Dear Reader,
Today I want to talk about an article I read in Wired: “Trump’s Aggression Sours Europe on US Cloud Giants…”
“Companies in the EU are starting to look for ways to ditch Amazon, Google, and Microsoft Cloud services amid fears of rising security risks from the US, but cutting ties won’t be easy.”
So why is this so important, and why should we care?
Hint: it affects your retirement.
A lot of people, when they think about, say, our cost for defending Ukraine…
They say to themselves, what does it cost us to defend NATO?
They’re always thinking of the cost side of the equation, and I blame our policy makers, both parties, for never really articulating the return side of the equation.
So we understand the investment, $130 billion to defend Ukraine over the past four years.
We get it, even though most of that money was pushed into U.S. defense contractors basically to subsidize that…
Creating U.S. jobs and all these things.
But many people don’t understand the return on that investment.
I occasionally talk about this, but now’s a good time to revisit.
Remember something: All of our tech giants, tech giants being just one example, sell their products all across Europe.
Take the iPhone; Apple gets 30% of its sales, or $24 billion from Europe.
And Tesla got a lot of its sales from Europe. Well, we see what’s happening in Tesla now.
A lot of the reason our tech industry is stitched into the fabric of Europe is because of the security umbrella that we’ve provided the Europeans.
We’ve said to them, look, in the event of a NATO conflict, you guys need to use secure networks that we understand…
We can’t let you have China’s Huawei routers, (for example) in Europe.
We have put immense pressure on Europe to not take in alternate products from China and their own tech industry.
But now they’re starting to look to reduce their dependence on the United States.
So Europe is now pushing their own companies to de-risk from America, to take contracts away from Amazon, Microsoft, Google, etc.
It’s already starting to pick up.
European cloud providers have seen their new customer acquisition jump up in the past two weeks.
[We wrote a new report on European defense stocks – some of the biggest beneficiaries of Trump’s NATO moves, and they are already starting to jump – you can get that report here.]
This change is already having a dramatic effect.
Remember, a third of Apple sales come from Europe.
As Europe pushes their own tech solutions, what happens to Apple stock?
Basically, Apple’s stock could go down by a third.
All the magnificent seven could go down by a third.
Just like what’s happening with Tesla right now.
They’re watching their European sales collapse.
So here in the U.S. we have people yelling:
“OMG! $100 billion a year for NATO! $150 billion a year to protect Europe! Those freeloading Europeans!”
Just remember, you can’t really judge it by looking at half.
You have to look at the return side of the equation.
And the return side of the equation tells us that Apple alone gets $24 billion a year from its European iPhone sales.
Tesla, Amazon, just go down the line…
Hundreds of billions of dollars come to America from selling tech products into Europe.
So again, what do you think happens to your retirement account as Europe gets more independent?
If all the mag seven stocks… the entire U.S. tech sector drops 30, 40%?
What do you think that means to your IRA, your 401k, your retirement plans?
They go up in smoke.
So it’s not as easy as saying “those freeloading Europeans need to take care of themselves.”
I can tell you, people who look at it that way don’t understand international finance.
They haven’t really looked at who the magnificent seven, for example, sell their products to.
Because again, if Europe is under our security umbrella, they have to be under our tech umbrella.
We’ve made this argument for many years.
As European sales go, so goes your retirement accounts.
Again, just look at Tesla.
Look how the stock has dropped, 40%… 50% in just a few months as European sales plummeted.
Imagine that happening across the entire magnificent seven.
Be wary about the rush to leave “those freeloaders.”
Be wary about people who tell you, oh, we should be isolationist… America first, etc., etc.
Because guess what?
Power abhors a vacuum.
We would leave and you know what?
Europe’s own companies would fill the vacuum, get more powerful, or maybe worse still…
Chinese companies would.
Someone’s going to make that money.
It’s the way the system is structured.
It may as well be us.
Anyway, those are the thoughts I wanted to leave you with for this weekend. And if you wanted that report link again for our top European defense stock picks, it’s right here.
Have a wonderful weekend and I hope you consider what I’ve just said to you.
“The Buck Stops Here,”
