Latest / Merryn Talks Money / Fringe Festival Panel Day 1: Russell Napier, Anna MacDonald and James Anderson

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Fringe Festival Panel Day 1: Russell Napier, Anna MacDonald and James Anderson · Merryn Talks Money

0:00
Speaker 1: John, welcome back.
0:02
Speaker 2: Well, it's so nice to be back. Just in thing
0:05
Speaker 2: for the sunshine they actually come out, I know.
0:07
Speaker 1: Well, just a reminder that in England and Scotland, in
0:10
Speaker 1: fact across the UK, it's always nicest in June and September.
0:14
Speaker 1: We forget it every year, but every year it's the same.
0:17
Speaker 1: It's nice in June, it's nice in September. And if
0:19
Speaker 1: you've forgotten that, think back to your exams, right, Remember
0:22
Speaker 1: your GCS S or O levels Rush, remember your A levels,
0:25
Speaker 1: remember your degree? Remember taking those exams. Always nice weather
0:29
Speaker 1: when you went back to school, and it was always
0:31
Speaker 1: nice weather when you were taking your exams.
0:36
Speaker 2: Walks in Scotland as well, because you go back to
0:38
Speaker 2: school early on in Scotland.
0:41
Speaker 1: Yeah maybe, but it lost was always sunny, yeah yeah.
0:46
Speaker 1: And I've never taken an exam when it hasn't been
0:49
Speaker 1: sunny outside, I'm sure of it. So all this business
0:52
Speaker 1: of having our holidays in July and August total waste
0:54
Speaker 1: of time. But this is not our topic, John, this
0:56
Speaker 1: is not what we're here to talk about. No one's
0:58
Speaker 1: interested in our views on the weather. I mean you
1:00
Speaker 1: orange and novies in the weather, do email and we'll
1:02
Speaker 1: give you more of them, but loads of them. Yeah,
1:04
Speaker 1: that's pretty much all I've got on the weather for today.
1:07
Speaker 1: So while we've been away July August, the weather might
1:11
Speaker 1: not have been perfect. But boy, things have changed in
1:13
Speaker 1: the economy, right, John, we went away in the UK
1:16
Speaker 1: was a laggard. It's a nightmare. Everything's terrible because well
1:19
Speaker 1: because brexit, because something is something. Worst economy in the world, loah, blah, Lara.
1:23
Speaker 1: Now suddenly a quick flick of a switch, am I
1:26
Speaker 1: not the worst anymore? Yeah?
1:28
Speaker 2: This was this was the fantastic time travel in uns
1:33
Speaker 2: who went back and did the So every year they
1:35
Speaker 2: devise it and it's called the Blue Book. And this
1:38
Speaker 2: is why you know you should always take GDP with
1:40
Speaker 2: a pinch of salt. But the difference with this set
1:44
Speaker 2: of divisions is that obviously over the last a couple
1:47
Speaker 2: of years we've heard nothing. But as you were saying
1:50
Speaker 2: that Breton is a you know, a fundamentally broken economy.
1:54
Speaker 2: But the only economy, and this is the line always
1:57
Speaker 2: comes up, the only economy in the G seven not
2:00
Speaker 2: to have reattained its pre pandemic size of GDP yet,
2:05
Speaker 2: And so this has sort of been used as a
2:07
Speaker 2: stick to can you know, beat us worth for about
2:09
Speaker 2: two years now. So it turns out after these revisions
2:13
Speaker 2: to the statistics that actually we got back to our
2:16
Speaker 2: pre pandemic GDP by the end of twenty twenty one,
2:20
Speaker 2: so we're no longer behind. We are actually just sort
2:24
Speaker 2: of sitting in the middle of the pack. And actually
2:27
Speaker 2: our recovery was one of the fastest, so we were
2:30
Speaker 2: we only liked the US and Canada and we were
2:32
Speaker 2: neck and neck with France. So Jim Netaly and Japan
2:34
Speaker 2: we're slower the noise that recovering from the pandemic.
2:38
Speaker 1: So although I got to say neck and neck with
2:40
Speaker 1: France doesn't make me feel that, I mean it insecribly,
2:45
Speaker 1: but it's you know, it's it's better than it was,
2:48
Speaker 1: better than being behind France. Yeah, And I also, I
2:52
Speaker 1: think we have to say upfront because you know, you
2:55
Speaker 1: and I would like to be more positive on the
2:56
Speaker 1: UK than other people. These positive revisions GDP came almost
3:01
Speaker 1: entirely from chucking more money into our miserable health service
3:04
Speaker 1: rather than from the massive expansion and productive activity in
3:07
Speaker 1: the private sector.
3:08
Speaker 2: Oh yeah, I mean there was effect of manufacturing. Actually
3:10
Speaker 2: I believe it was revised lower. But I think I
3:14
Speaker 2: think the point is that I think there's two things.
3:16
Speaker 2: So firstly, yes, other countries haven't yet revised their figures,
3:21
Speaker 2: so particularly methodology that we used, so as well as
3:26
Speaker 2: having better data, there is a different methodology, and only
3:28
Speaker 2: the US currently uses this methodology. And note that the
3:31
Speaker 2: US is obviously much by far the strongest kind of
3:35
Speaker 2: recovery from the pandemic. So whenever France and Germany and
3:39
Speaker 2: the Cystom sort of revised their statistics, then possibly they'll
3:42
Speaker 2: get revised higher and maybe we'll be back near the
3:45
Speaker 2: bottom again. But I think the one thing that you
3:48
Speaker 2: can point out and say is that actually, you know,
3:51
Speaker 2: that whole storyline about us not getting back to where
3:55
Speaker 2: we were we were before the pandemic is definitely incorrect.
4:00
Speaker 2: And it's just interesting you think about, well, you know,
4:03
Speaker 2: a year ago, when we were having all of that
4:07
Speaker 2: you know, political upheaval, and you know, everyone was saying
4:10
Speaker 2: that Liz Trust was you know, an idiot in Kuwasi
4:13
Speaker 2: Quarteng was a maniac? You know, would that have been
4:16
Speaker 2: different if we hadn't had this kind of perception that
4:20
Speaker 2: the UK was fundamentally you know, wrong at a level
4:26
Speaker 2: that all the other kind of big economies.
4:29
Speaker 1: Were not interesting. So do you think we should now
4:31
Speaker 1: start disliking the O n S as much as we
4:33
Speaker 1: just like, no, dislike it's the wrong word, disapprove of
4:36
Speaker 1: the Bank of England.
4:38
Speaker 2: I think that no either thing the ns I feel doesn't.
4:44
Speaker 2: I think that's sort of coming for quite a lot
4:46
Speaker 2: of flac that isn't necessarily you know, deserved. It's one
4:50
Speaker 2: of the reasons that Britain statistics often look so bad
4:53
Speaker 2: is because the ns IS is I hear, somewhat more
4:58
Speaker 2: diligent than and a lot of other statistical bodies, so
5:04
Speaker 2: kind of you know, statistics are just a bit kind
5:06
Speaker 2: of more in depth.
5:09
Speaker 1: But it's still the case that that you know, their
5:11
Speaker 1: models are historical and they still don't work.
5:13
Speaker 2: Yeah, I mean this is true. We don't even know
5:15
Speaker 2: what happened. Yes, they can, we hope to happen. I
5:18
Speaker 2: think what I think the real lessons from this kind
5:21
Speaker 2: of like has to be, and we keep sort of
5:23
Speaker 2: saying this is that you can't think of forecasts as
5:26
Speaker 2: being what will actually happen. It has to be some
5:30
Speaker 2: sort of baseline from you know, where you you kind
5:33
Speaker 2: of scenario plan, but also any.
5:39
Speaker 1: I just want to be clear on that job. What
5:40
Speaker 1: you're saying is that most forecasts driven by models should
5:45
Speaker 1: not be taken to contain any information, but just to
5:49
Speaker 1: be a random line from which one can scenariope.
5:52
Speaker 2: Yeah, I think that's not think about it, just look okay, Well,
5:58
Speaker 2: because because we have to plan, we need something to do,
6:01
Speaker 2: and it doesn't matter what we plan from.
6:03
Speaker 1: But the human condition is to want to make some
6:04
Speaker 1: future plans. So we need a random number, a random
6:08
Speaker 1: line kind of almost doesn't matter what it is, even
6:10
Speaker 1: if it's just extrapolated from the previous year. We need
6:13
Speaker 1: it to plan because we don't have a plan we
6:14
Speaker 1: feel a little.
6:15
Speaker 2: To Yeah, and also extrapolating from the previous year isn't
6:17
Speaker 2: actually the worst one, because often that is what happens,
6:20
Speaker 2: because momentum is just a thing in life. But if
6:24
Speaker 2: you say, okay, well, look that's a rough MedPoint. Let's
6:27
Speaker 2: have a we imagine about what could make things go
6:30
Speaker 2: horribly wide of that MedPoint, and then you know, disaster
6:34
Speaker 2: plan around those things and then hope that everything else
6:37
Speaker 2: goes okay or something like that. You know, like I said,
6:40
Speaker 2: maybe it's just you know, a good psychological Crouch.
6:43
Speaker 1: But I think.
6:43
Speaker 2: Probably was more important is that, as you said, so
6:46
Speaker 2: this is like two years after the fact we're here
6:48
Speaker 2: in this and that kind of shows you that what
6:52
Speaker 2: we certainly can't prodict the future, and we can't even
6:55
Speaker 2: properly understand the past. And the problem is that there's
6:59
Speaker 2: a lot of people who seem to think that we
7:03
Speaker 2: could vastly improve our governance if we just could only
7:09
Speaker 2: have an omniscient kind of forecast on middle like MMT,
7:13
Speaker 2: for example, is completely dependent on the idea that you
7:17
Speaker 2: can accurately predict what's going to happen to inflation and
7:20
Speaker 2: then predict how you would influence people's behavior to stop
7:24
Speaker 2: them from acting in an inflationary manner.
7:28
Speaker 1: And by the way, stop John, I shouldn't have to
7:32
Speaker 1: do this with I know, I know, I'm just so
7:34
Speaker 1: enthusiastic MMT. Modern monetary policy MO sorry, Modern monetary theory
7:40
Speaker 1: the idea that you can just print money indiscriminately with
7:43
Speaker 1: no consequences as long as you can predict the future
7:45
Speaker 1: path of inflation and raise taxes to pull it down
7:47
Speaker 1: when required.
7:48
Speaker 2: Exactly right, and you can't predict the future path of inflation.
7:53
Speaker 1: We've learned that haven't.
7:54
Speaker 2: Yes much to our cost.
7:56
Speaker 1: Yes, yes, now John, before we move. Does this reassessment
8:05
Speaker 1: also possibly incorrect reassessment, but nonetheless reassessment of UK GDP
8:10
Speaker 1: mean anything for our favorite place in the world, the
8:13
Speaker 1: UKs dot market.
8:15
Speaker 2: No, he doesn't. I think GDP doesn't matter. That this
8:24
Speaker 2: is all partly about This is moretiate sentiment. And the
8:29
Speaker 2: thing is, I don't want to think that, okay, And
8:32
Speaker 2: as much as it may contribute to a re evaluation
8:37
Speaker 2: of the UK, which is probably somewhat already underway anyway,
8:41
Speaker 2: because the police looks duck cheap and lots of analysts
8:44
Speaker 2: are actually starting to notice that. You know, it's it's
8:49
Speaker 2: up cond.
8:49
Speaker 1: Of two years after we exactly maybe five years afterward.
8:52
Speaker 2: It's it's a positive.
8:55
Speaker 1: We should say, Yeah, we should say one thing about
8:57
Speaker 1: GDP and markets, and that there's astant believe in your readers.
9:01
Speaker 1: In the newspaper all the time we read articles about
9:03
Speaker 1: countries and their GDP, and there's an assumption that if
9:06
Speaker 1: a country grows, its economy at stock market will move
9:09
Speaker 1: with that growth. But of course stock markets over the
9:11
Speaker 1: long term are driven by evaluations, and so it doesn't
9:14
Speaker 1: matter how fast GDP is growing if valuations are already
9:18
Speaker 1: incredibly high, So you know that that correlation doesn't really
9:21
Speaker 1: exist in the way that people believe it does.
9:23
Speaker 2: Right, Yeah, and I don't. Yeah, I think generally with markets,
9:27
Speaker 2: it's not our market moving number when it comes out,
9:31
Speaker 2: because markets are generally going by economic statistics that are
9:35
Speaker 2: a lot more timely. If they're even paying attention that
9:37
Speaker 2: always so not from that point of view, I don't
9:41
Speaker 2: think it mat us, but I do think it's kind
9:44
Speaker 2: of a useful remainder of that, you know, try not
9:48
Speaker 2: to get too hung our point in their stuff and
9:50
Speaker 2: try it kind of take headlines with a pinch of salt,
9:52
Speaker 2: particularly when the you know, particularly male or dramatic, as
9:57
Speaker 2: they are again around the bit of the time list year,
10:00
Speaker 2: I mean, and that was a good buying opportunity for
10:02
Speaker 2: the UK because Stirling obviously crashed by a boat, you know,
10:05
Speaker 2: nearly part of ity with a doll on notice up
10:07
Speaker 2: about one dollar twenty five so on that pieces a
10:11
Speaker 2: lowin you know, UK assets are more valuable now than
10:15
Speaker 2: the way up they can peak mesody a year ago.
10:19
Speaker 1: It's a good thing we never put melodramatic headlines.
10:22
Speaker 3: On our work.
10:23
Speaker 2: No clickbit here.
10:24
Speaker 3: We don't know.
10:25
Speaker 1: We don't do that. Moving on, Welcome to Myron Talks Money,
10:33
Speaker 1: the podcast in which people who know the markets explain
10:35
Speaker 1: the markets. I'm Maren sumset Web. This week we bring
10:38
Speaker 1: you a lightly edited version of my panel The Butcher,
10:41
Speaker 1: the Brewer, the Baker and Maren sumset Web. This was
10:43
Speaker 1: held at Pama House in Edinburgh, the only surviving residence
10:47
Speaker 1: of Adam Smith. He lived there between seventeen seventy eight
10:50
Speaker 1: and seventeen ninety, dying there in seventeen ninety. We take
10:54
Speaker 1: this panel on the twenty sixth of August as part
10:56
Speaker 1: of the Fringe Festival in Edinburgh. And by the way,
11:00
Speaker 1: just to tell you the quote that that title is
11:02
Speaker 1: based on, one of his most famous quotes. It is
11:05
Speaker 1: not from the benevolence of the butcher, the brewer or
11:07
Speaker 1: the baker that we expect our dinner, but from their
11:09
Speaker 1: regard to their own interest. Okay, So, who has read
11:17
Speaker 1: any of Adam Smith's great books? Who's read The Wealth
11:19
Speaker 1: of Nations? Who's read Moral Sentiments? Who's read both? Two
11:27
Speaker 1: liars in the room today? Maybe one liar, I don't know.
11:32
Speaker 1: We'll fight about that later. I did once embarrass someone
11:37
Speaker 1: who said they've read both, and I believed them and
11:40
Speaker 1: ask them some questions about it, and then I decided
11:41
Speaker 1: I'd better not do that again. Awkquode. Now, so those
11:46
Speaker 1: of you've been here before, you know a little bit
11:47
Speaker 1: about the house. You've had to talk about it downstairs.
11:50
Speaker 1: And I've been doing this now for four or five years,
11:52
Speaker 1: four years, I don't know, since the beginning anyway, two
11:54
Speaker 1: thousand and many years, six years, okay, And it was
11:58
Speaker 1: an extraordinary privilege to do it the first time, and
12:00
Speaker 1: we did it. It was the first event that happened in
12:01
Speaker 1: this house, and it was the first time that a
12:03
Speaker 1: conversation about politics and economics had happened in this house
12:06
Speaker 1: since Adam Smith's death. So it was all rather wonderful.
12:09
Speaker 1: And this year, of course, it's special all over again
12:12
Speaker 1: because it's the three hundred year anniversary of Adam Smith's birth,
12:15
Speaker 1: so we have yet another opportunity to feel like we're
12:18
Speaker 1: doing something incredibly special in this room. So I will
12:21
Speaker 1: get to my guest in a minute, but before we do,
12:24
Speaker 1: I want to tell you a few of the things
12:25
Speaker 1: about Adam Smith that I've always found most interesting and irritating.
12:30
Speaker 1: You might look at this house and think to yourself,
12:32
Speaker 1: how did an academic get to live in one of
12:34
Speaker 1: the greatest houses in Edinburgh? How did he manage to
12:38
Speaker 1: get the money together to do this? And when I
12:40
Speaker 1: look at him, I always think of him first in
12:42
Speaker 1: terms of his pension, because those of you who've read
12:45
Speaker 1: my work of ver as well know that I'm absolutely
12:47
Speaker 1: obsessed with other people's pensions. Who in this room has
12:52
Speaker 1: a defined benefit pension? And no liars, please, because I
12:54
Speaker 1: can see the You're all the right kind of age.
12:56
Speaker 1: Who's got to define benefit pension? Isn't it absolutely marvelous?
13:02
Speaker 3: Yeah?
13:03
Speaker 1: Do you feel gorgeously financially secure? And when you look
13:05
Speaker 1: at the newspaper and see everyone else stressing out about inflation,
13:07
Speaker 1: you don't have to do that, you know, it's just fine.
13:09
Speaker 1: Feels great, right? Adam Swift felt like that. He felt
13:12
Speaker 1: like that, and he felt like that in an extra
13:13
Speaker 1: good way because he only worked for two years as
13:17
Speaker 1: a tutor to get his defined benefit pension, which lasted
13:20
Speaker 1: his entire life and was the equivalent of sixty thousand
13:24
Speaker 1: pounds a year for two years work. And he was also,
13:26
Speaker 1: of course a best selling author. And those of you
13:28
Speaker 1: who have read any of his books, will know how
13:32
Speaker 1: brilliantly easy they are to read. Right, They were absolute
13:37
Speaker 1: best sellers at the time. Well The Nations its first
13:39
Speaker 1: edition sold out in six months and was reprinted and
13:41
Speaker 1: reprinted and reprinted. People, we're more tolerant of long sentences
13:44
Speaker 1: and bad editing. Back in the day, up and down
13:47
Speaker 1: the Royal Mile you could buy Adam smith souvenirs and
13:50
Speaker 1: momentors and he was a proper celebrity in his day,
13:53
Speaker 1: and that is how he did it. He was the
13:56
Speaker 1: academic celebrity, maybe the Neil Ferguson of his time. Perhaps
14:01
Speaker 1: right on to the celebrities I have with me today
14:05
Speaker 1: on my right James Anderson, who lots of you will know,
14:07
Speaker 1: who is no longer at Bailey Gifford, but well known
14:10
Speaker 1: for being the co manager and the driver behind the
14:13
Speaker 1: Scottish Mortgage Investment Trust, one of the most well known
14:15
Speaker 1: and successful investment funds in the UK. James is now
14:18
Speaker 1: claiming to be retired, but of course not remotely retired,
14:22
Speaker 1: back in investing and a chair of Killovic, so still
14:27
Speaker 1: very busy and very involved and has a quote here
14:30
Speaker 1: that he's going to use and I'm quite interested in him.
14:32
Speaker 1: On my left Russell Napier, who I think also a
14:34
Speaker 1: lot of you will know, an excellent equity strategist, but
14:39
Speaker 1: maybe a tactical investor at the moment as well. I've
14:43
Speaker 1: been reading your work where suddenly you've gone all tactical.
14:46
Speaker 1: The author of a few excellent books, my favorite being
14:49
Speaker 1: Anatomy of a Bear, which is a book I think
14:51
Speaker 1: we all should be reading again at the moment. And
14:54
Speaker 1: the founder of the Library of Mistakes, who's been to
14:56
Speaker 1: the Library of Mistakes in Edinburgh. Excellent, anyone who has.
15:00
Speaker 1: And you must go immediately as it open today Usselant.
15:03
Speaker 3: Until five o'clock.
15:05
Speaker 1: Okay, leave here, go there. It's important to see and
15:09
Speaker 1: we will eventually learn from our mistakes in finance, won't
15:12
Speaker 1: we wrestled?
15:13
Speaker 3: We will, thanks all, sorry, we will not.
15:15
Speaker 1: We will not exactly, we never will. We never will.
15:21
Speaker 1: And on my far left Anna McDonald, who has had
15:24
Speaker 1: a long career in fund management in the UK and
15:27
Speaker 1: particularly in small cap investments. So we will get all
15:30
Speaker 1: our investment advice from Anna at the end. Now, the
15:33
Speaker 1: way this works, as those of you who have been
15:36
Speaker 1: here before will know, is that I ask each of
15:38
Speaker 1: my guests it's not quite a game show, but that does
15:40
Speaker 1: that feeling about it. Ask each of my guests to
15:42
Speaker 1: come up with their favorite Adam Smith quote, which means
15:45
Speaker 1: that they have all re read Wealth of Nations in
15:47
Speaker 1: the last couple of weeks to find their favorite quote,
15:49
Speaker 1: and then we will talk about those quotes, why they
15:52
Speaker 1: were important, then, why they are important now, what they're
15:55
Speaker 1: relevant today is. And then we will proceed to talk
15:57
Speaker 1: over each other for about forty minutes. We are going
16:00
Speaker 1: to start. We get out with you, didn't we Jameses quote? Right, James, It's.
16:05
Speaker 4: Good to be here. Well, just as a very two
16:09
Speaker 4: sentence introduction to the quote. When I told Marin that
16:15
Speaker 4: I had read the Wealth of Nations, she immediately disqualified
16:20
Speaker 4: it on the basis I was forced to at university,
16:22
Speaker 4: and I think that was properly justified. But rather surprisingly,
16:26
Speaker 4: I still have the addition from forty five years ago,
16:29
Speaker 4: and I found when looking up my quote in it
16:33
Speaker 4: that I hadn't at that time marked it, despite marking
16:36
Speaker 4: most items on that page. So I suppose it proves
16:40
Speaker 4: how one tastes to change over the course of time.
16:43
Speaker 4: But the quote is a short one. As capitals increase
16:47
Speaker 4: in any country, the profits which can be made by
16:50
Speaker 4: employing them necessarily diminish. Now, Smith, at the time, in
16:57
Speaker 4: his usual manner, produced a lot of evidence for this,
17:00
Speaker 4: and he thought it was a natural outcome of the
17:03
Speaker 4: increasing competition that provision of capital would allow for. But
17:08
Speaker 4: he also pointed to specific examples of both sides of it.
17:12
Speaker 4: He thought that capital will be very highly rewarded in America,
17:15
Speaker 4: be course, relative to the virgining scale of the population
17:19
Speaker 4: and the potential there wasn't enough capital, whereas he cited
17:23
Speaker 4: too interestingly contrasting but it'still perhaps valuable examples in the
17:28
Speaker 4: cases of China and Holland as being countries which had
17:32
Speaker 4: got as far as they possibly could. But why am
17:37
Speaker 4: I interested now? I'm interested now because for all Smith's
17:42
Speaker 4: absolute brilliance and insight, and I'm not in any sense
17:45
Speaker 4: at all trying to be derogatory about.
17:48
Speaker 1: That which is lucky.
17:52
Speaker 4: But this is not what has happened. We are in
17:56
Speaker 4: an environment, particularly in that most capitalist or oligarchic society
18:02
Speaker 4: of America, where corporate profits are at an all time
18:05
Speaker 4: high as a percentage of anything, and the standard figure,
18:09
Speaker 4: of course you can quarrel with this is that over
18:11
Speaker 4: the last seventy years, since nineteen fifties, we're now at
18:15
Speaker 4: the level where in and of itself, six hundred billion
18:19
Speaker 4: dollars a year has been transferred from labor to capital.
18:24
Speaker 1: But before we move on to why he's been so
18:26
Speaker 1: wrong this time, isn't it fair to say that historically
18:28
Speaker 1: he has been right? In the corporate profnce have always
18:30
Speaker 1: mean reverted in the past. And you know, writers like
18:34
Speaker 1: me and well Russell as well, we've been waiting, haven't
18:36
Speaker 1: we for profits to mean revert. I either returns to
18:39
Speaker 1: capital to fall and the returns to labor to rise
18:43
Speaker 1: and things to normalize. And this is the one time
18:45
Speaker 1: we can point to where it simply hasn't happened. Corporate
18:48
Speaker 1: problems have kept rising and real wages have kept follow.
18:51
Speaker 4: There are two things wherein that over the course of
18:55
Speaker 4: my career I've assumed would rein revert and have And
19:00
Speaker 4: one is what we're just talking about. The other is
19:02
Speaker 4: the feat fund managers, which but you know, some degree,
19:12
Speaker 4: I think it is about the raw political power of
19:17
Speaker 4: those who are in industry, and plainly that applies very
19:20
Speaker 4: heavily in America. And I think you know, the whole
19:23
Speaker 4: current Biden phase is in many ways trying to reinforce that.
19:27
Speaker 4: Some of it is about the role of fund managers themselves,
19:31
Speaker 4: which I think the rise of professional fund managers and
19:35
Speaker 4: asset managers controlling much of what goes on. There's a
19:38
Speaker 4: guy called Brett Christopher's who writes fascinating books about how
19:41
Speaker 4: the whole infrastructure which we pay more for and get
19:44
Speaker 4: less out of, has been structurally changed. Some of it
19:49
Speaker 4: is to my mind a slightly less malign feature, but
19:53
Speaker 4: is part of the business models of the great platform
19:56
Speaker 4: technology companies, which are very hard to decid, aggregate and
20:00
Speaker 4: drive down. But I think it's a really important mystery,
20:04
Speaker 4: and you're putting it in the context of this mean
20:06
Speaker 4: reversion one. It only makes it more interested. And I'll
20:09
Speaker 4: be very interested what all three of you has. But
20:11
Speaker 4: I think it's one of the central least examined dilemmas
20:14
Speaker 4: of our current era.
20:15
Speaker 1: But it is actually looking for the quote here. I
20:18
Speaker 1: try and have a quote for every occasion. And there
20:21
Speaker 1: is a section with Adams write about this where he
20:23
Speaker 1: says that once a government, once business gets its hands
20:27
Speaker 1: on government, things no longer work like they should. And
20:31
Speaker 1: this is the this is the road to hell business
20:34
Speaker 1: having political power.
20:35
Speaker 4: Absolutely and again in the current context, I think a
20:39
Speaker 4: quote about the same stage of the development of the
20:42
Speaker 4: argument is that we should criticize workers far less for
20:48
Speaker 4: forgetting the rewards that he initally regards, that it's a
20:51
Speaker 4: good thing for the development of prosperity and companies far
20:55
Speaker 4: more so. There's been a lot written, as you'd well know,
20:59
Speaker 4: in the last eighteen months about this, as how far
21:01
Speaker 4: it's corporate jagging up their prices that has actually led
21:05
Speaker 4: inflation or exploited the conditions that you could invation, rather
21:08
Speaker 4: than it being wage led, which somebody me brought up
21:11
Speaker 4: in the nineteen seventies. It's amazing how little it has
21:14
Speaker 4: translated into higher ways.
21:17
Speaker 3: Well in the US there are statistics for this, which
21:19
Speaker 3: is wonderful because they always produced statistics. So the first
21:22
Speaker 3: intervention by the state was really the Interstate Commerce Commission
21:25
Speaker 3: to try and regulate the railways that they're partially at
21:27
Speaker 3: the push of William Jennings Bryan. So you can try
21:30
Speaker 3: it from eighteen ninety two today. So does anybody want
21:33
Speaker 3: to guess which president had the most actions to try
21:35
Speaker 3: and break up holygopolies effectively reduce the power of the
21:39
Speaker 3: corporation and effectively reduce be a catalyst from in reversion.
21:46
Speaker 3: Really no, Jimmy Carter, No, no.
21:53
Speaker 5: Okay, Well, basically the president of White Mare, which is
21:56
Speaker 5: fascinating because he's a Republican, but I knows there's Republicans
22:00
Speaker 5: believe that to have a proper republic, the corporate couldn't
22:04
Speaker 5: be that powerful.
22:05
Speaker 3: And what was driving it was not It wasn't No
22:07
Speaker 3: one ever accused the General of being anti capitalist. It
22:10
Speaker 3: was to have competition. And I don't think we have
22:12
Speaker 3: that quote but Smith, right at the core of Smith
22:14
Speaker 3: is competition. What is capitalism with a competition? I don't
22:19
Speaker 3: have an answer to that, but it isn't capitalism. So Eisenhearer,
22:24
Speaker 3: Eisenhoer was was the man who drove.
22:26
Speaker 1: That, and as a Republican, and he writes a lot
22:29
Speaker 1: about how, you know, the it is natural for the
22:32
Speaker 1: businessman to get rid of capitalism. What was natural business was.
22:37
Speaker 3: What was final final words to all of us before
22:40
Speaker 3: we left office to be where the military industrial complex.
22:43
Speaker 3: That's a Republican speaking.
22:45
Speaker 1: Okay, so what turns it around? I mean, I've been
22:47
Speaker 1: writing for for years that at some point labor will
22:50
Speaker 1: get its power back, and at some point we will
22:52
Speaker 1: see this pendulum swing because penins do swing, and there's
22:55
Speaker 1: been a hint over the last couple of years, and
22:57
Speaker 1: certainly in the UK that labor is beginning to be
23:00
Speaker 1: and it's power back, and wages are now rising slightly
23:03
Speaker 1: faster than inflation. So do we begin to see the
23:05
Speaker 1: return of consistently rising real wages or is that impossible
23:09
Speaker 1: in a low productivity economy?
23:12
Speaker 3: Certainly not impossible. Just the question is what are the
23:14
Speaker 3: consequences of it? It's not impossible. I don't think this
23:18
Speaker 3: Evans was a high productivity Economytser only don't remember it
23:20
Speaker 3: as such, even though it was quite a young man.
23:23
Speaker 1: Okay, so this reset is impossible.
23:26
Speaker 4: I don't think quite impossible. So to bring in another
23:30
Speaker 4: person who's written thought a lot about this, the great
23:34
Speaker 4: eighty three year old Carlotta Peris and the interaction between
23:40
Speaker 4: financial controls and power with technological innovation. Her hypothesis, and
23:48
Speaker 4: she's just halfway through a six hundred page history of this,
23:51
Speaker 4: is that you absolutely need the state to come back
23:55
Speaker 4: in this context. And her argument is that in fact,
23:58
Speaker 4: the state has a way is being critical in resetting
24:02
Speaker 4: the balance. But you need a state that is not
24:05
Speaker 4: controlled by the bos.
24:09
Speaker 1: But we also have a problem in that sense at
24:10
Speaker 1: the moment that that's not the direction that the state
24:12
Speaker 1: is going in. At the moment. We have a state
24:15
Speaker 1: that gets involved in more and more and more and
24:17
Speaker 1: more things. Everything is that you've written about this, haven't you,
24:19
Speaker 1: the socialization of risk, that the state never stops with
24:22
Speaker 1: the intervening. We're talking about it intervening the way you're
24:24
Speaker 1: talking two different things.
24:25
Speaker 3: Should still do things? So should the still stop alogo,
24:28
Speaker 3: they're two different things, actually, but this seems more interested
24:30
Speaker 3: in the former than the latter exactly.
24:32
Speaker 1: So we have the wrong kind of state well currently
24:35
Speaker 1: currently that sounds optimistic reverts.
24:45
Speaker 6: So it's interesting, isn't it, With the Chip sect and
24:48
Speaker 6: the Inflation Reduction Act in the USA, how the US
24:52
Speaker 6: is now so relying on it sort of might and
24:54
Speaker 6: it's its dollar power and everything to feel that there's
24:57
Speaker 6: no limit to how much debt there can be in
24:59
Speaker 6: the public sector. In the effect, I don't think we
25:02
Speaker 6: really understand what new levels of risks there are going
25:05
Speaker 6: to be around the level of debt in the US
25:07
Speaker 6: because it's not so much privately held. This is going
25:09
Speaker 6: to be an awful lot of public debt.
25:11
Speaker 1: Now I think that brings us quite likely. Yeah, you'll quote. Actually, okay,
25:15
Speaker 1: let's take Anna's mind's a bit longer.
25:19
Speaker 6: Great nations are never impoverished by private though they are
25:22
Speaker 6: sometimes by public prodigality and misconduct. Almost the whole public
25:27
Speaker 6: revenue is in most countries employed and maintaining unproductive hands,
25:32
Speaker 6: such as the people who compose a numerous and splendid court,
25:36
Speaker 6: great fleets, and armies, and are all maintained by the
25:39
Speaker 6: produce of other men's labor. All the frugality and good
25:42
Speaker 6: conduct of individuals may not be able to compensate the
25:46
Speaker 6: waste and degradation of produce occasioned by this violent and
25:50
Speaker 6: forced encroachment.
25:52
Speaker 1: Okay, that was a long one. Yes, sorry about that.
25:55
Speaker 1: I didn't you memorize this? This is also absolutely true.
26:00
Speaker 1: But what do you get?
26:01
Speaker 6: Well, I was, there's numerous examples where this is relevant.
26:05
Speaker 6: I think, I mean, we're just talking about one, then
26:07
Speaker 6: we could. I mentioned chips in ira and and we
26:12
Speaker 6: see this all over the place. But actually I was
26:14
Speaker 6: going to relate it to China, which is their economy
26:18
Speaker 6: is now three quarters the size of the US's just
26:22
Speaker 6: to put in context the growth it's been through. It
26:25
Speaker 6: was a tenth of the size in nineteen eighty despite
26:28
Speaker 6: having a population four times greater at that point, and
26:32
Speaker 6: we've been used to seeing eight ten percent growth in GDP.
26:37
Speaker 6: But I think what we're really surprised about now is
26:40
Speaker 6: that the economic growth has not returned in the same
26:45
Speaker 6: kind of way that we would have expected after the pandemic.
26:49
Speaker 6: Adam Smith talked about, you know, violence and forced encroachment.
26:52
Speaker 6: I mean, I think we really saw the draconian nature
26:55
Speaker 6: of what China's ever more centralized government could do in COVID,
27:01
Speaker 6: and I think that they're just making one policy mistake
27:05
Speaker 6: after another at the moment, and that the more centralized
27:10
Speaker 6: power you have, the more yes s bend that she
27:14
Speaker 6: has around him, is going to just layer further problems
27:18
Speaker 6: upon the economic growth story of China. I think we
27:22
Speaker 6: all thought China was going to overtake the US at
27:24
Speaker 6: some stage, but I don't even I can't. I can't
27:27
Speaker 6: see that happening in any you know, in any kind
27:29
Speaker 6: of time horizon. And I just think that this that
27:34
Speaker 6: we have now a huge it's still a very large
27:36
Speaker 6: economy with an increasingly increasingly policy increased policy error, and
27:45
Speaker 6: we've started seeing big disruption in the property market, and
27:49
Speaker 6: we're seeing more obfuscation. When China don't like data they're publishing,
27:53
Speaker 6: they stop publishing it. They stop publishing consumer confidence.
27:57
Speaker 1: Data just I was gone.
27:59
Speaker 6: They stop publishing consumer confidence date in April. They stopped
28:02
Speaker 6: a couple of weeks ago publishing the levels of youth
28:04
Speaker 6: unemployment that are getting pretty high.
28:06
Speaker 1: Now you have to give us your favorite quote that
28:08
Speaker 1: the penalty.
28:11
Speaker 6: So I and I think it's I think that it's
28:14
Speaker 6: it's it's just I think there's some risks to it.
28:18
Speaker 6: I think the risk globally we're already starting to see
28:20
Speaker 6: the effect of on more industrialized European countries in terms
28:24
Speaker 6: of their growth trajectories.
28:26
Speaker 1: But also I.
28:27
Speaker 6: Think that she's the way his his the way he's
28:33
Speaker 6: building his court around. And I think if there's if
28:36
Speaker 6: there is actual economic discontent and a feeling, a growing
28:42
Speaker 6: feeling that your children are not going to be better
28:44
Speaker 6: off than you are, there could be some kind of
28:47
Speaker 6: political ramifications. And the most likely to me is that
28:52
Speaker 6: they would he would sort of shore up some some
28:55
Speaker 6: support by invading Taiwan.
28:57
Speaker 1: Okay, I was hoping there's going to be more optimistic, Saint,
29:01
Speaker 1: let me let me build something optimistic out of that.
29:03
Speaker 1: What about if if if that means that China once
29:05
Speaker 1: again starts exporting deflation to the well, they are one
29:09
Speaker 1: of the great drivers behind our previous great moderation was
29:13
Speaker 1: the fact that we were getting a deflationary impulse out
29:15
Speaker 1: of China, right, and that that allowed our central banks
29:18
Speaker 1: to think they were geniuses, which of course they still do.
29:20
Speaker 1: And that's fine. Maybe we'll get back to that with
29:22
Speaker 1: a little help and external help, and that could be
29:25
Speaker 1: a positive driver bringing down inflation across the West.
29:29
Speaker 6: But but yes, but also but it's driven by very
29:31
Speaker 6: low growth and and we don't have and I mean
29:36
Speaker 6: I think that that if we didn't have, for example,
29:40
Speaker 6: if we could, if we took the US out of
29:41
Speaker 6: the global equation at the moment, we'd all be in stagflation.
29:46
Speaker 6: And yes, while these these deflation impulses from China might
29:50
Speaker 6: be helpful, we're at the same time, at this we're
29:55
Speaker 6: still putting quite inflationary things into the into the Western
29:59
Speaker 6: economy in particular.
30:01
Speaker 1: Russell, you're pretty depressed to that China as well. Aren't
30:03
Speaker 1: you any any positive, anything positive to drag out of
30:06
Speaker 1: what's happening with Chinese company. No, thank you, thanks.
30:12
Speaker 3: Look, I just mentioned debt, so that I mean sometimes
30:14
Speaker 3: things structurally change. So we go back to two thousand
30:17
Speaker 3: and seven as we roll into the GFC, China's debt
30:19
Speaker 3: to GDP ratio is one hundred and forty percent. The
30:22
Speaker 3: US at that stage has already at about two hundred
30:24
Speaker 3: and forty, and I think gets peaks at two hundred
30:26
Speaker 3: and eighty. But we take the snapshot today and the
30:29
Speaker 3: US hasn't actually changed much. I know people will be
30:31
Speaker 3: surprised by that, but China has gone from one hundred
30:34
Speaker 3: and forty to two hundred and ninety. So that growth
30:37
Speaker 3: that it's manufactured over the last whatever that is not
30:39
Speaker 3: fourteen years has been heavily driven by debt instead. And
30:43
Speaker 3: it's very hard to divide the public and private sector
30:45
Speaker 3: in China, but it's genuinely seems to be in both
30:47
Speaker 3: the public and private sector. So the problem with the
30:50
Speaker 3: slowdown is it's what we might call a debt deflation.
30:54
Speaker 3: The risk is a debt deflation, which is something that
30:56
Speaker 3: Irving Fisher sort of talked about in nineteen thirty two.
31:00
Speaker 3: So the risk is a debt deflation. Now, I know
31:02
Speaker 3: politician in their right mind would force their economy through
31:04
Speaker 3: a debt deflation because it tends to create great social.
31:09
Speaker 1: So on the upside, you have to stop and explain
31:12
Speaker 1: a debt deflation and.
31:14
Speaker 3: Debt deflation is really when the asset prices start to
31:17
Speaker 3: fall and you've borrowed over the asset price, and you
31:20
Speaker 3: then have people having to liquidate to pay back the debt.
31:24
Speaker 3: That leads to it can actually a contraction and a
31:27
Speaker 3: supply of money because banks actually then contract. There's apply
31:30
Speaker 3: of money, then leads to more deflation, and this is
31:33
Speaker 3: what happened in the United States from twenty nine to
31:35
Speaker 3: thirty three. Nobody knew how to solve it or well,
31:38
Speaker 3: Fisher wrote something, but it came it came too late.
31:41
Speaker 3: So if he goes this route, there's the risk. Nowise
31:43
Speaker 3: it's not a slow die. There's so much debt in
31:45
Speaker 3: the system it becomes something more egregious than that. If
31:49
Speaker 3: you've had a slow motion version, maybe it looks a
31:51
Speaker 3: little bit more like Japan has for twenty audios. But
31:54
Speaker 3: I'm going to say something optimistic. I don't think I
31:56
Speaker 3: don't I don't think he can force his people through that.
31:58
Speaker 3: I think he's going to print a lot of mone
32:00
Speaker 3: and inflated all the way. I mean, that's where he
32:03
Speaker 3: has to end up. I think it's too dangerous, even
32:05
Speaker 3: for the Chinese Communist Party on Duji, which is a
32:08
Speaker 3: very powerful organization. I think that's too dangerous a thing
32:11
Speaker 3: for him to try and put off. So he'll try
32:13
Speaker 3: to reflect the economy. But for me, that means the
32:15
Speaker 3: currency probably has to fall.
32:17
Speaker 1: Okay, and what will that mean for the rest of us?
32:19
Speaker 3: Well, I think we'll put tariffs in China. I think
32:21
Speaker 3: that's as simple as that. That economy is too big.
32:23
Speaker 3: It's too big this time to grow via a lower
32:25
Speaker 3: exchange rate and exporting. I don't think we can cope
32:27
Speaker 3: with it. I don't think we want to cope with it.
32:29
Speaker 3: For this purely political economy. Political economy, we can't let
32:33
Speaker 3: China grow the way it has grown. So that's not economics.
32:37
Speaker 3: I think that's politics. So I think some restrictions on
32:40
Speaker 3: its ability to export its way back to glory are
32:44
Speaker 3: highly likely.
32:45
Speaker 1: What do you stand on this, James? You've always been
32:47
Speaker 1: an investor in China or in Chinese company, shall we say?
32:52
Speaker 3: Yeah?
32:54
Speaker 4: I level of confidence is very low. In making judgments.
33:00
Speaker 4: This we all know, and Adam Smith is certainly in you.
33:03
Speaker 4: You could spend your entire career learning about China and
33:06
Speaker 4: still not have a clue. So I think that you
33:08
Speaker 4: know what fund managers are used to dealing with, uncle,
33:12
Speaker 4: But this is truly, deeply, deeply unpredictable, And I don't
33:16
Speaker 4: know whether what you're talking about, which may well come about,
33:19
Speaker 4: leads to wholesale political revolution. You know, throw in another
33:23
Speaker 4: book because it has Adams with the title. There an
33:26
Speaker 4: Italian American scholar called Giovanni Rigi who wrote a book
33:30
Speaker 4: called Adam Smith in Beijing, which in a sense was
33:34
Speaker 4: thinking through some of these issues. And the great question
33:36
Speaker 4: you kept coming back to was would the Chinese bourgeoisie
33:40
Speaker 4: ever turn out be in charge of the economic development
33:44
Speaker 4: of China? And I think that is a question we
33:47
Speaker 4: need to keep in my one deep negativity about it,
33:51
Speaker 4: and I feel, you know, be honest about this. I
33:54
Speaker 4: didn't realize the implications overall the Russian Russell used to
33:58
Speaker 4: word politics. I think I underestimated the united degree of
34:04
Speaker 4: hostility in America towards one thing they agree about at
34:09
Speaker 4: the moment, and the consequences of that in which you know,
34:13
Speaker 4: be back Anna to the chipsac and the like is
34:15
Speaker 4: about China more than anything else. But beneath that, I
34:20
Speaker 4: wouldn't underestimate the human capital. And again I think this
34:25
Speaker 4: is quite consistent with what al Smith would have thought
34:28
Speaker 4: about it.
34:28
Speaker 6: In fact, he goes on, this was part of the
34:30
Speaker 6: very longer quote that actually that the individual will work
34:36
Speaker 6: hard enough to try and sort of compensate for the
34:39
Speaker 6: for the damage that the state does. Like the unknown
34:43
Speaker 6: principle of animal life, it frequently restores health and vigor
34:47
Speaker 6: to the constitution in spite not only of the disease,
34:50
Speaker 6: but of the absurd descriptions of the doctor. So the
34:53
Speaker 6: doctor being the state and the animal being our individual
34:57
Speaker 6: animal spirits.
34:58
Speaker 1: And it feels like that across the worst as well. Yeah,
35:01
Speaker 1: the industry carries on in spite of rather than because
35:04
Speaker 1: of the mistake. There is by way on that matter.
35:09
Speaker 1: There's a podcast that we did a few a few
35:11
Speaker 1: months ago with an author called Peter Turkin about the
35:14
Speaker 1: oversupply of elite West and that that feeds them very
35:17
Speaker 1: neatly to this quote as well, about the sort of
35:20
Speaker 1: vast number of people now working in high status but
35:23
Speaker 1: unproductive jobs across across the.
35:24
Speaker 4: West, and that might get far worse with AI absolutely
35:29
Speaker 4: if all these lawyers don't even have a job, but.
35:32
Speaker 1: They're all going to have to go and work in
35:33
Speaker 1: the parish ESG sector, aren't they a lot of them?
35:37
Speaker 1: So that that podcast is very much about the way
35:41
Speaker 1: that as we continue quite rightly to educate and educate
35:43
Speaker 1: and educate, we end up with an awful lot of
35:45
Speaker 1: people who feel like they should have more status than
35:47
Speaker 1: they actually do because there aren't actually enough productive elite
35:51
Speaker 1: jobs to go around. And Peter and not everyone in
35:54
Speaker 1: the room will agree with the views on this, but
35:56
Speaker 1: this has led very much to the rise of discussions
35:59
Speaker 1: about ESG has governed that sustainability, the rise of the
36:03
Speaker 1: third sector, the huge charitable sectors across the Western countries
36:06
Speaker 1: at the moment, huge numbers of people shuffling bits of
36:09
Speaker 1: paper around it possibly to some game, possibly not but
36:11
Speaker 1: not working in what we might have considered previously to
36:14
Speaker 1: be productive jobs and very worth while reading. You're nodding away,
36:18
Speaker 1: but I can't believe you're agreeing with me on us.
36:22
Speaker 4: I think his diagnosis to the problem may well be
36:25
Speaker 4: pretty correct. I think we probably haven't got time to
36:30
Speaker 4: examine where I agree where I different from you are
36:33
Speaker 4: not on the arsdue parts of it. The one thing
36:36
Speaker 4: I suppose one should show it. I don't know whether
36:38
Speaker 4: it came up in your discussion, but if I read
36:41
Speaker 4: book correctly, is he thinks that this was going to
36:44
Speaker 4: peak in about twenty twenty four twenty five. Now I'm
36:48
Speaker 4: not sure if you put AI on top of that,
36:51
Speaker 4: we wouldn't need to push that out a bit.
36:53
Speaker 1: No, only things he's going to peak with a lot
36:54
Speaker 1: of social unpleasantness, but then and he's very interesting. Well,
37:00
Speaker 1: not on the way we have previously exported our elase
37:02
Speaker 1: when we've had too many of them. Particularly Scotland has
37:04
Speaker 1: been excellent at educating people very well and then getting.
37:07
Speaker 3: Them to leave. Not as good as Northern Ireland. The
37:11
Speaker 3: question is whether we have a meat city argue.
37:15
Speaker 1: Maybe they've all left. We have a final final quote
37:20
Speaker 1: time ways, Yes, we do need to move on to
37:21
Speaker 1: your coat Russell.
37:22
Speaker 3: Okay, I'm going to explain why I've picked it first,
37:24
Speaker 3: so you can have it in context. So Smith is
37:26
Speaker 3: always associated with a phrase called enlightened self interest, and
37:30
Speaker 3: then every economist in the world gets to define it
37:32
Speaker 3: and tell us what it is. So I'm going to
37:34
Speaker 3: give you what I think is Smith's definition of enlightened
37:36
Speaker 3: self interest, and you can tell me whether you think
37:38
Speaker 3: it's the same one that is widely used by economists.
37:41
Speaker 3: And he says the following in terms of this is
37:43
Speaker 3: about all of us do with economics. It's with us
37:47
Speaker 3: when we are always so much more deeply affected by
37:49
Speaker 3: whatever concerns ourselves than by whatever concerns other men. What
37:55
Speaker 3: is it which prompts the generous upon all occasions, and
37:58
Speaker 3: the mean upon many, to sacrifice their own interest to
38:01
Speaker 3: the greater interests of others. It is not the soft
38:05
Speaker 3: power of humanity. It is not that feeble spark of
38:08
Speaker 3: benevolence of which nature has lighted up in the human heart,
38:12
Speaker 3: that is thus capable of counteracting the strongest impulsils of
38:15
Speaker 3: self love. It is a stronger power, a more forcible motive,
38:19
Speaker 3: which exerts itself upon such occasions. It is reason, principle, conscience,
38:25
Speaker 3: the inhabitant of the breast, the man within, the greater
38:29
Speaker 3: judge and arbiter of our conduct, not the rational economic man.
38:33
Speaker 3: I don't know what that deficit is off, but it's
38:35
Speaker 3: not of a rational economic manner, and that is his
38:38
Speaker 3: definition of enlightened self interest, and we've replaced it with
38:41
Speaker 3: something else. And so I think there's a problem at
38:44
Speaker 3: the core of economics. No, I'm not. This is not
38:46
Speaker 3: a strong man economists. Some of them know this. Things
38:49
Speaker 3: are changing, we're making progress, but we cannot make quite
38:53
Speaker 3: a lot of progress on this because of advances in neuroscience.
38:56
Speaker 3: He calls it the man in the breast. So the
38:57
Speaker 3: neuroscience isn't going to help you with that. But in
39:00
Speaker 3: terms of working out how we actually believe and how
39:04
Speaker 3: we're not rational and this is not behavioral finance, is
39:07
Speaker 3: something much bigger than that. We can now make some
39:09
Speaker 3: scientific progress on this and begin to have a more
39:12
Speaker 3: nuanced understanding of what we do every time we make
39:16
Speaker 3: an economic transaction. So I think it's quite exciting that
39:18
Speaker 3: we can get I would guarantee that Smith was living
39:21
Speaker 3: in this house today spend all this time with neuroscientists
39:24
Speaker 3: trying to understand this. I mean, he would know that
39:27
Speaker 3: you couldn't perfectly understand it, but he would know that
39:30
Speaker 3: we could perhaps better understand it.
39:32
Speaker 1: So that might lead us to a day when one
39:34
Speaker 1: day one economic model might actually work. Well.
39:39
Speaker 3: No, probably not, because the reason the economic models are
39:43
Speaker 3: wrong is because they assume this kind of automaton. Right
39:46
Speaker 3: at the court, we're all automatons, and the reason that
39:49
Speaker 3: they wouldn't want to go away from the automatons is
39:51
Speaker 3: it would make life more difficult than models. But it
39:53
Speaker 3: may take us to a world where we rely less
39:55
Speaker 3: on models. So that would be, in my opinion, a
39:57
Speaker 3: major step in the right direction. Not necessarily a model
40:00
Speaker 3: that works, but realizing that the fallacy of the model,
40:03
Speaker 3: rather than batting the whole global financial system upon it,
40:06
Speaker 3: which is what we've come to do on occasion.
40:09
Speaker 1: It's interesting we have at the moment that Bank England
40:10
Speaker 1: are doing a big review of their models right because
40:12
Speaker 1: they've been so unbelievably useless for the last well for
40:16
Speaker 1: the last forever. So they're doing a big review of
40:18
Speaker 1: the whole way in which they model. But it's hard
40:21
Speaker 1: to see how without taking this into account they can
40:24
Speaker 1: make a model. It could be any more acts.
40:26
Speaker 3: We're in the very early days of this. I don't
40:27
Speaker 3: think there is there's definitely progress being made by philosophers
40:31
Speaker 3: and sociologists neuroscientists, but we're at the early stages of this.
40:34
Speaker 3: So we are trying to do something about it here
40:36
Speaker 3: in Edinburgh with that thing called the market mind hypothesis.
40:38
Speaker 3: But it's a little then we'll get onto that. It's
40:41
Speaker 3: a little step in the right direction. But it's time
40:44
Speaker 3: we started asking the right questions. If you read this,
40:47
Speaker 3: you ask different questions of economics.
40:49
Speaker 1: What questions are we going to ask that we don't ask? Now?
40:52
Speaker 1: So let's say that one ran an economics course and
40:56
Speaker 1: one was teaching it in a normal way, and one
40:57
Speaker 1: looked at this quote and thought, well, we're asking the
40:59
Speaker 1: wrong questions. Which which are the questions that you would
41:01
Speaker 1: now want to ask.
41:02
Speaker 3: We would ask the questions as to what is the
41:05
Speaker 3: man in the breast? I mean, that's the broadest definition
41:07
Speaker 3: I can give you. How does that work? Because it's
41:09
Speaker 3: not rational, he says, specifically, it's not self love, it's
41:12
Speaker 3: not rationable, it's principal and conscious. So how do we
41:15
Speaker 3: better understand that, particularly in a group setting, because we
41:18
Speaker 3: know changes in a group setting, and we'd be asking
41:21
Speaker 3: those questions, and then the allocation of resources, which is
41:24
Speaker 3: what economics is, would be more understandable to all of us,
41:28
Speaker 3: and the models might be let's relied upon.
41:31
Speaker 1: Isn't this a bit the government is supposed to do.
41:35
Speaker 1: Government is supposed to.
41:37
Speaker 3: Luptured by the models. I mean the models and the
41:40
Speaker 3: economists have captured the government. We talked about how the
41:42
Speaker 3: businesses and perhaps captured policy makers. Thinking like an economist,
41:46
Speaker 3: you know it's rational, what's wrong with rational? And you
41:49
Speaker 3: know it's not rational because it's based upon something which
41:51
Speaker 3: is a foundational error. Well foundational error because it was
41:55
Speaker 3: plucked from one of Smith's books, and yet we need
41:57
Speaker 3: defined it in the other book. They decided to ignore it.
41:59
Speaker 3: So I think governments also using the models or overall
42:02
Speaker 3: land upon the models. So anything they do and anything
42:05
Speaker 3: that self correct potentially adds to the let's call it
42:09
Speaker 3: the disturbance in the forest sewing.
42:12
Speaker 1: It's interesting, isn't it. You know when whenever you people
42:15
Speaker 1: talk about Adam Smith, and when in the beginning of
42:17
Speaker 1: all the books on him, the introduction and Wikipedia page,
42:19
Speaker 1: et cetera, they all talk about him as the father
42:21
Speaker 1: of economics, the father of capitalism, et cetera. So heach
42:24
Speaker 1: somehow invented a theory, when part of what we're talking
42:27
Speaker 1: about is the fact that he didn't invent anything. He
42:29
Speaker 1: simply attempted to describe the existing human condition. So when
42:33
Speaker 1: we have conversations as we have and the show before
42:35
Speaker 1: about socialism versus capitalism, etc. It's it's it's a misunderstanding
42:40
Speaker 1: of the fact that there's no choiceiveness.
42:42
Speaker 6: What he's doing is describing, and he spends quite a
42:44
Speaker 6: lot of time talking about judging how how a country
42:48
Speaker 6: is performing based on how it's treating it's less well
42:51
Speaker 6: off citizens and how. And the sign of actually a
42:54
Speaker 6: great wealth and maturity of the country is if if
42:57
Speaker 6: it will look after those who are, who are who
42:59
Speaker 6: struggled to become, who are who can't be economically productive themselves.
43:04
Speaker 4: But I think it's fair to say that if you
43:07
Speaker 4: cut up any of his works into article size, none
43:11
Speaker 4: of them would be published by any of the economic
43:13
Speaker 4: journals that you need today. And Russell, what you said
43:19
Speaker 4: absolutely fascinating and trying to think it through. But doesn't
43:24
Speaker 4: it also apply to us, and as you have been
43:28
Speaker 4: much of your career as practitioners of finance, so we
43:33
Speaker 4: not just as much a prison of a certain ideology.
43:36
Speaker 4: I mean, my view would be that we absolutely need
43:41
Speaker 4: to get away from this view that success as a
43:45
Speaker 4: fund manager is defined by whether you've outperformed by your
43:48
Speaker 4: peers in the last three months or even last calendar year,
43:52
Speaker 4: and that what we should be here for is trying
43:55
Speaker 4: to create great companies that move the world forwards. That's
43:59
Speaker 4: what we're all. We've financialized everything.
44:02
Speaker 1: I really half agree with you on that, only.
44:05
Speaker 4: I think I'm making progress in it.
44:09
Speaker 1: Absolutely. Yes, the manager is there to make sure that
44:16
Speaker 1: capitalists directed towards companies that will do great things and
44:20
Speaker 1: improve the world excter as you say. But they're also
44:23
Speaker 1: there to invest in such a way that the likes
44:25
Speaker 1: of us get a four or five percent every year
44:27
Speaker 1: and survive our retirements. And these are these are different
44:29
Speaker 1: different things, and you fail very much on one side.
44:33
Speaker 1: But most of most of my readers are not necessarily
44:36
Speaker 1: looking to invest at the beginning of great companies. They're
44:40
Speaker 1: looking to get their five or six percent of existing
44:42
Speaker 1: companies that are being run in a reasonably good way.
44:45
Speaker 4: I think, as ever, you put it extremely clearly the differentiation.
44:51
Speaker 4: But to quote somebody else, a frequently visitor pamea House
44:57
Speaker 4: John Kay, who is not involved in much of the
45:02
Speaker 4: economic sophistry that that's come to dominate this. Aren't you better,
45:07
Speaker 4: Marian getting to that return by having both an adequately
45:12
Speaker 4: over fight portfolio. But above all that obliquity comes into this.
45:18
Speaker 4: If you if I try and make my company's share
45:20
Speaker 4: price go up, it doesn't happen. If you try and
45:24
Speaker 4: help build great companies, at least sometimes it does happen.
45:28
Speaker 4: So you know, I'm not sure, and this would take
45:30
Speaker 4: much longer.
45:30
Speaker 1: Than than we have for this.
45:33
Speaker 3: Yeah, but if we had Smith sitting here and James
45:35
Speaker 3: and I described how capital is currently allocated by the system,
45:38
Speaker 3: and Smith was there, and then we stopped and he said,
45:41
Speaker 3: what do you call this system? Because he wouldn't call
45:44
Speaker 3: it capitalism, particularly the index food. You know, the idea
45:47
Speaker 3: that that's the efficient allocation of capital. We've got so
45:50
Speaker 3: far away from the efficient allegation of capital. He wouldn't
45:53
Speaker 3: know what it is. I really don't think he'd know
45:55
Speaker 3: what it is.
45:56
Speaker 1: What would you call it?
45:58
Speaker 3: I'll have to come up with epithane. You're good at
46:00
Speaker 3: You're good at this.
46:02
Speaker 1: I think we can. I think we can do this.
46:05
Speaker 1: And you you've always invested in a different way. I mean,
46:08
Speaker 1: this has been your job is not to go anywhere
46:10
Speaker 1: near index fans or companies that are going to provide
46:13
Speaker 1: everyone with their three four percent, but you're actually always
46:15
Speaker 1: worked at the call face of doing exactly what James
46:17
Speaker 1: is suggesting, getting into smaller companies that are doing interesting
46:21
Speaker 1: things at the beginning. Is that for you? That's real investing.
46:25
Speaker 1: It absolutely is.
46:26
Speaker 6: But over the last couple two, three, four, four years
46:29
Speaker 6: in the UK it's been unbelievably unrewarding. And the UK
46:36
Speaker 6: market has gone over the last decade from about nine
46:39
Speaker 6: percent of the market to about four percent, and the
46:41
Speaker 6: sector that the part of that, the mid and small
46:44
Speaker 6: cap sector, is even smaller, and it's been extremely dispariting
46:49
Speaker 6: and I can't actually it's quite interesting if you global
46:54
Speaker 6: allocators don't seem to consider it, even though it's quite cheap,
46:57
Speaker 6: a very interesting place to be accasionally a stock will
47:01
Speaker 6: get bought, but that actually just sort of de equitizes
47:04
Speaker 6: this market even more.
47:05
Speaker 1: But they're wrong, aren't Because there are lots there are
47:07
Speaker 1: lots of great companies in the UK. Yes, there's a
47:10
Speaker 1: fantastic innovative creative.
47:12
Speaker 6: There is, absolutely, but but it just doesn't is not
47:17
Speaker 6: being recognized by evaluation, and it's very if we're talking
47:21
Speaker 6: about the listed public sector, it's very dispiriting and it's
47:25
Speaker 6: the I think management teams are not you know, they
47:28
Speaker 6: perhaps don't see their their future on the public markets
47:32
Speaker 6: because of the way that that there is this just it.
47:35
Speaker 6: It's some quite relentless selling pressure that's been experienced, and
47:40
Speaker 6: there's also not been the same kind of long term
47:44
Speaker 6: out given or the patience that's required by investors, perhaps
47:48
Speaker 6: because they have you know, you can see unbelievably dramatic
47:53
Speaker 6: stock price reactions to any kind of disappointment, which is.
47:57
Speaker 1: And doesn't this in One of the things that we
47:59
Speaker 1: talk about in my columns and my podcast and with
48:02
Speaker 1: all of you is about valuations, which I need thoroughly
48:04
Speaker 1: disapproval of James, and that's fine. But what you're talking
48:08
Speaker 1: about is a sector in the UK at smaller companies,
48:11
Speaker 1: and I see the UK market as a whole that
48:13
Speaker 1: is unpopular globally, unpopular globally hence cheap, and as Russellis
48:18
Speaker 1: tells us, in difficult times, you want to hold cheap
48:21
Speaker 1: stocks right over a.
48:24
Speaker 3: Long time, over a long time, a long time they
48:26
Speaker 3: can get a lot cheaper.
48:28
Speaker 6: Yeah, and it's a tricky thing. If you can get
48:30
Speaker 6: five percent risk free at the moment.
48:33
Speaker 1: A nice savings account, nice savings.
48:35
Speaker 6: Account that raises the bar and what you might expect
48:38
Speaker 6: that you need to get from something which is smaller
48:41
Speaker 6: cap investment does tend to be Brisculer.
48:44
Speaker 1: Yeah, we we're nearly done, so I was just going
48:47
Speaker 1: to finish up by asking each of our guests the
48:49
Speaker 1: question that I know you want to know the answer to,
48:51
Speaker 1: which is where where should you put your money? Now?
48:54
Speaker 1: What's what's the investment? Anna? Question they put their money now?
49:02
Speaker 6: After talking about smaller companies, I feel I should give
49:05
Speaker 6: a shout out for smaller companies for the for as
49:09
Speaker 6: a long term component of your portfolio. But I do
49:11
Speaker 6: also think there's absoually no real excuse to be sitting
49:14
Speaker 6: with too much cash at the moment, and that you
49:18
Speaker 6: could buy a zero coupon so it's not paying you
49:22
Speaker 6: any interest ten year bond in the UK at the moment,
49:27
Speaker 6: which will give you a yield of about four percent
49:29
Speaker 6: a year and you will not pay any capital gains
49:31
Speaker 6: tax on so.
49:33
Speaker 1: Worth it depending on where inflation goes.
49:34
Speaker 6: Brittan Yeah, yeah, but you know, I think it would
49:37
Speaker 6: be better than hold in cash and probably almost anything R.
49:43
Speaker 3: So I think we're trying to work out one of
49:46
Speaker 3: the most predictable things is so this is onely the
49:48
Speaker 3: one I get most wrong. So we are going to
49:50
Speaker 3: a fully blown cold war with China, so as long
49:53
Speaker 3: as Hushingping as president of China. So if that is true,
49:57
Speaker 3: you'd buy ald economy stocks in the developed world because
50:01
Speaker 3: for a prolonged period of time they will be very profitable.
50:06
Speaker 3: That will lead to a massive investment that hopefully James's
50:09
Speaker 3: companies can the three companies has mentioned can do this
50:12
Speaker 3: in a low carbon way. But you know, there was
50:16
Speaker 3: a lot of stuff we're not going to be buying
50:18
Speaker 3: from China for a very prolonged period of time, and
50:21
Speaker 3: China has destroyed returns for lots of company. I say
50:24
Speaker 3: Old economy, it can be anything, so I should just
50:26
Speaker 3: rephrase it. People who've competed with China and seen their
50:30
Speaker 3: returns destroyed by China. We should be looking to invest
50:33
Speaker 3: in those companies.
50:35
Speaker 1: So by UK Manufacturing said that for a while, or
50:38
Speaker 1: maybe even steel steal decarbonized steel. James, what should we
50:44
Speaker 1: buy now? What's going to mix?
50:45
Speaker 4: Writch Well, I absolutely accept your critique of my position,
50:52
Speaker 4: and you know it's really important that you have what
50:56
Speaker 4: suits your own circumstances. You have an adequate mix in
51:00
Speaker 4: these things. But I just mentioned two areas, and I
51:03
Speaker 4: think of incredibly interesting and in some cases they do combine,
51:07
Speaker 4: and they do the first one, and you've written about
51:11
Speaker 4: this at various points. I think this wholesale reversion from
51:18
Speaker 4: buying unquoted and young companies is just leading to some
51:24
Speaker 4: extraordinary bargains in what's going on, and for any company
51:29
Speaker 4: now doing worthwhile task trying to refinance itself, there is
51:33
Speaker 4: so much power on the part of the owners of
51:36
Speaker 4: capital that the valuations are frivolously low. So I think
51:40
Speaker 4: there's that the second one, which actually I promise you
51:45
Speaker 4: I genuinely do think this. It's not just to try
51:48
Speaker 4: and cheer people up. I think one of the least
51:51
Speaker 4: noticed features of the last five years has been that
51:56
Speaker 4: actually companies involved in renewable energy technologies and those revolutionizing
52:05
Speaker 4: industries like the ones that I was talking about, have
52:10
Speaker 4: got in a position where their profitability and their advantages
52:14
Speaker 4: from first being first movers are genuinely very striking. Tesla
52:20
Speaker 4: is the most obvious example, but it's not just that,
52:24
Speaker 4: and I think this is partly and it may even
52:25
Speaker 4: come back to my quote, because there are so many
52:28
Speaker 4: traditional investors who won't put capital into this, you know,
52:32
Speaker 4: the whole venture capital industry in Silicon Familey hates the
52:34
Speaker 4: fact that you have to build physical assets rather than
52:37
Speaker 4: just having a piece of software. And so I think
52:40
Speaker 4: that actually these technologies are both working in driving down
52:45
Speaker 4: the costs of decarbonizing technologies well below traditional fossil levels.
52:50
Speaker 4: But also the companies who are actually been urive enough
52:52
Speaker 4: in inventing the future are becoming sustainably in every sense,
52:56
Speaker 4: very profitable for the long run. And I think there
52:59
Speaker 4: is a huge amount to be done in that work,
53:02
Speaker 4: which is partly where I'm investigating.
53:04
Speaker 1: Optimistic note to end on I'm fraid we do have
53:06
Speaker 1: and I've ready run over by a couple of a
53:08
Speaker 1: couple of minutes, and I can see Caroline looking at me,
53:10
Speaker 1: so we have to stop. There any other urgent questions
53:13
Speaker 1: to pop up and ask us at the end, but
53:14
Speaker 1: all that remains is to say thank you so much
53:17
Speaker 1: to my guests, who I think Adam Smith would thoroughly
53:19
Speaker 1: I've approved of. Thank you, Anna Russell and James thanks
53:27
Speaker 1: for listening to this week's Marin Talks Money. We will
53:29
Speaker 1: be back next week catch our debrief on this week's
53:31
Speaker 1: conversation on the Maren Talks Money After show under the
53:34
Speaker 1: Apple subscription feed. In the meantime, if you like our show,
53:37
Speaker 1: rate review, and subscribe whatever you listen to your podcast.
53:40
Speaker 1: This episode was hosted by me Maren Sumset Web. It
53:43
Speaker 1: was produced by Some Society, additional editing by Blake Maples
53:47
Speaker 1: and many thanks of course to Adam McDonald, to Russell Napier,
53:50
Speaker 1: to James Anderson and to John Steppek for their participation.
53:55
Speaker 1: And finally, do be sure to sign up for John's
53:57
Speaker 1: daily newsletter, Money Distilled. The linker is in the shallowes