A (2:35)

Yeah. Look, big things are happening. Those will have massive impact on the Israeli economy if indeed they align with the direction of the macroeconomic trends we'd like to see. We also had some negative geopolitical sort of headwinds. That is Saudi Arabia taking a further step away from normalization and obviously Iran still looms heavy on Israel. So today, by the way, to our listeners, it's going to be just us. We are going to talk about the electioneering, the election economics. Israel just entered its election year. Election is going to happen in 2026. We don't know yet when, but at the latest, I think it's November.

B (3:11)

At the latest. Yeah, but there's many kind of thresholds to cross until we get to November.

A (3:15)

Exactly. And so we're going to cover, you know, five base points, if you will, of what election economics in Israel already looks like and may look like at the end of the year, stuff that's going to burden the economy, stuff that's going to make it hard for the Krembo to be cheaper. So we have a Show packed with 2026, I would say sort of predictions or marks of what to look for this year.

B (3:37)

All that and more. We're going to also take a look at the latest update of the Windex. The what's your number index attracts the performance of publicly traded Israeli based or founded companies. But Jonathan, first, the first big short.

A (3:52)

The big short. We're going to double click on the strength of the Shekel. This is already the third week in a row where the shekel stabilizes at 3, 15. Even though we have looming Iran, we have, you know, yesterday the Syrians taken over Raqqa, which may indicate risks for Israel's energy intake from that region. But the Shekel remains strong. So what does that mean? Look, Israel is an export driven country. About 30% of our GDP is export driven. More than 60% of that is the high tech industry, industry, which means that if the shekel gets stronger, we raise capital in dollars. So imagine you're a CEO, you raise $100 million and suddenly a year later those 100 million, because you have to pay the salaries in shekels, pay 80% of what it used to pay a year before that. This is significant. It also lowers the competitiveness of Israeli exporters. If you make a medical device and the dollar is weaker, then it's easier for you to export. Whereas if the Shekel goes Below three, which may happen if there is a proper resolution in Iran or some other issues related to Gaza and so on. A shekel below three is a win for the cost of living in Israel. It reduces inflation, it is a big risk for the tech industry, and it is a big risk also for all exporters, which are the core of the Israeli economy. Any thoughts on that?

B (5:11)

Yeah, I mean, you know, we've been talking week after week about the incredible performance of the shekel. And it's important to not look at it only in the vacuum of a shekel. The dollar continues to be weak, not only vis a vis the Sheke. So I also think about, you know, we're in this kind of cheery optimism which, you know, we all deserve. I'm not here to kind of be the bearer of bad news, but there are some things that could completely end this pink journey of the shekel. And, you know, we talked about it with Daniel Schreiber two weeks ago and AI shock, for instance, or any renewed political or geopolitical turmoil. We talk about Iran going one way, also go the other way. And there are very kind of high stakes in the region.

A (5:48)

I agree with you. There are those risks. Maybe just one last point. The bank of Israel reported a couple of weeks ago that its foreign direct reserves right now is at $240 billion. So bank of Israel is entering this shekel dynamic with quite a heavy war chest. Just to give it in perspective, $240 billion is more or less the size of the Portuguese economy or the Greek economy. Those are like 280 or $300 billion economies. That's just the sort of piggy bank that the bank of Israel has. So I think maybe just one small point here before we continue and you take us on to the second big shirt of the day. Israel is an R and D driven country and R and D financing comes mostly from multinationals. If you're Nvidia, if you're Apple and all of those companies, at some point when the shekel becomes too strong, you might invest your R and D dollars outside of Israel in other markets where the local currency allow for you to get more than for your buck. Right.

B (6:46)

Well, unlike the Shekel Yonatan, Israeli real estate showed a slowdown in 2025, and what was a sure bet for about two decades, it slowed down in 2025, mainly due to demographic growth. 83,000 apartments are now on the shelf, including in Tel Aviv. Would have believed. So we're obviously entering into kind of what we call an oversupply Market.

A (7:10)

Yeah, I think also when you sort of take the high interest rate, which also makes the shekel very appealing. So it's kind of nice to see how it all adds up together. Right. The shekel is strong because the interest rate is high. The interest rate is high. People don't take the mortgages and I think people are in hold. They don't know if we're going to have a second round with Iran or not. So they'd rather rent and not buy, not make those big decisions. Tel Aviv is a bit more immune to the slowdown, but some other, I would say second tier in terms like satellite cities in and around Tel Aviv, Jerusalem and others have seen this decline or freeze. But as you can imagine, rents are getting higher because the people aren't buying, they need to rent. That is an issue for I would say middle class, lower middle class folks.

B (7:54)

Definitely. Buyers are waiting. And developers are also very cautious in their building. Let's go to Windex.

A (8:00)

We are proud of the Windex because it overperformed both S and P and Nasdaq last year. And this week we're seeing them sort of even out. Windex shed about 1% in the red. That is I would say 0.75 above and beyond an otherwise stable at flat S and P and Nasdaq for the same period. The biggest movers, and this is interesting Yael, are NOVA measurements that continues to kind of push forward. This is their all time high already $13 billion market cap grew by 10.27%. It's the second week in a row, very strong opening for the year. Nova is one of those high specialty silicon wafer measurement companies essential to the semiconductor industry. Again there's a record market cap, record share price for them and elbit defense tech giant and only opportunity for investment in the public markets. And Israeli defense tech continues to be super strong, rising again 5.5% on the week. Again at peak market cap, peak share price. We are expecting the Israeli aviation industry and Rafael both, you know, are big government, semi government owned defense tech giants. We saw Silvan Shalom, the previous Deputy Prime Minister and Minister of Finance take the helm at IAI which seems to be on track for an ipo.

B (9:21)

Israeli defense tech this week especially, it was hot, hot, hot. We had reports of the US tech company on US in talks to acquire a majority stake in Empress System. Why is this and why is this important? Because Empress System is a defense company, kind of One of the OGs of Israeli defense whose tech is basically the brain of the Iron Dome missile defense and they're in talks about a transaction based on a $200 million company valuation. And there's a lot of rumoring and questioning in the Israel Defense Ministry. But also, according to some reports, there's hesitation about, wait, what are we giving up right now? If we go through this right, Yep. This has become Israel's brand Iron Dome. The President in the United States is talking about it daily, talking about his Golden Dome. So are we selling this now to a external non Israeli corporation? There's a lot to be discussed there and a lot to be seen.

A (10:13)

Look, I think we're going to see more and more of that. Rhein metal in Germany is growing, becoming super strong. There's going to be, you know, in the last, I'd say 35, 40 years, we did not have serious competitors outside of Russia, China, us, Japan and some specialty manufacturers in Europe. Germany is investing a quarter trillion euro over the next, call it three to five years in its defense tech. We already see Rheinmetall growing. So I think Israeli considerations for what to sell, what to allow in terms of strategic knowledge and prowess of its defense tech is going to be front and center, as it should. This is also why we haven't seen IAI and Rafael, the biggest defense contractors in Israel that are government owned, get privatized or seek an ipo. Look, ultimately when you present, and you've done that with lemonade, right, you present to the SEC or S1, there are certain things you have to disclose. Does Israel want to disclose all these things? That's been a major consideration on why these Israeli companies, globally recognized defense innovators, remained government owned. The other reason is unions. There's a whole issue of what happens when you have 10 or 11,000 employees that have been, you know, compensated on a state type, you know, union type compensation scheme. And then you go to the public market and they have options and ESOP and all of that. So a lot of considerations. I do believe that 20, 26, at least one of them is going to either make a major step in terms of getting ready for an IPO or actually complete an ipo. The market is very favorable.

B (11:46)

And to the unfortunate losers of this week's Windex, who do we have?

A (11:51)

There have been quite a number of companies on the double digit 10, 11, 12 red decline. These are mainly what we call the big digs, the big digital Israeli companies. You saw wix, Pagia, similar web Monday and globally, all in that environment. Wix lost 66% on a 12 trailing month basis, globally lost 35. The headwinds that those companies are seeing in terms of AI and what that means for their ability to grow. We spoke last week about near Zohar's decision to bring everybody back to working from the office. These guys have a huge pressure how they're going to adapt. And at the end of the day, you saw this also outside of Israel in Silicon Valley this week. The Tombstone of the SaaS model, the software as a service also in the big tech in America, is becoming a conversation. These companies are susceptible to that trend.

B (12:49)

We're going to zoom now into the long play and we're going to focus the next couple of minutes into what we're calling election economics in Israel. We're a country that has had its fair share of elections throughout its pretty short history. And as the name suggests, it's kind of this idea that real policymaking has slowed or stalled or straight up just stopped. Because everything in government right now is being run through the lens of elections. Elections have been announced. We have a date. But that doesn't mean they're not going to come sooner. We see it in the battles that the prime minister and his coalition have to juggle. They now need to navigate what is a political landscape where economic decisions are often shaped by the imperatives of just simply staying in power. So we're going to break down some of these key areas and you call it predictions of the next couple of months and we're going to walk through the hurdles, the misses, the moments where you think and political calculations may have appeared to outweigh long term economic strategy. With your permission, I'd love to start with the budget or lack thereof.

A (13:51)

Yeah. So we've identified five of those. Right. And I think you're totally right to start with the budget. The Israeli government, if it doesn't pass a budget, ideally in January, but then immediately the government collapses and within 90 days the election must occur. So if you don't pass a budget as a coalition, your coalition collapses on April 1. The second piece here is that the legal dynamics around what is allowed and not allowed to happen, types of decisions in an election year are important. There's a magnifier glass at the state legal advisor when it comes to the budget. She's going to scrutinize every bit of a spend and every law that comes in through the work of the budget. We're simply right now operating under 1 divided by 12 because we don't have the budget. The markets like it because the deficit keeps being predictable. Right. That's the deficit from last year. But for Us as Israelis, this is not a good sign because budgets are always about reforms. They're about changing priorities. As you and I both know, January 26th is not January 2025. The set of priorities we had a year ago, 12 months ago, are not the set of priorities we have today. So right now we don't have a budget to move forward with.

B (15:04)

So I find actually that a lot of the blame has to be played squarely on the shoulders of the ultra orthodox parties. They've kind of gone out full throttle. And Shas, one of the parties themselves, threatened to block the state budget unless the conscription bill is passed beforehand. So the latest that I've heard kind of saying we'll vote for the first round because it does have to go through three different rounds just to get the ball rolling. But when we get to the Ides of March, when we get to kind of like go time, then we're gonna start putting up our fists and fighting. And this is kind of like the elephant in the room and without kind of dealing with the meat of the problem and kind of dancing around it. And we're not gonna actually get to a budget that is agreed upon. So what else? Where else are we seeing full election economics?

A (15:47)

So usually many of the big reforms happen as you pass the budget, it's called, or the sort of side law of reforms. And so that's sort of the mechanism that the Ministry of Finance uses to privatizing the energy system, privatizing the ports, opening the skies so that we can fly EasyJet at Euro 70 to Rome or to. All of these things happen as part of this bundling. Right? We are seeing zero reforms right now.

B (16:16)

As a citizen and a resident myself, whether you are a proponent or an opponent of this government, you kind of gave them a carte blanche in terms of policymaking. In times of war, everything is pushed to the side. Although you and I both know that Israel does have the human power, will and capabilities to push through these reforms. Now we're in the quote unquote, post war period. There really is kind of no excuse left on the table to not push through these reforms. And the losers are, of course, the Israeli public. It's pretty much of a shame that we're going to have to wait now for the next guy gal government.

A (16:50)

Yeah, no, I agree. And by the way, I think you're raising a very important point. Are the opponents of Netanyahu presenting the radical choices to the public? Do we have political leadership that says, okay, in the next election? The first thing we're going to do is education reform. There's going to be 90 days of a strike. We're going to increase the debt by 1% so that we actually reinvent the education system. We're hearing none of that. And from what I see, at least in the public debate, that's not anywhere close. So we can move on to the Marxist stuff.

B (17:22)

Oh, I've been waiting all episode for the Marxist stuff. Let's move on to the Marxist stuff.

A (17:27)

So we were talking about shitty spending. That's a third thing to look for. So you got to look for the budget, does it go in through March? What is the handwriting look like? You got to look for reforms. The third thing is, do you see some like, odd, you know, things you can't explain in terms of spending? Other people would call this political bribe. So Professor Simchon, the chief economic advisor to Prime Minister Netanyahu, came up with a beautiful Trotskyist, Marxist, Leninist idea. The government, as part of the election economics is actually offering to offset to the tune of 2 billion shekels the increase in the interest rate for those who've had an open mortgage in the last three years when the interest rate went from 2.7 to 4.5%, which is a horrible, let's say even Marxist thought process where taxpayers give back to those who didn't calculate the risk of their mortgages. So it opens up a Pandora's box, to be honest. And where does it end, Yael? So if you're going to use my tax money to give some of it back to me because I do pay a mortgage in the last three years, but to subsidize mortgages countrywide, clearly this has to do with ultra orthodox and has to do with certain parts of the base of this government that is more exposed and has been less risk averse than you and I in terms of taking risks on real estate. This is counter growth inflationary and sets a horrible precedent because where does it end? Right? I made a bad choice. I bought a car, I'm paying more in interest. Why wouldn't Yael's taxes pay for my risk on, you know, buying the car with financing? Right? It doesn't end. This is horrible, horrible type of ideas that are being floated right now. This is no joke. This is not some third ranking, you know, member of Knesset. This is the senior economic advisor to the Prime Minister of Israel. And that is very dangerous. I hope it doesn't pass.

B (19:21)

This is politics 101. Professor Simchon is a very educated and intellectual economist that is just playing politics. 101. Let's throw it a big number, see what happens. The media eat it all up. It's like Oprah handing out cards like you, everyone, everyone gets taxpayer money without looking at the differentiation between the different income classes, who actually needs it versus who doesn't quote, unquote, deserve it because of, you know, risk averse decisions and so forth. We're in election year. And so you say it and you say it loud. Another area exactly kind of in that realm is the secret tax bracket change that's impacting the middle class. We spoke about it last week as well. Yeah, it's very much in the shadows.

A (20:03)

It's in the shadows. It's the inverse of what you just described is where the media eats it up. Right. The media eats up Simchon. It eats up the milk reform that's going to reduce maybe one shekel every week in the price of a milk carton. Where the decision was made last year as part of the war 2025 to increase the taxes on the upper middle classes significantly. And now this is a silent increase because every two or three years the tax brackets have to update for inflation for average salary. So average salaries have increased significantly in the last two years. The government, Israel, decided to freeze the tax brackets to keep it in simple terms. It means that if you're a couple working, so both members of the household, parents work each at one and a half average salary. So you're kind of like upper middle class, you're going to pay an extra 10 and a half thousand shekels in taxes this year. That's a lot of money. This is not some small change. And I think you're spot on. The media doesn't get it and we don't get it. Right. Like, the average people are like, okay, it's not a new tax. I'm just. My tax bracket doesn't get updated. No. That is actually very significant.

B (21:09)

I threw out my Crembo number earlier as kind of this symbol of higher prices. Right. The media does get that, but this is kind of de facto disposable income going to thin air.

A (21:20)

Yes.

B (21:21)

Everything else is also rising. Right?

A (21:22)

Yep.

B (21:23)

We're seeing higher prices in the cost of living and the cost of electricity, water, cooking, gas increases, property tax rates, other taxes are rising. This freeze is very much shrinking disposable income for working Israelis. We'll probably hear about it in our homes after it's been done already.

A (21:41)

So we spoke about the four. Let's move on to the fifth. I think by now our listeners have a good radar for where election economics are going to lead Israel in the next 12 months.

B (21:51)

You hinted at it at the beginning of the show, but we're talking about the big taxi lobby in Israel and their payout because Uber, maybe other companies like Uber, maybe Lyft and so forth. Well, they're waiting a parliamentary approval, but they're going to be able to operate in Israel and this is going to kind of cut the monopoly that we've seen almost forever. Uber had a short stint here before in the taxi life in Israel. It's expected, obviously, when you add in more players to significantly boost the supply, it's going to improve service availability, obviously during peak times, something that's pretty tough and the best for the consumer lead to lower fares.

A (22:30)

Yeah. So to all our listeners who come arrive at Ben Gurion Airport and have to wait for like an hour and a half for the taxi to come.

B (22:37)

This is where just thinking about it makes me angry.

A (22:40)

This is where it comes from. Now, being serious about also the separation of church and state in Israel, it also impacts because we don't have public transportation operating in most of the country on the weekend. So taxis are important. And this is not just taxis. These are car importers. Israel has 15 private families that own most of the car brands and spare parts. Right. These are very strong, you know, centers of economic centralization. These are guys, they love the election year. No one's going to challenge them. And what we're seeing in the Uber example is finally, after 15 years, the taxi drivers in the union was able to convince the government that they are entitled to a compensation. If indeed Uber comes in, that's going to be $60,000 per medallion of compensation. I have to say I researched it recently. Pretty fair and square, right? In some countries it happened. It happened in Australia, it happened in Canada and other places. Because at the end of the day, someone bought for a quarter million shekel the right to operate a taxi. He or she, they're regulated. They have to go through tests and exams and so on. And you divide 4 billion shekels in tax benefits and in cost of roughly 100 million travels per year in Israel, it's more or less reasonable. I will say one last thing before we conclude. When you have a market that doesn't open up, clearly it opens up in a black way. So just let me give you this number that I found in the last couple of days. There is a whole industry of an illegal Uber, a pirate Uber, predominantly in the Arab sector and in the ultra Orthodox sector, they are called drivers in Yiddish. Drivers and they basically have a WhatsApp group that says, I'm taking somebody from here to there for 20 shekels. Who wants to join my car? Now the country, the state is losing 3 to 4 billion shekels of revenue by not legislating.

B (24:31)

Yeah.

A (24:32)

So there are 35,000 of them right now. That's more than the legitimate taxi drivers. So the illegitimate shared taxi is bigger than the taxi market in Israel right now. So I'm overall happy. I mean, I don't think this is an outrageous price tag. You look at the, again, the reforming energy sector, it was 7 billion shekels for a smaller group of people that were employees. Ultimately, us as Israelis, we're going to win big from this 4 billion payoff. But, you know, all the rest are immune because it's an election year.

B (25:02)

Correct. So we spent the majority of the show talking about the election economics. I can safely say that this is one reform I'm personally pretty happy about. It's high time that we had some competition in this sector. Too bad we needed to get to election year for this to finally come through.

A (25:20)

Yeah. Look, I think as we wrap this, Israel is in an election year, we're going to see a lot of political bickering. We're going to see a lot of Marxist type spend that doesn't make any sense. We're not going to see big reforms and changes to the tax brackets. These are really needed. And at the tail end, the lobby groups and the big concentrated groups in Israel can lean back because no one's coming after them in the next 12 months when it's high time for reform.

B (25:47)

Exactly.

A (25:53)

All right, so let's move on to the words of the week. We began the show, as we always do, with the numbers of the week. I picked an interesting comment by Senator Lindsey Graham last week. Suspense in Israel was at peak after President Trump. His words of the week last week were help is on its way. Right. And so we saw Saudi Arabia, Qatar and Turkey block America's capacity to act militarily last week in Iran. And Senator Graham visited Israel this weekend and he met Prime Minister Netanyahu following this move. Here's what he had to say before boarding the plane. This is a quote. If it is indeed accurate that the Arab response to Iran is that action is not necessary against Iran given its current outrageous slaughter of innocent people, then there will be a dramatic rethinking on my part. That is Lindsey Graham, regarding the nature of alliances now and in the future. Senator Graham, as we all know, is an avid supporter of the Abraham Accords and a person who has great power in preventing Turkey from going back into the F35 plan. This is a very active foreign affairs senator and public official. I'm very happy that he said that, that he recognized what happened here last week and that he made the trip to Israel. While by the way, in the last 24 hours we saw MBZ from Abu Dhabi go to New Delhi to meet Narendra Modi. So a lot of shifts in the Middle east and it's good to see Lindsey Graham, Senator Graham seeing sort of who's friend and who's foe and the coalition needs to pay very close attention to the choices of different parties here in the Middle East.

B (27:35)

Absolutely. And anyone trying to predict, I mean, Senator Graham's visit here and his words rang very loudly in the corridors of Jerusalem still every much up in the air. Senator Graham's visit was a riveting and dramatic visit. He met, as you said, with the prime Minister, but he also met with the head of the Mossad, Dedi Barnea. And he was tweeting back at Russia Today. There was real kinds of like back and forth between big geopolitical powers, but via Twitter X. But he also spoke a lot about Israel's defense tech and kind of just to bring it all home from what we've been speaking from the beginning, beginning of the episode. He also was hinting towards having Israel take part in the Golden Dome. I'll remind our listeners that the Golden Dome is the ambitious US Missile defense system that really has been inspired by the Iron Dome Israel system. And this is something that President Trump is championing left and right, multi layered air defense system. So I'm happy to see that the relationship between us and Israel vis a vis defense tech is very sturdy. I'll leave everything else to Polymarket, if you don't mind.

A (28:39)

I will say one thing on a personal note from this passing week. Half of my family is Iranian and we have family groups from folks who live in the US and in Europe. And some of the videos that passed along in those groups with the Iranian people had to endure in this last week. I think no nation had to endure since the beginning of the 21st century. And I hope that they have it in them to rise up again. I cannot even imagine how they go back to the streets. Let's put it this way, the level of cruelty, it's unlike anything that I ever saw outside of war. This is war on their own people. And I was one thing I was happy to see is Davos, that's happening right now. The World Economic Forum that originally invited Abbas Arakchee, the foreign minister of Iran, who actually tried to board a plane, it seems, to go to Davos, was refused. Say, look, you know, you just can't come to Davos when you do these kind of things. And I hope that we, even if nothing happens over the next six months, that we don't forget these thousands of people that were brutally massacred. So yeah, you can see that I'm a bit. It's hard for me to talk about that because I find that it's a tragedy. That's what it is.

B (29:50)

Ongoing tragedy. And we don't even know. Hopefully their stories will come out asap, because the world must know.

A (29:57)

All right, listen, that's it for the show today. Thanks for our listeners, viewers for tuning in to Arc Media's what's yous Number. We hope you found it interesting and if you did, be sure to like, subscribe rate Review Some of you already know the drill, but most importantly, share it with others who may find it interesting. If you want to make suggestions or share your feedback, please reach out to us on what's Your number? @arkmedia.org.

B (30:29)

What's your Number Is an Ark Media Podcast. Arc Media's Executive producer is Adam James Levin. Already our production manager is Bruce Brittany Cohen. Sound and video editing is by Liquid Audio. Our theme music is by Midnight Generation. I am Yael Wisner Levy Yonatan Adiri.

A (30:47)

See you back here next week. This podcast offers general business and economic information and is not a comprehensive summary for investment decisions. It does not recommend or solicit any investment strategy or security.