How the Investing Game is Changing

Posted by Cam Hui - December 27, 2025

Preface: Explaining our market timing models

We maintain several market timing models, each with differing time horizons. The “Ultimate Market Timing Model” is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don’t buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)
Trend Model signal: Bullish (Last changed from “bearish” on 27-Jun-2025)
Trading model: Neutral (Last changed from “bullish” on 26-Nov-2025)

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent and on BlueSky at @humblestudent.bsky.social. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

A Lifetime Paradigm Shift

The year is almost over, and it’s time to reflect on the tumultous time investors have experienced. In particular, Trump’s trade war has caused an unexpected response and volatility. The markets were initially rattled by his “Liberation Day” announcements. Calm set in once it became apparent that major trading partners didn’t retaliate, except for China and stocks turned risk-on and bond yields fell.

The trade war was only the beginning. When I announced in March that I was shutting down, I didn’t expect the financial markets were going to experience a paradigm shift of a lifetime. The White House release of the National Security Strategy (NSS) is just another manifestation of the paradigm shift that not only affects U.S. foreign policy, but basic assumptions about investing that I am not sure I know how to analyze anymore.

The investing game is changing. It’s time for me to leave.

Make Money, Not War

The WSJ described Trump’s approach to peace for Ukraine as “Make Money, Not War”. The greatest reaction to the NSS came from Europe. But before discussing the implications of an American withdrawal from European security, I want to first focus on Asia and how the “Make Money, Not War” narrative is affecting global geopolitics.

Japanese Prime Minister Sanae Takaichi recently said in parliament that a Chinese use of force against Taiwan was potentially a “survival-threatening situation” under Japan’s 2015 security legislation, which permits the use of force in collective self-defense even if Japan itself is not directly attacked. It was a strongly worded statement that signaled Japan would defend Taiwan if China were to attack.

Soon afterwards on November 24, Xi placed a telephone call to Trump, which was unusual because the American side had always initiated calls in the past. Another unusual aspect of the interchange is the contrasting nature of the readout of the call. You have to wonder if each side was part of the same conversation.

Here is Trump’s readout of the call, as he posted on social media. The main focus of the discussion was trade, the strength of the Sino-American relationship, and a schedule for mutual state visits.

By contrast, the Chinese readout of the call had an entirely different tone. For China, the principal reason for the call was Japanese belligerence on the Taiwan issue. China’s official media Xinhua reported:

Xi Jinping clarified China’s principled position on the Taiwan issue and emphasized that Taiwan’s return to China is an important part of the post-war international order. China and the United States once fought against fascism and militarism side by side, and now they should jointly maintain the achievements of the victory in World War II.Trump said that President Xi Jinping is a great leader. I had a very pleasant meeting with President Xi Jinping in Busan, and I completely agree with you on the relationship between the two countries. The two sides are fully implementing the important consensus reached at the Busan meeting. China played an important role in the victory of World War II, and the United States understood the importance of the Taiwan issue to China.

In case you missed the subtlety of the language, Xi emphasized how China and the U.S. were allies and they “once fought against fascism and militarism side by side, and now they should jointly maintain the achievements of the victory in World War II”. There was no discussion of the recent trade friction, peaceful co-existence, and so on. In other words, China was rattled by Sanae Takaichi’s pronouncements on the Taiwan issue and wanted to enlist America’s aid to stabilize relations.

Since then, the Financial Times reported that the U.S. halted plans to sanction China’s MSS spy agency over massive SaltTyphoon cyber espionage hacking campaign that that has successfully penetrated the communications of top American officials in order to maintain the peace achieved at Busan, South Korea.

In the meantime, China’s top diplomat, Wang Yi, was in Moscow at the same time as when U.S. envoys Steve Witkoff and Jared Kushner met with Vladimir Putin. Wang was meeting wtih Security Council Secretary Shoigu and Foreign Minister Lavrov for talks on “strategic security and military cooperation”. The joint statement revealed that China and Russia agreed to “consolidate strategic mutual trust”, “expand mutually beneficial cooperation”, and “jointly respond to the endless new threats and challenges.” This is a clear indication of a growing China-Russia alliance.

One side is focused on making money while the other side is preparing for war. Two recent incidents are signals the geopolitical temperature is rising in Asia. On December 7, Chinese J-15 fighters taking off from the carrier Liaoning twice locked onto Japanese F-15s with their fire control radar just south of Okinawa. This is the military equivalent signal of pointing a gun at someone and taking off the safety lock.

In a separate incident on December 12, Chinese fighters and Russian aircraft, which included long-range bombers, entered South Korea’s Air Defense Identification Zone (KADIZ) in multiple directions over the Sea of Japan. South Korean fighters scrambled to intercept, and the intruding aircraft turned away, This was the first joint incursion since November 2024 and it’s a probable probe of allied response readiness, as well as a signal of a joint China-Russia alliance. The U.S. and Japan responded by flying B-52s with Japanese fighter planes over the Sea of Japan in an exercise as a display of force.

Trump-Monroe Doctrine in the Americas

Meanwhile, the Trump Administration wants to turn the Western Hemisphere into its exclusive sphere of influence consisting of vassal and tributary states. In a Truth Social post, Trump is implicitly treating Venezuela as a vassal state and threatening to invade.

The first problem is the U.S. ever “owned” any Venezuelan oil. An invasion could be a possible military disaster. Open Source Intel analyst David D. pointed that the any potential U.S. potential invasion force lacks sufficient manpower to complete its mission. It only has about 600 ground troops deployed in theatre, which is sufficient to seize a port or airfield, but lacks the follow-on force to take over the country. Moreover, it has no allies to provide basing facilities or intelligence support. American troops are not current trained for jungle combat. In addition, Venezuela’s political opposition had the opportunity to form a popular uprising but didn’t, which calls into question the degree of political support for any invasion and raises the risk of a Vietnam-like quagmire near America’s shores.

Make money, not war.

The Business Plan in Europe

The NSS statements about Europe were, on the whole, not a big surprise inasmuch it reiterated Vice President’s J.D. Vance’s remarks at the Munich Security Conference. Vance spoke about the threat to European civilization came from “woke” ideology and excess (non-white) immigration. He continued by supporting far-right parties such as the AfD in Germany, the National Rally in France, Reform in the Uk, and so on. The NSS characterized Europe as facing the “stark prospect of civilizational erasure” and the U.S. would support European parties to prevent a future where “certain NATO members will become majority non-European.”

The NSS is a very enunciation of what America First means to the Trump Administration: “the affairs of other countries are our concern only if their activities directly threaten our interests”. and the “days of the United States propping up the entire world order like Atlas are over”. The document went on to characterized the Russo-Ukraine War as “a core interest of the United States to negotiate an expeditious cessation of hostilities in Ukraine, in order to stabilize European economies…and reestablish strategic stability with Russia”. There was no discussion of aggression, the roots of the conflict, or whether Ukraine is part of Europe, just “reestablish strategic stability with Russia”. Further the document did not address European fears, which were also voiced by the top leadership of the U.S. military, that Russia wouldn’t stop at Ukraine if it won the war.

In concert with the release of the NSS, the Pentagon announced that it was withdrawing some a brigade of troops from Romania. The press release stated:

This is not an American withdrawal from Europe or a signal of lessened commitment to NATO and Article 5. Rather this is a positive sign of increased European capability and responsibility. Our NATO allies are meeting President Trump’s call to take primary responsibility for the conventional defense of Europe. This force posture adjustment will not change the security environment in Europe.

The days of a large U.S. ground force contingent in Europe to face the Soviet 3rd Shock Army from pouring through the Fulda Gap are over. The main American commitment in Europe consists of one squadron of F-16s in Germany, two small battalions of troops for deployment elsewhere. The rest of the ground forces are present for force protection for facilities such as Ramstein AFB, which is a transportation hub to support operations in the Middle East and Africa.

In addition, the WSJ reported that the U.S. plan for peace included an “appendix [which] offers America’s broad-strokes vision for bringing Russia’s economy in from the cold, with U.S. companies investing in strategic sectors from rare-earth extraction to drilling for oil in the Arctic, and helping to restore Russian energy flows to Western Europe and the
rest of the world.”

This is not a defense strategy. It’s a business plan.

Bring the Legions Home

Whether it’s intentional or not, the NSS is a “bring the legions home” strategy. Here is why this matters.

Retired general Mark Hertling, who served as the Commanding General of United States Army Europe voiced support of an X/Twitter thread and revealed that he argued in 2011 in so many words that America is running an empire, and empires need global military support to maintain order.

THE U.S. DOES NOT SUBSIDIZE EUROPEAN DEFENCE.
You are not running a charity, you are running an empire. And empires are costly.Your forward deployments, your bases, your carrier groups, etc. – they are the pillars of a global security architecture that mainly serves you: to protect your trade routes, your currency, your corporate supply chains, your ability to project force anywhere on the planet in hours and days, not months.

Your prosperity rests on your ability to project power -military, financial, informational.Your ports are not overflowing with cheap goods and energy because the world thinks you’re cute or because U.S. Treasuries are sacred. You sit at the center of the system because you guarantee that system with force: sea lanes, chokepoints, sanctions, no-fly zones when it suits you.

No one forced the U.S. into that role. Washington chose it because the benefits – geopolitical leverage, economic primacy, dollar hegemony – are enormous. Stop pretending it’s some unreciprocated act of kindness toward Europe.

Europe is the logistical backbone that lets you wage war and conduct operations across Africa, the Middle East, and parts of Asia without having to move everything across the ocean every time.Ramstein and the rest of the European network are not there to “protect Germany. They are there because from European soil you can:

– Fly troops and cargo to Iraq, Syria, the Gulf, the Sahel, Afghanistan and back with minimal time loss.

– Run command-and-control, ISR, and drone operations into multiple theatres.

– Treat wounded and rotate forces efficiently because the entire infrastructure is already in place.

You could try to rebuild that from scratch inside CONUS or in less stable regions. It would cost you billions, take years, and give you worse geography. Forward basing in allied countries is, in many analyses, cheaper than constantly rotating equivalent forces from the U.S. and trying to replicate those hubs at home.

So no, you’re not “paying to defend Europe.” You’re paying for real estate that underwrites your global reach.

Another inconvenient fact: NATO’s standards and interoperability heavily bias procurement toward U.S. systems – especially in high-end kit like fighters, air defence, and long-range precision weapons.Result? Europe has become one of the largest markets for U.S. arms exports, with a growing share of America’s weapons sales now going to European allies.

European NATO members have doubled their arms imports in recent years; well over half of that comes from the U.S.

That money flows into U.S. defence contractors, U.S. R&D, U.S. jobs – very often in the same red states whose politicians rant the loudest about “subsidizing Europe.”

So ask yourself: who is subsidizing whom?

And here’s what nobody else tells you: the moment Europeans actually “take defence seriously” and rebuild their own industrial base – joint procurement, local ammo and missile production – that dependence on U.S. defense hardware starts to shrink.

European host nations:- Provide rent-free land for bases.

– Waive or reduce taxes, customs duties, and fees that would otherwise fall on U.S. forces.

– Co-fund infrastructure, housing, roads, utilities, and training ranges.

– Contribute billions collectively in Host Nation Support and NATO common funding.

When you add in the in-kind subsidies – land, tax breaks, waived fees – the picture is very different.

In many cases, keeping a brigade forward-stationed in an allied country is less expensive (and can be cheaper) than constantly rotating it from the U.S. and building all the infrastructure yourself.

Again: this is not a one-way subsidy. It’s a business arrangement that suits both sides.

Bringing the legions home is the mark of an empire in decline. Trump’s belief is the U.S. is an enormous market and trade partners have to pay for access, but without control of the sea lanes and all the bases that support trade, the empire eventually collapses.

Casey Michel argued in a WSJ editorial that a bad Ukraine deal would encourage nuclear proliferation. French President Macron has made a proposal of extending the French nuclear umbrella over Europe. Other allies in Europe and Asia would be tempted to go nuclear themselves if they are unsure of U.S. support. Such a scenario is a recipe for geopolitical instability. That’s the world we are headed towards.

Breaking Norms

In summary, Trump 2.0 has been the story of breaking norms of the U.S. government established over decades and centuries. I have focused mainly on foreign policy, but a recent Trump social media post celebrating the strong GDP print that concluded with “anyone that disagrees with me will never be the Fed Chairman” is another example.

Investment Implications

As an investor, this analysis of the NSS is a review of the changes in a paradigm shift in geopolitical norms that was constructed after World War II. America became the dominant power, and so did the USD, and the recognition that U.S. Treasury paper as the risk-free asset.

Fast forward to 2025, the implementation of a “bring the legions home” strategy is most sensible approach to the management of a collapsing empire. In that case, don’t depend on the USD and USTs to be the risk-free asset in the long run. For the time being, my monitor of the “Sell America” trade isn’t showing signs of excess stress.

A review of year-end forecasts shows a variety of alarmist and constructive geopolitical scenarios, but no signs of imminent crisis.

That said, I am glad to be leaving, because the many basic principles of investing that I learned during my career are on the verge of being outdated. I am about to be an old fuddy duddy who is about to become irrelevant. The WSJ documented how the Trump family prospered in a variety of fields like crypto, communications, financial products, as well as its bread-and-butter real estate businesses. Even if Trumpism were to disappear in 2028, it would take decades for new Administrations to repair the damage.

It’s time to leave while I’m still on top, and have a chance to go.

The Week Ahead

Looking to the week ahead, the stock market is in the middle of the Santa Claus rally period, which began on December 24 and ends two days in the new year. The S&P 500 made an all-time high this week, and so did the S&P 500 and NYSE Advance-Decline Lines, which are constructive signs for the bull case.

Historically, the S&P 500 has shown an average gain of 1.4% in January and 10.4% for the remainder of the year when the Santa Claus rally was positive. By contrast, average returns were -0.1% and 6.1% respectively when the Santa rally fizzled. While I can believe that price momentum can carry over to January, it’s difficult to see how such a level of momentum can last for an entire year.

I conclude that the equity outlook will likely be bullish, at least in the short run.

1 thought on “How the Investing Game is Changing”

yodoc2003 says:

December 29, 2025 at 10:45 am

There are many illusions, like liquidity, store of value etc.
They are illusions because they sometimes vanish.
Take for instance the ZBT…if you look at a monthly chart of the S&P since 1980, and compare it with a chart of federal debt since then, the parallels are striking. Then of course the market is higher 1 year after the ZBT because the debt keeps going up. It’s buy the dip.
Will federal debt go down this year?…. nothing is 100% but the answer must be close to 100%, no it won’t and not next year either. So we could see the S&P up 10% or more in 2026. The stock market did well in Weimar Germany too.
Gold has a long history and it has been a store of wealth, but what if one day everyone wants to sell it? Don’t forget what happened to aluminum. Technology is disruptive.
The dollar abasement story needs a breather it is just too widespread. It’s valid but overbought so to speak. A while back a reader asked if he should wait for gold to go back to 3500. I hope he did. Patience is a virtue, Fomo is not. Courage is a virtue also because if you buy gold at 3500 and watch it go to 2800 will shake you.
So the only thing we can really count on is that gov’ts around the world will continue to spend more than they take in….a tailwind.
Who will want a 20y or 30y us treasury if this debt spree continues….many will, but at what price? The monthly chart shows resistance at around 7%. We are making a potential H&S bottom on the 30y with the neckline at current yields. This could go on for years before it breaks out, but then the target would be around 15% yield.
Scary out of control stuff.
How the market and gold will react is hard to say, but watch the prices and it’s true that there is less noise in the monthly signals (because the noise is hidden in the candles, so beware leverage!), and maybe that also is an illusion.

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