“Every technological revolution to date has not reduced demand—it has only increased it”
Edmond de Rothschild CIO Nicolas Bickel says AI innovation will benefit tech giants despite competition from cheaper models like China’s DeepSeek.
In recent days, a new expression has become trendy in the markets – TACO, like the Mexican dish. It stands for “Trump Always Chickens Out,” referring to a trading method that bets against U.S. President Donald Trump’s initial decisions on various issues, assuming that he will eventually reverse them, as happened with the tariffs he imposed on China and the European Union, the sanctions on Russia, and his willingness to pursue a diplomatic nuclear agreement with Iran.
"This is probably the first time in history that just one person, or a small group of people, has such a dramatic impact on the global economy, to the point that he alone can push it into recession or boom," says Nicolas Bickel, Chief Investment Officer of Edmond de Rothschild Bank, in an exclusive interview with Calcalist conducted during his recent visit to Israel. According to Bickel, "What is happening now is that the market is paying less attention to soft economic data like consumer sentiment, and not even to hard data like GDP or employment figures, but mainly to political media, and in this case, to what comes out of the White House."
Bickel, who is based in Geneva, where the bank, which manages assets worth $210 billion, is headquartered, diplomatically describes the rollercoaster ride that the U.S. president has put the markets and the world on. But he also points to a moment when, in his assessment, even the most unpredictable person in the world may stabilize and become more predictable: the midterm elections for the U.S. Congress next year. According to Bickel, "We estimate that Trump will not want to lead the economy into a recession ahead of the midterm elections. He is a businessman. His moves are sometimes extreme, but it is likely that in the end he will choose a pragmatic line, if he wants to maintain the Republican majority in Congress. That is the hope. Therefore, we see a real possibility that the stock market will receive a significant tailwind toward the end of the year."
As mentioned, Trump is unpredictable. But Bickel is trying to analyze the actions of the American president using analytical tools to explain how they’ve led the entire world into turmoil. "In recent decades, the U.S. built itself on innovation - that is, on products with high added value - and it ‘transferred’ production to cheaper countries like China. The idea was that the U.S. would retain the high value, the innovation, while production would be done cheaply. But in practice, these countries not only produced cheaply, but also learned what innovation is, and in some cases even surpassed the U.S., as in the case of China with its plan called ‘Made in China 2025.’ So today, the U.S. is trying to change this situation and essentially reshape globalization. If during Barack Obama's presidency there was talk of transferring production to friendly countries, in the Trump era there is talk of returning production to the U.S. This move undermines the entire order we have known since the end of World War II, and as a result, there is total uncertainty in the markets."
This is understandable overall, but there is a difference between reshaping the global order and breaking it.
"True, but sometimes you have to break in order to reshape. There is no doubt that markets do not like uncertainty, because then companies do not know how much and what to invest, since it is impossible to know what will happen next month. And this, ultimately, can lead to a slowdown in the economy. If the uncertainty does not last long, everything can end reasonably well. If it does, the landing will be hard."
If so, what is the chance of a recession in the U.S. and the world in your opinion?
"I am always surprised by organizations that present an exact forecast like ‘45% chance of recession.’ I think the existing models simply do not know how to deal with the current situation. There is a big gap between sentiment and hard economic data, and in the U.S. they are still strong. There is a risk of a recession because the tax cuts in the U.S. are not backed by measures that increase revenue, so the risk increases. But everything can turn around if the right decisions are made by the administration."
As in the trade war and the calming of the situation in this sector?
"Exactly."
So what do you think the average investor should do in a situation like this? After all, no one really knows what Trump wants to achieve. We see what he’s doing, but we’re not sure how to interpret it.
"In a capitalist world, companies have a very good ability to adapt to changing realities. That’s why the most important thing for the average investor is to stay invested—to stay in the market. That’s probably the most significant decision for a long-term investor. I like Warren Buffett’s saying: ‘The capital market is designed to move money from impatient people to patient people,’ and it’s very relevant now."
To illustrate his point, Bickel says that "if you look at the American capital market over the last 20 years, you will see that if you missed the 10 best trading days, your average return dropped from 8% per year to 4.8%. That’s a huge difference over time. And the best days usually come right after the worst days, so it’s very important to stay in the market during such volatility."
However, Bickel emphasizes that it is right to examine the investment portfolio and make adjustments to it, because "the economy is changing, and the companies that will succeed are those that know how to adapt. When inflation is high, it is worth being exposed to companies that can pass on excess costs to the consumer. In our assessment, banks will also benefit from the situation when the Federal Reserve begins to lower interest rates and we see a positive slope in the yield curve. We need to be invested, but we need to be proactive and adapt ourselves to changes."
So where do you see opportunities now for those who have decided to stay in the market?
"In the short term, we need to reconsider exposure to emerging markets that depend on exports, lthat is, those where domestic consumption is low, because these markets are more vulnerable to the consequences of trade wars. And we should turn our attention to countries that have strong domestic consumption and whose governments also support consumption, such as China, even though it is potentially a major victim of Trump’s moves."
And what about Europe? How do you perceive the current state of the continent?
"Europe is in a period of change. The U.S. is signaling to the world that it is no longer its policeman, and it is pushing European countries to increase their defense budgets, and not only that. Look at Germany, which was dependent on cheap gas from Russia and on the sale of luxury cars to China. Both areas have been damaged, because of the war in Ukraine and the development of the automobile industry in China, and it is changing its policy. It is increasing debt to invest in infrastructure, defense, and energy security. We see potential in this."
Is this your polite way of saying that it is worth reducing exposure to the U.S. market? After all, by the end of 2024 everyone had flocked to invest in the U.S. flagship index S&P 500.
"We believe that the U.S. is an exceptional market, and we do not think it is over. American companies are still showing strong growth, more than European companies. They are investing a lot in technology and artificial intelligence. We may see a moderation in the growth rate of the high-tech sector, but innovation is very strong in the U.S., and it will lead to increased productivity in other industries as well. That is why we still prefer American stocks, especially in defensive sectors. The giant companies, the big tech companies, are the first to benefit from increasing productivity through technology, and they are investing tens and hundreds of billions in infrastructure and large language models."
It may seem like a distant memory, but it is not impossible to challenge the tech giants. Just remember what was dubbed the "DeepSeek moment."
"It is true that the Chinese company DeepSeek announced that it had managed to build a large language model with a budget of only $5.5 million, which is much less than the sums required by OpenAI to develop the ChatGPT model, but it later turned out that the Chinese used Nvidia chips and existing infrastructure. So this is not a real revolution. In my opinion, if cheaper models manage to make the capabilities of artificial intelligence more accessible, this will actually lead to increased demand and ultimately benefit the tech giants, because they own the infrastructure. I am not afraid of DeepSeek. Every technological revolution to date has not reduced demand, it has only increased it."
The DeepSeek case illustrates a fundamental problem with investing in China - how can you trust the data it publishes?
“When there is a lack of transparency or aggressive government intervention in the capital market, you have to give a discount to stocks, and the market really prices that. Chinese stocks are cheaper than American stocks, and there has not been a large flow of capital into China recently because of the lack of trust.”
And when you look at American stocks not in comparison to China - are they expensive?
“Yes, compared to the average of the last 15 years. And they are more expensive than European stocks. But American companies have the ability to show higher growth in earnings per share, and I think that justifies the premium. You pay more, but in the end you also get more.”
How do you think the S&P 500 will perform this year?
“Look, the end of the year is a calendar point in time. If you focus on a specific date, you risk hurting the long-term performance of your portfolio. If you decide to be exposed to the U.S. market, or any other market, you do it with the belief that it will yield a return of more than 0%. If you exit the market, you have to be sure that you can re-enter at a lower price, and quickly. And that’s not easy. After all, no one really knows how to time the market. The U.S. earnings season showed about 8% growth in corporate profits. That’s not the low double-digit rate of 12%-13% that analysts predicted, but it’s not bad. So we think the U.S. market could end the year on a positive note.”
How do you perceive the conduct of Elon Musk, the owner of Tesla, who announced last week that he was leaving his position in the Trump administration?
"I'm not sure that from a business perspective it is wise for an entrepreneur who is so deeply connected to his company to be involved at such a political level. It jeopardizes his appeal to the entire market. You give up half of the customers in advance, those who oppose Trump. By the way, we, like many other banks, have developed products that are based on the policies of the Trump administration, but we did not include Tesla in these products because of the company's great dependence on one person."
Bickel arrived in Israel for meetings with clients of Edmond de Rothschild Bank and investment managers at Israeli institutional entities. Some of the meetings took place in the bank's wine cellar, which is headed by Baroness Ariane de Rothschild, who is the bank's CEO and also chairwoman of the philanthropic foundation.
Rothschild Bank was founded in 1953 and is engaged in private banking and wealth management for affluent clients. The bank has branches in 26 countries around the world. The Israeli operation, which was established in 1999, has been managed since 2023 by Nir Yeshaya, who said, "We have 30 employees in Israel, which makes us one of the largest private banking offices in the country. In Israel, we have two main activities: the first is to handle Israeli clients who are interested in accounts and investment solutions outside of Israel, and for them we tailor customized solutions; and the second is to manage investment portfolios in Israel by local managers. We are the only foreign bank that offers this."
The main activity of Edmond de Rothschild Bank, which has no connection to Rothschild & Co investment bank, which is owned by another branch of the Rothschild family, is with private clients, although its clients also include institutions and pension funds.
