It really does feel the Atlantic Ocean got much, much wider. As Europe struggles with riots and populism, financiers in the USA dismiss Yoorp as irrelevant, and think their economy is doing just great, fuelled by the AI boom and rising earnings. What they miss is the vulnerability of the economy to a debt shock and rising Treasury refinancing risk.

The Russians are masters of Maskirovka, the art of distraction, disinformation and misdirection. After sabotaging the transatlantic economy, the next stage is to destabilise Europe and break its resilience by fermenting social unrest, political conflict, and riots. The current waves of protest are likely to erupt across Europe with the potential of triggering a bond crisis, are deliberate and part of a hostile plan to remove Europe from the board.

The French Bond market threatens to become a crisis as yields widen and its’ politics look increasingly a zero-sum game. While we’ve been watching the antics in DC and the price of oil due to Iran, we’ve missed how swiftly a new European debt crisis has been brewing. If it deepens, it won’t be a simple repeat of 2010-12, which nearly crushed banks and triggered defaults. Europe’s second largest economy in crisis, and dispute with Frankfurt, could trigger even more massive instabilities.

When staring down the abyss of looming stagflation, a bond market rout, and a reset on the global economy… let’s try to pretend it’s all something else. Christine Legarde would have made a great French President. Of course it’s not Stagflation... it’s just... Well? What is it?

Politics was an overarching theme in 2024 – and, regrettably, will remain so in 2025 as global investors figure out likely policy action by central banks and the growth outlook for 2025. “This time it’s different” (TTID) and FOMO remain the most malign forces acting on asset prices, but is a new full blown European Sov Debt Crisis also on the cards?

Europe is getting “interesting” in the Chinese sense of the word. The market to watch will be European Bonds – French OATs may just be the first to wobble. As the crisis unfolds (and it will) there may be opportunities to arbitrage the actions of the ECB to stem any crisis – watch this space.

Watch the bond markets! In bonds there is truth. The current political ructions across Europe highlight the fragility of Europe’s cobbled together bond markets. If they break, the outlook for markets will be… interesting (and not in a good way.)

It was once holy scripture that government bonds were the risk-free-rate from which all risks were priced. In the last decade markets have changed. The bond market is increasingly hollow and thin. The reality is few folk outside bonds pay attention – central banks set bond rates. Good or bad thing?

Markets fear instability above all else. Financial crashes happen. Spectacular gains are followed by dramatic losses. Market foundations are strong, based on the truth of bond markets. What might happen if investors lose their confidence in bonds?

Despite the robust US economy, the market’s prime concern remains when and how quickly the Fed will ease interest rates. What if they don’t? We’re heading into a new normalised post GFC interest rate environment, and long-term higher rates will be a good thing!