Did Nouriel Roubini curse US exceptionalism?
Mind the financial repression
As far as contrarian indicators go, an uncharacteristically bullish piece by Nouriel Roubini for Hudson Bay Capital must be right up there, all the more so for being aligned with the market consensus. According to Jason Cuttler’s companion piece, ‘At Hudson Bay, we will continue to challenge consensus, place meaningful weight on optimistic outcomes, and suggest other market participants will eventually do the same.’ However, as our review of the 2026 market consensus suggests, theirs is very much a consensus view, especially when considering our summary of the trade and positioning recommendations of leading institutions.
Marcus Nunes took apart the short-form version of the thesis, primarily from a forecasting process and methodological perspective. But Nouriel makes substantive claims that are worth evaluating, especially in the context of a market consensus that is still long on US exceptionalism.
Like many other analysts, Nouriel largely hangs his hat on the benefits of AI for US productivity and potential output, which is fair enough. The upside potential from AI is enormous, and everyone is conditioning on it to some extent. It’s all a big experiment, and no one knows how it is going to turn out. But it is entirely possible that AI’s upside also gets very quickly diffused to consumer surplus. That is actually the good outcome, but also a more complicated basis for investing.
Market discipline and institutional guardrails
The very consensus-like bullish take on AI and tech is assumed to be amplified by the Trump administration’s ‘pro-business policies,’ in particular, ‘policy measures that encourage investment and productivity.’ ‘Market discipline and institutional guardrails’ are expected to mitigate the administration’s tariff and other policy depredations. The implication is not only that ‘US exceptionalism is intact’ but actually ‘strengthening over time.’
‘Pro-business policies’ is at best a very selective reading of administration policy to date. As for US exceptionalism, US equities have underperformed the world ex-US since Liberation Day, not least emerging markets. The experience of 2025 was that markets and institutions were, if anything, enablers rather than disciplines on administration policy. In 2026, the market has already handed out a free pass to an attack on the independence of the Federal Reserve. The TACO paradox means the administration gets relatively muted market feedback on its policies. Rather than institutional guardrails, we have seen a capitulation of US institutions and elites. If the first 16 days of January are any indication, we have little reason to believe that markets or institutions will offer much by way of guardrails.
The Roubini thesis that policy measures will encourage investment and productivity growth is readily testable against the run of data. So far, both have held up remarkably well under Trump 2.0, although the counterfactual in which Trump just left things alone to play golf for four years would likely have turned out even better. Durable goods orders are holding up pretty well. US nonfarm business sector productivity is making new highs and outperforming the rest of the world. The US has doubled down on capital-intensive sectors such as tech, and oil and gas, which yield a lot of output for relatively little labour input. Corporate profits and earnings are holding up well enough to keep valuation concerns in check.
The biggest risk to any consensus is exogenous shocks, but under Trump 2.0, the shocks are mostly deliberate policy choices coming from inside the house. We normally rely on institutions and policy responses to mitigate any shocks, however imperfectly. But this administration is more likely to amplify rather than offset them. Paul Musgrave recently wrote about how the administration is in the process of globalising January 6, 2021. The traditional conservative critique of the left, that messing with long-standing institutions you don’t fully understand or appreciate is likely to have bad and unintended consequences, is very relevant here.
Equity valuations and investment intentions are potentially very sensitive to policy, institutional and regime uncertainty as well as geopolitical risk. Markets have been handing out a lot of free passes on all of these things over the last 12 months. The longer this goes on, the greater the risk that reality catches up, prompting an even more dramatic re-pricing. New policy shocks will be weighed in terms of everything that has gone before. At some point, the weight will be seen as too heavy to sustain market confidence.
Mind the financial repression
Roubini references his sometimes co-author Stephen Miran’s Hudson Bay Capital piece on restructuring the global economy. As noted here this time last year, Miran argued for a tariffs-first strategy, followed by capital controls and financial repression policies if tariffs failed to address what he sees as trade and capital market imbalances. By all accounts, the administration is not waiting on the failure of its tariff polices to roll out the interventions in capital markets. Just in the last few weeks, the administration has threatened intervention in agency MBS, credit card interest rates, equity stakes in oil majors and the capital structure of leading defence stocks. Congress previously threatened to tax foreign capital inflows in a draft version of the One Big Beautiful Bill.
Miran and Roubini were co-authors of another Hudson Bay Capital piece claiming the Biden administration engaged in ‘stealth QE’ via US government debt management operations or ‘activist Treasury issuance (ATI).’ They wrote:
The use of ATI to manage financial conditions and the economy into election season is a dangerous precedent that opens the door for material political business cycles in the United States. It threatens to raise long-run inflation and interest rates over time as future administrations make use of the same tool.
Compared to the Trump administration’s threatened interventions in capital markets, the claimed ‘activist Treasury issuance’ looks pretty trivial, even if there were any substance to it (there isn’t).
Last week saw the Trump DoJ launch a politically motivated attack on the Federal Reserve, which was met with an unprecedented public statement by Fed Chair Jerome Powell calling out the attempted political interference in US monetary policy:
The attack on the Fed Chair prompted a group statement by former Fed Chairs and other leading economists highlighting the threat to the independence of the Federal Reserve and its likely consequences. Interestingly enough, that group statement was published on Substack. My guess is that Substack was just a convenient way of getting the statement on to the web quickly and in an accessible way, but could also reflect a judgment that Substack was the right medium for the message.
The big irony in Hudson Bay Capital’s attempts to promote going long on US exceptionalism is that its previous thought leadership has provided a veneer of intellectual respectability for the Trump administration’s assault on the very institutions underpinning that exceptionalism. While the ideas in Stephen Miran’s piece on restructuring the global economy were not endorsed by Hudson Bay Capital, or even by Miran himself for that matter, they have provided fuel for the cottage industry of analysts constructing elaborate geoeconomic and other rationalisations for the administration’s policies. It’s a very odd role to play for what is largely a quant shop.
The biggest risk in staying long US exceptionalism, apart from the recent underperformance of US equities, is being caught on the wrong side of capital market interventions or capital controls attempting to suppress future market reactions to the consequences of Trump administration policies. As Katie Martin wrote this week, markets are not even trying to price the implications of Trump blowing up the Fed and global capital markets.
I like to say that bad macro ideas have consequences and macro doesn’t get much badder than Roubini and Miran’s. When Nouriel wants you to go long US exceptionalism, it’s time to hedge that trade.
ICYMI
China’s “New” Strategic Industries Will Not Produce 5% GDP Growth.
Prediction markets are surging on Wall Street, but are effectively banned by Australian securities and telecommunications regulators.
The FT: ‘Maga has gone Maoist’: corporate America reels as Trump turns interventionist.
https://giftarticle.ft.com/giftarticle/actions/redeem/a4f0aa34-8c1f-41af-96d9-168b283f6ddd