MacroVoices #405 Marko Papic: Investment Implications of Geopolitics Around The Globe

Summary

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

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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.

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Key Discussion Points & Insights

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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]

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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]

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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]

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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]

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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]

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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]

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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

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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.

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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.

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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.

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Further Resources

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

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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.

Transcript

[A]

Foreign.

[B]

This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics. Telling it like it is bullish or bearish. No holds barred. Now here are your hosts Eric Townsend and Patrick Ceresn.

[A]

Macro voices Episode 405 was produced on December 7th, 2023. I'm Eric Townsend. Clock Tower Group Chief Strategist Marko Papich will join me as this week's feature interview guest. We'll discuss all of the geopolitical developments around the world and their impacts on financial markets.

[C]

And I'm Patrick Ceresna with the Macro Scoreboard Week over Week as of the close of Wednesday December 6, 2023, the S&P 500 December futures 7 basis points closing at 4556. The market has now been consolidating for two weeks and now holding in anticipation of the jobs numbers and fomc. We'll take a closer look at that chart and the key technical levels to watch in the post game segment. Also note that the contract roll from the December contract to March occurs this coming week with about 50 points of contango between them. The U.S. dollar index up 127 basis points to 104.15 retracing its November decline. The UTI crude oil contract down 1089 basis points to 6938 now just a stone throw away from retesting the year lows. We'll take a look at that chart in the post game and Eric will have the EIA inventory data. The January R Bob gasoline down 978 basis points trading at 203 a gallon. February gold contract down 97 basis points to 2047 on an intraday basis broke to an all time new high but failed to hold the breakout copper down 236 basis points to 373, rejecting some resistance levels from earlier this year and uranium up 87 basis points to 8160 continuing to print new year highs as the Trend continues. The US 10 year treasury yield down 15 basis points trading at 410. The drop in rates has been relentless in the last five weeks. Key news to watch this week is Friday's jobs numbers. Next week we have the CPI and CPI inflation numbers, the FOMC and ECB monetary policy statements and a number of global PMIs. This week's feature interview guest is Clock Tower Group Chief Strategist Marco Papik. Eric, why did we get Marco on this guest this week.

[A]

Well, Patrick, given all the turmoil around the world, we wanted to get a geopolitics expert on the show to talk about all the ongoing conflicts and what they mean for financial markets. Marco is highly respected, not just as a geopolitical analyst, but for his focus on investment implications of geopolitical events. After we finished recording this interview, I spoke with Marco off the air and expressed some concern that some of his comments during this interview may come across to some of our listeners as cold hearted or insensitive to the hardship that so many people are experiencing due to these ongoing geopolitical conflicts. Marco asked me to add an explanation before the interview begins that he focuses on the investment implications of geopolitics and makes an intentional policy of not concerning himself with humanitarian factors because he feels an obligation to his clients to analyze geopolitics objectively to understand their investment implications and doesn't allow his judgment to be clouded by consideration of other aspects of the underlying conflicts. Marco acknowledged that some of his comments will come across as cold hearted and ask me to explain why before the interview begins. I'd also like to add that I don't personally agree with some of Marco's views expressed in this interview, but as always, my policy is to allow our guests to share their views candidly without argument or debate from me. Marco's views and opinions are his own and do not reflect those of myself or the Macro Voices podcast.

[C]

Eric's interview with Marco Papic is coming up as Macro Voices continues right here@macro voices.com.

[B]

And now with this week's special guest, here's your host, Eric Townsend.

[A]

Joining me now is Marko Popich, partner and chief strategist for Clock Tower Group. Marco is a geopolitical expert and that's what we're going to focus on. Marco, obviously we used to say, well the everything that's on everybody's mind is Russia, Ukraine. Almost seems like it's been forgotten in the wake of Israel Gaza. But let's start with Russia Ukraine. Is the intention of the US and the EU to kind of push this under the rug and tell Zelenskyy it's time to negotiate? Or is that an incorrect message?

[D]

You know, that's such a great question. And first of all, I just want to thank you for having me on the show. It's a great question because it gets right to the heart of what I do for a living and the framework that I employ to sort of generate geopolitical alpha for investors. No, it's not in their Intention, it is not. It's not their preference. I think the preference of the European Union, various member states in the United States of America, is to continue to put against Russian attempts to expand their sphere of influence. But preferences of policymakers are not diagnostic. They're not relevant for investors, they're not relevant for us as analysts. What matters are material constraints that constrain policymakers from getting their way, from getting their preferences. And this is why I think that the entire industry of geopolitical research, of geopolitical analysis, that tries to convince its clients, many of them in the asset management industry, that getting closer to policymakers is the way to generate alpha. In other words, I will tell you what I heard at a cocktail party in Washington, D.C. and then you'll make some money off of it. That entire business model, I think, doesn't really make sense because politicians and policymakers, they don't get what they want, they don't get to pursue their preferences. And the reality on the ground is that there are severe material constraints from continuing this conflict on both sides. By the way, we can talk about what the constraints are on Russia's side being pretty incompetent at war might be an obvious one, but from the Western perspective, I mean, what you're seeing is a real turn in terms of political appetite by the median voter in both Europe and the US to continue the endless conflict in Ukraine. And I think that that's a real big risk to the policymakers in Europe and the US in perpetually continuing to support Ukraine in its attempts to recover the lost territories to Russia. And so, yeah, I would say that we're at the end of the line. And I think that over the next 12 to 18 months, the pressure on Kiev to negotiate some sort of a ceasefire is going to increase, not a peace deal. I just want to mention that before you follow up, because I can probably guessed that you're going to ask me that. I don't think that anyone will ever be able to convince Ukrainians to sue for peace and to give up these territories. But there are ways to avoid having to do that. We can agree to disagree for a very long time in terms of territorial arrangements, and that has been the case in many conflicts around the world that did end.

[A]

Well, let's come back to what you said about material constraints, because the political sentiment until recently was, look, until the end, no matter what it takes, keep on sending weapons support equipment and so forth to Ukraine. Now, one side of this is that that political sentiment or the public support for that is waning. But it seems to me there's another side of that, which is, although you can print more dollars out of thin air, you can't print tanks and missiles and so forth. They have to be manufactured. And obviously the defense industry is going to benefit from having to replace the ordinance and so forth that have already been used up. But. But what about the ability of continuing to support this war? Do we have enough stockpile of weapons and bombs and missiles and everything to keep doing this? Or are we at a point where we're already risking the US And European national security by using up so many of our own weapons that we don't have enough to defend ourselves if something else happened?

[D]

Wow. A lot of great points that you brought up. That is indeed a material constraint. Now, first of all, I don't think you're risking US Security, you know, unless Canada and Mexico decide to engage in a land war. You know, the US Is probably defending its security by engaging a strategic rival like Russia in a land war far, far away. So as far as I'm concerned, it would probably make sense to send 100% of stockpiles over to Ukraine, and the US will be fine. The issue is that, you know, you do need to engage the defense industry and you need to incentivize them to produce more, because we're already running out of not all weapon systems, but some. Certainly we are beginning to run out. And so the issue is, why hasn't that been done? And the answer is that, and this is not a politically correct answer, and I'm going to anger a lot of people by saying it, but the truth of the matter is that Ukraine is just not that existential to the West. You know, it just isn't. And I don't say that because of what politicians are saying in the press, but because of their behavior. Clearly, Ukraine is not existential to the west, because clearly the defense industries of the west have not been ramped up the way that was done, for example, in World War I and World War II. And let me maybe make it more specific, independence of Ukraine may be existential to the west, but that was already gained. In other words, that was already accomplished in, Effectively, March of 2022. Within a month of this conflict, the Russians effectively acknowledged that they lost their initial foray into northern Ukraine and they withdrew on March 23rd. They basically, a month after the war started, they. They said, oh, we accomplished our first phase of the war. No, you didn't. You. You're just saying you lost and you're trying to put a face on it so basically within a month of this war, what was existential to the west was accomplished, which is like we will have an independent Ukraine that will not be controlled by Russia. There will not be some puppet government. And so now the conflict is over something else. It's over the oblasts in the east which are populated mainly by Russian speakers. Donetsk, Luhansk, Kherson and Zaporizhzhia. And of course Crimea. And Kyiv's control over those oblasts, over those states is just not that existential to really anyone other than Ukraine. It's optional, it's a luxury. And that's why you're not seeing the ramping up of defense industry to prolong this war to let Ukraine win, you know, quote, unquote. Because as far as the west is concerned, and by West, I mean like Italy, Germany, France, the United States, Canada, the West has already won. Ukraine is independent. Moscow doesn't control Kiev. And so now it's much more of a luxury to continue the conflict for territorial integrity of Ukraine.

[A]

So what does this mean for US Defense industries? Obviously there's a lot that's already priced in. It's a little bit too late to go buy defense stocks because you heard about a war in Ukraine. What should we expect next and what are the investable, actionable strategies that we can pull away from this Russia, Ukraine situation?

[D]

Well, at the end of last year, I told our clients that they should definitely invest for the long term in European defense industry. I think that's the one that's going to ramp up because I think you will see continued expansion of European defense budgets. I think Ukraine was a watershed moment from that perspective. And some of the biggest gains in terms of market performance were in Europe and their defense companies. And so I think that. Is that fully priced in? Not necessarily. I think there's still a lot of doubt whether European countries will be able to boost their defense spending as a percent of gdp. Actually think it will happen. And I think the Europeans will be quite protectionist about how they do that. So this idea that they will continue to do America's bidding as they did during the Cold War by buying American defense systems, I mean, that's just not going to happen. And so I think that if you're looking for an opportunity that some sort of long term geopolitical beta, I think that that would be the play here. Not American companies, but European ones.

[A]

And where do you see this conflict in Ukraine going from a resolution standpoint? We've heard initially a bunch of reports that, okay, it's time for the US and EU to kind of push Zelensky to the negotiating table, make a deal, come up with some kind of truce agreement, put this thing behind us. But then just in the last week or so, I've seen a couple of statements out of US policymakers saying, no, that's not our position, we are staying with us with this, it's going to continue. But as I go back to your material constraint thing, I don't see any political will to send US soldiers, put US boots on the ground and put American lives at risk there. I hate to say this so bluntly, but it seems to me that Ukraine has already almost run out of fighting age men in their own population. Unless someone else is willing to send boots on the ground, I don't understand how this war could continue any further than it already has. Am I missing something there?

[D]

I think in the U.S. look, the big story here, and I know we're going to cover this today, is the US election. So you've got basically 11 months left to supply Ukraine with enough material because there's a pretty high probability that there is a 180 degree turn in US policy after November 2024. In my view, Donald Trump is the frontrunner in this election and his probability of victory is probably underestimated at the current juncture for a number of different reasons, including the strength of the US economy at this moment. And so if you're a Western planner, you cannot ignore that. You cannot ignore American election. And so you have these 12 months and I think that's what you're seeing. The, the Biden administration is basically saying like, look, we need to provision Ukraine with funding in particular. And the unsaid part of that statement is because there may not be any more funding after November 2024. And so, and by the way, it's not just the US election. You know, you had a Polish election this year and Poland is at the front line of west, sort of of the French challenge to Russia. Polish election Ahead of the election, the incumbent party abrogated a trade deal with Ukraine to satisfy its farmers. So if Poland is willing to play politics instead of geopolitics, if Poland is willing to take short term political goals over strategic goals, then why would you expect any other country in the world to take the big picture perspective here? It's clear that every single Western country is starting to lose the sort of enthusiasm it had in February of 2022. And again, that's not because we're myopic or because we're short sighted. It's because Donetsk and Luhansk just do not matter for big picture geopolitics. And again, it's unfortunate to say that if you're Ukrainian, and I say that with caution and humility. But the reality is that the west already won. It weakened Russia, it embroiled it in a forever war where they're going to have to staff, you know, a million men with weapons on this front line for a very long time. That's going to continue to drain Russia's budget. And most importantly, Kiev is held by a Western ally. It's free, it controls vast majority of Ukraine. As far as the west is concerned, these are ancillary goals. They're luxury. And so I think that you will continue to see erosion of support. Dutch election is another one. You're starting to hear French President Macron make statements about this as well that are, you know, talking about the end game. So I think the writing is on the wall. And by the way, as market is concerned, as far as markets are concerned, concerned, this conflict has not really mattered, I would argue, since September of 2022 for, you know, forget defense stocks for a second. Oil prices, commodity prices, wheat prices, European currency, European energy costs, European industrials relative to American industrials. All of those trades are gone because the market decided in September of 2022 that this is a frozen conflict. And quite frankly, this time the market got it right.

[A]

Let's move on to the Israel Gaza conflict, which obviously is the hot one. Now where is this headed? IDF has said as they have re escalated after the ceasefire ended or a ceasefire broke down is perhaps more accurate that this will probably take at least a year. That's probably more than some people were bargaining on. Do you agree with that? Where is it headed and who's likely to get involved?

[D]

Well, I don't think it will take a year because I don't think Israel has a year. And I say that because from my reading of Israel's history, what gives Israel its unique military technological advantage over its rivals and neighbors in the region is its status as a Western country, you know, based on a form of Western small L liberalism. I don't mean in the American context like progressive liberalism. I mean, you know, nation state building process that took part in the 19th and 20th century. And you have a state that's effectively recognized by everybody in the west as carrying on these Western European liberal ideals. And this is really important for Israel because it depends on this technological in military advantage because of its connectivity with the rest of the world. And so when you see a turn in public Opinion which is documented and empirical, and it's not just college campuses. It's significant. When you see a turn in public opinion against Israel, I think that is a material constraint. I think that no Israeli government can ignore that turn in public opinion. And quite frankly, I think this is exactly what Hamas wanted. I think Hamas has been wildly successful and not because of the casualties on October 7, but because of the subsequent Israeli retaliation. This is precisely what Hamas wanted. Israel is literally following their enemy's playbook, because the idea here is to showcase to the world that Israel is somehow doing something wrong other than defending itself. And so I think that IDF doesn't have a year, I think they have less than a year, and they're going to have to wrap up this conflict fairly quickly or risk turning global public opinion further against Israel, which is an existential risk.

[A]

I just want to make sure that I understood what you just said. It sounded like you're saying that Hamas wanted to see Israel essentially disgrace itself in the eyes of the global community by overreacting or by initiating a campaign that would be perceived as genocidal by the rest of the world, and that they were set up for that to happen by Hamas essentially putting itself at risk, like a suicide bomber that's sacrificing itself in order to cause Israel to be disgraced on the public stage in the eyes of the rest of the world. Is that that what you meant?

[D]

Yeah, and just to be clear, I'm not saying that this is an objective reality. I think that Israel has a great case to argue that it is defending itself and that the, the context of Gaza, which is a highly urban, high density population area, makes it very difficult for them to kind of do what America did in Afghanistan, you know, or Iraq. So the objective reality is something else. But certainly I think this was Hamas's point. This is what they wanted, what they got, exactly what they wanted. And by the way, this is exactly the playbook that Al Qaeda followed against the us. I mean, you can literally read Osama bin Laden's speeches where he literally said we attacked them. So they would come here, bring their war to us, so that they would put American troops on Muslim lands. That's what we want. We want them here. And America did the same thing. America retaliated after 9, 11. The difference between the United States and Israel, however, and this is very important to understand, is that the US was and is in many ways a global hegemon. It gets to make strategic mistakes. It gets to make them because it has preponderance of power. And because those mistakes are less relevant to the United States, which has its own industrial capacity, its own technological superiority, Israel doesn't. And this is the tragedy of great power politics. In a way, this is the tragedy of geopolitics. Big countries get to make mistakes, small countries don't. They have to be much more cognizant of their material constraints. And so I think that Israel will have to adjust that forecast of the idf. I would argue that by mid January, this conflict, Israeli operations in Gaza are going to have a much lower intensity. I don't doubt that they're going to continue to occupy parts of Gaza for a year or maybe longer. So maybe that that statement by the IDF will, you know, like, technically prove to be correct. But I think from the perspective of the global public opinion, I think that by mid January, this will look a lot more different than it looks now. And I'm willing to come back on your show and be proven wrong. Obviously.

[A]

What do you think the outcome will be for the people who reside in Gaza? Obviously, they've been displaced from north Gaza into South Gaza. Now they're being told to get out of south Gaza. They can't leave Gaza completely. There's been some talk of trying to move them out to Egypt, although it sounds like the Egyptians are not exactly rolling out the welcome mat for that. What happens to the people, the civilian people of Gaza as this conflict eventually reaches some kind of conclusion?

[D]

I have no idea. And I have no idea because I've spent really no time thinking about your question. And that's because there's one truth about the Middle east, and that's that pretty much none of the big players in the Middle east, or any players for that matter, really care what happens to the Palestinians. That doesn't mean that I don't care. I'm just saying that it is pretty clear to me from the reading of history since 1947 that nobody actually cares what happens to the Palestinians. Jordan might be the one country that stands against that, but Arab nations that surround Israel have never really taken any real serious effort to defend the interests of the Palestinians. And I don't think that will change. And so I don't really know what happens to them, but I also don't think that it will be relevant for the broader markets. And just as a reminder to the listeners who are going like, whoa, this guy is extremely callous, I only focus on geopolitics from an market perspective, so rarely will I really spend any time thinking about purely geopolitical, political, or for that matter, Human normative, moral issues and so on that question I just don't have an answer.

[A]

Well, I understand your point that many of the governments in the region may not care about the Palestinians but I think that the message is overwhelmingly clear that the rest of the world in terms of the general population is having a stronger reaction than almost anybody expected saying wait a minute, what about the Palestinians? They care very much about whether there is a genocide risk and if the Palestinian people are going to be sacrificed completely. It seems to me that that is an unexpected event that that some of the governments which as you say are very callous and don't care about the Palestinians are going to have to cope with and that they were maybe not planning on. Are there investable implications of that?

[D]

I don't think so. But what I would say is that yeah, you're right, you're correct and obviously the reaction of the west in particular is this big material constraint to Israel. So I guess you're right. I mean it does matter. I think it's going to be very difficult for Israel to for example forcibly expel Palestinians out of Gaza. But I also, I really disagree with the notion that that was ever a plan. I'm sure you can, you know, we can all find somebody in Israel or Israel's government or security services saying something like that. But that's just without Egypt's acquiescence that would have been impossible to do anyways. I think that pushing these people out of Gaza was never really the plan. But at the same time, I mean it does look objectively like retaliation. Heavy handed retaliation for October 7th event was part of the plan. And that in of itself I think is running afoul of global opinion now in terms of the region. I'll give you a scenario that will sort of prove me wrong, you know, and would create a sustainable risk in the region from this event. And that would be if population in one of the neighboring countries really started to become agitated by the events. And obviously the only country I can think of as being really relevant from that perspective is Egypt. If you had some sort of a popular unrest in Egypt against the current government that demanded a much more forceful response to Israel's actions. Now that's something we'll be able to see, will be able to sort of monitor over a long period of time. It's not happening right now but that is a potential way in which popular reaction in the region to the events could become investment relevant. Iran, Iran has been very careful in how it responds to the events in Gaza. I think for probably two reasons. One, it's been warned by the US that they will retaliate against Iranian involvement. And there's historical precedent for Iran, such as the 1988 Operation Praying Mattis. It learned what American retaliation looks like. It does not want to get Americans involved. And two, Iran's Saudi detente in 2022 actually gave Iran some real strategic wins in Iraq and in Yemen. And so Iran does not want to retaliate to sort of West's or Israel's behavior by impacting the global source of oil, which is Saudi Arabia. And so you've seen Iran tell its various proxies, including Houthis, in Yemen, not to target Saudi facilities as retaliation for west support of Israel. And I think that's an important point that nobody really mentions that Saudis and Iranians solved a lot of their problems back in 2022. The only thing Americans basically kind of know about that deal is that it was, quote, unquote, negotiated by China. But the much bigger significance is that that detente is actually holding in this stressful environment.

[A]

Let's talk a little more about the risk of this Israel, Gaza conflict escalating to a regional war, which was the great concern so many people had initially. It seems like other than Iran, the other Arab states really don't want to see that happen. Iran has been the standout that's been boldest in its statements. And I guess I have to go back to what you said earlier about Russia, Ukraine. I think you're right that a lot of the real intention of the west was not so much to help Ukraine as was advertised, but rather to damage Russia militarily because that was their strategic objective. It seems to me that the US Also has a strategic objective, potentially. I don't know, but it seems like they may have an objective to damage Iran militarily. And I noticed something like just this past weekend, the missile attacks on some merchant vessels operating in the Red Sea. You know, what really happened, as far as I can tell, is there were some missile attacks on some civilian merchant vessels, and a US Destroyer responded to distress calls from those vessels in order to see what was happening. Yet the headline came out as Houthis Attack US Warship with Drones, which I'm not sure that was quite accurate. It makes me wonder if the agenda that in the Russia, Ukraine conflict was to strategically damage Russia's military. If the US Has a strategic objective to damage Iran's military capability, maybe later.

[D]

Not ahead of the election. You know, I think that the White House is extremely focused on not causing oil prices to go higher. So I will be very surprised if there was an intention with 12 months to go to do that. So I would say no, I don't think that that's what the intention is. But I will say this regional war thesis was from October 7 onwards like the number one forecast by a lot of geopolitical forecasters. A lot of them assigned pretty high probability to that happening. And I do think that there is an option where it happens. I would think that Israel is more likely to make this a regional war than Iran by, for example, pursuing, you know, some strategy to create a standoff distance between themselves and Hezbollah and Iranian proxies in Syria or Lebanon. So I can see an Israeli military incursion into those two as an example of how this widens. But Iran really is constrained and I want to really emphasize that, as I said earlier, they don't want us to be involved. U.S. involvement would, would significantly impair Iranian capabilities. U.S. has overwhelming military superiority over Iran. And more importantly, again, that Iran's Saudi Arabia detente really limits what Iran can do. In the past they've expressed their anger at the west by allowing their proxies or they themselves targeting Saudi energy facilities. That was a way to kind of rattle the cage of the West. Hey, we can increase oil prices. Iran can't really do that anymore because they got what they wanted from their deal with Saudi Arabia in 2022. And so what you're actually seeing from Iran is just a lot of rhetoric, a lot of like, you know, strong words but very little actual things.

[A]

Well, let's go a little deeper on that. Maybe I'm misinterpreting this, but it seems to me that the rhetoric has been incredibly strong from Iran. What they've said is we promise you United States that you're going to pay a very heavy price for having enabled what Israel is doing. We're going to get you for this, essentially was the subtext. And the reason that that concerns me quite a lot is it seems to me if you're sitting in Iran and you've literally got half of the US Navy parked in your front yard with all of its weapons pointed at you, you're not going to take immediate action against the U.S. navy. That would be obviously suicidal. What you might do though is take advantage of a wide open US southern border and move your terrorists into the US and start planning the next 911 sized terror event on US soil. It seems to me if your rhetoric is, you just wait, we're going to get even with you, you're going to pay a very heavy price for this. That to me logically would be what they might be planning. Maybe I'm just paranoid. Is that something we should be concerned about?

[D]

I'm going to fade that risk. I think Iran is completely and utterly just talking a lot of hot air and again willing to come back here six months of the show and eat a lot of crow. But let me give you a little data point here. Before COVID became a thing, something else happened. In early 2020, the United States of America assassinated General Soleimani, who was the head of the Al Quds force of the irgc. He was also one of the most senior basically people in all of Iran, very popular. He was a hero of the country, rumored to be the next presidential candidate. By the way, this is like Petraeus level notoriety. And the US killed him while he was on a diplomatic mission to see Iraqi leadership. Iraq of course being a nominal ally of the US he was just killed in Iraq by the United States. So this is a really serious event. Early 2020, I believe it was January 2020 this happened. What did Iran do as retaliation? So again, this isn't something happening in Gaza to Palestinian people who are not Iranians, you know, this is the United States of America killing one of the most prominent members of Iranian leadership. Iran basically did nothing. They did rocket attacks against two military bases of the United States. But they were so pre planned and basically telegraphed to the US that there were just some injuries, light injuries, nobody died. I suspect, I have no evidence that they called the US and told them precisely when they would hit and which part of the base would be hit. So what I'm trying to say here is, look, we can infer from Iranian behavior that they are clearly very cautious when it comes to rattling America's cage. And so I would say that most of their rhetoric is intended for domestic audience and that they actually have no intention of doing anything of significant measures. Because again, I go back to 1988 for listeners read up about it, Google it. Operation Praying Mantis. Iran was very, very frustrated with US support of Iraq at the the time and they mined the Persian Gulf. One of those mines impacted a naval vessel. The United States in 48 hours effectively sunk the entire Iranian navy. You know, and I don't think Iranians have forgotten that WRATH of the U.S. the U.S. is not going to put boots on the ground in Iran. It's not going to lose men and women in fighting Iran. The US will bomb Iran from 30,000ft and walk away. And that's not something Iran wants to experience.

[A]

Let's move on to the next geopolitical risk event, which is Venezuela and Guyana. Venezuela has threatened to annex the oil rich regions of Guyana. This is a conflict that some of our listeners may not even be aware of. So why don't we start with what's going on there, what's happening and why is it happening?

[D]

Oh man, you're, you know, you're, you're really pushing me here. This is like carbon San Diego all around the world. Look, what's happening here is something really interesting. I mean, Guyana basically is a recent entry into the global oil production club, you know, and they, they've increased their oil production from like 70,000 barrels to 200 in 12 months, in 24 months. And they're looking at potentially being in the million barrel clop very, very quickly. And they're right next door to Venezuela, which I'm sure most of your listeners know is effectively an impoverished country, you know, where the government has all intensive purposes destroyed the economy and suddenly the next door neighbor suddenly finds all this oil. This is just a land grab by Venezuela. It's claiming, it's claiming that the maps that created Guyana are basically wrong and have been wrong throughout history. It's claiming 2/3 of Guyana territory, by the way. It's 2/3, it's not like a small region. And they just had a referendum in Venezuela to kind of like rubber stamp a military operation against their neighbor. What does this mean for all of us? I mean, again, I look at geopolitics from an investor perspective. So obviously the big picture here is that we're going to have a first serious military conflict in Latin America, like since the, the war between Paraguay, Brazil and Argentina in like the 19th century, I don't know. But it's not going to have any impact on global markets. That's what I would say. And the reason for that is that Guyana just doesn't produce those millions yet. They produce about 200,000 barrels. So this isn't going to really impact global supply and demand of oil, number one. Number two, Venezuela itself, its own production has been significantly impaired over the years due to their domestic economic mismanagement. And number three, I think this is a real desperate attempt by the Maduro regime to stay in power because they're wildly unpopular. And so yeah, there could be a conflict in Latin America. Brazil could get involved on behalf of Guyana to prevent this from happening. I think if there is a war between Brazil and Venezuela, Venezuela will lose very quickly and that's a high risk for Maduro in taking this action because obviously it could backfire domestically. What should your listeners take from this, from a big picture perspective, though? The big picture perspective here is that we're in a world where the frequency of geopolitical conflict is very high and we're going to stay in that world. There's a lot of this kind of like revanchism happening, settling of scores of these conflicts that were frozen for hundreds of years, either because of the Cold War set up between Soviet union and the US or because of American hegemony where the US was basically in charge from 1985 to sometime in the 2010s. 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. And I think that we will start seeing more and more of these events globally.

[A]

The next big one is one that hasn't happened yet, but a lot of people are worried about, which is the risk of China invading Taiwan. How big of a risk is that? And what would the market implications be?

[D]

So that's the one that I definitely would not fade. I mean, your listeners at this point are probably saying like, wow, this guy's a one trick pony. Every time something happens in the world, he just fades. The risks. Well, you know, if China invades Taiwan, we've got a problem. Markets would definitely tank. Global markets S&P 500 would like be impacted by that. We do have a very important event. The January 13th Taiwanese presidential election. Very interesting election. Similar to the US there's multiple candidates. The Pro Sovereignty Party, the DPP, Democratic Progressive Party. Their candidate William Lai is likely going to win the election. I hesitate to call it a pro independence party because it's not fair. DPP will not proclaim independence, but they are pro sovereignty from China. So they are very closely alive with the US Their current president, President Tsai has, you know, obviously been very close to the Biden and the Trump administrations. If they continue to be in power, that will definitely irk Beijing. Interestingly though, William Lai is polling terribly. He's polling in the 30s. So why is he going to win? Well, because the, the more sort of like conciliatory vote is split between two different parties. Three candidates in fact. The two main ones are kmt, the Kwamedong and tpp, which is the Taiwan's People's Party, a new party. And so the reason I mentioned this is because it's important to understand that if the current incumbent party stays in power, they don't have a popular mandate for independence. They don't have a popular mandate for even continuing the level of close relations with the US they had over the last administration because they will only have a mandate support of about 35% of the public. So that's the first thing I want to mention. The second thing I want to mention is that President Xi visiting the US and meeting Biden in San Francisco was a big concession by Beijing. It seems to me that China is so focused on internal politics and internal economic situation, which is deteriorating, that they don't want to rattle the cage with the US they want a temporary detente, a pause, if they will, if you will. And so I think that the tensions, at least in the immediate term, let's say over the next 12 to 36 months, are actually going to be lowered over Taiwan. I think that strategic rivalry between China US still remains the most important geopolitical question over the next decade. But China is basically saying to the U.S. listen, we're going to take our toys and go home. We don't want to play this game right now.

[A]

Let's go back to the material impacts and where the risk factors are. Because something I just do not understand about this China Taiwan situation, if you start the first part of this story, if you were reading it in a history book, would go something like this. There was a pandemic in 2020, and in the course of navigating that pandemic, the whole world realized something really scary and interesting, which is that we are completely and totally dependent on China for almost all of our prescription drug manufacturing. And we're completely and totally dependent, not just on Taiwan, but on one specific company in Taiwan for the lion's share of the semiconductor manufacturing, which is the absolutely essential ingredient to almost all electronics, computers, anything high tech, it's almost impossible to build it without semiconductors that come from Taiwan. So when we noticed all of these things, if I was writing the history book chapter, I would have to believe the next paragraph goes, we recognize these risks and the US Government immediately took action to mitigate them by taking the following actions. Except there haven't been any actions. What the heck is going on here?

[D]

It's really tough, Eric. You know, I mean, it's very, very difficult. It's not like pressing a button. And we suddenly have alternatives to a lot of these supply chain issues you're pointing out. I mean, let's take the, the chip building point. You can go to the US Department of Labor website and just take a look at what's happened to our supply of highly skilled manufacturing labor in the semiconductor space. It's that specific. There is an actual data point, and it's collapsed since the 90s. So the TSMC plant in Arizona as an example, which both the Trump and the Biden administration have touted as a solution to a lot of these problems. Let's get TSMC to build a plant in the United States. I mean, it's, it's a disaster. Books are going to be written five years from now about what an absolute boondoggle that that plant is going to be. You know, so, and there's a lot of reasons for that. It's not just that we don't have supply of labor in the United States to actually build these things. It's also that there's no wider supply chain. They're going to be wildly expensive. We apparently put it in Arizona. I don't know why we put in Arizona. I think we put in Arizona because it's a purple state and somebody wants to cut a ribbon of this factory ahead of an election. Because I can tell you this, that highly sophisticated chip that's produced in Arizona is going to have to be put on the bed of a truck, sent to Long Beach, California and then put on a ship so it can go back to Taiwan where it can be integrated into a piece of electronics. So I think the US Government is trying to modify these supply chains. It just takes a long time. Now the good news though is that here in the US everyone's hysterical about the US addiction to China from a supply chain perspective. But nobody's talking about how absolutely addicted China is to global demand. So while they have the supply chain, actual physical components of the supply chain, we have the demand. And see, China thought that they would have the demand. They thought that their middle class story was destroyed. Story of the 2000 and twenties or the 2000 and thirties. Well, guess what? China from an economic perspective is where the United states was in 2009, 10, 11. They are facing a private sector deleveraging moment. They're in a balance sheet recession, as Richard Ku would call it. They are facing their secular stagnation. And so the C, the consumption component of their GDP equation, is going to be permanently impaired. As far as the current policymakers in China are concerned for the next seven years. How long did it take us to resolve our secular stagnation? From 2008 until when? 2017 to 2020, depending how you see it. So that's where China is actually considerably constrained. And I think it gives the US a lot more time, because I don't think China is going to start a war. Well, it's absolutely addicted to the global demand story, which means that American households and European households are what pays for GDP growth in China. And as long as that's the case, I think that they will hesitate to play politics with supply chains, which, by the way. By the way, Eric, we have empirical evidence that I'm right. What is it? China has hesitated to retaliate to any of the American tariffs, sanctions, export restrictions. You know, they said, like, oh, we'll put some export controls on various materials and rare earths, but those are not automatic. They will basically choose which companies in China get to export some of this stuff. But to this day, China has not retaliated in any way to the American export control, sanctions and tariffs. Just think about that. There's a reason they haven't retaliated, and it's because they are afraid that it will impact their economy far more than it impacts the US Or Europe.

[A]

Let's move on to what you already said is the big one. It's an election year in the United States. And I don't think this election really bears much resemblance to any other that I can remember, because what you're hearing now from the people who oppose Donald Trump is not, we don't like this guy. It's not, we think you shouldn't vote for our guy. Instead, it's the end of civilization will happen if Donald Trump is reelected. We've actually seen some rhetoric in, you know, senators that are tweeting saying that the comments that Democrats have made this week are a stealth call for assassination. Now, whether or not that's true or not, I don't know. But the notion that we have congressmen in the United States who are publicly making the statement that the other side has called for an assassination of their candidate. I don't remember anything like that ever happening in my lifetime in US Politics before. Seems to me like this is more emotionally charged than anything we've ever dealt with.

[D]

Look, I think that US election will be the biggest macro event of 2024. You know, it took us 54 minutes, or, sorry, 47 minutes to get to this. You know, we saved the best for the last. But what I would say is that there is no bigger political or geopolitical issue for investors. Why? Because you're right, Eric. A large group of Americans, like I would say half of Americans, do believe that a Trump presidency 2.0 will be the end of the Republic. And why does that matter? Oh, and by the way, and this election will be the most unprecedented I think in U. S history since the 19th century because I believe there will be more than one viable third party run. I think Joe Manchin is going to run. I think Liz Cheney has just today December 5 said that she's contemplating running. And you have Kennedy who's miraculously polling double digits around 10%. So what you could have is a situation where Donald Trump or Joe Biden wins this election with about 35% of the vote. By the way, can you imagine what that would look like from 2024 to 2028 if we have an administration that only carried 30, 35% of the popular vote? Can you imagine how little confidence the public will have in that White House? The second issue is that you could have a situation where third party candidates win electoral college votes and then neither candidate gets to 270 votes and then you have the House of Representatives decide the presidency again. Extraordinary things will happen this year. So why does this matter? I think it matters because I don't think the Fed will ignore this reality and this risk. And again, this is not a popular view. I think a lot of professional investors who have cut their teeth over the last 40 years reading Fed statements, taking them seriously, thinking about the FOMC and the Fed as a catalyst for markets, they're going to douse gasoline over themselves and light themselves a fire right now. Because I'm about to say something that's heretical in American financial industry. You know, in our epistemic community it's not nice to say that the Fed is political. It's improper. Well, you know what, sorry, but it's about to get political because I do believe that the Fed is part of that establishment elite consensus and the view in that group. And by the way, this isn't just Democrats and liberals. This is also many, many centrist Republicans who believe that the Trump 2.0 presidency will be a real game changer. And so I think it's just ridiculous to think that the FOMC will do anything but cut rates in 2024 no matter what happens to the economy. Now I happen to be slightly bearish about the US economy. For example, you know, this is a low conviction view, but my view is that we're going to have a shallow recession in first half of 2024. Actually not in the letter, but see, my view is then that the Fed will cut rates by far more than 125 basis points. It's currently priced in the OIS curve far more. It will cut rates 3,4% in order to mitigate the political effects of that recession. Now if your view as a listener is like, well, I don't think a recession is a risk in 2024, I think the recession risk is just out of the market at all, then you should not bet against the current pricing in the market of 125 basis points worth of cuts. I can actually see the Fed using whatever data it gets as an excuse to become lenient in 2024. So that's why I think this election matters.

[A]

And let's talk about the investment implications of that. Certainly gold would be one benefactor of the Fed. Cutting more than expected, cutting more than consensus expectations. What are the other investable strategies there?

[D]

Well, I think whether there's a recession or not matters for you on a tactical basis. So January, February, I probably want to be bearish on US equities in anticipation of a recession. But if you have my view on a lenient Fed, then the end point is the same. In other words, we may round trip to all time highs, but we will get to all time highs by the end of next year. That that would be the implication. In other words, if you close your eyes, we will be somewhere much higher than 5,000 on the S&P 500 by the end of next year. Why? Because the Fed is going to respond with lenience. I also think that the dollar will be weak if we are correct. Obviously that's the flip side of your gold call, which I agree with. And if that's the case, if you have a lenient Fed, if you have weak dollar, then I think emerging markets and commodities should do actually pretty well. And this is interesting because a lot of folks out there have soured on emerging markets. A lot of institutional investors that I work with closely don't want to be in emerging markets and have expected emerging markets to do very poorly because of high rates in the US and also because of dollar strength. And quite frankly, both commodities and emerging markets have held up quite well despite hawkishness in the Fed and despite China's economic weakness. And I think that that's telling you that emerging markets are like a coiled spring. And if the US monetary policy becomes populist, effectively responding to political risks domestically, then I think that investors and institutional investors will start seeking those returns outside of the US so that might be a story for 2024.

[A]

And I just want to make sure I understood your round trip comment. You're suggesting there's a possibility of a very significant downdraft in markets. We might see equities Sell off badly in the beginning of the year. You're simply saying that we're going to get back up to new all time highs no matter what, even if there is a significant bear market before that happen happens.

[D]

So very low conviction view. But yeah, I don't think it will be significant bear market because when I look at the data right now, I think if we do have a recession in the first half of 2024, it would be a capex and government spending induced recession. Now those two are 30% of US GDP. You know, 70% of US GDP is the households households in my view, controversial view, but it's been right so far. Households are far healthier than people have expected them to be. So what I would expect is the market can react to this capex induced recession, very shallow recession like a 2001 for example recession. Maybe stocks go down 20% in the first quarter, second quarter, but by the end of the year I think that we reach all time highs. This isn't that different by the way, from investment bank forecasts. I mean if you go through all the different investment bank research, I think the majority of them are saying 5000spx by the end of 2024. My contribution to this sort of exercise, if you will, end of the year exercise would be to say that I would expect the year to end higher than 5,000 because of this leniency of the Fed.

[A]

Marco, to summarize this whole discussion of US politics, what are the main points that our listeners should take away from this?

[D]

There's a problem in supply and demand in US politics. And what I mean by that is that the supply right now is Democrats, Republicans, those are your two options. The demand from the public is clearly for something else. And so what I would say maybe not in the 2024 election, but I do think that this decade we will have another party realignment in US politics. The first one since the 19th century, the sort of a fourth party realignment. Most listeners are going to scoff at that and say no way, it's just the barriers of entry are too high. But that would be my highly controversial view. And I think that ultimately in the long term that will be good for the US Because I think the median American is a centrist. I think the median American is reasonable and wants solutions. And I think that you will get those. Maybe not this election, but potentially in the next.

[A]

Well, Marco, I can't thank you enough for a terrific interview. Before I let you go though, please tell our listeners a little bit more because you guys are not just a research firm at Clock Tower Group. You're an asset manager. Tell us a little bit more about what you do there and how our interested listeners can contact you.

[D]

Yeah, so we are in asset management. We are in we work with very large institutional investors. We do macro seeding. So we seed discretionary macro hedge funds for a living. That's our tradition. That's what that's sort of the historical background that we come from. And then we also do some private illiquid markets as well as and for anyone who wants to find out more about what we do, just clocktowergroup.com is probably the best way to go about it. I'm also on Twitter so they can search for me on Twitter and I occasionally do post some little snippets of wisdom, but or maybe not wisdom, but I definitely don't post all of my views and my investment calls. So that's reserved for clients.

[A]

Patrick Suresna, Nick Galarnik and I will be back as Macro Voices continues right [e-mail]. Energy Transition Crisis My new video documentary series about energy transition has finally been released and anyone can watch it for [e-mail] the series explains exactly what it's really going to take to break humanity's addiction to fossil fuels and why it will take longer and cost more than almost anyone realizes. And I'd like to think the three episodes on nuclear energy are among the most detailed on YouTube. This is a passion project for me and there's no profit motive, no revenue, and therefore no budget other than donations. I'd really appreciate your help promoting the series. Things you can do to help include subscribing to the energy crisis doc YouTube channel, liking every episode, posting comments on YouTube, and posting links to your favorite episodes on social media. If you don't have time to do those things, there's also a donations [e-mail] the money does not go to me. 100% of it will be spent on YouTube and other social media advertising to promote the series. Thanks in advance for your help. Now let's get back to the show and Patrick's Post Game Chart Deck.

[B]

Now back to your hosts, Eric Townsend and Patrick Ceresna.

[C]

Eric, it was great to have Marco on the show. Now joining us again in the Post Game segment is Nick Galarnik. Now let's get to that Chart Deck listeners. You're going to find the download link for the Post Game Chart Deck in your Research Roundup email. If you don't have A research roundup email that means you have not yet registered at Macro Voice. Just go to our homepage macrovoices.com and click on the red button over Marco's picture that says Looking for the downloads now, Eric let's get to crude oil, starting with the EIA inventory.

[A]

EIA printed a drawdown on crude oil of 4.6 million barrels. Cushing, Oklahoma, building 1.8 million barrels. The big builds were on the finished products. Gasoline building 5.4 million barrels. Distillates building 1.2 million barrels. US production ticking down to 13.1 million barrels. Despite the big drawdown, crude oil was down hard this week, with WTI closing on a 69 handle on Wednesday. The big product builds contributed, but the real reason is deeper than that and requires a little bit of explanation. Initial signaling from the delegates at last week's OPEC meeting was for an OPEC cut, which didn't actually happen. As I explained in last week's commentary. Generally speaking, they go into these meetings with consensus formed ahead of time, expecting just to codify a decision at the meeting. But sometimes that consensus breaks down at the meeting, and that's what appears to have happened here. Now, this all came about after a squabble occurred inside of Opaque plus about an adjustment to the baseline production levels for Angola and Nigeria. The way this works is that OPEC cuts call on all of their members to cut production below whatever their established baseline is. But when a country like Angola or Nigeria is unable to meet their production baselines, in other words, for the sake of round numbers, let's suppose that they have a baseline of 1 million barrels, but they're only able to produce 900,000 barrels because that's as much capacity as they have. What happens is if OPEC says, well, let's cut production by 10%, and that creates a financial burden on all the other members. Well, somebody who's only producing 900,000 barrels and has a baseline of a million barrels is really not going to feel any effect from that, because cutting from a million to 900,000 is just cutting down to what they're able to produce. They don't have to actually cut anything. So there was a move to adjust Angola and Nigeria's baselines lower. They were resisting that, and that appears to have been what the basis of this contention inside of OPEC was about. Reading between the lines, my guess, and I don't know this for certain, is that after losing that unanimous consensus that was required for a formal decision from OPEC to cut production, the remaining members tried to Save the day by having everyone but Angola announce a voluntary cut equivalent to what the OPEC that didn't happen would have been. In other words, they were trying to tell the market, look, we're doing essentially the same thing as an OPEC cut. It's just Angola didn't participate, the market didn't buy it. The way the market is interpreting this is OPEC is losing solidarity and therefore losing control over the market. Skepticism now abounds that OPEC will be unable to establish consensus for future production cuts, which again require a unanimous vote of all of the delegates at the meeting. The assumption that OPEC would defend $80 Brent, was what was holding the market up in the first place. Now the perception is OPEC may not be able to defend $80 Brent. And all things considered, the only thing that I'm absolutely certain of is I'm pretty darn sure that nobody at OPEC is terribly happy with Angola at the moment. But I won't be surprised if OPEC gets its act together and makes a new announcement. Shoring up Solidarity, cutting production. And you know, Putin's visit to both the UAE and then Saudi Arabia is definitely significant here. If we see Russia and the Saudis and the Emiratis all come together and build consensus in opec, those are the big producers, those are the ones that count. And certainly solidarity among those producers ought to be enough to return confidence to, to the market. Meanwhile, I think the market is probably set to continue selling off until something happens to signal that that Solidarity is back. After testing $69 on Wednesday afternoon, we're back to just barely above 70 as I'm recording very early on Thursday morning. Let's see what happens here. But if there is no signal that OPEC has shored up solidarity, I think there's plenty of room to go back and test the lows. From early stock spring of this year when we got all the way down to the low 60s, I don't expect that to last. I think that OPEC will get its act together, establish the solidarity that they need and reassure the market. It's a question of how long it takes them to do that and what happens between now and then.

[C]

What an ugly chart, Eric. Like price action was so weak. It's simple. I just have a 50 day moving average on here and that price action couldn't get above 80. We talked about how important there was to be the bulls, to be able to show some sort of accumulation and instead it rejected right along the resistance level, never showed any follow through. And now with this breakdown we are testing the 2023 lows. I mean, we're still a few more dollars away, but it's a stone throw away. The weakness is approaching an oversold state into a support line. Typically this is where at least a short term swing low occurs. But it's going to be far more interesting in the weeks and months to come whether this is a line in the sand where the bulls can hold and defend the support lines, or whether this downtrend continues. So coming to a very key support line where at least a bounce is very common. Now, Eric, before I get to Nick here, what's your thoughts on the S&P 500?

[A]

Well, I bought puts on S and P futures this week and will continue to accumulate more if we get a Santa Claus rally. 46:12 was my upside target that I described a few times here on Macro Voices. We came within just a few ticks of hitting it. If the rally fails here with no Santa Claus rally into year end as so many people had expected, that could be the tell that much more weakness is coming in January. But let's see what happens as we get into the end of the year. Santa Claus rallies, certainly from a seasonality standpoint, happen very commonly. So let's, let's not discount the possibility completely.

[C]

All right, Nick, I want to get you involved in this conversation. Let's just start off with the actual levels that the options markets are giving. What are you watching?

[E]

Yeah, Patrick. So spot price right now on spx is approximately 45.50. We have an implied move for next Friday's December 15th opex at plus to minus 80 points, which denotes an upper potential move of 4630 and a lower potential move of 4470. Key resistance right now also where the call wall resides is at 4600 and key support is at 4500, also just above the put wall at 4450. Now, I'm inclined to think that we see some steady action into fomc, which is next Wednesday, and the CPI print and thereafter. It's likely we see a big move in either direction. I'm inclined to think we see a rally perhaps to the 4650 area before seeing a pullback down toward the 4450 area into the February OPEX. So I'm bullish into January OPEX, bearish thereafter. What are your thoughts?

[C]

Yeah, the S P 500. First of all, it's important to note that we're about to do the contract roll. Those that are tracking the S&P 500 futures contracts. When that contract roll occurs, the contango between the December March contract is over 15 50s p point. So it's probably best to do analysis directly on the cash index where that gap is not going to be technically messing up the charts. With that said, that 4600 is formidable resistance but to me it's all about this news. I mean we're going to get the jobs numbers tomorrow followed by key inflation numbers and then the fomc. It's like all of the major news was just loaded into one major week week here and and likely almost all the market volatility is going to occur here because with so little news coming in the latter half of December it's very likely to transition into a low volume, low volatility lull period in there. And so what the next trend move here in the S P is probably going to be determined here within even 2, 3 trading sessions. For me we are very overbought. A pullback is in the cards. But the question of how deep the pullback goes is actually going to be the tell. If we have a very modest pullback of let's say another 50, 60 points holding the 4,500 support lines, that becomes a springboard where a break to higher highs toward even 2021 highs is something that can't be ruled out. But if this news is in any way determined, determined or interpreted slightly bearishly than any breakdowns like 4400 or deeper, then it's very likely the highs of the year are in and so it's a fine line here. I a pullback is in the cards but how well it's defended is going to determine whether there's one more impulse higher going into early January. All right, next let's though talk about that QQQS and the nasdaq. What levels are you watching watching here?

[E]

Spot price right now on Q's is 385 approximately. We have a implied move for next Friday's December 15th opex of plus minus 9 points which denotes an upper expected move of 394 and a lower expected move of 376. The call wall above is just above at 390 and the put wall is below at 380. Right now key resistance is at 390 and key support is at 380. As I said in previous weeks, I do think that tech is overextended and perhaps overvalued as well. I'm in favor of the small caps which have done very very well. The past few weeks. One name that I do actually like right now is Google. After seeing their demonstration yesterday on YouTube of their Gemini AI bot, it was very impressive. I thought it was much, much more advanced than ChatGPT and therefore I'm bullish in the short term on Google. But the rest of the names I'm not so bullish on. I think that small caps will continue to outperform, especially if we resume a rally to the upside to 4650 perhaps. I think 190 or so on IWM is in the cards. What are your thoughts?

[C]

Well, you know what, the Mag 7 have been the leadership and they certainly have paused here over the little bit, but I think it's premature to already be putting the nails in the coffin on like the momentum of them running out. While the small caps have certainly had a very strong reflexive snapback, I I don't want to count out the Mag 7. These kind of trends tend to last longer and squeeze out shorts more often than not and ultimately it does resolve itself in that way, which is when something overshoots that much it'll correct. But I, I think that at this stage, especially if the market is well defended here, the Mag 7 may end up still at least holding up this year though. Let's talk volatility here for a second Nick, because on page six we have the volatility index and in spite of us having all of this huge economic news ahead of us going into next week, we're basically at year lows on volatility. We're back to slightly above the 13 handle, but it's still very, very low. The market is simply not anticipating any big swings here. What's your take on the volatility?

[E]

Seeing the Vix at a 13 handle right now indicates that we should see daily top to bottom moves of approximately 0.8%, roughly. And with that in mind, what we've seen over the past few weeks is consolidation in a very, very narrow range on the S and P. So just for reference, a few weeks ago I mentioned that the expected move for December 15th OPEX was 110. Then it was 100, now it's 90, simply because we've sat in this very narrow range between essentially, you know, 40, 4530 and 4597 or so. So pretty narrow range for about three weeks now. And what happens there is that there's no queue for anyone, any large market participant to purchase out of the money calls or puts, which may drive some gamma to the upside or downside perhaps and so we're seeing this kind of wait and see approach for the FOMC which is next Wednesday. What I'm thinking is that we perhaps see consolidation in this range into next Wednesday, see a pop in the VIX after FOMC if Powell remains hawkish and then next OPEX for January is where I would look for an expansion in volatility to occur. Just for reference, right now it is extremely cheap to buy insurance for next year. So for example, I was looking at a play just again as an example, selling February OPEX 46504700 bear call spreads for a credit of about $22 on 28 risk and using that premium to purchase next June's 40003500 bear put spreads for a net debit of about 28 points. So overall the net debit's about $6. If you leg into it you may be able to get about a, you know, roughly 0 debit cost 500 point wide put spread which would act as insurance to your portfolio for the next roughly six or seven months. But anyways, moving on to the US dollar on page seven. What are your thoughts here guys?

[A]

The Dixie entered a new downward price channel back on November 1, but broke out of that channel to the upside this week. Modest resistance starts at 104 and then significant resistance at 105. On the March contract chart, only a close over 106 spot 75 would signal a really big move higher is afoot. So I think it's a question of how far we're going to get. Is this just a correction? Let's see how it plays out.

[C]

Well, we got a bounce in the dollar from a very oversold state, but what is noteworthy to me is that it really came predominantly from the Euro. We still have a US dollar yen that just broke down again today. A lot of the other crop currencies are not that far off from their consolidations lows. And so you have a scenario where the euro made its move and caused the dollar to react. But really to me it's going to be about whether or not the dollar starts moving against all of the cross currencies together. That's where the major US dollar trends occur. And that simply is not the case right now. So as we approach this 104105 level, if that pattern continues, I'm going to be looking for the US dollar still to struggle here. It's just a little bit of a bounce, but I think that the dollar trending higher is going to really need a very Clear macro backdrop all evolving at the same time and at least now it doesn't seem to be the case. Now obviously we have some major economic news coming out, so by the time we do the next episode that news may have started the trend. I think one of the simplest things to do is Simply watch the 105 level because the dollar turning bullish would meet in some sort of sustained price action breaking out that area now.

[E]

On page eight we have the gold futures chart. What are your thoughts here guys?

[A]

Wow, talk about a whipsaw in the futures market. On the Sunday open into thin liquidity we hit our 2140 measured move target and then traded over 2150 on the February comp contract in that thin liquidity trading on Sunday evening and the melt up only to see a blow off top and a full retracement by Monday morning. The technical analysis picture is very fuzzy now because steep contango makes the continuation chart and the contract chart so completely different. On the contract chart we've already retested the Halloween highs that were previous resistance and we've now tested them as support. But in the continuation chart we need to move another $20 or so lower or even $25 below the market as I'm recording early Thursday morning in order to test 2020 on the February contract to close the gap that was created by the contango in the contract roll and retest those late October highs as support. But again that's on the continuation chart. We've already done that on the contract chart. My rule for this is when the contract chart and the continuation chart don't agree there is no book to turn to to say what's the official answer in technical analysis? Which one are you supposed to go by? Opinions abound on this. Different people are going to interpret it different ways. That means technical analysis is going to be a little bit less reliable because different people are working from different interpretations of different charts. The next supports below that is channel support and the 21 day moving average which are co located down at 2, 003. Given that the slow stochastics are still pointed sharply down, I think a Test of 2020 on the February contract is likely before this correction is over and a test of 2000 ish or just above 2000 round number support and channel support is entirely possible, especially if the dollar rally continues. If that happens though, I'll definitely add to my longs on the dip.

[C]

Eric, the technical levels you are watching were bang on because I had the same measured move on the up that that move did, on an intraday basis, break to an all time new high. And on the monthly charts we remain above the 2000 level, which is the monthly close highs. And so we have a scenario where gold remains structurally bullish overall. It may end up spending much of December still just backfilling and consolidating. But this is a bullish chart that is consolidating along its highs. And there is zero evidence that a new downtrend has begun. Just because it failed to hold a breakout is not enough evidence that somehow some major downtrend is going to get underway. And so it's I still have always been far more bullish in 2024 and maybe the rest of the last few weeks of the year end up just being gold, still creating a base from which it will be bullish at a latter point in the future.

[E]

Eric, you wanted to discuss uranium. What's on your mind here at the.

[A]

COP28 climate conference in Dubai, 24 countries so far, that's 24 and counting, have signed a pledge to triple nuclear power capacity by 2050. Now this was pure politics. No concrete plan of action for actually accomplishing that goal was even discussed. So obviously it doesn't affect supply and demand in the here and now. But I still see this development as potentially being incredibly important. And the reason is that it happened at the COP conference, which is basically the Mecca of the climate change community. So my expectation is that this event will effectively greenlight investment in all things nuclear by the renewable energy ESG and climate communities. In other words, in other words, all the people who used to boycott investing in nuclear because they thought it was bad, because they thought it was against their green climate agenda, I think might be persuaded by this announcement or this might be the catalyst to bring about a change of attitude where all of a sudden nuclear is in again, including with the ESG crowd. If there is a sudden new hot trend in nuclear investing among institutional investors, let me be clear. There simply is not enough capacity in the uranium mining sector to absorb institutional sized capital flows without causing a massive upside price dislocation. This has the potential to be a setup for a huge rally in all things nuclear, especially in uranium mining stocks. But that's only if I'm right about the ESG crowd interpreting this symbolic gesture at COP28 by these 2024 countries as a green light for investing in all things nuclear. If they can still consider uranium mining to be evil, well then it's not going to make any difference. So let's see how they interpret the significance of this potential catalyst and whether it helps to accelerate the rally in uranium.

[C]

Yeah, that summit really just solidified the fact that uranium is coming back into vogue and so your observation is correct, Paul. But one thing when looking at that chart Eric, on page nine is that the Sprott Physical Uranium Trust or and the U308 contracts just been non stop go in a bull trend making higher highs. It's a trend that continues and it's getting a lot of love and it really doesn't seem to be letting up here. So it'll be really interesting to see whether this actually gives that traction that you're referring to and whether or not this trend accelerates here. Really, it wouldn't surprise me at some point for these rallies to get checked, but it is probably one of the most bullish themes out there and it's been working very, very well all year long. Just quickly, on one final note, we had a very positive response to our special webinar last week on the extraordinary opportunity to protect your portfolio from market volatility in 2024, but we had many inquiries on people that missed it, so we're hosting a follow up webinar on Monday, December 11th at 1:00pm you can register [e-mail] folks.

[A]

If you enjoy Patrick's chart decks, you can get them every single day of the week with a free trial of big picture trading. The details are on the last pages of the slide deck or just go to bigpicturetrading.com Patrick, tell them what they can expect to find in this week's Research Roundup.

[C]

In the Research Roundup, you're going to find the transcript for today's interview and the chartbook widgets discussed here in the post game, including a number of links to articles that we found interesting. You're going to find this and so much more in this week's Research Roundup.

[E]

Well, that does it for this week's episode. We appreciate all the feedback and support we get from our listeners and are always looking for suggestions on how we can make this program even better. For those of our listeners that write or blog about the markets and would like to share that content with our listeners, send us an [e-mail] and you will consider it for our weekly distributions. If you have not already, follow our main Twitter account acrovoices for all the most recent updates and releases. You can also follow Eric on Twitter rickstownsend that is Eric spelled with a K and follow Patrick trickseresna on behalf of Eric Townsend, Patrick Ceresna and myself, thanks for listening and see you all next week.

[B]

That concludes this edition of Macro Voices. Be sure to tune in each week to hear feature interviews with the brightest minds in finance and macroeconomics. Macro Voices is made possible by sponsorship from BigPicture Trading.com the Internet's premier source of online education for traders. Please visit bigpicturetrading.com for more information. Please register your free [e-mail] Once registered, you'll receive our free weekly Research Roundup email containing links to supporting documents from our featured guests and the very best free financial content our volunteer research team could find on the Internet each week. You'll also gain access to our free listener discussion forums and research library. And the more registered users we have, the more we'll be able to recruit high profile feature interview guests for future programs. So please register your free account [e-mail] if you haven't already. You can subscribe to Macro Voices on itunes to have Macro Voices automatically delivered to your mobile device each week, free of charge. You can email questions for the program to Mailbag and we'll answer your questions on the air from time to time in our Mailbag segment. Macro Voices is presented for informational and entertainment purposes only. The information presented on Macro Voices should not be construed as investment advice. Always consult a licensed investment professional before making investment decisions. The views and opinions expressed on macrovoices are those of the broken participants and do not necessarily reflect those of the show's hosts or sponsors. Macro Voices its producers, sponsors and hosts, Eric Townsend and Patrick Ceresna, shall not be liable for losses resulting from investment decisions based on information or viewpoints presented on Macro Voices. Macro Voices is made possible by sponsorship from BigPicture Trading.com and by funding from funds Fourth Turning Capital Management LLC. For more information, visit macrovoices.com.