VIDEO TRANSCRIPT:
US foreign policy under Biden pushed the world to the edge of WW3
Trump’s second term offers an opportunity for a reset
Will it be successful?
Who and what does it depend on?
Which countries are in the best position to benefit?
What about market implications?
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Tolstoy’s War and Peace is regarded by many as one of the greatest novels ever written.
In this epic novel set during the Napoleonic wars, Tolstoy explored some of the most important philosophical questions of the day:
What explains historical facts?
What role do individuals play in our collective destiny?
What is the role of free-will?
In a nutshell, Tolstoy concluded that history is shaped by deterministic forces and that individuals have little influence over history’s trajectory
Tolstoy pushed back on the Great Man theory of history. Tolstoy’s Napoleon is ineffectual, overconfident, and no more than a slave of history.
A hundred and fifty years after the publication of War and Peace, the debate about determinism versus free will continues today.
But what happened in 2024 swung the pendulum in favor of the free will camp.
What else would you call the victory of Donald Trump in the US presidential election, against all odds, other than a demonstration of the power of sheer will?
Three years into the Ukraine war, there are irrefutable signs that Russia is winning against the combined resources of all of NATO.
Does anyone seriously think that Russia could have done it without Vladimir Putin’s cunning and will?
In the Middle East, Israel not only bounced back from an existential crisis but along the way destroyed most of Iran’s ring of fire.
The fact that Benjamin Netanyahu had to defy pressure from Biden and the Israeli left to execute his plan for a total victory is surely a testament of his tenacity and will.
What 2024 proves is that not all politicians are created equal.
Some, however few, do stand above the rest.
Whether you agree with their politics or not, what Trump, Putin and Netanyahu have in common is that they are risk takers, they play chess while others play checkers, and they are determined to advance the interest of their countries at all costs.
As we consider the global geopolitical outlook in 2025, the biggest question is how the success of these men will influence their actions and actions of other countries.
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Trump’s inauguration is less than a month away.
The biggest question on my mind is whether Xi Jinping will accept Donald Trump’s invitation to attend the inauguration.
Will Xi avail himself of this opportunity to reset China-US relations?
There has been little trust, to put it mildly, between Beijing and Washington under Biden, but Trump’s invitation seems sincere enough.
At his first press conference since the election, Trump called Xi “an amazing guy” and declared that the US and China “can together solve all of the problems in the world”
Importantly, Trump’s public overture to China is not without risk to his political capital.
These days anyone who is not vociferously anti-China is looked on with suspicion in Washington.
It is unlikely that Trump will be able to play the “nice guy” for very long
The Chinese say “If you don’t enter the tiger's den, you won’t catch the cubs”
Xi is not a risk-taker but if there is ever a time for him to take some risk, it is now
It would not surprise me if unofficial discussions between the two sides are already taking place
Both Trump and Xi need a deal, for different reasons
And it doesn’t have to be a comprehensive one.
An intermediate deal at this point would help build confidence, get the two sides talking again and buy time for both sides
I think the fentanyl crisis offers precisely such an opportunity.
According to the US, China is the dominant source of chemical precursors used by Mexican cartels to produce fentanyl.
Trump has threatened a 10% additional tariff on Chinese goods unless Beijing clamps down on the export of these fentanyl precursors.
Beijing insists that it has already tightened controls over many types of these chemicals. It has repeatedly said that the U.S. should focus on curbing demand at home instead of blaming outsiders.
Whether fentanyl is the responsibility of the US or not, the issue doesn’t make China look good.
It is in Beijing’s interest to take the issue off the table, especially given Mexico is already starting to crack down on the fentanyl trade.
Xi Jinping needs to move quickly before Claudia Sheinbaum, the president of Mexico, gets all the credit.
And how will we know if Xi is prepared to enter the tiger’s den?
If he were to accept Trump’s invitation to his inauguration, it would a clear a sign that a deal is in the making.
What chance would I give to this happening?
Wishful thinking on my part or not, I would give it a 66% chance.
We will find out soon enough if I am right.
Should my optimism turn out to be misplaced, tariffs will send both the stock market and the bond market lower and the USD higher in the first quarter.
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US foreign policy under Biden has hurt both US adversaries and US allies alike.
As I have discussed in many previous videos, Europe has been one of the biggest losers
The fact that Trump is promising to bring an end to the Ukraine war and improve ties with China should be good news for Europe
The question is whether Europe will be in a position to reap the full benefits of Trump’s second term.
The upcoming German federal election to be held on February 25 will provide the answer to this question.
Given the current polling results, the best case scenario for Germany is if the Christian Democrats Union Party, its sister party the Christian Social Union Party, and the Social Democratic Party win enough votes to form a coalition without the Greens.
I say the best only because the Christian Democrats have already ruled out governing with the AfD, the populist right wing party, that likely will become the second largest party after the election.
It also looks like the Free Democratic Party may not finish above the 5% qualifying threshold
The 15% of the votes won by the Greens in the 2021 elections gave them a disproportionate say in how to run Germany.
And unfortunately for Germany, most of the policies promoted by the Greens were detrimental to Germany’s economic future and geopolitical positioning in the world.
Germany needs to unshackle itself from the tyranny of the Greens.
The only way to achieve this is for the center right and the center left to win at least 50% of the seats in the Bundestag.
Their platforms are not so different to be ideologically incompatible
I can even see Friedrich Merz, the head of the CDU, and Olaf Scholz, the head of the SPD, working well as a team
However, with the CDU/CSU polling at 31% while the SPD at just 17%, this best case scenario for Germany is far from being a done deal.
The good news is that the SPD voters who defected to the BSW appear to be coming back.
If the BSW were to lose a little more ground and the FDP somehow manages to clear the threshold, I would feel more confident about my best case scenario.
At this point, I would give it just a 51% chance.
I have little doubt that if the odds of a center right / center left coalition were to go up, it would be quite bullish for the German stock market and the euro in 2025.
So stay tuned.
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The biggest question about the outlook for the Middle East is whether and when Israel will launch another attack on Iran.
My prediction is that it will be sometime in the first quarter of 2025, maybe as early as before Trump’s inauguration or as late as February
My conviction level has increased over the past week.
Multiple missile attacks on Israel by the Houthis have led many experts, including the head of the Mossad, to make the case for hitting Iran to help stem the attack.
Three rounds of Israeli strikes on the Houthis do not seem have significantly degraded their ability to launch missiles and drones. We don’t yet know the results of the fourth round on Thursday.
Unless Israel can somehow stop these attacks, the pressure on Jerusalem to act directly against Iran will grow.
Meanwhile, with millions of Israelis heading into the shelters this week, Hamas negotiators are digging their heels in once again and the hostage negotiation is stalling.
This flies in the face of Trump’s desire for a deal in Gaza before his inauguration so that he can focus on his policy priorities like the Israel-Saudi normalization and forming a regional alliance against Iran.
We are looking at a catch-22 situation.
Trump needs a ceasefire in Gaza to get the Saudis to sit down with the Israelis to talk about what to do about Iran.
However, the fact that Iran is down but not out means Hamas can still hold out hope that it can get a better deal by waiting
Meanwhile, Iran is moving closer and closer to a nuclear breakout.
Something has to give.
And bombing the Houthis is not the solution.
Saudi Arabia and UAE bombed the Houthis from the air for more than 7 years without tangible results.
There is no way that Israel the Houthis, an enemy 2000 kilometers away, before the US inauguration or before Iran crosses the nuclear threshold.
Another Israeli attack on Iran may be the only way out.
My guess is that Israel will start by sending an ultimatum to Khamenei: rein in the Houthis, stop arming them or risk a direct Israeli attack on Iran.
And if Tehran does not comply, Israel will strike.
I would target the infrastructure that the mullahs and the revolutionary guards use to subjugate the population.
This strategy may not work but it is worth trying.
I don’t think Netanyahu and Trump have a better option right now.
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My predictions:
US foreign policy under Biden brought the world to the edge of WW3
Trump 2.0 presents an opportunity for a reset
It is too early to say whether the reset will be successful or not
However, Trump’s recent overture to Beijing gives me hope.
I am waiting for a positive confirmation of Xi’s attendance of Trump’s inauguration to go long emerging market assets that will benefit from improved ties between the two largest economies in the world.
Europe needs the global reset as badly as anyone else.
But the biggest country in Europe needs a governable majority to rediscover its mojo
The upcoming German election is too close to call
But I will be looking to go long the euro if I see signs that German voters are willing to give the mainstream parties another chance
In the Middle East, peace remains elusive even with Iran and its proxies significantly weakened
My prediction is that the decisive battle is still ahead of us
This means higher geopolitical risk premium in oil price until then
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