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ARK'S Cathie Wood Hasn’t Lost Faith in the Future · Merryn Talks Money

0:00
Speaker 1: John, It's been another exciting week over the Bank of England.
0:05
Speaker 2: Right, yeah, fireworks early, Yeah, because it's fireworks weekend this weekend,
0:11
Speaker 2: isn't it.
0:12
Speaker 3: Yeah, but there were really fireworks, well maybe there were,
0:15
Speaker 3: maybe there were, I mean.
0:17
Speaker 1: The committee disagreed, right not everybody, as you better say
0:20
Speaker 1: what happened first, say what happened before we get into
0:22
Speaker 1: our relentless round or Christism of the Bank of England
0:25
Speaker 1: and everyone who works there. Let's explain exactly what happened
0:28
Speaker 1: this week.
0:30
Speaker 2: So they held interest rates at five point two five percent,
0:34
Speaker 2: and they voted six people to three to do that,
0:40
Speaker 2: which I thought actually was moderately interesting and that we
0:45
Speaker 2: all expected to hold. But nobody voted for a rate
0:49
Speaker 2: card this time, so they can assolidate dove on. The
0:52
Speaker 2: MPC has clearly decided not to go her own way,
0:57
Speaker 2: and three people voted for a rate height to five
0:59
Speaker 2: point five percent, so it's clearly you know, still I
1:02
Speaker 2: thought that the NPC is actually worried about the fact
1:05
Speaker 2: that inflation is still a bit three teams the two
1:07
Speaker 2: percent target.
1:10
Speaker 1: Okay, so ostensibly nothing happened, but something might have happened.
1:15
Speaker 1: They might have had an enthusiastic conversation out of the banking.
1:18
Speaker 1: They there may be a slight rolling back of groupthink.
1:21
Speaker 1: Everybody didn't vote for the for the same thing, but
1:24
Speaker 1: of course no one voted for a cut. And there's
1:27
Speaker 1: quite a lot of chat in the market that maybe
1:29
Speaker 1: we're beginning to see inflation going to start quite fall,
1:32
Speaker 1: and in fact, you know, there is even even some
1:34
Speaker 1: people out there saying it might get back to target shit.
1:38
Speaker 2: And I mean, I struggle with it about that level
1:44
Speaker 2: of the deep size.
1:45
Speaker 3: Do you see that, John?
1:47
Speaker 1: Every time we talk about the banking and we either
1:49
Speaker 1: get the giggles, we get really depressed, we deep so
1:51
Speaker 1: we end up being very, very, very critical.
1:53
Speaker 3: And John's at the point where all we can do
1:55
Speaker 3: is sigh, that's it. That's where we are. I ask
1:58
Speaker 3: you a question.
2:00
Speaker 2: I'm very disappointed.
2:04
Speaker 3: No.
2:05
Speaker 2: I think it's what's interesting is that the monetarists, so
2:09
Speaker 2: that people would basically talk about you say that inflation
2:12
Speaker 2: is all about the money supply.
2:13
Speaker 3: The ones who've been right just exactly.
2:16
Speaker 2: And they've been right about inflation according to their view,
2:21
Speaker 2: like we've got deflation ahead because the money supply is shrinking.
2:25
Speaker 2: Now I have my doubts about that. But for more
2:34
Speaker 2: is they are only based on gut feeling as opposed
2:37
Speaker 2: to anything scientific.
2:38
Speaker 3: Hey, John, that's.
2:39
Speaker 1: More than the Bank of England has got.
2:47
Speaker 3: What you need is a model. What you need is
2:49
Speaker 3: a model that will help you out last only goes
2:53
Speaker 3: back thirty years, that'll be fine.
2:54
Speaker 1: Yeah, And it's automatically ends up in the right place
2:58
Speaker 1: because it's set up like that.
3:00
Speaker 3: And let's not start that again. Let's not that again.
3:03
Speaker 1: But listen, it's perfectly possible in an inflationary environment to
3:07
Speaker 1: have a period of very low inflation or even deflation.
3:11
Speaker 1: I'm looking right in front of me a chart from
3:13
Speaker 1: bond Vigilanta is blogger to MNG and they have this
3:17
Speaker 1: chart showing that that inflation comes in waves. And every
3:21
Speaker 1: time you have an inflation environment, very often you get
3:24
Speaker 1: inflation going very high, and then it comes back down again,
3:28
Speaker 1: and then you get a little period of everyone thing's
3:30
Speaker 1: absolutely fine, but possibly it's for a certainary period or
3:33
Speaker 1: a low growth period. Governments go, oh god, we have
3:36
Speaker 1: to try and do something about this. They start spending again,
3:38
Speaker 1: a bit of expansion expansionary fiscal polity. Next thing you know,
3:42
Speaker 1: up you go again and We've talked about this quite
3:44
Speaker 1: a lot on this podcast, Like, once inflation gets over
3:47
Speaker 1: a certain level, it begins to whipsaw around the place,
3:50
Speaker 1: and it's very hard to get back down to a
3:52
Speaker 1: very low.
3:53
Speaker 3: Level on a long term basis.
3:54
Speaker 1: So what we're seeing here maybe a period short period
3:59
Speaker 1: of low inflation, possibly in deflation, but that doesn't tell
4:03
Speaker 1: us where anywhere near the end of this inflationary episode.
4:07
Speaker 3: Is that fair?
4:08
Speaker 2: I think that's absolutely fair. And I think also that
4:12
Speaker 2: markets are still a bit too optimistic about the idea
4:15
Speaker 2: that rates will start coming down at some point next year.
4:20
Speaker 2: You know, as you said, this is volatile. You would
4:25
Speaker 2: expect central banks, if you get any sense at all,
4:28
Speaker 2: to try and hold rates around a bit where they
4:30
Speaker 2: are now. In the knowledge that you know, I mean,
4:34
Speaker 2: they keep going on about how the last you know,
4:36
Speaker 2: a couple of percentage points are the hardest to shake
4:39
Speaker 2: out of the system. And it's very clear that you know,
4:42
Speaker 2: the economy, whatever else the economy is doing on either
4:45
Speaker 2: side of the Atlantic, it's it's not falling into recession
4:50
Speaker 2: as quickly as everyone had been expected.
4:52
Speaker 1: There are danger signals, though, aren't there.
4:55
Speaker 3: There are data are beginning to worry they're.
4:58
Speaker 2: Very slow moving though, you know, like the labor market,
5:02
Speaker 2: obviously it lags, but it's it's been cooling off for
5:05
Speaker 2: a very long time. Now. American GDP for the third
5:09
Speaker 2: quarter kind of blue the lights out, And obviously America
5:13
Speaker 2: is different to here. But you know, we to a
5:15
Speaker 2: great extent the tate financial policy for the rest of
5:20
Speaker 2: the world. So it's just it'll be interesting to see
5:23
Speaker 2: if this recession actually does materialize in twenty twenty four
5:27
Speaker 2: or if we're more just going to go through a
5:29
Speaker 2: sort of stagflationary are we. You know, it doesn't really
5:33
Speaker 2: matter if we're any recession or not. It just feels
5:36
Speaker 2: kind of sticky for a long period of time.
5:40
Speaker 3: Yeah, well, that's true.
5:41
Speaker 1: I mean, the definition of recession is that, you know,
5:44
Speaker 1: you have a technical additions and then you have.
5:46
Speaker 3: A field definition.
5:48
Speaker 1: Right, you cannot be in official technical recession, but it
5:50
Speaker 1: can fail. It can feel pretty awful, and we make
5:53
Speaker 1: it for a period like that.
5:55
Speaker 2: Maybe a lot of people would say we are going
5:56
Speaker 2: through a period like that, but it's just a it's
5:58
Speaker 2: a very jobful they certainly would.
6:02
Speaker 1: Yeah, yeah, but listen, you know, how we have this
6:05
Speaker 1: new system where we have a personal finance.
6:06
Speaker 3: Tip of the week. I'd like to have nothing precise.
6:10
Speaker 1: This week, but just to say to everybody that, based
6:12
Speaker 1: on what John and I have just been discussing, do
6:14
Speaker 1: not assume that just because rates haven't gone up this month,
6:18
Speaker 1: they're going to start going down and this whole inflationary
6:21
Speaker 1: episode is over. So don't adjust your personal finances in
6:25
Speaker 1: such a way as to reflect an assumption that somehow
6:28
Speaker 1: we're going back to an old normal of interest rates
6:32
Speaker 1: at two percent or below and inflation at two percent
6:35
Speaker 1: or blow. That would be very, very unusual historically. So
6:38
Speaker 1: tip of the week, don't be complacent.
6:41
Speaker 2: Scooing fair.
6:43
Speaker 1: All right, welcome to Marin Talks Money, the podcast in
6:54
Speaker 1: which people who know the markets explain the markets.
6:56
Speaker 3: I'm marrin'sunset web.
6:58
Speaker 1: This week we'll bring you a conversation with Cat Word,
7:00
Speaker 1: founder of ARC Investment Management, which you set up in
7:02
Speaker 1: twenty fourteen. Oar Coffer is a variety of exchange traded funds,
7:05
Speaker 1: but the one that many investors will know and possibly
7:08
Speaker 1: even hold, is our innovation.
7:09
Speaker 3: Now, this is interesting.
7:10
Speaker 1: It's actively managed, it's very very high conviction, it's unlinked.
7:14
Speaker 1: Twenty particular sector, any geographical area, as for that matter,
7:17
Speaker 1: any index, and it is its name, so justs fully
7:20
Speaker 1: focused on investing in companies doing something very very innovative. Now,
7:25
Speaker 1: this is an investment strategy that worked amazingly well in
7:28
Speaker 1: twenty twenty and early twenty one.
7:30
Speaker 3: Shares in the ETF went.
7:31
Speaker 1: Up over fourfold to hit over one hundred and fifty
7:35
Speaker 1: nine dollars in mid February twenty twenty one.
7:37
Speaker 3: Then, of course, things started to go less well.
7:41
Speaker 1: From peak to trough, which is December last year, the
7:44
Speaker 1: shares fell over eighty percent, bottoming up under thirty dollars.
7:48
Speaker 1: Now this year hasn't been so bad. Shares in the
7:50
Speaker 1: ETfr up a little year to date. But if you
7:52
Speaker 1: went in anywhere near the peak on we have the pike,
7:55
Speaker 1: you have lost a lot of money. And even after
7:58
Speaker 1: all this this, but the massive lock acab for the
8:00
Speaker 1: higher than average piece are the change for my assets,
8:03
Speaker 1: there are still nearly seven billion dollars invested in the strategy.
8:07
Speaker 1: Investors are very loyal to Kathy would so let's talk
8:10
Speaker 1: to her and find out why. Kathy, thank you so
8:13
Speaker 1: much for joining us today. Hugely appreciate it. I've been
8:16
Speaker 1: wanting to talk to you for well for years at
8:17
Speaker 1: this point.
8:18
Speaker 4: Astley, Oh, Maren, thank you. I'm really happy to be
8:22
Speaker 4: joining you. Thank you for inviting me.
8:24
Speaker 1: Now, what I want to start with. I know everyone
8:26
Speaker 1: will be will be hanging on to listen to all
8:28
Speaker 1: your thoughts on innovation and stocks and the portfolios themselves.
8:31
Speaker 1: But before we go there, I want to talk to
8:33
Speaker 1: you about the macro environment. Obviously, the change in the
8:37
Speaker 1: macro environment around us over the last couple of years
8:39
Speaker 1: has been absolutely extraordinary. We've moved from there crazy that
8:43
Speaker 1: very low inflation, very low interest rate environment that drove
8:46
Speaker 1: phenomenal returns in in your kind of portfolio into something
8:49
Speaker 1: completely different, high interest rates, high, very high inflation now
8:53
Speaker 1: coming down a bit. So what's a really important thing
8:56
Speaker 1: for us to start by talking about is how do
8:58
Speaker 1: you see that developing from here? A lot of our
9:01
Speaker 1: guests come on and I'm very much higher for longer
9:03
Speaker 1: people expecting inflation to be high and volatile for some
9:07
Speaker 1: years to come, and at interest rate to obviously follow
9:10
Speaker 1: that part. So I'm wondering if we can find out
9:12
Speaker 1: where you stand on the great inflation debate.
9:16
Speaker 4: You know, it's interesting. I got into the business a
9:19
Speaker 4: very long time ago. I was in college and it
9:21
Speaker 4: was in the late seventies, so I experienced that inflation,
9:26
Speaker 4: and I experienced Chairman Volker strangling it. And what we've
9:33
Speaker 4: just seen, I think, is nothing like that. And I
9:36
Speaker 4: actually think, and I have been saying for quite some time,
9:39
Speaker 4: that we're going to see deflation before all of this
9:42
Speaker 4: is over, and we're beginning to see it already. We
9:44
Speaker 4: think this period of time is much more like the
9:48
Speaker 4: nineteen teens than the nineteen seventies. And so, what did
9:53
Speaker 4: we have in the nineteen teens. We had a war,
9:58
Speaker 4: it was World War One. We had a pandemic, it
10:02
Speaker 4: was the Spanish flu. They didn't call supply chain problems
10:07
Speaker 4: supply chain problems at the time, but they were massive.
10:11
Speaker 4: We were on the gold standard, but still inflation hit
10:15
Speaker 4: twenty four percent, so it was a supply side shock.
10:19
Speaker 4: And it hit twenty four percent in June of nineteen
10:24
Speaker 4: twenty and by June of nineteen twenty one we were
10:29
Speaker 4: down to minus fifteen percent. And one of the reasons
10:33
Speaker 4: was being on the gold standard, we were shrinking the
10:37
Speaker 4: money supply in response to that inflation. I think we're
10:41
Speaker 4: in the same situation now. Of course, it's just an echo.
10:45
Speaker 4: Now we have another war. You know, we have the
10:48
Speaker 4: Ukraine War, We now have the war in Israel, and
10:52
Speaker 4: of course we had the COVID pandemic. We think that
10:58
Speaker 4: that caused a massive supply demand imbalance. I mean, it's
11:03
Speaker 4: clear that it did, and that's the main reason inflation
11:08
Speaker 4: took off the way it did, and now it is unraveling.
11:13
Speaker 4: And I also think China is exporting deflation. And we're
11:17
Speaker 4: hearing a lot in Meta Platforms report. They were talking
11:21
Speaker 4: about how significant Chinese advertising was for them advertising two
11:28
Speaker 4: developed world consumers. And so I think that's evidence that China.
11:34
Speaker 4: China's economy is so weak that it needs to export
11:39
Speaker 4: increasingly in order in order to gain foreign exchange. And
11:46
Speaker 4: we've been watching their dollar reserves. They've gone from one
11:48
Speaker 4: point two trillion dollars down to seven hundred and ninety
11:53
Speaker 4: billion dollars, and you know, it's been accelerating month by month.
11:58
Speaker 4: So we see all kinds of deflationary influences out there.
12:02
Speaker 4: And I'm going to give you a statistic. I look
12:05
Speaker 4: at it, and I've pulled up the chart a number
12:07
Speaker 4: of times saying, really, people do not understand this. If
12:12
Speaker 4: you look at the Bloomberg Commodity Price Index. It's b
12:17
Speaker 4: com on Bloomberg, and you take that back through history,
12:23
Speaker 4: it is today where it was in the early eighties,
12:27
Speaker 4: and it's been in a massive trading range that entire time.
12:32
Speaker 4: That tells me that we have not broken out to
12:36
Speaker 4: a new inflation here. In fact, if you look at
12:38
Speaker 4: that index, it peaked in two thousand and eight and
12:44
Speaker 4: has had lower highs ever since. And we think it's
12:48
Speaker 4: going to break down again. And we're beginning to get
12:52
Speaker 4: a lot of macro commentary suggesting that. And when I
12:57
Speaker 4: say macro commentary, I am not talking about the economic
13:02
Speaker 4: statistics coming out of governments. I'm talking about what companies
13:06
Speaker 4: are saying. We listen to all kinds of earnings calls,
13:10
Speaker 4: and not one of them has neglected to mention that
13:17
Speaker 4: the economy is fraying at the edges, even meta platforms.
13:20
Speaker 4: So the former Facebook, they had a very strong quarter.
13:25
Speaker 4: They mentioned how material the Chinese advertising was advertising to
13:30
Speaker 4: developed world customers, but they also said October was soft.
13:35
Speaker 4: And almost every company is saying, so we think we
13:38
Speaker 4: have entered a recession in the United States. I understand that.
13:42
Speaker 4: In Europe, I think I think recently if not today
13:48
Speaker 4: back to back negative quarters, I think in Germany maybe
13:53
Speaker 4: in the euroeconomy at large. So Europe we think is
13:57
Speaker 4: in recession. I will say some of the numbers coming
14:02
Speaker 4: out of Europe are surprising US, but I think they're
14:05
Speaker 4: against on the high side, I think they're against what
14:09
Speaker 4: was happening last year when energy prices went crazy and
14:14
Speaker 4: the consumer was in a bit of a pickle. But China, Europe,
14:19
Speaker 4: US we think in recession. We also are very interested
14:25
Speaker 4: to watch the price of bitcoin here in March. Bitcoin.
14:32
Speaker 4: First of all, in March here in the United States,
14:34
Speaker 4: we had a regional bank crisis. I'm sure you heard
14:38
Speaker 4: Silicon Valley Bank went but and what was fascinating during
14:43
Speaker 4: that period was that bitcoins price went from nineteen thousand
14:48
Speaker 4: to thirty thousand. It was a flight to safety vehicle.
14:52
Speaker 4: And here you see it now bumping up again. And
14:56
Speaker 4: you see the KARB index, which the regional bank index
15:01
Speaker 4: here in the United States, breaking below where it was
15:04
Speaker 4: in March.
15:05
Speaker 1: It's interesting. So a lot of people believe that that
15:08
Speaker 1: rise in the price of bitcoin is related to inflation protection,
15:13
Speaker 1: but you think it's a safe haven flight.
15:16
Speaker 4: I don't believe that inflation is why it's going up.
15:19
Speaker 4: I know it can serve as a hedge against inflation,
15:23
Speaker 4: but it can also serve as a hedge against deflation
15:28
Speaker 4: because there's no counterparty risk in bitcoin. It's a completely transparent,
15:34
Speaker 4: decentralized network. You can see everything that's going on on
15:38
Speaker 4: the network, but you cannot see what's going on inside
15:41
Speaker 4: regional banks. You can only surmise because they're losing deposits
15:46
Speaker 4: and they have to fund those by selling securities. And
15:51
Speaker 4: if so, they have two classes of maturities at the
15:55
Speaker 4: market which they can sell, but they also have classified
15:58
Speaker 4: some as hell to maurity, and they if they were
16:02
Speaker 4: to mark those to market, they go directly against equity.
16:05
Speaker 4: That's what happened in March. And the deposit the deposit
16:11
Speaker 4: flight has not stopped, and they're forced to raise interest
16:14
Speaker 4: rates to compete against money market funds. So you know,
16:18
Speaker 4: that problem has not gone away. That problem has not
16:20
Speaker 4: gone away. And I think the other thing is it's
16:23
Speaker 4: fascinating to watch M two. Like in the early nineteen teens,
16:31
Speaker 4: M two is negative on a year over year basis
16:34
Speaker 4: from a percent change point of view. This has not
16:38
Speaker 4: happened since the nineteen thirties and so you know, just
16:42
Speaker 4: to end where we started in this analogy, we have
16:46
Speaker 4: two wars. We had a pandemic. We have the FED
16:53
Speaker 4: throttling money supply like it did back then. And we
16:57
Speaker 4: do think that the CP and other inflation measures will
17:03
Speaker 4: turn negative before all is said and done. And we've
17:07
Speaker 4: gone from nine percent to three point seven percent now
17:11
Speaker 4: and I think will be negative at some point next year.
17:15
Speaker 1: That money supply argument seems pretty convincing, and that one
17:18
Speaker 1: of the things that had happened before we had this
17:19
Speaker 1: bad inflation was a very fast rise in the money supply,
17:22
Speaker 1: and everyone had forgotten about monetarist economics, and now it
17:25
Speaker 1: seems to be explaining what's happening.
17:28
Speaker 4: Yeah, and I don't think they're taking this and to
17:32
Speaker 4: negative growth seriously. What could be much more serious is
17:38
Speaker 4: if we do get fear in the marketplace for whatever reason,
17:44
Speaker 4: and people begin to say, I'm not going to make
17:49
Speaker 4: that purchase, I'm going to hold back because I need
17:51
Speaker 4: to see what happens here. That would be the velocity
17:54
Speaker 4: of money coming down again. And interestingly, the velocity of
17:58
Speaker 4: money peaked, if you look secularly at peaked in nineteen
18:02
Speaker 4: ninety seven, had been falling from a trend point of view,
18:08
Speaker 4: it has cyclical upturns, but the trend has been down.
18:12
Speaker 4: During COVID, it collapsed again. Everybody seized up, they were
18:16
Speaker 4: scared to death, and we've had the rebound from that,
18:20
Speaker 4: but it has not hit its downtrend yet. And we
18:23
Speaker 4: think that fear is building once again. And if you
18:29
Speaker 4: have money negative on a year over year basis, and
18:32
Speaker 4: you have the velocity of money slowing down or even
18:36
Speaker 4: declining again, that would be a recipe for a very
18:40
Speaker 4: serious decline in economic activity.
18:43
Speaker 1: The rise in interest rates and inflation and the collapse
18:47
Speaker 1: of the bubble in growth stocks or what people now
18:50
Speaker 1: say was bubble. And I know that you did not
18:51
Speaker 1: believe in twenty one that it was a bubble. You're
18:53
Speaker 1: very clear that this was not a bubble in this
18:56
Speaker 1: area of equity. So possibly what happened after that was
19:00
Speaker 1: a surprise to you. The rise inflation, rise and interest rates,
19:04
Speaker 1: and the collapse and the prices of lots of the
19:06
Speaker 1: kind of equities they invest in.
19:08
Speaker 4: Yes, so let's talk about that in twenty twenty. Yes,
19:15
Speaker 4: I think, and I still believe this, and only time
19:19
Speaker 4: will tell, but I think you had a lot of
19:24
Speaker 4: people putting the chart of the tech and telecom bubble
19:27
Speaker 4: up and putting arkk Our flagship on top of it,
19:32
Speaker 4: and basically they drew a line and said, hey, this
19:36
Speaker 4: looks just like back then, and the same thing's going
19:39
Speaker 4: to happen to it. I did not believe that was
19:41
Speaker 4: going to happen, and it did happen, and it happened,
19:45
Speaker 4: and in fact, the decline was much worse, or it
19:49
Speaker 4: was worse. I mean it was a peaked trough. I
19:53
Speaker 4: forget the exact number, seventy six percent or something like that.
19:58
Speaker 4: And if you look back at the tech and telecom
20:01
Speaker 4: bubble and bust, you understood why that happened. The technologies
20:08
Speaker 4: weren't ready. I mean, we didn't get the cloud until
20:11
Speaker 4: two thousand and six. We didn't get the first big
20:14
Speaker 4: breakthrough in artificial intelligence deep learning until twenty twelve. We
20:19
Speaker 4: didn't get the second provocative breakthrough in AI transformer architecture
20:25
Speaker 4: until twenty eighteen, and so the technologies weren't ready, and
20:33
Speaker 4: even if they were getting close to primetime, they were
20:36
Speaker 4: way too expensive. So back then, we didn't sequence the
20:40
Speaker 4: first whole human genome until two thousand and three, and
20:43
Speaker 4: it costs two point two point seven billion dollars. This
20:48
Speaker 4: is just one person's genome, two point seven billion dollars
20:53
Speaker 4: and thirteen years of computing power to get that first genome.
20:58
Speaker 4: Today we're down to, depending on whose sequencers you use,
21:04
Speaker 4: two hundred to four hundred dollars and a few hours
21:07
Speaker 4: of computing power, and that's just twenty over twenty years time.
21:12
Speaker 4: So the technology is ready, the costs are low enough
21:17
Speaker 4: in robotics, energy storage, think electric vehicles, artificial intelligence, blockchain technology,
21:28
Speaker 4: and what we're now calling multiomic sequencing. We used to
21:31
Speaker 4: call it a sequencing, but it's not just DNA, it's RNA,
21:34
Speaker 4: it's protein, it's methylation, it's epigenetics. It's complicated. So all
21:40
Speaker 4: of those technologies were dreams in the late nineties, and
21:46
Speaker 4: investors chased them and there was too much capital chasing
21:51
Speaker 4: too few opportunities, too soon, and the bust was inevitable
21:58
Speaker 4: and we knew it. Anyone watching with any perspective understood
22:03
Speaker 4: that what's happening this time around. The technologies are ready,
22:11
Speaker 4: the costs are low enough, and investors are running away.
22:15
Speaker 4: They're running for the hills. What are the hills? They're benchmarks,
22:19
Speaker 4: And when investors in a risk of situation as rising inflation,
22:23
Speaker 4: rising interest rates, and you know, hair on fire, fears
22:28
Speaker 4: about much higher inflation and for much longer. They took
22:34
Speaker 4: our strategy apart. And I say they because our market
22:40
Speaker 4: is dominated by algorithms, and it was we saw this
22:45
Speaker 4: in COVID. In fact, we think what has happened. We
22:49
Speaker 4: had sort of the warm up in COVID and its
22:54
Speaker 4: aftermath in twenty twenty and early twenty one. During COVID,
23:00
Speaker 4: the market, it was just one month when we realized,
23:03
Speaker 4: oh my gosh, this is a disaster. This is going
23:06
Speaker 4: to shut down the world. In the one month after
23:10
Speaker 4: that realization, we had the markets, depending on which measure
23:17
Speaker 4: you use, down twenty to twenty five percent, and we
23:20
Speaker 4: were down forty percent. And we were back then saying
23:23
Speaker 4: wait a minute, this is these are nothing but algorithms
23:28
Speaker 4: are making these judgment calls. They're using only two variables.
23:31
Speaker 4: The variables are cash cushion and cash burn. And the
23:37
Speaker 4: lower the cushion and the higher the burn, the worse
23:41
Speaker 4: the stock.
23:42
Speaker 1: Doesn't that make sense in a rising interest rate environment?
23:45
Speaker 4: Well no, Now I'm talking about back then, and we'll
23:48
Speaker 4: get to or so I'm talking about when interest rates
23:52
Speaker 4: are collapsing in COVID, and we were saying, back then,
23:58
Speaker 4: wait a minute this Who do you think is going
24:02
Speaker 4: to sequence the virus, Who's going to create the test
24:06
Speaker 4: with synthetic biology, who's going to create a vaccine, Who's
24:10
Speaker 4: going to solve this problem? Our companies are why are
24:13
Speaker 4: you selling those off? And of course what happened then
24:17
Speaker 4: was we had a massive turnaround with the multiomic stocks
24:23
Speaker 4: being the biggest winners, and and our flagship, which had
24:30
Speaker 4: a good smattering of them, up three hundred and sixty percent.
24:34
Speaker 4: So it went down forty six percent in one month,
24:36
Speaker 4: and it went up three hundred and sixty percent in
24:40
Speaker 4: the next ten to eleven months. And you know, toward
24:43
Speaker 4: the end of that, we were saying, you know, hold
24:46
Speaker 4: your hold some powder dry. You know, this is and
24:48
Speaker 4: I was telling our team here, I said, there's not
24:51
Speaker 4: the real world. You know, when when a market decides
24:57
Speaker 4: that anyone can do no wrong, any strategy can do
25:01
Speaker 4: no no wrong, it's usually the end for that strategy.
25:04
Speaker 4: So we were prepared for a correction, and I definitely
25:08
Speaker 4: prepared our team here from their own financial point of view,
25:13
Speaker 4: just you know, hunker down and keep some powder dry.
25:20
Speaker 4: I think that period that I just describe was a
25:26
Speaker 4: warm up for the next installment. For the last three years,
25:33
Speaker 4: and that equates to the one month period in my mind.
25:36
Speaker 4: For the last three years, it's been the same psychology.
25:39
Speaker 4: You know, algorithms, they see inflation and interest rates up,
25:45
Speaker 4: they make a very I've been in many markets where
25:49
Speaker 4: interest rates went up and we blew the cover off
25:53
Speaker 4: the ball. Twenty seventeen was a good example. Interest rates
25:57
Speaker 4: went up all year. Our strategy was up eighty seven percent.
26:02
Speaker 4: But we're in a market right now completely controlled by algorithms,
26:10
Speaker 4: and they make very simple I mean, everybody calls this AI.
26:15
Speaker 4: It's just a simple algorithm and you can see it
26:19
Speaker 4: at work. The same thing happened to our strategy has
26:23
Speaker 4: happened in that one month period. It was destroyed as
26:28
Speaker 4: many investors decided to sell our stocks, which are not
26:33
Speaker 4: in benchmarks. For the most part, Tesla is now, but
26:38
Speaker 4: for most of our existence it was not. But most
26:41
Speaker 4: of the stocks in our portfolio are not in the
26:43
Speaker 4: broad based benchmarks, and so portfolio managers who are graded
26:48
Speaker 4: by benchmarks, whereas we're benchmark agnostic, they in a risk
26:54
Speaker 4: off period just hug their benchmarks. They look very much
26:58
Speaker 4: like their benchmarks, and large growth managers look very much
27:02
Speaker 4: like one another these days.
27:03
Speaker 1: And you have an active chef pushing one hundred percent,
27:06
Speaker 1: don't you, Yes, we do.
27:08
Speaker 4: And I think I think well. I always say to
27:12
Speaker 4: our team truth will win out. I am much more
27:15
Speaker 4: comfortable now than I was in early twenty one. Early
27:20
Speaker 4: twenty one, I was saying, watch out now that nobody
27:24
Speaker 4: thinks we can do anything. Right, I feel much more comfortable.
27:29
Speaker 4: Expectations are low and honestly.
27:32
Speaker 1: And valuations are significantly lower, right, and you know are
27:37
Speaker 1: but you're not really valuation driven, are you.
27:39
Speaker 4: We are if you give us five years, and if
27:41
Speaker 4: you give us five years, then we are a deep
27:43
Speaker 4: value manager. We're a deep value manager because and I'll
27:47
Speaker 4: give you a sense of what I mean by that,
27:50
Speaker 4: most people, when they do their valuation, they're looking just
27:53
Speaker 4: at this year, maybe next year. And on that basis,
27:58
Speaker 4: our enterprise value to ebadah looks higher. That is higher
28:02
Speaker 4: than the market. Why because our companies are sacrificing short
28:08
Speaker 4: term profitability and investing aggressively to capitalize on some of
28:12
Speaker 4: the biggest opportunities in innovation we've ever seen. And so
28:17
Speaker 4: they look high now, and what we assume is that
28:21
Speaker 4: in five years they will that valuation will compress. It's
28:27
Speaker 4: a headwind we're facing for the next five years. Compress
28:31
Speaker 4: to a slight premium to the market as opposed to
28:35
Speaker 4: a very significant premium to the market. So that's a
28:38
Speaker 4: big headwind. And what we must assume therefore, is that
28:44
Speaker 4: the revenue growth potential and margin expansion is going to
28:48
Speaker 4: overwhelm that to meet our minimum hurdle rate of return,
28:52
Speaker 4: which is a fifteen percent compound annual rate of return.
28:57
Speaker 4: Now many over five years, now that's minimum. Many people say, well,
29:02
Speaker 4: you've underperformed for the last five years. Yes, that is
29:05
Speaker 4: absolutely right. And we have also faced a period that
29:11
Speaker 4: none of us has ever faced before, the FED jacking
29:15
Speaker 4: up interest rates twenty two twenty threefold. Not you know
29:21
Speaker 4: what I mean that this has never happened before. Even
29:23
Speaker 4: in the early eighties, Chairman Volker took interest rates up
29:28
Speaker 4: from ten to twenty percent. That was twofold. This was
29:32
Speaker 4: more than ten times the intensity, and any long duration
29:36
Speaker 4: asset caught in that moment, including long term bonds. Long
29:42
Speaker 4: term bonds have had their worst two year period since
29:47
Speaker 4: the seventeen hundreds. It's never been this bad in anyone's lifetime.
29:53
Speaker 4: Those are long duration assets. Those are the flight to
29:56
Speaker 4: safety assets. We're not flight to safety, but we are
30:00
Speaker 4: long duration. And so we had a double whammy where
30:04
Speaker 4: equities and long duration. So in that environment, we were
30:09
Speaker 4: not going to perform in the environment we see ahead.
30:13
Speaker 4: If interest rates, if inflation and interest rates were the reason.
30:17
Speaker 4: First the fear of interest rates going up into twenty
30:20
Speaker 4: twenty one, you know, the market went to all time highs,
30:23
Speaker 4: but we were down. And then the reality of interest
30:27
Speaker 4: rates going up, so double discounting in twenty two and
30:32
Speaker 4: even while we had a very nice run through July,
30:35
Speaker 4: you know, we're back in the same kind of algorithm
30:38
Speaker 4: driven environment. And that's because the Fed's in higher for longer.
30:44
Speaker 4: We think that will break when some of the deflation
30:48
Speaker 4: signals that I'm talking about come through.
30:51
Speaker 1: Okay, So what has happened over the last few years
30:53
Speaker 1: doesn't in any way change the way you want to invest,
30:56
Speaker 1: the way you do invest, on the strategies you work with.
31:00
Speaker 4: These are the biggest investment opportunities, the biggest in the world.
31:07
Speaker 4: And you have to go back, and it's interesting that
31:12
Speaker 4: you have to go back to this period, but you
31:14
Speaker 4: have to go back to the early nineteen hundreds another
31:17
Speaker 4: analogy to see multiple innovation platforms evolving at the same time.
31:24
Speaker 4: So back then it was telephone, electricity, and internal combustion
31:29
Speaker 4: engine and it transformed the world completely. Those were three platforms.
31:34
Speaker 4: Now we have five platforms and they involve fourteen different technologies.
31:40
Speaker 4: That's why we've set up our analyst responsibilities not by
31:44
Speaker 4: sector or industry or sub industry, but by technology. So
31:49
Speaker 4: fourteen different technologies that are going to converge, we believe,
31:53
Speaker 4: and create explosive growth opportunities. It's really interesting to look
31:59
Speaker 4: at all of his and see how technology transforms growth dynamics.
32:07
Speaker 4: And so we've been through a very long period of
32:11
Speaker 4: linear growth. That's what investors have gotten used to over
32:14
Speaker 4: the years. With the Internet, we got a taste of
32:17
Speaker 4: exponential growth at a high level. Amazon, you know, in
32:23
Speaker 4: twenty to twenty five years grew in the twenty to
32:26
Speaker 4: thirty percent range annual annualized over that period. Nobody thought
32:32
Speaker 4: that was possible at the beginning. Everybody thought, oh, sure,
32:36
Speaker 4: you'll have these super growth rates, but they'll decay very
32:39
Speaker 4: quickly to nominal GDP growth. Amazon broke that mold, and
32:45
Speaker 4: we think we're going to see a lot of exponential
32:48
Speaker 4: growers thanks to these new technologies. But we will also
32:52
Speaker 4: see super exponential growth because of the convergence between and
32:57
Speaker 4: among technologies, and the best exam there is autonomous taxi platforms.
33:04
Speaker 4: That opportunity, which we think is an eight to ten
33:08
Speaker 4: trillion dollar revenue opportunity in the next five to ten
33:13
Speaker 4: years globally, including China. That opportunity is the convergence among
33:19
Speaker 4: three of our platforms.
33:21
Speaker 1: Can I sorry, Kathy, I want to interrupt you right there,
33:23
Speaker 1: just because one thing that I haven't asked you to
33:25
Speaker 1: do is divide up the five platforms for us. So
33:28
Speaker 1: can I just ask you to tell us a little
33:30
Speaker 1: bit about the five platforms, then we'll come back to
33:32
Speaker 1: the three platforms.
33:33
Speaker 4: Sure, sure, sure, sure, Okay, So the platforms, So we'll
33:36
Speaker 4: start with since I gave you the story about sequencing
33:40
Speaker 4: costs and how quick they've come down, we think that
33:46
Speaker 4: the combination of sequencing and artificial intelligence is going to
33:51
Speaker 4: help us diagnose cancer in stage one, if not before
33:54
Speaker 4: stage one. And think polyps in colorectal cancer. The body
33:59
Speaker 4: set up for cancer, and so we think that with
34:04
Speaker 4: multiomic sequencing and artificial intelligence, we're going to diagnose cancer
34:09
Speaker 4: and other diseases very early, and then with other technologies
34:15
Speaker 4: like Chrisper gene editing, we'll be able to edit those
34:20
Speaker 4: those mutations when we find a mutation. Now that we
34:24
Speaker 4: can with these sequencing technologies, when we find a mutation,
34:29
Speaker 4: which is a programming error, and we have more programming
34:33
Speaker 4: errors the older we get when we find a mutation,
34:37
Speaker 4: we believe that Chrisper gene editing is going to help
34:42
Speaker 4: reprogram the genome and cure disease. We're already seeing this
34:47
Speaker 4: in sickle cell disease Beta thalacemia att R. One of
34:54
Speaker 4: our companies, Christper Therapeutics, it's going to it's is going
35:00
Speaker 4: to be UH getting a recommendation today to the f
35:07
Speaker 4: D a UH to approve it or not, and it's
35:12
Speaker 4: up to the FDA. But the safety profile has been
35:16
Speaker 4: phenomenal and sickle cell disease is has been uncurable up
35:24
Speaker 4: to now, and this is a cure we believe, so
35:28
Speaker 4: we'll get that and by the time this podcast comes out,
35:33
Speaker 4: you'll have more effect about Christmal Therapeutics and sickle cell disease.
35:37
Speaker 4: In terms of the others so robotics. You know, it's interesting,
35:43
Speaker 4: uh I I In the early days, I was we
35:49
Speaker 4: were thinking about autonomous vehicles away from this robotics idea.
35:54
Speaker 4: But autonomous vehicles are robots. Drones are robots, and so
36:00
Speaker 4: our life is going to fill up with a lot
36:03
Speaker 4: of robots, we believe because the costs are coming down.
36:08
Speaker 4: Industrial robot costs we think are coming down to the
36:10
Speaker 4: eleven twelve thousand dollars range, which is a fraction of
36:14
Speaker 4: what you pay a person. And you know, robots don't
36:17
Speaker 4: take vacations, and you know, they don't take breaks. They might,
36:23
Speaker 4: they don't complain, and they take away the menial jobs,
36:27
Speaker 4: the really boring, mundane jobs. We have labor shortages around
36:31
Speaker 4: the world, so this is going to be a huge
36:34
Speaker 4: boon to productivity. But robots are going to be controlled
36:39
Speaker 4: by artificial intelligence also. So just like I was starting
36:44
Speaker 4: to explain this convergence, you'll see in the autonomous taxi
36:49
Speaker 4: network opportunity. You have the autonomous taxis. They are robots.
36:57
Speaker 4: They will be electric too, cheaper better cars in the
37:02
Speaker 4: next few years, and they'll be controlled by artificial intelligence.
37:07
Speaker 4: All of robots are going to fit that bill. So
37:11
Speaker 4: it's interesting to see the convergence among these technologies as
37:15
Speaker 4: we you know, think about them separately and say, well,
37:18
Speaker 4: wait a minute, we need this one to make that happen.
37:20
Speaker 4: Or so it's multiomic sequencing, robotics, energy storage. We do
37:26
Speaker 4: think by the end of this decade, practically all vehicle
37:30
Speaker 4: sales will be electric. And you know that's saying quite
37:34
Speaker 4: something given that most of the traditional auto manufacturers right
37:37
Speaker 4: now about ninety percent of their sales are internal combustion
37:43
Speaker 4: engine cars except in China, and China it's much lower.
37:49
Speaker 4: They're moving much faster into electric, which is interesting. I
37:53
Speaker 4: mentioned AI, and I'll tell you why AI is the
37:58
Speaker 4: catalyst to all of these other technologies. It's because AI
38:03
Speaker 4: training costs. The cost to train these AIS is dropping
38:11
Speaker 4: seventy percent per year, and when you see the cost
38:16
Speaker 4: of anything dropping seventy percent per year, you know that
38:20
Speaker 4: we're going to do more of it over time, that
38:23
Speaker 4: it's probably going to converge with all of these other technologies.
38:28
Speaker 4: It's pretty exciting. We've never been in a more fertile
38:31
Speaker 4: time for innovation.
38:33
Speaker 1: Huh. So when you look at these five platforms, you
38:36
Speaker 1: talk about them all converging, but is there any particular
38:40
Speaker 1: one of them that is the one you're most excited about.
38:43
Speaker 1: We had to choose one to one of your ETFs,
38:45
Speaker 1: for example, to invest in. What is one that makes
38:48
Speaker 1: you most excited about it. It's life changing capacity for us,
38:52
Speaker 1: and it's a financial capacity for investing.
38:55
Speaker 4: We're excited about all of them. The most life changing,
38:59
Speaker 4: to use your word, is curing disease once we understand
39:03
Speaker 4: the genome. I mean, I don't think that many people
39:07
Speaker 4: understand how much of medicine until now has been guesswork.
39:14
Speaker 4: We couldn't find the mutations. It was way too expensive
39:17
Speaker 4: to sequence a genome. Now you and I are going
39:23
Speaker 4: to get our genome sequenced. I'm going to say when
39:28
Speaker 4: we get our geneticis that these are all new fields
39:31
Speaker 4: every one to two years, because we'll want to know
39:34
Speaker 4: as we age, okay, what's mutating and is there a
39:38
Speaker 4: therapy out there or is there an edit out there
39:41
Speaker 4: that can prevent this disease from progressing and actually reverse it.
39:47
Speaker 4: So I think that's going to be the most life
39:49
Speaker 4: changing In terms of the biggest revenue opportunity, so this
39:57
Speaker 4: is more financial. It is the autonomous taxi platform opportunities.
40:02
Speaker 4: So we think the entire opportunity is eight to ten
40:07
Speaker 4: trillion dollars in revenue by the turn of the decade,
40:11
Speaker 4: in and around the turn of the decade, and we
40:14
Speaker 4: believe that half of that will go to the platform companies.
40:19
Speaker 4: We think Tesla's going to be one of the platform companies.
40:23
Speaker 4: It has collected more real world driving data then I
40:29
Speaker 4: would say all other companies around the world combined, because
40:34
Speaker 4: it has had this focus on it and now it
40:36
Speaker 4: has five million robots out there. I have two of them,
40:40
Speaker 4: a Model three and a Model Y, collecting data on
40:44
Speaker 4: different streets as I'm driving around and my children are
40:48
Speaker 4: driving around. So and because it has all that data,
40:52
Speaker 4: it doesn't need all that data. It's not the data
40:55
Speaker 4: in and of itself. They have more corner cases. Corner
40:59
Speaker 4: cases are what could go wrong. They have more corner
41:02
Speaker 4: cases around the world than any other company in order
41:06
Speaker 4: to train their cars.
41:08
Speaker 1: So as you drive your Tesla, you're gathering data for
41:11
Speaker 1: Tesla's future and.
41:14
Speaker 4: Sending it back every day. They're collecting it. And you
41:16
Speaker 4: know the other thing that's going on this is how
41:19
Speaker 4: provocative this new world is.
41:21
Speaker 3: Now.
41:21
Speaker 4: I got my Model three in twenty eighteen. I've never
41:27
Speaker 4: had to take it in for maintenance. Ever, the only
41:31
Speaker 4: thing I had to do, and this had nothing to
41:32
Speaker 4: do with Tesla, is I got a nail and a
41:34
Speaker 4: tire and you just can't fix that with a software update,
41:38
Speaker 4: you know. But Tesla basically anticipates. Tesla does diagnostics on
41:45
Speaker 4: all its cars out there, and when it sees something
41:48
Speaker 4: going wrong, it fixes it over the air software. So
41:53
Speaker 4: it's a really powerful technology and that's why all cars
41:57
Speaker 4: will be electric and we think autonomous in the next
42:01
Speaker 4: five to ten years.
42:02
Speaker 1: And you're very happy with your holding in Tesla.
42:05
Speaker 4: Yes, no, no, you know Tesla. We've owned it from
42:11
Speaker 4: the beginning, and it goes through wild swings and you'll
42:15
Speaker 4: notice when it's up a lot and has increased significantly
42:22
Speaker 4: relative to other stocks in our portfolio, we will sell
42:25
Speaker 4: some and redeploy into stocks that have either been hit
42:31
Speaker 4: by some very short term concern or you know, I
42:35
Speaker 4: have just performed significantly relative to Tesla for some other reason,
42:41
Speaker 4: and likewise, when it gets hit, we tend to buy it. So,
42:46
Speaker 4: but it's staying right up near in the top two
42:49
Speaker 4: to three names of the portfolio because it is in
42:52
Speaker 4: the pole position for this opportunity. And you know, we
42:56
Speaker 4: know that next year twenty twenty four, as they launch
42:59
Speaker 4: the cyber truck, it's not going to be profitable and
43:04
Speaker 4: it's a scaling issue. Just like Model three. There was
43:07
Speaker 4: a big controversy around it, and we know they're probably
43:12
Speaker 4: the comparisons are not going to look that good. But
43:16
Speaker 4: I think a couple of things will happen. People when
43:19
Speaker 4: they see the cyber truck, and November thirtieth is when
43:23
Speaker 4: they're going to debut it, they see it, I think
43:28
Speaker 4: people are going to get very excited about the next
43:32
Speaker 4: big leg for Tesla. The truck market here in the
43:35
Speaker 4: United States is the largest and most profitable market, so
43:39
Speaker 4: that's one thing, so you'll get a little bit of
43:42
Speaker 4: excitement around that. Nonetheless, we are going to have to
43:46
Speaker 4: live through or navigate through a volatile period. Whenever Tesla
43:51
Speaker 4: is setting up to do anything, there's usually a lot
43:55
Speaker 4: of controversy around it, so controversy around the cyber truck,
43:58
Speaker 4: how well it will sell, or how complicated it will
44:04
Speaker 4: be to scale. And the other one is autonomous. You
44:08
Speaker 4: saw Cruz Automation has basically taken all of its autonomous
44:14
Speaker 4: cars off the road. As autonomous cars now they have
44:19
Speaker 4: to be there has to be a safety driver inside
44:22
Speaker 4: the car, right behind the wheel. Okay, that dings the
44:26
Speaker 4: autonomous probabilities in many people's minds, but not in our mind.
44:31
Speaker 4: We think transportation is going autonomous. We you know, we
44:36
Speaker 4: listened to Deer and Caterpillar. They're going autonomous. Airplanes are
44:42
Speaker 4: practically autonomous. Now we've been moving in this direction for
44:46
Speaker 4: a very very long period of time, and the biggest
44:49
Speaker 4: question is, okay, what about that last mile? You know,
44:52
Speaker 4: are you At one point Elon Musk said impossible, impossible
44:58
Speaker 4: now And we talked to many AI experts and one
45:02
Speaker 4: of the main questions we ask is do you believe
45:05
Speaker 4: that there will ever be a fully autonomous service? And
45:09
Speaker 4: to a person they say yes.
45:13
Speaker 1: What kind of timescale?
45:15
Speaker 4: Well, you know, I think they agree with us because
45:18
Speaker 4: the breakthroughs in AI are happening so quickly, and that's
45:21
Speaker 4: their world. So there's an irony here. The breakthroughs in
45:25
Speaker 4: AI are happening very quickly, and Tesla needs them in
45:31
Speaker 4: order to reach or to get the last mile done.
45:35
Speaker 4: But it didn't know, and we didn't know that we
45:40
Speaker 4: needed these kinds of breakthroughs in AI to make autonomous possible.
45:46
Speaker 4: So that you know, we have to be very honest
45:49
Speaker 4: ourselves about that. Elon's been predicting fully autonomous for maybe
45:53
Speaker 4: the last three or four years. Of course, that's very Elon.
45:56
Speaker 4: He's driving the company towards that. That's how he motivates
46:00
Speaker 4: his employees and gets his suppliers ready and so forth.
46:04
Speaker 4: But you know, when we talked to him, he's basically saying, yeah,
46:08
Speaker 4: you're right, this is it is a tough problem. And
46:12
Speaker 4: because of the regulatory concerns, the autonomous vehicles can't just
46:19
Speaker 4: be better than human beings.
46:22
Speaker 1: I have to be perfect.
46:23
Speaker 4: Really, No, not really. When you think in the US
46:27
Speaker 4: we have forty five thousand fatalities in cars per year,
46:30
Speaker 4: and I think around the world it's one point two
46:32
Speaker 4: five million, eighty to eighty five percent of them are
46:36
Speaker 4: caused by human error.
46:38
Speaker 1: So there's a room for a little AI era.
46:42
Speaker 4: Well there will, there will be, and it probably will
46:45
Speaker 4: be less AI error than pedestrian error.
46:49
Speaker 1: But I wanted to ask you about the space sector,
46:52
Speaker 1: because I know you're interested in space exploration, innovation, etc.
46:55
Speaker 1: I wonder if you tell us little bit about where
46:56
Speaker 1: you see the opportunities there.
46:58
Speaker 4: Sure, there are two major opportunities. A lot of people
47:01
Speaker 4: think of space tourism. We really don't. That's to us
47:07
Speaker 4: not a big opportunity in the short term. But there
47:10
Speaker 4: are two opportunities that are quite big. One is connectivity.
47:16
Speaker 4: So two and a half to three billion people around
47:19
Speaker 4: the world do not have access to the Internet. Now
47:23
Speaker 4: is starlink throwing up? I think it's five thousand satellites.
47:27
Speaker 4: Close to five thousand satellites. We're getting closer and closer
47:30
Speaker 4: to the time when there will be connectivity around the world,
47:34
Speaker 4: including in the rural areas of the US and the UK, Europe.
47:41
Speaker 4: Really the entire world that we believe is an eighty
47:46
Speaker 4: billion dollar opportunity if you also count if you also
47:52
Speaker 4: count the c's you know, marine and r V, the
47:59
Speaker 4: r V RV vehicles that people travel around countries in boats,
48:05
Speaker 4: ships and so forth, So that's eighty billion. Then if
48:11
Speaker 4: the second one is hypersonic flight, and that is getting
48:16
Speaker 4: us from let's just say New York City to Sydney,
48:22
Speaker 4: Australia in two to three hours instead of twenty two hours,
48:30
Speaker 4: and we think that, using very conservative assumptions, is a
48:34
Speaker 4: two hundred and seventy billion dollar revenue opportunity. And the
48:38
Speaker 4: way we got to that number in a piece we
48:41
Speaker 4: put out called Big Ideas twenty twenty three. We do
48:45
Speaker 4: a Big Ideas every year and so you can see
48:48
Speaker 4: how these Big Ideas have evolved. We started it in
48:52
Speaker 4: twenty seventeen, so we've got five years worth right now,
48:56
Speaker 4: and you can see how right and how wrong we've been.
49:00
Speaker 4: You know, these are big ideas, and when you get
49:05
Speaker 4: a pandemic and a recession, and a recession and very
49:11
Speaker 4: tight monetary policy slowing things down because our modeling is
49:15
Speaker 4: based on units, you know, the units of these new
49:19
Speaker 4: technologies scaling. When we get into a recession or a pandemic,
49:25
Speaker 4: that interrupts the trend. But just to give you a sense,
49:30
Speaker 4: and I know you asked about space, those are the
49:31
Speaker 4: two big ideas. But I just want to if someone
49:34
Speaker 4: wants to look up our track record here. In twenty seventeen,
49:41
Speaker 4: we thought by twenty twenty two, so five year forecast,
49:44
Speaker 4: that the electric vehicle opportunity would be something like seventeen
49:48
Speaker 4: million units. Now the traditional forecasters had something like it
49:55
Speaker 4: wasn't even two million units. And the right answer, given
50:00
Speaker 4: the pandemic, which slowed it all slowed our forecast up
50:06
Speaker 4: was eight million, and of course Tesla took off during
50:10
Speaker 4: that time period, So who was more right and who
50:13
Speaker 4: was more wrong? The behavior or the action of Tesla
50:17
Speaker 4: would tell you we were close to the mark. This
50:20
Speaker 4: this electric the consumer preference for electric vehicles has occurred
50:26
Speaker 4: and it is accelerating. So that's the kind of thing
50:29
Speaker 4: you'll see in the track record.
50:31
Speaker 1: I don't have an electric car yet, but I must
50:33
Speaker 1: get round to that. But iway was worry about the
50:34
Speaker 1: infrastructure or about charging points. I worry about getting anxiety
50:39
Speaker 1: about how far I can go, all these things that
50:42
Speaker 1: I think pull people back. Particularly I don't know about
50:44
Speaker 1: in the US, but certainly in the UK, we have
50:46
Speaker 1: very limited infrastructure for charging and that is beginning to
50:50
Speaker 1: put a lead on demand for evs.
50:52
Speaker 4: Yeah, that we understand, and that is why a lot
50:55
Speaker 4: of a lot of auto manufacturers are now signing on
50:59
Speaker 4: to Tesla's charging standard, and we think, I think it's
51:05
Speaker 4: beginning to happen in the UK, is it, I'm not
51:08
Speaker 4: quite sure. I know in the US there's been one
51:09
Speaker 4: announcement after another, and not just US auto companies but
51:14
Speaker 4: also foreigner auto companies signing on to Tesla's charging standard.
51:20
Speaker 1: A lot a lot of the people listening will be
51:22
Speaker 1: thinking to themselves. You know, there's we've seen some of
51:25
Speaker 1: the big companies that you've talked about. We've seen them
51:27
Speaker 1: start small, we've seen them grow, we've seen them a
51:29
Speaker 1: week to the top ten in your portfolio, et cetera.
51:31
Speaker 1: But are there any small companies knocking around that we
51:36
Speaker 1: might not have heard of yet that are of extraordinary
51:38
Speaker 1: interest to you?
51:40
Speaker 4: Yes, well, I'll feature one, Pacific Biosciences, So pack what's
51:48
Speaker 4: fascinating about pac Bio. I've watched Christian Henry, who's the CEO,
51:53
Speaker 4: since he was at Illumina. Lumina is pac Bio's biggest competitor,
52:00
Speaker 4: and so they are both sequencing companies. Ilumina really became
52:08
Speaker 4: the leader in short read sequencing, and the reason it
52:12
Speaker 4: chose short read sequencing is it was lower cost and
52:18
Speaker 4: evolving more quickly than long read sequencing. Long read sequencing,
52:25
Speaker 4: basically looking at longer stretches of your DNA, RNA and
52:31
Speaker 4: so forth, is more accurate, reliable, and comprehensive, but it
52:39
Speaker 4: was just too expensive for so long. Illumina made a
52:42
Speaker 4: terrible mistake by keeping its genome price for about four
52:46
Speaker 4: or five years at one thousand dollars per giving pac
52:50
Speaker 4: Bio a chance to catch up with its long read technology.
52:54
Speaker 4: And these stocks are being trashed by the market right
52:58
Speaker 4: now because they are still an investment stage. We are
53:02
Speaker 4: in an early stage for this uh, these new technologies,
53:05
Speaker 4: and as I mentioned earlier, the ramifications are going to
53:08
Speaker 4: be profound. So we have been watching the talent leave
53:13
Speaker 4: Alumina for pack Bio, and we think it will become
53:18
Speaker 4: the leader, and that means it will grow in revenue
53:23
Speaker 4: to more than ten times its size, and we think
53:27
Speaker 4: it will take the line's share of the market because
53:30
Speaker 4: it is now using artificial intelligence and sequencing in it's
53:37
Speaker 4: combined them in its new machines, and we think is
53:41
Speaker 4: moving the market ahead much faster than anyone else right now.
53:45
Speaker 1: One thing I noticed that was that you had been
53:47
Speaker 1: picking up shares in Chemico, and so I'm wondering about
53:51
Speaker 1: your interest in that in uranium and by defaulta in
53:53
Speaker 1: neu care energy.
53:54
Speaker 4: Yes, it's fascinating. You know, we wrote our first first
54:00
Speaker 4: report on nuclear Unfortunately, when I was with my old
54:05
Speaker 4: team at my previous firm. It was a big black book,
54:09
Speaker 4: you know, one hundred and fifty pages, and that was
54:11
Speaker 4: twenty ten, and then Fukushima happened in twenty eleven, and
54:15
Speaker 4: of course the world turned against nuclear. Now in the book,
54:19
Speaker 4: we show it's the safest source of energy and with
54:25
Speaker 4: the new modular reactors, the risks associated with radiation have
54:32
Speaker 4: dropped tremendously. China is moving aggressively into this space with
54:39
Speaker 4: the small modular reactors, and we are now seeing environmental
54:43
Speaker 4: lists change their tune about nuclear because they're looking at facts. Again,
54:49
Speaker 4: we believe it is the cleanest other other than hydro.
54:54
Speaker 4: It is the cleanest energy source out there. It is
54:59
Speaker 4: the safest when you look at accidents associated with exploring
55:04
Speaker 4: and developing for energy. And yes, we think that after
55:12
Speaker 4: years this is you know, ten twelve years being denigrated,
55:18
Speaker 4: that environmentalists and others are now looking at the facts
55:22
Speaker 4: when it comes to nuclear and deciding, you know what,
55:28
Speaker 4: we probably weren't right on that one.
55:29
Speaker 1: Feels like our only logical way out, doesn't it another
55:34
Speaker 1: example of being right just a little early.
55:37
Speaker 4: Well that if we hadn't had Fukushima, and oh my gosh,
55:40
Speaker 4: that was terrible and it was tragic and so forth,
55:44
Speaker 4: and it did scar a lot of people, but you
55:47
Speaker 4: had Japan taking down all its nuclear. It's changing its
55:51
Speaker 4: mind on that. You had Germany taking down all its
55:54
Speaker 4: nuclear and depending on other people's new other countries nuclear,
55:58
Speaker 4: So I think yes, the world's coming back in this direction.
56:05
Speaker 1: Now. Recently started talking about expanding into Europe and you've
56:10
Speaker 1: built Rise and I was wondering if you see anything
56:13
Speaker 1: to be excited by in the UK. We've had our
56:15
Speaker 1: store mugs had a pretty torrid time recently, and a
56:18
Speaker 1: lot of people look at the UK, particularly from the US,
56:21
Speaker 1: and say that that's not somewhere I want to be invested.
56:23
Speaker 1: Do you see anything anything here that excites you.
56:26
Speaker 4: Well, you know, some of the greatest companies in the
56:29
Speaker 4: world have come out of the UK. Arem and deep
56:32
Speaker 4: Mind both came from the UK. So you've got wonderful DNA,
56:38
Speaker 4: certainly from an AI point of view. So we think
56:44
Speaker 4: that because the costs associated with artificial intelligence and all
56:48
Speaker 4: of our technologies are declining so rapidly, that the pace
56:53
Speaker 4: of innovation is going to pick up in many countries.
56:57
Speaker 4: I mean, I know the US, because of silicon, had
57:00
Speaker 4: a disproportionate amount of the market cap associated with innovation,
57:04
Speaker 4: but we think that's going to change and we want
57:07
Speaker 4: to spread our wings more and are bringing in new
57:11
Speaker 4: talent to do so. As far as the UK, we
57:17
Speaker 4: are not invested in anything now, but as I said
57:21
Speaker 4: indirectly through Alphabet, we have deep mind and arm. We
57:27
Speaker 4: passed on it. Just in terms of the expectations, we
57:31
Speaker 4: think are a little stretched because of the AI quote
57:36
Speaker 4: unquote hype that we've been through. But again, great company.
57:39
Speaker 1: There is one question I have to ask you, and
57:41
Speaker 1: I think I already know the answer to this question,
57:44
Speaker 1: but everybody who comes on the podcast has to answer it.
57:47
Speaker 3: At the end.
57:49
Speaker 1: No, it's genuinely compulsory, I'm afraid. So if I'm going
57:53
Speaker 1: to give you a choice of three asset classes, or
57:56
Speaker 1: three assets, should I say, and you have to choose
57:58
Speaker 1: one to hold for ten years, You're not going to
58:01
Speaker 1: have to think very hard. The three are gold, a
58:06
Speaker 1: deposit account, cash, deposit account, well, Bitcoin.
58:10
Speaker 4: Bitcoin hands down, hands down. Bitcoin is a hedge against
58:17
Speaker 4: both inflation and deflation. Gold, yes, so is gold. But
58:24
Speaker 4: bitcoin is digital and if you look at the incremental demand,
58:29
Speaker 4: we're going to see gold already has its demand. You
58:33
Speaker 4: know it's happened right. Bitcoin is new and institutions are
58:40
Speaker 4: barely involved and young people would much prefer to hold
58:45
Speaker 4: bitcoin then to hold gold. So you know, it's interesting
58:52
Speaker 4: that both gold and bitcoin are hedges against deflation, but
58:58
Speaker 4: bitcoin's been doing better recently, so.
59:03
Speaker 1: Genuinely digital gold, digital gold. Kathy, thank you so much.
59:08
Speaker 4: You're welcome. Maren, thank you.
59:16
Speaker 1: Thanks for listening to this week's Maren Talks Money. We
59:18
Speaker 1: will be back next week. Now, I want you to
59:20
Speaker 1: catch our debrief on this week's conversation on the Meren
59:22
Speaker 1: Talks Money after show that is in our normal feed,
59:25
Speaker 1: but it is, i'm sorry to say, only accessible to
59:27
Speaker 1: Apple News subscribers or for Bloomberg subscribers.
59:30
Speaker 3: Just look for the after show online.
59:32
Speaker 1: In it, we're going to talk about what we think
59:33
Speaker 1: about what Kathy would says.
59:35
Speaker 3: In the meantime.
59:36
Speaker 1: If you like our show, rate review, and subscribe wherever
59:39
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59:41
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59:50
Speaker 1: This episode was hosted by me Meren Sumsetweb. It was
59:52
Speaker 1: produced by Someasadi additional editing by Blake Maples.
59:55
Speaker 3: Special thanks to Kathy Wood and to John Steppek.
59:58
Speaker 1: Be sure to sign up for John's alien newsletter Money
1:00:01
Speaker 1: Dispelled on Tell Little Friends about that too.
1:00:03
Speaker 3: The link is in the show notes