Markets in Wartime

off with a heartfelt wish for peace. As Albert Einstein once said, peace cannot be kept by force. It can only be achieved by understanding. So we want to first try to understand what caused this war and what might bring it to an end and when, and then we'll

get into what it means for markets. After all, with crude oil surging and the ruble crashing, as the US and Europe leverage the financial system as their best weapon to confront Vladimir Putin, markets and finance actually are an important element of this situation and maybe even the best hope to bring about peace. This week's guest is an expert on both geo politics and markets, and he's gonna help us make sense of this tragedy unfolding before our eyes. Yeah,

I want to welcome Marco. He's the chief strategist at the clock Tour Group and he's the author of the book Geopolitical Alpha, and Marco, I want to welcome you to the show. Thank you so much for Dona and Mike. It's it's such a pleasure to be back. Unfortunately under these circumstances, but you know it is the professional we chose. Yeah, yeah, Well, we appreciate your time. Marco. It's a good week to

have you. Um And if anyone's curious about Marco's background and what his firm, clock Tower Group does, I would say you could go back to the podcast from February of last year. We got into exactly what clock Tower is all about out and Marco's background. So today we just want to get right into it. And uh, Mark,

I wanted to ask you about your last note. Now, I've got respect for a strategist who admits they're wrong from time to time, and I noticed in your note, you know you would assigned a very low probability of a full blown invasion of Russia. And I bring this up not to heckle you, but because I think it's an important point because you're not You're not the only one though a lot of people, a lot of smart people, people that know this stuff the best, I think, would

have agreed with you. You know, the sort of storyline for many experts was that Russia could be bluffing, or they could only be interested in those regions of the east of Ukraine that they have sort of already in control of. But I think it's important to sort of try to figure out what everyone got wrong right now, especially because you know, you hear all the pundits now talking about Vladimir Putin and wondering and saying, he's not the guy we thought he was. He's not the guy

he used to be. There there's concerns about, you know, whether he's mentally fit or or even some kind of physical ailments that's affecting his decisions. But I'm curious what your perspective is. What did everyone get wrong about thinking this was most likely a bluff? So I'll tell you

what I got wrong. You know, my framework is based on material constraints the policy makers, and I call it a framework on purpose, right, because not a theory it's not a method, it's a framework that allows investors to have some sort of a set of probabilities. Some center is parabous sense of where we are, what's the path of the least resistance you know, uh, to policy maker

action and in the in this particular case. Um. Actually, what's what's interesting is that the set of constraints that I elucidated in my research is absolutely acting itself out. It's manifesting in reality as we speak, uh. And it's manifesting itself in a couple of ways. Ukrainians are fighting really, really hard. It is an absolute like fallacy that there are pro Russians and any spot of Ukraine left, they are in Donetskonsk, in Crimea, so Putin has already kind

of you know, annexed him. The second is that Russian military has not had any experience fighting real wars. And third is that Ukraine is a very logistically difficult place to invade. So those those constraints are manifesting itself. And and so I guess what I'm saying is, you know, it's still very very valuable to be focused on the material reality, because if policymaker, you're trying to predict ignores the constraints you laid out. Then you were right in

how you laid it out. Then you can chart a path forward once they have surprised you with their decision making. Now, why did we all get it wrong? I think, um, I think what we misunderstood as two things. One, Putin's r o I on geopolitical events has been very high. He's been very very cautious empirically. I can prove this with his previous actions. And the second I think is that it's not clear that we did get it wrong.

And what I mean by that is that there is still an off ramp where this becomes a Georgia two thousand eight scenario, where in that initial stage of the attack, it looks like a wide occupation and an attack against the entire country, but it's actually going to end up being much more limited, where he withdraws from a lot of the areas and focuses on what he wants. That's

what happening to thousand in Georgia. And so that's something that I would just add, like, let's see how this play out, especially as pain continues to be exerted in Russian military, Russian economy and politics. Marco can I actually ask you to start with a really basic question. And I've read a ton about this, and I'm really interested in this, and I'm struck by how many theories there are, But what is your theory for the why the invasion happened?

Can you maybe lay out some of the factors, whether it's you know, we've heard a lot about thwarting NATO or putin sphere, of being so close to a democratically elected country or etcetera. What is top of mind for you? You know, I think all of those are very good theories. I mean, to me, the fundamental issue here is that Russian policy, over over hundreds of years has been colored by deep paranoia of vulnerability. And it's really born out

of history which is bloody. Many many, many people and leaders have tried to conquer Russian and knock it out. And the second is a really vulnerable geographical position. And that's something that you know, I'm not the only one that has mentioned that, but this is this is imprinted

on Russian psyche. Especially if you come to rule Russia, you come to learn the lessons of its history, which is that leaders who took geographical and security of Russia lightly are not remembered with glory, and so those that take it seriously, you know, they try to secure Russian and the biggest problem right now for Russia is that when you look at its western borders, the fact of the matter is that it's it's vulnerable, it's exposed, and so has tried to explain this to the West for

a very long time. I do think the West didn't really listen to it seriously. And I think what you saw over the last twelve months especially is a ramping up in rhetoric, not so much from Paris in Berlin, but specifically from Washington, d C. On Ukrainian membership NATO. You know, and now now listen, like you know, I'm not here to tell you that this is like America's fault in Putin his crossing an international border. He didn't have to do that. But the rhetoric out of the

US has been much more stringent. There was also, you know, the U s sent lethal weapon to Ukraine, and you know, there was things that US has said that we're really interesting. For example, territorial disputes between Ukraine and Russia do not preclude Ukraine's membership to Tornado. That's something the White House said recently. And the truth is, like, of course it does. In fact, Croatia and Slovenia like they had a dispute and Gratia wasn't allowed to get in too NATO until

it resolved that territorial dispute. There was a silly one in the on the coast. But the point is that US was just kind of writing checks. It doesn't have any intention of cashion. I think Putin called, you know, kind of America's bluff and think what he What I think he's doing though, is I don't think that the Kremlin is trying to annex. We can talk about how ludicrous that would be. And this is where my point

of material constraints really hits in. I think what he's trying to signal to Kiev in stark terms is how alone they really are and how no one's coming to save them. And that's something that Lensky President Jelenski said at the very onset of the war. He said, we will offer neutrality. We now know the truth. I'm fair rephrasing, but he basically said, look, no one's coming to save us. There is no NATO membership and offer we do need

to offer Russian neutrality. I think that's an offer that Putin would take to actually declare victory, raise the mission accomplished banner and move on. Mark. Could you think the the sanctions, uh that have been imposed? You know, it's a long list. Obviously, the major banks, almost all the major banks kicked off the Swift international bank messaging system,

basically isolating Russia's financial system from the rest of the world. Um, the assets seizures, the central bank assets being seized around the world, on and on and on, threats to the oligarch's yachts and property around the world. Are these enough to influence Prutent's behavior and to sort of piggyback on that. I think there's a lot of speculation in the West that they possibly could be enough to tugger some sort of coup or some sort of overthrow of Putin as leader.

How do you see all that playing out? Are the sanctions gonna be enough to influence his behavior? Even topple him? Hey, listen, I don't shy for making calls. I I I couched him me probabilities, you know, And I always always offer hedges to my positions. I would say that I give Prutin twelve months, and I'm taking the under When policymakers make extraordinarily bad decisions that ignore their material constraints, they

get punished. And listen, I'm just a guy, okay. I mean, you know, me and Ville Donna were from the same region. We grew up with this kind of stuff, unfortune. So I've been following this kind of stuff since I was sixty years old. So I have a lot of experience analyzing wars, not just professional and I will say this to you. I'm just a guy sitting on Santa Monica Beach doing my research for investors. And I called the material constraints to Russia perfectly, So how the heck that

Vladimi Reprutin not do the same? That is an egregious, egregious mistake by a policy maker. And I mean that objectively. I'm not even mentioning the civilian that's and all that other stuff in the pariah status for Russia. Leave that aside. The forty mile convoy. The forty mile convoy, that's not a sign of Russian power, that's a sign of Russian weakness.

They can't move that thing. That thing is more backed up than I thirty five from Waco to Dallas, it might be less lethal, to be quite frank with you, I mean, I mean, if you are a country with a modicum of look down capability for your air force, like if you have fighter jets that can shoot down, which is rare, but if you have them right now, the message you're getting from this conflict is you can defeat two Russians in the war, like Belgium can defeat

Russia in the war right now. And so that's where Mike, that's why I'm so um, you know, adamant that this this mistake will be punished not by like a coup, not by something, but it will be punished by the material reality. One thing that I would mention is, you know, speaking of the Balkan Wars, I mean Slobano Milosh very similar mistakes that he made throughout the crises, and he

kept he kept coming to the negotiating table. The data and accords are a good example of how you know that happened, um, And obviously domestically in Serbia he had to declare victory, uh and say, oh, we got what we wanted. But the point is that don't confuse madness, temporary madness with permanent you know, um lunacy, and so I do think that the constraints are going to act over the next couple of weeks, and at some point

I think there is an off ramp. Now, am I sanguine on the market, No, I do think that this conflict could be different than others, and I do think there's a considerable still downside risk. Mike mentioned the slew of sanctions that the West has already announced against Russia. One thing I really haven't heard much about is what other sanctions or what else the West and allies can deploy against Russia. What else is left to do? Well?

The Swift sanctions have been applied very tepidally, you know, because basically the Germans, the Italians, a lot of the importers don't want to curtail their ability to transact with Russian financial entities due to the energy section. So I think that, you know, a permanent expulsion of all financial institutions of from Swift would be a game change. So that's the first. The second is just an actual embarko

on Russian exports and energy. I don't see that happening, but I worry that if it takes longer for President putin to realize his constraints. If he takes longer, it might be Russia that self imposes. Actually, it's exports, you know. So you're talking palladium, global production, you're talking potash, Russian Bellarus together for masure. The Bello is put on its exports a couple of weeks ago because of sanctions. So that's a really significant hits to already climbing food prices.

Uh and then obviously things like aluminum, nickel, and so on. So I think that that's what I fear Bill Donna, and I fear that that it mutates into the seventy three young people war scenario. So you know, if you look at my book, I have this fancy table of every every conflict is the Second World War, and like the message of the table is by on the side

of the cannon's empirically proven, you know. And I've seen that table like star people are quoting me like, oh, you know, Marco Poppy, she loves this, you know, like buying, and I'm like, whoa, whoa, whoa. The one war in that table that didn't it wasn't an opportunity to buy was nineteen seventy three poor and if you think about the macro context we're in today, and then it's kind of similar. You know, these are events that are basically

inflationary cherries on top of like a Sunday. You know, it's it's it's just we're in this very complicated mac environment. I was already barished on US assets and US equities in particulars is December. I'm not sure that I want to not buy because Russian you preinter going to war? Right? Well, I think about that, that notion of material and resource constraints, um, and it works both ways obviously too. If if prudent were to turn the whale and gas off to Europe,

I mean, who knows what Brent Crude would do. I'm probably of barrel. I would guess we'd be looking at surgeon gasoline prices. So how do you do do view the constraints on the other side? Uh? If he were to do something like that, I mean, is that it would be enough to sort of cause the US and EU to back off a little bit? Do you think, Well, I think it's already causing them to back off a little bit and create his ofference. Uh. And I think that you know, it all depends on what it is

that the intention of President putinist. Now the problem is that, you know, my suspicion, and maybe this is colored by my failure to predict a full invasion, but my suspicion is that he made this decision last minute, you know. And that's a worrying point because it's also suggests that,

you know, there's like an element of irrationality. So if if he's just looking to have a punitive war campaign against you, Praine, like in Georgia in two thousand and eight, and I keep referring to Georgia just through like reminded listeners what happened in Georgia is that for five six days you didn't know if it was a full invasion or just the punitive campaign where Russians then retreated to self possession and a positive So my point about two

eight peril is that we're still there, you know, Mike, like this could still be a Georgia type of scenario where it's a punitive campaign punished Kiev for alerting with the US, and that we're drawing into the regions of Ukraine that Russia basically ostensibly already controls the netic Premia. And so my point is that A lot of the decision making by the leadership in Russia suggested they had a last minute decision to flip this into some sort

of a punitive campaign. If it just remains a punitive campaign they withdraw, then you have a number of off rams if it becomes a complete destruction of like Ukrainian civilian infrastructure with the intention to occupy. First of all, I think Russia will break itself against Ukraine as a state. I mean, this is the end of Russia in that case, ISSI as a power because it will be extremely expensive and costly to Moscow to to exert this. I mean

US struggle with Iraq. Iraqi is smaller, less population in US had more troops. So that's the first issue. The second issue is that then I can see your scenario where we go all out and actually start embargoing energy, you know, if this becomes a war of occupation. But to me, the probability of that still is very low. I still am not ready to skew probabilities more towards a full occupation. UM I would say eight twenty in

favor of the Georgia punitive campaign scenario. How about you know, there's obviously tons of speculation on the other weapons uh in Putin's holster, uh cyber warfare and god forbid nuclear weapons. Um any probabilities on on him unleashing either of those. Yeah, I mean, I've I've heard that some people are talking about this seriously. I don't see what tactical nuclear weapons and kine accomplish. I also cybersecurity, you know it's a big deal. I know that cybersecurity stocks are doing great

blah blah blah, and everyone's in the cybersecurity train. But listen, cybersecurity doesn't control air space. Cybersecurity doesn't royal ground troops like what. This war is much more classical than people thought. This is a very, very much classical issue. So I think the cybersecurity issues just don't consider me too much. There might be might go back and forth. I'm not saying Russia doesn't attack the US and US attack to Russia, but this is about controlling ground with with men with

guns and controlling airspace above them. It's a much more of a classic conflict that people thought would happen, So I think that's really important. I don't think Russia uses nuclear weapons. I don't see white Wood and and in fact, you know, I think that the logic of destroying Ukraine further is also kind of weak, and in fact, the more they destroy Ukraine, the more likely it is that this is a punitive pain, because what's the point of

occupying and holding a country you destroyed. What about what's going on within Russia itself? We had a Bloomberg story that said there's a lot of resignation among the population about the economic hardships that they're going to be facing. So what sense can you give us about what the sentiment is like within Russia itself and how does that play a part in putents thinking? That's such a critical question, Bill Donna. I mean that is that is what we

need to focus on. I think we have investors have to focus on the streets of Moscow and St. Petersburg. It's difficult to get good information though, But what I would say to you is is this, every authoritarian regime has a social contract. We don't live in medieval times, so you can just like kill scores of people, and a throitary regime like Russia does not do that. I'd be sure they repressed the public, but it's not like

they have They're running Goulas, they're not. So what is the social contract that allows Vladimir Putin to retain power with the median Russian accepting that that rule? What's the trade off? It's not the same as Chinese communist parties see Chinese communist parties. Social contract which citizens is simple, we will deliver the Chinese dream to you. You don't ask us for a and that's worth And they've done it. They've delivered the Chinese street. In the case of Russia,

it's not about economic progresses. Were a terrible time for Russia. I mean, you had mafia running the streets of major cities, You had PhDs in physics, you know, living in dumpsters. You had complete chaos, complete collapse of economy and currency. And so the social contract in Russia is very simple.

Russian public expects its leaders to provide stability, not necessarily economic growth and potential, but stability, like you know, like get Russia off of its economic needs and its geopolitical needs that it was at especially NATO bomb one of its allies in serving Prutin has for the most part delivered on that stability. And the problem right now vill Dona is he's breaking a social contract, and he's breaking

the social contract for unclear purposes. And this is why, by the way, a lot of Russian watchers didn't expect the full invasion. You know, we expected some sort of limited incursion because the mass stick lead. There was no prep There's no prep The media and Russia did not talk about like ethnic lensing of Russians or this, or that they were making fun of Biden for being hysterical, right,

that was the narrative. They did not at all. Putin pulled the rug under his military, his propagandist, his his central bank that didn't prepare for this, his diplomats, who gave Chinese diplomats all sorts of stories that they didn't deliver. This was so sudden and surprising that the collapse of stability in Russia relative to the gains for the Russian state from doing this in Ukraine is such a skewed ratio that there will be serious consequences for the political

hold of power of Lavenot. And again, I can't, I can't just stop comparing it. Maybe you know, I'm from Belgrade, but I can't stop comparing it. Too slow and milosh like a NATO bombing of of Belgrade. You know, for for like a minute it unified, serves against the West, and then six months later he was in trouble, I mean in the serious trouble, and finally the country revolted. And one thing I will say is like Russians will not be cowed. This is a country with a deep history,

deep history of failing in military aggressive tactics. We all, as in the West, we think Russia is a has a has an incredible military history. It does if you attack it, But when they're on offense, they lose more than they win. And when they lose, there is a revolt, there is a revolution, there is a cud tough and it's shocking to me that someone has steeped in history. Is Vladimir just forgot that? I still think of Molossovitch,

of of all that being not too long ago. But I guess as as I get older, it's it's it's longer than I realized. But um, you know, and you look at that Bosnia, Serbia recovered from that, maybe not thriving so much, but doing pretty well. You know, as nations these days, is there a chance for that in a sort of postputent Russia or is is Russia, uninvestable, unapproachable,

untouchable for the rest of the world. Say for the rest of our lifetime, do you think well, I would say that it's difficult for us to like kind of make a call now something that hasn't happened, you know, so as a caveat. But I'm about to answer your question. Don't worry, Mike, I haven't heard a question. I don't answer. That's why we love you on this show. Listen. Of course it's is investing. Of course, of course Russia is investable.

And I'll tell you why. If you look at the performance of Russian equities relative to end it really hit bought him in two thousand and eleven, and that was pre pre elections, when Medvedev and Putin had this very callous, very arrogant press conference where they basically said they were going to switch roles and everyone was like, you know, a lot of like internationalist investor davos Man type of people were hoping that Medvedev and Kudrain, you know, Coudrain

is like the poster child of everyone who wants to invest, that they would take over, that Putin would just kind of like be there. And in two thousand and eleven everybody realized that wasn't the case, and Russian assets have never actually recovered since then, since that press conference actually that they had together on this weird stage. Well, I guess what I'm saying is that, yeah, I mean, if you have some sort of a change intact and in relationship with the West, of course, I do think that

there will be a potential to invest in Russia. The problem is that from here to there, you know, we could have appropriation. So should you buy Russian equities now? Given this kind of hope that there is some sort of a you know, change in in leadership or Putin's retirement like cruise Ship got retired after he messed up the Cuban missile crisis. Like, I don't think so. I mean, it's this is a very volatile situation. I would actually

propose a different view. I actually think that what's happening in Ukraine is extremely obviously terrifying, but also heartening. We're doing we're watching something we haven't seen in a long time. We're watching a birth of a new national identity, you know. And Ukraine's biggest challenge has been the post Soviet Union collapse. Its leaders have been corrupt, they've been incompetent, and not

just pro Russian. Let's just be very clear here, like the pro West ones were sometimes most corrupt, most incompon the origins revolution gave us some really, really nasty characters

that didn't go anywhere. So the point is that what we're seeing now in Ukraine though, is a birth of a truly like self aware nation, and I think that that might be actually a very interesting investment opportunity over the next um, over the next decade, you know, provided that you know, they fight off this attack and have some independence going forward. It's a large country, it is in Europe um, and a lot of potential exists in

that country. We've heard from Biden and also from EU officials about how we're all going to have to face the some of the burdens that come with higher gas prices and some of the other reverberations that we're going to be seeing in the weeks and months to come.

So what can you tell us about how this might impact growth here in the US and and and abroad as well in Europe as well, you know, Alana, that's that's the number one question with the folks that I talked on the daily basis, whether they are institutional investors like large pension funds and pools, the capital or hedge funds. And there's a range of outlooks out there. I mean, I'll give you mine. My view is that I worry about the young por scenario. As I said again, you

know that's that's a nightmare scenario. We get into a staculation review. And by the way, think about why this is so difficult. Like if the fet just says, look, we're gonna deal with inflation, we get a reception. Okay. If the feed says, like it's caused by Putin, so we're not gonna We're gonna step back, like okay, what does that do to asset prices? I don't know, Like, I'm not sure that's positive for asset prices. Either inflation

is basically un anchored and central banks lose credibility. The Epean Central Bank really has only one mandate and they are now backing off from them mandate. What does that do to the bond market? What does that do to acquities? I I don't know. I just know that I like commodities in that world. But in terms of the actual impact, there are differentiated impacts. I mean, obviously Europe is going to be far more affected by what's going on in Ukraine. In the US, US has a couple of things going

for it. So my dear friend Georgie Vissor, he has great webinars. I don't know if you guys watching, really worth watching. He has made a point that net worth in the US is so high right now because of the Stimulu checks. If you plot oil prices relative to networth, it's they're like the lowest they've ever been. So Americans do have the ability to imper higher costs. And then on top of that, you have something else that's interesting. And that's something else is that we just went through

two years of working from home. Our ways of life and work have altered, and it's not clear to me that an increase in all prices would necessarily impact the American economy as in the past. So the whole like idea that like a ten percent increase in all prices impacts the GDP as a certain percent, like we should throw all of that out the window. We don't know. In the US the impact will be much much lower, which also explains geopolitical position of US. That's why mccron

is going to to Moscow. That's why Germany is hold holding back swift sanctions because the impact to Europe is much higher. US has much much lower risk tolerance, whereas the US doesn't care effectively. US can be much more macare valiant, much more meaner to Russia, as supportive of Ukraine because the macroeconomic implications are lower. Plus you know, hey, if inflation goes up and the FED can't fight it,

Biden has an excuse. Now, it's not Automa bill prices that are driving CPI hied, it's a lot of reputin. You know, bark I wanted to you mentioned commodities. I wanted to roll in a little bit on wheat in particular. Um. You know, you made a interesting point in one of your recent notes that wheat is actually outperformed crude oil during all of this. And you know, I'm an older guy.

I remember living through the gas shortages in the US UH when you had to wait two hours to get uh fill your your tank with gas and and maybe you couldn't get it and you canceled a trip or something. But a shortage of wheat is a is a much more serious scenario. I think, how are you thinking about week? I mean wheat the you know, obviously springs coming up. Ukraine is a big producer of wheat, exports to both

Europe and Russia. And I'm curious how you're thinking of it a from a sort of a shortage standpoint, you know, uh, is there a risk of a shortage in Europe or is there enough producers worldwide to sort of, you know, plant some extra acres and pick up the slack. But also as an investment, you know, I think you sort

of advised it as a hedge in this situation. It seems to me like possibly a risky investment if there are shortages, if there is a sort of government backlash to that and potential price caps that that sort of thing is. Is that a possibility do you think? I know, I asked you about ten questions there, but yeah, no, for sure, it is risky if it goes too high

there there could be all sorts of things. I mean, I think there's other ways to play this, bulk carriers, there's like shipping implications for anytime there's a dislocation that we could play as well. I think we were headed towards of food crisis Anyways, this is a really big jubilical issue. I've been talking about this for twelve months before Ukraine Russia became an issue. And that's because you know, natural guess prices went up, cost of nitrates and fertilizer

went up. On top of that, you have this PoTA situation in Belarus, which happened because of U S sanctions. Now you've got what's going on here. So fertilizer costs going through the roof, and you have actual potential curtailment of shipping it and supplying because Ukrainians its continues, they might not be able to harvest the week. You know, who knows what happened and and so you know, if you look around the world, you see Brazil or India and there kind of being very careful in how they

react to this crisis. I think one of the reasons is because of this, they want to make sure that Russia prioritizes, especially India, fertilizer exports to India. UM. So you know, Motives is playing a very important to you a political game here. He can't just you know, do what America wants. And and that's because countries like India, North Africa obviously all of Africa, also some in Latin America. Their food share of the CPI is much higher than it is in the US Europe. And those are going

to be the countries that suffered this. US Europe. They're gonna be fine. They're produced enough food. They don't really need exports from Russia and Ukraine. It's really other countries. And another one that I didn't mention is China. I'm speculating, but you know again, I'm just gonna give you my irrationally confident, hyperbolic view, and it's that. Look, I guarantee

Putin didn't tell sheet what's going on? That that that beatings at the Olympics when set on the table, Well, look, I mean like the endless friendship or whatever, it was, the bottomless pit of love that they kind of. First of all, I get so many emails from investors like Marco. This is a sign I'm like of what, like, give me a clause in this deal, in this treaty, unless there's some secret annex I don't know about, like in the first of al War, Like this was just like

a love fest, got it? We love each other, we hate NATO? Got it? Okay? God bless you. That's the world. But here's the problem with that. China does import food. Food prices are gonna matter one. Two, China's pushing on a string domestically. Look at the January TSF numbers, you know, total social financing. They barely got it up. And they only got it up because in the last week of January they went all old school stimulus with S and lgfps, Like the private sector in China can no longer be

leveraged off. Household debt is percent of disposable income in

China's hired in the US. So China staring at like another global recession, and we've got political risks at home, higher food prices, higher energy prices, and on top of that, you didn't tell us ahead of time so that we can extract our citizens from Ukraine, you know, I mean, you remember at the beginning of this crisis when the Chinese were saying, put a little Chinese flags on cars so people can identify you as Chinese, which, by the way, I'm not sure that's a good thing if Ukrainians think

that you were on the Russian side. But like, let's leave that aside. The point here is that I think that the Putain did not tell Chinese what's going on, and I think that they are the Chinese economy, other than Russia, might be I might have the most to lose in this situation. I wonder what you make of the argument that we're in a stag relationary environment or headed towards one because of all of the rising prices.

And I've I've seen a ton of notes come into my inbox over the past week arguing that potentially we could be headed for a stag flationary environment, and some people saying we're already and what it's already here? Yeah, I was gonna write one of those notes to probably. I mean, that's the kipor example, right, I mean that's the view of some of the very large asset managers out there in the world. Oil presses go up two D fifty and we have a recession. Every recession has

been preceded by doubling in oil prices. Um, you know, something that we kind of forget, not just the yellow curb in version, but also doubling the oil presses. I think the risk is there, but the risk of positioning yourself for a recession is also enormous, you know, because what do you do then you buy ten your yields? I mean you do you buy ten your bonds? You buy you're going to cash. What happens if this is

a Georgia scenario. What happens if this is a very short term like and by the way, in short terms like a month long conflict, terrifying, lots of human destruction, lots of pain. But then and offer him. And in that situation, with the amount of household network that is built up in the US, I'm not sure that you necessarily want to be positioned as if you're asset the location is expecting in a recession, you know. So that's why I would be I would stay very light on

my feet right now. I would like commodities. I think they're the new risk verity. I like to play both inflation or just more inflation through a commodity paradigm. But I don't want to make any other decisions in terms of ascid location right now. I just want to see whether we are in that two thousand a Georgia scenario or if we're in some new world where you know, this last a very long time and then you have

all these other consequences. They are negative Marco. Uh. You know, clock Tower has a lot of interactions with hedge funds obviously, Uh, sort of the whole purpose of the firm. I'm curious if you're have a sense of what sort of the hedge fund community is doing. I mean, someone's buying this dip inequities this week. But to me, I almost feel like hedge funds can kind of turn into day traders in a situation like this, sort of which is good. But Mike, that's that's what you have to do. And

that's my point. You cannot make global asci location decisions right now. You've got to be a trader, you know. And I've seen this. I've seen real talent in the mac community emerge out of the COVID christ this same and we truly believe we've seated some of those guys. We think they're awesome, and we think that this environment is very volatile multipole of world where we will have events like this require active hedge fund macro guys to

do the day trading when this stuff starts happening. But what I will say is that I do think that overall, overall, the macro community was basically buying tech shorting energy still like I don't think like I don't think enough investors in the macro sense, Uh, we're ready to give up like US tech story. Uh. And I think that's a mistake because listen, January selloff had zero to do with Russia. Zero.

You know, when you see like Latin American effects I performed, it's not because people are worried about like emergent market war. What January was about was a serious rotation. Now Ukraine Russia could be the delta, the delta strain, and what I mean by that in March, from November to March one, we had this beautiful rotation into basically the reflations trade, and then what happens. Delta shows up, China starts doing austerity, the ten year yields starts going down, check Out performs

rest for another like six to eight months. Ukraine Russia could play the same role if we settle into some sort of a low intensity conflict where that still keeps safety having bids up there, the tenure could like rally significantly enough to give Tech another six months of use. But I fear that this is much more of a binary outcome. Either we have an off ramp and put in realizes constraints and then the tenure resumes itself off and tech gets killed or this is like near World

War three, and then why the heck are you inequities? Anyways? So I don't really see a way in which like Nasadack continues throughout perform. I think that's a head fake and I wouldn't be following that that kind of an investment recommendation. Tien up your st eight jackets. It's time for the craziest things we saw in markets this week? Well, vol donna um, even in these trying, uncertain times, I think we need to stick with our tradition of the craziest thing we saw in markets this week? I want

you to kick it off. What's the craziest thing you saw? One of the wildest things was a story from our friend Katie Greif felt actually, and as you know, the Russian stock market has been closed this week, but there was one way for investors to see how Russia centric stocks were faring and how they might trade when things

open back up, and that's through ETFs. So on Monday there was a Vanic fund that fell and an i SES fund that felt, and those losses have just been staggering obviously, but it is just one way to see how things might play out once the Russian stock market reopens. But to me, the craziest part is they both saw a lot of inflows. I believe didn't they They did, but I think it was for the creation redemption process

so people can short it. I don't know. It could be yeah, I think, but not not because people were bullish. I mean potentially, I think there there have been some stories where retail traders are really interested in some of these. I saw Eric Beltuna's tweeting about r s UX, one of the funds, seeing a lot of interest on the tdamer trade website and seeing many more by orders than sell orders. But the Reddit crowd is all in on they want to buy these Ukrainian war bonds. They I

saw that story too. I guess how about you, Marker, Do you see anything crazy this week? I mean there's so many things. I mean, yesterday's ECB burbage and the carnage did in the bondo markets in Europe. The crazy moves in the bond market to me, has been the sort of most like just not you know, it's such a macro variable. It's moving to alt it with such a vutility. But I'm actually gonna give you something that's

a little less market. It's more like geopolitical. I think the craziest thing that I've seen were those lineups in Russian McDonald's to access the A T M S A T M machines, because you know, twenty years ago, like well no more, when I was like eight years old. You know, I stood in those lineups and Communist Yugoslavia to get my taste of American originality, of American fool And it wasn't for the quality of the food. Like you, Phil Dona knows what's up. Like, we got better food

in the Balkans than a big Mac. But you you wanted that big mac for a different reason. And again I go back to the point of white Vladimir Putin has been popular in Russia. You know, it's not because he beats people over the head with the police. It's

because he's delivered stability. And the fact that now twenty years later, you go from waiting in a line to to get a taste of a big mac, waiting in a line to withdraw cash, that is going to imprint on the Russian Psychekee particular set of memories that are going to piss people off. Absolutely. I think Vobano only eats the impossible burger whopper these days. Is there it? I wouldn't even need that one, even I would like,

is there a cauliflower? But you need it's coming, It's coming. Listen, listen. All that stuff is nothing. All right, great stuff. I'll give you mine quickly here because we're going on a long time. But the fact that Ukraine is soliciting donations to its cause via the cryptocurrency market kind of blows my mind. They're accepting bitcoin and ethereum. Someone sent them

on Twitter, at least they claim to send them. I think a few million dollars worth of Polka dot the crypto, and uh, there are people saying can't you send us mint some n f T s and response as if like n f T s or the New War bonds. I find it crazy. But also Marco, you know, this whole week has brought up a lot of discussions about the role of the dollar internationally, the potential role of crypto in either you know, Russians dodging sanctions or donating

to Ukraine. And you know, a lot of people believe that this was a water shed event as far as the financial world order, and that perhaps this is something that knocks the dollar off its its pedestal as as sort of the the global reserve currency, and you know, the the only currency we transact commodity commodities in most commodities. Anyway, I'm curious what do you think about that? Is there a risk to the dollar from all these sanctions? I

think philosophically, I'm totally with you. Is crypto going to replace it? I don't think so, but I definitely think in emerging markets. You know, one of the reasons I took crypto seriously is because of emerging markets. When I saw, like the Brazilian we're starting to use bitcoin. You know, this is when I realized, like, wait, this is serious stuff. So I agree with you, but I would actually take your question a different direction if I made just really

quickly I think. I think what's interesting also about this war is that there is a generational component to it. And what I mean by that is that fundamentally, like a lot of reprutin is basically pursuing like boomer foreign pulse. The interesting issue is that the metaverse, broadly defined, is making it very difficult for a nation state to promote a nation state propaganda because people have access to all

sorts of channels. Now people are kind of riding on TikTok because there's a lot of like fake stuff going on in TikTok right now, and that's fine, But the point is that you can access different viewpoints and a lot of people in Russia are same with Ukraine, and that's I think creating a really interesting dynamic that none

of us are really talking about right now. But I think it's going to be increasingly more and more difficult to create a narrative of irridentism, of nationalism, of revounctionism, just like purely from top down, like what happened in

my country, for example, with Slobano. Milust is controlling the media and basically telling everyone like, oh, we need to go and defend you know this, us in that, and then everyone's like, yeah, let's do that, and then it takes a decade of destruction of the economy and politics of the country for people to finally revolve. Now it's kind of more it's easier. It's easier to just show your grandma, like, hey, grandma, maybe you should look at this TikTok video to see what's going on, like look

at his child in Ukraine dying. And that's that's where I think that crypto matavers, Web three, starlink, all this stuff is having a really interesting and I think potentially extremely positive and humane evolution in today's world. I wish this stuff existed in the nineties when my country. Well, it's the simple fact that everyone has a high definition

video camera in their pocket right now. You know, I always stick back into the nightmares when I was a kid that we're well in you know nine four scenario where we thought the state would be spying on us constantly, and it seems like the reverses being true. That you know, the people are holding the the powers to be accountable with the uh smartphone. Yeah, and I think the Internet

in space is a big deal. It's a very very big deal because if you can continue to project information through pipelines that exists in the air, like that's came over for many countries in the world that repress information from there from their public I do wonder if Putin is going to have something to say to Elon Musk someday for sending his his startling satellites over you and listen. Those things are the size of a grapefruit, so good

luck trying to knock them out. So fair enough, fair enough, Marco. UH, really fascinating conversation. We appreciate your time so much, UH, and I hope we can bring you back again to UH to get your download in the future anytime. Guys. I really enjoyed it. Build on and Mike, it's an honor to be on. Thank you What Comes Up. We'll be back now sweet. Until then, you can find us on the Bloomberg Terminal website and app or wherever you

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