How a Geopolitical Analyst Predicts the Outcome of War

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

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

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

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

Joe Weisenthal (0:34)

Yes, I do. You know, it's funny. Most years, people are like, well, you're at the beginning of the year, end of the year, things are going good. And it's like, what are you concerned about? It's like, I'm concerned about geopolitical tension. It's just one of these cliches. That's a classic. That's what I always say when I have no, it's like, well, things seem fine, but I'm concerned. But then some years, clearly, geopolitical tension, war, etc. is very real. We recently saw the bombing in both directions between Israel and Iran. That seems to be paused for now, but sometimes geopolitical tension becomes outright geopolitical hostility.

Tracy Alloway (1:10)

Yeah, that was definitely one of those weeks when we both got a lot of emails. I have a confession to make, which is I read all of those geopolitical analyses, but I always wonder what I'm supposed to do with that information. If I were a major professional investor, if I'm reading a note about what is the base case for Iran versus Israel, I'm not entirely sure how that influences my own decision-making.

Joe Weisenthal (1:41)

Well, I would take it even a step backwards and say, when we talk to Wall Street analysts, say a Fed forecaster, I have a sort of, I think, intuitive understanding of how they either like, oh, there's going to be three cuts in the next year. Then I generally have a sort of intuitive understanding of how they might arrive at that. We look at statements from the Fed about what they're looking for in terms of achieving disinflation. We look at the trajectory of the US economy and then we say, okay, we combine the Fed statement, their sensitivity, et cetera, the reaction function. That's the term I'm looking for with the data, and then we arrive at a forecast. When it comes to something like a war, I do not really have an intuitive understanding of how the geostrategic or geopolitical analysts whose notes flood our inboxes from time to time, always during bad periods, how do they arrive at conclusions? Therefore, X, we think the war is going to end this way. I do not know how that can be done systematically, and yet people try.

Tracy Alloway (2:42)

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

Joe Weisenthal (2:53)

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

Tracy Alloway (3:02)

That's right, that's right.

Joe Weisenthal (3:03)

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

Tracy Alloway (3:22)

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

Andrew Bishop (3:43)

Hi. Thanks for having me.

Tracy Alloway (3:45)

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

Andrew Bishop (3:48)

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

Joe Weisenthal (4:22)

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