Latest / Merryn Talks Money / Argonaut’s Barry Norris Says Invest in Argentina and the US

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Argonaut’s Barry Norris Says Invest in Argentina and the US · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: Welcome to Meren Talk's Money, the podcasting whish people who
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Speaker 2: know the markets explain the markets. I'm Maren sum Up Web.
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Speaker 2: This week Barry Norris, the founder and chief investment officer
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Speaker 2: of Argonaut Capital Partners, joins me. We discussed what he
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Speaker 2: calls the failing energy transition, why it looks like the
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Speaker 2: UK and Europe are continue to go through very tough
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Speaker 2: times for many years to come, what direction he expects
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Speaker 2: markets to go in the US and abroad, and why
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Speaker 2: his strategy is country specific rather than sector specific. We
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Speaker 2: also talk quite a lot about his portfolio, what he holds,
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Speaker 2: what he doesn't hold, and why. Barry, thank you so
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Speaker 2: much for joining us today. HUS really appreciate you coming again.
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Speaker 3: Pleasure now, Barry.
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Speaker 2: Last time you came on, we had lengthy and fascinating
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Speaker 2: chats about the energy transition and about the history of
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Speaker 2: all energy transitions, and I found it absolutely fascinating, very informative.
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Speaker 2: I don't when we're not going to run through everything
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Speaker 2: again today, although we are going to talk about the
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Speaker 2: energy transitions. So I just want to start by saying, listeners,
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Speaker 2: I want you to go back and listen to the
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Speaker 2: last podcast with Barry, because we're not going to talk
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Speaker 2: about everything we talked about them, but it's really useful background,
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Speaker 2: so please go back and listen to the last one
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Speaker 2: as well as this one. Right, that's out of the way, Barry.
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Speaker 2: While I was reading through some of your materials before
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Speaker 2: we got started, and I was looking at one of
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Speaker 2: the fact sheets for your Absolute Return Fund, which by
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Speaker 2: the way, is performing brilliantly, I think, congratulations. One of
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Speaker 2: the things you say is that you hadn't expected the
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Speaker 2: labor government to be quite so bad for the UK
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Speaker 2: quite so quickly. You thought there'd be a bit of
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Speaker 2: a honeymoon period. That hasn't happened. Has it at.
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Speaker 4: Least made some noises about being pro business, So some
2:02
Speaker 4: of us in the in the equity market were always
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Speaker 4: a bit more skeptical about them reverting to the true colors.
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Speaker 4: And I think the first thing they did was to
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Speaker 4: put taxes up on the productive economy and reallocate that
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Speaker 4: money to the unproductive economy, giving public sector workers big
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Speaker 4: pay rises with and demanding nothing in return in terms
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Speaker 4: of productivity gains. And of course one of the biggest
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Speaker 4: problems in the UK economy is just the sheer size
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Speaker 4: of government at forty six percent of GDP, which is
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Speaker 4: now roughly, of course, the same size as the private sector,
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Speaker 4: having been well having previously twenty years ago the private
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Speaker 4: sector being twice the size of government. And so this
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Speaker 4: lack of productivity growth in the public sector is just
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Speaker 4: amplified by this kind of behavior and putting up the
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Speaker 4: tax burden on the diminishing private actor, even though the
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Speaker 4: government says it's interested in economic growth, tells you all
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Speaker 4: you need to know about the next five years and
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Speaker 4: where the UK economy is going, and it is.
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Speaker 2: An extraordinary thing. I just want to repeat what you've
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Speaker 2: just said to everyone genuinely understands that we are at
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Speaker 2: a point where the public sector in the UK is
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Speaker 2: as big as the private sector in the UK. So
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Speaker 2: the private sector finances the public sector, and the private
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Speaker 2: sector is financing something as large as itself. It's an
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Speaker 2: extraordinary burden to expect productive employees and productive companies to carry,
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Speaker 2: isn't it?
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Speaker 3: It is?
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Speaker 4: And you know, I think a few years ago I
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Speaker 4: wrote a piece on the nineteen seventies reducs and how Britain,
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Speaker 4: indeed the global economy was going to relive many of
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Speaker 4: the problems from the nineteen seventies, and actually, in hindsight,
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Speaker 4: I was wrong, and I did that generation of in
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Speaker 4: the seventies of disservice, because what we actually have is
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Speaker 4: all of the worst things about the nineteen seventies without
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Speaker 4: one of the crucial things that in the seventies they
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Speaker 4: actually appreciated, which was the need for cheap and reliable energy.
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Speaker 4: And I think in the nineteen seventies in the UK
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Speaker 4: we moved away from imported oil and indigenous coal to
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Speaker 4: North se oil and gas production, which of course was
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Speaker 4: one of the main reasons for the subsequent economic boom
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Speaker 4: in the nineteen eighties and nineteen nineties. And we did
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Speaker 4: that not because coal was unreliable physically like wind power is,
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Speaker 4: but actually because the unionized labor that was producing coal
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Speaker 4: was politically unreliable, and they went on strike in nineteen
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Speaker 4: seventy four, holding the country to ransom. With the free
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Speaker 4: day week resulting.
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Speaker 2: We're about to redo the seventies in terms of a
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Speaker 2: lot of policy, but without the one thing that saved
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Speaker 2: us in the nineteen seventies was a cheap which was
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Speaker 2: a cheap and easy supply of energy. From an intensely
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Speaker 2: efficient source.
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Speaker 4: Yes, we were at least paving the way for Norse
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Speaker 4: oil and gas in the nineteen eighties, even if production
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Speaker 4: was very low in the seventies. But I think what
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Speaker 4: we have now is, you like, this double whammy of
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Speaker 4: state socialism and the lip service to capitalism and to
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Speaker 4: the profit motive. But at the same time we have
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Speaker 4: this real problem which politicians don't seem to understand. The
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Speaker 4: energy transition, which transitions away from cheap and reliable fossil
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Speaker 4: fuels to unreliable and expensive renewables or nuclear has left
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Speaker 4: us with the highest electricity bowls in the whole of
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Speaker 4: the world. If you look at electric prices in the
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Speaker 4: UK at the moment, they are three times what they
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Speaker 4: are in the US, and they're eighty percent above the
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Speaker 4: IEE A medium. They're up three hundred percent in the
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Speaker 4: last five years and five hundred percent over the last
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Speaker 4: twenty years. And I'm sure you know everybody listening to
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Speaker 4: this podcast will appreciate how much their electricity bills.
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Speaker 3: Have gone up.
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Speaker 4: But imagine if you're an industry that needs cheap electricity,
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Speaker 4: like a steel company or a fertilizer company, or even
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Speaker 4: an AI data center, and that just makes you tremendously
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Speaker 4: uncompetitive and perhaps unlike the nineteen seventies where currency devaluation
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Speaker 4: might help make manufacturing industry competitive again, when your electricity
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Speaker 4: prices are free times that of the world's economic superpower
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Speaker 4: in the US, you need an awful lot of currency
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Speaker 4: depreciation until you become competitive against.
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Speaker 2: And just be clear, Barry, you think your analysis suggests
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Speaker 2: that those rises and electricity prices in the UK are
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Speaker 2: almost entirely down to our rush to net zero and
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Speaker 2: the massive subsidies that we are paying out to solar
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Speaker 2: and to win and the attempt to get our grid
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Speaker 2: in a state where it can cope with the energy
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Speaker 2: that comes from those renewable sources.
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Speaker 4: Yes, so today we have three times we have. Our
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Speaker 4: electricity prices are three time those in the US before
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Speaker 4: we started on this road to net zero, they were
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Speaker 4: roughly similar. In the UK, we have electricity prices that
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Speaker 4: are eighty percent above the IEA median And I know
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Speaker 4: lots of renewable fans out there will say it's all
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Speaker 4: down to Putin's war and UK and the gas price.
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Speaker 4: But the gas price is that Britain's gas price is
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Speaker 4: obviously more expensive, if than it is in the US,
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Speaker 4: but it's the same price as everywhere else in Europe,
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Speaker 4: and it's not too much higher than what it is
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Speaker 4: in the IEA. So that difference between the gas price
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Speaker 4: and the electricity price is purely down to the amount
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Speaker 4: of subsidies that the government guarantees WIN projects, as specifically
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Speaker 4: offshore wind projects to produce their power, and the last award,
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Speaker 4: for example, was at one hundred pounds per megawatt hour
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Speaker 4: on average, it's above that gas power in the in
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Speaker 4: the UK would be about fifty mega mega what hours
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Speaker 4: pounds per mega what hour, So the cost of producing
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Speaker 4: all of this win referred to previous podcasts. At the
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Speaker 4: same time, as we already have low negative power prices
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Speaker 4: because the wind can't be consumed, stored or exported, and
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Speaker 4: the fact that the government gets involved in guaranteeing a
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Speaker 4: price for the users of that wind when its actual
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Speaker 4: market price is zero is of course leading to lots
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Speaker 4: of excess capacity in terms of wind that as per
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Speaker 4: the negative or low power price has no economic value,
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Speaker 4: so they keep producing it, but because they're being guaranteed
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Speaker 4: a price, but the UK electricity consumer is paying for it,
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Speaker 4: so it's total wasteful economic activity. Anybody that calls themselves
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Speaker 4: an environmentalist should of course be against the production of
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Speaker 4: wasteful economic activity. But it's the British electricity consumer that
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Speaker 4: is paying for this, and that's why we have electricity
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Speaker 4: bills that are three times those in the US and
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Speaker 4: eighty percent above the I E I EA median and
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Speaker 4: it's only going to get worse because they plan to
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Speaker 4: increase production by another three hundred percent of offshore barry.
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Speaker 2: When you explain this, it seems perfectly sensible, very straightforward,
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Speaker 2: totally understandab. Your case is very clear. So when you
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Speaker 2: look at it, and when you look at what the
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Speaker 2: new UK government is doing doubling down on that zorem,
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Speaker 2: and you look at Miliban, for example, saying that we
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Speaker 2: want to be a leader in this. But you look
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Speaker 2: at that and you think, why does he see it
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Speaker 2: so differently? What does he see that we don't see,
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Speaker 2: or what do you see that he doesn't see? Why
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Speaker 2: is he doing this? I actually I tweeted it this
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Speaker 2: morning when there was something about Miliband wanting us to
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Speaker 2: be the leader and how amazing intention that we are
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Speaker 2: leading in this space? Looking going might there be a
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Speaker 2: reason why nobody else wants to lead in this space.
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Speaker 2: So what do you think he sees.
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Speaker 4: We're the global leader in economic euphanasia. And I think
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Speaker 4: whilst politicians of all political parties have displayed a breathtaking
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Speaker 4: lack of ignorance in how power grid works, Miliband is
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Speaker 4: fairly unique in his economic literacy. We've managed to get
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Speaker 4: into this economic doom loop. Nobody really understands in the
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Speaker 4: political world how a power grid works and the need
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Speaker 4: for reliable workers that turn up when you need them.
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Speaker 4: And at the same time, the debate on why we're
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Speaker 4: doing it is taboo, so we can't say, well, what's
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Speaker 4: the cost benefit analysis of doing this? So you get
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Speaker 4: into this doom loop where any solution is better than nothing,
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Speaker 4: even though you're committing economic suicide.
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Speaker 2: But let's then look at the global economic powerhouse, where
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Speaker 2: it looks like they are definitely going to be backing
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Speaker 2: away from discussing this kind of thing, and certainly from
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Speaker 2: any hint that they might have a go at net
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Speaker 2: zero America's Trump. What am I trying to say Trump
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Speaker 2: the second time around? So here we have a totally
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Speaker 2: different environment coming in the US that makes you very
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Speaker 2: positive about the US economy.
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Speaker 3: Let's put it this way.
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Speaker 4: Had Trump of law, the leading capitalist nation in the
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Speaker 4: world would have been Argentina, so it would have been
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Speaker 4: fairly bleak. But with Trump winning, it is the worst
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Speaker 4: nightmare for Europe because actually our failing political system, not
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Speaker 4: only in the UK and in the EU, will just
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Speaker 4: be shown up for what it is. And if you
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Speaker 4: think about what's happened since two thousand and eight, where
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Speaker 4: GDP per capita in the UK, in the US, in
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Speaker 4: France and Germany were roughly similar, since then, economic growth
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Speaker 4: in Europe's been on average fifteen percent, in the US
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Speaker 4: it's been seventy eight percent. Their GDP per capita has
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Speaker 4: risen by seventy percent. Ours France's and Germany's roughly stagnant. Now,
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Speaker 4: I believe that you can probably trace most sources of
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Speaker 4: political frustration and social unrest to the that GDP capital
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Speaker 4: living standards have gone nowhere for fifteen years. That's a
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Speaker 4: source of huge political discontent. And the problem that we've
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Speaker 4: got in the UK and Europe is our political class
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Speaker 4: don't seem to realize the two main sources of what's
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Speaker 4: causing the problem, which is our electricity prices, our lack
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Speaker 4: of cheap and reliable energy, the fact that there's been
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Speaker 4: the state has got bigger rather than smaller over the
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Speaker 4: last fifteen years and is only getting bigger, and the
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Speaker 4: political class think that the government is the best allocator
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Speaker 4: of capital rather than all the empirical evidence throughout the
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Speaker 4: history of human civilization, which is its entrepreneurs. And then
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Speaker 4: we've got this system. Therefore, where Europe's failing economically, it's deindustrializing,
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Speaker 4: and Europe can't even defend itself militarily without America's help
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Speaker 4: against the military power of the Pygmy Russian economy. So
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Speaker 4: the fact that Trump has been elected and will take
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Speaker 4: Europe will take American exceptionalism to a different level, and
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Speaker 4: we can discuss what we think will happen will basically
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Speaker 4: in Europe and the UK. We can't any longer say
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Speaker 4: that there isn't a way out of this, that there
14:32
Speaker 4: isn't an economic model that works. And obviously, you know,
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Speaker 4: we've saw all these left wing think tanks say before
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Speaker 4: the election that okay, you know, American GDP per capital's
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Speaker 4: far outstripped ours over the last fifteen sixty years, but
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Speaker 4: they've got more inequality as if GDP per capital wasn't
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Speaker 4: an average. And I think the issue that we've got,
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Speaker 4: this is why it takes us back to the sort
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Speaker 4: of war consensus in the seventies, is that our political
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Speaker 4: class believes in reducing inequality in whatever way you perceive
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Speaker 4: in equality to exist, and thinks that that's compatible with
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Speaker 4: economic growth, which it isn't. And that means that under
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Speaker 4: the society that we currently live in, they'd rather we
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Speaker 4: all be poorer rather than have economic progress and there
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Speaker 4: be inequality.
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Speaker 2: But going back to energy, there is it. It's interesting,
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Speaker 2: isn't it to look at what's happening in the US
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Speaker 2: with data centers and with the big tech companies looking
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Speaker 2: for steady, reliable energy. They're not all immediately sticking up
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Speaker 2: their own wind farm, they're all looking to nuclear.
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Speaker 3: Right, Well, what AI I mean?
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Speaker 4: AI has has highlighted the obviously the need for cheap
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Speaker 4: and reliable energy, and actually the next generation GPUs are
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Speaker 4: even more power hungry than the previous lot. And actually
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Speaker 4: the power, the increase in power demand is actually growing
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Speaker 4: faster than the efficiency of the chips in analyzing data. So,
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Speaker 4: if you like, the power is the bottleneck to the
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Speaker 4: AI revolution. And clearly these data centers need to be
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Speaker 4: powered twenty four to seven by reliable energy. That rules
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Speaker 4: out solar and win. You've seen Microsoft do a deal
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Speaker 4: with Constellation Energy where they've revived production from Free Mile
16:40
Speaker 4: Island and paid a premium for that. So these big
16:44
Speaker 4: hyperscalers that have balance sheets bigger than government are making
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Speaker 4: guess what superior capital allocations to government because they're paying
16:54
Speaker 4: a premium for reliable power in a way that the
16:58
Speaker 4: UK government pays discount for reliable power.
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Speaker 3: So uh.
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Speaker 4: And but of course what the problem with nuclear is
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Speaker 4: there actually isn't that much nuclear power that isn't already
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Speaker 4: spoken for and can just be switched on in a
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Speaker 4: private agreement between a hyperscala and a power generator, and
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Speaker 4: new sources of economic power, of which the most promising
17:28
Speaker 4: is as small modular reactors is a proven technology in
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Speaker 4: nuclear submarines, but it's not necessarily proven yet in terms
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Speaker 4: of in terms of powering the grid, and the first
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Speaker 4: ones aren't really going to be available probably for about
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Speaker 4: five years, and that's too late for the AI arms race.
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Speaker 4: So what we're instead seeing is AI data centers powered
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Speaker 4: by gas and the the US has this abundance of cheap,
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Speaker 4: reliable shale gas and shale and we should probably say
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Speaker 4: the shale drilling only really started in two thousand and seven,
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Speaker 4: So exactly at this point that you get the divergence
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Speaker 4: in GDP per capita between the US and Europe, you
18:21
Speaker 4: get the birth of this new way of drilling, horizontal
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Speaker 4: way of drilling for oil and gas. And in fact,
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Speaker 4: if shale hadn't been invented, US production would have significantly declined.
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Speaker 4: You probably would have had, you know, one hundred and
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Speaker 4: fifty dollars a barrel oil now instead of sixty. But
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Speaker 4: shale now produces what is it, fifty eight percent of
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Speaker 4: or sixty percent of all US oil production is shale
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Speaker 4: and seventy eight percent of all US gas. And that
18:52
Speaker 4: means that Henry hub gas is the cheapest gas, the
18:56
Speaker 4: cheapest source of energy in the world, trading at roughly
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Speaker 4: three dollars per killer jaw. That's against gas in Europe
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Speaker 4: which is at eleven, oil which is at fourteen, and
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Speaker 4: by the way of comparison, UK offshore win which is
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Speaker 4: at twenty four. So you see that you know, even
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Speaker 4: even on cheapness, you can't compete with Henry Harb shale
19:22
Speaker 4: gas and I think so what we're what we're coming
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Speaker 4: back to the AI revolution. What we're seeing is an
19:30
Speaker 4: absolute bonanza in orders for big industrial gas turbines. It's
19:36
Speaker 4: a duopoly between GE and Siemens. And then those gas
19:44
Speaker 4: turbines will need to be connected via pipelines which will
19:48
Speaker 4: need to be built directly to the shale gas fields,
19:54
Speaker 4: and it helps the shale producers that produce that gas
19:57
Speaker 4: to monetize that gas, because if you think about gas
20:01
Speaker 4: in America, America currently produces eleven million barrels of oil
20:07
Speaker 4: per day, but it produces the equivalent of twenty million
20:12
Speaker 4: barrels of oil and gas equivalent energy content, but it
20:16
Speaker 4: can't monetize that because gas is much more difficult to
20:20
Speaker 4: store and to transport and to use. Now where Trump
20:27
Speaker 4: is a real help in this is through there's currently
20:32
Speaker 4: a moratorium on US LNG exports, and there's currently also
20:39
Speaker 4: very it's very difficult because of the previous administration in
20:44
Speaker 4: the US to build new pipelines connecting shale gas fields
20:48
Speaker 4: to where that gas can be economically used. So by
20:52
Speaker 4: removing the moratorium on USLNG exports and making it easier
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Speaker 4: for pipeline companies to build their pipes to monetize this gas.
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Speaker 4: That will be a great benefit to the US economy.
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Speaker 4: It will also obviously be great for shale gas producers
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Speaker 4: that will get a higher price for the gas and
21:15
Speaker 4: be able to shift more volume.
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Speaker 2: Okay, So Barry, here's the key question. With all this
21:19
Speaker 2: in mind, and if you know, all economic activity is
21:23
Speaker 2: energy transformed, as we always say, right, and it's expensive
21:26
Speaker 2: in the UK, expensive in Europe, cheap in the US.
21:28
Speaker 2: And you've got Trump empower, new pipelines, hopefully some deregulation,
21:32
Speaker 2: possibly even a small fall in the size of the
21:35
Speaker 2: US date, et cetera. All these things we've been promised
21:38
Speaker 2: by Trump two point zero. Does that mean that American
21:42
Speaker 2: exceptionalism continues economically, but in particular, doesn't mean that we
21:46
Speaker 2: continue to see US exceptionalism in the stock market, which,
21:50
Speaker 2: as I wrote last week, has only been this expensive
21:53
Speaker 2: for two percent of its known history. How do we
21:56
Speaker 2: invest so.
21:57
Speaker 3: You don't have to just invest in America?
22:00
Speaker 4: But the number of the number of countries which are
22:04
Speaker 4: welcoming of capital are pretty small. And so you know,
22:10
Speaker 4: a year ago, on President Millay's election, we started researching Argentina.
22:17
Speaker 4: And since Millay's election. The stock market in Argentina is
22:21
Speaker 4: up one hundred percent. It's been the world's best stop market.
22:25
Speaker 4: But it goes to show it can be done because
22:28
Speaker 4: Milay has He's cut government spending in real terms by
22:32
Speaker 4: a third in just twelve months. Argentina has gone from
22:37
Speaker 4: importing energy to exporting it. It's gone from having a
22:40
Speaker 4: permanent government deficit to a surplus. And the most incredible
22:46
Speaker 4: story in Argentina at the moment is that it is
22:50
Speaker 4: the second country in the world to properly do.
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Speaker 3: Fracking, and it should.
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Speaker 4: It currently produces about four one hundred thousand barrels a
23:03
Speaker 4: day of oil and roughly the equivalent in gas as well,
23:07
Speaker 4: and it should be able to increase production by about
23:11
Speaker 4: five hundred percent over the next five to ten years. Now,
23:15
Speaker 4: if it does that, that's going to massively turn around.
23:19
Speaker 4: It's already turning around the Argentinian economy, which you know
23:23
Speaker 4: was forecast to grow eight to ten percent next year.
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Speaker 4: Monetizing those those shale oil and gas reserves and becoming
23:33
Speaker 4: a big net export will turn the Argentinian economy into
23:40
Speaker 4: a petro dollar economy. And assuming that it continues to
23:46
Speaker 4: attract the capital to be able to export that energy,
23:51
Speaker 4: assuming that it can get currency convertibility at sometime next year,
23:57
Speaker 4: and assuming that Milay stays incredibly popular, particularly with the
24:02
Speaker 4: young people in Argentina, which is very encouraging, and that
24:07
Speaker 4: the mid terms result in him establishing a deeper political mandate,
24:15
Speaker 4: then the Argentina stock market can to my mind double
24:18
Speaker 4: again next year because you're basically coming from a base
24:23
Speaker 4: where there's been so little capitalist activity to one where
24:27
Speaker 4: the policies well, the country's got incredibly natural resources.
24:32
Speaker 3: But once you make.
24:35
Speaker 4: Once you allow people to invest and you give them
24:38
Speaker 4: property rights and inject confidence into capitalism in the economy,
24:44
Speaker 4: things can be turned around fairly quickly. And I think
24:46
Speaker 4: that's the lesson that Europe needs to take from what's
24:49
Speaker 4: gone on in Argentina.
24:51
Speaker 2: Barry, do you have exposure to Argentina and if so,
24:53
Speaker 2: what does that exposure look like?
24:55
Speaker 4: Yes, I do, so we have or our biggest position
25:01
Speaker 4: is in YPF, which is the biggest oil and gas company.
25:07
Speaker 4: So you know, that's traded at a very low multiple
25:12
Speaker 4: for a long time, reflecting previously pretty high political risk
25:17
Speaker 4: and the fact that it wasn't growing production. But you
25:21
Speaker 4: know its production should increase very dramatically over the next
25:26
Speaker 4: few years. And you know, the real money in oil
25:29
Speaker 4: and gas investing is made not when the the energy
25:35
Speaker 4: price goes up and down five dollars, but when companies
25:38
Speaker 4: can find and produce oil and gas for pretty competitive
25:44
Speaker 4: extraction costs of let's say ten dollars a barrel and
25:47
Speaker 4: then ramp up production by four or five and then
25:53
Speaker 4: the other The second biggest holding we have is a
25:57
Speaker 4: what I would loosely term our Continua's blue chip bank,
26:02
Speaker 4: which is Galicia uh. And you know that when you
26:08
Speaker 4: have hyper inflation, banks just become a way basically the
26:13
Speaker 4: the the assets and the balance sheet are Argentinian government
26:16
Speaker 4: bonds and the liabilities are deposits, and there's hardly any
26:21
Speaker 4: demand for loans because interest rates are fifty percent. So
26:28
Speaker 4: so when you get when you when when you remove
26:31
Speaker 4: hyper inflation and inflation has come down from from what
26:35
Speaker 4: twenty five monthly to two and a half percent monthly,
26:40
Speaker 4: you start to get a remanetization of the economy and
26:44
Speaker 4: suddenly you get demand for loans and you get demand
26:47
Speaker 4: for mortgages, and that means and if you look, let's
26:51
Speaker 4: say at the ten year Argentinian dollar debt the yield
26:58
Speaker 4: on that has come down from twenty percent when Mille
27:02
Speaker 4: took office, and actually it was still twenty percent six
27:04
Speaker 4: months ago to just twelve percent now. So that gives
27:07
Speaker 4: you some idea of how the market is pricing Argentinian
27:13
Speaker 4: not any inflation, but political risks going forward, and therefore
27:17
Speaker 4: you know that the banks are another way to.
27:20
Speaker 3: Play this turnaround in the Argentinian story.
27:23
Speaker 1: Interesting, thank you.
27:24
Speaker 2: And what in terms of your portfolio exposure to the US,
27:28
Speaker 2: how do you invest there? I know that we've been
27:31
Speaker 2: through a lengthy phase, haven't we, where people always said
27:33
Speaker 2: that they don't invest in countries, they invest in sectors
27:35
Speaker 2: and companies, And now is it that's not me? I
27:38
Speaker 2: know now, as I think we've discussed before, you're back
27:41
Speaker 2: to thinking a lot about political risk in different countries,
27:44
Speaker 2: and so when you talk about investing, you're talking about
27:46
Speaker 2: country specific investing rather than sector specific investing. So I'm
27:49
Speaker 2: just wondering if your portfolio premely is exposed to the US,
27:53
Speaker 2: and if so.
27:54
Speaker 4: How Yes, so, I think I mean there's not that.
27:59
Speaker 4: I mean this stop market in the US is very deep.
28:04
Speaker 4: There almost anything you think about there'll be a way
28:07
Speaker 4: of playing it. And of course the averages are affected
28:12
Speaker 4: by these seven megacap companies that have done very well
28:18
Speaker 4: but may not do very well in the future. So,
28:23
Speaker 4: you know, one of the things that we we we
28:25
Speaker 4: really likes as discussed is the whole.
28:31
Speaker 3: Chain of monetizing Henry Hub gas.
28:35
Speaker 4: So from the producers in the in in that are
28:39
Speaker 4: producing this this gas and should be able to sell
28:44
Speaker 4: it for more and sell more of it, to the
28:46
Speaker 4: oil field service companies that are helping them do that,
28:49
Speaker 4: to the pipeline companies that are not only manufacturing the
28:52
Speaker 4: pipe to help them drill, but they're building those pipes
28:55
Speaker 4: connecting them where the gas can be used to the
28:59
Speaker 4: data center companies, or or to the pipeline companies that
29:05
Speaker 4: are most exposed to areas where data centers are being built,
29:09
Speaker 4: to the companies that are selling the gas turbines that
29:12
Speaker 4: are going to power the data centers.
29:15
Speaker 3: So we think that.
29:16
Speaker 4: Is if you're looking for kind of one mega trade
29:18
Speaker 4: over the next few years, we think that the US
29:22
Speaker 4: shale gas and the whole value chain from getting it
29:26
Speaker 4: out of the ground to power in the data center
29:28
Speaker 4: is going to be a great place to invert. And
29:32
Speaker 4: then we think, well and one of the.
29:34
Speaker 2: One of the names you mentioned then your latest fact
29:36
Speaker 2: sheep is Gevenovo.
29:37
Speaker 4: That's right, And you know that I sometimes get people
29:43
Speaker 4: people obviously know that as also having a wind business.
29:47
Speaker 2: Yeah, it's a gas turbine manufacturer, right, but also has wind. Yeah.
29:51
Speaker 4: Unlike let's say Vestas in Europe that only does gas turbines.
29:56
Speaker 4: Siemens Energy and Jeevanova is are actually being are actually
30:02
Speaker 4: performing well despite having these pretty pretty crappy wind turbine businesses.
30:09
Speaker 4: So you know, you could kind of discount that in
30:12
Speaker 4: terms of investing in them. And if I then think
30:16
Speaker 4: about how we were positioned pre Trump and how we
30:19
Speaker 4: were positioned post Trump. Now, obviously we were thinking pretty
30:25
Speaker 4: early on in the year about how things might change
30:28
Speaker 4: if Trump was sort of neck and neck in the
30:31
Speaker 4: polls or slightly leading, and that for probably likely to win.
30:35
Speaker 4: So so pre Trump, we would have had some investments
30:40
Speaker 4: in the mag seven companies, particularly Meta and Alphabet, and
30:46
Speaker 4: we sold we sold those, and we also had investments
30:51
Speaker 4: in the gold mining stocks, which were of course Canadian
30:54
Speaker 4: assets we trade on US markets on basically the basis
30:58
Speaker 4: that the Bibe administration was running these really irresponsible peacetime
31:05
Speaker 4: deficits of seven eight percent, and then you know we
31:08
Speaker 4: weren't in COVID, there was no World War. Therefore, you
31:13
Speaker 4: know that in a historic context, those deficits were really
31:17
Speaker 4: irresponsible and that was good for gold. But I think
31:22
Speaker 4: if you think about how things will change with Trump
31:27
Speaker 4: the Trump administration being in power, I think there's just
31:31
Speaker 4: many more other things to invest in than megacaptech. And
31:36
Speaker 4: also you could well see a continuation of some of
31:41
Speaker 4: the antitrust regulation for Meta and Google. Similarly, Trump coming
31:47
Speaker 4: in people being more confident in the value of the
31:52
Speaker 4: US dollar because actually, contrary to what a lot of
31:55
Speaker 4: people tried to claim that Trump was going to continue
31:59
Speaker 4: Biden's irrational deficit spending, I think they've got a pretty
32:03
Speaker 4: good plan to get that deficit back to about three
32:06
Speaker 4: percent from seven percent where it is currently, and I
32:10
Speaker 4: think that that will be positive for the dollar. And
32:13
Speaker 4: of course we can discuss tariffs, but I think that's
32:17
Speaker 4: also positive for the dollar. And therefore, if you're really
32:22
Speaker 4: positive about the dollar, it kind of feels unnecessary to
32:27
Speaker 4: also needing to be really bullish about gold. And then
32:31
Speaker 4: if we look at areas that might benefit from let's say,
32:36
Speaker 4: tariffs or a relaxation in regulations. Obviously, the previously American
32:48
Speaker 4: authorities wouldn't let banks by other banks unless they were
32:52
Speaker 4: buying banks out of receivership i e. Banks that have
32:55
Speaker 4: gone bust and failed. So we had previously invested in
32:59
Speaker 4: a bank called First Citizens that bought Silicon Valley Bank
33:03
Speaker 4: out of receivership, which was a great deal for it,
33:06
Speaker 4: and we're still invested in that bank. But in general,
33:10
Speaker 4: there are three thousand banks in the US. It's probably
33:14
Speaker 4: too much that needs to consolidate. We think that will happen.
33:17
Speaker 4: And then another area is just looking at businesses that
33:22
Speaker 4: if and when Trump puts tariffs come in. These are
33:26
Speaker 4: businesses that can be transformed by the sort of protectionism
33:31
Speaker 4: that was commonplace in the US in the nineteenth century.
33:34
Speaker 4: So Cleveland Cliffs is probably, we think, the best managed
33:40
Speaker 4: steel company in America. But it's a good company in
33:43
Speaker 4: a bad industry.
33:44
Speaker 2: And what kind of valuation can you buy something like
33:46
Speaker 2: that on?
33:47
Speaker 4: Well, it's almost meaningless to give a pe because the
33:52
Speaker 4: earnings fluctuate quite a lot.
33:54
Speaker 3: But I mean the.
33:55
Speaker 4: Share price is what down eighty ninety from peak a
34:00
Speaker 4: few years ago. It's trading you know, below it's below
34:05
Speaker 4: its book value, very cheaply on price to sales, and
34:09
Speaker 4: you know, we'll be on a very low multiple if
34:12
Speaker 4: if tariff's come in to stop Chinese dumping of steel
34:16
Speaker 4: in America. And then you've got something like you know, Intel,
34:20
Speaker 4: which has been obviously a basket case but has the
34:27
Speaker 4: only foundry production in the US. So if tariffs are
34:32
Speaker 4: going to come in on semiconductor manufacturing, Intel's struggling to
34:38
Speaker 4: fill its foundries. Uh, and these foundries are going to
34:43
Speaker 4: fill up pretty quickly if Intel's semiconductors aren't subject to tariffs,
34:48
Speaker 4: but but but tsmcs are. So there are lots of
34:52
Speaker 4: if you like, there are lots There are lots of
34:53
Speaker 4: different things that we've got in the portfolio. Clearly, not
34:56
Speaker 4: everything's a macro trade. But I think when we think
35:00
Speaker 4: think about the world differently, it's all about how things
35:04
Speaker 4: might change. You need a bit of imagination for that,
35:06
Speaker 4: to think ahead of what these companies might look like
35:09
Speaker 4: in two years, not what they're looking like now.
35:11
Speaker 2: Yeah, I suppose one of the things I should ask
35:13
Speaker 2: you is that we've talked about gold a little bit,
35:16
Speaker 2: but there's been this huge excitement around not just crypto
35:19
Speaker 2: in general, but specifically bitcoin since since Trump's election. How
35:24
Speaker 2: do you feel about that?
35:26
Speaker 4: Marin the risk of the risk of upsetting many of
35:31
Speaker 4: your listeners, as you know, I'm not, I'm not. I'm
35:34
Speaker 4: not particularly advanced in my understanding of of of the.
35:39
Speaker 3: Of the intrinsic value of bitcoin.
35:41
Speaker 2: I don't say you're not advancing your understanding. Mail get
35:43
Speaker 2: loads of pets and emails telling you that you should
35:47
Speaker 2: educate yourself, So me say you understand it completely before.
35:54
Speaker 4: I just don't find I think the benefits of bitcoin
35:59
Speaker 4: and cryptic to currency in general confer to the issuers
36:04
Speaker 4: of the currency rather than those that have bought the
36:10
Speaker 4: currency and the secondary market. And in terms of use
36:15
Speaker 4: of crypto and bitcoin, to date, they have been solely
36:20
Speaker 4: in the world of outside money, the sorts of money
36:25
Speaker 4: that you need if you're if you need to be
36:28
Speaker 4: outside of the Western banking system. So similar to gold,
36:32
Speaker 4: similar to cash, crypto allows you a degree of independence
36:37
Speaker 4: from the Western banking sector. Most people who who are
36:44
Speaker 4: involved in illegal in legal activities don't need that, and
36:48
Speaker 4: don't find blockchain technology any faster than payment processing that
36:52
Speaker 4: occurs now. But having said that, you know, if Europe
37:00
Speaker 4: goes as bad as well. I think it will over
37:02
Speaker 4: the next five years and we don't learn the lessons
37:08
Speaker 4: of what's going on in America. I'm beginning to think
37:13
Speaker 4: that that freedom that we've taken for granted since the
37:17
Speaker 4: early eighties to be able to invest freely and without
37:23
Speaker 4: extra cost in the rest of the world could be
37:25
Speaker 4: taken away because if you think about the types of
37:29
Speaker 4: people that are in power, certainly in the UK, they
37:32
Speaker 4: say that they want economic growth, but they don't like competition.
37:38
Speaker 4: They say they want you know that they want great
37:42
Speaker 4: British businesses, but they aspire to mediocrity. And the way
37:47
Speaker 4: that you don't compete against America is that you don't
37:51
Speaker 4: allow your citizens to invest anywhere other than the UK.
37:56
Speaker 4: So you end up putting on capital controls to keep
37:59
Speaker 4: them in the UK that finances their activities at much
38:05
Speaker 4: lower returns on capital. And I think in that environment
38:10
Speaker 4: crypto becomes a much more useful I wouldn't call it
38:17
Speaker 4: an investment, but it becomes a much more useful way
38:21
Speaker 4: of taking your assets out of a country, rather in
38:25
Speaker 4: the same way as it's been used in China or
38:28
Speaker 4: other other economies where they don't have either economic or
38:36
Speaker 4: political freedom.
38:37
Speaker 2: Gosh, to end this podcast on a happy note on
38:40
Speaker 2: not going well are they?
38:42
Speaker 4: I would say that, look, we can spend ages talking
38:46
Speaker 4: about what's going on in the UK and Europe and
38:49
Speaker 4: get very depressed about not only where we've come from
38:55
Speaker 4: and where we are now, but how the political class
39:00
Speaker 4: and the bnpon opinion just doesn't have a clue.
39:05
Speaker 3: Now.
39:06
Speaker 4: It's terribly frustrating because we can you know, it's one
39:12
Speaker 4: person just can't change the political outlook of a country,
39:17
Speaker 4: and frankly, you know there are more rewarding things personally
39:22
Speaker 4: to do. But what we can do is make a
39:27
Speaker 4: decision that until they get their act together, until they
39:30
Speaker 4: welcome capital and capitalists, we can send our capital to
39:36
Speaker 4: somewhere where it's needed and where it's valued and where
39:40
Speaker 4: it's treated well. So that's Risdom's law that capital goes
39:44
Speaker 4: where it's needed and stays where it's treated well. That's
39:47
Speaker 4: not the UK, and that's not Europe currently, it's the
39:51
Speaker 4: US and it's Argentina, and that's where that I think
39:54
Speaker 4: is the happy no, because the best way to hedge
39:57
Speaker 4: yourself against the political and economic risk in Europe, which
40:04
Speaker 4: is only going to get worse when we have stagnant
40:08
Speaker 4: GDP per capita for two decades, is to actually invest
40:12
Speaker 4: somewhere better in the world. And that's why I actually
40:15
Speaker 4: I've always been against this sort of forcible investment in
40:20
Speaker 4: a domestic market because actually the best thing that most
40:24
Speaker 4: UK investors have done over the last twenty years or
40:27
Speaker 4: even fifty years is to invest somewhere else, and that's
40:31
Speaker 4: what's allowed them to keep hold of their wealth and
40:33
Speaker 4: their purchasing.
40:34
Speaker 2: Pot Listen, I'm going to finish this by asking you
40:37
Speaker 2: a different question, which is about Christmas. Christmas, if you
40:43
Speaker 2: were to give a book, a really good book on
40:48
Speaker 2: something to do with finance or economics, to someone who
40:51
Speaker 2: wasn't an expert in this stuff for Christmas, what would
40:53
Speaker 2: you give them?
40:54
Speaker 4: I mean, I'm an avid not only reader but consumer
40:58
Speaker 4: of audio books. I'd sort of read two or three
41:01
Speaker 4: books a week. And and you know, firstly, if you're
41:07
Speaker 4: interested in investment, the there are loads of investment books
41:11
Speaker 4: that you can read. But also if you're interested in
41:14
Speaker 4: the energy transition and learning about that, there are also
41:18
Speaker 4: fantastic number of books that you can you can read
41:23
Speaker 4: which takes you beyond obviously what you're what you'll be
41:28
Speaker 4: naturally consuming in terms of the mainstream media. So so,
41:32
Speaker 4: I mean, one author I found I think is is
41:36
Speaker 4: the the kind of.
41:39
Speaker 3: The best, if you like.
41:42
Speaker 4: The communicator of the value of energy in the world
41:47
Speaker 4: is Vaclav Smill, and he's got a number of different
41:51
Speaker 4: books on energy transition, but there's one book in particular
41:55
Speaker 4: that that is pretty accessible, which is how the world
41:59
Speaker 4: really work. So i'd encourage any of your listeners that
42:03
Speaker 4: are interested in energy or physics or or even you know,
42:09
Speaker 4: transitioning from a historical background, which was obviously my first
42:15
Speaker 4: thing that I studied to understanding physics and chemistry of
42:19
Speaker 4: an energy transition to read that Club Smell.
42:23
Speaker 2: I have read that, and I have said it's absolutely brilliant.
42:25
Speaker 2: Good recommendation. Garry, Thank you so much for joining us today.
42:28
Speaker 2: It's been brilliant.
42:29
Speaker 3: It's a pleasure. Thank you.
42:39
Speaker 2: Thanks for listening to this week's Marin Talks Money. If
42:41
Speaker 2: you like or show, rate, review, and subscribe wherever you
42:43
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42:51
Speaker 2: as w and John is John Underscore Stepic. This episode
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42:58
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