The exceptional mix of factors that led to US exceptionalism for last 15 years are slowly disappearing. No further welfare checks, high real rates, expensive US equities compared to cheap European & Japanese equities, the onset of DeepSeek questioning large capex in US IT were all present before. But what has accelerated the beginning of the end of US exceptionalism is the new Trump administration. The threats of tariff has caused major uncertainty in business and consumer sentiment.Results can be seen in latest core control retail sales, nominal consumer spending, Atlanta Fed's Q1 GDP projection of -2.8%, out performance of European equities vs US equities & a 60 bps fall in 10yr USTs. Trump administration's stated objective of regaining the manufacturing theme to US goes through lower dollar & higher tariffs/tariff threats. We see two distinct possibilities of the US administration response to achieve above objectives: 1) the new US treasury revaluing Gold to current market prices to make a treasury gain of 800 BN USD which helps in reducing US fiscal deficit 2) US treasury issuing long term bonds (100years maturity) to be subscribed by sovereigns as a concession against tariff threats or as a payment for providing security umbrella. While we agree with the new administration goal of returning manufacturing back to US, there will be a cost attached to this theme. The cost will be born by US equity investors and US service exports. We believe we are starting a multi year DXY down trend going to sub 98 levels. The new US administration's transactional nature has induced a high level of uncertainty in the investor class & we don't see this confidence returning any time soon. We like European equities and Japanese equities over US equities due to both earning's growth and valuation basis.
