Thoughts from Themes: A Brave New World

New World Order

Donald Trump isn’t just reshaping American politics; he’s redrawing the map of global power. From interest rate standoffs at home to arms deals abroad, the president’s approach to economic nationalism and hardline diplomacy is ushering in a new era of transactional geopolitics. Allies are on notice. Rivals are recalculating. Markets are rattled. What emerges isn’t just policy; it’s a pivot. One that ties monetary levers to foreign influence, defense deals to trade realignment, and crypto gains to Washington power plays.

Fed Decides, Steady as She Goes:

During the last FOMC meeting, The Fed announced that it will hold interest rates steady at 4.25-4.5%.

The announcement meets public expectations and reinforces tensions with POTUS, whose repeated calls for rate cuts remain unsupported by Chair Powell in the face of insufficient data. Some think the decision was political, and that the FOMC may have had the confidence to lower interest rates had Trump's trade war not already fanned the flames of economic uncertainty. While the Fed is slow to call it by name, the imminent threat of stagflation only adds fuel to the fire.

Maybe slow and steady wins the race, with job growth maintaining a consistent pace and inflation edging closer to the Fed's target. Even so, with inflation still above target and consumers increasingly concerned with higher prices (even though the data suggests prices have come down), the odds are that a rate cut is on the horizon, most likely at the next meeting in June.

The Greatest Offense is a Great Defense!

The escalating tensions between India and Pakistan, particularly following the April 2025 terrorist attack in Kashmir, are significantly influencing defense sector investments, compounded by ongoing geopolitical conflicts in Gaza and between Russia and Ukraine. In investment markets where all the talk is about "uncertainty" one place of certainty is conflict around the globe and an increase in defense spending.

The India-Pakistan standoff, marked by cross-border strikes and the suspension of the Indus Waters Treaty, has heightened the risk of military conflict between these nuclear-armed nations. This has spurred increased defense spending in India, with the government

procuring advanced air defense systems and modernizing its military, as evidenced by acquisitions like French Rafale jets and Israeli drones.

A U.S.-brokered ceasefire, announced by President Donald Trump on May 10, took effect at 5 p.m. local time, mediated by Secretary of State Marco Rubio and Vice President JD Vance after 48 hours of talks with Indian Prime Minister Narendra Modi and Pakistani Prime Minister Shehbaz Sharif. The agreement included plans for broader talks at a neutral site. However, within hours, both sides accused each other of violations, with explosions reported in Srinagar and Jammu. India’s Foreign Secretary Vikram Misri claimed Pakistan breached the truce, while Pakistan’s Foreign Ministry insisted it acted with “responsibility and restraint.” Despite these tensions, the ceasefire has largely held as of May 12, bringing relief to border residents, though many remain displaced and fearful.

Simultaneously, the Russia-Ukraine war and the Israel-Hamas conflict in Gaza continue to fuel global defense investments. The Russia-Ukraine conflict has led to a boom in defense budgets across Europe, with countries like Germany rearming, while the Gaza conflict has sustained demand for advanced weaponry and cybersecurity solutions. These conflicts create a volatile global environment, increasing investor uncertainty but also boosting defense sector growth, as seen in rising demand for defense contractors and tech firms.

Case in point; Donald Trump’s recent visit to Saudia Arabia included the inking of a record-

breaking $142 billion arms deal as part of a broader $600 billion investment package. Formalizing this comprehensive economic partnership gives the US preferred access to Saudi Arabia’s Vision 2030 projects, particularly in clean energy, mining, AI, construction and transportation. Beyond fueling American jobs and exports, the deal also has the potential to reclaim China’s market share in the Gulf for the US, especially in strategic sectors. Other Gulf states may also find themselves pressured to rebalance toward Western partnerships. So, the president’s prioritization of economic and defense interests isn’t just about security posturing; it resets the tone of foreign policy beyond the paradigm of the Liberation Day crackdown toward high-level cooperation, even with controversial regimes.

The Bond Market and Forex:

Much like global tensions the bond and forex markets are experiencing significant turbulence this year, driven by rising U.S. Treasury yields and a weakening dollar. The 10-year Treasury yield has surged past 4.5%, reflecting investor concerns over inflation risks from proposed tariffs and fiscal policies under the Trump administration. This rise in yields, inversely correlated with bond prices, signals a sell-off in U.S treasuries, traditionally seen as safe-haven assets, raising questions about the continued confidence in U.S. financial stability. Simultaneously, the U.S. Dollar Index dropped over 4% in April, hitting its lowest level since October 2024 despite higher yields—a departure from historical trends where rising yields bolster the dollar.

In the forex market, the dollar's decline is pronounced against safe-haven currencies like the yen and euro, driven by global trade tensions and perceptions of unpredictability in U.S. policy. Investors are diversifying into international bonds and currencies, with emerging market currencies rallying as U.S. assets "lose" their historically strong appeal.

For investors, rising yields increase borrowing costs, impacting mortgages and corporate loans, but also offer higher returns on new bond purchases. A weaker dollar enhances returns on foreign investments for U.S. investors but complicates strategies reliant on dollar strength.

Bitcoin Resilient:

The recent surge in Bitcoin, reclaiming $100,000 and the market cap hitting $3.2 trillion (according to Bitwise), is driven by multiple factors, beyond the Trump administration’s pro-Bitcoin/crypto stance.

Strategy (formerly known as Microstrategy) spent $7.79 billion on Bitcoin in Q1, despite reporting a $4.23 billion loss, partly due to adopting fair value accounting, which reflects Bitcoin’s market price volatility. The company announced a bold “42/42 Plan” to raise $84 billion through 2027 to fund further purchases, doubling its initial $42 billion capital-raising target. This includes issuing $500 million in perpetual preferred stock and leveraging fixed-income securities.

Cantor Fitzgerald also announced a $3.6 billion Bitcoin investment venture through a new entity, Twenty One Capital, in partnership with Tether, Bitfinex, and SoftBank. This initiative, led by Brandon Lutnick, son of Howard Lutnick (now U.S. Commerce Secretary), aims to create a publicly traded Bitcoin acquisition vehicle, mirroring Strategy’s successful model. Twenty One Capital will launch with over 42,000 BTC, valued at approximately $3.6 billion at an $85,000 per Bitcoin valuation, making it the third-largest corporate Bitcoin holder behind Strategy and MARA.

And of course, we’d be remiss not to mention a landmark moment for the crypto industry, with Coinbase (COIN) officially joining the S&P 500 on May 19, 2025, replacing Discover Financial Services following its acquisition by Capital One. Coinbase made history as the first cryptocurrency exchange to join the S&P 500, a move that sent Coinbase shares soaring. More than symbolic, the inclusion mandates fresh capital from index-tracking funds, attracting significant institutional investment. While Coinbase still faces regulatory scrutiny, its S&P debut marks a turning point for digital assets and the growing institutional acceptance of crypto as a core part of our financial ecosystem. We remain optimistic about crypto’s potential in the broader market.

Investment Themes:

Nvidia will report earnings next week and is projected to reflect strong growth, with analysts estimating $43 billion in revenue, up 65% year-over-year. The multibillion-dollar deal with Saudi Arabia’s Humain for over 18,000 Blackwell AI chips to power a 500-megawatt data center could mitigate concerns over declining Chinese demand due to U.S. export controls. This deal, potentially yielding $5 billion annually, underscores Nvidia’s diversification into sovereign AI markets. Meanwhile, robust capital expenditure from hyperscalers like Microsoft, Amazon, and Google continues to fuel demand for Nvidia’s GPUs, with hyperscalers boosting AI infrastructure budgets. Bank of America raised Nvidia’s price target to $160, citing sustained AI investment. Despite trade tensions, a spike in Chinese orders and easing U.S.-China trade concerns further strengthen Nvidia’s position. These factors suggest Nvidia may exceed earnings expectations, driven by global AI demand and strategic partnerships.

Disclosures:

All data sourced from Bloomberg as of May 19, 2025 unless otherwise cited.

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