Jacob Shapiro returns from paternity leave, jumping right into a discussion about the surprising implications of Trump's recent comments on military intervention and territorial ambitions. He compares his sixth-grade imagination of invading Qatar to Trump's statements about Greenland and the Gulf of Mexico, exploring the potential geopolitical ripple effects of such rhetoric. The conversation also delves into the economic landscape, particularly how anticipated tariffs under a Trump administration could impact U.S. relations with Canada and Mexico, as well as the broader implications for inflation and the labor market. Additionally, Jacob highlights a noteworthy thaw in Japan-China relations, suggesting that Japan may be recalibrating its foreign policy approach amidst changing global dynamics. Finally, the episode touches on Germany's evolving political climate and the potential for impactful reforms as the country navigates its economic challenges.

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Timestamps:

Chapters:

(00:00) - Intro (we're so back)

(03:16) - The Shift in Foreign Policy Perspectives

(12:21) - Trump's Foreign Policy

(19:34) - Macro-Econ Checkup

(25:18) - The Impact of Immigration on Labor Markets and Inflation

(35:17) - Shifting Dynamics: US Energy Policy and International Relations

(40:54) - Japan's Evolving Foreign Policy

(46:47) - The Shifting Political Landscape in Germany

(53:11) - The Economic Shift in Germany

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Jacob Shapiro Site: jacobshapiro.com

Jacob Twitter: x.com/JacobShap

CI Site: cognitive.investments

Subscribe to the Newsletter: bit.ly/weekly-sitrep

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The Jacob Shapiro Show is produced and edited by Audiographies LLC. More information at audiographies.com

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Jacob Shapiro is a speaker, consultant, author, and researcher covering global politics and affairs, economics, markets, technology, history, and culture. He speaks to audiences of all sizes around the world, helps global multinationals make strategic decisions about political risks and opportunities, and works directly with investors to grow and protect their assets in today’s volatile global environment. His insights help audiences across industries like finance, agriculture, and energy make sense of the world.

Cognitive Investments is an investment advisory firm, founded in 2019 that provides clients with a nuanced array of financial planning, investment advisory and wealth management services. We aim to grow both our clients’ material wealth (i.e. their existing financial assets) and their human wealth (i.e. their ability to make good strategic decisions for their business, family, and career).

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This podcast uses the following third-party services for analysis:

Podtrac - https://analytics.podtrac.com/privacy-policy-gdrp

Jacob Shapiro: 00:00:00

Listeners, welcome back to the Jacob Shapiro podcast. I am back from paternity leave with a vengeance. Rob is back at it with me for our weekly chat.

It'll take us a little while to rev up the content machine so that you can get back to the cadence that you're used to, but we've already got some good episodes loaded up for the next couple of weeks. Thank you for bearing with me and for letting me enjoy the month of December.

are all doing fabulously and: 2025

Otherwise, cheers. See you out there. All right, Rob, did you miss me?

Rob: 00:00:40

I feel like it's been a very.

Jacob Shapiro: 00:00:42

Long time you said that and I feel like it's been no time at all. And it's funny to re engage with, with global news flow after being gone.

Well, not, not being gone because I mean, I popped my head up when, when the Assad regime fell and for a couple other things, but it's, it's, it's crazy how much stuff has changed and how much stuff hasn't changed before we get started. By the way, I have people in Los Angeles. I don't know if you have people in Los Angeles, but it sounds pretty grim out there from what I've heard.

So if any of you do have people in Los Angeles or if you're listening in Los Angeles, man, it's tried to say thoughts are with you, but it looks pretty awful what's happening there. Rob. Which, and we talked about this a little bit.

Remember when I was in LA a couple months ago and I did a whole microgeopolitics piece about Los Angeles fires was actually relatively low on the scale of things that I wrote about. I wrote about lack of water and I wrote about, you know, earthquakes and things like that, but man, pretty depressing.

But not to get too on the downer note, I wanted to start by telling a little bit of a story.

I don't know if I've told the story on the podcast before or not, but as you can imagine, Rob, I was a nerd in middle school and I found this online role playing game. It wasn't even a video game or anything like that.

It was like you had these different nerds that would all get together and each one would pretend to be the leader of a different foreign country and there was a moderator for the game.

And if you, if you were elected or chosen to be the leader of a particular country, you would get sort of a very rudimentary spreadsheet of, here's your economic power, and here's your political power, and here's your military power, and here are the things that you can do. So anyway, my first participation in this game, I was the crown prince of Denmark. And Denmark had become much more authoritarian monarchy under my.

Under my rule. And I looked at my little spreadsheet and I saw, you know what?

I think that it would be a really good idea to use my military capacity to invade and conquer Qatar. And so I did all this stuff. And on paper, technically I could. Like, I had the military requirements to do it and everything else like that.

So I submitted this whole long thing to the moderator and said, yes, I would like to invade Qatar with X, Y and Z forces and everything else. And they kicked me out of the fucking game. And they kicked me out of the game. They were mostly like, like young adults and like people in college.

nvade Qatar. This is the year: 1990

mething like, this is not the: 1800

And I'm telling you that story because I could not help but think of sixth grade Jacob Shapiro in his room invading Qatar and listening to Donald Trump say that he was not going to rule out military action to take over Greenland, that he's going to rename the Gulf of Mexico the Gulf of America, that Canada should become the 51st state, and that he wants to invade the Panama Canal.

I was even, I was on a speaker prep call yesterday, and, you know, I made some joke about something that Trump had said, and the guy said, hey, you can't say that in front of the audience. We don't want anyone to think that you have political views one way or another. Like, you have to stick to objective facts.

And I said, sir, the idea that Canada is going to become the 51st state of the United States of America, it's not partisan of me to say that's literally a ludicrous statement. Like, it is objectively crazy to say that you can agree with it or not agree with it as policies, anything else.

But I'm not going to not say that some of this crap that he's flinging is crazy.

Rob: 00:04:11

You get to kiss the ring, Jacob?

Jacob Shapiro: 00:04:13

No, I'm not going to do it.

And I think there's a method to the madness because everybody and their mom is talking about what he has said and not about policy or what's going to happen next or the things that probably we should be talking about. I don't even know what it means to rename the Gul of Mexico. Like, I don't even know who you go to. To rename the.

Like, are you going to do it in US Textbooks? Like, it's just a sort of a classic Trump thing where you're not going to actually do anything.

But the second part of this that I did want to say was we actually talked about this a couple of months ago.

You might remember that when we were thinking about different analogs for what a Trump administration might look like, I brought up the McKinley administration as one that had high tariffs and protectionism and sort of thoughts about the US Dollar and a really muscular approach to US Imperialism.

And I will say that while some of Trump's comments are insane, like Canada is not going to become the 51st state, taking over the Panama Canal or seizing something like Greenland militarily or through means of economic coercion, that wouldn't have been crazy, what, a hundred years ago, 125 years ago, that would have been the way that actually foreign policy worked for some of these great powers.

The United States, for instance, after the Spanish American War, had assorted intervention in the Philippines, where the US Military was on the ground in the Philippines, and they were basically trying to conquer it and rule it for themselves. It's a shadowy chapter of US History that doesn't get enough play. The Panama Canal, the United States originally thought of it as for itself.

Like, President Elect Trump is not wrong when he talks about that. And the reason I'm bringing this up is because I'm already finding that I have to shift some of my models with him.

Because in the months leading up to the election, I was talking about Trump as if he was an isolationist.

I was even invoking George Washington and what George Washington said about no permanent relations with allies or enemies, and that Trump was part of a foreign policy tradition of isolationism. But at least these first comments that on their face are a little bit insane. It's not isolationist at all. It's another I word. It's imperialist.

It's flat out. I'm going to go out and I'm going to take what I want because this is what is the best for, for the United States.

And I think the difference between, you know, 125 years ago and today is that I'm not sure that the United States has the requisite power to do some of these things.

But I will say I, I stopped myself in my tracks and sort of said, okay, well, if you were 6th grade Jacob Shapiro in your room again and you were given the spreadsheet of what US Military power looked like, could you take over the Panama Canal? Could you take over Greenland? What would be the actual cost of that? Are the Danish going to stop you from invading Greenland?

Are the Germans, are the French? Like, what be the actual implications? I found myself, like, actually thinking about that.

So that was the lead off because I wanted to touch the things that Trump said. I don't want it to dominate the entire podcast.

But I also didn't want to ignore that he's out there saying things that will make like each one of those things is going to make waves in global foreign policy. So I don't know where do you want to take it there as we back into some of these other things, Rob?

Rob: 00:07:18

Well, do you want to explain your thinking and maybe you need more time, you formulate it on what are the implications if he does try to sort of forcibly do some of these things, whether through probably direct force is not very likely, but economic coercion and arm twisting and things like that, how that might ripple out into US Relations with other powers, everything, or is that just too big of a topic for now?

Jacob Shapiro: 00:07:49

I don't know that it's too big of a topic and it depends on each one. And when I say that he's had, he's already had political impact like, like the Trudeau administration in Canada was already on its last legs.

But it certainly seems like Trump gave it the kiss of death that Trudeau and Trump's meeting went really badly and that a combination of Trudeau was lacking support at home and saw that he was facing a Trump that was not going to give him a break at all. Like, now he's out.

And I do think like, like, and this is what I mean about how it's classic Trump to talk about the Gulf of America and Greenland and Panama and these things that are probably not going to happen at all. And instead we're not going to talk about, okay, you said that you're going to use this law.

This was another thing he said, which I don't has gotten some play, but not as much play that here's the law that I'm going to use the IEEPA to invoke emergency tariffs on all of these different countries, including Canada and including Mexico. So I've actually been spending more of my time not thinking about US Capacity to invade Panama, which I guess is possible.

I mean, I assume that there would be all sorts of international ramifications, but I actually don't know what they would be. I think Trump actually could seize some of this low hanging fruit if he really was just going to be, you know, completely.

I don't know what the right word. If he's going to just throw caution to the wind and do things. Yeah, like I think physically he could do some of these things.

But you know, he's talking about using this International Economic Emergency Powers act to justify his use of tariffs on basically everything. And what do U.S. tariffs on Canada mean? What do U.S. tariffs on Mexico mean?

That actually matters much more than whether the Gulf of, Gulf of Mexico is going to be called the Gulf of America. And I think those things mean, could it mean the end of the U.S. canada, Mexico free Trade Agreement? Could it mean a huge spike in inflation?

Could it mean massive pain for the US Consumer? This sort of backs into some of the things that you said about US Macro, or at least some of the things we're going to talk about US Macro.

I read some of your thoughts as we were preparing for it, because the one thing that does seem clear to me is that he's going to go for tariffs. And even as people are starting to prepare for that idea, I'm not sure that we're prepared for it truly.

Because the biggest difference between Trump and between Biden is going to be that Biden was, was very America first and protectionist forward too. We talked about that. But he had, he carved out exceptions for U.S. allies. He wanted to make things right with the European Union.

He wanted to cooperate with Mexico and Canada. He viewed the Japan, South Korea, US Trilateral relationship was critical and did a lot of impressive work in building it up.

Trump is showing you he doesn't care about any of that. He's, he's telling you right now, I don't, I don't care that the EU is an ally. I want Greenland and I don't care that Canada is an ally.

I want them to become a state and I want them to have tariffs. I don't want to import things from Canada. Like, I think that's a much bigger implication.

The, the only one of the, the, the ones that I, the only one of the crazy ideas that he mentioned that I do think requires a little bit of thought are the comments about the Panama Canal, because I feel fairly safe in saying Canada is not going to become the 51st state. I feel fairly safe in saying that he's not going to seize Greenland. He can probably get what, what he wants out of that economically.

And Gulf of America, Gulf of Mexico, who cares? Like, I'm sure he can. He can declare tomorrow that it's the Gulf of America for all we care.

But the Panama Canal thing is interesting because there is plenty of precedent for the United States military wandering into parts of Central and Latin America and just seizing things for itself if it feels like its interests are threatened. We can go back to the 80s for that. Like, you don't have to go back 100 years to see signs of the United States doing that.

You can imagine that if you're China or some of these other countries that have grown used to the Panama Canal being part of a global network of trade, that that would be pretty unsettling.

And it goes back to some of the things we talked about with, hey, like Straits of Malacca, Straits of Hormuz, Panama Canal, like suddenly all of these different sort of zones where trade is going through these, these choke points. It's really important to monitor them because even small changes there can affect that.

And it would also be a very tangible sign of the United States going from, you know, protector of the seas in a free trade to no, we're going to own this thing.

For the US Military, to use Donald Trump's words, that's the one I think we have to sit with a little bit and think about how is that just a demented one off take, or is he actually really thinking that there's a military rationale for seizing control of this thing? Like I need to sit with that a little bit because that's the, that's the one that sticks out of the deck is as maybe more realistic.

Rob: 00:12:21

Well, this is probably a good segue into a macro update because unusually this really ties into what he has been saying.

So because markets are really funny and to a great extent it kind of doesn't matter what he actually does now because he's already said it and people have reacted.

So for example, I mean, my TLDR in my internal notes here is that leading indicator indicators of inflation are now spiking and there's a number of things kind of feeding into that, some of which are completely unrelated. So you mentioned the fires at the beginning. Like that's already having impacts on, on freight.

For example, there's a pending ILS strike that a lot of shippers have Been ordering, you know, ahead of time to get ahead of in late January and at the same time, the Chinese Lunar New Year, when all the factories shut down because it's the biggest holiday of the year in China, is unusually early this year it's in late January, usually it's sometime in February. So everyone, for a lot of reasons has been ordering early anyway.

But put on top of that you have the expectations of tariffs, which are now widespread. And we spoke about this a little bit in our last brief conversation.

I think, you know, talking about there was some anecdotal evidence that this was happening. But the latest data to come out really underscore is that this is a huge surge in ordering.

So you almost have an artificial sign of health, it would seem, in the economy because you're seeing the ISM gauge of manufacturing activity really jump from low levels.

So the new orders portion of the index back in August it was 44.7, which is a pretty strong, anything below 50 is contraction, anything above 50 is expansion. So 44.7 is pretty weak. And then this month the December index is back up to 52 and a half.

So you went from 44.7 to 52 and a half in just a couple months as everyone rushes to get ahead of this anticipated rise in tariffs. And that is a, that's really problematic in part because in many other ways the economy is weakening.

Not everywhere, you know, the consumer still looks okay, but consumer spending generally ties to employment. So it's not a leading indicator. The leading indicators are investment.

And you know, you're coming off, as we've talked about, you know, many times, you're coming off of a huge surge of everything it related. So data center investment, AI related investment has been significant and it's not declining.

But it's no longer this sort of growth driver that it has been because it's starting to level off.

And as the sort of optimism around how soon a lot of these applications are going to arrive starts to fade, well, you're having some curtailing or at least some leveling off of these capex budgets. So that's one area of cyclicality that's not going to be what it was. Us home builders, which is typically like the canary in the coal mine.

Like if you were to look at these long term charts of US macro growth, it's always residential investment that swings first and swings hardest. That's been on the mat really for the last 18 months or so and it's been slowly recovering.

I don't know how closely people follow the housing market, but house prices are still ticking up. Supply is getting a little bit better, but historically it's still very poor.

But really what people in the housing market are looking to see now is we've just had another surge in the mortgage rate. Now we're back above seven again. We were in the low sixes as recently as, you know, September. So how much that's going to nip in the bud?

This kind of nascent, I wouldn't even call it a recovery nascent. Crawling to the edge of the mat is still to be seen, but it's certainly not good. But the big one is really non residential investment.

So that is an area that had completely surged after the IRA was passed. You know, this encompasses everything from manufacturing capabilities to warehousing.

You know, there was a lot of positive drivers in this, whether you're talking about E Commerce and all the capacity that was built out after Covid, when everyone thought E Commerce was going to really dramatically increase its penetration of total spending to, you know, hospitals, institutional spend, like everyone was flush. Everyone was spending whether you had stimulus dollars associated with it or not. And that is really starting to come off.

Like this is something we've spoken about for most of the last year, how the early indicators.

So if you look at the architectural billings index, for instance, which is an indicator of how much work is going to architects, which tends to lead to this kind of building by 12 months or so that had totally fallen off a cliff. And now you're starting to see the actual activity in non residential, non residential construction roll over to follow it.

It's not yet gone super negative, but the direction against this extremely difficult comp, this extremely strong period is nosediving toward negative territory and it's accelerating. And that's a really important data point that people haven't paid much attention to.

Incidentally, we closed our Nucor Steel short when it went down like 40% from peak to trough. So the canary in the coal mine is dead in the cage. But that's a really important part of what's going on.

So against that backdrop, you have businesses that are surging orders and building inventory into what appears to be potentially a much weaker environment in the first half of the year, which is kind of setting up for a terrible 1, 2 blow in economic terms.

Jacob Shapiro: 00:19:34

Yeah, I mean, it doesn't, to the layman, if you're just looking at markets themselves, they, they look pretty strong in general. So it's, it's interesting to hear you voice that even as markets themselves are up a little bit.

I mean, I, my Not, it's not a meme stock, but like my, my risk stock of choice right now is this Archer Aviation vertical takeoff company that hasn't made one of their air taxis yet, but they're building a factory in my hometown.

So I started watching them as one of these stocks that goes up 30% and then down 30% they're like up like at a 52 week high and like sky going sky high. So it feels like risk assets are on a little bit. But it sounds to me like you're, you're saying things need to be off a bit.

I've also, I was noting also this goes back to sort of where you decide to date performance. You can sort of make data say anything. You know, at the end of last year, Chinese equities surged up and they're showing some weakness too.

They're not quite back down to where they were before. Like you'd still be up if you had time the Chinese market correctly.

But when you were talking about emerging markets, like it feels like the Chinese equity story is also starting to break down a little bit and that might have something to do with, you know, we haven't even talked at length about the United States deciding to put 10 cent and cattle on a, on a blacklist which it turns out doesn't like have any actual impact. It's just, it's just a bad thing for those companies to be on the blacklist that it tells you that maybe something bad could happen in the future.

It's also like, I understand how you can get to Cattle is going to provide things to the Chinese military. Much harder for me to understand how 10 cent is going to be a military provider. But anyway, was there any, anything in there you want to pick at?

Rob: 00:21:15

I think the, the Chinese equity and the US Equity stories are almost polar opposites. China has been in a long term bear market and the question there is, are you seeing a bottoming process?

And I think my base case assumption right now is that yes, you are. So the surge that we saw, we talked about this last time in September to October of this year, that really was pretty dramatic.

And yes, you've been bleeding off a lot of those gains.

And the news out of China has been horrible, which we can talk about some of the things that we noted in the knowledge platform, but, but it still is showing the patterns of digging in after a long period of underperformance. The fact that Trump won the election, you know, obviously more hawkish on China in terms of tariffs and things like that.

And equities are not really responding in a very negative way suggests that there's something there. You know, the, the old trading adage is when something can't go down on bad news, then that's something you should pay attention to.

I think that might hold. Whereas the US is in the opposite. We're in sort of the fumes of a multi year bull market that really has been going on since the pandemic.

You know, there was a minor bear in kind of late 22 when interest rates first started going up. But for the most part, lots and lots of people have made lots of money over the last few years.

And you're right in pointing out stocks like Archer Aviation are up seemingly on no news. And you've seen a lot of multiple expansion in sort of the junk of the market.

So just to give you an example, there's a company, Ionq Ionic, it's a quantum quantum computing company. And These guys do 40 million of revenues. It's like a R D stage quantum computing thing. And the stock was $10.

Now it's, it went to $50 from $10 on, you know, in a couple months, you know, a couple weeks, even six weeks. And yesterday Jensen Wang from Nvidia made one comment about, you know, some, some skepticism around Quantum. Modestly skeptic.

And the Stock was down 30% just on, hey, he just breathes the wrong way. So there's a lot of froth that's kind of sticking around. If you look at the underlying sort of breadth measures on the market overall breadth is bad.

And when I say breath, I mean usually when you have a healthy market, lots and lots of stocks are going up together. It's the tide that lifts all boats. And you had a very brief surge in breadth.

as people tried to replay the: 2016

The market continues to be led by sort of the very large cap nifty 50 style leaders like you saw in the late 60s. But the underlying structure is not very healthy. And a lot of the junky stuff that had really run is now itself starting to sputter out a little bit.

I mentioned Ionq. There's a lot of weak holders in there. A lot of people who jumped into these markets thinking, oh yeah, the Trump years are back, time to make money.

But without really thinking through whether there's any basis to that.

Jacob Shapiro: 00:25:18

I did also want to ask you about, you put some interesting notes on our internal platform about migration and immigration growth. So why Don't I just let you. Because I want you to tie off the macro thing with that, Because I think in some ways that's almost the most important.

Not the most important thing, but I feel like the most underappreciated risk of inflation is what are the Trump administration's policies towards immigration going to do to a labor market that was already super tight?

Rob: 00:25:46

Yeah, I'm glad you brought that up because that was the other thing I wanted to mention in terms of his words, having real impact already, no matter what he does, because it's having impact in sort of the pattern of orders and inventory build, as I mentioned, but it's also having its impact in interest rates, not just on the long end of the curve, which we all can see, because the long, you know, long term treasury yields have risen quite a bit, but also in the way that the Fed is thinking. So this ties into immigration because one of the Fed board members gave a pretty interesting speech in December in which she held out.

So this is going to be way too wonky and probably bore the listeners, but there's this kind of ongoing debate going on in nerd circles about the two different measures of employment growth. So there's two different ways that they can measure the employment and the unemployment rate and the labor force participation in the economy.

There's one survey that asks employers, how many people do you employ? And then there's one survey that asks households, who's working in your home?

And they're very different methodologies and different sample sizes, blah, blah, blah. But a few times in history, they've diverged pretty markedly. So one of them right now is showing very different results from the other.

And a lot of people have tried to figure out what this is.

And this Fed board member gave a speech and among other things, she said in December that she attributes it to this surge in immigration from international immigration, obviously, and that this was skewing the numbers for one survey rather than the other. So the Fed is thinking about this a lot.

And the Fed minutes just came out this week and they specifically said, along with the obvious stuff, uncertainty is super high, inflation risks are now skewed to the upside, which is a nice way of saying, who the hell knows what this guy's going to do and we don't want him to ruin our inflation killing credentials. But one of the things they specifically mentioned, which was really important was they said that immigration is also highly uncertain.

So I think this is an issue that people recognize has been really important to increasing the labor force, which keeps inflation capped and just the other day, the Census Bureau released updated estimates for population growth and vastly increased their estimates relative to the last estimate that they did to take into account a new methodology that they use to measure immigration. So the net net of all this is there's been a huge surge of immigrants to the US in the last few years.

That's been a major impact in keeping inflation capped, even relative to the high level where it's been. The Fed recognizes that and recognizes the risk of turning the tap off there, how that could heat up labor markets again.

So again, words matter, signals matter.

The Fed is changing its own monetary policy, not just in relation to tariffs and other things, but also in relation to the proposals around immigration control and things like that.

Jacob Shapiro: 00:29:13

And that stuck out so much to me because I feel like it is so contra the consensus.

The consensus narrative has been, yes, there's illegal migration coming in, but that the labor market is very, very tight and that people are having trouble finding people.

So if it's actually that there's been a surge in immigration and that the labor market has actually been okay the last couple of years, that means that you have. We haven't really experienced what it's like to have a truly tight labor market because the US Government is cracking down on migration.

The Biden administration made a very big show of trying to crack down on migration going into the campaign because they knew it was one of their big weaknesses.

But yeah, I just think it really sticks out because the narrative that it tells is actually there hasn't been any crackdown on immigration at all and that things have been relatively good from the standpoint of are you adding people to the labor force that can actually do things and what would happen if you actually took those people away? What might that do to labor markets that are already tight and have already been showing signs going upward?

So to me, that was a pretty distressing thing. I don't know if I'm wrong in thinking that that's the consensus narrative, but that's what hear so often.

Rob: 00:30:16

No, it is the consensus. And definitely the impact of inflation has not been widely recognized.

So as you said, if you were to take that factor away, labor markets would have been much tighter even than they have been. And just to be clear, because this ties into.

I don't want to talk about NAT Gas too much, but it's worth talking about what's happening because I know we have a lot of farmers and people in ag who listen to this. Inflationary forces are turning very positive in ag and not necessarily the good kind of inflation either.

Because the two things that are driving this are the inflation, I'm sorry, the immigration potential changes because immigrants are primarily coming in as unskilled labor in terms of the mass number of people. So you think it's been hard to find farm hands and agricultural seasonal workers or non seasonal so far? Like it's going to get harder to do that.

So that's pointing in the wrong direction.

The second thing is, you know, it's been pretty warm in Paris, thankfully, but I do understand it's been a little bit chilly over there in the us it's cold.

Jacob Shapiro: 00:31:30

I was under the house putting foam on the pipes because our houses here in New Orleans, they're not built for this.

Rob: 00:31:35

Yeah, so. So these things have real impact.

So if you look at the NAT gas market, we had been sitting on a huge cushion of storage that had built up post Ukraine war breakout. The market had been very, very weak. And you can see that in NAT gas pricing it just absolutely collapsed.

Jacob Shapiro: 00:31:55

I actually pulled this up in: 2024

That's the lowest, the lowest average annual price in inflation adjusted dollars ever reported in US history. So you have had the lowest natural gas prices in US history over the last 12 months. May not feel like that, but that's what you've had.

Rob: 00:32:23

Yeah, exactly.

And if you think about how much of the electricity market is, is keyed to NAT gas, if you think about how farm inputs and fertilizer are keyed to NAT gas, ultimately what's happened is a lot of that, a lot of that cushion that we had has now been worked down and it looks like. So NAT gas inventories and storage this past week just went negative year over year for the first time in like three years.

So we're actually starting to decline a year over year basis.

And based on the outlook NatGas analysts that I read, Pine Brook Energy, who is, I know, a podcast listener, I'm not sure if he's listening to this, but he has really great stuff if you're interested in this area. But he was basically saying that we're likely to go back below the five year average on NatGas storage.

This is being exacerbated by higher expected LNG exports in the coming months.

So essentially we've been sitting on sort of this Christmas morning of very, very cheap gas for the last few years and the cold front has kind of put the nail in the coffin of that. So you should See a more normal gas market, you know, all else equal going forward, which is, you know, going to impact ag, among other things.

Jacob Shapiro: 00:33:50

Yeah. And those guys are already on the mat for the most part, so.

But it also goes back to how hard it is to predict anything with any certainty coming out of US Policy right now, because the Trump administration is already contradicting itself. So, I mean, I already talked about isolationism versus imperialism. There's two narratives about Trump from an energy perspective.

There's the drill, baby, drill. Everything's going to be great. We're going to be producing to the hilt narrative. And then there's also the, oh, and we're going to export. Right.

Like, Trump's going to get rid of all those restrictions on exporting lng. Right. And it's like, well, so which is it going to be both of those things?

Because if he's going to try and push for exports, which is what the energy companies want, then drill, baby, drill doesn't matter. That means the prices are going to go up anyway. And I say it's so hard to know what's going to happen because they're not in office yet.

All we really have is Trump saying things.

And so we're like trying to read tea leaves from a guy who is, like, famous for just saying whatever is on his mind and not actually following through from a policy perspective. So it's just another one of these things where, like, I've had to talk to a couple clients over the past week where I've had to give the.

They've asked me questions about what does the Trump administration mean for ag policy, what does he mean for energy policy, what does he mean for this? And I'm like, I don't know. All I have is what he said on Truth or whatever that social media platform is called.

Like, we don't even have, like, the people in the room, like, making the decisions yet. And we're trying to figure out where we go from here. Anything else you want to say about the U.S.

maybe before we turn our eyes a little bit more towards the rest of the world? Rob?

Rob: 00:35:23

No, let's go to international, overseas, international waters.

Jacob Shapiro: 00:35:30

There are a couple things, and obviously there are tons of things happening around the world that are important. But as I'm trying to get back up to speed, I've had to prioritize what I'm diving into first.

at I had on my bingo card for: 2025

You had China basically wave or extending some, some visa free travel from Japan from, from Japanese people into China.

But then you had a visit around Christmas, so an official state visit from a Japanese foreign minister to, to China, and Japan decided to relax its entry requirements for Chinese nationals.

And you also had Japan and China agreeing to set up talks over security issues and talking about how it was a critical moment in their relationship and that they needed to build better relationships. Both foreign ministers talking about building personal relationships that would lead towards the future.

In just the last couple of days, there have been reports that Japan is trying to lay the framework for a Xi Jinping visit to, a Xi Jinping visit to Japan.

Also coupled with the notion that US President elect Trump apparently wanted to initially meet with the Japanese Prime Minister and then the Japanese Prime Minister decided not to do that, or maybe Trump's chief of staff decided not to do that because they didn't want to do that until he got inaugurated.

But of course, Chinese media is running with this and saying, oh my goodness, Japan is delaying its visit with Trump so that Sheba and she can have their visit. Japanese Chinese relations sort of surging to this new, this new height. There's not, there's not a whole lot of meat here quite yet.

And there are a lot of issues between Japan and China. There's historical issues. There's China arresting Japanese nationals recently.

There's all the, you know, Japan has been much closer to the United States in recent years and that has angered China.

We talked last year about China encroaching upon Japanese airspace for the first time, I believe in history, not, not their 80s, like their actual airspace and that creating a whole host of things. But it seems like there is some move towards Japan at least trying to be more pragmatic with China and China being open there.

And I do think that's, that's, I mean, it's, it's a combination of two things. It's a ripple effect from the Trump administration.

It also tells you that Prime Minister Sheba, he's, he's trying to put his own stamp on Japanese foreign policy. And it is not necessarily going to look like maybe the Abe version, which was very, very pro us.

The Abe version was also more pragmatic towards China, but very, very pro us. You know, thinking about the quad, thinking about how to protect Japanese geopolitics from that point. Of view.

Maybe you've got a different sort of cat that is calling the shots there in Japan.

I also know, I mean Japan is one of our favorite things, Rob, and this is, is separate but sort of related that I don't know if you saw that the bank of Japan said that it thought that wage hike increases were broadening or at least the possibility of wage hike increases were broadening such that maybe a near term interest rate hike might be warranted because they think that they're seeing Japanese companies willing to pay more. That's maybe more related to the Japanese economy than the thing that I'm talking about.

But I did think it was interesting to see that China and Japan from a relationship perspective or at least trying to make things better between the two of them. It's been quite some time since there was a real impetus for those countries to try and talk to each other in this way.

Rob: 00:39:08

Yeah, my high level thinking on that would be modestly positive. In terms of the Japan investment thesis.

What do you, I have to think through more carefully before I make a strong view, but given the amount of investment that Japan has in the Chinese market and given how important China has become as, as an end market for Japan and sort of supply chains integrating there, that seems like a positive development. But what do you think a positive.

Jacob Shapiro: 00:39:45

Development for the Japanese economy? Because the Japanese economy is so intertwined with the Chinese economy at this point.

But it's a negative if you're thinking about maybe the US Japan relationship. Japan is also historically much better at dealing with its rivals just because it is China's geopolitical rival.

And just because there is historical animosity there doesn't mean that they can't push on economic terms. That's something that's hard for sort of black and white Western foreign policy wonks to think of in those terms.

It also, I mean, it also comes in the wake of the Biden administration, not the Trump administration, but the Biden administration officially saying that a Japanese company couldn't take over U.S. steel. Right. So from that point of view, I think maybe you're seeing Japan start to hedge its bets a little bit.

So saying, okay, maybe if, if it is going to be Trump and they aren't going to let us do these things in the US Market.

And if even somebody like Biden is going to view US buying a broken down, I should say they've broken down old steel company, but buying US Steel as some kind of national security threat, what is Trump going to do? And what are the things that we're going to have to do to make sure the Japanese companies have continued access to China going forward.

Sheba also announced this week his first visit that is not sort of as part of an international summit. He's going to go on the road.

He's going to see Malaysia and Indonesia, so trying to build those Japanese relationships with other countries in the region. So we may be seeing Japan, like, really taking control of its own foreign policy and a meaningful perspective. And it was so.

It was so surprising to me because I was sort of expecting that from South Korea. I was not expecting that from Japan.

I thought that maybe the things that Abe and Kishida had put in place would put Japan on a very specific path going forward, no matter who was elected president. And it seems like Japan is trying to resist against that. So from a macro perspective, it probably means good things for Japanese companies.

I'm less sure what it means for US Japan relations. Maybe it doesn't mean anything.

Maybe Japan is an important enough cog for the United States, and maybe Japan is reading from the Trump administration that Trump really is going to threaten all these things with China, but in real terms, he's actually going to go for a deal. So maybe, maybe we're getting a leading indicator that that little argument has some weight to it.

But no matter what's going on, like, something weird is happening here, like, this is not something that most Japan watchers or China watchers were expecting. It's certainly not something that I was expecting from on my, you know, perch high above all these things.

Rob: 00:42:08

except for the brief blip in: 2009

If they really are starting to hedge their bets against the US alliance, that would be a major change. And historically, in my view, Japan has always done great things when they've been scared, great and terrible things.

But also, you know, they've done things and, you know, the classic dig on Japan in recent decades has been stagnation, complacency. They just want to be left alone to play their PlayStations and do weird anime stuff. And, you know, this is kind of an interesting sign.

It's an interesting sign that there seems to be some real legs to the whole corporate Japan getting shaken up, shareholder based capitalism kind of narrative. Maybe this is a narrative that we only hear about, you know, in the financial world, but it's something that people are genuinely excited about.

The notion that really you could be seeing a lot of these big sleepy corporations getting shaken up for the first time ever.

One thing, this is totally not related, but one thing I learned recently because I'm really interested in art and I like to read a lot of art related newspapers and stuff, but apparently Japanese corporations have extraordinary collections of art, like old masters art, like some of these sleepy old companies that they bought up in the 80s. They have whole museums that sometimes they don't even let people in.

And it's just priceless works of art just sitting there in some corporate museum in Japan or in boardrooms that no one ever goes into. And now some of them are starting to unload their art collections because they just can't justify it anymore.

And it's having a pretty meaningful impact on the art market. Yeah, that's not really apropos to anything, but just a little sign that something that's been in place for a very long time is changing.

And I don't know, I think it's relatively good.

Jacob Shapiro: 00:45:05

Before we close out.

So I don't have full thoughts on these last two things, but just two things that did catch my eye and I'm sure one is probably going to catch your eye more than the other. The first is that we are heading into German election season. So Olaf Scholz's coalition finally bit the dust while I was on paternity leave.

And polls indicate that it's probably going to be the CDU and it's probably going to be Friedrich Merz who's going to be at the top. He's probably not going to win. He's probably going to get a third, which is a lot for in the context of German politics.

But it's not like it's going to be a blank check to do whatever he wants to do and who the CDU decides to partner with.

Whether it's going to go after some kind of grand coalition with Scholz and his party or whether it's going to flirt with the, I hate the use of the term far right. I don't really know what to call the alternative for Deutschland, the AfD.

y what they had to do in like: 2005

That's the old playbook. So they're going to have to do something new if they're going to reinvigorate the German economy.

But, you know, I have a report out or I wrote a report for us, I guess that was two years ago now, a year and a half ago, where I sort of talked about the short term future for Germany is really, really bad. You've got a government that doesn't have any will to do anything. They bet long term on cheap energy from Russia that blew up in their face.

You've got all these different problems. But we've seen this movie before. Everybody was counting Germany out. The Economist called them the sick man of the euro.

And then you had an election change. You had massive reforms that were implemented. And then you had Merkel come to power and oversee a German economic miracle.

And 10 to 15 years where Germany was, just by its economic power, incredibly important, incredibly influential and powerful in EU affairs. I feel like we might be at that tipping point.

Just the way that the German political circles are starting to talk about the debt break, the way that things that before you wouldn't have thought about could be talked about. The facts that Germany's current debt to GDP ratio, it's at 62%, one of the lowest in the Eurozone. There's a lot of room there.

I think people have been right to beat Germany up for the past couple of years and I was one of them. But we might be sort of at that inflection point.

I think German elections is going to be one of the most important things to watch here going forward.

It's especially important considering the political gridlock in France and that Macron sort of has his hands tied and that you are going to have Trump who's going to get more muscular towards Europe.

And if Europe is going to stand up for itself, it's going to need a Germany that has a much stronger sense of itself and an ability to push back against the Trump administration if that's going to happen. So that was one thing and then this is less important. But I also thought it was interesting.

There's just a lot of Indonesia notes over the past couple of weeks. They have a new government to the Prabowo government, which is turning out to be just as populous as everybody expected.

Indonesia decided to join the brics, at least according to Brazil, which is interesting. They. They resisted that before because they didn't want to be thrown into that club. Apparently Prabowo has changed the thinking there.

But two other things that, that caught my eye.

Apple, even though it had invested a lot in sort of local production inside of Indonesia, is not allowed to sell the iPhone 16 there, apparently because they have not satisfied the Indonesian government's requirements quite yet. They've thanked them for the investment, but it has not been enough. And then Unilever also announced that.

Or not announced, but if you look at Unilever sales, their market share in Indonesia declined by almost 35% or I'm sorry, not. Not declined by 35%. Declined to 35 from almost 40% a year by before.

And what they're ascribing it to is their consumer goods companies being under fire in many Muslim majority countries for what they see as tacit support of Israel and its offensive in the Gaza Strip. And I just wanted to. To shine a little bit of a light on that because it's.

It's hard to say that the things that happen in the Middle east are actually going to reverberate out on a geopolitical level in some meaningful way.

But if that's true, if you're seeing that Western companies are losing 5, 10% market share in Muslim majority countries because those Muslims are angry about what is happening in the Middle east, that's a really interesting data point to watch because, okay, are you going to get local businesses that are going to fill the gap there?

Is this indicative of some larger break in Muslim majority countries where they're going to eschew relationships with Western countries or Western companies in general?

I thought you don't often get data points that are tied that directly to say, oh, this is how people feel about this conflict that is, you know, a year old and a continent away, but it is actually affecting the way that people consume goods. I thought that was an interesting one to watch too, considering Middle east shenanigans are not going away anytime soon.

So I'll leave it to you, Rob, if you want to pick at any of that or if there's anything else you want to raise or we could also say goodbye.

Rob: 00:50:03

No, actually there's. If you have some time, I think there's a lot to talk about there.

Jacob Shapiro: 00:50:07

I've got 10 minutes until the baby.

Rob: 00:50:09

Wakes up, so we got 10 whole minutes. All right, so let's do Indonesia first. I wasn't on top of the Unilever news, but I do think that's.

That's quite interesting how much of that is driven by the sort of religious angle and outrage over what's happening in the Middle east is hard to say because I don't have the numbers.

But it does tie into a broader trend and I think it's worth thinking about of local consumer goods companies taking a lot of share in the last few years from Western multinational giants. So China is sort of the poster child of this if you look at even like Unilever is a good example.

But beauty is a great one to watch because beauty is a very. It's a very emotional purchase in many ways, like fragrance, makeup.

These are sort of very personal products and there's often sort of a narrative around it about the brand and where it's coming from. It's not just a functional buy and what you've seen in China in the last really like six or seven years, but it's accelerated more recently.

Is the emergence of local brands playing on local sensibilities as we are a Chinese company or we are an Indian company and using ingredients from here and rooted in the traditions of here. And I wonder if you're starting to see some of that in places like Indonesia as well.

And I would expect that you'll see an acceleration of that trend as just the news cycle and the media cycle continues in the direction where it's going and as you go into this more multipolar world. Because one thing if you look historically is during periods of globalization, people tend to aspire to the Hegemon's brands or the Western brands.

Right. Even if you look like in the early days of the Meiji Empire or the Meiji Restoration, everyone wanted to drink whiskey.

This sort of mentality and that tends to reverse when you have fragmentation. So from a bottom up business standpoint I would imagine there's some element of that in this Indonesia story as well.

But it's worth watching and looking at other countries to see if you continue to see that that trend.

On the German thing, I do have some thoughts because I don't think this has gotten nearly as much attention because no one's paying attention to Germany other than the fact that Elon Musk is kind of giving them grief on social media. That seems to be the only thing people are talking about with regard to Germany recently.

The thing there was one sentence and I put a one importance level on this on the end and in hindsight I was like Jacob's going to think so. This so stupid.

I'm overreacting, but I really do think I wanted to get your attention Because I thought this was really interesting, but the way that Mertz is talking about some of these issues, I think it just, it really, it's like out of the David Stockman playbook, the supply side economics playbook. Because if you look at what he's saying, like he's seeming to. So here, here's one of the quotes that I put in my notes.

He's giving an interview with the state broadcaster and they're asking him about, well, you know, the budget deficit and blah, blah, blah, how are you going to balance the books, all this stuff, right? Oh, we're in a recession, you know, how can you do that simultaneously?

And he says, quote, we will switch gears and shift into growth and employment, then things will start to look up again in this economy. And then the calculations will also turn out quite differently, which to me that's supply side economics.

That's the promise that we're going to invest and spend a lot of money now and the growth that ultimately comes down the line is going to result in a balance sheet that's better in the end. And it's not quite supply side economics because that's more about tax cutting. But the point is bigger deficits now will heal themselves later.

And in this case he's talking about it in terms of investment, but I think that's extremely positive and it's a huge change from what you've seen in Germany really in the last 15 years, because ever since they got rid of the Sick man of Europe moniker, sort of the whole model has been very similar to the Chinese model which we talked about in the past, where insufficient demand, wages are too low, their competitiveness is very high because they sort of suppress wages. So they have this kind of chronic export surplus. And if you get anything that changes that balance, you get higher levels of internal investment.

I think that's really, it's going to heal a lot of the internal imbalances within the EU that have been the source of a lot of this friction. France has had to take up a lot of the demand slack and France has a much higher, I think they have almost 110% debt to GDP, which is US level.

Whereas Germany is way lower than it should be. Probably, if you even it out, they should both be around 85 and pretty healthy and normal.

But any move in that direction is very positive and I think it reinforces, because that's what France wants to do.

They, they want to invest to improve competitiveness, to protect themselves, to protect the eu, to consolidate EU institutions against all the shit that's happening outside of their borders. So if you have them both rowing in the same direction, I think you could have a surprisingly positive change in Franco German relations.

And if you have that, then that's, that's really what you need.

Jacob Shapiro: 00:56:25

I can hear the German skeptic.

We have a very small but vocal minority of listeners who are in Germany who think that the German economy is a disaster and that nothing's going to get better.

And I can hear them already saying, but you're not talking about our terrible demographics and you're not talking about our dependence on exports and you're not talking about how expensive energy is and how we've shut down all the nuclear. So we really are completely dependent on energy. I just want to say I hear all of that and it may not work.

Like they may do all the things that Rob just said and it may not work like maybe the challenges are too big. I do think, however, this is the only option they have. This is why I think this is going to happen.

And maybe it's a failure of imagination for me, but I don't know another policy course that they have.

The one, the one thing that they have in the quiver is that they have been very austere for years, very frugal for years because you're supposed to save for a rainy day. The rainy day is here. So if you're never going to use all of that everything, all of your savings and all of your. We have the super low debt to gdp.

If you're not going to lose it now, you're basically committing.

I don't want to make too strong of a point, but you're basically going to handicap the ability of the EU to be a meaningful global economic and international player. Like now's the time if you can't get rid of the debt break and figure out how to push through these things now. Like things are not going to work.

And that's one of the reasons I think it's going to happen. I don't think that Germany is just going to go into the, into the night quietly and say, okay, like, we had a good run, we're going to give up now.

We're just going to make, you know, niche Mercedes for some markets or thing. Like, I do think you're going to see major change here.

And history tells us that Germany is like Japan is one of those governments when it is pushed to change, when it actually decides to do something, it is able to marshal a level of discipline, focus that most countries are not able to. So, all right, well, I think we should leave it there. I think that's not so bad for my first episode back. Rob. So you're back. You're back.

Rob: 00:58:16

I'm back in full form already.

Jacob Shapiro: 00:58:18

Full form. I don't know about that, but. All right, we'll talk to you soon.