Europe’s Two-Front War: Russia & Climate Change
Geopolitical analyst and macro investor Louis-Vincent Gave discusses why Europe is currently uninvestable and makes the case for continued weakening in the Euro-Dollar exchange rate.
European, more specifically German, energy policy has been making headlines lately as many fret about rising oil and gas costs heading into winter. One third of Germany’s natural gas supply is imported from Russia. Gazprom, the Russian gas supplier, has signaled that it intends to decrease flows to Germany by 20%, citing a “technical condition”, though many speculate Russian political strategy is behind the move.
Already, the past several months have seen European gas costs decouple from American to a spectacular degree, upending decades of relatively tight correlation:
I sat down to speak with Louis-Vincent Gave, founder of GaveKal Capital - a research and wealth management firm with over $2.9 billion in assets under management, about the situation in Europe and how he’s currently positioning his firm’s portfolio. Long story short, it’s not with European stocks.
“European growth has been lackluster for two decades,” Gave emphasizes, so they’re not on good footing to begin with. High energy costs are eating up discretionary income, which could morph into a fully fledged panic come winter time when demand picks up and becomes more inelastic.
According to Gave, this does not bode well for the currency either, which reached parity with the dollar in mid-July but has seen a slight rebound in the following weeks. Energy is inherently tied to a nation’s sovereignty and currency strength, and, as Gave puts it: “If you run out of energy, then you move into freefall”.
The outlook isn’t looking good and overzealous “green” policy could make things even worse. Referring to it as the “two-front war” against both Putin and climate change, Gave strongly critiques Germany’s plan to shut down its last surviving nuclear power plants, highlighting their hypocritical decision to instead import coal from South Africa.
Between strategic moves by Russia and self-hamstringing green policy, the EU is looking unattractive as an investment as the coming winter brings increased volatility to the region.
To hear more of Louis Gave’s perspective and why he instead sees Asia as the next secular winner on the World’s Stage, check out the full interview with him below:
Part 1:
Part 2:
