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Geopolitical Alpha: An Investment Framework for Predicting the Future
Forecast geopolitics and markets with this clear and insightful resource
Geopolitical Alpha - An Investment Framework for Predicting the Future provides readers with an original and compelling approach to forecasting the future and beating the markets while doing so. Persuasively written by author, investment strategist, and geopolitical analyst Marko Papic, the book applies a novel framework for making sense of the cacophony of geopolitical risks with the eye towards generating investment-relevant insights.
Geopolitical Alpha posits that investors should ignore the media-hyped narratives, insights from smoke-filled rooms, and most of their political consultants and, instead, focus exclusively on the measurable, material constraints facing policymakers. In the tug-of-war between policymaker preferences and their constraints, the latter always win out in the end. Papic uses a wealth of examples from the past decade to illustrate how one can use his constraint-framework to generate Geopolitical Alpha. In the process, the book
What paradigm shifts will drive investment returns over the next decade Why investment and corporate professionals can no longer treat geopolitics as an exogenous risk How to ignore the media and focus on what drives market narratives that generate returns Perfect for investors, C-suite executives, and investment professionals, Geopolitical Alpha belongs on the shelf of anyone interested in the intersection of geopolitics, economics, and finance.
Geopolitical Alpha - An Investment Framework for Predicting the Future provides readers with an original and compelling approach to forecasting the future and beating the markets while doing so. Persuasively written by author, investment strategist, and geopolitical analyst Marko Papic, the book applies a novel framework for making sense of the cacophony of geopolitical risks with the eye towards generating investment-relevant insights.
Geopolitical Alpha posits that investors should ignore the media-hyped narratives, insights from smoke-filled rooms, and most of their political consultants and, instead, focus exclusively on the measurable, material constraints facing policymakers. In the tug-of-war between policymaker preferences and their constraints, the latter always win out in the end. Papic uses a wealth of examples from the past decade to illustrate how one can use his constraint-framework to generate Geopolitical Alpha. In the process, the book
What paradigm shifts will drive investment returns over the next decade Why investment and corporate professionals can no longer treat geopolitics as an exogenous risk How to ignore the media and focus on what drives market narratives that generate returns Perfect for investors, C-suite executives, and investment professionals, Geopolitical Alpha belongs on the shelf of anyone interested in the intersection of geopolitics, economics, and finance.
296 pages, Kindle Edition
Published October 15, 2020
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Displaying 1 - 30 of 77 reviews
June 29, 2021
This is an interesting book from a young man who is rather confident in his ability to predict the future. I guess that experience will temper his confidence, as it usually does. That does not invalidate what he says, it just makes it a little jarring to read page after page of self praise. What kept me reading was the underlying model, which is, as I say, very interesting.
The core point of the book is one that ought not to surprise many readers - that politics is about the intersection of wishful thinking (what the author calls preferences) and the ability to act (what the author calls constraints). This is a really useful lens through which to view policy. A politician (or CEO, or financier, or so on) may wish for the future to unfold in a certain way, but whether or not it does can often be out of their hands. In this case, they are bounded by constraints.
What are those constraints? The author discusses five - politics; the economy and the market; geopolitics; constitutional and legal constraints; and the time constraint. This is a useful framework. Each constraint is subject to a chapter of its own, and forms the core of the book. I like that each chapter concludes with a simple summary of the main points. That will be very handy for future reference.
The book comes in three sections - the framework of the argument; the constraints; and how to put this framework into practice. I found the framework to be a bit obscure. It's a bit academic, but it does serve a purpose. The constraints are well developed, even if they do provide the author a platform from which to sing his own praises. The third section - on operationalization - tends to miss the target a bit.
The core to operationalization, according to the author, is a combination of net assessment and game theory. I would have put these the other way around. Game theory is useful to identify the options, net assessment is useful to weigh up the competing alternatives. What I really didn't like was the way in which the author jumped down the rabbit hole of risk, when the situations described are more in the nature of uncertain. Of course, a risk framework allows for the use of (very) subjective probabilities, whereas an uncertainty framework would render these moot.
So what? If the author backs his plays on uncertain subjective probabilities then it is a matter of time before he will encounter a nasty accident when the world doesn't behave in accordance with his subjective framework. We all saw this in action in 2008. The author downplays too much the possibility that he could be wrong. I see this as an uncertain foundation on which to place other people's money.
Nowhere in the book is Geopolitical Alpha clearly explained. I see this as a glaring omission. In case you are wondering, Geopolitical Alpha is finance speak for the magic sauce that allows one nation to outperform another. It's a combination of hard power, soft power, and moral authority. The core argument is that when Geopolitical Alpha shifts, markets move. I agree with this proposition, but identifying those shifts and allowing for them in advance, is a very tricky business. That's where experience triumphs over cleverness.
I think that sums up my view of the book. The author - in his own estimation - appears to be a bit too clever by far. The absence of humility in his writing just suggests that he is likely to come a cropper before too long. His basic framework is a good one, but it needs to be tempered with humility and self-introspection. Someone using the framework needs to ask what would invalidate their views, whether they are merely repeating ideology, or are the simply displaying their personal biases? This model is best used in mixed company in a pluralistic framework.
These cautions don't invalidate the model. If you can overcome the self-congratulatory nature of the writing, the reader may even find it to be of some use.
The core point of the book is one that ought not to surprise many readers - that politics is about the intersection of wishful thinking (what the author calls preferences) and the ability to act (what the author calls constraints). This is a really useful lens through which to view policy. A politician (or CEO, or financier, or so on) may wish for the future to unfold in a certain way, but whether or not it does can often be out of their hands. In this case, they are bounded by constraints.
What are those constraints? The author discusses five - politics; the economy and the market; geopolitics; constitutional and legal constraints; and the time constraint. This is a useful framework. Each constraint is subject to a chapter of its own, and forms the core of the book. I like that each chapter concludes with a simple summary of the main points. That will be very handy for future reference.
The book comes in three sections - the framework of the argument; the constraints; and how to put this framework into practice. I found the framework to be a bit obscure. It's a bit academic, but it does serve a purpose. The constraints are well developed, even if they do provide the author a platform from which to sing his own praises. The third section - on operationalization - tends to miss the target a bit.
The core to operationalization, according to the author, is a combination of net assessment and game theory. I would have put these the other way around. Game theory is useful to identify the options, net assessment is useful to weigh up the competing alternatives. What I really didn't like was the way in which the author jumped down the rabbit hole of risk, when the situations described are more in the nature of uncertain. Of course, a risk framework allows for the use of (very) subjective probabilities, whereas an uncertainty framework would render these moot.
So what? If the author backs his plays on uncertain subjective probabilities then it is a matter of time before he will encounter a nasty accident when the world doesn't behave in accordance with his subjective framework. We all saw this in action in 2008. The author downplays too much the possibility that he could be wrong. I see this as an uncertain foundation on which to place other people's money.
Nowhere in the book is Geopolitical Alpha clearly explained. I see this as a glaring omission. In case you are wondering, Geopolitical Alpha is finance speak for the magic sauce that allows one nation to outperform another. It's a combination of hard power, soft power, and moral authority. The core argument is that when Geopolitical Alpha shifts, markets move. I agree with this proposition, but identifying those shifts and allowing for them in advance, is a very tricky business. That's where experience triumphs over cleverness.
I think that sums up my view of the book. The author - in his own estimation - appears to be a bit too clever by far. The absence of humility in his writing just suggests that he is likely to come a cropper before too long. His basic framework is a good one, but it needs to be tempered with humility and self-introspection. Someone using the framework needs to ask what would invalidate their views, whether they are merely repeating ideology, or are the simply displaying their personal biases? This model is best used in mixed company in a pluralistic framework.
These cautions don't invalidate the model. If you can overcome the self-congratulatory nature of the writing, the reader may even find it to be of some use.
December 11, 2021
Investment books usually try to convice you that the authors, out of their wisdom and erudition, have found a way to consistently make money in the markets. In reality, of course, unless you are a Jim Simons of sorts, investment processes are incredibly cumbersome, error-prone, and impossible to condensate in a short volume. So, there's no such thing as a "geopolitical alpha" to be collected by those that can understand Papic's framework; what he offers, instead, is advice similar to that you can find in Tetlock's books (be a superforecaster), some interesting case studies, and a lot of bravado (man, those footontes are REALLY annoying, plus the attempts to formalize the framework through maths are pathetic even for a poorly trained economist as myself). Despite those shortcomings, 'Geopolitical Alpha' is an interesting reading, it'll help you to cut through the media noise and identify what's really driving a loosely defined geopolitical speculation opportunity.
May 13, 2022
Despite the title this is not really a methodological handbook for investors, but mostly just a standard commentary on recent political events and trends. The author briefly presents the main points of his analytical framework: material constraints, quality of data, and focus on political situations rather than ideologies and personalities. Some of his points are rather obvious – be careful about your data, don’t confuse your preferences with facts, don’t trust everything politicians say, etc. – and his economic reductionism and rationalism are somewhat questionable, especially in the light of recent political events. Although the author complains that the CFA curriculum doesn’t have a section on political analysis this book doesn’t do much to help with that educational deficiency. The relevant part that explains the framework is maybe a fifth of the book, the rest is case studies.
Most of the case studies don’t really seem like a clear, rigorous application of the presented framework, but read more like the usual expert opinion that you can find in any decent financial newspapers. If you have been reading news in the last few years, you will hardly get anything additional from this book, maybe an interesting perspective here and there. Interestingly, in almost every case study the author shows how the past events played out the way he expected. It seems that up to now he was correct nearly 100 percent of time which is a truly remarkable result. Also, the book is well written, fun and easy to read. But despite the amusing style and the fact that it was written by obviously the most successful forecaster in history, it is not very useful. I would read Papić’s comments on current events on Bloomberg and elsewhere, that's worth the attention, but the book is kind of pointless. I don’t even know is it possible to have a meaningful, coherent framework to profitably analyze something as messy as politics often is. This book doesn’t do much to help, read it only if you want to refresh your memory of the recent political events.
Most of the case studies don’t really seem like a clear, rigorous application of the presented framework, but read more like the usual expert opinion that you can find in any decent financial newspapers. If you have been reading news in the last few years, you will hardly get anything additional from this book, maybe an interesting perspective here and there. Interestingly, in almost every case study the author shows how the past events played out the way he expected. It seems that up to now he was correct nearly 100 percent of time which is a truly remarkable result. Also, the book is well written, fun and easy to read. But despite the amusing style and the fact that it was written by obviously the most successful forecaster in history, it is not very useful. I would read Papić’s comments on current events on Bloomberg and elsewhere, that's worth the attention, but the book is kind of pointless. I don’t even know is it possible to have a meaningful, coherent framework to profitably analyze something as messy as politics often is. This book doesn’t do much to help, read it only if you want to refresh your memory of the recent political events.
April 9, 2024
This book was a disappointment.
The author chucks in nearly half the book with waffle, to hide the fact that he has nothing much to say. An entire 3rd of the book is dedicated to 'motivate' why geopolitics is important to the buyside, seemingly ignoring the fact that anyone who picks up this book is already sufficiently curious to understand how geopolitics can improve their investment process.
The geopolitics apology is shoddy at best - the author just looks back at history, and with the all-power of hindsight, cherry-picks the most important defining geopolitical trend of each decade, almost as if to claim 'if you could have spotted this trend at the start of the decade, you'd have made bank'. Conveniently forgetting the hindsight bias in that approach, and this is exactly the BS that every half-assed finfluencer with little formal education in finance takes. If it were that easy, why hasn't geopolitical alpha been arbed away already?
I've given up on this one halfway in so I won't critique his claims of geopolitical 'alpha' too deeply, but his attack on factor investing misses the point (to the point where I wonder if he has even studied the factor literature) - he essentially claims that factor investors are playing a loser's game, by pointing out the long stretches of underperformance of certain factors, e.g., value which has suffered a painful decade. The author claims that nimbly dipping in and out of geopolitical trends will have helped avoid these painful stretches. Geopolitical black swans have also caused freak crashes in certain factors. Duh. The whole point of factor premia is that their inherent independent systematic risks ensure that they don't get arbed away, and these risks involve the geopolitical risks that he's talking about. You don't get to dip in and out of them because there's no evidence that anyone can do so consistently - you have to systematically harvest RISK premia, over time, on average. Trying to dip in and out of geopolitical trends is just the Howard Marks' analogy of running to the next bus stop when you miss the 1st bus - you're likely to miss the bus again and again and again.
The author also experiences a LOT of cognitive dissonance. He criticizes fundamental investors for not using geopolitical analysis in the investment process, due to their dogma for bottom-up analysis. He then claims that in reality, the truth to investment success is a non-ideological approach. Are you hearing yourself, Marko? That claim IN ITSELF - 'investing requires a non-ideological approach' - IS an ideology! Your ideology is that you have no ideology. Not to mention that you already have a very clear ideology - top-down macro forecasting. Is that not an ideology?
He also projects so much of his insecurities and subconscious bitterness. He reminds me of Benoit Mandelbrot - already very accomplished in their own right (in fact, needless to say, Mandelbrot was a true legend in a myriad of fields), but for some reason, always ranting (to the annoyance of others) about the shortcomings of academia, cuz they couldn't make it big in academia themselves. The author claims that he dropped out of his PhD program because 'poli-sci coursework and research was easy but not interesting', but later claims that he got jaded with academic poli-sci due to its quant obsession - poli-sci academics are judged not based on qualitative political analysis, but mathematical elegance, and he keeps projecting that he's bad at math. Maybe you dropped out cuz you couldn't keep up quantitatively, not cuz it was too easy for you, Marko? AND he keeps ranting how modern poli-sci academic journals are a 'waste of time'. Dear Marko - if you walk in the footsteps of a stranger, you'd learn things you never knew you never knew. Stop imposing your own warped finance-bro world-view of poli-sci to the entire academic poli-sci field. Not saying your world-view isn't valid, in fact I think it's very good and I've gained a few things from your constraint-based framework and of course, your career speaks for itself - but this sour-grapes psychology is just childish behaviour.
Gonna quickly cut my losses on this crap and stop wasting my time.
The author chucks in nearly half the book with waffle, to hide the fact that he has nothing much to say. An entire 3rd of the book is dedicated to 'motivate' why geopolitics is important to the buyside, seemingly ignoring the fact that anyone who picks up this book is already sufficiently curious to understand how geopolitics can improve their investment process.
The geopolitics apology is shoddy at best - the author just looks back at history, and with the all-power of hindsight, cherry-picks the most important defining geopolitical trend of each decade, almost as if to claim 'if you could have spotted this trend at the start of the decade, you'd have made bank'. Conveniently forgetting the hindsight bias in that approach, and this is exactly the BS that every half-assed finfluencer with little formal education in finance takes. If it were that easy, why hasn't geopolitical alpha been arbed away already?
I've given up on this one halfway in so I won't critique his claims of geopolitical 'alpha' too deeply, but his attack on factor investing misses the point (to the point where I wonder if he has even studied the factor literature) - he essentially claims that factor investors are playing a loser's game, by pointing out the long stretches of underperformance of certain factors, e.g., value which has suffered a painful decade. The author claims that nimbly dipping in and out of geopolitical trends will have helped avoid these painful stretches. Geopolitical black swans have also caused freak crashes in certain factors. Duh. The whole point of factor premia is that their inherent independent systematic risks ensure that they don't get arbed away, and these risks involve the geopolitical risks that he's talking about. You don't get to dip in and out of them because there's no evidence that anyone can do so consistently - you have to systematically harvest RISK premia, over time, on average. Trying to dip in and out of geopolitical trends is just the Howard Marks' analogy of running to the next bus stop when you miss the 1st bus - you're likely to miss the bus again and again and again.
The author also experiences a LOT of cognitive dissonance. He criticizes fundamental investors for not using geopolitical analysis in the investment process, due to their dogma for bottom-up analysis. He then claims that in reality, the truth to investment success is a non-ideological approach. Are you hearing yourself, Marko? That claim IN ITSELF - 'investing requires a non-ideological approach' - IS an ideology! Your ideology is that you have no ideology. Not to mention that you already have a very clear ideology - top-down macro forecasting. Is that not an ideology?
He also projects so much of his insecurities and subconscious bitterness. He reminds me of Benoit Mandelbrot - already very accomplished in their own right (in fact, needless to say, Mandelbrot was a true legend in a myriad of fields), but for some reason, always ranting (to the annoyance of others) about the shortcomings of academia, cuz they couldn't make it big in academia themselves. The author claims that he dropped out of his PhD program because 'poli-sci coursework and research was easy but not interesting', but later claims that he got jaded with academic poli-sci due to its quant obsession - poli-sci academics are judged not based on qualitative political analysis, but mathematical elegance, and he keeps projecting that he's bad at math. Maybe you dropped out cuz you couldn't keep up quantitatively, not cuz it was too easy for you, Marko? AND he keeps ranting how modern poli-sci academic journals are a 'waste of time'. Dear Marko - if you walk in the footsteps of a stranger, you'd learn things you never knew you never knew. Stop imposing your own warped finance-bro world-view of poli-sci to the entire academic poli-sci field. Not saying your world-view isn't valid, in fact I think it's very good and I've gained a few things from your constraint-based framework and of course, your career speaks for itself - but this sour-grapes psychology is just childish behaviour.
Gonna quickly cut my losses on this crap and stop wasting my time.
December 23, 2024
I found this book really interesting and Papic is a brilliant writer. His framework for geopolitican analysis can be succinctly summarized with, “Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences.” Papic urges the reader to focus on material constraint above and beyond prefences and makes a very good argument that constraints are the dominant force determining policymaker actions.
Papic’s constraints are 1) Political (focusing on the median-voter theorem), 2) the economy and market, 3) Geopolitics (traditional demography, geography, etc.), 4) Legal (emphasizing this is easily circumvented, and 5) time. Many of these constraints may counteract each other and have a reflexive relationship with markets and reality. Thus, Papic emphasizes the importance of producing a "Net Assessment,": netting out the constraints and determining which constraint matters the most (the fulcrum constraint).
Papic is impressively prescient on his COVID and Russia predictions and provides several helpful examples of how he wields his constraint-based framework. I felt the weakness with the book was it felt a bit “hand-wavy.” I understood his analyses and constraint-based methods, but it appeared many events he talked about clearly could have went different ways. Constraints are often contradictory or work against each other and there isn't enough rigor behind how to actually net-out the constraints. To be fair to Papic, geopolitical forecasting is far more art than science.
Papic’s constraints are 1) Political (focusing on the median-voter theorem), 2) the economy and market, 3) Geopolitics (traditional demography, geography, etc.), 4) Legal (emphasizing this is easily circumvented, and 5) time. Many of these constraints may counteract each other and have a reflexive relationship with markets and reality. Thus, Papic emphasizes the importance of producing a "Net Assessment,": netting out the constraints and determining which constraint matters the most (the fulcrum constraint).
Papic is impressively prescient on his COVID and Russia predictions and provides several helpful examples of how he wields his constraint-based framework. I felt the weakness with the book was it felt a bit “hand-wavy.” I understood his analyses and constraint-based methods, but it appeared many events he talked about clearly could have went different ways. Constraints are often contradictory or work against each other and there isn't enough rigor behind how to actually net-out the constraints. To be fair to Papic, geopolitical forecasting is far more art than science.
February 6, 2022
I listened to Marko’s interview in the always interesting and sometimes hilarious Market Huddle podcast (@TheMarketHuddle) with @KevinMuir and @PatrickCeresna:
The interview is fascinating and funny, so much so that I decided to read the book. In spite of the high bar set by the interview (Marko is an eloquent and convincing speaker), the book didn’t disappoint:
https://www.goodreads.com/book/show/5...
The core advise of the book is to focus on CONSTRAINTS as opposed to leaders��, politicians’ or policymakers’ PREFERENCES. Preferences (such as a president’s likes or dislikes) are pumped up by the press and hence perceived as crucial, but ultimately constraints are much more important in determining the course of events. Marko puts it best:
“After downloading the constraint-based framework, the reader will be able to stop relying on the news flow for analysis. Much as an anchor keeps a ship from being blown out to sea, constraints anchor the smart investor to a subjective probability grounded in material reality.
I take one chapter to describe this framework. The punchline: investors (and anyone interested in forecasting politics) should focus on material constraints, not policymaker preferences.
Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences.”
One constraint elaborated in the book is the medium voter preference:
“Developed in the 1950s, Medium Voter Theory is one of the few codified theories of political science. It posits that to win an election or stay in power, parties and politicians approximate the policy choices of the median voter.”
For instance, thought the 1990s the median voter moved right:
“Across the political spectrum, left-leaning parties adopted center-right economic policies throughout the late 1980s and 1990s: Bill Clinton's US Democratic Party, Tony Blair's UK Labour Party, Gerhard Schröder's German Social Democratic Party, Paul Keating's Australian Labor Party, Jean Chrétien's Canadian Liberal Party, and Romano Prodi's Italian Democratic Party all traveled right, adopting a more laissez-faire economic outlook. This was referred to as “Third Way” politics.
Even in the emerging markets, a move toward laissez-faire economics and orthodox fiscal and monetary policy followed the ideological consensus of the 1990s; India's economy liberalized in 1991, and Deng Xiaoping's 1992 “Southern Tour” solidified China's pro-market reforms.”
But “in the 2020 global context of low growth and deflation – and a severe recession thanks to the COVID-19 pandemic – the pendulum of economic policy is swinging to the left. It is surprising to some that the US and the UK have been on the forefront of this global momentum. The deterioration of the middle class combined with the end of the Debt Supercycle has shifted voters to the left in both economies.24 And wherever the voters go, policymakers soon follow.
Even the ostensibly ‘right-wing’ Donald Trump and Boris Johnson.
What tenets of laissez-faire does Donald Trump practice? Fiscal prudence? Free trade? Noninterference in free markets? An independent central bank? I can ask the same questions of the post–David Cameron Tories and receive similarly negative answers, though to a lesser extent.”
“In 2009, American legislators took nearly five months to pass fiscal stimulus. The size of the American Recovery and Reinvestment Act (ARRA) was 5.4% of the 2009 GDP. It passed the Senate with only three votes by the opposition party – the Republicans. In the House, not a single Republican voted for the bill. In total, 214 Republicans in Congress voted against the bill.
Lack of bipartisanship in 2009 is not merely a piece of political trivia. If you were an investor following the policy response in 2009, the strict party-line vote on ARRA was a crucial piece of information. It suggested that no future stimulus bills would be forthcoming, given the level of rancor that ARRA produced.
Eleven years later, with the median American now openly contemplating policies that would have been deemed “socialist” in the past, the zeitgeist is dramatically different. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) started off as a $1 trillion Republican proposal on March 18 and doubled in size a week later. It was conceived, passed, and doubled in size faster than anyone thought possible.
Not only is the size of CARES more than double that of ARRA – 11.2% of 2019 GDP – but it was passed with no votes in opposition.”
“I have dubbed this move away from laissez-faire policies of the Washington Consensus the Buenos Aires Consensus. The Washington Consensus is merely a catchall term for the policies that have defined the 1980-2010s era. The ‘Washington’ in the term stands for Washington DC, the city where the two institutions most responsible for propagating its policy recommendations – the World Bank and the IMF – are headquartered. The consensus was defined by a set of policies that sought to remove democracy from economic policy. Independent central banking, counter-cyclical fiscal policy, laissez-faire regulatory framework… all of these policies have a singular point in common: they remove the role of elected officials from economic policy.
Now, don't take me wrong. I say this in as normatively neutral way as I can. You wouldn't fly an airplane democratically, so why would you operate a central bank or fiscal policy with input from voters? Nonetheless, in the most enthusiastic adherents to the Washington Consensus – the US and the UK – the political pendulum is swinging back toward populism. Democracy is finding its way back into economic policy.”
“The transition from the Washington to Buenos Aires Consensus will dominate markets over the next decade. This transition is more relevant than the US-China geopolitical rivalry, risks to European integration, and technological change. All assets will be influenced by the deluge of fiscal and monetary policy.
Such a leftward move will sound the death knell for the US equity market's cyclical outperformance relative to the rest of the world. With US profit margins and valuations at historical highs, long-term investors should probably begin underweighting US assets on a multiyear horizon. The dollar has probably peaked in 2020 with a long-term decline ahead. This will especially be the case if the COVID-19 recession ends up being brutal but brief, as investors are starting to realize is the case. Once the recession is over, the immense amount of stimulus sloshing around the US economy will likely flee to other equity markets as investors seek returns in economies that are not printing their way to growth. While I would remain bullish on US equities in absolute terms, I'd use the churn of 2020 to reposition to European, Japanese, and EM equities on a decade-long strategic asset allocation.”
Coming from a holy different perspective (commodity scarcity, inflation, US dollar slowly but surely losing its world reserve currency status, etc, as well as sheer reversion to the mean) I happen to agree with that long-term view.
I found the brief history of Marko’s birthplace, Yugoslavia, fascinating:
“The oil crisis of the 1970s hit Yugoslavia, an oil importer. Then came the 1980s, when competition from South Korea bit into the profit margins of its engineering outsourcing business. Finally, the textile industry faced competition from emerging Asian markets.
Yugoslavia dealt with these shocks by knocking on capitalism's door and asking to borrow a cup of sugar. It did not adjust its imports and investments to fit the new reality. It did not adopt austerity, cracking down on the twin ills of currency depreciation and inflation with hawkish monetary policy (i.e., raising interest rates). Instead, Yugoslavia borrowed from its friends in the West. Unlike its communist peers stuck behind the Iron Curtain, Yugoslavia accumulated a significant foreign debt that allowed citizens to live beyond their means.
In the late 1980s, the gravy train stopped. The international community became unwilling to lend to an irresponsible debtor. Yugoslavia's geopolitical worth waned as the Cold War wound down amid Gorbachev's reforms, and it could not guarantee its capitalist friends that it would be able to implement austerity. In 1988, facing rising prices and a falling dinar, the government relaxed income controls. Nominal wages rose by 5% per month in the last quarter of 1988. By September 1989, real wages had increased by 20% in eight months. The annual rate of consumer price inflation reached 13,000% in the fourth quarter of 1989. Yugoslavia entered the dreaded wage–price spiral.
At the end of 1989, Prime Minister Marković tried to end the crisis. On New Year's Eve, he introduced a new currency pegged to the deutschmark, austerity, privatization of businesses, and wage freezes. He also instructed the National Bank of Yugoslavia to stop printing money.
Inflation was stopped in its tracks in 1990, falling to zero. Marković's austerity gambit worked!
It was a pyrrhic victory. The austerity led to a collapse in economic output. The collapse in turn primed the battleground for populists running the constitutive republics to sow separatism and ethnic conflict. Serbia's Slobodan Milošević soon instructed the central bank to ignore the federal government and print money so he could fund his election campaign. When inflation returned, the median voter preference was to blame the technocrat in charge: Marković.
I remember this period vividly, even at seven years old. I learned what inflation was before my baby teeth fell out. The consensus view in the West is that Yugoslavia fell apart because of ethnic hatred. Yes, there was a lot of that. But for many, their ethnicity was not a huge aspect of their identity. At the very least, ethnicity was insignificant enough that children didn't pick up on the identity battle lines. My father had to sit me down and explain what it meant to be a Serb, as opposed to a Yugoslav. Some of my generational peers have similar stories, whether Croat, Slovene, or Bosniak.”
I’ll leave it there for now. The book is a page-turner, fascinating and stimulating. Highly recommended.
Marko is a clever and witty writer. His acknowledgements are the best I’ve ever read… an inspiration to my future book, if and when I write it. He can be followed on LinkedIn:
https://www.linkedin.com/in/marko-pap...
You can read this and other articles I've written on books, finance, markets, and the fascinating future on my Substack:
https://pablofetter.substack.com/
The interview is fascinating and funny, so much so that I decided to read the book. In spite of the high bar set by the interview (Marko is an eloquent and convincing speaker), the book didn’t disappoint:
https://www.goodreads.com/book/show/5...
The core advise of the book is to focus on CONSTRAINTS as opposed to leaders��, politicians’ or policymakers’ PREFERENCES. Preferences (such as a president’s likes or dislikes) are pumped up by the press and hence perceived as crucial, but ultimately constraints are much more important in determining the course of events. Marko puts it best:
“After downloading the constraint-based framework, the reader will be able to stop relying on the news flow for analysis. Much as an anchor keeps a ship from being blown out to sea, constraints anchor the smart investor to a subjective probability grounded in material reality.
I take one chapter to describe this framework. The punchline: investors (and anyone interested in forecasting politics) should focus on material constraints, not policymaker preferences.
Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences.”
One constraint elaborated in the book is the medium voter preference:
“Developed in the 1950s, Medium Voter Theory is one of the few codified theories of political science. It posits that to win an election or stay in power, parties and politicians approximate the policy choices of the median voter.”
For instance, thought the 1990s the median voter moved right:
“Across the political spectrum, left-leaning parties adopted center-right economic policies throughout the late 1980s and 1990s: Bill Clinton's US Democratic Party, Tony Blair's UK Labour Party, Gerhard Schröder's German Social Democratic Party, Paul Keating's Australian Labor Party, Jean Chrétien's Canadian Liberal Party, and Romano Prodi's Italian Democratic Party all traveled right, adopting a more laissez-faire economic outlook. This was referred to as “Third Way” politics.
Even in the emerging markets, a move toward laissez-faire economics and orthodox fiscal and monetary policy followed the ideological consensus of the 1990s; India's economy liberalized in 1991, and Deng Xiaoping's 1992 “Southern Tour” solidified China's pro-market reforms.”
But “in the 2020 global context of low growth and deflation – and a severe recession thanks to the COVID-19 pandemic – the pendulum of economic policy is swinging to the left. It is surprising to some that the US and the UK have been on the forefront of this global momentum. The deterioration of the middle class combined with the end of the Debt Supercycle has shifted voters to the left in both economies.24 And wherever the voters go, policymakers soon follow.
Even the ostensibly ‘right-wing’ Donald Trump and Boris Johnson.
What tenets of laissez-faire does Donald Trump practice? Fiscal prudence? Free trade? Noninterference in free markets? An independent central bank? I can ask the same questions of the post–David Cameron Tories and receive similarly negative answers, though to a lesser extent.”
“In 2009, American legislators took nearly five months to pass fiscal stimulus. The size of the American Recovery and Reinvestment Act (ARRA) was 5.4% of the 2009 GDP. It passed the Senate with only three votes by the opposition party – the Republicans. In the House, not a single Republican voted for the bill. In total, 214 Republicans in Congress voted against the bill.
Lack of bipartisanship in 2009 is not merely a piece of political trivia. If you were an investor following the policy response in 2009, the strict party-line vote on ARRA was a crucial piece of information. It suggested that no future stimulus bills would be forthcoming, given the level of rancor that ARRA produced.
Eleven years later, with the median American now openly contemplating policies that would have been deemed “socialist” in the past, the zeitgeist is dramatically different. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) started off as a $1 trillion Republican proposal on March 18 and doubled in size a week later. It was conceived, passed, and doubled in size faster than anyone thought possible.
Not only is the size of CARES more than double that of ARRA – 11.2% of 2019 GDP – but it was passed with no votes in opposition.”
“I have dubbed this move away from laissez-faire policies of the Washington Consensus the Buenos Aires Consensus. The Washington Consensus is merely a catchall term for the policies that have defined the 1980-2010s era. The ‘Washington’ in the term stands for Washington DC, the city where the two institutions most responsible for propagating its policy recommendations – the World Bank and the IMF – are headquartered. The consensus was defined by a set of policies that sought to remove democracy from economic policy. Independent central banking, counter-cyclical fiscal policy, laissez-faire regulatory framework… all of these policies have a singular point in common: they remove the role of elected officials from economic policy.
Now, don't take me wrong. I say this in as normatively neutral way as I can. You wouldn't fly an airplane democratically, so why would you operate a central bank or fiscal policy with input from voters? Nonetheless, in the most enthusiastic adherents to the Washington Consensus – the US and the UK – the political pendulum is swinging back toward populism. Democracy is finding its way back into economic policy.”
“The transition from the Washington to Buenos Aires Consensus will dominate markets over the next decade. This transition is more relevant than the US-China geopolitical rivalry, risks to European integration, and technological change. All assets will be influenced by the deluge of fiscal and monetary policy.
Such a leftward move will sound the death knell for the US equity market's cyclical outperformance relative to the rest of the world. With US profit margins and valuations at historical highs, long-term investors should probably begin underweighting US assets on a multiyear horizon. The dollar has probably peaked in 2020 with a long-term decline ahead. This will especially be the case if the COVID-19 recession ends up being brutal but brief, as investors are starting to realize is the case. Once the recession is over, the immense amount of stimulus sloshing around the US economy will likely flee to other equity markets as investors seek returns in economies that are not printing their way to growth. While I would remain bullish on US equities in absolute terms, I'd use the churn of 2020 to reposition to European, Japanese, and EM equities on a decade-long strategic asset allocation.”
Coming from a holy different perspective (commodity scarcity, inflation, US dollar slowly but surely losing its world reserve currency status, etc, as well as sheer reversion to the mean) I happen to agree with that long-term view.
I found the brief history of Marko’s birthplace, Yugoslavia, fascinating:
“The oil crisis of the 1970s hit Yugoslavia, an oil importer. Then came the 1980s, when competition from South Korea bit into the profit margins of its engineering outsourcing business. Finally, the textile industry faced competition from emerging Asian markets.
Yugoslavia dealt with these shocks by knocking on capitalism's door and asking to borrow a cup of sugar. It did not adjust its imports and investments to fit the new reality. It did not adopt austerity, cracking down on the twin ills of currency depreciation and inflation with hawkish monetary policy (i.e., raising interest rates). Instead, Yugoslavia borrowed from its friends in the West. Unlike its communist peers stuck behind the Iron Curtain, Yugoslavia accumulated a significant foreign debt that allowed citizens to live beyond their means.
In the late 1980s, the gravy train stopped. The international community became unwilling to lend to an irresponsible debtor. Yugoslavia's geopolitical worth waned as the Cold War wound down amid Gorbachev's reforms, and it could not guarantee its capitalist friends that it would be able to implement austerity. In 1988, facing rising prices and a falling dinar, the government relaxed income controls. Nominal wages rose by 5% per month in the last quarter of 1988. By September 1989, real wages had increased by 20% in eight months. The annual rate of consumer price inflation reached 13,000% in the fourth quarter of 1989. Yugoslavia entered the dreaded wage–price spiral.
At the end of 1989, Prime Minister Marković tried to end the crisis. On New Year's Eve, he introduced a new currency pegged to the deutschmark, austerity, privatization of businesses, and wage freezes. He also instructed the National Bank of Yugoslavia to stop printing money.
Inflation was stopped in its tracks in 1990, falling to zero. Marković's austerity gambit worked!
It was a pyrrhic victory. The austerity led to a collapse in economic output. The collapse in turn primed the battleground for populists running the constitutive republics to sow separatism and ethnic conflict. Serbia's Slobodan Milošević soon instructed the central bank to ignore the federal government and print money so he could fund his election campaign. When inflation returned, the median voter preference was to blame the technocrat in charge: Marković.
I remember this period vividly, even at seven years old. I learned what inflation was before my baby teeth fell out. The consensus view in the West is that Yugoslavia fell apart because of ethnic hatred. Yes, there was a lot of that. But for many, their ethnicity was not a huge aspect of their identity. At the very least, ethnicity was insignificant enough that children didn't pick up on the identity battle lines. My father had to sit me down and explain what it meant to be a Serb, as opposed to a Yugoslav. Some of my generational peers have similar stories, whether Croat, Slovene, or Bosniak.”
I’ll leave it there for now. The book is a page-turner, fascinating and stimulating. Highly recommended.
Marko is a clever and witty writer. His acknowledgements are the best I’ve ever read… an inspiration to my future book, if and when I write it. He can be followed on LinkedIn:
https://www.linkedin.com/in/marko-pap...
You can read this and other articles I've written on books, finance, markets, and the fascinating future on my Substack:
https://pablofetter.substack.com/
December 1, 2022
Amazing books. Really cool lens to apply to the world. Slightly frustrating reading something by someone who is so much smarter than I'll ever be while also being quite charming and funny (sorry academics).
April 13, 2022
Fantastic read! Marko does a terrific job of explicating his constraints vs preference based framework for analyzing the effects that politcal based events have on the global legacy markets - the path of least resistance always wins out. I suspect this framework can be applied too many facets of life, whereby decisions are subject to the constraints, regardless of the decision maker's preferences. Highly recommend.
January 31, 2021
How should you think about assessing geopolitical situations with an eye for informing macro bets? Marko has an approach that appears to have worked quite well over the last decade. In a nutshell, he advises you to focus on constraints, NOT preferences, of leaders to determine ultimate outcomes. One such constraint is the median voter preference (Greek voters didn't want to leave Eurozone in '15). Since it's hot off the press, he also writes about Covid, and accurately forecasts how the economic pain of shutdowns will overwhelm health concerns.
Marko has a great sense of humor, and lavishes his writing with funny footnotes and self-deprecations. He's quite brilliant, and did an OK job distilling down his thinking to communicable themes -I found the breadth a bit hard to follow and lessons difficult to internalize or apply. Really a 3.5 but rounding up to 4 for delivering usually dry material in an erudite and enthusiastic format, relevant to the happenings of today.
Marko has a great sense of humor, and lavishes his writing with funny footnotes and self-deprecations. He's quite brilliant, and did an OK job distilling down his thinking to communicable themes -I found the breadth a bit hard to follow and lessons difficult to internalize or apply. Really a 3.5 but rounding up to 4 for delivering usually dry material in an erudite and enthusiastic format, relevant to the happenings of today.
July 31, 2022
I highly recommend you read this book, even if you are not engaged in investment or trading. Using the methods outlined here, you can make better decisions on various important issues, such as the choice of country of residence or in what currency to keep savings.
Traders and investors will learn how to recognize several types of situations with a significant probability of winning. However, be warned this is not a book on trading methods and setups. You will need additional sources of information that teach you how to execute trades well.
The book "Geopolitical Alpha" cured me of stupid fascination with numerous conspiracy theories. I hope this effect will last forever. After finishing the book, you may want to follow its author on Twitter.
Traders and investors will learn how to recognize several types of situations with a significant probability of winning. However, be warned this is not a book on trading methods and setups. You will need additional sources of information that teach you how to execute trades well.
The book "Geopolitical Alpha" cured me of stupid fascination with numerous conspiracy theories. I hope this effect will last forever. After finishing the book, you may want to follow its author on Twitter.
June 4, 2021
Interesting and unique perspective on markets
I really like his perspective - a constraints based approach to making investment decisions. He’s wrong about climate change (had to ding a star) but the ‘beauty’ of his framework is i can substitute in my own priors about that particular topic and the rest of his approach still stands on its own.
I really like his perspective - a constraints based approach to making investment decisions. He’s wrong about climate change (had to ding a star) but the ‘beauty’ of his framework is i can substitute in my own priors about that particular topic and the rest of his approach still stands on its own.
January 29, 2021
One of of the best finance books of the last 50 years. In the current multipolar world, geopolitics analysis is as important as ever. Good examples, easy to read. Above all else, Papic is an astute strategist.
January 2, 2021
Enjoyed the book. I didn’t necessarily agree with how the framework was applied to each case study, but liked the approach of looking beyond the preferences of policymakers and focusing on constraints.
November 10, 2021
The constraint framework is a fantastic tool for analyzing decision making on almost all levels. This framework provides answers to puzzling actions and can help generate alpha by betting outside of the norm (Part 3) All of the information is current, informative, and best of all entertaining. Great use of graphics to demonstrate key points. Some great analysis on Covid-19 and other geopolitical events (I wish I read this as soon as it came out).
The book is divided into three parts
1. The framework
2. The different levels of constraints
3. How to generate alpha
Highly recommended to those interested in geopolitics, finance, economics, and human behavior.
The book is divided into three parts
1. The framework
2. The different levels of constraints
3. How to generate alpha
Highly recommended to those interested in geopolitics, finance, economics, and human behavior.
February 22, 2026
Not as good as Tetlock's Superforecasting. Maybe a 2/2.5 star, I gave it 3 because idk why (maybe because the author has a good sense of humor and I like his style). Papic's main argument is basically that geopolitical actors make decisions based on their "material constraints" more often than based on their "preferences." Too often, analysts ground their forecasts on the temperaments and ideologies of those in charge, but in reality leaders more often than not base their policies on the situation they are given to work with. So says Papic, and he spends most of the book talking about all the times he was right and the consensus/market was wrong because he considered this fact and they didn't. He spends too little time discussing the cases things don't play out that way, brushing these off as black swans caused by irrational populations that force governments to make poor decisions.
"Over the past decade, my clients' number-one criticism of the constraint framework has been that policymakers are not rational. This point is not a major flaw of the framework. Even an irrational policymaker cannot run through a wall. The framework focuses on material constraints, and no amount of irrationality can alter reality. Had clients instead pointed out that the collective population can be irrational, I would have had a harder time justifying that flaw. ... A deranged, confused, or simply mistaken policymaker is quickly brought back to reality by constraints ... but society – the median voter – has no such immediate force constraining its actions. As a result, the time it takes for an entire society to return to sanity is unknowable, and impossible to forecast."
He does have interesting things to say, and many (but not all) of the forecasts he placed when this book was written in 2020 have played out as he said (contrary to popular opinion at the time), so he obviously has something going for his framework. But what is this framework? My biggest critique is that he spends very little time explaining the method itself in the abstract and a whole bunch of time showing it in practice. This might sound helpful, and I think he does it to avoid boring a popular audience, but it makes it very difficult to generalize what he is proposing. The chapter on Net Assessments, for example, was 90% just him talking about why India assets aren't worth investing in. In all fairness, the author warns the reader of this in Chapter 2:
"If accurate forecasts via “ad hocery” is what you want, you came to the right place. There is plenty of it coming up! This book is about to shower you with it! This book is light on theory and absolutely incapable of the parsimony practiced by those who apply only one theory to seek the truth."
The framework ends up being 'consider the political, economic, natural/geographical, and legal resources that policymakers *actually* have at their disposal *before* you consider what their preferences are.' A few very high level tips for doing this are offered each chapter, followed by long winded analyses of specific geopolitical events across the globe to demonstrate how. What to learn from this, other than 'if you want to forecast geopolitics, you need to be deeply informed on all things geopolitical?'
Tetlock's thesis is that good forecasters are not experts at much more than forecasting, and his research data seems to show that. Retired elementary school teachers who know how to ask the right questions and accept the answers without bias make better forecasters than expert political pundits, and this can be measured and proven. Papic takes the other side in this book, as he says "In order to practice the constraint framework, one has to know things. And to know things, one has to read a lot."
"Over the past decade, my clients' number-one criticism of the constraint framework has been that policymakers are not rational. This point is not a major flaw of the framework. Even an irrational policymaker cannot run through a wall. The framework focuses on material constraints, and no amount of irrationality can alter reality. Had clients instead pointed out that the collective population can be irrational, I would have had a harder time justifying that flaw. ... A deranged, confused, or simply mistaken policymaker is quickly brought back to reality by constraints ... but society – the median voter – has no such immediate force constraining its actions. As a result, the time it takes for an entire society to return to sanity is unknowable, and impossible to forecast."
He does have interesting things to say, and many (but not all) of the forecasts he placed when this book was written in 2020 have played out as he said (contrary to popular opinion at the time), so he obviously has something going for his framework. But what is this framework? My biggest critique is that he spends very little time explaining the method itself in the abstract and a whole bunch of time showing it in practice. This might sound helpful, and I think he does it to avoid boring a popular audience, but it makes it very difficult to generalize what he is proposing. The chapter on Net Assessments, for example, was 90% just him talking about why India assets aren't worth investing in. In all fairness, the author warns the reader of this in Chapter 2:
"If accurate forecasts via “ad hocery” is what you want, you came to the right place. There is plenty of it coming up! This book is about to shower you with it! This book is light on theory and absolutely incapable of the parsimony practiced by those who apply only one theory to seek the truth."
The framework ends up being 'consider the political, economic, natural/geographical, and legal resources that policymakers *actually* have at their disposal *before* you consider what their preferences are.' A few very high level tips for doing this are offered each chapter, followed by long winded analyses of specific geopolitical events across the globe to demonstrate how. What to learn from this, other than 'if you want to forecast geopolitics, you need to be deeply informed on all things geopolitical?'
Tetlock's thesis is that good forecasters are not experts at much more than forecasting, and his research data seems to show that. Retired elementary school teachers who know how to ask the right questions and accept the answers without bias make better forecasters than expert political pundits, and this can be measured and proven. Papic takes the other side in this book, as he says "In order to practice the constraint framework, one has to know things. And to know things, one has to read a lot."
September 14, 2022
Geopolitics has always been a fascinating mystery to me. It is a deeply complex multi-faceted game theory problem and there isn’t an obvious level of abstraction to use to understand the system: countries are run by individuals, who have decision functions that may not align with the sovereign entity they represent. For instance, Papic points out that during the Brexit negotiations in 2019, Boris Johnson was playing a three-level game: unifying Tory infighting, securing Tory leadership over Labour, and strengthening (or damage-controlling) Britain’s standing in the world; only by understanding the interactions between these three levels could an analyst make an accurate forecast of the Brexit negotiations.
This complexity often can be confused for arbitrary subjective behaviour, for example, Trump’s “petulance” in the trade war and Putin’s imperialism. Papic rejects this (or at least, diminishes the relevance of these preferences). The core thesis of the book is that we should not be trying to understand the preferences of geopolitical agents, we should be trying to understand their constraints. Papic summarises his Constraints Framework thus: “Preferences are optional and subject to constraints; constraints are neither optional nor subject to preferences”.
Geopolitical Alpha explores several such constraints and uses case studies to illustrate how these constraints end up driving reality more so than individual preferences. The case studies are not clear-cut ex-post narratives: Papic aims to convey the full nuance of the concept instantiations, which happens to be in line with some modern research on optimally learning in ill-structured domains (Cognitive Flexibility Theory – see Cedric Chin’s explanation here). Unsurprisingly, the book has a strong practical bent – it is titled Geopolitical Alpha rather than Geopolitical Analysis for a reason. Papic’s focus is primarily on how we can understand geopolitical situations with a view to making investment decisions, taking into account the uncertainty of a situation and market positioning. Papic is quick to point out that his framework is descriptive rather than normative – he only wants to know what the world is, rather than what it should be, and advocates that would-be geopolitical analysts adopt a “professional nihilism”.
I wholeheartedly recommend the book. In addition to being highly information-dense, the book is an engaging read, amplified by Papic’s dry-bordering-dark sense of humour. While I don’t think I’ll be ready to start making bold geopolitical calls any time soon, Geopolitical Alpha has given me a whetstone to begin sharpening my probability distributions of geopolitical events.
My highlights here.
This complexity often can be confused for arbitrary subjective behaviour, for example, Trump’s “petulance” in the trade war and Putin’s imperialism. Papic rejects this (or at least, diminishes the relevance of these preferences). The core thesis of the book is that we should not be trying to understand the preferences of geopolitical agents, we should be trying to understand their constraints. Papic summarises his Constraints Framework thus: “Preferences are optional and subject to constraints; constraints are neither optional nor subject to preferences”.
Geopolitical Alpha explores several such constraints and uses case studies to illustrate how these constraints end up driving reality more so than individual preferences. The case studies are not clear-cut ex-post narratives: Papic aims to convey the full nuance of the concept instantiations, which happens to be in line with some modern research on optimally learning in ill-structured domains (Cognitive Flexibility Theory – see Cedric Chin’s explanation here). Unsurprisingly, the book has a strong practical bent – it is titled Geopolitical Alpha rather than Geopolitical Analysis for a reason. Papic’s focus is primarily on how we can understand geopolitical situations with a view to making investment decisions, taking into account the uncertainty of a situation and market positioning. Papic is quick to point out that his framework is descriptive rather than normative – he only wants to know what the world is, rather than what it should be, and advocates that would-be geopolitical analysts adopt a “professional nihilism”.
I wholeheartedly recommend the book. In addition to being highly information-dense, the book is an engaging read, amplified by Papic’s dry-bordering-dark sense of humour. While I don’t think I’ll be ready to start making bold geopolitical calls any time soon, Geopolitical Alpha has given me a whetstone to begin sharpening my probability distributions of geopolitical events.
My highlights here.
August 19, 2021
This book is a refreshing take on how to evaluate information coming from political developments. Living and working in the financial industry in an emerging market makes this a regular issue of my life, so it's interesting to have a reference guide to some of these topics.
Papic’s argument is relatively straightforward: ignore political actors’ preferences, focus on constraints. Learn to differentiate between strong constraints (unemployment, deteriorating quality of life, popular opinion) from weak constraints (laws, for instance). More than that: you don’t really need to be entirely right on the magnitude of a change, just trade the against mispriced risk.
Throughout the book I was frequently asking myself if I agree with the author due to the strength of his argument or because I already thought a lot of the stuff he was explaining. I’ve found particularly interesting his discussion about political actors having to please different stakeholders in a society and how written laws alone cannot act as a safeguard for anything: they are there to be bend and twisted if the material world and the cultural environment see them as an impediment. In that sense, his take on how the changing zeitgeist can generate widely different responses to the same economic situation a society may find itself in is one of the key arguments of this book. Throughout the text, Papic is constantly emphasizing what to pay attention to and what to ignore in a world where media overvalues polarized opinions seeking for clicks.
As for the limitations, this book suffers from a common problem one finds in similar “how to” investment books: whereas Papic provides a lot of examples as how he got things right, the reader would benefit from more “war stories” of what he got wrong. While it may not work in favor of enhancing the power of his argument, I guess everyone would benefit a lot from the reading how the framework may have limitations and what one should consider when processing such information. The author could develop more his take on how to assess the “change in the zeitgeist” as a moving force for change in policymaking, since the examples here are very sparse (he doesn’t go much farther than “opinion polls”).
Finally, while his overall framework in interesting, I’ve found it somewhat limited in judging the big, tectonic shifts that can truly make or brake things, like the one he opens the book with. In that sense, his take on the covid pandemic looks somewhat naïve from a risk management standpoint: it doesn’t address the difficulty of having to take decisions in a complex world with incomplete information and personal biases. In that sense, the reader should temper some of the excitement from his explanations with Nassim Taleb’s take on such themes.
Papic’s argument is relatively straightforward: ignore political actors’ preferences, focus on constraints. Learn to differentiate between strong constraints (unemployment, deteriorating quality of life, popular opinion) from weak constraints (laws, for instance). More than that: you don’t really need to be entirely right on the magnitude of a change, just trade the against mispriced risk.
Throughout the book I was frequently asking myself if I agree with the author due to the strength of his argument or because I already thought a lot of the stuff he was explaining. I’ve found particularly interesting his discussion about political actors having to please different stakeholders in a society and how written laws alone cannot act as a safeguard for anything: they are there to be bend and twisted if the material world and the cultural environment see them as an impediment. In that sense, his take on how the changing zeitgeist can generate widely different responses to the same economic situation a society may find itself in is one of the key arguments of this book. Throughout the text, Papic is constantly emphasizing what to pay attention to and what to ignore in a world where media overvalues polarized opinions seeking for clicks.
As for the limitations, this book suffers from a common problem one finds in similar “how to” investment books: whereas Papic provides a lot of examples as how he got things right, the reader would benefit from more “war stories” of what he got wrong. While it may not work in favor of enhancing the power of his argument, I guess everyone would benefit a lot from the reading how the framework may have limitations and what one should consider when processing such information. The author could develop more his take on how to assess the “change in the zeitgeist” as a moving force for change in policymaking, since the examples here are very sparse (he doesn’t go much farther than “opinion polls”).
Finally, while his overall framework in interesting, I’ve found it somewhat limited in judging the big, tectonic shifts that can truly make or brake things, like the one he opens the book with. In that sense, his take on the covid pandemic looks somewhat naïve from a risk management standpoint: it doesn’t address the difficulty of having to take decisions in a complex world with incomplete information and personal biases. In that sense, the reader should temper some of the excitement from his explanations with Nassim Taleb’s take on such themes.
July 16, 2021
The author has a really interesting framework for looking at how to predict geopolitical events. I agree with his premise that too many people focus on the rhetoric of politicians and that looking at their constraints yields better results than making predictions based on their personalities, rhetoric, etc. like most people do.
That said his framework could have been summarized in far fewer pages and moreover with far less self promotion.
Additionally, I'm not sure I buy into a lot of his claims. Particularly, I think the author, in the vein of self interest, understates just how difficult it is to predict the future. That he argues that the age of American exceptionalism is over and that we now live in a world with multiple superpowers... And claims to have predictive ability wrt US-China relations, US-middle east relations, long term balance of power, etc. Is hard to square with the fact that before Deng Xiaoping's rule in China in the late 1970s China was extremely underdeveloped (and very few people would have reasonably predicted china would be on par with the us just 40 yrs later). The world evolves fast, and in that vein, constraint based predictions (or any predictive scheme for that matter) only go so far. With the advent of software, artificial intelligence, etc. the world's rate of change, will only continue increasing, thus decreasing how valid predictive frameworks like Papics can ever be.
That withstanding, I think his framework is ultimately useful for predicting short term events, and I can buy that he's generated strong investment returns by being constrained focused rather than rhetoric focused.
Moreover, his framework is a good way of viewing people in general - as behavioral psychologists posit frequently... Humans like to construct narratives around the people around them in order to predict what they will do.... Unfortunately these narratives are very poorly constructed, based on limited evidence, and are definitely not very predictive.
As a final note, I'd say this book has some strong supplements
1. Expert Political Judgement (author cites this book probably 20 times)
2. Thinking fast and slow
3. Superforecasting
All discuss decision making and forecasting from a more emperical lens.
That said his framework could have been summarized in far fewer pages and moreover with far less self promotion.
Additionally, I'm not sure I buy into a lot of his claims. Particularly, I think the author, in the vein of self interest, understates just how difficult it is to predict the future. That he argues that the age of American exceptionalism is over and that we now live in a world with multiple superpowers... And claims to have predictive ability wrt US-China relations, US-middle east relations, long term balance of power, etc. Is hard to square with the fact that before Deng Xiaoping's rule in China in the late 1970s China was extremely underdeveloped (and very few people would have reasonably predicted china would be on par with the us just 40 yrs later). The world evolves fast, and in that vein, constraint based predictions (or any predictive scheme for that matter) only go so far. With the advent of software, artificial intelligence, etc. the world's rate of change, will only continue increasing, thus decreasing how valid predictive frameworks like Papics can ever be.
That withstanding, I think his framework is ultimately useful for predicting short term events, and I can buy that he's generated strong investment returns by being constrained focused rather than rhetoric focused.
Moreover, his framework is a good way of viewing people in general - as behavioral psychologists posit frequently... Humans like to construct narratives around the people around them in order to predict what they will do.... Unfortunately these narratives are very poorly constructed, based on limited evidence, and are definitely not very predictive.
As a final note, I'd say this book has some strong supplements
1. Expert Political Judgement (author cites this book probably 20 times)
2. Thinking fast and slow
3. Superforecasting
All discuss decision making and forecasting from a more emperical lens.
October 3, 2021
An Objective and original work on investment by a political Nihilist
I wanted to read a good book on investing and finance after taking the level I CAIA exam and obviously one on finance. I had many options - The Psychology of Money, Superforecasting and many others. I chose this one first and I feel I am enlightened. The book exceeded my expectations. One can finish this book in less than a week, not because the content is too less, but the style is engaging and examples all turned out to be good forecasts. I read the author mentions while writing in Feb 2020, as if possessing a crystal ball, about next president Joe Biden. I couldnt sleep, so I decided to write to Marko Papic as to how exactly did he know Biden would be the next president, he was kind enough in responding based on his constraints framework.
One must read the book for complete grasp of the matter, however here are few things:
1. Author is a political Nihilist and one can gauge the views are objective (so one doesnt have to worry about Fox news Vs CNN kind of biased analysys)
2. Constraints on policymaking are important for investors rather than policy maker preferences
3. Author is honest enough in admitting the two constraints to his framwork and that makes complete sense: A. Betting against time B. Mass hyseteria (crowd psychology)
4. While I started reading through 30% of the book, I was wondering if he could make an assessment on India (I am from Mumbai, India) and fortunately, his net assessment framework had a case study on my homeland
5. I liked everything about the book - however one of key chapters I would read twice is on The Three Lenses of Geopolitical forecastng
6. The author claims to have learned most of his skills from his father and looking at his success rate, I also am thankful to his first teacher (his Dad of course)
A must read book for all students and practitioners of Investing, Finance, Strategy and Policymaking
I wanted to read a good book on investing and finance after taking the level I CAIA exam and obviously one on finance. I had many options - The Psychology of Money, Superforecasting and many others. I chose this one first and I feel I am enlightened. The book exceeded my expectations. One can finish this book in less than a week, not because the content is too less, but the style is engaging and examples all turned out to be good forecasts. I read the author mentions while writing in Feb 2020, as if possessing a crystal ball, about next president Joe Biden. I couldnt sleep, so I decided to write to Marko Papic as to how exactly did he know Biden would be the next president, he was kind enough in responding based on his constraints framework.
One must read the book for complete grasp of the matter, however here are few things:
1. Author is a political Nihilist and one can gauge the views are objective (so one doesnt have to worry about Fox news Vs CNN kind of biased analysys)
2. Constraints on policymaking are important for investors rather than policy maker preferences
3. Author is honest enough in admitting the two constraints to his framwork and that makes complete sense: A. Betting against time B. Mass hyseteria (crowd psychology)
4. While I started reading through 30% of the book, I was wondering if he could make an assessment on India (I am from Mumbai, India) and fortunately, his net assessment framework had a case study on my homeland
5. I liked everything about the book - however one of key chapters I would read twice is on The Three Lenses of Geopolitical forecastng
6. The author claims to have learned most of his skills from his father and looking at his success rate, I also am thankful to his first teacher (his Dad of course)
A must read book for all students and practitioners of Investing, Finance, Strategy and Policymaking
November 4, 2022
Without question, one of those kinds of books that's worth re-reading over and over.
--
I've been meaning to finish the book for a while now, finally did it in the third attempt.
The best thing I like about the book is the well-laid structure- from outlining the framework, explaining the constraints, to application of said framework. The chapters were written with an opening premise, arguments supporting the author's conclusion and finally the application of concepts laid- very much like reading an essay of the finest quality.
Overall, a well written book- precise and with a dash of intellectual humour every so often. I think the way the book was written clearly shows the effort put in to distill the ideas and framework that the author has built over his career as a geopolitical forecaster and as a strategist at present.
The author did a fine job in keeping me engaged throughout and was successful in making me think and reassess everything the author said. I enjoyed soaking in the contents of this book, particularly due to its novelty in the crowded market of finance textbooks. Its unorthodox framework is also why I think the book has some lag time before the concepts mentioned become mainstream- ample time to make money off of it for those who can exploit it.
The funny thing is- I don't think that day is very far though. Papic did complain that CFA curriculum didn't ever mention one bit about geopolitics, but CFA Institute recently added a whole Chapter for the Level 1 curriculum. Do what you will with that information.
My Rating:
Premise- 5/5
Structure & Composition- 5/5
Relevance & Application- 5/5
--
I've been meaning to finish the book for a while now, finally did it in the third attempt.
The best thing I like about the book is the well-laid structure- from outlining the framework, explaining the constraints, to application of said framework. The chapters were written with an opening premise, arguments supporting the author's conclusion and finally the application of concepts laid- very much like reading an essay of the finest quality.
Overall, a well written book- precise and with a dash of intellectual humour every so often. I think the way the book was written clearly shows the effort put in to distill the ideas and framework that the author has built over his career as a geopolitical forecaster and as a strategist at present.
The author did a fine job in keeping me engaged throughout and was successful in making me think and reassess everything the author said. I enjoyed soaking in the contents of this book, particularly due to its novelty in the crowded market of finance textbooks. Its unorthodox framework is also why I think the book has some lag time before the concepts mentioned become mainstream- ample time to make money off of it for those who can exploit it.
The funny thing is- I don't think that day is very far though. Papic did complain that CFA curriculum didn't ever mention one bit about geopolitics, but CFA Institute recently added a whole Chapter for the Level 1 curriculum. Do what you will with that information.
My Rating:
Premise- 5/5
Structure & Composition- 5/5
Relevance & Application- 5/5
January 16, 2022
Monthly Bookworm Challenge - November 2021.
Did you ever wonder why Trump managed to get tax reductions through Congress but not to abolish Obamacare? Why Boris Johnson argued in favor of a hard Brexit publicly but finally agreed to a deal nevertheless? Or why the U.S.-China trade dispute probably won‘t have as clear an outcome as many believe?
Well according to Marko Papić, political (and, to a lesser degree, economical) constraints explain most geopolitical outcomes and are way better predictors than popular narratives in the media or individual actors‘ preferences. His maxim is: Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences.
All in all Papić not only makes a quite convincing argument, he does so in a very entertaining and digestible fashion. His writing is entertaining, sometimes even comical, and his explanations are superficial enough for laymen to follow. If anything, I would have liked him to go into more depth and make the book 100 pages longer.
At the same time, his arguments are not quite that revolutionary. In political analysis, to first look at the international system, then individual states and only finally, when the first two can‘t sufficiently explain the outcome, consider the role of individuals (and their preferences) is a very common approach. The first two deliver many or most of the constraints Papić mentions (like the median voter preferences). Still, at least to me, enough was new or well worth the repetition to recommend this book to anyone interested in international politics or investing. The book was recommended to myself by a friend too and luckily so.
Did you ever wonder why Trump managed to get tax reductions through Congress but not to abolish Obamacare? Why Boris Johnson argued in favor of a hard Brexit publicly but finally agreed to a deal nevertheless? Or why the U.S.-China trade dispute probably won‘t have as clear an outcome as many believe?
Well according to Marko Papić, political (and, to a lesser degree, economical) constraints explain most geopolitical outcomes and are way better predictors than popular narratives in the media or individual actors‘ preferences. His maxim is: Preferences are optional and subject to constraints, whereas constraints are neither optional nor subject to preferences.
All in all Papić not only makes a quite convincing argument, he does so in a very entertaining and digestible fashion. His writing is entertaining, sometimes even comical, and his explanations are superficial enough for laymen to follow. If anything, I would have liked him to go into more depth and make the book 100 pages longer.
At the same time, his arguments are not quite that revolutionary. In political analysis, to first look at the international system, then individual states and only finally, when the first two can‘t sufficiently explain the outcome, consider the role of individuals (and their preferences) is a very common approach. The first two deliver many or most of the constraints Papić mentions (like the median voter preferences). Still, at least to me, enough was new or well worth the repetition to recommend this book to anyone interested in international politics or investing. The book was recommended to myself by a friend too and luckily so.
September 25, 2021
This is a very strong debut book (and I hope one of many more to come) from Marko Papic. Marko spent many years on the sell-side as a macro strategist and he came up with his own framework for forecasting political and geopolitical outcomes. He then applied this framework to come up with actionable trading strategies in order to capture alpha that is generated from correctly forecasting geopolitical events. In the first part of the book Marko presents his original framework that relies on thorough and detailed analysis of constraints that policymakers faces in their decision making. Marko explains that most investors and public at large looks at policymakers' preferences to try to determine the course of their actions. This is where the vast majority of people get their political forecasts wrong. According to the framework, the policymakers face multiple constraints in making every major policy or geopolitical decision. Constraints mainly come from the arenas of politics, economics, markets, geopolitics, law (constitutional and legal constraints) and time. The framework boils down to the maxim that "preferences are optional and subject to constraints, while constraints are not optional and not subject to preferences". All in all it's a very elegant framework that I find very useful and credible and will definitely apply it in my line of work. I cannot recommend this book strongly enough to people who work in financial markets and people who have keen interest in geopolitics, policymaking and even students of political science.
August 21, 2024
biz/nvst success used to require math + poli/geopoli sensitivity
- yet today most MBA/CFA curricula ignore the latter
- arose from dampening/simplification under Pax Americana
Constraints dominate preferences
1. dialectic materialism: material > ideas
2. diagnosticity: quality (diagnostic/non-correlated/falsifying evidence) > quantity
3. person vs situation: context > player
Constraint hierarchy: poli > econ/market > geopoli > constitution/legal > time
Politics
- political capital
- the median voter makes price in political market. Politicians take price.
- US median voter has shifted decidedly towards dirigisme -> US equity to underperform going forward
Geopolitics
- not destiny & not immutable
- Trump Doctrine: transactionalism, mercantilism, nationalism -> would push Eurasia towards Mackinder "World Island" integration but against central tenet of American grand strat
Constitution & Legal
- malleable & meant to be broken by policymakers in deference to poli/econ/market/geopoli
Time
- market participant zeitgeist could delay material-reality unfolding
- median-voter reins in policymakers but nothing reins the median-voter!
Net assessment
- nets out competing analyses -> reveal fulcrum constraint -> suggest critical data to monitor
Geopolitical Alpha
- market bad at pricing geopoli risks -> fundamental skills mismatch -> alpha for those who know
- key: beat relative spread > predict absolute outcome
- yet today most MBA/CFA curricula ignore the latter
- arose from dampening/simplification under Pax Americana
Constraints dominate preferences
1. dialectic materialism: material > ideas
2. diagnosticity: quality (diagnostic/non-correlated/falsifying evidence) > quantity
3. person vs situation: context > player
Constraint hierarchy: poli > econ/market > geopoli > constitution/legal > time
Politics
- political capital
- the median voter makes price in political market. Politicians take price.
- US median voter has shifted decidedly towards dirigisme -> US equity to underperform going forward
Geopolitics
- not destiny & not immutable
- Trump Doctrine: transactionalism, mercantilism, nationalism -> would push Eurasia towards Mackinder "World Island" integration but against central tenet of American grand strat
Constitution & Legal
- malleable & meant to be broken by policymakers in deference to poli/econ/market/geopoli
Time
- market participant zeitgeist could delay material-reality unfolding
- median-voter reins in policymakers but nothing reins the median-voter!
Net assessment
- nets out competing analyses -> reveal fulcrum constraint -> suggest critical data to monitor
Geopolitical Alpha
- market bad at pricing geopoli risks -> fundamental skills mismatch -> alpha for those who know
- key: beat relative spread > predict absolute outcome
March 30, 2024
TLDR - Marko Papic is an entertaining writer with much knowledge to impart in terms of how to "sell" your investment thesis - in this case, his "geopolitical alpha" just means how to simplify the world so you can uncover the opportunity to make some money (or, help someone else do so).
Investing is not hard, just...extremely hard. Marko describes a constraint based framework of thinking which takes into account preferences of median voters (kind of important), policymakers (not important), and a priori probabilities (including game theory). He structures the book in a way that looks at economical, political, geopolitical, constitutional, legal, and time constraints.
This book can be hard to follow at times, and the author uses outsized hyperboles sometimes to make a point which could be a hit or miss based on the age / sophistication of the reader. A lot of examples are used to illustrate his points, but the resulting actions and consequences can be confusing to understand unless you are connecting the various dots the author peppers in earlier in the book with it. Despite that, the author is able to use simple language to describe most of his ideas and tries to come across as relatable.
I would recommend skimming this book once to get the big ideas, then keep it around as a reference for more in-depth content later.
Investing is not hard, just...extremely hard. Marko describes a constraint based framework of thinking which takes into account preferences of median voters (kind of important), policymakers (not important), and a priori probabilities (including game theory). He structures the book in a way that looks at economical, political, geopolitical, constitutional, legal, and time constraints.
This book can be hard to follow at times, and the author uses outsized hyperboles sometimes to make a point which could be a hit or miss based on the age / sophistication of the reader. A lot of examples are used to illustrate his points, but the resulting actions and consequences can be confusing to understand unless you are connecting the various dots the author peppers in earlier in the book with it. Despite that, the author is able to use simple language to describe most of his ideas and tries to come across as relatable.
I would recommend skimming this book once to get the big ideas, then keep it around as a reference for more in-depth content later.
This entire review has been hidden because of spoilers.
June 24, 2022
The constraints framework, that emphasizes material conditions over political preferences for understanding and generating alpha from geopolitics is quite interesting and the book is worth it.
However, I'll give it four stars for two reasons. First, the book is sometimes repetitive, especially in the discussion about covid-19 that repeats the same argument over and over, as if the author was justifying himself for his calls early in 2020.
Secondly, his interpretation of material conditions are often debatable -- for example, when analyzing the geopolitical implications of trade disputes he argues that the less exposed country is the "customer" in the relationship. But why would the producer country, the one in control of the real means of production, or in control of essential natural resources, would be at a disadvantage?
That being said, the constraint framework remains very useful for anyone that wants to understand geopolitics beyond ideological lenses and shallow news narratives.
However, I'll give it four stars for two reasons. First, the book is sometimes repetitive, especially in the discussion about covid-19 that repeats the same argument over and over, as if the author was justifying himself for his calls early in 2020.
Secondly, his interpretation of material conditions are often debatable -- for example, when analyzing the geopolitical implications of trade disputes he argues that the less exposed country is the "customer" in the relationship. But why would the producer country, the one in control of the real means of production, or in control of essential natural resources, would be at a disadvantage?
That being said, the constraint framework remains very useful for anyone that wants to understand geopolitics beyond ideological lenses and shallow news narratives.
February 28, 2023
I was attracted to investing (as opposed to speculating) because I believe the material reality of a business’ competitive positioning and growth prospects should govern its share price.
I was attracted to Marx’s view of politics because I believe our material reality (rather than a shifting cultural climate) governs policy preferences.
And so I’m refreshed to find that in an investing world in which you can’t really avoid having to make geopolitical assessments, Papic outlines a material constraints-based framework for decision making which acts as a much sturdier anchor than trying to discern discreet policymaker preferences.
It also helps that this guy has made a number of out-of-consensus calls in the last 12 months (calling the China slowdown and the consequential decline in oil, brushing off all the alarmism about Europe’s natural gas shortage), in the process pitting himself against some of the more smug and annoying guys in the industry, and has seemingly been vindicated on all of them. Dude can’t miss
I was attracted to Marx’s view of politics because I believe our material reality (rather than a shifting cultural climate) governs policy preferences.
And so I’m refreshed to find that in an investing world in which you can’t really avoid having to make geopolitical assessments, Papic outlines a material constraints-based framework for decision making which acts as a much sturdier anchor than trying to discern discreet policymaker preferences.
It also helps that this guy has made a number of out-of-consensus calls in the last 12 months (calling the China slowdown and the consequential decline in oil, brushing off all the alarmism about Europe’s natural gas shortage), in the process pitting himself against some of the more smug and annoying guys in the industry, and has seemingly been vindicated on all of them. Dude can’t miss
March 11, 2023
There was a time in middle school when I checked out almost every book on the stock market and investing at the local public library. Each writer had their own rubric on how to look at the markets and sometimes even the world, and while many of them were quite interesting, I noticed that the more specific the recommendations, the more their thought processes tended to waver.
Geopolitical Alpha brought me back to those times at the Mariners Public Library, this hardcover book with its slick cover and somewhat big print, its breezy tone, the interesting concepts supported by uneven and at times random analysis. To be fair, Papic's ability to predict what was then the near future had a pretty high batting average, but his discounting of things like the prospects for a war in Ukraine just shows that it is the ideas that you are most sure of that often come back to bite you in the ass.
I liked this book. It was an easy read, and Papic provides some useful scaffolding in which to analyze geopolitical events. Just take it all with a grain of salt.
Geopolitical Alpha brought me back to those times at the Mariners Public Library, this hardcover book with its slick cover and somewhat big print, its breezy tone, the interesting concepts supported by uneven and at times random analysis. To be fair, Papic's ability to predict what was then the near future had a pretty high batting average, but his discounting of things like the prospects for a war in Ukraine just shows that it is the ideas that you are most sure of that often come back to bite you in the ass.
I liked this book. It was an easy read, and Papic provides some useful scaffolding in which to analyze geopolitical events. Just take it all with a grain of salt.
February 23, 2025
Conclusion: Author created a "constraint based" framework to analyze geo-pol events in relation to market/trading/investment decisions. Its better than anything out there, yet isn't codified enough to back-test validity. Still worthwhile for anyone that trades forex or rates.
What is great about this book is that he recognizes geo-pol analysts are BS in terms of validity and market allocation/trading/investing decisions.
He tries to rectify that with his "constraint based" framework that underweights participant's P (preferences) vs their constraints and therefore underweights political rhetoric/stunts prior to the decision/action outcome.
There is no way to back-test his half-math/half-art "constraint" framework, but I have a gut feel it fares better than anything else that is out there.
What is great about this book is that he recognizes geo-pol analysts are BS in terms of validity and market allocation/trading/investing decisions.
He tries to rectify that with his "constraint based" framework that underweights participant's P (preferences) vs their constraints and therefore underweights political rhetoric/stunts prior to the decision/action outcome.
There is no way to back-test his half-math/half-art "constraint" framework, but I have a gut feel it fares better than anything else that is out there.
July 12, 2025
If I approach from the critic side this book did not age well right? Because some of the claims or forecast did not go as the writer anticipated. He is creating an analytical so called framework but I got the feeling that he is not coming from a math or analytical background. His knowledge of statistics is not seem well grasped as well, as a data scientist who read a lot of stats book. An the bayesian priors is something I do everytime it is not unique or sophisticated. It is known for decades you still need to assess prior probabilities well and that part changes everything. Lastly there was a lot of self praise for a book not groundbreaking at all, I give it to his Yugoslavian side
On the other side I was impressed by his language use, rich vocabulary and rich explanations, it was fun to read. The amount of new information was high to me as I don't know much about geopolitics.
On the other side I was impressed by his language use, rich vocabulary and rich explanations, it was fun to read. The amount of new information was high to me as I don't know much about geopolitics.
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