Peter Tchir on U.S. "Warning Shot" to Iran, China Relations & Treasury's Bond Boost

**SPEAKER_1** (0:00)
All right, joining us around the desk right now is Peter Tchir, who's the head of Macro Strategy at Academy of Securities. Thank you, Peter, so much for your time. We have so much to get through. I mean, everything from what Treasury has been doing to the Fed this week and to Iran. I want to start with what we got from Besant yesterday in operation economic outcast. I mean, he stopped short of actually sort of firing the gun on these secondary sanctions. I mean, he kind of issued a warning shot, right? I mean, particularly to China. How far do you think the US will actually go?

**Peter Tchir** (0:30)
So I think on the kinetic side of the war, so the actual fighting, I think we're almost done. I don't think we have any desire to go back. I think today there were announcements we're going to put some people back into embassies in the Gulf States. So I think we're trying to calm that down and require Iran. On the other hand, I can see a little bit what Besant is trying to do is send a warning signal and say you have times to correct yourself.
I honestly don't think this works unless we go hard after China. I don't think we go hard after China.

**SPEAKER_1** (0:54)
Right. So you can't put the economic squeeze on Iran without pressuring China. China came out last night basically saying, hey, look, we're going to retaliate. We know what they could potentially use, what they have up their sleeve as a potential retribution, I mean, rare earths. They could dump treasuries. I know that would shoot themselves in the foot as well. But that's what everyone's thinking about. Right.

**Peter Tchir** (1:13)
It's still the rare earths and critical minerals. Again, not the rare earths and critical minerals themselves. The process and refined versions where China controls about 90 percent of that market. That's our big Achilles heel right now if they threaten us with that. So I think we're going to be very reluctant to do much there. We have Turkey, who allegedly does business with Iran. Guess what? They're a NATO ally. So how much do you press on them? North Korea, Trump seems to actually be trying to get closer to Kim. So why would you put pressure on them? I think this is going to kind of be a little bit miserable and just slow and not really do much. I hope I'm wrong, but that's kind of my base case.

**SPEAKER_1** (1:43)
Oil didn't move yesterday because it was a warning shot. What happens to oil if we do see them pull the trigger on secondary sanctions, particularly on a country like China ahead of a Xi-Trump summit?

**Peter Tchir** (1:53)
I think oil has to go back up again. I think you're going to see pressure where Iran probably lashes out. Again, I think the big fear right now is less about Iran attacking ships in the strait, but Iran actually attacking the Gulf states and hitting their infrastructure. You actually continue to see Ukraine hitting Russia infrastructure. So there is oil is very tight demand. Diesel is very costly. The two things that scare me most are during the first part of the war, China had a billion barrels in storage. They were not big buyers in the open market. They're becoming big buyers in the market. That's upward pressure. The US. Strategic Petroleum Reserve is under 300 million barrels right now. There are questions of how low we can drain that. That we were able to release about 100 million barrels early on. I don't know that we can do that again. So I think we need to just smooth this out and somehow close our eyes and move on. I think that's probably the best outcome right now.

**SPEAKER_1** (2:40)
Moving on to the other ball that Besson is juggling right now, and that is the bond market. I mean, what did you make of Druckenmiller's comments in this Wall Street Journal? That's getting a lot of airtime this morning. I mean, he's calling this a mistake. I mean, he worked with Besson.

**Peter Tchir** (2:52)
So, obviously, we like to never go against Druckenmiller, but the reality is, I think we're gonna have yield curve control at some point. We've been going down the slippery slope from the GFC, where we get more involved. We've had QE, we've had Operation Twist, so I don't think it's this unique thing that Besson pulled out of his hat to, we're gonna buy Treasuries. Now, whether he's gonna be successful or not, I don't know. My concern is he talks about bond vigilantes, and I think internal issues are only part of it. Our deficit's rising, we're not doing much about that. That's a problem. Our issuance is rising, that's a problem. Our structural issues where we are paying so much on interest, it's rising. Away from that, what I think we're missing in his argument so far, global supply is rising a lot. Every single country is now spending more on defense and infrastructure, so sovereign nations across the board are selling more debt. The Middle East used to be a big buyer of US debt. They have less money available to do that. Then finally, you have the AI or the compute trade. There's so much corporate things. I think this is much more about the supply of debt globally rather than a US specific. I think he's going to need a much bigger boat. I think the only real hope that this works aggressively, and when I will get fully on board with this, if I see worse, try and talk about a federal operation twist. The Fed has about $450 billion of treasuries maturing in a year. If they empower themselves to sell that, to buy long dated, then you get a big move. Otherwise, I think this fizzles.