January twenty-seventh, twenty twenty-five to January twenty-eighth, twenty twenty-five

I. Foundation 

resistance to change and hence greater dependability for the results shown in the past.

The four quadrants of the macroeconomic cycle

The macroeconomic cycle comprises four regimes: Disinflationary Boom, Inflationary Boom, Stagflation, and Deflationary Bust.

1）Disinflationary Boom

Rising growth alongside falling inflation constitutes a Disinflationary Boom, A Disinflationary Boom is typical of the early-cycle stage; at this stage, financial conditions tighten and credit availability declines, reducing spending and in turn restraining profit growth, prompting central banks to adopt accommodative policies and the yield curve to bull-steepen.

2）Inflationary Boom

Rising growth alongside rising inflation constitutes an Inflationary Boom, an Inflationary Boom usually occurs in the mid-cycle stage; at this stage, central banks are still pursuing accommodative policies, and the influx of liquidity lowers interest rates and compresses risk premiums.This self-reinforcing expansion drives cash flow growth, but later in this stage, central bank policy gradually shifts toward tightening and the economic output gap narrows.

The market characteristics of an Inflationary Boom are relatively clear The market narrative behind it The trading narrative is a recovery in cyclical sectors, including Industrials (XLI), Materials (XLB), Energy (XLE), Financials (XLF), Technology (XLK), and small caps (IWM),The relative performance of these sectors versus the S&P 500 Index can serve as one of the criteria for assessment.

3）Stagflation

Slowing growth alongside rising inflation constitutes stagflation, Stagflation usually occurs late in the cycle, or in the post-cycle/late-cycle stage; at this stage, economic growth is still above potential but has peaked, and central banks begin turning hawkish. Risk assets are typically in their final melt-up stage.Later in this stage, monetary tightening pushes yields higher, amplifying the market’s reaction to adverse news and events.

The stagflation phase of the cycle is a macroeconomic regime in which growth momentum weakens while inflation momentum accelerates, This is one of the most difficult stages to navigate; the challenge is not which assets to hold, but how much beta risk to hold in the portfolio.

The reason is that during this stage, growth slows while inflation rises, causing sales to decline over the business cycle as input costs or wage costs rise at the same time, delivering a double blow to margins.In this environment, corporate earnings come under pressure, adversely affecting the stock market and company profits.

This stage is also relatively difficult to identify, because stagflation may also be temporary noise caused by tighter financial conditions; as financial conditions ease, the market can shift back to an Inflationary Boom at any time.

4）Deflationary Bust

Slowing growth alongside falling inflation constitutes a Deflationary Bust, A Deflationary Bust is typical of an economic slowdown/recession stage. At this stage, monetary tightening widens risk premiums and gradually feeds through to the real economy, with corporate earnings affected with a lag. The economic output gap is large at this point.

2025.01.28

II. Insights 

Our Viewpoints and ideas on market.

The United States can no longer sustain its narrative of technological hegemony on its own

The Stargate project, a 5000-billion-dollar wager aimed at dominating the AI infrastructure race, faces a paradox:It is both inevitable and seemingly impractical. Its success does not depend on technological breakthroughs, but on whether it can navigate the maze of sovereign power politics, financial dependence, and geopolitical red lines.

The United States cannot, and will not, fund the Stargate project alone.Even with 1000 hundred million dollars in federal loans and 1250 hundred million dollars in Microsoft/NVIDIA investments, the project’s first phase still faces a funding gap of 2750 hundred million dollars. To close this gap, the United States will have to strike a “Faustian bargain” with foreign sovereign wealth funds.These funds will trade infrastructure for equity, and capital injections for ownership of Stargate data centers. For example, the 750-billion-dollar investment proposed by MGX would give Abu Dhabi an 15% stake and control of server operations in the Middle East. 

 Chart: Stargate’s ownership structure

Meanwhile, SoftBank may restructure its debt through the Stargate project, with 400 hundred million dollars of related Vision Fund debt secured by Stargate project assets.In exchange, SoftBank may give U.S. regulators access to ARM chip designs in return for eased antitrust oversight.

Stargate’s “American” branding is inherently contradictory.It relies heavily on foreign capital, whose participation inherently weakens the U.S. sovereign interests it claims to promote.By 2030, non-U.S. entities may hold 55% to 60% of Stargate’s equity, giving them veto power over AI Pentagon contracts and chip export policy.

On the other hand, Stargate’s reliance on AI chips produced by TSMC and Samsung is as high as 80%, while these companies themselves depend on imports of rare earths from China, leaving their supply chains highly vulnerable to Chinese leverage. China China holds 92% of the global market share in rare-earth processing, enabling it to halt chip production through export controls.This strategy already showed its effectiveness during the trade war in 2020. If China retaliates against U.S. technology sanctions by restricting exports of magnesium or gallium, Stargate’s supply chain could grind to a halt.

Another potential threat is the issue of data sovereignty. The G42 data centers located in Abu Dhabi are an important part of the Stargate network, but these facilities are subject to UAE law. This legal gray area means that U.S. privacy laws and export controls are difficult to enforce.

Therefore, the Stargate project reveals a harsh reality: the United States can no longer sustain its narrative of technological hegemony on its own.By bringing in MGX and SoftBank, the United States gains short-term capital but also faces long-term risks that could run counter to its goal of winning the AI race. This also points to a changing reality: global AI leadership no longer depends on unilateral advantage, but on collaboration. The ultimate legacy of the Stargate project is that, even as the AI race rages on, capital knows no borders, and power, as the new Trump administration has shown, always flows to those who control the money.

2025.01.27

III. Market Pulse 

Our latest Comments on the economic and market environment

Note: All content in this text is for reference only, does not constitute investment advice, and does not serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for decisions.