B (3:14)

might be summertime, it may be good summertime, it may be shit.

A (3:17)

That's the way it is. Okay, Andreas, I want to start off, obviously, with the greatest meme of the week, the evolving strategies around the Strait of Horbose, because I think lots of investors were shocked that perhaps not shocked that the Islamabad talks collapsed over the weekend. We can get a bit back to that. But Donald Trump's response, which was not to threaten to annihilate the Persian civilization, but to block the strait. I mean, a week ago he was ready to almost nuke Iran to get the strait open. Now it's blocked and we can just show this.

B (3:53)

Or is it. That's a good question, right?

A (3:56)

That's the bad question as we speak. So it's a good thing we're sending this live. So, Andres, maybe allow me to give my interpretation of this and why I actually think this is quite a good idea. And then we can get back to the market reactions. Also, look at the oil situation, which you're very much on top of, Andreas. So the way I see this, just very, very quickly, blocking the straight is obviously Iran's greatest leverage. It's the best card they hold in their hand. But it is one of those things that if you abuse it, you lose it. Because the more the Iranians play this card, the more tolls they put on, the more they block the straight, the greater the incentive everyone else has. All the opponents have to find alternatives. So the higher the toll, the better the business case to build for the Chinese to build new pipelines across the desert somewhere, the better the business case for other countries to ramp up their oil production, et cetera, et cetera. So I think what Donald Trump is doing here. So the Iranians have been making bilateral deals allowing a lot through very, very delicate balances. Exactly. Because they know they can't abuse this card. They need to cash in, they need to use it right now. But they also know that there's an expiration date to this if they abuse it. So in my view, what Donald Trump is doing here is that he is abusing this card for the Iranians, if you get what I mean. He's forcing their hand here, forcing them to do this, to trigger all the responses down the line. Now, let's get back to long term stuff. Andreas. I actually, the way I see the market response was quite mild today. How do you view that?

B (5:30)

Yeah, yeah. And I, I mean, as per usual when stuff like this happens over the weekend, we kind of get the worst of the price action right around the open bill of the futures. And, you know, watching the price action live right now, we have NASDAQ a little bit up, we have Russell up on the day and yeah, oil is close to sneaking below 100 again. So I, you could clearly have few wars. And you know, it's currently nine minutes past 10:00am Eastern, so I guess the blockade is now nine minutes old. least that's the official communication. Right. But it's not immediately clear whether it is blocked and we haven't heard anything by the time of this show around how they are going to enforce this because that's one of the things that I kind of pondered about yesterday or had discussions with myself about how are they going to block it. I mean, are they going to shoot at ships, are they going to board and seize them? As we've seen with the Shadow fleet, for example, it's not immediately clear. So my best guess, and I'd like to hear your take on this, is that this is once again a part of the negotiations. It is once again designed to bring the Iranians back to the table. And I think having watched Trump's negotiation tactics for a couple of years in a row now, I think they'll present them with a weaker deal once they get back to the table and then let's see whether they actually agree on something. But my best guess is that this is not a situation that will last for particularly long.

A (7:19)

No, no, I agree with you completely, Andreas. I think I'm very curious to see how they will enforce this. It will probably not get to that point. They will find some narrative to bit by bit escape this. But I still think it's a clever move because it puts the Iranians on the spot sort of strategically here, it forces their hand a little bit and it's something else. I mean, it would sound really stupid. If Trump had just reiterated the same threats of bombing bridges and whatever. So now he's trying to, then now we're blocking the straight. You block the straight, we block the straight. I mean it flips the script a little bit and I mean it's no surprise that the talks are collapsing. That happens, it happens over the weekend. These talks are supposed to go the length. I mean, if the Iranians don't squeeze as every last drop of out of this as they can, they're going to have very, very big problems domestically. The same goes for the U.S. so, so these are negotiations that are meant to, to, to last almost a distance, if not over the distances we usually see. So, so they'll sit down and talk again, they will revisit some points, etc.

B (8:26)

Let's see.

A (8:28)

I still think it's going to be a very, very hard sell for Donald Trump to reopen this war now that he has closed it down sort of. They are still deploying troops to the region, so they are keeping their leverage. They're open. But I think it's going to be a very, very tough one for Trump to, to, to, to reopen the war, so to speak. We might see some bombing runs towards the end of these negotiations. Shouldn't be surprised at that. Some, some, some further ships being knocked out, some, some bridges, what have you. But, but, but the boots on the ground scenario can be completely rolled off now. And the question remains, Andreas, does that even matter for markets? If this doesn't matter, the US threatening to shut the Strait of Hormuzzi, that is even beyond the usual worst or the historic worst case scenario for geopolitics, then what even matters for markets in this anymore? Or do we just need to watch the traffic through the street here?

B (9:21)

Yeah, of course we need to watch the traffic through the strait. And maybe we can bring up this chart on the oil flows through the Strait of Hormuz and out of the region overall.

A (9:33)

Because,

B (9:35)

you know, on Saturday, right before Trump threatened to block the strait, I would argue that we had almost normalized oil flows in total out of the region. We had four VLCCs, so very large crude carriers exiting the Strait of Hormuz to the Persian Gulf and they were each carrying roughly 2 million barrels of oil. I got a lot of questions. Have you counted that? No, but that's the OSINT intelligence. Right. And therefore we had between friends roughly 8 million barrels flowing out of the strait on Saturday. On top of that, we obviously have the roughly 7 million barrels a day through the pipeline in Saudi Arabia, we have one and a half million barrels a day through the pipeline. In the Arab Emirates we have, say again between friends, a couple of million barrels from the strategic reserves being released daily and so on and so forth. So you can see this colored bar chart. We're actually, if we used Saturday as an example of a running week, we were actually very close to 20 million barrels a day coming out of the region, plus some of these temporary solutions with strategic reserves, et cetera. So we are close to being back to normal. A couple of things to note here, the blue colored area here, the 8 million, they're very much up in the air now. Give us a blockade. Right?

A (11:20)

And on top, this is exactly what he's trying to blockade Trump. This is exactly. So Iranian shipping to China.

B (11:24)

Yeah, exactly. And on top of that, even the Iranian oil, which is not included in the 8 billion, actually it was Saudi and Iraqi oil probably also up in the air. So I think worst case, if you move to page 8, mega, a full week of blockades would take us closer to 11 to 12 million barrels a day from what on Saturday appeared to be close to 20 again, or maybe even above 20. So of course, as you can see here, I don't see this as a long term blockade. I don't think the US can, can, can live with that either. So one week scenario short, 10 million barrels a day, that's bad for a week, but manageable. If we move back towards this normalization area already, already in week two and weight three, then I think we can survive this easily. The issue is, of course, if this blockade remains intact for long. I think it was yesterday one of the airport commissioners in the Eurozone wrote to the European Commission that we're three weeks away from running out of jet fuel or at least have to ration it. So again, as I've said basically since the onset of this war, sure we can live with a few weeks of this, but we of course cannot live with it for long. And therefore, as you also alluded to, sure, you can use this blockade card, but you cannot use it for long. So it is of course designed to ramp up the pressure.

A (13:19)

Well, the Iranians can't in theory. The US could if they could sustain this and if they're willing to sustain, becomes very, very interesting when you get down to the specific implementation of this. Because what you're looking at is, is Chinese bound ships, China is the importer of this oil. So to some extent, depending on the setup, they would be the owner of the oil on these ships that have left Saudi and Iraqi ports. So it's not Iranian ships, Iranian ships that the US are going to be boarding or blocking or whatever they're going to do. It's Chinese ships. That is something else that might spice things up before the Beijing meeting in May if the US keeps this up. I heard someone ask me if Trump was setting this up to keep it running until that meeting. I don't think so. That would be a huge undertaking and require enormous levels of patience by Trump because at some point the Chinese are initially the Chinese are going to say what's the easiest way to solve this? That is to force Iran to make a deal. They could probably do that. But again, to have US soldiers board a Chinese ship might also cause other reactions by China. Let's just keep it at that. So I agree with you completely. To me, this is not a long term thing. It's going to cause a lot of volatility this week unless we already later today get some Hopi and message from Trump as we used to. So expect a lot of volatility here. Doesn't really change the equation in my view that this situation is mostly solved because Iran has all the incentives to do bilateral deals, especially with China. And as long as China get these barrels out, then supply, supply, then the oil is going to move around the system. Eventually we're going to end up with some oil here in Europe at some point we're going to feel the inflation, but we are going to get the oil that we need.

B (15:10)

But Miguel, please move Back to page 7 because I think is it probably. Less than two weeks ago I wrote this article that went incredibly viral on the Internet on how to actually balance the oil market within three or four weeks. And I made this analogy, and I actually have to thank you for it, that many of these energy pundits were suffering from what I labeled this Fauci syndrome, right? But they have so much vested interest in sounding the alarm on a running basis because it gives them a lot of airtime in this crisis environment that they almost cannot see the forest for the trees, if you know what I mean. In terms of finding solutions, no matter how you look at it, out of the 20 million barrels coming out of the region pre war, we found bypassing solutions for the equivalent of 50% of that more or less already by now. First of all, that decreases the leverage for Iran because I mean, if 50% is bypassed in a month, what about in six months or 12 months or 24 months down the road, right? Maybe the straight of removes will become irrelevant at Some point it will. Yeah, at some point it will. Unless they strike a deal. Right. So they know that they have a window of opportunity and I think they're slowly but surely realizing that they have to capitalize on it. Also compared, it's a little bit difficult to read here, but compared to the incredibly upbeat base case I made for week one, two and three in this scenario, if we take Saturday as the goalpost and if we don't look at today with the US blockade in place, we were actually ahead of that schedule. And when I released this, every single energy pundit called me a. Every single one. So I think, you know, things are more manageable than, than what you read in, in the mainstream media. Yeah.

A (17:25)

Also because what we don't count in here because it's very, very hard for us to count, is lower demand. And obviously here in Europe, we're not going to be lowering our demand. We're going to still be filling up our trucks, we're going to be running everything. People are going to be firing up their barbecues. I'm going to be doing that this weekend as well, since we finally have some decent weather here. I don't mind paying whatever the equivalent of $100 a barrel is for my barbecue grill, which runs on gas. But we are hearing stories about factories in Vietnam, in Bangladesh, shutting down or lowering their capacity, taking days off because it simply doesn't make sense for them to produce at this level. So if oil gets much higher than the hundred dollar mark, people start to get very, very creative, both in terms of limiting their demand, limiting their consumption of oil, but also finding alternative routes. So I'm still having a hard time seeing permanent oil levels above 100 because it simply means that some people will stop burning oil and that's will also obviously work to prolong the effect of the storages. So, Andreas? Yeah.

B (18:37)

We need the egg chart now. Do you have the egg chart? As someone wrote to me on X yesterday, are you seriously comparing eggs to oil? And I was like, yeah, but not really. But the point is still very relevant in an oil context as well. So look at it this way. And it holds very true for most commodities. Every time there's a scarcity, say one or two years down the road, you end up in a glut. And the exact same thing has happened in the egg space. And I know nothing about egg production, but it's just so incredibly interesting that from levels that were out of the atmosphere basically for X. Yeah. Was it 12 months ago? It was, it was right at the beginning of Trump's reign to basically record low egg prices today. And no one talks about it. Right. Because the problem is solved and everyone's, you know. So my best guess is that we'll sit here in 12 to 18 months, Michael, and the oil price will be very low and no one will talk about it.

A (20:00)

That's if you're an opportunity right now. If you're Angola, if you're in Nigeria, what are you doing? Are you limiting your production? No, you're firing on all cylinders. Every bit of oil you can get out there is going out there. Every politician in this country is now working under the assumption that $100 is the new normal, that we're going to have increased pupil risks and then they find out this is capitalism address. This is supply and demand. I mean, sometimes it's as simple as that to have these cycles. So, Andreas, I alluded a little bit to inflation earlier. So obviously we have to touch on the inflation report. Now. The reaction I saw a lot of this week was yeah, but this is not the whole picture. We can you really use these numbers? I still found it very, very interesting, Andreas. Quite a soft report on the core, but obviously overall 3.3 on the year is an elevated inflation picture. What's your takeaways here from this cpi? We have the decomposition here. It's maybe a little bit too small for people to read, but.

B (21:00)

Yeah, Yeah, I mean, 11% energy inflation on the month, even if you include electricity and pipe gas, which haven't really been impacted yet in the U.S. so fuel oil up 30%, gasoline up more than 20%. It was a nasty energy inflation report, one of the nastiest I can recall. But outside of that, oh, I cut interest rates. That's, that's basically the main takeaway here. Food prices down, you know, rental prices are pretty contained. Of course you see some spillovers to transportation, but you know, jet fuel is up. Right. So, you know, air, airfares are obviously up and stuff like that and maybe worth highlighting as well. Biden talked a lot about it, never really got any results. Look at medical care, commodities, this is the price of ozempic going down and other things. Right. But there's actually meaningful disinflation or even deflation in the medical care space. Yeah. So I think outside of energy, the inflation picture is still very, very contained in the US Then most people say, okay, yeah, but energy is typically what you see first, like the energy inflation first and then you'll slowly but surely see the pass through, which is correct. But it very much depends on the duration of this energy shock, right? As of now, if you know, let's assume that you and I were to take a decision on the pricing of a medical care commodity or a vehicle or whatever it could be right. I would probably be in favor of a wait and see approach if I were a CEO of such a company from a pricing perspective because who knows whether oil is down 40, 50% in a month from now. I mean that is a possible outcome. So I don't think this will turn into a broader inflation crisis unless the straight over moves will be blocked for months. But let's talk about it now.

A (23:17)

Andres, speaking of gluts and greets, look at the used car which we talked about. I think it was two years ago. We had a Glenn that obviously as a complete more and I just put my wife's car up for sale this weekend so that is wonderful timing on that. So if anyone is looking for a 2019 shoe train hatchback, you can call me for reduced prices. But anyway, Andreas, this is very, very interesting and let's see, next month essentially, I think the Fed and the other central banks are going to be looking for even more evidence here. Andreas, do you just want to touch briefly on what you call the return of the SAS apocalypse here? We had another headline, another vague launching, as they begin to call it, of Claude Mythos, essentially reinforcing this picture we've been talking about of hardware software. Is this overdone? What's your reading? Andreas?

B (24:16)

I think my reading of the software versus hardware situation is the following. Software is now a defensive play because software is at least if you look at some of the quality software names, incredibly cash flow generating. But you have an immense uncertainty five, ten years down the road. You simply don't know. And especially if you're a PM without any technology, you really don't know. And therefore multiples will have to continue to be compressed in the software space. I think that's absolutely fair. In the hardware space you kind of have the opposite currently, right? Actually many of these names included in the hardware basket here, they're not particularly profitable. Very, very short term. At least several of them aren't. Nvidia of course is and so on and so forth.

A (25:16)

But you also have quite a few

B (25:17)

hardware names doing well that are not necessarily super profitable in the very, very near term. Therefore that is turning into more of an offensive play. And software actually did pretty okay during the first two or three weeks of the war, while hardware did bad, did very poorly, right? Because of the interruptions to shipping lanes and what have you? You. And as soon as we got that green light from Trump, this is the big day for global peace and we're not going to annihilate the Persian civilization, all of that. Look at what the green hardware basket did and what the sulfur basket did. I think that is the takeaway. You could put sulfur in the same basket as healthcare or utilities and stuff like that. Now it's a defensive equity slate because you don't have 5, 10 year clarity anymore, while you have a bit more clarity around the hardware situation. And therefore, at least if this blockade doesn't last for long, the hardware basket is where you should have the most money in, in my opinion, maybe also a bit in the electricity basket, which we will, which we like as well. So I guess that's kind of the takeaway. Um, it's very interesting to see sulfur as a defensive play, but that's, that's the new game of town. Nico, can I ask you one question before we leave?

A (26:49)

Sure.

B (26:51)

Should we care about Hungary? You haven't even mentioned it with one word. No.

A (26:55)

No, I haven't. So, so my take on Hungary a few weeks back, one or two months back, that was that Peter Macchia was going to be winning. It might be close, but he was going to be winning. And we would have sort of the same rally that we had with Donald Tusk in Poland a few years ago. So bullish for the Florian, bullish for Hungarian equities, because you essentially had an open premier baked into everything in Hungary and I think the market pretty much priced that in beforehand. So I think. I don't know if I mentioned this last week, but I wrote about it at least that I felt the outcome space was, was a little bit skew. There was still a bit of risk compared to, to what was baked into markets. Magia's win was, was much better, bigger than I had anticipated, much clearer. This means two things. One, you, you're not going to have protests in the street. The result is simply too clear for that. And point two, he has enough of a majority to change the Hungarian constitution. So, so this is an all out positive event for, for, for, for Europe. European decision making, if you buy into the notion that the EU making decisions is positive for Europe, in any case, this is very, very positive for Hungary. They get a lot of EU funds free stop most likely in the coming weeks and months. And yeah, the entire tail risk of having Auburn there is removed both for Hungary and for Europe in general. Not an overly tradable theme in my opinion. I think this was pretty much baked into prices and already moving today. So it wouldn't put much stuck into it. The final point here, you're going to hear a lot of commentators saying this is the end of the wave of populism in Europe, the end of the right wing. Forget all about that. Hungary was always quite a special case for cultural, political, all sorts of reasons. Maybe the Hungarians just wanted someone else after, was it 16 years of open leadership, the corruption cases, et cetera. This is not a huge policy shift on either immigration or anything else. So very, very positive for Europe, positive for Hungary. I'm personally happy about it. And JD Vance didn't win the election. That is also perhaps

B (29:11)

I was compelled to say it was the J.D. vance effect again. Remember that Pope Francis died the day after Meet Jenny Vanzum. Auburn is now dead, politically speaking, because one of the things that will likely happen in Hungary is that they'll put a limit for on terms. Right. So.

A (29:29)

Or they will put him in jail.

B (29:30)

Yeah, yeah, could also be. But I at least struggle to see a scenario where he returns to power.

A (29:38)

Yeah, I think he'll move to Sochi or Abu Dhabi or wherever. Wherever he'll find. And also, obviously to complete the J.D. vance weekend, he went to Islamabad after Budapest. So it wasn't the best week ever for JD Vance. But let's see if he can make a comeback. Okay, Andreas, this was a great start to the week. Much better than JD Answers ending to last week. As always, remember to catch our State of the Union show with Real Issue Pro. Tomorrow we will be expanding on many of these topics and looking a little bit underneath the hood on what our data models are telling you about the world and how it stands. Also check in with our portfolio update at the end of the week where we make suggestions like our hardware bets a bit more concrete and specific to you with single stock names. So thanks to you, Andres, for joining. Thanks to all of you listeners for chiming in once again. We'll be back next week.