House Of Cards

In recognition of last week’s release of all 13 episodes of Season 2, we are reprinting – from our Chief Geopolitical Strategist, Marko Papic – an October 2013 review of the popular Netflix original series, House Of Cards.

House Of Cards

Anyone who has watched the TV series House Of Cards could quickly imagine how Francis J. “Frank” Underwood would resolve the ongoing government shutdown in Washington. Underwood, played by Kevin Spacey, is the Democratic House Majority Whip from South Carolina’s 5th congressional district. Congressman Underwood would likely combine several tactics to cajole and bludgeon his way to compromise:

  • Use ‘earmarks,’ i.e., spending on specific projects, to buy off reticent party members opposed to compromise.
  • Trade committee chairmanships like playing cards, rewarding compliant colleagues with juicy appointments.
  • Work with the opposing party behind closed doors to ensure that hold-outs within his own are irrelevant in the final vote count.
  • Threaten to make his party’s campaign war chest unavailable to House members who do not tow the party line.

Underwood is a figment of some very good imagination (and a healthy dose of inspiration from the original BBC series protagonist Francis Urquhart), but the fiction does not stop with the show’s characters. The entire series portrays a Washington political arena that no longer exists.

While House Of Cards has been praised for its realistic portrayal of D.C. lingo and social interactions, it actually gets the politics wrong:

  • Democrats are in control of both the presidency and the House of Representatives in the series, but that is difficult to imagine today. Republicans held on to the House even after losing the national tally for the House by over a million votes in 2012. This is a result of both redistricting and a natural advantage Republicans hold in rural districts, which are overrepresented in the House.
  • Republicans decided to do away with earmarks in 2011, thus taking away from the House leadership one of the most effective tools it has to keep its members in line.
  • Republicans aligned with the Tea Party can rely on funding from various conservative Super PACs, and therefore the Republican National Committee campaign war chest is far less relevant to them.
  • Tea Party members do not care about committee chairmanships.
  • The current House Majority Whip, Republican Kevin McCarthy, is largely irrelevant. Ted Cruz, the freshman Senator from Texas and a Tea Party darling, has more capability to whip the vote in the House than McCarthy.
  • And finally, the greatest fantasy of all, on par with hobbits and orcs in the Lord Of The Rings, is the concept of a white Democrat from South Carolina. The actual district that Frank Underwood supposedly represents as a Democrat, the South Carolina 5th, is staunchly conservative.

We still recommend House Of Cards because it does a good job portraying lobbyists and interest groups in Washington. It also illustrates the legislative process, the sausage making, realistically. In the series, “the American government” does not exist as an entity in and of itself, but rather as a setting where other characters pursue their interests. So while we recommend to our clients that they unwind with House Of Cards episodes after a long day at work, we also caution that they should not try to find Frank Underwood in the real U.S. Congress.

What Are The Major Macro Stories That Will Dominate In 2014?

BCA’s Chief Global Strategist, Chen Zhao, speaks at the 2014 Skagen Funds Conference in Copenhagen.

We are pleased to provide the video replay of Chen Zhao’s presentation earlier this month at Skagen 2014. In this 30 minute video, Chen addresses the major macro stories that will dominate in 2014, how these stories relate to financial markets, and concludes with some money-making ideas for the year ahead.

Icon_ppt Click here to download the charts referenced in this video.

Remembering Nelson Mandela

If the world had more leaders like Nelson Mandela, I would probably be out of a job.

Remembering Nelson Mandela

At BCA Geopolitical Strategy, our methodological credo is constraints over preferences. We focus on constraints to policymaker actions, not on their preferences. This methodology helps us dehumanize geopolitical analysis and focus instead on structural factors that constrain human agency. Such constraints can be quite macro – geography, demographics, military capability, access to natural resources, and technology – or relatively cyclical – domestic politics, economic outlook, shifts in trade patterns, etc.

Every decade or so, however, a policymaker faces a situation in which constraints appear weak, allowing preferences to take over. These can be dangerous moments, especially if ideology or dogma influences decision-making. More often than not, policymakers in these situations overestimate their power and overreach. Nelson Mandela faced such an opportunity and yet chose to constrain himself and his allies with humanity, respect for his adversary, and pragmatism. This was a surprising choice.

South Africa in the late 1980s and early 1990s appeared to be on the edge of a civil war. Mandela’s African National Congress (ANC), today the ruling party of South Africa, was then a national liberation movement for which armed struggle was a central component of its identity. Mandela was also an important leader in the ANC’s military wing, Umkhonto we Sizwe. With the end of the Cold War, the apartheid regime realized that the writing was on the wall. In other words, it would no longer be able to parlay its role in the superpower conflict into support from the West for its regime. It had to negotiate.

The negotiations between the ANC and the National Party (ruling party of the apartheid government) took place in an environment of violence and serious tensions. Negotiations broke down several times due to massacres that the ANC blamed on the government. Nonetheless, Mandela refused to use the various incidents as a reason to ratchet-up tensions, and instead appealed for calm, using crises as opportunities to galvanize support for a political, and thus peaceful, transition.

Forecasts of South Africa’s future were almost uniformly bleak in the 1980s. Unlike the National Party, the ANC was not really constrained. It could have sought retribution for the decades of systematic racial discrimination and it could have demanded massive property redistribution. I admit that, had I been in the position to make my own forecast, our constraint based methodology would have probably led to the same pessimistic conclusion for the country. Mandela, however, was eminently unpredictable and the ultimate path he followed averted a war that most would have chosen in his place. This is what makes him such a profound historical figure.

A BCA [Peter Berezin] Double Feature

BCA Berezin Double Feature

When Was The Last Time You Read The Bank Credit Analyst?

Published continuously since 1949, The Bank Credit Analyst provides a monthly forecast and analysis of trends in major investment markets, with particular emphasis on equities, business conditions, inflationary trends, interest rates, commodities and currencies.

While we are confident there are very few investment professionals in the industry that have not heard of the little grey book, over the past few years, Managing Editor Peter Berezin has pushed the boundaries of the report to include both global coverage and non-consensus, unconventional, big picture themes. Haven’t read The Bank Credit Analyst recently?

We are pleased to release two of the most highly acclaimed Special Reports of 2013:

About The Bank Credit Analyst:

Competitive Advantage

Combines technical and fundamental analysis to deliver a multi-dimensional perspective on the investment outlook.

 Draws attention to the major thematic ideas that are shaping investment strategy while providing rigorous macro analysis in an accessible and informative manner.

 Delivers thought-provoking discussion of key macro drivers affecting global markets, with a focus on identifying underlying investment risks or opportunities.


MONTHLY REPORT: BCA’s original monthly publication: For over 60 years, the Bank Credit Analyst, often known as the little grey book, has provided big-picture insight and analysis of major investment trends, covering equities, fixed income, currencies and commodities. Clients receive a monthly report (via email) on the last business day of each month.

SPECIAL REPORTS: In addition to discussing key macro developments over the preceding month, each issue contains a special report that focuses on a particular area of interest to investors. Past topics have included the Debt Supercycle, productivity growth, demographics, and the outlook for monetary policy and inflation.

ANNUAL OUTLOOK: Every December, clients receive a special issue discussing the outlook for the coming year. Drawing on the collective wisdom of BCA’s Chief Strategists, this report highlights their highest-conviction calls across all asset classes.

Interested in a short trial to The Bank Credit Analyst? Click here.


Managing Editor, Peter Berezin:

Peter Berezin joined BCA Research in 2010, as a Chief Strategist and member of the BCA research team. Prior to joining BCA, Mr. Berezin spent three years as a Senior Global Economist and Market Strategist with Goldman Sachs in New York. Prior to joining Goldman Sachs, Peter spent seven years with the International Monetary Fund, where he was involved in program negotiations and surveillance in a variety of countries, with a special focus on bank restructuring in Asia. He was also a member of the IMF’s Research Department, where he contributed to the Fund’s flagship publication, the World Economic Outlook. He has extensive experience in analyzing global economic and financial market trends, and has been widely quoted in various media outlets. Mr. Berezin has a Bachelor of Arts (Economics) from McMaster University, a Master of Science (Economics) from the London School of Economics, and a Ph.D. in Economics from the University of Toronto.

Additional past 2013 Special Reports have included ( all links require subscription!):


Forecast and analysis of trends in major investment markets, with particular emphasis on equities, business conditions, inflationary trends, interest rates, commodities and currencies.

Interested in a short trial to The Bank Credit Analyst? Click here.


Don’t Ignore Doctor Copper

A sneak peek into the weekly report from the ever fabulous Dhaval Joshi, Chief European Strategist, BCA Research.

But first, thanks to our friends at Metal Bulletin for the following interview!

Key Points:

  • Dr. Copper is still doing an excellent job pinpointing the global growth cycle. But the copper price has been unusually bad at predicting the stock market.
  • Speculative position: simultaneously buy deep out-of-the-money 1-year options, calls on copper, puts on the DAX. One of these options could expire worthless, but the other could multiply several times over.
  • Neutralise any big euro area periphery versus core equity position. The valuation discount is no longer sufficient compensation for the extra risk.
  • The Netherlands stock market (AEX) offers an attractive structural valuation to risk trade-off.
  • Buy the aggregate euro area bond as a core long-term investment. In a low interest rate and disinflationary world, a 3.5% yield and half the volatility of a comparable U.S. T-bond is an attractive combination.



They say that copper has a PhD in Economics – for the metal’s uncanny ability to pinpoint turning points in the economic cycle. The rationale is simple. In the modern global economy, copper is everywhere. The average house contains 70 kg of copper pipes; the average car contains 35 kg of copper wiring. Furthermore, copper is used extensively in power generation, power transmission, industrial machinery, and of course electronic goods – as well as to make the important alloys brass (with zinc) and bronze (with tin). Given this ubiquitous use, many people understandably consider the price of copper as the ultimate real-time indicator of world demand.

But is it still right to trust Dr. Copper? Several analysts have warned of potential misdiagnoses. Clearly, the price of copper is a function of its supply (including inventories) as well as its demand. And the analysts claim that some unique dynamics of copper’s supply and demand might be to blame for the recent softness in its price.

Indeed, earlier this year even the International Copper Study Group (ICSG) claimed that “anecdotal evidence suggests that unreported inventories held in bonded warehouses in China increased significantly during 2012”.* The point is that the subsequent unwinding of these large hidden Chinese supplies might be weighing down on prices through 2013 even with robust demand. Other analysts point out that as plastic PEX pipes replace traditional copper plumbing in homes there will be an inevitable structural drag on copper demand.


*From the ICSG Press Release issued on March 21, 2013

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