Episode Transcript
David: I'm David Sol and this is our third episode on geopolitics and financial markets. Our guest today knows everything about geopolitics. She is the founder of Fordham Global Foresight and was nominated as one of the most influential women in finance. Welcome back Tina.
Tina: Great to see you David.
David: Tina, you're one of these bright people who know and speak a lot of languages.
Tina: You too!
David: Recently you coined a new term geopolitical denialism. What is geopolitical denialism and why does it matter?
Tina: What is geopolitical denialism? Well I took my cue from the expression climate denialism and those are the people, you know, the flat earther sorts of people who think that climate change isn't real. During my 25 years talking to investors and business leaders about geopolitics, there's always a subset of people who say, well that's all very interesting but geopolitics doesn't move markets. Part of my mission and I do have a mission is to to be more targeted and to be more targeted and more precise where we can be about just why it is that we say that business leaders need a mental map for thinking about geopolitics and understanding where the inflection points and linkages might come because it’s true, if you are a trader, you probably haven't seen very many instances where a geopolitical event had a market impact. Something like the unravelling of the regime in Syria for example is a good one. There wasn't a precise market impact there but in this month's Navigator where we track these kinds of things, we have flagged it as a top risk and that's because of not just the direct market impact, but second and third order implications. For example, refugee flows coming in and out of Syria and these have become political events, political risk events over the last several years. So we need to change our mindset and we need to think more widely about geopolitics. Being involved in geopolitical denialism isn't going to help you in the time ahead of us, which we think will be an age of more geopolitical dislocation.
David: So you need a framework and a clear roadmap to understand and connect the dots between various events. Now in the first two episodes we spoke about US elections and how 2024 was different from 2016. To your mind, what can we expect from Trump 2.0?
Tina: Well the question of what we can expect from Trump 2.0 has really overtaken just about all content there's a question about whether that's really justified or not, but look at the fact that time magazine just named Donald Trump the Person of the Year. Now their criteria is not to you know, identify the best person of the year. It's not the Nobel Peace Prize, but the person who's going to be most influential. So I think that that's quite telling. In terms of what to expect, how do we go about making that assessment? If we look at what Trump has said he will do on day one. I've been saying for the last five weeks, and it's only been five weeks since the US elections that given the volume of promises that Trump has made for day one, it would have to be a biblical day. As in, the Lord made the Earth in seven days, very long indeed. So differentiating between campaign rhetoric, actual intention, isn't just about sincerity, it's also about capacity. So we have looked at, for example, which of Donald Trump's campaign promises he can do via executive authority without needing assistance from Congress, which he can do alongside congressional authority. Trump does, of course, have a majority in both chambers, but it's very thin. It's only four votes, so he's not guaranteed and another kind of layer for thinking about what Trump can accomplish, where he needs the support from Congress the members seated are going to be up for re-election, many of them, in two years time and the ones who are facing their publics, their constituencies may have reason not to go along with everything that Trump wants. So it's a little more nuanced, I think but there's no question about the fact that Trump has got a mandate. It's a question of how he uses it. In terms of policy priorities I think we should expect him to move on immigration. He has promised mass deportations. These are popular with the public and by the way, we're already seeing similar kinds of public opinion data coming from other countries where immigration has risen up the list of concerns for voters. So immigration clearly will be acted upon. Trump has talked a lot about, grocery prices and he said just yesterday, once they're up it's hard for them to come down. That's a bit of a different tune. Fed independence. Something else that he has said quite a bit about. I do think that Trump will focus mainly on the domestic agenda, but right now he's really making the most of the fact that he's getting visited by foreign leaders. Justin Trudeau came to Mar-A-Lago. Keir Starmer was at Mar-A-Lago. Trump was at the opening ceremonies for Notre Dame in Paris last weekend and had a chance to see Zelensky. He's where he likes to be making deals, making bilateral deals and a lot of that's going to be untransparent. So look for more algorithms and other efforts to come out that will try to kind of game out what Trump might say and do. I prefer to look at the policy trajectory.
David: Now we're coming towards the end of the year but things are certainly not slowing down. In your recent publications, you mentioned Syria and South Korea. Now, what are these events actually telling you?
Tina: Well I talk a lot about how there are really very few genuine black swan events. I would say, David, that almost every client event and keynote speech that I give on geopolitics the people ask me what's the thing that we're not thinking about? The unknown unknown? Yeah the unknown unknown To quote our old friend, the late Donald Rumsfeld. In fact, there are very few unknown unknowns and complete surprise black swan events. What I usually say is the things that move from the back of the Financial Times to the front and we're not paying attention to them. The pandemic, for example, was not a black swan. Epidemiologists have been talking about a pandemic for a very long time. So on the idea about how we need to think about frameworks, how we need to look at data points and things, something like the collapse of the Assad regime is a perfect example of a quote, the famous quote from Hemingway about suddenly or gradually rather than suddenly. He was referring to bankruptcy. So Syria for 54 years under the Assad regime, was a difficult, brutal, despotic state. Under Assad Junior, it became even more complex and then 12 days it took after a 13 year civil war. In 12 days, that capital fell and Assad fled to Moscow. Is it a black swan event? Well that may be too technical but it’s safe to expect that where you have frozen conflicts, low intensity civil conflicts, which is what Syria was we have this in the Horn of Africa and elsewhere. Eventually something will break, but the whole process is a bit slower than most market participants expect. The difficulty with trying to assess the risk in Syria is that there is direct connection to the conflicts between Israel and Hamas in Gaza and Russia and Ukraine because so many of the same actors are involved and so for market participants, it's quite tricky to assess Syria risk. It's been isolated during the 13 year civil war. There are no foreign companies present to speak of. It's not an energy producer and yet we know from Afghanistan, that failed states and failing states can also be kind of vectors of geopolitical risk. You asked about South Korea and I think we could describe that similarly. One of the things that came to mind is that, of course South Korea is an OECD country. It's considered an advanced industrialised democracy. It wasn't that long ago, however, that it was a military regime and it can be difficult and it can be difficult or if you're not a student of history, perhaps just unknown that political change, the development of institutions, takes time and to consolidate norms what we political scientists talk about is as norms and behaviours also takes time. One of the outcomes of more kind of, I want to think of a diplomatic word. Less respect for institutions. Less respect for institution, more personalised regimes. Business leaders can like it, but it means that it is easier for events like the sudden declaration of martial law in South Korea, that it was undeclared. Now we're in this period of uncertainty. We've got a lack of transparency. This is where markets need to remember that democracies do offer more predictable environments and respecting norms and having independent institutions makes your job a lot easier when those start to fall away. This is the kind of stuff that happens.
David: Now let's take a look at next year we spoke, of course, in the previous episode about 2024 as being a year of many elections across the world. 2025 an election is in Germany. Why are they so important? What is it that investors should be looking out for?
Tina: Well, we have identified German elections, which will take place February 23rd as our political signpost of the year. Now, a good thing about 2025, at least at this point, is that we we don't have very many systemically significant elections, whereas, as you said, 2024 had more than ever before and not only that, there was a pretty uniform trend. Incumbents either lost vote share or lost outright in every case except for in Mexico. Moving back to German elections, they are important not only for Germany, but for Europe. We're in a period where concerns about European political risk have been heightened. The French government, or at least the parliament, has collapsed and one of the things that investors are concerned about is that Europe is particularly exposed to Trump tariffs and trade risk as well as to Russia and the war in Ukraine and the expectation that Europe will have to contribute more to defence. This is going to have domestic political implications for every government in the European Union and so with that in mind, Germany as the largest economy and as one of the most important drivers of the EU, is going to be very much in focus and with that in mind, we are expecting a change in government, relatively market friendly centre right under the CDU but still a lot of pressures will be under the new leadership and often it takes months in Germany, even in good economic and political times, to form a coalition. So we think that investors will be looking very closely, at the German elections and with a mixture of hope and concern.
David: Okay well we of course, will be monitoring the market reactions across these events. the market reactions across these events. the market reactions across these events. Can we go back to the risk roadmap? Of course you spoke about Germany and the elections as being a very important signpost, within your framework, you talk about risks for 2025, what are some of these other signposts on your risk roadmap and framework?
Tins: Well, we've got the Trump administration policies in the middle. They may be good for America and this is what you see, I think reflected in market euphoria but again, the tariffs risk is something that is of concern to US friends, frenemies and foes and so the risk of a trade war is I think, underpriced at the moment. You can see that China is already positioning. Of course Trump having said that he would slap 60% tariffs on China. Is it a negotiating strategy? Many would say yes but it increases a lot of uncertainty into the environment and of course, there will be implications for consumer behaviour and for GDP as well as wider tensions. I should have mentioned that Canada has elections next year too and as a neighbour of the United States, Canada is already kind of bracing itself for negotiations. Just recently there were some headlines that I think a governor in Canada had said that it would stop providing, energy supplies to American homes in the northeast. This is the kind of thing we're going to see more of because negotiations in business are a little bit different from negotiations in geopolitics, in that the collateral damage can be, wrought upon your constituents everyday people and there could be some blowback that you just wouldn't see in an M&A transaction.
David: Is it all doom and gloom or are there some silver linings, that we should look at?
Tina: Well, there are always silver linings if there's change and that's why I always invoke this phrase from Louis Pasteur that I like so much that, fortune favours the brave. That's from Aenid, but, chance favours the prepared mind means that investors need to be thinking through a wider range of outcomes. Some of them will be positive surprises, but if you haven't contemplated them, you might not know how to react when it comes to Europe where we are. As I said, I do think European political risk concerns are a bit overdone. Europe does tend to find a way to do things under pressure and Europe is going to be under pressure. So perhaps counterintuitively, I do think that we'll see more efforts to bring about EU cohesion, maybe even some integration following German elections but certainly plenty of volatility as well. A big question for me, though, is who will lead diplomatic efforts when it comes to Syria. Trump has already said we should not intervene but it is very difficult for post-conflict societies like Syria to move forward without outside intervention and there is a great deal of conflict fatigue present right now.
David: Now, in this building, we often welcome graduates, university graduates and students, secondary school students. For those who wish to pursue a career in geopolitical analysis, what would you recommend them? What should they be doing?
Tina: Well, first of all, I would commend them for their interest because in a way, geopolitics is something that's fairly new on the world stage. Even international relations theory hasn't been around all that long. We're talking about decades rather than hundreds of years but my answer in my guidance might be a little bit surprising in that, I am a believer that you need to read history no matter what you're doing because a lot of what we do in markets is pattern spotting, right? It's, you know, it's recognition. If you haven't read history, then you don't appreciate that something that's taking place now. Well, something like it has probably already happened before and you can look at and you can even chart the trajectory from there.
David: And draw parallels.
Tina: -Yes. If you haven't read history, you're constantly surprised by the direction that the world can take. So to me history is never boring. You know, it gives back so much. Another skill that I think is of vital importance is being able to write. I'm all for AI. We use AI tools at Fordham Global Foresight as well that can be time savers but to me writing clearly is thinking clearly and even if most of the writing you do is writing emails to be clear and concise, to get your meaning across is something that will help you stand out from the crowd no matter what you do. When it comes to geopolitics and maybe not only geopolitics, answering what we call the so what question is really important and no matter what kind of expert you are, remember that your value to whoever is asking you the question, isn't in showing how much you know but in targeting it to why the person is asking the question.
David: And highlight the relevance.
Tina: -Yes. So when people ask me what's going to happen next in Syria, I realise that they don't necessarily want to know a great deal of the many complex scenarios. They’re usually asking because they have other investments in the Middle East and so what they're asking me is, will what happens next in Syria impact my investment in the GCC states? Right? So why is somebody asking you the question?
David: So critical thinking, concise writing and knowing history and I agree with you. History is not boring and neither are you Tina. You're very interesting and I'd like to thank you for, yet again, a razor sharp analysis.
Tina: Thanks for having me, David.
David: With that we're coming to the last episode of FTSE Russell Convenes and I'd like to thank our listeners and viewers and wish you, your family and friends, a fantastic festive season and we hope to see you again in the new year.
