MacroVoices #531 Louis-Vincent Gave: Semiconductors, AI & Iran Conflict

Louis-Vincent Gave argues that equity markets are ignoring the Iran conflict because WTI crude near 100 to 110 dollars has not yet reached the 120 to 130 dollar threshold where real economic pain begins. The oil forward curve six months out is pricing around 80 to 85 dollars, implying the market expects the Strait of Hormuz to reopen, a view Gave calls dubious. Iran is currently earning approximately 2 million dollars per ship transiting Hormuz, with roughly 100 ships per day, generating toll revenue equal to approximately 20 percent of Iranian GDP. Iran has also shifted from selling half a million to one million barrels per day at a 20 dollar discount before the conflict to an estimated one and a half to two million barrels per day at 120 to 130 dollars, leaving Iran in a stronger revenue position during the war than before it.

Gave estimates energy market buffers will run out by early June, and that even an immediate full reopening of the strait would not prevent that exhaustion because ships take six weeks to reach destinations. He predicts May remains manageable but failure to resolve the closure by end of May sets up a very bad summer. The forward curve is pricing a reopening that Gave says is not happening, and he sees no genuine US diplomatic effort to resolve the situation. He compares US demands to Versailles 1919 terms, noting Iran does not believe it has been defeated, and that both sides view the other in Manichean terms that make genuine compromise very difficult.

The disruption extends beyond crude oil to natural gas, fertilizer, urea, and helium. Gave argues the broader strategic lesson is that the era of relying on the US Navy to patrol sea lanes is over because drone warfare has made ocean control impossible. He cites India holding 700 billion dollars in US Treasuries yet being unable to convert those holdings into fertilizer from China as evidence that financial reserves no longer guarantee physical commodity access during a conflict. China officially holds roughly 1.3 billion barrels of oil in reserves but Gave believes the actual figure is closer to 1.8 billion barrels, more than the rest of the world combined, while Korea holds less than one week of natural gas in storage compared to China's more than 50 days. Over a six to eighteen month horizon, Gave argues the structural incentive for every country and company to build commodity inventories will create a persistently bullish backdrop for commodities.

Semiconductors rallied more than 30 percent in April, driving the S&P 500 to new all-time highs, even as energy stocks fell 2 percent in the same month. Gave finds this divergence puzzling because an energy crisis should worsen the electricity supply constraints already limiting AI data center buildout, yet the market is pricing the opposite. His explanation centers on a potential US-China deal rather than pure AI enthusiasm. Trump needs China to supply rare earths to replenish depleted weapons stocks, needs Chinese solar panels for the domestic energy buildout, and wants a renminbi revaluation, while China wants access to ASML and Tokyo Electron lithography machines and high-end chips. Gave acknowledges this interpretation is speculative, and notes that Chinese equity performance, with Alibaba, Tencent, and Baidu down 15 to 20 percent year to date, has not confirmed an imminent large deal.

Gave draws a parallel between semiconductors now at 17 percent of the S&P 500 and energy stocks that peaked at 16 percent in 2008 before rolling over as the financial system deteriorated, warning that cyclical capital-intensive businesses should be sold at low price-to-earnings and high price-to-book ratios, which is roughly where semiconductors sit today. His only position in the space is Samsung Electronics, which he notes is expected to be the most profitable company in the history of capitalism this year.

The renminbi has appreciated approximately 6.5 percent over the past 12 months in a departure from traditional Chinese central bank behavior. Gave believes the renminbi is severely undervalued, that Treasury Secretary Besant has explicitly demanded revaluation, and that both sides want a higher currency, making this the most aligned foreign exchange policy position between the US and China in recent memory. He predicts the renminbi could rise 5 to 8 percent per year for the next three years, and that structural confirmation of this appreciation would rotate Asian savings currently in Mag 7, Bitcoin, and gold into Asian yield assets such as PetroChina and China Mobile, which offer roughly 6 to 7 percent dividend yields that combined with 6 percent currency appreciation would produce approximately 12 percent annual returns.

Patrick Ceresna expressed the commodity stockpiling thesis through a January 2027 thirty-dollar strike call option on the Invesco DB Commodity Index Tracking Fund, ticker DBC, trading around three dollars with DBC near 29.80, using options to define downside risk given that a credible peace deal could trigger a short-term pullback even if the broader thesis remains intact. Ceresna predicted another cycle higher in crude before the conflict ends, and that when the strait reopens crude will initially fall sharply but longer-dated contracts will face buoyancy due to logistical problems and inventory replenishment that could take much of the year to resolve.