Table Of Content(cid:2)
TrimSize:6inx9in Papic740216 ffirs01.tex V1-08/30/2020 12:53A.M. Pagei
GEOPOLITICAL ALPHA
An Investment Framework
for Predicting the Future
By
(cid:2) Marko Papic (cid:2)
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 ffirs01.tex V1-08/30/2020 12:53A.M. Pageii
Copyright©2021byMarkoPapic.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmitted
inanyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,
orotherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStates
CopyrightAct,withouteitherthepriorwrittenpermissionofthePublisher,or
authorizationthroughpaymentoftheappropriateper-copyfeetotheCopyright
ClearanceCenter,Inc.,222RosewoodDrive,Danvers,MA01923,(978)750–8400,fax
(978)646–8600,orontheWebatwww.copyright.com.RequeststothePublisherfor
permissionshouldbeaddressedtothePermissionsDepartment,JohnWiley&Sons,Inc.,
111RiverStreet,Hoboken,NJ07030,(201)748–6011,fax(201)748–6008,oronlineat
www.wiley.com/go/permissions.
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheir
besteffortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespect
totheaccuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimany
impliedwarrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymay
becreatedorextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceand
strategiescontainedhereinmaynotbesuitableforyoursituation.Youshouldconsultwith
aprofessionalwhereappropriate.Neitherthepublishernorauthorshallbeliableforany
lossofprofitoranyothercommercialdamages,includingbutnotlimitedtospecial,
incidental,consequential,orotherdamages.
Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please
contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762–2974,
(cid:2) outsidetheUnitedStatesat(317)572–3993,orfax(317)572–4002. (cid:2)
Wileypublishesinavarietyofprintandelectronicformatsandbyprint-on-demand.Some
materialincludedwithstandardprintversionsofthisbookmaynotbeincludedine-books
orinprint-on-demand.IfthisbookreferstomediasuchasaCDorDVDthatisnot
includedintheversionyoupurchased,youmaydownloadthismaterialathttp://
booksupport.wiley.com.FormoreinformationaboutWileyproducts,visitwww.wiley
.com.
LibraryofCongressCataloging-in-PublicationData:
Names:Papic,Marko(Geopoliticalstrategist),author.
Title:Geopoliticalalpha:aninvestmentframeworkforpredictingthe
future/byMarkoPapic.
Description:Hoboken,NewJersey:JohnWiley&Sons,Inc.,[2020]|
Includesbibliographicalreferencesandindex.
Identifiers:LCCN2020025448(print)|LCCN2020025449(ebook)|ISBN
9781119740216(hardback)|ISBN9781119740230(adobepdf)|ISBN
9781119740223(epub)
Subjects:LCSH:Investmentanalysis.|Geopolitics—Economicaspects.|
Economicforecasting.|Investments.
Classification:LCCHG4529.P372020(print)|LCCHG4529(ebook)|DDC
332.67/253—dc23
LCrecordavailableathttps://lccn.loc.gov/2020025448
LCebookrecordavailableathttps://lccn.loc.gov/2020025449
CoverDesignandIllustration:TataWijanaWarsita
AuthorPhoto:©StevenDrobny
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 ffirs01.tex V1-08/30/2020 12:53A.M. Pageiii
This book is dedicated to the country that no longer exists.
Pjevaj nek te ˇcuju, ko ne sluša pjesmu sluša´ce oluju!
(cid:2) (cid:2)
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 ffirs01.tex V1-08/30/2020 12:53A.M. Pageiv
(cid:2) (cid:2)
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 ftoc.tex V1-08/30/2020 12:49A.M. Pagev
Contents
(cid:2) Foreword by Steven Drobny vii (cid:2)
Introduction xi
PART ONE SCAFFOLDING 1
Chapter 1 We’re Not in Kansas Anymore 3
Chapter 2 The Constraint Framework: Three Pillars 19
Chapter 3 The Wizards of Oz 44
PART TWO THE CONSTRAINTS 69
Chapter 4 Politics 71
Chapter 5 The Economy and the Market 103
Chapter 6 Geopolitics 142
Chapter 7 Constitutional and Legal Constraints:
The Constraint–Preference Hybrids 161
Chapter 8 The Time Constraint: When Preferences
Run Down the Clock 174
v
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 ftoc.tex V1-08/30/2020 12:49A.M. Pagevi
vi CONTENTS
PART THREE OPERATIONALIZATION 201
Chapter 9 The Art of the Net Assessment 203
Chapter 10 Game Theory – It’s Not a Game! 235
Chapter 11 Geopolitical Alpha 245
Chapter 12 Conclusion 261
Acknowledgements 265
Bibliography 271
Index 279
(cid:2) (cid:2)
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 flast01.tex V1-08/28/2020 3:28P.M. Pagevii
Foreword
(cid:2) Montreal. February 2017. (cid:2)
A cold, dark, and ice-stormy night.
ImetMarkoPapicforthefirsttimeoverdinnerataspotheenthusi-
asticallycalled“thecoolestrestaurantintown.”Uponentering,Ifound
adarkandemptyrestaurantsaveforabartender,awaiter,amâitred’,and
a lone customer sitting in the back corner. I started strategizing a polite
early exit. But the food and drinks were incredible, and we proceeded
to have an excellent, wide-ranging conversation. We stayed late and got
totally blasted. It was the first of many times I would observe Marko
make a correct, out-of-consensus call.
Within minutes of meeting Marko, I knew he was unique. My sin-
gular skill is sniffing out quality from crap and gathering the good ones
around me – be it finding new money managers to run capital for our
institutionalclients,bringingtogethersmartinvestorsonadeal,backing
foundersofnewfinancialtechnologycompanies,orconveningthemost
interesting people in the world at an event in some far-flung location.
I alsoseek out those with unique skillsand trytopersuade themto join
the Clocktower Group team.
vii
(cid:2)
(cid:2)
TrimSize:6inx9in Papic740216 flast01.tex V1-08/28/2020 3:28P.M. Pageviii
viii FOREWORD
By the time I met Marko, I’d been looking for a chief strategist for
a while. I needed someone to act like a basketball center, a big man in
the middle to gel the team. I was looking for a beautiful mind to sit
on top of our unique and exclusive information flow, then channel it
into a coherent form for our clients. At first, I looked for the typical
economist. Over the past 40 years, bond markets, central bankers, and
finance ministers drove markets – and the world. It was the Lords of
Finance and the Committees to Save the World who pulled the puppet
strings, and the alpha lay in correctly forecasting their next move.
Enter 2016.
The passing of the Brexit referendum and the election of Donald
Trump marked a sea change in the macro game. Populist movements in
developedcountriesdrovehomethepointthattheeraoftheeconomist
andtheinterestratesoothsayerwasover.Inthepost-Trump,post-Brexit
era,geopoliticsareallthatcounts.Withinterestratespeggedtothezero
lower bound for the foreseeable future, the Lords of Finance and Com-
mittees to Save the World have run out of ammo.
As such, Clocktower’s chief strategist needed not be an Ivy-trained
(cid:2) (cid:2)
economist with a perfect résumé coupled with a PhD, CFA, MBA, and
other meaningless acronyms. We needed someone not locked on the
movements of the Fed & Co., but focused on international and domes-
tic politics. The battles and power players of today (and tomorrow) are
Trump versus Xi, the UK versus Europe, Putin versus world, MBS,
Macri, Bolsanaro, etc.
Enter Marko Papic: a geopolitical expert who grew up getting
chasedbypacksofwilddogsincollapsingYugoslavia;whosubsequently
movedtoIraq,Jordan,SwitzerlandandTexas;andwhomarriedaTejana
and settled in Canada. Whispers of an unorthodox geopolitical thinker
with out-of-consensus market views drifted from clients and prospects.
AstrategistoutofMontrealwhomoreoftenthannot,turnedouttobe
right.Formany,Marko,thenihilistSerbian,wastheirfavoritestrategist.
I realized he was just the stateless, unbiased, enthusiastic, unique idea
generator that the team in Santa Monica needed to fill out our global
macro squad.
(cid:2)
