I have grouped these surprises into three broad categories: geopolitical; influences and elections; and markets and economics. For those of you who don’t want all the detail, I highlighted the main point in bold print. Also, some of these surprises address items I mentioned in my review of last year’s article found here. So, let’s jump right in.

Geopolitical

1 . After Donald Trump returns to the Oval Office, it is highly likely that he will negotiate a settlement between Russia and Ukraine and the war will end. He just won’t do it in “twenty-four hours,” as promised on the campaign trail. Some say it will take over a year because he must get the European Union, NATO, and the two belligerents on the same page. Just herding cats in the EU is hard enough, but nonetheless, everyone wants the bloodletting to end. When its done, Russia will likely keep the Crimea and the territory it currently occupies in Ukraine. Meanwhile, the West will give Ukraine security guarantees and arm them to the teeth. They will not be allowed into NATO, but they can start the process for EU membership. Why would a totalitarian like Putin agree to anything? See Surprise #2.

2 . President-elect Trump will pull a “Nixon.” In the early 1970s, President Nixon strategically moved China out of the Soviet Union’s orbit. Talks between the US and China led to the opening of the Chinese economy in the 1980s and 90’s. The rest is history. Recently, Trump is aware that Putin’s hand is weak, and that Russia is a disaster for Xi Jinping, creating a dynamic that he can exploit. He wants to show the world that he is not the least bit enthralled by Putin. And because he knows that the Chinese economy is in trouble and perhaps heading toward a Japanese-style deflation, he has leverage. Also, Xi knows that the EU is rearming itself, which will allow the US to focus its resources and strategy on the Western Pacific. This is the last thing he wants. Therefore, like Nixon, Trump will seek to decouple China from Russia by offering Xi economic incentives. During the campaign, Trump threatened massive expansion of the tariff regime that is still in place since his first term. (To his credit, President Biden made no changes to that policy.) Trump will make good on his threat, unless Xi abides by certain exceptions. He has in his back-pocket a plan to negotiate better deals and more protections for US companies who do business in China, with a proviso for a Sino-hands-off policy toward Taiwan, in exchange for opening our markets more to Chinese goods and removing tariffs for good, audited behavior. China is apt to move in this direction because they have an economic need and incentive to do so. The combination of European rearmament and US incentives will force a distancing between China and Russia. If a US-China agreement can be made, then Russia would be isolated. As a result, Putin must come to the table, and he will lose “bigly.” If the Russian oligarchy thinks Putin has lost anything, let alone the war with Ukraine, then there’s a good chance Putin also loses his job in the process. In the end, if Xi doesn’t accept from Trump what’s on offer, then Trump doubles the tariffs on their goods, further hurting their economy. Either way, China and Russia both lose. (A “Reaganesque” outcome, I might add.)

3 . Israel has already decapitated the leadership of Hamas and Hezbollah. Iran is next. All Israel needs is continued weapons resupply and American leadership that encourages them to do it. We can expect some fireworks in early 2025.

4 . Israel will attack and destroy Iran’s nuclear weapons capability. In addition, all agreements that functionally allow Iran to seek the development of these weapons will become invalid. This will be true, if for no other reason, because Iran’s regime no longer exists. (See Surprise #3.) In any case, the EU will agree to pull out of all nuclear-related agreements with Tehran. Why? The EU knows their economy isn’t exactly running on all eight cylinders (or on completely charged batteries), and the threat of US tariffs will be the compelling factor.

Influences and Elections

5. Canadian and European elections will move rightward. Furthermore, the losers will be progressivism and woke ideologies. The electorates are fed up with leaders who force people to live by these ideas. Here’s a summary of what is likely to occur, at least in part:

Canada:  Trudeau resigned, and a conservative (which really means “moderate”) will likely be elected.

France:  The “far-right” (moderate) Marine Le Pen is the frontrunner and after four prior attempts will finally win the presidential election.

Germany:  This year, the Alternative for Germany Party (AfD), a more conservative group, gets a plurality of seats in parliament, perhaps even the chancellorship. It will be a repudiation of Angela Merkel’s policies (exacerbated by her successors), which ran the German economy into the ground.

Britain:  The Labor Party, who just unseated the Tories, is replaced by the Reform Party. This party is led by the Trump-like personality, Nigel Farage, hero of Brexit and former upstart in the EU parliament.

6. A number of politicos around the world will continue to lose influence and seats at the “table.” Who are these groups?

Neocons:  Pro-war politicians and factions who go head-to-head with JD Vance and Elon Musk will lose the argument.

Progressives:  There will be a repudiation of class-based identity politics, and it likely goes global.

The racist, vocal minority of each party: They will lose more elections and influence. The everyday people in the electorate are simply exhausted by ideas that don’t make sense to them. (Study the US election results for the pattern.)

Markets and Economics

7 . Wall Street strategists and their outlook for the markets are, for the most part, positive. Their prognostications for the end-of-year value of the S&P 500 index range from 6500 to 7100.[i] The index’s all-time-high was set on December 6, 2024 at about 6,090. On January 10, the index closed at about 5827. The conventional wisdom says that after two back-to-back years of strong performance there must be a lackluster year following. I’m not so sure that rules-of-thumb are determinant. I suspect that the factors that matter most still matter. They are economic growth, corporate profitability growth, and the foreseeability of these continuing. This is still very much at hand. Therefore, the US markets should have a positive year.

8 . Although markets likely move higher in 2025, volatility may be elevated because of the uncertainty about which Trump policies are actually enacted, the upcoming debt ceiling debate, another potential longshoreman strike (slowing down our ability to buy Kleenex, paper towels and other staples), and whether or not longer-term interest rates will move higher than 5%. It’s this last issue that is giving the market its current pause and will likely resolve itself when the “Bond Vigilantes” see the potential behind deficit-reduction policies that come out of the new Department of Government Efficiency (DOGE). It will not be a surprise that the leaders of this new initiative will be aggressive. This, coupled with other policies, like how defense spending is spent, tariffs, and winding down wars overseas, will all have their short-term impacts on the amplitude of market fluctuations (a.k.a., volatility). So, 10% corrections may occur more often than normal. Indeed, we may be in one now.

9 . The inflation growth rate seems to be stuck at about 3%, which is one full percentage point above the Fed’s target. Therefore, the Fed will not lower rates in 2025, despite current projections of lowering twice this year. (It may be another one of the reasons both the stock and bond markets are struggling a bit now.)

10 . The uses for artificial intelligence (AI) are growing so fast and demand for semiconductors is so high, it is likely that we will see another chip shortage this year. The US is on track to run out of GPU’s, accelerators,[ii] and “compute” capabilities[iii] relative to this year’s demand. This shortage will be something akin to what happened in 2023.

Interesting times! Unfortunately, we can only “see” what’s in the space between “here and there.” But at least we have some ideas about what might be…beyond the horizon. I hope it helps.

Of course, I’m always open to comments, questions, or other musings. Please feel free to write to me at brian@broberginvestmentgroup.com . In the meantime, all the best to you and yours.

[1] https://www.forbes.com/sites/dereksaul/2024/12/02/heres-how-wall-street-expects-sp-500-to-perform-in-2025/

[1] https://premioinc.com/blogs/blog/performance-accelerators-in-the-context-of-computing-hardware?form=MG0AV3

[1] https://www.ibm.com/think/topics/accelerated-computing?form=MG0AV3

*To understand my purpose for these articles, please see the introductory comments in the first article. Click here.