So much news is coming at us so fast and so furiously that we cannot process the information from one news item before another diverts our attention. It does not help that information we see with our own eyes and hear with our own ears is contradicted by pronouncements from the current administration. Unfortunately, this undermines trust in the news itself. So, let’s take a few moments to sort out just the true economic news that may be relevant to your investments and your spending.
Economically speaking, 2025 was a rewarding year for American companies, although not the U.S. dollar which has been falling against the Euro since January 2025. While there was a flurry of mergers and acquisitions consolidating media and technology companies, much of this was done with stock swapping or borrowed money (leverage). Companies earned more in 2025, but much of this merger activity was based on the promise of new technologies like artificial intelligence, which have been unleashed on the public with little regulation and may be doing more harm than good.
Unlike the first Trump Administration, which took a whole year to figure out how to get things done, this time the Project 2025* playbook was ready, and they started implementing it immediately. Here are just the economic highlights: Tariffs, growing animosity toward North Atlantic Treaty Organization (NATO) allies, saber rattling against Canada and Mexico, the bombing of small boats in the Caribbean that may or may not have been carrying drugs, the One Big, Beautiful Bill Act (OBBBA), and then the capture of President Maduro of Venezuela and the seizing of that country’s oil resources.
2026 started with the inexplicable demand that Denmark, a NATO ally, cede Greenland to the U.S. even though the U.S. already has strategic assets positioned in Greenland. Article 5 of the NATO alliance says that every member of the alliance will respond to an attack on another member. In the 80 years since NATO was formed, Article 5 has only been invoked once, and that was when the U.S. was attacked on 9/11. Along with other NATO allies, Denmark leapt to the defense of the United States. Given Denmark’s population, the loss of their soldiers in Afghanistan, measured per capita, was greater than that of the U.S. So, when Donald Trump claimed at the Davos Conference that the U.S. never got anything out of NATO, every NATO member, especially Denmark, had a reason to be deeply offended.
I would argue that nearly a century without a World War is definitely something! NATO is more than a mutual protection pact, NATO allies were our best customers for U.S. made goods, but in 2025 the trade deficit kept growing. Meanwhile, private transactions between businesses associated with the President and certain high dollar donors have enabled over 1,600 individuals found guilty of financial crimes to avoid both prison time and restitution to their victims. This has cost U.S. taxpayers more than $1 billion (source: The Marshall Project, 7/28/2025).
Contrary to what the President says, inflation has not diminished. In fact, as anyone shopping for groceries can tell you, eggs may be a bit more affordable since bird flu is under control for now, but other food prices, particularly meat, continue to rise. Meanwhile, farmers in California, which is the source of much of our produce, are finding it difficult, if not impossible, to bring in the crop because ICE has chased away or deported their labor force. In doing research for this letter, I came across a video of a cherry farmer shepherding a reporter through his orchard where the fruit shriveled on the stems. They had a bumper crop. They just couldn’t get it to market.
Greg Ip postulated in the Wall Street Journal (January 14, 2026) that Donald Trump wanted to “run the (U.S.) economy hot.” The stock market is not the economy, but Donald Trump conflates the two, and he doesn’t like down markets. When his tariff announcements beat down stocks, he often reversed the planned tariffs, giving birth to a new acronym: TACO “Trump always chickens out.”
According to Ip, 2026 is a year in which three economic forces converge: “fiscal policy (taxes and spending), monetary policy (interest rates) and credit policy (ease of borrowing)” (WSJ 01/14/2026). While Ip believes Americans will be more inclined to spend in 2026, I disagree. (WSJ 01/26/2026: “Consumer Confidence at a 12 Year Low.”)
The Trump administration saw how fiscal stimulus juiced the economy during the Pandemic, which is what led to the rampant inflation that started at 9% when Joe Biden took office and stubbornly held to 3% by the time he left office. They have set the stage for more stimulus with the OBBBA. Normally, tax breaks must have cuts elsewhere to cover their cost, but not with the OBBBA.
There are offsets such as cuts to Medicare, Medicaid, Affordable Care Act (ACA) subsidies, and subsidies for childhood nutrition and education, but the spending increases on tax cuts to technology companies and the tech titans that run them together with the increased spending on the Department of Homeland Security more than outweigh the deep cuts made to health care and food assistance. Fiscal stimulus for the purpose of fiscal stimulus will almost always lead to inflation and recession eventually. If drinking excessively will always lead to a hangover, the person who just keeps on drinking will end up with the mother of all hangovers when they finally stop.
You may remember that after the mortgage bubble that ballooned and popped at the very end of the George W. Bush administration, Congress instituted some lending regulations to prevent the same thing from happening again. The first Trump administration rolled back some of those consumer-finance protections. According to Mr. Ip, “regulators have moved to undo [the remaining] restrictions.” At the same time, barriers to bank mergers designed to prevent another 2008 debacle have also been rolled back.
Finally, there is the Fed Chairman. Jerome Powell’s term ends in May. Trump has named his pick, but given the performance of Trump’s cabinet member picks, Congress may be a bit more circumspect in their confirmation hearings with Kevin Warsh.
The Fed must be independent from all political forces in setting U.S. monetary policy. We and those countries that use the dollar as their reserve currency need to trust that our Federal Reserve is apolitical, resolute, and judicious. Otherwise, they will not buy our Treasury instruments (debt) and keep the dollar as the reserve currency of choice. Given that Warsh is the son-in-law of a close personal friend — in fact, the friend credited with giving Trump the idea of taking Greenland during his first administration — he may line up with the President’s ideas more than previous Chairmen.
Suffice it to say, your asset allocation is prepared for what we see as the challenges ahead. Apart from the insults to our trading partners which once said cannot be unsaid, the legislation and lack of regulation can be remedied. Those unwilling or incapable of doing their job can be removed either by congressional or judicial action, or at the ballot box.
If I write any more, I will be guilty of flooding the zone myself, but I would be happy to discuss any of these matters with you personally at (704) 502-6649.
*Project 2025 called for mass deportations of “illegal aliens.” We are not discussing this ill-conceived, cruel, wasteful and counterproductive program here. If you are interested in writing your NC Congressional representatives about stopping this program, I have contact information for the entire delegation and would be happy to pass it along to you.
