When Empires Squeeze

The thing about reading history is that you start to notice the patterns arrive before the violence does. The rhetoric hardens. The threats become specific. Then one day, a president wakes up and demands that a sovereign nation sell him part of itself, and the market doesn't even blink.

Trump's 10-25% tariff threat on eight European countries—Germany, Denmark, the UK, France, Norway, Sweden, the Netherlands, Finland—over Greenland is not about Greenland. Greenland has maybe 56,000 people and some minerals you could get elsewhere. What Greenland represents is something far more archetypal: a test of whether the global order still respects the idea that borders are negotiable.

More important is what the markets told us about their answer.

S&P 500 futures fell 0.8%. European equity futures dropped 1.3%. Bitcoin retreated. Gold surged. This is the response of capital running toward safety, which is another way of saying capital accepted the threat as credible. Not the threat itself—the idea that a great power would enforce it.

On Friday, before the Greenland escalation, the Dow fell just 79 points despite a mixed week. The S&P 500 was flat. Semiconductors rose on the back of a $250 billion US-Taiwan trade deal—a vote of confidence in the digital supply chain that currently matters more than oil. But financials lagged. Credit card companies are being told their interest rates might be capped. Banks are being told, implicitly, that their business model is changing under pressure.

This matters because it shows us what's actually happening beneath the tariff theater: a transfer of power from entities that assumed predictability to a government that's operating on whim.

Let me be clear about what the past 48 hours have told us.

The Fed is stuck. Markets price 96% odds of no rate change at the January 28 FOMC meeting. Kevin Warsh is now the frontrunner for Fed Chair, leading at 54% in prediction markets. Jerome Powell has DOJ grand jury subpoenas hanging over him related to rate policy testimony. Stephen Miran, Trump's nominee for the Fed board, has voted against the FOMC majority three times in three meetings, each time arguing for larger cuts. The Fed's independence, if it ever truly existed, is now a question about who has the audacity to challenge a president who phones grand juries like he's ordering room service.

China is divesting from US Treasuries. Holdings fell to $682.6 billion in November, a 17-year low, while China's gold reserves rose for the 14th straight month. You don't need a PhD in monetary systems to understand what that signals: a creditor backing away from an empire that can change the rules by Sunday morning tweet. China isn't panicking. It's rebalancing. It's doing what any sophisticated actor does when they see the game is being rewritten—they reduce exposure to the old rules and accumulate assets in the new one.

The irony, of course, is that this makes the dollar stronger in the short term, because fear is currently safer than alternatives. But it's a short-term trade on a long-term trend.

What you're watching is a civilization adjust to the reality that pax Americana had an expiration date, and we're past it.

The market's internal broadening—small caps and value outperforming large caps and growth—suggests money is rotating out of the concentration play that defined 2025. The magnificent seven are hitting limits. Not because they're failing, but because capital is learning that being in the same boat as the hegemon when the hegemon is acting erratic is a bet with asymmetric downside. It's better to own things that exist in multiple jurisdictions, or things that are so necessary (semiconductors, energy, commodities) that their pricing survives regime change.

The IMF's latest World Economic Outlook, released today, projects global growth slowing to 3.1% in 2026. Advanced economies at 1.5%. Emerging markets at just above 4%. These are not numbers that justify multiple expansion. These are numbers that justify geographic diversification.

Europe is now facing a moment that will define the next decade. It can either negotiate with Trump from a position of capitulation—accept tariffs, absorb the economic cost, and hope the relationship stabilizes—or it can do what France is signaling: invoke anti-coercion instruments, build alternatives to dollar-based settlement, accelerate European autonomy in defense and currency. The third option is what always happens in history: you split the difference, lose negotiating power through indecision, and then wonder how you ended up worse off.

Porsche's 10% global sales decline, with a 26% collapse in China, isn't a car company problem. It's a harbinger of what happens when a long-stable luxury market suddenly has domestic competition that's better, cheaper, and faster to innovate. German automotive capacity was built on the assumption of pricing power in developed markets and volume in China. Both assumptions are now cracking.

And through it all, the Fed holds rates steady while a new board member votes to cut them, the President's DOJ investigates the Chair's rate decisions, and tariffs are threatened on allies. It's not chaotic. It's the opposite. It's too predictable. You can see exactly where this ends if nothing changes: capital movements that accelerate away from dollar concentration, real productivity growth that doesn't justify valuations built on financial engineering, and a narrower coalition supporting the current order.

Markets trade what they can price. Tariffs, rate paths, earnings multiples—these are visible. What they can't price yet is the moment when enough actors decide simultaneously that the game is rigged and move their chips off the table.

That moment usually arrives faster than anyone expects.

Watch the metals complex this week. Watch where foreign money goes. Watch whether the January 28 FOMC vote stays at 96% no-change or whether Powell's legal problems start moving that needle. The small signals matter more than the big threats right now. The big threats are already priced. It's the small signals that tell you when the repricing starts.