The System Built After WWII Is DONE (Uncut) 03-23-2025

The System Built After WWII Is DONE I Michael Every

And Europe’s problem of course is what happens if one country wants one thing, like Germany? What if they’re looking east? BMW, for example, has just announced it’s going to include Huawei technology in all its new models. Well, I mean, good luck exporting them to America, where they’re bad, right? So then don’t turn around and complain you can’t export them. You can’t have your cake and eat it, because Germany has used it.

The game gets even nastier. You know, you’re not just treated like a child. You’re in the corner, we’re not listening to you.

You’re potentially dangerous. So then people are going to start exacting serious terms and saying, well, we expect you to be doing a lot more. Now, at that point, you can start carrying cards.

Hello, and welcome back to Soar Financially, a channel where we discuss the macro to understand the micro. My name is Kai Hoffman. I’m the EdgeAR mining guy over on X and of course, you’re hosts of this channel.

And I’m looking forward to welcoming back Michael Avery. He’s a global strategist over at Rabobank. And I just had the pleasure of chatting with him a few minutes before hitting the record button.

And both our heads are spinning. I just told him he puts out a daily tweet just sort of summarizing geopolitical events. And just this tweet of this morning alone, it’s Wednesday, March 19th here, we could probably spend three to four hours dissecting and discussing.

It’s really difficult to keep up with what’s going on in the markets and geopolitically. So we’re trying to sort of summarize it and make it palpable for everybody trying to understand what is happening, what is shaping markets these days, so much going on. And we’ll get to that in a few short seconds.

Before I switch over to my guest, hit that like and subscribe button helps us out tremendously. We do appreciate it. And of course, it doesn’t cost you a thing.

So thank you so much for that. Now, Michael, thanks so much for joining me. It will be a pleasure to catch up now.

My pleasure to be here. Michael, so as I said, so much going on. And I’m going to play the ball right back to you here.

I’ll have to ask you what are the most important geopolitical macroeconomic trends that you’re following right now? Okay, I’m going to give you the cheat sheet, which I’m using. And I hope that I’ll help everyone who’s watching to have their own cheat sheet. But you know, feel free to take it and adapt it for your own, for your own particular use.

So you can chase any one of the particular stories down a rabbit hole, and it will lead you to a dozen others. And frankly, you can start going a bit mad with it. I will zero in on a couple of particularly important elements within that in a moment.

But the overarching cheat sheet that I’ve been using as a methodology for years now, is this, that the underlying geopolitical forces that had sustained a global architecture, both politically, economically, financially, are now crumbling. And as a result, everything that we think we understand in terms of the world around us, literally lines on maps are moving. And if lines on maps are moving, lines on screens, i.e. things that we trade, are definitely going to move and are going to move much more than most people conceivable of using very traditional metrics, which are based on that status quo ante, which is now crumbling.

And within that, the key thing to understand, this has been my shtick for quite a while now, is trying to get people to see that the world of economic policy is gone. And we’re now in the world of economic statecraft. And the difference there is instead of using interest rates, or fiscal policy, for example, to try and achieve an economic target, like 2% inflation, or a 3% budget deficit, you use whatever tools you’ve got, politically, militarily, and economically, all in conjunction to try and address national security, your national interests, what do you think you need to achieve for your national good.

And they are not the same thing at all. And if you continue to apply the old fashioned mindset of a technocrat, that we’re doing this, for that reason, to try and achieve this target, you are missing the real game. And once you understand that, everything else starts to slot into place.

And until you understand that, nothing slots into place. My head is already spinning, Michael, because we need to dissect that, of course. And it feels like not everybody’s caught on to that trend yet, from economic policy to economic statecraft.

And I think Europe is slowly waking up to it. But I think we have way too much infighting still. And we’re not really unionized yet.

I think Michael Green made a great point yesterday. Yes, we are the EU, but we’re individual countries. Which is a problem.

It’s not like the US, which is just as big. But nobody talks about the trade between California and Nevada. But we talk about the trade between Germany and France, for example, which is an interesting point.

Maybe we’ll start there. Is the world waking up to what you just said? And is everybody pulling on the same strings here? Or are there laggards? God, there are so many laggards. When things change very fundamentally, it’s really too much to expect everyone to come along with you.

Particularly if you’ve built up a lifetime of credentials, or credibility, or let’s be honest, power, influence, money, based on a system that no longer really has any particular use, or the rules have changed. And in a chat I was having with someone in Australia, early today, I made the point that a lot of the very well, and I repeat the word credentialed individuals that we have around us, offering up ostensible explanations for what’s going on, very often from a very moralistic point of view, which doesn’t help because, you know, morality isn’t going to change what you see around you, or taking a moral stance towards it one on a macro level as an individual, that they end up risking a repeat of what you saw at the end of the Soviet period, where the technocrats, the apparatchiks within the Soviet bloc, were very intelligent people, very cultured, very highly qualified, usually PhDs, mathematicians, engineers, etc. And they thought they understood how their system worked, and they knew it didn’t work very well, and that was evident in the 70s already, and by the 80s, you know, they could see stagnation all around them.

But they genuinely thought that with a few tweaks, like perestroika and glasnost, the system could last, and they would still remain in a position of influence. And within no time at all, everything was swept away, everything crumbled. And some people became billionaires, and lots of very wealthy and powerful people became very poor overnight.

And of course, you know, the great masses lost all their savings. Now, I don’t think we’re going to have a complete repeat of that, to be abundantly clear, but that kind of systemic shift is occurring. And you are, of course, seeing our modern day equivalent of commissars and apparatchiks saying, no, it isn’t, no, it isn’t, no, it isn’t, because there aren’t any seats for them, or not as comfortable a seat in the new environment.

Now, it’s interesting, I’m coming back to timing, as well, of it all. And I wrote down, do we have three and a half more years of economic statecraft? And will we return to policy after that? And I’m hinting at a certain, you know, person and the administration here, because when I look at what you wrote down in your tweet, every single conflict, or item on the agenda here includes the US. Let’s be honest here.

It’s either Russia, Ukraine, Trump had a phone call with Putin yesterday, escalation in the Middle East, the Houthis are being attacked with an indirect threat towards Iran, Israel, Gaza, the US definitely have their fingers in that pot as well, Europe shifting military policy because of what the US said they would do. Turkey, EU politics. If you think long enough, there’s a US component in there as well.

China, US trade battle, US Supreme Court discussions, US terror wars, it all comes down to the US. So the question is, is this an everlasting change we’re seeing? Or is this just more a blip on the historic radar screens here? Or the radar screens of history? Well, no, my view on that is you could have predicted where we are now years ago, and I did quite clearly. I can send you reports, which absolutely flagged, you know, 80-85% of what we’re seeing around us now from years ago, because the historical pattern was always there, if you understood it, that when you have an architecture built around a US security guarantee, which we did, and then a neoliberal, you know, markets first, because markets infrastructure built on top of that, presuming that’s the end of history, when actually that economic structure itself produces domestic polarization, which undermines it and international polarization, which undermines it, and physically undermines the US military potential, so they can’t keep producing weaponry the way that it was, and people become less afraid of it over time.

Obviously, it was going to collapse eventually, by any number of means, that would either happen individually or conflate together, and they’ve conflated together. So it was predictable. But to answer your question, just because the US is no longer going to be the US that it once was, in terms of saying, you know, we are behind the rules-based order, we’re everywhere, trying to write the rulebook for everybody.

If the US just says, okay, now we’re for ourself, for and foremost, you know, we’re happy to help people, but there’s got to be something in it for us, and it’s purely transactional, which is the long-run US history, by the way. That’s absolutely what the US has been like historically. That, A, is a return to norms, rather than an aberration.

That’s going back to the way things always were, and that’s what I would have expected. But B, it doesn’t mean the US goes away. So if you’re Europe thinking, well, okay, we don’t need the US, we can just come up with a new security architecture by ourselves.

Good luck with that. If at any point that runs counter to what the US wants, anyone else, anywhere else thinking, well, okay, the US isn’t going to be the US that we used to like. Therefore, we can just ignore it.

No, you can’t, they could be on the other team. And that’s quite the players I have on the other team. So I think that maybe answers that question, and a few others wrapped up with it.

But I see this as basically the rest of this century, until we actually come to new modus vivendi between the US and whatever other power blocks are emerging or sustainable in that environment where the US has taken the gloves off. And we are nowhere near achieving that now. The rest of this Trump administration would just be the start.

Yeah, to maybe sum up, we are progressing to a multipolar world here. It’s not just the US anymore, like we’ve seen over the last 70 years, or 80 years, actually, since the end of World War Two. It is now China, Russia to a lesser degree.

Who do you see emerging here as the superpowers moving forward? Well, it really depends on what happens in terms of who targets whom and how, because things can expand and things can contract and collapse. But if you look purely at economic potential, project forward a trend rather than presuming any structural breaks, and look at demography, it’s not difficult, you know, you could have done that many, many years ago, and it’ll still be true today. You’ve got obviously India, you’ve got China, you do still have Russia, even though it’s demographically very, very wounded as such, such a resource base and such a nuclear arsenal, it’s never going to go away.

The question mark is whether Europe can achieve anything. And then the other one is what the US will do either completely solo, which I think is more unlikely than many people are speculating now, or as part of a expanded potential Anglo block. Because, you know, in many respects, blood is thicker than water, culture is thicker than water.

And it really wouldn’t surprise me if one of the emerging patterns that we see sooner than people think is the US and Canada and Mexico, the UK, Australia, New Zealand, and, you know, Japan and South Korea, all starting to operate as one block. And then the question becomes whether Europe really wants to operate within that broader network, or things that can really go it alone, which, as I said, is a brave call, if you’re in rivalry with that other block. Interesting, because we keep leaving the EU out of all discussions, even here on our channel.

We are pretty much a non-factor right now. We’ll see how that changes. Germany just lifted its debt break, changed its constitution to do so very, very early days.

And personally, I don’t have the biggest confidence in the new government just yet. We’re still I see too much noise around that gives me pause, quite honestly, in what they’re doing already. It seems like more of the same old with a mandate to just spend money without any direction.

The role of the EU in all of this is really, really important. Do you see us, like meaning the European Union, snuggling up more to Russia or the US in this regard? And who’s going to be our ally moving forward? Well, before I make that call, just consider what all the options are. Because the first one, is strategic autonomy in the purest of senses, at which point you are borderline antagonistic with America and whoever goes along with America.

Potentially that includes the UK, but that’s an open question. And with Russia, of course, and with China to a degree. And, you know, you’re equidistant or soixante, as the French say, you know, to India, but that’s not really being a close ally with them.

And you have to look at what Europe has actually got on the table, particularly given its lack of fossil fuels. And, you know, its internal divisions and say, is that really going to cut it? Or you can say, you know, logically, Europe sits on the map, it makes sense to go with Russia, which is politically completely inconceivable. But you know that Germany, many people in Germany would absolutely love that, you know, sotto voce, they won’t say it loudly, but industry would love that, to get to get Russian gas flowing again, to look at that market in the east, and all the resources that are there.

But that, of course, could potentially make them again, more antagonistic with the US. I’m not sure how China would feel about that. You could try and go with China, which is questionable.

If you don’t want to go with Russia, I don’t know how you get one without the other. And again, that makes you antagonistic with the US. Or you can try and string together a thread of other countries, you know, like Australia, potentially, but I’m not sure it’s very, very far away.

And Canada, which I think is a hugely ambitious target, and India and say, well, we’re the rules based order. And then good luck to you with everyone who isn’t the rules based order around you, who are much more heavily armed. So there really aren’t any comfortable conclusions here.

And that’s true for everyone, not just Europe. But I think on balance, and I’m not trying to be personally biased here, because that’s the easy thing to do, go with what you want to see and be normative. But I think on balance, Europe will find that it’s probably still most comfortable to swallow one’s pride a little bit, except things have changed, and try and work with the US, as initially Batman to their Robin, you know, where they’re in Asia, and you’re you’re looking after Europe.

But then over time, you know, maybe things equalize bit by bit with a change of personality, even if the geographical reality never completely changes. But that decision needs to be made. And Europe’s problem, of course, is what happens if one country wants one thing, like Germany? What if they’re looking east? BMW, for example, has just announced it’s going to include Huawei technology and all these new models.

I saw that and I’m own a BMW. It’s making me awfully nervous, quite honestly. Well, I mean, good luck exporting them to America, where they’re bad, right? So then don’t don’t turn around and complain.

You can’t export them. You can’t have your cake and eat it, which Germany is used to. Or are you going to go to France, which is very, very clearly advocating for the old Gaullist position that we can do this by ourselves.

Except how’s that working out for them in Africa, where they’ve lost francophone Africa, to be honest, you know, to a variety of forces there. So I don’t, you know, I don’t have a crystal ball in telling you what will happen. But when you do the pros and cons, and you weigh it out, I still think Europe as part of a less polite, but more effective Western alliance may be their lowest cost, highest return option.

But that’s up to Europe entirely to decide. I’m just an observer. Maybe one last question on the EU topic here.

Do we hold any cards? To re-quote or quote Donald Trump here? I don’t think we do. You brought up resources and commodities and access to energy. What are the cards we’re holding? And we might be in the process of reshuffling the deck, but it’s happening very slowly.

Do you see us actually even holding any cards in the future as well? Besides location, perhaps? Well, in the future, possibly. Right now, very few. To be blunt, a couple of months ago, none at all.

Europe was being discussed in geopolitical circles as the equivalent of Southeast Asia during the Cold War, which is basically a stomping ground for other people to fight wars in and, you know, go and have a bit of R&R in, but anything you say is irrelevant and no one really cares what you think. Of course, that offends European pride because, you know, you were the home of Machiavelli and von Clausewitz. There are so many brilliant geostrategic thinkers that came from Europe.

There are none today that I can see, but your history is replete with them. But now, if you talk about Europe rearming, were that to happen, were that to happen, it can start to emerge as a player, but it will take years and you have to understand that once you get into that great game for real and you don’t just try and say to everybody, we’re a big consumer market and we’re a rules setter because you want to access our market. Once you start rearming and people take you as a threat and people see that you’re an adult, quote unquote, the game gets even nastier.

You know, it’s you’re not just treated like a child. You’re in the corner. We’re not listening to you.

You’re potentially dangerous. So then people are going to start exacting serious terms and saying, well, we expect you to be doing a lot more. Now, at that point, you can start carrying cards, but then there’s a lot more on the table.

You know, you’re looking at really saying, here are my car keys and my house keys, and let’s hope that this deal comes out good. Up until recently, Europe has actually been one of the chips on the table for other people. So at least now you’re saying we’re moving to playing the game potentially, but you’re a long, long way away from having anything to offer anyone.

Yeah, just along that context here. Is Poland growing up too fast, perhaps? Like Poland is, there may be some background, maybe you can provide that background, why I’m asking that question and why I’m thinking that way. Are they getting maybe too, too, bullish is the wrong word, like the rearmament in Poland is making me a bit nervous because they’re nervous.

Obviously, the question is, what does it mean and what does it lead to? Well, if you were Poland and you live next door to, you know, a expansionist Russia, historically, of course, you’re going to be nervous. I think they’d be a lot more nervous if they were doing what Spain and Portugal are so bravely doing, which is to spend nothing on defence and to, you know, enjoy every geopolitical crusade wherever they can, in terms of like talking shots, but naturally not to contribute anything to where it really matters. So, you know, again, that speaks to Europe’s polar opposites from one side to the other.

I think it’s probably on balance, the safer option for Poland to be doing what it’s doing. I don’t think there’s any realistic chance of them actually attacking Russia. So if they’re not going to do that, it’s purely defensive stance.

But you do have to recognise, because we’re talking meta here in geopolitics, before we get to macro, before we get to micro, which is, you know, where your intro came in. But there are lots of things that happen alongside this. Let me just tell you one of them.

If Poland’s going to be spending 4-5% GDP on defence, you know, you kind of get locked into that pattern. And the same thing is also going to be true for Europe. If that really does rearm, and I hope it does for many reasons, you can’t then suddenly say, and now we’ve stopped.

You have to maintain spare capacity in the defence sector so that you can always ramp it up again when needed. It’s economically inefficient. You have to have extra factories lying around there that are all ready to go at the drop of a hat or that can be converted.

You don’t just convert them, you don’t convert your swords into plowshares again. Volkswagen might have a couple of empty facilities here. Well, that’s converting civilian to military.

Fair enough. Okay. And I think that does make sense.

But what I’m saying is, it’s not like in three years from now, because they’re talking about a four-year package at the moment from the European Commission. Four years from now, Europe will just be getting the wheels turning. It’s not going to turn around and say, that’s it, we’re done.

Now we start turning all the tank factories back into making VWs again. You’re stuck in that pattern and it’s economically inefficient. It’s a stimulus to growth, which is good.

But if you’ve got a problem with inflation and your supply side isn’t that efficient, which can easily happen in terms of the inputs you need to be bringing in from abroad, which are now going to be challenged potentially, because you’re seen as someone who’s building a machine that can challenge other people. So therefore, they might try and interfere with your supply chains upstream to downstream. And in terms of shortages of skilled labour, etc.

It’s inflationary. So when it becomes inflationary, you have guns or better choices. Poland will have them maybe sooner than others, but they can flow through everywhere.

And this brings you to political economy, not just politics, not just the economy. What are you doing with your economy? For example, the European Commission, you probably saw last night, depending on when this goes out, they’re now floating, they want to be the arms purchasers on mass for all of the EU and be a store of weaponry. So the European Commission will have warehouses full of tanks and bombs and munitions and planes.

And if a national government says, yeah, this year we’re going to buy another 10 more, you haven’t got to wait for a long production line. They’re just waiting for you in the hangar over there from the European Commission. I mean, it’s ironic given that the European Commission is the current pinnacle of the process that began with the European coal and steel community, which was created by Germany and France, not trusting each other’s coal and steel production enough in case you re-armed in secret against the other back in the 1950s.

So it’s kind of symmetrical with that, if you will. But it’s a hell of a long way from going around talking about global human rights and particularly what they’re talking about, saying we’re in favour of the global rules-based order. Because let me just add one more quick point here, if I may, before I forget.

There was a big, excited headline in Politico this week saying Europe is having its Hamiltonian moment. It’s living the 1790s, which is when America basically, you know, got itself together and became the United States. Yes, there is some of that happening because of a geopolitical threat, which anyone who understands politics and history would tell you was the only way it would ever happen in Europe.

But all the people saying that and cheering European re-armament obviously haven’t read anything Hamilton wrote. Because Hamilton was a dyed in the wool tariff fan and protectionist who said if we don’t have high tariffs and control of our merchant marine, rather than buying everything from the UK, who’s cheaper and has got all the ships, big parallel with today in the US and China, by the way. If we don’t do that, we’ll never amount to anything and we won’t have any industry and we won’t have any national sovereignty in the future.

So if Europe wants to re-arm and it wants to have that Hamiltonian moment, guess what? You’re not going to be able to have the free trade rules based order. You’re going to have to do what Europe is so vociferously attacking Donald Trump for doing and tariffing the hell out of everything. And then what are you for? You are transmogrifying into something completely different.

And just the last point here, all of this was eminently predictable and we have done so at Rabobank. I had done so if you looked at it first from the meta geopolitical level. And if you start from the micro level, you won’t see it.

If you start from the macro level, you won’t see it because it’s all being driven from up coming down. I’m going to have to change my tagline of the channel here, Michael, but it makes a lot of sense. Like we talk a lot of geopolitics here on SOAR financially as well, but didn’t never approach it from a meta aspect.

We all understand geopolitics are driving markets and everything. So I’ll have to adjust that. To change topics just a little bit.

Last night, we had the call between Trump and Putin, which caused, of course, a lot of attention because it could have been quite game changing, which it didn’t really turn out to be. But I want to pick on one thing that I picked up out of that conversation, which wasn’t really widely reported, I think, because it’s tough to find actually. It’s that Russia and the US agreed not to put Iran in a position to attack Israel, which I thought was really, really interesting, because they saw common ground there on another matter outside of the Ukraine.

Can you put that into perspective for me and for our audience? Like, what does that mean? Because it seems like they’re pursuing the same goal here. The question is, what is the goal? And why are they aligning all of a sudden? Well, the context of that is, of course, that the US is bombing the hell out of the Houthis at the moment, who are an Iranian proxy. They’re one of the only Iranian proxies still standing, because Hezbollah has been flattened, Hamas is being flattened for the second time.

And they’re the last ones left who, just to remind everybody, are effectively blockading the Red Sea and the Suez Canal, so that most of global Western traffic is having to go right around Africa at huge extra cost. And it’s only because, A, we currently have spare capacity and shipping, and B, consumer demand is so flat overall, pre-rearmament, I stress, that we’re not seeing high inflation like we did during COVID on the back of that, because it should be more expensive. So on one level, that’s why the US is acting there.

Israel, of course, is very well aware that Iran is anywhere from a few months to, I don’t know, a year, no one knows exactly, reports vary, from being able to finally assemble a nuclear weapon, a crude one, not one in a missile, you know, that can be fired at Europe or even the States, but one that could definitely be used. Once that happens, it changes the entire dynamic in the region. And having stripped away two of Iran’s major proxies, Israel is aware of the fact that it has a limited window of opportunity, potentially, to act either solo, which would be very difficult, or with the US, which would be difficult, but nowhere near as much so, to try and take out Iran’s nuclear program.

So that’s the backdrop to it. What Trump has been trying to do with Russia, clearly, and he openly said so last night, in another interview, is to split them away from China, which some people are calling the reverse Nixon strategy. I agree that’s what it is.

I call it the Noxin, N-O-X-I-N, that’s Nixon backwards. And it makes perfect sense if you were doing it in 2017. But it’s now 2025, and it’s too late, it’s not going to work.

Russia, particularly since they invaded Ukraine, have absolutely signed up alongside China and Iran and North Korea as a destabilizing force to try and, you know, bring down what was the rules-based order. Now, the US has currently joined them, in that it’s no longer interested in the rules-based order, it’s interested in America first. And that does give you some leeway to think maybe the US and Russia can find some common ground.

And I posited a few weeks ago, if I were the US, you’re not going to get any help from Russia and Europe. There’s not a lot they can do for you in Asia. You don’t want their money.

You’d maybe like some cooperation on energy. But Russia doesn’t really want low energy prices, it wants high to pay for its war. So the quid pro quo that you could see is can we get quiet in Ukraine to take some of the immediate pressure off the Russian budget, which allows them to have lower energy prices.

And that’s one thing that America is trying to do. And the other thing is, can you get Russia to help you shut Iran up? And, you know, that ranges from everything hypothetically to regime change, which Russia would never go along with, to saying, okay, we can act as some kind of agent here to allow you to develop a civilian nuclear technology without any military aspects so that you don’t enrich uranium within Iran, for example, we enrich it for you. But we run nuclear plants.

And, you know, you’d have to trust us that we’re not going to give you any nuclear weapons, we’re not going to give them any nuclear weapons capability. And would that be enough to keep peace in the region? It’s a good strategy. What you’re alluding to may be part of that.

I honestly can’t tell you that I read too much into that. Because while Russia doesn’t want to see Iran attacked, because it’s a, you know, it’s a Russian ally, were that to happen, it would suck the US into another Middle Eastern war, which means it can’t get involved in Europe, that would be good for Russia, it would be good for China to the degree where therefore Russia, America is tied up in the Middle East, and can’t pivot fully to Asia. And it would also prevent the creation of the Indian Middle East economic corridor, which America is now backing, which is supposed to be an alternative to China’s Belt and Road, where you go India, Saudi Arabia, if Iran will shut up, Jordan, Israel, Greece, Cyprus, Greece, which is an interesting new supply chain, which again, cuts China out of the loop, and gives Europe another low cost option.

So this is getting very complicated, you’re probably thinking that they’re sitting there thinking, my God, this is too much to take in. The point is, I wouldn’t read too much into it, though it is interesting to see. But if you understand how very different the things are that the sides are trying to achieve, the room for overlap is very limited, because it’s unlikely Russia will give up Iran, whereas the US would really, really like them to.

And the best you could hope for is to try and put a cap on the nuclear issue. But again, that just allows the US to pivot to Asia, which doesn’t please China, and China and Russia are friends. So why do it? Does it seem like or it seems to me the US is giving up the Ukraine in exchange for Iran? If that makes sense? Well, that’s why I was floating.

But I don’t know how far that’s actually viable. Because Iran itself has obviously got a faction that would be prepared to say, okay, we can go along with another deal with America. And I think Trump would absolutely prefer to make a deal.

Because everyone who says, well, he ripped up the last deal. He didn’t make it. He didn’t make that deal.

And he was very, very clear. And to be blunt, within geopolitics, a lot of people are equally gone. It’s a very, very polarizing view.

People who tend to vote Democrat and like Obama said, it was a wonderful deal because Obama made it. People who don’t like Obama and don’t vote Democrat, partly on instinct. And partly, I think, for very good reason, genuinely looked at the deal and said it stinks.

And it buys you a few years of peace. But 10 years from now, it almost guarantees you that Iran can get a missile and a nuclear weapon. It’s nowhere near a good enough deal.

So, you know, listeners are entitled to have their own opinion on that. I’m not trying to twist their arm one way or the other. But if Trump can go in there and get a deal, wonderful.

But then Russia would be saying, what’s the prequid pro quo? Okay, I get quiet in Ukraine, but Europe’s just going to rearm. So now I’ve got quiet in Ukraine vis-a-vis the US. But now I’ve got a whole host of European countries, maybe even Turkey, to add another one in the mix, who are all there kind of making life difficult for me.

So what have I really gained? I’ve actually kind of capped the, or put a ceiling in place on one of my allies for a conflict with Ukraine that I was winning anyway. So, you know, there could be an angle I’m not seeing, and this is a fast moving thing. But it really is going to be difficult, I think, for the US to strike this grand bargain.

Because you have this interaction and this synergy between China, Russia, Iran, and North Korea. And they can probably generate, well, they can definitely generate more force together acting that way than any one of them being split apart. But the US will keep trying, obviously.

Yeah, we’ve seen it yesterday. I think there was quite a bit of a disappointment around that phone call, because everybody expected world peace following, right? And there were actually some tweets, even from the Russian side, that said, oh, the world is a much more peaceful place now after this phone call. We’ll see where that goes and what that means.

I think it was Dmitry Trif, I think the head of the Russian foreign investment organization or so, that tweeted that, that I saw yesterday. Was his next tweet holding up a box saying, please buy my cereal? Probably, right? Kulaks or something. But on the trade side of things, you brought up India, UAE, Israel, Jordan, Greece.

There’s nothing formalized yet, is there? Like the Shanghai Cooperation Organization or anything like that? That’s just a theory right now. It’s a theory. It’s a nice little map amongst many maps that are going around out there.

But it does make sense, because if Europe can continue, sorry, if India can continue to put in place the reforms that it is, and it can emerge as a more trusted alternative to China within supply chains for Western firms, which going back to BMW, Huawei, really depends on who you see as trustworthy or not. But from an American perspective, India may well be. Then provided that America’s long term plan is thinking about getting Europe under the umbrella with it, if that is the plan.

It makes perfect sense to be trying to have India through the Middle East, particularly with the UAE and the Saudis to keep them in the dollar camp and happy and having a diversified economy, not reliant just on oil, which allows for lower oil prices, which is good for America. And then through the Middle East with an expanded Abraham Accords and up to Southern Europe, etc, etc, etc. It’s a win, win, win, but you’ve got Iran in the middle of it.

And Qatar. Yeah, I’m still trying to figure out where they fit in. And what the role of Saudi Arabia is going to be as part of a multipolar world, because I’m assuming they at least want to sit at the table.

They don’t want to sit at the kiddie table anymore. They want to sit at the round table where the knights sit, I guess. Well, they’d like to sit at the linear city made out of glass, and good luck to them with that.

I think Saudi deserves that role, and it will be an important player. And MBS, I think he’s doing remarkable things, alongside some of the white elephants, genuinely remarkable things. He doesn’t get anywhere near enough credit for it, for various reasons.

But that country has really, really come a long way in a very short period of time. But it needs a diversified economy. It’s not going to get that reliant only on gas and oil.

And it’s not going to get that without a broader network of countries regionally to trade with. So there’s the carrot for them. But yeah, but then you’ve still got to deal with the sticks.

Before we get to the macro, one more meta question here, Michael, is really about China. What’s their motivation? What’s their goal? What are they trying to achieve? Where do they see themselves in the next five years? Well, they don’t really want to rock the boat. They’re not like Russia, which is constantly running around screaming new world order, new world order.

They’re perfectly happy to be maintaining stability within the current world system whilst hollowing it out and taking it over bit by bit by bit, supply chain by supply chain. And they’ve done a fantastic job of it. They really have.

I mean, for example, when we were chatting just before this call started, you were talking about the USTR and the actions they may be taking against China’s maritime industries, which ironically, I’d just been typing about before we started speaking. And if you look at the targets that China set it for itself and achieved in terms of its control of key global supply chain after supply chain after supply chain, it’s just incredible. They’re a machine for producing stuff.

And so if you’re China, why rock that boat? You know, just keep producing more stuff. In the year 2000, they made six percent of the world’s manufactured goods, six. On the current trend by 2030, they will make 45.

And if you extend that forward, and I know it’s dangerous too, I don’t. But if you extend that forward, maybe a year at 60, then a year at 70, and then you’re inexorably, you’re moving towards the point where you make just about everything. At which point, it’s a silly question to ask, what is China going to do? Because China can do whatever the hell it wants.

It makes everything. Everyone else, you know, has to do what China says rather than, you know, asking what China wants. And any country with that amount of power, Western or Eastern, would be in the same position.

So they don’t want to rock the boat, but they are putting every instrument of state power they have in their hands to try and solidify their economy to prepare for what I think they see as the inevitable U.S. pushback to this, which is looming on multiple fronts and is going to destabilize a lot of things. One last meta question just popped into my mind, because I have to keep, I don’t know, I can’t suppress it, but I have to smile whenever somebody says North Korea is part of anything. How serious should we take North Korea? And I do mean that in a serious way.

Are they a threat? How are they part of this? And are they contributors? We all know they sent troops to Russia, but I also heard that they were falling like flies running away. Of course, influenced by Western media, so I’m not really sure what to make of it. But of course, it fits what I’ve got in my head about North Korea.

But how should we be ranking North Korea in that whole schematic here? Well, not highly, but they are already an irritant who can become a fantastic irritant. Just imagine if with a little bit of help from fellow travelers, shall we say, they develop a nuclear-powered submarine. It doesn’t have to be a good one.

An old Soviet one would work fine as a model. They can stay underwater for months at a time with minimal, you know, minimal airing for supplies in the middle of nowhere. And they have a ballistic missile with a nuclear capacity fitted to it, so that it’s not a mass capacity, but at any given moment, LA or New York or Chicago can just disappear.

Well, what are you going to do? Are you going to invade them? Okay, fine. So you write off one of your cities, or a couple of them, and you can’t really invade North Korea. That’s just ridiculous to think about it.

We saw what the Korean War did. So what are you going to do? You’re going to nuke them? Fine. Okay, so you write off one of your cities.

You’re not going to do that. So then what’s your alternative? You just have to keep going on with the blackmail, one way or another, if they get to that particular level. And they have a nuke now, and it’s dangerous for South Korea, but it’s right next door.

But if they get to the point where they can actually threaten Europe, other major powers, you know, the US, what’s to stop them just setting terms? And just below the threshold, where everyone agrees, okay, that’s a casus bello. It’s like, okay, all right, $100 million, we can live with that. It’s cheaper than anything.

It’s cheaper than a military operation. Give it to them. And yeah, so very, very annoying, but certainly enough to destabilize.

Pesky. Pesky. I don’t know.

I keep coming back to smiling and laughing with North Korea when they send trash balloons over the border. It’s just the way of warfare. The border with South Korea, I know there’s deeper implications there.

But whenever I read articles, or I see Instagram reels with trash balloons landing in Seoul, I just have to chuckle a little bit. So it’s really tough to put them in a serious context. But as you said, they have the capabilities now to be a serious threat as well.

So interesting. Michael, I’m going to use the last 10-15 minutes here with you to really hone down more on the macro. What does that mean for us as investors on a global basis? We quickly have to talk about US dollar bonds, and of course, stock market behavior as well.

I know that those three topics are, again, an hour-long conversation by themselves. Maybe we’ll start with the stock market. We’ve seen a bit of a correction here over the last 10 days because of uncertainty looming from a tariff war.

Put some perspective around that for us. And how does the meta influence the macro here? We’re leaping from the meta to the micro, missing out the macro in the middle. But we can do that.

The macro, by the way, just in summary, is no one’s got the faintest idea. You can turn around and say that we have inflation in front of us and then boom. You can turn around and say we’ve got deflation in front of us and disaster.

You can very credibly say we’ll have stagflation with red hot here, ice cold there. And every central bank, they haven’t got a clue, not a clue. And at least the honest ones will tell you that.

But let’s go down to the micro. Stocks were, and I don’t give investment advice to be clear. OK, so there’s no advice here.

But stocks were neutrally seen as very, very overpriced in most locations, particularly in the US and very concentrated in the Magnificent Seven. I think everyone was aware of that. And yet they just kept going up and up and up and up.

Now we’re seeing a reversal because, A, the economy in the US is wobbling to a degree because Trump is trying to instigate such huge changes, which is a whole conversation in the macro itself. What’s he trying to achieve? And I think it’s a macro economy that’s more appropriate for the kind of geopolitical environment I’m talking about, rather than one where everyone’s a consumer worrying about how much they can buy on credit card. You know, he wants one where people can produce things again to feed into the military machine.

But the stock market is not set up for that. So if you have a stock market set up for one kind of economy and you need to transition to another, naturally you are going to see some stocks come down. And if they were overpriced, and I’m not saying they were, but if they were, that doesn’t help either.

And if you then throw tariffs into the mix as part of that transition so that people don’t understand where consumer money will flow or won’t, again, you get further volatility. I do think at the end of the day that the Trump model will be one of high tariffs, low taxation for everyone within the US, and there’ll be a reordering and shaking up of the winners and the losers. And the winners will do very well, and the losers will do much less well than they have done.

And some stocks will go up and some stocks will go down, which is as micro or miso as I’m going to get. But there is real value opportunity there if you understand the picture being painted. And if you’re just, well, I’m just going to buy the mag seven and wait for that to pick up, because a line on a chart is doing this.

Well, okay, good luck. You’re literally just looking at a line. It has no meaning whatsoever in terms of understanding the metadynamic that’s playing out behind you.

Yeah, I think I’m going to rest there on the stock market side, if you don’t mind. Yeah, no, it’s a fascinating area right now. Just the correction.

And as you said on the macro, by the way, just to follow up on that real quick. I’ve had all the guests on there, stagflationary environment, inflationary environment, deflationary bust. I’ve had them all on here.

So you can really choose a statistic that fits your narrative when it comes to that. There’s enough for everybody to hang themselves with, right? People do. Sorry to jump in.

That’s actually something that I really want to underline here. When we started and I said that, you know, there’s a whole cohort who don’t want to change. If you’ve been a deflationista your whole life, you’re going to be a deflationista your whole life.

Very few people have the intellectual fortitude to turn around and say, the world has changed. I’m changing a 20 year view. You will just select data points to pick your argument.

Absolutely support your argument. If you’re an inflationista, if you’re always trying to buy stocks guy, guess what? It will always be time to buy stocks. Now, maybe I’m lucky and I don’t have to make those calls within my role.

Fine. I know I am because I’ve had to make similar calls in the past, right? But I like to think I’ve intellectual fortitude to change my mind and I have on big things in big ways every couple of years rather than every couple of minutes or every couple of days. But you have to take on board when you’re listening to people that when the world changes, they haven’t necessarily changed.

And so caveat emptor when you’re listening to them. Yeah. Let’s talk bond market and US dollar real quick.

Let’s start with the bond market because I think it’s more influenced as well as the dollar, by the way, by the macro and by the meta in particular. What is the bond market telling you right now? 4.2, 4.3 percent of the 10 years actually has come down for particular interest, of course, to our conversation, southern interest in the US bond market here. A lot of refinancing needs to happen this year.

How do you see the bond market develop given the context that we discussed here? Well, again, this depends on what lenses you’re wearing. If you’re orange man bad and this is all just chaos, then you are like basically saying, yeah, the economy is wobbling because so many crazy Trump policies, the Fed thinks inflation could come through because of so many crazy Trump policies. The 10 year yield is where that’s being reflected.

So, you know, you’re heading towards inversion again or deeper and deeper inversion, I should say. And that’s probably just about right. And we’ll wait and see.

But ultimately, of course, the Fed is going to have to cut. So the 10 years leading the short end lower. That would be one particular view.

Or you can turn around and say, you know, orange man, not so bad. Maybe there is actually a plan there, even if it’s being very badly packaged or the chaos is part of the package. And there’s an enormous amount of US debt to roll over that was very short term because of the legacy of the Yellen treasury, like trillions and trillions that needs to be rolled over.

The Fed clearly isn’t going to cut because there will be some inflation short term as a one off, at least in terms of the Trump tariffs coming through. So you need to try and get one part of the curve cheaper so that you can try and refinance further down the curve as cheaply as possible. So it wouldn’t hurt the US to be having a lower 10 year yield for the next couple of months as it refinances, after which it’s got a bit more fiscal breathing space and they can start thinking about what they want to do again.

So again, it all comes back to your meta view of is there a game being played here? And what is it? Or is there no game and someone doesn’t understand the rules and is just throwing around the pieces, you know, like a very young toddler with a sophisticated game of chess. You see what you want. You make up your mind.

But the US is openly saying they’re now focusing on the 10 year not Fed funds. That should tell you something. Yeah, refinancing is utterly important.

That tells you everything you need to know. The question is now is he deliberately pushing bond yields lower based on like market action, S&P 500 lower, seeing a bit of capital rotation into the bonds? Is that deliberate? That’s the big question, of course. And we don’t have to debate that, Michael, because we do need to talk about the US dollar and the role because that is probably even the better, what do you call it, tool.

Yeah, maybe not the right tool in the context of our discussion. As a global reserve currency, it has wide ranging implications and potentially a closed off bond market in the US or so. The role of the US dollar in what we’ve discussed in the meta role, how important is it still? Is it still playing that big of a factor? And is the US clinging to the world reserve currency status here? No, it’s still got it for as long as it wants it, but it’s going to change how it does it.

People aren’t going to like that change. So those are the short bullet points. The dollar is going nowhere.

If you really think that a lot of these headlines, you know, talking about Trump chaos, etc, etc, are going to say nobody wants the dollar, coupled with what could be just a short term stock sell off or a rotation from one equity sector to another, etc, etc, until they take off again. And that marks the end of everything. And that there’s a replacement ready from anyone else, be it the euro, ha ha, or the renminbi, ha ha, to step into that gap, then good luck to you.

That’s simply not going to happen. I think the more interesting signal you see there is gold over 3000, we’re still going higher, despite the fact that a lot of people are such avid deflationistas, which obviously shouldn’t go hand in hand. But you do clearly have the US talking about trying to shift the global paradigm.

And I think they want to try and achieve targets, which people think can’t be achieved, but they can just not within the rules that they like. So they want to make sure that everyone still needs the dollar to pay back their massive offshore euro dollar debt. The amount of dollars that are owed offshore, where the only dollars available are FX reserves, or Fed swap lines, which may no longer be available, by the way, in this kind of environment, is enormous.

I’d estimate conservatively, there’s got to be at least 10 bucks out there internationally, for everyone you can actually physically get hold of in an FX reserve, and that’s being generous. So the liquidity squeeze that’s built up on that is huge. If the Americans start reducing their trade deficit, which is what they’re trying to do at the same time, you can’t earn dollars either.

So your FX reserves are not going to go up very easily at all. And then the amount of dollars you’ve got to pay back in debt is even larger as a ratio to what’s coming out as a flow. And if that doesn’t put a bid behind the dollar, I don’t know what does.

But clearly, they also want the dollar to be the only currency you can use to access crypto. They’re going to try and set up some kind of crypto network. I’m not a fan of it.

I want to be abundantly clear. But if they can use, you know, carrots and sticks to say only the dollar can get into that universe, you’ve got to have it as an intermediary. And the rules say, oh, you have to run a current account deficit.

There has to be a nice global America for everybody to want dollars. And I say, no, they don’t. You can go back to a more empire style history where everyone’s in debt to America because of past actions.

It’s really hard to earn dollars without doing things that America likes one way or another. And everyone will be in a zero sum game against each other, trying to get hold of them as if they’re little blocks of gold offshore. And yet, because America has got very high tariffs, you still can’t export to them even with a strong dollar.

They’re still behind a wall of high tariffs on a high dollar. And I think in the longer run, that’s still where we go to. But I fully recognize you can have a weak dollar for a considerable period of time within that paradigm.

And it would still make sense without changing it. But a lot of people don’t like hearing it. And in part two of our discussion with Michael Avery, we’re going to talk about the Mar-a-Lago Accord, Steve Merren’s position, how he’s reshaping the world.

But that’s only for our paid subscribers. I’m kidding. Of course, we don’t have a paid for section.

But that’s a whole other hour of conversation, how the Mar-a-Lago Accord might change everything we’ve discussed the previous hour just now in terms of dynamics, how they’re being reshaped, tariff wars, global currency debasement, all of that. Could be another whole hour of discussion here, Michael. Sure.

I mean, look, Merren’s paper on that, you know, the head of the Council of Economic Advisers from November is obligatory reading. I find it shocking that today, the Financial Times editor, Martin Wolf, only today, and I don’t know what date this will go out, but it was the 19th, as you said, is editorializing about it. But there might actually be a plan behind what Trump’s doing.

It’s like, what have you been doing since November? That’s been out there, you know, in the Twitterverse for months with people reading it. But the actual arguments there are based on very, very cogent economic history and logic put forward by, you know, several other very, very credible heavyweight geopolitical and economic thinkers going back decades and are absolutely part and parcel with arguments that I’ve been making in part or in full. And are still part of my thinking today that, yeah, you will take the box and you will shake it.

You are not going to play the game. It’s been played up until now. You will cheat.

You will change the rules because you’re the banker. You can. It’s as simple as that.

Since we’re running out of time, I’ll revert everybody or send everybody to the interview I’ve done with Jim Bianco that we published on Friday about the Mar-a-Lago Accord revealing the game plan, that there is actually a plan. It’s not like Trump walked around the White House with a three slide PowerPoint deck or so advertising it. But I think the Mar-a-Lago Accord is a good guideline.

And I encourage everybody to throw that into JGPT to get the cliff notes, to be honest. But it’s good reading. It’s really interesting.

And it makes a lot of sense, given what we’ve discussed and just the global context. So, Michael, I’m so appreciative of your time. It is a great pleasure.

As I said, we probably could have extended this by two, three more hours easily. But we’ll have to cut here. Where can we send our audience? Where can we find more of your work, Michael? Well, first of all, have a look on Rabobank knowledge, which is not just my work, but my teammates too.

There’s lots of interesting stuff there. You can check me out on LinkedIn. I post stuff there occasionally.

But more frequently, you can see my X handle below. And, you know, I send out tweets on things that I find interesting and pertinent to the discussions that we’ve been having. And I enjoy continuing the debate with those who want to continue it with me.

Because as I said at the beginning, you’d be amazed how many people in markets actually don’t. But, you know, this, I think, is where the real future price action is. This is where the debate needs to be.

So come and join in. Fantastic. Michael, I really, really appreciate your time.

Thank you so much for joining me from Thailand, I believe. And thank you so much. Really appreciate it.

We could have chatted for hours. We’ll have to do that at some point. And we’ll have to do part two at some point as well here.

Michael, thank you so much. And everybody else, thank you so much for tuning in. I hope you enjoyed this conversation with Michael as much as I have.

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Take care.