WEBVTT - Markets in Wartime 0:00:12.720 --> 0:00:16.400 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:16.440 --> 0:00:18.600 My name is Mike Reagan. I'm a senior editor at 0:00:18.600 --> 0:00:23.840 Bloomberg and Mboda across asset reporter with Bloomberg, and this 0:00:23.960 --> 0:00:26.840 week on the show, Well, it can feel awkward and 0:00:27.080 --> 0:00:29.960 a little heartless to talk about markets at times like this, 0:00:30.040 --> 0:00:33.920 when innocent lives are being lost, families are being torn apart, 0:00:34.080 --> 0:00:37.360 and young people's futures are being destroyed by the violence 0:00:37.400 --> 0:00:40.880 in Ukraine. And we get that. So let's just start 0:00:40.920 --> 0:00:45.199 off with a heartfelt wish for peace. As Albert Einstein 0:00:45.240 --> 0:00:47.960 once said, peace cannot be kept by force. It can 0:00:47.960 --> 0:00:51.880 only be achieved by understanding. So we want to first 0:00:51.880 --> 0:00:54.680 try to understand what caused this war and what might 0:00:54.720 --> 0:00:57.639 bring it to an end and when, and then we'll 0:00:57.640 --> 0:01:00.720 get into what it means for markets. After all, with 0:01:00.800 --> 0:01:04.080 crude oil surging and the ruble crashing, as the US 0:01:04.160 --> 0:01:07.039 and Europe leverage the financial system as their best weapon 0:01:07.120 --> 0:01:10.720 to confront Vladimir Putin, markets and finance actually are an 0:01:10.720 --> 0:01:14.119 important element of this situation and maybe even the best 0:01:14.120 --> 0:01:17.280 hope to bring about peace. This week's guest is an 0:01:17.280 --> 0:01:20.520 expert on both geo politics and markets, and he's gonna 0:01:20.560 --> 0:01:24.400 help us make sense of this tragedy unfolding before our eyes. Yeah, 0:01:24.400 --> 0:01:28.160 I want to welcome Marco. He's the chief strategist at 0:01:28.160 --> 0:01:30.280 the clock Tour Group and he's the author of the 0:01:30.319 --> 0:01:33.560 book Geopolitical Alpha, and Marco, I want to welcome you 0:01:33.600 --> 0:01:36.160 to the show. Thank you so much for Dona and Mike. 0:01:36.200 --> 0:01:38.720 It's it's such a pleasure to be back. Unfortunately under 0:01:38.720 --> 0:01:44.480 these circumstances, but you know it is the professional we chose. Yeah, yeah, Well, 0:01:44.560 --> 0:01:47.200 we appreciate your time. Marco. It's a good week to 0:01:47.240 --> 0:01:50.960 have you. Um And if anyone's curious about Marco's background 0:01:51.040 --> 0:01:53.840 and what his firm, clock Tower Group does, I would 0:01:53.880 --> 0:01:56.360 say you could go back to the podcast from February 0:01:56.400 --> 0:01:59.400 of last year. We got into exactly what clock Tower 0:01:59.480 --> 0:02:02.640 is all about out and Marco's background. So today we 0:02:02.680 --> 0:02:04.840 just want to get right into it. And uh, Mark, 0:02:04.880 --> 0:02:06.520 I wanted to ask you about your last note. Now, 0:02:06.560 --> 0:02:10.160 I've got respect for a strategist who admits they're wrong 0:02:10.280 --> 0:02:12.679 from time to time, and I noticed in your note, 0:02:12.680 --> 0:02:15.440 you know you would assigned a very low probability of 0:02:15.480 --> 0:02:19.160 a full blown invasion of Russia. And I bring this 0:02:19.360 --> 0:02:21.760 up not to heckle you, but because I think it's 0:02:21.760 --> 0:02:26.119 an important point because you're not You're not the only 0:02:26.160 --> 0:02:28.919 one though a lot of people, a lot of smart people, 0:02:28.919 --> 0:02:31.720 people that know this stuff the best, I think, would 0:02:31.720 --> 0:02:34.359 have agreed with you. You know, the sort of storyline 0:02:34.840 --> 0:02:38.480 for many experts was that Russia could be bluffing, or 0:02:38.760 --> 0:02:42.040 they could only be interested in those regions of the 0:02:42.080 --> 0:02:44.640 east of Ukraine that they have sort of already in 0:02:44.680 --> 0:02:47.280 control of. But I think it's important to sort of 0:02:47.480 --> 0:02:50.320 try to figure out what everyone got wrong right now, 0:02:50.400 --> 0:02:52.600 especially because you know, you hear all the pundits now 0:02:52.639 --> 0:02:57.440 talking about Vladimir Putin and wondering and saying, he's not 0:02:57.480 --> 0:02:59.160 the guy we thought he was. He's not the guy 0:02:59.200 --> 0:03:02.280 he used to be. There there's concerns about, you know, 0:03:02.639 --> 0:03:05.760 whether he's mentally fit or or even some kind of 0:03:05.760 --> 0:03:10.240 physical ailments that's affecting his decisions. But I'm curious what 0:03:10.280 --> 0:03:13.520 your perspective is. What did everyone get wrong about thinking 0:03:13.560 --> 0:03:16.280 this was most likely a bluff? So I'll tell you 0:03:16.320 --> 0:03:19.799 what I got wrong. You know, my framework is based 0:03:19.840 --> 0:03:23.240 on material constraints the policy makers, and I call it 0:03:23.280 --> 0:03:26.760 a framework on purpose, right, because not a theory it's 0:03:26.800 --> 0:03:29.480 not a method, it's a framework that allows investors to 0:03:29.520 --> 0:03:33.079 have some sort of a set of probabilities. Some center 0:03:33.200 --> 0:03:36.080 is parabous sense of where we are, what's the path 0:03:36.160 --> 0:03:39.760 of the least resistance you know, uh, to policy maker 0:03:39.800 --> 0:03:43.480 action and in the in this particular case. Um. Actually, 0:03:43.480 --> 0:03:47.600 what's what's interesting is that the set of constraints that 0:03:47.760 --> 0:03:52.720 I elucidated in my research is absolutely acting itself out. 0:03:52.720 --> 0:03:56.480 It's manifesting in reality as we speak, uh. And it's 0:03:56.480 --> 0:03:59.960 manifesting itself in a couple of ways. Ukrainians are fighting really, 0:04:00.160 --> 0:04:04.240 really hard. It is an absolute like fallacy that there 0:04:04.240 --> 0:04:08.680 are pro Russians and any spot of Ukraine left, they 0:04:08.680 --> 0:04:11.880 are in Donetskonsk, in Crimea, so Putin has already kind 0:04:11.880 --> 0:04:14.200 of you know, annexed him. The second is that Russian 0:04:14.240 --> 0:04:18.479 military has not had any experience fighting real wars. And 0:04:18.600 --> 0:04:22.440 third is that Ukraine is a very logistically difficult place 0:04:22.520 --> 0:04:25.560 to invade. So those those constraints are manifesting itself. And 0:04:25.560 --> 0:04:27.640 and so I guess what I'm saying is, you know, 0:04:27.839 --> 0:04:30.719 it's still very very valuable to be focused on the 0:04:30.760 --> 0:04:35.880 material reality, because if policymaker, you're trying to predict ignores 0:04:35.960 --> 0:04:38.000 the constraints you laid out. Then you were right in 0:04:38.040 --> 0:04:40.839 how you laid it out. Then you can chart a 0:04:41.040 --> 0:04:45.880 path forward once they have surprised you with their decision making. Now, 0:04:45.960 --> 0:04:47.960 why did we all get it wrong? I think, um, 0:04:48.480 --> 0:04:52.000 I think what we misunderstood as two things. One, Putin's 0:04:52.120 --> 0:04:54.520 r o I on geopolitical events has been very high. 0:04:54.520 --> 0:04:56.960 He's been very very cautious empirically. I can prove this 0:04:57.000 --> 0:05:00.080 with his previous actions. And the second I think is 0:05:00.120 --> 0:05:02.680 that it's not clear that we did get it wrong. 0:05:02.720 --> 0:05:04.000 And what I mean by that is that there is 0:05:04.000 --> 0:05:06.320 still an off ramp where this becomes a Georgia two 0:05:06.360 --> 0:05:09.799 thousand eight scenario, where in that initial stage of the attack, 0:05:10.040 --> 0:05:13.360 it looks like a wide occupation and an attack against 0:05:13.400 --> 0:05:16.400 the entire country, but it's actually going to end up 0:05:16.440 --> 0:05:19.480 being much more limited, where he withdraws from a lot 0:05:19.520 --> 0:05:21.320 of the areas and focuses on what he wants. That's 0:05:21.320 --> 0:05:23.280 what happening to thousand in Georgia. And so that's something 0:05:23.279 --> 0:05:25.080 that I would just add, like, let's see how this 0:05:25.160 --> 0:05:28.600 play out, especially as pain continues to be exerted in 0:05:28.680 --> 0:05:33.000 Russian military, Russian economy and politics. Marco can I actually 0:05:33.120 --> 0:05:36.320 ask you to start with a really basic question. And 0:05:36.520 --> 0:05:38.799 I've read a ton about this, and I'm really interested 0:05:38.839 --> 0:05:41.520 in this, and I'm struck by how many theories there are, 0:05:41.600 --> 0:05:45.480 But what is your theory for the why the invasion happened? 0:05:45.480 --> 0:05:48.159 Can you maybe lay out some of the factors, whether 0:05:48.240 --> 0:05:51.640 it's you know, we've heard a lot about thwarting NATO 0:05:51.920 --> 0:05:55.800 or putin sphere, of being so close to a democratically 0:05:55.839 --> 0:06:00.200 elected country or etcetera. What is top of mind for you? 0:06:00.200 --> 0:06:02.400 You know, I think all of those are very good theories. 0:06:02.440 --> 0:06:04.839 I mean, to me, the fundamental issue here is that 0:06:05.080 --> 0:06:09.360 Russian policy, over over hundreds of years has been colored 0:06:09.400 --> 0:06:14.080 by deep paranoia of vulnerability. And it's really born out 0:06:14.120 --> 0:06:18.960 of history which is bloody. Many many, many people and 0:06:19.120 --> 0:06:21.719 leaders have tried to conquer Russian and knock it out. 0:06:22.320 --> 0:06:26.240 And the second is a really vulnerable geographical position. And 0:06:26.320 --> 0:06:28.000 that's something that you know, I'm not the only one 0:06:28.040 --> 0:06:31.120 that has mentioned that, but this is this is imprinted 0:06:31.240 --> 0:06:35.760 on Russian psyche. Especially if you come to rule Russia, 0:06:36.240 --> 0:06:38.560 you come to learn the lessons of its history, which 0:06:38.560 --> 0:06:43.120 is that leaders who took geographical and security of Russia 0:06:43.720 --> 0:06:47.919 lightly are not remembered with glory, and so those that 0:06:48.000 --> 0:06:51.599 take it seriously, you know, they try to secure Russian 0:06:51.600 --> 0:06:53.599 and the biggest problem right now for Russia is that 0:06:53.600 --> 0:06:56.440 when you look at its western borders, the fact of 0:06:56.480 --> 0:06:59.479 the matter is that it's it's vulnerable, it's exposed, and 0:06:59.520 --> 0:07:02.359 so has tried to explain this to the West for 0:07:02.400 --> 0:07:05.039 a very long time. I do think the West didn't 0:07:05.040 --> 0:07:07.400 really listen to it seriously. And I think what you 0:07:07.440 --> 0:07:10.440 saw over the last twelve months especially is a ramping 0:07:10.520 --> 0:07:12.760 up in rhetoric, not so much from Paris in Berlin, 0:07:13.040 --> 0:07:17.000 but specifically from Washington, d C. On Ukrainian membership NATO. 0:07:17.800 --> 0:07:19.760 You know, and now now listen, like you know, I'm 0:07:19.800 --> 0:07:22.520 not here to tell you that this is like America's 0:07:22.520 --> 0:07:26.800 fault in Putin his crossing an international border. He didn't 0:07:26.840 --> 0:07:29.160 have to do that. But the rhetoric out of the 0:07:29.240 --> 0:07:32.200 US has been much more stringent. There was also, you know, 0:07:32.280 --> 0:07:36.240 the U s sent lethal weapon to Ukraine, and you know, 0:07:36.280 --> 0:07:39.000 there was things that US has said that we're really interesting. 0:07:39.000 --> 0:07:42.840 For example, territorial disputes between Ukraine and Russia do not 0:07:42.880 --> 0:07:46.200 preclude Ukraine's membership to Tornado. That's something the White House 0:07:46.200 --> 0:07:48.360 said recently. And the truth is, like, of course it does. 0:07:49.320 --> 0:07:52.680 In fact, Croatia and Slovenia like they had a dispute 0:07:52.760 --> 0:07:55.040 and Gratia wasn't allowed to get in too NATO until 0:07:55.040 --> 0:07:57.200 it resolved that territorial dispute. There was a silly one 0:07:57.240 --> 0:07:59.240 in the on the coast. But the point is that 0:07:59.400 --> 0:08:01.880 US was just kind of writing checks. It doesn't have 0:08:01.920 --> 0:08:05.200 any intention of cashion. I think Putin called, you know, 0:08:05.280 --> 0:08:07.560 kind of America's bluff and think what he What I 0:08:07.600 --> 0:08:09.960 think he's doing though, is I don't think that the 0:08:10.040 --> 0:08:13.200 Kremlin is trying to annex. We can talk about how 0:08:13.600 --> 0:08:15.480 ludicrous that would be. And this is where my point 0:08:15.480 --> 0:08:18.280 of material constraints really hits in. I think what he's 0:08:18.320 --> 0:08:23.040 trying to signal to Kiev in stark terms is how 0:08:23.080 --> 0:08:26.280 alone they really are and how no one's coming to 0:08:26.360 --> 0:08:30.080 save them. And that's something that Lensky President Jelenski said 0:08:30.120 --> 0:08:31.960 at the very onset of the war. He said, we 0:08:31.960 --> 0:08:35.680 will offer neutrality. We now know the truth. I'm fair rephrasing, 0:08:35.760 --> 0:08:37.800 but he basically said, look, no one's coming to save us. 0:08:37.920 --> 0:08:40.760 There is no NATO membership and offer we do need 0:08:40.840 --> 0:08:43.280 to offer Russian neutrality. I think that's an offer that 0:08:43.360 --> 0:08:46.920 Putin would take to actually declare victory, raise the mission 0:08:46.920 --> 0:09:00.040 accomplished banner and move on. Mark. Could you think the 0:09:00.040 --> 0:09:03.360 the sanctions, uh that have been imposed? You know, it's 0:09:03.400 --> 0:09:07.200 a long list. Obviously, the major banks, almost all the 0:09:07.240 --> 0:09:11.720 major banks kicked off the Swift international bank messaging system, 0:09:11.920 --> 0:09:17.080 basically isolating Russia's financial system from the rest of the world. Um, 0:09:17.240 --> 0:09:22.160 the assets seizures, the central bank assets being seized around 0:09:22.200 --> 0:09:24.480 the world, on and on and on, threats to the 0:09:24.520 --> 0:09:28.640 oligarch's yachts and property around the world. Are these enough 0:09:28.679 --> 0:09:33.400 to influence Prutent's behavior and to sort of piggyback on that. 0:09:33.440 --> 0:09:35.920 I think there's a lot of speculation in the West 0:09:36.000 --> 0:09:39.000 that they possibly could be enough to tugger some sort 0:09:39.000 --> 0:09:43.160 of coup or some sort of overthrow of Putin as leader. 0:09:44.000 --> 0:09:45.760 How do you see all that playing out? Are the 0:09:45.800 --> 0:09:50.960 sanctions gonna be enough to influence his behavior? Even topple him? Hey, listen, 0:09:50.960 --> 0:09:55.240 I don't shy for making calls. I I I couched 0:09:55.280 --> 0:09:58.720 him me probabilities, you know, And I always always offer 0:09:58.800 --> 0:10:01.080 hedges to my positions. I would say that I give 0:10:01.120 --> 0:10:04.679 Prutin twelve months, and I'm taking the under When policymakers 0:10:04.760 --> 0:10:09.880 make extraordinarily bad decisions that ignore their material constraints, they 0:10:09.880 --> 0:10:13.600 get punished. And listen, I'm just a guy, okay. I mean, 0:10:13.800 --> 0:10:16.280 you know, me and Ville Donna were from the same region. 0:10:16.440 --> 0:10:19.000 We grew up with this kind of stuff, unfortune. So 0:10:19.080 --> 0:10:20.920 I've been following this kind of stuff since I was 0:10:20.960 --> 0:10:23.800 sixty years old. So I have a lot of experience 0:10:23.920 --> 0:10:27.680 analyzing wars, not just professional and I will say this 0:10:27.760 --> 0:10:30.960 to you. I'm just a guy sitting on Santa Monica 0:10:31.000 --> 0:10:35.320 Beach doing my research for investors. And I called the 0:10:35.360 --> 0:10:39.959 material constraints to Russia perfectly, So how the heck that 0:10:40.240 --> 0:10:45.560 Vladimi Reprutin not do the same? That is an egregious, 0:10:45.840 --> 0:10:49.880 egregious mistake by a policy maker. And I mean that objectively. 0:10:49.920 --> 0:10:51.839 I'm not even mentioning the civilian that's and all that 0:10:51.880 --> 0:10:54.640 other stuff in the pariah status for Russia. Leave that aside. 0:10:55.000 --> 0:10:58.680 The forty mile convoy. The forty mile convoy, that's not 0:10:58.720 --> 0:11:01.760 a sign of Russian power, that's a sign of Russian weakness. 0:11:01.800 --> 0:11:03.640 They can't move that thing. That thing is more backed 0:11:03.720 --> 0:11:06.240 up than I thirty five from Waco to Dallas, it 0:11:06.320 --> 0:11:08.960 might be less lethal, to be quite frank with you, 0:11:09.559 --> 0:11:11.600 I mean, I mean, if you are a country with 0:11:12.200 --> 0:11:16.839 a modicum of look down capability for your air force, 0:11:16.920 --> 0:11:18.760 like if you have fighter jets that can shoot down, 0:11:18.840 --> 0:11:21.720 which is rare, but if you have them right now, 0:11:21.760 --> 0:11:23.640 the message you're getting from this conflict is you can 0:11:23.679 --> 0:11:28.160 defeat two Russians in the war, like Belgium can defeat 0:11:28.640 --> 0:11:31.240 Russia in the war right now. And so that's where Mike, 0:11:31.360 --> 0:11:34.560 that's why I'm so um, you know, adamant that this 0:11:34.559 --> 0:11:36.760 this mistake will be punished not by like a coup, 0:11:36.880 --> 0:11:39.040 not by something, but it will be punished by the 0:11:39.160 --> 0:11:42.640 material reality. One thing that I would mention is, you know, 0:11:42.640 --> 0:11:46.120 speaking of the Balkan Wars, I mean Slobano Milosh very 0:11:46.160 --> 0:11:49.360 similar mistakes that he made throughout the crises, and he 0:11:49.440 --> 0:11:52.800 kept he kept coming to the negotiating table. The data 0:11:52.800 --> 0:11:54.960 and accords are a good example of how you know 0:11:55.080 --> 0:11:58.920 that happened, um, And obviously domestically in Serbia he had 0:11:58.920 --> 0:12:01.280 to declare victory, uh and say, oh, we got what 0:12:01.320 --> 0:12:05.000 we wanted. But the point is that don't confuse madness, 0:12:05.000 --> 0:12:09.600 temporary madness with permanent you know, um lunacy, and so 0:12:09.679 --> 0:12:11.760 I do think that the constraints are going to act 0:12:12.080 --> 0:12:14.480 over the next couple of weeks, and at some point 0:12:14.480 --> 0:12:16.080 I think there is an off ramp. Now, am I 0:12:16.120 --> 0:12:18.800 sanguine on the market, No, I do think that this 0:12:19.000 --> 0:12:21.240 conflict could be different than others, and I do think 0:12:21.280 --> 0:12:26.520 there's a considerable still downside risk. Mike mentioned the slew 0:12:26.559 --> 0:12:30.760 of sanctions that the West has already announced against Russia. 0:12:30.960 --> 0:12:33.960 One thing I really haven't heard much about is what 0:12:34.240 --> 0:12:38.199 other sanctions or what else the West and allies can 0:12:38.240 --> 0:12:41.800 deploy against Russia. What else is left to do? Well? 0:12:41.800 --> 0:12:45.040 The Swift sanctions have been applied very tepidally, you know, 0:12:45.160 --> 0:12:48.959 because basically the Germans, the Italians, a lot of the 0:12:49.000 --> 0:12:52.720 importers don't want to curtail their ability to transact with 0:12:52.920 --> 0:12:56.280 Russian financial entities due to the energy section. So I 0:12:56.320 --> 0:12:58.840 think that, you know, a permanent expulsion of all financial 0:12:58.840 --> 0:13:02.800 institutions of from Swift would be a game change. So 0:13:02.840 --> 0:13:06.040 that's the first. The second is just an actual embarko 0:13:06.360 --> 0:13:09.160 on Russian exports and energy. I don't see that happening, 0:13:09.320 --> 0:13:14.440 but I worry that if it takes longer for President 0:13:14.440 --> 0:13:18.480 putin to realize his constraints. If he takes longer, it 0:13:18.600 --> 0:13:22.320 might be Russia that self imposes. Actually, it's exports, you know. 0:13:22.320 --> 0:13:26.800 So you're talking palladium, global production, you're talking potash, Russian 0:13:26.840 --> 0:13:31.120 Bellarus together for masure. The Bello is put on its 0:13:31.120 --> 0:13:33.480 exports a couple of weeks ago because of sanctions. So 0:13:34.440 --> 0:13:37.840 that's a really significant hits to already climbing food prices. 0:13:38.400 --> 0:13:40.880 Uh and then obviously things like aluminum, nickel, and so on. 0:13:40.960 --> 0:13:43.480 So I think that that's what I fear Bill Donna, 0:13:43.480 --> 0:13:45.959 and I fear that that it mutates into the seventy 0:13:46.040 --> 0:13:48.719 three young people war scenario. So you know, if you 0:13:48.760 --> 0:13:50.760 look at my book, I have this fancy table of 0:13:50.800 --> 0:13:53.000 every every conflict is the Second World War, and like 0:13:53.040 --> 0:13:55.840 the message of the table is by on the side 0:13:55.880 --> 0:13:58.960 of the cannon's empirically proven, you know. And I've seen 0:13:59.000 --> 0:14:01.480 that table like star people are quoting me like, oh, 0:14:01.600 --> 0:14:03.839 you know, Marco Poppy, she loves this, you know, like buying, 0:14:04.080 --> 0:14:07.160 and I'm like, whoa, whoa, whoa. The one war in 0:14:07.240 --> 0:14:11.640 that table that didn't it wasn't an opportunity to buy 0:14:12.000 --> 0:14:14.280 was nineteen seventy three poor and if you think about 0:14:14.320 --> 0:14:16.559 the macro context we're in today, and then it's kind 0:14:16.559 --> 0:14:19.200 of similar. You know, these are events that are basically 0:14:19.680 --> 0:14:22.480 inflationary cherries on top of like a Sunday. You know, 0:14:22.560 --> 0:14:25.960 it's it's it's just we're in this very complicated mac environment. 0:14:26.280 --> 0:14:30.120 I was already barished on US assets and US equities 0:14:30.160 --> 0:14:32.880 in particulars is December. I'm not sure that I want 0:14:32.880 --> 0:14:36.920 to not buy because Russian you preinter going to war? Right? Well, 0:14:37.000 --> 0:14:42.760 I think about that, that notion of material and resource constraints, um, 0:14:42.800 --> 0:14:46.040 and it works both ways obviously too. If if prudent 0:14:46.080 --> 0:14:48.560 were to turn the whale and gas off to Europe, 0:14:49.280 --> 0:14:52.320 I mean, who knows what Brent Crude would do. I'm 0:14:52.360 --> 0:14:55.000 probably of barrel. I would guess we'd be looking at 0:14:55.400 --> 0:14:58.600 surgeon gasoline prices. So how do you do do view 0:14:58.640 --> 0:15:01.320 the constraints on the other side? Uh? If he were 0:15:01.320 --> 0:15:04.760 to do something like that, I mean, is that it 0:15:04.800 --> 0:15:07.360 would be enough to sort of cause the US and 0:15:07.440 --> 0:15:10.320 EU to back off a little bit? Do you think, Well, 0:15:10.320 --> 0:15:11.960 I think it's already causing them to back off a 0:15:11.960 --> 0:15:14.360 little bit and create his ofference. Uh. And I think 0:15:14.400 --> 0:15:16.440 that you know, it all depends on what it is 0:15:16.440 --> 0:15:20.880 that the intention of President putinist. Now the problem is that, 0:15:21.560 --> 0:15:25.200 you know, my suspicion, and maybe this is colored by 0:15:25.240 --> 0:15:28.920 my failure to predict a full invasion, but my suspicion 0:15:29.320 --> 0:15:32.840 is that he made this decision last minute, you know. 0:15:32.960 --> 0:15:36.280 And that's a worrying point because it's also suggests that, 0:15:36.400 --> 0:15:39.360 you know, there's like an element of irrationality. So if 0:15:39.480 --> 0:15:41.960 if he's just looking to have a punitive war campaign 0:15:41.960 --> 0:15:44.280 against you, Praine, like in Georgia in two thousand and eight, 0:15:44.280 --> 0:15:46.760 and I keep referring to Georgia just through like reminded 0:15:46.760 --> 0:15:49.680 listeners what happened in Georgia is that for five six 0:15:49.760 --> 0:15:52.680 days you didn't know if it was a full invasion 0:15:53.200 --> 0:15:56.280 or just the punitive campaign where Russians then retreated to 0:15:56.280 --> 0:15:59.200 self possession and a positive So my point about two 0:15:59.520 --> 0:16:01.840 eight peril is that we're still there, you know, Mike, 0:16:01.920 --> 0:16:04.880 like this could still be a Georgia type of scenario 0:16:05.080 --> 0:16:08.440 where it's a punitive campaign punished Kiev for alerting with 0:16:08.480 --> 0:16:11.000 the US, and that we're drawing into the regions of 0:16:11.120 --> 0:16:15.320 Ukraine that Russia basically ostensibly already controls the netic Premia. 0:16:15.680 --> 0:16:17.960 And so my point is that A lot of the 0:16:18.080 --> 0:16:21.520 decision making by the leadership in Russia suggested they had 0:16:21.520 --> 0:16:25.160 a last minute decision to flip this into some sort 0:16:25.160 --> 0:16:28.000 of a punitive campaign. If it just remains a punitive 0:16:28.080 --> 0:16:31.000 campaign they withdraw, then you have a number of off 0:16:31.080 --> 0:16:36.400 rams if it becomes a complete destruction of like Ukrainian 0:16:36.440 --> 0:16:40.880 civilian infrastructure with the intention to occupy. First of all, 0:16:41.320 --> 0:16:45.160 I think Russia will break itself against Ukraine as a state. 0:16:45.720 --> 0:16:47.440 I mean, this is the end of Russia in that case, 0:16:47.520 --> 0:16:51.560 ISSI as a power because it will be extremely expensive 0:16:51.600 --> 0:16:54.560 and costly to Moscow to to exert this. I mean 0:16:54.960 --> 0:16:58.680 US struggle with Iraq. Iraqi is smaller, less population in 0:16:58.840 --> 0:17:01.680 US had more troops. So that's the first issue. The 0:17:01.680 --> 0:17:04.680 second issue is that then I can see your scenario 0:17:05.080 --> 0:17:08.439 where we go all out and actually start embargoing energy, 0:17:08.600 --> 0:17:10.960 you know, if this becomes a war of occupation. But 0:17:11.040 --> 0:17:13.560 to me, the probability of that still is very low. 0:17:13.760 --> 0:17:16.399 I still am not ready to skew probabilities more towards 0:17:16.440 --> 0:17:19.480 a full occupation. UM I would say eight twenty in 0:17:19.560 --> 0:17:23.760 favor of the Georgia punitive campaign scenario. How about you know, 0:17:23.800 --> 0:17:28.159 there's obviously tons of speculation on the other weapons uh 0:17:28.359 --> 0:17:33.880 in Putin's holster, uh cyber warfare and god forbid nuclear weapons. 0:17:34.080 --> 0:17:38.880 Um any probabilities on on him unleashing either of those. Yeah, 0:17:38.920 --> 0:17:40.520 I mean, I've I've heard that some people are talking 0:17:40.520 --> 0:17:43.760 about this seriously. I don't see what tactical nuclear weapons 0:17:43.760 --> 0:17:47.840 and kine accomplish. I also cybersecurity, you know it's a 0:17:47.880 --> 0:17:50.720 big deal. I know that cybersecurity stocks are doing great 0:17:51.080 --> 0:17:54.040 blah blah blah, and everyone's in the cybersecurity train. But listen, 0:17:54.600 --> 0:18:01.160 cybersecurity doesn't control air space. Cybersecurity doesn't royal ground troops 0:18:01.800 --> 0:18:06.080 like what. This war is much more classical than people thought. 0:18:06.800 --> 0:18:09.199 This is a very, very much classical issue. So I 0:18:09.240 --> 0:18:11.960 think the cybersecurity issues just don't consider me too much. 0:18:12.359 --> 0:18:14.240 There might be might go back and forth. I'm not 0:18:14.240 --> 0:18:17.160 saying Russia doesn't attack the US and US attack to Russia, 0:18:17.240 --> 0:18:20.919 but this is about controlling ground with with men with 0:18:21.000 --> 0:18:25.040 guns and controlling airspace above them. It's a much more 0:18:25.080 --> 0:18:28.639 of a classic conflict that people thought would happen, So 0:18:28.720 --> 0:18:31.400 I think that's really important. I don't think Russia uses 0:18:31.480 --> 0:18:34.159 nuclear weapons. I don't see white Wood and and in fact, 0:18:34.480 --> 0:18:40.200 you know, I think that the logic of destroying Ukraine 0:18:40.280 --> 0:18:44.280 further is also kind of weak, and in fact, the 0:18:44.359 --> 0:18:46.720 more they destroy Ukraine, the more likely it is that 0:18:46.840 --> 0:18:49.600 this is a punitive pain, because what's the point of 0:18:49.640 --> 0:18:53.240 occupying and holding a country you destroyed. What about what's 0:18:53.240 --> 0:18:56.680 going on within Russia itself? We had a Bloomberg story 0:18:56.720 --> 0:18:59.560 that said there's a lot of resignation among the population 0:18:59.640 --> 0:19:03.560 about the economic hardships that they're going to be facing. 0:19:03.640 --> 0:19:05.879 So what sense can you give us about what the 0:19:05.960 --> 0:19:08.919 sentiment is like within Russia itself and how does that 0:19:09.000 --> 0:19:13.480 play a part in putents thinking? That's such a critical question, 0:19:13.560 --> 0:19:15.240 Bill Donna. I mean that is that is what we 0:19:15.280 --> 0:19:17.600 need to focus on. I think we have investors have 0:19:17.680 --> 0:19:20.320 to focus on the streets of Moscow and St. Petersburg. 0:19:20.600 --> 0:19:22.560 It's difficult to get good information though, But what I 0:19:22.560 --> 0:19:26.199 would say to you is is this, every authoritarian regime 0:19:26.359 --> 0:19:29.440 has a social contract. We don't live in medieval times, 0:19:29.440 --> 0:19:32.600 so you can just like kill scores of people, and 0:19:32.600 --> 0:19:34.960 a throitary regime like Russia does not do that. I'd 0:19:34.960 --> 0:19:37.359 be sure they repressed the public, but it's not like 0:19:37.400 --> 0:19:40.800 they have They're running Goulas, they're not. So what is 0:19:40.840 --> 0:19:45.000 the social contract that allows Vladimir Putin to retain power 0:19:45.359 --> 0:19:49.240 with the median Russian accepting that that rule? What's the 0:19:49.280 --> 0:19:52.160 trade off? It's not the same as Chinese communist parties 0:19:52.160 --> 0:19:55.879 see Chinese communist parties. Social contract which citizens is simple, 0:19:56.400 --> 0:19:59.240 we will deliver the Chinese dream to you. You don't 0:19:59.240 --> 0:20:01.760 ask us for a and that's worth And they've done it. 0:20:01.800 --> 0:20:04.879 They've delivered the Chinese street. In the case of Russia, 0:20:04.960 --> 0:20:09.479 it's not about economic progresses. Were a terrible time for Russia. 0:20:09.520 --> 0:20:13.040 I mean, you had mafia running the streets of major cities, 0:20:13.080 --> 0:20:16.159 You had PhDs in physics, you know, living in dumpsters. 0:20:16.200 --> 0:20:20.679 You had complete chaos, complete collapse of economy and currency. 0:20:21.440 --> 0:20:24.919 And so the social contract in Russia is very simple. 0:20:25.520 --> 0:20:30.480 Russian public expects its leaders to provide stability, not necessarily 0:20:30.680 --> 0:20:33.639 economic growth and potential, but stability, like you know, like 0:20:33.800 --> 0:20:37.320 get Russia off of its economic needs and its geopolitical 0:20:37.359 --> 0:20:40.760 needs that it was at especially NATO bomb one of 0:20:40.760 --> 0:20:44.080 its allies in serving Prutin has for the most part 0:20:44.160 --> 0:20:47.239 delivered on that stability. And the problem right now vill 0:20:47.280 --> 0:20:50.320 Dona is he's breaking a social contract, and he's breaking 0:20:50.320 --> 0:20:53.800 the social contract for unclear purposes. And this is why, 0:20:53.840 --> 0:20:56.040 by the way, a lot of Russian watchers didn't expect 0:20:56.040 --> 0:20:58.240 the full invasion. You know, we expected some sort of 0:20:58.359 --> 0:21:00.760 limited incursion because the mass stick lead. There was no 0:21:00.840 --> 0:21:04.080 prep There's no prep The media and Russia did not 0:21:04.119 --> 0:21:06.560 talk about like ethnic lensing of Russians or this, or 0:21:06.560 --> 0:21:10.119 that they were making fun of Biden for being hysterical, right, 0:21:10.200 --> 0:21:13.280 that was the narrative. They did not at all. Putin 0:21:13.359 --> 0:21:17.760 pulled the rug under his military, his propagandist, his his 0:21:17.880 --> 0:21:21.120 central bank that didn't prepare for this, his diplomats, who 0:21:21.359 --> 0:21:24.520 gave Chinese diplomats all sorts of stories that they didn't deliver. 0:21:25.320 --> 0:21:28.720 This was so sudden and surprising that the collapse of 0:21:28.760 --> 0:21:32.639 stability in Russia relative to the gains for the Russian 0:21:32.680 --> 0:21:35.560 state from doing this in Ukraine is such a skewed 0:21:35.680 --> 0:21:40.080 ratio that there will be serious consequences for the political 0:21:40.080 --> 0:21:42.800 hold of power of Lavenot. And again, I can't, I 0:21:42.840 --> 0:21:45.639 can't just stop comparing it. Maybe you know, I'm from Belgrade, 0:21:46.160 --> 0:21:48.560 but I can't stop comparing it. Too slow and milosh 0:21:49.280 --> 0:21:54.160 like a NATO bombing of of Belgrade. You know, for 0:21:54.160 --> 0:21:57.800 for like a minute it unified, serves against the West, 0:21:58.520 --> 0:22:01.439 and then six months later he was in trouble, I 0:22:01.440 --> 0:22:04.640 mean in the serious trouble, and finally the country revolted. 0:22:05.080 --> 0:22:07.160 And one thing I will say is like Russians will 0:22:07.200 --> 0:22:10.880 not be cowed. This is a country with a deep history, 0:22:11.520 --> 0:22:16.760 deep history of failing in military aggressive tactics. We all, 0:22:16.800 --> 0:22:19.640 as in the West, we think Russia is a has 0:22:19.720 --> 0:22:22.480 a has an incredible military history. It does if you 0:22:22.520 --> 0:22:25.160 attack it, But when they're on offense, they lose more 0:22:25.160 --> 0:22:28.480 than they win. And when they lose, there is a revolt, 0:22:28.960 --> 0:22:31.600