Bathe Yourself In Indifference (guest: Marko Papic)
Aug 6, 2021
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Marko Papic, partner & chief strategist at Clock Tower Group, discusses blending geopolitics and finance, the impact of the median voter on policymaking, the shift in voter ideology, China's shift to hard tech, and empowering regular investors through geopolitical analysis.
Geopolitical analysis should consider material constraints faced by policymakers, rather than relying solely on preferences or predictions of experts.
Understanding the macro context and structural reforms is crucial when assessing emerging markets like India, amidst concerns over commodity prices and import costs.
China's response to the Great Financial Crisis and the COVID recession includes a pivot towards hard tech and manufacturing employment to address income inequality and strengthen geopolitical positioning.
Deep dives
False Experts and Insiders
The podcast explores the issue of false experts and insiders in geopolitics. False experts are often individuals who are no longer actively working in the field yet still present themselves as experts. They may lack access to current information and may not have had the necessary expertise to begin with. Insiders, on the other hand, have connections to people in power and can provide access, but their insights may be influenced by their own biases or limited perspectives. The key takeaway is that relying solely on these sources for geopolitical analysis can be misleading, and it is crucial to consider a range of material constraints that shape policymakers' decisions.
Geopolitical Analysis based on Material Constraints
The summary highlights the importance of analyzing geopolitical issues based on the material constraints faced by policymakers. Rather than solely focusing on individual preferences or sensationalist narratives, understanding the constraints that shape decision-making is key. For example, considering factors such as economic, financial, structural, demographic, and political constraints can provide insights into policymakers' actions. By analyzing these constraints, one can make more informed forecasts about political and economic outcomes.
Misconceptions in Geopolitical Analysis
The podcast challenges popular misconceptions in geopolitical analysis. It emphasizes that relying on preferences or predictions of experts can be misleading. Instead, it suggests focusing on understanding the material constraints that influence policymaking. By considering factors such as the preferences of the median voter and the political zeitgeist, one can gain a better understanding of the likely policy outcomes. The summary notes that current market sentiment, influenced by sensationalism and flip-flopping expectations, may fail to accurately assess geopolitical dynamics and their implications for financial markets.
Application to Investing in Emerging Markets
The summary applies the concept of geopolitical analysis based on material constraints to the emerging market context, with a specific reference to India. It points out that investors' expectations and market dynamics often overlook the macro context and structural reforms necessary for sustainable growth. In the case of India, concerns revolve around macro dynamics, including the impact of commodity prices and import costs, as well as the effectiveness of structural reforms implemented by policymakers. Therefore, considering these factors, the summary suggests exercising caution in bullish outlooks for India and taking into account broader macro trends in emerging markets.
India's Economic Challenges and Political Risks
India is facing economic challenges and political risks that contribute to a bearish outlook for the country. The COVID recession and pre-existing tensions have added to the concerns. The deep recession is expected to lead to a bounce back in commodity prices, which could have a negative impact on Indian politics in the next six to 12 months. The rise in food prices and potential increase in tensions due to higher commodity prices is reminiscent of the Arab Spring scenario, which is a major political risk for India.
China's Shift Towards Hard Tech and Income Inequality
China has adopted a different approach compared to the US in response to the Great Financial Crisis and the COVID recession. While the US stimulated its households, China did not provide significant support, leading to a balance sheet recession and income inequality issues. Chinese policymakers are concerned about rising income inequality and the potential impact on the quid pro quo between the Communist Party and the middle class. As a result, China is shifting away from the service sector model and embracing hard tech, focusing on manufacturing employment, EVs, batteries, and military technology. They believe this pivot will help resolve income inequality and strengthen their geopolitical positioning.
In this first installment of interview-only summer specials, Patrick Ceresna and Kevin Muir welcome to the show Marko Papic, partner & chief strategist at Clock Tower Group and the author of “Geopolitical Alpha.” Marko shares his framework for combining geopolitics and the markets, and even goes on to answer that age old question “how much does moving from cold Canada to sunny Santa Monica help with investment process?”
