The sound of bells ringing in the New Year quickly morphed into the hum of US military helicopters extracting Nicolas Maduro from Venezuela and his presidency thereof. The lightning speed regime kneecapping, rather than regime change, had a strange smell of old, Cold War, US/Latin-American hegemony. We were only three days into 2026 and were witnessing a changing world.
Since then we have wibtnessed the disintegration of trust between Europe and the US over its Greenland or else… threat, the explosion of widespread and violently suppressed protests in Iran and ensuing US/Iran tensions, a Japanese bond-market shock, and the price of gold crossing the symbolic $5,000/oz threshold.
Nothing Conclusive. Only Uncertainty.
The Greenland issue is very illustrative of the times. It suddenly got whipped up into a whirling frenzy only to quite rapidly appear to fizzle away like the foam on a stirred cup of coffee. How? Did anyone ask? Could Mark Rutte, as NATO Secretary General, conceivably agree to a framework solution regarding the threatened sovereignty of Greenland? The world audience looked on at a charade in Davos without much reflection, given that such theatre in politics is not unfamiliar. What was perhaps much more disconcerting was the market behavior in response to the whole debacle.
Take for example the S&P 500. Tariff threats against eight European “Allies” were announced over a US holiday weekend. Next trading day, January 20, the S&P 500 fell -2.06% then with the theatrical framework solution in Davos on January 21, the S&P 500 was up +1.16%, with the initial loss fully recouped within the following few days. Surface impression, a minor hiccup, nothing to be worried about.
This however, is a rather simplistic presentation of what in reality is a severely complex system of interconnected global markets. The S&P 500’s drop was clearly present in the futures markets which were open with limited trading on January 19 indicating that the fall was linked to the tariff threat. The sudden, apparent solution to Greenland unveiled at Davos may have been more to do with the Japanese bond-market shock occurring simultaneously on January 20 than the resolving of US/European tensions.
The issues here are complex and deeply uncertain. The concern is that it will only be after the swirling cup of turmoil has started to settle, that we will begin to see the residue of bitterness emerge. As previously noted, there is a globally interconnected, interdependent financial system built up over years of relatively harmonious, stable competition, played within multilaterally agreed frameworks. These are overtly or in most cases tacitly agreed—a certain degree of rules to the game. Inevitably, this premise has ingrained assumptions of how this financial system works. We are yet to see if these assumptions retain their validity when the system experiences a disintegration of the rules under which it is played. There is of course a secondary and even more disturbing level of uncertainty—what if there are assumptions present in the system which participants are unaware of, something which can only be made apparent in a distressed situation.
The ”Sell America” moniker which appeared in response to European anger regarding the Greenland threat, may have been good for a few days as a catchy headline. There is though the question of how that anger gets digested. Note should be paid to recent comments by a former Bundesbank Head of Research, recommending that Germany withdraw its physical gold stored in the US, given the current geopolitical conditions. This is an indication of the levels to which a breakdown in trust could manifest. It is though, much more likely, that the breakdown in trust will filter through in less dramatic but no less significant ways.
Be Prepared
Investors need to attempt to reanalyze their portfolios in response to the current geopolitical maneuverings. This is particularly relevant with regards to internationally diversified portfolios. The premise for spreading risk in this manner is one which is very much based on the established global rules-based system and it is there perhaps, that it is necessary to reevaluate the diversification risk in the event of a breakdown of that order.
Analysis premised on a more insular world may be necessary, moving away from the internationally interconnected, to a more siloed disconnected approach. Viewing it from this standpoint, allows the prospect of maintaining international diverse investments and participating in their respective upsides whilst trying to protect them from the contagion in the event of some unexpected collapse in international financial cooperation. Now would seem to be the moment to pay significant attention to hedging regional market investments from within that market—rather than assuming global diversification from without, will protect in the event of regional market turmoil. ■
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