[00:00:48]Mike Philbrick: All right. Welcome to ReSolve Riffs. We have, I think, a humdinger of a guest today. We’ve got the CEO David Woo, of David Woo Unbound, a global forum dedicated to promoting fact-based debates on markets, politics, and economics. That is something we love to do around here at ReSolve for sure.

And prior to establishing Unbound, David headed up the Global Rates and the Foreign Exchange and Emerging Markets, Fixed Income Strategy and Economic Research at Bank of America. 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. Pretty steeped individual that we are going to be talking to today about global markets, politics, the impacts on markets.

And, great to have you here, David, and looking forward to your insights. Is there anywhere you want to start in particular? You have got an absolute net 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 have had recently, you have highlighted some significant macroeconomic themes in 2025. I am 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.

[00:02:21]David Woo: I want to start, maybe since we just had the German election yesterday, I want to just basically take a minute and talk about the German election, because I think this was a watershed event in many ways, and I think to a great extent, it does signal a massive earthquake, and especially in light of the J.D. Vance speech in Munich last week, I want to start there, only because it is topical, but also because it is very important I think to understand the implications. With the market implications of the German election, we have to realize that Germany has been a collateral damage of the U.S. foreign policy over the last two administrations.

You think about this, under Trump 1.0 the U.S. went out to China in a very big way when it comes to tariffs 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? 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, basically most popular car sellers in China. BYD has gone on to basically grow another 35 percent last year, while Volkswagen was down 7 percent. And so there is no doubt in that respect that U.S. trade war against China 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 is 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. Before the war, Germany was paying about twice as much as the U.S. for natural gas. Now it is paying four times more. It was at 1.8 times, only a couple of years ago. It has come down, but still four times more.

As a result, all the energy intensive sectors in Germany, whether it is chemical, whether it is 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, I am actually a Trump supporter, so do not get me wrong. There is no question that if you think about what Trump 2.0 for Europe and for Germany in general, you just have to listen to what J.D. Vance had to say in Munich, which I thought was no less than earth shattering.

J.D. 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 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 pretended 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 J.D. Vance comes along and basically spells out the worldview that is exactly consistent with Trump’s basically worldview, which is that Trump does not see the world in terms of democracy versus authoritarianism.

In fact, J.D. Vance will basically argue that Europe today has become so totalitarian that actually it is practically indifferentiable from the point of view of China and Russia, to the extent they have 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 have gone. Just like in China, you would not 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 is, as far as the U.S. is concerned, you guys now have to look after yourself. If you are going to, if we are going to do anything for you, you are 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 last eight years, Germany has gone from really a great manufacturing powerhouse, steadily declining due to U.S. foreign policy, and in many great ways the U.S. foreign policy has dramatically weakened Europe, and I think that is not going to change.

Now the reason why this election that took place yesterday in Germany is going to make things so much worse for Europe is the fact that … produced a government. The Christian Democrats are going to be essentially running the show for the most part. Frederick Mertz, who is the chairman of the party of CDU, who is 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 is very likely to join forces with France, with Macron, to actually tell Trump to go fuck off. 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, like Germany, that also hates Russia, by the way, it is actually very interesting.

Frederick Merz hates Russia, to the extent that he is 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 is flexing his muscles, it is going to potentially prolong the war in Ukraine, which is going to be bad news for Europe, but at the same time, they are 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 percent steel and aluminum tariff is going to go in effect essentially in the beginning of, at the end of March, and that is going to hit Europe very hard. Trump’s wants to unleash more tariff on reciprocal tariff, and right now, Trump has decided to view Europe’s 20 percent VAT as a form of tariff, which, I am not even going to argue with that, but that is how he sees things.

And on top of that, Trump just announced that he is going to be soon unleashing tariffs on imported cars. And guess what? Which is the car company, country that has the biggest car export to the U.S.? Of course it is Germany. So in my view, all this basically means is that Europe, it is actually, is going to end up with the short end of the stick under Trump 2.0. They are 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 am saying this is that DAX has been one of the best performing stock markets over the last four weeks. It has been like on a tear. Everybody is piling, buying German stocks, and I think this is going to be a very, I think there is going to be a bad surprise coming for the market.

[00:10:35]Adam Butler: So that the DAX is up 1 percent on this news after, as you rightly say, rallying very strongly so far this year on what many might perceive to be some hostile rhetoric from the Trump administration. How are you squaring that circle?

[00:10:59]David Woo: I think the fact the market is up today by 1 percent.

[00:11:03]Adam Butler: It seems like, why do you think the market, the German market has been rallying? It is not just Germany either. It is Europe in general, it is rest of world in general, versus U.S., has been showing leadership.

[00:11:15]David Woo: It is very simple why the market has been rallying in Europe. The reason is the big story. I look at fundamental, I look at flows and everything. The big story in the global markets in the last three months is that U.S. retail investors decided to pile in a big way into U.S. stocks. Since more or less December, we have seen massive inflows into the U.S. stock market. Inflows, almost as soon as the U.S. election basically was over, we saw these massive flows.

And now what happened was, in the view of the massive retail inflows in the U.S. stock market, institutional investors who are indexed or benchmarked to the world stock market, decided to lighten up their U.S. exposure to the extent that we were selling U.S. stocks. And guess what? They increased their exposures to the rest of the world, to the non-U.S. equity market, whether it was in Europe, whether it was in China and Asia and so on and so forth.

So we have seen this big rotation driven by the post election massive retail inflows into the, by retail U.S. retail investors into U.S. that actually facilitate this rotation of institution investors away from the U.S. 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 am talking about. But I think to the extent that DAX has already a big run, Europe has already had a big run and so on and so forth. And then the U.S. looks definitely very vulnerable. I am generally of the view that the market is due for a pretty significant correction essentially in the next four weeks.

And then I think to the extent that 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 for right now.

[00:13:13]Adam Butler: So, how would you react to the view that what Trump has done is convinced Germany that they need to, that they need Europe, that Europe as a continent, as a monetary union, as a political union, they need each other more now than they have in many decades. And also that Europe, certainly France, and 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.

[00:14:06]David Woo: There is not going to be any fiscal expansion. That is another thing. The most important takeaway from the German election is that between the AFD and the left party, is almost ensured that Germany would not be able to cancel its debt breaks, which requires a two third majority in both the upper house and the lower house to overturn.

So from that point of view, the CDU, CSU, the SPD and the Green Party together do not have two third majority. So as a result, they will not be able to overturn this debt break, and that is why they are screwed. And in fact, actually just for your information, and a lot of people do not understand this, because the mainstream media does not understand either, the BSW, which is the other leftist party, got 4.97 percent of the votes. So they are literally just 0.03 percentage point away from crossing the 5 percent threshold.

And let me tell you this right now. I just, you know, following the story this morning that the BSW, actually they are consulting with their legal advisors to basically, whether to challenge the results. If they cross over the five percent, then actually it is going to be almost impossible for the Germans to even form a government, let alone basically with a two third majority to override the fiscal, the debt breaks.

So no, you are wrong. I mean because, in that sense that actually the most important result of this election is that they do not have a government, a two third majority.

[00:15:37]Adam Butler: Well, much of the fiscal constraint in Europe is a result of the EMU constraint. What is it? The stability and planning actor, whatever it is that limits…

[00:15:50]David Woo: Is not there anymore. There is a lot of room around that. The thing about Germany, it is some very specific Germany in view of the … Treaty. They basically passed a constitutional reform, I think it was back in 2017 that says Germany has to run a balanced budget, at least on a cyclically adjusted basis. And this is why Germany is in a class by itself.

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

So I think, again, 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 does not look like it is going to happen.

[00:16:53]Adam Butler: Well, one of the things that we have noticed, I do not know if you have noticed this, but I have, given Trump’s bellicose rhetoric and hostile attitude towards Canada, Mexico, Europe, China, et cetera, is it seems to have galvanized nationalism in all of these different countries, where Canada was falling apart, everyone hated Trudeau. They were looking for change. They were calling, they were with pitchforks looking for Trudeau’s head. It seems like Canada’s totally rallied around the Maple Leaf now with.

[00:17:39]David Woo: There is no evidence of that. I think if you look at, the conservatives are still leading massively in the poll. Unfortunately, the election will not, the general elections will not be held until October, but there is no doubt, if the election is held today or tomorrow, the Liberal Party is going to be decimated.

Sure, within the Liberal Party, you have got like that woman, I cannot stand, Christia Freeland, who is like rallying the, basically the troops, on the base that we are going to stick it to Trump. We are 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. The Canadian government, this government has done a terrible job. It has been a total disaster, what they have done to the Canadian economy over the last four years.

So yeah, it is actually very interesting that notwithstanding what Christia Freeland has been throwing at the Conservatives, calling them names, saying that as soon as they win, they are going to be basically like licking Trump’s little boots, whatever it is, so far, it has not 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 are 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 Trump, whereas the Mexicans are absolutely like, they should, they are serving as the model actually for the Canadians, in terms of how to deal with Trump.

It is pretty amazing. Claudia Sheinbaum, but again, Trudeau, who is Trudeau? He is nothing. Basically, Prime Minister. Whereas, Claudia Sheinbaum has a PhD, President of Mexico. This woman, just think about this, I do not have to tell you the story.nTwo days after Trump got elected, Claudia Sheinbaum did a call with Trump, 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, 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.

If you recall, that was how it went because she thought that he was literally just capitulated like without, but the Mexicans have been doing all this planning very methodically, and they have been dealing with Trump very… Think about this, a week after basically Trump got elected, the Mexicans came in and seized a million, a ton of basically fentanyl, which was worth about a million pills, okay. And then they started to literally, since Trump got elected, they have arrested 40,000 drug dealers.

Since Trump got elected, they have built 10 different, essentially, camps along the Mexican/U.S. border, with thousands of beds to potentially accommodate deportees from the U.S.. Since Trump got elected, the Mexicans have revamped their entire customs system whereby like today, Chinese goods, especially fake Chinese goods, they are trying to make their way into the U.S. through Mexico. It is 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, 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, understands 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, that I think it is 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 delayed tariff is going to go into effect, I would expect the Mexican peso to dramatically outperform the Canadian dollar.

[00:21:25]Adam Butler: Yeah. I think where I was going with that was, Trump has declared the intention for the U.S. to focus on the U.S. and to back away from many of the support relationships with its global allies, and that has engendered, at the margin, a more national attitude among historical U.S. allies, and also the recognition that if they cannot rely on U.S. support, if that deal is now being unwound, then they have no choice but to revise many of the constraints and the rules that are self imposed.

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

[00:22:45]David Woo: I think, in a very long-term, possibly, but right now I do not see this as being, I do not see Trudeau and Freeland and all of a sudden they are gonna basically close the door to immigration, they are gonna crack down on whatever it is, they are gonna now all of a sudden be deregulating, I do not see that happening. Yeah, you are right, the Conservatives, but the Conservatives would have won a massive victory in Canada, even without Trump. So from that point of view, I do not think that would have had a major impact. And Europe is not clear. So I would say that you are 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 is going to make a lot of people question what they are up to, I think, to the extent that you are going to have, Germany is talking about, oh, we are going to make Germany great again. Or Canadians, maybe the Conservatives, 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 very long-term.

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

[00:23:59]Mike Philbrick: Does, how does Canada’s energy sector play into all that, into these tensions? Is not that a primary driver for the U.S.?

[00:24:08]David Woo: Canada’s energy sector. We are talking about the oil sands basically sector is a very expensive oil producing sector in Canada. This is also by the…

[00:24:18]Mike Philbrick: Let us broaden it to hydrocarbons and the natural gas and pipelines.

[00:24:22]David Woo: Sure, no doubt. But what I am just saying, the decoupling, there was a time that the Canadian dollar was very correlated with oil price. This is no longer the case. And that just tells you the whole story, because Canadian basically cost of producing oil from oil sand is so high, they need really much higher oil price to actually essentially encourage more investment in CapEx spending in the Canadian oil sand basically project.

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

But I think on this issue, I am not quite so sure because, with Canada and Mexico, because listen, I am a professor here in the country. I am in Israel. I am a professor of economics here, and I teach game theory. The reason why I am in game theory is a very big part of what I do, is because I love game theory because in game theory, there is 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 am concerned, is because he is a great player, because in game theory, there is only good players and bad players. Trump is a great player to the extent everything he does comes right out of the textbook, and there is 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?

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 is how far Trump is gonna play this, because in my view, now you are talking about a different situation, because the steel and aluminum tariff, for example, Canada is, obviously it is 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 would 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 retaliate and just not cut a deal, and then, and, I think the Canadians might decide to go there with them, and this is where I think it is going to be most interesting to see whether actually these countries decide to join forces to basically to push back on Trump.

And I think this is why I think the market until now, it is, listen, I have 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 am actually very constructive on China, because I think Trump/China is a totally different situation. In fact, actually most of the tariffs Trump has been threatening with, none of it actually touches China, by the way.

It is interesting, but the point here is that so because, from until now, except for the 10 percent, tariff on China has not really gone on ahead, and 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 has not transpired. Therefore I think the market has gotten a bit complacent, okay?

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

I think all these things are coming all at once, and I am 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, 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 am generally negative about the U.S. stock market as we head into March and April.

[00:28:26]Mike Philbrick: And is that going to be pervasive across… So you said also that the European stock market probably does not hold much promise for you either. Is there any geopolitical region that is going to be a benefactor of any of this from an equity perspective. Is there some areas of the market that we should see that we should be looking at and focusing on sectors that might benefit from this?

[00:28:50]David Woo: Right now I will just tell you my own position, right? So I run a big institutional business where I basically provide, I serve as some of the biggest macro investors in the world. My clients, I would combine, combining by AUM over 4 trillion, and I can tell you that the way I am trading, this is very simple. I am long Chinese stocks, okay, and I am short NASDAQ and basically DAX. These are position I put on three weeks ago. Obviously it has done very well.

Now so from that point of view right now, I am looking at this as a relative value position to the, insofar, I think Chinese stocks, if there is anything to be said about one stock market, even though it has done 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, what is going on right now, it is 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 is a lot to be said that Trump’s basically era is about leveling the playing field that countries are going to be, at the end of the day, it is 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 is absolutely right, whereas he sees China as a winner.

Trump obviously, it is a very American thing. Obviously, you probably know, like Americans like winners, and I think from that point of view, I think especially with, so I think there is more room for negotiation between U.S. 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 does not see the world as a zero sum game. He sees the world as a lot of opportunities of 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, there is a lot of, there are a lot of chips on the table between China and the U.S., but this is not to say that U.S. 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 is how they are going to play. So I think that is constructive on China, at least relative to expectation.

And I think there is also the DeepSeek news. I think the DeepSeek news, I do not 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 is 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 is the same kind of thing.

Now, one is more extreme than the other, but it is a general point of view. So I think all of a sudden, this is the reason why, like the French, who hosted the 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 are right in this one respect, which is, under Biden, even though this whole thing about Europe is an ally and all that, in reality, the Americans never treated Europe or Canada as an ally.

By the way, under Biden, they just want to strengthen the U.S. basically hold over this AI. It had very stringent policy in terms of who gets it, who does not 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 the Commerce Secretary, who is a real idiot, and Biden, that is how they saw it. They built Fortress America with this technology.

The fact that DeepSeek is now possible, all of a sudden, it is like the whole world has breathed a sigh of relief to the extent that, you know, now, especially DeepSeek is open source. I do not think it is not for you, this is actually very informative. I think that, in general, is going to be a place, especially with respect to what is going to play out next, over the next four and 36 months, with respect to autonomous driving and the humanoid robots and all these other fun things that are in the pipeline, but China is now very well positioned, and I think that has to be worth some money in the stock market.

[00:34:03]Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind listeners that while we do absolutely love providing our audience with world class guests and weekly investment insights, we wanted to remind you that we actually do our best work outside of this podcast, and we try to do this by providing cutting edge, globally diversified, and systematic investment strategies that are designed to be broadly non-correlated to traditional equity and bond portfolios.

So we actually manage private and public funds, as well as bespoke, separately managed accounts for investors that seek the potential to smooth out portfolio returns in the long run. So if you do want to see that theory that we have been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.

[00:34:45]Mike Philbrick: Also, the scuttlebutt over the weekend is Microsoft, cancelling some data centers and things like that. So is that a result of that? The putting…

[00:34:56]David Woo: I love that. I love, I just loved it because that was part of my predictions, by the way. That is one of the reasons why we are short NASDAQ, because that is exactly the point. Just think about this.

[00:35:06]Mike Philbrick: Maybe a delve into it for the listener. Delve into the logic.

[00:35:09]David Woo: Yeah, the logic is great. Even you know what, the Cloud service business, it is a bullshit business, right? It is a very high margin business. And then I do not have to tell you, it was dominated by three big players, that is Microsoft, Amazon, and Google, and a bit of Facebook, right? And they wanted to keep it this way.

I can tell you, I have a client, a big U.S. corporation. He told me it was very bitter about this.This is their like chief technology offer.

He told me like, oh, four years ago, Microsoft came along and say, you know what, we are going to offer you this amazing package, we are going to basically offer to take your I.T. off your hands. We are going to help you basically migrate everything to our Cloud and at a fraction of the cost it is 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 is David, you will not believe this because Microsoft just came back to the office to negotiate because like their contract just had, just expired, it had to be renewed. He said that Microsoft just said, okay, we are now raising the price by 500 percent.

That is what you need to understand. This is what most people do not understand, which is that these companies, once you have already destroyed your entire IT department, they are going to come and they are going to crucify you. They are 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 you do not have your IT department anymore, and then for you to rebuild from the ground up, it is 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, basically the Cloud data business for Microsoft, Amazon to a great extent, it is not just about 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, this AI is an amazing thing because they are gonna, AI is going to provide additional reason 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, if you have not 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 do not even need that much computing power if you have a more efficient model and it does not matter if it is original or not, that kind of thing.

So all of a sudden these $50 – $60.000 dollar chips that they are buying from NVIDIA, which they have 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, maybe we need to mark to market value these chips, which are probably not going to be worth that much, okay, if you can, if you do not 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. Just think about this. What is Stargate at the end of the day? It is about a Japanese company, SoftBank, that wants to invest in building data centers in the U.S. 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 U.S. and take a whack at the high gross margin of the likes of Amazon and Microsoft. Trump does not, has no love for these big tech monopolists. He just wants competition, and he does not even care if the competition is going to be U.S., is going to be foreign as long as it is creating jobs in the U.S.. That is what he cares about, and that is 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 are not real innovators, actually, by the way. I have been using Microsoft product all my life. How little progress they have made in terms of innovation is truly striking that they should enjoy the kind of monopoly status that they have today, and that is shocking. But the point here is that I think there is 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.

[00:40:00]Adam Butler: Dr. Woo, do you think that Trump is going to roll back the restrictions on two and three nanometer chip exports to China then? Are the, they are going to provide China or allow companies provide China with the more advanced fabs and other equipment so they can begin to scale.

[00:40:20]David Woo: I do not think so. There are certain things that it is like Trump shouldn’t do and he wouldn’t do it. This is a case in point that, by the way, this whole idea of by the way, for most computing purposes, the size does not matter that much. The only thing that matters is for your phone. By the way, if you are talking about, chips that go into your cars, for example, in your fridge, they do not have to be that small. They could be actually large-ish because there is plenty of room to basically host them.

But I do think that you are right. I do not think, I do not think, I think there is a certain limit Trump will not go, especially given, as Trump wants to bring back semiconductor manufacturing to the U.S., and this is actually very important. This is why I do think that one of the stocks I like is actually Intel right now, not because I, not because it is a great company. It is a shit company. It is completely, it has become a second tier technology company to the extent it completely missed a whole everything, and, but there is no doubt, I can imagine that Trump wants to save Intel because without saving Intel, it is difficult to envisage that the U.S. is going to bring back semiconductor manufacturing in the U.S..

And this is why there is all this talk with Broadcom and others. But I have to believe, just think about this, Intel is worth a hundred billion dollars right now. It is no money, right, because NVIDIA is worth three trillion dollars. So NVIDIA can spend like 5 percent of its, just basically 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 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 personally think that they should sell it to NVIDIA or a Microsoft or Amazon, but I can imagine there will be a lot of interest in Intel, actually, just not because it is a great company, because it is cheap relative to valuation of these big U.S. companies right now.

And I think for Trump, especially, I think without Intel, it is difficult to see how he is going to really turn this thing around, the U.S. semiconductor industry.

[00:42:39]Adam Butler: I would love to pull on that thread of the Chinese investment theme a little bit. We have seen very public photographs and videos of Xi shaking the hands of Ma and other tech leaders and other industrial leaders in China, inviting them to meetings, obviously acting very supportive and friendly. Does that factor into your calculation in terms of 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?

[00:43:16]David Woo: Listen, I run, just so that your viewers understand, so my biggest clients are all like, big macro hedge funds, sovereign wealth, pension funds, mutual funds. I run, I think long-term, but I trade very short-term, to the extent that is when my, that is my thing. This is why in the institutional space, if you do not make money in the next three months, like you are done, you are a real money, you are going to get fired. Hedge fund, you are gone, you know? So that is the sort of the general horizon I have, which is, think as long as you want, but basically make money the next few weeks. And then in my strategies is, it is a basically absolute term strategy, which is benchmarked a three month Treasury bill.

So I am just trying to outperform three month Treasury bills, 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, can I just stop for a second and just basically stop my phone for a second.

Hello.

You still there?

[00:44:16]Adam Butler: Yep. Yep. We are here.

[00:44:16]David Woo: Okay, so I think for me the China trade is, I think it will be, I will be going in and out, okay? I can not tell you like I am going to, right now I have my full position on, and I have had it for three weeks, and then whether I am going to keep the full position, I do not know. I think it depends on a lot of different things. But the point here is that I think China has gone from a basically sell on rally story in the last three years, to now a buy on sell-off story.

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 us assume that he survived the next four years because I am sure there will 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 is going soft on China, or that he is going to sell out to China. It is not that. It is 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 that. But Trump does not quite feel the same way about America vis a vis China, he believes that if America is actually in power, 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 is 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, especially given that he has got Elon Musk. 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 U.S. is going to become more competitive. China is going to become more competitive. That is just going to leave everybody else in the dust, right? That is the bottom line.

Right now, if you look at per capita GDP in Germany, most Americans do not even realize this, like per capita GDP in Germany right now, it is 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 have not quite figured it out.

And in some ways that the competition we are talking about right now, you cannot just basically join the competition and expect to basically to catch up 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 am afraid to say.

[00:47:16]Mike Philbrick: How does, so you have got the game theory the tariffs being used as a method of negotiation. You have also got this proliferation of technology, cheaper technology. What are the implications for inflation? Is that something that is gonna fall by the wayside? Is that something that is gonna continue to have the laser eyes on inflation as a driver of potential returns? How is inflation play in all this?

[00:47:42]David Woo: I think obviously when we talk about inflation, there are many aspects to inflation, and different countries obviously have very different experiences right now with respect to inflation. For example, I am much less concerned. I think in Canada, for example, there are definitely clear signs of deflation going on. The U.S., I think, again, we have got to basically take everything with respect to the context, right? Obviously last month’s U.S. inflation came in stronger than expected, but again, I am less concerned about some of the one-off factors that contributed to the surprise, because like, drug prices went up a lot in January.

Now, I am not, I did not predict it, but it did not surprise me insofar that I know that, if you are 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 are going to be raising prices, like in January.

Okay, so things like that is going to happen. It is 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 you know, it is 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 is very few new cars being sold because people have bought a lot of cars, and in fact, inventory is very high among sold cars.

So right now, for me, the most important thing with respect to U.S. inflation is the fact that housing inflation is clearly stabilizing, and this is very important, okay, because housing inflation as you probably know is the biggest, it is 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 more the underlying inflation that is more important. So I do not want to get too hung up on the sort of the one-off thing.

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

And I will tell you why I say this. First of all, I think what everybody, I think Wall Street does not understand, and we have to forget about Main Street, is that as much as Trump talks tariff, in my view, tariff is Plan B, with respect to universal blanket tariff. Plan A is actually spending cuts. And the reason why I say this is this, right? The U.S. budget deficit is at 2 trillion dollars, as you all know. To me the biggest constraint for the entire Trump presidency is the fact that interest payment on U.S. Treasury securities is now at $1.2 trillion.

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 is currently pricing by the bond market, that $1.2 trillion is going to go to $1.5 trillion dollars already by the end of this year, and let me tell you this, if interest payment and U.S. debt with the go up by $300 billion 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. That is the premium that long-term bond yields are trading relative to short-term bond yields, and because people think, oh, wow, 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 am 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 do not know, listen, I have been in this business for many years, 25 years on Wall Street. I was, I know all the big guys, okay, and Scott Benson, let me tell you this. If I have ever met a bomb vigilante on Wall Street, and that has to be basically Scott, for the 15 years I have known Scott, like every time I talk with him, like he is been expressing his clear concerns about the U.S. deficit, U.S. debt, and so on and so forth.

But what I am telling you is this, the only reason why Trump decided to make Scott Benson 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 do not want a fiscal crisis on your hands, because all these successive U.S. presidents in the last 40 years, they paid lip service to fiscal health and responsibility, but they have always in the end kicked the can down the road, because they can.

But Trump understands that he is not in a situation. The French said, there is a very famous French saying that is 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 does not take care of it.

So this is the reason why this government is so like I have been doing this for a very long time I have 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 is going to be the big story for me, because that is going to be a disinflationary story.

So again, whatever DOGE is doing and then the budget battle that is 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 how tight the fiscal situation is, and then how this administration has decided it has got no choice but to bite the bullet, and I think from that point of view, this is why I am not too worried about inflation.

Again, the whole point is like last year, the Biden government’s 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 has not 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, with that, I am not that worried about inflation, and then, and I suspect that once that starts to be 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.

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 is going to be, that is 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. The market does not know shit about American politics or politics in general, but I am telling you that is the plan, and then and that makes me quite, you know to the extent that makes me less, I think the U.S. economy is set to slow quite a bit. But that is also the reason why I actually like owning bonds, right.

[00:56:26]Mike Philbrick: Yeah, I was just gonna say, so that is, obviously bullish bonds, less constructive on equity assets.

[00:56:34]David Woo: Exactly. Exactly.

[00:56:36]Adam Butler: So what and where are you in the currency markets then if you are anticipating some weakening of U.S. growth? Do you expect there to be some contagion, the rest of the world catches flu, or is there more heterogeneity about the fiscal space in other countries and maybe less constraints, and so you are likely to see a more heterogeneous response function from different countries and different regions.

[00:57:06]David Woo: A good question. I do not like the dollar, so I would not be buying the dollar, but again, but which currencies do you buy? That is why it is not that straightforward to me. I will tell you what I like. I like EM currencies in general, okay?

So I am long the, you can, there is an ETF out there called, EMLC, which is linked to the JP Morgan Global Emerging Market, local currency index, which is basically local currency bonds of a wide universe of emerging market currencies and countries, debt issuers, I like that because it means that I do not have to basically take a huge bet about one country with or two countries or so forth. I think EM is going to be net beneficiaries. And the reason why I say this is because again you know, like EM in general, right now people are short EM. Investors are very underweight EM right now, and that is the beauty of this.

I generally like to buy something that everybody is short. I like to basically sell something everybody is long, but my mother brought me up very badly. So I am a bit of a contrarian, but the point here is that EM has been very unloved over the last three, four years, partly because EM was China to a great extent, and Biden just basically destroyed China.

And so if China is going to basically be easier, it is going to be better for EM. EM also is very sensitive to real interest rates in the U.S.. I am talking about real yields on TIPS, right? Right now, 10 year U.S. real yields on TIPS is around 2 percent, right? In fact right now there is what, 85 percent sensitivity of EM to basically weekly changes in 10 year TIPS yield, which is the, it is the most sensitive asset in terms of sensitivity to U.S. real yields, to the extent I think real yields are gonna come down, that alone, that is being long EM, local currency debt it is a very good, I think, way to play for lower real yields.

Now you can basically play a lot of different ways. You can, that is why I am also long Treasuries and that kind of thing. But you can basically, you can buy TIPS and so on and so forth, but I think, that EM local market, I think currencies debt, I think it is actually a very nice exposure to 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 U.S. somehow was going to actually be able to grow faster than everybody else.

But I think both of these, I think DeepSeek has burst the AI bubble to a great extent, and I think U.S. 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.

[00:59:57]Adam Butler: Yeah, it is just, it is a strange phenomenon to be concerned about U.S. growth at the margin and then also be bullish emerging market currencies. Maybe just continue to pull that thread and unravel that for…

[01:00:13]David Woo: Again, I know we tend to, in the past, we tend to think of EM currencies as being counter cyclical, to the extent that when the world goes down, like EM tends to suffer, right, because EM tends to be very dependent on exports, right? So from that point of view, you have basically a big slowdown around the world that emerging markets are going to slow more. 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 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 I do not tell you in the last three years, the U.S. has been the best performing countries basically, because again, China, because, China has been, we know what happened to China. But the point here is that this is why it is very different. This is why history never repeats itself.

History will only repeat itself if you have the same sort of, if you have the same leading indicators, if you tell me that EM has done very well until now, and that therefore U.S. 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 is the opposite.

And by the way, also with Trump, I am not going to assume that we are going to go into a recession or anything like that. It is not going to be like a Lehman collapse or whatever. It is 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 is not going to go down that much. So again, I am just basically saying that we are going to see a slowdown, but the slowdown is not going to be a scary slowdown.

[01:01:58]Adam Butler: And then see a global rate cutting cycle. You see a rate cutting cycle in the U.S., in some Western countries, but…

[01:02:06]David Woo: Exactly.

[01:02:07]Adam Butler: Emerging markets have more fiscal space. They have gone through 10 years of fiscal consolidation. They have the ability to stimulate. And China has declared its intention to, and so there is the dynamics at the moment are more favorable for Chinese growth or not, and related economies relative to U.S. and other Western countries.

[01:02:32]David Woo: I think that is exactly the point. Again, as U.S. and China have been in a divergent business cycle in the last three years, right? China was slowing, the U.S. was accelerating, right? I think, I do not want to say that we are not going to see China accelerating, U.S. decelerating, but I think something of that effect could very well play out here, okay?

[01:02:53]Adam Butler: What about the Euro? You have been pretty bearish on Europe, for the reasons we discussed very early, on Australia, Canada.

[01:03:06]David Woo: I think Canada, I want to go long Canada, but not before, not until we get closer to the general election, because first of all, you never want to get too far ahead into the future, like in terms of the market really can not think about a lot of things like more than a month at a time, maybe two months at a time, Like, I think the market only started to focus on the German election about a month ago, something like that, maybe six weeks ago.

That is it. I think we still do not even know who is going to be actually the, heading the Liberal party until actually next month, right? Is it going to be, if it is, if it is going to be Freeland or somebody else, but I think, like I would be looking to buy Canada when we get closer to the general election.

[01:03:57]Adam Butler: What policies might Pollievre, if let us say the Conservatives, are in power after the election, what policies might he enact that would give Canada more prospective, optimistic standing, in your view?

[01:04:16]David Woo: I think Canada just has to deregulate right now. It seems that Canada is overburdened by regulations and as a result, the economy has been stagnant, not to say the least, as per capita GDP has been falling and so on and so forth. In Canada, honestly, in my humble opinion, what made Canada very successful until Trudeau came along, was that Canada had the right kind of immigration policy, whereby Canada encouraged skilled laborers, okay? That was the reason why, 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 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 is the, that what Trudeau did in the last three years is completely inexcusable, to the extent that Canada has been flooded by all these, without going into names of countries where they come from, but clearly, unskilled labor, okay? So from that point of view, like if for Canada compete in the world, and we are talking about catching up to the U.S. and China, and really be able, Canada is a small country, so maybe, Canada does not even have to do that much to really be able to like, Canada does not 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, I think, that would be the first thing the Conservatives should do. And the second thing Conservatives should do is to basically break a lot of this DEI woke stuff that Jordan Peterson has talked about in the Canadian context, which is just it is incredible. So I think Canada under Trudeau had just basically digging his own grave and I think I am just, I just cannot wait until the Conservative gets and cleans house.

But again, I just do not think the market can get ahead of that quickly. You do not buy Canada because as the election does not have to be held I think until the 21st of October. and then before they take power, it is going to be like January. So this is going to be like a, we are still talking about a year away before anything is going to change, and meanwhile, Canada, just nothing is going to change because nobody has an incentive to change anything right now, okay? And I do not, I think Carney is, was a decent central banker, but I do not think he is going to make a very good politician. Certainly, I do not see him as being, I do not, we have seen a lot of this type of technocrat, like Draghi was a good example. Draghi was actually very lousy Prime Minister of Italy, after having been the president of the ECB. And I think Carney is going to be the same. Central bank, central bankers do not know anything, basically. And I do not know, like he is going to turn things around, 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, and this, to some extent, it has to do with immigration policy, but it has, it goes a little beyond that because Australia is really very far from everything, and so from that point of view, it does not really enjoy the mobility of international capital, international labor, international basically markets, trade.

So as a result, when China was growing, Australia did very well. Simply, they saw massive terms of trade, right? 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 is a problem because I think this is why the Conservative Party, before the Labor, I actually think the Labor Party has done a decent job, but the Conservatives made a huge mistake, under, they thought that they were going to reorient away from China towards the U.S. market. But what the Australians do not 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 China with the U.S. as their biggest potential export market, that was like, literally, like they were dreaming. 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, they were just blindsided by their fear of China, which I understand. They were afraid of, they were afraid of China taking over.

There was also basically this huge political rivalry between the Conservative and the Labor that pushed the Conservative in a certain direction because for one, for a while, it was very politically, was very populist in Australia and like in a lot of other places to beat up on trying to say China they are 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 is 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 I think, in terms of iron ore prices. But, you can see copper price, iron ore prices have actually firming a little bit lately.

But again, but I do not quite see China about to take off in that way. This is not going to be about, oh, you are going to see housing starts in China ramping up again, or whatever it is that I doubt you will see, because I think the Chinese real estate situation is so bad that I do not think they are going to be building any that real estate. It is 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 is difficult to get too optimistic about Australia.

[01:10:29]Adam Butler: Yeah, I agree.

[01:10:31]Mike Philbrick: Oh one one.

[01:10:32]Adam Butler: My, oh, sorry, Mike. Yeah. I was just.

[01:10:34]Mike Philbrick: No, go ahead. You keep going.

[01:10:35]Adam Butler: My general thesis on effectively the Commonwealth, so Australia, U.K., not Commonwealth, but Canada, Australia, and also the U.K. is just that we have had 15 years of profound over emphasis and over investment in residential real estate sector at the expense of any other productive element of the economy. It is going to be, it is going to take a long time for them to unwind that, those excesses, and there is 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 the next two, three, five years, right, which is why I just, I do not buy the fact that this was really a Trudeau thing other than the immigration mistake, which is absolutely massive.

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

[01:12:00]David Woo: I think that is an excellent point. I think if you look at Canada in terms of debt to GDP ratio, it is one of the highest in the world in terms of household debts, right? And I think that is the real big problem that Canada faces as an economy and so on and so forth. And I think from that point of view, it is not like the U.S. as U.S. actually saw deleveraging in terms of household debt because after what happened with Subprime, the U.S. households just defaulted on their mortgage debt.

So the banks took a hit, they had to be recapitalized, but it does not really matter. But in the end, as a result, and then the millennials had no love for owning a roof over their head. So as a result, U.S. households, like the debt to disposable income ratio is relatively low, actually, within … countries, and then I think that, that is a plus.

But you are absolutely right about Canada, Australia, and in the U.K. as well, because in the end, what these three countries have in common, as is their mortgage system, favors basically floating rate mortgages, floating rate mortgages tied to basically front end, so when interest went down to zero, literally it was like, it was free money.

And whereas the U.S. still 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, some sense that these countries really got the worst in terms of the excess associated with zero interest rates and Quantitative Easing and so on and so forth.

[01:13:27]Mike Philbrick: The one area.

[01:13:28]David Woo: U.K., of course, U.K., the problem in the U.K. is a bit different also because the problem in the U.K. also, there was not enough building, by the way. This is actually one of the problems. There is a real acute housing shortage. And, so prices go up also because regulations have prevented the supply side response in the U.K. housing market.

[01:13:48]Adam Butler: It is similar in Canada and Australia too, because of the immigration, right? You let 3 million people a year into Canada, add 10 percent of the population. They all want to live in the cities. You have had this exact same issue, just a scarcity of residential housing. And yet, they still are so expensive because those who own their homes are so in the money that there is no pressure to sell. So it is a strange situation.

[01:14:18]David Woo: Exactly.

[01:14:19]Mike Philbrick: The one thing we have not come around to is, the yen, the Nikkei, JGBs and some thoughts on that area of the world, because it is a pretty substantial area of influence. Any thoughts on that?

[01:14:34]David Woo: I think Japan, listen, I think Japan, I think there is some hope for Japan now, to the extent that inflation is coming back. The reason why, there is only one good thing associated with inflation, which obviously, because it helps deflate the debt, right? Because when the interest rate is at zero, I mean like inflation was negative. They were paying positive real interest rates on their debts, right? The fact that they are still paying less than one percent in inflation at two or three percent that just means that they are able to grow out of their debt.

This is actually very important. This means that the Japanese yen is going to remain a weak currency. There is no doubt about that. This is why actually, the the central bank governor said this yesterday that you know if long-term bond yields were to not cooperate that the BOJ would not 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, BOJ’s number one job is to actually make sure that Japanese debt dynamics do not go crazy, okay? Do not go explosive. And I think that is really the BOJ’s only job.

The reality is that about Japan, it is 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. In fact, the Japanese yen right now on a trade-weighted basis in real terms is weaker now, okay, than it was before the Plaza Accord. Just put that in perspective, right? If you think about this, it is pretty amazing, right? It is like the Japanese yen is extremely weak. This is the why the whole world, especially the Chinese in Asia, they just piling the Japan as tourists because Japan is like dirt cheap, right, literally.

And but what is interesting is that being cheap has not given Japan anything, because if you look at Japanese exports, we are talking about in volume terms, it has been as flat as a pancake the last four years. In other words, the fact that Japan has gotten cheaper has not 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 building these global supply chains.

Okay, so the Toyota, is now basically building cars everywhere in the world. For the U.S. they are building in U.S., for Europe they are building in Europe and wherever, they are basically building. What I am saying is that these supply chains were so expensive to build. The Japanese companies have decided we are not going to take apart our supply chain just to return basically to Japan to produce stuff just because it is cheaper in Japan now.

So as a result, I think one of the most interesting things about the Japanese economy is the lack of responsiveness of Japanese exports to a weak yen, whereas a weak yen to the extent it has 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 is 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, but not like amazing, but 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 essentially the 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 came Taiwan, South Korea, and then China. The Japanese decided to go back to semiconductor, and I think that is a huge thing. We are talking about basically, like a culture that is really about engineering, miniature engineering.

The Japanese are not great innovators, but they are very good at perfecting things at a small scale in terms of anything that requires detailed attention, that is what the Japanese are very good at. I think they are going to be a major powerhouse, I think, in semiconductor, especially given some of the stuff that has come out of Japan in the last six months. It is really been very impressive.

I think the second thing I think, Japan would be very good at is in automation. I think the world is going towards automation with AI, and so on and so forth. The Japanese have led the world in terms of robotic technology, automation technology, that is 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. The Americans can make shit these days, right? Just look at these F-35, the ship planes, okay? Boeing planes are dropping out of the skies, every basically, the Japanese, if the Americans are going to basically have a competitive defense, 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 am not talking about China. We are talking about economies that can potentially help the U.S. revive its own manufacturing and so on and so forth. It is obviously Japan.

And this is why I think Trump, I think, Trump really wants Nippon Steel to make a big investment in U.S. Steel, and I think there is no doubt that Nippon Steel can offer superior technology to U.S. steel to essentially upgrade its manufacturing, and I think that is what the U.S. really needs, and it is easier said than done.

In fact, that is probably going to be the most challenging aspect of Trump’s agenda, which is that, like the U.S. has retreated so much in manufacturing the last 30 years, to get back into this game is going to, it is not going to be a piece of cake, regardless how great a genius Elon Musk may be.

[01:20:36]Mike Philbrick: Oh yeah. And we have covered a lot of ground. We have been at it for about an hour and 20 minutes. Is there anything that in your work, David, that we missed that you think is…

[01:20:45]David Woo: No, that is it.

[01:20:46]Mike Philbrick: …like to share at the end. No, great conversation. Really appreciate your time. And then where can people find you? So it is David Woo Unbound and his website, Twitter, social media. Where are you present in the world?

[01:21:02]David Woo: Again, I, you can check me out for free on, I have got a YouTube channel, David Woo Unbound in which I talk about, I share, I set out with this mission that I spent 25 years, as my wife for 25 years, was always very embarrassed to introduce me to her friends in social circles, “my husband makes a living by helping rich people become even richer”.

So I have decided that after I retire from Wall Street, I am 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.

[01:21:37]Mike Philbrick: Amazing.

[01:21:38]Adam Butler: You are not on Twitter at all.

[01:21:40]David Woo: I am also on Twitter, also David Woo Unbound. So I put on, I put up stuff on Twitter as well. Thanks.

[01:21:48]Mike Philbrick: Wonderful.

[01:21:49]Adam Butler: No, very educational, very illustrative. Thank you for sharing this. You dumped a lot of knowledge on us today and, I think this will be a valuable episode. So thank you very much for coming.

[01:22:00]David Woo: For having me again. Okay. Take care.

[01:22:04]Rodrigo Gordillo: I did want to take a quick second to remind our listeners that the team works really hard on these podcasts. We spend a lot of hours trying to get the right guests and we do a lot of prep work to make sure that we are asking the right questions. So if you do have a second, just do hit that Subscribe button, hit that Like button, and Share with friends if you find what we are doing useful.