MAGGIE LAKE: Hello, welcome to the Real Vision Daily Briefing. It is Tuesday, March 1st, 2022. I'm Maggie Lake, here with Tony Greer, editor of The Morning Navigator newsletter, and Marko Papic, chief strategist at the Clocktower Group. Welcome to both of you. As we were just talking about, another really volatile day in the market.

Ukraine continuing to dominate the action. We have crude prices jumping, as much as 11%. Copper, aluminum soaring, the Swiss franc hitting a seven-year high. And you get the sense that this is really still unfolding, these moves. Marko, let's start with you. It's hard to wrap your head around the ramifications of some of these events happening really simultaneously. What's top of mind for you as this crisis unfolds?

MARKO PAPIC: Well, I think top of mind for me, and for every investor should be the fact that this is occurring in a very complicated macro environment. We've had wars since the Second World War, many of them, and I'll tell you this, 99 out of 100 didn't bother the markets at all. The one that did and that I keep referencing is the Yom Kippur War. It occurred in a macro context that was already inflationary, the Fed had been raising rates for over 12 months at that point, you had the dollar collapse after the Smithsonian agreement at the end of 1971.

That context was already pernicious. And you throw this supply shock from OPEC in 1973, that was just the cherry on top of an inflationary sundae. And that pushed us off into a recession at the time. I think the macro context is really important, even more so than geopolitics. And I'm the geopolitics guy, basically, in the markets. And I think that's something we all have to fear.

MAGGIE LAKE: And one complicates the other, doesn't it? Talk to me about how you see this. We're going to dive in with Tony about some of the market dynamics that are happening. But from that geopolitical point of view, how does this play out in the energy sector? We saw shale today following the move by BP, oil companies pulling out of Russia. We've got the nat gas situation, which is even worse and so extreme in terms of what we're seeing in prices. Where are we in this in terms of market reaction? And how do you see this playing out?

MARKO PAPIC: Well, I think tactically speaking, Russians are hitting against a wall of constraints, material constraints that a lot of Western analysts didn't think existed. But those constraints are really meaningful, and I think are going to make it very difficult for Russia to achieve its objectives, whatever those are. If it's to take half of Ukraine, basically east of [?], I think that's going to be extremely difficult for them to do. I do still think that there is an off-ramp at some point where the Russians basically declare mission accomplished, whatever they decide that is, and move on, basically use this as a punitive action.

However, while that may still be the case, there is a whole slew of other decision tree dynamics, branches on the tree that are really pernicious and one of them is that Vladimir Putin may be a lot more risk averse or less risk averse than Russia as a country. Russia, as a country, it had a lot to lose from this war, but he himself may not. And that means that he continues to drive forward with basically some sort of an occupation of Ukraine, which I got to tell you is an unfeasible scenario.

He's not putting in a puppet government in there. The United States of America had difficulty in Iraq. And that was a country where 60% of the population that welcome the US because it was ruled by minority Sunni dictatorship. There is no minority in Ukraine that's pro-Russia, not even in the east, not even the Russian speakers. And that's something that isn't really emphasized enough in the West.

We're looking at a prolonged insurgency, we're looking at complete loss of Russian exports, potentially, especially oil. And on top of that, you have an incredible subset of potential accidents. When you turn on the afterburners of a Sukhoi over Kyiv, you're in Poland in 17 seconds. We're talking potential accidents that can happen. Remember when Russia and Turkey got into that spat with a fighter jet that was shot down during the Syria operation?

We're here you're talking about OECD economies, you're talking about NATO countries. The subset of military accidents is vast. I think it's a mess. Again, I think the constraints are so large that Putin eventually figures things out and gets it off-ramp. But I don't think--

MAGGIE LAKE: Does Putin survive this, and does it matter?

MARKO PAPIC: I don't think there's any scenario where he survives this. I'll give him 12 months, and I'm taking under. Whichever scenario he takes, if there's an off-ramp, it's going to be a sour case in the median Russians' mouth. Even if they get off-ramp and declare mission accomplished, we've degraded Ukrainian military capability sufficiently to protect the Russian speaking population, blah, blah, blah, blah, you can create a narrative where this was a victory, but 12 months later, it's going to look bad because of the economic destruction in Russia.

The second option where he keeps going, I think, eventually, the Russian state wakes up and realizes how negative this is for Russia. I think he doesn't, but I'm not sure that really matters in the meantime. In the meantime, what matters is whether Russian military becomes aware of their constraints of trying to occupy a country that's double the size of Iraqi population in territory with a much, much weaker military than the United States of America, and actually numerically, less superior.

They went in there with 150,000 troops as if they're expecting a picnic. It's honestly a very haphazard approach.

MAGGIE LAKE: Yeah. Let me ask you, I'm curious if is there a scenario the damage that we see being done to the energy markets in terms of prices, of Russian supply taken off the market, is that easily reversed, say, in a scenario? Is there a best-case scenario and a scenario where Russia doesn't go along with it one way or the other, Putin sideline, they find an off-ramp-- can you turn that around again quickly? Or is the damage done and it's going to take a long time to get that supply moving? Where are we in that equation?

MARKO PAPIC: Well, remember, a lot of the Russian oil that goes to Europe is piped. And second, there's carve-outs and SWIFT to allow for energy export. That tells you everything in terms of the European unity. Now, that unity will get-- again, if this continues, and indiscriminate shelling of civilians continues, I think you get the worst-case scenario. If there's an off-ramp, then yeah, you don't need to lose any of the Russian exports over the next 12 months if there is an off-ramp within weeks.

Now, look, in 2008 Georgia, there was an off-ramp. And this is something that I would just say, I wouldn't be putting on any long-term bets right now. Because the 2008 Georgia scenario, which was a punitive operation, and then Russians pulled into South Ossetia and Abkhazia, the two regions they wanted, in that case, in the early stages of that war, and I know this because I didn't sleep for six days during that war, watching it very carefully. You didn't know which scenario you were in, total annexation occupation of the capital of Tbilisi or some punitive action.

And that's why I would just say, right now, we can't make these long-term bets. Obviously, this is all bullish commodities. There's reasons to be bullish commodities. Tony is going to [?] much better than I can, but I just think that we're still in that phase where we could be surprised three weeks from now with an off-ramp by Russians, either because pressure of Putin grew immense, or because he himself finally realized what the material constraints to this operation are. And as you can see from the field, they're pretty vast.

MAGGIE LAKE: Yeah. And playing out. Even though there's a lot of misinformation out there, there are also a lot of journalists there because of social media, in many ways, this is playing out in front of the world to see. We mentioned that oil complicates the geopolitical factors and certainly that's the case when it comes to India, which is a heavy oil importer, and China.

China's really interesting here, maybe not for the near term, but as we think about how this may change global geopolitics, and many people trying to figure out whether China and Russia are as close as we thought they were, whether China is not happy with this, you have a very different take on this, a very interesting take on this. Do you think China's peaked as a geopolitical power? That seems to be a very interesting-- talk to me about that proposition.

MARKO PAPIC: I think China's trapped in very many different ways. And we don't have to go into the details. Look, I think demographically, I think in terms of their household ability to keep leveraging themselves, I think investors just ignored the fact that basically, what China did in the last decade is massively leveraged its private sector. And I know other people have talked about this, but we're at the point where they're now facing an economy where any further stimulus is basically pushing on a string.

They're going to have to double down on investment led growth, and SOE led growth, the stuff that they are telling us, they're not going to do. And also, exports are the only really source of growth for the past two years and going to continue to be very important. China made a rhetorical nice treaty. Everyone cites this meeting between Xi and Putin, like someone should email me what concretely was done.

They said they love each other to hate NATO. NATO should have expanded, cool. Did Xi tell Putin he can go and indiscriminately shell cities? Did he tell him that he's cool with $200 oil? Hell no. I think Beijing is right now freaking out because if there is a global recession, they no longer have the lever of stimulating domestically. They're actually going to suffer more than anyone else potentially politically as well domestically, because what they've been doing over the last 18 months has hurt them in many different ways.

Yes, I do think that China has peaked, doesn't mean that they're going down. To be clear, they're still the second most powerful country in the world, but they are at peak. They're trying to resolve internal problems, they're going to be focused domestically. The last thing they want is the stuff that's going on. Also, I think one thing, just briefly, I want to mention, when you talk about a Russia-China alliance, let's just be very clear. They don't have the infrastructure between the two countries to make that reality.

There's some oil pipelines, there's some natural gas pipelines, but they're a joke. The latest pipeline Russians built to China is 27 BCM. Russia exports 200 BCM to Europe. And for you to switch all of that to China, you're going to have to spendhalf a trillion dollars pulling Yamal Peninsula natural gas to Beijing. That will be the greatest infrastructure project in the history of mankind.

I'm not saying they can't pull it off. I'm just saying it's going to take another 5, 10 years minimum for them to actually have this [?] that bind a genuine alliance other than just that rhetorical cleansing. Yeah, I'm not sure Beijing is happy at all. I think what it is, Russia and China were two teenagers. In a summer month, it's hot, they're on an edge of a cliff, looking down into a nice, cool pool.

And Russia looked at China and said, you're coming after me, buddy, right? And China said, right behind you, buddy. And then Russia jumped off. And China's like, any rocks down there? I hear my mom calling. That's what's happening right now in Beijing.

MAGGIE LAKE: That's a fantastic visual, that's going to stay with us and it does make a lot of sense. I'm curious about, bring us back to that macro picture, those macro dynamics you're talking about, overall, everyone grappling with energy already, inflation, different dynamic in China, where they're trying to pop some of those bubbles that have been created, when we're seeing safe havens where people can look for protection, certainly we've seen some of that and there are concerns about strains in the financial system and liquidity.

Do you worry about any of that? And you made an interesting comment about Treasurys and the fact that we're not seeing-- we have seen yields go down, US Treasury yields go down. Certainly, we were knocking on the door of 2% and the 10 Year backed down by 1.7%. Should it be lower given all the events that are unfolding and the extreme safe haven flows? Would you expect that to be lower? You seem to say it should have been and it's not for good reason. What are you watching there?

MARKO PAPIC: I think that commodities are the new safe haven. And this is something that when I talk to institutional investors, I actually talk about how like risk parity today, the bonds may have been replaced with commodities. I think that the bond market did rally in the last few days finally. After ignoring this conflict for basically three months, it finally woke up to it. But I think still those commodities are a clear play. They were even before.

And I think the macro context here that I go back to is that Yom Kippur War, where we basically already had a commodity supercycle for a number of reasons that Tony can expand on, the green agenda, lack of CapEx, stimulus, demand, supply. And I just think that over the next couple of weeks, we're going to have real good indication whether we're going to be facing our first geopolitical recession since that 1973-1975 or not, and I think a lot of that will depend on how fast oil prices rise, and whether that becomes pernicious to grow.

Now, you could argue that some people I really respect in the macro space, oil prices relative to net worth is actually really low because net worth of American citizens has exploded. But the problem is you can't cash in your stocks and your home equity to pay for oil. I guess you can but that's difficult. You got to use your disposable income. Yeah, I do think that we are in a very, very important moment.

By the way, the yield curve was telling us this before China and Russia. They weren't happy about what was going on with the Fed hawkishness, the long end wasn't really moving that high. And now, we have even more of a problem. I do worry that where this is getting us. If Putin doesn't pull a Georgie 2008 scenario, if this lasts a lot longer, then I do think we're facing a recession in 12 to 18 months.

MAGGIE LAKE: Marko, fantastic stuff. We need so much more time, but we are going to be covering this every day and trying to bring up some of these issues that aren't talked about enough. Thank you so much for that. We're going to shift you out and bring Tony in. Hopefully you'll stay and have a listen.

MARKO PAPIC: I want to hear what Tony is going to say.

MAGGIE LAKE: Yeah, go ahead. We got a lot to get through with Tony, so Tony, let's bring you in. And I can see Tony offscreen shaking his head. Commodities are the new safe haven. Is that how it feels for you? Maybe this was already happening.

TONY GREER: They're always a safe haven for me, Maggie, you know me.

MAGGIE LAKE: Let's bounce right off with a question. Because I think this speaks and I know you're watching some of the dynamics happening inside the market and I want you to go through them with us. But we got to an early question from Doug saying, Tony, can oil go higher? How do you manage this trade? And I think that's an interesting part of the question.

TONY GREER: Oh, that's a different question altogether than what's going on in the markets.

MAGGIE LAKE: Let's start with what's going on in the market because I know you're watching this.

TONY GREER: Okay. What's going on in the markets are spreads have gone batshit crazy today in response to taking Russian supply offline from the energy markets, I've got to put that into context, Maggie, because this is a little bit of a supernova if you're trading spreads, for example. Six-month calendar spread in Brent is now at $13 item. For some context, that was a $3 item to start the year this year. Six-month calendar spread in WTI is now a $17.50 item because there's no oil at Cushing at the moment.

That kicked the year off at $3.50. Just for some more context, that was a 25-cent spread when we were an energy dependent country under the last administration. I think that that's something that really clearly plays into how the world is going to shake out from here. It's extremely timely that all of this is exploding the day of a State of the Union address, where we're going to learn that cutting off pipelines, canceling drilling leases, spilling out your SPR $4 a go, all of that stuff has consequences in the oil markets.

We're now contending with a national gasoline average price of $3.60 a gallon up from $2 a gallon from right before Biden got elected. A lot of this is coming to a head like Marko said right now. And one thing I learned is that I'm going to start listening to Marko a lot more often because he's got a lot of great insight as to how this conflict is going to play out, really opened my eyes to some possibilities that I didn't know were possible.

But that's the story in the energy markets right now, Maggie, and as we've said and as we are seeing, higher prices in energy for longer mean higher prices in grains, higher prices in base metals. What's going on in the green and base metals markets? Both of them are breaking to new highs for the move, base metal markets are breaking out to historic never before seen levels. And this is all happening as we're supposedly about to pivot into a massive electric infrastructure to support energy.

And as we can see, and as Jared Dillian brilliantly captured in a tweet, wokeness is a peacetime luxury, and I think all of that is coming to a head on the screens right now. We can attack it in whatever angle you want to attack.

MAGGIE LAKE: Well, I know you're also watching some rotation that was happening today. What are you seeing there?

TONY GREER: Yeah, today's a really interesting day. We've got commodities, gold miners, industrial miners still rallying to new highs. The only thing in tech that's rallying is cybersecurity, that sector is hacked, because we're in this huge confrontation now. I think it's really relevant today that Bitcoin and Ethereum quote a bid as we're seeing obviously massive capital flight from the ruble. Crypto is doing cryptocurrency things and holding when people think that it shouldn't be holding its level.

As yields go higher, many of us think that crypto is going to be going lower. Today is an interesting