Sharon, my wife and best friend, is invariably correct. When she makes an observation, I have learned to listen. More than 90% of the time she is ‘on the money’! Except regarding football: her love of a particular quarterback and another receiver exceeds her predictive skill!
As you know, I have no ability to predict the future. I can however discourse on probabilities… and shall do so with you today.
Probability means a greater chance of something happening than not happening. In this context, I mean ‘that which has the greater probability of outcome’. Yes, I am talking about the markets, the global economies and portfolio design.
I am prompting you to respond. If, for any reason, you want to talk or simply disagree, please let me know. I am not imposing my ideas, simply sharing them.
Scott Bessent has said that many U S taxpayers will receive significant tax refunds in 2026. Many agree. Nothing ‘works an economy’ like government funding – positive like tax refunds or negative like overspending. If he is correct, we may see increased consumer spending as well as personal debt reduction. I do pay attention when he, Jamie Diamond, Larry Kudlow, Warren Buffet, Maria Bartilomo and Christie Noem speak.
While the president has intervened to end six global skirmishes and wars, Ukraine and Venezuela remain two foci of attention. The U S had been the most significant source of global military expenditures for decades. This is increasing. Thus, the production and protection of military hardware, software and personnel will continue unabated in 2026.
For a wide and deep river of reasons, Europe has become an economic diaspora. Putting aside the Ukraine issues, the EU has a mandate not to exceed 3% of each nation’s GDP in government spending. That figure for 2026 is approaching 6% for Germany, France and the UK (not technically a ‘member’). Massive protests ensued upon the French government’s attempt to rein in social spending by increasing the retirement age from 62 to 65. The Islamic Invasion continues unabated across the continent – Christmas Faires and New Years Eve celebrations have been cancelled for fear of terrorist attacks. The ‘green revolution’ has become the Brown Cesspool as industries, employment, prices and tax receipts are all negatively affected. The only glimmers of economic light are in Italy, Poland and Hungary; not exactly the shining stars in the European economic firmament.
China, while a major economic power, is suffering from massive internal hemorrhaging. Real estate, consumer spending, interest rates, exchange rates and taxes are each impacted by a tightly top-down controlled economy. 15 rounds of Adam Smith vs, John Maynard Keynes shows a clear win for the Keynesians. And a slow rolling disaster for the economy.
India is the real bright spot in Asia, along with Singapore and Japan. The former has given a clear and steady example of dealing with the immigration influx and assimilation. The new Prime Minister in Tokyo is a tough, no holds barred leader in the image of Ms. Thatcher. Xi, you may want to reconsider territorial aggrandizement for a decade.
The economies of South America show promise, but only a few: Argentina, Chile, Panama. The dirigiste acceptance of a caudillo (strong man) as head of state remains the norm. Africa, while a massive source of raw materials and human potential, remains bogged in internecine wars. Marxism and racism rule in South Africa. Islam continues its everlasting ability to shred human, women and political rights across the Sahel. China steals every ton of minerals it can. Economic racism writ large across the continent.
Here at home, we have a two headed economy. Government spending is always and foremost the cause for inflation; we still spend more than we take in at the Federal and state levels. This drives inflation. Economics 101. Debt service will be the #1 cost for the U S government in 2026.
Inflation remains a real issue for the many consumers. We retirees have fewer problems: our parents taught us well the importance of living within our means and saving. Yet our demographic bubble will burst in 2026. Our influence will be in the descendent as we mature, spend less and pass on to our heirs the fruits of our labor. Let’s hope our lessons on frugality remain…
More to the point, as requirements for electricity increase through construction, manufacturing, AI & Informational demand, both nuclear and near space usage will continue to grow. The absolute zero of outer space beats a perpetual cascade of water. Salt based vs. water based nuclear power plants are safer, cheaper and far more efficient than any other power source. In both cases, modular construction and deployment are rapidly approaching an efficient distribution phase.
Hydrocarbon energy sources drive the U S economy. We are the largest producer and exporter of oil, gas and NGLs, with the most significant reservoirs of same. The decline in extraction, delivery and usage costs will continue, perhaps overshadowing the deeper inflationary drives of government spending in the short term. Gas is $3 nationwide as a result (sorry ‘bout that leadership crisis in CA…). Watch Billy Bob Thornton in Landman for a real perspective on the energy world, its internal disputes and external fascination.
The challenge with predictions is they are about the future…and we have no way to know the future. Unknown unknowns occur frequently. Hurricanes, floods, volcanoes, snow, drought and myriad environmental collapses will always occur. Political terrorism from the top or the bottom of societies earn unwarranted focus. If we paid less attention to every slight insult from these idiots, we would see more clearly. Let’s not forget meteors and aliens!
Let’s observe:
The dinosaur-destroying meteors of 62 million years ago set the stage for the emergence of mammals (that would be us).
Hurricanes and earthquakes bring massive infusions of spending to the affected area: LA, New Orleans, Ashville NC.
Attacks bring retribution: neither Hamas nor National Socialism (Nazis) have any legitimate currency outside the universities.
Aliens are great for Hollywood, less so for the planet…but we always beat them – ask Will Smith and Sigourney Weaver!
I suspect the probabilities as follows:
European dystopia further
Chinese economic immolation
Latin American dissolution of caudillos: death to all narcotrafficantes!
US economic and market preponderance, with inflation and governmental costs a real economic threat
Opportunities: U S stock markets; defense; uranium; I bonds; space-based energy sourcing
India, Japan, Singapore; Argentina, Chile; Israel, Hungary.
And cash will remain king with U S Treasury Bills yielding 4% today.
Metals, gold and water sourcing and extraction
Again, probabilities mean a greater potential for these areas vs. others.
Not an assurance of their success
As we face 2026, I suggest hope and awareness
Rather than fear and loathing!
Eat wisely
Sleep well
Love with Abandon!