Latest / Merryn Talks Money / The Secret to a Contrarian Investor's Success

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The Secret to a Contrarian Investor's Success · Merryn Talks Money

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Hello, it's Meren sumst
0:11
Speaker 1: Web here. I am going to start this show with
0:13
Speaker 1: a warning rather than a reminder. Instead of telling you
0:17
Speaker 1: that I will be at the French Festival in Edinburgh
0:19
Speaker 1: once again this year, I am going to tell you
0:20
Speaker 1: that the tickets four hour run at the Fringe this
0:23
Speaker 1: year are all most sold out. If you don't get
0:27
Speaker 1: one soon, you will lose your chance. So if you
0:29
Speaker 1: were thinking of joining me and John a bunch of
0:31
Speaker 1: really great guests for stimulating conversations in Adam Smith's Pania
0:35
Speaker 1: House from August the seventeenth to the twentieth, you had
0:38
Speaker 1: better get your ticket. Now. Do that by heading for
0:41
Speaker 1: main Fringe website and searching for Merin. Now back to
0:45
Speaker 1: our regular programming. This week on the show, Alec Cutler
0:47
Speaker 1: joins me. Alec is a portfolio manager with August Investments.
0:50
Speaker 1: I wanted to get him on partly because his performance
0:52
Speaker 1: over the last few years has been fantastic, but also
0:55
Speaker 1: because he has some really good thoughts on subject that
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Speaker 1: John and I find particularly interesting. But first, as always,
1:01
Speaker 1: senior reporter and author of the Money Distilled newsletter, John Steppek,
1:04
Speaker 1: The John I just mentioned is with me and we
1:06
Speaker 1: are both in the London studio, which makes a heavy change.
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Speaker 2: John, Hello, Hello, nice to see in person.
1:12
Speaker 1: I know lovely, isn't it? And the sunset what that's
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Speaker 1: not actually happen, but it was out earlier. Briefly, John Lissen,
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Speaker 1: We've talked a lot on this podcast about how much
1:20
Speaker 1: market like stability. They like to know what's going to happen.
1:23
Speaker 1: They like to feel that they have some sense of
1:25
Speaker 1: the next couple of years, right, And so that's one
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Speaker 1: of the reasons why we think that UK equities are
1:30
Speaker 1: a go go because there's a little more political stability here,
1:32
Speaker 1: although we slightly worry that maybe we don't have quite
1:34
Speaker 1: as much political stability as we think. But do you
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Speaker 1: know there's one place around the world where you can
1:39
Speaker 1: look at an upcoming election and know who's going to win.
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Speaker 2: For stability, there's lots of stability here, stability postatively coming
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Speaker 2: out of the eels.
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Speaker 1: Absolutely, so you know there's going to be most likely
1:53
Speaker 1: a Trump win in the US. That means that the
1:55
Speaker 1: Trump trade is on. So US markets yes, and p
1:59
Speaker 1: major yet another record high this week. Lots of stuff happening.
2:03
Speaker 1: So if you're looking ahead and you're saying, Oh, look
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Speaker 1: the US, it's so politically stable. What would the Trump
2:09
Speaker 1: win coming?
2:11
Speaker 3: What would you do?
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Speaker 1: What's your Trump trade?
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Speaker 2: I always say my Trump trade, My Trump trade does
2:17
Speaker 2: hold gold more than anything else, just because it's about.
2:24
Speaker 1: It, and we hold John, we hold gold when we
2:27
Speaker 1: worry about lack of stability.
2:29
Speaker 2: Ah, this is just stability. This is a different kind
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Speaker 2: of stability. So Trump is a week dollar guy. And
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Speaker 2: by that, I mean it's not just things like the
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Speaker 2: money printing and they probably spending much more money and
2:41
Speaker 2: you know, kind of continuing America's balance sheet decline. It's
2:45
Speaker 2: also about the fact that he's kind of much more
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Speaker 2: overtly protectionist. I mean, that's not like Biden wasn't. I mean,
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Speaker 2: Biden has really just been a continuation of Trump's policies
2:54
Speaker 2: from twenty sixteen. So I don't think anyone we shouldn't
2:58
Speaker 2: overdo this. But obviously Trump talk so much bigger game.
3:02
Speaker 2: He's more emphatic about the kind of protectionist policies that
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Speaker 2: he puts in, and so I think that's just kind
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Speaker 2: of primary reason. And that's probably your biggest defference as well,
3:12
Speaker 2: because again, at the end of the day. If the
3:13
Speaker 2: Democrats did get in, then it's not as if going
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Speaker 2: to suddenly announce austerity and stop spending, you know, loads
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Speaker 2: of government money more to taxpayers money.
3:23
Speaker 1: Doesn't unlikely high spending government. We already have have a
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Speaker 1: protectionist government. We already look at and say this is
3:30
Speaker 1: this is modern mercantilism, marcantilism, that word for a long time.
3:35
Speaker 1: Then we got to a whole new era.
3:37
Speaker 2: You should have been practicing for the Adam Smith.
3:42
Speaker 1: Talk a lot about that kind of thing. So this
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Speaker 1: is probably going to be quite good for the UK
3:45
Speaker 1: equity market. I'm already seeing the Trump trade on there,
3:48
Speaker 1: but it's may be not so good for other equity
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Speaker 1: markets around the world. So if the US pulls itself
3:53
Speaker 1: in a bit or actually may be very good for
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Speaker 1: European defense companies.
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Speaker 2: Yeah, probably tried to pain. I mean the reason one
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Speaker 2: of the reasons is good for the UK is also
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Speaker 2: because you've got an element of the growth trade or
4:07
Speaker 2: not so not the growth trade. I think people this
4:10
Speaker 2: is the problem. And you've got various kind of paradigms
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Speaker 2: that you've gone through with all the same stocks being
4:15
Speaker 2: at the top, the kind of Magnificent seven or whatever
4:18
Speaker 2: number it is now have kind of we associated them
4:21
Speaker 2: with big tech and ultra low interest rates. But they
4:24
Speaker 2: also did well in the last couple of months because
4:27
Speaker 2: everyone was starting to get worried about a US recession again.
4:30
Speaker 2: They were starting to get worried at the Fed wasn't
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Speaker 2: going to cut interest rates. To be fair, this is
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Speaker 2: partly because inflation came in much weaker in the US
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Speaker 2: than was expected at the end of last week. I
4:39
Speaker 2: think some of that has got mixed up with the
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Speaker 2: Trump trade, and so.
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Speaker 1: The federal muddy and the water is changing the narratives.
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Speaker 2: But so narratives are there. Investing is complicated, it's not complicated.
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Speaker 2: Be just that you follow what the Fed's doing rather
4:54
Speaker 2: than what the politicians are doing. Probably, bit they cut
4:58
Speaker 2: interest rates, then you no longer have this dash for
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Speaker 2: growth where everyone was kind of scared that there wasn't
5:05
Speaker 2: gonna be any growth. You might as well buying the
5:06
Speaker 2: video because it's the only thing that's growing now. If
5:09
Speaker 2: you get interest rate cuts, all of this stuff that's lagged,
5:12
Speaker 2: like the small caps a kind of rocketed.
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Speaker 1: One of the one of the fastest, one of the
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Speaker 1: fastest ever, and the gaping performance between the big and
5:20
Speaker 1: the smallest. Suddenly one of the biggest ever was such
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Speaker 1: a show period in a really extraordinary sudden turnaround. And
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Speaker 1: you're right, that's FED, not Trump.
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Speaker 2: And that's that's the FED. And it's also it does
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Speaker 2: help feed into the UK because obviously the UK is
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Speaker 2: a neglected catch up trade. And then I mean, I
5:34
Speaker 2: currently one of our colleagues over in the markets room,
5:39
Speaker 2: it has been talking to various analysts and suddenly it's
5:41
Speaker 2: like everyone's you know, using essentially using the excuse of
5:45
Speaker 2: labor getting in to change their views on the UK
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Speaker 2: and start piling in. And I mean, I'll be stunned
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Speaker 2: if we don't see some of the inflows were in
5:54
Speaker 2: the next couple of months, because everyone's now talking about it.
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Speaker 1: I mean, like you, I'm hearing nothing but this chat
5:59
Speaker 1: and let's chat about how the UK is the place
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Speaker 1: in UK small caps, UK mid caps, that's where you've
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Speaker 1: got to be, this is the next place, et cetera.
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Speaker 1: And I'm hearing it absolutely on top with inside the
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Speaker 1: UK and outside the UK. But everyone also says kind
6:11
Speaker 1: of waiting for a catalyst. I don't know what more
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Speaker 1: they need.
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Speaker 2: Well, I think certainly from the chart I'm here and
6:19
Speaker 2: now the catalysts has been and going, and now it's
6:24
Speaker 2: one of those ones picking up the money. Yeah, I
6:27
Speaker 2: think they're going to start panicking. There's gonna be people saying, oh, wait,
6:29
Speaker 2: what do you mean you're not in the UK here,
6:31
Speaker 2: as opposed to what do you mean you're still in
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Speaker 2: the UK that untouchable basket case. Yeah, I mean the
6:36
Speaker 2: pound went back up of a dollar thirty that's wow.
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Speaker 1: Yeah. And also there has come a point where all
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Speaker 1: the wealth managers who've been cutting cutting cutting in the
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Speaker 1: UK exposure down from you know, thirty forty percent down
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Speaker 1: to four to six percent, et cetera, where they're suddenly going,
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Speaker 1: actually maybe this has gone, but farn maybe it should
6:51
Speaker 1: be more of my domestic market because hang on a tick,
6:53
Speaker 1: maybe all of my clients spending pounds.
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Speaker 2: Yeah, having seen the drop in the VideA and the
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Speaker 2: lake over the last few days, is the bibi people,
7:02
Speaker 2: you know, really getting worried because a lot of them
7:05
Speaker 2: have probably got in exactly the wrong time as well.
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Speaker 2: I do think we've seen that on the in point
7:10
Speaker 2: and I think, you know, obviously, as soon as people
7:13
Speaker 2: start agreeing with you a bit, you get a bit
7:16
Speaker 2: jumpy as a contriting. But the thing I've learned over
7:18
Speaker 2: time is that, yeah, but you're doing that. You buy
7:20
Speaker 2: and hold for a little bit at least before you start, as.
7:24
Speaker 1: Soon as anyone agrees with you. And you know, it's
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Speaker 1: not just the smaller in the mid caps. Someone was
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Speaker 1: reminding me today, and you've often discussed this, it was
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Speaker 1: before twenty fifteen US large caps and UK large caps
7:35
Speaker 1: adjusted for sector, by the way, so adjusted for the
7:38
Speaker 1: fact that US has a lot more tech, take that
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Speaker 1: out of the mix, and the valuations were basically the same,
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Speaker 1: basically the same. The US was not more expensive than
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Speaker 1: the UK in large caps anyway, in twenty fifteen that lot,
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Speaker 1: you know, volatility, ukos Brexit, lots of Prime Minister's discount
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Speaker 1: has run since then and not before. So there's absolutely
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Speaker 1: no reason why, with US being stable and then them
8:01
Speaker 1: being stricker, that we shouldn't equalize.
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Speaker 2: Absolutely listen, as.
8:06
Speaker 1: I wish you could see, John.
8:10
Speaker 2: Without wanting to get too political, you are sitting down
8:13
Speaker 2: saying the voters in the US, you know, you can
8:16
Speaker 2: vote for Donald Trump or you can vote for a
8:17
Speaker 2: mystery president. So it's actually insane wild that Trump is
8:22
Speaker 2: only just about Biden in the opinion polls, you know,
8:25
Speaker 2: which also suggests to me that if the Democrats really
8:28
Speaker 2: are serious about not letting Trump get in, then maybe
8:32
Speaker 2: they should get someone else to take over from Biden,
8:35
Speaker 2: because if a mystery president can almost beat Trump, presumably
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Speaker 2: an actual Yeah exactly. But I mean that's a bit
8:43
Speaker 2: of free advice to any you know people, not that
8:46
Speaker 2: I care who wins either way.
8:47
Speaker 1: They'll pick it up. I mean that the the division
8:50
Speaker 1: and we're not to talk about politics on this this podcast,
8:53
Speaker 1: but I haven't been speaking to quite a lot of
8:55
Speaker 1: people involved in politics in the US recently, and it's
8:57
Speaker 1: absolutely extraordinary, the divice in the Democrats between the ones
9:01
Speaker 1: who want to pretend that everything's absolutely fine, use the
9:04
Speaker 1: temper a few hint that it isn't and the ones
9:06
Speaker 1: who think that by staying on, Biden is destroying democracy.
9:09
Speaker 1: And that conflict is what makes Trump presidency look like
9:13
Speaker 1: it might be something stable. I mean, it's it's mad.
9:15
Speaker 1: It makes makes the Tories look like they knew what
9:17
Speaker 1: they were doing. And we're not getting into politics. A
9:19
Speaker 1: love of this an this one one more thing for
9:21
Speaker 1: the Trump trade, right, Trump loves bitcoin, right, and so
9:24
Speaker 1: this new running mate, these people are bitcoiners. So this
9:28
Speaker 1: battle against bitcoin that has been underway under Biden might disappear.
9:33
Speaker 1: And everyone who's ever chosen gold over bitcoin on our podcast,
9:36
Speaker 1: including me, will usually regret it.
9:38
Speaker 2: This is possibly true. Then again, if bitcoin actually finds
9:43
Speaker 2: an actual use as a concy, then it's got to
9:46
Speaker 2: be strong and stable as well. And so you know,
9:49
Speaker 2: for oh, you know, we can liquefying backcoin. Could I
9:52
Speaker 2: actually bring down his price?
9:54
Speaker 1: I apologize for him just for a moment there, I
9:59
Speaker 1: was getting the big coin is on side. I was
10:01
Speaker 1: going to get some nice tweets from the bitcoin people
10:04
Speaker 1: instead of all the very by the way, very rude
10:06
Speaker 1: ones you've been sending me, and you really are terrible,
10:09
Speaker 1: so rude honestly, as I keep thinking, and I think
10:13
Speaker 1: you sometimes said to them, if you believe it in
10:15
Speaker 1: that much, why do you need me to believe it too?
10:17
Speaker 3: Yeah.
10:18
Speaker 2: So, and the thing is we do. It's not as
10:20
Speaker 2: if we were hardly like rambling bitcoin skeptics. It's yeah,
10:26
Speaker 2: we're not denials. We agree that it has a point
10:30
Speaker 2: to varying you know, it's a varying degrees. We agree
10:34
Speaker 2: that that is a used to bitcoin. It's just that
10:37
Speaker 2: it's almost impossible, in certainly to mymine, to put an
10:40
Speaker 2: actual number on what that you says. But that's a
10:44
Speaker 2: totally different thing from you know, we're not no coiners
10:47
Speaker 2: or never coiners.
10:49
Speaker 1: No, definitely no what I have coins?
10:51
Speaker 2: Yeah, exactly, you've got some. I have got some bitcoin
10:54
Speaker 2: cash somewhere. Whatever that is.
10:57
Speaker 1: Now, look what you've done. Welcome to Marin Talks Money,
11:05
Speaker 1: the podcast in which people who know the markets explain
11:07
Speaker 1: the markets. I'm Maren Sunset Web and here's my conversation
11:10
Speaker 1: with Alec Cutler, portfolio manager with all Best Investments. Alec, Hello,
11:16
Speaker 1: thank you so much for joining us today.
11:19
Speaker 3: That's great to be here.
11:21
Speaker 1: Now we haven't talked for a while, actually, you and
11:23
Speaker 1: I well non public anyway, so we've got quite a
11:25
Speaker 1: lot to get through. I want to talk about your portfolio,
11:28
Speaker 1: what we've been doing, all the different successes in the
11:31
Speaker 1: fund and a little while. But before we do that,
11:33
Speaker 1: I would love it if you would just set the
11:35
Speaker 1: scene for us a tiny bit. It seems all change
11:38
Speaker 1: in the US market at the moment, suddenly it was
11:39
Speaker 1: in big tech come off a seeing small cap stocks
11:43
Speaker 1: really really raring to go and a performance gap between
11:46
Speaker 1: the two that's extremely unusual in terms of its speed
11:50
Speaker 1: and extent. Well, what do you think, what do you
11:52
Speaker 1: see going on in the US market and is that
11:54
Speaker 1: something that's going to ripple out to the rest of us.
11:57
Speaker 3: Well, if I was going to talk our book and
12:00
Speaker 3: and sprinkle with tons and tons of hope, it would
12:03
Speaker 3: be that valuation matters again.
12:04
Speaker 1: Uh huh, I.
12:07
Speaker 3: I'm not sure. We'll take it when we can get it,
12:12
Speaker 3: just as we'll take the extreme evaluation gradient that we
12:16
Speaker 3: had between megacap tech and everything else and invested into that.
12:22
Speaker 3: So you know, we'll we'll just take what the market
12:25
Speaker 3: gives us. But it certainly looks like there's there may
12:29
Speaker 3: be change in the air. And maybe, Maren, maybe it's
12:32
Speaker 3: just that everybody's maximally invested in Nvidia, and you know,
12:39
Speaker 3: we're a far cry from the time when most people
12:42
Speaker 3: couldn't spell or say in video. So yeah, there's no
12:47
Speaker 3: one left to buy, and.
12:48
Speaker 1: So there maybe nothing particular going on here. It's simply
12:51
Speaker 1: that everyone is in. There's no one left. I mean,
12:53
Speaker 1: I was looking at a list of one of the
12:56
Speaker 1: big platforms here very generously releases every week, the most
13:01
Speaker 1: popular buyers and most popular cells on the platform. And
13:03
Speaker 1: I noticed that last week, even last week the top
13:06
Speaker 1: ten was basically funds, mostly passive, but right there bang
13:12
Speaker 1: in the middle was in Video. It's the only single
13:14
Speaker 1: stock in the top ten, the only single stock being
13:17
Speaker 1: brought by this very large and quite well off group
13:19
Speaker 1: of UK investors. That was it. So they're still buying.
13:23
Speaker 3: Yeah, and there should be a test where they have
13:26
Speaker 3: to say what in Vidia actually does? That would be good?
13:29
Speaker 1: Well, I mean you're you're not in a minority, won't
13:32
Speaker 1: mean it's a biggish minority of thinking. There should be
13:35
Speaker 1: more education before people are allowed to go and punt
13:37
Speaker 1: into visual stocks in the UK and possibly in the
13:39
Speaker 1: US as well. But nonetheless, so it shows that there's
13:42
Speaker 1: there's a little bit of appetite there. But maybe those
13:44
Speaker 1: retail investors are the last ones in. And valuation really
13:49
Speaker 1: does matter again. Okay, so we've got tech coming off,
13:54
Speaker 1: small caps rising, and everywhere that you are looking, you
13:59
Speaker 1: are seeing your favorite investment style getting going, which is
14:04
Speaker 1: value plus momentum. Right, you always look for value. You
14:08
Speaker 1: make money when that value gets a little momentum.
14:11
Speaker 3: Yes, And then now we get a brief period of
14:15
Speaker 3: a feeling of elation and satisfaction and that we know
14:19
Speaker 3: what we're doing, followed by a period of fear because
14:23
Speaker 3: our stocks are getting expensive. So there, unfortunately for a
14:27
Speaker 3: conturing we we only have a very small window where
14:29
Speaker 3: we actually feel okay, and we may be in that
14:32
Speaker 3: small window.
14:33
Speaker 1: Now, okay, Well let's talk about well, not in everything,
14:36
Speaker 1: a small window in a few small things, right, So
14:39
Speaker 1: let's look at how you've been making money over the
14:41
Speaker 1: last couple of years. So you've done your record of
14:44
Speaker 1: three years and over five years is really pretty extraordinary.
14:48
Speaker 1: And one of the things that you've been holding well
14:50
Speaker 1: all the things that a couple of years nobody else
14:52
Speaker 1: would hold, right, defense, energy, etc. So I remember we
14:56
Speaker 1: talked about defense a good few years ago. At the
14:59
Speaker 1: time when nobody would hold defense dogs. They were an ESG. No, No,
15:04
Speaker 1: they couldn't be hold held in any funds that had
15:07
Speaker 1: an ESG overlay or any kind of social overlay. And
15:12
Speaker 1: then suddenly, obviously a year or so ago, that that
15:14
Speaker 1: all changed, and they've performed extremely well since then. And
15:17
Speaker 1: I think you've had a lot of defense dogs, right, yes.
15:20
Speaker 3: And you know people used to ask when when ESG
15:23
Speaker 3: was a thing. You know, are you are you making
15:26
Speaker 3: money for clients off ESG? And I would say no,
15:29
Speaker 3: but we're going to because it was it was puking
15:33
Speaker 3: out so many amazing companies. To be able to buy
15:37
Speaker 3: European defense contractors at single digit multiples, mid single digit
15:41
Speaker 3: multiples when Putin had already invaded Ukraine. That was just
15:45
Speaker 3: absolutely nuts. And you know, same on the energy transition side,
15:49
Speaker 3: where rainbows and unicorn farts aren't gonna aren't going to
15:55
Speaker 3: power electricity and you know, flicking switches and having light
15:58
Speaker 3: bulbs come on, which is a real thing.
16:01
Speaker 1: We'll come back to the energy transition. I'm feeling you've
16:03
Speaker 1: got quite a lot to say that, but let's stick
16:05
Speaker 1: with defense for the moment. You've done very well out
16:08
Speaker 1: of that. These stocks have gone up a lot, an
16:11
Speaker 1: awful lot. But with a probable Trump presidency coming through,
16:19
Speaker 1: one of the things that people keep talking about is
16:21
Speaker 1: a great Trump trade is European defense stocks. Is there
16:25
Speaker 1: still a lot of room there in that sector?
16:27
Speaker 3: Do you think i'd start with? You know, they're up
16:30
Speaker 3: five to six fold and we were lucky enough to
16:34
Speaker 3: ride that wave. But the earnings expectations are up three
16:38
Speaker 3: to four fold, So you know, it's not like these
16:41
Speaker 3: things are just going up with no fundamentals backing them.
16:46
Speaker 3: And you know, absolutely when the higher Trump gets in
16:50
Speaker 3: the polls, the more positively the European defense names react.
16:55
Speaker 3: And you know, just bigger picture, he sent a shot
16:59
Speaker 3: a US about six seven years ago now to the
17:03
Speaker 3: Europeans saying you need to provide for your own defense.
17:07
Speaker 3: And you know, defense is a very odd industry. You
17:13
Speaker 3: spend on defense one to protect yourself, but two to
17:18
Speaker 3: stimulate your own industry and your own R and D.
17:21
Speaker 3: So the Europeans will will spend more on defense, begrudgingly,
17:27
Speaker 3: but they're going to spend on European defense contractors. They're
17:30
Speaker 3: not going to buy stuff from Lucky and Lucky Martin
17:33
Speaker 3: and Northrop. In the US, that was the old game
17:37
Speaker 3: where the US as we're protecting you, now you buy
17:40
Speaker 3: US equipment. So there is a long run here potentially, uh.
17:45
Speaker 1: Huh okay, So which names look interesting to you?
17:49
Speaker 3: We stuffle them around a little bit as they get
17:51
Speaker 3: ahead of themselves. The first name we bought would have
17:54
Speaker 3: been Ryan Mattow, which people couldn't spell, and now they
17:58
Speaker 3: can spell it, so we need to trim a little
18:00
Speaker 3: I motel now that people know that it's got an
18:02
Speaker 3: H in it and two l's.
18:03
Speaker 1: Now not everybody listening to this podcast is going to
18:06
Speaker 1: know about about rhymetel little and be able to spell it.
18:09
Speaker 1: So tell us a little bit about that.
18:12
Speaker 3: They make tanks and artillery, the Leopard tank, the famous
18:17
Speaker 3: German tank makers. And it was thought a decade ago,
18:23
Speaker 3: five years ago, was thought that we didn't need tanks anymore.
18:26
Speaker 3: We just had smart things that eliminated people without having
18:30
Speaker 3: to move heavy equipment.
18:31
Speaker 1: Around satellites with lasers. No need for tanks.
18:34
Speaker 3: Yeah, yeah, and lo and behole. We need tanks now.
18:38
Speaker 3: So they are the world's pre eminent tank manufacturer, and
18:42
Speaker 3: they're getting a lot of orders.
18:43
Speaker 1: Getting a lot of orders, and presumably at this rate,
18:45
Speaker 1: we're going to continue to get a lot of orders. Okay.
18:47
Speaker 1: And what else?
18:49
Speaker 3: Saab We were very early on in Saab, which now
18:52
Speaker 3: people are starting to figure out is not a car company,
18:56
Speaker 3: but they make everything from fighter jets to anti tank rockets.
19:00
Speaker 3: So that's one of the wonderful things about defence, if
19:02
Speaker 3: you can call it that, is that when you design
19:05
Speaker 3: a weapon, you also are creating sales for somebody else
19:08
Speaker 3: that designed something to kill that weapon. So SAB has
19:12
Speaker 3: seen a booming business. They're also Europe's number one sub maker.
19:17
Speaker 3: So SAB is a is a very big defense contractor.
19:22
Speaker 3: Leonardo is one that we've bought more recently. We tried
19:27
Speaker 3: to buy it four years ago or so, but we
19:30
Speaker 3: didn't like some of the corporate covenants that we found,
19:33
Speaker 3: and since then they've they've really turned the turn the corner.
19:37
Speaker 3: It's one of the things that Maloney has done quite
19:39
Speaker 3: well in Italy is as straightened out Leonardo and we
19:44
Speaker 3: owned we owned BAE. Still in the UK it is
19:49
Speaker 3: kind of the steady eddy of defense contractors. But more importantly,
19:53
Speaker 3: we've wandered east where we see a much more reliable
19:58
Speaker 3: Cold war alike environment. Everyone's focused on the Ukraine, but
20:02
Speaker 3: it's really the Pacific basin that's that's going to be
20:05
Speaker 3: the hot spot longer term, more reliably. So Hindustan in
20:11
Speaker 3: India is becoming the National Champion of India in defense,
20:16
Speaker 3: and Hanwa in Korea similarly as the National Champion of Korea.
20:26
Speaker 3: Both of those names are up five seven, but again
20:31
Speaker 3: their earnings expectations are up about the same amount. So
20:34
Speaker 3: they're still still cheap. And then the biggest of them
20:37
Speaker 3: all is Mitsubishi Heavy in Japan. So Japan needs to
20:45
Speaker 3: go from one percent of spending one percent of GDP
20:49
Speaker 3: spending in defense to over two which is a massive
20:53
Speaker 3: doubling of defense spending. Mitsubishi Heavy is the biggest recipient
20:58
Speaker 3: of that.
21:00
Speaker 1: He said that just back at the beginning of this conversation,
21:02
Speaker 1: before we moved into Hindustan and Hanua and Mittsubishi, he
21:06
Speaker 1: said that you felt that the real center of the
21:08
Speaker 1: Cold War was going to be in that area. It
21:10
Speaker 1: took us through what you mean by that.
21:13
Speaker 3: You have when you have a rising superpower and and
21:17
Speaker 3: a waning superpower. That's indeed what we have. One hundred
21:21
Speaker 3: percent of the time, they wind up fighting, and the
21:25
Speaker 3: US is dead set on ensuring that that fight, if
21:28
Speaker 3: it takes place, will take place in China's backyard, not
21:33
Speaker 3: in the United States backyard. And China has designs obviously
21:37
Speaker 3: everyone knows on Taiwan. They also have designs on the
21:42
Speaker 3: South China Sea, which is where all the oil and
21:44
Speaker 3: gas is and and China desperately needs a secure source
21:49
Speaker 3: of oil and gas because you know, if they if
21:53
Speaker 3: they piss off the rest of the world enough, the
21:57
Speaker 3: various straits will be blockade did and China will lose
22:01
Speaker 3: access to Russian and Mid East oil. So they need
22:05
Speaker 3: to they need to secure their own supply and they
22:07
Speaker 3: have none on land, so they need the soell China
22:09
Speaker 3: see for that. So all the headlines that you're seeing
22:11
Speaker 3: around them douking it out with the Philippines or Vietnam
22:17
Speaker 3: for random islands and the in the South China, see,
22:20
Speaker 3: it's all about oil and gas.
22:22
Speaker 1: Interesting and so that's that's where you want to be
22:24
Speaker 1: holding those defense stocks as well. Well, we might as
22:27
Speaker 1: well stick with oil and gas. No, now we're there.
22:30
Speaker 1: You've you've been holding energy stocks a wed long time.
22:33
Speaker 1: I remember talking to you, gosh, three or four five
22:35
Speaker 1: years ago, and you already fairly overweight energy on the
22:39
Speaker 1: basis that if no one else was going to buy
22:41
Speaker 1: them at buy the big energy companies at that price,
22:43
Speaker 1: you would you would buy them and you would wait.
22:45
Speaker 1: And that again has worked out pretty well, hasn't it.
22:49
Speaker 3: It has? And you know that it wasn't as simple
22:53
Speaker 3: as let's buy cheap stuff and weight We did have
22:57
Speaker 3: a thesis that.
22:58
Speaker 1: I didn't mean to make it sound. I didn't mean that.
23:02
Speaker 3: Yeah, yeah, there's a there's a fine line between being
23:07
Speaker 3: contrarian and just being contrary. So just being contrary would
23:10
Speaker 3: be buying everything that's cheap. Being contrarian puts a little
23:14
Speaker 3: more value add in it, and the value add then
23:17
Speaker 3: was still pretty simple. It was, you know, the platitudes
23:20
Speaker 3: around ESG were just crap. You know, I don't know
23:25
Speaker 3: of a of a kinder way to say it, but
23:29
Speaker 3: it was a belief that eventually all platitudes run into
23:33
Speaker 3: physics and chemistry and lose. And when the physics and
23:37
Speaker 3: chemistry of electrifying the world turns into reality and people's
23:42
Speaker 3: electricity bills have gone up, as I know you've experienced
23:46
Speaker 3: in the UK, then then people will get real about
23:51
Speaker 3: what the most efficient energy sources are and what's realistic,
23:55
Speaker 3: what's possible over what time frame, And we're going to
23:58
Speaker 3: have to revert back to at least natural gas being
24:02
Speaker 3: the quote unquote transition fuel if we ever, if we
24:05
Speaker 3: have a completed transition. But really more recently we have
24:10
Speaker 3: shifted that oil and gas heavy exposure into critical energy infrastructure,
24:17
Speaker 3: which I still consider to be energy exposure, but it is.
24:25
Speaker 3: It's hitting a different part of the of the value
24:27
Speaker 3: chain and one that we think is far more defensible
24:30
Speaker 3: from a what's going to get spent money on over
24:33
Speaker 3: the next twenty years.
24:35
Speaker 1: So you're talking about electricity generation and in particular about
24:38
Speaker 1: the grid.
24:41
Speaker 3: Yeah, And so I started out in this industry as
24:44
Speaker 3: a utility analyst, as an electric utility analyst, and it's
24:47
Speaker 3: kind of the it's kind of the sector that everyone
24:50
Speaker 3: wants to get away from because it's so boring and
24:54
Speaker 3: doesn't grow. I enjoy I quite enjoyed it, because I
24:59
Speaker 3: guess I was a contro and because no one enjoyed it,
25:01
Speaker 3: I did. But one of the degrees that you get
25:05
Speaker 3: when you graduate from being an electric utility analyst is
25:09
Speaker 3: a degree in understanding how old the grid is and
25:12
Speaker 3: how desperately it needs to be upgraded and modernized. That
25:19
Speaker 3: for me was around two thousand and two thousand and one.
25:23
Speaker 3: So the grid was old in two thousand and two
25:27
Speaker 3: thousand and one. It's really old now because the regulators
25:31
Speaker 3: refuse every attempt to modernize because it makes the bills
25:35
Speaker 3: for customers more expensive. So we now have a grid
25:39
Speaker 3: in the Western world that was built after World War
25:42
Speaker 3: Two that hasn't been upgraded at all. But I think
25:45
Speaker 3: I'm starting to fall apart.
25:46
Speaker 1: Until then, yeah, there was a period when that kind
25:48
Speaker 1: of didn't matter. It wasn't there. I mean, even when
25:50
Speaker 1: you were a utilities analyst, the demand for electricity, even
25:54
Speaker 1: as populations grew, the demand for electricity was not growing
25:57
Speaker 1: because everything was becoming more efficient. Energy demand across the
26:01
Speaker 1: worst kind of flatline for a while. So this until
26:03
Speaker 1: really quite recently. So this wasn't something anyone was much
26:06
Speaker 1: bothered about because you could patch it up and nothing
26:08
Speaker 1: dramatic was happening. It's only with the idea of the
26:12
Speaker 1: energy transition and wanting to decarbonize, et cetera, that suddenly
26:16
Speaker 1: the state of the grid has become incredibly important because
26:19
Speaker 1: demand for electricity has gone ballistic, and so has demand
26:23
Speaker 1: for connections to the grid. So that's been the change
26:27
Speaker 1: over the last say, five six years.
26:30
Speaker 3: Thank god for ESG, because it was really kicked off
26:35
Speaker 3: and spurred. That catalyst was ESG, and ESG saying, or
26:41
Speaker 3: the War on carbon or decarbonization or whatever element you
26:45
Speaker 3: want to pick from, that was that we can solve
26:48
Speaker 3: everything with electricity because it's abundant and virtually free, especially
26:53
Speaker 3: if we roll out windmills and solar panels, it can
26:58
Speaker 3: solve all our problems. They so all problems got laid
27:01
Speaker 3: onto electricity, that old boring thing that was guaranteed to
27:06
Speaker 3: spit out of your plug. We haven't had. You know,
27:10
Speaker 3: people were paying less and less for electricity over time.
27:12
Speaker 3: This is a wonderful thing. Let's just do more of it.
27:15
Speaker 3: The standard capitalism gets put into play. But what has
27:19
Speaker 3: happened to you know where the old electric utility graduate
27:24
Speaker 3: thesis meets investing and making money, is that that old
27:30
Speaker 3: grid that was built after World War two was pretty good,
27:34
Speaker 3: and it was never It was good in that it
27:37
Speaker 3: was built way past capacity. So those old wires fifty
27:42
Speaker 3: sixty some of these wires are seventy years old, were
27:46
Speaker 3: never strained to the point where they started sagging and
27:51
Speaker 3: lighting things on fire and snapping because they were only
27:54
Speaker 3: running at twenty percent capacity. So as you rolled out
27:58
Speaker 3: evs and you rolled out a electrification, that capacity factors
28:02
Speaker 3: started going from twenty to forty to sixty to eighty
28:06
Speaker 3: and those old power lines couldn't handle it. So that's
28:10
Speaker 3: what we're seeing now is the grids basically and quite
28:15
Speaker 3: literally falling apart. There are companies out there that were
28:20
Speaker 3: invested in that were considered so boring that the Europeans
28:26
Speaker 3: were allowed to consolidate it. You know, the world's crappy
28:31
Speaker 3: capital allocators decided to consolidate the wire and cable business
28:38
Speaker 3: around the world, and now the Europeans are dominant in
28:42
Speaker 3: that now very very important industry.
28:47
Speaker 1: This is Siemen's Energy for example.
28:49
Speaker 3: Well, Prismian is the Italian company. It's the old Pirelli cable.
28:54
Speaker 3: They've rolled up about forty percent market share of ex
28:59
Speaker 3: China global cable production. So these are the massive high
29:04
Speaker 3: voltage cables, the medium voltage cables that you see going
29:07
Speaker 3: past your neighborhood, and then the lower voltage ones that
29:10
Speaker 3: you see coming down off the poles and getting and
29:12
Speaker 3: coming to your house. And next in in France and
29:18
Speaker 3: NKT in the Netherlands. Between them they had eighty percent
29:23
Speaker 3: of the free world's cable capacity. Zemons is along with
29:29
Speaker 3: GE and Mitsubishi Heavy. They dominate in gas turbines for
29:35
Speaker 3: electric utilities, steam turbines for nuclear plants, and in the
29:41
Speaker 3: case of Zemans Energy, they dominate around transformers and switches,
29:47
Speaker 3: all incredibly important things. If you want a functioning grid
29:50
Speaker 3: and all things that are now sold out. So remember
29:54
Speaker 3: this went from being a GDP maybe minus one type
29:58
Speaker 3: growth rate sector to being to these companies being sold
30:01
Speaker 3: out through twenty twenty seven, twenty eight.
30:04
Speaker 1: But they are nonetheless not valued as growth stocks.
30:07
Speaker 3: No they're not not yet, so they're still cheap. They
30:10
Speaker 3: are still cheap. Yes, incorrect, that's not yet.
30:14
Speaker 1: Maybe that'll change now. One of the extraordinary things about
30:17
Speaker 1: the grid, and I don't know if you have this
30:19
Speaker 1: in the US yet, but we certainly have that here
30:21
Speaker 1: is when you talked earlier about happy thoughts meeching hit
30:25
Speaker 1: happy thoughts hitting reality. You know we have that here
30:28
Speaker 1: in the UK now, as the idea of green hits
30:31
Speaker 1: the reality of rebuilding the grid. And we've had a
30:34
Speaker 1: wonderful little incident since the election of a Green MP
30:39
Speaker 1: objecting to pylons going up in this constituency because you know,
30:43
Speaker 1: they're kind of ugly.
30:45
Speaker 3: That's amazing, you know.
30:47
Speaker 1: So there is there's an endless, endless fun to be
30:49
Speaker 1: had here as we watch not only the old grid
30:53
Speaker 1: being refurbished and replaced, but the major build out of
30:57
Speaker 1: the grid that is required if you want to electrify
31:01
Speaker 1: everything and that means large parts of the country having
31:04
Speaker 1: having grids and pylons put down through them, views being ruined,
31:08
Speaker 1: lots of people having pilons much closer to the houses
31:11
Speaker 1: than maybe they ever had before, et cetera. And I'm
31:14
Speaker 1: interested to see when the pushback comes and how it comes.
31:19
Speaker 3: Well, you you know that politician can can bury them.
31:23
Speaker 3: He can he can say, let's spend four times as
31:26
Speaker 3: much and you can bury them, which they do in
31:28
Speaker 3: California because of the wildfire risk. And we own a
31:31
Speaker 3: company that does that, soy coverage funny covered. We are
31:36
Speaker 3: fully covered because the politicians are not going to want
31:40
Speaker 3: pylons everywhere and and or if there's any kind of
31:43
Speaker 3: fire risk, you have to bury them.
31:45
Speaker 1: Now ESG has come to an end, or pretty much
31:47
Speaker 1: come to an end, and that there are plenty of
31:48
Speaker 1: articles around at the moment telling us that people are
31:50
Speaker 1: taking ESG related names of their funds, that ESG departments
31:55
Speaker 1: are disappearing or at least being merged into real departments.
31:58
Speaker 1: We saw Microsoft making loads of their DEI self redundant,
32:02
Speaker 1: et cetera. So a lot of these things that John
32:05
Speaker 1: and I talk about a lot as being as being
32:07
Speaker 1: luxuries of a low interest rate age and slowly disappearing.
32:11
Speaker 1: In fact, you need to display quite fast goodbye ESG,
32:14
Speaker 1: good bye DEI in a corporate context. But these have
32:16
Speaker 1: been wonderful things for your industry, for the fund management
32:19
Speaker 1: industry to sell, right, I've been a marvelous sales opportunity.
32:23
Speaker 1: Look you might you might not like that fund, but
32:24
Speaker 1: boy have I got another one for you, And this
32:26
Speaker 1: one's all green. If that's going, what do you think
32:30
Speaker 1: your industry is going to flog next?
32:33
Speaker 3: Our industry has not covered itself with glory in this
32:36
Speaker 3: in this regard, and it did the same thing in
32:39
Speaker 3: the late nineties when socially responsible investing came out. Everyone
32:42
Speaker 3: came out with a social responsible fund and gathered money
32:46
Speaker 3: while they could gather money, and you know, and and
32:50
Speaker 3: then cover themselves and we're doing this for the good
32:52
Speaker 3: of the world. Yeah right, And then as soon as
32:57
Speaker 3: the money starts flowing out, they change the name again
32:59
Speaker 3: to something else to try and market it. And you know,
33:03
Speaker 3: we Orbis, we don't play that game. We've never played
33:07
Speaker 3: that game. We actually refuse to put out all the
33:12
Speaker 3: ESG statements that we were required to put out we
33:15
Speaker 3: put out. We put them out because the regulators required
33:17
Speaker 3: us to. But we called them responsible investing, which is
33:22
Speaker 3: something that we could relate to and say, you know,
33:24
Speaker 3: this is what we've always done. Of course we're responsible investors,
33:28
Speaker 3: but we're not going to sign off on some platitude
33:31
Speaker 3: riddled bit of marketing. I don't know what our industry
33:35
Speaker 3: is going to do next. I guess we'll just revert
33:37
Speaker 3: back to selling funds. However, however we can tell them,
33:41
Speaker 3: which is just always the case. Could have done a
33:44
Speaker 3: better job as an industry of saying hold on, this
33:48
Speaker 3: is not something where you wave a magic wand and
33:50
Speaker 3: stuff happened. We tried, you did.
33:55
Speaker 1: Try, you did try, and I'm just instant to see
33:58
Speaker 1: what what comes. MAXIMUM always so impressed with the fund
34:02
Speaker 1: management industry. I'm impressed by the funds that do well, obviously,
34:05
Speaker 1: but one of the things that impresses me most is
34:07
Speaker 1: the marketing machine the industry creates and how it moves
34:10
Speaker 1: on and on and on and continues to gather us
34:13
Speaker 1: as under new marketing techniques. But we'll talk about this
34:16
Speaker 1: again in a couple of years when it becomes clear
34:19
Speaker 1: what it's going to be. Let's talk about the UK.
34:22
Speaker 1: Now we've talked about this before, both today and other times,
34:26
Speaker 1: about it being just bizarrely cheap. And you've mentioned that
34:29
Speaker 1: you own BAE and andros Royce interested in both those
34:33
Speaker 1: dogs trading on on bizarrely low evaluations. And John and
34:36
Speaker 1: I were talking earlier about how extraordinary it is. It
34:39
Speaker 1: it's not just small caps trading and trading it discounts
34:42
Speaker 1: to global small caps. It's it's our big companies are
34:45
Speaker 1: really well run and impressive, globally known companies that until
34:50
Speaker 1: twenty fifteen or so, even if even if you if
34:52
Speaker 1: you adjusted for sector I took out tech, adjusted for
34:56
Speaker 1: that in twenty fifteen, are our big companies are well
34:59
Speaker 1: known call companies. We're trading at very similar valuations to
35:02
Speaker 1: US companies, And then relate to twenty fifteen, two thousand
35:06
Speaker 1: and sixteen. We got our political discount, let's just call
35:08
Speaker 1: it that political discount that is allowed a sometime. And
35:11
Speaker 1: these companies are still all these years on trading it
35:16
Speaker 1: bizarre discounts to their peers in the US, and we
35:20
Speaker 1: have this feeling that it's ending, it's over, the turning
35:24
Speaker 1: point is being reached, or is it another is it
35:26
Speaker 1: a false storm, or is this really a turning point,
35:28
Speaker 1: you think, and I know you are invested in the UK.
35:33
Speaker 3: Yeah, so again, and maybe it's more hope than identifiable catalysts.
35:37
Speaker 3: But you know the most powerful thing in investing is value.
35:42
Speaker 3: So just buying something cheap plus momentum, operating momentum and
35:46
Speaker 3: price momentum. The operating momentum gets the stocks going, and
35:51
Speaker 3: then the price momentum of the stocks going gets the
35:53
Speaker 3: investors interested. And you know, we have a window in
35:57
Speaker 3: time here when the UK names in particularly the mid
36:03
Speaker 3: caps that used to be that anywhere else would be
36:05
Speaker 3: a large cap, and the small caps that anywhere else
36:08
Speaker 3: would be a MidCap because they'd be valued more, are
36:11
Speaker 3: starting to outperform the magnificent seven. So you know, there
36:18
Speaker 3: people are going to pay attention at some point. I think,
36:21
Speaker 3: I think maybe they maybe it's starting. I haven't been
36:25
Speaker 3: I haven't been in the UK in a few months.
36:28
Speaker 3: But one of the things I like to do is
36:30
Speaker 3: when when bringing these names up amongst groups of investors,
36:34
Speaker 3: to listen to what they say, what their reaction is.
36:37
Speaker 3: And you know, up until very recently, it was you're
36:42
Speaker 3: wasting your money on owning these these are you know,
36:47
Speaker 3: we don't do companies, Well, we don't manage companies. Well,
36:52
Speaker 3: the government doesn't interact with the corporate world. Well, we're
36:55
Speaker 3: just all screwed up and don't bother. You keep your
36:58
Speaker 3: money in the US. Uh. And more recently it's been
37:04
Speaker 3: you know, maybe they'll have a little bit of a
37:05
Speaker 3: run and you know, but still not super excited about them.
37:10
Speaker 3: And you know, a year from now it may be
37:15
Speaker 3: waving the waving the British flag and talking about how
37:18
Speaker 3: how great British industry is. And British industry is great.
37:23
Speaker 3: There are great companies there. So the the value is
37:29
Speaker 3: there not just in the multiple but also in the
37:33
Speaker 3: way the companies are operated and what they do and
37:36
Speaker 3: what their intellectual property is. And we're just gonna sit
37:40
Speaker 3: there and wait and you know, count this momentum as
37:43
Speaker 3: a catalyst in and of itself and enjoy the right
37:47
Speaker 3: of it. So, you know, we talked about some themes
37:50
Speaker 3: that might be a bit longer in the tooth like
37:52
Speaker 3: defense because everyone believes now believes are back in the
37:55
Speaker 3: cold warp. But the UK UK equities is really you know,
38:01
Speaker 3: just at the beginning, because we've had doubles and triples
38:05
Speaker 3: in some of our names and they're still selling it
38:07
Speaker 3: single digit earnings multiples, which is which is crazy.
38:11
Speaker 1: Are you still holding any of our energy companies and
38:13
Speaker 1: our oil companies in particular.
38:15
Speaker 3: Own Shell Shell is the largest is the largest critical
38:21
Speaker 3: energy infrastructure company in the world. So it's not people
38:24
Speaker 3: think of it as an oil and gas explorer like
38:26
Speaker 3: the rest of them, but they touch most of the
38:29
Speaker 3: natural gas molecules that move around the world. It's a
38:33
Speaker 3: it's a massive critical energy infrastructure company. Love to be
38:38
Speaker 3: hated drags. I talked you and I have talked about
38:42
Speaker 3: drags for a long, long long time we.
38:46
Speaker 1: Have, but I've got to say that there's a lot
38:48
Speaker 1: of hate for drags in the UK. There's a lot
38:50
Speaker 1: of the conversation about what else are they doing, uh,
38:54
Speaker 1: you know, chopping chopping down trees in Canada, making them
38:57
Speaker 1: into pellets, which is an energy intersive process in itself,
39:00
Speaker 1: dragging them across the Atlantic and then burning them here
39:03
Speaker 1: to make electrictic Can this really be more efficient than
39:06
Speaker 1: just digging up our own coal and burning it. That's
39:10
Speaker 1: the daily mail case in a nutshell.
39:13
Speaker 3: Yeah, and maybe maybe I can create some hate mail
39:16
Speaker 3: from you that isn't just about bitcoin.
39:18
Speaker 1: But that would be really great because I'm bought of
39:21
Speaker 1: my bitcoin. Hate mail.
39:23
Speaker 3: When you're as big a biomass industry is that certainly
39:26
Speaker 3: somebody can find a tree somewhere that made it into
39:29
Speaker 3: a pelleting mill. It's probably a disease tree that can't
39:33
Speaker 3: do any that can't produce lumberer and can't produce higher
39:36
Speaker 3: value things. We don't want to do a deep dive
39:40
Speaker 3: into drags, but I'm happy to you want to do
39:42
Speaker 3: a full hour on drags alone.
39:44
Speaker 1: I don't want to do a full hour, but I
39:47
Speaker 1: do want you just to tell me where the trees
39:51
Speaker 1: actually come from. And you told me before, and Drag
39:54
Speaker 1: says that it's just you know, it's bitch that wouldn't
39:56
Speaker 1: get used in anything else. These trees are being cut
39:58
Speaker 1: down anywhere. It's the way would being made inte pellets.
40:01
Speaker 3: That's right, It is the wastewood being made into pellets.
40:04
Speaker 3: That the regulation requires that eighty percent of the biomass
40:07
Speaker 3: that they use be come from wastewood. They're at ninety
40:11
Speaker 3: nine point ninety nine. They get their biomass from the
40:16
Speaker 3: lumber yard's paper mills of the southeast US. And this
40:20
Speaker 3: is Georgia Florida, South Carolina, Alabama, which were all which
40:25
Speaker 3: are all forests that were planted one hundred hundred and
40:28
Speaker 3: fifty years ago to make paper and to make lumber.
40:31
Speaker 3: These are manufactured forests or timberlands that in fact, since
40:37
Speaker 3: the advent of pelletization and the extra profits that that
40:41
Speaker 3: pelletizing gave to the to the timberland owners, the timberland
40:47
Speaker 3: in the US has expanded. It is not being cut
40:51
Speaker 3: down and denuded. It's expanding because it's more profitable to
40:56
Speaker 3: produce pine than it is to produce cotton. And cotton
41:02
Speaker 3: is an absolutely nasty product from a from an environmental standpoint,
41:06
Speaker 3: so you're replacing Poetization has has spurred the replacement of
41:11
Speaker 3: a nasty farming product with a with a very good
41:17
Speaker 3: farming product. In the northwest of Canada, they are again
41:21
Speaker 3: that is a that's been a forest, a temper land
41:24
Speaker 3: that's been managed by the Canadian government very well for
41:28
Speaker 3: over two hundred years. And I think, you know, if
41:31
Speaker 3: the Brits took a page from the Americans and the Canadians,
41:33
Speaker 3: maybe Britain would still have a forest somewhere.
41:35
Speaker 1: We do have forests, well, we have some forests. Come
41:38
Speaker 1: to Scotland Alec. We have a lot of forests. We
41:40
Speaker 1: have maybe not quite as well managed as your Canadians,
41:43
Speaker 1: but we have forests anyway. So okay, I've no London
41:46
Speaker 1: new word paletization, so we can probably move on from
41:49
Speaker 1: drags now. Now listen, there's one other solutions that I
41:54
Speaker 1: write about quite a lot, solution to our transition, our
41:57
Speaker 1: decombination problem, and that that building little nique plants all
42:00
Speaker 1: over the place. And you, Neil obvious answered that would
42:04
Speaker 1: be to invest in uranium. Is there something you look
42:06
Speaker 1: at or incident?
42:07
Speaker 3: The obvious answer might be to invest in uranium, but
42:10
Speaker 3: I think the most profitable investment would be in Rolls Royce.
42:15
Speaker 3: They've been building small modulary actors since nineteen fifty two
42:19
Speaker 3: for the British Navy in the submarines. They've never had
42:24
Speaker 3: an accident. They are really good at it by now,
42:28
Speaker 3: and the UK government just needs to approve their designs
42:33
Speaker 3: and get behind them as a as A as a
42:36
Speaker 3: British global champion. Again, everyone is fascinated by built what
42:41
Speaker 3: you know, whatever project Bill Gates is funding, but here
42:46
Speaker 3: is a proven SMR technology right under British noses that
42:54
Speaker 3: what if the UK led the way in SMRs for
42:58
Speaker 3: the world, and rallied around Rolls Royce to do that
43:05
Speaker 3: and in doing so creating an entire ecosystem supply chain
43:10
Speaker 3: that can be in the UK. These are the bits
43:14
Speaker 3: and bobs and a small, small modular reactor are just
43:17
Speaker 3: the things that the British people do extremely well, very
43:21
Speaker 3: high tech machine parts effectively. It's great, let's do it.
43:27
Speaker 1: It would be a lot more effective than trying to
43:29
Speaker 1: lead the world and wind and solo, wouldn't It Not
43:31
Speaker 1: going to.
43:32
Speaker 3: Happen that that game has done. But SMRs is up
43:36
Speaker 3: for grabs and I would encourage this government, this new
43:40
Speaker 3: government to do whatever they can to make a national
43:43
Speaker 3: champion out of a company that's building SMRs, been building
43:47
Speaker 3: SMRs for seventy five years.
43:52
Speaker 1: Yeah, and so that they don't even have to pour
43:54
Speaker 1: a pile of money and y the new National Wealth Fund.
43:57
Speaker 1: All they have to do is I actually approve the
43:58
Speaker 1: designs and be supportive. Say nice things is one of
44:02
Speaker 1: those things when all they have to do is say
44:03
Speaker 1: nice stuff. You don't get that often as a.
44:04
Speaker 3: Government and politicians are really good at saying nice things.
44:08
Speaker 3: Just wish they do it. For Ross Rice.
44:11
Speaker 1: Inflation and government debt, and which leads us then on
44:14
Speaker 1: to gold. I know that you are not a huge
44:18
Speaker 1: believer in the idea that we're all done with inflation.
44:21
Speaker 1: We're back to around two percent. That's it. We don't
44:23
Speaker 1: need to talk about that. There's anymore. It's over. I
44:26
Speaker 1: don't think that's how you feel, is it? Well?
44:29
Speaker 3: You know, I do think that we're going to get
44:30
Speaker 3: inflation at two percent. And this is how you know.
44:34
Speaker 3: They keep redefining what CPI is. Right, whatever is annoyingly
44:40
Speaker 3: adding to inflation, they just take out of the CPI.
44:43
Speaker 3: So here's my plan for how the Fed Reserve gets
44:48
Speaker 3: to two percent inflation. They just define CPI equals too,
44:54
Speaker 3: and there we go. You don't have to kick everything out,
44:57
Speaker 3: just just get just get to the end of the
45:00
Speaker 3: game and define cpis too and fix it there. And
45:03
Speaker 3: then you can tell when you're a you're at two
45:05
Speaker 3: percent CPI. Because I think if you know, all your
45:08
Speaker 3: listeners before yeah, I mean all your listeners would realize
45:12
Speaker 3: would readily understand that the the CPI that's being stated
45:19
Speaker 3: on TV and radio is nowhere close to what their
45:23
Speaker 3: own CPI is. As they go to market and they
45:26
Speaker 3: pay rent and they pay the utility bills and pay
45:28
Speaker 3: their car insurance. It ain't four percent, and it hasn't
45:32
Speaker 3: averaged five percent over the last three years. It's been
45:35
Speaker 3: more like ten twelve percent in reality. So as long
45:40
Speaker 3: as we're not dealing in reality with CPI, let's just
45:43
Speaker 3: let's just get done with it, be done with it,
45:46
Speaker 3: and call it two percent. But leaving that aside, we
45:51
Speaker 3: cannot get to two percent inflation in any of the
45:54
Speaker 3: math that we do and the and we look at
45:55
Speaker 3: it two ways, you know, one a very standard way
45:59
Speaker 3: monetorists way of looking at it, which basically says, if
46:02
Speaker 3: the government's going to print money like crazy, then and
46:07
Speaker 3: spend money like drunken sailors, although sailors now don't drink
46:10
Speaker 3: as much, and so I think we need to say
46:13
Speaker 3: we need to change that to spending like drunken politicians,
46:16
Speaker 3: because they seem to be the ones that are good
46:18
Speaker 3: at drinking and spending money. They This is absolutely unsustainable.
46:26
Speaker 3: The United States now has a has a deficit to
46:31
Speaker 3: GDP of nearly one hundred and twenty percent. That is,
46:39
Speaker 3: that's completely bonkers and or sorry debt debt to GDP
46:44
Speaker 3: of one hundred and twenty percent. The interest expense is skyrocketing.
46:47
Speaker 3: The interest expense for two decades normalized for CPI was
46:54
Speaker 3: around five hundred billion. It's shooting up. It's on its
46:57
Speaker 3: way to shooting up to almost two billion as a
47:01
Speaker 3: run rate for twenty twenty five. And to put that
47:04
Speaker 3: in context, because people don't we don't understand trillions anymore.
47:09
Speaker 3: The defense outlay in the US, which is the biggest
47:12
Speaker 3: defense spender in the world, is around eight hundred billion,
47:17
Speaker 3: so it's blown right through defense and now it's double
47:21
Speaker 3: the cost of spending on defense in the US, and
47:24
Speaker 3: it's skyrocketing higher, which is creating a death SPIRALBT in
47:29
Speaker 3: interest expense that is massively inflation area. We can pretend
47:36
Speaker 3: all we want that it's not, which is what we're doing.
47:38
Speaker 3: We're kind of pretending and extending and it's just getting
47:41
Speaker 3: worse and worse and worse. And if you look at
47:44
Speaker 3: the two political candidates for president, they have a lot
47:49
Speaker 3: in common. They both love spending and Trump loves cutting taxes,
47:55
Speaker 3: so both of which stimulate the economy short term but
47:59
Speaker 3: eventually have to be paid off. And they're just the
48:05
Speaker 3: US economy now is addicted to government spending, which by
48:09
Speaker 3: the way, feeds directly into GDP that makes the US
48:11
Speaker 3: look great. The more you spend, the stronger your GDP is,
48:15
Speaker 3: the more people want to send their money from the
48:17
Speaker 3: UK to the S and P five hundred. But this
48:21
Speaker 3: is unsustainable. We just can't understand a two percent inflation
48:26
Speaker 3: figure out ten twenty years. That doesn't mean that Marin
48:29
Speaker 3: that we could hit zero inflation next year. Who knows
48:33
Speaker 3: base effects, and you know it's a year over year thing.
48:36
Speaker 3: But if we're running a global balanced funds, we need
48:40
Speaker 3: to think about bonds in the context of their duration,
48:42
Speaker 3: and there's just no way we're going to buy a
48:45
Speaker 3: US Treasury at four point two five percent ten year
48:48
Speaker 3: treasury at four point two five percent if we think
48:50
Speaker 3: inflation is going to be over four point two five
48:52
Speaker 3: percent over the next ten years. We can't do that
48:54
Speaker 3: for our clients. So that's where we get into something
48:58
Speaker 3: like gold or treasury inflation protective securities.
49:02
Speaker 1: Okay, So that brings us to the very last question
49:04
Speaker 1: that I do ask everybody, but I think you pretty
49:08
Speaker 1: much already already answered it. Gold or bitcoin. We note,
49:12
Speaker 1: by the way, that Trump's new running mate is a bitcoiner,
49:16
Speaker 1: that he owns bitcoin, that is very keen on reducing
49:18
Speaker 1: regulation around crypto. And of course bitcoin has had a
49:22
Speaker 1: nice little bounce this week after all the previous weeks,
49:26
Speaker 1: apparently because of the German government selling. But if bitcoin
49:30
Speaker 1: is a Trump trade and quite popular at the moment,
49:33
Speaker 1: if I ask you distracted myself there thinking about Trump
49:36
Speaker 1: and Bitcoin, back to the cold question gold or bitcoin
49:41
Speaker 1: tended period, You're only allowed one to the Yeah.
49:43
Speaker 3: It's gold. But I'll give you the reason. Behavior how
49:50
Speaker 3: something behaves as important and people can say that that
49:55
Speaker 3: bitcoin is is the new gold, but they don't behave
50:00
Speaker 3: anything alike, and so nor should we expect them to
50:03
Speaker 3: be if anything alike, And what bitcoin behaves like the
50:06
Speaker 3: NASDAC its correlation to the Nasdaq is quite high. So
50:11
Speaker 3: you know, I don't think I'd own gold if it
50:13
Speaker 3: was highly correlated to the Nasdaq, because it's it provides
50:17
Speaker 3: you some diversity in a global balanced portfolio that at
50:21
Speaker 3: bitcoin just could never could never do.
50:25
Speaker 1: Alex, thank you, thank you very much. Indeed, that was
50:28
Speaker 1: all incredibly interesting and useful. And I'm kind of assuming
50:32
Speaker 1: that all our listener is now rushing out by Rolls
50:34
Speaker 1: Royce and drag Well see hate mails beusial address, Alex.
50:38
Speaker 1: Thank you so much for coming in today.
50:39
Speaker 3: Thank you, Maren, great talking to you.
50:43
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50:44
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