Jacob Shapiro: Before we get there though, I was here speaking at a Raymond James fixed income conference, which is an interesting place to be at this time in the economic cycle. I feel like there was a lot of doom and gloom in the room. And if you were at the conference and you're just discovering the podcast now, nice to have you. Hope you enjoy listening along with us. But I was struck by how much doom and gloom there was in the room. Lacy Hunt was on the stage before me and talked about how he was expecting recession by q4, q1 and about the role that debt was playing and constraining US growth. When you talk to people or rub shoulders with people were oh, it's been a really difficult, it's it's been a really great two years, and now we're getting into a difficult 12 month period. Things aren't doing well, very gloomy. Whereas from my geopolitical perspective, I'm going up there and saying, Hey, it's label ppac 2.0. We're gonna have an energy transition and we're gonna have all these interesting areas where the governments are gonna go through money. There's all these growth opportunities, reorganization of supply chains. I felt positively giddy compared to them, but that's the geopolitics I wanted to throw back at you, especially since Chase filled in for you last time we were supposed to gather for our weekly podcast and he was also very gloomy. Are you feeling gloomy? Have you have the storm clouds risen for you or arrived for you in the last couple of weeks or do you think we need a little bit of a healing salve of optimism to combat all the gloominess that seems to be out there? Rob Larity: I am definitely on the more optimistic side and it's not a healing solve, it's just looking at the data and trying to focus on the actual information and not. What the media says about the information. So everyone seems to be convinced that we're heading into a meaningful recession at some point. Even the Fed has started to project that we're gonna enter a recession toward the end of the year. And that's a very common view. And as a result, a lot of people want to buy bonds. So one of the most popular trades right now is people want to buy long-term bonds because they think that the Fed is making a policy mistake. They think that the Fed always makes policy mistakes and inevitably, like Wiley Coyote, the Fed punches over the cliff and looks down and realizes, oh my. The economy is slowing down much more than we thought. We better turn around and cut rates and that's what people expect today. And I think I personally and the team at ci, the investment team, We're pretty skeptical of that. I think we're much more optimistic a as around us growth and global growth, and the durability of everything that we're seeing. Jacob Shapiro: What are you seeing in credit markets that kind of backs up that point of view? Because that's when I hear I feel like the doom and gloom narrative is really about, and we were talking about this before we hit the record button about, everybody's searching for the next crisis, but I hear so much about debt, I hear so much about credit markets. I can't tell you how many times the dollar came up in the context of conversations here in the last day. And people are using that too, as an indicator. So what data would you point people to look at that goes against the data that most media sources are cherry picking. Rob Larity: As you said, everyone is looking for a crisis, and it's really hard to know what that even means sometimes. But if you read the mass media views, whether it's on in Bloomberg or Financial Times, orCNBC, whatever it is, the drumbeat is about banking crisis. Where's the next problem gonna emerge? Silicon Valley Bank was the start of, this domino effect of problems. And we just don't see that. And I know it's not good. It's not good podcasting technique to say, "Hey there's nothing to see here." But that's the reality. And we were here a few weeks ago saying, forget about Silicon Valley. It's really, it's not that important. It's not a systemic crisis. We don't see any evidence of that. And tell me what has happened in the month since we had that conversation. Credit spreads have tightened. The nominal rate expectations for the US have started to creep back up again. Because bond markets are not pricing in some j\Jurassic rate cuts in response to a crisis. There's been little evidence of significant stress in the financial. If you look at, not to get too wonky, but if you look at the implied volatility of the US Treasury bonds, which is basically like the fear gauge for treasuries, if you think of the Vics and how people talk about Vicks as the fear gauge for the stock market. There's a fear gauge for treasuries that's called the move index. And after spiking in the wake of S V B that's completely roundtrip and gone back to normal levels the primary window for new credit issuance has opened up again. So you're seeing even companies like, CarMax just this morning priced an asset. A loan deal backed by car loans, which is one of the areas where people are, most concerned about credit, stress, low income consumers struggling to pay. And and they increase the size of the package that they sold. Greece, just to give another example, Greece just issued 10 year bonds, no problem. 4.22%. So to put that into context, the US government borrows at 10 years at 3.6%. So Greece is just borrowing at 4.22%, so not exactly a crisis. When you put all these things together, there's not much evidence. Jacob Shapiro: Does the commercial. I feel like commercial real estate is now the other big buzzword is does commercial real estate, the guys over, like Ian, I think Roger Hurst over there who I do stuff with sometimes. They, I think they were pointing out commercial real estate and I think what it was, the California Pension Group was talking about writing down some large portion of investments that they made in office spaces like that. Is there any, anything to look at there or also more smoke than fire? Rob Larity: Again, I think it depends on being precise about what is a crisis, right? Of banking or financial crisis is when something happens. That's really surprising and a lot of kind of previous assumptions need to get revised in a hurry. Commercial real estate, we're really talking about the office sector, right? So first of all, let's put this into context because people often don't cite the numbers and like what they actually mean and how big they are. Commercial real estate in total is 25% of all bank loan portfolios and debt portfolios. So of all, if you took all the debt in the private sector in the US commercial real estate is 25%. So mortgages, residential mortgages are by far the largest. Just to put that into context. So total commercial real estate, which includes not just offices, it includes retail strip centers, like everything. So of that 25% only something like 20 to 30% is really office, and office is where you have a problem. Rob Larity: So we're talking about something that's 20 to 30% of 25%. So like 7% of the overall banking system, which has meaningful credit issues because of work from home mostly. But again, what is a crisis? A crisis of something unexpected and sudden. The issue here is that everyone has known this for two plus years now, and commercial leases. Are fairly long-term. You generally have, about seven to 10% of Lisas rolling over in any given year. So yeah, there's credit problems, but as far as something that's, we should be talking about on C N B C is this is it's not very interesting. It's sort of small potatoes. It's not very big. It's slow motion. Everyone has plenty of time to figure it out and work out with who's, who can ultimately pay and who can't, and how do you restructure and cases where you need it. This is not Lehman Brothers. Fifth. Fifth, full stop. Jacob Shapiro: Yeah. It's funny, I was a podcast listener, was was emailing me yesterday and he said, Jacob, I really appreciated that quote unquote emergency episode you did, where you came on and talked for 20 minutes about how something that everybody thought was an emergency was not actually an emergency. I feel like we're in danger of going down that rabbit hole again. So why don't we pick something? We'll move away from the market update and let's go to things that are more interesting. I thought the first sort of big geopolitical thing to talk about, and we might pair the Mexico US relationship here, but president Lula from Brazil was in China and ran his mouth again about. The complicity of the US and the West, and even Ukraine in the Russia, Ukraine war. And it set off a lot of anger. The United States government reportedly, like communicated to the Brazilian government how mad it was about the, about Lula's comments and how it was just parroting Russian propaganda. European capitals were not happy about it at all. I think one of the things that went underreported is people freaked out about Lulu's comments were that he signed ostensibly 10 billion worth of deals in China with Xi Jinping for more cooperation between Brazilian and Chinese businesses. Now, you can sign deals all you want. We'll see if it comes through, that's an impressive number and it's an impressive number of deals that they. Lula apparently felt so much pressure in the end that he he went from China, I think, to Europe. He went directly to Europe, and after a lunch with the Romanian president, he came and said, oh, no, Brazil just really wants to be part of a neutral group of countries that brings peace to the war. We condemn the Russian violation of Ukrainian sovereignty. But I think that I said this yesterday and what I said to the. And this is a great example of what you choose to pay attention to. I feel like English language media basically only pay attention to Brazil when its president says something crazy or stupid or that is interpreted as crazy or stupid and nobody else covers anything else that's going on with Brazil, for instance. There's no deep dive on Brazil, China relations and Brazil Argentina relations and how all those relationships are changing and how Lula can actually control anything. And the very interesting things that are happening in Brazil, the back end there. We have a long position that we recently put on with Brazil though too. So I wanted to go back over to you and I mean that position knows Dived yesterday. I think there's this feeling in the market that, oh, maybe Lula isn't this trusted actor. So put all that together. Where do you see this, how did you react to what? To Lula running his mouth off in China about about the Russia. Rob Larity: Sentiment toward Brazil right now remains very negative by the people who are not us. There was a piece that I read this morning where it was a a journalist based in Sao Paulo, like a market commentator, and he was saying like, Brazil is at the mercy of foreign capital. And until they show that they can be serious and you know that they're not going to trash the currency and continue with these profligate ways and, the, and the currency is in such danger and they need to be responsible because the American capital won't come into the country and you'll never see stocks go up if it doesn't, blah, blah, blah, blah, blah. And the thing that I was thinking while reading this was, it's pretty striking because the Brazilian reality has been one of the best performing currencies in the last few years. Yeah. Don't give this guy the memo about the Mexican peso. His head would probably explode. But I do think there is this big disconnect between the financial community and what seems to be happening. As an investor. My sense of lula's actions is generally positive. I think the more that he tries to do things abroad, it shows that he's shimmied at home. First of all, and second of all, I think even in a silly over the top way to signal that we're not just going to be the US' lap dog and we want to strike out an independent position in the world is a really positive development for Brazil, like we've talked about a lot here. And it's gonna put them in a position of greater strength and allow them to play both sides. And just to root this in actual data and information, the foreign direct investment numbers of outside capital coming into Brazil to build factories and. Have been accelerating in a huge way. They look very positive. Just today, just to put something concrete around that, just today Toyota announced they're gonna spend another 370 million to start building hybrid vehicles in Sao Paulo. This, that's today's east of news. So that data looks very good. And if you look at some of the internal service sector and consumer confidence measures in Brazil, they're all turning upward and they all look really positive. So this seems like a bit of a sideshow. Jacob Shapiro: Yeah. Although it's interesting you say that because it seems like overall Brazil's FDI figures are doing well, but actually US companies have been more skeptical about engaging B Brazil. And I think I, I can't put my finger on the article that I read this morning on it, so I can't give you the exact figures, but it was talking about how you've actually seen some US companies pull back from investing in Brazil because they're worried about the environment. But I think you're exactly right, and I think people aren't understanding that most countries in the world don't have the benefit of acting out their foreign policy in completely ideological ways. Now, that doesn't mean that they don't dress up the foreign policy in ideological ways. Lulu's obviously a very ideological man and an ideological president, but Brazil doesn't have the luxury of ideology. One of the reasons that Brazil can't be so tough on Russia is because Brazil's agricultural sector, a major portion of the economy. It's growing. It's actually starting to displace the US exports to lots of different places. As Peter's Han likes to say, this is what Peter's Han uses as proof that Brazil's not gonna amount to. Brazilian land not as fertile, not as great as some other land that you might want. So they need a lot of fertilizer to reach their goals. And if they have fertilizer, they do very well. And if they don't have fertilizer, things would go very badly. Who are some of the top fertilizer exporters in the world? Talking Russia, Belarus, China. So if you have, legions of farmers who you're supposed to respond to, you can't really go and pick a fight with China and Russia if you need access to those fertilizer supplies. It's why Bolsonaro, who was nominally very pro us, very anti-China in a lot of his rhetoric and his ideology, he was hanging out with Putin just a couple of weeks before the war. And when the war started, he wasn't saying the things that Lula was. Instead, he was concentrating on whatever stupid stuff he had to say about what animal Covid 19 vaccines are gonna turn you. But he was still making sure that the U, that the Brazil Russia relationship was intact because he knew that if fertilizers dropped off the wall there, that things that, that things would be bad. And I think it's not just the financial community, it's the foreign policy community. It's the media community. The United States is having a really tough time. Thinking about the fact that other countries have other interests and that they deal with things pragmatically on their own, and that not everybody's just gonna do what the United States says. And that's exactly what Brazil's signaling here. If you actually look at the substance of what Lula said, rather than the crazy flowery stuff that came around it, all he's really saying is, Hey, this war sucks. We think it's everybody's fault. We want everybody to come to the table and talk about it. Let's try and fix these problems. Which is honestly a little bit of the Chinese narrative too. Now I admit personally, that doesn't feel good, cuz I think Russia's the aggressor and I would much rather everybody take Russia to task. But, that's the fanciful world of adolescent political opinions. If you're actually in the world, then you have to guarantee fertilizer supplies to your country. Things have to be a little bit more complicated. Rob Larity: I know when you give your talks about geopolitics and multipolarity and how we should think about investing in the next 20 years, that one of the things you always point out is. In a unipolar world, the countries that benefit the equity markets that benefit are the ones that can benefit from, or can plug into the unipolar power. So you're either investing in the hegemon, which was United States. Is the United States still just to be clear or, a Hong Kong or a Germany or some, country like that where they can slot in, benefit from globalization. Brazil was never, the kind of two early, two thousands commodity boom, notwithstanding Brazil never really fit that mold so much. They were always known for having barriers and being quite separate and trying to, build an independent capability to do things even when the zeitgeist was against them. I would posit that Brazil is one of the best place countries, when we think about a multipolar world to pursue some of those strategies and have them be a little more successful than they might have been previously. Jacob Shapiro: What do you say to that? It's a menu of countries. It's Brazil, it's Indonesia, it's Turkey. It's to a lesser extent India. They have execution risks, but they have the same sort of profile. A country that is very jealous of its non-alignment and doesn't wanna be in one camp or another and has that kind of requisite economic scale. So I don't want listeners to think that, we're not saying that there aren't risks here. It's still an emerging market. There's still a lot of, especially in Brazil, socioeconomic and cultural change that has to happen if they're gonna take advantage of some of the opportunities that are in front of them. But, if we're right about this broader thesis about a multipolar world, like they're sitting in a very good position. But I wanted to pair our conversation with Brazil with a conversation about Mexico, because Mexico would love to be on the list of countries that I just talked about, but they can't really be because of how close they are to the United States. It was Porphyria Diaz who said poor Mexico so far from God, so close to the United States. That really still applies, but when you look at Mexico, US relations things are not looking good at just about any level. So AMLO just this week, came out and was very angry about apparently some of the leaks and those Pentagon papers that came out. He was very upset about some of the stuff that was in there and is now talking. Classifying information related to the Mexican army and the Mexican Navy so that the US can't get access to some of that information. The US and Mexico are in a dispute about corn right now. Mexico says that it wants to ban imports of gene, genetically modified corn. That's a way of saying, Hey, we don't want to import corn from the United States. We want to import it from Brazil because we don't want to be so dependent on the United States going forward. There's a lot of issues over energy in Mexico right now where AMLO is trying to increase nuts trying. He is, he's increasing the role of the state in both oil production and electricity and utility in power production, everything. He's really returning Mexico to a previous time where the state was directing some of these sorts of things. And then there are other security issues there too. And one of the things I think people aren't realizing, this is a, another great place where the media is really failing us. Remember the last time you probably read about Mexico in a US newspaper, it was probably because it was either Cinco de Mayo or because the cartels did something really bad. Those seem to be the only types of stories that make it into English language press about what's going on in Mexico. But the bigger story here, the US Mexico is arguably the US' most important trading partner. More important than China for sure. There are states whose top export destination and top trading partner general is Mexico, not China, and the overall Mexico US trade relationship, especially on an export basis, much more important than the US China trade relationship there too. So if you're gonna get real problems, At the political level between the US and Mexico, we should be talking about that as least as much as the US China trade war, especially in terms of how it's gonna impact the US economy and people aren't talking about it. Throw on top of all of that, the things that AMLO is doing to try and mess with democratic institutions in Mexico and what's gonna happen in the next election. And this is a place where you should probably be following things very close geopolitically. Now we're, I should say, I'm pretty bullish on the long term here, but man, these next 12 to 18 months in Mexico, I think they're gonna determine a lot and it's gonna be very volatile and I just don't think anybody's talking about it. And the reason I wanted to juxtapose it with Brazil here to finish the, or to close the loop and finish the thought is that Mexico can't do what Brazil is trying to do because Mexico's too close to the United States. AMLO can say all the things he want, he can be as ideological as he wants. I think it's something like 75% of Mexican trade is tied to the United States. You can't be a Mexican president and just give up on the US relationship there, you're gonna have to find a way to work with them. But even Mexico, with that dependence on the United States is pushing back against the United States on a trade level, on a security level, on a political level. And if that's not multipolarity, I don't know what is... Rob Larity: How much leverage do you think Mexico has to screw the United States a little bit and get away with it? Because there's such an enormous commercial interest in northern Mexico and its manufacturing base and so many US companies are there, whether they want to be or not, they're gonna be there for a long time, and, That border to be functioning. They need, Mexican policies to be functioning. Are we attached to the hip by the hip to, to Mexico? And how does that improve Mexico's or AMLO's bargaining power against us if he wants to banish US corn exports or other things that are inflammatory? Jacob Shapiro: Yeah, so there's a couple aspects of that. I don't think that in the grand scheme of things, Mexico has that much leverage. I also think AMLO is a very unique political figure. And even if somebody from his marina party takes over in 2020, I think that person will be far more pragmatic in dealing with the United States. They won't have a lot of AMLO's idiosyncrasies. So I think once you get through this kind of next 12 months, things should be a little bit better. I will say though, I think am, AMLO's political instincts are right, this is the moment of maximum leverage, such as it is that Mexico has, because if the United States is going to have this big trade war with China is gonna keep throwing Chinese companies on the entity list and try and decouple and really, encourage us companies to move out of China, all those other things. Mexico really is, the United States is ace in the hole. We can talk about interesting markets and Southeast Asian, south America, things like that. But Mexico is the real opportunity here and the real resource for the United States in terms of reshoring and nearshoring and, fixing globalization and all these other. And AMLO is basically raising his hand at the moment in which the US is really escalating the trade war against China and saying, Hey, I'm not particularly happy. So maybe you need to do some things that are more in line with Mexican interests if you want to continue to have this Mexico US relationship going forward. He probably also sees the writing on the wall. Excuse me. He probably also sees the writing on the wall, which is US Mexico relations are going to get tighter, especially at an economic trade perspective, no matter what he says. So as much as he can politically is probably the time to try and put at least some guardrails in there so that Mexico doesn't just become, the 52nd state of the United States going forward. So I, I think actually ironic. Am LO's political instincts for which I don't think he gets enough credit because people look at all the crazy stuff that he does and the crazy stuff that he tweets and he does. I think his political instincts are right, like this is a moment for Mexico to maybe ask for some concessions from the United States because at least on paper, the United States should not engage in a trade war with China and have problems with Mexico at the same time. No, I should probably banish the word should from my vocabulary because that word doesn't work in foreign policy and in geopolitics. But that's I, that's where I think the lay of the land is an answer to your question. Let's move on from there to some news in the European Union and news that I'm frankly, pretty disappointed about. We've been bullish long term, the European Union for quite some time now. Of course, That ebbs and flows like we were very bullish over the past six to eight months. We've been warning for the past, what, two or three months? Hey, things are starting to look a little bit negative. We've even been toying around with short euro positions here and there. But the big news of the last week or two is, so the Black Sea Grain Initiative is back in the headlines. Russia's raising doubts that it's gonna renew the deal. They're blocking some Ukrainian ships from transiting the Black Sea. And then in the meantime, you had unilateral moves from countries like Poland, Hungary Slovakia, I'm not sure if Romania eventually went along. Bulgaria was also talking about it basically banning imports of Ukrainian grains to their local markets. And the reason they say is that Ukrainian farmers can't get their grains out through the Black Sea or through the sort of other corridors that were promised to them, that they'd be able to get their grains out. And so Ukraine is dumping cheap grain into those local domestic markets, and it's hurting the farmers there. And those governments wanted to protect their farmers. The European Commission came out very angry at first and said, Hey, you're not allowed to do unilateral things like that. This is the European Union. This is not, Poland doesn't just to get, doesn't just get to ban grain from Ukraine just because it feels like it, or because you have an election in a couple months and you're worried that the farmers aren't gonna support the government, which is exactly why Poland did this. Rob Larity: But the depressing part of this, I shouldn't say depressing, the disappointing part of this from our thesis point of. Is that the European Commission? We're recording here, Thursday, April 20th. Happy 420, is the European Commission has basically wilted, they're basically saying they're basically gonna make some rules, post fact to make it not unilateral what those Eastern Europeans dates did. And they're still gonna give them some packages in terms of support and specifically agricultural support that we're already coming down. Which, the NBA is being tougher on Draymond Green than the European Union is being on Poland and Hungary in these other countries for literally defying the entire purpose of the block. Which, we, when I put out my forecast at the beginning of the year, this was exactly the sort of thing I said we needed not to see out of the European Union if it was gonna take advantage of this opportunity and become a more serious geopolitical player in the world. Maybe they'll get resolved. Maybe it's just local domestic politics. But I don't know that Europe has time for local domestic politics if they want to compete in a world that is rapidly TA changing and is as competitive as it is right now, especially from a European perspective. Why do you think the European Commission folded like that? Jacob Shapiro: I think it's a, that's a good question. I wonder if they just don't have the chutzpah to do it. It also goes to show you that when Eastern European countries and central European countries join forces, they're a major force. It's one thing for Hungary to be off in a corner doing silly things, but if Poland and Hungary and Romania are all now saying some of the same things, or expressing some of the same interests, that's not something Brussels can really go after in an easy way. They can't threaten a block of countries like that as easily as they can. Threaten the smaller country. I also think that, look, Brussels and the European Union they're really interesting to think about from a geopolitical perspective because the European Union it's not a nation state. There is no European national identity. European Union officials are bureaucrats. It's a bureaucracy that was created to manage a union that was imperfect when it was first founded. So in some ways, you don't really need geopolitics to understand the European Union. You need to go read Max VA's thoughts about, the evolution of bureaucracy and how bureaucrats deal with things. And it's a classic bureaucratic sort of move like, oh, we have this major problem, rather than address the root of the problem. Let's make it not a problem by shuffling some paper around and, oh, it's no longer illegal. It no longer challenges sort of the things like you can it's a very elegant, bureaucratic solution. So I think that's part of it. The EU itself can't do anything. People like Ursula Lavon land and these EU officials sorry if they're listening and this offends them, they're not, they're stewards. They're not actually politicians or they're not making decisions like that. And people get in European capitals, get angry at them when they start overstepping their bounds. So to really change the European Union, you need, the leaders of Germany and France and Poland and all of these big countries and Italy to come together and say, Hey, these are the changes that we're gonna have. We're gonna go get, solidarity in the solidarity and the block around the changes. And then we're gonna tell the bureaucrats to enforce these rules to the utmost that everybody's agreed on. And that's the real problem here. Something Macron has been saying for a long. Macron has been saying we have to change the structure of the European Union because otherwise it's not gonna work going forward. This is a great example. If you don't change the structure to expect bureaucrats to do anything different than just try and, make sure they can kick cans down the road and not have big problems among them. I think that's where the locus of the problem is. So in, in some ways, I shouldn't say it's disappointing, like you shouldn't expect anything different from the European Commission. The disappointing thing here is that, France and Germany and Italy and some of these other Western European countries weren't anticipating the Eastern European countries objections. Instead of those countries working together to figure out a resolution or some kind of solution to the problem, those countries decided to go at it unilaterally and give a middle finger to the bureaucracy. Like those are dynamics that you don't want to see. And it also goes to show you that, it's kind of Europe. I think the crisis is over, like Covid is over and the war has become normalized. So it's just business as usual and. Europe's not gonna do well if they just keep treating things as business as usual. At least that's the way I see it. Rob Larity: And in the same week you had Macron going to China and making statements about foreign policy and, relations with China and how they're not going to just tow the US line. How is this connected with all this? Is this a sign of national leaders trying to forge a European identity? Is this just Mac trying to grandstand and show how cool and he is, which is usually what he's doing. Jacob Shapiro: It's absolutely Macron like doing his best Charles Dugal impersonation and trying to chart an independent path for French foreign policy. People make a lot of fun of Macron. And you do too, and you're entitled to it. You're in Paris. His instincts are not wrong. If you could get China to flip on the war, you could get to an end of the war and get back to business as usual, which I think is what Macron is trying to do. The problem with Macron is that he overestimates the influence of his office and the influence of France because France has nothing to give China to change China's point of view. So it's the right instinct. You want to go to Beijing and try and get Beijing on your side, or at least reach some kind of accommodation with Beijing in order to get them off of this kind of weird tacit support that they have for Russia and the Russia, Ukraine war. But like what? The Chinese are gonna import Morere from the French, like they don't give a shit what Macron has to say and he doesn't have any of the leverage. Now, if Macron was able to convince Biden to come with him and maybe a couple other European leaders and they all go to China and say, Don't, we don't want you to support the Russia, Ukraine War. We know there's a trade war. We can't give you Taiwan. What can we give you? What incentive can the west give you to stop the support of Russia in a way that would make you feel secure, would help you economically and would take away from kinda your support of Russia? China still might tell a coalition like that to go stuff it, but that's the level of kind of leverage or political power you would need to deal with Beijing to make the move off of a foreign policy position like that. Macron going over there and doing his sort of song and dance. Is not gonna work. I dunno if you also saw he committed like a diplomatic faux pa while he was over there, which is in the press conference after he met with Xi Jinping. He spoke for longer than Xi Jinping by a significant amount of time. And you're not supposed to do that like it's supposed to be equal time, especially when you're in China. The Chinese are very fastidious about those sort of diplomatic protocols. The French generally are too. So I don't know what the heck he was thinking. He has the good instinct, but then he goes and he blows it up because I don't know he has a, an inflated sense of self-worth. But no I wouldn't pay too much attention to Francis move there because France can't do anything. Even if at a base level, I think the idea is the correct one. Rob Larity: So just going back to the EU for a moment, then, how do you see this playing out? Because so you have this sort of bureaucratic structure. Overlaying all these national interests. And our friend Sik has come on the podcast and described his theory of the inter marium, where Poland and the Eastern European core, their interests are going to diverge significantly from those of the West. They're, likely to try to forge a, something of a more unified body over time. H is this a sign that's, that those kind of ruptures between east and west in Europe are becoming more important or intract. Like how does the EU or the European Commission, how do they actually get to where they need to be? Jacob Shapiro: Yeah, the European Commission can't do it. They don't have the tools. All they can do is try and withhold EU budget fund. Like they have a very limited set of tools that they can use to actually pressure other European states. It ha it has to be that all the member states look at each other and say, Hey, we made the European Union in the early nineties. It was good for the time, but the world has changed. And if this block is gonna survive, if we're gonna be competitive and relevant on the world stage as a, as an entity, like we're gonna have to change some things and give some new directives to the bureau guests that we hire. I don't think that this is any sign that the problems have become more intractable. The problems have always been there. It's the original sin of the European Union. What it raises doubt about is whether those problems can be overcome. And that I'm not sure about. So I don't think that the problems that, like the inter maam is no more real today than it was when Sik was last on here, fantasizing about it. And that's what it is right now. It is just a fantasy. But if you get to a position where in a couple years from now the European Union has not made changes, or I should say the member states have not agreed to reform the European Union, and it's still the same kind of push and pull, yeah, you absolutely could get blocks within the European Union looking for other places or looking for other alliances or trade networks and things like that. It might look something like Meser where the block might remain functioning and it might even, put out statements, but the countries will start pursuing their own interests. But, there's a lot there that also has to be adjudicated in the next couple years. What if Turkey's opposition gets more than 50% in the presidential election coming back and they. Follow their words and say, Hey, we're gonna try and rejoin the EU again and get closer to NATO, and we don't wanna be part of Russia. All these other things. If you can add Turkey to the inter maram, suddenly now we're talking a very interesting group of countries with maybe some real economic legs to stand on. Yatsik himself when he was on the podcast. Admitted. Yeah. Economically it doesn't work because the whole thing's based on Germany. If you could have another sort of central export powerhouse that could help those countries get a little bit away from Germany and do something else, that can be an interesting block as well. So it'll be interesting to see how things evolve in the region. I think that the most likely scenario is that Eastern Europe, like the Mexico example, I'm sure they would love to be completely separate of German supply chains and be doing stuff with India and Bangladesh and China and everything else. But it's Eastern Europe. You're in mc kinder's heartland, like you're stuck between Russia and Germany, and you're gonna have to. Work on that. And turkey's the interesting one, but you're ba basically stuck. I wouldn't say that, this shows that the inter myam is rising or that Eastern Europe is gonna break off from the European Union. But it is a reminder that there are very deep intractable intractable problems within the European Union. And I thought this year I said this year was a litmus test because there are not that many cri you're not gonna get that many moments like the Russia, Ukraine war, or like Covid because the types of fundamental changes that have to happen to the European Union, they're probably gonna happen in times of crises. Cause that's the only time that people are gonna put aside their petty issues and say, Hey, we really have to do stuff. We really need to think more seriously about the future of this block. If the crisis is over and this is the best the European union's been able to go with it's not gonna fall apart. I'm not saying the European I think that's a ridiculous forecast, but. Is it gonna be relevant? Is everybody gonna just start ignoring the European Union and doing their own thing and negotiating their own free trade deals? And Brussels will continue to issue circulars that people throw into the trash can as soon as they get it, if they don't like it. That's the scenario that makes Europe rather than one of the rising or established powers in a multipolar world, a battleground for some of the other powers around them. And that, I think is the thing that the European leaders really should be sitting with right now. Because if they don't make the changes now, that's what their future. Anything else on Europe, Rob, or do you wanna turn somewhere else? Rob Larity: No, I was hoping that we could turn a little bit south and talk about North Africa, Egypt, Sudan, even Tunisia. I know that's a small one, but there's some interesting stuff going on there. And I'll let you give us the download on your current thoughts, but dad, it seems like just a giant mess, whether it's the Sahel, whether it's, Northern Africa. Ethiopia now Sudan is this really a sign that stability in the broader region is increasingly breaking down or am I reading too much into it? Jacob Shapiro: Yeah, what stability is the first question I would get back to you. It's it's never stable here at all. I think this is a good last topic to hit on the podcast. And it also I think oil prices also when their way in the back end of this conversation, so maybe we can get to them as well. Look, the download on Sudan, I don't have a great download on Sudan because I don't follow Sudan particularly closely. Not because Sudan is an interesting, it's a fascinating country, but it's generally not that geopolitically important. We were looking at it a little bit more closely when the Grand Ethiopian Renaissance Dam issues seemed a little more apparent. But in general, you don't think of Sudan as a real important country. It's isolated in general. But to your point, what's scary about what's going on in Sudan right now, and it looks like a civil war, it's basically the military and a militia are going at it. They're, you've had popular uprisings and unrest in Sudan for years now where the military dictator, or I shouldn't say that the dictator was overthrown. The military came in, they were trying to transition. It's a whole sort of long, we could spend hours just talking about the back end of that. But the upshot is that you're basically now entering a period of civil war in Sudan, where the military is on one side, this militias on the other. There's reports of, tanks and war planes in cartoon and all these other Sudanese cities. So we're talking about real warfare here. We're not just talking about people in the streets, clubbing each other. It's, real military assets and real fighting and hundreds of people are already dead. And the reason it starts to get geopolitical is because there are different countries on different sides of the conflict. So Egypt is supporting one side and Saudi Arabia and the Emiratis have interests of their own. Libyan militia is taking the side opposite of what the Egyptians are. I'm sure Turkey is looking at this very closely. I'm sure Ethiopia is looking at this very closely. Ethiopia's been trying to convince Sudan to come onto its side with the Grand Ethiopian Renaissance Dam for a while. My sort of spidey sense about what role Ethiopia is playing on this is extremely high. So I think that's the real concern because we already saw that sort of play out in Libya. Libya went from being, an authoritarian state led by a pretty unsavory character in Kadafi. To basically a never-ending cycle of civil war where Okay, and when things are going well, they export oil and when things are going bad, they stop exporting oil and it's just death and destruction and arms deals and smuggling and radicalization and opportunities for jihadists all over the place. Is that what we're getting in Sudan in general? At the broader level I do think we don't wanna be guilty of lopping in all these regions in Africa with each other. The Sahel has very particular problems because of its geography. It's always been the sort of weird transnational space where smugglers and weapons deals and all that stuff is happening through it. That's basically the same. What's different now is that Islamists and Jihadists, because they've been kicked out of their home in the Middle East, like they, they're looking for places where they can have bases. They can't go to Afghanistan anymore. I guess I can go back to Afghanistan if the Taliban wants to play a little bit of poker. But anyway, you've seen this rise of sort of jihadist forces within the Sahel and that's why the fighting there has gotten worse. It's also, once you put the moniker jihadist on something, everybody pays more attention because, that's the inheritance of the war on terror. So you know, that's there as well. East Africa, the picture looks a little bit better to me. I put on the knowledge platform just yesterday, something a story about Tanzania and trying to build rail connections with other countries in the region because they wanna supplant some of the other countries in the region in terms of regional trade connections. We'll see if they actually build it, but that's the sort of stuff that Africa really needs. Ethiopia, the Civil War there seems to be over. Yes, there are problems and yes, it's gonna take a lot of time to reconstruct and get the politics back together, but Ethiopia, before the Civil War was mul, was on my, Indonesia, Turkey, Brazil list. They have all the things you would want in a sort of power that's gonna take advantage of a multipolar world. I r I routinely, I criticized Nigeria for being an absolute dumpster fire of a country and I'd shorted every opportunity that I could get. I dunno if you saw this though, but both Ghana and Nigeria this week before final trials for this vaccine have gone through, approved a malaria vaccine to get rolled out to their populations. I can't understate or I can't overstate the impact that a malaria vaccine in sub-Saharan Africa would have. The billions of dollars in percentages of GDP that are lost to malaria right now, if we're suddenly gonna flip a switch and have a malaria vaccine. Wow. Just on that, we're gonna have huge, like much better GDP growth figures in demographics in the region in general, and that's before we even get to South Africa and mineral commodities and all these other sorts of things. I wouldn't say the picture's great. I still think Africa until it can prove otherwise is going to be. It's gonna be a renewed version of the scramble in the 18 hundreds. And you've got the Europeans and the Americans and the Chinese and everybody else treating them. They can't call them colonies because that's politically incorrect these days, but there's a new age colonialism that's already beginning to happen where these outside powers are trying to take advantage of African powers. But when you look underneath the hood, some African powers are trying to push back and trying to create integration between them. So look I'm not an optimist on this sort of, in the general scheme of things, but I also don't think that there are, that it's not completely zero. It's not like some of the instability and violence that we're seeing is out of the ordinary. What was it that Leonardo DiCaprio said in Blood Diamond? It's, this is Africa, man, like this is how it works. And my personal hope for Africa is that it can overcome this. And we can lay out a blueprint for them to do but it's gonna be very difficult. Rob Larity: You put something on the knowledge platform that I thought was interesting this week where you were discussing food prices or prices for wheat in particular in Africa, and how they might be impacting Russia's desire or not to, inhibit Ukrainian exports. Could you maybe talk through that logic? Jacob Shapiro: Yeah. This sort of gets to the Russia, Ukraine deal and back to the conversation we were having about the e. Which is, we're trying to figure out what is Russia doing with the Black Sea Grain Initiative? Is it really gonna leave? Is that threat for real or is it just gonna be what happened the last two times? Now, the first time that Russia raised the idea that they weren't gonna renew the Grain initiative, I believe it was October or November last year, I can't remember which month. They did, they left the deal for a couple of days and everybody from Brazil to South Africa, all these countries that have been nominally supportive or at least have not criticized Russia as much as the United States would want came out and said, no, this is bad. You're gonna raise food prices in the rest of the world. Go back to the Grain initiative. We all want the grain initiative. And the thing about Russia is that it has basically turned, its back on Europe and turned its back on the United States. It's gone full in, in the multipolar world. And if you've gone in full in on the multipolar world, you can't afford to lose support from some of these other countries that you've been banking on as pushing back against the US-led order. The point that I would make there is that, if the Black Sea Grain Initiative ended tomorrow if you were long wheat, you'll be very happy. If you are in Paris and you wanna buy a baguette at the bakery, oh, maybe it's gonna, how much is a baguette in a per, in a Parisian bakery right now, by the way, Rob? Rob Larity: Shockingly cheap. Like one year, 50? Jacob Shapiro: Yeah. Okay. So like you might go from one Euro 50 to two euro fifties oh my God I'm sure the French will complain. We'll probably see yellow vest protests over the two 50 baguettes in the streets. We'll be storm the barricade sort of things. But in countries in Sub-Saharan Africa, they're literally gonna star. Go look at the UN World Food programs weekly updates or their press releases if you really want to depress yourself right now. We've got famine lurking in Somalia and in parts of East Africa. We've got famine lurking in the Sahel and in places like Molly and Burkina Fasu. I think the latest number from the UN was that something like 48 million. Are in danger of not having enough access to food and hundreds of thousands, in danger of direct famine. So if Russia's gonna screw with the Black Sea Grain Initiative, wealthy countries are gonna buy up whatever grains they have for whatever price they need. Because if you can't feed the masses, they're gonna overthrow you. And the countries that are gonna starve are the ones that are in Sub-Saharan Africa or in Southeast Asia or in the Middle East, that are dependent on imports and suddenly can't get them. So you would think that is a constraint on Russia leaving the Black Sea Grain Initiative, because then Russia will become the global pariah that the United States and everybody else has been trying to make them. But at every step of the way, Russia has done things against their interest. And maybe Russia can figure out some other way to export to these countries that is not through the Black Sea Grain Initiative. Maybe I'm, maybe they've, they can use their icebreakers to get through the Arctic or something like that. I don't know. But I think Russia really has to tread carefully here because if they are seen as wrecking the Black Sea Grain Initiative based on the way. Especially grain pressures are in some of these countries that we're talking about, it would be very negative for them. And you could really, last year I think we were thinking about the potential for an Arab Spring type situation, except on a global level. That crisis was averted in large part due to the Black Sea Grain Initiative. And because farmers around the world did what they do best, they produced more than anybody thought that they could. It's a lot to ask them to continue to do that, especially if you take the Black Sea Grain Initiative out and when you get that kind of political volatility, maybe that scenario is still there in the cards. Rob Larity: That's a downer note end the podcast on, did you want to finish with something more uplifting? Something? Yeah, let's talk about that. Jacob Shapiro: We should be happy about. Yeah. Let's pat ourselves on the back about two things we've been right about. The first is oil prices. Here, hold on, let me get the exact thing. Cuz they dropped below 80 yesterday. Crude oil as we are recording right here. Down 1.83% to $77 and 71 cents. I feel like I went out a little bit on a limb there when the Saudis announced that surprise cut, and I said, eh, that doesn't look good to me. Because like right before they announced the cut, I put an in focus piece on the knowledge platform saying the risks look really skewed to the downside here. To me I'd be thinking more short than I would long, if anything, and it's probably a stay away. I think it's to go against some of your optimism at the beginning of the podcast. I, and I think the oil price cap has something to do with this, but the fact that oil is now sub 80 for a couple days now despite the Saudi surprise cut. That's telling you like, either China's not consuming at the levels that people thought, or there's more oil on the market than people thought. Like I think that's really interesting. And something really to watch. So now that we can, we had a week of headlines of oils going back to 140 a barrel. Now the serious people can get back to talking about what's actually gonna happen with oil. It's a lot more uncertain. So I'd say let's pat ourselves on the back about that and to hell with the Oracle of Omaha who was in Japan this week talking up, what a great investment opportunity that Japan is. Let's talk about the Oracle of Paris over here, Rob, who's been talking about Japan as an investment opportunity for years. I hate that Warren Buffet's getting all this cred for suddenly thinking about Japan when, we've been talking about Japan and had long positions with Japan for years. He, he, part of the move to Japan for Warren Buffet is that I think is what, in the last six to 12 months, they closed a position on T S M C, which, the off, he wrote a, basically a sort of short report on T S M C because of the geopolitical tensions. I don't know, does that qualify as optimistic that we were right about oil prices going down and that Warren Buffet seems to be on our corner in Japan. Those things made me happy, but I might be a little demented at this point. Rob Larity: I think it shows that Warren must listen to the podcasts. There's no other way about it. He's just, he's following Jacob Shapiro: our book. It's funny, I know that's a joke, but I actually was wondering who's advising him on geopolitics or whether it's just. Because the decision to reduce an investment in TSMC and then the next step to be, to go to Chi to go to Japan and say, Hey, there're undervalued companies here. We wanna invest in a big way. That's if some not to step on my own like services, but if somebody wanted to hire me for a consultation, like those are some of the first recommendations that I would make. So I wonder if he came to that on his own. I wonder if he has people doing geopolitics in his ear and that is now making his way up there. It's I don't think we'll find an answer, but from that point of view, it was interesting. So even Warren Buffett is thinking about geopolitics right now, and I'm sure he is not listening to this podcast, but he must be listening to something or tracking something to make those sorts of decisions because that's the only explan. For making the kind of moves that he's been talking about and what he's being saluted for in the media again. Rob Larity: I think it just goes to show that Warren Buffet, who famously says, oh, I don't care about macro, I don't care about politics, I don't care about what's going on in the world. I just sit and read 10 k filings and read about companies and just do bottom up work all day long. That's bullshit. Even Warren Buffet, he has to take this stuff into account. He owns the biggest railroad in the Western United States. If you think that their business is not completely dependent on what's going on in, Asian geopolitics and Chinese exports and US trade wars then you're wrong. Jacob Shapiro: Yeah, I mean that, that's a perfect. Point to end the podcast on and it calls back something that we said earlier, which is in a unipolar world doing nothing but bottoms up analysis and reading the 10 Ks of US companies, that's actually probably a pretty good use of your time. You're probably gonna do really well there because you're focused on the place that's gonna have the most growth and the most opportunity. But as I said to this audience yesterday, as I keep saying to audiences in general, like we're in a multi-polar world, and I would say it's not just audiences. I would say, for listeners who were thinking about their own investments, like whatever advisors you're working with in general, we obviously manage money too. Are your advisors prepared for a multi-polar world? Are they thinking about what's happening if the United States is not the hegemon or the sort of secondary consensus, if it's not just a bipolar Cold War conflict between the US and China, are you hedged for that? Are your investments prepared for a world in which Multipolarity is the driving macro force in the world? Warren and Buffet just telegraphed to you that he is. And that he's finally thinking about that too. And I think it's one of the big things that we say here it's all about I say all the time, I could be wrong about Multipolarity, but I don't think I am. I think we've laid out a really good case. And if we're right about Multipolarity, if you try and invest the way that people have been taught to invest for the past 30 or 40 years, you're not gonna do well. It's not just up until the right, it's a much more volatile and much more fractious world. If we're right about all the things that we talk about here on this podcast all the time, Rob Larity: Amen brother. Amen, brother So whether it's us or somebody else, make sure that you're covered for the multipolar world and otherwise we will see you next week. So cheers.