Oil ripped. Warsh said not so fast on cuts.

Transcript

Tom Oil rips, Warsh says not so fast on cuts, and emerging markets just had their best August in two decades. If you're not already awake, buddy, this one'll do it.

Marie Good morning from the New York Edition, August thirty-first. I'm Marie, and with me are Tom, who's already checking his oil futures, and Gerald, who's about to tell us why ninety-dollar crude is a trap. Welcome in.

Tom Ha, Gerald's already got his P-E spreadsheet open, I can feel it.

Gerald You know me, Tom. I see ninety-dollar oil without a supply disruption and I reach for the antacids.

Tom Okay, but let's talk about the actual story: Brent crude topped ninety dollars after the first US-Iran exchange of fire in a month. The Strait of Hormuz is back in headlines, and oil ETFs are already up huge year to date.

Gerald Up huge is right — the U.S. oil fund is up eighty-eight percent year to date and ninety-seven percent above its fifty-two week low. That's not a fresh trade, Tom. That's a crowded momentum chase with a headline catalyst.

Marie But Gerald, the point is the price move is a risk premium, not a supply shortfall. No tanker disruption, no strait closure. If a de-escalation headline hits, those CTAs that piled in could reverse hard. It's a vol trade, not a barrel trade.

Tom See, this is exactly why I'm long energy stocks instead of just crude. The Energy Select Sector ETF is only three percent below its fifty-two week high, and higher crude supports earnings. It's late, but the momentum leg is credible.

Gerald Credible? Buddy, you sounded the same about semis in Q2. But fine, the energy sector has legs if oil holds. Just don't tell me it's cheap.

Marie Only Gerald could turn an oil spike into a valuation lecture.

Tom Right, crowded but trend-supportive.

Gerald Exactly.

Marie That's the whole story.

Gerald And let's not ignore that Exxon Mobil from our London call yesterday is looking smart. That's a nice callback if oil stays up.

Marie Now the Fed: Chair Warsh said inflation is still too high and summer readings haven't convinced him. Stock futures barely budged.

Tom Barely budged because the market already priced hawkishness. But CoinDesk has the most original take today: September rate hike odds are fifty-eight percent, not the ninety percent meme. That gap is the trade.

Gerald No but that's exactly my point — the duration trade is in a vice. The long-term Treasury ETF is ten percent below its fifty-two week high and only two percent above its low. Shorts are crowded, but the hawkish dollar index is near its high. If CoinDesk is right and hike fears are overblown, those shorts could squeeze.

Marie Hold on, Gerald — gold fell three point two percent last session. That tells you the hawkish leg is already working and may be exhausted. So the bear case on duration is priced in, but the upside trigger is a dovish surprise from C P I. It's not a one-way street.

Tom Wait, you're both saying the same thing: crowded shorts, possible reversal. That's a contrarian setup, not a bearish one.

Gerald Look, I'm not saying buy bonds, I'm saying don't short them here. And yeah, the dollar index last session rose point five seven percent — that's real.

Marie Separately, the FSB and Andrew Bailey warned the G20 that AI disruptions can cross borders and new frontier models need controlled release. ChatGPT, Reddit, and Roblox are now very large online platforms under the EU's Digital Services Act.

Tom Let me guess, Gerald, you're going to say this is a non-event for earnings.

Gerald I'm going to say it's a slow burn, buddy. None of this hits near-term earnings, but it widens the regulatory overhang on AI business models. Microsoft-backed OpenAI faces the DSA, and Reddit is forty-six percent below its high. If compliance costs show up, the margin math changes.

Marie See, this is what I mean — the EU designation has no quantified cost yet, and the FSB warning has no enforcement date. It's not a catalyst, but it's the kind of thing that caps valuation multiples over time. Reddit and Roblox are already beaten down, so regulation competes with value.

Tom Okay but here's the flip side: if the FSB is thinking about controlled release, that's actually good for incumbents like Microsoft who can afford compliance. It's a moat builder, not just a burden.

Gerald Fair point, but a moat built on compliance costs is the kind of moat that shows up in lower margins, not higher revenue.

Marie Only Gerald could turn a regulatory moat into a margin warning.

Tom Bloomberg says EM equities are having their best August since 2004, and the rally is broadening beyond AI leaders into commodities. The driver is the dollar-debasement trade, which lifts exporter revenues.

Gerald Yeah, that's great, but the EM ETF is up nineteen point four percent year to date and six percent below its high. The question is whether a record month leaves any room.

Marie No but that's my point — the copper ETF is only three percent below its fifty-two week high, and the dollar-debasement trade is exactly why commodities are moving. It's a structural shift, not just a bounce.

Tom And it's not just China or AI — it's broad. The dollar falling means exporters earn more when they convert, and commodities rally. I'm looking at the copper trade as a clean expression.

Gerald Clean until the dollar strengthens on Warsh. Remember, the dollar index is near its high. So the EM trade has a hedge problem.

Marie That's true, but the point is the dollar-debasement trade is a long-term narrative. Short-term dollar strength is a speed bump, not a reversal.

Tom Speaking of dollar debasement, CoinDesk's US debt metric makes bitcoin's bull case stronger than ever. Bitcoin held seventy-eight thousand through US strikes on Iran, and it's on track for its best month since November 2024 with a twenty-four percent gain.

Gerald And ether is forming a bullish golden cross, which if you squint looks like six bottoms this cycle. But look, the only stated headwind is dollar strength from Fed hike bets, and CoinDesk says those hike fears are overblown. So the setup is long but facing a hawkish test.

Marie Wait — hold on. The crypto trade is long, but if the Fed is actually hawkish, dollar strength could break the debasement thesis. We just said that. So bitcoin and EM are both betting on the same macro, which means it's crowded.

Tom Crowded? Maybe, but bitcoin held through geopolitical stress. That's new resilience, not just liquidity.

Gerald Resilience, or your average crypto bro looking at a debt chart and saying 'this time is different'?

Tom Ha, okay fair, I've said that before. But the golden cross is technical confirmation, and the US debt metric is a real fundamental.

Marie As long as we remember the disclaimer: none of this is investment advice. Just opinions.

Tom Honda and Nissan struck a software deal despite their failed merger, under pressure from Chinese EV rivals and Toyota. FT says it's defensive.

Gerald Defensive is right. Honda trades at six point four times forward earnings and point five three times book. Nissan is four point seven times forward and point two three book, down eighteen point six percent year to date. The deal doesn't fix volumes, but it lowers the cost of software-defined vehicles.

Marie Look, the key here is that China's EV dominance is forcing legacy automakers to share costs. Honda's up one point seven percent last session, so the market gets it. But Nissan still needs a volume story, not just cost sharing.

Tom I think the software angle is underrated. Software-defined vehicles are the next battleground, and this deal gives them both a fighting chance against Chinese rivals.

Gerald As long as it's not another merger attempt that falls apart. Remember the last one? That was peak corporate awkwardness.

Marie Ha — good thing software doesn't have a cultural fit problem.

Tom WSJ reports E.l.f. Beauty, Walmart, and Tractor Supply are plowing tariff refunds into price cuts to chase stretched consumers. Walmart's scale lets it fund cuts and gain share.

Gerald Yeah but E.l.f. Beauty at twenty-seven times forward and Tractor Supply down thirty-two percent year to date face margin risk. Tariff refunds are one-time, but price cuts are permanent. That's a bad trade for the smaller names.

Marie Wait — no, this is exactly about pass-through. The agriculture ETF is at its fifty-two week high, signaling tariff costs hitting food prices. Walmart can absorb it, but Canadian honey producers are feeling the sting.

Tom So the trade is Walmart for scale, and the agriculture ETF for tariff pass-through. Consumers are stretched, and Walmart's price cuts steal share.

Gerald Walmart at thirty-two times forward doesn't exactly scream value, but okay, it's a quality compounder. Just don't call it cheap.

Marie The takeaway: tariff refunds are a band-aid, not a cure. Go with the names that can sustain margin pressure.

Tom WSJ says America's biggest companies are ringing up hefty sales and raising outlooks, while record summer heat burned Europe's economy. That's a clear divergence.

Gerald The Europe ETF is one percent below its fifty-two week high, same as the S&P 500 ETF. But the earnings support is weaker. I'd rather be in US equities on the momentum.

Marie But heat waves are a one-off, not a structural break. Still, the earnings upgrade cycle in the US is real, and the S&P ETF is up twelve point six percent year to date. The US is the cleaner trade.

Tom Nikkei Asia reports EU experts recommend working with South Korean battery makers to cut China risk. Not orders yet, just expert opinion.

Gerald South Korea ETF is up seventy-six percent year to date and still eighteen percent below its high. Lithium and battery tech ETF is up fourteen point eight. But without confirmed orders, it's speculative.

Marie I'm going to push back here — the structural trend is clear: the EU must decouple from China. That's a multi-year re-rating for South Korea, and China large caps at nine point six times trailing are still exposed. The valuation is cheap but the structural demand loss is real.

Tom So the trade is long South Korea, watch lithium, sell China large caps. But keep conviction low until actual contracts show up.

Tom Conviction low, upside high.

Gerald Exactly.

Marie Spot on.

Marie But the most original take today is CoinDesk's: September Fed rate hike probability is fifty-eight percent, not ninety. The gap between headline fear and derivatives-implied odds is the trade. As that gap closes, bonds and bitcoin should recover.

Gerald That's a single number versus a crowded narrative. I like it, but the risk is that Warsh is actually hawkish and the market is right. If September C P I comes in hot, the fifty-eight percent jumps.

Tom But that's the point, buddy — the probability is already in prices. Futures barely budged. If inflation cools, the crowded short in bonds squeezes hard. That's an asymmetric setup.

Marie Our view is that today's tape is a tug-of-war between oil and the Fed. Oil is up on a headline Hormuz flare, not barrels lost. Duration is already priced for pain. Against that, EM is up and bitcoin held through strikes. Risk appetite is surviving on dollar debasement and liquidity, not earnings or peace.

Gerald But here's the bear case: oil at ninety is a risk premium, not a supply event. No strait closure, no tanker disruption. A single de-escalation headline would unwind CTAs. Warsh's hawkishness is already in prices. And gold fell three point two percent last session, so the hawkish leg may be exhausted.

Marie Wait — that's exactly our view. You're agreeing with us, Gerald. The cleanest cross-cutting expression is long oil volatility rather than long oil, because an unresolved Hormuz trigger buys exposure to both de-escalation and escalation tails.

Tom And in food, the agriculture ETF's fifty-two week high flags tariff pass-through that consumer staples haven't fully priced. That's a hidden opportunity.

Gerald You two are turning me into a perma-bull. But fine, long oil vol, watch food inflation, and don't fight the dollar debasement trade.

Tom That's the trade.

Gerald Yeah.

Marie Nailed it.

Marie If you're just finding us, hit follow on Spotify or check investmentflash.com for the full digest with charts and sources. And as always, none of this is investment advice.

Tom We're back tomorrow, London Edition, seven-thirty a.m. London time. Tom, Gerald, Marie — stay bright, stay invested, and keep an eye on that oil volatility.