It’s been a crazy start to the year. We’ve had the US break international law by seizing the Venezuelan leader, Nicolas Maduro. We’ve had Trump threaten the takeover of Greenland. We’ve had the US Justice Department open a criminal investigation into the Federal Reserve Chairman Jerome Powell over the Fed’s building renovation project. We’ve had internal turmoil in Iran. We’ve also had Japan bond yields lurch higher over concerns about fiscal stimulus and debt. And it’s not even one month into the year…
All this news has unsettled currency, bond, and commodity markets. The US dollar has tanked as a result of geopolitical tensions and rate cut expectations. Meanwhile, the Japanese yen fell to an 18-month low in the first half of the month before rebounding on suggestions that the government may intervene to halt the flagging currency.
In bond markets, developed market bond yields rose following the jump in yields in Japan, with concerns that Japanese may switch money from overseas bond markets back home as domestic yields become more attractive.
Meanwhile, precious metals have taken centre stage. The silver price has gone ballistic, up 66% in January and 273% over the past year. Gold has also surged this month, after being the best performing asset class in 2025.
Yet, stock markets have been unfazed by the negative headlines. They’ve continued to climb, oblivious to the turmoil around them.
How to make sense of it all? I think we’ve witnessing the unravelling of the global system created by the US post World War Two. That system led to an extraordinary period of relative stability and free markets, which propelled many assets, especially stocks.
While we don’t know what will replace that system, it’s unlikely to be as market-friendly, and there’s a decent chance of increased turmoil as the old order is replaced by something new.
That may mean the easy gains for stocks and assets, particularly since 1980, are over, and a trickier environment awaits.
How we got here
The recent global chaos hasn’t happened in a vacuum. As I mentioned, we’ve been living in a rule-based, international system since 1945. That system didn’t just come about naturally. It followed a period of extraordinary instability, with two world wars, and a Great Depression in between.
After World War Two, the US became a global superpower, replacing the British. America and its allies then built an international system designed to promote stability, prosperity and peace through shared rules rather than constant coercion.
Its core pillars were:
1. Collective security and sovereignty
- The United Nations was created to prevent unilateral aggression and provide a forum for diplomacy.
- Borders were treated as inviolable; wars of conquest were delegitimised.
- Major powers committed, at least formally, to resolving disputes through institutions rather than force.
2. Open trade and economic integration
- The Bretton Woods institutions — the IMF and World Bank — were established to stabilise currencies, provide development finance, and prevent destructive financial crises.
- The GATT, later the WTO, reduced tariffs and promoted predictable trade rules.
- Economic interdependence was meant to raise the cost of conflict and support shared growth.
3. Monetary and financial stability
- The Bretton Woods system initially anchored currencies to the U.S. dollar (and gold), reducing volatility.
- Even after the system collapsed in the 1970s, the norm of open capital markets and dollar-centric finance persisted.
- Central bank independence and macroeconomic coordination became accepted norms.
4. U.S. security guarantees and leadership
- The system was underwritten by American military power, including alliances like NATO and bilateral security treaties in Asia.
- In exchange for U.S. protection, allies aligned economically and politically with the system.
- The U.S. accepted persistent trade deficits and acted as the system’s consumer and financial backstop.
5. Norms, not just power
- International law, treaties and multilateral institutions constrained behaviour.
- Even powerful states generally felt the need to justify actions in legal or moral terms.
The global rules based order started to break down from 2008. Europeans felt that the system was no longer helping them, and politics fragmented with extreme left and right parties gaining ground. The US followed, with a hollowing out of the manufacturing base and outsourcing of industries to China and others leading to the election of a two-term Trump. Trump has functioned as an accelerant rather than a cause for the unravelling of the international system.
What’s happening now?
This unravelling means a once-connected world has become disconnected. A rules-based, cooperate system has turned into a power-based order where countries must fight for themselves.
That’s had several consequences:
- It’s led to the Ukraine War, where Russia saw an opportunity and allies haven’t been united in supporting Ukraine.
- It’s resulted in supply chains breaking down between countries, increasing the costs of goods and services (the ‘affordability crisis’).
- An erosion of trust. With countries, money (currency debasement trades including gold, silver, and bitcoin), institutions including NATO, the UN, central banks, and governments.
- Politics becoming more extreme, with parties moving away from the middle to the far left and right.
- Many people being confused by what’s going on and looking for someone to blame. Politicians fit the bill, but Baby Boomers and others have copped it too.
How the great unravelling translates to markets
The breakdown of the rules-based international system has filtered its way through markets.
It’s hit the US dollar, as countries lose faith in America to maintain global stability and order.
It’s hit bond markets, with higher yields in developed markets as investors lose faith in governments to deal with massive debt loads.
It’s hit commodity markets, as gold and silver are turbocharged with investors seeing them as currency alternatives.
It’s yet to hit stock markets, as investors continue to front run lower interest rates from the US Federal Reserve and the prospects of Trump running the economy hot.
What happens next?
Renowned investor Ray Dalio likens today to the 1930s with a collapsing international order that threatens to lead to conflict and war.
Demographer Neil Howe thinks similarly, suggesting we’re in a ‘Fourth Turning’ where institutions are torn down and replaced. This eventually leads to future prosperity, though mayhem and chaos ensue before we reach that point.
I’m not convinced either have exact analogies, though both are right when saying that history shows few instances of smooth transitions from one global order to the next.
How to position portfolios
Since 1980, it’s been a golden period for assets. If you’ve owned property, shares, bonds, art, and just about anything else, you’re a lot wealthier for it.
In my view, that recent period of free trade, deregulation, peace, security, and stability, is finished. So are the easy gains in assets that came with it.
If right, it means the things that worked for investors in the past may not work in future. Growth stocks and US equities have produced fantastic returns for a long time, though it's notable that they've started to underperform over the past 12 months. Conversely, things that haven't worked for a long time, such as commodities, value stocks, international ex-US equities, non-US currencies, have caught investors' attention.
It also means diversification may matter more than ever. Concentration in a number band of growth stocks won't cut it.
And above all, a regime shift as I am describing it, will mean being open minded and humble about markets and what comes next.
James Gruber is editor of Firstlinks.