Confluence Investment Management

In a first quarter 2025 asset allocation report, Confluence expects resilient economic growth in the short term.

We suspect many investors today think the “American Exceptionalism” they studied in high school or college no longer applies to the U.S.

Concerns about the outlook for Treasuries have fueled a resurgence of interest in the Magnificent 7 as a target for safe-haven flows.

Even for dedicated investors, Social Security retirement benefits can be an important part of their financial security.

The yield curve indicates that US economic growth has slowed, with only limited signs that the economy could be heading into a broad decline.

The “Sahm Rule,” a widely used metric for determining the early stages of recession, was triggered in July.

In Part II, we discuss the reasons for the breakdown of the order prior to President Trump and follow this discussion with the impact of the current president. We project the likely actions of the nations in the region and, as always, conclude with market ramifications.

In past reports we have discussed America’s evolving hegemony, noting that America’s hegemonic narrative centered on containing communism which united Americans to accept the burden of the superpower role.

In Part II, we explain why Japanese-Korean hostilities have suddenly broken out into the open again and conclude by discussing the implications of the dispute for the countries’ economies and for investors.

The press has been reporting on a trade spat between Japan and South Korea, ostensibly tied to South Korean anger over Japan’s behavior in the runup to World War II. The dispute is only the latest chapter in a long history of conflict between Korea and Japan.

In Part I, we reviewed the U.S. current account problem, examined how the persistent deficit affects the economy, and discussed how the U.S. current account deficit is tied to American hegemony and ways the deficit could be addressed.

Last month, we wrote a two-part report on weaponizing the dollar. The continued strength of the dollar has become newsworthy recently, prompting us to provide an update to those earlier reports and include an analysis of new legislation introduced in the Senate.

Indian PM Modi’s latest surprising policy move was the sudden announcement that the northern state of Jammu and Kashmir would no longer have the special autonomy it has enjoyed since India’s independence.

The Financial Crisis consumed what was in many ways an overgrown and brittle economic system within the world’s developed countries. The conflagration destroyed many traditional politicians identified with the highly globalized economy and encouraged disruptive, populist leaders to begin reaching for their place in the sun.

In Part I, we began our analysis with a discussion of Mundell’s Impossible Trinity. We also covered the gold standard model and Bretton Woods model. In Part II, we examine the Treasury/dollar standard and introduce what could be called Bretton Woods II.

The Bretton Woods agreement established a system of fixed exchange rates that lasted until Nixon ended foreign dollar holders’ ability to swap for gold. Since 1971, most developed nations have adopted floating exchange rates and open capital accounts.

In Part I, we referenced the basic philosophies of David Hume and Adam Smith and how their writings evolved into the economic theory of supply and demand.

People tend to think in paradigms. We adopt a certain worldview or narrative for how things work and then impose them on reality. The problem is that our worldview or paradigm may not be true.

Thirty years ago, troops descended upon Tiananmen Square to forcibly remove protestors who were agitating for democracy, an end to corruption and a more inclusive political system. Details remain unsettled, but hundreds of students were killed or injured.

Historians tend to view the shift from one hegemon to another as a clear, abrupt break. But, in reality, faded hegemons tend to cling to elements of former glory. As we watch Brexit unfold, one persistent theme has emerged—much of Brexit is about unresolved issues surrounding the end of the British Empire.

In Part III, we examined the role of economic paradigms in the equality/efficiency cycle. All the major economic paradigms previously discussed lead to eventual problems. Capital-friendly policies eventually lead to inequality, while policies less friendly to capital eventually become inflationary.

In Part II, we discussed the principles and consequences of Modern Monetary Theory (MMT). This week’s installment will be devoted to the importance of paradigms. Next week, we will conclude the series with a discussion on the potential flaws of MMT along with market ramifications.

In Part I of this four-part series, we introduced this report and discussed the origin narratives of Modern Monetary Theory (MMT). This week, we will examine the principles and consequences of the theory. MMT begins its analysis with a focus on macroeconomic identities and flows. Assuming MMT does hold, what does it mean for policy and the economy?

Modern Monetary Theory (MMT) has recently become a hot topic of discussion. In our opinion, the rise of MMT reflects the continued shift in the equality/efficiency cycle. The goal of this report is to describe MMT, examine its key elements and potential policy ramifications, and let the reader decide what to think.

Last week, we examined the geopolitics of Britain and offered an abbreviated history of Irish/British relations. This week, we will begin by analyzing the Good Friday Agreement, followed by an analysis of Brexit regarding the Irish question. As always, we will conclude with market ramifications.

As the U.K. continues on its path to withdraw from the EU, a key element that needs to be considered is the border issue in Ireland. The Northern Ireland/Ireland frontier has broader geopolitical implications beyond just a border issue.

On February 16, 2019, Nigeria will hold its 6th presidential election since it ended military rule in 1999. Even though the last election saw a relatively peaceful transition of power, historically, elections in Nigeria have been violent. Thus, this election has garnered international attention as it could lead to broader conflict within the region.

In Part I of this report, we laid out the two narratives that the U.S. and China are using to frame relations between the two countries. This week, we will summarize the two positions and examine the potential for war using the historical examples of British policy toward the U.S. and Germany...

Over the past few years, we have noted steady changes in American views toward China, and vice versa, that will likely lead to superpower competition and the potential for conflict. In Part I of this report, we will discuss the American and Chinese viewpoints.

In Part I, we discussed the issues surrounding predicting inflection points, defined as reversals of long-term trends. This week, we examine two long-term trends that we believe are approaching inflection points and offer guideposts that we think will signal further progress toward inflection.

History seems to move in broad cycles. Beliefs come into and fall out of favor. Despite evidence of these cycles, people tend to assume trends that are in place will remain in place forever, and it can come as a shock to society when trends shift.

As is our custom, we close out the current year with our geopolitical outlook for the next one. This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international landscape in the upcoming year.

This week, we conclude our series by describing what we view as a new model for the superpower role, the Malevolent Hegemon. We will discuss the differences between this model and the previous one. With this analysis in place, we will examine the potential outcomes from this shift and conclude with potential market ramifications.

In Part I, we examined the basic role of the hegemon and the unique model the U.S. has created, which we dubbed the “Benevolent Hegemon.” This week, we discuss why many Americans have become disenchanted with this model, which is pressuring policymakers to either jettison the superpower role or significantly redefine it.

Since Trump’s election, there has been much discussion about the demise of the “Liberal International Order” (LIO). The general tenor is that the US is giving up global leadership and the world is in trouble. We’ve been making this argument as well for a long time.

In May, the Trump administration exited the Iran nuclear deal and implemented new sanctions. Because the US has a tendency to implement financial sanctions against its perceived adversaries, there have been growing calls for an alternative to dollar-based trade.

Part II begins with a discussion on migration with a focus on emigrant flows. We include an analysis of the problems caused by migration followed by an examination of the possible end to this crisis and the broader geopolitical issues. As always, we conclude with potential market ramifications.

Venezuela has gone from “bad to worse” in recent years. After Hugo Chavez died in 2013, Nicolas Maduro has been the nation’s chief executive, presiding over an accelerating political and economic disaster. His mismanagement has led to a migration crisis.

Two years ago, Islamic State, Kurds and various rebel groups controlled much of Syria. With Russian and Iranian assistance, Syrian President Assad has been steadily winning back territory.

Last week, we covered Turkey’s geopolitics and history. This week, we complete the series, starting with a discussion on Turkey’s economy with a focus on the changes brought by the Justice and Development Party (AKP), led by President Erdogan. We also examine how foreign debt affects Turkey’s economy and financial system, highlight the impact of the 2016 coup and analyze the causes of the current crisis in Turkey. From there, we discuss the debt problem and Turkey’s options for resolving the crisis. As always, we conclude with market ramifications.

Turkey has become a major topic of interest. A 2017 constitutional referendum gave the president sweeping powers, and President Erdogan won re-election in June 2018. Since then, an economic crisis has developed, with falling financial asset prices and a sharp currency decline.

The Trump administration withdrew from the Iranian nuclear deal and plans to implement sanctions on the country in two phases. In Part I, we introduced this topic and covered the first two potential responses from Iran, which were restarting the nuclear program and projecting power. Last week, we covered the threat to the Strait of Hormuz.

Last week, we introduced the topic of the Trump administration’s decision to implement sanctions on Iran and covered two potential responses from Iran, which were restarting its nuclear program and projecting power. This week, we discuss the threat to the Strait of Hormuz.

Trump withdrew from the nuclear deal with Iran in May. Although the rest of the signatories remain committed to the original agreement, the U.S. plans to implement sanctions on Iran in two phases.

We occasionally run across a book that we deem important enough in the arena of geopolitics to warrant a full report dedicated to its review, The Marshall Plan: Dawn of the Cold War by Benn Steil. This book details the history of the Marshall Plan, discusses how the plan developed and identifies the major historical figures who created it.

The Cuban National Assembly recently elected Miguel Diáz-Canel as Cuba’s new president. There has been much media conversation about a generational shift in Cuba. In this report, we discuss the potential for change on the island nation, which has been communist since the 1959 Cuban Revolution.

This week, we will conclude our series on globalization with a discussion of how China and Russia threaten U.S. hegemony, the potential responses and close with market ramifications.

Last week, we introduced this topic by discussing the Cold War. This week, we will continue our analysis with a reflection on markets, an examination of hegemony and a discussion of the expansion of globalization and the rise of meritocracy and its discontents.

For much of recorded human history, we have seen waves of globalization and deglobalization. Our position has been that we have experienced the apex of globalization and a steady cycle of deglobalization will occur over the next few decades.

Last week, we discussed the six major nations involved in the North Korean issue and each country’s geopolitical goals, constraints and meeting positions for the recently proposed summit between the U.S. and North Korea. This week, we examine why the talks are being proposed now and offer reasons why they may fail or succeed. We summarize the costs and benefits of the summit meeting and conclude with market ramifications.

On March 8, officials from South Korea briefed U.S. officials on a recent dinner with Kim Jong-un, which marked the first time South Korean officials had been inside North Korea’s Communist Party headquarters since the Korean War. The South Koreans informed Trump of Kim Jong-un’s desire to have a meeting and Trump agreed. 

Last week, we discussed China’s power structure and how the suspension of term limits changes recent precedents. This week, we continue this topic by analyzing China’s challenges while shifting from the world’s high growth/low cost producer to a slower growth, “normal” economy.

The Central Committee of the Chinese Communist Party recently announced it would end term limits on president and vice president. Thus, President Xi Jinping will be able to maintain his current position beyond his 2nd term.

In Part I of this report we outlined the geopolitics of Italy and its political economy. This week, we continue the report with an analysis of the upcoming elections and Germany’s impact on the EU, concluding with potential market ramifications.

Trump campaigned on a populist agenda. His “America First” mantra railed against free trade deals, suggesting they were poorly negotiated, supported immigration restrictions and called on allies to shoulder more of the defense burden. In this report, we focus on trade following his first year in office, beginning with a review of American hegemony and trade.

Last week, we reviewed the development of nuclear weapons and US deployment policy from the end of WWII to the end of the Cold War. We analyzed how the theory of deterrence developed and introduced events of the post-Cold War era. This week, we discuss how Cold War arrangements have broken down in the post-Cold War world and the ensuing nuclear proliferation.

Years ago we published a report on nuclear war and civil defense. Since then, we have seen an increase in actual and potential nuclear proliferation. Recent US administrations have reviewed their policies on nuclear weapons and we are seeing a departure from the late Cold War thinking on nuclear policy.

In early December, small protests developed in Iran due to sharp increases in some food prices. By the last week of 2017, the protests had spread across the country and have continued into the New Year. In this report, we discuss the current protests, comparing them to the unrest that developed in the wake of the 2009 elections in Iran.

Two weeks ago, we introduced this report and covered the mass arrests that took place in Saudi Arabia over the weekend of November 4, when several princes and notable figures were detained. The official reason given for the arrests was corruption, but many have speculated that the move was a cover for Mohammad bin Salman (MbS) to consolidate power and purge elements of a potential coup.

Over the weekend of November 4, there were mass arrests in Saudi Arabia, a missile attack and the resignation of Lebanon’s prime minister. Just before that, there was a crackdown on the religious establishment. In this series, we will discuss these events, the broader geopolitics of the region and American foreign policy drift.

This week, Part III covers the controversy surrounding North Korea’s dynastic succession, the end of the Cold War and the ideological issues with Deng Xiaoping. Finally, we recap the key insights from this history and the impact on American policy toward the DPRK, concluding with market ramifications.

Last week, we examined the Minsaengdan Incident and the onset of the Korean War. This week, we continue our series on China and North Korea, discussing the final phase of the Korean War and the ceasefire, the introduction of Juche and the impact of the Cultural Revolution. Next week, we conclude with the controversy surrounding the Kim family’s dynastic succession, the end of the Cold War and the ideological issues with Deng Xiaoping. We will recap the key insights from this history and the impact on American policy toward the DPRK, concluding, as always, with market ramifications.

We begin our study of the historical relationship between North Korea and China, including a review of the Minsaengdan Incident and a broad examination of the Korean War.

On October 18th, the Communist Party of China (CPC) will meet for the 19th Party Congress. China’s leadership for the next five years will be determined at this meeting. In this report, we offer a background on China’s government, focusing on the difference between de jure (what is the official structure of China’s governance) and de facto(how it really works).

Geopolitical analysis is a multi-disciplined examination that starts with geography and includes economics, sociology and history. The successful use of a historical analog requires selecting one that has the best fit to the current situation. Selecting an inappropriate historical parallel can be seriously misleading.

North Korea has become increasingly belligerent, launching ballistic missiles, testing a hydrogen device and claiming to have miniaturized a warhead; if true, this means it is a nuclear power. Although Trump says “all options are on the table,” a full-scale war would be catastrophic and may be impossible to contain.

Last week began our series on nationalism. We discussed social contract theory before/after the Enlightenment, examining three social contract theorists. This week, we recount Western history from the American and French Revolutions into WWII.

Over the last decade, the West has seen a series of tumultuous events. As these problems festered, unrest has been expressed through electoral surprises, while Russia has become more aggressive.

Last week, we discussed a short history of Qatar and its geopolitical imperatives. This week, we will analyze the events precipitating the blockade, the blockade itself, the GCC’s demands and the impact thus far on Qatar. We will examine how the situation has reached a stalemate and, as always, we will conclude with market ramifications.

On June 6, several members of the Gulf Cooperation Council (GCC) announced a sweeping blockade of Qatar, also a member of the GCC. The GCC members enforcing the blockade, led by Saudi Arabia, issued a list of 13 demands which Qatar rejected.

Saudi Arabian King Salman recently named his son, Prince Mohammed bin Salman (MbS), as the new crown prince, replacing Prince Nayef. The move was momentous but not necessarily unexpected. Initial reports suggested the change was consensual, but recent articles make it clear Prince Nayef was ousted.

We update our geopolitical outlook for the remainder of the year. This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international landscape for the rest of the year.

Last week, we offered background on the situation with North Korea, who appears on track to developing a nuclear warhead and a method of delivery that would directly threaten the US. In Part II, we discuss what a war on the peninsula would look like, including the military goals of the US and North Korea.

Tensions with North Korea have been escalating in recent months. The regime has tested missiles and claims to be capable of building nuclear warheads, and thus there is rising concern about an American military response.

Park Geun-hye’s ouster as president of South Korea was due to a scandal involving her close confidant accused of seeking bribes from chaebols, a group of family-owned multinational conglomerates that dominate the economy.

At last month’s NATO meetings, President Trump called the Germans “bad” for running trade surpluses with the US, causing a minor international incident. Although such incidents come and go, it did generate a more serious question…are German policies causing problems for the world? In this report, we review the saving identity we introduced in last month’s series on trade and discuss how Germany has built a policy designed to create saving. We discuss the Eurozone and the impact that German policy has had on the single currency. Lastly, we address the question posed in the title of this report.

This is the final report of our four-part series on trade. This week, our discussion on trade continues with a look at the relationship between trade, employment and inflation. We also conclude the series with market ramifications.

In this multi-part report, we offer reflections on trade to provide insight into how to use macroeconomics to judge the veracity of certain claims.

In this multi-part report, we offer reflections on trade to provide insight into how to use macroeconomics to judge the veracity of certain claims. In Part I, we laid out the basic macroeconomics of trade. In Part II, we discuss the impact of exchange rates and examine the two models of economic development, the Japan Model and American Model.

The general consensus among economists is that free trade makes the economy more efficient and supports global stability, but the steady erosion of US manufacturing jobs and the shrinking middle class have called this view into question.

Last week, we began our retrospective on the EU. This week we will examine the post-Cold War expansion of the EU, including a discussion of the creation of the euro and the Eurozone. With this background, we will analyze the difficulties the EU has faced in dealing with the problems caused by the 2008 Financial Crisis.

On March 25, EU leaders gathered in Rome to celebrate the 60th anniversary of the organization’s founding. The EU’s primary goal was to prevent another world war from being fought on European soil. The key to meeting this goal was to solve the “German problem.”

February 12th was the 100-year anniversary of the Russian Revolution. Surprisingly, the Kremlin has taken a very low-key stance on the centenary. We believe the government’s decision to downplay this historical event offers an insight into Russian President Putin’s thinking.

On February 13th, Kim Jong Nam, the older half-brother of Kim Jong Un, the leader of the Democratic People’s Republic of Korea, was assassinated at an airport in Malaysia. This event offers insights into the “Hermit Kingdom” and shows the audacious nature of the regime.

Two recent articles caught our attention discussing growing worries in Germany about a post-American Europe. These reports are indicative of rapidly changing views on how the US manages its superpower role.

In this report, we define nuclear blackmail and differentiate it from blackmail in a nuclear context. We discuss why this didn’t develop during the Cold War but why it could happen now. We also analyze how nuclear blackmail might be used as part of coercive diplomacy as well as part of conventional conflict.

Akbar Hashemi Rafsanjani was a major political figure in Iran and his passing is a significant event for Iran and the region. Analyses of history usually follow one of two lines—the “Great Man” or the “Great Wave.”

A key element of global hegemony is the ability of a nation to project power. A nation that faces significant proximate threats will struggle to project power globally. In Part I, we examine American hegemony from a foreign nation’s perspective.

As is our custom, we close out the current year with our outlook for the next one. This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international landscape in the upcoming year.

In Part 1 of this report, published on November 21, we discussed the geography of the Philippines and examined the nation’s history, focusing on its relations with the U.S. In Part 2 of this report, we will discuss President Rodrigo Duterte’s recent foreign policy decisions and their impact on U.S. policy in the region.

In May, Rodrigo Duterte was elected president of the Philippines. An unconventional political figure, he is considered populist in the mold of Turkish leader Recep Erdogan or Indian PM Narendra Modi. Perhaps most controversially, Duterte has embraced China and rejected its long-standing ally, the US.

Donald Trump, the first president in U.S. history to gain the presidency without having been previously elected to office or served in the military, is something of an unknown.

We first discussed the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) in January 2014. Both pacts have moved from obscure trade proposals to highly controversial political issues.

Last week, in Part I of this study, we examined the four imperatives of American policy with an elaboration of each one. This week, we discuss why each is important.

With the elections only about a month away it seems like a good time to review US foreign policy since WWII.

We preserve an allocation to gold as a hedge against geopolitical risks, with an allocation to silver where risk appropriate.