Geopolitics Driving Markets Again | Macro Mondays
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So here we are, Token 2049. It really is one of the most energetic, incredible events. Speakers from all around the world and visitors from every country you can ever imagine, all trying to learn something together, something new, this exciting world of crypto and technology. It's where you go and make friends, lifelong friends. And what's so nice is to see people with big smiles on their faces, happy to be here and happy to be here.

we could do together. So hopefully see you next time in Singapore. Real Vision will be there. I look forward to seeing you all. Hello out there and welcome to another edition of Macro Mondays here at Real Vision. My name is Michael Rosemar. I'm your usual host and I'm joined just as usual by you, Andreas. Welcome to the show. Thanks, Michael. It's good to be back after a week off. I sincerely struggled over the past week and I'm

I guess approximately 25 pounds lighter. Some will say that it's about time that I lost that weight, but I've been ill as speed for once. So it's good to be back and the market is super happy today. So it's actually a very upbeat setting to return to the screen here. So I'm really happy about that. Lots of stuff going on. Obviously, we're going to have the show mostly about the situation in Iran and

What's the outlook? How does it affect markets? How do you react to these events as an investor? We brought a bit of some tips along. We're also just going to touch on the Fed meeting later today. But first, Andrea, some big news from our, I don't know if you should say he's a mentor or a mascot.

Gennaro Cattuso look at this new head coach of the Azzurri the Italian national team how do you feel about this you're a fan of the Azzurri as well

Yeah, well, to some extent, at least if Denmark is out of the World Cup, I typically support Italy. Well, you know, he's basically the guy behind the quote, sometimes maybe good, sometimes maybe shit, that we typically use to refer to our trading, right? And this guy is an absolute maniac. So I think it will up the entertainment value quite a lot for the upcoming World Cup if Italy actually qualifies, which is debatable. Yeah.

sad as it is. But this guy, well, he's even more entertaining than Donald Trump. And that tells you something. Yeah.

He's a great guy. Well, let's just have our usual disclaimer here. Obviously, this is a part of what we do at Sten Research and Real Vision, a sneak peek into our analysis. You can get it all with the pro tier subscription at Real Vision. We try to be very specific, very actionable. We have a portfolio that we're running on Real Vision. But as always, remember, this is not direct investment advice and our ideas might be... Sometimes it may be good, sometimes it may be shit.

There we go. We had to get that. Hi, Raoul here.

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Okay, Andreas. On a less light note, we have a major confrontation going on between Israel and Iran. It happened late last week. We discussed it on the shows yesterday, last week, that this might be a good time to...

put a little hedge by maybe putting in an oil bet. That wouldn't have been a bad decision last week. We had a little bit in our strategy, luckily. Things have been escalating over the weekend, you could say, but still within the framework of Iran and Israel throwing missiles, drones, and airplanes at each other. We haven't seen an escalation outside of that scope. What we've seen, on the other hand, is that...

Israel has more or less established air superiority over Iran. That's the big surprise here. We had last year, both in April and October, we had an exchange of attacks with missile drones, etc. That sort of whistled out after a cycle of attacks. I don't think that's going to happen this time. That's the outlook here. I think it's much more likely, and we are hearing some signs on that as well, that this will have to end in negotiation.

And that opens up for Iran having to make some political concessions. We can just get back to that. But that's the outlook. I don't think this is going to last very many weeks. But we had the expected reactions, Andreas, in all markets. Equity markets not affected too much. How do you gauge that? Well, initially, they took a beating, right? But I guess this is one of the classic examples

examples of what I typically label a fear dislocation in equity markets. When stuff like this happens, typically what happens subsequently in big organizations such as pension funds and hedge funds, you name it, is that during the course of Friday, say five, six hours after the first rockets, you get a call from your boss asking you, okay, what are you planning on doing about this risk of a wall?

And I guess the easy answer as a PM or a portfolio manager is to say, okay, we took off some risk just in case this escalates. And that's why you see a response in equity markets all the way through the day on Friday. And then ultimately, you need to ask yourself the question, is this real?

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to text VISION to 64000. That's VISION to 64000. Message and data rates may apply. Really, a world war or some sort of proxy war between superpowers. And, you know, my impression is no. I'll get your take on it in a second, Michael. And that's why I'd like to just share the best anecdote that kind of resembles this

dilemma as a PM. And it's back from the crisis between Russia and the Soviet Union and the US around the Cuban Missile Crisis. A guy called Mike Epstein, and I think this is a very well-known Wall Street anecdote, asked his boss when missiles were basically pointed towards each other, nuclear missiles, right at the peak of this crisis.

Boss, what do we do? Do we buy or sell? And the boss basically told him to, well, why don't we just buy? Because if they don't nuke us, we'll earn a lot of money. And if they nuke us, who the fuck cares about settling these contracts, right? But it doesn't matter anyway. And I kind of like that analogy. This tremendous matrix was made by a Twitter profile called Bunjil. And it is one of the best matrix diagrams I've ever seen because...

Who cares if this ends up in World War III, right? Then you don't really have a lot of options anyway. Of course, your solar response and gold, to some extent, Bitcoin actually fared better than fared on Friday as well. Because I think what happens during turbulence geopolitically is that typically the stuff that is ungoverned,

If you know what I mean, gold, Bitcoin, not controlled by international governments or organs. They will typically fare well in a geopolitical turbulent scenario. But Michael, right now, also given the messaging that we've seen from various sources from Iran over the course of the day, it seems like the regime is more or less toast, isn't it?

Yeah, it is. They're in very, very big trouble. And that's obviously because they have demonstrated a lack of ability to defend the country against external enemies. That is sort of at the very, very core of what you want your government to do. I mean, stop enemy missiles from hitting my house. That's sort of number one. They're not able to do that. And that cannot go on for very, very long. They have to make some sort of deal with Israel and the U.S.,

They cannot just wait for Israel to stop this because right now Israel, I believe they might believe this to be a window of opportunity. They're fearful that the U.S. will over time decline or degrade its support for Israel. Right now they do have that support and they do have a situation where Trump is obviously fed up with Iran not signing a nuclear deal. So he more or less gave a green light. We don't know how specifically he gave a green light, but at the end of the day, enough so.

that Netanyahu went along with this. They had a very, very well-planned attack. And they have now degraded the Iranian air defenses and sort of ripped open the armor of Iran and are punching right into the body of Iran. The Iranian government can't really keep this going because at some point, if you're a rebellion group in the outskirts of Iran, in Balochistan, Azerbaijan, Kurdistan, you begin to say, okay, I've got 10,000 guys in pickup trucks here.

The Iranian Air Force exists no more or grounded. Why don't I just take this territory that I want to secede from Iran? So at some point they have to react. They have to do some kind of deal to manage the situation, to create some basic security for their population. What will they have to give up? That's the big question. Obviously, the nuclear program will have to be shut down.

Then there's always a question of how do you verify this? That's what's very much on Trump's mind. I think that's less of an issue for Israel because Israel seems to know everything anyway. So can Iran even keep a nuclear program running without Israel knowing? No, I don't think so. So I think the Israelis are quite comfortable in that. The second part would be cutting off funding for Hamas, Hezbollah, the Houthis.

And obviously that would be a huge boon for the U S as well. So, so if everything goes well for the U S it's in Yahoo, will have sold a lot of headaches for Donald Trump this week. We'll see. It's a,

The big risk for markets are, as I see it, two things. Because I don't see this war dragging on for several weeks. So this is not going to be a prolonged war scenario. This is not going to drag in other countries, I think. It's not impossible, but I don't rate that as very likely. The two things that could happen that you need to look out for is obviously...

Will Iran choose to do something in the Strait of Hormuz? Because that very small strait carries most of the world's oil production. They could block it. They've done so before. I don't really see why they would do it, but it could act as a

on the US and Iran and Israel if US and Israel reject terms with the negotiations. So it could be brought up as a leverage that would obviously be very, very bad for the global inflation picture, push up oil prices in the short term. In the slightly longer term, there is a risk of, or you could say a chance of the Iranian regime collapsing. Because as I said, if the regime can't provide the basic security for its population, then what do you need a government for?

People will start to look for different solutions. You might have a coup from within. That's probably the most likely thing. And that's a big unknown, essentially, to markets because, yes, you might have a new market-friendly free trade government that opens up the trade from Iran, but

That's probably not the most likely scenario because you still have Russia and China wanting to assert their influence. You could also have a complete splinter of the Iranian state into several smaller states. So that's a big unknown that could end up with Iran sort of as more of a failed state. So

So those are two risks. The one is significantly more important for markets because of the impacts on oil. I don't think it's very likely. I think we are going to see a deal sometime this week, which should actually prove positive for markets. So I'm not too worried about this, but it's obviously a situation to follow very, very closely.

So, Miguel, let me add a few things to that. I mostly agree on the direction of travel and on the risk picture related to the Strait of Hormuz, etc. I think between friends, we're talking roughly 20 million barrels a day of seaboard crude oil and products through the Strait. So, you know, one fifth of the global daily consumption, something like that.

That's obviously massive. And, you know, those barrels of oil stem from Saudi, the United Arab Emirates, et cetera, Qatar, countries that are a lot more powerful than they were back in 1984 when we had the latest blockage of the Strait of Hormuz. So I also consider it a very low-risk event that we actually get an official report

yeah, complete sudden hold to the transportation through the Strait. What we heard from Frontline, which is the biggest international seaborne shipping company of crude oil, our friends up in Norway, for some reason we're big in shipping in our part of the world, was that, okay, even if the Strait is not officially blocked,

We're talking about a situation where we need a better price or some sort of security guarantees. And the latest we've heard from them is that they're kind of pondering whether to sail through in upcoming days.

So that's obviously... Postpone ship and ship. Yeah, that's obviously the risk that you get some sort of de facto closure of the strait due to these private companies being scared of actually sailing through. As far as we can gather from the daily data from Kepler, this big data aggregator on shipping, we're not really seeing any alterations worth mentioning yet, but it's obviously something that we need to monitor. So I think you'll see some, you know,

secondhand order effects from what we've already seen from the oil price and the subsequent uncertainty around the Strait of Huss. Freight rates will go up.

and overall energy prices will go up. That's after a week last week where we had the most benign inflation numbers in a long while. I actually think it's safe to say that last week was like a bottom cyclically in inflation. We'll actually see inflation taking off a bit from here. We've made a long case study on exactly that, if that was the local bottom in inflation.

with shipping volumes returning, but freight rates going up, inflation going up, oil going up, energy prices going up. What does that mean for your portfolio? And that case study is available in the pro tier at Real Vision. Sneak peek into it. Energy is a good idea to have in your portfolio alongside some high beta stuff. Speaking of inflation, Andreas, we are...

We haven't touched upon the Fed meeting this week. We don't expect any cuts. We're not going to get any cuts. Do you expect any sort of hints in the press on Wednesday or any goodies there or just the regular message that we need the data, we'll follow the data, et cetera? So the difference to the meeting we had back in May where he basically said nothing is that they'll have to update their projections this time.

which it forces them to take an opinion on what's going on with inflation and what's going on with job creation and all that. I think on the margin, we've seen three soft inflation reports in a row. We've basically been more or less the only traders and analysts out there calling for inflation going down initially because of tariffs. We've had that spot on. And the Fed has been wrong-footed by that because they expected the opposite to happen.

So I think they'll admit to that, to some extent, that the inflation picture looks better than feared. Back in March, when they updated their projections, basically all members of the committee said that, well, the risk picture is tilted towards higher inflation, and inflation came down. That's big. So I think they'll acknowledge that.

Overall, that should be good news because that will move them in the direction of rate cuts. On top of that, it's not like the latest couple of non-farm payrolls reports have been strong. Not a catastrophe either, but very lukewarm and hiring is not really picking up. The

around hiring right now is whether you need a lot of hiring now that the ICE project is throwing people out of the country right, left, and center. You simply need to create fewer jobs a month now that the border is closed and there's basically a net exit door open basically from the US, right? So I think 150K jobs, something like that, is probably sufficient now in the US while it wasn't when the floodgates were open. So...

On job creation and on inflation, I actually think on both of those parameters, they can say that the economy has developed in a soft direction compared to March. And there are no expectations for this week, neither at the next meeting. Only in September, you see some expectations in markets. So my best case would be that he'll actually underpin a pretty decent bullish development in markets this week because he'll acknowledge that the inflation picture looks better than fear.

Essentially, we've beaten inflation for now, but it might not be the inflation they were fighting because the terrorist inflation might still come. That could be one argument. The other argument could be, okay, so at some point we need to pivot away from fighting inflation to fighting unemployment, but we need unemployment to fight before. So if there's neither inflation or unemployment, why should you make a pivot? Yeah.

You need more data from that. Okay, Andreas, I just brought up a couple of polymarket charts here. We can just view them. Market's still anticipating two cuts. Is that still your base case for the year as well here? Yeah, so this is the cumulative pricing of rate cuts for the remainder of the year, right? So 27% chance of 50 basis points in total, which is essentially what the Fed has promised us.

if you know what I mean. I don't think it's completely unfair, this pricing. I mean, they'll probably need a meeting or two to really decide, and then they'll deliver one. And then the question is whether they'll deliver one again in December, right? So I think it's pretty fair. And it basically also means that

the Fed policies is pretty much in line with expectations. And it also means that we probably won't get a lot of volatility from that side of the equation for the next months. What we can lean back and see unfold instead is that the business cycle improves now that we've had a trade reopening with China. And it still

looks very clear to me that we won't get any re-ignition of that trade war. My impression is that Trump is, you know, he's past the peak on his aggression.

He's gotten a few concessions and he's moving on. So in that sense, you can see it from shipping volumes. You can see it from various auto indices. We're starting to see that rebound. And the analogy that we've made over and over and over during the course of this spring, the embargo against China was the lockdown. And we are now in the reopening phase, if you remember COVID. And the reopening phase is pretty bullish. Yeah.

Sadly do. Okay, Andreas, one of the things next on Trump's agenda is the new chairman. I just brought on again, Pauli Market. I've been a big Pauli Market guy this afternoon. Who's your bet? Pick one. Okay, so the favorite is... Scott Besson is moving up there. Oh, no. Howard Lutnick even. Oh, cool. That would be... None of his sons is there.

No, I just saw that Eric Trump is stepping into a role and it was called Tron, that coin, right? So my best guess would be Kevin Walsh out of these since he's been a loyalist. He was actually a pretty hawkish guy when he was at the committee earlier.

But he's made a U-turn and he's pretty close to Trump. It won't be Scott Besant. Scott Besant is in favor of nominating a so-called, quote unquote, a shadow chair already soon. So he'll be probably running the interview process and all of that and try to get a name on the table as soon as possible to allow that person to put pressure on Jay Powell in public. So I think it's more likely that we'll get, for example, Kevin Walsh. He's been mentioned quite a few times.

I think it's a very clever idea, this shadow fit concept, because it basically means that you can make Jay Powell a lame duck before his term ends, which is essentially what they're after.

Interesting stuff. Great stuff, Andreas. That was all for this week. You can read all our articles with the pro-subscription at Real Vision. We will probably have another geopolitical show tomorrow. I'm not promising too much because we're still making the arrangements for that. But keep your eye out for that with the pro-subscription to go even further into the Israel-Iran situation that might also have developed before tomorrow. So look out for that. Look out for coming shows. And if nothing else, we'll be back next Monday. Thanks for watching.

So here we are, Token 2049. It really is one of the most energetic, incredible events. Speakers from all around the world and visitors from every country you can ever imagine, all trying to learn something together, something new, this exciting world of crypto and technology. It's where you go and make friends, lifelong friends. And what's so nice is to see people with big smiles on their faces, happy to be here and happy to be here.

if you're doing it together. So hopefully, see you next time in Singapore. Real Vision will be there. I look forward to seeing you all. If you liked this episode, I'd love for you to head over to realvision.com forward slash join for a free membership. Start your journey today to unfuck your future just one click away.