The Biden administration leaves next week but continues its scorched earth plan to make Trump’s taking over power difficult. The White House continues to spend whatever funds authorized by Congress and that the President can spend under Presidential authority before Inauguration Day. The result may be that the incoming administration comes in with a run rate of a US$3T+ deficit and all Biden’s favourite programs (climate, more government hiring etc.) getting more funds to spend. Every department has been told to spend all authorizations and leave no funds unspent. This makes it harder for the new administration to reign in the policies that they were elected on, such as cutting government pork spending.  If the goal of the Biden administration was to leave the new administration with geopolitical, financial and economic challenges that mess up implementing their agenda, they have succeeded. It is unlikely that the people’s business will be done in the next few months as the political drama unfolds. This Presidential transition seems to be one of the worst ever as Biden’s White House staffers do everything they can to make the start of Trump’s Presidency difficult. 

President Trump wants to focus initially on the border crisis and boosting US energy production, while his DOGE team gets a handle on government waste. This is what the markets will be watching for in the first days of his new Presidency. Will he get all he wants done in one, two or three bills and can Congress pass more than one bill in 2025. History says this is unlikely. He continued his comments about taking over Greenland and the Panama canal for the security of the US. In addition, he is threatening NATO members that if they don’t raise their defense spending to 5% of GDP from the current target of 2% then he will withdraw the US military umbrella. Canada was specifically called out and he repeated his view of Canada becoming the 51st state and our Prime Minister becoming a Governor. Thankfully he is aware of Trudeau’s resignation and if the Conservatives win the upcoming election there will be a better meeting of the minds between the two leaders going forward. Canada and the US have a long standing relationship that needs to be nurtured and not neutered. Next week’s US tariff moves and levels will tell the tale of how this relationship will move forward. President Trump is now calling for an “External Revenue Service” to collect the massive Tariffs and Duties from foreign sources. This may  require an act of Congress to create a  new federal agency.

The President’s key cabinet and other lieutenants continue to go through the Senate confirmation process. The Defense pick Hegseth was supported by Republicans but was unanimously condemned by Democrats. The first 100 days that Trump wanted to see major directional and policy changes may not be possible given the problems in Congress with divergent groups and the slow way that the Senate moves. 

Some of the recent tug of war economic data includes:

• US Core CPI rose 3.2% in December but this data does not include the 10% rise in crude oil prices that will lift this result next month. Core CPI rose 0.4% month over month so inflation has bottomed and we see it rising in the coming months.
• Core PPI rose 0.3% in December but in the details it was not so positive. The PPI for final demand rose 0.4% in December and prices for goods rose by 0.7%.
• NY Empire State Manufacturing took a dip to a minus 12.6 from a prior +2.1. 
• US December payrolls rose a whopping 256K jobs way above the forecast of 164K new jobs. Private Employment gained 223K jobs. Average hourly earnings rose 3.9% year over year only slightly below the 4.0% of November. 
• President Biden has hundreds of thousands of people from El Salvador and Venezuela staying in the country as he extended their deportations by 18 months or more under his amnesty program that Trump would never have done.
• Biden has rushed to regulate AI before Trump takes office. 
• Biden has added another 150K borrowers student loan debt relief of US$183B.

In our upcoming first SER issue of 2025 to come out on January 16th we plan to cover many of the topics which may impact the investment markets in 2025. If these are of interest to you, become a subscriber.

Geopolitical Military Issues:

Ukraine/Russia – Russia Moves Aggressively before January 20th

President Biden has put on stricter sanctions against the >140 Russian ships carrying crude to its customers. These customers are mainly China (2.16 Mb/d) and India (1.76 mb/d). Historically, Russia and its customers have found work arounds for the sanctions and we see the same occurring in the coming months. This is a short term phenomenon. Crude rose from US$70/b to over US$79/b in just a few days. Crude is now overbought and we would recommend holding off on adding to positions at this time. Once we breach US$70/b begin looking for bargains once again. Crude should retreat as many countries are in recession (Germany and the UK for example) and the new trade tariffs to be announced next week by the Trump administration should impact world trade and prices. 

Russia is fighting off new attacks by Ukraine’s forces in its Kursk region. Zelensky has moved in more of his best troops to regain Russian territory before inauguration day so he can have leverage when diplomatic talks commences. The recent death toll on both sides is horrendous (more than 10,000 each) but it looks like the movement of new troops to this area by Ukraine has left parts of eastern Ukraine open to Russian advances. Russia recently announced the capture of an important logistics hub at Kurakhove. It is now advancing to capture a rail and road hub at Pokrovsk according to the Washington Post.  

Putin wants to expel the Ukrainian forces before January 20th. It would give him more bargaining power when President Trump pushes for a diplomatic solution. He may not succeed in this as that date is approaching quickly. Russia is aided in the front lines by North Korea which is sending Russia more military manpower, more ammunition, rocket launchers, suicide drones and self-propelled artillery as their relationship expands. In return North Korea is gaining much needed modern warfare experience, food aid, crude oil, advanced space technologies and lots of money from Russia. President Kim is running North Korea’s military industrial complex flat out to supply Russia with needed munitions and equipment. If there is a diplomatic resolution then this gravy train would end for North Korea so they are going all out while they have the opportunity. Time now is not on the side of either Russia or Ukraine. 

Israel/Hamas Negotiations

Israel and Hamas have announced an initial deal to gradually free 33 of the 98 hostages (some dead) and include women and children and those over 50. This phase would last six weeks and see hundreds of Palestinians freed. Israel would begin to withdraw from Gaza’s population centres and displaced Palestinians could return home. Over 600 trucks of humanitarian aid would enter Gaza each day. Subsequent phases would be worked out as this initial phase is implemented. Israel believes that there are 98 hostages in total and that 30 or more are now dead. Talks continue in Doha, Qatar to finalize a draft of the deal. Both sides are there but have not been seen in the same room together yet. In return for the Israeli hostages hundreds of Gazans/Palestinians prisoners will be released some of whom were convicted of terrorism. How this plays out over the coming weeks will be watched to see if future deal extensions occur. 

A problem for Israel is that Hamas has rebuilt its organization with a new leader at the helm. The brother (Mohammed Sinwar) of the former Hamas leader Yahya Sinwar has become the new leader of Hamas and he has recruited thousands of new fighters. My concern is who controls Gaza after all the hostages have been released. Will it be Hamas or intermediaries keeping the peace? 

Regarding energy, 

Our WTI price target of US$66-69/b was reached in September and is likely to do so again in the coming weeks. Today WTI is at US$79.45/b as bullish investors take very large long positions. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the lows (US$66-68/b). When this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued. 

If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.