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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Authoughts podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe Wisenthal.

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Speaker 2: Joe, do you ever experience a sudden surge in geopolitical

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Speaker 2: analysis emails in your inbox?

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Speaker 3: Yes, I do. You know, it's funny most years, people like, oh,

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Speaker 3: what do you you know at the beginning of the year,

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Speaker 3: end of the year, things are going good, and it's like,

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Speaker 3: what are you concerned about?

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Speaker 4: It?

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Speaker 3: Like, I'm concerned about geopolitical tension. It's just one of

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Speaker 3: these cliches, A classic as a classic, That's what I

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Speaker 3: always say when I have no it's like, well, thanks

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Speaker 3: to fine, but I'm concerned. But in some years, clearly

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Speaker 3: geopolitical tension, war, et cetera is very real. We recently

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Speaker 3: saw the bombing in both directions between Israel and Iran.

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Speaker 3: It seems to be paused for now, but sometimes geopolitical

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Speaker 3: attention becomes outright geopolitical hostility.

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Speaker 2: Yeah, that was definitely one of those weeks when we

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Speaker 2: both got a lot of emails. Yes, I have a

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Speaker 2: confession to make, which is I read all of those

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Speaker 2: geopolitical analyzes, but I always kind of wonder what I'm

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Speaker 2: supposed to do with that information. You know, if I

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Speaker 2: were a major professional investor, if I'm reading a note

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Speaker 2: about what is the base case for like Iran versus Israel,

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Speaker 2: I am not entirely sure how that influences my own

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Speaker 2: decision making.

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Speaker 3: Well, I would say I would take it even a

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Speaker 3: step backwards and say, like, you know, when we talked

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Speaker 3: to Wall Street analysts, say a FED forecaster, I have

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Speaker 3: a sort of I think, intuitive understanding of how they

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Speaker 3: e They're like, oh, there's going to be three cuts

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Speaker 3: in the next year, and then I generally have a

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Speaker 3: sort of intuitive understanding of how they might arrive at that. Okay,

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Speaker 3: we look at statements from the FED about what they're

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Speaker 3: looking for in terms of achieving disinflation. We look at

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Speaker 3: the trajectory of the US economy, and then we say, okay,

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Speaker 3: we combine the FED statement, their sensitivity, etc. The reaction

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Speaker 3: function that's the term I'm looking for, with the data,

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Speaker 3: and then we arrive at a forecast. When it comes

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Speaker 3: to something like a war, I do not really have

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Speaker 3: an intuitive understanding of how the geostrategic or geopolitical analysts

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Speaker 3: whose notes flutter inboxes from time to time, always during

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Speaker 3: bad periods. How do they arrive at conclusions? Therefore, X,

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Speaker 3: we think the war is going to end this way.

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Speaker 3: I do not know how that can be done systematically,

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Speaker 3: and yet people.

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Speaker 2: Try, and actually some of them put numbers probabilities on

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Speaker 2: specific outcomes. So I think if I was a geopolitical analyst,

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Speaker 2: I would just put thirty percent chance on everything that

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Speaker 2: seems reasonable.

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Speaker 3: Yeah, So it used to be that if you were

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Speaker 3: unsure but wanted to sound smart, you say sixty forty,

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Speaker 3: But these days you say seventy thirty. Seventy thirty is

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Speaker 3: the new sixty forty.

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Speaker 2: That's right, that's right.

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Speaker 3: But I you know, I don't want to be cynical

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Speaker 3: about it. I am curious about how one could derive

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Speaker 3: a number from things that seem wildly uncertain and rare,

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Speaker 3: because there are not a lot of event studies, and

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Speaker 3: every war is distinct, and therefore the idea of trying

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Speaker 3: to accurately assess the outcome of some conflict strikes me

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Speaker 3: as very difficult. Yeah.

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Speaker 2: Well, I am very pleased to say that we do,

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Speaker 2: in fact have the perfect guests to talk about geopolitical

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Speaker 2: analysis and how it actually is calculated. I guess are created.

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Speaker 2: We are going to speak with Andrew Bishop. He is

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Speaker 2: a senior partner and global head of Policy research at

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Speaker 2: Signum Global Advisors. So Andrew, welcome to the show.

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Speaker 4: Hi, thanks for having me.

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Speaker 2: Why don't we just start with what is Signum?

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Speaker 4: So?

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Speaker 5: Signum is a political and geopolitical risk advisory firm that

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Speaker 5: was founded in twenty eighteen by a gentleman named Charles Myers,

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Speaker 5: who was the vice chairman of Evercore i I before

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Speaker 5: founding Signam. And Charles had a career in banking with

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Speaker 5: a focus on emerging markets, but was always sort of

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Speaker 5: one foot in US politics as a fundraiser, as an

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Speaker 5: advisor to candidates, et cetera. And he founded Signam essentially

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Speaker 5: to try to meld his instincts about how markets work

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Speaker 5: with his knowledge about US politics, and from there he

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Speaker 5: hired me to help build out the sort of global

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Speaker 5: analysis beyond the US.

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Speaker 3: So I think I started first becoming aware of your

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Speaker 3: commentary recently because Ozon Tarman, who we've had on the podcast,

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Speaker 3: over at the Deutsche Bank, he started forwarding some of

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Speaker 3: your notes over and so then I started reading this

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Speaker 3: stuff and it was like very interesting and compelling. Well,

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Speaker 3: why don't you tell us? Okay, you explained what SIGNAM is.

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Speaker 3: What's your background? How do you develop an expertise in

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Speaker 3: these areas?

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Speaker 5: So I joined SIGNAM from the Eurasia Group, which is

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Speaker 5: sort of the founding house of political risk. I was

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Speaker 5: there for four years. I first joined Eurasia because I'd

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Speaker 5: met Ian Bremmer through a previous job at the World

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Speaker 5: of Comic Forum. So the DAVS organization and I joined

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Speaker 5: as sort of right hand man to their chairman, Cliff Cupchin,

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Speaker 5: who really taught me a lot in that firm.

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Speaker 4: In that role, I ended up.

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Speaker 5: As deputy head of research, and several of the things

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Speaker 5: that I learned from Cliff, or for example, not getting

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Speaker 5: overly excited by every new headline, right so I think,

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Speaker 5: especially when you're at the beginning of good advice for everyone. Yes,

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Speaker 5: I mean to me, the best example of that is

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Speaker 5: the zero hedge type headline about how the first gas

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Speaker 5: contract was denominated or settled the euro instead of dollar,

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Speaker 5: you know, or just the bricks more generally. I started

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Speaker 5: working when I was twenty two. I'm thirty nine now.

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Speaker 5: The bricks have had a glorious future for you know,

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Speaker 5: almost twenty years, so that was one of the things.

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Speaker 5: The other thing that I learned from Cliff was good analysis,

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Speaker 5: Like basically the key is to have a rigorous and

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Speaker 5: analytical process, and even if you get the call wrong,

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Speaker 5: it's better to have good analysis and a call wrong

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Speaker 5: rather than the other way around, right, because otherwise you

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Speaker 5: could just be throwing darts and you'd be getting elects,

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Speaker 5: you know, fifty percent right half the time, right, which,

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Speaker 5: by the way, gets to this question of what you

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Speaker 5: mentioned on the probabilities. It's actually harder than just throwing

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Speaker 5: darts or or flipping a coin because most situations have

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Speaker 5: far more than two scenarios, right, So it really is

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Speaker 5: a very very difficult thing to do to predict all

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Speaker 5: geopolitical outcomes, which which I'm sure we'll get to, but

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Speaker 5: just to close off on, you know, sort of background,

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Speaker 5: I joined Eurasia from the World Economic Form and the

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Speaker 5: job I had there was really fun because essentially, you know,

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Speaker 5: the organization is best known for Davos, but the team

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Speaker 5: I was in, which was their Global Risk team, basically

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Speaker 5: send their team members throughout most frontier and emerging markets

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Speaker 5: to meet with government officials get a sense of where

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Speaker 5: their head was at in terms of their country's sort

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Speaker 5: of economic future, future economic policies, et cetera. Then meet

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Speaker 5: with the opposition and the business community and think tank community,

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Speaker 5: and essentially write up scenarios about the future of that

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Speaker 5: country at a sort of ten to twenty year outlook,

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Speaker 5: not trying to get it right, not trying to predict it,

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Speaker 5: but trying to essentially force the country to think twice

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Speaker 5: about his business model. As you can imagine, a lot

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Speaker 5: of these were resource dependent countries and that led to

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Speaker 5: some pretty interesting situations. Like one of the projects we

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Speaker 5: worked on, for example, was about the future of Ukraine,

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Speaker 5: and that was in twenty thirteen, twenty fourteen, so the

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Speaker 5: project was literally interrupted by the Maidan Revolution. Half the

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Speaker 5: people on the board of the project and half the

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Speaker 5: people we'd interviewed were, you know, either fleeing or put

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Speaker 5: in prison. And I remember we were doing a panel

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Speaker 5: to actually introduce parts of the findings in Davos, and

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Speaker 5: the Prime Minister of Ukraine his plane was he was

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Speaker 5: basically disinvited on the day that the panel was taking place,

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Speaker 5: so his plain was circling over Zurich, not being allowed

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Speaker 5: to land, not being allowed into the room, you know,

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Speaker 5: similarly we had back then.

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Speaker 4: He was an MP.

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Speaker 5: Petro Borshenko, who later became the leader of the country,

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Speaker 5: smuggled in a grenade from the Madan Revolutions into the

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Speaker 5: conference hall and sort of held it up to show

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Speaker 5: how the brutality of the regime was working. So it

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Speaker 5: was a really great way to get first hand exposure

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Speaker 5: to to frontier markets.

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Speaker 2: Yeah, that is definitely first hand exposure. I'm not sure

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Speaker 2: how I would feel being in a conference room or

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Speaker 2: like a big hall with a grenade. I'm hoping it

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Speaker 2: wasn't live, but who knows. Okay, Andrew, one thing I

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Speaker 2: wanted to ask, and I alluded to it in the intro,

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Speaker 2: is when I get your research nodes, if I am

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Speaker 2: a typical client of Signum, what exactly am I doing

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Speaker 2: with that information? Why do I want to get this analysis?

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Speaker 5: So first thing is about sixty sixty five percent of

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Speaker 5: our clients are financial investors, right that Joe mentioned or

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Speaker 5: alluded to about thirty five percent or so our corporates,

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Speaker 5: and they obviously use this in very different ways, which

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Speaker 5: I'll get into. But I think the first topic that

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Speaker 5: you all sort of touched on is this idea, you know,

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Speaker 5: there's there's a lot of studies that show that you

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Speaker 5: have political risks just don't affect markets, right, like, who

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Speaker 5: really cares. Frankly, oil's pretty much flat from pre Israel

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Speaker 5: Iron War Viks barely picked up. You know, SMP's at

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Speaker 5: all time highs et cetera. Obviously I have a you know,

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Speaker 5: a bias or I'm rooting for my home team here,

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Speaker 5: but I think that that's a little bit short sighted

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Speaker 5: for a few reasons. One is, most of these studies

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Speaker 5: typically look at S and P in the long term,

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Speaker 5: and our clients obviously are not trading the S and

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Speaker 5: P in the long term, right, They're trading in the

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Speaker 5: short term, and you've got some pretty violent, sharp moves

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Speaker 5: up and down for a lot of these assets. And

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Speaker 5: they're also trading obviously more niche assets. So I'm thinking

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Speaker 5: of the tribal and tourism industry, or I'm thinking of

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Speaker 5: the oil and gas industry is rarely shekel, you know,

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Speaker 5: things that are far more niche, and if you look

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Speaker 5: at it at that level, you've got some major major

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Speaker 5: volatility that can be both beneficial or negative depending on

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Speaker 5: how good you're at playing it, which is really what

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Speaker 5: are our clients are specialists and we're not strategists. We

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Speaker 5: don't give investment advice based on the jeblical research we

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Speaker 5: put out. The other thing is there's this big, you know,

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Speaker 5: talking point, and it was true again last month. There

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Speaker 5: were two weeks ago whenever the Israeli ron war ended,

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Speaker 5: there's sort of this like oil collapses, right, And that's

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Speaker 5: a counterintuitive outcome. A lot of our clients were actually

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Speaker 5: expecting that, and so what they were trying to figure

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Speaker 5: out was when is this going to end or not end?

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Speaker 5: But when is it going to culminate?

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Speaker 2: Right?

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Speaker 5: When is going to be the peak fear level? And

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Speaker 5: that's probably going to be when Iran retaliates for whatever

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Speaker 5: the US does. So again, the fact that it actually

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Speaker 5: drops on the news is not necessarily surprising to most

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Speaker 5: of the folks we speak to. Patreca, you want me

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Speaker 5: to get into a little bit how the clients use us?

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Speaker 2: Yes, that would be great.

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Speaker 4: Yeah, I mean, so there's a few ways.

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Speaker 5: The first, and I would say least often and least

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Speaker 5: sort of savvy or useful way is for the predictions themselves. Right,

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Speaker 5: So what I'm saying is basically, most clients don't use

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Speaker 5: us for the actual outcome prediction. It's better if we

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Speaker 5: get it right. But if they were only going to

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Speaker 5: use us for that, they could probably go to prediction markets, right.

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Speaker 5: I think their prediction markets are a little bit overestimated

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Speaker 5: these days, which we can get into, but they're not bad, right, Yeah,

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Speaker 5: So that's not the main reason. The main reason that

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Speaker 5: the way that a client put it to me, and

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Speaker 5: this was years ago and it stuck, is like they're

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Speaker 5: an F one driver and we're helping them on the

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Speaker 5: sort of you know the training tracks right like on

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Speaker 5: the on the training loops before the actual race, to

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Speaker 5: literally memorize every single turn and know when they can accelerate,

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Speaker 5: when they've got to cut a corner, et cetera, so

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Speaker 5: that when the events start unfolding, they're already prepared to

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Speaker 5: you know, hit the brakes or accelerate depending on what's happening.

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Speaker 5: The difference here, of course, is that the track is

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Speaker 5: not fixed. But the point is, you know, in a

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Speaker 5: situation like Israel Iran, you've got multiple calls, right or

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Speaker 5: multiple call basically just means prediction. You've got multiple situations.

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Speaker 5: So you've got is Israel going to strike, then you've

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Speaker 5: got the question. Okay, so we know they're striking, it's

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Speaker 5: all over Twitter, et cetera. Is this a shot across

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Speaker 5: the bow or is this the big one? Is the

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Speaker 5: US actually going to get involved after twelve hours? Is

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Speaker 5: Iron going to retaliate forcefully or in a you know,

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Speaker 5: some bolock way. Is this war going to last three

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Speaker 5: days or is it going to last three weeks? Is

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Speaker 5: the US going to get involved at that point?

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Speaker 4: You know?

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Speaker 5: And so on and so forth. And so they're not,

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Speaker 5: like most clients, don't expect us to get every single

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Speaker 5: one of those calls right. I mean, that would be insane.

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Speaker 5: What they want is for us to lay out arguments

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Speaker 5: that are not necessarily just convincing, but that help them

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Speaker 5: do the mental gymnastics around all the possible outcomes, and then,

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Speaker 5: of course is better if you get it right.

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Speaker 3: Wait, I have a very short quick question. Do you

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Speaker 3: see anyone in your clients who are actually in the

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Speaker 3: prediction markets looking for opportunity there yet because some of

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Speaker 3: these are getting to be big sized, or do you

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Speaker 3: see this as a future growth area for you? People

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Speaker 3: looking for mispriced contracts on the prediction markets.

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Speaker 4: So you mean clients that would actually be putting on trades.

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Speaker 3: Yeah, you say there's forty percent of X happening, the

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Speaker 3: prediction market is sixty percent. Maybe there's an opportunity anyone

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Speaker 3: doing that yet.

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Speaker 5: So short answer is that I'm aware of NOK and

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Speaker 5: the main reason is still liquidity, despite the fact that

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Speaker 5: it's getting bigger.

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Speaker 4: As you say.

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Speaker 5: What's really interesting, of course, is that that with this

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Speaker 5: intermediate the market's reaction function.

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Speaker 3: So I'm looking back at a note. This is just

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Speaker 3: a random one that I'm found in my inbox, but

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Speaker 3: there were several that I read in July. Oh sorry,

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Speaker 3: Jane June. By the way, I should say we were

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Speaker 3: recording this on July first, and given that the world

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Speaker 3: is an uncertain place by the time this episode comes

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Speaker 3: and I don't know the exact date, who knows what's

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Speaker 3: going to happen by the time you're listening to this.

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Speaker 3: But I'm reading a June sixteenth note, and you gave

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Speaker 3: these odds twenty percent preemptive Iranian capitulation, forty five percent

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Speaker 3: Israeli mission accomplished, followed by Iranian capitulation, twenty five percent

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Speaker 3: chance US intervention, and ten percent Iranian nuclear breakout. Surprise.

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Speaker 3: Why do you go give us through your thinking in

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Speaker 3: the middle of June, how you arrived at some of

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Speaker 3: these numbers, and then, given where we are today on

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Speaker 3: July first, how did you do or what surprised you

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Speaker 3: or what didn't surprise you to talk about sort of

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Speaker 3: where you were then and where you are in it.

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Speaker 5: So the first thing is Tracy was asking about how

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Speaker 5: do we ascribe probabilities? And there's I could give you

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Speaker 5: a fancy answer about Monte Carlo simulations, et cetera.

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Speaker 4: But the reality is neither we, nor as far.

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Speaker 5: As i'm where anyone in the sort of market actually

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Speaker 5: models this stuff, and the few that do use predictive

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Speaker 5: analytics rather than historical data. And the reason is there

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Speaker 5: just aren't that many case studies to go off of, right,

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Speaker 5: So let's just get that out of the way.

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Speaker 4: So the way we.

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Speaker 5: Use probabilities, and I'll absolutely answer your question about the

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Speaker 5: that specific case study in a second, but there are

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Speaker 5: three main ways that I think the probabilities can be useful.

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Speaker 5: The first is if you're drawing out scenario trees and

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Speaker 5: you're assigning you know, before you publish, right, you're assigning

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Speaker 5: probabilities to various sub events before getting to the total

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Speaker 5: cumulative outcome. Basically, if the math doesn't add up, that

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Speaker 5: can highlight a p in your logic. Right, it's not

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Speaker 5: a math problem. Who cares if the math doesn't add

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Speaker 5: up from a mathematical standpoint, But if you end up

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Speaker 5: with above one hundred or below one hundred or whatever,

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Speaker 5: that means that you're probably overstating one aspect of the

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Speaker 5: dynamic or understating another.

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Speaker 4: That's one.

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Speaker 5: A second that can be quite interesting and problem you know,

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Speaker 5: not problematic, but useful for the user is clustering.

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Speaker 4: Right.

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Speaker 5: So we had a recent scenario or recent situation with

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Speaker 5: an election, I think it was in Uruguay where the

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Speaker 5: base case was perhaps market constructive, but if you aggregated

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Speaker 5: all the non base case scenarios, you actually had a

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Speaker 5: more likely outcome of a market negative bottom line.

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Speaker 1: Right.

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Speaker 4: So that's those are a few of the ways.

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Speaker 5: Now, the way that I would approach a situation like

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Speaker 5: the Israeli ra on one is basically break it down

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Speaker 5: into an equation. So if you're trying to answer the

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Speaker 5: question is the US going to intervene in the war

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Speaker 5: and bomb for it?

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Speaker 4: Out right?

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Speaker 5: To me, the odds of that would be start with

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Speaker 5: one hundred, and then you take out whatever the odds

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Speaker 5: are that Iran is going to capitulate at the diplomatic table.

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Speaker 5: So you know, we can talk about how you can

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Speaker 5: come up with that view, but the idea is, are

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Speaker 5: the Iranians going to take the diplomatic off ramp that

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Speaker 5: Trump is giving them on that Friday? Geneva Right, So

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Speaker 5: those odds might be low, but they're not zero, So

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Speaker 5: you get to say twenty percent. Now that leaves you

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Speaker 5: with eighty percent of that The question becomes is Israel

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Speaker 5: going to.

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Speaker 4: Basically finish the job on its own? Right?

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Speaker 2: I e.

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Speaker 5: Can the Israelis destroy for it out on their own,

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Speaker 5: either through bombing without the most advanced bunker busters or

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Speaker 5: through a ground operation like they conducted in Syria the

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Speaker 5: previous November, which is something that I and a few

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Speaker 5: others had on their radar. And if they can't, then

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Speaker 5: presumably the President will intervene. Right now, you were asking

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Speaker 5: about scoring myself. That's a perfect example. Those odds get

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Speaker 5: you below fifty percent of US intervention. You, on top

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Speaker 5: of that have to add the fact that the president

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Speaker 5: might want to intervene even if he doesn't have to,

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Speaker 5: right because you might see political opportunity and being associated

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Speaker 5: with a victory. And that's the part that in this instance,

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Speaker 5: for example, I'd underestimated. Now where it gets really interesting,

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Speaker 5: and I'll stop here. What gets really interesting is even

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Speaker 5: if your take is that the president is actually not

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Speaker 5: dying to get involved and that he doesn't really see

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Speaker 5: this as a big opportunity, and you therefore only ascribe it,

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Speaker 5: you know, whatever thirty percent odds, you're still going to

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Speaker 5: end up above fifty percent overall. So that can tell

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Speaker 5: you that, because there's so many ways of getting to

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Speaker 5: an outcome, you can get tipped over fifty without it

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Speaker 5: being your modal scenario. I'm same with odds of regime change.

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Speaker 5: You can get regime change through palace coup, you can

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Speaker 5: get regime changed through Israeli bombing, you can get regime

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Speaker 5: changed through a revolution. Our base case was that there

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Speaker 5: would be no regime change in Iran, and I think

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Speaker 5: that's that's what played out so far. But the point

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Speaker 5: is you've got to compound all those odds because they

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Speaker 5: are independent variables.

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Speaker 2: Okay, you have the probabilities. I get that. The way

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Speaker 2: you just laid it out was very clear, But how

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Speaker 2: do you actually come up with, I guess the range

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Speaker 2: of scenarios because that's what seems practically unlimited nowadays. And

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Speaker 2: also you mentioned Trump just then. In Trump World, I

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Speaker 2: kind of feel like anything is possible, right, Like there

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Speaker 2: are a lot more tail risks out there that now

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Speaker 2: seem plausible in various ways. How do you take into

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Speaker 2: account the unpredictability of anything can happen? And then how

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Speaker 2: do you actually confine yourself to This is a set

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Speaker 2: of realistic scenarios that I'm going to talk about.

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Speaker 5: So first thing I'd say is, to me, that's one

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Speaker 5: of the reasons why prediction markets aren't that useful yet,

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Speaker 5: and especially to clients. They can actually be ironically more

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Speaker 5: useful I think, to the analyst than to the recipient

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Speaker 5: or user of the final product.

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Speaker 4: And what I mean by that.

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Speaker 5: Is the prediction markets will tell you where the tariff

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Speaker 5: level is going to end up on July thirty first, right,

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Speaker 5: But what if the cutoff that's relevant is not July

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Speaker 5: thirty first. What if it's you know, a completely different

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Speaker 5: date because Trump is visiting. Like let's say that it's

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Speaker 5: a ceasefire in Gaza and the cutoff date is Trump's

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Speaker 5: visit to Saudi Arabia or whatever. So the point is

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Speaker 5: the rigidity of the prediction markets, and it's a trade off,

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Speaker 5: right because the reason they do that way is so

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Speaker 5: that they can be easily falsifiable and you can compare predictions,

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Speaker 5: et cetera. But that rigidity, I think narrows the value.

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Speaker 5: So then to your question on how do you even

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Speaker 5: frame the issue. That's a major problem for Trump tariff situations. Indeed,

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Speaker 5: so if you take July eight for example, you can't

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Speaker 5: really and you know, we've struggled with this everyone does.

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Speaker 5: It's hard to make a call on whether he is

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Speaker 5: going to escalate or postpone his deadline because there are

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Speaker 5: sixty countries involved. So first of all, you theoretically would

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Speaker 5: have to make sixty individual calls, right or predictions. Second

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Speaker 5: thing is what if he says, you know, we're escalating

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Speaker 5: the tariffs but they're kicking in on July fifteenth, is

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Speaker 5: that a punt or is that him at actually having

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Speaker 5: increased the arras and so on and so forth. So,

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Speaker 5: I mean, the short answer, Tracy is there is no

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Speaker 5: perfect way of doing it. And that's actually been one

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Speaker 5: of the issues with Trump, is that framing the initial

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Speaker 5: question is almost as hard as predicting his behavior. Trade

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Speaker 5: ironically is one of those situations though that we've had

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Speaker 5: a pretty good track record with. So I'm happy to

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Speaker 5: talk a little bit about how we've tried to like

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Speaker 5: get into Trump's brain if you want, please, Yeah. So

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Speaker 5: there are a few things. So the first is you

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Speaker 5: can observe patterns. Right, So Robert Armstrong had sort of

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Speaker 5: this huge success with the taco label that was amazing marketing.

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Speaker 5: But I have to say we were a little jealous

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Speaker 5: because I think he wrote that in early May, and

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Speaker 5: in early April we put out a table with basically

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Speaker 5: every one of the Trump threats. I think there were

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Speaker 5: like twenty three or.

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Speaker 3: So, doesn't matter if you don't market, it's it's all

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Speaker 3: about that acronm anyway, keep going.

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Speaker 5: I was waiting for the invite, so I think Trump

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Speaker 5: had backed down in twenty one out of twenty three

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Speaker 5: threats something like that.

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Speaker 4: Right.

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Speaker 5: So the first thing is you can identify patterns, and

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Speaker 5: in fact, actually truthly be told, we ran that same

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Speaker 5: study at the very end of his first term as well,

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Speaker 5: and the takeaway was very, very similar. The question I

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Speaker 5: think was was he going to be tough for his

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Speaker 5: second time around, right, But the point is you can

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Speaker 5: identify patterns, So taco is one of them. Where it

438
00:21:14,960 --> 00:21:17,480
Speaker 5: gets complicated, though, is you know, it's almost like the

439
00:21:17,800 --> 00:21:21,000
Speaker 5: Economist or Time magazine cover phenomenon, where by the time

440
00:21:21,040 --> 00:21:23,040
Speaker 5: the Taco thing came out, whether it was from US

441
00:21:23,280 --> 00:21:26,040
Speaker 5: or from Armstrong, it was already fading. It was already

442
00:21:26,040 --> 00:21:29,040
Speaker 5: getting arguably less true because if you look at the

443
00:21:29,240 --> 00:21:32,320
Speaker 5: pattern of Trump's behavior. On jan twenty, he had made

444
00:21:32,320 --> 00:21:34,640
Speaker 5: a bunch of threats against Mexico, Canada, China, et cetera.

445
00:21:34,720 --> 00:21:37,640
Speaker 5: He completely let them go, right, nothing happened, He didn't

446
00:21:37,640 --> 00:21:40,199
Speaker 5: even mention them on Jan twenty. Then he postponed them

447
00:21:40,200 --> 00:21:43,040
Speaker 5: to February one. He went one step further, he actually

448
00:21:43,040 --> 00:21:46,640
Speaker 5: signed the executive orders, but nothing happened. Then March one

449
00:21:46,680 --> 00:21:50,120
Speaker 5: comes around, or March four rather, and he actually implements

450
00:21:50,160 --> 00:21:52,400
Speaker 5: the terrors, but he walks them back after a day.

451
00:21:52,880 --> 00:21:55,360
Speaker 5: Then April two comes around and he walks it back

452
00:21:55,400 --> 00:21:57,359
Speaker 5: after a week on rest of the world and a

453
00:21:57,400 --> 00:22:00,280
Speaker 5: whole month on China. So the point is there a patterns,

454
00:22:00,359 --> 00:22:02,760
Speaker 5: but you've got to constantly be reassessing them because the

455
00:22:02,840 --> 00:22:05,240
Speaker 5: rule that worked yesterday may no longer work to today.

456
00:22:05,320 --> 00:22:05,560
Speaker 4: Right.

457
00:22:05,920 --> 00:22:09,280
Speaker 5: A second question is or principle, let's say, is we've

458
00:22:09,320 --> 00:22:12,840
Speaker 5: been very We've tried to be very nimble and not

459
00:22:13,080 --> 00:22:14,200
Speaker 5: have a grand theory.

460
00:22:14,320 --> 00:22:14,439
Speaker 1: Right.

461
00:22:14,520 --> 00:22:16,000
Speaker 5: So this gets a little bit to the whole like

462
00:22:16,000 --> 00:22:19,880
Speaker 5: phil tedlock fox versus hedgehog, like not be too attached

463
00:22:19,920 --> 00:22:23,840
Speaker 5: to grand ideas, but look at each prediction individually. One

464
00:22:23,920 --> 00:22:25,920
Speaker 5: of the things that's really driven me crazy is this

465
00:22:26,040 --> 00:22:27,760
Speaker 5: narrative that Trump's.

466
00:22:27,320 --> 00:22:29,320
Speaker 4: Trade approach is all about China. Right.

467
00:22:29,680 --> 00:22:32,520
Speaker 5: That is totally accurate over the course of four years.

468
00:22:32,600 --> 00:22:35,080
Speaker 5: It is totally useless in the short term because if

469
00:22:35,119 --> 00:22:37,600
Speaker 5: I told you that Trump's trade policy was going to

470
00:22:37,600 --> 00:22:40,359
Speaker 5: be all about China, which in hindsight is correct, right,

471
00:22:40,480 --> 00:22:42,760
Speaker 5: China's got a forty five percent tariff, everyone else has

472
00:22:42,760 --> 00:22:44,560
Speaker 5: a ten percent tariff. But if I told you that

473
00:22:44,560 --> 00:22:47,720
Speaker 5: out in January nineteen and you were, you know, running

474
00:22:47,720 --> 00:22:50,400
Speaker 5: a hedge fund, you would have been very, very surprised

475
00:22:50,400 --> 00:22:52,520
Speaker 5: that the first three months of the Trump administration were

476
00:22:52,640 --> 00:22:55,560
Speaker 5: all obsessed with Mexico and Canada. Basically, this whole China

477
00:22:55,600 --> 00:22:58,760
Speaker 5: lens would have been useless up until April. So that's

478
00:22:58,880 --> 00:23:02,000
Speaker 5: a second thing is trying not to take an overarching view,

479
00:23:02,000 --> 00:23:04,600
Speaker 5: but look at it individually and try to figure out

480
00:23:04,680 --> 00:23:07,040
Speaker 5: what's he after in this specific case. So, you know,

481
00:23:07,119 --> 00:23:09,639
Speaker 5: the best example is if you think he's after a

482
00:23:09,720 --> 00:23:12,960
Speaker 5: teriff revenue, then he's by definition not going to back down.

483
00:23:13,000 --> 00:23:15,440
Speaker 5: You can't get revenue if you back down, right, And

484
00:23:15,840 --> 00:23:18,800
Speaker 5: the same country can be affected by completely different motivations

485
00:23:19,160 --> 00:23:22,120
Speaker 5: or you know, confrontations. So Mexico in the first three

486
00:23:22,160 --> 00:23:25,480
Speaker 5: months was affected by fentanyl and immigration concerns, which were

487
00:23:25,720 --> 00:23:28,080
Speaker 5: pretty clearly I mean, it's always easier to say in hindsight,

488
00:23:28,119 --> 00:23:31,320
Speaker 5: but pretty clearly transactional like Trump just wanted to be

489
00:23:31,440 --> 00:23:33,679
Speaker 5: able to say that he had done something about those issues.

490
00:23:34,320 --> 00:23:36,240
Speaker 5: The way that Trump is going to approach Mexico in

491
00:23:36,320 --> 00:23:38,359
Speaker 5: Q four this year to try to get them to

492
00:23:38,400 --> 00:23:42,119
Speaker 5: do USNCAA revisions and open up their energy market and

493
00:23:42,200 --> 00:23:45,680
Speaker 5: change their rules of origin on auto sector issues, that's

494
00:23:45,720 --> 00:23:48,480
Speaker 5: going to be much much tougher, right, So, same country,

495
00:23:48,680 --> 00:23:52,960
Speaker 5: totally different approach. Another is there's this big like talking point,

496
00:23:53,000 --> 00:23:55,240
Speaker 5: you know, don't take Trump literally, but take him seriously.

497
00:23:55,560 --> 00:23:56,760
Speaker 3: We hate there one around here.

498
00:23:56,920 --> 00:23:57,240
Speaker 4: Okay.

499
00:23:57,680 --> 00:23:59,760
Speaker 5: So yeah, so first of all, we know not to

500
00:23:59,760 --> 00:24:02,760
Speaker 5: take seriously because of Taco or you know, signum pre taco.

501
00:24:03,320 --> 00:24:07,080
Speaker 5: But I actually think taking him literally has been reasonably

502
00:24:07,119 --> 00:24:10,360
Speaker 5: helpful him and some of his advisors, those who repeat

503
00:24:10,400 --> 00:24:12,840
Speaker 5: his views. So people like vest and Lutnik, they actually

504
00:24:12,880 --> 00:24:14,919
Speaker 5: don't repeat his views. They kind of freelance. But if

505
00:24:14,960 --> 00:24:18,240
Speaker 5: you take Carolyn Lovett, one thing that really sort of

506
00:24:18,240 --> 00:24:21,159
Speaker 5: struck us was I think it was on before the

507
00:24:21,160 --> 00:24:23,040
Speaker 5: February one deadline rather than the March one.

508
00:24:23,040 --> 00:24:25,000
Speaker 4: But I could be confusing them. She said.

509
00:24:25,400 --> 00:24:27,719
Speaker 5: They're in that press conference the day before, on the Friday,

510
00:24:27,720 --> 00:24:30,840
Speaker 5: she said, there is absolutely nothing that Canada and Mexico

511
00:24:30,920 --> 00:24:33,400
Speaker 5: can do to prevent the present from signing the executive

512
00:24:33,480 --> 00:24:36,840
Speaker 5: order tomorrow. Signing the executive order, they never said they

513
00:24:36,840 --> 00:24:38,800
Speaker 5: were going to actual implement the terraces, right, And I

514
00:24:38,880 --> 00:24:41,520
Speaker 5: know that sounds like a little cute or yeah, but

515
00:24:41,560 --> 00:24:44,200
Speaker 5: there is something to that effect. And if you listen

516
00:24:44,240 --> 00:24:46,200
Speaker 5: to Trump, I think it's quite interesting if you also

517
00:24:46,200 --> 00:24:49,720
Speaker 5: look at how his advisors, how he lets them talk

518
00:24:49,800 --> 00:24:51,959
Speaker 5: like speak, you know what kind of leege they're on.

519
00:24:52,440 --> 00:24:56,080
Speaker 5: They are allowed to say anything, including the craziest stuff,

520
00:24:56,359 --> 00:25:00,080
Speaker 5: as long as they don't reduce his optionality, right, So

521
00:25:00,119 --> 00:25:02,639
Speaker 5: he benefits from them going nuts as long as he

522
00:25:02,720 --> 00:25:18,119
Speaker 5: doesn't get cornered by their comments.

523
00:25:20,000 --> 00:25:24,400
Speaker 3: Let's go back to the recent war and something I'm interested,

524
00:25:24,520 --> 00:25:29,120
Speaker 3: So looking at the cumulative odds twenty percent preemptive Iranian capitulation,

525
00:25:29,520 --> 00:25:33,480
Speaker 3: forty five percent Israeli mission accomplished. When you're coming up

526
00:25:33,560 --> 00:25:37,520
Speaker 3: with those odds, like how much do you really have

527
00:25:37,600 --> 00:25:42,439
Speaker 3: to know about the size and scale and quality of

528
00:25:42,600 --> 00:25:47,000
Speaker 3: the respective weapons systems of Israel and Iran? Because ultimately,

529
00:25:47,040 --> 00:25:51,520
Speaker 3: to some degree, prior to the US intervention, the question

530
00:25:51,800 --> 00:25:54,720
Speaker 3: was the degree to which one side's missiles or their

531
00:25:54,720 --> 00:25:57,480
Speaker 3: missile defense was stronger than the others. So how do

532
00:25:57,520 --> 00:25:59,720
Speaker 3: you learn about that? And how important is it to

533
00:25:59,720 --> 00:26:04,680
Speaker 3: add trually have really high quality information about each side's arsenals.

534
00:26:04,960 --> 00:26:07,360
Speaker 5: So that actually gets a little bit back to what

535
00:26:07,440 --> 00:26:10,760
Speaker 5: is Signum and who we are because I'd say there

536
00:26:10,760 --> 00:26:13,840
Speaker 5: are different types of shops in our industry, right. There

537
00:26:13,840 --> 00:26:17,000
Speaker 5: are shops that are based on intel, right, So it's

538
00:26:17,040 --> 00:26:20,520
Speaker 5: like what we're hearing in Congress, or I play golf

539
00:26:20,560 --> 00:26:22,960
Speaker 5: with you know, Scot Besson or whatever, that's not us.

540
00:26:23,080 --> 00:26:25,560
Speaker 5: We do access events and a bunch of you know,

541
00:26:25,640 --> 00:26:27,680
Speaker 5: really cool stuff. We took clients to Ukraine to meet

542
00:26:27,720 --> 00:26:29,719
Speaker 5: with the Ukrainian government and get a sense of what

543
00:26:29,880 --> 00:26:33,359
Speaker 5: post war reconstruction type policy might be reduce that stuff.

544
00:26:33,400 --> 00:26:35,359
Speaker 5: But it's not part of our research, right, And that's

545
00:26:35,400 --> 00:26:39,440
Speaker 5: because Intel in addition to you know, potentially if you've

546
00:26:39,440 --> 00:26:42,440
Speaker 5: got HIMNPI, et cetera, that gets legally dubious. In addition

547
00:26:42,520 --> 00:26:45,320
Speaker 5: to that problem, it doesn't make for good predictions, right

548
00:26:45,440 --> 00:26:49,240
Speaker 5: because Scott Besson himself didn't know on April eight whether

549
00:26:49,240 --> 00:26:51,040
Speaker 5: Trump was going to back down the next day, he

550
00:26:51,119 --> 00:26:52,919
Speaker 5: knew he was working on him, but he didn't know

551
00:26:53,200 --> 00:26:55,000
Speaker 5: asad was not sure whether he was going to be

552
00:26:55,040 --> 00:26:57,280
Speaker 5: toppled or not. Right, So there's that, and then there

553
00:26:57,280 --> 00:27:00,639
Speaker 5: are shops that are very focused on country xes. So

554
00:27:00,640 --> 00:27:03,520
Speaker 5: it's like, you know, I lived in Venezuela for fifteen years,

555
00:27:03,520 --> 00:27:05,879
Speaker 5: so here's my take on whether Juenguido's kup is going

556
00:27:05,920 --> 00:27:07,760
Speaker 5: to succeed or not. And don't get me wrong, like

557
00:27:07,800 --> 00:27:10,600
Speaker 5: we've got regional experts. We have a Mexico office with

558
00:27:10,640 --> 00:27:13,439
Speaker 5: a Mexican guy leading it, years and years of experience

559
00:27:13,440 --> 00:27:15,240
Speaker 5: from Latin em et cetera. So it's not that we

560
00:27:15,320 --> 00:27:17,240
Speaker 5: don't do that. But the point is where we think

561
00:27:17,280 --> 00:27:21,520
Speaker 5: our value add is is on the process, and we've

562
00:27:21,560 --> 00:27:24,880
Speaker 5: basically adopted like a few principles. One is the fill

563
00:27:24,920 --> 00:27:28,320
Speaker 5: tetlock principle that I mentioned earlier, which is not really

564
00:27:28,320 --> 00:27:30,199
Speaker 5: about who you are, it's how you proceed, right, So

565
00:27:30,240 --> 00:27:33,560
Speaker 5: it's precisely what is your model, like, what is your process?

566
00:27:34,080 --> 00:27:35,639
Speaker 4: And that's where another.

567
00:27:35,359 --> 00:27:38,120
Speaker 5: Guy comes into focus, which is one of the mesquita that.

568
00:27:38,080 --> 00:27:39,480
Speaker 4: A lot of people will know about.

569
00:27:39,720 --> 00:27:44,520
Speaker 5: Political scientists very focused on, essentially the logic of political survival, right,

570
00:27:44,960 --> 00:27:49,320
Speaker 5: Like leaders will always put their own advantage ahead of anything,

571
00:27:49,359 --> 00:27:52,440
Speaker 5: and that's why, you know, you've got situations where like Nitagna,

572
00:27:52,480 --> 00:27:55,280
Speaker 5: who's never going to agree to a hostage deal because

573
00:27:55,440 --> 00:27:58,080
Speaker 5: it would risk his coalition, and why would he risk

574
00:27:58,119 --> 00:28:00,399
Speaker 5: his coalition? Or you know, why would he risk losing

575
00:28:00,480 --> 00:28:04,400
Speaker 5: power just to satisfy Trump. That's where it gets interesting, though,

576
00:28:04,520 --> 00:28:07,520
Speaker 5: is none of these rules is failed proof, right because

577
00:28:07,640 --> 00:28:10,199
Speaker 5: using that logic, one of the pushbacks that got on

578
00:28:10,240 --> 00:28:13,000
Speaker 5: our Ceespire calls in the past was why would Hamas

579
00:28:13,119 --> 00:28:14,960
Speaker 5: ever give up the leverage of hostages?

580
00:28:15,440 --> 00:28:15,640
Speaker 4: Right?

581
00:28:16,040 --> 00:28:18,520
Speaker 5: And that sounds like a conversation under the truth is

582
00:28:18,560 --> 00:28:21,119
Speaker 5: they've given up hostages twice now, right, You've got to

583
00:28:21,119 --> 00:28:23,560
Speaker 5: stay like pretty nimble and humble. There is no like

584
00:28:23,680 --> 00:28:28,680
Speaker 5: perfect answer, but that sort of process approach can be helpful.

585
00:28:28,880 --> 00:28:32,000
Speaker 5: Now to get back to your initial question about like

586
00:28:32,119 --> 00:28:35,800
Speaker 5: how much knowledge you need? You do need technical knowledge,

587
00:28:35,840 --> 00:28:37,520
Speaker 5: but you don't need to have it in house. So

588
00:28:38,040 --> 00:28:41,320
Speaker 5: we don't ever outsource any of our analysis, Like no

589
00:28:41,360 --> 00:28:44,360
Speaker 5: one external has ever come up with a prediction for

590
00:28:44,440 --> 00:28:46,720
Speaker 5: us or written any of our notes. But what we

591
00:28:46,800 --> 00:28:49,240
Speaker 5: do is we break down a big issue into sub

592
00:28:49,320 --> 00:28:51,000
Speaker 5: questions and then we go out and try to find

593
00:28:51,040 --> 00:28:53,080
Speaker 5: the answer. And some of that will be an open source.

594
00:28:53,120 --> 00:28:54,800
Speaker 5: Some of that will be trying to speak with an

595
00:28:54,840 --> 00:28:58,480
Speaker 5: expert on XYZ missile range. So yeah, the answer is

596
00:28:58,520 --> 00:29:01,200
Speaker 5: you do need it, but you can break it down

597
00:29:01,400 --> 00:29:03,800
Speaker 5: and not make it part of your core business model

598
00:29:03,800 --> 00:29:06,320
Speaker 5: and just sort of have it as a research process.

599
00:29:06,720 --> 00:29:10,760
Speaker 2: You mentioned being humble just then, and I'm wondering, so,

600
00:29:11,200 --> 00:29:15,560
Speaker 2: you know, in the Iran situation, you published probabilities and

601
00:29:15,720 --> 00:29:17,840
Speaker 2: your base case and all of that, and I think

602
00:29:18,440 --> 00:29:22,720
Speaker 2: events didn't pan out quite the way you expected. What

603
00:29:22,960 --> 00:29:26,720
Speaker 2: happens when you're just wrong about a particular prediction. So

604
00:29:26,880 --> 00:29:29,480
Speaker 2: you know you've laid out your analysis. Maybe you had

605
00:29:29,600 --> 00:29:32,680
Speaker 2: a really great way of reasoning around scenarios and things

606
00:29:32,720 --> 00:29:37,080
Speaker 2: like that, but nevertheless, something happened that you did not expect.

607
00:29:37,120 --> 00:29:37,600
Speaker 2: What do you do?

608
00:29:38,040 --> 00:29:41,719
Speaker 5: So there's a couple answers to that, Well, there's several.

609
00:29:42,120 --> 00:29:44,440
Speaker 5: The first couple are deflection. The third is the real answer.

610
00:29:45,640 --> 00:29:49,040
Speaker 5: So one is, in any of these situations, you've got

611
00:29:49,160 --> 00:29:52,240
Speaker 5: lots of different predictions, right. So for example, we didn't

612
00:29:52,280 --> 00:29:54,600
Speaker 5: expect that Trump would actually go in and bomb Ford

613
00:29:54,640 --> 00:29:56,440
Speaker 5: out because we expected these reels to do it on

614
00:29:56,440 --> 00:29:58,640
Speaker 5: their own. But we were on the right side of

615
00:29:58,640 --> 00:30:00,280
Speaker 5: the regime change call. We were on the right I said,

616
00:30:00,320 --> 00:30:02,239
Speaker 5: the horror mooze call. We're on the right side of

617
00:30:02,400 --> 00:30:06,120
Speaker 5: Israel staying away from trying to knock out Iranian oil production,

618
00:30:06,240 --> 00:30:08,800
Speaker 5: which looked harry during that first weekend, and so on

619
00:30:08,840 --> 00:30:09,400
Speaker 5: and so forth.

620
00:30:09,640 --> 00:30:10,520
Speaker 4: So that's one.

621
00:30:10,800 --> 00:30:13,560
Speaker 5: The second is you basically have to try to figure

622
00:30:13,560 --> 00:30:16,320
Speaker 5: out why you got it wrong right, and from there

623
00:30:16,400 --> 00:30:19,600
Speaker 5: you can typically learn something for the next time. So

624
00:30:19,840 --> 00:30:22,960
Speaker 5: in this instance, for example, I was far too focused

625
00:30:23,160 --> 00:30:26,680
Speaker 5: on these Raelis capabilities and whether or not the Israelies

626
00:30:26,680 --> 00:30:28,400
Speaker 5: we're going to be able to do this on their own,

627
00:30:28,800 --> 00:30:32,240
Speaker 5: and not focused enough on Trump's appetite to get involved

628
00:30:32,240 --> 00:30:35,840
Speaker 5: for political reasons. Right where it gets really ironic is

629
00:30:35,880 --> 00:30:38,080
Speaker 5: part of the reason I was of the view that

630
00:30:38,120 --> 00:30:40,280
Speaker 5: the Israelis would be able to go out and knock

631
00:30:40,280 --> 00:30:42,440
Speaker 5: out for it on our own is because for the

632
00:30:42,440 --> 00:30:45,400
Speaker 5: previous twelve months I've been telling clients the Israelis have

633
00:30:45,480 --> 00:30:48,400
Speaker 5: the capability to strike on their own, and they are

634
00:30:48,440 --> 00:30:50,160
Speaker 5: going to do it, and it's going to be a

635
00:30:50,200 --> 00:30:51,840
Speaker 5: bolt from the blue. I didn't expect it to be

636
00:30:51,880 --> 00:30:54,120
Speaker 5: exactly when they did it, because the nuclear talks were

637
00:30:54,160 --> 00:30:57,479
Speaker 5: still ongoing. But the point is, back then, the big

638
00:30:57,640 --> 00:31:01,160
Speaker 5: pushback I would get constantly was the Israelis don't have

639
00:31:01,200 --> 00:31:02,840
Speaker 5: the planes to reach are on. They don't have the

640
00:31:02,880 --> 00:31:04,840
Speaker 5: resheeling capability, you know, and.

641
00:31:04,800 --> 00:31:05,600
Speaker 4: So on and so forth.

642
00:31:06,000 --> 00:31:08,600
Speaker 5: And so that gets back to this thing that there

643
00:31:08,680 --> 00:31:11,360
Speaker 5: is no like one rule that you can like, you know,

644
00:31:11,400 --> 00:31:13,320
Speaker 5: to sort of one rule to rule them all, right,

645
00:31:13,320 --> 00:31:14,120
Speaker 5: There is no such thing.

646
00:31:14,120 --> 00:31:15,800
Speaker 4: You've got to constantly be reassessing.

647
00:31:16,480 --> 00:31:16,719
Speaker 5: You know.

648
00:31:16,920 --> 00:31:21,040
Speaker 3: When we talk to economists and market practitioners, you know,

649
00:31:21,080 --> 00:31:22,880
Speaker 3: one of the terms that comes up a lot is

650
00:31:23,040 --> 00:31:25,360
Speaker 3: regime change. And in this case, I gotta be careful.

651
00:31:25,400 --> 00:31:27,600
Speaker 3: I don't mean literally like the question of whether the

652
00:31:27,600 --> 00:31:30,560
Speaker 3: Iranian regime changes. But this idea of like regime change

653
00:31:30,600 --> 00:31:33,600
Speaker 3: in markets, like does the relationship between bonds and stocks

654
00:31:33,960 --> 00:31:36,760
Speaker 3: change over time or is the fed and inflation fighting

655
00:31:36,800 --> 00:31:40,440
Speaker 3: mode or deflation fighting mode whatever, like these are certain relationships,

656
00:31:40,920 --> 00:31:44,920
Speaker 3: relationships change, and I'm curious, like there are many people

657
00:31:44,960 --> 00:31:49,360
Speaker 3: who perceive and perhaps the medium term future that maybe

658
00:31:49,440 --> 00:31:52,440
Speaker 3: the US Israel relationship is going to change, that maybe

659
00:31:52,440 --> 00:31:57,040
Speaker 3: there are parts of growing louder contingents within the Republican

660
00:31:57,120 --> 00:32:00,080
Speaker 3: Party and both parties really, but within the Republican or

661
00:32:00,320 --> 00:32:03,960
Speaker 3: that do not want to deploy US military assets or

662
00:32:04,000 --> 00:32:06,680
Speaker 3: resources in the same way the same level of support

663
00:32:06,720 --> 00:32:09,239
Speaker 3: to Israel in the past, and who knows how that

664
00:32:09,360 --> 00:32:13,160
Speaker 3: is going to transpire. But I'm curious, like how you think, like, Okay,

665
00:32:13,160 --> 00:32:16,200
Speaker 3: there's some relationship the two countries might have, but all

666
00:32:16,240 --> 00:32:20,280
Speaker 3: relationships could change, and if that relationship does change, then

667
00:32:20,280 --> 00:32:23,280
Speaker 3: it changes the short term expectation on any given war.

668
00:32:23,600 --> 00:32:26,560
Speaker 3: And so I'm curious in your process or internally you

669
00:32:26,600 --> 00:32:30,000
Speaker 3: think about this idea of relationship regime change and could

670
00:32:30,080 --> 00:32:32,880
Speaker 3: at some point down the future, and we don't know when,

671
00:32:33,360 --> 00:32:36,760
Speaker 3: could some of these alliances or partnerships or you know,

672
00:32:36,920 --> 00:32:41,440
Speaker 3: friend relationships change and then that force a calculation change

673
00:32:41,640 --> 00:32:43,000
Speaker 3: when an acute event happens.

674
00:32:43,560 --> 00:32:46,120
Speaker 5: That's a great question, but I would say that there

675
00:32:46,160 --> 00:32:48,480
Speaker 5: is a pretty big difference I think, I mean, I'm

676
00:32:48,520 --> 00:32:50,200
Speaker 5: not in the markets, but I think there's a big

677
00:32:50,200 --> 00:32:53,640
Speaker 5: difference with financial markets, which is the regime changes happen,

678
00:32:53,680 --> 00:32:57,160
Speaker 5: but they happen much more slowly and so you have

679
00:32:57,280 --> 00:32:58,640
Speaker 5: a lot more time to bake them in.

680
00:32:58,720 --> 00:32:58,880
Speaker 4: Right.

681
00:32:58,920 --> 00:33:01,320
Speaker 5: So you know, you started the podcast by sort of

682
00:33:01,480 --> 00:33:03,360
Speaker 5: talking about how there are these like talking points that

683
00:33:03,440 --> 00:33:05,760
Speaker 5: come up over and over right the world, like jee,

684
00:33:05,760 --> 00:33:08,200
Speaker 5: political risk is going to be big in twenty twenty five, right.

685
00:33:08,680 --> 00:33:11,640
Speaker 5: A big one of those is multipolar world, right, yeah?

686
00:33:11,720 --> 00:33:14,040
Speaker 5: Or jizu a world like this idea that it's like

687
00:33:14,200 --> 00:33:16,560
Speaker 5: the breakdown of global order and so on and so forth.

688
00:33:16,920 --> 00:33:19,800
Speaker 5: So those only happen every twenty or thirty years, Or.

689
00:33:19,800 --> 00:33:22,320
Speaker 3: That the US may not want to be the hedgemon

690
00:33:22,400 --> 00:33:24,520
Speaker 3: at some point, that it may not have the same

691
00:33:24,600 --> 00:33:27,840
Speaker 3: appetite to be a global police. And so for example,

692
00:33:27,880 --> 00:33:30,240
Speaker 3: you know, the Tucker Carlson wing of the Republican Party

693
00:33:30,600 --> 00:33:33,200
Speaker 3: very loud against this idea, like why should the US

694
00:33:33,360 --> 00:33:36,720
Speaker 3: have such a global military footprint? Things like that at

695
00:33:36,720 --> 00:33:40,240
Speaker 3: some point that could be a dominant strain of thought,

696
00:33:40,320 --> 00:33:42,600
Speaker 3: and we if it becomes one, we might not necessarily

697
00:33:42,640 --> 00:33:44,280
Speaker 3: know when the flipping point.

698
00:33:44,120 --> 00:33:45,120
Speaker 4: Is totally agreed.

699
00:33:45,520 --> 00:33:48,040
Speaker 5: But going back to how it's a slow process, I

700
00:33:48,040 --> 00:33:51,080
Speaker 5: think Trump was a really interesting and like, literally what

701
00:33:51,160 --> 00:33:53,120
Speaker 5: happened over the past month was a very very good

702
00:33:53,160 --> 00:33:56,720
Speaker 5: test case for that right. And the fact that Trump himself,

703
00:33:57,320 --> 00:34:01,520
Speaker 5: who is known to be not just isolationists but also pacifist,

704
00:34:01,680 --> 00:34:03,760
Speaker 5: you know, one can chuckle, but like he does have

705
00:34:03,840 --> 00:34:08,080
Speaker 5: a pacifist instinct I think, and pretty stingy in terms

706
00:34:08,160 --> 00:34:10,839
Speaker 5: of use of American power and use of American money

707
00:34:10,840 --> 00:34:14,200
Speaker 5: and resources, et cetera. The fact that even he intervened,

708
00:34:14,280 --> 00:34:17,000
Speaker 5: I think tells us something about how slow that process

709
00:34:17,080 --> 00:34:17,560
Speaker 5: is going to be.

710
00:34:17,719 --> 00:34:21,279
Speaker 2: Sure, Okay, we mentioned cliches a couple of times, and

711
00:34:21,320 --> 00:34:23,759
Speaker 2: I think this is probably a cliche too, But you know,

712
00:34:23,960 --> 00:34:27,799
Speaker 2: cliches can be true. Maybe that's why they become cliches.

713
00:34:27,840 --> 00:34:32,480
Speaker 2: But when it comes to geopolitical risk analysis, do things

714
00:34:32,560 --> 00:34:37,760
Speaker 2: feel more difficult to you nowadays versus when you perhaps

715
00:34:38,080 --> 00:34:41,920
Speaker 2: started in the industry, Does the world seem more complex?

716
00:34:42,120 --> 00:34:44,880
Speaker 2: And I guess given the Trump administration and some of

717
00:34:44,920 --> 00:34:49,759
Speaker 2: the unpredictability that we discussed earlier. Do things seem more volatile,

718
00:34:49,880 --> 00:34:53,000
Speaker 2: more uncertain and just harder to sort of get a

719
00:34:53,040 --> 00:34:53,480
Speaker 2: handle on.

720
00:34:54,200 --> 00:34:57,040
Speaker 5: Yes, I think that is absolutely fair and it really

721
00:34:57,080 --> 00:34:59,600
Speaker 5: does sort of echo back to Joe's question in the

722
00:34:59,640 --> 00:35:03,080
Speaker 5: sense you take something like the relationship between Russia and

723
00:35:03,120 --> 00:35:06,080
Speaker 5: China pre Ukraine War or pre twenty twenty two version

724
00:35:06,120 --> 00:35:08,919
Speaker 5: of the Ukraine War. For fifteen years before that, there

725
00:35:08,960 --> 00:35:11,919
Speaker 5: had been an established talking point amongst pretty much all

726
00:35:12,040 --> 00:35:15,400
Speaker 5: political analysts, which was, it's an alliance, it's an access

727
00:35:15,400 --> 00:35:18,080
Speaker 5: of convenience. Right, they get along, they work together, but

728
00:35:18,120 --> 00:35:20,040
Speaker 5: they don't really trust each other, they don't really love

729
00:35:20,040 --> 00:35:23,879
Speaker 5: each other, and so you knew that when push comes

730
00:35:23,920 --> 00:35:25,600
Speaker 5: to shove, when they had to like put their interest

731
00:35:25,640 --> 00:35:27,680
Speaker 5: above the other, etcetera, you knew which way.

732
00:35:27,520 --> 00:35:28,080
Speaker 4: It was going to go.

733
00:35:28,800 --> 00:35:31,640
Speaker 5: That was very unclear for the first like year, and

734
00:35:31,920 --> 00:35:35,280
Speaker 5: frankly some could argue it's still unclear post Russia invasion,

735
00:35:35,360 --> 00:35:36,840
Speaker 5: right or Ukraine invasion.

736
00:35:37,200 --> 00:35:39,280
Speaker 4: Are they now in it forever?

737
00:35:39,760 --> 00:35:42,799
Speaker 5: And sort of Russia basically China is grooming Russia to

738
00:35:42,880 --> 00:35:45,719
Speaker 5: help it when it goes after Taiwan, or is it

739
00:35:45,840 --> 00:35:48,600
Speaker 5: still very much an access of convenience where the Chinese

740
00:35:48,640 --> 00:35:51,240
Speaker 5: might cut off, you know, drone inputs to the Russians

741
00:35:51,400 --> 00:35:54,320
Speaker 5: for the right price, if there's American export control lifting

742
00:35:54,440 --> 00:35:57,040
Speaker 5: or something like that. Right, And your question, Tracy, the

743
00:35:57,080 --> 00:36:00,839
Speaker 5: fact that so much stuff is changing so fast means

744
00:36:00,840 --> 00:36:05,279
Speaker 5: that you have even less historical background or historical data, which,

745
00:36:05,320 --> 00:36:08,239
Speaker 5: as we said earlier, you're already starting with very very

746
00:36:08,239 --> 00:36:11,640
Speaker 5: small data sets, right, And so the temptation there is

747
00:36:11,640 --> 00:36:12,840
Speaker 5: to kind of just make it up as you go,

748
00:36:12,920 --> 00:36:14,320
Speaker 5: and that's where things get dicey.

749
00:36:15,000 --> 00:36:18,279
Speaker 3: Do you think that's possible, like that China has a

750
00:36:18,320 --> 00:36:21,480
Speaker 3: price for which it would hold back on Russian access

751
00:36:21,520 --> 00:36:23,000
Speaker 3: to drawing materials and such.

752
00:36:23,680 --> 00:36:26,479
Speaker 5: So my answer to that would be, in a way

753
00:36:26,560 --> 00:36:29,200
Speaker 5: that one is actually not that hard because even if

754
00:36:29,239 --> 00:36:31,440
Speaker 5: there were a price, we are so far from being

755
00:36:31,480 --> 00:36:33,399
Speaker 5: willing to pay that price that it's not gonna it's

756
00:36:33,400 --> 00:36:34,440
Speaker 5: never gonna be delighted with day.

757
00:36:35,040 --> 00:36:37,239
Speaker 3: What's the surprise thing that you think is not on

758
00:36:37,320 --> 00:36:41,040
Speaker 3: anyone's radar right now geopolitically that you think we should

759
00:36:41,080 --> 00:36:43,840
Speaker 3: be focusing more on. This is my way of so

760
00:36:43,960 --> 00:36:45,680
Speaker 3: listening ideas for future episodes.

761
00:36:45,800 --> 00:36:47,680
Speaker 5: By the way, Yeah, yeah, no, so I actually I

762
00:36:47,760 --> 00:36:50,239
Speaker 5: love that question because but I hope this is not

763
00:36:50,320 --> 00:36:53,839
Speaker 5: going to be disappointing, but it is. I always say,

764
00:36:53,880 --> 00:36:57,520
Speaker 5: like the whole black Swan thing is irrelevant, Like black

765
00:36:57,520 --> 00:37:01,000
Speaker 5: Swan's almost never happened. This stuff that blows up in

766
00:37:01,040 --> 00:37:04,640
Speaker 5: our face is stuff that is visible pretty far ahead,

767
00:37:04,800 --> 00:37:06,440
Speaker 5: like not necessarily far ahead of time, but that is

768
00:37:07,120 --> 00:37:11,640
Speaker 5: pretty obvious. And the difficulty is for the analysts predicting

769
00:37:11,680 --> 00:37:14,480
Speaker 5: the details right, like in what month is put and

770
00:37:14,560 --> 00:37:16,960
Speaker 5: get invade or whatever, or what part of Ukraine is

771
00:37:16,960 --> 00:37:19,880
Speaker 5: he going to invade? And the other difficulty for clients,

772
00:37:19,880 --> 00:37:21,520
Speaker 5: of course is how to trade that right, given that

773
00:37:21,560 --> 00:37:24,280
Speaker 5: you can get radically different outcomes. But the events themselves,

774
00:37:24,320 --> 00:37:27,320
Speaker 5: I mean, there were four or five months of Russian

775
00:37:27,360 --> 00:37:32,000
Speaker 5: build up in front of Ukraine and in December January

776
00:37:32,040 --> 00:37:34,239
Speaker 5: people were still debating what it's going to happen or not.

777
00:37:34,560 --> 00:37:37,319
Speaker 5: And another example is COVID. People talked about COVID as

778
00:37:37,320 --> 00:37:39,400
Speaker 5: a black Swan. I mean, if you read any of those,

779
00:37:39,480 --> 00:37:41,600
Speaker 5: you know, World of Form global risk reports for the

780
00:37:41,640 --> 00:37:45,080
Speaker 5: past like fifteen years, pandemics were always top ten like

781
00:37:45,160 --> 00:37:48,080
Speaker 5: or even top five. People knew that pandemics were a

782
00:37:48,120 --> 00:37:51,400
Speaker 5: major potential business risk. So again, it's it's more like

783
00:37:51,440 --> 00:37:54,040
Speaker 5: the details rather than something's going to just pop up

784
00:37:54,040 --> 00:37:54,840
Speaker 5: in our face.

785
00:37:54,880 --> 00:37:57,360
Speaker 3: In the next I don't know, five years. Do you

786
00:37:57,400 --> 00:37:59,040
Speaker 3: expect China to invade Taiwan?

787
00:37:59,360 --> 00:38:02,640
Speaker 5: Yes, I mean the word invade is the one that

788
00:38:02,640 --> 00:38:05,600
Speaker 5: bugs me, which is not going to surprise you, because

789
00:38:05,600 --> 00:38:08,440
Speaker 5: I think that it's more likely to be a blockade,

790
00:38:08,440 --> 00:38:12,680
Speaker 5: for example, than an actual amphibius invasion. So that view,

791
00:38:12,719 --> 00:38:15,879
Speaker 5: for example, is pretty I think. But now right, the

792
00:38:15,920 --> 00:38:18,799
Speaker 5: problem is again from the perception of how do you

793
00:38:18,880 --> 00:38:20,800
Speaker 5: manage it. One of the things that I think is

794
00:38:20,840 --> 00:38:24,839
Speaker 5: totally underappreciated is everyone knows that a blockade is a risk, right,

795
00:38:25,040 --> 00:38:26,759
Speaker 5: But the part that's totally under appreciated is that the

796
00:38:26,840 --> 00:38:29,439
Speaker 5: Chinese could roll it out literally overnight. So I think

797
00:38:29,520 --> 00:38:31,399
Speaker 5: what is underappreciated is We're not going to get any

798
00:38:31,400 --> 00:38:33,040
Speaker 5: build up. We're going to wake up one morning and

799
00:38:33,040 --> 00:38:35,440
Speaker 5: it's going to be done. So that's one problem. A

800
00:38:35,480 --> 00:38:40,680
Speaker 5: second problem is a bloodless blockade that lasts, you know,

801
00:38:40,960 --> 00:38:44,120
Speaker 5: three months or six months, that is essentially a continuous

802
00:38:44,160 --> 00:38:48,960
Speaker 5: anaconda squeeze on Taiwan, and the Taiwan's economy could actually

803
00:38:49,000 --> 00:38:52,040
Speaker 5: be far worse from a purely market perspective. Forget about

804
00:38:52,080 --> 00:38:55,680
Speaker 5: you know, normative aspects far worse than a one month war,

805
00:38:56,560 --> 00:38:59,640
Speaker 5: regardless of the outcome, right, because it's the length of

806
00:38:59,640 --> 00:39:02,839
Speaker 5: the eruption for business operations that could be most problematic.

807
00:39:03,280 --> 00:39:05,359
Speaker 5: So again, it's how you look at it. I think

808
00:39:05,440 --> 00:39:06,640
Speaker 5: that they can make a difference.

809
00:39:07,480 --> 00:39:11,080
Speaker 2: Back in college, I wrote an essay slash dissertation on

810
00:39:11,200 --> 00:39:14,520
Speaker 2: the chances of China, you know, invading Taiwan or going

811
00:39:14,560 --> 00:39:17,000
Speaker 2: after Taiwan, and I think I had my base case

812
00:39:17,120 --> 00:39:18,960
Speaker 2: was they were going to do something before the two

813
00:39:19,000 --> 00:39:20,120
Speaker 2: thousand and eight Olympics.

814
00:39:20,680 --> 00:39:24,320
Speaker 3: So yeah, I empathize with the difficulty of timing.

815
00:39:24,520 --> 00:39:27,840
Speaker 2: I totally do. Andrew, that was fantastic. Thank you so

816
00:39:27,920 --> 00:39:29,320
Speaker 2: much for coming on all thoughts.

817
00:39:29,440 --> 00:39:30,040
Speaker 3: Thanks Andrew.

818
00:39:30,040 --> 00:39:30,520
Speaker 1: That was great.

819
00:39:30,600 --> 00:39:43,879
Speaker 4: Thank you, Joe.

820
00:39:43,880 --> 00:39:45,960
Speaker 2: There was a lot to pick out of that conversation.

821
00:39:46,400 --> 00:39:48,960
Speaker 2: I think one of the things that struck me. Okay,

822
00:39:48,960 --> 00:39:51,800
Speaker 2: first of all, you know, he was talking about black swans,

823
00:39:51,840 --> 00:39:55,319
Speaker 2: and this is something that teleb himself pointed out at

824
00:39:55,320 --> 00:39:57,600
Speaker 2: our recent live event, which is we shouldn't really be

825
00:39:57,640 --> 00:40:00,319
Speaker 2: worried about black swans because they are by their very

826
00:40:00,400 --> 00:40:04,560
Speaker 2: nature unknowable. We should be worried about the gracewans like

827
00:40:04,600 --> 00:40:08,120
Speaker 2: a pandemic. I think that makes a lot of sense. Secondly,

828
00:40:08,400 --> 00:40:13,440
Speaker 2: the emphasis on motivation was really interesting to me because

829
00:40:13,480 --> 00:40:16,279
Speaker 2: this is something that I have wondered about the tariffs.

830
00:40:16,920 --> 00:40:20,840
Speaker 2: If Trump needs to have a bunch of tariff deals

831
00:40:20,920 --> 00:40:24,719
Speaker 2: to have his trade war seem to be a success,

832
00:40:25,480 --> 00:40:28,240
Speaker 2: then what does that mean on the revenue side, because

833
00:40:28,280 --> 00:40:31,279
Speaker 2: he has also talked about how tariff revenue is going

834
00:40:31,320 --> 00:40:34,080
Speaker 2: to offset a bunch of tax cuts and things like that.

835
00:40:34,320 --> 00:40:36,680
Speaker 2: So I do think it's important and I still haven't

836
00:40:36,719 --> 00:40:40,440
Speaker 2: figured out that one particularly. And then the other thing

837
00:40:40,560 --> 00:40:43,759
Speaker 2: is he was talking about Trump's advisors, and this is

838
00:40:43,760 --> 00:40:47,200
Speaker 2: something I hadn't realized, but he's right. The one thing

839
00:40:47,239 --> 00:40:52,080
Speaker 2: they can't do is limit the president's optionality. It seems

840
00:40:52,080 --> 00:40:55,120
Speaker 2: like they can throw out pretty much any scenario, any response,

841
00:40:55,120 --> 00:40:59,280
Speaker 2: any possibility that they want, but they can't do anything

842
00:40:59,280 --> 00:41:02,799
Speaker 2: that would box him or pigeonhole into one position. That

843
00:41:02,880 --> 00:41:03,480
Speaker 2: was interesting.

844
00:41:03,680 --> 00:41:05,680
Speaker 3: Yeah, you know, by the way, just going back to

845
00:41:06,160 --> 00:41:10,120
Speaker 3: Andrew's note that we kept referencing on June sixteenth, he

846
00:41:10,200 --> 00:41:14,120
Speaker 3: had underestimated the odds that the US would intervene as

847
00:41:14,160 --> 00:41:17,920
Speaker 3: he did. However, to his credit, here were his final takeaways.

848
00:41:18,440 --> 00:41:21,720
Speaker 3: US intervention is certainly possible, but still not base case. Okay,

849
00:41:21,800 --> 00:41:25,320
Speaker 3: it did happen, However, he says likewise, regime changes plausible,

850
00:41:25,360 --> 00:41:27,840
Speaker 3: but still unlikely. So he was right on that. And

851
00:41:27,880 --> 00:41:30,960
Speaker 3: then he said the overwhelming majority of scenarios end in

852
00:41:31,000 --> 00:41:34,680
Speaker 3: a negotiated around capitulation with no meaningful damage done to

853
00:41:34,719 --> 00:41:37,520
Speaker 3: global oil supply or golf assets. I think that's a

854
00:41:37,560 --> 00:41:39,879
Speaker 3: pretty good conclusion that at the end of the day,

855
00:41:40,360 --> 00:41:42,480
Speaker 3: because if you figure people care about the markets and

856
00:41:42,560 --> 00:41:46,560
Speaker 3: oil supply more or less, a useful conclusion to have

857
00:41:46,560 --> 00:41:49,200
Speaker 3: been able to make on June sixteenth. I have to

858
00:41:49,280 --> 00:41:53,759
Speaker 3: say the speed with which Andrew answered yes, there is

859
00:41:53,840 --> 00:41:58,000
Speaker 3: going to be something Taiwan that I was like, I

860
00:41:58,040 --> 00:42:00,479
Speaker 3: was hoping that he would hum in Hawe a little

861
00:42:00,520 --> 00:42:02,839
Speaker 3: bit about that, and then this idea that's just going

862
00:42:02,880 --> 00:42:04,920
Speaker 3: to happen so quickly, it'll be overnight, there's we're not

863
00:42:04,920 --> 00:42:06,960
Speaker 3: going to get any signs of it, and then the

864
00:42:06,960 --> 00:42:09,560
Speaker 3: world is going to change dramatically the next morning in

865
00:42:09,600 --> 00:42:11,319
Speaker 3: ways that we don't really know.

866
00:42:11,760 --> 00:42:14,640
Speaker 2: Well. On the other hand, there are people like me

867
00:42:14,840 --> 00:42:17,719
Speaker 2: who have been saying, yeah, with great confidence that this

868
00:42:17,800 --> 00:42:19,400
Speaker 2: is going to happen for a while and it doesn't.

869
00:42:19,560 --> 00:42:22,400
Speaker 2: So maybe that's that's some hope for you, Joe.

870
00:42:23,000 --> 00:42:25,680
Speaker 3: I mean for me, I mean for lots of people,

871
00:42:25,800 --> 00:42:27,360
Speaker 3: certainly hope there is anyway.

872
00:42:27,880 --> 00:42:28,680
Speaker 2: The other thing I was.

873
00:42:28,920 --> 00:42:32,640
Speaker 3: Didn't like how comfortably he was Yeah, in five years, Yes,

874
00:42:32,680 --> 00:42:34,000
Speaker 3: he didn't have seemed to have any doubt.

875
00:42:34,120 --> 00:42:36,239
Speaker 2: The other thing I was thinking, we probably should have

876
00:42:36,280 --> 00:42:40,040
Speaker 2: asked this, but the time frames for things, because you

877
00:42:40,080 --> 00:42:43,880
Speaker 2: mentioned regime change in Iran, like, okay, well it hasn't happened,

878
00:42:43,880 --> 00:42:47,120
Speaker 2: but it's also been two weeks since we had this big,

879
00:42:47,160 --> 00:42:50,080
Speaker 2: big event that happened, and I don't think it's necessarily

880
00:42:50,480 --> 00:42:53,719
Speaker 2: off the table, So I'd be curious to figure out

881
00:42:53,760 --> 00:42:56,600
Speaker 2: how he thinks about like the time frame of possibilities

882
00:42:56,640 --> 00:42:59,320
Speaker 2: as well. But oh well, we already spoke for about

883
00:42:59,320 --> 00:43:01,600
Speaker 2: forty five minutes, so we should probably leave it there.

884
00:43:01,760 --> 00:43:02,520
Speaker 3: Let's leave it there.

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00:43:02,920 --> 00:43:05,640
Speaker 2: This has been another episode of the Audthlots podcast. I'm

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00:43:05,680 --> 00:43:08,560
Speaker 2: Chracy Alloway. You can follow me at Chacey Alloway.

887
00:43:08,400 --> 00:43:11,160
Speaker 3: And I'm Jill Wisenthal. You can follow me at the Stalwart.

888
00:43:11,280 --> 00:43:14,239
Speaker 3: Follow our guest Andrew Bishop. He's at Andrew Underscore d

889
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Speaker 3: Underscore Bishop follow our producers Carmen Rodriguez at Carman armand

890
00:43:18,320 --> 00:43:21,279
Speaker 3: dash El Bennett at Dashbot and kill Brooks at Kilbrooks.

891
00:43:21,400 --> 00:43:23,640
Speaker 3: From more odd Lots content, go to Bloomberg dot com

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Speaker 2: instructions there. Thanks for listening in in