Todd Mariano: Turkey Greater Risk than North Korea

With geopolitical uncertainties injecting more volatility into the markets, Financial Sense Newshour sat down with Todd Mariano at Renaissance Macro to get his thoughts on North Korea and other hot spots around the globe, including Turkey, which, he said, is one of the greatest and overlooked concerns right now.

Here's what he had to say in our recent podcast, which aired Saturday on our site and on iTunes (see Art Hill on Technicals; Todd Mariano on N. Korea, China, and Geopolitics for audio).

Is Nuclear War Imminent?

The short answer is that no, it isn’t, believes Mariano.

What we’re observing is that markets are reacting to uncertainty, specifically due to the shifting approach Washington is using to engage with North Korea, he noted. However, the situation really hasn’t changed all that much from a policy perspective, even under the new administration in Washington.

“What markets are really reacting to amounts to headline risk because of the comments that the president made,” he said. “The way I think this goes is certainly not a preemptive strike by North Korea. No one understands better than the North Korean military and Kim Jong Un that a preemptive strike coming from them would spell the end of the regime.”

It’s important to remember that Kim Jong Un’s regime is most concerned with its own survival. This is why Kim Jong Un has so doggedly pursued a nuclear program.

If that assessment is accurate, while his behavior may seem irrational to us, in the context of preserving the regime, it’s actually quite rational in terms of having a standoff weapon that would preclude regime change.

Venezuela’s Growing Dictatorship

Another area that's been getting heightened attention is Venezuela, especially in terms of its potential impacts on the oil market.

We’ve seen the Maduro government in Venezuela become increasingly authoritarian, and this may have direct effects on oil, especially within the United States, given that we are the top buyer of Venezuelan crude oil. Many Gulf Coast refiners are set up to process heavier, medium grade crude from Venezuela, and have missed out on the shale revolution at home as a result.

Tensions have increased recently with the vote held in Venezuela to set up a constituent assembly, which amounts to a subversion of democracy, Mariano noted.

“The constituency assembly is certainly a new low for Venezuela,” he said. “What we’ve seen there is a slow-motion formation of a civil war. I wouldn’t yet call it a civil war, mainly because it’s more political opposition at this point.”

This certainly amounts to a push toward a dictatorship in Venezuela, though, he noted. We just haven’t seen armed opposition contesting territory there yet.

“The government retains a monopoly on the means of violence now, which in political science is generally the hallmark of a state,” he said. “The opposition is mainly a popular uprising. … (Civil conflict) could be simply in formation, and we’re waiting for it to be categorized as a hurricane … but I don’t think that we’re there yet.”

Turkey Moving to Theocracy, ISIS Winning Hearts and Minds

Turkey is one of the greatest geopolitical concerns right now, but this hasn’t been mirrored in markets yet. Erdogan’s Turkey has moved more towards a theocracy and an authoritarian system, Mariano noted.

“In the Middle East, Turkey will always have a prominent and weighty role to play,” he said. “Syria is a multifaceted conflict, but in a few of those facets, Turkey is an important player at the table, and that won’t change in the near future.”

For the West to be in conflict with Erdogan is a distressing geopolitical signal. How exactly this will affect financial markets is unclear. But the issue looms over Western policy as we begin to envision what the future of the Middle East will be going forward.

In Syria and other parts of the Middle East, though it appears ISIS is losing ground and may not control any territory much longer, the real threat of that group lies in its ability to radicalize others already in the West.

“The fact that we’ve seen ordinary citizens in (the West) radicalized from afar does not represent a strategic threat to the United States,” Mariano said. “But it’s certainly a worrying signal, one that’s far harder to combat than the folks on the ground in the Middle East.”

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