“PROTECTIONISM IS THE INSTITUTIONALISATION OF ECONOMIC FAILURE.” ~ Edward Heath, UK Prime Minister from 1970 to 1974.

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Capitalism At Work

Capitalism, human ingenuity, and a credit-based financial system — our modern fractional reserve banking framework — together form perhaps the most powerful engine to support progress. Our system has created opportunities that are boundless and has unleashed extraordinary innovation. Yet, the relentless pursuit of progress, when coupled with another intrinsic human trait — (spoiler alert: greed) — comes at a cost. Capitalism breeds inequality — a reality that both Schumpeter and Marx agreed on. Its rewards might be vast but are distributed unevenly. Combined with a fractional reserve banking system, the accumulation of debt risks outpacing the very progress it fuels.

“CAPITALISM, INEVITABLY AND BY VIRTUE OF THE VERY LOGIC OF ITS CIVILIZATION, CREATES, EDUCATES AND SUBSIDIZES A VESTED INTEREST IN SOCIAL UNREST.” ~ Joseph Schumpeter, Capitalism, Socialism, And Democracy

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"ACCUMULATION OF WEALTH AT ONE POLE IS, THEREFORE, AT THE SAME TIME ACCUMULATION OF MISERY, AGONY OF TOIL, SLAVERY, IGNORANCE, BRUTALITY, MENTAL DEGRADATION, AT THE OPPOSITE POLE." ~ Karl Marx, Das Kapital, Volume 1

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In the past 40 years alone, humanity has generated more GDP than in the previous 2,000 years combined. We are seeing an acceleration of innovation unfolding in real time. Since the turn of the millennium, global GDP has more than doubled, rising from $80 trillion in 2000 to $166 trillion in 2023. Yet, this remarkable expansion has been accompanied by an even greater surge in debt, now more than three times what it was just a two decades ago. The result? A growing reckoning over the sustainability of fiscal deficits and public finances.

While globalisation and technological advances have driven efficiency gains, lower consumer prices, and productivity improvements, the financial benefits have disproportionately accrued to asset owners — especially financial assets, and in particularly entrepreneurs and founders of dominant technology firms. The wealth gap has widened, and as we step into 2025, socioeconomic uncertainty is reaching new extremes.

The optimism that fuelled markets in late 2024 — the so-called "Trump Bump," driven by expectations of deregulation, deficit reduction, and a resurgence in U.S. industrial might — has given way to what can best be described as the "Year of Uncertainty." Policy expectations have shifted dramatically, corporate investment has stalled, and inflation concerns are now giving way to fears of economic stagnation. The private sector, once buoyed by massive fiscal stimulus, is now grappling with the consequences of erratic U.S. policymaking and a global trade system on the verge of upheaval.

Exhibit 1: Policy Uncertainty in the United States and globally has sky-rocketed since Trump’s election

“THE FOUR MOST DANGEROUS WORDS IN INVESTING ARE: ‘THIS TIME IT’S DIFFERENT.’” ~ Sir John Templeton (Cautioning Against Assuming Permanent Economic Trends.)

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The Unsustainable Nature of U.S. Exceptionalism

The strength of U.S. equity markets in recent years has been directly linked to unprecedented government borrowing and spending. This fiscal expansion fuelled a robust consumption recovery, attracted foreign capital, and reinforced a strong U.S. dollar. The result was a self-reinforcing cycle that became the foundation of the U.S. exceptionalism narrative. But this cycle is unsustainable. Government deficits are, by definition, private sector credits — and when the government attempts to reverse these deficits, the private sector needs to tighten its belt.

Trump's new administration has set its sights on reducing both the trade and budget deficits. The proposed solution? Tariffs. By making imports more expensive, the administration hopes to drive demand for domestic goods, reigniting U.S. manufacturing and boosting government revenue in the process. But economic theory — and history — suggests it won’t be that simple. The benefits of globalisation were largely derived from comparative advantages, which allowed goods to be produced at lower costs. Undoing this structure will take years and will undoubtedly lead to higher consumer prices.

Moreover, foreign governments are unlikely to stand idly by. The risk of an escalating global trade war is increasing, and retaliatory tariffs could disrupt supply chains, dampen corporate investment, and slow global growth.

Exhibit 2: A staggering amount of capital has been chasing ‘U.S. Exceptionalism’! Will a trade war reverse this?

“IT’S NOT WHETHER YOU’RE RIGHT OR WRONG THAT’S IMPORTANT, BUT HOW MUCH MONEY YOU MAKE WHEN YOU’RE RIGHT AND HOW MUCH YOU LOSE WHEN YOU’RE WRONG.” ~ George Soros

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Shifting Market Sentiment & Rising Policy Uncertainty

The first quarter of 2025 has been marked by a stark shift in investor sentiment. Optimism about fiscal stimulus and resilient economic growth has given way to concerns about escalating trade tensions, weakening economic momentum, and uncertainty in monetary and fiscal policy. The sharp correction in U.S. equities — particularly in large-cap technology stocks — signals the fragility of the post-pandemic expansion.

Historically, policy-driven market cycles have introduced significant volatility. The "Trump-Bump" that fuelled the late-2024 rally has rapidly transitioned into what we might call the "Tariff-Tragedy." Businesses, facing an uncertain regulatory and economic environment, are delaying investment decisions, reinforcing disinflationary pressures.

Key themes emerging from Q1:

• Trade tensions as a systemic risk – Greater than expected tariffs following ‘Liberation Day’, threaten global supply chains.

• Market fragility and sentiment shifts – The sharp decline in U.S. tech stocks underscores how quickly sentiment can reverse in a policy-driven market.

• European resilience – Fiscal expansion in Europe and Asia potentially presents an unexpected safe-haven as global markets face heightened volatility.

The question for investors now is how to navigate this evolving landscape while preserving capital and identifying asymmetric opportunities. As the tides shift, the importance of valuations as a margin of safety will become more critical. If history is any guide, markets will punish excesses and reward prudence.

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Exhibit 3: President Trump has very much delivered on his campaign promises.

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