Jacob L. Shapiro: Hello everyone, welcome to another Geopolitical Futures podcast. I’m Jacob Shapiro, I’m joined by Xander Snyder. I’m back from Moscow, Russia. Back to home in Texas and it’s sunny and it’s nice. Xander where are you podcasting from today?

Xander Snyder: Just in Los Angeles, nothing as exciting as Moscow.

JLS: Just in Lost Angeles. Well I’m not in Moscow anymore so I can’t say that I’m exciting right now. But it’s good to be back and good to be back on the podcast. It is a busy month here for us at Geopolitical Futures. Most people slow down in December and we speed up. We have put out our 2018 annual forecast and I believe either I think today Xander we published our 2017 report card, is that right?

XS: Yeah I believe the Deep Dive e-mail just went out.

JLS: Yeah. So if you want to go through and see all of our grades for last year’s forecast, you can go check out that piece. But we thought we’d just take a couple highlights here and talk about the year was and what we predicted and what we didn’t predict and we predicted wrongly.

So where would we start Xander? If you’re taking a step back and thinking about 2017 and what we were doing this time last year and what we were predicting this time last year. What do you think was our most insightful forecast that listeners need to know about?

XS: I think before we even get to that, it’d be useful for folks who maybe aren’t as familiar with what we do and the forecast just to give a very quick overview of what the scorecard is.

At Geopolitical Futures, we don’t just write about what’s going on day to day. We use a certain approach, geopolitical analysis, to make predictions every year. We also have a longer-term forecast and at the end of each year, we grade ourselves. So we don’t just let the things that we wrote that turned out not to be true fade into the internet black hole. We will bring that back up and say look we got an A or a B or a D or an F. So this is what just published and this is kind of what we’re going to be talking about.

Now in terms of some of the forecasts that we made last year that kind of turned out to look pretty good at the end of 2017, one of the hits was the increase or rather the continuation of nationalist movements and calls for new independence referendums in Europe. This is something that we forecasted that clearly was seen in 2017 between probably the most publicized referendum in Catalonia in Spain to the referendums in Veneto and Lombardy in Italy. There were some not outright referendums but calls for some in New Caledonia in France. And even within the U.K., we see some of the divisions within the actual countries in the United Kingdom impeding some of the Brexit negotiations. So that’s one that we called last year that really seemed to come to fruition throughout this year.

JLS: Yeah and I think it’s a good example because I often find when I’m explaining you know what we do for a living to my grandmother or something. She asks me well did you predict Brexit or did you predict Trump’s election? And you know the tools in our toolkit don’t allow us to predict those type of things. What they allow us to predict are the impersonal forces that are shaping not just regions but really the entire world.

And I think you’re right that it’s not just nationalism, I think it’s also just there’s a real dissatisfaction with the European Union and its ability to respond to everything from economic to political to social problems across the block. And you’re beginning to see you know the EU’s ability to keep a clamp on all that stuff down, waver a little bit.

And I think this leads, this is one of those forecasts where it’s not like we forecast it in 2017 and now it’s going to go away and we expect a new direction in 2018. I think we expect 2018 to be similar. I don’t know that it will manifest in secessionist movements, apparently that’s a hard word to say. But I think the prediction for us in the year ahead is that we will really see this start to break into blocks between Western and Eastern Europe.

Now we can’t speak about Western and Eastern Europe as monoliths. But I think one of the centers of gravity to watch in Europe for the year ahead is to watch A: the relationship between Germany and Poland, which has already gotten tense but that I expect to get tenser. But then also to watch the reaction of other countries in Europe to what has happened in Spain and what happened in Catalonia. You know Catalonia is not the only region in Europe that has some claim on its own independent nationhood. And you can bet that there are countries in Central Europe and Eastern Europe and Northern Europe that have to think very seriously about the political legitimacy of their regimes going forward.

XS: Yeah and going back to just the very beginning of what you said and I think it’s a good point about not oversimplifying these big trends into a single word like nationalism and it’s certainly a trap that I fall into. It’s a trap that I think everyone falls into and that these words can both act as simplifying devices that can both enable conversation and crutches that both oversimplify it to the point where it’s vulgar and not accurately describing reality so. That’s just something that is worth keeping in mind. And that’s easier to catch when you’re writing than when you’re talking for example.

But I definitely think you’re right. None of these forces that we describe in our writing and that we use to point specific developments in certain parts of the world end abruptly, right? Time is a continuum and we expect Europe to continue to face challenges in the next year. Germany and Poland as you mentioned have gradually diverting interests.

A piece that will be published tomorrow by one of our colleagues wrote on a new military deal between the U.K. and Poland. And the dollar amount was somewhat nominal, it was like 10 million pounds. But the point is the U.K. has for hundreds of years, up until really after WWII, pursued a policy of sort of aligning with whichever power or whichever state on the European continent that it needs to with the time to secure its own objectives. And this just seems like a glimmer of that strategy reemerging in the 21st century.

JLS: Yeah I think that’s exactly right. I think that’s exactly the stuff that we have to keep focused on because it’s possible to get lost in some ways with the vast number of directives that come out of Brussels constantly and to think that the E.U. is working just fine. But on the one hand you have the United Kingdom getting ready to exit. On the other hand, you have Poland chafing against some of Brussels demands. You’ve got other countries that are beginning to cast a little bit of a wide eye. Yet if you got to any kind of business journal for Europe, you’ll see various policies that were passed or documents that were passed that everybody agreed to that are going to be instituted. So it’s an important thing I think in terms of where you focus your attention.

I’ll shift gears a little bit and I’ll just say that I think that the forecast that I think we nailed most accurately was China, was developments in China. We really said two things. Number one, we said that Xi Jinping was going to become basically, he was going to solidify his dictatorship in China. That was not such a novel forecast. I read a number of China watchers who thought the same thing.

I think we went an extra level there though and pointed out that Xi’s coronation, if you will forgive the little bit of hyperbole, was really a symptom of Chinese weakness more than it was an issue of Chinese strength. And I have felt like a lot of the commentary that I have read after the 19th party congress and after Xi has really solidified his position has focused on China’s immense potential and all of the things that China is going to do to race ahead of other powers in the world whether it be Russia or the United States.

And the fact of the matter is when you look at what Xi had to do, he really had to box out his rivals because the policies that he’s going to have to take in the next couple years to bring some kind of logic and stability to the Chinese economy are going to piss off a lot of people. And he’s going to need every bit of power that he’s amassed in order to deal with it.

You know this is not somebody that’s being a dictator just for being the sake of being a dictator or who just likes the feel of power. This is somebody who is really living in the shadow of Chinese history where you know China will go through these phases of internal consolidation and power and you know an emperor figure or Chairman Mao-type figure has to rise and bring kind of order to China’s immense diversity and you know whether it’s within a couple decades or centuries eventually then China comes apart and then this cycle repeats itself again. So I think that was one of the forecasts that we really added something to the discussion out there on.

XS: I think that’s right and the prediction that Xi was going to become more dictatorial was based on the premise that China faces these big problems and to solve them you are not going to be able to do it with modest measures. You’re going to need really big reform initiatives as well.

And something that we’ve observed following the party congress in October is really just a slate of multitude of new rather grand sets of reform, so a lot of these are in the finance sector because so much of China’s problems, not just economic problems but social problems are tied up in the financial system in China. And we’re not talking about the Central Bank increasing or decreasing liquidity a little bit here or there.

But after the party Congress, you’re talking about really significant reforms in terms of how banks can act, how they treat certain types of securities and then there are housing reforms that have created a fair amount of social discontent. And it seems they tried to rush some energy reforms that left a lot of poor individuals in the countryside without heating. And they kind of backtracked on that and realized that maybe that one was too quick.

Point is, Xi is already attempting to use this consolidated power. He’s trying to use it as quickly as possible. I think because he realizes now’s the opportunity and he’s racing against a clock.

And if that’s the highlight, then perhaps the blight, the outlier in East Asia that we just really whiffed on that we should mention is North Korea. What happened in North Korea, Jacob?

JLS: Yeah I guess we should stop patting ourselves on the back. No we did not forecast North Korea correctly. Our original forecast last year was that North Korea would continue with various missile tests and there would be a lot of diplomatic outrage but that there really wouldn’t be any war and that really North Korea would not be a huge geopolitical import on the world. Now obviously that was wrong.

We’ve spent a lot of time thinking about lessons learned on this one. I think the main reason we messed up there is we just really didn’t have a good sense of North Korea’s capabilities. We did not see how far they had progressed in their technology. We didn’t realize that they had made enough progress that they were going to begin testing U.S. redlines on what was acceptable from a U.S. perspective.

Now to add insult to injury, you know we realized fairly early on in the year that we were off in North Korea and that we needed to course correct. And so in March we did course correct and we said ok we missed on this, we now expect that the United States is going to strike North Korea probably by the end of the year. And obviously we whiffed on that too.

So we’ve put ourselves in the unenviable position of having forecast war and peace on the Korean peninsula this year which I guess depending on how you look at it means we’re right cause no matter what we forecast something right, yeah? (Laughter) But no, that’s not how we like to do things.

And I would say that the main reason we overcorrected was because we failed to comprehend just how opposed South Korea was going to be to a preemptive U.S. strike against North Korea. South Korea would obviously bare the brunt of the casualties in such a conflict. But you know we really thought that South Korea was going to go along with whatever the United States wanted. And we have seen the opposite.

We have seen South Korea push back and do just about everything it can to dissuade the United States from attacking North Korea. And attacking North Korea and taking out the nuclear program was already going to be a very difficult proposition, much more difficult if you don’t have the support of South Korea. So yeah pretty much any way you slice it or dice it, we did not do a good job with North Korea this year.

XS: So there are some hits, there are some misses and then there are some lessons that we learned that weren’t necessarily related to getting something right but rather how we craft the forecast in the first place. And terminology, phrasing is certainly something that every forecaster is going to have to struggle with to a degree. Because you do need to be precise in your wording. Because if you are so amorphous that your forecast could mean almost anything then it’s not really a forecast.

And I think this is something, well this is a lesson that we learned when it came to our forecast in Central Asia, which was phrased basically as this region will destabilize. But what is destabilization? It could mean so many different things. And Jacob you wrote the introduction and the overview to the annual scorecard and you discussed this a little bit more in-depth. But we had a conception internally of what destabilization meant and we communicated it essentially so poorly in our forecast last year that it’s hard to really take that much from.

So what are the lessons learned there? What are you going to try to do differently in the future?

JLS: Well it’s a good point and we’ve already really tried to fix that problem so if you read this year’s 2018 forecast it is shorter than last years. And we put it through, we always put all the pieces that publish through a significant editing process. But we really took this one and dipped it in acid more than a couple times to try and make sure that we were very clear about what we were saying. And you’re right, sometimes the biggest obstacle to a forecast is either being too wishy-washy in your wording or wanting to caveat too much. Obviously as a forecasting company that makes its money on being able to properly predict the future, we hate it every time we get something wrong. But I can also say that for all of us here, we’d rather attempt and get it wrong than try and make something so wishy-washy that it doesn’t actually mean anything.

On the Central Asia issue and you and I have argued about this and there’s been a lot of internal argument about this. But you’re right like the word destabilize is really not a helpful one. And we were able to get together as a group and say you know destabilize what that really meant for us was that a number of forces are acting on these Central Asian states and we are watching the political regimes here become more fragile.

And we are seeing these little blips that these political regimes are unable to respond to the challenges that these countries are facing. And this really threatens to destabilize a region that in geopolitical theory and also in reality is really at the center of many global developments, even though I don’t think that most people think of Kazakhstan and Uzbekistan and these other countries as being the center of gravity.

XS: I think that’s right. So while on the one side we’ve seen decreased tax revenue due in part to lower oil prices and we know that the largest country Kazakhstan for example at one point is going to face a serious secession issue because Nazarbayev, the country’s ruler basically for the last three decades, is getting pretty old at this point.

So those are the things that we’ve seen throughout this year that are not going away anytime soon. But I think something useful to take away from that lesson is that there are often buzzwords that are used everywhere, right? Destabilized, backlash and it’s just always useful to question just exactly what these terms mean in terms of specific actions. So we believe that we’ve done a lot better in our 2018 forecast. And we hope you’ll check it out. It’s all available right now online at http://geopoliticalfutures.com.

JLS: Yeah and I’ll just before we close Xander, I’d like to talk about one more it’s hard to call it a miss. But we have been tracking what was the Islamic State for a couple years now and it has been the center of gravity in the Middle East. And one of the things we said in 2017 was that we did not expect the Islamic State to be pushed out of Raqqa by the end of the year.

This is an example of the type of thing where timing is everything and where it sort of becomes difficult to think about like forecasts you know on a year basis. It’s actually fairly arbitrary to say ok from this January to this December these events and these developments are going to happen. Obviously we have to pick some kind of time thing.

But that’s an example of a forecast where we did have a sense of what was going on and we accurately predicted how the Islamic State was going to fall apart. And what pressures it was going to come under and who it was going to come under pressure from. But that was just a case of we underestimated that by about three to six months we thought the Islamic State would hold out for about three to six months longer than they actually did.

So we didn’t give ourselves a great grade on that forecast because in this business timing is really everything. But I also just want to point out there that you know it’s not always just so easy as identifying the broad forces.

Sometimes you really have to be able to drill down into the specifics to make more specific determinations about what’s going to happen. And that happened to be one forecast where even though we had everything right, even though we had everything arrayed in front of us, we just kind of misjudged the capabilities of the Islamic State and more importantly I think the capabilities of the various forces that challenge the Islamic State.

XS: I think that’s right and if you want to check out some of these forecasts in greater detail. The one on ISIS that Jacob just mentioned is number 38 and 39. And all of the forecasts are available online on our scorecard and they are numbered for easy reference. So be sure to go to http://geopoliticalfutures.com, check out the 2018 forecast, check out the 2017 report card, see how we did and stay tuned for next year.

JLS: Exactly and happy holidays to everyone out there. Merry Christmas. Happy Hanukkah. Happy whatever other holidays I have forgotten that you are all celebrating. We appreciate you and we’ll see you out there.

Xander Snyder
Xander Snyder is an analyst at Geopolitical Futures. He has a diverse theoretical and practical background in economics, finance and entrepreneurship. As an investment banker, Mr. Snyder worked in corporate debt origination and later in a consumer-retail industry group at Guggenheim Securities, participating in transactions ranging from mergers and acquisitions, equity and debt capital raises, spin-offs and split-offs to principal investing and fairness opinions. He has worked on more than $4 billion worth of transactions. He subsequently co-founded and served as CFO for Persistent Efficiency, an energy efficiency company that used cutting-edge technology to create a new type of electricity sensor for circuit breakers and related data services. In his role, he was responsible for raising more than $1.5 million in seed capital and presented to some 70 venture capital and angel investors in the process. He also signed four Fortune 500 companies as customers, managed all aspects of company accounting, budgeting and cash flow, investor relations, and supply chain and inventory management. In addition to setting corporate strategy, he helped grow the company from two people to a 12-person team. As an independent financial consultant, Mr. Snyder wrote an economics publication for a financial firm that went out to more than 10,000 individuals and assisted in deal sourcing for a real estate private equity fund. He is an active real estate investor and an occasional angel investor. Mr. Snyder received his bachelor’s degree, summa cum laude, in economics and classical music composition from Cornell University.