[00:00:00] Jacob Shapiro: Hello listeners, welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. Joining me on the podcast today is maybe the most impressive guest we’ve had thus far in the entire podcast series.

Her name is Sana Kamal. She was a journalist in the Gaza Strip. She is currently in Cairo, in Egypt, working to get, she’s gotten some of her family out of Gaza. She is working to get the rest of her family out of the Gaza Strip. If you’ve been with me for a while now, you know that when the October 7th Hamas attacks on Israel began, we put out a lot of content.

We got a lot of different perspectives, Israeli perspectives, Egyptian perspectives from all sorts of people in the region and analysts everywhere, but I could not find a Palestinian voice to come on the podcast. Either people were unwilling to come on because they didn’t know who I was and they.

They had a understandable suspicion of going on a podcast with a guy whose name is Jacob Shapiro. Or internet did not, was not reliable. When the Israeli government, as it continues to attack the Gaza Strip, but as it was attacking the Gaza Strip, it was almost impossible to get to people via the internet or even via cell phones.

So it was really impossible. I had a couple of recordings set up here and there that just totally fell through the cracks. But Sana finally made it to Cairo and she reached out and said she was safe there and that we could do a recording. And I was so proud to welcome her on. There’s no political valence here.

I just wanted Sana to be able to tell her story. Her family is also in pretty dire straits. We’re going to put a link to the GoFundMe that is there so that she can try and get the rest of her brothers and their children out of the Gaza Strip. If you would like to donate some money to that after listening to this, feel free.

I’m going to donate myself. But the thing that struck me the most about this conversation, number one, it’s an authentic Palestinian voice. This is somebody who has lived in the Gaza Strip her entire life, who is proud of being from the Gaza Strip. And I was struck Sana and her family have been through so much, their homes destroyed, lost all of their physical possessions luckily, I mean it seems like nobody has been seriously hurt or wounded, but some of their family still in harm’s way there.

And yet, she still believes in the possibility of peace. And she still condemns both Hamas and the Israeli government for the things that they are doing to each other and the way that they are hurting innocent people. She says on the podcast about how she has no problem with the Israeli people. She has problems with the Israeli government.

And she reiterated that to me, even after we stopped recording and for all the things that we think are wrong in the world and all the problems that all of us have, that somebody who is in Sanaa’s position still has the resilience and the faith that people are ultimately good, that her people are good, that Israeli people are good, that Christians and Jews and non believers and all these other people are good and that the problem are governments and people who are using those people to their ends.

Just a remarkable display of resilience and optimism. And I hope clear sighted thinking about what is possible in the future, because if Sana’a has not given up hope none of us should give up hope either. Sanna, thank you for taking the time. Thank you for allowing us to listen to your story. Listeners, this is a little bit different than what we normally do here, but I haven’t found a more authentic, more true voice about what’s going on from a Palestinian perspective than Sana’s and I was happy to give her the platform and let her talk about her story here.

We will continue to bring more perspectives and more things from this war as it unfortunately continues because it’s here. It’s April 2024 and what began last year in October continues on and it doesn’t seem like there is an end in sight. So enough preamble for me. I want this to mostly be about Sana.

So thank you for listening. Take care of the people you love cheers and see you out there.

Sana, it’s I’m sorry that we have to get together under these circumstances, but I wanted to use the platform such as I have it to allow you to tell your story. Why don’t we start at the beginning? How has your life changed since October 7th? Where were you on October 7th and how have things changed since then for you?

[00:03:47] Sanaa Kamal: Yeah, actually, thank you for your opportunity to let me let me tell my story. Telling my story for your audience that I am sure that I’m respecting all of them, mainly the humans that collect all of us around the world. Either we are Arabs, Europeans, Muslims, Christians, or even Jewish people.

Actually, before October 7th I’m a Palestinian journalist who lives inside inside Gaza. I live my life as well as any other independent woman who has her own life mainly because I’m a famous journalist at least in my country and in my area. And I like my life because it was simple, easy, and has a lot of details that I really loved loved things.

Starting from my morning and the morning when I start my talking. And then drive my car throw them the beach or the beach road until going to my office and spend there about at least eight, eight hours every day in my journal 30. And then when I back to my home and eating my lunch and.

My family it’s everyday I have my own routines, but after the observer students, all my life has changed, really. Mainly when I remember that when we heard the heavy explosions and the heavy rockets that launched from Gaza. At Israel, at the first moment, we didn’t realize what happened around us.

We only talked, and we only were afraid about what was happening, and what was happening around our aid, because it was around my house. Later, I know that the rockets were around all the Brazilian houses, from all the Gaza Strip. But to be honest, at the short moment, I think and I believe that we will be punished, heavily punished by Israel because it was the first time that we had such amount of rockets at the Israel, merely as we didn’t even know that we were about such about such rockets that would launch from Gaza.

Since then, I declared the emergency of my life because I know, as a journalist, that Israel will not stay or keep silence. It will definitely attack Gaza. Mainly, it will definitely attack all people. The buildings may be belonging to Hamas, to the government in Gaza, but I didn’t know that Israel will attack also the civilians buildings and residential houses and even the towers over the heads of the people.

I stayed at my house just for four days until the Israeli army ordered all our neighborhood to evacuate the area to attack the Islamic University. By the way, I lived inside the Islamic in the same area of the Islamic University, but later, the next day, when we come back to our area, My, my brother and I were shocked from the amount of the destruction that lived in our area.

Our area completely was destroyed. Completely. We talked about hundreds of residential buildings, hundreds of houses private houses, hundreds of shops. of the of supermarkets, and of of everything. Suddenly, we lost everything in our area. And then the Israeli army ordered us to evacuate the Gaza city and to go to the southern part of Gaza city.

To be honest, our trip, the displaced trip, we didn’t know what to do. What will happen? All the time, my mom, by the way, she’s an elderly woman, asked me, Stella, what will happen? I told her, I don’t know my mom, but I hope that we will back soon. We will back after one day or two days. All the time, I told my mother that we will back to our house maybe after a few days, maybe after the next week, the next month, and et cetera, until now.

I don’t know. I don’t know if we will back together someday or not either. I’m, I was putting in the corner. I don’t know what should I do really. Mainly when I hear that my brothers, the five of my brothers after one week, the first one lost his house and the second one after that, etc. Until we lost all our houses.

Six houses, including my bro, brother, he grew he was a groom. He lost everything in his new house. And all of us then I moved to the southern part of of Gaza. We lived we rented a house there by 1, 000 monthly. And, yeah, and we don’t have a lot of money, but I was forced to do that just to keep my family inside house and not let them to stay or to live inside a tent because the situation would be catastrophic for my mom.

She cannot do that and she will not such situation for me. All the time she cried about her situation and about her sons and also about her daughters. But I decided to take the matter by my own hand and to leave my family, all my family. Maybe because I’m a journalist and have some relations inside Gaza and even because I was the only one for my mom.

I don’t know. who is still working and who can get some money that would help my family and my brothers also to get some food. We stayed in the displacement in Dharavara for two months until the owner of the house told us that he needed, because his brother lost his house and he needed food.

Later then we moved to Rappa also. And Rappa, we lived for a month in another house, rented house. But I built there $1,500 a month after that there Israeli, the army attack the house near us which partially destroyed the house that we lived there, and my mom wanted during that attack.

Then we decided. We tried to find another house, but we didn’t find because the Rafah became the only house, it became housing about 1 million and 500, 000 people. So then we decided to live inside a tent. And really, living inside a tent, like living in the hell.

Because even you don’t have any privacy there. Sorry to say that, but when you would like to use the toilet, you can not do that because you, all the time you, you feel all afraid that maybe the people will hurt you inside the toilet. And another thing I would like to mention is that for five, seven, seven months in a row, we have never take our shower in clean water.

For the seven months I soaked my shower with wet water and unheated water. As an emergency in my life that I adopted during the war inside Gaza, that I have to decrease the meals, my daily meals. I only ate once a day. Only one meal a day I can eat. Because I don’t like to use toilet. In addition, I don’t have a lot of food and we have children, so we prefer to let our children to eat instead of us, as as all the parents.

In addition in the latest two months, or four months, the latest four months, we have never find any food, really. Even if we would like to have some parent food, we have to pay. A lot of money. For each meal, we have to pay about 60 each meal. And I remember that the first time that we found seafood, fish, and chicken to eat, I had paid about 500 just to make maklouba.

It’s a traditional Palestinian Palestinian food. Yes, we had, we made about Can you imagine such amount of money? No, I can’t. To be honest, we have been left alone inside this war. We don’t know what, what was happening for us and how we can manage our catastrophic situation. And even we don’t know the time of the ending of the war.

I’m talking now, not as a journalist only, but also as a woman who lives inside Gaza under the Israeli Assad, or under the Israeli Hamas law to be honest, to be accurate in our definition. It’s Hamas and Israel’s law.

[00:14:42] Jacob Shapiro: And now you’ve, you at least yourself personally have made it to Cairo. How did you get to Cairo?

How difficult was that process?

[00:14:50] Sanaa Kamal: Oh, it’s a complicated process. Starting from the amount of money that I had to pay for a company that is in Cairo. I had to pay 20, 000 for this. Somebody just let four people, four persons, my mother, my brother, sister, and I to leave Gaza. Such amount I, to be honest, I sold my purse and my gold gold accessories.

This is the only thing that I had inside Gaza to collect the money and to can cross the road and come here to Egypt. In addition, when I came here to Egypt, for, I don’t know, until now, every night, in my dreams, I can’t see the nightmares. I’m still seeing nightmares here in Egypt, and all the time I feel that I’m still inside Gaza.

I’m grateful. A lot of executions around me and around my family and like that. The situation is very difficult. In any case, we really get hurt. Our names reverted to our fathers from Gaza to Egypt. We have waited. We waited about 30, 33 days. But can you imagine? When you Here, the explosions, or here the Israeli attacks around you, and you are waiting your land to come back from Gaza, to leave Gaza, all the time.

You are thinking about the dish, only about the dish, and you will never leave Gaza. All the time you put yourself under the pressure that you will never leave Gaza, and you would have died There are several thousands of people who live inside Gaza. And when we, when I saw some names who were registered the names to, to travel from Gaza and being killed inside Gaza by Israeli army you I was under the pressure and I was very afraid, not because of myself, because I’m alone, but really because I was about my family and if they will haven’t any strong person or or a person who has some relationships with outside of Gaza that can help them to evacuate Gaza.

To be honest, I decided to evacuate my family from Gaza when I saw all the other girls here now. When I saw that all the negotiations between Hamas and Israel were failed. And none of them, neither Hamas nor Israel would like to have a ceasefire soon. Or none of them, both of them are lecturing about the civilians inside Gaza.

And both of them are not about the future of the civilians who are suffering all the time. They only would like to win their war without having any solutions for the civilians. And as you can see, without separating, merely Israel doesn’t separate between civilians and between militants. It only attacks all of, all the Virginians.

And this is The most dangerous situation inside Gaza, that even if you are innocent people, you don’t have any guarantee to not being attacked by Israel. Landon my, our nephew, asked me, my aunt, why we should stay here in Gaza? Why we should live here? I would like to continue my education. So we understand, these were Hurt me a lot and I cried because I felt that I’m a weak woman and don’t have anything in right to hold my family inside, gather maybe my career or afford me to stay each other, but my family, I cannot, and I haven’t the right to hold them with me hearing that I have to do and to get, to start my therapy, check to evaluate all of them.

Yeah.

[00:19:30] Sanaa Kamal: I decided this only a month ago, or after, yeah, a month ago, maybe 35 days before I left Ghana. So the situation there was very terrible, and I think that our children, our people, should get to live, not to live under such bloody walls.

[00:19:56] Jacob Shapiro: What is your status in Egypt and your family when you get them out of Gaza? And I hope you get them all out. What is your status? Do you worry about getting forced to go back to Gaza? Has Egypt recognized you as a refugee or is there some sort of asylum process? Is that another stage of the nightmare?

Or at least once you get to Egypt, can you think about trying to rebuild?

[00:20:19] Sanaa Kamal: Yeah I believe that Egypt is my safest place to go to see and safe place. This is the only thing that I’m thinking about right now. But remember, Egypt is done now. It will not recognize about of us as refugees. Maybe later, or my second step that I, maybe I can help my brothers, mainly those who have many children, to migrate to European countries, to other Arab countries, that would recognize them as refugees.

Because, here in Egypt, the situation is not very good for the Palestinians. Work to gain some money and to make, and to have a source of income. Mainly, as most of the Egyptians, people really are suffering from the low incomes here. But on the other hand, I think that if Egypt would I think we will stay here.

Egypt is a beautiful country, and it’s a big country for Palestinians. We live in an area, a small area, a very crowded area, that hasn’t exceeded 360 kilometers squared. Here in Egypt only the roads you can walk, when you walk on them, you will find the road maybe longer than Gaza Strip.

Like that. And actually, but the basic thing, and the most important thing for me here in Egypt, is because I’m talking with other people, my fellow seniors.

So when I talk with people here in Egypt and they ask me, are you from Gaza? I told them yes, they hugged me, a lot of people hugged me, and some people really cried over our situation in Gaza, and this, and such such people It really hurts me to cry, because it’s not easy for you to be as a poor person, and as a weak person, and someone who needs the help.

It’s not easy for you. Maybe when you have your own stability situation, and when I came to Egypt before the war, when I made the military journeys to Egypt all the time, I tried or really I am, I exported the the image of my country that we are strong people, that we are educating people, that we are rich people, not like the media who saw know all the time we talk about.

Our poverty, about our bad situation, about that, all the time, I put myself as an ambassador of the Golden Visitor of my country. It’s when someone hugs you, and tries to console you, I feel very bad, because I don’t like to do this. To appear on such situation? No, I would like to say as journal or the ambassador of her country and of her city it’s, no, I can’t say that everything here in Egypt is mixed.

You cannot imagine what would happen. The only thing, as I told you that now I’m thinking about is how. to bring my family and to bring my father in a safer place. Only this. But after the Israeli war and the war between Israel and Hamas ends in Gaza, I can’t decide. But definitely my family will not go back to Gaza.

Because at least we will have 10 years just to remove the, from Gaza. And we have children. They have To join a

[00:24:39] Jacob Shapiro: better education life, I think. Any hope for peace between Israel and Palestine after this? Do you think it’s Yeah,

[00:25:00] Sanaa Kamal: I would like that. Really, I would like that. Because Palestinians, Palestinian people are not loving the war.

They really, people, they are people who like the peace, and who like to live in peace. You’re overkill. I hope that we can have someday a peace with Israel, because for me, as a Palestinian, and also as a journalist, it’s better for Palestinians to have a peace with Israel rather than, and to have normalization, or they

have to

[00:25:38] Sanaa Kamal: normalize their relationship with Israel rather than Turkey, or any other country, because we live inside Israel.

In any case, as a Croatian, we know and it’s all the world knows that Israel is an occupation country. As an occupation country, it’s better for us as Palestinians to live with them. Not only to live all the time with the wars between us and between them. I know that we have many people inside Israel, to be honest, also.

I’m letting all people inside, people who can’t hear us, Who doesn’t who don’t accept what the Israeli government is doing now. And they against Netanyahu. Because as we have some people who are against the radical men or the radical persons in Hamas, we have another persons in Israel who are against Netanyahu as a radical mass.

If we put the two people, Israel and the Palestinians, I think they will have a peace. And both of them, they will respect themselves as a human. At least as a human. I don’t like the politicians. So I think, yeah, I hope so. I hope to find, or to reach that time that would have peace between Israel and between Gaza.

Palestine, not Gaza, Palestine.

[00:27:16] Jacob Shapiro: Yeah, that’s an incredible answer considering everything that you’ve gone through. What is your perspective on Hamas? Was Hamas? Do you feel that Hamas is split into different wings and that some want the war and some don’t? Do you feel like Hamas is an obstacle to peace?

Do you feel like Hamas is defending Palestine? I’m just curious how do you feel about Hamas and how did you feel maybe before October 7th, and has that changed at all now?

[00:27:42] Sanaa Kamal: To be honest, before October.

A lot of good news and a lot of people who have who have a great mind, really. And most of them, they have they are educated persons and have high certificates high degrees of certifications. But really, who took the decision to start the war, for sure. I’m against him because he plays even with his fighters inside Hamas.

As a Slovenian, I would like and I would prefer to enlist in such people to rebuild or to building our country economically in Australia. Everything that would have a good future for our people, not the death and not the war and not the suffering. But the person who decides to launch this war for truth, I’m not with him.

Even if he, as Hamas says, that Israel who pushed or forced the JLM to do that because it hasn’t left its blockade against our people. I’m going with it. I I believe we live from time to time, but if we put the negative consequences of the world beside the positive consequences of the world, then we will find only we have negative consequences.

This is as a Palestinian.

[00:29:37] Jacob Shapiro: As a journalist, do you think there is any external pressure that can be placed on both Israel on this Israeli government and on Hamas to stop the fighting? Or is that just hopeless?

[00:29:48] Sanaa Kamal: Yes. As a journalist, I think so, because Hamas now has external pressure from the Venezuelan people just to to relieve to ease its It’s the conditions of the negotiations with Israel.

On the other hand, the pressure is often to think about the people, the innocent people in Gaza. And meanwhile I believe that Israel is me, Merlin Netanyahu now is living under the pressure, and they’re gonna appreciate a problem. The Israeli people who asked him all the time to have or to accept the swap deal with Hamas and now to release the hostage.

By the way, all the time, even in the United States, when they talk, when they speak about the situation in Gaza, they only speak about the hostage. The, who remains now in who remain now still now inside Gaza, I think 130. About out of them, there are 70, at least 70, were killed during the Israeli attack.

But none of the European countries are registered. Really hits us as Palestinian people. None of them are thinking and caring about the 2 million, or more than 2 million Palestinian Hussein’s inside Gaza. All of these people are people and they are innocent people and they are, they have never involved in any military activity.

Jacob, when you come to Gaza, you will find that because I worked with dozens. of the foreigners foreign journalists who came to Gaza. Really, once the journalists came to Gaza and meet me, and then when I let him or her to meet our people inside Gaza, the only word that I heard for many years, Oh, Shana, the people, the Afghan people here are so kind.

They are innocent people. They are loving their life. They are generous. They are, they have a lot of good things and manner inside your country. You are lucky there because you live in this area of gaga, these things. None of the European people know that because they only. Here, about us as the as American people who have, who carry the weapon and just would like to kill the Jews or the Israeli people, it’s totally not the truth.

Totally. The truth inside Gaza that most, we are, I’m talking about 95 percent of Gazan people would like to live in this country. And they don’t like to involve in any other wars with Israel. Even after this war, and when this war ends, the people really, I swear, I did dozens of hundreds of interviews during this war.

The only words that the people, my people, and I’m so proud to say my people, the only words of my people, were that What was told to us, we will manage our life and we don’t want any other world. Would kill our our children or would destroy our life once

[00:33:25] Jacob Shapiro: again. Yeah, I will invite you to bring, and I will

[00:33:35] Sanaa Kamal: invite you to English at our place because we have a drink.

And the most beautiful beach in the world. I know that because, to be honest, Jakob, all my foreign colleagues who came and who visited our Gaza, they told me, you have a great beach. I really miss it. As well as I miss my destroyed house, but I miss my beach because, just to make our sea inside Gaza, you will take care.

fresh air and when you breathe it inside your body you feel that you own all the world. Really like that. It’s not only just like a place. No. I don’t know but the people who live and who grow up on the beach and on the coast coastal areas, only we can recognize and we can about how I can, how can I, um, abandon our feet.

You don’t know how, but I swear, when you’re visiting Gaza, I will invite you to Masruba and Mansa. We like food, really.

[00:34:55] Jacob Shapiro: I know. Sana, you’ve been so generous with your time. Is there anything else you want to say to the listeners before we say goodbye?

[00:35:03] Sanaa Kamal: I said I would like to tell the people around the world that the Palestinian people are not fighters and they are not criminal people.

They’re only innocent people who would like to have their own peace life. And all the time, we are struggling against all these The bad situation just to build our future based on our our conditions and our private conditions. But we will. We Braves would like to have a piece

[00:35:46] Jacob Shapiro: that would allow us to rebuild our life inside Gaza once again.

so much for listening to the Cognitive Dissidence podcast brought to you by Cognitive Investments. If you are interested in learning more about cognitive investments, you can check us out online at cognitive dot investments. That’s cognitive dot investments. You can also write to me directly if you want at jacob at cognitive dot investments.

Cheers and we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.

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The post 196 – Sanaa Kamal: A Voice from Gaza appeared first on Jacob Shapiro.

Transcript generated automatically by Descript.

[00:00:00] Jacob Shapiro: Hello listeners, welcome to another episode of Cognitive Dissidence. As usual, I’m your host, I’m Jacob Shapiro. I’m a partner and the Director of Geopolitical Analysis at Cognitive Investments. Joining me on the podcast is Yaroslav Trofimov. He’s the Chief Foreign Affairs Correspondent at the Wall Street Journal.

He took some time out of a very busy travel schedule to talk to us about his new book, Our Enemies Will Vanish, The Russian Invasion. and Ukraine’s War of Independence. We didn’t go as long as we normally go for episodes because Yaroslav was literally about to go on stage to an audience in Berlin.

So we got about 35 40 minutes with him and I thought it was worth it. The book is excellent if you’re looking for some good reading about the conflict and about both the heroism of Ukraine’s defense but also the significant cultural and societal changes that have happened in Ukraine in such a small amount of time.

His book does a really good job shining a light on all of that. I found the book to be very optimistic about Ukraine’s prospects and Yaroslav, as you’ll hear on the podcast, is very optimistic. I’m a little pessimistic based on how things have gone recently, but he makes a compelling case that the long term picture looks better for Ukraine than maybe the short term pessimistic future looks.

So I was happy to hear that message and the book is extremely well written and extremely well developed and I thought Yaroslav was convincing, especially with some of the things he said about Zelensky in the context of the conversation. So Yaroslav, thank you for making the time. I know that your schedule was compressed.

Listeners, first of all, go buy his book. Second of all, leave us a rating or a review. Third of all, email me at jacob at cognitive dot investments. If you want to talk about our wealth management services or our research and consulting services, or you’d like me to speak at whatever audience or event that you are hosting, take care of the people you love.

Cheers and see you up.

Some of you can see this on YouTube, but most of you can’t see that Yaroslav has dressed up just for us. Not really. He’s on his way to a speaking engagement and he’s spending some time with us beforehand. Thank you for taking the time. Thank you for having me. So we’re going to have a link to the book in the show notes, all that other good stuff.

And I thought the place to start with, and I try to do this with most authors who come on the show, is just tell us a bit about yourself first, because I think it’s important to know who the person is behind the book and where they’re coming from. So just give us a brief sort of introduction to who you are and how you ended up writing this.

[00:02:10] Yuroslav: Sure. Great to be on the show. And I’ve been covering wars and mayhem for the Wall Street Journal for the past, 23 years, since 9 11. And I was on a plane to Cairo the day the two cars got hit, and then end up in Afghanistan, Iraq, and, pretty much covered every war ever since.

And all that were wars in other people’s countries, because I was born in Ukraine, I was born in Kiev, I was a terrorist as a child. And, Kiev was always, had a very special place in my heart. And I didn’t really cover Ukraine in my professional career until, a few years before this full scale invasion began.

And coming back to Ukraine in January, 2022 being there as it became more and more clear than the war was inevitable and then staying there and covering the conflict was very different experience, obviously I could use all the all the experiences that, covering conflict that I’ve gathered, in my previous careers, I knew how to behave in the fire and I knew what to do but emotionally, of course, it was very different because, if it’s a city where you have every piece of geography has a sentimental value to you, because you remember, we had your first kiss where, first ice cream when, when your mom took you to see your doctor.

And all of that suddenly is becoming a battlefield. The bombs falling on the gardens of your memory. That’s very traumatic. And it was very different, but also I think pushed me to do things that I wouldn’t have done otherwise because my risk to reward ratio was changed.

And would go and seek out the ability to witness the war at the very edge of the front line in places that were more dangerous than I would otherwise go, because I felt I had a mission as someone from Ukraine who had this background and this platform, being able to write as a chief affairs correspondent for one of America’s and the world’s, most important newspapers.

And at the same time Knowing the audience and being able to convey this story to the audience in, in, in comprehensible terms. And at the same time understanding the Ukrainians, speaking languages, the Ukrainian and Russian and campaigning sort of fingertip feeling for the situation.

And so I think that’s really helped me in the articles and that also drove the book because the book is really part word travel log. Part trip kind of reportage, but it’s really me going from KF to all the other pivotal points of the first year of the war, which is the most important year of the war now, the year three and being I think one reviewer called it like camera, very cinema, very tech.

Sort of, camera, the lens of the reader. And I was trying to stay away as much as possible from the story myself. I just introduced the reader to the key characters the interesting people their emotions, their lives, what’s driving them. And, and also explain that and not only show that, these are people that are very similar to you and I, who have had the same ambitions, the same desires, the same plans for life before this war caught them before they were caught in the middle of this war.

And that had to make very difficult choices and some were heroes, some were cowards some were something in between and nobody knew how they would behave once it happened because none of us knows how we’ll behave if we are thrown in this sort of

[00:05:21] Jacob Shapiro: circumstances. Did you do much reporting in 2014 or I’m just curious if there was any sort of connection between what happened in 2014 and what happened in 2022 for you?

[00:05:32] Yuroslav: I did not do much reporting. I came to Ukraine 2004 when there was, the first day, first people’s protest and revolution against president against Yanukovych, who would later become president. And I came there after a harrowing, half a year in Baghdad where I, my friends were killed, kidnapped, and I felt so proud being in Ukraine at the time where this massive political change was achieved with no blood spill, not a single subfront vandalized and I was like, wow, my people are know how to do it.

But then, of course, at the time, it was a conflict between two different groups of Ukrainians. In 2014, there was Russia directly involved militarily, and that’s when blood was spilled, a lot of blood in 2014, people forgot that it happened, the U. S. decided to stay away, President Obama at the time said there is nothing America can do to prevent Russian demolition in Ukraine, 14, 000 people were killed at the time in a few months.

I was not there at the time I was, covering the war in Afghanistan, I was stuck in Kabul.

[00:06:34] Jacob Shapiro: Yeah. Connected to that question, and this is really, you do a good job of talking about this in the book too, but what was your feeling, opinion of Russia before 2022? Was it one more were they cousins?

Were they a threat the entire time? I’m just curious what in your mind’s eye before Putin really showed the world what he was in 2022. And maybe from your point of view, he showed us in 2014 or he showed it to Georgia in 2008. But did you have any sort of warm feelings towards Russia or was it always skepticism?

And you said you’re from Kiev. So I guess that means more skepticism, but I’m just curious. I was just recalling

[00:07:08] Yuroslav: my childhood and I remember. I was just having this conversation this week with someone. I remember having a map of Europe and it was still in the Soviet Union. And like drawing the pincer movements of an imagined war within Russia and Ukraine.

So like the possibility of that, I think was in the back of the minds of people in Kyiv for a long time. And that was the, I’m talking about the Soviet Union at times. But Trash Talk was not seen as the enemy before 2014. Yeah. For most people. There was the invasion of Georgia, I was in Georgia and I witnessed it today, and so the abusers that they were committing in Georgia, I remember walking into villages where every man had been killed.

Only the women and the children were remaining. And it was clear to me at the time that, Russia was a dangerous, but that was not the view of many people in Ukraine, especially in Eastern. And Southern Ukraine and President Zelensky at the time comedian working in Moscow. He hosted the New Year’s morning show on Russian state television on January 1st, 2014, as the Maidan revolution was already in full swing just a month before.

Less than two months before Russia actually invaded Ukraine. And that opinion of the Russians changed already in 2014, once the Ukrainians saw the bloodshed in Donbass, was the Ukrainian society mobilized to fight, against all odds and to stop the Russians from taking over much of Ukraine at the time, because that was the plan.

Putin had fomented uprising, started with an uprising, push attempts. in several cities in Kharkiv, in Donetsk, Luhansk, Odessa, Zaporizhia, Mykolaiv, across southern and eastern Ukraine. He was successful only in Donetsk, Luhansk, but he tried everywhere else. But still, there were still illusions among many Ukrainians that no matter what, the Russians will not Go for a full scale war will not be flattening Ukrainian cities because after all, the Russians are saying that, Ukrainians and Russians are one people, we’re brothers, I remember myself talking to a friend in Russia the night before the invasion and saying I can understand all his rhetoric, but I can understand how the Russians can put up with flattening Grozny in Chechnya, flattening Aleppo in Syria, because, those are othered in the Russian imagination.

They are sort of Muslims. They’re not like us. But Putin keeps saying that Russians and Ukrainians are the same. How can the Russians put up with flattening Kharkiv or Bakhmut? And yes, they did. It’s this othering. Thanks to the propaganda machine that is source of escape in Russia happened. And it would be, there were incredible tales that I kept hearing, I would go to Kharkiv as it was being obliterated and speak to a woman there, she would tell me, I’m calling my father who lives in Russia.

And tell him that the Russians have destroyed our neighborhood and like our buildings no longer exists. And he would tell me, I don’t believe you, the Russians would never do that. So the power of the propaganda to Change perceptions of reality is something to behold. especially in Russia, which is, which is a world leader.

Yes. They

[00:10:08] Jacob Shapiro: they’ve brought us many sort of I think you’re exactly right. A world leader in propaganda is the right way to say it. I even had a Russian analyst on the podcast. I used to have him on the podcast all the time, thought of him as a friend. And the whole time he was telling me, Oh, Russia’s not going to invade.

This is all political posturing. It’s not going to be sort of anything. And I managed to get him on the podcast a couple of weeks after the invasion. And the narrative had completely switched. It was Nazis and fascists. And all these other things in Ukraine, and they have to be wiped out. It was really shocking to watch even the Russian analyst community go in that direction.

Yeah, please. Maybe the head

[00:10:38] Yuroslav: of the Carnegie Central Mosque of Mediterranean, who was the, the most respected Russian analyst, And I

[00:10:47] Jacob Shapiro: don’t know if that’s propaganda or if that’s fear of what Putin’s regime is going to do, or if it’s something in between, but it doesn’t really matter what it is.

[00:10:57] Yuroslav: I think the problem is that what Putin thinks about Ukraine is not something of an outlier in Russia. A lot of other Russians, probably the majority of Russians have always thought that Ukraine is not a real nation. It’s a fake nation. Ukrainians Ukrainian identity as Putin, told Tucker Carlson was made up by the Austrian Hungarian general staff in World War I.

And there was never an acceptance of Ukraine being a separate country, which is very understandable because if you look at the Russian national foundational myth, and it’s all based in Kiev, the great Kiev principality of the 10th century, the Kiev Rus, and Putin is named after Prince Vladimir of Kiev.

As is Zemensky the prince of Brooklyn, Kiev. And if you strip out all that history or the centuries of history, at the time when Moscow didn’t even exist, there was no Moscow then you’re left without a history of Russia. So if you accept that Kiev is a capital of a foreign country then suddenly half of Russia’s own, what they consider their own history is gone.

And it’s very difficult to accept.

[00:11:56] Jacob Shapiro: Yeah. Turning to really the book now Everybody underestimated Ukraine. I underestimated Ukraine. Putin underestimated Ukraine. The United States underestimated Ukraine. Literally everyone thought that they were going to fold. I don’t think that Biden’s initial policies were that different than any other previous administrations.

They were withdrawing embassy staff and everything else. Why do you think everyone underestimated Ukraine so much? Had something changed in Ukraine between 2014 and 2022? Was it just Biden? People didn’t know what they were talking about. Was it an overestimation of the Russians? I’m, everybody literally was wrong about that.

And I wonder what your take is on why everybody was so wrong.

[00:12:33] Yuroslav: I think first of all, to be fair, I think many Ukrainians also underestimate Ukraine. Because, you don’t know how things will pan out, but I think that there are several reasons for this. One of them is that, the colonial legacy meant that everybody was looking at Ukraine through Russian eyes.

The journalists that used to cover Ukraine used to be based in Moscow. And they the history of Ukraine was seen as a history through Moscow eyes. There was Little appreciation of how different it is. And then second, there was very little appreciation of how much it has changed.

Not just since 2014. I would argue since Sicily independence, since 1991 because a lot of people had experience of Ukraine in the nineties, didn’t realize how different it is 20, 30 years later. And. The nature of Ukrainian nationalism has changed because Ukrainian nationalism, historically in the thirties and the forties was a very dark, often anti Semitic, anti polish, ethnic nationalist of the kind that’s a blood and soil nationalism that we had in every country in Europe, pretty much.

The Ukrainian nationalism that was born in the seventies and the eighties, and that was the foundation of the Ukrainian state in 1991 was by design inclusive, when Ukraine became independent, like in Latvia, in Estonia, they said, only people who used to live here are citizens.

Half the population or third of the population will not get passports. In Ukraine, they said, everyone is Ukrainian, doesn’t matter what religion, language you speak. It’s a very American and inclusive idea of nationality. And that gave strength and resilience to the country. That’s why It did not split along those lines of language or religion that Putin thought it would split, that’s why the Russian speaking Ukrainians were as or more patriotic and as or more dedicated to fighting the Russians as the Ukrainian speaking Ukrainians. That’s why the country today can have, president who happens to be Jewish, defense minister happens to be Muslim, and the head of the armed forces who happens to be actually, I think, Russian born General Sersky and It’s not an issue of discussion.

It’s not something you need to hear about because Ukraine had overcome the idea that being Ukrainian means being of, some kind of mythical Ukrainian blood and of certain religion. And I think that’s the source of the strength of the country. That’s what allowed it to fight.

And then I think people underestimated the fact that the Ukrainian military has changed dramatically. It’s the Ukrainian military, there were 14 of us shabbos and Ukraine only resisted in Donbass at the time because all these volunteer units came up. Just people, you know, one of the characters in my book was a dive shop operator in Thailand and in 2014, he came back and, he joined one of his battalions and he fought and, rose to the ranks and was a senior figure in the defense of Malibu in this war, in this phase of the war and the spirit of volunteer units of sort of private initiative.

And of, some of the very different demographic, so when some of the thinkers and poets and, some of the most intelligent people in the country actually joined these units and joined the military. And so when Putin invaded, he thought that he would have a big Soviet army fighting against a small Soviet army, which would have had a preordained outcome.

But in fact, the Ukrainian army was no longer a small Soviet army. And it fought differently in a surprising way. And, it was David versus Goliath, David at the very

[00:15:51] Jacob Shapiro: least, brought the work to a standstill. And David had a slingshot that worked while Goliath in this case has, hulking machinery that hasn’t been serviced in 10 or 20 years or whatever else you,

[00:16:02] Yuroslav: I would argue that that the initial the initial phase of the war actually was won thanks to the very same Soviet equipment that the Ukrainians had.

Primarily the foreign weapons were a very drop in the ocean at the time. Now that changed obviously the course of fighting. But it’s more about tactics and spirit and just, how the Koreans organize themselves.

[00:16:19] Jacob Shapiro: I want to spend a second on what you said about how, it’s really remarkable how Ukraine transformed itself into a more inclusive idea of who constitutes the nation.

Even the United States, if you see the debate about immigration or the debates about race and things like that, like the United States is far from perfect and is struggling with this yet again in its history. And there’s not really any precedence for this in the region. It’s not like Poland has become an all inclusive country.

It’s that it’s become a homogenous country because of decades of how populations have moved and wars and conflicts and things like that. How did that happen? Do you have a sense of how that happened? Cause it’s really remarkable if you take a step back and just like observe it. I think it was from

[00:16:54] Yuroslav: a very, technically how it happened, I think, because a lot of the Ukrainian dissidents.

Yeah. We’re in the same prison camps as the Jewish Sharansky and many other nationalities of the former Soviet Union. I think there was also a rethinking, you mentioned Poland, but Poland also had a, a big intellectual rethinking of what it means to be Polish. There was a magazine in Warsaw called Kultura in the seventies, where the Polish intelligentsia and exile actually, because Poland and Ukraine, had a lot of problems in the past.

And, Ukraine now has territories that used to belong to Poland before World War II, like the city we live in. And so, until it’s rethinking by the Kultura magazine, intellectuals around it, a lot of Poles were in exile, were talking, the Polish government in exile, were talking about reclaiming all the borders, et cetera, et cetera.

And the conclusion there was, a free Poland isn’t, is impossible that a free Ukraine. And so there was a historic reconciliation of Poles and Ukrainians. And when Ukraine became independent, Poland was, it’s biggest backer actually Poland recognized it’s Eastern border. Before Germany organized Poland’s western border but the United, unified Germany, and and Ukrainian nationalism, very largely become more anti Polish than anti Russian.

But it didn’t because of this reconciliation. I think a lot of the ghosts of World War II were played to rest. By people who, learned lessons, the right lessons of all the horrors of the past.

[00:18:18] Jacob Shapiro: Yeah. Do you think, ironically, that the war will, in some ways cause a little bit more of that, an anti Russian sort of perspective?

Or do you think that Ukraine is maybe immune from that sort of response?

[00:18:30] Yuroslav: There is no anti Russian perspective in the sense of perspective against people who speak Russian in Ukraine. Or Russian heritage, there are actually Russian units now in a Russian bit, Russian, let’s say opponents of the Putin regime who are, have come to Ukraine and they, there are two or three Russian battalions fighting for the Ukrainian army.

Is there going to be a long term hostility to the Russian state? Yes, definitely. Will will generations of Ukrainians hold a grudge against the Russian? State and Russian culture. Yes. We see what’s happening. Is there now a move by a lot of Ukrainians who grew up speaking Russian to switch to Ukrainian?

Definitely. And I’ve seen it again and again, people who would text me in Russian two years ago would no longer do it. They would now only speak Ukrainian, but that’s also, it’s part of the reclaiming of the history, because of most people who are Russian speaking in Ukraine.

Are Russian speaking because of the colonial heritage. Their grandparents or maybe even their parents spoke Ukraine at home, but because of the schooling, because of the social pressures they had the switch languages to fit in the society. And so now this sort of natural reversion to, to try to rectify some of the historical, yeah.

Transformation.

[00:19:46] Jacob Shapiro: Let’s, so I wanna put some cards on the table for myself. I try to be objective in all of my analysis. It is hard for me to be objective about this. I am rooting for Ukraine, so I have to say from the outset, like I want Ukraine to win. I don’t want Russia to be able to overrun Ukraine.

I think that would be bad for the world. It would be bad for Ukraine, everything else. And I have to compartmentalize that and put that aside. So I want to say that I’m rooting for Ukraine before I ask you what may be a couple of difficult questions and the one that I want to zoom in on, is the relationship between Zelensky and Zelushny.

And you talk about it early in your book, and you really talk about how the pair of them were almost perfect. Zelensky becomes the symbol of Ukrainian resistance rises to the occasion in a way that none of us probably thought that he could. Really, he was incredibly brave, he was incredibly perceptive, knew his people, knew what he needed to do, also seemed to be willing to delegate to Zelushny.

Who according to your book is really the architect of that transformation in Ukraine’s military forces He is the one that figures out how are we going to beat russia if it invades and his You know the loyalty that the troops have to him and looking up to him make them feel confident Zaluzhny at the end of last year started publicly breaking with Zelensky and disagreeing with Zelensky on how the future needed to go with the conflict on the battlefield.

Maybe the counter offensive was not such a good idea. Maybe it’s a World War I style stalemate. And then he was quickly ushered to the side and he’s no longer the commander in chief. And there’s a new commander in chief. So I wanted to give you a chance to talk about. Zelensky and Zaluzhny because they’re such important characters.

But the more pressing question is, where do they go from here? Is this just the normal ebb and flow of, a president needs different generals throughout the different courses of a conflict? Or is there something really problematic here at the heart of Ukraine’s defense with the break between these two men?

[00:21:29] Yuroslav: Zaluzhny played a key role in the initial weeks, I would say of Ukraine’s defense, when he chose to trade land for time and for troop preservation. And instead of fighting in this desperate battle for every little hamlet, pulled back and then destroyed Russian supply columns and made it impossible for the Russians to sustain their siege of Kiev.

And at the time, say from February 24th until May 2022, he was running the military and Zelensky was focusing on this outreach. To the global public opinion that was really successful in dragging governments, because it was pretty unique in the history of, in recent history, that the public opinion rallied so much about Ukraine that governments from the U.

S. to Europe, That any deal wanted to watch for Ukraine in the beginning felt like they had to, and they did. And but from May Zelensky already concentrated decision making in this new supreme command called Stavka. Where in addition to Zelensky, Zelushny, there were also the Ministry of Defense, other ministers, other intelligence services.

The decision making became more and more of a collective decision making. So Zaluzhina was no longer running the war simplehandedly and Zaluzhina is popular, was popular. And I think there were some jealousies from the presidential administration and and I think they, they were afraid of him as a potential political rival.

Never voiced this political ambitions. So now he’s gone. He’s been replaced by General Sirsky, who was the commander of land forces. Has the way the war is being pursued changed? Not really. I don’t see any huge differences in how the war is waged. Were lots of people in Ukraine and in the military not very happy about this?

Yes. Did they do anything about it? No, because everybody recognizes that at the end of the day, President Zelensky has full authority to, appoint the generals he sees fit like the American president president Obama replaced the commander of Afghanistan twice. And and Zelensky himself graciously, hugged the president, accepted the medal and for a while is staying in the shadows.

Does he have a political future? Very likely. Will Zelensky win the next election whenever it’s held? Who knows? The Ukrainian, he’s the sixth president of Ukraine. Out of the six, only one has been reelected. I know President Kuchma in the 90s. Ukrainians, quite fickle in their political love.

And the war is not for Zelensky. And Zelensky is the symbol of Ukraine abroad because he’s been such an effective spokesman. But Ukrainians are fighting for the independence and survival of the country. Zelensky is doing an okay job. There is no campaign to remove him. But also it’s not guaranteed that he will win the election after the war.

[00:24:12] Jacob Shapiro: And that sort of is, was, leads into the next question. When is Ukraine going to next hold elections? Because I understand that it’s problematic to hold elections in the context of war. For our American listeners, though, they will think back to U. S. history and say the U. S. held an election during the middle of the Civil War, which pitted a general against Abraham Lincoln, and Abraham Lincoln eventually prevailed, but it was not clear that McClellan was was going to lose that originally there was no war that the United States ever fought where it wasn’t actually having an election.

This was supposed to be election year in Ukraine. So like I understand the sort of security trade offs between having the election and not having the election but it seems to me that Zelensky is in a difficult position because the counteroffensive has not quite done what he hoped it would do and he’s Had to fire his general.

And we don’t know when the next election is going to be. I’m not sure that if the answer is whenever the war is the war could go on for years. The war could go on until the end of the decade, possibly if we keep going on this front. So are you really confident that, or I guess the question there is like, when do you think Ukraine is going to go to the polls?

When is it going to become a problem that Zelensky is calling the shots in this way? I

[00:25:15] Yuroslav: think you answered the question. Ukraine will go to the polls. One, it becomes a problem, I think, it has not become one yet. I think the Ukrainian law is different from American law and the way elections are run is different.

Ukrainians would tell you the better example is the United Kingdom. They also did not have elections during World War II, bad election in 1939. And the next one was in 1945. So they had, the same parliament sitting in extending its term because of the war. Under Ukrainian law, you’re not allowed to have elections as long as martial law is in effect.

Zelensky’s term is expiring in May. Right now, there is no major political force in Ukraine that is calling for new elections. So everybody understands that, an election is a divisive process as we all know, by its very nature, and it’s going to be a very, if it’s a close election, it’s going to be very hard to prove its fairness.

If there is active fighting in many of the areas where the voting takes place. And, the Russians are able and are, bombing pretty much every major city in Ukraine with the missiles and the suicide drones. But I think at some point it’s quite possible, if Zelensky’s popularity dips, if there are some big developments in the war and there is popular pressure to replace him maybe there could be an election.

But we’re not at that stage yet. I don’t think, I don’t think in the next few months, this will become an issue. And, and it’s perfectly legitimate from the Ukrainian law to keep extending this. Yeah,

[00:26:39] Jacob Shapiro: That’s an important point. The last sort of thing sticking on this topic what happens to Zelensky and what happens to the Ukraine Armed Forces with Zelensky on the sideline?

I take it that he’s not going to disappear. I take it that he’s going to be around. But I, in some ways, I guess the question I’m asking is the views that he articulated in The Economist and in Western newspapers and things like that was that this is a stalemate. Yeah. Like that we’re not going to be able to push here.

This is a world war one type scenario. And unless we get very specific types of game changing technologies and weapons platforms, there’s nothing to be done here. Like we just have to take our gains and protect them. Do you think he’s right about that? Do you think that the new Ukrainian command has a different view?

I’m just curious. To what sense do you think that Zaluzhny was that important? And do you think his analysis is correct this time? Just because he was right before, it doesn’t mean he’s right now, but that is what he was saying.

[00:27:25] Yuroslav: He was not saying last bit. He was not saying that let’s take our gains and keep them and stop the war.

Yeah, so what he was saying that right now, the war is at a stalemate because changes in technology make it very hard for either side to have massive offensive operations. And that’s true. There was an article in like the West Point magazine explaining this just recently. It’s true that the development of the drone technology, means that whenever there are larger masses of tanks and armored vehicles, it gets discovered right away and destroyed right away.

The Ukrainian strategy didn’t fail it. The Russians now are trying it and every day there are videos of Russian tank columns being destroyed. I think stalemate at this point is actually that for this year is an optimistic scenario because Russia is on the offensive. Right now, the U. S.

military aid has pretty much ceased. It’s been several months since the deliveries were large scale disauthorized. It’s been a year and a half since Congress last approved military aid. And Ukraine is starved of ammunition. The Europeans are trying to make up for the shortfall, but it will take them time, at least until early next year to be able to produce enough.

And so Ukraine’s best hope this year is just not to lose territory. Nobody’s talking about counterfeiting this year. Next year, maybe, but again, so much also depends on the internal political developments in Russia. There’s a whole new, it’s not just a ground war that’s going on. There is also an air war and Ukraine is attacking targets deep inside Russia.

Some of the U S and you’re like. Trying to also create leverage in the Russian economy and, create bargaining chips for any future

[00:28:57] Jacob Shapiro: talks. And Ukraine has done a, a magnificent job in the Black Sea. It’s done a magnificent job of asymmetrically hitting back against Russia. But I’m struck by the title of your book is Our Enemies Will Vanish.

They’re not vanishing. I thought for a second that Purgosian was going to be the beginning of the end for the Putin government. He put Purgosian in his place, and now he’s doing his thing. It looks, and like you said, the Russians have shown the ability to take a defeat, reconceptualize, counterattack, and now push back.

That is not something that a military does if it’s on its last legs. That’s something that a military does if it’s going, it’s willing to admit, okay, we lost the battle, but the war continues on and there’s real prospects for success in the future. And I was We had some military experts on the podcast in the last couple of weeks responding to some of the reports in French media and English media about a Russian potential breakthrough.

And those military experts said, okay, calm down. There’s not gonna be a Russian breakthrough or anything like that. But to your point, like they are on the offensive, they’re not vanishing. So I don’t know, like what is your perspective on, on Russia? Are you concerned about the coming year? Cause your book is really about it’s a positive book about what Ukraine did for defense and that Ukraine is going to be here for the long haul.

But the picture today on April 9th it’s maybe a little more pessimistic than when you were writing or when you were going to press. The,

[00:30:10] Yuroslav: our aims of the banished is a line from the national anthem that was written in the 1860s. So obviously it’s been a century and a half, they still haven’t vanished.

But be more serious I think the battle for Ukraine’s independence Has been what, there will be Ukraine in what borders are clear, but I think that the prospect of Russia extinguishing the Ukrainian states, which, seem to be, common wisdom, February 23rd or 22 is no longer in the cards in the foreseeable future unless Ukraine implodes from within, which again, is not likely to happen as the extent now.

But Russia’s military, a, has shown its ability to. Rico City itself, the Russian people have absorbed the losses, starting losses, hundreds of thousands of people were killed, remained in Ukraine for no apparent reason. And there’s been zero protests, 15, 000 Soviet casualties in the Soviet Union really helped collapse the Soviet Union.

So to put it in perspective. And, uh, Russia’s economy is being, is doing okay with the sanctions because the sanctions are also very porous and nobody wants the U. S., the Russians not to be able to sell their oil. And so they are reaping all those billions and billions from the oil trade.

And then, uh, the Russian military industries are able to function. But I think long term, the logic of attrition still works for Ukraine, because as long as the Ukraine continues receiving aid from the West it is destroying the Russian military machine. For every tank that Russia is able to make or refurbish or refuel at a piece, Ukraine destroys three now.

So at some point, in a year or two or three, Russia will just run out of all this gear. And unlike Ukraine, it has nowhere else to get it. Nobody else is going to sell tanks to Russia. And in that sense, while the, the dynamic in the immediate future is in Russia’s favor, it’s unnecessarily so in longer term.

But, of course, that presupposes continued Western support, which is in question, especially, seeing what’s happening in the Republican party and what may happen in the elections in prediction

[00:32:25] Jacob Shapiro: of November. I think it’s very important that you’re in Germany because as a risk analyst, I think support from the United States is very tenuous.

In either scenario, and certainly if it’s a, if you believe what Trump says, it would, it would vanish automatically if he’s going to follow through on what he says, but the key country in all of this is Germany and France and Ukraine and everybody else needs to get Germany to come along to the party because if you, I think if Ukraine is going to have that successful future, it’s going to be not because the West supplies Ukraine, but because Europe supplies Ukraine.

So I’m curious, you’re in Germany now. Okay. How are you feeling? What are you gonna tell the audience when you rush off this podcast, you’re gonna tell them to get off their butts and what get to shipping the art turbo shells.

[00:33:01] Yuroslav: I think the Germans actually in terms of production are, have greatly increased and the European production is decreasing rapidly.

Germany has been very reluctant with some capabilities, just like the US and Germany has refused to supply crane with crewman sales. The French and the British have supplied but in terms of artillery production, in terms of just general military hardware, they are doing their bit and they are increasing their production.

It just takes time, but they’re doing it too fast in the U S and you have seen all some Czech Republic leading this initiative, collecting money all over Europe and finding hundreds of millions of shells around the world to send to Ukraine. So you do see, and France honestly is also, it may not have as much money as Germany, but it’s leading politically and again, it’s leading this debate on capabilities and it’s ready to give the Ukrainians what the Germans are reluctant.

So I think there is this new sense of urgency in Europe. Macron did say that the word Ukraine is existential for the future of Europe and France very strong words and There is also this new discussion about nuclear aspect of it. To what extent the French and nuclear capabilities could provide any degree of deterrence against Russia.

If the U S just walks away from Europe under Trump as many in Europe fear and people in Europe talk now about living in a pre war. Period. So I think the idea that could be military action, but that Inside the European Union inside Native Borders in the next two to three to five years, which was dismissed as fantasy a year ago now is actually seen as the, as a very realistic, probably the most realistic scenario.

. And and that is why support for Ukraine is, which was seen initially as well, let’s try beyond Americans because they wanna do it. It’s, it’s okay. Some global Geo poets now is actually seen as. Homeland security issue, because people are having this moment that, wow, if the Russians don’t stop there, they will come here.

And, I was just before this, I was I was in Estonia and in Poland and, already people are talking about, should I refurbish my home? Should I invest the money in buying property in Spain? People are having these discussions already in NATO, the European Union countries,

[00:35:14] Jacob Shapiro: which I guess is good for Ukraine.

The flip side of this also is, do you have any sense of Ukraine’s relationship with China and whether Zelensky has because the thing that is really propping up the Russian economy from my point of view is that China is just willing to continue buying. Is there any world in which you think Zelensky and Ukraine can put pressure on China to say this is not what you want to be doing?

Or is that a pipe dream? I don’t think Ukraine has and can put

[00:35:35] Yuroslav: pressure on China, but I think Europe, certainly has a degree of leverage with China. And I think the reason why China is not militarily directly helping Ukraine has to do with Europe, because China’s goal is to divide the US and Europe traditionally.

And they know very well that if they were to be directly intervening in on Russia’s side in Ukraine, then any sort of European Chinese cooperation would be very difficult, but that’s it works both ways, I think, because. If the U S were to abandon Ukraine, I think there’ll be a lot of pressure within Europe to grow closer to China, because there are already lots of voices, especially in Germany, but also out there just saying okay, we are sacrificing our economic interests for America’s political interests.

Because when do we care about that one? Or the South China sea. And it’s okay. As long as America is on our side in Europe, but if America were to walk away from Europe, why would we do that? Because China is not a direct threat. to Europe, because it’s far away. Russia is. You have this whole debate in the U.

S. about splitting Russia from China. You have the debate in Europe about splitting China from Russia.

[00:36:46] Jacob Shapiro: Yeah, exactly right. Are you going to write volume two? Are you going to keep reporting from the ground in Ukraine? Or do you move elsewhere for the Wall Street Journal now?

[00:36:53] Yuroslav: My, my job before the war and after the war is still the same as chief foreign affairs correspondent.

So I’m trying to. Put things in a perspective and also explain how this war is affecting, the rest of the world. And so I’ll be going to Ukraine again. And, but also I’m in Germany now and going to other places to also explain how it’s affecting, the global balance of power, especially as the election in the U S I’m arguably already, the fact that, that.

It is a possibility of Trump returning to the White House and the fact that, he controls the House effectively is already changing reality on the ground, even without the election occurring.

[00:37:31] Jacob Shapiro: And the outbreak of hostilities between Israel and Hamas also, probably materially changed the picture there.

And, there, there’s no shortage of conflicts around the world. So Ukraine has had sort of the headlines for two years, but eventually people get war fatigue. Eventually they get distracted and worry about other things, which is another reason that cuts against Ukraine having enough having time because the longer it goes on, the more maybe people get acclimated to it in the background.

[00:37:54] Yuroslav: Yeah, though, arguably, Ukraine doesn’t need attention. It just, it needs ammunition and money. And and shells, and there is not that much overlap between what the U. S. is giving Israel and what Ukraine needs, it’s just different kinds of weapons.

[00:38:10] Jacob Shapiro: No it’s more a psychological thing.

It’s okay so sending weapons to Israel, sending, we’re, doing stuff with Taiwan, doing stuff with Ukraine, immigration across, you start to add all these things up. And that really, I think it gives, it gives some momentum to the isolationist wing of the Republican Party, and it’s in the Democratic Party too, like you start putting the things all together.

Yaroslav, I know you have to go, I don’t want to keep you too long, and as somebody who speaks often, I know that it’s nice to have ten minutes to collect yourself before you go on stage. Thank you so much for taking the time and I hope we’ll hear from you again soon, and take care. Tell the Germans to get it going.

I think you’re literally in the most important place for your message that where it needs to be told. So cheers to that. Thank you. Thank you. Great to be on the show. Thank you so much for listening to the Cognitive Dissidence podcast brought to you by Cognitive Investments. If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive.

Investments. That’s Cognitive. Investments. You can also write to me directly. If you want. Jacob at cognitive dot investments. Cheers. And we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements.

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The post 192 – Yoroslav Trofimov Book: “Our Enemies Will Vanish” appeared first on Jacob Shapiro.

[00:00:00] Jacob Shapiro: Hello, listeners. Welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. Joining me on the podcast today is Dee Smith. He is the CEO of the Private Intelligence Agency Strategic Insight Group.

I’ve met Dee. I’ve known him for a couple of years now. We’ve done a bunch of interviews on Real Vision and I finally decided to steal him off of Real Vision. And Dee was generous enough with his time to come on the podcast and give us an hour plus of his time. I also want to thank Dee. I was 15 minutes late for this recording, running around like a chicken with my head cut off, putting out a fire here in New Orleans.

That is not interesting to talk about. Maybe I’ll put a parenting corner or something like that on the podcast in the future But thank you d for being patient with me, even though I was 15 minutes late And staying for over an hour. I thought it was a really excellent conversation.

Listeners, if you want to talk to me about what we do at Cognitive Investments, anything about the podcast in general what’s going on in the world, hit me up at jacob at cognitive dot investments. I am at your service. Otherwise hug the people you love cheers and see you out there.

All right. D we’ve been on real vision enough times that I thought we should say Screw it. Let’s do it together and do it on my podcast. So thanks for making some time to come on and thank you for listeners. It all sounds perfectly produced and you think we’re all perfectly ready here ahead of time.

Like D’s traveling around New York, doing client stuff. I’m sure I literally had to rush to the middle of a busy street in New Orleans to get my wife a sign so that she could pick up somebody. It’s all a mess, but we’re all here and we all made it. So it’s good to see you. Good to see you.

Thank you for having me on I thought we would pick up where we left off from our last real vision conversation because I’m not sure that a lot of my listeners had a chance to talk about it and The theme, as the theme of every single macro or geopolitical discussion these days, seems to be, rising uncertainty, and rising volatility, and rising risk, and the world is ending, and everything is terrible.

And maybe it’s the contrarian in me, but I just chafe against all these things, because I’m not so pessimistic. I think that things are actually better, and I also find that it’s a self sacrifice. fulfilling prophecy and that we’re in a media environment where, you say doom and gloom to get the clicks, but if you’re giving the positive story, people say that’s what they want, but then that’s not what they’re clicking on or scroll when they’re doom scrolling at night.

Like they want the, Oh my God, the world is ending sort of validation. But that’s not to say that there aren’t things happening right now. So we’re recording on Friday, April 12th. I wanted to, really just start at a high level. So what do you think of the rest of the year for 2024?

Are you, are there things that you’re worried about? Are there things that you’re concerned about? Do you think that things are going to get better from here? I don’t know exactly how to frame it, but I’m just wondering about your 2024 outlook and maybe we can start there.

[00:02:40] Dee: Sure. I would start by saying I agree with your observation that people are attracted to negative news.

And if you think about Our evolutionary background, when you were a proto human hominid on the Savannah, it was always better to believe that a movement in the grass was a lion because he, so the people who saw the movement in the grass as a lion or the ones who survived, it’s very simplistic here, but, and they passed on that hyper awareness for danger that We all feel and then, this as time’s gone on, people like being scared.

That’s why horror movies and, all those kinds of mysteries and, they, for some reason we’re wired that way. So I agree with you. And I think you can. definitely over correct in that direction of it’s, it’s all doom and gloom. And and, as far back as the ancient Greeks, there were people who, you know, and Socrates among them who said, the next generation is just awful.

And what are we going to do? And, oh, tempore. So it’s all that stuff is very, much a part of human nature and always has been having said that. We are, there are times that are quieter and more less volatile, and there are times that are more. And we are living in a time that is more.

And that is, is absolutely correct, I think. And now. volatility brings both opportunity and risk. And it’s, if you have too much volatility or too much too many things that are uncontrolled, then the opportunity goes away. And an example of that would be a nuclear war. That’s not going to do anybody any good, but.

at several levels below that, which is where we are now and hopefully where we stay. There is enormous risk and there is opportunity. But the thing that I would say impresses me the most, and I’m hearing this from people in here in New York for the first time in a clearly articulated way because I’ve usually been saying it to them and now they’re saying it to me, is that, The level of uncertainty and the coalescence of multiple strands of uncertainty has reached a point that it’s affecting their business.

And then people are having a hard time performing to budget, for example, because there’s so many, X factors, exogenous factors, torpedoes from left field and all that stuff that they can’t project. The future in the way that they could or felt that they could in, let’s say, the late nineties, early two thousands.

The the financial crisis put paid to a lot of that, but it hasn’t settled down since then. It’s become more and more pronounced the amount of of. Just volatility and uncertainty. The thing that I worry about is the connectivity of things and how we created, one of the great Accomplishments of late 20th century science was understanding complex systems and how the more complex a system is, the more unpredictable it gets.

And everybody knows about the butterfly effect, but there’s a lot more to it than that. And so as these things Become hyper complex. And they now call them hyper objects. You don’t know what a change in one place is going to produce in another place. And keep seeing examples of this emergent phenomena, cascade effects, all these things that, we now understand the mathematics of it and the mathematics of it is very uncertain.

But but We are experienced. We’re living it. And I think that is a direct result of complexity. Now, so what do I worry about? I worry about single incidents that can cause very large cascade effects. We saw an example of this in a couple of years ago when that tanker ran aground and blocked the Suez Canal.

We’ve seen another example of it now in the same part of the world with the Hootie attacks on on on, the ships in the Red Sea. We saw another example in the not only the invasion of Ukraine, but the effects of the invasion of Ukraine on up in a potash and various components that are critical to fertilizer and what that then began to do to agriculture and food prices.

And that’s example of Exactly the kind of thing I’m talking about these in order effects, second order, third order, fourth order effects. And those are literally technically mathematically unpredictable because it’s what they call deterministic chaos. And I worry about the big things, we’re told here on this Friday that an Iranian attack on Israel is imminent.

And we don’t know what that is. Would be and we don’t know what it would mean. And we don’t know how Israel would react and how the surrounding states or indeed the U. S. And Western Europe would react. So that’s a big event. But what small event is occurring today that we may never hear about, but it may three months from now have created an enormous cascade effect.

I guess what I worry about is the nature of the world that we’ve built. That’s so complex that it becomes hypersensitive and unpredictable.

[00:08:16] Jacob Shapiro: Yeah there’s a lot in there, and we’re going to break it all apart. I’ll make a joke about the Iranian attack, and then I want to stay at the conceptual level, and maybe we can get down to Iran.

Because Iran is one of the actors, I think, that injects the most uncertainty in the world system right now. But the fact that the Wall Street Journal is claiming that, Calling an attack in the next 24, 48 hours. I actually take some comfort from, because that tells me it tells me one of two things.

It tells me either the Iranians are really shitty at what they do, or more likely they want everyone to know that they’re about to do something so that they can take the action and they can say that they’ve done it, they’ve beat their chest, but there’s no escalation and it’s not a surprise to the system.

So I’m hoping that’s the right interpretation of that particular event. All errant missile instead of hitting an empty field in the neck of. hitting a population center in Tel Aviv and we’re off to the races. So I take your point there, but

[00:09:04] Dee: and all it also takes is one. person who overreacts to something and then triggers that.

And that’s, that’s the thing, we’ve got these systems that are so it’s in, in chaos theories called sensitive dependence on initial conditions. And initial means just the start of anything. It’s not the start of, some designated point, one person, one thing, one, like the Aaron missile or somebody who is just really unhappy.

And fires at something they shouldn’t. And those are so just to buttress your point. Yes, I agree with you. I agree with you. Okay, go ahead. Sorry.

[00:09:40] Jacob Shapiro: No, I’m happy to have agreement. But I’ve been doing some research. And I think I know at least how you’re going to sketch the answer to this.

But I want to dig into this idea of complex systems a bit more specifically because I’ve been rereading Hans Morgenthau’s Politics Among Nations for separate research reasons. And by the way, listeners, I get questions all the time. What should I read if I want to know more about geopolitics? Hans Morgenthau Politics Among Nations is the number one book that you should probably read from like a Conceptual what begins the feet like that’s where I would start and then it’ll open up all other avenues But if you haven’t read Morgenthau like you’re probably behind the curve if you’re trying to talk about these things, but he talks about the shift from multipolarity before World War ones and World Wars one and two and into bipolarity with the Cold War and the US Soviet conflict.

And he makes the case that the bipolar world is actually much more volatile and much more uncertain than the multipolar world was because you have the risk of moral absolutes forming. You’re either completely with the United States or you’re completely with the Soviet Union. There’s no gray area.

There’s no pragmatism. There’s no room for Machiavelli’s prince deciding one day I’m going to do this, but then if that power gets too strong, I’m going to switch over here completely unexpected and support this other power. And then when he gets too strong, I’m going to do something else completely different.

And he argued at least in the book, in the section that I’m reading right now, that multipolar systems are actually a little bit more stable. Now, of course they can break down. They, the multipolar world did break down in world war one and brought us a whole bunch of horrors. But part of his point was that.

When you have a more complex system and you have different actors that are balancing against each other, it actually might hold the actors in check. Because they have to be worried about different things that maybe they weren’t worried about before. Or there’s more room for maneuver. Whereas the sort of, you’re with us or you’re against us.

It’s us versus China. It’s World War III. Like these narratives and constructions leave you no room for maneuver. Something happens, and then it’s a cascading effect that goes on to the next. I wonder how you would respond to that, because in some ways it’s a shift from what you’re saying that actually, complexity can be a good thing.

It can even be a stabilizing thing, and that maybe what is causing the whiplash for people is not, The complexity itself. It’s the shift from one framework to another, but actually, objectively speaking, the complexity helps. I wonder how you would respond to that.

[00:11:55] Dee: Yeah, I know that he says those things and I would push back on it a bit for several reasons.

First of all, we didn’t actually get to World War Three and we’re closer to it now than we were during the whole Soviet U. S. standoff. On the other hand, that balance of power. system that was in existence from, the late 19th century through the early 20th where everybody was, moving little pieces and trying to rebalance and trying to get an advantage.

That actually led to World War I and World War II, which I see as bookends of a single war. That’s a whole other discussion. But, nevertheless, it did lead to World War I. And and it was a hyper complex environment. Very much like today. It was a globalized economy. An early, it was not the first, the first was really in, in the 18th century with the, in the Baroque era but that’s another argument too, but I think that these things when you have actors who are trying to jockey for power.

Now, maybe if you just have one like Machiavelli’s prince, that’s what, but when you have multiple points of uncertainty, they interact in multiple ways that are not predictable and are more unpredictable. And the other thing about it is that these this was studied by A scientist named Per Bach, B A K.

And he started studying sand piles, believe it or not. And what he found was that you can keep adding a drop of, a grain of sand at, at a steady rate to a sand pile and it’ll grow and grow. And then one grain, when it reaches what they call criticality and half the thing collapses.

And, that has proven to be a universal. trait, things don’t change slowly. They really admit, they at least as often change in what they call mathematical catastrophes, meaning sudden change from state A to state B. And when you have a complex system, you don’t know where, you don’t know which grain of sand is going to produce that.

And, you have these cascade effects. Such and such happens. I need to do this and somebody else will, you He did that. I need to do this. And so you get this. And this is, as I say, it’s been studied mathematically and you get this enormously unpredictable and rapidly escalating.

Kind of situation and I think he was certainly writing before, that was as well understood as it is now, but but I just it’s not how I see the world working now. I could be wrong. But it’s just not I see it, I see complex systems as, I see it through, I have a, partly a science background, and I’m very interested in that kind of thing.

And I see those things. I see the rise of complexity theory as a real breakthrough and and I think that it’s given us a lot of insight into things that we didn’t have before. We could talk about fail. That’s another fascinating thing. That’s not quite relevant to this, but but it’s it’s just a, it’s an accelerant and it’s a volatility creator.

So that’s my response to that.

[00:15:06] Jacob Shapiro: Yeah, no, it’s also a mark of how much political science has changed. The idea of chaos theory and probability theory and advanced mathematics. is not what Hans Morgenthau probably conceptualized as political science. Whereas, today the field has changed in significant ways.

One, one sort of way to pick at this is obviously when Morgenthau was writing nuclear weapons were around but they were new. It wasn’t something that had been established previously, and it seems to me that the biggest difference between if we are headed towards a more complex world and a multipolar world the biggest difference to me from the previous time this happened in the late 19th century is there are nuclear weapons now, and I wonder if you think that can a conflict like World War I happen in a world with nuclear weapons?

Because there was no sort of deus ex machina hanging over these warring states in Asia and in Europe that were jockeying for positions. Whereas now, if you had that kind of threat, imagine if there was a German invasion of France or something equivalent in today’s environment, and one of those countries had nuclear weapons, like the nukes would get fired and the war wouldn’t escalate to that position.

So in some ways it makes. the worst case scenario scarier, but it also makes the worst case scenario maybe less probable because it’s all about mutually assured destruction. So how do you work nuclear weapons into your framework for thinking about this? Because I would think it’s both stabilizing and yet deeply unsettling at the same time for you.

[00:16:26] Dee: I think you’re exactly right. I think that’s a really important point or set of points. I recall seeing, and I have not tried to go back and find this, but I would like to if it’s even available anymore, but I recall seeing an interview with a Soviet general, this was after the fall of the Soviet Union, back when everything was open and people could interview people and so forth.

And what he said was really interesting and chilling. And he said, I’m of the last generation. Who has actually walked the field of a nuclear explosion. And when we’re gone, nobody’s going to know what that was really like. And so it’s going to become much more likely that it happens again. And It’s a really good point.

And and I think that is, in fact, the case. That’s where we are. Nobody, nobody in living memory, or they’re so old, they’re certainly not in active, activity in politics or military or anything. So I think that’s one aspect of it. We just You know, it seems to me that these things that you have these one, one factor in these relatively quiescent periods in history is that you have people who’ve gone through the intensity of war and realize how horrible it is and then and just resolved with never going to happen again.

And of course, what that means is it never happens again on their watch because they’re motivated. And then people who haven’t done that before. And I’m not just talking about nuclear weapons. And so that’s part of this gyration that you see, this sine wave of, conflict in quiescence and conflict in quiescence.

I think there are lots of other factors too, but I do think that. nuclear weapons change the entire dynamic. I think, that it’s very hard to make them. It’s very hard to store them and maintain them, but nevertheless, the it’s 70 something year old technology now. And, there are there are lots of countries who are working on it and there are lots of offshoots of it that are not quite as bad, dirty bombs and that sort of thing that, can.

Can have very long term effects, but can have instant effects on the value of commercial real estate that, at a, at an existential level for the world economy. If you take out, London, meaning it’s covered with radiation and suddenly all that value is gone. What, how do we deal with it?

But anyway That I think I would add to nuclear weapons bioweapons I would add chemical weapons, less, less so chemical because they’re hard to distribute. Bioweapons though, somebody with a few thousand dollars can buy CRISPR editing machinery and technology and put it in a garage and create, potentially create something that could kill millions of people.

Thank you. And that’s not something, and then that all leads me to the other factor that I think plays into this, which is asymmetric warfare, because you’ve now got a situation where parties that are small and poor can have a massive effect on very large players, like what’s going on with the Hooties in the Red Sea, and it’s affected the whole economy.

Because now chips have to go all the way around Africa, like they did in Vasco da Gama’s time. And, and it, and but those weaponized drones cost at most a few thousand dollars. The only way, effective way we have of countering them right now is missiles that cost Over, north of, north of, a million dollars.

You have this ability of a very small player with limited means to now challenge and make a real nuisance for at least a very large player or very large players. And that is, that whole asymmetric equation is intensified as we get into other kinds of asymmetric.

combat cyber war, for example, and so forth. So those things have to enter. I just, I think we’re in a different period than we were in the 19th century, but I don’t think that the difference, I would argue that the differences have not made it less likely that combat happens. They’ve made it more likely that combat happens.

And the question is, have they made it more likely or less likely that global combat at an existential level, like a nuclear war. Or something else happens, and I don’t know. I don’t know, really, what the answer to that is.

[00:21:04] Jacob Shapiro: We’re off to a really uplifting start here. So let’s see if we can

[00:21:08] Dee: Well, you tell me you’re the optimist, so I feel like I have to play the pessimist.

[00:21:11] Jacob Shapiro: Oh, that’s fine. I appreciate a good contrary. We can flip back and forth. One of my I won’t tell that story right now. I’ll tell you that’s that story to you later. Sorry, listeners. I’m going to ask you a question now that I don’t want you to take pejoratively, because I think the fact that you’re older than me gives you more experience.

But, my career begins with the 2008 financial crisis to date myself. And if you’re thinking about geopolitics. Since 2008, it’s just been a steady year, steady linear decline towards shittier outcomes, like things just get worse and more unstable and more risky and all these other things.

Your career is much longer than mine so far. And I wonder Does it feel like a linear downward line to you? Does it feel like we’re returning to a previous level of instability? Like when you take in your own career and where the world was when you started and where we are now, what is I just wonder what that plot looks like in your brain.

[00:22:01] Dee: That’s a really interesting question, and I’m not sure anybody’s ever asked me that before, but when I started out, seriously doing things professionally it was the, the Soviet Union was fully in place. That bipolar system was fully in place. The world was a stable place of the, there were worries, but the world was relatively stable and it was opening up into a, a period of globalization.

Generally speaking things were getting, seemed to be getting better. The there was a consensus that later became called the Washington Consensus, but it wasn’t called that. in the early days, but nevertheless, it was, the liberal international order that, all of these countries were going to we were going to create a global system.

We did create a global system of rules and countries abided with it by even the Soviet union did. Everybody, because if you don’t have rules on things like, where satellites are in orbit and how, international communications operate, then you don’t have it at all because it all interacts.

Anyway, so it seemed in the eighties, in the 90s were a period of great optimism. And I ran an NGO and we did all these things about, to help cultures understand and interrelate and help them communicate. And down at the level of the common person, that it was the top level too, but also it was, the ability to actually get people excited and interested in understanding another culture and all the cultural protectionism, if you want to call it that was not there and it was open and it was that’s the world I grew up in and It was very optimistic and I guess what happened is that personally putting all that effort into it, I saw didn’t really, things got worse and they got considerably worse.

In, in 1989, I was in Moscow when the Berlin Wall fell and it was just, it was, it was just. exuberant optimism. And I was part of that. I agreed. And then it was just a very short period, before things started to seriously fall apart. We brought, China into the into the global economic, all this stuff was happening.

And then, dominoes starting around the late nineties and being pronounced pronouncedly greater in, 2001 and then in 2008, the dominoes just started to fall and it was as much negative as the previous period had been positive. And so that’s my experience is that I’ve gone from a period that was just exuberant optimism to watching it all crash and burn.

And I’m sure that’s affected the way I look at it unquestionably. And I’m not saying that we won’t have a another period of optimism, but I don’t see when it’s probably not going to be in my lifetime, it’s probably not going to be in your lifetime, maybe our grandkids, your grandkids and my, my grandkids and your great grandkids, something like that.

if we make it through this period. But I think the, the key change in this looking at it, compared to the past, and there’ve been horrible times, the 131 years of war, in Europe that ended with the Westphalian Treaty, all that, there were horrible times. But what we have now is what you alluded to, which is existential threats.

And that didn’t exist. We couldn’t destroy ourselves until the 1940s. And then you’ve had those things. layer in faster and faster, bio threats, cyber threats, AI, if that is an existential AI artificial general intelligence. And we, and that has an effect on people’s mentation too.

It’s we thought okay, we had nuclear weapons and we’ve dealt with that. Now, God damn it. We’ve got another thing and oh, shit, we’ve got it. And, it, it affects you. Does that answer your question?

[00:26:07] Jacob Shapiro: Oh, it sure does. I you know, you’re even more pessimistic than I thought about things.

I actually am I worry about the world that my great first of all, I haven’t given up on living forever yet. So I think I’m hoping that change happens in my life.

[00:26:20] Dee: Is it rude to ask why you would want to do that? No,

[00:26:25] Jacob Shapiro: it’s not rude at all. One of my favorite Parlor tricks at bars in college was to ask people the question, would you rather live forever at your current age?

So putting aside that your body would break down or you would be like, imagine you can live forever at your current level of health, or you can live a great 120 year life and then die with your family surrounding you. And I always wanted to live forever. And when my, John has been on this podcast before, my, my roommate John and I used to ask this question at bars to people in colleges as a way of provoking conversation.

You can get what kind of nerds we were back then. And I would say about, 90 percent of people wanted to die at 120. I was in the lonely 10 percent that wanted to be around for everything. And but do you,

[00:27:07] Dee: it’s fascinating because do you really think about what forever means? Yeah, I do. And I’m sure you do.

And that was that. I don’t mean that it is. When I think about forever, I think about the nature of A time that goes even if it doesn’t, for us, it doesn’t go all the way back, but it goes all the way forward and never ends. And, one of the phenomena of, at least that seems to happen with life is that as you have more of it, each individual unit is a smaller portion of that whole.

So it seems to go much faster. When you’re a two day old baby, a day is. One half of your 50% of your life when you’re 10, it’s whatever the equation is, a 3000th of your life. And when you’re, a hundred, it’s a, a 300000th, I’m just pulling figures out. But, and as that happens, time does seem to flow faster.

So if you had an infinite being, all of time would pass in an instant. And this is, this is the subject of discussion. So what is it that you’re accomplishing by living forever? If, first of all, everything that has can ever happen is infinitely far in the past. And because you’ve got an infinite future, all the time happens in an instant.

It’s just, I find these things very interesting actually, but it’s I think that a lot of people don’t, they don’t, when they think about religion Or when they think about their own lives, they don’t actually think about what infinity infinity is a fascinating subject, and that’s what you’re talking about.

Living forever. You’re actually talking about infinity and there are all these different infinities. There’s, cantor’s hierarchy of infinities and all these things that for one thing are not computable. They’re non computable functions, so AIs can’t deal with them. So if you think you’re going to transfer yourself to an AI, I’ve got news for you.

But it’s just, those things, I think what we think is it would be lifelike. We have it just going on, indefinitely. But I don’t think that’s what it would be. But what do I know? I could be totally wrong.

[00:29:14] Jacob Shapiro: So some listeners may think this is off track, but I my dad’s advisor in college who was very close to our family and who I loved very much.

His name was Werner Danhauser. Probably not a name you’ve come across. He wasn’t really well known, but he was In the Leo Strauss family of scholars, Alan Bloom is probably much more well known than Werner, Werner was, but he was great, and he used to say that all conversations ultimately boil down to either God, death, or sex, like we, like everything, that’s ultimately what we’re talking about, so we’re on we’re on at least one of those planks, and it’s nice to be addressing it directly, and the answer to your question is it’s more of a fear of the negative, maybe, than an embrace of the positive.

I’m terrified of death. I don’t want to die and death is a form of infinity even in and of itself, which it appears to me means I have no consciousness and I would rather be around all the time with my consciousness than have it disappear one day. This would make me a terrible Buddhist. I am way too attached to myself.

I want myself to, I don’t want to be an AI. I want to be able to touch things and smell things and feel things. And I’ll take the hits. It’s I’ll take the climate crises and everything else that’s terrible. And yes, the other part of this is I think the real argument against living forever is you don’t get to take anyone with you, so you will live long enough to see everything and everyone you loved die around you.

And do you, will you still have the stamina and the energy to love more things? And in that sense, it’s both defiant and very profoundly idealistic that I’m like, Yes, sign me up. I think I have never ending reserves of love and attention to give to all sorts of people in the world. But I fully like I’m in the 10 percent and I fully recognize that a couple thousand years in, I might be looking around being like, man, D was really right.

On that April 12th, 2024, I should have let it go.

[00:30:52] Dee: One argument that I’d like to adduce on this is Seneca’s argument, the Roman philosopher, who said, if I get this right, and I usually invert it, but as long as you can worry about being dead, you’re alive. And once you’re dead, you can’t worry about it anymore.

So what’s there to fear, that’s assuming that death is a total cessation. Now I’m not, I don’t know that it is, I don’t know that we don’t, the concept of conservation is so strong in science, in physics, conservation of masses. It may well be That we do survive in some way or that we’re just outside of time and that time in this universe is an anomaly, but, and we are getting way off track here for geopolitics, but and I really don’t know the answers to those questions, but I do I guess that’s a big difference is I’m not afraid of death and I’ve nearly died more than once and but maybe that’s why I’m not, but But it’s a very interesting topic, and I, you may be right, I may be totally wrong.

And I’m, in the non existence that I have after death, I may be thinking, Gosh, I wish I’d listened to Jacob now. Who knows?

[00:32:00] Jacob Shapiro: Yeah, I would push back against what you said in that it’s, This is actually like the core of geopolitics is this question. And the core of all sort of political science to me is about these fundamental questions and whether we use math or whatever, like methods that we use to get them, like that is the whole point of political science.

Thinking about these things. Yeah. I take your point. If you bury me in a beautiful cemetery, maybe I’ll be reborn as a tree one day. This is why I’m a terrible Buddhist. So I’m very attached to me. I like this brain. I want to be eating my own cookies and my own cheddar and sour cream rough, and like making my I’m very attached to that sort of thing.

This also gets where the food’s so good. I can totally understand.

That, that’s a constant exercise in self discipline as I like to joke, but this actually does get into things relating to geopolitics and not just in a sort of. Nietzschean eternal return of the same thing.

There’s that banal, it’s become banal. Like the first time you hear that Mark Twain said, history doesn’t repeat itself, but it rhymes. You nod to yourself, that’s a pretty clever little quote. And then everybody and their mom uses it. And you’re like, ah, that’s a really, I don’t want to be in the same class as people who use that quote.

But the point of that quote is that we, history repeats itself. That leaders and people. Become afraid of death in moments and then are not afraid of death in moments. If we boil Russia’s invasion of Ukraine down to its, essentials, that’s Vladimir Putin was not afraid of what would happen to Russia and not afraid of death for hundreds of thousands, let’s say, Russian civilians and Ukrainian civilians and soldiers and everything else in the context of that war.

In some ways, like how the human species thinks about death, That’s the beginning of demographics. That’s the beginning of what are we going to do about climate. That’s the beginning of what types of monetary policy are we going to have? Are we going to support the current, the present and, Rob Peter to pay Paul?

Like when you get down to it, like these essential questions are the core of geopolitics. And one of my problems with political scientists and risk analysts in general today is they don’t talk about this shit. They, it’s pushpins on a map or it’s probabilistic equations and nobody has actually sat down and been in the bar with me and John at 2 a.

m. in Ithaca, New York and been like would you live forever?

[00:34:03] Dee: Yeah. There’s a lot in what you said and And I agree that it’s core to geopolitics and to human affairs. It’s very hard to get people to understand that. And because they have such, they think they’re being practical and pragmatic.

In fact, what they’re being is they’re having their heads in the sand. And But I do think that, Putin, you brought is a very interesting and tragic and nasty character, but I don’t know, did you take the time to read that horrible long thing he wrote about Putin? Two years before he invaded Ukraine about, yep.

I did that, that Ukraine was the, and the sad thing is some of it’s true, you the ru the Russian culture started in Ukraine a thousand years ago. And he, and he constructed this whole argument about, he, we had to take Ukraine back because, Russia is pure and Ukraine needs to be pure and land powers are pure and sea powers, Aren, Dugin and all these.

miserable philosophers. And so I think that not only was he not afraid, he thought he had a mission. He thought he had a mission from God. And this was with, and of course the Ukrainians have moved on long ago. They don’t want to be Russians. And but he thought and I’m sure it’s been very difficult to him for him to understand.

He’s a very religious guy. How, why this has been dramatically difficult to do. And you can spend, we could go lots of different spokes on the wheel from that, including how I think people underestimate now how fantastically inefficient the Russian bureaucracy is and, and how fantastically corrupt, there was all this stuff about Russia’s revised the military doctrine of the Soviet Union.

And it’s not going to be had those doctrines were like you had to, if you wanted to take a hill, you had to check it all the way up. The chain of command and then all the way back down. And then by the time that had happened, the opportunity to take the hill was lost and that they had spent all this money modernizing and of course, what happened, they didn’t change the doctrine at all and all the money went into the Swiss bank accounts of generals.

And it’s just, it’s a, there’s several directions to go with that. But I find Putin a fascinating character because I think he’s an example of someone who really starts believing their own bullshit and and has a, has created a, one of these authoritarian systems where nobody will talk contrary to him.

Nobody will counter him. Because he’s got everybody’s family as hostage. And so if he doesn’t like you, it’s not that you’re going to be in prison. It’s that your family is going to be completely, decimated. And it’s just, it is, the whole situation is tragic. And he’s got thousands of nuclear weapons, by the way.

If even half of them work, or even 10 percent of them work, there’s no end to what he could do.

[00:36:56] Jacob Shapiro: Yeah. Speaking of nightmare scenarios, I worry more about what happens to the nukes if Russia falls apart than I do about Putin hitting the button. What Chechen warlord gets a couple, nukes and what do they decide to do?

[00:37:09] Dee: Ukraine had a bunch of nukes and they gave them up and that’s never going to happen again.

[00:37:15] Jacob Shapiro: No

[00:37:16] Dee: guarantees that weren’t guarantees. And if they had the nukes, Russia wouldn’t have invaded. And that point is not lost on anybody.

[00:37:23] Jacob Shapiro: No, we’re entering an era of nuclear proliferation. That’s for sure when it comes to putin Yes, I did read what you’re talking.

I think it was actually earlier than what you’re talking about and I remember reading it and that essay that you’re talking I think I can find a link to it and i’ll put it in the show notes And I was at geopolitical futures at that time. I was still george freedman’s right hand manned at the time and hand man at the time and I I wrote an article at GPF Which I think is one of the best and most present things I ever wrote It was the title of the article was the first partition of Ukraine question mark and I wondered whether 2014 was the first partition of Ukraine and whether there would be future partitions and whether the future of Ukraine wasn’t going to be unlike Poland in the 18th century if it was just gonna get salami slice, not just by Russia, but, there are parts of Ukraine that Poland would like back.

There are parts of Ukraine that Hungary would like back, even Romania gets in there and wants it too. And I got off of that take and I made, it was a classic mistake. I got to know some Russian analysts. And they insisted to me they didn’t want to conquer Ukraine that Putin was just positioning things politically so that he could get concessions from the West and that Russia, of course, wasn’t going to invade Ukraine because it was smart enough to know that it would be, an Iraq war type scenario that it could never possibly win and up until Russia invaded my Russian analyst friends were telling me that and then they went silent.

They didn’t want to talk to me anymore. And I made the mistake of listening to them and I got Putin wrong. Like I said, I thought he was, posturing. So even though I had the mental map at one point in my head of what was correct When the chips were actually down I didn’t have putin correct and it’s a mistake.

I still hate myself for making I will also say though It was also an example of good risk control because we actually had some exposure to russian equities at cognitive investments at the time Because we thought we were contrarian and saying an invasion wasn’t going to happen And the day that putin made that speech in front of his You National intelligence council or security council or whatever it was.

I called a meeting of the CI principles and I said sell the trade now, get out now. And they were all traders. Ah the chart, don’t you want to give it a few days? And I said no I’m wrong. Like this is broken sell now. And three days later, the Russian stock market. You couldn’t get your assets out even if you wanted.

So we didn’t take much of a loss, and I was very proud of myself for making the change, even though I was mad at myself for making the mistake in the first place. But I agree with you. Putin, I’ve gotten Putin wrong at every step of the way, because I have a sense of what I think, Is like what a rational actor would do in his position.

And his sense of rationality is not the same as my rationality. And I have just underestimated him and called him wrong every step of the way to the point now where I don’t even try I’m just going to see what he does and react.

[00:40:04] Dee: And, you get things wrong for your reasons in the same way I get things wrong because you’re an optimist and I’m a pessimist and nothing is that consistent.

[00:40:13] Jacob Shapiro: I, D, I just interrupt you. I don’t mind getting things wrong if I’m an optimist. I mind the Russia thing because I got things wrong because I was Gullible. I let people tell me something and I didn’t trust my own brain. Like optimism, that’s fine. Especially if it’s backed up with data. I let myself get lulled into a false sense of security because Oh, I know these guys in Moscow, they wouldn’t tell me something that wasn’t true.

That was that was, I really took myself behind the woodshed for that one. Anyway, go

[00:40:39] Dee: on. Yeah. Yeah. No, it’s, and this also gets to another fallacy. In thinking, which is, sometimes called recency bias. It’s that the, the, that the near future is going to be like the recent past.

And it’s a very curious thing because, change, we know that change happens suddenly. You don’t have a heart attack over a period of a year. You don’t get in a car wreck over a period of a month. The things that really change your life often happen very fast, but we’re always surprised that change happens so fast and and we’re always expecting the near future to be like the recent past part of that, that, in philosophy, that’s called the problem of induction and it’s the, it’s basically the idea that things stay the same until they don’t.

And, um, it’s And there, I’ve talked to neuroscientists and other people about why we have that kind of of, predilection. And, the best explanation I got is that the human brain uses more than 20 percent of the energy of the body. And so anything it can do to lower its energy use, it does.

And assuming that the past is going to, the present, the future is going to be like the past, is a way of reducing energy use. But of course. It doesn’t work when you’re in a highly complex and changing environment, but in terms of Putin. This is a guy who has been afraid of a shaman in Siberia, who’s, he’s not a rational actor and, and this is getting into territory we may or may not want to explore now or at another time, but I think that a lot of these people who become powerful leaders and appeal to people in a way that gets them into that position, whether democratically or otherwise.

But let’s say democratically are are not really don’t are not playing with a full deck. I think that there’s some quality of this certainty in this, aggressive certainty that those people display that appeals to. Individuals and families and people who have been oppressed or who are on the hitting end of the stick or whose lives have not turned out like they wanted and here’s someone who’s he’s got a simple answer.

She he or she has got simple answer. They’re going to be they’re forceful. They like the fact that this person, dismisses the elite and dismisses the structures and that very quality. get into these positions of power. And it’s a real dilemma because what that means, and this is not my observation, it’s been observed many times, but the things that Allow you to get elected should prohibit you from holding office, and there’s some truth to that.

[00:43:20] Jacob Shapiro: Yeah, we could say that forever. But I’ve already taken most of the time that I asked for from you and you’re being very generous. So there was one thing I wanted to ask you before I let you go, and you’ll have to agree to come back on to continue this. And next time we’ll do it with the actual beers like we were joking beforehand.

I know you cut your teeth a bit in Central America and South America and things like that. And you’re also based in Texas. I think aside from the U. S. Election, the most important thing that’s going to happen. Arguably in the Western Hemisphere this year is Mexico’s elections and the future of U. S.

Mexico relations, and I wondered if you could just give me your five minute like what? Do you see risks? Do you see opportunities? What do you think happened? If Biden wins versus what do you think happens if if Trump wins? It’s pretty clear. It’s Marina and Shinebaum in Mexico itself, whether it’s a super majority or not might be the question there.

But just curious to get your take on Mexico and U. S. Mexico relations. The short version.

[00:44:09] Dee: Okay. I, that’s another 30 minute conversation, but I’ll try to boil it down to three minutes. Scheinbaum is not amlo. He, she is very different from and she looks, she sounds the same. But she actually is very different from and she will rule in a different way.

And she is not as hide bound by these old I don’t want to call them hatreds, but these old, ideas about the nature of poverty and then, and that sort of thing she does, she will agree with them intellectually, but she, I think she’s going to here’s a case where I’m somewhat, I’m guardedly optimistic.

I think she’s going to be a better president. I think she will be the president. There seems to be no, no other person who could be given the demographic and voter, the whole situation. But I think that Mexico is is fantastically insecure because of criminal activity. And, what’s happened is that and this is an interesting example of whether, of a way in which, and I’m not making an argument here, but a way in which an open democratic system may be worse than a closed system.

In the past, you had for all. More than 70 years a specific group, the PRI ruling Mexico. And one of the things that, that they did, and it was corrupt in this, in the, at least the Western definition of corruption. That’s a whole other argument, but is that they had an arrangement with the drug dealers.

And the arrangement was, if you don’t screw around with Mexican society, You can do what you want. You can, keep doing your, we’ll look the other way. And when that system broke and the and different parties were elected, the PON and so forth, that whole system went away because you didn’t have a, you didn’t have anything like a a foreign serve a government, bureaucracy that wasn’t political.

They were, it was all, so those people got replaced. That whole system, good, bad, or indifferent, fell apart. And so the drug dealers found themselves in a very difficult place. They were not able to just do what they did. So they became much more violent. At the same time, the drug demand from the U.

S. increased significantly, at the same time, you had, Mexico was a transshipment point for things coming in from Asia as well as things coming from, further south in Latin America, and So the Mexican drug gangs became criminal gang, became institutionalized criminality. And they got into kidnappings and there are two kinds of kidnappings and they’re, they got into avocado for farming, all these kinds of simple businesses, which is what, groups like that can do.

It’s also, by the way, what people like Putin can understand and his crony. But anyway so the whole thing began to just. fall apart. And it opened up a, it created a need among these criminal groups to do other things because they were under more pressure and it created a, an opening for them to get into these other businesses.

And now it’s permeated the society. And so I, and then you’ve got the pressure of the population movement that is going to get much more pronounced and, a very large portion of the immigrants at the U S border are not even from the Americas. They’re from, it’s from Ukraine.

They’re from, they fly. These are, it costs you, Venezuela, but it costs you about 30 to 50, 000. If you’re, if you want to move yourself from Santiago, Chile where this kind of underground railroad starts up to, and into the U S so the people who can do this are they’re middle class, at least.

They’re not. poor. And and so it’s become a huge business moving people all the way from Chile, mostly that’s where it starts up through the spine of of South America, across the Darien Gap, which is its own thing, across Central America, across Mexico and into the U. S. And there’s, it’s corrupt all the way through, which is also an interesting topic.

But. Mexico is the nexus point of all this and it’s been very destabilizing. On a society that when I was young, you could, you could just leave something somewhere and nobody would even steal it. It’s just it’s become a totally different place. I think you’ve got and now we haven’t even gotten into the U.

S. Mexico, the U. S. side of the U. S. Mexican relation. But I think you’ve got a glimmer of possible hope with a new person who’s not on low and is not going to have, it’s been an hour and a half every morning or more having these TV speeches that literally every day and who’s not, coming up with things like whiteicans, the term they use for Mexicans who are elites and look like the end of the crusade.

They’re not, they don’t look like the U S they look like elites look everywhere. And but just who’s, who is who is determined to upset the status quo in Mexico because he’s so resentful of it. And he has every right to be resentful. The poor people in Mexico had been horribly shat upon, But nevertheless, it has created, it has just added another layer of resentment and instability to Mexican society.

That may start to ameliorate a bit. But then you have the drug demand from from the U. S. and you have the supply of guns going into Mexico from the guns and other weapons from the U. S. And and it really is probably my favorite place in the world. I think it’s one of the most fascinating, interesting countries.

It has an ancient history that is equal to any the food is amazing. It’s just a great culture, but it’s really going through a bad period and I don’t see that, sadly, I wish I could say I did, but I just don’t see that changing in the near term, given all these pressures in terms of what a Biden or Trump will do.

Trump, of course, and AMLA were very much alike, and they got on even though one was far to the right or claimed to be, and one was far to the left. Now, do left and right even make sense anymore? That’s a whole other argument. But I think that, with Biden, you’ll have a more of a less of a status quo and things will quiet down a little bit.

But with Scheinbaum if, with With Trump, he will try to see the AMLO and Scheinbaum and he will also really try to crack down on the border because that’s what his constituents want. So, there’s, there are pluses and minuses. But it’s going to be, and I agree with you, it’s certainly the most important thing in the hemisphere and it’s one of the most important things in the U.

S. And, Mexico is once again the U. S. Leading trade partner. And interestingly enough, 50 percent roughly of the trade between Mexico and the U. S. goes between the northern states of Mexico and Texas. We’re right in the And you’re not far in New Orleans. It comes up to our part of the country.

And Anyway, those are a few thoughts. More than three minutes. Sorry.

[00:51:23] Jacob Shapiro: No, that’s great. We’ll pick it up there next time. I’m reminded of politics is a flat circle when it comes to ideology. But we could talk forever, but D, I can’t let you talk forever because you’ve already been generous with your time.

You’ll have to agree to come back on soon, okay? Look forward to it. Thanks again. Enjoyed it. so much for listening to the Cognitive Dissidence podcast. It’s a podcast brought to you by Cognitive Investments. If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive.

Investments. That’s Cognitive. Investments. You can also write to me directly if you want at jacob at Cognitive. Investments. Cheers and we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements.

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The post 194 – Dee Smith: God, Sex, & Death appeared first on Jacob Shapiro.

[00:00:00] Jacob Shapiro: Hello, listeners. Welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. Before we start the podcast today, I have a favor to ask of you. I don’t normally ask for favors on the podcast.

We don’t charge any money for the podcast. You’ve probably noticed there are no ads on the podcast beyond Rob and I patting ourselves on the back. We’re more likely talking about some of our mistakes in terms of our investment strategies. But I could use Just 120 seconds of your time in the show notes.

There is a link to a survey that we are putting out It’s a survey about us potentially designing a curated exclusive community around things like our research Monthly consultations maybe in person events things like that. We’re really trying to explore whether people want this Whether there’s appetite for it, what types of things people want.

So it’s a five or six question survey. It will literally take you less than two minutes. The link is in the show notes. If you could just stop what you’re doing right now and fill out that survey for me and get back to whatever you’re doing and don’t do that. If you’re driving or if you’re on the trip, if you’re listening to this on the tractor as a listener told me, he likes to listen to the podcast when he’s on the tractor.

I do that when you get back inside. But I would super appreciate if you could just take the time to, to answer those survey questions for us to figure out if this is something that, that our listenership and our community even want. So thank you in advance for doing that. Rob and I are back at it for our weekly chat.

Rob is deep in earnings this week and I’m on the road. So we riffed a little bit. We we talked about China and the U. S. We talked about France. We talked about and of course our usual level of humor is there for you as well. So we also recorded a day early. So we recorded on Wednesday, May 1st. I assume nothing insane is going to happen between now and then, but if anything feels outdated, if we missed any cataclysmic thing that happens on Thursday, which I hope doesn’t happen that’s why, and we will certainly update on it if not immediately next week.

So, not a whole lot else for me to say, take care of the people you love. Cheers and see you out there. Listeners, welcome to the 10th most popular politics podcast in Pakistan. We are happy to be with you. How’s it going, Rob? I thought we were number six in Pakistan. No, we dropped four slots. We are number 10 in Pakistan.

So thank you to all of our many Pakistani listeners. We really appreciate you. We didn’t talk about this ahead of time. Have you seen the heat wave numbers in Southeast Asia over the past couple of days? I have absolutely nuts. It’s particularly brutal. I wrote down some of the temperatures here.

It’s 101. 8 in Manila, 110. 8 in Bangladesh, 114. 8 in Calcutta, and even Japan is having record highs in April of 86 degrees. It’s the 11th https: otter. ai hottest month on record. And 2024 at least for the first couple months of the year looks by far like the hottest year. Since they started keeping a lot of data in the 1940s.

Some of this is because of El Nino and the expectation is that we’re going to go into La Nina towards the end of the summer and the temperatures will come down a little bit. But it’s pretty striking when you look at how hot things are in Southeast Asia. And I gave you some of those temperatures.

That’s just the actual reading. The heat indices are, between 120 and 140 in some places, which that’s apparently the limit of human survival. So jokes aside about being a popular, podcast in Pakistan, the sort of a boiling the frog metaphor when it comes to, to climate change in Southeast Asia seems to be alive and well.

That’s a

[00:03:19] Rob: bummer of a note to start on. Geez.

[00:03:21] Jacob Shapiro: No, I thought you would be excited because I thought you would say that our thesis on air conditioning and emerging markets is going to have a great future with these. That’s a slim Slim compensation, let’s say,

[00:03:33] Rob: but

[00:03:34] Jacob Shapiro: yeah. No, but I do think it, I do think it portends a little bit of a shift or I wonder if it portends a shift in energy markets and power demand and how we think about these things, because for a long time, it’s been the winter that everybody worried about and chase over at pine cone is one of the first people to say this, and I’m not the first to say it at all.

But just thinking about the summer actually, as the. the point in time in which power demand is going to be at its highest. And even thinking of countries like it was the UK a year or two ago where they were having heat waves in the summer. And a lot of people didn’t have air conditioning.

So now you have this general move to, okay we’re going to have to cool the buildings and the structures. Southeast Asia, you expect that kind of high heat. You can go back and read Winston Churchill’s diaries about what it was like to be in India back in the day that they’ve always had these super high heat waves, even if they’re a little bit higher now than they were.

And maybe some of our recent data, but 86 degrees in Japan in April. That’s shocking here. So I feel like it is going to have to change the way that people live and interact with weather and what the environment around them. And I think that means change. Yeah.

[00:04:35] Rob: In all seriousness, it is not only a boon for air conditioning, but if you look at the trends in electricity demand and how that’s been really accelerating Already.

This could have a major impact on that if you just think about the spike potential for electricity demand around air conditioning, both as new people adopt it who are lower down the income spectrum because it’s a, it’s an essential good. It’s like the 1st thing you buy as soon as you can in in any country.

Like this but then just the increased demand as cooling degrees days go up so dramatically in some of these places. I mean, it’s a pretty, it’s a pretty high potential, uh, demand. Supercharger for electricity. You could say for sure.

[00:05:25] Jacob Shapiro: And I think it also fits with some of our, in our innovation strategy, trying to find places where people are innovating and like people are going to innovate around this.

We are not going to see Bangladesh and the Philippines and India and Pakistan empty of its people and go to other places like that’s too many people. It’s not simply going to work. I think people are right to bring up, what does this mean for humans living there? What does this mean for agriculture in these areas?

But the answer is probably that we’re going to innovate or these countries and scientists are going to innovate their way out of it. They are going to find ways to adapt to their environment just like human beings have all the time. But it’s just, I think you’re getting a picture of the scope of the problem in the future and the kinds of solutions that are going to be there.

Yeah. And I don’t think I don’t think enough people are talking about that and they’re not talking about it because we’ve had these sort of high temperatures for years. It’s the sort of thing that backs into your consciousness. Oh, over there. It’s really hot. And I don’t know. I just thought it’d be worthwhile to start there to Rob.

I know you’re in earning season and you’re the short seller, but I want to take a little victory lap here. My call. A year ago that Starbucks was not going to be good because their coffee is shit They are down 12 in the pre market. Did you take my advice over at off wall street or did you pass on that one?

[00:06:34] Rob: I pitched them on their honey. I pitched them on your shit coffee thesis, but They thought it wasn’t sufficiently rigorous. Yeah.

[00:06:43] Jacob Shapiro: Early bird gets the worm there. Not that I actually put in capital to deploy there as well. All right. Sorry. We’ve been joking a little bit. There’s three main things I want to get to here and Rob’s in earning season and I’m on the road this week.

So we’re a little all over the place. But the first place we haven’t talked about the Chinese economy in a minute, Rob, and we’ve changed some of our or We added some Chinese exposure to one of our strategies this week. We’ve been thinking a little bit more about China in the long term. I thought it was funny.

There was a spate of reporting earlier, early in the week about the Chinese communist party. I’m going to read from Bloomberg here, just cause I love how wishy washy this language is. They are vowing to explore new measures to tackle a protracted housing crisis. They are going to research ways to deal with.

There are problems as well as make flexible use of tools to support the economy and lower overall borrowing costs. So this was like front page of Bloomberg online. So they’re going to explore new measures and research new ways to deal with problems. Wow. This is really cutting news. And there’s also a, there’s a diagram in this article.

I wish I’ll put it on the YouTube channel. People want to see it there where they take the December policy statement and the April policy statement. And they have the quotes, on fiscal policy on monetary policy, macroeconomic policy, and they’re literally parsing the words like, Oh, in December, they said proactive and stepped up appropriately.

Now they’re saying proactive fiscal and maintain necessary fiscal spending intensity. What could this possibly mean about the changes that the Chinese government is going to push through in order to support the economy? All of which is to say there’s a lot of bullshit here, but the two things that don’t seem to be bullshit is that the Chinese government is, their growth rates exceeded what people thought.

So grew at about 5. 3 percent for the first quarter which was interesting. And they’re vowing to continue some of the support and pushing the economy forward. And then the second thing that I don’t think you can argue with is the market. Is acting like something has changed in China. There’s been a, an about face there and what has been a down and to the right trend for over a year.

So pick it up from there, Rob, and explain what looks interesting to you and how serious we should take some of this.

[00:08:52] Rob: There’s a few different areas to get into. I guess you could talk about fundamentals and then you can talk about. The market action and what it tells you. Let’s start with the last one first, cause it’s the simplest one.

Something is changing in the Chinese equity markets. So being short China or out of China has been the consensus trade for the last two years, really. And we’ve been. In all disclosure, we’ve been out of China and our international strategies, very deliberately and done very well with that.

So we’re definitely part of the crowd on this one, but being part of the crowd means you have to be watchful for when that, Consensus train is starting to break down and I’m just looking at the market action. You can see in the last two months, Chinese equities, whether you’re looking in Shanghai or in Hong Kong, they’re trying to hammer out a bottom here.

And on a number of measures, the Shanghai index appears to have broken a lot of downtrends in the last week with this move. And that’s a big deal that should cause people to pay attention because the sentiment is pretty one sided. And when Mr. Market starts to gain, say the sentiment, it’s worth taking a look at that.

That’s one reason why it should be on the radar screen. And so if you start with that and then look fundamentally and try to back into it, cause this is often how we do things, what are potential theories or theses that could explain market action? And we adopt to the ones that, that seem to work and throw out the ones that don’t.

So if you’re inclined to say, okay what’s changing in China? I think one of the big things is simply the global economic cycle is turning outside of the U S previously, remember we’ve spoken about how the tectonic plates are moving in opposite directions in a way they never did before.

So previously the U S was on fire and has It’s pretty much continued to be on fire and the rest of the world was absolutely in the dumps because the U. S. was shedding inventories and the global manufacturing cycle was very weak. Now you’re starting to see things shift in the opposite direction. So both pendulums have gone to their extremes and the U.

S. you’re seeing some incremental data showing a little bit of a slowdown from where things had been, which was very strong. And outside of the U. S. things are really rebounding. So European ISM indices for manufacturing and services are both rebounding and China manufacturing is kicking back into gear again, nothing gangbusters, but relative to what it had been, this, the sort of second derivative is moving positive.

That’s a big deal because, that’s going to drive a lot of risk assets, especially outside of the U S and it’s the, probably the number one Risk assets in the U S. But then within China itself, I think there’s a growing awareness that the treadmill to hell issues with the property, are understood, that’s going to be a slow motion train wreck that takes place over a very long period, as we’ve said.

And yet at the same time, they’re shifting their gears to trying to promote and encourage positive, manufacturing activity and exports in other areas, just try to take up the slack. Now, I don’t think they’re going to be successful in that in any truly fundamental way, as we’ve talked about. But in the meantime, it’s driving some growth.

It’s passing the buck from the property side to other areas, within central government control and influence. And that’s pretty good. That’s buying them some time. So I don’t think there’s been a massive structural change where, Oh, China’s out of the woods. I don’t think they’re going to be out of the woods ever, but within that sort of longer term problem set, how do things get rid of relatively better or worse over time?

And I think we’re heading into a, a partial Sunrise, if you want to describe it as that.

[00:12:57] Jacob Shapiro: Yeah. I read the Bloomberg article and I’ve, I want to emphasize like, there’s really nothing here that has changed. They’re, a more supportive fiscal stance. They’ve had a supportive fiscal stance, a pledge to expand domestic demand by supporting consumer product trade ins and equipment upgrades, they’ve been talking about that forever highfalutin words about the new productive forces in the economy again. We’ve been talking about this sort of forever. So something has changed sentiment wise. But I don’t see that anything that we’ve seen actually matters that much, except the one thing I would say is you, There’s been a lot of talking Chinese press.

This is the stuff that doesn’t make it to Bloomberg. Boring stuff about reform in the securities market and thinking about the Chinese stock market becoming a place that, Chinese investors themselves could be more comfortable parking their assets. But those goals, they have goals for 2030, 2035 becoming a sophisticated market and dealing with.

a lot of the fraud that is out there right now. So that’s not something that’s going to happen anytime soon, and that’s also sort of pie in the sky stuff. So there is something there as well. I was at dinner last night with some folks at this conference that I’m at, and I talked about how the U.

S. economy has been running hot and the U. S. consumer has been doing better than before. And one of the guests there challenged me on that. He said, okay, I hear you from a market’s perspective, but isn’t the U. S. middle class declining? And Isn’t the U. S. consumer, the average U. S. consumer, actually doing worse?

I went back and did my homework here, but I thought I’d lob up that softball for you before I tell you what’s actually been going on.

[00:14:21] Rob: You mean you know the answer, but you’re going to ask me to guess how the class is doing?

[00:14:26] Jacob Shapiro: I have an answer and I think I know what your answer would be, but I wanted to know if you were in the room with me there, how you would have answered that question.

[00:14:38] Rob: I think you could look at, I don’t want to go on and on, but there’s a number of measures you could look at that suggest that real wages for many people are doing better than they’ve done in a very long time. And much depends on what you. Considered to be middle class or, that’s this fantasy concept anyway, but I think if you look around most people, unless you’re, a new couple looking to buy a home in this crazy time, most people are doing quite well.

inflation notwithstanding.

[00:15:10] Jacob Shapiro: Yeah, the reason I wanted to ask your gut take was because even two, three years ago, one of the very first slides that I would put up when I was doing presentations was a chart of U. S. wealth inequality. And I would throw out the incredibly impressive statistic that U.

S. wealth inequality was greater than at any other point in recorded U. S. history. It was greater than in in the 1920s greater than, or going into the great, it was greater than the period in the 1920s that we go into the Great Depression with and that usually, made people stop in their tracks.

I had to take that slide out of the deck because it hasn’t been true anymore. And between 2019 and 2023 there have been wealth gains for almost every segment of the U. S. Population. But Folks that were earning less or who were in racial and ethnic groups that had sizable wealth gaps, they’ve seen increases.

So for instance, if you look at black families, median wealth, that’s up 66 percent since 2019. Hispanics is up 30%. 38 percent since 2019. The one thing that I think is interesting and these numbers are from the St. Louis Fed and this I did not know because I was going back to double check myself to make sure I wasn’t crazy because my answer to this guy was, I think the data shows that actually people are doing well.

Now they’re, it’s starting from a really high place of inequality. And maybe you could say that some of the narrowing of the wealth gap is because of COVID 19 stimulus. And maybe those things will reverse, but at least for the past couple of years my impression is that things have been going pretty well.

The one place where things have not been going well is the spread between wealth and young families and old families. Now, young, Households themselves have seen a huge increase in their median wealth. What is defined as younger families by the St. Louis Fed, by the St. Louis Fed, that’s up 137 percent since 2019.

Middle aged families up 22%. But what has increased pretty significantly is the gap in dollars between younger and older families. So older families are just significantly wealthier than younger families relative to where they were before. It makes sense that older families are going to have more wealth than younger families, but that gap has gotten significantly wider despite the gains for younger and middle aged families in the current environment.

And I, I think that’s an interesting thing to focus on because I hadn’t really thought of that. And if there was this sort of. Demographic gap opening up between the older generation and the younger generation right down to, you know The money that’s actually in their bank accounts and in their pocketbooks Maybe that’s something I should have known but the data just stuck out to me when I went back to double Check my answer

[00:17:38] Rob: I think it’s interesting to look historically at periods like this because And it’s something that, different generations will have different policy preferences based on what their wealth base looks like.

It used to be in the U S that we would have a hard money faction, which was old rich guys and they would prefer the gold standard and they wanted, Disciplined lending and hard money because they own the assets and they knew that if there was an inflation that they would be the ones to get screwed.

And that’s usually how it is for owners of wealth, especially because traditionally owners of wealth primarily own debt. They own government bonds. They owned, maybe some railroad stocks, like there just weren’t many options. And it’s funny because you don’t really see that constituency anymore.

And I think because the owners of great wealth today are the, our own equity, because the ability to do so in a diversified way is just so much greater than it once was. And that creates different incentives. Those people are very happy with the current way of things because their home prices are going up.

Their stock portfolios are going up, their bonds are getting killed, that’s not a huge portion, relatively speaking of their total asset base compared to what it once was. I think it’s worth thinking about what are the, what is the boomer generation want and what is the younger generation want in terms of optimal growth, inflation, volatility, social volatility.

Like we talked about, like one of the things I was thinking about recently, cause I was reading some history stuff was like, it’s very unusual. How great. That’s right. And like you’re saying it’s all about this. It’s all about it’s about the, it’s the foundation of people being human. Like your, the foundation of a human is we, if we have to look at more than just the physical aspects of our humanity, that’s what we have to do.

We have to look at the mental tasks. We have to look at the moral tasks. We have to look at the emotional tasks. We have to look at the spiritual tasks. A 20 year old today takes for granted. And even at our age, I think it’s weird. Like that’s probably a good sign for dynamism and social volatility and all this stuff that we talked about last time.

And it also means that the intro generation. Fight is probably going to be more more fierce than it has been in the last generation, if that makes sense, like things were so stagnant, we were too similar to our parents is what I’m getting at, because our experiences weren’t that much.

different relative to modern history.

[00:20:27] Jacob Shapiro: I hadn’t thought of that. While you were talking, I also was looking up what percentage of America, cause you, you said that, wealthy people are holding equities now, whereas before they might’ve held debt and things like that. What percentage of Americans do you think own stock?

[00:20:42] Rob: I would guess 40%.

[00:20:46] Jacob Shapiro: Okay. So it’s this is from Pew. So It’s 61 percent own stocks directly or indirectly and the ethnic breakdown there is remarkable. 66 percent of white families do versus 39 percent of black families, 28 percent of Hispanic families, but 61 percent overall own stock directly or indirectly.

Only 21 percent of Americans own stocks directly themselves. And that has increased from roughly 15 percent in 2019. So there’s a pretty sharp increase there in general. But we’re still talking about, the Americans who own stocks directly. So I would take that to mean who aren’t just invested in ETFs and things like that in their retirement accounts.

We’re talking about one fifth of the population. Why don’t we pause there. That was a nice dovetail of China and the U. S. And let’s move on to Emmanuel Macron keeps doing stuff on Thursdays and Fridays, and it’s interesting, and I want to talk about it on the podcast, but then we’ve already recorded, and we don’t get to talk about it.

So I want to talk about his speech last week at the Sorbonne and I want to I take it you did not go, Rob. They probably didn’t let you in, I would think.

[00:21:45] Rob: No, I did not. I was invited, but I I was busy that day.

[00:21:50] Jacob Shapiro: Yeah, you probably would have needed at least three of those coffees to stay awake, because you went on for quite some time, apparently.

There was a lot of interesting things in the speech. I actually put out a link to it in the SITREP last week for people to read. I’m going to read one quote from it right here. And then I want to get into the substance of what he said. He said that, he, he did some self congratulatory pats on the back for what Europe has accomplished over the past couple of years.

And then he gets to this sort of crescendo that his message today is simple. At the end of World War I France knew that, knew that our civilizations are mortal. We must be clear about that fact today that our Europe is mortal. It can die. It can die. And it all depends on our choices. These choices have to be made now.

And the three things that he talks about in terms of Europe’s mortality, he talks about, he uses the word capacity. What he really means here is military capacity. And he talks about how France has doubled its defense budget, but that everybody else in Europe has not responded accordingly and needs.

I thought it was interesting. He called out the United States in that section. He said the U. S. had two priorities. America first, which he describes as legitimate, and China. And he doesn’t say anything about China. I don’t know whether that was just a mistake in the sort of the translation, if it was herky jerky in the English, or if he meant to say America first is legitimate, but this whole thing about China, eh, not so much.

I’m not sure how to read that one. The second change that he talked about, though, is the economic model. And he talks about how it’s not sustainable at all. And it’s interesting to see him compare and really lionize Europe’s desire to take care of people, like its social security network and things like that.

But saying that how Europe works right now is not competitive with China and the United States. And that Europe can’t have these environmental and social standards invest less than their competitors, have a more naive trade policy than them and think that they’re going to continue to grow jobs. It just doesn’t make sense.

So he talks about, thinking seriously about how to get tough with the United States and China because they are no longer moving in the same direction and Europe’s behaving like they are, like everybody’s trying to join the WTO and hold hands. And then the last thing he gets really introspective about what he calls the culture war, the battle of imaginations, narratives and values.

And it’s refreshing to hear a European leader say, we thought that our model was irrepressible and it’s been shown to us that it’s not that that our model is being increasingly criticized that there’s a reversal of values, that we are vulnerable to all of these approaches because the things that we’ve been taught.

And that Macron thinks are good in some place are being defeated in the narrative marketplace and the ideological marketplace and that this is something that Europe really needs to focus on. It’s just a speech at the Sorbonne. Macron likes to make lots of speeches. This speech was a follow up to his speech in 2017 where he laid out a bunch of stuff.

But it was very striking. We’ve talked about Macron trying to have France lead the way here. And if what you want is a stronger, more coherent Europe that is going to behave in a way that is more explicitly geopolitical. He said all the right things. So you’re in France. I wanted to get your take on what Macron said.

How much of his how much of it is realistic? How much of it is, Macron setting his legacy as he starts to look towards the end of his time in office? Tell me a little bit how you react to all that.

[00:25:03] Rob: I think Mario Draghi said very similar things in his recent speech and has been, echoing a lot of the same sentiments, even back when he was the ECB head, before every meeting, he would make similar comments about European unity and fiscal spending and reform and these sorts of things.

My concern, just seeing things. To get politics to move their way. And I think that is something that elites will recognize ahead of time, and Macron is the elite of the elite, and he’s clearly trying to change the narrative and get people focused on what he views as the most important challenges, but that elites will struggle to get to get politics to move their way.

And to implement some of the things that need to be implemented. And it reminds me if you read about France in the 1930s, for example it just wasn’t politically possible to create a coherent policy, both because and because the politics internally were so vicious that everyone was looking to stab each other in the back, even as the Nazis were basically on the doorstep, everyone is still saying how am I going to put this to my political advantage until none of that even mattered anymore?

And it was too late. But when I say the capacity, just the sense, and this is, has been true in the U S politics historically as well. That in order to make big changes, I think historically you need to have big crises. And one of the reasons why I was very positive on European integration and reform and investment coming out of the Russia invasion was I thought that would be a sufficient catalyst to really scare people.

And wake them up. I, I don’t think that was right. That’s not my sense. And I’m not sure what that catalyst would be to get drastic change or drastic levels of investment in what’s viewed as strategic priorities. I don’t know. What do you think?

[00:27:15] Jacob Shapiro: You don’t think a second Trump presidency would would basically make that case for itself?

[00:27:22] Rob: I thought the same about Russia and I thought the same about the first Trump presidency. Maybe a second Trump presidency would. We’re farther down the path than we were then, obviously. It’s been almost 10 years. But I also am wary of overestimating how much people care. Until, speaking of boiling frogs, until something is really at crisis levels.

[00:27:49] Jacob Shapiro: Yeah, this was actually one of the other parts of McCrone’s speech that I thought was useful. And I’ve been doing some research for some other reasons about human psychology and about the human preference for remembering bad things over good things. There was this one study that I was reading from the 1970s where they, It’s an interesting study.

They have lottery winners, and then they have people who had recent accidents that resulted in amputations, so really bad accidents, and then a control group where nothing that serious had happened to them. And a year later, they found that, not surprisingly, the people who had the terrible accidents were pretty miserable, and they were thinking about their life before.

The control group was the control group, and the lottery winners were just as miserable as they had been when they won the lottery. It was like they had adjusted to winning the lottery, and all their problems were still the fact that they had done so They didn’t remember what things were like before, if anything, their tastes had increased and they needed more expensive and better things in order to derive the same pleasures that they did before.

And I say that because the first half of Macron’s speech, he talks about everything that Europe has achieved in the last couple of years since Russia’s invasion of Ukraine and since the COVID 19 pandemic. And it’s an impressive list. He talks about the joint issuance of debt, which was a red line that would have never been crossed, then suddenly was crossed and about the financial unity that really opened.

He called it a Hamiltonian moment for those of you who are Hamilton nerds here in the United States. He talked about the coordination of health policy in regards to, COVID and how that really helped in general, he talked about laying the foundation for technological and industrial sovereignty and all the agreements that they have with Germany in pursuing some of these things.

He talked about the green new, he goes down the list of all the things that Europe has accomplished over the last six or seven years. And his point is none of it is enough. But we have done these things, like we have been spurred by crises to do these things. We have to take it a step further because we are faced with a United States that we can’t depend on, a China that is trying to eat our lunch money, and we have bigger crises that are going to come down the road.

So I take your point that, they had COVID, okay, they breached financial unity, but we then it stalled. Then they had Russia invades Ukraine. Okay, there have been some increases there, but things have stalled out a little bit or the weapons actually being supplied at the rates that they needed to be for the Ukrainians, et cetera.

But the way the world is working right now, I assume there will be a third crisis at some point. And if there is a blueprint. that they can pull out when they have that kind of political support to push through some of the changes that are more unsavory then maybe it works. And, there are ways or things that Europe can do right now that are currently under crisis.

Think about all these farmer protests that have been happening inside Europe in general. Macron goes after agriculture in a big way in this speech. He talks about how Europe can’t be dependent on other sources, how it needs to protect its agricultural market. It needs to protect its farmers and deregulate and make it easier for them to do things that it’s ridiculous what the European Union is doing to them.

That is not the language of Brussels. You wouldn’t have imagined somebody who is the elite of the elite. Speaking farmer’s language and talking about making life simpler for them and protecting them and not having them as an also throw in trade deals and things like that. So I take your point like it’s not far enough and it’s not enough.

But I assume there will be other crises for Europe to push forward on. And at least it looks like for now, In 2024, they’re going in the right direction. To me, the more concerning thing is that Macron can’t run again. And if you look at who’s waiting in the wings in French politics, it’s nobody that is super Europhilic.

And when you look at support for the European Union in general, When you look at all the Euro barometers, usually France is at the bottom, like it’s usually Poland and those other countries who feel better about the European Union and Germany has been ambivalent. So I do worry that this is a flash in the pan that Macron in the same way that this is a stretch of an example, but think of the way Obama pushed the Iran nuclear deal and then wasn’t around to see it through.

And somebody came in and abrogated it and changed his entire policy, whether it was the right policy or not, I don’t want to debate that. Just that, he had a policy. He couldn’t get it in the form of a treaty. It was weak. And so it got torn up by his successor. A speech at the Sorbonne, no matter how well articulated is not going to protect the next French government from doing whatever it decides to do.

And Macron is the outlier here. He’s always been the outlier. So I take your point. There’s a limited amount of time and there’s probably not enough. Momentum for France to lead the European Union in this direction while they have a leader who is articulating these principles.

[00:32:12] Rob: On France specifically, I think I wouldn’t underestimate their ability to affect change.

I think when Macron first came into office, he was viewed as more of a technocratic kind of guy. He’s shown himself To be different than that. And to really like the executive power in France is quite strong. And this is one of the things that de Gaulle always spoke about was like creating the fifth Republic solved the fundamental flaw that’s been plaguing France since 1789, which is, how do you strike the balance between, Centralized top down power and, growing community socialist type power.

And that compromise that they came across is a fairly strong executive. So I don’t think it’s too surprising that someone with the personality and force of Macron could come in and really do a lot of stuff, even stuff that were, was widely panned by everyone and was stupid, like the pension reform.

He had the ability to push that through. It’s TBD to see who’s going to rise up and maybe take that role now that the two kind of center right and center left parties have basically just disappeared. Like it’s a fairly open playing field for. Political entrepreneurs and individuals, because it’s up for grabs.

Like the far left is very out of the mainstream. The far right is big, but also easily can hemorrhage voters to a center right party. The it’s very open to see what’s going to go on. The thinking about Europe more broadly and specifically from an investment standpoint, I’m as I said, not super optimistic that this is going to happen in the short term.

And by this, I mean accelerated structural reform, accelerated centralization, shared fiscal sovereignty, these sorts of things. But I’m also used to thinking in terms of shading areas of risk. And in this regard, I think this is really positive because Europe has been out of favor for it.

Like my whole career, international stocks and Europe in particular has been just the beating, the beating horse of every investor and pundit. Oh, structural decline and demographic weakness. And there, Oh, did you see, it takes eight months to fire someone and the whole thing.

Don’t think that sentiment has gotten much better despite the fact that a lot of things on the ground have gotten better. And much like we’ve talked about with Japan, which is, farther along in that process, because I think there’s more people excited about Japan. But three years ago, when we were talking about Japan publicly, I think at the time we said, Hey, Japan’s been out of favor for a generation and everyone hates it.

And they’re not paying attention to these things that are getting better beneath the surface. Something’s changing. I think Europe is similar. And I also think the risk profile is skewed in our favor, because as you said, Some crazy shit is going to happen in the next couple of years, just statistically, just the way that the world is set up right now, and that could very well create the opportunity to, have European politicians coalesce around certain ideas or an urgency to act and implement some of the things that have been on the drawing board, the alternative is, What everyone expects to happen anyway, which is nothing.

In investing, it’s all about what are the expectations and then what’s going to happen relative to those expectations here, the expectations have been set very low. So if something happens, people are going to be pleasantly surprised. And if you look at the gap in valuations or just performance long term between Europe and the U S or, you know, however you want to measure that, there’s a lot of ground to be made up.

So I still think if you. Throw a dart 10 years from now, I would take some of these international markets over some of the high priced, high value high valuation U. S. stuff that’s out there and universally loved.

[00:36:15] Jacob Shapiro: And maybe the next crisis for Europe is a true black swan. Don’t talk about any earthquakes in London or anything like that, Rob.

We don’t want to upset people. But just two thoughts before the Russian invasion of Ukraine and COVID and all those other things. I think I’ve said this on the podcast a couple of times. You probably remember this. There was an incident where, France and Turkey are on opposite sides of the Libyan civil war and Libya and French and Turkish.

Naval ships locked on to each other in the Mediterranean because they had a dispute about somebody bringing weapons in to support their side. These were two NATO allies who literally, locked horns in the Mediterranean. Nothing happened, but there was a moment where the ships, like the radars, were on.

So I think the role of Turkey here in the future is one potential place for a crisis. The other one might already be happening in slow motion. What’s happening in Sub Saharan Africa in terms of violence, in terms of food security, in terms of political security, I think we’re only just beginning to see the migration numbers crest for Europe and I think the migration crisis that Europe is facing is going to be orders of magnitude worse than say the United States is facing right now and which has become such a big part of the, this political election cycle and in some ways it’ll be good for the European countries that can integrate migrants or screen them so that they can improve some of their demographics.

pictures, but I don’t know maybe the crisis is already there. Maybe we’re going to see some of those changes in general. Before we end, Rob we talked a little bit about steel last week and I want to pick it up where we left off. And the reason I want to do that is because we’ve now in the last couple of weeks Joe Biden.

And the White House announced an increase in tariffs on Chinese steel and aluminum threefold a couple of weeks ago. But we’ve got a couple more countries now that are joining in. So Mexico has talked about raising tariffs on imports of steel. That’s probably aimed at China. Brazil has decided to step up protections for its steel makers.

It’s actually increasing its quotas up to about 25%. The current tariffs are around 11%. Chile has also imposed what they call temporary anti dumping tariffs on Chinese steel. So that’s now, four countries in the Americas who are suddenly raising tariffs on steel, worried about China flooding their markets with steel.

And this is an old story. China has made too much steel for itself to consume and it’s been exporting it out into the market. And I know you’re going to tell me that even though steel is costly to export China has so much of it and they’re trying to get something for the steel that they produce that it is out there.

And in a market like Brazil, where it’s super cheap, it can get there and it can start to affect the market a little bit. But it struck me that we had four different countries in the Americas now talking about steel tariffs. So this is no longer just, Oh, Biden trying to win some voters in the Midwest or in steel country in the United States.

It feels like something else is happening here. And I wanted to get your take on that.

[00:39:01] Rob: Part of this is the fallout from the treadmill to hell situation, because the reason why China has so much damn steel capacity is because they built, the equivalent of a medium sized city every month for the last 20 years.

So that’s going to be a looming and major problem politically and economically is what do you do with this over capacity in steel? Now that bubble is falling apart. Steel is very unique. Steel is weird. Steel is not just any other commodity. I think historically steel has been the thing that countries that are first industrializing learn to do first.

If you can make your own steel, you can do a lot. You can make cars, you can make buildings. It’s a major component of everything that we do. So there’s a strategic element to steel. Particularly because you need it to make weapons, for example that doesn’t exist with, air conditioners or whatever, other manufactured good you want to talk about.

So it’s not too surprising that countries are particularly sensitive about it. It’s also a sign of how strategically important it is that steel is made in so many different places. Like all those countries that you listed, Chile makes its own steel, really? There’s a reason for that in part. And it’s, not just the difficulty in shipping it around, like it’s not the most easily tradable good, given how, sort of weight to, to value elements there.

So yeah, I would flag this for sure as a looming political issue. And an economic issue the barriers are going up, we talked about new core last week this Chinese overcapacity issue, I think will, it’ll be difficult to contain with tariffs because of trade clearing multilaterally yeah, sure.

The U S can put tariffs on Chinese steel, but what if China, diverts its exports to Vietnam and then Vietnam has to send its exports somewhere, like these things are a daisy chain of relationships. So I’m not too optimistic that anyone will be successful in just putting up barriers and.

Making the problem go away. So I think it really depends on which nations have the capacity to be most aggressive in protecting themselves against what’s going on. And right now, this is not an urgent issue at all. Like the U S steel industry is always bitching and moaning about Chinese steel, like even when times are really good.

But I don’t think there’s a huge urgency to deal with this because. Steel profits have been off the charts for the last few years. Like these companies are quite healthy. Even US Steel, the perpetual limping, giant. So yeah it’s gonna be a major issue.

[00:41:50] Jacob Shapiro: One of my favorite stats to trot out there is that this is the status from 2019.

So it’s actually probably increased since then, but China manufactured more steel between 2017 and 2019 than the British empire did in the entire, in its entire history starting in the 1870s. So just to give you like a sense of just how much steel China is producing and now that they’re not building ghost cities and they’re trying to be fiscally conservative or whatever the new languages.

Out of the politburo, like all that steel has to go somewhere. So I don’t know, maybe it’s

[00:42:22] Rob: not just trying to, to just I’m sorry to interrupt you, but when you think about the sort of after effects of this, think about Japan. Cause one of the things that is under recognized is how much Japan has leveraged China’s growth.

to sop up its own overcapacity. Japan built a ton of steel production capacity during the sixties and seventies. And after 1989, the demand for that started falling off a cliff. So lucky for them, China showed up and they’ve done a very brisk business in sopping up this excess capacity.

And selling the steel into China, in fact, when China, when the commodity cycle peaked in 2011, which was when Chinese growth, in in absolute terms, in terms of growth rate peaked. And since then it’s been decelerating, but still positive. growing. Now we’re going over the cliff. There were people, like Hugh Hendry at the time, I remember he had a big thesis about Japanese steel producers that they were going to go bankrupt.

And he was buying credit default swaps on Japanese steel producers because they were so leveraged to this Chinese bubble. Now, fast forward, it’s 13 years later. I haven’t looked at the balance sheets of these Japanese steel producers. I’m guessing they’re not great. They’re in the same situation.

So when you talk about mopping up your historical messes and kicking the can down the road from the East Asian growth model, not only do you have skeletons in the closet in China, but you have really old skeletons in the closet from Japan and probably Korea too.

[00:44:00] Jacob Shapiro: I gotta think I gotta think this would be good for some Central Asian country like Uzbekistan that wants to build a bunch of stuff and doesn’t have a lot of steel of their own. Can’t they just be like, Hey, send us the steel. We’ll build skyscrapers. We want them.

[00:44:12] Rob: Cheap steel is going to be good for them for sure.

[00:44:17] Jacob Shapiro: Anything else you want to tell the listeners, Rob, before I let you get back to earnings and I go give the speech?

[00:44:23] Rob: No, I don’t think so. We’ve got to jump into the, it’s nice to get an ability to. Step back once a week and look at big picture stuff. Cause the rest of the time I have my head so far up the butt of tiny little corporate details that it’s nice to get some fresh air.

[00:44:38] Jacob Shapiro: Just remember you you can do all that due diligence. But ultimately, if the coffee sucks, eventually the market’s gonna figure it out. We’ll talk to you later. Thank you so much for listening to the Cognitive Dissidents Podcast, brought to you by Cognitive Investments. If you are interested in learning more about cognitive investments, you can check us out online at Cognitive investments.

That’s cognitive investments. You can also write to me directly if you want.

And we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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The post 197 – China, France, and Steel appeared first on Jacob Shapiro.

[00:00:00] Jacob Shapiro: Hello, listeners. Welcome to another episode of cognitive dissidents. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner in the director of geopolitical analysis at cognitive investments. Rob is back from vacation. I am not traveling for once. So we’re here to bring you our normal weekly chat about what’s going on in markets.

It’s an interesting conversation. We talk about an article that really captured Rob’s thinking about it. South Korea’s economic miracle. And whether it’s over, we talk about entrepreneurship, about steel commodities in the United States and close with some thoughts about what’s going on in us.

Universities might not be the take that you’ve seen. If that’s an issue that is concerning to you. And if you want to send us any thoughts about anything that we just said, and I’m expecting some thoughts about the university stuff, because people are really riled up about it. It’s Jacob at cognitive dot investments.

Also, maybe you want to email me to talk about our investment research services or having me speak at your event or something like that. But for whatever you want to send me, I’m here for take care of the people you love. Cheers and see you

[00:00:52] Rob Larity: out.

[00:00:59] Jacob Shapiro: Let’s get started. We’re going to back into a conversation about the insanity in U.

S. universities, about what’s going on in the world globally. And the way I want to back in it starts with an article that you sent me from from the FT and it’s on our knowledge platform for those listeners who are wise enough to have access. And it was a story about the it’s an FT article and it asks, is South Korea’s economic miracle over published earlier this week.

And it has a lot of anecdotal data about how growth and entrepreneurship and innovation has slowed down in South Korea. I’ll let you explain the argument, Rob. But my takeaway was South Korea was really good at catch up growth. And now they’ve caught up. They’ve caught the tail and they don’t know quite what to do with themselves.

And the global economy has changed towards protectionism, which means you can’t copy because there’s going to be all these harsh controls and it’s going to be much more difficult. And also they’re not having babies. Like it’s the whole doom and gloom narrative that everybody talks about. But they do the FT zooms out and has a chart of South Korean economic growth.

And from 1970 to 2022 South Korea grew at an at an annual growth rate of 6.4%, and that’s expected to shrink to 2.1% for the 2020s and to 0.6% in the 2030s, which is pretty striking. Now, I say all that and I say it’s perfect timing because two days later south Korea’s economic growth.

Accelerated to a pace faster than the most optimistic forecasts of last quarter. It advanced 1. 3 percent in just the last three months through the previous quarter. The economy grew 3. 4 percent year on year that beats a forecast of 2. 5%. You start looking at exports. You start looking at construction, consumption.

You go down the road, like it’s actually looks pretty good. At least. In the short term, if you zoom out to that 1970s level, we’re not like 6. 4%. But I did think it was funny that as we’re talking about South Korea, like boom, we get these numbers that are sharply higher than maybe what that article would have thought made you think in the FT, which tells me, things don’t go down linearly.

Things can go back and forth. There’s also a conversation there about inflation, but I wanted to set up the conversation that way. And we’ll back into some of the other things we wanted to talk about here. Tell me, Rob, why the FT article about South Korea? What’s so important from your point of view and tell me why these growth numbers are a mirage or are they a mirage?

I’m betting you’re going to say they’re a mirage, but I’m curious if you stick with it.

[00:03:16] Rob Larity: No, there’s certainly not a mirage GDP growth in the Korean or the Chinese model for that matter is different and we can talk about why. But the reason why in part I was thinking about Korea and wanted to draw your attention to that article was.

Korea is a really interesting picture of China’s potential future, or one, alternate universe in which China, we’re looking at the crystal ball to China in 2045 because Korean growth has remained pretty steady. Quite good. It has slowed significantly from where it was in the 2020s.

In the, sorry, in the two thousands and obviously earlier when they were engaging in a lot of catch up growth, but a lot of the problems that they’ve been dealing with throughout the last 25 years. Are the same problems that China faces today at an earlier and different stage.

So let’s just zoom back a little bit, cause then we can get to what Korea looks like today. But if you go back, Korea was after Japan. And as I like to say this, the best book to read about this is Alice Amundsen’s book on Korean development, which is excellent. Korea was the, or the true miracle economy.

I think at one time in the fifties or sixties, they were as poor as Botswana, if I remember that like they were dirt poor,

[00:04:47] Jacob Shapiro: And the war, decimated like Korea in a really meaningful way. Yeah, absolutely. And

[00:04:54] Rob Larity: they, pursued the sort of industrial policy, East Asian growth model to fantastic success.

And they built out a truly successful industrial economy in the 1980s. Shipbuilding, steel, the story of Posco steel is a fantastic story. If you ever want to look at building a company, literally from almost nothing to being absolute steel giant. So they were the poster child of success in so many ways.

And yet by the late 1990s, they started reaching the limits of that strategy. Just like China has reached those limits today and faces difficult decisions and rebalancing decisions. So Korea accelerated its investment growth in the 1990s. In part, that was tied in with the Asian financial crisis. Not to go off on a rabbit hole, but for those who don’t know, what happened during the Asian financial crisis was there was an investment mania.

Capital from the rich world flew into Asia because the capital accounts were all liberalized for most of these countries. Not for China, but for most of them. And you saw these enormous investment booms internally. Including in in Korea. And what happened was when the tide went out again and you saw the natural, collapse of that investment mania a lot of these countries got into trouble and Korea was no different.

So that was It’s marked the beginning of Korea’s problems. And it’s a really interesting case study to look at all the ways that they’ve tried to deal with this over the years, because I think it really informs how to think about China and the choices that they face. So for example, we talk a lot about how China needs to rebalance toward domestic consumption, right?

In Korea, what they did in the late 1990s to try to offset the collapse of the investment boom, maybe you can compare that to the Chinese property bubble bursting today was they had a credit card bubble. The government came out and said, okay, everyone’s getting credit cards and we’re going to put in place policy to encourage consumers to use them.

So what you had in the, Sort of late 1990s where you was, you had it another bubble in credit card driven spending among create and consumers, which turned into a massive bust. So there was bad debts all over. And the underlying problem was wages. In accordance with this debt, they were trying to. to fill in the gap with credit.

So fast forward to the two thousands and Korea got a new lease on life because of the IT technology revolution. And everyone knows the story of the rise of Samsung and the chaebol who came to dominate memory semiconductors, consumer electronics like that was an enormous bolus, not to mention autos.

We forget. I think in Glengarry, Glen Ross, remember when he was looking to put down the salesman and he said, you arrived here in a Hyundai, sir. That was 1992, Korean cars were literally a joke and insult. And now, Korean cars have absolutely dominated and Kia and Hyundai are, real players in the market.

So they were able to find much like China is today, as far as China moving to, EVs, new markets, the same model. Different end market. Korea was able to do that in the 2000s and the 2010s and ride this wave very successfully. And so much of what they’re dealing with is just facing the limits of that because even as they did this growth really started to slow in the 2010s and inequality widened the gap between the extremely productive, super world beating giant.

Shaebol firms and everyone else just widened even further. It’s easy to forget that Korea is not a rich country in aggregate. It’s a very rich and well developed country for a narrow part of the economy. There is a huge gap between the haves and have nots. And I don’t mean just in terms of wealth. In terms of productivity, know how, firm productivity between the top firms and the bottom firms, the gap is way wider than any other any other country, beside Japan which tells you something about Japan.

I’m going on and on, but I guess the takeaway here is Korea has been struggling with a lot of these issues. They’ve tried to. And act a number of policies to improve wage growth, to improve inequality throughout the 2010s, none of it has really taken hold and here they are where they’re their doing ok, but they’re still facing the same issues and they’re not getting any better and this could be a vision of what China’s future looks like you know, getting along but not the go, go growth period of the past and with widening inequality you widening issues with the export driven sort of investment model, never really being able to rebalance to a true consumer led entrepreneurial, small business economy.

[00:10:22] Jacob Shapiro: Yeah, that’s funny. It’s damned. If you do damned, if you don’t exactly to your point, it’s what’s, what. Drove the unexpectedly high numbers for this quarter. First of all, it was exports. So that’s consumption from abroad, not from Koreans themselves. And then construction investment returned to growth.

And that’s because the government said in February, they wanted to accelerate the implementation of infrastructure projects and public private partnerships to shore up industry. And things like that, which again, is this Korea, is this China? You could read that sentence or talk that sentence and just in either one of those countries, and you wouldn’t actually know which one you’re at.

And also to your point there was this current government has a very narrow leader, one by a very narrow margin. A couple of years ago the opposition has been calling for fiscal handouts. So not credit cards, as far as I know, but the equivalent of giving 200 to every single Korean citizen, which, that’s the type of.

Stimulation of consumption that I think you’ve talked about that China should be thinking about. But I think it’s pretty telling that Korea is already there and thinking about it. I think another one of the interesting parallels here between China and South Korea, and this is where this gets a little more explicitly geopolitical, is that I think a lot of the challenge for China is okay.

Like you have these wealthy coastal areas where, you know, narrow sections of the economy have done very well, but you have wide swaths of the interior that are still extremely poor, that haven’t enjoyed the ketchup growth. They’re wealthier, far wealthier relative to where they were 10, 15 years ago, but it’s still not that great.

Like they’re, it’s a change in the quality of their life hasn’t changed in a meaningful way. And the parallel I think to South Korea is, it’s not just, The inequality in South Korea itself. It’s that North Korea is sitting there as well. And if you’re thinking about because I think one of the things that China has to think about is if we could just integrate these hundreds of millions of people in the interior, we could overcome our demographic rates and we could grow our way out of the problem.

But somehow we have to stimulate the economy there. And I think if you’re South Korea, like if you just, if you put ideology aside and all the crazy things aside, man, wouldn’t it be nice to integrate something like North Korea, a true frontier economy back in to the South Korean growth model, because maybe you could not only replicate what you were doing before, but create a new sort of consumer class for some of the goods that they would create.

So there’s some interesting parallels there as well. I think,

[00:12:40] Rob Larity: yeah, I think it’s a real policy challenge because arguably what Korea doesn’t need, even though they have. The super low birth rate is more unproductive bodies in their economy. They have plenty of those. So does Japan. And I think that’s when people talk about the demographic issues, I know we discussed this two weeks ago with Japan, like it’s this very simple argument to say, Oh their population is shrinking and, aging and those things.

And at that time we talked about sort of the gap between superstar productivity firms and non superstar productivity firms. And I tried to make the argument that there’s so much more of a Delta, there’s so much more importance in getting lower productivity people to be more productive for the overall economy than there is oh, you just need another body, another pair of hands another mouth.

And I think that’s the more difficult challenge for Korea and for Japan who has also been trying to do the same thing. If you pay attention, not to shift to Japan, but I’m more familiar with what’s going on there. But Japan has tried many programs and, every think tank is always about how do we improve entrepreneurialism in Japan and productivity of smaller firms and SMBs?

And they just haven’t been able to really do it. There’s been some improvement recently but despite everything, they just struggle to get those lower productivity, small and medium sized firms, all the have nots, all the parasites, if you want to use the Korean film as a metaphor for this, um, all of them to have a revolution in ways of thinking and methods of work and knowledge acquisition and knowledge deployment.

And in the economy, that is the big challenge and no one’s been able to crack that yet. And that’s a real it’s a real problem. And if you look, the numbers, the coming out today, accelerating growth in the construction sector, like that’s, it’s pushing on the string even more because If you look at where that growth is coming from, it’s because they’re building, a hundred billion dollar semiconductor complex and SK hynix just announced they’re going to spend another 14 billion on another section of something like, it’s not it’s not a bottom up driven project.

It’s it’s very similar to what they’ve seen can work to a great extent to some extent, but it also comes with downsides and problems that eat you away internally. If you don’t deal with

[00:15:14] Jacob Shapiro: them. Yeah, you said the thing about. Unproductive bodies. I feel like the rejoinder there would be if you could drive down the cost of them pretty far, you can perpetuate the current models.

Like I said, if you can get some, folks in the Chinese interior to do the same jobs that folks in the coast were doing, where wages are rising. And so it’s no longer competitive and you can get maybe those new middle class citizens to consume the goods that the really cheap, even if they are unproductive bodies are making in the interior and they’re doing better than they did before, you Maybe you’re right.

You’re not fixing the structural issues at all, but it seems to be much easier to continue kicking that can and maybe, buying yourself more time than it does to do the things you’re talking about. But this is a nice segue into talking a little bit about entrepreneurship and maybe we’ll back into the controversial things about what’s going on in us universities, but you.

We were talking about entrepreneurship before we got on. And I was looking for some data to support the notion that Western entrepreneurship is more successful and is driving more than maybe Eastern entrepreneurship. And as you might know, listeners or as you might have already figured out, that’s a really difficult thing to quantify.

What is entrepreneurship? What is success? What are your terms and things like that? But you start to poke around and There’s a narrative in the West about also the decline of entrepreneurship, and I’ll put up some notes to some of the articles that I read for this in the show notes.

But 11 academic article from the Cambridge Journal of Economics talked about how entrepreneurship in advanced economies is in decline and that instead of these Country’s becoming more entrepreneurial as they grew and things like that. They’re becoming ossified and there’s a decline in entrepreneurship in general.

Tyler Cowen, I know is one of your favorites, Rob, and he wrote a book in 2017 called the complacent class, the self defeating quest for the American dream. And part of his argument there is that in particular Americans, Are less entrepreneurial than before that entrepreneurship in the United States had declined around 50 percent between 1978 and 2011.

That people working for big firms has risen in general that the average firm size has risen in general and that Americans just take less risks. They move less, they start new businesses, less things are just less, less innovative in general. So I wanted to put that out there to you to say.

Is the situation really that much better in the West? Because there is a, use the example of the South Korean parasite movie in some ways, this is a symbiotic relationship between West and East, right? Like the entrepreneur innovates or something like that in the West, but the only reason it’s cost effective to produce the boondoggle that the entrepreneur has figured out is to get the unproductive bodies in Asia to make it at a much smaller cost than it would be made in the United States.

And then you send it around the world. And then. On April 25th, South Korea’s exports are up like seven or 8 percent more than everybody else thought. So take that in any direction you want.

[00:18:03] Rob Larity: Yeah. The symbiosis between the two is, is a whole nother rabbit hole we could go down into. And how sustainable is that?

Does Korea ever need to worry about the 85 percent of its population? That is not very productive and doesn’t do very much. Can they just live off of Samsung? That’s, I’m not being sarcastic, like maybe that is a possible outcome because that’s, we’ll just be their role in the global economy.

But in the U S in particular, I think, I think there’s similarities, but there’s also fundamental differences between the two because in the U S arguably there are mechanisms to create or to adjust or to fix when there’s stagnation, when there’s complacency, and I think, support him or not, I don’t think anyone could look at the fact that Donald Trump is, currently favored to become the president and not see that as a blow against sort of Traditional norms and what you might describe as complacent institutions.

I know a lot of Trump supporters and people who vote for him and most of the people I talk with it’s a matter of, well, screw those elite people, it’s a sort of smash the smash the complacency joker style of of political advocacy. On a lot of measures, I’ve spoken before about one of the positives of the 2021 boom.

And Elon Musk being such a pivotal figure, love him or hate him. And a lot of people hate him. Like the fact that he is such a crazy entrepreneur and is so he is the central figure in our culture right now. Like entrepreneurial figures, whether it’s Jeff Bezos, whoever you want to talk about, we lionize entrepreneurs and people who have gone out and are building things.

And I think that’s a very positive cultural. So my sense would be that cyclically, the complacency factor probably peaked right around the time that Tyler Cowen wrote that book. And that a lot of the, call them teething issues that we’re experiencing in more recent years are sort of, reactions against that as it, the pendulum swings back in the other direction again.

Which I think is fundamentally different from what the data shows in a place like Korea or Japan where they’ve just Perpetually at least for the last hundred and fifty years Perpetually been dominated by centralized Organizations that are well connected that are elite whether it was the Zaibatsu, before the war or the, the major Japanese conglomerates after it, like you see similar patterns recurring again and again, where you don’t see that evidence of sort of risk taking or entrepreneurialism at the grassroots level for whatever cultural or historical reason.

[00:20:58] Jacob Shapiro: Do you buy the argument though, that there has been a decline in entrepreneurship? In the United States in particular, because were talking about the South Korean economy surprising to the upside. The United States economy continues to surprise to the upside for most people. We’ve talked ad nauseum about the economy growing faster than the Fed wants and the Fed not being able to cut rates the way that it wants.

You also get a sense of the data, at least in the United States is showing you that it faces a similar problem. So what is the rejoinder? Because I don’t buy the, that the rejoinder is, Oh, artificial intelligence is changing things in general. Like artificial intelligence may change things one day and maybe innovation is happening in artificial intelligence in the United States, but it seems hard to me to make the argument that’s what’s increasing productivity and growth right now and that’s where things are driving.

So

[00:21:44] Rob Larity: it’s not artificial intelligence at all. Um, the data shows that, firm creation, however you want to define it, was falling. And now since the pandemic, it’s been rising again by a lot. So if you’re a data driven, you can look to that, I prefer to use sort of nebulous historical analogies.

Cause I’m a nerd and I think the way to think about this is COVID was like world war one culturally in terms of you have an experience that shocked an entire generation of people. Physically removed them from their normal habits. If you read about World War I and how it changed things, like you physically took millions of men from their little villages and towns and you put them in a new country where they spoke a new language and they experienced traumatic new things, mostly negative ones, but very new.

And when, you brought them back again we’ll throw Nabby reference. Son. Remember when they all came back from the war and the show was just different the servants just couldn’t and didn’t act the same way, like something had broken. And I think it’s clear. If you look at, work habits behavioral changes, like that was a similar dynamic with the pandemic in terms of shaking up people’s mentalities and ways of life.

And, for all the negative aspects of the pandemic, that is a good thing. That was what we were waiting for and it happens. And I think the data shows like all you have to do is just look. Entrepreneurship is through the roof. Every, everybody wants to be an entrepreneur. They want to have a startup.

They want to build something. Um, a lot of that is crap, but the general trend. is really a positive one.

[00:23:34] Jacob Shapiro: I guess that’s where I want. This is part devil’s advocate and part, I want to pick at you a little bit cause a lot of it does feel like crap. And I wonder if some of this data about entrepreneurship declining in high income countries is because and this is not just the United States.

This is in the UK, this is Germany. Anywhere you get high income countries with sort of demographics that are starting to veer towards aging, you get a decline in entrepreneurship rate, which sort of makes sense. Like young people are the ones that are usually willing to take risks and growth to your point, usually creates problems that have to be solved, that there aren’t companies that are out there solving for these actual issues.

But the startup, like the entrepreneurs that I come across in the United States, generally speaking it’s not ones that are fundamentally changing things. The people who talk about fundamentally changing things are these Sam Altman sitting on Olympus talking about, oh, and we will do small modular reactors, or we will do these like things that are going to cost billions of dollars and might not actually be profitable.

Whereas The startups and things like that are, tick tock or social media or services based, not things that are actually making things, whereas, China has its fair share of problems. But one of the interesting things about China is that because it has a completely different model than the U.

S. It’s entrepreneurs. When they look out at the world, they’re looking for countries that are like China, and they’re trying to design Solutions to problems that are like the Chinese area. So I wouldn’t say that China is a bastion of entrepreneurship, although there’s been a lot of entrepreneurship there.

But look at things like online, like elementary school learning or things like that go towards education. Like China’s actually had some really interesting entrepreneurship in that area, while in the United States education like continues to be this thing that nobody could figure out. So I don’t know, is there anything to that?

Is there anything to this idea that entrepreneurship is really going to come from a country like Brazil or like in India where there’s growth and there’s problems and there are things that need to be fixed rather than in the United States where entrepreneurship doesn’t, I don’t know, it doesn’t feel like entrepreneurs are solving problems in any meaningful way.

Even Elon Musk okay the solar stuff is more interesting than the EVs. There’s tons of EVs. It’s everywhere. And Tesla’s already taking it on the chin in the EV business because people can make EVs that are better and cheaper than Tesla at this point.

[00:25:48] Rob Larity: There’s a lot of elements to that question, so I’ll try to take them, pick them off one at a time.

So, the first one is China is super entrepreneurial, especially relative to Japan and Korea. And I think that’s one of the things that they have most in their favor is historically China is a very sort of commercial oriented entrepreneurial place. And all of the entrepreneurialism you’re seeing in China is in large part contrary to what the policy setup is meant to create.

They’re not, they’re kicking against the pricks if you’re a small entrepreneur in China. Which It demonstrates just how resilient and powerful that force is. So I think that’s when you’re thinking about China and the pros and the cons, that’s one of the main positives in the plus column to put in their favor when you’re analysing that, analyzing that places that change and are crazy and chaotic like Brazil and India.

Let me speak to Brazil because I think this gets to the U S question through the back door because there’s multiple types of entrepreneurship. A small individual person is not going to create the next SpaceX. Like that’s just, in terms of capital, it’s just not going to happen. What you’re talking about when you’re talking about sort of small and medium business entrepreneurship is for the most part, you’re talking about kind of normal businesses.

People copying and doing what already exists, but in an efficient way and for markets that maybe don’t have it. So that is a kind of entrepreneurship that really you can see thrive in a place like Brazil, for example Brazil is not going to make the next space X what Brazil needs. They don’t need that.

What they need is they need to just block and tackle. I remember the first time I went to Brazil years ago, I met this guy in Goya, which is in like the Texas of Brazil. And he told me the story he was a really successful guy, and he was, he told me this story, he said he said, I went and I saw I went in the United States and I saw that they use these machines that they take with tires and they recycle them, and they use the recycled rubber to basically protect people and the ground when you’re drilling in mining operations.

And And no one in Brazil used that. So I went to China and I bought one of those machines and I set it up here and I sold a bunch of stuff to Volley and made millions of dollars. That’s, that is entrepreneurialism in, in Brazil, right? Like just copying shit and doing it adequately. Now the flip side of that is, and the reason why people just don’t do that all day long, It’s because there was some law change and this guy’s business went out of business overnight and he had to do something completely different.

So when you think about like risk reward and what is your discount rate, not to get all finance y up in here, but there’s a reason why those opportunities are just laying around all over the place in emerging markets because the risk is significantly higher. So it’s not just Oh, just go to Brazil and copy all the U S stuff and you can make billions.

Like it’s not that easy, but that’s the sort of entrepreneurship that you see in those kinds of emerging markets and what they need. And the more they can do that, which is why, like in the Brazil context, when we talk about, Hey, things are just like getting normal that’s great. Like when we talked about Bolsonaro and the elections and, and the cost of capital in Brazil.

All those countries need is for things to just not be too crazy and it will be, it’ll point in the right direction. So in the U S to move, to, to that part, I think it’s really twofold. So on the one side small entrepreneurs and people were doing less of this pre pandemic like firm creation was lower just because they measure that how many people are opening businesses and most businesses are boring.

It’s restaurants and laundromats and, stupid things that don’t change the world. But change everyday experience for most people that has gone up again, post pandemic. And I think it gets to this notion that, my world war one metaphor where like. People are just more willing to do stuff.

They’re more willing to move. We know people who move from the Northeast to the Southeast, or to Miami, or to Texas, or they’re moving from California to Texas. Like, when you move, you start a new job. You start a new business. E commerce is enabling a lot of this. Like little stuff, people selling stuff online.

It sounds unsexy, but that’s really good for the economy because when people do new stuff like that, usually you’re allocating resources better than just remaining stuck. And if you look at the data on Korea or Japan, they’re small businesses. Not only do they suck, but they never die. They just suck and they suck and they don’t change.

And it’s a 75 year old Japanese guy has been doing it for 40 years and the son’s working there and he’s just miserable. And that’s life. And that’s the difference between those two types, right? That’s very different from the sort of entrepreneurialism that Elon Musk or Sam Altman are doing where they can allocate massive amounts of capital.

And that’s a different dynamic, but I think when we think about some of the craziness and some of the stupid entrepreneurs, like I’m sure you’re, when you think about entrepreneurs, you’re thinking about, Oh, this guy with his dumb app that he’s, boasting about that’s what most people, most of the entrepreneurs that we interact with.

In Boston or Paris or, whatever are doing but that’s, I think it’s in a way it’s good because if you look historically the really big technologies, the SpaceX type technologies they are not economically rational and you need stupidity or you need.

Government defense expenditures, basically one of those two things, private capital stupidity or government defense expenditures to finance the massive needs that you. That you require to build those sorts of fundamental revolutionary technologies, because most of them don’t turn out to be anything. And almost always you lose money.

[00:31:54] Jacob Shapiro: Is this a good segue maybe into, I know that you were looking at new course results, that’s a steel company. For those of you who aren’t following as closely as we are is there something about that story and about volatility that helps us talk about this part of the conversation too? I think it does.

[00:32:10] Rob Larity: It’s a, it’s an interesting comparison. People looked at the 2010s for example, and everyone knows growth was just not good and things were stagnant and companies weren’t investing and yet stock market returns were awesome. So what gives, why do those things go together? Because most people who don’t work in finance or investments assume Oh, when the economy is doing well, then my stock portfolio is going to do well and vice versa.

But it doesn’t really work like that. And I think getting to our point about craziness and entrepreneurialism and stagnation. One of the things I think is worth thinking about is, we’ve talked a lot about volatility, both in macro cycles and policymaking and geopolitics. And within, from a bottom up standpoint, within industries and disruption and, uh, entrepreneurial booms and manias, like we’re having one right now with AI and data centers, like that’s like the third one in three years my God the, that’s good for growth as we just talked about, but it’s not good for investors per se.

And it’s not good for investment returns. And here’s why. And I brought up new core before because I happen to be looking at their earnings this week and off wall street is actually short new core or we’re recommending it as a short to our clients. So that’s why the interest, but new core is an interesting example of how companies in these sorts of crazy environments that are more volatile.

How they basically screw up. And it’s because of a certain bias that companies have, which is to be both short term oriented and to be unable to be counter cyclical in either their communications to investors or wall street, or the way that they allocate capital in the business. So that’s very highfalutin, but to put this into a concrete example, take new core steel, which is a perfect example of this.

New core had the most absolutely incredible blowout, amazing results in 2021 and 2022, because there was a giant boom in demand and there was a contraction of supply and they just minted money. Absolutely minted. Hundred year storm kind of profits. So what did they do? When their stock price boomed, they started buying back all of their shares.

They took the profits they were making and rather than put them against you know, store them away for the inevitable, down times, cause this is a cyclical business. They went and they bought, they allocated their capital, buying back shares at very expensive levels. The second thing they did was they came out and they said, Hey, times are great.

We’re going to build a ton of capacity. So they’ve accelerated their CapEx. They’re building, rebar plants and steel sheet plants. And they’re expanding their capacity significantly. They’re making a bet that good times are going to continue. This is really stupid and I don’t, I do want to pick on them because we’re short them.

And they’re pretty dopey. But they’re not the only ones. Like Textron, for example the conglomerate down in Rhode Island they’re wonderful example of this because they always buy their stock literally at the peak and then they’d never buy it when it’s getting the shit kicked out of it.

Most companies are like this, right? And the problem is when things are, that’s okay when things aren’t as volatile, when you have a 2010s kind of environment where it’s just nah, the economy is plugging along. And not great, but not, not in recession either that smooths out the moves and that can work very well.

But in this sort of environment, when you’re allocating capital pro cyclically, then you’re destroying that capital. You’re destroying your investors wealth and we’re seeing a lot of businesses doing that right now. And that’s why, if you look at, outlooks for the next year I’m very bearish on, on us, especially large cap stocks.

For partly this reason, expectations have been set way too high and companies have been way too complacent and aggressive because the times they just had were really good. And now things are starting to roll over and they’ve, they’re like the coyote, they’ve run off the cliff and they’re looking out at the Mesa, whatever ahead of them.

And the floor is starting to fall out from the bottom. So to wit like new core steel their business is starting to roll over and the architectural billings index today, which is a leading indicator for for commercial construction. It just hit its lowest level since the pandemic, like super contraction mode for non residential construction is really starting to roll over

[00:37:06] Jacob Shapiro: You can’t really imagine anything less entrepreneurial than share buybacks, but to try and explain what Nucor is doing a little bit, so the United States is the world’s largest steel importer. This is 2020 data, but 26. 3 million metric tons of steel. The U S imports about 8 percent of all steel imported globally. And it’s a steel imports are 12 percent larger than the next biggest importer, which was Germany.

Again, that data is 2020. So it might have changed a little bit. And I can’t help but bring up, as Joe Biden head heads towards this electoral rematch with Donald Trump, he announced I guess it was just last week or the week before that he was going to triple the tariff rate on steel and aluminum imports from China.

Now that’s not where the U S is getting most of its steel. It’s getting it from Brazil, Mexico, Canada, Japan, South Korea. Even Vietnam, places like that. But I think what the Biden administration is thinking about here is in terms of well, if there’s this glut of Chinese steel on the market, then prices are going to be super low.

And then none of these companies are going to be able to do anything. Go back even a couple weeks before that. And you’ve got Biden, even as he’s welcoming Kishida from Japan at the White House and talking about the greatest, strategic deepening of the U. S. Japanese Ty since 1960, he’s also saying but Nippon steel can’t buy us steel because us steel needs to remain an American company for the national security and everything else for the United States.

So it seems to me that if you are a company like new core and rising protectionism in both parties, so whether it’s Biden or Trump, it’s just a, it’s a matter of degree how much protectionism you’re going to get. Trump probably walks in and reinstates the tariffs on Canada and Mexico immediately.

We get into a whole sort of thing about that. But Is there an argument there that there will be a huge increase in demand for steel in the U. S. for the Inflation Reduction Act, quote unquote, and all of the, big energy infrastructure spending and construction and stuff that’s coming down from the U.

S. government?

[00:38:56] Rob Larity: That’s the consensus view. But if you look at the numbers, like the IRA stuff has already been flowing in for quite some time and the commercial construction boom is in, in the later innings starting to roll over the infrastructure spend, which a lot of people are focused on the infrastructure bill, that’s not even really gotten off the ground yet.

And it’s uncertain to what extent and how quickly that it will. Think it’s easy to look at a high level and say if we get tariffs, that’s going to be great for these guys. But the horse has already led the barn here to some extent. And the other issue is, I think it ignores the spillover effects If we came out and put enormous tariffs on our trading partners or on China or, Mexico and Canada that’s not good for confidence, this isn’t, and I’m just repeating what we said a few weeks ago, but compare this to the tax cuts that Trump enacted the last time he was elected, those were a giveaway, to everybody.

That’s just makes everyone happy, except for, people who own treasuries over the long term. But in the short term, that’s just gravy. There’s no downside. The tariffs are a whole, as we said, then. That’s just reallocating income from one group to another. So it’s not necessarily good for the economy and it’s not even necessarily good for steel.

If, for example, business confidence tanks, because, Oh my God, all of our consumers are getting totally squeezed because all the Chinese goods they usually buy are now 40 percent more expensive. And now we’re not going to build that new factory. We’re not going to build that new data center, whatever it may be.

The net effect could actually be quite negative for steel demand, especially because yeah, we’re the biggest steel importer, but steel is not a highly traded good. It’s very heavy. The reason why we get most of it is from Brazil and places like that is not because Brazil is more more productive at making steel than Korea is because, those guys are farther away.

And So I think it may have some unexpected surprises if that were to happen.

[00:41:07] Jacob Shapiro: Do you see that throughout the steel industry? Is New Corp sticking out like a sore thumb or is there oversupply in the steel market in general? Certainly there is on the Chinese side, and there’s been evidence in Chinese markets that, this has been true for years, but that steel oversupply in the Chinese market, because they’re building those ghost cities and everything else is, really brought the price of steel down throughout the world.

Is that it’s strange to hear that, Oh, and by the way, us companies are building new capacity and they think there’s going to be a lot more demand because it seems like there’s too much steel out there in general.

[00:41:35] Rob Larity: Again, getting to the volatility issue, I think this is about information and signals and how companies act, because you have to remember like almost no corporate management team is there for the benefit of the company.

That sounds terrible, but it’s true. They’re there for the benefit of their own pay package. And their own pay package, in almost every case, is dependent on the stock price of the company. So they’re there to please investors like us, and to tell us what we want to hear, and to tell Wall Street what it wants to hear.

That’s their purpose. That’s their overriding, modus operandi. So when you have, the series of events that you saw in the last few years, Like the U S is not necessarily, uh, undersupplied in steel. What happened was during COVID you had a lot of steel makers shut down facilities because they were anticipating like, Oh my God, the whole economy is going to go into a freeze.

So the the non EEF, this is getting too detailed, but basically us steel shut down a bunch of their stuff. And what happened was, Oh, the economy didn’t go into freeze. And actually we had an enormous stimulus driven boom in the following two years. So everyone is racing to catch up and there was a supply contraction at the same time that you had a demand explosion.

So the price exploded of steel and everyone made a shit ton of money. Now you’re seeing the obvious sort of ramifications of that, which is demand has been strong and now it’s starting to decline. And yet the companies are not going to go out and say we think on a normalized basis over 10 years, like we have enough capacity, we don’t need to build it.

No, they’re saying, Hey, things are great. They’re going to continue to be great and we’re buying back our own stock because we think they’re so great. By the way, new core management is selling their personal holdings of stock, but they’re buying the stock with the company’s money. Just to clarify as our many corporate management teams right now we’re going to buy back our own stock and we’re going to build more capacity because look at how great demand has been.

So there’s not this issue of Hey, maybe demand won’t be so great. Maybe this was, You know, a bullets. No, it’s what they call mega trends. Oh every, every wave in this volatile, sign curve of demand and our crazy world is being extrapolated as if it’s, a nine, angle up into the right forever and ever, whenever we’re at the peak of the wave, that’s what I’m trying to say about, the issues with corporate management

[00:44:09] Jacob Shapiro: teams, the commodity super cycle.

If I had a dime for every time I heard about the commodity super cycle, the last three years, I’d be on an island in the South Pacific right now. Speaking of not islands in the South Pacific, you like that segue I’m in some ways I buried the lead here because and. I think the thing like I got it from my, the Jacob, please start over from there.

The thing that has occupied the front of us newspapers in a reprieve from the, Oh my God, Trump jury selection. Are these pro Palestine protests at us universities really across the country. And I say this, if you went to the wall street journal, For the past 24 hours, right until the U S released its GDP growth data, their front page thing was this visualization of Palestine protests throughout the United States, like front page of the wall street journal.

This is the most important thing that’s happening now. It’s a, now it’s U D U S GDP growth or whatever. But there are a lot of protests. There have been. Thousands of protests in many cities throughout the United States, they’re relatively small. But people can’t help but compare this to, is this the 1960s?

Is this the anti war movement? Columbia has moved, I think, to hybrid schooling because they’re worried about people getting hurt on their way to class and things like this. And it’s just there’s so much talk about it that it’s the thing that everybody’s focused about. And I didn’t want to ignore it, but I wanted to back into it from the point of view of everything we’ve talked about on the podcast so far and say that I think it maybe tells us something about what’s going on at U.

S. University. And some of the dynamics that we’ve talked about here may be part of what’s at work. So let me just give you some more interesting data, which is, according to Gallup, the percentage of Americans who have expressed confidence in higher education has fallen. In the past decade from 57 percent to 36%.

So only a third of Americans now have sort of respect for higher education. There’s been declines in undergraduate enrollment, not since the pandemic, since 2011, you’ve got 3 million fewer students on campus, universities and colleges increasingly are going to international students to pay the way because they have fewer students that they can actually send.

Almost half of parents would prefer not to send their children to a four year college. even if they had no financial obstacles. And then you start looking at, if you start breaking down the data a little bit more, how much school costs is still very high up there. The total cost of attending just a public college in the United States is 30, 36, 000 a year.

Average length of time to a degree is five years. So tack on debt service and not working and all those other things. You’re talking about maybe 300, 000. That’s more than the median net worth of most. U. S. families. So I think that there is something, there’s obviously something going on in the U. S.

university system and something is not quite right. I’m not sure that we can extrapolate from these protests that something is wrong, but I do wonder if they’re just a symptom of a general feeling of malaise in universities that has something to do with, Universities are not preparing Americans for the economy that actually exists that students don’t have the skills that they need for the jobs that actually that are actually available that to your point about covid shook people to the core about what school was for because people were still getting charged tuition rates even though everything was on zoom and what was the point and now zoom and virtual Can just be instituted at the click of a button because there’s some protest on a Columbia campus.

You start to play these things out. I think that’s there as well. The last thing is, and this is something we’ve talked about before, but this is actually a bit of good news post the pandemic and post some of the Trump restrictions on immigration and things like that. There was a real decline in international students inside the United States.

That’s reverted to the mean. So people are coming back to the United States in a huge way. China has the top spot for, people coming to the United States to go to university. I thought you might be interested to know, actually I’ll ask you, Rob, can you guess two through five on which countries send the most students to us universities in the world?

[00:48:03] Rob Larity: Oh which countries send the most students? I would guess the Chinese or have to be in that’s number one. Yeah. Yeah. That’s number one. Oh, boy. I don’t know. Why don’t you just tell us? I don’t want to let’s do it.

[00:48:14] Jacob Shapiro: Number two is India and India has had a huge increase. So 35 percent increase year on year.

So really catching up with China. Number three, and this may be cuts against your argument at the beginning is South Korea. And an 8 percent increase on then Canada. And then Vietnam is there. And then in terms of growth, the highest growth rate of students who are coming to the United States come from sub Saharan Africa and Ghana actually has one of the largest growth rates and is now on the top 25 places of origin for the first time.

For the first time, and when they’ve been looking at some of this data so the flip side of this is that even as Americans are less confident in institutions of higher education, the mirage of international students don’t want to come to the United States has actually fallen away. And if you look at the countries that are wanting to come to the United States to soak up those ideas and that research and to learn how Americans do things and to learn ironically, the lessons of entrepreneurship, It’s, it makes sense that India is there.

Kind of makes sense that South Korea is there too. Like they understand they need to learn things. So I’ll let you, maybe we can poke around the actual issues of Israel, Palestine, or you want, or we can stick on the U S university thing. But I think that in the conversation about these protests about Palestine at U S universities, I think we’re losing the thread.

The thread is that. Something is not quite right for U. S. students at U. S. colleges and universities. And this is just one of a number of signals that something is not quite right. That students are not getting what they need. And we’re spending too much time going, Oh, this is terrible. What does this say about the U.

S. student and anti Semitism and blah, blah, blah. Whatever. The stuff has always been there. There are deeper problems and deeper rot here that we should be talking about.

[00:49:52] Rob Larity: Yeah, um. The complacency issue I think is tied into this because universities are probably the most complacent big institutions around, arguably speaking, except for, maybe some big corporations or areas of government.

So I think there’s definitely an element of that where these institutions are just, you don’t need me to rehash everything that’s gone on, but I suspect people are going to look back on these congressional testimonies that the presidents gave as a major signpost of when things really started to accelerate in the opposite direction.

In terms of universities losing their prestige. All traditional institutions are losing their prestige, whether it be, the nightly news or the presidency or, Harvard university, whatever it is, that’s what. Um, that’s what happens when complacency and decadence, rips itself apart and something new gets created.

And it’s a very tricky thing because those new things haven’t really emerged yet but they’re probably coming and you can see the glimmers of them coming. And I guess in a negative way, like not to take the international students thing and try to piss all over it. But yeah, in some ways I suspect, and I don’t have the data for this, but I would suspect that a lot of these international students are getting the the leftovers of the U.

S. students in terms of signaling value, because, I could tell you for a fact that a lot of people in especially emerging markets, like just to have an American degree is enormously prestigious, and that’s the main Reason why they do it. Yes, the quality of education is probably better than what’s available on average in many of these places, like Ghana for instance.

But still, there’s an, there’s a strong signaling element to this, which used to be what universities in the US like that was their bread and butter was why would you want to go to Penn or Harvard? Because the signaling value was enormous. And yes, people say, oh, the networks and blah, blah, blah, but it’s because you can say, I went to Harvard, or I went to Penn.

And the value of that is eroding for the first time ever, arguably and that’s, maybe that’s good. We can have these institutions remain in business by selling their signaling value to people in Ghana and Vietnam and American students can do something more productive with their time with a different institution that isn’t going to charge them 80 grand to, to do what they do.

[00:52:19] Jacob Shapiro: And I think it’s worth saying that, when you think about the way universities are used. And colleges in the United States are currently structured. You’ve already talked about world war one, world war two is the source of how universities and colleges are currently set up because all these soldiers get back and you get the GI bill and you have to do something with these soldiers.

You have to teach them new things or they want to do new things. So they’re growing families. So you get this massive growth in the United States and this democratization of universities, whereas universities before were We’re largely to train the elite of society and to prepare them for public office or to take over the reins from their, wealthy partition, patrician, family, businesses and things like that, that changes in the 1960s.

And I think one of the reasons you had so much unrest in universities in the 1960s is because you have all these different groups suddenly. living together in close quarters and talking about ideas and thinking about things. And of course, there’s going to be these huge disagreements. And that’s a good thing.

It’s that universities are supposed to be slow to change. They are not necessarily supposed to respond to whatever is happening in society that day. It’s supposed to be a place where professors can say what they want and not get fired. And students can explore ideas. And it doesn’t define the rest of their life.

They get exposed to something. They either accept it or reject it or whatever else they do. Like it’s supposed to be a space to do that sort of thing. So I am very attached to the idea of the university as this lily pad of openness and expression within society. I think it’s very healthy. But I think that the U.

S. Economy has changed and society has changed and the things that are being taught, you no longer necessarily need to be successful in the same way that you might have needed them in the sixties when generations hadn’t been exposed to any of that at all. And one sort of example of this the federal government and several U.

S. States have eliminated degree requirements for many government jobs. There are companies like from Washington, Big ones like IBM or Deloitte they’re getting rid of the requirements to have a degree in order to get a job. Intelligent. com did a survey of 800 companies last year, found that 45 percent intend to eliminate bachelor degree requirements for positions in 2024.

So you go down the list and you think about what students need in order to be successful. I loved Cornell University. I hate to shit on Cornell University. Nothing that I, I learned how to think at Cornell. It taught me some things in terms of like professional and self development and things like that.

But none of the skills that I employ on a daily basis, I got at school. Like I could have gotten them in a book. I learned things about myself and you can learn things about yourself, not at a, at an expensive school in the middle of a beautiful place. So I don’t know. I think there’s something in that, this idea that the things Young Americans need to succeed in this economy.

The way that things are changing is not what universities have been geared to give them. Universities are still it’s the lagging indicator of what did the U S student need in the 1960s and seventies to succeed. And it’s just a very different world.

[00:55:09] Rob Larity: Yeah or put another way, I think you could say that the American University is like the personal World War I of every 18 year old who goes to them in the sense of you didn’t learn how to do your job at Cornell or any university.

I certainly didn’t learn how Skills per se. And everyone always, Oh, what skills are they? No one’s learning any skills, like any, anyone who’s ever hired a college student, unless they’ve done a co op program and they have a bunch of internships, like they know they don’t know shit and that’s fine.

Everyone understands that. It’s that displacement from. You’re home from your normal environment into a new environment with new people for the first time and it’s, formative period of your life like that social experience is probably greatly undervalued and the other aspects of it greatly overvalued and just compare it to a country like France, right?

Like most relative to the U. S. Fewer people leave their hometown. Fewer people go away to university. And I think that you can see that in elements of sort of risk taking and a lot of the things that make America what it is. There’s something good about that, but I guess universities don’t need to be what provides that per se, and you’re getting more of those elements that can be accessible outside of that.

Um, I don’t know where I’m going with this, but there there’s value there, but it doesn’t need to be packaged the way that it was traditionally packaged and skill development and a social experience are two separate things that you can disaggregate and deliver to people in a much more efficient way than We’re doing right now.

[00:56:44] Jacob Shapiro: And I think the thing that really does need to change in the American psyche is that, and you can see this, and this is why I led with that. It’s the front of the wall street journal is mapping and visualizing like these Palestine protests and things like that. There is still such a cache and such a reputation.

For college and university in the U S system where, Oh my God, they have tents on Columbia and they’re costing students and things like it has captured the national imagination. It’s become a talking point. Like the speaker of the house is at Columbia, like talking to the Columbia university president.

Like what a waste of time, like the speaker Johnson, you don’t have anything else to be doing with your time. Come there’s, but it still has this, we’ve, it’s still captured our imagination. And I think it’s going to be really hard. For sort of Americans to accept that, maybe they don’t need to go to college.

Maybe it’s actually better that you find an apprenticeship or maybe it’s better that you do national service in some place or go to some place in the United States. It’s really poor that has a lot of inefficiencies and build a startup there with that. Buying dumpsters and renting them out to people in a town that is blowing up, like that sort of experience might do a lot more for preparing young people in an economy than what we have right now.

And I don’t know how that changes. I think the problems of the university, like whatever, like at universities will be here, they’ll survive, they will adapt. But I do think there’s this thing happening where a generation of. Students are going to colleges and universities expecting to be prepared for life and on the other side of that, there will be jobs and opportunities and that pipeline.

I don’t know that works anymore. And I do wonder. I don’t wonder. I think that some of what we’re seeing in terms of just unrest with an issue that’s at the front pages of everything else is dissatisfaction with that, like feeling what are we here for? We’re not none of this is actually working.

Anyway, that’s my best interpretation, but I’m also as somebody who was president of a chapter of Hillel during previous bouts of Israeli Palestinian conflict. I’m very happy not to be a president of a Hillel on a university campus today. Thank God. Okay. Anything else Rob before we get out of here? No let’s close it up.

All right.

Thank you so much for listening to the Cognitive Dissidence Podcast brought to you by Cognitive Investments. If you are interested in learning more about cognitive investments, you can check us out online at cognitive dot investments. That’s cognitive dot investments. You can also write to me directly if you want at Jacob at cognitive dot investments.

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The post 195 – “Chaos” at U.S. Universities + Steel appeared first on Jacob Shapiro.

[00:00:00] Jacob Shapiro: Hello listeners and welcome to another episode of Cognitive Dissidence as usual. I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. Rob is on vacation this week, somewhere in Normandy. Whoa, is him such a terrible life he has, but I was able to recruit cousin Marco Papich back to the podcast.

It’s a pleasure. It’s been a minute since Mark has been on because I’ve been traveling. He’s been traveling. I actually, I flew in to new Orleans today from Toronto, from a speaking gig that I did earlier this week. And as I say in the podcast, actually recording in the evening, rather than my usual morning slot.

So this might get to you a little bit later than normal. But super excited that Marco was able to come on to fill in for our weekly podcast and hoping to have Marco on a lot more going forward. Cousin, thank you for making the time listeners email me at Jacob at cognitive dot investments. If you have any questions.

Questions, comments, concerns, anything else you want to talk about. That’s really all I have. Enjoy. See you out there.

All right, cousin. I don’t actually remember the last time you were on the podcast. Do you remember what the last time was and what we talked about? I don’t. I don’t,

[00:01:04] Marko Papic: but it probably involved a lot of things and then we’d ended with basketball.

[00:01:08] Jacob Shapiro: Yeah, and we were probably correct about everything that we, I know I wasn’t correct about my basketball takes because I remember last year I predicted a milwaukee new orleans nba finals and that that did not pan out I’m not that well too.

This is also weird for me listeners. Usually you catch me like it’s early in the morning I’ve just dropped my daughter off at daycare or something. I’m on like my second cup of coffee and i’m rolling today You Recording at 7 p. m. Central time. So I actually just gave Annie a bath. I’ve had some, I’ve had dinner.

I’m winding down. So I’m having to rev up the machine here. I hope I’m appropriately energetic. I’ll rely on you, Marco, to crack the whip. If I start looking like I’m fading at all.

[00:01:45] Marko Papic: That’s hard, man. It’s 5 PM, been up for a long time. So this is going to be a subdued, less hyperbolic Marco.

I don’t know how we’re going to deal with like more measure, like contemplated thinking about both sides of the argument, that’s usually not. That’s not what I’m here for, quite frankly. And so

[00:02:00] Jacob Shapiro: I don’t know how I, should we just stop right now and wait?

[00:02:04] Marko Papic: We should just pack it in.

[00:02:07] Jacob Shapiro: We chatted this week on real vision and It was funny.

I knew going into the call that I was going to agree with you on basically everything. So I spent like my hour of prep beforehand being like, What are the ways that I can disagree with Marco and try to push his buttons on this thing? And I think I did an okay job. It was good. Yeah. But I thought we might start Where we picked up there, which is, the biggest geopolitical thing in the world, much to my chagrin.

I keep joking about this in front of audiences. The joy of our job is that we don’t normally have to deal with the dumpster fire that is American politics, but it’s the U S election. And I, I don’t know if you feel this way. I going in January, I felt like I had a really good sense of where things were going.

Like I thought inflation was going to surprise the upside. I thought that was going to put pressure on Biden. I thought us China ties were going to get better. Things have happened, the way I thought. And now that we’re here, I feel completely uncertain how it’s going to happen next.

Like I don’t understand maybe where we go from here. So with that preamble, just I don’t know, tell me what you’re thinking about for the rest of the year. Are you surprised at where we are right now? And how do you think this is all leading up to the election?

[00:03:11] Marko Papic: Well, I’m not surprised, I guess I am surprised perhaps by the continued resiliency of the U S economy.

Just because the fact is there’s like really not a single iota of evidence except wages rolling over pretty significantly. But other than that the U. S. economy is very robust. And of course, I’ve been in a camp of being maniacally bullish about the U. S. economy really since middle of 2022. Bullish stocks since middle of 2022.

My S and P 500 target for this year is 5, 500, and so it’s not that I’m bearish or that I was expecting a recession, but I did think that the feds job. Would be made easier with some weak prints somewhere, somehow And and yeah, like I, I also expected inflation to be sticky.

That’s fine. But like they can deal with sticky inflation, justify it, say it’s transitory, whatever, and then point to Oh, but look at what happened to the ISM print or what happened with. Jolts or something, and they haven’t really been able to do that. And I think that’s complicating the situation.

Now, of course, they never had any evidence to begin with to pivot in the first place. And so let’s just remind ourselves of that. It’s not like inflation was, Not above target. It’s not like growth was rolling over in December when they told us they were going to pivot to cuts. And in March, when they tripled down on the three cuts, and by the way, they had, they, they could have said two, nobody would have faulted them, right?

Already. Already. Already. Everyone was saying like, Hey guys, there’s no real evidence that you should cut. No. They stuck to three in March. And I think that’s just a vindication that they are political. They are behind the curve. You cannot explain it in any macroeconomic like sense. And so now they are in a bind.

Now they’re in a corner and now they’re probably going to have to pivot towards oh, let’s wait and see if the damage is done. You’re behind the curve. You should have probably hike rates, in Q1. You’ve missed that boat, and

[00:05:12] Jacob Shapiro: it

[00:05:12] Marko Papic: is

[00:05:12] Jacob Shapiro: what it is. Do you think there’s any chance they hike now?

Do you think there’s any chance they realize the mistake and they try and stamp on it? Or do you think that the horse is already out of the barn?

[00:05:22] Marko Papic: I think they’re gonna try to play it out. I think the most, if you are in the hike camp you, I think, given my framework, which I think was correct for the last six months, Given the framework that I think they are political, I think they hike like in November if they do hike and until then they just run it up, they just run it up.

November what? Cause that actually matters. No. Like they would do it after the election. So December the meeting, I believe it’s in December. And yeah, not in November. So in December. If they were to hike, I’m open to that possibility, but I don’t think there’s really any chance they hike before the election.

And, think about it, it would require more than just sticky inflation for them to hike. And the only way that I can see a reversal of inflation, first of all, demanding the U. S. is going to trend lower. It just, again, I’m the guy who said San Francisco fed is like wrong. We’re not going to run out of excess savings.

At least not when they thought, but we are now running out of savings, like it was just, they were just early. God bless them. Their math was just wrong. And what I’m trying to say is that wages are rolling over the stimulus checks from 2020, 2021 has whittled down. And so I think it’s very difficult to imagine a scenario where inflation is endogenous and sui generis.

So the only way that I can see inflation going back up is if you have an exogenous factor such as an oil shock, and I do think they will look through that and Israel and Iran hated them. A ready made excuse for that. And so if inflation is merely sticky, moving sideways or if it’s rising because of exogenous factors, I think they’ll look through all of that until December.

Because again, to me, the number one issue is the U S election. That’s the black hole of macro. It bends time and space around it. As I said on real vision, like to me, this really matters. It’s why we’re are where we are at the S and P 500.

[00:07:19] Jacob Shapiro: It’s why everything is the way it is in the world in general.

But I don’t know if I agree with you about the oil. Point there or the, or what Iran gave to the administration, because I gave myself a pat on the back about inflation and us China relations and everything else at the beginning, I was wrong about energy prices. I thought natural gas was going to go up in the first quarter.

I certainly didn’t think oil was going to be in the doldrums. And we had Iran striking Israeli territory and we’re going to, barring something absolutely insane happening tomorrow, we’re going to close down on the week for Brent crude. That’s somewhat remarkable, is that something to the inflation camp that not even a, a Middle East crisis can send the price of oil upwards?

Maybe there’s something there in that, but I don’t, and also pair it with the news that the U S is reimposing those sanctions on Venezuela and oil still hanging out at 80 a barrel. I don’t know.

[00:08:04] Marko Papic: So just to be clear, you asked me if the next move is a high, right? So I wasn’t I’m, let’s say I’m directionally agnostic about oil.

All I’m saying is that if oil were to go up, if inflation goes up because of energy prices, I think they will look through it because they can ascribe it to geopolitics. But, and the other thing is that energy prices have gone up significantly. So we hit bottom on Brent at 75 and ironically two months into the Israel Gaza war.

But then we did go above 90, right? So oil prices are significantly up. It’s almost a 20 percent move. Now, since Iran Israel conflict, they haven’t gone. And that’s also, and by the way, that’s also something that we need to really consider. I think that. A lot of folks who came out and said after their December pivot and March pivot, a lot of folks who said, Hey, listen, this pivot makes no sense.

They’re going to have to eat their words about cuts. They were correct. They were correct. But I think the move now. Is to go the other way, because I don’t think these inflation prints are sustainable. I don’t see rent prices going up in the U. S. There’s a slew of indicators suggesting that rent component of inflation will go down.

And the other issue is exactly what you just said about energy. If energy can’t go up now. Nah, after missiles have gone to Israel, and if there is more, if this reveals massive downside risk to energy prices, like Jacob, you know what’s going to happen? Their view, their pivot, which was infinitely political, will grow into itself.

It will grow into itself. It will mature nicely. And in four or five months, they’ll be like, see, we told you we got some weakness, CPI. Is rolling over. So in other words yes, I think making the call that inflation was going to surprise to the outside is a great call. It has an effect that they’re thinking, and he may very well pass unless we get a moving on energy prices and other things, so that’s where I think the Israel Iran situation, even though we may want to dismiss it. And I think both of you, you and I have that kind of like sanguine view on it. I think it’s an incredibly important macro signal. I’ve been long oil since early February. That’s been a very nice trade. And I was just talking to a very sophisticated hedge fund that knows how to trade energy.

And they were telling me like, look, Marco, like when something like this happens and the asset doesn’t move the way it should, you have to pause and think about it. And I remember, like when Russia invaded Ukraine, a lot of folks want it to be long bonds. Didn’t really rally. They actually sold off.

I’ll give you another example. You remember May, 2014. Yeah. ISIS takes over Mosul, the second largest city of Iraq falls, they’re on their way to Baghdad, and oil doesn’t even budge, and you’re just like, wait a minute, I get goosebumps just saying this, dude, Iran just launched missiles at Israel.

You could just say the market is stupid. The market is complacent. All these traders, what do they know about geopolitics? Or you could say oh my God. Oil is about to turn and if oil turns, then you’ve got to ask yourself about the strength of the U. S. economy. Why is oil turning in, right now?

Why is the 10 year yield then appropriately at 4. 6, 4. 7? Is that going to come down? Is growth going to trend lower? And at that point, the Fed talking about cuts. It’s isn’t so silly anymore. You see what I mean?

[00:11:42] Jacob Shapiro: Yeah, maybe I don’t know if you saw this, the wall street journal today had a report that the U S is doing another hail Mary for a Saudi Israel normalization deal as part of resolving the Israeli Palestinian conflict.

And I literally just tweeted before we got on is there a president for dummies handbook that says during the last six months of a president of a democratic presidency, you go for an impossible deal in the middle East. But the only reason I saved.

[00:12:06] Marko Papic: This sounds like Malik Monk of geopolitics, like your national confidence guide.

Bring in Malik Hawthorne, we’re down by 17 points. He’s gonna, he’s just gonna shoot threes and like this one in ten chance. He just gets five in a row. And literally 12 of our listeners understood that and we can move on.

[00:12:23] Jacob Shapiro: I think that’s an insult to Malik Monk. I really think it’s more of a, to to cite one of your boys.

I think it’s more of a Nick Young, like throwing up the shots and turning to the side, thinking it went in and didn’t go in. Yeah. Yeah. No,

[00:12:34] Marko Papic: that’s good. That’s good. Well done. Yes.

[00:12:36] Jacob Shapiro: Thank you. Thank you. I’m here for niche geopolitical basketball analogies. If that was a currency, boy, would I be extremely wealthy?

But I bring that up to say, maybe if Iran hit Saudi Arabia, we’d be talking about it because, Israel is not an oil producer. They’re not dragging the United States into the conflict. So maybe. The Rubicon that would have to be crossed would be the Houthis hitting Saudi oil infrastructure again or something like that.

And if I can’t believe the Saudis are actually going for this in a meaningful way, but if they are like flirting with some kind of deal, like maybe Iran will get pissed off at them. And the understanding between the two sides will change. I’m like now really stretching to try and find some way to, to pull higher oil prices.

No, you’re totally right.

[00:13:17] Marko Papic: But you know what? But I think Jacob since we’re talking about Israel, Iran let’s go right into it. Look, I think I think what’s underestimated and I think you’ve probably heard me talk about this and I think I mentioned it when you and I were together a couple of days ago, but like Iran, Saudi Arabia deal.

It’s really important. It’s the only thing that explains lack of geopolitical risk premium in the markets. Although, some investment banks like Goldman Sachs suggest there’s 5 to 10 of premium. Fine. Whatever. I think there’s on the lower end. Why? Precisely because the Houthis could very easily, let’s just be very clear, very easily attack north as they do south.

Yeah. And they did in 2022, they attacked the Abu Dhabi airport in 2019, they struck Saudi facilities. So clearly the Saudi Iran deal is holding, and we need to understand the intricacies of that deal, because we have to ask ourselves, why? Wouldn’t Iran strike facilities, right? That’s your question.

Like why? And I think what is being missed here is just how much goodies Iran got. Saudi Arabia basically ceded control of Syria, Yemen, and Iraq, the crown jewel of the middle East to Iraq. That is what really is holding this together. They pulled support for Muqtada al Sadr, who handed over political control To various Iran linked Shia militias and parties, Bashar al Assad came to that November summit in Riyadh.

Bashar al Assad is now recognized as the leader of Syria by the Saudis. And of course, there’s, a nominal peace deal between Saudi Arabia and Yemen. So this is an incredible gain for Iran, which is obsessed with having standoff distance with its rivals. So why does Saudi Arabia make this deal? I think there’s two reasons Saudi Arabia.

So I don’t think the Iran abrogates this deal for anything. It’s a historical achievement for Tehran. For Saudi Arabia, I think they’re comfortable with their military capabilities now. I think the Yemen war illustrated to them and their rivals that they’re more than capable of conducting strikes and that they have a very functional military.

They’ve spent a lot of money on it. And the second thing that they feel comfortable with is that they’re focused on economic development. That’s all they care about. They want everything from Ronaldo to industrialization to happen, and that’s their priority one through a hundred. And they just don’t want to deal with Sunni Shia conflict.

They’re like, whatever, Iran, you want Syria? Sure. Whatever. What does the winner get? Go have at it. And so that’s, what’s holding this entire region in place. That dynamic. It’s not Israel, Saudi Arabia. It’s not the Abraham accords. It’s not China. It’s not the U S. It’s the fact that Iran and Saudi Arabia somehow found equilibrium.

[00:16:03] Jacob Shapiro: Do you think that means that these like American reports about Saudi Arabia considering this it’s just nonsense? Do you think they’re trying to cajole Saudi Arabia into some sort of normalization deal? Or because the rumor is that. Saudi Arabia wants some kind of U. S. security guarantee that the price for normalization will be, an ironclad, like a treaty level, sort of Philippines level, South Korea level, defense treaty with the United States, which if they’re seeding all of the strategic territory, I guess you can get there in the abstract, but I don’t know.

Do you think that’s what they want?

[00:16:32] Marko Papic: Yes, I do. And I think they also, there were rumors a couple of months ago, or maybe a year ago. There were rumors that they also wanted nuclear technology transfer, like the one that India got from the U. S. Civilian, but haha, not really.

[00:16:46] Jacob Shapiro: Yeah, nonsense. Iran, you can’t have nukes. But Saudi Arabia here’s the red carpet for civilian nuclear

[00:16:52] Marko Papic: weapons. Give me a break. But, listen, if I was running Saudi Arabia, I wouldn’t, I would say listen, it’s an absolute joke that the U. S. is not going to defend us in a war. This whole nonsense that America is like independent with energy.

Yes, it is. But it doesn’t mean the U. S. is just going to like wantonly ignore 11 million exported oil barrels because it will crash the global economy. So if I’m running Saudi Arabia, I’m like, don’t defend me. Let’s see how that goes. Simple. Like my coffee. Yeah, you

[00:17:28] Jacob Shapiro: do. If I was president of the United States, I would call that bluff, but I’m not president of the United

[00:17:33] Marko Papic: States.

But again and then what? And then what? The dollar goes to the roof and your economy goes to shit. Like WTI price is not going to go up with the Brents?

[00:17:41] Jacob Shapiro: I’m not sure. No then you just kick in some old laws on the books to prevent exports and you keep the price of energy down. And also relative to other economies in the world, the United States will do just fine.

And maybe before you do this, you should make amends with Venezuela. And. You’re gonna, you’re also gonna become the security guarantor of Guiana, which has a fairytale discovery down America. Yeah, but we’re talking five years,

[00:18:00] Marko Papic: we’re talking five, 10 years. We’re talking even with it all. You’re talking five, 10 years.

Look, US economy is in a recession, there’s no way to avoid, they’re just like, and it’s not like that, like exports shutting down exports would keep the WTI prices down. There’s all sorts of ways in which prices would seep out. The dollar would go through the roof, US exports would collapse. Yeah, it’s only 10% of GDP, but it’s still 10% of GDP.

US would do better relative to the rest of the world, but the guy with a pink slip in Detroit doesn’t care about the fact that Oh, I’m winning because over there in Germany, they’re starving. So look, my point here is that it’s, I think Saudi Arabia will continue to play hard ball. So I don’t think they give Biden a gift.

Unless Biden pays a lot for it,

[00:18:48] Jacob Shapiro: yeah and this is actually a good segue to how we started this conversation, or at least the, the U S election portion of it, which is I was thinking that if you keep on getting hotter inflation prints, just every hotter print brings Donald Trump that much closer to the white house.

But part of what you’re saying is if you’re not getting the hotter prints and Let’s say that oil not rising as a result of the Middle East crisis tells us that something is wrong and the economy is going to roll over and the Fed is going to start looking if the Fed looks right in four to five months that the economy is weakening.

That’s also not very good for Biden. That tells you the economy sucks. So he’s like, how does he, is there any hope for him at this point? Because he’s down in the swing states. It sounds like every scenario leads to he sucks on the economy.

[00:19:29] Marko Papic: Just to be clear, just to be clear. I’m pointing out the kind of.

Other side of this argument, as I said, I’m the contemplated Marco, not the hyperbolic Marco. So I don’t have a high conviction view on what happens with inflation over the next six months. But I do want to point out that Iran, Israel, not moving oil prices. But to go back to this Biden point, what’s good for Biden.

I don’t know. I don’t know, Jacob, because all I know is that economic expectations by consumers, consumer sentiment is through the roof, positive through the roof CEO. The O’s are finally not suicidal anymore. The O confidence is finally in positive territory as well. Everybody in the United States of America loves what’s going on.

And yet Joe Biden hasn’t seen any movement in polls. It’s alligator jaws charts, true and Charles basically diverge. Normally your presidential approval rating does correlate with consumer sentiment, which CEO sentiment and all this improvement in economic sentiment since the 2023 year, when everybody expect a recession.

Hasn’t done anything for Joe Biden. And so I don’t know how to answer your question. I don’t know what’s positive for him. You know what I mean? Because clearly the public, at least from sentiment data is feeling better about things, but it’s not being articulated into Joe Biden’s approval rating now, that said, as Trump is also not.

Like a favorable candidate, he’s got a very high unfavorability rating. The polls are very tight. So what I would say to you, Jacob, is that their only chance of winning for the Democrats, I think is to ensure that there isn’t a recession, yes, sticky inflation sucks, but raising rates and causing like potentially a recession.

Recessionary outcomes, I do think is worse. Why? Because their only chance is that November 4th, no, November 2nd, third, fourth and fifth, however many undecided there are in those four days, there’s not gonna be many. We agree, but they’re gonna be meaningful given how close the elections are in these swing states. The only chance is that if you are still an undecided voter in the United States of America, between Donald Trump and Jay Joe Biden, at that point. If you’re still undecided, you go to the voting booth and you’re like, what kind of employment is it like 3. 8? Yeah, inflation is sticky, but do I really want to like just blow everything up?

With the anti establishment option that is, I think Joe Biden’s hope at this point, it’s that eight out of 10 undecided swing, not for him, for the incumbent, for the continuation of the baseline, because, it’s not, it could be a lot worse. And I think that’s

[00:22:12] Jacob Shapiro: also for RFK Jr.

I don’t know if that’s good or bad for Joe.

[00:22:19] Marko Papic: I think that’s it. That’s the only plan. The undecided sweet eight. Eight out of 10 for Joe Biden at the end because there isn’t a recession because the economy is humming and because indicators are moving in the right direction. I don’t see how else they move.

Look what I’m saying. This isn’t like a pro Joe Biden argument. I’m simply, it’s actually an anti Joe Biden argument because I don’t know how to answer your question. You’re asking me what’s better for them. I don’t think they have this is as Goldilocks as it gets. Yeah, inflation could be lower, but come on, like it’s not at 6%.

Inflation has come down significantly and inflation coming down is important. Why? Because it allowed real wages to skyrocket. As CPI goes down, real wages go up. And if the consumers are still not choosing, if the voters are still not choosing Joe Biden at this point, are you telling me that going from 3.

5 percent CPI to 2 percent is going to make a difference? That’s crazy. Normal human beings can’t assess. The difference between three and a half and 2 percent inflation.

[00:23:18] Jacob Shapiro: I hate when people ask me who’s going to win the election. So I’m not going to do that to you. I’m going to ask you your scenarios.

So what is your scenario for the 12 months after Biden wins? And what’s your scenario for the 12 months after Trump wins from an economic markets perspective?

[00:23:33] Marko Papic: I don’t know, man. That’s a long time. That’s two years. Oh, that’s one and a half years from now.

[00:23:37] Jacob Shapiro: It is. That’s why they pay us the big bucks, my friend.

[00:23:41] Marko Papic: I want to nibble at that answer. Look a lot of things are Bayesian in that, like we need to know how Donald Trump reacts to the markets reaction to his presidents. I don’t think there’s anything really interesting with Joe Biden. So I’m just going to stick to the Trump scenario cause it’s cooler.

It’s more disruptive

[00:23:59] Jacob Shapiro: too. It’s more disruptive, yeah.

[00:24:01] Marko Papic: And I have a very controversial view. I wrote a piece whose title was Donald Trump, colon, defender of globalization and world peace question mark. So I actually don’t, yeah, I actually don’t think that Donald Trump will be disruptive on trade. We can disagree on that.

That’s fine. I don’t think he will be. Disruptive on geopolitics either. I actually think a lot of outstanding issues get resolved the day he shows up He’s gonna come he’s gonna tell us you’ll see the truth, which is like the war is over You need to focus on other things. You’re not reconquering these territories anytime soon So like things like that are gonna happen with all trump on the geopolitical front and I don’t think that’s something that investors should fear um the thing where I think Donald Trump will be disruptive is that I think that he’s the least trust of America and the bond market is going to lose its mind.

When he was elected president in November of 2016, the correct call wasn’t to be long equities yeah, that happened. The correct call was to be short duration because the 10 year yield absolutely exploded. And then the 10 year yield went sideways. And bombs rallies throughout 2017 because Republicans kept trying to repeal Obamacare instead of fulfilling market expectations of, basically fiscal stimulus and that they did pass the job tax cuts.

And the 2017 jobs in tax cuts act, which was a surprise to 99 of a hundred investors. Why? Because everyone in this industry really struggles analyzing politics because they’re biased. And let me say, let me tell you exactly what I mean. In 2017, when I was traveling from, Sacramento to Stockholm, every investor liberal said, Republicans are incompetent.

They will not pass tax cuts. Look at what they’re doing with Obamacare. Conservatives told me no, they’re competent. They will pass. But it will be revenue neutral, to which I, of course, go for. So we got the 2017 deal, which was a trillion dollar unnecessary fiscal stimulus at the end of this cycle.

And the 10 year yield went from one and a half percent after Brexit to three percent. Now, you know why nobody remembers this story? Because nobody cared, stocks and bonds were negatively correlated and we were, and there were negatively correlated because there was no growth and there was no inflation.

Donald Trump was God’s retribution for austerity. He was the mean reversion fairy. He was like how we ended the secular stagnation. And yeah, we needed growth. Boom, equities loved it. We’re starting his new presidency at what, 10 year yield of? I don’t know, between 4 and 5 percent by November, right?

I think that’s fair. And the market will be correct to assume that he will not do austerity because he doesn’t really mean it and that he will pursue tax cuts that will not be paid for. And so what I expect on November 6th, and that’s why my S& P 500 target that I mentioned earlier, 5, 500 was for November 5th, not December 31st.

Just to be clear. I expect on November 6th, the same thing to happen. Bonds will sell off, except this time in an environment where bonds and equities are positively correlated and that sell off will cause an epic stock market crash. Now, not Grump supporters. Tell me Marco. Your mathematical logic is not bad.

I see where you’re going, but please do me a favor. Please tell me this is actually, this is a potentially the next very high place. Member of the Trump administration literally said this to me. I don’t disagree with your logic. However, technically it won’t be the Trump bond market, right? I was like, why is that?

He doesn’t really become the president until January 20th. So clearly you should call it the Biden buy market, right? And I was like, Oh my God, it’s going to happen. Now, this is why it’s difficult for me to forecast like a year and a half because they, you and I, Jacob have to get put on our thinking cap and assign probabilities to what will Donald Trump do at that point?

Will he do the Bill Clinton thing from 94 where Bill Clinton, who by the way, ran as a populist. He didn’t run as a third wave liberal Tony Blair. Look, no, hell no. He was a pocketless from Arkansas. Give me the Cold War dividend, I’ll give it to the public. And then you’ve got the bond market riot in 94 and he sat down with Gingrich and of course consolidated budget.

So we could have that outcome. And I do think Donald Trump is capable of doing that. If he sniffs out that there’s a true economic danger to the United States of America that the median voter truly does want austerity, boom, like this, he’ll move the party. That’s his super power. He can sniff out where the median voter is.

But there is also the other alternative where Donald Trump just says, look, I want The BOJ special. I don’t like bond vigilantes. Bond? Who? Bond traders? I steal their restaurant reservations in Manhattan restaurants. Screw those guys. I want you to anchor the tenure yield. And so I think that’s the biggest thing to me.

How does the bond market react to the fact that Donald Trump is, and I don’t mean this pejoratively. He just is an economic populist. And again, the world needed that in 2016. I’m not sure he needs it in 2024, just because we have plenty of growth in inflation.

[00:29:26] Jacob Shapiro: Yeah I’m really not sure that the Clinton comparison holds water.

And I don’t want to, again, like I don’t care to air my personal views on this podcast. So what I’m about to say is not an indication of what I think one way or another about the election, but Bill Clinton for all of his Flaws and he had many of them was maybe the smartest person to ever be in the White House.

He had a next level brain. You talk to people that were around him, how well read he was, his memory, a Rhodes Scholar. Like he wasn’t just a political chameleon. He could exist in any intellectual environment and be the smartest person in the room. Donald Trump is not that. He. He certainly, you’re right, has a genius in figuring out where the mob is going and in directing the mob into certain directions.

But he feels much more like the American political figure I’ve always used to compare him to is Huey Long, and we don’t get to see what happened if Huey Long got elected because somebody gunned Huey Long down before he could. get into a real position of power. But so all I really have to go on is Robert Penn Warren’s book, All the King’s Men, which is really what started my love affair with politics to get a sort of glimpse into what would have happened.

And at least if Robert Penn Warren did the job like the populist who gets into power doesn’t do what you’re talking about. He probably just sinks into his own power and starts You know, appointing sycophants and appointing loyalists and making sure that he can never lose and stuff like that.

So I don’t know, I would pick it at that comparison a little bit.

[00:30:54] Marko Papic: No, but all I’m saying is there’s two options. There’s the Bill Clinton outcome, and then there’s the BOJ anchor that yield, right? So you’re weighing the ladder fire, yeah.

[00:31:03] Jacob Shapiro: I don’t see how the bill, like if I’m putting on my thinking cap and trying to put myself into the shoes of Trump, November 6th, he wins.

I don’t think the Bill Clinton option even comes to his mind. I don’t think he goes there in his head. In that case,

[00:31:15] Marko Papic: if I’m right, then the dollar is going to fall a mess.

[00:31:21] Jacob Shapiro: The other thing I wanted to pick out at what you said, and this was the one, I was contrarian with you a lot in real vision, but the one place where I really differed was cause I’m a little bit more afraid of the Trump scenario from both a trade and from a geopolitical perspective.

And I’m having a little trouble squaring. So how is this the most important thing happening geopolitically this year, but you don’t think there’s going to be a lot of geopolitical change in the Meaningfully with Ukraine, if it happens, or let’s say Venezuela, which The Trump administration tied to overthrow in a sort of its own Bay of Pigs situation.

What about South Korea? He’s talked about pulling all the troops out of South Korea, completely messing up the US, Japan, South Korea thing that Biden has done. One of, I think, Biden’s least talked about successes. What happens to Germany? I imagine that if you get Trump 2. 0, I expect to hear about the Teutonic Knights marching in the forests and new Panzer divisions.

Getting authorized immediately in a way that they’re not going to right now. All of these feel like big geopolitical impacts to me. Tell me why I shouldn’t be worried about these things.

[00:32:18] Marko Papic: Look, the reason that I think that the U S election is the most important macro team. And I’m going to stick to my view that the Fed was political is because I believe that American establishment elites are absolutely horrified of a future of a Trump 2.

0 presidency. And so it’s all hands on deck. It’s like Jean Marie Le Pen. It’s not Marine Le Pen. It’s her dad. It’s like the entire infrastructure of a country is basically turning towards ensuring that this populist anti establishment figure doesn’t win. And I think that’s what is relevant.

That is what’s causing Janet Yellen, Jay Powell, Joe Biden. That’s, this is the election put bull market. That’s the way now, is Donald Trump going to be I think he’s simply on the geopolitical front and on trade front. I think he’s going to. The trend is already clear. I think the trend is already clear.

He already established a trend in trade. The problem with trade Jacob is that he opened up this genie from the bottle that we can be protectionist. And the irony is that the Democrats cannot put the genie back into the bottle. No, they don’t want to. They don’t want to either. But I also think that they cannot, they cannot.

And this is because if they do, they will be accused of being pro China or weak on trade or whatever. So you had Jake Sullivan give a speech to the Brookings Institute, which was basically a sanitized version of Trump’s, rhetoric. It was just like sanitized for CFR cocktail parties so that they don’t spit out their martinis.

But it was like, Jake Sullivan sold us this idea, middle class foreign policy for the middle class. If you read that speech, I don’t see any daylight between that and Trump. I’m sure that Sullivan would disagree with me and that’s just too bad. I disagree with him massively. And so do America’s partners.

And the problem is that, look, you can say whatever you want about phase one deal or USMCA, and I probably agree with all of it, but at least Trump made deals. Biden hasn’t concluded a single free trade deal. He hasn’t even attempted them. And he’s now. Using terrorists against Chinese steel and aluminum as a knowledge election campaign prompts, though, where I see Donald Trump is the only human being in the United States of America out of 400 million people who can conclude trade deals because no one’s going to accuse him of being weak on trade.

No, one’s going to accuse him of being though he probably is reconstructed because if you look at the USMCA deal, it didn’t actually, that’s a deal that Canada won in my view. And if you look at the phase one deal, as you pointed out before yourself, like it didn’t really do much for from the perspective of China, they didn’t accomplish all those positions, but nonetheless, he does get deals done.

And that’s because he has the political capital domestically to do them on the geopolitical front and I think he will I think it will threaten tariffs. He may even increase them in the near term but I think that his intention is to conclude deals and this is what I brought up when we had the last conversation he pivoted on Tik TOK, he talked to Ohio at an Ohio speech, he said, I’ll bring Chinese EVs to Ohio.

Can you imagine if Joe Biden had said the same thing, he would have been criticized. Nobody even picked up that speech that Trump made because Trump is allowed to conclude a trade deal with China. Biden isn’t and that’s unfair, but it also makes Democrats actually more dangerous from a global stability perspective because they are weaker domestically and they don’t have as much maneuvering room.

It’s the old adage that only Nixon could go to China. Similarly, only Trump can conclude trade deals with China. I’m going to stop there so we can do the geopolitics later. Let’s just stick

[00:35:57] Jacob Shapiro: to trade. Let’s do that. Cause I like the Nixon, China, Trump trade comparison. That’s an elegant comparison.

But I have, I’ll problematize it a little bit for you. Number one, you’re right. That Biden hasn’t really concluded any deals. And I was somebody who I believe when he. He still had some fast track authority for the first six or eight months, I think, of his presidency, where if he wanted to go after the TPP and try and re engage, he probably could have legally enforced it through.

And he made the same mistake that Obama did with health care. He, pussy footed around. It’s funny because he got accused of being hard left and all this other stuff. He actually probably pulled some of his punches on some of the things that he would have felt most deeply about. But so he didn’t pursue TPP.

But I do think he did some things that maybe they’re not trade deals. Maybe he doesn’t have to claim, he doesn’t get to claim credit as for doing trade deals, but he ended the budding Europe, us trade war, which Trump started, he solved the Airbus Boeing thing. He put the genie back in the bottle when it came to the transatlantic relationship and that has paid dividends for years going forward.

He got Japan and South Korea to be friends with another, with one another not just intelligence sharing, but got Japan to put. So you can’t put South Korea back on that white list or whatever. So the trade between those two countries could go back to be normal. It stopped, I think, what, 2019 was when that mini trade war started out.

And a free trade deal with India is it’s the white whale for everyone. I don’t think Modi’s going to give it to anyone. But you have had Serious working groups between the United States and India on semiconductors on different types of strategic technologies and us companies running around India and lots of incentives and things happening for us companies to go into India and things like that.

So he may not have a trade deal to his name and he has certainly bought into protectionism. Like in that sense, the Bernie wing of the party. One, it absorbed like democratic trade policy. And that’s what it is now in the same way that Trump populism absorbed Republican trade policy. So now all the free trade liberals and conservatives are just like, going to clubs don’t you remember the good days in the nineties where we could all like, think about this stuff?

So I’m with you on Biden doesn’t have deals to his names, but I think he was actually trying to do things and he has some successes. Whereas Trump, I don’t maybe I’m not giving him enough credit. Maybe he’ll do the Nixon maneuver that you’re talking about, but I, he’s talking about 60 percent tariffs on China and 10 percent tariffs on everybody else.

Let’s say I put that to the side and say, that’s nonsense. It’s a negotiating tactic. It’s class. Classic Trump hyperbole. Let’s take the one part that I think is not hyperbole because he certainly is mad at China about the phase one trade deal and for them not living up to it. And he must be reading all these articles about how Mexico has surpassed China as the biggest trade partner for the United States, for the most part, because Chinese exports are going through Mexico now into the United States.

And if you go. Yeah. Trademark. Exactly. And if you go on top of all of that with Mexico, he’s losing AMLO who he was buddies with AMLO. AMLO gave him some amulets to ward off like evil spirits and stuff. I don’t think Claudia Scheinbaum is going to be giving him any amulets or that the relationship is going to be that cozy on top of it.

And listeners like go to Trump’s campaign website and look at this page. It is. It is. It is. The cojones on this guy, he has declared war on Mexico’s drug cartels. Like already Trump has declared war on the drug cartels and I don’t think he’s bluffing when he says he wants to deploy the US military into Mexico to go after these cartels.

I think he’s very brave for even uttering any of those words, the same sentence, let alone putting them on a campaign website. But just, let’s just talk about USMCA, which it turns out was probably not that good a deal for the United States, the deal that Trump made. And it allowed all of these Chinese things to come into the United States from Mexico and Canada’s winning all these dispute mechanisms.

I go hang out with farmers and they’re like, can you believe Canada won that dispute mechanism? And I’m like, yeah I paid attention to the deal maker and what he was doing. So anyway, I threw a bunch of you, but I’ll let you take it from there.

[00:39:48] Marko Papic: Look, at the end of the day, America first Institute in DC, which is Much more than the heritage Institute.

It’s really the American first Institute that’s planning his second presidency. He doesn’t have much in trade, but when they talk about the phase one deal with China, they praise it. When they talk about USMCA, they praise the labor protections, even though that was Canada that asked for them and Trump opposed him.

And listen again yeah, he’s talking about 60 percent tariffs in China, but then he tells the fire manufacturing workers that he’s going to bring Chinese in the US. And it’s all rhetoric, and let’s go back and just look at Trump. There’s, I joked with clients, just seven steps of maximum pressure.

And it’s always the same, whether it’s North Korea, whether it’s poor Justin Trudeau, whether it’s, Xi Jinping, it’s always exactly the same. You set your sights for the moon. Just look at Lighthizer’s opening salvo in the USMCA negotiations. The US didn’t get any of that. You set your sights for the moon, then you punch someone in the mouth, you whip out your big button, then you start negotiating, then you leave the bride at the altar.

Always every single time Trump did this, always 11th hour the Singapore summit with North Koreans is off flying from the G7 summit from Quebec. Justin Trudeau’s mean announcing 10 percent increase in tariffs, it hit the summer of 2018, with Twitter, Lighthizer wasn’t even informed. And then, everybody scrambles, including the White House, including Trump officials who were so in, into the negotiations, they get sad.

And then he brings them all together and makes a deal, last concession, makes him look like a winner, even though he got nothing close to the original thing. If you’re a Trump detractor, You can point to the eventual deal and say, ah, you didn’t get what you wanted. But if you’re a Trump supporter, you can say, yeah, but he got a deal, and he got it through the domestic political machine where he looks tough.

And I think that’s, so again, it’s, this isn’t about Joe Biden versus Trump. All I’m saying, and if you’re a democratic party supporter, you, I will concede this is unfair. It is unfair. It’s unfair. It’s unfair that poor Democrats. Has to adopt Trump’s protectionism and get nothing for it because they cannot pass a single thing through Congress or through the court of public opinion.

It’s unfair that Trump can’t, but he can and he will. I think he will ultimately do that. No, we can disagree with this and it’ll be fun. Let’s see what happens. The question for investors is why does it matter? And this is Jacob where I think it’s interesting. I visited lot of really large, sophisticated hedge funds in New York.

They listened to my bombs thesis. They listened to my, my, my idea. Maybe he will do. You’ll control dollar goes down. The number one trade from a currency perspective for a lot of hedge funds is that Trump is clearly dollar positive because of tariffs. And this is what I would reject that view. I think empirically, it’s very difficult to assign positive move to the dollar from the 2018 tariffs.

And my argument has been like, look, the economy, global economy was going down because China was going down. So you and I, we might be right. We might be wrong. I don’t know. It’ll be fun to watch like what Trump does. I think he will be right in the short term. He will punch people in the mouth, he’ll use the tariffs and then he’ll start negotiating.

I don’t know if the dollar really moves. Maybe there’s a knee jerk move. Because everybody thinks again, every hedge fund I talked to is basically no, Marco, like terrorist matter. I don’t think so, but whatever. I’m just one guy. It’ll be interesting to see dollars reaction in 2025. And it’ll be interesting.

What’s more important bond sell off, monetary policy or trade.

[00:43:23] Jacob Shapiro: It’s funny where I find myself with you is cause I’m halfway there with you, but my first thoughts don’t go to the dollar. I’m a little less developed in this theory than you are with yours. But. And I alluded to Unreal Vision.

I’m doing the research right now, but I think everybody assumes that the tariffs are going to be inflationary, even if they’re only inflationary for a brief time period. And maybe we’re saying the same things just with different words. But it seems to me that the real risk is deflationary, that there’s an inflationary shock, but that is the thing that tips everybody over the edge and everybody realizes actually, The economy is not good and trade has been shrinking and this Chinese deflation is finally going to get exported everywhere.

And really it’s going to be demand destruction because everybody’s going to wake up and realize that there’s all this volatility and and the very thing that gives Trump the kind of negotiating power that you’re talking about will cut against him because whether he’s rational or not, like it all, there’s an era of an aura of.

Complete volatility to him. He’ll wake up one day and say one thing. The next day he’ll say something else that works. If you’re the one who’s controlling the negotiation. But if the very, if your very presence has set off a panic in some sense, and it has people running for the hills and maybe not for bonds, maybe that I’m hearing all the time, like maybe they’re running for gold or maybe it’s running for commodities or maybe it’s running for crypto, but like all these alternate asset classes, you start looking at it, so

[00:44:42] Marko Papic: that is the point.

We don’t have to. I don’t have any real agreement on a lot of things. What we’re really agreeing is that where Trump is a real paradigm shift is that long term inflation expectations have to rise and they haven’t, they haven’t. At least not through a surveys, not five year, five year forward, not the expectations through the surveys like Michigan and so on.

And I think this is the most mispriced macro chart and gold is sniffing this out. Gold has completely dislodged itself from long term long term real yields, which is the 10 year yield deflated by. Long term inflation expectations. And that tells you that whoever’s buying gold right now, whoever’s bidding it up is doing so because they don’t believe long term inflation expectations.

And I think those people are right now, just to be clear, Jacob, gold has been massively wrong in the past. Remember 2008, nine, 10, you and I were working together. And at the time, what happened? Everybody thought inflation would go up. Gold went up initially because of Joe and then it collapsed this time around.

I think we’re in a different macro setup. There’s been a lot of fiscal power politics and geopolitics is inflationary where it’s disinflationary there. And so I think that gold is correct. But it will be interesting to see, but listen, let’s talk about one thing. If I can just

[00:46:01] Jacob Shapiro: Marco, just one second before we talk about this thing, I just cause I’ve picked up a lot of farmers and agricultural listeners on my travels the last couple of months.

And I just want to say right here, if you’re listening, this is one of the reasons when I speak to you, to those audiences, I show you the chart of what farm real estate looks like over the past couple of years and why Bill Gates is buying all the farmland, why everybody else loves it because the same things that we’re talking about with golden crypto go for your land.

And people and governments are going to want that land. So like you should be thinking about that in general. It’s not abstract when I talk about that. So take it from there.

[00:46:34] Marko Papic: No, thanks for interjecting that. I’m actually going to speak with some farmers in Idaho. And in a couple of weeks. That’s a great point.

I wanted to just go back because, there’s two things we’re talking about here, Jacob. You asked great, but there’s also geopolitics, right? So NATO, Japan, China Iran, Israel on that front I’m just going to give you my view, very short. I think Trump is the best thing for world peace in a very long time.

I’m going to just lay it out there. Go!

[00:47:05] Jacob Shapiro: I think he’s the best possible thing for a thesis you both and I share, which is the emergence of a multipolar world. I feel like the thesis actually runs into some problems if you get a Biden re election and the U. S. and China continue on their soft Cold War trajectory and, Europe pussy foots around and doesn’t actually put on its big boy pants and help Ukraine.

But it feels to me like if Trump enters the White House again, Europe. Get set off on a completely new course Japan, you’ve already seen signals. The most interesting thing about the Japanese visit to the white house last week, cause she does visit to, to, with Biden was that, the New York times was saying things white, how to fish white house officials wanted to create a sense of permanence in the relationship.

Cause they didn’t want anyone to be able to overturn it in the future. I was like, Oh, like Biden’s thinking that Trump’s going to win and he’s going to completely upend the U S Japan relationship. South Korea should be super worried. Like I think Trump means what he says when he would think about withdrawing troops from South Korea.

So I don’t know, you just go down the list. Sure. It accelerates a multipolar world. And if you are with Hans Morgenthau and you think that multipolarity leads to more peaceful worlds because there’s more balancing against each other. Yeah, sure. Maybe we can get there.

[00:48:13] Marko Papic: Oh, I didn’t mean it that way.

No, for sure. No. I meant like really like meaningful conflict, like sustainable. But look, let me give you the counter to that. I think there’s two things that I think maybe we disagree. First of all. In my view, multipolarity is a fait accompli, and maybe this reveals just my deep bias methodologically, philosophically, as a realist, so I think multipolarity is definitely influenced by action and perception and ideology.

Yes. And domestic politics. So isolationism in the U. S. can withhold its power. You cannot ignore domestic politics. You cannot ignore norms and constructivism. I’m getting a little geeky here, but. Okay. Again, no one excuses me of being, uh, anything but a nerd. But let’s listen to me the thing that I’m, I really do think there’s objectivity to this and that there’s a material reality that’s difficult to counter.

And I think the problem with the Joe Biden administration is that it hasn’t really successfully enforced credibility in the U S and, for example, I showed this chart of Iran’s nuclear enrichment, which is hilarious chart. Literally to go from zero kilograms of 20 percent enriched uranium to like over 600 only during the Biden administration.

They just don’t care. They didn’t do it. Even after Trump took away JCPOA, they waited while Trump was in power, though Biden puts it out to zero, sorry, Obama puts down to zero because they make the deal. Trump withdraws from the deal and Iran hesitates. Iran hesitates. From restarting its enrichment while Trump is in power.

And the only restart in earnest stockpiling 20 percent uranium after Biden is elected. So that’s just one example. I think what Trump knows how to do correctly is he, I think knows how game theory works. And he understands that in order to In order to avert crises, you actually have to be extremely aggressive.

And he’s done that numerous times. For example, when he was elected, there was this chemical attack by Syria, which caused about 87 civilian casualties. This was like February of 2017, something around there. Don’t quote me on the date. And it was completely meaningless. It made no sense why Bashar al Assad did that.

And I suspect, completely suspect, conspiracy theory. I suspected Tehran and Moscow wanted to test, Trump’s metal and they said, Hey, let’s see how he reacts. But he does he react like Obama, of course, let the red line, no, he didn’t do anything. And Trump immediately launched 57 Tomahawk missiles at the base where Russians were housed.

Now he hit like the same barracks, like I’m sure that he’d call the Russians and say, Hey, I don’t want to kill you guys. But he reacted the military similarly ahead of negotiations with North Korea, he dropped the mother of all bombs on Afghanistan, completely unnecessarily. It was never used in combat, but just to be like, I’ve got a bigger button.

And my point is this displays to the CFR society and cocktail parties, they seem prudish and childish and, like barbarian. But unfortunately, and this is where I agree with, the tragedy of great power politics, unfortunately, these displays are part. Of establishing credibility that actually then allows you to defend your interests and actually preserve peace.

And so that’s the one thing that I think Trump gets. And I think he probably got that from real estate negotiations or whatever. The second thing is I think he’s all talk when it comes to a lot of alliances. He had a chance to prove that he’s a true isolationist Jacob. But I listened to Steven Bannon give an interview in ITV recently.

It was a couple of months ago. And here’s a guy who was like, as the most anti establishment person that Trump probably associates himself with. And he gave an interview and said, look, we want NATO to go from being A protectorship to an alliance. We just want everyone to pay. And this was, again, this was a great opportunity for Steven Bannon to go further and say, no, we want to withdraw America from Europe.

Like just say why stick to basically a meaner version of Obama’s 2 percent target, which Obama basically sold to the Europeans. That’s what Steven Bannon just said it in a meaner way. That was it. So I don’t know I don’t see Trump being really, I, he’s not going to strengthen multi polarity.

I, although I agree with you, he will, it’s more like he will simply breathe it into existence for people who believe that it’s not there, but it’s not like Joe Biden’s really standing against it. The other issue on Ukraine, look, look, what do you want me to say? You and I have been on this podcast for a long time.

And I said, this one was over 18 months ago. I said, this war is not going to move. The borders have not changed at all. The Ukrainian offensive was a figment of Western imagination. The Russian reoffensive is mildly successful. There’s throwing, it’s the weakest IR. Return on investment, ROI, RIO ever, so the war is in a stalemate and somebody just has to explain to Zelensky look, no amount of weapons or money is going to change this reality.

Okay. Offensive technology has not caught up with advances in defensive technology. You don’t have the people to reconquer these territories. The best thing for Ukraine right now is to adopt an Azerbaijan plan, which is accept what’s going on, don’t recognize it, spend the next 20 years integrating with Western economic development, get all the military tech you need, and then in 2040, reconquer your territories.

This is exactly what Azerbaijan did. They lost the war to Armenia. In early nineties, they lost Nagorno Karabakh. They spent the next 20 years developing their military technology, buying, sophisticated military systems. And then in 2020, under the cover of the pandemic, where most people were not focusing on this, they reconquered Nagorno Karabakh.

It is absolutely insane in my view, what the Europeans and Americans are doing on Ukraine. They either don’t care about Ukraine and just simply want to bleed Russia, which I guess has a geopolitical logic. Although I don’t understand why Kiev is going along with that logic or they’re simply stuck in this, again, like just conventional polite society where you’re not allowed to speak freely and say, guys, this conflict is over.

No one’s moving. No one is moving. I said that on your podcast, almost, I think 18 months ago, it hadn’t, the territories haven’t moved. They’re stuck where they are. And throwing more money at this problem is not going to make it better. And so I think that’s another example where, Donald Trump doesn’t actually change anything.

He just speaks into reality, which is what is already objectively true. And he’s going to show up and tell Zelensky, Hey buddy, no more money. Move on, focus on economic development and integrating with the West. And abandons Ukraine. I don’t think he hands it to Russia. He simply says, we’re not going to finance this war.

And then he probably shows some display of power to Putin in some crude, mean way that Joe Biden wouldn’t. And, tells Putin okay, for the time being, you got what you got and we’re going to take the rest of Ukraine and integrate it into Europe. And. See where they are 20 years from now.

And you know what? We’re probably going to come back and kick your successors ass. So just FYI.

[00:55:30] Jacob Shapiro: There’s a couple of things there and then we have to move it along. Cause there’s a, there’s some charts I wanted to talk about. We have to talk basketball and we only have 20 minutes. First of all, I you think multipolarity is a fait accompli.

I would say that the end of unipolarity is certainly a fait accompli, and I certainly think multipolarity is the most likely scenario, and it’s the one that I talk about. I don’t think that a bipolar U. S. China world is off the table, and I don’t know how many countries You have to have until you get to multi polarity, like what if it’s the U.

S. India and China? Is that tri polarity? Is that multi polarity? I don’t know. So like there, I certainly think it’s the right. I think it’s the right trajectory. But I could imagine things happening that would send off into bipolar trajectories or tripolar trajectories and things like that. The second thing I would just say is about Trump’s negotiating style on the bombs and stuff like that.

That’s a, that’s, some very rose tinted glasses there. I think you need to go back and watch Dr. Strange love and and feel the other side of that argument. Cause it feels a lot more like Dr. Strange love than it does. Some brilliant guy who like, Oh, I know how to hit him. And then I’m going to get what I want.

And again I’m thinking of a Trump in a second administration surrounded by sycophants. The establishment, you’re right, doesn’t want anything to do with them. You remember ambassadors and career state department officials, all resigned in mass positions that still haven’t been filled. It’s one of the reasons I think the bureaucracy moves even less well than it did before.

And if you get another exodus like that, like it’s going to be fan boys. It’s not going to be people like the establishment’s not going to be there holding them back for sure. And Ukraine, you’re right. Like I’ve said over and over again Ukraine is Europe’s problem. Like it’s not the United States’s problem.

The United States is gonna run out of energy, whether it’s Biden or Trump. And I don’t think it makes that big a deal to zelensky. It’s funny, somebody already told Zelensky what you’re saying. Zany did and Uz got fired.

[00:57:15] Marko Papic: No. So Klich by the way, Klitschko did as well. And there’s a lot of opposition within Ukraine.

They’re their united front is over. They could barely pass the mobilization bill, by the way. I’m sorry. Time out. Time out. That tells me the war is not existential to Ukraine. Don’t tell me about World War Three odds, Mr. Prime Minister of Ukraine. Don’t tell me that when you guys can’t mobilize.

First of all, if there’s an existential war, everyone 18 and up goes to war, period. Do you have a story? Throughout human history, if there’s an existential conflict, Everyone 18 and above and sometimes 14 and above goes and fights a war so this is all you need to know But like the one thing I would Connor, I would get a Connor.

I’m just gonna throw it out I’ve had very much the same view as you did. Dr. Strangelove that point So I’ve changed my view a little bit on this, and just because I am bathed in complete nihilism And so when the facts go against me, I’m like, what do we don’t have a lot of data points, so I’m not going to say this is empirically like foolproof.

But since Carter, Trump is the first president that didn’t start a new war, expand an existing war. This was an analysis done by Reuters, not exactly, Breitbart Reuters went out to try to fact check because America Trump supporters say he didn’t start any wars or, expand them.

And Reuters went out and was like, You know what, that’s correct. And it’s not enough to convince you, I, I agree with you. I agree with you. I’m just saying that when you study game theory you realize that there’s three components to power. There’s three components to power. Material power is one of them.

Fine. But US lost the war in Vietnam. Russia got its butt kicked in Ukraine, more or less. Countries with material power do lose wars. Why? Because of willingness to incur pain and credibility. Credibility that you’re willing to incur pain. And what I think is very important is that I think that the establishment around Biden has lost its understanding of those game theoretical precepts.

Whereas the, like Trump has not. And that’s where I think that I think Joe Biden, Jake Solomon’s of the world have not correctly illustrated to the rest of the world to the U S is willing to incur pain and that it has the credibility to do so also, I think it’s very dangerous, and this is the last thing I’ll say about this.

It’s very dangerous with the U S is doing with China. Why, Donald Trump showed up to China and had a list of demands, Joe Biden’s never given China a list of demands ever. And so the Chinese right now believe that Donald Trump has a plan for how they coexist. It’s mean, it’s expensive, and they’re going to try to fight him on it.

But they believe Joe Biden has no plan for how they coexist. And his plan is simply to make it difficult for China to, achieve its dream of being like a high income society. And so who is more likely to start a world war three with China? And I have to tell you, Jacob, I can’t believe I’m saying this because in 2017, I did have a different view.

I thought Man, Trump biggest risk to bring us world war three ever. But I actually think it’s not Trump though.

[01:00:36] Jacob Shapiro: Yeah, man. I don’t think the risks of world war three are particularly high at all. He started a trade war with China, so that’s a war. The only reason he didn’t start a war with Venezuela was because of how completely incompetent the whole plan was, but he tried to overthrow the Venezuelan government, like with white.

I take your point. All right, we’ve got 15 minutes and we’ve got a few things to do here. Let’s do it. So let’s do. Let’s do this really quickly. And then let’s give us, give ourselves at least 10 minutes of basketball. I sent you a chart from Louie Gov, who is great. He put out a new thing recently that I thought was really really interesting.

I took one slide from his deck. We’ll put it in the show notes listeners, but he had the 10. Largest companies in the world by market cap for the last couple of decades. So the 1980s, he calls peak oil and it’s basically Exxon standard oil, Schlumberger, shell, mobile, all that. There’s some IBM, AT& T, basically all us names.

By the way, the 1990s, it’s a sea of Japan. It’s the bank of Tokyo. It’s the industrial bank of Japan. It’s Toyota. It’s really interesting to see that those are the ones that are in it’s perfectly timed too, because of course, Japan crashes a year later, 2000. Is interesting. You’ve it’s, you’ve got the. com bubble stuff happening.

So Microsoft is top Cisco is up there. Intel still some ExxonMobil things like that. 2010 looks like a multipolar world. You’ve got ExxonMobil, PetroChina, BHP from Australia. Petrobras is in there. Royal Dutch Shell, even Nestle from Switzerland. It’s like a very multipolar look. And then for 2021. It’s basically all U.

S. Tech companies and T. S. M. C. Intense it. And his point here is that like for the last 10 years, the U. S. Has been outperforming and that probably we’re going to shift to global outperforming the U. S. Which is something I agree. And we’ve been talking about for a long time. But that also there’s probably going to be a new theme.

It’s probably not just going to be tech is going to deliver growth for the next 10 years that it has before. Maybe it will. I don’t know. But I sent you that chart. I know you have a chart that you want to talk about. So tell me what you thought of Louis point and tell me the rejoinder.

[01:02:31] Marko Papic: My problem with Louie is that I see really no daylight between me and him.

We’re like the same person, I know him I’ve been at events with him before and I almost always find a lot of commonality with his views, so I agree with this it’s and I’ll say this, I have a lot of folks managing a lot of money coming into my office and saying things like Marco, tell me why I should ever talk to Invest anywhere outside of the U S and my answer is because the nine other guys and gals that came into the office before you said the exact same and so this isn’t about you should take your exposure to us from 60 percent to 40, but maybe start nibbling at the rest of the world.

And my chart that I brought to you is global pools of capital, going out to 2000 and 60, I think. And what it shows is that not Chinese. Not petrol States, not America, not Europe, not Japan, but global South. As a global pool of capital is increasing. Now, this doesn’t mean that global South is not going to plow into American assets if they’re better performing, but I do think that there is some home bias in that there’s home nuance, not bias, but just knowledge.

And I think that’s why another reason that we need to be cognizant of as investors is that it’s not about what Americans want to do with their savings. It’s also what the rest of the world wants to do it. And for the past 10 years, it’s been very lucrative to be in the U S but a lot of things that we’ve been talking about on this podcast 18 months, so just that, yeah, you should start nibbling at opportunities elsewhere.

I agree a hundred percent with Louie.

[01:04:02] Jacob Shapiro: Yeah. And a couple of the facts that he put in the next the next slide were U. S. equities account for 7 percent of the global equity market cap. The U. S. is roughly 18 percent of global GDP and under 4 percent of global population. And he asks, can 18 percent of global GDP really account for 70 percent of global profits for the coming decade?

And I was debating this with an advisor friend of mine actually just today on the plane. And, he was, like that person that you’re talking about saying I only feel good in the U S and I was like I don’t know if I were you. I’d be, I’m not, by the way, I’m not saying that a whole world X us index is maybe the right way to go about it.

I’m like, I want to load up the dump truck for Brazil. I want to load up the dump truck for. For Mexico. There’s some India and Indonesia stuff. That’s super interesting. Turkey, like you have to be selective, but like when you start looking around

[01:04:51] Marko Papic: Jacob, what’s the number one counter to this view?

Because I have the same thing. I was just in Abu Dhabi presenting at an event and I had a chart. Which was exactly that, like it was the rest of the world GDP and rest of the world equity market cap. So I flipped it. And it’s alligator jobs. The number one counter is yes, but us, us index us equities have higher profit margins.

That’s the number one counter to this massively larger. And what I say to this is two things. First of all, yes, because it’s tech companies. Okay. They have higher profit margins. That’s correct. But there’s another issue here that we have to understand. In a world of low growth, low inflation, the secular world that we are exiting, the only growth you have is bottom line growth, okay?

You don’t have any top line growth. It’s a low growth world. It’s low inflation. So you want to be in companies that spit out profit margins, because that’s the only thing you’re going to get. Because guess what? You’re not going to get. You’re going to get bottom line growth. You’re not going to get top line growth.

There is no top line growth, but in a world that’s high growth, high inflation, high nominal GDP growth, you’re going to get a lot of top line growth. So yeah, it’s okay if European companies have smaller profit margins, but they may be more exposed. Through the high growth, high inflation world you’re in and they are that’s why tech companies do so well in an inflationary world There’s other reasons too their long duration assets blah blah blah blah.

Sorry this inflation, low inflation low growth. You want to own a tech company high inflation high growth You may want to own a company that has 2 percent profit margin, but it’s TAM is enormous because it sells commodities or it sells industrials or materials. Anyways, that is the counter to the counter.

So when I’m sure Louie, I’m sure Louie gets this all the time, People tally him like, yeah, but profit margins of those companies in the U S are huge. And it’s yeah, but two reasons you can find top line growth elsewhere. And the other issue is what did those companies sacrifice by having those profit margins as Boeing how that way.

[01:06:48] Jacob Shapiro: Yeah. I meant for us to have more time, so we’ll just have to do a part two, but we’ve got eight minutes before you got to run it, maybe less than that. Cause we have to make sure the audio uploads. So I’m completely depressed about basketball right now. I was In Toronto for a gig and watch the Pelicans do battle with your stupid Lakers and Zion was finally everything we wanted him to be.

He was bully balling. He was eating everybody for lunch. He was back cutting on LeBron. And he was bringing, he was single handedly bringing like Ingram sucked. McCollum couldn’t hit a shot. It was just him and Alvarado. And he brings them all the way back tie game, three minutes left. And on an innocuous.

Layup looking thing lands wrong and suddenly his leg hurts and he’s out. I think you guys faked

[01:07:31] Marko Papic: it I think you I think the coach told him in the timeouts to fake an injury because let’s just be honest here The Nuggets are the number two seed, but they are undefeatable in the West and you guys got lucky I mean I consider like you’re depressed.

I think it’s nonsense You’re faking it. You’re faking the injury Zion’s faking the injury. Are

[01:07:51] Jacob Shapiro: you predicting a Zion Willis Reed moment tomorrow at the second play in game against, he comes out against Sabonis and breaks Sabonis across his legs? Yes!

[01:08:00] Marko Papic: And by the way, why are you sending Ingram? Why, cause he sucks?

Oh but, I think it’s a conspiracy. He’s been hurt for a

[01:08:06] Jacob Shapiro: while, but I agree with you.

[01:08:08] Marko Papic: Come on, it’s a conspiracy. This is a conspiracy. I think you guys this is a false flag operation, and you guys want it to lose. You can take on the inexperienced, and, come on. I think the entire team Oklahoma City Thunder, like, they’re the thinnest team in the NBA.

They’re just gonna get mauled. If Zion comes back for that series, who’s gonna guard? I don’t know. I just We have

[01:08:30] Jacob Shapiro: to beat the Kings tomorrow to even get into the playoffs and if Ingram if we have no Ingram and no Zion okay, fine. But

[01:08:38] Marko Papic: what happened with Ingram? I don’t understand.

What happened with Ingram?

[01:08:41] Jacob Shapiro: He’s been hurt for the last quarter of the season and he was just working his way back. And you could tell he didn’t have it. I thought like after Zion went out, I thought Willie Green made a mistake. Like at that point, it doesn’t matter that Ingram’s been cold all game and he looks bad.

Like you don’t have options. You’ve got to get the talent in the game. I hope that he’s going to rise. Don’t look at

[01:09:00] Marko Papic: all signaled cuts where there’s no data. Was that a policy mistake or was it political? I think. I think the NBA should investigate this. I think Pelican’s through that game. And now my beloved Lakers are going to go and lose to Drago.

And it’s going to be very sad to watch, even though, yes, he’s a Serbian. But again, I’ve bathed myself in a little indifference, except I bleed purple and gold. So I’m going to be very disappointed that Drago is just going to eat the Lakers like a snake eats a frog. And he will do it with no passion and no love.

And it’s going to just look like he was eating a sandwich.

[01:09:35] Jacob Shapiro: I was talking with a friend yesterday and we were talking about going to Serbia this summer and trying to play basketball and wherever, whatever town Nikola is from, and then also try and get on his horse racing circuit. Does that mean I think you and I are probably going to agree that it’s Denver in the West and it’s basically.

Probably Boston and the East and Denver wins. Is that what you’re thinking?

[01:09:54] Marko Papic: I think that should be the case, even though I’m all agreeing today. But no, I listen, uh, it’s difficult to see who’s going to guard Jokic. That’s for sure. No, they don’t have anyone to guard him, this self esteem is stacked and listen, I’ll just, I’ll leave you with this, man.

If the Celtics lose again in the finals and if this is yet another year when they don’t do well, I’m just gonna say the curse of Isaiah Thomas is correct when they, didn’t renew his contract after he got injured and everything that happened. They just if they want to get rid of the curse, they need to bring him back.

[01:10:27] Jacob Shapiro: All right, get ready for one of my hot takes cole You’re probably not listening to this But this is the type of take that makes cole absolutely lose his mind when I debate basketball with him I would say fire up the camera except the camera’s been on the whole time the celtics are never going to win as long as jason tatum is their best player because he just doesn’t have it I don’t think he has whereas yokich does and it doesn’t like, if it like, I just don’t think Tatum has the alpha in him.

It doesn’t help that Jalen Brown doesn’t seem to know how to dribble during the playoffs. And it doesn’t help that Chris Stapps is probably going to get hurt and all these other things. But I think the key difference is Jokic is going to be there at the end and he’s going to execute and Tatum is going to clank a brick.

From a long three at the very end of the game, and he’s not gonna be able to take it home. There’s my hot take.

[01:11:06] Marko Papic: Not only is that a hot take, but you just reverts the jinx to the Celtics, and now they’re gonna win the 18th championship. Thanks, Jacob!

[01:11:15] Jacob Shapiro: Yeah. It’s the least I can do for for hurting my boy.

Not that you hurt him. He just hurt himself because he jumped straight in. Too forcefully gets get better as I, I hope that Marco’s right.

[01:11:24] Marko Papic: But listen, speaking of your boy, like it’s very simple. Charles broccoli is right. You can’t play yourself into the shape and 25 and losing 25 pounds is not enough.

[01:11:34] Jacob Shapiro: No. And my hope is that, what we’ve seen from Zion the last 30 games carries over, you got to hope that he finally got hungry. He finally understands what it takes and that he’s going to spend all summer, not hanging out with the strippers and whatever else, but that he’s going to spend all summer, not eating.

New Orleans food and getting ready to go.

[01:11:50] Marko Papic: I think we can end this podcast on that sage advice for all of us. Those two things right there. Don’t do them.

[01:11:58] Jacob Shapiro: Don’t do them. Okay. Yeah. And kids don’t do drugs either while you’re out. Okay. From cousin Marco cousin Jacob, we approve this message.

Thank you, Jacob. This is always fun, man. Yeah, man. Thank you so much for listening to the Cognitive Dissidence podcast brought to you by Cognitive Investments. If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive. Investments. That’s Cognitive.

Investments. You can also write to me directly if you want at Jacob at Cognitive. Investments. Cheers. And we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements.

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The post 193 – Marko Papic is Back! appeared first on Jacob Shapiro.

Transcript generated by Descript.

Jacob Shapiro: [00:00:00] Hello, listeners, and welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. Rob and I are back at it for our weekly chat. I love all our chats, but this was a really good one. We talk about an interesting article about globalization, economic crashes, and use that conceptual framework to talk about Janet Yellen’s visit to China, about the U.

S. China relationship now, and post a potential Trump visit. Presidency, the U. S. [00:00:30] Japan relationship, what Kishida’s visit to Japan means, what is so interesting about it and why we think the end might do something different than what the rest of the market is saying. We are positioned accordingly. And we also talk a little bit about at the end, putting that together and thinking about globalization and the future of globalization in general.

You can email me at jacob at cognitive dot investments. If you want to talk any more about any of the things we talked about here or anything else. It’s on your mind. I love getting your emails. Thank you for sending them in. If you have not left a rating or a review [00:01:00] for the podcast, please consider doing that as well.

Otherwise, take care of the people that you love. Cheers and see you out there.

All right. I’m rejoined by Rob, AKA Nostradamus. Rob, last time we were here, you said that a true black swan scenario would be an earthquake in Manhattan. And before we even published the podcast, lo and behold, there was an earthquake. In Manhattan, so listeners you’re getting the real deal [00:01:30] here. I’ve had a couple of requests from listeners, Rob, about topics that you shouldn’t predict anything about because they’re afraid you’re going to completely upend their lives.

Congratulations on that great call. I’m sure that we made a lot of money going long earthquake futures. Nice to see you.

Rob: What can I say? I’m just that good, Jacob. I just make things happen. George Soros, see your heart out.

Jacob Shapiro: Yes, the Global Zionist Conspiracy had nothing to do with the earthquake, in case listeners were wondering.

I can make that joke because my last name is Shapiro. Calm down if that got your panties. [00:02:00] Okay, everything’s fine. Let’s move on. There’s a lot to talk about today, and I was struggling with how to put it all together. But I think I want to start maybe at the conceptual level, and then we’ll talk about some of the things that are happening.

in the world right now that we think are important. And by conceptual level, if you can’t tell listeners I’m really on a New York review of books reading kick because I subscribed to it earlier this year after a long hiatus and I’ve been loving it. And they had a great article this week by they, Trevor Jackson wrote a great article in the New York review of books for the most recent edition.

And if you would [00:02:30] like access to it, hit me up. I’m, I can share it with you. And it was basically He was reviewing two books that give histories of economic crashes in the 18th, 19th, and 20th centuries, generally speaking. And there were a lot of things in the article that were interesting, but I just want to point out two, because I think they will lead into some of the things we’re going to talk about specifically, which is China and Japan.

The first part, and this does not lead into it, this was just good in terms of vocabulary. They talk about the difference between different types of words to talk about the economy. Specifically, the difference [00:03:00] between a crash. And a panic And a bubble and a crisis. And we use all these words interchangeably today.

But they do a good job of talking about, a crash was actually when something was steeply discounted. Panics were considered outbursts of collective irrationality. So something, crazy happened and there was a reaction and then it went back to it. A crisis was supposed to Or the first time that it was referred to as an economic event was probably by your boy Montesquieu, Rob, one of your favorites.[00:03:30]

He talks about, in his Spirit of the Laws in 1748, talking about monetary manipulations in 1720 and refers to them as a crisis. But the word crisis has a medical or theological meaning that there’s a turning point. You discover that there’s a disease or you discover that Jesus is real or something like that.

And then you rediscover your faith or something happens. So there it’s an inflection point, but then there’s a recovery. It’s not an open ended sort of never ending moment where everything is terrible, which is the way I think we use the word crisis [00:04:00] today. And they also talk about the word bubble.

Which I think is another word that we use a lot here, but that bubble was there was something malicious to it. It was something about deception. Speculators in the 1700s were apparently known as bubblers. And if you got cheated, you got bubbled, which I think we should bring all of that parlance back.

So I thought that was really useful. Cause I think we use, I can’t tell you how many times I go out and talk and it’s, Oh my God, the world is a crisis. Everything is terrible. But I think we’ve lost some of the nuance of describing what things are. And I thought that was really useful. [00:04:30]

Rob: Didn’t Adam Tooze recently use the term poly crisis to describe what’s going on right now?

Am I remembering that right? I think so. I think he said that.

Jacob Shapiro: It’s like crisis squared. Lots of crises. I’m out here using the word multi polarity. I was trying to search for synonyms the other day for multi polarity and apparently poly polarity is one of them. The problem being that doesn’t really help us much.

It still sounds really pretentious and terrible. But the second point in the article that I thought was interesting and will back us [00:05:00] into talking about. Janet Yellen’s visit to China and Kishida’s visit to Biden and some of the things we’re thinking about with China and with Japan was about something I didn’t really know, which was describing the 30 years from 1944 until the end of the Bretton Woods system in the 1970s as the quote unquote 30 glorious years.

And they were glorious because statistically there were fewer economic crises or panics than there were in other periods global GDP growth rates during this [00:05:30] period from 1945 to 1971, or roughly double what they have been since the 1980s. And I think of this time as globalization, but the article made a really good case that this actually was not globalization, that Bretton Woods was actually the United States rejecting globalization, which was seen as a sort of.

idealistic 19th century idea that had brought about the world wars, but was about, creating an alliance network of countries that were sympathetic to what the U S wanted. And that really, it was [00:06:00] actually about restricting movement of people and of capital and things like that. And the article concludes that there’s no going back to Bretton Woods.

But that one of the lessons. And the unintentional lessons because the book that the author is reviewing actually make the case that globalization is really good. That globalization is the greatest force for human prosperity and enrichment that the world has ever seen. But the reviewer notes that how do we make sense of that if that period from 1945 to 1971 was actually better in lots of ways than these quote unquote [00:06:30] globalization periods?

Because it seems that we don’t get economic crashes when there are capital controls, when there are strong unions, when you have high taxes, when you have more relative equality and stricter financial regulation to say that succinctly, when capital is weak and labor is strong. I can tell now that the author is a Marxist, obviously, But he has the data to back it up.

So I am sure that you have plenty of responses to this, and I wonder if you were going to take issue with Jackson writing that the unfettered power of capital [00:07:00] might be good for globalization, but it’s inimical to democracy, stability, equality, and even economic growth. Are you going to punch back at that, Rob?

I’m expecting you to, you surprise me sometimes.

Rob: I think it’s a really complicated topic to address. And I guess the way that I would. I guess the way to begin to do so is to frame it in a different way, because I think the author is really compelling when he essentially tears apart the two books in the sense that both of them are trying to put some [00:07:30] kind of narrative around this globalization is the ultimate good.

I forget what the other one was, but it was some silly thing like, we’re, we’re. It’s all about debt and, this mechanism is what causes all the crises and we’re learning from history and we’re going to do less of that. And, there’s always this desire to oversimplify, to to come to conclusions, to too soon with a lot of this kind of analysis.

So I think in that sense, it’s a really good discussion and a good [00:08:00] article. The, um, the way that I would think about it is this, like this guy obviously is making the case that globalization is not positive and especially the globalization of capital. I would agree with that. And I think that’s one of the things that really doesn’t get spoken about nearly enough.

is the fact that something that we hold out in many areas of public discourse to be an unalloyed good, free [00:08:30] capital, free markets globalization, the sort of Economist magazine. Not to pick on them again, but that is the party line, that, that really permeates a lot of what normal people talk about, on a regular basis, unless you live in France.

Really problematic if you look at that. And I think he’s very valid in pointing that out is. It’s the notion that unfettered capital flows has a really rocky history. And if you want to understand the underpinnings of that, all you have to [00:09:00] do is look at Hyman Minsky’s work and especially the way that he interprets Keynes.

Because his sort of framework, his theory, which I find very convincing is centered around the idea of that instability. is endogenous to capitalism. That because you have the freedom to speculate about the future, to anticipate what’s going on in the future and to move your [00:09:30] capital around in accordance with that, that because of the way human beings work, because we’re, wired in this way, you naturally have these panics, crashes, bubbles and that’s just part of the system working.

So I think the criticism of mobile capital in that regard is very valid, but I guess the way that I would spin it differently is. [00:10:00] If it is endogenous to the system, and the system itself has had such a beneficial impact, which I think is hard to argue against, then maybe that’s just the price you have to pay, and how bad are these so called crises after all, which I think we can talk about.

One of the books points out there’s been 47 crises in the last 17 years. It’s was that really a crisis? No, the black death is a crisis. Britain leaving the [00:10:30] European monetary union for two months because they Pinned the currency too high or pegged the currency too high is not exactly I’m going to register on most normal people’s crisis radar screens.

But

Jacob Shapiro: anyway, that’s well and I take your point because this Goldilocks period from 1945 to 1971 probably only happens because they’re rebuilding after World War II. So it’s a combination of so much stimulus to rebuild what was destroyed. Soldiers coming home and having lots of [00:11:00] babies. So you get a massive demographic dividend over this time period.

Like it might not have anything to do with globalization or deglobalization at all. It might be that Goldilocks period was a result of the cataclysmic crisis that came before it. And of course you were going to get sort of good things for. growth and for labor and all these other things when you had these different things happening.

So I take your point there. But the reason I wanted to start there because I know that you and I could wax philosophical about this for the entire episode is because there’s two things that happened this week [00:11:30] that were pretty important. And I think we’re going to debate a little bit about what their importance was.

And why don’t we start with Janet Yellen’s visit to China, which I did not, which did not stick out to me when I first looked at it. To me, it was a continuation of a trend, but I know that it really excited you. So I’m going to set you up to to talk about it. Before I do, though, I just want to note, I love the way the Chinese media covers Janet Yellen.

They are obsessed with what she eats. They’re obsessed with the way she uses chopsticks. They’re obsessed with the restaurants that she [00:12:00] goes to. They’re obsessed with. Did she get more psychedelic mushrooms? Like I’m here for all the Chinese, Janet Yellen commentary. It really brightens my day when I’m looking through the media, but why don’t you, Janet Yellen was there.

She gave some remarks. Why don’t I set you up Rob to talk about what Janet Yellen said and why you think it’s important. And then I’ll push back a little bit.

Rob: Sure. We can maybe link to the actual statement in the show notes if possible. But Maybe this is blowing things a little out of proportion, but I read her statement, which basically said, [00:12:30] today we’ve decided on a mechanism where we’re going to have regular exchanges, regular collaboration with the Chinese to figure out the problem of imbalances.

That was the gist of it. And to me, that really stuck out as, I think I put in the knowledge platform. It’s like a 1985 Plaza Accord kind of moment where you have imbalances that have been building up for a [00:13:00] very long time. We’ve talked about them a lot.

Everyone is familiar with what they are now. But the fact that major players in the leadership in the US side and obviously on the Chinese side as well, recognize the issue and are actually making an attempt to try to figure it out. And I don’t know how genuine that is or whether it will turn into anything.

To me, that’s a very big deal and it’s different from the [00:13:30] discussion that I think we’ve seen so far, which has been speaking across purposes. Not really trying to address the root problems, which is, excess savings overcapacity, all of the issues that we’ve talked about here.

So again, maybe it goes nowhere, but the very fact that they’re talking about this in the sense of tackling this together for the mutual benefit of both countries, and I think that’s really important because it is. As she pointed out in the [00:14:00] statement, it’s not in anyone’s interest for the U. S. and China to decouple.

And China has a gun to its head because it is the current account surplus nation. They are the ones who are exporting their insufficient demand abroad. And they’re the ones who are at the mercy of China. The current account deficit countries, whether that’s through tariffs, whether it’s through capital controls, whether it’s through anything else, China is not playing a strong hand of cards here.

So for [00:14:30] Yellen to open the olive branch, even at some level and say, Hey, let’s figure out how to find some way of alleviating these imbalances together. To me, that seems like a really big deal.

Jacob Shapiro: Yeah, the two words that were used over and over again in her statement and also in the readouts of the Xi Biden phone calls by both sides.

So when both sides are using particular language, I take notice. They’ve been describing all the talks as candid and constructive. [00:15:00] So that is the sort of tenor of the relationship right now. I want to do a brief bit of history. So when the 2008 subprime crisis emerged, one of the first things that U.

S. economic officials did was they called their equivalents at the PBOC or in China. And they said, we need to work together to manage the contagion because it’s not good for anyone if we let this economic crisis go and explode everywhere. And China and the United States did in 2008 work together to limit the contagion of the 2008 financial crisis.

I think one of the reasons [00:15:30] China gets frustrated with criticism. of China in this regard is that part of that was China taking out the stimulus bazooka, and that was their part. They had to consume a bunch of stuff, build a bunch of ghost cities, and prop up prices because they needed the Chinese consumer market to keep revving, and they did their part, and I don’t think they feel like they get credit for that.

Whether that’s true or not, we can debate that another time, but I think that’s in their psyche. The next major change in the relationship comes not with the election of Trump, but with the combination of the African swine [00:16:00] fever, Epidemic in China and then going into covid So if you remember the trump administration is trying to negotiate that phase one trade deal in the midst of those negotiations China reveals that its pork herd has been afflicted by african swine fever.

It’s a holocaust Of chinese pigs. It’s one of the most important protein sources for china and they’re looking for help They’re looking for help in managing this virus They’re looking for more pork supply things like that and rather getting a united States that wants to work with China. The Trump administration uses it as a cudgel for more [00:16:30] concessions in the phase one trade deal.

Aha, you must now buy more pork or more of this or more of that. And we’re not going to talk to you until you agree because we know that you’re the weaker party here and you need help and that bleeds into COVID 19 because COVID emerges. As that deal is the phase one trade deal is being finalized and China doesn’t want to reveal for a lot of different reasons.

But I think one of the reasons was doesn’t want to talk about COVID because it thinks the United States is going to use it against it in the context of trade negotiations, which was not an irrational thing to think based on how the [00:17:00] Trump administration had gone. And relations are frozen in that level of mistrust until last summer.

You might remember last summer was when. Nancy Pelosi was gallivanting around Taiwan on her farewell tour, and nothing really happened. And nothing really happened because shortly after Pelosi got back, and after all the recriminations and things like that, we talked about it on the podcast, there was that article in the Washington Post that said that Biden had reconsidered the relationship, that he did not want to be the author of a second Cold [00:17:30] War, that he thought that U.

S. policy around China needed to change. And at the time, we talked to people and we sent out notes to our clients saying, this is an inflection point. This is something very different. Biden is going to try and walk back from the ledge. And despite all of the problems in U. S. China relations since then, it has been a steady improvement.

So I would tell you that the beginning of this process, this is the culmination of a process. It’s not the beginning of a process. And it goes back to being able to read the tea leaves by being able to find. The leak in the Washington Post while everybody else is [00:18:00] obsessed with Nancy Pelosi and Taiwan and a third world war.

There’s a lesson there in how to think about geopolitics and things in general. So I think we’re seeing the culmination of those efforts in general. And I think you’re absolutely right that it’s a major change and that since that moment, The United States and China have been working more closely together and that U.

S. companies in China have relaxed a little bit and China has relaxed a little bit when it comes to the United States. Now there’s two problems I think with thinking that Yellen’s visit is a continuation and what, an [00:18:30] acceleration, doubling down, whatever you want to, what word you want to use of the U. S.

and China seeing eye to eye. The first is that it’s election season in the United States and Donald Trump is. Probably coming. I shouldn’t say probably coming. That’s a little bit too too sensationalist for me We’re going to talk about the inflation print in a little bit But when I see hot inflation prints that to me is the drumbeat for trump Maybe being re elected and when I look at the polls in the swing states Things are not looking good for biden even before the inflation print So if you’re china, the u.

s. Election is hanging over [00:19:00] the entire dialogue and all the progress that has been made over the last 12 months. So Yellen can eat as many psychedelic mushrooms as she want, as she wants. If Biden loses and Trump gets in there and he gets in there and he’s pissed off because China didn’t follow through on their commitments in the phase one trade deal.

And he follows through on implementing 60 percent tariffs on all Chinese imports. This is going to amount to nothing. This is going to be a laughable thing. The second thing though, and I think this is more of the sort of challenge Is that after Yellen left China came out [00:19:30] and rebutted some of the things that she said.

I think the part of what she said that really probably, Stuck out to you what she was talking about how she discussed with her Chinese counterparts China’s macroeconomic imbalances And I’m quoting her now here. Namely it’s weak household consumption and business over investment aggravated by large scale government support in specific industrial sectors and she goes on to talk about how The United States is trying to avoid what happened with steel, where China made a bunch of [00:20:00] steel, flooded the global market with steel.

Steel prices get super depressed. U. S. Steelmakers get hurt by it. They don’t want that to happen with solar panels and EVs and battery materials and all these other things. So that is the thing that Yellen was there primarily wanting to work together with the Chinese about. And after she left the Chinese response to that was not really in keeping with those things.

For instance, there was one Chinese think tank that said, Oh, they can’t win the race. So they’re trying to slow us down. China’s finance [00:20:30] ministry said that China’s, China had already fully responded to her concerns. And that. This really wasn’t about trying to dumping lots of products into the global markets that, that China was just more competitive in these areas than the United States was, and that this is really all market driven and pointing to, the U S government and the EU government is pointing, putting all these subsidies in to encourage manufacturing of exactly these things.

things and that the overcapacity that the U. S. is railing about is really just a manifestation of market mechanisms at [00:21:00] work where supply demand and balance is the norm. And that it, the United States is casting stones in its own house. If it’s saying, Oh, China can’t do this because China’s just doing exactly what the United States did.

So those are the two reasons that I’m cautious of saying anything is going to come out of the Yellen visit. I will say, however, if Biden ekes it out, This is another lily pad on the way to the scenario that you’re talking about. And that scenario would be good. It would be good if the United States and China were on the same page.

It would be good if this was the start of a plaza accord for the [00:21:30] global economy in general. But those are the reasons I’m skeptical. And I saw it in the vein of, Ah, all right, this is part of Biden’s thing. But like for this to happen, Biden has to win. And he’s not really getting the stuff that he needs to win, at least in my view at this point.

This, that might be a good segue for inflation, or I’ll let you riff about that. No,

Rob: I guess, I think there’s different constituencies within on the Chinese side, first of all. So it’s hard to tell, what the consensus view is to the extent that there is [00:22:00] one. Second of all, I think a lot of the people, there’s a lot of money to be made just like there was a lot of money to be made on the property side, which is now deflating and they do not want to reinflate.

There’s a lot of money to be made on. The industrial side where industries are being supported and encouraged to build capacity to go abroad and, compete in global markets. So Yeah. The people who benefit from that are naturally going to be more vocal. It’s a very visible thing, [00:22:30] but I think that the most of the people who know what’s going on in China probably recognize that is not big enough to buoy the whole economy and to outgrow their problems.

And it’s also something that’s not quite as sustainable. So like property development, for example, they had a 15 year run. And, you building ghost cities and building [00:23:00] second and third apartments for people who are going to, plow their excess savings into them. That’s a much easier thing to do than to build a lot of EV companies and have them go abroad, because you very quickly run into the limits of that strategy and it’s a much more visible one.

If you’re building excess capacity in apartment buildings, no one outside of China really gives a shit, and they’re very happy because they can sell you all the inputs to go into that, and the cement [00:23:30] companies and iron ore companies, everyone’s, applauding you for it. There are only, three years into this strategy on EVs, for example, then they’re already running into major roadblocks and the Europeans are coming out, the Americans are coming out and saying, no way, this is not gonna, this is not gonna fly.

So I think you’ll see some chest thumping around, they’re just trying to slow us down, but. But assuming that the people who are pulling the levers [00:24:00] in the regime are really smart, and they are I think they’re probably more worried about this than they let on or people think. I think they’re trying to figure out what to do and to get any sort of peaceful lifeline from the U.

S. or even a, an opening. No, I don’t know. I would be looking for signs that they would be trying to engage more and take advantage of that.

Jacob Shapiro: No, I think that’s what China wants, and I think China would [00:24:30] prefer to keep going down this road. But I see them prepping for either scenario. They, If they get another Biden victory, great, then they’ll work together with the United States and maybe even Europe on things like overcapacity and China could certainly use lots of help in that regard.

It would not be good if semiconductor supply chains and AI and critical technologies were cut off from them as they have been in recent years. It’s hurt Chinese companies. I think they’re also, though, setting the table for if Trump wins and let’s say he imposes the 60 percent tariffs, I think he, she is [00:25:00] setting the table for, okay, look, we tried.

And again, the barbarians betrayed us. We’re just going to have to take some really harsh medicine here and reformulate our economy the same way that Huawei did during the first Trump administration. It’s going to be really hard, but rally around the Chinese flag because we are dealing with people that we can’t trust and can’t be hypocrites for.

So it’s where the U S domestic political politics, I think it’s going to have really long term impacts because if you’re China, you have to prepare for the diametrically opposed outcomes of Biden versus Trump. And I see in this, the [00:25:30] seeds of that as well rather than any firm commitment, but I think you’re right.

I think all things being equal, China would like the Yellen path. There’s a reason like they’re dining out on her mushrooms and why they’re talking about Chinese public opinion about the United States improving during this time period in general. Which is probably, I wanted to make a segue here to Japan because and maybe we’ll, I can’t decide if we’ll talk about inflation in the context of Japan or if we’ll do it afterwards.

Cause it’s hard to put these things together. But another thing that I think cuts against [00:26:00] the U S and China plaza accords, 2. 0. potentiality is it wasn’t just Yellen that was in China. It was Kishida came to Washington for a big state visit. Lots of fanfare. One of the gifts that the Bidens gave to the Kishida family was a volume LP set signed by music legend, Billy Joel.

So now Billy Joel making his way into global geopolitics. What a Great thing for him at the end of his career. The New York Times also reports that the meal for the evening was house cured [00:26:30] salmon, a dry aged ribeye steak with blis with blistered shishito pepper butter. So they’re eating very well in the White House.

I thought you guys might like to know that. I’m always curious what these guys are eating and these things. Ribeye strikes me as a strange choice. I think I’d want something a little more tender. So I wasn’t like, Chewing gristly fat like during the context of a meeting, but maybe I’m not giving the White House chefs enough credit Maybe they’re gonna marinate it and make sure everything’s fine.

Anyway, sorry I’m if you can’t tell I like want to be Anthony Bourdain and I keep on trying to bring food back into it And it’s not happening. [00:27:00] So But the United States is talking about this visit as the biggest thing Since the signing of the u. s. Japan Security Treaty in 1960 That’s the type of language that Biden is using about this visit.

And when you start reading sort of the reporting on both sides in the United States and in Japan both leaders are fairly weak when you look in the polls. Kishida might not last the rest of his government. His party will, but he might not be there the whole time. And Biden, as we’ve discussed, is facing an election challenge.

And one of the themes [00:27:30] seems to be establishing some level of permanence in the U. S. Japan relationship that Trump could not overturn, that Biden wants one of his enduring legacies To be that he strengthened the U. S. Japan relationship. And this was actually one of the first times that I’ve seen sort of the Biden White House, even if it was anonymously, even if it was in the context of this meeting, say to the New York times, we’re trying to create as much permanence as possible before the election.

That’s them saying, Oh, we could lose. So I wonder if we’re going to see things from the Biden White House, reading the poll numbers and [00:28:00] doing damage control in addition to trying to win the elections. But some of the things that they agreed to greater coordination and integration between the military forces of Japan and the United States, the formation of a joint defense council they’re going to discuss more defense related exports of equipment that can be produced in Japan, new cooperations in space, in research on artificial intelligence.

semiconductors and clean energy, all the things that the United States has problems with China about. And [00:28:30] then they’re meeting today. They’re welcoming Mr Marcos Jr from the Philippines for a trilateral meeting to talk about a more aggressive effort to isolate China, to push back against what China is doing in the South China Sea and to protect specifically the interests of the Philippines, but also all countries in the South China Sea that have these differing sort of territorial spats with China as well.

All of which is to say, okay, you’re sending Yellen to China to play nice. Meanwhile, you’re hosting China’s biggest rival [00:29:00] historical enemy and saying, Hey, we’re going to make a bunch of weapons with you and we’re going to upgrade our security treaty with you. And we’re going to also let the Philippines in on it.

And we’re going to start doing even more aggressive actions in the South China Sea. If I’m China, like I’m looking at Yellen’s visit and everything that she said, and then I’m looking at the Japan development and my blood is boiling. Because you’re very clearly setting things up there.

So that’s the geopolitics side of it. There’s also the economic side and maybe I’ll let you riff on it from there or we can talk about the geopolitics side if you want, before we get into [00:29:30] the economic side.

Rob: No, let’s, since they’re so tied in together, why don’t we, what’s your take on the economic side as well?

Jacob Shapiro: Let’s, I just wanted to lean into why we chose this week to, to make a really big bet on the yen and to explain that to the listeners, I think probably it starts with the March, 2024 CPI report from the United States up 0. 4 percent over the last months last 12 months, it is up 3. 5%. Basically, everything [00:30:00] rose.

Energy was up 1. 1%. Food was actually relatively flat. Shelter, services, you name it not a good inflation print in general. If you look back at changes from the previous year it really is core CPI and services were leading the charge here rather than food and energy, which hovered around 2%.

And as a result, the market is now not pricing in as many rate cuts as they were before. I think they’re still pricing in two or something like that, but it’s not going to be the next one. Treasury yields are up and the yen starts deflating. And I’ll [00:30:30] let you take the story from there and why we saw this as an opportunity and how it ties into these other things.

Rob: Purely on the economic side there’s a few interesting elements out of this. I guess the first is. The fact that the narrative around U. S. inflation is now just durably changing and that’s been the thing that we’ve been harping on every week from, the last 18 months or the last year or so and that’s gone from us speculating about it to it’s happening, whether you look at market pricing, whether you look at [00:31:00] the narrative in the media, I think, The consensus is beginning to adopt our thesis about re accelerating inflation, re starting the hawkish rate cycle all of these things, and that’s what juiced the dollar against foreign currencies, is that reset in in rate expectations, because when rates go up, the currency tends to appreciate because you can earn higher U.

S. dollar yields all else equal. So you have this [00:31:30] re accelerating cycle in the U. S., and I’m sure you’ll speak to the political issues around that. But specifically when it comes to Japan, there’s a few important things to think about here. The first is from a monetary policy standpoint.

And part of the reason why we did take a big position in the yen this week is the Bank of Japan has come out and really for the first time said something different. And what they said was because remember the currency is not the Bank of [00:32:00] Japan’s remit. That’s the Ministry of Finance. It’s always been the Ministry of Finance and the Bank of Japan technically is not supposed to worry too much about the currency.

Like they intervene. At the ministries behest, but it’s not part of monetary policy per se. And what they said this week is a bit of a twist on them because they, multiple members came out and said. Basically, hey, we’re going to take into account [00:32:30] the currency and potential moves in the currency in response to what we say when we’re formulating monetary policy.

So in other words, if you think of like reflexivity, the traditional definition is when a, the price of something in the market impacts the fundamentals, the bank of Japan is beginning to think in these terms. And it’s beginning to think, Hey, if the currency goes down, that’s going to accelerate inflation.

On its own, and that has never really been [00:33:00] explicitly part of their decision function. And now it is they’ve always come and, talked it down a little bit and said, Hey, if the currency depreciates too much, that’s a problem. But now they’re clearly saying we’re going to change what we do and what we say.

Based on our expectations for how the currency markets are going to interpret that. Now that sounds subtle, but it’s a big change. And I think it shows that they’re really worried about what’s going on in [00:33:30] you, in the U S with inflation, with rates going up and that interest rate differential, because depreciate too much or too quickly.

Because that’s cost push inflation going into Japan. That’s not the kind that they want. They don’t want energy prices in Japan to go up. They want wage push inflation. They want accelerating wages to push, demand. And demand, causes everyone’s expectations for growth to go [00:34:00] up.

That’s the kind of inflation that they want to engineer. And if you get too much currency driven inflation, where the cost of everything is just going up, Then that could really sidetrack that whole process, this virtuous circle that we’ve been talking about that they finally maybe are starting to engineer in the country.

That’s a big difference, and I don’t think people are focused on that because if you look at the speculative positioning and the Japanese yen right now, the spec futures [00:34:30] position is the biggest short position since 2007. Really the biggest short position ever, except for a very brief period in 2007, so everyone is on the other side of the boat.

And if you get any move from here, for the, for intervention in the end or any signaling that things are going to start to turn around, I think you could potentially have a stampede in the opposite direction.

Jacob Shapiro: I’ve made this point before, but I’ll [00:35:00] make it again. People often make fun of Chinese statistics and say how hard it is to get information about the Chinese economy and Chinese thinking about things.

And I’ve always said that’s not true. There are so many different resources, whether it’s China Beige Book or the Chinese government itself it’s very clear what the Chinese government is thinking and what the Chinese government is doing. That’s never been true of Japan. I think there’s a real dearth of understanding about what makes Japan tick in English media and all you have to really do, and you can do this with Google translate.

I didn’t learn Japanese [00:35:30] overnight. Just go and look at what the Japanese papers are saying, and you will see a different world completely described because like you’re saying in, in, in Western markets, okay, everybody’s speculating about the yen’s going to get weaker, but if you go to Japanese papers, it’s the yen’s depreciation has gone too far.

Japan warns that all options are on the table. And there was even one, bank of Japan survey that said the Japanese companies expect the dollar To trade at 141. 42 yen by March 2025 for that to be the [00:36:00] average out to March 2025 it’s at what flirting with 153 right now So that’s exactly the move that you’re talking about right there.

So I think for a lot of different reasons, people get Japan wrong. Not because there’s anything so complicated about Japan, but because people just don’t take Japan on its own terms and it’s really unique geopolitics on its own terms. The other thing I would say, and this is not necessarily directly tied to this, but there’s a steady drumbeat of Stories coming out about what Japan is doing to reclaim its position at the [00:36:30] forefront of the semiconductor industry And lots of different countries are doing this passing subsidies and trying to encourage TSMC and other companies to Gear up for being more self sufficient when it comes to when it comes to semiconductors But there was one article this week that was basically talking about a fairly small Japanese farm town that Japan is going to transform, or at least is trying to transform into a semiconductor supply chain hub.

And it’s one of the few places [00:37:00] in Japan where population is going up. Real estate prices are surging. Local universities are teaching people how to work in some of these semiconductor companies. It’s, their TSMC is bringing over hundreds of workers and paying salaries that are 30 percent higher than other manufacturing jobs in the area, just so that you can get sort of semiconductor renaissance there.

Japan, it seems to me as the one country that is actually cashing the checks on the semiconductor industry that a lot of others are writing. And that sort of thing. Re globalization, whatever you [00:37:30] want to call it, like that should be good for Japan’s virtuous cycle, to your point, if they can ward off the risks that they have from having to import so many things and having to be exposed to prices in that way.

Rob: And just to tie this back into, the notion of rebalancing and China and the geopolitical side of Japan and the U S and what they’re speaking about this week, one of the things that people often forget is Japan is china, the ghost of China’s future. Japan was China in the eighties and has shown us the [00:38:00] way or one possible way for how China might progress from here on out, because it’s a very similar model.

But in many ways, Japan is still trapped in the same imbalances that China needs to address in arguably a more severe way. But Japan also has a deficiency in demand. It’s also a current account surplus nation perpetually. And that’s weird. Japan is a major developed economy. There’s no reason why it should run perpetual current [00:38:30] account surpluses other than internal dynamics within the Japanese economy that are similar to what’s happening in China.

We always think of Japan Oh, it’s a democracy and it, no, it’s not. It’s very much more similar to the Chinese model than the U. S. model, even though, they try to, in a cosmetic way, paint themselves as a Western, capitalist semi laissez faire economy, it’s very much not, right?

So you know, one of the issues in a [00:39:00] quieter and more dependent way, Japan needs to find a way to, it needs demand. It needs to go out and find demand in the world. And the U S is that source of demand. And I think just bringing this to geopolitics for a long time, I think Japan was hopeful that China was going to be that source of demand and they’ve increased their integration with the Chinese economy.

China has grown in terms of importance as a Japanese market. But [00:39:30] if they are concluding wow, China, they’re really not going to figure this out. And in balancing, rebalancing, pardon, is going to be a really tall order. They might be throwing their hat back in, full bore with the United States, thinking that the United States is really their only hope for achieving that balance.

Jacob Shapiro: Yeah, I think that’s exactly right. But I want to problematize this a little bit because first of all, and this is I’m not frustrated with the White House for this, but [00:40:00] I am frustrated with all of the U. S. major publications that are covering the Kishida visit for sort of not digging a little bit deeper.

So Biden is talking about this is the biggest thing since 1960s, since Eisenhower signed the security treaty, blah, blah, blah. That was a renegotiation of a quote unquote, treaty in 1952, which basically said the United States may have troops in Japan whenever it wants. And that 1952 agreement, which was the end of direct U.

S. management of Japan in the context of conquering them after World War II and giving them [00:40:30] a little bit more autonomy back, caused lots of protests. Japan hated it. They were very angry that the United States was being too heavy handed. So it wasn’t that 1960 was, oh, we’ve become friends, everything is great.

It was, wow, we’ve created so much animosity in Japan and we need Japan in the context of the Cold War that we need to figure this out and we need to give them a little bit more agency. So when you’re saying this is the biggest development since 1960, 1960 was a response to a crisis to bring us full circle to the language that we’re using here.

It wasn’t a, we’re best [00:41:00] friends. And this is where it’s really interesting to think about Japanese intentions because Japan has bet big on China. And I think that one, and I’ve talked about this also before, but I think it, it warrants mentioning again, the West is very much you’re with us or you’re against us.

It’s Jedis and Siths like it’s, you’re one axis of evil. All that sort of thinking, whereas Japan has never been like that. And I think. And maybe I’m wrong about this. Maybe something has fundamentally changed in Japan. But I think Japan wants both. I think Japan [00:41:30] wants to say, yes, we want a deeper relationship with the United States.

And also, yes, we want Chinese consumers consuming our products as well. Because if we can, say get at the front of the semiconductor industry, Commanding heights of the semiconductor economy. Great. That means China is going to be dependent on us rather than Taiwan. We want to have that economic integration, even as at the political level and at the security level, they’re our biggest rival.

Japan has historically with its foreign policy, been much more comfortable with gray areas, with discrepancies. They [00:42:00] don’t need things to line up perfectly. Whereas again, with the United States and Biden is More nuanced than Trump. Trump has had no nuance. And I don’t just mean Trump here.

The U. S. isolationist wing that Trump has become the manifestation of, there’s no nuance there. There’s just one black and white viewpoint. That might be some of what’s going on, or maybe Japan really is making a shift. But I think that’s an interesting part of this. To what extent is Japan really signing up for all this?

To what extent, Are they worried about changes to the relationship because of changes in the Japanese and US [00:42:30] governments? To what extent is just Japan saying what it needs to say so it can continue on its own road as a more sovereign, more independent power from the US Alliance network? I’m not quite sure.

And then the last thought I would just say here is, this relates back and is why I wanted to start with the conceptual conversation about globalization is that Japan. Came to its current position in the context of that Goldilocks period. So Japan rebuilds its economy from 45 to 71, which again, those authors are making the point.

That’s not an era of globalization. [00:43:00] That’s the United States doing battle with the Soviet Union in the context of the Cold War and helping to rebuild the Japanese economy. When you actually open up the world to more competition, China wins, because China has more people. And China does not have any liberal democratic trappings.

If they want to have special economic zones that have rules that bring people in, they will have the special economic zones. So it’s not a coincidence that That as soon as you get the turn towards globalization, China starts to do all the things that Japan used to do and assumes the role [00:43:30] that Japan did.

I would just note that China didn’t do it the way Japan did it. They didn’t do it as a U S ally, as part of this sort of closed garden of liberal democracies. They did it in that globalization era. And maybe that will have implications for where it goes from here. Maybe they’re in the same place. Japan is the ghost of future past, but I do think that’s noteworthy that China emerged in a very different world. And if the world is going away from globalization that cuts against China’s strengths are massive consumer market, a billion people, they can say [00:44:00] X and a dam gets moved from a river, even though they have to move 10 million people, like that works in a world where globalization is the bottom line.

It does not work in a world where considerations besides cost or what are driving these decisions.

Rob: Again, just to start at the conceptual level and then bring it all the way back to, the Japanese stock market today. In, in some ways, and I’m going to struggle to say this clearly, I think we’re seeing the after effects of the 20th [00:44:30] century only now.

And what I mean by that, just getting to his discussion in the article about the period post World War II, the, the 30 glorious years. Where capital movements were constrained that was a period where you started to see the splitting between the two types of systems. You had the globalized system, the U.

S. The US is the epitome of the open system and we’re the ones who absorb the capital from the [00:45:00] rest of the world. We’re running like we’re at the apex of the globalized, side of that. And then you had countries like Japan, like China, who like the very definition of that development model. And the way that they got rich was by not doing that, was by not relying on outside capital, was by turning the, putting up the walls against that and extracting capital from their own system, from their own [00:45:30] population and being self sufficient autarky.

And that’s That is, I don’t, again, it’s, controversial to lump the Chinese and the Japanese together in this way, but they’re so similar in some ways because that is a non liberal mentality. That is a control and repression mentality because you’re literally squeezing capital out of your population and using it to invest rather than trying to get it from countries that already have capital.

Like the rich United States, like the [00:46:00] rich Europeans. That’s not how they did it. It’s not how they got rich. And that was able to work and to thrive because the U. S. was this indulgent superpower that would maintain its position as the sort of liberal consumer of everything that they wanted to.

To produce and send our way. And that’s been the story since post World War II. And now like those tectonic plates are [00:46:30] shifting and the U S if you want to look at all the crises that we’ve had, speaking of crises and how they’re connected with debt, so many of those crises are related to the fact that.

The U. S. needed to balance that out somehow, so we created debt internally. Every ridiculous promotion, the housing bubble of the early 2000s, like every stupid thing that Americans have done in the last 40 years, in many ways, have been because interest rates were too low. We have a [00:47:00] system that creates bubble after bubble, and that’s how you keep demand.

Going sufficiently to balance out, the insufficient demand from these other countries. So Japan and China now face these tectonic plates that are shifting because the U. S. That’s why I think this Yellen thing is interesting because they’re supposed to be the pro China party.

And they’re coming and saying look, this is a major problem. Like we cannot abide this. We are [00:47:30] losing elections because of this because of UREVs, because of, The perception that we’re being had, and that is the major change here. So everything I think needs to be seen in that framework. What is China going to do?

What is Japan going to do? Because they either have to reform those systems internally, and each of them has their own issues in doing that, or they need to find ways to try to perpetuate that status quo as long as possible. And the Japanese are [00:48:00] notoriously good at manipulating the United States into, You know, basically supporting them and thinking that we think that we know what they are all about.

And they do we know so little about Japan. It’s shocking. If you really look at how few American experts there are who like really are embedded in Japanese society and speak fluent Japanese and really understand, there’s a dozen people that we always rely on for the same views and stuff.

Like it’s a remarkably close society, even after all this time. I’m going on and on at the conceptual level, [00:48:30] but to bring that and zoom it in today, look at the Japanese stock market right now. The Japanese stock market is reflecting the idea. That status quo is going to perpetuate because Japan, Japanese corporate profits are based on, like that’s why stocks always go up when the end goes down, because they say, Oh, exports are going to go up.

So that’s going to be an interesting test if they have to change [00:49:00] that, or if they can find a way to. To double down and to build more semiconductors, to build more capacity, to sell into the U. S. and replace the Chinese boogeyman. Even though they’re they’re the old uncle of the boogeyman who’s over the hill and changed his ways a bit.

But still hasn’t really, hasn’t really stopped doing what he used to be doing. That’s a weird analogy, but

Jacob Shapiro: no, but it’s right. Like Japan, like people thought Japan was going to take over the world in the United States until they had their property crisis. And then [00:49:30] it was a joke that hasn’t worked for China.

China’s had its property crisis and its bubble is deflating and because of Taiwan and because of all these other issues China is still seen as the boogeyman, but I think you’re also, I think we should underline exactly what you said there, which is that these are illiberal policies in the sense that it’s about extracting capital from the economy itself.

And you’re right. Both us political parties want to do this. Biden wants to do this by taxing the wealthy and Trump wants to do this with tariffs. which is [00:50:00] taxing the people who consume these products. Like those are both extractive policies. No matter what you think, like there, there’s no dog in the fight.

If what you want is free trade. Let’s put that a little finer. There’s no dog in the fight. If what you want is yes, give us the Chinese EVs. We want the glut of solar panels. I don’t want it to cost 50, 000 to put solar on my house here in New Orleans, which is what it would cost here. I looked into that a year or two ago.

I want it to cost 5, 000 with those cheap Chinese solar panels. It does nothing for me if they’re made in the United States or if they’re made [00:50:30] in China. I’m, making a point sort of tongue in cheek there. And that’s what, that’s what we’re pushing against. That’s how the world is changing.

And it’s not a fight the, I don’t know, it’s not a fight that the United States has historically been good at outside of wars. It usually takes a war for us to all be enough on the same page to make autarky work. As soon as you get out of World War I, or as soon as you get out of World War II, you could argue the Cold War there a little bit.

Like you said, China and Japan are better at these things, but apparently we’re copying their model here. It starts to get confusing.

Yeah, [00:51:00] I don’t

Rob: I don’t have an answer

Jacob Shapiro: for that one. He doesn’t have an answer for that one. All right. I think we should probably close it there. Any other parting thoughts for the listeners, Rob? Maybe you want to, we’re going to have a conversation about AI disruption next week. You want to plant a little seed about what that’s about and how people can sign up for more?

Sure.

Rob: So we’re going to talk about AI because, a lot of people don’t realize this, but a significant portion of our work is around technology and technology disruption both on the positive side at [00:51:30] Cognitive, where we’re building portfolios for clients to harness the positive.

Technology, the positive aspects of technology revolutions. And if you remember on the negative side, I’m also director of research at off wall street, which is, the longest standing and most successful under the radar, short short selling research firm and in the U S and we do a lot of work looking at technologies, disruption on the dark side, who gets hurt, who are the losers, who gets displaced, [00:52:00] who becomes obsolete.

Who is the the Eastman Kodak of the AI generation. We’re going to have a conversation about AI and some of those disruptive elements next week. But in the meantime I wrote a memo for off wall street clients that we are making public and going to, every quarter.

Share our memo of where we see sort of disruption where we see value destruction in markets And if people would like to sign up to receive that you’re [00:52:30] welcome to because as I said It’s it is for the public if you would like to do that You can email Jacob at cognitive dot investments we’ll talk about it next week to give you a sense of the sort of work that we’re doing.

That’s that’s something that we’re going to be focused more on in public to match how much we’re focused on it behind the scenes.

Jacob Shapiro: Sounds good. Any last second black swan predictions has something come as a spider sense come to you in the last month that there’s going to [00:53:00] be a tornado in the Arctic and it’s going to destroy the poles and we’re all going to be floating upside down or something this time.

I don’t know. I’m

Rob: feeling like one of Saturn’s moons might do something weird this week. We’ll have to say, Oh

Jacob Shapiro: gosh, Saturn’s moons buckle your seat. I don’t know if that’s a bubble or a crisis or a panic. Maybe it’s all three. When Saturn’s moons get involved hopefully I’ll talk to you side up next week.

Thank you so much for listening to the Cognitive Dissidence podcast brought to you [00:53:30] by Cognitive Investments. If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive. Investments. That’s Cognitive. Investments. You can also write to me directly if you want at jacob at Cognitive.

Investments. Cheers and we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any [00:54:00] future performance and actual results or developments may differ materially from those projected.

Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Cognitive Investments LLC is a registered investment advisor. Advisory services are only offered to clients or prospective clients. Where Cognitive and its representatives are properly licensed or exempt from licensure.

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The post 189 – 47 Crises in 17 Years appeared first on Jacob Shapiro.

Transcript automatically generated by Descript.

Jacob Shapiro: I sent you some of the work that we’ve done on how geopolitics and multipolarity are affecting investments. And I was pleasantly surprised that we come from extremely different backgrounds and end up with very similar conclusions. But I wanted to give listeners who are not going to go through your essay a chance to get a sense of what you’re talking about because it’s a, I think it’s a really different way of thinking.

dividing time and dividing eras and thinking about the era that we’re in right now and how COVID and all the things that have happened interplay with that. So why don’t we just start very simply first of all, define your terms, like what is the Anthropocene? [00:00:30] Because I don’t think that’s going to be a word that rolls off the tongues of a lot of listeners.

And why is this the first crisis of the Anthropocene? Because I imagine it’s been a while.

James: Yeah, it’s a couple of things. The first one is Anthropocene was coined. This is a good few years ago now and has been a term of art amongst geologists for a period of time. People might have seen last week, there was a sort of dispute amongst the, the body that’s supposed to determine these things and decided, actually, we don’t live in this new [00:01:00] geological period called the Anthropocene.

Scene that we’re going to have to think of a different name for it. There’s quite a serious sort of dispute amongst geologists about this. And it comes from that part of the scientific sphere as a way of demarcating a phase in the Earth’s existence where if you think about the Hollis scene or the Jurassic period or all these sort of great long stretches of time in the earth’s past where the climate and all the different.

So systems that interact around that have looked different and have looked different enough to impact on the geological record. [00:01:30] So you dig into the soil and then the rocks and you find things look different as you go further down. The world looks different in these great long, very long, talking millions of years, typically, periods of time.

The Holocene is a period that, humanity spent most of its existence in. Very recently, there’s been a move towards saying now, because of the impact of probably the last 200 years or so of industrialization in various forms this is now so great that this is affecting the Earth’s biosphere.

It’s affecting various sort of fundamental systems and how we [00:02:00] live. This is going to impact the geological record. Therefore, we’re in a new geological period. Let’s call it the Anthropocene, Anthropos, because people are here. So that was the thinking behind it. That was the attempt to coin the term there.

But as I said it’s open to some dispute at the minute in terms of whether this is truly a new phase in the Earth’s history. And in a certain sense, we don’t really know that until several million years hence, but at the very least, I think it underlines that What has happened in the last 200 years is now producing enough [00:02:30] noticeable impacts, things like an increase in extreme weather events, enough resource limitations that you start to run into in various different ways, enough changes in the Earth’s average temperature, enough of the mass extinction events or events that we’re living through.

This is quite a break in the planet’s history, one way or the other. So that’s where it comes from. The reason it says the first crisis of the Anthropocene is, as it says in the essay, this is something that Adam Tooze, the economic historian, who I suspect your listeners will have come across and quite likely even read today.

[00:03:00] Absolutely everywhere, really. And he’s very good. So fair enough that he’s everywhere, but he had a piece in the Guardian London newspaper right at the start of COVID saying this is the first crisis of the Anthropocene, which is the sort of thing that you give a headline to. But it occurred to me that it’s also worth taking this a bit seriously, that we need to start thinking in terms of not that many economic crises in the past.

This is the history of the last 200 odd years or so. This is how capitalism works. You view it as a good thing. Creative destruction, you [00:03:30] have a boom, then you have a recession, you clear out old things, you get new things in. This is the process of how capitalist development happens.

What was striking about COVID is that you can, build a case where this is a crisis that is impacting on capitalism, that is made worse by the fact that you have this big globalized economy. Had COVID burst out of wherever it burst out from without getting too much into that rather fraught dispute about actual origins, but had it burst out from wherever it burst out from 300 years ago, that This is something that could easily have just burned out in the steps of [00:04:00] Central Asia, this would have been a terrible disease in that part of the world.

And a few people would have died a bit younger than they might have done with mysterious coughs, but it wouldn’t have turned into something that’s an entire global pandemic in the way that we experienced. So it’s shaped by the fact that we have a global system that operates like this, that it’s a crisis of the Anthropocene because of that, because it is something that only fits into a period of time where the impact our economic activity is having on the world is so great that it’s starting to rebound on us.

And that, [00:04:30] is the theme of the essay, that we can’t. really think about economics in the way that we’re used to as something we just do to this inert object of the rest of the world. And maybe it’s changing human society a bit. But really, this is just plastic thing you can go and dump loads of impacts on to.

Increasingly, we’re living in a world where the environment is dominating what the economy does. And whether that’s something fairly grand, like we have, and a major pandemic, or we have an increased incidence of [00:05:00] pandemics of crossovers of various viruses and things into the human population, the rate is clearly picking up, and it appears to be associated with things like climate change.

Whether it’s a grand thing like that, or something fairly mundane, like things cost a bit more than they used to, because we have extreme weather events that disrupt harvests, for example these things are now inescapable, and they reshape how the world economy operates.

Jacob Shapiro: So the first question that I wanted to ask is is why, so like, why would one of the world wars not satisfy the [00:05:30] criteria here where there have been, pandemics in the last 100 years, 150 years that have jumped from animals to humans that warming may have may have caused.

The Spanish flu is probably the one that everybody’s most aware of, but there have been other pandemics. It’s just that people didn’t care about them as much or they weren’t as political or things like that. So what is special about this one is that we’ve reached a tipping point Because we’re at, we can’t get back from the two two degrees warming targets or things like that.

What makes this one, the one that if we’re looking at the last 200 years is this big era that makes it more important, let’s say, [00:06:00] or more, more defining than all of these other crises that we’ve been going through for the last 200 years.

James: It’s a very good question. Look, there have been pandemics for as long as humans have been around to catch diseases of various sorts.

You can go, black death the fall of the Roman empire, the plague of Justinian various influenza pandemics various points over the last 200 years or so. Spanish flu is only the most by now the best known amongst them. What’s distinctive, I think, about COVID is the way it interacts with the social system we have and the kind of globalized [00:06:30] social system we have.

On a fairly superficial level, this is people are traveling around a lot more and therefore things spread a lot more easily. Not necessarily the case, by the way. If you go and compare something similar, it’s very similar virus, very similar disease the SARS outbreak in East Asia in the early 2000s.

relatively contained at the time and heralded as a great success for the sort of global public health monitoring system, completely opposite this time around, obviously, it wasn’t contained at all, and nothing really works. So there’s an interaction there. And then I think there’s also a [00:07:00] need to think about the interaction with the broader economy.

What didn’t happen? with the pandemic of 1918 was the same kind of process of lockdowns, of shutting things down, of public health interventions in the same way. Now, to be clear, influenza is a different disease. The way that you’re going to get influenza, potentially pass it on to someone else, get sick, possibly die is different to if you get COVID.

The incubation period for it is different. It’s going to move differently through the population. What you had with COVID was a particular kind of interaction with the [00:07:30] economy. with public authorities, with the global public health system, that wrapped up together creates this very peculiar kind of crisis, which I think also, and as the essay indicates, is these particularly now, I think it’s becoming more apparent to everybody, these sort of longer term impacts, some of which are relatively clear and relatively well known.

The supply side shocks and lockdowns have actually lasted really quite a long time. They’re just playing out now. The financial impacts, the fact you’ve got these soaring levels of debt not just in the developed world, but across the world, the fact you have countries [00:08:00] looking, some already tipped over the edge, actually, into debt crises around the world, really a soaring number of them.

These are quite clear. And then I think there’s also this rather unusual bit that this. has an interaction with demography, particularly in the developed world, where we’ve moved quite quickly along that curve that says, Oh, we have an aging and more sickly population, which we all knew was happening.

We seem to move more quickly along it. We now have more people. Britain’s really something of an outlier here, but nonetheless, you see it across the developed world, more people reporting that they’re sick [00:08:30] in various forms after the pandemic than before. So there seems to be these sets of longer term impacts, they’re gonna be quite important, fairly decisive for how the world economy operates going into the future.

Jacob Shapiro: Yeah, but I want to focus in obviously on the soaring levels of debt, because in some ways, that’s the symptom of How the state and how governments really took more control. You make the argument that, central banks have been slowly increasing their control and becoming the center of gravity for the global economy for quite some time.

The loosening of [00:09:00] the reins of those things doesn’t seem to be happening here because protectionism was rising. Before COVID that we had more trade wars and we had the Trump tariffs on China before then, but there definitely does seem to be this acceleration and how this particular crisis is taking us back to a form of state control over the economy.

Or maybe you would make the argument that it’s a form of. relationship between state and capital that we’ve never seen before. So maybe you could talk a little bit about that and especially about the relationship between state capital and labor and how all of these [00:09:30] things are really in flux for the first time, since the Industrial Revolution.

James: I think acceleration is the right way to think about this. There’s a there’s one, I would say, novel element that COVID seems to have introduced, which I’ll come back to, which is particularly around sort of labor markets, but there is for the rest of it, the rise of protectionism, the increased appearance of the state as an economic actor.

After sort of 40 odd years, or at least rhetorically, and then actually in reality, there were governments that would not [00:10:00] talk about industrial strategy. Once upon a time I worked in the treasury in Britain’s finance and economics ministry and industrial strategy was basically banned word.

This was like things not to be spoken about, and that kind of applied everywhere. Now, It was always, there was always a degree to which it didn’t really apply. If you went and talked to anybody who was in defense or military spending, this sort of thing, defense procurement, to be fairly clear, you had implicit industrial strategies of various sorts there, but from a wider set of the economy, that period of the high period of globalization, into the 2000s, it just didn’t, it didn’t [00:10:30] operate like that in the West.

The wrinkle in this of course, is that it did operate like that in China. And that’s one of the, I think one of the factors that is really pushing the shift into greater state intervention across the sort of Western economy. It sees the direct threat of competition from China in the way that’s been reshaped.

More since the crisis of 2008 than COVID in particular, but you can see an acceleration around COVID as forms of control and intervention just become much more much more apparent. The big I don’t know if it’s no, it is. It is a new element. [00:11:00] It’s a sort of novel thing that’s starting to appear, but it’s been there really since 2008 is the role of the major central banks in particular.

The U. S. Federal Reserve as the peak organization in what looks like a reorganization of the dollar system, that instead of the sort of Globalized financial market, relatively loose control, dollars everywhere the same as a dollar anywhere else. You now have suddenly, and you saw it with 2008, and this is a point that Adam Tooze, I think, makes very well, where you had [00:11:30] privileged access to Federal Reserve dollars in the rest of the world.

If you were a country in the central bank that the US government liked you could in the depths of the 2008 crisis, go and get a swap line to the Federal Reserve and have very cheap dollars. That would keep your globalized financial system in the case of, for example, Britain up and running and used to some extent, but more is the promise that it would be there.

That keeps the thing ticking over. That’s used again and used repeatedly and has grown even over the last few years. And you see it notably in the COVID crisis. Now this is a shift in the role of central banks from being something that’s [00:12:00] an adjunct to the financial system, something that looks a lot more kind of dominant and a lot more decisive.

Do you move from. something that looks like a market determined system to one in which elements of political control become much more apparent. And I think the swap lines, that kind of international dimension of who gets access to those cheap Federal Reserve dollars and who does not is one of the more dramatic examples of how that’s been politicized.

Not just dollars, by the way, not just Federal Reserve. You might have seen People’s Bank of China threatening. In fact, they did. Cut their swapline [00:12:30] support for Argentina after Mireille got elected. They said, we’re not going to do this anymore. Now that’s basically a political decision. This isn’t market neutral.

Hey, we’re just handing out Remembe to anybody who needs it. Sort of thing. Anybody can pay for it. That’s a political decision. And it’s the same kind of political decision that the federal reserve is making. So that’s a distinctive thing. That central bank is a powerful new political actor, not just domestically, which we all know about, but internationally, at least for the major central banks, this is something big that they now have.

Jacob Shapiro: Yeah, and also in the context of the Russia Ukraine war, we’ve seen the Fed and we’ve seen [00:13:00] central banks do things that are really unprecedented. And in some ways, they’re following governments. I I remember, you probably know this. China had an African swine fever epidemic in 2018 2019.

So it doesn’t affect humans, it affects pigs. And I think one of the reasons, it was not the only reason, but one of the reasons, And it was so reticent to share data about this new virus that had emerged in Wuhan was because they saw how the United States used African swine fever in the context of trade negotiations to push for advantage.

Whereas before, maybe it would have been, oh, let’s [00:13:30] all get together. Let’s figure out how to contain this. Let’s help the We don’t want them starving. The Trump administration was basically like, okay, you get to buy more U. S. pork as part of the phase one trade deal. What other things can we put together?

So I do think there’s a, there’s an element of that there too. Do you feel like the Russia Ukraine, or I guess benchmark for me, how the fed and how the ECB treating Russia falls on the spectrum? Cause I do think it’s one of the things that. Like maybe in passing, nobody thought anything of it because there was the, [00:14:00] certainly in the West, the rally around Ukraine’s flag phenomenon.

But now it feels like doubt is creeping into the West and everybody’s thinking about what did just happen over the last two years? And what does that mean going forward? What has Pandora’s box been open to?

James: No, exactly that. You have this sort of, it’s described as unprecedented in what, February into March 2022, the range of controls and restrictions attempted to be imposed on the Russian economy, and in particular, the Russian Central Bank.

That’s the bit that feels very novel. [00:14:30] If you look at, Iran was something of a test case for this back in 2014 or so, there’s a similar but not quite as comprehensive attempt to corral it with, in the Iranian case, from the American point of view, something You know, substantially more success, I would say, because, of course, what coming out of this two years later is that Russia had clearly prepared for something like this.

The actions of its central bank in moving very rapidly to cope with, freeze and some of its reserves to reroute and to reorganize its financial messaging systems, [00:15:00] the immediate attempt to Russia to find different markets for its oil and gas, China, one of them, India, rather strikingly, another one, the shift into taking payments in different forms of currency, big list of actions that were taken pretty rapidly.

The net results of all of this would appear to be a very substantial signal to the rest of the world that is perhaps not completely an ally of the U. S. might be actively hostile. You don’t need to be actively hostile to suddenly think actually what was going on. sold as the promise of a dollar system in which your [00:15:30] dollar will be as good as anybody else’s, and this is a free and equal global market, suddenly doesn’t look like this because you can have a decision where you’re cut off or an attempt is made to cut you off if you disagree with, in this case Washington in some form.

And that I think is a real incentive for a whole bunch of middle income countries in particular to start to think about what they might do that Gets them out of or at least reduces their attachment to the dollar system. You don’t want to overdo this. This is still more than 80 percent of global trade is invoiced in dollars.

It’s still the prime reserve of [00:16:00] the world, but you can see how the attempt to impose that kind of political. Restrictions and what Russia was doing is producing a blowback over here and also not being particularly successful, actually imposing sanctions on the Russian economy. There’s other things that can be done, which is also something of a demonstration effects there.

That’s part of I think that this shift that’s taking place more generally. I know you talked about it yourself with your various guests that you have not only a sort of dollar sentence, single [00:16:30] Or something like a single unique system with the dollar in the middle of it, you do have something like multipolarity emerging within that multipolar world, you have a kind of tighter control, I would say, by Washington over what those most closely integrated into dollar system can do.

That’s what it looks like and feels is that Yeah, the reach isn’t as far as it used to be for Washington and for the Federal Reserve. But the grip that can be applied and the potential for sort of political decision making and how that system might operate appears to be a lot tighter.

And swap lines are a part of [00:17:00] that positive part of that. Although, of course, it’s quite negative if you say no more swap line for you. The negative aggressive part of that is okay, we can apply these sanctions and other countries, other major economies will also sign up to them and we can then try and enforce them.

Jacob Shapiro: And I haven’t found a good pithy word for how to describe what you’re talking about, because I think you and I broadly agree that de globalization is happening. It might be in its early stages and yes, the dollar is still dominant, but it certainly is happening. But ironically, as you just said, within those regional spheres of influence that are popping up, they’re actually, you globalizing among [00:17:30] themselves more.

So I don’t know whether to call that re globalization or like it’s difficult, but you are seeing on a trade level, on a control level, all these other things. You didn’t mention crypto in the paper, but when you start talking about weaponizing finance and you start, talking about more state control and central bank controls over the global economy in general.

Yeah, I can hear the crypto folks nodding in vigorous agreement to your comments and being like that’s why Bitcoin is going to the moon. How do you put, or how do you map crypto onto Picture that you’re talking about it. Do you think it’s fair [00:18:00] that I guess it’s fair to say that is a reason that people would be searching for a currency that is not beholden to any sort of political means.

But I just wonder, are there any analogs to it? Is this something new? How do you think about it in this context?

James: I hesitate to call it a currency in the usual sense we might think of a currency as something that’s actually viable as on a day to day transactions basis, but as a store of value.

Crypto is starting, Bitcoin in particular, is starting to look like something that can actually work like this. And to the extent that it gets treated as a hedge against inflation, a hedge [00:18:30] against whatever a central bank might decide to do, you can see that, This is operating and is operating on a very broad scale the nearest analog and this is where all the crypto people will, I think this is something like gold that is, it’s not actually much use on a transactions basis anymore, but as a store of value, as a hedge against inflation, as a hedge against what central banks might decide to do in the future.

Governments that matter, it’s pretty good. There are, as we discovered and. Russia discovered with its own gold reserves, there are literal, physical issues about the control and use of gold that suddenly appear if you decide to do something [00:19:00] that the people looking after your gold, in this case, Washington, don’t agree with.

The Taliban had a sort of dramatic, similar experience with some of this. So something that gets you out of what is That element of control can start to look quite appealing and over the longer term, you can see how crypto can function like this, can start to function like this, and clearly already is to a significant extent.

Now, whether that justifies the sort of crazy valuations and whether that means that this will start to over time remove the volatility of crypto [00:19:30] is another thing. But if the system in general is moving in this sort of state led direction, then there’s a clear incentive For some actors, at least to try and get out in that and to hold on to their wealth in some forms and to think about what the alternatives might be on a political level, by the way, I do think the election really is quite interesting as a sort of reaction against that, that if, if generally the system is moving this way, we can try and do something different.

Now, I don’t think for a second, this is going to work. At best, this looks like a plan for the sort of deindustrialization and then [00:20:00] reintegration. As a pure agricultural economy of Argentina. But nonetheless, it’s a political program and you can see some of the reaction developing in lots of different ways to what looks like a centralization of control around some of the major governments in parts of the financial system, in parts of the economy, in a way that hasn’t existed for a long period of time in the west.

Jacob Shapiro: Let’s go down that rabbit hole for a second because I’m curious. Yeah, I don’t think it’s going to work for melee because he doesn’t have the political Power behind him to affect many of the reforms that he’s talking about I mean his first act was to basically go to argentina’s [00:20:30] congress and say hey, I would like emergency powers and they were like great You can go, shove your head in the toilet.

We’re not going to give you emergency powers to do whatever you want but you’re exactly right like argentina has Is an agricultural superpower. It’s sitting on a shale revolution of its own. So it’s going to be, if not an energy superpower, it’s going to be self sufficient in energy in a way that it hasn’t been for decades.

So the need for dollars or whatever is going to be lower because they’re going to have enough energy. I feel like the optimist could look at what’s happening in Argentina and say, okay, this is like Brazil in the early 1990s. There’s going to be some [00:21:00] major changes here, but Argentina is sitting on a lot of advantages.

Do you buy that at all? Or is it just. Argentina is also, it’s been the glittering potential of South America for a hundred years and it hasn’t followed through on it because the political structures haven’t allowed it to. I just, you mentioned Miley, so I thought I’d throw that to you and ask you to explain.

No,

James: I think this is a fair assessment. And there’s a similar pattern across South America in general. One of the sort of underlying parts of this let’s call it de globalization, but at least a shift in how the economy operates is that energy demands. And particular [00:21:30] energy and mineral resource demands in a world that’s constrained on these things can suddenly promote lots and lots of different parts of the world that otherwise we’re looking less happy.

So bits of South America suddenly find themselves with huge reserves of lithium. that is essential for decarbonization and building all those batteries and electric vehicles and all the rest of it. And suddenly this gives them a power and a clout inside, potentially at least inside the system that they want to possess.

Otherwise the same thing goes with Bolivia and natural gas, Argentina with the potential for [00:22:00] fracking and all the rest of it. By the way, one of the mistakes I think people make is It’s the sort of assume that decarbonisation is a one way process that sometimes when people talk about risks from climate change, it tends to be presented as the risk is that we’ll decarbonise and this will make all these fossil fuel assets redundant.

Actually, clearly what’s happening is you’re getting two of these things at once. You’re getting, simultaneously, Joe Biden pushing through the Inflation Reduction Act, so called, with its hefty investments in EVs and all the rest of it. And at the same time, the U. S. is now what, producing more fossil fuel than ever before in its history.

Same [00:22:30] thing with China. On the one hand, yeah, massive investment in EVs and a world leading producer of the things, solar panels, massive effort at decarbonization, at the same time, huge expansion of fossil fuel output. These things all happen at once. You get Bolivia and a few other places Chile, for example, churning out lithium right next to Argentina is going to be churning fossil fuels.

So yes, you can see how that readjustment happens. The particular case in Argentina, and this might be like, if you had to sit down and write without too much concern for civil society or actual. political possibilities. But if [00:23:00] you had to just go and write down a blank slate here’s my free market utopia for Argentina, and we will destroy much of civil society, we’ll wipe out great chunks of the state, we’ll hope for some sort of really substantial write off of that shocking great debt that we’ve got, because That’s a real problem.

And then you start from a blank slate and suddenly you’re selling food all over the world and you’ve got all this shale fossil fuels you can get access to that could look work workable, at least on paper. The problem is you’re not on paper, actually in Argentina, you actually have to deal with all these things.

It’s, it’s a relatively rich economy. There’s [00:23:30] lots and lots of things going on that aren’t just agriculture and producing shale. There’s lots of people attached to those things. There is this bloody great debt that it’s built up over many years and it’s long record of attempting to manage that or fail to manage that.

in various different ways. So if you had a belief that Millais would in fact, be able to impose that kind of blank slate version of history on a whole country you might think this could work to that maximal extent. If he can’t do that. And to be honest, he’s not going to be able to do that.

It isn’t going to fly quite as in the way that he would intend.

Jacob Shapiro: Going back [00:24:00] to the crypto conversation and I’m glad you compared it to gold because the thing that Bitcoin in particular, but crypto in general has is that it has self imposed scarcity. So it has already done the hard part of getting people to believe that it has value.

Gold has had millennia of People using it as a means of exchange or a storage of value before it was used by governments to back reserves and things like that. Whereas, crypto has done this in a remarkably short period of time, gotten people to believe in the promise of it. But the reason that the price keeps going up is because there is imposed [00:24:30] scarcity and I’m not the economist, you’re the economist, but my understanding is that one of the reasons we had to go off the dollar standard is because in global economies where it’s all about.

Or and growing more if you tie the economy to the production of something that is limited to what you can take out of the ground or what it gets divided into or what you can mine from a data center or something like that. Suddenly the currency in the economy are not speaking the same language and you go off the wheels and you have all these crises and.

It doesn’t seem to, it doesn’t seem to me that we can go backwards to a [00:25:00] currency that is backed by gold or crypto or anything else. As you said, debt is skyrocketed. It’s all about growth, the entire, even as we’re talking about some of these changes in the Anthropocene, it’s all about growth and about moving upwards and things like that.

It doesn’t seem to me like there’s any real meaningful, Chance for change absent some sort of cataclysmic World War Three. that too doom and gloom?

James: That’s even more doom and gloom than me. There is, there are yeah, I, one of the things I’m always hesitant about is here comes a cataclysm that will sort everything out.

This kind of way of [00:25:30] thinking, I come from a sort of left wing political background and it’s lousy on the left to think, okay there’s going to be a big crisis and it will resolve stuff. And it’s invariably it doesn’t, or at least things don’t end up how you might want them to be.

And there’s a real problem if you’re talking about climate change. I hate it. Yeah, I really did dislike Don’t Look Up, the film where it’s the clever people know the catastrophe is happening, and all these idiots didn’t realize it, and we can all see it’s going to happen, then it happens, then everyone’s dead.

And it’s climate change is nothing like that in actual reality as we experience it. The environmental [00:26:00] crisis is not like that. It’s just kind of things getting more unpleasant and more and more shitty on a sort of daily basis, and sometimes it’s really grim. Sometimes it’s really shockingly bad and awful, and lots of people are killed and lose their houses, their lives their homes.

They’re livelihoods. And this is, that does happen. That’s what extreme weather events can look like. But on a day to day basis, it’s this grind of things not being as good as they used to be. And that’s what it, that’s what it feels like. So partly the essay is attempt to get into the grind, because I think that’s where we are at the minute.

Things could you can run a climate model and [00:26:30] see that yes, there is these chances of hitting various tipping points and things really do go absolutely haywire at some point in the actually not necessarily too distant future. So probably it could happen tomorrow. Let’s say by 2050 by 2070.

That is there. It’s on the spectrum of probabilities, but the most likely the sort of central outcome is that things are just bad and difficult. And that’s where we are. And that’s what shapes the sort of sets of economic possibilities. Now, my own suspicion on that is that therefore you don’t get like an almighty great cataclysm that resolves the extraordinary build up [00:27:00] of debt and all these liabilities that are piled up in the world system.

But you could get a series of debt defaults on lots and lots of different countries. There’s been, what, five or six national defaults since COVID. Various places you might anticipate. Lebanon springs to mind. There’s a couple of others that, have longstanding problems. But the list of countries that are now in debt distress has grown markedly.

So you can certainly see some version of defaults and write offs and restructurings in a more or less controlled fashion happening there. The difficult part is what starts to happen in the West. Because if. It all [00:27:30] the global North developed world where debt is very substantial. And ultimately this is going to depend on growth being pretty substantial to cope with that at some form that is relatively equitable into the future.

That’s going to keep creditors happy and keeps everybody else happy because you’re not having to pay all this debt back. That’s what you’re going to need to deliver. If. If the environmental crisis is playing out roughly, as I’ve described, where everything just gets a bit harder, your prospects for growth in the future suddenly look limited.

And that I think, is if we wind forward 10 or 20 years, [00:28:00] this is where it starts to look problematic with the financial system geared in the way it is, and with the extraordinary powers of debt operating the way that they are. If you cannot produce that growth nominal rate of growth high enough to basically wind away your debt over time.

This is what happens in the West after World War II. That’s your kind of ideal case of getting rid of this sort of stuff. Then you’re going to have to do something else. And either you’re writing off or you’re monetizing it, or you’re doing something that’s going to be disruptive if that growth doesn’t return on the scale that’s needed.

Now, US is doing pretty well at the minute, and there’s a whole [00:28:30] story about why that is. But if you look to Europe, and if you look to Britain, then suddenly that is not happening. And there’s not necessarily the prospects you’d want to see in the immediate future of a return to growth in the scale that you’d want to have, given the scale of debt that’s built up.

Jacob Shapiro: Yeah, bookmark that. I want to get back to that in a second. But I do want to talk about the ecological crisis and how the environment is affecting things. Because I thought one of the most compelling things about doing research on you and reading some of your work was that you weren’t talking about the environmental crisis as something in the [00:29:00] future, that it is literally here.

And let me know if I’m putting words in your mouth or if I’m taking your argument too far, but that one of the reasons you have state interventions at the level that we’re seeing them is precisely because the costs of environmental events is driving things up. Robert Caro is one of my heroes and he talks about, Lyndon B.

Johnson and Franklin Delano Roosevelt and some of the issues that emerged in the United States starting in the 1920s and 1930s and about how at least in sort of old school democratic politics, the Democrats at that time accepted that there were some problems that were too big for the individual to solve, [00:29:30] like rural electrification or like the dustbin.

And governments like FDR’s or Johnson’s needed extraordinary powers or needed new sorts of systems so that the government could come in and provide for these problems that the private market was never going to solve. Because if you left it to the private market, you would just, people would die or people wouldn’t have electricity or things would, things bad things would happen.

Really eloquent of me right there. And I think you’re making the point that, look, all of, whether it’s insurance and property markets, which is something we’ve talked about in this podcast, especially in places [00:30:00] like Florida whether it’s famine in different parts of Africa or the monsoon cycle, driving up food prices and inflation in the Indian subcontinent, we can go down the list.

But it seems to me that what you’re saying is, look, the environmental crisis is here. It may not feel like it besides the grind of I can’t, I’m not looking forward to the 95 degrees Fahrenheit, 100 percent humidity of New Orleans summers. That is about to greet me in the next couple of months, but that it’s already here and that maybe there’s ideologically a reason to push back against state intervention.

But if you [00:30:30] don’t have state intervention compared to a challenge of this scale, like things are just going to blow up. And that sort of puts us in the position that we’re in. Have I taken your argument too far? Or is that a fair way of thinking about how the environment is affecting the global economy?

I

James: think that, I think that’s where it ends up. This is a more or less positive version of it. The relatively positive fluffy version of this is that sensibly and rationally, everybody coming from the 1920s through the second world war, or at least Democrat Party in the U. S. and the Labour Party in Britain and various social Democrats in Europe [00:31:00] realized and won public support for a program that said we must protect people from the ravages of the free market and then you build up social welfare systems and the rest of it.

And that’s the nice rational version of this. The slightly more if you like, irrational, less sort of public spirited version of this is you get something like that, but it still is pretty grim. The insurance market strikes me as the one that, that is, Really, I know you’ve talked about this and it’s so dramatic what’s happening, that you have insurers getting out of places that they now think are [00:31:30] uninsurable to all intents and purposes.

We’re approaching that for a whole set of people, that it is not possible to sell them insurance at a premium that they’ll be able to buy, so they’re not going to sell it. Now, if you’ve done, maybe not EC 101, but EC 201, you get into your second year and they start to teach you about adverse selection and moral hazard and that sort of thing.

It’s the insurance market. These are Difficult markets to run at the best of times. And what you know is that if you have a situation, there’s a whole bunch of people that you can’t, as a private insurance provider, make a profit from, you will simply not sell it to them. And that will not be insurance that’s [00:32:00] provided.

So then of course you get government intervention. You get a sort of insurer of last resort. DeSantis was signing a bill into law in Florida. Not that long ago, a few months ago to expand provision. And you can see something similar creeping up in Britain. rain rather than extreme heat or whatever.

But that state is there to provide the minimal amount of insurance at a fairly significant expense to a bunch of people who need it otherwise. Leaving, by the way, the private insurance to chase the bit at the top of the market that’s still profitable. So you’re getting the worst of all worlds at this point, right?

You’re getting a private market that’s [00:32:30] like this, incredible sort of elite offer of insurance and perhaps it, tie it into like your health insurance and perhaps they dig around in all your social media usage to work out, to give you a really nuanced, personalized, risk assessed version of that insurance if you happen to be well off.

But if you’re poorer, you’re getting this fairly crappy state provision instead because there’s no money to be made out of it. So this is not a good sort of fluffy, it’s the end of the second world war. We’re going to do the nice rational thing solution. It’s a bodge job. That still works in favor of at least some people are going to [00:33:00] make some money out of this and they’re going to sell insurance to rich people at the top end, and everybody else is getting way of a crappy state provision can be scraped together at the bottom end.

So that feels to me like where a lot of this is going to end up that this doesn’t get you to like, It’s the end of the Second World War all over. Everyone’s going to, the scales are taken from everyone’s eyes. Oh, we have to set up a national health service. We have to expand education provision. I’m parodying a version of the history here.

We have to provide unemployment insurance. Let’s have lots of trade unions. We’re not going to get that. We’re going to get some hideous [00:33:30] mashup of, Decent provision at the top end and everybody else is scrabbling around for whatever they can get elsewhere. And that’s what the government’s going to provide.

Jacob Shapiro: Yeah. And it’s you let the good times roll until a crisis happens and then you’ve realized there is no insurance and it’s going to be a lot harder to rebuild. I think one of the things that keeps people in place is I’m in New Orleans, it’s one of the, from a climate perspective, one of the riskiest places to be in the world and there’s an indomitable spirit here, which is we’ve rebuilt countless times.

Maybe they will, but it’s going to be a lot harder when nobody’s But insurance as [00:34:00] a funny aside, I was in I was in Madison, Wisconsin last week for a speaking event and I was talking with a friend and I was lamenting the increase in my home insurance premiums and my friend is from Peru and he laughed at me and he said, this insurance thing.

thing that you folks in Western markets have. It’s very silly. Like we don’t have insurance in Peru or in some of these other countries. This idea that something’s going to come and save you or prop you up if a crisis happens to you. So I don’t, maybe that’s a uniquely Western, he made me think about that in the sense that maybe insurance is a uniquely Western phenomenon.

[00:34:30] Maybe the economy functioned better without it. I don’t know. What do you think?

James: It’s an option. Yeah, an option. It is to say that’s it. No, no insurance for anyone. There’s no mechanism we can get to for the social risk sharing, which is ideally what you want. It’s one of those ones without sounding too status about it’s one of those ones where the ideal solution is basically there is one insurance provider and it’s probably the government and that’s going to be the risk sharing that we operate and there’s a fair chunk of social life going on.

does have versions of this. What we got in insurance markets on home insurance isn’t like that at all. It’s a mess that’s [00:35:00] emerging there, which is itself, by the way, another one. The reasons for thinking that the path of government debt is going to be upwards. Because what happens if some of those liabilities that the state has now taken on around home insurance As the insurer blast resort suddenly manifest themselves in Florida or wherever it might be that these are huge expenditures, this is suddenly going to have to be met.

And that’s an emergency spending that suddenly allow more borrowing in one form or another. A great part of what is happening at the minute starts to look like. government just taking on more and more liabilities into the [00:35:30] future. This is the big sink for everything that’s going wrong, particularly in the developed world.

And you can keep putting things in there for a long period of time. And it doesn’t seem too bad. You can put all of COVID in there, that’s a huge increase in debt. And you can keep doing that for a period of time and it all seems fine until eventually it isn’t. And that I think is. The closest I’ll get to Oh what does a catastrophe look like?

What does a potential flip into a much worse situation? How does a crisis, really deep crisis of sort of governments and states look like at some point down the line, once they built up so many liabilities that they can’t [00:36:00] plausibly grow or even inflate away properly.

Jacob Shapiro: Yeah, one of the questions I get most often is how much debt is too much debt.

What is the upper limit to where the crisis happens? And in some ways, I think that’s a faulty question because it’s not Oh, we crossed X percentage of debt to GDP. Now there will be a crisis. I know that it doesn’t work that way. But where do you think we are in terms of how debt is going to cause crises?

And I know it’s already causing crises in places like Sub Saharan Africa and Southeast Asia where average sort of British or American listener is not really thinking deeply [00:36:30] about these places. You have to be an economics or a geopolitics nerd to know what’s happening and how the stressors are affecting these different places.

But in some of these developed economies, how much debt can the United States take on? How much debt can the EU take on? Japan has shown us that maybe that figure is a lot larger than People might think it is. So how long can we keep doing this and kicking the can down the road?

James: It’s, there was that paper.

Wasn’t there shortly after the 2008 crisis, the Reinhart and Rogoff paper that got cited across Europe in particular, I remember the [00:37:00] government at the time that, once debt reaches a hundred percent debt to GDP ratio, that’s it for growth. It’s all over. A bit of digging around by a graduate student found that they basically made a spreadsheet error.

The calculations were off. There was no sort of limit like this. It just didn’t there wasn’t a sort of magic number that you crossed and suddenly everything goes wrong. It wasn’t there. It got the numbers wrong. So I think there’s this sort of really awkward thing that, that it’s difficult.

It’s one of the ones where you’re not really going to know it until it happens. It’s this grim business, like Wile E. Coyote running off the [00:37:30] cliff. You keep going for a long period of time as long as you don’t look down. And there’s an element of that where not looking down, the capacity to not having to look down, was really significant for the U.

S. for a very long period of time. This is what the period, Since coming off the coming out of the Bretton Woods system in the 1970s, gives you was not like collapse the dollar, whatever it actually gives you this weird new power of having a currency to a huge extent, you can produce an enormous scale, you can borrow an enormous sale.

And for as long as the rest of the world wants your currency, as long as it’s the [00:38:00] foundation of what you’re doing. What the rest of the financial system looks like you have this incredible capacity to run up debt and that’s the U S has exploited. And it really doesn’t matter which government is actually, no, that’s not quite fair.

I think Clinton and George Bush senior had some goals at trying to reduce that debt, but in practice, you would just got this sink and you’re just going to use it and use it. And that works fine for as long as you have a U S dollar system, which has this incredible capacity that spreads across the world, everybody else wants to be a part of, which is precisely what seems to be coming to a halt around about now.[00:38:30]

right? That reach is not what it used to be. So there’s a clear tension, I think, building up there, the capacity of the US, the Federal Reserve, the dollar centered system to continue relying on that inordinate privilege to go wasn’t it back in the 60s, talking about this, to produce the dollar, to rely on the rest of the world, wanting the dollar, wanting dollar based assets to have this as the foundation of fundamentally a global system.

If that’s in question, Then you start to think it starts to become more apparent that there will be some [00:39:00] limits to what you can do to treat this borrowing as a sort of sink of every liability you can think of, that every crisis you can think of can just be dumped into this liability, endless liability of the federal balance sheet in effect.

And the same goes similarly for other developed countries. Britain at this point, without saying it’s going to suddenly plunge into a debt crisis, something like this is not a very happy economy, not by a long way. Close to 0 percent GDP. per capita growth for the last 15 years or so.

It’s quite extraordinary what’s happened and the set of failures that [00:39:30] happened, and the way in which political decisions have made those failures worse for a long period of time, which Brexit is currently one of the more obvious ones. This is a place that is not built to grow and is not built, therefore, to deal with the debt in a way that we would like to deal with it, which is you grow, you have a bit of inflation, the debt gradually wears down over time.

This is some way that looks like. on the list of if you take the next 10, 20 years, some reasonable period of time, it’s on the list of places it’s going to hit a major political and economic crisis [00:40:00] around the fact that it cannot simply carry on running its liabilities and running its balance sheet on government as a sink for everything that goes wrong forever.

Jacob Shapiro: Yeah. I want to read one sentence from your essay that like really stuck with me and ask you to talk about a little bit more. So I’m quoting you here. So the process of competitively driven accumulation that gave capitalism it’s broadly productivity improving dynamic for 200 years is instead being pushed towards forms of rent seeking and the useless hoarding of wealth in place of increasingly costly and risky productivity [00:40:30] improving investment.

First of all let that hit you in the face listeners. And second of all, Tell me why things like artificial intelligence or the energy transition or automation and things like this can’t give capitalism that second wind and embedded within my question. And I, one of the critique is a little bit strong, but one of the sort of things I found myself saying in the back of my mind, as I was reading, I’ve heard about material constraints and we’re running out of food and we’re running out of energy for hundreds of years.

And maybe this is the time. [00:41:00] But like going back to Malthus, like we have always seemed to figure out how to produce more and how to find more and how to get more out of the ground than we have before. So again, like you’re making the argument, okay. Like it’s been a nice run, but no longer. So it’s a two part question, really like talk to me about things like the energy transition.

Because those look like maybe compelling sources of growth going forward. And then on the back of that why do you think now is this unique moment where maybe the Malthusian economics finally asserts itself that [00:41:30] we have finally gotten a little bit over our skis?

James: A couple of things.

The energy transition in particular there’s a, it’s a very good recent book by Brett Christopher, it’s called The Price is Wrong, that sort of goes into some of the details around this is that the forms of technology you have for the energy transition for decarbonisation are not particularly well suited to produce obvious returns for private capital.

So you end up with problems like, for example, take China, it’s very windy in the north, but electricity is [00:42:00] needed in the south. It is therefore costly and difficult to get electricity produced by wind from the north of the country to the south. There’s a sort of constraints on how far you can expand some of this and still expect to make a private return.

Now, that doesn’t mean government can’t step in at some point, but then you’re back into this broader question of if we have issues to deal with and crises to deal with, it’s likely government will turn up and try and patch things up in some sense. So that feels to me like. One part of the problem that the technologies itself do not lend themselves to the kind of forms of accumulation and profit [00:42:30] generation we’ve seen.

And actually you can see already, you can see what’s happening with Orsted, for example, the wind turbine manufacturer, you can see what’s playing out in the attempt to Transition to wind energy in the US where you’re running into like serious issues of how is this producing a return? Can you guarantee this into the future?

Is it enough to warrant the kind of investments you want to make? So that I think is playing out in the energy transition there. There’s then the harder bit further down the line, which is that we’ve built, we built, God knows how many cars for a very long period of time and most of the people in the global north who want a car now [00:43:00] have one and potentially there’s a large number of other people who want a car and don’t have one.

If we’re going to build EVs, the material requirements of doing this are different to if you’re going to build internal combustion engines. And that means you have to go to different places, dig out different things, turn them into different things like lithium for batteries is the most obvious one. And there are hard resource constraints and that you’re going to run around the world trying to find this.

And there are certain parts of the world that control access to those resources. And in particular, refining of those resources, because you take lithium. China doesn’t quite have a monopoly on the refining of [00:43:30] lithium, but it’s getting up that way. 78 percent or so. It’s the, this therefore is particularly in a world where states are starting to act strategically in the economy and the way we’re seeing, it’s not like there’s this sort of endless bounty of the marginal production is always possible without affecting costs and actually marginal production.

The fact you’re producing one more electric vehicle might, in fact, start to drive up the cost of producing another electric vehicle beyond that. And that, I think, is the economics of the resource constraints that start to appear here. If you take AI and actually let’s treat artificial intelligence, because it’s [00:44:00] not actually artificial intelligence.

It’s an expansion of what we’ve already doing with the data economy. It’s impressive, but it’s an expansion of what we’re doing already. The resource constraints of that start to look fairly fairly dramatic that in terms of water usage in a world where we know water resources are coming under pressure, in terms of energy usage in a world where we know energy usage is, it’s got energy supply is coming under pressure, suddenly you’re going to hit some material and you are starting to hit some material resource constraints on that.

I was really struck by your guest a few [00:44:30] weeks ago talking about this in terms of of access to natural gas in the U. S. and the Biden administration’s decision to Hold the construction of export terminals, which in one level, I think in the short term, this is like it feels like an attempt to hold down the domestic price, the rather nice paper in the National Bureau of Economic Research, but two weeks ago, the opening up the US market to the global market actually increase the domestic price of gas as you can anticipate.

So therefore, hold that off a bit, you can oversupply the domestic market, keep the price down, and there’s an [00:45:00] election coming up. But the longer term thing about Hold actually, who is going to have access to the energy resources needed to run all the massive data centers that we expect to be building.

That, I think, is like a version of that resource constraint around who’s getting the data and who’s generating it. More generally, and this is a more speculative point, but it’s perhaps one for me to go back and think about. Look, I just think Robert Solow got it right, what, 30 years ago. How come I can see the IT revolution everywhere except in the productivity statistics?

What is the actual gain to [00:45:30] productivity consistently from the incredible investments we’ve made in various forms of data technologies for a long period of time? There are periods where it seems somewhat clearer, 1990s into the 2000s. For the last decade or so, Coinciding, probably not entirely coincidentally, with the end of Moore’s Law and the very rapid expansion of the capabilities of processing power, that doesn’t seem to hold and work in the same way.

Now, it may well be possible to do something fundamental to get out of what seems to be a physical barrier and what you can actually start to get out of a computer chip. For [00:46:00] instance, quantum computing changes to von Neumann architectures, all sorts of, fairly wild things you might be able to do.

But we don’t actually have those yet in the usable form, or at least in the usable and commercial form. And therefore we’re stuck at the minute with sets of technologies that look very resource constrained. They were putting an awful lot of money into, but aren’t necessarily very good at producing the kind of growth that we want to see out the other side.

Jacob Shapiro: Yeah. You talked about the useless hoarding of well, that’s the useless hoarding of data, like all these different data centers and all the power requirements that they have, and it’s monetized. It’s [00:46:30] already ping ponging back and forth through the system, not empowering folks to do things for cheaper access to data or for cheaper internet rates and things like that.

I forget the name of Bill Gates’s company that is trying to build small modular nuclear reactors. But there was an article, I think in the FT just today, it’s Tuesday. About how, Oh, they’re going to break ground soon. First reactor in 2030, or you go to Amazon and some of these others that are literally trying to build their own power facilities to try and power their own data centers, clearly telegraphing on the world that you’re talking about.

I’ve, we’re almost at [00:47:00] the hour point. I don’t want to take too much of your time, but let me close, let me close by just asking you this question. There’s been a lot of food for thought in this podcast and a lot of doom and gloom, but I’m actually not a doom and gloom person.

person by trade. Are there any countries or are there any sort of silver linings? Are there any places that are positive, you think? Or is it just we’re so globalized and the ship is all headed in one direction and it’s just A hierarchy of bad options, and hopefully you’re on the less bad option.

I’m looking for something to hang my hat on. What’s good out there?

James: I think recognizing the [00:47:30] hierarchy of bad options is quite a good start. Just having some sense that you might not be able to get the absolute best that you would have wanted, but at least having a sense of what is the least worst and going for that seems quite viable.

I’m trying to think of what is useful here. The fact that decarbonization is happening, I think. ought to be a positive in some senses, the fact you are trying to reduce the future damage of churning out loads of greenhouse gases ought to be ought to be something positive. There are issues with that connected to changes in resource use and resource intensity of the technologies we’ve got, but there’s [00:48:00] something there.

One of the positives I thought was, and potentially coming out of COVID really, was just a reshaping of how people think about their lives, partly because a load of us were just forced Yeah. And I don’t think it’s a bad idea to do it because If if or for if you can, you can just be more in a conversation about things.

Is that okay? And in, I think I’ve said this before, I think it’s so important to be aware of things and making sure that you’re aware of the challenges that you’re facing, and just making sure [00:48:30] that you may be and I think, if you can do it. positive there. That one of the responses to crisis is a recalibration of the list of things that people find worthwhile and things they might want to do.

And the positive for the rest of us with a load of this stuff is if you want a really quick, one of the low hanging fruits, relatively cost free options on how to decarbonize rapidly and reduce resource use rapidly. Reductions in working time, having more people retired, having more people not trooping off and commuting every day to get into work to sit in what is usually a very energy and [00:49:00] efficient office.

And getting them sitting at home instead and maybe going to the park or going to the library or whatever the hell it is that people do with their free time. It’s like that actually starts to feel like a positive. So if there’s some sort of silver lining there, that recalibration, that shift in how people think about work and what we might do with work, I think it starts to look like the positive in all this.

Jacob Shapiro: You’re really, what you’re really saying there is the power of labor to dictate their hours or the quality of the labor that they do and what they get paid for it, right? That’s what you’re saying.

James: Yeah, totally. No. I’m in favor of tight labor [00:49:30] markets. The tighter, the better, given what’s happened with, the shift towards returns to capital versus returns to labor across much of the developed world in the last 40 years or so.

Tight labor markets are good. More lorry drivers retiring, more people deciding that they’re age 50 and they’re going to go and do something different. It’s not just going to be in office all day long is good. large numbers of sick people not getting the care they need. Not so good, but broadly speaking, it’s not a bad idea if we have some tight labor markets and a bit more powerful labor.

Jacob Shapiro: All right. James, we scratched the surface. I had a lot of fun. I hope that you’ll agree to come back on, but [00:50:00] thanks for making the time and we’ll talk to you soon. Okay.

James: Brilliant. Thank you.

The post 188 – James Meadway: The First Crisis of the Anthropocene appeared first on Jacob Shapiro.

Jacob Shapiro: Hello, listeners. how about this for a segue, Rob? I’m dealing with computer issues, but the people of Taiwan dealing with the worst earthquake that they’ve had in 25 years, a 7.4 on the Richter [00:02:00] scale. The only saving grace is that it was not right in Taipei. It was southeast of Taipei itself. It looks and it’s a little early here, we’re recording Thursday, April 4th, but a lot of semiconductor facilities and other tech companies as a precaution, shut down operations, evacuated some staff.

But it looks like no serious damage to any of the most important facilities there that semiconductor workers are getting back to work. And then on top of that, China was very tongue in cheek. They thanked the world for their concern about the earthquake, which Taiwan, of course was [00:02:30] offended by Hey, didn’t happen to you, China.

It happened to Taiwan, which is a whole thing in and of itself and rejected Chinese aid. And the Chinese are not trying to push the aid. So at a geopolitical level in terms of immediate implications for supply chains, probably not that important. I’d like to see all of these facilities back online before we get there in the first place.

But I did, I don’t know if you noticed this, Rob, like a bunch of, news publications, whether it was Bloomberg or, FT or the Wall Street Journal, they took the opportunity to talk about the earthquake for three or four paragraphs in an [00:03:00] article. And then it was like, and by the way, China might invade Taiwan.

And if they did, it would cost an estimated 10 trillion to the global economy and everything would be terrible. They’re just like backing in the world war three scenario when guys, it’s an earthquake and there’s some stuff that we need to talk about there. But I thought it might be worthwhile to take a step back and understand why Taiwan has become a center.

of the global semiconductor supply chain. I think it’s something that gets thrown out there a lot, but I thought we could put a little more meat on the bone. Is there anything you want to start off with, Rob, from your perspective about [00:03:30] Taiwan, or would you like me to give the listeners some context here?

Rob: No, why don’t you start with the context and then we can go from there. Okay.

Jacob Shapiro: I’ll try to do this very quickly. In some ways, this is akin to some of the micro geopolitics. segments that we were doing before. Taiwan really, it’s an incredible economic story. So if you go back to roughly 1980, overall IT tech output from their economy was something like a hundred million dollars.

Basically nothing. And by 1989, that figure goes to 5 billion. And [00:04:00] then by the end of the 1990s, we’re talking about 21 billion, growing annually at 20 percent from 1989. TSMC, the sort of famous semiconductor company that is at the front of the cutting edge right now is founded in 1987. So they go from not existing until 1987 to within 10 or 20 years being at the cutting edge of global semiconductors.

And this is why everybody freaks out about Taiwan because about 80 to 90 percent of the high end chips, the ones that you need for artificial intelligence or all these boondoggles that everybody’s always talking [00:04:30] about. They’re made in Taiwan. They’re probably made by TSMC and there’s really no substitute in the market right now.

Maybe Intel will get there in five years. Maybe Samsung or some of these others will get there in five or seven years, but TSMC is really the only game in town. There’s a couple different reasons that Taiwan emerged. I was reading a great article by Evan Fagenbaum who really put all these things together and he associates it with basically three things.

It’s a three legged model from his point of view. The number one is that Taiwan had a really [00:05:00] interesting and contrarian competition policy. So they were flexible and decentralized when the trend in East Asia was actually state dominant state dominated. Now, China’s the best example of this, top down priorities, working with state owned enterprises to build, critical sectors of the economy.

But it’s true of Japan and South Korea, too. They were the miracles of the 60s and 70s. But by the 80s, you’re talking about governments partnering with big national champions and that’s the way that the economy worked in Japan and South [00:05:30] Korea and into the 1980s.

That wasn’t how Taiwan worked. It was decentralized. It was all about tech startups. They negotiated a lot of tech transfers. They invested a lot in higher education a lot of a government budget in research and development a really different atmosphere than these other countries encourage.

It’s, I think it’s ironic that Japan is trying to encourage that atmosphere. Now, if you look at what Japanese policy’s trying to do today, it’s what Taiwan was doing in the 1980s. The second is the internationalization of Taiwan’s Brain Trust, and it’s [00:06:00] ironic that. Even as the united states was basically giving up on taiwan You know in the context of nixon and then later carter the united states decides to recognize the people’s republic of china as one china in return for Basically an economic alliance against the soviet union and what that means was they gave up recognition of taiwan as the legitimate china But in the context of that a lot of taiwanese americans or taiwanese scientists came to the United States and discovered Silicon Valley before anybody else discovered Silicon Valley.

And these people [00:06:30] worked in Silicon Valley and got to knew all of the tech startups in Silicon Valley and brought back everything that they learned to Taiwan in the 1980s. So you had this weird sort of development, and this is only possible in a world of globalization and free trade where. Silicon Valley and Taiwan have this marriage of convenience, where Taiwan has, labor advantages and all of these interested folks who have gotten good educations because of the competition policy, and they are rubbing shoulders with people in Silicon Valley, and I bet there’s a smidge of the United States feels bad for hanging Taiwan out [00:07:00] to dry, so they’ll give them sort of favorable considerations.

Taiwan’s. Also tiny by comparison to a Japan or a China. There was no threat to the United States from the Taiwanese economy, their way there was from Japan or the way there is from China today. And the last thing is just this intangible thing because Taiwan was good on quality. Its labor costs were low.

But for some reason Taiwan was able to innovate independently. It was able to take what it learned in Silicon Valley, take some of these things and push it forward. And that’s how Taiwan gets [00:07:30] to the present day, but it’s really been in decline probably for more than the last five years, which is when people have started to get more interested in Taiwan as a result of deglobalization and geopolitics and things like that.

Feigenbaum’s article, which is from 2017, but the sort of coup de grace of the article, and we’ll put a link to it in the show notes, is that And I’m going to quote him here, a new generation of Taiwanese startups has failed to emerge. So all that intangible stuff that made Taiwan innovate and put them at the cutting edge, that’s, they’re coasting on the path.

They are no longer the ones that are pushing the [00:08:00] forefront. And that could be because free trade is declining. It could be because They were big in hardware and now software. We could argue about why exactly that’s the case, but they’re not at the cutting edge anymore. That’s not where all the startups are happening.

I think the other thing that I, that for me is more particularly disturbing, and this is what I worry about in the context of Taiwanese relations with China number one is that 80 percent of the ICT products that are designed in Taiwan by Taiwanese companies is now manufactured in China.

So China basically swallowed a lot of the manufacturing that [00:08:30] Taiwan was doing in the first place, just like China swallowed it from everywhere. It swallowed it from Apple, it swallowed it from all these companies that in the past might have looked at Taiwan for this. And then, this article’s from 2017, so the statistic is probably very low but it estimated that 3, 000 out of 40, 000 Taiwanese semiconductor engineers had left Taiwan by 2017.

That’s almost 10 percent of your semiconductor engineer workforce. And that’s not something you just flip a switch and suddenly you replace your semiconductor engineering workforce. And before it was China that was [00:09:00] trying to incentivize these semiconductor engineers to come, but now it’s the United States and it’s Japan and it’s South Korea and it’s anybody else who wants to build their own domestic semiconductor industry, which is something that we’ve talked about here for a long time and which seems to be the sort of center of global geopolitics right now when it comes to tech supply chains.

So I, I think we’ve alluded on the podcast before to why we’re pessimistic about Taiwan, why we avoid Taiwan and some of our strategies. It’s not because it’s hard not to root for Taiwan and not to be impressed by their history, but you just look at [00:09:30] what allowed them to become what they are today and you look at where the winds are blowing.

And things don’t look particularly good.

Rob: Yeah, I think it’s interesting to compare Taiwan against a Japan or a larger country. We’ve spoken a lot about different modes of development and different models and how the liberal model does not apply in most cases.

Like most of the countries that got rich did not get rich through free markets or more. Globalization focused low tariff [00:10:00] strategy in the Ricardian sense. But Taiwan is very unique in that way because they did tuck into this very specific niche of the broader global economy, as you point out.

And now it seems like they have suffered from being so small because it’s almost like they have a bit of Dutch disease. Where, so much of their human capital, so much of their focus has been on one area. And as you point out, they haven’t really [00:10:30] emerged as an area of true kind of widespread innovation.

They don’t really have many leading companies in the world outside of, a few small a few small niches. So it’s from a competitive standpoint, nation versus nation. It does seem like they’re not very well positioned for the next 20 years, even, all the issues of China and potential threats aside.

Jacob Shapiro: That’s the other thing they really don’t have going for them though, [00:11:00] because I would actually make the argument that in this multipolar world, if your geography is favorable, I think it actually opens up the door to more Taiwan examples. It’s, you can’t find a global niche, but if you can find a niche within a sphere of influence run by a dominant power, or if you can be a sort of a political.

Place for trade to happen or for financing to happen the way that the UAE is trying to work right now There’s a real chance for you to build those sorts of things in a world There’s a lot of opportunity the problem for [00:11:30] Taiwan is all the reason All of this is happening with Taiwan and probably the reason they weren’t able to innovate is because the world changed around them because they’re right Next to China if they were not right next to China if they were next to Uruguay, and China still claimed that Taiwan was part of China I don’t think anyone would care, and probably Taiwan would continue to innovate.

The big problem that they have for themselves in the long run is that everybody sees the writing on the wall. Taiwan is more important to China than it is to Everybody else in the world. And eventually and that could be 10 [00:12:00] years from now. That could be 50 years from now. It could be 100 years from now.

Probably Chinese power is going to re assimilate Taiwan back into the mainland. By the way, listen, I’m sure that will upset some listeners. I’m not saying that’s a good thing. But if you just look at the trajectory of history and where the interests are going, that’s true.

And so if you’re a company that is thinking about investments in these types of facilities, which take Many hundreds of millions, if not billions of dollars. They’re not simple to set up. It’s, it is physical hardware that has to be there. And it’s not easy to [00:12:30] replicate and move particularly easily.

So you’re worried about a Chinese invasion. You’re worried about earthquakes because they’re on some tectonic plates. plates. You’re worried about climate change. There have also been problems with Taiwan in terms of drought and lack of water, which is also critical. So you start like going down the list of things.

And their geography is not particularly favorable. It wasn’t particularly favorable in the eighties and nineties, but nobody cared about this stuff in the eighties and nineties and the eighties and nineties. As you said, it was all about driving down cost. It was all, oh, they could make it cheaper. Oh, they figured out a different way to do it.

Cool. Let’s do some [00:13:00] business with the Taiwanese. That’s just not the way that it’s working right now in the

Rob: And the broader thing that I find interesting about Taiwan also is it tells us something about how economic decisions get made because everyone is hemming and hawing now about this exposure in the global economy to this small, vulnerable island, vulnerable in many ways, earthquakes, Chinese invasion, all these issues, none of these things are secrets.

It was funny when you [00:13:30] wrote your analysis of the earthquake and then in the knowledge platform, I think you referred to it as a black swan like event, but then you showed the chart of all the earthquakes that have happened in Taiwan over the last, 50 years, the black swan. By definition is something that’s previously unthinkable.

Like you didn’t know that was a thing. And then it shows up even aliens showing up as not a black swan event. We know that’s possible at some level. So the Taiwan issue [00:14:00] is interesting because a lot of these things should have been apparent years and years ago, before we had hundreds of billions of dollars of fixed PP and E invested in this country, that It’s very difficult to move and to diversify and to get out.

And in some ways we’re making the same issues again, where, the U. S. is trying to replicate its own supply chains. Where is it building semiconductor fabs in freaking Arizona, where we’re running out of water and any analysis will tell you that we’re going to have meaningful water [00:14:30] issues within the next, some odd years, but we’re not, we’re not operating on that timeframe.

And I, I think that’s just a broader principle that I find interesting. And that we’ve been trying to be more thoughtful about here, where we’re starting to do analyses of these kind of not black swan risks, as I said, but tail risks, infrequent, but predictable things and what impact could they have.

The pandemic is a good example. People know [00:15:00] that there are pandemics. People predicted before COVID that there could very well, very easily be a global pandemic because the precursors are in place and you have global transport and it’s going to transmit quickly and even people, identified animal to human transmission as a growing issue.

None of this was unknown, and yet we were so unprepared and falling all over ourselves for this because it’s just whatever, all of the [00:15:30] benefits it has, our system is not very good at preparing for stuff that’s either very low probability, even if it’s almost bound to happen at some timeframe, or, it’s sufficiently far out in the future that, Yeah, we’ll deal with that later, so this is a from an investment standpoint a very Important theme that crops up again that we’re trying to take really more closely into account

Jacob Shapiro: The other thing about Taiwan it really is the perfect [00:16:00] symbol of globalization in some sense what people call the liberal international order I’m putting that in air quotes like Taiwan is the example of That’s the good version of it.

It’s where it doesn’t matter that there’s conflict It’s everybody’s joining the WTO even A place that the United States doesn’t recognize as a country. Okay, like you’re going to be part of this supply chain. We’re going to give you tech transfer. You’re going to do all these things, and you’re going to become a very wealthy country overnight.

And that just, there just really isn’t space for that anymore. There are examples of small countries or city states trying to do this, but it’s a [00:16:30] place, like I said, like the UAE, which is trying to become You know, a place where no matter who you are or what you’ve done in your past, you can park your money and figure out how to clean your money and get it to whatever market you want to go to.

It’s places like Qatar, which has a lot of natural gas and has a media empire and is trying to parlay that into some kind of power. Maybe a place like Guyana that has a fairytale, oil discovery. They have some asset that everybody wants. So people are going to come in, take it, and maybe they’re going to be able to harvest money out of that.

It’s much harder now for a country [00:17:00] like Taiwan, which has, maybe. 20, 25 million people, roughly, they’re not going to build an economy of scale. And build a semiconductor company or a tech company or something like that just selling to the taiwanese market And if there’s all these political problems with selling into the big markets that actually allow them to scale It’s not going to work and it’s also I really want to emphasize this it’s not just china Which has been predatory in terms of stealing taiwan’s expertise you alluded to the tsmc plant in arizona That’s the united states trying to steal taiwan’s expertise.

Japan is trying to steal [00:17:30] Taiwan’s expertise. All of these different countries don’t want to be exposed to Taiwan, the geography anymore. And Taiwan and Taiwanese companies are caught in this really unenviable position where it’s they still want partnerships and they still want to work with these different countries and other companies.

But they also know that in order to do that, they’re having to give up some of their tech. They’re having to transfer back the other way. And that’s not the way that, the sort of Taiwanese innovation is supposed to work. I do think it’s an example of how the world really has changed in that sense.

And I [00:18:00] hope I’m wrong about this. I’m very pessimistic about what direction things go from there. You mentioned the Arizona plant, by the way, I think it’s already like way like past budget and late and things like that. I it’s been interesting to see how Japan is doing a better job at working with TSMC and actually making progress and building facilities.

Whereas the United States made a big deal about it, but like it wasn’t I don’t think that partnership was actually emerging the way that the United States thought it would. Before we leave this, Rob point taken on black swans. And I actually thought of that while I was writing that in the knowledge platform.

But [00:18:30] doesn’t that mean that this is where I struggle with black swans, and maybe I need to go back and read Talib or whatever, but so what like, as soon as we say what a black swan isn’t it no longer a black swan? It’s it’s like beetlejuice or something. You say it and it appears, right?

Rob: Yeah, I think that’s right. As soon as you identify it, it has some probability of being right.

Jacob Shapiro: I guess so, but as soon as you identify it, it’s no longer, it’s like no longer a black swan in the first place. So it’s like a completely self negating definition of something that you absolutely can’t prepare for.

So is the concept of [00:19:00] black swans literally just gonna be, hey, sometimes things happen that you can’t prepare for. That sucks.

Rob: Yeah, that’s the definition. A black swan you cannot prepare for. You cannot put a probability on it. Like a black swan would be, for example, just to make something up, like there’s some weird chemical reaction In, when PFAS levels reach some thresholds in drinking water that causes some massive environmental problem that we didn’t foresee.

That’s a black swan. And I just made that up, [00:19:30] that’s not true. But that would be something that no one, Even thought about before until I just pulled it out of my butt right now. Yeah,

Jacob Shapiro: it’s no longer a black swan. You, thank you for ridding the world of that terrible black swan. Now we are completely prepared.

Exactly,

Rob: But that’s the idea with black swans. Everything else can be anticipated to some extent. Everything else is a tail risk, no matter how teeny tiny the tail. And the issue is with a lot of these things, Like the tail is not very [00:20:00] tiny. For example, I’m going to turn to my hobby horse here, coronal mass ejections.

This is, I don’t think the listeners know this, but this is a too frequently recurring conversation internally here, but coronal mass ejections happen on a very predictable basis. We are almost certainly going to have A coronal mass ejection from the sun hit the earth that is of significant size, like the Carrington event of [00:20:30] 1859.

Like we almost, very close, almost got hit with one in 2012. So within the next 30 years, probably there will be one. And that will have massive ramifications for satellites, for electrical grids. That is, I’m not just making this up, like this is just, I’m making this up. So how do you protect against that?

How do you buy insurance against that? I don’t mean literally buy insurance, but how do you [00:21:00] make yourself resilient against that by being thoughtful? Because I don’t think a lot of people necessarily are who are building things on a shorter time horizon. So that’s what I mean by the difference between tail risks that you can try, even if it’s something where you say, okay, the cost of insuring against this is not worth it.

At least you can identify that versus true black swan events, which is like. An earthquake in Manhattan like never saw

Jacob Shapiro: that [00:21:30] coming, fair enough are you sure you don’t want to just quit our jobs and start a coronal mass ejection insurance firm? That sounds like it might be something that would be keep your eyes on the coronal

Rob: mass ejection strategy coming here already

Jacob Shapiro: Yeah, it sounds good before we leave this topic I’m trying to be better about also approaching this from practitioner.

I don’t want listeners. Of course, nothing you hear here is investment advice listeners. This is a podcast for your entertainment, blah, blah, blah. But I don’t think we’re [00:22:00] telling you to run for the exits and avoid TSMC stock or short TSMC stock. So like when you’re thinking about this from a practitioner standpoint, Rob, like how are we implementing this in some of our strategies for our actual clients?

Rob: If you’re talking about Taiwan in particular, we don’t in our In our international strategy, we don’t have any exposure to Taiwan for the geopolitical reasons that you laid out, and that includes TSMC, which, if you have a passive exposure to any sort of international index, is probably going [00:22:30] to be the largest holding it’s the largest holding in the index.

So you are exposed to that. And again, I’m, I don’t mean to the alarmist but that is whether you. Realize it or not, that is the number one holding in most of these, in most of these, and we deliberately have cut that out of our strategies.

Jacob Shapiro: Yeah, and it’s, I think it’s a way of trying to balance passive and active, because as you said if you’re holding an international passive index TSMC is probably 2 3 percent is the [00:23:00] largest holding, so it’s it’s not going to sink the investment entirely, but our supposition here is that there is some gain to be found if you can filter out the bad with a little bit of activism in there.

Filter out the bad countries, maybe overweight some of the good countries and you’re going to be able to create maybe some gains for yourself on the back end. Let’s turn in a very different direction. I don’t want to go with anything in the headlines. I want to talk about and we’ll also put A link to the report.

We’re just about to mention the show notes. It’s by it was published by briefing book, published by a gentleman named ernie tedeschi [00:23:30] I hope i’m getting that right ernie I’ve never met you but You’re a research scholar at yale law school and formerly chief economist for the white house council of economic advisors.

Very fancy and the reason this Stuck out to me so much I’m, just going to give a very brief synopsis of the article and then i’m going to let you riff a little bit rob So he talked about how Us gdp is roughly double what other countries have experienced since the pandemic. So the US GDP has grown by 8.

2 percent since just before the pandemic. That’s almost twice as fast as the next best performer in [00:24:00] the G7. And the controversial assertion that he makes is that the rise and not just makes he backs it up with a lot of data and charts is that the rise in the immigrant population since the end of 2019 accounts for at least a fifth.

So 1. 6 percentage points of that us growth. accounting for direct labor supply, the unemployment rate and productivity effects. He notes that without immigration, U. S. Labor supply would have shrunk by 1. 2 million since 2019. Instead, it expanded by two million [00:24:30] over that same time period. And he says, This is how we can explain the behavior of the U.

S. Economy, which has had stronger growth relative than most. Very low unemployment, and at least until recently cooling inflation data. And even if inflation starts to go up again, I think his point would be relative to other countries, the United States has experienced less inflation. We have not been at the front of the pack in terms of high inflation rates.

Generally in Europe and some of these other markets, you’ve seen more pronounced inflation than you have in the United States. But And the last thing that he mentions that really [00:25:00] stuck out to me was that the Congressional Budget Office upgraded its 2026 outlook for immigration and it revised it upwards because it thought that immigration was actually understated in 2022, 2023, and is projecting something like 7 trillion, that’s trillion, more economic output over the next decade over the baseline as a result of immigration.

So I know that there’s probably a lot to break apart there and that immigration has become an extremely controversial topic in the United States. I’m sure everybody is going to want to write in and [00:25:30] send angry letters to us after we talk about immigration. Feel free. I love the hate mail. But Rob, I’ll set you up there.

Was this compelling for you? Do you think that there is something here? Do you think it’s making a mountain out of molehill? I’m curious for your take. Hey,

Rob: it was not compelling. And but before I rip into it and give my take, I want to hear. What is your interpretation of this report from your standpoint?

From a geopolitical standpoint?

Jacob Shapiro: Yeah, I get asked, so I get asked a lot about immigration when I’m giving talks and things like that. And [00:26:00] I, the way I tap dance through this, not really tap dance, at the broader level, so at the level that I usually sit at, that the United States is still a country that attracts immigrants at the level that it does is a major source of geopolitical strength.

There are very few countries in the world, the best and the brightest, or even not the best, but that people just want to go to because they think that they and their children can have better lives there. And it’s a source of enduring strength for the United States. I am a son of a, of an immigrant and many Americans have similar stories.

And when you talk about the people who have innovated the [00:26:30] most in the United States immigrants are a part of the fabric of the United States. That is separate from Immigration law reform has needed reform for probably 50 years. It’s become a political football that Republicans and Democrats kick back and forth to each other and there’s no accountability and no responsibility and obviously you need secure board.

Like I’m with you. Like all of that stuff is absolutely true, but China or Japan, they would love to be able to attract immigrants. that would want to come to China or Japan and learn Chinese and Japanese and integrate themselves into Chinese and Japanese life and assimilate and help them [00:27:00] with their terrible demographic picture.

So I think that this is a picture of that innate geopolitical strength. Now, U. S. politics is so topsy turvy that we can’t see that strength for what it is. And because we have kicked the can down the road for The border security or for immigration law reform and all these other things it has become a really pressing political issue And if i’m being really cynical It’s one that both sides like to have because it’s a way for them to kick back at each other Because the issue is there so they don’t actually have to solve it and when they’re having an election They can drag it [00:27:30] out and say oh ex official or ex president was terrible on the border and terrible Then we’ll get through the election And suddenly we won’t be talking about this anymore and everything will go away, which is my cynicism coming out.

And then the last bit was just I, I thought it was interesting because this economist, Ernie, is trying to explain economic data that doesn’t make sense to economist orthodoxy. It doesn’t make sense that there should be strong growth and super low unemployment and inflation is not that bad and so I, it’s nice to see [00:28:00] someone wrestling with that and trying to give a novel take on it.

I can’t imagine that it is just the immigration thing, that seems a little bit too simple, but he had some very compelling data talking about how this is moving into it. So that was my take from my perch. So

Rob: where to begin with this one? I guess the first thing to say is more of a caveat, which is it’s very difficult to speak about immigration, and I think even economists have trouble doing this outside of the context of politics and sort of emotion, because this is such an [00:28:30] emotive Idea and everyone says, Oh, it’s become such a big issue in American politics.

I’m not sure when it has not been a big issue in American has anyone else seen games of New York? My God, this is not a new thing. So I want to take all of that and just put it aside and just speak about this purely from a, an economic. And and a markets perspective, cause I think that’s the cleanest way to do it.

And I guess what I would say is, there’s no question that [00:29:00] immigration and demographics do matter for growth, but, and we’ve gotten some questions about this in the context of China and Japan recently. So I think this is worth going into. But the extent to which they matter, I think is way overblown.

Part of that is it’s very easy to make a simple equation that says number of people. Plus output per person equals GDP, like done and dusted. Wasn’t that easy? So my God, there’s only two [00:29:30] variables in that equation. Demographics must be of this huge importance, right? And immigration, of course, is a big part of that.

I don’t that’s quite right. And I think if you look at not just common sense, again, I thinking, but also just look at some of the academic work that’s been done and economic work that’s been done in recent years around culture and around different productivity levels across different people and different nations.

And it really shows you that the pure like number [00:30:00] of humans is much less important to economic growth than the old style of thinking is because when all of these things were formulated, these. These two factor equations. People used to think of this in terms of a factory.

How many people are in the factory making widgets, and how many widgets per human? And things have just changed so much now where the majority of the economy is not dealing with physical stuff. The majority of output is in services and [00:30:30] brain work. And if you think of how squishy the connection between having a person in the seat and the output in a professional environment or a services environment is it becomes clear that, it’s not just about how many people you’re letting in and out of what the babies, coming in are and how many people are dying because the differences are very stark.

So just to put some numbers around that, because I was curious to see this. If you go to the official U. S. data and you see the [00:31:00] studies that they’ve done, even if you take, not individual people, but if you take individual firms within the same industry gap between the 25th percentile of firms in terms of their productivity and the 75th percentile.

So we’re not talking about the extremes here, the 25th percentile. Okay. The gap in productivity between those two is about 2. 6 times. So that [00:31:30] is at the firm level. That’s not at the individual level. So that’s going to be magnified even more between individual people within any given firm. So what does that mean?

It means so much like the magnitude of the difference that depends on human capital and depends on organizational capital. Is so much more important than just Oh, throw another human in there. [00:32:00] Then that it’s almost it’s almost a sideshow to look at some of these flows and you can look historically, like periods of population growth haven’t necessarily corresponded all that well with economic growth is so driven by other factors.

So to round back to this guy’s article earning, I don’t know him either and I don’t mean to shit on him but to point to a five year period and say that us growth since 2019. Is a couple percentage points higher than the rest because of immigration, I [00:32:30] think is really just wacky. There’s so many variables in there that are way more important than immigration.

That I think it’s, I think it’s a really it’s a real limb to, to stand on, even if it is backed up by the inflation data and everything else that one is trying to tease out to support this. Thanks. Let me pause there and get your initial,

Jacob Shapiro: initial feedback. I wasn’t expecting you to feel so strongly about this one.

I’m here for it. If you were gonna the, [00:33:00] I think the obvious question is, so what is what is more important? Or, obviously I don’t think we want to just have one variable in there. So I don’t think you’re saying that this data is not important. You’re just saying that there’s other stuff that you have to think of in context of it.

So if you were critiquing this, like where would you look for to balance the equation?

Rob: Yeah, to back up Ernie a little bit because it is very important. I just don’t think in the context of the way that he’s described, it’s not as linear as he just described. It’s much more interesting than that, right?

So the context around this [00:33:30] is immigration, I think is not necessarily tied to these factors in the short term, but it’s hugely important. The fact that the U S does continue to attract immigrants because we’ve demonstrated that we have a capability. To take people and to inco incorporate them into the economy in a way that’s extremely productive.

You don’t need me to tell you that the numbers show immigrants are way overrepresented in the highest productivity, most innovative sectors of the [00:34:00] economy. Look at all the freaking brilliant Indians we bring in who are coming out of India, coming to the us starting lives here. I don’t know the data offhand, but I think if you look.

The CEOs of some enormously high proportion of U. S. tech companies come from the Indian subcontinent. So that’s just one example of many. So we have this ability to It’s almost alchemy. We take people out of bad organizational capital nations or environments and put them in [00:34:30] good ones and they can somehow thrive in the U.

S. in a way that they struggle to do so elsewhere. All else equal, you want lots and lots of U. S. immigration to the extent that it doesn’t tip over into, okay, we’re really starting to, To struggle to, to incorporate people. So that’s a huge factor, but again, like this gets to issues of culture, it gets to issues of behavior.

I think if you look at any of the data that shows like there’s a strong selection bias [00:35:00] in immigrants. The people who come to the U S on average are more. Go getting, they’re more ambitious, they’re more intelligent, they’re physically, in better condition than otherwise. All of these factors really matter.

We’re getting the cream of the crop, even the people who come here illegally, who are making that journey, that, whatever, I don’t want to get into the political side of things. There’s a selection bias there as well. Those are not the unambitious. You can say [00:35:30] what you want about people who are.

Making the journey from, central America across the U S border, but they are not unambitious people. They’re there, they have some VIM and that’s on average something that you want in your economy. So that’s a very important, aspect of the, I don’t want to call it the melting pot cause it’s not really a melting pot.

That’s a myth if you really look at integration measures and stuff like that. But Anyway, I’m going on and on, but that’s, [00:36:00] I don’t want to say, I don’t want to downplay immigration as a positive, especially in the U. S. context.

Jacob Shapiro: No I hear you, and I it’s fine, I’m going to make a really nerdy comment here now, so apologies for people who are not at our level here.

I never thought of the Borg in Star Trek as a As a synonym for the United States, but it is what you’re talking like, because the word you’re looking for is assimilate. We assimilate immigrants in the United States in a way that most countries do not. And we put them into the collective and they become more productive and they become part of I don’t know, like I, I think the Federation was [00:36:30] supposed to be the United States, but maybe I had all of my metaphors wrong with Star Trek.

I want to take this in a different direction, but before I do, you, you said you looked at some stuff with China On demographics. Do you want to save that for later? Or did you want to chime in with that now?

Rob: It’s a reflection of the same thing. And I think For China and Japan, you really have to talk about this in the context of AI and what’s happening.

Because that’s really important. And I can talk about the AI element in a second. But just, one thing that really struck me, if you want to say that [00:37:00] demographics is destiny, Um, maybe to a limited extent and maybe at the technological frontier, because if you look at China, for example.

China had 550 million people. This is banal, but just to think about these numbers, which no one ever does is just mind blowing. China had 550 million people roughly in 1950, and its GDP in today’s dollars was $30 billion [00:37:30] in 1980. Population was a little over a billion, almost doubled in that period.

Huge growth, right? GDP was 300 billion. So up 10 times against two, two times population growth. Today, China has about 1. 4 billion people, depending on which numbers you believe. These are very rough. As you can see, the magnitude is such that it doesn’t matter. It could be 2 billion. GDP is 18 [00:38:00] trillion dollars.

So 60 times, all of this is in today’s dollars, 60 times what it was. What does that mean? It means the human capital in China, people knowing how to do stuff, has grown so exponentially during that time period. That it swamps all other factors by, by, an exponential degree. And I know that’s an extreme example and it’s a positive one, but the door sort of swings both [00:38:30] ways.

And, Japan I think has a similar story. But the way that AI and to a related degree of robotics ties into this as Japan was very early in trying to promote robotics because it perceives itself as having a labor shortage, robot robots are just AI with arms and legs, right?

But this is a really important area to think about because as AI really gets to the point where you can have. Not only AI [00:39:00] agents doing stuff in the economy and I don’t think it’s an exaggeration to say these are agents doing things and the impact on an individual person’s productivity, when you even look at how wide that gap is now.

We are going to have individual people with productivity levels that are just off the charts. So to think of it like to lump everyone into some big mass and be like population growth is 0. 2%. Like it’s gonna be a rounding error as far as [00:39:30] what actually drives things up and down. And then robots very similar, if you want to do physical stuff, a robot is an AI agent connected to mechanical arms and legs that grab stuff and move around and do things and flip burgers and paint cars and whatever it may be.

And that sounds like silly, but as these things really improve and that improvement is happening at an accelerating rate. That’s going to have an enormous impact on per capita [00:40:00] productivity. And if you want a historical example of that, just look at the 1920s per capita manufacturing productivity in the 1920s, just from electricity grew by eight to 12 percent per year.

That is absolutely bonkers off the charts growth in a very short period of time. And I think, we’re experiencing or about to experience something like that. So to round up all of this talk of demographics and I think it’s [00:40:30] just going to become from a true like analytical standpoint.

What do you focus on? It’s just going to become not very important in the grand scheme of things in the next 10 years.

Jacob Shapiro: Yeah. I’ve been saying that for some time. And in some way, again, this is not, I don’t want to throw the baby out with the bath water. If I’m. Like for instance, I was looking at Guiana the other day because of their fairytale oil discovery, and I just wanted some ba and, listeners, I’m not a Guiana expert if you hadn’t, if you hadn’t gathered that already.

So what was the first stuff that I went to? I [00:41:00] went and looked at the demographics, I went and looked at the make of the, like I went and looked at a couple different things. Like demographics is a Google search when you’re starting your research. It’s very hard to extrapolate from there.

But I was I was on the Bitcoin layer last week, Rob. I think they just put out this episode. And they asked me about India. And I’ve been asked about India a lot. And I think I want to bring India to close this conversation because I think it’s a good example of everything that you’re talking about.

Because if numbers were really that important India would have already taken over the world. They’ve got the best demographic pyramid. They’ve got a billion plus young people, everything else. But [00:41:30] when you look at their GDP per capita, I haven’t looked at it in the last six to 12 months. So maybe they’ve gone up a little bit since then, but they’ve got a GDP per capita hanging out around the same level as Haiti.

And if you’ve read the newspapers at all in the last couple of months, you know what a complete dumpster fire and how impoverished Haiti is in general. And I think for everyone, they saw what happened with China, like the market saw, oh, they went, from point A to point B and it was a 60x or whatever it was increase in GDP.

And I think people are looking at India and thinking the same thing is going to happen. [00:42:00] that, okay, India is starting where China did in 1950. And if you want to ride the next big wave, like India is going to have the demographic wave that is going to take it into the future. I have some reasons why I’m skeptical of that take, but I assume that you are also skeptical of that.

Or do you think that India in this sense, what the law of large numbers is just, it’s just going to outweigh everything else.

Rob: I think the law of large numbers matters. It’s not something that you should ignore, but I think if you’re trying to evaluate how well India does or doesn’t do like [00:42:30] it’s probably number five on the list, organizational capital efficiency human capital, culture, all of those things are just going to swamp.

How many people there are. And if those other things fall into place, Oh, of course it’ll absolutely accelerate that because you have that many more people to benefit from these things. But if you don’t have those other ingredients, number of bodies is not going to save you.

Jacob Shapiro: Before we get out of here, I wanted to read something from this is an IMF economist. [00:43:00] I don’t know if he actually works for the IMF. I assume he does because the IMF published his article. This is Angus Deaton. I had not heard of him before. Have

Rob: you heard of him before, Rob? Yeah, he’s pretty famous for, especially for his work on kind of happiness studies, income and happiness correlated over time, those sorts of things.

Jacob Shapiro: Yeah, an emeritus professor at at princeton also a 2015 recipient of the nobel prize in economic sciences So angus, i’m, sorry that I didn’t do more research and I didn’t know you better but he wrote an article [00:43:30] that the imf published and I just want to read a couple of the sentences because I think it I’ll tell you why I wanted to read it in a minute.

So let me just read it and we’ll go into it. So I’m quoting him here. The credibility revolution in econometrics was an understandable reaction to the identification of causal mechanisms by assertion, often controversial and sometimes incredible. That’s the jargon for the lead in here, but here’s the meat of it.

But the currently approved methods, randomized control trials, differences and differences, or regression discontinuity designs, have the effect of [00:44:00] focusing attention on local effects. And away from potentially important but slow acting mechanisms that operate with long and variable lags. Historians who understand about contingency and about multiple and multi directional causality often do a better job than economists of identifying important mechanisms that are plausible, interesting, and worth thinking about even if they do not meet the inferential standards of contemporary applied economics.

So that is a Nobel [00:44:30] Prize winner in economics telling you that maybe historians are better at thinking about applied economics than actual economists. And I wanted to read it for a couple different reasons, and I’d love your reaction to it, Rob. The main reason I wanted to read it was because I very low key and secretly don’t like geopolitics, and what I mean by that is that I don’t, geopolitics is what I’ve become associated with, it’s a shorthand for the type of research that I do, and I do think geopolitics is a really powerful analytical tool but in the same way that demographics can become a straitjacket, I also [00:45:00] think Geopolitics can become a straitjacket.

And when I’m tackling an issue for a client whether it’s one of their portfolios or an investment decision we’re making, or one of our corporate clients or things like that, geopolitics is a part of what I do. But in some sense, it’s a very small part. I had an interaction just yesterday with a client where the conversation got deep into cybersecurity and I had to stop the client and say, Hey, I am not the expert on this.

I can get you this far. And if you want to go further, you either need to give me some time to do some more research, or I got to go find an expert on this particular thing. And for a lot of my career, and I think you [00:45:30] might this might resonate with you, Rob, that kind of generalist thinking, I can’t tell you how many jobs I lost or how many opportunities I didn’t get, or how many times somebody thought I was full of shit, just because I wasn’t so focused in one different thing.

I had a lot of different interests and I was putting different interests together on the table and trying to figure out how they worked. And the way that the knowledge economy works, whereas if you’re not hyper specialized in one thing and you don’t have four different degree credentials and X number of letters next to your name on this thing that you’ve devoted your life to, people don’t really take you [00:46:00] seriously.

And I’ve always felt most PhD programs in history at one point in my life. My graduate degree is really in history. My near Eastern studies degree is area studies, but history was really, Sort of what turned me on when I was an undergrad and what I’ve spent the most time doing.

And you put all these different pieces together and it gives you a really interesting analytical toolbox as you’re trying to think about the direction of the world. I wanted to thank Angus for writing that because he said it far more eloquently than I’ve been able to ever been able to put it.

I’ve just been sitting here stewing. Oh, I hate that guy [00:46:30] who didn’t give me that scholarship because he thought I was a dilettante because I was interested in too many things. Not the one thing that he said that I should be interested in. I appreciated that. And I also just think it’s a warning for listeners because one of the things I want you to get from this podcast in general, is not to take geopolitics and say, Oh, now I understand the world.

I want you to take geopolitics and say, Oh, I had no, I have no idea about the world. I need to understand like five different things about economics and cybersecurity and about underwater basket weaving and maybe some semiconductor [00:47:00] engineering on top of it. And maybe then I’ll have enough knowledge to maybe try and make a decision.

So that’s my soapbox for the episode, but I’ll let you take it from there if you want.

Rob: No, I think, it just reinforces something that we’ve talked about. Quite a bit in the past, which is the value of humanism and that what I always have said to you and said publicly also that I think one of the reasons you’re so successful at what you do is because you’re not a geopolitical analyst.

You’re not some, is some guy sitting in a [00:47:30] silo who does this thing. You’re just a curious thinker who’s interested in humans and how they. Behave in groups and individually and what makes them tick and I think taking that view imbues you with a humility that many don’t have because

There’s a great book that I always reread by a guy named Clive James. I don’t know if you ever heard of him He’s a he was a well [00:48:00] known Essayist and he was on television for a long time in the UK He had a bunch of shows but one of my favorite books is called Cultural Amnesia. And it’s James at the end of his life, summarizing his thoughts on all sorts of different figures from history and literature and philosophy and that sort of thing.

And at the beginning he says, I’m putting this together not to show young people a path to success. I’m showing them the path to a necessary failure, [00:48:30] which is realizing that you just, there’s you just can’t know everything that you can spend your whole life trying to be curious about all sorts of different things.

And you just it’s the act of the seeking that matters. There’s no destination. And I think that’s what Angus is getting at, and probably at the end of a long storied career in economics, which, aspires to be a science, as they say, it has mathematics envy. And that’s that’s always, I think that’s very true.

And a lot of investing has [00:49:00] mathematics envy and a lot of people try to reduce it to, economics or a model or a formula. And as Angus says, like there are historical forces that are bigger than that. There are things that make that implausible and not feasible. And yet it’s very difficult to accept that we don’t have the answers.

And you’re groping in the dark for a lot of these things. Anyway, I don’t know where I’m going with this, but that’s

Jacob Shapiro: No I think where you’re going with this, and I think this episode has actually done a really [00:49:30] good job of pointing this out, which is, we’re groping in the dark because we have the sense that the historical forces are moving.

Like that this is a period of immense historical change that we were in, I don’t want to call it the doldrums, because a lot happened in the unipolar era of U. S. hegemony and free trade and globalization. There were tons of times, like all sorts of things happened. I’m not saying anything didn’t happen.

But I think we are living at the very beginning stages of wrenching change. And I debate with myself whether my multipolarity take is going to be the right mental model or not. I’m constantly interrogating it. But I think the one [00:50:00] thing that I would say that I feel most confident about, and maybe I need to go back and double check it, is that things are changing.

Like we’re going to see like that example that you talked about with China, the AI and robots, like all these sorts of things that we’re talking about, like it’s here, it’s now that’s the change that is in front of us. And so I think that’s what we’re building up to. And one of the reasons why even.

On a day when we talked about a terrible earthquake in Taiwan and immigration, which is a terrible hot button issue and all these other things, like the takeaway for us really is like when you [00:50:30] look out and you’re looking like where to invest in this world, you don’t lack for options. There is a lot of change happening and if you can get.

some of these historical forces a little more right than everybody else. Like you, you will be positioned extremely well, even if you’re not going to know exactly what it looks like five years from now. It’s about prioritizing flexibility and being able to roll with change rather than assuming that India is going to be the next China or that, yeah, like we’ll just take Taiwan’s semiconductor factories and we’ll park them in Arizona and we’ll continue on as everything was before.

[00:51:00] Everything’s going to be fine. Like that’s not like that. That I am sure is not the way it’s going to go.

Rob: I, I think just to offer a concluding thought here, just on Angus’s thing about history versus local factors, as I think you put it and what you’re saying that’s the most exciting thing about what we do.

And I think earlier in my career, cause I always liked history, right? So when you read some history, enough to be dangerous. You think, Oh, it’s going to play out just like history. I’m going to use this mental model from the past. And, Oh, this is [00:51:30] just pre world war one, when everyone said that all the trade, was it going to keep us from going to war?

And then we did you think you’re such a smarty pants. And I was walking to work this morning and I was thinking like, everyone talks about Norman angel’s book. I forget what it was called. As, Oh how hubristic we were. We’re experiencing the same thing again.

And then I thought to myself that was a hundred years ago. Do you know how different the world is? People used to bear bait like as a regular pastime back then. That’s how different it [00:52:00] was that you know as Philip Larkin said people with old styled hats and coats like weirdos We don’t know those people things have changed so much and just I feel like in investing especially there’s this tendency to try to be a little too cute about using historical examples and Everyone likes to say oh, history doesn’t repeat, but it sure does rhyme maybe it doesn’t even rhyme that much.

I’m moving more towards this view. And one of the reasons, another, internal hobby horse, another reason why [00:52:30] I love the three body problem, which recently came out on Netflix is just this notion of we are, we’re not stuck in some cycle, like human, humankind is on some trajectory and we don’t know where it’s going to go, but it’s moving in an exponential and unstoppable way.

And it’s very exciting and it’s scary at the same time, but it’s not going to be like once we went into the industrial revolution, once we got out of, whatever cycles of history we’re keeping, the hockey stick from [00:53:00] forming, like we’re off and to look too far into the past and try to say, Oh, we’re going to just focus on this local effect or, Oh, this is just 1914.

It’s just 1979, like things are different and they’re different all the time and they’re going to be very different in the future. So I think. The result is I would just be very cautious about being too mechanical about applying historical lessons or focusing just on the local because these big sweeping forces of history [00:53:30] are extremely important.

The scary thing is they’re not just you can’t just read some history books and be like, Oh, this is what’s going to happen because this is what happened in the 19th century. No, things are very different and it requires creativity and imagination and we don’t have all the answers, but at least.

We’re trying. The answer is coronal mass ejections, like that’s what’s gonna get us in the end, clearly. But aside from that, it’s all uncertain.

Jacob Shapiro: No, it’s about creativity and imagination. It took me a long time [00:54:00] in my career to realize that analysis is a creative process. That it’s not rote, that it’s not some sort of oh, you plug this thing in here and plug this thing in there.

Roger Baker, who’s been on this podcast before, when he trains young analysts, he trained me once upon a time. I vividly remember the first time he sat us down at that stupid table in the old Stratfor office talking about how analysis is much more like pottery than it is like social science. Get used to the fuzzy edges here because you’re going to be dealing with things.

You’re not looking into the past. You don’t get to read a bunch of work and decide something and put up an equation. It’s going [00:54:30] to, you have to think about the world and think about people. And then somebody’s going to make a decision based on that in the future. So use the past all you want for developing your ideas, but understand that the choices that you make, like they’re going to have ramifications going forward.

And that it’s not like unscientific, but it’s much more art than science in some ways. So enough of the hobby horse, but. It was nice to get that off my chest at least I hope it was for you and listeners We will anything else to say to the listeners besides they should go see Three Body.

Have you seen Dune yet, Rob? I keep wanting to do the Dune 2. 0 episode I’m gonna have to find [00:55:00] somebody else if you don’t get your butt to a movie theater.

Rob: Jacob I have two children under the age of two. I get home and I’m in bed by nine I’m not, I can’t make it to any movie theater probably in the next five years

Jacob Shapiro: Rob, there’s no human on the earth who is more sympathetic to that argument.

I, even before I had children, I wanted to get home at nine and park myself on the couch. But, the spice must flow, okay? The spice must, fear is the mind killer, your couch is the mind killer, go see Dune. Oh, how about this? [00:55:30] I’ll come to Paris and I’ll babysit while you go to the movie theater. Does that sound good?

All right, we’ll stop it there

Thank you so much for listening to the Cognitive Dissidence podcast brought to you by Cognitive Investments If you are interested in learning more about Cognitive Investments, you can check us out online at Cognitive dot Investments That’s Cognitive dot Investments. You can also write to me directly if you want [00:56:00] at jacob at Cognitive dot Investments Cheers and we’ll see you out there.

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Jacob Shapiro: Hello, listeners, and welcome to another episode of Cognitive Dissidence. As usual, I’m your host. I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. No weekly podcast from me and Rob this week. I’ve had to travel this week and we just didn’t want to squeeze in a podcast.

And besides that I spoke to SimTac this week to have an update on the Russia Ukraine war. So we’re going to slot the episode with Sim into the normal slot and Rob and I will pick it up next week as usual. Sim as always has great insights and I left our conversation feeling in some ways more optimistic and in some ways more pessimistic about Ukraine’s position.

But certainly. Not as concerned for a complete breakdown in Ukraine’s defenses, but it’s similarly laid out why that’s not really the fear, why this really, as most things always do, comes down to politics and whether European nations And Ukraine’s allies are going to be there for Ukraine in more than a rhetorical way.

So thanks, Sim, for pinch hitting. Rob and I will be back at it next week. Listeners, you know where to find me if you want to talk. It’s Jacob at Cognitive. Investment. Leave us a rating or a review if you have not already. Take care of the people you love. Cheers, and see you out there.

All right, Sim, I can’t remember when you were last on the podcast. I think it was fairly recently, but I wanted to have you back on because I’m getting more and more pessimistic. Ukraine’s position in the Russia Ukraine war. So I need some Simtac therapy to tell me what whether I’m right to be worried or wrong to be worried and just a general check up on the situation.

So thank you for joining us. It’s nice to see you.

Sim Tack: Thanks Jacob. It’s nice to be back. So I think since last time we spoke, which I think was early 2024 or maybe just the very end of last year, I forgot the exact moment. But I think since then on the strategic level, so to say not much has changed in the conflict between Ukraine and Russia.

Of course, the lack of change, we can see that as a positive or a negative thing. It means, on the one hand, that Russia hasn’t broken yet. It also means that Ukraine hasn’t broken yet, right? I think there’s there’s definitely some reasons to be concerned about The lack of activity that Ukraine is able to force on the front line.

But at the same time, I think we also need to be aware of the fact that them being able to stay in the fight and especially United States and Europe being able to ramp up some of the support initiatives is definitely not a negative sign for Ukraine.

Jacob Shapiro: Fair enough. But so let’s maybe talk about some of the tactical things that have happened in sort of recent weeks.

And it’s hard to keep track of them all ’cause there’s a lot. So lemme just throw a couple at you and you tell me whether these were the right ones to pick out of the bucket or whether there are other things we should be paying attention to and how to establish importance for them in general.

So the first thing is that you had that Russian counter offensive in the east. had some success. They managed to claw back some territory. There were the Ukrainian forces in Avdiivka, I think is how you pronounce that. I’m not a Russian speaker. Russian speakers, I’m sorry if I completely butchered that.

A Ukrainian retreat there. So we’re talking about the Ukrainians going backwards really for the first time in quite a while. And there were reports about, Russia finally getting land and air forces to Ukraine. It’s talking, working together in tandem, like finally the much vaunted Russian military behaving like a, an advanced military for the first time in the conflict.

You’ve had political trouble inside of Ukraine. The chief general has been sidelined, Zelensky’s facing political pressure from all sorts of sides. At the same time, Ukraine’s forces, even though they had to retreat in the east, they’ve also been continuing to strike Russian naval assets.

I think just over this weekend, they’ve hit two more. landing ships or something like that. They’re also using drones to attack inside of Russian territory. So they’re putting a meaningful dent in Russian oil refining capacity as a result of going after energy infrastructure, so much so that the Biden White House, according to the Financial Times, is telling Ukraine not to go after Russian oil infrastructure, https: otter.

ai That also boggled my mind. I don’t really understand what the United States is doing there. And then, also the big news of last week, this massive terrorist attack outside of Moscow perpetrated, claimed at least by an affiliate of ISIS Khorasan, I think they call themselves ISIS K.

It’s like different varieties of soda pop or something like that. It’s ISIS K, ISIS this, ISIS that. What a nightmare. Those are just the things that I’ve picked out. And I, the last thing, and I said this, I think on the podcast a couple of weeks ago, there was a French magazine report that came out and basically said that French defense officials were worried of a complete and total Ukrainian breakdown.

That what was happening in the East. was evidence of the fact that Ukraine’s forces were demoralized, were tired and that Russia was finally starting to push the advantage of numbers. And, there’s this Ukrainian mobilization campaign, there’s controversy inside of Ukraine, domestically and politically.

I, I also joked that, France was probably saying that in 2022 as well, like I’m sure they’ve been saying for the last two years that Ukraine was about to collapse. So I don’t know how to benchmark that. It makes sense of all of this noise. Cause it’s been hard for me to find the signal.

Last thing I would say is just, I think it’s hard to find the signal because. Reporting in Russia is just dead. I don’t really trust anything that’s coming out of Russia anymore because foreign journalists are either arrested or have left, and local journalists are afraid of getting arrested. So we really don’t have good access to information inside of Russia.

And Ukraine, Ukraine is spinning everything for obvious reasons. But it’s all spin, maybe start there. Help me there.

Sim Tack: There being this vast amount of this is this vast

Jacob Shapiro: amount of stuff. I just Jackson Pollock to you geopolitically. I’m like here explain all of this nonsense that I just threw at the wall.

Sim Tack: No. So actually one, one of the really big points, and this is an important one. I think for people to understand is the the significance of Ukraine withdrawing from Avdiivka, right? It’s a pretty big event. In the war Avdiivka is a place that has been on the front line. It’s right outside the city of Donetsk.

It’s been on the front line since 2014 essentially. The fact that after nine years, Avdiivka has fallen is obviously going to cause quite a bit of ripples and and different takes on it. But if we just look at the. History of the Russian offensive on a shorter term, when we look at what they’ve done in the past year and a half then what happened in Avdiivka doesn’t stand alone.

In fact, if we go back a little bit to Bakhmut if you remember that everything was about Bakhmut, the loss of Bakhmut was the collapse of Ukraine only it wasn’t and Russia obtained control of Bakhmut in a very similar way. And then before Bakhmut. It was Popazna, a village just to the east of of Bakhmut.

So all of these villages sit in the same general area, just north of Donetsk, west of Luhansk. That it’s a small border area that has been the border area since the conflict broke out in 2014. And essentially what happened is that when the, Maneuver war ended in Russia’s latest iteration of the of the invasion.

Essentially when they when the front lines became concentrated around the beginning of 2023 and end of 2022. Those front lines became more static. There wasn’t any room between the front lines to conduct these big offensives. The last one that we really saw was was the one in Kharkiv where Ukraine recovered a lot of terrain.

And then we had Russia withdrawing from the areas north of Dnipro near Kherson. So after that, we’re talking about a very different type of warfare. And the way that Russia has been trying to achieve success, and some people will call it success, I will. In a bit here, argue the opposite. But the way that they’ve been trying to achieve success is by massing their resources, massing insane amounts of troops sacrificing them.

We saw very in depth descriptions of how all of that happened. When this was happening in Bukhmut and when it was Wagner that was providing the the meat for the grinder. And eventually what we saw in Avdiivka now is the exact same. Concept at a higher level. It was conducted slightly differently than Wagner, the way Wagner did it in in Bakhmut, because this was the actual Russian military doing it.

They have slightly different structures, habits, et cetera. There were a lot of elements that they were taking away from what Wagner did in Bakhmut that they impose in Avdeevka. But for example, the fact that we saw a little more usage of armored vehicles and things like that than compared to what Wagner had in Bakhmut, that was a big difference.

But essentially, it was human waves, right? That’s the concept here. The way Iran did them in the Iran Iraq war. That’s the way Russia’s been doing them From Popasnaya to Bakhmut to Donetsk, just push your weight in, accept the losses and this is where, we can argue the the level of victory that Russia actually achieves here and eventually the enemy will buckle and you will advance Now, when it comes to the actual degree of success, so I refer to those sacrifices of personnel and equipment the battle for Avdivka the last couple months of that battle, the big push into Avdivka that’s, I’ve seen estimates of up to 60, 000 Russian troops being lost for Avdivka alone.

That’s insane. We’re talking about divisions going lost here, multiple, right? We saw the same thing in Bakhmut where, basically Wagner just had a constant pipeline from prisons and recruitment centers to the frontline and was just constantly feeding people that were being sacrificed as a way to to force an advance.

And yeah, and at the end of the day, Russia did advance by one little village. We’re talking about a very large static frontline where tons of forces are amassed, and we’re defining this success, so to speak, by moving a couple kilometers into a single village along that frontline. So on a strategic level, honestly I don’t want to belittle the efforts that were put into defending Bakhmut and Avdiivka, but At the strategic level, these villages are insignificant, right?

Any relevance they had was because they were on the front line and they were being defended. Once that’s not the case they don’t hold any other strategic value anymore. Yeah I don’t know. That whole that whole narrative about Avdeevka proving that Russia is breaking sorry, that Ukraine is breaking I don’t subscribe to that.

For sure, there were forces. In Avdiivka that had been there for very long times that were actually rotated out shortly before the withdrawal. And there, there are significant difficulties for Ukraine to maintain their force level on the front line to be able to let units actually rotate out, get some R& R train new people, get back to the front line at a later date.

So it, I’m not completely discarding. The argument there, there is a significant stress on Ukraine’s ability to keep fighting. But just the fact that they lost Avdiivka or before that Bakhmut and before that Popasna, that doesn’t signify that they’ve reached a breaking point in much the same way that the huge losses that Russia suffered in those battles hasn’t caused their breaking point either, of course.

Jacob Shapiro: Yeah. Fair enough. When you say we’re defining success we’re defining success that way, because that’s how Zelensky has defined it. He was the one who was really pushing the counteroffensive. And I think one of the reasons that the narrative is this way is because even let’s say we, let’s say I take your argument completely that these towns like Avdivka are not important at all.

Okay. But it’s Russia taking land back after a failed Ukrainian counteroffensive that Ukraine made a big deal out of. So I think that’s maybe at least part of the reason why the narrative is in that sense. And I I would. I would respond then with a two part question, which is you talk about, quote unquote, human waves coming from Russia and you cited Iran as an example.

I can’t help but think of China in the Korean War where it’s really just waves of Chinese soldiers against US tech. And it’s a stalemate. Like the Chinese had enough waves. to make it so that all of the US tech superiority and everything else didn’t lead to the fall of North Korea and things and, where they started in that war.

So the first question is, if Russia has the waves, Okay, like they if they can throw 60, 000 at a conflict like that and not be worse for the wear and continue to push forward. That’s a sign of their strength. Like they have numbers like what if they really lost 60, 000 in the battle over an insignificant, unstrategic town, like what is their breaking point?

Like how many would they have to lose for that for their back to break? And then the flip side of that of also is, You And let’s say that none of these signals are signs that Ukraine is about to break. What would you look for? What would be a report or a piece of evidence that would make you worried that Ukraine’s defenders were indeed on some kind of breaking point?

Because it sounds to me like we haven’t seen that yet, but I’m wondering signposts you would use that would make you nervous?

Sim Tack: To answer the last thing you said first, just to make sure I don’t forget it I think that what I What would really worry me a lot if this, if, sorry, stumbling over my words a little there what would really worry me a lot is if we saw Ukraine starting to retreat from certain locations and then shortly after having to retreat even further.

So when you go from your first line to your second line and then that one doesn’t hold and you have to go back, that, that would show a defense in disarray, right? And that would be something that would be exploited by Russian forces. Of course this goes for the Russians as well, right? This is the thing that we didn’t see in that summer offensive when we did see Ukraine actually able to do the same things that Russia achieved More recently, where they were able to push into the villages of Robotini and things like that, but they were not able to make that second line buckle and continue to exploit their advance, right?

If you spend long enough on one spot in the front line, eventually one side might give, but really mounting a successful attack or counter attack out of that, that’s a whole different thing. And I think that’s something that honestly we haven’t seen from either side. Since the Russians withdrew from Karasum.

, in terms of what you’re asking about the Russia having a breaking point and being able to to keep these waves coming one of the big tests in that regard is probably going to be Russia’s attempt to run mobilization, right? A lot of people were waiting for the Russian presidential elections to be over, just about everyone was right about who was going to win those. But now now there’s that question, are they going to conduct that mobilization? People are talking about 300, 000 additional people potentially being mobilized for a counter offensive around Kupyansk or around Kharkiv or.

Towards Tarkov from Kupyansk, whatever the exact tactical goal would be. But we could see a very similar situation there as the one that we saw in Bakhmut and more recently in Avdiivka, where Russia will conduct that mobilization. They will have an additional 300, 000 men to push to the front lines.

Of course, not all of them necessarily in that one spot, but a significant portion of those. And I’ll honestly say without any other kind of change on the Ukrainian side, the outcome will likely be the same as what we’ve seen before. And say that Russia mounts this offensive near Kupyansk it might take six months, it might take a year and then eventually by continuing to overwhelm those Ukrainian positions with wave after wave, Russia will probably put up a flag and Kupyansk and say, Hey, we scored another victory.

But what you have to keep in mind is that the reality of what’s happening there is not necessarily the shift in the conflict in terms of Kupyansk changing hands. The big shift there is that Russia went through another mobilization of 300, 000 people. And Ukraine would have been able to defend it at the cost of only a single village.

Jacob Shapiro: Let me jump in and ask what is Russia’s strategy then? Because I’ve been wrong about interpreting Putin’s actions since the very beginning of the war. I’ve been very transparent about the things that I got wrong about how, about his calculations in Ukraine. But if I’m trying to put myself in the Kremlin shoes here, I’ve got a U.

S. election. That could lead to a very non friendly president for Ukraine’s cause. It could also, you could keep with Biden, but either way, probably less support from the United States going. Europe has not met the challenge. I want to talk about that a little bit later, the extent to which Europe has or has not provided for Ukraine and what that means.

What that support might look like in the future. I’m still relatively optimistic of what that future support would look like, but hard to argue that over the last 8 to 10 months, Europe has given Ukraine what it needs to push the conflict going forward. So you’ve got European support flagging.

You’ve got the potential for a major reversal in U. S. Support. With the November election. That’s a toss up. Why are you throwing 60, 000 men into a meaningless strategic village? Shouldn’t you just hold the line, keep it static, keep picking at them, but rebuild your supplies, mobilize your soldiers, train them.

There’s a thought and push forward when political conditions are a little bit better. I don’t understand what the strategic logic of throwing human waves at meaningless towns is for the Russians. What am I missing?

Sim Tack: This is me taking a guess at Russian intent and reasoning there. But I think this is based on the principle of the best defense is an offense, right?

And in this case, just to make that a little more practical than just throwing out random mantras. If you have this kind of a fight going on, when Avdeevka was under that insane pressure, that means that you are essentially setting up the stage for the actions that Ukraine can consider.

They can either consider to ignore it and then lose Avdiivka while incurring a much, much lower cost on Russia. Or they can choose to do the same as what Russia is doing and concentrate their forces around around Avdiivka where they can try to Fight off that offensive where they can try to incur as much damage as possible.

So in a way Russia being able to force these centers of gravity in the conflict and, I’ll have a thousand class with fanboys Standing around with torches for using it in the wrong way, the term, but,

Jacob Shapiro: do you think there are a thousand Klausowitz fanboys in the world?

I feel like that’s a fairly small number of people who would call themselves that. Anyway, sorry.

Sim Tack: They seem to pop up whenever you don’t need them, but yeah. But the point is that essentially it’s the concept of initiative at a strategic level where, if Russia is able to use those human waves their capacity for personnel, essentially, if they are able to use that to establish the initiative, meaning we are going to decide where we are fighting and when we are fighting, that means that Ukraine is on the back foot.

That doesn’t necessarily mean that Ukraine. Is fighting a losing war or is about to break or anything, but it means that Russia is able to control where the fight is happening, which means it can control where the fight is not happening, or at least not at that same level of intensity, right? So in that way, if if Russia’s goal is to outlast Ukraine, which I think is probably the best strategy they can hope for, I don’t think there’s any capacity on the Russian side to mount any kind of mobile offensives, even when the Ukrainians weren’t defending the front lines at the very beginning of the war, they managed to to really botch that effort.

So I don’t think they’re counting on that. But if they can just outlast Ukraine in terms of The levels of support they are receiving from the US and Europe, as you’re mentioning, as well as their ability to continue to rotate forces in and out of the front line to keep units in a fighting condition then they could eventually win this war, or at the very least Run it to a point where Ukraine has no realistic hopes for for counteroffensives and has to accept some kind of a ceasefire.

So I, I think that’s where Russia is is looking at, and then, that automatically brings us to, to your other Point about the Western support to Ukraine, and I think that continues to be the essential fight in this war. Actually, obviously, the fight on the front line is tremendously important.

But I think if we’re talking about the future outcome at a strategic level the ability for the West to actually provide Ukraine with the means. To fight off Russia is going to be the thing that makes or breaks this entire effort.

Jacob Shapiro: Alright, put a pin in that, because I want to come back to that before I ask you one more question, which is and I want to just riff on something you just said.

Does Ukraine have a realistic chance of retaking, Parts of Eastern Ukraine that Russia currently holds. Is there a realistic chance of them doing that? And the second byproduct that is, you said that Russia’s strategy would be so that they can dictate the time and place of when the war is happening.

Ukraine’s hitting them in the Black Sea. Ukraine’s hitting them Refineries? It looks like what they’re doing on the battlefield is not working. So like what is the Russian response to that? Is it just bomb the shit out of Kiev and hope that the Ukrainians will be cowed? That doesn’t also, doesn’t seem like a particularly good strategy.

A two part question. The question A two part question. Is there a realistic chance for Ukraine to push Russia back from places like Donetsk and Luhansk to follow through on Zelensky’s promise to reunite the country? And then what does Russia do in response to Ukraine saying, Okay, you’re gonna great.

We’re gonna destroy oil refining capacity. We’re gonna keep making you look like jokers in the Black Sea. What is the Russian step back to that?

Sim Tack: Those are very good points to raise or questions to ask. Terms of Whether Ukraine still has a realistic opportunity to gain back territories of Ukraine, perhaps not necessarily all of them I do think there is still that potential.

I think a lot of that, of course, will be dependent again on the kind of capacity that is granted to them through continued Western support. And to a smaller degree to the the ability to. For Ukraine to actually bring together all of these efforts that they have going on in a way that they are actually mutually supportive of each other.

Because then, when I jumped to the second part of your question, there were when we’re talking about Ukrainian attacks against the Black Sea fleet the strikes against refineries and energy. Plans as well as the, what I would coin as as diversionary attacks in the Belgorod and Kursk regions along the border there those kind of efforts are if we’re talking in that same context of seizing the initiative that we were before, I think those kind of effort, Are meant to try and distract Russia from its concentration of resources to define that initiative and trying to retake the initiative by shifting the front or shifting the threat to other places.

But I think up to this point even though, we see a lot of ships in the black sea fleet being crossed off the list on a fairly regular pattern That isn’t necessarily forcing Russia to change the way that they are fighting the war, right? It’s, it’s great that we’re taking those ships out.

Like it’s, I assume it’s better to see the number of ships go down than not. But at the same time if those kinds of resources were used in a more comprehensive manner with a more direct effect on the battlefield that could potentially have a have a more significant effect on their ability to actually conduct offensives.

Jacob Shapiro: And do you think so? Russia’s response then is just to pile on the pressure on the eastern front. And it’s, the more that Ukraine tries to make the conflict somewhere else, the more Russia will try and concentrate it where it has its advantage. Is that the right way to think about it?

Sim Tack: I think so.

That doesn’t mean that they will ignore all of these other areas. But for example, when we’re talking about the the recent attack into the Kursk region, so the the the Russian volunteer forces there went into into Russian territory, started occupying a couple villages. It’s surprising that this small, relatively ragtag band would be able to occupy territory of the Russian Federation without being instantly wiped off the map.

If you just consider the scale of those two actors but that shows you how Russia is very intent on being able to concentrate its resources where it actually wants to use them. And it’s not going to pull a couple brigades out of the frontline just to go and respond to something happening in Kursk.

No, instead they’ve, they’ve built their defenses a little further back and more. An easier places to to raise a defense without putting too many resources in them. They conducted some responses initially using their air power, which is a little easier to to go and redistribute and then bring back to the front line where they need to be.

And that way, I think that kind of shows how Russia is responding to all of these things, but trying to keep the effort minimal to reserve. That force for the the main event, so to speak.

Jacob Shapiro: Okay I’m feeling a little bit better, so I’m glad to be at the halfway point. Cast and be feeling better rather than than not.

That hasn’t been the norm lately. Let’s get at Europe and its support. The West in general, Europe and its support for Ukraine. I want to start by asking you a fairly strange question, which is and you shared with me that you’re in the process of buying a house in Belgium, closer to the French side.

And obviously this is just your opinion. We’re not going to extrapolate all of Europe’s point of view just from your opinion, but I am curious what you think of Emmanuel Macron. And what you think of his relatively aggressive support of Ukraine in the last couple of weeks. He’s obviously trying to do something in France domestically and politically to, for Ukraine.

But I just wonder does that land for someone like you who’s in Belgium? Do you look at him and you’re like, dude, what is with these boxing pictures and all of these strident comments? I’m not buying it. Do you like, oh, he’s strategically, maybe he’s saying some stuff just. Off the cuff, what do you think of Macron?

Sim Tack: Won’t talk about Macron as a holistic political figure. There’s a lot of different things to unpack there, but when it comes to the stance towards Ukraine specifically I think it’s very interesting what we’re seeing. What I think the essence of what Macron’s statements were about because of course he made a lot of statements about, sending troops to Ukraine about potentially doing that if Kiev became under threat or if if Russia was about to cross the Dnieper river towards the West things like that.

And those were some, some virtual red lines that Macron was drawing, but realistically those red lines are not anywhere near. So it’s easy to make those statements, knowing that the risk is very low of something like that happening. But under those more inflammatory statements, there was a little bit of a basis of of potential actions that a couple other countries also share.

And I’m thinking of Czech Republic, the Baltic States, the idea of actually, Slowly inching NATO towards a qualitatively higher level of involvement in Ukraine and specifically the idea of officially having NATO or forces belonging to NATO members. On Ukrainian soil, even if they are nowhere near the front line, some of the things that were talked about were, for example, conducting the training of Ukrainian forces in Western Ukraine, instead of, for example, bringing them over to Western Europe to conduct that training there that would be a significant shift.

In what NATO or those NATO members because it wouldn’t necessarily happen under the NATO flag. Of course, if not, all of NATO is into this idea. But that would be a significant change in how those countries are relating themselves towards Ukraine, which would be a very big signal to the Kremlin in terms of the commitment that those countries have to Ukraine security.

Now. This is all about trying to ensure that support to Ukraine without pushing it so far that it becomes a direct conflict between NATO and Russia, right? And within NATO, a lot of people are still very concerned about the potential for nuclear escalation and at one of the most extreme levels that this could represent.

So everybody wants to do more, but they don’t want to do so much that it completely falls down on them. And then I think that’s where, those concepts of deploying some troops into Ukraine, probably Western Ukraine to conduct training, et cetera. It’s a very interesting symbolic way to do that.

Now, when we’re talking about the European support to to Ukraine, I think there’s a couple other things that are a little more important than those statements about the The deployment of forces and the one that actually really stood out for me in the past months is the role of President Pavel of Czech Republic where this guy single handedly has changed the culture and capacity for, for the West to provide artillery, ammunitions and air defense systems to Ukraine. So before, before Pavel’s efforts we were talking about that whole promise of the European Union to provide I think the total was a million. Artillery shells by by March of 2024 current month which of course, based on European production was not something they were going to achieve.

European production is being ramped up a lot. Next year, those kind of numbers might actually be within the realm of the possible. But for now, they weren’t getting there. And then, suddenly, we have this guy, Pavel, who’s a former general, by the way. Who’s served as the commander of the Czech Armed Forces and who’s also held a position.

Positions at NATO. A pretty experienced military guy that, that suddenly pops up and says Hey what if we get this ammunition from outside of Europe? I know some people, he’s not telling us who, but I know some people that happen to have massive stockpiles of artillery shells laying around and we can buy them.

And first it was I forgot the actual numbers, but I think first he, Came across the bridge with a potential for 800, 000 rounds then there was a a potential to acquire air defense systems for Ukraine. And now they’re talking about an additional artillery deal that might be on the table.

That also shows that there is a shift where at least some countries in Europe are trying to find the less conventional. But more effective manners to support Ukraine. Let’s do away with this whole produced in Europe thing and let’s just get the artillery they need and we’ll pay for it and we’ll get it there.

So I think that kind of hints at a possible break within Europe between. A coalition of the willing, so to speak the countries that really want. Ukraine to succeed and the other countries that are politically supportive of Ukraine, but not looking to break the bank to actually allow them to win, right?

And then I think specifically when it comes to that divide, the countries like the Baltic States so Estonia Latvia and Lithuania. As well as Czech Republic and France, those are standing out in that regard. The UK continues to be pretty gung ho when it comes to, to support of Ukraine, but they’re dealing with some of their own defense issues at the same time.

And surprisingly, a country like Poland, I’m not sure whether to count them in that group or not, because traditionally you would have thought they would have been very much in that group, but Poland since last year has also been indicating that they want to prioritize their own military development more than the material support and they are providing to Ukraine, right?

Yeah I’m probably forgetting some countries that are, supporting all of these kinds of contributions, but it’s the age old story of, Europe being divided and there being, different lines of thinking, different approaches among different member states.

Jacob Shapiro: Yeah, and the age old story of different alliances working against Russia or even for Russia or in between it starts feeling like pre World War I a little bit when you start laying out, oh these are the countries that are militantly against Russia, and these are the ones that are the middle, and these are the ones that are, on the weather vein.

They’re not sure which way to go. I also we’ve been doing this new segment on the podcast recently when I’ve been on the road called micro geopolitics, where I’d break down whatever town or city that I’m in. And one of the things I’ve noticed is that you can be in a town that’s hundreds of years old and that town is still doing and behaving the same Stuff that it was doing hundreds of years ago And I bring that up in the context of the czech republic because they’ve literally been doing this for almost a century the israel defense forces in 1948 don’t get weapons if then czechoslovakia is not Finding weapons on the black market and getting them to israel.

So it’s like part of this whole It’s funny to see, czech arms dealers or czech You the Czech Republic as being the arbiter between these different groups. Where is the general finding this ammunition? Where are these mythical piles of ammunition that he’s sourcing?

Sim Tack: I honestly don’t know.

I can speculate, but I anything I throw out would be a wild guess. Great.

Jacob Shapiro: Speculate, speculate. I love speculation. It’s, this is speculation. Go ahead. Speculate. Where is it coming from?

Sim Tack: My, my first guess is the Asian markets, which. Which some countries have started to lean on more. South Korean defense industry that’s one possibility.

Other possibilities are old stock in the rest of the world, maybe even lesser developed countries like Egypt, for example might have a ton of ammunitions laying around that they’re just not using right now. Not necessarily producing themselves. I, I don’t have any indication towards any of those countries, but it, honestly, it could be anywhere other than Europe and the Europe and the US and the Russian sphere of influence,

Jacob Shapiro: right?

Forgive the slightly simple question, but Would Egypt’s ammunition, would that be Soviet or would that be Western or would that be a combination of both?

Sim Tack: So they, they would have a combination of both. I don’t know what kind of stockpiles they would have for for each, of course. So yeah you’re probably looking, of course, at countries that are using Western standards of of artillery.

Calibers.

Jacob Shapiro: Because you’re right, it’s interesting to think of a country like Egypt, which is in economic turmoil, or Pakistan, which is in economic turmoil, and could probably use some foreign currency in exchange for ammunition shells that they’re not using at all. So that’s interesting. I hadn’t really thought of that.

Just generally then zooming out, like it’s good, like your Ukraine needs, needs ammunition and artillery shells and things like that. What about F 16s? This has been a mythical thing that’s been happening forever, but maybe this summer Ukraine is finally going to F, get F 16s.

Does that matter? Is that symbolic? Are they going to actually get them? Help me benchmark that.

Sim Tack: I do think they will get there. The training. Programs are ongoing. We get little bits and pieces from from the ongoing training program. Whether it’s going to be this summer, whether it’ll be later, I honestly can’t tell.

Some people have talked about the end of the year. I think that was the Dutch Prime Minister pointing towards the end of the year rather than the summer. Yeah, they’ll get there, but the question is how much of an impact will they be able to have on the battlefield, right? Now, the thing is, these F 16s, even in smaller numbers we’re talking about, about two wings of F 16s they they would be able to actually, Have a significant effect, depending on what kind of munitions actually go with them and how they are actually being used.

And this comes back to the whole discussion about, okay, so Ukraine has a couple of storm shadow missiles. They launched them at some Ropukas in the Black Sea on, some kind of very high level view of the conflict. deteriorating Russia’s naval transport capabilities is a positive effect, but it’s not going to immediately impact the situation on the front line, right?

So maybe say that a year or two years from now, Ukraine might get close to starting to encircle Crimea from the north and hitting the the the Crimea bridge at that point that becomes useful and has an effect, but right now it’s more of a propaganda or symbolic success than anything else.

So when you have these F 16s, you have these storm shadows, you have your various air defense systems. If you would use those in a very coordinated manner to set up. temporary air superiority over certain areas by combining all of these, deep strike missiles with the F 16s, with the air defense systems.

And then you combine that with an actual concentration of resources on the ground in that same location. That’s the makings of a successful counter offensive. But if they are going to use the F 16s by conducting some patrols in various different parts by maybe once in a while trying to sneak deeper towards Russia and taking down one of their their early warning aircraft that over the sea of Azov it’s not going to be zero effect, but it’s not going to be that direct effect on the battlefield.

And that means that can add in all of these things, but it’s not guaranteed to actually have the effect that it could potentially bring. And a lot of that is going to depend on the Ukrainian military leadership which, brings us back to what you mentioned earlier about Zaluzhny being replaced.

And, I’ve heard various different things from different people that served in Ukraine or that have some knowledge about the the personalities involved. And, a lot of people seem to be down on the on the new commander saying he’s very Old school Soviet trained, not a great not a great commander.

He’s primarily taken credit for the initiatives of people below him. And that’s why Zelen considers him to be a good commander, but on the opposite side, there’s also Zaluzhny and Zelensky. Did not agree at all. Zelensky was ordering around people going around Zaluzhny. He was essentially, they were working against each other.

So there’s a question whether having unity of command, even if that command might be qualitatively, less less impressive that unity of command might actually allow Ukraine to better utilize the resources that it has. At least that, that would be, what we’d hope for. There’s nothing showing that yet, of course that, that is the effect of it.

And then in addition to that, some other people have also pointed out that Zaluzhny had been in that position for a very long time. That starts to weigh on people, that starts to limit their scope because you’re constantly, Working on the same problems. So having some fresh blood, having some new looks at things, new approaches that could potentially be beneficial.

Sorry. And I think then finally, another element in that is also how the relationship between the commanders and Zelensky, And NATO is going to develop because NATO, obviously, as it is providing a lot of these resources, is also trying to influence the the course of the war in terms of, how does Ukraine prioritize certain operations?

How did they plan certain operations? But Ukrainians have different ideas, which is normal. They have very different perspectives. The Ukrainians are there on the ground. They are experiencing things. They are learning lessons from that. NATO on the other hand has a much longer history of Of agile modes of command of military training, et cetera.

Both of these are very valid pools of experience and guidance into how to actually conduct this war. But if the support that NATO gives is geared towards one potential use of them. And the Ukrainians decide to use it in a different way that doesn’t necessarily give you the best results.

And I think that’s something that we saw in that, the failed summer offensive of 2023, where NATO masked all of this armor, a very mobile fighting force to conduct an offensive by Western design. And then that didn’t really work out for Ukraine. And I think they tried initially, but very quickly gave up on it when things went differently.

And yeah, things fall apart then.

Jacob Shapiro: I can feel any optimism that was generated in the first half of our conversation evaporating. I, we’re having Yaroslav Trefimov on the podcast in a couple of weeks. He wrote a book called Our Enemies Will Vanish, and I’ve been reading it at night before I go to bed.

Lovely bedtime reading if you’re looking for, I keep on picking the weirdest books to read before bed. I’m reading Our Enemies Will Vanish now. Before that, it was The I’m forgetting the name of the book, but it was a book about the second Congo war and the millions of people who died after the Rwandan genocide.

And for some reason, this puts me to sleep. I don’t know. But in, in this book that I’m reading he, and I’m only in the first half of it, but he really builds up Zaluzhny as the architect of Ukraine’s defense, that it was Zaluzhny who had the vision, who had been thinking about this for years that without someone like Zaluzhny.

Ukraine’s defense might have gone a lot differently. A, do you think that’s fair? And B, great for getting fresh blood, but you’re not talking about fresh blood, you’re talking about somebody who’s going to do Zelensky’s bidding and Zelensky for as remarkable as he’s been as a political figure, he is far outperformed anyone’s, most reasonable expectations for him.

This is a dude who was a stand up comic. Like certain point at which you’re not the general, you’re not the executive, let the generals who have done this do their thing. If he’s starting to go into that delusions of grandeur, I have to go around the general who was the architect of the defense, like that sends a little shiver down my spine.

What about you?

Sim Tack: No, for sure. And I do hope sincerely that Zelensky is not adopting that kind of personnel, personality. I think he has been putting that personality as the military commander out there. To serve a certain political purpose to essentially if he represents himself as the fighting Ukraine to the outside world, then the outside world sees Ukraine as the country that it’s fighting, right?

So in that regard, I can see how that persona works for him. And I think in a certain to a certain degree, we’re still seeing Zelensky very actively going out of country, visiting various summits and meetings, receiving international leaders. So he seems to be filling that political spot.

He hasn’t locked himself into the command bunker to, to take over operations or anything like that. Of course, it’s difficult to guess from the outside of how that interaction between Zelensky and the generals is is going exactly. So I do hope that, even if the generals aren’t Zaluzhny, he is still putting a lot of a lot of faith in having the generals and the commanders below them, by the way do their jobs for him.

Yeah, I forgot what the first part of your of your reaction was. No

Jacob Shapiro: You answered it and I, you’ve been generous with your time.

Sim Tack: You actually I remember there, there was something I wanted to comment on where you were talking about Zaluzhny in the book you were reading having the reputation of being the guy that organized the entire defense and everything.

And I think that’s very Very fair and something that needs to be acknowledged Zaluzni has definitely put his stamp on the early phase of the conflict and he was very successful at that, right? That’s the part of the conflict where the Russian offensive completely fell apart initially that, that’s authored by Zaluzhny.

But then of course we came into a different situation where I’m not saying Zaluzhny was doing poorly at all. Not something I would ever claim but it’s also, A phase in which there was a a significantly higher challenge and nobody really was coming up with the big solution to break out of that.

Jacob Shapiro: Maybe because there wasn’t, no, that’s fair solution. He was, of course, a general who did. To commit human waves of Ukrainian troops that they didn’t have. It seems to me that the real disagreement was that Zelensky purposes and political purposes are important. You can make an argument that it was the right move to engage in a counteroffensive to keep up Western support, but Zelensky wanted the counteroffensive.

And it seems to me that Zelensky said, we’re not going to win a counteroffensive. I don’t want to waste my best troops in a counteroffensive that they’re just going to die and we’re going to be back where we started. And it seems to me, at least on March 25th, that Zeluzny was right. The counteroffensive didn’t go anywhere.

Russia’s starting to take the narrative back a little bit and Western support. It’s great that the Czechs are ponying up. It’s, it’s not too late, but. It’s a little later than the Ukrainians needed it. Like that Western support is not necessarily going to be there. And man if Trump wins in November the chess board looks a lot different for Ukraine in general.

So I imagine that’s where the locus of that conflict was.

Sim Tack: No I think you’re very right. The problem of course is that it’s a very real challenge right there. There’s, on the one hand, you need to ensure that Western support is going to be longer lasting if there is a more overt perception of success.

If you think back of, back when we had videos of entire columns of Russian forces being decimated as they were trying to run into Ukraine. Everybody in the West was a lot more enthusiastic about providing military support to Ukraine than they are now that it’s become this, static World War One style.

Fight, right? So I think it’s very logical that you would have the political side pushing for that and the military side, taking a little more conservative approach. But I think you’ll always have that poll. I imagine that’s not going to be very different with the with the changes in command.

I think the military will try to not completely sacrifice their resources, even if they might be A little more willing to take risks than Zaluzhny was but I imagine there, there will still be an additional pull from the political side to achieve more and more just for that perception in the West to to continue to exist.

Jacob Shapiro: Yeah, I can’t help but thinking about World War One, and maybe we’ll close out on this. Zelensky is often compared as a Churchillian figure. And Churchill is famous for what he did in World War Two. He’s also infamous for what he did in World War One. Churchillian thinking did not do well in World War One.

In fact, it led to one of the greatest military disasters in British history. And Left years in the political desert for Churchill because of the role that he played in supporting that. And I’m also thinking of World War I because Russia was not defeated on the battlefield in World War I.

Russia fell apart from within. It was the Russian Revolution. So if, and it’s Zeluzny who has said it’s a World War I style conflict. So if it is a World War I style conflict, and there is no, you, foreign power that’s going to come to Ukraine’s aid or no technical capability that’s going to come and change the calculus on the battlefield, then this does become dueling domestic politics.

Can Zelensky slash the Ukrainian government keep support long enough to keep the fight going? Can Putin keep support long enough to keep the fight going? And yes, he has his stupid rubber stamped election. But remember, we have Prigozhin. We now have ISIS K firing things off in Moscow. And if he’s going to mobilize another 300, 000 Russian troops for, to throw them into conflicts where they die at 60, 000 per stupid village that doesn’t look so, so good too.

So I, I wonder if that’s the place to be looking for where the future is. And if Ukraine is thinking about the future, if it’s really Internal Russian dynamics. Maybe that gets to why they’re hitting oil refineries. I don’t know. That’s I’m speculating.

Sim Tack: No, I think that is exactly why they are hitting the oil refineries and the it has been a very clear shift and Ukrainian objectives where they’ve started to target more of the resources of the Russian state rather than the the military on the battlefield per se and in the same vein, you have those Ukrainian special forces in Africa going after Wagner and those kinds of things.

So there’s definitely, An intent by Kiev to try and cut Moscow off from its popular support. But I think that’s a very long and very slow process. And then I think the battle on the battlefield might be over before they, they push that too far. But it’s, it’s very difficult to assess where the breaking point is at that kind of a level.

Jacob Shapiro: It doesn’t have to be long though. And at the risk of being too Klausowitz fanboys, just, plain risk rather than talking about reality. If you really want to hit Russia where it hurts you need to figure out how to break China away from them and to a lesser extent, India. And that’s where Europe has significant leverage is let’s say Trump gets elected and Macron always talks about.

Could Europe entice China to not support Russia as much as it is? You’d have to really give China a lot for them to risk instability on their northern border like that. But if you start thinking about how you can really affect the Russian economy, it’s not going to be by drones blowing up oil refineries.

It’s going to be take out the countries that are still consuming Russian products and keeping the Russian economy going. And if that’s the path to victory. Where you have to be focusing, I think, your political alignment, not on a battle that can’t be won in the middle of, as Marco Papich likes to say on this podcast, the Western Virginia of Europe, which is how he describes Donetsk and Luhansk.

No offense to Western Virginia.

Sim Tack: No that’s a very fair point. And it’s a very interesting analysis. I’m not sure how much capacity Europe would have to really go and hand out gifts to China at this point. Cause it’s not there’s no threat perception about Chinese economical.

encroachment in Europe either. But yeah, in terms of trying to knock Russia out of the war, I think that’s a very solid point.

Jacob Shapiro: All right. Sam, I don’t know if I feel better or worse, but I feel better informed. And that’s the point of the podcast in the first place. I see the squash racket behind you.

I hope you’re off to play squash some somewhere. And one of these, I hope wherever town you’re moving to also has a squash court. And one of these days we will get together and I will I haven’t played squash in 10 years, but I used to be pretty good. So I’ll embarrass you with my with my squash skills.

Although I want you to know my trash talk is much worse than my bite. I’ll be talking the whole time as I’m looking

Sim Tack: forward to it.

Jacob Shapiro: All right. Cheers. Thank you so much for listening to the cognitive dissidents podcast brought to you by cognitive investments. If you are interested in learning more about cognitive investments, you can check us out online at cognitive dot investments.

That’s cognitive dot investments. You can also write to me directly if you want at jacob at cognitive dot investments, cheers. And we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions. This podcast may contain certain statements that may be deemed forward looking statements.

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