Table of Contents
A former Fed insider reveals why Trump 2.0 mirrors Andrew Jackson's revolution, tariffs boost US productivity, and Europe's energy crisis spells doom.
Key Takeaways
- Trump 2.0 represents a complete revolution against FDR-style governance, not just policy tweaks
- Tariffs counteract China's massive industrial subsidies and will trigger US manufacturing productivity boom
- Federal Reserve remains dangerously wrong about neutral rates with potential hikes ahead, not cuts
- Europe faces energy crisis disaster with trillions needed for renewable infrastructure fixes
- Dollar strength will persist as US leads global capital cycle innovation
- Investment announcements in US ($2 trillion) dwarf entire EU ($7 billion) by staggering margins
- Current market consensus on dollar weakness and Fed cuts fundamentally misreads economic reality
- Productivity-driven dollar cycles last 17-18 years, suggesting continued US capital dominance
- European fiscal stimulus will backfire due to high debt levels creating Ricardian effects
Trump 2.0: The Andrew Jackson Revolution
- Trump's second administration represents a fundamental departure from his first term, where he "literally had no interest" in policy and "would be bored in policy meetings" according to daily contacts who weren't even supporters
- The transformation stems from his traumatic 2020 loss and subsequent legal battles, creating a "burn the boats strategy" where he aims to "be the best president ever or at least a memorable president"
- Policy parallels with Andrew Jackson are so precise that swapping names and changing "Indian removal" to "immigrant removal" makes historical texts indistinguishable from current Trump policies
- This represents a complete overthrow of the 90-year FDR governance model, returning to Jacksonian federalism with executive power concentrated away from bureaucratic delegation
- The movement extends beyond Trump personally, suggesting MAGA represents a durable political realignment that could persist through future administrations
- Constitutional interpretation differences drive apparent "rule of law" concerns, but Trump's approach reflects legitimate executive branch equality with judicial and legislative branches rather than court supremacy
China's Industrial Policy Distortion Requires Tariff Response
- China's industrial subsidies reach nearly two percentage points of GDP according to CSIS estimates, massively understating implicit subsidies from directed banking credit to favored industries
- Chinese manufacturing share exploded from minimal to 40% of global production in just over 20 years through capital-driven competition, not natural comparative advantage
- China's total factor productivity has been negative for over a decade, meaning any investment would have generated higher returns elsewhere, proving massive economic distortion
- US manufacturing productivity collapse directly traces to Chinese competition undermining investment incentives and forcing industries into "runoff investment" mode
- Tariff walls will likely trigger substantial US manufacturing productivity gains by restoring proper investment incentives in domestic production capacity
- The "three Rs" framework explains comprehensive tariff strategy: revenue generation as fiscal policy, reindustrialization through import substitution, and reprisal against uncooperative allies
Federal Reserve's Dangerous Policy Miscalculation
- Fed's September 50 basis point cut represented pure "policy error" given one-year TIPS yields at 3% for two straight years with above-target inflation
- Real GDP growth has averaged 0.5-0.75 percentage points above Fed's supposed neutral/potential estimates, contradicting claims of restrictive policy
- Current Fed officials demonstrate poor grasp of actual neutral rates and potential growth, continuously making the same analytical errors
- Powell faces impossible political position with inflation above target for five consecutive years while Trump threatens criticism regardless of policy direction
- Base case predicts zero rate cuts in 2025 with upside risk of actual hikes if economic activity surprises positively as fiscal stimulus hits
- Inflation expectations remain the key driver, with consumer uncertainty exploding due to Trump policy announcements creating dangerous feedback loops
Europe's Economic Catastrophe Unfolds
- German fiscal stimulus package will fail spectacularly due to fiscal multipliers between zero and one for spending, while high debt levels create negative Ricardian effects
- Germany's role as fiscal anchor for European stability disappears if debt profile deteriorates, removing implicit backing for ECB's "whatever it takes" credibility
- Energy policy disasters multiply with Spain's blackouts demonstrating renewable grid instability requiring trillions in EU infrastructure investments to fix
- Natural gas import costs have skyrocketed since losing Russian supplies, with shipping insurance rates exploding due to Middle East tensions
- Investment announcements starkly highlight regional divergence: US attracts $2 trillion in new commitments while entire EU manages only $7 billion
- European productivity growth remains nonexistent while defense spending demands and energy transition costs compete for limited fiscal resources
Dollar Dominance Continues Through Innovation Leadership
- Sophisticated econometric analysis reveals dollar cycles driven by US-originating innovation and productivity booms that later diffuse globally over 17-18 year periods
- Current positioning suggests continued US leadership in capital cycle with dollar strength persisting structurally, not just cyclically
- Recent dollar weakness represents portfolio rebalancing toward benchmark weights rather than fundamental capital flight from US assets
- Technical analysis points to 1.1219 EUR/USD as 38.2% Fibonacci retracement target for resuming dollar strength once positioning adjustments complete
- US exceptional characteristics (geographic protection, resources, institutions, economy size, market liquidity, defensive capability) remain unchanged regardless of political uncertainty
- While US risk premiums may rise, rest of world faces even higher relative risks, maintaining dollar's appeal as ultimate safe haven
Investment Philosophy Through Market Uncertainty
- Modern environment characterized by increasing "non-quantifiable risks" where traditional probability assessments become impossible, exemplified by COVID's unforeseeable global lockdowns
- Trading approach must focus on explicit, quantifiable risks while using scenario analysis and purchasing long-dated insurance for completely unrealistic events that inevitably occur
- Personal hedge fund failure provided crucial learning experience about accepting losses and systematic mistake analysis, echoing Paul Tudor Jones's requirement that portfolio managers experience significant losses
- Intellectual curiosity and quantitative skills remain essential for young professionals, with harder analytical paths offering less competition and better opportunities
- Creative work requires unstructured time for daydreaming and synthesis, making hyper-efficient scheduling counterproductive for generating insights
The current moment demands recognizing Trump's policies as revolutionary rather than incremental, understanding Fed errors rather than following consensus, and preparing for European economic deterioration rather than expecting recovery. Markets consistently underestimate both the coherence of Trump's strategy and the severity of challenges facing traditional allies, creating opportunities for those willing to challenge prevailing narratives.
