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Why Contrarians Can't Get Enough of Real Assets · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to Merin Talks Money,
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  Speaker 1: the podcast in which people who know the markets explain
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  Speaker 1: the markets. I'm Maren zum Zett Web and this week
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  Speaker 1: I am speaking with Merrin Talks Money regular Alec Cutler,
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  Speaker 1: manager of the August Global Balanced and Cautious Funds Always Investments,
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  Speaker 1: is a global contrarian as a manager, focusing on long
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  Speaker 1: term capital by investing in under valued stocks. Now this
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  Speaker 1: is paying off big time. If you have a look
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  Speaker 1: at the performance of Alex funds recently, they are really
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  Speaker 1: very impressive, beating pretty much every competitor in every index
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  Speaker 1: over the short and the long term. So Alec, welcome
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  Speaker 1: back to Marion Talks Money.
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  Speaker 2: Thank you, nice to be back. And I hope you
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  Speaker 2: didn't jinx me.
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  Speaker 1: I didn't jinx you. That's not a jinxing because that's
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  Speaker 1: not what we do. We leave the witchcraft to other podcasts. Okay, good,
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  Speaker 1: It's a big market out there. Everyone can have their specialism, Alec.
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  Speaker 1: Quite a lot has changed since we lost spoke, but
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  Speaker 1: nothing that I think your portfolio isn't already organized around.
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  Speaker 3: Last time we.
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  Speaker 1: Spoke about energy, we spoke about infrastructure, we spoke about
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  Speaker 1: the return of value investing, and in general, we framed
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  Speaker 1: the conversation inside the pyramid of need. I'll tell you what,
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  Speaker 1: Rather than me explain your own idea to you, you
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  Speaker 1: explained to us about your pyramid of need idea and
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  Speaker 1: how it is central to your current investing process.
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  Speaker 4: Sure Maslow came up with this thing called the pyramidive
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  Speaker 4: need for a human and the concept was that you
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  Speaker 4: needed to take care of your physiological needs, your shelter
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  Speaker 4: and housing and warmth and food, and then you needed
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  Speaker 4: to deal with your safety. Once you had your food
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  Speaker 4: and your shelter set, you needed to keep people from
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  Speaker 4: taking that from you, whether it be a saber tooth
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  Speaker 4: tiger or your neighbor. Then you could afford to need
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  Speaker 4: things like social belonging. And once you got that, once
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  Speaker 4: you got your crowd, your tribe, or whatever, you then
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  Speaker 4: could think about things like self esteem and self actualization
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  Speaker 4: the top of the pyramid. And our thinking was and
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  Speaker 4: has been and is that this also applies to countries
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  Speaker 4: and nations, and that if you think about it, some
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  Speaker 4: investment ideas pop out. But if you think about that
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  Speaker 4: base layer, the foundational layer of a nation's pyramid of needs.
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  Speaker 4: It's things like national security, food security, energy security, and
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  Speaker 4: right above that, if you take care of those things,
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  Speaker 4: then you can think about industrial security, and then above
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  Speaker 4: that financial security. And at the top of the pyramid
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  Speaker 4: the wants, the entertainment, popularity, and again self esteem. And
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  Speaker 4: we came up with this towards the tail end of
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  Speaker 4: the ESG movements like geist whatever you wanted to call it,
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  Speaker 4: because it struck us that things have been so good
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  Speaker 4: for so long we were living in a land of
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  Speaker 4: plenty with no danger. That nations became super focused on
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  Speaker 4: the top of the pyramid the wants and completely forgot
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  Speaker 4: about the foundational layers and took them for granted, like
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  Speaker 4: where does electricity come from? It comes from the switch
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  Speaker 4: on the wall. No understanding of how that foundation was
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  Speaker 4: built over decades and decades to allow you to have
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  Speaker 4: this high standard of living in abundance, and that it
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  Speaker 4: shouldn't be taken for granted. And if we've learned anything
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  Speaker 4: in the last five six years, it's that from the
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  Speaker 4: pandemic one that this stuff isn't guaranteed and needs to
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  Speaker 4: be focused on and lo and behold a lot of
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  Speaker 4: the performance that we've achieved some from the world start
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  Speaker 4: to understand that.
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  Speaker 1: Yeah, it's interesting, isn't it, And that even now when
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  Speaker 1: we're in an environment where we really need to be
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  Speaker 1: thinking about national security, about food security, about energy security,
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  Speaker 1: all the things at the bottom of your pyramid, and
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  Speaker 1: industrial security obviously is actually part of national security, isn't it,
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  Speaker 1: Because that's how you win wars, by having a strong
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  Speaker 1: industrial base that you can keep churning out the stuff
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  Speaker 1: you need during a war. So stea, Yeah, all these
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  Speaker 1: things are connected. But yet across Europe and certainly in
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  Speaker 1: the UK, we continue to talk about it, expanding the
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  Speaker 1: things at the top without really focusing on the bottom.
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  Speaker 1: You know, it takes a long time for people to
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  Speaker 1: realize that they've neglected the base of a successful society.
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  Speaker 4: Yeap, it can take a long time. It can happen
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  Speaker 4: all at once, too.
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  Speaker 3: Yes, And is it slightly about to happen all at once?
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  Speaker 2: Maybe we'll see maybe.
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  Speaker 1: Okay, So let's look at the environment where we're in now,
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  Speaker 1: the war with Iran has I keep getting bits of
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  Speaker 1: research from people alec and they all say there are
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  Speaker 1: three part possible scenarios here, and every single one of
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  Speaker 1: those three scenarios is different in every note I get,
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  Speaker 1: so there will probably be at this point about fifty
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  Speaker 1: possible scenarios, but they come down to war over quickly
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  Speaker 1: war dragging out for a long time.
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  Speaker 3: Both have slightly different results.
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  Speaker 1: In terms of microeconomics, but possibly they have the same
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  Speaker 1: result in terms of the way people think about their
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  Speaker 1: investments in that however long the war goes on, everyone
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  Speaker 1: in the investment world is still going to be looking
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  Speaker 1: at the bottom of this pyramid and saying, what's been neglected,
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  Speaker 1: what is less expensive than it should be? And I
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  Speaker 1: think last time you came on, we talked about the
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  Speaker 1: price people are willing to pay for a company involved
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  Speaker 1: in in AI, and that price people are willing to
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  Speaker 1: pay for a company that digs out of the ground
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  Speaker 1: all of the things that are absolutely necessary for that
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  Speaker 1: technology to even.
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  Speaker 3: Begin to exist.
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  Speaker 1: And as some price, we were to find that people
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  Speaker 1: will pay five, six, seven times the price for the
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  Speaker 1: uncertain technology, then they will pay for the underpinning of
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  Speaker 1: that technology. Now that I think is the shift that
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  Speaker 1: is now underway. People are beginning to care less about
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  Speaker 1: the top of the pyramid and are a lot more
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  Speaker 1: about the bottom, and they're going to start paying off
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  Speaker 1: for the bottom. And when we framed this John and
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  Speaker 1: I and we were talking about it the other day,
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  Speaker 1: as people are now going to pay an awful lot
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  Speaker 1: less for hope and an awful lot more for the
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  Speaker 1: avoidance of despair.
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  Speaker 4: Yeah, we're seeing that and it does fill us with
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  Speaker 4: joy to see the world starting to figure out that
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  Speaker 4: who's actually making money on AI. It isn't clear that
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  Speaker 4: it's going to be Meta or Amazon or Microsoft. It's
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  Speaker 4: very clear that it's going to be and is Taiwan
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  Speaker 4: Semiconductor and Demon's Energy and the Marcellus oil producers, gas producers,
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  Speaker 4: and you're starting to see investment capital shift from the
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  Speaker 4: former to the latter, going for the sure thing.
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  Speaker 1: Given that you've just mentioned Taiwan, let's just stop there
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  Speaker 1: for a minute and talk about the energy construction that
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  Speaker 1: people are now working under. And this is quite a
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  Speaker 1: big deal, right. So a lot of these Asian economies
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  Speaker 1: and Japan, which we've talked about a lot over the years,
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  Speaker 1: and many of the other economies in that region, are
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  Speaker 1: dependent fifty percent plus on their energy coming in from
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  Speaker 1: the Middle East. So it may be that we're getting
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  Speaker 1: to a point where maybe those aren't the places where
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  Speaker 1: you want to be investing.
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  Speaker 3: We've seen a lot of volatility. For example, in the
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  Speaker 3: Korean market.
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  Speaker 4: There is gas around. There's an incredible amount of gas around.
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  Speaker 4: It just you may have to get it from Canada
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  Speaker 4: or the US, but you do need to. Every country
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  Speaker 4: needs to focus on its own controllable energy resource. Korea
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  Speaker 4: and Japan are not well endout with energy resources, so
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  Speaker 4: something like nuclear is obvious for them, and they do
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  Speaker 4: push pretty hard on that. Japan took a bit of
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  Speaker 4: a hiatus for a good reason, but they're coming flying
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  Speaker 4: back with an emphasis on nuclear. Hopefully we can leverage
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  Speaker 4: that in our investments.
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  Speaker 1: Resent in your investments, I know that you've been heavily
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  Speaker 1: invested across the energy area for a while now, and
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  Speaker 1: you're also heavily invested in the UK now. Interestingly, last
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  Speaker 1: week's guest talked about the UK and he said he'd
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  Speaker 1: be loath to invest in the UK because of the
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  Speaker 1: self destructive energy policies in place here, and if you
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  Speaker 1: were looking for somewhere to invest in, you were doing
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  Speaker 1: it by region. In an ideal world, you'd start by saying,
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  Speaker 1: if all economic activity is energy transformed, does this region
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  Speaker 1: or this country provide its industry with the route to
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  Speaker 1: inexpensive energy, and the answer to that question in the
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  Speaker 1: UK is absolutely not.
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  Speaker 3: But your take is different, right.
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  Speaker 4: I think our takes very different in that that's a problem,
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  Speaker 4: but we can invest in the solutions and when need
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  Speaker 4: to take into account valuation, as we've been very overweight
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  Speaker 4: the UK for a very long time, and even though
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  Speaker 4: the names have done very well, we're still thirteen percent
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  Speaker 4: weighted in the Balance Fund and eight percent weighted in
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  Speaker 4: the Global Costious Fund in UK equities which is three,
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  Speaker 4: four or five, I don't know, six seven times at
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  Speaker 4: the global waiting and we're invested in those providing the
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  Speaker 4: solutions to that problem.
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  Speaker 1: Had some of those extraordinary performers Rolls Royce, Hunting, Balfa
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  Speaker 1: Bet etc.
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  Speaker 4: They've been wonderful stocks that because we've been able to
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  Speaker 4: hold them for a very long time because we bought
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  Speaker 4: them at four or five and six times earnings and
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  Speaker 4: they've produced a lot of earnings despite the people being
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  Speaker 4: down in the UK. Balfour BET's earnings are up I
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  Speaker 4: think four or five fold, and we were buying Balfour
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  Speaker 4: Bet when it was selling at a fraction of the
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  Speaker 4: value of their infrastructure investments plus cash. It's still Balfour's
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  Speaker 4: up four x and it's still just at a premium
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  Speaker 4: to net cash plus their infrastructure investments. This is the
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  Speaker 4: largest invest managed, insurance, construction engineering company in the world
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  Speaker 4: that's making and solving the problems that we've just stated
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  Speaker 4: about energy security and energy supply.
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  Speaker 1: Yeah, and infrastructure in general across the western world. We're
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  Speaker 1: moving right into an infrastructure replacement cycle, right, and we
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  Speaker 1: have to. We talk about the grid a lot, but
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  Speaker 1: it's not just a grid. It's pretty much every other
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  Speaker 1: part of infrastructure. Definitely, if you drive around the US,
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  Speaker 1: you drive around the UK, you can look at that
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  Speaker 1: and go time once in a generational refit.
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  Speaker 4: The thing that's driving the pyramidive needs is also a
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  Speaker 4: realization that countries are on their own, that they have
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  Speaker 4: to operate in their own self interest because the other
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  Speaker 4: countries are operating their own self interest. So the UK
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  Speaker 4: can't rely on the United States to provide its natural
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  Speaker 4: gas and oil, which it largely is dependent on. You
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  Speaker 4: have for the rumor yesterday or the day before, was
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  Speaker 4: that Trump was going to stop all oil and gas exports.
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  Speaker 4: That's where Europe and UK gets the cask, which.
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  Speaker 3: He easily could.
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  Speaker 1: And in a period of shortage, why should did each
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  Speaker 1: country not limit their own exports. There's a long history
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  Speaker 1: of this happening in times of conflict, right countries just
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  Speaker 1: saying do you know what this is on? And we're
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  Speaker 1: going to hang on to it for now, and you
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  Speaker 1: guys can take care of yourself. And the UK, having
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  Speaker 1: shown itself as the US says, to be a relatively
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  Speaker 1: unreliable partner to the US, isn't necessarily always going to
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  Speaker 1: be in receipt of American lodgess.
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  Speaker 4: Global cooperation is an incredibly recent phenomenon that's very short lived.
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  Speaker 4: And for people our age growing up in a period
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  Speaker 4: of global cooperation and globalization, that's what we knew, that's
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  Speaker 4: what we've known, and that's what we think is always
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  Speaker 4: going to be the case. But we've lived in just
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  Speaker 4: a fraction of the history of the world, in history
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  Speaker 4: of humanity, and that will wind up being a very
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  Speaker 4: unusual time in the world's history.
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  Speaker 3: Okay, So let's stick with the UK.
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  Speaker 1: So just bigle, you're going to hang on to all
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  Speaker 1: those big names, hang on to Belford, Beattie, hang on
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  Speaker 1: to drags.
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  Speaker 3: Not always a popular holding shell.
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  Speaker 1: You've got rolls Royceness it said earlier hunting, you'll be
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  Speaker 1: hanging on too.
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  Speaker 3: All those we.
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  Speaker 2: Shuffle them around a little bit.
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  Speaker 4: We do focus on risk and control, so we can't
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  Speaker 4: just let things go to go to the sky.
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  Speaker 2: And we keep finding new names.
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  Speaker 4: So the UK is just a is a wonderful hunting
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  Speaker 4: ground for contrarian, super cheap names that no one wants,
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  Speaker 4: and we get laughed at when we buy and then
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  Speaker 4: five six, seven years later people begin to understand why
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  Speaker 4: we were happy to own them.
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  Speaker 1: No, well, we might come back to some more of those,
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  Speaker 1: but you have you tell me being building a bit
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  Speaker 1: of a position in companies operating in the North Sea
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  Speaker 1: Explanation and production Serica Ethaka Harbor Energy.
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  Speaker 4: Tell us about that, Serica and Ithaca. It's just what
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  Speaker 4: we've been talking about. You need energy security. Every nation
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  Speaker 4: that wants to be a nation and be a prosperous
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  Speaker 4: nation needs energy security, and energy security does not come
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  Speaker 4: from someone else. Definitionally, the UK is lucky. It's not
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  Speaker 4: like Korea or Japan. The UK has indigenous secure energy supply.
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  Speaker 4: It just has to want to have it, knowing that
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  Speaker 4: eventually the pendulum swings back and forth, and politicians are
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  Speaker 4: incredible at without flinching, going from being incredibly anti something
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  Speaker 4: to incredibly pro that same thing.
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  Speaker 1: It'll just interrupt you that to say that you sent
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  Speaker 1: me a tweet earlier by us live on the lend
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  Speaker 1: saying Europe needs homegrown low carbon energy sources. Nuclear renewables
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  Speaker 1: together have a key role to pay. Nuclear energy is
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  Speaker 1: available around the club.
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  Speaker 3: We're writing electricty all year. Europe has been.
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  Speaker 1: A pioneer in nuclear technology and can lead again to
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  Speaker 1: which pretty much everyone pointed out that she was instrumental
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  Speaker 1: in the shutting down of all of Germany's nuclear plants.
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  Speaker 1: And I look at that, and you think one can
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  Speaker 1: right now not even begin to imagine the likes of
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  Speaker 1: Ed Miliband suddenly saying the UK has always had its
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  Speaker 1: own oil and gas supplies and it's very important that
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  Speaker 1: we hang on to them for purposes of national security.
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  Speaker 3: Drill, baby, drill. But actually, as you say, it's perfectly plausible.
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  Speaker 4: Politicians being unabashedly willing to flip on a dime without
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  Speaker 4: any memory of what they said the day before is
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  Speaker 4: a big strength, right, because if they really want to
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  Speaker 4: dig their heels in, it just takes longer to get
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  Speaker 4: to the right answer. Germany will be a nuclear power
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  Speaker 4: again from zero at some point in the future. And
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  Speaker 4: one of the big challenges for us in contrarian investing,
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  Speaker 4: where you are constantly looking at what the market thinks
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  Speaker 4: is important that you know is not and you have
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  Speaker 4: to wait for the physics and chemistry and economics to
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  Speaker 4: drive the right solution is how long it will take.
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  Speaker 4: And you look at the situation in the UK. Miliban
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  Speaker 4: has said, over my dead body, and that means it'll
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  Speaker 4: take longer. But economics will eventually win out, and the
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  Speaker 4: need for the foundation of your nation's pyramidive needs to
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  Speaker 4: be solid, will win out. So we know what the
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  Speaker 4: answer is and we just don't know how long it
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  Speaker 4: will take. And the longer it takes, the more saraca
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  Speaker 4: ithaca we can accumulate, as.
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  Speaker 3: Long as they can hang on through this period. Where
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  Speaker 3: else is it interesting?
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  Speaker 4: At the moment, Japan looks really interesting, and I know
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  Speaker 4: you've just been there and you wrote about it and
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  Speaker 4: you hit on some of the same things that we've
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  Speaker 4: been thinking about. But the investor's perception of Japan is
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  Speaker 4: that it's a dead economy, and we think it couldn't
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  Speaker 4: be further from the truth in there might be some
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  Speaker 4: reinvigoration going on there, and if you look at stars aligning,
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  Speaker 4: the stars could really be lying.
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  Speaker 1: For Japan, let's talk about AIS as an investment theme,
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  Speaker 1: TSMC and Samsung for a while.
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  Speaker 3: There's no AI without those still holding those.
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  Speaker 2: Yeah.
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  Speaker 4: We in fact, we've owned I as an investor, have
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  Speaker 4: owned TSMC since it's USADR launch in the mid nineties.
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  Speaker 4: And Orbis has had a position in Samsung probably since
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  Speaker 4: the mid nineties, and they're just fantastic companies. Taiwan Semiconductor
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  Speaker 4: is the most important company in the world. Have been
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  Speaker 4: saying this for a long time, and I think people
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  Speaker 4: are starting to agree with that. And yet it sells
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  Speaker 4: at seventeen eighteen times forward because it's in Taiwan. Samsung
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  Speaker 4: right now is selling it a mid single digit PE
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  Speaker 4: because one it sells it doesn't have an ADR, so
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  Speaker 4: the Americans lemmings can't easily buy it, and it's not
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  Speaker 4: sitting in Internet ETFs and AI ETFs. And it's still
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  Speaker 4: perceived to be a hyper cyclical memory manufacturer. But memory
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  Speaker 4: maybe following in foundry footsteps where it's no longer going
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  Speaker 4: to be a hyper cyclical thing that twenty or thirty
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  Speaker 4: companies can do. There's only three companies in the world
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  Speaker 4: that can do it now. It's incredibly difficult, incredibly capital intensive,
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  Speaker 4: incredibly R and D and know how intensive, just as
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  Speaker 4: foundry is the making of semiconductors for others, and that
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  Speaker 4: six multiple could be a sixteen or twenty multiple at
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  Speaker 4: some point in the future.
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  Speaker 1: And the other thing that you're invested in is the
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  Speaker 1: US natural gas sector, which I imagine was pretty ignored
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  Speaker 1: but probably isn't anymore.
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  Speaker 4: We've shifted our AI investments a bit over the last
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  Speaker 4: year from those making and providing the infrastructure, so the
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  Speaker 4: Zeman's energies and the Prismians of the world. We've been
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  Speaker 4: top slicing those positions as they've become popular, and we
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  Speaker 4: haven't dropped the overall AI related waiting. It's shifted more
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  Speaker 4: into the consumables, and you can't have AI without natural gas.
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  Speaker 4: People are starting to figure out that natural gas, especially
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  Speaker 4: in the US, is where you're going to get your
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  Speaker 4: electricity to run your AI data centers, to create your agentics,
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  Speaker 4: and your ability to create a cartoon yourself. We've been
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  Speaker 4: focused on finding cheap inexpensive, low p high free cash
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  Speaker 4: flow yielding natural gas producers to add to our natural
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  Speaker 4: gas distributors and transportation companies pipeline companies because that is
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  Speaker 4: the easiest to see. Consumable required for AI and semiconductors
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  Speaker 4: are consumables as well, because these chipsets only last three
• 18:43
  Speaker 4: to five years, so you're going to this is not
• 18:45
  Speaker 4: like the Internet where you put fiber optics into the ground.
• 18:48
  Speaker 4: Those fiber optics are still there today. The big infrastructure
• 18:52
  Speaker 4: for AI is chipsets that are obsolete after three to
• 18:57
  Speaker 4: five years. So that's these chips are consumables for the
• 19:01
  Speaker 4: first time in technology. Super excited about the consumable aspect.
• 19:06
  Speaker 4: The prime mover of AI, if you will, being something
• 19:09
  Speaker 4: as simple as natural gas or semiconductors, how.
• 19:14
  Speaker 3: Do you invest in natural gas? What do you buy?
• 19:17
  Speaker 4: Can buy the EMPs, the explorers and producers, and we're
• 19:21
  Speaker 4: trying to find the best ones that are in the
• 19:23
  Speaker 4: best place.
• 19:24
  Speaker 1: Okay, interthing, let me move you on to the other
• 19:28
  Speaker 1: thing that our listeners are always fascinated by.
• 19:30
  Speaker 3: I look at this wall, for example, they'll think.
• 19:32
  Speaker 1: To themselves as two things I'm going to use to hedge.
• 19:33
  Speaker 1: This one is going to be energy one way or another.
• 19:35
  Speaker 1: We've talked about that, and the other may well be gold.
• 19:38
  Speaker 1: And I know that your funds have always held a
• 19:41
  Speaker 1: reasonable amount of gold. What are you doing with that
• 19:44
  Speaker 1: at the moment.
• 19:45
  Speaker 4: We've top sliced the gold many times. We didn't hold
• 19:48
  Speaker 4: gold until twenty eighteen, when it was clear to us
• 19:52
  Speaker 4: that negative interest rates weren't going to last forever and
• 19:56
  Speaker 4: governments were going to continue to spend like crazy. Became
• 20:00
  Speaker 4: an obvious place to hide that. That's appreciated wildly since
• 20:05
  Speaker 4: that time, and we've cut that position back in the
• 20:08
  Speaker 4: portfolios from ten to twelve percent holding it there to
• 20:12
  Speaker 4: now we're in the eight to nine percent. Because it's
• 20:14
  Speaker 4: not a it's not a completely contrarian thing anymore. It's
• 20:17
  Speaker 4: really now become a pure hedge. And we like to
• 20:21
  Speaker 4: buy insurance when it's cheap, and gold as an insurance
• 20:25
  Speaker 4: policy isn't as cheap as it used to be, so
• 20:27
  Speaker 4: we're not going to hold as much.
• 20:29
  Speaker 1: When I've written about gold recently, I've said, well, you know,
• 20:32
  Speaker 1: maybe a little expensive on sometimes it's exc but you
• 20:34
  Speaker 1: have the backstop of central bank buying. But it maybe
• 20:39
  Speaker 1: as we move into the next part of this new era.
• 20:42
  Speaker 1: Perhaps in particular at least in central banks may not
• 20:45
  Speaker 1: have the available cash to be buying more gold than
• 20:49
  Speaker 1: maybe things they feel it's more appropriate to buying the circumstances,
• 20:52
  Speaker 1: So perhaps that backstop buyer might not be quite as
• 20:56
  Speaker 1: firm as it was as they were.
• 20:58
  Speaker 4: That's true. In that would be that would be a negative,
• 21:01
  Speaker 4: that would be something that cann't get any better. We
• 21:04
  Speaker 4: don't think central buying, central bank buying can get much better,
• 21:07
  Speaker 4: although there is unlimited firepower there. But the last shoe
• 21:12
  Speaker 4: that we're waiting to drop on the gold cycle, if
• 21:15
  Speaker 4: you will, is if you remember back in then you're
• 21:19
  Speaker 4: too young to remember, But in the seventies, coming out
• 21:22
  Speaker 4: of the seventies, the standard investment portfolio there weren't mutual
• 21:27
  Speaker 4: funds back then, but a standard investment portfolio was advised
• 21:29
  Speaker 4: to hold ten to fifteen percent in gold, and even
• 21:34
  Speaker 4: into the late eighties when I was graduated from college
• 21:37
  Speaker 4: and into the nineties, that sort of has wandered down
• 21:40
  Speaker 4: from fifteen percent as standard to when I started in
• 21:43
  Speaker 4: this business, it was still ten percent. Everyone held ten
• 21:47
  Speaker 4: percent in gold in the mid nineties and then as
• 21:50
  Speaker 4: as the internet kind of took off, and low roik
• 21:53
  Speaker 4: wasn't a great thing, and gold became boring and wasn't
• 21:56
  Speaker 4: going anywhere. That went to zero, maybe back three four,
• 22:00
  Speaker 4: five years zero.
• 22:02
  Speaker 3: For most people, nobody had gold as an investment.
• 22:05
  Speaker 4: Yeah, standard equity portfolio would have zero. And if you said,
• 22:09
  Speaker 4: why aren't you only gold, it would say, this is
• 22:10
  Speaker 4: an equity portfolio, it's not a gold portfolio. It's not
• 22:12
  Speaker 4: a that's a resource, that's a commodity. We don't hold commodities.
• 22:16
  Speaker 4: And now an average equity fund might have two to
• 22:20
  Speaker 4: three percent, a pension plan or a sovereign well fund
• 22:25
  Speaker 4: might have two to three percent. If that were to
• 22:28
  Speaker 4: go standard to five to seven, you're talking about a
• 22:32
  Speaker 4: doubling in the amount of gold that would have to
• 22:34
  Speaker 4: be purchased on the investment side, and there just isn't
• 22:37
  Speaker 4: that much gold. The only way you're going to get
• 22:40
  Speaker 4: to that would be for the price to double. If
• 22:43
  Speaker 4: you have three percent in your portfolio now and the
• 22:45
  Speaker 4: price doubles and everything else is held constant, now you
• 22:47
  Speaker 4: have six, you could see gold going up quite a
• 22:51
  Speaker 4: bit as as that pendulum swings back to You can't
• 22:55
  Speaker 4: just invest in the in US Internet and AI stocks.
• 22:59
  Speaker 2: Well, then what am I going to invest in?
• 23:01
  Speaker 4: Gold is at the top of the list now and
• 23:03
  Speaker 4: selling out completely now would be could be premature.
• 23:06
  Speaker 3: Okay, so we wait.
• 23:08
  Speaker 1: We wait until all the wealth managers are telling my
• 23:10
  Speaker 1: clients they need to have seven to eight percent. That'll
• 23:12
  Speaker 1: be a final signal.
• 23:13
  Speaker 4: And if we've been as high as fifteen in the past,
• 23:16
  Speaker 4: wealth managers saying seven eight is not outrageous, is it.
• 23:19
  Speaker 1: The other thing that one tends to put them on's
• 23:21
  Speaker 1: portfolio to hedge things is sovereign bonds. But you look
• 23:25
  Speaker 1: around the Western nations and the almost certainty of stagflation
• 23:29
  Speaker 1: and who wants a guilt treasury.
• 23:32
  Speaker 4: One of the themes that we're thinking about this year is
• 23:35
  Speaker 4: dms are developed markets acting like ems, emerging markets and
• 23:40
  Speaker 4: emerging markets acting like developed markets from a financial probity standpoint,
• 23:46
  Speaker 4: And we found really attractive investment opportunities in some sovereigns
• 23:54
  Speaker 4: that used to be basket cases and now and have
• 23:57
  Speaker 4: been behaving properly for quite a while. Now, says the
• 24:00
  Speaker 4: developed markets are behaving more and more inappropriately with regard
• 24:04
  Speaker 4: to their nation's finances.
• 24:05
  Speaker 2: So Iceland.
• 24:07
  Speaker 4: Iceland is still considered a frontier market because of what
• 24:10
  Speaker 4: they did during the global financial crisis.
• 24:13
  Speaker 3: Career is still being called an emerging market. Nuts.
• 24:16
  Speaker 4: Yeah, yeah, But Iceland, I guess if you screw every
• 24:20
  Speaker 4: banker in Europe, you're going to get relegated to being
• 24:23
  Speaker 4: a frontier market. They've been behaving very properly and have
• 24:29
  Speaker 4: incredible natural resources. They have unlimited supply of electricity, they
• 24:32
  Speaker 4: have unlimited supply of geothermal heat. Every company should have
• 24:37
  Speaker 4: a data center in Iceland, especially if you care about
• 24:40
  Speaker 4: the environment and you want zero carbon electricity. But it's
• 24:45
  Speaker 4: a country that is producing a surplus, and yet we
• 24:49
  Speaker 4: started buying the bonds when they were yielding ten to
• 24:51
  Speaker 4: eleven percent. Now they're yielding seven eight percent, but that's
• 24:54
  Speaker 4: still twice the yield of a US sovereign and the
• 24:58
  Speaker 4: currency is cheap. Brazil, Brazil, we're getting thirteen fourteen percent
• 25:05
  Speaker 4: yields eight percent real, eight percent higher than inflation yields.
• 25:10
  Speaker 4: We like the real the country. Maybe if they were
• 25:14
  Speaker 4: allowed to, they would behave inappropriately with their finances, but
• 25:17
  Speaker 4: they can't and they're not. They're running a much lower deficit.
• 25:21
  Speaker 2: Than the United States.
• 25:22
  Speaker 4: They've got a similar level of inflation as the United States,
• 25:26
  Speaker 4: and yet you're getting a double digit yield, so some of.
• 25:29
  Speaker 2: The money's gone there.
• 25:31
  Speaker 4: Australia, it's not a frontier market or an em but
• 25:34
  Speaker 4: they are running their finances more appropriately. All three of
• 25:37
  Speaker 4: these countries have mentioned are resource rich. I like that
• 25:43
  Speaker 4: thinking about the bottom of the pyramid. They actually make
• 25:45
  Speaker 4: things that others want to buy. Norway, the yields on
• 25:49
  Speaker 4: the Norwegian debt. We've been long the Norwegian currency for
• 25:54
  Speaker 4: seven or eight years and it's finally starting to work.
• 25:57
  Speaker 4: It should be the most secure currency in the world,
• 26:00
  Speaker 4: should be very sought after.
• 26:03
  Speaker 1: The regions have never behaved badly. They don't quite fit
• 26:07
  Speaker 1: into this group.
• 26:09
  Speaker 4: No, they haven't, but the currency has been treated like
• 26:12
  Speaker 4: they have and we scratch our heads wondering why. And
• 26:17
  Speaker 4: the only thing we can come up with is they're
• 26:18
  Speaker 4: being tarred by the European feather. They're closely associated with
• 26:22
  Speaker 4: Europe's their customer. They sell natural gas and oil to Europe.
• 26:25
  Speaker 4: They sell electricity to Europe, and don't see what's wrong
• 26:29
  Speaker 4: with that. Europe's going to continue to have to buy
• 26:31
  Speaker 4: that stuff. They have a massive surplus every year. They've
• 26:34
  Speaker 4: got a tremendous two trillion dollars sovereign wealth fund and
• 26:38
  Speaker 4: virtually no debt that currency. If you're worried about the
• 26:43
  Speaker 4: security of your buying, your purchasing power, the Norwegian kroner
• 26:48
  Speaker 4: is the ultimate in security. It's not the Swiss franc
• 26:51
  Speaker 4: it's the It's Norway. So we've been a lot of
• 26:55
  Speaker 4: that gold as we've been top slicing. Gold has gone
• 26:57
  Speaker 4: into these sovereign bonds that we believe are way undervalued.
• 27:03
  Speaker 4: Rates an interest too high, interest rates too high, and
• 27:07
  Speaker 4: we like the currencies.
• 27:09
  Speaker 3: Well, let's talk a little bit about Iran.
• 27:11
  Speaker 1: Is there anything and we've talked about it might be
• 27:14
  Speaker 1: a short Wilman to be a long what are endless scenarios?
• 27:17
  Speaker 1: But is there anything in what's happening in the Middle
• 27:20
  Speaker 1: East that might maybe change the way you invest the fund?
• 27:23
  Speaker 1: I suspect you're going to say that, No, this is
• 27:25
  Speaker 1: a resilient fund built for exactly this environment. But is
• 27:29
  Speaker 1: there any shift happening as a result.
• 27:32
  Speaker 2: No.
• 27:33
  Speaker 4: I don't think any fund can raise a resilient flag
• 27:36
  Speaker 4: and say this fund is going to outperform in every environment.
• 27:39
  Speaker 4: That's just not real. But increased global conflict has been
• 27:44
  Speaker 4: something we've thought a lot about. Countries focusing on their
• 27:47
  Speaker 4: self interest. The focusing on the bottom of the pyramid
• 27:51
  Speaker 4: needs it kind of accelerates and highlights all those things.
• 27:54
  Speaker 4: Is you pointed out that you know that what's going
• 27:58
  Speaker 4: on in Iran should be a another wake up call
• 28:01
  Speaker 4: to the British government, to the UK government. That would
• 28:04
  Speaker 4: accelerate our realizing some gains from playing that bottom of
• 28:08
  Speaker 4: the pyramid. As a portfolio manager, I'm waking up in
• 28:13
  Speaker 4: the middle of the night fretting about the Iranians mining
• 28:16
  Speaker 4: the Strait of Hormuz. What's going to be the US response?
• 28:20
  Speaker 4: But it really can't take an investment make changes in
• 28:25
  Speaker 4: the portfolio based on that because the uncertainty is just
• 28:27
  Speaker 4: so high and the market reaction is so unpredictable. Who
• 28:31
  Speaker 4: would have thought that gold isn't supposed to sell off,
• 28:34
  Speaker 4: but gold is sold off during this period. Why is
• 28:37
  Speaker 4: gold sold off? It should be more it should be held,
• 28:40
  Speaker 4: it should be more valuable in a conflict like this.
• 28:43
  Speaker 2: But too many.
• 28:44
  Speaker 4: People own gold and they're getting margin calls, so they're
• 28:47
  Speaker 4: selling their gold because it's the only thing that's up,
• 28:50
  Speaker 4: and that's just the dollars strong. Even though the US
• 28:53
  Speaker 4: is the one driving this, there are a lot of contradictions,
• 28:57
  Speaker 4: and you just can't predict the market response these things.
• 29:01
  Speaker 2: I put it in the two.
• 29:02
  Speaker 4: Difficult pile to try and play these short term geopolitical things,
• 29:06
  Speaker 4: even though we're very focused on geopolitical events.
• 29:09
  Speaker 1: Okay, so I didn't jink to you at the beginning
• 29:11
  Speaker 1: of Hope, but just to say that your expectations of
• 29:15
  Speaker 1: app performance from here rest on the idea that we
• 29:18
  Speaker 1: are beginning to see the return of value. After there's
• 29:20
  Speaker 1: a long wage of saying markets provert to the meme
• 29:22
  Speaker 1: this stuff happens, it will happen, it does. Now feel
• 29:25
  Speaker 1: like this really is happening, that there's a general shift
• 29:29
  Speaker 1: across the investment environment back away from growth, away from
• 29:33
  Speaker 1: expensive things, and back towards what is really going to
• 29:36
  Speaker 1: offer me value.
• 29:37
  Speaker 2: It does.
• 29:38
  Speaker 4: It feels like valuation is starting to matter again, after
• 29:42
  Speaker 4: literally people going on CNBC and Bloomberg and saying valuation
• 29:45
  Speaker 4: doesn't matter. We're starting to see rotation, which is a
• 29:48
  Speaker 4: key element of a value cycle, where industries are falling
• 29:52
  Speaker 4: out of favor, industries are coming into favor. Who would
• 29:55
  Speaker 4: have thought three years ago that software and biotech would
• 29:58
  Speaker 4: be su per week industries that no one wants to
• 30:02
  Speaker 4: own and who would have thought three years ago that
• 30:05
  Speaker 4: critical energy infrastructure would be incredibly popular places. So these
• 30:09
  Speaker 4: rotations are critical and an element of value cycle. We're
• 30:12
  Speaker 4: starting to see them. So we're increasingly optimistic that we're
• 30:16
  Speaker 4: seeing the pendulum swing back from growth and momentum and
• 30:20
  Speaker 4: valuation not mattering to valuation becoming important again, and that
• 30:24
  Speaker 4: would be a very welcome thing for us and our clients.
• 30:28
  Speaker 3: Brilliant, Alec, thank you so much for coming on today.
• 30:30
  Speaker 3: Really really appresure it.
• 30:31
  Speaker 1: Aron, Thanks for.
• 30:33
  Speaker 3: Listening to this week's Marrin Talks Money.
• 30:34
  Speaker 1: If you like ours, show, rate, review, and subscribe wherever
• 30:37
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• 30:39
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• 30:42
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• 30:43
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• 30:45
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  Speaker 1: Mariness w and John is John Underscore Steppe. This episode
• 30:51
  Speaker 1: was posted by me Maren Sums. That web was produced
• 30:53
  Speaker 1: by Samasadi and Moses and sound designed by Blake Maple's
• 30:57
  Speaker 1: and Nick Johnson. Special thanks, of course to Alec Cutler