Table of Contents
Veteran strategist Thanos Papasavvas argues that Trump 2.0's aggressive moves against allies represent execution refinement rather than ideological change, with profound implications for global asset allocation and Federal Reserve policy.
Key Takeaways
- Trump 2.0 represents execution improvement over Trump 1.0, not fundamental ideological change in approach to allies
- European markets offer attractive opportunities as the continent faces forced strategic autonomy and regulatory streamlining
- China remains undervalued despite trade tensions, with Xi Jinping's cautious stimulus approach creating long-term stability
- Fed likely to raise rates by September 2025 due to Trump policy-driven inflation, despite consensus expecting cuts
- Far-right European parties require engagement rather than exclusion to prevent democratic breakdown
- US economy shows no recession signals in key employment indicators (manufacturing, residential construction, temporary health services)
- Russia-Ukraine settlement expected to follow realpolitik lines with Putin keeping conquered territory, Ukraine gaining EU path but no NATO membership
- Middle East tensions remain contained due to multiple open communication channels between regional powers
- Jack Ma's rehabilitation signals Chinese AI sector integration into state competitive strategy
- Investment strategy favors Europe/UK/China over expensive US markets, with neutral stance on AI/technology sectors
From Greek Government to Global Geopolitics
Thanos Papasavvas brings a unique perspective to geopolitical analysis, having transitioned from UK government economist to asset management strategist over two decades. His frustration with government work captures a common tension: "The minister would come to you and say we're thinking of doing this particular project... you would go option A is the most attractive, option B somewhere between, and option C is the least attractive. And as an economist that's what you do. And then the policy makers would come back and say thank you very much, we'll go for option C."
That experience of providing analysis without being able to "put your neck on the line" drove him toward asset management, where views translate directly into investment outcomes. This background gives him particular insight into how political decisions actually get made - and why markets often misread political signals.
Trump 2.0: Execution Over Innovation
The biggest misunderstanding about Trump's second term, according to Papasavvas, is treating his actions as surprising departures from previous behavior. "I don't think there is a big difference between Trump 1.0 and 2.0," he argues, pointing to clear precedents from the first administration.
Remember that first G7 meeting Trump attended? He immediately asked "where's Vladimir?" When told Russia wasn't part of G7, he responded "how can you have a G7 meeting without Russia?" He went straight after NAFTA, correctly identified German reliance on Russian energy, and demanded Europeans pay their fair share for NATO defense.
"In my view there were a number of things which he - I may not have agreed with - but there were also a number of things which he was right on," Papasavvas observes. The difference now isn't ideology but execution: "He's learned the ropes, he knows how to address them, he knows what real power he has and how he can utilize that."
The Predictable 'Shock' Strategy
Markets have been stunned by Trump's rapid moves on Russia, arranging meetings with foreign ministers, and aggressive stance toward allies. But Papasavvas finds this bewildering: "He's been telling us that he's going to be doing that from two years ago, from November the 5th until he was inaugurated. It was a moribund state and there was nothing happening in the world in anticipation of him coming in. So what would you expect him to do?"
The targeting sequence makes strategic sense. Trump is "putting pressure on the closest, lowest hanging fruits being Mexico, Canada, Ukraine obviously, and Europe" while avoiding immediate confrontation with China. It's a classic demonstration of power against smaller targets before addressing the main adversary.
Realpolitik on Russia-Ukraine
Papasavvas takes a coldly realistic view of the Ukraine conflict that may disturb European sensibilities but reflects probable outcomes. "We couldn't see a situation where Ukraine would regain those parts of the region of the country which the Russians invaded and controlled. So we could not see that going back to Ukraine unfortunately, but that's the way we see it."
The expected settlement follows predictable lines: "What Putin owns, that stays with Putin. Ukraine, you can now start to continue the discussion of the European Union but no NATO." This represents realpolitik rather than moral judgment - simply acknowledging military and strategic realities on the ground.
What surprised Papasavvas wasn't the settlement framework but Trump's apparent closeness to Putin. He had expected Trump to "maintain Putin at arm's length" for strategic reasons, particularly to prevent deeper Russia-China alignment. The historically weaker partner (Russia) becoming too dependent on the stronger one (China) could reduce American leverage in the great power competition.
European Awakening: Crisis-Driven Reform
The Trump shock has finally forced Europe into long-overdue strategic thinking. "The Europeans have finally woken up to the fact that transatlantic relationships have changed," Papasavvas notes, but he emphasizes this shift began well before Trump.
Hillary Clinton's November 2011 speech announcing the US "pivot to Asia" sent clear signals that American focus was shifting. Biden's Afghanistan withdrawal without consulting allies and replacing France with Australia in AUKUS further demonstrated that even Democratic administrations weren't prioritizing European concerns.
"Biden was not really friendly, he did not refix the transatlantic relationship," Papasavvas argues. "It's time that the Europeans have to realize that they need to reassess their strategic autonomy, become more assertive and find a way of keeping the US close but at a level playing field."
The Merkel Leadership Vacuum
Europe's challenge isn't just strategic but structural. Angela Merkel's crisis management approach - dealing with deadlines at "12:00 midnight with deals done at 4:00 in the morning before markets opened" - worked because of her unique capabilities and authority. Her chief of staff would prepare written agreements by 7 AM, ready before markets opened.
Now Europe faces complex decisions "by committee" without clear leadership. "You can't run these decisions by committee... someone has to take the leadership, take the decision, take the call and run with it. And we need that in Europe."
The hope lies with Merz potentially taking German leadership, but he faces the challenge of Germany's far-right AfD representing 21% of the population. Papasavvas argues for engagement rather than exclusion: "If that party now represents 21% of your population, potentially 25% if it didn't have the stigma... you can't really ignore 25% of the population in the decision-making process."
The Far-Right Integration Challenge
This represents a fundamental shift in Papasavvas's thinking, influenced by JD Vance's Munich comments. Drawing parallels to ESG investing, he argues: "The whole concept over the last few years is engagement rather than exclude because by excluding you don't deal with the problem, you pass it on to someone who may have different ethos, philosophies and views."
The risk of continued exclusion is that AfD becomes the major party in future elections, potentially recreating 1930s dynamics. Better to "identify those issues, work with those issues and deal with those issues" now while mainstream parties retain control.
Importantly, Papasavvas doesn't see this as threatening EU unity. Brussels will likely "shift to the right" to accommodate changing political realities, becoming "more business friendly, less bureaucratic, more efficient" and focused on defense and technology competitiveness.
China: The Misunderstood Giant
On US-China relations, Papasavvas challenges conventional narratives about which administration was more hawkish. "Trump may have initially triggered the tensions with China, but it was the Biden administration which really turned much more hawkish."
The turning point came with Jake Sullivan's October 2022 doctrine uniting the entire US administration against China. "They went super hawkish and only five or six months later they realized that they had overplayed their cards and started to send various envoys to try to bring back and become more dovish."
Trump's current approach focuses on "low hanging fruit" - Mexico, Canada, Europeans, Ukraine - rather than immediate China confrontation. "I don't believe that he's going to go bang on with China in any aggressive way because he's very much aware that the consequences for the US are going to be far more significant."
Xi Jinping's Calculated Restraint
Understanding China requires grasping Xi Jinping's strategic philosophy. He "shifted the Chinese economy from being capitalism with Chinese characteristics to the left" not from ideological preference but existential calculation. Having learned from USSR collapse and the 2008 Global Financial Crisis, Xi concluded that speculative bubbles posed existential risks to Communist Party control.
"If China's speculative bubble had continued to expand and burst, no one's going to help China," Papasavvas explains. Better to "prick that speculative bubble and deal with the consequences rather than have an existential problem of the potential of the CCP and the whole society collapsing."
This explains the "as little as necessary" stimulus approach that frustrates markets expecting massive interventions. China won't return to 8% growth but will deliver "stable 4.5-5%" growth while maintaining social cohesion and party control.
The Fed's Credibility Crisis
Perhaps Papasavvas's most contrarian view concerns Federal Reserve policy. While consensus expects rate cuts, he predicts rate increases by September 2025. His reasoning centers on Fed credibility: "How can they be wrong twice in such a short space of time?"
Three factors support this view: First, underlying US economic data shows "clear signs of expansion" with no weakness in key employment indicators (manufacturing, residential construction, temporary health services). Second, Trump policies are "all expansionary and potentially inflationary" including tax cuts, tariffs, and deportation. Third, the Fed "needs to address" inflation expectations given their recent credibility damage.
"If Trump were not to do any of the policies, nothing at all, then the economy would not require rate hikes," Papasavvas acknowledges. "It's on the back of the actions which Trump policies are taking which will then create the expectations for that to happen."
Investment Strategy: Value Over Growth
These geopolitical insights translate into specific asset allocation recommendations. Papasavvas's firm has been "positive Europe, UK equities, China but neutral Japan and the US" with the US neutrality driven primarily by valuations rather than fundamentals.
"The one thing which has been weighing it down is valuations," he explains regarding US markets. "From a valuation point of view China is super attractive... China is a plus three score in valuations and the US is a minus three score."
The European story has "legs to run" beyond tactical positioning. Factors include forced investment due to Trump pressure, regulatory streamlining to compete globally, and significant underinvestment creating efficiency opportunities. "There's still a lot of underweight... investors are still underweight that part of the world."
AI and Technology: Neutrality Amid Euphoria
On artificial intelligence investments, Papasavvas maintains neutrality despite acknowledging the sector's importance. "Technology until recently was number one but it had the most expensive valuations." Rather than chase expensive growth, his preference is allocating "risk units in places such as Europe or UK or China where the underlying valuations were more attractive."
Interestingly, Jack Ma's rehabilitation and prominence at recent Chinese events signals potential AI integration into state strategy. "I think Xi Jinping was pleasantly surprised with the developments of DeepSeek recently and he may be potentially seeing that particular sector forming part of the competitive advantage of the state."
Middle East Stability Through Communication
Papasavvas's geopolitical framework correctly predicted Middle East resilience after October 7, 2023. While markets expected oil price spikes and regional conflagration, he argued that multiple communication channels would contain escalation.
"China opened the line of communication between Iran and Saudi Arabia in March 2023, and also through the Abraham Accords the official line of engagement was open between Israel and the Arab states." With "two lines out of three open, the unintended consequences were reduced."
Saudi Arabia played a crucial balancing role, potentially benefiting from higher oil prices but recognizing that "$150-200" oil would create "inflation, central bank policy tightening, global recession which would be disadvantageous" for their diversification strategy.
The Pragmatic Authoritarian
A key insight involves Trump's non-ideological nature compared to figures like JD Vance or Xi Jinping. "I don't believe that Trump is ideologically driven... what that means is that if he pursues a specific policy and sees adverse impact on the underlying economics, the sentiment, the stock market, the economy, then in my view he's going to backtrack, potentially blame someone, sack them and move on."
This creates both opportunity and risk. Trump might moderate policies that damage markets or the economy, but the resulting chaos and uncertainty can itself become destabilizing. Recent U-turns on Mexico and Canada tariffs exemplify this pattern.
Lessons from Government and Markets
Papasavvas's career transition from government economist to market strategist provides valuable perspective on both sectors. Government offers "amazing people, culture, work" but frustrates those who want to see analysis implemented. Markets provide direct accountability - "you have a view and then you can put your neck on the line and see whether you're right or wrong."
His advice for young professionals reflects this experience: "It's about passion... it's not a 9-to-5 job. It's a job really which is full engulfing... everything which happens around this world is impacting this particular industry and this is an opportunity for you to enter this industry and really be able to make some change."
The Long View on Volatility
Perhaps most importantly, Papasavvas emphasizes intellectual humility gained through decades of market experience. "Always question and challenge what you think you know... how do you challenge yourself in terms of being open to criticism and questioning all of your thesis, all of your expectations."
The currency sector particularly teaches humility "because there is no underlying gap which makes you very confident of yourself, so you always keep a sense of realism because some views you get right and some views you get wrong."
This perspective proves crucial for navigating Trump 2.0's combination of predictable strategic goals and chaotic tactical execution. Understanding the difference between systematic policy objectives and random implementation noise becomes essential for successful asset allocation in an increasingly multipolar world.
The key insight is that while Trump's specific actions may appear shocking or random, the underlying strategic framework remains consistent and predictable. Success requires looking beyond tactical noise to understand longer-term geopolitical and economic trends driving market performance across regions and asset classes.
