Summary

JP Smith opens by asking David Woo what has most changed in his thinking early this year. Woo says he expected 2026 to be dominated by Trump’s domestic economic stimulus agenda ahead of the midterms—fueling “Trump stimulus trades” like small caps and high yield. Instead, he was surprised by what he sees as a pivot toward foreign policy (e.g., moves involving Greenland), which he interprets as Trump “waking up” to constraints on domestic levers.

Woo argues two constraints are central. First is the Federal Reserve: he suggests Trump is increasingly aware that he may be unable to force easier monetary conditions, especially if Jerome Powell remains influential even after his chair term ends, limiting Trump’s ability to reshape the FOMC. Second is the Supreme Court and legal uncertainty around tariff authority. Woo highlights a proposed “tariff rebate” (e.g., $2,000 for middle-income earners) as politically powerful for Republicans, but says congressional Republicans are reluctant to act without Supreme Court clarity—and delays could collide with the campaign calendar, narrowing the window for legislation.

Smith probes the tension between equities and bonds—lower short rates versus higher term premia—and whether Trump understands the trade-off. Woo thinks Trump “gets it” but has limited control. He notes that market moves haven’t always aligned with simple narratives about Fed-chair candidates. Instead, Woo shifts the focus to a broader structural story: the weakening of the rules-based international order and its implications for US assets. He argues foreign demand for US Treasuries is becoming more price-sensitive because non-US holders perceive rising “political/credit risk” as the US uses power more aggressively abroad (he cites the Venezuela episode as emblematic). In his framing, this erosion of trust, rather than Fed personnel, helps explain why long-end yields stay elevated.

Smith asks whether this resembles last year’s dollar decline after geopolitical shocks. Woo says Trump is not necessarily aiming for a weaker dollar, but the dollar’s reserve role was the “reward” for US stewardship of the global order. If the US withdraws from that role—because its dominance is less total and it is repositioning against China—then reduced reserve status becomes the “price.” Still, Woo thinks the US may be overestimating its leverage, and underestimating “middle powers.”

A major through-line is Woo’s thesis that Canada, the UK, and the EU may coordinate to fill the vacuum and regain bargaining power by selectively moving closer to China. He points to a sequence of high-level outreach and trade moves as evidence and argues this could provoke Trump into escalation—potentially the biggest near-term market risk because it would be harder for him to “walk back” than broad, non-targeted tariff threats. Smith raises the difficulty of reallocating away from the US given weak alternatives (Europe’s politics, China’s debt), but Woo emphasizes that markets may still shift if the geopolitical rift deepens.

Woo then turns bullish on RMB, citing China’s incentives to appear responsible and address global imbalances; he views China’s removal of solar export rebates as a significant signal. Smith asks whether China might reduce support for Russia to improve ties with Europe. Woo argues Trump’s actions have diminished Europe’s focus on China’s Russia links because the US is now perceived as enabling outcomes favorable to Russia; he also claims Europe may seek to obstruct peace terms that would leave it bearing heavy costs of Ukraine’s future.

On positioning, Woo describes rotation out of bonds into equities under “fiscal dominance,” but warns that a real US–Europe rupture could finally deter dip-buying US retail flows. He discusses shifting correlations (including gold) and says the key downside risk to gold is an equity drawdown. He is positioned short Nasdaq, long curve steepeners, long a 10-year Treasury straddle, and has a gold call spread.

Asked about NATO, Woo says the “NATO card” is weakening as Europe ramps defense spending. He warns the market underprices the scenario where Trump believes midterms are lost and shifts to legacy-making, more irreversible actions. Finally, he flags Iran as an even larger crisis risk than last year, arguing US pressure on Iran’s oil exports triggered economic-driven protests and that China’s strategic stake (including an emerging China–Iran rail link) raises the odds of a sharper confrontation; he is long Brent. The call closes with Woo noting Microsoft’s earnings as a near-term catalyst, his bearishness on AI, and his bullishness on India as underowned despite strong growth, before briefly describing his institutional research service.

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