The Great Rotation: From Virtual Growth to Real Production and a New Economic Paradigm

Rotation or regime change? 🦇Batman’s View on the Situation
Markets are going through a tectonic shift. The last decade’s growth led, tech dominated rally is giving way to value, the real economy, and global diversification. Trump’s economic vision, the strategy orbiting Scott Bessent and Kevin Warsh, and the desire to weaken the dollar and de-dollarize trade make this look less like a simple sector rotation and more like a paradigm change.
MAG7, inefficient CapEx fears, and the prisoner’s dilemma
The tech giants that carried the market for years (Microsoft, Google, Meta, Amazon, etc.) are pouring massive CapEx into AI infrastructure. But Wall Street is now asking one question: where is the ROI?
Recent work from Goldman Sachs and Sequoia Capital argues there is a gap of hundreds of billions of dollars between the revenue growth required to justify AI infrastructure spending and what the current reality shows. In Wall Street’s framing, tech is no longer priced on an endless growth narrative, but on rising costs and margin pressure. That pushes capital toward sectors with more tangible cash flow.
One of the biggest fears is also survival: which players make it through. MAG7 is spending aggressively because in this game, the loser may not survive.
A supply-side revolution: Trump’s industrial reboot plan
Trump’s vision aims at a sharp pivot away from Keynesian demand-side policy toward supply-side policy. The interesting part is: back in university, I had built an economic policy model in my head that looks very similar to this. This model tries to bring inflation down not by hiking rates and killing demand, but by expanding supply and increasing production.
Lower taxes, fewer regulations, and lower energy costs (oil and natural gas). Make the US a production hub again. In that scenario, infrastructure, energy, defense, and industrials become the locomotive of the economy, similar to the 19th-century industrial revolution.
The weak dollar doctrine and the “GO GLOBAL” strategy
The most critical and least discussed leg of this new paradigm is the dollar. When the dollar index (DXY) softens, global liquidity can rotate out of “safe haven” US Treasuries and expensive US tech and into higher-return opportunities in emerging markets (Brazil, Mexico, Turkey, India, etc.). US equities (S&P 500) are near historical valuation peaks, while many EM markets trade near historical lows. A weaker dollar can act like leverage for those cheaper markets.
The Bessent–Warsh axis and the liquidity paradox
This is the center of the whole scenario. Scott Bessent backing Kevin Warsh for Fed Chair isn’t random. Warsh is a sound money advocate. He may cut rates to support growth, but he strongly opposes expanding the Fed balance sheet (QE).
Markets like rate cuts, but balance sheet shrinkage (QT) or a flat balance sheet means dollars are being drained from the system. Under normal conditions, that can trigger a liquidity crunch and an equity drawdown.
He may also have been chosen to calm the bond market.
The Scott Bessent factor (Treasury): the solution
This is where the key question comes in: can Bessent solve this from the Treasury side?
Answer: yes, he can, and this is likely the plan.
Bessent is a veteran macro fund manager (Soros Fund Management background). He shorted a currency like the British pound. Shorting the currency of a major country is one of the hardest trades in the world, extremely complex, and he succeeded. And because he’s far more capable than me and has a professional team, he likely has additional tools and plans beyond what I’m listing.
Even if the Fed doesn’t expand its balance sheet, Treasury can inject liquidity via the TGA and debt issuance strategy.
Bessent can issue more short-term bills (T-bills) instead of long-duration bonds and pull cash out of the Reverse Repo (RRP) facility back into the system. That’s a backdoor way to create dollar abundance without the Fed “printing money.”
Bessent also has to hit Trump’s “3-3-3” target (3% growth, 3% deficit, 3M barrels). To balance Warsh’s disciplined Fed posture, Treasury must actively manage liquidity. Otherwise Warsh’s balance sheet discipline would choke the growth Trump wants. With the November 2026 midterms approaching, Trump can’t really afford that. Because it’s political.
The golden age of value investing
In this framework, rotation out of growth and into the real economy (value) looks inevitable.
Summary:
The steering wheel shifts from financial engineering to industrial engineering. Warsh cuts rates to lower the cost of capital. Bessent uses Treasury liquidity management to keep the machine turning. In that equation, for a while, the winners may not be the coders, but the builders, producers, and energy providers. This year, value investing could have its brightest period in the last decade.
Why can IWM still rise while growth tech is being sold?
IWM (Russell 2000, small caps) companies generate about 80% to 90% of their revenues inside the US. Trump’s tariff walls protect them against cheap Chinese and European imports. So protectionist policy benefits IWM the most.
Tech giants are cash rich. High rates can even show up as interest income for them. But IWM companies are more leveraged, and more importantly their debt structure is different.
Most S&P 500 debt is fixed-rate and long duration. Russell 2000 debt is roughly 40% floating-rate. If Fed rates or market rates start to trend lower (Warsh–Bessent plan), it directly reduces the survival cost for these companies and can explosively improve profitability. Tech doesn’t get the same operational boost because it is cash rich and less exposed to floating-rate pain.
And maybe most important: nothing in markets diverges forever.
Now to the part you care about most: which instruments and sectors can benefit from this?
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