The U.S economy's artificial high | Think Macro by H2O AM

Description

Fueled by stimulus and debt, the U.S. economy appears resilient — but the foundations may be far weaker than they seem. Vincent Chailley, H2O AM Group CIO breaks down the drivers of this artificial high and the risks behind it: how long can America sustain its growth on borrowed momentum?

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Transcription

Speaker #0
Hello, everyone, and Happy New Year and welcome to the first 2026 edition of Think Macro. Today, we are back with Vincent Chahier, Group CIO of H2O Asset Management. Hello, Vincent. Hello, Babac. Happy New Year to you. Happy New Year. Thank you. To kick off the year, we're going to revisit a topic that remains at the heart of all discussion, the US economy, obviously. Last year, we argued that the US economy would slow down under the impact of tariffs. It did slow in the first part of the year, but has since reaccelerated. So, were we wrong? Is it something that we haven't seen? Or is the US economy ready to take off again? Yeah,
Speaker #1
indeed, it did slow down in the first half of the year under the pressure. of real income that was still taken down by the inflation that remained high and revenues that were leveling off through immigration constraints you had on the US economy through the absence of pending demand from savings that had been consumed in the years before. So you had that mechanical slowdown of the US economy in the first half of the year. Now, In the second half, it did reaccelerate for essentially political reasons. You had a sense of an economy that sort of refuses to slow down as it should with political interventions on race. You had interference, pressure on the Fed to cut rates more than the dual mandate says, really, with a... with a preference for growth at the expense of inflation control. You had a budget that initially was supposed to be restrictive, remember, a year ago in the programme, and has morphed into something a lot more supportive, so basically completely flipping the support on the fiscal side. And last, interference as well, intervention, support in the private sector, with support for the AI wave of investment. If we remember in spring, really under the impulse of the president, you had that kickstart of the AI race where companies were asked, were pushed into massive investments in AI. And that also, of course, supported the economy in the second half of the year. Now, at least to some extent. Now, the issue is fundamentally it is slowing down. in the US, but the reasons why it's outperforming that potential today, these artificial reasons why it's outperforming its potential are actually stimulants. So basically, you are... taking something, a drug that basically makes you not feel tired in the effort. But we know with any stimulant that they are temporary. Their effects fade with use, and they have been, for many of them, overused. And they become more and more expensive. So you can do that for some time, but not for too long.
Speaker #0
So somehow the investments we had, the boost we had, the stimulus we had, make that the economy grew in 2025 at the end, a re-acceleration. But that's, in a way, the tree that hides the woods. And we don't see behind that the economy will at some point fade. Yes, yes, to some extent. that's a
Speaker #1
That's a good analogy. The dynamics are good to start this new year. The impulse is quite good. But the reading is that the risks are accumulating. Yes, there's a path for the US economy on that ridge they're on today. But the pit next to it is deepening. And it's going to be more and more challenging to stay, to remain on that ridge and walk along that path for the US economy. And 2026, to that extent, is going to be even harder than 2025. That was bumpy, as we know. But 2026 is going to be even harder. First, because there's less leeway in all these stabilizers we have for the economy. When you had rates at 5%, you got plenty of leeway to cut. Now, it's 3.5%. There's a lot less leeway. Inflation remains in a region where you can't really cut that much more. Maybe it may have two, three more cuts. But of course, the potential there is a lot more limited. On the fiscal side, same thing. You're starting from a deficit situation that is deeper. It gives you a lot less leeway to stimulate the economy through fiscal. Plus, remember, investors are not that easy on the government now. Remember last year, when you go full deficit, you announced that, then the market takes long rates up. And in that sense, sort of neutralize some of the effects of the fiscal package. So you are in a situation where even there, there's limited potential. Savings, same. A lot more to be consumed and more. So no saving reserves left. Of course, there, you can't expect much on that side. As for just to complete the picture. capital expenditure. So these companies investing in AI particularly, they put hundreds of billions on the subject last year, up to almost 500 billion dollars over the year. That was a significant impulse. Of course, to get more than that, another impulse in 2026, you need to add to that number and invest even more this year, not just the 500 billion. You will have to invest anyway. to keep it stable. So of course, there again, that gives a lot less potential for the economy to be stabilized and stimulated in a way that keeps it above its potential. Now, beyond these stabilizers, we see more risks as well in the US economy. Let me explain that point, because 2025 appeared to many as risky. Actually, In a sense, it was because it was a big change. You had a major change of policy with tariffs, with the control of immigration and so on. Donald Trump's program. But it was announced. All was announced. If you take the whole year, we ended up with pretty much exactly what had been announced on election day. Now, a risk that is announced to the market is a half-treated. It's a lot. easier when the economy is prepared and then can react to what had been announced to absorb. This year, risk is not announced. And it's not because there's no risk. It's not because, okay, program done. Let me just step back. No, that's not what is happening. If you look at the president of the United States today, he's actually going even further, pushing his advantage even further. The problem is we don't know what he's going to do. And there's a chance that he tries many different options to keep it going on the U.S. economy, interferes even more in the private sector, with the central bank, on the fiscal side, other stuff, but without having announced them to the market. And that, of course, for the market, that means it's not prepared. The market is not prepared, the economy. is not prepared, hard to know how to react to something you don't know how it's going to look like. So that is a risk that by nature is quite different from what we had in 2025. And we see as a substantial, potentially can derail the US economy walking on that ridge. And last point, investors for 30 years. investors bought the US model for good reasons. It was superior, fundamentally superior. Investors, equities, bonds, you just buy the story. Last year, we saw that some investors on bonds started to turn skeptical on the way the situation was managed with higher long rates. This year, it seems, over the last just few months, Let's see whether that's confirmed. But it seems that even equity investors now are turning skeptical. Maybe not skeptical, but want a risk premium on what's going on. They are questioning on the AI, particularly the amounts, massive amounts, their profitability, the larger, possibly more. powerful competition from China, the disruption in supply, the cost that has increased, the time it's going to take to make it profitable when, as you know, markets like results it's going to take years all these elements now are being discounted by investors and and they are getting a lot more vigilant on equities as well as bonds and that changes the picture investors will not validate the policy whatever it takes they will challenge it and that again adds to the difficulties the US economy is going to face in 2026 potentially. So there's a line for it to grow and continue to grow at this 2.5%, 3% regime, even artificially, there's a path, but risks really are accumulating and the distance with fundamentals is increasing.
Speaker #0
But is it something that we already see in the market? because US equities is so important, even for the economy. But when I discuss with clients, it seems to be that AI for them is kind of religion, where they believe and they see the investment in AI is going to pay off, is going to boost the US economy, and is going to create this positive cycle. and bring the economy in a very positive way in 2026 and beyond. But you don't see that.
Speaker #1
Yes, profits are good. Q4 profits were good. Q1 profits are going to be good on equity markets. Yes, there's a real story behind AI. It's not an issue. There's a big story, a big productivity story behind that. It's a major innovation. The problem lies elsewhere. The problem lies in the mismatch. We just mentioned that skepticism of some investors. Mismatch, time mismatch, essentially, where it's going to take a lot longer. That's what markets price in today. And that needs repricing at some point. When investors realize that these massive investments will not be profitable before a number of years. That deserves a discount because they have a slope of profits that has to be adjusted. And they have a risk around that slope that needs to be factored in. That's two important elements. Equity is not just about the last round of profits, of course. You're investing in equities for 10, 20, maybe 30 years. You're thinking, my level is here, but what's my slope? And what's my risk around that? On the slope? AI, the AI revolution is not of the same nature as previous innovation revolution. It's more like railway or telecoms. It's not like, you know, search engines or social networks. When you go for social networks or search engine, it doesn't require much capital, really. So you make massive margins just because, okay, you could the market, good revenues, no cost. On AI, like for... telecoms or railway, you need to invest hundreds of billions. So it's not the same story at all. And when you invest, it takes ages, a long time before you've got the product available to the consumer. And that makes it completely different from these previous stories. And the market against that is just drawing a line. They did it once, they're going to do it a second time. Yeah, these are really good companies. But fine. But the innovation is not of the same nature. So you just can't repeat what you did back 10 to 15 years ago. And that takes a different profit slope for the future. To some extent, these technology companies will have to reprice somewhere between technology and utility, like the telecom companies did. And it took them a big 10 years to get there, where their business model is. is moving. So the market needs to factor that in. Now on risks, same. I mean, on equities, when you buy equities, you buy a trajectory, you buy a slope of profits, but you have to be sure that the risk around that trajectory is not too high. And we've listed some of the questions investors are asking now on AI. We've discussed already some of the potential challenges markets are going to face with the policy of its president. Risks really now today are accumulating. Uncertainties are much much bigger than in the previous years. That takes a risk premium.
Speaker #0
So on AI we've done the deep dive into the macro forces and this comparison with telecom in our episode 3 of Think Macro. And I invite you to listen to that if you want to have a clear view on AI. But coming back to what you just said, so it's a kind of wake-up call that's going to happen at some point and that's going to wake up probably more and more. investors. But in these events, if there is this wake-up call this year, what's going to be the impact? And as it touches the US economy, do you see a contagion to the rest of the world? Yes. The odds of a shock, of a serious challenge to markets and the US economy
Speaker #1
are significant in 2026, higher than last year and really significant. A big reason is the excess the US economy is being pushed toward. For political reasons, when you had 20 years of partnership with China that has morphed into a rivalry, a war with China, it takes you to excess. China has decided to say, OK, let's go for it. I'm going to run that race. Now, the US has no choice but to follow and run as well. And of course, if you decide to run in the current state of the US economy, an economy that is getting tied by the extent of its 30-year cycle, that now embeds some fragilities, you are increasing the risks. at a moment when you should do the opposite. But they have to run that race. Now, probably there's also a character reason. I mean, Donald Trump, his administration, probably also by character, mentally, want to fight that war and want... to go for that excess potentially. We've seen Donald Trump, I mean, what he did in 2025, he sees as success. Even short-term, maybe he's right. We are yet to see the long-term costs. It wins. Now, he's more likely than not to... push his advantage and try to continue along that route. We said we don't know where. Yeah, we don't know where, but he's likely to try to test the limit of markets, to test the limit of China, to test the limit of his partners. You see in Greenland, the Greenland story, it's his character. He's a businessman in the end. So, you know, as long as he's making money, he goes for it and as long as nobody says stop he's going to try. The risk is that he goes up to the limit, tests the limit, and when you start testing the limit of a fragile system you can really, really destabilize it. So let's be wary of that for 2026. Now, what does that mean for the US economy? Today, fundamentally, the economy is quite sound. Let's be clear. We're not talking about hard landing now. But the more we continue in this dynamics, the more we artificially outgrow potential in the US. the more you just pull that string and the harder the fall, when it happens, you know, it's that pit that is deepening on the side. And now for the rest of the world, it's a different story. For the rest of the world, conditions are a lot more robust, basically. If you take all these stabilizers we discussed for the US, that are now a lot less. efficient and a lot less available for the US economy they are for the rest of the world and because they've not been overused in the past they're quite likely to to prove even more efficient in case you need them take monetary policy there's no pretty much no inflation anywhere so you got a lot leeway there fiscal side of course levels are not good either but dynamics are very different in Europe China rest of the world you have some leeway there are savings Important savings is almost the opposite of the US where everything's been consumed and more. In the rest of the world, reserves of savings are very high. Not high, very high everywhere. That's robustness. There's a shock. You've got savings available. You don't in the US. And even for markets, they are a lot less sensitive to markets, sometimes actually not for so good reasons because people are not invested. But basically, you care less about market stability and its implications, which, again, is the opposite in the US. So you have a lot more leeway, stabilizers available with probably a lot more efficacy everywhere. in the rest of the world. So you can absorb pretty much shocks really to a large extent.
Speaker #0
But you just mentioned before, Vincent, that the US president Trump, he's testing the limit and not only on the economic side and front. We've seen that in Venezuela just at the beginning of the year. So it's beyond. the economy, wouldn't that have an impact on the rest of the world?
Speaker #1
Yes, that will be challenging if really he goes really far along that line. When you see in Venezuela the weaponization of U.S. assets to sort of seize our reserves out there, that's a dent in the world order. really of the last 50 years of equilibrium we had, of course, that is, when he interferes with the central bank, with markets, recently on AI. That's a dent in free markets. And we know how important free markets are in getting that competition that takes. the world economy higher. So potentially that's this behavior is a serious challenge, not just to the US economy for this year. It's a serious challenge to the world's older medium term. We'll see how far that goes, but that has to be factored in as well. We may be today experiencing a change of that. of these 50 years of post-Bretton Woods world, economic and monetary order. And against that, you've got China that is thriving, really taking its chance to participate, challenging the US and more and more. You realize that in some sectors are even ahead of the US. You have a system where basically equilibriums are being rebalanced and you're changing the world order. Now, what does that mean for assets and for markets? Again, when you are shocking a system, 50 years of system, it's not that little shock that comes as noise. You're changing that system. The more fragile you are,
Speaker #0
the higher the cost. And today... The fragile participant is the US, not China. So we are in an increasingly risky world. In this world, the rest of the world, China, other regions, is less risky. Let's take a positive view on that. What will be the potential, for example, if we start in Europe? Yeah, so as we said, on the risk side, it's a lot better, a lot more robust everywhere in the world but the US. Now,
Speaker #1
from being resilient to being performant, there's a world. And in Europe, that gap is big. Rigidity, political decision-making system, that is not very efficient. And above all, capital, this... culture of total absence of risk taking that takes time to change that takes years if not decades to change and europe will not release its full potential uh until it does that it does release that that capital potential make it put it at work make it work more efficiently than that than these Today's money market investment where basically money is parked on the side just in case. Now, Germany is trying with a program that goes well beyond the fiscal aspects. It's not just about defense and some infrastructure. there's a lot more to it they are creating a pension industry in particular where the goal is precisely to put that capital at work in germany above any other country capital is frozen creating pension funds of course then you're going to take more risk and you've got the ability to take that capital and and support sectors why not tech sectors and have europe compete with others on this on this revolution Germany is talking. It takes time. It takes a cultural change. You can question the difficulties you're always going to face to just spread that across all European countries. Time, difficulties, we read that as an option. So there's a possibility for Europe, medium term, to really release. its potential now the good news is that it's option shaped because we're starting from such a low base with so low expectations that you know you can only have end up with a positive story now hard to say whether it's going to happen or not and when yeah
Speaker #0
but if we if we uh so if we stay at a really macro level because of course there are idiosyncratic uh ideas or micro stories but We don't see big things coming from Europe or not huge positive things. What about the emerging markets?
Speaker #1
Emerging markets there, the planets are a lot better aligned. For a start, Asia, the region, benefits from the AI revolution as a provider. A much better position than the engine makers that are essentially based in the US have to invest a lot. potentially some profits in three, five, ten years in China. You sell pick and shovels, you sell them now, making the money now. Nobody's going to take it back from you. So China is really supported by this wave of investment now and probably for 2026 and maybe a few more years. Now, beyond the region, China also is reshaping its growth model and we would expect. substantial support from China in this new phase where consumption plays a bigger role in the economy mechanically because that's natural in the way the economy is shaped. The housing bubble is over. There's not going to be a drag on the economy much longer. You have a better social system, a better education system. You have aging, just the fact that all these savers are now retiring. more likely to consume more. You've got mechanical reasons for China to see consumption accelerate, as well as support from the state. There again, also in China, and the plan is to put money at work, develop investment. Today, capital is frozen. You want to incentivize equity investments in targeted sectors. You want to have these sectors pay well investors when they do invest in their companies. They get cheap capital, very well invested. They create that loop, basically market loop, where markets support and play their role in the economy and make it accelerate the American way, what America did in the 80s, 90s, really. China is trying to copy and repeat now. So that is going to be supportive for the whole Asian regions. So it's not just robustness. There's really strong potential there. And the cycle is not a tactical bet. There's a multi-year cycle in the making in Asia. Now that applies to some extent for different reasons to other emerging markets. That applies to Latin America also have better risk conditions. They've done the job over the last... five, ten years. They're usually the, you know, the bad guy at the back of the class, the classroom, you know, and but no, now Mexico, Brazil, other countries of the region, South Africa as well, have better balance data accounts, making their a lot more solid, a lot less dependent on what the US does and what the Fed does on rates. They have that robustness as well. And they do. benefit from the cycle in a different manner. I mean, reshoring onto the American continent is a strong supporting force. You have also commodity prices that benefit these countries more than anybody else. And last, maybe in some cases, also some organic stories. The domestic story is pretty strong as well, if you think of Brazil, for instance. So you also have a nice story for emerging markets. You've got the basis for that. You've got the potential. And you've got the move of capital that supports them.
Speaker #0
Thank you, Vincent, in a nutshell. Very positive. emerging markets and you see big risk on the US economy. Do you want to add something or complete?
Speaker #1
Yes, in a nutshell, that's a positive story across the board at the first order, even the US, but with many risks skewed to the downside for the US. More than 2025, when they had been telegraphed, not the case this time. Lots of uncertainties around that. When in the rest of the world, the asymmetry lies to the upside, potentially in Europe, with a lot more confidence in Asia and in Latin America. Now investors have started to acknowledge that. And you started to see in 2025 some move towards the rest of the world and particularly to emerging markets. We expect that. to continue in 2026 and probably in the years after that.
Speaker #0
Thank you, Vincent, for your insight and analysis on the U.S. economy and the global balances that we're living. 2026 promised to be an eventful year where we're going to have the chance to reconnect with you. Thank you to everyone who are listening to this first episode of the year. If you have any questions, please don't hesitate to contact your sales representative or visit our our website. We'll see you very soon with a new episode of Thinker Micro. Thank you again, Vincent.
Speaker #1
Thank you, Marc.

Description

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Transcription

Speaker #0
Hello, everyone, and Happy New Year and welcome to the first 2026 edition of Think Macro. Today, we are back with Vincent Chahier, Group CIO of H2O Asset Management. Hello, Vincent. Hello, Babac. Happy New Year to you. Happy New Year. Thank you. To kick off the year, we're going to revisit a topic that remains at the heart of all discussion, the US economy, obviously. Last year, we argued that the US economy would slow down under the impact of tariffs. It did slow in the first part of the year, but has since reaccelerated. So, were we wrong? Is it something that we haven't seen? Or is the US economy ready to take off again? Yeah,
Speaker #1
indeed, it did slow down in the first half of the year under the pressure. of real income that was still taken down by the inflation that remained high and revenues that were leveling off through immigration constraints you had on the US economy through the absence of pending demand from savings that had been consumed in the years before. So you had that mechanical slowdown of the US economy in the first half of the year. Now, In the second half, it did reaccelerate for essentially political reasons. You had a sense of an economy that sort of refuses to slow down as it should with political interventions on race. You had interference, pressure on the Fed to cut rates more than the dual mandate says, really, with a... with a preference for growth at the expense of inflation control. You had a budget that initially was supposed to be restrictive, remember, a year ago in the programme, and has morphed into something a lot more supportive, so basically completely flipping the support on the fiscal side. And last, interference as well, intervention, support in the private sector, with support for the AI wave of investment. If we remember in spring, really under the impulse of the president, you had that kickstart of the AI race where companies were asked, were pushed into massive investments in AI. And that also, of course, supported the economy in the second half of the year. Now, at least to some extent. Now, the issue is fundamentally it is slowing down. in the US, but the reasons why it's outperforming that potential today, these artificial reasons why it's outperforming its potential are actually stimulants. So basically, you are... taking something, a drug that basically makes you not feel tired in the effort. But we know with any stimulant that they are temporary. Their effects fade with use, and they have been, for many of them, overused. And they become more and more expensive. So you can do that for some time, but not for too long.
Speaker #0
So somehow the investments we had, the boost we had, the stimulus we had, make that the economy grew in 2025 at the end, a re-acceleration. But that's, in a way, the tree that hides the woods. And we don't see behind that the economy will at some point fade. Yes, yes, to some extent. that's a
Speaker #1
That's a good analogy. The dynamics are good to start this new year. The impulse is quite good. But the reading is that the risks are accumulating. Yes, there's a path for the US economy on that ridge they're on today. But the pit next to it is deepening. And it's going to be more and more challenging to stay, to remain on that ridge and walk along that path for the US economy. And 2026, to that extent, is going to be even harder than 2025. That was bumpy, as we know. But 2026 is going to be even harder. First, because there's less leeway in all these stabilizers we have for the economy. When you had rates at 5%, you got plenty of leeway to cut. Now, it's 3.5%. There's a lot less leeway. Inflation remains in a region where you can't really cut that much more. Maybe it may have two, three more cuts. But of course, the potential there is a lot more limited. On the fiscal side, same thing. You're starting from a deficit situation that is deeper. It gives you a lot less leeway to stimulate the economy through fiscal. Plus, remember, investors are not that easy on the government now. Remember last year, when you go full deficit, you announced that, then the market takes long rates up. And in that sense, sort of neutralize some of the effects of the fiscal package. So you are in a situation where even there, there's limited potential. Savings, same. A lot more to be consumed and more. So no saving reserves left. Of course, there, you can't expect much on that side. As for just to complete the picture. capital expenditure. So these companies investing in AI particularly, they put hundreds of billions on the subject last year, up to almost 500 billion dollars over the year. That was a significant impulse. Of course, to get more than that, another impulse in 2026, you need to add to that number and invest even more this year, not just the 500 billion. You will have to invest anyway. to keep it stable. So of course, there again, that gives a lot less potential for the economy to be stabilized and stimulated in a way that keeps it above its potential. Now, beyond these stabilizers, we see more risks as well in the US economy. Let me explain that point, because 2025 appeared to many as risky. Actually, In a sense, it was because it was a big change. You had a major change of policy with tariffs, with the control of immigration and so on. Donald Trump's program. But it was announced. All was announced. If you take the whole year, we ended up with pretty much exactly what had been announced on election day. Now, a risk that is announced to the market is a half-treated. It's a lot. easier when the economy is prepared and then can react to what had been announced to absorb. This year, risk is not announced. And it's not because there's no risk. It's not because, okay, program done. Let me just step back. No, that's not what is happening. If you look at the president of the United States today, he's actually going even further, pushing his advantage even further. The problem is we don't know what he's going to do. And there's a chance that he tries many different options to keep it going on the U.S. economy, interferes even more in the private sector, with the central bank, on the fiscal side, other stuff, but without having announced them to the market. And that, of course, for the market, that means it's not prepared. The market is not prepared, the economy. is not prepared, hard to know how to react to something you don't know how it's going to look like. So that is a risk that by nature is quite different from what we had in 2025. And we see as a substantial, potentially can derail the US economy walking on that ridge. And last point, investors for 30 years. investors bought the US model for good reasons. It was superior, fundamentally superior. Investors, equities, bonds, you just buy the story. Last year, we saw that some investors on bonds started to turn skeptical on the way the situation was managed with higher long rates. This year, it seems, over the last just few months, Let's see whether that's confirmed. But it seems that even equity investors now are turning skeptical. Maybe not skeptical, but want a risk premium on what's going on. They are questioning on the AI, particularly the amounts, massive amounts, their profitability, the larger, possibly more. powerful competition from China, the disruption in supply, the cost that has increased, the time it's going to take to make it profitable when, as you know, markets like results it's going to take years all these elements now are being discounted by investors and and they are getting a lot more vigilant on equities as well as bonds and that changes the picture investors will not validate the policy whatever it takes they will challenge it and that again adds to the difficulties the US economy is going to face in 2026 potentially. So there's a line for it to grow and continue to grow at this 2.5%, 3% regime, even artificially, there's a path, but risks really are accumulating and the distance with fundamentals is increasing.
Speaker #0
But is it something that we already see in the market? because US equities is so important, even for the economy. But when I discuss with clients, it seems to be that AI for them is kind of religion, where they believe and they see the investment in AI is going to pay off, is going to boost the US economy, and is going to create this positive cycle. and bring the economy in a very positive way in 2026 and beyond. But you don't see that.
Speaker #1
Yes, profits are good. Q4 profits were good. Q1 profits are going to be good on equity markets. Yes, there's a real story behind AI. It's not an issue. There's a big story, a big productivity story behind that. It's a major innovation. The problem lies elsewhere. The problem lies in the mismatch. We just mentioned that skepticism of some investors. Mismatch, time mismatch, essentially, where it's going to take a lot longer. That's what markets price in today. And that needs repricing at some point. When investors realize that these massive investments will not be profitable before a number of years. That deserves a discount because they have a slope of profits that has to be adjusted. And they have a risk around that slope that needs to be factored in. That's two important elements. Equity is not just about the last round of profits, of course. You're investing in equities for 10, 20, maybe 30 years. You're thinking, my level is here, but what's my slope? And what's my risk around that? On the slope? AI, the AI revolution is not of the same nature as previous innovation revolution. It's more like railway or telecoms. It's not like, you know, search engines or social networks. When you go for social networks or search engine, it doesn't require much capital, really. So you make massive margins just because, okay, you could the market, good revenues, no cost. On AI, like for... telecoms or railway, you need to invest hundreds of billions. So it's not the same story at all. And when you invest, it takes ages, a long time before you've got the product available to the consumer. And that makes it completely different from these previous stories. And the market against that is just drawing a line. They did it once, they're going to do it a second time. Yeah, these are really good companies. But fine. But the innovation is not of the same nature. So you just can't repeat what you did back 10 to 15 years ago. And that takes a different profit slope for the future. To some extent, these technology companies will have to reprice somewhere between technology and utility, like the telecom companies did. And it took them a big 10 years to get there, where their business model is. is moving. So the market needs to factor that in. Now on risks, same. I mean, on equities, when you buy equities, you buy a trajectory, you buy a slope of profits, but you have to be sure that the risk around that trajectory is not too high. And we've listed some of the questions investors are asking now on AI. We've discussed already some of the potential challenges markets are going to face with the policy of its president. Risks really now today are accumulating. Uncertainties are much much bigger than in the previous years. That takes a risk premium.
Speaker #0
So on AI we've done the deep dive into the macro forces and this comparison with telecom in our episode 3 of Think Macro. And I invite you to listen to that if you want to have a clear view on AI. But coming back to what you just said, so it's a kind of wake-up call that's going to happen at some point and that's going to wake up probably more and more. investors. But in these events, if there is this wake-up call this year, what's going to be the impact? And as it touches the US economy, do you see a contagion to the rest of the world? Yes. The odds of a shock, of a serious challenge to markets and the US economy
Speaker #1
are significant in 2026, higher than last year and really significant. A big reason is the excess the US economy is being pushed toward. For political reasons, when you had 20 years of partnership with China that has morphed into a rivalry, a war with China, it takes you to excess. China has decided to say, OK, let's go for it. I'm going to run that race. Now, the US has no choice but to follow and run as well. And of course, if you decide to run in the current state of the US economy, an economy that is getting tied by the extent of its 30-year cycle, that now embeds some fragilities, you are increasing the risks. at a moment when you should do the opposite. But they have to run that race. Now, probably there's also a character reason. I mean, Donald Trump, his administration, probably also by character, mentally, want to fight that war and want... to go for that excess potentially. We've seen Donald Trump, I mean, what he did in 2025, he sees as success. Even short-term, maybe he's right. We are yet to see the long-term costs. It wins. Now, he's more likely than not to... push his advantage and try to continue along that route. We said we don't know where. Yeah, we don't know where, but he's likely to try to test the limit of markets, to test the limit of China, to test the limit of his partners. You see in Greenland, the Greenland story, it's his character. He's a businessman in the end. So, you know, as long as he's making money, he goes for it and as long as nobody says stop he's going to try. The risk is that he goes up to the limit, tests the limit, and when you start testing the limit of a fragile system you can really, really destabilize it. So let's be wary of that for 2026. Now, what does that mean for the US economy? Today, fundamentally, the economy is quite sound. Let's be clear. We're not talking about hard landing now. But the more we continue in this dynamics, the more we artificially outgrow potential in the US. the more you just pull that string and the harder the fall, when it happens, you know, it's that pit that is deepening on the side. And now for the rest of the world, it's a different story. For the rest of the world, conditions are a lot more robust, basically. If you take all these stabilizers we discussed for the US, that are now a lot less. efficient and a lot less available for the US economy they are for the rest of the world and because they've not been overused in the past they're quite likely to to prove even more efficient in case you need them take monetary policy there's no pretty much no inflation anywhere so you got a lot leeway there fiscal side of course levels are not good either but dynamics are very different in Europe China rest of the world you have some leeway there are savings Important savings is almost the opposite of the US where everything's been consumed and more. In the rest of the world, reserves of savings are very high. Not high, very high everywhere. That's robustness. There's a shock. You've got savings available. You don't in the US. And even for markets, they are a lot less sensitive to markets, sometimes actually not for so good reasons because people are not invested. But basically, you care less about market stability and its implications, which, again, is the opposite in the US. So you have a lot more leeway, stabilizers available with probably a lot more efficacy everywhere. in the rest of the world. So you can absorb pretty much shocks really to a large extent.
Speaker #0
But you just mentioned before, Vincent, that the US president Trump, he's testing the limit and not only on the economic side and front. We've seen that in Venezuela just at the beginning of the year. So it's beyond. the economy, wouldn't that have an impact on the rest of the world?
Speaker #1
Yes, that will be challenging if really he goes really far along that line. When you see in Venezuela the weaponization of U.S. assets to sort of seize our reserves out there, that's a dent in the world order. really of the last 50 years of equilibrium we had, of course, that is, when he interferes with the central bank, with markets, recently on AI. That's a dent in free markets. And we know how important free markets are in getting that competition that takes. the world economy higher. So potentially that's this behavior is a serious challenge, not just to the US economy for this year. It's a serious challenge to the world's older medium term. We'll see how far that goes, but that has to be factored in as well. We may be today experiencing a change of that. of these 50 years of post-Bretton Woods world, economic and monetary order. And against that, you've got China that is thriving, really taking its chance to participate, challenging the US and more and more. You realize that in some sectors are even ahead of the US. You have a system where basically equilibriums are being rebalanced and you're changing the world order. Now, what does that mean for assets and for markets? Again, when you are shocking a system, 50 years of system, it's not that little shock that comes as noise. You're changing that system. The more fragile you are,
Speaker #0
the higher the cost. And today... The fragile participant is the US, not China. So we are in an increasingly risky world. In this world, the rest of the world, China, other regions, is less risky. Let's take a positive view on that. What will be the potential, for example, if we start in Europe? Yeah, so as we said, on the risk side, it's a lot better, a lot more robust everywhere in the world but the US. Now,
Speaker #1
from being resilient to being performant, there's a world. And in Europe, that gap is big. Rigidity, political decision-making system, that is not very efficient. And above all, capital, this... culture of total absence of risk taking that takes time to change that takes years if not decades to change and europe will not release its full potential uh until it does that it does release that that capital potential make it put it at work make it work more efficiently than that than these Today's money market investment where basically money is parked on the side just in case. Now, Germany is trying with a program that goes well beyond the fiscal aspects. It's not just about defense and some infrastructure. there's a lot more to it they are creating a pension industry in particular where the goal is precisely to put that capital at work in germany above any other country capital is frozen creating pension funds of course then you're going to take more risk and you've got the ability to take that capital and and support sectors why not tech sectors and have europe compete with others on this on this revolution Germany is talking. It takes time. It takes a cultural change. You can question the difficulties you're always going to face to just spread that across all European countries. Time, difficulties, we read that as an option. So there's a possibility for Europe, medium term, to really release. its potential now the good news is that it's option shaped because we're starting from such a low base with so low expectations that you know you can only have end up with a positive story now hard to say whether it's going to happen or not and when yeah
Speaker #0
but if we if we uh so if we stay at a really macro level because of course there are idiosyncratic uh ideas or micro stories but We don't see big things coming from Europe or not huge positive things. What about the emerging markets?
Speaker #1
Emerging markets there, the planets are a lot better aligned. For a start, Asia, the region, benefits from the AI revolution as a provider. A much better position than the engine makers that are essentially based in the US have to invest a lot. potentially some profits in three, five, ten years in China. You sell pick and shovels, you sell them now, making the money now. Nobody's going to take it back from you. So China is really supported by this wave of investment now and probably for 2026 and maybe a few more years. Now, beyond the region, China also is reshaping its growth model and we would expect. substantial support from China in this new phase where consumption plays a bigger role in the economy mechanically because that's natural in the way the economy is shaped. The housing bubble is over. There's not going to be a drag on the economy much longer. You have a better social system, a better education system. You have aging, just the fact that all these savers are now retiring. more likely to consume more. You've got mechanical reasons for China to see consumption accelerate, as well as support from the state. There again, also in China, and the plan is to put money at work, develop investment. Today, capital is frozen. You want to incentivize equity investments in targeted sectors. You want to have these sectors pay well investors when they do invest in their companies. They get cheap capital, very well invested. They create that loop, basically market loop, where markets support and play their role in the economy and make it accelerate the American way, what America did in the 80s, 90s, really. China is trying to copy and repeat now. So that is going to be supportive for the whole Asian regions. So it's not just robustness. There's really strong potential there. And the cycle is not a tactical bet. There's a multi-year cycle in the making in Asia. Now that applies to some extent for different reasons to other emerging markets. That applies to Latin America also have better risk conditions. They've done the job over the last... five, ten years. They're usually the, you know, the bad guy at the back of the class, the classroom, you know, and but no, now Mexico, Brazil, other countries of the region, South Africa as well, have better balance data accounts, making their a lot more solid, a lot less dependent on what the US does and what the Fed does on rates. They have that robustness as well. And they do. benefit from the cycle in a different manner. I mean, reshoring onto the American continent is a strong supporting force. You have also commodity prices that benefit these countries more than anybody else. And last, maybe in some cases, also some organic stories. The domestic story is pretty strong as well, if you think of Brazil, for instance. So you also have a nice story for emerging markets. You've got the basis for that. You've got the potential. And you've got the move of capital that supports them.
Speaker #0
Thank you, Vincent, in a nutshell. Very positive. emerging markets and you see big risk on the US economy. Do you want to add something or complete?
Speaker #1
Yes, in a nutshell, that's a positive story across the board at the first order, even the US, but with many risks skewed to the downside for the US. More than 2025, when they had been telegraphed, not the case this time. Lots of uncertainties around that. When in the rest of the world, the asymmetry lies to the upside, potentially in Europe, with a lot more confidence in Asia and in Latin America. Now investors have started to acknowledge that. And you started to see in 2025 some move towards the rest of the world and particularly to emerging markets. We expect that. to continue in 2026 and probably in the years after that.
Speaker #0
Thank you, Vincent, for your insight and analysis on the U.S. economy and the global balances that we're living. 2026 promised to be an eventful year where we're going to have the chance to reconnect with you. Thank you to everyone who are listening to this first episode of the year. If you have any questions, please don't hesitate to contact your sales representative or visit our our website. We'll see you very soon with a new episode of Thinker Micro. Thank you again, Vincent.
Speaker #1
Thank you, Marc.

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