From late October to mid-December we developed a “New Framework” for understanding the cause-effect relationships in the global economy and financial markets. This framework was developed based on observations of shifting geopolitical power dynamics, the impacts of technological innovation, demographic shifts; and cultural, political, and institutional shifts. We have tried to weave these forces together to provide a baseline of beliefs from which we can adjust as new information (the future) reveals itself.

It is important to look at these forces independent of market prices and only after we’ve formed our model to look at the stories the markets are telling us through the model to find any contradictions or confirmations. Therefore, we have included the “New Framework” below and will then proceed to review the stories being told in the markets with the aim of discovering the contradictions and confirmations, whether real or merely apparent.

The overriding theme of this model is that we are experiencing secular change in the big forces that have been driving the global economy and markets. The Framework is designed to compare and contrast the differences in important drivers across two time periods and when we look at the charts below we should see where the markets are confirming or contradicting these changes.

What we find below is a mixture of markets making new breakouts, old breakouts turning into new trends, secular trends weakening, and many markets still in long-term balance. This is characteristic of regime change as the new leadership steps up, the old steps back (sometimes slowly and sometimes violently), and the rest wait for confirming evidence.

2-year Treasuries

We’ll start with 2-year yields in the US. Nothing has changed over the past year despite the recent easing of monetary policy by the Federal Reserve as 2-year yields are only now threatening a downside breakout. The apparent contradiction here is that the economy continued to perform well last year, while becoming increasingly fragile after absorbing immigration restrictions, weak hiring demand, and tariff hikes, and inflationary fears linger but the Fed is lowering rates partly due to pressure from the White House.

As we can see in the chart above 2-year yields have been making a series of lower highs for the past 30-years and recently have made a new, higher high and are testing the high from just prior to the GFC. This supports the idea that Fed policy is too restrictive because rates are not only above the prior high but near the pre-GFC high. On the other hand, it ignores the massive inflationary impulse we experienced, the changing psychology around inflation, and the lingering inflation we are still experiencing.

The New Framework has a definitive inflationary bias which is supported by the recent experience and the lingering inflation still in the system. It also supports the concerns among the Fed governors around inflation despite weaker economic growth recently. Bob Elliott has framed the Fed’s dilemma as one between economic weakness (limited easing) or debasement (aggressive easing). The White House attacks are a symptom of the ongoing institutional crisis which is another sign that we are experiencing secular change but is characteristic of the thinking that dominated during the 1990s-2010s.

Gold

This time last year gold had broken out with weak structure and was consolidating around 2,800. It was unclear if that breakout would succeed. Today gold is sitting at new all-time highs around 4,500. Jared Dillian has quipped that Trump is the world’s best gold salesman.

The swift abandonment of fiscal austerity by the Trump administration as well as the dismantling of the global trading system on Liberation Day provided another point of validation for the New Framework and helped transform the gold breakout into a new trend.

China’s role in the global economy is changing and this also is fueling the new trend in gold and other precious metals. Gold is rallying not just in USD, but Yen, Renminbi, Euros, and tellingly cryptocurrencies.

At this phase of the trend risk grows equally in both directions as weaker players pile into trades and risk getting stopped out. The best information comes in the inevitable pullbacks where we see the weaker hands getting flushed out and can observe how much the stronger hands are working under the surface.

Silver

We saw a wicked red candle in silver and gold on December 29th after the CME raised margin requirements on silver futures. This was classic forced deleveraging and was reminiscent of the margin call in 2011 that ended the bull market. This time around margins were already high and the increase was not as onerous. So far the move lower has hardly made a dent in the longer timeframe trends.

Silver benefits from the same drivers as gold but in addition silver enjoys industrial usage demand, especially in solar which is seen as a major provided of much needed electrons to data centers.

Peak United States of America

While the big story in 2025 was the upside breakout in precious metals, but we also saw a major change in the long-term outperformance of US stocks. January 2025 may have been a classic sentiment top in the US dominance narrative. Everyone was ready for a replay of the last Trump Administration and continued dominance of US Tech stocks, but there was no one left to buy.

Everyone was fully invested. The market looked for new buyers but none were found.

Now, the flows have started to reverse, and investors are thinking twice about their US-centric portfolios.

European Stocks

The underperformance of US stocks relative to European stocks was a big story in 2025 but to fully appreciate the magnitude of the change that is underway we must zoom out.

Take broad European stocks for example: they have only recently broken out above their 2007 high. This is a new trend that is in the very early innings and could have a long way to run. The SX5E index is not even 30% above the 2007 highs whereas the SPX is well over 340+% higher than its 2007 highs.

If we look under the hood of Europe we find that there is a wide divergence in performance across different countries. Germany has been the strongest economy in Europe and the DAX has performed much better than the average European stock. The DAX sits inside an eight-month trading range as we enter 2026 and will be an important indicator for the broader upside breakout in European stocks.

Euro

We can also see indications of this change in the FX markets and so far the reaction in the Euro has been tepid. This time last year the Euro was threatening a downside breakout which never happened and subsequently we saw a short-covering rally but to validate the changes we are seeing in the equity markets we would want to see the Euro find acceptance above it’s 2018 highs. The 2008 downtrend has ended but we have yet to see a significant counter trend or a new trend emerge.

US Tech Stocks

In 2025 we experienced the latent downside volatility that was built up during 2024’s low-vol grind higher and that volatility decoupled the large-cap tech stocks from the broader market. The fast money leadership that we saw in 2024 did not repeat in 2025; instead retail dip buyers have kept the market afloat in 2025. This is a sign of an aging trend as leadership shifts from group to group and pullbacks and recoveries become more violent.

We are entering 2026 with the NASDAQ in a three-month balance as fears around datacenter spending weigh on tech stocks which is further evidence of a diminished dominant-US narrative. As Bridgewater’s Greg Jensen recently put it:

A lot of people with access to a ton of capital believe that with a massive sum of investment, they’ll be able to control the universe. They are pushing to spend in line with those stakes, and only a change in their belief that this is attainable—not a decline in their stock price, or a turn in the AI hype cycle—is going to stop them.

Bitcoin

Bitcoin broke above the $100,000 level amidst the Trump trade in late 2024 and early 2025 but has recently languished and found itself in the middle of a 15-month trading range between $130k and $74k. This has occurred at the same time as the wind has come out the sails of large cap tech. This is another sign that the fast money flows that supported the market in 2024 are no longer supporting the market today. Through the course of 2025 retail investors increasingly took market leadership which historically has been a sign of weakness, but may not be so any more.

The Dollar

The most important chart in finance broke after the Trump Administration once again proved to be dollar bearish. This time last year the “Trump Trade” was in full force and the dollar was attempting an upside breakout as the incoming administration was talking a lot about cutting the deficit and other strong dollar policies. But as we know, the “Liberation Day” tariff policies announced in April disabused the market of that notion and the hastily abandoned Department of Government Efficiency soon gave way to more typical profligate Trump spending policies.

The lower dollar has been a tailwind for precious metals and foreign stocks. So much hinges on what happens next in the dollar. After failing on the upside breakout to the 2023 high we are trying to breakout lower from the 2023 range today. We’ve been trying to do that since the tariffs.

The dollar was oversold but then the Mag7 and AI narratives started taking on water and has left us with this range-bound price action. The market will eventually show its hand and this is where we should be focused. The model is a lower dollar should come from lower interest rates, be supportive for stocks, and bullish for PMs and commodities with a stronger dollar a “risk-off” indicator. These correlations will reveal the next phase of this secular change.

Yen

The Yen initially rallied in the first half of 2025 on the back of BOJ tightening and tariffs, and then sold off in the second half as the BOJ took a dovish shift and the new Takaichi administration is set to turn on the fiscal spigots. Zooming out the Yen is near the high end of it’s 30-year trading range versus the USD (weak yen). This was the goal of the Abe administration going back nearly 15-years now and finally Japan has it’s currency near the highs (weak yen) of 1990.

Japanese Stocks

The combination of investment flows shifting away from the US and the weak Yen was a boon for the Nikkei during 2025. Up over 60% from the Liberation Day lows the Nikkei was one of the best performing major stock markets of 2025.

India

It might be surprising to learn that the Nifty 50 Index has outperformed the S&P 500 since the GFC by over 150% or approximately 8% per year. 2024 saw a near-term top for India and was followed by a trading range in 2025 as the market consolidated its gains. Now, as we enter 2026 the market is attempting another upside breakout from the 2025 range. This is yet another sign that marginal investment flows are no longer predominately going into the US.

It is also a sign of the emergence of India as a global player amidst the geopolitical shift of focus from the Atlantic to the Pacific and Southeast Asia. India has much more favorable demographics than any developed world economy and has a very large domestic population which is both its greatest strength and vulnerability. Despite India’s improving position it still must depend on external powers for support and its relationship with China is an ever present threat, especially as China becomes increasingly unstable.

China

China grew into a global power on the back of cheap exports and a weak currency from the 1980s through the mid-2000s. During that period China was able to accumulate a treasure horde of foreign currency reserves, mostly USD, which it could use as protection against any external shocks to its economy.

When the GFC hit, China realized an inherent weakness in this strategy as its economy and stock market suffered from crisis that originated outside it’s borders. Social stability has always been a strategic imperative for Chinese leadership and the threat of job losses due to measures beyond the CPC’s control was no longer acceptable.

China has been trying to transition its economy from export-dependent to domestic demand driven. To achieve this the CPC needs it’s populace to spend more and for them to do that they need higher wages and more affordable imports. The low-cost export model does not align with these goals so starting in 2005 China loosened currency controls and allowed the Yuan to rise.

To counter the impact from lower exports China kept fiscal policy loose and local governments started to rely on land-sales to real estate developers to cushion GDP growth. The ensuing building spree had the dual benefit of boosting economic growth and also increasing government revenue. However, this strategy merely shifted China’s reliance on exports to reliance on real estate development. As a property bubble developed and weaknesses in China’s banking system became evident capital flows started to reverse and in 2014 China’s FX reserves peaked and the currency started to weaken once again.

China has had many opportunities to resolve the bad debts and restructure the banking system but every time they have chosen to kick the can and now there is no more road left for the can to be kicked down. China is decoupling from the global economy that it has been so reliant on and had such a huge impact on and the impact of this is not well understood in Western financial circles. The conventional wisdom is that China will be able to continue to kick the can as they have always done, but the math of the situation says otherwise. For the details of this situation including some war (yes war is likely) gaming of different scenarios we cannot improve upon the work that Alexander Campbell has already done.

The Chinese stock market has been stable, but still below the 2008 highs. This combined with the weak currency is likely why so many western analysts continue to look towards the massive Chinese economy and label it “cheap.” The market is undecided, but the facts on the ground tell a different story. China has been a major part of the global economy for many years and as it decouples it creates a lot of potential for disruption to the status quo. The banking system is sitting on $5-10 trillion of losses with only $5 trillion of equity and the CPC is bleeding over $1 trillion a year to paper over those losses and they are quickly running out of reserves. The Chinese markets are in long-term balance but that balance is becoming increasingly unstable and based on an outmoded view of the Chinese economy.