Quick Summary:
This post contains additional random musings about the current situation, plus an updated “portfolio check” at the end. So feel free to jump to the end if you are only interested in the portfolio check.
Background:
At the end of 2024, I wrote a first post about what might happen following both a Donald Trump win in the US election and a breakup of the German coalition. My takeaway was that maybe US stocks weren’t the great deal they were supposed to be.
Since then, two major developments have changed:
- The promised 7–10% US growth has turned into an almost certain recession.
- The outcome of the German election has been slightly better than initially feared.
All of this has led to a significant outperformance of European large-cap stocks, especially in Q1.
Trump / US
I have absolutely no idea where this is all headed. But one thing is certain: uncertainty. Especially regarding the future direction of the US government, uncertainty has increased significantly.
I think this interpretation by CNN anchor Fareed Zakaria summarizes the “new world” quite realistically:
📺 https://www.youtube.com/watch?v=3xz7BGAJYhg
A highly complex tariff system for the world’s largest economy—where exceptions can be granted or revoked by a single person—will undoubtedly create significant collateral damage, even if a few players manage to benefit.
While it’s hard to compare directly, Trump II looks just as chaotic as Trump I. But there is one key difference: the people around Trump now seem far more ideologically driven than during his first presidency. Watching them on TV, it increasingly resembles a cult—much like the cult around Elon Musk, only with much deeper consequences.
The overarching ideology seems to be that America has been taken advantage of by the entire world, and now it’s payback time—through tariffs, land grabs (Greenland, Panama), or compensation for military aid (Ukraine’s rare earths).
They may focus on China, but they don’t seem to care if the rest of the world goes up in flames.
The Role of Investors in the US Trade Imbalance: Free Cash Flow and Capital Efficiency
From Trump’s point of view, the narrative is often that China, Europe, and even “the Penguins” have stolen manufacturing jobs through unfair practices—mainly by offering cheaper labor.
But one angle is often forgotten: investor pressure on companies to stay “capital light” and generate significant free cash flow.
When you talk to investors about European stocks, one argument always comes up: “Look how weak free cash flow is for your European companies, and how poor their returns on capital are. US companies, on the other hand, are cash machines with massive buybacks.”
Warren Buffett himself explained this in detail in his 1985 letter to shareholders, when he shut down his textile business. Here’s the essential quote:
“Thus, we faced a miserable choice: huge capital investment would have helped to keep our textile business alive, but would have left us with terrible returns on ever-growing amounts of capital.“
Buffett—and many capital allocators after him—recognized a hard truth: mass manufacturing is capital-intensive, cyclical, and competitive. And that combination just doesn’t produce great shareholder returns in the long run.
It’s far easier to create free cash flow from services (GEICO), sugarwater & caffeine (Coca-Cola), or branded candy (See’s Candies).
In my opinion, the relentless US focus on capital efficiency and the outsourcing of capital-intensive, competitive manufacturing is a key driver behind the unparalleled performance of US stocks over the last 40 years. The faster you ditched manufacturing, the faster you got rich—or super-duper rich—as an investor, PE guy, or corporate CEO.
Yes, a few great US manufacturing companies remain, but most are niche players with high-margin products.
In contrast, in most major exporting countries—Japan, South Korea, Germany, and even China—returns on capital are significantly lower. Why? For Germany at least, part of the answer might be that many companies were family-owned, with owners less eager to get rich fast and more content with getting rich slowly—or just staying rich.
It’s no coincidence that Apple or Nvidia—who don’t actually manufacture themselves—have far higher returns on capital and free cash flow than Samsung or TSMC, who still do a lot of their own manufacturing.
This is one of the main reasons why US markets have massively outperformed everyone else for decades.
The Big Question
Who will provide the capital—and accept the low and volatile returns—to bring manufacturing back to the US?
Maybe some Chinese companies would be willing to build factories in the US for low returns, but the Americans likely won’t allow it.
European firms might not have the capital—especially if a recession is triggered by US tariffs. The same could go for non-Chinese Asian companies.
Even fully automated factories are capital-intensive and far less efficient than outsourcing to a partner who is satisfied with a lower return on capital.
This is just one flaw in the “tariffs will bring back jobs” strategy—but I haven’t seen much discussion around it.
Germany / Europe
All in all, the outcome of the German election—at least from an economic perspective—may be pretty close to a “best-case” scenario, whatever that means.
A CDU/CSU and SPD coalition is likely to deliver a more pro-business, pro-growth agenda than a government that includes the Greens or more radical parties.
The bad news is that about 35% of voters still supported radical parties (AfD, Die Linke, BSW).
They now have four years to show whether they can stabilize Germany and Europe. If not, there’s a high chance these parties will enter government next time.
What they’ve done so far looks… okay. Not great, but okay.
At the EU level, the response has so far been measured and reasonable. Still, the Trump administration clearly harbors deep resentment toward Europe. Assuming a “no tariffs” outcome would be naive.
I see real potential for escalation—maybe not quite as bad as with China, but Trump’s affection for Putin should make Europe wary of expecting fair treatment. What we can just see from the Japanese and UK “negotiations”, an this Buffett quote comes to my mind: “It is impossible to make a good deal with bad people”.
So far in 2025, European—and particularly German—stocks have somewhat “decoupled” from the US. But I don’t believe this will be sustainable.
“There Will Be Blood”
No matter what happens in the next weeks or months, in my view, a lot of damage has already been done.
The tariffs proposed by Trump are so extreme that no serious businessperson can confidently allocate capital without knowing where things are headed. And as it stands, there won’t be clarity anytime soon.
If you invest in the US, who’s to say those tariffs won’t disappear in 3 months? You might once again find yourself competing with cheap imports.
The only question is: who gets hit hardest?
Right now, it seems large companies with strong lobbying (Apple) and powerful interest groups (US farmers) might be spared or compensated.
But many smaller businesses—both in the US and abroad—will suffer.
Of course, there will be winners, too. Smuggling—or “optimizing supply chains”—could become hugely profitable again. Sophisticated logistics firms that can reroute and repackage goods will do well.
Local players who benefit from reduced foreign competition will also profit. Anything that promises “independence from China” will likely do well in the short term.
But again—this could be short-lived.
Consensus Trades & Structural Winners
The current consensus trades are:
- Gold (inflation hedge)
- European defense
- Rare earth mining
We’ll likely see more of these “winners” emerging—but to benefit, you’ll need to stay nimble and act fast when the tide turns.
Some sectors could benefit structurally, for instance:
- Infrastructure with inflation-linked pricing power (replacing it would be costly)
- Circular economy players—recycling essential raw materials could become a key advantage if trade wars intensify.
“Defense First” – Updated Portfolio Check
I’ve kept the old update from last year and made changes where needed, including new positions
| STEF | No direct exposure, both to US and German policy changes in my opinion. New: lower oil/energy prices and interest rates positive, no direct impact of tariffs |
| TFF | Slightly negative exposure to European wine exports to the US, slightly positive exposure to lower taxes for the (growing) US operation. Overall neutral.TFF is maybe the most complicated case. US Bourbon exports will be clearly negatively impacted, as well as European Wine exports to the US. However, local consumption of US Bourbon in the US might increase (less competition) and the relationship between Europe and China might improve. Overall, still negative impact, also more friction than in the past for TFFs main customers on top of behavioural changes (less alcohol consumption overall). |
| DCC | No exports.Potentially some negative impact on “clean energy” initiatives, on the other hand 20% of OP realized in the US, traditional energy business might have a longer runway. Slightly positive. While I have been writing this. DCC announced to focus on energy, to which the share price reacted positively.The business as such will most likely but not affected. However, the current divestment plan of the non-Energy activities will be clearly hit by lower comparables and reduced deal activity. So for the time being, negative impact.l |
| SFS | SFS mostly produces locally. However, via the acquired Hoffmann Group they have exposure to most of Europe’s exporters from the machining industry. On the flipside, Chinese competitors to SFS’s customers might suffer even more. Still, overall slightly negative, at least in the short to mid term.Not much change here, with the only exception that SFS in my opinion has decent exposure to the European metal working industry, which might benefit from increased defense spending. I am surprised how much the share price went down. |
| ATD | ATD has a lot of business in the US, so lower taxes should be good. Higher interest rates for the Japanese Acquisition (if it goes through) would be negative. Overall slightly positive.A US recession would clearly be not great, but still this is a very resilient business in my opinion. |
| Italmobiliare | No relevant exposure apart from some US based PE funds. Overall neutral.No big changes here i guess. |
| Eurokai | A very interesting question. If global trading volume would decline significantly, Eurokai would be negatively affected although direct exposure to US lines is relatively low to my knowledge. Overall, slightly negative.Again a very interesting case. It could even be that they see more traffic from the Asian side. |
| G. Perrier | No exports to US to my knowledge, overall neutral or slightly positive (Nuclear, defense)No change. The share price hasn’t benefitted at all from the defense exposure. |
| Fuchs | Local production, no exports. However, exposure to European Automobile industry, slightly negative.No big change. But clearly some exposure to a rapidly slowing economy. |
| EVS Broadcast | The US was one of the target markets to expand. For the hardware part, Tariffs might be a (small) issue, but I guess all competitors import their gear. EVS might even have an advantage as they assemble in Europe and do not import directly from China. Neutral to slightly positive.No change here, however, a recession in the US could of course negatively impact growth., |
| Royal Unibrew | No US exposure at all to my knowledge.Neutral.No change |
| Thermador | Only local French business, neutralNo change |
| SIxt (Vz&St) | Sixt has been growing aggressively in the US. It will be harder for Sixt to get (German) premium cars in the future for the US market. Overall, I see slightly positive impacts on Sixt. During writing the post, Sixt released Q3 results and guided to the lower end of the range for 2024. Maybe I am wrong, but I still see the more upside than downside.A clear negative in my opinion are the rapidly dropping numbers of inbound tourists into the US. Sixt’s business in the US is leveraged to tourism and it wil be interesting to see if domestic tourism can fill the gap. Increased tariffs for car imports might hit the weaker competitors much harder. A positive is clearly that residual values of used cars will go up significantly, which was a problem for Sixt in the past. Overall, the stock has already reacted quite negatively. |
| Bouvet | No direct US exposure. The Norwegian economy is still geared towards oil & gas prices. Neutral.Lower oil prices are in general not positive for the Norwegian economy. Otherwise neutral. |
| SAMSE | Exposure to the French construction and renovation sector. Not directly impacted.No change here. |
| Hermle | Hermle is a more difficult case. On the one hand, they will clearly suffer if the European machinery sector suffers. On the other hand, when the US wants to increase its manufacturing capacity, this could mean opportunity, especially for Hermle as they need more machines to produce high precision parts and automation. Yes, there would be tariffs, but the Chinese competition might be hurt much more. This is clearly a stock to watch closely on which side things will go.Little change here, however significant exposure to potential US/Europe escalation. |
| Chapters Group | No direct exposure. Neutral.No change |
| Laurent Perrier | The US is the largest importer of Champagne (15% of total production), so there will clearly be an impact. The big question is: How large will the impact be and what is already reflected in the current share price ?No change. |
| Robertet | Robertet has significant US exposure and is importing a significant part of their natural ingredients. On the other hand, their ingredients are not easily replaceable. The main question will be about pricing power in my opinion. |
| Bombardier | Bombardier is an interesting case. At the time of writing, Bombardier is one of the few companies outside the US, which is not subject to additional tariffs. So in theory they are even at an advantage compared to their major competitor Gulfstream. However, this will clearly not stay that way. In any case, the major risk for Bombardier would be if Trump gets angry at Canada again or if demand from the super rich would actually drop. |