← Macro Mondays
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- [00:00]
A
Foreign. Welcome to Real Vision. Welcome to Macro Mondays. My name is Miguel Rosenwald. I'm joined as usual by Andreas Dano and we've got a jam packed show for you today. As usual, a lot of stuff going on in Iran. We have what would usually be a central bank financer week. We'll get, get back to that later. But we've got so much ground to cover here before we get started. Remember that we're going to keep you updated all week if things move very, very fast in the Iran war. This is our free show. We give you a sneak peek into our views on the conflict and the macro backdrop. But if you want round the clock updates, realvision.com is the place to go. We post more and more of it as notes, as very, very quick updates and analyses and stuff. But also obviously our flagship reports are being published every week. We have our Stenos signals report that you publish address. It's coming out very, very soon if it isn't already. Every Monday I have a weekly geopolitical commodities piece, the Drill and then on every Friday we have our portfolio updates. So lots of great stuff to, to follow. If you're on the approach here with Real Vision, if you're on the pro chair, but also the some of the lower all the way down to the connect here, you can join the arena. That's a new trade competition from Real Vision. You simply log in, you enter your very, very best trade ideas and then in two weeks time we're starting today, in two weeks time we'll measure who, who had the best return on investment. So the winner takes, I think it's $7,500 and a year of pro up to $25,000 in prices, all in all being giving out. So check out realvision.com arena to get in from the very, very start to optimize your chances of winning that. And Andreas, before we get to our usual dis disclaimer here, if you had to make one trade right now, that's, that's basically the idea of the arena, what would it be?
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B
Yeah, and I have two weeks to make the returns.
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A
Yeah, that's it. It's it. Yeah.
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B
It, it's got to be something related to the supply chains of the war, hasn't it? If, if you want really want to clock in something here or of course, you know, you could also look at trades that would do incredibly well if we get a ceasefire. I think those are kind of the two outcomes that would generate the largest returns very short term. I'll go with one of the stocks that we actually added to our portfolio as a consequence of the war, or at least we added to the size of it in our portfolio, I'll say circle into that group. And the reason why I say so, you know, it sounds a little bit odd to make that a top pick during a war in the Middle east, but we've obviously seen how usdc, the stablecoin market, has proved to be vital for family offices trying to move wealth back and forth during this in the Middle East. Circle group is on an absolute tier and you know, it's up 7% since we added to my portfolio of it or into the overall portfolio, but also my own portfolio on Friday, so. And before that it was up like 30, something like that. So I guess that will be my pick.
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A
Yeah, I'm gonna, I'm gonna have to go in on the website and see if I can get some highly leveraged oil 10x leverage position to really maximize for the next two weeks. Otherwise I'd be looking at Redcat holdings, which I wrote about in the, the Drill Report last week, so you can check that out. So anyway, that's the arena. Go check it out. Go take part in the competition. As I mentioned, one of the main prizes is winning a year of pro membership, having to endure much more of Andreas and me. But that's on you if you decide to take part and participate. Remember, as usual, we try to be very, very actionable. We just showed that very, very concrete every week. But our trade ideas, they might be.
- [04:03]
B
Summertime is maybe good. Summertime. It may be shit.
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A
Exactly. Andreas. Let's start off with Laugh of the Week. Andreas and I think this is a great one we have this week. I don't know if it's a little too small to show on here, but a lot of people may have seen this creed from Newt Gingrich. So he's essentially proposing a very, very bold, very, very actionable solution to the Hormuz crisis. Throw in a handful of thermonuclear weapons to essentially dig a new canal to the south of the Strait of Hormuz through UAE and Oman and that's it. That's solution oriented leadership here, Andreas. It's. I don't think it's going to work. There are too many mountains. I don't think I would want to be on the first cruise to sail through that thermonuclear wasteland. But it's an idea anyway. Remember, this guy was a very, very serious presidential contender a few decades ago, but yeah, we're perhaps lucky that he isn't anymore. But so many great ideas floating out there on how to solve this crisis in dress.
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B
Wasn't he in the race during the primaries coming up to the 20, 2016 election? I actually think he was. It could be, but anyway, yeah, yeah, but never mind. I mean, this is, this is an outrageous prediction or suggestion, so please, please don't listen to this guy.
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A
No, no, nobody show Pete Hexer this tweet. I mean, that's the.
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B
Maybe the second laugh of the week, right? Last Monday, I told the audience that I would not shave until the war was over.
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A
Yeah, I was going to Friday.
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B
Then on Friday, I was told, we've won, we've won. So, you know, this is my own prediction market. It triggered the event. I've won. We won. We've won.
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A
I'm not buying that.
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B
Andreas, fair enough.
- [05:58]
A
Looks really, really good and sharp. I'm going to the, to the barber tomorrow, so I'm not looking nearly as sharp as that. So, so, so fair play to you, Andreas. I think we are seeing Andreas. Maybe that, that, that's, that's a segue into to talking a bit more about the Iran war. People are beginning to lose focus on this Iran war. It's becoming boring. It's becoming, I hate to say low intensity because the stakes are so high, but it is where we're at. Iran seemingly has the capacity still to amp up attacks sometimes, but we're essentially grinding down to an attritional war that will probably last a few more weeks or phase out somehow, and that can be very anticlimactic. But I think that's where we're at. If we just do quick rundown. I just wanted to do this over what happened during the weekend. We had U.S. marines deployed and a huge strike on the Carg Island. So that is opening up as an option for Donald Trump to take the Khak island, essentially crippling Iran's oil exports. We'll get back to that. US is struggling to put together a naval coalition to escort ships through the Strait of Hormuz. The US Navy could probably do it on its own, but it's going to take a while and it's going to leave them a little bit vulnerable. In the meantime, we saw Iran attacking. We don't know the exact details of this, but it seems that they have attacked a Fujaira port on the east side of the Strait of Hormuz, which is one of the main outlets or the bypasses of the Strait of Hormuz. Still no attacks on the east, west Pipeline during Saudi or no Houthi activity in the Red Sea. That's sort of the red flags we're looking for. As that begins to happen, you begin to see an uptrend in oil. On the other hand, you saw Russian sanctions being lifted. I read a report about India buying Russian oil at $99 a barrel, including transportation, but still that's perhaps two or three times as much as Russian crude would have cost it simply three weeks ago. And you had a Pakistani tanker passing through the strait today. Okay, Sandras. I think we are slowly seeing people adjusting to this conflict rather than working towards a conflict oil is finding its ways through. And we're seeing both the US and especially Iran really trading a delicate balance here because they don't want the Iranians don't want to the oil infrastructure in Saudi Arabia because then they're afraid that the US is going to take out their own oil exports. At the same time, the US seems to be somehow accepting Iranian exports, at least not attacking the ships. So a very, very delicate situation and markets seem to be adapting sort of this is the new normal or what's your VIP address?
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B
Yeah. So as we talked about last week, roughly 20 million barrels of oil typically flow through the Strait of Hormuz on a daily basis. We've replaced ballpark, 5 to 7 million barrels a day through the East West Pipeline. We've probably replaced say a little more than that if we include some of the tankers that are now allowed to sail through. We've also seen how India and Iran held direct talks to, to try and get some of these tankers to India. And that is what we should remember here. You know, all of the flows out of Hormuz are typically directed to China, India, Japan, South Korea, et cetera. Right. So take India and China as two, you know, core names here. They're obviously super interested in getting this flow up and running again. So I don't really think Iran has many friends in terms of keeping this flow in turmoil. And maybe the only friend in that negotiation or in that part is Russia as you just described. They've been the clear win of this so far. So I think you're right that we have alleviated some of the concerns, especially around oil. We wrote a whole article on Friday of the byproduct supply chains which are probably slightly more vulnerable, to say the least, to a prolonged conflict or to prolonged closure of the strait. We're talking about sulfur, we're talking about helium, we're talking about fertilizers. Overall, we're talking about PTG and stuff like that. So as I've said, and let me repeat it, because that's basically the main takeaway from a macro perspective, when you see a straight, like the straight of a moose, closed for a couple of weeks, there is an initial shock which is an input cost shock, but it turns into a two phase shock should the straight be closed for long. But the growth impact is not immediate. The input price shock is immediate, but the growth impact shock is not. And therefore my takeaway is still that if this sort of fizzles out a little bit and we get a positive rate of change and it flows out of the straight of Hormuz, et cetera, over the coming weeks, then this will turn out to be a nothing burger for the business cycle. Not for the input price level, but for the business cycle, especially in the US which is mostly shielded from this. And it is, by the way also the clear input that Trump receives from his economic team that we can deal with this. It is slightly less certain that, to say the least, again, that China and India, et cetera, could deal with the prolonged closure of the strait. So in that sense, I actually think the US can be a little bit more patient around the consequences here than many of its peers, which leaves them in an okayish spot if this sort of fizzles out a little bit.
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A
Yeah, there's an interesting duality to this as well because Iran is still, as far as we know, exporting quite large amounts of oil to China and that's obviously keeping Iran in the war, it's keeping cash coming in, it's the main revenue stream. But. But it also keeps the world market prices of oil down because supply is supply to some extent here. So as long as China can get its oil from Iran, it doesn't have to buy it from the world markets. And there's this duality to it that the US would probably like to shut that down, but it can't really. And that leaves China in an okay position as well. From this, we've talked about Russia as the big winners. I think China is quite okay with this. They're known to be, as we call it, regime agnostic. They don't care who's in charge in Iran as long as they can get their all out. And they're seeing the US expend a lot of resources in this fight. And that leads me to the next perspective here before we get to talk more into the business cycle and the macro backdrop here, because one major fallout of this could be the upcoming Trump XI summit. We've talked a lot about it. It's going to be a huge deal for commodities, for metals, for the entire decoupling trade that we've talked about. Trump is now signaling a possible delay to these talks. That's both to put pressure on China to help him reopen the Strait, but maybe also because Trump knows that he's going to be in a very, very, very poor position if he shows up in Beijing or wherever these talks are going to be held with this problem still ongoing. And it could look like that, I mean, if it's only two weeks away. So how do you see this dynamic playing out or what are your expectations for that summit at this moment?
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B
So I, I got this question from a, actually family office with a lot of investments, both in the tanker space, but also with a large presence in the region, both close to China, but also close to, to Dubai, Iran, etc, last week. Is there any, like, rational reason why the US Is involved in this? They really struggle to see what, what the rational reasoning was, and my answer, and I still think there is some merit to that, is that if the US Actually controls the Strait of Hormuz, if they also control the Iranian part of the outflow of the Strait of Hormuz, then they actually have something to negotiate with when it comes to these trade talks with China. So I guess that is the rationale behind all of this, if there is one, and you're right, currently they're not in a good negotiation position because they're, they're not in control of what's going on in the Strait. No, if they, if they came to Beijing right now, they would not feasibly be able to threaten with a, a closure of the Iranian exports to China because that, that would kind of counteract the whole purpose of the exercise right now. So I think they need to be in a situation where they control it to a larger extent than now. And it's, it's a very good question whether they can control this straight without a new regime in Tehran. And I mean, one thing is to take Card island, but, but if, if you keep seeing drone swarms etc, then you're not really in control of it. I.
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A
No, no, no, no, no. That's it, that's it. But we'll have to see what, what steps are made. But I think this is a very overlooked backdrop to all of this, is this upcoming summit that's obviously very, very important to both Trump and Xi. We are hearing a lot of rumors, I will call it, around Chinese military activity around Taiwan. I would put them in the rumors bucket, because some of it was due to you had a big meeting in the Chinese Communist Party, where the military activity is usually lower around Taiwan, that it spiked a little bit. I'm not seeing anything resembling the buildup needed for not at all an invasion, but neither a blockade of Taiwan. But it's obviously, if you end up getting half the US Navy entangled in the Strait of Hormuz, I mean, the Chinese are going to look at that as well and use that fear of action against Taiwan. So, Andreas, let's try and sum up a little bit here about Iran and then move on to the macro backdrop and what's happening this week as well. Polymarket seems quite divided on when we'll have a ceasefire, but mostly leaning towards a rather long conflict here before we have an actual ceasefire. And that's also my feeling that this is more a case of the conflict fizzling out, going to a lower level of intensity and probably shifting focus a little bit to some policing action around the strait rather than an outright ceasefire. And then the question is how much can be shipped through the Strait or through other channels to gauge the real effect on the economy and how much can the US economy do or the US Military do? So, Andreas, let's just focus a little bit about and try and cut away all this Iran noise, which is obviously more than noise. We know that, but try and look at it through our data lenses as we usually do. So. So we have the regime model here and we are seeing some effects seemingly from the Iran war and inflation or what, interest?
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B
Yeah, without a doubt. I mean, the obvious impact is on energy. The less obvious impact is on anything energy related and the byproducts. So think of it this way. If the price of NAT gas goes up, the price of fertilizers goes up, and the price of food ultimately goes up. We've already seen how the Trump administration has talked about a potential aid package to the farmers hit by higher fertilizer prices. So this is something, you know, there's a whole timeline of events here. Once you see an energy price spike that is slightly prolonged in nature, first you see it in energy prices, then you see it in some of the inputs needed for the food chain, supply chain, et cetera. And therefore, one thing is the inflation report for March, which will obviously show some early signs of inflation in energy. But the next couple of quarters will be very interesting in terms of the byproducts and the ramifications for the broader supply chain. And I think it goes without doubt that we will have an inflationary impact from this crisis now, especially in those countries on the receiving end of the outflows of the Strait of Hormuz. I'm thinking about Japan here. I'm thinking about South Korea, I'm thinking about the Eurozone in and we know that we have a pretty big week up coming from, from central banks. Maybe you can actually show that, that little calendar there, Mickel. Yes, because you know, first of all, if we start with the Fed, you know, no one expects them to do anything. And you know, given that Powell is, is very close to getting to the finish line in one piece here, why would he risk anything really on Wednesday that my main takeaway would just be that I think he's in a decent position to say, I mean, we don't know about the impact and how long this will last, so why, why, why do anything about it right now? I mean, that's probably what he'll say. Right? For, for the European Central bank, it's, it's a slightly more peculiar situation because we've had quite a few of the members of the committee, some of the more hawkish members out already saying that, I mean, we need to contain these price pressures. And as far as I can judge, I mean the market is, is already chasing a right hike from the ECB in either June or July. For, for it to, to arrive in June, we'll probably already have to see like the main messaging referring to that risk already this week at the very latest at the meeting in April. Right. So the stakes are much higher for Christine Lagarde when she takes center stage on Thursday because she needs to deal with questions around do you actually think you should hike interest rates now more or less. And my best guess is that she's not ready. So I think that she'll push back on what we see in the rate market. We almost have a couple of interest rate hikes priced in come the end of this year for the European Central Bank. While to compare, we have a little less than a rate cut priced in to the very latter part of this year for the Fed. The market kind of took out the probability of rate cuts from the Fed this year, but the lean is still in that direction, while the lean is certainly in the direction of rate hikes for the European Central Bank. And then we of course have Japan which is already on a path towards higher interest rates. And we have a new PM in Japan. And even though it hasn't really been explicitly stated on a press conference, it's pretty clear that behind closed doors she's telling central bank not to hike while the central bank tries to at least lean in the direction of a more hawkish policy. But without really committing to the timeline, I think the best guess is that they'll move in April, not here in March. No one expects them to move on Friday morning. While it's pretty high certainty, if you look at the forward pricing for the meeting later in April, and this is probably trying to sum up these three central banks, this is probably the main question right now if, if all of the big central banks move towards hiking interest rates. Now this, this is something that holds the potential to, to really alter the trajectory of the business cycle into next year. And that's, that's been the missing link for me. A lot of people told me getting heading into this year we're very close to the end of the business cycle. We're very close to calling it a top. And I, I kept saying not with central banks easing overall. That's not going to happen. It basically has never happened in history that you see a business cycle that falls apart when central banks run easy policies. But now I have to admit that this holds the potential to alter that trajectory. Again, I just want to refer to the typical timeline. It's not like the business cycle dies as soon as we start talking about rate hikes. There is a pretty steady and stubborn correlation over time with a lead lag pattern that suggests that from the point where central banks start to pivot, it roughly takes nine to 12 months before we see that impacting the business cycle fully. So let's assume that they pivot this summer. Then we should watch out for the business cycle in the first half of 2027. I still think it is underappreciated that the business cycle will once again survive a shock this year. And I know it's bit of a boring answer, but I think it's the right answer. And that's also why please read all of my data on this in the Pro article I release in an hour from now. But that's why I think there is some asymmetrical outcome space now. Because last week we saw the biggest index net outflow of US stocks over the past 10 years. It was an even worse week on a index future basis than some of the worst Covid weeks, which is quite interesting. I think there are two reasons why. One is that we're not really seeing capitulation on the actual portfolio holdings. So I think we see a lot of futures hedging against the portfolio. That's also what I've been you know, looking into whether to do. I haven't done it but admittedly it was tempting at some point last week, at one point last week. So you see a lot of selling in index futures to sort of match your portfolio longs. Meaning that on a date as today where we see green markets all over, all of these people who hatched last week, they don't see returns, right? Thankfully we do. And so far it's been the right, it's been the right choice to be patient. I mean we're up on the year, we're up a smidge compared to when the war began, which is amazing. Right? I mean no one would have told you that a few weeks ago. So I think it's quite telling that we see this kind of hedging flow already now. While as I said initially this is a two phased shock, initially this is only an input price shock while the business cycle impact arrives much later and by the way depends on a prolonged conflict. So sure the business cycle will be impacted not right now, while input prices will be impacted already now. And I think the PPI report, it has already started showing signs of it, but we'll see more of it this week that it's getting impacted by these supply chain gaps.
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A
Very interesting, Andreas. Okay, so let's round it all round this off slightly. We, we, we still have some interesting things to watch this week in, in, in central banks, in central banks. We'll keep a close eye on what's on what's going on in, in Iran still. The, the, the potential for, for, for more turmoil there but also beginning to feel obviously the, the, the macro backdrops here. Andreas. Uh, I just wanted to, to show one last chart. It's from our now casting tool that we run on commodities not based. Andreas, you, you, you published as we mentioned, the whole outer, whole article on Friday on all the other stuff than oil that's being affected right now. So, so looking at this from our pattern recognition model that obviously doesn't know that we're that the users of war with Iran. But, but, but, but looks at the macro backdrop not looking like the, the, the time to be in the long oil trades. More gold, more natural gas. How do you translate this into bets right now?
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B
Yeah, so this is a broad based, mildly positive coordinative environment which kind of goes hand in hand with what we've been saying earlier this year that we saw some initial signs of the US business cycle picking up speed and so on and so forth. So it's actually not out of the ordinary that we see returns in the commodity space at this juncture. I think, I think it's interesting that it's not super bullish on oil here while it's more bullish on NAT gas. And it kind of, you know, it kind of resembles or it underscores what I just said, that the big story for the first two weeks was probably oil. Now we need to talk about all of the byproducts, which include NAT gas for me and fertilizers and food and so on and so forth. So remember what happened in 2122. We also had, you know, an initial spike in oil which fed into NAT gas, which then started to feed into everything from food prices to fertilizers, etc. And we by the way, also had some very, very interesting niche supply chain stories back in, in, in, in 2 on 2021, 2003 at 22 around I think it was called neon gas this time around. It's around helium.
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A
Right.
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B
So I mean there are these niche stories every time a supply chain breaks down, they're very relevant. But I also need to remind you that even in 2021, 2022, when it was, you know, all supply chains took a hit also since it was just post Covid and obviously it was impacted by the war as well in Ukraine, supply chains still found new ways to deal with this fairly swift. I mean it took 3, 4/4. Then all of a sudden Europe had LNG terminals up and running and what have you. Right. So the supply chains will adapt this time as well. I think the safest conclusion here is that the countries in the Gulf exporting many of these things, they will struggle to convince the rest of the world of the stability of their supply chains going forward. And therefore I think this is a major, major positive for some of the other input providers in these supply chains going forward, including Russia. As you can already see, you know, Trump and his team simply just had to accept the reality that now that they were in war with Iran, they had to include Russia in the supply chain again. And there are other good cases here and this is obviously something that we'll try and exploit further both in your geopolitical studies, but also in our portfolio going forward.
- [29:24]
A
Absolutely, Andres, great stuff. That's, that's all we had for you in our free article. This will free video this week. Remember to follow all our articles on real vision and check in for our shows during the week. We will be covering the Iran conflict as things develop down there. And yeah, so thanks for listen, dress thanks to all you guys for, for Chipping in this week and. And listening. We'll be back next week.