Fed To Trigger ‘1987’ Market Crash This Week? | David Woo

0:00If this thing goes down, it's the end. Because they know anything happens to this thing. It's game over. It basically collapse and then, you know, it's the end. How high interest rates have to go before everything starts falling apart. Where does it need to be for the AI trade to blow up? It's Monday, September 14th, and the US 10-year Treasury yield finally hit 5% this morning. It's highest since 2023. The 5% level has many economists already spooked. What's going to happen next? Brent is near $108.00. A barrel at WTI is near 103. And so what is the US Treasury going to do about the fact that the 10-year has already hit 5%? Our next guest says Trump and Secretary Treasury best and must do everything they can to cap the long end of the curve from going up even more or the AI trade blows up. And the entire stock market in the US is dependent on the AI trade. President Trump even posted on Twitter social today that whoever wins AI wins. With oil above $100 now markets are pressing in a 90% chance of a fed rate hike this week.

1:00Is Kevin Worsh about to cause a 1987 style crash? Well it all hinges on oil. Our next guest is long oil but how high does it go? Right now on Kowshi, traders are placing a 46% chance that WTI oil will go above $115 by the end of the year. If you agree, then a $50 trade can yield a payout of $105 if you're right. This video is sponsored by Kowshi, the largest prediction market in the United States. Unlike a sports book, your trading peer to peer are real world events from economic data to political outcomes. And the price moves based on public opinion, not a house. Go to the link in the description down below or scan the QR code here and use my code lin lin and new users can get $25 when they trade $25. Kowshi is CFTC approved and available in all 50 states including California and Texas. David Wu, founder and CEO of David Wu and bound joins us now. He holds a PhD in economics from Columbia and was previously head of global FX strategy at Barclays and head of global rates, FX and emerging markets at the Bank of America.

2:04Welcome back David. Good to see you again. Thanks for having me back. As we speak, oil is now above $100 firmly above $100 both the WTI and Brent, Brent near 108 WTI near 103. Like I mentioned in the introduction, the 10 year yield the US 10 year is now at 5% the highest since 2023. Markets are selling off now stocks are selling off because of higher oil or higher yields or were both. I think it's both. I think I have to say to be honest, I think David, you know, I'm short stocks and I'm a long oil and I'm surprised the stock market isn't down much more today, right? I mean, in fact, I'm surprised that the stock market didn't go down much more in the last two weeks because yields have been surging, oil has been surging. I know I'm actually asking myself, what's the stock market to think like, you know, the stocks have become a new safe haven? But I do think that what this means is that, you know, oil price is going to keep going higher, you know, until the stock market goes down because Trump is not going to tackle

3:05until the stock market goes down, you know, so oil price is going to keep going higher and yields. I can tell you there's no doubt that bond yields are going to keep going higher until the stock market goes down because central banks believe that, you know, that rising stock market has, has each financial condition. So from that point of view, you know, yields can keep going higher. So I think from that point of view, the question is, first of all, why isn't the stock market gone down already? But I think more importantly, I think my observation is that if stock market isn't going down, then rates are going to keep going higher and oil is going to be going higher. So I think from that point of view, I think the stock market is definitely not out of the world by any structure of the imagination. Yeah. And as we're speaking right now, the seeding of Fedwatch was probably going to 90% chance of interest rate hike this week at the FOMC meeting on Wednesday now, which is a bigger risk for the stock markets right now. You mentioned your short, when you're going back into shorting stock markets. So which is a bigger risk right now that your ran war, which will push up oil even more

4:05if it escalates or the fact that the Fed is about to rate interest rates, keep in mind that 2022, the last rate hike cycle was very bad for risk on assets and bonds alike. Sure. I think you know it's ironic, but we have to say, well, what is the chicken and what is the egg? I mean, what's the cause and the fact here? I mean, there's no doubt in my mind that the Fed is going, it's poised to hike rates because oil prices have gone back up. I mean, the guard put it very well. The ECB president last week, she said that while the longer oil price stays up, degraded the risk that we're going to see second round effect into inflation. I mean, what has actually happened the last six weeks is that we've seen a repricing of central bank, basically a rate outlook for all the major central banks. I mean, the Fed is now priced in more than two. This is the same thing for Bank of England, for Bank of Canada, and then for basically the Reserve Bank of Australia.

5:06I mean, the ECB just already hiked once last week, and then they're now priced basically to go at least one more time if not two before year end. So what I'm saying is that what is really going on is a surge in oil price is actually resulting in a pricing of synchronized actually monetary tightening. So I think from now point of view, I think in terms of chicken and egg, what is more important and I think oil is probably more important because if oil prices were to collapse tomorrow, I believe we're not rates will probably tumble fairly quickly after that. But I mean, well, at least for a while, but there's no doubt that oil is basically putting a lot of pressure on the central banks to get going. Okay, let's just talk about oil real quick. You're long oil. How high does this go? Right now as we speak, the AP reports that the Houthis have captured the greater and lesser hash niche region, and that's 160 kilometers north of the Abab, Almond Deb, which is an important choke point of itself in itself. What are you expecting to happen with WTI?

6:06Yeah. So the way I'm thinking about this, and again, I want to say, you know, there are different ways of trading this. Okay, I actually, the position I've got on right now is actually, believe it or not, a call spread. It's a call spread that expires the day after the midterm election. You know, and the way a structure is that the lower strike is an 8095 and the upper strike is 105. This is on the December WTI future. I'm now just basically traded above my, or just basically traded above the lower strike. So we're not, I'm not in a positive theta situation. But the reason why structure has such is this. Now four I know oil can go to 150. But you know what? I've been there before and the Trump is going to tackle. So from now, putting you right now, I'm sitting my target relatively, you know, realistically and by the way, if we just go to 105, I will basically make 10 times my premium. That's the important thing. The option market is structured as such. That's the kind of opportunity you want to be looking for. So my view is that the oil price, okay, has the highest upside before the midterm election

7:12because the Iranians know that before the midterm election, Trump is politically constrained. And therefore they have a much better chance to basically force him to tackle that is to go back to, you know, basically the MOU that he signed back in July. So Iran is going to go for it. And I think, you know, also what something else that I think people don't realize is that the Houthis, the Houthis have not been involved in this war. Okay. And like Hitzbullah, they were not there in March, April, May, June, and July. And all of a sudden since August, they've jumped in partly because I think the Saudis overplay their hand. But the important thing with the involvement of the Houthis is that obviously Iran now can throttle both the strength of Hormuz as well as the Red Sea. Okay, traffic. Because I mean, we can see this very clearly in the 40s to Brent spread, you know, today actually because that gives you a very good sense of the physical tightness in Europe when it comes to cruel. And that thing exploded to the highest level since April because what's telling you is

8:16that Tengatrafic basically crossing the Red Sea into Europe has declined sharply ever since the Houthi attack started. And I think from now point of view, we're starting to see physical demand, physical basically tightness in the crude market in both Europe as well as in Asia. China still has reportedly more than a billion barrels in reserves. So the issue is in whether or not this escalates, the issue is whether or not countries still have reserves to weather the storm. And it looks like on the surface it does, they do have reserves. Well, I think, you know, if you look at China, that's been a big story right over the past week, which is that, you know, if you look at Chinese oil imports, right, they were falling in March, April, May, June in July, actually went up relative to June and the latest number for August show another recovery relative to July. So Chinese oil imports have gone up now two months to the row.

9:18True, it's still below the level before the war, but at least it's no longer falling. And then there have been a lot of reports, anecdotal reports about Chinese basically teapot refineries that are shopping for oil pretty much everywhere in the world. And I can tell you that if you, again, if you look at basically Oman, the future oil futures traded in Oman versus Brent, for example, which is a very good proxy of the oil price being paid by Asian refiners versus European refiners, there's no doubt the premiums been going up. And I think China is part of the story. So I think from now point of view, the fact that they have a billion barrels doesn't mean that they can't want to dip into it much more than they already have. And in the case of the US, as you probably know, the operational limit in terms of strategic reserves is probably closer to the 150 million, maybe max, maybe 200 even, and we're ready at 280. So I think from now point of view, and in Japan, I can tell you, yeah, Japan has a lot of reserve. But just two weeks ago, the Japanese government instructed all the refiners from now on,

10:21they won't be injecting any strategic, they won't be releasing any strategic reserve in the market in September, October. That's another reason why Japanese refiners have been basically in the hurry to try to scoop up oil in the market. So I think I will say that for the most part, I think the Asian, I think, you know, market inventory is actually pretty depressed, and the governments are not willing to underwrite this physical shortage indefinitely. And I think that's a bullish for oil actually. So traders on Kowshi are predicting a 35% chance above 120. What gets us above 120? I think, you know, it won't take that much actually. It really won't take very much. The reason is because until now, you know what David, this is a story that everybody missed. Now I'm telling you, this is actually important. You've been watching my channel, and you know, because what's been going on over the last six weeks, everybody in the grandmother has been talking about the so-called, you know, shuttle transfers.

11:22That is, you know, oil tankers, okay, owned by Saudi Arabia and UAE, have been, you know, essentially getting oil out of the street of, you know, essentially hormones, and then basically downloading on the other side to, you know, whatever tankers heading to China were in rails for that matter. Let me tell you that that was the reason why all throughout August oil was trading in the 80s because people say, oh, there's so much oil coming out. Chris Wright, Trump, all these US officials were saying that the straight up hormones that are open. And I was saying all this time that if that traffic was happening, was only because Iran allowed it. And the reason why Iran allowed it was because Iran was deep in negotiation with Oman. Now, represent Saudi Arabia, Kuwait, and all these other countries. Two say, you should be agreed to a deal that will give Iran control over the straight up hormones. And while the negotiation was going on, Iran didn't want to blow up Saudi tankers in the straight up hormones, okay, because Iran didn't want the Saudis to walk away, so

12:24and so forth. So what I'm saying to you is that it's now that we know that this negotiation is falling apart. By the way, this is why the meeting got canceled yesterday. And this is the reason why Iran is now getting the hooties to attack Saudi Arabia directly to pressure Iran to sign up to this deal, which of course Trump has been trying to sabotage. If you remember only three weeks of Trump said he wanted to bomb Oman. This is the problem. The problem is that the only if tango traffic was going through the straight up hormones was because Iran allowed it. Now if this deal falls apart, if Saudi because of US pressure refuses to sign up to this deal, then Iran said, screw it, they're going to basically not allow a single tanker to get through and the oil price could easily go up. So from now point of view, that's what it comes down to in my view. I wonder how oil imports impact, or I guess the shortage of oil in this case impacts Asian countries in particular and their currencies.

13:27Now you've actually worked at the IMF before from my understanding the 90s. So you're very well aware of how the Asian financial crisis started. We're looking at possibly another Asian financial crisis if oil shortage is continued. Is that correct? I don't know. I don't know if that is true. I mean, the Asian crisis in the 90s, it was not about oil. It was about leverage. It was about fixed-exchange regime. It was about mismatch, liability, and disaster. But the theory here is that if you're importing oil and you're continuing to have a shortage in theory, your currency should fall. I agree. I think the point here is this. I mean, in general, oil is not quite as big a share of Asian imports than what's the case in the 90s. But I think the point here is, but the one thing that's well taken, Japan. Japan is where it gets very interesting. Because Japan is a very big oil importer.

14:27In the Japanese yen is already the weakest currency in the world. In the central bank is trying to shore it up. And Besson is trying to shore it up because he's worried that a run in the yen is going to basically lead to the mother of all sell-off in US treasuries. And actually, higher oil price is very bad news for Scott Besson. Because the higher, basically, oil price is bad news for the yen, which makes it more difficult for them to stop the yen from going down. And then that actually, you know, translate into higher treasury yields. That is a very... So I would say in the case of Japan, no doubt about this. And then this has global impact in particular. Now the other country that's a major oil importer that doesn't like higher oil price is, of course, India. India's got this big problem. I mean, this is also the reason why India is buying oil from Russia, maybe even for me around for them, I don't know. But the point here is that the Indian stock market, as you probably know, has been one of the worst performing stock market this year, mainly because the impact of higher oil

15:30price on inflation, on current account, and the rupees has been very weak. Yeah. By the way, on the treasury yield, it didn't take the yen collapse to fully materialize. By the way, the yen has restrinked and followed the intervention. But anyway, it didn't take a complete yen collapse to cause the 10-year to reach 5%. So it didn't really cause another foreign currency to start dumping US treasuries on mass. It's happening already. What is Scott Besson's likely response now to the 10-year is at 5% today? I think Scott is not a happy camper. I think he's probably very, I mean, I think he completely overplay his hand. I think he, you know, like me. But anyway, it doesn't really matter. I, you know, have no Scott for many years. But I think that, you know, the reality is that the problem here, in my humble opinion, what Scott was trying to do, I think, let's put it this way. Scott was not a coincidence that the day that Scott basically decided to move to basically cap long term rates, that was already almost a month ago, the same day, okay.

16:34We had news that, you know, anthropic was preparing a $2 trillion IPO in that OpenAI had just announced a $500 billion, basically data center, basically project, with $125 billion from Nvidia. The reason is because the connection is very, very important because there's no doubt that searching modules is largely the result of this out of control AI cap ex because we have to remember, at this point, the hyperskillers are mostly in negative free cash flow, which means, and then, moreover, their earnings are growing more slowly than the cap ex. And what this means is that every dollar increase in cap ex means an increase in debt issuance. Well, over, we know these companies now committed over $3 trillion of off balance sheet commitment. That is to say that, you know, there are at least $3 trillion of debt coming through the basically pipeline. This is what the bond market is we're building against. And in my humble opinion, what Scott best tried to do, and I think Scott understands this

17:37very well, what he was trying to do is trying to prevent surging modules from choking off the AI bubble. That's what this is about. Okay. As Trump says, yesterday, he said, if we lose the AI war, we lose the war period. The American companies are putting so much, hundreds of billion dollars into this AI bubble. They cannot afford at this point to stand back. And then, you know, and I think this is the reason why, but it's a joke. You cannot fix this problem with $8 billion of, you know, whatever, treasure buy back, are you kidding me? And this is why Japan is so important because China is selling US government bonds every single month. Okay. Every single month, China is selling. In fact, it's celebrated in the last three months. Japan is the largest US basically debt holders now. Okay. Another China is basically brought back down. Japan right now, the government last week, had a conference, had a meeting with all the pension funds in the country saying that yen is too weak. There are too many JGBs.

18:38We want you to consider bringing, selling treasures to bring money home to basically buy JGBs. And that scared the shit out of basically Scott Besson. Let me tell you this. And this is why 10 years try to use his trading at basically 5%. Meanwhile, the Norwegian basically central bank, the Nordgist bank, I mean, the biggest sovereign wealth on the world just said that they're going to be cutting back their holdings of US government bonds by $80 billion. Okay. You know, I'm just telling you that this is, it's not looking good for Scott Besson and for Trump and they're trying to basically look tough and whatever it is, but the truth is they're fighting a losing war. But what we need to understand is that they're trying to, right now, they're trying to, they're willing to engage in financial repression in order to save the AI bubble. But I think the AI, but I think, you know, I think that, that is coming next. So you're saying if interest rates go up even further, the AI bubble pops, that's what

19:38they're trying to prevent? Well, absolutely, exactly. Because the whole point here is it's like anything, right? It's called crowding out, right? If you basically, if you issue a lot of debt, a lot of, you know, just think about saving an investment. Saving is the same. In fact, saving is a bit lower because government savings is gradually getting worse. How's the saving is very, very low as you know, only at 3%. So basically what you have is that you right now have a surge in investment and that is pushing up long term rates. Higher long term rates crowds out everything else from mortgages, home construction, everything else and possibly even AI. So what Scott Besson's trying to do right now is to, again, prevent their trying to cap long term rates in order to prevent the AI bubble being choked off. And I think from now, and I don't have to remind you in July when Nasdaq was going down, it was, it was very, very negative correlated with, with bond yields. And bond yields went up, you know, Nasdaq went down. And I think so from now point of view, I think that's what this is about.

20:39You said you're considering shorting stocks. I am. I'm short. I'm short. I'm long a couple. I'm long put spreads on on on on QQQ. And then I'm long and out of money, basically put on it's on on on on spy. I mean, both of them basically expired before midterm elections because I do think that this is between now and the midterm is when I think things are going to get most interesting. Again, you know, like you're, yeah. Okay. So basically your bet is Scott Besson doesn't win the fight against interest rates. You already talked about that interest rates go longer, higher. And we have a correction in the in the stock market could, but, but could the AI bubble pop regardless of whether or not the interest rates go up? I think it's possible. So we'll talk about that scenario what happened. But so my view is very simple right now is to say, you know what? Again, you know, higher oil price and higher interest rates are not good for the stock market.

21:40Right. At this point, you say, well, what's going to stop oil price from going higher? You say, well, Trump will have to talk. But what would it take for Trump to talk? I think the stock market has to fall 10%. I'm going for Trump to talk for oil prices to stop going up. So if the stock market isn't going down, oil price is going to keep going up until the stock market basically pops. The same thing with interest rates, right? Right now is like, well, interest rate is trading on this whole AI cat-back story. Right. If the stock market doesn't go down, that means like Microsoft, Amazon is going to continue to issue debt to finance their AI cat-backs and rates just going to keep going higher until the stock market pops. So at this point, you know, that's my reasoning, very basic reasoning, which is to do with the indogeny of this whole process right now, which is that, you know, that's what it is. Now, in terms of what could cause the stock market to pop, this is where, on its own, without interest rates or without oil, I think this is where it gets very interesting. My view is very simple.

22:40Okay. You know, I think, okay. You know, I mean, everybody read Amolde's basically essay that he published on Saturday, which I talked about, you know, already four weeks, but it doesn't really matter. It's not finally got the market's tension. But the point here is this, the most interesting thing he said in this essay was that, yeah, we should, you know, basically slow death, the development of advanced AI. However, he said the pace of the slowdown should be limited so that China does not basically overtake us in the process. Okay. What should, you know, this is actually very important. Let me tell you, let me give you another anecdote. One day ago, okay, you know, a gentleman by the name of Jacob Stokes, he was actually a former Obama administration official, okay. And he was speaking at a conference. He's now works, he now works at a pretty, you know, well regarded think tank. And he said at this conference that if the US should have any evidence pointing to China

23:48about to reach AGI, you know, artificial general intelligence, then the US should resort to espionage, cyber attack, or extreme circumstances, he said, bomb the Chinese data centers so to prevent the Chinese from reaching AGI first. Now, this is why is that such a national security concern? This is the most important thing because the whole idea is that if China reaches AGI, because AGI is going to, you know, I don't have to tell you, AGI can literally like, you know, can do a lot of very dangerous thing, right? This is what Trump said yesterday. Whoever wins the A.I. war wins the war, period. I mean, we don't need to go, that's ABCs. Now, what is interesting to me is this, just think about this for a second, David. Think about this. Three weeks ago, you know, three weeks ago was the first time we heard that opening A.I. said that they had paused their work on Astra because of growing security risk.

24:48Two weeks ago, you had a hundred companies all coming out warning, you know, basically cyber attacks becoming more sophisticated and widespread. And a week ago, open A.I. launched Astra and says that, oh, wow, this is the beginning of AGI. Do you find that kind of strange that we go from like, oh, wow, you know, this is going to be, A.I. has gotten too good for its own sake. And now let's basically usher in AGI. In my view, the Trump administration's decision to allow Astra to be launched was because the Trump administration decided that the risk of allowing China to reach AGI was greater than basically a massive A.I. enable basically cyber attack. You understand? Because A.I. This technology is no longer commercial technology. It's become a battlefield for national security, for the race for power.

25:51And what I'm saying to you is that, therefore, am I humble opinion? And then as you just basically show, and this is last week, you have the FBI, CIA coming out saying that now China has been engaging industrial scale distillation, okay? Yeah. Of US models. All that in my view, this statement is extremely important because it provides Trump with an excuse to ban Chinese A.I. models. Okay. What you're, I think it's coming. Okay. Is that going to come before the Xi Jinping meeting? What, I'm sorry? Is that going to come before the Xi Jinping meeting? It's a type of 24. I don't even think I don't even know Xi Jinping is coming for sure. I mean, the market is thinking it's going to come for sure, but it's not, nothing is obvious to me. I think this is the biggest issue because if Trump does this, because I mean, in fact, actually the anthropic essay on Saturday reinforces my view. It's basically saying that, yeah, we should slow down AI, but only provided that China does not take advantage of the slow down, which means that Trump have to basically ban Chinese

26:56A.I. So it's not to allow China to basically gain even more market share. Let's look at this. China now, Chinese A.I. now has a 25% market share in the US. Let's face it, I can guarantee you, David, in six months time, it will have 50%. Okay. This is the reason why we're now at this point. Like, you know, I've no doubt that M will dare basically publish this essay because I can guarantee you, probably if they were going to do the IPO in October, they probably hit the row show already last week. And I guarantee you every investor meeting they had, they were asked, oh, what about the Chinese? What about Chinese? What about this or whatever? Okay. This is why you think that guy would have wrote an essay that's not good for the stock price of this IPO. You really believe that? You believe that that guy's paid? That guy's the most greedy person I know. So from that point of view, I think he did that because investors are starting to ask that question during the IPO. Okay. And I think who cares if Jens and Juan doesn't think is a big deal.

27:57I guarantee you, Wall Street, everybody at these, you know, row show meetings are asking the same question. What about cybersecurity risk? What about China and so on and so forth? But what I'm saying to you is that the end-floppy IPO is extremely important because for Trump, like it's a referendum of the entire AI trade. If it goes poorly, the whole AI trade could basically collapse and then, you know, it's the end. But the point here is that they have to keep this party going. This is why Envini has now said to be interested in putting $10 billion into basically, you know, and Floppy is a leading investor to anchor in and so on and so forth. But I'm saying is that banning Chinese AI to me before the Envini IPO makes a lot of sense, at least in the short term, so that this thing happens. But anyway, my bid is a may, I think that if you ask me what could potentially bring down the stock market, even without higher rates and higher oil price, is basically an end to this fragile truth between the US and China. Because if Trump ends up banning Chinese AI, as I said, China very likely will basically

29:02retaliate by essentially playing their own Earth card. And that will be very bad news for the entire industrial complex, you know, and everything else. Yeah, that seems like a major escalation. If you ban rare earth critical minerals exports and that basically shuts down entire sectors of the US economy for what? AI is not a huge component of the entire Chinese economy yet. But we'll see what happens. This is by the way the tweet, what the truth social post by Trump you were referring to. All right, the only control where Garou was that AI needs a strong and smart high IQ president and then he slams the anthropic CEO Dario Amode, who is now pretending to be a perfect little angel, he says. He will continue to do so. We have already tremendous criminal and regulatory power over these companies. There is a sick conspiracy going on against AI and data centers, whoever wins AI wins.

30:04What's what's he talking about? Sick conspiracy going on against AI and data centers. We're at a point here now where we're talking on a YouTube channel, trying to decipher what the president is saying on truth social. This is what our financial community has come to. But here we are. David, you know what? You know, thumbnails, what's that stake here? Because if this AI anything happens, maybe just put that in perspective. US is about 15% of world GDP. The US stock market is 60% of the world's stock market market. I mean, the whole thing and then the magnum is in seven. I'll tell you 30% of the tech is basically 40. What I'm saying to you is that right now the AI valuation, the AI trade is the US economy right now. If it hadn't been for the AI cap back to the AI bubble, the AI trade, the US stock market would have already collapsed because of a lot of searching oil price, you know, searching in short, long term rates and so on and so forth. And what I'm saying to you is that any Trump knows, and this is why the entire Silicon

31:07Valley knows, Trump knows that basically that if this thing goes down, it's the end. And I'm saying to you, this is why it's interesting, right? That Trump is now turning on, you know, and flop big saying, what are you trying to do, not kind of thing? You know what I'm saying? Then this administration will not stop at anything to protect the AI trade because they know anything happens to this thing. It's game over. Okay. Trump has thrown everything behind this AI trade. He has basically unleashed the entire federal government to underwrite this entire thing, this boom. And this is, you could argue, this is this is greatest achievement. If this thing blows up, that's the end. And this is why, like, you know, but I said this before, I don't want to bet against Trump because I realize, like, you know, I mean, you probably heard, you know, in the last couple of weeks, that I've been a lot of reports, political, the hill.com, everybody saying now Trump has stopped listening to anybody. And we're rather than his a's, senior officials, Senate Republicans, House Republicans, nobody

32:08is now trying to even talk to Trump, trying to talk them out of anything because he's like, you know, basically in this kind of zone. And I think from the point of view, I'm going to assume that if he really, really wants to save AI, he wants to basically guarantee that this AI trade continues and so on and so forth. He has to ban Chinese AI models, you know, because he has no other choice now. But if he does that, he will be basically open, you know, he will be open in another Pandora's box. And that's what it is. Let me ask you this. I've talked to several economists as well as some computer scientists and engineers. Most people agree the consensus is that Chinese AI models are several months behind, five to ten months behind American models. Even if Trump were to ban these models from being used in the US, do you think that Chinese models will eventually catch up? I think it's a mistake. I don't believe anybody thinks the Chinese are five to ten months. I think the US anymore. Let me tell you this.

33:09This is the most important thing. I mean, in fact, in a way, it is the most unexpected, surprising about me. I wish I predicted it, but I didn't. I didn't see this coming. Which is the fact, if you look at now, the top ranked models, right? I mean, the top ranked models, the Chinese are there. I mean, the top, whatever, the top six half of them are Chinese models. Now, what is interesting in terms of performance, you know, basically the performance level they've achieved relative to their US counterparts? Now, the important thing is this, but these Chinese models that can now produce the same performance as the American counterpart, they do not have access to the most advanced chips, right? Forget about the Ruben chips. They don't even have, they haven't even gotten the blackwell chips. They're still using the H-400 chips. So from now point of view, if you think about what we are now, the state of Chinese model versus let's say 18 months ago when Deep Seek was first released, when Deep Seek was first released, they were probably using the H-400 chips and in the, in OpenAI was using the A-400 chips.

34:09If you look at the differential in terms of chip performance between what US companies have access to, first of all, the Chinese companies have access to, the differential today is much wider than it was 18 months ago, which makes the Chinese catch up this year so much more impressive. And also today is not like one Chinese company like Deep Seek. Now like there are five or six Chinese companies all basically racing, you know, so I think from now point of view, the Canada's out of the bag, you know, I mean that's the honest truth. The honest truth is that people are, that you know, I mean they're not going to articulate, this is why like, you know, this has become a such a big problem, that Chinese because China has caught up, this is why the US cannot afford to let AI development slow down, even running at the risk of a total cyber attack and a system out there. I mean, that is the greatest irony of the situation we're in and it's also the biggest single tail risk for the entire stock market and the global economy in my view at this point.

35:10Would you buy the Anthropic IPO if it comes out or even OpenAI is IPO for that matter? I mean, it has to be a price for everything, not a $2 trillion for, forget it. By the way, if you look at secondary market just so that you know, I mean I haven't looked today, but last week, for example, if you look at, you know, there is a secondary market for, you know, Anthropic shares in the private market, you know, they say they want to raise $2 trillion. The shares, if I recall the last time I had looked, was trading more like $1.3 trillion. Which means that there are, there are insiders who can potentially hold it for six weeks and cash out to trillion they're selling $1.3. Believe me. This is, this was not the situation six weeks before the space specs IPO, six weeks before the space exp IPO, there was no, nobody was selling because everybody's sure that we're going to make a lot of money. But so I think from the point of view, there are more, there are definitely concerns already. One analyst told CNBC that demand for inference, running AI models still out far, far outstrips

36:12supply. This is a, this is a bullish case for chips. So even if you're short tech companies, would you be bullish on the chip side? You know, listen, I mean, the question is what's priced in and what's not, right? I mean, you know, because I didn't, I didn't, I didn't, the reason why it's growing so fast right now is because prices are coming down very rapidly. And that's the problem. The problem for all these companies question of margin for the open AI, for the anthropic of the world, right? So I think that's what it comes down to. Sure, we know that, you know, basically that, you know, but, you know, again, if you're talking about basically the, right now, everybody's still saying that, you know, there's still, I mean, a lot of chips are still in short supply and this and this and that. But I think what we also need to realize is that a lot of companies are ordering ahead. Like, you know, they are basically ordering just, you know, and by the way, these orders may not be even binding orders for that matter. Everybody thinks that there's a shortage, so I'm going to basically buy six months advance, up, you're down the road, so I'm supporting.

37:13That's what's also happening. But what I'm saying is that if there's a sudden pullback, everybody will be pulling back. But what I'm saying to you also, and this is why it, this is gets very interesting, which is that I just told you before that there is so much for the US for Trump for Scott Besen, there is so much writing on this AI bubble. They will do everything to keep it going. Okay. That is to cap long term raise to basically like get the federal government involved, trying to basically kill off any attempt by individual stays to try to pass legislation to stop, you know, data center building, don't do anything. They'll ban Chinese model. But the point here is that we're now getting to a point if they want to keep the AI bubble going, they have to give something. And as I said before, now you're starting to see interest rates going up. Now you're seeing that Trump may have to basically ban Chinese models. Increasingly, we're now getting to a point they cannot have the kick and eat it too. You want to keep the AI bubble going?

38:13Then you have to give up something else. You have to live with higher rates or you have to basically, you'll have to ban Chinese models. And those things are not going to be good for the stock market. And I think that is where it gets interesting that Trump cannot have his kick and eat it too. And that's the way I'm trading this. Okay. So bottom line, if you had to take a guess as to how high interest rates have to go before everything starts falling apart, right now the 10 years of 5%, what does it go? Where does it need to be for the AI trade to blow up? I don't know. I think 525, 530. I don't think it's going to be like 6% or anything like that, by the way. Oh, wow. So we're almost there. I think, you know, like, you know, whatever. But I think the important thing is that I would also ask something else, which is interesting. I mean, which is important. Which is in my view, I think Kevin Worsh really screwed up at Jackson Hall. He thought that the bomb market wanted him to be hawkish because he was told by all these

39:15strategist investors that rates are surging because the lack of credibility of Kevin Worsh and therefore he decided to address that by sounding hawkish and giving. And most importantly, he basically set out a very black and white framework, which lacks nuance, but most importantly, allows the market sell. Well, you said that if PCE remains above basically about 2%, then you're going to long enough, you're going to have high rates. I think he gave, I think, in a way that he is pouring fat to the fire. And I think that, you know, in a way, this reminds me of what happened in 1987. As you remember, the 1987 stock market crash was preceded by Alan Greenspan becoming chairman of the Federal Reserve only three months earlier. Whenever you have a new chairman in town, when things are going out of control a bit, it's going to, you know, that chairman is going to try to build his credibility. What I can tell you is that the Fed raised rates once and then when the market thought

40:17they were going to raise rates again, that's when the stock market crash in 1987. Now, obviously every situation, different so and so forth, but what I'm saying to you is that in addition to this oil story, the AI, long term rate, you also have the Fed credibility story. Okay. And then you have the Japan story. You've got the European story. There are a lot of things that I don't like about the world economy right now. And I think in a way, you'll find out, I suspect that if the Fed with the high rates this week, rates are not going to go down. It's going to go up again. And then the final question, I get this in the comments all the time. Look, we're talking about a bearish case, potentially what's going to happen if interest rates go up, stock market's not going to do so well. And then we talk about these bearish cases every day, the stock market goes up. Well, not today, but you get the point. And so what would you say to people who are skeptical of even making a bearish case right now, given that people have been talking about the bear case for quite some time, those people admittedly maybe I've lost out on some opportunities given that the stock market

41:20has continued to reach new all time highs. What would you say? Listen, I run a total return portfolio. Right? I mean, I have it, you know, I run a big institutional business and I'd buy some of the biggest investors in the world, sovereign wealth funds, hedge funds, you name them. And I run a portfolio. I mean, as you know, I've been, I haven't, you know, I've been bearish on the stock market all year actually. But thank God I've been bullish on oil. So as a result, as of today, I'm actually slightly up on the year relative to my benchmark, my benchmark is three month treasury bills. So I'm like up 3% so far. I'm just trying to basically beat basically three month treasury bill. That's my benchmark right now, as in 500, whatever it is. But the point here is that when you want to short the stock market, you got it, you cannot just basically go and short it. You got to go in and out, you got to see the technical, whatever it is. This is the way I look at this. Yeah, I have, I mean, this year has taught me a lot. It hasn't been an easy year. I think most macro guys will tell you this has been one of the most difficult years that they can remember.

42:21But I think that for someone who's been trying to short the stock, you know, year, the fact I'm actually up on the year, I think that just tells you that, you know, I've learned something about basically going in and out. And I think this is where like you cannot just basically like go short, short, short, short. I mean, because you might just lose your house first before you actually make any money. And I think from that point of view, I, you know, even if the market starts to drop, you know, I caught the, you know, the sell off in July very well. And I got up and then I started to get it August. So from that point of view, like I think this is, but I do think that we are getting close. But that said, and I think that the trigger I'm looking for is the whole Xi Jinping summit. Will it happen? Would it not happen? The market right now is pricing it. It will happen. I'm right that Trump goes ahead and Ben, he's AI. I think that we're going to be looking at a much bigger sell off in this stock market. And that's where it gets interesting. So like that's a risk that I'm very, very focused on at the moment. Okay.

43:22Thank you. David, wonderful talk. What do we follow you? You can check out my, my YouTube channel, David Wombound. If you, you know, interested in my investment strategy, check out DavidWombound.com where I offer a retail subscription service, but also check out my book. You know, Mary Go-Ram broke down. It's on Amazon. We're not working on the screenplay for potential, you know, TV adaptation already. So you know, that is something that I think people might be interested in. Okay. Anyway. Great. Thank you very much, David. We'll take a look at David's channel down below. Please follow him there. I'll take care for now. We'll see you soon. Take care. And thanks for watching. Please do like and subscribe. Follow David in the links down below and use my code LinLIA when you sign up to Koushi. Remember, new users get $25 when you sign up and trade $25. Link down below. We're scanning the QR code here.