- Global power is shifting, challenging U.S. dominance and reshaping economic and geopolitical landscapes.
- Market volatility is rising as governments manipulate economic policies, currencies, and interest rates.
- Geopolitical tensions in Taiwan, Turkey, and Europe pose serious risks to investors and global stability
The global economic landscape is undergoing one of the most significant transformations in modern history. Power is shifting, not just in financial markets but also in geopolitics, as nations reposition themselves for a new era. Cem Karsan believes that we are witnessing the breakdown of American exceptionalism, the realignment of global alliances, and the emergence of new economic realities that will shape the coming decades.
The return of Donald Trump to the White House has intensified these power plays, as his administration focuses on nationalistic economic policies and a reshuffling of international relations. The U.S. is no longer willing to act as the stabilizing force it once was and the world is entering a period of heightened volatility.
These shifts have already begun to manifest in financial markets. Interest rates, inflation, and currency fluctuations are all reacting to this new world order. Investors must understand that the old playbook no longer applies. In an episode of the Systematic Investor series, Cem Karsan provided a masterclass in understanding these seismic shifts and their implications for markets and global stability.
The Cracks in American Exceptionalism
For the last several decades, the United States has been the dominant force in global markets. But Cem believes we’re seeing the beginning of a shift — one where America’s dominance is being challenged by emerging markets and other global players.
According to Cem, there's a “crack in the armor” of American exceptionalism. “We’re starting to see other markets perform better,” which is a big deal in the context of an ‘America First’ policy.
This trend has real implications. If the U.S. can no longer dictate global economic trends as it once did, investors will need to rethink their strategies and adapt to a more multipolar world.
Is the US Engineering a Recession?
Perhaps one of Cem’s most provocative insights was the idea that the U.S. government is, in many ways, actively engineering a recession. Why? To justify a shift in economic policy that could ultimately allow for another round of monetary easing.
According to Cem, the current administration understands that the next few years are set up for economic pain. “The setup is very bad for them given that there’s a stagflationary environment,” he said. They need to pull demand out of the system and bring yields under control.
The strategy? Actively pull money from the lower and middle classes to control inflation and stabilize the economy. Instead of stimulating demand by giving money directly to consumers, the administration is taking the opposite approach — cutting financial support programs, reducing government spending on social benefits, and shifting economic benefits to corporations and the wealthy. The goal is to bring down inflation by reducing how much everyday people can spend, but the risk is that this could push the economy into a recession.
Cem highlights several examples of how this is happening. Government programs that helped low-income families such as food assistance, housing support, school lunches, and Medicaid are being reduced or cut altogether. At the same time, tax cuts and deregulation are being prioritized for corporations and the wealthy.
This is a classic supply-side strategy, often compared to what Ronald Reagan did in the 1980s. The idea is that if businesses and wealthy individuals have more money, they will invest and grow the economy from the top down. But Cem warns that this doesn’t work the same way in every economic environment.
One of the biggest risks is timing. The government is cutting demand very quickly, people who were receiving benefits last month are now seeing those payments stop. That money is no longer flowing through the economy, and businesses that relied on that spending may struggle. Meanwhile, the supply-side benefits, such as corporate tax cuts and deregulation, take much longer to have an impact.
“There’s a timing issue,” Cem points out. The pain for the lower and middle classes happens immediately, but any economic growth from these policies could take years to show up. That creates a dangerous window where the economy could slide into a recession before the benefits of supply-side economics even have a chance to work.
Cem also notes that this strategy relies on keeping the U.S. dollar strong, but that’s not guaranteed. If the dollar weakens, inflation could rise again, making things even worse for everyday Americans. The risk is that pulling money from the lower and middle classes too aggressively could lead to economic contraction, political backlash, and even a financial crisis.
Europe’s Pivotal Moment
Cem believes Europe is at a historic inflection point — one that could redefine its role on the global stage. The continent has long relied on the U.S. for defense, but that’s changing. The U.S. is pulling back, telling its allies to take care of themselves, and Europe is being forced to step up. That means big increases in defense spending, political shake-ups, and economic struggles. “I think this is a wakeup call to Europe, and I think it’s a good one. Not as an American, but as also a European” Cem explained.
Germany has announced plans for significant defense spending increases. France and other key European nations are also boosting military budgets. While this rearmament may strengthen Europe’s independence, it comes at an economic cost.
Ultimately, Cem sees Europe’s transformation as both a necessity and an opportunity. “In the short term, it feels painful. But it will get Europe more likely out of the mud, making the harder decisions, and being more strategic,” he stated. For investors, this shift could open up new opportunities as well.
Turkey: A Brewing Economic Crisis
Another under-the-radar yet crucial issue Cem flagged is Turkey’s economic instability. While Turkey has long been a strategic geopolitical player, its economy is now teetering on the brink of crisis. He explained that President Erdogan is facing a serious problem. Turkey has been dealing with extreme inflation, which has put enormous pressure on its economy.
While Erdogan has managed to hold things together, much of that stability has come from external support, particularly from Russia. Russia has been supplying Turkey with energy at reduced costs or even for free, effectively allowing Erdogan to keep the economy afloat.
However, this support comes at a price. Cem describes it as a “massive debt” that Russia is allowing to build up — one that Erdogan will eventually have to repay.
Beyond its economic struggles, Turkey’s strategic importance is also being tested. Its role in NATO, its proximity to conflict zones, and its relationships with both the U.S. and Russia make it a focal point for potential market disruptions.
Taiwan: The Next Major Flashpoint?
Cem raised a critical issue that investors and global leaders alike should be watching — Taiwan. China has been vocal about its long-term goal of bringing Taiwan under its control, and Cem believes the current geopolitical climate might provide the perfect opportunity for them to make a move. With the U.S. signaling a reluctance to intervene militarily, and global attention focused on other crises, the conditions for action may be aligning.
Trump’s administration has made it increasingly clear that the U.S. is shifting its stance on global military engagements. The recent decision by Trump to cut military aid to Ukraine is a strong indicator that similar restraint could be shown if China escalates tensions over Taiwan. As Cem pointed out, “If he’s not sending military support to Ukraine, do you think he’s sending it to Taiwan?” This shift in U.S. posture could embolden China to push forward with its plans sooner rather than later.
The implications for global markets are significant. Taiwan is a critical hub for semiconductor production. If China moves on Taiwan in any way, it could send shockwaves through the global semiconductor supply chain. For a company like Nvidia, the ripple effects would be brutal. It would face massive supply disruptions, potential trade restrictions, and a surge in uncertainty that would send markets into a tailspin. Cem warned, “Everyone’s bullish and it seems like it’s an obvious buy, yet it keeps going down. Maybe you should be careful. Maybe there’s something that you’re not thinking about.”
What’s Next for Gold and Oil?
Gold and oil seem to be on two divergent paths in the current market environment. While both commodities have historically been seen as inflation hedges, their trajectories are unfolding differently due to global economic shifts. Gold, which had lagged for some time, is now gaining traction as economic uncertainty and potential monetary easing increase demand for safe-haven assets.
On the other hand, oil has remained relatively subdued despite ongoing geopolitical tensions in the Middle East. Cem attributes this to short-term market forces keeping oil prices in check, including strategic petroleum reserves and temporary demand fluctuations. However, he remains bullish on oil in the longer term.
“I’m still bullish on oil,” he said. “I don’t think the ‘drill baby drill stuff,’ all the things that are putting it under pressure are the things that ultimately matter.” This makes the energy sector a critical area for investors to watch, particularly as deglobalization trends continue to unfold.
Final Thoughts: The Market is on Edge
If there’s one overarching theme from Cem’s insights, it’s that the market is at a critical juncture. The U.S. government is trying to thread the needle between slowing inflation and preventing a deep recession. Geopolitical risks are rising, with potential flashpoints in Taiwan, Turkey, and Europe. And the balance of global economic power is shifting, making traditional investment assumptions less reliable.
Cem believes that a major market correction — one that could see a 30-40% drop — is on the horizon. Whether that correction happens quickly or unfolds over time remains to be seen, but one thing is clear: this is not a market where investors can afford to be complacent.
This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.
