International investors should consider hedging their US Dollar exposure to protect against its perceived weakness, which significantly impacted unhedged returns in 2025. Re-evaluate your allocation to US Treasuries, as they are no longer viewed as a completely risk-free asset due to a growing political risk premium. Be aware that headline performance of US markets can be misleading; always measure your returns in your local currency. The primary investment risk identified is unpredictable US political action, which is eroding global trust in US financial stability. This environment suggests using strategies to mitigate US-specific geopolitical risk within your portfolio.

US Dollar (USD)

• A significant divergence in sentiment exists between US-based and international asset managers regarding the health of the US Dollar.
  • US-based managers are often complacent, as their portfolios are dollar-denominated and they primarily see strong performance in US markets.
  • European, UK, and Asian managers express a strong belief that the dollar is "broken" and significantly weaker. They see a fundamental breakdown in trust.
• For international investors, the dollar's weakness has had a major negative impact.
  • The transcript notes that a euro-based or sterling-based investor who did not hedge their dollar risk in 2025 had an "absolute stinker" in US markets, implying their returns were wiped out by the currency's decline.

Takeaways

• Investors, particularly those outside the United States, should be highly aware of currency risk. The performance of US assets can be misleading if the dollar is declining against your home currency.
• Consider currency hedging strategies to protect international portfolios from a weakening dollar. This could involve using currency-hedged ETFs or other financial instruments.
• The sentiment from international managers suggests a potential long-term trend of dollar weakness, driven by a perceived loss of trust in US political and financial stability.

US Treasuries

• The transcript highlights a growing and serious concern among investors regarding the safety of US government debt.
• Due to unpredictable political actions, including threats against the Federal Reserve, investors are now considering "very extreme scenarios."
• The most extreme risk being discussed is the possibility of the US government failing to pay back its debt, with investors asking, "is he going to pay me back on my treasuries?"

Takeaways

• US Treasuries, traditionally considered the world's ultimate "risk-free" asset, may no longer be perceived as such.
• Investors should be aware that a political risk premium is now being factored into US government debt.
• While a US default is a low-probability, high-impact event (a "tail risk"), the fact that it is being seriously contemplated by asset managers is a significant signal of eroding confidence in the US financial system. This could impact long-term asset allocation strategies that rely heavily on treasuries for safety.

US Markets (General)

• The discussion emphasizes that headline performance of US markets can be deceptive for international investors.
• A strong performance in US dollar terms does not automatically translate to strong returns for an investor whose home currency is the Euro or British Pound, especially if the dollar is weakening.
• The key risk factor identified is the unpredictable nature of political leadership, which could lead to actions that harm investment portfolios. This includes threats against institutions like the Federal Reserve and aggressive foreign policy actions (e.g., the mentioned threat to "invade a NATO member").

Takeaways

• Geopolitical risk originating from the US is now a primary concern for global investors. This goes beyond typical market or economic risks.
• International investors must analyze their US market returns in their local currency to understand their true performance.
• The breakdown of trust in US institutions could lead to capital flight or a re-evaluation of US assets by global investors, potentially impacting valuations in the long term.