The American Sovereign Wealth Fund
In this issue of the peel:
Market Snapshot
Banana Bits
The Daily Poll
If the U.S. creates a sovereign wealth fund, where should it invest first?
Previous Poll:
What’s your take on Trump’s tariffs on Canada and Mexico?
Smart move: 12.6% // Terrible idea: 48.8% // Short-term pain, long-term gain: 18.9% // Just here for the chaos: 19.7%
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Macro Monkey Says
We’re So Back
What does growth in U.S. manufacturing activity have in common with me changing my sheets? They both just happened for the first time in 28-months.
Now, some people might call that “disgusting” or “in need of a therapist,” but I just call it good ol’ fashion shareholder value. What’s gross about increased industrial output?
Just don’t ask that to Greta Thunberg. The only thing that’s gross here is how much money manufacturers can make.
Let’s get into it.
The Numbers
For the first time since September 2022, U.S. manufacturing activity expanded in January, according to the Institute for Supply Management (ISM).
The ISM Manufacturing Purchasing Managers’ Index (PMI), which measures manufacturing activity by surveying purchasing managers on their recent orders and other activities, rose 1.7 points to 50.9 in January.
Any reading above 50 generally signals an expansion of the manufacturing sector and the broader economy, below 50 signals a manufacturing contraction, and below 42.5 signals an economy-wide recession.
So, 2025 is off to a good start in manufacturing. Plus, given the paranoid schizophrenic level of uncertainty around tariffs and their impact on goods from China, there’s no better time for U.S. manufacturers to get back to work.
Speaking of which, manufacturing employment was the single strongest contributor to growth in the overall PMI in January, up 4.9 points to 50.3.
A 3-point rise in new orders, along with a 2.4-point rise in prices, signals strong demand. Meanwhile, the 2.6-point jump in production and 2.4-point jump in new export orders signals similarly strong production or, in other words, healthy supply creation.
Further, combined with a falling backlog of new orders and inventories, the PMI data suggests suppliers are cautiously optimistic while ensuring the avoidance of oversupply issues seen from 2022 to 2024.
But, and that’s a big, Fluffy-sized butt, that optimism lasted about as long as Anthony Scaramucci’s tenure as White House Communications director back in 2017.
The manufacturing sector is at the top of the list of industries expected to face negative impacts from tariffs. And it doesn’t take a genius to figure out why.?
Tariffs directly increase input costs for manufacturing firms reliant on imported raw materials or components, squeezing margins and reducing competitiveness.?
Then, adding fuel to the fire, retaliatory tariffs from other countries can shrink export markets, cutting revenue and disrupting supply chains. Higher costs and reduced demand often lead to lower investment, job losses, and slower innovation in the sector.
On their face, tariffs can be thought of as essentially a negative supply shock.
And the longer all that goes on, the longer it takes for the sector to recover. I’m not saying that’s what’s going to happen with President Trump’s tariffs—as no one knows if they’re actually gonna get implemented or not—but that’s what history tells us.
The Takeaway?
January’s manufacturing data was solid. And it barely matters.
Markets are forever forward-looking, so although January may have been great, the added opacity from uncertainty around tariffs removes any optimism from the U.S.’s return to manufacturing expansion after 28-months.
February’s PMI is gonna be hotter than Shane Gillis’ career.
Career Corner
Question
I am currently going through full-time training with FinancialEdge for my analyst program. As the contents of the training have started to get more theoretical and technical, I was curious how firms interpret our grades/progress on this training.
Answer
If you want to do a good job in training, grades matter.
Head Mentor,?WSO Academy
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What's Ripe
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Spotify (SPOT) 13.2%
What's Rotten
Estee Lauder (EL) 16.1%
PayPal (PYPL) 13.2%
Thought Banana
The American Sovereign Wealth Fund
Whatever you think about President Trump, the guy has never had a problem thinking big.
I’m still a little surprised the White House hasn’t become the solid Gold House with the name “TRUMP” all over it yet. But it does look like that’s the plan for TikTok.
Let’s dive in.
What Happened?
Clearly an avid reader of The Daily Peel and our poignantly insightful analysis of the costs and benefits of an American Sovereign Wealth Fund last year, President Trump gave it the green light.
On Monday, the President signed an executive order directing officials to create a plan to establish a sovereign wealth fund for the federal government over the next 90-days.
The goal of the fund is to “promote fiscal sustainability, lessen the burden of taxes on American families and small businesses, establish economic security for future generations, and promote United States economic and strategic leadership internationally.”
The official releases themselves aren’t even that long. Here’s the text of the order and the factsheet. They’re a combined total of ~770 words.
The announcement follows the creation of a sovereign wealth fund by the U.K. last year. Soon after, then-Candidate Trump began to hype up constituents by committing to at least looking into a plan to create one.
Safe to say that’s a promise that’s been delivered on.?
Now, the Secretary of the Treasury, Scott Bessent, and Secretary of Commerce, Howard Lutnick, along with the Office of Management and Budget and the Assistant to the President for Economic Policy, will spend the next 90-days hashing out a plan.
Key elements of the plan include funding, fund structure, governance, and investment strategies. Not much has been done yet, as the order was signed Monday, but there’s already a lot of excitement.
Bessent’s all in, saying the fund will be established in the next 12-months and will become of “great strategic importance.” Lutnick’s getting creative already, too, saying the size and scale could help the government get better deals with private businesses.
As a specific example that might sound vaguely familiar, Lutnick said, “If we are going to buy two billion C*vid vaccines, maybe we should have some warrants and some equity in these companies.”
Regardless, the main goal for Bessent is to “monetize the asset side of the U.S. balance sheet for the American people.”
Naturally, because little tangible information has come out yet, obviously, the immediate reaction was to consider TikTok as a potential acquisition of the soon-to-be-formed sovereign wealth fund. But, there’s nothing serious there… yet.
The Takeaway?
Sovereign wealth funds aren’t even rare on American soil—20 states already have them. The Alaska Permanent Fund manages ~$82bn in assets for the 17 people and 3 million moose that live up there, while North Dakota formed one in 2010.
Norway’s sovereign wealth fund, Norges Bank Investment Management, is far and away the largest in the world, built on the country’s oil reserves. The fund had $1.73tn in AUM as of December 31st and earned >$222bn in profits in 2024.
News around a U.S. sovereign wealth fund will buzz until it’s actually formed. I’m especially looking forward to the fund’s investment strategy and payouts. Are the 340mn of us LPs?
Trump did, of course, offer us the job of managing the fund, but we declined. Maybe once our AUM is on par with Norway, we’ll take over. For now, I nominate our homegrown trading GOAT, Nancy Pelosi.
The Big Question:?How might political shifts and election cycles impact the governance and stability of a U.S. sovereign wealth fund?
Banana Brain Teaser
Previous
Working simultaneously and independently at an identical constant rate, four machines of a certain type can produce a total of x units of product P in 6 days. How many of these machines, working simultaneously and independently at this constant rate, can produce a total of 3x units of product P in 4 days?
Answer: 18
Today
If 65% of a certain firm’s employees are full-time and if there are 5,100 more full-time employees than part-time employees, how many employees does the firm have?
Send your guesses to [email protected]
?
Governments should have skin in the game—investing as sovereign wealth funds do, rather than bailing out mistakes.
Nassim Taleb
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