The Return of Economic Populism and the End of Two Percent | Vincent Deluard

Vincent Deluard · StoneX

France is a net consumer of foreign capital, especially Japanese, not a major exporter of savings.

France has traditionally run external deficits, so it is not a major exporter of capital. French households are conservative, keeping most savings in cash, bank accounts or domestic debt rather than in foreign assets. On net, France has been absorbing capital from abroad, notably from Japan, to finance its deficits. This matters for the question of whether capital repatriation from France would be significant, since there is little French capital abroad to repatriate.

“So I don't think France has really been... If anything, I mean, I think France has been consuming capital from other countries, especially Japan,”at 33:38

Vincent Deluard · StoneX

Macron failed on reform; yellow vest protests blocked pension and fiscal reform, and COVID spending was higher.

Two years after Macron's election, he had largely failed to reform France. The yellow vest protests stopped meaningful reform of pensions and fiscal spending. France also spent far more than other countries during COVID and received less from the EU. The Next Generation EU money went largely to Italy, Spain and France, which made the periphery look better than France.

“He completely failed... We had the yellow vest protest that kind of stopped any meaningful reform on pension, on fiscal spending.”at 35:17

Vincent Deluard · StoneX

France now meets every marker of a debt crisis: about 120% debt-to-GDP, 5-6% deficit, debt mostly held abroad.

France has debt of about 120% of GDP and a deficit of 5-6% of GDP. Most of its debt is held abroad, unlike Italy, where most debt is held domestically. A large share is held in Japan, which has been one reason the euro has appreciated. France cannot print its own debt, and it faces a serious political crisis, so Deluard argues it now ticks all the boxes of a debt crisis.

“And now France really ticks all the boxes of a debt crisis. I mean, we have a debt to GDP of a 120%. We have a deficit of five, 6%. Most of that debt is held abroad.”at 35:47

Vincent Deluard · StoneX

Shunning populist parties has left centrists with 15-20% support, too little to govern France or Germany.

France and Germany's political establishments labelled far-right and far-left parties as unacceptable instead of engaging with their voters. Each election pushes support toward the extremes, leaving a shrinking centre with roughly 15-20% of the vote. A government cannot be formed on that base, so no one has an incentive to fix France's problems.

“The politicians have picked the voters... Every election, the far left and the far right rise, and now what's left in the middle is this tiny block of, most 15 to 20%, and you just cannot govern on 15 to 20%.”at 36:37

Vincent Deluard · StoneX

Le Pen's left-leaning economic agenda, including a lower pension age and bigger state, is bad for French debt.

Unlike her father, Le Pen is more economically left-wing. Her instincts favour lowering the pension age and a bigger role for government. Deluard argues that this is probably not good news for French debt. Even the most optimistic scenario, an outright Le Pen victory, would not be good for French markets.

“She's probably much more on the left, which again, probably is not very good news for French debt... she wants to lower the pension age. She wants a bigger role for the government.”at 38:47

Vincent Deluard · StoneX

Marine Le Pen will likely win France's presidential election, given her roughly 40% polling.

The French election runs to a second round in April, with a far-left and a far-right candidate expected to face each other. Le Pen is polling around 40%. Deluard says she would eventually win, because the centre-right is unlikely to rally against her and she does not need to do much beyond letting the momentum continue.

“Eventually, she would win the election... She's polling at 40%.”at 39:00

Vincent Deluard · StoneX

The 2% inflation target is being abandoned; structurally higher deficits will mean structurally higher inflation.

The 2% target was a recent invention and central bank independence has historically been rare. The US has missed the target for six years, and a task force is now reviewing how inflation is computed, which he reads as a soft admission that structurally higher inflation is needed to service structurally higher deficits. Trying to fund both war and social programs has historically meant abandoning a nominal anchor, which in the 1970s was gold and today is the 2% target. Political pressure and fiscal dominance are strong enough that it is only a matter of time, and he expects fiscal policy to win.

“Now we have a task force that's charged with reviewing the way we compute inflation, which I think is a soft way to acknowledge that, yeah, we just need structurally higher inflation because we have structurally higher budget deficits.”at 13:00

Vincent Deluard · StoneX

Subscriptions and personalized pricing make CPI harder to measure and shift welfare to producers.

As the economy shifts from goods to services and digital subscriptions, the link between consumption and payment breaks down, so price indexes built on tangible goods capture less. Annual prepayment causes seasonal distortions, which is why inflation surprises cluster in January and February. Personalized pricing means there is no representative consumer for the CPI-U, and algorithms use data on willingness to pay to shift consumer surplus to producers. Together these make inflation feel like a diffuse vibe rather than an objective, measurable reality.

“...Everything is as a service. You subscribe to the gym, you subscribe to the food plan, you get your ski pass. So when you have a subscription based model, the link between your consumption and your payments breaks down.”at 15:58

Vincent Deluard · StoneX

Tariffs will return as a fiscal necessity to close a roughly $300 billion deficit gap.

The Supreme Court struck down the emergency tariffs, and the administration had to refund about $200 billion. The deficit this year is about $300 billion wider than last year. Taxes cannot easily be raised and spending cannot easily be cut, so tariffs are the only feasible way to raise revenue quickly. Because tariffs are one of the few areas where Trump keeps authority while Congress is gridlocked, he is likely to keep pursuing them, and they are bipartisan in their broader industrial-policy appeal.

“It's something to do, and it's also a fiscal necessity... We cannot really raise taxes. We cannot really cut spending. So I expect tariffs will be back on the agenda because it's the... Really the only feasible way to generate revenue rapidly.”at 25:37

Vincent Deluard · StoneX

Canada's pension assets in US markets give it leverage in USMCA talks through repatriation threats.

Canada's pension sector holds over $3 trillion, and about 65% of the big six funds' assets are in the US. That position has earned large gains, with US stocks returning about 15% a year and the Canadian dollar falling about 30% against the dollar. Canada has large infrastructure needs, including pipelines and energy projects, and it can threaten to bring that capital home at a time when the US depends on foreign inflows to fund its deficit and hyperscaler spending. Unlike trade, where the US matters more to Canada, on the capital side Canada holds the stronger hand, which should give it a stronger position than Mexico in the renegotiation.

“very strong asset that Canada has in its negotiation with Trump is this massive pension sector with about more than 3,000,000,000,000 in assets and overwhelmingly invested in The US.”at 29:41

Vincent Deluard · StoneX

Midterms show a profound rejection of Trump and a turn to economic, class-warfare populism.

He calls the Democratic sweep a once-in-a-century tide and a profound rejection of Trump, MAGA and the past two years. Heavy spending, including Musk's campaign money, bought little, so money no longer reliably wins elections. Cultural issues faded and the vote was about prices and corruption. He points to the Iran war as a betrayal of Trump's no-foreign-wars mandate that brought inflation and high gasoline prices. He expects the populist movement to gather strength toward 2028, and sees a resurgent left-wing populism.

“...It was an economic election. It was about really prices, corruption, and I think that leads me really to my conclusion that we are getting back to kind of a class warfare environment.”at 7:18

Vincent Deluard · StoneX

Prepaid subscriptions and rising fixed costs leave consumers unable to cut spending during energy shocks.

Subscriptions, rising health insurance costs and other prepaid commitments are growing a larger share of spending, so true discretionary spending shrinks. When an adverse shock like a doubling of gasoline prices hits, households cannot cut back much because much of their budget is already committed. He sees this as a source of consumer malaise and stress, and says the US consumer is really hurting.

“So when you have an adverse shock like, you know, gasoline prices doubling, you can't cut as much because everything is already prepaid and then subscribed.”at 17:10

Vincent Deluard · StoneX

The yen carry trade is over, ending a major driver of asset prices, the US tech trade and the peso.

Investors borrowed cheap yen to buy higher-yielding assets such as pesos, and the trade was a major driver of global asset prices and of the US tech and AI rally. When the Bank of Japan first signaled rate hikes, the peso fell 15-20% within a week, showing how fragile the trade was. With Japanese rates rising and the rate gap narrowing, the carry that funded these positions is being eroded, so the trade is unwinding.

“I think one of the main secular themes that we are seeing is this Japanese carry trade... is over. And it's been a major driver of asset prices, major driver of the tech AI trade in The US”at 23:43

Vincent Deluard · StoneX

Mexican peso's four-year strength is reversing as its carry, remittance and trade-backdoor drivers unwind.

The peso was unusually strong for four years, touching 16 per dollar, driven by strong US growth, Mexico serving as a backdoor to North American markets under USMCA via Chinese investment in Nuevo León, a digital-nomad and tourism boom, remittances of roughly $50 billion, and a high carry that let investors borrow yen cheaply and earn about 1% a month. Each driver is now reversing: stronger border enforcement cuts remittances, USMCA is being renegotiated, tariffs target Mexico as a loophole, Cancun hotel reservations are down 50-70%, and the rate differential is narrowing as US and Japanese rates rise while Banxico signals cuts. The peso sold off after the central bank hinted at easing, and he sees the currency weakening.

“I think one of the main secular themes that we are seeing is this Japanese carry trade... is over... So really everything is kind of lining up for the peso to weaken.”at 23:43

Vincent Deluard · StoneX

Canada's economy is turning up on energy and fertilizer terms of trade and a pragmatic government.

After about ten years of stagnation and per-capita decline, with a weakening Canadian dollar and heavy energy regulation, Canada's position has improved. Its terms of trade are strong because it exports energy and fertilizers, whose prices are up sharply while the main alternative suppliers are in the Middle East or Russia, which gives Canada leverage. Prime Minister Carney has proven more pragmatic than expected, running budgets conservatively, and a rally-around-the-flag effect has lifted his approval.

“Now things are looking up. I mean, and I go back primarily to terms of trade. Canada exports energy and fertilizers. Okay. Prices for energy and fertilizers are up a lot.”at 27:51

Vincent Deluard · StoneX

Reversal of foreign capital inflows into US markets is among the biggest risks to US asset valuations.

Foreign inflows have been the main driver of US outperformance for the past decade, and they are the mirror image of the US trade deficit, which still runs at 3-4% of GDP. Deluard estimates that about 90% of the world's surplus flowed into the US over the past five years, with inflows shifting from central-bank Treasury buying to private equity and bond demand. He expects national capitalism to return as Japan, Europe and Canada seek to keep their savings at home to fund grids, energy independence and defense. Because the US depends on this capital, the shift is a secular threat to valuations and the dollar.

“I would think it's one of the biggest risks. I mean, it's been really the main driver of US outperformance for the past ten years has been this continued foreign inflows, which are really just the mirror of the deficit.”at 31:48