Fifty Shades
Of Greatness

Dear Clients, Colleagues and Friends,

What happens when the world’s largest economy takes a sharp protectionist turn? When the global superpower prioritizes transactional foreign policies over long-standing alliances? And when this shift occurs amidst hot wars, the rapid ascent of developing nations, and artificial intelligence reshaping nearly every corner of modern life? The world is on the verge of finding out. 

Whatever happens next, we are all living in a MAGA world now. As America turns inward, globalization is giving way to fragmentation, with the rules of engagement being rewritten in real time. Fresh cracks are appearing across the global economy as the infrastructure underpinning trade—networks that move goods, commodities, and data—becomes increasingly politicized. For investors, the message is clear: navigating this new reality demands building resilience into portfolios.

Yet, disruption also breeds opportunity. History shows that heavy-handed government intervention inevitably leads to unintended consequences. Paradoxically, while protectionist policies aim to shield domestic economies, they also spark innovation and unlock growth in surprising places. 

This is precisely the story unfolding today. Market forces and pragmatic governments remain potent counterweights against full-scale fragmentation, keeping the engine of cross-border trade booming. Supply chains, despite political pressures, continue to stretch across the globe, bolstered by digital technology enabling new forms of connection. Meanwhile, a new class of “connector countries” are providing key ballasts against instabilities. 

Crucially, many nations caught in the crosshairs of protectionism are now doubling down on their own domestic economies. Expect heightened fiscal stimulus and a renewed push toward industrial self-sufficiency. It may be difficult to see now but select regions are quietly moving toward their own MAGA moments. As these dynamics play out across the world, “fifty shades of greatness” will both surprise and disappoint certain investors, but they will undeniably reshape the global investing landscape in profound ways. 

How should investors respond?

At Forstrong, we believe that a strong portfolio starts with a strong connection to the rest of the world and an understanding of the global forces that will shape the future. In an era where social media amplifies the trivial, it’s vital to focus on the most durable macro trends driving change. This approach not only strengthens risk management but also identifies global opportunities for investors willing to go further. In the pages ahead, our investment team—drawing on centuries of combined experience—unpacks the world’s most influential Super Trends. These enduring themes will define the trajectory of capital markets in the years to come. Our hope is that this report provides clarity amid the noise, helping you navigate this era of fragmentation with confidence.

A special thank you to our clients for entrusting Forstrong with your financial futures. It is a distinct privilege to steward your investments in these transformative times. 

Forstrong — stronger together.

Tyler Mordy

Chief Executive Officer and Chief Investment Officer

December 2024

But the current cycle has been anything but typical. Landings of any type have been elusive. Post-pandemic economies have followed unpredictable and asynchronous trajectories, marked by staggered upturns and downturns. No wonder many investors are struggling to make sense of where we stand in the cyclical roadmap. But one clear theme has defined the 2020s: surprises. Surprise growth. Surprise inflation. Surprise labor market strength.

Forecasting a recession has been a common—but misguided—call. Many investors, anchored to the idea that rising rates always bring swift economic contraction, have underestimated today’s resilience. Yet the global economy has evolved. The key macro blind spot? The world’s largest economic regions—America, China, and the Eurozone—together comprising roughly 80% of global GDP, are far less rate-sensitive than in prior decades. Unlike the leverage-driven cycles in the runup to the 2000 bust or the 2008 financial crisis, today’s private-sector balance sheets are more robust, supported by healthier debt-to-income ratios and stronger income trends. 

After years of stagnation, wages are finally rising at their fastest pace in decades, fueled by chronic labour shortages. Meanwhile, corporate revenues are beating expectations as companies are passing through higher input costs and seeing topline growth march steadily higher. This cycle’s dynamics stand in stark contrast to the 2010s, when stagnant wages and sluggish revenues constrained global growth.

To understand where this could lead, rewind to the 1950s and 1960s—a time when labour shortages and capital investment extended expansions. During those decades, nominal growth climbed steadily, driven by rising wages, robust government spending, and expanding corporate revenues. Importantly, that period never witnessed a large contraction in corporate earnings.

Looking ahead, more upside surprises are on the horizon. Policymakers around the world remain committed to significant spending, focused on healthcare, energy, and infrastructure. A revival in demand is happening simply because the world has underinvested in the productive capacity of the economy for years (what our investment team calls the “revenge of the real economy”). Heightened geopolitical tensions are also leading policymakers to spend more on industrial policy. In fact, a global race to reindustrialize—driven by decarbonization, reglobalization and remilitarization —is underway. 

Emerging markets, too, are stepping into the spotlight. While China’s stagnation dominates headlines, other developing economies are carving their own paths as growth leaders. India, on track to become the world’s third-largest economy, is in the midst of a transformational capex boom. Surging private investment and infrastructure spending are accelerating integration into global trade networks. The last EM boom in the 2000s was driven by China’s rapid industrialization phase. Crucially, this new phase extends far beyond China with far deeper participation. Outside China, these nations represent some 3 billion people, where demographics are favourable, incomes are growing, and constructive dialogues are leading to a surge in cross-border commerce and economic partnership.

Donald Trump once declared “tariff” the most beautiful word in the English language. But let’s not mince words: protectionism is rarely a positive force for global growth. Trade restrictions drive up production costs, distort supply chains, and invite retaliatory measures from trading partners. Politicians, eager to resonate with voter grievances, increasingly position globalization as the root of economic challenges. Yet the benefits of a globally integrated economy are substantial, and reversing decades of progress would trigger a painful and protracted adjustment process.

Tariffs in particular, are economically illiterate, prescribing bilateral solutions to deeply interconnected global challenges. America’s substantial trade deficit, spread across over 100 countries, cannot be “fixed” by imposing tariffs on a select handful of trading partners like Canada, Mexico, or China. In reality, such measures simply divert trade to higher-cost producers, effectively acting as a hidden tax on domestic consumers. 

Heading into 2025, most investors anticipate a return to Trump’s 2018-style trade wars. But the world has changed. Back then, US trading partners were unprepared. Now, many countries have taken steps to fortify their economies, erecting their own tariffs, export controls, and alternative trade networks that bypass the US. A new class of “connector countries” has emerged—economies like Vietnam, Brazil, and Malaysia—that act as intermediaries in global supply chains, bridging gaps between US and Chinese trade flows. While this adaptation has kept global goods trade resilient (hitting record highs of $23 trillion recently), it has come with trade-offs: diminished efficiency, higher inflation, and elevated private-sector borrowing costs in nations imposing tariffs.

The global economy’s adaptability has been driven by two key forces: the agility of multinational corporations and the strategic pivot of nations toward self-reliance. China, for example, has accelerated its domestic industrial policies, becoming a global leader in industrial machinery, renewable energy and electric vehicles (selling over 9 million of the total 14 million units sold worldwide in 2023).

With Trump’s tariff agenda returning, other nations will double down on similar strategies. Expect heightened fiscal stimulus, increased support for local industries, and expanded domestic manufacturing as countries compete to bolster their economic resilience. As in the US, these measures will be bullish for domestic corporate profits over the near-term, as government deficits expand to fund local industries and foster strategic self-reliance.

The world is entering an era of “competitive economics,” where governments worldwide are viewing resilience not as a defensive necessity but as a competitive advantage. This dynamic will redefine global trade patterns, spur investment in strategic domestic industries, and fuel a race to achieve self-sufficiency in key sectors.

We get it. AI will be a wildly disruptive technology that will kick over the chess board on which the current economy is being played. Anyone who has spent a few minutes using ChatGPT has seen that generative AI can do very impressive things. Large companies are pouring colossal sums into the trend. Sam Altman, the boss of OpenAI, talked openly this year of raising $7 trillion from Middle Eastern petrostates to create superintelligent machines. Other tech executives have not been shy to draw comparisons to transformative moments in history, such as electrification during the Industrial Revolution.

These are all nice and grand statements. And, at the moment, the world seems to be taking them at face value. But let’s be real: the only players profiting from AI are a select few hardware builders like Nvidia. 

AI is now deep into a familiar path: a speculative cycle fueled by big promises. Admittedly, this is tricky territory. Every asset price is just today’s number multiplied by a narrative about tomorrow. With AI, companies don’t need to deliver on anything tangible for a while, leaving investors to fantasize, extrapolate and build stories without the nagging constraint of reality. No one knows how long it can last.

But we do know some things. Today, the market is saying that this time will be different: that the structural demand created by AI will override the cyclical nature of the industry, overcome any geopolitical headwinds and that the winners in the long term will be the same as the winners now. 

These are all very big assumptions. The tech industry is notoriously cyclical, marked by regular demand shifts. Nvidia’s valuation could come down simply because investors wake up one day to discover that supply and demand have become more balanced. The price could also come down from competition. By definition, the tech sector is a hotbed of innovation. Company leadership, especially in a period of rapid innovation, doesn’t last long. In a decade’s time, today’s AI chip designs will be deeply obsolete. How likely is it that other tech companies, who may face a coming AI chip bottleneck (in a sector that currently earns an enviable 70%+ gross margins), won’t find a way to create and innovate on their own (and stop sending billion-dollar checks to Nvidia)? Competition is the bedrock of capitalism.

Where to next? High expectations make disappointments more likely. Demand for AI chips could fall short of forecasts, making it harder for the tech sub-sector of chip makers to justify their massive investments. Alternatively, non-tech companies might see a boost as AI improves their productivity, leading to a rise in their valuations. 

Historically, markets tend to overestimate returns for innovators and underestimate returns for the users

Ironically, AI’s broader economic impact may accrue less to its pioneers and more to its adopters. Historically, markets tend to overestimate returns for innovators and underestimate returns for the users. Industries integrating AI—healthcare, logistics, manufacturing—could see significant productivity gains. However, identifying these gains is challenging and slow-moving, leading to a disconnect between AI’s market hype and its real-world economic benefits. For example, AI-driven automation in customer service has already shown large efficiency boosts while logistics firms using predictive analytics are slashing operational costs. But such incremental improvements take time to scale and are harder to pin down than the headline-grabbing advances of AI innovators.

Nowhere are these dynamics more evident than in the US. Having run the largest post-pandemic budget deficits, America’s net public debt stands at 99% of GDP, on track to surpass the World War II peak of 106% within a few years. Many commentators expect a replay of Donald Trump’s first term, but today’s economic backdrop is vastly different. In 2016, bond yields posed little constraint. Inflation and growth were both anemic, supply was abundant, and globalization was seen as the culprit behind stagnation. Trump’s mandate was clear: stimulate growth and confront globalization.

Fast forward to today, and the landscape has flipped. Demand is robust, supply is constrained, and voters are less concerned about trade policy or globalization. Instead, inflation and immigration dominate the political agenda, setting the tone for Trump’s policy priorities. Markets expect a pro-growth, pro-tax-cut administration—moves that equities favour but bond markets do not.

As if on cue, bond yields spiked after Trump’s victory even while the Fed was easing, signaling the vigilantes’ return. Unlike his first term, this time the bond market will actively regulate the Trump administration’s fiscal actions.

The bond vigilantes are also back because of a deeper realization: inflation is no longer transitory but structural. While US inflation has moderated from its June 2022 peak of 9.1%, the drivers of a structurally higher inflation regime remain firmly in place:

• Vanishing Economic Slack: Tight labor markets and low unemployment are driving persistent wage pressures.
• The End of Globalization’s Disinflationary Effect: Reshoring, trade barriers, and geopolitical tensions are reducing the deflationary benefits of global supply chains.
• Labour’s Bargaining Power: Workers now wield significant influence for the first time in decades, securing higher wages across industries.

All of this is reversing the “secular stagnation” trend of the last decade and powering an environment of structurally higher growth and inflation. Yet, in the same way that it took investors a decade after the 1970s to believe that the interest rate environment had changed, it will take years for investors to believe that the zero rates of the 2010s were an aberration.

What has defined world capital markets since the 2008 global financial crisis (GFC)? The remarkable dominance of US equities. But history reminds us that market leadership is seldom permanent. Just look to Japan during the 1980s or the BRIC nations in the 2000s. Dominance isn’t destiny.

Where to next for the US? From 2009 onward, the US benefited from substantial tailwinds: aggressive monetary easing led by the Fed, a competitive currency, and a relatively inexpensive stock market. It is a distant memory now but for many years after the GFC the US was seen as one of the worst places in the world to invest. The nation was at the epicenter of the GFC with a reputation for fiscal mismanagement. Yet, the S&P 500 produced a total return of nearly 600% over the last decade, fueled largely by stellar earnings from top tech companies—responsible for nearly half of those gains.

Today, global markets are concentrated in a single theme—US Big Tech. Even though the US share of global GDP declined from 32% in 2001 to 27% recently, its share values nevertheless now command a staggering 66% of the MSCI All-Country World index (from 30% in the early 1990s). Most asset allocators are now firmly committed to a structural US equity overweight, assuming this positioning will continue to drive superior returns. 

But what could change all this? The challenge with investment leadership changes is that old narratives take time to be replaced by new ones. People have a hard time giving up their investment paradigms when something has worked well for so long. But a few key catalysts could lead to a fundamental re-rating of the US stock market. The first one is the sky-high bar for future earnings growth. Corporate America must deliver exceptional results to meet market expectations, leaving little room for error. Disappointments, even modest ones, could shake confidence and weigh heavily on valuations.

Second, the policy agenda of Donald Trump’s second term will likely represent a sharp divergence from his first. US economic outperformance has been bolstered by two key drivers: labour force expansion through robust immigration and, most importantly, fiscal expansion. These factors created a powerful tailwind for corporate profits, underpinned by a strong linkage between deficits and earnings. Higher deficits translated directly into higher profits, fueling market gains.

If Trump follows through on his current mandates, however, these pillars of growth could be dismantled. Policies aimed at reducing deficits and tightening immigration would suppress two critical engines of economic expansion. Elon Musk, now co-head of the Department of Government Efficiency (DOGE), promises to slash $2 trillion dollars in federal spending. Meanwhile, incoming Treasury Secretary Scott Bessent pledges to cut the budget deficit to 3% by 2028. Both of these are solid long-term objectives, but they offer little immediate support for risk assets. The result could be a slowdown in US growth, revealing the outsized role fiscal stimulus has played in driving US market performance over the past decade.

By contrast, many emerging markets and developed economies outside the US are only in early stages of policy easing. Here, one cannot ignore China, where after more than 3 agonizing years of austerity, the policy paralysis has been broken and turned stimulative. Not many investors are buying it. But Xi Jinping has said the economy needs to be stabilized, whatever it takes. Reflect on Mario Draghi’s similar declaration in 2012—now seen as pivotal in ending the Euro crisis. Was it obvious at the time? Most weren’t convinced, and EU leaders continued to stumble through summits. Only in hindsight did Draghi’s words mark a turning point. China is following a similar path. A year from now, we will see today’s seemingly small, disappointing measures as the start of a significant shift.

Looking ahead, the recovery that started in the US will start to spread globally. Economic activity outside America is already firming, the cost of capital is falling and many global markets, left behind over the last few years, are quietly gaining momentum. Even the perennially lagging Eurozone has fundamentals supporting the economy that are more solid than headlines suggest. Labour markets remain relatively robust. Consumers have shrugged off higher rates and wages are still outpacing inflation. And, most importantly, corporate profits are heading higher. This strength will continue to catch many by surprise. And it is the exact reason why global stock market rallies should continue to broaden and grind higher in the coming years. 

For over two decades, Forstrong’s investment professionals have gathered regularly to identify critical market trends and develop long-term strategies that best serve our clients. Today, the philosophical cornerstone of our investment process—diverse global perspectives lead to better outcomes—is stronger than ever.

This approach has become increasingly relevant in today’s digitally-charged era. Online platforms often serve as echo chambers for already held beliefs, enclosing members in an intellectually impenetrable layer of like-minded peers, biased blogs and partisan views. The world can look completely different depending on the type of media consumed or the group that one identifies with.

Of course, it’s a trap. Never leaving one’s world presents a clear and present danger. New realities are never experienced. A potentially rich, textured subject stays one dimensional. And so, one’s world view remains one-sided with a focus on certain insider voices—deprived of any new evidence.

Looking ahead, arbitraging this will be a winning strategy. And, increasingly, wide-angle global perspectives are essential to any investment process: they are fatal to localized biases and radically reduce the risk of falling victim to groupthink. Conversely, rigid ideology, accompanied by the usual investor overconfidence, are the twin enemies of outperformance. 

At Forstrong, our investment team is diverse by design. We bring together professionals from varied backgrounds—different ages, experiences, educational paths, and cultural influences. These factors uniquely shape how we view the world. Research consistently supports that diverse, international teams outperform more homogeneous groups: they approach challenges from multiple angles, avoid entrenched groupthink, and make decisions that are more thoroughly vetted and accurate. The result is stronger outcomes. We remain committed to this approach, ensuring our clients benefit from a team that embraces diversity.

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