Europe, Trump & the Limits of Trade Escalation | Macro Mondays: January 19, 2026

Macro Mondays - February 5th, 2024: Summary

Key Concepts:

• Capex Cycle: Anticipated surge in capital expenditure driven by tax incentives and strong PMI data.
• Tit-for-Tat Trade Escalation: Potential for escalating tariffs between the US and EU, mirroring past US-China trade tensions.
• Greenland Geopolitics: US interest in Greenland, Danish/EU attempts at de-escalation, and potential investment opportunities.
• AI Software vs. Hardware: Shifting investment focus from AI hardware (data centers, chips) to the disruptive potential of AI software (LLMs, code generation).
• Anti-Coercion Mechanism (EU): The EU’s framework for responding to trade threats, designed to be slow and avoid escalating trade wars.
• ISM Manufacturing PMI: A key economic indicator used to gauge the strength of the manufacturing sector and predict capex trends.
• LLMs (Large Language Models): AI models capable of generating code and potentially disrupting the software engineering landscape.

I. Geopolitical Tensions & Trade Concerns

The discussion began with acknowledging the current “very special times” for conducting analysis on an American platform, referencing ongoing geopolitical tensions. The primary focus quickly shifted to the escalating situation surrounding Greenland and potential trade wars.

• Greenland Situation: The US expressed interest in Greenland, prompting a Danish attempt to establish a working group to address the issue. This was a tactic to lower the level of negotiation, moving away from direct talks with Trump and Vance to career diplomats. Trump responded with the threat of tariffs, viewed as preferable to military conflict.
• EU-US Trade Tensions: The US proposed a 10% tariff on various European goods, potentially escalating to 25%. While a tariff war is considered less severe than outright conflict, the risk of a tit-for-tat escalation, reminiscent of the US-China trade war, is a concern. The EU’s response is expected to be measured, utilizing its “anti-coercion mechanism” which is deliberately slow to avoid immediate retaliation.
• Potential EU Responses: Four potential responses were outlined: 1) reciprocal tariffs (least concerning), 2) digital services sales tax targeting Max7 companies, 3) export ban on ASML microchips, and 4) a ban on owning US assets within Europe (most severe, considered highly unlikely).
• US Strategy: It was suggested that Trump is testing the resolve of European nations, particularly France and the UK, which have territorial interests near the US. Potential pressure points include natural gas supply (LNG) to Europe, given Europe’s reliance on it.

II. Macroeconomic Outlook & Capex Cycle

The conversation transitioned to the broader macroeconomic picture, focusing on a potential surge in capital expenditure (capex).

• Positive Capex Signals: Strong regional PMI data on capex, coupled with changes in US tax rules, are creating incentives for increased investment. A rotation towards small-cap stocks (outperforming large caps for 10 sessions) further supports this thesis.
• PMI & Market Pricing: Current market pricing suggests a relatively modest increase in the ISM manufacturing PMI. A 10-index point increase to 56-58 could unlock significant returns, as markets are currently priced for mediocrity.
• Risk Factors: The potential for a trade war remains a significant risk, capable of disrupting the capex cycle. A complete standstill in trade patterns could require months for economies to recover.

III. AI Software vs. Hardware Investment

A key discussion point revolved around the evolving investment landscape within the Artificial Intelligence (AI) sector.

• Software Disruption: The rapid advancement of Large Language Models (LLMs) and code generation tools (like CL code) poses a threat to traditional software companies. The capability of LLMs is doubling every 5 months, potentially rendering many software subscriptions worthless.
• Investment Shift: The discussion suggested a potential shift in investment focus from AI hardware (data centers, chips) to the physical constraints driving AI development – namely electricity and hardware.
• Portfolio Strategy: Real Vision’s portfolio currently favors electricity and hardware over software.
• Hedging Strategy: Gold is considered a better hedge against geopolitical meltdown (e.g., NATO collapse) than Bitcoin, while Bitcoin is a better hedge against a US dollar/Federal Reserve crisis.

IV. Real Vision Portfolio Performance & Upcoming Events

• Portfolio Performance: The Real Vision model portfolio is up approximately 16% year-to-date, benefiting from investments related to the Greenland situation (mining companies) and drone technology.
• Upcoming Event: Real Vision is hosting a crypto gathering in Miami Beach, where the next Macro Mondays episode will likely be broadcast.

Notable Quotes:

• “I would rather be hit with a tariff than with a cruise missile.” – Miguel Rosenval, highlighting the relative severity of trade conflict versus military action.
• “If we get a complete standstill in trade patterns, it takes the economies you know at least a few months to recover from such an exogenous shock.” – Andreas Dino, emphasizing the disruptive potential of trade wars.
• “If you’re hedging a complete meltup or meltdown rather of NATO, uh buy gold instead of Bitcoin.” – Andreas Dino, outlining a nuanced hedging strategy based on the nature of the risk.

Data & Statistics:

• EU Assets Held Globally: The Eurozone (including the UK) holds approximately $8.23 trillion in US assets, more than twice the rest of the world combined.
• LLM Capability Doubling: LLM capabilities are doubling approximately every 5 months.
• Real Vision Portfolio Performance: Up approximately 16% year-to-date.
• PMI Increase Potential: A 10-index point increase in the ISM manufacturing PMI could unlock significant market returns.

Synthesis/Conclusion:

The discussion painted a complex picture of global markets, balancing geopolitical risks with potential economic opportunities. While trade tensions and the Greenland situation present challenges, a strong capex cycle driven by tax incentives and technological advancements offers a positive outlook. A key takeaway is the evolving investment landscape within AI, with a potential shift from hardware to the underlying physical constraints of electricity and hardware. The emphasis on nuanced hedging strategies and a cautious approach to software investments underscores the need for a dynamic and adaptable investment approach in the current environment.