YWR: The New Empire Pt. 3

Everyone else is chicken littling about the Iran War.

But not you.

You’re connecting the dots.

Looking ahead. Anticipating.

That’s what I like about you.

So let’s go over why the Iran project will turn out better than everyone expects and why it supercharges our EM and China investments.

Gordon Ryan vs the IRGC

It’s hard to believe how much progress the USAF and IDF have made in one week. Remember, neither side went into this thinking it would be a cakewalk. This fight has been decades in the making precisely because the logistics, retaliation and potential for events to spiral out of control were so intimidating. No US president until Trump was willing to take the risk.

But after 1 week consider:

• Multiple levels of the IRGC have been decapitated. While US and Israeli leadership are untouched.

• The USAF and IDF have complete control of the airspace. Meanwhile, Iran has no planes. This means the US and IDF can attack wherever and whenever they want all over Iran. That’s a hard advantage to overcome for a conventional battle.

• Iran has no Navy.

• Mossad has real time intelligence on the IRGC leadership (what’s left of it). Iran has no insight into USAF and IDF operations.

• Iranians are out on streets around the world celebrating the end of the IRGC and waiving pictures of Donald Trump. Big psychological and helps secure domestic endorsement.

• The USAF and IDF are able to steadily target and dismantle IRGC infrastructure (communications, military bases, police stations, TV networks). This means inability to communicate and organise.

• The US and Isreal have support from the rest of the GCC, which means the USAF and IDF are able to attack the IRGC from multiple fronts with no rearguard threat.

• The IRGC has no way to get resupplied while the USAF and IDF supply chains are untouched.

• The IRGC is isolated.

This really is a dream outcome. Think of all the nightmare scenarios which never happened.

• No ring of fire from Hamas and Hezbollah

• No hypersonic missiles sinking a US aircraft carrier

• No Saudi oil terminals on fire

• No Ayatollah Khomeini rallying the entire GCC against the US and Isreal on religious grounds.

• No multi-front war.

• Limited/no damage to oil infrastructure.

• No mass casualty events.

At this point we are in the final stages of a Gordon Ryan match.

Yes, the IRGC can still shooting missiles, and will try to do something shocking, but these are the flailing moves of an exhausted opponent running out of oxygen. The hooks are in and the rear naked choke is steadily applied. It’s very hard to get out of.

As long as the USAF and IDF keep their head down, and continue what they are doing the IRGC will be decimated as a fighting force by next week. Maybe they are still able to fight a guerrilla war within Iran, but not able to project force and create problems for anyone else. And yes, we will have to figure out who governs Iran, but that’s a nice problem to have.

So while other investors are confused, we need to think ahead to how the world looks with a friendly Iran. An Iran which wants to rebuild with the help of the KSA and UAE.

Why this is super bullish for our China trade.

We’ve been bullish China since 2024 (Unleash the Cash Dragons).

• We love the low valuations,

• We love the economic inflection point as they come out of their property downturn.

• We love the government stimulus

• We love the low interest rates which encourages the highest savers in the world to buy equities.

• We love the cutting edge technology

• We love that Chinese equities are under owned by US and European fund managers.

For all those reasons there is lots of upside to Chinese equities in the years ahead.

• Why it’s a China Bull Market with Louis Gave.

But there is one cherry on the cake which I’ve always thought could happen, which would make it the perfect trade and super charge everything.

When I speak to anyone about investing in China their concern is always the same. Nobody wants to own Chinese equities the day China invades Taiwan. It’s an overhang. It’s why people get the China story, but aren’t enthusiastic about it.

The geopolitical tension between China and the US is also why their economic recovery is underwhelming. Companies are trying to diversify away from China, not invest in it. The wood is wet and won’t light because no one is comfortable with China’s wolf warrior diplomacy.

But this could change.

I’ve always had the view China would eventually alter its ways and become more US friendly, and adopt a less militant role. Even though every Chinese official will swear that isn’t going to happen.

But like one of those robotic vacuum cleaners stuck in the corner of a room, China will find the more it fights with the US the more it hits a wall. While the more it moderates its military ambitions and focuses on the economy and domestic consumption the more the rest of the world will open up to it.

We’ve seen small signs of this in the trade war, which never became the huge conflict we thought it would. I expect more to come. It’s in China’s best interest. A China which isn’t always trying to undermine the US, a China more like South Korea, or Japan will boom. But everyone tells me this can never happen. I don’t understand China.

But go back to events in the Persian Gulf.

What if in 3 weeks the whole world has changed.

Venezuela is already under US control. Cuba soon too.

Iran will be aligned with the US and the rest of the GCC.

With the exception of Russia, the US military will control all global energy flows to China.

The Axis of Resistance will be down to China, Russia and North Korea. Three neighbours which don’t trust each other.

If you are China this is a not a great position from which to launch a high-risk attack on Taiwan which angers the entire world. Yes, China can control access to the South China Sea with its missiles, but over the horizon beyond the anti-ship missiles, the US Navy would turn off China’s energy taps around the world (South America, Africa, Australia and the Persian Gulf).

This is why Iran is so important. Why it’s such a big inflection point. Winning Iran puts the wolf warrior back in its box.

An Iran win will, with a delay, lead to a change in Chinese posture towards the US. It might even be the domino which leads to a change in leadership. A Gorbachev moment.

A nicer China brings US institutional money into the trade which takes the Hang Seng to 35,000 or higher. 🤌

But Iran doesn’t just super charge China.

It supercharges all of EM.

The EM Boom

The change of leadership in Venezuela and Iran makes whole regions boom.

The opening up of Venezuela and later Cuba combined with the already positive changes in Argentina and Ecuador, plus a positive election outcome in Brazil, plus war against the cartels in Mexico could make all of South America boom. A new era.

Imagine a Persian Gulf where Iraq and Iran are racing to modernise and catch up with Dubai and Saudi. It would be an epic boom. Imagine Emirates catching flights to ski in Iran instead of Switzerland. Who wants to start the Iran Ski SPV? And don’t forget the Lebanon boom.

The ‘Middle East’ a region always associated with instability, becomes known instead as a global center for wealth creation, entrepreneurs and innovation.

The New Empire

While everyone is criticising President Trump for causing disruption, see how he is actually creating the long-term stability for capital to flow into the emerging markets creating a multi-year mega boom.

The global policeman is back and it’s bullish.

It’s The New Empire.

The dollar weakens slightly as new regions finally boom and investors feel safe enough to explore and invest in EM again.

Money flowing into EM, lowers local interest rates, which boosts global growth, which creates the next leg to the commodity bull market.

Which is why oil prices keep going higher even as the conflict subsides ($200 oil).

The Dog which didn’t Bark

I can hear the skeptics now.

“Great story Erik. But I don’t see it. You’re too bullish. The straights of Hormuz are shut. Oil is spiking and the petrochemical supply chain is breaking in real time. US involvement in the Middle East never works out. The Iran war is about to spiral out of control and markets will crash.”

OK.

We went into February with investors super bullish, so something bearish needed to happen to moderate sentiment and positioning.

But given last month’s events isn’t it interesting that we’ve had the software apocalypse scare, the everyone is going to lose their jobs to AI scare, the private credit markets will create the next GFC scare, the WW3 in the Persian Gulf scare, the oil is spiking scare, the multi-strat derisking scare and yet the S&P is only down 1% ytd?

Source: Barchart

All this bad news and the market has barely budged.

That’s a dog which didn’t bark.

Meanwhile, earnings estimates keep rising.

S&P 500 2026 and 2027 EPS Estimates. Source: Factset

So what happens when we get some good news?

What happens if the IRGC taps?

What happens then?

Does the market make new highs?

Seems like the set-up to me.

Have a good weekend!

And remember. This is not financial advice!