Big Picture Thoughts For a Longer Term Horizon…
Executive Summary:
The Era of Fiscal Dominance: The 40-year period of monetary dominance has officially ended, replaced by an era where unprecedented government deficit spending and Hamiltonian economic statecraft dictate market direction, driving a structural cycle of global currency debasement.
Real Assets Over Paper Claims: In a debasement cycle fueled by fiscal dominance, capital aggressively seeks tangible scarcity; consequently, real assets, physical infrastructure, energy/power independence resources, and precious metals are dramatically outperforming traditional fiat-denominated paper assets.
The Breakdown of the 60/40: Frequent global supply shocks—exacerbated by the AI capex boom's strain on the power grid and a global pivot toward nationalism—are actively breaking the negative stock-bond correlation, making genuine diversifiers and stepped-up commodity allocations essential for portfolio survival.
Full Commentary:
Last week was a rather unexciting week in markets, with the S&P 500 posting a modest +0.4% gain, the Nasdaq adding +0.16%, the Dow slipping -0.5%, and the Russell 2000 outpacing everyone with a +1.15% gain. This was the third consecutive week of gains for the S&P 500, which currently finds itself up +13% ytd, which, if it holds, would make it an astounding fourth consecutive year of double-digit gains – a feat only accomplished three times since 1928. I must admit that a VIX closing out last week at 14.25 seems a bit complacent for the current backdrop, but I guess it makes sense in that investors have been handsomely rewarded for looking beyond any and all risk-off events over the past five years. Why stop now (sarcasm intended)?
A quick thought on gold before moving on to the feature presentation of this week’s missive: the yellow metal is pushing back above $4,400/oz, extending its two-week advance as market bets on a Fed rate hike next month have dwindled to 30% and the first full hike now being pushed out to January. Left for dead just a few months ago, gold has mustered nearly a +9% gain so far this month and is approaching its 200-day trendline. The key was gold holding the $4,000/oz level during its recent corrective phase, and while there are several levels of resistance ahead, it's reasonable to expect that correction from the euphoric peak above $5,500/oz at the end of January to its lows at $4,000/oz in late June is over.
As we slide into the late-summer months and market activity hits its typical dog-days-of-summer slumber, I want to take a step back in this week’s missive and focus on the bigger-picture structural forces driving capital markets since the start of 2025. While it is easy to get caught up in the daily geopolitical theater – from the latest executive orders to Supreme Court rulings on tariffs – what’s more important as an investor is to evolve and adapt your thinking to what ‘is’ rather than what ‘you want it to be’. It’s not hard to get caught up in the dizzying number of ideas (good and bad), policy decisions, geopolitical choices, as well as the onslaught of ‘excrement’ (we’re all guilty of serving up some of this from time to time) emanating from this administration. But doing so misses the forest for the trees: bigger forces are at play that I think matter to markets on an intermediate- to longer-term basis. In particular, this administration's ambitions to partake in economic statecraft and a return to Hamiltonian policies to reshape the American economy through their lens. This view isn’t unique to just this administration, but for better or worse, their actions show they are committed to running this playbook. What follows is a synthesis of our interpretations of these developments and how we are navigating them.
To understand the sheer scale of this economic statecraft, we have to recognize that we are navigating a profound structural break in the global investment landscape. The 40-year era spanning 1980 to 2020, characterized by monetary dominance where central bank policy and interest rate optimization were the primary engines of capital markets, is officially over. In its place, we have entered a persistent era of Fiscal Dominance. The inevitable mathematical conclusion of this Hamiltonian pursuit – which requires unprecedented global deficit spending to reshape the domestic economy – is that governments must find a massive new cohort of buyers to absorb sovereign issuance, or rely on central banks to print the currency required to buy the bonds themselves.
This legacy debt burden, highlighted by U.S. public debt climbing toward an eye-watering $40 trillion here in 2026, fundamentally restricts the "wiggle room" for central bankers, rendering traditional monetary policy tools less effective and completely secondary to government spending. Capital markets are now governed by a regime where aggressive state spending, political populism, and direct capital injections dictate economic direction. When non-recessionary budget deficits structurally exceed 6% of GDP, they force central banks into a position of deference, structurally altering asset correlations and driving inflation expectations. This dynamic is the engine behind one of the core investment themes we’ve been exploiting in our portfolios: global currency debasement.
Cross-Asset Performance: Tangible Scarcity vs. Paper Claims
In a debasement cycle, capital aggressively seeks out scarcity. It’s a real-asset world, until proven otherwise. If you want to see exactly how this fiscal dominance and debasement theme is playing out in real-time, look no further than the performance of cross-asset ETFs since the beginning of 2025.
Our work has continued to reinforce over-weighting client capital to real assets over financial assets. Said differently, own scarcity over abundance – think gold over treasuries, stocks (which include miners, heavy industry, electrification, grid infrastructure, batteries) over bonds. As the chart above illustrates, real assets (and the equities of the companies that pull them out of the ground) have dramatically outperformed fiat-denominated paper assets:
Gold Miners (GDX): Benefiting from massive operating leverage against a debasing fiat baseline, gold miners have surged +174.2%, leading all tracked assets.
Semiconductors (SMH) and Copper Miners (COPX): The physical infrastructure of the modern economy is capturing immense premiums, with SMH gaining +148.0% and COPX advancing +135.9%.
Uranium (URA) and Physical Gold (GLD): Demonstrating the premium on energy security and fiat alternatives, these assets have climbed +79.1% and +72.0%, respectively. Gold continues to perform as a perfect safety valve for heightened policy uncertainty, ongoing currency debasement, and the transition to a ‘real’ over ‘financial’ asset investment regime.
Broad Commodities (HGER): Acting as a structural inflation pass-through, the broader commodity complex has gained +68.0%.
Bitcoin (FBTC), the U.S. dollar (UUP), and the S&P 500 (SPY): Bitcoin (-31.7%) and the U.S. dollar (-1.2%) are the standout laggards over this period. While the S&P 500 gained a respectable +34.5%, it also remains a relative laggard compared to the broader real-asset complex.
It is worth pointing out that the onset of the Iran conflict at the end of February (marked by the first vertical pink line on the chart) threw a temporary wrinkle into the debasement trade. Most of the real asset classes that bolted out of the gate in early 2026 abruptly reversed course, enduring a grueling five-month correction and consolidation phase. This structural pressure was further exacerbated by a violent momentum unwind in July. However, a combination of market capitulation and coordinated policy intervention put an abrupt floor under the slide. Specifically, Citadel stepping in to acquire the liquidated public equity book of the AI-focused hedge fund Situational Awareness, coupled with Treasury Secretary Scott Bessent teaming up with Japanese policymakers to aggressively intervene in the weak yen market, triggered an immediate reversal. As a result, the real-asset complex has moved relentlessly higher over the last three weeks.
The AI Renaissance, New Mercantilism, and the Grid Squeeze
The fiscal impulses driving this debasement are not merely wasteful spending; they are being directed toward a massive structural re-industrialization of the American economy. Fueled by massive capital deployment under this new fiscal regime, artificial intelligence is transitioning from early infrastructure builds to widespread industry application.
We are witnessing a historic Capex Acceleration. Hyperscaler capital expenditure is climbing rapidly, with current consensus estimates sitting at $920 billion by 2027. Recent estimates suggest it could accelerate to between $1.1 trillion and $1.4 trillion, heavily supported by the broader macro liquidity environment. On a near-term horizon, this aggressive spending translates into significant upward earnings revisions for AI infrastructure beneficiaries, though investors should brace for violent short-term repricing given elevated valuations. Over the long-term horizon, as free cash flow is increasingly converted into capital-intensive investments, leadership will pivot away from AI "hyper-spenders" toward the structural efficiency gains captured by AI "hyper-adopters." I believe AI will spill over to the rest of the index as companies find ways to enhance and optimize their businesses.
Simultaneously, we are seeing the rise of the "New Mercantilism." This is the Hamiltonian playbook in action: under fiscal dominance, national security has evolved from a geopolitical checkbox into an active, investable policy force that heavily influences domestic supply chains. The historical reliance on the market's "invisible hand" is being aggressively displaced by the "visible fist" of government mandate and direct fiscal funding. Domestic investment is being heavily fueled by legislative catalysts like the Infrastructure Investment and Jobs Act, which is channeling $1.25 trillion into public infrastructure over the decade, with over $550 billion already assigned to more than 66,000 localized projects. Capital will persistently rotate away from long-duration, capital-light technology plays and toward capital-intensive, "old economy" cyclical sectors.
However, this AI Renaissance is crashing headfirst into severe physical resource constraints. You cannot have a digital revolution without analog power. The compounding demands of the AI boom, global re-shoring, and fiscal infrastructure spending are crashing into severe resource constraints, forcing a global race for energy security.
Data center power consumption is projected to more than double globally, surging from 415 TWh in 2024 to 945 TWh by 2030. In the U.S. alone, compute infrastructure is on track to consume 426 TWh (nearly 10% of total generation capability), vastly outstripping legacy grid projections. Because advanced AI workloads demand uninterrupted baseload power, nuclear energy has emerged as a mission-critical solution. Uranium sits at the intersection of carbon neutrality and grid security, with inelastic demand, and its strategic importance is further underscored by its official reinstatement to the critical minerals list. This structural tailwind is driving the massive outperformance in URA. I think we’re going to see a meaningful move up in uranium prices over the second-half of 2026 and through 2027, with many uranium miners already front-running this expectation.
Global Realignment: The Pivot from Globalization to Nationalism
As over-indebtedness strains traditional alliances, the global economy is transitioning away from a unipolar, U.S.-centric framework toward a highly fragmented, multipolar world. Secular forces are rotating away from open borders, hyper-globalization, and hands-off economic policies. In their place, political populism, protectionism, and state-directed capitalism are emerging as dominant regimes.
The unwinding of globalized trade networks will likely create persistent structural inflationary pressures. Combined with fiscal excesses, this macro backdrop creates a multi-year headwind for the U.S. dollar, driving investors toward international markets, real assets, and structural debasement hedges. This pivot is already measurable in capital flows. In 2026, the U.S. share of global equity fund inflows fell to 26% – its lowest level since 2020 – signaling a shift away from absolute "U.S. exceptionalism" toward a broader global rebalancing.
Looking at global regional equity performance illustrates this rotation. Despite the tariff whip being thrown around by this administration, regions outside the U.S. have managed to materially outperform the S&P 500:
Latin America (ILF): Leading the global complex with a gain of +74.8%, LatAm is a direct beneficiary of commodity export demand and resource scarcity.
Asia ex-Japan (AAXJ) & Emerging Markets (EEM): Following closely, climbing +70.8% and +66.8%, respectively.
Eurozone (EZU) & Global ex-US (ACWX): Outperforming the domestic U.S. benchmark, rising +62.2% and +58.2%.
This was the case in 2025, when markets outside the U.S. generated superior returns, and unless something fundamentally changes, I expect this relative outperformance to continue, as it has so far in 2026.
The Liquidity Picture: A Long-Term View
To truly understand why equity and asset prices continue to levitate despite geopolitical chaos and stretched valuations, we must look at the long-term liquidity picture.
As of May 2026, the value of global stocks and bonds outstanding has reached a staggering $314 trillion. The value of global stocks and bonds rose above $100 trillion in 2006, above $200 trillion in 2020, and has more than tripled from the $99 trillion lows of the Global Financial Crisis in 2008.
Over this entire 34-year period, financial asset growth has outpaced the expansion of the broad money supply, though they share a similar long-term trajectory. Global Stocks & Bonds have compounded at 8.0% (growing from $23 trillion to $314 trillion), while the Global Broad Money Supply has compounded at 6.9% (growing from $15 trillion to $148 trillion). When the money supply expands to monetize deficits, asset prices inflate in nominal terms. We are not just experiencing secular economic booms; we are experiencing the mathematical repricing of assets against a debasing fiat denominator.
Pushing Back: Don't Bet Against America
Given the pivot toward a multipolar world and the recent outperformance of international equities, it has become highly fashionable for financial media and Wall Street research desks to declare the imminent collapse of U.S. unipolar power. The narrative suggests that the U.S. is a decaying empire, soon to be overtaken by its rivals as the global reserve system fractures.
I want to strongly push back against this hyper-pessimistic narrative. While the nature of U.S. global leadership is evolving, the underlying foundation of American exceptionalism remains structurally unparalleled.
If we look at the evolution of Global GDP, the U.S. economy's resilience is unmatched. Following the unprecedented global shock of the 2020 COVID pandemic, the U.S. exhibited remarkable economic acceleration. Fueled by massive fiscal stimulus, energy independence, and continued dominance in the global tech sector, U.S. GDP spiked aggressively upward. As the chart clearly shows, U.S. GDP accelerated to $30.77 trillion, widening the gap between itself, the EU ($21.24 trillion), and China ($19.50 trillion).
To further dismantle the "U.S. decline" thesis, humor me as I think out loud and look at the objective facts anchoring the global system. Don't bet against America when you consider:
Economic Scale: U.S. annual GDP sits at $31 trillion, representing 28% of the world total. Since 1789, the U.S. economy grew 5.3% on average vs. 3.5% in the rest of the world.
Corporate Dominance: Fifteen companies on Earth are worth $1 trillion or more. Eleven of them are American, and the U.S. hosts more Fortune 500 firms than any other country.
Profitability & Equities: U.S. operating margins are 16% today, stronger than the MSCI World average (14.7%), having remained so for decades. Over the last 150 years, U.S. equities averaged 9.9%/year, a record no other market seems to have approached.
Innovation Engine: The U.S. spends nearly $1 trillion on research & development each year, the most in the world, and as a result attracts 57% of VC & private equity investment.
Energy Supremacy: The United States is the world’s largest oil producer, with 13.2 million barrels of crude oil output per day, around 30% more than Saudi Arabia.
Currency Hegemony: Despite debasement concerns, the U.S. dollar represents 57% of global foreign exchange reserves and 40% of global trade invoicing. At its peak, the reserve-currency share held in pound sterling was about 69%.
Fixed Income: The U.S. has enjoyed the best bond market returns, with the highest gains among long-lived peers (4.7%) and lowest volatility (6.6%) since 1815.
Culture: With just 4% of the world’s population, the United States has won 17% of Olympic gold medals and 33% of Nobel Prizes. Since 1776, more than 100 countries have used the Declaration of Independence as a model or inspiration.
The 2020s investment trends are indeed shifting. We are witnessing the end of elitism giving way to political populism, capitalism nudging closer to socialism, and the walk back on globalization as countries pivot to nationalism. Fiscal dominance has displaced monetary dominance, and Fed independence is yielding to deference.
However, U.S. dollar debasement trades are front-running the risk of peaks in U.S. asset concentration (64% global equity market cap, 55% global corporate bond market, 50% global government bond market), not the collapse of the U.S. economy. If non-US asset allocators cut stock and Treasury holdings by just 5%, it equals $1.5 trillion in capital outflows at a time when we are running a $1.4 trillion current account deficit and a $1.7 trillion budget deficit. The U.S. is not failing; it is actively weaponizing its fiscal capacity to re-industrialize, secure its energy independence, and capture the AI revolution.
Don’t get me wrong, as I do not want to be interpreted as an unequivocal cheerleader for the U.S., no matter what choices it makes and policies it institutes. The U.S. has the size and scale to make mistakes and overcome them, but the culmination of repeated errors will eventually add up. And while I do think it’s a bad bet to bet against America, the rest of the world is adjusting and adapting to the ongoing evolution of a changing world order.
The Correlation Breakdown: Why the 60/40 is Broken
As we assess the structural shifts underway, there is one final, critical dynamic investors must internalize: these recurring structural shocks – with climate policy being a major and ongoing one – are actively breaking the negative stock-bond correlation.
In an era defined by demand shocks in either direction, the classic 60/40 asset mix works brilliantly. In that regime, demand shocks tend to move equities and bonds in opposite directions: when growth disappoints, central banks ease, and duration bails out your equity losses. Supply shocks, however, do the exact reverse. Output falls, and inflation rises (stagflation), forcing central banks to tighten into weakness, meaning both legs of the portfolio lose. You don’t have to dust off the history books and go back to the 1970s to see this in action – just use 2022 as your template.
In this era of frequent global supply shocks (and you only need to look at what the AI renaissance is doing to the already-strained power grid) the correlation regime that made the 60/40 work for forty years has become dangerously unreliable. If supply shocks become more frequent, central banks face more episodes where they must choose between output and inflation. That raises inflation uncertainty, not just expected inflation, and inflation uncertainty is a critical term premium input for the bond market.
This structural reality argues fiercely for genuine diversifiers in your investments, specifically stepped-up commodity allocations. All portfolios today must include the tangible shock absorbers detailed above, and just as importantly, investors need to know exactly what to avoid.
Portfolio Synthesis
Looking ahead, our research continues to reinforce that investors stick to what has been working. We are leaning heavily into the reality of fiscal dominance by exploiting the currency debasement theme and investing alongside this administration's economic statecraft. Real assets, electrification infrastructure, energy independence, power generation, and physical precious metals remain the premier vehicles to preserve and grow purchasing power while the government actively reshapes the industrial base.
I remain a long-term holder of gold, and consider cash and short-term fixed income instruments as investments that not only preserve capital, but also pay you an ample return while providing optionality to act upon opportunities if/when they present themselves.
Bottom line: patience and resolve are an investor’s best friends at the moment. Diversification is no longer a dirty fourteen-letter word, and I suspect bonds will act as a very nice ballast in a portfolio that includes gold, stocks, and other risk assets. I think the more patient you are this year with letting opportunities come to you rather than getting FOMO’d into chasing them higher, the better position you’ll find your capital in come the end of the year
The articles and opinions in "Capital Market Musings and Commentary" are for general information only, and not intended to provide specific investment advice. Performance, dividends and other figures have been obtained from sources believed reliable but have not been audited and cannot be guaranteed. Past performance does not ensure future results. Investing inherently contains risk including loss of principle. Advisory services offered through Casilio Leitch Investments, an SEC registered investment advisor. Copyright © 2026 Casilio Leitch Investments. All Rights Reserved.