At the time, the threats were mostly brushed off and US stocks hit a record that day. But after declining the next day and then bouncing around those levels for a month, they turned sharply lower.

At the same time, other countries appear to be pivoting to pro-growth, higher spending and less regulation. That’s created a big turn.

In a way, you could see all the elements for this coming together in early January (it’s always easy in hindsight). Here is what I wrote about the euro then, as the euro sank to the lows of the year in a 10-cent swan dive over a couple months:

The best thing you can say about the euro is that it’s so hated that sentiment can hardly get worse.

Then
again, you could have said that on New Years Eve and it’s down 100 pips
to start the year. As they say, it’s always darkest…before it goes
completely black.

There isn’t much support on this chart and right
now the US dollar is so strong. US capital markets are utterly
dominating and there is a network effect that’s snowballing, drawing
more and more money into US dollars. The US stock market is now around
75% of the MSCI World Index and multiples on anything US-listed are
higher than almost anywhere else.

The world of
free capital is looking at the performance of things like the Mag7
compared to their domestic markets and feeling jealous. That money is
flowing into the US today as we start a new year and new money goes to
work.

At some point, there will be a bear
market in the US or underperformance of the US economy but right now the
market just doesn’t see it.

Like the euro,
that points to a one-sided trade and the potential for a huge reversion
but until the music stops playing, you need to dance. Right now, the
dollar is continuing to party like it’s 2024.

It’s funny how things can change quickly. So far it’s mostly speculative but if the US continues down the ‘tariff war’ and fiscal consolidation rout and Germany starts stimulating, the reversal will have legs.