The Daily Morning Brew: Weekend at Bernie's, But It's Geopolitics
Monday, June 16, 2025. The World is Open for Business, and Apparently, Open for Bombing
Good morning, you magnificent connoisseurs of chaos.
Imagine you’re at a very tense, very exclusive G-7 summit getaway in the Canadian Rockies. The agenda is supposed to be about important things like trade and global cooperation. But nobody can focus because, over the weekend, two of the world's most combustible rivals, Iran and Israel, decided to skip the diplomatic niceties and proceed directly to the "launching missiles and drones at each other" phase of their relationship. The price of oil immediately spiked, because it turns out that bombing major energy infrastructure in the world's most critical oil chokepoint is, in fact, inflationary. Who knew? Back in Washington, President Trump, when not vetoing Israeli plans to assassinate Iran's Supreme Leader (you read that right), is hosting a massive military parade to celebrate the US Army's 250th birthday, while simultaneously, "No Kings" protests against his administration pop up in hundreds of cities. It’s a global scene of such profound cognitive dissonance it could give you vertigo: world leaders are gathering to discuss peace and stability while a hot war escalates in the Middle East, and the leader of the free world is presiding over a military parade that looks suspiciously like something you'd see in one of the countries he's trying to sanction. This isn't just a market; it's a surrealist painting come to life, and we're all just trying to figure out which parts are melting.
The SitRep: Your Guide to the Global Dumpster Fire
The weekend news cycle was less of a cycle and more of a Category 5 hurricane of geopolitical risk, domestic tension, and market anxiety. Let's survey the damage and see where the opportunities are hiding.
The Main Event: The Middle East Goes Hot The simmering conflict between Israel and Iran just boiled over. Over the weekend, the two nations traded heavy missile and drone strikes for a third consecutive day. Crucially, Israel appears to have successfully targeted Iranian energy assets, temporarily knocking out a natural gas facility linked to the giant South Pars field. This is a massive escalation. It’s no longer just proxy wars and covert operations; it’s direct state-on-state attacks on critical economic infrastructure.
The Oil Spike: Brent crude jumped as much as 5.5% at the open, touching $78. While it hasn't broken the key $80 psychological level yet, the risk premium is back with a vengeance. The big fear? An actual shutdown of the Strait of Hormuz, the chokepoint for a fifth of global oil, which could send prices to $130 a barrel.
America's Awkward Position: Trump is trying to play all sides. He's urging a deal, stating the US "could get involved," while a senior US official also revealed he vetoed an Israeli plan to kill Iran's Supreme Leader. This is the diplomatic equivalent of trying to juggle nitroglycerin.
The G-7 "We Swear Everything is Fine" Summit: World leaders are gathering in the Canadian Rockies, and the official agenda probably just got thrown in the bin. The focus will now be on trying to contain the Middle East crisis and mollifying Trump. High-level guests like India's Modi and Ukraine's Zelenskiy are also there, presumably to get their own face-time with the major players. Expect lots of carefully worded statements and frantic backstage diplomacy.
The Home Front: Parades and Protests While the world burns, America was treated to a split-screen spectacle. Trump held a massive military parade in DC, a display of hard power that felt... pointed, given the global circumstances. At the same time, large, mostly peaceful "No Kings" protests against his administration took place across the country, with some skirmishes reported in LA. This juxtaposition highlights the deep divisions within the US, adding another layer of political risk to the mix.
The Central Bank Deep Freeze: Against this chaotic backdrop, a slate of major central banks—including the Fed, the Bank of Japan, and the Bank of England—are all expected to keep interest rates frozen this week. With geopolitical risk flaring and growth outlooks murky, no central banker wants to be the one to make a sudden move and break something. This "wait and see" posture will likely keep markets in a state of suspended animation, reacting violently to headlines rather than fundamentals.
China's Economic Malaise & Tech Tensions:
Sluggish Data: Activity data for May out of China is expected to show a continued slowdown in industrial production and retail sales. The US-China tariff reprieve from last month doesn't appear to be providing much of a growth uplift, underscoring the fragility of the Chinese recovery.
Biotech Boom: In a rare bright spot, China's biotech sector is having a moment. An index of China-listed biotech firms has surged 60% this year, outpacing even the tech sector, as Big Pharma turns to China for major licensing deals.
Taiwan Gets Tough: In a significant move, Taiwan has imposed technology export controls on Huawei and SMIC, potentially cutting them off from essential technologies needed to build AI chips. This is a major blow to China's domestic semiconductor ambitions.
Corporate & Commodity Corner:
Adnoc Bids for Santos: Abu Dhabi National Oil Co. has made an all-cash bid for Australian oil and gas producer Santos, valuing it at $18.7 billion. This is a major move by a state-owned energy giant to consolidate assets.
Boeing's Forecast: The aerospace giant predicts airlines will need 43,600 new aircraft over the next 20 years, a massive number, though it's slightly tempered from last year's forecast due to a weaker economic outlook.
Rare Earths in the Arctic? A Critical Metals project in Greenland may get a $120 million funding boost from the US Export-Import Bank, another sign of the desperate, global scramble to secure non-China mineral supply chains.
Google Cuts Ties: In the wake of Meta's massive planned investment in Scale AI, Google is reportedly planning to cut its own ties with the AI data firm, showcasing the intense, zero-sum competition among Big Tech for AI supremacy.
The Week Ahead: Central Banks on Ice
This week is all about the central bankers, who are all likely to do... nothing. But what they say will be everything.
The Fed (Decision Wednesday): No rate change is expected. The focus will be on the statement and Powell's press conference. How do they view the competing forces of flaring geopolitical inflation (oil) and a slowing domestic economy? Their tone will set the market's direction for the summer.
The Bank of Japan (Decision Tuesday): Also expected to hold. The key will be their forward guidance on bond purchases (tapering) and how they view the inflation outlook.
The Bank of England (Decision Thursday): Another hold is expected, but watch for dissenting votes. The UK economy is weak, but inflation has been sticky.
Geopolitical Headlines: The Israel-Iran situation will be the primary driver of risk sentiment all week. Any sign of escalation (or de-escalation) will move markets instantly.
Investment Strategy: A Portfolio for a World on Fire
A Quick Look Back at Yesterday's Core Ideas: Sovereign Debasement Hedges, New Industrial Policy Winners, Private Market Leviathans, Non-Discretionary Discretionaries. Validity Today: The weekend's events have thrown gasoline on these ideas. The Middle East conflict makes Defense and Sovereign Debasement Hedges (Gold) more critical than ever. Taiwan's export controls on Huawei reinforce the Industrial Policy Winners (US tech) vs. losers (Chinese tech) theme.
Today's Core Trades: Your 12-Month+ "Geopolitical Realist" Portfolio
The world has shown its hand. The era of placid globalization is over. Your core portfolio must be built for an environment of conflict, scarcity, and state-sponsored competition.
The "Hard Asset" Imperative (Energy, Gold, & Bitcoin):
Rationale: When missiles are flying and the world's most critical energy infrastructure is being targeted, you want to own real stuff. This means direct exposure to Energy (XLE), which benefits from the war risk premium. It means owning Gold (GLD), the ultimate chaos hedge and flight-to-safety asset. And it means owning Bitcoin (IBIT), the digital, non-sovereign counterpart that sits outside the traditional system being threatened.
Why Now? The risk of a major supply disruption in the Middle East just went from a tail risk to a base case. This is a fundamental repricing of geopolitical risk.
The New Cold War Winners (US Defense & US/Allied Tech):
Rationale: This is a two-pronged play. First, in a world of escalating conflict, demand for premier US Defense & Aerospace (ITA) products is non-negotiable. Second, as the tech war intensifies (see Taiwan's export controls), you want to own the companies on the winning side of the wall. This means the key players in the US semiconductor ecosystem (SMH) who are being protected by state policy, not the ones being targeted by it.
Why Now? We are seeing the lines of the new tech iron curtain being drawn in real-time. You must choose a side.
The "Self-Reliance" Supply Chain (Domestic Industrials & Critical Minerals):
Rationale: The US is desperately trying to re-shore critical supply chains. This means a multi-decade tailwind for US Industrials (XLI) who can build the new factories, and especially for the companies that control the Critical Minerals (REMX) needed to power the green transition and modern defense, like the rare earth project in Greenland.
Why Now? Government policy (like the Defense Production Act) and national security concerns are now the primary drivers of investment in these sectors, overriding traditional economic cycles.
The Chinese Contrarian Play (Select Chinese Biotech):
Rationale: While the broader Chinese economy sputters and its tech giants face headwinds, a surprising pocket of strength is emerging in Chinese Biotech (e.g., KURE). With a deep talent pool and a supportive government, it's becoming an R&D hub for global pharma. This is a niche, high-risk play that offers non-correlated growth away from the main geopolitical battlegrounds.
Why Now? A string of major licensing deals confirms this isn't just a theory; it's happening now, providing a rare growth story out of China.
Today's Tactical Trades: Alpha Hunting in the Crossfire (Short-Term)
Nimble plays on this week's direct news flow. High risk, high reward.
The "Oil Spike" Trade (Long Oil & Gas E&P - XOP):
Rationale: The strikes on Iranian energy infrastructure are a direct threat to supply. While Brent hasn't broken $80 yet, the options market is pricing in a high probability of further spikes. Owning a basket of oil exploration and production companies is the most direct way to get long exposure to this escalating risk premium.
Why Now & Access: A direct play on the biggest geopolitical catalyst of the weekend. Invalidation Catalyst: A sudden, believable, and lasting ceasefire in the Middle East.
The "Flight to Safety" Steepener (Long 2-Year Treasuries (SHY), Short 30-Year Treasuries (TBT)):
Rationale: This is a nuanced bond trade. The Middle East chaos creates a haven bid for short-term, safe government debt (pushing 2-year yields down, SHY price up). However, the resulting spike in oil prices stokes long-term inflation fears, which hurts long-dated bonds (pushing 30-year yields up, TBT price up). This is a bet on a steepening yield curve driven by geopolitical fear.
Why Now & Access: A sophisticated way to play the conflicting market forces created by the weekend's events. Invalidation Catalyst: Inflation fears subside, and the entire curve rallies in a flight-to-quality.
The "Adnoc Arbitrage" (Long Santos Ltd. - STO AU):
Rationale: Adnoc has made an all-cash bid for Santos at a 28% premium to Friday's close. While the stock will gap up, it rarely goes to the full offer price immediately due to regulatory uncertainty. For those with access to Australian markets, this is a classic merger arbitrage play, betting that the deal will eventually close near the offer price.
Why Now & Access: A direct, company-specific catalyst. Invalidation Catalyst: The deal gets blocked by regulators or Adnoc withdraws its bid.
The "Huawei Hammer" Trade (Short Chinese Tech - KWEB):
Rationale: Taiwan's decision to impose export controls on Huawei and SMIC is a major blow. It shows that the US-led campaign to restrict China's access to advanced semiconductor technology is broadening and gaining allies. This directly hurts the growth prospects of China's entire tech ecosystem.
Why Now & Access: A fresh, negative catalyst for a sector already facing immense headwinds from a slowing domestic economy. Invalidation Catalyst: China announces a major, credible technological breakthrough that circumvents these controls.
The Mic Drop: Welcome to the Volatility Regime
And so, we begin another week. The brief, beautiful dream of a "Goldilocks" soft landing, which we savored for about 48 hours last week, has been violently mugged in an alley by geopolitical reality. The market is no longer driven by spreadsheets and earnings models; it's driven by drone flight paths, diplomatic communiques, and the ever-present risk of escalation.
This isn't a temporary state of affairs. This is the new normal. The "peace dividend" that funded three decades of growth is over. We are now funding the "chaos premium." The winners in this regime won't be the ones who can best predict next quarter's GDP. They will be the ones who can best understand the new map of the world—a map defined by choke points, alliances, and the raw, unapologetic pursuit of national interest. Build your portfolio accordingly.
Good luck out there.
Disclaimer: This note is strictly for those who invest with one hand on the trigger and the other on a fire extinguisher. Nothing here is financial advice, legal guidance, or a coherent worldview. If you trade based on this and end up living in a van powered by Brent crude and gold bullion, that’s on you. Markets are volatile, geopolitics are insane, and the only truly safe haven is emotional detachment. Proceed with humor, caution, and a backup plan involving canned beans.