David Woo joins James Connor to warn that a highly likely Israel-Iran war will send oil prices soaring to $100 and trigger significant market volatility. In this interview, David, a former top Wall Street macro analyst anda highly likely Israel-Iran war will send oil prices soaring to $100 and trigger significant market volatility He also discusses how traditional hedges like gold may behave unpredictably in this environment and shares key strategies for managing risk and protecting your wealth as markets brace for potential shocks
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Geopolitical risk right now is probably at the highest level. If I hired any time I can remember for the last 2030, years, the risk of a direct war between Israel and Iran, the two arch rivals in the region, is very, very high. If a war were to basically break out, I think oil is going to go to 100 I think Trump is going to win us. Stock market is going to do very well on its front victory, but you have all these risks right now. They are going up closer we get to the election.
James Connor 0:32
Hi and welcome to wealthy. And I’m James Connor. If you are like me, you have a lot of questions about the global economy, the US elections, and also geopolitics, and I’m trying to figure it all out, to reposition my portfolio for potential volatility, especially if things heat up in the Middle East. To help make sense of all this, my guest today is David Wu and David is a former Wall Street macro strategist, and now he’s out on his own, so he’s no longer constrained by the shackles of Wall Street politics, so he doesn’t hold back. And this is one of the reasons why I always enjoy speaking with David. David, thank you very much for joining us today. We have a lot to discuss on the global economy and US elections, but because you’re based in Israel, this is where I want to begin, and tensions continue to rise between Israel and Iran, and I want to get your current assessment on what’s happening there and what’s going to happen in the coming weeks and months.
David Woo 1:20
Hi James. I mean, thanks for having me. I mean, as you said, I’m in Israel, and all I can tell you is, from my standpoint, you know, I think you know, if you think about geopolitical risk in the Middle East over the past year, since you know, the the attack on Israel on October 7, I would say geopolitical risk right now is probably at the highest level. If I hired any time I can remember for the last 2030, years. And what I mean by very high is that, you know, the risk of a direct war between Israel and Iran, the two arch rivals in the region, is very, very high. I don’t think it’s been higher. I think in my lifetime, in any event. And I think from that point of view, if, over the past year, the market had been concerned about a regional war, okay, only, I mean, the market didn’t really care about the Israel Gaza war, you know that. Mean, people got killed, but the market didn’t really care, and nor did it care about the Ukraine war, as long as the Russians and the, you know, the Ukrainians were bogged down, you know, like the market wasn’t worried that it was going to have spillover effect, much like basically the Gaza war. But Israel and Iran is a very different story, obviously, because Iran being, you know, a major oil exporter and so from that point of view, and Israel obviously goes out saying it’s very important in tech and so on so forth, in terms of us basically presence in the Middle East, but I think in general, there is no doubt. I think all people need to know is this, which is that Israel is going to retaliate after the strike against Israel two weeks ago. Now, basically by Iran. I can still tell you that it was a pretty scary moment. I was hiding in my own I’ve got a nuclear shelter here in my house with my dogs, who are were completely traumatized because the explosions were really, really very loud. I’m talking about explosions of the Israeli anti missile system, basically taking down those Iranian incoming missiles. But the point here is this. What you need to basically know is that Israel will strike back. Probably will be very soon, soon, meaning that in days, as opposed to in weeks. And I would say, most importantly, there’s a very good chance I think Israel is going to strike at Iran’s nuclear capabilities. And I think this is very important, because there are two questions that I think people are interested right now. One is basically what exactly Israel is going to hit, and two, what is Iran going to do afterwards? Okay, now, first of all, I think on the question of what Israel is going to hit, I mean, there’s been a lot of speculation, is Israel going to, you know, basically, is Israel going to hit Iran’s oil fields? I think that’s going to be the last thing on Israel’s basically agenda. Because, first of all oil fields, you know, you could basically blow them up, but they could be, they could be repaired. Actually, the end, they’ll be up and coming. They’ll be up and going again after three months. So you can only bring about temporary disruption if you were to target oil fields, and then at the same time, of course, if Israel were to take out Iranian oil fields, forget about what it means oil price immediately, most likely, Iran will retaliate by basically attacking the oil fields of Israeli allies in the Gulf, meaning UAE, maybe even Saudi Arabia and so on so forth. And I think from that point of view, last thing Israel wants to do is to basically put its allies, okay, in the Gulf, in an awkward position. So I think that’s the first thing. I don’t think oil as much as I do think that there could be secondary impact on oil price. I don’t think the effect is going to be or the first order, to an extent. I think Israel, if they can, basically, if they can somehow not basically touch the oil fields, I think they will go out of their way to basically avoid it. Now, of course, the real question is, Will Israel try to go after Iran’s nuclear program? I think that is obviously, you know, the most important question everybody’s asking, right? Let’s put it this way. You know, as you probably might have heard, last week, there was an earthquake in Iran that was, that was recorded as a 4.5 Richter scale earthquake, and it was 10 kilometers deep, and it was very close to a nuclear reactor, okay? And so a lot of people, a lot of experts, have been sort of speculating whether that wasn’t a nuclear test. Okay? Now again, let’s just say it’s 5050, okay. It was a nuclear test the word. Now what we do know, even from Anthony Blinken, who is, you know, I don’t know if he’s an authority on this issue, but certainly he is very pro Iran. So I think from that point of view, if he says so, I’m going to take it as a given. Even he admitted recently that Iran is only one to two weeks away from basically getting a bomb. Getting a bomb, meaning, let’s be very precise about this, Iran has enriched a lot of basically 60% purity uranium. Okay, enough for them to make five bonds if they were to go to 99% and what infinitely blink means by one to two weeks is that if Iran tomorrow were to decide to go for the purity 99% Guess what? It will take them about a couple of weeks to basically, to basically move from 60% to 99% in order to make enough, basically, to make enough material to make at least one bomb. Okay, so Iran is is either already in a nuclear threshold or has already crossed it. We don’t know. We also know basically that six months in the last, basically few months, Iran has successfully tested nuclear bomb detonators. Okay. At the same time, we know as a fact that Iran now has very good ballistic missiles. I mean, the ones that they shot at Israel, you know, two weeks ago, they were called basically the Fatah 110, missiles. These things actually have a range about 300 kilometers. They can carry, you know, you know, essentially up to half a ton of weight, which was a lot of explosives. And on top of that, most importantly, they’re equipped with position guidance. Okay, so basically, Iran already has the delivery mechanism. They’ve got the detonators, and they’re just couple of weeks from basically crossing the nuclear threshold, if they haven’t done so already. Like no sane country at this point, will say, You know what, let’s just leave it alone. Let’s wait. Let’s sit on our hands for another couple of more years and see what happens. Israel has no choice, because at this moment, this is existential, okay, so I think from that point of view, whether Israel has the capabilities or not, I think everything they’re going to be doing, I think is going to be trying to slow down Iran’s nuclear capabilities development. I think what they can now, of course, I think they’re probably going to hit the infrastructure of the of the Revolutionary Guards, because, you know, the regime in Tehran is propped up only by the Revolutionary Guards who are widely hated across the country. So I think from that point of view, like Israel is definitely going to go after the military infrastructure, the missile sites, the launchers, the airplanes, the they don’t have much of an Air Force, but the tanks, the training center, the whole shebang. Okay, so I think it’s going to be something like that. Now, I think, you know, I think obviously the question is like, Where does the US come into this? Okay, now the only thing we know is this. Who knows? I mean, there’s a lot of you know, smoking error and this kind of thing, but I think, you know, I do trust, okay, media reports that claim that, you know, Israel has not so far shared its plan with the US. Okay? That makes sense to me. I did many different levels, but let’s just take that as a given right now that Israel has not yet shared its plan with the US. What does that mean? You might say to me, the fact that Israel has not shared its plan with the US means, number one, that more likely than not, Israel is going to do something bigger than what the US will basically out. Well, Biden will basically, will allow, okay. So from that point of view, like that’s one reason not to share with the US, if you think that us is going to try to hold you back, so therefore you don’t even tell the US, just go and do it. Okay. The second thing I think we can assume, if Israel indeed hasn’t shared its plan with the US is that Israel plans to do this by itself, and it has the capabilities to go do it by itself. Now, again, Israel has been preparing for this the last 20 years. I’m going to assume that Israelis have the abilities. They know what they can or cannot do the constraint and so on so forth. So. I think from that point of view, this is going to be a very important thing. And by the way, as far as the US concerned, and this is where we can bring in the US election, to some extent, which is that everybody knows okay, that if Israel and Iran were to go to war, okay, that this will probably help boost Trump, okay, in the election, right? Because you know, if you look at various different polls, the feeling is that, I think you know that most voters feel that you know from actual the you know is will be better for the US in terms of foreign policy than Kamala Harris. So any sort of, you know, foreign sudden escalation in terms of geopolitical conflict, you know, I mean a war between Israel and Iran. It’s going to be like front page news. It’s going to be like, you know, literally every day. That’s all you’re going to be reading about. It. That sort of thing, I think, which will signal failure of US policy towards Iran over the last whatever, four years under Biden. There’s no doubt that’s going to benefit Trump and to the extent, I think Jerusalem does not want to be viewed as trying to influence the US election
David Woo 11:11
by, you know, sort of like by attacking Iran, I think you even have to assume that Bibi nadiyahu will probably want to get this thing done sooner rather than later, sooner, meaning the next, basically week, 10 days, as opposed to getting too close to the US election. Because if Israel were to attack, let’s just say, a week before the US election, there will be a lot of people saying, Oh, wow, Israel was interfering with the US election, that so on so forth. I don’t think Israel wants Israel’s not. Israel needs to hit Iran, not because of the US election. Israel needs to hit Iran because it’s an existential threat. So I think, from that point of view, I think that this is going to happen sooner rather than later.
James Connor 11:54
Why not wait until after the election?
David Woo 11:56
I think after the election there are a couple of problems. Okay, first of all, we all there’s been, I mean, I, you know, I don’t know if you love your viewers. Remember this, or we’re not, but whether you like Israel, you don’t like Israel, we’re not talking about whether you like, you don’t like we’re just looking at the facts. We’re just trying to understand the reaction functions of the players around the table so that we can actually make good predictions. Now I still remember, you know, the year, you know, basically the year that Obama stepped down, okay from office after the election and up to the inauguration of Trump. That was what was called the lame duck session, right? I mean, the lame duck session is again, between the Election Day and Inauguration Day, okay, of the next president. Now, Obama decided to basically, you know, do something quite nasty, you know about Israel, like, you know, doing the election. He didn’t do anything to Israel, but after the election, after Trump had already won, there was nothing else to basically, that he could do that was going to hurt Hillary Clinton, so he just basically went after Israel in a pretty big, big way. We don’t have to go into it, but I think right now, the fear, okay, I think in Israel, and I certainly would be my fear is what Biden and Harris can potentially do to Israel during that lame duck session, okay, especially if Trump basically, uh, doesn’t win, for example. Okay, so I think from that point of view, like, you know, again, if you are the prime minister of Israel, you are you. All you want to do is to do what is good for your people, your country, and so on so forth. You don’t want to be out there taking risk about, like, who’s going to win, who’s going to lose in the US election, because if Kamala Harris were to basically win, it will make it very difficult, I think, for Israel to attack Iran. Okay? So I think from that point of view, like, you know, and then you you know. So that’s just nature of the thing, because the election is over by then. Then if a Democratic president, or basically VP or outgoing president beside you. Basically, like, Who knows if Israeli planes fly into this take off in the sky on their way to Iran us airplanes go up in the air to stop them. You have no idea if that cannot happen. I can guarantee it won’t happen ahead of the US election, because, like, you know, American people are generally quite pro Israel. Mean, that will be seen as being very bad, you know, for Kamala Harris, if Biden were to do something like this, but after the election and before the inauguration, be a very different story. So I think Israel, I would think that Israel has the, I mean, has the understanding about this aspect of American politics. Do not want to take that risk and get it done before the election.
James Connor 14:44
And I just want to clarify, you don’t think it’s going to be one or two targets. You think it’s going to be multiple targets throughout the country. And in other words, there’s going to be a massive attack. I think
David Woo 14:53
it will be a pretty massive attack. I just don’t see how Israel can basically. Like do this without this being a massive attack. And by the way, it’s not going to be over in one day. Is it definitely not going to be it’s going to be ongoing for many, many days, and then Israel probably will take very high casual views as well. So for example, just last night, we had a drone attack, okay, launched by Hezbollah in Lebanon. Okay, two drones, basically were, were were launched, and one of them basically made it into Israel, because these drones, which are Iranian drones, with Russian technology, can fly very, very low under detection of radar, and they basically attack the canteen of a major military base. And then, you know, a lot of 10s of soldiers were, were were injured, some of them very seriously, and then the few got killed. So like, you know, that was just one drone. I mean, Iran, you know, has 1000s and 1000s and 1000s of drones, which they’re supplying to, basically Russia. So, I mean, this is not going to be, that’s what I’m saying to you that this is not going to be sort of one of these things. Oh, wow. You know, because the what the market’s been used to over the past year, it’s like, well, Israel hits Iran. Iran hits back three, three weeks later, and then Israel, hey, you know, it’s not going to be one of those things. It’s going to be it’s going to get very ugly, very quickly. So it’s not going to be this kind of like, the market won’t be given any time to breathe to think about this. You know, it’s just going to go crazy, and then you’re just going to see a lot of news coming through, and then, and then maybe it’s in that atmosphere, rightly or wrongly, whether Israel hits the oil fields, don’t hit the oil fields, oil prices basically goes through the roof. Yeah. And
James Connor 16:37
if this does escalate, is there a threat of other countries entering the war at this
David Woo 16:43
point, I think not. And I’ll tell you why, obviously, the first country, you know, like, I mean, obviously this would be bad news if Russia were to enter the war, right? I mean, it goes out saying, but let’s remember, like, Russia recently signed a defense treaty with North Korea, which means that if North Korea were to come under attack, Russia now has an obligation to come to North North Korea is basically rescued. Obviously, Iran would love to basically sign such an agreement with Russia. But so far, the Russians, I don’t know where Russia really stands on this. The fact that they haven’t signed, it tells me that maybe the Russians are not exactly enthusiastic about signing such a defense treaty, because it will certainly put it at war with Israel over Iran, and most likely with the US, which also would mean that if one let’s assume that you know, Russia would like to see Trump win the election, because then We’re probably going to see a sooner end to the Ukraine war. So I think, from that point of view, like this, Russia want to basically make Donald Trump an enemy, okay, before he’s even reelected, by basically signing a defense treaty with Iraq, you know? And I probably think not so my view, this is another reason why the possibility that Russia could take that step and sign a defense treaty with Iran, it’s another reason why Israel has to basically move before such a treaty is signed. But for the time being, I think the chance of that happening Russia signing a defense treaty with Iran is not that high, especially given the fact I think, you know, Putin and Bibi Netanyahu have a decent relationship. And then, moreover, you know, like over the last 10 years, Russia has generally turned a blind eye when Israel chooses to attack Iranian bases inside Syria, okay? And I think from that point of view, there’s an understanding there, okay? And at the same time Now you say, Well, what about what about China? Will China get involved? I think that’s the last thing China is going to want to do, is to get it directly involved with this, basically, war. Now, it’s true that 15% of the oil comes from Iran, and then it buys this oil very cheaply, but you know what, I don’t think that is worth going to war, you know, with the US over because that will certainly again for Russia and China to enter this war between Israel and Iran. Will certainly force the US to take the other side, to stand behind Israel even more, which basically, then basically brings you much closer to world war three, which I think all sides want to avoid. So again, this is right now I don’t see other countries getting involved. No, there’s been a lot of discussion about so which country is Israel going to fly over on its way to Iran? Right? Would it fly through Saudi Arabia? Because that will be a fairly direct route. I think the way I think about this is I don’t know, but what I do know is that Israel doesn’t have to fly through Saudi Arabia. Israel can fly through Syria. Excuse me, Israel can fly through either Syria or Iraq. I mean, Iraq doesn’t have much of an Air Force, so Israeli planes, stealth planes, which fly very high, can cross into Iran. On from Iraq without having to worry about being shot at by the Iraqis.
James Connor 20:05
So let’s talk about oil and the impact of what this is going to do to the oil price. Oil has been trading in between this tight range all year, 70 to 80 bucks, and I’m surprised it’s it’s at this level given on what’s happening in the Middle East. But what’s your thoughts on oil here, and where could it go if things do escalate between Israel and Iran?
David Woo 20:26
I think, first of all, we have, I don’t think you could look at, you know, $60 $70 $80 you know, you know, oil’s fair value changes. So it doesn’t have a particular fixed fair value. I mean, let me tell you this, if it weren’t for this current battle of geopolitical risk in the Middle East, oil probably trading at 60 right now and then. The reason is very simple, by the way, I mean, and I think, you know, I think there’s something we need to understand, which is the fundamental demand and supply picture of oil. Now, as you know, like Chinese oil imports have been down now, what, four or five months in a row? I mean, that is a major drag on oil price. Because, remember, like, you know, you know, non OPEC production, even though OPEC production has been flat this year, because they’ve been holding back like non OPEC, production continues to go up, right? We’re talking about even Brazil. Us, production is now up to 13 point 3 million barrels per day Africa, like there’s a lot of oil, okay? And then we all know that OPEC wants to increase its production. So basically, oil supply will certainly oil supply continues to grow and demand everywhere in the world is pretty stagnant. And the expectation was that China was going to somehow basically take down the incremental increase in supply. Because, I mean, China is still people buying cars and so so forth now. But what is really going on here? It’s actually very fascinating, which is that, forget about the fact that, you know, Chinese car sales are down basically the last three or four months, right? Because the economy has been struggling. And we can talk about the stimulus a bit later, but I think it’s one big basically, nothing burger. But the point here is that Chinese car sales have been weak, but most importantly, Chinese EV sales have been surging. Okay? In fact, the last couple of months was the first time that EV sales, Ev, including hybrid sales, okay, accounted for more than 50% of total vehicle sales. The reason, of course, is that China is providing big subsidies. Okay, when you buy EV, they’ll give you like 20,000 RMB to trade in your petrol car for EV car. So why is China doing this? The reason is very simple, because of this EV trade war between China and Europe, China and the US and so on so forth, especially with Europe. Remember, like, I mean, 40% of Chinese EV exports last year went to Europe. I’m talking about Europe. I mean, the European Union China. There are 350 car manufacturers in China, and they have built up a lot of capacity with the idea that they are going to be exporting a lot of EVs to Europe, which until recently, had a very ambitious target in terms of carbon, basically, elimination, okay? And then now, as you know, just last week, the European Union voted, you know, to essentially levy a 35% tariff on Chinese EV imports, okay? And this has been going on for the last few months in terms of negotiation, which went nowhere. So Europe basically went ahead and post this thing. So as a result, you know, China built up all this capacity, and then demand is not growing as fast as it would like. This is why, in order to protect the domestic Eva industry, the Chinese government is basically doling out a lot of subsidies to keep these car companies going. Now, in my view, the result of this that you’re seeing surging EV sales is that while Chinese import oil imports are down five 6% in the last three months, Chinese electricity consumption is up six or 7% the last three months. And that contrast is very, very important. What it’s telling you is that the global war, you know, auto I mean, basically the car wars, okay, between China and the rest of the world, is forcing Beijing to accelerate the transition to EV within China, and that is probably undercutting demand for oil, okay? And that, to me, is pretty bearish oil, okay? That is a big story, in my view, going to 2025 because, in fact, that story is such a big story that I would say that, you know what? I would take advantage of any spike in oil, you know, essentially during an. Israeli, you know, Iran war to basically sell oil, because that war is going to end. And when that war ends, oil price is going to collapse. I mean, this is, I mean, especially given my view about Trump, you know, basically victory being inevitable, being almost a done deal at this point, Trump comes in, like we haven’t seen drill, drill, drill yet. I mean, so non OPEC production can go through the roof next year even. So I would say that the outlook for oil is actually not good. I mean, of course, you know this, this war is real, as I said before, and you know it’s unpredictable. Many ways this thing is going to go. But I would say that, you know, but if you do see a spike in oil as the result of this war in the Middle East, you want to be selling into it.
James Connor 25:41
So you mentioned earlier that, if we didn’t have these hostilities in the Middle East, you see oil trading around $60 a barrel. But let’s just assume a hypothetical, if Israel attacks are on tomorrow, do you see oil going to 100 bucks? I
David Woo 25:55
can see it going 100 bucks. I mean, there’s no doubt about that, right? And that is, by the way, in the price. Because, as I said before, if you look at oil volatility, implied volatility is trading at 50 OVx, right? Just think about that. I mean, VIX is now trading at 20, which seems very high, but oil vol is trading double that, right? I mean, so from that point of view, like, what I’m saying is, if you want to say, well, I want to go and buy some put up. I mean, call option on oil, like, you know that that’s, you know, it’s the market’s pricing a tremendous volatility, you know, in terms of, that’s what I’m saying, risk premiums priced in. So, yeah, you know, if that’s what you think, that’s what it is that. So the market’s pricing that already, okay, but yes, if a war were to basically break out, I think oil is going to go to 100 and I will be looking to basically sell. I mean, once it gets to 100
James Connor 26:41
and remind me again, how important is Iran in terms of oil production? So Iran
David Woo 26:46
basically produces 1.8 million barrels per day, you know. And that has been sort of the average over the last three months. And the global supply is about what of 85 but, but that’s not what really matters. I mean, the the point here is that, like you cannot look at as to why Iran is still not that big. But the point here is that, you know, there’s not that much spare capacity in the system. I mean, unless OPEC decides to ramp up production to offset, which I don’t know that will be necessarily, you would expect that, because, I mean, they might decide, you know, they don’t have no idea how long the war is going to last, that kind of thing. So to the extent that, you know, like us, is not involved, Saudi Arabia wants to basically, so you cannot count on OPEC, basically, you know, you know, boosting production to offset any you know, shortfall in the Iranian production, and also by the West. I said before, if OPEC tries to do that, then Iran will start to, basically, you know, fire missiles I saw the oil fields. So, so that’s why there is a lot of, like, sort of, like, it’s not an it’s not as obvious as one might think, but there’s no doubt, like, you know, like, if the war were to break out, I think, you know, oil can go to $100 and especially given that it’s not going to be just like a one punch, you know, it’s a different thing if you just basically, Israel punches Iran, and then Iran just sort of caught, doesn’t punch back right away, and then wait basically few weeks before punch. But I don’t think that’s going to be the situation. I think it’s going to be like once Israel throws the next punch, I think you’re just going to start to see, you know, like a real fight starting. And
James Connor 28:18
then another element we got to touch on is to is the transportation of oil. 20% of the world’s oil production is transported through the Straits of Hormuz. What do you think happens here?
David Woo 28:27
Obviously, I mean, there’ll be a lot of missiles flying. I think the main obviously, Israel’s Israel is not going to be attacking. You know, the as I said, Israel has no interest in disrupting the global oil trade. So it has no interest to really get into the whole Persian Gulf thing and so on so forth, in terms of the transport. But again, the danger is that Iran decides to drag the whole region into war by firing, basically, missiles on, you know, trying to create a, you know, you know, global havoc, you know, and I could very well imagine Iran trying to do that. So
James Connor 29:05
let’s move on and talk about the US elections. And I want to kind of look at it from this angle too, of what’s happening in the in the Middle East. And if Harris wins, I guess we can just assume it’s going to be a continuation of Biden’s policies. But if Trump wins, he’s going to chart a totally different path, with higher tariffs, lower taxes and restrictions on immigration, but also big changes on what’s happening in Ukraine and also the Middle East. Maybe you can speak to that.
David Woo 29:31
Listen, I think, you know, I think, I think there are many big there are going to be many, many differences between Trump versus Harris. Okay, I think the only you know, sort of ironically, the only area where I don’t see too much difference is in terms of fiscal policy. Ironically, only because, like both will find themselves extremely fiscally constrained. The US budget of the $2 trillion right? I mean, next year, you know, you have another. One and a half trillion dollars of treasury bills are going to be maturing. So gross issuance next year is going to be over $3 trillion I mean, I don’t care whether you’re a Democrat Republican, you still have to fund the deficits and roll over the maturing basically paper so that that’s going to basically keep you very, very constrained. I would say, you know, obviously it goes out saying the main difference between and I think, you know, on immigration, obviously there will be a difference. I mean, for one thing, Trump, I said that he wants to carry out the biggest deportation drive in US history. But I, as much as he talks about that, I don’t know how realistic it is to actually carry out this promise, in which, actually, I think it’s a risk to some extent. Because I think that the problem with, problem with this is that, you know, you’re talking about like, what, 10 to 20 million people have gone into the US illegally over the last three and a half years under Biden. You know, forget about trying to deport all of them, even just to deport 100,000 of them, it will be very tough work, because you’re talking about like literally sending, you know, police or even troops into cities and trying to basically round them up and put them in camps. In order to deport them, you got to basically find a country that’s willing to take them. Okay, so it’s not going to be that obvious in my in my humble opinion, and that. So I think from that point of view, like, I wonder to what extent Trump will have to be seen as doing something, maybe he’ll just start by finishing the wall. I mean, building the wall, and trying to basically pass laws to basically make it more difficult, so that this whole idea of like cap, catch and release kind of thing doesn’t happen anymore. Well, maybe it’s just start basically deporting the the ones with criminal records. But they’re doing that already, but these people all mixed in, you’re not going to be able to find them that easily. Okay, so there are a lot of a lot of issues there, so I don’t know Trump is going to be able to pull that off either. I think we’re I think it’s going to be a very big difference between, I think Trump versus canal, Harris is going to need come to foreign policy. I mean, there’s no doubt, that’s why, in some sense, like, I think defense stocks, okay, you know, there is a lot to be said that defend the outlook for defense stocks is going to be greatly determined by, you know, essentially, the, you know, the the election outcome. I mean, defense stocks have done very well over the last three years, right? Because under basically Biden, they’ve been just basically spending more and more and more on defense. You know, it’s been one big, basically pork barrel. And I think you know from now point of view like and this is also the reason why I don’t think this defense establishment wants to see Trump return as commander in chief. Just think about this. There are a lot of people out there don’t want to see Trump return, but I would argue that defense establishment has a particular interest to make sure Trump does not come back. Okay in September 2020 Trump actually two months before the 2020 election, Trump declared okay. I mean, he came out publicly accusing his generals of prolonging unnecessarily the foreign conflicts the US was involved in so that their buddies at defense contractors can sell more tanks, more airplanes and get more people killed. Believe me, these people don’t want to see Trump come back, okay, and because he has said he wants to stop the Ukraine war overnight, right? I mean, which he can, all he has to do is basically pull us support from Zelensky, and that’s it. I mean, Zelensky is not going to be able to keep fighting, okay, if he doesn’t have continued US support. So I think, from that point of view, I think, you know, this is, you know, I have no doubt that if Trump is in, I think the war in Ukraine. I mean, he says 24 hours, it might take more than 24 hours, but there’s no doubt a Trump basically victory will basically, you know, cut short the war and basically the human sacrifice that’s been going on every day for the last two and a half years, okay, that Biden has and in the US, the defense establishment have been only too willing to fight to the last Ukrainian in their spat with Russia. Okay, so I think from now, point of view, like, if Trump gets in, it’s pretty it’s bearish for defense stocks, okay, I think for the Middle East, there’s no doubt. Like from again, you have to realize that the alliances, right? Obama was a huge supporter of the Shiites, okay, that is Iran and the Muslim Brotherhood, okay, which was then, you know, the party that was in power in Egypt, and, you know, the AK Party and
David Woo 34:39
in in Turkey is also Muslim Brotherhood and Hamas. Okay, so Obama, for whatever reason, decided to ally himself with, you know, with with Iran, with Qatar, with the Muslim Brotherhood. Trump came in and decided to ally himself with the moderate Sunnis. Okay, in Israel. It okay. And that was the background of, you know, basically this incredible deal that Israel signed with UAE and so on so forth, the so called Abraham deal that Saudi Arabia could very well sign on to, if Trump would get reelected as well. So what you’re going to see is that, if Trump comes in, I think, you know, you’re definitely going to see a much more. You know, essentially, you know, hardening of sanctions against Iran because, remember, like Trump put in hugely. You know, punishing sanctions against Iranian oil export. But as soon as Biden came in, he relaxed all these sanctions. Okay, in practice, he unfroze billions of dollars of Iranian money. It’s true, as Iranian money, but, you know, they were, they were frozen because Iran was under sanction. Okay, so Biden basically released, you know, essentially unfroze billions of dollars and released that money to, you know, to, uh, to Iran. At the same time, Biden turned a blind eye to Iranian oil export. It just simply stopped enforcing us, you know, essentially sanctions on Iranian oil export. That’s why Iranian oil export went from 200,000 barrels per day two and a half years ago to now 1.8 billion barrels Bay. As a result, Iran Iran today has an extra, whatever, $60 billion more than they would have had under Trump. And by the way, this is actually very interesting, because Iran also knows, okay, that If Trump were to get reelected, this will be a disaster for Iran. Okay, this is why, you know, like Trump was, I mean, the Trump campaign issued a statement two weeks ago saying that Trump had been briefed by US intelligence, you know, basically agencies about an assassination attempt, you know, basically being planned by Iran against him, by the way. So, I mean, there are people want to see Trump dead. I mean, you know, we talked about some of the suspects here, but Iran is definitely one of them as well. I mean, not, there’s also Ukrainians, by the way, so, so from that point of view. So, what, what, where, what this is all leads us is that I think If Trump were to come in, you will see, you know, Iran under sanctions once again. And I think Iran, if they became really convinced that Trump is going to return as president, then Iran probably has a huge incentive to make a run for nuclear immunity, right? Because that was the whole point. Because once you have nuclear immunity, you’re like North North Korea. Nobody can touch you anymore. That was the whole thing. The Iranians really do believe that. The reason now I’m not talking to the Iranian people, because the Iranian people is a very different thing than the Iranian regime, the Iranian regime, the clerical regime, these mullahs, they really believe that you’re that nuclear weapons is the best thing to protect, okay, their regime, their religious, radical, ideological, Islamic regime. Okay, so from that point of view, they might decide to run for nuclear immunity if they think Trump is going to win, and then that actually, ironically, makes it more likely that Israel will have to basically attack them before the election. So from now, and I think you know, to some extent, you could argue that, you know, for a while, you know, like, you know, the Iranians were, were probably will basically take a weight in Seattle. They want to see how likely Trump was going to get reelected, right and then when you know Kamala Harris was searching the poll like they were probably getting told by Anthony Blinken, you know, you guys better lie low right now, because, like, if you do anything, it’s only going to help Trump. And then if things continue like you’re going to be in great shape. So Iran probably so when Iran decided to strike at Israel two weeks ago, I suspect they might have been partially influenced okay by the fact that the data now suggests very clearly that Kamala Harris momentum has run out, okay, and then therefore, you know, Iran might decide maybe there’s a time to go for it, okay. Because again, if you’re that close to nuclear immunity, the temptation has to be very, very strong for you to cross that basically Rubicon when you’re that close. And I think that’s why, in many ways, the US election is basically bring about this. You know this. You know geopolitical risk and us, political risks are starting to feed off each other in a very dangerous way. And that’s why, I think, you know the next four weeks, three weeks, whatever it is, I think you know, they’re, they’re probably plenty of surprise. That’s obviously, that’s one reason why VIX is trading way above realized vol, because I think the investors starting to wake up to this. But that’s where I’ve made very nice money, actually, over the last three weeks, which is the guy I basically, uh, bought, you know, October vix contracts, basically, fairly early on I, you know, and I’ve had a very nice run up.
James Connor 39:58
So let’s talk about that. There’s. A lot of moving parts here, as you just mentioned, and the US markets are currently up 20% on the year, give or take, and it just continues to climb. This wall of worry. It doesn’t matter what’s happening in the world, in the Middle East, in Ukraine, China, wherever, the market just keeps going higher. But there’s still a lot of unknowns. What are you suggesting to investors, how should they be positioning themselves going into year end in into 2025
David Woo 40:26
Yeah, listen, I, you know, listen, I think you know what I’m suggesting to investor. It depends what kind of investors you are. Okay, so, for example, like, you know, most of I mean, I run it, you know, I run my main business is an institutional advisory business, and I count some of the biggest investors in the world as my clients, especially anybody who’s trading in the macro space, whether they be large hedge funds, sovereign wealth funds or long only mutual funds. And for those, these are real professionals. I mean, these guys only care if I basically beat my benchmark. And in this case, my benchmarks, you know, it’s like any hedge fund, my benchmark is three month treasury bills. And therefore, like, I’ve been playing volatility, I’m sure at the RMB, I think, you know, I’d be looking to sell oil if we were to get a spike. So, like, I’m up almost 10% year today, you know, which is more than 500 basis points over three month treasury bills. So that puts me in a very, very elite company in terms of how, you know, absolute return portfolios have done in 2024 I think for retail investors, my feeling is that, if you are long stocks, I think it’s worth thinking about buying some like, put spread, okay? Because, like, you know, like, if you worry about this, like, you know what, we’re just looking at this price yesterday. I mean, you could right now, like, you can buy a two or three week spread, okay, let’s just say Iran and Israel would regard each other, or that there’s another assassination attempt on Trump, or whatever, you know, something of that order. Or that, basically, uh, or that Zelinski decides to launch a long range missiles, you know, basically, into Russia, you know, at a major Russian city, you know, these are three main thing. I would say these are the three main risk. Okay, again, you know, Israel, Iran, going at each other. You know, Ukraine firing a long range missiles into basically Russia and provoking, you know, say you should be a direct conflict between NATO and Russia and three basically anything happened to Trump’s basically safety, okay? We’ve seen this movie often enough. I don’t, I don’t think that’s something that we need to, you know, we need to basically dance around as though it never happened. It did happen. You know, if you recall, I actually talked about this and then before it happened. So I think, from that point of view, if you worry about that kind of thing, you know, which I think it’s, you know, it definitely, you know, the probability is not like 5% you’re talking about the combined probability of one of these three events happening. It’s actually quite high. Okay, I would say you want to look to basically buy, like a put spread on an S, p5, 100. You buy a short term put spread. Let’s say three, three week put spread. You want to try to structure in such a way that you can get, let’s say, a four to one payoff. That’s the way I would look at this. The reason why I will argue a put spread better than just basically put is because obviously, vol is very high. So if you couldn’t just basically buy ball, you know, buy it just a put, it’s going to be expensive. But if you want to buy a put spread, meaning that you’re selling basically the you’re buying the the the strike closer, and then selling the up, you know, basically the out of money basically put, you know, you’re going to get a decent payoff because ratio, because it’s not that expensive. That’s the way, once you think about this, which is this a time for risk management. Okay, I, as I said before, I think Trump is going to win. And I think, you know, I think, I think, I think, you know, I think us, stock market is going to do very well on his Trump victory. There’s no doubt about that. Okay, but you have all these risks right now that are going up closer we get to the election. So from that point of view, like I, you know, you could decide either take some money off table and look to basically buy once the risks have subsided, or that you just basically do what I said, you know, you buy some protection against your long position. So
James Connor 44:10
let’s dive into a little bit deeper on risk management. What are your thoughts on gold?
David Woo 44:14
I think the problem I have one very big problem with gold right now, which is the fact that I think, you know, like gold is supposed to be, obviously, the ultimate hedges against geopolitical risk. But gold lately have been trading with stocks, right? You know, if you look at like, you know, days like, stocks go up, gold goes up, stocks go up, gold goes up, and so on, so forth. So for, you know. So the question really is, if there is going to be an attack, okay, and then what would happen to gold? Like, you know, if stocks market were to fall, we’ll go all of a sudden, decouple from stocks and go up. I’m not so sure, partly because a lot of people are long gold. It’s a crowd. It’s it’s quite a crowded trade right now, even among the institution investors, there’s no doubt. Institutional investors are definitely long gold. Because, I mean, they may not be long gold necessarily against the US dollar, they may be long gold, against the euro, against Aussie, whatever it may be, okay, and they’ve done very well. So what that means is that all of a sudden you have a volatility event, and the people lose some money on something, and all of a sudden they’re going to start to basically unwind their risks across the board, and they’re going to unwind whatever they’re long in Okay, and gold could get hit. So I’m not sure. I mean, I think gold is okay. I mean, gold price action is clearly okay, just like, s, p, price action is clearly Okay, and so on so forth. So what it’s telling you is that, but what I’m telling you is that don’t think that somehow, like, you know, your long goal, like goal is going to do well. When stocks go up, long goal is going to go do well when stocks go down too. It doesn’t quite work that way.
James Connor 45:51
Well, David, that was a fascinating discussion. We touched on so many different elements. There’s going to be a lot happening here in the next few weeks, that is for sure. And if somebody would like to follow you online and learn more about your views on the economy and also politics. Where can they go?
David Woo 46:04
Yeah, you can, first of all come to visit me on my YouTube channel, David Wu unbound. And, you know, I put out a video every Sunday, and if you’re interested in my investment strategy, then you can check out David woo unbound.com where I offer a retail subscription. You know package. Well, that’s
James Connor 46:23
great, David, once again, thank you. Thank
David Woo 46:24
you very much for having me. Well, I
James Connor 46:26
hope you enjoyed that discussion with David Wu as David mentioned, there’s a lot of uncertainty in the world right now, and one way to hedge your portfolio against uncertainty is through gold. If you would like to learn more about gold and how it can add safety and diversification to your portfolio. Visit our sister company, hard assets alliance.com, hard assets Alliance is a trusted platform that’s used by over 100,000 institutional and retail clients to buy and store physical gold. Once again, that’s hard assets alliance.com there’s a link below in the show notes. We’re always looking for new guests on wealthion. If you have any ideas on someone else you would like to see on the channel, let us know in the notes below. If you like this content, please subscribe to the channel and you can check out this next video.
