Will 2025 be less profitable than 2024?
Signs of a new crisis?
What is the U.S. repo market telling us?
The repo market (a market for short-term repurchase agreements, essential for the health of the U.S. financial system) recently sent one of its key warning signals, indicating that a major shift in the financial markets could be approaching. The repo market plays a vital role in maintaining liquidity in the financial system, allowing banks and financial institutions access to short-term funding. In the past, disruptions in this market have often served as early warning signs of broader financial trouble.
What’s currently happening in the U.S. repo market? In recent weeks, liquidity in the repo market has significantly declined, which, simply put, means that banks and hedge funds are finding it harder to access short-term funds. This situation could potentially trigger a domino effect across the broader financial system. The decline in liquidity is mainly due to the Federal Reserve’s actions — the central bank has been reducing its balance sheet, which essentially means it is draining money from the system. In such an environment, a drop in liquidity can become a catalyst for larger systemic issues.
Why is this an important signal? The repo market has historically served as an early warning system for serious financial disruptions. Two key examples:
The 2008 Financial Crisis. The repo market showed signs of distress as early as 2007, when hedge funds and investment banks began losing access to short-term financing. When liquidity dried up, the crisis hit. Investment banks Lehman Brothers and Bear Stearns went bankrupt in the fall of 2008, largely due to repo market failures. As we know, stock markets crashed and took years to recover — during this time, physical gold proved to be an excellent investment.
The 2019 Repo Crisis. Just months before the COVID crisis, in September 2019, overnight interest rates spiked from 2% to nearly 10% — a clear sign that liquidity in the repo market had disappeared. The Fed needed a justification to inject hundreds of billions of dollars into the system to stabilize the market. As we know, that injection came in March and April 2020, when the pandemic was officially declared. The current signs in the repo market suggest we may once again be standing on the edge of major financial turbulence — and history has shown us just how important it is to take such signals seriously.
What does the current situation in the repo market mean for 2025?
As history shows, activity in the repo market is a very important factor that influences the health — or stress — of the financial system. Based on the current situation, we can predict that if this “liquidity drought” continues, banks and hedge funds may be forced to sell off their investments and assets, which could lead to a drop in the prices of stocks, bonds, and other assets.
In such a scenario, all eyes are now on the Fed, which will likely need to intervene in the market once again. This could, in turn, weaken the U.S. dollar and increase inflationary pressures, which are already becoming visible through various indicators after last year’s interest rate cuts.
And now, a serious warning. If liquidity in the repo market remains low for an extended period, the impact on financial markets could be significant. Overheated stock markets may experience a sharp correction due to forced asset sell-offs. The effects would then ripple out to the banking sector, where banks become less willing to lend, potentially leading to a credit crunch. At that point, central banks will be forced to intervene, injecting new liquidity into the system — which would raise inflation and further weaken the already fragile trust in the current monetary system.
If the situation does not improve in the near future, it could become one of the key triggers for a new financial crisis. Since the repo market is a vital and crucial indicator of financial system health, the current liquidity “drought” in this market is indeed a deeply worrying signal.
In such a projected — let’s call it dark — scenario, investors will inevitably start looking for safe havens for their assets. And I believe the market is already sending a clear message through gold.
Physical gold, often considered a litmus test for the health of the financial system, is now trading at record highs.
So what is the current price of gold really telling us?
Gold – a safe haven?
Gold has a long and rich history as a safe investment during times of economic uncertainty.
In 2025, as financial markets once again face volatility, gold is regaining importance as a store of value. Its performance is less correlated with other financial markets, making it a potential hedge against inflation, currency fluctuations, and of course, geopolitical risks and monetary crises. But that’s not all. Central banks around the world — most notably China and Russia — have been steadily increasing their gold reserves to record levels, further confirming the global trust in gold as a stable investment.
Gold is currently trading at all-time highs, having risen by over 30% in 2024. Meanwhile, another precious metal, silver, has also awakened — with growth of more than 30% last year as well.
Gold has a long and rich history as a safe investment during times of economic uncertainty.
In 2025, as financial markets once again face volatility, gold is regaining importance as a store of value. Its performance is less correlated with other financial markets, making it a potential hedge against inflation, currency fluctuations, and of course, geopolitical risks and monetary crises. But that’s not all. Central banks around the world — most notably China and Russia — have been steadily increasing their gold reserves to record levels, further confirming the global trust in gold as a stable investment. Gold is currently trading at all-time highs, having risen by over 30% in 2024. Meanwhile, another precious metal, silver, has also awakened — with growth of more than 30% last year as well.
Geopolitical tensions are rising by the day
As you’ve likely noticed, this year has been marked by numerous geopolitical conflicts, creating added uncertainty in financial markets and significantly impacting capital flows. A new and intense trade war and technological rivalry is currently unfolding between the U.S. and China, particularly in the field of artificial intelligence. Following tightened trade sanctions by the U.S. — especially targeting semiconductors and AI technologies — China has responded by announcing export restrictions on rare earth elements, which are essential for the production of electronics and batteries.
The economy and security within our own European Union are also under strain. The war in Ukraine continues, and all sanctions against Russia remain in effect. Given Europe’s heavy dependence on energy imports, the reduction of Russian gas supplies has been replaced with much more expensive deliveries from the U.S. — a shift that is significantly burdening the economy. Rising energy prices are choking the European economy, especially in Germany, and are contributing to growing inflationary pressures. On top of that, we cannot ignore the ongoing instability in the Middle East, where the impact is most visible in oil prices. Iran’s nuclear tensions and conflicts involving Israel are keeping oil prices high — another major factor driving inflation.
Will something major really happen this year — and how will it affect your wealth?
As we can see, 2025 is indeed bringing numerous challenges that could potentially lead to a new financial crisis. Geopolitical tensions, inflation, and market volatility are creating a highly unstable environment. Central banks are attempting to stabilize the economy by lowering interest rates, but the risk of stagflation — a combination of stagnant growth and persistent inflation — still remains very real.
It’s quite possible that, before any potential market crash, we could see further growth, as the M2 money supply — a key indicator of overall system liquidity — has recently been rising sharply. This increase in liquidity could fuel a short-term rally, especially in high-risk and speculative assets, before markets face a possible correction. In this uncertain climate, gold remains one of the most reliable safe-haven investments. While stock and crypto markets are under heavy pressure, I believe investors will still look for opportunities there — if the market presents them. It’s also entirely possible, as mentioned earlier, that we could see one last strong upward move — either before summer or later in the fall — ahead of a broader downturn. That said, it’s worth noting that equity markets have reached historically high levels in recent years, and we’re now beginning to see early signs of overvaluation. Analysts are warning of potential corrections, as stock valuations are near historic extremes. In the crypto space, Bitcoin has also had a rough start to the year. In February, it dropped below $90,000, driven by a broader sell-off in the crypto market triggered by geopolitical concerns, the Federal Reserve’s tightening monetary policy, and a recent $1.5 billion hack on the Bybit exchange.
In summary, while certain sectors may still show growth in the short term, volatility and risk remain high — and strategic positioning, risk management, and diversification are more important than ever.
The real estate market is currently at a major turning point — in some regions, prices are expected to fall, while in others, demand may strengthen. Declines are most likely in areas where prices are already overheated. The STOXX 600 Real Estate Index, which tracks the European real estate sector, has fallen by 31% over the past five years, signaling a clear cooling in the market. So yes, 2025 presents a number of challenges for investors — but is a crisis necessarily a bad thing? I believe absolutely not. If your portfolio this year is well-structured with the right mix of key asset classes to help you “safely” navigate a crisis — and if you have cash on hand to invest when prices drop — then 2025 may actually be a year of opportunity. After all, you know the saying: Be fearful when others are greedy, and greedy when others are fearful.
Safe investing!
Matjaž Štamulak, Independent financial advisor, investor, and lecturer, www.cresus.si