The Great US Asset Misprice: Where Smart Money Is Going | Marko Papic
Summary
Weaker Dollar: Expects a multi-year U.S. dollar decline similar to 2002–2007, driven by prior U.S. fiscal overexpansion and a likely dovish policy backdrop, without losing reserve currency status.
Europe: Bullish on Europe due to fiscal stimulus (notably Germany), structural reforms, deeper integration, and favorable valuations, with potential euro upside benefiting U.S.-based investors.
Spain: Highlights Spain’s manufacturing gains, robust retail banks, and strong immigration inflows from Latin America supporting growth, aided by EU labor mobility.
European Defense: Positive on European defense companies with sustained demand in a multipolar world and procurement rotation from the U.S.; suggests adding on a ceasefire-related pullback.
LNG Oversupply: Anticipates a “tsunami” of LNG supply from the U.S., Qatar, and Canada, while some emerging markets delay regasification, lowering European electricity costs and improving industrial competitiveness.
Rest of World: Foresees a post-U.S. election rotation of capital into international markets as global reforms and domestic fiscal actions reduce reliance on U.S. demand.
Macro-Geo Integration: Emphasizes geopolitics as foundational to macro investing, with policy signals and market structure (e.g., retail options activity) accelerating asset moves.
Reserve Currency Nuance: Central banks may diversify away from the dollar in reserves, but the USD remains dominant for trade and transaction settlement, especially with U.S. leadership in stablecoin infrastructure.
Transcript
US expanded its primary deficit by 40% of GDP from 2017 onwards. The closest major economy that came anywhere near that was Japan at like 12%. So you gotta understand it wasn't a global fiscal expansion, it was an American fiscal expansion. The bond market is saying no more. Marco, the godfather of Geo-Macro term you coined. Glad glad you're here, because if you didn't understand geo macro before, you certainly understand that after the last month that we just had in the markets insanity, precious metal ripped higher. Commodities going up. The value of the dollar against other currencies was going down. A reporter asked the president what he felt about the dollar. He said the dollar's fine. Then we have treasury secretary Bessett come out and say, oh no, the US has a strong dollar policy. Two days later, Warsh is announced as nominee for Fed Chairman. And metals get a smackdown. And that all was in about three week period, right? Like just three days. Amazing. Three days. Yeah. Right, right. It's, it is just incredible. It's what a time to be alive and be a geo macro strategist. So just gimme your thoughts on all of that and, and how it might impact BCAs, uh, research moving forward. Well, first of all, I think from a sort of a boring epidemiological perspective and business development. It is impacting us because, you know, BCA stands for Bank Credit Analyst. And in 1949, analyzing bank credit seemed like a pretty innovative thing to do. You know, um, 77 years later, uh, we've had to develop our internal politics and geopolitical capabilities, uh, first as an exogenous. Level of analysis, you know, so I, I led that effort from 2011 onwards at the firm. Um, that was more of a classical way to think about politics and geopolitics. It's sort of like, Hey, let me, let me think of my investment view right here. And then I'll put something on the back burner, like in a little pot on geopolitics, and I'll try to add it on top of the view. That's no longer what we really do. What we do now is we smash it all together because I don't think you could be a macro investor. If you don't start with politics in geopolitics, you can't wait until you have a view to then like think, oh, well how will this impact? No, no, no. Like, that's too late. Your view without devoid of politics in geopolitics could be completely wrong. You know, I'll tell you something, ed, I was just, uh, I was just speaking to a, a client of mine in Newport. Just really smart, smart asset manager. Um, lots of experience and, uh, grew up in a developing country like myself and said to me, you know, Marco, I feel like. In today's world, it's kind of like back home where you needed to know what the government was buying to make money. So can you tell me what the government is gonna buy over the next 12 months? You know, that's the world we're in and, and I'm nots, I'm not saying that's gonna necessarily work. I'm just saying that investors are starting to realize. This is a whole new ball game. So yeah, we are, it's how is it impacting us as a firm? I mean, it's at the very core of our DNA we're, we're mutating our DNA in real time. Do you have this sense, we talked about this a little bit before we started rolling, but the sense that, that everything in the markets is happening more quickly than ever. So yes, I'm not sure that's because of politics and geopolitics. I think that's, uh, you know, let's say Ed, you and I were like doing this in 1984. I think that. If we had X Twitter, you know, if we had YouTube, if we had access to the speed of information, we'd still be thinking about. You know, all sorts of stuff that was very cogent in 1980s, in, in very, in much faster pace. But I do think that there's a coalescence of like three big picture trends. First of all, Robinhood and the ability of any Jack, Jill, and Jane to like, sort of just start putting on options, uh, trading geopolitical events, geo macro events. I think that's, that's a game changer. Number one, two. The pandemic made us all doom, scrollers, uh, and armchair geopolitical analysts. And then three, just the speed of information. So yes, I do think that things are faster. At the same time. That means that often, uh, you will have certain assets just get stretched, stretched to their finite level where they may end up, like, what happened with gold? Silver this month, they get stretched maybe too far. And then something happens like President Trump, you know, appoints a pseudo hawk who was once a moist, who, you know, may or may not really make sense if you are like all in on the debasement of the dollar. And then, you know, these medals, no, it doesn't mean that your original thesis is, is is not right. It's just that too many people are trying to interpret, you know, uh, tenure year moves. On their Robin account. So that's Robinhood account and it's distorting the market, basically. Yeah, it's distorting it, but it's also, I, I'm not gonna fight it. I'm gonna embrace it because that's just the world we're in today. You know, it's just, and, and, and ultimately it's what butters my bread. So I'm not gonna complain about the whole Well, so where do you stand, Marco, on the whole idea? Debasement of the dollar, um, which is, which is sort of a, not exactly the same question, but a, a, a cousin of the question, um, is, is the reserve currency status of the US dollar at risk? First of all, I really don't like the term even though I've, uh, I'm guilty of using it myself, uh, at least in 2024 and 25. And the reason I don't like using it is because it gets folks overindexed to sort of. Super hard, real assets. Um, you know, and, and we saw what happened with gold and silver, uh, this month. Now I've been bullish gold from January of 2023 to March of 2025. When I said, oh, I've had enough, you know, 60% return is good for me. My worst call last year, the worst call was the opportunity cost of not having stayed in golf longer. Uh, but one of the things that I explained is that I do think that the Debasement trade got a little bit, people got a little bit too excited. I think that monetary policy of the United States of America is going to be too dovish. Whatever it is that you think it should be, it's probably gonna be more dovish than it should. I believe that the United States of America brought forward a ton of growth through unsustainable fiscal policy, and therefore there is a come up in trade. I believe that American assets, including the US dollar, way too overvalued so. But that's not the basement necessarily. That just means that we're going to enter another period of dollar decline that I've compared to 2002 to 2007. During that time, the US dollar fell 35%, so DXY went down to 80. That's a 35% decline from 2002 to 2007, the US did not lose reserve currency status and. I don't think you can really argue that the dollar was wantonly and purposefully debased during that period of time. I can build a macro case for why the same thing is gonna happen this time, why we end up at A-D-D-X-Y without any sort of, you know, momentous kind of terminology of it being the basement. Um, and so I don't think it's the basement. I just think that US dollar's too expensive. A lot of US growth over the past eight years has been pulled forward through fiscal policy. US expanded its primary deficit. Primary deficit by 40% of GDP from 2017 onwards. The closest major economy that came anywhere near that was Japan at like 12%. So you gotta understand like what the US really did was extraordinary. It wasn't a global fiscal expansion, it was an American fiscal expansion. The bond market is saying no more. Congress is saying, no more President Trump can't even get $2,000 tariff rebate through Congress. He won't get it. And then finally, I think the voters, and this is controversial, many of your listeners will disagree with me, but I think even voters, even the ones on the left, I mean their, their version of. Narrowing the deficit is different from those of the right. They'll just raise revenues and taxes, but there is a rising medium voter agreement that the deficits are too high. So yeah, I think that all of that together leads to a, uh, weaker dollar without, in any way, shape or form, losing reserve currency status. Now, will the US lose reserve currency status? I think we need to break that down. There's reserve currency status, which is. Currency used for transactions, currency used for trade financing, and then what's in the vaults of central banks. Too many investors and sort of macro thinkers focus just on that currency in the vaults of central banks. Absolutely. The dollar is gonna get crushed on that. I think it's going from 55% where it is today. To about 35% in like the next five, 10 years. And that's just smart currency management. You wanna diversify away from the US dollar when it comes to what's in the vaults of central banks, uh, gold has risen from 10 to 20%. Now you've got a lot of other currencies that are rising, um, uh, to offset the US decline, but I think that's the least relevant part of dollar as a reserve currency. I think what's most relevant is. What are you going to sell a barrel of oil in what currency? And also what are you basically using to finance trade transactions? And on those two, uh, fronts, I don't see the dollar losing reserve currencies. That's, in fact some of the things that the White House is doing is probably going to strengthen the dollar as a transaction currency particularly. All the Genius Act stuff and you know, looking into stable coins, the US is just far ahead of anyone else in that front. This is the first time Marco, in many, many years that I can remember hearing so many investors talk about. How to invest outside of the us. Like they, like, it's like one day everyone woke up and looked at their portfolio and said, oh, oh my God, all of my assets are in the us And maybe that's not such a good idea. It was a great idea. It worked, but maybe things are different Now. You, I know, have some thoughts because you sent me a lot of your research, uh, and thank you for that. Uh, Europe, what are, what are your thoughts on Europe? I've had a view since, uh, 2024. Since March of 2024 that after the US election, there would be a significant rotation, um, into the rest of the world. Now again, just like with the basement of the US dollar, I don't like to sell America trade. I like the buy rest of the world trade. You know, and now are you gonna have to sell some America to buy the rest of the world? Maybe, but not necessarily. Not all investors think that way, and many are just gonna put the incremental new dollar of savings to work somewhere else. Um, so on that front, I think that, um, I am excited about the rest of the world. I think that the reason I'm excited is actually that President Trump is catalyzing structural reforms and fiscal policy around the world. Uh, he's being very honest, brutally honest, and he's telling to the rest of the world, like, look, you're gonna have to, you know, kind of be on your own a little bit. You can't just build stuff and expect Americans to buy them. That's not really a business model that works. And so a lot of the countries are not just fiscally stimulating domestically, like Europe is. One of the reasons to be bullish Europe is because, you know, Germany's on an investment, um, uh, kick, uh, Friedrich Mertz, the chancellor. You know, at Davos was very clear that he intends to finance a lot of investment. Uh, folks I think sometimes underestimate why that matters. They're like, well, it's just Germany. Germany's the third largest economy in the world. So this is relevant for Europe, but there's more than that. It's not just that other countries want to stimulate fiscally, they're also starting to think about the ways that their economies have been unproductive on uncompetitive with the United States of America. If United States America's not gonna share its final demand with you, well, you're gonna have to then figure out how to structural reform domestically. Sorry, my dog. Just went off. It's not just so much that they're going to fiscally stimulate the economies, but there's also a lot of structural reforms that are happening. Canada is solving inefficiency. It's had for 150 years where provinces don't have free trade amongst each other. Europe is starting to look into. Completing a single market which is completed in goods but never got completed in services. So that will lead to a wave of m and a activity. And then you have idiosyncratic reasons to be bullish about particular economies in Europe's case. The one that I think is the least appreciated is that Europe will be drowned in a tsunami wave of LNG supply. There's just too much LNG supply coming online over the next couple of years. Thanks to us Qatar, British Columbia, and uh, not as much demand. As I think a lot of these producers thought there would be. Really, so you, you think LNG is not going to be as in demand as, as as industry predicting? I think that there will be a lot of demand is just that the supply is overwhelming, you know, and part of the reason Really. Okay. Yeah. Part of the reason is what happened when Russia invaded Ukraine is the. Tail is old as time. You know, uh, high price, high energy prices are a cure for high energy prices. So a lot of countries that planned to build reification terminals. Are actually less developed like Pakistan, Sri Lanka, Bangladesh, India. And they just said, look, I mean this, these prices went through the roof. I'm gonna delay my Reg Regasification terminal. I'm going to start, um, I'm gonna continue to rely on coal. Now. Good news for producers of LNG. You can build a Regasification terminal in nine months, as Europeans proved. Actually Germans build them in three months. So it's not like this is going to be a permanent state of affair, but I do think that the, just the supply is overwhelming. There's going to be a lot of it. And so European electricity prices that have made many parts of their, you know, industry on competitive, particularly the energy intensive one. Uh, those are going to structurally decline further. So between that structural reforms and then fiscal policy catalyzed by basically like Trump's meanness, you know, um, I think that Europe is in a sweet spot. So Europe's a big place and it's an extremely diverse place. It's, uh, has a long history of infighting. Uh, it's not, it's not one place, right? It's, it's, it's a, it's a spot on the map where there's many, many countries. So. Can we, can we split it up? Simply start by splitting it up between east and west? Like, like would you favor one side over the other? I would disagree with that premise. Really? Yeah. That's, that's why I'm so bullish. You know, you've got Vladimir Putin and his aggression on one side, you've got Donald Trump and his aloofness on the other side, and so Europe is actually becoming more and more of a one place. Where you can think about sectors, not necessarily countries. So, no, I would actually tell, uh, first of all, think about European banks, which have outperformed Meg seven for the last 18 months. As an example of this, you should start thinking of Europe in sectors, not necessarily countries, number one. Number two, there was this German finance minister. Um. Two track, two speed Europe proposal that was just revealed a couple of days ago. And it involves Germany, France, Italy, Spain, Poland, and the Netherlands, six countries. So EMU five as they're called, plus Poland. And they intend to integrate even faster without the commission, without the eu. You know, and this is really, really positive because. Investors always talk about how European companies don't have as high profit margins as American, but why? It's because of the point you made. There's just too many jurisdictions and each jurisdiction wants to have like three telecom companies. So you have this incredible situation where an average telecom company in China has 400 million customers. An average American telecom company has 120 million customers, average European. Two, 2 million customers. It doesn't mean that their product, actually, many of their products are far superior than we. We have. I mean, I'll tell you, driving from Santa Monica to Malibu on PCH. Good luck keeping your conversation. And it's like you're in LA on the most iconic highway in the world. And your call is dropped like three times. So it's not that the product is worse, it's just, it's that the regulatory environment reflects what you said, which is a very divided continent. I believe that the geopolitical environment today, and this is a perfect example of geo macro. It's the geopolitical environment that is finally going to force him. To solve these issues and just from history, what we know is that when countries integrate, where you get disparate units to become one, like the 13 colonies of United States of America as an example, whether it's uh, German states, the Bismarck, United Gary BDI in Italy, it's very rare that people unite because they love each other. And they want to be in the same country. They do it out of fear, and I think that we're finally at a point where there's sufficient fear in Europe for this kind of reform. You have one particular country in Europe that you've highlighted in your research that really surprised me, and then the one of the reasons that surprised me is because it's one of the countries that shows up on a lot of screens for negative demographics. Like I was just researching with my team last week. What, what are the areas of the world with the fastest growing middle class, and what are the areas with the fastest shrinking middle class and Europe shows up on the, on the, on the worst. So, you know, like a lot of European countries show up on sort of the bad side of that equation. Spain in particular, Spain, uh, Italy, Germany, all in the top 10 over the past 10 years. Shrinking middle class. Um. But you like Spain, you mentioned Germany. What, what do you, what do you like about it? So, with Spain, you know, Spain has captured a lot of the manufacturing. From the core. So it's already done that. And it has a, is that because of cost? Yeah, partly because of cost, but they're also, it's also because of, um, high quality. So it's kind of a sweet spot in that way. Uh, it's banking system is extremely robust. Uh, Spanish banks from a retail perspective, we're not talking investment banks, but retail banks, they just know how to do retail banking. And then finally, the demographic issue is sort of, I don't wanna say solved, but it's, uh. Yeah, it's kind of solved, um, very low birth rates for sure. But Spain is the gateway for Latin American immigrants to Europe. Um, and we're talking a lot of them. Yeah. And, uh, you know, and these are pretty high quality, like carefully selected immigrants. Not always, obviously, but remember, you can't walk or swim to Spain, so, uh. That creates barriers for immigrants to enter in. So you are getting some filtering. Um, highly productive for the most part. Educated, hardworking, people are entering and there's no cultural problems. I mean, you know, many of these places were obviously, you know, parts of the Spanish Empire. Religious linguistic in many ways, ethnic similarities, um, health, food integration. And so I do think that Spain in many uh, ways is the tip of the spear for the us uh, for Europe in terms of both growth. I mean, they have in just growth outcomes, although that is backward looking. It doesn't guarantee future returns, but. For the past four years, it's one of, if not the best growing European country. And, uh, it's become an entryway for a lot of very high quality migrants into Europe. Now, one thing that investors have to understand is that Europe has, uh, free movement of labor. Within the eu. So once you enter Spain and you get a work permit, you're authorized to work anywhere else. You can just, you know, pick up and go to Finland if you want. Obviously language is a huge barrier for Europeans that it isn't in the us but increasingly that is being solved through technology or just use of English in many workplaces. Not all, obviously at a very high level, you know? Uh, but my point is that this is very beneficial for both Spain and for Europe. On the other side, you have Poland. Poland's gonna benefit considerably from rebuilding of Ukraine. But also it's already benefiting, you know, it's already benefiting just from immigrants from Ukraine who are also another example of very high quality migrants that have come to Europe. So when, when people say to me, Marco, how can you be bullish in Europe when demographics are so poor? Remember. Unless you're investing on a 30 year horizon, like pump the brakes a little on the demographic story, like I can be bullish three to four years and make pretty good returns. I don't think anyone's gonna like frown on that. But the second thing is I'm not sure that Europe has worse demographics than the US US is in the process. Of effectively stopping migration. I'm not criticizing that there's many reasons to do that, but that's what's happening. Uh, I think President Trump plans to restart it once it's kind of reset at a new baseline. Got it. Cool. Might work. Might not work. We'll see. The fact of the matter is it's a pretty sudden stop in migration, which will collapse American. Labor force growth. And on the other hand you have Europe where this adage that Europe only attracts low quality migrants and cannot be integrated is just false. Between Latin America and Ukraine, you're talking millions, millions of people entering Europe and contributing quite significantly to, uh, potential GDP growth rate. Okay, last question on Europe. How much. Of, of your thesis ties to defense. 'cause clearly they are in a position where they need to spend some money on, on their own defense. My thesis rests on seven different pillars. Um, defense is just one of them. We talk about migration. You know, we talked about integration and structural reform. We talked in fiscal policy. Um, and then what we didn't talk about is valuations still favor Europe. We also should talk about the fact that I think Euro has more upside. So as a American investor, simply just buying a European assets exposes you to that currency difference. Um, and then finally, um, one thing we don't talk about is domestic politics. Um, European integration is kind of a sold issue even in Germany where alternative for Deutsche land is leading in the polls. Depending on the polls, they're considered a very europ party. They're actually more like anti-immigrant party. Then they are europ. In fact, when President Trump, you know, was very aggressive towards Denmark on Greenland. It was, it was kind of shocking to see some of these supposedly europ parties defend Europe in its sovereignty. It's, it's sort of a sign of maturing. And then finally, yes, there is the defense thesis. I'm bullish. I think that, uh, for investors who didn't buy European defense companies, you know, who missed kind of the huge rally wait until Ukraine and Russia get a ceasefire. Once that happens, I think we'll get a bottom because European defense stocks are not going up because of one war, one conflict. One Russian invasion. They're going up because of concerns about future invasions. And for two more reasons, these are very good companies. They make very good, um, defense products for the rest of the world. The rest of the world in this multipolar world we live in is gonna need a lot of defense, uh, goods. And then the finally there is gonna be a rotation out of us. Military procurement towards European, um, Europeans are not going to spend more on defense and support American economy. They're gonna be nationalist about what weapons they buy. So that's a pretty good gravy train, not just from new demand, but also rotation out of some of the. Long term US contracts as well. All right. Some interesting thoughts there, Marco. Where could people learn more about you and your research? Well, BC research.com of course. That's where, um, all the research is, uh, you know, held. But there's two other ways to kind of get some of my thoughts. Not so much the investment views, more the geopolitical ones. Uh, I'm pretty active on X. And then finally, uh, there is a podcast called Geopolitical Cousins, where I try to, uh, make geopolitics entertaining again with my friend Jacob Shapiro. Yeah, that's great. That's right. Yes. Jacob and I were cousins. Uh, not really, not literally, but mentally. And so we try to, uh, we try to, you know. The reason we have that podcast is because I think that sometimes people overcomplicate, geopolitics, uh, and also I think that sometimes people get very, very, um, you know, analysis is difficult in this very partisan time. And so we try to cut through that, uh, with as much of an unbiased and non-partisan lens as we can. It's hard to get away from narratives too, right? Like narratives are great, but sometimes they. They can get it in the way of real time analysis, like the situation changes and you're still living in the old narrative. No, absolutely. Uh, I think narratives are cognitive, you know, shortcuts and that's great. Like we all use them. Uh, stereotypes. Narratives, uh, they're crutches that we use to make, you know, sense of life. But yes, it would. That's why we have this podcast kind of to break those down. And what we find, you know, Jacob and I are not exactly aligned on the ideological or like viewpoint spectrum, but what we find is that we kind of defend the, the other side that you would think one of us would. Actually adopt or be against. And so that's always cool. It's just the power of conversation. And I think not enough of us have that we're just shouting at each other or we're just self-selecting. To social media to support these narratives, which then become ossified. Alright. Well, Marco, it's always good to see you. I really appreciate your time. Thank you for the platform, ed. It's a real pleasure. Hey, if you're still with me, then you will definitely like my weekly newsletter where I dig deeper into the topics that we cover here on Global Macro Update. You can sign up by clicking the link in the description below. I'm Ed Dino from Malden Economics. Thanks for joining me.
The Great US Asset Misprice: Where Smart Money Is Going | Marko Papic
Summary
Transcript
US expanded its primary deficit by 40% of GDP from 2017 onwards. The closest major economy that came anywhere near that was Japan at like 12%. So you gotta understand it wasn't a global fiscal expansion, it was an American fiscal expansion. The bond market is saying no more. Marco, the godfather of Geo-Macro term you coined. Glad glad you're here, because if you didn't understand geo macro before, you certainly understand that after the last month that we just had in the markets insanity, precious metal ripped higher. Commodities going up. The value of the dollar against other currencies was going down. A reporter asked the president what he felt about the dollar. He said the dollar's fine. Then we have treasury secretary Bessett come out and say, oh no, the US has a strong dollar policy. Two days later, Warsh is announced as nominee for Fed Chairman. And metals get a smackdown. And that all was in about three week period, right? Like just three days. Amazing. Three days. Yeah. Right, right. It's, it is just incredible. It's what a time to be alive and be a geo macro strategist. So just gimme your thoughts on all of that and, and how it might impact BCAs, uh, research moving forward. Well, first of all, I think from a sort of a boring epidemiological perspective and business development. It is impacting us because, you know, BCA stands for Bank Credit Analyst. And in 1949, analyzing bank credit seemed like a pretty innovative thing to do. You know, um, 77 years later, uh, we've had to develop our internal politics and geopolitical capabilities, uh, first as an exogenous. Level of analysis, you know, so I, I led that effort from 2011 onwards at the firm. Um, that was more of a classical way to think about politics and geopolitics. It's sort of like, Hey, let me, let me think of my investment view right here. And then I'll put something on the back burner, like in a little pot on geopolitics, and I'll try to add it on top of the view. That's no longer what we really do. What we do now is we smash it all together because I don't think you could be a macro investor. If you don't start with politics in geopolitics, you can't wait until you have a view to then like think, oh, well how will this impact? No, no, no. Like, that's too late. Your view without devoid of politics in geopolitics could be completely wrong. You know, I'll tell you something, ed, I was just, uh, I was just speaking to a, a client of mine in Newport. Just really smart, smart asset manager. Um, lots of experience and, uh, grew up in a developing country like myself and said to me, you know, Marco, I feel like. In today's world, it's kind of like back home where you needed to know what the government was buying to make money. So can you tell me what the government is gonna buy over the next 12 months? You know, that's the world we're in and, and I'm nots, I'm not saying that's gonna necessarily work. I'm just saying that investors are starting to realize. This is a whole new ball game. So yeah, we are, it's how is it impacting us as a firm? I mean, it's at the very core of our DNA we're, we're mutating our DNA in real time. Do you have this sense, we talked about this a little bit before we started rolling, but the sense that, that everything in the markets is happening more quickly than ever. So yes, I'm not sure that's because of politics and geopolitics. I think that's, uh, you know, let's say Ed, you and I were like doing this in 1984. I think that. If we had X Twitter, you know, if we had YouTube, if we had access to the speed of information, we'd still be thinking about. You know, all sorts of stuff that was very cogent in 1980s, in, in very, in much faster pace. But I do think that there's a coalescence of like three big picture trends. First of all, Robinhood and the ability of any Jack, Jill, and Jane to like, sort of just start putting on options, uh, trading geopolitical events, geo macro events. I think that's, that's a game changer. Number one, two. The pandemic made us all doom, scrollers, uh, and armchair geopolitical analysts. And then three, just the speed of information. So yes, I do think that things are faster. At the same time. That means that often, uh, you will have certain assets just get stretched, stretched to their finite level where they may end up, like, what happened with gold? Silver this month, they get stretched maybe too far. And then something happens like President Trump, you know, appoints a pseudo hawk who was once a moist, who, you know, may or may not really make sense if you are like all in on the debasement of the dollar. And then, you know, these medals, no, it doesn't mean that your original thesis is, is is not right. It's just that too many people are trying to interpret, you know, uh, tenure year moves. On their Robin account. So that's Robinhood account and it's distorting the market, basically. Yeah, it's distorting it, but it's also, I, I'm not gonna fight it. I'm gonna embrace it because that's just the world we're in today. You know, it's just, and, and, and ultimately it's what butters my bread. So I'm not gonna complain about the whole Well, so where do you stand, Marco, on the whole idea? Debasement of the dollar, um, which is, which is sort of a, not exactly the same question, but a, a, a cousin of the question, um, is, is the reserve currency status of the US dollar at risk? First of all, I really don't like the term even though I've, uh, I'm guilty of using it myself, uh, at least in 2024 and 25. And the reason I don't like using it is because it gets folks overindexed to sort of. Super hard, real assets. Um, you know, and, and we saw what happened with gold and silver, uh, this month. Now I've been bullish gold from January of 2023 to March of 2025. When I said, oh, I've had enough, you know, 60% return is good for me. My worst call last year, the worst call was the opportunity cost of not having stayed in golf longer. Uh, but one of the things that I explained is that I do think that the Debasement trade got a little bit, people got a little bit too excited. I think that monetary policy of the United States of America is going to be too dovish. Whatever it is that you think it should be, it's probably gonna be more dovish than it should. I believe that the United States of America brought forward a ton of growth through unsustainable fiscal policy, and therefore there is a come up in trade. I believe that American assets, including the US dollar, way too overvalued so. But that's not the basement necessarily. That just means that we're going to enter another period of dollar decline that I've compared to 2002 to 2007. During that time, the US dollar fell 35%, so DXY went down to 80. That's a 35% decline from 2002 to 2007, the US did not lose reserve currency status and. I don't think you can really argue that the dollar was wantonly and purposefully debased during that period of time. I can build a macro case for why the same thing is gonna happen this time, why we end up at A-D-D-X-Y without any sort of, you know, momentous kind of terminology of it being the basement. Um, and so I don't think it's the basement. I just think that US dollar's too expensive. A lot of US growth over the past eight years has been pulled forward through fiscal policy. US expanded its primary deficit. Primary deficit by 40% of GDP from 2017 onwards. The closest major economy that came anywhere near that was Japan at like 12%. So you gotta understand like what the US really did was extraordinary. It wasn't a global fiscal expansion, it was an American fiscal expansion. The bond market is saying no more. Congress is saying, no more President Trump can't even get $2,000 tariff rebate through Congress. He won't get it. And then finally, I think the voters, and this is controversial, many of your listeners will disagree with me, but I think even voters, even the ones on the left, I mean their, their version of. Narrowing the deficit is different from those of the right. They'll just raise revenues and taxes, but there is a rising medium voter agreement that the deficits are too high. So yeah, I think that all of that together leads to a, uh, weaker dollar without, in any way, shape or form, losing reserve currency status. Now, will the US lose reserve currency status? I think we need to break that down. There's reserve currency status, which is. Currency used for transactions, currency used for trade financing, and then what's in the vaults of central banks. Too many investors and sort of macro thinkers focus just on that currency in the vaults of central banks. Absolutely. The dollar is gonna get crushed on that. I think it's going from 55% where it is today. To about 35% in like the next five, 10 years. And that's just smart currency management. You wanna diversify away from the US dollar when it comes to what's in the vaults of central banks, uh, gold has risen from 10 to 20%. Now you've got a lot of other currencies that are rising, um, uh, to offset the US decline, but I think that's the least relevant part of dollar as a reserve currency. I think what's most relevant is. What are you going to sell a barrel of oil in what currency? And also what are you basically using to finance trade transactions? And on those two, uh, fronts, I don't see the dollar losing reserve currencies. That's, in fact some of the things that the White House is doing is probably going to strengthen the dollar as a transaction currency particularly. All the Genius Act stuff and you know, looking into stable coins, the US is just far ahead of anyone else in that front. This is the first time Marco, in many, many years that I can remember hearing so many investors talk about. How to invest outside of the us. Like they, like, it's like one day everyone woke up and looked at their portfolio and said, oh, oh my God, all of my assets are in the us And maybe that's not such a good idea. It was a great idea. It worked, but maybe things are different Now. You, I know, have some thoughts because you sent me a lot of your research, uh, and thank you for that. Uh, Europe, what are, what are your thoughts on Europe? I've had a view since, uh, 2024. Since March of 2024 that after the US election, there would be a significant rotation, um, into the rest of the world. Now again, just like with the basement of the US dollar, I don't like to sell America trade. I like the buy rest of the world trade. You know, and now are you gonna have to sell some America to buy the rest of the world? Maybe, but not necessarily. Not all investors think that way, and many are just gonna put the incremental new dollar of savings to work somewhere else. Um, so on that front, I think that, um, I am excited about the rest of the world. I think that the reason I'm excited is actually that President Trump is catalyzing structural reforms and fiscal policy around the world. Uh, he's being very honest, brutally honest, and he's telling to the rest of the world, like, look, you're gonna have to, you know, kind of be on your own a little bit. You can't just build stuff and expect Americans to buy them. That's not really a business model that works. And so a lot of the countries are not just fiscally stimulating domestically, like Europe is. One of the reasons to be bullish Europe is because, you know, Germany's on an investment, um, uh, kick, uh, Friedrich Mertz, the chancellor. You know, at Davos was very clear that he intends to finance a lot of investment. Uh, folks I think sometimes underestimate why that matters. They're like, well, it's just Germany. Germany's the third largest economy in the world. So this is relevant for Europe, but there's more than that. It's not just that other countries want to stimulate fiscally, they're also starting to think about the ways that their economies have been unproductive on uncompetitive with the United States of America. If United States America's not gonna share its final demand with you, well, you're gonna have to then figure out how to structural reform domestically. Sorry, my dog. Just went off. It's not just so much that they're going to fiscally stimulate the economies, but there's also a lot of structural reforms that are happening. Canada is solving inefficiency. It's had for 150 years where provinces don't have free trade amongst each other. Europe is starting to look into. Completing a single market which is completed in goods but never got completed in services. So that will lead to a wave of m and a activity. And then you have idiosyncratic reasons to be bullish about particular economies in Europe's case. The one that I think is the least appreciated is that Europe will be drowned in a tsunami wave of LNG supply. There's just too much LNG supply coming online over the next couple of years. Thanks to us Qatar, British Columbia, and uh, not as much demand. As I think a lot of these producers thought there would be. Really, so you, you think LNG is not going to be as in demand as, as as industry predicting? I think that there will be a lot of demand is just that the supply is overwhelming, you know, and part of the reason Really. Okay. Yeah. Part of the reason is what happened when Russia invaded Ukraine is the. Tail is old as time. You know, uh, high price, high energy prices are a cure for high energy prices. So a lot of countries that planned to build reification terminals. Are actually less developed like Pakistan, Sri Lanka, Bangladesh, India. And they just said, look, I mean this, these prices went through the roof. I'm gonna delay my Reg Regasification terminal. I'm going to start, um, I'm gonna continue to rely on coal. Now. Good news for producers of LNG. You can build a Regasification terminal in nine months, as Europeans proved. Actually Germans build them in three months. So it's not like this is going to be a permanent state of affair, but I do think that the, just the supply is overwhelming. There's going to be a lot of it. And so European electricity prices that have made many parts of their, you know, industry on competitive, particularly the energy intensive one. Uh, those are going to structurally decline further. So between that structural reforms and then fiscal policy catalyzed by basically like Trump's meanness, you know, um, I think that Europe is in a sweet spot. So Europe's a big place and it's an extremely diverse place. It's, uh, has a long history of infighting. Uh, it's not, it's not one place, right? It's, it's, it's a, it's a spot on the map where there's many, many countries. So. Can we, can we split it up? Simply start by splitting it up between east and west? Like, like would you favor one side over the other? I would disagree with that premise. Really? Yeah. That's, that's why I'm so bullish. You know, you've got Vladimir Putin and his aggression on one side, you've got Donald Trump and his aloofness on the other side, and so Europe is actually becoming more and more of a one place. Where you can think about sectors, not necessarily countries. So, no, I would actually tell, uh, first of all, think about European banks, which have outperformed Meg seven for the last 18 months. As an example of this, you should start thinking of Europe in sectors, not necessarily countries, number one. Number two, there was this German finance minister. Um. Two track, two speed Europe proposal that was just revealed a couple of days ago. And it involves Germany, France, Italy, Spain, Poland, and the Netherlands, six countries. So EMU five as they're called, plus Poland. And they intend to integrate even faster without the commission, without the eu. You know, and this is really, really positive because. Investors always talk about how European companies don't have as high profit margins as American, but why? It's because of the point you made. There's just too many jurisdictions and each jurisdiction wants to have like three telecom companies. So you have this incredible situation where an average telecom company in China has 400 million customers. An average American telecom company has 120 million customers, average European. Two, 2 million customers. It doesn't mean that their product, actually, many of their products are far superior than we. We have. I mean, I'll tell you, driving from Santa Monica to Malibu on PCH. Good luck keeping your conversation. And it's like you're in LA on the most iconic highway in the world. And your call is dropped like three times. So it's not that the product is worse, it's just, it's that the regulatory environment reflects what you said, which is a very divided continent. I believe that the geopolitical environment today, and this is a perfect example of geo macro. It's the geopolitical environment that is finally going to force him. To solve these issues and just from history, what we know is that when countries integrate, where you get disparate units to become one, like the 13 colonies of United States of America as an example, whether it's uh, German states, the Bismarck, United Gary BDI in Italy, it's very rare that people unite because they love each other. And they want to be in the same country. They do it out of fear, and I think that we're finally at a point where there's sufficient fear in Europe for this kind of reform. You have one particular country in Europe that you've highlighted in your research that really surprised me, and then the one of the reasons that surprised me is because it's one of the countries that shows up on a lot of screens for negative demographics. Like I was just researching with my team last week. What, what are the areas of the world with the fastest growing middle class, and what are the areas with the fastest shrinking middle class and Europe shows up on the, on the, on the worst. So, you know, like a lot of European countries show up on sort of the bad side of that equation. Spain in particular, Spain, uh, Italy, Germany, all in the top 10 over the past 10 years. Shrinking middle class. Um. But you like Spain, you mentioned Germany. What, what do you, what do you like about it? So, with Spain, you know, Spain has captured a lot of the manufacturing. From the core. So it's already done that. And it has a, is that because of cost? Yeah, partly because of cost, but they're also, it's also because of, um, high quality. So it's kind of a sweet spot in that way. Uh, it's banking system is extremely robust. Uh, Spanish banks from a retail perspective, we're not talking investment banks, but retail banks, they just know how to do retail banking. And then finally, the demographic issue is sort of, I don't wanna say solved, but it's, uh. Yeah, it's kind of solved, um, very low birth rates for sure. But Spain is the gateway for Latin American immigrants to Europe. Um, and we're talking a lot of them. Yeah. And, uh, you know, and these are pretty high quality, like carefully selected immigrants. Not always, obviously, but remember, you can't walk or swim to Spain, so, uh. That creates barriers for immigrants to enter in. So you are getting some filtering. Um, highly productive for the most part. Educated, hardworking, people are entering and there's no cultural problems. I mean, you know, many of these places were obviously, you know, parts of the Spanish Empire. Religious linguistic in many ways, ethnic similarities, um, health, food integration. And so I do think that Spain in many uh, ways is the tip of the spear for the us uh, for Europe in terms of both growth. I mean, they have in just growth outcomes, although that is backward looking. It doesn't guarantee future returns, but. For the past four years, it's one of, if not the best growing European country. And, uh, it's become an entryway for a lot of very high quality migrants into Europe. Now, one thing that investors have to understand is that Europe has, uh, free movement of labor. Within the eu. So once you enter Spain and you get a work permit, you're authorized to work anywhere else. You can just, you know, pick up and go to Finland if you want. Obviously language is a huge barrier for Europeans that it isn't in the us but increasingly that is being solved through technology or just use of English in many workplaces. Not all, obviously at a very high level, you know? Uh, but my point is that this is very beneficial for both Spain and for Europe. On the other side, you have Poland. Poland's gonna benefit considerably from rebuilding of Ukraine. But also it's already benefiting, you know, it's already benefiting just from immigrants from Ukraine who are also another example of very high quality migrants that have come to Europe. So when, when people say to me, Marco, how can you be bullish in Europe when demographics are so poor? Remember. Unless you're investing on a 30 year horizon, like pump the brakes a little on the demographic story, like I can be bullish three to four years and make pretty good returns. I don't think anyone's gonna like frown on that. But the second thing is I'm not sure that Europe has worse demographics than the US US is in the process. Of effectively stopping migration. I'm not criticizing that there's many reasons to do that, but that's what's happening. Uh, I think President Trump plans to restart it once it's kind of reset at a new baseline. Got it. Cool. Might work. Might not work. We'll see. The fact of the matter is it's a pretty sudden stop in migration, which will collapse American. Labor force growth. And on the other hand you have Europe where this adage that Europe only attracts low quality migrants and cannot be integrated is just false. Between Latin America and Ukraine, you're talking millions, millions of people entering Europe and contributing quite significantly to, uh, potential GDP growth rate. Okay, last question on Europe. How much. Of, of your thesis ties to defense. 'cause clearly they are in a position where they need to spend some money on, on their own defense. My thesis rests on seven different pillars. Um, defense is just one of them. We talk about migration. You know, we talked about integration and structural reform. We talked in fiscal policy. Um, and then what we didn't talk about is valuations still favor Europe. We also should talk about the fact that I think Euro has more upside. So as a American investor, simply just buying a European assets exposes you to that currency difference. Um, and then finally, um, one thing we don't talk about is domestic politics. Um, European integration is kind of a sold issue even in Germany where alternative for Deutsche land is leading in the polls. Depending on the polls, they're considered a very europ party. They're actually more like anti-immigrant party. Then they are europ. In fact, when President Trump, you know, was very aggressive towards Denmark on Greenland. It was, it was kind of shocking to see some of these supposedly europ parties defend Europe in its sovereignty. It's, it's sort of a sign of maturing. And then finally, yes, there is the defense thesis. I'm bullish. I think that, uh, for investors who didn't buy European defense companies, you know, who missed kind of the huge rally wait until Ukraine and Russia get a ceasefire. Once that happens, I think we'll get a bottom because European defense stocks are not going up because of one war, one conflict. One Russian invasion. They're going up because of concerns about future invasions. And for two more reasons, these are very good companies. They make very good, um, defense products for the rest of the world. The rest of the world in this multipolar world we live in is gonna need a lot of defense, uh, goods. And then the finally there is gonna be a rotation out of us. Military procurement towards European, um, Europeans are not going to spend more on defense and support American economy. They're gonna be nationalist about what weapons they buy. So that's a pretty good gravy train, not just from new demand, but also rotation out of some of the. Long term US contracts as well. All right. Some interesting thoughts there, Marco. Where could people learn more about you and your research? Well, BC research.com of course. That's where, um, all the research is, uh, you know, held. But there's two other ways to kind of get some of my thoughts. Not so much the investment views, more the geopolitical ones. Uh, I'm pretty active on X. And then finally, uh, there is a podcast called Geopolitical Cousins, where I try to, uh, make geopolitics entertaining again with my friend Jacob Shapiro. Yeah, that's great. That's right. Yes. Jacob and I were cousins. Uh, not really, not literally, but mentally. And so we try to, uh, we try to, you know. The reason we have that podcast is because I think that sometimes people overcomplicate, geopolitics, uh, and also I think that sometimes people get very, very, um, you know, analysis is difficult in this very partisan time. And so we try to cut through that, uh, with as much of an unbiased and non-partisan lens as we can. It's hard to get away from narratives too, right? Like narratives are great, but sometimes they. They can get it in the way of real time analysis, like the situation changes and you're still living in the old narrative. No, absolutely. Uh, I think narratives are cognitive, you know, shortcuts and that's great. Like we all use them. Uh, stereotypes. Narratives, uh, they're crutches that we use to make, you know, sense of life. But yes, it would. That's why we have this podcast kind of to break those down. And what we find, you know, Jacob and I are not exactly aligned on the ideological or like viewpoint spectrum, but what we find is that we kind of defend the, the other side that you would think one of us would. Actually adopt or be against. And so that's always cool. It's just the power of conversation. And I think not enough of us have that we're just shouting at each other or we're just self-selecting. To social media to support these narratives, which then become ossified. Alright. Well, Marco, it's always good to see you. I really appreciate your time. Thank you for the platform, ed. It's a real pleasure. Hey, if you're still with me, then you will definitely like my weekly newsletter where I dig deeper into the topics that we cover here on Global Macro Update. You can sign up by clicking the link in the description below. I'm Ed Dino from Malden Economics. Thanks for joining me.