The Real Risk Goes Beyond War

0:05Mikkel Rosenvold:Hello all there. Welcome to Real Vision. Welcome to Macro Mondays. My name is Mikkel Rosenvold. I'm joined as usual by Andreas Steno, my co-host, for another jam-packed Monday show, Andreas. We should be getting used to this by now after almost, what is it, 15 months of this Trump presidency. but these Mondays are never boring. How about this for a Monday, Andreas? Crazy volatility in markets over Trump's opening remarks just before market open. We'll try to unwrap it a little bit, but what's the day been like for you so far, Andreas? It's afternoon here in Copenhagen, of course.

0:41Andreas Steno:Well, you kind of know that. We had lunch with a potential upcoming business partner while Trump was tweeting from the loo. And all of a sudden, everything turned around. I'm personally pretty satisfied with what we've seen today since I haven't implemented any index hedges. We've been patient so far with a decent result. We've obviously made some changes to our portfolio, but we've been of the view that you needed to implement, say, smart alpha rotations to your portfolio instead of betting on an outright meltdown. And that has so far been an okay view. It is incredibly difficult to have a strong directional view here, since it's very dependent on these negotiations between Trump and Iran and whether there are any fruitful negotiations we don't even know.

1:31Andreas Steno:I'll hand the word to you in a second on that. but i'll i'll say this and i i think it's fairly safe to say even though i'm a young money manager um i don't think we've ever had a presidency with at as much random arbitrary volatility creation as the one um with with trump here and it's it's one thing that i'll actually say again today i i think it is incredibly sad that politicians do not face the same economic consequences as the most market participants from this volatility because it obviously incentivizes them to keep going on random volatile decision makings that they do not face the full consequences of the volatility.

2:20Andreas Steno:And I obviously refer to the fact that it is too easy to incite trade in the US. It's been like that for a while. It was also an issue at the old administration. We've obviously seen similar issues around the globe, so I'm not speaking solely about the current administration. But politicians, if they were to face the consequences of their volatility creation, they would probably be inclined to make less volatile decisions. And I think this is another example of it.

2:49Mikkel Rosenvold:Yeah, very, very fair point, Andreas. We'll get more into that. I actually bought a screenshot. I think we're talking about the same thing about that. We'll see if we have time for that. Otherwise, if not, I do completely agree with that, Andreas. it was a bit of a strange lunch we had today because we were sitting there having a good conversation and then I could send in the corner of my eye I could send the Danish live news channel going into breaking mode and I noticed you going into breaking mode which means you're looking down on your Bloomberg app on your phone and I was trying to keep the business meeting alive in between that so that's how things are it's very very tricky to do even lunches you know usually we have some peace and calm in the morning in the lunchtime here in Europe But that's getting taken away from us, even to Andreas.

3:33Mikkel Rosenvold:So anyway, we'll try and unwrap much more of that. But just a few announcements here. Remember that the arena is live. That's Real Vision's new Trade Idea competition. It's your chance to win$7 ,500 in cash in a free year of Real Vision Pro. So another year of having to look at Andreas and me. The total prize pot is at about$25 ,000. You should visit realvision.com slash arena to join up. And I think, Andreas, usually I would say when you're in the middle of such a competition, it's very, very hard to get in and get a proper return on investment. And yes, you probably have to make some quite exotic trade.

4:12Mikkel Rosenvold:But with this volatility we're seeing, who knows? If you have a good idea, a good option call, throw it in there and let's see who wins it. It's a lot of fun in there already.

4:23Andreas Steno:Yeah, let me put it like this, Mikkel. I mean, the trades that were on top of the leaderboard on Friday, they have had a very bad Monday. So, I mean, there's still time to participate.

4:36Mikkel Rosenvold:There's no exiting them. So that's a very, very good point. Anyway, that's going on. Remember, we have a very, very strong week for you this week on Real Vision. We will obviously be following all the developments in the Iran war. We're posting notes throughout the week. You're publishing your standard signals today, Andreas. I'm publishing in the drill. I'm looking at some of the plan Bs that we might be seeing from the Trump administration on military, the timelines for those military solutions we might be looking at. Tomorrow, we have a macro meets micro show, Andreas. We're trying to find out what stocks to buy amidst all of this.

5:12Mikkel Rosenvold:It's going to be very, very tricky. We're going to probably have to look a little bit longer on a slightly longer horizon than most people are focused on right now. but always a great show where we go over our model portfolio that you can also follow on Real Vision. We obviously have our articles, as I mentioned. And then remember on Friday, even if you're not a Real Vision subscriber yet, or if you're not a paying subscriber, we have our free-for-all drinks with show. And so last time we didn't really do drinks. We were both on baby duty, essentially. I don't know about that on Friday. I think I have my daughter covered.

5:47Mikkel Rosenvold:I don't know about you, Andreas, but it's always a lot of fun. a little bit more shooting the shit than, I don't know, we're also shooting the shit every Monday here. But anyway, that's coming up on Friday, free for all.

5:59Andreas Steno:As I've told our editors already, I mean, I'm pretty unhinged without drink in my hand. So if we allow me like 60 minutes of airtime drunk, I'm not sure where that ends up. Maybe we'll get sued. I don't know.

6:13Mikkel Rosenvold:We'll have to see. Maybe that's a good point to throw in our usual disclaimer here that especially in times where we're trying to essentially do prognosis of an ongoing war, we try to be as actionable and honest as possible, but our predictions might be...

6:30Andreas Steno:Sometimes it may be good, sometimes it may be shit.

6:34Mikkel Rosenvold:Absolutely. Okay, Andres, I want to start in a completely different realm than Iran for the laugh of the week. So you and I have talked a lot about what's going on in Dubai. It's relatively close to Europe. We have a lot of business partners and people we know living there. It's a very, very tough real estate market looking forward. Maybe one place that's worse to own real estate than Dubai right now is this. I don't know whether this is ironic, but the metaverse address. This guy mentioned that he owned four properties in the metaverse. He bought one of them for over$200 ,000. it was supposed to be the next frontier and the frontier closed last week I mean it seems like Mark Zuckerberg and Meta are just able to move on from this I mean they renamed their entire company maybe it was a good timing to throw this out during an ongoing war I don't know but very very happy I didn't cash out on property in there did you own anything in the metaverse Andreas?

7:35Andreas Steno:No, I'm not sure which one is more empty Dubai or the metaverse at the moment, but I thankfully never got involved in it. I actually held some sympathy for the view that we could interact socially with each other in the metaverse, but I'm probably also an introvert by nature, so I would love to see all of my meetings move into such an arena, but in any case, it's probably no longer valid.

8:08Mikkel Rosenvold:No. Okay, Andres, enough about the metaverse. Max Zuckerberg, he'll get some rest for this week. And on to Iran. So, Andres, we've been scrambling to try and understand what's actually going on this morning and during today. Obviously, over the weekend, we had the threats, Donald Trump posing threats, that he would begin attacking Iranian power plants within 48 hours if they didn't reopen the street. That deadline was moved ahead five days towards the end of the week here in the light of emerging talks between the U.S. and Iran. Then we had the Iranians completely debunk this. They had no knowledge of these meetings.

8:51Mikkel Rosenvold:Now we're getting an understanding of what's happening, I think. And I'm happy we didn't do this show three hours ago because then we would have been even more in the dark. So what we do know, Andreas, is that there have been what we call indirect talks. So a trio of Pakistan, Turkey and Egypt have had talks with both Steve Witkoff, the US envoy, and most likely either the Iranian foreign minister, Arbaghji, or Ghali Ba. I think his name is. Sorry for mispronouncing that. I'm getting those confused a little bit. But anyway, the head of the Iranian parliament. So we know these indirect talks have been happening.

9:28Mikkel Rosenvold:We know that there are plans to set up a summit later this week in Karachi in Pakistan, potentially with Steve Whitcomb, Jerry Kushner, maybe even J.D. Vance, which is interesting, participating and some folks on the Iranian side. The big question here is, for me, do these guys represent Iran? Are these sort of back-channel talks? Because Trump has sort of been signaling this as a quasi-regime change. We don't know that. But there are some talks going on. For some time this morning, I thought this was complete bullshit by Trump. We have to admit, some talks are going on, and that justifies some of the market, some of the price action we've seen today, in my opinion, Andreas.

10:07Mikkel Rosenvold:So maybe bring us up to speed. What's the current sentiment in markets right now, and how do you see these movements today?

10:14Andreas Steno:I mean, it's obviously a big relief, Riley. and I basically think that what is happening right now is that we've priced out the risk of these tit-for-tat attacks on energy infrastructure that was otherwise sort of the base case just a day or two ago, right? So in that sense, we're probably back to where we were like on Thursday. It's not like we're back to where we were at the beginning of the war, which is entirely fair. Much of the analysis that we've done, and it's very difficult to write longer research papers amidst this because it's happening so fast. And I saw my friend, Dario Perkins, tweeted that, you know it's a crisis when you just accept staring at the screen, monitoring the situation without really writing anything because what are there to write?

11:07But having said that, one of the things we've had a look at,

11:11Andreas Steno:which is obviously very important now is how much damage has already been done even if we you know turn back time and and assume that the strait will reopen um is there still damage and and the answer to that question is yes now i mean you cannot just turn back time to before the crisis started uh because we do have some lack consequences of what's been going on and as I've written the past few days, the clock is starting to tick now, if you know what I mean. The countdown until this turns really bad basically starts right from today because there is a lag between the beginning of the war and until you see the actual supply shortages.

11:59Andreas Steno:And to take the simple example, it takes approximately three weeks to sail from Qatar to Japan. A little bit more than three weeks on average, probably. Meaning that all of the ships that left Qatar just ahead of the war really starting to spiral out of control, they have basically arrived over the past few days here. So the real consequences on ground will be seen from today and onwards, roughly. And maybe that has impacted the whole process here. Maybe the Americans have been told by their Japanese counterparts when they met, was it late last week, that it's starting to bite now. Maybe that is the real reason why we're starting to see some back-channeling.

12:45Andreas Steno:I don't know. But in any case, I've held the view basically since the onset of this war that as long as we could solve it, say within four or five weeks, so this week or next week, We will get through this without any major shock to the business cycle. You know, there are already ramifications for prices, etc. We'll get back to that. But as long as we solve it this week or next, I think we'll manage. But the countdown is starting to bite. We really need to see some progress. And we admittedly have seen some progress today, but we're not there yet. So a quick break in your regular programming.

13:22Mikkel 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. No, absolutely. I think just to give a little bit of insight into my thinking on this, I'll elaborate on Wednesday in our weekly article there. So it's very clear from the U.S. perspective they have achieved most of the objectives, depending on what you define as objectives. Have they managed to take out the Iranian nuclear program? No. So that's still left for discussions or for negotiations.

14:01Mikkel Rosenvold:I don't think they can feasibly do that. And then there's the Strait of Hormuz question, obviously, that they need to solve. Other than that, Trump is pretty happy to walk away from this. So that's the one side of it. Then there's the Iranian side. And it's interesting because obviously, as we've talked about, the Iranian response to the U.S.-Israeli attack was much, much stronger and very much more asymmetrical than what we've seen earlier and probably what the U.S. was expecting. So where is Iran now? Well, they're fighting for the regime's survival. So this means that there are only really two things that can ensure their survival.

14:34Mikkel Rosenvold:One is a nuclear weapon. The second is a hostage. And that hostage is right now the Strait of Hormuz. So the Iranians either have to keep that hostage to make sure that the U.S. don't attack them, or they need something to replace that. So they need some sort of security guarantee that covers not only the U.S., but also Israel. That is very, very simply what Iran is going to be looking for here. And if they have to give up their dreams of a nuclear weapon, they have to get something very, very tangible in return for that, which would correspond to some kind of security guarantee. that probably also involves someone like Russia, China, guaranteeing this, which makes it very, very complicated because do they trust the words of the US?

15:16Mikkel Rosenvold:Do they trust the Israelis? It's very, very tough. On the other hand, this is a very, very clear-cut deal. You're not talking about exchanges of territory. You're talking about the Iranians. They don't want to get attacked anymore. The US wants no nuclear weapons at an opening of the strait. So, I mean, these things can be worked around. I think there is a way to a deal. There is also a way to a deal that Trump can somewhat sell as a victory back home. He has set back the Iranian ballistic missile program. How important is that when they have drones? We can discuss that. He has done that. He's taken out the top leadership.

15:50Mikkel Rosenvold:He can argue that this is some new sort of Iranian leadership. It's not a regime change, but it could be sold as such. So I see a way forward here. And what we also know, which is a bit unreported, is that inside Iran, you have massive rationing of both foreign currency, especially food, fuel, everything. So the Iranian civil society is very much beginning to feel the pressure of this. They can probably stomach this for a few more weeks. After all, we're talking about a war survival for the regime. But obviously, they are taking their toll as well. So, yeah, maybe we're looking at the exact timeline that Donald Trump told us a few weeks ago.

16:35Mikkel Rosenvold:We should have just stopped listening to all the bullshit in between that this was going to be a three to four week war and then it's going to be over. I don't know. It's been a hell of a ride, Andreas. And let's see where it goes. It's very, very tricky to predict these things. We have to admit. Mikko, I know that a lot of people ask questions around this as well.

16:55Andreas Steno:While you were talking, we just got a headline on Bloomberg here stating that the Iranian state TV said that the U.S. tried to negotiate with Iran via these intermediaries, but they decided not to respond to those approaches. So how do you read the communication from the Iranian side? They're obviously at least publicly refusing to acknowledge what Trump is saying. Is that to be expected or is that also like optics in terms of how they present this at home?

17:29Mikkel Rosenvold:Yeah, I think two things. One is that they're obviously trying to up the price here. What Trump did today was essentially lower his price in these negotiations, showing a great willingness to get this done. Iran is trying to signal that they can wait, essentially. It's the Putin strategy. It's also possible. I don't know this. It's possible, going back to what I talked about a few weeks back, that we are seeing some power struggles within Iran, that we are seeing some power struggles between the clerical side, the priests and the RGC, and then the civilian leadership, the secular leadership, on the other hand.

18:00Mikkel Rosenvold:That is very much, it sounds like that from what the US is telling us. If it's happening, who knows? It's very, very tough to say inside. So that's, it's possible that we see some sort of power shift. We shouldn't expect the Ayatollah to be removed or changing the flag or whatever. It's going to be a bit more silent behind the scenes. But we could see a power shift away from the IRGC and the priests over to the secular side of things. That would make it a lot easier for the U.S. to do a deal with them, a lot easier to sell this as a semi-regime change and a better future for the region. So, yeah, that's the hopeful version.

18:34Mikkel Rosenvold:Also, just one final point to address. This new five-day deadline is interesting. First of all, five days from that, when that deadline hits, the markets are going to be closed for the week. That's one thing. Second of all, at that point, we're going to have another U.S. Marine Expeditionary Unit arriving in the Gulf, probably in place to invade Cargill. So we have some sort of fork in the road coming up where the U.S. will have to decide on escalation or negotiations, and the same for Iran. So that is probably also part of this play that the U.S. are putting more military units in place over the next days and weeks to escalate here.

19:15Mikkel Rosenvold:So it is an escalation game, and the U.S. has to be very, very careful not to fall in an escalation trap.

19:21Andreas Steno:But let me say a few things, Mikkel. I don't get a lot of friends by saying this, but last week we had this discussion on whether the Iranians managed to hit more targets and do more damage than what they did during the first couple of days of the war. And a lot of people claimed that I was just listening to the Iranian authorities and not to the Israeli and U.S. authorities on that question. And my answer to those people claiming that is that you cannot trust either side for true information in times of war. I'm not saying that the U.S. is not decently close to the truth, but you cannot take information at face value amidst the war.

20:03Andreas Steno:That's also the case if the war is in Europe. That's always been the case historically that you, of course, try to paint the picture that you want the public to know about, right? And it is very difficult to get verified numbers on the nominal amount of, say, drone attacks or ballistic missile attacks on the UAE, on Qatar, on Kuwait, etc. because who's there to verify it? So what I've used is these so-called open source OSINT sources, which at least I think they're directionally correct on many of these things. Whether they are normally correct is a very different question to answer. But yeah, I just wanted to remind people of that.

20:46Andreas Steno:It is incredibly difficult to find information that is 100 % accurate in times of war.

20:52Mikkel Rosenvold:Absolutely. Absolutely interesting. Okay, so let's try and look a little bit beyond the situation on the ground here. Look at the macro picture here, Andreas. We had the Fed meeting last week. I wanted to bring up the good old dot plot here. So no interest rate changes as expected last week. A raise of the inflation expectations. So what were your takeaways from that meeting and how much of that is caused by the Iran war? So two things.