Selling America is a ‘dangerous bet,’ UBS CEO warns as markets panic

“Diversifying away from America is impossible,” UBS Group CEO Sergio Ermotti told Bloomberg in a television interview at the World Economic Forum in Davos, Switzerland, on Tuesday. “Things can change quickly, and the United States is the most powerful economy in the world and the country with the highest level of innovation right now.”

The catalyst for the sell-off was a new escalation by US president Donald Trump, who threatened to impose a 10% tariff on eight European allies – including Germany, France and the UK – unless they gave in to his demands for Greenland.

Trump also threatened to impose a 200% tariff on French wine and champagne to pressure French President Emmanuel Macron to join his peace council. Trump’s favorite character, “Mr. Tariff,” is back, and bond investors are unhappy with the volatility.

But if investors continue to get caught up in the fluctuations of daily politics and avoid the United States, they will miss the forest for the trees, Ermotti said. Although he admitted that the current environment is “bumpy,” he pointed to a statistic: last year alone, the United States created 25 million new millionaires. For a wealth manager like UBS, that means 1,000 new millionaires a day. Eschewing this level of creativity in US stocks in favor of gold would be a reactionary move that ignores long-term creativity in the US economy.

“We see two big levers: first of all, wealth creation, GDP growth, innovation, and also what is most special for UBS is that we see the potential to become more present, to increase our market share,” Ermotti said.

But if something doesn’t work out in the standoff between the EU and Trump, there could be potential for a further pullback in the dollar, this time, through Europe selling its US bonds, George Saravelos, head of FX research at Deutsche Bank, wrote in a note on Sunday. Indeed, on Tuesday, Danish pension funds sold $100 million in US Treasuries, allegedly due to “lousy” US finances, although the head of the pension fund said of the debacle over Greenland: “Naturally, this did not make the decision any more difficult.”

Europe owns twice as many US bonds and stocks as the rest of the world combined. If the rest of Europe follows Denmark’s lead, it could be an $8 trillion market at risk, Saravelos said.

“In an environment where the geo-economic stability of the Western alliance is existentially destabilized, it is not clear why Europeans would be willing to play this role,” he wrote.

Back in the United States, markets also saw a sell-off, with the Nasdaq and S&P down 2% on Tuesday, effectively causing Greenland to lose value entirely due to Trump’s threats, noted economist Justin Wolfers of the University of Michigan. Analysts and investors are uneasy, given Trump’s history of announcing tough tariffs before negotiating with the country to remove them, also known as the “taco” effect — meaning Trump always evades them. Deutsche Bank’s Jim Reed noted that investors “have felt burned before by overreacting to tariff threats.” This is a similar situation to the head of UBS: If you react too much to the headlines, you will miss the great innovation that has pushed the stock market to record highs over the past three years.

“I wouldn’t really bet against the United States,” he said.