Vincent Deluard: The Debasement Trade is Just Getting Started

Episode Overview

• A Shift Toward State Capitalism: The episode explores how the US economy is moving away from free-market fundamentals toward "policy activism," where government alignment dictates corporate success more than traditional metrics.
• The "Trump Checkbook" Economy: A central thesis is that 2026 will see a deluge of stimulus checks and fiscal spending ("running it hot") to boost approval ratings, creating an inflationary environment despite rhetoric about austerity.
• Geopolitical Pivots and Energy Strategy: The discussion outlines a strategic pivot toward "Fortress America," favoring domestic energy production and Latin American alliances over global interventionism, which has significant implications for energy stocks.
• The "Tale of Two Halves": The narrative predicts a strong "melt-up" in the first half of the year driven by stimulus and a dovish Fed, followed by a painful correction ("death by fire") as inflation forces aggressive rate hikes later on.

Key Concepts

1. The Rise of American "State Capitalism" The US is undergoing a structural shift toward "policy activism," where the government actively intervenes in capital allocation to achieve strategic goals. This resembles a "state capitalism" model (similar to China's) where investors must analyze companies based on their alignment with executive branch goals rather than just free-market fundamentals. For example, companies that support "Fortress America" (energy, defense) will be favored, while those viewed as predatory (institutional housing investors) face regulatory headwinds.

2. The "Run It Hot" Fiscal Playbook Despite political rhetoric about cutting deficits, the path of least resistance for the administration is to issue "checks" (stimulus, military payments, tariff rebates). Structural reforms (like cutting entitlements) are politically dangerous, so the government will likely choose the "easy" option of direct payments to maintain approval ratings. This creates a "Trump Checkbook" economy where fiscal stimulus continues to pump liquidity into the system, effectively prioritizing growth over inflation control.

3. Geopolitical Pivot to "Fortress America" The US is abandoning its strategy of managing global oil prices through sanctions and foreign pressure. Instead, the focus is shifting to prioritizing production within the Western Hemisphere. This implies a bullish environment for US energy majors and oilfield services. Crucially, US energy stocks may re-rate higher even if global oil prices remain moderate, because the market will treat domestic reserves as strategic assets protected by a favorable regulatory regime.

4. The Inflationary Cocktail & The "Two Halves" of 2026 The combination of fiscal stimulus ("Trump checks"), a dovish Federal Reserve (pressured to keep rates low), and strong structural spending creates a highly inflationary mix. This sets up a distinct timeline for the year: * First Half (The Melt-Up): Strong earnings and stimulus drive stocks higher (potentially 10-15%). * Second Half (The Fire): The economy overheats, forcing the Fed to reverse course and hike rates aggressively to combat structural inflation, potentially triggering a bear market.

5. Gold as a "Vote on the Dollar" Gold is reframed not merely as a commodity but as a hedge against monetary instability and the weaponization of the dollar. As trust in the US dollar's stability wanes due to sanctions and persistent inflation, gold rises as a "vote" against fiat currency. This explains why gold prices can decouple from interest rates and rise even when yields are relatively high.

Quotes

• At 1:19 - "I think it's another sign of this... policy activism shift towards... almost state capitalism if you will. We had the Intel buying stakes... and then we see more of it." - Identifying the structural shift where the government takes an active ownership or directional role in private enterprise.
• At 9:17 - "We’ll kind of lay down on Russia... we'll give a break on Saudi as well, and then we'll turn our tension to LatAm [Latin America]... that would be quite bullish for US energy companies." - Explaining the "geopolitical pivot" that benefits Western hemisphere producers over global interventionism.
• At 15:33 - "For China... the name of the game is you figure out what the government wants and you buy the company that the government tells you is going to support... We're moving towards that model." - Comparing the new US investment landscape to the Chinese model, where political alignment dictates investment success.
• At 17:34 - "It's the 'run it hot' playbook... The hard stuff would be to actually try to control costs... If you can't do the hard stuff, you do the easy stuff." - Explaining why fiscal stimulus is likely to continue despite inflation concerns; it is politically easier than austerity.
• At 25:52 - "Does the world feel like a safer place after the first week of January? I would argue not. Gold is kind of a vote on the dollar." - Reframing gold's value proposition in the context of geopolitical instability and declining trust in fiat currency.
• At 29:20 - "What could justify a 100 basis point in real yield difference? ... If I'm right about the Trump checkbook policy with a dovish Fed, that's very dollar bearish." - Explaining the investment thesis for European fixed income over US treasuries based on diverging real yields.

Takeaways

• Invest in Political Alignment: Shift your analysis framework to prioritize companies that align with government goals (Energy, Defense) and avoid those in the crosshairs of populist policy (Housing). In a "state capitalist" system, regulatory favor is a primary driver of returns.
• Prepare for a Volatile Timeline: Structure your portfolio to capitalize on a potential "melt-up" in the first half of the year driven by stimulus, but have a defensive strategy ready for the second half when inflation likely forces the Fed to hike rates aggressively.
• Diversify Away from the Dollar: Incorporate assets like gold and international fixed income (specifically Latin American or European where real yields are attractive) to hedge against a weakening US dollar and persistent domestic inflation.