Clocktower Kevin Wang: The End of the Old Order and Global Asset Rebalancing Under the Dollar "Bear Market" | Alpha Summit

On December 19th, at the "Alpha Summit" co-hosted by Wall Street Insights and the China Europe International Business School, Clocktower Chief Strategist Kevin Wang delivered a speech titled "Global Asset Reallocation under the Geopolitical Macro Paradigm Shift."

He stated that the new version of the U.S. National Security Strategy is a "heavy document" written by a former hedge fund research director, which officially acknowledges for the first time the simultaneous "death" of U.S. unipolar hegemony, liberal internationalism, and neoconservatism, marking a strategic contraction by the U.S. and acceptance of the realities of multipolarity and spheres of influence. This fundamental geopolitical shift is reshaping global macro and asset pricing logic through a combination of "offshore balancing" strategies, panic fiscal expansion by traditional allies, and the "savings drought" caused by changes in global demographics.

He believes that the U.S. dollar has entered the largest bear market in history, with a potential depreciation of nearly 40% over the next 5-8 years, forcing global capital to withdraw from excessively concentrated dollar assets. Within this framework, severely underweighted Chinese assets may become the largest "short squeeze" opportunity in the next decade, while the bull market in gold has not ended, and silver holds even greater potential.

Looking ahead to 2026, the market needs to be wary of the risk of a policy shift by the Federal Reserve amid recurring inflation, while U.S. stocks are already in the "final leg of a bull market" driven by earnings but with stagnant valuations.

The following are highlights from the speech:

1. The dollar has entered the "largest bear market in history": The dramatic geopolitical changes, irresponsible pro-cyclical fiscal expansion by the U.S., and the inevitable path of debt monetization will lead to a collapse of dollar credit. Unlike the 1970s, this geopolitical situation will not save the dollar but may instead "kill the dollar." Over the next 5-8 years, the real effective exchange rate of the dollar may depreciate by nearly 40%.

2. Global capital must withdraw from dollar assets: The dollar entering the largest bear market in history means that investors "must" withdraw from dollar assets that account for 70%-80% of their portfolio and diversify globally, which is the "only way to escape the largest bear market in the dollar."

3. Chinese assets are the largest "short squeeze" opportunity: Global institutions generally allocate less than 2% to Chinese assets, creating a significant gap compared to China's approximately 20% share of the global economy. This structural imbalance, combined with long-term depreciation expectations for the dollar, may make Chinese assets the most promising short squeeze targets in the next decade.

4. The bull market in gold has not ended, and silver has greater potential: The West's profligate fiscal policies and the eventual path of debt monetization will continue to erode fiat currency credit. The market's pricing of the probability of a return to the gold standard (about 8%) remains low, and the foundation for a bull market in gold is solid. From a technical breakthrough and market cap perspective, silver has greater potential than gold. If global bond markets become turbulent, vast wealth seeking a vehicle may ultimately "force" central banks to purchase silver.

5. The core contradiction in 2026 lies in inflation; beware of policy shifts: Current U.S. inflation (around 3%) far exceeds the 2% target and pressure remains, yet the Federal Reserve is cutting interest rates, which contradicts historical patterns Investors need to prepare for fewer interest rate cuts by the Federal Reserve next year than the current market expectation (two times). If inflation further rises to 3.5%-4%, the Federal Reserve is very likely to shift to discussing interest rate hikes.

6. The U.S. stock market is in the "final stage of a bull market": The market exhibits typical characteristics of the late cycle: profit growth drives stock prices to new highs, but forward valuations have stopped expanding. Once the market's expectations for monetary policy shift to tightening (interest rates rising), valuations will face compression pressure. It is expected that the first half of 2026 may still see increases driven by profits, but the risks will significantly increase in the second half.

The following is the transcript of the speech:

The U.S. National Security Strategy Document Declares the End of the Old Order

Recently, especially in the past few weeks, there has been a very significant document, which is the new National Security Strategy released by the United States during Trump's second term. If you haven't read it yet, I highly recommend that everyone take the time to read this document carefully. Because this document is overall very short, compared to previous U.S. documents, it may only be 1/5 or even 1/10 the length, but it indeed articulates the U.S. perspective on the geopolitical landscape for the next 5 to 10 years and the responses it will make from a very important geopolitical angle. Why is this document so important? There is also a rather amusing reason, which is that the author of this report is Kevin Harrington. He is a very key leader in Trump's National Security Council, and prior to this, he served as the research director at Peter Thiel's global macro hedge fund, Thiel Macro. So, the person who wrote this geopolitical document is essentially a chief strategist or researcher at a global macro hedge fund. When he wrote this, I believe he was also considering what impact this would have on major global assets in the future.

In simple terms, this document essentially tells everyone one thing: for the first time, the U.S. government itself admits that the old world order is no longer in existence. It tells you three things: the first is that U.S. unipolar hegemony is dead—America no longer has the willingness or the ability to maintain a global unipolar world that has existed for the past 30 years. The second thing it wants to convey is that liberal internationalism is dead. The U.S. previously always hoped to impose its own liberal democracy on other countries; this ideological spread in geopolitical practice was called liberal internationalism. But this time, it clearly tells the world: the U.S. does not seek to impose its ideology on places that do not have this history and tradition. The third thing it wants to tell you is that neoconservatism is dead. Neoconservatism believes that the U.S. must maintain its absolute power globally, hoping for a world dominated by the U.S. without any challengers. But this time it states: the influence of great powers, wealthy countries, and strong nations in international relations is an eternal truth. In other words, it acknowledges that other major countries can have their own spheres of influence in other regions. In 2010, Hillary Clinton once said, "The U.S. will never recognize that there are other spheres of influence in the world," but more than a decade later, the U.S. government itself takes the lead in acknowledging that this is an eternal truth. Therefore, it also tells everyone that the old world order—the so-called liberal international order since World War II—has completely ended This may have been a foregone conclusion from China's perspective over the past decade, but this is the first time the U.S. government has acknowledged the profound changes in the world order. Overall, this NSS is a document of strategic contraction.

Why is the U.S. unipolarity dead? It is not that the U.S. government no longer wants to maintain a unipolar world, but rather that it lacks the capability to do so. Since the peak of U.S. unipolarity in the early 21st century, the U.S. has seen a significant decline in its relative strength compared to other major global powers. At the same time, public support for the U.S. playing the role of world police has dropped from nearly 80% in the early 21st century to possibly only 65% now. The number of U.S. troops stationed in NATO has also been declining since 2010. The mainstream opinion among American moderates has gradually shifted from "the U.S. must be the leader in the world" to "we may need to focus more on our own affairs and the lives of our citizens." This has forced the U.S. to "de-leverage" geopolitically, continuously reducing its military presence and resource investment globally.

The U.S. is now clearly intent on doing one thing: shifting to an "offshore balancing" strategy. Historically, the most successful execution of this was by Britain from the 16th to the 19th century. As an offshore power, Britain intervened in the European continent at critical moments to prevent any single country from dominating Europe. However, being a balancing power is beneficial, and now the U.S. is that balancing power, able to sit back and watch the "tiger fight." But what it is watching is a "tiger fight," which means the regions it truly wants to balance will be very dangerous. When Britain practiced offshore balancing, the entire European continent from the 16th to the 19th century was rife with conflict. Therefore, a multipolar world is very dangerous and frightening. Since the world shifted from unipolarity to multipolarity in 2010, the number of global conflicts has significantly increased. This year, many long-standing historical issues have erupted, and the current global risk of war has reached a new high since World War II.

In this multipolar and frequently chaotic world, the first to panic are America's traditional allies, specifically East Asia's Japan and South Korea, as well as Western European countries. Because in these two regions, both military spending relative to potential adversaries and economic competitiveness have significantly declined over the past few decades, heavily relying on U.S. protection. Now that the U.S. is strategically contracting, they realize "this is indeed a critical moment for survival." In this environment, the first thing the government thinks of is using fiscal policy to turn the situation around. Thus, we see: Germany has historically changed its conservative fiscal stance; Japan has launched a large-scale fiscal stimulus amounting to about 3%-3.5% of GDP; and the U.S. itself is continuously implementing pro-cyclical fiscal policies under the highest priority of "re-industrialization." In the coming years, the share of government investment in GDP in the U.S. is expected to continue to rise.

Western Fiscal Expansion Collides with Global Savings Drought

The problem is that as Western countries begin to rebuild their strength through fiscal policy, they coincide with a global macro environment shifting from "savings surplus" to "savings drought." The global total savings as a share of GDP peaked around 2021-2022 and has since declined. One of the most important and irreversible reasons is the change in global population structure: the global dependency ratio (working population/non-working population) bottomed out and reversed around 2020, indicating the fading of the global "demographic dividend," with the core driving force being China's aging population When fiscal dominance collides with dwindling savings, the result is a "rebellion" among global bond investors. They are saying "no" to this irresponsible fiscal policy by selling off long-term bonds and driving up yields. This is why you often see news this year about which Western developed country's long-term bond yields have reached historic highs.

Theoretically, there are three ways to stabilize the bond market: first, rely on foreign investors, but China has been selling U.S. Treasuries, and surplus countries like Japan and Germany also need funds for their own use; second, rely on the domestic private sector, but the private sector has begun to express dissatisfaction through fluctuations in the financing market, as current interest rates do not provide sufficient compensation; third, monetize the debt (printing money), which means the Federal Reserve directly purchases bonds through yield curve control (YCC). In today's environment of rising populism in the West, policymakers no longer have the political capital to make voters feel pain (tighten fiscal policy), so the only thing they can do is let the central bank ultimately take on the debt. This has happened during World War II and in the 1960s, with the consequences being damage to monetary credibility and significant devaluation (for example, from 1971 to 1976, the dollar depreciated about 35% against major currencies and 70%-80% against gold). This time, it will ultimately also go down the path of printing money, leading to the collapse of the dollar.

The Dollar Will Enter the Largest Bear Market in History

When the dollar collapsed in the 1970s, the proportion of foreign holdings of U.S. Treasuries actually increased, because at that time, the main surplus countries (Japan, Germany, Saudi Arabia) were staunch allies of the U.S., heavily reliant on American protection in the bipolar U.S.-Soviet structure. Thus, geopolitics saved the dollar. But today is completely different: the countries that dominate global trade surpluses are China, which is viewed as America's number one strategic competitor and is continuously reducing its holdings of U.S. Treasuries. At the same time, under the backdrop of U.S. strategic contraction, allies like Japan and Germany will not unconditionally support U.S. Treasuries as they did in the 1970s. Therefore, the current geopolitical landscape will not only fail to "save the dollar," but may instead "kill the dollar."

Our core conclusion is that the current dollar has entered the largest bear market in history. It is not just one of the largest; it is the largest. The reasons are fundamental changes in geopolitics, irresponsible fiscal policies, and the inevitable monetization of debt. From a valuation perspective, even though it has fallen nearly 10% this year, the dollar's real effective exchange rate remains high historically. Compared to the approximately 30%-35% depreciation during the two major bear markets after 1971 and 1985, our view is that over the next 5-8 years, the overall depreciation of the dollar may approach 40%. This constitutes the largest dollar bear market in history.

Asset Allocation Must Shift: China, Gold, and Silver

With the dollar entering a bear market, you must withdraw from dollar assets and allocate globally. The biggest imbalance in today's global capital markets lies in China. Currently, global institutional investors may allocate 70% to 80% of their assets in the U.S. or dollar assets, but their allocation to China is almost less than 2%. However, China's GDP accounts for nearly 20% of the global share (even higher when measured by purchasing power parity). This is akin to Argentina playing soccer against Brazil, where the odds should normally be 64-36 or 55-45, but now it's 92-8, which is quite exaggerated. If the dollar enters the largest bear market in history, then the biggest short squeeze opportunity in the next decade will actually be in China Has the gold bull market ended? I definitely think it has not ended. The path of Western extravagant fiscal policies and eventual debt monetization will continue to erode the credibility of fiat currencies. Currently, the market is pricing the probability of a return to the gold standard at only 8%, even lower than in 2011-2012. Given today's geopolitical landscape, this probability should be higher. At the same time, silver may be a better option than gold: the actual silver price has just broken through a long-term downward channel, and the gold-silver ratio has also broken through an upward trend line. Additionally, if the Western bond market becomes turbulent, trillions of wealth will need to find a vehicle, and from a market capitalization perspective, silver may offer more room than gold. Central banks will eventually buy silver, as this is not a matter of choice, but rather a matter of necessity.

Outlook for 2026: Inflation Contradictions and Tail Risks in U.S. Stocks

Looking ahead to 2026, the biggest macro backdrop is: historically, whenever U.S. inflation rises from the bottom and exceeds the 2% policy target, the Federal Reserve has raised interest rates, with only two exceptions being pauses. However, this time, inflation is at 3% and still rising, while the Federal Reserve is cutting interest rates, which is unprecedented in history. The market has priced in multiple rate cuts. However, several leading indicators currently show that U.S. inflation pressures are persistent, and the labor market is more robust than expected, with real GDP growth still at 4%. If you ask me to bet, I would bet that U.S. interest rates may rise, making it difficult to go further down. Everyone needs to be prepared from today's position: the market's expectation for the number of rate cuts in 2026 (currently about two) may decrease, and the possibility of shifting to discussions about rate hikes cannot be ruled out (especially after the midterm elections). This will pose significant market risks. If inflation rises further to above 3.5% next year, the Federal Reserve could very well shift to raising rates.

U.S. stocks currently exhibit typical performance at the end of an economic cycle: earnings growth is very strong, supporting stock prices to new highs, but forward PE valuations have no room for expansion. This is because the market is gradually realizing that the peak of abundant liquidity may have passed. Once market expectations shift towards tightening monetary policy (interest rates rising), valuation compression pressures will become apparent. In the first half of next year, U.S. stocks may still rise driven by earnings, but risks will increase in the second half. From our perspective, we may withdraw from U.S. stocks as early as the second quarter of next year. This is the final leg of the bull market