Transcription
When the world is afraid, it buys dollars. And when the world is optimistic, it buys American stocks. So in both cases, the United States attracts money. Yes, I know, it's a pretty crazy paradox. And yet, look at their situation. They have a huge public debt. They spend much more than they earn. They import more than they export, and in total, they owe more money to the rest of the world than the rest of the world owes them. Normally, a country like that ends up having a problem. Its currency falls, inflation rises, and investors start looking for an exit. But that's not at all what's happening with the United States. Foreign investors continue to buy American debt. They continue to buy American stocks, American corporate bonds, and even when markets doubt the United States a little, they can't find a place as convenient to put their money. One might think that the United States is invincible. Personally, I don't believe it. But the opposite mistake would be to believe that their power is solely due to a kind of tech bubble, to Nvidia, to world ETFs, or to a few very large tech companies. But the system is deeper than that. The global stock market depends on the United States, but the United States also depends on the rest of the world. They depend on its savings, on its confidence in the dollar, and on its willingness to continue buying their assets and financing their debts. And it is this loop that explains a large part of their power today. It can continue for a very long time, but when everything relies on the same engine, the slightest breakdown can have consequences everywhere. And that's a bit of the risk with this loop around the dollar and the United States. It's true that when we think of American imports, we imagine German cars, we see Chinese clothes, we think of phones, oil, or electronic components. But the United States also imports something else, and we don't think about it much: they import savings. Take a Japanese insurance company, a Swiss bank, an Asian central bank, or even a sovereign wealth fund from the Gulf; they all have the same problem. They need to place enormous sums, and they want assets that are easy to buy, easy to sell, reasonably safe, and especially available in very large quantities. And that's exactly what the United States produces on a large scale. They produce dollars, Treasury bonds, corporate bonds, and shares of multinational corporations. Now, I know it's not very intuitive, but the American external deficit is not just a weakness. The United States buys more goods from the rest of the world than it sells to it. So, the rest of the world ends up with dollars, and these dollars have to be placed somewhere. So, a part naturally returns to the United States to buy, I know, I'm repeating myself, Treasury bonds, corporate bonds, or American stocks. In other words, the world sells goods to the United States and then lends them part of the money so they can continue to buy. Now, I know that presented like this, the system seems totally absurd, but this system also holds, if we are honest, because the United States offers good assets despite everything, and especially very liquid ones. We must realize that the dollar still represents half of international loans, half of global debt, and it is involved in nearly 90% of foreign exchange transactions. It also remains dominant in the official reserves of central banks. So yes, we can talk about de-dollarization, we can talk about BRICS, we can talk about gold, we can talk about Bitcoin, but for now, the dollar doesn't really have a replacement, and it's true that it's losing a little ground, but when we look concretely at who benefits, well, it's mainly small currencies. There are no major winners emerging. Of course, we will hear a lot about the Chinese yuan. Yes, it's true that it's progressing a bit, but it's far from replacing the dollar. Same for the euro. Simply because a global currency is not just the currency of a rich or powerful country. It also needs, and this seems like the minimum, that investors can freely enter and exit this currency. They need to find enough bonds to buy. They also need to have confidence in the rules of the game, in justice, in property rights, and especially to be able to place trillions without blocking the market. And today, Chinese and European currencies don't really tick all the boxes. Not for the same reasons. On China's side, obviously, it has a gigantic economy, but it still strongly controls capital outflows. And it's true that it's difficult to become a major global currency when investors are not free to withdraw their money when they want. In any case, that would pose a big problem for me. So, we must realize that the world doesn't hold so many dollars because they necessarily love the United States. They hold dollars because, ultimately, all the financial plumbing still largely operates in this currency. Now, there's a graph we often see, and I'm showing it to you on screen, it shows that foreign investors hold a smaller share of American debt than a few years ago. And it's true that it's quite striking. We've gone, roughly, from 50% to 30% of the debt. And many draw the same conclusion: foreigners are fleeing the United States. But it's not that simple. Yes, their share is decreasing, the relative share, but when we look at the absolute amount, foreign investors continue to buy more and more Treasury bonds. The problem is mainly that American debt is increasing even faster than they are buying. It's like a restaurant that hosts, say, 100 foreign customers per day. The following year, it hosts 110, but it has opened so many additional tables that the share of foreign customers decreases. But we couldn't say that foreign customers are fleeing this restaurant. They are still more numerous than the previous year. And that's exactly what's happening with American debt. But it's not just true for American debt. Foreign investors also continue to buy American stocks, as we can see, American corporate bonds, but not because they think the United States is perfect, but because at this scale, there aren't many other places to put so much money. That's what's powerful. The United States doesn't need to be perfect. It just needs to remain the simplest and safest solution. Now, something very interesting happened in the spring of 2025 because for a few weeks, markets started to doubt the United States. So, American stocks began to fall, the dollar fell, American bonds rose. So, it was really the perfect scenario for all those who had been announcing an "America Sell" for a while. You really need to get out of the United States. And it's true that when investors sell American stocks, American bonds, and the dollar at the same time, it's very rare. Why? Because in a classic crisis, investors obviously sell stocks but they buy Treasury bonds, especially American Treasury bonds, and the dollar. This is called the "flight to quality." And here, it gave the impression that there was a big doubt about the American system as a whole. But ultimately, it didn't last. The dollar stabilized. American bonds ultimately rose less than those of many other developed countries. And American stocks, you see, eventually touched their highs again. Now, this is not proof that the United States is invincible. That's not at all the message I want to convey. It's proof that we need to distinguish two things: doubting the United States and finding a real alternative to the United States. It's not at all the same thing. An investor can think that the American deficit is too high, which is my case, that rates are too high or too low, that valuations are too high, or that American policy is becoming unpredictable. But when it comes to moving several billion or several hundred billion for pension funds, for central banks, etc., they have to answer another question: "Concretely, where do I put my money?" And it's this question that still protects American assets. It's also why American debt remains a difficult subject. The risk is not necessarily that buyers disappear all at once. The risk is that they gradually demand higher compensation. It's enough for investors to say, "Okay, I'll buy your debt, but I want to be paid better." And when that happens, or if it happens, long-term rates rise, the government's financing cost increases, obviously the cost of credit increases for companies and households. And stocks, which were valued on the basis of low rates (with rather high P/E ratios), will see their stock prices deflate. And that's where the loop becomes really interesting because we saw that foreign capital arrived in the United States, financing the state, companies, and markets. And when markets rise, as they have been doing for a very long time in the United States, reaching very high levels, when markets rise, a portion of Americans feel richer. This is called the wealth effect. Of course, it doesn't affect everyone in the same way. We know that a large portion of Americans live day-to-day simply because they have very expensive housing, very expensive healthcare, very expensive education, they have a lot of debt, etc. But there is still an affluent class, the wealthiest, who own stocks, real estate, financial assets. And when their portfolio gains several hundred thousand dollars, at least on paper, they don't become happier, but they tend to spend more. They will buy a car, they will renovate their house, they will travel more, and that's normal, their cushion has grown, they have fewer worries about their retirement, so they consume more. And this consumption eventually feeds into company figures. This is where Wall Street finally connects with the real economy. This rise in stocks doesn't just reflect an economy that's doing well; it can, in turn, help drive a part of the economy. That's the wealth effect. So, companies see their sales increase, profits increase, stocks rise, shareholders feel even richer, and then the cycle starts again. It's not a magic machine, and it's not the only thing driving the American economy, fortunately, but it's just a small amplifier, especially in a country where the stock market is much more present among individuals than in France, for example. But be careful, this wealth effect works in both directions, of course, but it's true that since 2009-2010, it has mainly had a positive effect. So far, I've mainly highlighted the dollar. So, we have this external deficit that sends dollars abroad, which are reinvested in the United States. But there are real reasons to invest in the United States. First, American companies are often more profitable, and not just in tech, because that's often what people imagine. But if you look at returns on equity in different sectors between the United States, China, and Europe, you see that in almost all sectors, American companies have better profitability. So, it's obviously normal that they are better valued. But that's not all. There's also productivity. The United States remains at the top of the G10 on this subject. There's also this famous American financing ecosystem. You know, they are very good at financing companies that don't make profits, but they also know how to let failing companies go, and especially they know how to grow winners at an incredible speed. Now, I'm not going to make another video on this subject. I already made a video on the American ecosystem a while ago. But what interests me here is that this ecosystem feeds this financial loop I'm talking about. That is to say, foreign investors buy American assets because profits are higher. American companies have more capital, and they use this capital to strengthen their lead. I won't talk about artificial intelligence for the umpteenth time, but it's one case among others where this cycle occurs. There's also energy because the United States, even if on paper it's self-sufficient, is not totally isolated from global shocks. The price of oil, the price of gas, the price of metals, fertilizers, transportation, etc., remain global prices. But they have an energy security that Europe or Asia do not have at all. A small parenthesis, while filming this video, it was so hot. Maybe it shows on screen, that my camera eventually overheated and stopped. So I had to film in two parts, and right after, I stumbled upon an analysis by Léo, one of my associates, on the economy of heat, so air conditioning but not only. He talks about manufacturers like Train or Lennox, distributors like Asco, installers, and also data center cooling with Vertiv or Schneider Electric. And what's interesting about this air conditioning theme is that behind it, there are often years of maintenance, parts, and recurring contracts. So it's a defensive theme. When an air conditioner breaks down in the middle of a heatwave, well, you replace it, and offensive because with global warming, energy standards, and data centers, there's still a lot of business to be done. So for club members, I recommend you go see Léo's analysis, it's really top-notch. Okay, I'll close the parenthesis and get back to the United States. Now, what could go wrong? So, the simplest scenario to imagine is collapse. So, the dollar collapsing, foreigners fleeing Treasury bonds, American stocks plummeting, etc., and China taking over. So, it's intellectually interesting as a scenario, of course, but it's not the most probable. The most realistic risk for me is a regime change. So, we would have the United States remaining powerful, the dollar remaining dominant, American companies remaining very profitable, etc., but investors might start demanding more. A little more yield on bonds, a little more caution on stocks, a little more visibility on the rules of the game. In this scenario, we could even imagine an excellent economy and disappointing stock markets for several years, just because valuations are deflating and investors are demanding a higher risk premium on stocks. That's the first risk. The second risk is inflation because as long as inflation remains low, the Fed can help the economy if markets suffer by lowering rates. But if inflation returns strongly, it loses this freedom. I've told you this many times. It's this famous stagflation that we worry about arriving but which isn't here yet. A third, less visible risk, is confidence in institutions because since his return, Trump has created a lot of uncertainty. A lot of uncertainty about the rules of the game, but also about the entire aspect of universities, scientific research, etc. And that's problematic because the United States today, if it's at the forefront of technology, it's also because there have been decades of research, private research, public research, etc. Yes, in the end, what we see are brilliant entrepreneurs in garages creating incredible multinational corporations. But we must realize that at the base, the fertile ground, if you will, is all the scientific research that comes from universities, from labs, all the Nobel Prizes that Americans have accumulated. And Donald Trump has decided to cut heavily into these budgets. I'll give you just one example, but for NASA, he proposed for 2027 to reduce the budget by 23%, including 46% for science. Yes, he will tell us that SpaceX, etc., will take over, but that's not fundamental research either. So all these problems of research, universities, etc., don't create problems overnight, but they can still break this incredible innovation cycle that the United States has. So, should we sell the United States? My view is no. Should we get out of world ETFs? No, not either. But you need to truly understand what you actually own because the risk isn't just having American stocks. The risk is ultimately piling up the same dependencies. When I see the number of people around me or those who contact me who accumulate a world ETF, then add an S&P 500 ETF, a Nasdaq ETF, plus a few large tech stocks because they're doing well, etc., in the end, they can have a lot of lines, but they still depend on the same big loop: dollar, American rates, American profits, American markets, and ultimately the ability of the United States to continue attracting savings from around the world. If this is an accepted choice, it's perfect. You know, I am very exposed to the United States, and I am well aware of it, but perhaps on your side, you have chosen to depend less on the United States, more on Europe, more on Asia, more on emerging markets, and that's not a problem if you accept that you will have periods of underperformance, especially when the United States crushes everything. And it's true that this has been regular not only for a few years but even for several decades. But be careful, it's not necessarily a bad choice. You have chosen not to bet on a single scenario and to decouple from this loop: the dollar loop, American rates, American tech, American innovation as a whole. Because what we must not forget is that diversification is not meant to win every time. It's not meant to have the best performance every year. In fact, if you are diversified, you will rarely have the best performance in a given year. It's even almost impossible. Diversification mainly serves to prevent your portfolio from always depending on the same story, and perhaps you don't like the current story. So, it's not necessarily a mistake if you are less exposed to the United States, especially if it's a conscious choice. Well, tell me, are you more of a USA team, an ETF World, S&P 500, Nasdaq, etc. team, with a strong weighting, or even a total weighting on the United States, or are you more of a proponent of geographical diversification? In any case, thank you all and see you soon.