Latest / Merryn Talks Money / This Swiss Private Bank Is Bullish on Britain, Japan and Copper

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This Swiss Private Bank Is Bullish on Britain, Japan and Copper · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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Speaker 2: Hello, it's Meren sum set Web here. We will start
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Speaker 2: this week's show with an announcement. I will be at
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Speaker 2: the Fringe Festival in Edinburgh once again this year, hosting
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Speaker 2: four days of absolutely riveting conversations in Adam Smith's Pama House.
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Speaker 2: I will be there from August the seventeenth to August
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Speaker 2: the twentieth. Tickets are already on sale and going very fast.
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Speaker 2: Don't forget that we sell out every single year. Links
0:33
Speaker 2: will be in the show notes. You can also just
0:34
Speaker 2: head to the main Fringe website and search for Meren
0:37
Speaker 2: to see availability and purchase tickets, plus get some more
0:40
Speaker 2: information about the venue and have a think about who
0:43
Speaker 2: might be our guest orthough we don't actually announce those
0:46
Speaker 2: until the very last minute.
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Speaker 3: Do come here. I haven't been before. It's a really
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Speaker 3: nice time to be in Edinburgh.
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Speaker 2: We always have a great time, and John will be
0:53
Speaker 2: there on a couple of days, which I think is
0:55
Speaker 2: just the thing to get you all in. Now back
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Speaker 2: to our regular programming this week on the show, Peter
1:01
Speaker 2: Kinsella joins us. Here's the global head of FX strategy
1:03
Speaker 2: at Union Bank care Prevate one of Switzerland's largest private
1:07
Speaker 2: wealth managers, and we talk about the attractiveness of the
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Speaker 2: UK market right now, his outlook for sterling and why
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Speaker 2: he thinks everybody should that big on copper.
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Speaker 3: It's not everyone agrees on by the way.
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Speaker 2: But first, as I was senior reporter and author of
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Speaker 2: Money Still newsletter, John Stavig is with me.
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Speaker 3: John.
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Speaker 2: Hello, Hello, I've just said that we talk about the
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Speaker 2: attractiveness of the UK market. Now, I think that you
1:27
Speaker 2: think that Peter thinks that. Some of our other guests
1:30
Speaker 2: think that, but actually still not very many other people
1:33
Speaker 2: think that.
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Speaker 4: Do they They don't. But I have some very exciting
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Speaker 4: news t Shaar Ready, Bank of America global fund manager
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Speaker 4: Slvey has come out for June.
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Speaker 3: Now.
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Speaker 4: This basically shows where global fund managers are in the world.
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Speaker 4: See that they're putting the money. I mean, maybe they're
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Speaker 4: not putting them money there, but I don't see why
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Speaker 4: they would like on the salve so and it tends
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Speaker 4: to be very useful as a trade and thing. So
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Speaker 4: if something's popular, then quite often that will then fall,
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Speaker 4: and if something's very unpopular, quite often that will then
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Speaker 4: go up. The UK has been really unpopular on this
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Speaker 4: survey for a very long time, and in March it
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Speaker 4: was the most underweighted stock market in the world as
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Speaker 4: far as global fund managers were concerned, so basically the
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Speaker 4: most hated. Then in April it was the second most hated,
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Speaker 4: May the third most hated, and now in June we've
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Speaker 4: climed to the fourth most hated in the world. I
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Speaker 4: think that's that's quite as a there's momentum there.
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Speaker 2: There is momentum there, and there's momentum in the market
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Speaker 2: as well. You know, it's going up, and you know,
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Speaker 2: we always say about fund managers, they're all momentum investors.
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Speaker 2: So if it's going up there, they're like, good to
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Speaker 2: buy it, don't I do just want to say, I
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Speaker 2: think they do lie in that survey, you know, I
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Speaker 2: think they do.
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Speaker 4: Why do you think that?
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Speaker 2: Well, I think that if something's going up and it's
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Speaker 2: not in their portfolio, they probably still say they hold it,
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Speaker 2: don't you think.
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Speaker 4: Okay, I see what you mean. They say, it's almost
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Speaker 4: of what we owin and what we wish we owned.
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Speaker 3: Yes, it's both things. You know. Do you talk to it?
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Speaker 2: I mean he very rarely talked to a fund manager
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Speaker 2: who says, oh, yeah, you know that went up, but
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Speaker 2: I didn't have any of it.
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Speaker 3: It's not like that. That's not how it works in
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Speaker 3: the mind of a fund manager.
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Speaker 2: They're all really really good at what they do, and
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Speaker 2: most of them are adequate at what they do, right,
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Speaker 2: But in their minds they're heroes, not just adequate.
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Speaker 4: Different I think, okay, yeah, no, that makes sense. I
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Speaker 4: can see why they would lie in that cointext.
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Speaker 2: So a lot of it is about what they'd like. Now,
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Speaker 2: I wanted to talk a little bit about about politics.
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Speaker 2: I know we're all beginning to get bored of it,
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Speaker 2: but increasingly I listened to Kirstamer saying that he's not
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Speaker 2: going to put up this tax and not going to
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Speaker 2: put up that tax, and not going to change this
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Speaker 2: and not going to do anything, and.
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Speaker 3: I think, well, what is the point.
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Speaker 2: What's the point in having a super majority and everybody's
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Speaker 2: support if you don't actually do something.
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Speaker 3: And I was reading a nice.
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Speaker 2: Little note comes from these people are are Clermont man
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Speaker 2: called Chris Andrew Racy's nice little notes I get and
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Speaker 2: he reminded me of this that there was a super
4:01
Speaker 2: majority in nineteen forty five. Of course, when Clement Attley
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Speaker 2: got in right nineteen forty four. No one could have
4:07
Speaker 2: anticipated that we were going to end up with the
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Speaker 2: amazing or vast or not amazing if you liked to
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Speaker 2: look at it. But the welfare state, the National Health Service,
4:13
Speaker 2: it was amazing, not amazing, depending on how you look
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Speaker 2: at it. Nationalization of coal, nationalization of rail, nationalization of
4:19
Speaker 2: the Bank of England, the building of a million new homes,
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Speaker 2: massive rise in inheritance tax, but effectually kind of crippled
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Speaker 2: the class system, right, a massive amount of change. And
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Speaker 2: since then, his point is this, then, what has really changed?
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Speaker 2: You know, we're just settle around. There's been no massive
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Speaker 2: change to the way you could run, no massive change
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Speaker 2: to the tax system. It's just this up a little bit,
4:39
Speaker 2: that down a little bit, this up a little bit,
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Speaker 2: moved this here, moved out there, expand this. There hasn't
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Speaker 2: been anything new and dramatic.
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Speaker 3: We're all just in. This is his quote.
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Speaker 2: We've been moving the plates and cutlery around on mister
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Speaker 2: Attlee's table, and now we're about I know funny, right
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Speaker 2: now we're about to have a governmental It feels like
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Speaker 2: we're about to have the governmental Lezard. You know, we
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Speaker 2: have a the most historically useless pulling. Ever, we're about
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Speaker 2: to have a supermajority for a new government, and their
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Speaker 2: approach to it right now is.
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Speaker 3: We're not really going to do anything. No changes to incompact.
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Speaker 2: Okay, changes to corporation tax and today we had and
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Speaker 2: we're not going to be touching council tax either, don't worry.
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Speaker 3: And no CGD on your main home, etc.
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Speaker 2: Now I'm not saying that I want any of those
5:20
Speaker 2: taxes to go up, of course they don't. You know,
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Speaker 2: I'm a low tax person, but I'm sort of amused
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Speaker 2: by the sense that there's no vast change planned.
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Speaker 4: I mean that piece to mention what Labor promised in
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Speaker 4: the nineteen forty four manifesto as opposed to what they
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Speaker 4: actually did, because.
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Speaker 3: I can't that's detail for me.
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Speaker 4: Well, I guess my point is, so somebody said the
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Speaker 4: other day on Twitter or who come a party there
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Speaker 4: is clearly pulling twenty percent ahead in the other party
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Speaker 4: and is going to you know, trans them is being
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Speaker 4: so tentative about the manifesto promise, and I just started
6:01
Speaker 4: tweeted back, well, remember twenty seventeen and Trees of May
6:05
Speaker 4: was literally twenty points ahead in the polls, and then
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Speaker 4: she came along way again what was probably one of
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Speaker 4: the most progressive attempts to address, you know, the big
6:15
Speaker 4: elephant in the room of social care whenever we're all old,
6:18
Speaker 4: and it got branded as a dementia attacks and she
6:20
Speaker 4: ended up ended up being a Hong parliament So I
6:24
Speaker 4: think if I think politicians have taken a few lessons
6:28
Speaker 4: in recent years, and they've all been really bad ones.
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Speaker 4: They took the lesson from that that you shouldn't tell
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Speaker 4: the electorate any difficult truths. Ever, and the other lesson
6:37
Speaker 4: they took which is wrong, is from Liz Trust, which
6:40
Speaker 4: is the idea that we now need to run everything
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Speaker 4: by the OBR and make sure that we don't go
6:44
Speaker 4: a pound over a completely made up budget or else,
6:49
Speaker 4: you know, the boind vigilanities are going to come and
6:51
Speaker 4: cave our heads in with their invisible baseball backs, which
6:54
Speaker 4: is also complete hot nonsense. So I just think that
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Speaker 4: the air plane really, really, really careful, which also what
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Speaker 4: is me because then I don't know what they're going
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Speaker 4: to come out with after the election, and it may
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Speaker 4: actually be really.
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Speaker 2: Kind, But that's the worry that there is actually a plan,
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Speaker 2: that there is actually a plan. Okay, I have the
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Speaker 2: nineteen forty five Manifesto right here.
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Speaker 3: Freedom, freedom, freedom and full employment. Freedom and freedom.
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Speaker 2: The whole of the national resources in land, material and
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Speaker 2: labor must be fully employee.
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Speaker 3: Production must be raised to the highest level. Blah blah blah.
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Speaker 2: There's the equivalent kre stum of whibbling away about growth endlessly.
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Speaker 2: And then we get down to planned investment in essential industries,
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Speaker 2: on houses, schools and hospitals. Again, we're all very care
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Speaker 2: Bank of England, with its financial powers, must be brought
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Speaker 2: under public ownership.
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Speaker 3: Don't talk.
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Speaker 4: The truth was there?
7:44
Speaker 3: Was there? And then after that a lot of blast.
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Speaker 2: Socialism cannot come overnight as a product of a weekend revolution.
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Speaker 2: So yes, no public transport of all inland transport, public
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Speaker 2: ownership of all inland transport, sorry, public ownership of all
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Speaker 2: fuel and power, our industries, public ownership of iron and steel,
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Speaker 2: public supervision of all monopolies and cartels, the shaping of
8:07
Speaker 2: suitable economic and price controls.
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Speaker 3: Then there's more. I mean this is pretty open, right.
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Speaker 4: I suppose was there anything the woud have bodied the
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Speaker 4: elector at the time beyond the powered groups? And maybe
8:22
Speaker 4: that's the problem now now.
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Speaker 2: It all sounds pretty good. I mean, apart from the
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Speaker 2: relentious nationalizations. You know, who could stand against the creation
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Speaker 2: of a welfare state and who could stand against the
8:32
Speaker 2: creation of a health service? And because you already had
8:35
Speaker 2: a health service, everyone didn't just die in the streets
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Speaker 2: if they if they got sick at health service existed.
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Speaker 2: This was just a massive expansion of that health service.
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Speaker 4: Shuffling the Crokeran claiment at least the table does sound
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Speaker 4: a little bit sweeping. I mean, you know, we don't
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Speaker 4: still have nationalized, you know, nationalized everything. The few things
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Speaker 4: have moved back into the private sec that you know
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Speaker 4: they can, the big buying in the city and all
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Speaker 4: that sort of stuff. It feels a little bit over
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Speaker 4: the top to say that nothing's changed since then. I
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Speaker 4: actually quite a few things have changed.
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Speaker 3: I always ask you this.
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Speaker 2: I'm going to ask you again if you were here,
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Speaker 2: what's the big change?
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Speaker 3: What is it? Well?
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Speaker 4: I mean, do you always actually come back to the line.
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Speaker 3: Value you really did?
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Speaker 2: Don't You've got to write on it or we've got.
9:29
Speaker 3: To write podcast.
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Speaker 4: I think we should a podcast on it, because I
9:33
Speaker 4: think that would be an interesting way to discussed with
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Speaker 4: people who could articulate beyond the practical getting it and
9:41
Speaker 4: why it would be a bad idea.
9:43
Speaker 2: Even if what if you're an expert on the land
9:45
Speaker 2: value tax, get in touch with us. John and I a.
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Speaker 3: Little bit expert on it.
9:48
Speaker 2: We've written about it a lot over the years, but
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Speaker 2: we can do with an external expert.
9:51
Speaker 3: Now. One thing that I think we can pretty sure of.
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Speaker 2: We listened to Kirstami yesterday that before tell us that
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Speaker 2: he wasn't going to put up any taxes on working people,
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Speaker 2: he ended up defining as the roughly thirty percent of
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Speaker 2: the population who don't have savings. So that tells us
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Speaker 2: pretty clearly where the taxes are going to go up right,
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Speaker 2: and absolutely anybody with any savings or any wealth at all.
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Speaker 2: I've been writing about this, and I've actually got a
10:14
Speaker 2: column out or coming out which has in it the
10:17
Speaker 2: details of the one tax loophole for the very high
10:21
Speaker 2: income that you will never be able to close.
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Speaker 3: Going to leave. You're hanging on that one.
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Speaker 4: I'll look forward to, isn't it.
10:29
Speaker 3: Yeah?
10:31
Speaker 2: Welcome to Myron Talks Money, the podcast in which people
10:34
Speaker 2: who know the markets explain the markets.
10:35
Speaker 3: I'm Maren zum zet Web.
10:37
Speaker 2: Here's my conversation with Peter Kinzilla, global head of Essex
10:40
Speaker 2: strategy at Union Boncare Predec. Peter, thank you so much
10:43
Speaker 2: for joining us today. Really please to have you on.
10:45
Speaker 1: Thank you very much for having me so.
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Speaker 2: A few weeks ago you came over all bullish on
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Speaker 2: the UK stock market, right, so tell us about that?
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Speaker 2: When why?
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Speaker 1: Sure, I guess really to start, we've got to watch that.
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Speaker 1: We look at you know, a global watch list on
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Speaker 1: our discretionary portfolios, and for the longest time, you know
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Speaker 1: that the UK has been screening cheap right for a
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Speaker 1: variety of reasons. But being cheap in and of itself
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Speaker 1: isn't an immediate reason to go out and buy something, right.
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Speaker 1: You need a catalyst or a series of catalysts in
11:19
Speaker 1: order to change that paradigm and to see sort of
11:22
Speaker 1: some incremental increase in valuations. And when we looked at
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Speaker 1: the UK just from the valuation perspective, we saw, you know,
11:29
Speaker 1: that footy one hundred trading with a pe of around ten,
11:32
Speaker 1: forty five percent of the constituents trading with a pee
11:35
Speaker 1: below ten, and we said, okay, it's it's absolutely cheap,
11:38
Speaker 1: you know, and certainly we'd seen elsewhere, you know, kind
11:41
Speaker 1: of eight weeks ago or thereabouts, you know, in early March,
11:44
Speaker 1: mid March, Yes, andp doing pretty well. But also I
11:47
Speaker 1: would say some evidence of the equity rally widening in
11:50
Speaker 1: a sense, and i'm not coincided with an improvement in
11:52
Speaker 1: global PMI data predicting service side and then latterly in
11:56
Speaker 1: the manufacturing side. So it seemed to us that the
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Speaker 1: recovery globally speaking was doing a bit better than the
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Speaker 1: consensus narrative. And we said, okay, well, from a growth perspective,
12:05
Speaker 1: how does the UK look? And we believe that looking
12:08
Speaker 1: at the data, it was going to be a relatively
12:10
Speaker 1: shallow recession in Q four last year, and coming to
12:13
Speaker 1: this year, you know, our view was that inflation was
12:16
Speaker 1: falling quite rapidly, energy prices had normalized in a very
12:19
Speaker 1: substantial manner, and if we looked at wage growth, we
12:22
Speaker 1: were looking at normal wage growth in the region of
12:25
Speaker 1: sort of six even, you know, touching seven percent in
12:28
Speaker 1: some sectors, in the context of having headline inflation, which
12:31
Speaker 1: will probably average around three percent, is maybe two point
12:34
Speaker 1: six percent this year, and so when you look at that,
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Speaker 1: that basically tells you we're going to have positive real
12:40
Speaker 1: wage growth in the UK for the remain of the year.
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Speaker 1: We said, okay, that's quite interesting that, you know, and
12:45
Speaker 1: knowing the Brits the way the way we do, you know,
12:47
Speaker 1: the Brits like to spend money. We then looked at
12:48
Speaker 1: sort of some of the you know, the earnings expectations
12:51
Speaker 1: and the guidance, and again it wasn't absurd and so
12:54
Speaker 1: in a sense we looked at a very very cheap
12:55
Speaker 1: equity market, a potential growth improvement, you know, obvious growth improvement,
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Speaker 1: and indeed a potential for sort of I would say,
13:03
Speaker 1: a resumption of consumer spending. Those we were two pretty
13:07
Speaker 1: interesting catalysts.
13:08
Speaker 2: So when you say rising oral wages, increasing consumer spending,
13:11
Speaker 2: which would lead to earning surprises on the upside for
13:13
Speaker 2: consumer stocks, Yeah, yeah, and that would and that would
13:16
Speaker 2: be a catalyst.
13:17
Speaker 1: For sure, and that was kind of one of the
13:18
Speaker 1: strong reasons. The other reason then was we looked at
13:21
Speaker 1: the politics in the UK and what was kind of interesting,
13:26
Speaker 1: I think, was that coming into the election, we said, okay,
13:29
Speaker 1: labor victory, that seems to be baked in the cake.
13:32
Speaker 1: And if you look at it, you know, one of
13:33
Speaker 1: the issues with UK and Sterling denominated assets is that
13:36
Speaker 1: they have traded with a certain risk premium since Brexit,
13:40
Speaker 1: since a brexit right around him in twenty sixteen. And
13:44
Speaker 1: if you kind of look at it comparatively speaking, you're
13:46
Speaker 1: seeing the rest of Europe move towards the right, each
13:50
Speaker 1: center right, to some extent on extreme right, and in
13:53
Speaker 1: the UK we're kind of moving back towards center left,
13:56
Speaker 1: albeit a more corporatist managerial style center left, I would say.
14:00
Speaker 1: And so it says to me that if we get
14:02
Speaker 1: a labor victory, they tend to normally want better relations
14:06
Speaker 1: with the EU. And so whilst I'm not expecting, you know,
14:09
Speaker 1: anybody rejoining the EU's customs Union or a single market
14:12
Speaker 1: or anything like that, there is a prospect of incremental
14:16
Speaker 1: improvements towards the overall relationship with the EU, which didn't
14:19
Speaker 1: and he doesn't exist with the consecurrent conservative administration. So
14:23
Speaker 1: that was definitely a positive potential catalyst as well. And
14:26
Speaker 1: so looking at that all together, I said to myself, right,
14:29
Speaker 1: you know, we're cheap. We've got a couple more catalysts,
14:31
Speaker 1: you know, And that's why it starts to look a
14:34
Speaker 1: lot more interesting.
14:36
Speaker 2: Okay, And let me just ask you then you say,
14:38
Speaker 2: that previous to this you hadn't been interested in the UK.
14:41
Speaker 2: But what does that mean for your client's portfolio is
14:43
Speaker 2: because one of the things that has happened in the
14:44
Speaker 2: last couple of decades is that very rapid fall in
14:47
Speaker 2: the percentage of an average wealth management portfolio that is
14:50
Speaker 2: allocated to the UK. Right, so it used to be
14:52
Speaker 2: forty fifty per cent of ago about a couple of decades,
14:55
Speaker 2: and now it's come down very dramatically. So when you
14:57
Speaker 2: say you weren't putting clients into the UK, does that
15:00
Speaker 2: mean that they were all holding the proportion and relative
15:03
Speaker 2: to the MSCI World Index or nothing?
15:05
Speaker 1: I would say closer to nothing. That the UK has
15:08
Speaker 1: been a very hard sell for a very long time,
15:09
Speaker 1: and I think if we look at it comparatively speaking again,
15:12
Speaker 1: I think the proportion it fell to was low six
15:14
Speaker 1: percent I think in globally weighted portfolios. But you know,
15:17
Speaker 1: from our discretionary portfolios we basically held little to nothing
15:20
Speaker 1: in the UK. And one of the anecdotes to giving
15:24
Speaker 1: it an idea of how hard the UK has been
15:26
Speaker 1: in terms of you know, investing. I recently met one
15:29
Speaker 1: of the advisors too, I think was the Deminister for
15:31
Speaker 1: Investment at the Department of Business and Trade, Loert Donald Johnson,
15:35
Speaker 1: and speaking with this this advisor, I was saying, how
15:36
Speaker 1: do you market the UK at the moment and our things?
15:39
Speaker 1: And he said, it's a really hard sell and has
15:42
Speaker 1: been so for the last few years, particularly following Brexit.
15:44
Speaker 1: So in a sense that kind of gives you an
15:46
Speaker 1: idea of the external perception of the UK. It has
15:50
Speaker 1: been a hard sell. You know, obviously politically we've had
15:52
Speaker 1: some difficulties here in the UK, and certainly that builters
15:55
Speaker 1: through towards you know, an investor perception, and so it's
15:57
Speaker 1: definitely been a hard sell. And even in interestingly when
16:00
Speaker 1: you know, when we put this in front of our clients,
16:03
Speaker 1: investor as other people, we got significant pushback. And I
16:06
Speaker 1: think what's interesting from this is that you know, this
16:09
Speaker 1: is to my mind, at least, when you get huge
16:12
Speaker 1: pushback on an investment thesis, irrationale, oftentimes that's the very
16:16
Speaker 1: time but the greatest upside, right because it's a non
16:18
Speaker 1: consensual view, and certainly that's that's that's been the way
16:21
Speaker 1: it has traded. UK is traded pretty well. It's done
16:24
Speaker 1: pretty well in the last three to four months, and
16:26
Speaker 1: I certainly think there's there's an awful lot more upside
16:28
Speaker 1: in the months in years head.
16:30
Speaker 2: When you get pushback and didn't this. When you get pushback,
16:32
Speaker 2: what is it that people say, Because obviously they can't
16:34
Speaker 2: say it's not cheap because.
16:36
Speaker 3: That's not the case.
16:37
Speaker 2: So what they what can they say? There's too much
16:39
Speaker 2: political volatility there? For me, Breckfett has destroyed the economy.
16:44
Speaker 2: What is the pushback because obviously they're now political volatility
16:47
Speaker 2: absolutely everywhere. You know, if you're looking at a volatile,
16:51
Speaker 2: volatile government, you can find them pretty much anyway you
16:54
Speaker 2: like in Europe, and the US isn't exactly looking like
16:56
Speaker 2: a beacon of stability. So what is the pushback against
16:59
Speaker 2: the UK? We just don't like Brexit. It makes us
17:02
Speaker 2: feel uncomfortable.
17:03
Speaker 1: That's probably part of it. I think really breaks it
17:05
Speaker 1: with one aspect of it, certainly the Shenanigan's you know,
17:10
Speaker 1: Visa VI, the the Listreals budget sort of gone on
17:13
Speaker 1: two years ago. That's definitely affected people's judgment.
17:17
Speaker 2: Yeah, but that's not really relevant to this because this
17:20
Speaker 2: all happened long before that. We're going back to twenty
17:22
Speaker 2: sixteen when the UK discounts start first arrived, right. The
17:25
Speaker 2: live trust debacle is extremely short fixed very quickly. So
17:30
Speaker 2: it just seems to me that if you're talking to rational,
17:33
Speaker 2: intelligent investors, it's very hard to understand what the pushback
17:37
Speaker 2: is unless it's simply an emotional prejudice of some kind
17:41
Speaker 2: that seemingly irrational people can't seem to drop.
17:43
Speaker 1: Yeah, I think there's definitely a kernel of truth in that.
17:45
Speaker 1: I wouldn't doubt that at all. And I think really
17:47
Speaker 1: just the mood music around the UK from an external
17:49
Speaker 1: perspective has just been poor, right, And it's our job,
17:52
Speaker 1: obviously to be as dispassionate as possible about that and
17:55
Speaker 1: to simply look at the actual investment thesis, in the
17:58
Speaker 1: rationale and the potential for us. And so you know,
18:01
Speaker 1: when we chewed through it, we set to ourselves right,
18:03
Speaker 1: there are definitely worse places to put our money, and
18:06
Speaker 1: certainly it's been rewarding thus far, as I've said, and
18:09
Speaker 1: I think it will continue to be the case. It's
18:11
Speaker 1: in the same box in a sense as Japan was
18:13
Speaker 1: maybe a year ago, year and a half ago, in
18:15
Speaker 1: the sense that lots of companies trading way below their
18:18
Speaker 1: book value, decent improvement in earnings, which we've seen for
18:21
Speaker 1: sure in Japan and which I think we're going to
18:23
Speaker 1: see here in the UK as well, And so you
18:26
Speaker 1: put that together, you've got a reasonably impressive thesis or
18:29
Speaker 1: investment outlook. Again, I think that that the pushback really
18:32
Speaker 1: for me, was just a hangover from Brexit, and it's
18:35
Speaker 1: probably not helped, to think by the fact that most
18:38
Speaker 1: of the world's financial media is conducted through the English
18:41
Speaker 1: language and based in London, and so we kind of
18:44
Speaker 1: get a, you know, this very negative slant on the UK.
18:47
Speaker 1: That's one thing that I've always noticed is that locals
18:50
Speaker 1: tend to be far more bearish on their own economy
18:53
Speaker 1: than elsewhere. Perhaps it's the case that familiarity breeds contempt,
18:56
Speaker 1: I'm not too sure, but nonetheless I think that's definitely
18:59
Speaker 1: played a role in instead of affecting people's judgment.
19:01
Speaker 2: That's kind of interesting. Now, I want to come back
19:03
Speaker 2: to Japan in a minute, but let's stick with the
19:06
Speaker 2: UK for now. First, A quick question, what are you
19:09
Speaker 2: moving money out of to move it.
19:10
Speaker 3: Into the UK?
19:11
Speaker 2: And average portfolio what are you selling to get up to?
19:14
Speaker 2: What percentage of a portfolio is now in the UK, right,
19:17
Speaker 2: So I.
19:17
Speaker 1: Guess really we had some some EM holdings which we
19:20
Speaker 1: reduced about the margin. We've thought some of those had
19:22
Speaker 1: a pretty good run, and that's what we were doing,
19:24
Speaker 1: just to get into the UK, and so that that's
19:27
Speaker 1: really what we did. We still have a core holding
19:29
Speaker 1: obviously in the US, and you know we have quite
19:31
Speaker 1: a few the tech names and so on. But overall
19:34
Speaker 1: that that was the modest change which we undertook. So
19:37
Speaker 1: it was literally just pairing back a little bit of
19:39
Speaker 1: EM exposure towards an increase in the UK exposure.
19:41
Speaker 2: Okay, and when we talk about UK exposure, there's a
19:44
Speaker 2: million different ways to get UK exposure. And more precisely,
19:48
Speaker 2: what is it that you put into a portfolio these days?
19:50
Speaker 2: Is it small caps where the real value looks or
19:54
Speaker 2: higher up but you can get the yield.
19:56
Speaker 1: Yeah, I suppose we did. We did more so on
19:58
Speaker 1: the small cap site is simply because we thought we'd
19:59
Speaker 1: way more upside from simply from a value proposition. I
20:02
Speaker 1: think also the fact that given that the thesis was
20:05
Speaker 1: that UK consumer spending would improve over the remainder of
20:08
Speaker 1: the year, that's going to be less of I would
20:10
Speaker 1: say an impetus for the you know, the F one
20:13
Speaker 1: hundred to do well, right, because that's largely speaking externally
20:16
Speaker 1: facing a stock market, and so consequently we were much
20:19
Speaker 1: much more inclined to look at the foot team two
20:21
Speaker 1: fifty and to look at some of the constituent names there.
20:23
Speaker 1: And indeed that's been okay, and certainly there's a couple
20:25
Speaker 1: of decent managed funds which have done well. You've got
20:27
Speaker 1: the Joe hanbro fund which which has done pretty well
20:30
Speaker 1: this year. That's going to be an interesting outlook there.
20:32
Speaker 1: One of one of the things that we looked at
20:34
Speaker 1: which has kind of confirmed the thesis is that you've
20:36
Speaker 1: got increasing numbers of takeovers of UK companies, right, and
20:40
Speaker 1: that to my mind tells us that a lot of
20:42
Speaker 1: external players think this place is simply too cheap.
20:45
Speaker 2: Yeah, and the market is beginning to look interesting again,
20:48
Speaker 2: partly on that evaluation basis, partly the m and a
20:52
Speaker 2: partly that we're beginning to a lot of talk about
20:53
Speaker 2: an interesting pipeline of IPOs at the end.
20:55
Speaker 3: Of the year.
20:56
Speaker 1: Yeah, for sure. I mean, well, starting with the potential
20:58
Speaker 1: Sheen valuation, which will be good and certainly would help
21:02
Speaker 1: what has been a very i would say morribund ipo
21:04
Speaker 1: market here in the UK and a dd elsewhere for
21:06
Speaker 1: the last year or two, but certainly in the UK
21:08
Speaker 1: it's it's selling London as a listing venue has been
21:11
Speaker 1: tricky for the last couple of years. But you know,
21:13
Speaker 1: look at it's an agglomeration exercise as well, right, you know,
21:16
Speaker 1: the more names that we get listening here, the more
21:18
Speaker 1: that will come. And so you know that I think
21:19
Speaker 1: that's definitely good news from from the UK's perspective.
21:22
Speaker 5: Okay, so lots of good news, very good but but
21:26
Speaker 5: you talked about the positive implications of a big labor majority,
21:30
Speaker 5: possibly better relationships with Europe and the stability that might
21:33
Speaker 5: come with a big majority.
21:34
Speaker 2: But there's also, of course potential negatives here because a
21:38
Speaker 2: labor government with a big majority has an awful lot
21:40
Speaker 2: of power and they do all sorts of things that
21:42
Speaker 2: don't feel particularly market or particularly bit and friendly. So
21:46
Speaker 2: there may be a sugar rush post election and then
21:49
Speaker 2: rather nasty come down eight months to a year out
21:52
Speaker 2: could be.
21:53
Speaker 1: It would depend very much more what the what the government,
21:55
Speaker 1: what they you know, the incoming administration are going to
21:57
Speaker 1: do right now if we kind of so as we
21:59
Speaker 1: take it of altitude and look at what they're doing.
22:02
Speaker 1: They're pretty much going to, as far as we can tell,
22:05
Speaker 1: remain more or less within the fiscal parameters that the
22:07
Speaker 1: current government are doing. Right, So you know, no huge
22:11
Speaker 1: increase in net borrowing. I would say, some marginal increases
22:14
Speaker 1: in taxation. We've certainly seen, you know, in the last
22:17
Speaker 1: several days, I would say, some talk about potential increases
22:20
Speaker 1: in CGT. So that's a couple of gains tax for
22:22
Speaker 1: your listeners, and you've got obviously a couple of other
22:25
Speaker 1: tax raising measures, so that's going to come in bits
22:28
Speaker 1: and pieces. Visa the spending, if we look at the
22:30
Speaker 1: current administration that they do see or foreseeing their forecasts,
22:34
Speaker 1: pretty I would say notable decrease in spending coming to
22:38
Speaker 1: in the fifth year of the administration. So you know,
22:41
Speaker 1: spending cuts are going to come one way or the other,
22:43
Speaker 1: depends how they're simply distributed. But broadly speaking, it seems
22:46
Speaker 1: that the incoming labor administration intends to pursue a similarly
22:51
Speaker 1: similar fiscal metric to the current Conservative administration, which basically
22:55
Speaker 1: means we're going to stop borrowing or increasing borrowing within
22:59
Speaker 1: three to four years.
23:00
Speaker 2: Okay, and you're not concerned about things like, oh, I
23:02
Speaker 2: don't know a wealth tax or rising cgut putting people
23:06
Speaker 2: off going into the stock market, all these kinds of things.
23:09
Speaker 2: This is a very nascent recovery and easily shocked you.
23:13
Speaker 1: One could argue that, yeah, I think on the wealth
23:15
Speaker 1: tax side of things, I mean, certainly wealth taxes are
23:18
Speaker 1: very difficult to implement, and that's been the I would say,
23:22
Speaker 1: the history in they don't tend to generate all that
23:25
Speaker 1: much revenue from Frank I think Switzerland as a wealth tax,
23:30
Speaker 1: which I think comes to around four percent of the
23:32
Speaker 1: total taxation pot so okay, not minuscule, but it's not
23:36
Speaker 1: a game changer either. I would argue again that's been
23:39
Speaker 1: in place for a very long time here in the UK. Look,
23:42
Speaker 1: even setting up a wealth tax is going to take
23:43
Speaker 1: a long time. You're going to have to figure out
23:45
Speaker 1: who you're going to tax, how are you going to
23:47
Speaker 1: tax them? Is it just properly? What about overseas assets,
23:50
Speaker 1: et cetera. That's tricky, and coming on top of it
23:52
Speaker 1: of what they're doing these ving non doms, it's already
23:54
Speaker 1: becoming I don't want to say an unfriendly place for capital,
23:58
Speaker 1: but you don't want to make it less friendly.
24:00
Speaker 2: Capital gains tax, of course, is effectively a wealth tax
24:03
Speaker 2: in the UK because it's not index to inflation, because
24:06
Speaker 2: there's not index to inflation, and you are taxed on
24:08
Speaker 2: nominal games rather than real gains. So it is already
24:11
Speaker 2: a wealth tax. And the long view hold an acid
24:13
Speaker 2: the more of a wealth tax, it becomes.
24:14
Speaker 3: Right.
24:15
Speaker 2: So if the rate of capital gains taxes whereas we
24:18
Speaker 2: have effectively implemented a sharp rise in an existing wealth tax,
24:22
Speaker 2: and you can say the same, for example, of the
24:25
Speaker 2: very high level of stamp duty that we charge on
24:27
Speaker 2: our stock market, so you know we charge one of
24:28
Speaker 2: the highest stamp duties in the world on equity transactions.
24:32
Speaker 2: That's a wealth tax. Of course, it's a wealth tax.
24:34
Speaker 2: And then we have inheritance tax, which is also a
24:37
Speaker 2: wealth tax. In fact, if you add up all our
24:39
Speaker 2: wealth taxes, we already tax wealth rather more highly than
24:42
Speaker 2: almost anywhere else in Europe.
24:44
Speaker 1: Yeah, the funny thing is that, you know, what you've
24:45
Speaker 1: said is particularly culture coherent view. That's not something which
24:49
Speaker 1: we read here in the media all that much, apart
24:51
Speaker 1: from lot bits and in financial media. It certainly doesn't
24:53
Speaker 1: get into the mainstream media that we have already. You know,
24:57
Speaker 1: I would argue a pretty heavy burden of wealth taxation,
25:00
Speaker 1: be it real or nominal. And so I think, you know,
25:02
Speaker 1: visaly the potential design of wealth tax Look, it would
25:05
Speaker 1: take an awful lot of time to do. So my
25:08
Speaker 1: view at least is that you know, a if you're
25:10
Speaker 1: going to reform anything, would be to reform stamp duty
25:13
Speaker 1: on housing, you know, lower it substantially, but then increase
25:16
Speaker 1: potentially somebody the ongoing monthly payments. Because what that does
25:20
Speaker 1: is that it gives you a much more stable revenue
25:22
Speaker 1: profile longer out right from a government perspective, and you know,
25:25
Speaker 1: your fiscal setup isn't subject to the vagaries of the
25:29
Speaker 1: property market, which you know have been very very volatile
25:31
Speaker 1: here in the UK for quite some time.
25:33
Speaker 2: Yeah, are there any policies that you see coming that
25:35
Speaker 2: we haven't discussed yet that might have an effect?
25:38
Speaker 1: So I think what's going to be interesting from labor
25:40
Speaker 1: is what they do on pensions here in the UK.
25:43
Speaker 1: And it's been interesting that if you listen to the
25:46
Speaker 1: Conservative administration, you know they want to increase pension payments,
25:50
Speaker 1: keeping the trip a lock, et cetera. And I'm not
25:52
Speaker 1: so sure how long that line can hold, right, because
25:57
Speaker 1: if you're going to distribute pain across your economy, across
25:59
Speaker 1: your at your society, everybody's got to give relative to
26:03
Speaker 1: where they are in life. And I don't see how
26:06
Speaker 1: it's tenable that the wealthiest cohort in the population are
26:09
Speaker 1: given after inflation, real value gains in pensions and everybody
26:14
Speaker 1: else is getting cuts. And then not only about the
26:16
Speaker 1: equity argument of that, when you look just the bread
26:19
Speaker 1: and butter of it, the pension spending here in the
26:21
Speaker 1: UK's is significant, and if you're spending money in that,
26:24
Speaker 1: you're not spending money infrastructure. So I could see definitely
26:27
Speaker 1: if push came to shove, I could see a labor
26:29
Speaker 1: administration potentially moving in that way, because certainly they've got
26:32
Speaker 1: the numbers to do it, or we'll have in the
26:34
Speaker 1: next parliament.
26:35
Speaker 2: And we worry a little here about financial repression expressed
26:40
Speaker 2: by the capturing of pension assets for infrastructure spend.
26:45
Speaker 1: It's a worry. I think it's twofold. It'll probably come
26:48
Speaker 1: down the line in one form or another. The bigger
26:51
Speaker 1: issue here in the UK, and probably actually in most
26:53
Speaker 1: Anglo Saxon economies, is that we're very bad at infrastructure
26:57
Speaker 1: and we're very bad at implementing it and paying for it,
27:00
Speaker 1: in the sense that we probably pay double what our
27:04
Speaker 1: continental le cousins pay for even road building or building
27:07
Speaker 1: train lines and everything else. Now in the people will say,
27:11
Speaker 1: well that there's very idiosyncratic reasons for that. It's because
27:14
Speaker 1: of the planning system. It's it's out of the other
27:15
Speaker 1: it's a lack of expertise when it comes to drafting contracts.
27:19
Speaker 1: But nonetheless, I think what's pretty clear to me is
27:21
Speaker 1: that there's definitely some efficiency gains to be made there,
27:25
Speaker 1: and the Labor Party has talked quite i would say
27:28
Speaker 1: strikingly about its intention to reform the planning system. Definitely necessary.
27:32
Speaker 1: I think anybody with half a brain sell in the
27:34
Speaker 1: UK would agree the planning system here is grossly difficult
27:38
Speaker 1: to navigate. Anybody even doing the most basic of things,
27:42
Speaker 1: be an extension to a house or more severe infrastructural projects.
27:46
Speaker 1: They're just caught up in red tape for years in
27:48
Speaker 1: many cases, and that has significant costs. But it also
27:51
Speaker 1: has a significant cost on our productivity in the UK.
27:53
Speaker 1: It's no secret that UK productivity growth has been astonishingly
27:57
Speaker 1: poor for the last twelve fifteen years, and I think
28:00
Speaker 1: a big part of that is the fact that our
28:02
Speaker 1: infrastructure isn't where it should be, and when we do
28:04
Speaker 1: get it, it comes in at a cost which is
28:07
Speaker 1: far above where it should be. So there are some
28:10
Speaker 1: tremendous gains to be made there, and I don't think
28:12
Speaker 1: they should be discounted in any sense, because if we
28:15
Speaker 1: do get an efficient planning regime, it could really be
28:18
Speaker 1: a game changer for the UK.
28:20
Speaker 2: Well, it's planning and it's regulation, isn't it. The number
28:23
Speaker 2: that always sticks in my head every time we talk
28:25
Speaker 2: about infrastructure, every time we took about building anything major
28:29
Speaker 2: in the UK is seven thousand, because that was the
28:32
Speaker 2: number of changes required for the design of Pinky Point
28:36
Speaker 2: for it to be built in the UK. Seven thousand
28:39
Speaker 2: changes for a plant that can be built anywhere else
28:42
Speaker 2: without the seven thousand changes. And that's how we manage
28:45
Speaker 2: to make everything cost double quadruple what it costs anywhere
28:48
Speaker 2: else in the world. God, we're very good at that bit.
28:51
Speaker 1: Indeed, I think a big part of that is just
28:54
Speaker 1: the use of external consultants right on mane of these projects.
28:57
Speaker 1: So one of the things that we don't have in
28:59
Speaker 1: the UK, and again we don't have a great many
29:02
Speaker 1: other Anglo Saxon countries. Is a ministry for infrastructure. I
29:06
Speaker 1: think there's a very strong case to be made for
29:09
Speaker 1: having one, because we end up in a situation where
29:11
Speaker 1: we employee external consultants. They have to justify their existence,
29:14
Speaker 1: and you therefore end up with X, Y Z seven
29:17
Speaker 1: thousand changes being made to what are you know, I
29:19
Speaker 1: don't want to say basic designs, but you know, which
29:21
Speaker 1: are designs which have been standardized in other parts of
29:24
Speaker 1: the world. You know in that context that there's definitely
29:27
Speaker 1: tremendous scope I think for improvements when it comes to
29:29
Speaker 1: the infrastructure, both of the planning the execution thereof.
29:34
Speaker 2: Okay, I think we better leave that because we're going
29:35
Speaker 2: to get ourself I've both bogged down and irritate it. Yeah,
29:39
Speaker 2: so let's move on to Japan, where they will have
29:41
Speaker 2: some troubles with infrastructure. But we're not going to talk
29:43
Speaker 2: about that. We're going to talk about the market.
29:45
Speaker 3: Now.
29:45
Speaker 2: You and I were both very keen on the Japanese
29:48
Speaker 2: market a couple of years back, and it has unfolded
29:50
Speaker 2: pretty much as one might have expected. The changes to
29:52
Speaker 2: corporate governance the valuations, the interest from outside Japan, the
29:56
Speaker 2: domestic investors coming back in again, the pee activist intro, etc.
30:00
Speaker 2: So Japan has done very well over the last couple
30:02
Speaker 2: of years. What do you see happening now? Are we
30:04
Speaker 2: done here or is there a good few years to come?
30:07
Speaker 1: Oh, there's a good few years to come, no question
30:09
Speaker 1: in my mind. I think there's a few things that
30:10
Speaker 1: are going on. So you've seen If you look at
30:13
Speaker 1: the pe ratio once, say that NICKK two to five,
30:15
Speaker 1: I think you're roughly seventeen or eighteen at present, so
30:18
Speaker 1: not as cheap as it was, but by no means
30:21
Speaker 1: super expensive. If you look at say the Nasdak's earning
30:24
Speaker 1: profile in terms of year and year growth in earnings
30:27
Speaker 1: since twenty ten, Nick is more or less done the
30:29
Speaker 1: same as topics. Right, So you've seen a very material
30:33
Speaker 1: improvement in the earnings growth and earnings quality of Japanese corporates.
30:38
Speaker 1: And it's not related to the weakening in the end, right.
30:41
Speaker 1: These are just corporate profitability improvements, So that's an ongoing issue,
30:45
Speaker 1: will continue to be the case. A lot of these
30:47
Speaker 1: are externally facing companies, so you're not just reliant upon
30:50
Speaker 1: the Japanese consumer, and I think in that context that
30:53
Speaker 1: will definitely continue to be the case. We still have
30:56
Speaker 1: I would say substantial gains to be made from the
30:58
Speaker 1: improvement in corporate governance. The reforms under Abe. They took
31:01
Speaker 1: a long time to take effect. I think that would
31:03
Speaker 1: probably be a fair point, but they're still manifesting very
31:06
Speaker 1: you know, slowly but surely. And so in that sense,
31:09
Speaker 1: it says to me, right, we're looking at an environment
31:11
Speaker 1: in which big efficiency improvements really asking companies about how
31:15
Speaker 1: to justify their cost of capital, much more active activist investors,
31:19
Speaker 1: and a still decent earnings profile. And if I look
31:22
Speaker 1: at it, they're doing that in a currency which is
31:24
Speaker 1: astonishingly cheap. Right, So if you look at the Japanese yen,
31:27
Speaker 1: it's trading pretty much at its lowest level in real
31:30
Speaker 1: effective exchange rate terms than I can ever remember in
31:33
Speaker 1: a twenty year career. So you're buying good companies with
31:37
Speaker 1: good earnings profile in a currency which is probably thirty
31:40
Speaker 1: to forty percent undervalued. It's a bit of a no
31:42
Speaker 1: brainer in my opinion.
31:44
Speaker 2: Okay, so you do think the end is that undervalue,
31:46
Speaker 2: and you think it and it will strengthen from here
31:48
Speaker 2: for sure.
31:49
Speaker 1: For sure, one of the big things you've seen in
31:50
Speaker 1: Japan in recent years is Chinese and entrepreneurs investors buying
31:55
Speaker 1: hotels in Japan, and they were doing that during the
31:57
Speaker 1: during the pandemic. And that's both a reflection of one,
32:00
Speaker 1: you know, obviously their outlook on tourism, but also reflection
32:03
Speaker 1: of the fact that they simply thought the n was
32:05
Speaker 1: too cheap and it continues to be way too cheap
32:08
Speaker 1: in my opinion.
32:09
Speaker 2: Okay, So our listeners who invest in Japan now will
32:11
Speaker 2: get hopefully the equity upside and the currency up.
32:14
Speaker 1: Slasure for sure. Yeah, you've got I mean, look on
32:17
Speaker 1: dollar yen, you'll get up by standing still in the
32:19
Speaker 1: sense that once we see the FED beginning to cut
32:22
Speaker 1: interest rates and some slowing in US growth metrics in
32:26
Speaker 1: the second half of the year, US ten year old
32:28
Speaker 1: will stabilize. And if when a stabilized, this dollar yen
32:30
Speaker 1: obviously is not going to go higher. Put it you
32:32
Speaker 1: that way, okay.
32:34
Speaker 2: And what about the pound. I know that you were
32:36
Speaker 2: fairly bullited on the pound, well six seven weeks ago
32:39
Speaker 2: you wrote about that and pans out a reasonable run.
32:41
Speaker 2: Since where are we now?
32:42
Speaker 1: Yeah, basically, I had a piece in the Ft which
32:46
Speaker 1: I wrote basically more or less the same time as
32:48
Speaker 1: we did our equity piece, and my argument at the
32:51
Speaker 1: time was that Stirling was set to rally. It has
32:53
Speaker 1: rallied since I think it's done two or three percent
32:55
Speaker 1: in trade weighted terms. But my rationale at the time
32:58
Speaker 1: was pretty simple, was that we were going to get
32:59
Speaker 1: a positive real rate spread in the UK and Sterling
33:03
Speaker 1: for the first time in a very long time, Okay,
33:05
Speaker 1: and that is unusual for Sterling, because you know, Sterling
33:07
Speaker 1: has had a flat to negative real rate profile for
33:09
Speaker 1: the longest time ever. The second thing was that I
33:13
Speaker 1: noticed that the UK current account deficit had contracted quite
33:16
Speaker 1: aggressively to sort of below sit a two percent of GDP.
33:20
Speaker 1: That to my mind was very interesting because again the
33:23
Speaker 1: narrative following Brexit, oh, you know, we're looking at a
33:26
Speaker 1: triple deficit economy, current account deficit, fiscal deficit, capital account deficit,
33:30
Speaker 1: et cetera. And this contraction in the current account deficit
33:32
Speaker 1: is interesting because it does tell you that certainly the
33:35
Speaker 1: currency has far less pent up depreciation pressure than would
33:39
Speaker 1: be the case if it had a large current account deficit.
33:41
Speaker 1: That was an interesting one and then I think, certainly
33:43
Speaker 1: the removal of UK idiosyncratic political risk. If you're seen
33:46
Speaker 1: to have an administration which will be a little bit
33:49
Speaker 1: more pro Europe or at least, let's say, less antagonistic
33:53
Speaker 1: towards the EU, that's definitely good for Sterling and thus
33:55
Speaker 1: far that seems to be playing out pretty well.
33:58
Speaker 2: Interesting. Do you think that the recent government has been
34:01
Speaker 2: explicitly antagonistic towards THEE? I would say, not antagonistic, possibly
34:05
Speaker 2: the other way around.
34:06
Speaker 1: Yeah, you played, possibly the other way around. But certainly
34:08
Speaker 1: I think it improved under Sunak. Certainly with the Windsor framework,
34:11
Speaker 1: I think that was definitely a big plus. But certainly
34:14
Speaker 1: I think until we get i would say politically stable,
34:17
Speaker 1: coherent UK government, one which can actually be relied upon
34:20
Speaker 1: to do what they're going to say. Until that happens,
34:23
Speaker 1: UK will were starting at least would continue to have
34:25
Speaker 1: some form of a political risk premium.
34:27
Speaker 2: And how penherent does the EU look at the moment
34:30
Speaker 2: a little upset there?
34:31
Speaker 1: I think we'll known three weeks after the French election,
34:34
Speaker 1: won't we look? I would say, I think it must
34:36
Speaker 1: be a fascinating time to be a political scientist. I'm
34:39
Speaker 1: sure they're finding a lot to talk about. You've seen
34:42
Speaker 1: right wing parties go from extreme right wing parties go
34:46
Speaker 1: from prolling five percent five years ago to nearly twenty
34:49
Speaker 1: five percent in the recent elections.
34:50
Speaker 2: How are we defining extreme right wing?
34:52
Speaker 1: Well, that's anti immigration, et cetera. And I do find
34:57
Speaker 1: that interesting in the sense that.
34:59
Speaker 2: Okay, hang on, no, we we've got to go back,
35:00
Speaker 2: We got to go back. Is being anti immigration extreme
35:03
Speaker 2: right wing?
35:04
Speaker 1: I wouldn't. Personally, I wouldn't, but that seems to be
35:06
Speaker 1: what they're called. That seems to be the nomenclature at
35:08
Speaker 1: the moment, Okay, but anyway, it is a movement one
35:10
Speaker 1: can say that.
35:11
Speaker 3: Yeah.
35:12
Speaker 1: Well, I think what's super interesting is that it's gone
35:14
Speaker 1: from five to twenty five percent in the European parliamentary elections,
35:18
Speaker 1: where if you look at say the Green Party has
35:20
Speaker 1: been stuck at between five and eight percent for the
35:23
Speaker 1: last forty years. You know, so you are seeing some
35:26
Speaker 1: very significant changes in Europe's political makeup. I think there's
35:29
Speaker 1: there's no question about that. Is the center holding yes
35:32
Speaker 1: for the moment, but you know, you're definitely seeing a
35:35
Speaker 1: big shift in terms of the political governance in at
35:38
Speaker 1: least in Europe where that lead leads to changes from
35:41
Speaker 1: a policy perspective, i'mentirely sure. But for sure you're going
35:44
Speaker 1: to get, I think from the EU, probably more cogent
35:47
Speaker 1: and coherent response towards migration. I think that's kind of
35:50
Speaker 1: going to come down the line.
35:51
Speaker 2: Okay, But for the moment, you'd rather hold the pounds.
35:53
Speaker 3: Than the era.
35:54
Speaker 1: Yeah, for sure, at least until you know the UK election,
35:57
Speaker 1: and probably don until September. We'll see how things go.
36:00
Speaker 2: Let's stick with currencies for the moment and talk about
36:04
Speaker 2: the ultimate currency, the currency of all currencies, the king
36:07
Speaker 2: of currencies. Gold. Normally, you wait until the very end
36:10
Speaker 2: of the podcast with us and we just would you
36:12
Speaker 2: choose gold or bitcoin if you had to hold something
36:14
Speaker 2: for a decade, And most people say gold, some people
36:16
Speaker 2: say bitcoin. But I'm going into it now because I
36:19
Speaker 2: know that you are a genuine.
36:20
Speaker 1: Gold bug, right, yeah, I mean, you know, as a bank, obviously,
36:24
Speaker 1: you know, being a private bank, gold is a big
36:26
Speaker 1: component of what we do. And certainly, yeah, I think
36:28
Speaker 1: if I compare gold to bitcoin, and obviously I would
36:30
Speaker 1: vote for gold in that sense. I started looking at
36:33
Speaker 1: bitcoin in twenty eleven. You know it's a good thirteen
36:36
Speaker 1: years ago and at the time it had any number
36:39
Speaker 1: of reasons why to buy it. You know it's going
36:41
Speaker 1: to be the new money, ease of transaction, that last
36:44
Speaker 1: or of value, and truth be told, it's done nothing.
36:47
Speaker 1: I'll make the analogy. If bitcoin is the answer, then
36:49
Speaker 1: what's the question.
36:50
Speaker 2: Yeah, we've asked that on this podcasts before, and we
36:53
Speaker 2: do get various questions, but none of them are ones
36:55
Speaker 2: that we considered to be life changing so.
36:57
Speaker 1: Far fun You know, we struggle with it, and so
36:59
Speaker 1: I I don't really get what it does. I don't think.
37:01
Speaker 1: I don't really see what it's replacing, and is it
37:03
Speaker 1: doing so in a more efficient manner? I would say
37:06
Speaker 1: no at the moment.
37:06
Speaker 2: I must interrupt to ask you started looking at it
37:08
Speaker 2: in twenty eleven, did you buy any I didn't.
37:11
Speaker 1: Where's it pity? I didn't because I didn't believe in it,
37:16
Speaker 1: and I still don't. I won't buy it. So you
37:19
Speaker 1: could argue that both ways.
37:20
Speaker 2: But you don't have to believe in stuff to let
37:23
Speaker 2: make you rich. You believe it's not required.
37:26
Speaker 1: It isn't for everybody, but I like to I like
37:28
Speaker 1: to really know what I'm buying personally speaking, and I
37:30
Speaker 1: like to buy it because, look, if you make money
37:33
Speaker 1: grade but if you make mistakes, you're making them for
37:35
Speaker 1: the right reasons or you learn from it.
37:37
Speaker 3: But on go.
37:37
Speaker 1: Look, I think there's a few things to say. The
37:39
Speaker 1: first is that we're seeing an explosion in dead and
37:43
Speaker 1: deficits in developed market economies, right, and that historically has
37:48
Speaker 1: been dealt with through one of two ways, either inflation
37:50
Speaker 1: or through some form of default. You have obviously increasing
37:53
Speaker 1: populism in many Western economies. You've got governments which seem
37:57
Speaker 1: to have simply just forgotten about my death. It's matter
38:00
Speaker 1: in debt matters. And as a result of that, I
38:02
Speaker 1: think people look at gold and they think, okay, if
38:05
Speaker 1: you know, if all these promises about repaying this debt,
38:07
Speaker 1: you know, don't come true, probably make some sense to
38:10
Speaker 1: some gold. You've got to look at what central banks
38:12
Speaker 1: are doing. Central banks have added over one thousand tons
38:15
Speaker 1: of physical gold each year twenty twenty two to twenty
38:17
Speaker 1: three and going on to this year as well as
38:20
Speaker 1: most likely, which is probably three times the pre twenty
38:22
Speaker 1: twenty two rate. So central banks primary by the way,
38:26
Speaker 1: emerging market central banks are buying gold and that tells
38:29
Speaker 1: you something. It tells you that they are less convinced
38:33
Speaker 1: about the ability of various governments to repay you debt.
38:37
Speaker 1: It tells you that they're worried about geopolitics. It tells
38:39
Speaker 1: you you know that they're worried. And in that context,
38:42
Speaker 1: I think you've got an increase in structural demand for gold.
38:45
Speaker 1: You obviously got an increase in gold from on the
38:47
Speaker 1: consumer side, particularly in China, which you saw this year,
38:50
Speaker 1: which I think is probably a very intelligent hedge from
38:52
Speaker 1: by local people on the currency in the one and
38:54
Speaker 1: also indeed probably an alternative asset to the local domestic
38:57
Speaker 1: property market. So overall, I think they're very good reasons
39:00
Speaker 1: to buy gold. There are new buyers in town, and
39:02
Speaker 1: structurally speaking, I think you're adding incremental increases in demand
39:07
Speaker 1: into what is still largely a fixed supply, and that
39:11
Speaker 1: means the price is only going to go one way.
39:12
Speaker 1: It's going to go higher. And how do you hold
39:14
Speaker 1: it On a banking level, we do VITFM, or people
39:17
Speaker 1: can do by via holding physical I think from my perspective, look,
39:20
Speaker 1: if you're a more tactical investor, doing a VITFS is
39:24
Speaker 1: a great way because it's simply more liquid and easier
39:26
Speaker 1: to do, and probably with substantially lower transaction costs. So
39:29
Speaker 1: that's how I do it personally.
39:30
Speaker 2: And what about other precious metals, silver, platinum, etc. We
39:34
Speaker 2: have a lot of lessoners who are very interested in silver.
39:37
Speaker 1: Look, I will tell you the following. Silver historically is
39:40
Speaker 1: traded with a high beat of the gold, and if
39:43
Speaker 1: we look at it in the last year, it actually
39:45
Speaker 1: underperformed gold pretty much until late March this year April,
39:50
Speaker 1: and then at really rallied big time. It went from
39:52
Speaker 1: roughly twenty six dollars per rounds all the way up
39:54
Speaker 1: to thirty two. I think we're trading around twenty nine
39:56
Speaker 1: at the moment, but I think the outlook is still
39:58
Speaker 1: pretty good. If you think that the go silver ratio
40:00
Speaker 1: gets back to historical levels, it's kind of sixty eight
40:04
Speaker 1: or seventy dot puts silver firmly around thirty three to
40:08
Speaker 1: thirty four dollars parantz. And this is before we consider
40:12
Speaker 1: what's happening with Visa VI. Silver's use in the photovoltaic sector,
40:16
Speaker 1: so basically in the solar sector, where if you look
40:18
Speaker 1: at any outlook over the longer term, silver usage is
40:21
Speaker 1: looking to increase very substantially. So on that basis alone,
40:25
Speaker 1: I think having some silver makes sense. I could easily
40:27
Speaker 1: see it going to thirty eight forty bucks announced pretty easily.
40:31
Speaker 1: The issue you've got to contend with as an investor
40:33
Speaker 1: is that its volatility is pretty high. Three month applied
40:35
Speaker 1: ball in silver is probably historically in the region of
40:38
Speaker 1: twenty twenty five percent, So it's high. And consequently, if
40:41
Speaker 1: you're looking just to minimize vall on a portfolio, you've
40:44
Speaker 1: got to scale your bed accordingly.
40:45
Speaker 2: Gold it is, then, Peter, is there anything else? Because
40:48
Speaker 2: I can't ask you the final question gold or bitcoins,
40:51
Speaker 2: we've already done it. So let me just ask you this.
40:54
Speaker 2: If you could take an asset and it's not UK
40:57
Speaker 2: assets because we've discussed it, and it's not Japanese actually
41:00
Speaker 2: we've discussed that, it's not one of the currencies we've discussed,
41:03
Speaker 2: and it's not golden, it's not bitcoin, what would be
41:05
Speaker 2: next on your list?
41:07
Speaker 1: Unquestionably it would be copper. Oh, okay, without question, would
41:11
Speaker 1: be copper.
41:11
Speaker 2: Yeah, all right, two minutes on copper. Thank you.
41:14
Speaker 1: It's a very very simple outlook, right, we talk about
41:16
Speaker 1: green transition metals and look the truth of the matter,
41:19
Speaker 1: it's copper is the transition metal, and when you look
41:23
Speaker 1: at it, you've got a very constricted supply. You've got
41:26
Speaker 1: various problems opening new comper minds, et cetera. It is
41:30
Speaker 1: unquestionably going to be a very substantial supply squeeze over
41:34
Speaker 1: the coming years, no question about that. And I do
41:36
Speaker 1: find it interesting just looking at open interests in the
41:38
Speaker 1: futures market. You've obviously seen huge volatility in recent weeks,
41:42
Speaker 1: but if we look at if we look at as well,
41:45
Speaker 1: some of the option trades that larger hedgphones are putting on,
41:48
Speaker 1: they're putting on strikes at twenty thousand dollars you know, perton,
41:52
Speaker 1: where it's been trading at aroundswer to ten and twelve
41:54
Speaker 1: thousand per ton. It kind of gives you an idea
41:56
Speaker 1: of where clever sharp money is going. So if there's
41:59
Speaker 1: one asset you know, I was discussed that I wanted
42:01
Speaker 1: to buy or have bought, copper is definitely that badass.
42:04
Speaker 2: Okay, But as a retail investor, just an ordinary investor,
42:07
Speaker 2: how on earth would you get a significant exposure to copper?
42:11
Speaker 1: You probably buy the future. That's that's the way to
42:12
Speaker 1: do it. Very very simple copper future and then just
42:15
Speaker 1: let that run.
42:15
Speaker 2: Okay, Peter, thank you very much, Thank you.
42:24
Speaker 3: John. How did you find that conversation? Did it play
42:27
Speaker 3: to every single one of your prejudices?
42:29
Speaker 4: Actually pretty much? Do you know what it stood out
42:32
Speaker 4: to me most actually as I was reading it, And
42:34
Speaker 4: it's positive for our listeners, assuming that most of our
42:37
Speaker 4: listeners are private investors. The thing that gets me is
42:43
Speaker 4: that everything that Peter will be saying here's about the
42:45
Speaker 4: UK and sort of like I get the impression that
42:48
Speaker 4: his conversion to it is relatively recent. And as long
42:51
Speaker 4: as you're willing to go against the broad opinion that
42:57
Speaker 4: the UK was in some way, you know, kind of
43:01
Speaker 4: just an absolute basket case because of the politics, then
43:05
Speaker 4: you could have acted in all this a lot earlier.
43:09
Speaker 4: And I think that that points to the fact that
43:12
Speaker 4: if you're a someone who manages money for other people,
43:17
Speaker 4: then as well as having good ideas, you have to
43:19
Speaker 4: sell those ideas to the other people, and so it's
43:22
Speaker 4: actually harder for you act before there's already a kind
43:27
Speaker 4: of rationale. And that's why asset managers are always talking
43:29
Speaker 4: about catalysts. You know, at the end of the day,
43:32
Speaker 4: who really cares about a catalyst. If you know, if
43:37
Speaker 4: you're a long term investor, you know you can maybe invest, like,
43:41
Speaker 4: you know, a year ahead of something actually happening. You
43:45
Speaker 4: don't necessarily need to worry about, well, what it's going
43:47
Speaker 4: to make this move in the next quarter, because I'm
43:50
Speaker 4: going to get judged on the next quarters figures.
43:52
Speaker 2: Yeah, well you do if you're a fund manager, but
43:54
Speaker 2: you don't view us. This is, as we always say,
43:56
Speaker 2: the great advantage that the retail investor has a professional
44:00
Speaker 2: fuster is that we have time on our side, and
44:02
Speaker 2: they absolutely don't.
44:04
Speaker 4: Yeah, exactly, So, I mean I think that's I think
44:06
Speaker 4: that's in a way, this whole conversation illustrates the benefit
44:09
Speaker 4: of being a retail investor because you don't have to
44:13
Speaker 4: you know. I mean, these are all good ideas, but
44:15
Speaker 4: like I said, they've been good ideas for a wee while,
44:18
Speaker 4: and you could have acted on them earlier as long
44:20
Speaker 4: as you weren't worrying about what anyone else thought of you.
44:24
Speaker 2: It's interesting the way he says that that when presenting
44:28
Speaker 2: this these ideas to clients, he's still getting a lot
44:30
Speaker 2: of pushback. Well, exactly, they're just they're not they're not
44:35
Speaker 2: accepting it that they're looking at the market going up.
44:37
Speaker 2: They're lying to the Bank of American survey, but you know,
44:40
Speaker 2: in a meeting in a meeting room, they're still they're
44:43
Speaker 2: not having it.
44:43
Speaker 3: They're not having it.
44:45
Speaker 4: I do think it's it's interesting actually look at what's
44:48
Speaker 4: happening with France now as well. So Microns called you
44:53
Speaker 4: know what everyone's calling a no shock election, which as
44:58
Speaker 4: far as he was going to have to call anyway,
45:00
Speaker 4: because his budget wasn't going to get passed. Because that's
45:02
Speaker 4: the state of politics there, and everyone's seeing this sort
45:06
Speaker 4: of like specter of the know, the far right kind
45:10
Speaker 4: of coming and then selling first and asking questions later.
45:13
Speaker 4: But we know what happens here. You know, the European
45:17
Speaker 4: Central Bank has got all the PILs. It needs to
45:20
Speaker 4: do the same thing that central banks all across the
45:22
Speaker 4: world can do, and it's just a matter of how
45:26
Speaker 4: messy the politics gets before things get iron doubt yet
45:31
Speaker 4: again in the Eurozone. But because you bring the political
45:35
Speaker 4: element into it, there's this kind of it's almost like
45:38
Speaker 4: the critical faculties shut down a bit.
45:41
Speaker 2: What did you think about if he's on copper, John,
45:44
Speaker 2: I mean, it was pretty clear on golden bitcoin now
45:47
Speaker 2: mistaken when he felt that, but then he moved into it.
45:50
Speaker 3: I'm very generous, wasn't.
45:51
Speaker 2: I gave him the opportunity to suggest something else, and
45:54
Speaker 2: and he gave us coppy. And we've had We've heard
45:56
Speaker 2: the copper story a lot, and that is one of
45:59
Speaker 2: the few areas of investment where I suspect there is
46:03
Speaker 2: a general consensus copper is a transition metal.
46:06
Speaker 3: Everyone should hold copper one way or another.
46:09
Speaker 4: It's one of those ones where it feels if I've
46:10
Speaker 4: heard this story too many times, and I need someone
46:14
Speaker 4: to come up with a more detailed case for copper now,
46:21
Speaker 4: because it feels like this is very much a consensus trade.
46:23
Speaker 4: And there's one thing having a consensus trade, and something
46:26
Speaker 4: like Navidia, which could go up, you know, forever more
46:29
Speaker 4: because it's American and it's momentum. But copper is a
46:33
Speaker 4: commodity if there is an oversupply of it, and you know,
46:37
Speaker 4: the Chinese don't seem using an awful lot of it
46:40
Speaker 4: at the moment, and you know, there's lots of complexities
46:44
Speaker 4: around the supply and demand for commodities and the and
46:47
Speaker 4: the big picture story of oh, you know, data is
46:50
Speaker 4: the new oil. Copper is the new is the new
46:53
Speaker 4: Oyal's just is too. It reminds me too much of
46:56
Speaker 4: peak oil. That was a great story when it started,
47:00
Speaker 4: but it was a terrible story, I believe whenever it
47:02
Speaker 4: was about to end. And I feel that there's a
47:05
Speaker 4: ask the corpop just knows in that situation, and I'm
47:08
Speaker 4: not I'm not keen to just take the big picture theme.
47:13
Speaker 4: I'd need they event in the details before I actually
47:16
Speaker 4: put more money on it.
47:18
Speaker 2: Yeah, I mean, had peaks of live oil every year
47:20
Speaker 2: these days, don't we so peak oil? We started writing
47:23
Speaker 2: about peak oil I think twenty years ago or something,
47:25
Speaker 2: Boy wherever wrong.
47:26
Speaker 3: But we went wrong with people who told us we're wrong.
47:27
Speaker 3: What do we know about oil floods?
47:30
Speaker 2: And you'd only need a little kind of change in
47:32
Speaker 2: the direction of the energy transition to things to change.
47:37
Speaker 2: I mean at the moment we say everything is about copper,
47:40
Speaker 2: because everything is about building the grid out, Everything is
47:43
Speaker 2: about new pylons, everything is about new transmission lines.
47:46
Speaker 3: Et cetera. What if what if.
47:48
Speaker 2: There was a shift, as I wrote in a column
47:50
Speaker 2: a few weeks ago, there was a shift to localize
47:53
Speaker 2: nuclear plants, Then you wouldn't need so much copper. What
47:57
Speaker 2: if there was a shift to someone was explaining to
47:59
Speaker 2: me about about how ammonia, how ammonia is used as
48:02
Speaker 2: an energy source, and how transportable that is without the
48:05
Speaker 2: great etc. You know, if we're going down a wrong
48:07
Speaker 2: path at all, any pullback from that suddenly makes copper
48:11
Speaker 2: not the most important metal in the world. Now we're
48:13
Speaker 2: moving way way outside our knowledge base.
48:16
Speaker 3: I think we'd better stop.
48:19
Speaker 4: Good idea, A.
48:20
Speaker 2: Good idea, stop marrion before you get yourself in trouble. Anyway,
48:23
Speaker 2: I enjoyed that conversation with people a lot. I enjoyed
48:26
Speaker 2: having all my prejudices confirmed for me. I think like
48:29
Speaker 2: a bit of confirmation bias in a podcast. You know,
48:31
Speaker 2: we've got to get on someone soon and again. If
48:34
Speaker 2: this is you, if this is you, get in touch
48:36
Speaker 2: someone who absolutely hates the UK market, thinks that we
48:41
Speaker 2: are structurally flawed to the extent that this market can
48:45
Speaker 2: never really come back, that our big companies deserve to
48:49
Speaker 2: be at evaluations of somewhere between ten and twelve times
48:52
Speaker 2: and deserve to have dividend yields of seven, eight, nine,
48:56
Speaker 2: ten percent because they're that awful. They're just going to
48:59
Speaker 2: run down n till they die. Someone who believes that,
49:01
Speaker 2: give us a call. We want to have the other
49:03
Speaker 2: view on Thanks for listening to this week's Maren Talks Money.
49:07
Speaker 3: We move back next week. In the meantime.
49:08
Speaker 2: If you like us, show, rate, review, and subscribe wherever
49:11
Speaker 2: you listen to your podcast and keep sending questions or
49:13
Speaker 2: comments to Marror Money at Bloomberg dot net. This episode
49:16
Speaker 2: was hosted by me Maren Sunset webs It was produced
49:19
Speaker 2: by Somesiety. Additional editing by Moses and Beescial thanks to
49:22
Speaker 2: Peter Kinseller and just as a reminder, you can follow
49:25
Speaker 2: me in John on Twitter. I'm at Maren sw and
49:28
Speaker 2: John is at John Underscore Stepic