Welcome to Thought For Money. I'm your host. We have Jan Van Eck, CEO of Van Eck, for his quarterly update. Jan, how are you doing?
Uh, a little blindfolded. Hard to tell what's going on, but let's get into it. Should we kick off?
The US budget deficit is unsustainably high at 6-7% of GDP, explaining why we avoided recession after 2022 rate hikes. Gold and Bitcoin have benefited from reduced confidence in the dollar—Bitcoin up 14%, gold bullion up 26%, gold shares up 54% year-to-date. The deficit needs to come down from 6.4%, but cuts are falling short. Tariff revenue isn't counted in the official deficit calculation. I'm skeptical growth alone will solve it. We're in the eye of the hurricane.
This is a live stream; we'll take Q&A later. Jan, the 3% solution not looking great yet. I've heard Treasury Secretary Yellen mention 3% as a goal, but the administration expects growth to help.
I don't build growth into assumptions. If the economy slows, the deficit blows out. I'm skeptical we can get GDP growing 1.5% faster. I think something will happen on cuts, but it's become unspeakable with the Trump-Elon fight.
Yeah, Elon's fight suggests things aren't going great.
Question from chat: When will we see the full effect of tariffs?
The market has priced in 60-80% of tariffs. Decoupling with China is a major theme. It's an uninvestable phenomenon because of too many outcomes.
Corporations seem to be absorbing tariffs. Is there a chance consumers don't see price impact?
I think we'll be hard to see. Let's move on.
What's your best guess on probability of recession in the next 12 months?
We are slowing, but not a recession. Slower growth is okay if it's from less federal spending. Base case is slower growth, nothing crazy.
Thanks. Don't let me keep you.
CDS spreads measure default concern and are elevated. Gold and Bitcoin are rallying. The 10-year isn't reacting to deficit, but the frustration is short-term rates. We need bad labor markets for the Fed to cut. Déjà vu in 3-6 months.
Let's move to AI trend. Google is cannibalizing its own business with Gemini. ChatGPT engagement is huge. 2025 is the inflection year for AI becoming the new paradigm.
How threatening is this to Google's monopoly?
Surprisingly bullish because of network effects. AI companies could become a bigger percentage of S&P. Google's move is brilliant. I still want to own Alphabet. Microsoft headcount down while revenue up is great for its stock. MBA graduates jobless rate is higher than COVID.
Do you see Google's share shrinking within the Mag 7?
Still want to own it net-net. Market share down but profitability up. Microsoft's model is incredible.
Does this worsen the K-shaped economy?
I'm a techno-optimist. The labor force is an unmovable line. Shocks like 40 million women entering the workforce didn't affect unemployment. We're blindfolded on statistics.
Nvidia is up 64% since April. Nuclear: Trump wants to quadruple capacity. Constellation Energy is bringing Three Mile Island reactor back ahead of schedule—that's incredible. Nuclear industry index has done well. Natural gas also benefiting.
Do you expect this trend to continue?
Trend is powerful but stocks are ahead of themselves. Not selling but not adding. Nuclear stocks are ahead; semis are okay. Nvidia could take a breather.
to hold on during that I'll call it tariff post-tariff tantrum dip there in April. So, there was some blood, sweat, and tears around there. But they had a fantastic second quarter of earnings, and there's enough traction internationally with these selective pro projects that the hyperscalers are pushing that I don't think you're going to get a huge new buying opportunity either.
Okay. And obviously, that's sort of in the near term.
One of the reasons I asked this question, there's a chart I don't have handy that's been making the rounds recently that shows China's electrical power capacity production capacity, and it just dwarfs countries like the US and Europe, and it's on this hockey stick rise right now. And of course, access to plentiful cheap electricity is going to be a huge part of who wins the AI race. So that's why we're getting all this policy that's suddenly super nuclear friendly and drill baby drill and rebuilding the grid. So it seems to me you're saying, 'Hey, look, maybe these stocks need to take a breather. They're richly priced right now, but this is a tailwind that probably is going to last for years, correct?'
And I got more on that for you. So let's turn to international investing. Hurray for diversification in the first half of this year. The international developed index is up almost 20%. Emerging markets are doing well. Emerging market debt is doing well. I just wanted to touch on this, but again, what happened first half of this year that's transformative? Historically, last decade has been a lost decade for emerging markets. My favorite country by far is India. I'm going to give you a couple things about India and the Middle East. This is my favorite chart: in 10 years, the Indian economy is going to be the fourth largest consumer market in the world. It just became the third largest economy. But as it competes against continental Europe, it has a ways to go. Let's combine some themes. The country that is the biggest user of ChatGPT is India. We've talked about this digitization trend, and it is completely plugged into the global economy through the knowledge economy. Here's an online insurance company in India pivoting into other kinds of insurance, growing revenue at 50% a year. There are also losers. For example, Asian Paints, a paint supplier, was a top 20 company in India a year ago. Its market cap has fallen from $39 billion to $27 billion because of digitization and the move to a Home Depot or Costco style economy. It's playing out real time in the equity markets.
