Why Recessions Aren’t What They Used to Be

Summary

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Merryn Talks Money: Why Recessions Aren’t What They Used to Be

Host: Merryn Somerset Webb (Bloomberg)
Guest: Vincent Delouarte, Director of Global Macro Strategy, Stonex Financial
Date: June 20, 2025

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Episode Overview

In this episode, Merryn Somerset Webb is joined by Vincent Delouarte to discuss the fading presence of traditional recessions in modern economies, the shift from tangible to intangible assets, the implications for fiscal and monetary policy, the changing relationship between labor and capital, and the complex dynamics currently affecting US and European markets. Delouarte provides a nuanced, data-driven perspective on why recessions are less frequent and severe, what it means for investors, and how government policy and asset composition are reshaping the economic landscape.

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Key Discussion Points & Insights

1. The Disappearance of Traditional Recessions

(03:23–08:44)

• Empirical Decline in Recessions

  • Delouarte observes that, excluding COVID, there hasn't been a true US recession in 16 years.
  • Recessions were common in the 19th century, but their frequency has steadily dropped due to policy evolution after the Great Depression and the rise of economic management tools.
  • "If you look at the 19th century, we spent almost half of that century in recession. And then the frequency of recession started to decline..." (Vincent, 03:40)

• Three Drivers of Recession 'Cancellation'

  1. Technological/societal shift: Move from agriculture to industry to services, then to intangible assets.
  2. Hyperactive economic policy: Governments now deploy aggressive tools to avoid recessions, accepting higher inflation as a tradeoff.
  3. Permanent fiscal stimulus: Entitlements and welfare spending keep the economy on a continuous upward trajectory.

• Outsourcing the Capital Cycle and Recessions

  • The US retains intangible assets and outsources tangible production—and thus economic volatility—to countries like China, South Korea, and Germany.
  • "We’ve kind of outsourced recessions to our trade partners." (Vincent, 06:37)

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2. Intangible Assets and the Capital Cycle

(05:28–06:43)

• Intangible assets (brands, IP, network effects) spontaneously arise and aren’t "hostage to a capital cycle."
• No longer needing to finance or depreciate hard assets, US businesses are less exposed to cyclical downturns.
• "It's almost the opposite with intangible assets. ... We let other people take the hit of the capital cycle." (Vincent, 06:37; Merryn, 06:44)

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3. Sustainability and Economic Momentum

(07:13–08:44)

• Delouarte compares the US to a bicycle: sustainable only as long as you keep moving (injecting stimulus).

• The system isn’t sustainable forever, but can endure longer than many expect—echoing Keynes:

  • "As John Maynard Keynes said, in the long term we’re all dead." (Vincent, 08:27)

• Two ways economies can "die":

  • Death by Ice (Europe): Slowdown, low inflation, stagnation (EU’s recent history).
  • Death by Fire (Emerging/Eg. Argentina): Overheating, high inflation, rapid capital flight.

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4. Creative Destruction Without Recession

(09:37–11:23)

• Traditional theory holds that recessions enable "creative destruction." Delouarte counters:

  • Modern institutions (private equity, venture capital, etc.) now perform this function year-round without the need for recessions.
  • "Clearing out the carcasses is basically the job of private equity ... and the VC industry." (Vincent, 10:05)

• Innovation hasn't slowed—evidenced by advances from smartphones to AI—even in a prolonged absence of recessions.

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5. Market Corrections Without Recessions

(11:23–14:28)

• Bear Markets Have Changed

  • Recent corrections, like 2022, were severe but short-lived thanks to the absence of an extended recessionary "tail" and quick rebounds in earnings and valuations.
  • "If I'm right and we don't have recessions, we only see the first part of this process, the valuation correction." (Vincent, 13:17)

• Investors return to equities quickly as earnings remain resilient; classic deep bear markets are unlikely while the earnings base is stable.

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6. MAGA, Policy, and Shifting Tax Burdens

(17:16–21:58)

• Political changes (e.g., MAGA movement) could shift the US tax burden from labor to corporations.

  • New policies and tariff structures are designed to protect individual income while increasing effective taxes on corporate income.
  • "If I'm the US government and I'm looking for money, I'm going to take it where it is. And the money in the US is ... in corporate margins." (Vincent, 21:58)

• Corporate profits are well above historical averages; normalization could mean lower margins but not necessarily falling absolute earnings, especially if nominal growth is high.

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7. Global Capital Flows and the End of US Capital Supremacy

(24:22–26:57)

• US policy shifts (taxation of foreigners, digital services taxes, tariffs) are discouraging inward capital flows.
• The US’s open-door capital policy is ending, with implications for the dollar and US markets.
  • "We are walking the way back [from treat all capital holders the same] ... barriers to the movement of capital ... financial repression." (Vincent, 25:45)

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8. Near-Term Market Outlook

(27:07–29:00)

• Delouarte forecasts a likely US market correction in July 2025, citing:
  • Overstretched market highs
  • Rising yields (4.5–4.6% on the 10-year as a ‘pain point’)
  • End of the 90-day tariff pause and policy uncertainty
  • Potential reversal of positive inflation surprises
  • Earnings reporting blackout period (no buybacks)

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9. Will Europe "Defrost"?

(29:00–30:52)

• Europe, pressured by US-led changes, may finally begin reinvesting in itself, reversing years of stagnation.
• Ending US openness to foreign capital may redirect flows home to Europe, bolstering growth.
• "Just bringing that money back means that the currency appreciate, energy costs fall, productivity picks up, yield curves steepen ... it's a pretty good outlook for ... Europe to catch up on what has been a 20-year crisis of confidence." (Vincent, 30:52)

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Notable Quotes & Memorable Moments

• On the new recession paradigm:

  "We’ve kind of outsourced recessions to our trade partners."
  (Vincent Delouarte, 06:37)

• On government policy and sustainability:

  "Nothing is sustainable. If you think about a bicycle, a bicycle is always falling. It's only because you keep adding momentum to it that it doesn't fall... as John Maynard Keynes said, in the long term we’re all dead."
  (Vincent Delouarte, 07:13 & 08:27)

• On creative destruction:

  "Clearing out the carcasses is basically the job of private equity ... and the VC industry."
  (Vincent Delouarte, 10:05)

• On market corrections in a no-recession world:

  "If I'm right and we don't have recessions, we only see the first part of this process, the valuation correction."
  (Vincent Delouarte, 13:17)

• On the shift from taxing labor to taxing corporate income:

  "If I'm the US government and I'm looking for money, I'm going to take it where it is. And the money in the US is ... in corporate margins."
  (Vincent Delouarte, 21:58)

• On Europe finally "thawing":

  "Trump is basically forcing us to invest back at home by telling us that our money is no good in the US ... it's a pretty good outlook for ... Europe to catch up on what has been a 20-year crisis of confidence."
  (Vincent Delouarte, 30:52)

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Timestamps for Important Segments

• 03:23 — The theory of "cancelled recessions"
• 05:36 — Why intangible assets smooth cycles
• 07:13 — Stimulus sustainability: The bicycle analogy
• 08:44 — Death by fire vs. ice; creative destruction without recession
• 11:58 — Can markets fall without recessions?
• 13:17 — Market corrections: valuation vs. recession
• 17:16 — MAGA, tax burden shift, and the fate of corporate earnings
• 24:22 — Taxing foreigners and capital flow reversal
• 27:07 — Short-term US market outlook: July correction warning
• 29:25 — Will Europe finally “defrost”?

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Closing Note

Delouarte wraps up by mentioning his in-flight reading, humorously unrelated to finance—a reminder of the relaxed, insightful tone of the episode.

"I am reading how to Change, a book about the spread of psychedelics in the US in the 60s...it’s a fascinating read, but it’s not how I produce economic research. I keep the two activities separate."
(Vincent Delouarte, 30:59)

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For listeners and non-listeners alike, this episode offers a concise, original take on why the economic and market playbook of old is no longer as relevant—and what investors should expect as the world transitions into a period of structural, policy-driven change in both the US and Europe.

Transcript

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Bloomberg Audio Studios Podcasts Radio News hello listeners.

[Marin Somerset Webb]

Mary at Thumbset Web here. Just wanted to remind you that if you're enjoying our weekly podcast, and I really hope you are, you'll probably also really enjoy my weekly newsletter for Bloomberg subscribers. It hits inboxes every Saturday. This past week I wrote about why America's markets are losing their fomo. If you have FOMO for the market at the moment, I'm pretty sure it's not for the US market, it's for one of several others. Check out the link in the show notes on how to subscribe to the newsletter. It does mean signing up for a.com subscription, but I promise you it is worth it. You will also get access to John's Money Distilled newsletter and informative and actionable stories from more than 2,700 journalists worldwide. Right now onto this week's show. Welcome to maritalks Money, the podcast in which people who know the markets explain the markets. I'm Meryn Sums Up Webb this week. Vincent Delouarte, director of global macro strategy at Stonex Financial, joins us now. If you're a regular reader of Bloomberg, you're likely to have come across his name before. He's often cited in newsletters written by John authors. And earlier this month, John Sepek dedicated an entire money distilled to Vincent's piece looking at whether the global cancel culture movement has come for recessions. So we thought it'd be a good idea to get him on the show with us to talk through some of his research pieces and to hear what he is currently thinking about stock markets. Vincent, welcome to maritalks Money.

[Vincent Delouarte]

Thank you very much for having me. Very happy to be here.

[Marin Somerset Webb]

Okay, now there's so much to talk about, but I want to start with a piece you wrote recently that John wrote about about how recessions have been cancelled. So many things have been canceled recently. But you think that recessions themselves are no longer what they used to be. Will you talk us through that?

[Vincent Delouarte]

Well, I mean, part of it is just a statistical observation really. If you look at the 19th century, we spent almost half of that century in recession. And then the frequency of recession started to decline, especially after the Great Depression when we had a New Deal and progressively we increased the arsenal that governments can deploy against recession with the triumph of Canadian ideas, the addition of the second mandate to the Fed. And it seems like every recession we build new tools to fight them. And that takes us all the way to the 80s, which were almost a recession free decade. Same story for the 90s, one big recession in 2009. But for the past 16 years, I mean, if we exclude Covid, which we can all agree was exceptional, we haven't had a recession in the past 16 years. So it does seem that my theory is at least empirically verified. As far as why that may be happening, I would suggest three main explanations. One is technology. We have moved from agriculture to industry, industry to services. Tangible asset to intangible assets. If we, if you were to buy the NASDAQ index today, you'd pay a dollar and you'd get about 3 cents. Intangible assets. Tangible assets are things that you can touch, things like plant, things like machines, things, things that you have to finance and things that you have to depreciate over time. Well, we no longer have this physical economy. Intangible assets behave very differently and they remove A lot of that cyclicality. Then there is the policy explanation. As I was hinting, we have hyperactive policy, which seems determined to do everything it can to avoid recession, even if that means inflation. And then the third one, I'm sure we'll talk about it a bit more, is the explosion of fiscal spending, which means that the US economy, at least is in a constant state of fiscal stimulus.

[Marin Somerset Webb]

Okay. Can I ask what you might think is a very obvious question? Why is it that intangible assets are so much less cyclical than tangible?

[Vincent Delouarte]

Because they are a different breed. Quite often they just arise spontaneously out of the business process. I mean, if you think about a network effect, you don't really have to pay it. Just more people use your platform and suddenly you become the biggest platform, and that gives you a huge intangible asset. You didn't pay for that, it just happened. So you didn't have to take a loan for it. You don't use it over time. If anything, instead of. You have these economies of scale in economics, right? The bigger you get, the less efficient you become. It's almost the opposite with intangible assets. I mean, you can think also about brand, about name recognition, about a lot of ip. It just behaves differently from the hard stuff that we use to produce stuff with. And in a way, you can think of an international division of labor where the US keeps the intangible assets in large part because we have better core, better ip. And then we outsource all the tangible stuff to China, to South Korea, to Germany. And in a way, we've kind of outsourced recessions to our trade partners.

[Marin Somerset Webb]

So effectively, these intangible assets are no longer hostage to a capital cycle.

[Vincent Delouarte]

That's absolutely correct.

[Marin Somerset Webb]

So that's the way it works. We let other people take the hit of the capital cycle and Western economies who are very dependent on intangible assets, I.e. the US effectively no longer have to worry about it. Fascinating. And then we have policymakers and the different things that they do. And then we have this idea of there being a sort of permanent stimulus from, effectively, the welfare state, entitlements, healthcare expenses. The problem there, of course, is. And I get that, I completely see what you're saying, but it's not really sustainable, is it?

[Vincent Delouarte]

Over time, nothing is sustainable. If you think about a bicycle, a bicycle is always sporting. It's only because you keep adding momentum to it that it doesn't fall. I would argue the US economy is in a similar situation. And yes, I agree that at some point there is A capacity issue crowding out debt crisis. We may be at the beginning of one, but I think if we are running it in the world hegemon at a time of high nominal growth, this process of constant stimulus leading to inflationary growth can last longer than people think. And it certainly has. I mean look, in the past five years I've been on so many panels against so many distinguished economists who are so much smarter than me who had already assigned 100% probability to recessions after the Fed started hiking great in 2022, then in 2023, then we had the regional banking crisis. Last summer we had the Sam rule panic. There seems to be something that mainstream economists are missing here and I think what they are missing is how long this process can take. Doesn't mean that it's sustainable in the long term. I would agree with you, but as John mania Keynes said, in the long term we all dead.

[Marin Somerset Webb]

Yeah. So basically we can expect it. If you're right, we can expect to see a very long period. We don't know how long period of either no recessions or very mild recessions followed by at some point probably possibly far out in the distant future, a catastrophic collapse of the state.

[Vincent Delouarte]

Correct. But I would stress that that collapse would happen by fire. There are two ways you can die, right? You can die by ice or die by fire in the economy. And dying by ice is pretty much the story of the European Union for the past 20 years. Where the economy slows down, inflation is below target like a kind of Great Depression like scenario. And then the death by fire is something that's more common in emerging markets where the government spends too much, inflation takes off, the economy accelerates capital leaves the country and you have a very different recession experience. I mean in one case it feels like slowly falling asleep as if you were dying from cold. In the other end. In the other, in the other one is kind of a frantic manic recession where the economy overheats into a recession.

[Marin Somerset Webb]

And then you would get an Argentina style renewal at some point. But that's far off. There is one thing that I wanted to ask you about and John and I talk about, you know, how you need recession to clear things out, you need a retention for creative destruction and renewal, etc. But you argue in your paper that that's not really necessary because we have new institutions that take or new organizations. Should I say that take the place of a recession to create renewal, Is that right?

[Vincent Delouarte]

Yeah, I mean I'm a little comfortable with that argument because it's almost religious or Moral right. You can hear the Catholic schoolboy in that. Oh, you need the pain. You need to atone for the sin. And it's only for the pain that you shall be redeemed. I mean, I think it's best to leave that to one's conscience. I think the, the idea is that here, that recession would clear out inefficient businesses and favor innovative ones. I would argue that we have a huge portion of our economy that's now dedicated to that. I mean, clearing out the caucuses is basically the job of private equity, right? I mean, they will go out and scout for like air conditioning businesses that are run by boomers and take on some debt and buy them so they can put their clients on salesforce and call that improve management. Then we have the VC industry, which constantly needs to justify fees and is constantly looking for the next big idea. And I mean, I'm making fun of it, but empirically it has somewhat worked. I mean, I don't think innovation has slowed in the past 16 years. I mean, we had major, you know, from the iPhone in 2007 to large language model to advancement in EVs, batteries, space. Despite the absence of recession, it seems that we are on the verge of a technological breakthrough.

[Marin Somerset Webb]

Okay, so let's take that. I think it's a very compelling argument and you're right that empirically recessions do appear to have almost disappeared. So if there will be no recession, will there then be no market correction? As we hear a lot about the only way that you will see a big market correction in the US Being as a result of a recession. And most people are churning out papers showing us how much markets fall in different types of recession. If that's not going to happen, is the US Market just go up forever?

[Vincent Delouarte]

It's not that good, Marian. I'm sorry. No, we already had market corrections despite the lack of recession. I mean, 2022.

[Marin Somerset Webb]

Oh, but I don't, I don't think we're really going to count that in that we're pretty much back where we were.

[Vincent Delouarte]

Well, okay, then maybe I mentioned it because I thought it was an interesting precedent in the sense that we had a large market correction affecting both stocks and bonds at the same time. I mean, if you look at total return of a 60:40 portfolio, the losses of 2022 was considerable because, okay, the stocks may have been down only 20%, but the bonds were also down. So in terms of the total dollar damage, it was almost as bad as 2008, but it was also much shorter. Now, why Was it much shorter and as we mentioned, much shallower? I mean we're basically back at a new all time high. I think it's because of that tail, that recessionary tail that's been removed. So if you think about a bear market, in the equity market, you're really accomplishing two things. The first thing that you are accomplishing is correcting for over optimism. People get too excited about the future, too excited about future growth, and they pay too high a multiple for stocks. So you need to knock that down. And then in a recessionary bear market, there's a second thing that kicks in which is the economy does slow. EPS starts to fall. So the multiple drops, the earnings drop. There's an interaction effect that takes stock down from, you know, by sometimes 50% like we had in 2008 and 2000. If I'm right and we don't have recessions, we only see the first part of this process, the valuation correction. The valuation correction typically takes multiple down by 20%. When that happens, if earnings are still growing, people are going back to stocks. So that lead me to this idea, named after a famously wrong economist who in 1929 mentioned a permanently high plateau for valuation. I sometimes believe in that, that we will see other corrections for sure. But once multiples fall into the 1617 range, people will go back and buy stock. So we won't have the very deep bear markets where multiple falls into the low teens as we had in 2008 and 2001.

[Marin Somerset Webb]

Okay. And they will go back into equities much faster than they would have otherwise because the lack of a real recession means that earnings per share either stay static or continue to rise. So the numbers that would previously have said to people Jesus needs to be a lot cheaper before I'm going back in, simply won't be there.

[Vincent Delouarte]

Absolutely correct. The earnings are going to grow by about 6% a year, which is way below the Post World War II average by the way. And you compare that to bond yields. I mean, okay, you have, what is the model? You have bonds that yield around 4.4% 10 year today. Let's say we have a big correction that brings it back down to 4%. So you have one instrument that gives you 4% fixed, has a lot of duration risk, that's bonds, Treasuries. And then you have another interest instrument. If we're looking at a 18p that converts into a 4.5% earnings yield and is growing at 6%. I mean you are going back into stocks because you no longer have the fear that you have these catastrophe declines in earnings like we had in 2009.

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[Marin Somerset Webb]

Okay, I want to stick with this for a minute just because there is another piece that you've written about the Maga war on the corporation where you talk about how one of the probably so far misunderstood parts of the mega revolution is to be a rebalancing of returns to capital and returns to labor so we would expect that kind of change. And I'm going to ask you to explain what you mean by that in a minute. But that would lead surely to falling earnings, which would mean that even if valuations stayed within this high plateau range that you suggest, you could still get a long term bear market.

[Vincent Delouarte]

Yeah. Or at least let me walk through the idea.

[Marin Somerset Webb]

If you would unwind that for me, that would be great.

[Vincent Delouarte]

In general, in the US, in the west in general, we have a funding crisis. We have a lot of boomers. They voted themselves very nice benefits and they are aging and they are getting to the period of life where you spend most of your healthcare expenses. So someone is gonna have to pay for it. We don't have the private savings to pay for it. So one way or another is going to have, is going to have to come from the government budget. And you go back to the government budget, you can inflate some of that. I believe we are doing that. You can increase debt capacity, but at some point I think you're gonna have to tax some of it. The question is, who do we tax? And the answer is not foreigners. Trump came in and basically promised that something that really contravenes the concept of the state, that somehow the US Would be able to tax foreigners. And that was a beautiful story, a story that got him elected in one way, because it meant that we would not have to tax labor or capital, we could simply tax foreigners. The reality is that we don't tax foreigners. I mean, if you are in the uk, I cannot send an IRS agent to, to take your money away from you. Nor can I force the bank of England to swap its currency reserves for a bond that doesn't pay interest. That was another idea that was floated a few months back. So now we are back to square one. We have this increase in liability and government expense. And we really only have two ways we can take the money from. Because we don't tax sales in the US So we can either take it from corporate income or individual income. That is the grand sum total of all income that there is in the US it's either earned by corporations or individual. And my impression is that Trump and the MAGA movement is protecting income, individual income. We are seeing this with a big, beautiful bill. We have so many exemptions, right. We have the TCGIA, the tax cut of 2017 that are extended. We have no tax on TIPS, no tax on Social Security, no tax on overtime, extension of the state and local deduction. All that is basically to protect individual income from the shock of Tariffs. On the other side, we have some level of tariffs which are taxed on corporation. Corporations are the one that pay tariffs. I mean again, it's not foreigners, it's the importers. So it's a tax on corporate income. And we also do not have any reduction in the corporate income tax rate. So if we look at the burden of taxation in the US it's falling more corporations, less on, less on labor. And that means that over time profit margins are going to decline. Now for the first part of your question. Will that lead to falling earnings? The quick answer is I don't know. I am somewhat hoping that we can do it in what Ray Dalio would call a beautiful deleveraging way where what happens is nominal growth is very high. So the pie is growing so fast that we can reduce the share of capital without reducing its absolute number. In other words, nominal GDP grows at 7,8%, which is where we've been since COVID And maybe EPS grows at 3,4%. So over time we are rebalancing from capital to labor without necessarily causing a contraction in eps.

[Marin Somerset Webb]

Okay. I mean, but the whole thing makes sense. The idea that the tax burden should shift towards corporations to a degree. One of the numbers that you quote that John and I have talked about a lot in the past is this idea that profits, not an idea fact that profits account for much more of GDP than they have over the long term. So 10.6% of GDP at the moment in the US accounted for by profits, long term average is more like 6%. So you'd be looking for some kind of normalization there.

[Vincent Delouarte]

Yeah, it's. I forgot. I think it was a famous American bank robber who was asked, you know, why do you rob banks? And his answer, well, that's because that's where the money is. If I'm the US government and I'm looking for money, I'm going to take it where it is. And the money in the US is not in the bottom 99% of the income distribution. The money is in corporate margins which as you pointed out have exploded since the mid-90s. So it only makes sense that we are seeing this kind of political pendulum swing away from the big ideas of the 90s, of Blairism, of Crimsonism, of okay, we're going to tax labor and we're going to be nice to capital. Capital can move. We had basically 40 years of that where we reduced corporate income tax rate. We added all these exemption, the effective tax rate falling even below the nominal tax rate. And at the same time we made Our governments more reliant either on debt issuance or on taxing income. This movement actually ended in the US in 2018 with Trump cutting taxes on income and starting to raise revenue on corporations with the tariffs. And Trump too, I think is even a clearer move in that direction. And if I may make some more forecasts, I suspect that the MAGA movement, as Trump kind of goes away, will move further into that direction under the impulse of people like jayd Vance, like Miller, like Bannon, like Tucker Carlson, where you see very clearly that this is between a fight between capital labor. I mean, he can almost take you all the Karl Marx book out there and then see this play out in real time in the Republican Party.

[Marin Somerset Webb]

Interesting. You know, when we use that joke about UK finances, why did you rob bank? Because that's where the money is. We use it about pensions. Why did. Why are you going for pensions? Because that's where the money is. That's where all the spare capital is in the uk. Some might not. Some might not call it spare, but there you go. I wanted to just stick with the big beautiful bill for a minute because one of the things you say and I've written about recently is this idea that it may impose taxes on foreigners. You know, we recently had this talk about taxes on remittances. And then there is an idea that foreign companies and individuals could be taxed differently inside the US with capital that they earn inside the US which could end the flow of capital coming into the US that in turn has been one of the big drivers of the US Rally.

[Vincent Delouarte]

Yeah, I think that is indeed a key provision in the bill. I think it was. So there are two parts. The one you mentioned is the remittances, which would be a significant hit for in small Central American economies like Nicaragua, even Mexico. And then the second part is, I think it's part of the trade negotiation. I mean, the EU had threatened to put a digital service tax on the tech platforms and basically Trump wanted to codify that so that it can't be part of the negotiation and said, no, I'm going to have in my bill, I'm going to reserve the right to tax the dividend and the interest and the coupon payments to foreigners who are taxing us. So, yeah, it's an extraordinary change in the philosophy of taxation. I mean, there was this idea that, you know, we treat all capital holders the same. I mean, that was part of that kind of globalization. We want to make ourselves open and attractive to the rest of the world. And taxing capital doesn't work because capital can move. Well, we are walking the way back. I think it's highly significant and I think it would accelerate what we are seeing today, which is the repatriation of foreign capital from Europe, from Japan, from South Korea, which are massive investors in the US Stock market and are now bringing their money back home because they are not treated fairly in the US.

[Marin Somerset Webb]

And that means a reversal of flows that have only gone one direction for a long time.

[Vincent Delouarte]

I mean, yeah, let me, if I may just add something. I think one thing that probably the Trump crowd did not quite understand, or maybe they understood, they didn't say they did, is that the trade and capital account balances are simple mirror of one another. If I have a trade deficit, I have a capital account surplus and vice versa. It's just the way accounting works. I mean, if you consume more than you earn, than you produce, somehow you must be financing this. Either you set assets or you borrow, but you have a surplus and a capital account. So if we are going to correct quote unquote trade balances, we need to correct capital account balances. And the age of protectionism on the trade side means that on the capital side we have what Russell Napier called the age of national capitalism. We're going to see barriers to the movement of capital, we are going to see different treatment based on the nationality of the capital holder and we are going to see financial repression. And you can see all these ideas slowly making their way in the US discourse because again, we're trying to close the trade, we're going to have to close the capital at the same time.

[Marin Somerset Webb]

Okay, so that does suggest that short term, at least things will be challenging for the US market, I believe.

[Vincent Delouarte]

So I'm doing the thing that one should never do on a public podcast, which is a verifiable short term market goal. So in the research, we warned our client that we think the market is going to correct in July. Why did I pick July one? It's because the market, as you pointed out, has rebounded so much. We're basically back at a new all time high. We have yields starting to get to the point where they start to hurt the equity market. I mean, I would say 4.5, 4.6% on the 10 year is a pain point. We could be there in a couple of weeks. And July, of course, we have massive policy risk with the end of the 90 day pause for tariffs. I'm very skeptical that we can negotiate complex deals with 200 countries in less than two weeks. I'm also very skeptical that Trump's great friend Xi Jinping is really interested in a big, beautiful deal. So we'll have policy risk on the tariffs. We'll have a very important Fed meeting where there's still some expectations of cuts or certainly expectations of forward guidance toward that cut, which we may not get. I also worry that the positive inflation surprise that we had last month will be reversed in June as we see the impact of tariffs and prices. The tariffs really did not hit until the end of May, when they were actually paid. So that's why they were not in the May number, but they might, may show up in the June number. And then I also worry that this would be earnings season. So companies, I think, will still have decent earnings, but they'll start to get lower. We have very high expectation for the second half of the year, so they might start warning that this is not going to be met. And then finally, as companies report earnings, they are not allowed to engage in buybacks. So these first two weeks of July, when most companies are in the process of reporting, we won't have this buyback bid, which is, I think, what saved the market in April of 2025.

[Marin Somerset Webb]

Fascinating. Thank you. One last question before I let you go. Do you think that under these circumstances, there is a chance of things defrosting a little in Europe? We talked about Europe dying of ice, but there do seem to be significant changes. And if we see flows of capital leaving the US and heading towards Europe, sort of the obvious place for the money to go, might Europe defrost just a little?

[Vincent Delouarte]

I believe so. I mean, against our own will and our better judgment. But we are somewhat forced into making the right policy moves. Finally, by. By the Trump administration. I mean, one thing that I find fascinating in Europe is the lack of investment. If you look at the trend in GDP between Germany and the U.S. it starts to diverge in 2018, where the U.S. really takes off and Germany starts to stagnate. Now, you can talk about the pipelines, the energy policy, digital revolution, China, all the structural things that we know about. But one thing that's very clear is different trajectories and deficits. I mean, since then, the US deficit to GDP has averaged 5%. Germany, we've been under 1%. If we were just to add back this deficit to German growth and assume a 40% pass through, which is tiny. 40% fiscal multiplier means a dollar of public spending, increased growth by only 40 cents, which I think is way too low, German GDP would have caught up with US GDP. So we have underinvested in ourselves for many many years and Trump is basically forcing us to invest back at home by telling us that our money is no good in the us. So just bringing that money back means that the currency appreciate energy costs fall, productivity picks up, yield curves steepen and yeah, it's a pretty good outlook for at least relatively speaking, for Europe to catch up on what has been a 20 year crisis of confidence.

[Marin Somerset Webb]

Excellent. Thank you. Happy days for Europe. You're traveling at the moment, Vincent. I know. What are you reading on the plane?

[Vincent Delouarte]

Oh, I'm going to have to give you the honest answer here, which is not what you expect. I am reading how to Change your a book about the spread of psychedelics in the US in the 60s and early 90s and it's a fascinating read, but it's not how I produce economic research. I keep the two activities separate.

[Marin Somerset Webb]

Thank you very much. Thanks for listening to this week's Marion Talks Money. If you like our show, rate, review and subscribe wherever you listen to podcasts and keep sending questions or comments to merrimania bloomberg.net you can also follow me and John on Twitter or x. I'm ariannowsw and John is JohnStepek. This episode was hosted by me, Marin Somerset Web. It was produced by Sam Asadi and Moses Andam Sound designed by Blake Maples and of course very special thanks to Vincent Deluarte.

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[Vincent Delouarte]

An SEC registered investment advisor. Not an offer to buy or sell securities. Nor is it an investment. Legal or tax advice. Past performance is not a guarantee of future performance.