No Mercy / No Malice: The Great Rotation

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1:28Stay in your lane is a person's way of saying they disagree with you, but they're too lazy to counter your points with any evidence or argument. I get this a lot when I talk about politics. Separating business from politics is akin to believing that fish swim independent of the water's current. America's toxic uncertainty is urging capital to look elsewhere. The world's biggest yard sale is taking place now that brand America is sick, and the world is on the front lawn, hoping to pick up$26 trillion in economic activity on the cheap. Capital flows into EU index funds, and institutional interest in investing in the U.S.

2:14are at 30-year highs and lows, respectively. As such, I believe Europe and China represent investment opportunities. Since the fourth quarter of 2024, I've been reallocating capital out of the U.S. Note, this post isn't investment advice. The Amazon River flows eastward across South America for 6 ,400 kilometers before it empties into the Atlantic. But 65 million years ago, a blink of the eye in geological time, the Amazon flowed in the opposite direction, toward the Pacific. Tidal rivers reversed their flow daily. Others reversed their flow annually as seasons change. Three times this century, the Mississippi reversed its flow during hurricane storm surges.

3:08In 1900, civil engineers reversed the flow of the Chicago River, changing its outlet from Lake Michigan to the Mississippi. Capital flows also shift cyclically and as a result of human intervention. Unlike rivers, shifts in capital flows can be sudden and violent, as capital does not pledge allegiance but moves aggressively towards safety and opportunity. In the most recent Bank of America fund manager survey, the allocation to U.S. equities fell to a net 36 percent underweight. That represents a 53 percentage point swing in the U.S. equity weighting since February, the biggest two-month decline on record.

3:55In the same survey, 73 % of fund managers said they believed U.S. exceptionalism had peaked. What began as a cyclical movement in capital akin to a river's seasonal change in direction now resembles a transformation on the scale of the Amazon's ancient rerouting, though this shift was engineered and accelerated by humans, like the redirection of the Chicago River. Heading into the recent NFL draft, Shadur Sanders, the University of Chicago quarterback and son of NFL Hall of Famer Deion Sanders, was considered a likely first-round pick. As it turned out, he was the 144th overall pick in the fifth round, costing him an estimated$40 million.

4:43I don't know what Deion told his son afterward, but here's what I'd tell mine. You're better than your worst moments, but never as good as your best ones This regression to the mean is one of the most powerful forces in the world Also, Dion should tell his son to tell his dad to shut the fuck up Over the past decade, U.S. equities have delivered an extraordinary 14.8 % annualized return outpacing global ex-U.S. equities, 7%, and Eurozone equities, 7.8%. After a historic bull run, it's tempting to believe American exceptionalism is a permanent feature, like gravity. Since 1975, however, the outperformance cycle for U.S.

5:32versus international equities has lasted eight years on average. At the end of 2024, the U.S. was 13.8 years into the most recent one. U.S. equities are regressing to the mean. Eleven months into the pandemic, Warren Buffett wrote in his annual shareholder letter, quote, Despite some severe interruptions, our country's economic progress has been breathtaking. Our unwavering conclusion? Never bet against America. This statement was based on a set of assumptions that our checks and balances protected the U.S. engines of growth. Risk aggressiveness, rule of law, IP, university research, attracting premier human capital.

6:24Over the past 100 days, it appears we've taken these things for granted, and I now believe it makes sense to bet on other regions. Over the long run, I'm bullish on America, as there's no better platform for unleashing human potential. The question isn't whether to bet against America, however, but at what valuation. By the way, if a human was engineered to be the polar opposite of Warren Buffett, they'd look strikingly similar to Peter Navarro. During the Great Recession, I bought Apple and Amazon at around$10 to$12 per share. After 15 years and a historic bull run, I'm up around 19x to 22x. Note, I also bought Netflix at$12 and sold at$10.

7:13I get it wrong all the time. The chocolate and peanut butter was the combination of great companies priced at historic discounts. Since then, the natural disruptions that bring valuations down and transfer value from incumbents to entrants have been arrested by massive stimulus, i.e. deficits, at the behest of an older generation, which is spending younger people's money to prop up their wealth. But that's another post. The Great Rotation isn't as much a bet against U.S. equities, but simply the recognition that U.S. equities are overvalued relative to those of Europe and China. The S &P 500 trades at a multiple of 26x.

7:57The Stocks Europe 600 Index trades at a multiple of 14x. And the CSI 300 trades at a multiple of 15x. When stock valuations become inflated, future returns decline. I've done well with my Apple and Amazon investments, but with both of them trading at multiples of 34x, I've begun taking profits and looking for returns elsewhere. At the start of the year, investors were bullish on China for a few reasons. Strong corporate profits, AI breakthroughs, and the apparent easing of regulatory pressure from Beijing. The trade war and fears of a global recession have dampened China's growth forecasts. The IMF cut its GDP growth forecast for 2025 from 4.6 % to 4%.

8:51But as I've written before, China is better positioned than the U.S. to weather the fallout from a trade war. I also believe that, over the long run, tariffs will always trend toward zero as consumers opt for cheaper goods over everything. Anyways, the stocks I'm looking at. Alibaba, China's answer to Amazon, saw its stock hit an all-time high in 2020, and since then, it's off 62%. Its co-founder, Jack Ma, disappeared from public view after criticizing financial regulators. He resurfaced in 2023, but it wasn't until this February that President Xi blessed his return in a meeting with Chinese entrepreneurs, urging them to show their talents.

9:41As one China watcher told CNBC, Xi sent a clear signal that China's policy priorities are private sector growth and AI. Last quarter, Alibaba posted$38.5 billion in revenue, a 7.6 % year-over-year jump and its fastest rate of increase since 2023. Net profit increased 3x year-over-year, coming in at$6.7 billion. dollars. Alibaba's growth was driven by its core e-commerce businesses and the progress it's making on its AI-powered marketing tool. The stock is up 50 percent year over year. I believe Alibaba is well positioned to continue to take advantage of the U.S.-China AI race. Alibaba's challenge is expanding its consumer business units domestically and accelerating cloud growth, up 13 percent year over year this quarter.

10:43China's household spending is less than 40 percent of the country's annual economic output, 20 percentage points below the global average. Closing that delta offers a massive opportunity, and again, China's leaders have signaled support for Alibaba. In his annual report to Parliament, Premier Li Qiang prioritized consumption over long-standing policies aimed at moving Chinese production up the value chain. While there's concern that Chinese consumers may reduce spending on non-subsidized goods, it's worth thinking about what could go right. China may finally become a consumer economy, a transformation that would benefit Alibaba.

11:31Finally, Baba's cloud revenue will likely register a surge as European firms shift their gaze east, away from the U.S., for cloud services. Starting at$8 ,000, the BYD Seagull has a range comparable to those of other EVs and comes standard with autonomous driving technology. And in the coming years, it will receive a battery upgrade with five-minute charging capabilities. My Pivot co-host Kara Swisher really wants one, but they aren't available in the U.S. a fact that hasn't slowed BYD's growth. Its first quarter revenue jumped 36 % year over year to$23.5 billion, while its net profit doubled to$1.26 billion.

12:21This year, BYD is on track to sell 5.5 million vehicles, including 800 ,000 exports. BYD is the fastest growing brand in the UK. Meanwhile, Tesla, which registered a first-quarter sales decline of 13 % year-over-year, trades at a multiple of 130x versus 20x for BYD. The Chinese company's mission is to cool the earth by one degree Celsius, and it's just launched its first cargo ship. Even before Liberation Day, capital inflows to European equities were at a decade-long high, suggesting the Great Rotation was already underway. The trade war has accelerated inflows, but it's also contributing to a growing sense of European patriotism.

13:14In the first two weeks of April, U.S.-focused funds managed by Amundi, State Street, and UBS saw a combined outflow of$4.5 billion. As I previously wrote,

13:41After Germany's recent decision to lift its constitutional debt restrictions to boost defense spending above 2 % of GDP, the bloc began discussions to encourage other member states to make similar fiscal reforms. A defense boom across the continent keeps Ukraine in the fight, but it's also an economic stimulus for the EU. I try to avoid helicopters. They're noisy and smell of fuel. To me, helicopters feel flimsy and crude, like a fan stuck on a soda can with duct tape. I spend most of the journey adding up the staggering number of points of failure. Statistically, helicopters are 26 times more likely to crash than commercial airplanes, and helicopter crashes are 230 times more likely to result in a fatality.

14:33The upside? Helicopters are one of the few last-mile solutions at the premier choke point in travel. I recently participated in a$50 million P.I.P.E. in a British company called Vertical Aerospace that's developing an electric flying taxi. Electric vertical takeoff and landing aircraft, Evital aircraft, are quieter than helicopters and emissions-free, and they have lower projected operational and maintenance costs. They may also turn out to be safer, as Evital aircraft use distributed propulsion systems with redundant motors and battery packs. Built for short hops with small payloads, EVITOL aircraft aren't meant to replace helicopters, but rather create a new last-mile solution capable of delivering people, packages, and meals without having to navigate through traffic jams on the ground.

15:32The EVITOL sector is in the process of testing and regulatory certification. The FAA is adopting new regulations, while UK regulators are using an existing framework for aircraft under 5 ,700 kilograms for interim operations and tailoring as they go. Also, the EU has realized that its rich Uncle Sam has gone batshit crazy and can no longer be counted on for support. If the EU, per its claims, increases defense spending from 1.9 % of GDP to 3%, an incremental$200 billion more will be spent on defense per annum. This, in my view, could be a turning point for EU stocks and tech firms. This wager is much riskier than betting on BABA or BYD, as the bankruptcy risk is real.

16:28The stock is off 97 % from its high, and American competitors Joby and Archer trade at 10x that valuation. I see this one as rocket fuel. It's got enormous thrust, upside, but it's dangerous, downside. I went to a pop-up bar last night run by the doorwomen from the recently burned down Chiltern Firehouse. Hashtag enormous fucking bummer. I believe the universe was not comfortable with me having access, they liked me for some reason, to the best room in Europe. The natural order has been restored, and now I'm back at members' clubs with other middle-aged men trying to fill the void in their chest with alcohol and clinging to the myth that David Beckham and Guy Ritchie also hang out there.

17:19Too much? Anyway, it wasn't about the venue, but the people in the room. And it's the same here with Bert. I co-invested with my friend Jason Mudrick, Mudrick Capital. The previous investments he stitched me into returned 4x and 30x, so he had me at hello. As brand America shifts from prosperity and rights to oligarchy and corruption, I distract myself with the great American pastime, wondering how I make money here. The greatest own goal since Brexit, Iraq, Vietnam is underway. And as in any disruption, there is an explosion in Alpha. It's fun and, again, helps distract me from watching the pillars that provided me with a life my immigrant parents couldn't imagine crumble.

18:11It helps. Sort of.

18:17Life is so rich.

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19:42Support for this show comes from Airbus. It took 100 years for electric vehicles to catch on. Modern solar panels? Half a century. Lithium batteries? Decades to go from their debut to daily use. It's a pattern. Energy tech breaks through, stalls, and then something tips the scales. But for every success, there are even more almosts. So what if there was a breakthrough sitting at this crossroads right now? SAF, or sustainable aviation fuel, could forever change the future of flight. Learn more about how Airbus is contributing to accelerate this journey at fly.airbus.com slash the flight path.