Jacob Shapiro: Hello listeners.
Welcome to another episode of the Jacob Shapiro podcast.
I'm Jacob Shapiro.
Rob Laity joining us for our biweekly chats.
Um, boy, it's been a week, uh, recording Tuesday, June 24th.
This will probably come out I would guess Thursday.
Uh, president Trump has announced the ceasefire between Israel and Iran.
So I've got one more piece to send out, uh, via Substack.
If you have not signed up for my substack, please do so.
Um, and then I'll try and, and take a little bit of a break
'cause I have been running.
Nonstop here for the last 12 days, and you'll probably able be able to get that
sense from the podcast itself because I mean, we, we do some analysis of markets,
uh, and especially of the usan relations.
But the end of the podcast is basically Rob, uh, thank you Rob for, for
being my therapist and letting me talk about, uh, sort of the initial
reflections on what it's meant to be, uh, driving so hard, uh, analytic.
Um, over the past couple of days and ways to think for my, honestly, for myself
about how to maintain mental sanity and if, if, if you guys can take notes
from that, if it's helpful for you.
I, I hope it's helpful for you too.
So, anyway, enough rambling for me.
I hope you enjoy the episode.
I hope that you've appreciated all the analysis.
Uh, I'm taking a little bit of a break at the end of the week, uh, Lord
willing, and the creek don't rise.
Uh, but we'll be back at it, uh, with a vengeance.
Next week I'm sure.
And if, uh, the ceasefire does not hold, I'll be back at it sooner than that.
So take care of the people that you love.
Cheers and see you out there.
Alright, listeners, it is Tuesday, June 24th.
It is 10:18 AM Central Time here in New Orleans.
Um.
Unless something, I mean, I, I don't think we're gonna cover things that are breaking
here, but like, you know, this will probably come out on our normal cadence.
It won't come out in the next 24 hours.
So if some things seem outdated, apologies, they probably will because
the Iran, Israel war, skirmish, whatever, ceasefire, it's all evolving quicker.
Then we could possibly keep in mind, Rob, I don't, I know you said you, it's
been going too fast for you to follow.
Um, in depth.
It's going too fast for me to follow in depth.
The latest thing was getting asked what he thought about Israel and responding.
I mean, I'm basically quoting him almost word for word here.
He said that Israel and Iran don't know what the fuck they're doing, which
that comment could be made for a lot of different people, president Trump.
But I digress.
Um.
Elsewhere in the world, uh, Germany is floating a return to required
conscription in their military because Friedrich Mers thinks that Germany
needs the strongest military in Europe.
Can't say I'm looking forward, uh, to that, uh, sequel.
As much as I'm looking forward to the Dune Messiah, uh, movie that was announced
will be, will be filming in two weeks and.
Timothy Shalam, if you're listening, want you on the podcast.
I've been tweeting at you all week.
You haven't responded to me like you're starting to hurt my feelings here.
Like we really want you on.
I think we could do some good work together.
Um, some drama over us, Japanese relations.
We're gonna get into that.
We're gonna talk about some NATO things and anything else.
But Rob, I, I've been looking forward to chatting with you because during
these moments of crisis, like I don't really have time to, to do much
besides put my head down and try and pump stuff out as much as possible.
And honestly, I want to be embraced.
By the, the sweet caress of the bosom of markets that that beautiful objective
thing that is not blowing anything up, that is just responding with numbers.
Like I just wanna stare at the Matrix for like a good hour.
'cause I'm exhausted.
I haven't been following markets that closely and you haven't been
following the war that closely.
'cause we're both sort of in our foxholes.
So as I peak my head out of the foxhole, now that we have
peace in our time, or at least.
Piece this week.
Uh, any market thoughts from you?
I saw that oil, like did a massive, uh, collapse of, what was it,
10%, um, a couple hours before the ceasefire was announced.
So somehow the oil markets knew before everybody else.
Um, but just curious if there's any other market action that you saw that
was fundamentally interesting or, or told you anything interesting or if it was
really like the market was just like.
Okay.
Like Israel and Iran are pummeling each other.
That's cool.
Like, uh, these, there are no Iranian companies in the s and p 500, so like
it's interesting that the straight of horror moves gets blocked.
Okay.
But like, not a whole, not a whole lot else.
So let, let's go into markets a bit.
I could use like a boring objective sense of what's going
on with the numbers right now.
Not boring, you know what I mean?
Rob Larity: Well, thankfully for people who were, who were uh, sort
of in the whirlwind of events, uh, the truth is pretty boring.
So, um, it's sort of one of those dog in the nighttime, not barking situations
where markets haven't really done much and there is some signal in that.
Um, the fact that Golds did not make a new high.
The fact that Bitcoin, which had been acting very gold like recently
actually sold off, um, on these events and is, you know, sort of in, in
the middle of its near term training range, like all of this suggests that
either markets had sort of priced in a lot of this potential geopolitical
volatility or they just don't view it as.
Anything fundamentally relevant to the big gears.
And that's the way I would think about this, is like in this multipolar world,
there are the gears, you know, the individual areas where within each of
those big and important things do happen.
And we can see this.
In markets.
'cause that is what's reflected in markets when, when something happens
in the White House relevant to fiscal policy in the US that is moving
gold and it's moving Bitcoin and moving these assets and bond yields.
But the, um, you know, the, the frontier regions, we haven't seen
much market response to that.
So I don't know exactly what to make of that other than I think these places
are viewed as sort of marginal to.
So the really important piece.
Jacob Shapiro: Mm-hmm.
Um.
And maybe it's more important to think about the, I mean, like, this is gonna
give people whiplash, but, um, the tariff delay is, is coming up, or the
end of the tariff delay is coming up.
Like, uh, we had the Liberation Day tariffs, then we had
the delay around April 10th.
So technically July 14th is when all of the Liberation Day
tariffs sort of come back on.
And I feel like you can sort of feel the market, or at least, you
know, I, I sort of have in the back of my mind as Israel and, and Iran
are pummeling each other that, uh.
Where are the trade deals?
Like, uh, are the tariffs coming?
Are the tariffs gonna be back on?
Is it just gonna be another extension?
Do you think that the market is like just expecting Trump to
kick the can down the road again?
And that maybe if he, you know, if somebody asks him a taco question on
the wrong morning, like maybe he'll like try and shake things up a little bit?
Or is there anything on the horizon that you're particularly
worried about coming up?
'cause I mean, we do have some cliffs that seem to be coming up.
Rob Larity: Yeah.
And I hate to be Mr. Boring on this call, but I'm not clever
enough to say what's gonna happen.
I, I mean, I don't know anyone who is, as you point out, you'd have
to be eating breakfast with Donald Trump to know what he's going to
do when this, uh, delay is over.
And even if you eat breakfast with him, you know, whoever gets up right
after breakfast is gonna have, you know, a totally different story.
Yeah.
I mean, honestly, like.
Leaving entertainment value aside.
What are we doing here?
How do we think about this from actually taking action?
And it's really getting back to this notion of uncertainty and, and
what effects have already happened.
And I can tell you that the effects that have already happened is we've seen a
massive whiplash in the inventory cycle.
So companies are struggling to figure out what the hell is going on.
Um.
And that uncertainty obviously hasn't gone away because you've had this
moratorium and, uh, the deadline is coming up and no one knows.
So, um, on this kind of constant refrain of the only certainty is uncertainty.
I mean, that's still in play and it's even a more, it's emphasized more now in, in
light of this, uh, recent conflict, um, supply chain managers all over the world,
even if it's unlikely that the straight of four moves would've been closed.
Everyone has had to scramble and figure out what do we do if x,
y, and Z scenarios should happen?
Um, so the, the way to think of this is sort of a, an absorption
of mental capacity, uh, by people who have to make decisions.
And that's bad because we are already straining that with everything that's
gone on in the last six months.
And all the data that's showing that sort of, you know, investment
demand, leading indicators are.
Our weakening, um, residential investment has been not good.
Commercial investment has been really coming off the boil.
The programs, uh, ARPA and the, um, infra infrastructure, uh, uh,
investment and jobs acts programs are sort of, one of them is completely
through the pipe and the other one is really getting through the pipe.
So those tailwinds are, are weakening.
Um.
And you just add all this on, on top of everything else, there's,
it's not a great environment.
Um, especially when you take into account sort of the AI situation
really having been this huge tailwind and now where's it gonna go?
I mean, recent data points have been bullish again, um,
but the risk reward is not great.
You know, you have Larry Ellison coming out last week and saying, we
are going to own and operate more cloud infrastructure than all of our
hyperscaler competitors combined.
Mm-hmm.
Like, does that sound like a comment that someone says at the top of the
cycle or at the bottom of the cycle, you know, like you get data points
like that coming through, but all tolds, you know, it's a time to be
cautious and to pick your spots wisely, and that that hasn't really changed.
Jacob Shapiro: Did you see your boy, uh, Paul Tudor Jones's kind
of out there, comments, well, maybe they're not out there.
His comments on artificial intelligence, he said, um, here,
lemme get the quote in front of me.
Uh, there's a 10% chance in the next 20 years that AI will destroy
50% of humanity knows his quote.
Uh, he also, he also by the way, is saying he thinks that like, uh, that.
President Trump is not gonna deescalate, uh, trade tensions with China at all.
And that like the mark that markets are in for sort of a rude
awakening about US China ties.
I'm not quite sure.
I I agree with that so much, but I, I know you like him.
I, I also wanted to ask, 'cause I feel like everybody before the, the war
started was talking about this and I was arguing about, uh, with Marco about
this every time I did an interview this week, even on Israel, a run, I would
get this question towards the end of the interview about, about the one
big beautiful bill in spending, but also specifically about the deficit.
And about the debt.
And I know we've talked about it a little bit before, but I don't think
we've framed it in quite the way.
I'm about to frame it to you, which is I keep on getting the question
from people who are trying to read positivity into the one big, beautiful
bill saying, look like spending is actually not gonna be that much.
Like they started with 10, they were gonna add 10 to 15 trillion.
They're really just gonna add a couple of trillion and they're
starting to cut entitlements.
And isn't this a sign that actually like.
Um, you know, this is the last gasp of populism, but there's gonna have
to be fiscal conservatism from here, and that's gonna affect everything
from, you know, the dollar to treasury yields, things like that.
That doesn't rain True.
It hasn't rung true for me.
I keep on saying like, okay, like you're, you're still
talking about adding trillions.
I. And if you look at the breakdown of when spending is happening, like
there's gonna be increases in spending up until the end of Trump's second
term, and all the decreases are supposed to happen after he leaves.
And the next president's just gonna be like, yeah, sure.
I'm gonna inherit a plan from Trump and follow that to a t and not spend
money to make my constituents happy.
Um, but I, I do kind of feel like when we're thinking about, I keep on going
back to this metaphor too of, of, of the United States today as sort of where.
Um, the United Kingdom was in the late 17 hundreds, not quite as dire.
It's not like the United States has lost the equivalent.
Of the 13 colonies in a failed war.
And it's not like there's a Napoleonic empire that's rising on the continent
that's directly threatening.
But I like the comparison because it does seem like the UK was over its skis a
little bit and over confident and IT and UK debt like was starting to get, I think
upwards of 200% of GDP at that moment.
And it really metabolized that over the course of the next century after beating
Napoleon and colonizing India and.
And things like that.
So that's a really long-winded way of winding up to how do you approach, like,
like when I'm on my next interview and somebody says, well, don't you think
that the one big beautiful bill is actually more fiscally conservative
than markets we're expecting?
And that like, maybe we've turned a corner on the debt.
And, and how do you work that into some of the things that we're talking about?
I shoot.
Rob Larity: Um, to start with the UK comparison, I think this is
really appropriate and it gets into.
The question that you asked, which is I think the UK was fundamentally different
than the US is today in the sense that the UK was run by hard money elites.
And you know that because after they defeated Napoleon, the next 20 years
were absolutely miserable in the UK because they ran a, a deflationary, like
a fiscal deflationary policy to back the pound and get it back in terms of
gold backing to where it needed to be.
And they just absolutely bit the bullet in terms of growth recession.
Um, it was, it was a miserable time.
And the only reason they could do that was because the people who controlled
the power were, were the elites who had a vested interest in that.
The US is not in that situation today.
The elites are not, um, effectively debtors.
Um, some of them are, but most elites own mostly equity.
Um.
And the incentives are different and they don't have the power,
like as much as you like to think, like, oh, the rich run everything.
Like they really don't.
Um, and you can see this at the ballot box.
There's, there's not a popular mandate to go out and cut spending and balance
budget because there's not been pain.
Like, yes, we had some, uh, inflationary pain in the last few years, which we
haven't experienced for a very long time.
It hasn't really been about.
Runaway budget deficits and inflation because of that.
Like, that's something that's more nascent.
So without that incentive, it's hard to see why.
Okay.
Like some, uh, moving around deck, uh, deck shares on the Titanic of the
one big beautiful bill or whatever.
Um, without a change in those incentives, I don't think I would ever
take this side of the argument that.
Oh, we're moving into fiscal rectitude.
Like, why, why would anyone who's a self-respecting politician
do that in this environment?
You're not gonna be rewarded for it, and if you try it, you'll be booted out.
Um, you know, we were looking, uh, I, I did some work on Japan just to
catch up of what's going on, and I was reading and, and looking at what
happened in 2010 when the DPJ finally came into power for the first time.
You know, ever.
And they came into power on a fiscal conservatism policy.
And they, and the, the leader of the DPJ at the time said,
we don't wanna become Greece.
We're going to raise taxes and balance the budget.
You know, how long they were in power.
And, you know, for a lot of reasons.
But the point is, even, even when it looks like to smart people, oh,
like this is a runaway deficit.
These are like income.
I'm sorry, interest payment levels that are ballooning and gobbling up
X percentage of our budget, um, until you get that feet on the ground, pain
coming out of that, like historically, you just don't see people stepping
in to fix it unless you have an elite driven society where people
are taking a far reaching sort of approach to this and they have the.
Incentives to protect the currency because they have a stake in that currency and
you just don't have any of that today.
Jacob Shapiro: Yeah.
Um, why don't, why don't we back into Japan a little bit?
'cause, um, I think that's also a, a good place to think about what's going on.
And also because this is, I mean, I won't say the media isn't covering it.
I, I actually think the media has done an okay, okay, job here.
But it's not like anybody has the attention to go to, like some of
the more boring things that are happening in the world when you've
got all this kinetic action happening.
Um, but we've been talking about it now for a while.
Um, which is that there are problems in the US um, Japan relationship, like
before the war started, remember that the United States was making progress with
China and London over trade negotiations.
They were making no progress with Japan.
They've had five different consultations with Japan.
I. The Japanese officials have basically said they're no, they're
nowhere close to any common ground.
There was that Wall Street Journal report that you had multiple US officials
literally disagreeing with each, uh, disagreeing with each other in front
of a Japanese trade delegation so that the Japanese aren't even really
clear what the United States wants.
Um, and apparently that's not just related to trade.
Um, so there was supposed to be a two plus two.
Meeting.
So that's meetings of top uh, you know, the, the defense secretary and the, um,
secretary of State in the United States Foreign Foreign Minister in, um, in Japan.
So a two plus two arrangement.
And that meeting was abruptly canceled.
It was supposed to be July 1st.
The Japanese canceled it.
Um, you had Financial Times reporting that at least some of
that was because the United States made a new demand about how much.
Defense spending as a percent of GDP Japan needed to do, asking
Japan to hike it to 3.5% of GDP.
At least that though, apparently, was something that Elbridge Kolby, who's
at the Defense Department, was pushing where it wasn't what Rubio was pushing.
It wasn't what Heg says was pushing.
So again, the Japanese are like, we don't know.
What you want, like you keep on giving us mixed signals.
So they canceled that.
And then, um, there's a NATO summit coming up and President Trump had
been looking for Japan, Australia, New Zealand, maybe South Korea to attend.
Maybe on the sidelines you can feel the US establishment trying to make NATO
from just an anti-Soviet alliance, which.
It doesn't really work anymore because Soviet Union's gone, uh,
into maybe an anti-China alliance.
Um, and Prime Minister Ishiba, uh, abruptly said, I'm not gonna come.
I'm gonna send somebody else in my place, but I'm not really.
Um, we're gonna be there.
Um, and you know, you could say maybe that's nothing.
The foreign ministry in Tokyo cited various circumstances, which I don't
know, to me that's Japanese diplomatic.
Speak for go fuck yourself.
Like, we're not gonna do this.
Uh, but maybe I'm reading too much into it.
Um, but this is arguably, like the US is closest ally in Asia.
It's a country that is completely depen, well, I won't say completely
dependent, but highly dependent on the United States in its security
relationship, has a lot of different trade linkages, um, with the United
States that it can't afford to deal with.
And yet it's made little to no progress on trade.
The security relationship looks like it's unraveling.
Prime Minister Ishiba, uh, sort of, I mean, looks like he doesn't wanna
do anything with President Trump.
And certainly, uh, to, to paraphrase, uh.
Dave Chappelle joke.
I mean, Japan didn't even send PlayStations for this attack on Iran.
They basically like didn't say anything at all.
Uh, juxtaposed that with the uk, which was trying to get out there and show
that maybe they'd be willing to help.
So, um, that, that's the lead in to just say as all these things are happening,
like we've got like real flashing yellow or red signals between the United
States and one of its closest allies.
So what direction do you wanna take that, Rob?
Rob Larity: I think Japan is one of the most interesting places in
the world right now, and I think that even more after having spent.
A day or two really thinking about this and brushing up on what's going on.
And I want to kind of explore an early thesis that could
end up being kind of stupid.
Um, but it's also kind of provocative.
So I, I was really boring before, so I'll be a little more, a
little more, uh, out there here.
But I. I agree the signals between Japan and the US seem to be
more than just the normal noise.
It seems to be some kind of fundamental shift, um, maybe taking place in terms
of the relationship between the two.
And, and this is something we've talked about, you know, for the last four or
five years, like ever since we started talking to each other, this was one
of our big things we were watching.
And, um,
when I look at the numbers in Japan, the thing that really.
Jumps out to me is that Japan's outward investment, not portfolio investment,
but fixed, uh, capital investment.
So FDI has absolutely exploded in the last five or six years.
Absolutely exploded.
I mean, if you look in 2015, Japan had, uh, 150.
Uh, trillion Yen of outward investment.
That's, it's like 1.5 trillion US dollars.
If you were to look today, that's more than doubled in that time.
So, uh, the visual image here is just a giant fire hose of capital leaving
Japan to build factories and facilities.
And I did some work on this.
I mean, a lot of this is going into the US with the battery supply chains
and things like that, but a lot of it is also going into Southeast Asia.
And, um, the numbers that I saw suggested that Japan's outward
investment into Thailand and India in the last few years has each exceeded
its outward investment into China.
Um, which I find really, really interesting because like, here
comes the controversial part, like whenever Japan has felt threatened.
Um, by the United States.
I mean, the last time this happened, if we just rewind the history books, it turned
to Southeast Asian colonies, essentially to overcome its lack of what it has at
home, which is people and energy and food.
And if you look like really behind the boring numbers that
I'm citing, this looks to me like a very similar kind of response.
It's not top down driven, I don't think.
Like I don't know enough about what's going on.
I haven't dug into this from a policy standpoint to see how
intertwined the actual LDP is with businesses that are doing this.
But in any event, Japanese businesses are responding to what's going on
with gusto, and this is accelerating.
Like this isn't just a long-term trend.
This is going exponential.
So the upshot is like everyone always talks about how Japan's GDP, easy to.
Right.
So in 2015, Japan had 4.4 trillion of GDP in US dollars.
Fast forward to 23, it was 4.2 trillion.
So in eight years, GBP went down a little bit according to these
numbers and all in US dollars, GNP, which is national product.
So remember every, no one ever pays attention to GNP 'cause unless you're
looking at a weird country like Ireland.
It's always pretty close.
But that's not the case with Japan, and it's increasingly diverging in a huge way.
So GNP in 15 was 5.4 trillion, so it's 5.4 against 4.4 today.
While GDP has gone down a little bit, GNP has gone from 5.4 to 6.6.
So you've seen over, you know, roughly 20%, uh, growth in
Japan's national products.
So this includes the stuff that Japanese companies are producing not on
Japanese soil in that eight year period.
That is a completely different story than the common narrative
of Japanese stagnation.
Mm-hmm.
Jap Japan is stagnating in, you know, in GDP terms, however you wanna define
that purely on the domestic front.
But this is a really interesting element, and I haven't dug too deep into this, but
if you start teasing out the amount of income that those assets are now throwing
off, it's an extraordinary amount.
Of foreign currency based earnings and how that plays into sort
of the balance sheet set up.
You know, how Japan might intervene into the yen or you might have these
compiling effects where if the yen, uh, begins to strengthen, that could
be a self-reinforcing sort of process because you have this huge, you know,
net positive international position.
Um, there's a lot to tease out here, but that's my sort of initial.
Fun way to think about it is like, is this the Japanese up empire?
Just much nicer and, and not, you know, not with all the slavery and stuff.
Jacob Shapiro: Yeah.
Uh, without all the slavery and stuff, it was by, by the way, go back and if you
go, like, go back and read the history of what Japan was doing even before
like World War ii, like what Japan did on the Korean Peninsula in the 1920s.
And, um, I mean, it's, yeah, it's, it's terrible.
There are apologists for it.
And the same way that Neil Ferguson is an apologist for, uh, the British Empire.
And, and by the way, like, I mean, he has some points like, you know, the
British Empire brought civilization and education and lots of, you know, uh.
Public sanitation, lots of different things that were like really good, but
like at the cost of you need to give up like central parts of your identity.
Like the Japanese literally thought of the, of the Koreans as like lesser
evolved forms of Japanese people.
So they just needed to like evolve really quickly into the Japanese
people that they could become.
So that meant, you know, you don't get to speak the Korean language and you
need to be taught like basics of modern.
So anyway, I'm, I'm going off there.
So do you.
I mean, this is an impossible question to ask.
You're probably just gonna throw it back at me, but I mean, do you think there'd
be problems in the US Japan relationship even if, um, Trump hadn't been elected
and we were seeing some of these things?
I mean, Joe Biden was, uh, the Biden administration was not for that.
Uh, uh, I'm forgetting the steel company's name, but remember they were.
Making a big stink about a Japanese steel company not acquiring US
steel for national security reasons.
And Japan was like, you're supposed to be the liberal internationalist one.
Like, what are you, what are you talking about?
You're worried about not getting your, your steel from us.
So I, I just wonder if maybe some of this US Japan tension was already,
was already baked in and maybe Trump is like, uh, accelerating it
or making it a little more bare.
And I think Ishiba personality and his success so far has
something to do with that too.
But, um.
Yeah, I think it probably,
Rob Larity: I think it probably accelerates it, but this was going
on first, you know, it really started to accelerate during Trump won,
and maybe that was a key factor.
But I mean, my instinct is to say that this is largely bottom up economic
logic at work, that you have Japanese companies that have been historically
sitting on a ton of capital without a strong incentive to invest it.
Something has switched in that incentive structure where now you're seeing really
strong growth in investment even though they've, they've determined that they
can't or don't want to locate that in Japan, whether that's because the
workers aren't available, whether that's because domestic policies just aren't
favorable, you know, whatever it is.
I think it's probably mostly that just kind of.
Seeing the opportunity, seeing in some sense kind of the all clear to
cope, do this and take advantage of it in a way that wasn't there before.
Um, maybe it's a rising confidence by Japanese companies.
I, I don't know exactly, and that's a, an area that I think we have to
really think about more carefully and, and do some additional research.
But I think the two things combine that.
Fear isn't a great accelerant, but fear and greed together are
always gonna be much more powerful.
Jacob Shapiro: I think some of the lessons too, from.
From a lot of the recent conflicts that we've seen in the last six months,
whether it's Ukraine's drone assault on Russian strategic air assets, or
whether it's Israel bombing Iran, even aspects of the India Pakistan war,
like one of the reasons people are not afraid of Japan is they think of Japan
as this, you know, graying population.
Super old demographics are against it.
There's no way they're gonna be able to project force across all of East Asia.
I don't know.
We're seeing that if you've got superior technology and a superior, a
superior level of industrial expertise and things like that, that maybe you
can punch greatly above your weight.
So if Israel can do it, it just did to Iran.
Um, like I don't think Japan is gonna resort to this and there would
have to be a similar cultural sea change in how they're approaching
things if they were gonna have the stick to back up the carrot.
But, um, I think, I think we do have to re.
Reassess some of our assumptions about what is possible from a
security standpoint, because Japan has plenty of resources.
If it really wanted to, to engage in the type of modern strategic warfare
that we're seeing, um, really, I mean, all across Eurasia right now.
Rob Larity: Put another way now in Japan, sends PlayStations.
They could be.
Have wings and be packed with high explosive.
Jacob Shapiro: Seriously, we shouldn't joke so much about that.
Rob Larity: Um, no, but, but just to follow on on what you just said, like
I think that's a good way to think of it is like there's lots of different
forms of capital that a nation has.
There's human capital, which is obvious.
There's financial capital, there's visible capital, but then there's also
kind of intellectual capital and I think.
Just on the e economic side, like what we're seeing is Japan has
this enormous base of intellectual and intangible capital that it's
built up over the last 75 years.
And if you can plug in human capital from other nations that have it,
that's a very powerful engine.
Um, you know, when you're talking about just technology or business
organizations and how they work and how they're run process, process
oriented sort of innovation, um, I. Japan punches well above its weight.
So if you're sitting there thinking about like, oh, their power correlates with
how many human beings were they, like, I think that's the right way to think about
it, is that whole paradigm out of date.
Jacob Shapiro: Yeah, and I mean, Japan has been a sort of small sea conservative
country for, for decades and has really been happy to exist as a wealthy cog
within the US led international order.
So if that order really is gone and gosh, it feels like every single week, like
more aspects of it are disappearing.
Um, yeah, and, and I, and you know, Japan is not used to having its own
sort of independent foreign policy.
It's been a long time since they had to think of these things independently, but.
I mean like that.
That's why these meetings, these meeting cancellations stick out to
me so much because it's not just anger about trade frustration.
It's like, no, no, no, like we're not gonna meet with you if you're gonna
treat us like this, and we're not gonna show up just for the NATO call, just
because you say that you want us there for some of these different things.
Rob Larity: It's kind of interesting, just going back to this notion of
being accountable to an electorate.
Like I would have to go back and check, but my guess would be.
Then a, some majority in Japan was always like fairly skeptical
of the US relationship, at least going back in more recent times.
But Japan, you know, obviously was always very, very tight with Ru regardless.
And now, um, again, I'm quoting from, uh, Tobias's, Tobias Harris's,
uh, Substack, which is very good.
And, and I would definitely recommend it.
Jacob and I are both subscribers.
Um.
He was quoting some of the LA latest poll figures in there and just calling out the
fact that, I mean, there's overwhelming majorities of Japanese that do not want
Japan to give in to the US on this and do not want Japan to follow the US lead
in terms of security policy and trade and all of these issues that are up to grabs.
And, you know, ishiba, one of the, one of the things about having a
weak government, which, like right now it's very, very weak, is.
You ignore that and you're at your peril.
Jacob Shapiro: Yeah, for sure.
Um, well let's, uh, sort of the last thing that we'll we'll talk about today.
So we got some Japan, we talk, we got some market talk.
Um, I do, I do just want to kind of take a step back and I. Let the
listeners inside the, the Wizard of Oz contraption here with you and me.
'cause you and I have not caught up really since the war
started in any meaningful sense.
I mean, we had an investment committee call last week and we batted around
very roughly the notion of, hey, there are these islands of stability in the
world, in Latin America, maybe even Southeast Asia, but the Eurasian land
mass is, is, uh, well it seems like on fire in all these different parts.
Uh.
Uh, mark cousin Marco said, uh, you know, on, on our other podcast there
that, oh, but you have these Garrison states like Ukraine and Israel
and Saudi Arabia that can do well.
And it's like, okay, like that's cool.
I think I'd rather be in Latin America or Singapore, uh, watching
all this from afar rather than having my capital in the garrison state.
But maybe, you know, people have higher risk tolerance.
But, um, the oth the other thing, and I've never actually said these words to myself,
but they really crystallized this week.
'cause I kept on getting this question over and over again.
Like, so how do you trade the war?
Like, what, what are you guys doing?
To trade the war.
And, um, it's not a cop out, it's just to say like, I don't think you can use,
I don't think you can trade geopolitics.
Like maybe there are some asymmetric low probability, but high impact scenarios
that we could create like a very niche strategy around, um, you know, and, and
you and I keep that grab bag of black swan events in our, in our knowledge platform.
You know, like EMPS and solar storms I know is one of your favorites.
And like all, and maybe we create like some really weird positions that you
hold for the long term thinking, you're gonna get explosive growth there.
But I, I think that the question about trading and the way that the
financial media has to link everything, every market, move back to something
that is happening in the world.
Um.
It.
It just doesn't give you actually any real insight.
And I think it's more about like, yes, you have to follow
all these things in real time.
'cause maybe a nuke would've gone off or maybe they would've blocked
the straight of horror moves.
But it was never that likely that that was what, that was what was gonna happen.
And even as the fire has been put out now, or at least there is a
ceasefire, like all these tectonic plates that are shifting beneath us.
They're shifting and they shift slowly.
Like it's not like something's gonna happen and you're gonna
get a 30% jump in your portfolio and then you're off to the races.
But I do think we really need to be on top of like how these plates
are shifting and what directions they go and things like that.
So, I dunno, I'm, I'm playing around with the metaphors there, but what,
what do you think are some lessons for, for people from the war itself and
honestly from the first six months of what feels like a year that has just.
Not let up so far, and I, I don't think it's gonna change.
Like, I don't think we're going towards like a peaceful, more norm normal cadence.
I think this is just how it is.
So I think we need some strategies for the listeners for, besides listening to
you and me, talk about this soberly and invoking, you know, cromwellian metaphors.
Like what, like how are ways that we're thinking about this or how
should people digest this information?
Rob Larity: I really liked the phrase that Sunne Sorenson used in
our investment committee when we were talking about this and he said,
change is a process, not an event.
And um, I think that's the way people misconceive what you do.
People assume, especially in weeks like this, when you're just so busy and.
You, you putting out a lot of analysis, more than usual and doing a lot of
interviews that like, that's your job is like, oh, something blew up.
Let me go analyze it.
Like, like that's not your job at all.
Your job is identifying these big kind of trends, these big, huge rumbling
shifts in the tectonic plates.
And then the events are sort of manifestations of those shifts.
So that you're having a lot of new information, but if you've done your work,
shouldn't usually be some massive shock.
Um, and I, I like, that's what I would suggest is like, don't be reactive if
you're reacting to something and trying to change your portfolio because, oh,
you're trade, like, that's, that's stupid.
You're gonna, you're never gonna have success doing that.
No one can do that.
You're gambling.
It's not a way to manage your business, it's not a way to manage investments.
The way to do it is to anticipate and to zoom out and think
about these broader trends.
Like, like, like you talk about and like that's the research process that you
do is really what are the big things that matter and what are the signposts
around them that we put to identify, okay, is this thesis playing out or not?
And you sort of set that in place and monitor it.
And make decisions on a longer time horizon based on that.
Like that's the only thing that you can do.
Otherwise you're just in the shit storm of media noise and, um, and no one comes out
of that except for people who sell media and clicks and content and hot takes.
Uh, but that's not most of the listeners.
Jacob Shapiro: Yeah.
I did an event, um, God was that only last week in New York City?
Yeah.
Time has no meaning.
Last week in your, it was 12 hours ago.
Jacob.
I'm in a wormhole.
It, I'm here via Tesseract.
After doing an event three minutes ago, uh, no.
I, I, um, I was on this panel at this event last week, so it was last I.
Um, last Tuesday.
And so the war was sort of in its initial stages and you can, you know, bet that,
uh, everybody wanted to talk about this.
And so we were, the, the panel I was on was about navigating global uncertainty
in a time of geopolitical risks.
If I hear the phrase like navigating uncertainty, one more time, I'm gonna.
Self emulate what is left of my hair.
I might just buzz it anyway, by the way, I'm getting tired of it.
But, uh, that's beside the point.
I don't need to talk about my hairstyling choices on the podcast.
Um, but I, I decided to start off when I, when I gave my little five minute
spiel on the panel, I. Um, I said, look, I know we're supposed to be talking
about uncertainty and volatility, but instead I wanna tell you the three
things that I am absolutely certain of.
And then we can talk about like all the crazy things that you want.
But I instead want to give you things that I know.
And the first thing I said was, I think we're moving towards a multipolar order.
I think that this entire conflict shows us that like the United States
didn't want Israel to bomb Iran.
Israel said we're gonna bomb anyway.
The United States like.
Didn't have any allies that joined it in this.
They were also like Russia and, uh, Russia and China stayed on the outs
and were going to stand the outs like this is a multipolar world.
Get used to it.
The upside is there's not gonna be World War iii, even though
the media's gonna sell you that.
The downside is there's gonna be a lot more of these type of events,
so buckle up your seatbelt and like you're just gonna have to get used to
this level of volatility in markets.
The second thing I said to the audience was, unless you are
Iranian or Israeli, or have assets.
In either one of those countries, maybe if you have assets in like a
Cutter or a Bahrain, you know, like maybe we could talk there, but unless
you're directly exposed, um, or you're somebody who's trying to get out of
those countries and thinking about thoughtful ways to structure your wealth
and get out of those countries, this is not gonna have any impact on you.
So I'm not saying, I'm not saying it's unimportant.
I'm not saying don't follow it, but like, if what you're looking for
is insights on how this is going to affect your life, not that much.
And I, and I know that that message needs to be said because, uh, we, we've
talked about this before in the podcast.
My, my sister indicator went off this week.
I hadn't heard from my sister from literally months and I
got a text three days ago.
She gets so much flack on this show.
I. No, I, it's out of a place of love.
I, if she's asking, I know that something is really in the zeitgeist.
Like she's the one that keeps me, like, I'm up here in my
scholarly, pedantic, pretentious tower, and she's like, yo, dude.
Like, uh, real talk.
Like, uh, is anything bad gonna happen here?
Like, do I need to worry about this stuff?
And I was like, no, Leah, like.
Like, it's fine.
Like, I don't think anything's gonna happen.
I think you're fine.
And then she goes off like, I, I wish I had her approach.
Uh, I wish I could move through the world the way that she
does without lack of stress.
Just like, you know, all of this happening and like literally nine days
in, do I need to worry about this?
Like that?
That sounds like a, I wish I could reach that enlightened plane.
So it's not shade at all.
If anything, it's jealousy.
Um.
But point being like I had a bunch of different like messages like
that and it wasn't like, what's this gonna do to my portfolio?
What does this mean for the future of the Iranian regime?
And like, you know, I had the nerds emailing me too, but like I had normal
people just asking me, Hey, am I okay?
Like, can I travel to New York City next week?
And like, is there gonna be a terrorist attack?
Like, can you just like give me a gut check here?
And I said like, yeah, you're fine.
Like I, I know the media's not telling you that way, but
like, I, I think you're fine.
You're no more, you're no more or less at risk than you would be otherwise.
Like I, me here in downtown New Orleans and my coworking space, probably
more at risk of harm than, you know, any American city terrorist attack.
Um, and then the third thing I said, and this goes back to some of the
things we've talked about, this podcast, uh, on this podcast for some time now
and goes back to our good friend eth.
Which is, I'm certain that despite the fact that we're gonna have all this
technological innovation and artificial intelligence and robotics and all the
crazy things that are happening, um, in a really good and positive and meaningful
way, I, I disagree with Paul Tudor Jones.
Like, I think AI and some of these things are gonna change the world for the better.
But no matter how much advances we have in these technologies, I'm certain.
That, um, it hasn't changed our relationship with time and that
we have a limited amount of it.
And that one of the, the distressing things about this media environment
and about like the uncertainty here is that it's stealing your time.
It's stealing your attention.
So instead of focusing on the things that matter to you, or thinking about
the future of your business, or spending quality time with the people that you
love, you've got CNN in the background.
You're taking out your phone and being, oh my God, what did Trump say next?
And I think all of that is conspiring to steal time away from people.
And so I, when I, one of the ways I think you have to be, or one of the
ways I've been trying to tell people to deal with this multipolar world and all
this insanity, and one of the ways I keep myself sane is protect your time.
And you need to erect defenses against the things that wanna steal your time away.
And you should have a very high threshold for what that looks like because it's
not just your job, it's literally the media that's wanting to steal
your time with clicks and attention.
It's literally the click bait.
That is causing you to not be fully present before.
So I know people don't listen to this for like me, like, you know, giving
them life advice or anything like that.
But when I, when I was speaking to that audience, it was just like, what
are the three things I'm certain of?
I'm certain the world is multipolar.
I am certain this conflict is not gonna be World War iii, and I'm certain that all
of this is just another way to waste time.
So stop wasting time and go do something productive with your
time, with your family, or with the cool technologies that are out
there or anything else, like spend.
Spend your time doing that rather than worrying about that.
Um.
And I don't know, I, I feel that way at the end of this particular war
too, which I didn't get to do that 'cause I had to spin out content.
To your point, the way that I attract people to some of what we're doing is when
you get this surge of interest from most people are not normally interested in the
world, and then suddenly the sister index goes off, you wanna make sure that you're
there providing those answers so that they can ask the next follow up question
when something happens and give them an objective sense of what's going on.
So like for me it's game time.
Um, but in some ways my.
My ability to compartmentalize makes it easier.
'cause it's just like, okay, like now we've got a ceasefire.
I'm gonna put the finishing touches on a, on a piece right here that I'm gonna hit
send on as soon as we get off the podcast.
And then I'm gonna take day off, I think.
I think I'm gonna go to the beach.
So
Rob Larity: there's a, I think it's in Liar's Poker where, um.
Michael Lewis was talking about when he was a young analyst, uh, and,
you know, on Wall Street, and he would go to this older guy and like,
there'd be big events all the time and say, well, should I, you know,
what should we doing, buying, selling this, blah, blah, blah, blah, blah.
And the older guy would just say, it's a bull market.
It's a bull market every time it's a bull market.
Just hold on.
And, uh, I was thinking about that.
'cause I think that's, that's the problem.
You know, as you say, like you have to do a lot right now because like everyone
understands a big part of what we're, what you do is drawing attention to the
work that you're doing elsewhere by sort of getting a little into the vortex.
But it's definitely not that way in terms of actually.
What we do from an investment standpoint.
And that doesn't make for good, it doesn't make for good media.
'cause I'm here every week.
It's a multipolar multipolar world.
Still multipolar still happening.
Yep.
All signs are go still going.
What are the implications?
How do you prepare for it?
Like, doesn't change that much, but that's, that's good.
'cause those are the, that's the definition of a big trend.
If we're here five years from now saying the same thing.
Jacob Shapiro: Well, and it used to be like there was a time in American
history where the media played that role, where the media was the touchstone,
where there were only three channels and there was a certain amount of
trust that you had in the people that was telling you what was going on.
And this is what I mean about I. Protecting time.
Like now, things have fractured and we're part of the fractured media environment.
Like we're two bros on a podcast, and I'm beaming on articles on a substack,
so I'm not throwing too much shade on it.
Um, but just to say like, you don't have those touch tones anymore, and
you have all of these different sources and now we have deep fakes and AI and
bots, so it's really hard to distinguish between what's real and what's not real.
But I think it is important to, to have those touchstones and to have
those centers of gravity, whether it's.
You know, your own family or whether it's the sources that you trust or
the ideas that you have about the world, and it's, it's difficult.
You have to be flexible enough to change your ideas about the world as
things around you change, but then.
Also to like put a stake in the ground and be like, but no, I
think this is what's happening.
So when I see all these things happening in the world, like I can digest
them, I can compartmentalize them.
I put a little, I put a little label on a box and I put them in my mental box,
and then I put them on the shelf when it's time to go, uh, do something else.
And I, I think our, I think the way our information diet is structured
right now, it's not like that.
It's just like.
Constant McDonald's being intravenously beamed into our cell phones, um, which
makes its way directly to our brains.
Like the idea that we're gonna have, like those, you know, the glasses and
things like that, that are gonna allow us to see the world through the AI
and the computer, like, God shoot me.
Like, I don't want anything like that.
I, I really just wanna throw out all of my devices for all those reasons.
I don't know.
Rob Larity: Well, I think in our small way we can play that role to some extent.
'cause like what you just described is a media environment where
there was no incentive to generate activity for the sake of activity.
Jacob Shapiro: Mm-hmm.
Rob Larity: And like if people are looking for good sources of information, I. Like,
you don't have to listen to us, but try to replicate the incentive structure of us.
Like we have an incentive to find truth.
And sometimes truth is boring and sometimes truth is, yeah, this isn't
a big deal, don't worry about it.
Like go back, go back Leah and just enjoy your day.
Like nothing to see here.
And that's sort of what the incentive of the media used to be when there
was no, you know, ad model and in competition and stuff like that.
'cause these were well-educated people who had a civic duty to, you know, kind of.
Say it as it is and what they, you know, all that stuff.
Um, so if someone is, is depending on clicks for their paycheck, then be wary.
But thankfully, like, I don't know, my, I think that's probably peaked.
Like, I think there's probably more sources of good analysis of, and
information of people who don't have that incentive and are just doing.
And have an incentive to find truth like us.
I don't know, maybe that's super rose tinted glasses, but,
Jacob Shapiro: um, I don't know.
It's, it's really hard.
Um.
I, I think it's hard because our phones are so embedded in our daily lives,
and even if you want that, like, you know, your phone is constantly pinging
you, whether it's with emails or social media or or things like that.
And even, even somebody like me who like is actively fighting against this
in my life, sometimes I find myself just staring at my phone and I'm
like, what, what am I doing right now?
Like, I've, I've already checked this inbox like 10 times today.
I need to check it again.
I like can't be sitting here in this moment like thinking about something else.
It's like I. Yeah, it, it's there, there's something about the ease
of having it there that, that, um, that makes it difficult.
Rob Larity: You need a Jacob.
I don't, I don't check my phone.
Like I, I barely kept up on what's going on in the last beat.
'cause I know if there's anything I really needed to know that you would let me know.
Jacob Shapiro: Yeah, I need it, Jake.
Okay.
Well, I'm just gonna send all of my articles to chat, GPT, and once, once
AI gets big enough, like I'll just have AI replace me and I'll, I'll
no longer be here doing my thing.
So.
All right.
Well, anything else you wanna tell the listeners, Rob, before we get outta here?
Rob Larity: No, go enjoy your week.
Everything is okay.
Sounds good.
Jacob Shapiro: Cheers.
Thank you so much for listening to the Jacob Shapiro podcast.
Uh, the show is produced and edited.
By Jacob Mian, and it's in, in many ways, the Jacob Show.
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