Markets React to US-Iran Conflict

0:00Moments.

0:02Andreas Steno Larsen:They have the power to change everything. The moments we try something new. The moments we travel thousands of miles. In seconds. The ones that transform how we spend. How we save. How we build. The moments we connect and create memories that last a lifetime. The moments 300 million people say in unison, we want a better way. But the moments that really matter are the ones that come next.

0:51Mikkel Rosenvold:Hello all there, welcome to Real Vision. Welcome to Macro Mondays. after a very, very hectic weekend. Geopolitics is back to destroying all your backs out there. Sorry about that, guys, but we're trying to wrap it all up this Monday. My name is Mikl Rosenwald, and I'm joined as usual by Andreas as we try to make some sense of everything that's going on and the market reactions. How are you doing this Monday, Andreas?

1:19Andreas Steno Larsen:Well, everything is up in the air. Let me put it like that. We just had the ISM index released just 30 seconds ago, and it's roughly flat since a month ago, but prices paid are up. And I guess it relates to what we see in the energy space, shipping space, not least. And therefore, it ties very well into what happened over the weekend, of course, as well. So I guess we'll spend most of the time today trying to assess what's ahead in Iran. But there is also a lot of stuff ongoing in technology and elsewhere in the macro space, even though everyone's obviously focused on the Middle East for good reasons.

1:59Mikkel Rosenvold:Absolutely. We'll try and get around it all. I'm sure most of you guys listening to this will have been monitoring the situation, I should say, over the weekends. So we'll try and answer some of the key questions and give you some perspectives for that. Remember, this is our weekly free show at Real Vision. We're very excited to do this every week to give you this sneak peek into our research and analysis. We do post three paid articles on Real Vision each week, sometimes more, actually. To get access to that, you need the approach here with Real Vision that also gives you access to a lot of interviews and shows that we do on there.

2:36Mikkel Rosenvold:So that's that. Remember, we also run a model portfolio that should be doing better today, Andreas. out of the gate with some of the bets that we're in in the energy space. Let's see about that. In any case, remember, we try to be as actionable and concrete as possible in these podcasts to make this as useful as possible for you as an investor. But that also means that our trade ideas and recommendations, they may be.

3:01Andreas Steno Larsen:Sometimes it may be good. Sometimes it may be shit.

3:06Mikkel Rosenvold:Hey, everyone. As you know, on this podcast, I bring the best guests in the world at that nexus of understanding of macro crypto in the exponential age of technology. If you're enjoying the show, a quick five-star rating goes a long way. It helps us grow and keep these conversations coming with the best guests in the world. Thanks a lot. And perhaps especially so when things are really hectic addressed. Okay, so we had quite the weekend addressed. Donald Trump won't let us have time off here. So already Saturday morning, we received European time. we received the news of the ongoing attack on Iran.

3:42Mikkel Rosenvold:It's been ongoing, day three now. Initial U.S., huge U.S. military success wiped out a lot of the Iranian military and political leadership without almost any U.S. casualties. That almost goes under the accident bucket there. So huge U.S. military success, but also a wider, more aggressive, more unpredictable Iranian response. We're used to seeing Iran respond more one-to-one against Israel in the U.S., but it seems like their calculation is that while hitting U.S. bases in the region, they're prepared for that. Hitting Israel with missiles and drones, they've been doing that for 50 years. Let's try something new.

4:26Mikkel Rosenvold:Let's attack Dubai, Bahrain, Doha, all over the Middle East, essentially also targets within Saudi Arabia. So that was sort of the main surprising element to this, except, of course, for the Supreme Leader of Iran, Ali Talaam Khamenei, ending up dead address. So maybe let's start with market reactions out of the open today. What are you seeing on markets? And is it as expected? Yeah, more or less.

4:53Andreas Steno Larsen:I mean, at least for now, oil basically peaked at the open bill. I guess it makes sense that we need to add a pretty substantial risk premium in the energy space. We've also seen natural gas prices at the peak rising roughly 50 % in Europe due to supply constraints out of Qatar, which has become one of the bigger suppliers of LNG to Europe. So it is an incredibly tense situation in the energy space. And I'll put it like this. I mean, I don't necessarily think that we have a supply issue of energy. We have a supply issue of shipping. Obviously, due to the risks of sailing through the Strait of Hormuz right now, it's not that it's closed, but you don't know whether you get a missile thrown at you.

5:45Andreas Steno Larsen:And obviously, the insurance on the riders, they're not willing to insure ships. And, you know, everything is up in the air in that sense. I think tankers, I just looked them up now, they're almost up 400 % since New Year's. It looks like a meme coin. So in that sense, I think the shipping venues are basically the most important to talk about here because it's not like we don't have an oversupplied oil market. It's a matter of getting the oil from A to B now. And we obviously also saw how OPEC opened the taps yesterday. Yesterday, they added more to the future production for April and onwards than expected.

6:29Andreas Steno Larsen:But it doesn't really matter if you cannot get the oil from Saudi Arabia to the end consumer, right? So, yeah, I guess the key question is to answer when does this end, right? Because, you know, we got this, was it a four-week window from Trump? I don't know whether that was anything he had planned on answering to. I mean, was it just the time frame he just took out of thin air? I don't know. But Mikkel, you've obviously written a whole article on this topic, what to expect, and so on and so forth. So fill us in a little bit on that.

7:03Mikkel Rosenvold:Yeah, so a few ways to approach this, Andreas. Obviously, you need to take into account what Trump is telling us here. When he says four weeks, that's probably the ceiling. That's probably the max here, because you wouldn't say two weeks, and then you go over that deadline, that's poor news. And also you want to send a signal to the enemy that that is the most important thing here, that you're in no rush here. That's what Putin has done so well during these negotiations with Ukraine. Not that we're going to talk about that, but to signal that he's in no rush. I mean, let me know when you're ready to negotiate.

7:38Mikkel Rosenvold:And that is essentially what Trump is saying here. And in this type of war, four weeks is the same as four years in a war. in Ukraine, because this war is not going to be multi-year, but four weeks is a long time. I think that's a max. I don't think it could go on for that long, partially because, and that's the first point here, that Iran has managed to raise the costs of keeping this war going. And now I'm not talking about the financial costs, because the U.S. can stomach that, but the costs related to U.S. relations and PR in the region. So, as I mentioned, what Iran did differently this time around was to attack on Dubai and those sort of cities.

8:24Mikkel Rosenvold:Let's just use Dubai as an example here. It's the most visible, most well-known example of this. That was something new. You almost never see attacks on Dubai in these situations. And I mean, the UAE didn't attack Iran. So why are they throwing missiles at them? Well, Iran is a cornered beast here. They don't have a lot of options. So they throw some missiles at Dubai because throwing missiles at Israel doesn't really help. They're used to that. They can stomach that. Dubai can't. Dubai is not built for this. Now, I know Dubai did a great job or the UAE did a great job of shooting down drones and missiles.

9:01Mikkel Rosenvold:They did an incredible job. They're going to do a lot of restocking at Lockheed Martin for this. if you're into those kind of stocks. But still, those drones that were shut down and then fell down into hotels, those that got through, it's not what you expect when you move to Dubai. And the Emirati leadership knows this, and they are under heavy pressure to get this done as quickly as possible. And they will exert that pressure on Trump. And that's where they will expect return on investment on all the Trump coins and donations to the Board of Peace and whatever they spend money on, or the FDI they promised Trump.

9:37Mikkel Rosenvold:So Trump is under heavy pressure by UAE, Qatar, Bahrain, the Saudis as well. Even though they support the idea of removing the leadership in Tehran, he's under a lot of pressure to get this done because Dubai is that kind of country. Everything is going so well. Don't rock the fucking boat. No missiles, no shit. People need to get in and out of their pools without looking to the sky. don't rock boat kind of country. And that rhymes very, very poorly with a four-week war because can you imagine having Doha, Dubai, Abu Dhabi airports closed for four weeks? That's a disaster for the US-led world economy, essentially.

10:19Mikkel Rosenvold:So that's one point. Makes it very, very costly. And that way, it is what I called deviously genius by the Iranians. On the other hand, just to reflect it, inside Iran, we're seeing obviously a power vacuum, the Ayatollah is dead? Who will gain power? We don't know. Right now, the foreign minister of Iran confirmed to us that the revolutionary guard is running this war. Not the army, not the president, not the Supreme Council. No, the revolutionary guard is running this war. So are they going to appoint the next Ayatollah? Is the next Ayatollah being, will he be able to control the revolutionary guard?

10:54Mikkel Rosenvold:We simply don't know. So there's a power vacuum. There's an opportunity for a new leader to strike a deal with the Americans, but we simply don't know yet. We don't know how many people have been killed inside Iran. We know, just a little anecdote here to round this off address, we know that, I don't know exactly that this is how it played out, but we heard that once they had confirmation in Mar-a-Lago that Khamenei was dead, Trump looked around and said, okay, get me Jared Kushner on the phone. I know he, Jared Kushner, has prepared a list of potential successors. And they went, okay, we have five, six names here.

11:27Mikkel Rosenvold:This guy, oh, we killed him. This guy, he got killed as well. And essentially their entire list of successors were also killed. They were that efficient. So now they're going to not only plane B, but maybe plane C to find out who on earth can we try and put in there. And it's a very, very delicate situation within Iran. So to sum this up, Andreas, four weeks is an absolute max. I would, my best guess would be one to two weeks. It's even possible that you have a new leader in Iran who wants sort of a clean slate. Let's get this done and we can work from there. So there are some openings. There's a lot of pressure to get this done very, very quickly.

12:04Mikkel Rosenvold:The war is not super popular within the US. The polling is not catastrophic, but it's not super popular either. And it's, the best thing would have been a weekend war. They couldn't quite get that done. But to get it done within one to two weeks would be ideal, I think. So that's sort of my timeframe. I also just show this quickly. You can read my article if you want to get more into the numbers and the economics of this kind of warfare. We usually see a very, very quick drop in the marginal effectiveness of these bombing attacks. We saw that back in Yugoslavia in 1999. So I have some numbers in that and some thoughts on that in the article that also makes it almost like a business case for continuing this.

12:46Mikkel Rosenvold:So, yeah, that's my best guess, Andres. And to relate that back to markets, it's hard for me to see a full reversal in the oil price trend before we have a resolution to this war. I also think that you're going to see, I'm curious to hear your take on this, you're going to see continued nervousness in equity markets. Probably LNG is the biggest impact right now. So what do you think, Andreas, if this drags on for another two weeks, what to look out for and when to shift your positioning? Okay, Michael, let's bring up some numbers on the sensitivity to what's going on in the Middle East.

13:30Andreas Steno Larsen:We can maybe start on page 10. Yeah. So, you know, we've obviously covered this Iran story throughout this year, obviously also last year when we had the bombings back in June. So we have quite decent empirical data on what works and what doesn't work in markets when we have this kind of turmoil within Iran. And this is pretty much a heat map of what to buy and what to sell in case that this turmoil continues. VLCC is related to shipping. So the tanker story that I referred to is obviously related to this one. You also have the tankers index at the top of the leaderboard here. But also do note that we have military drones, European defense stocks, and stuff like that up there.

14:19Andreas Steno Larsen:Drones have reprized massively higher this morning, as we also wrote during the weekend. It is, I think, our second or third biggest accumulative bet in our portfolio, these military drones. So that's what's been protecting our returns since Friday. and uh to me that's probably the single biggest story outside of the energy space uh the drone that uh made its way all the way through to the reception of the fairmont hotel um at the palm in in dubai uh even though thankfully uh no one died um it's still a big deal you know i've slept at that hotel um and uh you don't get a you know a cleaner um story than than that exact drone and the need for anti-drone equipment after this.

15:15Andreas Steno Larsen:Even if you're, say, an airport or an oil company, whatever, right? You probably need some infrastructure yourself now after having watched this. And we have a couple of names within this counter-drone technology space. I think both DroneShield and Ondas are a very obvious mixture on this story. Having said that, I actually think it's worthwhile noticing that gold is obviously positively correlated to this, but also Bitcoin, which was kind of a surprise to me. But we've also seen very resilient price action in Bitcoin since Friday. And I think that's a surprise to many, but it is actually empirically backed that Bitcoin thrives when Iran is faced with unrest.

16:03Andreas Steno Larsen:And then towards the bottom of the leaderboard, we have stuff that struggles when the Iranian airspace is closed, for example. Very simply speaking, if you want to get from London to Asia, you either need Russian airspace, that's closed, or you need Iranian airspace, more or less, right? Of course, you can take a very, very big detour south. But the Iranian airspace has basically been the go-to option since the Russian war. and obviously right now you're not going to to fly through there and that is first of all expensive due to you know canceled flights refunds and all of that but it's also expensive if they have to fly south it's a much longer tour it's much more expensive from an energy perspective And that's why EU allies, for example, suffer when this stuff happens.

17:00Andreas Steno Larsen:In the middle of things here, we actually have like broader equity exposure. I think while we've been talking, Michael, small caps have flipped positive on the day. We're almost back to zero in the broader S &P for the day. So, I mean, it seems like worries kind of peaked at the open bill for the futures overnight. And I've been very explicit about this. I'm actually not overly worried about having broad equity exposure despite this. It, of course, depends on whether we get a complete meltdown in the strait of Hormuz, but it seems like the US has been very adamantly been preparing for this. so for now also oil prices seem to have peaked at the open bill and i wouldn't be overly surprised if that was the case um i know that's a very contrarian call at the moment uh but um you know you can take lots of historical examples of this um for example the invasion of iraq actually equity markets bottomed right around the invasion date right and we're not even talking about an invasion here yet, right?

18:06Andreas Steno Larsen:Hopefully we do not at all. So especially if you're right in the timeline, Michael, we'll probably get through this. And as I said in the numbers I refer to here, the military drone story is a good hedge. And then you obviously find very good hedges within the NatGas space and the energy and shipping space if you want to hedge against what's going on. And I think maybe the underreported story, I mean, every time you get these issues in the Middle East, you see various economists and business leaders making the rounds with the viewpoint that, or not the viewpoint, with the fact that 20 % of all daily oil flows go through the Strait of Amoose.

18:57Andreas Steno Larsen:And it's obviously a fact, right? And we all know that. What is probably underreported is that 30 % of fertilizers also go through this region, right? So that's where it becomes a little bit tricky if this is a sustained situation. Because if you see price inflation in fertilizers, it will obviously spread to food prices and other necessities. So I actually consider nat gas to be a bigger deal than oil here, obviously due to the link between nat gas and fertilizers as well. So a quick break in your regular programming.

19:34Mikkel Rosenvold:If you're serious about your future, grab my free report called Prepare for 2030. I think you've got five years to make as much money as possible. And this guide will help you navigate what's coming. The link is in the description. Download it now. One point here, Justin, that also goes to some of the questions that we've been receiving. People are worried about sort of this spinning out of control even more than it already has. So I just wanted to put a few words to that before we move on a little bit. So people are talking about World War III. You're talking about why isn't Europe doing anything?

20:07Mikkel Rosenvold:So this has so far been contained reasonably well. It's hitting Dubai and all these other places that we didn't necessarily expect. That's bad for the US. But China's not getting involved. Russia's not getting involved. Saudi Arabia is trying its hardest not to get involved. Turkey's not involved. Egypt is not involved. Pakistan, India, not at all involved. So we do have that containment that makes this very, very explosive because of the state of Hormuz, but not a worldwide phenomenon. This is not going to erupt into a much larger war. This is not hopefully going to throw Iran, as I've been talking about of the worst case, that if you simply removed the regime and did nothing else like the U.S.

20:53Mikkel Rosenvold:did in Iraq 20 years ago in Iran, that would be a horrible scenario. That's not going to happen also because when the UAE is calling Trump right now, they're saying, yes, we want revenge against the Iranians for doing this. But more than anything they want, don't rock the fucking boat. Everyone wants someone in control of Iran. They don't want it to be the Ayatollah, but they want someone who can control stuff because to get a fragmented Iran, that's a horrible scenario. You could have splinter groups all along the strait lobbing drones and ships, etc. So everyone agrees that we need the regime in Tehran to come to terms, to give up the nuclear program, stop funding all these terrorist groups.

21:36Mikkel Rosenvold:But we're probably going to keep the regime there in some shape or form. And that's also what sort of keeps this contained as a story, because you're not looking, hopefully not looking at a totally fragmented situation in Iran post-war. So just to note that this is one positive to take from developments this weekend, that most parties seem very, very interested in keeping this contained. Yes. Yeah. So, Andreas, I have to admit, when stuff like this happens, I become really laser focused on this. I'm not paying much attention to tech I'm glad you are a bunch of stories I just want to get through

22:15Andreas Steno Larsen:now that you mentioned that Europe is not involved we simply need the laugh of the week

22:20Mikkel Rosenvold:it's a good friend Lars here let me just expand it a little bit so maybe it's easy for people to read so our good friend Lars here he's reacting to a tweet about why is Europe not doing anything Ursula von der Leyen the head of the European Commission said, we're going to meet on Monday to react to this, which obviously a lot of people laughed about. It's very stereotypical European. My take on this was, what was you supposed to do? We're not invading anyone. We're not attacking anyone. I mean, Europe is not supposed to be doing anything else than monitoring the situation and then helping. We'll probably have, if things go really, really badly, we'll probably end up dealing with all the fallout and the cleanup of all this, as we usually do.

23:07Mikkel Rosenvold:But I mean, Europe is not involved in this. That's essentially what Lars Kresslund says. And then on my feed, this is from my feed right as I read that, we had boom, now Cyprus has been hit. And Cyprus is part of Europe. Cyprus is part of the EU. Cyprus is part of NATO. So it was kind of funny. I'm not saying I disagree with Lars here, but the UK bases in Cyprus have been hit. So Europe has to get involved in this somehow. And just one note here, Andreas, that I know you're always on top of. When is this LNG situation going to be critical for Europe? Because we're hearing about Qatar stopping their LNG outflows for now.

23:45Mikkel Rosenvold:How close are we to that becoming really, really critical for Europe? Because as you know, as your listeners know, we're not very big on producing our own energy. No, no, no. The piece of good news among a range of bad news here is that we're approximately two or three weeks away from the NatGas season ending, so to speak.

24:08Andreas Steno Larsen:So I'm not worried at all about this year. The issue is, of course, if you need to replenish the storage facilities around Europe at, say, 1 or 2x, the current price point, right? And that's obviously something that will filter through the system from an inflationary perspective if we need to do that. So I guess what everyone will try and do for now, because we can safely get through the next two, three weeks without buying a lot of stuff, is to try and sit on their hands to the extent possible, right? To sit this through and see whether we can get the price point down before summer. So we obviously need to replenish these storages ahead of summer.

24:51Andreas Steno Larsen:But for now, we're in okay shape for the next weeks. If this had happened back in November or December, it would have been a bigger deal, in my opinion. So thankfully, the timing is not too bad, given that we've just entered the spring season from a temperature perspective. And the temperature is actually rising here. So finally, the snow has gone and so on and so forth.