David Woo: Trump’s Trade War Playbook – How to Profit From It

So from that point of view, he is not trying to keep China back, he's just trying to propel the U.S. forward to allow the U.S. to realize its full potential. And I think that is a very constructive world.

His career includes stops at Barclays, Citigroup, and beginning his career as an economist at the International Monetary Fund. Also, side note, PhD in economics from Columbia, mathematics from Tufts. So, you know, pretty steeped individual that we're going to be talking to today about global markets, politics, the impacts on markets, and, uh, great to have you here, David, and looking forward to your insights. Yeah. Is there anywhere you want to start in particular?

You've got a, an absolute, um, you know, net of, of interconnected relationships across countries, regions. Maybe we can start with some of your thoughts and your outlook in 2025. In some of the discussions you've had recently, you've highlighted some significant macroeconomic themes in 2025 and I'm wondering maybe we can start there and you can elaborate on some of those and some of the primary drivers you might see influencing markets as we come into 2025. How

And I think, and especially in light of the JD Vance speech in Munich last week, I think from that point of view, I want to start there only because it's topical, but also because it's very important. I think, you know, I think to understand, I think, the implications with the market implications of the of the German election, we have to realize that Germany has been a collateral damage of the US foreign policy over the last two administrations.

You think about this under Trump 1. 0 the US went out to China in a very big way when it comes to tariff and that forced China to move up the value added in the manufacturing supply chain. And that no question put tremendous pressure on Germany, right? I mean, Germany used to dominate the car market in China, which is the largest car market in the world today. But Germany has been steadily losing market share in China over the last three, four years.

In fact, actually BYD after having overtaken Volkswagen last year, as the number one, you know, basically most popular, car sellers in China. You know, BYD's gone on to basically grow another 35 percent last year, while Volkswagen was down 7%. And so there's no doubt in that respect that U. S. trade war against China sort of intensified Chinese competition for German manufactured goods. And that was happened under Trump 1. 0. And then came Biden, who was even more, it was even worse for Germany.

Because in my view, the Ukraine war is nothing more than a proxy war that Biden declared on Russia. And there's no doubt that the casualty is once again, the German economy, because the result of the war is that the relative price on energy that Europe has to pay has gone through the roof. I mean, before the war, Germany was paying about twice as much as U. S. for natural gas. Now it's paying four times more.

I mean, it was at 1. 8 times, only a couple of years ago, it's come down, but still four times more. As a result, you know, all the energy intensive sectors in Germany, whether it's chemical, whether it's steel and all that, has become completely uncompetitive. As a result, German companies have been like picking up and relocating elsewhere where energy is cheaper.

So from that point of view, U. S., despite U. S. claim as being German ally and this and that, U. S. foreign policy in the last eight years really screwed Germany, the largest economy, in every possible way. Now comes Trump 2. 0. And by the way, for all, you know, I'm actually a Trump supporter, so don't get me wrong.

You know, there is no question that, you know, if you think about what, you know, basically Trump 2. 0 for Europe and for Germany in general, I mean, you just have to listen to what JD Vance had to say in Munich, I mean, which I thought was no less than earth shattering.

JD Vance, rightly said that Europe that has been cracking down on free speech that has been suppressing democracy no longer has shared values with the U S and in that respect, U. S. no longer feels that it needs to actually can justify, okay, spending national resources to protect Europe.

And this is actually very important because you have to remember under Biden, even though Germany got screwed over by Biden in a very big way, at least Biden pretend the world was divided between democracies and authoritarian regimes. Therefore, for Biden, the world consists of American allies and American enemies. And Germany was an American ally, whereas China was an adversary. So from that point of view, Germany was treated relatively better than was China.

Now JD Vance comes along and basically spells out the worldview that's exactly consistent with Trump's basically worldview, which is that, you know, Trump doesn't see the world in terms of democracy versus authoritarianism. In fact, JD Vance will basically argue that Europe today has become so totalitarian that actually it's practically indifferentiable from the point of view of China and Russia, to the extent they've been cracking down on free speech.

The fact that you can call a politician ugly in Germany and get arrested and get put in prison, that just tells you how far they've gone. Just like in China, you wouldn't say that Xi Jinping is ugly, you might get arrested, but Germany too apparently. Now, so why is that important? Because what this basically means is that the U. S. No longer is going to treat Europe as an ally. It's as far as the US is concerned.

You guys now have to look after yourself if you're going to if we're going to do anything for you You're going to have to pay for it in a very big way now So I think from that point of view, this is a very important realization, which is that you know, Last eight years.

I mean the Germany has gone from like, you know, really a great manufacturing powerhouse steadily declining due to US foreign policy and in many great ways the US foreign policy has Dramatically weakened Europe and I think that's not going to change. Now the reason why this election is That took place yesterday in Germany is going to make things so much worse for Europe.

Is the fact that Anchilles produced, a government, okay, the Christian Democrats are going to be, you know, essentially running the show for the most part, you know, Frederick Mertz, who is the chairman of the party of CDU, who's going to be the next chancellor, most likely, he happens to be a Russia hawk. He happens to be someone who thinks that Europe needs to basically stand up on its own two legs. He happens to believe that Europe needs to have its own independent security policy.

And in that respect, he's very likely to join forces with France, with Macron, to actually tell Trump You know, to go fuck off, okay? I think actually this is going to be very interesting because this will be obviously very bad news for Europe. Because at the end of the day, Europe is still more dependent on the U. S. than U. S. is dependent on Europe. In that respect, I do think that with a much more hawkish, You know, sort of like Germany that also hates Russia, by the way.

It's actually very interesting. Frederick Merz hates Russia. I mean, to the extent that he's willing to in fact, send long range German missiles to Russia, something that his predecessor was not prepared to do.

So he wants, he could, we could very well see this Germany in it, while he's flexing his muscles, it's going to potentially prolong the war in Ukraine, which is going to be bad news for Europe, but at the same time, they're much more likely to go head to head with the U S. Especially over the tariff war. And this is the most important thing because remember, Trump's 25% steel and aluminum tariff is going to go in effect essentially in the beginning of, uh, at the end of March.

And that's gonna hit Europe very hard. Trump's wants to unleash more tariff on reci, on, on what, what's called the reciprocal tariff. And right now, Trump has decided to view Europe's 20 percent tariff, 20 percent VAT as a form of tariff. Which, I mean, I'm not even going to argue with that, but that's how he sees things. And on top of that, Trump just announced that he's going to be soon unleashing tariff on imported cars. And guess what?

Which is the car company, country that has the biggest car export to the U. S.? Course it's Germany. So in my view, all this basically means is that Europe, it's actually is going to end up with the short end of the stick under Trump 2. 0. They're going to get screwed over again. And because of the people they just elected into government. The clash with the U. S. is going to be even more frightening, I think, in terms of Europe is going to really take it on the chin.

The reason why I'm saying this is that DAX has been one of the best performing stock markets over the last four weeks. It's been like on a tier. Everybody's piling, buying German stocks. And I think this is going to be a very, very, I think there's going to be a bad surprise coming for the market.

inflows Almost as soon as the US election, you know, basically was over, we saw this massive flows. And now what happened was in the, in view of the massive retail inflows in the US stock market, institutional investors who are indexed or benchmarked to the world stock market, decided to lighten up their US exposure to the extent that we're selling US stocks. And guess what?

They increased their exposures to the rest of the world, to the non US equity market, whether it was in Europe, whether it was in China and Asia and so on and so forth. So we've seen this big rotation driven by the post election massive retail inflows into the, by retail US retail investors into US that actually facilitate this rotation of institution investors away from the US and the rest of the world. As a result, the rest of the world have actually outperformed. If you look at MSCI.

Ex USA has actually outperformed the U. S. steadily, actually since the beginning of February. And I think that has been basically the rotation I'm talking about. But I think to the extent that DAX has already big run, Europe has already had a big run and so on and so forth. And then the U. S. looks definitely very, very vulnerable. I'm generally of the view that the market is due for a pretty significant correction and essentially in the next four weeks.

And then I think to the extent that, you know, every year we see the same story in January, in December and into January, everybody and their grandmother put on these so called year ahead trades. And then they get very crowded by the end of February. And then by March you see a big correction. And I think that is what the market is set up is for right now.

And also that Europe, certainly France, and I, you know, in many ways, Germany, already have been describing how they need to reindustrialize, how they need to expand their fiscal balance sheets, how they need to remilitarize, and that this fiscal expansion is a tailwind for economic growth in Europe.

So as a result, they won't be able to overturn this debt break, and that's why they're screwed. And in fact, actually just for your information, and a lot of people don't understand this because like the mainstream media doesn't understand either. The BSW, which is the other leftist party, okay, basically got 4. 97 percent of the votes. Okay, so they're literally just 0. 03 percentage point away from crossing the 5 percent threshold.

Okay, and let me tell you this right now I mean, I just you know following the story this morning that the BSW actually they're consulting with their legal advisors to basically whether to challenge the results. If they cross over the five percent, then actually it's going to be almost impossible for the Germans to even form a government, let alone basically with a two third majority to over, to override the uh, the fiscal you know, the debt breaks. So no, no, you're wrong.

I mean because, you know, in that sense that actually the most important result of this election is that they do not have a government. A two third majority.

Of course, if everybody else is easing their fiscal policy, but Germany cannot, then it sort of becomes, you know, counterproductive to the extent that Germany is the largest economy. So, and I think for all the other countries, I think at this point, they have zero room in terms of fiscal easing. I mean, France is already like budget deficits, almost as big as that of the U S and elsewhere. So I think, you know, again, okay.

One of the reasons why DAX did so well heading into the election was because people thought that Germany was going to be able to get this two third majority to override this constitutional debt break that has been built into the German constitution, but it doesn't look like it is gonna happen.

You know, with pitchforks looking for, for Trudeau's head. it seems like Canada's totally rallied around the, the Maple Leaf now with, uh, with

Sure, within the Liberal Party, you've got like that woman, I can't stand, Christia Freeland, who's like rallying the basically the troops on the base that we're going to stick it to Trump. We're going to take it to him and that kind of thing. But again, I think the Canadians can see very clearly what this is about, actually. I mean, the Canadian government, this government has done a terrible job. It's been a total disaster, what they've done to the Canadian economy over the last four years.

So yeah, it's actually very interesting that notwithstanding what Christie Freeland has been throwing at the Conservative, calling them names, saying that as soon as they win, they're going to be basically like licking Trump's little boots, whatever it is. So far, it hasn't really taken the shine off the Conservatives. Because I think the Canadian voters are a little bit smarter than that. But in general, I would say this is what we're looking at.

Different countries are reacting to Trump policies very differently, and some are being smarter than others. For example, I think the Canadians absolutely are being totally idiotic in the way they deal with, you know, Trump. Trump, whereas the Mexicans are absolutely like, they should, they're serving as the model actually for the Canadians in terms of how to deal with Trump. I mean, it's pretty amazing. I mean, Claudia Sheinbaum, but again, Trudeau, who is Trudeau?

I mean, he's like, you know, nothing. Basically, Prime Minister. Whereas, you know, Claudia Sheinbaum has a PhD, President of Mexico. This woman, just think about this. I don't have to tell you the story. two days after Trump got elected, Claudia Sheinbaum did a call with Trump, okay? And then the next day, Trudeau was seen as flying down to Mar a Lago to basically bend his knees, right? He was like, oh, well, the Mexican president spoke with Trump already, now I better get in the car.

It was actually when he returned, sounding like a total idiot, that Chrystia Freeland resigned. Right. If you recall, okay, that was how it went because she thought that he was like, literally just capitulated like without, but the Mexicans have been doing all this planning very, very methodically. And they've been dealing with Trump, very. Think about this a week after basically Trump got elected.

The Mexicans came in and seize a million, a ton of basically fentanyl, which was worth about a million pills. Okay. And then they started to literally like, you know, Since the Trump got elected, they've arrested 40, 000 drug dealers. Since Trump got elected, they have built 10 different essentially camps along the Mexican US border with thousands of beds to potentially accommodate deportees from the US.

Okay. Since Trump got elected, the Mexicans have revamped their entire custom system whereby like today, like, you know, Chinese goods, especially fake Chinese goods, they're trying to make their way into the US through Mexico. It's no longer possible because the Mexicans basically closed that door. They, in fact, even basically impose a tariff, a big tariff on Chinese imports.

Okay. So from that point of view, like this is why I have little doubt that next week, I have no doubt that Trump is going to do a deal with Mexico. I have no doubt about this. In fact, Trump needs Mexico. I would argue Trump actually, at this point, understand just how much he needs Mexico. In fact, Trump needs Mexico to make a security policy a success. Whereas Canada has been so behind the curve, okay, that I think it's much less likely that I think Trump is going to do a deal with Canada.

In that respect, I think, at least for the next 10 days, between now and the day that the delay tariff is going to go into effect, I would expect the Mexican peso to dramatically outperform the Canadian dollar.

Let's face it, these are just, these are artificial constraints. That have been self imposed in Europe and Canada, et cetera, and they're much more likely to recognize that there's no choice but to, you know, revise their, their fiscal terms, you know, back away from these constitutional constraints. And begin to grow their own economies, autonomously without relying on this sort of, you know, global support relationship

So from that point of view, I don't think that would have had a major impact. And Europe is not clear. So I would say that you're right in a very long term. I can see that if Trump is successful, and I think I have no doubt he will be successful, I think in the second term, I think it's going to make a lot of people question what they're up to. I think to the extent that I think, you know, You're going to have Germany's talking about, Oh, well, we're going to make Germany great again.

Or Canadians, maybe like, you know, the conservatives, you know, when they come into power in Canada, they could talk about make Canada great again. So I think there is an element of that, but I think that is, that's very long term. It's untradeable.

And it's actually, you know, I think from the point of view of the investment strategy at this moment, I think, you know, I mean, you, you, you need to, I mean, there will be a lot of things that are more important than that consideration in terms of guiding investors, basically trading and investing right now.

I'm not saying, listen, I went down playing Canada's role, I mean the dependency of the U. S. on Canada in terms of like, you know, provider of minerals and so on and so forth. And I'm not even telling you that, you know, like, you know, in a trade war that somehow the U. S. has the upper hand over Canada and so forth. I think it's a bad situation. But I, I do think that Trump right now thinks he's going to win this one.

But I think on this issue, I am not quite so sure because, with Canada and Mexico, because I mean, listen, I'm a professor here in the country. I mean, I'm in Israel. I'm a professor of economics here, and I teach game theory. The reason why I'm, you know, I'm in game theory is a very big part of what I do is because I love game theory because. You know, in game theory, there's no such thing as an Adolf Hitler or Mother Teresa. There are only good players and bad players.

And some countries play the games better than others. The reason why Trump is such a predictable actor, as far as I'm concerned, is because he, he's a great player. Because in game theory, there's only good players and bad players. I mean, Trump is a great player. To the extent everything he does comes right out of the, basically, textbook.

And there's no doubt, in the first round on the Fentanyl border security tariff and Mexico tariff, and Canada, he played this divide and rule strategy, right? I mean, so you had Canada and Mexico, and then he knew that he already had Mexico in his pocket. So you use Mexico to put pressure on Trudeau.

And then Trudeau blinks right, but I think you know, that's how far Trump is gonna play this because in my view now You're talking about a different different situation because the steel and aluminium tariff, for example, you know Canada's obviously It's gonna be the hardest hit but after that is basically Brazil and then you have Germany.

So there are many more countries are gonna be affected and then from that point of view It'd be much more difficult for Trump to play the divide and rule strategy. So if Europe decides to be stick it to Trump is decided to basically like retaliate and just not cut a deal.

And then, you know, I think the Canadians might decide to go there with them, and this is where I think it's going to be most interesting to see whether actually these countries decide to join forces to basically, um, to push back on Trump. And I think this is why I think the market until now, it's like, well, you know, listen, I've been saying for the last three months, the market.

You know was giving much too much importance to the fears about tariff on day one Because i'm actually very constructive on China because I think trump China's a totally different situation In fact, actually most of the tariff trump has been threatening with none of it actually touches China, by the way It's interesting, but the point here is that So because, you know, from until now, except for the 10 percent tariff on China has not really gone on ahead.

And, you know, so in that sense, the market was positioning for big tariff war, the market was short race, long dollar and all that stuff. And then it so far hasn't transpired. Therefore I think the market has gotten a bit complacent.

Okay. So I think that's why if I'm right over the next three weeks, we're going to see the, you know, Canada is not going to cut a deal with Trump over the fentanyl, and then we're going to have steel and aluminum tariff, and Europe is not going to cut a deal, and then you're going to have the reciprocal tariff, and then you're going to have the semiconductor tariffs.

I think all these things are coming all at once, and I'm not sure countries are going to be able to move fast enough to do deals with Trump. Especially these deals involve primarily developed countries that are going to be actually, um, decide to work together to push back on Trump. I think this is going to be something. This is the, this is another reason why I'm generally negative about the U S stock market as we head into March and April.

I mean, obviously it's done very, very well. Now so from that point of view right now, I'm looking at this like as a relative value position to the, in so far, I think Chinese stocks, if there's anything to be said about one stock market, even though it's done very, very well in the last three weeks, that may still have some room to squeeze hard this Chinese stock market. And the reason is because first of all, as I said before, if you look at it, You know, what is going on right now?

It's like, well, under Biden, all right. the U S was trying to rally everybody in the world to hit China. And right now under Trump is that China is being treated like everybody else. Okay. So from that point of view, to the extent the market was very underway, China. heading into Trump's election I think still probably remains the case.

I think there's a lot to be said that Trump, Trump's basically era is about leveling the playing field that, you know, countries are going to be, you know, I mean, at the end of the day, it's, it's not a question that what kind of political system you have, but what you can actually offer up to Trump. What, whether you are a loser or a winner. And by the way, like Trump see Canada and Europe as complete losers. And he's absolutely right. Whereas he sees China as a winner.

Trump obviously, it's a very American thing. Obviously, you probably know, like, you know, like Americans like winners, and I think from that point of view, I think especially with, you know, so I think, I think there is more room for negotiation between US and China. And by the way, this is something very important for your viewers to understand. With geopolitically speaking under Biden, the U. S. saw the world as a zero sum game.

Okay, so if China wins, then we lose, then if we win, they lose, which is great. This is why you want to make sure China lose, right? Under basically Biden. Trump sees the world very differently. He doesn't see the world as a zero sum game. He sees the world as a A lot of opportunities of win win situation. This is why for Trump, a deal is better than no deals. And Trump understands that any deal for it to happen, there has to be something in for everybody.

Okay. And this is the reason why I think, you know, there is a lot of, there are a lot of chips on the table between China and the US, but this is not to say that US and China will not remain strategic rival for the next hundred years. No doubt about it. No, but that will be the case. But in the short term, I think there are so many chips on the table. I think that's how they're going to play. So I think that's constructive on China, at least relative to expectation.

And I think there's also the DeepSeek news. I mean, I think the DeepSeek news, I don't know to what extent people quite fully appreciate the transformative nature of DeepSeek. For me, DeepSeek is not proof of China's technological prowess. It is proof that just how easy it is to copy AI.

I mean, to the extent that, you know what, DeepSeek can copy from OpenAI, it's just like in the year 2000 or whatever, in the late 90s when Microsoft first rolled out Microsoft Office, it was possible to copy and paste the Microsoft Files on the CD ROM and sell it for 3 dollars on the street. It's the same kind of thing. Now, one is more extreme than the other. But it's a general point of view.

So I think all of a sudden, this is the reason why like the French, who hosted the uh, the annual AI summit last week in Paris, literally like they were welcoming the Chinese delegation because all of a sudden, they see China as helping the rest of the world to defeat America's technology monopolies, because they're right in this one respect, which is, you know, under Biden, even though this whole thing about Europe is an ally and all that, in reality, the America's never treated Europe or

Canada as an ally, by the way, under Biden, they just want to strengthen the U S basically, you know, hold over this AI, it had very, very stringent policy in terms of who gets it, who doesn't get it, because they wanted to make sure that the big Magnificent Seven, the tech monopolies in the U. S. are going to be able to sit on this thing forever. And making the rest of the world pay a tax to the U. S. through these Magnificent 7 for accessing A. I. That was how the Americans actually saw.

People like, you know, the Commerce Secretary, who is a real idiot. And Biden, that's how they saw it. They built Fortress America with this technology. The fact that DeepSeek is now possible, all of a sudden, it's like the whole world has breathed a sigh of relief. I mean, to the extent that, you know. Now, especially DeepSeek is open I don't think it's not for you, like, this is actually very informative. I think that, in general, is going to be a place.

Especially with respect to what's going to play out next, over the next four and 36 months, with respect to autonomous driving and the human noise. Robots and all these other fun things that are in the pipeline, but China is now very, very well positioned. And I think that has to be worth some money in the stock market.

This is their like chief technology offer. He told me like, Oh, four years ago, Microsoft came along and say, you know what, we're going to offer you this amazing package, we're going to basically offer to take your I.T. off your hands. We're going to help you basically migrate everything to our cloud and at a fraction of the cost. it's going to basically cost you right now to run your IT department. So the CEO thought it was a great thing. So they literally did this. Okay. Just imagine, right?

Because cloud essentially allows you to outsource your IT to one of those cloud source, the cloud service providers. And then the CTO of this company, S& P Binary company was telling me recently, it's like, well, you know, David, you will not believe this because Microsoft just came back to the office to negotiate because like their contract just had, you know, just expired, it had to be renewed. He said that Microsoft just said, okay, we're now raising the price by 500%.

That's what you need to understand. This is what most people don't understand, which is that these companies, once you've already destroyed your entire IT department, they're going to come and they're going to crucify you. They're going to charge you through the nose for it now. So this is the reason. And the reason why you have to pay is because like, You don't have your IT department anymore. And then for you to rebuild from the ground up, it's like almost going to be impossible.

This is why you have no choice but to pay. So from that point of view, to me, the growth, the revenue growth of the data, you know, basically the, um, I mean the cloud data business for Microsoft, Amazon to a great extent, it's not just about like, well, the unit sales that was going up, but because their pricing power was going up.

And then the last two years, These guys decided to go all the way, they say, well, this AI is an amazing thing because they're gonna, AI is going to provide additional reason for, for them to get people to migrate to the cloud. So what they did was like, they went out and bought all the Nvidia chips possible in order to essentially corner this market.

Because the idea was, well, if You haven't got enough computing power, which is very capital intensive, and you need hundreds of billions of dollars, you need deep wallets to be able to play in the sector. They thought they had this goddamn entire thing cornered. Until DeepSeek came along because what DeepSeek basically shows is that you don't even need that much computing power if you have a more efficient model and it doesn't matter if it's original or not, that kind of thing.

So all of a sudden these 50, 60, 000 dollar chip that they are buying from NVIDIA, you know, which they've only started to depreciate. Just think about this. They only depreciating them 15 percent a year, which is nothing. All of a sudden, they can say, well, maybe we need to mark to mark, mark to market value. These basically, um, these chips, which are probably not going to be worth that much.

Okay, if you can if you don't actually need that much computing power to generate, you know, what you need. On top of that again another thing that Trump did which is that tells you the kind of person he is, a great person by the way, is basically the announcement of the Stargate deal. I mean just think about this What is Stargate at the end of the day? It's about a Japanese company, SoftBank, that wants to invest in building data centers in the US with money from Abu Dhabi.

In other words, Trump was basically like what this basically means is that Trump is applauding as foreign investors come into the US and take a whack at the high gross margin of the likes of Amazon and Microsoft. Trump doesn't, has no love for these big tech monopolists. He just wants competition. And he doesn't even care if the competition is going to be U. S., is going to be foreign. As long as it's creating jobs in the U. S., that's what he cares about. And that's a great thing.

And that obviously is not good news for Microsoft. So from that point of view, I would argue that Microsoft, Amazon, these companies are trading at Impossible, basically valuation, especially given to be honest, they're not real innovators, actually, by the way. I mean, I've been using Microsoft product all my life. I mean, how little progress they've made in terms of innovation is truly striking that they should enjoy the kind of monopoly status that they have today. And that's shocking.

But the point here is that I think there's no doubt DeepSeek, the combination of DeepSeek and Stargate, I think that combination is definitely not a positive combination for the likes of Microsoft and Amazon.

I mean, they could be actually large ish because there's plenty of room to basically host them. But I do think that you're right. I don't think, I don't think, I think there's a certain limit Trump won't go. Especially given, as you know, Trump wants to bring back semiconductor manufacturing to the US. And this is actually very important. This is why I do think that, I mean, one of the stocks I like is actually Intel right now. Not because I, not because it's a great company.

It's a shit company. It's completely it's become a second tier technology company to the extent it completely missed a whole everything. And, you know, I mean, but there is no doubt. I can imagine that Trump wants to save Intel because without saving Intel, it's kind of difficult to envisage that the US is going to bring back semiconductor manufacturing in the US. And this is why there's all this talk with Broadcom and others. But I have to believe, just think about this.

I mean, Intel's worth a hundred billion dollars right now. It's like no money, right? Because like, NVIDIA is worth three trillion dollars. So NVIDIA can spend like 5 percent of its, you know, just basically like throw away 3 percent of his stocks. Like for stock swap, they can basically take over Intel. So I think this is going to be very interesting.

What happens to Intel is going to be fascinating because in a way that, you know, like, Gelsinger was really not given a proper chance to really turn Intel around. And I think I would argue that, like Intel is very crucial. I mean, I personally think that, you know, they should sell it to, uh, You know, a Nvidia or a Microsoft or Amazon, but I can imagine there will be a lot of interest in Intel, actually. Just not because it's a great company, because it's cheap.

Cheap relative to valuation of these big U. S. companies right now. Okay. And I think for Trump, especially, I think without Intel, it's difficult to see how he's going to really turn this thing around. The U. S. semiconductor industry.

does that factor into your, your calculation in terms of, you know, wanting to be long Chinese stocks and is the Chinese stock story a strategic, like, a secular theme do you think for you or do you view it more tactically?

Hedge fund, you're gone, you know? So that is the sort of the general horizon I have, which is, you know, think as long as you want, but. Basically make money the next few weeks. And then in my, my, and I, my, my, my strategies is, a, it's a basically absolute term strategy, which is benchmarked a three month treasury bill.

So I'm just trying to outperform three month treasury bills, you know, at a reasonable, basically sharpe ratio last year, my sharpe ratio was over two, but the point here is that the way I think about this China trade is that, you know what? I think it could be a long term trade. But I think you know from that point of view for me the China trade is I think it will be I will be going in and out.

Okay, I can't tell you like i'm gonna right now I I have my full position on and i've had it for three weeks and then whether i'm going to keep the full position I don't know. I think it depends on a lot of different things. But, but the point here is that I think China has gone from a basically, you know, sell on rally story in the last three years to now a buy on sell off story.

That that much I would say I mean to the extent that I think you know again to the extent that Trump may be here for four more years. Let's assume that he survived the next four years because i'm sure there'll be a lot of people want him dead. But assuming Trump survives for four more years Okay and see through this thing. I think yeah, I think you know, I think because the bottom line here, this is not about, Oh, Trump is going to be, he's going soft on China.

Or that he's going to sell out to China. It's not that. It's that Trump is much more confident in the ability of the U. S. to compete with China. You have to understand, like under Biden, there was this insecurity about China, that China is going to overtake us this and this and that.

But Trump doesn't quite feel The same way about America vis a vis China, he believes that if America is actually, you know, is in power, okay, to the extent unencumbered by regulations and then all sorts of government interference that the U.S is the most competitive economy in the world. So from that point of view, He is not trying to keep China back. He's just trying to propel the US forward to allow the US to realize its full potential. And I think that is a very constructive world.

Especially given that, you know, he's got Elon Musk. I mean, Elon Musk clearly is not afraid of any country. Okay, I think when it comes to competition. So I think this is the right, But of course, what this basically means is that US is going to become more competitive. China is going to become more competitive. That's just going to leave everybody else in the dust, right? I mean, that's the bottom line.

Right now, if you look at per capita GDP in Germany, I mean, most Americans don't even realize this, like per capita GDP in Germany right now, it's just slightly above that of Mississippi. Which is the poorest state in the United States.

And Canada is collapsing in terms of relative income relative to the U. S. So from that point of view, what is actually happening right now is that while U. S. and China move ahead to engage each other in competition, the rest of the world is just going to be left in the dust. Because they haven't quite figured it out.

And in some ways that the competition we're talking about right now, You know, you cannot just basically join the competition and expect to basically, uh, to catch up with the, with the front runners in the, in one year, two years, or even 10 years for that matter, because everybody else is moving ahead. It just basically means a lot of countries are going to be left behind. And in particular Europe and Canada, I'm afraid to say.

I mean, obviously last month's U. S. inflation came in stronger than expected, but again. I'm less concerned about, you know, some of the one off factors that contributed to the surprise because, you know, like drug prices went up a lot in January. Now, I'm not, I didn't predict it, but it didn't surprise me in so far that I know that, you know, if you're a pharmaceutical company, you know that Trump was going to nominate Kennedy.

As the health secretary and you know that Kennedy is going to push for essentially collective bargaining, to get lower drug prices using Medicare Medicaid like you're going to be raising prices, like in January. Okay, so things like that is going to happen It's like you know what if you tell me that used car prices went up in January in the U.S. Which was another thing that went up a lot.

I I you know, it's kind of difficult for me, that is the beginning of the sustainable, inflationary cycle for used cars because I know like for new cars, I mean, there's very few, new cars being sold because people have bought a lot of cars. And in fact, you know, inventory is very high among sold cars. So right now, for me, the most important thing with respect to US inflation is the fact that housing inflation is clearly stabilizing, and this is very, very, very important.

Okay, because housing inflation as you probably know is the biggest, it's the biggest component of core CPI, okay, and PCE for that matter. And so the combination of healthcare inflation slowing and housing inflation slowing that makes me feel quite good I mean to the extent that those are sort of more the underlying inflation that is more important. So I don't want to get too hung up on the sort of the one off thing.

Now there's no doubt trade war is going to be somewhat inflationary I mean, but this is also the reason why I don't expect Trump to basically, you know, to put a blanket tariff, because if you remember before Trump got elected, he was talking every day about this blanket 10, 20%, you know, tariff on all imported goods. Now if he does that, that would be clearly very inflationary. And that's also the reason why I don't think he's going to do it. And I'll tell you why I say this.

First of all, I think what everybody, I think Wall Street doesn't understand, and we have to forget about Main Street, is that as much as Trump talks tariff, in my view, tariff is plan B. Plan B with respect to universal blanket tariff. Plan A is actually spending cuts. And the reason why I say this is this, right? You know, the U. S. budget deficit is at 2 trillion dollars, as you all know.

You know, to me the biggest constraint, okay, for the entire Trump presidency is the fact that interest payment on U. S. Treasury securities is now at 1. 2 trillion. And Trump knows this, Scott Besson knows this, anybody who knows how to do some numbers knows this.

Which is that unless the Fed cuts interest rates more aggressively than what it's currently pricing by the bond market That 1. 2 trillion dollars is going to go to one 1. 5 trillion dollars already by the end of this year And let me tell you this if interest payment and us debt with the go up by 300 billion dollars this year Trump knows that everything is promised during his campaign, he can just kiss them goodnight. Goodbye.

Whatever it is Okay So from our point of view in my humble opinion This is everything that the Trump team is trying to do is trying to basically bring down that interest cost that is firing out of control. So what do they have to do to bring down the interest costs? Very simple. They need to cut spending because much of that interest cost is due to the so called term premium. You know, that is the, the premium that long term bond yields are trading relative to short term bond yields.

And because people think, oh, wow, the, you know, people think that the debt is so big and this thing is gonna blow up. So investors require high risk premium for holding U. S. assets, in particular U. S. treasuries. And what I'm telling you is this. Trump understands the only way he can do this, he can bring down basically this risk premium that the U. S. government is paying on servicing and not to mention issuing new debt, is by essentially restoring credibility to U. S. fiscal policy.

This is the reason why for all people in the world that Trump basically You know, brought in Scott Benson, the biggest, I don't know, listen, I've been in this business for many years, 25 years on Wall Street. I was, you know, I mean, I know all the big guys. Okay. And Scott Benson, let me tell you this.

If I've ever met a bomb vigilante on Wall Street, and that has to be basically Scott, I mean, for the 15 years I've known Scott, like every time I talk with him, he's been expressing his clear concerns about the U. S. deficit, U. S. debt, and so on and so forth.

But what I'm telling you is this, the only, only reason why Trump decided to make Scott Bess involved people as treasury secretary and has given Elon Musk a free hand in terms of cutting waste and fraud is because Trump understands that basically this is what you need to do if you want to, if you don't want a fiscal crisis on your hand.

Because All these successive US president in the last 40 years, they paid lip service to fiscal health and responsibility, but they've always in the end kicked the can down the road because they can. But Trump understands that he's not in a situation. The French said, you know, there's a very famous French saying that's attributed to basically Louis the 15th. After me, the great deluge.

Okay. The, unfortunately for Trump, again, he cannot kick the can down the road because the crisis literally like around the corner if he doesn't take care of it. So this is the reason why this government is so like i've i've been doing this for a very long time I've never seen a U. S. Presidency Including Trump's first term that is that focus on fiscal spending cuts. And so from that point of view that's going to be the big story for me, because that is going to be a disinflationary story.

I mean, so again, you know, whatever Doge is doing and then the budget battle that's going to unfold this week and next week and the week after that ahead of the March 15 deadline for funding the government before we, the government shuts down. I think all that is going to tell you about, you know, how tight the fiscal situation is and then how this administration has decided it's got no choice but to bite the bullet.

And I think from that point of view, this is why I'm not too worried about inflation. Again, the whole point is like last year, the Biden government's, you know, literally opened the spit guard. They were spending money like there was no tomorrow ahead of the U S election. Even after the election, they were practically spending pushing the money out of the door. Whatever money that hasn't been spent, they were trying to get it out there. Okay. Before Trump comes in.

So you went from extra remarkably easy fiscal policy in the second half of last year, to my view is going to be very tight fiscal policy in the first half of this year. And that. You know, with that, I'm not that worried about inflation, and then, and I suspect that once that starts to be, felt in the economy to the extent the bond market right now wants to see the data, okay, before it actually acts on it, I think even the Fed is going to start to sound more dovish.

So, I would be worried about inflation only if they fail. In cutting spending because if they fail if Trump fails in basically bring about real spending cuts then he will have to resort to tariffs. Universal tariffs in order to finance the extension of the tax cut. Okay, and that will be inflationary.

But I think that's going to be, that's Plan B, right now Trump is still operating under Plan A and the market gets this confused market thinks tariff is point Plan A and the spending cuts is Plan B, but you know, the market doesn't know shit about american politics or politics in general But i'm telling you that's that's the plan And then um, and that makes me quite, you know to the extent that that makes me less I think the US economy is set to slow quite a bit.

But that's also the reason why I actually like loan. I like owning bonds right

Which is basically like, you know, local currency bonds of a wide universe of emerging market currencies and countries debt issuers I I like that because it means that I don't have to basically like take a huge bet about one country with or two countries or so forth. I I think EM is going to be a net beneficiaries. And the reason why I say this is because again You know, like EM in general, right now people are short EM. I mean, investors are very underway EM right now.

And that's the beauty of this. I generally like to buy something that everybody's short. I like to basically sell something everybody's long, but my mother brought me up very badly. So I'm a bit of a contrarian, but the point here is that EM. has been very unloved over the last three, four years, partly because, you know, EM was China to a great extent and Biden just basically like destroyed China. And so, so if China is going to basically be easier, it's going to be better for EM.

EM also is very sensitive to real interest rates in the U. S. I'm talking about real yields on TIPS, right? Right now, you know, 10 year U. S. real yields on TIPS is around 2%, right?

I mean, you know, In fact right now there's like, what, 85% sensitivity of EM to basically, weekly changes in 10 year TIPS yield, which is the, it is the most sensitive asset in terms of, you know, sensitivity to US real yields to the extent I think real yield, real yields are gonna come down that alone, that is a being long EM, local currency debt it's a very good, I think, you know, way to play for lower real yields. Now you can basically play a lot of different ways.

You can, I mean, that's why I'm, I'm also long treasuries and that kind of thing. But you can basically, uh, you can buy TIPS and so on and so forth. but I think, that, that EM local market, you know, I think currencies debt, I think it's actually a very nice exposure to, uh, another way to basically think about this exposure to lower real yields.

Because again, the high real yields of the last two years in the U. S. was a result of very stimulative fiscal policy under Biden and this whole AI story. Which basically dramatically raised this perception that US somehow was going to actually be able to grow faster than everybody else. But I think both of these, you know, I think DeepSeek has DeepSeek has burst the, the AI bubble to a great extent and I think US fiscal is going from expansionary to now contractionary.

I think that combination should give us basically lower real yields and lower real yields should be pretty constructive for EM fixed income.

I mean, so from that point of view, you can look at developing countries, emerging market countries as being a leverage play on global growth. So when global growth, you know, accelerates, they tend to grow faster. If global growth slows, they tend to decelerate faster. But this has not been the case in the last four years. EM actually, even though, you know, I mean, I don't tell you in the last three, three years, the U S has been the best performing countries.

I mean, basically, like, because again, China, because China has been, you know, we know what happened to China. but, but the point here is that this is why it's a very different, this is why, you know, history never repeats itself.

I mean, history will only repeat itself if you have the same sort of like, if you have the same leading indicators, if you tell me that EM is done very well until now, and that therefore US is about to slow and global is going to slow, that EM is going to go down, I can totally agree. But right now it's the opposite. And by the way, also with Trump, I'm not going to assume that we're going to go into a recession or anything like that. It's not going to be like a Lehman collapse or whatever.

It's going to be a slowdown, but the, which, but I see that as the Fed cutting interest rates aggressively into that slowdown. And Trump is going to keep basically be a cheerleader of the market for the stock market. So it's not going to go down that much. So again, I'm just basically saying that we're going to see a slowdown, but the slowdown is not going to be a scary slowdown. And

Because first of all, like, you never want to sort of get too far ahead into the future, like in terms of the market really cannot think about a lot of things like more than a month at a time, maybe two months at a time, you know, like I think the market only started to focus on the German election about like a month ago, something like that, maybe six weeks ago. That's it.

I think we still don't even know who's going to be actually the, uh, heading the liberal party until actually next month, right? I mean, is it going to be, you know, if it's going to be Freeland or somebody else. But I think, you know, like I would be looking to buy Canada when we get closer to the general

That was the reason why, like, I thought Canada, I, for years, I was arguing that Canada should serve as a model for the U. S. because the U. S. had all these lottery systems where they were bringing in, you know, basically people to ride taxis, okay, in New York City who have no college education or nothing, okay, just because they get into the door because they won the lottery.

Whereas Canada was able to poach the very best from all over the world because they had this policy and so on and so forth. I think that's the, that what Trudeau did in the last three years is completely inexcusable. To the extent that Canada has been flooded by all these, like, you know, without going into names of countries where they come from, but clearly, you know, unskilled labor.

Okay. So from that point of view, like if for Canada compete in the world, like, and we're talking about catching up to the U S and China and really be able, Canada's a small country, so maybe, you know, Canada doesn't even have to do that much to really be able to like, you know, Canada doesn't have to excel in everything. They just have to basically pick the right area and just basically go for it. But for that, they need skilled labor.

And so from that point of view, like, I think, you know, that would be the first thing the Conservatives should do. And the second thing Conservatives should do is to basically, like, you know, break a lot of this D. E. I. woke stuff that uh, Jordan Peterson has talked about in the Canadian context, which is just it's it's it's incredible.

So I think Canada under Trudeau had just basically digging his own grave and I think i'm just I just can't wait until the Conservative gets in and cleans house. But again, I just don't think the market can get ahead of that that quickly I mean, you know, you don't buy Canada like because as you know, the election doesn't have to be held I think until the 21st of of of October. So, and then before they take power, it's going to be like January.

So like, this is going to be like a, we're still talking about a year away before anything's going to change. And meanwhile, Canada, just nothing's going to change because nobody has an incentive to change anything right now. Okay. and I don't, I think Carney is, was a decent central banker, but I don't think he's going to make a very good politician. Certainly. I don't see him as being, I don't, you know, we've seen a lot of this type of technocrat, like Draghi was a good example.

Draghi was actually very lousy. You know, Prime Minister of Italy, after having been the president of the ECB. And I think Carney is going to be the same. I mean, central bank, central bankers don't know anything. I mean, basically. and I don't know, like he's going to turn things around. You know, even if he wins the leadership race. I think Australia, the problem with Australia, also a little bit like Canada, is that productivity growth has been extremely slow.

I mean, to some extent, it has to do with immigration policy, but it has, it goes a little beyond that because, you know, Australia is really very far from everything and, and so from that point of view, like, it doesn't really enjoy the mobility of international capital, international labor, international, basically, uh, markets, trade. So as a result, when China was growing. Australia did very well. Simply, they saw massive terms of trade, right?

You know, shock improvement in terms of trade shock that they were able to sell more stuff to China at higher prices. But now that Australia wants to reorient itself away from China, that's a problem because I think this is why the Conservative Party, you know, before the labor, I actually think the Labor Party has done a decent job, but the Conservatives made a huge mistake. I mean, under, they thought that they were going to reorient away from China towards the U S market.

But what the Australians don't realize is that they make very similar stuff as the U. S. does. And the U. S. is very far away, and the U. S. is never going to buy that much from Australia. So to think that, for the Australians to think that they were going to replace, you know, China with the U. S. as their biggest potential export market, that was like, literally, like they were dreaming. I mean, they were just completely unrealistic because U. S. is a major agriculture producer, exporter.

U. S. basically produce a lot of raw material as well. So what, you think the U. S. is going to start importing coal from Australia or wheat from Australia? The Australians were completely unrealistic. And they were, unfortunately, like, they were just blindsided by their fear of China, which I understand. I mean, they were, they were afraid of, they were afraid of China taking over.

There was also basically this huge political rivalry between the Conservative and the Laborer that, that, that pushed the Conservative in a certain direction because for one, for a while, it was very, politically, you know, it was very populous in Australia and like in a lot of other places to beat up on trying to say well China they're gonna take over Australia that kind of thing. So we now need to spend 300 billion dollars on submarines.

which is gonna cost Australian through his noses for the next hundred years. Let me tell you this It's not even the next 10 years next hundred years. But all in all I think you know I think the fact that China will be doing a bit better, probably oil has been equal, is probably somewhat constructive for Australia. But, but I think, you know, in terms of iron ore prices. But, you know, you can see copper price, iron ore prices have actually firming a little bit lately.

But again, but I don't, I don't quite see China about to take off in that way. This is not going to be about, oh, well, you're going to see housing starts in China ramping up again or whatever it is that I doubt you will see. Cause I think the Chinese real estate situation is so bad that, you know, I don't think they're going to be building any, that, that real estate, it's not going to be come back as a driver of Chinese economy for the next 10 years.

So I think from now, from that view, it's difficult to get too optimistic about Australia.

You know, those excesses and there's a lot of, a debt overhang in the private sector and increasingly in the public sector as the public sector begins to take that debt off the balance sheet of the private banks over, you know, the next 2, 3, 5 years, right? So, which is why I just, I don't buy the fact that. This was really a Trudeau thing other than the immigration mistake, which is absolutely massive.

I think it's just generally a Canadian thing and an Australian thing and a UK thing where everyone just preferred to trade houses and try to earn lottery winnings off of increasing, you know, condos and housing prices instead of actually building real businesses and entrepreneurship and, and productive strategic sectors of the economy. So I, I, I struggle to see how, how shifts in governance are going to make much of a difference in the intermediate term to any of those countries, frankly. Yep.

And I think from that point of view, You know, it's not like the U. S. as you know, like U. S. actually saw deleveraging in terms of household debt because after what happened with Subprime, the U. S. household just defaulted on their mortgage debt. So the banks took a hit, they had to be recapitalized, but it doesn't really matter. But in the end, as a result, like, and then the millennials had no love for owning a roof over their head.

So as a result, U. S. households, you know, like the debt to, you know, disposable income ratio is relatively low, actually, within love countries. And then I think that, that, that is a plus. But you're absolutely right about Canada, Australia, and in the U. K. as well. Because in the end, what these three countries have in common, as you know, is their mortgage system, you know, favors basically floating rate mortgage. Floating rate mortgages tied to basically front end.

So when interest went down to zero, literally it was like, it was free money. And, and whereas the U. S. still like, people like to basically borrow 30 year, that kind of thing, that never went to zero. And I think that has a lot to do with it. So I think from that point of view, like, in some sense that these countries really got the worst in terms of the excess associated with, you know, Zero interest rates and QE and so on and so forth. But

The fact that they are still paying less than one percent in inflation at two or three percent That just means that they're able to grow out of their debt. I mean, this is actually very important. This means that the Japanese yen is going to remain a weak currency. There's no doubt about that.

I mean, this is why the central bank governor said this yesterday that you know if long term bond yields were to not cooperate that the BOJ wouldn't even think twice about coming in and resuming large scale, basically JGB purchases. So I think from that point of view, like the way I think about this is that JGB, I mean, BOJ's number one job is to actually make sure that Japanese debt dynamics don't go crazy. Okay. Don't go explosive. And I think that is really the BOJ's only job.

I mean, the reality is that about Japan, it's difficult to get bullish on Japan because the Japanese, yen has been the weakest currency in the world in the last four or five years. I mean, in fact, the Japanese yen right now on a trade weighted basis in real terms is weaker now. Okay. Then it was before the Plaza, the court. I mean, just put that in perspective, right? I mean, if you think about this, it's pretty amazing, right? I mean, it's like the Japanese yen is extremely weak.

This is the why the whole world, like, especially the Chinese in Asia, they just piling the Japan as tourists because like Japan is like dirt cheap, right? I mean, Literally. And so, but what is interesting is that being cheap hasn't given Japan anything. Because if you look at Japanese exports, we're talking about in volume terms, it's been a flat as a pancake the last four years.

In other words, that the fact that Japan's gotten cheaper hasn't really made Japan more competitive in terms of selling more stuff. And that to me is one of the most shocking things about the global economy from a macro perspective in the last basically three or four years. And I think that is largely the result of the fact that Japanese companies spent the last 20 years, you know, building these global supply chains.

Okay, so the Toyota, you know, is now basically building cars everywhere in the world, for the US they're building in US, for Europe they're building in Europe and wherever they're basically building what I'm saying is that these supply chains were so expensive to build. The Japanese companies have decided like, you know, we're not going to take apart you know our supply chain just to return basically to Japan to produce stuff just because it's cheaper in Japan now.

So as a result, I think one of the most interesting thing about the Japanese economy is the lack of responsiveness of Japanese export to a weak yen, whereas a weak yen to the extent it's been inflationary has actually eroded household real purchasing power and this is why household spending has been so weak.

So right now the way I see this is that maybe there's a sweet spot somewhere for Japan Which is somehow if they can get inflation expectation back at 2 percent and then stabilize the yen, the Japanese economy will do okay, okay, but not like amazing. Okay, but that that said there are pockets of the Japanese economy that I think will do very well.

For example in semiconductors, I think Japanese the Japanese have decided to go back to semiconductors after having basically taken itself out of competition the last 30 years. Because remember, like only in the 80s, Japan was number one in semiconductors. And then, and then came, you know, Taiwan, South Korea, and then China. The Japanese decided to go back to semiconductor, and I think that is a huge thing.

I mean, I mean, we're talking about basically, you know, like a culture that is really about engineering, miniature engineering. The Japanese are not great innovators, but they're very good at, you know, perfecting things at a small scale in terms of anything that requires detailed attention, that's what the Japanese are very good at. I think they're going to be a major powerhouse, I think, in semiconductor, especially given some of the stuff that's come out of Japan in the last six months.

It's really been very impressive. I think the second thing I think, you know, Japan would be very good at is in automation. I think the world is going towards automation with AI, you know, and so on and so forth. The Japanese have led the world. in terms of robotic technology, automation technology, that's Fanuc, Yaskawa and all that. Those companies are going to do very well. The third area I think Japan is going to do very well is in defense technology.

I mean, the Americans can make shit these days, right? I mean, just look at, you know, these F 35, the ship planes, okay? Boeing planes are dropping out of the skies, every basically, uh, the Japanese, if the Americans are going to basically have a competitive, you know, sort of defense, you know, relative to China and Russia or whatever, they have to become, they have to really join up with Japan much more.

The Japanese are just, when it comes to manufacturing among the major economies, I'm not talking about China. We're talking about. economies that can potentially help the U. S. revive its own manufacturing and so on and so forth. It's obviously Japan. And this is why I think Trump really wants Nippon Steel to make a big investment in U. S. Steel. I mean, and I think there's no doubt that Nippon Steel, can offer, you know, superior technology to US steel to essentially upgrade its manufacturing.

And I think that's what the US really needs. And it's easier said than done. In fact, that's probably going to be the most challenging aspect of Trump's agenda, which is that, you know, like the US has retreated so much in manufacturing the last 30 years to get back into this game is going to, it's going to, you know, it's not going to be a piece of cake. Regardless how great a genius Elon Musk may be.

So I've decided that after I retire from Wall Street, I'm going to share some of my knowledge with everybody for free. So you can look me up on YouTube, what it was worth. David Woo Unbound.