As Trump Seeks to Salvage Midterms, Expect the Unexpected

I don’t think we have ever seen the generation of so many headlines, on so many subjects, so quickly from any world leader, as we’ve seen since at the start of this year!

Aside from the “obvious” headlines on Venezuela, which after Friday’s press conference looks more and more like colonization, we have a raft of geopolitical headlines:

• Seizing Russian-flagged crude carriers
• Threats on Cuba, Iran and Syria (U.S. strikes against ISIS targets coming once again on Saturday) to name a few. With the events that occurred in Venezuela, these need to be taken very seriously.
• Some sort of peace negotiations continue with Russia and Ukraine
• Some sort of plans for rebuilding Gaza (hearing about a ski resort?)

If you want to watch last week’s Academy Securities Geopolitical Webinar, you are welcomed to.

On the economic front, we had:

• Venezuela and its oil
• The U.S. invested $2.7 billion in companies involved in uranium enrichment
• Defense stocks were hit when the president suggested restricting compensation and dividend payouts for companies that are behind their targets for delivery. Then they rose when the president suggested the military budget should be increased from $1 trillion to $1.5 trillion (somehow, bonds barely reacted).
• Housing had its own mixed bag of headlines. $200 billion to buy mortgages caused mortgage spreads to tighten. The president also tossed out the idea of restricting home purchases to individuals rather than entities designed to buy up housing.
• Closing out the week was the “announcement” that credit card interest rates should be capped at 10%. Sounds popular but might reduce credit availability.
• Then, either “really closing out the week” or “starting this week,” you have a “conflict” between the administration and the Federal Reserve.

I’m sure I missed a bunch of other important and potentially market-moving events.

Midterm Elections Driving Everything

The president is well aware of the importance of winning the midterm elections. He realized that a president without the House of Representatives and Senate on his side is not in an enviable position.

Look for him to implement policy after policy after policy, attempting to secure victory in the midterm elections for Republicans.

• Success in foreign policy will be a key element. From bombing Iran’s nuclear facilities, to capturing Venezuelan President Nicolas Maduro, look for a lot more to occur on this front.
• Affordability is another key issue. The steps on credit cards, housing and mortgage rates seem to try to address that. Look for more.
• Drugs and immigration will remain front and center. It seems impossible to envision a path that does not include turning our attention, and likely full might, on the Mexican cartels.
• Transactional: Being transactional is not necessarily bad, and in many cases can be good, and certainly more effective than the policy of admonishing and haranguing, which did seem to be how we treated many developing or emerging nations.

The point we are trying to make is twofold:

1. Expect a lot more announcements on many more subjects than you thought were possible even in your wildest imagination.
2. Let your imagination “run wild” with what could come up as potential policy, because for this administration, “out of the box” is the norm and not trying to get ahead of it could cost you.

Anticipating moves and preparing for them will help you make better investment and corporate decisions.

Out of the Box on Interest Rates

This weekend’s issues with the Fed and administration only confirm my view that this is going to be “out of the box thinking.” So far, longer dated bonds are reacting purely, but why would the market assume the administration doesn’t have some surprises up its sleeve to reduce longer term yields, too?

The ProSec Investment Thesis Flourishing

It also doesn’t hurt that my top pick for 2026 (and top pick for 2025),  (INTC) , is already up 23% year to date as of Friday’s close. The “rotation” theme is also working out well, with the Russell 2000 up almost 6%.

Continuing to build out a portfolio of "production for security" (ProSec) linked names should continue to work well.

• A mix of “national champions” with smaller, very domestic-focused companies should do well. Also, companies integral to the build-out phase, will do very well!
• Processors, refiners and finished goods manufacturers will likely outperform those further down the supply chain. Yes, the entire chain will do well, but expect benefits to accrue disproportionately to companies that reduce our dependency on China the most. While less dependency on everyone is part of the administration’s goal, those that can address China the best will do the best.
• While the following chart is almost embarrassingly bad, even by my charting skills, I think it is a great way to filter companies in (or out of) the ProSec narrative:

The “green” means relatively easy to achieve, yellow is more difficult, orange is even more issues and red is truly difficult.

The two biggest threats to risk markets:

1. China decides to respond to more aggressive U.S. actions across the globe by constraining shipments of rare earths and critical minerals
2. Our own politics become so divisive that things cannot get done

The “surprise” that could propel risk markets much higher:

• The bond market drifts toward my outlook on rates

Good luck and thanks again for all your help in 2025!