WEBVTT - How a Geopolitical Analyst Predicts the Outcome of War 0:00:02.720 --> 0:00:13.920 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.560 --> 0:00:21.640 Hello and welcome to another episode of the Authoughts podcast. 0:00:21.760 --> 0:00:23.200 I'm Tracy Alloway. 0:00:22.840 --> 0:00:24.040 And I'm Joe Wisenthal. 0:00:24.360 --> 0:00:30.720 Joe, do you ever experience a sudden surge in geopolitical 0:00:30.840 --> 0:00:33.200 analysis emails in your inbox? 0:00:34.520 --> 0:00:38.320 Yes, I do. You know, it's funny most years, people like, oh, 0:00:38.360 --> 0:00:39.920 what do you you know at the beginning of the year, 0:00:40.080 --> 0:00:42.680 end of the year, things are going good, and it's like, 0:00:42.680 --> 0:00:43.440 what are you concerned about? 0:00:43.440 --> 0:00:43.479 It? 0:00:43.560 --> 0:00:46.440 Like, I'm concerned about geopolitical tension. It's just one of 0:00:46.479 --> 0:00:48.559 these cliches, A classic as a classic, That's what I 0:00:48.600 --> 0:00:50.640 always say when I have no it's like, well, thanks 0:00:50.720 --> 0:00:53.519 to fine, but I'm concerned. But in some years, clearly 0:00:54.000 --> 0:00:58.600 geopolitical tension, war, et cetera is very real. We recently 0:00:58.760 --> 0:01:03.920 saw the bombing in both directions between Israel and Iran. 0:01:04.440 --> 0:01:07.640 It seems to be paused for now, but sometimes geopolitical 0:01:07.680 --> 0:01:10.000 attention becomes outright geopolitical hostility. 0:01:10.240 --> 0:01:13.120 Yeah, that was definitely one of those weeks when we 0:01:13.200 --> 0:01:15.720 both got a lot of emails. Yes, I have a 0:01:15.760 --> 0:01:18.800 confession to make, which is I read all of those 0:01:18.959 --> 0:01:23.720 geopolitical analyzes, but I always kind of wonder what I'm 0:01:23.760 --> 0:01:27.080 supposed to do with that information. You know, if I 0:01:27.160 --> 0:01:31.520 were a major professional investor, if I'm reading a note 0:01:31.600 --> 0:01:35.720 about what is the base case for like Iran versus Israel, 0:01:36.520 --> 0:01:40.040 I am not entirely sure how that influences my own 0:01:40.080 --> 0:01:40.800 decision making. 0:01:41.120 --> 0:01:43.039 Well, I would say I would take it even a 0:01:43.080 --> 0:01:46.119 step backwards and say, like, you know, when we talked 0:01:46.160 --> 0:01:50.280 to Wall Street analysts, say a FED forecaster, I have 0:01:50.320 --> 0:01:54.360 a sort of I think, intuitive understanding of how they 0:01:54.440 --> 0:01:56.240 e They're like, oh, there's going to be three cuts 0:01:56.240 --> 0:01:58.680 in the next year, and then I generally have a 0:01:58.720 --> 0:02:02.120 sort of intuitive understanding of how they might arrive at that. Okay, 0:02:02.280 --> 0:02:04.400 we look at statements from the FED about what they're 0:02:04.400 --> 0:02:08.160 looking for in terms of achieving disinflation. We look at 0:02:08.160 --> 0:02:11.360 the trajectory of the US economy, and then we say, okay, 0:02:11.360 --> 0:02:15.600 we combine the FED statement, their sensitivity, etc. The reaction 0:02:15.760 --> 0:02:17.920 function that's the term I'm looking for, with the data, 0:02:17.960 --> 0:02:20.520 and then we arrive at a forecast. When it comes 0:02:20.560 --> 0:02:24.000 to something like a war, I do not really have 0:02:24.040 --> 0:02:28.440 an intuitive understanding of how the geostrategic or geopolitical analysts 0:02:28.720 --> 0:02:31.839 whose notes flutter inboxes from time to time, always during 0:02:31.880 --> 0:02:35.880 bad periods. How do they arrive at conclusions? Therefore, X, 0:02:35.919 --> 0:02:38.440 we think the war is going to end this way. 0:02:38.639 --> 0:02:41.000 I do not know how that can be done systematically, 0:02:41.040 --> 0:02:41.960 and yet people. 0:02:41.760 --> 0:02:45.960 Try, and actually some of them put numbers probabilities on 0:02:46.080 --> 0:02:49.360 specific outcomes. So I think if I was a geopolitical analyst, 0:02:49.440 --> 0:02:52.360 I would just put thirty percent chance on everything that 0:02:52.440 --> 0:02:53.280 seems reasonable. 0:02:53.440 --> 0:02:55.120 Yeah, So it used to be that if you were 0:02:55.200 --> 0:02:57.799 unsure but wanted to sound smart, you say sixty forty, 0:02:58.200 --> 0:03:01.000 But these days you say seventy thirty. Seventy thirty is 0:03:01.040 --> 0:03:02.040 the new sixty forty. 0:03:02.160 --> 0:03:03.160 That's right, that's right. 0:03:03.240 --> 0:03:04.760 But I you know, I don't want to be cynical 0:03:04.800 --> 0:03:08.120 about it. I am curious about how one could derive 0:03:08.200 --> 0:03:12.000 a number from things that seem wildly uncertain and rare, 0:03:12.160 --> 0:03:14.000 because there are not a lot of event studies, and 0:03:14.040 --> 0:03:18.359 every war is distinct, and therefore the idea of trying 0:03:18.400 --> 0:03:21.840 to accurately assess the outcome of some conflict strikes me 0:03:21.880 --> 0:03:23.200 as very difficult. Yeah. 0:03:23.280 --> 0:03:25.160 Well, I am very pleased to say that we do, 0:03:25.240 --> 0:03:28.800 in fact have the perfect guests to talk about geopolitical 0:03:28.840 --> 0:03:33.680 analysis and how it actually is calculated. I guess are created. 0:03:34.040 --> 0:03:36.560 We are going to speak with Andrew Bishop. He is 0:03:36.640 --> 0:03:39.640 a senior partner and global head of Policy research at 0:03:39.720 --> 0:03:43.120 Signum Global Advisors. So Andrew, welcome to the show. 0:03:43.560 --> 0:03:44.600 Hi, thanks for having me. 0:03:45.080 --> 0:03:48.200 Why don't we just start with what is Signum? 0:03:48.320 --> 0:03:48.440 So? 0:03:48.600 --> 0:03:52.800 Signum is a political and geopolitical risk advisory firm that 0:03:52.880 --> 0:03:55.640 was founded in twenty eighteen by a gentleman named Charles Myers, 0:03:55.840 --> 0:03:58.520 who was the vice chairman of Evercore i I before 0:03:58.560 --> 0:04:01.640 founding Signam. And Charles had a career in banking with 0:04:01.680 --> 0:04:04.040 a focus on emerging markets, but was always sort of 0:04:04.080 --> 0:04:06.760 one foot in US politics as a fundraiser, as an 0:04:06.800 --> 0:04:10.640 advisor to candidates, et cetera. And he founded Signam essentially 0:04:10.920 --> 0:04:14.400 to try to meld his instincts about how markets work 0:04:14.440 --> 0:04:17.560 with his knowledge about US politics, and from there he 0:04:17.640 --> 0:04:20.240 hired me to help build out the sort of global 0:04:20.279 --> 0:04:21.719 analysis beyond the US. 0:04:22.240 --> 0:04:25.440 So I think I started first becoming aware of your 0:04:25.480 --> 0:04:30.320 commentary recently because Ozon Tarman, who we've had on the podcast, 0:04:30.400 --> 0:04:33.200 over at the Deutsche Bank, he started forwarding some of 0:04:33.240 --> 0:04:36.520 your notes over and so then I started reading this 0:04:36.520 --> 0:04:39.320 stuff and it was like very interesting and compelling. Well, 0:04:39.320 --> 0:04:41.599 why don't you tell us? Okay, you explained what SIGNAM is. 0:04:42.000 --> 0:04:45.839 What's your background? How do you develop an expertise in 0:04:45.920 --> 0:04:46.640 these areas? 0:04:47.080 --> 0:04:49.840 So I joined SIGNAM from the Eurasia Group, which is 0:04:49.880 --> 0:04:53.719 sort of the founding house of political risk. I was 0:04:53.760 --> 0:04:57.240 there for four years. I first joined Eurasia because I'd 0:04:57.240 --> 0:04:59.320 met Ian Bremmer through a previous job at the World 0:04:59.320 --> 0:05:02.599 of Comic Forum. So the DAVS organization and I joined 0:05:02.680 --> 0:05:05.640 as sort of right hand man to their chairman, Cliff Cupchin, 0:05:06.200 --> 0:05:08.400 who really taught me a lot in that firm. 0:05:08.440 --> 0:05:09.440 In that role, I ended up. 0:05:09.400 --> 0:05:11.920 As deputy head of research, and several of the things 0:05:11.920 --> 0:05:15.040 that I learned from Cliff, or for example, not getting 0:05:15.040 --> 0:05:17.680 overly excited by every new headline, right so I think, 0:05:17.960 --> 0:05:20.719 especially when you're at the beginning of good advice for everyone. Yes, 0:05:20.880 --> 0:05:23.080 I mean to me, the best example of that is 0:05:23.160 --> 0:05:26.400 the zero hedge type headline about how the first gas 0:05:26.440 --> 0:05:30.320 contract was denominated or settled the euro instead of dollar, 0:05:31.120 --> 0:05:34.520 you know, or just the bricks more generally. I started 0:05:34.520 --> 0:05:36.279 working when I was twenty two. I'm thirty nine now. 0:05:36.839 --> 0:05:39.480 The bricks have had a glorious future for you know, 0:05:39.640 --> 0:05:42.240 almost twenty years, so that was one of the things. 0:05:42.279 --> 0:05:45.720 The other thing that I learned from Cliff was good analysis, 0:05:46.040 --> 0:05:48.719 Like basically the key is to have a rigorous and 0:05:48.800 --> 0:05:53.320 analytical process, and even if you get the call wrong, 0:05:53.480 --> 0:05:55.400 it's better to have good analysis and a call wrong 0:05:55.480 --> 0:05:57.280 rather than the other way around, right, because otherwise you 0:05:57.279 --> 0:06:00.360 could just be throwing darts and you'd be getting elects, 0:06:00.400 --> 0:06:02.960 you know, fifty percent right half the time, right, which, 0:06:03.000 --> 0:06:05.039 by the way, gets to this question of what you 0:06:05.120 --> 0:06:09.119 mentioned on the probabilities. It's actually harder than just throwing 0:06:09.160 --> 0:06:12.000 darts or or flipping a coin because most situations have 0:06:12.160 --> 0:06:15.479 far more than two scenarios, right, So it really is 0:06:15.480 --> 0:06:18.640 a very very difficult thing to do to predict all 0:06:18.720 --> 0:06:21.479 geopolitical outcomes, which which I'm sure we'll get to, but 0:06:21.640 --> 0:06:24.240 just to close off on, you know, sort of background, 0:06:24.320 --> 0:06:26.919 I joined Eurasia from the World Economic Form and the 0:06:27.000 --> 0:06:29.760 job I had there was really fun because essentially, you know, 0:06:29.800 --> 0:06:32.720 the organization is best known for Davos, but the team 0:06:32.760 --> 0:06:35.400 I was in, which was their Global Risk team, basically 0:06:35.440 --> 0:06:39.440 send their team members throughout most frontier and emerging markets 0:06:39.480 --> 0:06:42.440 to meet with government officials get a sense of where 0:06:42.480 --> 0:06:44.880 their head was at in terms of their country's sort 0:06:44.880 --> 0:06:48.320 of economic future, future economic policies, et cetera. Then meet 0:06:48.360 --> 0:06:52.000 with the opposition and the business community and think tank community, 0:06:52.400 --> 0:06:55.760 and essentially write up scenarios about the future of that 0:06:55.839 --> 0:06:58.640 country at a sort of ten to twenty year outlook, 0:06:59.120 --> 0:07:01.320 not trying to get it right, not trying to predict it, 0:07:01.720 --> 0:07:05.400 but trying to essentially force the country to think twice 0:07:05.400 --> 0:07:07.440 about his business model. As you can imagine, a lot 0:07:07.440 --> 0:07:10.400 of these were resource dependent countries and that led to 0:07:10.720 --> 0:07:14.320 some pretty interesting situations. Like one of the projects we 0:07:14.360 --> 0:07:16.480 worked on, for example, was about the future of Ukraine, 0:07:16.960 --> 0:07:19.840 and that was in twenty thirteen, twenty fourteen, so the 0:07:19.880 --> 0:07:23.440 project was literally interrupted by the Maidan Revolution. Half the 0:07:23.480 --> 0:07:25.840 people on the board of the project and half the 0:07:25.840 --> 0:07:28.600 people we'd interviewed were, you know, either fleeing or put 0:07:28.640 --> 0:07:31.520 in prison. And I remember we were doing a panel 0:07:31.600 --> 0:07:35.640 to actually introduce parts of the findings in Davos, and 0:07:35.760 --> 0:07:39.840 the Prime Minister of Ukraine his plane was he was 0:07:39.880 --> 0:07:42.920 basically disinvited on the day that the panel was taking place, 0:07:42.920 --> 0:07:45.480 so his plain was circling over Zurich, not being allowed 0:07:45.480 --> 0:07:47.880 to land, not being allowed into the room, you know, 0:07:47.960 --> 0:07:49.640 similarly we had back then. 0:07:49.960 --> 0:07:50.600 He was an MP. 0:07:51.080 --> 0:07:54.280 Petro Borshenko, who later became the leader of the country, 0:07:54.880 --> 0:07:57.840 smuggled in a grenade from the Madan Revolutions into the 0:07:57.840 --> 0:07:59.720 conference hall and sort of held it up to show 0:07:59.800 --> 0:08:02.200 how the brutality of the regime was working. So it 0:08:02.240 --> 0:08:04.400 was a really great way to get first hand exposure 0:08:04.440 --> 0:08:05.520 to to frontier markets. 0:08:05.720 --> 0:08:08.800 Yeah, that is definitely first hand exposure. I'm not sure 0:08:08.840 --> 0:08:12.120 how I would feel being in a conference room or 0:08:12.320 --> 0:08:14.920 like a big hall with a grenade. I'm hoping it 0:08:15.000 --> 0:08:18.800 wasn't live, but who knows. Okay, Andrew, one thing I 0:08:18.840 --> 0:08:21.160 wanted to ask, and I alluded to it in the intro, 0:08:21.560 --> 0:08:24.920 is when I get your research nodes, if I am 0:08:24.960 --> 0:08:29.040 a typical client of Signum, what exactly am I doing 0:08:29.120 --> 0:08:32.040 with that information? Why do I want to get this analysis? 0:08:32.520 --> 0:08:35.360 So first thing is about sixty sixty five percent of 0:08:35.360 --> 0:08:37.959 our clients are financial investors, right that Joe mentioned or 0:08:37.960 --> 0:08:41.480 alluded to about thirty five percent or so our corporates, 0:08:41.559 --> 0:08:43.520 and they obviously use this in very different ways, which 0:08:43.720 --> 0:08:46.440 I'll get into. But I think the first topic that 0:08:46.520 --> 0:08:49.480 you all sort of touched on is this idea, you know, 0:08:49.640 --> 0:08:51.360 there's there's a lot of studies that show that you 0:08:51.360 --> 0:08:53.880 have political risks just don't affect markets, right, like, who 0:08:53.920 --> 0:08:58.199 really cares. Frankly, oil's pretty much flat from pre Israel 0:08:58.240 --> 0:09:01.400 Iron War Viks barely picked up. You know, SMP's at 0:09:01.400 --> 0:09:04.000 all time highs et cetera. Obviously I have a you know, 0:09:04.040 --> 0:09:06.480 a bias or I'm rooting for my home team here, 0:09:06.520 --> 0:09:09.240 but I think that that's a little bit short sighted 0:09:09.320 --> 0:09:11.960 for a few reasons. One is, most of these studies 0:09:12.559 --> 0:09:15.240 typically look at S and P in the long term, 0:09:15.800 --> 0:09:18.360 and our clients obviously are not trading the S and 0:09:18.400 --> 0:09:20.000 P in the long term, right, They're trading in the 0:09:20.000 --> 0:09:22.960 short term, and you've got some pretty violent, sharp moves 0:09:23.080 --> 0:09:25.840 up and down for a lot of these assets. And 0:09:25.960 --> 0:09:29.960 they're also trading obviously more niche assets. So I'm thinking 0:09:29.960 --> 0:09:31.960 of the tribal and tourism industry, or I'm thinking of 0:09:32.000 --> 0:09:34.240 the oil and gas industry is rarely shekel, you know, 0:09:34.600 --> 0:09:36.240 things that are far more niche, and if you look 0:09:36.240 --> 0:09:39.440 at it at that level, you've got some major major 0:09:39.600 --> 0:09:43.000 volatility that can be both beneficial or negative depending on 0:09:43.240 --> 0:09:45.000 how good you're at playing it, which is really what 0:09:45.080 --> 0:09:47.839 are our clients are specialists and we're not strategists. We 0:09:47.840 --> 0:09:50.840 don't give investment advice based on the jeblical research we 0:09:50.880 --> 0:09:53.840 put out. The other thing is there's this big, you know, 0:09:53.920 --> 0:09:55.720 talking point, and it was true again last month. There 0:09:55.760 --> 0:09:59.480 were two weeks ago whenever the Israeli ron war ended, 0:10:00.080 --> 0:10:03.280 there's sort of this like oil collapses, right, And that's 0:10:03.400 --> 0:10:06.400 a counterintuitive outcome. A lot of our clients were actually 0:10:06.440 --> 0:10:08.679 expecting that, and so what they were trying to figure 0:10:08.720 --> 0:10:11.960 out was when is this going to end or not end? 0:10:12.000 --> 0:10:13.240 But when is it going to culminate? 0:10:13.320 --> 0:10:13.440 Right? 0:10:13.480 --> 0:10:15.800 When is going to be the peak fear level? And 0:10:15.800 --> 0:10:18.240 that's probably going to be when Iran retaliates for whatever 0:10:18.240 --> 0:10:21.080 the US does. So again, the fact that it actually 0:10:21.200 --> 0:10:24.600 drops on the news is not necessarily surprising to most 0:10:24.600 --> 0:10:27.439 of the folks we speak to. Patreca, you want me 0:10:27.480 --> 0:10:29.679 to get into a little bit how the clients use us? 0:10:29.880 --> 0:10:30.920 Yes, that would be great. 0:10:31.080 --> 0:10:32.520 Yeah, I mean, so there's a few ways. 0:10:32.679 --> 0:10:36.600 The first, and I would say least often and least 0:10:36.880 --> 0:10:40.319 sort of savvy or useful way is for the predictions themselves. Right, 0:10:40.679 --> 0:10:43.360 So what I'm saying is basically, most clients don't use 0:10:43.440 --> 0:10:46.920 us for the actual outcome prediction. It's better if we 0:10:46.960 --> 0:10:50.040 get it right. But if they were only going to 0:10:50.120 --> 0:10:53.600 use us for that, they could probably go to prediction markets, right. 0:10:54.000 --> 0:10:56.840 I think their prediction markets are a little bit overestimated 0:10:56.840 --> 0:11:00.640 these days, which we can get into, but they're not bad, right, Yeah, 0:11:00.760 --> 0:11:04.680 So that's not the main reason. The main reason that 0:11:04.720 --> 0:11:06.160 the way that a client put it to me, and 0:11:06.240 --> 0:11:09.600 this was years ago and it stuck, is like they're 0:11:09.600 --> 0:11:13.000 an F one driver and we're helping them on the 0:11:13.040 --> 0:11:15.440 sort of you know the training tracks right like on 0:11:15.480 --> 0:11:18.880 the on the training loops before the actual race, to 0:11:19.040 --> 0:11:23.439 literally memorize every single turn and know when they can accelerate, 0:11:23.480 --> 0:11:25.959 when they've got to cut a corner, et cetera, so 0:11:26.000 --> 0:11:29.960 that when the events start unfolding, they're already prepared to 0:11:30.160 --> 0:11:32.800 you know, hit the brakes or accelerate depending on what's happening. 0:11:33.080 --> 0:11:34.760 The difference here, of course, is that the track is 0:11:34.760 --> 0:11:37.240 not fixed. But the point is, you know, in a 0:11:37.280 --> 0:11:41.240 situation like Israel Iran, you've got multiple calls, right or 0:11:41.320 --> 0:11:44.560 multiple call basically just means prediction. You've got multiple situations. 0:11:44.600 --> 0:11:47.040 So you've got is Israel going to strike, then you've 0:11:47.080 --> 0:11:49.200 got the question. Okay, so we know they're striking, it's 0:11:49.240 --> 0:11:52.320 all over Twitter, et cetera. Is this a shot across 0:11:52.320 --> 0:11:54.440 the bow or is this the big one? Is the 0:11:54.559 --> 0:11:57.240 US actually going to get involved after twelve hours? Is 0:11:57.280 --> 0:11:59.760 Iron going to retaliate forcefully or in a you know, 0:11:59.800 --> 0:12:02.360 some bolock way. Is this war going to last three 0:12:02.400 --> 0:12:04.439 days or is it going to last three weeks? Is 0:12:04.480 --> 0:12:06.440 the US going to get involved at that point? 0:12:06.440 --> 0:12:06.600 You know? 0:12:06.800 --> 0:12:09.240 And so on and so forth. And so they're not, 0:12:09.640 --> 0:12:12.160 like most clients, don't expect us to get every single 0:12:12.200 --> 0:12:14.040 one of those calls right. I mean, that would be insane. 0:12:14.480 --> 0:12:17.480 What they want is for us to lay out arguments 0:12:17.520 --> 0:12:21.040 that are not necessarily just convincing, but that help them 0:12:21.240 --> 0:12:24.920 do the mental gymnastics around all the possible outcomes, and then, 0:12:24.960 --> 0:12:26.240 of course is better if you get it right. 0:12:26.360 --> 0:12:28.920 Wait, I have a very short quick question. Do you 0:12:28.960 --> 0:12:31.679 see anyone in your clients who are actually in the 0:12:31.679 --> 0:12:35.080 prediction markets looking for opportunity there yet because some of 0:12:35.080 --> 0:12:37.000 these are getting to be big sized, or do you 0:12:37.040 --> 0:12:39.920 see this as a future growth area for you? People 0:12:40.000 --> 0:12:43.000 looking for mispriced contracts on the prediction markets. 0:12:43.040 --> 0:12:45.320 So you mean clients that would actually be putting on trades. 0:12:45.440 --> 0:12:48.320 Yeah, you say there's forty percent of X happening, the 0:12:48.320 --> 0:12:51.280 prediction market is sixty percent. Maybe there's an opportunity anyone 0:12:51.280 --> 0:12:51.920 doing that yet. 0:12:52.080 --> 0:12:54.520 So short answer is that I'm aware of NOK and 0:12:54.600 --> 0:12:56.719 the main reason is still liquidity, despite the fact that 0:12:56.720 --> 0:12:57.439 it's getting bigger. 0:12:57.440 --> 0:12:57.840 As you say. 0:12:58.360 --> 0:13:00.320 What's really interesting, of course, is that that with this 0:13:00.400 --> 0:13:15.760 intermediate the market's reaction function. 0:13:17.320 --> 0:13:19.400 So I'm looking back at a note. This is just 0:13:19.440 --> 0:13:21.800 a random one that I'm found in my inbox, but 0:13:21.800 --> 0:13:25.080 there were several that I read in July. Oh sorry, 0:13:25.440 --> 0:13:27.439 Jane June. By the way, I should say we were 0:13:27.480 --> 0:13:30.280 recording this on July first, and given that the world 0:13:30.320 --> 0:13:32.640 is an uncertain place by the time this episode comes 0:13:32.679 --> 0:13:34.839 and I don't know the exact date, who knows what's 0:13:34.840 --> 0:13:36.440 going to happen by the time you're listening to this. 0:13:36.480 --> 0:13:39.120 But I'm reading a June sixteenth note, and you gave 0:13:39.160 --> 0:13:44.080 these odds twenty percent preemptive Iranian capitulation, forty five percent 0:13:44.160 --> 0:13:48.320 Israeli mission accomplished, followed by Iranian capitulation, twenty five percent 0:13:48.480 --> 0:13:52.319 chance US intervention, and ten percent Iranian nuclear breakout. Surprise. 0:13:52.720 --> 0:13:54.920 Why do you go give us through your thinking in 0:13:54.960 --> 0:13:56.680 the middle of June, how you arrived at some of 0:13:56.720 --> 0:13:58.920 these numbers, and then, given where we are today on 0:13:59.440 --> 0:14:02.920 July first, how did you do or what surprised you 0:14:03.000 --> 0:14:04.880 or what didn't surprise you to talk about sort of 0:14:04.880 --> 0:14:06.280 where you were then and where you are in it. 0:14:06.600 --> 0:14:09.200 So the first thing is Tracy was asking about how 0:14:09.200 --> 0:14:11.840 do we ascribe probabilities? And there's I could give you 0:14:11.880 --> 0:14:14.480 a fancy answer about Monte Carlo simulations, et cetera. 0:14:14.600 --> 0:14:17.880 But the reality is neither we, nor as far. 0:14:17.760 --> 0:14:21.240 As i'm where anyone in the sort of market actually 0:14:21.720 --> 0:14:25.600 models this stuff, and the few that do use predictive 0:14:25.600 --> 0:14:28.440 analytics rather than historical data. And the reason is there 0:14:28.520 --> 0:14:30.800 just aren't that many case studies to go off of, right, 0:14:30.880 --> 0:14:32.640 So let's just get that out of the way. 0:14:32.960 --> 0:14:33.960 So the way we. 0:14:34.040 --> 0:14:37.680 Use probabilities, and I'll absolutely answer your question about the 0:14:37.760 --> 0:14:40.600 that specific case study in a second, but there are 0:14:40.920 --> 0:14:43.680 three main ways that I think the probabilities can be useful. 0:14:44.280 --> 0:14:48.000 The first is if you're drawing out scenario trees and 0:14:48.040 --> 0:14:50.800 you're assigning you know, before you publish, right, you're assigning 0:14:50.800 --> 0:14:54.760 probabilities to various sub events before getting to the total 0:14:54.800 --> 0:14:58.920 cumulative outcome. Basically, if the math doesn't add up, that 0:14:58.960 --> 0:15:01.640 can highlight a p in your logic. Right, it's not 0:15:01.720 --> 0:15:03.640 a math problem. Who cares if the math doesn't add 0:15:03.680 --> 0:15:06.560 up from a mathematical standpoint, But if you end up 0:15:06.640 --> 0:15:08.640 with above one hundred or below one hundred or whatever, 0:15:08.720 --> 0:15:11.720 that means that you're probably overstating one aspect of the 0:15:12.160 --> 0:15:13.640 dynamic or understating another. 0:15:13.880 --> 0:15:14.360 That's one. 0:15:14.840 --> 0:15:17.840 A second that can be quite interesting and problem you know, 0:15:17.920 --> 0:15:22.000 not problematic, but useful for the user is clustering. 0:15:22.080 --> 0:15:22.240 Right. 0:15:22.320 --> 0:15:25.200 So we had a recent scenario or recent situation with 0:15:25.360 --> 0:15:28.040 an election, I think it was in Uruguay where the 0:15:28.080 --> 0:15:33.120 base case was perhaps market constructive, but if you aggregated 0:15:33.600 --> 0:15:36.080 all the non base case scenarios, you actually had a 0:15:36.160 --> 0:15:39.560 more likely outcome of a market negative bottom line. 0:15:39.760 --> 0:15:39.880 Right. 0:15:40.480 --> 0:15:42.120 So that's those are a few of the ways. 0:15:42.240 --> 0:15:45.160 Now, the way that I would approach a situation like 0:15:45.280 --> 0:15:48.040 the Israeli ra on one is basically break it down 0:15:48.080 --> 0:15:49.760 into an equation. So if you're trying to answer the 0:15:49.840 --> 0:15:53.560 question is the US going to intervene in the war 0:15:53.600 --> 0:15:54.440 and bomb for it? 0:15:54.480 --> 0:15:55.040 Out right? 0:15:55.640 --> 0:15:58.080 To me, the odds of that would be start with 0:15:58.080 --> 0:16:01.360 one hundred, and then you take out whatever the odds 0:16:01.400 --> 0:16:03.760 are that Iran is going to capitulate at the diplomatic table. 0:16:04.000 --> 0:16:06.320 So you know, we can talk about how you can 0:16:06.400 --> 0:16:08.720 come up with that view, but the idea is, are 0:16:08.760 --> 0:16:11.560 the Iranians going to take the diplomatic off ramp that 0:16:11.600 --> 0:16:14.720 Trump is giving them on that Friday? Geneva Right, So 0:16:15.200 --> 0:16:17.600 those odds might be low, but they're not zero, So 0:16:17.800 --> 0:16:21.000 you get to say twenty percent. Now that leaves you 0:16:21.040 --> 0:16:25.040 with eighty percent of that The question becomes is Israel 0:16:25.120 --> 0:16:25.480 going to. 0:16:25.400 --> 0:16:27.480 Basically finish the job on its own? Right? 0:16:27.960 --> 0:16:28.320 I e. 0:16:28.680 --> 0:16:32.440 Can the Israelis destroy for it out on their own, 0:16:32.600 --> 0:16:36.440 either through bombing without the most advanced bunker busters or 0:16:36.480 --> 0:16:38.760 through a ground operation like they conducted in Syria the 0:16:38.760 --> 0:16:41.160 previous November, which is something that I and a few 0:16:41.200 --> 0:16:44.320 others had on their radar. And if they can't, then 0:16:44.400 --> 0:16:48.600 presumably the President will intervene. Right now, you were asking 0:16:48.600 --> 0:16:52.520 about scoring myself. That's a perfect example. Those odds get 0:16:52.560 --> 0:16:55.880 you below fifty percent of US intervention. You, on top 0:16:55.920 --> 0:16:58.120 of that have to add the fact that the president 0:16:58.320 --> 0:17:00.320 might want to intervene even if he doesn't have to, 0:17:00.840 --> 0:17:05.280 right because you might see political opportunity and being associated 0:17:05.320 --> 0:17:07.280 with a victory. And that's the part that in this instance, 0:17:07.320 --> 0:17:11.280 for example, I'd underestimated. Now where it gets really interesting, 0:17:11.280 --> 0:17:14.600 and I'll stop here. What gets really interesting is even 0:17:14.840 --> 0:17:17.360 if your take is that the president is actually not 0:17:17.440 --> 0:17:20.160 dying to get involved and that he doesn't really see 0:17:20.200 --> 0:17:23.200 this as a big opportunity, and you therefore only ascribe it, 0:17:23.280 --> 0:17:25.760 you know, whatever thirty percent odds, you're still going to 0:17:25.880 --> 0:17:29.040 end up above fifty percent overall. So that can tell 0:17:29.040 --> 0:17:30.960 you that, because there's so many ways of getting to 0:17:31.000 --> 0:17:34.359 an outcome, you can get tipped over fifty without it 0:17:34.400 --> 0:17:37.959 being your modal scenario. I'm same with odds of regime change. 0:17:38.040 --> 0:17:40.000 You can get regime change through palace coup, you can 0:17:40.040 --> 0:17:42.280 get regime changed through Israeli bombing, you can get regime 0:17:42.320 --> 0:17:45.000 changed through a revolution. Our base case was that there 0:17:45.040 --> 0:17:47.160 would be no regime change in Iran, and I think 0:17:47.200 --> 0:17:49.439 that's that's what played out so far. But the point 0:17:49.520 --> 0:17:51.600 is you've got to compound all those odds because they 0:17:51.600 --> 0:17:53.080 are independent variables. 0:17:53.359 --> 0:17:56.560 Okay, you have the probabilities. I get that. The way 0:17:56.600 --> 0:17:58.760 you just laid it out was very clear, But how 0:17:58.760 --> 0:18:01.520 do you actually come up with, I guess the range 0:18:01.760 --> 0:18:07.280 of scenarios because that's what seems practically unlimited nowadays. And 0:18:07.320 --> 0:18:12.080 also you mentioned Trump just then. In Trump World, I 0:18:12.160 --> 0:18:15.320 kind of feel like anything is possible, right, Like there 0:18:15.359 --> 0:18:19.200 are a lot more tail risks out there that now 0:18:19.320 --> 0:18:23.760 seem plausible in various ways. How do you take into 0:18:23.800 --> 0:18:27.760 account the unpredictability of anything can happen? And then how 0:18:27.800 --> 0:18:31.240 do you actually confine yourself to This is a set 0:18:31.359 --> 0:18:34.120 of realistic scenarios that I'm going to talk about. 0:18:34.480 --> 0:18:36.919 So first thing I'd say is, to me, that's one 0:18:36.960 --> 0:18:40.000 of the reasons why prediction markets aren't that useful yet, 0:18:40.040 --> 0:18:43.240 and especially to clients. They can actually be ironically more 0:18:43.359 --> 0:18:46.440 useful I think, to the analyst than to the recipient 0:18:46.520 --> 0:18:48.760 or user of the final product. 0:18:49.200 --> 0:18:50.440 And what I mean by that. 0:18:50.520 --> 0:18:53.800 Is the prediction markets will tell you where the tariff 0:18:53.880 --> 0:18:57.280 level is going to end up on July thirty first, right, 0:18:57.720 --> 0:19:00.440 But what if the cutoff that's relevant is not July 0:19:00.520 --> 0:19:03.040 thirty first. What if it's you know, a completely different 0:19:03.119 --> 0:19:05.879 date because Trump is visiting. Like let's say that it's 0:19:05.920 --> 0:19:08.320 a ceasefire in Gaza and the cutoff date is Trump's 0:19:08.400 --> 0:19:10.520 visit to Saudi Arabia or whatever. So the point is 0:19:10.720 --> 0:19:13.600 the rigidity of the prediction markets, and it's a trade off, 0:19:13.640 --> 0:19:16.080 right because the reason they do that way is so 0:19:16.119 --> 0:19:19.400 that they can be easily falsifiable and you can compare predictions, 0:19:19.400 --> 0:19:23.200 et cetera. But that rigidity, I think narrows the value. 0:19:23.560 --> 0:19:26.080 So then to your question on how do you even 0:19:26.600 --> 0:19:31.320 frame the issue. That's a major problem for Trump tariff situations. Indeed, 0:19:31.400 --> 0:19:35.040 so if you take July eight for example, you can't 0:19:35.119 --> 0:19:37.720 really and you know, we've struggled with this everyone does. 0:19:38.040 --> 0:19:40.720