Marko Papic is Back! | E193





Weekly Update 87_mixdown

[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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