YouSaid · the spoken record

Marko Papic

lines on the record: 113
first: 2023-11-29
most recent: 2023-11-29
sittings or episodes: 1
sources: podcast

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“Right. I think maybe key to your call on oil was that regardless of what's going to happen with geopolitics and the war, Russia is going to be exporting oil and that the Western embargoes of oil are mainly for PR reasons with inflation close to 10% that oil is going to find a place and oil most barrels get sold like it's impossible for a barrel of oil to disappear. Looking at the war in Ukraine now, how would you characterize it right now in the world of geopolitics and then in the world of alpha, of markets, how do you think what the impact will be? Because also, as you say, they're not always the same thing. Sometimes you get the geopolitics right, but the market's wrong. Sometimes you get the geopolitics wrong, but the market's right.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“You know, but because you have a framework, it allows you to actually continuously make forecasts, not just have one lucky shot. And I compare a lot of people who got the invasion right. They got it right, but then they subsequently made a lot of egregious mistakes because they kept taking half court buzzer beaters. You know, and it was like, oh, well, Putin has done this crazy thing. Why wouldn't he do six other crazy things? And he never did. In fact, on March 23rd, really just one month into the war, the Russian defense ministry basically said like, oh, we succeeded our first phase of operations. We're going to withdraw from Kiev. They didn't succeed anything. They basically admitted defeat. And since then, they haven't really ramped up in terms of invading Ukraine again and again and again. Just hasn't happened.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Falling off the cliff oil imports and also non oil imports, Chinese economy was slowing down. Oil prices were going up. It was a divergence that was basically unsustainable. And so that's where we called the top in oil markets. But not just oil, also commodities. We also called the bottom in the euro because there was just a mass hysteria that Europe will like fall apart because of this conflict. And the conflict eventually became trapped in a part of Ukraine that's not that geopolitically relevant. You know, the oblasts that we're talking about, Kherson at one time Kharkiv, not anymore, Saparizia, and then Donetsk and Luhansk are just not that relevant to global geopolitics. And that meant that the geopolitical risk premium that had been bid up just absolutely collapsed throughout 2022. Now, what's interesting about that call is, again, it comes out of a mistake.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Nothing stopping them. They will mobilize millions of Russians, they'll use tactical nuclear weapons, they'll stop at nothing to get to Kiev. And I said, nah, I don't think so. I think my framework still works. I think Putin made a mistake. He's now going to meet face-to-face with material constraints. And as he does that, the conflict will dissipate into irrelevance from a market's perspective. And therefore, something like oil risk premium, which was associated with potential abrogation of supply or Russian decision to stop exports by themselves, to punish the West, that's just an overstated risk. And that's exactly what ended up happening. What was much more relevant to oil prices was the macro context, which at the time included a very, very slow Chinese economy, zero COVID, their imports just worse.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so that's a good example of how to generate geopolitical offer even when you're wrong. You know, if you have a framework for thinking about geopolitics, you're not just kind of like wandering aimlessly. It really helps. So my framework is to focus on material constraints to conflict. In the case of Russia, Ukraine, I definitely underestimated the probability of Russian intervention in Ukraine. You know, I said it was 50-50. It ended up being obviously a lot higher that Russia would invade. So made a mistake. But so why did I underestimate the probability of Russian intervention in Ukraine? Because of a series of material constraints to Russia invading the country and being successful in doing so. In other words, it was very clear to me that Russia would fail if it did invade Ukraine. So why would they do it? It would be a mistake. Well, they did it anyways. And when they did it, a lot of analysts said, well, now that they've done something like this,”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I guess 1973 Yom Kippur War, you can tie that maybe directly to the price of oil going up a ton in the Yompur War. And because you rather humbly pointed out your call on Russian equities not working out, I want to highlight a call that aged fantastically last year, which was at the top of oil prices. Tell us what the narrative was and tell us why you'll kind of leaned into that short commodity trade.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“SP 500 reacting over a longer period of time to a geopolitical conflict. It's never happened. I mean, 1973 Yom Kippur War is the only time that S&P 500 actually ended six months after the conflict down. I would argue that didn't have to do with the actual war itself. But if you go through every single geopolitical conflict since the Second World War, big risk assets did not react. You know, regionalized ones like Israeli stocks or Russian equity is fine. You can say that's might, but not the big macro assets.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Or really, not just competent, but it wasn't really big enough. 180,000 Russians went into Ukraine trying to basically conquer territory the size of Western Europe. So in that particular case, yeah, a particular asset tied to that conflict can go to zero. But what I'm really talking about are the big assets. You know, I'm talking about S&P 500. About bonds, I'm talking about the macro assets that people associate with some nebulous conflict in a nebulous region and expect them to be affected because of Russia, Ukraine, and Israel Hamas. Never happens. Like literally, I'm not saying almost never. I'm saying it never happens”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“That's actually a great example because I was one of those people saying that there is value in Russian assets. In that particular case, Russian assets were really cheap. And the probability of an invasion was difficult to gauge because how do I put this delicately? It was so stupid to invade Ukraine. Ended up being correct. I mean, we can just talk about all sorts of ways in which that invasion has gone wrong. And people who understand war and who understand how conflict unravels saw just how difficult it would be for Russia to gain control over a large part of territory using a force that was just simply not at all competent or”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, someone making the call in 2015, you got to sell your Apple stock because of tensions between Apple and in China. I mean, that call not only has zero value, but had a lot of negative value. So you're saying that it's almost always overpriced. But is there that tail risk scenario where let's say a US investor invested in Russian equities in January of 2022? I mean, I think those are worth literally zero. So is there that tail risk where things can go to absolute zero, but you just think that that is it happens, but it's improbable.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“Where I'm supposedly a geopolitical expert, quite often, who quite often tells investors, like, don't worry about it. It's cool. You know, whereas most geopolitical experts are there to, I mean, to be fair, they're there to scare you. And they're there to tell you that you need to call them again in three months or six months or 12 months and hopefully put them on a retainer because the world will end because Israel and Hamas are at war. And my argument is almost always it won't end and actually you should just buy risk assets whenever something like that happens because it almost never really matters.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“And it's about generating alpha because the market missed prices. Either to the downside or to the upside. And what I always tell clients is don't think of your job as being a geopolitical analyst. That's not what it is. It's really about figuring out whether the market has overreacted. And in my experience, the market almost always overreacts to geopolitical events, which finds me in a very interesting position.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT
“I think geopolitics has been seen in finance for a very long time as a risk, as something that is exogenous to your investment process. So basically you spend some time thinking of what investments are going to work out and then geopolitics shows up and scuttles your outlook. And what I've been trying to tell investors for the past 15 years is that that's not the way to really think about it. Geopolitics is just one of many different variables and factors that you should think about as you're creating your investment process. And so that's the first kind of a philosophical approach to thinking about geopolitics. It's not exogenous. It should be endogenous to thinking of your investment view or your asset allocation. Now, geopolitical alpha is when something does happen that you do not expect.”
2023-11-29 · Forward Guidance · Marko Papic: Russia-Ukraine War Is Effectively Over, Israel-Hamas War Unlikely To Have Large Market Impact · IDENTIFIED FROM THE TRANSCRIPT