Unadorned Notes: December 13-17, 2024
Manufacturers Project Growth in 2025; Trump, SoftBank Announce Investment; Small Business Optimism Surges Post-Election; Chinese Bonds Signal Economic Gloom; Mexican Cartels Expand Global Reach
Economics, Finance, and Business
Mixed Signals in Consumer Spending: U.S. retail sales rose 0.7% in November 2024, driven largely by a nearly 3% surge in auto sales, aided by dealer incentives to clear inventory. Online shopping also saw a notable 2% increase, while spending in grocery stores, department stores, and restaurants declined. Despite these mixed results, retail sales remain nearly 4% higher year-over-year, reflecting continued consumer resilience. Excluding autos, gasoline, and building materials, core retail sales increased 0.4%, supporting positive fourth-quarter GDP growth expectations. Analysts note signs of price-conscious behavior but see no immediate indication of an economic downturn.1
Manufacturers Project Growth in 2025: U.S. manufacturers anticipate emerging from a prolonged downturn in 2025, with revenue expected to rise 4.2% and employment levels increasing by 0.8 percentage points. Capital expenditures are forecast to grow by 5.2%, slightly below 2024’s pace. The ISM Manufacturing PMI has remained mostly in contraction since late 2022, despite the Federal Reserve’s rate cuts beginning in September 2024. Services sector executives are similarly optimistic, projecting a 3.9% revenue increase and higher employment. Both sectors expect improved profit margins and steady growth, particularly in the second half of 2025.2
Trump, SoftBank Announce Investment: SoftBank CEO Masayoshi Son and President-elect Donald Trump announced a $100 billion investment plan for the U.S., echoing a similar 2016 pledge tied to SoftBank’s Vision Fund. The original fund faced setbacks, including failed investments in WeWork and Katerra, but recently rebounded with AI-related gains, such as stakes in OpenAI and partnerships with Nvidia. Son’s new commitment comes as Trump courts Silicon Valley investors, promoting AI development and promising to replace Biden’s AI regulations. Analysts suggest SoftBank may seek funding from Middle Eastern sovereign wealth funds to fulfill the pledge. Trump emphasized improved relations with technology leaders, while allies proposed industry-driven oversight of AI safety and increased military investments.3
Bitcoin Surges to Record High: Bitcoin surpassed $106,000 following President-elect Donald Trump’s confirmation of plans to establish a bitcoin federal reserve, aiming to position the U.S. as a global crypto leader. Trump outlined intentions to introduce favorable policies and a strategic bitcoin reserve, drawing parallels to the U.S. oil reserve. The announcement has fueled a 50% surge in bitcoin’s price since Trump’s November 2024 election, pushing its market cap beyond $2 trillion. Russian President Vladimir Putin has also advocated alternatives to the U.S. dollar, citing cryptocurrencies like bitcoin as unrestricted reserve assets. Analysts predict further gains, with some projecting bitcoin could reach $150,000 by mid-2025 amid rising investor demand and institutional interest.4
Dollar Rises Ahead of Fed Decision: The U.S. dollar edged higher against major currencies as investors anticipated key central bank decisions, including a widely expected Fed rate cut on Wednesday. The dollar gained 0.16% against the Swiss franc and 0.31% against the yen, which weakened amid expectations that the Bank of Japan will hold rates steady. The euro rose slightly following political uncertainty in Germany and ECB signals of future rate cuts if inflation continues to ease. Sterling climbed 0.60% as UK business activity data pointed to rising prices ahead of the Bank of England’s policy decision.5
Small Business Optimism Surges Post-Election: The NFIB Small Business Optimism Index posted its largest monthly gain since 1980, reaching levels last seen in June 2021 and exceeding its 50-year average. The surge follows renewed confidence tied to pro-growth policies under Donald Trump’s incoming presidency, including expectations for lower taxes and reduced regulations. Goldman Sachs projects this optimism will boost earnings and valuations for stocks tied to small business spending, including companies like Meta, Intuit, and Shopify. Despite rising economic expectations, plans to increase spending grew only modestly, signaling caution among business owners. Investors remain heavily engaged in equities, with record-low cash holdings as the S&P 500 approaches an all-time high.6
Inflation Hits Low-Income Consumers: Low-income households are struggling as inflation disproportionately impacts necessities like rent, food, and utilities, with adjusted inflation for this group estimated at 6.3% over the past year. Dollar stores and other value-oriented businesses report reduced spending, with consumers delaying purchases and favoring cheaper store brands. Wage growth for low-income workers has slowed since 2022, and pandemic-era financial buffers, such as savings and expanded SNAP benefits, have eroded. Rising interest rates and stricter SNAP requirements are adding to financial pressures, while Social Security adjustments lag behind inflation. Analysts expect little relief in 2025, as inflation remains persistent and wage increases fail to catch up with rising costs.7
Home Insurance Costs Soar: Home insurance premiums are rising sharply, driven by increasing losses from storms, hail, and other natural disasters, particularly in fast-growing, disaster-prone regions like Texas and Colorado. Insurers face record underwriting losses as construction expands into high-risk areas, with hailstorms causing 2.8 million claims in 2023, nearly double the 2021 total. In Collin County, Texas, insurers have doubled hail and wind deductibles to 2%, imposed stricter policy conditions, and limited coverage for older roofs. Nationwide, premiums have risen 45% since 2019, and analysts predict double-digit increases in 2024 alongside higher risks of policy nonrenewals. Insurers are increasingly using satellite technology to limit exposure, leaving homeowners with fewer options, higher costs, and reduced coverage.8
Nvidia Declines Amid AI Concerns: Nvidia’s stock fell 1.2% on Tuesday, extending its 12% decline from November 2024 highs amid concerns of slowing AI-related spending and rising competition. Microsoft and Google signaled a potential deceleration in AI investment growth, while Amazon and Broadcom introduced new AI chips, increasing market rivalry. Adding pressure, China’s antitrust probe into Nvidia’s $7 billion Mellanox acquisition raised further uncertainties. Despite record earnings and a strong AI market, analysts expect AI infrastructure spending to grow at a slower rate, from 57% in 2024 to 30% in 2025. The PHLX Semiconductor Index dropped 1.6%, reflecting broader caution in the sector.9
Chinese Bonds Signal Economic Gloom: Chinese bond yields have hit record lows, with the 10-year yield falling to 1.78%, reflecting investor pessimism about the economy despite a recent stock market rally. Weak loan demand and a banking system awash with cash have pushed investors toward government bonds, driving yields lower. Analysts cite slow growth, deflation risks, and a stagnant property market as reasons for the subdued outlook, with Goldman Sachs forecasting 4.5% growth in 2025. While equities rally on hopes for fiscal stimulus, bond markets remain skeptical, pricing in limited inflation and cautious spending. Despite central bank intervention to slow the bond rally, investors see yields continuing to decline absent significant growth-stabilizing policies.10
U.S. Politics, Policies, and Geopolitics
Judge Upholds Trump Conviction: A New York judge upheld Donald Trump’s conviction on 34 felony counts related to falsifying business records in a hush-money case, rejecting his argument for dismissal based on presidential immunity. The court ruled that the charges stemmed from unofficial conduct, which falls outside the immunity protections outlined in a recent Supreme Court decision. The conviction, linked to payments made in 2016 to silence allegations of an affair, marks the first time a U.S. president-elect has faced a felony conviction. Trump denies wrongdoing and is expected to appeal the ruling, with further delays likely as he prepares to assume office in January 2025. The judge has not yet determined whether sentencing will occur before or after Trump’s upcoming term.11
CBO Proposes Deficit Reduction Options: The Congressional Budget Office (CBO) outlined 76 options to address projected federal budget deficits, which are expected to average $1.9 trillion annually over the next decade. Proposed measures include reducing mandatory spending, such as capping Medicaid funding or modifying Medicare Advantage payments, which could save up to $1 trillion. Discretionary cuts, like reducing the Department of Defense budget or scaling back grants for transportation and education, could save hundreds of billions. Tax reforms, including a 5% value-added tax or eliminating itemized deductions, have the potential to generate trillions in revenue. Without significant changes, federal debt held by the public is projected to rise to 166% of GDP by 2054.12
Health System Criticism Intensifies: The murder of UnitedHealthcare CEO Brian Thompson has spotlighted public dissatisfaction with the U.S. healthcare system, as frustrations grow over rising costs, care denials, and system inefficiencies. The suspect, Luigi Mangione, allegedly targeted Thompson due to perceived injustices in corporate healthcare, reflecting broader anger at insurance practices. Despite reforms under the Affordable Care Act, issues like prior authorizations, limited provider access, and high drug prices persist, exacerbated by industry consolidation and AI-driven claim denials. Advocates argue that entrenched special interests, such as insurers and pharmaceutical companies, have stalled popular reforms like expanded Medicare benefits. Experts acknowledge the system’s challenges but note that comprehensive solutions remain elusive amid partisan gridlock and corporate lobbying.13
Yoon’s Impeachment Shakes South Korea: South Korean President Yoon Suk Yeol was impeached after declaring martial law, sparking concerns about political stability and the future of his pro-U.S. foreign policy agenda. Yoon’s alignment with Washington, improved ties with Japan, and criticism of China marked a significant shift in South Korea’s diplomacy but lacked broad domestic support. His impeachment leaves a leadership vacuum and raises uncertainties over trilateral cooperation with the U.S. and Japan amid rising regional tensions. A likely victory for the opposition Democratic Party could bring a return to engagement with North Korea and a more balanced stance between Washington and Beijing. The situation complicates relations with the incoming Trump administration, which has previously taken a transactional approach to alliances in Northeast Asia.14
Germany Faces Economic, Political Crisis: Germany’s economy has stagnated post-pandemic, with no growth over the past five years, fueling political turmoil and the collapse of Chancellor Olaf Scholz’s coalition government. Key challenges include declining heavy industries, high energy costs, and a sluggish global market for exports, particularly in automotive and manufacturing sectors. Scholz has called for increased government investment in infrastructure and emerging technologies, while conservative front-runner Friedrich Merz advocates tax cuts and welfare rollbacks to boost growth. The far-right AfD has gained traction by criticizing green-energy policies and rising costs, sparking warnings about its economic impact. Snap elections in February 2025 will determine Germany’s economic path amid mounting pressure for reforms.15
Ukraine Claims Moscow General Assassination: Ukrainian intelligence claimed responsibility for the assassination of Lieutenant General Igor Kirillov, head of Russia’s Nuclear, Biological, and Chemical Protection Troops, in a Moscow explosion. Kirillov and his aide were killed when a bomb hidden in an electric scooter detonated outside an apartment building. Kirillov’s death follows Ukrainian allegations of his involvement in deploying banned chemical agents and recent in absentia charges. Russia, which denies using chemical weapons, accused Ukraine of terrorism and vowed retaliation. The incident is part of a series of targeted killings within Russia since the start of its full-scale invasion of Ukraine.16
Mexican Cartels Expand Global Reach: Mexican cartels, particularly the CJNG and Sinaloa Cartel, have diversified operations beyond cocaine to synthetic drugs, illicit gold mining, human trafficking, and counterfeit pharmaceuticals, expanding their influence globally. The CJNG has emerged as the dominant group, forging alliances with criminal networks in Europe, Brazil, and Ecuador while showcasing advanced military capabilities. Ecuador has become a violent battleground for cartel rivalries, driven by strategic port access, drug routes, and money laundering, leading to an unprecedented surge in homicides. Synthetic drugs, such as fentanyl and methamphetamine, offer cartels lower production costs and higher profits, with precursors sourced primarily from China. The CJNG’s adaptability and territorial control position it as the leading force in evolving transnational criminal economies, with rising violence threatening new regions across Latin America.17