July 10, 2025 • 44 mins
For investors, geopolitical risks are always lurking as a factor that could upend trades for obvious reasons. When war breaks out, it's crucial to have some kind of understanding of what it will mean for various markets (such as oil or grain) and how long the conflict can persist. But is there any way to analyze these things scientifically? Many people are paid by investors to try to do exactly this. On this episode, we speak with Andrew Bishop, the global head of policy research at Signum Global, about what he does, and how he attempts to forecast the future. We use the recent conflict between Israel and Iran (as well as other sources of global tension) to get a better understanding of how he goes about forecasting, how investors use his research, and what he sees going forward.
Read more:
Israel Is Now Peerless in the Middle East and Markets
Israel Emerges Stronger From Iran War, But Risks Blowback
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:24):
Joe, do you ever experience a sudden surge in geopolitical
analysis emails in your inbox?
Speaker 3 (00:34):
Yes, I do. You know, it's funny most years, people like, oh,
what do you you know at the beginning of the year,
end of the year, things are going good, and it's like,
what are you concerned about?
Speaker 4 (00:43):
It?
Speaker 3 (00:43):
Like, I'm concerned about geopolitical tension. It's just one of
these cliches, A classic as a classic, That's what I
always say when I have no it's like, well, thanks
to fine, but I'm concerned. But in some years, clearly
geopolitical tension, war, et cetera is very real. We recently
saw the bombing in both directions between Israel and Iran.
(01:04):
It seems to be paused for now, but sometimes geopolitical
attention becomes outright geopolitical hostility.
Speaker 2 (01:10):
Yeah, that was definitely one of those weeks when we
both got a lot of emails. Yes, I have a
confession to make, which is I read all of those
geopolitical analyzes, but I always kind of wonder what I'm
supposed to do with that information. You know, if I
were a major professional investor, if I'm reading a note
(01:31):
about what is the base case for like Iran versus Israel,
I am not entirely sure how that influences my own
decision making.
Speaker 3 (01:41):
Well, I would say I would take it even a
step backwards and say, like, you know, when we talked
to Wall Street analysts, say a FED forecaster, I have
a sort of I think, intuitive understanding of how they
e They're like, oh, there's going to be three cuts
in the next year, and then I generally have a
sort of intuitive understanding of how they might arrive at that. Okay,
(02:02):
we look at statements from the FED about what they're
looking for in terms of achieving disinflation. We look at
the trajectory of the US economy, and then we say, okay,
we combine the FED statement, their sensitivity, etc. The reaction
function that's the term I'm looking for, with the data,
and then we arrive at a forecast. When it comes
to something like a war, I do not really have
(02:24):
an intuitive understanding of how the geostrategic or geopolitical analysts
whose notes flutter inboxes from time to time, always during
bad periods. How do they arrive at conclusions? Therefore, X,
we think the war is going to end this way.
I do not know how that can be done systematically,
and yet people.
Speaker 2 (02:41):
Try, and actually some of them put numbers probabilities on
specific outcomes. So I think if I was a geopolitical analyst,
I would just put thirty percent chance on everything that
seems reasonable.
Speaker 3 (02:53):
Yeah, So it used to be that if you were
unsure but wanted to sound smart, you say sixty forty,
But these days you say seventy thirty. Seventy thirty is
the new sixty forty.
Speaker 2 (03:02):
That's right, that's right.
Speaker 3 (03:03):
But I you know, I don't want to be cynical
about it. I am curious about how one could derive
a number from things that seem wildly uncertain and rare,
because there are not a lot of event studies, and
every war is distinct, and therefore the idea of trying
to accurately assess the outcome of some conflict strikes me
as very difficult. Yeah.
Speaker 2 (03:23):
Well, I am very pleased to say that we do,
in fact have the perfect guests to talk about geopolitical
analysis and how it actually is calculated. I guess are created.
We are going to speak with Andrew Bishop. He is
a senior partner and global head of Policy research at
Signum Global Advisors. So Andrew, welcome to the show.
Speaker 4 (03:43):
Hi, thanks for having me.
Speaker 2 (03:45):
Why don't we just start with what is Signum?
Speaker 4 (03:48):
So?
Speaker 5 (03:48):
Signum is a political and geopolitical risk advisory firm that
was founded in twenty eighteen by a gentleman named Charles Myers,
who was the vice chairman of Evercore i I before
founding Signam. And Charles had a career in banking with
a focus on emerging markets, but was always sort of
one foot in US politics as a fundraiser, as an
advisor to candidates, et cetera. And he founded Signam essentially
(04:10):
to try to meld his instincts about how markets work
with his knowledge about US politics, and from there he
hired me to help build out the sort of global
analysis beyond the US.
Speaker 3 (04:22):
So I think I started first becoming aware of your
commentary recently because Ozon Tarman, who we've had on the podcast,
over at the Deutsche Bank, he started forwarding some of
your notes over and so then I started reading this
stuff and it was like very interesting and compelling. Well,
why don't you tell us? Okay, you explained what SIGNAM is.
What's your background? How do you develop an expertise in
(04:45):
these areas?
Speaker 5 (04:47):
So I joined SIGNAM from the Eurasia Group, which is
sort of the founding house of political risk. I was
there for four years. I first joined Eurasia because I'd
met Ian Bremmer through a previous job at the World
of Comic Forum. So the DAVS organization and I joined
as sort of right hand man to their chairman, Cliff Cupchin,
who really taught me a lot in that firm.
Speaker 4 (05:08):
In that role, I ended up.
Speaker 5 (05:09):
As deputy head of research, and several of the things
that I learned from Cliff, or for example, not getting
overly excited by every new headline, right so I think,
especially when you're at the beginning of good advice for everyone. Yes,
I mean to me, the best example of that is
the zero hedge type headline about how the first gas
contract was denominated or settled the euro instead of dollar,
(05:31):
you know, or just the bricks more generally. I started
working when I was twenty two. I'm thirty nine now.
The bricks have had a glorious future for you know,
almost twenty years, so that was one of the things.
The other thing that I learned from Cliff was good analysis,
Like basically the key is to have a rigorous and
analytical process, and even if you get the call wrong,
(05:53):
it's better to have good analysis and a call wrong
rather than the other way around, right, because otherwise you
could just be throwing darts and you'd be getting elects,
you know, fifty percent right half the time, right, which,
by the way, gets to this question of what you
mentioned on the probabilities. It's actually harder than just throwing
darts or or flipping a coin because most situations have
far more than two scenarios, right, So it really is
(06:15):
a very very difficult thing to do to predict all
geopolitical outcomes, which which I'm sure we'll get to, but
just to close off on, you know, sort of background,
I joined Eurasia from the World Economic Form and the
job I had there was really fun because essentially, you know,
the organization is best known for Davos, but the team
I was in, which was their Global Risk team, basically
send their team members throughout most frontier and emerging markets
(06:39):
to meet with government officials get a sense of where
their head was at in terms of their country's sort
of economic future, future economic policies, et cetera. Then meet
with the opposition and the business community and think tank community,
and essentially write up scenarios about the future of that
country at a sort of ten to twenty year outlook,
not trying to get it right, not trying to predict it,
(07:01):
but trying to essentially force the country to think twice
about his business model. As you can imagine, a lot
of these were resource dependent countries and that led to
some pretty interesting situations. Like one of the projects we
worked on, for example, was about the future of Ukraine,
and that was in twenty thirteen, twenty fourteen, so the
project was literally interrupted by the Maidan Revolution. Half the
(07:23):
people on the board of the project and half the
people we'd interviewed were, you know, either fleeing or put
in prison. And I remember we were doing a panel
to actually introduce parts of the findings in Davos, and
the Prime Minister of Ukraine his plane was he was
basically disinvited on the day that the panel was taking place,
so his plain was circling over Zurich, not being allowed
(07:45):
to land, not being allowed into the room, you know,
similarly we had back then.
Speaker 4 (07:49):
He was an MP.
Speaker 5 (07:51):
Petro Borshenko, who later became the leader of the country,
smuggled in a grenade from the Madan Revolutions into the
conference hall and sort of held it up to show
how the brutality of the regime was working. So it
was a really great way to get first hand exposure
to to frontier markets.
Speaker 2 (08:05):
Yeah, that is definitely first hand exposure. I'm not sure
how I would feel being in a conference room or
like a big hall with a grenade. I'm hoping it
wasn't live, but who knows. Okay, Andrew, one thing I
wanted to ask, and I alluded to it in the intro,
is when I get your research nodes, if I am
a typical client of Signum, what exactly am I doing
(08:29):
with that information? Why do I want to get this analysis?
Speaker 5 (08:32):
So first thing is about sixty sixty five percent of
our clients are financial investors, right that Joe mentioned or
alluded to about thirty five percent or so our corporates,
and they obviously use this in very different ways, which
I'll get into. But I think the first topic that
you all sort of touched on is this idea, you know,
there's there's a lot of studies that show that you
have political risks just don't affect markets, right, like, who
(08:53):
really cares. Frankly, oil's pretty much flat from pre Israel
Iron War Viks barely picked up. You know, SMP's at
all time highs et cetera. Obviously I have a you know,
a bias or I'm rooting for my home team here,
but I think that that's a little bit short sighted
for a few reasons. One is, most of these studies
typically look at S and P in the long term,
(09:15):
and our clients obviously are not trading the S and
P in the long term, right, They're trading in the
short term, and you've got some pretty violent, sharp moves
up and down for a lot of these assets. And
they're also trading obviously more niche assets. So I'm thinking
of the tribal and tourism industry, or I'm thinking of
the oil and gas industry is rarely shekel, you know,
things that are far more niche, and if you look
(09:36):
at it at that level, you've got some major major
volatility that can be both beneficial or negative depending on
how good you're at playing it, which is really what
are our clients are specialists and we're not strategists. We
don't give investment advice based on the jeblical research we
put out. The other thing is there's this big, you know,
talking point, and it was true again last month. There
were two weeks ago whenever the Israeli ron war ended,
(10:00):
there's sort of this like oil collapses, right, And that's
a counterintuitive outcome. A lot of our clients were actually
expecting that, and so what they were trying to figure
out was when is this going to end or not end?
But when is it going to culminate?
Speaker 2 (10:13):
Right?
Speaker 5 (10:13):
When is going to be the peak fear level? And
that's probably going to be when Iran retaliates for whatever
the US does. So again, the fact that it actually
drops on the news is not necessarily surprising to most
of the folks we speak to. Patreca, you want me
to get into a little bit how the clients use us?
Speaker 2 (10:29):
Yes, that would be great.
Speaker 4 (10:31):
Yeah, I mean, so there's a few ways.
Speaker 5 (10:32):
The first, and I would say least often and least
sort of savvy or useful way is for the predictions themselves. Right,
So what I'm saying is basically, most clients don't use
us for the actual outcome prediction. It's better if we
get it right. But if they were only going to
use us for that, they could probably go to prediction markets, right.
(10:54):
I think their prediction markets are a little bit overestimated
these days, which we can get into, but they're not bad, right, Yeah,
So that's not the main reason. The main reason that
the way that a client put it to me, and
this was years ago and it stuck, is like they're
an F one driver and we're helping them on the
sort of you know the training tracks right like on
(11:15):
the on the training loops before the actual race, to
literally memorize every single turn and know when they can accelerate,
when they've got to cut a corner, et cetera, so
that when the events start unfolding, they're already prepared to
you know, hit the brakes or accelerate depending on what's happening.
The difference here, of course, is that the track is
not fixed. But the point is, you know, in a
(11:37):
situation like Israel Iran, you've got multiple calls, right or
multiple call basically just means prediction. You've got multiple situations.
So you've got is Israel going to strike, then you've
got the question. Okay, so we know they're striking, it's
all over Twitter, et cetera. Is this a shot across
the bow or is this the big one? Is the
US actually going to get involved after twelve hours? Is
Iron going to retaliate forcefully or in a you know,
(11:59):
some bolock way. Is this war going to last three
days or is it going to last three weeks? Is
the US going to get involved at that point?
Speaker 4 (12:06):
You know?
Speaker 5 (12:06):
And so on and so forth. And so they're not,
like most clients, don't expect us to get every single
one of those calls right. I mean, that would be insane.
What they want is for us to lay out arguments
that are not necessarily just convincing, but that help them
do the mental gymnastics around all the possible outcomes, and then,
of course is better if you get it right.
Speaker 3 (12:26):
Wait, I have a very short quick question. Do you
see anyone in your clients who are actually in the
prediction markets looking for opportunity there yet because some of
these are getting to be big sized, or do you
see this as a future growth area for you? People
looking for mispriced contracts on the prediction markets.
Speaker 4 (12:43):
So you mean clients that would actually be putting on trades.
Speaker 3 (12:45):
Yeah, you say there's forty percent of X happening, the
prediction market is sixty percent. Maybe there's an opportunity anyone
doing that yet.
Speaker 5 (12:52):
So short answer is that I'm aware of NOK and
the main reason is still liquidity, despite the fact that
it's getting bigger.
Speaker 4 (12:57):
As you say.
Speaker 5 (12:58):
What's really interesting, of course, is that that with this
intermediate the market's reaction function.
Speaker 3 (13:17):
So I'm looking back at a note. This is just
a random one that I'm found in my inbox, but
there were several that I read in July. Oh sorry,
Jane June. By the way, I should say we were
recording this on July first, and given that the world
is an uncertain place by the time this episode comes
and I don't know the exact date, who knows what's
going to happen by the time you're listening to this.
But I'm reading a June sixteenth note, and you gave
(13:39):
these odds twenty percent preemptive Iranian capitulation, forty five percent
Israeli mission accomplished, followed by Iranian capitulation, twenty five percent
chance US intervention, and ten percent Iranian nuclear breakout. Surprise.
Why do you go give us through your thinking in
the middle of June, how you arrived at some of
these numbers, and then, given where we are today on
(13:59):
July first, how did you do or what surprised you
or what didn't surprise you to talk about sort of
where you were then and where you are in it.
Speaker 5 (14:06):
So the first thing is Tracy was asking about how
do we ascribe probabilities? And there's I could give you
a fancy answer about Monte Carlo simulations, et cetera.
Speaker 4 (14:14):
But the reality is neither we, nor as far.
Speaker 5 (14:17):
As i'm where anyone in the sort of market actually
models this stuff, and the few that do use predictive
analytics rather than historical data. And the reason is there
just aren't that many case studies to go off of, right,
So let's just get that out of the way.
Speaker 4 (14:32):
So the way we.
Speaker 5 (14:34):
Use probabilities, and I'll absolutely answer your question about the
that specific case study in a second, but there are
three main ways that I think the probabilities can be useful.
The first is if you're drawing out scenario trees and
you're assigning you know, before you publish, right, you're assigning
probabilities to various sub events before getting to the total
(14:54):
cumulative outcome. Basically, if the math doesn't add up, that
can highlight a p in your logic. Right, it's not
a math problem. Who cares if the math doesn't add
up from a mathematical standpoint, But if you end up
with above one hundred or below one hundred or whatever,
that means that you're probably overstating one aspect of the
dynamic or understating another.
Speaker 4 (15:13):
That's one.
Speaker 5 (15:14):
A second that can be quite interesting and problem you know,
not problematic, but useful for the user is clustering.
Speaker 4 (15:22):
Right.
Speaker 5 (15:22):
So we had a recent scenario or recent situation with
an election, I think it was in Uruguay where the
base case was perhaps market constructive, but if you aggregated
all the non base case scenarios, you actually had a
more likely outcome of a market negative bottom line.
Speaker 1 (15:39):
Right.
Speaker 4 (15:40):
So that's those are a few of the ways.
Speaker 5 (15:42):
Now, the way that I would approach a situation like
the Israeli ra on one is basically break it down
into an equation. So if you're trying to answer the
question is the US going to intervene in the war
and bomb for it?
Speaker 4 (15:54):
Out right?
Speaker 5 (15:55):
To me, the odds of that would be start with
one hundred, and then you take out whatever the odds
are that Iran is going to capitulate at the diplomatic table.
So you know, we can talk about how you can
come up with that view, but the idea is, are
the Iranians going to take the diplomatic off ramp that
Trump is giving them on that Friday? Geneva Right, So
those odds might be low, but they're not zero, So
(16:17):
you get to say twenty percent. Now that leaves you
with eighty percent of that The question becomes is Israel
going to.
Speaker 4 (16:25):
Basically finish the job on its own? Right?
Speaker 2 (16:27):
I e.
Speaker 5 (16:28):
Can the Israelis destroy for it out on their own,
either through bombing without the most advanced bunker busters or
through a ground operation like they conducted in Syria the
previous November, which is something that I and a few
others had on their radar. And if they can't, then
presumably the President will intervene. Right now, you were asking
about scoring myself. That's a perfect example. Those odds get
(16:52):
you below fifty percent of US intervention. You, on top
of that have to add the fact that the president
might want to intervene even if he doesn't have to,
right because you might see political opportunity and being associated
with a victory. And that's the part that in this instance,
for example, I'd underestimated. Now where it gets really interesting,
and I'll stop here. What gets really interesting is even
(17:14):
if your take is that the president is actually not
dying to get involved and that he doesn't really see
this as a big opportunity, and you therefore only ascribe it,
you know, whatever thirty percent odds, you're still going to
end up above fifty percent overall. So that can tell
you that, because there's so many ways of getting to
an outcome, you can get tipped over fifty without it
being your modal scenario. I'm same with odds of regime change.
(17:38):
You can get regime change through palace coup, you can
get regime changed through Israeli bombing, you can get regime
changed through a revolution. Our base case was that there
would be no regime change in Iran, and I think
that's that's what played out so far. But the point
is you've got to compound all those odds because they
are independent variables.
Speaker 2 (17:53):
Okay, you have the probabilities. I get that. The way
you just laid it out was very clear, But how
do you actually come up with, I guess the range
of scenarios because that's what seems practically unlimited nowadays. And
also you mentioned Trump just then. In Trump World, I
kind of feel like anything is possible, right, Like there
(18:15):
are a lot more tail risks out there that now
seem plausible in various ways. How do you take into
account the unpredictability of anything can happen? And then how
do you actually confine yourself to This is a set
of realistic scenarios that I'm going to talk about.
Speaker 5 (18:34):
So first thing I'd say is, to me, that's one
of the reasons why prediction markets aren't that useful yet,
and especially to clients. They can actually be ironically more
useful I think, to the analyst than to the recipient
or user of the final product.
Speaker 4 (18:49):
And what I mean by that.
Speaker 5 (18:50):
Is the prediction markets will tell you where the tariff
level is going to end up on July thirty first, right,
But what if the cutoff that's relevant is not July
thirty first. What if it's you know, a completely different
date because Trump is visiting. Like let's say that it's
a ceasefire in Gaza and the cutoff date is Trump's
visit to Saudi Arabia or whatever. So the point is
(19:10):
the rigidity of the prediction markets, and it's a trade off,
right because the reason they do that way is so
that they can be easily falsifiable and you can compare predictions,
et cetera. But that rigidity, I think narrows the value.
So then to your question on how do you even
frame the issue. That's a major problem for Trump tariff situations. Indeed,
(19:31):
so if you take July eight for example, you can't
really and you know, we've struggled with this everyone does.
It's hard to make a call on whether he is
going to escalate or postpone his deadline because there are
sixty countries involved. So first of all, you theoretically would
have to make sixty individual calls, right or predictions. Second
(19:51):
thing is what if he says, you know, we're escalating
the tariffs but they're kicking in on July fifteenth, is
that a punt or is that him at actually having
increased the arras and so on and so forth. So,
I mean, the short answer, Tracy is there is no
perfect way of doing it. And that's actually been one
of the issues with Trump, is that framing the initial
question is almost as hard as predicting his behavior. Trade
(20:14):
ironically is one of those situations though that we've had
a pretty good track record with. So I'm happy to
talk a little bit about how we've tried to like
get into Trump's brain if you want, please, Yeah. So
there are a few things. So the first is you
can observe patterns. Right, So Robert Armstrong had sort of
this huge success with the taco label that was amazing marketing.
But I have to say we were a little jealous
(20:35):
because I think he wrote that in early May, and
in early April we put out a table with basically
every one of the Trump threats. I think there were
like twenty three or.
Speaker 3 (20:43):
So, doesn't matter if you don't market, it's it's all
about that acronm anyway, keep going.
Speaker 5 (20:48):
I was waiting for the invite, so I think Trump
had backed down in twenty one out of twenty three
threats something like that.
Speaker 4 (20:56):
Right.
Speaker 5 (20:56):
So the first thing is you can identify patterns, and
in fact, actually truthly be told, we ran that same
study at the very end of his first term as well,
and the takeaway was very, very similar. The question I
think was was he going to be tough for his
second time around, right, But the point is you can
identify patterns, So taco is one of them. Where it
gets complicated, though, is you know, it's almost like the
(21:17):
Economist or Time magazine cover phenomenon, where by the time
the Taco thing came out, whether it was from US
or from Armstrong, it was already fading. It was already
getting arguably less true because if you look at the
pattern of Trump's behavior. On jan twenty, he had made
a bunch of threats against Mexico, Canada, China, et cetera.
He completely let them go, right, nothing happened, He didn't
even mention them on Jan twenty. Then he postponed them
(21:40):
to February one. He went one step further, he actually
signed the executive orders, but nothing happened. Then March one
comes around, or March four rather, and he actually implements
the terrors, but he walks them back after a day.
Then April two comes around and he walks it back
after a week on rest of the world and a
whole month on China. So the point is there a patterns,
(22:00):
but you've got to constantly be reassessing them because the
rule that worked yesterday may no longer work to today.
Speaker 4 (22:05):
Right.
Speaker 5 (22:05):
A second question is or principle, let's say, is we've
been very We've tried to be very nimble and not
have a grand theory.
Speaker 1 (22:14):
Right.
Speaker 5 (22:14):
So this gets a little bit to the whole like
phil tedlock fox versus hedgehog, like not be too attached
to grand ideas, but look at each prediction individually. One
of the things that's really driven me crazy is this
narrative that Trump's.
Speaker 4 (22:27):
Trade approach is all about China. Right.
Speaker 5 (22:29):
That is totally accurate over the course of four years.
It is totally useless in the short term because if
I told you that Trump's trade policy was going to
be all about China, which in hindsight is correct, right,
China's got a forty five percent tariff, everyone else has
a ten percent tariff. But if I told you that
out in January nineteen and you were, you know, running
a hedge fund, you would have been very, very surprised
(22:50):
that the first three months of the Trump administration were
all obsessed with Mexico and Canada. Basically, this whole China
lens would have been useless up until April. So that's
a second thing is trying not to take an overarching view,
but look at it individually and try to figure out
what's he after in this specific case. So, you know,
the best example is if you think he's after a
teriff revenue, then he's by definition not going to back down.
(23:13):
You can't get revenue if you back down, right, And
the same country can be affected by completely different motivations
or you know, confrontations. So Mexico in the first three
months was affected by fentanyl and immigration concerns, which were
pretty clearly I mean, it's always easier to say in hindsight,
but pretty clearly transactional like Trump just wanted to be
able to say that he had done something about those issues.
(23:34):
The way that Trump is going to approach Mexico in
Q four this year to try to get them to
do USNCAA revisions and open up their energy market and
change their rules of origin on auto sector issues, that's
going to be much much tougher, right, So, same country,
totally different approach. Another is there's this big like talking point,
you know, don't take Trump literally, but take him seriously.
Speaker 3 (23:55):
We hate there one around here.
Speaker 4 (23:56):
Okay.
Speaker 5 (23:57):
So yeah, so first of all, we know not to
take seriously because of Taco or you know, signum pre taco.
But I actually think taking him literally has been reasonably
helpful him and some of his advisors, those who repeat
his views. So people like vest and Lutnik, they actually
don't repeat his views. They kind of freelance. But if
you take Carolyn Lovett, one thing that really sort of
(24:18):
struck us was I think it was on before the
February one deadline rather than the March one.
Speaker 4 (24:23):
But I could be confusing them. She said.
Speaker 5 (24:25):
They're in that press conference the day before, on the Friday,
she said, there is absolutely nothing that Canada and Mexico
can do to prevent the present from signing the executive
order tomorrow. Signing the executive order, they never said they
were going to actual implement the terraces, right, And I
know that sounds like a little cute or yeah, but
there is something to that effect. And if you listen
to Trump, I think it's quite interesting if you also
(24:46):
look at how his advisors, how he lets them talk
like speak, you know what kind of leege they're on.
They are allowed to say anything, including the craziest stuff,
as long as they don't reduce his optionality, right, So
he benefits from them going nuts as long as he
doesn't get cornered by their comments.
Speaker 3 (25:20):
Let's go back to the recent war and something I'm interested,
So looking at the cumulative odds twenty percent preemptive Iranian capitulation,
forty five percent Israeli mission accomplished. When you're coming up
with those odds, like how much do you really have
to know about the size and scale and quality of
(25:42):
the respective weapons systems of Israel and Iran? Because ultimately,
to some degree, prior to the US intervention, the question
was the degree to which one side's missiles or their
missile defense was stronger than the others. So how do
you learn about that? And how important is it to
add trually have really high quality information about each side's arsenals.
Speaker 5 (26:04):
So that actually gets a little bit back to what
is Signum and who we are because I'd say there
are different types of shops in our industry, right. There
are shops that are based on intel, right, So it's
like what we're hearing in Congress, or I play golf
with you know, Scot Besson or whatever, that's not us.
We do access events and a bunch of you know,
(26:25):
really cool stuff. We took clients to Ukraine to meet
with the Ukrainian government and get a sense of what
post war reconstruction type policy might be reduce that stuff.
But it's not part of our research, right, And that's
because Intel in addition to you know, potentially if you've
got HIMNPI, et cetera, that gets legally dubious. In addition
to that problem, it doesn't make for good predictions, right
because Scott Besson himself didn't know on April eight whether
(26:49):
Trump was going to back down the next day, he
knew he was working on him, but he didn't know
asad was not sure whether he was going to be
toppled or not. Right, So there's that, and then there
are shops that are very focused on country xes. So
it's like, you know, I lived in Venezuela for fifteen years,
so here's my take on whether Juenguido's kup is going
to succeed or not. And don't get me wrong, like
we've got regional experts. We have a Mexico office with
(27:10):
a Mexican guy leading it, years and years of experience
from Latin em et cetera. So it's not that we
don't do that. But the point is where we think
our value add is is on the process, and we've
basically adopted like a few principles. One is the fill
tetlock principle that I mentioned earlier, which is not really
about who you are, it's how you proceed, right, So
it's precisely what is your model, like, what is your process?
Speaker 4 (27:34):
And that's where another.
Speaker 5 (27:35):
Guy comes into focus, which is one of the mesquita that.
Speaker 4 (27:38):
A lot of people will know about.
Speaker 5 (27:39):
Political scientists very focused on, essentially the logic of political survival, right,
Like leaders will always put their own advantage ahead of anything,
and that's why, you know, you've got situations where like Nitagna,
who's never going to agree to a hostage deal because
it would risk his coalition, and why would he risk
his coalition? Or you know, why would he risk losing
(28:00):
power just to satisfy Trump. That's where it gets interesting, though,
is none of these rules is failed proof, right because
using that logic, one of the pushbacks that got on
our Ceespire calls in the past was why would Hamas
ever give up the leverage of hostages?
Speaker 4 (28:15):
Right?
Speaker 5 (28:16):
And that sounds like a conversation under the truth is
they've given up hostages twice now, right, You've got to
stay like pretty nimble and humble. There is no like
perfect answer, but that sort of process approach can be helpful.
Now to get back to your initial question about like
how much knowledge you need? You do need technical knowledge,
but you don't need to have it in house. So
(28:38):
we don't ever outsource any of our analysis, Like no
one external has ever come up with a prediction for
us or written any of our notes. But what we
do is we break down a big issue into sub
questions and then we go out and try to find
the answer. And some of that will be an open source.
Some of that will be trying to speak with an
expert on XYZ missile range. So yeah, the answer is
(28:58):
you do need it, but you can break it down
and not make it part of your core business model
and just sort of have it as a research process.
Speaker 2 (29:06):
You mentioned being humble just then, and I'm wondering, so,
you know, in the Iran situation, you published probabilities and
your base case and all of that, and I think
events didn't pan out quite the way you expected. What
happens when you're just wrong about a particular prediction. So
(29:26):
you know you've laid out your analysis. Maybe you had
a really great way of reasoning around scenarios and things
like that, but nevertheless, something happened that you did not expect.
What do you do?
Speaker 5 (29:38):
So there's a couple answers to that, Well, there's several.
The first couple are deflection. The third is the real answer.
So one is, in any of these situations, you've got
lots of different predictions, right. So for example, we didn't
expect that Trump would actually go in and bomb Ford
out because we expected these reels to do it on
their own. But we were on the right side of
(29:58):
the regime change call. We were on the right I said,
the horror mooze call. We're on the right side of
Israel staying away from trying to knock out Iranian oil production,
which looked harry during that first weekend, and so on
and so forth.
Speaker 4 (30:09):
So that's one.
Speaker 5 (30:10):
The second is you basically have to try to figure
out why you got it wrong right, and from there
you can typically learn something for the next time. So
in this instance, for example, I was far too focused
on these Raelis capabilities and whether or not the Israelies
we're going to be able to do this on their own,
and not focused enough on Trump's appetite to get involved
(30:32):
for political reasons. Right where it gets really ironic is
part of the reason I was of the view that
the Israelis would be able to go out and knock
out for it on our own is because for the
previous twelve months I've been telling clients the Israelis have
the capability to strike on their own, and they are
going to do it, and it's going to be a
bolt from the blue. I didn't expect it to be
exactly when they did it, because the nuclear talks were
(30:54):
still ongoing. But the point is, back then, the big
pushback I would get constantly was the Israelis don't have
the planes to reach are on. They don't have the
resheeling capability, you know, and.
Speaker 4 (31:04):
So on and so forth.
Speaker 5 (31:06):
And so that gets back to this thing that there
is no like one rule that you can like, you know,
to sort of one rule to rule them all, right,
There is no such thing.
Speaker 4 (31:14):
You've got to constantly be reassessing.
Speaker 5 (31:16):
You know.
Speaker 3 (31:16):
When we talk to economists and market practitioners, you know,
one of the terms that comes up a lot is
regime change. And in this case, I gotta be careful.
I don't mean literally like the question of whether the
Iranian regime changes. But this idea of like regime change
in markets, like does the relationship between bonds and stocks
change over time or is the fed and inflation fighting
mode or deflation fighting mode whatever, like these are certain relationships,
(31:40):
relationships change, and I'm curious, like there are many people
who perceive and perhaps the medium term future that maybe
the US Israel relationship is going to change, that maybe
there are parts of growing louder contingents within the Republican
Party and both parties really, but within the Republican or
that do not want to deploy US military assets or
(32:04):
resources in the same way the same level of support
to Israel in the past, and who knows how that
is going to transpire. But I'm curious, like how you think, like, Okay,
there's some relationship the two countries might have, but all
relationships could change, and if that relationship does change, then
it changes the short term expectation on any given war.
And so I'm curious in your process or internally you
(32:26):
think about this idea of relationship regime change and could
at some point down the future, and we don't know when,
could some of these alliances or partnerships or you know,
friend relationships change and then that force a calculation change
when an acute event happens.
Speaker 5 (32:43):
That's a great question, but I would say that there
is a pretty big difference I think, I mean, I'm
not in the markets, but I think there's a big
difference with financial markets, which is the regime changes happen,
but they happen much more slowly and so you have
a lot more time to bake them in.
Speaker 4 (32:58):
Right.
Speaker 5 (32:58):
So you know, you started the podcast by sort of
talking about how there are these like talking points that
come up over and over right the world, like jee,
political risk is going to be big in twenty twenty five, right.
A big one of those is multipolar world, right, yeah?
Or jizu a world like this idea that it's like
the breakdown of global order and so on and so forth.
So those only happen every twenty or thirty years, Or.
Speaker 3 (33:19):
That the US may not want to be the hedgemon
at some point, that it may not have the same
appetite to be a global police. And so for example,
you know, the Tucker Carlson wing of the Republican Party
very loud against this idea, like why should the US
have such a global military footprint? Things like that at
some point that could be a dominant strain of thought,
(33:40):
and we if it becomes one, we might not necessarily
know when the flipping point.
Speaker 4 (33:44):
Is totally agreed.
Speaker 5 (33:45):
But going back to how it's a slow process, I
think Trump was a really interesting and like, literally what
happened over the past month was a very very good
test case for that right. And the fact that Trump himself,
who is known to be not just isolationists but also pacifist,
you know, one can chuckle, but like he does have
a pacifist instinct I think, and pretty stingy in terms
(34:08):
of use of American power and use of American money
and resources, et cetera. The fact that even he intervened,
I think tells us something about how slow that process
is going to be.
Speaker 2 (34:17):
Sure, Okay, we mentioned cliches a couple of times, and
I think this is probably a cliche too, But you know,
cliches can be true. Maybe that's why they become cliches.
But when it comes to geopolitical risk analysis, do things
feel more difficult to you nowadays versus when you perhaps
(34:38):
started in the industry, Does the world seem more complex?
And I guess given the Trump administration and some of
the unpredictability that we discussed earlier. Do things seem more volatile,
more uncertain and just harder to sort of get a
handle on.
Speaker 5 (34:54):
Yes, I think that is absolutely fair and it really
does sort of echo back to Joe's question in the
sense you take something like the relationship between Russia and
China pre Ukraine War or pre twenty twenty two version
of the Ukraine War. For fifteen years before that, there
had been an established talking point amongst pretty much all
political analysts, which was, it's an alliance, it's an access
(35:15):
of convenience. Right, they get along, they work together, but
they don't really trust each other, they don't really love
each other, and so you knew that when push comes
to shove, when they had to like put their interest
above the other, etcetera, you knew which way.
Speaker 4 (35:27):
It was going to go.
Speaker 5 (35:28):
That was very unclear for the first like year, and
frankly some could argue it's still unclear post Russia invasion,
right or Ukraine invasion.
Speaker 4 (35:37):
Are they now in it forever?
Speaker 5 (35:39):
And sort of Russia basically China is grooming Russia to
help it when it goes after Taiwan, or is it
still very much an access of convenience where the Chinese
might cut off, you know, drone inputs to the Russians
for the right price, if there's American export control lifting
or something like that. Right, And your question, Tracy, the
fact that so much stuff is changing so fast means
(36:00):
that you have even less historical background or historical data, which,
as we said earlier, you're already starting with very very
small data sets, right, And so the temptation there is
to kind of just make it up as you go,
and that's where things get dicey.
Speaker 3 (36:15):
Do you think that's possible, like that China has a
price for which it would hold back on Russian access
to drawing materials and such.
Speaker 5 (36:23):
So my answer to that would be, in a way
that one is actually not that hard because even if
there were a price, we are so far from being
willing to pay that price that it's not gonna it's
never gonna be delighted with day.
Speaker 3 (36:35):
What's the surprise thing that you think is not on
anyone's radar right now geopolitically that you think we should
be focusing more on. This is my way of so
listening ideas for future episodes.
Speaker 5 (36:45):
By the way, Yeah, yeah, no, so I actually I
love that question because but I hope this is not
going to be disappointing, but it is. I always say,
like the whole black Swan thing is irrelevant, Like black
Swan's almost never happened. This stuff that blows up in
our face is stuff that is visible pretty far ahead,
like not necessarily far ahead of time, but that is
(37:07):
pretty obvious. And the difficulty is for the analysts predicting
the details right, like in what month is put and
get invade or whatever, or what part of Ukraine is
he going to invade? And the other difficulty for clients,
of course is how to trade that right, given that
you can get radically different outcomes. But the events themselves,
I mean, there were four or five months of Russian
(37:27):
build up in front of Ukraine and in December January
people were still debating what it's going to happen or not.
And another example is COVID. People talked about COVID as
a black Swan. I mean, if you read any of those,
you know, World of Form global risk reports for the
past like fifteen years, pandemics were always top ten like
or even top five. People knew that pandemics were a
(37:48):
major potential business risk. So again, it's it's more like
the details rather than something's going to just pop up
in our face.
Speaker 3 (37:54):
In the next I don't know, five years. Do you
expect China to invade Taiwan?
Speaker 5 (37:59):
Yes, I mean the word invade is the one that
bugs me, which is not going to surprise you, because
I think that it's more likely to be a blockade,
for example, than an actual amphibius invasion. So that view,
for example, is pretty I think. But now right, the
problem is again from the perception of how do you
manage it. One of the things that I think is
(38:20):
totally underappreciated is everyone knows that a blockade is a risk, right,
But the part that's totally under appreciated is that the
Chinese could roll it out literally overnight. So I think
what is underappreciated is We're not going to get any
build up. We're going to wake up one morning and
it's going to be done. So that's one problem. A
second problem is a bloodless blockade that lasts, you know,
(38:40):
three months or six months, that is essentially a continuous
anaconda squeeze on Taiwan, and the Taiwan's economy could actually
be far worse from a purely market perspective. Forget about
you know, normative aspects far worse than a one month war,
regardless of the outcome, right, because it's the length of
the eruption for business operations that could be most problematic.
(39:03):
So again, it's how you look at it. I think
that they can make a difference.
Speaker 2 (39:07):
Back in college, I wrote an essay slash dissertation on
the chances of China, you know, invading Taiwan or going
after Taiwan, and I think I had my base case
was they were going to do something before the two
thousand and eight Olympics.
Speaker 3 (39:20):
So yeah, I empathize with the difficulty of timing.
Speaker 2 (39:24):
I totally do. Andrew, that was fantastic. Thank you so
much for coming on all thoughts.
Speaker 3 (39:29):
Thanks Andrew.
Speaker 1 (39:30):
That was great.
Speaker 4 (39:30):
Thank you, Joe.
Speaker 2 (39:43):
There was a lot to pick out of that conversation.
I think one of the things that struck me. Okay,
first of all, you know, he was talking about black swans,
and this is something that teleb himself pointed out at
our recent live event, which is we shouldn't really be
worried about black swans because they are by their very
nature unknowable. We should be worried about the gracewans like
(40:04):
a pandemic. I think that makes a lot of sense. Secondly,
the emphasis on motivation was really interesting to me because
this is something that I have wondered about the tariffs.
If Trump needs to have a bunch of tariff deals
to have his trade war seem to be a success,
(40:25):
then what does that mean on the revenue side, because
he has also talked about how tariff revenue is going
to offset a bunch of tax cuts and things like that.
So I do think it's important and I still haven't
figured out that one particularly. And then the other thing
is he was talking about Trump's advisors, and this is
something I hadn't realized, but he's right. The one thing
(40:47):
they can't do is limit the president's optionality. It seems
like they can throw out pretty much any scenario, any response,
any possibility that they want, but they can't do anything
that would box him or pigeonhole into one position. That
was interesting.
Speaker 3 (41:03):
Yeah, you know, by the way, just going back to
Andrew's note that we kept referencing on June sixteenth, he
had underestimated the odds that the US would intervene as
he did. However, to his credit, here were his final takeaways.
US intervention is certainly possible, but still not base case. Okay,
it did happen, However, he says likewise, regime changes plausible,
(41:25):
but still unlikely. So he was right on that. And
then he said the overwhelming majority of scenarios end in
a negotiated around capitulation with no meaningful damage done to
global oil supply or golf assets. I think that's a
pretty good conclusion that at the end of the day,
because if you figure people care about the markets and
oil supply more or less, a useful conclusion to have
(41:46):
been able to make on June sixteenth. I have to
say the speed with which Andrew answered yes, there is
going to be something Taiwan that I was like, I
was hoping that he would hum in Hawe a little
bit about that, and then this idea that's just going
to happen so quickly, it'll be overnight, there's we're not
going to get any signs of it, and then the
(42:06):
world is going to change dramatically the next morning in
ways that we don't really know.
Speaker 2 (42:11):
Well. On the other hand, there are people like me
who have been saying, yeah, with great confidence that this
is going to happen for a while and it doesn't.
So maybe that's that's some hope for you, Joe.
Speaker 3 (42:23):
I mean for me, I mean for lots of people,
certainly hope there is anyway.
Speaker 2 (42:27):
The other thing I was.
Speaker 3 (42:28):
Didn't like how comfortably he was Yeah, in five years, Yes,
he didn't have seemed to have any doubt.
Speaker 2 (42:34):
The other thing I was thinking, we probably should have
asked this, but the time frames for things, because you
mentioned regime change in Iran, like, okay, well it hasn't happened,
but it's also been two weeks since we had this big,
big event that happened, and I don't think it's necessarily
off the table, So I'd be curious to figure out
how he thinks about like the time frame of possibilities
(42:56):
as well. But oh well, we already spoke for about
forty five minutes, so we should probably leave it there.
Speaker 3 (43:01):
Let's leave it there.
Speaker 2 (43:02):
This has been another episode of the Audthlots podcast. I'm
Chracy Alloway. You can follow me at Chacey Alloway.
Speaker 3 (43:08):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Andrew Bishop. He's at Andrew Underscore d
Underscore Bishop follow our producers Carmen Rodriguez at Carman armand
dash El Bennett at Dashbot and kill Brooks at Kilbrooks.
From more odd Lots content, go to Bloomberg dot com
slash odd Lots, where you have a daily newsletter and
all of our episodes, and you can chat about all
(43:28):
of these topics twenty four seven in our discord discord
dot gg slash odlocks.
Speaker 2 (43:34):
And if you enjoy odd Lots, if you like it
when we try to dig into what exactly geopolitical risk
analysis actually is, then please leave us a positive review
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find the Bloomberg channel on Apple Podcasts and follow the
(43:55):
instructions there. Thanks for listening in in
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Alloway.
Speaker 3 (00:22):
And I'm Joe Wisenthal.
Speaker 2 (00:24):
Joe, do you ever experience a sudden surge in geopolitical
analysis emails in your inbox?
Speaker 3 (00:34):
Yes, I do. You know, it's funny most years, people like, oh,
what do you you know at the beginning of the year,
end of the year, things are going good, and it's like,
what are you concerned about?
Speaker 4 (00:43):
It?
Speaker 3 (00:43):
Like, I'm concerned about geopolitical tension. It's just one of
these cliches, A classic as a classic, That's what I
always say when I have no it's like, well, thanks
to fine, but I'm concerned. But in some years, clearly
geopolitical tension, war, et cetera is very real. We recently
saw the bombing in both directions between Israel and Iran.
(01:04):
It seems to be paused for now, but sometimes geopolitical
attention becomes outright geopolitical hostility.
Speaker 2 (01:10):
Yeah, that was definitely one of those weeks when we
both got a lot of emails. Yes, I have a
confession to make, which is I read all of those
geopolitical analyzes, but I always kind of wonder what I'm
supposed to do with that information. You know, if I
were a major professional investor, if I'm reading a note
(01:31):
about what is the base case for like Iran versus Israel,
I am not entirely sure how that influences my own
decision making.
Speaker 3 (01:41):
Well, I would say I would take it even a
step backwards and say, like, you know, when we talked
to Wall Street analysts, say a FED forecaster, I have
a sort of I think, intuitive understanding of how they
e They're like, oh, there's going to be three cuts
in the next year, and then I generally have a
sort of intuitive understanding of how they might arrive at that. Okay,
(02:02):
we look at statements from the FED about what they're
looking for in terms of achieving disinflation. We look at
the trajectory of the US economy, and then we say, okay,
we combine the FED statement, their sensitivity, etc. The reaction
function that's the term I'm looking for, with the data,
and then we arrive at a forecast. When it comes
to something like a war, I do not really have
(02:24):
an intuitive understanding of how the geostrategic or geopolitical analysts
whose notes flutter inboxes from time to time, always during
bad periods. How do they arrive at conclusions? Therefore, X,
we think the war is going to end this way.
I do not know how that can be done systematically,
and yet people.
Speaker 2 (02:41):
Try, and actually some of them put numbers probabilities on
specific outcomes. So I think if I was a geopolitical analyst,
I would just put thirty percent chance on everything that
seems reasonable.
Speaker 3 (02:53):
Yeah, So it used to be that if you were
unsure but wanted to sound smart, you say sixty forty,
But these days you say seventy thirty. Seventy thirty is
the new sixty forty.
Speaker 2 (03:02):
That's right, that's right.
Speaker 3 (03:03):
But I you know, I don't want to be cynical
about it. I am curious about how one could derive
a number from things that seem wildly uncertain and rare,
because there are not a lot of event studies, and
every war is distinct, and therefore the idea of trying
to accurately assess the outcome of some conflict strikes me
as very difficult. Yeah.
Speaker 2 (03:23):
Well, I am very pleased to say that we do,
in fact have the perfect guests to talk about geopolitical
analysis and how it actually is calculated. I guess are created.
We are going to speak with Andrew Bishop. He is
a senior partner and global head of Policy research at
Signum Global Advisors. So Andrew, welcome to the show.
Speaker 4 (03:43):
Hi, thanks for having me.
Speaker 2 (03:45):
Why don't we just start with what is Signum?
Speaker 4 (03:48):
So?
Speaker 5 (03:48):
Signum is a political and geopolitical risk advisory firm that
was founded in twenty eighteen by a gentleman named Charles Myers,
who was the vice chairman of Evercore i I before
founding Signam. And Charles had a career in banking with
a focus on emerging markets, but was always sort of
one foot in US politics as a fundraiser, as an
advisor to candidates, et cetera. And he founded Signam essentially
(04:10):
to try to meld his instincts about how markets work
with his knowledge about US politics, and from there he
hired me to help build out the sort of global
analysis beyond the US.
Speaker 3 (04:22):
So I think I started first becoming aware of your
commentary recently because Ozon Tarman, who we've had on the podcast,
over at the Deutsche Bank, he started forwarding some of
your notes over and so then I started reading this
stuff and it was like very interesting and compelling. Well,
why don't you tell us? Okay, you explained what SIGNAM is.
What's your background? How do you develop an expertise in
(04:45):
these areas?
Speaker 5 (04:47):
So I joined SIGNAM from the Eurasia Group, which is
sort of the founding house of political risk. I was
there for four years. I first joined Eurasia because I'd
met Ian Bremmer through a previous job at the World
of Comic Forum. So the DAVS organization and I joined
as sort of right hand man to their chairman, Cliff Cupchin,
who really taught me a lot in that firm.
Speaker 4 (05:08):
In that role, I ended up.
Speaker 5 (05:09):
As deputy head of research, and several of the things
that I learned from Cliff, or for example, not getting
overly excited by every new headline, right so I think,
especially when you're at the beginning of good advice for everyone. Yes,
I mean to me, the best example of that is
the zero hedge type headline about how the first gas
contract was denominated or settled the euro instead of dollar,
(05:31):
you know, or just the bricks more generally. I started
working when I was twenty two. I'm thirty nine now.
The bricks have had a glorious future for you know,
almost twenty years, so that was one of the things.
The other thing that I learned from Cliff was good analysis,
Like basically the key is to have a rigorous and
analytical process, and even if you get the call wrong,
(05:53):
it's better to have good analysis and a call wrong
rather than the other way around, right, because otherwise you
could just be throwing darts and you'd be getting elects,
you know, fifty percent right half the time, right, which,
by the way, gets to this question of what you
mentioned on the probabilities. It's actually harder than just throwing
darts or or flipping a coin because most situations have
far more than two scenarios, right, So it really is
(06:15):
a very very difficult thing to do to predict all
geopolitical outcomes, which which I'm sure we'll get to, but
just to close off on, you know, sort of background,
I joined Eurasia from the World Economic Form and the
job I had there was really fun because essentially, you know,
the organization is best known for Davos, but the team
I was in, which was their Global Risk team, basically
send their team members throughout most frontier and emerging markets
(06:39):
to meet with government officials get a sense of where
their head was at in terms of their country's sort
of economic future, future economic policies, et cetera. Then meet
with the opposition and the business community and think tank community,
and essentially write up scenarios about the future of that
country at a sort of ten to twenty year outlook,
not trying to get it right, not trying to predict it,
(07:01):
but trying to essentially force the country to think twice
about his business model. As you can imagine, a lot
of these were resource dependent countries and that led to
some pretty interesting situations. Like one of the projects we
worked on, for example, was about the future of Ukraine,
and that was in twenty thirteen, twenty fourteen, so the
project was literally interrupted by the Maidan Revolution. Half the
(07:23):
people on the board of the project and half the
people we'd interviewed were, you know, either fleeing or put
in prison. And I remember we were doing a panel
to actually introduce parts of the findings in Davos, and
the Prime Minister of Ukraine his plane was he was
basically disinvited on the day that the panel was taking place,
so his plain was circling over Zurich, not being allowed
(07:45):
to land, not being allowed into the room, you know,
similarly we had back then.
Speaker 4 (07:49):
He was an MP.
Speaker 5 (07:51):
Petro Borshenko, who later became the leader of the country,
smuggled in a grenade from the Madan Revolutions into the
conference hall and sort of held it up to show
how the brutality of the regime was working. So it
was a really great way to get first hand exposure
to to frontier markets.
Speaker 2 (08:05):
Yeah, that is definitely first hand exposure. I'm not sure
how I would feel being in a conference room or
like a big hall with a grenade. I'm hoping it
wasn't live, but who knows. Okay, Andrew, one thing I
wanted to ask, and I alluded to it in the intro,
is when I get your research nodes, if I am
a typical client of Signum, what exactly am I doing
(08:29):
with that information? Why do I want to get this analysis?
Speaker 5 (08:32):
So first thing is about sixty sixty five percent of
our clients are financial investors, right that Joe mentioned or
alluded to about thirty five percent or so our corporates,
and they obviously use this in very different ways, which
I'll get into. But I think the first topic that
you all sort of touched on is this idea, you know,
there's there's a lot of studies that show that you
have political risks just don't affect markets, right, like, who
(08:53):
really cares. Frankly, oil's pretty much flat from pre Israel
Iron War Viks barely picked up. You know, SMP's at
all time highs et cetera. Obviously I have a you know,
a bias or I'm rooting for my home team here,
but I think that that's a little bit short sighted
for a few reasons. One is, most of these studies
typically look at S and P in the long term,
(09:15):
and our clients obviously are not trading the S and
P in the long term, right, They're trading in the
short term, and you've got some pretty violent, sharp moves
up and down for a lot of these assets. And
they're also trading obviously more niche assets. So I'm thinking
of the tribal and tourism industry, or I'm thinking of
the oil and gas industry is rarely shekel, you know,
things that are far more niche, and if you look
(09:36):
at it at that level, you've got some major major
volatility that can be both beneficial or negative depending on
how good you're at playing it, which is really what
are our clients are specialists and we're not strategists. We
don't give investment advice based on the jeblical research we
put out. The other thing is there's this big, you know,
talking point, and it was true again last month. There
were two weeks ago whenever the Israeli ron war ended,
(10:00):
there's sort of this like oil collapses, right, And that's
a counterintuitive outcome. A lot of our clients were actually
expecting that, and so what they were trying to figure
out was when is this going to end or not end?
But when is it going to culminate?
Speaker 2 (10:13):
Right?
Speaker 5 (10:13):
When is going to be the peak fear level? And
that's probably going to be when Iran retaliates for whatever
the US does. So again, the fact that it actually
drops on the news is not necessarily surprising to most
of the folks we speak to. Patreca, you want me
to get into a little bit how the clients use us?
Speaker 2 (10:29):
Yes, that would be great.
Speaker 4 (10:31):
Yeah, I mean, so there's a few ways.
Speaker 5 (10:32):
The first, and I would say least often and least
sort of savvy or useful way is for the predictions themselves. Right,
So what I'm saying is basically, most clients don't use
us for the actual outcome prediction. It's better if we
get it right. But if they were only going to
use us for that, they could probably go to prediction markets, right.
(10:54):
I think their prediction markets are a little bit overestimated
these days, which we can get into, but they're not bad, right, Yeah,
So that's not the main reason. The main reason that
the way that a client put it to me, and
this was years ago and it stuck, is like they're
an F one driver and we're helping them on the
sort of you know the training tracks right like on
(11:15):
the on the training loops before the actual race, to
literally memorize every single turn and know when they can accelerate,
when they've got to cut a corner, et cetera, so
that when the events start unfolding, they're already prepared to
you know, hit the brakes or accelerate depending on what's happening.
The difference here, of course, is that the track is
not fixed. But the point is, you know, in a
(11:37):
situation like Israel Iran, you've got multiple calls, right or
multiple call basically just means prediction. You've got multiple situations.
So you've got is Israel going to strike, then you've
got the question. Okay, so we know they're striking, it's
all over Twitter, et cetera. Is this a shot across
the bow or is this the big one? Is the
US actually going to get involved after twelve hours? Is
Iron going to retaliate forcefully or in a you know,
(11:59):
some bolock way. Is this war going to last three
days or is it going to last three weeks? Is
the US going to get involved at that point?
Speaker 4 (12:06):
You know?
Speaker 5 (12:06):
And so on and so forth. And so they're not,
like most clients, don't expect us to get every single
one of those calls right. I mean, that would be insane.
What they want is for us to lay out arguments
that are not necessarily just convincing, but that help them
do the mental gymnastics around all the possible outcomes, and then,
of course is better if you get it right.
Speaker 3 (12:26):
Wait, I have a very short quick question. Do you
see anyone in your clients who are actually in the
prediction markets looking for opportunity there yet because some of
these are getting to be big sized, or do you
see this as a future growth area for you? People
looking for mispriced contracts on the prediction markets.
Speaker 4 (12:43):
So you mean clients that would actually be putting on trades.
Speaker 3 (12:45):
Yeah, you say there's forty percent of X happening, the
prediction market is sixty percent. Maybe there's an opportunity anyone
doing that yet.
Speaker 5 (12:52):
So short answer is that I'm aware of NOK and
the main reason is still liquidity, despite the fact that
it's getting bigger.
Speaker 4 (12:57):
As you say.
Speaker 5 (12:58):
What's really interesting, of course, is that that with this
intermediate the market's reaction function.
Speaker 3 (13:17):
So I'm looking back at a note. This is just
a random one that I'm found in my inbox, but
there were several that I read in July. Oh sorry,
Jane June. By the way, I should say we were
recording this on July first, and given that the world
is an uncertain place by the time this episode comes
and I don't know the exact date, who knows what's
going to happen by the time you're listening to this.
But I'm reading a June sixteenth note, and you gave
(13:39):
these odds twenty percent preemptive Iranian capitulation, forty five percent
Israeli mission accomplished, followed by Iranian capitulation, twenty five percent
chance US intervention, and ten percent Iranian nuclear breakout. Surprise.
Why do you go give us through your thinking in
the middle of June, how you arrived at some of
these numbers, and then, given where we are today on
(13:59):
July first, how did you do or what surprised you
or what didn't surprise you to talk about sort of
where you were then and where you are in it.
Speaker 5 (14:06):
So the first thing is Tracy was asking about how
do we ascribe probabilities? And there's I could give you
a fancy answer about Monte Carlo simulations, et cetera.
Speaker 4 (14:14):
But the reality is neither we, nor as far.
Speaker 5 (14:17):
As i'm where anyone in the sort of market actually
models this stuff, and the few that do use predictive
analytics rather than historical data. And the reason is there
just aren't that many case studies to go off of, right,
So let's just get that out of the way.
Speaker 4 (14:32):
So the way we.
Speaker 5 (14:34):
Use probabilities, and I'll absolutely answer your question about the
that specific case study in a second, but there are
three main ways that I think the probabilities can be useful.
The first is if you're drawing out scenario trees and
you're assigning you know, before you publish, right, you're assigning
probabilities to various sub events before getting to the total
(14:54):
cumulative outcome. Basically, if the math doesn't add up, that
can highlight a p in your logic. Right, it's not
a math problem. Who cares if the math doesn't add
up from a mathematical standpoint, But if you end up
with above one hundred or below one hundred or whatever,
that means that you're probably overstating one aspect of the
dynamic or understating another.
Speaker 4 (15:13):
That's one.
Speaker 5 (15:14):
A second that can be quite interesting and problem you know,
not problematic, but useful for the user is clustering.
Speaker 4 (15:22):
Right.
Speaker 5 (15:22):
So we had a recent scenario or recent situation with
an election, I think it was in Uruguay where the
base case was perhaps market constructive, but if you aggregated
all the non base case scenarios, you actually had a
more likely outcome of a market negative bottom line.
Speaker 1 (15:39):
Right.
Speaker 4 (15:40):
So that's those are a few of the ways.
Speaker 5 (15:42):
Now, the way that I would approach a situation like
the Israeli ra on one is basically break it down
into an equation. So if you're trying to answer the
question is the US going to intervene in the war
and bomb for it?
Speaker 4 (15:54):
Out right?
Speaker 5 (15:55):
To me, the odds of that would be start with
one hundred, and then you take out whatever the odds
are that Iran is going to capitulate at the diplomatic table.
So you know, we can talk about how you can
come up with that view, but the idea is, are
the Iranians going to take the diplomatic off ramp that
Trump is giving them on that Friday? Geneva Right, So
those odds might be low, but they're not zero, So
(16:17):
you get to say twenty percent. Now that leaves you
with eighty percent of that The question becomes is Israel
going to.
Speaker 4 (16:25):
Basically finish the job on its own? Right?
Speaker 2 (16:27):
I e.
Speaker 5 (16:28):
Can the Israelis destroy for it out on their own,
either through bombing without the most advanced bunker busters or
through a ground operation like they conducted in Syria the
previous November, which is something that I and a few
others had on their radar. And if they can't, then
presumably the President will intervene. Right now, you were asking
about scoring myself. That's a perfect example. Those odds get
(16:52):
you below fifty percent of US intervention. You, on top
of that have to add the fact that the president
might want to intervene even if he doesn't have to,
right because you might see political opportunity and being associated
with a victory. And that's the part that in this instance,
for example, I'd underestimated. Now where it gets really interesting,
and I'll stop here. What gets really interesting is even
(17:14):
if your take is that the president is actually not
dying to get involved and that he doesn't really see
this as a big opportunity, and you therefore only ascribe it,
you know, whatever thirty percent odds, you're still going to
end up above fifty percent overall. So that can tell
you that, because there's so many ways of getting to
an outcome, you can get tipped over fifty without it
being your modal scenario. I'm same with odds of regime change.
(17:38):
You can get regime change through palace coup, you can
get regime changed through Israeli bombing, you can get regime
changed through a revolution. Our base case was that there
would be no regime change in Iran, and I think
that's that's what played out so far. But the point
is you've got to compound all those odds because they
are independent variables.
Speaker 2 (17:53):
Okay, you have the probabilities. I get that. The way
you just laid it out was very clear, But how
do you actually come up with, I guess the range
of scenarios because that's what seems practically unlimited nowadays. And
also you mentioned Trump just then. In Trump World, I
kind of feel like anything is possible, right, Like there
(18:15):
are a lot more tail risks out there that now
seem plausible in various ways. How do you take into
account the unpredictability of anything can happen? And then how
do you actually confine yourself to This is a set
of realistic scenarios that I'm going to talk about.
Speaker 5 (18:34):
So first thing I'd say is, to me, that's one
of the reasons why prediction markets aren't that useful yet,
and especially to clients. They can actually be ironically more
useful I think, to the analyst than to the recipient
or user of the final product.
Speaker 4 (18:49):
And what I mean by that.
Speaker 5 (18:50):
Is the prediction markets will tell you where the tariff
level is going to end up on July thirty first, right,
But what if the cutoff that's relevant is not July
thirty first. What if it's you know, a completely different
date because Trump is visiting. Like let's say that it's
a ceasefire in Gaza and the cutoff date is Trump's
visit to Saudi Arabia or whatever. So the point is
(19:10):
the rigidity of the prediction markets, and it's a trade off,
right because the reason they do that way is so
that they can be easily falsifiable and you can compare predictions,
et cetera. But that rigidity, I think narrows the value.
So then to your question on how do you even
frame the issue. That's a major problem for Trump tariff situations. Indeed,
(19:31):
so if you take July eight for example, you can't
really and you know, we've struggled with this everyone does.
It's hard to make a call on whether he is
going to escalate or postpone his deadline because there are
sixty countries involved. So first of all, you theoretically would
have to make sixty individual calls, right or predictions. Second
(19:51):
thing is what if he says, you know, we're escalating
the tariffs but they're kicking in on July fifteenth, is
that a punt or is that him at actually having
increased the arras and so on and so forth. So,
I mean, the short answer, Tracy is there is no
perfect way of doing it. And that's actually been one
of the issues with Trump, is that framing the initial
question is almost as hard as predicting his behavior. Trade
(20:14):
ironically is one of those situations though that we've had
a pretty good track record with. So I'm happy to
talk a little bit about how we've tried to like
get into Trump's brain if you want, please, Yeah. So
there are a few things. So the first is you
can observe patterns. Right, So Robert Armstrong had sort of
this huge success with the taco label that was amazing marketing.
But I have to say we were a little jealous
(20:35):
because I think he wrote that in early May, and
in early April we put out a table with basically
every one of the Trump threats. I think there were
like twenty three or.
Speaker 3 (20:43):
So, doesn't matter if you don't market, it's it's all
about that acronm anyway, keep going.
Speaker 5 (20:48):
I was waiting for the invite, so I think Trump
had backed down in twenty one out of twenty three
threats something like that.
Speaker 4 (20:56):
Right.
Speaker 5 (20:56):
So the first thing is you can identify patterns, and
in fact, actually truthly be told, we ran that same
study at the very end of his first term as well,
and the takeaway was very, very similar. The question I
think was was he going to be tough for his
second time around, right, But the point is you can
identify patterns, So taco is one of them. Where it
gets complicated, though, is you know, it's almost like the
(21:17):
Economist or Time magazine cover phenomenon, where by the time
the Taco thing came out, whether it was from US
or from Armstrong, it was already fading. It was already
getting arguably less true because if you look at the
pattern of Trump's behavior. On jan twenty, he had made
a bunch of threats against Mexico, Canada, China, et cetera.
He completely let them go, right, nothing happened, He didn't
even mention them on Jan twenty. Then he postponed them
(21:40):
to February one. He went one step further, he actually
signed the executive orders, but nothing happened. Then March one
comes around, or March four rather, and he actually implements
the terrors, but he walks them back after a day.
Then April two comes around and he walks it back
after a week on rest of the world and a
whole month on China. So the point is there a patterns,
(22:00):
but you've got to constantly be reassessing them because the
rule that worked yesterday may no longer work to today.
Speaker 4 (22:05):
Right.
Speaker 5 (22:05):
A second question is or principle, let's say, is we've
been very We've tried to be very nimble and not
have a grand theory.
Speaker 1 (22:14):
Right.
Speaker 5 (22:14):
So this gets a little bit to the whole like
phil tedlock fox versus hedgehog, like not be too attached
to grand ideas, but look at each prediction individually. One
of the things that's really driven me crazy is this
narrative that Trump's.
Speaker 4 (22:27):
Trade approach is all about China. Right.
Speaker 5 (22:29):
That is totally accurate over the course of four years.
It is totally useless in the short term because if
I told you that Trump's trade policy was going to
be all about China, which in hindsight is correct, right,
China's got a forty five percent tariff, everyone else has
a ten percent tariff. But if I told you that
out in January nineteen and you were, you know, running
a hedge fund, you would have been very, very surprised
(22:50):
that the first three months of the Trump administration were
all obsessed with Mexico and Canada. Basically, this whole China
lens would have been useless up until April. So that's
a second thing is trying not to take an overarching view,
but look at it individually and try to figure out
what's he after in this specific case. So, you know,
the best example is if you think he's after a
teriff revenue, then he's by definition not going to back down.
(23:13):
You can't get revenue if you back down, right, And
the same country can be affected by completely different motivations
or you know, confrontations. So Mexico in the first three
months was affected by fentanyl and immigration concerns, which were
pretty clearly I mean, it's always easier to say in hindsight,
but pretty clearly transactional like Trump just wanted to be
able to say that he had done something about those issues.
(23:34):
The way that Trump is going to approach Mexico in
Q four this year to try to get them to
do USNCAA revisions and open up their energy market and
change their rules of origin on auto sector issues, that's
going to be much much tougher, right, So, same country,
totally different approach. Another is there's this big like talking point,
you know, don't take Trump literally, but take him seriously.
Speaker 3 (23:55):
We hate there one around here.
Speaker 4 (23:56):
Okay.
Speaker 5 (23:57):
So yeah, so first of all, we know not to
take seriously because of Taco or you know, signum pre taco.
But I actually think taking him literally has been reasonably
helpful him and some of his advisors, those who repeat
his views. So people like vest and Lutnik, they actually
don't repeat his views. They kind of freelance. But if
you take Carolyn Lovett, one thing that really sort of
(24:18):
struck us was I think it was on before the
February one deadline rather than the March one.
Speaker 4 (24:23):
But I could be confusing them. She said.
Speaker 5 (24:25):
They're in that press conference the day before, on the Friday,
she said, there is absolutely nothing that Canada and Mexico
can do to prevent the present from signing the executive
order tomorrow. Signing the executive order, they never said they
were going to actual implement the terraces, right, And I
know that sounds like a little cute or yeah, but
there is something to that effect. And if you listen
to Trump, I think it's quite interesting if you also
(24:46):
look at how his advisors, how he lets them talk
like speak, you know what kind of leege they're on.
They are allowed to say anything, including the craziest stuff,
as long as they don't reduce his optionality, right, So
he benefits from them going nuts as long as he
doesn't get cornered by their comments.
Speaker 3 (25:20):
Let's go back to the recent war and something I'm interested,
So looking at the cumulative odds twenty percent preemptive Iranian capitulation,
forty five percent Israeli mission accomplished. When you're coming up
with those odds, like how much do you really have
to know about the size and scale and quality of
(25:42):
the respective weapons systems of Israel and Iran? Because ultimately,
to some degree, prior to the US intervention, the question
was the degree to which one side's missiles or their
missile defense was stronger than the others. So how do
you learn about that? And how important is it to
add trually have really high quality information about each side's arsenals.
Speaker 5 (26:04):
So that actually gets a little bit back to what
is Signum and who we are because I'd say there
are different types of shops in our industry, right. There
are shops that are based on intel, right, So it's
like what we're hearing in Congress, or I play golf
with you know, Scot Besson or whatever, that's not us.
We do access events and a bunch of you know,
(26:25):
really cool stuff. We took clients to Ukraine to meet
with the Ukrainian government and get a sense of what
post war reconstruction type policy might be reduce that stuff.
But it's not part of our research, right, And that's
because Intel in addition to you know, potentially if you've
got HIMNPI, et cetera, that gets legally dubious. In addition
to that problem, it doesn't make for good predictions, right
because Scott Besson himself didn't know on April eight whether
(26:49):
Trump was going to back down the next day, he
knew he was working on him, but he didn't know
asad was not sure whether he was going to be
toppled or not. Right, So there's that, and then there
are shops that are very focused on country xes. So
it's like, you know, I lived in Venezuela for fifteen years,
so here's my take on whether Juenguido's kup is going
to succeed or not. And don't get me wrong, like
we've got regional experts. We have a Mexico office with
(27:10):
a Mexican guy leading it, years and years of experience
from Latin em et cetera. So it's not that we
don't do that. But the point is where we think
our value add is is on the process, and we've
basically adopted like a few principles. One is the fill
tetlock principle that I mentioned earlier, which is not really
about who you are, it's how you proceed, right, So
it's precisely what is your model, like, what is your process?
Speaker 4 (27:34):
And that's where another.
Speaker 5 (27:35):
Guy comes into focus, which is one of the mesquita that.
Speaker 4 (27:38):
A lot of people will know about.
Speaker 5 (27:39):
Political scientists very focused on, essentially the logic of political survival, right,
Like leaders will always put their own advantage ahead of anything,
and that's why, you know, you've got situations where like Nitagna,
who's never going to agree to a hostage deal because
it would risk his coalition, and why would he risk
his coalition? Or you know, why would he risk losing
(28:00):
power just to satisfy Trump. That's where it gets interesting, though,
is none of these rules is failed proof, right because
using that logic, one of the pushbacks that got on
our Ceespire calls in the past was why would Hamas
ever give up the leverage of hostages?
Speaker 4 (28:15):
Right?
Speaker 5 (28:16):
And that sounds like a conversation under the truth is
they've given up hostages twice now, right, You've got to
stay like pretty nimble and humble. There is no like
perfect answer, but that sort of process approach can be helpful.
Now to get back to your initial question about like
how much knowledge you need? You do need technical knowledge,
but you don't need to have it in house. So
(28:38):
we don't ever outsource any of our analysis, Like no
one external has ever come up with a prediction for
us or written any of our notes. But what we
do is we break down a big issue into sub
questions and then we go out and try to find
the answer. And some of that will be an open source.
Some of that will be trying to speak with an
expert on XYZ missile range. So yeah, the answer is
(28:58):
you do need it, but you can break it down
and not make it part of your core business model
and just sort of have it as a research process.
Speaker 2 (29:06):
You mentioned being humble just then, and I'm wondering, so,
you know, in the Iran situation, you published probabilities and
your base case and all of that, and I think
events didn't pan out quite the way you expected. What
happens when you're just wrong about a particular prediction. So
(29:26):
you know you've laid out your analysis. Maybe you had
a really great way of reasoning around scenarios and things
like that, but nevertheless, something happened that you did not expect.
What do you do?
Speaker 5 (29:38):
So there's a couple answers to that, Well, there's several.
The first couple are deflection. The third is the real answer.
So one is, in any of these situations, you've got
lots of different predictions, right. So for example, we didn't
expect that Trump would actually go in and bomb Ford
out because we expected these reels to do it on
their own. But we were on the right side of
(29:58):
the regime change call. We were on the right I said,
the horror mooze call. We're on the right side of
Israel staying away from trying to knock out Iranian oil production,
which looked harry during that first weekend, and so on
and so forth.
Speaker 4 (30:09):
So that's one.
Speaker 5 (30:10):
The second is you basically have to try to figure
out why you got it wrong right, and from there
you can typically learn something for the next time. So
in this instance, for example, I was far too focused
on these Raelis capabilities and whether or not the Israelies
we're going to be able to do this on their own,
and not focused enough on Trump's appetite to get involved
(30:32):
for political reasons. Right where it gets really ironic is
part of the reason I was of the view that
the Israelis would be able to go out and knock
out for it on our own is because for the
previous twelve months I've been telling clients the Israelis have
the capability to strike on their own, and they are
going to do it, and it's going to be a
bolt from the blue. I didn't expect it to be
exactly when they did it, because the nuclear talks were
(30:54):
still ongoing. But the point is, back then, the big
pushback I would get constantly was the Israelis don't have
the planes to reach are on. They don't have the
resheeling capability, you know, and.
Speaker 4 (31:04):
So on and so forth.
Speaker 5 (31:06):
And so that gets back to this thing that there
is no like one rule that you can like, you know,
to sort of one rule to rule them all, right,
There is no such thing.
Speaker 4 (31:14):
You've got to constantly be reassessing.
Speaker 5 (31:16):
You know.
Speaker 3 (31:16):
When we talk to economists and market practitioners, you know,
one of the terms that comes up a lot is
regime change. And in this case, I gotta be careful.
I don't mean literally like the question of whether the
Iranian regime changes. But this idea of like regime change
in markets, like does the relationship between bonds and stocks
change over time or is the fed and inflation fighting
mode or deflation fighting mode whatever, like these are certain relationships,
(31:40):
relationships change, and I'm curious, like there are many people
who perceive and perhaps the medium term future that maybe
the US Israel relationship is going to change, that maybe
there are parts of growing louder contingents within the Republican
Party and both parties really, but within the Republican or
that do not want to deploy US military assets or
(32:04):
resources in the same way the same level of support
to Israel in the past, and who knows how that
is going to transpire. But I'm curious, like how you think, like, Okay,
there's some relationship the two countries might have, but all
relationships could change, and if that relationship does change, then
it changes the short term expectation on any given war.
And so I'm curious in your process or internally you
(32:26):
think about this idea of relationship regime change and could
at some point down the future, and we don't know when,
could some of these alliances or partnerships or you know,
friend relationships change and then that force a calculation change
when an acute event happens.
Speaker 5 (32:43):
That's a great question, but I would say that there
is a pretty big difference I think, I mean, I'm
not in the markets, but I think there's a big
difference with financial markets, which is the regime changes happen,
but they happen much more slowly and so you have
a lot more time to bake them in.
Speaker 4 (32:58):
Right.
Speaker 5 (32:58):
So you know, you started the podcast by sort of
talking about how there are these like talking points that
come up over and over right the world, like jee,
political risk is going to be big in twenty twenty five, right.
A big one of those is multipolar world, right, yeah?
Or jizu a world like this idea that it's like
the breakdown of global order and so on and so forth.
So those only happen every twenty or thirty years, Or.
Speaker 3 (33:19):
That the US may not want to be the hedgemon
at some point, that it may not have the same
appetite to be a global police. And so for example,
you know, the Tucker Carlson wing of the Republican Party
very loud against this idea, like why should the US
have such a global military footprint? Things like that at
some point that could be a dominant strain of thought,
(33:40):
and we if it becomes one, we might not necessarily
know when the flipping point.
Speaker 4 (33:44):
Is totally agreed.
Speaker 5 (33:45):
But going back to how it's a slow process, I
think Trump was a really interesting and like, literally what
happened over the past month was a very very good
test case for that right. And the fact that Trump himself,
who is known to be not just isolationists but also pacifist,
you know, one can chuckle, but like he does have
a pacifist instinct I think, and pretty stingy in terms
(34:08):
of use of American power and use of American money
and resources, et cetera. The fact that even he intervened,
I think tells us something about how slow that process
is going to be.
Speaker 2 (34:17):
Sure, Okay, we mentioned cliches a couple of times, and
I think this is probably a cliche too, But you know,
cliches can be true. Maybe that's why they become cliches.
But when it comes to geopolitical risk analysis, do things
feel more difficult to you nowadays versus when you perhaps
(34:38):
started in the industry, Does the world seem more complex?
And I guess given the Trump administration and some of
the unpredictability that we discussed earlier. Do things seem more volatile,
more uncertain and just harder to sort of get a
handle on.
Speaker 5 (34:54):
Yes, I think that is absolutely fair and it really
does sort of echo back to Joe's question in the
sense you take something like the relationship between Russia and
China pre Ukraine War or pre twenty twenty two version
of the Ukraine War. For fifteen years before that, there
had been an established talking point amongst pretty much all
political analysts, which was, it's an alliance, it's an access
(35:15):
of convenience. Right, they get along, they work together, but
they don't really trust each other, they don't really love
each other, and so you knew that when push comes
to shove, when they had to like put their interest
above the other, etcetera, you knew which way.
Speaker 4 (35:27):
It was going to go.
Speaker 5 (35:28):
That was very unclear for the first like year, and
frankly some could argue it's still unclear post Russia invasion,
right or Ukraine invasion.
Speaker 4 (35:37):
Are they now in it forever?
Speaker 5 (35:39):
And sort of Russia basically China is grooming Russia to
help it when it goes after Taiwan, or is it
still very much an access of convenience where the Chinese
might cut off, you know, drone inputs to the Russians
for the right price, if there's American export control lifting
or something like that. Right, And your question, Tracy, the
fact that so much stuff is changing so fast means
(36:00):
that you have even less historical background or historical data, which,
as we said earlier, you're already starting with very very
small data sets, right, And so the temptation there is
to kind of just make it up as you go,
and that's where things get dicey.
Speaker 3 (36:15):
Do you think that's possible, like that China has a
price for which it would hold back on Russian access
to drawing materials and such.
Speaker 5 (36:23):
So my answer to that would be, in a way
that one is actually not that hard because even if
there were a price, we are so far from being
willing to pay that price that it's not gonna it's
never gonna be delighted with day.
Speaker 3 (36:35):
What's the surprise thing that you think is not on
anyone's radar right now geopolitically that you think we should
be focusing more on. This is my way of so
listening ideas for future episodes.
Speaker 5 (36:45):
By the way, Yeah, yeah, no, so I actually I
love that question because but I hope this is not
going to be disappointing, but it is. I always say,
like the whole black Swan thing is irrelevant, Like black
Swan's almost never happened. This stuff that blows up in
our face is stuff that is visible pretty far ahead,
like not necessarily far ahead of time, but that is
(37:07):
pretty obvious. And the difficulty is for the analysts predicting
the details right, like in what month is put and
get invade or whatever, or what part of Ukraine is
he going to invade? And the other difficulty for clients,
of course is how to trade that right, given that
you can get radically different outcomes. But the events themselves,
I mean, there were four or five months of Russian
(37:27):
build up in front of Ukraine and in December January
people were still debating what it's going to happen or not.
And another example is COVID. People talked about COVID as
a black Swan. I mean, if you read any of those,
you know, World of Form global risk reports for the
past like fifteen years, pandemics were always top ten like
or even top five. People knew that pandemics were a
(37:48):
major potential business risk. So again, it's it's more like
the details rather than something's going to just pop up
in our face.
Speaker 3 (37:54):
In the next I don't know, five years. Do you
expect China to invade Taiwan?
Speaker 5 (37:59):
Yes, I mean the word invade is the one that
bugs me, which is not going to surprise you, because
I think that it's more likely to be a blockade,
for example, than an actual amphibius invasion. So that view,
for example, is pretty I think. But now right, the
problem is again from the perception of how do you
manage it. One of the things that I think is
(38:20):
totally underappreciated is everyone knows that a blockade is a risk, right,
But the part that's totally under appreciated is that the
Chinese could roll it out literally overnight. So I think
what is underappreciated is We're not going to get any
build up. We're going to wake up one morning and
it's going to be done. So that's one problem. A
second problem is a bloodless blockade that lasts, you know,
(38:40):
three months or six months, that is essentially a continuous
anaconda squeeze on Taiwan, and the Taiwan's economy could actually
be far worse from a purely market perspective. Forget about
you know, normative aspects far worse than a one month war,
regardless of the outcome, right, because it's the length of
the eruption for business operations that could be most problematic.
(39:03):
So again, it's how you look at it. I think
that they can make a difference.
Speaker 2 (39:07):
Back in college, I wrote an essay slash dissertation on
the chances of China, you know, invading Taiwan or going
after Taiwan, and I think I had my base case
was they were going to do something before the two
thousand and eight Olympics.
Speaker 3 (39:20):
So yeah, I empathize with the difficulty of timing.
Speaker 2 (39:24):
I totally do. Andrew, that was fantastic. Thank you so
much for coming on all thoughts.
Speaker 3 (39:29):
Thanks Andrew.
Speaker 1 (39:30):
That was great.
Speaker 4 (39:30):
Thank you, Joe.
Speaker 2 (39:43):
There was a lot to pick out of that conversation.
I think one of the things that struck me. Okay,
first of all, you know, he was talking about black swans,
and this is something that teleb himself pointed out at
our recent live event, which is we shouldn't really be
worried about black swans because they are by their very
nature unknowable. We should be worried about the gracewans like
(40:04):
a pandemic. I think that makes a lot of sense. Secondly,
the emphasis on motivation was really interesting to me because
this is something that I have wondered about the tariffs.
If Trump needs to have a bunch of tariff deals
to have his trade war seem to be a success,
(40:25):
then what does that mean on the revenue side, because
he has also talked about how tariff revenue is going
to offset a bunch of tax cuts and things like that.
So I do think it's important and I still haven't
figured out that one particularly. And then the other thing
is he was talking about Trump's advisors, and this is
something I hadn't realized, but he's right. The one thing
(40:47):
they can't do is limit the president's optionality. It seems
like they can throw out pretty much any scenario, any response,
any possibility that they want, but they can't do anything
that would box him or pigeonhole into one position. That
was interesting.
Speaker 3 (41:03):
Yeah, you know, by the way, just going back to
Andrew's note that we kept referencing on June sixteenth, he
had underestimated the odds that the US would intervene as
he did. However, to his credit, here were his final takeaways.
US intervention is certainly possible, but still not base case. Okay,
it did happen, However, he says likewise, regime changes plausible,
(41:25):
but still unlikely. So he was right on that. And
then he said the overwhelming majority of scenarios end in
a negotiated around capitulation with no meaningful damage done to
global oil supply or golf assets. I think that's a
pretty good conclusion that at the end of the day,
because if you figure people care about the markets and
oil supply more or less, a useful conclusion to have
(41:46):
been able to make on June sixteenth. I have to
say the speed with which Andrew answered yes, there is
going to be something Taiwan that I was like, I
was hoping that he would hum in Hawe a little
bit about that, and then this idea that's just going
to happen so quickly, it'll be overnight, there's we're not
going to get any signs of it, and then the
(42:06):
world is going to change dramatically the next morning in
ways that we don't really know.
Speaker 2 (42:11):
Well. On the other hand, there are people like me
who have been saying, yeah, with great confidence that this
is going to happen for a while and it doesn't.
So maybe that's that's some hope for you, Joe.
Speaker 3 (42:23):
I mean for me, I mean for lots of people,
certainly hope there is anyway.
Speaker 2 (42:27):
The other thing I was.
Speaker 3 (42:28):
Didn't like how comfortably he was Yeah, in five years, Yes,
he didn't have seemed to have any doubt.
Speaker 2 (42:34):
The other thing I was thinking, we probably should have
asked this, but the time frames for things, because you
mentioned regime change in Iran, like, okay, well it hasn't happened,
but it's also been two weeks since we had this big,
big event that happened, and I don't think it's necessarily
off the table, So I'd be curious to figure out
how he thinks about like the time frame of possibilities
(42:56):
as well. But oh well, we already spoke for about
forty five minutes, so we should probably leave it there.
Speaker 3 (43:01):
Let's leave it there.
Speaker 2 (43:02):
This has been another episode of the Audthlots podcast. I'm
Chracy Alloway. You can follow me at Chacey Alloway.
Speaker 3 (43:08):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Andrew Bishop. He's at Andrew Underscore d
Underscore Bishop follow our producers Carmen Rodriguez at Carman armand
dash El Bennett at Dashbot and kill Brooks at Kilbrooks.
From more odd Lots content, go to Bloomberg dot com
slash odd Lots, where you have a daily newsletter and
all of our episodes, and you can chat about all
(43:28):
of these topics twenty four seven in our discord discord
dot gg slash odlocks.
Speaker 2 (43:34):
And if you enjoy odd Lots, if you like it
when we try to dig into what exactly geopolitical risk
analysis actually is, then please leave us a positive review
on your favorite podcast platform. And remember, if you are
a Bloomberg subscriber, you can listen to all of our
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find the Bloomberg channel on Apple Podcasts and follow the
(43:55):
instructions there. Thanks for listening in in
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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