And just like that, a new year is upon us. I’ll spare you any Wall Street predictions for 2025.
In less than 10 days in, Nvidia is telling us they’re just getting started. And as we continue to condemn Russia, Canada nor Greenland (our allies) is pleased with our incoming leader suggesting we buy them.
We’ll set that aside for a moment. Instead, I want to look back at what just unfolded in the previous 365 days. Unlike my description of 2023, dubbing it as The Year of the Fighter, last year felt almost familiar. Like we’ve been here before.
As I sit down to reflect on the year we just had, the sweet hum of drones buzzing over my head, the only thing that comes to mind is, Duh! How did I not see that coming?
I’ll admit there were a few surprises. I didn’t see an East Coast Earthquake coming. Aliens in Miami? Apple Vision Pro… yes. Steven Hawking at Epstein Island, no.
But much like my first Mike Tyson fight, I’m embarrassed for getting so excited for what was all but inevitable.
Here’s a quick look at a few big stories that broke in 2024. And how, hindsight being 20/20, the flashing red signs were there all along.
Isn’t Over Yet
For the first time in 4 years, the Fed decided to come off cruise control from tighter monetary policy and ease up a bit. Lowering rates three times by the end of the year.
We started the year with short-term rates at the 5.25-5.5.% range, where on the last day of the year, it sat between 4.25-4.5%.
Leading up to this, I remember reading about how the infamous yield curve finally reversed course in September.
As it stands today, the yield curve is no longer inverted. It looks like more of a “normal” pattern of shorter-term rates at the bottom slowly climbing higher the longer your money is tied up.
This is significant because it could signal a few things. First, the short-term future of the US is on a much better footing, rendering the risk of a recession less likely. Despite rates being elevated for so long, jobs haven’t suffered in a catastrophic way, and inflation has been trending in the right direction. Second, strategic long-term investing attitudes are back in play as expectations of stronger economic growth and stickier inflation remain on the table.
Although, the Fed hasn’t quite started waving the white flag just yet.
In December, Powell reported that he feels good about where the economy is. Having said that, the market didn’t take too kindly to the rest of Jay Powell’s notes, citing the board forecasts only two rate cuts into the new year.
Who knows how the market will pan out this year? But one thing is for sure: we’re not out of the mud just yet.
I’ll explain why in a moment, but first …
The Yen Carry Trade
For years, what went unnoticed and undisturbed, like an underground poker ring in a church basement, ended in chaos the second the whales started flipping tables because they were losing big money.
The yen carry trade is (was?) a cornerstone arbitrage tactic where sophisticated investors, think hedge funds and institutions, borrow in yen to invest in higher-yielding assets abroad. Taking advantage of Japan’s ultra-low interest rates held at or below 0% for 30 years.
For years, this move generated substantial returns as long as the Yen remained weak and global markets remained stable.
In the background, Japanese economic reporter River Davis writes that Japan has been holding interest rates extremely low to encourage price growth. They were dealing with a weakening domestic currency and low inflation for nearly two decades. Davis reports,
“The weakened yen has effectively bifurcated Japan’s economy: Large international corporations have benefited, while consumers and smaller domestic businesses have been squeezed. But warning signals flashed about diminished domestic consumption, and Japan has spent tens of billions of dollars this year buying yen to stabilize the currency.”
However, the cracks began to show when unexpected volatility hit global markets.
The Bank of Japan flipped the script and did something they hadn’t done since before the GFC. Raised their interest rates.
Couple that with the US lowering rates around the same time, leading the yen only to strengthen further.
A strengthening Yen forced many traders to unwind their positions virtually overnight. This mass unwinding sent shockwaves throughout the financial system, leading to sharp declines in any equity market tied to carry trade funding.
The entire blowup shows just how important interest rates are to financial markets as well as how interconnected global financial markets are and will likely always be.
Gambling Just Got a Face Lift
Personally, I think all the BetMGM, DraftKings, FanDuel, and whatever other gambling platform commercials have gone way too far. They pull from the same playbook as credit card companies did back in the day on college campuses: celebrity endorsements, sign-up bonuses, “free” house money, and micro-rewards for logging on daily.
Then they have the audacity to put a disclaimer at the bottom that says, “Gambling Problem?”
But what it really shows is an interesting display of human behavior.
Before the Super Bowl, in his post Dopa-bowl, Scott Galloway shared, “In a cover story on sports betting, Newsweek recently explained, ‘many sports bettors tend to see their wagers as safer and more informed than other kinds of gambling… they think they know the game, the players, and the teams, and are guided by their own expertise and skill rather than luck. This may give them an illusion of control over the outcome.’”
This “illusion of control” taps into a deeply human desire to feel mastery over uncertainty, even when that mastery is nothing more than a mirage. Gamblers often convince themselves they’re making calculated decisions, yet the line between skill and chance is thinner than they think. Stock picking is no different.
But I digress.
Speaking of gambling, we learned last year that certain betting markets should probably be taken more seriously.
Supporters of outcome-based betting markets like Kalshi and Polymarket argue that they’re more accurate and efficient than traditional polls due to the financial incentive. The financial incentive, they say, promotes engagement with current events, increases public awareness, and aligns personal interest with accurate forecasting.
But these platforms also blur ethical and legal boundaries, especially when participants bet on sensitive issues like natural disasters or political outcomes for personal gain. Critics fear that wealthier players or interest groups could dominate the market, manipulating outcomes to sway public opinion or amplify disinformation.
Of course, it’s all speculation.
- Will the Chiefs actually win the Super Bowl?
- When does Dogecoin hit $1? Before inauguration? After?
- Does the Fed leave rates unchanged in January? 91% think so.
The whole idea raises an interesting dichotomy between the efficient market hypothesis and the collective group’s psychology. It reveals a powerful intersection of financial incentives and human fallibility.
These platforms tap into our natural inclination to seek patterns and make guesses about the future. By attaching financial incentives to these predictions, they not only boost engagement but also exemplify cognitive biases like herding, or having the illusion of control, and profit-at-all-costs behavior.
The genie is out of the bottle.
The genie being the gamification of anything combined with online platforms where people, often hidden behind anonymous user tags, can express opinions freely with little to no consequences.
I fear that if we keep going down this path, the line between the stock market—traditionally a place where capital allocators reward sustainable, flourishing businesses—and it being just another betting market is becoming increasingly blurred.
Need another example of why we should take these betting markets more seriously:
Exhibit B.
The collective bunch saw it coming. And of course, he won.
How did I not see it coming?
Not just because the market predicted it but also because I knew his unwavering loyalists would ensure they would turn out in droves as long as he had another opportunity to run.
For some reason, people thought the economy was in much worse condition than it really was. Perception is reality, right?
Despite the lowest unemployment rate in 50 years, higher interest rates meant higher yields on cash, which didn’t suspend the market as previously thought, people still HATE high inflation and any memory of it. More than anything, they felt lied to about Joe Biden’s physical and mental conditions for far too long. Then you thrust his successor upon us way too late in the game and didn’t give her enough time to stand on her own two feet.
Personal disappointments aside, as a result of this, remember when I said we’re not quite out of the mud yet?
Despite refinance activity picking up 27% in the first 10 months of the year, according to CoreLogic, the road ahead still looks uncertain.
If the claims made during Trump’s campaign materialize—increased tariffs, restrictions on immigration and mass deportations, and further tax cuts—brace yourself. The 10-year Treasury yield could rise further, pushing mortgage rates back up, and the threat of inflation reaccelerating isn’t off the table. Add to that the stickier components of CPI, like housing, which refuse to budge, and it’s clear: we may be in for another rough year, particularly for homebuyers.
I’m not a betting man—but if I were, I’d be paying attention to the broader picture. As uncertain as things might seem, history offers some perspective.
Take equities, for example.
Over time, they’ve proven remarkably resilient against inflation and economic turbulence.
Downtown Josh Brown put it best when he wrote:
“Equities hedge inflation because American companies are scary-good at passing along higher costs to consumers while simultaneously wringing these costs out of their collective system via technology and efficiency. Neither gold nor real estate even come close to what stocks can do about this particular risk. Professor Jeremy Siegel taught me this a million years ago and I never forgot it.”
In other news, aliens were confirmed.
Don’t matter though.
Rent’s still due.
