1 00:00:00,000 --> 00:00:06,940 Mr. Arnold, welcome back to the show. A little week hiatus there for very good reasons, but we're back. 2 00:00:07,740 --> 00:00:12,460 And a lot has happened over the last two weeks, sir. A lot has happened since I woke up this 3 00:00:12,460 --> 00:00:18,320 morning. Trump sending out true social posts, markets moving pretty aggressively this morning. 4 00:00:18,780 --> 00:00:24,560 But let's take a step back and put ourselves in your mindset, in your writer's seat. You titled 5 00:00:24,560 --> 00:00:27,680 the newsletter, the timestamp this week, Qui Bono, who benefits? 6 00:00:27,680 --> 00:00:35,360 benefiting from all this? What's happening here? Yeah. I mean, it's a question that's very much on 7 00:00:35,360 --> 00:00:41,140 my mind and I hope the minds of others over the last few weeks when you've got things like the 8 00:00:41,140 --> 00:00:47,260 snip-snap Michael Scott approach to foreign policy and how to handle what's going on in 9 00:00:47,260 --> 00:00:53,580 the Persian Gulf. It's helpful to just kind of step back and try to frame it as who's actually 10 00:00:53,580 --> 00:00:58,100 benefiting from the different ways that things are playing out or that could play out. 11 00:00:58,720 --> 00:01:02,380 And, you know, I wrote about that, tried to reason through a little bit of that in the 12 00:01:02,380 --> 00:01:06,600 timestamp this week, standing on the shoulders of people who are much smarter than me and much 13 00:01:06,600 --> 00:01:11,040 better informed. I think we can kind of get into that. But as just a table setting comment, 14 00:01:11,040 --> 00:01:15,280 it really feels like, you know, the newsletter this week was just a response to like, 15 00:01:15,700 --> 00:01:20,340 it feels very much if you're, if you're strolling the timeline, if you're watching the clips on 16 00:01:20,340 --> 00:01:26,060 meet the press or someone off Fox news, you know, your, your options for processing all this are 17 00:01:26,060 --> 00:01:30,940 basically like, you know, rah, rah, we're going to destroy the most evil regime in the world. 18 00:01:31,180 --> 00:01:35,020 And we can't let Iran have a nuclear weapon. And you're, you know, what are you not a patriot? If 19 00:01:35,020 --> 00:01:39,840 you don't want that to happen, you got that. And then you've got Trump is a complete moron. And he, 20 00:01:39,920 --> 00:01:43,740 he alone is guiding every element of foreign policy and every decision that's being made. 21 00:01:44,320 --> 00:01:48,180 And he has no plan and he's going to get us all killed. And it's, it's World War three. And so, 22 00:01:48,180 --> 00:01:52,340 you know, sell everything. And there's, there's no hope and no, no strategy at all going into this 23 00:01:52,340 --> 00:01:57,080 and those, and China's going to win everything as a result, you know, the world, the U S will 24 00:01:57,080 --> 00:02:00,360 destroy its position in the world and the China will, you know, take place. And so there's kind 25 00:02:00,360 --> 00:02:04,180 of like the, the Mark Levin approach and like the Ray Dalio approach. And that's like basically all 26 00:02:04,180 --> 00:02:08,160 that we have been given by the mainstream press. And I feel like there's a lot more nuance at play, 27 00:02:08,160 --> 00:02:12,500 which I don't pretend to be smart enough to fully reason through entirely, but that's what I was 28 00:02:12,500 --> 00:02:17,600 trying to maybe think through a little bit, you know, the newsletter this week. Yeah. No, I recorded 29 00:02:17,600 --> 00:02:19,840 with Tom Luongo late Friday night too. 30 00:02:20,320 --> 00:02:22,080 I think that's a little bit more in the middle. 31 00:02:22,840 --> 00:02:25,860 He's got a very specific theory 32 00:02:25,860 --> 00:02:27,580 that we're not going to dive into here 33 00:02:27,580 --> 00:02:28,240 if you want to listen to that 34 00:02:28,240 --> 00:02:29,480 and get a TFTC and get it. 35 00:02:29,780 --> 00:02:31,780 But I think fog of war. 36 00:02:32,700 --> 00:02:34,720 I've consistently had to remind myself 37 00:02:34,720 --> 00:02:37,940 of this over the last three, four weeks 38 00:02:37,940 --> 00:02:41,020 is try not to make any shoot from the hip decisions 39 00:02:41,020 --> 00:02:44,360 or react too emotionally to the headlines, 40 00:02:44,620 --> 00:02:46,440 the pundit talking points 41 00:02:46,440 --> 00:02:50,480 or the true social posts that come out because we're truly in the fog of war. 42 00:02:50,560 --> 00:02:55,600 And speaking of true social, I think just to make sure we're staying on at the task of the show, 43 00:02:55,600 --> 00:02:59,840 which is topical news to fill you all in on how we're reading this. 44 00:02:59,940 --> 00:03:04,560 I mean, we have true social posts from Saturday and then early this morning. 45 00:03:05,140 --> 00:03:11,620 Many people are calling this a taco and an attempt to basically suppress interest rate yields 46 00:03:11,620 --> 00:03:16,320 and the price of oil so that markets don't go too haywire. 47 00:03:16,440 --> 00:03:26,960 But essentially, going into the weekend, Trump said that Iran had 48 hours to open the strait or there would be some massive hits on their power infrastructure. 48 00:03:27,680 --> 00:03:36,160 And then early this morning, Trump came out and said there was productive talks, both directly and indirectly, with the Iranian regime over the weekend. 49 00:03:36,160 --> 00:03:54,380 A market screamed, Bitcoin screamed above 71,000. It's still holding over that level right now. Oil fell below, WTI fell below 90, $90 a barrel. And then Iran came out rather, rather quickly and said, hey, these talks did not happen. So what is your reading on this? 50 00:03:55,160 --> 00:04:02,660 Yeah. I mean, my only my only reading is that there is no reading. Right. Like I let off with this because I fought a war is exactly the right way to think about it. 51 00:04:02,660 --> 00:04:08,700 And like you'll see people on both sides of that kind of general bifurcation that laid out. 52 00:04:08,700 --> 00:04:13,400 It's like, you know, when when Trump says something that's totally credible and should be completely believed. 53 00:04:13,400 --> 00:04:19,620 And when Iran says something, they're just lying or when China comments on something, they're just lying or trying to manipulate or using propaganda tactics or whatever. 54 00:04:20,060 --> 00:04:22,300 And there are other people who think the exact opposite. Right. 55 00:04:22,300 --> 00:04:25,460 Like anything Iran says is totally correct and accurate. 56 00:04:25,460 --> 00:04:26,500 And they're the ones telling the truth. 57 00:04:26,500 --> 00:04:27,640 And Trump is just making everything up. 58 00:04:27,880 --> 00:04:32,440 And I think we should all just be in the mode of everyone is, if you're part of my French, bullshitting right now. 59 00:04:32,440 --> 00:04:39,680 It is totally to everyone's advantage in all elements of this conflict to create as much uncertainty and obfuscation as possible. 60 00:04:40,200 --> 00:04:45,820 So that should, to your point on asterisks, leave just like leave everyone with a lot of humility on what's actually happening. 61 00:04:45,820 --> 00:04:55,040 And yeah, I guess I would just say, let's try to be equally skeptical of the various posts and media reports coming out of all the different sides of this conflict. 62 00:04:55,460 --> 00:04:57,400 But that, you know, so that just frames everything up. 63 00:04:57,600 --> 00:05:09,340 The one thing that I is maybe less, maybe a good place to dig into like the meat of the newsletter is actually like a more objective data point is just the spread between WTI and Brent, Brent Crude. 64 00:05:09,340 --> 00:05:20,220 You mentioned WTI went below 90. I haven't checked Brent this morning, so I don't know where exactly the spread's shaking out today as of Trump's semi-taco or not taco, depending on how you think about it. 65 00:05:20,420 --> 00:05:29,100 But to me, this was kind of the story of the week as it relates to trying to parse through what's going on and what the actual goals are and constraints are. 66 00:05:29,100 --> 00:05:32,880 This pretty remarkable move, which may or may not be sustained. 67 00:05:33,200 --> 00:05:41,060 But I think everyone got a good reminder last week that it's easy to forget in times of relative tranquility and especially like world is flat globalization. 68 00:05:41,760 --> 00:05:44,680 But oil is not like a globally homogenous market. 69 00:05:45,040 --> 00:05:49,060 It commands different prices in different places for different grades and benchmarks. 70 00:05:49,560 --> 00:05:56,000 There are people, again, who are way smarter and more in the weeds on all the nuances of the global oil market than you or I. 71 00:05:56,000 --> 00:06:01,160 But this is just kind of a good summary chart to show that kind of violent reminder that we got. 72 00:06:01,560 --> 00:06:07,220 So WTI is a US-based benchmark mostly for consumption here domestically. 73 00:06:07,500 --> 00:06:11,600 Brent is mostly a benchmark for Europe, Middle East, and Asia. 74 00:06:12,640 --> 00:06:20,480 And unsurprisingly, the places where supply has been much more disrupted is starting to show a much greater price spike. 75 00:06:20,480 --> 00:06:27,160 If you flip to the next slide, you can see that even more clearly with the prices in the Persian Gulf. 76 00:06:27,320 --> 00:06:30,980 So the places that are most disrupted are just blowing out even beyond where Brent is. 77 00:06:31,640 --> 00:06:48,160 And I think that's interesting because as you parse through what could, to the extent that there maybe were a plan, if you entertain that argument from the United States aside, if there were a plan, you'd probably be interested in leveraging one of the U.S.'s key advantages, 78 00:06:48,160 --> 00:06:52,320 which is being an energy independent net oil exporter. 79 00:06:52,320 --> 00:06:56,600 We are currently all sitting here experiencing 80 00:06:56,600 --> 00:07:12,374 more pain at the pump than I think we would like but at the same time supply in the US is not really meaningfully at risk today Whereas there are a lot of parts of the world where that not the case where they net oil importers and they have to source a ton of oil through places like the Gulf Coast 81 00:07:12,774 --> 00:07:17,614 through the Strait of Hormuz, and it certainly applies to what's oil and LNG, so natural gas as 82 00:07:17,614 --> 00:07:22,414 well. Certainly a big issue for Europe, as we saw a few years ago with the Russia-Ukraine debacle. 83 00:07:22,794 --> 00:07:28,014 And it's a huge source that we've talked about on the show before for China and the other East 84 00:07:28,014 --> 00:07:33,474 Asian countries, you know, allies as well, Japan, Korea, Taiwan. But I think that spread is an 85 00:07:33,474 --> 00:07:38,574 interesting data point for thinking through, if you were in the driver's seat at the Pentagon, 86 00:07:39,434 --> 00:07:42,434 if you were writing the national security strategy that we've talked about in here before, 87 00:07:42,754 --> 00:07:46,194 when you were kind of sizing up, what are the US's advantages that we can push on? 88 00:07:46,194 --> 00:07:50,874 What are the buttons we could push? Probably the first one you would think of is the base energy 89 00:07:50,874 --> 00:07:56,134 input to the entire global economy, especially when several of the parties that you consider 90 00:07:56,134 --> 00:08:00,934 be your adversaries or your rivals do not have the energy independence that you do right and they 91 00:08:00,934 --> 00:08:06,614 they can be made to kind of you know be put over a barrel a little bit depending on what happens 92 00:08:06,614 --> 00:08:10,614 in the middle east in a way that you don't necessarily have to deal with so to me this 93 00:08:10,614 --> 00:08:15,334 is like as you're reasoning through what might be going on what might the administration be looking 94 00:08:15,334 --> 00:08:19,414 for and like trying to do to the extent that you want to entertain the notion that there is a plan 95 00:08:19,414 --> 00:08:23,414 i think this was a big you know flashing red signal for you know one of the the key kind of 96 00:08:23,414 --> 00:08:29,214 of asymmetries and relative leverage points that most likely the U.S. is probably thinking about. 97 00:08:29,694 --> 00:08:33,774 And if so, I think that has implications for how anyone should think about, you know, what's going 98 00:08:33,774 --> 00:08:37,954 to happen from here. Yeah. Just to give an update, because the spreads have changed, 99 00:08:38,374 --> 00:08:43,934 at least the spot spreads. So we're looking now, Brent's down around 9% today at 102.28. 100 00:08:44,174 --> 00:08:51,054 As I speak, WTI, as you can see over here, is under 90 at 89.30. So we've got like a $13 101 00:08:51,054 --> 00:08:56,474 spread here. So the spread, at least on the spot prices, has compressed. I'm sure it's similar to 102 00:08:56,474 --> 00:09:02,254 that one month spread that we had in the chart above. But this is all, again, subject to change 103 00:09:02,254 --> 00:09:08,594 on a whim, on a true social place. So be aware there. But here's where we're trading now. A lot 104 00:09:08,594 --> 00:09:13,954 of volatility in the market. And that's, again, going back to the fog of war and trying to discern, 105 00:09:14,054 --> 00:09:18,514 I think these pricing signals are probably where we're going to get the most signal is in these 106 00:09:18,514 --> 00:09:24,154 markets. And you can decide whether or not you want to listen to the pundits and listen to the 107 00:09:24,154 --> 00:09:27,914 politicians involved. I think markets are going to give you the clearest signal. And I think the 108 00:09:27,914 --> 00:09:32,414 volatility that we've experienced over the last three weeks, and more specifically over the last 109 00:09:32,414 --> 00:09:37,794 week with weekend, true social posts, with aftermarket hour sort of negotiations, whatever 110 00:09:37,794 --> 00:09:41,594 it may be, or tax. I think the volatility in the market is just pricing in this uncertainty. 111 00:09:41,854 --> 00:09:47,174 And so I think the signal that we're getting is despite any certainty that politicians or 112 00:09:47,174 --> 00:09:54,714 administration members may be posturing publicly. I think markets are still out there saying we have 113 00:09:54,714 --> 00:10:00,694 no idea exactly how this ends. And I think one thing that we may have more clarity on than 114 00:10:00,694 --> 00:10:06,214 anything else is just long-term ramifications of the destruction to the energy infrastructure 115 00:10:06,214 --> 00:10:10,554 in the Middle East and what they may have on markets in the long term. And I think, 116 00:10:10,554 --> 00:10:15,934 here's a signal here, Iran, the attack wiped out 70% of Qatar's LNG capacity for up to five years. 117 00:10:15,934 --> 00:10:21,874 Qatar Energy CEO says, reported by Reuters, I believe there was a five-year force majeure 118 00:10:21,874 --> 00:10:29,374 on some government contracts Qatar had with trading partners. And so it seems clear at this 119 00:10:29,374 --> 00:10:37,654 point that a lot of critical refinery infrastructure has been materially impacted by the war in the 120 00:10:37,654 --> 00:10:42,934 Middle East right now. And I think this is one thing that markets are beginning to price in, 121 00:10:42,934 --> 00:10:47,454 is what is the long-term ramifications of this disruption to the supply chain, 122 00:10:47,534 --> 00:10:55,454 and how do we reorient the energy industry based off of the destruction of this infrastructure? 123 00:10:56,514 --> 00:10:57,154 Yeah, for sure. 124 00:10:57,154 --> 00:11:02,374 I mean, I think this is one of the more sobering headlines from last week 125 00:11:02,374 --> 00:11:05,494 that I think people are just now still trying to process, 126 00:11:05,734 --> 00:11:11,294 that even if the conflict ended tomorrow or today and there were no more attacks 127 00:11:11,294 --> 00:11:16,134 on, you know, different elements of Gulf energy infrastructure, refining infrastructure, 128 00:11:16,334 --> 00:11:20,254 transportation infrastructure, et cetera. You know, you've already got now like a long tail 129 00:11:20,254 --> 00:11:25,594 of multiple years, perhaps up to five years, right? As Qatar is saying, disruption to significant 130 00:11:25,594 --> 00:11:31,334 elements of a significant percentage of production out of the region, right? So that there's going to 131 00:11:31,334 --> 00:11:36,694 be a lengthy cost impact to that. There's going to be a lengthy supply disruption impact to that, 132 00:11:36,774 --> 00:11:40,514 again, even if Trump is right and we're going to get a deal very, very soon. And, you know, 133 00:11:40,514 --> 00:11:44,734 I think that, again, you ask the question like, well, who does that help? Who does that hurt the 134 00:11:44,734 --> 00:11:51,154 most? Structurally, like, I think you are, you tend to think that that would hurt the, you know, 135 00:11:51,194 --> 00:11:55,294 Europe, Middle East and Asian countries the most. And, you know, it's not something that can be 136 00:11:55,294 --> 00:11:59,494 ameliorated if, if that, you know, if headlines like that, if statements like that are not just 137 00:11:59,494 --> 00:12:03,774 being sensational, you know, if, if that's actually accurate, which we don't have any reason to believe 138 00:12:03,774 --> 00:12:07,774 it's not directionally, that's a structural problem that doesn't get ameliorated whenever 139 00:12:07,774 --> 00:12:11,694 Trump decides that he wants to sign a deal or taco or whatever you want to call it. 140 00:12:11,694 --> 00:12:18,634 And I think that leads into this piece that was written by Anas al-Haji early. 141 00:12:18,774 --> 00:12:23,054 It was posted early today, but it synthesizes some of his thoughts from the last couple of weeks. 142 00:12:23,614 --> 00:12:29,274 Highly recommend giving him a follow and just checking out the link there to the substack where he summarizes all this, 143 00:12:29,354 --> 00:12:37,254 but just kind of walks through the relative leverage that either side has and the asymmetry of the impact of all the disruption 144 00:12:37,254 --> 00:12:41,394 in the Strait of Hormuz and in the Gulf, and we won't read it all here. I really recommend everyone 145 00:12:41,394 --> 00:12:47,714 go check it out. But he's positing that in a somewhat counter consensus way that I think 146 00:12:47,714 --> 00:12:54,334 has not really shown up in most mainstream discussions, that Iran does not really have 147 00:12:54,334 --> 00:12:59,314 the capacity or the interest or the incentive to close the Strait of Hormuz, and that a lot of the 148 00:12:59,314 --> 00:13:04,194 headlines that suggest that there's a blockade effectively, or that no ships can get through, 149 00:13:04,194 --> 00:13:10,214 or that they're attacking a bunch of different tankers are overdone and maybe missing key context. 150 00:13:10,594 --> 00:13:18,434 And that it's not even totally clear to hear him tell it exactly who's responsible for different threats that have been made to different ships and shippers and insurers. 151 00:13:19,114 --> 00:13:24,534 So, you know, anonymous threats from unidentified sources could easily be coming from any different side. 152 00:13:24,534 --> 00:13:41,214 And, you know, he's positing as a result that the U.S. does have potentially significant interest in being the driver here of keeping the strait disrupted and then engaging in the kabuki theater to suggest to make it seem like, you know, it's not actually our fault and it's being orchestrated by somebody else. 153 00:13:41,554 --> 00:13:50,374 Obviously, Iran is still attacking or seems to be attacking Fog of War, asterisk again, but there's still attacks on infrastructure around the Gulf, which may or may not be fully workable within this framework. 154 00:13:50,374 --> 00:13:53,714 But I just think like that kind of thinking is, 155 00:13:53,714 --> 00:13:56,674 you know, it's a, it's a, it's a 0% on the, the, 156 00:13:56,674 --> 00:13:58,874 the nodes of the, you know, this, the decision tree 157 00:13:58,874 --> 00:14:00,374 that people are thinking through right now, 158 00:14:00,374 --> 00:14:01,374 mostly in the market. 159 00:14:01,374 --> 00:14:19,868 And I think it if you look through the incentives you look through the capacities on different sides you look through what the U has explicitly said about the national security strategy and how the Strait of Hormuz aligns with the Panama Canal and Red Sea routes and Greenland and shipping routes that might be controlled or influenced by that 160 00:14:19,868 --> 00:14:25,568 and everything about that Trump has said about wanting to exert more dominance of trade flows 161 00:14:25,568 --> 00:14:31,488 and, you know, reposition the U.S. as a true industrial powerhouse again, it all kind of 162 00:14:31,488 --> 00:14:35,068 neatly lines up with what you're seeing in the straight-off-form moves. So I just think, you know, 163 00:14:35,128 --> 00:14:38,628 maybe that's not, maybe that shouldn't even be your base case, but it should be more than a 0% 164 00:14:38,628 --> 00:14:43,528 chance, right? It should be, call it 20%, 25%, whatever. And if that's the case, then you start 165 00:14:43,528 --> 00:14:48,788 to have to entertain a lot of other downstream impacts and thoughts on how the U.S. might actually 166 00:14:48,788 --> 00:14:54,228 be able to pull off the triple Wendy that they may actually be looking to do here. 167 00:14:54,328 --> 00:14:56,968 We were sharing another piece of a NOS analysis last week. 168 00:14:57,928 --> 00:15:02,468 And I think there was one thing in that particular analysis that really said, oh, this is something 169 00:15:02,468 --> 00:15:05,328 I didn't realize that the market is completely misreading. 170 00:15:05,488 --> 00:15:08,768 This was Chinese tankers making it through the straighter home years. 171 00:15:08,768 --> 00:15:14,148 And people were saying, well, Iran is basically picking Chinese oil tankers and saying, you 172 00:15:14,148 --> 00:15:15,648 guys can go through, we'll settle in Yuan. 173 00:15:15,648 --> 00:15:20,108 But Danas highlighted the reason that these Chinese ships are making it through the straits 174 00:15:20,108 --> 00:15:24,168 because they have Chinese insurance and Lloyd's London dropped the insurance of every other 175 00:15:24,168 --> 00:15:27,228 oil tanker moving through the strait. 176 00:15:27,348 --> 00:15:30,168 And so if you're not insured, you're not going to move because the risk is too high. 177 00:15:30,208 --> 00:15:32,428 Whereas the Chinese ships are using Chinese insurance. 178 00:15:32,428 --> 00:15:38,748 And so they feel that they're able to move through the strait relatively, not risk-free, 179 00:15:38,868 --> 00:15:40,728 but they're hedged with insurance. 180 00:15:41,028 --> 00:15:44,528 And so that was a signal there like, oh, maybe there is something here. 181 00:15:44,528 --> 00:15:51,948 And then to add to that and to put a put a point in the this is geopolitical 40 chess that is working in Trump's favor. 182 00:15:52,068 --> 00:15:56,468 There was a deal between the U.S. and Japan to deliver oil from from Alaska to Japan. 183 00:15:56,468 --> 00:16:02,268 And so sort of that shift of demand for for U.S. oil over oil in the Gulf. 184 00:16:02,788 --> 00:16:05,268 That's another point in that direction. 185 00:16:05,468 --> 00:16:08,408 So fog of war trying to read through the lines here. 186 00:16:08,648 --> 00:16:12,048 Those are those are two things that stuck out to me last week as well. 187 00:16:12,048 --> 00:16:32,288 But speaking of China and the idea that this is basically a proxy war to assert dominance and shift demand from other parts of the supply chain towards the United States, I think there's some interesting reactions from China's economy to this that show it does have some relative strength and leverage in this game. 188 00:16:32,288 --> 00:16:36,688 Yeah, yeah, for sure. I mean, there's, you kind of read this one either way, right? Like, 189 00:16:37,108 --> 00:16:43,468 there, the chatter on, you know, some of the Anas Al-Haji type points that you would see over the 190 00:16:43,468 --> 00:16:48,268 last couple of weeks on Twitter and elsewhere is like, okay, well, even if that's right, you know, 191 00:16:48,308 --> 00:16:52,808 China will just hit back by, you know, playing the rare earths game and not shipping other critical 192 00:16:52,808 --> 00:16:58,048 goods to the US. And I think it's interesting because like, that's definitely possible. 193 00:16:58,048 --> 00:17:12,728 At the same time, you're seeing already last year and then this year, this Reuters headline pointing out massive growth in Chinese exports, particularly into a lot of this is going especially into Europe, kind of diverting away from the U.S., although U.S. exports are still growing significantly. 194 00:17:12,728 --> 00:17:19,308 Um, but I think like the, it's an interesting, uh, East West interweaving where it takes 195 00:17:19,308 --> 00:17:24,228 to to tango here and yeah, China could curb exports dramatically, but the fact that, you 196 00:17:24,228 --> 00:17:28,188 know, they, they need to grow exports so dramatically over the last year. 197 00:17:28,188 --> 00:17:32,828 And especially again, into places like Europe, which you have to think there's going to be 198 00:17:32,828 --> 00:17:36,708 eventually a downstream political impact to that as Europe's existing industrial base 199 00:17:36,708 --> 00:17:38,868 gets further and further hollowed out by things like that. 200 00:17:38,948 --> 00:17:42,148 But I think that's telling you like the, this is the model for China, right? 201 00:17:42,148 --> 00:17:50,168 It is an industrial powerhouse that needs to keep shipping and producing and having the world buy its goods and running this massive finished goods trade surplus. 202 00:17:51,048 --> 00:17:53,328 And, you know, that gives them a choke point on a lot of goods. 203 00:17:53,408 --> 00:18:08,108 But the flip side is like just deciding to effectively boycott, you know, huge parts of the world as a means of, you know, cutting off, say, the U.S. and U.S. allies from finished goods that they provide is eventually becomes cutting off your nose to spite your face. 204 00:18:08,588 --> 00:18:10,848 They've got a massive issue with real estate. 205 00:18:10,848 --> 00:18:25,888 They've got banks. They've got a ton of effectively zombie banks. You can go look at great work from Alex Campbell. I think he's A.B. Campbell on Twitter. He's done a ton of deep analysis on the state of Chinese banks. The consumer is still far weaker than I think they would like the domestic consumer. 206 00:18:25,888 --> 00:18:34,828 So saying that you're going to, you know, undercut the entire driver of the country's economic model as a means of retaliating with the against the U.S. is like, yeah, it's possible. 207 00:18:35,248 --> 00:18:38,308 But again, it just comes back to a question of who's going to blink first. Right. 208 00:18:38,308 --> 00:18:43,068 Who has, in this relative leverage game, who has more leverage, who has more time to sit and wait? 209 00:18:43,588 --> 00:18:48,288 And you could argue, in many ways, China does because of that manufacturing base. 210 00:18:48,608 --> 00:18:57,808 You could also, I think, argue on the other side that they can't necessarily afford to slow that down dramatically as a means of hitting back against what the U.S. is doing, 211 00:18:58,128 --> 00:19:05,608 especially to the extent that oil continues to do what it's doing, especially asymmetrically impacting Asia. 212 00:19:05,608 --> 00:19:10,088 you know, you're getting squeezed on both sides there if you start to compress the revenue base 213 00:19:10,088 --> 00:19:15,128 and also get hit on the cost side. So yeah, I think it's just, it's not clear to me that 214 00:19:15,128 --> 00:19:19,508 either side here has the clear like knockout punch and we're very much like these Siamese twins. 215 00:19:19,708 --> 00:19:22,848 Like it's not that easy to like just separate either one. It's going to hurt both, right? 216 00:19:23,108 --> 00:19:28,368 Maybe that leads then into to take the other side of it, you know, the yield story, right? For the 217 00:19:28,368 --> 00:19:33,728 US and other Western governments. Yeah. I mean, talking about signal and markets, I think 218 00:19:33,728 --> 00:19:40,888 Many people are surmising that Trump sent out that tweet this morning because he was looking at the two-year yield going over 4%. 219 00:19:40,888 --> 00:19:44,508 And there are people behind the scenes saying this is getting rather chaotic. 220 00:19:44,768 --> 00:19:49,768 The financial system cannot sustain rates at this elevated level for too long. 221 00:19:50,048 --> 00:19:57,688 And again, fog of war, who knows exactly why he sent the tweet, but many people are saying he's looking at the yield curve and noticing it's getting a bit out of whack. 222 00:19:57,688 --> 00:20:03,968 And here we have the U.S. 10-year, which is back to levels not seen since early August of last year. 223 00:20:04,308 --> 00:20:09,608 Yeah. And, you know, we're still in a range that's like reasonably manageable historically. 224 00:20:09,868 --> 00:20:18,048 You know, we're not breaking out to multi-year highs or, you know, breaking out of like this recent channel over the last year or two. 225 00:20:18,048 --> 00:20:27,488 But you can see where, you know, the bigger picture is probably that I probably should have put on here as well as the move index, which is the treasury volatility index that measures the volatility of these yields. 226 00:20:27,688 --> 00:20:31,688 And that printed 109 on Friday night, which was the highest level since liberation day. 227 00:20:31,788 --> 00:20:35,788 So it's not even just a level, but it's also the direction of travel and the speed of that 228 00:20:35,788 --> 00:20:36,128 direction. 229 00:20:36,408 --> 00:20:40,668 And so I think that's clearly like on everyone's mind and that this is like our Achilles heel, 230 00:20:40,728 --> 00:20:40,908 right? 231 00:20:41,028 --> 00:20:44,208 The, the, the, the debt situation is not, yeah, here you go. 232 00:20:44,428 --> 00:20:44,868 Here's the move. 233 00:20:45,168 --> 00:20:48,508 The, you know, this isn't, this isn't 1975 anymore. 234 00:20:48,928 --> 00:20:50,928 That's GDP is, you know, not 30%. 235 00:20:50,928 --> 00:20:52,168 It's 125%. 236 00:20:52,168 --> 00:20:57,228 You know, we, we have, uh, as we've talked about on the show before an interest expense 237 00:20:57,228 --> 00:20:59,828 coming out of the federal government that is growing swiftly. 238 00:20:59,828 --> 00:21:19,042 And when you look at interest plus fixed entitlement payments plus military budget which we learned last week is going to grow by another billion unplanned to fight this war veterans benefits et cetera basically more or less fixed expenses We already kind of roughly on a hundred percent of tax receipts And so we can really afford to be rolling debt at much 239 00:21:19,042 --> 00:21:25,042 higher than, you know, call it a blended rate of like 4%. So like this is as it relates to relative 240 00:21:25,042 --> 00:21:29,702 leverage for the rest of the world. Yeah, this is, this is the key point to watch and keeping this 241 00:21:29,702 --> 00:21:33,942 in check is going to be, you know, you have to think one of the main constraints that the U.S. 242 00:21:33,942 --> 00:21:40,102 has. And then it's even, you know, you bring up here like the German and French 10-year bonds 243 00:21:40,102 --> 00:21:46,022 going back to levels not seen since in France's case, basically 08 and Germany back to the 244 00:21:46,702 --> 00:21:52,182 Eurozone sovereign debt crisis in 2011. So this is actually like much more notable in terms of, 245 00:21:52,182 --> 00:21:57,262 you know, historical ranges and really breaking out. And, you know, I think it's kind of like 246 00:21:57,262 --> 00:22:00,822 the classic, you know, the U.S. sneezes and the rest of the world gets a cold, you know, 247 00:22:00,822 --> 00:22:04,602 just like with kind of the oil and gas story we talked about, you know, we're uncomfortable with 248 00:22:04,602 --> 00:22:08,982 the current, the yield levels that we just talked about at kind of four, four and a half percent. 249 00:22:09,362 --> 00:22:14,422 But you're quickly, you know, ripping to levels that are much more historically notable for 250 00:22:14,422 --> 00:22:18,142 countries that are going to, like Germany, France, and the rest of the European complex, 251 00:22:18,142 --> 00:22:22,102 that are going to be hit much harder by, you know, the spike in, say, Brent crude that we 252 00:22:22,102 --> 00:22:28,082 talked about, or the lack of availability of Qatari LNG. So this is, for the West, 253 00:22:28,082 --> 00:22:32,882 broadly construed for kind of the U.S. nexus. We can debate whether Europe is in the U.S. nexus 254 00:22:32,882 --> 00:22:38,002 anymore or not, but this is the constraint to watch kind of on our side. Yeah, I mean, this would 255 00:22:38,002 --> 00:22:43,662 validate the theory that Trump's trying to break free from the World Economic Forum DABA's class, 256 00:22:43,662 --> 00:22:51,502 and I guess this is very Luongo-coded where we're trying to deflate the euro-dollar market and bring 257 00:22:51,502 --> 00:22:57,902 control of our interest rates and control over the dark dollar pools back to the United States and 258 00:22:57,902 --> 00:23:03,242 And to do that, you would need to essentially decimate European economies and their financial 259 00:23:03,242 --> 00:23:03,682 system. 260 00:23:03,822 --> 00:23:09,782 And this seems like the war in the Gulf right now is certainly putting a lot of stress on 261 00:23:09,782 --> 00:23:11,922 European treasury markets. 262 00:23:12,242 --> 00:23:15,902 And so with that, we have a couple more slides we could go through, but I'm going to pick 263 00:23:15,902 --> 00:23:16,302 one. 264 00:23:16,502 --> 00:23:17,622 Everybody's talking about the Fed. 265 00:23:17,622 --> 00:23:22,562 I think as it pertains to what we focus on Bitcoin, hard assets, neutral reserve assets 266 00:23:22,562 --> 00:23:26,302 in the digital age, we do have some signal out of the gold markets throughout all this 267 00:23:26,302 --> 00:23:26,742 chaos. 268 00:23:26,742 --> 00:23:33,062 And I think it highlights that gold is actually being used as a just true reserve asset in these times. 269 00:23:33,182 --> 00:23:36,362 Many people are expecting gold to skyrocket. 270 00:23:36,562 --> 00:23:37,702 We were talking before we hit record. 271 00:23:37,782 --> 00:23:41,522 I didn't even realize it hit right around $4,000 earlier today. 272 00:23:41,602 --> 00:23:47,222 I guess a wick down to about $4,000 currently sitting at $4,469. 273 00:23:47,742 --> 00:23:50,182 But many people are saying, hey, isn't this supposed to be a flight to safety? 274 00:23:50,182 --> 00:23:54,722 But it seems like particularly in the Middle East, as all this infrastructure is getting blown up, 275 00:23:54,722 --> 00:23:57,582 You have people leaving these countries. 276 00:23:57,882 --> 00:24:04,742 Real estate in Dubai is down something like 40% to 60%, depending on what index you look at to track that. 277 00:24:05,242 --> 00:24:13,662 It seems like these countries are needing to tap into gold reserves to actually tap into liquidity to put cement in some of these holes that are emerging. 278 00:24:14,722 --> 00:24:21,822 Yeah, I mean, it's a funny, crazy move that I think is probably not what a lot of people would have expected on an e-jerk basis. 279 00:24:21,822 --> 00:24:27,142 But, you know, it's yet another iteration of, you know, in a crisis, you sell what you can, not what you want. 280 00:24:27,682 --> 00:24:32,562 But I think it's also, and to be fair, also like gold is probably overdone. 281 00:24:32,802 --> 00:24:34,422 Big, massive recent move. 282 00:24:34,542 --> 00:24:35,702 And this is just an ugly chart. 283 00:24:35,822 --> 00:24:38,602 So probably due for, you know, a puke on just on that basis. 284 00:24:38,602 --> 00:24:52,462 But I think it's interesting because if you flip down one slide, it's showing you, I think, the beginnings of gold actually becoming more relevant again as a reserve asset to absorb trade surpluses. 285 00:24:53,202 --> 00:25:04,182 And it's kind of exactly, Michael McNair makes this point that it's kind of exactly what you would expect when these massive trade surplus economies in the Gulf kind of see their trade surpluses temporarily shrink to zero, right? 286 00:25:04,182 --> 00:25:12,342 When top line goes to zero and the bills still need to be paid across the country, the place you can tap into is the neutral reserve asset. 287 00:25:12,782 --> 00:25:18,362 But you can only do that if you've been building reserves of that asset to absorb prior trade surpluses. 288 00:25:18,662 --> 00:25:21,062 So this is kind of an unwind. 289 00:25:21,302 --> 00:25:26,722 This unwind is telling you that something has been happening over the last few years, the last decade. 290 00:25:26,722 --> 00:25:28,042 We've kind of known this anyway. 291 00:25:28,182 --> 00:25:30,182 If you look at just sovereign gold buying, right? 292 00:25:30,182 --> 00:25:36,382 If you look at most sovereigns kind of on net, not no longer buying treasuries as of, I think, 2015. 293 00:25:36,782 --> 00:25:43,522 Clearly, there's been a big move and an accelerated move in the last couple of years, especially since Liberation Day into gold to absorb trade surpluses. 294 00:25:43,522 --> 00:25:48,882 And so it's it's counterintuitively kind of like exactly the move you would expect to see if that were happening. 295 00:25:48,962 --> 00:25:59,962 Right. If if you had a bunch of people who are a bunch of countries that needed to move into gold to as a flight out of other things, then, yeah, you'd see a bid or at least a sustained price in this kind of environment. 296 00:25:59,962 --> 00:26:11,442 But this big sell off is telling you there are big trade surplus actors out there that need to tap into this because they need something to sell to cover, you know, expenses and keep the lights on. 297 00:26:11,442 --> 00:26:16,242 So that, I think, is to get to tie everything back to what we do here with Bitcoin. 298 00:26:16,242 --> 00:26:26,682 I think fundamentally, this is actually on a longer run basis, a medium term basis, pretty bullish for the hard assets as absorber of trade surplus thesis. 299 00:26:27,062 --> 00:26:42,002 As gold fulfills that role more and more, which I frankly expect it to over the next five years, 10 years, this sell off notwithstanding, that's just opening up a bigger and bigger market for neutral sovereign assets that can serve as that kind of absorption. 300 00:26:42,002 --> 00:26:54,042 And I think that only just primes the pump further and further for eventually meaningful actors around the world to understand and act on Bitcoin's relative value proposition relative to gold. 301 00:26:54,042 --> 00:27:11,802 Yes, and we'll end it with this. And again, fog of war before I share the screen and show the tweet. I think this is a newly appointed part of the Iranian regime as they're trying to re-architect their administration or their high levels of power as the war decimates the IRGC. 302 00:27:11,802 --> 00:27:29,242 And he came out and tweeted last night, I believe, alongside military bases. Those financial entities that finance the U.S. military budget are legitimate targets. U.S. Treasury bonds are soaked in Iranians' blood. Purchase them and you purchase a strike on your HQ and assets. We monitor your portfolios. This is your final notice. 303 00:27:29,242 --> 00:27:34,882 And so obviously some very, very strong rhetoric here from MB Golubiff. 304 00:27:35,522 --> 00:27:47,842 But I think it highlights that whether or not people truly react to this specifically, I think it does highlight some some truth where the global reserve asset, the world being U.S. 305 00:27:47,902 --> 00:27:52,422 Treasuries does come with increased political risks, especially today. 306 00:27:52,422 --> 00:28:01,182 And the case for a neutral reserve asset, whether it be gold or Bitcoin, is only getting stronger by the minute here as this war continues to wage on. 307 00:28:01,422 --> 00:28:02,242 Co-sign once again. 308 00:28:02,482 --> 00:28:03,242 We'll be back next week.