In today's Markets Happy Hour Podcast we conduct a "review" of the drama (and at times melodrama) that has played out at Davos this year, and digest what it has meant for markets.

We are joined by CIO and founder of Vistamark and former CIO of the consulting firm Fiducient - Matt Rice, who works with institutional investors and shares his insights on market dynamics and portfolio construction. Starting at our usual starting point of inflation Matt shares his view of the long term deflationary impact that AI is likely to have we touch on the impact of the oil price weakness that will in the more immediate term depress prices. Turning then to the economic "vibe check" we note the sensitivity of equity markets to the prevailing geopolitical drama around both the rhetoric on Greenland as well as the on-again/off-again tariff announcement on European countries.

The uncertainty over recent days has been reflected in equity markets, which clearly still show some sensitivity to geopolitical risk, and the ascent of metals continues - clearly reflecting a risk aversion and a concern about currency debasement. Oil, on the other hand, remains flat - reflecting high inventories and only some sensitivity to geopolitical news (in this case the news from Iran).

Moving to other sources of risk, even Secretary Bessent has attributed some of this week's weakness in US equity markets to the dramatic movements in the Japanese long dated government bond market over the past week. In what may be Japan's Liz Truss moment (echoing the weakness in UK markets which ultimately led to the downfall of Prime Minster Liz Truss towards the end of 2022). In recent developments the Japanese 40 year bond yield had surpassed 4% for the first time, while the 30 year bond had never suffered such a large drop in a single day. In our discussion Matt suggests that this correction was well overdue and could be the canary in the coal mine for other economies with high levels of government debt.

We end our discussion with a reflection on Europe, firmly in the cross-hairs now at Davos, and remind ourselves of the positive impact on European defense stocks that has been a direct response to the challenge from President Trump, as well as on some of the other areas said to be trailing (IT infrastructure) as well as "financial plumbing".

We started the year with some chilly weather, some American football inspired blocking and tackling and a tech challenged yet warmly engaging live podcast in New York. The video and slides will follow next week, but for now please enjoy the audio.

In front of a live audience we discussed the inflation picture, the delayed transmission effect of tariffs and the ongoing disconnect with consumer's price experience on the ground. We examined the market reaction to the announcement last week of a criminal investigation into former Chairman Powell. The decisive push back, via video recorded by Chairman Powell, seems to have been viewed as a form of checks and balances working as they should, and, as ever in recent years, bond markets have reacted calmly, being decidedly unbothered.

Equity markets have been somewhat lack luster this week, coming off the prevailing uncertainty in geopolitics and domestic checks and balances, but the US market still stands alone in having experienced few "flight" events in recent years - a flight event being defined here as a simultaneous fall in equities, bonds and currency. This underscores the sense of "might is right" that dominates not just in equity markets but also - now - in geopolitics.

We discuss some of the tangential effects of the recent rhetoric around Venezuela and the importance of military power. We examine whether this is galvanizing efforts in Europe to join forces, as well as within other trading partners - namely China, which is seeing its largest ever trade surplus.

In this week's Markets Happy Hour Podcast, we are joined by Alan Dunne, founder of Archive Capital, who has written a recent white paper on the regime adaptive portfolio. It is a particularly appropriate topic given the heightened discussion of regime change that we have seen over the past week – both at the level of a specific country, as well as at a broader level as a new form of foreign policy is now emerging, fairly unprecedented its scope.

We start our discussion by reflecting on the likely impact on the oil price that the Venezuelan situation may have – so far the impact has been muted, and an increase of supply should – according to traditional metrics, lead to lower prices. The mixed signals that inflation is sending – lower oil prices on the one hand – continuing pressure on services on the other is also being noted by the US Fed, and the latest minutes of their most recent meeting underscore the divide that is in place there.

Moving to the outlook for interest rates, Alan underscores the mixed data facing the Fed as well as the rising fiscal burden and concern about central bank independence that defines this regime as different from the last one.

Equity markets remain robust, particularly according to market commentators in the US, but we ask whether it is likely to be a 1995 or a 1999 in terms of market outcome, and we then proceed to examine the sectors that are most likely to offer diversification and resilience.

Alan then sets forth his thesis on what a regime adaptive portfolio should look like. We discuss the characteristics of the current regime, how different asset classes are behaving and the role that traditional diversification will play.