Halfway through the 2020s, this 21st century has proved anything but calm. We began the decade with a global pandemic, followed by the sharpest surge in inflation in decades, the steepest interest rate hikes since the 1970s, the largest wave of bank failures since Lehman, the invasion of Ukraine and the bloodshed in Israel and Gaza. Hardly an uneventful stretch. In our strategy presentation at the end of last year, we said that if we had to bet everything on a single prediction for 2025, it would be that the coming year would bring a string of “unexpected” developments. It would have been a winning bet. Five months in, and among other surprises, Trump has launched a trade war against much of the planet, Germany has undertaken a historic U-turn in its fiscal policy and Israel has attacked Iran.
This article isn’t long enough to unpack each of these as they deserve, but allow me to share a few reflections. Trump’s “Liberation Day” will likely be watered down in the end (this is what the markets are pricing in) but at a minimum, we are looking at a 10% universal tariff. The rollout has been clumsy: had it been announced clearly from the outset, markets might have digested it and moved on. The resulting uncertainty will likely take a toll on the US macro outlook and stoke inflation, a toxic combination by any standard. Yet none of this has shown up in the data so far (the gap between textbook economics and reality has been growing lately), something markets have welcomed. Germany’s fiscal shift is undeniably good news, but it will take time to see the effects, as the spending still needs to be approved and executed. As for Israel’s attack on Iran, it may sound worse than it is in terms of the implications for markets and macroeconomics. The key transmission channel is the oil price. As long as the Strait of Hormuz remains open (which Iran would only close out of desperation, as it would alienate its few remaining allies, China among them), and no oil production facilities are bombed (also a last resort for Israel), any shortfall in Iranian supply could be offset by other producers. In fact, oil prices had been falling. Saudi Arabia, reluctant to cede further market share, had opened the taps. Even if oil prices were to spike sharply, the world is far less reliant on oil than it was in the past. From this perspective, any comparisons with the 1970s are misplaced, whatever unfolds.
It is surprising, however, that markets are currently pricing in a world less risky than before Trump’s “Liberation Day” (and his “One Big Beautiful Bill”, which balloons the US deficit and debt) or the strike on Iran. At the time of writing, there are even rumours that the US may join the conflict, with the stated goal of toppling the Islamic Republic. No matter how abhorrent a regime may be, its replacement can be worse. Just ask Iraq. In our view, the greatest risk right now lies in what’s happening to the dollar. It appears to have lost its status as a safe-haven asset. This is a rare development and perhaps a sign of waning international confidence in the greenback and the sovereign debt that underpins it. That topic deserves far more space than we have here, so we’ll leave it at that.
As for forecasts, I don’t believe in them as tools for investing. They are rarely accurate and by no means essential. To invest well, we need to be well compensated for the risks we take. Right now, financial markets are pricing in a perfect world—close to a best-case scenario. We may come through unscathed. Or appear to. But acting as if risk doesn’t exist is deeply unwise.
Equally, retreating into inaction—hiding under the bed, as it were—is just as misguided. We should seek investments that are safe and liquid enough to take advantage of volatility when it arises. And we should already be taking advantage of the opportunities that do exist, the ones where asset prices still offer a margin of safety.
Date of report: June 23rd 2025