David Woo: The Market Is Completely Wrong About Iran, Oil & What Comes Next
Summary
Oil Market: Guest is explicitly long crude, arguing the oil shock is underpriced and could become a growth shock if the Strait of Hormuz disruption persists.
Middle East Dynamics: Extensive discussion of Iran, the Strait of Hormuz, and Gulf states’ vulnerabilities suggests elevated geopolitical risk and sustained energy volatility.
US-China Tensions: Frames Iran as a proxy theater for US-China rivalry, with Belt and Road logistics reducing US leverage and raising long-run strategic risk premia.
Market Outlook: Stocks are seen pricing an inflation shock rather than growth risk; guest is short equities and expects broader risk-off if oil stays elevated.
Winners/Losers: Energy exporters like Canada/Russia fare better; Europe and Asia (Japan, South Korea) face energy supply stress; US relatively resilient but consumers pressured.
AI Trade: Skeptical on current AI monetization; hyperscaler capex may slow if growth weakens, risking repricing of crowded tech trades.
Defense Context: Discussion of interceptors (Patriot/THAAD) and carrier risks underscores the complexity of escalation and supply constraints in defense systems.
Transcript
I personally think that this is s so central to his legacy if he gets out of Iran now. I think it will just allow China to really dramatically increase his footprint in Iran. I'm going to have to assume that a lot of people around Trump are telling him you if you go down this path, you got to stay with it. You cannot go in and then decides after like two weeks to say time out, time out. That kind of thing. If you've done it already, if you've gone into Iran, you you have to finish the job because otherwise the outcome will be worse than not going in. >> David Woo, CEO of David Woo Unbound, which is a global forum dedicated to the promotion of fact-based debates around markets, politics, and economics, and also co-author of the upcoming book Mary Goround Broke Down, which you co-authored with Margarite Shannar. It is so wonderful to welcome you back to the show as always, David. I know we were just together at the start of the year, but wow, I cannot think of a better guest to have at this moment. So, I really appreciate you taking the time. >> Thanks for having me. Love being on the show, >> of course. And we love having you and we are thinking of you, David. Um, all right. We got to start just let's set the table right now or just set the stage. Let's look at things from that big picture, more of that geopolitical view, if you will. Um, what did just kind of set the chess moves if you will or the chess board even? >> Sure. I I think you know like I mean obviously I mean living here in in Israel in the m middle of this actually the sort of it might mean that I'm a bit biased but I think nevertheless I think you know actually is a good place because I'm actually quite far away from most of the action. So, it's actually a very interesting I think this is the I mean I think from a from Israel's standpoint this is the most important war since the war of independence 1948 by the way the war that we're talking about with Iran and I tell you that in terms of for the region this is definitely the most important war since the Iraq war I mean so this is going to have this war will have consequences I mean I mean we may not see we we may not be able to see all the consequences right now, but I can tell you this will be a very constantly control book. But let's just basically go back to the sort of drawing board a little bit. Just think about the big picture in terms of the game theory setup, right? Because you've got three players here and and then you know what makes this war different because it's actually very interesting to me because I I think you know it's fascinating the stock market is up today. I mean it's barely down you know I mean considering the fact that this morning Nikke would open down 7% and then rally back it had a lot to do with the fact that the US stock market has proved to be very very resilient to you know basically the massive rally we've seen oil price and the geopolitical risk so forth. So the question is why? I mean so and this is actually ties in with this whole thing, right? Because my I mean you correct them wrong, right? I mean I think there only two possible explanations why the US stock market has been so resilient. One is that they believe either because they believe that Trump is going to taco very soon chicken out and basically declare victory and end the war or that Mark is convinced that Trump is going to be able to win this war very quickly. Okay. So I think that from the point of view of the market right now there are two hypothesis right now in the market I mean if you think about this there's a whole range of possible outcome in this war but there are two that the market is touching the highest probability one is that Trump is going to tackle the other one is the US is going to win this war very easily so it's going to be over very soon right and let me tell you why I think that these are actually the least likely scenarios okay I think first of all we have to understand something about Trump, which is that I think that, you know, I I I don't I think the market is overestimating the odds that Trump is going to taco, you know, like like he's done on so many different occasions. I don't blame the market because Trump like, you know, like he tacos so many times last year that, you know, I mean, there's a Chinese saying, you you get bitten by a snake once, you are afraid of ropes for the next 10 years. Like I've lost, you know, my share of money last year betting against Trump and then he taco. So from that point of view, I can understand a lot of people don't want to basically uh don't want to basically bet against you know Trump's taco on this thing. But but let's think about this for a second. You know, I would argue that after the Supreme Court ruled against Trump's tariff, Trump is effectively a lame duck president. You know, normally it takes, you know, usually the second term president does not become officially the lame duck until after the midterm of his second term. But I would argue the Supreme Court has already, you know, basically made him a lame duck, at least as far as domestic policy is concerned, because now even Trump knows there is no chance he's going to be able to make the case for $2,000 tariff rebate, which was the only way he could, you know, possibly bribe middle-ass Americans to come out and basically vote for him. So I think from that point of view even Trump has to basically believe that you know the chances of the Republicans being able to maintain the majority it basically very very low right now. So if you actually it's interesting because in the past you know if you look at the history of the United States the last 50 years when the president becomes a lame duck there is a very good chance that president you know focus shifts away from politics to legacies I mean and especially legacies regarding foreign policies and there was this was definitely the case for Richard Nixon after Watergate. This was definitely the case with uh with um Bill Clinton after Monsky and this was definitely the case with Barack Obama. Now I would argue that this is why I think you know now that Trump cannot get anything done in terms of the domestic policy you know censure the agenda he's now forced to essentially gravitate towards foreign policy maybe foreign policy only and to focus on his legacy. And there is no country more important to Trump's foreign policy legacy than Iran. Okay? Like Trump has invested so much in Iran by first of all walking away from the Iran deal, you know, in his first time and then reimposing massive sanctions on Iran and then hitting Iran basically uh last June. And you know, so from that point of view, I mean, like I just don't think Trump is going to tackle that easily. This is not a situ. This is why I do believe that you know like you know that the market is overestimating the chance that Trump is going to tackle. At the same time I think the market is also overestimating okay the sort of like you know the chance that we're going to see like the US simply just essentially you know walking all over Iran and this war is going to be done because the Iranian regime is going to be crushed very soon. And the reason is because I mean first of all you know it's actually very funny only today we got final confirmation the Iranian drones have destroyed at least four if not more of the US THAAD okay essentially the system battery I mean these are the most these are these are basically these are air defense missile system they're even more sophisticated American system they're more sophisticated than the Patriot system because they are designed to intercept longer range missiles and half of them in the Middle East you know I'm talking about deploy a US base had been destroyed. What we've been able to see, I mean, what surprised me over the past week is the fact that Iran has been able to launch many many many drones, especially against UAE, more than 100 drones every single day. I mean if you basically if you're able to launch 100 drones that means that you have you have 100 drone operators okay managing them and so on so forth which means that you know your operational capability has not been that much damage I would argue okay and then in case a lot of your viewers don't know in fact 90% of the missiles launched by US you know fighter jets on against Iran continue to be fired from outside the airspace using relatively expensive cruise missiles as opposed to flying essentially, you know, inside Iran and dropping cheaper bombs on top of Iran. All this will suggest that a week into this, I think there's a lot of obviously self- congratulation about what the US has achieved. I think what Israel has achieved is more, but the you I mean, the market seems to believe Trump's thing that, you know, like he's going to he's going to destroy Iran's regime very quickly. This whole thing is going to play out very quickly. Either he's going to tackle or that he's going to basically win. And I think the market in my humble opinion neither is the most likely scenario. The more likely scenario is that this is going to become a more protracted and messy conflict. >> What would change your mind though? Like what signal would tell you that the market's actually right though? >> I think there will be a couple of things like you know it will be first of all if if I see all of a sudden you know Iran firing a lot of missiles at Israel that will change my mind. And I'll tell you why. Ironically, you know, I don't know if people realize this, but Iran has fired more missiles and drones against UAE than it has against Israel. Okay? In fact, Iran's attack against Israel have been quite measured. And I'll tell you the reason is very simple. Because, you know, killing Israelis is not necessarily going to help Iran win the war. They believe that the only way they can win the war is by essentially driving oil price to $100 a barrel. and higher and keeping it there for three weeks. They they believe if they can achieve that, Trump is going to tackle and this is the reason why they are focusing their attack on the Gulf countries as opposed on Israel. But if however all of a sudden you see like they're starting to launch massive strikers against Israel, killing civilians, that would suggest to me that the Iran believes that, you know, they're they're becoming desperate. in other words that they they can see the end coming and then they're going to release everything they got against Israel to kill as many Israelis possible in a sort of suicide kind of thing. I think, you know, so if you if if I start to see desperation as opposed to measure response on the part of Iran, I would think that would be a sign that the wars is coming to an end. For example, >> let's talk about um oil. It was above $100 a barrel. It's now off like those highs. I'm looking right now because even if I say the price, by the time this airs tomorrow morning, it would be a very different price, but we're at 9536 a barrel. Um, so what are the consequences? I guess what are the consequences of like okay $100 oil, you mentioned $200 oil and what are the what are the options like what are the scenarios or like the real risk if you get into those ranges, >> right? So, so let's think about what does I mean at 95 bucks what is the market pricing in in terms of the loss of let's say oil production from the global market right this is the most important question what has the market priced in at 95 bucks okay I tell you this is the way you should think about it so the world production oil total you know oil production in the world is roughly around 100 million barrels per day okay and as you all know by now like 20% basically flows through you know the Persian Gulf. So which is about 20 million barrels per day. The you the typical sort of rule of thumb measure for Wall Street's you know energy you know oil analysts is this like you know if you lose suddenly okay 1 million barrels per day in terms of production that usually is associated with let's say a 10 to 15% increase in oil price. Okay. So right now we've gone from let's say $60 to $90. So that's a 50% increase in oil price from the from from the low. I would argue the market is priced in let's just say loss of 3 million barrels of production per day. Okay, what's 3 million? I mean 3 million, you know, Iran is producing currently was producing at least until recently 2 and a half million barrels per day. So what the market is pricing right now is no more than the loss of Iran's own oil export and with very little discounted in terms of you know the export from other countries that who basically you know saying should the you know whose oil sales into the rest of the market will be deeply affected by the closure of straight of hormones. What I'm saying to you is that right now, even though 95% of the tanker traffic has disappeared going through the, you know, the straight of Hormuz, the market right now is only pricing that this is going to last for no more than three or four days. >> That's what I'm telling you. >> So from that point of view, this is why, you know, Iran doesn't need to you don't even need anymore. All you need is for this thing to drag out for a week or two and so on so forth. you know, oil price could definitely go much higher because I mean, think about this. I mean, let's let's take an example of Japan. Like 75% of Japan's oil imports come through the Persian Gulf. So, a lot of countries going to be without this. I mean, just think about Germany for that matter. I mean, last week, you know, natural gas price in Europe went up by 50% because Qatar is a major exporter of natural gas to Europe. like you just cannot I mean the whole German manufacturing you know it's going to be dysfunctional with basically with that kind of basic price. So I would argue but but that's not the point. The point here is there's no doubt if oil price were to stay up here forget about even going to 200 even let's just say at $100 a barrel this will be a huge shock to the global economy but that is not what the market is pricing right now. Right now the market is pricing the oil shock as an inflation shock as opposed to a growth shock. This is the reason why like bond yields have gone up but stock markets been holding up okay down a little bit and so on so forth. The market just think oh well you know listen uh oil price high oil price means higher inflation which means the Fed is going to be on hold for longer but the economy can take it. This is why don't there's no need to sell stocks. That's what's going on. You see what I'm saying? So the market is thinking market views this oil price shock strictly as an inflation shock and not as a growth shock. Because if we're viewing as a growth shock, the stock market is going to go down and arguably basically rates are going to go down as well. >> But the market right now, and this is what I'm saying to you, it's it's the market's definitely pricing a glass full as opposed to a glass empty scenario. In that sense, the geopolitical risk premium is too low. >> But the bond market's saying something different. So, do you think they're sniffing out something different then? >> Well, the bond market is taking its queue from the stock market, saying, "Oh, well, the stock market's holding up. If the stock market can basically can take in $100 barrel stock, I mean basically oil in a in a stride, then this then the bond market believes that then there's no need for the for the Fed to start cutting rates. >> You see what I'm saying? Because everybody knows that, you know, higher oil price means probably higher inflation. So the bond market So you know that's that's what's actually happening. >> Interesting. Yeah. Okay. But then okay, let's um stay on that point then. If let's say we stay around $100 per barrel, can the like let's hear domestically in the US, can the Fed cut rates then? Because that you get back to the inflation story then. >> Yeah. But it's also true. But but the Fed remember focuses on core inflation. >> If oil price goes up, what what does high oil price mean? It means that people are going to have less to spend after they paying for their gasoline before, which means that actually spending on core goods and services will go down. >> Okay? And so from that point of view, you could argue that the oil price shock is typically a deflationary actually shock, especially if growth basically starts to slow down. But I I think that is that's what it is. But so far clearly the market is not pricing this way because everybody's thinking, oh wow, the stock market you you realize, right? All these retail buy on dip investors continue to basically buy on every dip. And also real money investor would think, oh wow, you know, listen, stock market's going up last year. they underperformed their benchmark because they didn't own enough stocks and they were selling stocks after a liberation day whereas retail guys were buying in. Institutional guys are very hesitant to move into cash because they unless they see retail investors having thrown the towel and so far we haven't seen retail thrown in the towel. So everybody sort of so the retail guys obviously they don't care they don't care oil is 100 50 whatever it is they just think that whenever stock goes down you're supposed to buy and that's what's going on. So everybody's now following all the smart money, institutional money is now falling retail buy on dip investors because everybody thinks that these guys had basically stolen their shirts over the past couple years. Not going to make that happen again. This is why in a way I think it's a it's a very tricky situation because every American I mean I mean I I just I did an interview on the NPR radio this morning in Boston and we were talking about my book and then you know the the person who interviewed me was saying like oh you know like last week at the start of a week you know she was paying whatever $3.50 to fill up her tank. Okay. I mean $2.50 and by the end of the week it was a $3.50. I said well you know just you wait we're going to see $4 very soon. So the question really is because for one thing the jump in oil price because a lot of people were bullish the US economy at least through the first quarter because as you know the whole thing about the tax rebate you know was going to add up to about hundred billion dollars more than last year and then people thought well you know all the middle class American blue collar Americans are going to go out there and spend this money right away that we're going to get a boost. There is no doubt that this oil price shock has pretty much wiped out. I mean, if this if the oil price stays up here for more than a month, it's pretty much wiped out. You know, that that fiscal stimulus check. >> Hey everyone, I hope you are enjoying this interview. If you can take a quick moment and hit that subscribe button. We are on a mission to hit our next goal of 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. Well, then what does that mean for not just like the the economy here in the US, but maybe more globally? And like what are the economic implications? Are we headed for like um a recession then? >> I think again it depends how long this lasts. I I I still think that I I'm not so pessimistic to say, well, it's going to last three months. I'm hoping it's going to last. I think it's going to last long enough for the market to go down. Okay. And then that market going down will force Trump to basically tackle. That that's that's the way I'm thinking about this, right? I mean, because at the end of the day, if you remember last year, the the liberation day taco, the post liberation taco, I mean, stocks went down basically 20%. Okay? Now, so I'm thinking like but I do think that there's no doubt some countries are more vulnerable to higher energy prices than others, right? I mean, we said Europe, right? I mean, Europe, you know, has given up on Russian gas. So they became big very dependent on Qatari gas and now they can't get Qatari gas and this is a huge problem for basically Europe right now you know for Japan and for for for South Korea okay they import a lot of you know essentially Iraqi and Iranian oil okay I mean not Iranian oil but Saudi oil and and UAE oil all that is driving up India on the other hand also imports a lot of oil but India has the advantage now they get to basically buy Russian oil again because Trump is essentially um is uh making that possible. So I think it really I mean Canada right now is doing very well. I mean because I mean Canada you could argue that you know the you know you don't have to worry about geopolitics. So the Canadian supply is pretty stable. I would say that in general Canada and and Argentina and and Ghana probably going to do well out of this. OPEC is going to basically lose out. Russia's going to do well. The US relatively speaking is going to do better than others because US is now more or less energy independent. But however, the US middle class and because they spend so much more on energy than middle class elsewhere, they're probably going to be hit hard. Okay. >> Yeah. I was going to ask you like who are the winners and losers and I think you just outlined it there. Um the last time you and I spoke um beginning of the year, you were talking about the thing to watch and pay attention to or just like the framework would be the midterms. Um, we're coming up on the midterms in just a few months. Gosh. Um, and how that's going to kind of like drive a lot of, you know, Trump's decision making. Sounds like though that he might be in a bit of a political predicament here. Um, how do you see this one unfolding? >> Yeah, I think, you know, I think the midterm is almost irrelevant now. I mean, obviously at the start of the year, everybody's was focused on the midterm because the expectation was that Trump was going to throw the kitchens and get the economy ahead of the midterm to put his party in a competitive position ahead of the midterm. But now, if you think about this, it's actually interesting in my humble opinion, you know, like Trump is running up against real constraints with respect to both the Fed visa v monetary policy and visav Congress, visav, you know, fiscal policy, right? I mean because I think the reason why he went with Worsh is because he became convinced or he's been persuaded that if he went with Hazard then it makes it more likely that Jerome Pal is going to end up staying after his uh chairmanship expires which then will deprive Trump appointees from you know securing a majority on the board. Okay. But I ironically, you know, I don't know if this changed the last today, but as of last week, Trump has not even officially sent his nomination of war to Congress to get a confirmation. And I can only assume that he still sleeping on this simply because there's a very good chance you go with a wash and then guess what may end up staying anyway. So I think Trump is now Trump understands now that his options visa v the Fed are extremely limited. Now the Supreme Court, you know, having ruled against his tariff has now made it impossible for Trump to rally the support of Congress, the Republicans to basically do this, you know, $2,000 rebate check. Okay, the tariff rebate check. So, I'm saying to you that, you know, if if Trump there's no doubt for Trump for the Republicans to pull off a win in the midterm, there would have to be additional fiscal or monetary stimulus between now and the midterm. And I would argue the Supreme Court decision and the whole thing about the Fed makes it now very very unlikely that we're going to get any new fiscal any stimulus monetary or fiscal otherwise until after the midterm by which time so I think that the midterm is no longer such a major consideration for Trump because in fact this is the reason why he's now turning to to uh to Iran after that to Cuba and for I know you know to uh Greenland soon after Mhm. I take it this didn't surprise you though. >> I think it didn't surprise I have to say though like you know I I think with with with respect to the Fed I thought that was you know I I I didn't you know I I did not surprise me. I have to say that you know the the Supreme Court decision it did surprise me a little bit because I thought I I was hoping that the Supreme Court will basically vote on a case-byase basis. it would not have voted in a such a blanket fashion against this entire essentially the uh him trying to impose tariffs based on the emergency act. I thought they would have been bit more essentially granular but forget it. I mean it's it's it's over now. But I think you know the point here is that you know as you know a lot of Republicans okay who were against Trump's tariffs held their noses because they were afraid of him all throughout last year because they knew how much power Trump had. He could you know essentially you know start supporting you know primary challengers against incumbents as a way to you know lean on them. And so nobody everybody shut up. Nobody said a war in his own party against this tariff. But now it's a different story. It's completely different story. I think people more and more people are speaking out against the tariffs. And then in any event, you know, I don't tell you like right now like you know I'm sure like if you you know this is a Monday right now. I guarantee half of you know Congress is not even in Washington right now. They're all campaigning back home because you're going to have the primary elections coming up very soon. So like it will be very difficult to get to for Trump to get anything done including any legislation on Bitcoin. So don't think that's going to happen anytime soon to support Bitcoin either because a lot of people were still holding out hope that something's going to happen with Bitcoin that's going to give Bitcoin a boost. I don't think that's happening either. >> Okay. So what's your base case? Do you think he loses the House in the midterms? Does he lose the Senate? Like what do you think? I mean do you have a base case? >> My base case is that he loses the House. Okay. That they they they they hang on to the Senate but barely. So, okay. >> Okay. >> But but but the bottom line here though is that it doesn't matter he just loses one or two. It will have the same effect in a sense that nothing is going to get done anymore. They won't even be able to do reconciliation bill. If you remember, you know, they were able to get his tariff through even though they didn't have I mean his uh his big beautiful bill through last year even though they didn't have super majority right in the Senate, right? Because the Senate, you know, if you have 60, if you haven't got 60 votes, you are, you know, I mean, you you can't get anything done because the other side can use filibuster to essentially complicate the entire process. But they were able to use this reconciliation thing to basically get the big beautiful bill pass. But once you lose the house, forget it. Nothing's going to get done. In fact, the only thing that's going to get done now >> is that every day there will be depositions. There will be, you know, you know, you know, they will be they're going to try to impeach Trump. There's no doubt about that. >> Yeah. >> And Trump knows that. He knows that this is going to be And this is also the reason why I think he's going after Iran now >> as opposed to waiting after. >> Oh, then waiting. Okay. Explain that then. Yeah. Why now? >> Because you do it now because once you become a lame duck, then literally everything you do, the media is going to attack you for it. Right. right now it's a sort of like you know like oh well so the New York Times doesn't like his move on Iran but they're going to be a bit circumspect you know you know you know uh you know I mean as you know Jeff Bezos just fired 30% of the staff at um Washington Post because they're seen as being anti-Trump and they couldn't sell newspapers. My point here is that if the Republicans lose the midterm, the Democrats are going to go on the rampage in terms of, you know, basic, you know, essentially the uh try to impeach Trump. Not that they're going to succeed, but literally every day they will be hearing his deposition, the whole entire thing. And then you know and then the media will feel much more emboldened to attack Trump this and this and that which then weaken his leverage visa v his party in terms of backing him on such a big thing such as the Iran war. I mean this is not something you can do like even if you are president United States I mean you still need backing from your own party. You know what I'm saying? So I would say that therefore once you believe you are the lame duck you start doing you start doing what Trump is doing now. And this is why I think Trump cares less about the market now than he did last year. >> Interesting. Yeah. It's a different Trump. Like the market's not the scorecard then. >> Exactly. Because because you need a market to be for your real for for for to win the midterm. You're still trying to curry favor. You want to if you believe that you can still win the midterm and you know that the stock market is a very big part of it fund man. You're going to be focused on that. If you think it's a lost cause, then you're going to focus on the sort of longer term, you know, legacy issues for your president so you won't be remembered for something else. >> Well, yeah. To that point though, can't this be like legacy defining? Like the if he's successful too, >> couldn't this just define his legacy and he can make these kinds of moves? But if he can if he can bring about a regime change in Iran and a smooth transition to you know democracy or whatever he's going to go down history as like one of the great American presidents I mean I think in terms of foreign policy and then people are going to be looking to Trump as someone who was daring who use limited strateg think strategically that can actually affect you know that makes the world a better place. Okay. I mean there there's no doubt like you know this is why there's so much writing on this and especially given you know another angle people don't realize this is also the reason why I don't think Trump I think the markets overestimating you know Trump the chances that Trump is going to taco easily is the fact that the Chinese have now literally crossed the Rubicon as far as Iran's concerned I'm just put it this way recently the China Iran railroad which runs 10,000 km ometers long that's been under construction for the last 10 years has become almost fully operational. >> Once it becomes fully operational, you know, Iran's oil export to China will no longer be essentially affected by the US sanctions on Iranian oil export. In other words, the US loses a powerful leverage over Iran once this railroad becomes fully operational. And meanwhile, we just heard, you know, two weeks ago, there was a report that Iran just installed the most advanced Chinese, you know, radars that are capable of detecting, you know, stealth, you know, aircraft like the B2 bombers or for that matter, the F-35s. So, what I'm saying to you is that this is why the war in Iran has become a proxy war between the US and China. >> Interesting. And this is the reason why all of a sudden even people like Vance who's obviously very lukewarm about anything involving US troops abroad has rallied you know to the war because they because because they hate China right these people hate China. So as long now that they think now there the a lot of these these people around Trump who are making the case that we need to you know bring about a regime change in Iran is because they believe that this is the only way to prevent Iran and China from strengthening their ties further in Iran that will give China a massive foothold in the region and they will meanwhile allow Iran to become the next North Korea in other words untouchable. >> Yes. Um, okay. Wow. David, this is where this is why I love talking to you because you help us see all of these various moving parts and what are the like if you're I don't know if I guess analogy like you set like a chess board like what where are the players set and what are the potential moves here and there's a U US China story here then what do you think are the moves like is there because we know the straight of horror moves right now is it's really really important it's important to China I guess that railroad that's part of the belt and road initi I take it I I don't know. I'm not familiar. Almost online. Not online yet. >> Is there a scenario and please forgive me I'm not a geopolitics expert. Um is there a scenario where the US could control the straight of Hormuz? Is that is that way far out there? I don't know. >> This is probably the single most important question right now. Okay. I personally think it's going to be very difficult and I'll explain to you what I mean by that. Okay. Now if you look at the straight of Hormuz, okay, you look at another strait which has become a bottleneck for maritime traffic is of course the straight controlled by the Houthis, you know, at the mouth of the, you know, the the Red Sea on the other side of the uh the Middle East. Okay. Now, let me tell you this. You know, I I've followed the Houthis very closely the last three years. And this is amazing story, by the way, which is the fact that this the Houthis, okay, and this poorest country, Yemen is like literally the the poorest country in the world, right? the Yemen the the Houthi rebels have been able to literally strangle okay the maritime traffic through you know the you know the the Red Sea at will okay whenever they feel like it they can literally you know essentially stop all traffic going through the Red Sea by using relatively unsophisticated weapons I mean they're using sea mines they're using drones they're using some you know anti-hship missiles so on so forth Iran is looking at the same kind of distance about 30 kilometers in terms of the the width of this you know the straight of Hormuz at this narrowest point and then if you look at the usable sea lanes even basically more narrow and that gives Iran huge advantage because they have a long essentially I mean that you know they don't even they don't need this Trump is so proud of the fact that we've destroyed 50 of their naval vessels that means nothing because that does not degrade the ability of Iran to control the straight of H for H for H for H for H for H for H for H for H for H for Hormoose. They can use artillery, they can use drones, they can use frogmen, they can use mines, you know, they can just literally save their missiles and fire a missile every I don't know half an hour into the uh the straight of Hormuse and then no tanker is going to run the risk of basically showing through it. And in fact, Trump is talking about, oh, sending in, you know, the aircraft carrier to help to essentially the um to help uh you know, tankers to get out of there. There is no way, no navy offices will recommend that because because it's so narrow, once you send your aircraft carrier into the forget about the Persian Gulf, we're talking about the straight of Hormuz, it becames it becomes a sitting duck. Okay, the Iraq the Iranians don't even have to aim that that basically accurate to be able to hit it. So what I'm saying is that this is an you see this this is the important point which is that there's no doubt US and Israel are military technologically superior to Iran. But what Iran is now trying to do is to they're trying to pick a battle whereby that they it can blunt the technological advantage of the US and Israel. And basically picking the straight of four moves is like a perfect spot. Okay, it's a perfect spot because it is where like high-tech is not going to help you at all. Okay, where low tech is spirit and I'm just saying you know the the Houthis have demonstrated this last three years. If you don't believe just look at what they've done, okay? and they have onetenth of the resources that the Iranians have to do the same job. Okay. So right now I have to give the odds to Iran I think when it comes to the straight of moose. >> Interesting. Okay. But again not a geopolitical expert here but couldn't you like make enough surrounding countries like really angry with that too? like I don't know if there's anything there but >> right >> it's a critical conduit not just I mean it's for probably I would think not just the end users of the energy but the producers >> right I think it's an it's a very good point now UAE is a good example right so as you know I mean Iran has launched more attacks missiles and drones against UAE than has attacked Israel with okay over the past week it's pretty amazing right >> now why is it I mean besides the fact that they're trying to destabilize the oil market because if you fire missiles at Israel like it's not going to destabilize the oil market you know so that doesn't serve Iran's immediate purpose of driving up oil price but UAE is a very different story but there's a second reason why they're doing this >> which is that they are trying to cause UAE Saudi Arabia these other Gulf countries to run out of their interceptors okay because every drone every missile that you know these Gulf countries tries to bring down okay they have to use you know interceptors and I'm telling you interceptors are already running inventories of interceptors already running very low even before the war started and then there are many people believe that by the end of this week these countries are going to be pretty much defenseless because by by which time they will have no interceptors left like the Patriot missiles you have to understand you know the US produces the Patriot missiles if how many does Does it produce a year? It produced 700 that is whatever 60 a month and then you know half of them has been going to uh you know Ukraine of course. So like you know so with how you going to be able to defend these country and this is why Iran this is another reason why they're focusing their energy on hitting these countries as opposed to Israel. >> Ah wow. Okay. again like you're helping us all like learn and understand this. Um, okay. So, >> I'm just saying that, you know, listen, I mean, the Iranians, I mean, I I think, you know, I mean, obviously, you know, it's, you know, these people are extremists. They are religious fanatics, but we also have to appreciate the fact that Iran, okay, is, you know, this is not like Saudi Arabia, okay, I mean, Saudi Arabia isn't speaks Arabic, okay? I mean, you know, Saudi Arabia was founded by Muhammad. You know, it's a relatively new country even in the greater scheme of things. Iran has been around for, let's call it 3,500 years. Okay? They speak far. They don't even speak Arabic. They speak Farsy. These people invented chess. By the way, these people are very educated until you know the, you know, the Iranian revolution. They were the most educated, the richest basically country in the Middle East. Okay? So you're talking about dealing with a people who come from a great civilization, who are very clever, who are known to be very strategic in their thinking about things. I don't think we should count them out that quickly. That's what I'm saying. Okay? And they have a long time to prepare for this. And and this is why I I I can only assume that the market doesn't really understand this angle. And I think all I know is that right now in the last week it seems to me that their response in this war even though it look it may feel like a one-sided war is like the whole world against Iran. I would say Iran's relative measure response would suggest that they are continued to execute a very a plant as opposed to just you know essentially uh reacting u as opposed to uh acting proactively. So to summarize, like when you look at the market, it's been relatively resilient, the retail buyer if you will, institutions following what the retail folks are doing. Um, but you're kind of saying that the the market's kind of pricing in a taco. Trump always chickens out that they think maybe it won't be as protracted. You'll chicken out. What do you think the markets should be doing? No, I don't know if you could do What do you think the markets should be doing then? Or where do you think they should be? Um, if that weren't the case, much lower. How much lower? I >> I think, you know, I mean, at the end of the day, I think it's interesting. I I would like to see the stock market lower, but you know that, you know, that's because I'm short. I'm long oil. I've been long oil that's doing extremely well. I've been long oil since, you know, 60s actually. No, no, it's over 100. And, uh, but I've been short stocks, too. NASDAQ. And it it just I mean, Q QQ has finally broken below 600. I mean, it closed below 600 on Friday for the first time in a while. So, we'll we'll see how that goes. But I think it it just feels to me again, as I said before earlier, you know, like the market right now is pricing an inflation shock as opposed to a growth shock. And because the market believes that this war is going to be fairly short-lived, you know, short-lived enough that the market is not to worry about a a significant slowdown in growth as a result. M >> and then the only reason why the market thinks that this is going to be a very shortlived war is because the market either thinks that Trump is going to tackle or that the US is going to declare victory very soon that's going to that the regime in Iran is going to fall like um like whatever very very quickly and I'm just saying to you that these two assumptions which is a geopolitical in nature it's just not true. I I I I think Trump I think it would be difficult for Trump to taco easily on this one. >> Okay. And um and I don't see an easy way for Trump to be able to do a knockout, okay, of Iran, you know, essentially in the first three rounds. >> Mhm. Okay. So, um at what point do you think the markets might realize this that hey this is going to be much more protracted like what is the kind of timeline? I think this week is going to be very important because I think you know the the oil price is going to be a huge part of this because obviously the main channel >> okay that's driving financial markets from this war is oil price. Mhm. >> I mean, >> $100 a barrel is already very, very high. Okay. Should this thing keep going higher because for every day that the straight of Hormuse remains closed, that means countries are having to dig deeper and deeper into their reserves to essentially, you know, to keep their economy running. I think another week of this is it's going to be u we're going to be at that point that country is going to be running out of oil and then that's when price is going to go up and I think you it's interesting because it's very different than you know in February 2022 when Russian invaded Ukraine when a lot of people got long oil very quickly. this time if you look at CFTC data the market recently started to buy some oil but you know the long oil position is still very low and and that that's that's the problem the problem is that you know like the market is just completely unprepared just essentially right now looking to Trump to taco and I just don't see how this is going to happen very soon but you know what I could be wrong but the uh I'm not saying that obviously Trump is feeling the pressure I'm sure a lot of people around him and saying that's it. But I personally think that this is s so central to his legacy. If he gets out of Iran now, I think it will just allow China to really dramatically increase its footprint in Iran and then we get to a point that Iran becomes offlimit to the US and and then the whole dynamic in the region will turn against the US. And I think this is why there's so much writing on how this thing finishes. I'm going to have to assume that a lot of people around Trump are telling him you if you go down this path, you got to stay with it. You cannot go in and then decides after like two weeks to say time out, time out. That kind of thing. If you've done it already, if you've gone into Iran, you you have to finish the job because otherwise the outcome will be worse than not going in. >> Yeah. And maybe again like the legacy is much more meaningful than where the stock market's trading ultimately. Maybe he has that realization now of like what's going to be more important and if if he's successful and he can pull off the regime change like you said he'll be remembered as like one of the greatest presidents of all time. Is that right? Would that be fair? >> I have no doubt about that. I have no doubt about it. >> So do you think that do you think that's the most likely outcome then? >> I I I don't know. I I I no I don't think that's going to be the most likely outcome simply because I think it's be very difficult to do a reaching change without putting troops on the ground. And right now even Trump regardless how much as is at stake I find it difficult to believe that he will commit US forces okay you know ground forces in in Iran >> and and and I think the most likely outcome which is not a bad outcome for the US standpoint is simply Iran descends into civil war where you have these you know revolutionary guards the senior officers return to their provinces and then become warlords. And then they seize critical assets and the countries become divided. And you could argue that, you know, I mean, so one way for Trump to win this war is by devaluing Iran as an asset to China, right? Because if Iran becomes has a civil war, anarchy, and then warlords, Trump at the end of the day, let's not be too naive here. Trump doesn't care about the democracy of the people there. Like it's like, you know, he went into Venezuela. He he took he took Maduro out not because he was trying to promote democracy. He was just trying to get his hands on Venezuelan oil. The same thing with Iran. They just want to reduce the strategic value of Iran to China. >> That means that you know a civil war, you know, so be it. >> Yeah. What do you think? What do you think is the conversation inside the top of the CCP? Like what do you think Xi Jinping's thinking about right now? I think the Ciin Ping is thinking like, you know, like we we're not going to send troops into Iran because he, you know, they didn't want to have an open conflict with the US even though this is arguably the first real proxy war being fought between the US and China ever. Okay, by the way, and I think that however I suspect the Chinese are also thinking that the U that Trump is weak. They can see that the Supreme Court decision ruling having weakened Trump. They think that, you know, they don't believe that he has the stamina to because everybody, the whole world saw that Trump taco again and again last year. So I think that, you know, the Chinese probably behind the scene are sending money to Iran, helping them to strengthen their, you know, their defense capabilities and all that stuff. Okay? keeping them well supplied when it comes to food and basic necessity to keep them going in the war because they they probably also thinking that Trump does not have the nerve and that's another reason why I think you know this is actually very important because if the Chinese think that way then the Iranians thinking that they have China's got their back then they're going to be even less likely to basically to taco on their part. So the question really is, is Iran going to blink first or Trump is going to taco first? Right now I think the China angle makes it much more difficult for Iran to blink because they know they have a one fewer reason to blink because they think they got China basically behind them. And then you know because China is behind Iran there the stake is so much higher makes it less likely Trump is going to taco. So I think China is actually very central to this entire equation. >> Yeah. I mean, but then Trump's much less likely to taco than Yeah. Gosh. Wow. I feel like David, we're probably going to be talking about this for a long time. I imagine we'll have you on for more episodes where this is still front and center of the conversation. Um, what Okay. What are the advantages for the US and do you think this is worth the risk? I think you know listen I mean I I think you know I think from the US perspective there's probably not that much choice as I said before because one is you know the way things are unfolding in Iran in terms of the relationship between Iran and China you know like this could be the last window of opportunity for the US to actually affect the regime change before like Iran becomes essentially the regime becomes completely you know butress by with with Chinese money Chinese technology and so on so forth becomes untouchable. So I think the US doesn't have much of a choice. Okay. But I I do think on the other hand and and I think from Israel there's not much of a choice but but this is this is how it is right because in a way the the geopolitical you know essentially the because this is about in the end we talked about this this is about the unipolar world in a US centric multi you know unipolar world trying to retain it hedgemony you know with China and Russia trying to promote a multipolar world order I think in a way it sort of makes sense that it's understandable that US wants to keep things, you know, as what it is. And for China, I mean, by the way, this is a lot of Americans don't realize the story. This is a very this is a very important background in terms of China's interest in Iran, which is that, you know, a lot of Americans simply, oh, well, they, you know, you learn in, you know, in or in grade school, let alone high school, that, oh, Japan invaded Pearl Harbor. The question is, why did Japan invaded, you know, why did Japan invade Pearl Harbor, you know, the way they did? Well, what really happened, okay, was the fact that a week before Japan invaded Pearl Harbor, President Roosevelt imposed a total oil embargo on Japan, okay, because the US is the most powerful navy in the world, US can enforce basically, you know, oil embargo on anybody. And then Japan therefore was staring down into the barrel. And they can see that if the US succeeds in imposing this bar this this total oil embargo, it would just Japan had weeks before its economy just completely collapsed because you cannot have a modern economy without oil, the manufacturing, nothing. So Japan was literally in a total desperate. They were in a desperate situation. And then the government met essentially for three days and three nights to try to figure out what to do. They ended up essentially deciding on this very risky attack on Pearl Harbor in order to destroy the USPacific fleet so as to give Japan enough time to invade Malaysia, Indonesia in order to get their hands on oil there. Okay. So this whole the entire Pearl Harbor attack, it was not oh well, Japan decided to invade the US. It was literally to weaken the US ability to stop Japan from getting his hands on his own oil in Southeast Asia. Now imagine now you've got the same situation with China, right? China remembers this lesson. I mean this is what Japan did. US did what it did to put to keep Japan in its place and drove Japan into a desperate gamble. Now in China why the whole entire belt and row initiative is about building a land route from China to the Middle East onto Africa and the main reason is because China is very wary that one day China's going to wake up and US has imposed a total embargo on Chinese oil imports or Chinese basically iron or imports and whatever everything else and this is the reason why China has been building this land land route. I mean this is the main reason this is why Iran is so important because that's you know so so you got the railroad there and from there on it goes on to Africa and so on so forth but what I'm saying to you is that you know this is what happens it's it's about the struggle and the rivalry and the struggle you know of the two big powers and then but but the struggle itself you know promotes conflict and it leads to war right that China is trying to do this in order to preempt the US from imposing a choke point on China's you know access to Africa and the Middle East but US sees China building a you know you know the Bel and Road initiative as threatening US interest in the region so then they start to basically uh compound each other and that's what happens you know >> interesting okay is there a way I don't know is it or I don't is there a way is there a risk or um or is there an opportunity for the US to kind of [ __ ] that belt and road initiative and I guess what would be the knock-on effects of that >> I think would be I think it would be difficult. I I think right now I mean obviously if they can if they can affect the regime change in Iran and replace the regime Iran with the pro- US regime then China you know the 10 years of investment that China put into building this thing you know a road a rail road to Iran would be worth nothing that's it that's what is coming down to and and I think you know this is why China has no incentive for the US to succeed in Iran and that's where it comes in H so fascinating. David, I feel like I always learn from you. Okay, so just to recap from the investor perspective, you're short the markets right now. Um, do you like gold or anything? >> I think, you know, like I I don't like the way gold's traded the last few days. Well, I like gold. I I think what what is very clear is this, right? I mean, if you think about what really happened in the last week, right? What really since the war broke out is that you know all we've seen so far until now is all the crowded positions got stopped out right so the most popular trade year to date was emerging market equities what was the worst performing asset last year emerging market last week was emerging market equity everybody in the grandmother was short the US dollar was the best performing currency last week was the dollar >> you know everybody was long steepeners Okay. And guess what? The, you know, the curve actually flattened last week. Everybody was trying to short Bitcoin. Guess what? Bitcoin was up 7% last week at a certain point. So, what I'm saying to you is that so far this war, I mean, you know, it's only been seven days. So, you know, it's still very very short war so far. We're just in the beginning. So far, all we've seen is that people saying cutting back their positions, okay, across. So, this crowded trades got taken out. Okay. I don't think the market has started to really price the fundamental consideration of this war. Okay? And that's what it really comes down to. And so, for example, S&P did well last week because the Magnificent 7 did well. The Magnificent 7 did well because everybody was underweight. The Magnificent 7. I mean, year today. I mean, Magnus 7 has gone nowhere today, right? And all of a sudden, people say, "Wow, you know, this is a shock liquidity. Everybody's trying to get back into liquidity." And guess what? Magnificent 7 did well. And as a result, S&P did well and then the US did well as a result and the dollar did well. So there's a lot of D stuff going on right now. It's about positioning. It's about liquidity. But if this thing were to drag on, you know, until the end of this week, I think a lot a lot of economists, strategists, Wall Street people are going to start talk about the sort of the longer term consideration and that's when we might see um you know, we might see a a more pronounced risk off than we've seen so far. >> Yeah. Riskoff environment. Um and do you think we'll see a recession if that's the case? I I I think a recession is still I mean I I I think with Trump at the helm I'm not too worried about a recession. I mean I I think you know like I I think you know I mean I don't think he's going to go crazy. >> Okay. But the um even on this Iran thing so I I I think you know I I think you know like you know so from that point of view I don't think it's going to become totally irrational. I mean it becomes totally irrational if China with I mean there are scenarios that we can tell but right now sure because you know if you think about this another way right this is where psychology is also very important you say okay fine the big story of 2025 202425 is this massive retail inflows into stocks crypto and everything and that essentially should be viewed as a massive easing of of financial conditions even you know okay but we now know that there's no doubt that private credit has an issue the AI bubble is starting to you know look long in their teeth if all of a sudden this war you know like we see a oil price shooting up there's not much you can do about it and so on so forth and then you know you know that's a tightening of and then the Fed cannot cut rates because everybody's worried about inflation that could compound the stress right now in private credit the stress in you know the AI bubble and then it's a very different story. Okay. And this is also why you know like in a way you could argue that without this war like you know this private credit thing is a bit of a concern but it's not the end of the world on its own it's not going to push us into a recession but if you have a whole bunch of things happening at the same time that becomes a different story. If like you know if China decides to essentially come in and more directly help Iran we've got a problem here. >> Okay. If if they manage to let's just say hit a US aircraft carrier and 20 Marines die as a result then we've got a problem. So there are bunch of different this is why this war is important because the system has some fundamental fragilityities that on their own they're they're they are okay they can be coped with but if this war goes in the direction that the market doesn't know how because the market is used to Trump tacoing if he doesn't taco then the market will have to price price back the the risk premium that's when things could happen a lot hangs in the balance and would it be fair to say This is like probably the most dangerous phase because like I guess we'll get more clarity on like is it short or is it going to be protracted? >> Yeah, I think I think this is why this week is going to be very very very super important. It's going to be very very super important because I mean like oil price right now is not a sustainable level. either it's going to be heading down because like you know you know you know that the that US has defeated Iran and then the the grip on the uh the straight of Hormuz has loosened or that Iran is going to continue to basically hold the straight of Hormuz and the oil price is going to become much higher. >> So like so either way we're right now in no man's land in oil. It's either going to be much lower or much higher. >> Okay. >> And if it goes much higher then we've got a problem. >> Yeah. And that just releasing the reserves, that's just like a little temporary band-aid. That doesn't solve anything because there's like the headline about the meeting with the the G7 countries. Yeah. Okay. Gut check question for you before I let you go. Um, let's do a two-parter two-part question. What is that one thing that's keeping you up at night that not enough people are talking about? And then maybe on a positive note, what's something that you're optimistic on or hopeful hopeful about? I I think you know look obviously a lot of people have been talking about the Cutrinia report right you know like I I think you know I you know it's actually very interesting because I think that I think they got it completely wrong by the way I mean I I'm you know as you know I I'm it's actually funny because their whole entire thesis is built on two assumptions. One that AI is really really really good and it's going to basically like you know it's going to get everybody fired. All right. And then the second assumption that they're making is that you're going to see a massive income transfer from the workers to the AI dominant firms like you know open AI or whatever anthropic right and then he's they're basically assuming that the money that's going to be accumulating concentrating at the big AI dominant firms will not get spent or distributed as a result like you know the economy short circuits we're going to depression right that that's the whole setup my view is quite different my I'm I'm I'm not concerned AI AI being too good. I'm more concerned that AI is not good enough. I mean to the extent that actually I think this is the reason why outside I'm not talking about coding right. Obviously cloud code is very good. I mean it's a game changer. I have no doubt 20 25% of software engineers they're going to have problems. I mean in terms of keeping their jobs over the next three years. But outside, you know, programming, coding, it just seems to me that AI has not, you know, we've got many generations of AI now, they have not really sort of got to a point that, you know, that can really take over any jobs. This is the reason why corporate adoption is relatively slow. So my view is that so I think I'm I'm I'm less worried than they are about AI being too good. I I'm more worried about AI not being good enough. And this is why I'm continue to worry about the AI trades, okay, that I don't know if you're not even that good and the competition is heating up, how you going to actually monetize? And that's my biggest issue. So I think from that point of view, I think what's happening like I'm very optimistic. I I think the whole I think cloud code is gamecher for the whole tech industry. In a way it's a good thing. It's in a way is a good thing because in a way it promotes more competition because everybody can now essentially come up with reasonable codes to compete with the big companies and so on so forth. That's why even the likes of Microsoft are you know are are are shaking in their boots because in a way writing code is going to be so much easier. So that's going to be that's a good thing. Okay. But the bad thing is that I actually think that you know the whole AI trade is still writing on a false premise that it's going to be easy that there's going to be a winner takes all type of outcome that the winner is going to be pocketing a lot of money. Right now I don't see anybody making any money and this is why I also struggle to see you know capex spending at this kind of ferocious rate being sustainable. And by the way, where it gets very interesting is that imagine I think right now a lot of these hyperskillers were really they need an excuse to pull back on their capex. I think they can now they're getting a bit wary if oil prices were to stay up here for a little longer. That might just give them the perfect excuse to say, "Oh, well, by the way, the economy is weakening. We're going to have to pull back a little bit on our capex commitment." If that happens, you know, then we're going to have a big problem because the market will get repriced sharply lower. And I think that is where it gets interesting. That gets very, very interesting. >> This is why I'm saying that in a way, if we were to get a big, you know, fall in the market or a recession, whatever, you need to start to see interaction between private credit, you know, AI trade and the world. if they start to, you know, interact with each other, that's when things can get potentially out of hand. >> The perfect storm, if you will. David Woo, CEO of David Woo Unbound, author of the upcoming book Mary Goround broke down along with Margarite Shinar. It comes out at the end of the month, so March 31st. I'm going to link for the folks who watch this show. Uh, I put a link to the book. It is a novel. It's a financial thriller. I've started reading it. Fantastic work. You have reviews from folks like Paul Tudtor Jones, Howard Marks, like the who's who of of the hedge fund world. Amazing. Um, so this audience loves you and we want to support your work. So I'll make sure to link it in the show notes. >> Thank you so much. And this book is important to me also because you know the reason why I wrote this book as a novel as opposed to another non-fiction is because I want to make this topic because the story is about globalization. Okay? And I think there's a lot of misunderstanding about globalization. And I this the reason why I wrote as a novel is because I want to make the topic as accessible to as many people in the universe as possible because I think you know there is a face I I decided to put a face on globalization so more people can relate because again I I think we are now at risk because we said we talk about a lot of global issues and then none of this is actually good actually in the end because there will be no winners at the end of the day. Everybody would be losers. And I think I wanted I wrote this book in order to help raise awareness about what's happened to globalization. I'm not saying there's only good things. You know, I there plenty of good things, but what I wanted to basically make sure is that we don't throw out the baby with the bath water. That's it. >> David Woo, thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. We really appreciate any time that we get with you and I am so grateful and um I hope everything goes well. Take care, be well and I look forward to our next conversation. Thanks again. Thank you J for having
David Woo: The Market Is Completely Wrong About Iran, Oil & What Comes Next
Summary
Transcript
I personally think that this is s so central to his legacy if he gets out of Iran now. I think it will just allow China to really dramatically increase his footprint in Iran. I'm going to have to assume that a lot of people around Trump are telling him you if you go down this path, you got to stay with it. You cannot go in and then decides after like two weeks to say time out, time out. That kind of thing. If you've done it already, if you've gone into Iran, you you have to finish the job because otherwise the outcome will be worse than not going in. >> David Woo, CEO of David Woo Unbound, which is a global forum dedicated to the promotion of fact-based debates around markets, politics, and economics, and also co-author of the upcoming book Mary Goround Broke Down, which you co-authored with Margarite Shannar. It is so wonderful to welcome you back to the show as always, David. I know we were just together at the start of the year, but wow, I cannot think of a better guest to have at this moment. So, I really appreciate you taking the time. >> Thanks for having me. Love being on the show, >> of course. And we love having you and we are thinking of you, David. Um, all right. We got to start just let's set the table right now or just set the stage. Let's look at things from that big picture, more of that geopolitical view, if you will. Um, what did just kind of set the chess moves if you will or the chess board even? >> Sure. I I think you know like I mean obviously I mean living here in in Israel in the m middle of this actually the sort of it might mean that I'm a bit biased but I think nevertheless I think you know actually is a good place because I'm actually quite far away from most of the action. So, it's actually a very interesting I think this is the I mean I think from a from Israel's standpoint this is the most important war since the war of independence 1948 by the way the war that we're talking about with Iran and I tell you that in terms of for the region this is definitely the most important war since the Iraq war I mean so this is going to have this war will have consequences I mean I mean we may not see we we may not be able to see all the consequences right now, but I can tell you this will be a very constantly control book. But let's just basically go back to the sort of drawing board a little bit. Just think about the big picture in terms of the game theory setup, right? Because you've got three players here and and then you know what makes this war different because it's actually very interesting to me because I I think you know it's fascinating the stock market is up today. I mean it's barely down you know I mean considering the fact that this morning Nikke would open down 7% and then rally back it had a lot to do with the fact that the US stock market has proved to be very very resilient to you know basically the massive rally we've seen oil price and the geopolitical risk so forth. So the question is why? I mean so and this is actually ties in with this whole thing, right? Because my I mean you correct them wrong, right? I mean I think there only two possible explanations why the US stock market has been so resilient. One is that they believe either because they believe that Trump is going to taco very soon chicken out and basically declare victory and end the war or that Mark is convinced that Trump is going to be able to win this war very quickly. Okay. So I think that from the point of view of the market right now there are two hypothesis right now in the market I mean if you think about this there's a whole range of possible outcome in this war but there are two that the market is touching the highest probability one is that Trump is going to tackle the other one is the US is going to win this war very easily so it's going to be over very soon right and let me tell you why I think that these are actually the least likely scenarios okay I think first of all we have to understand something about Trump, which is that I think that, you know, I I I don't I think the market is overestimating the odds that Trump is going to taco, you know, like like he's done on so many different occasions. I don't blame the market because Trump like, you know, like he tacos so many times last year that, you know, I mean, there's a Chinese saying, you you get bitten by a snake once, you are afraid of ropes for the next 10 years. Like I've lost, you know, my share of money last year betting against Trump and then he taco. So from that point of view, I can understand a lot of people don't want to basically uh don't want to basically bet against you know Trump's taco on this thing. But but let's think about this for a second. You know, I would argue that after the Supreme Court ruled against Trump's tariff, Trump is effectively a lame duck president. You know, normally it takes, you know, usually the second term president does not become officially the lame duck until after the midterm of his second term. But I would argue the Supreme Court has already, you know, basically made him a lame duck, at least as far as domestic policy is concerned, because now even Trump knows there is no chance he's going to be able to make the case for $2,000 tariff rebate, which was the only way he could, you know, possibly bribe middle-ass Americans to come out and basically vote for him. So I think from that point of view even Trump has to basically believe that you know the chances of the Republicans being able to maintain the majority it basically very very low right now. So if you actually it's interesting because in the past you know if you look at the history of the United States the last 50 years when the president becomes a lame duck there is a very good chance that president you know focus shifts away from politics to legacies I mean and especially legacies regarding foreign policies and there was this was definitely the case for Richard Nixon after Watergate. This was definitely the case with uh with um Bill Clinton after Monsky and this was definitely the case with Barack Obama. Now I would argue that this is why I think you know now that Trump cannot get anything done in terms of the domestic policy you know censure the agenda he's now forced to essentially gravitate towards foreign policy maybe foreign policy only and to focus on his legacy. And there is no country more important to Trump's foreign policy legacy than Iran. Okay? Like Trump has invested so much in Iran by first of all walking away from the Iran deal, you know, in his first time and then reimposing massive sanctions on Iran and then hitting Iran basically uh last June. And you know, so from that point of view, I mean, like I just don't think Trump is going to tackle that easily. This is not a situ. This is why I do believe that you know like you know that the market is overestimating the chance that Trump is going to tackle. At the same time I think the market is also overestimating okay the sort of like you know the chance that we're going to see like the US simply just essentially you know walking all over Iran and this war is going to be done because the Iranian regime is going to be crushed very soon. And the reason is because I mean first of all you know it's actually very funny only today we got final confirmation the Iranian drones have destroyed at least four if not more of the US THAAD okay essentially the system battery I mean these are the most these are these are basically these are air defense missile system they're even more sophisticated American system they're more sophisticated than the Patriot system because they are designed to intercept longer range missiles and half of them in the Middle East you know I'm talking about deploy a US base had been destroyed. What we've been able to see, I mean, what surprised me over the past week is the fact that Iran has been able to launch many many many drones, especially against UAE, more than 100 drones every single day. I mean if you basically if you're able to launch 100 drones that means that you have you have 100 drone operators okay managing them and so on so forth which means that you know your operational capability has not been that much damage I would argue okay and then in case a lot of your viewers don't know in fact 90% of the missiles launched by US you know fighter jets on against Iran continue to be fired from outside the airspace using relatively expensive cruise missiles as opposed to flying essentially, you know, inside Iran and dropping cheaper bombs on top of Iran. All this will suggest that a week into this, I think there's a lot of obviously self- congratulation about what the US has achieved. I think what Israel has achieved is more, but the you I mean, the market seems to believe Trump's thing that, you know, like he's going to he's going to destroy Iran's regime very quickly. This whole thing is going to play out very quickly. Either he's going to tackle or that he's going to basically win. And I think the market in my humble opinion neither is the most likely scenario. The more likely scenario is that this is going to become a more protracted and messy conflict. >> What would change your mind though? Like what signal would tell you that the market's actually right though? >> I think there will be a couple of things like you know it will be first of all if if I see all of a sudden you know Iran firing a lot of missiles at Israel that will change my mind. And I'll tell you why. Ironically, you know, I don't know if people realize this, but Iran has fired more missiles and drones against UAE than it has against Israel. Okay? In fact, Iran's attack against Israel have been quite measured. And I'll tell you the reason is very simple. Because, you know, killing Israelis is not necessarily going to help Iran win the war. They believe that the only way they can win the war is by essentially driving oil price to $100 a barrel. and higher and keeping it there for three weeks. They they believe if they can achieve that, Trump is going to tackle and this is the reason why they are focusing their attack on the Gulf countries as opposed on Israel. But if however all of a sudden you see like they're starting to launch massive strikers against Israel, killing civilians, that would suggest to me that the Iran believes that, you know, they're they're becoming desperate. in other words that they they can see the end coming and then they're going to release everything they got against Israel to kill as many Israelis possible in a sort of suicide kind of thing. I think, you know, so if you if if I start to see desperation as opposed to measure response on the part of Iran, I would think that would be a sign that the wars is coming to an end. For example, >> let's talk about um oil. It was above $100 a barrel. It's now off like those highs. I'm looking right now because even if I say the price, by the time this airs tomorrow morning, it would be a very different price, but we're at 9536 a barrel. Um, so what are the consequences? I guess what are the consequences of like okay $100 oil, you mentioned $200 oil and what are the what are the options like what are the scenarios or like the real risk if you get into those ranges, >> right? So, so let's think about what does I mean at 95 bucks what is the market pricing in in terms of the loss of let's say oil production from the global market right this is the most important question what has the market priced in at 95 bucks okay I tell you this is the way you should think about it so the world production oil total you know oil production in the world is roughly around 100 million barrels per day okay and as you all know by now like 20% basically flows through you know the Persian Gulf. So which is about 20 million barrels per day. The you the typical sort of rule of thumb measure for Wall Street's you know energy you know oil analysts is this like you know if you lose suddenly okay 1 million barrels per day in terms of production that usually is associated with let's say a 10 to 15% increase in oil price. Okay. So right now we've gone from let's say $60 to $90. So that's a 50% increase in oil price from the from from the low. I would argue the market is priced in let's just say loss of 3 million barrels of production per day. Okay, what's 3 million? I mean 3 million, you know, Iran is producing currently was producing at least until recently 2 and a half million barrels per day. So what the market is pricing right now is no more than the loss of Iran's own oil export and with very little discounted in terms of you know the export from other countries that who basically you know saying should the you know whose oil sales into the rest of the market will be deeply affected by the closure of straight of hormones. What I'm saying to you is that right now, even though 95% of the tanker traffic has disappeared going through the, you know, the straight of Hormuz, the market right now is only pricing that this is going to last for no more than three or four days. >> That's what I'm telling you. >> So from that point of view, this is why, you know, Iran doesn't need to you don't even need anymore. All you need is for this thing to drag out for a week or two and so on so forth. you know, oil price could definitely go much higher because I mean, think about this. I mean, let's let's take an example of Japan. Like 75% of Japan's oil imports come through the Persian Gulf. So, a lot of countries going to be without this. I mean, just think about Germany for that matter. I mean, last week, you know, natural gas price in Europe went up by 50% because Qatar is a major exporter of natural gas to Europe. like you just cannot I mean the whole German manufacturing you know it's going to be dysfunctional with basically with that kind of basic price. So I would argue but but that's not the point. The point here is there's no doubt if oil price were to stay up here forget about even going to 200 even let's just say at $100 a barrel this will be a huge shock to the global economy but that is not what the market is pricing right now. Right now the market is pricing the oil shock as an inflation shock as opposed to a growth shock. This is the reason why like bond yields have gone up but stock markets been holding up okay down a little bit and so on so forth. The market just think oh well you know listen uh oil price high oil price means higher inflation which means the Fed is going to be on hold for longer but the economy can take it. This is why don't there's no need to sell stocks. That's what's going on. You see what I'm saying? So the market is thinking market views this oil price shock strictly as an inflation shock and not as a growth shock. Because if we're viewing as a growth shock, the stock market is going to go down and arguably basically rates are going to go down as well. >> But the market right now, and this is what I'm saying to you, it's it's the market's definitely pricing a glass full as opposed to a glass empty scenario. In that sense, the geopolitical risk premium is too low. >> But the bond market's saying something different. So, do you think they're sniffing out something different then? >> Well, the bond market is taking its queue from the stock market, saying, "Oh, well, the stock market's holding up. If the stock market can basically can take in $100 barrel stock, I mean basically oil in a in a stride, then this then the bond market believes that then there's no need for the for the Fed to start cutting rates. >> You see what I'm saying? Because everybody knows that, you know, higher oil price means probably higher inflation. So the bond market So you know that's that's what's actually happening. >> Interesting. Yeah. Okay. But then okay, let's um stay on that point then. If let's say we stay around $100 per barrel, can the like let's hear domestically in the US, can the Fed cut rates then? Because that you get back to the inflation story then. >> Yeah. But it's also true. But but the Fed remember focuses on core inflation. >> If oil price goes up, what what does high oil price mean? It means that people are going to have less to spend after they paying for their gasoline before, which means that actually spending on core goods and services will go down. >> Okay? And so from that point of view, you could argue that the oil price shock is typically a deflationary actually shock, especially if growth basically starts to slow down. But I I think that is that's what it is. But so far clearly the market is not pricing this way because everybody's thinking, oh wow, the stock market you you realize, right? All these retail buy on dip investors continue to basically buy on every dip. And also real money investor would think, oh wow, you know, listen, stock market's going up last year. they underperformed their benchmark because they didn't own enough stocks and they were selling stocks after a liberation day whereas retail guys were buying in. Institutional guys are very hesitant to move into cash because they unless they see retail investors having thrown the towel and so far we haven't seen retail thrown in the towel. So everybody sort of so the retail guys obviously they don't care they don't care oil is 100 50 whatever it is they just think that whenever stock goes down you're supposed to buy and that's what's going on. So everybody's now following all the smart money, institutional money is now falling retail buy on dip investors because everybody thinks that these guys had basically stolen their shirts over the past couple years. Not going to make that happen again. This is why in a way I think it's a it's a very tricky situation because every American I mean I mean I I just I did an interview on the NPR radio this morning in Boston and we were talking about my book and then you know the the person who interviewed me was saying like oh you know like last week at the start of a week you know she was paying whatever $3.50 to fill up her tank. Okay. I mean $2.50 and by the end of the week it was a $3.50. I said well you know just you wait we're going to see $4 very soon. So the question really is because for one thing the jump in oil price because a lot of people were bullish the US economy at least through the first quarter because as you know the whole thing about the tax rebate you know was going to add up to about hundred billion dollars more than last year and then people thought well you know all the middle class American blue collar Americans are going to go out there and spend this money right away that we're going to get a boost. There is no doubt that this oil price shock has pretty much wiped out. I mean, if this if the oil price stays up here for more than a month, it's pretty much wiped out. You know, that that fiscal stimulus check. >> Hey everyone, I hope you are enjoying this interview. If you can take a quick moment and hit that subscribe button. We are on a mission to hit our next goal of 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. Well, then what does that mean for not just like the the economy here in the US, but maybe more globally? And like what are the economic implications? Are we headed for like um a recession then? >> I think again it depends how long this lasts. I I I still think that I I'm not so pessimistic to say, well, it's going to last three months. I'm hoping it's going to last. I think it's going to last long enough for the market to go down. Okay. And then that market going down will force Trump to basically tackle. That that's that's the way I'm thinking about this, right? I mean, because at the end of the day, if you remember last year, the the liberation day taco, the post liberation taco, I mean, stocks went down basically 20%. Okay? Now, so I'm thinking like but I do think that there's no doubt some countries are more vulnerable to higher energy prices than others, right? I mean, we said Europe, right? I mean, Europe, you know, has given up on Russian gas. So they became big very dependent on Qatari gas and now they can't get Qatari gas and this is a huge problem for basically Europe right now you know for Japan and for for for South Korea okay they import a lot of you know essentially Iraqi and Iranian oil okay I mean not Iranian oil but Saudi oil and and UAE oil all that is driving up India on the other hand also imports a lot of oil but India has the advantage now they get to basically buy Russian oil again because Trump is essentially um is uh making that possible. So I think it really I mean Canada right now is doing very well. I mean because I mean Canada you could argue that you know the you know you don't have to worry about geopolitics. So the Canadian supply is pretty stable. I would say that in general Canada and and Argentina and and Ghana probably going to do well out of this. OPEC is going to basically lose out. Russia's going to do well. The US relatively speaking is going to do better than others because US is now more or less energy independent. But however, the US middle class and because they spend so much more on energy than middle class elsewhere, they're probably going to be hit hard. Okay. >> Yeah. I was going to ask you like who are the winners and losers and I think you just outlined it there. Um the last time you and I spoke um beginning of the year, you were talking about the thing to watch and pay attention to or just like the framework would be the midterms. Um, we're coming up on the midterms in just a few months. Gosh. Um, and how that's going to kind of like drive a lot of, you know, Trump's decision making. Sounds like though that he might be in a bit of a political predicament here. Um, how do you see this one unfolding? >> Yeah, I think, you know, I think the midterm is almost irrelevant now. I mean, obviously at the start of the year, everybody's was focused on the midterm because the expectation was that Trump was going to throw the kitchens and get the economy ahead of the midterm to put his party in a competitive position ahead of the midterm. But now, if you think about this, it's actually interesting in my humble opinion, you know, like Trump is running up against real constraints with respect to both the Fed visa v monetary policy and visav Congress, visav, you know, fiscal policy, right? I mean because I think the reason why he went with Worsh is because he became convinced or he's been persuaded that if he went with Hazard then it makes it more likely that Jerome Pal is going to end up staying after his uh chairmanship expires which then will deprive Trump appointees from you know securing a majority on the board. Okay. But I ironically, you know, I don't know if this changed the last today, but as of last week, Trump has not even officially sent his nomination of war to Congress to get a confirmation. And I can only assume that he still sleeping on this simply because there's a very good chance you go with a wash and then guess what may end up staying anyway. So I think Trump is now Trump understands now that his options visa v the Fed are extremely limited. Now the Supreme Court, you know, having ruled against his tariff has now made it impossible for Trump to rally the support of Congress, the Republicans to basically do this, you know, $2,000 rebate check. Okay, the tariff rebate check. So, I'm saying to you that, you know, if if Trump there's no doubt for Trump for the Republicans to pull off a win in the midterm, there would have to be additional fiscal or monetary stimulus between now and the midterm. And I would argue the Supreme Court decision and the whole thing about the Fed makes it now very very unlikely that we're going to get any new fiscal any stimulus monetary or fiscal otherwise until after the midterm by which time so I think that the midterm is no longer such a major consideration for Trump because in fact this is the reason why he's now turning to to uh to Iran after that to Cuba and for I know you know to uh Greenland soon after Mhm. I take it this didn't surprise you though. >> I think it didn't surprise I have to say though like you know I I think with with with respect to the Fed I thought that was you know I I I didn't you know I I did not surprise me. I have to say that you know the the Supreme Court decision it did surprise me a little bit because I thought I I was hoping that the Supreme Court will basically vote on a case-byase basis. it would not have voted in a such a blanket fashion against this entire essentially the uh him trying to impose tariffs based on the emergency act. I thought they would have been bit more essentially granular but forget it. I mean it's it's it's over now. But I think you know the point here is that you know as you know a lot of Republicans okay who were against Trump's tariffs held their noses because they were afraid of him all throughout last year because they knew how much power Trump had. He could you know essentially you know start supporting you know primary challengers against incumbents as a way to you know lean on them. And so nobody everybody shut up. Nobody said a war in his own party against this tariff. But now it's a different story. It's completely different story. I think people more and more people are speaking out against the tariffs. And then in any event, you know, I don't tell you like right now like you know I'm sure like if you you know this is a Monday right now. I guarantee half of you know Congress is not even in Washington right now. They're all campaigning back home because you're going to have the primary elections coming up very soon. So like it will be very difficult to get to for Trump to get anything done including any legislation on Bitcoin. So don't think that's going to happen anytime soon to support Bitcoin either because a lot of people were still holding out hope that something's going to happen with Bitcoin that's going to give Bitcoin a boost. I don't think that's happening either. >> Okay. So what's your base case? Do you think he loses the House in the midterms? Does he lose the Senate? Like what do you think? I mean do you have a base case? >> My base case is that he loses the House. Okay. That they they they they hang on to the Senate but barely. So, okay. >> Okay. >> But but but the bottom line here though is that it doesn't matter he just loses one or two. It will have the same effect in a sense that nothing is going to get done anymore. They won't even be able to do reconciliation bill. If you remember, you know, they were able to get his tariff through even though they didn't have I mean his uh his big beautiful bill through last year even though they didn't have super majority right in the Senate, right? Because the Senate, you know, if you have 60, if you haven't got 60 votes, you are, you know, I mean, you you can't get anything done because the other side can use filibuster to essentially complicate the entire process. But they were able to use this reconciliation thing to basically get the big beautiful bill pass. But once you lose the house, forget it. Nothing's going to get done. In fact, the only thing that's going to get done now >> is that every day there will be depositions. There will be, you know, you know, you know, they will be they're going to try to impeach Trump. There's no doubt about that. >> Yeah. >> And Trump knows that. He knows that this is going to be And this is also the reason why I think he's going after Iran now >> as opposed to waiting after. >> Oh, then waiting. Okay. Explain that then. Yeah. Why now? >> Because you do it now because once you become a lame duck, then literally everything you do, the media is going to attack you for it. Right. right now it's a sort of like you know like oh well so the New York Times doesn't like his move on Iran but they're going to be a bit circumspect you know you know you know uh you know I mean as you know Jeff Bezos just fired 30% of the staff at um Washington Post because they're seen as being anti-Trump and they couldn't sell newspapers. My point here is that if the Republicans lose the midterm, the Democrats are going to go on the rampage in terms of, you know, basic, you know, essentially the uh try to impeach Trump. Not that they're going to succeed, but literally every day they will be hearing his deposition, the whole entire thing. And then you know and then the media will feel much more emboldened to attack Trump this and this and that which then weaken his leverage visa v his party in terms of backing him on such a big thing such as the Iran war. I mean this is not something you can do like even if you are president United States I mean you still need backing from your own party. You know what I'm saying? So I would say that therefore once you believe you are the lame duck you start doing you start doing what Trump is doing now. And this is why I think Trump cares less about the market now than he did last year. >> Interesting. Yeah. It's a different Trump. Like the market's not the scorecard then. >> Exactly. Because because you need a market to be for your real for for for to win the midterm. You're still trying to curry favor. You want to if you believe that you can still win the midterm and you know that the stock market is a very big part of it fund man. You're going to be focused on that. If you think it's a lost cause, then you're going to focus on the sort of longer term, you know, legacy issues for your president so you won't be remembered for something else. >> Well, yeah. To that point though, can't this be like legacy defining? Like the if he's successful too, >> couldn't this just define his legacy and he can make these kinds of moves? But if he can if he can bring about a regime change in Iran and a smooth transition to you know democracy or whatever he's going to go down history as like one of the great American presidents I mean I think in terms of foreign policy and then people are going to be looking to Trump as someone who was daring who use limited strateg think strategically that can actually affect you know that makes the world a better place. Okay. I mean there there's no doubt like you know this is why there's so much writing on this and especially given you know another angle people don't realize this is also the reason why I don't think Trump I think the markets overestimating you know Trump the chances that Trump is going to taco easily is the fact that the Chinese have now literally crossed the Rubicon as far as Iran's concerned I'm just put it this way recently the China Iran railroad which runs 10,000 km ometers long that's been under construction for the last 10 years has become almost fully operational. >> Once it becomes fully operational, you know, Iran's oil export to China will no longer be essentially affected by the US sanctions on Iranian oil export. In other words, the US loses a powerful leverage over Iran once this railroad becomes fully operational. And meanwhile, we just heard, you know, two weeks ago, there was a report that Iran just installed the most advanced Chinese, you know, radars that are capable of detecting, you know, stealth, you know, aircraft like the B2 bombers or for that matter, the F-35s. So, what I'm saying to you is that this is why the war in Iran has become a proxy war between the US and China. >> Interesting. And this is the reason why all of a sudden even people like Vance who's obviously very lukewarm about anything involving US troops abroad has rallied you know to the war because they because because they hate China right these people hate China. So as long now that they think now there the a lot of these these people around Trump who are making the case that we need to you know bring about a regime change in Iran is because they believe that this is the only way to prevent Iran and China from strengthening their ties further in Iran that will give China a massive foothold in the region and they will meanwhile allow Iran to become the next North Korea in other words untouchable. >> Yes. Um, okay. Wow. David, this is where this is why I love talking to you because you help us see all of these various moving parts and what are the like if you're I don't know if I guess analogy like you set like a chess board like what where are the players set and what are the potential moves here and there's a U US China story here then what do you think are the moves like is there because we know the straight of horror moves right now is it's really really important it's important to China I guess that railroad that's part of the belt and road initi I take it I I don't know. I'm not familiar. Almost online. Not online yet. >> Is there a scenario and please forgive me I'm not a geopolitics expert. Um is there a scenario where the US could control the straight of Hormuz? Is that is that way far out there? I don't know. >> This is probably the single most important question right now. Okay. I personally think it's going to be very difficult and I'll explain to you what I mean by that. Okay. Now if you look at the straight of Hormuz, okay, you look at another strait which has become a bottleneck for maritime traffic is of course the straight controlled by the Houthis, you know, at the mouth of the, you know, the the Red Sea on the other side of the uh the Middle East. Okay. Now, let me tell you this. You know, I I've followed the Houthis very closely the last three years. And this is amazing story, by the way, which is the fact that this the Houthis, okay, and this poorest country, Yemen is like literally the the poorest country in the world, right? the Yemen the the Houthi rebels have been able to literally strangle okay the maritime traffic through you know the you know the the Red Sea at will okay whenever they feel like it they can literally you know essentially stop all traffic going through the Red Sea by using relatively unsophisticated weapons I mean they're using sea mines they're using drones they're using some you know anti-hship missiles so on so forth Iran is looking at the same kind of distance about 30 kilometers in terms of the the width of this you know the straight of Hormuz at this narrowest point and then if you look at the usable sea lanes even basically more narrow and that gives Iran huge advantage because they have a long essentially I mean that you know they don't even they don't need this Trump is so proud of the fact that we've destroyed 50 of their naval vessels that means nothing because that does not degrade the ability of Iran to control the straight of H for H for H for H for H for H for H for H for H for H for Hormoose. They can use artillery, they can use drones, they can use frogmen, they can use mines, you know, they can just literally save their missiles and fire a missile every I don't know half an hour into the uh the straight of Hormuse and then no tanker is going to run the risk of basically showing through it. And in fact, Trump is talking about, oh, sending in, you know, the aircraft carrier to help to essentially the um to help uh you know, tankers to get out of there. There is no way, no navy offices will recommend that because because it's so narrow, once you send your aircraft carrier into the forget about the Persian Gulf, we're talking about the straight of Hormuz, it becames it becomes a sitting duck. Okay, the Iraq the Iranians don't even have to aim that that basically accurate to be able to hit it. So what I'm saying is that this is an you see this this is the important point which is that there's no doubt US and Israel are military technologically superior to Iran. But what Iran is now trying to do is to they're trying to pick a battle whereby that they it can blunt the technological advantage of the US and Israel. And basically picking the straight of four moves is like a perfect spot. Okay, it's a perfect spot because it is where like high-tech is not going to help you at all. Okay, where low tech is spirit and I'm just saying you know the the Houthis have demonstrated this last three years. If you don't believe just look at what they've done, okay? and they have onetenth of the resources that the Iranians have to do the same job. Okay. So right now I have to give the odds to Iran I think when it comes to the straight of moose. >> Interesting. Okay. But again not a geopolitical expert here but couldn't you like make enough surrounding countries like really angry with that too? like I don't know if there's anything there but >> right >> it's a critical conduit not just I mean it's for probably I would think not just the end users of the energy but the producers >> right I think it's an it's a very good point now UAE is a good example right so as you know I mean Iran has launched more attacks missiles and drones against UAE than has attacked Israel with okay over the past week it's pretty amazing right >> now why is it I mean besides the fact that they're trying to destabilize the oil market because if you fire missiles at Israel like it's not going to destabilize the oil market you know so that doesn't serve Iran's immediate purpose of driving up oil price but UAE is a very different story but there's a second reason why they're doing this >> which is that they are trying to cause UAE Saudi Arabia these other Gulf countries to run out of their interceptors okay because every drone every missile that you know these Gulf countries tries to bring down okay they have to use you know interceptors and I'm telling you interceptors are already running inventories of interceptors already running very low even before the war started and then there are many people believe that by the end of this week these countries are going to be pretty much defenseless because by by which time they will have no interceptors left like the Patriot missiles you have to understand you know the US produces the Patriot missiles if how many does Does it produce a year? It produced 700 that is whatever 60 a month and then you know half of them has been going to uh you know Ukraine of course. So like you know so with how you going to be able to defend these country and this is why Iran this is another reason why they're focusing their energy on hitting these countries as opposed to Israel. >> Ah wow. Okay. again like you're helping us all like learn and understand this. Um, okay. So, >> I'm just saying that, you know, listen, I mean, the Iranians, I mean, I I think, you know, I mean, obviously, you know, it's, you know, these people are extremists. They are religious fanatics, but we also have to appreciate the fact that Iran, okay, is, you know, this is not like Saudi Arabia, okay, I mean, Saudi Arabia isn't speaks Arabic, okay? I mean, you know, Saudi Arabia was founded by Muhammad. You know, it's a relatively new country even in the greater scheme of things. Iran has been around for, let's call it 3,500 years. Okay? They speak far. They don't even speak Arabic. They speak Farsy. These people invented chess. By the way, these people are very educated until you know the, you know, the Iranian revolution. They were the most educated, the richest basically country in the Middle East. Okay? So you're talking about dealing with a people who come from a great civilization, who are very clever, who are known to be very strategic in their thinking about things. I don't think we should count them out that quickly. That's what I'm saying. Okay? And they have a long time to prepare for this. And and this is why I I I can only assume that the market doesn't really understand this angle. And I think all I know is that right now in the last week it seems to me that their response in this war even though it look it may feel like a one-sided war is like the whole world against Iran. I would say Iran's relative measure response would suggest that they are continued to execute a very a plant as opposed to just you know essentially uh reacting u as opposed to uh acting proactively. So to summarize, like when you look at the market, it's been relatively resilient, the retail buyer if you will, institutions following what the retail folks are doing. Um, but you're kind of saying that the the market's kind of pricing in a taco. Trump always chickens out that they think maybe it won't be as protracted. You'll chicken out. What do you think the markets should be doing? No, I don't know if you could do What do you think the markets should be doing then? Or where do you think they should be? Um, if that weren't the case, much lower. How much lower? I >> I think, you know, I mean, at the end of the day, I think it's interesting. I I would like to see the stock market lower, but you know that, you know, that's because I'm short. I'm long oil. I've been long oil that's doing extremely well. I've been long oil since, you know, 60s actually. No, no, it's over 100. And, uh, but I've been short stocks, too. NASDAQ. And it it just I mean, Q QQ has finally broken below 600. I mean, it closed below 600 on Friday for the first time in a while. So, we'll we'll see how that goes. But I think it it just feels to me again, as I said before earlier, you know, like the market right now is pricing an inflation shock as opposed to a growth shock. And because the market believes that this war is going to be fairly short-lived, you know, short-lived enough that the market is not to worry about a a significant slowdown in growth as a result. M >> and then the only reason why the market thinks that this is going to be a very shortlived war is because the market either thinks that Trump is going to tackle or that the US is going to declare victory very soon that's going to that the regime in Iran is going to fall like um like whatever very very quickly and I'm just saying to you that these two assumptions which is a geopolitical in nature it's just not true. I I I I think Trump I think it would be difficult for Trump to taco easily on this one. >> Okay. And um and I don't see an easy way for Trump to be able to do a knockout, okay, of Iran, you know, essentially in the first three rounds. >> Mhm. Okay. So, um at what point do you think the markets might realize this that hey this is going to be much more protracted like what is the kind of timeline? I think this week is going to be very important because I think you know the the oil price is going to be a huge part of this because obviously the main channel >> okay that's driving financial markets from this war is oil price. Mhm. >> I mean, >> $100 a barrel is already very, very high. Okay. Should this thing keep going higher because for every day that the straight of Hormuse remains closed, that means countries are having to dig deeper and deeper into their reserves to essentially, you know, to keep their economy running. I think another week of this is it's going to be u we're going to be at that point that country is going to be running out of oil and then that's when price is going to go up and I think you it's interesting because it's very different than you know in February 2022 when Russian invaded Ukraine when a lot of people got long oil very quickly. this time if you look at CFTC data the market recently started to buy some oil but you know the long oil position is still very low and and that that's that's the problem the problem is that you know like the market is just completely unprepared just essentially right now looking to Trump to taco and I just don't see how this is going to happen very soon but you know what I could be wrong but the uh I'm not saying that obviously Trump is feeling the pressure I'm sure a lot of people around him and saying that's it. But I personally think that this is s so central to his legacy. If he gets out of Iran now, I think it will just allow China to really dramatically increase its footprint in Iran and then we get to a point that Iran becomes offlimit to the US and and then the whole dynamic in the region will turn against the US. And I think this is why there's so much writing on how this thing finishes. I'm going to have to assume that a lot of people around Trump are telling him you if you go down this path, you got to stay with it. You cannot go in and then decides after like two weeks to say time out, time out. That kind of thing. If you've done it already, if you've gone into Iran, you you have to finish the job because otherwise the outcome will be worse than not going in. >> Yeah. And maybe again like the legacy is much more meaningful than where the stock market's trading ultimately. Maybe he has that realization now of like what's going to be more important and if if he's successful and he can pull off the regime change like you said he'll be remembered as like one of the greatest presidents of all time. Is that right? Would that be fair? >> I have no doubt about that. I have no doubt about it. >> So do you think that do you think that's the most likely outcome then? >> I I I don't know. I I I no I don't think that's going to be the most likely outcome simply because I think it's be very difficult to do a reaching change without putting troops on the ground. And right now even Trump regardless how much as is at stake I find it difficult to believe that he will commit US forces okay you know ground forces in in Iran >> and and and I think the most likely outcome which is not a bad outcome for the US standpoint is simply Iran descends into civil war where you have these you know revolutionary guards the senior officers return to their provinces and then become warlords. And then they seize critical assets and the countries become divided. And you could argue that, you know, I mean, so one way for Trump to win this war is by devaluing Iran as an asset to China, right? Because if Iran becomes has a civil war, anarchy, and then warlords, Trump at the end of the day, let's not be too naive here. Trump doesn't care about the democracy of the people there. Like it's like, you know, he went into Venezuela. He he took he took Maduro out not because he was trying to promote democracy. He was just trying to get his hands on Venezuelan oil. The same thing with Iran. They just want to reduce the strategic value of Iran to China. >> That means that you know a civil war, you know, so be it. >> Yeah. What do you think? What do you think is the conversation inside the top of the CCP? Like what do you think Xi Jinping's thinking about right now? I think the Ciin Ping is thinking like, you know, like we we're not going to send troops into Iran because he, you know, they didn't want to have an open conflict with the US even though this is arguably the first real proxy war being fought between the US and China ever. Okay, by the way, and I think that however I suspect the Chinese are also thinking that the U that Trump is weak. They can see that the Supreme Court decision ruling having weakened Trump. They think that, you know, they don't believe that he has the stamina to because everybody, the whole world saw that Trump taco again and again last year. So I think that, you know, the Chinese probably behind the scene are sending money to Iran, helping them to strengthen their, you know, their defense capabilities and all that stuff. Okay? keeping them well supplied when it comes to food and basic necessity to keep them going in the war because they they probably also thinking that Trump does not have the nerve and that's another reason why I think you know this is actually very important because if the Chinese think that way then the Iranians thinking that they have China's got their back then they're going to be even less likely to basically to taco on their part. So the question really is, is Iran going to blink first or Trump is going to taco first? Right now I think the China angle makes it much more difficult for Iran to blink because they know they have a one fewer reason to blink because they think they got China basically behind them. And then you know because China is behind Iran there the stake is so much higher makes it less likely Trump is going to taco. So I think China is actually very central to this entire equation. >> Yeah. I mean, but then Trump's much less likely to taco than Yeah. Gosh. Wow. I feel like David, we're probably going to be talking about this for a long time. I imagine we'll have you on for more episodes where this is still front and center of the conversation. Um, what Okay. What are the advantages for the US and do you think this is worth the risk? I think you know listen I mean I I think you know I think from the US perspective there's probably not that much choice as I said before because one is you know the way things are unfolding in Iran in terms of the relationship between Iran and China you know like this could be the last window of opportunity for the US to actually affect the regime change before like Iran becomes essentially the regime becomes completely you know butress by with with Chinese money Chinese technology and so on so forth becomes untouchable. So I think the US doesn't have much of a choice. Okay. But I I do think on the other hand and and I think from Israel there's not much of a choice but but this is this is how it is right because in a way the the geopolitical you know essentially the because this is about in the end we talked about this this is about the unipolar world in a US centric multi you know unipolar world trying to retain it hedgemony you know with China and Russia trying to promote a multipolar world order I think in a way it sort of makes sense that it's understandable that US wants to keep things, you know, as what it is. And for China, I mean, by the way, this is a lot of Americans don't realize the story. This is a very this is a very important background in terms of China's interest in Iran, which is that, you know, a lot of Americans simply, oh, well, they, you know, you learn in, you know, in or in grade school, let alone high school, that, oh, Japan invaded Pearl Harbor. The question is, why did Japan invaded, you know, why did Japan invade Pearl Harbor, you know, the way they did? Well, what really happened, okay, was the fact that a week before Japan invaded Pearl Harbor, President Roosevelt imposed a total oil embargo on Japan, okay, because the US is the most powerful navy in the world, US can enforce basically, you know, oil embargo on anybody. And then Japan therefore was staring down into the barrel. And they can see that if the US succeeds in imposing this bar this this total oil embargo, it would just Japan had weeks before its economy just completely collapsed because you cannot have a modern economy without oil, the manufacturing, nothing. So Japan was literally in a total desperate. They were in a desperate situation. And then the government met essentially for three days and three nights to try to figure out what to do. They ended up essentially deciding on this very risky attack on Pearl Harbor in order to destroy the USPacific fleet so as to give Japan enough time to invade Malaysia, Indonesia in order to get their hands on oil there. Okay. So this whole the entire Pearl Harbor attack, it was not oh well, Japan decided to invade the US. It was literally to weaken the US ability to stop Japan from getting his hands on his own oil in Southeast Asia. Now imagine now you've got the same situation with China, right? China remembers this lesson. I mean this is what Japan did. US did what it did to put to keep Japan in its place and drove Japan into a desperate gamble. Now in China why the whole entire belt and row initiative is about building a land route from China to the Middle East onto Africa and the main reason is because China is very wary that one day China's going to wake up and US has imposed a total embargo on Chinese oil imports or Chinese basically iron or imports and whatever everything else and this is the reason why China has been building this land land route. I mean this is the main reason this is why Iran is so important because that's you know so so you got the railroad there and from there on it goes on to Africa and so on so forth but what I'm saying to you is that you know this is what happens it's it's about the struggle and the rivalry and the struggle you know of the two big powers and then but but the struggle itself you know promotes conflict and it leads to war right that China is trying to do this in order to preempt the US from imposing a choke point on China's you know access to Africa and the Middle East but US sees China building a you know you know the Bel and Road initiative as threatening US interest in the region so then they start to basically uh compound each other and that's what happens you know >> interesting okay is there a way I don't know is it or I don't is there a way is there a risk or um or is there an opportunity for the US to kind of [ __ ] that belt and road initiative and I guess what would be the knock-on effects of that >> I think would be I think it would be difficult. I I think right now I mean obviously if they can if they can affect the regime change in Iran and replace the regime Iran with the pro- US regime then China you know the 10 years of investment that China put into building this thing you know a road a rail road to Iran would be worth nothing that's it that's what is coming down to and and I think you know this is why China has no incentive for the US to succeed in Iran and that's where it comes in H so fascinating. David, I feel like I always learn from you. Okay, so just to recap from the investor perspective, you're short the markets right now. Um, do you like gold or anything? >> I think, you know, like I I don't like the way gold's traded the last few days. Well, I like gold. I I think what what is very clear is this, right? I mean, if you think about what really happened in the last week, right? What really since the war broke out is that you know all we've seen so far until now is all the crowded positions got stopped out right so the most popular trade year to date was emerging market equities what was the worst performing asset last year emerging market last week was emerging market equity everybody in the grandmother was short the US dollar was the best performing currency last week was the dollar >> you know everybody was long steepeners Okay. And guess what? The, you know, the curve actually flattened last week. Everybody was trying to short Bitcoin. Guess what? Bitcoin was up 7% last week at a certain point. So, what I'm saying to you is that so far this war, I mean, you know, it's only been seven days. So, you know, it's still very very short war so far. We're just in the beginning. So far, all we've seen is that people saying cutting back their positions, okay, across. So, this crowded trades got taken out. Okay. I don't think the market has started to really price the fundamental consideration of this war. Okay? And that's what it really comes down to. And so, for example, S&P did well last week because the Magnificent 7 did well. The Magnificent 7 did well because everybody was underweight. The Magnificent 7. I mean, year today. I mean, Magnus 7 has gone nowhere today, right? And all of a sudden, people say, "Wow, you know, this is a shock liquidity. Everybody's trying to get back into liquidity." And guess what? Magnificent 7 did well. And as a result, S&P did well and then the US did well as a result and the dollar did well. So there's a lot of D stuff going on right now. It's about positioning. It's about liquidity. But if this thing were to drag on, you know, until the end of this week, I think a lot a lot of economists, strategists, Wall Street people are going to start talk about the sort of the longer term consideration and that's when we might see um you know, we might see a a more pronounced risk off than we've seen so far. >> Yeah. Riskoff environment. Um and do you think we'll see a recession if that's the case? I I I think a recession is still I mean I I I think with Trump at the helm I'm not too worried about a recession. I mean I I think you know like I I think you know I mean I don't think he's going to go crazy. >> Okay. But the um even on this Iran thing so I I I think you know I I think you know like you know so from that point of view I don't think it's going to become totally irrational. I mean it becomes totally irrational if China with I mean there are scenarios that we can tell but right now sure because you know if you think about this another way right this is where psychology is also very important you say okay fine the big story of 2025 202425 is this massive retail inflows into stocks crypto and everything and that essentially should be viewed as a massive easing of of financial conditions even you know okay but we now know that there's no doubt that private credit has an issue the AI bubble is starting to you know look long in their teeth if all of a sudden this war you know like we see a oil price shooting up there's not much you can do about it and so on so forth and then you know you know that's a tightening of and then the Fed cannot cut rates because everybody's worried about inflation that could compound the stress right now in private credit the stress in you know the AI bubble and then it's a very different story. Okay. And this is also why you know like in a way you could argue that without this war like you know this private credit thing is a bit of a concern but it's not the end of the world on its own it's not going to push us into a recession but if you have a whole bunch of things happening at the same time that becomes a different story. If like you know if China decides to essentially come in and more directly help Iran we've got a problem here. >> Okay. If if they manage to let's just say hit a US aircraft carrier and 20 Marines die as a result then we've got a problem. So there are bunch of different this is why this war is important because the system has some fundamental fragilityities that on their own they're they're they are okay they can be coped with but if this war goes in the direction that the market doesn't know how because the market is used to Trump tacoing if he doesn't taco then the market will have to price price back the the risk premium that's when things could happen a lot hangs in the balance and would it be fair to say This is like probably the most dangerous phase because like I guess we'll get more clarity on like is it short or is it going to be protracted? >> Yeah, I think I think this is why this week is going to be very very very super important. It's going to be very very super important because I mean like oil price right now is not a sustainable level. either it's going to be heading down because like you know you know you know that the that US has defeated Iran and then the the grip on the uh the straight of Hormuz has loosened or that Iran is going to continue to basically hold the straight of Hormuz and the oil price is going to become much higher. >> So like so either way we're right now in no man's land in oil. It's either going to be much lower or much higher. >> Okay. >> And if it goes much higher then we've got a problem. >> Yeah. And that just releasing the reserves, that's just like a little temporary band-aid. That doesn't solve anything because there's like the headline about the meeting with the the G7 countries. Yeah. Okay. Gut check question for you before I let you go. Um, let's do a two-parter two-part question. What is that one thing that's keeping you up at night that not enough people are talking about? And then maybe on a positive note, what's something that you're optimistic on or hopeful hopeful about? I I think you know look obviously a lot of people have been talking about the Cutrinia report right you know like I I think you know I you know it's actually very interesting because I think that I think they got it completely wrong by the way I mean I I'm you know as you know I I'm it's actually funny because their whole entire thesis is built on two assumptions. One that AI is really really really good and it's going to basically like you know it's going to get everybody fired. All right. And then the second assumption that they're making is that you're going to see a massive income transfer from the workers to the AI dominant firms like you know open AI or whatever anthropic right and then he's they're basically assuming that the money that's going to be accumulating concentrating at the big AI dominant firms will not get spent or distributed as a result like you know the economy short circuits we're going to depression right that that's the whole setup my view is quite different my I'm I'm I'm not concerned AI AI being too good. I'm more concerned that AI is not good enough. I mean to the extent that actually I think this is the reason why outside I'm not talking about coding right. Obviously cloud code is very good. I mean it's a game changer. I have no doubt 20 25% of software engineers they're going to have problems. I mean in terms of keeping their jobs over the next three years. But outside, you know, programming, coding, it just seems to me that AI has not, you know, we've got many generations of AI now, they have not really sort of got to a point that, you know, that can really take over any jobs. This is the reason why corporate adoption is relatively slow. So my view is that so I think I'm I'm I'm less worried than they are about AI being too good. I I'm more worried about AI not being good enough. And this is why I'm continue to worry about the AI trades, okay, that I don't know if you're not even that good and the competition is heating up, how you going to actually monetize? And that's my biggest issue. So I think from that point of view, I think what's happening like I'm very optimistic. I I think the whole I think cloud code is gamecher for the whole tech industry. In a way it's a good thing. It's in a way is a good thing because in a way it promotes more competition because everybody can now essentially come up with reasonable codes to compete with the big companies and so on so forth. That's why even the likes of Microsoft are you know are are are shaking in their boots because in a way writing code is going to be so much easier. So that's going to be that's a good thing. Okay. But the bad thing is that I actually think that you know the whole AI trade is still writing on a false premise that it's going to be easy that there's going to be a winner takes all type of outcome that the winner is going to be pocketing a lot of money. Right now I don't see anybody making any money and this is why I also struggle to see you know capex spending at this kind of ferocious rate being sustainable. And by the way, where it gets very interesting is that imagine I think right now a lot of these hyperskillers were really they need an excuse to pull back on their capex. I think they can now they're getting a bit wary if oil prices were to stay up here for a little longer. That might just give them the perfect excuse to say, "Oh, well, by the way, the economy is weakening. We're going to have to pull back a little bit on our capex commitment." If that happens, you know, then we're going to have a big problem because the market will get repriced sharply lower. And I think that is where it gets interesting. That gets very, very interesting. >> This is why I'm saying that in a way, if we were to get a big, you know, fall in the market or a recession, whatever, you need to start to see interaction between private credit, you know, AI trade and the world. if they start to, you know, interact with each other, that's when things can get potentially out of hand. >> The perfect storm, if you will. David Woo, CEO of David Woo Unbound, author of the upcoming book Mary Goround broke down along with Margarite Shinar. It comes out at the end of the month, so March 31st. I'm going to link for the folks who watch this show. Uh, I put a link to the book. It is a novel. It's a financial thriller. I've started reading it. Fantastic work. You have reviews from folks like Paul Tudtor Jones, Howard Marks, like the who's who of of the hedge fund world. Amazing. Um, so this audience loves you and we want to support your work. So I'll make sure to link it in the show notes. >> Thank you so much. And this book is important to me also because you know the reason why I wrote this book as a novel as opposed to another non-fiction is because I want to make this topic because the story is about globalization. Okay? And I think there's a lot of misunderstanding about globalization. And I this the reason why I wrote as a novel is because I want to make the topic as accessible to as many people in the universe as possible because I think you know there is a face I I decided to put a face on globalization so more people can relate because again I I think we are now at risk because we said we talk about a lot of global issues and then none of this is actually good actually in the end because there will be no winners at the end of the day. Everybody would be losers. And I think I wanted I wrote this book in order to help raise awareness about what's happened to globalization. I'm not saying there's only good things. You know, I there plenty of good things, but what I wanted to basically make sure is that we don't throw out the baby with the bath water. That's it. >> David Woo, thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. We really appreciate any time that we get with you and I am so grateful and um I hope everything goes well. Take care, be well and I look forward to our next conversation. Thanks again. Thank you J for having