I stumbled into the stock market when I was hired by Value Line in 1978. That was a time when the firm was losing analysts like mad to a then-recovering, much-higher-paying brokerage industry. I ended up becoming the oil analyst in relatively short order. Natural resources and tech were my two priorities for the next six years.

Back then, the focus was all on the rise of OPEC as an economic power and the sharp increase in the world oil price from $2 or so a barrel to $30+ that the cartel had engineered. When people discussed peak oil, they either meant how high the price could go ($100 a barrel was the highest we could think possible) or when all the oilfields there are in the world would have been found and brought into production (2010-ish) was a common guess.

This all looks relatively naive in hindsight.

After going sideways for most of the 1980s, oil then began a steady rise to around $100 a barrel, after having spent a very short time at $140 in 2008, and then back to where it is now.

Today’s price is in the mid-$50 range–and the talk about peak oil has shifted from how high the price can go to whether we are at, or maybe past, peak global demand for crude.

I don’t think this is last is the right question for us as investors, though. How so?

10%-15% of the world’s oil production–and two-thirds of US output–comes from hydraulic fracturing. This is a high-cost engineering technique where the financial breakeven point is about $60 a barrel. That price ends up being, I think, a stabilizing force for oil production. If the price falls to or below, say, $55 a barrel, fracking operations begin to be shut down. Given that demand in the short term is relatively inflexible, this reduction in output causes the price to stabilize, and bounce back into the $60+ range. In my view, this yo-yo range is where we are now.

My guess is this is where we stay.

If this is anywhere near correct, we are at, or past, another oil peak–peak interest in oil as a stock market investment. Arguably, too, the two biggest variables will be price/asset value and the aggressivness of capital spending on exploration–more aggressive being a negative, I think.

Fed Chairman Powell is saying that the Fed believes there’s systematic upward bias in the government’s monthly job numbers estimates, one that adds about 60,000 extra jobs to the published figures. This would mean that the economy was gaining about 100,000 new jobs each month during the last two years of the Biden administration, not the 150,000+ reported.

More important for us as investors now is the implication that there has been no net job creation during the first 11 months of the second Trump administration. Maybe even net job losses. Add to that the ICE campaign to imprison and deport migrant workers, while discouraging new arrivals, and my conclusion is that the domestic economy is either in or very near recession.

I have no idea whether this outcome is accident or design. In either event, it suggests, I think, that investing in the domestic stock market as if the US is a third-world country (meaning domestic costs and foreign revenues)–which has generated very large relative returns this year–still has considerable room to run.

As I see it, the Trump administration economic agenda has several goals that will likely produce adverse near-term consequences, whether intended or not. They are:

–reducing the burden on the country of outstanding government debt by creating inflation that will lower the real value of the dollar. If there was any anticipation by the administration of possible consequences, it may have been limited to the idea that the positions, especially among foreign governments, were so large they couldn’t be sold. Holders, however, (presumably led by big international banks) quickly responded by hedging their dollar risk, sending our domestic currency down by more than 10% ytd. A huge loss of domestic wealth, but much less visible than a rise in rates.

–lowering the number of “foreigners” working in the US, using ICE to arrest and deport people of non-Anglo-Saxon heritage. The issue here is that the rate of growth of the domestic workforce is about +0.5% yearly–with the other source of real GDP growth being productivity improvements (better education/better tools). AI says deportations could reduce domestic GDP growth to zero for the next several years. That’s without factoring in any impact from a reduction in federal spending on education.

–erecting tariff barriers to stem the flow of foreign goods into the US. The extra costs this creates will, according to standard microeconomic theory (which I think is the right way to look at this case), be distributed among all parties to purchase and sale, depending on their market power. This will, I think, both reduce the variety of goods available and increase their prices, something that seems to be being borne out in reports of recent retail sales. AI says this initially results in a rise in unemployment and lower inflation. The longer-term adjustment is a return of jobs but a higher secular rate of inflation. Not a particular plus during either time period.

imagining next year

So, all in all, more famine than feast for domestic corporate profit growth

However, although the 10-k information isn’t the best, the rule I’ve mostly used is that half of the reported earnings of the S&P 500 come from outside the US. The earnings desert, so to speak, will likely mostly be in domestic sales growth. Foreign growth will likely be considerably better than zero. There may also be another earnings benefit to $US earnings of the S&P and NASDAQ, as well, from further decline in the value of the dollar, assuming foreign prices remain steady.

The strategy of holding the stock of companies with $US costs and foreign currency revenues has worked exceptionally well this year. Yes, this may be worrisome, but I don’t see a great reason to thing 2026 will start out on a much different note.

There will be better earnings growth to be had outside the US–Hong Kong and Tokyo in particular, I think. Tech aside, though, the winning formula will likely be USD costs and yen and/or HKD revenues.

…for stock market investors, anyway.

We still have a few weeks left in the calendar year. For professional investors, however, there’s little that anyone can do to substantially the full-year results. And the market itself will effectively shut down in another week or so, as weary trading desks go into holiday mode and accountants take over to close the books for the calendar year.

(an aside: I always liked to monitor the last week or so of the year. Lots of weird stuff tends to happen in thin markets. So it’s fun. And there are times that taking the other side of a trade from desperate last-minute buyers or sellers can be very lucrative. So maybe I’d get a slap on the wrist for messing with the yearend process (I never did) but clients would be wealthier.)

I’ve found by far the most useful thing to do in December, though, is to try to firm up at least the outlines of a strategy for the coming year. Three thoughts so far, two of which are continuations of what has worked well in 2025:

–in Japan during the early 1980s export-oriented industrials were eating the rest of the world’s lunch. So the OECD forced Japan to revalue the yen upward by a lot. This dramatically shifted the heart of the economy–and the stock market–away from export-oriented industrials that had been superstars to purely domestic firms and importers. It took at least a couple of years for most investors, domestic or foreign, to understand this, even though the change was plain as day. The mindset change needed to be successful was that dramatic.

The current Washington agenda, as I see it, exactly the same idea, only in reverse. Not necessarily intentionally, but still effectively. Holders of US Treasuries, foreign and domestic, see Washington’s current strategy for dealing with the large size of Treasury debt outstanding is to create inflation that will reduce its real value. Their response has been to sell the $US aggressively.

So we’re now in the opposite situation as Japan back then in terms of currency. I find it hard to imagine that the administration will change its mind. If that’s correct, investors should continue to concentrate on holding firms with $US costs (weak currency) and foreign revenues (strong currency)–and avoiding those with foreign costs and USD revenues. This has been, I think, the biggest key to equity investment success in 2025. Absent a change in Washington, this will continue to be the case next year, with maybe more domestic investors aware.

–a group of prominent US-based Holocaust scholars resigned their academic posts during the year and moved to Canada. As they were leaving, they warned they think the US is traveling down the same road as Germany did in the 1930s. I think this idea is at the very least a worry in the minds of professional investors around the world. If so, a software company, whose assets can get on a plane and move from the US to, say, Canada in a day will trade at a higher multiple of earnings than a firm with large plant and equipment located in the US. …hence, at least part of the appeal of the big AI software companies, as well a chip designers who use TSMC in Taiwan for manufacturing.

–cutting against this idea is the concept that everything has a price where it’s an attractive investment. The combination of tariffs, engineered currency weakness and ICE-created fear has put companies with US revenues and foreign costs in a particularly bad spot, both operationally and in stock market performance. For consumer companies in this position, however, many have powerful brand names built up over many years through a ton of advertising/marketing expense and the creation of powerful distribution networks.

The key insight of Warren Buffett as an investor, and still a valid one, is that although these intangible assets have great value, they appear on the firm’s accounting statments only as costs. In other words, they’re shown as subtractions of value. At some point, these beaten-up companies will become takeover targets. And in the meantime, some have high enough dividend yields to be regarded as quasi-bonds. For what it’s worth, I’ve begun to shift a bit to this sort of name.

There’s been a running conversation between Paul Krugman and Financial times economist Martin Wolf. In the latest talk, the two observe that over the past years, the number of female workers has increased, in the US and elsewhere, while the number of male workers has steadily declined. Hence, the emergence of a growing number of angry out-of-work males in advanced economies, while overall employment numbers are relatively benign. How so? A change in the nature of work. Wolf’s take is that machines have replaced male brawn over the past decades. If so, it would seem that the Trump strategy that raising the price of imported goods will force firms to establish labor-intensive manufacturing operations in the US won’t work. We’ll just have more robots, instead.

Torsten Slok, the Apollo chief economist, published a chart today based on Bloomberg data that shows the percentage of mid- small-cap Russell 2000 companies that aren’t profitable. It’s over 40%. This is a number previously seen only in/after deep recessions, like the banking collapse of 2007-08 and the pandemic. The chart shows a pandemic-related spike to 45% and a levelling off (though little progress) during the Biden term.

It’s always risky, I think, to take charts at face value, since tweaking the x- or y-axis, or both, can make molehills look like mountains and vice versa. It does look like the Trump economic strategy of raising the price of imports, shrinking the workforce and devaluing the currency may have clipped a couple of percentage points off the recent (Biden) peak of 45%. Hard to know why, though. For what it’s worth, my guess is this is mostly devaluation. It could also be, though, that consumers are trading down to local or regional brands (think: Ollies Bargain Outlet) because national brands are too expensive.