WEBVTT - What Would Adam Smith Think About Trump’s Tariffs? 0:00:02.720 --> 0:00:09.640 Bloomberg Audio Studios, podcasts, radio news. Hey you and gentlemen 0:00:09.680 --> 0:00:22.280 and feaz Welcome Marin's Somerset Web. Hello, Maren Talks Money Listeners, 0:00:22.320 --> 0:00:24.720 It's Maren Sunset Web. Before we get back to our 0:00:24.760 --> 0:00:27.520 regular programming in early September, we are bringing you something 0:00:27.680 --> 0:00:30.640 very special, recordings of the conversations I had at Pania 0:00:30.680 --> 0:00:33.600 House for the Edinburgh Fringe Festival. Now, for those of 0:00:33.640 --> 0:00:35.640 you who don't know, the Fringe is a three week 0:00:35.760 --> 0:00:38.440 arts and culture festival that began in nineteen forty seven 0:00:38.479 --> 0:00:41.519 and it takes place in Edinburgh in Scotland every August. 0:00:41.880 --> 0:00:44.640 For the past few years I have been hosting conversations 0:00:44.680 --> 0:00:48.680 about markets, economics and investing from one of the most 0:00:48.760 --> 0:00:52.000 special locations in Edinburgh as part of this festival. I 0:00:52.040 --> 0:00:54.800 do it from Panmia House, which is the last home 0:00:54.840 --> 0:00:57.920 of Adam Smith, philosopher and father of modern economics, is 0:00:57.920 --> 0:01:01.040 where he completed the last editions of his best sellers, 0:01:01.240 --> 0:01:04.000 The Theory of Moral Sentiments and The Wealth of Nations. 0:01:04.680 --> 0:01:06.280 This year we did a three day run was the 0:01:06.400 --> 0:01:08.360 end of August, and we are bringing you the slightly 0:01:08.480 --> 0:01:12.479 edited conversations from those three days. The panel I hosted 0:01:12.520 --> 0:01:15.800 on the first day, featured Bloomberg senior reporter John Steppek, 0:01:16.040 --> 0:01:19.240 Alex Cutler, who's portfolio manager of the August Global Balanced 0:01:19.240 --> 0:01:21.880 and Cautious Funds, and Tom Slater, who's the manager of 0:01:21.920 --> 0:01:23.959 the Scottish Mortgage Investment Trust. 0:01:24.959 --> 0:01:27.680 Right, thank you all very very much for coming. 0:01:27.720 --> 0:01:33.760 I think in some cases again who's been before, new jokes, 0:01:33.840 --> 0:01:36.640 new jokes. 0:01:38.040 --> 0:01:38.760 Everything differently. 0:01:39.440 --> 0:01:41.240 Thank you, and I'm particularly grateful to you because you know, 0:01:41.280 --> 0:01:43.880 we sold out again this year. We sold out incredibly quickly. 0:01:43.880 --> 0:01:46.120 The tickets were gone in a matter of weeks. And 0:01:46.160 --> 0:01:48.200 that allows me and John and me in particular today 0:01:48.440 --> 0:01:51.360 to everybody, I have a sold out show at the 0:01:51.360 --> 0:01:54.200 Fringe over and over every year, and we say that, 0:01:54.240 --> 0:01:57.800 and we never ever tell anybody how small this venue is. 0:01:58.400 --> 0:02:00.720 And so one thing I would have appreciate from all 0:02:00.760 --> 0:02:03.800 of you, you do not tell people that there are 0:02:03.800 --> 0:02:05.840 only six y of you, because spread the general view 0:02:05.840 --> 0:02:07.960 that you're in something akin to the McEwan Hall would 0:02:07.960 --> 0:02:13.040 be greatful, right, Okay, brilliant, Thank you right onwards. You 0:02:13.200 --> 0:02:15.440 probably all know how this works. What we do is 0:02:15.480 --> 0:02:17.519 we choose an Adam Smith quote each not me obviously, 0:02:17.560 --> 0:02:19.760 because I'm not doing the actual work here today, these 0:02:19.800 --> 0:02:22.840 three each choose their favorite Adam Smith quote. I asked 0:02:22.880 --> 0:02:24.880 them to tell us the quote, which they will all 0:02:24.919 --> 0:02:27.040 read from their phones because they no longer have the 0:02:27.080 --> 0:02:28.400 attentions pan to memorize them, and. 0:02:30.280 --> 0:02:32.840 Then we will discuss the quote, right my guess. 0:02:33.200 --> 0:02:35.760 Farst side, I have Tom Stater, who is the manager 0:02:35.840 --> 0:02:40.679 of Scottish Morge's Investment Trust, who holds that an airport failure. Sean, yeah, yes, 0:02:43.240 --> 0:02:43.720 I don't. 0:02:45.000 --> 0:02:47.680 We'll get onto that my loft. 0:02:47.720 --> 0:02:51.120 Alec Cutlow is the manager of the Aubist Global Balance 0:02:51.160 --> 0:02:53.880 Fund and the multi asset funds there. You've been on 0:02:53.880 --> 0:02:56.000 the podcast several times before, so those of you who 0:02:56.000 --> 0:02:57.840 listen to the podcast will already know Alec well and 0:02:57.880 --> 0:03:01.160 Tom quite well actually. And on my right of course, 0:03:01.280 --> 0:03:03.040 John Steppek, who is what are you now? 0:03:03.080 --> 0:03:03.320 John? 0:03:03.919 --> 0:03:07.040 I am a senior reporter at Bloomberg, and I'm the 0:03:07.160 --> 0:03:09.440 author of the Money Distilled newsletter, which I think may 0:03:09.440 --> 0:03:11.680 have mentioned already at some point based excellent and you. 0:03:11.639 --> 0:03:14.320 Should say not for it, but it is behind the paywall, 0:03:14.320 --> 0:03:16.760 but the subscription is very very very good, valuable. 0:03:17.200 --> 0:03:20.920 I wanted to see who who owns the orbiscool balanced fund. 0:03:21.000 --> 0:03:22.120 I saw all kinds of hair. 0:03:23.800 --> 0:03:25.720 Who owns the almost global balanced fund? 0:03:26.080 --> 0:03:30.720 Trust me by the end of today, rushing out, rushing 0:03:30.720 --> 0:03:34.040 out wealth, managing the audience. Be ready, right, We're going 0:03:34.080 --> 0:03:35.800 to start with as I can't remember who's going to start. 0:03:35.840 --> 0:03:37.920 You're going to start, Tom, Let's have your quote. 0:03:39.200 --> 0:03:42.440 Consumption is the sole end and purpose of all production, 0:03:43.000 --> 0:03:45.400 and the interest of the producer ought to be attended 0:03:45.720 --> 0:03:48.800 to only so far as it may be necessary for 0:03:48.920 --> 0:03:52.760 promoting that of the consumer. And I thought, maybe pick 0:03:53.080 --> 0:03:56.960 four or five points as to why that's relevant to today. 0:03:58.680 --> 0:04:05.000 Smith obviously insists that producers exist to serve consumers and 0:04:05.120 --> 0:04:09.000 not the other way around. And yet in much of 0:04:09.000 --> 0:04:12.160 global trade policy today, the focus is squarely on the 0:04:12.480 --> 0:04:17.000 on the producers. So I guess the headlines have been 0:04:17.000 --> 0:04:23.480 dominated by Trump's tariff policy and generally global trade barriers. 0:04:25.040 --> 0:04:28.960 You see it in subsidization of certain industries. I guess 0:04:29.080 --> 0:04:32.720 EU farming subsidies would be another great example of that. 0:04:33.600 --> 0:04:38.760 Yet Smith was was single mindedly focused on the idea 0:04:38.800 --> 0:04:43.520 that production only exists insofar as it makes consumers lives better. 0:04:43.600 --> 0:04:47.320 So I think just a very very clear difference of 0:04:47.400 --> 0:04:50.240 view from the one that policy makers have taken today. 0:04:51.560 --> 0:04:55.440 I think you see it in big tech. I think 0:04:55.480 --> 0:04:58.720 the reason that these these companies have been so successful 0:04:58.760 --> 0:05:03.440 this because and they've they've made consumers lives easier. If 0:05:03.440 --> 0:05:07.159 it's if it's Amazon, it's it's price selection, convenience. They've 0:05:07.200 --> 0:05:11.000 they've given consumers better prices, they've given consumers greater selection, 0:05:11.120 --> 0:05:14.800 They've they've given consumers greater convenience, and and and being 0:05:14.839 --> 0:05:18.279 extraordinarily successful on the back of it. But obviously the 0:05:18.320 --> 0:05:22.080 debate today is whether these technology companies have become too big, 0:05:22.120 --> 0:05:26.120 whether their ability to generate profits from all different parts 0:05:26.160 --> 0:05:28.680 of their business is no longer aligned with that you 0:05:28.720 --> 0:05:31.960 know what Smith would focus on in terms of just 0:05:32.480 --> 0:05:35.359 producing that sort of consumer surplus. Even see it in 0:05:35.360 --> 0:05:38.240 the pharmaceutical industry and healthcare and drug pricing, and how 0:05:38.279 --> 0:05:41.120 do you get the balance between and maximizing the value 0:05:41.160 --> 0:05:44.440 for consumers there, who are of course patients, versus giving 0:05:44.640 --> 0:05:48.120 for giving the company's sufficient profits to invest in R 0:05:48.160 --> 0:05:50.360 and D and in developing new drugs, And how is 0:05:50.400 --> 0:05:53.640 that burden shared. I think climate change and climate policy 0:05:53.760 --> 0:05:57.480 is is almost an extreme example of this that you know, 0:05:57.560 --> 0:06:01.360 if if we were you know, us focus on consumers. 0:06:01.640 --> 0:06:05.680 Then we would of course take these the extremely low 0:06:05.760 --> 0:06:12.119 price solar panels from China, extremely low priced electric vehicles 0:06:12.160 --> 0:06:16.280 from China, and consumers will be deploying this technology and 0:06:16.320 --> 0:06:20.360 incredibly rapid rate. Again, Smith would to say, you focus, 0:06:21.560 --> 0:06:23.080 the only reason we're doing all of this is to 0:06:23.120 --> 0:06:24.359 make consumers lives better. 0:06:24.520 --> 0:06:28.040 But I suppose that what policymakers would say to today 0:06:28.120 --> 0:06:30.839 is that it's inconceivable that Adam Smith could have imagined 0:06:30.880 --> 0:06:33.560 the type of world that we have today, interconnected in 0:06:33.600 --> 0:06:37.160 the way that it is. And policymakers would say that 0:06:37.200 --> 0:06:41.200 by protecting producers and by putting up security walls around 0:06:41.279 --> 0:06:45.840 various industries, they are protecting consumers much longer term. And 0:06:45.920 --> 0:06:49.240 by having productive industries inside their borders, they're creating the 0:06:49.279 --> 0:06:56.080 incomes that then create consumers. And without those walls and barriers, 0:06:56.120 --> 0:06:58.839 you may end up with countries that have consumers with 0:06:58.960 --> 0:07:03.400 no actual to consume it. So you can look at 0:07:03.400 --> 0:07:05.200 it from the other side as well, that that Smith 0:07:05.320 --> 0:07:07.440 this quote was both designed for a different world. 0:07:08.160 --> 0:07:14.000 Yeah you could, I guess one. So, So I was 0:07:14.040 --> 0:07:17.160 here three months ago, four months ago, and Sir John 0:07:17.240 --> 0:07:19.720 ka was was talking and He made the point that 0:07:20.920 --> 0:07:24.880 we sort of have come to fetishize manufacturing or heavy 0:07:24.920 --> 0:07:28.880 industrial manufacturing, and actually, do we do we really do 0:07:28.920 --> 0:07:31.040 we really need it? Do we really want it? You know, 0:07:31.080 --> 0:07:34.040 if you take the COVID vaccine as an extreme of that, 0:07:34.600 --> 0:07:41.640 you know, this, this this tiny, almost microscopic product which 0:07:41.640 --> 0:07:45.679 had extreme value. You should we not be focusing on 0:07:45.680 --> 0:07:50.440 on those, you know, the intellectual property, intellectual production. And 0:07:50.760 --> 0:07:53.800 yet you know we government policy is so focused on 0:07:54.360 --> 0:07:58.320 you know, heavy industrial making, machines, manufacturing. 0:07:59.720 --> 0:08:03.520 You know why it seems like be able to answer 0:08:03.560 --> 0:08:06.120 that question, Well, it seems like where the where it 0:08:06.120 --> 0:08:09.080 comes out is when when one country is effectively attacking 0:08:09.120 --> 0:08:14.320 you using subsidies to kill off your industrial base and 0:08:14.840 --> 0:08:19.000 then have an amazing gain in the future after they 0:08:19.000 --> 0:08:21.200 put you out of business and you can't get it back. 0:08:22.120 --> 0:08:24.400 And I suppose you could take it back to Tom Wadge, 0:08:24.400 --> 0:08:26.400 you said about you know, why would we not use 0:08:26.440 --> 0:08:29.160 all the cheap solar panels coming out of China. But 0:08:29.240 --> 0:08:32.320 that's the most mrcintilis country that we've seen in many, 0:08:32.400 --> 0:08:35.160 many decades, and they now have their own very difficult 0:08:35.240 --> 0:08:37.880 problem which they have a very low level of consumption 0:08:37.960 --> 0:08:40.800 which they're not desperately trying to fix. So does it 0:08:40.880 --> 0:08:45.280 make sense for us to absorb all the products from 0:08:45.360 --> 0:08:47.839 such a hugely mrcantilis country. 0:08:48.960 --> 0:08:49.440 Long time. 0:08:50.160 --> 0:08:52.000 Well, on the specific one, it depends how worried you 0:08:52.000 --> 0:08:54.240 are about climate change, I guess, and how quickly you 0:08:54.320 --> 0:08:58.720 think we should be going through that transition. But there's 0:08:58.800 --> 0:09:00.880 there also has to be a degree of realism about this, 0:09:01.080 --> 0:09:05.080 that that they have an industry producing, producing all the 0:09:05.080 --> 0:09:08.280 equipment that you need to generate energy from renewable sources 0:09:08.840 --> 0:09:11.400 that's on a completely different scale and a completely different 0:09:11.400 --> 0:09:15.679 cost base from everybody else. Now we can we can 0:09:15.720 --> 0:09:18.880 debate where we've got to, but if that there is 0:09:18.920 --> 0:09:21.760 no part of the supply chain and in most form 0:09:21.800 --> 0:09:25.079 of renewable energies that the Chinese don't dominate some part of, 0:09:25.920 --> 0:09:28.080 so you know, we have to accept that trade off. 0:09:28.840 --> 0:09:32.839 It is interesting though, because I do weirdly enough, I 0:09:33.080 --> 0:09:35.480 was looking at the chapter on tariffs a couple of 0:09:35.520 --> 0:09:37.679 days ago because I was acused to see if you'd 0:09:37.679 --> 0:09:40.160 said and he didn't say any quite pathy enough for 0:09:40.240 --> 0:09:42.840 an actual quote with the Chapter's quite interesting because the 0:09:42.840 --> 0:09:45.559 issues that he raises, although he is the kind of 0:09:45.600 --> 0:09:49.520 free trade guy, and he's kind of anti cantialism, where 0:09:49.559 --> 0:09:52.320 he says it might be okay, he talks about defense, 0:09:52.920 --> 0:09:55.760 So there's a bit we're just talking about how basically 0:09:55.800 --> 0:09:58.480 I didn't kind of fully understand it, but Britain's kind 0:09:58.480 --> 0:10:01.959 of navy was protected, and what they were doing was 0:10:02.000 --> 0:10:04.719 basically trying to avoid the Dutch from having a monopoly 0:10:05.240 --> 0:10:08.960 on the kind of various sea trades. And he said 0:10:09.320 --> 0:10:14.400 that this isn't very helpful for effective for consumers, but 0:10:14.480 --> 0:10:17.600 it's a really good policy because it stops the Dutch from, 0:10:17.679 --> 0:10:21.440 who are enemies, basically from you know, getting a strangle 0:10:21.440 --> 0:10:24.559 hold on this important trade route. And the other issue 0:10:24.559 --> 0:10:27.559 he did bring up interestingly was employment, which this kind 0:10:27.559 --> 0:10:30.360 of surprising me actually, but he did talk about almost 0:10:30.440 --> 0:10:34.120 exactly the thing that people in Middle America and in 0:10:34.440 --> 0:10:36.880 you know, bits of Britain, post industrial bits of Britain 0:10:36.960 --> 0:10:41.720 like Glasgow and Liverpool, talk about where you demolish an 0:10:41.720 --> 0:10:44.560 industry so rapidly by opening it up to competition that 0:10:44.600 --> 0:10:49.760 you create social uphaval. Now, I mean, Smith didn't really 0:10:50.280 --> 0:10:51.800 kind of make a big deal of that. He didn't 0:10:51.800 --> 0:10:53.400 think it was going to be a big problem because 0:10:53.400 --> 0:10:55.680 he assumed that there'll be a lot of other employment 0:10:55.720 --> 0:10:58.559 for most people to go into. And I think probably 0:10:58.600 --> 0:11:01.559 either there was at the time, or or or probably 0:11:01.600 --> 0:11:03.760 people just didn't really care as long as the lower 0:11:03.920 --> 0:11:07.199 orders were, you know, involved in employment in some way, 0:11:07.240 --> 0:11:09.080 even if it was FAMI labor. And but just think 0:11:09.120 --> 0:11:12.720 it's really interesting that the same qualms even then are 0:11:12.760 --> 0:11:15.360 basically the exact same ones that we've got today, and 0:11:15.520 --> 0:11:19.679 we kind of still haven't found a solution or a 0:11:19.720 --> 0:11:22.520 satisfactory solution. But I think if you look at China 0:11:22.559 --> 0:11:25.040 as an enemy, I don't mean an enemy enemy, but 0:11:25.240 --> 0:11:28.360 I think you know that threat, you know that's threat. 0:11:29.320 --> 0:11:32.280 It's sort of like Coldish War type thing, then maybe 0:11:32.360 --> 0:11:37.280 some you know, retreat from globalization is I guess justified 0:11:37.320 --> 0:11:38.600 from from that point of view. 0:11:39.880 --> 0:11:42.600 It's a wonderful scart stories recently about renewable energy product 0:11:42.640 --> 0:11:44.959 coming from China. I'll be able to turn off the turbines, 0:11:45.800 --> 0:11:46.880 shut down the panels. 0:11:47.200 --> 0:11:50.319 Is that possible? I don't know. 0:11:50.360 --> 0:11:53.000 If you put have you put Chinese kit in the system, sure, 0:11:53.520 --> 0:11:57.480 transformers and switches, you can do it. That's why you 0:11:57.520 --> 0:12:01.280 need to buy German from Zemens. Energy needed by Germans. 0:12:03.600 --> 0:12:06.520 They would never know. Germans have always been our friend. 0:12:08.840 --> 0:12:10.440 I'm going to take that as a perfect time to 0:12:10.480 --> 0:12:12.160 move on to your quote I say I was. 0:12:12.120 --> 0:12:13.440 Going to change my mind. 0:12:13.800 --> 0:12:21.240 Okay, sure, science is the greatest antidote to the poison 0:12:21.720 --> 0:12:27.320 of enthusiasm and superstition. And I love that quote because 0:12:27.640 --> 0:12:30.280 it says to me that Adam Smith was the first 0:12:30.280 --> 0:12:35.400 contrarian where you're looking for from the investing context, what 0:12:35.480 --> 0:12:38.680 we do every day is try and find where society 0:12:38.760 --> 0:12:42.319 is just run off in a direction, using their imagination, 0:12:43.240 --> 0:12:46.679 not weighed down by facts or physics, to come up 0:12:46.679 --> 0:12:48.520 with something that we should all be doing. 0:12:49.559 --> 0:12:50.719 Give us an example. 0:12:51.640 --> 0:12:53.400 It's really hard to think of one, but I think 0:12:53.440 --> 0:12:57.800 the war on carbon might be a good one. And 0:12:58.600 --> 0:13:02.360 if you invest into that, or you search that and say, well, 0:13:02.400 --> 0:13:04.920 this is impossible. You can't have a grid that's entirely 0:13:05.000 --> 0:13:09.239 dependent on wind and solar, it's not going to work physically. 0:13:10.160 --> 0:13:12.640 You can invest against that, and then when the physics 0:13:12.640 --> 0:13:20.199 finally determine that your superstition and enthusiasm aren't really working out, 0:13:20.240 --> 0:13:23.400 you can make money doing that. What was interesting about 0:13:23.400 --> 0:13:27.600 this quote is superstition made sense, particularly in his time. 0:13:27.679 --> 0:13:31.120 They were still burning witches for the first half of 0:13:31.120 --> 0:13:34.800 his life, so that kind of he was probably followed 0:13:34.880 --> 0:13:36.960 enough logic to think that probably wasn't a good idea. 0:13:37.480 --> 0:13:41.680 But enthusiasm seemed like a really weird word. And Laura, 0:13:41.960 --> 0:13:44.320 my wife, was sitting in the front row. We were 0:13:44.360 --> 0:13:50.960 at lunch yesterday with Sir David Edward, who's a lawyer 0:13:51.000 --> 0:13:56.480 in town, and he said, in the during the Scottish Enlightenment, 0:13:57.320 --> 0:14:03.720 enthusiasm was code for zelotry tree. That's that's unbounded by logic. 0:14:04.800 --> 0:14:06.280 So I don't know why they just didn't call it, 0:14:06.320 --> 0:14:09.600 tell it try, but enthusia, enthusiasm was the word they used. 0:14:10.480 --> 0:14:12.880 Okay, so you are now saying, I sit with the 0:14:12.880 --> 0:14:16.240 renewable energy as your example. You now feel that the 0:14:16.400 --> 0:14:20.360 enthusiasm for it has hito a rule of physical physical 0:14:20.360 --> 0:14:22.320 reality when it comes to the grid. 0:14:23.200 --> 0:14:25.880 Well, who has a power bill here in the room? 0:14:26.200 --> 0:14:29.480 Who pays a power bills? Have you seen it hit 0:14:29.520 --> 0:14:32.800 the limit yet? And you're by the way, you're you're 0:14:32.840 --> 0:14:35.320 being subsidized more and more and more because the politicians 0:14:35.320 --> 0:14:38.760 don't really want you to see that the physical constraints 0:14:38.760 --> 0:14:42.760 on the grid impacting you in your pocketbook. But I 0:14:42.760 --> 0:14:45.600 think we're certainly seeing it, and we're seeing the governments 0:14:45.640 --> 0:14:48.600 react as you would expect them to. The one thing 0:14:48.640 --> 0:14:51.800 that we as contrionce can can count on is politicians 0:14:51.880 --> 0:14:54.480 changing their mind and that's when we kind of get 0:14:54.480 --> 0:14:57.920 the big payoff. But there is a governor in Maryland 0:14:58.680 --> 0:15:01.640 who passed edicts saying we need to shut down all 0:15:01.720 --> 0:15:06.120 the coal fired power plants in Maryland and then about 0:15:06.440 --> 0:15:10.120 and that was three four years ago. Last month the 0:15:10.160 --> 0:15:12.560 power bills all went up thirty forty percent over the 0:15:12.680 --> 0:15:15.800 ensuing couple of years in Maryland, and he started getting 0:15:15.800 --> 0:15:17.000 heckled because of. 0:15:17.000 --> 0:15:20.320 The coast of subsidizing tabines and because. 0:15:20.040 --> 0:15:23.239 The grid had too much has now too much renewables 0:15:23.240 --> 0:15:25.600 and not enough spinning reserve in it to keep the 0:15:25.760 --> 0:15:28.880 nurse in the system. And he said, well, it's not 0:15:28.920 --> 0:15:31.560 my fault, because that's what politicians say. And they say, well, 0:15:31.600 --> 0:15:33.800 whose fault is it? And he said, it's the utilities 0:15:33.800 --> 0:15:37.920 for shutting down the power plants, so they can change. 0:15:38.040 --> 0:15:40.200 It will never be their fault. But they can go 0:15:40.320 --> 0:15:42.840 to bed one night saying that it's all about renewables. 0:15:42.840 --> 0:15:47.320 We need to shut down biomass and coal fired plants, 0:15:47.360 --> 0:15:49.560 and then they can wake up the next morning and 0:15:49.840 --> 0:15:53.080 you could have your Prime minister come up the next 0:15:53.080 --> 0:15:55.160 morning and say I am the champion of north sea 0:15:55.520 --> 0:15:59.320 natural gas. There are no limits to what politicians can do. 0:16:00.040 --> 0:16:01.120 Okay, so what's the solution? 0:16:01.200 --> 0:16:03.200 I mean, Tom, Tom says, what really matters here is 0:16:03.240 --> 0:16:05.280 how much you care about climate change, how much you 0:16:05.600 --> 0:16:08.720 how much you think we should effectively suffer in order 0:16:08.720 --> 0:16:09.880 to attempt to mitigate it. 0:16:10.440 --> 0:16:11.760 What would you say the solution is? 0:16:12.960 --> 0:16:14.720 I'd say the solution is what we're seeing now, and 0:16:14.760 --> 0:16:21.000 that's a that's the physicists and grid engineers and chemists 0:16:22.320 --> 0:16:27.080 and quite frankly, the oil companies and the utilities finally 0:16:27.120 --> 0:16:30.280 getting their seat at the table. No one's no engineers 0:16:30.280 --> 0:16:34.120 are invited to the seat at the platitude table. They 0:16:34.120 --> 0:16:37.240 didn't get They get invited afterwards when the platitudes blow 0:16:37.320 --> 0:16:40.120 up in our face. And they're now being invited to 0:16:40.160 --> 0:16:44.600 the table, and they're they're starting to craft an appropriate 0:16:45.000 --> 0:16:50.280 grid that has diverse energy sources feeding into it so 0:16:50.320 --> 0:16:54.280 you can actually have reliable, attractively priced energy. 0:16:54.760 --> 0:16:59.480 Okay, I have got another example of yours. 0:17:00.640 --> 0:17:03.680 This is what we do for a living. So ten 0:17:03.760 --> 0:17:07.960 years ago in Europe, we don't need defense to the 0:17:08.000 --> 0:17:10.639 point where and we won't remember this because our memories 0:17:10.640 --> 0:17:14.440 aren't long enough. Europe wanted to pass a thing called 0:17:14.480 --> 0:17:18.240 social taxonomy. Doesn't ever remember what social taxonomy was. It 0:17:18.320 --> 0:17:21.400 was following on the heels of green taxonomy, which still 0:17:21.440 --> 0:17:24.159 exists in Europe, where they said we're going to charge 0:17:24.200 --> 0:17:29.080 anybody who produces carbon and extra tax so that they're 0:17:29.080 --> 0:17:31.840 incentive not to produce something that makes carbon, which of 0:17:31.880 --> 0:17:35.160 course makes all your industry leave and go to China, 0:17:35.200 --> 0:17:37.399 who then take over and they'll charge you whatever they 0:17:37.400 --> 0:17:38.960 want when they're the only one who can make ass 0:17:38.960 --> 0:17:42.520 turbans or something. So they were going to follow that 0:17:42.640 --> 0:17:46.720 huge success with social taxonomy, which would be applying a 0:17:46.840 --> 0:17:51.399 tax to companies that produce social ill the top of 0:17:51.440 --> 0:18:01.360 the list. Sob Ry Mattal Leonardo Talas, Bae system defense companies. 0:18:01.400 --> 0:18:04.399 This is not I'm not making this up. We're going 0:18:04.440 --> 0:18:06.520 to apply a massive tax on those companies so that 0:18:06.560 --> 0:18:11.159 they decide to produce less. How is that based in 0:18:11.240 --> 0:18:14.280 any kind of rational thought with regard to how the 0:18:14.320 --> 0:18:18.520 world works. And we've seen when Russia invaded Ukraine for 0:18:18.560 --> 0:18:21.679 the second time, people at that time were thinking they 0:18:21.720 --> 0:18:24.159 never invaded them because they didn't have a patch on 0:18:24.200 --> 0:18:26.199 their green suits that had a Russian flag on it, 0:18:26.200 --> 0:18:30.240 so they really didn't invade crimea uh, And now there's 0:18:30.240 --> 0:18:32.679 a we've gone it completely one hundred and eighty degrees 0:18:32.680 --> 0:18:36.439 the other way. We're selling our defense stocks. Oh, by 0:18:36.480 --> 0:18:37.600 the way, just rolling back. 0:18:37.800 --> 0:18:40.480 Because defos because you've had a great rum with them, 0:18:40.480 --> 0:18:41.440 and now they're expensive. 0:18:42.359 --> 0:18:46.080 They're because everyone wants to own them. Yeah, and the 0:18:46.600 --> 0:18:52.480 social responsible funds. Everyone remembers those that slap sustainable on 0:18:52.520 --> 0:18:54.760 the end of your fun name. When they did that, 0:18:54.800 --> 0:18:57.879 they were no longer allowed to hold defense contractors back 0:18:57.960 --> 0:19:02.399 then because they were evil. They've all now decided to 0:19:02.480 --> 0:19:04.320 change their mandates such as that they can on it. 0:19:04.320 --> 0:19:06.119 So we now know that we now know that defense 0:19:06.200 --> 0:19:08.800 is the social good, right, Yes, it comes right down 0:19:08.800 --> 0:19:10.480 to it. There is no more social good than the 0:19:10.520 --> 0:19:13.360 ability to defend yourself. So defense is now elevated from 0:19:13.400 --> 0:19:14.719 the worst thing in the world to the greatest thing 0:19:14.720 --> 0:19:15.120 in the world. 0:19:15.240 --> 0:19:18.880 And ESG has become ESG D. You can't have ESG 0:19:19.000 --> 0:19:22.080 without D. So now we can all own defense contractors 0:19:22.680 --> 0:19:25.760 and we're now selling have been selling those off for 0:19:25.880 --> 0:19:27.120 a couple of years now. 0:19:29.080 --> 0:19:30.120 And replacing them with. 0:19:31.920 --> 0:19:35.879 Right now, we're replacing with biotech. Still have quite a 0:19:35.880 --> 0:19:36.080 bit of. 0:19:36.119 --> 0:19:39.360 Nuclear eating with tom If we're getting into biotech. 0:19:40.800 --> 0:19:46.439 It's fascinating. Biotech is really cool and quite frankly, a 0:19:46.440 --> 0:19:51.200 lot of ourdea our ideas come from the incredible research 0:19:51.240 --> 0:19:55.800 that the the Bailey Diifferts of the world do. It's 0:19:55.920 --> 0:19:58.440 super high quality, and that means that we don't have 0:19:58.480 --> 0:20:01.400 to do it because we're not really small. We're just contrurions. 0:20:01.960 --> 0:20:04.320 We're the ones that we'll run into a burning building 0:20:04.359 --> 0:20:07.119 and check out the art, see what we can get out. 0:20:07.000 --> 0:20:13.119 With gorgeously symbiotic relationship between baches, bus the contreating a 0:20:13.240 --> 0:20:13.399 go on. 0:20:13.440 --> 0:20:15.160 The biotech stuff just is that just because it's. 0:20:15.080 --> 0:20:18.359 Cheap, it's just pure deep value at this point, so 0:20:18.480 --> 0:20:21.880 not thematic you could if it, if it comes big enough, 0:20:21.920 --> 0:20:24.120 then we'll craft a theme around it so we can 0:20:24.119 --> 0:20:26.760 tell a story and people can understand it. But we're 0:20:26.760 --> 0:20:29.280 able to buy biotechs that we're selling at one hundred 0:20:29.359 --> 0:20:33.840 times earnings two years ago for mid teens or in 0:20:33.880 --> 0:20:35.480 some cases single digit multiples. 0:20:36.640 --> 0:20:38.320 What are your big ideas in biotech at the moment. 0:20:38.320 --> 0:20:42.320 Tom, Yeah, it's very kind of say we're very smart, 0:20:42.400 --> 0:20:45.160 But the implication of what you're saying is we've owned 0:20:45.200 --> 0:20:46.840 these stocks that have gone down a very long way 0:20:46.880 --> 0:20:51.040 in the plast couple of years, which is true. But 0:20:51.440 --> 0:20:52.840 I'm one of the things that I think is really 0:20:52.840 --> 0:20:58.359 interesting in biotech is the idea that some of the 0:20:58.800 --> 0:21:01.040 tools that we talk about moreen really things like ai 0:21:01.680 --> 0:21:06.119 I just offer a real hope of addressing some of 0:21:06.200 --> 0:21:10.560 the big challenges in biotech. We're really just scratching our 0:21:11.200 --> 0:21:15.000 scratching the surface of our understanding of, you know, the 0:21:15.760 --> 0:21:22.280 molecular basis of disease, and if we can actually use 0:21:22.359 --> 0:21:26.119 these tools to ingest the huge volumes of information, if 0:21:26.119 --> 0:21:28.280 we can use these tools to automate some of the 0:21:28.320 --> 0:21:32.359 processes which you know today involve a PhD at a 0:21:32.440 --> 0:21:34.840 lab bench with perpettes. If you if you can actually 0:21:34.880 --> 0:21:38.000 start to bring robotics and they into these processes, then 0:21:38.160 --> 0:21:42.919 that you offer out the prospect of massively lowering the 0:21:43.000 --> 0:21:46.120 cost and massively increasing the speed at which you can 0:21:46.160 --> 0:21:49.880 do this research. And I think that's that's the piece 0:21:49.920 --> 0:21:51.200 of it that's most exciting to. 0:21:51.200 --> 0:21:53.719 Me, and that that that's exactly the kind of thing. 0:21:53.720 --> 0:21:56.600 There is this ongoing conversation going on around the AI 0:21:56.720 --> 0:22:00.959 bubble and the extent of cap expending inside AI, and 0:22:01.000 --> 0:22:02.440 the extent to which this is all going to be 0:22:02.480 --> 0:22:06.159 hardby disappointing. But that's kind of that's the kind of 0:22:06.240 --> 0:22:08.640 theme that would suggest there may be not so much 0:22:08.640 --> 0:22:09.520 disappointment in there. 0:22:10.520 --> 0:22:13.080 I think you could be excited about AI without having 0:22:13.080 --> 0:22:15.320 a particularly strong view on that. But if you to 0:22:15.680 --> 0:22:17.960 give you some idea of the scale of what's happening here, 0:22:18.680 --> 0:22:23.800 I think gross fixed capital formation, so all capital investment 0:22:23.920 --> 0:22:27.080 by all companies in the UK is of the order 0:22:27.160 --> 0:22:33.639 of six or seven hundred billion dollars. Microsoft, Apple, Meta 0:22:34.280 --> 0:22:39.200 and Google between the four of them, will spend four 0:22:39.240 --> 0:22:43.080 hundred billion next year. So those four companies will spend 0:22:43.080 --> 0:22:45.920 two thirds of the total capital expenditure of the UK. 0:22:46.640 --> 0:22:50.200