Is Imperialism Good for Your Portfolio?
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this episode, Robert Armstrong from the Financial Times fills in for Scott to discuss Trump's aggressive foreign policy expansion and its market implications. They explore the emergence of the "Donroe Doctrine" - Trump's expansionist approach toward Venezuela and Greenland - and examine how this imperial stance affects markets. (03:00) The conversation shifts to analyze the banking sector's exceptional 2025 performance, with major banks gaining 30% as deregulation and favorable economic conditions aligned perfectly.
- Main themes include Trump's imperial foreign policy pivot, banking sector deregulation benefits, and 2026 market predictions including inflation risks
Speakers
Robert Armstrong
Robert Armstrong is the US financial commentator for the Financial Times and writes the Unhedged newsletter. He previously served as the FT's US financial editor and chief editorial writer. Before becoming a journalist, Armstrong worked in finance and studied philosophy, bringing a unique analytical perspective to market commentary.
Ed Elson
Ed Elson is the co-host of Prof G Markets and helps guide the show's analysis of market trends and business developments. He works as part of the Prof G Media team to deliver insights for ambitious professionals.
Key Takeaways
Markets Don't Always Punish Imperial Behavior
Armstrong explains that while we want markets to be the "final court of justice," they often don't punish geopolitically aggressive behavior in the short term. (07:00) Markets discount future cash flows and sovereign solvency, not moral considerations. This means imperial powers can maintain market support as long as they remain solvent, even if their long-term prospects are questionable. The key insight is that markets operate on shorter time horizons than the historical consequences of imperial overreach typically unfold.
Banking Deregulation Creates Massive Opportunities
The Trump administration's rollback of post-2008 banking regulations has created a perfect storm for bank profitability. (33:00) Armstrong identifies three key factors: reduced regulatory overhang (particularly Basel III requirements), strong economic conditions driving loan demand, and the natural rolloff of low-yield assets purchased during the low interest rate era being replaced with higher-yielding loans. This "natural lift" in bank income will continue throughout 2026 as old 3% yielding assets are replaced with 7% yielding new loans.
Bank Consolidation Benefits Investors Despite Execution Challenges
Armstrong argues that banking industry consolidation would be pro-competitive rather than anti-competitive. (44:00) The current structure has a few mega-banks (JPMorgan, Bank of America, Wells Fargo, Citigroup) capturing most industry profits while 1,970 smaller banks struggle with tiny profit margins. However, bank mergers are notoriously difficult to execute due to talent poaching by competitors, strict regulatory oversight, and the human capital-intensive nature of banking where corporate culture disruption can be catastrophic.
Inflation Risk Threatens All Positive Market Scenarios
The biggest threat to Armstrong's optimistic 2026 outlook is inflation resurging. (60:20) With massive fiscal stimulus planned, potential Fed rate cuts, deportations reducing labor supply, and the economy already performing well, conditions exist for inflation to accelerate. If inflation moves meaningfully above target, it would force the Fed to halt rate cuts, send the 10-year yield to 5.5%+, and invalidate all positive market scenarios for cyclical stocks, banks, and growth assets.
AI Euphoria is Already Cooling in Market Prices
Despite continued AI hype, Armstrong observes that market discipline is already emerging. (59:00) NVIDIA has traded sideways for four months, and Meta and Oracle have struggled despite AI investments. The critical moment investors should watch isn't when current AI spending stops (the infrastructure is already being built), but when the market can "see the end of the runway" for future AI spending in 2027-2028. This forward-looking concern will drive any AI stock correction before actual spending peaks.
Statistics & Facts
- Major bank stocks rose 30% in 2025, nearly double the S&P 500's gains, making it the strongest year for banks since the pandemic. (32:00)
- Global M&A volume increased more than 40% in 2025, driving significant investment banking revenue growth for major banks. (37:30)
- Greenland potentially contains 18% of the world's rare earth metals compared to just 2% in the US and nearly 50% in China. (21:30)
