How a Geopolitical Analyst Predicts the Outcome of War

For investors, geopolitical risks are always lurking as a factor that could upend trades for obvious reasons. When war breaks out, it's crucial to have some kind of understanding of what it will mean for various markets (such as oil or grain) and how long the conflict can persist. But is there any way to analyze these things scientifically? Many people are paid by investors to try to do exactly this. On this episode, we speak with Andrew Bishop, the global head of policy research at Signum Global, about what he does, and how he attempts to forecast the future. We use the recent conflict between Israel and Iran (as well as other sources of global tension) to get a better understanding of how he goes about forecasting, how investors use his research, and what he sees going forward. Read more:Israel Is Now Peerless in the Middle East and MarketsIsrael Emerges Stronger From Iran War, But Risks Blowback Only Bloomberg - Business News, Stock Markets, Finance, Breaking & World News subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

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  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

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  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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• 2:30Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:34Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:35Tracy Alloway?

  Joe, do you ever experience a sudden surge in geopolitical analysis emails in your inbox?

• 2:45Joe Weisenthal?

  Yes, I do. You know, it's funny. Most years, people are like, oh, what do you, you know, you're at the beginning of the year, end of the year, things are going good. And it's like, what are you concerned about? It's like, I'm concerned about geopolitical tension. It's just one of these cliches.

• 2:58Tracy Alloway?

  That's a classic.

• 2:59Joe Weisenthal?

  It's a classic. That's what I always say when I have no, it's like, oh, things seem fine, but I am concerned. But then some years, clearly geopolitical tension, war, et cetera, is very real. We recently saw the bombing in both directions between Israel and Iran. That seems to be paused for now. But sometimes geopolitical tension becomes outright geopolitical hostility.

• 3:21Tracy Alloway?

  Yeah, that was definitely one of those weeks when we both got a lot of emails.

• 3:26Joe Weisenthal?

  Yes.

• 3:26Tracy Alloway?

  I have a confession to make, which is, I read all of those geopolitical analyses, but I always kind of wonder what I'm supposed to do with that information.

• 3:37Joe Weisenthal?

  Yeah.

• 3:37Tracy Alloway?

  You know, if I were a major, a professional investor, if I'm reading a note about what is the base case for like Iran versus Israel, I am not entirely sure how that influences my own decision making.

• 3:52Joe Weisenthal?

  Well, I would say, I would take it even a step backwards and say, like, you know, when we talk to Wall Street analysts, say a Fed forecaster, I have a sort of, I think, intuitive understanding of how they either like, oh, there's going to be three cuts in the next year. And then I generally have a sort of intuitive understanding of how they might arrive at that. Okay, we look at statements from the Fed about what they're looking for in terms of achieving disinflation. We look at the trajectory of the US economy. And then we say, okay, we combine the Fed statement, their sensitivity, et cetera, the reaction function, that's the term I'm looking for with the data, and then we arrive at a forecast. When it comes to something like a war, I do not really have an intuitive

• 4:36Joe Weisenthal?

  understanding of how the geostrategic or geopolitical analysts, whose notes flood our inboxes from time to time, always during bad periods, how do they arrive at conclusions, therefore X, we think the, the war is going to end this way. I do not know how that can be done systematically. And yet people try.

• 4:53Tracy Alloway?

  And actually, some of them put numbers, probabilities on specific outcomes. So I think if I was a geopolitical analyst, I would just put 30% chance on everything. That seems reasonable.

• 5:04Joe Weisenthal?

  Yeah, so it used to be that if you were unsure but wanted to sound smart, you say 60, 40, but these days you say 70, 30 is the new 60, 40.

• 5:13Tracy Alloway?

  That's right, that's right.

• 5:14Joe Weisenthal?

  But I, you know, I don't want to be cynical about it. I am curious about how one could derive a number from things that seem wildly uncertain and rare, because there are not a lot of event studies and every war is distinct. And therefore, the idea of trying to accurately assess the outcome of some conflict strikes me as very difficult.

• 5:34Tracy Alloway?

  Yep. Well, I am very pleased to say that we do, in fact, have the perfect guest to talk about geopolitical analysis and how it actually is calculated, I guess, or created. We are going to speak with Andrew Bishop. He is a Senior Partner and Global Head of Policy Research at Signum Global Advisors. So Andrew, welcome to the show.

• 5:54Speaker 06

  Hi, thanks for having me.

• 5:56Tracy Alloway?

  Why don't we just start with what is Signum?

• 5:59Speaker 06

  So Signum is a political and geopolitical risk advisory firm that was founded in 2018 by a gentleman named Charles Myers, who was the Vice Chairman of Evercore ISI before founding Signum. And Charles had a career in banking with a focus on emerging markets, but was always sort of one foot in US politics as a fundraiser, as an advisor to candidates, et cetera. And he founded Signum essentially to try to meld his instincts about how markets work with his knowledge about US politics. And from there, he hired me to help build out the sort of global analysis beyond the US.

• 6:33Joe Weisenthal?

  So I think I started first becoming aware of your commentary recently because Ozan Tarman, who we've had on the podcast over at Deutsche Bank, he started forwarding some of your notes over. And so then I started reading the stuff and it was like very interesting and compelling. But why don't you tell us, okay, you explained what Signum is. What's your background? How do you develop an expertise in these areas?

• 6:58Speaker 06

  So I joined Signum from Eurasia Group, which is sort of the founding house of political risk. I was there for four years. I first joined Eurasia because I'd met Ian Brummer through a previous job at the World Economic Forum, so the Davos organization. And I joined as sort of right-hand man to their chairman, Cliff Cupchin, who really taught me a lot in that firm, in that role. I ended up as deputy head of research. And several of the things that I learned from Cliff were, for example, not getting overly excited by every new headline, right? So I think, especially when you're at the beginning of your career.

• 7:30Joe Weisenthal?

  Good advice for everyone.

• 7:31Speaker 06

  Yes. I mean, to me, the best example of that is the zero hedge type headline about how the first gas contract was denominated or settled in euro instead of dollar. Or just the BRICS more generally. I started working when I was 22, I'm 39 now. The BRICS have had a glorious future for almost 20 years. So that was one of the things. The other thing that I learned from Cliff was good analysis, like basically the key is to have a rigorous and analytical process. And even if you get the call wrong, it's better to have good analysis than a call wrong rather than the other way around, right? Because otherwise, you could just be throwing darts and you'd be getting elections 50% right half the time, right?

• 8:14Speaker 06

  Which, by the way, gets to this question of what you mentioned on the probabilities. It's actually harder than just throwing darts or flipping a coin, because most situations have far more than two scenarios, right? So it really is a very, very difficult thing to do, to predict all the geopolitical outcomes, which I'm sure we'll get to. But just to close off on sort of background, I joined Eurasia from the World Economic Forum. And the job I had there was really fun, because essentially, the organization is best known for Davos. But the team I was in, which was their global risk team, basically send their team members throughout most frontier and emerging markets to meet with government officials, get a sense of where their head was at in terms of their country's sort of economic future,

• 8:57Speaker 06

  future economic policies, et cetera, then meet with the opposition and the business community and think tank community, and essentially write up scenarios about the future of that country at a Sort of 10 to 20 year outlook, not trying to get it right, not trying to predict it, but trying to essentially force the country to think twice about its business model. As you can imagine, a lot of these were resource dependent countries. And that led to some pretty interesting situations, like one of the projects we worked on, for example, was about the future of Ukraine. And that was in 2013, 2014. So the project was literally interrupted by the Maidan revolution. Half the people on the board of the project and half the people we interviewed were, you know, either fleeing or put in prison.

• 9:40Speaker 06

  And I remember we were doing a panel to actually introduce parts of the findings in Davos. And the prime minister of Ukraine, his plane was, he was basically disinvited on the day that the panel was taking place. So his plane was circling over Zurich, not being allowed to land, not being allowed into the room. You know, similarly, we had back then, he was an MP Petro Poroshenko, who later became the leader of the country, smuggled in a grenade from the Maidan revolutions into the conference hall and sort of held it up to show how the brutality of the regime was working. So it was a really great way to get firsthand exposure to frontier markets.

• 10:17Tracy Alloway?

  Yeah, that is definitely firsthand exposure. I'm not sure how I would feel being in a conference room or like a big hall with a grenade. I'm hoping it wasn't live, but who knows? Okay, Andrew, one thing I wanted to ask, and I alluded to it in the intro, is when I get your research notes, if I am a typical client of Signum, what exactly am I doing with that information? Why do I want to get this analysis?

• 10:43Speaker 06

  So first thing is about 60, 65% of our clients are financial investors, right? That Joe mentioned or alluded to. About 35% or so are corporates. And they obviously use us in very different ways, which I'll get into. But I think the first topic that you all sort of touched on is this idea, you know, there's, there's a lot of studies that show that geopolitical risks just don't affect markets. Right? Like, who really cares, frankly? Oil's pretty much flat from pre-Israel Iran war. VIX barely picked up, you know, S and P's at all time highs, et cetera. Obviously, I have a, you know, a bias or I'm rooting for my home team here. But I think that that's a little bit short sighted for a few reasons. One is most of these studies typically look at S and P in the long term.

• 11:27Speaker 06

  And our clients obviously are not trading the S and P in the long term, right? They're trading in the short term and you've got some pretty violent, sharp moves up and down for a lot of these assets. And they're also trading, obviously, more niche assets. So I'm thinking of the travel and tourism industry, or I'm thinking of the oil and gas industry, Israeli shekels, you know, things that are far more niche. And if you look at it at that level, you've got some major, major volatility that can be both beneficial or negative, depending on how good you are at playing it, which is really what our clients are specialists in. We're not strategists, we don't give investment advice based on the geopolitical research we put out. The other thing is, there's this big, you know, talking point, and it was true again last month, or two weeks ago, whenever the Israel-Iran war ended, there's sort of this

• 12:12Speaker 06

  like, oil collapses, right? And that's a counterintuitive outcome. A lot of our clients were actually expecting that. And so what they were trying to figure out was, when is this going to end? Or not end, but when is it going to culminate, right? When is going to be the peak fear level? And that's probably going to be when Iran retaliates for whatever the US does. So again, the fact that it actually drops on the news is not necessarily surprising to most of the folks we speak to. But Tracy, do you want me to get into a little bit, how the clients use us?

• 12:41Tracy Alloway?

  Yes, that would be great.

• 12:42Speaker 06

  Yeah, I mean, so there's a few ways. The first, and I would say, least often and least sort of savvy or useful way, is for the predictions themselves, right? So what I'm saying is basically, most clients don't use us for the actual outcome prediction. It's better if we get it right, but if they were only going to use us for that, they could probably go to prediction markets, right? I think their prediction markets are a little bit overestimated these days, which we can get into, but they're not bad, right? Interesting. Yeah, so that's not the main reason. The main reason, the way that a client put it to me, and this was years ago, and it stuck, is like, they're an F1 driver. And we're helping them on the sort of, you know, the training tracks, right?

• 13:26Speaker 06

  Like on the, on the, the training loops before the actual race to literally memorize every single turn and know when they can accelerate, when they've got to cut a corner, et cetera. So that when the events start unfolding, they're already prepared to, you know, hit the brakes or accelerate depending on what's happening. The difference here, of course, is that the track is not fixed. But the point is, you know, in a situation like Israel, Iran, you've got multiple calls, right? Or multiple, call basically just means prediction. You've got multiple situations. So you've got, is Israel going to strike? Then you've got the question, okay, so we know they're striking. It's all over Twitter, et cetera. Is this a shot across the bow or is this the big one? Is the US actually going to get involved after 12 hours?

• 14:08Speaker 06

  Is Iran going to retaliate forcefully or in a, you know, symbolic way? Is this war going to last three days or is it going to last three weeks? Is the US going to get involved at that point, you know, and so on and so forth? And so they're not, like, most clients don't expect us to get every single one of those calls right. I mean, that would be insane. What they want is for us to lay out arguments that are not necessarily just convincing, but that help them do the, the mental gymnastics around all the possible outcomes. And then, of course, it's better if you get it right.

• 14:37Joe Weisenthal?

  Wait, I have a very short, quick question. Do you see anyone in your clients who are actually in the prediction markets looking for opportunity there yet? Because some of these are getting to be big size. And, or do you see this as a future growth area for you? People looking for mispriced contracts on the prediction markets?

• 14:54Speaker 06

  So you mean clients that would actually be putting on trades?

• 14:56Joe Weisenthal?

  Yeah. You say there's 40% of X happening. The prediction market is 60%. Maybe there's an opportunity. Anyone doing that yet?

• 15:03Speaker 06

  So, short answer is that I'm aware of no.

• 15:05Joe Weisenthal?

  Okay.

• 15:05Speaker 06

  And the main reason is still liquidity, despite the fact that it's getting bigger, as you say. What's really interesting, of course, is that that would disintermediate the market's reaction function.

• 15:28Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 15:44Speaker 07

  We're seeing a lot of insocial players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service insocial clients.

• 15:53Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Rees-Merica Ripple says.

• 16:01Speaker 08

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 16:20Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 16:30Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 17:12Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 17:53Joe Weisenthal?

  So I'm looking back at a note. This is just a random one that I found in my inbox, but there were several that I read in July. Oh, sorry. In June. In June. By the way, I should say we are recording this on July 1st. And given that the world is an uncertain place by the time this episode comes, and I don't know the exact date, who knows what's going to happen by the time you're listening to this? But I'm reading a June 16th note, and you gave these odds. 20% preemptive Iranian capitulation, 45% Israeli mission accomplished, followed by Iranian capitulation, 25% chance US intervention, and 10% Iranian nuclear breakout surprise. Why don't you go? Give us through your thinking in the middle of June, how you arrived at some of these numbers? And then, given where we are today on July 1st, how did you do?

• 18:38Joe Weisenthal?

  Or what surprised you or what didn't surprise you? Talk about sort of where you were then and where you are today.

• 18:42Speaker 06

  So the first thing is, Tracy was asking about how do we describe probabilities? And there's, I could give you a fancy answer about Monte Carlo simulations, et cetera. But the reality is neither we nor, as far as I'm aware, anyone in the sort of market actually models this stuff. And the few that do use predictive analytics rather than historical data. And the reason is there just aren't that many case studies to go off of, right? So let's just get that out of the way. So the way we use probabilities, and I'll absolutely answer your question about the that specific case study in a second.

• 19:15Joe Weisenthal?

  Sure.

• 19:16Speaker 06

  But there are three main ways that I think the probabilities can be useful. The first is if you're drawing out scenario trees and you're assigning, you know, before you publish, right? You're assigning probabilities to various sub-events before getting to the total cumulative. Basically, if the math doesn't add up, that can highlight a problem in your logic. Right? It's not a math problem. Who cares if the math doesn't add up from a mathematical standpoint? But if you end up with above a hundred or below a hundred or whatever, that means that you're probably overstating one aspect of the dynamic or understating another. That's one. A second that can be quite interesting and problem, you know, not problematic, but useful for the user is clustering, right?

• 19:58Speaker 06

  So we had a recent scenario or a recent situation with an election, I think it was in Uruguay, where the base case was perhaps market constructive. But if you aggregated all the non-base case scenarios, you actually had a more likely outcome of a market negative bottom line. Right? So that's, those are a few of the ways. Now, the way that I would approach a situation like the Israel-Iran one is basically break it down into an equation. So if you're trying to answer the question, is the US going to intervene in the war and bomb Fordow? Right?

• 20:31Joe Weisenthal?

  Yeah.

• 20:31Speaker 06

  To me, the odds of that would be, you start with a hundred, and then you take out whatever the odds are that Iran is going to capitulate at the diplomatic table. So, you know, we can talk about how you can come up with that view, but the idea is, are the Iranians going to take the diplomatic off-ramp that Trump is giving them on that Friday in Geneva? Right? So those odds might be low, but they're not zero. So you get to, say, 20%. Now, that leaves you with 80%. Of that, the question becomes, is Israel going to basically finish the job on its own? Right? I.e., can the Israelis destroy Fordow on their own, either through bombing without the most advanced bunker busters, or through a ground operation like they conducted in Syria the previous November?

• 21:15Speaker 06

  Which is something that I and a few others had on their radar. And if they can't, then presumably the president will intervene. Right? Now, you were asking about scoring myself, that's a perfect example. Those odds get you below 50% of US intervention. You on top of that have to add the fact that the president might want to intervene even if he doesn't have to. Right? Because he might see political opportunity in being associated with a victory. And that's the part that in this instance, for example, I underestimated. Now, where it gets really interesting, and I'll stop here, what gets really interesting is... Even if your take is that the president is actually not dying to get involved and that he doesn't really see this as a big opportunity and you therefore only ascribe that, you know,

• 21:59Speaker 06

  whatever, 30% odds, you're still going to end up above 50% overall. So that can tell you that because there are so many ways of getting to an outcome, you can get tipped over 50 without it being your modal scenario. And same with odds of regime change. You can get regime change through a palace coup. You can get regime change through Israeli bombing. You can get regime change through a revolution. Our base case was that there would be no regime change in Iran, and I think that's what played out so far. But the point is, you've got to compound all those odds because they're independent variables.

• 22:29Tracy Alloway?

  Okay, you have the probabilities. I get that. The way you just laid it out was very clear. But how do you actually come up with, I guess, the range of scenarios? Because that's what seems practically unlimited nowadays. And also, you mentioned Trump just then. In Trump world, I kind of feel like anything is possible, right? Like, there are a lot more tail risks out there that now seem, you know, plausible in various ways. How do you take into account the unpredictability of anything can happen? And then how do you actually confine yourself to this is a set of realistic scenarios that I'm going to talk about?

• 23:10Speaker 06

  So, first thing I'd say is, to me, that's one of the reasons why prediction markets aren't that useful yet, and especially to clients. They can actually be ironically more useful, I think, to the analyst than to the recipient or user of the final product. And what I mean by that is, the prediction markets will tell you where the tariff level is going to end up on July 31st, right? But what if the cutoff that's relevant is not July 31st? What if it's, you know, a completely different date because Trump is visiting, like, let's say that it's a ceasefire in Gaza and the cutoff date is Trump's visit to Saudi Arabia or whatever. So the point is, the rigidity of the prediction markets, and it's a trade-off, right? Because the reason they do them that way is so that they

• 23:52Speaker 06

  can be easily falsifiable and you can compare predictions, etc. But that rigidity, I think, narrows the value.

• 24:00Speaker 06

  To your question on how do you even frame the frame the issue? That's a major problem for Trump tariff situations indeed. So if you take July 8, for example, you can't really, and we've, you know, we've struggled with this, everyone does. It's hard to make a call on whether he is going to escalate or postpone his deadline because there are 60 countries involved. So first of all, you theoretically would have to make 60 individual calls, right, or predictions. Second thing is, what if he says, you know, we're escalating the tariffs, but they're kicking in on July 15th? Is that a punt or is that him actually having increased the tariffs and so on and so forth? So, I mean, the short answer, Tracy, is there is no perfect way of doing it.

• 24:42Speaker 06

  And that's actually been one of the issues with Trump is that framing the initial question is almost as hard as predicting his behavior. Trade ironically is one of those situations, though, that we've had a pretty good track record with. So I'm happy to talk a little bit about how we've tried to like get into Trump's brain, if you want.

• 24:59Joe Weisenthal?

  Please.

• 24:59Speaker 06

  Yeah, so there are a few things. So the first is you can observe patterns, right? So Robert Armstrong had sort of this huge success with the taco label. That was amazing marketing, but I have to say we were a little jealous because I think he wrote that in early May. And in early April, we put out a table with basically every one of the Trump threats. I think there were like 23 or so.

• 25:20Joe Weisenthal?

  Doesn't matter if you don't market it.

• 25:23Joe Weisenthal?

  It's all about that acronym. Anyway, keep going.

• 25:24Speaker 06

  I was waiting for the invite. So I think Trump had backed down in 21 out of 23 threats or something like that, right? So the first thing is you can identify patterns. And in fact, actually, truth be told, we we ran that same study at the very end of his first term as well. And the takeaway was very, very similar. The question, I think, was, was he going to be tougher his second time around, right? But the point is you can identify patterns. So tacos, one of them. Where it gets complicated, though, is, you know, it's almost like the The Economist or Time Magazine cover phenomenon where by the time the taco thing came out, whether it was from us or from Armstrong, it was already fading. It was already getting arguably less true. Because if you look at the pattern of Trump's behavior,

• 26:07Speaker 06

  on Jan 20, he had made a bunch of threats against Mexico, Canada, China, et cetera. He completely let them go, right? Nothing happened. He didn't even mention them on Jan 20. Then he postponed them to February 1. He went one step further. He actually signed the executive orders. But nothing happened. Then March 1 comes around, or March 4, rather, and he actually implements the tariffs, but he walks them back after a day. Then April 2 comes around, and he walks it back after a week on Rest of World and a whole month on China. So the point is there are patterns, but you've got to constantly be reassessing them because the rule that worked yesterday may no longer work today, right? A second question is, or principle, let's say, is we've been very, we've tried to be very nimble and not have a grand theory, right? So this gets a little bit to the whole,

• 26:51Speaker 06

  like Phil Tedlock, Fox versus Hedgehog, like not be too attached to grand ideas, but look at each prediction individually. One of the things that's really driven me crazy is this narrative that Trump's trade approach is all about China, right? That is totally accurate over the course of four years. It is totally useless in the short term. Because if I told you that Trump's trade policy was going to be all about China, which in hindsight is correct, right? China's got a 45% tariff. Everyone else has a 10% tariff. But if I told you that on January 19, and you were, you know, running a hedge fund, you would have been very, very surprised that the first three months of the Trump administration were all obsessed with Mexico and Canada. Basically, this whole China lens would have been useless up until April. So that's a second thing,

• 27:35Speaker 06

  is trying not to take an overarching view, but look at it individually, and try to figure out what's he after in this specific case. So, you know, the best example is, if you think he's after tariff revenue, then he's by definition not going to back down. You can't get revenue if you back down, right? And a same country can be affected by completely different motivations or, you know, confrontations. So Mexico, in the first three months, was affected by fentanyl and immigration concerns, which were pretty clearly, I mean, it's always easier to say in hindsight, but pretty clearly transactional. Like Trump just wanted to be able to say that he had done something about those issues. The way that Trump is going to approach Mexico in Q4 this year, to try to get them to do USMCA revisions and open up their energy market and change their rules of origin

• 28:19Speaker 06

  on auto sector issues, that's going to be much, much tougher, right? So same country, totally different approach. Another is, there's this big, like, talking point, you know, don't take Trump literally, but take him seriously.

• 28:31Joe Weisenthal?

  We hate that one around here.

• 28:33Speaker 06

  Okay, so yeah, so first of all, we know not to take him seriously because of Taco or, you know, sign them pre Taco. But I actually think taking him literally has been reasonably helpful, him and some of his advisors, those who repeat his views. So people like Besson, Lutnik, they actually don't repeat his views, they kind of freelance. But if you take Carolyn Levitt, one thing that really sort of struck us was, I think it was on before the February one deadline rather than the March one, but I could be confusing them. She said there in that press conference the day before on the Friday, she said, there is absolutely nothing that Canada and Mexico can do to prevent the president from signing the executive order tomorrow. Signing the executive order, they never said they were going to actually implement the tariffs, right?

• 29:14Speaker 06

  And I know that sounds like a little cute or yeah, but there is something to that effect. And if you listen to Trump, I think it's quite interesting. If you also look at how his advisors, how he lets them talk, like speak, you know, what kind of leash they're on, they are allowed to say anything, including the craziest stuff, as long as they don't reduce his optionality, right? So he benefits from them going nuts as long as he doesn't get cornered by their comments.

• 29:57Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 30:39Speaker 01

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• 31:20Speaker 09

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• 31:50Joe Weisenthal?

  Let's go back to the recent war and something I'm interested. So looking at the cumulative odds, 20% preemptive Iranian capitulation, 45% Israeli mission accomplished. When you're coming up with those odds, like, how much do you really have to know about the size and scale and quality of the respective weapon systems of Israel and Iran? Because ultimately, to some degree, prior to the US intervention, the question was the degree to which one side's missiles or their missile defense was stronger than the others. So how do you learn about that? And how important is it to actually have really high-quality information about each side's arsenal?

• 32:35Speaker 06

  So that actually gets a little bit back to what is Signum and who we are. Because I'd say there are different types of shops in our industry, right? There are shops that are based on intel, right? So it's like, what we're hearing in Congress, or I play golf with Scott Besen or whatever. That's not us. We do access events and a bunch of really cool stuff. We took clients to Ukraine to meet with the Ukrainian Government and get a sense of what post-war reconstruction type policy might be. We do that stuff, but it's not part of our research, right? And that's because intel, in addition to, you know, potentially, if you've got MNPI, et cetera, that that gets legally dubious. In addition to that problem, it doesn't make for good predictions, right? Because Scott Besen himself didn't know on April 8,

• 33:19Speaker 06

  whether Trump was going to back down the next day. That's right. He knew he was working on him, but he didn't know. Assad was not sure whether he was going to be toppled or not, right? So there's that. And then there are shops that are very focused on country expertise. So it's like, you know, I lived in Venezuela for 15 years. So here's my take on whether Juan Guaido's coup is going to succeed or not. And don't get me wrong, like, we've got regional experts. We have a Mexico office with a Mexican guy leading it, years and years of experience in Latam, et cetera. So it's not that we don't do that. But the point is where we think our value add is, is on the process. And we've basically adopted like a few principles. One is the Phil Tetlock principle that I I mentioned earlier, which is it's not really about who you are, it's how you proceed, right? So it's precisely what is your model, like, what is your process?

• 34:04Speaker 06

  And that's where another guy comes into focus, which is Brus bueno de Mesquita, that a lot of people will know about. Political scientist, very focused on essentially the logic of political survival, right? Like leaders will always put their own advantage ahead of anything. And that's why, you know, you've got situations where like Netanyahu's never going to agree to a hostage deal because it would risk his coalition. And why would he risk his coalition? Or, you know, why would he risk losing power just to satisfy Trump? That's where it gets interesting, though, is none of these rules is fail proof, right? Because using that logic, one of the pushbacks I got on on our ceasefire calls in the past was, why would Hamas ever give up the leverage of hostages, right? And that sounds like a conversation under.

• 34:48Speaker 06

  The truth is they've given up hostages twice now, right? You've got to stay like pretty nimble and humble. There, there is no like perfect answer. But that sort of process approach can can be helpful. Now, to get back to your initial question about like how much knowledge you need. You do need technical knowledge, but you don't need to have it in-house. So we don't ever outsource any of our analysis. Like, no one external has ever come up with a prediction for us or written any of our notes. But what we do is we break down a big issue into sub-questions and then we go out and try to find the answer. And some of that will be in open source, some of that will be trying to speak with an expert on XYZ missile range.

• 35:27Speaker 06

  So yeah, the answer is you do need it, but you can break it down and not make it part of your core business model and instead just sort of have it as a research process.

• 35:37Tracy Alloway?

  You mentioned being humble just then, and I'm wondering, so, you know, in the Iran situation, you published probabilities and your base case and all of that. And I think events didn't pan out quite the way you expected. What happens when you're just wrong about a particular prediction? So, you know, you've laid out your analysis, maybe you had a really great way of reasoning around scenarios and things like that, but nevertheless, something happened that you did not expect. What do you do?

• 36:08Speaker 06

  So, there's a couple answers to that. Well, there's several. The first couple are deflection, the third is the real answer. So, one is, in any of these situations, you've got lots of different predictions, right? So, for example, we didn't expect that Trump would actually go in and bomb Fordow because we expected the Israelis to do it on their own. But we were on the right side of the regime change call, we were on the right side of the Hormuz call, we were on the right side of Israel staying away from trying to knock out Iranian oil production, which looked hairy during that first weekend and so on and so forth. So that's one. The second is, you basically have to try to figure out why you got it wrong, right? And from there, you can typically learn something for the next time.

• 36:49Speaker 06

  So, in this instance, for example, I was far too focused on the Israelis' capabilities and whether or not the Israelis were going to be able to do this on their own, and not focused enough on Trump's appetite to get involved for political reasons, right? And where it gets really ironic is part of the reason I was of the view that the Israelis would be able to go out and knock out Fordow on their own is because for the previous 12 months, I'd been telling clients, the Israelis have the capability to strike Iran on their own, and they are going to do it. And it's going to be a bolt from the blue. I didn't expect it to be exactly when they did it because the nuclear talks were still ongoing. But the point is, back then, the big pushback I would get constantly was the Israelis don't have the planes to reach Iran.

• 37:32Speaker 06

  They don't have the refueling capability, you know, and so on and so forth. And so that gets back to this thing that there is no like one rule that you can like, you know, to sort of one rule to rule them all, right? There is no such thing. You've got to constantly be reassessing.

• 37:46Joe Weisenthal?

  You know, when we talk to economists and market practitioners, you know, one of the terms that comes up a lot is regime change. And I, in this case, I got to be careful. I don't mean literally like the question of whether the Iranian regime changes. But this idea of like regime change in markets, like, oh, does the relationship between bonds and stocks change over time? Or is the Fed in inflation fighting mode or deflation fighting mode? Whatever, like these certain relationships, relationships change. And I'm curious, like, there are many people who perceive and perhaps the medium term future that maybe the US-Israel relationship is going to change, that maybe there are parts of growing louder contingents within the Republican Party and both parties, really,

• 38:29Joe Weisenthal?

  but within the Republican Party that do not want to deploy US military assets or resources in the same way, the same level of support to Israel in the past. And who knows how that is going to transpire? But I'm curious, like, how you think, like, okay, there's some relationship the two countries might have, but all relationships could change. And if that relationship does change, then it changes the short term expectation on any given war. And so I'm curious, in your process or internally, you think about this idea of relationship, regime change, and could at some point down the future, and we don't know when, could some of these alliances or partnerships or, you know, friend relationships change? And then that force a calculation change when an acute event happens?

• 39:13Speaker 06

  That's a great question, but I would say that there is a pretty big difference. I think, I mean, I'm not, I'm not in the markets, but I think there's a big difference with financial markets, which is the regime changes happen, but they happen much more slowly. And so you have a lot more time to bake them in, right? So, you know, you started the podcast by sort of talking about how there are these like talking points that come up over and over, right? The, the world, like geopolitical risk is going to be big in 2025, right? A big one of those is multipolar world, right?

• 39:41Joe Weisenthal?

  Yeah.

• 39:42Speaker 06

  Or gizy world, like this idea that it's like the breakdown of global order and so on and so forth. So those only happen every 20 or 30 years.

• 39:49Joe Weisenthal?

  Or that the US may not want to be the hegemon at some point, that it may not have the same appetite to be a global police. And so, for example, you know, the Tucker Carlson wing of the Republican Party, very loud against this idea, like, why should the US have such a global military footprint? Things like that. At some point, that could be a dominant strain of thought and we, if it becomes one, we might not necessarily know when the flipping point is.

• 40:14Speaker 06

  Totally agreed, but going back to how it's a slow process. I think Trump was a really interesting, and like literally what happened over the past month was a very, very good test case for that, right? And the fact that Trump himself, who is known to be not just isolationist, but also pacifist, you know, one can chuckle, but like he does have a pacifist instinct, I think. And pretty stingy in terms of use of American power and use of American money and resources, et cetera. The fact that even he intervened, I think, tells us something about how slow that process is going to be.

• 40:48Joe Weisenthal?

  Sure.

• 40:48Tracy Alloway?

  Okay, we mentioned cliches a couple of times, and I think this is probably a cliche too, but you know, cliches can be true. Maybe that's why they become cliches, but when it comes to geopolitical risk analysis, do things feel more difficult to you nowadays versus when you perhaps started in the industry? Does the world seem more complex? And I guess, given the Trump administration and some of the unpredictability that we discussed earlier, do things seem more volatile, more uncertain and just harder to sort of get a handle on?

• 41:24Speaker 06

  Yes, I think that is absolutely fair and it really does sort of echo back to Joe's question in the sense that you take something like the relationship between Russia and China, pre-Ukraine war or pre-2022 version of the Ukraine war. For 15 years before that, there had been an established talking point amongst pretty much all political analysts, which was it's an alliance, it's an axis of convenience, right? They get along, they work together, but they don't really trust each other, they don't really love each other. And so you knew that when push comes to shove, when they had to like put their interests above the other, et cetera, you knew which way it was going to go. That was very unclear for the first like year and frankly, some could argue it's still unclear post-Russia invasion, right?

• 42:06Speaker 06

  Or Ukraine invasion. Are they now in it forever and sort of Russia, basically China is grooming Russia to help it when it goes after Taiwan? Or is it still very much an axis of convenience where the Chinese might cut off, you know, drone inputs to the Russians for the right price if there's American export control lifting or something like that, right? And to your question, Tracy, the fact that so much stuff is changing so fast means that you have even less historical background or historical data, which as we said earlier, you're already starting with very, very small data sets, right? And so the temptation there is to kind of just make it up as you go. And that's where things get dicey.

• 42:45Joe Weisenthal?

  Do you think that's possible, like that China has a price for which it would hold back on Russian access to drone materials and such?

• 42:53Speaker 06

  So my answer to that would be, in a way, that one is actually not that hard because even if there were a price, we are so far from being willing to pay that price that it's not gonna, it's never gonna seem to light a day.

• 43:05Joe Weisenthal?

  What's a surprise thing that you think is not on anyone's radar right now geopolitically that you think we should be focusing more on? This is my way of soliciting ideas for future episodes, by the way.

• 43:16Speaker 06

  Yeah, yeah. No, I, so I actually, I love that question because, but I hope this is not gonna be disappointing, but

• 43:22Joe Weisenthal?

  It is.

• 43:23Speaker 06

  I always say like, The whole black swan thing is irrelevant. Like, black swans almost never happen. The stuff that blows up in our face is stuff that is visible pretty far ahead, like, not necessarily far ahead of time, but that is pretty obvious. And the difficulty is for the analysts predicting the details, right? Like, in what month is Putin going to invade or whatever? Or what part of Ukraine is he going to invade? And the other difficulty for clients, of course, is how to trade that, right? Given that you can get radically different outcomes. But the events themselves, I mean, there were four or five months of Russian buildup in front of Ukraine. And in, you know, December, January, people were still debating whether it's going to happen or not. And another example is COVID. People talked about COVID as a black swan.

• 44:08Speaker 06

  I mean, if you read any of those, you know, World Economic Forum Global Risk Reports for the past, like, 15 years, pandemics were always top 10, like, or even top 5. People knew that pandemics were a major potential business risk. So again, it's more like the details rather than something's going to just pop up in our face.

• 44:25Joe Weisenthal?

  In the next, I don't know, five years, do you expect China to invade Taiwan?

• 44:29Speaker 06

  Yes. If, I mean, the word invade is the one that bugs me.

• 44:33Joe Weisenthal?

  Okay.

• 44:33Speaker 06

  Which is not going to surprise you, because I think that it's more likely to be a blockade, for example, than an actual amphibious invasion. So that view, for example, is pretty, I think, banal, right? The problem is, again, from the perception of how do you manage it? One of the things that I think is totally underappreciated is everyone knows that a blockade is a risk, right? But the part that's totally underappreciated is that the Chinese could roll it out literally overnight. So I think what is underappreciated is we're not going to get any buildup. We're going to wake up one morning and it's going to be done. So that's one problem. A second problem is a bloodless blockade that lasts, you know, three months or six months, that is essentially a continuous anaconda squeeze on Taiwan and the Taiwanese

• 45:17Speaker 06

  economy, could actually be far worse from a purely market perspective. Forget about, you know, normative aspects. Far worse than a one-month war, regardless of the outcome, right? Because it's the length of the disruption for business operations that could be most problematic. So again, it's how you look at it, I think, that can make a difference.

• 45:37Tracy Alloway?

  Back in college, I wrote an essay slash dissertation on the chances of China, you know, invading Taiwan or going after Taiwan. And I think I had my base case was they were going to do something before the 2008 Olympics. So, uh, yeah.

• 45:52Joe Weisenthal?

  So you empathize with the difficulty of timing?

• 45:54Tracy Alloway?

  I totally do. Andrew, that was fantastic. Thank you so much for coming on All Thoughts.

• 45:59Joe Weisenthal?

  Thanks, Andrew. That was great.

• 46:00Speaker 06

  Thank you.

• 46:13Tracy Alloway?

  Joe, there was a lot to pick out of that conversation. I think one of the things that struck me, okay, first of all, you know, he was talking about black swans. And this is something that Taleb himself pointed out at our recent live event, which is we shouldn't really be worried about black swans because they are by their very nature unknowable. We should be worried about the gray swans, like a pandemic. I think that makes a lot of sense. Secondly, the emphasis on motivation was really interesting to me because this is something that I have wondered about the tariffs. If Trump needs to have a bunch of tariff deals to have his trade war seem to be a success, then what does that mean

• 46:57Tracy Alloway?

  on the revenue side? Because he has also talked about how tariff revenue is going to offset a bunch of tax cuts and things like that. So I do think it's important, and I still haven't figured out that one particularly. And then the other thing is, he was talking about Trump's advisors. And this is something I hadn't realized, but he's right. The one thing they can't do is limit the president's optionality.

• 47:21Joe Weisenthal?

  Yeah.

• 47:21Tracy Alloway?

  It seems like they can throw out pretty much any scenario, any response, any possibility that they want, but they can't do anything that would box him or pigeonhole into one position. That was interesting.

• 47:33Joe Weisenthal?

  Yeah. You know, by the way, just going back to Andrew's note that we kept referencing on June 16th, he had underestimated the odds that the US would intervene as he did. However, to his credit, here were his Final takeaways, US intervention is certainly possible, but still not base case. Okay, it did happen. However, he says likewise, regime change is plausible, but still unlikely. So he was right on that. And then he said, the overwhelming majority of scenarios end in a negotiated Iran capitulation with no meaningful damage done to global oil supply or Gulf assets. I think that's a pretty good conclusion that at the end of the day, because if you figure people care about the markets and oil supply, more or less a useful conclusion to have been

• 48:17Joe Weisenthal?

  able to make on June 16th. I have to say, the speed with which Andrew answered, yes, there is going to be something in Taiwan.

• 48:25Tracy Alloway?

  It's worrying, isn't it?

• 48:26Joe Weisenthal?

  It freaked that I was like, I was hoping that he would hum and haw a little bit about that. And then this idea that it's just going to happen so quickly, it'll be overnight. There's, we're not going to get any signs of it. And then the world is going to change dramatically the next morning in ways that we don't really know.

• 48:42Tracy Alloway?

  Well, on the other hand, there are people like me who have been saying,

• 48:46Joe Weisenthal?

  Yeah.

• 48:46Tracy Alloway?

  with great confidence that this is going to happen for a while and it doesn't. So maybe that's, that's some hope for you, Joe.

• 48:53Joe Weisenthal?

  I mean, for me, I mean, for lots of people certainly hope there isn't. Anyway.

• 48:58Tracy Alloway?

  The other thing I was gonna-

• 48:59Joe Weisenthal?

  I just didn't like how comfortably he was.

• 49:00Tracy Alloway?

  Yeah.

• 49:01Joe Weisenthal?

  Because in five years, yes, he didn't have, seemed to have any doubt.

• 49:04Tracy Alloway?

  The other thing I was thinking, we probably should have asked this, but the timeframes?

• 49:09Joe Weisenthal?

  Yeah.

• 49:09Tracy Alloway?

  For things, because you mentioned regime change in Iran, like, okay, well, it hasn't happened, but it's also been two weeks since we had this big, big event that happened. And I don't think it's necessarily off the table. So I'd be curious to figure out how he thinks about like the timeframe of possibilities as well. But oh, well, we already spoke for about 45 minutes, so we should probably leave it there.

• 49:32Joe Weisenthal?

  Let's leave it there.

• 49:33Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 49:38Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our guest, Andrew Bishop. He's at Andrew underscore D underscore Bishop. Follow our producers, Carmen Rodriguez at Carmen Armand, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com slash Odd Lots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 50:04Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we try to dig into what exactly geopolitical risk analysis actually is, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 50:59Speaker 10

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