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Geopolitical Alpha is the first book that married my interest in financial markets and geopolitics! There is an actionable advice and a framework for investors to apply and the examples provided are entertaining (don't skip the footnotes!) and helps readers to gain a better idea of how to apply the framework. Its lessons seem all the more relevant now in the context of an increasingly VUCA world with the US-China rivalry and a pandemic that is seemingly endemic.
The main thesis of this book is useful to contemplate. Papic urges market participants to assess the probability of an event based on the material constraints of decision makers, not what they say, or even what they want. The book is strongest in passages that deal with Draghi, Greece, and the euro crisis, as well as China's policymaking agenda, which often seems opaque and dictatorial but is in fact based on the same material constrains (what the median Chinese citizens expects of the state) as Western democracies, in his view. This is useful knowledge for financial professionals trying to understand how geopolitics and markets interact.
Where the book fails to realise its full potential is the post-assessment phase: once you think you have ascertained the material constraints on a decision maker's action, what should you do? Each intersection of finance and geopolitics is so nuanced, so unique and so overwhelmed with information that parsing the noise is incredibly difficult without or without his framework, and to make trades or investments based off only one such perspective seems a stretch. Readers are presented with several examples of where Papic 'called' a geopolitical event: say the overestimation of Bolsonaro and Brazil versus Mexico and Lopez Obrador in FX. The proposed trade was long MXN/BRL, which apparently netted 11.2% in just over a year to 2019. Given that the S&P 500 returned over 30% that year, you'd be forgiven for wondering what all your hard work was for. (Comparing currencies to equities isn't quite fair - I'm just illustrating that for the layman or long term investor, this is book isn't particularly relevant)
The trade 'worked', but to make such a decision based off purely geopolitical factors is incredibly risky. The (admittedly abridged) assessment included nothing about the role of each country's central bank, effects of commodity prices on each respective currency, rates of inflation, influence of USD or other currencies, etc. It strikes me that Papic got lucky in that he made the correct geopolitical call while ignoring the other highly complex factors that influence currency moves, fortunate that other non-political events didn't derail his trade over that particular time period. We also hear curiously little about Papic's failures or his proven alpha; as a strategist, surely his firm has the numbers on his value add over and above the market? In other words, does this approach actually have firm quantitative evidence that it works?
Then there is the writing style. Personally, I found the book jarring to read. The majority of the book is well written, but it is interspersed with irrelevant personal tangents and anecdotes, or long footnotes that add nothing or actually detract from the flow of the book.
I would end by saying that this book is probably worth a read if you're interested in geopolitics and markets, but is unlikely to fundamentally change how you invest. It's mainly written with trading in mind, and if you're a long term, long only investor it's probably not wise to try to generate 'alpha' based on this short-medium term framework.
This is a comprehensive and informative introduction to thinking about how geopolitics work - and how leaders think, beyond the news headlines. Investors often misunderstand geopolitical hotspot, leaving room for cooler heads to capture extra opportunities. A pragmatic and constraint-based approach is what works the most, and this book also manages to explain it in an entertaining way.
The most useful book you will read on applied political science thinking. Ideal for financial market practitioners (such as myself), but also for anyone engaged or interested in policymaking. The "constraint" based framework offered in the book will put you on a different level of understanding (and trying to forecast) policy/politics. And it's super readable, full of interesting anecdotes and historical context.
Easy-to-understand analytical framework for identifying catalysts, risks and opportunities in global markets. The book is full of personal anecdotes from Papic's unique professional experience and replete with historical examples to support his points. As a student interested in politics and finance, this was a great introduction to global macro investing and provided the tools to conduct my own analyses in future. Highly recommend!
This books provides a great framework for understanding the intersection of politics and finance. It provides more than dry analysis but is filled with personal anecdotes and stories to help the reader understand more the intricacies of global politics and global markets. A must read for anyone wishing to interpret political events worldwide into their portfolio construction. An essential read for the decade ahead and the resurfacing of political analysis.
As much as I enjoy reading and learning about grand strategy and geopolitics, most of the insights are too abstract to be used in an investment process. Papic's book is an exception and a very good one. Does this geopolitical event impact macroeconomic forces that strongly influence market returns? This is a critical question, and Papic provides a disciplined, repeatable framework for answering it.
I have read high double digit books on finance and investments and this is one of the best ones ever. Immediately re-read a few weeks after my first read to make sure I remembered the framework in the book. I have recommended it to all my friends in banks and funds but it is very accessible for people who don't work in finance too.
The books is chatty, easy to read and has too many shortcuts. It sounds like casually talking to well-versed buddy in a pub.
Papic makes sweeping confident pronouncing based on very thin and naive analysis. He also seems to misrepresent what other analysts are saying in order to contrast his, allegedly superior foresight.
While Papic is in principle right to say that policy makers face constraints and influence their decisions he fails to admit that history shows how constraints can be overcome by ideology. For instance the WW1 should not have happened because the German commercial fleet was insured in Llloyd's in London and both Germany and Great Britain had a lot at stake. The constraints clearly indicated that war was not in the interest of either Germany or Britain. But ideology trumped constraints.
Similarly, in 1940 Adolf Hitler faced the constraints of having unprepared Wehrmacht for the WW2, as vehemently emphasised by his generals. But again policy preferences trumped constraints. Moreover, by luck Germany managed to outmanoeuvre France (whose supreme command ignored intelligence about German's intentions) and was victorious, thus trumping in constraints on many levels.
Papic also misunderstands the fact that policy preferences, once pursued despite constraints, over time can change the constraints. And what may seem outlandish at a point in time, by sheer "irrational" persistence of the policy maker can become possible and even likely.
To prove his point Papic on many occasions misrepresents what other analysts have said. Regarding the Greek crisis most pundits were saying that Greece would be better off exiting the Euro area not because they wanted that to happen but more as a tool to make Germany aware of the issues and make them see that it is in their interest to compromise with Greece. So in essence, Papic is saying the same thing as the pundits but in a much more unsophisticated and naive (pub-like-chatter way) and claims to have been right while the others were wrong. Papic is being funny here.
Papic's comments on Trump and NATO are also disingenuous. He tries to make a point that America faced the constraint that it was in its overriding interest to keep NATO well-functioning. Thus Trump was forced to say that US is committed to NATO. And thus the pundits were wrong that Trump was bad for NATO. But this is downright nonsense. Trump's vulgar transactionalism was indeed bad for NATO, he destroyed the trust among allies and the effect of Trumpism on NATO will be long-lasting.
Moreover, Papic does not understand how markets work. When faced with uncertainty markets assume the worst possible scenario. Of course one can make money on that. That's not a unique Papic insight. But unfortunately once in a while the worst case scenario does materialise. And the problem is one never knows when that would happen.
Apart from that Papic also does not understand economics. And I mean depression economics. To genuinely understand depression economics one needs to look at it from a Keynesian point of view and not just textbook New Keynesain but go a bit deeper. Papic does not go father than a simplified ECON 101 neoliberal point of view. And that is another weakness of his narrative that makes his book not that insightful for the current situation we are in.
Overall, I give the book three stars because it is curious to read this book and it makes an attempt towards useful from a practical point of view out-of-the-box thinking.
Today, if I were to gift something to a good friend, it would be this book. One of the better books I have read in the past year and possibly the best on Geopolitics and also Investing in a while. This book must be read by every fund manager around the world. Hell with their analysis of interest rates day-in and day-out, what will generate alpha in the future is looking beyond their blinkered econometric models and understanding the world as it is, not according to fancy models.
Why is this book so important? The book drives home a few very valid points. Let me try to sum up a few here. I might not to justice to it, but here is my attempt.
• We are entering a multi-polar world. The age of America led Unipolar moment is over and that means the equilibrium it created is coming to an end, if it already has not. Multipolarity begets disequilibrium. We have past peak globalization and have entered a phase of slowing or managed globalization. • We spend too much time talking about personalities, Putin, Trump, Johnson etc and their preferences. For me the golden sentence of the book is: “Preferences are optional and subject to constraints, while constraints are neither optional not subject to preferences” • Since constraints and in many cases “Fulcrum Constraints” drive actions and policies, his constraint framework is built on three pillars: The Materialistic Dialectic, Diagnosticity and Social Psychology. • I loved his Median Voter Theory (MVT). Once you wrap your head around it, you will understand what is happening in India, EU, USA, China and everywhere else. • Constraints are divided into 5 parts and covered in detail: Political, Economic and markets, Geopolitical, Constitutional and Legal and Time constraints. Absolutely loved each one of those chapters and his analysis.
Icing on the cake are the last two chapters, Net Assessment and Game Theory. Loved the analysis and especially the part about India. Possibly the best impartial, unemotional analysis I have seen of my country. He nailed it: India needs Investment and increase its Gross Capital Formation. Consumption can drive growth to an extent, but if we have keep to the aspirations of those millions joining the workforce, Investment is the key. Last chapter in game Theory is also revealing.
Marko finished writing this book, I think in July 2020. His coverage of the blunders made in analysing the Covid spread and the overarching narratives of the flattenists is worth reading many times over. And yes, at least as of now he has pretty much correctly chalked out the scenario for Biden's actions. Last one month has been a proof of that.
Read this book folks. It will make you a lot wiser.