Speaker 1: Welcome to Maren Talk's Money the After Show. This is
Speaker 1: where we unpack all the commentary here in our regular podcast.
Speaker 1: I'm Maren Sunset Web. This week, John Steppeck, senior reporter
Speaker 1: at Bloomberg and offered the daily Money to Silve newsletter,
Speaker 1: which if you haven't subscribed to you by now, you
Speaker 1: must subscribe to. Joins me to discuss my conversation with
Speaker 1: Barry Norris, founder, CEO and CIO of Argonaut. John, what
Speaker 1: did you think?
Speaker 2: I thought it was great, Well.
Speaker 1: That'll do silence now.
Speaker 2: John thought it was great. World done the nice thing.
Speaker 2: But buddy is he is very street and obviously that's
Speaker 2: one thing that people in his bottled the can of
Speaker 2: edge find long short world, do you tend to be
Speaker 2: a bit more four to R eight and the spoken
Speaker 2: than your average point manager. But it's just good to
Speaker 2: hear someone taking in and trying to make some sense
Speaker 2: of particularly the whole kind of like renewable sector and
Speaker 2: basically stating the common sense reality, but then backing it
Speaker 2: up with numbers as well.
Speaker 1: One of those sectors, isn't it where there's an awful
Speaker 1: lot of hope over reality and that we would all
Speaker 1: absolutely love it who would not love it if when
Speaker 1: was the answer to everything, and if wind energy was
Speaker 1: cheap and it could answer all our prayers and get
Speaker 1: us through the energy transition with no problem. Because so
Speaker 1: many people want that, they find it quite hard to
Speaker 1: accept that it might not actually be true.
Speaker 2: Yeah, there's also an idea obviously political side to it
Speaker 2: as well, which makes it hard to have a reasonable
Speaker 2: conversation about it because you're deemed to be talking something
Speaker 2: down if you point out issues about it.
Speaker 1: I going to say, you're immediately treated as though you know,
Speaker 1: you don't want to energy transition, or as there in
Speaker 1: the pocket of big oil if you criticize big wind.
Speaker 2: Yeah, exactly what Barry was saying about wind energy is
Speaker 2: proven like even as we speak to be absolutely correct,
Speaker 2: because you know, for example, like he was talking about
Speaker 2: Orsted and obviously it's had some issues. But also I
Speaker 2: was reading a piece on the Bloomberg Terminal about how
Speaker 2: Semen's Energy has basically had to get a big credit
Speaker 2: line that's partly backstopped by the German government in order
Speaker 2: to fund fixing it's win turbinds. And it's because it's
Speaker 2: found that there's basically lots of potential flaws or actual
Speaker 2: flaws with wind turbines, they need to be sorted out,
Speaker 2: and that would have, you know, basically just cost an
Speaker 2: intermountable amount of money for the company to do if
Speaker 2: it wasn't being subsidized by the government. And people will
Speaker 2: talk about subsidies for fossil fuels and all the rest
Speaker 2: of it. But I think Barrie's getting to the point
Speaker 2: that we're substituting a kind of superior for the energy
Speaker 2: for an inferior form. At least that's what we're trying
Speaker 2: to do, and that is going to go badly.
Speaker 3: The problem we've got at the moment if we've got
Speaker 3: an energy transition where all the products are inferior, so
Speaker 3: evs are inforior to eternal combustion. I know someone will
Speaker 3: tell me they like driving their electric car for five
Speaker 3: miles a day, but evs or are inferior products. Heat
Speaker 3: pumps are inferior products. Wind is an inferior product. So
Speaker 3: in order to get people to use inferior products, you
Speaker 3: require governments to get involved through subsidies, through banning all
Speaker 3: the other more useful products, and you require zero interest
Speaker 3: rates in order for all of these projects to be
Speaker 3: stacked up with zero cost debt in order for equity
Speaker 3: of vesters to make a return.
Speaker 2: And I also think that what it's amazing that this
Speaker 2: isn't talk apit very much. But we keep going on
Speaker 2: a bit of difference between the America and the ist
Speaker 2: of the world in terms of economic performance, and hardly
Speaker 2: anyone or no one ever leads on the fact that
Speaker 2: less than twenty years ago America basically discovered that it
Speaker 2: was sitting there in Saudi Arabia. You know, they had
Speaker 2: like tons of oil and gas that they previously couldn't
Speaker 2: access that they were suddenly able to access. And we
Speaker 2: can of all throw our hands up and say, oh,
Speaker 2: I wonder what America's got going for it? Is it
Speaker 2: because they're more capitalists?
Speaker 3: Well?
Speaker 2: Probably? Is it because they dealt with their banks better
Speaker 2: after two thousand and eight? Yes? Is it anything to
Speaker 2: do with the fact that they're sitting on an absolutely
Speaker 2: massive pile of fossil fuels that are not afraid to use?
Speaker 2: Oh no, surely not. That can't be any to do
Speaker 2: with it. This is not a topic of conversation that
Speaker 2: anyone discusses in adult terms anymore.
Speaker 1: It's interesting, isn't it? Because There's one thing we know
Speaker 1: that history tells us is that all great, all great
Speaker 1: leaps forward are made in times of plentiful, cheap dense energy.
Speaker 1: And if we purposefully move away from that cheap dnse energy,
Speaker 1: which we may have to do, do have to do,
Speaker 1: things change. And we can't deny that making energy expensive
Speaker 1: makes a difference to the way that.
Speaker 2: We grow up exactly. But I mean, to be fair,
Speaker 2: the other things we do also have an alternative and
Speaker 2: is nuclear power. And obviously investors have cott and doointed that.
Speaker 2: And we're having one of the sickly coal excitement moments
Speaker 2: for danium. I think the Camico is finally back at
Speaker 2: whatever price it was whenever in twenty eleven when the
Speaker 2: Fukushima disaster put paid to the last kind of like
Speaker 2: nuclear excitability face. But again that's because that's kind of
Speaker 2: not in the same realm as the kind of inverted
Speaker 2: commas green stuff. Nobody talks about that seriously either, So
Speaker 2: we really are kind of shooting ourselves in the foot
Speaker 2: over a extra and magical thinking in politics and semantics
Speaker 2: is really a big mistake.
Speaker 1: So one of the interesting things about everything that Barry
Speaker 1: said podcast that we did with them is that only
Speaker 1: a couple of days later, we're seeing evidence all over
Speaker 1: the place, not just the Semens thing, but elsewhere that
Speaker 1: he's absolutely right. So as we talked in our introduction
Speaker 1: briefly about this business of the government changing the maximum
Speaker 1: price that can offer in CFD contracts, which is a
Speaker 1: direct result of there being no bids for the projects
Speaker 1: at the last government auction, which was a bit of
Speaker 1: a blow for the UK, and they're renewable power strategy,
Speaker 1: so obviously they've had to have a change, and the
Speaker 1: government has pushed this through saying that this is about
Speaker 1: a global rise in inflation impacting supply change and that
Speaker 1: presented challenges for projects, etc. But various point of course
Speaker 1: is it's about a lot more than just inflation impacting
Speaker 1: supply chains. It's about the fact that, as he says,
Speaker 1: this is simply not an economic sector. And if you
Speaker 1: look at the things that he said, and then you
Speaker 1: look at the way that governments are responding, it's beginning
Speaker 1: to feel like he's the one who's right.
Speaker 2: Yeah, I mean I think so, I feel you can.
Speaker 2: I think the key thing here was Barrie's point that actually,
Speaker 2: even if we you know, build an awful lot more
Speaker 2: wind energy, we don't really have the ability to use
Speaker 2: it because it's only turning up for work because he
Speaker 2: puts it at certain points, and then you still need
Speaker 2: all the backup stuff to back it up. So if
Speaker 2: we are going to end up having to invest a
Speaker 2: lot more startup capital basically in getting these things built,
Speaker 2: then I don't really see why we aren't spending it
Speaker 2: on nuclear reactors, which have got similar planning issues, you know,
Speaker 2: because one thing that lots of people are complaining about
Speaker 2: is that the boomer generation doesn't want to you know,
Speaker 2: have to have the cables necessary to link wind farms
Speaker 2: up to national grid. Well, you know, if we just
Speaker 2: built you know, that a number of nuclear reactors, which
Speaker 2: again you know people hate them as well, and go
Speaker 2: through all the planning pain and getting them done, then
Speaker 2: we'd have a reliable source of electricity and you know,
Speaker 2: they kind of back up the back load electricity that
Speaker 2: we need that's reliable and that you can sweatch on
Speaker 2: at any point and get it. So it just seems
Speaker 2: that there's a lot of capital being misallocated to this sector,
Speaker 2: which is partly because in the zero interestry era, you know,
Speaker 2: this all caught on and the capital misallocation didn't wasn't
Speaker 2: as visible, and now it's becoming incredibly visible.
Speaker 1: So one of the most interesting parts of the conversation
Speaker 1: was about the extent to which even if wind was great,
Speaker 1: we would need any more wind energy. So one of
Speaker 1: the things that Barrier's done is looked at these many
Speaker 1: discrete periods in which wind has been blowing in the
Speaker 1: UK and winds not bling blowing in the UK, and
Speaker 1: what happens, and what he sees is that when the
Speaker 1: wind is blowing in the UK, we already have very
Speaker 1: cheap power, very very cheap power, And when the wind
Speaker 1: is blowing properly, the price of energy in the UK
Speaker 1: goes to zero and below. So when things are going
Speaker 1: well for wind, you actually have a glut of power
Speaker 1: in the UK for which we have no demand because
Speaker 1: we can't store it and we can't export it, so
Speaker 1: it just goes to zero and that's that. So if
Speaker 1: that is already happening when the wind is blowing, then
Speaker 1: why would you put out more wind? And I said
Speaker 1: to him, will I guess maybe the wind blows in
Speaker 1: different places at different times, and that's not really how
Speaker 1: it works. When there's winds wind when there is a wind,
Speaker 1: there isn't wind, so you can't put out more wind farms.
Speaker 1: It does not work like that, And I thought that
Speaker 1: was a very interesting way of looking at We've already
Speaker 1: got a glut of cheap power when the wind is
Speaker 1: blowing that we can't store and we can't export it,
Speaker 1: So why would we build more?
Speaker 2: Genuinely? Slightly aid point? And I guess the only way
Speaker 2: that I can think about it is that in some
Speaker 2: ways it's a zero interest rate phenomenon, like a lot
Speaker 2: of other ideas where and obviously it's a very politicized
Speaker 2: one and therefore the mess allocation of capital, it's kind
Speaker 2: of done by the government, and so you don't you
Speaker 2: don't as rapidly get to the point where someone runs
Speaker 2: out of money, basically, and I think that's basically that
Speaker 2: is the best explanation for it. Beyond that, it doesn't
Speaker 2: make any sense.
Speaker 1: We talked a little bit about batteries, because you know,
Speaker 1: he hears so much about the different types of batteries
Speaker 1: that are under development, and how that thing that talks
Speaker 1: about in terms of, you know, let's not put up
Speaker 1: any more wind farms because we can't store it, et cetera.
Speaker 1: What if we can store it, What if we can
Speaker 1: surely that's the answer. So, you know, Barry and I
Speaker 1: talked a bit about how we can do that, and
Speaker 1: what he said was, you know, please, please don't tell
Speaker 1: me that there's a battery that's just been invented and
Speaker 1: it's going to start storing loads of have or cheaply
Speaker 1: for a long period of time, because in the debate,
Speaker 1: he says, has become very ideological and as far as
Speaker 1: he can see, well, everybody wants that battery to exist.
Speaker 1: We want that battery to exist so badly, but it
Speaker 1: just it just doesn't. It just doesn't. And until it does,
Speaker 1: then this is all all about pointless. And he said,
Speaker 1: you know that the fact that everyone wants this so much,
Speaker 1: and that the stocks or the companies that are involved
Speaker 1: in all these things are constantly recapitalized because people want
Speaker 1: it so badly. That's why so many ESG stocks and
Speaker 1: particularly renewable energy stocks. Barry says, they're just the gift
Speaker 1: that keep on giving because they don't go bankrupt. But
Speaker 1: you know, they go to the edge of bankruptcy, which
Speaker 1: is great, great for the shorts, and then they get recapitalized.
Speaker 1: Here you're going to do it again and again and again,
Speaker 1: writs issue after right sifty have to rights issue, and
Speaker 1: he said, it's just this is a conversation we had
Speaker 1: not on the podcast. He says, you know, that's just
Speaker 1: a beautiful thing for a short seller, and of course
Speaker 1: it's not the kind of thing that people want to hear,
Speaker 1: but it's been working for Barry whos before once has
Speaker 1: been spectacular. That one other thing I wanted to say
Speaker 1: about all the things that we've talked about is a
Speaker 1: lot of what Barrier says is very controversial, and as
Speaker 1: I say, it's things that people don't want to be true.
Speaker 1: So I would encourage everybody to go to the Argonaut
Speaker 1: website website and look at the work the Barrier has
Speaker 1: done on this and look at his data and take
Speaker 1: it from there. He's written a good piece called Britain
Speaker 1: is a Gonner with the Wind, which is, oh, you know,
Speaker 1: quite clever, and in that is all the data. So
Speaker 1: you know, if you if you listen to podcasts and
Speaker 1: feel furious, which I'm sure lots of people will, then
Speaker 1: it's important that you then go and look at the
Speaker 1: data and see the modeling Barriers done, and you can
Speaker 1: try and pit holes in his data rather than disagree
Speaker 1: on an ideological path.
Speaker 2: That fair, that's really sensible, and obviously send in your
Speaker 2: quibbles to John.
Speaker 1: One thing we just say is that Barrier's portfolio is
Speaker 1: very much much position for inflation. He's expecting a high
Speaker 1: for longer, long term inflation re environment. Excuse me, Oh,
Speaker 1: that's what I gathered from what we talked about it.
Speaker 1: And he's a believer as we are, in the idea
Speaker 1: that we're at a turning point in the macro and
Speaker 1: investing regimes.
Speaker 3: We're buying it. But now the last couple of years
Speaker 3: we find that as a result of all of this
Speaker 3: money printing, which yes did get into the real economy
Speaker 3: because the liability of those assets that the central backs
Speaker 3: are buying ended up in terms of expanding bank deposits.
Speaker 3: That resulted in significant inflation. That means that interest rates
Speaker 3: have gone up. And I think what we're seeing and.
Speaker 1: We are going to see higher rates and inflation going forward,
Speaker 1: particularly because of the very high levels of dat across
Speaker 1: the Western world. So if we suddenly find we're moving
Speaker 1: into a disinflation or deflationary environment, then that may have
Speaker 1: some impact on some of the stock seaholds.
Speaker 2: Yeah, I think that belief and our belief is going
Speaker 2: to be tested over the next you know, maybe six months,
Speaker 2: maybe a year, and I you know, I personally I
Speaker 2: think higher for longer and more inflationary than not. But
Speaker 2: it's not It's not my strongest conviction I've ever had
Speaker 2: by a long way. You know. I appreciate the argument
Speaker 2: that on the one hand, governments are massively indebted, which
Speaker 2: points they are more kind of inflationary environment overall. At
Speaker 2: the same time, the monetarists have been right about Everton,
Speaker 2: and you know, they're pointing to you know, kind of
Speaker 2: like deflation coming up. So I just it's I think
Speaker 2: it's what's being flexible about it.
Speaker 1: I suppose the inflationary case is that the second wave hit,
Speaker 1: any type of deflation or recession in our age of
Speaker 1: big government, governments won't be able to hold the line
Speaker 1: and there'll be more printing almost immediately. I think that
Speaker 1: that's the sort of real case for higher for longer,
Speaker 1: isn't it. From a matter first point of view.
Speaker 2: I think that's a good argument, and I think it's
Speaker 2: a reasonable argument, But it kind of boils down to
Speaker 2: what the political environment is like at the time, and
Speaker 2: you know, like obviously with Paul Volker, he was able
Speaker 2: to tackle inflation because by then it really was public
Speaker 2: enemy number one and everyone was you know, I mean,
Speaker 2: nobody was happy about it. But at the end of
Speaker 2: the day, if you had to create the economy to
Speaker 2: get rid of inflation, then it was seen as politically acceptable.
Speaker 2: I suspect that you're writ I think that we'd have
Speaker 2: to go through another cycle of inflation being even worse
Speaker 2: before we got to that point, because one of the
Speaker 2: things for central banks this time around is that this
Speaker 2: is the okay bit. It's like we've got we've still
Speaker 2: got full employment, Inflation is uncomfortably high, but coming down.
Speaker 2: Central banks have kind of been seen to do something,
Speaker 2: but it hasn't actually really hurt anyone except for you know,
Speaker 2: some people with mortgages and at the moment, frankly, you know,
Speaker 2: the addage does that they can afford it. So yeah,
Speaker 2: so I think we could we all get to a
Speaker 2: point where we see recessionally data coming in, the central
Speaker 2: bank's cut too fire, Stevelson starts taking off again. You know,
Speaker 2: that's certainly that's certainly possible, and it is I guess
Speaker 2: can a central case, but it's just not I wouldn't
Speaker 2: want to bet that. How sot to put it?
Speaker 1: Are we we're wearing away from talking about Barry. The
Speaker 1: after Show is supposed to be about Barry.
Speaker 2: Yeah, sorry Bardy, Sorry Barry.
Speaker 1: Thanks for listening to this week's Maren Talks Money the
Speaker 1: after Show. This episode was hosted by Me Maren Sunset
Speaker 1: Web alongside John Steppe. Could I think I stopped in
Speaker 1: the nack of time? It was produced by some Sardi
Speaker 1: additional editing by Blake Maples. Finally, a few of the
Speaker 1: things that John and I have talked about you can
Speaker 1: look at and weep yourself if you go to the
Speaker 1: show notes, we'll have put in a couple of links.