The Artisan Podcast: Key Geopolitical Risks That Could Change Everything
- Oct 21, 2021
- 7 min read
Updated: Mar 20
Published: October 21, 2021 | Listening time: 40 min | Note: This conversation reflects geopolitical conditions as of October 2021.
In this episode of The Artisan Podcast, Northland Wealth Management Co-CIO Joseph Abramson sits down with Marko Papic, Partner and Chief Strategist at Clocktower Group and author of Geopolitical Alpha: An Investment Framework for Predicting the Future. Papic is one of the most original geopolitical thinkers in the institutional investment world, having founded BCA Research's Geopolitical Strategy practice in 2012.
The conversation covers the three geopolitical risks Papic believes could reshape global markets, his framework for understanding why fiscal populism is structurally entrenched in the United States, why green technology is his highest-conviction investment thesis for the next decade, and how China's regulatory pivot toward hard tech creates both risk and opportunity for global allocators.
The Three Geopolitical Risks That Could Change Everything
Papic identifies three macro risks, ordered by severity but not by probability. The first is any form of military conflict between the United States and China. He acknowledges this is already well-understood by markets and doesn't dwell on it. The second, which he considers underappreciated, is domestic political instability within both the US and China. In both countries, income inequality has reached levels that are generating policy responses that reshape investment landscapes. The third risk is a retrenchment of democracy in major emerging economies. Countries like Turkey, India, and Brazil may slide backward toward less inclusive governance, not necessarily through dramatic regime change but through gradual institutional erosion. Papic notes that outright coups, not seen in a generation, could return over the next five years in certain contexts.
Income Inequality as the Engine of Fiscal Populism
The central analytical framework of the episode is Papic's argument that income inequality, not COVID-19, is the primary driver of the unprecedented fiscal and monetary response seen since 2020. He presents data showing that fiscal stimulus during the COVID recession exceeded the combined stimulus of the five previous recessions. Federal Reserve holdings of US Treasuries expanded by $1.8 trillion in four months, matching the cumulative expansion under Bernanke and Yellen over ten years.
Papic argues this would have happened regardless of the pandemic. The political events of the preceding decade (Brexit, the election of Trump, the 2020 social justice protests, the January 6 Capitol breach) taught policymakers a consistent lesson: the median voter is angry about inequality and will punish governments that fail to respond with aggressive fiscal action. He draws a historical parallel to France in 1968, when the top 10% income share was roughly where America's is today (approximately 47% of GDP accruing to the top decile). The subsequent decade saw France undertake massive redistribution, with the socialist president elected at the end of the process, not the beginning. Papic's point is that it does not matter which party holds power. What matters is where the median voter sits on the redistribution question, and in the US that position has shifted dramatically leftward.
The investment implication is that both fiscal and monetary policy in the US will remain structurally loose, regardless of who occupies the White House. Papic argues the market was underpricing this at the time: the US dollar was holding up well and the 10-year yield remained well bid despite the scale of stimulus already delivered and still expected. He expected the Fed to remain behind the curve on inflation, particularly given the political impossibility of hawkish monetary policy in the 18 months before a presidential election.
China's Regulatory Pivot: From Silicon Valley Model to Hard Tech
Papic provides a nuanced reading of China's 2021 regulatory crackdown, arguing that the Western interpretation (authoritarianism crushing innovation) misses the fundamental driver. Chinese policymakers, unlike their American counterparts, learned from 2008–2009 that they stimulated too much. They entered 2021 on a deliberately hawkish footing, providing no household support during COVID and allowing household incomes to fall naturally while the export sector boomed. The resulting pain, concentrated among non-export workers, created internal political pressure around income inequality that echoes the same forces driving US fiscal populism.
Xi Jinping's policy response has a dual structure. On the macro side, China was beginning to ease after an extended period of deleveraging, with Papic expecting real interest rate cuts (not just reserve ratio adjustments). This easing was driven by the political calendar: Xi needed economic stability ahead of his 2022 party congress consolidation. On the structural side, the Chinese Communist Party was explicitly steering capital away from consumer tech and toward what Papic calls 'hard tech': green technologies, EV batteries, solar, semiconductors, and manufacturing. The thesis is that China has concluded the Silicon Valley model of development leads to unacceptable inequality and strategic vulnerability. China wants to be Germany or Japan, not America.
For investors, Papic argues this creates an unusually clear sectoral allocation signal. The Chinese government is effectively telling you which sectors it favors and which it does not. Solar stocks and semiconductor stocks had massively outperformed the broad Chinese index since the regulatory crackdown began. The old correlation between China's total social financing (TSF) and the US 10-year yield had broken down after 2017 because the US itself became a source of fiscal stimulus, meaning Chinese macro indicators alone no longer drove global reflation trades the way they did during the secular stagnation era.
Green Technology: The Highest-Conviction Investment Theme of the Decade
Papic identifies green technology and sustainability as his single highest-conviction view, and the idea he expects to look most prescient in a decade. His framework rests on three pillars, none of which depend on climate ideology.
First, genuine technological breakthroughs have occurred. A decade of near-zero interest rates channeled capital into innovation, producing real advances in solar, batteries, EVs, hydrogen, and carbon sequestration, analogous to how low rates and geopolitical risk produced the US shale revolution. Second, politicians globally need a vehicle for the nominal GDP growth their constituents demand. Green infrastructure (retrofitting buildings, EV charging networks, grid modernization) employs plumbers, electricians, and contractors, which is exactly the kind of visible, tangible spending that reduces political pressure. Europe was allowing unlimited fiscal expansion for green spending. China was considering a green interest rate cut to subsidize lending to clean energy companies. Third, the US-China rivalry creates an irreversible competitive dynamic: as China plows resources into EV and battery dominance, the US cannot afford to cede the market, regardless of which party holds power. This is analogous to the early 20th century transition from horse-drawn transport to internal combustion engines; no country chose to stay behind once the technology proved viable.
Papic's tactical nuance is important. He believed public market valuations for green stocks were already in bubble territory because institutional demand (driven by ESG mandates) exceeded the supply of listed green companies. His preferred exposure was through private markets, where the truly transformative companies were still being built. He compared public green investing to buying MySpace rather than Facebook. At the same time, the green transition would keep oil prices elevated for two to three years because it would destroy capex in fossil fuel production faster than it could reduce demand, creating a structural supply squeeze. He was bullish on oil not despite the green thesis but because of it, a contrarian position with direct relevance to Canadian energy assets and the Canadian dollar.
Middle East Dynamics, Iran, and Oil Supply
The conversation addresses the US withdrawal from Afghanistan and broader Middle Eastern dynamics. Papic frames the Afghanistan withdrawal as the continuation of a bipartisan policy spanning Obama, Trump, and Biden, not as a Biden-specific failure. The tactical execution was poor, but the strategic direction was inevitable and correct from a US interest perspective.
The deeper question for investors is what happens to oil supply as the US geopolitically deleverages from the Middle East while China's dependence on Middle Eastern crude increases. Papic presents data showing China's crude imports from the Middle East accelerating precisely as the US withdraws. This creates a strategic vulnerability for China that reinforces the green tech thesis: China's push into EVs and renewables is partly a national security play to reduce dependence on sea lanes controlled by the US Navy.
On Iran specifically, Papic expected a nuclear deal to come faster than markets anticipated, given the Biden administration's demonstrated willingness to exit the region quickly. However, he argued the supply impact would be modest (Iran was already exporting roughly 800,000–1,000,000 barrels per day through unofficial channels to China) and insufficient to offset the structural supply deficit created by collapsing fossil fuel capex. His net view: oil prices were unlikely to fall below $60 and the asymmetric risk was strongly to the upside.
Canadian Election Analysis and Portfolio Implications
On the 2021 Canadian federal election, Papic took a characteristically pragmatic view: it doesn't much matter for asset prices. Canadian markets are driven by global forces (Chinese credit, US dollar dynamics, commodity prices) far more than by who governs in Ottawa. He noted that Trudeau's decision to call an early election during the Delta wave was a strategic mistake, and that the Conservatives' rise in national polls created a real possibility of a minority or coalition government. The decisive provinces would be Quebec and British Columbia. But regardless of outcome, Canadian climate policy was not going to reverse, and the macro drivers of Canadian asset performance were external.
Transcript
About Marko Papic
Marko Papic is a Partner and Chief Strategist at Clocktower Group, an alternative investment asset management firm based in Santa Monica, California. He leads the firm's Strategy Team, providing bespoke research to clients and partners on geopolitics, macroeconomics, and markets. He is the author of Geopolitical Alpha: An Investment Framework for Predicting the Future. Prior to joining Clocktower, Papic founded BCA Research's Geopolitical Strategy practice (GPS) in 2012, the financial industry's first dedicated political analysis investment strategy. He is a regular guest on CNBC and advisor to many of North America's leading pension funds.
