TACO

The Erosion of Institutional Trust Global markets are currently wrestling with a profound shift in the fundamental assumptions that have underpinned the U.S. Dollar and American asset dominance for decades. Historically, the United States served as the world's primary safe haven, offering liquid markets and stable institutions. However, we are witnessing a systemic breakdown in that trust. The frequent emergence of the TACO—Trump Administrative Chaotic Outcomes—has forced international investors to reconcile with a reality where policy is dictated by erratic social media pronouncements rather than rigorous deliberation. This volatility isn't just noise; it's a structural risk that demands a new playbook. Institutional credibility is like a physical structure: it takes decades to build and only minutes to demolish. When a president threatens to invade a NATO member or publicly disparages the Federal Reserve chair as a "numb skull," the damage transcends the immediate news cycle. Foreign pension fund managers and sovereign wealth funds are beginning to view U.S. assets through a lens of risk premiums that simply didn't exist five years ago. This is why the S&P 500 significantly underperformed peers in Japan, Canada, and Europe on a currency-adjusted basis last year. If you were a United Kingdom investor, the headlines of a 17% gain in the S&P 500 were largely offset by the 10% devaluation of the dollar, leaving you with single-digit real returns while local European markets surged. The National Economic Strike: Consumer Leverage In a capitalist society, the most radical act of protest is nonparticipation. The traditional model of political protest—cinematic marches and indignance—often fails to yield tangible policy changes because it doesn't touch the mechanics of power. To be effective, one must target the soft tissue: the equity markets. U.S. consumers control 70% of the economy, and the current administration responds primarily to market signals. A targeted, surgical national economic strike focusing on the AI sector could create a chain reaction that forces a legislative reckoning. By focusing on high-valuation, high-growth companies like OpenAI, Nvidia, and Microsoft, consumers can leverage the extreme sensitivity of these stock prices to subscriber growth. If ChatGPT were to report its first down month in subscriptions, the resulting chill would echo through the 40% of the S&P 500 that is now tethered to the AI narrative. This isn't about hurting local grocery stores; it's about signaling to the corporate sycophants who have prioritized proximity to power over institutional stability that their valuations are fragile. Nonparticipation is a weapon of mass disruption that the elite cannot ignore. The AI Bubble: Efficiencies or Layoffs We are reaching a "show me the money" phase in the AI cycle. The dot-com era taught us that even companies that eventually change the world can see their valuations cut by 90% when the gap between hype and monetization becomes too wide. Current AI valuations are predicated on one of two outcomes: either these companies deliver extraordinary efficiencies that justify their price-to-earnings ratios, or we see a massive destruction of human capital. In corporate-speak, "efficiency" is often a euphemism for layoffs. For these valuations to hold, companies would need to eliminate 20% to 30% of their workforce through automation. Recent data suggests a massive divergence between executive perception and worker reality. While C-suite executives claim AI saves them eight hours a week, 40% of workers report it saves them no time at all. This suggests a disconnect where leadership is enamored with the narrative of AI while the actual utility on the ground remains unproven. If the promised productivity miracle doesn't manifest in bottom-line earnings soon, the froth on top of companies like Nvidia and Microsoft will be blown off. We saw Meta lose two-thirds of its value in 2022 when its core narrative faltered; the AI giants are not immune to similar gravity. The Global Rotation to Europe and Asia The "Sell America" trade is better described as a "Diversify from America" rotation. For the first time in a generation, the case for investing in Europe is stronger than the case for the United States. While U.S. fiscal expansion has largely consisted of sending checks to consumers, European expansion is targeting "real stuff": infrastructure, defense, and energy. These projects have higher economic multipliers and create more sustainable long-term growth. Furthermore, European bank stocks have performed exceptionally well, signaling a financial sector in its best health since the 2008 crisis. Japan is also exiting its era of being "aggressively boring." After decades of deflation, Japan is seeing sticky inflation and rising bond yields. This has massive implications for the global carry trade. If Japanese Government Bonds offer decent yields at home, Japanese life insurance companies and pension funds will have less incentive to buy U.S. Treasuries. The United States is losing its status as the default destination for global capital, and the Bessent administration's sensitivity to Deutsche Bank reports about selling treasuries shows how vulnerable the U.S. debt market has become. Conclusion: The Long Road to Rebuilding The most sobering reality is that trust is not easily restored. Even if a more stable administration takes office in the future, the "moment of madness" we are currently experiencing will hang over U.S. assets for a decade. Global investors now know that the guardrails are thinner than they thought. Rebuilding that credibility will require more than just better policy; it will require structural changes to U.S. institutions that reassure the world their capital is safe from the whims of a single individual. Until then, the word of the era is diversification. The ship has sailed, and you cannot put the ship back in the donkey.