The Three Major Forces Shaping the Economic Boom in 2025

TRANSCRIPT

Hello, this is Alexander Green, Chief Investment Strategist of the Oxford Club and welcome back to another State of the Markets call, an exclusive benefit for Oxford Communiqué Pro subscribers. Earlier this week, my staff said, “let’s record a message that talks about what’s happening in the market.” And I insisted that we wait until after the Federal Reserve meets. We knew they were going to cut rates a quarter of a point, the markets were indicating there was a 99% probability of that.

But what I was concerned about was what the Federal Reserve was going to say about the interest rate environment in 2025. A lot of people were clearly thinking the Fed was just going to keep cutting rates in 2025 and that really isn’t necessary. The market is strong, inflation is proving uncomfortably sticky, and there’s no reason to keep acting as if the patient needs some kind of shock therapy to get going. And so it was not any big surprise that Fed Chairman Jerome Powell said that there may be one or even no cuts in 2025.

But the market took it very hard. All the indexes came down sharply and all Jerome Powell really said was that the market is plenty healthy, doesn’t need any more help. So I’m actually agreeing with him that the market doesn’t need a lot more help, a lot more stimulus and they’re thinking that inflation could actually bounce up a bit in 2025. And so why would they be cutting rates?

Since the Federal Reserve’s dual mandate is full employment and low inflation. 2% is their target, as we all know. But I look ahead and I see good things for 2025 for three reasons. Two of them have to do with the incoming administration.

Donald Trump, who is a businessman, has promised to deregulate and overregulation is a big cause of all kinds of problems in the economy, it increases costs for businesses. A lot of the regulations simply aren’t necessary, and deregulating will allow companies to unleash their entrepreneurial and innovative powers to create more sales and more profits. So I like that aspect. The second thing that Donald Trump is promising to do is to cut the corporate income tax rate from 21% to 15%.

That will give companies more money for R&D or hiring more workers or increasing wages or expanding the business. So that’s positive, and the third thing, which has very little to do with Donald Trump is of course, the advent of artificial intelligence, which is a huge boon to the economy and to U.S. productivity, which is growing at a much faster rate than economies in Europe and Japan and elsewhere. So I’m actually quite optimistic about the outlook for the economy and the markets in 2025. However, I do think the markets are a little frothy.

People are investing as if valuations just don’t matter anymore. Valuations do matter and the thing that makes me feel this way is especially the craziness we’re seeing in the crypto market; it’s not just Bitcoin. There’s a coin called the Peanut the Squirrel coin named after a squirrel that was captured by someone in New York. And later the police raided the guy’s apartment, took the squirrel and euthanized it, which created some outrage in some quarters.

And someone created a Peanut the Squirrel, that was the squirrel’s name, Peanut, and it now has a market cap of over a billion dollars. That’s just crazy. But what’s even crazier is that Dogecoin, which was created as a joke and is useful for absolutely nothing, has a market cap of over $60 billion. It’s worth more than General Motors or Hilton Worldwide.

And that just defies explanation. Now let me also show you, this is perhaps the stupidest Wall Street Journal headline I’ve ever read. Limited Supply Fuels Bitcoin Rally. Well, let me just tell you something.

The supply of Bitcoin has been fixed at 21 million coins for over 15 years. That’s sort of like saying that Apple rallied yesterday based on the introduction of the first iPhone, because the iPhone and Bitcoin are approximately the same age. So all this frothiness and the craziness in the crypto market is indicative that people should be careful about what they invest in and what kind of valuations they see on the things they’re investing in. And so I’m going to be very careful going forward in 2025.

Not only that we see high quality companies with good management, solid products, growing sales and earnings, but also that the valuation is where it should be. So I’m a cautious optimist for 2025. The economic backdrop is good. The market is still in a long-term trend higher, and I think we’ll see some great profits in 2025, just as we saw in 2024.

So that’s it for today. I look forward to seeing you again next time.