Putin's Failure: Russia Can't Win Against Western Capitalism | Marko Papic
Summary
Ukraine Settlement: A negotiated settlement is viewed as inevitable, leading to a shift in geopolitical risk pricing and market positioning.
Multipolar World: The global system is already multipolar, and a more balanced version should reduce the need for US assets as a geopolitical safe haven.
Europe: Bullish on European equities due to improving cohesion, attractive valuations, and reduced risk premia as the conflict winds down.
LNG Glut: A wave of LNG supply from Qatar, Mozambique, British Columbia, the US, and Russia is set to collapse European gas and electricity costs.
Oil Markets: Russia is unlikely to add supply post-settlement; removal of discounts could lift blended crude prices, with Middle East risks providing upside.
Underweight US Equities: Safe-haven flows into US mega-cap tech may unwind in a balanced multipolar environment, favoring global ex-US exposure.
Rebuild & Risks: Poland may benefit from Ukraine’s reconstruction but indices are bank-heavy; agricultural productivity trends keep softs under pressure.
Transcript
The reason that Ukraine can eventually reconquer these territories is that on a 10, 15, 20 year time horizon, we have a proven track record that western capitalism does better than whatever Russia does. Hi, I'm Ed D'Agostino from Mauldin Economics, and today I discussed the likelihood of a settlement in Ukraine, and what a settlement would mean for the global world order and for investors. My guest today is the fantastic Marko Papic, chief strategist at BCA research and author of the excellent book, geopolitical Alpha. Welcome to Global Macro Update. Marko awesome to see you. I've always wanted to have you on this podcast. Really appreciate you joining us. I'm dying to talk to you about the Russia, Ukraine conflict. And I wanna kind of break this conversation into two parts. Um, the second part being what's gonna happen in the markets if and when we do get a settlement. But first I wanna talk to you about your thoughts on the constraints. You're big on a, on analyzing through the lens of constraints. What are the constraints between Russia and Ukraine, Europe, the us, all the other players, to actually getting some sort of a peace settlement negotiated? Thanks for having me on the, on the show, Ed. This is, uh, this is awesome. Uh, what I would say is that the constraints are really to the war continuing. It's, it's not about the peace. Uh, I think that the war has to end, and quite frankly, and I mean that's not a normative statement, it's just a statement of sort of physical reality. Um, Russia is politically unwilling to throw all of its weight behind this war. Um, and many sort of Russia fans out there say, well, they could if they, you know, really wanted to. It's like, nah, I don't think they can. And they can't because. Ukraine's, not really existential to Russia, you know, I mean, that's, that's gonna be my first controversial hot take here. Russia can survive without, it has nukes. They're fine. You know, like they lost Ukraine many, many years ago, and it's not territorial, it's not military. It's really sentiment based. Like Ukrainians don't want to live in the Russian sphere of influence. What are you gonna do about that? I mean, can you really conquer a country of 42 million people and enslave them? That's difficult to do unless you're prepared to put in the kind of resources, um, that are similar to, quite frankly, what the US did with Iraq. A much smaller country, a much weaker country than Ukraine. A. In terms of coin operations, you know, counterinsurgency. And so it's very expensive. So I think that, uh, Russia's fighting really an optional war. There are some things that I think are important to Moscow, like yeah, a NATO membership, you know, that's, that's something that I think they've proven their point. Um, but if this was truly existential for Russia, then they would have mobilized more than just on that September. 2022. That was really the only mobilization they've done. Uh, on the other hand, Ukraine, you know, you hear in the West, you hear this view in the west that like, Ukraine must win. Um, what does that mean? You know, at what cost to Ukraine? Like, forget about America, forget about Europe. Like what cost to Ukraine? The territories, the Ukrainians are fighting for, um, that Russia has effectively now, uh, occupied. They're, uh, they're largely insignificant. Ukraine doesn't actually need access to the Black Sea at all. Um. The Baltic Sea is equidistant to most of Ukrainian farms as the Black Sea is. Shockingly, it's a huge country, right? So, uh, yeah, you know, like it's not ideal. Don't get me wrong. It'd be better if they did have access and they do still throw a. But like, you know, life will go on. Uh, and the problem with the Western strategy pre-Trump has been that like, Hey, let's help Ukraine continue to fight this war. And you would go to Washington DC you would talk to policymakers, particularly in the Biden administration, and you would hear things like, well, we're bleeding Russia at a low cost. You know, like, ah, it's great, you know, we got them. And it's like, yeah, but actually also breeding, bleeding, Ukraine. Literally. Literally, yes. Literally. And you and Ukraine has far less blood. Than Russia does. So how are you being actually a good ally to Ukraine by encouraging this endless conflict? So in a way, Trump is, you know, most people, uh, who are, uh. Of course against Trump are going to say that he's doing something mean, naughty, disruptive. But I gotta tell you, ed, if if Vice President Harris had won the election, I think we would be where we are today, six months from now. Maybe with less obviously meanness, you know, um, and blunt statements. But I think that we'd be still here. So the war is gonna end. And so I would say the material constraints, there are none. Peace. You are a, a former student of George Friedman from Geopolitical Futures today. Uh, back when you knew him as he was with, he was with Strater, um, he, he would argue that. Russia has effectively lost this war. What is your take on, did Russia achieve their goals? If this was an optional war to begin with? I am a student of George Freeman. I appreciate greatly my time at Stratford. I learned, I learned a ton from the man and my constraint framework really is effectively what, what he developed. Um, although he would really focus on geography and technology and demographics, so what George FO focuses on. And, and most geopolitical analysts, you know, they focus on these kind of immutable constraints, like they cannot be changed. Um, I've extended that a little bit 'cause I just don't think it's enough, you know, especially if you're an investor. I. Like telling an investor like, Hey man, Poland's got the North European plane. You know, like, ah, what does that mean? It means nothing. So you gotta actually look at domestic politics too. You gotta look at finance, you gotta look at bond yields. You gotta just extend that framework and put more tools into your toolbox. I would say the, the George is a hundred percent right. Uh, now the question is, is Putin the same as Russia? And and very rarely is that the case, and this is where I think we have to become two level strategists. There's this concept in political science introduced by many American political scientists. 'cause they were frustrated by all the IR theorists walking around talking about geopolitics, you know, uh, they said like, Hey man, you gotta look at domestic politics too. And I think Putin is playing a two level game as everybody is. President Trump is as well. From a domestic political perspective, I think Putin got what he needed from Ukraine and the invasion you, you know, if you remember in 2022, actually he was on thin ice. Uh, Russian response to Covid was probably the worst in the world in 2019. He actually launched a bunch of establishment, O-E-C-D-I-M-F approved structural reforms that were extremely, extremely unpopular. So he was actually facing widespread protests across the country, and he did what he does best. Export that volatility in his near abroad. Um, and so a lot of Americans see this as some sort of a geopolitical, chess board, you know, but actually he had a domestic political logic for doing that. So on that front, maybe I would say, hmm, you know, he got what he needed. But did Russia as a country lose? Of course, like, you know, of course the territories they acquired from, from Ukraine. You know, are just not that useful. Um, but the good news is they can declare victory. I think that's, you know, from a political perspective, domestically, I think Putin can still declare victory. Sadie got Nova reia and, you know, uh, Crimea. Danz. Luhansk. What do you think Putin lost? I mean, he, he was almost overthrown. Right at one point, right? I mean, there was a coup attempt. Well, I mean, you know, and that's not a good sign. So we, we can look at that both ways. We can say like, well, he defeated the coup. On the other hand, like, hey, there was a coup. You know, like, that's not a good news. It's not a good thing. When a country that was a few years ago, was it like a G eight member, you know, like one of the most sophisticated advanced economies in the world. And at one point, because of this war, they had bulldozers. Ripping up highways outside of Moscow to stop the advance of a potential coup, right? Yeah. Like, you know, and so, so now somebody can say, well, uh, come on. Like, they defeated Wagner easily. I'm like, yeah, but like, they were bull. Like imagine if like, here in Los Angeles they start ripping apart, you know, like I 10, you know, like I'm not taking that as they're like, oh, everything is fine. Uh, but the second thing I think, look. Like Ukraine's NATO membership, fine. I get that. It irks Russia, go to war for it, whatever. I'm not gonna, you know, eat your lunch for that. But the, the reality is like the territories, they're winning that they've occupied. Like there is nothing there. And please don't tell me about coal or neon gas. Like this is nonsense. We're not in the 19th century. There is nothing Pensky, luhansk. This is a joke. Nobody needs any of these territories. So the fact that they went out Crimea. Oh, but there's Sevastopol Marko, the Black Sea Fleet. The Black Sea Fleet. Go to Wikipedia, do an order of battle analysis, and what will you find out? You'll find out that the Greek navy could sink the Russian Black Sea Fleet in 24 hours. This is a joke. The Black Sea is irrelevant. We're not playing risk. It's not the 19th century. It's not the 19th century. Laxy is a lake inside another lake that is absolutely controlled by nato, by Europe, by the us, whoever you want. So to me, you know, this was, this was a war of choice. And so I do think Russia as a country extended way too many resources to get way too little. And it's funny because if you look at Putin's career, the one thing you can say about Putin is that, unlike George Bush. Jr. Unlike Barack Obama, Putin had a very high geopolitical ROI, you know, for a very small investment in Syria. He managed to keep Assad in power for a very long time. Now he's had to pull some of those troops away. Assad Falls, Georgia intervention in 2008. Very small. Uh, very, very small investment. Huge investment return. And even the 20 14 15 intervention in Ukraine done with sort of plausible deniability. He's always been very careful. Chechnya the, his first foray into geopolitics, he actually got one group of chechens to fight another I. You know, that's how the Russians ultimately won a war. They lost. So he's always been cautious, always been smart, small incursions, cheap, huge, ROI, um, and in Ukraine, I, I think he deviated from that model. And so that was the problem. So you think that a settlement of some sort is, is it? Inevitable and imminent. Yes, it is. And, and again, it's um, you know, can Russians continue to grind this, you know, and acquire scare square miles of Ukrainian territory endlessly. Yes. Uh, two great laws to themselves, because again, it's what's the point? Um, and also the question for me would be, what do you do with 40 million Ukrainians if you were ever to conquer them all? Like, you know, this is a lot for a country to swallow the country the size of Russia. Um, if, again, if, if the United States of America struggled to pacify Iraq, I. How are you gonna pacify 40 million people who hate you? Like it's just very difficult. Uh, so that's the first thing. I think that, um, the reason I think the settlement is inev inevitable, however, is on the Ukrainian side. And so when you give a blank check to somebody, they're obviously gonna try to cash it in. And what President Trump has done, he, he has effectively said to Ukraine, for, for your own sake. And this is where I'm gonna get a lot of people, you know, send us, Hey, hit mail here. But I truly believe that for Ukraine's sake, us is taking away the black check. Like you don't have the resources domestically. And you know, the fight between Zelensky Putin and JD Vance in the, in the White House, um, you know, the decorum was lost. A lot of things were said. But one of the things that JD Vance at one point was trying to say was like, Hey, look, you are struggling to mobilize your own troops. Then zelensky counters with this flippant, like, well have, have you been to the frontline? Like GD vans doesn't have to be at the frontline. We all know that in 2024, Ukraine struggled to pass immobilization bill through its own parliament. I'm sorry. If these territories are existential to Ukraine, then I would assume it would be easy to mobilize men of Ukraine who are patriotic to their country, but it isn't. Because these, these territories are not existential. And so I think on both sides you're starting to see war fatigue. And I think one of the reasons for that, I mean there's many reasons, but one of them that we don't maybe discuss enough is that I do think that defensive military technology has actually surpassed offensive. And so it's really difficult to launch, you know, these offensives, um, whether you're Ukraine or whether you're Russian. Interesting. So, so you just end up with battlefield stalemate? Yes. Unless you, unless you launch, you know, a surprise attack that maybe a. You don't expect or you put in enough troops behind it. But if you're not willing politically to put in enough men behind an offensive, it's gonna be very difficult. And so there's also this narrative. Had we given Ukraine weapons early in the conflict, I think this is also unfair and it's unfair to the Biden administration, you know, um, had the US given Ukraine F sixteens, day one, they would've been shot down by S 400, you know, fired outside, uh, from Russian. Territory. So Russia has coverage of its air defense systems over Ukraine. You cannot give Ukraine F sixteens. It's like giving my son a Bloomberg terminal. Like what is he gonna do with it? You know, Russians can shoot down a Ukrainian F 16 that flies over Ukrainian airspace, which you would need to do. Is you would need to authorize Ukraine or do it for them, what's called the suppression of enemy air defense operations cell operations, which require you to fly into Russian airspace and use harm missiles to take out their radar installations, which leads to you and me being in a bunker. Right? So, you know, this is a very flippant narrative out there. Like Biden could have done more, more tanks, the advent of drones. The advent of very sophisticated air defense systems and the cheapness of anti-tank missiles like Javelins. And by the way, Russians have their own version of that. It makes it very difficult to play offense both for Russians, you know, thankfully for Ukraine, it also makes it difficult, difficult for Ukraine, so just endlessly pouring cash into Ukraine. To continue the war is, I think, not good for Ukraine and, and so I think that's where we are. What's a better strategy? You know, like, am I just sort of ignorant or No, not ignorant. Am I just callous? You know, am I just telling you nothing can be done? No, I think there is a playbook for defeating Russia. It's worked in the past, it's called West Germany. The reason that Ukraine can eventually re-con these territories. Is that on a 10, 15, 20 year time horizon, we have a proven track record that western capitalism does better than whatever Russia does. And so what happened in West Germany over the course of the Cold War is that, you know, the economy was much more superior. It had access to global markets and you could buy A BMW, an Audi, an Opel, a Mercedes-Benz. Whereas in East Germany, you had to wait for a burg for 18 years. That's gonna be the case again. So the faster the west just transitions to helping Ukraine integrate into the global economy the better. Like that is the, the path to victory and reoccurring these territories where one day the people of the Parisa or hair are like, wait. What the hell are we doing here? So let's talk a little bit about what I don't really hear many people talking about, and that is post settlement. You know, what, what does the world look like? What are the knock on effects of a settlement? Because from an investor's perspective, I think they could actually be pretty significant. I mean, for, for example, does the world welcome. Russia back with, with their oil, the third largest oil producer in the world do, does the world open their arms and say, we're going to start buying your oil at market prices again. Does Europe start buying natural gas again? I mean, what, let's start with energy and just kind of work our way through. What are the, what are the impacts of a settlement? Well, can we start with geopolitics first and dingo? We can start wherever you want. I wanna nail this down because you know, the first 10, 15 minutes of this conversation, I've probably already confused people. I don't think Russia has won, but I also think that West made a mistake arming Ukraine effectively. You know, like, where's this guy? Well, I'm nowhere. I'm bathing aloof indifference, so I'm just trying to kind of get the markets right. And that's a great anchor. Like if you're listening to this podcast and you're thinking, where does Marko come from? You know, what is his sort of anchor? Uh uh, I have only one, which is making my clients money now. It's very petty. It's very glib, but it's an unbiased one. That's why I think that anyone listening to this interview can't really tell you know which side I'm on, so let's talk about that from a geopolitical perspective. Um, I don't think Ukraine changed anything. Interesting. Okay. I think the world has been multipolar for. 10, 15 years. Now, I dunno, it's hard to say, and this is really important because multipolarity is a dirty word in America. It's also a misunderstood word. You should define multipolar, your definition of multipolar if you would. Super, yes. And of course I'm just stealing this from political science, so I didn't like invent this. Uh, but the word multipolar is quite often uttered by, you know, the Kremlin, China. They like to claim the world is multipolar because obviously that means like, Hey, I get, I, I get to be asked something and you know, my interests are also matter. So there's really three ways the world can be. The, the global power can be redistributed through states, unipolar world. That means there's one bully in the world. It's actually very, very, uh, good for investors to have a unipolar system because it's stable. And you can follow the rules and norms that this, you know, you learn as an investor what to do and what not to do. Uh, so that's a very simple system. It also leads to globalized economic. Outcomes, like the economy is integrated because again, there's a rural system that's enforced by the hegemon, by the global superpower, a bipolar world. Most Americans are very familiar with this world because of course they won the Cold War. It's fresh in people's minds. Um, that means there's two countries. They tend to split the world into two zones. Those two zones don't talk to each other. A lot of investors thought. From 20 16, 17, 18 to probably just until a few years ago that we were headed towards that bifurcation. I disagree because I don't think the United States of America and China are powerful enough to control their allies, allied systems, they, they're not strong enough to enforce compliance with a bipolar structure, and actually bipolar structure is very rare. Product in global history, Soviet Union and the United States were able to impose that on the rest of the planet because you have to understand, the starting conditions in 1945 were such that Europe was decimated. Tens of millions of refugees. Japan had two nuclear devices dropped on it. India was still a colony of a tired, almost defeated nation. And then you had China, of course, which was eviscerated by its conflict with Japan and was. Murd in a civil war. So starting conditions matter in Soviet Union, the US were the only two games in town. Uh, multipolar World is a world where there is nobody really in charge. Now, that is not to say this is where Americans usually get set off 'cause it's like, ah, we the strongest country in the world, 11 aircraft carriers. Ah. And it's like, yes, fair. It doesn't mean that the United States of America is not number one and it's not head and shoulders. Above every other country on the planet it is, and I can quantifiably measure and prove this, but to enforce hegemony, to enforce a unipolar world, you need to be head, shoulder, torso, and hips above everyone else. It's the kind of power that comes with picking up a phone. Saying, Hey bro, you're gonna do X or I'm gonna, I don't know, crush your currency. Like what the US did to Great Britain. When it forced it to pull out of the Suez, uh, in the fifties with Israel and France, all it took was a phone call. Like, what are you doing? Oh, you know, me and my buddies, we want Suez no click. So the world we have today is a complicated one. It's multipolar one, and I think what Russian invasion of Ukraine shows. Is that number one, we are in a multipolar world. Countries have these independent dynamics, but also the outcome of this conflict will ossify it. A lot of the things that President Trump is doing right now is going to actually entrench multipolarity and is going to ossify that outcome, and I don't think that's necessarily, I. That bad either for humanity, quite frankly, or for investors. If you're enjoying this conversation, please take a minute to give us a like and subscribe to the channel. Doing that really helps us grow. So I very much appreciate your help and your support. Now, back to our talk with Marko Pock. So does the settlement change nothing or, or on the margins? Are there going to be some impacts like. Like, and I'm just guessing cheaper oil. So first of all, I don't think so. You know, I think, uh, I think oil prices have declined. It's now, you know, we're recording this on March 21st, so oil prices have been pretty weak for the first part of. Um, 2025. And I think the reason for that is a mix of two views. One, I understand this recession probability has gone up. Uh, the other one is geopolitics. Particularly this idea, as you said, you know, like Russia's gonna be reintegrated. But the, the issue, ED, is that Russia is not gonna export a single extra barrel oil because the war ends. I mean, they're already exporting maximum amount. There was a little bit at the end of the Biden administration. Risk premium because of, uh, the intense sanctions against its shadow tanker fleet. So maybe there's some relief there. Uh, but for the most part, as we all know, Russia has exported the exact same amount of oil as it did pre-invasion. The only difference is piped oil to Europe and, uh, and then, you know, it was at a different price. If anything, if Russia suddenly can charge market prices for its crude. I don't think you're gonna see a surge in production in Russia. Russia doesn't have the kind of flex that Saudi Arabia has. I think what you'll see is that the blended global price will probably rise because suddenly, you know, because suddenly there isn't really that much of a disadvantage or, uh, sorry, advantage in buying Russian crude. If you're India, suddenly it's just like, it, it the, the global price of oil actually has to go up. 'cause you don't have this pool of artificially suppressed. Price. Uh, so from a geopolitical perspective, I would actually say next three months, what happens in the Middle East with Iran is probably gonna have more upside. Now your other question was, was energy with LNG. What's happening with, sorry, with natural gas. What if Russia restarts natural gas? Well, um, there is still a pipeline through Poland that can be activated very quickly. Uh, there are no sanctions. On natural gas exports from Russia to Europe. It's really just voluntary Russian embargo against Europe. Okay. Will European stake this gas? Yeah, I think so. But a very un misunderstood and under-researched part of the European bullish story. You know, everyone's looking at German fiscal policy and re armament and sort of this kind of like European enthusiasm because they need to now do something, but there is another pillar. And it's the fact that too many LNG suppliers have overbuilt supply over the last 18, uh, over the last five years. There's way too much LNG supply coming online over the next 12 to 24 months. You've got Qatar, you've got Mozambique, you've got British Columbia, you've got us, you've got Russia all bringing supply online. And so I believe my view is that European energy costs are gonna collapse. Electricity, uh, costs are gonna completely collapse. The deindustrialization narrative is going to fall on its head, and Europe will be drowned in a tsunami wave of LNG over the next few years. So I'm not even sure if they will have to take. Russian gas, and, and by the way, you know, Russia's participating in this LNG free for all because most of their gas that you, they used to send through pipelines to Europe is stuck in the European Arctic in the Yamal Peninsula. This notion that they can deviate it to China is nonsense. China doesn't want to pay for half a trillion dollar pipeline. It's a fixed asset in a country where you don't wanna fix anything to the ground. Russia, you know, the Chinese are not dumb. And so the issue is that Russia has just realized like, well, okay, the easiest way for us to get this gas outta here is LNG. But then what they do is they just add more. To this glut that's coming. So how about agricultural products? I mean, Ukraine, huge producer of grains. I think it's gonna be very difficult for Russia to increase its supply of oil. So that's kind of the point. You know, the supply stays the same higher price for oil in Russia. I don't think it incentivizes anyone to invest in Russia, but that may not be the case with, uh, agricultural products. I think that, um, reduction of tensions from both countries I think will lead to further, um, you know, yields, uh, we've seen Russia actually increase its agricultural productivity massively over the last 10 years. That's been one of it. Their success stories. Actually of Russia. And so, yes, I do think that this could be positive, uh, for, for sort of global supply. But you know, a, as you probably know, ed. There's been a huge productivity boost in agriculture over the last 20 years. Incredible. It's really been, yeah, it's been really hurting soft prices across the board, whether you're talking about fruits, whether you're talking about grains. Um, and so I'm not sure that anybody who's in that business is listening to this and they're just like, oh, great. You yet another headwood to prices. Who do you think rebuilds Ukraine? And is that an investible? Option. You know, I think anyone listening to this, uh, interview, I think that's gonna be difficult. You know, that's gonna be difficult for investors to participate in, I think. Uh, but yes, I do think it's gonna be Europe, mainly Poland. Will Poland be a big winner? Sure, it will be, but you gotta be very careful. I mean, you have to look at Polish Equity Index and you have to understand that you're probably mainly investing in banks. Banks, yeah. Yeah, yeah. As is always the case, so, so be very, very, very, very cautious of this. I think. I think there's an easier way to play peace in Ukraine, and I've been articulating this thesis for the past, you know, 12 months. I've been very bullish Europe, um, for the past 12 months. Again, it's not based on German fiscal spending. I'm actually annoyed. At the German fiscal spending story, ed, because I, I sell stories for a living, let's be honest. I sell stories to hedge funds and pension funds. And when a story is over within like six months, you're like, ah, I need a new story. I thought I had at least, yeah, I had, I thought I had 12 months on this, you know, and then the Germans come out and they're like, we agree. It's like, ah, no, you're supposed to be depressed and not agree. Um, so I think the enthusiasm for Europe is worrying me a little bit. Now, I think it's. It's kind of gone into like overdrive. But I do think that there's a, there's a bevy of reasons to be bullish Europe, one of which is of course the settlement of a conflict with a nuclear power on its periphery. Like that seems like a pretty important thing. But you know why it's not so much Ed? Because there's like gonna be like, rebuilding of Ukraine leads to higher earnings for companies X. Although, yes, maybe that too. It's more. I've talked to a lot of wealth managers in Europe, like big ones, managing trillions of dollars of high net worth assets, and what they've pointed out to me is when Russia invaded Ukraine, constraints aside, you know, cool heads aside like, Hey guys, it's not that big of a deal. It's gonna be in parts of Ukraine. It doesn't matter. Nuclear weapons are not gonna be used if you are a high net worth individual domiciled in Europe, you're buying Netflix. You're selling everything you own and you're going and you are buying s and p 500 big tech. There was a, I'm sorry, I'm sorry about that. I have a giant lion in my house, so that's great. I don't know if you wanna cut that out or not, or maybe I think it's funny. It's funny also, he clearly doesn't agree with me. He is, uh, he's a big tech investor. He, he wants to hold onto his Mag seven, uh, position, but the truth is. There was a safe haven flow out of Europe, and it's something that a lot of wealth managers and asset managers noted. It basically transitioned to the US as a result. It was part of a. The bull market, I think in the US for the past five years, which itself is based on the ai, you know, narrative I would call bubble fiscal policy in the US and then finally this kind of safe haven flow due to geopolitical risks. So you think that that unwinds, I wouldn't be short US stocks because Russia and Ukraine, you know, get a peace deal, but I am underweight US relative to global. And there's a a lot of reasons for that. But one of them is that as Trump establishes geopolitical equilibria, ironically, ironically, he reduces the need to hold us assets as a safe haven. I. And that's, and by the way, that is an interesting difference between disorganized multipolar world and a balanced one, a disorganized, unbalanced multipolar. World wars are popping up all the time. Countries are trying to compete with sphere of influence pushing against one another that increases risks. Investors want safety and what's safer than a bunch of tech stocks in America. But if there is a balanced multipolarity, kind of like the concert of Europe, of the 19th century. You don't necessarily need the safety of tech companies. You can start looking at like maybe Poland benefits from Ukraine. Maybe Indonesia benefits from tech dissemination out of China. You know, you can then start thinking about other things other than am I going to survive World War iii? So do you think that Europe can be cohesive enough to. Compete as a block on the world stage. You know, in this environment where they've got, they're getting so much pressure from President Trump right now. I think pressure builds diamonds head and Mo uh, you know, necessity is the mother of all innovation. I think this view that Europe would de-industrialized due to the electricity prices is one of the dumbest things I've ever heard in my life. It's on the cover of the Economist. Like what? Like push against that view. It's a generational investment opportunity for anyone watching this. Anyone who tells you the Germans are just gonna lay down and de industrialize, which part of German history teaches you that part? You know what I mean? I'm just gonna leave you there. Um, but I think there's a more, there's more to it. Even if the endeavor fails in five to 10 years, given the valuation disadvantage. Between Europe and the US right now, it plays for investors. It's gonna pay to play their attempt to not go gently into that good night, and they're clearly attempting to do that. Now, I will say a couple of things from history. We know that fear is a great unifier. It's not love. It's not love. It's not loyalty, it's not common cause. Nah, nah. It's fear. If there was no United Kingdom and if the United Kingdom did not control more than half of North American continent, I don't think we would have United States of America. You know why? Why can't Pennsylvania and New York be separate? Countries like Australia and Canada are not in a country. These were all. British colonies, if there was absolutely no threat from the United Kingdom, I mean, after the Revolutionary War, if you think about it, there was like imminent threat to invasion by the United Kingdom. Imminent. Now, forget France, forget Spain, forget, you know, whatever. Native Americans, it was United Kingdom's gonna come back. They're gonna want this, which. Like led to the integration of the 13 colonies. Similarly, in Europe, you had very similar unification efforts like German states, German speaking states, principalities, kingdoms. They were very fine being divided and separate into Prussia, into this, that and the other. And then effectively it was, it was feared. The Napoleon like. Nationalist movements would return that led Germany to slowly contemplate like, Hey, we probably do need to adopt this new operating system of nationalism and adopt it to our dynastic countries. Switzerland, another example. Fear led to the cantons coming together from Aus Hungary, from France, from others, repeatedly throughout human history. It is fear of the outside world that leads to actually sustainable. Confederations and federations, and I think Europe is finally realizing that you know, not only does Russia not mean you good, but even an ally you thought was on your side is going to pursue their own national interests. Because ultimately that's what happens in a multipolar world. Countries kind of to down their magnanimity and increase their machiavellianism. That's a hot take even with. All the different languages of Europe and all the history of war amongst each, amongst themselves. You, you think that this event and these events are gonna bring Europe even closer. First of all, we've had the Euro area crisis. I. Everyone said Europe would collapse. It didn't. The support for Europe and European integration is at like 85%, 80, 85% depending on the country. Even in Germany where 30% of the public voted for anti-establishment parties, the support for the Euro is at 85%. How does that mathematically make sense? It makes sense because a lot of people voting for anti-establishment parties are voting for them because they're anti-immigrant. They don't want any more immigration. They're not anti integrion. So first of all, the track record of the 10 years tells us that a huge economic calamity didn't produce a collapse of Europe. Like the Euro area expanded, you know, the UK left, but Euro area actually expanded in the middle of the crisis. But the second point I would say is that like, absolutely, history tells us that even quite differentiated entities can actually amalgamate most European countries, most European countries. I. Were extremely culturally linguistically, heterogeneous. Italy is a great example of this, but so is France. Through a process of integration, France actually suppressed the different linguistic variants of Fran or French and, and versions of Catlan. That's why today everyone speaks Eel de France French, but that wasn't the case when they started actually suppressing other forms of linguistic, um, variation. So yeah, I think that it's modern world. It's 2025. Use Google Translate if you need to, you know, for the sake of competing with the rest of the world. I think it's self-evident what needs to happen, and I think what you're gonna see is a different kind of Euros skepticism in Europe. It's not that Euros skepticism of like, let's blow this thing apart. Many will make the choices that Georgia Maloney and Maureen Lapin made, which is like, look, I am Euros skeptic because I don't like the bureaucrats in Brussels. But that's the same type of Euro skepticism that Charles Dego had. Interesting. You know, he was a euroskeptic. Yeah. He didn't like the bureaucrats, you know, measuring size or curvatures of bananas. Like that was his problem. But he wasn't anti-European integration. In fact, don't forget, he warned Europeans. Americans are not your friends. We need to integrate because nobody has their interests other than each other. So that was an interesting kind of like way to think about it, a goal list. Euro skepticism means more integration, but perhaps more, you know, bureaucracy bashing, which is me. You know, we all like to do that. Or mod. Or mod. Yeah. It's, I think you, you know, I think, I think a lot of, uh, especially individual investors are very underexposed if, if, if not, have no exposure to Europe at all. So I think you've done people a real service by, by presenting this argument. You, you work has really helped me think about. How to interpret the signals coming from the world, starting with your, your great book, geopolitical Alpha, uh, one of my favorites in the space. Really, really appreciate it. How else can people learn about you and your work? You're at BCA, uh, I know you have some podcasts. Where, where can we find you? So, you know, my day job is to work with professional investors and I'm kind of a, I have this kind of a schizophrenic view. I focused on zero to three months for my hedge fund clients, and then five to 10 years for sovereign wealth funds and pension funds. And one thing I just wanna say, ed, it's not just individual investors that are under exposed to Europe. I mean, it is the entire, I think, sovereign wealth fund and pension fund communities. So this is something that, you know, they're not, they're not alone out there. Um, so taking a first step would be a good move in terms of where else you can reach me, I actually just started a, a podcast. Uh, with a former colleague of mine, Jacob Shapiro, uh, the man with the smoothest voice, like butter. Like butter. Um, so Jacob and I started a podcast called Geopolitical Cousins. I listened to the first one, uh, last night as fabulous. Jacob, uh, we're big fans of Jacob, so congratulations on that. I love Jacob. We actually worked at Stratford together and then just kept in touch for a while. He made the similar shift that I did. Um, so he, he left the pure sort of political risk consulting world and entered, uh, finance. And, and I like that because again, our, our anchor is really just trying to get the markets right. This isn't about who we want to win. It's not about the next 10 years either. You know, like we, we are. Our performance is measured by our clients, whether we made them money or not. And that's, that's where you're kind of kept honest. Uh, doesn't mean that we don't make the mistakes, of course, but that that podcast itself will focus mostly on geopolitics. Um, so it's not really intended, uh, to be listened to by investors, but I think it'll be funny. I think it'll be entertaining and we're trying to, uh, disseminate global events in this sort of non-biased, very bizarre. Perspective that we both have and there's one more place that, uh, viewers can, can find Marko Pap and that's the Strategic Investment Conference. You're going to be joining us at the SIC this year for the first time in May. So really looking forward to seeing you there as well. Same. And thank you so much to you and uh, John for the invitation.
Putin's Failure: Russia Can't Win Against Western Capitalism | Marko Papic
Summary
Transcript
The reason that Ukraine can eventually reconquer these territories is that on a 10, 15, 20 year time horizon, we have a proven track record that western capitalism does better than whatever Russia does. Hi, I'm Ed D'Agostino from Mauldin Economics, and today I discussed the likelihood of a settlement in Ukraine, and what a settlement would mean for the global world order and for investors. My guest today is the fantastic Marko Papic, chief strategist at BCA research and author of the excellent book, geopolitical Alpha. Welcome to Global Macro Update. Marko awesome to see you. I've always wanted to have you on this podcast. Really appreciate you joining us. I'm dying to talk to you about the Russia, Ukraine conflict. And I wanna kind of break this conversation into two parts. Um, the second part being what's gonna happen in the markets if and when we do get a settlement. But first I wanna talk to you about your thoughts on the constraints. You're big on a, on analyzing through the lens of constraints. What are the constraints between Russia and Ukraine, Europe, the us, all the other players, to actually getting some sort of a peace settlement negotiated? Thanks for having me on the, on the show, Ed. This is, uh, this is awesome. Uh, what I would say is that the constraints are really to the war continuing. It's, it's not about the peace. Uh, I think that the war has to end, and quite frankly, and I mean that's not a normative statement, it's just a statement of sort of physical reality. Um, Russia is politically unwilling to throw all of its weight behind this war. Um, and many sort of Russia fans out there say, well, they could if they, you know, really wanted to. It's like, nah, I don't think they can. And they can't because. Ukraine's, not really existential to Russia, you know, I mean, that's, that's gonna be my first controversial hot take here. Russia can survive without, it has nukes. They're fine. You know, like they lost Ukraine many, many years ago, and it's not territorial, it's not military. It's really sentiment based. Like Ukrainians don't want to live in the Russian sphere of influence. What are you gonna do about that? I mean, can you really conquer a country of 42 million people and enslave them? That's difficult to do unless you're prepared to put in the kind of resources, um, that are similar to, quite frankly, what the US did with Iraq. A much smaller country, a much weaker country than Ukraine. A. In terms of coin operations, you know, counterinsurgency. And so it's very expensive. So I think that, uh, Russia's fighting really an optional war. There are some things that I think are important to Moscow, like yeah, a NATO membership, you know, that's, that's something that I think they've proven their point. Um, but if this was truly existential for Russia, then they would have mobilized more than just on that September. 2022. That was really the only mobilization they've done. Uh, on the other hand, Ukraine, you know, you hear in the West, you hear this view in the west that like, Ukraine must win. Um, what does that mean? You know, at what cost to Ukraine? Like, forget about America, forget about Europe. Like what cost to Ukraine? The territories, the Ukrainians are fighting for, um, that Russia has effectively now, uh, occupied. They're, uh, they're largely insignificant. Ukraine doesn't actually need access to the Black Sea at all. Um. The Baltic Sea is equidistant to most of Ukrainian farms as the Black Sea is. Shockingly, it's a huge country, right? So, uh, yeah, you know, like it's not ideal. Don't get me wrong. It'd be better if they did have access and they do still throw a. But like, you know, life will go on. Uh, and the problem with the Western strategy pre-Trump has been that like, Hey, let's help Ukraine continue to fight this war. And you would go to Washington DC you would talk to policymakers, particularly in the Biden administration, and you would hear things like, well, we're bleeding Russia at a low cost. You know, like, ah, it's great, you know, we got them. And it's like, yeah, but actually also breeding, bleeding, Ukraine. Literally. Literally, yes. Literally. And you and Ukraine has far less blood. Than Russia does. So how are you being actually a good ally to Ukraine by encouraging this endless conflict? So in a way, Trump is, you know, most people, uh, who are, uh. Of course against Trump are going to say that he's doing something mean, naughty, disruptive. But I gotta tell you, ed, if if Vice President Harris had won the election, I think we would be where we are today, six months from now. Maybe with less obviously meanness, you know, um, and blunt statements. But I think that we'd be still here. So the war is gonna end. And so I would say the material constraints, there are none. Peace. You are a, a former student of George Friedman from Geopolitical Futures today. Uh, back when you knew him as he was with, he was with Strater, um, he, he would argue that. Russia has effectively lost this war. What is your take on, did Russia achieve their goals? If this was an optional war to begin with? I am a student of George Freeman. I appreciate greatly my time at Stratford. I learned, I learned a ton from the man and my constraint framework really is effectively what, what he developed. Um, although he would really focus on geography and technology and demographics, so what George FO focuses on. And, and most geopolitical analysts, you know, they focus on these kind of immutable constraints, like they cannot be changed. Um, I've extended that a little bit 'cause I just don't think it's enough, you know, especially if you're an investor. I. Like telling an investor like, Hey man, Poland's got the North European plane. You know, like, ah, what does that mean? It means nothing. So you gotta actually look at domestic politics too. You gotta look at finance, you gotta look at bond yields. You gotta just extend that framework and put more tools into your toolbox. I would say the, the George is a hundred percent right. Uh, now the question is, is Putin the same as Russia? And and very rarely is that the case, and this is where I think we have to become two level strategists. There's this concept in political science introduced by many American political scientists. 'cause they were frustrated by all the IR theorists walking around talking about geopolitics, you know, uh, they said like, Hey man, you gotta look at domestic politics too. And I think Putin is playing a two level game as everybody is. President Trump is as well. From a domestic political perspective, I think Putin got what he needed from Ukraine and the invasion you, you know, if you remember in 2022, actually he was on thin ice. Uh, Russian response to Covid was probably the worst in the world in 2019. He actually launched a bunch of establishment, O-E-C-D-I-M-F approved structural reforms that were extremely, extremely unpopular. So he was actually facing widespread protests across the country, and he did what he does best. Export that volatility in his near abroad. Um, and so a lot of Americans see this as some sort of a geopolitical, chess board, you know, but actually he had a domestic political logic for doing that. So on that front, maybe I would say, hmm, you know, he got what he needed. But did Russia as a country lose? Of course, like, you know, of course the territories they acquired from, from Ukraine. You know, are just not that useful. Um, but the good news is they can declare victory. I think that's, you know, from a political perspective, domestically, I think Putin can still declare victory. Sadie got Nova reia and, you know, uh, Crimea. Danz. Luhansk. What do you think Putin lost? I mean, he, he was almost overthrown. Right at one point, right? I mean, there was a coup attempt. Well, I mean, you know, and that's not a good sign. So we, we can look at that both ways. We can say like, well, he defeated the coup. On the other hand, like, hey, there was a coup. You know, like, that's not a good news. It's not a good thing. When a country that was a few years ago, was it like a G eight member, you know, like one of the most sophisticated advanced economies in the world. And at one point, because of this war, they had bulldozers. Ripping up highways outside of Moscow to stop the advance of a potential coup, right? Yeah. Like, you know, and so, so now somebody can say, well, uh, come on. Like, they defeated Wagner easily. I'm like, yeah, but like, they were bull. Like imagine if like, here in Los Angeles they start ripping apart, you know, like I 10, you know, like I'm not taking that as they're like, oh, everything is fine. Uh, but the second thing I think, look. Like Ukraine's NATO membership, fine. I get that. It irks Russia, go to war for it, whatever. I'm not gonna, you know, eat your lunch for that. But the, the reality is like the territories, they're winning that they've occupied. Like there is nothing there. And please don't tell me about coal or neon gas. Like this is nonsense. We're not in the 19th century. There is nothing Pensky, luhansk. This is a joke. Nobody needs any of these territories. So the fact that they went out Crimea. Oh, but there's Sevastopol Marko, the Black Sea Fleet. The Black Sea Fleet. Go to Wikipedia, do an order of battle analysis, and what will you find out? You'll find out that the Greek navy could sink the Russian Black Sea Fleet in 24 hours. This is a joke. The Black Sea is irrelevant. We're not playing risk. It's not the 19th century. It's not the 19th century. Laxy is a lake inside another lake that is absolutely controlled by nato, by Europe, by the us, whoever you want. So to me, you know, this was, this was a war of choice. And so I do think Russia as a country extended way too many resources to get way too little. And it's funny because if you look at Putin's career, the one thing you can say about Putin is that, unlike George Bush. Jr. Unlike Barack Obama, Putin had a very high geopolitical ROI, you know, for a very small investment in Syria. He managed to keep Assad in power for a very long time. Now he's had to pull some of those troops away. Assad Falls, Georgia intervention in 2008. Very small. Uh, very, very small investment. Huge investment return. And even the 20 14 15 intervention in Ukraine done with sort of plausible deniability. He's always been very careful. Chechnya the, his first foray into geopolitics, he actually got one group of chechens to fight another I. You know, that's how the Russians ultimately won a war. They lost. So he's always been cautious, always been smart, small incursions, cheap, huge, ROI, um, and in Ukraine, I, I think he deviated from that model. And so that was the problem. So you think that a settlement of some sort is, is it? Inevitable and imminent. Yes, it is. And, and again, it's um, you know, can Russians continue to grind this, you know, and acquire scare square miles of Ukrainian territory endlessly. Yes. Uh, two great laws to themselves, because again, it's what's the point? Um, and also the question for me would be, what do you do with 40 million Ukrainians if you were ever to conquer them all? Like, you know, this is a lot for a country to swallow the country the size of Russia. Um, if, again, if, if the United States of America struggled to pacify Iraq, I. How are you gonna pacify 40 million people who hate you? Like it's just very difficult. Uh, so that's the first thing. I think that, um, the reason I think the settlement is inev inevitable, however, is on the Ukrainian side. And so when you give a blank check to somebody, they're obviously gonna try to cash it in. And what President Trump has done, he, he has effectively said to Ukraine, for, for your own sake. And this is where I'm gonna get a lot of people, you know, send us, Hey, hit mail here. But I truly believe that for Ukraine's sake, us is taking away the black check. Like you don't have the resources domestically. And you know, the fight between Zelensky Putin and JD Vance in the, in the White House, um, you know, the decorum was lost. A lot of things were said. But one of the things that JD Vance at one point was trying to say was like, Hey, look, you are struggling to mobilize your own troops. Then zelensky counters with this flippant, like, well have, have you been to the frontline? Like GD vans doesn't have to be at the frontline. We all know that in 2024, Ukraine struggled to pass immobilization bill through its own parliament. I'm sorry. If these territories are existential to Ukraine, then I would assume it would be easy to mobilize men of Ukraine who are patriotic to their country, but it isn't. Because these, these territories are not existential. And so I think on both sides you're starting to see war fatigue. And I think one of the reasons for that, I mean there's many reasons, but one of them that we don't maybe discuss enough is that I do think that defensive military technology has actually surpassed offensive. And so it's really difficult to launch, you know, these offensives, um, whether you're Ukraine or whether you're Russian. Interesting. So, so you just end up with battlefield stalemate? Yes. Unless you, unless you launch, you know, a surprise attack that maybe a. You don't expect or you put in enough troops behind it. But if you're not willing politically to put in enough men behind an offensive, it's gonna be very difficult. And so there's also this narrative. Had we given Ukraine weapons early in the conflict, I think this is also unfair and it's unfair to the Biden administration, you know, um, had the US given Ukraine F sixteens, day one, they would've been shot down by S 400, you know, fired outside, uh, from Russian. Territory. So Russia has coverage of its air defense systems over Ukraine. You cannot give Ukraine F sixteens. It's like giving my son a Bloomberg terminal. Like what is he gonna do with it? You know, Russians can shoot down a Ukrainian F 16 that flies over Ukrainian airspace, which you would need to do. Is you would need to authorize Ukraine or do it for them, what's called the suppression of enemy air defense operations cell operations, which require you to fly into Russian airspace and use harm missiles to take out their radar installations, which leads to you and me being in a bunker. Right? So, you know, this is a very flippant narrative out there. Like Biden could have done more, more tanks, the advent of drones. The advent of very sophisticated air defense systems and the cheapness of anti-tank missiles like Javelins. And by the way, Russians have their own version of that. It makes it very difficult to play offense both for Russians, you know, thankfully for Ukraine, it also makes it difficult, difficult for Ukraine, so just endlessly pouring cash into Ukraine. To continue the war is, I think, not good for Ukraine and, and so I think that's where we are. What's a better strategy? You know, like, am I just sort of ignorant or No, not ignorant. Am I just callous? You know, am I just telling you nothing can be done? No, I think there is a playbook for defeating Russia. It's worked in the past, it's called West Germany. The reason that Ukraine can eventually re-con these territories. Is that on a 10, 15, 20 year time horizon, we have a proven track record that western capitalism does better than whatever Russia does. And so what happened in West Germany over the course of the Cold War is that, you know, the economy was much more superior. It had access to global markets and you could buy A BMW, an Audi, an Opel, a Mercedes-Benz. Whereas in East Germany, you had to wait for a burg for 18 years. That's gonna be the case again. So the faster the west just transitions to helping Ukraine integrate into the global economy the better. Like that is the, the path to victory and reoccurring these territories where one day the people of the Parisa or hair are like, wait. What the hell are we doing here? So let's talk a little bit about what I don't really hear many people talking about, and that is post settlement. You know, what, what does the world look like? What are the knock on effects of a settlement? Because from an investor's perspective, I think they could actually be pretty significant. I mean, for, for example, does the world welcome. Russia back with, with their oil, the third largest oil producer in the world do, does the world open their arms and say, we're going to start buying your oil at market prices again. Does Europe start buying natural gas again? I mean, what, let's start with energy and just kind of work our way through. What are the, what are the impacts of a settlement? Well, can we start with geopolitics first and dingo? We can start wherever you want. I wanna nail this down because you know, the first 10, 15 minutes of this conversation, I've probably already confused people. I don't think Russia has won, but I also think that West made a mistake arming Ukraine effectively. You know, like, where's this guy? Well, I'm nowhere. I'm bathing aloof indifference, so I'm just trying to kind of get the markets right. And that's a great anchor. Like if you're listening to this podcast and you're thinking, where does Marko come from? You know, what is his sort of anchor? Uh uh, I have only one, which is making my clients money now. It's very petty. It's very glib, but it's an unbiased one. That's why I think that anyone listening to this interview can't really tell you know which side I'm on, so let's talk about that from a geopolitical perspective. Um, I don't think Ukraine changed anything. Interesting. Okay. I think the world has been multipolar for. 10, 15 years. Now, I dunno, it's hard to say, and this is really important because multipolarity is a dirty word in America. It's also a misunderstood word. You should define multipolar, your definition of multipolar if you would. Super, yes. And of course I'm just stealing this from political science, so I didn't like invent this. Uh, but the word multipolar is quite often uttered by, you know, the Kremlin, China. They like to claim the world is multipolar because obviously that means like, Hey, I get, I, I get to be asked something and you know, my interests are also matter. So there's really three ways the world can be. The, the global power can be redistributed through states, unipolar world. That means there's one bully in the world. It's actually very, very, uh, good for investors to have a unipolar system because it's stable. And you can follow the rules and norms that this, you know, you learn as an investor what to do and what not to do. Uh, so that's a very simple system. It also leads to globalized economic. Outcomes, like the economy is integrated because again, there's a rural system that's enforced by the hegemon, by the global superpower, a bipolar world. Most Americans are very familiar with this world because of course they won the Cold War. It's fresh in people's minds. Um, that means there's two countries. They tend to split the world into two zones. Those two zones don't talk to each other. A lot of investors thought. From 20 16, 17, 18 to probably just until a few years ago that we were headed towards that bifurcation. I disagree because I don't think the United States of America and China are powerful enough to control their allies, allied systems, they, they're not strong enough to enforce compliance with a bipolar structure, and actually bipolar structure is very rare. Product in global history, Soviet Union and the United States were able to impose that on the rest of the planet because you have to understand, the starting conditions in 1945 were such that Europe was decimated. Tens of millions of refugees. Japan had two nuclear devices dropped on it. India was still a colony of a tired, almost defeated nation. And then you had China, of course, which was eviscerated by its conflict with Japan and was. Murd in a civil war. So starting conditions matter in Soviet Union, the US were the only two games in town. Uh, multipolar World is a world where there is nobody really in charge. Now, that is not to say this is where Americans usually get set off 'cause it's like, ah, we the strongest country in the world, 11 aircraft carriers. Ah. And it's like, yes, fair. It doesn't mean that the United States of America is not number one and it's not head and shoulders. Above every other country on the planet it is, and I can quantifiably measure and prove this, but to enforce hegemony, to enforce a unipolar world, you need to be head, shoulder, torso, and hips above everyone else. It's the kind of power that comes with picking up a phone. Saying, Hey bro, you're gonna do X or I'm gonna, I don't know, crush your currency. Like what the US did to Great Britain. When it forced it to pull out of the Suez, uh, in the fifties with Israel and France, all it took was a phone call. Like, what are you doing? Oh, you know, me and my buddies, we want Suez no click. So the world we have today is a complicated one. It's multipolar one, and I think what Russian invasion of Ukraine shows. Is that number one, we are in a multipolar world. Countries have these independent dynamics, but also the outcome of this conflict will ossify it. A lot of the things that President Trump is doing right now is going to actually entrench multipolarity and is going to ossify that outcome, and I don't think that's necessarily, I. That bad either for humanity, quite frankly, or for investors. If you're enjoying this conversation, please take a minute to give us a like and subscribe to the channel. Doing that really helps us grow. So I very much appreciate your help and your support. Now, back to our talk with Marko Pock. So does the settlement change nothing or, or on the margins? Are there going to be some impacts like. Like, and I'm just guessing cheaper oil. So first of all, I don't think so. You know, I think, uh, I think oil prices have declined. It's now, you know, we're recording this on March 21st, so oil prices have been pretty weak for the first part of. Um, 2025. And I think the reason for that is a mix of two views. One, I understand this recession probability has gone up. Uh, the other one is geopolitics. Particularly this idea, as you said, you know, like Russia's gonna be reintegrated. But the, the issue, ED, is that Russia is not gonna export a single extra barrel oil because the war ends. I mean, they're already exporting maximum amount. There was a little bit at the end of the Biden administration. Risk premium because of, uh, the intense sanctions against its shadow tanker fleet. So maybe there's some relief there. Uh, but for the most part, as we all know, Russia has exported the exact same amount of oil as it did pre-invasion. The only difference is piped oil to Europe and, uh, and then, you know, it was at a different price. If anything, if Russia suddenly can charge market prices for its crude. I don't think you're gonna see a surge in production in Russia. Russia doesn't have the kind of flex that Saudi Arabia has. I think what you'll see is that the blended global price will probably rise because suddenly, you know, because suddenly there isn't really that much of a disadvantage or, uh, sorry, advantage in buying Russian crude. If you're India, suddenly it's just like, it, it the, the global price of oil actually has to go up. 'cause you don't have this pool of artificially suppressed. Price. Uh, so from a geopolitical perspective, I would actually say next three months, what happens in the Middle East with Iran is probably gonna have more upside. Now your other question was, was energy with LNG. What's happening with, sorry, with natural gas. What if Russia restarts natural gas? Well, um, there is still a pipeline through Poland that can be activated very quickly. Uh, there are no sanctions. On natural gas exports from Russia to Europe. It's really just voluntary Russian embargo against Europe. Okay. Will European stake this gas? Yeah, I think so. But a very un misunderstood and under-researched part of the European bullish story. You know, everyone's looking at German fiscal policy and re armament and sort of this kind of like European enthusiasm because they need to now do something, but there is another pillar. And it's the fact that too many LNG suppliers have overbuilt supply over the last 18, uh, over the last five years. There's way too much LNG supply coming online over the next 12 to 24 months. You've got Qatar, you've got Mozambique, you've got British Columbia, you've got us, you've got Russia all bringing supply online. And so I believe my view is that European energy costs are gonna collapse. Electricity, uh, costs are gonna completely collapse. The deindustrialization narrative is going to fall on its head, and Europe will be drowned in a tsunami wave of LNG over the next few years. So I'm not even sure if they will have to take. Russian gas, and, and by the way, you know, Russia's participating in this LNG free for all because most of their gas that you, they used to send through pipelines to Europe is stuck in the European Arctic in the Yamal Peninsula. This notion that they can deviate it to China is nonsense. China doesn't want to pay for half a trillion dollar pipeline. It's a fixed asset in a country where you don't wanna fix anything to the ground. Russia, you know, the Chinese are not dumb. And so the issue is that Russia has just realized like, well, okay, the easiest way for us to get this gas outta here is LNG. But then what they do is they just add more. To this glut that's coming. So how about agricultural products? I mean, Ukraine, huge producer of grains. I think it's gonna be very difficult for Russia to increase its supply of oil. So that's kind of the point. You know, the supply stays the same higher price for oil in Russia. I don't think it incentivizes anyone to invest in Russia, but that may not be the case with, uh, agricultural products. I think that, um, reduction of tensions from both countries I think will lead to further, um, you know, yields, uh, we've seen Russia actually increase its agricultural productivity massively over the last 10 years. That's been one of it. Their success stories. Actually of Russia. And so, yes, I do think that this could be positive, uh, for, for sort of global supply. But you know, a, as you probably know, ed. There's been a huge productivity boost in agriculture over the last 20 years. Incredible. It's really been, yeah, it's been really hurting soft prices across the board, whether you're talking about fruits, whether you're talking about grains. Um, and so I'm not sure that anybody who's in that business is listening to this and they're just like, oh, great. You yet another headwood to prices. Who do you think rebuilds Ukraine? And is that an investible? Option. You know, I think anyone listening to this, uh, interview, I think that's gonna be difficult. You know, that's gonna be difficult for investors to participate in, I think. Uh, but yes, I do think it's gonna be Europe, mainly Poland. Will Poland be a big winner? Sure, it will be, but you gotta be very careful. I mean, you have to look at Polish Equity Index and you have to understand that you're probably mainly investing in banks. Banks, yeah. Yeah, yeah. As is always the case, so, so be very, very, very, very cautious of this. I think. I think there's an easier way to play peace in Ukraine, and I've been articulating this thesis for the past, you know, 12 months. I've been very bullish Europe, um, for the past 12 months. Again, it's not based on German fiscal spending. I'm actually annoyed. At the German fiscal spending story, ed, because I, I sell stories for a living, let's be honest. I sell stories to hedge funds and pension funds. And when a story is over within like six months, you're like, ah, I need a new story. I thought I had at least, yeah, I had, I thought I had 12 months on this, you know, and then the Germans come out and they're like, we agree. It's like, ah, no, you're supposed to be depressed and not agree. Um, so I think the enthusiasm for Europe is worrying me a little bit. Now, I think it's. It's kind of gone into like overdrive. But I do think that there's a, there's a bevy of reasons to be bullish Europe, one of which is of course the settlement of a conflict with a nuclear power on its periphery. Like that seems like a pretty important thing. But you know why it's not so much Ed? Because there's like gonna be like, rebuilding of Ukraine leads to higher earnings for companies X. Although, yes, maybe that too. It's more. I've talked to a lot of wealth managers in Europe, like big ones, managing trillions of dollars of high net worth assets, and what they've pointed out to me is when Russia invaded Ukraine, constraints aside, you know, cool heads aside like, Hey guys, it's not that big of a deal. It's gonna be in parts of Ukraine. It doesn't matter. Nuclear weapons are not gonna be used if you are a high net worth individual domiciled in Europe, you're buying Netflix. You're selling everything you own and you're going and you are buying s and p 500 big tech. There was a, I'm sorry, I'm sorry about that. I have a giant lion in my house, so that's great. I don't know if you wanna cut that out or not, or maybe I think it's funny. It's funny also, he clearly doesn't agree with me. He is, uh, he's a big tech investor. He, he wants to hold onto his Mag seven, uh, position, but the truth is. There was a safe haven flow out of Europe, and it's something that a lot of wealth managers and asset managers noted. It basically transitioned to the US as a result. It was part of a. The bull market, I think in the US for the past five years, which itself is based on the ai, you know, narrative I would call bubble fiscal policy in the US and then finally this kind of safe haven flow due to geopolitical risks. So you think that that unwinds, I wouldn't be short US stocks because Russia and Ukraine, you know, get a peace deal, but I am underweight US relative to global. And there's a a lot of reasons for that. But one of them is that as Trump establishes geopolitical equilibria, ironically, ironically, he reduces the need to hold us assets as a safe haven. I. And that's, and by the way, that is an interesting difference between disorganized multipolar world and a balanced one, a disorganized, unbalanced multipolar. World wars are popping up all the time. Countries are trying to compete with sphere of influence pushing against one another that increases risks. Investors want safety and what's safer than a bunch of tech stocks in America. But if there is a balanced multipolarity, kind of like the concert of Europe, of the 19th century. You don't necessarily need the safety of tech companies. You can start looking at like maybe Poland benefits from Ukraine. Maybe Indonesia benefits from tech dissemination out of China. You know, you can then start thinking about other things other than am I going to survive World War iii? So do you think that Europe can be cohesive enough to. Compete as a block on the world stage. You know, in this environment where they've got, they're getting so much pressure from President Trump right now. I think pressure builds diamonds head and Mo uh, you know, necessity is the mother of all innovation. I think this view that Europe would de-industrialized due to the electricity prices is one of the dumbest things I've ever heard in my life. It's on the cover of the Economist. Like what? Like push against that view. It's a generational investment opportunity for anyone watching this. Anyone who tells you the Germans are just gonna lay down and de industrialize, which part of German history teaches you that part? You know what I mean? I'm just gonna leave you there. Um, but I think there's a more, there's more to it. Even if the endeavor fails in five to 10 years, given the valuation disadvantage. Between Europe and the US right now, it plays for investors. It's gonna pay to play their attempt to not go gently into that good night, and they're clearly attempting to do that. Now, I will say a couple of things from history. We know that fear is a great unifier. It's not love. It's not love. It's not loyalty, it's not common cause. Nah, nah. It's fear. If there was no United Kingdom and if the United Kingdom did not control more than half of North American continent, I don't think we would have United States of America. You know why? Why can't Pennsylvania and New York be separate? Countries like Australia and Canada are not in a country. These were all. British colonies, if there was absolutely no threat from the United Kingdom, I mean, after the Revolutionary War, if you think about it, there was like imminent threat to invasion by the United Kingdom. Imminent. Now, forget France, forget Spain, forget, you know, whatever. Native Americans, it was United Kingdom's gonna come back. They're gonna want this, which. Like led to the integration of the 13 colonies. Similarly, in Europe, you had very similar unification efforts like German states, German speaking states, principalities, kingdoms. They were very fine being divided and separate into Prussia, into this, that and the other. And then effectively it was, it was feared. The Napoleon like. Nationalist movements would return that led Germany to slowly contemplate like, Hey, we probably do need to adopt this new operating system of nationalism and adopt it to our dynastic countries. Switzerland, another example. Fear led to the cantons coming together from Aus Hungary, from France, from others, repeatedly throughout human history. It is fear of the outside world that leads to actually sustainable. Confederations and federations, and I think Europe is finally realizing that you know, not only does Russia not mean you good, but even an ally you thought was on your side is going to pursue their own national interests. Because ultimately that's what happens in a multipolar world. Countries kind of to down their magnanimity and increase their machiavellianism. That's a hot take even with. All the different languages of Europe and all the history of war amongst each, amongst themselves. You, you think that this event and these events are gonna bring Europe even closer. First of all, we've had the Euro area crisis. I. Everyone said Europe would collapse. It didn't. The support for Europe and European integration is at like 85%, 80, 85% depending on the country. Even in Germany where 30% of the public voted for anti-establishment parties, the support for the Euro is at 85%. How does that mathematically make sense? It makes sense because a lot of people voting for anti-establishment parties are voting for them because they're anti-immigrant. They don't want any more immigration. They're not anti integrion. So first of all, the track record of the 10 years tells us that a huge economic calamity didn't produce a collapse of Europe. Like the Euro area expanded, you know, the UK left, but Euro area actually expanded in the middle of the crisis. But the second point I would say is that like, absolutely, history tells us that even quite differentiated entities can actually amalgamate most European countries, most European countries. I. Were extremely culturally linguistically, heterogeneous. Italy is a great example of this, but so is France. Through a process of integration, France actually suppressed the different linguistic variants of Fran or French and, and versions of Catlan. That's why today everyone speaks Eel de France French, but that wasn't the case when they started actually suppressing other forms of linguistic, um, variation. So yeah, I think that it's modern world. It's 2025. Use Google Translate if you need to, you know, for the sake of competing with the rest of the world. I think it's self-evident what needs to happen, and I think what you're gonna see is a different kind of Euros skepticism in Europe. It's not that Euros skepticism of like, let's blow this thing apart. Many will make the choices that Georgia Maloney and Maureen Lapin made, which is like, look, I am Euros skeptic because I don't like the bureaucrats in Brussels. But that's the same type of Euro skepticism that Charles Dego had. Interesting. You know, he was a euroskeptic. Yeah. He didn't like the bureaucrats, you know, measuring size or curvatures of bananas. Like that was his problem. But he wasn't anti-European integration. In fact, don't forget, he warned Europeans. Americans are not your friends. We need to integrate because nobody has their interests other than each other. So that was an interesting kind of like way to think about it, a goal list. Euro skepticism means more integration, but perhaps more, you know, bureaucracy bashing, which is me. You know, we all like to do that. Or mod. Or mod. Yeah. It's, I think you, you know, I think, I think a lot of, uh, especially individual investors are very underexposed if, if, if not, have no exposure to Europe at all. So I think you've done people a real service by, by presenting this argument. You, you work has really helped me think about. How to interpret the signals coming from the world, starting with your, your great book, geopolitical Alpha, uh, one of my favorites in the space. Really, really appreciate it. How else can people learn about you and your work? You're at BCA, uh, I know you have some podcasts. Where, where can we find you? So, you know, my day job is to work with professional investors and I'm kind of a, I have this kind of a schizophrenic view. I focused on zero to three months for my hedge fund clients, and then five to 10 years for sovereign wealth funds and pension funds. And one thing I just wanna say, ed, it's not just individual investors that are under exposed to Europe. I mean, it is the entire, I think, sovereign wealth fund and pension fund communities. So this is something that, you know, they're not, they're not alone out there. Um, so taking a first step would be a good move in terms of where else you can reach me, I actually just started a, a podcast. Uh, with a former colleague of mine, Jacob Shapiro, uh, the man with the smoothest voice, like butter. Like butter. Um, so Jacob and I started a podcast called Geopolitical Cousins. I listened to the first one, uh, last night as fabulous. Jacob, uh, we're big fans of Jacob, so congratulations on that. I love Jacob. We actually worked at Stratford together and then just kept in touch for a while. He made the similar shift that I did. Um, so he, he left the pure sort of political risk consulting world and entered, uh, finance. And, and I like that because again, our, our anchor is really just trying to get the markets right. This isn't about who we want to win. It's not about the next 10 years either. You know, like we, we are. Our performance is measured by our clients, whether we made them money or not. And that's, that's where you're kind of kept honest. Uh, doesn't mean that we don't make the mistakes, of course, but that that podcast itself will focus mostly on geopolitics. Um, so it's not really intended, uh, to be listened to by investors, but I think it'll be funny. I think it'll be entertaining and we're trying to, uh, disseminate global events in this sort of non-biased, very bizarre. Perspective that we both have and there's one more place that, uh, viewers can, can find Marko Pap and that's the Strategic Investment Conference. You're going to be joining us at the SIC this year for the first time in May. So really looking forward to seeing you there as well. Same. And thank you so much to you and uh, John for the invitation.