do.
So, we are living history.
A US saying was “As Maine goes, so goes the nation” implying Maine’s importance to the vote for President of the US.
We can now say where Trump goes, so goes the USA, as well as a significant number of us, who will be dragged along, whether for good or ill.
Trump may be a catalyst for US domestic investment expansion. He may start to reverse the expansion of the US trade deficit, bringing more jobs and investment back to America. He may in his unpredictable manner, navigate the ending of Russian and Israeli wars. He may indeed achieve all of these and more. But only time will tell. We can but wish him well and hope America, which has been a beacon of hope in the free world since its founding, does not alter course.
Hang onto your hats in 2025 – Economically I expect a stable year, but on all other fronts, anything is possible!
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