Macro Voices Episode #405 — Marko Papic: Investment Implications of Geopolitics Around The Globe

Date: December 7, 2023
Host: Erik Townsend
Guest: Marko Papic, Chief Strategist, Clocktower Group

Episode Overview

This episode features a deep dive into the global geopolitical landscape with Marko Papic, a leading expert on geostrategic analysis with a strict lens on market and investment implications. The conversation covers ongoing conflicts—Ukraine, Israel/Gaza, Venezuela/Guyana—as well as looming risks around US elections and China/Taiwan, always connecting events to market action and investment strategy. Marko emphasizes an intentionally clinical approach, focusing on "material constraints" rather than humanitarian or moral concerns, aiming for actionable insights for investors.

Key Discussion Points & Insights

1. Russia-Ukraine: Fatigue, Constraints, and the Endgame

• [05:22] Marko opens by refuting the idea that the US/EU intends to "push Ukraine under the rug," stating material constraints—not policy preferences—drive outcomes.
• Declining Western Support:
  • Western public and political appetite for funding “an endless conflict” is waning.
  • Limitations exist: “You can print more dollars, but you can’t print tanks and missiles.” – Erik Townsend [08:05]
• Stockpiles and Defense Industry:
  • Running low on some weapon systems; defense ramp-up akin to WWII has not happened.
  • “Ukraine is just not that existential to the West. Independence of Ukraine may be existential, but that was already gained by March 2022.” – Marko Papic [09:07]
  • European defense spending will rise, but European defense firms—not American—stand to benefit. [12:42]
• Investment Angle:
  • Long-term bullish on European defense stocks.
  • Shift away from US-made arms toward EU protectionism.

Notable Quote:
“Politicians and policymakers...they don't get to pursue their preferences. The reality on the ground is there are severe material constraints… What matters for us as investors is those constraints.” — Marko Papic [05:22]

2. Israel-Gaza: Material Constraints, Public Opinion, and Regional Stability

• [18:18] Hostilities unlikely to last a year; Israel faces time pressure due to shifting Western public opinion.
• Hamas’s Strategy:
  • “I think Hamas has been wildly successful…Israel is literally following their enemy’s playbook. The idea here is to showcase to the world that Israel is somehow doing something wrong other than defending itself.” — Marko Papic [18:45]
  • IDF must conclude high-intensity operations sooner than planned; expects major de-escalation by mid-January [21:31]
• Fate of Gazans & Regional Reactions:
  • Marko bluntly admits humanitarian concerns are not his analytical focus.
  • Predicts little substantive reaction by Arab governments or markets unless significant unrest spills into Egypt [26:37].
  • Iran, despite tough rhetoric, is constrained (US deterrence, value of Saudi detente) and will not escalate. [29:43], [31:15], [34:09]

Notable Quotes:
“Pretty much none of the big players in the Middle East, or any players for that matter, really care what happens to the Palestinians.” — Marko Papic [24:21]
“The difference between the United States and Israel…is that the US was and is a global hegemon. It gets to make strategic mistakes. Small countries don’t.” — Marko Papic [21:31]

3. Venezuela-Guyana: Classic Land Grab, Minimal Market Impact

• [36:55] Venezuela is using a historical border claim as a pretext for a land grab due to Guyana’s newfound oil wealth.
• Market Impact:
  • No immediate oil supply disruption; Guyana is not yet a major global player.
  • High chance Brazil intervenes if needed; Venezuela’s move is more about domestic politics than actual annexation. [37:14]
  • Suggests a broader theme: Expect more small, regional conflicts as the world shifts to multipolarity.

Notable Quote:
“We’re in a world where the frequency of geopolitical conflict is very high…when nobody's really in charge, a country like Venezuela decides to invade its neighbor.” — Marko Papic [37:14]

4. China-Taiwan: Risk Management, Supply Chains, and US Dollar Dependency

• [40:36] Will China invade? Not in the short-term. January 2024 elections are pivotal, but even with a pro-sovereignty government, China is currently more focused on internal economic woes.
• Taiwan’s Election:
  • DPP likely wins with a minority mandate (~35%) due to the vote split.
  • No mandate for independence—reduces immediate risk [40:47].
• China’s Calculus:
  • Focused on economic stability; wants a détente with the US for now.
  • “China is so focused on internal politics…they don’t want to rattle the cage with the US.” [40:47]
• Supply Chain Vulnerability:
  • The US is slow to reduce reliance on China/Taiwan for critical drugs and semiconductors.
  • Efforts to onshore chip production (e.g., TSMC Arizona plant) are “a disaster.”
  • “It just takes a long time.” [44:52]
• Global Interdependence:
  • China is as dependent on Western demand as the West is on Chinese supply.
  • China’s in a “balance sheet recession” and can’t afford to retaliate strongly to US measures [44:52].

Notable Quote:
“We have empirical evidence that I’m right. China has hesitated to retaliate… because they're afraid it will impact their economy far more than it impacts the US or Europe.” — Marko Papic [44:52]

5. US Elections 2024: Extreme Uncertainty, Fed Policy, and Market Strategy

• [49:02] Marko sees the US election as “the biggest macro event of 2024.”
• Fragmented Landscape:
  • Multiple viable third-party candidates could result in a President elected with just 35% of the vote [50:09].
  • Potential for no candidate to reach 270 electoral votes, sending decision to the House. [50:09]
• Fed’s Role:
  • “It’s about to get political because I do believe that the Fed is part of that establishment elite consensus…and will do anything but cut rates in 2024, no matter what happens in the economy.”
  • Fed likely to cut rates much further than currently priced – 300-400 bps if recession appears, to blunt political fallout. [50:09]
• Investment Playbook:
  • Gold and commodities as Fed dovishness weakens the dollar [53:59]
  • Bearish on US equities in Q1 if recession; bullish by year-end as Fed stimulus returns (targets S&P > 5,000). [54:13]
  • Emerging markets and commodities benefit from weak dollar, dovish Fed [54:13]
  • “Emerging markets are like a coiled spring.” [54:13]
• Long-Term Political Realignment:
  • Predicts a new major party or realignment later this decade [57:38]
  • “Ultimately, in the long term, that will be good for the US. The median American is a centrist and wants solutions.” [57:38]

Notable Quotes & Memorable Moments

• On the nature of geopolitics:
  “Preferences of policymakers are not diagnostic...What matters are material constraints that constrain policymakers from getting their way.” — Marko Papic [05:22]

• On Russia-Ukraine:
  “The West has already won. Ukraine is independent. Moscow doesn't control Kyiv. To continue the conflict for territorial integrity is a luxury.” — Marko Papic [09:07]

• On Israel-Gaza:
  “Big countries get to make mistakes, small countries don’t. They have to be much more cognizant of their material constraints.” — Marko Papic [21:31]

• On humanitarian concerns:
  “I only focus on geopolitics from a market perspective, so rarely will I really spend any time thinking about purely human normative, moral issues.” — Marko Papic [24:21]

• On US elections and markets:
  “It’s about to get political because I do believe that the Fed is part of that establishment elite consensus…will do anything but cut rates in 2024.” — Marko Papic [50:09]

• On the global system:
  “We’re now in a completely different world, which I call a multipolar global environment. And in that environment, when nobody’s really in charge, a country like Venezuela decides to invade its neighbor.” — Marko Papic [37:14]

Timestamps: Key Segments

• [05:22] Russia-Ukraine: Material constraints & Western fatigue
• [12:42] Investment strategies: European vs US defense stocks
• [18:18] Israel-Gaza: Pressure, public opinion, and timeline
• [24:21] Humanitarian impacts: Market (ir)relevance
• [31:15] Regional conflict escalation: Why Iran is restrained
• [36:55] Venezuela-Guyana: Local conflict, global irrelevance
• [40:47] China-Taiwan: Near-term invasion risk and interdependence
• [44:52] Supply chains: Relocation difficulties and mutual dependence
• [49:02] US elections: Political fragmentation, Fed response, and investment themes
• [54:13] Market strategy: S&P 500, gold, EM, commodities outlook
• [57:38] Structural change: Potential for long-term US party realignment

Tone & Approach

Marko Papic maintains an intentionally clinical, market-first perspective:
"I don’t allow my judgment to be clouded by consideration of other aspects of the underlying conflicts…"

Erik Townsend occasionally plays devil’s advocate, pushing on humanitarian angles, but gives Marko space to stick to his analytical discipline.

Summary of Investment Implications

• European Defense Stocks: Long-term bullish as EU ramps military spending and pursues protectionism.
• US Markets: Short-term volatility around US election and possible shallow recession (Q1-Q2 2024). Expect Fed to aggressively cut, aiding equities, gold, EM, and commodities by year-end.
• Commodities & Gold: Bullish on lenient-monetary policy expectations.
• EM Assets: Poised for outperformance on a weak dollar.
• China Risks: Downplayed in short-term; more focus on mutual economic dependencies than invasion risk.
• Geopolitical Shock Frequency: Expect more local conflicts; major ones (Israel, Ukraine, Taiwan) only destabilize markets if constraints break down.

For listeners/investors:
Marko Papic's framework demands moving beyond headlines to quantify the real constraints on policymakers, ignore “cocktail party gossip,” and focus on what drives action or inaction. For markets, it means fading headline-driven tail risks unless material constraints truly change.

Further Resources

• Clocktower Group: clocktowergroup.com
• Marko Papic (Twitter): @markopapic
• MacroVoices: macrovoices.com

For more charts, technical analysis, and actionable research discussed in the post-game segment, consult the Macro Voices Chart Deck in the episode’s Research Roundup.