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- [00:00]
A
Foreign. Welcome to Real Vision. Welcome to Macro Mondays. My name is Migl Osemal. I'm joined by Andreas Denel and we've got a jam packed show for you today. With everything that's going on in the world, we are in red alert mode mode across markets and we'll try and give you a bit of an update on everything. And I look into how we view this. We will be keeping you updated on the emergency in energy space all week. So before we get started, let me just talk a little bit about that. I have a very interesting interview with Josh Young, energy analyst at Bison Interest tomorrow. We've had that plan for weeks actually. But as you can probably guess, the agenda has shifted a little bit to the, to the emergency that we have in energy space right now. I'm also doing an ask me anything on Iran on Wednesday and then Andreas, we have the State of the Union speech on Thursday and I was wondering whether to include this in the energy emergency week because usually we talk macro, you talk about the state of the economy on Thursday. But it's hard to talk about the economy without talking about what's going on in Iran right now, right?
- [01:16]
B
Yeah, well, to be honest, I have nothing planned yet. So we'll have to see how things develop over the course of this week. Just before we went on air here, Mikkel, I see that Kadayama from Japan has officially stated that the G7 group has agreed to respond, including a release of oil reserves. So a lot of stuff is happening right now.
- [01:39]
A
Yeah, absolutely. We'll be covering that during the day, Andreas, Pro Boat or during the show, both looking a bit into the war, what to expect, what we got right and what we didn't get right. And then yeah, whatever macro we can find to talk about in these times. Andreas, don't forget this is our free sneak peek into the research that we publish at Real Vision. You can get full access with the approach here. We publish three flagship reports every week including our Friday portfolio update where you get a glimpse into what we are trading and why. Also don't forget, let me just get this up here, that today is the final day of the offer of the Exponentialist. The Exponentialist is Raoul Pal and David Madden's tech research service. Andreas, you guessed at the Exponentialist recently and we have a great offer writing where you can get 15% off a six month subscription or 25% off a full year. So head on over to realvision.com exponential to sign up for that while you have the chance. And also I can't speak for Roland and David here but Andreas, I know I can speak for us that especially in times like this, it's very important to remember that we always try to be actionable. We always try to look ahead and predict what's going on. But that also means that our takes and ideas might be Summertime, it may be good Summertime, it may be. That's the way it is, Andre. And we're going to do to do a little bit of, of soul soul searching on that as well. I wanted to start off on a bit of a light and lighter note. Andreas. We both brought a laugh of the week so let's, we, let's see which one brings, brings the most the most laughs here. I bought this one. This is one of the memes I love the most. I mean everyone is telling me, oh, it was so easy to see the, the attack on Ran coming. We spoke about it for weeks, Andreas. I thought it was an overlooked topic. I wasn't sure it was going to happen. You can never be. So did we plan ahead? Yeah, we've got exposure in, in the portfolio to it but in, in times like this in Jersey it's hard to, to, to construct an entire portfolio to, to react to this. So not entirely wrong but as a lot of people were here, this one is probably even better. Andre, you just put in here, this is one of the kings of vape posting right now I feel like on Twitter, no limit gains really doing the rounds out there. Dubai real estate down 21% in eight days. And then the wonderful vague line here. I know exactly what you. What are you thinking here, Andreas?
- [04:04]
B
Well, first of all, I find it kind of amusing that they use an equity index to show the development in the price friends in Dubai real estate. And as far as this equity index is concerned, the price has moved nowhere since New Year's. I would strongly suggest otherwise. So yeah, just a bad tweet overall. Mikkel, let me say this for those of you who listen into this macro Monday show each and every Monday. I think I started out by saying last Monday that maybe the spike that we saw in oil prices on Monday would prove to be the peak. I guess that's the worst take since Napoleon decided to invade Russia, more or less. It couldn't have been more wrong. But it goes hand in hand with the view that you've held, which I have supported, that this could turn out to be a fairly short lived conflict. Here we are roughly a week later and we're still stuck with a conflict that seems very difficult to Solve in a way, Mikkel. So can you fill us in a little bit about your live impression of what's going on, whether there are any back alley off ramps being discussed here?
- [05:20]
A
Yeah, and that's the thing. That's also why I think markets are reacting the way they are today because, I mean, the war's been going on for a week. Did so much change over the weekend? Yeah, kind of. Let me just show you this chart. So the volume of attack has been decreasing since the very, very violent first weekend. That's very normal. No one can keep up the pace of what happened on the very first day, neither from the Israeli US side or from the Iranian side. So you scale down the attacks, you become a little bit more conservative with your attacks, but still keep them on a daily basis. And these are still very, very heavy and violent attacks, ongoing obviously. So we've seen that. And this is also an adj. The parties that this could drag on, so you can't fire all your missiles at once because they take a lot of time to build. So that's one thing that we saw, that the parties are sort of finding a volume of daily attacks that they can keep up for several weeks or months. Now. That doesn't mean that the conflict will last for weeks or months. I still had an idea that this could be relatively short lived. My initial feeling and my initial analysis was that this is very, very tough to stomach for Donald Trump. There's a lot of pressure both on his allies in the Gulf, but also on energy prices, as we're seeing. And there's a limit to how long Trump can stomach this. The next step in that analysis was that at some point, relatively quickly, we're going to see the secular parts, so the non religious parts of the Iranian regime rising up to some extent or trying to seize the agenda, seize the moment to present themselves as a better alternative for Iran long term, especially a more advertising alternative for the US as to who should govern Israel or Iran. We saw that this weekend. We saw exactly that. The President Pishan, who is most likely backed by the Iranian army, issued an apology of sorts to the Gulf states and basically told, told the neighboring countries that if they stopped harboring US attacks or being the base of that, Iran would stop attacking them. So this was a bit of a strange announcement, but the way I see it, it was an extended hand in the hopes that the US would respond and strengthen his position internally as the guy who can deliver peace. Now, Pysushkin was rejected outright by both Israel and the US and within hours. The attacks on the other Gulf states resumed by the Revolutionary Guard, who are part of the religious part of the regime, who are essentially running this war. So in my view, we had sort of an opportunity, sort of an opening which was flat out rejected. So that entire base case I had is killed. That's the way it is. And we're back to this. Let me just show you this translation of what the Revolutionary Guard stated. They said that Possesskin made a mistake. We're still keeping attacking. You should just ignore Prezechkin and remind you Possesskin is the president. He's part of the three persons chosen to lead while we were waiting for a new ayatollah. So this is what really killed my hopes for a quick peace. Andreas, my analysis on Trump still stands. I think his goals may have changed a little bit over the past days. It may have been emboldened by the success they had in taking out the Ayatollah. But this is still a lot for him to stomach. Address. We'll get into that a little bit. But on the other side of the aisle in Iran, you now have a new ayatollah. He lost his entire family last weekend. Is he going to be easier to negotiate with than position here? I really doubt it. So, Andreas, let's talk about the impact on markets and how that might be impacting Donald Trump. What are you seeing today? Is it an overreaction? What do you make of that?
- [09:07]
B
Let me start by saying that while you were talking, France has now rejected that there is an agreement to release oil stockpiles. So we are going from one end of the spectrum to the other end of the spectrum with 10 minutes intervals here, it's very, very difficult to figure out what's going on. What I'll say is the following. Well, it's obvious as long as the straight of Hormuz is closed, or at least de facto closed, as is currently the case, we need more shipping capacity elsewhere to get the oil from A to B. And that's a thing that I'll cement again today. We don't have a lack of supply of oil. We have a lack of supply of shipping getting oil from A to B. The oil market is still very oversupplied, but you cannot get it from the producer to the end consumer. The Saudi Arabian oil company Aramco earlier today stated that they have to halt the production in some of the oil fields linked to the harbors connected to the Strait of Hormuz, since they don't have the storage facilities to keep the oil that cannot go through the Hormuz Strait in those storages. And the pipeline that is running from east to the west is not big enough to reroute all of that oil to harbors on the other side of Saudi Arabia. So we're basically stuck with a situation where no one's really willing to sail through the strait. We know that China has lobbied to get a reopening of the Strait. We know that the Gulf states are trying to lobby, but nothing really happens. And Trump promised, was it a handful of days ago now that the US would protect ships trying to sail through. But we know from the debacles in the Red Sea over the past, say, two or three years that it's basically impossible for the US Navy to protect hundreds of ships from drones, missiles, rockets, what have you. And therefore this is probably the key question now, is there a way for the Iranian authorities to accept the reopening of the Strait of Hormuz but while they still keep this war running? I doubt it. But I'd like to hear your take on it in a second. But what I'll say is that if you look at how long this situation can be sustained without having a major impact, even from a supplies perspective. Look at page 12 here, miggle. It's the question I've gotten all day from counter puzzles from the region. By the way, we have plenty of accounts in our research from the region. My simple answer to the question, how long can this be sustained? Is that, well, Japan, South Korea, India, you can almost see it here on the chart, they have say 40, 50 days of supplies left if the Strait of the Loose is closed, if it's 100% closed. And that basically means that say by the end of this month, maybe by mid April, we'll have big countries in trouble from a supply perspective, and this is obviously assuming that we don't get an oil reserve release, but it is still a very, very peculiar situation for these countries. And even though the Eurozone looks fine here, we know that the Eurozone will import high prices anyway. The only country that can actually sustain this for a long time, it's the US from an economic perspective.
- [12:49]
A
Yeah, and I should say maybe we should cover that. I pulled a screenshot of this that the G7, the EA is also talking about releases of all research. But that's one thing to release the reserves they need to be shipped or pumped to the end consumer. And that's also the bottleneck right now, Andreas, getting ships to actually move this around. So we are getting very, very close to these deadlines. If I was in charge of things in Japan, South Korea, India, essentially, but also China, a huge country getting close to these deadlines. We do have some floating stockpiles as well, especially Russian gas, which again, points to the big winner in all this being Vladimir Putin, because he has so much oil in tankers just essentially flying around the globe trying to find ports. And we could very, very well be in a situation soon where there are lots of buyers of that oil. So the entire situation that President Trump worked so hard to create, this whole, this pinnacle, this problem he tried to create for President Putin, worked so hard for months to create all this oil that Putin couldn't sell, and now he's creating buyers for that left and right address. And it's a complete reversal of that situation, essentially.
- [14:07]
B
Yes. And they're even talking about lifting some of the sanctions on the Shadow fleet, et cetera.
- [14:12]
A
Now, we need this because that might buy South Korea, Japan a few more weeks if they can get some Russian oil there. But that means they have to buy it from Russia. Probably not without the usual. Or probably without the usual discounts.
- [14:26]
B
Yeah. And, Miguel, just to get the numbers straight here, we're talking about 3 to 400 million barrels from the strategic oil reserves from the G7 countries, in case they agree. It basically means that we cover, say, two to three weeks of flow from the Strait of Famous. So it buys the West a little bit of time. It buys Japan a little bit of time if this happens. But we're talking about buying a couple weeks, something like that. So we still need a conclusion to this war and to the lack of flow through the Strait of Moose before the end of this month. If we don't get a resumption of the flows before 1st of April, I'm tempted to say that the business cycle is over for this time. That's how important it is.
- [15:18]
A
Let me just get back to just one note, Andreas. We know that Trump has promised to send another carrier task force to the Gulf. That's probably needed if you want to lift the blockade of the Strait. It's still doubtful that they can do it because it's very, very hard to take out drones. So the US Will probably have, which they also talked about having to take some of the insurance fallback from this, which could make the war very, very expensive. So they'll essentially have to guarantee or insure all the ships they're built. But this carrier task force with the George H.W. bush, it's in South Carolina right now, it takes three or four weeks for that to sail to The Gulf aircraft carriers are extremely slow. They're not built to sail fast. So that's also looking towards the end of the month before that's there. And you asked me before, does Iran have any incentive to reopen the Strait of Hormuz? I don't really see it because, yes, Russia and China are supporting them, but they're running their own war. So the only chance here is a deal with the US somehow. And yeah, right now it's looking very, very tricky. Israel has vowed to basically take out any ayatollah they elect. Let's see how that goes. Right now, I'm having a hard time seeing the off ramps for President Trump with all the posturing that's been going on about unconditional surrender or fighting this to the end. We're hearing a lot of different things about what's the aim of this war. Mark Rubiot Dale talked about it's all about missiles, but that's not what Trump is saying. So, yeah, interesting. Andreas, should we talk about the macro backdrop here, Andreas, and what this means for inflation, for growth, for. You talked about the business cycle. Let's say we have a piece in one or two weeks or maybe a bit more. Do we then just go back to normal or what are the ramifications?
- [17:14]
B
Back to normal would be overstating it, to say the least. I think the consequences are manageable if we solve the conflict within, say, a couple of weeks from now, before the end of April. But we'll see the ramifications in inflation and to some extent also in growth numbers, both in South Korea, in Japan, in the Eurozone, not a whole lot in the US we're running this now costing setup. And it is very evident already by now that we see the price pass through in the Eurozone. It is very evident that we see the price pass through in Japan and South Korea. In China, it is not that evident, but it's very evident that growth has taken a hit as a consequence of this. While, of course there's an impact through the direct energy channel in the US but otherwise we actually see a very resilient development in the US thus far. Even with a conflict that only lasts 30 days, we should expect this to lead to a sustained drawdown of half a percentage point in GDP for some of the mentioned countries here. At the very least, maybe even a percentage point. That's a lot. If you're talking about the Eurozone, that's a lot. If you talk about Japan, it will hurt a lot. And even just due to a couple of weeks of conflict because this is such an energy shock that the ramifications will be felt. I'm personally, I don't know whether I should say looking forward to, but I'll keep an eye out for the data that we receive from South Korea early in the month because they actually deliver some export and import data for the first 10 days of the month, and they'll do that on the 11th. So a couple of days from now, overnight there, and we'll see whether the flow of chips from South Korea to the US has already been halted as a consequence of this. But I think there's a risk that it has. We already saw some weakness in these export and import numbers from South Korea towards the end of February, and it was even before the conflict really spiraled.
- [19:34]
A
Right.
- [19:34]
B
So this is a macro event. Even if Trump U turns right now as we speak, it will still prove to be a macro event, but way less so for the US Than for some of their trade partners.
- [19:49]
A
Interesting. Okay, Andreas, we've got a couple of really, really great listener questions here, so I'll take some of them. Let's, let's begin with some related to the war and then we'll get back to some positioning questions here because people are obviously luckily looking at ways to profit from this. Okay, let's do ten Grand Men. On real vision. I hear talk of a Trump taco, but how do the US And Israel walk away de escalate without leaving behind a religious autocracy hellbent on getting a nuclear weapon? And that's a very good question because we have a new ayatollah. So if they do a deal right now, the regime has obviously had its only its second power transition in 47 years. So it's a huge event. The regime will never be the same, but it's still an Islamic republic. You haven't had a revolution. You haven't had splinter republics breaking off. You haven't had a palace coup yet. We don't know how the new ayatollah might be, but again, the Israel and the US have killed his entire family. So is it going to be more US Friendly? I don't think so. So, so that's why I find it very, very hard right now to, to, to, to spot these off ramps for the US they will probably have to do another round of taking out an ayatollah or even even deeper bombing or even inciting. We haven't even got to that address, but even inciting some, some rebellions across Iran for this to, to truly be a win. But then Again, we have seen Trump do some marvelous 180s earlier in history, so who knows? But right now, for me, it's hard to see how he can frame this as a victory. Already milk a day and YouTube, could we see Trump send in special troops to hang on nuclear sites and then declare victory? Yes, that's actually a very good point. There's been a lot of talk about boots on the ground, so let's just clarify. A full scale invasion of Iran would probably require at least 300,000 men, probably half a million. That takes months to build up. So that's not going to happen. What boots on the ground could mean could be special troops, you know, moving in to more surgically take out nuclear sites and missile strikes. And, you know, if you listen to Marco Rubio, that's what the war is all about. So if you just listen to him, not to Trump, not to Pete Hexeth, not to anyone else, then yes, that should be a solution. It could be very, very costly in terms of human lives. But again, these are special troops, so it's counted a bit different. It's always made public like that. So, yes, I think that is a very logical next step for, for, for, for Trump to send in, send in special troops. But it's A, it's very, very tricky. You risk suddenly having a bunch of Navy SEALs captured by the Iranian army. B, it doesn't really do anything to the, to the regime in Tehran. So again, you're back to, to square one with a regime that's even more hostile to the West. So those were some questions on the wall. We have a few more. We'll bring them for show on Wednesday. You might ask me anything, so you tune in for that. But Andreas, a question from Tom needs on real vision on his take on how to position for this. He has a bet on the MSGI World Energy Sector etf. Is that a win win? Currently his thesis is that most of the companies in this ETF pumps oil from the us, Mexico or the North Sea, so they don't have to ship through the Strait and should be unaffected and the oil price goes up. So is that a good way to position right now?
- [23:26]
B
The sad answer is actually I hold a few positions within the energy space and we've actually seen, let me just look it up here. We've seen no returns on those energy stocks since Monday last week. It spiked a little one day last week, but since then we haven't really seen any returns. So the sad answer to this question is that I don't even think you're able to seek shelter in energy stocks if this continues because there is a demand side to this equation that is very nasty if this is a prolonged conflict, which is something that will be felt, say down the line, one, two years down the line for these oil companies. The point here is it kind of resembles what we saw in silver versus the silver miners into the early innings of this year. Yes, you have an incredible momentum in the price of the underlying, but an equity market will obviously have to look ahead and discount future cash flows. And this crisis, in my opinion, increases the probability of very high oil prices very near term, but it also increases the probability of very low oil prices over the medium term. And therefore, I don't think it's a given that the energy sector ETF will just do well because of this. It's certainly a place to look if you want to trade this, but I'm just not certain that it will work. What about metals? Gold, for example? No, it's way, way too crowded and we see de risking across the board. Very interesting. What has been the best traits in our portfolio? I would have guessed that drones and energy stocks would have done the best. It's actually been software, which is odd, but I'll try and explain why. Now, Miko, maybe you can bring up the chart on page a little bit.
- [25:33]
A
So
- [25:36]
B
this is turning into a very mechanical, risky bet. And if you're running a fund, such as a long short equity hedge fund, you're running leverage on a running basis and you're probably told due to the spike in interest rate volatility to de risk. So basically bring down the leverage of the portfolio. Everything in green. Here is what these players have bought, say since New Year's, but also late last year, and everything in red is what they've shorted. So you have software, for example, in very, very deep red territory here. So the interesting thing is if you're asked by your risk manager to square your books, basically to bring down the gross amount of positions you have, you'll have to buy some of the red stuff back back because you're net short. And I think that's very simply speaking what has happened. And that's why we've seen incredibly resilient price action in some of the software names that were otherwise sold off day in and day out leading into this. Bitcoin is up $1,900 today, even though everything else is in red. Again, something that is driven by the same factors because everyone's been positioned bet short in Bitcoin due to the landslide that we saw in January, et cetera. So the very, very odd piece of news here is that if you really want to protect yourself against this de risking, you need to buy the most hated stuff out there because you'll get some mechanical tailwind from repositioning of these levered funds. I'm not saying that this, you know, if this turns into a long term war and all of the consequences that we've discussed, the notion that I just presented will likely come to a halt at some point, but it certainly works here the next few weeks.
- [27:27]
A
So Interesting.
- [27:29]
B
Yeah, even though we've actually been lucky, but we upped our conviction in software, Bitcoin and the stablecoin names, et cetera into this, worked pretty well for us. We're down just a smidge on the year, around a percent or something like that, which I'm fine with given everything that's been ongoing. Could have been much worse. So I think we've been partially lucky. We obviously had some of the energy bets on from early January. Also on your analysis that the risk of this was increasing. But now that we're stuck with a conflict that seems to be lasting longer than what we had initially anticipated, I'm not necessarily sure that energy will just work per se unless you buy the actual stuff. So the underlying future or the underlying stuff. Right.
- [28:17]
A
Interesting address. One final question before we round off your address from Sir W and Real Vision. What does this mean for Trump's and Bezens desire to get interest rates down in order to refinance debt?
- [28:32]
B
So Sarah, very good question. I've asked myself that question quite a few times over the past week. I struggle to see any meaningful strategy on anything. Everything that's ongoing right now is complete u turn compared to a month ago. It's obviously very difficult to get interest rates down if oil prices keep going up. The interesting thing is that the forward curve in the US for interest rates is basically the only big forward curve now still pricing in rate cuts. So I think the market expects Kevin wars to just say yeah, who cares about this energy price spike. But you see for example interest rate hikes priced in over the next year from the ecb. You see for bank of Korea, some of the countries that are on the receiving end of this Iran inflation. So I, I don't think there is a strategy, honestly, because you know, everything that's ongoing right now is in sharp contrast to what they've campaigned on. Everything. This is, this is war, this is unfunded spending, this is inflation right, left and center. Wasn't that the exact thing they were set out to solve. I mean, so at. And that is also I'm trying to see them as rational actors. My whole point in supporting your analysis of the situation to begin with was that it made economic sense that they wanted to briefly try and target the regime to see whether they could get these oil supply chains under control. If it spiraled out of control, I would have assumed that they would have pulled back.
- [30:09]
A
But it seems like they're not absolutely. Andreas. So no shelter, no business cycle, no reasoning. This.
- [30:20]
B
We need this. We need this to be solved this month. And I'll keep repeating that, but I'm
- [30:27]
A
very impressed that you actually found some ideas on where to hide Andreas in.
- [30:33]
B
Buy digital stuff.
- [30:36]
A
Yeah, buy the stuff everyone hates. That's, that's, it's, that's very impressive that you could actually pull something out because I'm really struggling for this, Andreas. So very, very good. Remember, guys, we're tracking the energy emergency. I have a great interview with Josh Young tomorrow. We'll talk even more in depth about the geopolitics of this war. Also talk about the links to, to Russia, to China, to Ukraine, on, on Wednesday, the meeting for NATO and on Thursday, Andreas, let's see what we end up talking about in the State of the Union, if it's, if it's a peace deal or for. If it's.
- [31:09]
B
Miguel, what I'll promise is this. I will not shave my beard or cut my hair until there's an end to this conflict. So we'll have to see whether I'll turn into a madman over the coming weeks. Maybe it will be Macro Mondays with Michael Horseman and Chewbacca in a few weeks from now.
- [31:27]
A
Let's now focus on dress. Well, it was great to have a few laughs and get a bit of a wrap of the situation. Andres, thanks so much for joining. Thanks to everyone for tuning in and for all your questions. We'll see you along the weeks on Real Vision and if nothing else, next Monday for Macro Mondays. See you out there.