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In this episode, Pascal Huegli and global strategist Michael Every share their contrarian perspective on the collapsing liberal world order, recent geopolitical developments, and implications for markets. Dive into the complex web of economic statecraft, military escalation, and how history can inform our understanding of current risks.
Chapters:
00:00 Intro
01:49 Summary of Recent Geopolitical Unfoldings
06:31 US Strategy in the Iran Conflict
11:25 Potential Escalation and Worst-Case Scenarios
16:49 US and Iran: Motivations and Goals
21:07 US-China Power Dynamics and Resource Control
27:51 Energy Markets Under Strain and Differentiation
32:05 War, Winners, and Global Power Shifts
40:06 Implications for Global Geopolitics and Strategy
43:03 Strategic Thinking for Portfolio Managers
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#geopolitics, #USstrategy, #Iranconflict, #energymarkets, #globalpower, #economicstatecraft, #China, #warescalation, #energy prices, #macrostrategy
Wow, that's a very big question.
Okay, so effectively what's happened is there's a head of a lot more to come, just wait.
And the worst worst case scenario in terms of how this can unfold would be if this drags on
past a certain point, it becomes exponentially more painful for almost everyone everywhere.
Michael Evry, Rainbow Banks global strategist, is known for his sharp contrarian takes on global finance.
He argues the liberal world order is collapsing, reshaping the game for investors everywhere.
Oil is not oil is not oil because I said if you take control of physical supply of commodities,
you're doing it for two reasons. I want them cheap and I want you to have them expensive because
that means but we're seeing a breakdown of one market price which is again a neoclassical
or neoliberal assumed norm. What if the US tries to lock its own oil in? It doesn't send it to
well then American oil prices would collapse and everyone else's would go up because what's at stake
is not just the election which is huge which I'm but national security the broadest possible
sense. Hey guys, I hope you've been enjoying the episodes I've been putting out as much as I do.
For me it's been a great journey with less noise, more signal talking to all these experts all
the time. With each and every episode I feel like I have new points to ruminate on, thanks to
Ponder over and yeah I've just been learning so much so if it's the same for you I'd appreciate you
subscribing to the show on YouTube also commenting with the episodes when you have something to say,
like it and share with your friends and families and colleagues that would be much appreciated
in that way we could reach more people with this great content and grow together. So thanks a lot
for doing this much appreciated and yeah let's go. Hey guys, welcome back to less noise,
more signal. Today I'm honored to have Michael every back on the show. It's probably the best
person to talk things through with everything that's happening so I'm very glad to have you back,
Michael. Yeah, cool for coming on. Thank you very much and thank you for the invitation.
Yes and so you just told me you are a global strategist in economics and markets at
Robble Research at Robble Bank or in Robble Research at Robble Bank. Yes, correct, that's my that's
my title. Okay, that's amazing. Yeah, so sort of with that out of the way I guess yeah you don't need
any further introduction. We had you on the show before if you want to give something anyways you
can do so but then my first question would be to start off the conversation you know a lot of things
that's been happening everything is unraveling so fast. So if you could kind of summarize what has
happened since the end of that you know with the US Israel first attacking Iran and now yeah what
is sort of the relevant sequence of things that have been happening up to this point in time.
Wow, that's a very big question. Okay, so effectively what's happened is that for the past year
and a bit the Trump has been in office. He has been using what I explained very clearly before
he assumed of this on the day he re-won office economic state craft which is a whole of government
whole of state attempt to redirect GDP for a purpose as I put it what is GDP for and he's been
doing that aggressively really shaking the box on everything everywhere because he needs to change
multiple things on multiple fronts all at once because they all conflate it's like trying to
change a table and you have to change all four legs all at once while you're actually sitting
at it. Very very hard to do and if you just change one the table topples over obviously you change
two it topples over three it topples over you have to change all four simultaneously it says very hard
naturally you're still going to see the crockery and the plates on the table shuddering around.
So you know we went through various different iterations of that everyone fixated on tariffs
and I said to people there's a hell of a lot more to come just wait. We finished off 2025
and in quite some style because I said well you know wait and see what happens with Venezuela
because you know it's going to be interesting and lo and behold
venevići vidi we actually saw Venezuela flip and so even though it's still run by the same
regime as before it's now pro-tron problem antitron or willing to work with them so that was one
dice roll he took geopolitically which could have gone very badly wrong and with that he really
helped to cement his position in the Americas alongside Panama Honduras and you know others
yet to be added to that list Cuba is high up on it of course in the background.
What we've seen subsequently of course was a pivot to Greenland where Europe briefly thought it
was going to be fighting the US which always seemed fantastical to me although we've seen headlines
today the Denmark was considering blowing up the runway in Greenland because it was afraid
America was going to land on it. How they thought that would actually prevent
physical possession of Greenland given that the Americans have plenty of other ways to
to do things you know it seemed to be rather symbolic to me but it underlines the depth
of feeling and anger in Europe which is very very real but from the Trump perspective Greenland
was another strategic choke point another strategic resource which it feels it needs to add
to its selection to put itself in a stronger position in this game of grand macro strategy
and economic state craft and where are we now well for the past three weeks of course we've been
at war with Iran which is now moving from economic state craft and political state craft are
you cajoling people I'm all bribing them to military state craft so we're seeing the outright
deliberate use of the broad spectrum of American military power to again try to take out a regime
it doesn't like to again get controlled of key commodities again energy here primarily
in a strategic location on which will if it succeeds provide a platform from which regionally
conceptually politically and geopolitically Trump can then turn around and say okay I have everything
I need to implement all the rest of my grand macro strategy and I believe he can succeed in doing
so if he can manage to squeeze out a victory here and if he fails he won't be able to but that
doesn't mean we go back to normal either where we were before the invasion or where we were
pre-Trump so there you go there's hopefully a two-minute summary yes now that that certainly works
great I mean in the end you know in terms of the war that's kind of unraveling now I've been hearing
people say we've just entered sort of a new sequence a new face you know because in the beginning
was all sort of this new warfare with drones and whatnot you know and now Trump is also thinking
about sending Marines to the Strait of Hormuz you know to kind of potentially secure
the pathways there and so would you agree is this in our is this in a sense a new or a new
face that we're entering now or where could this go in your view when when we look at the war
itself can it kind of accelerate and escalate even more okay there's a lot to unpack there let me
try and do it first of all while I have to talk about you know military matters I'm not a military
man lots of people are talking about that during these periods of time not everyone's only just
enough to say that they're not and the ones who are by the way while they have a fascinating angle
to add they don't usually understand markets or economics or even the vertical side of it so that
fusion of all of them is important and that's part of what this role is about anyway resting
on the shoulders of giants shall we say to get together best possible view on this we are seeing
some innovations in this particular war people are talking about drones well Russia Ukraine has
been the drone war Russia Ukraine Ukraine everyone thought will be a tank war and it was initially
it's become a drone war and the technology there is changing weekly and Ukraine is a world leader on
it and Russia is picking it up in its own way too so all of us have already seen that at play
Iran of course is a huge supporter of Russia particularly in drones and suicide is a Shahid is
their invention it means basically the the suicide bomber effectively or the martyr and we're
continuing to see innovations on that particular front we are seeing that something very cheap
can destroy something staggeringly expensive we'd already seen that in Russia Ukraine we're now
seeing it in around hormones and the gcc countries too that changes warfare significantly and it
means we all have to have anti drone as well as drone tactics and that involves changing military
equipment military bureaucracy military tactics so that's one thing the second thing we're seeing
and again it hasn't come to fruition yet but the people who are looking deeply at this say there's
a far better chance of it happening then maybe some of the press would let on is we are seeing a new
strategy from Israel versus Iran which is even though we're on the other side of the world to you or
2000 kilometers is a it's a long distance you know there's no soldiers that are going to be out of
fight face to face over 2000 kilometers the drones again can make that journey as Ukraine has
successfully done with Russia and vice versa to be clear but the attempt now by Israel with local
intelligence on the ground which is deeply entrenched there is to take out the regime figure by
figure by figure on a permanent basis so as a new commander or intelligence officer or government
official is appointed they gone so constant permanent rolling decapitation actually very low cost
now flying jets there and firing missiles is expensive but eventually it looks like that could
shift over to using Ukrainian style drone attacks to do the same thing along with the local intel
and that really again changes how war can be fought everywhere so that's two points specifically
on the war which have implications for everyone from North America where we've had reports of drones
overhead where some members of the Trump White House or the Trump cabinet actually live we suggest
that maybe Iran is able to project that to America potentially and at the same time we have a very
very different category which is could this escalate further well in a worst case scenario not
any kind of base case yes the GCC have not actually genuinely started to attack Iran yet not
really they've threatened it and were they to do so that would significantly alter things
significantly at the same time Israel in some scenarios could have to escalate even further
that's a very dark scenario I don't think it's likely at all but it does have more than it's used
so far shall we say or is widely assumed to have but above and beyond that Iran is not
friendless even if no one is helping it at the moment and the worst worst case scenario in terms
of how this can unfold would be purely hypothetically were Russia to say we stand behind Iran now they're
tied down in Ukraine but they can certainly help them and were the likes of China and North Korea to
do the same you know with both conventional and unconventional support and also with a spectrum
of economic measures to try and force this to a conclusion again no sign of that yet to be very
clear except a few rumors but that would be when things really get to the endgame kind of either
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for your first miner yeah exactly because that would have been one of my follow-up questions from what
I've been hearing and again I'm a total layman on this but from what I'm hearing is like
to some extent Russia and China has been helping the Iran with with sending weapons that's at
least from what I've heard and then so my question would be is the US is the US actually
fighting a proxy war here with China you know given that China is sort of supporting Iran and then
yeah as you just said it yourself like there seems to be a possibility that this could turn into
an outright war with China and at some point which is maybe at this point not highly likely but
but it is the possibility after all no well again it's not any forecast of mine I'm merely giving
scenarios I don't make normative statements and I don't make specific declarations about how
the world will be I put forward matrices of how things could be and then people you know decision
makers can work through that themselves that risk is there and it needs to be something people
are aware of and I know they are but that doesn't mean it's an inevitability at all and in fact you
can and I have made the concrete argument of what we're seeing now ironically isn't attempt to
prevent that because were the US to be able to win this in the near term let's say in another
three weeks or so over three or four weeks which from an economic perspective which is a separate
point maybe we'll come to it's hugely disruptive hugely disruptive from a financial market perspective
hugely disruptive but from a geopolitical perspective if you say in just six weeks
Iran were flipped effectively that's just a blink of an eye in terms of how you know power
relations great power relations go so were that to happen and that's still the goal apparently
or evidently that gives the US a concrete platform to really put its imprint on primary commodities
like energy on a global basis and with the right economic military and political state craft
that can then say to China look we don't want this to go any further we don't want that because at
this point it really would cost you too it's going to cost us no one gets out of this
Scott free but we now have control over x y and z and we're a better place to therefore
topple a b and c next can we be friends can we find a modus vivendi so that's actually a bright
spot that I'm trying to talk to and this morning I was mentioning to somebody else let's do a
counterfactual we didn't fight a war in Europe in 1938 over the Sudayland if you remember
your European history you're familiar with the Sudayland yeah yes okay so instead we had a
piece of paper saying peace for our time not in our time for our time and we didn't have this
actually whether you do or don't like Chamberlain he'd bought time to rearm with that particular
you know false promise at the expense of the Sudayland which is you know something you can discuss
historians will still debate it left right and center but I would put this sliding doors
scenario to you what if we had fought the war in the Sudayland hypothetically and one how many
people would have been pulling their hair out saying look at the bloodshed and the loss of life
over the Sudayland it's terrible and shocking et cetera not realizing that in one hypothetical
scenario that may have prevented World War II so again but who knows what else could have happened
but you see my point there are always possibilities in everything rather than just negativity yeah
exactly and to some point I mean some even maybe the sarcastic people are saying you know in the
end Iran in and of itself kind of depends on Israel and US to exist you know that way the regime
itself can kind of peg this picture of its us against these outsiders you know who have a
different religion and everything and at the same time we could also argue Israel needs Iran to
kind of exist you know otherwise a big enemy would be gone you know and then that kind of
changes things on on a on a big scheme in that sense some people at least are arguing I don't
believe either of those for a moment but okay okay now that's good but I want I want to actually
get to something else you know it's like because I'm still grappling with like why is the US really
doing this and the confrontation with Iran you know because some people say it's because Iran
has accelerated it's highly enriched uranium production you know others point to it wants to
really hurt China a third group is saying yeah it's all about bombing their way to democracy and
Iran you know to get this Iran regime change because it Iran the regime is opposed by roughly 80
percent and so somebody has to do something about it you know there's all these different arguments
and I guess what is the real reason how do you you this I guess you have a different perspective
altogether well I think the one we can discard immediately is bombing our way to democracy the US
evidently doesn't care about that and by the way with for good reason because one is wonderful to
go around the world saying we'll bomb people into being like us the track record of that is just
catastrophic failure so I think we can comfortably dismiss that because they openly say it and they
don't show any signs of doing it they would like a regime shift i.e. a faction of the uranium regime
of which fragments may already exist agreeing to work with them all of Venezuela and were Iran to
become you know something slightly more secular and slightly more western etc and more democratic
they'd be delighted with that but that's not something that they think they can impose and the
uranium people are expected to do it they are trying to clear the path for that by getting rid of
everything in their way so that they're they're not going to be shot down or moaned down in the
streets as they were in January when anywhere between six and 32,000 people were killed according
you know to a variety of different estimates so I think we can dismiss that the others
this room for debate you can ask the question why now I think there is healthy skepticism about
whether it was or wasn't to do with the nuclear issue but certainly I have heard from very good
sources that Iran did boast openly to US negotiators during the negotiation process we have
enough uranium for 10 nukes and we intend to make them so whether they were just attempting to
try and force the US to back off and boasting or not that's not the kind of thing you say in a
negotiation and then expect you know someone like Donald Trump to just walk away from because for
all the taco memes that we see all the time I don't actually see that many of them in markets or
the best a tactical retreat to then advance on another front so that one strikes me as question
mark but certainly something the US couldn't afford to take a risk with so then logically it either
comes down to hubris or not having a plan which again you can put forward an argument for but
everyone tends to line up on ideological grounds there whether they are on seeing that or you say
it's about China which in my view is the case because everything that the US is doing even sometimes
when it goes backwards in order to go sideways and then forwards again so far to me has explained
what the US is doing and it's done so ahead of time so and let me use this as a methodology
because it's very easy to come on podcasts or on the news in general just write a report and just
pontificate I try not to do that I try to have a logical framework on what's going on and to test it
and say if I'm right in my hypothesis that this is the motivation for these players this is what they're
trying to achieve I would expect them to do x y or z and for example ahead of your own war I was
asked what do you think they'll do and I said I think they'll try and topple the regime so that
someone emerges they can work with and get rid of the nuclear weapon threat and get rid of the
ballistic missiles and get rid of the drones and smash the military industrial complex and then
try and rearrange them at least afterwards so it suits them and so far all of those are what's
been done but that's just one small example and I put it to you to your viewers and to everyone
can you construct an overarching thesis which explains everything you're seeing flawlessly or
you know with an 80% track record and if you can't then maybe it's just a comfort blanket
that you're clinging to like blame them blame him whatever whatever and if not just revise your
opinion read other things read other disciplines read other sources question yourself again and again
and try to get to a healthier view and if you do that you're much better placed than I have to
navigate the real world and financial markets hey guys I'm thrilled to share my new book the
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you'll find the link in the show notes no but but you're exactly right it's so interdisciplinary and it's
so not monocausal in that sense as well there's like so many different factors that you have to kind
of factor in here to to really understand the situation but coming back to China maybe because
you hinted at it as well I mean if somebody can really not wrap their head around like how is it
that the US is now kind of trying to rebalance the balance of power with China by going against
Iran like what can be point to you know what are there after it in that sense you know well again
it's a good question I'm glad I have the opportunity to unpack it it is generally asked by people
no offense who don't understand what's going on because if you do everyone who does they may disagree
whether it all work but they all understand that would be a logical strategy let me put it
as simple as possible terms because of the status quo anti the US has it to a large degree
deindustrialized while it has a fantastic military stock the flow is very low and we see that in
the headlines all the day all the time China now dominates global industry and sector after sector
upstream very much midstream and downstream vanilla everything that's needed including with
a US military machine and China has the whip hand in particular over rare earths now I'm sure
you're familiar with what rare earths are and if you're not you know one really should be
because without them you can't make anything and so China literally can determine and dictate
to other people can you or can't you build X that's what you call the real ability to put your foot
on the hose so what the US is going to do I predicted long before they did it I said it
at this point last year that the strategy would be where do we have our remaining strength
military power for now for now global military power not just around our borders but internationally
what does China as a massive manufacturer rely on commodities
food and fuel at the base level food of fuel which it hasn't got okay what can we use our military
power for to take control of to make sure they're priced in dollars that we can put our foot on
the hose if we have to as a quick pro quo you don't do it I don't do it we're all okay
and which by keeping them priced in dollars we can then turn to others who are on the fence
and say will you invest in the US here here and here to help us build a factory faster and cheaper
so that we can then re-arm re-industrialize and be in a position to say to China look you're not
going to eclipse us you're not we're going to still be here where we are relative to you in five
years 10 years 20 years 30 years you're not going to overtake us whereas now on the glide path
you will they will have more aircraft carriers than the US in 10 years in some scenarios they can
build them faster and cheaper so therefore the logical strategy from a grand macro strategy perspective
my stick would be to say use what you've got where you can while you can to try and reorder the
global financial system trading system trading flows and the geopolitical system and again
at any point this can fall fall flat and my hypothesis is wrong so far it's been absolutely correct
I believe and a great many others do too I think so as well it makes sense to me again as a layman
you know and from what I hear it's really that the US tries to build up this levers as well you know
that it then kind of can use against China in in terms of the rare earth discussion because
that's been brought up quite a many times now what is the US doing about it like in an actual
sense to get the hands on these you know is there a way they can also go to regions where they
can secure these or is it that these are mostly just in the region of China or in Africa where
China probably also has a grand great control over or like is there an actual thing they can do
on that front as well they have done already while others are merely talking about it
and most Western countries are just talking about it America has released a huge amount of capital
directly from the government taking shares in firms already to make sure they do what they want
when they want them to where they want them to has set up a public private partnership that
can leverage itself up enormously in the way we traditionally only see in exotic derivatives
and financial instruments but this is for the physical economy it's gone around the world
shaking hands and making very very interesting deals with a whole sway the different partners
from developed economies to emerging ones and in emerging ones in some cases literally saying to
them we'll go and kill those guys over there for you if you let us have access to your minerals
they're literally doing that rather than you know sending out the bureaucrats with telephone
book sized contracts to sign it's like you know we get rid of them you give us stuff good good
and also ripping off environmental regulations because most of these other resources are not hard
to find they are very very very polluting to process which is why we haven't done it for a long
time and China said we'll take that knowing how important they were very clever move from that
very foolish geostrategically from us unless you presume everyone is your friend forever which is
the kind of naivety that's built into modern economics and markets but not into global history
but the other thing they're going to have to do now is of course put tariffs on the China
equivalent because China sells so much more cheaply and possibly also then price flaws which
that which they're saying to people that will always buy at this price so that you can produce and
know that is guaranteed but then because that's so much higher than China you'll have to have
a subsidy for the firm otherwise everything gets more expensive so you have a tariff price control
and a subsidy and these are all elements of the economic state craft that I was talking about
and none of them are allowed none of them are okay under traditional economic neoliberal neoclassical
theory all of them are essential alongside more industrial policy and realignment in order to get
them back into an industrial complex and a military industrial complex you can't build scale
and competitiveness which is what China has using current market mechanisms and the US is doing
it on steroids right now Europe's talking about it the UK is talking about it some of them are now
joining with America to do it in some areas but it will be on the American dollar on on the American
system and the flow through from that by the way is okay effectively an America will have the
coercion power because you will be part of a flow from either China where they can coerce you
or America and they can coerce you and I'm just being a realist and I'm not saying they will do
that but that's how it can work so yeah tick for what they're doing but it's not instant it will
still take time that's why they need to buy time by controlling upstream commodities energy
probably food next to make sure that they are not coerced in the interim that's why yeah
make make sense make sense to me I want to shift gear slightly you know and talk about markets
because I know you have some spices things to say there as well and I mean one overarching question
that I hear from fellow portfolio managers and people talking about this they're like are oil
markets still sort of underestimating this conflict or what's happening you know because oil has
been going up and then I came back down but now it's kind of stairwaying up itself again so
yeah what is your take you know and and maybe maybe could we even compare this situation to COVID
you know which was brushed away for a meaningful a long time as well until panic suddenly broke out
or yeah any any parallels there again let me unpack that first of all what we're seeing at the
moment at the time of speaking is something that I had previously flagged again as part of this
particular grand macro strategy because I said if you take control of physical supply of commodities
you're doing it for two reasons I want them cheap and I want you to have them expensive
because that means you're not as competitive as me energy is a good one cheap energy expensive
energy factories no factories that's basically the way it works so that's part of what we're seeing
play out now in the energy price what we are seeing is those with energy have the whip hand over
those who don't and as always going to be true but we're seeing a breakdown of one market price
which is again a neoclassical neoliberal assumed norm that give a take a mile differentiation
the geography and regulation we have one price for everything because you can shift it anywhere
else you want in the world well right now partly because of geography in terms of where energy is
trapped and where it is and where it isn't and where energy is demanded and where it isn't
and the kinds of energy that's needed because oil is not oil is not oil you have different grades
of oil which are used to make different things so some of it is used to make diesel which is used
in the industrial economy for example or the agricultural economy or logistics and other parts
of course make gasoline for driving which is a you know very different beast now there's a
use to make plastics you need all of them in your economy but where refineries are located and
where energy is located is very scattered and presumes a one-world system to cuddle long story
sure right now even though prices are very volatile what you're seeing is a you know a trading
price today of say Brent oil is a global benchmark of say around 106 but what you're then seeing
is things like diesel and distillates and jet fuel trading at a premium of well 50 60 dollars
a barrel on top of that which basically means you have a differentiation by product type
and you have another one by geography so let's say you need diesel in Asia which is energy short
that's the worst possible position to be in let's say you need a different form of easily
available gasoline in a country that produces lots of it you're not going to see the same kind
of price effect you'll still see prices go up because they're going up everywhere because a lot
of energy is trapped in hormones and some of it can seal flow to different locations but it's a
sharp differentiation and it's something markets are not used to seeing and briefly we also saw
a big emerging gap between Brent and WTI West Texas where markets were starting to ponder what
if the U.S. tries to lock its own oil in and doesn't send it to anyone with an American oil
prices would collapse and everyone else's would go up so that is very important to stress the
second thing to stress is while again I'm not an energy analyst those who want to read two
excellent energy analysts should look at Joe Delaura and Florence Schmidt on oil and LNG
respectively working for other research but what I would say is that everyone agrees the longer
this crisis goes on the more exponential the damage becomes right now it's very difficult for some
areas of energy in some locations in others it's painful but manageable if this drags on
past a certain point it becomes exponentially more painful for almost everyone everywhere which is
why we have such a focus on it and why there is a geopolitical incentive from both sides
to escalate the U.S. and Israel need to make Iran give up and be defeated or defeat it
and Iran needs to escalate to make sure they're scared off by market prices and go home
ago it has to get much worse before it gets better but that getting worse can just make things worse
or go harder or go home in that sense but I mean you can it can kind of also then get out of hand
but I mean war is a losing game for everyone you mentioned it as well you know it's no is it why
well I mean the end of World War II well yeah the allies yeah the U.S. one the U.S.
one World War II who ended up you know Global Hegemon after World War II the U.S. now the U.S.
did it pay for it did it suffer a great deal yeah well would you know would it have made that
choice knowing it would get afterwards I mean ordinary people wouldn't have yet to make that
choice but the plan is possibly so the only reason I'm pushing back is it's a very comforting
mean to say like there are no winners in war there are that the winners yeah and sometimes you
with you but you win exactly what I was going to say is exactly this I mean war like there is
pain involved obviously but in the end somebody is doing it on because it with a goal in mind
and as you said it yourself there's always winners to everything you know and so I mean but
or you could also say some lose more than others or whatever but I mean is it true then that
the US in a sort is in a pole position you know because you said it yourself I mean the energy
picture is so complicated but still they're framed as the net energy producer which they are you
know which is probably down to fracking I guess which is natural gas I mean I don't have that many
insights there but like is that also that they they really have a lever to pull here as you kind
of already established right is that true yes and no not as many as one would like if you were
in their shoes because they also need diesel they also need some elements of the fuel spectrum which
they don't have domestically and which it's still traded internationally and they don't have the
refineries for it so everything is set up for a one world system rather than the US
centric system for now and it's very expensive set up refineries it takes years to do it so you
can't just do it overnight okay years of work and tens of billions of dollars so no they will
still hurt from this don't get me wrong and you know possibly some sectors more than people
would think particularly in a worst case scenario which is not what I'm forecasting to be clear
right but importantly your question hits the nail on the head in one aspect which is number one
in relative terms they come out of this looking fairly in relative terms so other geographies
which have no energy or and or are much more dependent on international trade i.e. they are net
exporters and their energy importers Asia and Europe for example yeah which should be
it is exactly like Japan Korea and it's very it's very bad for them relatively so if you were
about to get in a fight with someone and I said to you beforehand and this is hypothetical of
course I don't like fighting right and I said okay you're gonna fight that guy and it's take
it when it takes all you get everything everything you ever want forever but I'm gonna cut three
fingers off of your left hand they're gone but I'm gonna cut off his right arm and one leg
do you want to take that now if you need to win that fight I think any rational person
if it's a kind of a permanent win kind of thing you know we live forever afterwards yeah okay fine
I'm always gonna have that wound but I know I'm going to win whereas otherwise you could win you
could lose and you can't afford to lose so that's the kind of scenario but not everyone is one
arm in the leg some people might be either arm up to the elbow etc etc etc you get the point I'm
making and of course one other aspect of this because you have to look at the motivations the US
even if it is worried by this and let's not pretend they're not every time energy price is really
hard to explode they try and talk them down and temporarily they're going back down again today
on the promise that we won't allow any more escalation even our escalation is naturally baked into
the cake in order to get de-escalation so the point being here is that Trump actually has the
potential strategy of day on sorry week on week off day on day off depending about when he
talks it down then talks you back up again oil of saying you know I'm either nodding control of this
or stirring the pop so for example if people won't come to your side and help you I'm not going
to go to hormones I'm not listening to you you started this war for example you know which is
a very common and understandable piece of rhetoric a risk scenario is that the US can say well okay
let's stir the pot at which point oil goes up another daily you know $10-$15 a barrel at which
point people suddenly wake up pay attention and think okay right what can we do to stop this
and then discussions start being had so it's what we use to call madman theory you know if you
have a nuclear weapon and you're completely predictable about where you wouldn't won't use it
it's not quite the same weapon as if no one knows if you'll use it or not if someone you know
the on meeting in a bar is a is regarded as a lunatic and you never know whether they'll buy you a
drink or smash a glass over your head you tend to do everything that they want or avoid them
completely depending on the situation right and I don't think we can dismiss the risk that an
element of that may be already present or emerge in this particular scenario at which point we
will have even more volatility and again more escalation hopefully to de-escalate yeah that's
that's so interesting and I mean as you said it yourself again you know there are these risks for
the US you know diesel being won and I mean there are in this midterm year you know that Trump needs
to win some election as well so maybe on the sideline you know but then I mean what I'm wondering
because like if we entertain this thought of economic statecraft you know that you so eloquently
elaborate you know it seems very realistic that we could see the US implement price controls on
diesel for example you know something like this to kind of make sure prices don't get out of hand
or use other tools of economic statecraft which just kind of interfere with markets which I feel
like some people of my sort of realm now get get comfortable with you know they have never
thought about this a year ago felt like oh no no this is all out of scope but now like oh the US
could finally do something like this you know and so you've been saying you've been saying this
for for for years I guess now and so but yeah do you see this as a realistic scenario obviously
I guess yes and then what other tools could they be using potentially you know if we try to entertain
please entertain the thought because it's the correct one again I'm not going to make a specific
point forecast here okay that's not the point of the exercise the point of the exercise is as you
said to change the thought pattern so that people do their own thinking in this particular way
I would say you can't rule anything out because what's at stake is not just the election which is
huge Richard but national security in the broadest possible sense were the US to be defeated here
because it can't stand stay the course because energy prices go up voters get unhappy
industry stars wobbling you know you you can draw the scenario yourself and the US to say right
let's do a taco which I hear all the time and as I said I'm very very tired of hearing because I
think it's wrong most of the time and word Trump just say right let's just go home Iran survives
Iran rebuilds Iran would rapidly say to everyone else in the region US has gone now
we still have lots of missiles and drones left to take out your energy and this you do what we want
and Iran has been doing that for years up until recently attempting to exert influence and
control over the region if it does that all of the energy which is enough to bring the rest of
the world to his knees as we can see would be an Iranian hands who's a big friend of Iran
Russia which has a lot of energy of its own what might the two of them want to do well look you
can start drawing up scenarios and you can say well the US could steal with a conservation of other
countries just say well we'll have north of South America and we're happy there fine where does
it leave Africa where does that leave the rest of your Asia where does that leave the Asia Pacific
not in a particularly pretty place and that starts up at like the 1930s so this is a very worrying
scenario and if that's not going to be the case that the US thinks about doing that and they really
do say right well we're going to say the course we're not going to become purely isolationist
that's what's at stake and if that is at stake above and beyond the midterms to say oh we're not
allowed to do that because it's like an it's an unwritten rule that is naughty or that's slightly
opposed to the ideology of how we normally do things who cares who cares I mean during COVID during
the during the GFC we did some of the most incredible things we had negative interest rates in some
countries for goodness sakes right what what kind of world will we live in to think we could have
negative interest rates but we did and we normalize that so anything is possible within the
sphere of economic state craft if the stakes are high enough and I happen to believe they are
if people don't fine you draw your own over-ten window where you think it works and you prepare for
that I'm suggesting you should do otherwise if people want to do their own thinking you know and
and kind of entertain this thought of what could be happening I mean the best way would probably
be to look into history and look at similar periods or periods that could be kind of a role model
for what's to come so any periods that you can point people to that they have to study if they
want to kind of figure out what could potentially happen you know yeah everything has ever happened in
history up until the stuff that people look at now which is on their Bloomberg screens which is
irrelevant I mean particularly of course the 17th 18th 19th and early to mid 20th century and even
the Cold War in the 20th century so that's a lot of material to draw from there and I'm not being
flippant even though it sounds like I am the only area that's largely irrelevant apart from a few
exceptions to the norm is the period that everyone thinks is normal which is the 1980s onwards in
the Bloomberg world or financial market financialized world which is a historical aberration from a
world where everyone thinks I have X you don't therefore I have power over you you have X I don't
how can I get it from you rather than let's be friends and you know we can still be friends in
that environment but it's always much more historically on I don't really trust you but let's
see how we can collaborate here for you know for as far as we can go and very regrettably that is
much of the global backdrop not for everyone you know there are alliances and there are
constellations and and coalitions that can come together and I expect to see more of that which
is great but it's not a one world system anymore and I think we should see that's absolutely the
way it is and we all should be thinking about the possibilities again the spectrum of possible
outcomes and the spectrum of possible responses that one would need to prepare and that's that's
the best lens to look at the world from yes and no interesting last question you know I mean you've
already given a bunch of practical advice obviously but I want to maybe summarize this again you know
you can summarize it for us you know in this ever more complicated world of hours with people
feel like it's getting more uncertain more complicated how do you need to think as a portfolio
manages so you can really try to kind of understand what's happening here and then potentially
yeah make the right decisions for you for your clients or yeah right so you start from again
not telling people what to do but giving you a thought process if you're managing money okay which I
don't do by the way so again not investment advice but conceptually start by trying to understand
what do I think's going on in the world and why who is trying to achieve what where and how and
I don't mean in markets I mean in the bigger picture that's actually not that hard to do even if
it is contentious to a certain degree once you've done that then take a step back and think okay
who's aware of that and who isn't so like who knows they're playing the game and who doesn't
that changes things a bit and lastly turn around and say to yourself where would they want me
to be within this and what would they want me not just to do but what would they want my outcomes
to be within that and the whole point being if you're going to do something that is completely
opposed to what you think they would want you to be doing during that it may not work out too well
and if they think well I'd absolutely they would want me to be doing X great what return
would they want me to be making doing that and I know that sounds really weird but it's one way
of looking at it so keep doing what you're doing everybody but just try on a different hat put a
different baseball cap on and just think for a while what would that mean and it's not just about
the US by the way it's everywhere and it can give you early warning signals in terms of hang on
if they want to achieve that that might mean I had to do this instead of that and you know
the dominoes should knock themselves over for you yes no great yeah Michael thanks a lot for
doing this I think I have to let you run you you're a song after men obviously nowadays and so
you have another call to attend so thanks a lot for doing this and hope to get you back on the call
at some point in the future so thanks a lot thank you take care bye bye

Less Noise, More Signal

Less Noise, More Signal

Less Noise, More Signal