The Biden administration is leaving in two weeks and 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. 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. Will he get all he wants done in one bill or two and can Congress pass two bills in 2025. History says this is unlikely. In the meantime Trump is acting as he is President already and has threatened Hamas with ‘hell to pay’ if the hostages are not released before he is inaugurated. 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. 

The President’s key cabinet and other lieutenants continue to go through the Senate confirmation process. Some may get voted in in January but the bulk likely in February. Some of the more contentious ones may get dragged even later for a vote on the floor and President Trump will need to intercede on their behalf, arm twisting reluctant Republican Senators. 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. 

Treasury Secretary Yellin has added to the incoming administration woes by using up the remaining Treasury cash on Biden programs so that the debt level hits the limit in January. Recent funding issues by the Treasury have seen lukewarm reception and rates have risen further (10-year yield now 4.68%). A period of political strife is not what the markets are expecting in January. One more problem for the incoming administration is that financing of the debt maturities (nearly US$10T in 2025) will occur at rates over 4.5% compared to their funding rate of 2.5%, on an average basis. Add in a large 2025 deficit of US$3T and that is why we are seeing long term US interest rates rising while short term interest rates are steady.  

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

Russia is fighting off new attacks by Ukraine’s forces in its Kursk region. Zelensky is putting in more troops to gain more 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. 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. 

Israel versus Iran Proxies

Israel has ramped up attacks against Houthis that fired missiles into southern Israel. At some point Israel may go after the IRGC military bases and assets in Iran to warn them to stop aiding their nearly wiped out proxies. Somehow Hamas is still able to fire missiles into Israel despite the decapitation of their leadership and destruction of their brigades. Egypt is considering invading Yemen to defeat the Houthis as their economy has been hurt by less traffic through the Suez canal because of the attacks on shipping as ships travel through the straits. 

Turkey and Syria

Turkey is working to bolster its control of Syria which it has wanted to control for centuries. With the desperate food and medicine needs Turkey is the player calling the shots with the struggling freedom fighters. Of concern to the US is Turkey’s abhorrence of the Kurds which are a long standing enemy which the US has supported in the past. If they end up controlling Syria they will likely move to digest Iraq under their influence. 

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$73.39/b, down $0.86/b on the day due to the inventory build announced today. 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.