The Pomp Podcast - #1357 Marko Papic | Bitcoin Saves Central Banks During Global Crisis?!

Episode Date: May 7, 2024

Marko Papic is a macro strategist who incorporates geopolitics into his investment analysis. He is also the author of "Geopolitical Alpha: An Investment Framework for Predicting the Future." In this conversation, we talk about geopolitical alpha, how to apply it to your investment process, China, Ukraine, Russia, Isreal, El Salvador, United States, rest of the world, commodity prices, public media narrative, inflation, proxy wars, bitcoin, and more. ======================= Join me at Consensus 2024 May 29-31 in Austin, Texas. This year marks the tenth annual Consensus, making it the largest and longest-running event dedicated to all sides of crypto, blockchain and Web3. Use code POMP to get 20% off your pass at ⁠https://go.coindesk.com/3Q60F2Q⁠ ======================= Buy and sell cryptocurrency in a tax-advantaged crypto IRA with iTrustCapital. Enjoy 24/7 access, lowest fees in the industry, and tax benefits for your retirement. Open an account today at ⁠⁠⁠⁠⁠⁠⁠www.itrustcapital.com⁠⁠⁠⁠⁠⁠⁠ ======================= Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ ======================= View 10k+ open startup jobs: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Today's episode is with Marco Papic. He's a macro strategist who incorporates geopolitics into his investment analysis, and he's also the author of Geopolitical Alpha. In this conversation,

we talk about geopolitical alpha, what it is, how you can apply it in your investment process. Then we go around the world, China, Ukraine, Russia, Israel, Iran, Africa, Argentina, El Salvador, and the United States. We talk about various things, including demographics, how he's looking at commodity prices, why the public media narrative may not always be the best thing to listen to, how inflation, the national debt, the fighting of proxy wars, and also the issues at the southern border are all playing into his current investment philosophy. We also cover things like Bitcoin, crypto assets, demographics, and robotics as well. And I think that you will learn a ton from this conversation. Here is my conversation with Marco Papic.

Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Today's episode is brought to you by ConsenSys 2024 by Coindesk. On May 29th through the 31st, I'll be heading to Austin, Texas to speak at ConsenSys, the world's most established global event for all things crypto, blockchain, and Web3.

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Marco, I thought a great place for us to start is this idea of geopolitical alpha. You wrote an entire book about it. It's a very different way of thinking about investing. Maybe you could just unpack, like, what exactly does that mean? And how can everyday investors go ahead and leverage this for their investment decisions? Well, you know, thank you, first of all, for having me on the show, Anthony. It's a real pleasure. What I would say is that geopolitical alpha is a solved problem.

uh and i even say this in my book honestly there's like you should probably just read four pages of my book and then put it down um except it's really funny and i think there's a lot of cool little anecdotes in it but um the real message is if you want to generate geopolitical alpha uh nine out of ten times it basically means fading the market reaction to an event uh because most of the time uh the market reaction whether it's to bid up a price of an asset because of a premium or to basically bid it down because of a discount. It's almost always misinterpreted by the markets. And that's because I think geopolitics and politics

are still not something that most investors really take very seriously as an analytical endeavor. And so we're really using a media, whose job is not to make you money, God bless them. It's to make you to buy newspapers or to click. And so you're using a suboptimal tool in which to assess the actual impact of these risks. And even if you go to a more expensive tool, such as a professional political risk advisory group, notice that the term is political risk or geopolitical risk. It's almost always about like the world will end.

Please buy my subscription so I can come back 12 months from now when the world hasn't ended, but I will tell you in how more creative ways it will end. And so I think almost always the geopolitical alpha, the answer is fade that risk. It's not always the case. And there's some sometimes when I, you know, have to eat crow or have to like actually take it seriously. But I think it's it's easier to explain when it's more serious because of the positioning and because the market just ignores the risk. Can you give us like a recent example, maybe where this highlights, you know, how there's

overreaction and you're like, nope, that is actually showing us that the opposite is going to be true. Yeah, well, I think that the performance of commodity markets, commodity assets following Russia's invasion of Ukraine was a very good example of this. So oil prices went up significantly, wheat prices as well, as well as various other commodities. And what was interesting was that as Russia was invading Ukraine from February to like May of 2022, during those early stages, something else was happening on the other side of the world. And that's something else was that China was absolutely collapsing in terms of its economic performance for a number of different reasons. And, you know, the fundamental demand for most of those commodities was actually weakening. The other issue was that investors bid up the price of something like crude without really thinking about it.

You know, yes, Russia is the second largest exporter of crude in the world. But how is actual global supply of oil going to be impacted? Oh, well, you know, the West will impose an embargo. Yeah, but have you actually read the EU's oil embargo on Russia? I mean, it gave Russians nine months to find alternative sources and alternative customers. And that wasn't something that the West did because they were being nice to Russia. It's because they obviously were also dealing with a very big political issue in early 2022 called inflation. And then the other issue that was, I think, very, very clear was that the U.S. was not willing to impose secondary sanctions on companies around the world that ended up buying this supposedly sanctioned Russian crude.

This is something that the U.S. did use in run up to 2011 oil embargo against Iran. The U.S. was extremely clear that it would sanction India, China, and allies that bought Iranian crude, which got China on board with the sanction against Iran to produce, ultimately, the nuclear deal that the Obama administration negotiated. So that's an example of a serious effort to actually limit supply of crude by the international community. This notion that, well, there's no real way to prevent Russia from buying, from selling oil is incorrect. There is. It's called secondary sanctions. And if you want the Treasury Department after you, God bless you. You know, so none of that was done.

And it wasn't done because clearly the West, including the U.S., wanted Russian crude to end up in the markets. And so that run up in oil prices was a great example of just, you know, completely ignoring fundamentals. Chinese demand, Chinese economy collapsing. while bidding up this kind of a theoretical risk of Russian crude somehow not finding its way to the market. Now, what's really interesting about this specific situation is I remember when India was asked, are you going to stop buying natural gas and oil from Russia? And they basically were like, no, we're going to keep doing it. So the fact that there wasn't that ramification allowed them to do that. And then also there were stories that came out that Germany, who took a very kind

of harsh stance against Russia and the importation of their oil. They basically were buying quote unquote Chinese oil, but there was kind of tracing where basically Russia was selling it to China. China was putting a Chinese flag on the barrel, jacking the price up and then selling it to Germany. And so in some weird way, you know, it's not just that there was quote unquote more demand. It was also that some of the demand that had existed was now just paying a higher price because they basically had created that problem for themselves. well you know i think yeah there's a lot of that um i mean the the russia ukraine war was a great example i mean first of all serious people were discussing use of tactical nuclear weapons

you know at the time um and um and what ended up happening 18 months later and even earlier was that many of these uh supply chains were actually rebuilt restructured much faster uh than people thought i mean who can forget the neon gas shortage of 2022 and i laughed of course because none of us can remember it because it never happened you know there was this like notion that a lot of neon gas used in semiconductor production was a byproduct of steel aluminum smelting in like ukraine and so therefore the attack on meliopol uh meliopol would lead to a shortage and it didn't happen because you can actually make neon gas in your kitchen you know surprise surprise um a lot of investment notes were written about this uh and then of course

natural gas oil as you point out um natural gas was a very interesting one actually azerbaijan ended up um you know buying russian gas which was um very quietly announced at the end of 2022 of course if anyone knows anything about azerbaijan he knows that they're swimming in natural gas and so the whole point of them buying some russian natural gas was obviously a way to kind of circumvent some of these i wouldn't even say sanctions it was just political correctness you know uh europe didn't want to be seen buying natural gas from russia and russia quite frankly didn't want to be seen uh being weak enough that they needed to sell it currently natural gas is continues to stream through ukrainian pipelines like literally right now russians and ukrainians

are fighting a war and there is natural gas going through those ukrainian pipelines from russia to europe um and so yes that is a good example of when i think the market just is kind of shocked into um overpricing overbidding a geopolitical risk premium which is why the correct call was to short commodities i was a little bit surprised by how wheat participated in this as well i mean at least you can make a case for wheat ukraine does produce a lot of it but then when you actually look at some of the supply chain issues or where some of these farms were you realize that in a much faster period of time than most people thought, Ukraine could actually move from delivering wheat through its ports in the Black Sea to actually moving them onto trains and also

either river ports in the Danube via Romania, or simply just sending them to north and using Baltic ports for the exports. Now, there's plenty of other examples of this as well. I mean, there's, You know, pre-Brexit, you have another way to think about this. It was the market not paying attention. So I don't want to say that it's always about, you know, the market overestimating risks. There are times when it underestimates risk. In the case of Brexit in 2016, the market was basically pricing a probability of Brexit based on the pound exchange rate at about 25, 30 percent. Of course, it ended up being much higher than that.

And then you have to take a hit on the currency. Now, one of the things that is surprising to me, but maybe I shouldn't be surprised, is like this is not a news story. And so I don't know if you're familiar with Mark Rich, the guy who basically created like the oil spot market. And, you know, I read a book and as I was reading through it, there was a lot of similarities of like, you know, he was helping Iran and Israel basically secretly trade during a lot of the Iranian oil issues. And he had become a U.S. citizen, but he had kind of a Swiss company and all stuff. And so U.S. politicians and law enforcement went after him, said that he was, you know, the largest kind of tax evader in history. The headlines read he was trading with the enemy. Right. I mean, like very kind of bombastic headline grabbing things. And his point was like, well, I'm a Swiss company trading. Now, again, without speaking to like, was he right? Was he wrong?

You know, there's a part in there's very complex kind of political process. But this idea of like the movement of oil with a backdrop of the geopolitical relationships and conflicts and people getting either caught in helping, you know, continue the movement of these commodities or being caught up in, you know, and being prosecuted for it has been around for decades. Right. And I don't think that that's going to change anytime soon. It sounds like you don't either. well yes and i think it's in the moment you know on february 22nd when 2022 um or february 21st i forgot the exact date when russians crossed the border but when when those things happen you know it seems like a new world is upon us it seems like there's a this uh real break in the past things cannot possibly be the way they were in the past and then the journalists get involved And they, you know, they moralize and they make a normative story about this, about, you know, Russia being evil, Ukraine being positive.

And then we get Twitter involved. Now, today's modern and, you know, on Twitter, everything is very black and white and you got to put a Ukrainian flag on or a Russian flag. Well, I don't think anyone has a Russian flag on Twitter, but you know what I mean? It becomes like impossible to see a world where Russian natural gas continues to go through Ukrainian pipelines into German homes. And yet here we are where that is the case. and i think that um so that's the first issue i think that um in modern world in particular particular with social media we tend to normal uh introduce norms and morals at an extreme level that in the past may not have been there i mean i'll give you one example israel and iran

are they are they uh century-old enemies are they you know like the islamic republic of iran and Israel? How will they ever talk to one another? Well, that's an interesting question because they talked to one another plenty in the 1980s. In fact, the famous Operation Opera, in which Israel attacked Iraq's nuclear reactor in Osirak, was in some way actually coordinated with the help of Iranian intelligence. Why? Because they shared a common enemy, which at the time, Iran was very far away from Israel, and the real enemy was the one in between them which was saddam hussein and so yes israel and iran the current regime of iran collaborated at a at a pretty significant level throughout the early 80s um no i'm not saying that that's

going to come back or i'm not saying like i'm just simply pointing out that the world is not as neatly bifurcated into two camps as your twitter stream you know and i'm not saying of course to you anthony you but like the listeners here um you know the world still remains what it was in the past which is complicated and nuanced um and for investors this is really important because geopolitics and politics for most of us has never been as important in our professional life as it is today and yet we have never had as much pressure to be moralistic and normative and to have these you know virtue signaling like performances um as we are today uh i mean even media itself is becoming uh more and more you know almost like activists and so why is this

important it's important because we we have to maintain a full head um and sometimes the message that data and analysis provides is that no you know like the west will not sacrifice its uh economic well-being for Ukraine. You know, I'm sorry that I'm the messenger of that news, but oil prices will collapse because the West will allow Russia to continue to finance its military operations by selling crude, quite frankly, to one of the largest American allies versus China, which is India. So you have this incredible situation in 22 to 24, where one of america's most important allies in terms of decoupling from china india is bathing itself in russian crude so when you think through these scenarios um it's very obvious like there's a

media narrative and usually that narrative makes us feel good makes us feel kind of moralistic and you know take the high ground if you will um how do you figure out what the truth is right and And maybe we can go to kind of Israel, Hamas, Iran, and kind of the current conflict there. One of the interesting data points to me was on the Saturday when Iran kind of had all the missiles and drones, the day before on Friday, gold was actually peaking and hit a new all-time high. And I wrote this letter and I said, you know, is somebody buying gold right now in anticipation of some sort of geopolitical event that they think our sanctions are going to follow, etc.?

Now, again, you know, I got to admit, it was kind of like a, that'd be kind of crazy if that's true, you know, type scenario. And then literally within 24 hours, you know, they have this attack. Now they tipped their hand to the attack. It's unclear whether they actually wanted to be successful or it was more of kind of like a way to shake their fist and, you know, kind of seem like they were doing something to the Iranian people. But like that, I think was one of the times where I'm like, wait a minute, we are watching

financial assets tell us a little bit about the future, right? They almost act as like alarm systems to some degree in some of these. And it may go against what the media narratives are, right? Well, I think I don't know if I agree with you on that one. You know, I think oil has been on a tear for two and a half years, you know, and I think the number one reason for that is that I think a lot of investors, including institutional investors, including central banks, quite frankly, don't believe long term break evens or five year, five year forward or the surveys of long term inflation expectations. wherever you look there's this like anchoring of long-term inflation is two and a half percent and i think that a lot of professionals are just like nah i don't believe it and so it's difficult for me to kind of disassociate the two and a half year you know mega rally in gold prices uh and

i've been like a bull in gold since january 2023 so i've missed the 22 because i was so shocked in 22 the gold went up given that you know real yields went through the roof the gold should not have performed well in 22. And yet they did. Why do you think that it did? Is it just literally they don't believe the inflation expectations? They think it's going to be higher. And so they want to buy assets that will benefit from that higher inflation? No, I think in 22, it was geopolitics. So I think in 22, it wasn't yet the long-term inflation expectations. I think it was, I mean, it's not that I think we can actually show a chart of central banks buying. And central banks were buying gold because of what happened in 22 in terms of um you know the the west basically

deciding to seize or freeze russia's um currency reserves and so i think that a lot of countries out there i mean and we're talking a lot are saying to themselves like look the west might have imposed this on russia today because of its you know illegal invasion of ukraine which truly is illegal by international law but maybe in the future they'll impose this on me for normative or moral reasons maybe i don't have the right climate policy so i want to diversify a little bit from the dollar i mean if i was running a central bank in like nominally allied country to the u.s like nominally allied like india or saudi arabia i would be like maybe i want to diversify a little bit and by the way the diversification away from the u.s in terms of currency reserves not current

not reserve currency two different concepts in terms of currency reserves has been astonishing I mean, U.S. has declined in terms of percent of currency reserves quite precipitously over the last 25 years, even though I don't think it will lose reserve currency status to different kind of things. But anyways, in 22, I think it was geopolitics. In 23, I think it's long-term inflation expectations. And today, it's still that. I do agree with you. Geopolitics may have played a role as well. um you know all that said the israel iran tensions didn't amount to much for the most important

asset which is the one that you would think a conflict in the middle east would impact which is oil so if you see and that's why it's difficult for me you know anthony to say that gold is reacting to geopolitics because oil isn't um and so how do we explain that how do we explain the impact of israeli iran tensions on gold if they're not going to impact oil like it's almost for a conflict to matter for gold you would have to rise to the occasion of you know things being destroyed that matter to the world you want you want to have a hedge you want to own an asset that will not decline in value well i mean how is it that oil is then not going up as well and i i can explain that um the reason is that it's very difficult for iran and israel to actually wage a

war against one another and the other issue is that iran has been beyond reticent i mean it's been unwilling to um to impact in any way shape or form the global supply of oil so for example if you think of what its proxy the houthis have been doing the houthis have been attacking red sea shipping, which does not include any oil. Oil shipping in the Straits of Hormuz has not been affected. And more importantly, the Houthis, who have attacked in 2019 Saudi oil facilities, in 2022, UAE oil refining facilities and the airport in Abu Dhabi, which I landed on three months ago, the Houthis have decided to send all their drones south, none north. And this is because Iran doesn't want global oil supply to be impacted. They have a deal with Saudi Arabia that's

actually giving them a lot in the region and uh it also means that iran and israel could actually have a conflict although i think it would be a pretty muted conflict given their lack of capacity to wage this kind of like a long-range war but it could be a conflict that doesn't impact any not a single oil barrel on a single ship um and that's again one of the reasons why i think even after these two attacks you know israeli retaliation to the iranian retaliation we've seen oil prices actually almost collapsed since then. Now, when you start to look at kind of these current conflicts, the US participation, I think is a big topic of discussion. On one hand, you have politicians who say we've got to send, you know, hundreds of billions of dollars to these various

countries and support and weapons and ammunition, etc. On the other hand, the United States economy probably doesn't need to be spending a lot of money right now. Like it feels like, you know, Maybe we've got some economic issues at home, and the Fed is trying to drain liquidity and tighten things, and we're spending at the same time. We've got the national debt. Talk a little bit as to almost these proxy wars internationally. I have no idea what you're talking about. What are you talking about? The Fed is out there not raising rates with Bitcoin at $60,000, with the S&P at $5,200.

We're good. Don't worry about it, Anthony. We can do whatever we want. No, listen. Here's what I would say. It's fascinating to me. it's fascinating to me because i've been speaking uh this language of political science in the financial community for a long time because i'm basically like a failed political scientist who

backed his way into finance you know and so since 2011 my claim has been that the world is multipolar you know which at the time was not a popular view political science nerds are very familiar with the the term multi-clarity but folks in finance were like me what is that you know um and so i was trying to make this claim that u.s hegemony was over the world was much more differentiated and that had implications for investors and most importantly that the world is not bipolar that this isn't about u.s versus china that's the wrong structure historical structure for us to kind of uh try to graft 2000 2024 world onto most americans i think are very comfortable with bipolarity because you know they want the cold war and i'm not saying like most americans

like most investors i'm i'm talking policymakers too so they they kind of like see a nail and they want to hammer it right so they see china they want to hammer it they're like okay it's bipolarity we have to de-risk from china decouple from china we have to isolate china but the world is a much more complicated place in in 2024 where you have multiple countries kind of doing things um independent of either china or the u.s now that said what's interesting about u.s involvement is how much it proves that the u.s is still the most powerful country in the world and so a lot of people have this like brain aneurysm well how can it how can the world be multipolar and america be so powerful and just to be very illustrated like iran

sent 200 plus projectiles at israel and the u.s was like hold my beer we got this and none of those reached israel and a lot of like the the credit goes to you know israel itself but i think that it's pretty clear that the u.s has just a plethora of systems that just snatch these out of the like no you know no and that's that's a great advertisement for not just american power but how uh you know lucrative or how beneficial it is to be an american ally now that said uh so what i would say to you is that america's involvement is still very very impressive it's very important it still can be a difference between life and death literally at the same time iran and israel almost went to a war so it's this interesting thing anthony we're like both the u.s

is the most powerful country in the world nobody's kind of listening or taking it seriously including its own ally Israel which is not following really the Biden administration on either Gaza intervention or on Iran although it is pretty clear that they did tone down their retaliation against Iran so where am I going with all this I'm going with all this that I think the world is very complicated but it also may mean that there is a there's some level of American involvement in the rest of the world that's held back not by a lack of money or material competency, but rather by a different material constraint, which is not technological supremacy or military supremacy, but rather political reticence to be involved in the rest of the

world. And the reason that's important is because if that were to change, then maybe the world wouldn't be so multipolar anymore. And it's just something to kind of think about. So what I would say to you is, yeah, I mean, your question, the way you led your question just simply shows that I think the Americans are kind of done with, you know, using that power on a very broad scale. And I don't know what changes the U.S. to go back into this kind of a unipolar moment. It's a very interesting thing. You know, I was in the army. We fought for 20 years, two

different wars. And I think every generation kind of goes through this where they kind of say, hey, you know, should we have done that? Right. And in hindsight, it's always easy to play armchair quarterback and all that stuff. But coming off a 20-year kind of dual war to then go right back into another war, there's a lot of people who I think just are kind of like, hey, I don't know what the appetite for that is. At the same time, you know, I always remind people like there's very bad people around the world who do very bad things and somebody's got to, you know, kind of go and take care of it. Speaking of countries that, you know, kind of are going around the world, China seems to have their hands in a lot of things. We see them heavily investing in African nations,

trying to go into South America. Obviously, there's the threat when it comes to Taiwan. And then inside their own country, they have kind of a real estate crisis, the stock market, they seem to be kind of stepping in there. Talk just a little bit about that country. And maybe the 2010s was defined by the China growth story. And now that seems to kind of be unwinding a little bit. 100% it's unwinding. Yes. I would say China is like, you know, I grew up in Yugoslavia. so i grew up in the second world as it was called at the time and so we would always get all the tv shows like 10 years later you know so like i am 42 years old but i have like the tv you know like sort of schedule of like a 50 year old in the u.s because we got everything like old so i'm like a

huge macgyver fan like you know like hawaii 50 like love it not the new one not the old one And then all the BBC shows that all my British peers are like, wait, you're a fan of that? My grandma watched that. You know, I was like, yeah, but I was a kid when I got that. Why am I saying that? Because China's kind of like me. They're 10 years behind. From a macro context perspective, China is where the United States of America was between 2010 and 2020.

Look, it's that simple. This isn't complicated. You know, we had a real estate crisis, which was caused why? Well, because liquidity was too abundant. Why? Well, I believe there was a geopolitical reason the Fed was behind the curve from 2001, important year, to 2008. And that was geopolitics. It was 9-11.

You know, you had this shock to the American system. And the Fed was basically dealing with a post-recession context. It was extremely concerned about the sentiment. And it ended up keeping interest rates probably too low until 2004, 2005, 2006, causing a real estate bubble. There's obviously regulatory issues as well. But then we got into secular stagnation from 2008 to 2020. We know that term, low growth, low inflation. The private sector had to deleverage.

And interestingly, the public sector did not come in to help. In fact, it did the opposite. So the Tea Party won the 2010 election. and then it sat down with barack obama at the table and both of them came to a solution and that solution the bipartisan solution was austerity remember at the time everybody was saying like you we need to run the government the way you run a uh a household you know we need to belt which was mathematically actually the incorrect thing to do but morally from a moral hazard perspective it seemed like the right thing to do let's not expand debt china is doing exactly the

same issues for exactly the same reasons honestly it had a credit binge in the 2010s when everybody was like oh my god china's going to overtake the u.s well yeah but it was like credit led now it has a hangover it's a decade later than the u.s and it's now stuck in secular stagnation its policymakers are unwilling to ramp up the public sector because of moral hazard they're doing exactly the same they have their own tea party basically running the country i mean xi jinping is like Mark Meadows. You know, like, is he a member of the Communist Party of China? No, I think he's a member of the Tea Party. Like, seriously, they're very reticent to use fiscal policy and public purse to offset this private sector to leveraging. And so what's interesting

about this from a geopolitical perspective is that I do think that most American policymakers and planners, strategic planners and national security and Pentagon got it wrong, just like got soviet union wrong you know there were still like textbooks and cia reports in the like 1970s and 80s predicting the soviet union would over overtake the u.s economy very similar mistake linear extrapolation a lot of people doing the linear extrapolation are not economists they're not market people um and so they i think miss mistook the 2010s growth of china for anything but credit-fueled bench, which China now has to spend the next decade digesting like the U.S. did.

And so that's the first thing I would say. The second thing I would say is that China is definitely engaged in investing around the world, infrastructure, strategic things. EVs are a strategic priority for China for two reasons. One, they see an opportunity to have an edge in an industrial output. So they're looking around the world. they're like, okay, what large scale manufacturing process could we own? Well, the Europeans seem really, really stuck on internal combustion engines. The Americans have Tesla, but not much

else. So why don't we own EVs? So there is that mercantilist, you know, like let's flood the world with GPVs for sure. But there is also another issue, which is that China is extremely geopolitically vulnerable because of its import of oil. You know, and that's because the US Navy literally protects chinese exports out of the middle east not american you know like it's not the u.s that needs the oil out of the straits of humus it's china and so american tax dollars are literally being spent to secure china's like oil supply and beijing is obviously concerned that at some point americans will put the two and two together and say why not have an israeli iran war shake things up a little bit you know you can you can see some machiavellian in the white house being like

all right like let's see what happens you know so the chinese are they have two options here they can either put hundreds of billions of dollars into the ground of russia like literally into the ground nail pipelines into the ground and take those commodities and they haven't done that for all the talk of endless friendships in china russia alliance china is extremely reticent to put any money into russia for obvious reason they don't know what's going to happen um to that money where they put it there and so instead they've made a strategic national security decision to just eliminate as much of crude imports as they can through a headlong you know descent into ev production and so that's a that's something that they are doing right now uh and that's where a lot

of their investment in Africa comes in because, of course, an average EV has 200 kilograms of materials relative to about 20 that an internal combustion engine has. But the final thing I would say, just to wrap this up, and we started off this conversation about how everything is nuanced, the third thing that the Chinese are doing is they're sending a lot of FDI into places like Indonesia, Mexico, Vietnam, and Malaysia. And here, I would challenge the conventional view. This isn't their attempt to kind of spread their Chinese infrastructure around the world and make the world addicted.

No, no, no, no, no. It's much simpler than this, Anthony. They're financing American national security priorities. The Chinese Communist Party is financing U.S. Congress and White House priorities. And what I mean by that is that after 2020, after the COVID crisis, and after all the Trump wars, Trump trade wars, the Chinese policymakers were like, okay, wait, hold on a second. What do you guys want? Oh, you want less stuff made in China. Got it.

No problem. You're spending hundreds of billions of dollars on making American dream a reality. And I'm not kidding. I call it enemy shoring. You know, people talk about French shoring. China is literally enemy shoring. They're setting up factories outside of China to reduce the tensions. And they're telling Americans, like, is it okay if they're in Vietnam?

Is it okay if they're in Mexico? Now, I'm not sure if it's okay. President Trump, who's campaigning, is currently saying it's not okay. But interestingly, what he's saying is it would be better if they were in America. And I'll tell you this. If Donald Trump goes to Beijing and asks President Xi to move EV factories to Ohio, President Xi will be like, done. No problem.

And so this is the interesting kind of evolution of where we are today. A lot of people out there talk about decoupling and think it's like a real thing and they think it's a binary thing. It's a zero one. It's much more complicated than that. China itself is actually financing its own decoupling, you know, and they're OK with that because they, you know, at the end of the day, it's a Chinese company producing something in Mexico. but from an american perspective from a national security perspective that is actually a better outcome you know if there's ever a war between china and the u.s that physical plant is something that an american ally can appropriate can nationalize and can use that physical plant for american priorities so it is a better national security outcome than having everything built in

China. And what's interesting to me is that how willing the Chinese have been to accommodate those demands. From an investment perspective, of course, what this means is that there's just a lot of stuff being built around the world. And I think that the impact on commodities is going to be pretty clear. Have you all done any work on like, asset prices or investments around regime changes? You know, obviously, we have Putin, we have President Xi, there's many other, you know, leaders, you could even go to maybe like an Argentina where you have Malay, you have, you know, El Salvador, Bukele comes in, sometimes it is maybe like more kind of libertarian type policies are going to come in and they're going to, you know, cut spending, etc. Some of them

are more kind of adversarial, you know, if obviously Putin was to go through some sort of regime change there, like, how do you think about investing through those types of kind of leadership changes in some of these countries? You know, so there's been some research on this, I think what I would say is I've seen some research on this done by private companies I can't name because, you know, basically like very large hedge funds doing long term historical research. And I remember there was this interesting database about Latin American regime change. and what the counterintuitive outcome of this research was that even if you get a left-wing populist come to power chances are assets are going to go up why because regime change is usually a sign of the bottom you know so the reason there's a regime change the reason that

the incumbents whoever they are lose they lose because asset prices have probably declined currency has collapsed inflation is probably at a peak and so regime change should theoretically mark the bottom in those assets now that is not always the case but it was interesting to me that in this particular data set the uh sort of the the message was like don't worry about whether it's left-wing populists or right-wing sort of libertarians ultimately a regime changes a function of something going wrong in the country it can get worse sure or it may not for example when lula came to power in brazil for his time you know he came to power because of a lot of macroeconomic events but he also marked the bottom in assets he he was like you know the economist

was writing these like incredible oh my god who knew lula's a reformer yeah it's easy to be a reformer when like money's literally raining down on your head from the commodity bull market in the early 2000s and so he didn't have to be populist he didn't have to you know appropriate wealth or redistribute it because there's plenty of it to go wrong so i think the macro context combined with that bottoming of asset matters more of course then you have a situation like macri who came to argentina and had very ambitious uh reforms proposals and he just he ran out of time he just ran out of time and the macro context just wasn't positive enough um commodities never turned uh and that's why i think what happened in argentina this time around is a reason to be

positive number one you have you know policymakers willing to cut down the the size of the government which is something that argentina sorely needs but also i do think that the macro context is better than it was under mercury so in those terms anthony what i would say is that the macro context and valuation almost matters more importantly than who it is you know in other words if brazil is cheap if commodities are going up and if the dollar is going down like carl marx could rise from the grave run for the president of brazil i'd still buy brazilian assets i'd be like yeah it's fine. Like, you know, commodities are going up. Brazil is cheap. All right. What can markets do? So one of the assets we haven't talked that much about that people who watch or listen to

this will be very interested in your thoughts is Bitcoin. It seems like on one hand, it is this kind of apolitical, decentralized, you know, kind of asset that could be a great store of wealth. On the other hand, you mentioned earlier Bitcoin at 60K and rates, you know, not moving. Um, so what are your thoughts on Bitcoin and kind of how it fits into a lot of what we've been talking about? Well, you know, like, I mean, Bitcoin has still been somewhat, uh, correlated with the equity risk premium. It's still a trades somewhat as a sort of a risky asset, you know, but I do think there's

a case for Bitcoin to be a store of value and digital gold. And in those terms, I think that the, the reason the most recent rise in Bitcoin, I'm not sure is related necessarily as neatly just to equities going up i do think that there's a component there just like with gold um where investors are a little bit worried you know if the fed is being political ahead of an election you know uh to elect joe biden let's say or rather that's that's too mean to the fed i think it's more to take away left tail risks ahead of an election. And so they're creating right tail risks. But if they're doing that ahead of an election today, and then Trump wins, you know, well, then he will just have as much right then

to politicize the Fed going forward. So there is, I think, a concern about loss of independence of the Fed on both ends of the spectrum. I think there's a concern about long term inflation expectations. And I think there's a concern about, you know, where the dollar is going over the next five years, given that it's as expensive as it really could be. And all of those are creating a bid for both gold and Bitcoin. And I think that's fair. I think that's fundamentally sound. And so that would be my answer to that question.

Now, whether Bitcoin is a foundation of some sort of a future digital currency, I don't think so. I don't think that there's anything beyond digital gold. But that's because I'm not maybe creative enough. And I will be the first to say it. To me, Bitcoin is not going to be a foundation of the next monetary regime or anything like that. is deflationary which a lot of people say that's great that's why we need it um that didn't turn out that great either in the past so i i don't think it's flexible enough but as a digital gold asset i think it's kind of proven its its value and merit so let's say that okay it's digital

gold i tend to agree that right now the clearest you know kind of use cases that is digital gold will continue to be digital gold um central banks will they eventually put it into their central bank reserves uh both as like kind of like a digital gold exposure but also as a potential hedge against those sanctions that you're talking about potentially yeah i i mean it depends uh you know like north korea already is doing that i mean that's an extreme example but but sure yeah i mean i can see other countries who are not as like on a spectrum of being a pariah maybe not a 10 out of 10 but like a 3 out of 10 you might want to put a little bit in bitcoin um i don't know i haven't been asked to become the central bank governor of one of these prize states but you know i would

take your recommendations if i were i would say like not a bad idea maybe maybe you know allocate 10 of what would go to gold to bitcoin that uh that makes sense to me um another thing that i think is interesting is uh i've spent a lot of time thinking about demographics and you know obviously there's many investors around the world who focus on demographics and want to invest you know kind of behind it nigeria has got a young population it's growing quickly right you know great internet penetration etc uh so they'll all run to nigeria and try to put money in various investment assets um one of the interesting things obviously is the birth rate is collapsing in the united states and elsewhere but there's a rise of robotics and so talk about uh demographics

i know you might not be a fan of investing alongside them but then also kind of this rise of robotics and humanoids and kind of labor production coming from machines and how that plays into kind of evaluating some of these investment strategies well you know to me demographics is um it's it's very dangerous to invest based on demographics particularly the nigeria story you know uh the i don't know if you're familiar with the nigerian brewery it's like like an iconoclastic investment idea it's like you know nigeria's got a lot of young people they like to drink beer it's hot let's go you know invest in a nigerian brewery it's like the proverbial um you know sort of play on this story and it's demographics are to me just way too simplistic

you know um why well because they can be a real curse having a lot of young people tends not to be really a good thing like if you think about the arab spring in early 2010s which started in tunisia and then spread around um north africa and the middle east it occurred in the most demographically healthy part of the world i mean these were the youngest populations with that like you know cohort that was entering the labor market but the um countries themselves did not have the economies to digest all of that new labor and so just having a lot of people is not a reason to invest in a particular country. I think that's a mistake.

I like Latin America. Latin America does not have particularly good demographics relative to other emerging markets, but it does have a lot of folks who haven't been incorporated into the financial system. So for example, if you're thinking of like technology penetration in Latin America, that's interesting.

You know, that's interesting, but it's not necessarily a story of demographics. it's a story of penetration of new technology into a particular economy um the other issue is that i think we over index on japan's experience you know we over index on this one country and its experience over the last 30 years and say aha that's what happens when you have poor demographics as a sort of like a cautionary tale of what's coming to us but the issue is that japan's And problems with disinflation were rooted in the macro context of global disinflation. It was just then exacerbated by their own particular experience that, yes, had something to do with demographics, but also had a lot to do with their policy choices as well.

In other words, until Abe, nobody really tried to bring out the big bazooka in Japan and kind of, you know, harness the full complement of structural reforms, fiscal and monetary policy. not until 2012 did they even attempt it so they wasted 25 years entrenching in the psyche of the public this deep disinflationary deflationary um mindset which i which is pretty clear our policymakers have not done i mean they've done the opposite you know um and that's why i think it's um demographics is just not a way to invest i don't i don't think it's it's a simple way at all i think there's some demographic trends that are very interesting the transfer of wealth from baby boomers to their you know kids it's going to be a great story interesting story uh what what's that going to do to like real estate prices in suburbs like you can make a demographic story

like that um in a particular sector in a particular product but i don't think that you can invest in large assets global macro assets based on demographics so speaking of maybe a version of demographics um in the u.s the birth rate is falling uh it has become somewhat concerning Both, I think, people who kind of look at it from the United States and the ability to continue to grow the population, but also from a productivity and economic analysis. And then all of a sudden, there seems to be almost like a variable, right, an unexpected variable that was thrown out onto the game board, which is illegal immigration. And now at the southern border, you have literally millions of people coming across the border. And so from a like, it's important to have rules and laws. It feels like, hey, we probably should have closed borders, right?

And we should enforce the law. On the other hand, if you forced me kind of gun to my head and said, what's a positive impact, getting more people into the U.S. labor force and the productivity that they bring and the population growth, et cetera, you know, does have some positive impact. And so how do you think through a situation like that and like maybe the positives and negatives when you think through kind of different investments? yeah first of all i forgot to answer your question about robotics and all sorts of things yeah sorry about that um yeah so i don't think demographics are a huge issue i just wanted to say in japan's

case you know their gdp per capita is going up because their per capita portion is is declining basically and so i mean i go to japan every year it's a lovely country it's an incredibly well-run country i i never leave japan thinking this is this place is on the verge of great depression You know, I just want to make that clear. And I think automation and robotics will ensure that as population declines, potentially productivity goes up. I mean, the combination of automation and AI

does create this potential for significant productivity gains. Now, to be clear, potential GDP growth rate, your potential growth as a society over the long term is only a function of two things. The number of human beings who are in your labor market and their productivity growth that's it so the growth of your labor force and a growth of your productivity those are the only two things and then economists will argue that good growth

good organic sustainable growth is all about productivity growth because you can't really continue to have labor force growth forever i mean at some point you will run out of room people will be living on top of each other and be very very annoyed by how crowded they are so So labor force growth alone cannot be a solution for your long-term growth potential, which you kind of hope is to have a mix of both, but hopefully productivity growth to really be what's driving. Now, we haven't had a lot of productivity growth in the world, particularly total factor productivity, which is kind of the residual that cannot be explained through a use of labor and capital. And that's a problem. Why? why all this tech we have, all these SaaS businesses running around have not actually

enhanced their productivity that much. And there's two schools of thought here. One is that most of that productivity is there. It's just not being measured. I disagree with that. Maybe because I'm a Luddite. I don't know. I'm a student of Robert Gordon and his extraordinary book, The Rise and Fall of American Growth. I think there's more than just us being unable to measure productivity um i think we just haven't had meaningful productivity actually over the last 20 years i know that's crazy to say but you know the internet is awesome but has it really improved our communication massively from the days of the fax machines and the phones like yeah in daily life but from a commercial perspective like it's okay you know it's it's it's fine we need leaps

in in growth and a lot of the productivity the last 10 years 15 years i think was just this and like a lot of that is probably not productive you know and it's actually making us less productive so to go back to your immigration issue i think that labor force growth is just not enough and so the fear that you should have about illegal immigration in particular is that are you enabling those human beings to be as productive as they could be so yes you are solving for labor force growth. But are they then going to go? Is a legal immigrant and their children, are they going to be able to be the best version of themselves as American laborers? Are they going to be able to see their productivity go up? And I think the problem is that if you're an illegal immigrant

in any country in the world, the chances are that you're going to be in sort of the underutilized parts of the labor market. You will not be allowed to really get educated. And there will be all sorts of hurdles, both objective and subjective, to your ability to become the best version of yourselves. And so the reason to solve the immigration problem in the United States of America is to ensure that people who come to the country actually can be the best versions of themselves that they're not at risk of deportation that they are not at risk of you know suffering by going to school by becoming trained up by learning the language um and i think that it's it's something that's quite frankly a relatively easy fix and it starts by making it much more

difficult to have a job if you're a legal immigrant and this is one of the most fascinating things in the united states it's one of the countries where it's actually the easiest to be employed as an illegal immigrant and you know this is this is part of the debate where both democrats and the republicans are actually kind of to blame particularly republicans by the way particularly republicans a lot of the pro-business legislation and and rules allow businesses to effectively kind of employ illegal immigrants right you know so like think about the large agribusinesses. You know, these, you know, these are not run by liberals in coastal states. Let's be very clear. You know, I live in Los Angeles, in Santa Monica, I don't see a lot of like

chicken plucking and strawberry fields in Santa Monica. So a lot of the pro-business regulation that kind of closes eyes to illegal immigration is actually a leftover from the 1980s, 90s, kind of like good old boys, you know, pro-business regulatory sphere. And so I would say it's very easy to end the immigration problem you just make it impossible to hire a person who is an illegal and you would almost immediately disincentivize you know humans are not stupid if if i can cross the border and get a job like why wouldn't i but if i can cross the border and not get a job and then i have to like sell leather goods in the street like that doesn't sound good and so uh that's one way to fix this without necessarily putting up walls or barriers or

anything like that you disincentivize you make it much more difficult to be illegal and earn a living in the united states and then of course create create pathways to coming in legal ways you know so whether it's seasonal uh programs whether it's uh easy like visa application rules things like that, that can still be pro-business and can still bring enough labor force, but do it in a legal way, which then also allows those people to have kids and those kids to go to schools and be the best versions of themselves. My last question for you is, given all the analysis, you look around the world, you really pay attention to the geopolitics. How do you think about allocating a portfolio today? How are you allocated or how are you

talking to clients about it well i think the most important issue uh is always price you know and positioning and i will tell you that currently i think almost every investor i speak to whether u.s based or not is pretty much overwhelmingly positioned in the u.s like if you have a strategic asset allocation and you have sort of a allocation for the u.s you're at the max level you know and you might have even expanded what um allocation you want to have in the u.s and so yeah that's i would say i think the the issue right now is that there's this real sense that in the great discord that we are in the u.s in the world with all these things going on around the world it cannot possibly make any sense to be anywhere other than the us and i think you see this from

the performance of the dollar the us dollar is as expensive as it's ever been you know and i think that's a real issue and something to really think about um because i think over the next five to ten years that could change and so what i would say is that um you know i'm not asking a family office or an institutional investor to like completely devised out of the u.s but let's say you have 60 of your assets in the u.s maybe you want to have 55 you know maybe you want to have 50 um particularly because your dollar goes a long way and you can buy a lot of stuff for it around the world and as i said there's all sorts of things going on around the world that don't fit neatly into the economist headlines you know so like think of like indonesia or malaysia these

are countries that are being showered by both china and the u.s with money that might seem like an interesting place to acquire some assets india is another one of course it's a little bit more expensive than the other two vietnam latin america is an incredible place that is really benefiting from what's going on around the world both from the commodity perspective but also from the perspective that they're far enough from both the U.S. and China that they can benefit from the FDI of both. Mexico is a great example of this, but I think Brazil will be as well, and potentially Argentina with the new administration. So I would say to investors, start nibbling at the rest of the world. Marco, I could literally talk to you forever.

I've learned so much from you. And this conversation, you've given me a lot to think about. I love the demographics may not actually be something to invest alongside as much as everyone thinks it is. Where can we send people to find you on the internet or keep up with the research and the work that you're doing? Well, for now, I think the best way is just I'm on Twitter, you know, geo underscore poppage, P-A-P-I-C, and also geopoliticalalpha.com. So let's keep it to that for now. Awesome. Well, I appreciate it very much. If people do not follow you, they should, and we'll definitely do this again in the future. Absolutely.

Thank you so much, Anthony.