B (3:47)

Yeah, more or less. I mean, at least for now. Oil basically peaked at the open bill. I guess it makes sense that we need to add a pretty substantial risk premium in the energy space. We've also seen natural gas prices at the peak rising roughly 50% in Europe due to, you know, supply constraints out of Qatar, which has become one of the bigger suppliers of LNG to Europe. Right. So it is an incredibly tense situation in the energy space. And I'll put it like this. I mean, I don't necessarily think that we have a supply issue of energy. We have a supply issue of shipping, obviously due to the risks of sailing through the Strait of Hormuz right now. It's not that it's closed, but you don't know whether you get a missile thrown at you. And obviously the insurance on the riders, they're not willing to insure ships and everything is up in the year in that sense. I think tankers, I just looked them up now, they're almost up 400% since New Year's. It looks like a meme coin. So in that sense, I think the shipping venues are basically the most important to talk about here because it's not like we don't have an oversupplied oil market. It's a matter of getting the oil from, to be now. And we obviously also saw how OPEC opened the taps yesterday. They, they added more to the future production for, for April and onwards than expected. But it doesn't really matter if you cannot get the oil from Saudi Arabia to the end consumer.

A (5:28)

Right.

B (5:28)

So yeah, I guess the key question is to answer when does this end? Right. Because you know, we, we got this. Was it a four week window from, from Trump? Don't know whether that planned on answering To, I mean, was it just time frame? It just took out of thin air? I don't know. But, but Mikkel, you, you've obviously written a whole article on this topic, what to expect and, and so on and so forth. So fill us in a little bit on that.

A (5:57)

Yeah, so, so, so a few ways to, to approach this. Andreas, obviously you need to, to, to take into account what Trump is telling us here. When he says four weeks, that's probably the ceiling, that's probably the, the max here because you wouldn't say two weeks deadline. That's poor news. And also you want to send a signal to the enemy that is the most important thing here, that you're in no rush here. That's what Putin has done so well during these negotiations with Ukraine, not that we're going to talk about that, but to signal that he's in no rush. I mean, let me know when you're ready to negotiate. And that is essentially what Trump is saying here. And in this type of war, four weeks is the same as four years in a war in Ukraine, because this war, it's not going to be multi year, but four weeks is a long time. I think that's a max. I don't think it could go on for that long. Partially because that's the first point here that Iran has managed to raise the costs of keeping this war going. Now, I'm not talking about the financial costs because the US can stomach that, but the costs related to US relations and PR in the region. So as I mentioned, what Iran did differently this time around was to attack on Dubai and those sort of cities. Let's just use Dubai as an example here. It's the most visible, most well known example of this. That was something new. You almost never see attacks on Dubai in these situations. And I mean, the UAE didn't attack Iran, so why are they throwing missiles at them? Well, Iran is a cornered beast here. They don't have a lot of options. So they throw some missiles at Dubai because throwing missiles at Israel, well, it doesn't really help. They're used to that. They can stomach that. Dubai can't. Dubai is not built for this. Now I know Dubai did a great job, or the UAE did a great job of shooting down drones and missiles. They did an incredible job. They're going to do a lot of restocking at Lockheed Martin for this if you're into those kind of stocks. But still, those drones that were shut down and then fell down into hotels, those that got through, it's not what you Expect when you move to Dubai. And the Emirati leadership knows this and they are under heavy pressure to get this done as quickly as possible. And they will exert that pressure on Trump and that's where they will expect return on investment on all the Trump coins and donation to the Board of Peace and whatever they spend money on all the FDI they promised Trump. So Trump is under heavy pressure by uae, Qatar, Bahrain, the Saudis as well, even though they support the idea of removing the leadership in Tehran. He's under a lot of pressure to get this done because Dubai is that kind of country. Everything is going so well. Don't rock the fucking boat. No missiles, no shit. People need to get in and out of their pools without looking to the sky. Don't rock boat kind of country that rhymes very, very poorly with a four week war. Because can you imagine having Doha, Dubai, Abu Dhabi airports closed for four weeks? That's a disaster for the US led world economy, essentially. So that's one point makes it very, very costly. And that way it is what I called deviously genius by the Iranians. On the other hand, just to fit this inside Iran, we're seeing obviously a power vacuum. The Ayatollah is dead. Who will gain power? We don't know right now. The Foreign Minister of Iran confirmed to us that the Revolutionary Guard is running this war. Not the army, not the President, not the Supreme Council. No, the Revolutionary Guard is run this war. So are they going to appoint the next Ayatollah? Is the next Ayatollah. Will he be able to control the Revolutionary Guard? We simply don't know. So there's a power vacuum. There is an opportunity for a new leader to strike a deal with the Americans, but we simply don't know yet. We don't know how many people have been killed inside Iran. We know. Just a little anecdote here to round this off address. We know that. I don't know exactly that this is how it played out, but what we heard that once they had confirmation in Mar a Lago that Khamenei was dead, Trump looked around and said, okay, get me Jared Kushner on the phone. I know Jared Kushner prepared a list of potential successors and they went, okay, we have five, six names here. This guy, oh, we killed him. This guy, he got killed as well. And essentially their entire list of successors were also killed. They were that efficient. So now they're going to not only plan B, but maybe plan C to find out who on earth can we try and put in there and It's a very, very delicate situation within ir. So to sum this up, Andreas, four weeks is an absolute max. My best guess would be one to two weeks. It's even possible that you have a new leader in Iran who wants sort of a clean slate, let's get this done and we can work from there. So there are some openings. There's a lot of pressure to get this done very, very quickly. The war is not super popular within the U.S. the polling is not catastrophic, but it's not super popular either. And the best thing would have been a weekend war. They couldn't quite get that done. But to get it done within one to two weeks would be ideal, I think. So that's sort of my timeframe. I'll also just show this quickly. You can read my article if you want to get more into the numbers and the economics of this kind of warfare. We usually see a very, very quick drop in the marginal effectiveness of these bombing attacks. We saw that back in Yugoslavia, 1999. So I have some numbers in that and some thoughts on that in the article. That also makes it all almost like a business case for continuing this. So, yeah, that's where biscuits Andreas. And to relate that back to markets, it's hard for me to see a full reversal in the oil price trend before we have a resolution to this war. I also think that you're going to see. I'm curious to hear your take on this. You're going to see continued nervousness in the equity markets. Probably LNG is the biggest impact right now. So what do you think, Andreas, if this drags on for another two weeks, what to look out for and when to shift your positioning?

B (12:18)

Okay, Miko, let's bring up some numbers on the sensitivity to what's going on in the Middle East. We can maybe start on page 10. So we've obviously covered this Iran story throughout this year and obviously also last year when we had the bombings back in June. So we have quite decent empirical data on what works and what doesn't work in markets when we have this kind of turmoil within Iran. And this is pretty much a heat map of what to buy and what to sell in case that this turmoil continues. BLCC is related to shipping. So the tanker story that I've referred to is obviously related to this one. You also have tankers index at the top of the leaderboard here. But also do note that we have military drones, European defense stocks and stuff like that. Stuff like that up there. Drones have repriced massively higher this morning as we Also wrote during the weekend, it is, I think, our second or third biggest cumulative bet in our portfolio, these military drones. So that's what's been protecting our returns since Friday. And to me, that's probably the single biggest story outside of the energy space. The drone that made its way all the way through to the reception of the Fairmont Hotel at the Palm in Dubai. Even though thankfully no one died, it's still a big deal. I've slept at that hotel and you don't get a cleaner story than that exact drone. And the need for anti drone equipment after this. Even if you're say an airport or an oil company, whatever, right. You probably need some infrastructure yourself. Now after having watched this and we have a couple of names within this counter drone technology space, I think both DroneShield and Anders are a very obvious beter on this story. Having said that, I actually think it's worthwhile noticing that, you know, gold is, is obviously positive correl positively correlated to this. But also bitcoin, which was kind of a surprise to me. But we've also seen very resilient price action in bitcoin since Friday. And I think that's a surprise to many, but it is, it is actually empirically backed that bitcoin thrives when, when, when Iran is faced with unrest. And then, you know, towards the bottom of the leaderboard we have stuff that struggles when the Iranian airspace is closed. For example, very simply speaking, if you want to get from London to Asia, you either need Russian airspace that's closed or you need Iranian airspace more or less.

A (15:17)

Right.

B (15:17)

Of course you can take a very, very big detour south. But the Iranian airspace has basically been the go to option since the Russian war. And obviously right now you're not going to, to, to fly through there. And that is first of all expensive due to, you know, canceled flights, refunds and all of that. But it's also expensive if they have to fly south. It's a much longer tour. It's much more expensive from an energy perspective. And that's why EU airlines, for example, suffer when, when this stuff happens

A (15:55)

in

B (15:55)

the middle of things here we actually have broader equity exposure. I think while we've been talking Nikkel, small caps have flipped positive on the day. We're almost back to zero in the broader S and P for the day. It's not too bad. It seems like worries kind of peaked at the open bell for the futures overnight. And I've been very explicit about this. I'm actually not not overly worried about having brought equity exposure despite this, it of course depends on whether we get a complete meltdown in the straight of Hormuz, but it seems like the US has been very adamantly been preparing for this. So for now also, oil prices seem to have peaked at the open bell. And I wouldn't be overly surprised if that was the case. I know that's a very contrarian call at the moment, but you can take lots of historical examples of this. For example, the invasion of Iraq. Actually equity market is bottomed right around the invasion date. Right. And we're not even talking about an invasion here yet.

A (17:00)

Right.

B (17:01)

Hopefully we do.

A (17:02)

Not at all.

B (17:03)

So especially if you're right in the timeline, Michael, we'll probably get through this. And as I said in the numbers I refer to here, the military drone story is a good hedge. And then you obviously find very good hedges within the NAT Gas space and the energy and shipping space if you want to hedge against what's going on. I think maybe the underreported story, I mean, every time you get these issues in the Middle east, you see various economists and business leaders making the rounds with, with the viewpoint that. Or not the viewpoint, but the fact that 20% of all daily oil flows go through the Strait of a Moose. And you know, it's, it's, it's obviously a fact. Right. And we all know that what is probably Underreported is that 30% of fertilizers also go through this region. Right. So that's where, that's where it becomes a little bit tricky if this is a sustained situation, because if you see price inflation in fertilizers, it will obviously spread to food prices and other necessities. So I actually consider NAT Gas to be a bigger deal than oil here, obviously due to the link between NAT Gas and fertilizers as well.

A (18:27)

One point, Henderson, that also goes to some of the questions that we've been receiving. People are worried about this spinning out of control even more than it already has. So just to, to put a few words to that before we move on a little bit. So. So people are talking about World War iii, talking about why, why isn't Europe doing anything? So, so this has so far been contained reasonably well. It's hitting Dubai and all these other places that we didn't necessarily expect. That's bad for the US But China's not getting involved. Russia's not getting involved. Saudi Arabia is trying its hardest not to get involved. Turkey is not involved. Egypt is not involved, involved. Pakistan, India, not at all involved. So we do have that containment that makes this very, very explosive because of the state of Hormuz, but not a worldwide phenomenon. This is not going to erupt into a much larger war. This is not, hopefully, going to throw Iran, as I've been talking about, of the worst case, that if you simply removed the regime and did nothing else, like the US did in Iraq 20 years ago in Iran, that would be a horrible scenario. That's not going to happen. Also, because when the UAE is calling Trump right now, they're saying, yes, we want revenge against the Iranians for doing this, but more than anything, they want. Don't rug the fucking boat. Everyone wants someone in control of Iran. They don't want it to be the Ayatollah, but they want someone who can control stuff. Because to get a fragmented Iran, that's a horrible scenario. You could have splinter groups all along the strait, lobbying drones, ships, et cetera. So everyone agrees that we need the regime in Tehran to come to terms to give up the nuclear program, stop funding all these terrorist groups, but we're probably going to keep the regime there in some shape or form. And that's also what sort of keeps this contained as a story, because you're not looking, hopefully not looking at a totally fragmented situation in Iran post war. So. So just to note that this is one positive to take from developments this weekend that most parties seem very, very interested in keeping this contained. Yes. Yeah. So, Andreas, I have to admit, when stuff like this happens, I become really laser focused on this. I'm not paying much attention to tech. I'm glad you are. A bunch of stories that just want to get through.

B (20:55)

Now that you mentioned that Europe is not involved, we simply need the laugh of the week because it's a good friend, Lars. Yeah,

A (21:03)

let me just expand it a little bit. Easier for people to read. So our good friend Lars here, he's reacting to a tweet about why is Europe not doing anything. Ursula von der Leyen, the head of the European Commission, said we're going to meet on Monday to react to this, which obviously a lot of people laughed about. It's very stereotypical European. My take on this was, what was she supposed to do? We're not invading anyone. We're not attacking anyone. I mean, Europe is not supposed to be doing anything else than monitoring the situation and then helping. We'll probably have. If things go really, really badly, we'll probably end up dealing with all the fallout and the cleanup of all this, as we usually do. But, I mean, Europe is not involved in this. That's essentially what last Christensen says, and then on my feed. This is from my feed, right as I read that we had boom. Now Cyprus has been hit and Cyprus is part of Europe. Cyprus is part of the eu. Cyprus is part of NATO. It was kind of funny. I'm not saying I disagree with Lars here, but the UK bases in Cyprus have been hit. So Europe has to get involved in this somehow. And just one note here, Andreas, that I know you're always on top of. When is this LNG situation going to be critical for Europe? Because we're hearing about Qatar stopping their LNG outflows for now. How close are we to that becoming really, really critical for Europe? Because as you know, as your listeners know, we're not very big on producing our own energy.

B (22:31)

No, no, no. The piece of good news among a range of bad news here is that we're approximately two or three weeks away from the natgas season ending, so to speak. So I'm not worried at all about this year. The issue is, of course, if you need to replenish the storage facilities around Europe at say, 1 or 2x the current price point, right? And that's obviously something that will filter through the system from an inflationary perspective if we need to do that. So I guess what, what everyone will try and do for now, because we can safely get through the next two, three weeks without buying a lot of stuff, is to try and sit on their hands to the extent possible to sit this through and see whether we can get the price point down before summer. We obviously need to replenish these storages ahead of summer, but for now we're in. Okay, Shane, for the next weeks. If this had happened back in November or December, it would have been a bigger deal, in my opinion. So thankfully the time timing is not too bad given that we've just entered the spring season from a. From a temperature perspective and the temperature is actually rising here, so it's gone and so on and so forth.

A (23:49)

But if you want to gauge the LNG situation in Europe, check into Micro Mondays. Is Andreas wearing a hat, yes or no? Is he in short sleeves? Yes or no? Looks quite decent right now, Andreas. We're not LNG fueled in Copenhagen. It's mostly from burning garbage. But that's another story. Andre.

B (24:05)

We have plenty of that.

A (24:06)

We're not going to run out of

B (24:07)

that M. You know, one of the things also in relation to what you described in terms of the PR of Dubai as a tourism hub, as a financial hub, I mean, they, they've basic. They basically have safe Haven tattooed all over their marketing, both from an economic and, you know, a physical safety standpoint, if you know what I mean. I will travel to Crete in, I think it's three weeks from now and I've booked a massive house almost overlooking the US Navy and their base at Crete. Right. So I'm pretty annoyed with that right now because that's an obvious target. Right. If this continues. So, you know, on a personal level, I also really hope that this stuff ends in a couple of weeks.

A (24:58)

Frontline view to the action. Yeah, no, it's very serious for these countries and it's, but yeah, hopefully it will be resolved by then. I hope you enjoy. Anyway, I promised to get into a bit of tech and AI news here. We might be exceeding the half hour mark just a little bit here to cover some of that because things are also moving very, very fast. We had a very, very big capital raised by OpenAI. And then just before this war on Saturday, Andreas, we had the Department of War blacklisting the use of Claude for military business. What a timing. They must have known that they were going to attack, attack Iran the next day. And then you blacklist one of your software delivery. I mean, what, what on earth is going on here, Andreas?

B (25:44)

Well, it was kind of an, you know, an open war between Anthropic and the Department of War through the week at least. They were going back and forth and it, it relates to whether the Department of War is allowed to use the Anthropic software, for example, surveillance tasks and stuff like that. And apparently it was a line in the sand for Anthropic and their leadership that the Pentagon wanted to use it in that way. There are probably good reasons for the Department of War to end the relationship with Anthropic. What I struggle with is why do we need, you know, an online back and forth where Pete Hex calls Dario Amod a, a left wing lunatic and that kind of stuff. Trump got involved as well. Right. I, I, I wrote this short opinion later on, I think it was on Saturday or Sunday, that even though no one cares right now, given the focus on the Middle East, I think it's very damaging for the, you know, the certainty around the AI investment case and all of that, that we have these rhetorical battles between the executives and the administration in front of the curtains. I mean, fair enough, you have your differences, but let them play out behind curtains at the very least. And then today, which is actually pretty interesting, Anthropic has basically had very, very big issues with Claude because of a, you know, A lack of supply compared to demand. I said on Friday. And we should have actually brought the sound bite nickel when we hosted this drink with show free fall on YouTube. You could go watch it. That, my best guess what that was that Anthropic and Dario, they would, they would face major issues because of a sudden spike in the consumer led demand for their models. After all of the announcements that they've made and so on and so forth and, and Anthropic has been, I would almost say gullibly arrogant in their communication towards OpenAI and some of the other AI players. Why have they bought all this Compute? Well, here we are. It's because they have a massive consumer led demand that Claude is now only seeing the first glimpse of. Right. So I think Anthropic will wake up to the reality that they will have to buy more computers. It's basically crystal clear after today. And in relation to that, I think a very, very interesting story played out today in the technology space as Nvidia entered a partnership with Lumentum and also Coherent, by the way, we have that on page 14. Lumentum has been on an absolute tier this year, and I fully admit to it, it's probably one of the AI bottlenecks that I've missed the train on. Because, you know, why is Lumentum a great case? Why is Coherent a great case? Right now we're talking about companies manufacturing the exact switches used to send huge amounts of data back and forth between GPU racks. Right. And why are these switches so important? Well, if you have an incredibly efficient switch, you use less electricity to send the data back and forth. And that is going to be a huge bottleneck, especially given that electricity prices on the rise currently. Right. Not least also driven by what we see in Iran and NAT Gas and all of that. So you simply need also given the current lack of return on investment from Anthropic and OpenAI, et cetera, to be able to convert electricity to data or to intelligence more efficiently. And these companies, Momentum and Coherent, they are basically, they're the choke point. They're, they, they, they own the exact technology that can make this more efficient, this process. So I think that's a really interesting piece of news today. And Nvidia invests I think a couple of billion dollars in each of these two companies in the partnership. So I mean there's still appetite for investments in this space, even though, and we've been saying for a few weeks that the macro backdrop actually looks brighter for technology, software, Bitcoin and that kind of Stuff given signs of less consumer inflation than feared outside of energy, that is, and a cyclical reacceleration in the economy, which I still think is very true. True. So you know, let's see. It's obviously difficult to, you know, to convince yourself to buy right when the missiles are flying over your head.

A (30:49)

Right.

B (30:50)

But it's, it's actually if, if we're right that it will be a shorter war than, than what is pencil in right now, it is actually typically a very good timing to do so.

A (31:00)

Right. So, so just a question that we've had that I've also been considering. This OpenAI Capital race we saw last week, I think was $110 billion at a valuation of 840 billion, getting very, very close to that trillion mark there are we getting to a point where this is still defensible? They have 900 million users, so it's, it's almost $1,000 per use of the evaluation. This is probably a preparation for an ipo. But does this still make sense when you look at the AI case?

B (31:41)

Well, the return on investment is still weak. I think we have to admit to that, which is why we obviously need these efficiency discussions across the entire supply chain. At some point they will obviously also have to consider whether to pass on the true cost of the compute to you and I as users makers. The price point is probably too low. And the interesting thing is what happens when they start to pass on the true price of AI? I think if we look five, 10 years ahead, that's always how it goes with technology. We'll have found ways to make this incredibly more efficient than what it is right now. But they need to find near term solutions to that issue as well. And one of those, you know, place could be to increase the price point.

A (32:31)

Yeah, their own answer to this is obviously the professional use, the business use. They have about 9 million users and that and they're making a lot of money on that. So that is their answer so far. Still, it's the thing that got me thinking is because I'm really, really hooked on this Snapchat story because Snapchat has the same amount of users, 900 million weekly users, I think they counted as monthly, but still most of them are weekly. And they are valued at exactly 1% of OpenAI. Same amount of users. 1%. I know it's a completely different stock, but I'm still struggling to get my head around 1% valuation for the exact same amount of users who are even younger. They're going to live for longer. But I Mean, Snapchat have spent 15 years trying to make a profit on that, and they're still not doing it. So hopefully OpenAI will be closer to that. Could be one of the biggest news this year is if they move towards an ipo. That seems to be the next step, even though they've got some Runway out of this.

B (33:30)

So I just need to refer to a couple of headlines coming in while we speak here. Trump says that the big wave is yet to come in the Iran war. And then he said that he refuses to rule out boots on the ground, which is also a new thing. So let's see, again, could be optics, of course.

A (33:50)

I would say. Yeah, I would say. So just to answer that, out of the blue air, that takes a lot of time to prepare. The buildup for the Iran war was months. I mean, if you truly mean boots on the ground, not just Venezuela, boot on the ground. If you truly mean boots on the ground, take months to build this up. So I would be skeptical of that. We're already hearing signs of strained logistics due to the sustained bombing campaign. They can probably keep that going. They have partners in the region. But I would be very, very skeptical of that. But obviously he's threatening that because it's about amping up the pressure. And for Iran, it's about the opposite. Can they drag this out? Can they make the cost very, very high for Trump so that he settles for less? So I think we are moving towards negotiations. This is posturing before that, but it might. Might still be a week or two. Absolutely.

B (34:45)

Yeah. But in any case, let me just summarize from the market perspective.

A (34:50)

Right.

B (34:51)

You know, if this doesn't drag on for four weeks, there'll be some decent opportunities on the long side of the market here if you're a little bit worried about the situation. And I, I could understand that. I think, you know, the military drone space is, is the most interesting one where you combine technology and, and a hedge, basically, and then you obviously still find a few decent value bets in the energy space. Also, let me just stress that also, as the energy space would have done well anyway given the current cycle development. So I think it's a good time to hold energy, despite what's ongoing in Iran. I mean, even if that ends, the energy sector is on a. Is on a good path towards higher profits, given the stage of the cycle. So in any case, I would be, you know, in favor of having, say, 10% in energy or something like that. Yeah.

A (35:49)

And maybe hold off on buying that condo in Palm Jumeirah just for now to see what happens there

B (35:56)

and to anyone watching out there stay safe. I mean we have plenty of clients, friends and colleagues in the region so we hope and pray for a few cash ups and thesis as possible.

A (36:09)

Absolutely and a quick into this. So that's all we had for you this week. We went a little bit over the half hour mark lots of stuff to talk about. Check out our content on Real Vision during the week we'll have our weekly portfolio update on Wednesday. I have a geopolitical update out today obviously and during the week we'll also have your flagship editorial Andreas So lots of good stuff to track there and lots of good content on Real Vision. Check out the approach here for the that. Anyway thanks to all of you for joining. Thanks to you and James for being with us and talking about something else than Iran as well. I think that was very much needed so thank you for that and see you guys next week.