Are Trump’s dramatic tariffs simply a negotiation tactic rather than an intentional trade war?
Marko Papic, Chief Strategist at BCA Research, joins Maggie Lake for a critical conversation explaining why markets have misunderstood Trump’s tariff policy from the beginning and what deeper macroeconomic risks investors should actually be focused on.
Key Topics:
- How Trump has used extreme tariff threats as leverage, and why markets repeatedly fall for it
- What the rise of a multipolar world means for global markets and U.S. economic power
- The hidden but urgent risk investors are overlooking: a recession where bond yields stay high, undermining traditional market safety nets
- Why U.S. market outperformance is coming to an end as fiscal stimulus runs dry, exposing vulnerabilities investors aren’t ready for
- Marko’s bold call: why the U.S. dollar is at risk of a 30% decline, and how investors should reposition globally
If today’s chaotic headlines have you concerned about markets, geopolitics, or the next big risk for your investments, this conversation is essential viewing.
Investment Concerns? Get a free portfolio review with Wealthion’s endorsed financial advisors at https://bit.ly/4ide1pl
Hard Assets Alliance – The Best Way to Invest in Gold and Silver: https://www.hardassetsalliance.com/?aff=WTH
Subscribe to Marko and Jacob Shapiro’s podcast, Geopolitical Cousins, here: https://podcasts.apple.com/za/podcast/geopolitical-cousins/id1802258017
Marko Papic 0:00
President Trump always asks for an escalator to the moon, and he always asks someone else to pay for it. In the end, after seven steps of maximum pressure, he usually ends up with a ladder to the roof of his house if you have a recession with yields not cooperating. Um boy, we’re in like we’re not in America anymore. We’re in Brazil. We’re in Turkey. Look up.
Maggie Lake 0:30
Hello and welcome to wealthion. I’m Maggie Lake, and joining me to discuss geopolitics and the market impact is Marco papik, Senior Vice President and Chief Strategist at BCA research. Hi Marco, it’s wonderful to have you on
Marko Papic 0:43
Maggie. It’s always such a pleasure. Thank you for having me. And gosh,
Maggie Lake 0:46
we have a lot to talk about. The headlines out of Washington are changing hour to hour, and we are seeing markets whipsawed by all the news. And the latest, as we are speaking, is a continued escalation, the threat of an additional 50% tariff on China. Maybe retaliatory come from coming from other countries. I mean that 50% is on top of all the other levies already announced on China. What do you what’s your reaction to where we sit right now?
Marko Papic 1:14
So I would say it’s very, very difficult in a moment like this to step back and, you know, not think linearly. It is just very difficult. And what I would say is that with President Trump and his negotiating style, there have been many moments in his administration across the two different terms, where this was a moment when most people would think linearly. For example, think about their meeting with Zelensky. I can’t tell you how many clients reached out and said, like, is this? It is this the end of Western alliance and the security arrangement? And it ended up not being that. It certainly, if you took President Trump and Vice President events going after Zelensky in the Oval Office, if you extrapolated that linearly, you ended up with some us, Russian Alliance, and many, many did that. But the truth is that several, you know, days and weeks later, it became clear that Ukraine has to make a deal with the US, and that that rare earth mineral deal, which I personally think is completely and utterly vacuous and empty and complete nonsense, but eventually that will be the anchor for continued American, you know, alliance with both Ukraine and Europe, even though the US really doesn’t need rare earths out of Ukraine. So what I’m seeing is that, given that caveat, let’s, let’s, let’s start to think about some realities. First, President Trump always asks for an escalator to the moon, and he always asks someone else to pay for it. In the end, after seven steps of maximum pressure, he usually ends up with a ladder to the roof of his house. Now, his critics then start shaking their fist and say, well, he didn’t get anything. No. I mean, you know, you can get to the top of his house, it’s marginally positive for the US. Most of the deals that he has gotten are, I think, objectively Not, not. Most all of them are objectively marginally positive for the US, but the but the whole process, in other words, is quite hyperbolic and quite volatile. And I think the market is now extrapolating this opening bid in the negotiations, which is egregious tariffs, you know, double the smooth Haley level of 1930s and is extrapolating that into the future in which we end with a Great Depression. That’s the first issue. The second issue, I would say, is that I think you shouldn’t have nerds like me on your show. I think I’m the wrong person to analyze President Trump, even with my framework of seven steps of maximum pressure, I think you should have more people with higher EQ. You should have cool people on sales people. You know, the reason I say that is, I’ll give you this anecdote. I had this very interesting conversation with the person who runs my business development. And when President Trump announced Liberation Day, I told her, like, wow, you know, these, these tariffs are high, you know, I think, I think that people are going to walk away. And her answer to me was, this is how I sell your research. And then I said, No, no, no, no, you don’t, you don’t understand. It’s, I’m sorry I forgot to mention his math makes no sense. He’s using some completely ludicrous algorithm to derive the tariffs, to which you said, that is precisely how I sell your research. So anyways, I went to sleep that night thinking, Well, you know, everyone’s going to walk away from this price. President Trump to just set prices too high. And what happened? You know, to your point, when you introduced this topic, you said, there’s retaliation. It’s only really China. It appears that 50 other countries approached the White House and said they’re they’re willing to negotiate. In other words, thank God for my head of business development. You. Clearly I would be setting a much lower price for my own product if it was left to me, because I don’t have the family show, I don’t have the minerals to set the price too high, it does appear like President Trump does. I was
Maggie Lake 5:13
gonna say Moxie Marco, but I know where you were going with that. So wait, this is really interesting. Okay, so, so you very much see this as negotiations, hyperbolic, contentious, outrageous, however you call them, but part of the art of the deal, Trump’s Art of the Deal, whether you buy into it or not, part of that, as opposed to something that is much more permanent in the category of a trade war, of something national security based Well,
Marko Papic 5:49
or it doesn’t have to be national security like the alternative is a permanent state of affair. Well, for whatever reason, national security like, you know, redrawing American trade relationships, drawing up the drawbridge against the rest of the world, Neo mckinleyism. Let’s go back to financing the entire government through trade, even though in 1901 the US government was small enough to be financed through a bake sale. All those things could be on the other side of the ledger, right? So, yes, I do think this is meaningfully in the rubric of negotiations, I think with President Trump. And there’s two reasons for why I would say this is the case. First of all, I just anyone who tries to tell me what President Trump wants, I just stop listening to them, not because I have an answer, but because I don’t think there is an answer. I think President Trump is one of the unique policy makers in the world in that he feels his way through material constraints with his gut. He literally feels his way through material constraints and he doesn’t have stable preferences. So please do not tell me how he has, at some point, said that he wants to finance tax cuts through tariffs. Please don’t tell me how he has said that the rest of the world has quote, unquote raped America, because that literally his words, not mine, because I can also counter and say he has also said he wants a BYD factory in Ohio. He has also said that he wants fair trade. He wants American companies to do great business abroad. So he has, at any one time, said almost anything about anything, you know, like Iran, my favorite thing. We don’t want war. We’ll have a deal or maybe not, then help bomb them. You know, it’s like in the same sentence. So what I’m getting at here is that I don’t think he has stable preferences. And I think as constraints to the current policy set increase, he’s going to start looking for off ramps. The problem with my view is that you can’t trade it. It’s very dangerous to trade. Anyone listening to this thinking they’re going to day trade. Marco’s view, good luck with that, because President Trump’s constraints are not going to impact him on a day to day basis. I think he does have room to pursue a very tough negotiation, and so I have a very high conviction view that this is a negotiations. Extremely high conviction view. If it didn’t start as a negotiation, it’s going to end because the US cannot fight a trade war with everybody else, no matter what you know. Proponents of this strategy think so. Let’s leave that aside for now. The problem is that President Trump can remain aloof of his constraints longer than you can stay liquid. And so I would not necessarily be trying to catch the bottom and the pivot towards negotiations. But don’t be surprised when it happens, and I think the market will sniff out when it happens. Some of the, by the way, signposts of that could be, let’s say, you know, Vietnam and Taiwan, and I think Europe, on some things, not all, have already started to offer concessions. And if at some point, President Trump, like pats a country on the back and says, I like the cut of your jib, like, you know how he said, The Way China did this is wrong. And he says the way that, like, let’s say Vietnam did it, is right. That will be an opening insight, that this is a negotiation. So that’s what I would be looking for in terms of signposts.
Maggie Lake 9:12
That’s so interesting. So when we are along that line, we are hearing a lot of talk, and I’m going to circle back on something you said, but we’re hearing a lot of talk from the administration about who holds the cards, right? Of course, they’re saying they hold all the cards. And Treasury Secretary present is saying China as a country, and I’m quoting is playing with a losing hand. Do you agree with that? Does it look like you just mentioned that? You know, in a negotiation, someone’s got to have the upper hand. Do you think that the US is negotiating from a place of strength, that that everyone else, even if they obviously detest the nature of this, will be willing to come to the table and play? Or is the US overstating the strength of its hand? I
Marko Papic 9:56
think it’s a loaded question, because I think the answer is obvious. Of course, the US. As the strongest hand. You know that’s that’s a empirically, just an already solved problem, like we know the US doesn’t depend on exports to the rest of the world for its economic growth the way that the rest of the world depends on the US for the destination. However, who won the Vietnam War? Who runs Iraq today? Who runs Afghanistan, who runs Syria? Did Russia conquer all of Ukraine? The answer to all those questions is absolutely not, the country that held all the hands and then it had the upper hand, lost. Syria is run effectively by al Qaeda. Afghanistan is overrun by the Taliban. Iraq is essentially a province of Iran today, and Vietnam is a free and sovereign country unified under the Communist Party. So what am I trying to get at here? In a game theoretical sense, it’s not the material power that matters, its willingness to incur pain President Trump is making a bet that the population, including his voters, are willing to incur pain so that they can assemble bicycles in the United States of America and, apparently, pick their own strawberries. Now I’m being facetious here, of course, but let’s just be very clear, the tariffs he imposed are not targeted to bringing back high tech manufacturing, or high tech manufacturing jobs like the United States of America did not impose tariffs of 100% on like cars. It imposed tariffs on Lesotho, I guess, so that we can all start sewing Levi jeans. In other words, there’s no way in hell that Americans are willing to incur pain for those jobs. That’s just been prove me wrong, you know? And I can, I can prove me right. I have seven different polls, seven different polls from before and after the election that show very clearly that Americans assign a very low, very low focus on trade and tariffs in 2024 election in 2016 I think trade globalization was much more more important, which is why I think that Trump outmaneuvered Hillary Clinton on this issue. But in 2024 I don’t think that President Trump won because of a promise to wage a huge trade war so we can pick up our own avocados. That was not what people voted for. It was actually the least relevant issue in all the polls I have trade and tariffs are very low. So what that tells me is that, yeah, I think on some level, the median American is cool with tariffs. I think they’re open to bringing back some manufacturing jobs. Why not make sense? You know, pandemic proved that there’s national security concerns, and it makes sense to do that, but you know, to go picking for avocados and strawberries and building bicycles and sewing jeans, that’s not what anyone is looking for in terms of the pain. So I think pain tolerance of other countries actually is higher, even though they don’t hold the cards. Also, another thing that the White House hasn’t really thought out is that they have launched a trade war against the world. But the world is not out there eating each other like it’s not the 1930s where we had the beggar thy neighbor policies. In other words, the rest of the world is not fighting a trade war with themselves, with each other, and in fact, many countries outside of the US have fiscal space to stimulate and offset what the US just imposed on them, and so the second order effect is actually going to be more growth in the rest of the world, not less, because everyone now has an excuse to be a little bit naughty with their fiscal policy. Europeans, the Chinese, they can all say, well, we got invaded by America. You know, their mean, bad, mean Trump. And so the actual implications for growth are not that clear. And by the way, President Trump has identified that President Biden’s fiscal policies were unsustainable, right? I mean, this is one of the counters of President Trump has said, Look, Joe Biden expanded deficits. I mean, he himself did as well during the pandemic and before, but the conservative argument is that Joe Biden used the government as a piggy bank. Well, if that’s the case, then we’re going to have to curb that in the US, right? So the US actually is at the end of its fiscal space the rest of the world is not because they did not stimulate as much after the pandemic, certainly not Europe and China. And so I think that there is a really simplistic linear extrapolation going on, and the truth is that the rest of the world both has more pain tolerance to the US and has the ability to offset the pain of tariffs. So
Maggie Lake 14:41
I’ll go back to the question, Do we really have? I mean, you said it was a self evident answer, that we have the leverage, because we don’t need that. But do we you just laid out two very compelling arguments, while people, white people, may not be willing to come to the table and negotiate. So again,
Marko Papic 14:54
first order, linear extrapolation is often empirically supported and self evident. But. It is wrong. And so I think that the good news, though, the good news, is that this isn’t binary. You know, just because the rest of the world has the pain tolerance and ability to stimulate it’s not like you’re not going to talk to the United States of America. It is the largest market. Like that is true. Is still true. Why not entertain President Trump? Why not offer negotiations? I think it will be silly to start off with retaliation. I think China, as Secretary of Treasury said, has made a mistake. You know? I don’t I would, if I was running a country. I would definitely not retaliate to the US. I would start negotiating, but I would start sending strong signals on the side. For example, F 35 deal. Maybe I’ll review it, as Canada has done. Oh, I’m going to spend 4% of my GDP on defense. Doesn’t look like I’m going to buy any American defense companies. And also, also my airline needs to update its fleet. Maybe I give Airbus the contract. So there’s many, many ways in which countries are, over the next couple of weeks, going to start sending hints to the White House without retaliating with tariffs, because that’s simplistic, and clearly he has said, Don’t do this. Why set him off? Why not open negotiations but still hurt the US? And one of the things I would say is that the White House is playing a very dangerous game with the blue collar voter, you see, because what President Trump is doing is he’s elevating the theoretical assembly line worker in Ohio, Michigan, but he’s actually imperiling the job prospects of that actual assembly line worker in Washington state actually assembling actual wide body plates. And so the reaction here, you know, the benefits at Ken Griffith has recently said the benefits of this policy could be 20 years down the line. We got some cool jobs for someone who’s like in their teens and can’t vote today. But the reality is that someone who’s 47 years old and having a really good union job in Washington assembling airplanes or or defense, you know, platforms, actually loses their job because the global markets evaporate for us products. And the danger to America is that, other than some electronics, most of us exports are these kind of CapEx, expensive goods, really sophisticated aerospace defense capex, goods that often tend to be procured in the rest of the world by either state owned enterprises or SOE adjacent procurers. So it can be easily manipulated by the rest of the world during this negotiating process, just kind of flagging to the US. And again, if Canada has suspended its F 35 purchase, as we’ve seen over the last couple of weeks, that’s Canada. You know, the rest of the world is going to be a lot meaner on that. So the retaliation is not just through tariffs. That’s a simplistic way to do it, to look at it. There’s other ways that the rest of the world will hurt the us immediately. The other one is agricultural products. Lot of conservative, you know, districts and states depend on foreign markets. Take the fruit growers in eastern Washington, Eastern Oregon. These are not liberal districts. These are very conservative places, and they’re going to start being impacted by that China trade war in particular,
Maggie Lake 18:22
yeah, and in fact, they are specifically, having learned in the past, specifically targeting Red State growing. I mean, they’re, they’re quite, you know, purposeful about it. What does, uh, and we’ll get, we’re gonna get to the market reaction to all of this. But I think it’s really important to understand what you’re saying is it’s a little bit different than a lot of what we’re hearing or we’re hearing. What does, what is the end goal for the Trump administration, for
Marko Papic 18:47
tariffs? Again, I think that’s that’s a situation
Maggie Lake 18:50
on these sort of, you know, like going with the gut and feeling his way around in the moment. I mean, he kind of sold it as these jobs is bringing manufacturing jobs back. But as you say, 20 years down the line, by the way, to a bunch of young people, we don’t even know if they want those jobs, having having two teenagers, I will tell you if you can go, you know, 10x it with crypto or, you know, drive an Uber, or DoorDash or something. It’s not clear anybody wants those jobs, but that’s kind of how it was sold on the campaign trail. So what do they really is it revenue generating? Do they want revenue?
Marko Papic 19:23
I think you should play your kids The Deer Hunter. You know that opening seed that lasts like 3040, minutes when they’re showing the Pennsylvania steel mill like that’s Hey, there you go. You can day drink, shoot some deer and get scolded by molten iron. So look what I would say. Here is, again, very difficult for me to tell you where I think President Trump is headed with this. I think that it’s all of the above. Does he want some revenue from tariffs? Sure. Why not? Why not collect some revenue? Is it 600 billion? Which is. What it currently would theoretically collect? I don’t think so, because it’s too high and comes with huge risks. I But you know, like, why not pick up 100 billion, 200 billion with, let’s say, five to 10% across the board tariff? Does he want to bring manufacturing jobs to us? Of course, yes. And again, the Midwest voters have been, you know, loyal to him. In 2020 they switched to Biden, because I think he offered a more compelling populist story at the time because of COVID and various, you know, stimulus checks and so on. But for the most part, I think President Trump is, I think, I think he’s genuine. He does want to improve their life as well. Is it to create new export markets for the US by lowering tariffs in the rest of the world and actually produce fairer trade? And that’s where the word reciprocal comes from. Yes, I think it’s also that. But again, oh, and is it to attract FDI from foreign enterprises. Yes, it’s all of that. The problem is that a lot of what I just said and uttered, the problem is that it requires carrots. If you’re going to raise tariffs at 50% 20 to 50% across the world, you’re not going to get the FDI like, No way. You’re not going to get lower tariffs and better markets for us products. How are you going to do that? Like, how will you incentivize the rest of the world to do this, unless you also invade them and drop some tomahawks on them? And what comes out of the White House, and what comes out of a lot of the people who work for President Trump is this sort of tortured analogy to the Cold War, where it’s like, well, the rest of the world owes us for their sweet taste of their liberty, you know. And again, that was an argument that worked a lot better in the 60s, in the 70s, and maybe even in the 80s. But in 2025 Look, let me tell you, as a geopolitical expert, if there’s anything I know, it’s that when I go to Indonesia or Malaysia or South Africa or Brazil, none of them think that they need the US, really, quite frankly, for anything. Take Indonesia. Yeah, they have some disputes, maritime disputes with China. But let’s let me give you a very specific example of how little Indonesia considers China a threat. Indonesia raised export tariffs on nickel, on raw nickel, they actually wage the trade war with China. Raise nickel export tariffs. What did China do? Did they raise tariffs in retaliation? Did they start doing military exercises in Indonesia’s waters? What kind of a stick did they use? Well, they showed up with $20 billion in cash and build Indonesia’s nickel refining processing industry. Let me say that again. Indonesia said, No more free, no more cheap, or for you we want your refining industry. And China was like, okay, and Indonesia has already laid out what’s next. Next is the tax on refined nickel, and then it’s going to be a tax on batteries and then cars. So Indonesia has already laid out its 2030, year economic development story to China and told them, we will eventually take some of your EV production and we want you to build it for us. And China was like, Okay, fine, you know. So you cannot show up in Jakarta, if you’re deputy Treasury Secretary United States of America, and say, Listen, you’re free and you don’t speak banner in today because of our benevolence, they’re gonna laugh at you, and they’re gonna say, like, what the biggest security threat we have is Filipino pirates? Yeah, we don’t need anything that you’re selling right now. This is just one example one country. It can be repeated across the board. Now there’s a few country, a handful of them, maybe, on one hand, Israel, you’ve got South Korea, you’ve got Ukraine, maybe the Baltic states, maybe Poland, maybe Finland, maybe maybe China’s wayward province of Taiwan, maybe we can say that there’s some countries out there that will do literally anything to continue to curry favor with the US, because they truly are still in a cold war, sort of a relationship of being a client state. But other than those, there’s just not very many, and that’s why I think this policy cannot be about, you know, reshaping trade and bending it to America as well. The US is going to have to start using some carrots to get what he wants.
Maggie Lake 24:30
So, you know, back to that issue, one of the narratives that has been going around, and I think that this is concerning a lot of people, is that this is not just a trade negotiation. This is a paradigm shift from away from globalization to a more multi polar world. This is something that was happening anyway. Trump’s a symptom of it. He’s not the engineer of it, and that this is that kind of fractured world of. Um, you know, the end of that post World War, World Order and a much more fractured globe is risky. It’s bad for investors. It’s fraught with more conflict, and that this is where we are right now. It doesn’t sound like you necessarily think that’s the case. No, I think
Marko Papic 25:17
it’s absolutely the case. I just think that people misunderstand what multi polarity means for investors. So I’ve been one of the first people in finance to really use multi polarity and try to explain this to people. Now I’m not the only one, but I was sort of known as the multi polarity guy. I would walk into the office, people would laugh, oh, here comes the multi polarity guy. Now the problem is, multi polarity became kind of a dirty word in America, especially with establishment because two people that love the word multipolarity more than me are President Putin and President Xi. They love using it and saying, like, the world is multipolar, you know, like, as sort of a knock on America. So the world is multipolar, but that doesn’t mean bipolar. Just very, be very, very clear. There’s three types of worlds that we can have. Number one, unipolar, that’s, you know, American hegemony of the 90s, 2000s early, 2000s then bipolar, that’s the Cold War, where the world kind of splits into these two, even camps, many Americans confuse multipolarity with that bifurcated world of the Cold War. That’s not what multipolarity is. Multipolarity we haven’t experienced, none of us, not even our grandparents. Multi polarity is what we had last from 1812 to 1914, you could argue maybe intra war was also multi polarity. But like, let’s leave that aside, because it’s messy and very brief. That 100 years after Napoleonic wars, until the breakout of World War One was a multi polar world, and guess what happened? Enemies traded with one another. Why? Because it’s difficult to form stable coalitions. Let me say that again, allies, true allies, allies. They will die for each other in case of a World War, think France, France will go and fight with America against China. I have no doubts about that. That will happen if there’s world war three, Europe will align with the US for a slew of reasons, but short of world war three, oh yeah, France is going to steal boing’s market share in China. Oh, they’re not going to need any motivation to do that, and that’s what a multipolar world looks like. So in the 19th century, what happened was that allies, military allies, like United Kingdom, France and Russia, which were in a military alliance like NATO against Germany, they actually all tried to compete with each other who was going to get more market share in Germany, because coordination between allies becomes very difficult. And so I would argue that President Trump is honestly the first president US history that recognizes the world is multipolar when it comes to geopolitics. He’s actually very adept at doing it. And so I think that what’s happening in Ukraine, in the Middle East, even with China, some of his statements seem to recognize that other countries will have spheres of influence. It’s actually the Democratic Party that doesn’t seem to be aware of multi polarity. Remember Hillary Clinton’s famous line that United States of America doesn’t recognize spheres of influence, which is a ludicrous statement that would be like me saying I don’t recognize that. I’m a 43 year old man who can’t dunk anymore, so I’m going to go and try to, like, dunk now and tear my ACL every six months. So the point is, President Trump, in some way, does recognize this, but when it comes to this trade war, if he truly wants to just eject America from the system, he will then cause the US to suffer greatly in terms of economic progress and innovation. I don’t think that’s his end goal. I think his end goal is negotiating, getting better deals for the US, getting FDI into the US, and eventually, yes, even trading with the enemy. And this is where I go back to the statement. Sorry to interrupt just the statements he’s made before about China are actually quite weird and not very national security focused. He has, for example, with Tiktok, with saying that BYD should open a factory in Ohio. If you don’t believe me, go watch YouTube clips of his campaign rallies in Ohio. You know, President Trump understands, I think, on some level, that in this multi polar world. When it comes to trade, you actually have to be pretty promiscuous. You cannot be too rigid with whom you trade, because your own allies are going to cheat. And in a way, the allies are not cheating because they want to cheat. America. The allies are cheating because they need revenue. Revenue, material wealth is the basis of geopolitical power. If France doesn’t sell airbuses to China, which, by the way, is like 1980s technology. You know, why wouldn’t you sell that to China? If Airbus doesn’t do that, they can’t get the revenue. They can’t do air r, d, and then they cannot competently contribute to a Western. Alliance in terms of technological innovation against China. So this is, this is a no brainer for most countries, and ultimately will be for the Trump administration as well,
Maggie Lake 30:09
in that situation, if you’re correct, if that is the reality we’re in, and Trump recognizes it, is there a massive reset, reprice for us, assets that needs to happen under that universe, because we have a huge concentration of international money sitting in us, stocks and bonds. Does that look different in a multi polar world? I mean, we obviously have given up a lot of gains, and we’ve seen some flows, repatriate back home. The beginning of that is that a very is that a wildly different looking environment and a negative for US assets.
Marko Papic 30:50
You know, Maggie, you introduced me as a geopolitical strategist. I’m really a macro investor, and one of my pet peeves is when we over emphasize geopolitics. In other words, I would say that for the past, I don’t know, 15 years, we have been in a multi polar world, and it’s been an incredibly lucrative 15 years for America. I think that it’s very dangerous to say because of multi polarity, you should have a multi polar portfolio, but I am comfortable seeing it now in 2025 for two reasons. In 2025 the valuation gap between America and the rest of the world is egregious, and it’s to a point where it doesn’t really make sense. So that’s the first value matters if, in other words, if America and Europe were the same price, the same value, would I be long Europe as I am right now? In my recommendations, the answer would be, no, I would not be. I think I would still want to own America over Europe, if the if both were the same price, but they’re not the same price, US has been on an absolute tear for 15 years. So that’s the first issue. The second issue, I would say is that I can explain American exceptionalism, and I can explain why America ate everyone’s lunch from 2010 to 2020 from 2020 onwards. I really can’t. It’s mostly a mag seven story. I don’t think mag seven are going to have a monopoly or a moat. Moat over AI productization. I think they’re railroads. I think they’ve built the infrastructure for AI that all of us are going to benefit from, but they’re actually wasting capex on that infrastructure. I think deep seek matters actually. I actually don’t laugh at Secretary of Treasury Scott Bessen when he says the sell off is about deep seek. Honestly, it is about Trump, but it’s also about deep seek. And then the final point, I would say is that the way I explain 2020, onwards is just fiscal policy us. Let me just say this very clearly. The US responded to a pandemic in a way that nobody else did. Nobody else did. The US spent 40% of its GDP on fiscal stimulus. It spent more fighting the pandemic than it did the Nazis and Japan, and it spent 4x what Europe spent. So if you want to find a reason why us multiples expanded, US revenues went up, and US earnings outperformed like, boom. There it is. That’s it. That’s the reason. And I think that the fiscal gravy train is ending, whether it’s Trump or Harris in power. It was going to end either way. So I can build a case for why us. You probably should take all your nice, shiny, US dollars and go shopping around the world. It’s not predicated necessarily on Trump’s terror policies. It’s not predicated on global multi polarity. It’s predicated on this value issue and the fiscal, you know, fiscal deluge of the last five years, which is coming to an end for America. Now, I do think President Trump is also accelerating it. And so maybe what would have taken four years of soft underperformance by us relative to rest of the world is now happening kind of in a week. Well, look, my target for US Dollar was to decline 30% no matter who comes to power. But with President Trump, I said it’s probably a two year thing. I’m constantly, as you said earlier, it’s a week in, week out. You know? I mean, we could see the dollar go down 30% against the euro by the end of this year. It’s already down like 6% is
Maggie Lake 34:26
this part? Do you think this is part of the plan, this kind of shock and awe, like throw it all out now, because, of course, we run on a midterm political system here, and you know, there’s not much that can happen except people rallying at him, and investors shaking their fists. But in the in terms of voting anyone out of office, they’ve got a two year runway. Could they front load all that pain and revaluation reset in a different way, and the way you’re talking about in order to kind of clear the decks? Can. Can you do that without breaking something it seems like an awfully big gamble. Yeah.
Marko Papic 35:03
I mean, well, you might be okay to break something like effectively, effectively, many members of the administration have, either privately to me or actually publicly, but also, kind of, you know, quietly said we’re okay with a recession. In fact, one of the members of the administration told me last summer, before they were even in power, like it’s about time that the United that the Republican party gets a recession early in their term. It’s always the Democrats who benefit from this kind of early in the term recession. Actually, that’s not necessarily true. George W Bush, the junior did have a recession early in his first term. What I would say, though it’s that’s a very risky strategy, but I do think they’re comfortable with it. I think they are comfortable with paying upfront. As you say, I think it’s going to cost them, and I think it’s going to cost them more than just the midterms. I think it’s going to cost him a lot. So the Treasury
Maggie Lake 35:54
market hasn’t, you know, the yields have been going up there, but, you know, nothing crazy right now, but there’s a lot of talk and concern, I think, that, you know, we’re talking about a trade war. We’re talking about all the tools people can use to retaliate, not just reciprocal tariffs, but also kind of weaponizing their ownership of us, assets and rumors that pop up from time to time, like, could the Chinese start selling? What about if the Japanese start selling? Do you worry about a sort of, you know, the either the Fed or the US government losing control of of the US Treasury market?
Marko Papic 36:27
I think that, yes, that was a that was actually my concern when identified President Trump as the likely candidate to win, which was really the end of 2023 and I never really wavered that view, even when Harris had that big, you know, pickup in when she was nominated by the Democratic Party, I always sort of felt that President Trump is likely going to win the election. And so my main thesis for investors was that he is a human steepener. And then notice that what happened in September, October and November, the Fed cut rates by 100 basis points, but we went up in yields 100 base points. That actually has not happened since the 80s. That was, that was a profound sell off, profound. And I think that it really worried the administration. I think they picked Secretary Besant over lucknick as Treasury secretary in part to kind of calm down the bond market. But then what happened was there was there was a revolt in the House of Representatives, which has effectively acted as a break on President Trump’s fiscal promises. He promised during his campaign to expand the deficit by 10 15 trillion. I mean, he didn’t like explicitly say that, but if you actually do the math and put all of his promises together, they would expand the deficit by 10 to 15 trillion over the next 10 years. So 1 trillion to one and a half trillion per year of extra deficit. And the House of Representatives has just said, No, we’re actually now looking at this reconciliation process. You know, it looks like it’s going to expand the deficit by like, a trillion to maybe 2 trillion over the 10 years. That’s a lot less than what was originally proposed by the Trump campaign. So what am I getting at? What I’m getting at Maggie is we already had a bond market, right? It was understated and really only recognized by members of the financial community and bond traders, but it was pretty profound, and I do think that what’s bigger risk than the trade war is if President Trump cajoles the House and the Senate to go back to the profligate fiscal policy. So I don’t actually think it’s selling by foreigners. I don’t think that’s actually the risk. I think actually the risk is the following sequence, President Trump’s tariff induce a recession. And he thinks that in a recession, the US gets to stimulate, which it does. At that point, it’s not counter cyclical or populist. It’s kind of an establishment thing to do, but the US is at the end of its fiscal space. It just is. It’s math. And so in a recession, President Trump says, Cool story, I get to cut taxes now. And the bond market says, Now you don’t, because it’s not a normal world. And your predecessor, Biden and you yourself, with the help of Nancy Pelosi, all three of you got together and blew out the deficit massively. And so no, and so that would be extremely pernicious. Maggie and I’m, I’m, I have 100% confidence that Secretaries of Treasury, Besant and lutnic and everyone in that White House does not agree with me. I think that they probably mistakenly do think that they can get a recession and then get tax cuts through bond market will let them. I don’t think you will I mean, again, we’re at 4.2 going on 4.3% in the 10 year yield. We were much lower with Silicon Valley Bank crisis. We were much lower with the SOM rule crisis in August. It’s not happening, and I think that that’s a huge warning signal that we could be at 5% in the middle of a recession. Uh, and then assets have to reprice. I mean, like risk assets, like equities, like net, then we have a serious downfall in the s, p5, 100, much more than really, at any time other than 2008
Maggie Lake 40:14
that is a that is a real concern. So just for timing, they they, it’s not this budget process. It’s or if the budget gets pushed out to August, do you think the numbers are bad enough that they try to it tries to happen? Then could that be the timing? Yes,
Marko Papic 40:32
yes, or supplemental, you know, they could pass a reconciliation bill that’s pretty conservative, where the House of Representatives is in the driving seat right now, the Senate and the House are fighting. The Senate is much more aligned with Trump. Interestingly, by the way, many analysts think that this is evidence that eventually Trump wins, because they mistakenly remember McCain voting against Obamacare repeal. But that’s because, that’s because I would say the marginal Republican legislator was in the Senate at the time. I think it’s in the house this time. You just just the way the numbers work out that way. So yes, the Senate is pushing for more of a Trumpian budget, asymptotically approaching some of his promises. But the house is far more conservative in this particular case, and, you know, even more
Maggie Lake 41:21
like the Tea Party, like concerned about deficits, yeah, except,
Marko Papic 41:25
you know, the Tea Party was really about austerity. This is more like, Hey, listen, we’re cool expanding the deficit, just not blowing it out. If the house wins out this time, everything is fine. But then if you get bad data, as you point out, and then you have another supplemental legislation later, I think at that point, yes, you could have actually the bond market riot in the middle of the recession. I actually do think that that’s possible. And what’s
Maggie Lake 41:50
a riot look like above 5% 6% what’s a riot look like, honestly,
Marko Papic 41:54
these levels in a recession is a market riot. Because look, the whole reason why the US is not in a bind is that there’s no leverage. There is no like, there’s no real leverage. Like, that’s what people always say. And I agree. I’m the first to say it. Americans have 10 trillion of found money in their home equity. 10 trillion it’s so easy I can I see where the logic is, let’s get the yields down. Why? Boom? Americans have room to leverage themselves, to buy durable goods, to buy cars, to buy homes. You have 40 year olds who have never owned a home, right? So, and they’re not without money. They are not without money. They’re just not what’s the word stupid? What I mean is that no one’s going to go out and get themselves a 30 year mortgage at these rates. Everyone’s waiting for a recession, everybody so the yields can come down. Except, you know, the people in the lowest quartile, obviously, to them, that would be a tragedy, no matter what. But 75% of Americans are cool with a recession. The problem with that is that the bond market is also not stupid. Why would the bond yield go down to 2% if literally weeks later, it’s going to be back at four? Maybe the bond market just won’t go to four. And if you’re messing with long term inflation expectations, if you’re messing with trade, if you’re messing with this, that or the other, the chances that the yields go down at any point to incentivize this kind of re leveraging false so, yes, in a set there is Pyramus, all things being equal. In an all things being equal recession where we just kind of waltz into it, you know, if Harris became the president and off the labor market kind of slows down, boom. Yeah, I do think the yields probably would have come down. But if you’re inducing it by strapping dynamite to your chest and pressing the button, if you have Steven Miran out there saying that, effectively, we’re going to impose a transaction tax on our foreign holders of treasuries, like, Hmm, you’re probably not going to get the benefit of lower yields that you sort of, you know, were planning for in a recession. So that’s the biggest risk right now, the biggest risk to risk assets is that these guys are going to mess around and find out this is a family show. Of course, kids say it differently, and they are in the process of doing that. I think they’re trying. It’s funny to me that the Republican Party and a bunch of conservatives, effectively, are making the mistake that you would expect from communists, this idea that you kind of fine tune the levers of government and then you get everything perfectly, just the world doesn’t work like that. There’s too many second and third order effects. It’s a complex system. Complexity. It’s not linear. And this idea that we induce a short, brief recession yields fall. Everybody’s happy. And then, you know, like,
Maggie Lake 44:39
but, but people say, Listen, Besant is a macro hedge fund guy. Like, surely he knows this,
Marko Papic 44:45
yes, but I’ll put it this way, if Scott Besant was 100% in charge, yes, maybe, maybe, then this would have gone a little smoother. You could have, you know, sort of. Of squeezed on the fiscal side. Remember, he was Nikki Haley’s main backer. I think more than that, I think he was a philosophical force behind her as well, and she was talking about like entitlement reform. So if you took a truly fiscally conservative approach and you detox the government or the economy off of government spending, you would have induced a nice, gentle recession, and you would have had lower yields. And if you didn’t mess with the rest of the world, or maybe you did a little bit to cause them to lower their yield, their tariffs, you know, the truly reciprocal tariffs, not the nonsense they’re they announced on April 2, and let’s not forget who was holding that board during Liberation Day. It was not Besant. I think if you kind of put all those things together, maybe you would have been successful, yeah, but when you’re trying to renegotiate the trade relationship with the rest of the world and induce a recession and lower yields, and magically get all of this to work, I think then, then you’re, you’re, you’re, you’re fighting too many fires, yeah? I
Maggie Lake 46:00
mean, that’s, I think that’s what has people nervous. It’s less pulling on levers than just smashing sledgehammers around and seeing, you know what, what sort of comes up. And apparently, like a feeling like, maybe that’s, that’s the, that’s the intended course, I want to ask you want to rattle through a couple of things, because I think this has been so important and a really good sort of reset for people to think about it through a different lens. Because, honestly, you know, I think that other narrative of like a paradigm shift of a sphere, and maybe misunderstanding what that means is very prevalent right now. What about gold in this environment? I think people listening to this are going to say, Oh, my God, Treasury rate. There’s a risk they go up. You know, this is a this is a tricky balance us is trying to do. We could look at another painful leg down for S and P S, if interest rates don’t participate, I’m just going to stick money in gold, because that’s that’s the ultimate safe haven. In a situation where you have a devaluing dollar, what’s your sense of that?
Marko Papic 46:54
Yeah, absolutely. I mean, look, if you have a liquidation event where everyone’s selling everything, gold is going to go down. And we saw that oil. It’s now April. You know, we’re recording this April 8. We saw that. Obviously happen. Yields are going to go up. People are selling yields to, you know, deal, sorry, they’re selling bonds to deal with margin calls. So effectively, what we’re getting at here is the end, not of American Empire, not a beginning of multi polarity. No, no, that’s not what’s happening. It’s really the end of this run of 15 years, extraordinary run. They probably should have ended in 2021, but then the US actually kept doing fiscal stimulus under the another five years. Yeah, so, so, yeah. Gold is the anti us asset as well, in a way as well. Commodities are too, and, you know, foreign assets are as well. You just have to be careful with the timing, because in a liquidation event, which could be lasting several weeks, several days, or perhaps multi month, event like the problem is that all of these neat little thesis and themes are not necessarily going to work, and it depends what your profile is as an investor. So when I speak to a pension fund or a sovereign wealth fund, which, by the way, you as an individual, should try to emulate, you should not be emulating hedge funds. You should not be day trading, but that’s just my view. You should emulate more sovereign wealth fund and pension funds. Yeah, the story that this is the end of us exceptionalism, and that you should take some of your very expensive US dollars and kind of go shopping around the world. That is actually an appropriate thing to do right now. But then don’t call Marco Poppins, because you’re down 20% on European equities over the next couple of weeks. You will be but you just don’t have time for this. You have a job, most likely, unless you’re just sitting in mom’s basement and trading, you know, crypto coins, which, you know,
Maggie Lake 48:49
wait or waiting for interest rates to come down in mom’s basement, as you say, down payment.
Marko Papic 48:54
Well, listen, so my point is like, yes, you can start deploying assets in the rest of the world. Please go ahead and do that, just be aware that you are in the middle of the liquidation event where a lot of these assets could go down. Yes, timing could be better in a couple of days, weeks or months, but again, you are not a day trader, and catching those is going to be very, very difficult. Always
Maggie Lake 49:14
an argument for dollar cost averaging into things. Some of the prices may be low, but it’s very hard to time the exact bottom in anything. So what about my other question is, as people are thinking, and should be thinking internationally, emerging markets,
Marko Papic 49:27
I mean all, I think the easiest way to do this again, if you’re a retail investor, if you’re an individual, is just not to, not to try to pick the country that’s going to win. You know Warren Buffett. I think he has, I think it’s Warren Buffett. Has a great line, like, if you try to diversify, you can diversify yourself to death. And you know, that’s great. He’s Warren Buffett. You know, he’s a legend. Most of us are not legends. You know, at least in that not picking exact winners. So what I would say is they don’t necessarily over index to anyone’s story. So European defense stocks, you know, I had my my hair guy who I love. He’s a great at cutting hair, best in Santa Monica. But when he asks me about, like, European defense stocks, you know that theme is, is already in the price. So what you might want to do is start thinking about, let me just deploy, without discriminating, into foreign assets. And I would say, whatever it is, just deployed. There are some ways to be nuanced. So for example, for a professional investor, I would sit down and actually talk to them about, you know, emerging markets in a little bit of a more nuanced perspective, like we do need to make a call on commodities. Commodity prices will determine whether Latin America, Middle East and some Southeast Asian economies outperform China, India and Eastern Europe, like as an example. But then you have to make a call on commodities.
Maggie Lake 50:55
Would you be getting clobbered, by the way? Well, and that
Marko Papic 50:59
makes, makes perfect sense, because we’re in a recession event. So I can have a very positive, secular view on commodities and understand why they’re dropping right now. So I wouldn’t necessarily take anything from April 2 to today. What I would say to people listening to this if you want to know the truth about the next five years. And by the way, this is just my view. Obviously this may not be correct as a caveat. But if you want to have a little bit of an insight into what the next five years look like, look at the stock prices from January 1 to April 1. That, to me, is the truth. And if you look at the performance there, China was actually performing the best, high risk, high reward. Europe is actually the second best in terms of the geographical area, and then Japan, and then em, and then the US, which actually declined during this period. The dollar was down against the euro. Massive, massive move in like two months, it went down like 6% it’s insane, historic. But that’s my that’s my truth. It’s that now gold actually did okay, but it didn’t do, you know, like I would say that the the gains in gold that we saw from January 2023, to to now, I think are over, but I also am not bearish gold. I think you can definitely keep gold, just don’t necessarily expect it to go up as much as it did over the last two years.
Maggie Lake 52:22
What’s the biggest risk? As with that summit, where the word some of the opportunity is, I think it’s fair to say being conscious of having a longer time horizon. What’s the biggest risk for you? Is it that? Is it in the interest rate area that you mentioned? Or is it something? I think so.
Marko Papic 52:37
Yeah, I think so. If you have a recession with yields not cooperating. Boy, we’re in, like, we’re not in America anymore. We’re in Brazil. We’re in Turkey. Look up. So that’s really bad. I would also say that the risk is that everything I said today is wrong. I would actually say I’m pretty sanguine, like, I’m not telling you to buy tomorrow, but I’m saying, like, Yeah, listen, Trump’s got his seven steps of negotiating. You’re on step one. It’s always right. What did I say in the first 10 minutes? It’s always it’s always scary when, when he starts. We always extrapolate linearly and see the end of humanity. And then we’re like, ah, smart guy, you know? So the risk is that, no, no, he actually, really thinks he’s McKinley. And let me tell you, if, if, if that narrative is true, the dollar is going to absolutely collapse, right? Like if, if it’s true, that actually see the reserve currency status as a burden, and they’re going to start taxing foreign financial flows. And if it’s true that they actually intend to have 60% you know, tariffs, 20 to 60, depending on the country permanently, and that smooth hail is going to be, you know, like we’re going to double what we had in the 30s. Yeah. I mean, that’s, that’s a disaster. And the reason I would say that again, I would really go back if, if you’re a fan of President Trump, if you’re in the market camp, that’s perfectly fine. I mean, I’m bathing aloof indifference. I don’t really care. But what I would just say is that, if he’s negotiating, he actually proved a lot of people like me nerds wrong, as I said earlier, right? Very few countries backed up. He didn’t set the price too high. Impressive. I did not expect that my salesperson did. God bless her, but I would say this, the big risk is that if he’s actually enamored with this, the math doesn’t really add up, and it’s because the rest of the world really is not fighting with each other. So they will adjust. They will find other markets. The worst thing for America would not be retaliation, actually, Maggie. It would just be just the kind of like, okay, we get it. We’ll move on, you know. So no FDI into us, no real retail. The issue, and just like, hey, listen, we get it. We lost a friend. I guess we’ll go find some other ones. And that would be monumentally bad, like that is, you know, that is something I don’t really price.
Maggie Lake 55:14
Yeah, understandably, and hard to imagine how they they’d spin that well. So that’s a that’s a scary prospect. Marco, this is exactly why we always love catching up with you. Thank you so much. This gave me so much to think about, especially after listening to a lot of stuff that was sort of leaning the other way. So this is why it’s really important to keep your mind open. Step out of any ecosystem you’re living in and try to hear lots of different points of view, because these are really trying times, and I know people are really scared about their money. So so appreciate you sharing your thoughts and insights.
Marko Papic 55:46
Well, if I can just make a plug in the end, yes, with you, yeah. So I started, actually, a podcast called geopolitical cousins with my good friend Jacob Shapiro, and our intention is not to call the markets. That’s what I do for my job with my clients. This is more for like, if you have that one person in your life, like an uncle, or if you want to just be smarter, you know, when somebody attacks your position, it’s purely geopolitics. It’s fun. We use Muppets, you know, the old two guys the balcony. We use that as our logo because we’re just beam up. It’s just entertainment. And we approach everything with sort of that aloof indifference. We’re trying to just talk about geopolitics in a way that I don’t think it gets dark, right? I think that it’s so wrapped up with ideology and normative This is, I hope, a non ideological we try as best as we can, and it adopts that Nihil is sort of aloof in difference, just tries to analyze where the world is going. So hopefully it will be a sanity check for everyone and help our listeners sound smarter at at barbecues and cocktail parties,
Maggie Lake 56:53
exactly and maybe, and maybe help them discuss and not and not fight, which I think is really, really important right now, discourse, we all need to lean back into discourse. I love catching up with Jacob as well. I love your podcast so, so we’ll put a link. Thank you. Yeah, we’ll put a link in the description for it. Marco, thanks so much, and we’ll talk again soon. Absolutely.
Marko Papic 57:11
Maggie, thank you. You
