ReSolve Riffs with Dr. Pippa Malmgren on the Shifting Geopolitical Landscape and a Multi-Polar World

If you’ve been following international news over the past few years, you’ve likely noticed brewing tensions between major countries, even before the pandemic struck. Proxy wars, diplomatic tensions and regional skirmishes have been flaring up across the globe. To help us make sense of these events and how they may impact financial markets, we had the distinct pleasure of hosting none other than Dr. Pippa Malmgren, former presidential advisor, best-selling and award winning author. Her expertise sits at the intersection of geopolitics, economics and technology, leading to a wide-ranging conversation that covered topics such as:

  • Family business – growing up in Washington, D.C. as the daughter of an advisor to four US presidents
  • Why members of the armed forces are operating as if there is already a global conflict at hand
  • Disputed borders, near misses and the risk of miscalculations – skirmishes below most peoples’ radar
  • Thucydides Trap – Rising China, declining US and the possibility of superpowers clashing
  • Political polarization in the US and globally
  • Information bubbles and the search for common purpose
  • The Great Gatsby vs The Grapes of Wrath – two opposing narratives emanating from the same catalyst
  • AI, Quantum Computing and Robotics – a closer look at the 21st century’s battlefield

We also discussed the positive and negative effects of the digital age and the exponential increase in available information, the race for natural resources in the Arctic, opportunities and risks investors should be mindful of, and much more. Pippa was on her usual top form and very generous with her time, which made for a fascinating and highly entertaining episode.

Thank you for watching and listening. See you next week.

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.

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Dr. Pippa Malmgren
Former Presidential Advisor, Best-selling, Award Winning Author
https://drpippamalmgren.com

Dr. Malmgren brings simple sensemaking to the complexities of the world economy, geopolitics and technology. She’s advised Presidents and Prime Ministers, co-founded an award-winning tech firm, worked in finance and asset management and served as a judge in The Queen’s Enterprise Awards competition and as a regulator of technology standards.

She has lectured at Sandhurst, Duke Fuqua GEMBA, INSEAD, UT Austin and Tsinghua University in Beijing.

TRANSCRIPT

Adam:00:00:02All right, awesome. Welcome to this Friday’s ReSolve Riffs. Today we’ve got Richard Laterman as co-host, and none other than Dr. Pippa Malmgren for our guest today. And I’m sure we’re going to explore a broad cross section of geopolitics, techno optimism, different new ventures that Pippa is working on. So, before we get started, I want to first of all say cheers to all and thanks for joining us. I also want to remind everybody that this is explicitly for entertainment purposes only and before taking any action in live markets with your hard earned money, I would seek the advice of financial professionals. So with that said…

Richard:00:00:57Adam, that was really good delivery of the compliance disclosure.

Adam:00:01:02Well, you know me, I’m always the compliance puppet master really, right? So Pippa welcome, thanks so much for joining us. And already getting comments on my beard, I shaved my beard, so I was wondering if I was going to get. Thank Michael. That’s the consensus, I got to grow it back. So, Richard I think you were the most enthusiastic to get started on this today. So why don’t you lead us off with the conversation themes?


Richard:00:01:35Yeah, thanks Adam. I think before we begin, I would definitely want to get Pippa’s introduction by yourself and tell us a little bit about your background and what you’re currently doing. And don’t leave out any of the colorful stuff in your role as presidential advisor and maybe even mentioned your dad there if you wouldn’t mind.

Backgrounder

Dr. Pippa:00:01:54Okay, well, actually we could start with my dad who was the chief trade negotiator for the United States under four presidents, Kennedy, Johnson, Nixon and Ford. So I grew up in Washington and never left. And he taught me an incredible amount about geopolitics and the world economy. So I’ve been kind of in the subject since a child, since being a child. But I’ve lived all over the world and I’ve been very privileged to serve as an adviser to a number of leaders of governments, not just the President of the United States, although I did that during a very interesting period in geopolitics, that’s when we had 9/11. And I was in charge of terrorism, rest of the economy on the National Economic Council after that event. But I’ve taken a really strong interest in broad geopolitics ever since that was all about the US and Japan. These days it’s more about the US and China. And of course, Russia has been a huge issue all along. There’s nothing like growing up at ground zero during the era of mutual assured destruction to make you focused on geopolitics.

And then I wrote a book in 2015 called Geopolitics For Investors, for the CFA. And it’s so interesting that at that time people were like, who cares, geopolitics like guys, that’s not going to influence the portfolio. And today, we still have people being totally surprised that geopolitics can move prices around. So I was really delighted when you guys asked about doing this podcast because I think it’s a super important subject.

Adam:00:03:31You know, I told Richard I was going to let him lead off but I have two things I wanted to explore. First of all, are there any highlights or really memorable dinner table conversations that you recall from your childhood? I mean, so many interesting things happened in that era with your dad, front and center. And I can just imagine how that must have infused dinner table conversation, or does anything stand out?

Dinner Table Conversations

Dr. Pippa:00:04:03Yeah, I’ll tell you one quick story. So in 1971-72, Nixon asked Kissinger to go to China but he asked my dad to go to Russia. And so there was this huge opening up of the dialogue between all of the geopolitical opponents, the communist world. And so my dad had one extraordinary event happen during a trip to Moscow, which was he was asked to have dinner by the head of Gosplan. And Gosplan was the whole economic program for Russia. Like every single thing that happened in that economy was controlled by basically this organization and the guy running it. So my dad’s like, sure, of course you’re going to have had dinner with the head of Gosplan. And what he ended up saying to my dad, he literally said, so what’s your assessment of the Russian economy? And my dad’s like, well, I would defer you sir like, you’re running the Russian economy. He says, how can a smart guy like you be so stupid? And my dad’s like, holy moly, is this a diplomatic incident? And the guy says no, think about it. In a communist environment everyone lies to me. I know that I’m sending them only a certain amount of stuff to make steel but they’ll tell me they made five times as much as that in steel.

So I know it’s not true. So the only way I can find out what’s going on in my economy is asking you, so you tell me the American assessment of my economy so I get a grip of what’s going on. You know, this is so interesting. And I think even to this day when you talk geopolitics the minute people start throwing numbers around, actually do they believe their own numbers? This is often the case that they don’t.

Richard:00:05:54Yeah, it might be the case that this is representative of the current Chinese take, because it’s often commented that it’s very hard to believe the economic numbers that come out of China and someone within the Chinese thought bubble might have to lean on someone outside to get a better grasp of what’s going on.

Dr. Pippa:00:06:18Yeah, the famous joke for years in China has been when you talk to government officials and they say, would you like to know what our GDP numbers are going to be next year, because it’s right here in the drawer? Having said that by the way, having worked in the US government, we have our own methodology for torturing the data until it fits the outcome that we like. So this is universal. It’s not exclusively for certain kinds of countries.

Adam:00:06:51One of the interesting things about the resurgence of importance of geopolitics of the last few years, in my observation is just how often markets have gotten the big picture wrong, like directionally wrong. Directionally wrong on Trump, directionally wrong on Brexit, there’s just so many different situations where just by virtue of observing market positioning and the reaction after events, markets have just seemed less able to be able to discern even the direction of likely outcomes let alone the amplitude of the impulses from those outcomes. Do you have any thoughts on what might be driving some of that excess uncertainty?

Driving Market Uncertainty

Dr. Pippa:00:07:39I do. I’ll put it really simply. For those who are Star Trek fans, some people speak Federation, and some people speak Clingon. So people in government speak Federation and people in financial markets speak Clingon, and my like core competence in the markets over the years is I happen to speak both languages. So they don’t understand each other. And why? Because the market guys, the traders, they’re like, surely they would never put the US/China relationship in jeopardy because that would be so obviously devastating to the economy. It would be so shooting themselves in their own foot. That’s not even an option to think that way. Whereas people in government they don’t understand the economics always, they understand the geopolitics of it.

So they’ll get harder and harder and harder line, and then be surprised that there are economic consequences to it. So the first thing is for people in financial markets, I always liken it to like when you go to the theater. And you think you’re sitting in the front row because you’re the most important person in the room because you’re the financial markets. But actually in the political world, the financial market people are way up at the back in the back row, the last seat in the auditorium because they’re like they’re not that important. What’s more important is where is Congress, where’s the politicians, where’s the electorate, where’s public sentiment? And so this misunderstanding of who’s way of thinking has the priority is at the core of why traders and market people always miss-step on geopolitics. So that’s my theory anyway.

Adam:00:09:28That’s interesting.

Richard:00:09:31I wonder maybe Pippa if you could give us a little bit of your view from a 30-foot bird’s eye view of what’s going on currently in the global stage in the context, I guess the US China and more broadly of European countries and within the context of the pandemic as well, how do you see that balance of power currently shifting?

The Shifting Balance of Power

Dr. Pippa:00:09:53There’s a lot to say on this. First of all, I’ll start with the most shocking thing and I’m kind of known in the markets as fundamentally an optimist. I like almost always see the upside to things. And I am actually optimistic about where we’re going right now. But I would say, in one sense we are already in World War Three. We are in the midst of what they call sub threshold conflict. So it’s just below the level that requires official responses. But it’s serious enough that everyone in the military knows that we’re nose to nose with the Russians, we’re nose to nose with the Chinese. There are actual physical incidents occurring in various parts of the world every day, but they’re just below the threshold that everyone knows would make it public information. So we have this weird situation where the general public thinks everything’s fine. I mean, you have some noisy exchanges of words now and again, but fundamentally we’re not at war. Whereas in the military you have the sense of we’re definitely at war, it’s just being conducted in a way the public is unaware of. And I think that’s actually a rather dangerous situation. And it means you’re on the border of the kind of conflict that could flare up very suddenly with seemingly no warning, although if you’re watching this you should be able to see it coming from a mile off. So that’s one thing.

And second, then is it’s multipolar, it’s happening not just the US and China, but also the US and Russia. But it’s also happening in remote locations. So the South China Sea, where there’s nobody to witness except for the people actually involved. Or for example, the skirmishes that keep happening between China and India which are all up in very remote parts of the Himalayas. And again, very important from their perspective, but not visible to the press. Same with Scandinavia, where we see lots of kind of nose to nose submarines, fighter jets between NATO and Russia, the US and Russia. They’re all flying within a coat of paint of each other. So it feels to the participants like we’re really on the edge. But the public is like, what? There was a near miss somewhere over Finland, and is that relevant? What does that mean? Is that even worth having a conversation about?

So then let me add finally then the pandemic, and the pandemic has done a lot of things, but maybe more than anything, it’s made it much harder to make sense of reality. And sense making has actually become like a branch of philosophy now that is I think becoming the most important branch of philosophy because people can’t make sense of what is going on in the world. And they’re realizing that the seemingly trusted sources of information, like for example, academic journals, or government authorities on pandemics, or virologists, actually maybe you can’t completely trust what’s said. And so the flip flopping of positions further undermines the confidence in authority generally, and when you undermine confidence in authority, you begin to also give oxygen to geopolitics. So there’s a lot going on.

Richard:00:13:34Feeding my biases there quite a bit, I would imagine Adam’s as well, I’m going to try to keep this in some orderly fashion just so that we can have a coherent chain of thoughts. So how would you place what’s going on internally in the US, the political polarization, the absence of any centrism so to speak and how politics has become so divisive in the US? What importance would you give that in this broader context of the apparent decline of US prominence in the globe?

U.S. Polarization

Dr. Pippa:00:14:15I have argued for a long time. in fact, since I wrote my book Signals in 2016, that this is a universal phenomenon, it’s not just in the United States. But everyone thinks it’s local. Everyone thinks Brexit was special specific to the UK and had nothing to do with anybody else. They think the polarization is special specific to the US, and you go through every nation, they’re all experiencing this same phenomena. So the question is what’s causing it? And we can make a list but one of the things is something called the knowledge doubling curve which was a term invented by Buckminster Fuller, the engineer who created the geodesic dome and was a great visionary. And he noticed that the volume of information that we have to process as humans, is doubling on a very fast scale. So from the year 1900 it was doubling every quarter of a century, to 2020 when by his calculation now confirmed by IBM, it’s doubling every 12 hours.

Literally think about that, it’s just mind blowing. So what happens is, you can’t keep up with the content anymore. And we’ve all had that feeling I can’t read fast enough there’s too much coming at me. So what you start to do is say, well, I won’t read the thing, I’ll just ask who gave it to me. So if I’m on the left and CNN gave it to me, then it must be true. If I’m on the right and Fox gave it to me, then it must be true. And this is what makes you…Marshall McLuhan predicted back in the 60s that this would happen, it would make us more tribal, because you can’t discern and it’s too hard to make sense of each thing because you’re not expert enough. So you just start moving into tribes. And I think this tribal element is universal. And that’s the bigger issue. It’s not just in the United States, it’s in every country, we’re splitting into these cohesive units that are more tribal in nature.

Adam:00:16:21What role does the social media apparatus play, and the profit motive of the social media apparatus which is obviously founded on dopamine amplification, where you want to trigger strong emotions and the strongest emotions are hate, frustration, these types of things. So to what extent is social media driving us into smaller and smaller tribal groups where the Venn diagram of the overlap of the information gets further and further apart with almost no intersection? What role is that playing and how do we walk that back do you think?

Dr. Pippa:00:17:08Well, I do think it is playing a significant role in intensifying this issue. It’s part of that speed phenomena again. And you’re right, it’s all about the money you make from the dopamine hits. That’s the key. So you guys saw The Social Dilemma where all these coders are like, wait a minute, I didn’t mean to create something that was so bad for human beings. I was trying to optimize but I’ve changed my mind.

Richard:00:17:40Maybe not the coders, but they did hire Danny Kahneman with the exclusive goal or trying to gain the amygdala or…

Dr. Pippa:00:17:50That’s right. Literally, how do we hijack the part of the human brain that doesn’t have any choice but to do binary decision making and to quickly lean into the defensive, the fearful? And so naturally this infects everything. And it’s so pervasive and profound. So yeah, how do we walk it back? Well, I think the two most interesting philosophers of our time, a guy called Daniel Schmachtenberger, which is a great name for a philosopher, named Daniel Schmachtenberger, and another one called John Vervaeke who’s a professor in Canada. The two of them are doing work on this question of sense making. How do we make sense of the world when there’s so much information, when the nature of the problems is so huge? They’re not even problems anymore, they’re meta problems. It’s at a completely different level. And they’re trying each in their own way to answer this question of how do we disconnect the humans from the dopamine response function long enough for them to become educated about what is actually the issue, and what are actually the facts? And what are new progressive ways of solving problems?

And so in short, one of the things you always have to do is bring people together and frankly engage in a certain amount of forgiveness. And I do think that probably the single word answer to your question, what has to happen in order to have less conflict, less likely of the sub threshold conflict turning into something bigger, is a dialogue that ultimately is underpinned by forgiveness, and it’s the hardest thing to do, but it’s exactly what happened in the American Civil Rights Movement. It’s exactly what happened when Gorbachev and Reagan met in person. There’s an element of I forgive you for all the misunderstandings. Can we just have a beer and have a chat? And I don’t see enough of that happening in politics in any part of the world.

Richard:00:20:02 Kind of like a Truth and Reconciliation program that you see in post-apartheid South Africa.

Dr. Pippa:00:20:08Totally, it’s the same thing. As an example, people ask me, will it remain so contentious in American politics? Well, when my dad was in government, the head of the Republican Party and the head of Democratic Party were literally best friends. They had dinner every Friday night, they had an illegal poker game, they drank bourbon together, and they solved problems around that Friday night round of cards. These days, you literally are prohibited by law from having more than three people in a room discussing a live political issue unless there is a lawyer present, which means nobody’s having dinner parties, nobody’s playing poker together, nobody’s drinking together. Not that I’m saying drinking is so good for you. But you know what I mean, nobody is getting together. There you go. Nobody’s getting together in a chilled out kind of way saying, hey, let’s sort this out. Like, let’s find a way forward. In fact, there’s no place, there’s no space for that conversation anymore. So how are you going to get there if they can’t even go have a drink together and have a quiet off the record conversation?

Adam:00:21:19It’s sort of taken the human element out of every discussion, negotiation, diplomatic extension. But when you forget that the person on the other side of the table is a human, we all share that dimension, how can we work together to further the humanitarian objective. That gets lost when everything is overly formalized, recorded, everyone’s worried about liability and signaling. One of the things that we talk about a lot internally is this idea of a leadership vacuum in the West. It used to always certainly for the last several decades, be filled by the US and some of the greatest successes of US leadership came from the ability of leadership to galvanize the population behind a larger mission. Think of the Manhattan Project, the space race, some grand mission, maybe there’s an element of competition. But it’s obviously the Manhattan Project, I don’t know whether you qualify it as healthy competition. Certainly, I’d call the space race, maybe a little bit more healthy competition. But there’s an element of a grand vision and a leader emerges to bring the people together behind this mission. Do you see anything being discussed in the halls in Washington, in Belgium, that might stand out as a potential big idea that the Western world can get behind and from which leadership might emerge.

Leadership Vacuums

Dr. Pippa:00:23:14This is such an important question. And I don’t know if you guys know, but my last two books have been on this question of leadership. And it’s been fascinating writing on that especially because there’s so few females that write on this subject, it’s a very male dominated area. And as a result, the paradigm tends to be kind of the dare I say, it’s a little bit the Jesus Christ model, which is there’s one person who knows the truth and we have to figure out who that is, and then we follow them. But actually, the invention frankly of the of the iPhone, which is not that old, has radically transformed the distribution of power in the world economy. And so, where we used to talk about the leader and then everyone would follow them, now power is distributed in such a way that the thing about leadership is that it’s not about the leader anymore, it’s about the ship. It’s about how to get the team, whether that’s the constituents or the employees or whatever, the group to work at their best. And so the job of the leader is not to top down tell everybody else what to do, it is to bottom up, bring through the best characteristics of the collective. And so one reason we’re seeing a deterioration of the quality of leadership is the old kind of leadership won’t work in a mobile phone environment where power is distributed.

And second, we’re not recognizing that actually lots of people are exercising leadership, but not at the level of call it the President or the CEO. Instead, you see the rise of individuals who stand for something and they’re all controversial in nature. I can give you two off top my head, both in sports, Kaepernick and the bended knee movement, and in the UK a very interesting young man called Marcus Rashford who basically stood up and said to the government, you must pay for childrens’ meals even though they’re home because of the pandemic, and forced the government to buckle. One young guy who wasn’t even from a policy background, he’s an athlete. So I actually think we’re seeing the rise of personal and personality led leaders.

Now, some of them are really great and doing wonderful things. But other kinds of personality led leaders take us in a dark direction and we can guess it you know who I might mean by that. But I think this is the key is that we aren’t going to get somebody who just stands up to the podium and suddenly we all go, oh, wow, there’s the answer. Instead, you have to start thinking the leader actually is you, it’s me, it’s us, it’s all the people day to day and we make our own leadership decisions. And the collective outcome is what defines the leadership context. But I’ll just say one more thing because I know you were hinting at it before about the US leadership position in the world. And I just want to say one thing, weird thing about that, and I’ve lived outside the United States for most of my adult life. What’s really fascinating is that when the US is being forthright and aggressive and exercising leadership, the whole rest of the world says, get out of our business, what the heck are you doing here, we can sort out our own problems. When the US says, we’re done, we’re staying home, we’re not interested in what’s going on outside of our borders, the rest of the world says, wait come back, where are you? So, the world has a kind of schizophrenic attitude towards American leadership to say the least.

Richard:00:27:03Yeah, very much so. And even though you sidestep mentioning him, I’ll mention him outright, just in the context of trying to under understand the further polarization. People like to attribute to Trump, cause whereas I just think he’s symptom. I think he’s a representative of a broader Zeitgeist that is this large polarization. So I’m wondering, how do you think about this idea that even though he’s out of power, he continues to be kingmaker in the GOP and anybody that wants to have a platform or wants to run for a primary within the GOP to then be eligible to run for a seat in Congress, or a governor seat has to have his blessing. And so what that does to actually prevent us from being able to find middle and common ground but rather pushes us pulls us farther to the edges.

Trump, as a Symptom

Dr. Pippa:00:28:03Yeah, I’d say it’s a great question. I remember when I started to make the argument that he could be out of office but not out of power. And people are like, no, that can’t happen, but it can. And that’s exactly what we’re seeing. And in fact, the more he’s found to be engaging in illegal activities, the more it increases his core fan base, because his core fan base is all about challenging the authority, or rather even the centralized authority of government. In a sense, he’s the personification right now of decentralization, of pushing power back to the local level, to individuals. And so it’s a bigger gripe about where does power reside, and it comes back again to that mobile phone analogy, because that has dispersed power to such an extent. And Washington is perceived by a lot of the country to be wielding power not well or in a manner that’s not in keeping with everybody’s best interest. There are those who feel Washington is just downright corrupt and there’s a case to be made for that. You can make that case. Others who just take an old fashioned conservative view that they just want government to stop at your door and leave you alone.

Anyway, the point is, it’s the ideology rather than the person that’s really at issue. And I think that that’s a bigger argument in the United States. And there’ll be different people who personify that argument, but the fact is, it’s the argument that needs to be heard and resolved and we just have to get through that and figure out reconciliation on that basis.

Adam:00:30:09 So where do you think that leaves us coming into the next election cycle?

Dr. Pippa:00:30:18Let me step back a little bit. I think what we’re seeing in the US right now is a very positive change in the distribution of power in the country. And it’s for many reasons, and it was prior to COVID. But I think COVID has accelerated it. So we’re seeing tertiary cities become very important. Big sources of economic activity, much greater sources of power. And I’m thinking of places like Austin, Nashville, Santa Fe, Chicago, it’s no longer just California and the east coast that dominate the core of decision making for the country. And I actually think that’s a healthy thing. And we’re seeing tremendous competitiveness in the United States, which again is strange because everyone’s like, no, the US lost its competitiveness. And I’m like, well actually, it got it back because China now isn’t competitive anymore the way it was.

And in fact, the US if you want to do manufacturing, if you want to do innovation, really the US is the epicenter of all that. I personally think Austin is the global center of innovation and creation in the world economy today for a whole bunch of reasons. So that’s changing the demographics of the country. The country’s becoming more purple, it used to be either red or blue. It’s actually becoming more purple. Texas is becoming a purple state. You got all these Californians and New Yorkers fleeing the coastline partly because regulation became onerous, taxes became onerous, like a whole bunch of reasons. But then they bring their values with them. So it’s kind of, the Texans are upset because they’ve got all these California people coming in creating a more liberal environment. But fundamentally, it’s a mixing up of values and attitudes and experiences that actually tends to make the country successful.

So I kind of think the country is becoming more purple even though it feels like the red and the blue are still punching at each other. And so it may resolve itself through this re integration. And by the way, that’s not only in terms of geography, it’s also in terms of race and immigration. And I think as well, the huge and powerful and important arguments that are being had about civil rights and societal integration of various ethnic communities. This is a thing that should have been resolved decades ago. It’s about time that that got sorted out in a way that everybody can get on with their lives. So we could argue about what’s the right method to get to the solution but you can’t argue about whether that argument needs to be had.

Richard:00:33:20But let me push back a little bit on the purpleness of the US. And this might be my more superficial understanding of what’s going on. But it strikes me as the blue states continue to remain blue or push even into bluer land, whereas the red states are losing some ground and becoming somewhat more purple and perhaps the major urban centers are becoming blue, and then everything else around it still votes for the GOP, the more rural areas. A skeptic on the Republican side would say, no, we’re actually losing ground, notwithstanding the fact that most of the legislative bodies within the states remain under GOP control. But when it comes to national politics, it strikes me as the GOP is losing ground. So how would you respond to that?

Red, Blue and Purple

Dr. Pippa:00:34:20Well look, the demographics of politics are so interesting. And I’m going to say something has been true for decades and decades and decades. And it’s not really changed, and that is that rural America tends to be conservative, urban America tends to be liberal. And power has shifted from Washington to the cities and to the governors. So I would say the most powerful people in politics in America today are the mayors and the governor’s, not the President. And so what’s happening at that level is actually a lot of movement. And that’s partly because we’re seeing regeneration of a lot of urban city centers. Look at Detroit, you’ll often hear people say, well, Detroit’s a basket case. I know you’re like, have you looked at Detroit? Detroit’s been on fire. Like it’s a completely happening place. It’s a huge revival of the music industry, manufacturing, high end hotels going in, communities being regenerated and re- integrated.

I actually think as that happens, you start to find more conservatism because there’s more to protect. Again, very interesting kind of view is in the African American community, the rise of Republicans. And most people are like, no, if you’re black, you should be Democrat, which I always thought was absurd. Like, if you’re white you should be…it’s crazy. But the argument that you hear, and you have a lot of African Americans say, well actually, I lean conservative on rule of law on all these things. Property rights. And my ability to get ahead in my career, law enforcement, you didn’t see the Defund the Police movement coming from inside African American urban landscapes, you saw it coming from other places.

Look, politics is complex and interesting, but for markets, the really important question is, can politics progress in such a way that permits value to be created? You may not like the politics. A lot of people didn’t like Donald Trump as President. And I think a big mistake that traders, investors make is they confuse their emotional position with their trading position. And internationally as well. A lot of people are like, well, I don’t like Donald Trump, therefore the US economy can’t possibly get better. Or I don’t like Donald Trump therefore the stock market can’t go up. But actually, you can not like Donald Trump and the stock market goes up. So disassociating and trading is independent, your emotional response from what’s actually happening to prices is really important.

Adam:00:37:23Pippa, so much of your comments on leadership, on the types of themes that might galvanize or motivate the public or engage the public. Your comments on how the political demographics have changed, speak to sort of decentralization. And I’m harkening back to, I remember reading a lot of Jane Jacobs and her discussion of decentralization and the evolution of healthy cities, and one of the risks that she highlighted was that as you move down the political scale from federal all the way down to state level or municipal, even small… at the federal level it requires very large actors to perpetrate regulatory capture. And as you move down to the state level and the municipal level, then smaller and smaller incumbents have sufficient power to prevent competition or lobby for laws that preserve the status quo and prevent economic dynamism. How do you see that trade off?

“Small” Power

Dr. Pippa:00:38:52I don’t think it’s linear anymore. And you can have very small groups of people who are highly empowered, both in Washington and out in the regions. And I think this is partly what we’re exploring now is who has the power to do what? Where does the power lie to get stuff done and in what way? Yeah, I don’t think it’s so easy anymore. And you can’t also count on, you can’t make assumptions anymore about how somebody thinks about an issue. It used to be…even at the beginning of this pandemic, if you’d asked most people, will young people object to being vaccinated? They always said, of course they won’t, they’re intelligent, they’re educated, they …. And then it turns out young people are objecting to being vaccinated. It’s super interesting. It’s the Gen Zedders who are like, I don’t know, this has happened really fast. I don’t know if I trust a vaccine that was developed this quickly. I have a teenager who’s in this space. I hear this from the teenager, it’s global. Well, it’s not just in one part of the world. So that’s the thing when you talk about the movement of power, the decentralization of power. It’s also about a change in what can you assume?

And I think that’s part of a bigger issue, which is we no longer have a reliable global commons. And by that what I mean is a common set of beliefs. And go oh yeah, of course, we all agree. Yeah. No, we don’t all agree on really basic stuff, which is back to what John Vervaeke and Daniel Schmachtenberger are working on is like even the words that we use, or we don’t agree on what is the meaning of the word. It’s getting that granular, so you can’t assume anything.

Richard:00:40:49Yeah, these thought bubbles seem to really keeping us from finding a common narrative, common truths and just arriving at something that can be thought of as quote/unquote truth, that we could perhaps rally behind in a common project. So I want to pull on that thread and maybe take us a couple of steps back. Given these thought bubbles and given this exponential age that we find ourselves in with the doubling of information every 12 hours. I’ve always been curious about some of the multigenerational frameworks that are used to make sense of global politics and geopolitics and whether it’s Neil Howe’s The Fourth Turning or Dalio’s recent essays on the rise and fall of empires. And I wonder if those have ceased to be or maybe even adding the … strap that the … notion of the clash of a rising, a decadent power, if those frameworks are still valid in the context of the current exponential age environment?

Dr. Pippa:00:42:01I love this question and I think it’s the crucial question. So throughout human history you have two very powerful conflicting forces. You have Chaos on the one side, and you have Cosmos on the other. Cosmos is always meant to be a kind of a world, a description of what makes the world what it is. And so how do you get from Chaos to Cosmos? You basically impose order on things through a thought process. So like in economics, we like to use math. We throw math over the world economy, we quantify everything and we say right, that we make decisions based on the quantifiable reality that is the economy. So economies that are growing fastest are doing best. But now everybody goes, wait a minute, my economy is growing fast, my longevity is greater, my standard of living is higher but I’m unhappy. Suddenly we started to go well, what this needs is the idea of a happiness index, where actually you’re not growing fast, your standard of living is low, but everybody’s happy.

So that’s a different way of interpreting reality but you’re using math as the kind of construct for sorting out the Chaos. Storytelling is another way. And that goes to your previous point which is really important, is that common narrative. And I think one of the things making it hard for people is they want a common narrative when in fact, we’re in what I’ve been calling a quantum recovery, which is multiple conflicting narratives all of which are true at the same time. And in that sense, it’s a lot like what happened in the 1920s in the aftermath of not just World War One, but the Spanish flu pandemic. And some people were just so happy to be alive after all that and they partied and they built a future. And some people were completely devastated by those events and got thrown off the world economy, like a hamster being thrown from a wheel and could never find their way back.

So one group, we know through the novel The Great Gatsby, because they were drinking champagne and having a great life. And one novel is The Grapes of Wrath where a whole generation literally were displaced from the land and ended up in the dust bowls with literally no life to be had. So they were both true at the same time. This is similar, and I think it’s hard for people to process multiple, simultaneous competing realities. But actually, that’s life, we often have that situation. So yeah, which one you’re going to invest in and my answer is, whatever you’ve decided is true, will be what you find. So if you’re an optimist like me, I see examples of the 1920s and things going beautifully everywhere I look. But if I were a pessimist, I could find many examples of economic devastation and people who were lost and won’t find their way back. So basically what you look for just like in physics, you influence like Schroder your cat, your observation of reality causes the reality that you will experience.

Richard:00:45:38Yeah, I like that answer. It is, I guess the answer to most questions if you’re trying to go down a proper rabbit hole of real explanation, it’s complicated, it depends, there’s nuance around the answer. So there are many competing truths to that. So just going back to the original question, do you think those frameworks are still somewhat valid in understanding what we’re witnessing right now with the apparent decline of the US and the apparent rise of China that there…I’ve heard, I think it was a Louis … talking about the prominence of China and perhaps not really, downplaying somewhat what’s happening in Hong Kong and Taiwan. But then you can see the opposite side of that argument being, well, anybody who can leave China and find a better life in the US or other western countries will try to do that, and some anecdotal information of graduate students asking for their professors in the universities to help them find a job here so they can stay. So how do you square those two competing models of political rule?

Competing Political Models

Dr. Pippa:00:47:06Yeah, it’s a great question. So the first thing I think is super important is that how many countries do we have in the world, it’s like 170 something at this point. And the fact is that many of them are succeeding at the same time. So we don’t have to choose, is it the US or China? Both can succeed using their own business model and their own political model and they’re very different. And actually, the world is a better place when both of them are succeeding. We had the same issue. I was advisor to the government during the preparation for Brexit and it was all very either or, and I’m like why can’t Britain succeed and the EU succeed at the same time? There’s no reason this can’t happen. And people were like, oh, that’s a mind blowing thought like, really? It surely, it has to be either or. It’s like in a divorce, wait, who’s going to do better? One or the other? What if they’re both okay and they make their way into a new life. So I don’t think we have to choose but I do think that the models that are being chosen for these places are all very different. And I don’t buy into the assumption that China is the future and the US has already lost its place or economy. In fact, what I see is absolutely the opposite of that, that the direction of travel in China is inimical to innovation. Things like their social credit system which I think, it’s very hard to say to people, I want you to, in fact, I require you to agree to the party line and behave according to the rules, but when you go to work, I want you to be really innovative.

That’s not how humans are. They become innovative by pushing boundaries and testing the rules and breaking things. And the US has much more that kind of ethos and the fast line, I think it was break things faster. That gives you a lot of innovation and acceptance of mistakes that you don’t find in the Chinese culture and ethos. So yes, they have a large number of people. Yes, their standard of living is rising. But does that mean that China is the future and that displaces the US? No, not at all. So I don’t know, maybe I think yes. The answer to your question is, the old frameworks are not answering the question very well. We do need new ones. And in fact, my next book that I’m working on is very much about coming up with a new framework for reorienting ourselves so that it’s not so binary, so that you can make your way forward without being stuck. Again, like I said, it’s through math of the economy, it’s like a veil and it creates a certain structure, or you throw story over the economy, it creates a certain structure.

One of the stories we had in America is that it’s worth working as hard as you can to own your own home. Yeah, but that’s not true anymore. You could work really really hard and never be able to own your own home because of what’s happened to prices, and inflation is back. So we have to come up with both new stories and new ways of projecting order on to chaos.

Richard:00:50:46Yeah, I like that. But I think lingering for a second here on the US/China situation and maybe going back to one of your first points in the conversation which is, we’re actually in the midst of a war. It just hasn’t been fully hot yet but it might at any second. How do you see the potential for, the two sides maybe tripping into a war? Kind of like what happened in World War One, where that concept of Guns of August, everybody miscalculated who would do what and mobilization led into a conflict that couldn’t be stopped anymore? I’m reminded of and we talked about this in a previous episode.

I think it was Ian Bremmer was describing the situation now with TSMC in Taiwan and the US having them build the factory, the huge factory in Arizona and then telling the Taiwanese, no, you actually can’t export some of these chips to mainland China. And he was equating that to being akin to some foreign power, possibly Russia back in the 60s trying to approach Lockheed Martin in the US which was as strategically important to the US back then. So how do you see that risk of them tripping themselves into a war or stumbling into a war by miscalculating how the other side will react to one of these strategic moves?

Tripping Into a War

Dr. Pippa:00:52:17So my dad always jokingly calls this the Whoops Factor, and it’s a real phenomena in the military space, like whoops. An event happens and suddenly you’ve crossed the line that you didn’t mean to cross, and suddenly you’re in trouble. So I’d say it’s high and we’re seeing examples of it all the time. Look at the Huawei issue where it was the arrest of one of the owners of Huawei, the daughter of the owner, and boom you suddenly, this isn’t just a limited issue, you’re like in a massive diplomatic incident that totally changes the landscape of the dialogue between these two superpowers.

Richard:00:53:08A collateral damage for Canada, sorry to interrupt, but just damage for Canada. Canada has two diplomats that are still arrested in China, which is kind of crazy.

Dr. Pippa:00:53:18Yeah, exactly. And suddenly everybody’s a pawn in a bigger game and big American corporates start sending emails to all their employees saying, if you don’t actually need to go to China don’t go, because you could be detained. Suddenly the risk of doing business in China isn’t that you might get a lung infection because the air pollution in Beijing is not good. It is you might be arrested because you’re a pawn in a much bigger game. So I think this is exactly what markets should be aware of, is the very fragile nature of this balance of power and that a small thing could cause a big slip up.

And that’s why it concerns me when I see these near misses with military vehicles whether that’s spy planes or fighter jets. The fact is that you could actually have an incident, and then it’s harder to talk it down once stuff like that has started to happen. And that’s why I say I think we’re closer to being an all…in a sense, we are in World War Three because we have these localized conflicts in remote places but with superpowers behind them.

Adam:00:54:46Hot proxy wars.

Dr. Pippa:00:54:47Hot proxy wars are a real thing. Yeah.

Adam:00:54:51I almost want to think about some of the moves made to protect US tech from the Chinese or Taiwanese tech from the Chinese or sort of economic or commercial brinkmanship and what we’re starting to see, like in the last couple of weeks we’ve seen comments out of indirect channels in China making very direct nuclear threats on Japan, if they were to intervene on behalf of Taiwan. Do you see this as an official escalation or is China testing the waters here a little bit? What do you think the purpose of that is? What are they signaling?

Nuclear Signaling

Dr. Pippa:00:55:36Yeah. And then it’s always dangerous to talk about China’s position on any issue in geopolitics in the same way that you can say, well, what’s Washington’s position on nuclear weapons? And the answer is, they’re about like 11 different positions, different groups of people, and it’s never unified. And in China, you occasionally get somebody who’s very senior in the political establishment who says something that’s, where you know everybody working for that guy is going, oh my God, I can’t believe he actually just said that. You see that too. And so, it’s really tricky interpreting what any one person says. What’s important is that the Chinese definitely feel under threat, that the US is leading an effort to deprive them of the single most valuable piece of equipment for growing any economy, which is the modern semiconductor chip. And the fact is, we do have a global shortage and the cost of building a new semiconductor plant is billions. It’s extraordinary how expensive it is, where we can’t regain that ground, even in the United States. So this is a finite resource that now everybody’s fighting over.

And let me add another layer of complexity to this because we used to talk about war games and geopolitics and that meant tanks, troops, personnel. Now, it means children’s games like TikTok, Minecraft, they’ve literally been named as frontline phenomena of the new geopolitical warfare. Why? Well because it’s the digitization of geopolitics. As we create for every person, every place everything a digital twin, as we absorb all this data every time any of us plays Minecraft, and it’s gathering information about your emotional reaction, and if these games are equipped with listening equipment in the house, all the conversations, what’s happening in the household. All this information is incredibly valuable for understanding the psyche of the nation frankly for the individual.

I’ll give you an example. When I was working in the British government and we were during the Brexit negotiations, everybody was like, we have to lock all the documents in the building and nobody’s allowed to take any documents home. And I said, okay, but what about when you get home? And they were like, Yeah, and I like, say you got home and you start talking, you say, well, I’ve got to go down because the Prime Minister is calling an emergency meeting. And they’re like, yeah, I’m like you, but everyone now has all these chips in their rubbish bin, their trash can, the refrigerator, the children’s game, if someone wanted to listen in on a UK cabinet minister, they’re like 20 things in the house that are IoT enabled to totally permit you to do that. And they’re like, oh never thought that. I’m like, this is the new Cold War, it’s happening in the digital space. So this is why when we talk about where’s the new geopolitics, even militaries haven’t fully understood this new digital battlespace that’s maybe in your kitchen, rather than on the border of Estonia or something.

Adam:00:59:05How does this play into what we’re seeing with the Chinese government stepping in very aggressively in some of the consumer tech and education industries in China and seemingly deciding that innovation and investment has kind of run its course and is now counterproductive in those domains, and making the explicit pivot towards more strategically productive or valuable industries like semiconductors? I mean, is this a reflection of China recognizing that some of these technologies can be used against them and their citizens and are currently being used counter productively in those ways, and also seeing an opportunity to redeploy resources in more strategic sectors?

Dr. Pippa:01:00:01You know, at the end of the day the Chinese political leadership have never given up on the idea of command and control. They never actually became capitalists. The people became capitalists, and they all went off, when this idea of it doesn’t matter if the cat is black or white as long as it catches a mouse, and that was permission for the public to go make money. But it doesn’t mean that the political leadership ever bought into the idea that capitalism should be allowed to just run free. It’s always been a command control, we’ll give you permission as long as it suits the leadership. And then when a lot of people started getting very rich in China and the distribution of wealth started to become so wide, and that started to cause social pressure, basically the people running the biggest companies disappear and when they reappear, they give a press conference saying, I decided to give away 99% of my company. And where did they give it? Back to the government. It’s an expropriation approach. But you know, no one would phrase it that way but that’s one way of thinking about it.

And by the way, just to be clear, I don’t want to be too heavy handed on the Chinese because in the West we are also using this digital data, digital information landscape in a very similar way. It’s just we privatized the function. So we’re okay with Amazon and Facebook and Google all having the social credit system that is applied to each one of us, that somehow that’s better. But is it? Or is it really the same thing? Again, as we digitize reality, digitize politics and geopolitics, the landscape of that is something so novel. To me, it’s literally the wild west of our generation. It’s this lawless place where we have not established what are the rules, what are the ethics, what’s allowed, what’s not allowed? And so that’s a universal phenomena. So I don’t want to be too tough on the Chinese because we’ve got exactly the same phenomena just occurring in a slightly different way.

Adam: 01:02:33I agree, I would liken social media for the most part nowadays, like the new cocaine trade. It triggers exactly the same neurotransmitters. And so now you’ve got sanctioned commercial entities with, that are omnipresent, that have algorithms that are highly effective and getting more effective by the day and by the bit, at hacking human cognitive function and decision making, and they’re allowed to operate largely outside of any sort of regulatory apparatus. And we are performing an uncontrolled experiment on democracy and the capitalist system. And so it certainly will be interesting to see how that plays out. Michael Harrison is in the comments and he asked a related question, I’d love to pose it to you. Do you see perestroika in China?

Dr. Pippa:01:03:32No. That’s a very interesting question. There was a window when I thought that was happening and that ended…I’ll tell you when I thought that ended. I have to look up the exact year, but it’s when they suddenly arrested the head of the security services. In other words, the kind of head of the equivalent of the CIA and the NSA.

Adam:01:03:56KGB or whatever.

Dr. Pippa:01:03:57Yeah. And I remember all of a sudden when he was arrested and charged, I was like, oh, then all the efforts leaning in the direction of perestroika for China, that just ended. Actually I’ll look it up while we’re talking and see if I can find the date.

Richard:01:04:17Is that Bo Xilai?

Dr. Pippa:01:04:19Yeah it was Bo Xilai. And that was the beginning of a big reversal and a realization that the old guard that wants to go back to more command and control, less personal freedom, they were regaining the upper hand.

Adam:01:04:41So as we look at the different proxy wars and wars that are happening in unfamiliar domains, in the information domain, in the commercial domain, where do you see some of the major potential flashpoints that market participants might want to keep an eye on or explicitly hedge as they’re making forecasts and positioning capital.

Unconventional Proxy Wars

Dr. Pippa:01:05:10Well, I’ll tell you the ones that I’m paying attention to, but they’re unconventional. So one of them is Scandinavia, the Baltics, and skirmishes that happened between the Russians and NATO or the Russians and the West off of Norway in the Baltic Sea, Belarus, this whole kind of part of the world that we haven’t really thought about much since the last World War, is actually just rampant with submarines chasing each other around, a lot of research vessels that are really military vessels. There are lots of internet cables up in that part of the world and the Russians are always trying to dredge them up so they break the cable. That’s one part of the world, is the Baltics/Scandinavia.

One part is the Arctic and I think there’s a huge geopolitical race going on right now for the Arctic. The Chinese have developed the fastest icebreakers in the world, they can now get from Dalian on to Rotterdam which is the northern Belt and Road even though it’s a shipping lane. They’re able to get there, I can’t remember last time I looked, it was something like 28 days, but Rotterdam has become like the coolest most happening city in Western Europe because so much money has gone into it as the final port of the Chinese Belt and Road strategy. And that is important for a whole bunch of reasons because the Russians are basically going wait, this is ours, we control this. And then the Chinese just pass them at such speed and they’re like, did I hear someone say something. You literally can’t defend it. And this part of the world has a lot of advantages from a geopolitical point of view. One, huge source of protein. And everyone says, oh, I’m not fishing in the Arctic, I’m not trawling for protein in the Arctic, but I kind of think they are. So there’s a huge environmental issue associated with that as well.

But also, we live in a world where if IBM is right, and information is doubling every 12 hours, and add to that supercomputers and quantum computers, which is the new geopolitical Space Race, that’s where all the new defense spending is going is basically codebreaking. Who has the fastest computers that can break the code faster, whether it’s a nuclear code, or a genetic code, or a bank code, like any kind of code. So to do all that you need cold. Otherwise you’ve got a literally air condition all these computers. So where do you start to put data spaces, the Arctic. And so we’re seeing a lot of underground caves, deep underground military bases all being constructed by the Russians, by the Americans because you’re putting computer systems in there. And that’ll be the new backbone of the data side of geopolitics. The backbone of it will be in the very cold places, some of those being put into the deep underwater spaces, open ocean. Again, because it’s cold and that’s what you need for fast and vast data processing.

The other places I’m watching, I keep an eye on what happens between India and China. I think that’s a very volatile, tricky border. And we see lots of incidents occurring. So far, the two sides manage it, but that has the capacity to flare into something bigger. Every once in a while it starts to, as the Chinese move into places like Bhutan, Nepal. And why is the Himalayas important? It’s important because the Chinese are now focused on diverting the water supply, because they want to turn the west of China into California, which can only be done if you irrigate it, and they need to grow more food. So that’s the solution, but it also means potentially depriving 60-80 million people of their water supply.

So are we going to see a skirmish or a clash over water from the Himalayas? Answer, probably. This is the right place for that kind of event. If I have to pick a physical space as well, it’s underwater, and huge investments going into submarines because they’re invisible. They’re wonderful because you can do all kinds of things and the public never knows about it. So China’s real focus for their Bluewater Navy hasn’t been the aircraft carriers that get so much attention, but rather the submarine capability. And then that’s like the old Cold War, it’s like World War One or World War Two. There’s submarine activity that you never hear about, but it’s happening. So those are some of the things that I’m watching. Anything to do with critical infrastructure that suddenly doesn’t work. The Colonial Pipeline, there are those who say, of course, that’s not geopolitics, no nation would get involved in that. But I think that, again, we’re in a data space where digital control over remote resources and assets is an everyday thing. Huge divisions of the American government, the Russian government, Chinese government devoted to that. And so you shouldn’t be too surprised to see sometimes infrastructure just suddenly stops working for a while.

Richard:01:11:09And lingering on this point for a second regarding the war making capabilities of the exponential age. You’ve touched upon the Colonial Pipeline, cyber warfare. We’ve recently witnessed the Armenia/Azerbaijan conflict on Nagorno Karabakh and we saw drones and just technological warfare with a lot of unmanned resources being able to deliver these David versus Goliath kind of victories to underdogs. How do you see this modern warfare landscape developing in the coming years especially in the context of a possible hot conflict between China and some of its neighbors and potentially the US?

Technological Warfare

Dr. Pippa:      01:11:57Well again, technological innovation is happening in weapons systems just as much as anything else. And so the miniaturization of weapons and their cost is coming down. And so stuff like those drones that, they made a material difference in that case. The kind of drones that normally, a nation or non-state actors could never have afforded. And now they’re reasonably within reach. You can afford them and you can use them and they’re accurate and they work. So that’s a permanent trend in the world economy. Weapon systems are always becoming smaller and more capable and less expensive. So it’s very hard, that never reverses and so we’ll just see more and more of that. But you’re right, it means you can never afford to just get lazy on that front, otherwise you end up like the Polish cavalry in World War One on horseback and the…

Richard:01:13:10Against machine guns.

Dr. Pippa:01:13:11Machine guns, yeah. This is a permanent state of affairs that you have to keep innovating in order to maintain balance of power. And heaven forbid, that anybody actually has to use these sorts of weapons. And that’s a really one really super interesting question, especially for this audience on the podcast is, how we all feel about robots in warfare? And is it a good thing if you have robots fighting robots and you get the humans out of the way? Or is it a bad thing if you start deferring to robotics to make decisions.

Richard:01:13:47Autonomous weapons?

Dr. Pippa:01:13:50Autonomous weapons, yeah. This is a really deep philosophical question that every one of us faces now, and most people have no idea how to answer it. But it’s coming at us quickly.

Adam:01:14:04And you’re doing quite a bit of venture investing and research in the robotics space. Do you have any opinions on that might help to help people who haven’t given it a lot of thought or don’t have a lot of knowledge in the space to come to their own conclusions on that?

Dr. Pippa:01:14:22Yeah. I would say, we are going to see the robots being used much more in the conduct of warfare and as you say hot proxy conflicts. The question is, do you empower an autonomous system to have a go at a human? Or do you empower an autonomous system to have a go at another autonomous system, and there are two very different things.

Adam:01:14:57How do you differentiate between the humans on your side and the humans on their side?

Dr. Pippa:01:15:01Yeah.

Adam:01:15:03Or civilians versus military.

Dr. Pippa:01:15:07And that’s already been a problem. The friendly fire has been an issue in every single war. In fact, you might get less friendly fire if it’s more robotics and autonomy. So this is why some people are actually leaning in this direction. But it’s literally a historic moment because also the capacity of robotics to engage in autonomous decision making is increasing exponentially every day. So anyway, I personally think we should try and avoid having to have the conflict to begin with, and that requires human knaus, human diplomacy. That’s not a numbers game that can be done by an algorithm. I think that has to be done by humans. We’re back to forgiveness and engagement and those things again.

Richard:01:16:06Going back to the geopolitical 3D chess between China, the US, and Russia, it’s interesting that the US, I think it was Biden very recently giving his blessing for the pipeline, the gas pipeline coming out of Russia and benefiting particularly Germany, but more of Europe in general. So kind of conflicting objectives and all these different incentives in place and definitely seeing this pivot that Russia and China are now very much aligned as much as possible, Arctic notwithstanding, against US hegemony. So how to how to galvanize, how to rally US and Western Europe interest more generally against this sort of looming threat given, that these commercial and energy needs and interest are conflicting to this degree?

Oil and Gas and Green

Dr. Pippa:01:17:13Yeah. Well look, pipeline geopolitics have been around for a very long time. This is not a new issue. But because of the German position that nuclear is not acceptable under any circumstances, it’s created a vulnerability that they’re totally dependent on, if they want to have any heat in the winter. They’re totally dependent on Russia supplying, and the Russians kind of like that position and they like playing with the temperature dial in February and turn that down and suddenly you hear some screaming.

Richard:01:17:51Especially in the Ukraine.

Dr. Pippa:01:17:53Indeed, and recently I was in a conversation with someone from the defense establishment who gave a very cogent explanation that the whole purpose of this strategy is to get the West to walk away from Ukraine altogether, to allow Russia to wreak, take that territory and control it. And again, sounds like power politics of the last century to even talk in these terms. But yeah, these are the strategic possibilities on the table. And in Western Europe there’s another phenomenon, which is all the new gas fields that have been found in the eastern Mediterranean. And I think there’s going to be a punch up at some point over who owns what, because it’s so valuable and there’s such a need for it. And all of the countries are saying, hey, some of that must be mine. But technically, it’s mainly Cyprus that owns it, it’s mainly Israel that has the licenses to develop it, and it’s mainly Russia that would be most injured if that alternative source of energy were developed.

So that’s another place I keep my eye on things, and fire on an offshore rig in the Mediterranean, at 3am, who does that serve? There are certain parties that might not want those rigs fully operational. And I do think you could get some conflict between different countries like Egypt, Israel, Cyprus all saying, hey, this is mine. No, it’s mine. No, it’s mine.

Richard:01:19:32How about Saudi Arabia in that context? Saudi Arabia definitely doesn’t want their prominence in the energy world undermined in any way.

Dr. Pippa:01:19:43Well you say that and I hear you, but there’s something much bigger going on in Saudi, which is like the big oil companies like BP and shell, they’ve decided that they want to go for net zero. That actually being so dependent on carbon emissions generating energy, is a dangerous place. And that’s why one place to watch with some care is this new geographical location they call Neom. And Neom is a city state which is vast that they are building, and it is intended to not only be a zero carbon city, but to be a place where they develop sources of income for Saudi that are not dependent on oil. And so that community will be, all the traditional rules about gender will not apply. It will be highly science research oriented. The highways they’ve already committed are going to be built out of these solar panels that actually charge electric cars as you drive on them. So all of the power comes from the sun blasting down on the solar panels and you charge your car just by driving.

Richard:01:21:09Tesla might be interested in that technology. They have a plan about this, but I don’t think it ever went through.

Dr. Pippa:01:21:15Yeah. And then this way Saudi is really at the forefront of innovation in moving away from oil. And so it’s going to be interesting to see where they can accomplish this task, it’s very ambitious.

Adam:01:21:31So they committed like a quarter trillion dollars to this project over the next 25 years or something, like it’s just an astronomical and this amazing centrally planned Silicon Valley type but nice coastal city looking to cultivate the reefs and everything like it. It does sound like a really interesting project.

Dr. Pippa:01:21:50It’s does. This is MBS’s vision I guess from pivoting and you raise a good point. Do you see Saudi Arabia perhaps extricating itself from this quagmire that is the Middle East, even though they do still sort of use their way in OPEC and trying to keep the Iranians down, this whole Shiite/Sunni millennial tussle there? But it’s hard to imagine that Saudi Arabia would step back completely from that arena and the weight that they pull in. I totally see where you’re going with this point about the pivot and it is definitely something that given the trend, given the global trend and the zeitgeist for green and for climate change, it behooves them to plan for the future. But for the next few years, it’s unlikely that they would take this complete step back, what do you think about that?

Dr. Pippa:01:22:51Well, I think they are trying to take that step back from oil as fast as they can. And by the way, the Norwegians are doing exactly the same thing. And weirdly, the price for fish is now higher per barrel than the price of oil. And traditionally, the Norwegians made more money out of fish than oil. And now they’re back in that position again, and they’re like, well, let’s focus our attention on generating revenue from nature and keeping nature in good shape, because we make as much or more as we do from oil. So the Saudis are not alone in this reassessment of what’s the right way forward. Saudi’s of course, in this very awkward position because the world is holding them accountable for what happened with Khashoggi, and I don’t know if you guys have been following the headlines recently, I think it’s super interesting to follow the Pegasus story. And so the Pegasus story is basically that Israeli built mobile phone software that allows you to track someone’s movements without their knowing it. And apparently Pegasus was used to track several heads of state in Western Europe including the Prime Minister of France, and it was apparently used in tracking Khashoggi and knowing what his movements were. But it’s being used for tracking journalists who are trying to tell an honest story.

So there’s a huge controversy now about this digital tool being used in geopolitics. So I think part of the reasons Saudis are building Neom is to offset the brand image and create a new one for the nation. But we’re back to what we started talking about earlier, which is, if you’re trying to impose Order on Chaos, you could do it through math and numbers, but you can also do it through story. And so the story of Saudi is now going to be one of highly innovative, very progressive, giving more freedoms to women and minorities, introducing things that are genuinely good for the environment, that’s how they will shift, they will take control of the narrative in this way.

Richard:01:25:20Yeah, and just to be clear, the Pegasus software which gives you the ability to hack phones outright, that’s a private enterprise. It’s not the Israeli government’s tool. It’s a private company that does that. And this has been at the forefront of a lot of espionage and several developments in this geopolitical arena.

Dr. Pippa:01:25:45Completely. And let’s just be clear, the hacking of mobile phones is not very hard these days. There are loads of apps just on the App Store that you can load up somebody else’s phone in such a way that you can get their messages and see what their activities are. I mean, it’s just not that hard. So this is part of that new digital world where your digital twin is revealing all kinds of information about yourself that you don’t realize you’re revealing.

Adam:01:26:24So we’re coming up on an hour and a half, I want to make sure we touch on a couple of concrete things to leave people with. And I also want to make sure we touch on your book and what it’s about and when you expect it to be published and when we can all look forward to reading it. So from an investment standpoint, do you have any strong opinions on sectors or regions that investors might want to focus on opportunistically and any particular themes or types of trades that investors might want to consider as strategic hedges?

Geopolitical Strategic Hedges

Dr. Pippa:01:27:00Yeah, totally. So first thing is, we’ve had a record amount of money into the world economy from virtually every government around the world. And that money is definitely looking for a home. And you have a record number of entrepreneurs who have either been displaced from their old job, or who see opportunities and want to create something new, and usually the free money and the people who can put it to work will find each other sooner or later. So I actually see this as the beginning of a period of immense innovation, and probably on a par with the Industrial Revolution except faster, bigger. And so when it comes to the stock market people are like, I can’t believe it so high, how can it be so high in the world economy is falling apart? And I’m like, it’s just going to go higher, it’s going to keep going higher because there’s got to be someplace for the money to go, and there is a place for it to go. Innovation is real, and it’s happening and people are coming up with better business models all the time.

Also, we are getting inflation. And you guys probably know I’m always a little bit of an inflationista, and I argued back in 2015 that we were losing all of the things that were holding inflation down. And so we would expect it to start bubbling up, it might take time, but it will come. And here we are. I think that we are definitely seeing inflation. When you see that, and of course, most people don’t remember inflation. But those of us who are old enough to remember it, we know what happens, which is that equities go up in the beginning, because Procter and Gamble has the pricing power to outrun inflation. So that’s what you buy. Property can outrun inflation, surprise, surprise, property prices going up much faster than anyone expected. Bonds not so attractive, although you have to buy a certain amount because governments require you to hold liquid investments, but you’re not buying it on an inflation view, You’re buying it because you’re required by the regulators. So if inflation is in play, I expect asset prices to rise much more dramatically.

So I see some really significant upside the most people are not prepared for that. They’re all preparing for the next great depression. And I think actually, I don’t see that happening, I see the opposite. But like I said, if you want to find the next great depression, there are plenty of examples that you can find, and then you can invest in that side of it. But I think the side of the trade that will be more fruitful and less expected and therefore easier to get into, is that the upside is much higher than we thought. So let me add to that as well. Government defense spending is accelerating and what is it going on? It’s going on computers, supercomputers, quantum computers, data processing. That’s the new space race. And I think the spin offs from that for the private sector will be as large or larger and more impactful than the spin offs from the NASA program in the 60s and the early 70s. So that’s all investable as well.

And again, the decentralization of power means more and more entrepreneurs are coming online, they’re able to build, There’s a new phenomena called GPT-3, have you heard about that? It’s basically the ability to code without needing to be a coder, to code in plain English. Now, it’s early days, but this is the direction of travel and it means that you’re going to democratize the access to the capacity to build API’s, to build apps, to build software and I think that is very promising as well. So I’m definitely on the optimistic side that we’re going to see some extraordinary upside performance in the world in this coming few years.

Richard:01:30:54Do you want to mention some of the…

Adam:01:30:56Okay, let’s do that first, Richard go.

Richard:01:30:59 Yeah. I was just going to ask if you care to mention some of the ventures that you’re involved with in the technological space. I’ve heard you mentioned in previous podcasts. So I’d be curious to hear.

Projects in the Pipe

Dr. Pippa:01:31:11Yeah. I’ve got a company that’s actually in the drone space. We’re not manufacturing, but we’re advising big corporations on their acquisition strategy. Because it’s really interesting how technology is always both overhyped and underutilized at the same time. And drones are definitely in that category, but the companies are now beginning to properly register, that having command and control of data from an aerial perspective is incredibly valuable especially if you’re running remote assets. And I personally think that the value of a remote asset whether that’s a mining site in South America or a farm in Africa, it goes up dramatically when you know that you can look at it whenever you want, and measure it whenever you want. This is not like the old days where you had to rely on someone on the ground telling you and they were like, oh, everything’s fine but they were down at the bar. Now you can really see, what is the actual situation right now.

And so in that sense, drones are literally like prosthetics. They’re an extension of your sensory capability and that’s the right way to think about those robotic tools, rather than as a thing that just delivers a beer across a golf course. But I’ve got another project that I’m working on that I’m very excited about, which I can’t announce yet. But it’s going to be in the engine space. And again, the amount of innovation going on…

Richard:01:32:42Cold fusion, are we talking cold fusion?

Dr. Pippa:01:32:43No, not cold fusion. No, but that’s very interesting. Anyway, and then I’ve got another thing I haven’t properly announced yet, but it’s a startup that I’m doing that has to do with bringing together people who are very brilliant and at the cutting edge of their fields, and allowing them to come together and work with companies to innovate in terms of diversity of thinking. And I think that’s a huge space because the old model of … like the LinkedIn model is you live a life where you have one job and then you should potentially have another job and then you also potentially another job and you have this thing called a career path. And this has been blown away and what people now have is a portfolio of different risk ventures that they’re all pursuing at the same time, and people who are really switched on have a range of different interests, and more and more companies are saying, I don’t want to hire all these people full time, I don’t want them on my staff but I do want to bring them together, solve a problem, disperse, come together again with a new problem. And that’s what we’ll be doing.

Adam:01:33:58Well, I hate to shift gears again after such a lively and optimistic take. But for those managers who do want to manage risk, what are the highest leverage risk management trades in your opinion at the moment? Geopolitical and macroeconomic?

Leveraged Risk Management

Dr. Pippa:01:34:23Well, I always find this question hard because also not everyone starts in the same place. So I’m often asked because of my background in foreign exchange markets, should I buy dollar/yen or should I sell dollar/yen? And I’m like, well, where are you starting? If you’re already long the thing, or are you short the thing, or do you have any experience at all in this thing? And because you can make money on both sides of these trades.

Adam:01:34:52Assume on average people own a US centric or global 60/40 type portfolio. What are some of the highest level of strategic hedges at the moment do you think?

Dr. Pippa:01:35:05Well, I don’t think so much in terms of hedges. What I’m thinking more is, you can’t invest in terms of sectors anymore. You have to invest in terms of there are some people in every sector who are radically reinventing the business models. And those are the folks you want to be with. They are totally redefining what a business is all about. And I see a lot of that happening in every single sector. So that’s not sector specific. In terms of hedges, I’m kind of with Warren Buffett, and this is going to sound funny because it’s not how people think, but the best hedge in the world is investing in yourself. It is investing in your own skill, set your own knowledge base, your own network, your own genuine understanding of a subject matter. And I think often what happens in markets is we think, well, I went to college or finished graduate school and now I’m in this field, and now it’s just about trading. No, we it’s lifelong learning, you got to go back and start to study, what are the new instruments available? How do they work? For example, in finance, how many people are really understanding what’s happening in DeFi, in NFTs, in crypto punk, in digital currency.

By the way, we didn’t even talk about digital currency but sovereign digital is also a new frontier in geopolitics. And the Chinese, the Americans, Europeans, the British, they’re all going to introduce sovereign digital which brings a whole new element to geopolitics, because you can control large territory if you can get them to use your money and gather data from all of them as well.

Richard:01:36:54It’s capitalism taken to a whole new level.

Dr. Pippa:01:36:58A whole new level, a whole new level. So I think if you don’t get those things, if you’re like, I don’t really get this DeFi thing. I don’t really get crypto, well, then you have to go get it, you have to invest in the knowledge and study it because these things are not going away and you’re not going to have a chance to catch up later. So that’s the hedge, is invest in your own knowledge base.

Adam:01:37:23Love it, point taken and never ask an unabashed optimist to tell you where things can go wrong.

Richard:01:37:30I think that’s a good place to end. That was a great point for optimism to leave everyone with so I like it a lot. We are going to have to do this again.

Adam:01:37:42Pippa, what’s your book about and when is it being released?

Dr. Pippa:01:37:46     I don’t have a date yet, but the tentative title is Signals and Sense Making. And it’s all about how do we see the signals that cast a little light on the future and how do we make sense of things enough to be able to deploy capital? So I will let you know but I’m working on it now.

Richard:01:38:04Where can people find you?

Dr. Pippa:01:38:06    I’m on Twitter under @Dr PippaM, because nobody can spell Malmgren. And I’m on LinkedIn, I put stuff up on LinkedIn, I’m always open to having a conversation about what people find interesting in the markets. So come say hi.

Adam:01:38:22Well, we’re extremely grateful for the 90 plus minutes that you spent with us today. There’s been some amazing comments and enthusiasm in the chat. Everybody’s found it really valuable and interesting. So thank you so much for such positive energy and incredible breadth of knowledge and insight. This has been a really interesting and useful conversation, so hopefully we can do this again.

Richard:01:38:46Yeah, exceeded expectations. Thank you so much for joining us.

Dr. Pippa:01:38:50You guys are great. Thank you.

Adam:01:38:51Have a great weekend.

Richard:01:38:53Have a great weekend, bye guys.

Dr. Pippa:01:38:54See you later, bye.

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*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.