Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Hey you and gentlemen
Speaker 1: and feaz Welcome Marin's Somerset Web. Hello, Maren Talks Money Listeners,
Speaker 1: It's Maren Sunset Web. Before we get back to our
Speaker 1: regular programming in early September, we are bringing you something
Speaker 1: very special, recordings of the conversations I had at Pania
Speaker 1: House for the Edinburgh Fringe Festival. Now, for those of
Speaker 1: you who don't know, the Fringe is a three week
Speaker 1: arts and culture festival that began in nineteen forty seven
Speaker 1: and it takes place in Edinburgh in Scotland every August.
Speaker 1: For the past few years I have been hosting conversations
Speaker 1: about markets, economics and investing from one of the most
Speaker 1: special locations in Edinburgh as part of this festival. I
Speaker 1: do it from Panmia House, which is the last home
Speaker 1: of Adam Smith, philosopher and father of modern economics, is
Speaker 1: where he completed the last editions of his best sellers,
Speaker 1: The Theory of Moral Sentiments and The Wealth of Nations.
Speaker 1: This year we did a three day run was the
Speaker 1: end of August, and we are bringing you the slightly
Speaker 1: edited conversations from those three days. The panel I hosted
Speaker 1: on the first day, featured Bloomberg senior reporter John Steppek,
Speaker 1: Alex Cutler, who's portfolio manager of the August Global Balanced
Speaker 1: and Cautious Funds, and Tom Slater, who's the manager of
Speaker 1: the Scottish Mortgage Investment Trust.
Speaker 2: Right, thank you all very very much for coming.
Speaker 1: I think in some cases again who's been before, new jokes,
Speaker 1: new jokes.
Speaker 2: Everything differently.
Speaker 1: Thank you, and I'm particularly grateful to you because you know,
Speaker 1: we sold out again this year. We sold out incredibly quickly.
Speaker 1: The tickets were gone in a matter of weeks. And
Speaker 1: that allows me and John and me in particular today
Speaker 1: to everybody, I have a sold out show at the
Speaker 1: Fringe over and over every year, and we say that,
Speaker 1: and we never ever tell anybody how small this venue is.
Speaker 1: And so one thing I would have appreciate from all
Speaker 1: of you, you do not tell people that there are
Speaker 1: only six y of you, because spread the general view
Speaker 1: that you're in something akin to the McEwan Hall would
Speaker 1: be greatful, right, Okay, brilliant, Thank you right onwards. You
Speaker 1: probably all know how this works. What we do is
Speaker 1: we choose an Adam Smith quote each not me obviously,
Speaker 1: because I'm not doing the actual work here today, these
Speaker 1: three each choose their favorite Adam Smith quote. I asked
Speaker 1: them to tell us the quote, which they will all
Speaker 1: read from their phones because they no longer have the
Speaker 1: attentions pan to memorize them, and.
Speaker 2: Then we will discuss the quote, right my guess.
Speaker 1: Farst side, I have Tom Stater, who is the manager
Speaker 1: of Scottish Morge's Investment Trust, who holds that an airport failure. Sean, yeah, yes,
Speaker 1: I don't.
Speaker 2: We'll get onto that my loft.
Speaker 1: Alec Cutlow is the manager of the Aubist Global Balance
Speaker 1: Fund and the multi asset funds there. You've been on
Speaker 1: the podcast several times before, so those of you who
Speaker 1: listen to the podcast will already know Alec well and
Speaker 1: Tom quite well actually. And on my right of course,
Speaker 1: John Steppek, who is what are you now?
Speaker 2: John?
Speaker 3: I am a senior reporter at Bloomberg, and I'm the
Speaker 3: author of the Money Distilled newsletter, which I think may
Speaker 3: have mentioned already at some point based excellent and you.
Speaker 1: Should say not for it, but it is behind the paywall,
Speaker 1: but the subscription is very very very good, valuable.
Speaker 4: I wanted to see who who owns the orbiscool balanced fund.
Speaker 4: I saw all kinds of hair.
Speaker 2: Who owns the almost global balanced fund?
Speaker 1: Trust me by the end of today, rushing out, rushing
Speaker 1: out wealth, managing the audience. Be ready, right, We're going
Speaker 1: to start with as I can't remember who's going to start.
Speaker 1: You're going to start, Tom, Let's have your quote.
Speaker 5: Consumption is the sole end and purpose of all production,
Speaker 5: and the interest of the producer ought to be attended
Speaker 5: to only so far as it may be necessary for
Speaker 5: promoting that of the consumer. And I thought, maybe pick
Speaker 5: four or five points as to why that's relevant to today.
Speaker 5: Smith obviously insists that producers exist to serve consumers and
Speaker 5: not the other way around. And yet in much of
Speaker 5: global trade policy today, the focus is squarely on the
Speaker 5: on the producers. So I guess the headlines have been
Speaker 5: dominated by Trump's tariff policy and generally global trade barriers.
Speaker 5: You see it in subsidization of certain industries. I guess
Speaker 5: EU farming subsidies would be another great example of that.
Speaker 5: Yet Smith was was single mindedly focused on the idea
Speaker 5: that production only exists insofar as it makes consumers lives better.
Speaker 5: So I think just a very very clear difference of
Speaker 5: view from the one that policy makers have taken today.
Speaker 5: I think you see it in big tech. I think
Speaker 5: the reason that these these companies have been so successful
Speaker 5: this because and they've they've made consumers lives easier. If
Speaker 5: it's if it's Amazon, it's it's price selection, convenience. They've
Speaker 5: they've given consumers better prices, they've given consumers greater selection,
Speaker 5: They've they've given consumers greater convenience, and and and being
Speaker 5: extraordinarily successful on the back of it. But obviously the
Speaker 5: debate today is whether these technology companies have become too big,
Speaker 5: whether their ability to generate profits from all different parts
Speaker 5: of their business is no longer aligned with that you
Speaker 5: know what Smith would focus on in terms of just
Speaker 5: producing that sort of consumer surplus. Even see it in
Speaker 5: the pharmaceutical industry and healthcare and drug pricing, and how
Speaker 5: do you get the balance between and maximizing the value
Speaker 5: for consumers there, who are of course patients, versus giving
Speaker 5: for giving the company's sufficient profits to invest in R
Speaker 5: and D and in developing new drugs, And how is
Speaker 5: that burden shared. I think climate change and climate policy
Speaker 5: is is almost an extreme example of this that you know,
Speaker 5: if if we were you know, us focus on consumers.
Speaker 5: Then we would of course take these the extremely low
Speaker 5: price solar panels from China, extremely low priced electric vehicles
Speaker 5: from China, and consumers will be deploying this technology and
Speaker 5: incredibly rapid rate. Again, Smith would to say, you focus,
Speaker 5: the only reason we're doing all of this is to
Speaker 5: make consumers lives better.
Speaker 1: But I suppose that what policymakers would say to today
Speaker 1: is that it's inconceivable that Adam Smith could have imagined
Speaker 1: the type of world that we have today, interconnected in
Speaker 1: the way that it is. And policymakers would say that
Speaker 1: by protecting producers and by putting up security walls around
Speaker 1: various industries, they are protecting consumers much longer term. And
Speaker 1: by having productive industries inside their borders, they're creating the
Speaker 1: incomes that then create consumers. And without those walls and barriers,
Speaker 1: you may end up with countries that have consumers with
Speaker 1: no actual to consume it. So you can look at
Speaker 1: it from the other side as well, that that Smith
Speaker 1: this quote was both designed for a different world.
Speaker 5: Yeah you could, I guess one. So, So I was
Speaker 5: here three months ago, four months ago, and Sir John
Speaker 5: ka was was talking and He made the point that
Speaker 5: we sort of have come to fetishize manufacturing or heavy
Speaker 5: industrial manufacturing, and actually, do we do we really do
Speaker 5: we really need it? Do we really want it? You know,
Speaker 5: if you take the COVID vaccine as an extreme of that,
Speaker 5: you know, this, this this tiny, almost microscopic product which
Speaker 5: had extreme value. You should we not be focusing on
Speaker 5: on those, you know, the intellectual property, intellectual production. And
Speaker 5: yet you know we government policy is so focused on
Speaker 5: you know, heavy industrial making, machines, manufacturing.
Speaker 4: You know why it seems like be able to answer
Speaker 4: that question, Well, it seems like where the where it
Speaker 4: comes out is when when one country is effectively attacking
Speaker 4: you using subsidies to kill off your industrial base and
Speaker 4: then have an amazing gain in the future after they
Speaker 4: put you out of business and you can't get it back.
Speaker 1: And I suppose you could take it back to Tom Wadge,
Speaker 1: you said about you know, why would we not use
Speaker 1: all the cheap solar panels coming out of China. But
Speaker 1: that's the most mrcintilis country that we've seen in many,
Speaker 1: many decades, and they now have their own very difficult
Speaker 1: problem which they have a very low level of consumption
Speaker 1: which they're not desperately trying to fix. So does it
Speaker 1: make sense for us to absorb all the products from
Speaker 1: such a hugely mrcantilis country.
Speaker 2: Long time.
Speaker 5: Well, on the specific one, it depends how worried you
Speaker 5: are about climate change, I guess, and how quickly you
Speaker 5: think we should be going through that transition. But there's
Speaker 5: there also has to be a degree of realism about this,
Speaker 5: that that they have an industry producing, producing all the
Speaker 5: equipment that you need to generate energy from renewable sources
Speaker 5: that's on a completely different scale and a completely different
Speaker 5: cost base from everybody else. Now we can we can
Speaker 5: debate where we've got to, but if that there is
Speaker 5: no part of the supply chain and in most form
Speaker 5: of renewable energies that the Chinese don't dominate some part of,
Speaker 5: so you know, we have to accept that trade off.
Speaker 3: It is interesting though, because I do weirdly enough, I
Speaker 3: was looking at the chapter on tariffs a couple of
Speaker 3: days ago because I was acused to see if you'd
Speaker 3: said and he didn't say any quite pathy enough for
Speaker 3: an actual quote with the Chapter's quite interesting because the
Speaker 3: issues that he raises, although he is the kind of
Speaker 3: free trade guy, and he's kind of anti cantialism, where
Speaker 3: he says it might be okay, he talks about defense,
Speaker 3: So there's a bit we're just talking about how basically
Speaker 3: I didn't kind of fully understand it, but Britain's kind
Speaker 3: of navy was protected, and what they were doing was
Speaker 3: basically trying to avoid the Dutch from having a monopoly
Speaker 3: on the kind of various sea trades. And he said
Speaker 3: that this isn't very helpful for effective for consumers, but
Speaker 3: it's a really good policy because it stops the Dutch from,
Speaker 3: who are enemies, basically from you know, getting a strangle
Speaker 3: hold on this important trade route. And the other issue
Speaker 3: he did bring up interestingly was employment, which this kind
Speaker 3: of surprising me actually, but he did talk about almost
Speaker 3: exactly the thing that people in Middle America and in
Speaker 3: you know, bits of Britain, post industrial bits of Britain
Speaker 3: like Glasgow and Liverpool, talk about where you demolish an
Speaker 3: industry so rapidly by opening it up to competition that
Speaker 3: you create social uphaval. Now, I mean, Smith didn't really
Speaker 3: kind of make a big deal of that. He didn't
Speaker 3: think it was going to be a big problem because
Speaker 3: he assumed that there'll be a lot of other employment
Speaker 3: for most people to go into. And I think probably
Speaker 3: either there was at the time, or or or probably
Speaker 3: people just didn't really care as long as the lower
Speaker 3: orders were, you know, involved in employment in some way,
Speaker 3: even if it was FAMI labor. And but just think
Speaker 3: it's really interesting that the same qualms even then are
Speaker 3: basically the exact same ones that we've got today, and
Speaker 3: we kind of still haven't found a solution or a
Speaker 3: satisfactory solution. But I think if you look at China
Speaker 3: as an enemy, I don't mean an enemy enemy, but
Speaker 3: I think you know that threat, you know that's threat.
Speaker 3: It's sort of like Coldish War type thing, then maybe
Speaker 3: some you know, retreat from globalization is I guess justified
Speaker 3: from from that point of view.
Speaker 1: It's a wonderful scart stories recently about renewable energy product
Speaker 1: coming from China. I'll be able to turn off the turbines,
Speaker 1: shut down the panels.
Speaker 2: Is that possible? I don't know.
Speaker 4: If you put have you put Chinese kit in the system, sure,
Speaker 4: transformers and switches, you can do it. That's why you
Speaker 4: need to buy German from Zemens. Energy needed by Germans.
Speaker 4: They would never know. Germans have always been our friend.
Speaker 1: I'm going to take that as a perfect time to
Speaker 1: move on to your quote I say I was.
Speaker 2: Going to change my mind.
Speaker 4: Okay, sure, science is the greatest antidote to the poison
Speaker 4: of enthusiasm and superstition. And I love that quote because
Speaker 4: it says to me that Adam Smith was the first
Speaker 4: contrarian where you're looking for from the investing context, what
Speaker 4: we do every day is try and find where society
Speaker 4: is just run off in a direction, using their imagination,
Speaker 4: not weighed down by facts or physics, to come up
Speaker 4: with something that we should all be doing.
Speaker 2: Give us an example.
Speaker 4: It's really hard to think of one, but I think
Speaker 4: the war on carbon might be a good one. And
Speaker 4: if you invest into that, or you search that and say, well,
Speaker 4: this is impossible. You can't have a grid that's entirely
Speaker 4: dependent on wind and solar, it's not going to work physically.
Speaker 4: You can invest against that, and then when the physics
Speaker 4: finally determine that your superstition and enthusiasm aren't really working out,
Speaker 4: you can make money doing that. What was interesting about
Speaker 4: this quote is superstition made sense, particularly in his time.
Speaker 4: They were still burning witches for the first half of
Speaker 4: his life, so that kind of he was probably followed
Speaker 4: enough logic to think that probably wasn't a good idea.
Speaker 4: But enthusiasm seemed like a really weird word. And Laura,
Speaker 4: my wife, was sitting in the front row. We were
Speaker 4: at lunch yesterday with Sir David Edward, who's a lawyer
Speaker 4: in town, and he said, in the during the Scottish Enlightenment,
Speaker 4: enthusiasm was code for zelotry tree. That's that's unbounded by logic.
Speaker 4: So I don't know why they just didn't call it,
Speaker 4: tell it try, but enthusia, enthusiasm was the word they used.
Speaker 1: Okay, so you are now saying, I sit with the
Speaker 1: renewable energy as your example. You now feel that the
Speaker 1: enthusiasm for it has hito a rule of physical physical
Speaker 1: reality when it comes to the grid.
Speaker 4: Well, who has a power bill here in the room?
Speaker 4: Who pays a power bills? Have you seen it hit
Speaker 4: the limit yet? And you're by the way, you're you're
Speaker 4: being subsidized more and more and more because the politicians
Speaker 4: don't really want you to see that the physical constraints
Speaker 4: on the grid impacting you in your pocketbook. But I
Speaker 4: think we're certainly seeing it, and we're seeing the governments
Speaker 4: react as you would expect them to. The one thing
Speaker 4: that we as contrionce can can count on is politicians
Speaker 4: changing their mind and that's when we kind of get
Speaker 4: the big payoff. But there is a governor in Maryland
Speaker 4: who passed edicts saying we need to shut down all
Speaker 4: the coal fired power plants in Maryland and then about
Speaker 4: and that was three four years ago. Last month the
Speaker 4: power bills all went up thirty forty percent over the
Speaker 4: ensuing couple of years in Maryland, and he started getting
Speaker 4: heckled because of.
Speaker 1: The coast of subsidizing tabines and because.
Speaker 4: The grid had too much has now too much renewables
Speaker 4: and not enough spinning reserve in it to keep the
Speaker 4: nurse in the system. And he said, well, it's not
Speaker 4: my fault, because that's what politicians say. And they say, well,
Speaker 4: whose fault is it? And he said, it's the utilities
Speaker 4: for shutting down the power plants, so they can change.
Speaker 4: It will never be their fault. But they can go
Speaker 4: to bed one night saying that it's all about renewables.
Speaker 4: We need to shut down biomass and coal fired plants,
Speaker 4: and then they can wake up the next morning and
Speaker 4: you could have your Prime minister come up the next
Speaker 4: morning and say I am the champion of north sea
Speaker 4: natural gas. There are no limits to what politicians can do.
Speaker 2: Okay, so what's the solution?
Speaker 1: I mean, Tom, Tom says, what really matters here is
Speaker 1: how much you care about climate change, how much you
Speaker 1: how much you think we should effectively suffer in order
Speaker 1: to attempt to mitigate it.
Speaker 2: What would you say the solution is?
Speaker 4: I'd say the solution is what we're seeing now, and
Speaker 4: that's a that's the physicists and grid engineers and chemists
Speaker 4: and quite frankly, the oil companies and the utilities finally
Speaker 4: getting their seat at the table. No one's no engineers
Speaker 4: are invited to the seat at the platitude table. They
Speaker 4: didn't get They get invited afterwards when the platitudes blow
Speaker 4: up in our face. And they're now being invited to
Speaker 4: the table, and they're they're starting to craft an appropriate
Speaker 4: grid that has diverse energy sources feeding into it so
Speaker 4: you can actually have reliable, attractively priced energy.
Speaker 1: Okay, I have got another example of yours.
Speaker 4: This is what we do for a living. So ten
Speaker 4: years ago in Europe, we don't need defense to the
Speaker 4: point where and we won't remember this because our memories
Speaker 4: aren't long enough. Europe wanted to pass a thing called
Speaker 4: social taxonomy. Doesn't ever remember what social taxonomy was. It
Speaker 4: was following on the heels of green taxonomy, which still
Speaker 4: exists in Europe, where they said we're going to charge
Speaker 4: anybody who produces carbon and extra tax so that they're
Speaker 4: incentive not to produce something that makes carbon, which of
Speaker 4: course makes all your industry leave and go to China,
Speaker 4: who then take over and they'll charge you whatever they
Speaker 4: want when they're the only one who can make ass
Speaker 4: turbans or something. So they were going to follow that
Speaker 4: huge success with social taxonomy, which would be applying a
Speaker 4: tax to companies that produce social ill the top of
Speaker 4: the list. Sob Ry Mattal Leonardo Talas, Bae system defense companies.
Speaker 4: This is not I'm not making this up. We're going
Speaker 4: to apply a massive tax on those companies so that
Speaker 4: they decide to produce less. How is that based in
Speaker 4: any kind of rational thought with regard to how the
Speaker 4: world works. And we've seen when Russia invaded Ukraine for
Speaker 4: the second time, people at that time were thinking they
Speaker 4: never invaded them because they didn't have a patch on
Speaker 4: their green suits that had a Russian flag on it,
Speaker 4: so they really didn't invade crimea uh, And now there's
Speaker 4: a we've gone it completely one hundred and eighty degrees
Speaker 4: the other way. We're selling our defense stocks. Oh, by
Speaker 4: the way, just rolling back.
Speaker 1: Because defos because you've had a great rum with them,
Speaker 1: and now they're expensive.
Speaker 4: They're because everyone wants to own them. Yeah, and the
Speaker 4: social responsible funds. Everyone remembers those that slap sustainable on
Speaker 4: the end of your fun name. When they did that,
Speaker 4: they were no longer allowed to hold defense contractors back
Speaker 4: then because they were evil. They've all now decided to
Speaker 4: change their mandates such as that they can on it.
Speaker 1: So we now know that we now know that defense
Speaker 1: is the social good, right, Yes, it comes right down
Speaker 1: to it. There is no more social good than the
Speaker 1: ability to defend yourself. So defense is now elevated from
Speaker 1: the worst thing in the world to the greatest thing
Speaker 1: in the world.
Speaker 4: And ESG has become ESG D. You can't have ESG
Speaker 4: without D. So now we can all own defense contractors
Speaker 4: and we're now selling have been selling those off for
Speaker 4: a couple of years now.
Speaker 2: And replacing them with.
Speaker 4: Right now, we're replacing with biotech. Still have quite a
Speaker 4: bit of.
Speaker 1: Nuclear eating with tom If we're getting into biotech.
Speaker 4: It's fascinating. Biotech is really cool and quite frankly, a
Speaker 4: lot of ourdea our ideas come from the incredible research
Speaker 4: that the the Bailey Diifferts of the world do. It's
Speaker 4: super high quality, and that means that we don't have
Speaker 4: to do it because we're not really small. We're just contrurions.
Speaker 4: We're the ones that we'll run into a burning building
Speaker 4: and check out the art, see what we can get out.
Speaker 1: With gorgeously symbiotic relationship between baches, bus the contreating a
Speaker 1: go on.
Speaker 3: The biotech stuff just is that just because it's.
Speaker 4: Cheap, it's just pure deep value at this point, so
Speaker 4: not thematic you could if it, if it comes big enough,
Speaker 4: then we'll craft a theme around it so we can
Speaker 4: tell a story and people can understand it. But we're
Speaker 4: able to buy biotechs that we're selling at one hundred
Speaker 4: times earnings two years ago for mid teens or in
Speaker 4: some cases single digit multiples.
Speaker 1: What are your big ideas in biotech at the moment.
Speaker 5: Tom, Yeah, it's very kind of say we're very smart,
Speaker 5: But the implication of what you're saying is we've owned
Speaker 5: these stocks that have gone down a very long way
Speaker 5: in the plast couple of years, which is true. But
Speaker 5: I'm one of the things that I think is really
Speaker 5: interesting in biotech is the idea that some of the
Speaker 5: tools that we talk about moreen really things like ai
Speaker 5: I just offer a real hope of addressing some of
Speaker 5: the big challenges in biotech. We're really just scratching our
Speaker 5: scratching the surface of our understanding of, you know, the
Speaker 5: molecular basis of disease, and if we can actually use
Speaker 5: these tools to ingest the huge volumes of information, if
Speaker 5: we can use these tools to automate some of the
Speaker 5: processes which you know today involve a PhD at a
Speaker 5: lab bench with perpettes. If you if you can actually
Speaker 5: start to bring robotics and they into these processes, then
Speaker 5: that you offer out the prospect of massively lowering the
Speaker 5: cost and massively increasing the speed at which you can
Speaker 5: do this research. And I think that's that's the piece
Speaker 5: of it that's most exciting to.
Speaker 1: Me, and that that that's exactly the kind of thing.
Speaker 1: There is this ongoing conversation going on around the AI
Speaker 1: bubble and the extent of cap expending inside AI, and
Speaker 1: the extent to which this is all going to be
Speaker 1: hardby disappointing. But that's kind of that's the kind of
Speaker 1: theme that would suggest there may be not so much
Speaker 1: disappointment in there.
Speaker 5: I think you could be excited about AI without having
Speaker 5: a particularly strong view on that. But if you to
Speaker 5: give you some idea of the scale of what's happening here,
Speaker 5: I think gross fixed capital formation, so all capital investment
Speaker 5: by all companies in the UK is of the order
Speaker 5: of six or seven hundred billion dollars. Microsoft, Apple, Meta
Speaker 5: and Google between the four of them, will spend four
Speaker 5: hundred billion next year. So those four companies will spend
Speaker 5: two thirds of the total capital expenditure of the UK.
Speaker 5: And they're doing that because they get really strong demand signals.
Speaker 5: You know, it's a game we're not playing in and
Speaker 5: you know, is it too much, Well, to them, it
Speaker 5: doesn't really matter. You know that those numbers are big
Speaker 5: in re context accept the profitability of these online giants,
Speaker 5: so you know they can use that kit in other ways.
Speaker 1: So I think they will, there will there be you
Speaker 1: will three of those four names find.
Speaker 2: That they've wasted their money?
Speaker 1: I don't.
Speaker 5: I don't think any of them will find that they've
Speaker 5: wasted the money. Whether they've gone too fast or too slow,
Speaker 5: we don't know. But what you can see at the
Speaker 5: moment is more and more applications of this technology because
Speaker 5: it has such huge potential. And now it's maybe not
Speaker 5: you know, sitting you know, chatting to your to your phone,
Speaker 5: to your new AI friend, but actually, you know, like
Speaker 5: in areas like drug discovery or managing energy grids or
Speaker 5: there's just there's so many applications where just about everything
Speaker 5: we do as a society is short of intelligence. It's it's,
Speaker 5: you know, if you can provide machine intelligence at low cost,
Speaker 5: it will make everything better.
Speaker 2: You're nodding.
Speaker 4: I think there there is an existential risk element to
Speaker 4: their spending. I don't think it's all about, look what
Speaker 4: we can do and we can make a ton more money.
Speaker 4: It's geez, this might be a winner take most type
Speaker 4: of deal, which is the type of deal that they
Speaker 4: all were born on and succeeded in. What happens if
Speaker 4: this new thing, this next thing that comes is going
Speaker 4: to be dislike the thing that we won, but it's
Speaker 4: going to be a tsunami over what we want. So
Speaker 4: Google's the easiest one to see. In search. They dominate search,
Speaker 4: they have ninety percent market share and search are they
Speaker 4: going to have ninety percent market share? And answer? Which
Speaker 4: is replacing search? So I think that there's that, and
Speaker 4: you know, from our perspective, we and looking over your portfolio,
Speaker 4: it seems like you've come up with the same answer.
Speaker 4: You rather feed them Ammo. You rather own the AMMO
Speaker 4: providers like an Nvidia, or the suppliers to Nvidia like
Speaker 4: Taiwan Semi, or the suppliers to them like ASM. Then
Speaker 4: you would try to pick between is it Google or
Speaker 4: Amazon or Microsoft or Meta or now new ones. So
Speaker 4: you're supposed to these are supposed to be the best
Speaker 4: industries in the world because there's no new competitors. Seven
Speaker 4: Ai brand new and x Ai funded by the richest
Speaker 4: man in the world, brand new competitors, and the Chinese
Speaker 4: all coming in at attacking the same problem. So you've
Speaker 4: gone from having a monopoly like Google has in search
Speaker 4: to being one of seven or eight players trying to
Speaker 4: attack this next winner, make winner get most market we
Speaker 4: feel much more comfortable providing the ammoing.
Speaker 2: Away from the very very high valuations.
Speaker 4: Predictives in a win and I'm not sure if you
Speaker 4: look at the way they're spending, they're not sure who's
Speaker 4: going to win either. They're freaking out.
Speaker 2: In part John, what does it mean for the ordinary
Speaker 2: investors in the run with.
Speaker 3: This place or what they I think? I mean, I
Speaker 3: think the things do interesting, But long story shot, I'll
Speaker 3: say the thing that I've been saying for probably far
Speaker 3: too long, which is that arguably US stocks are overvalued
Speaker 3: relative to the rest of the world. And also, you know,
Speaker 3: if you if you're based in the UK, but you've
Speaker 3: been shunning UK stocks for obvious reasons, then actually they're
Speaker 3: they're pretty cheap. And certainly there was recently a piece
Speaker 3: of research that Schroeders put out that everyone's talking about,
Speaker 3: which is that Americans are actually because Americans are now thinking, actually,
Speaker 3: I'm not sure that I should be quite as exposed
Speaker 3: to the US exactly, particularly the Magnificent seven, which is
Speaker 3: the big A I stocks. They're moving out of US
Speaker 3: assets and one of the things that they are buying
Speaker 3: in quite significant amounts is the UK stocks.
Speaker 1: Believe finally we've been waiting, so yes to stop buying us. Yeah.
Speaker 3: All we're waiting for now is maybe some consecutive inflows
Speaker 3: from actual UK investors in the UK equity funds, because certainly,
Speaker 3: according to the data, they've been selling consistently every month
Speaker 3: for I think it's three and a half years now.
Speaker 3: You've got to think at some point the selling's got
Speaker 3: to speak exhausted.
Speaker 2: Original rage comes to a rescue with you who still
Speaker 2: have some pension as.
Speaker 3: We get the British eya going.
Speaker 2: That's what that, right, John, This is a This is
Speaker 2: a long win.
Speaker 3: Otherwise I promise I would have memorized it.
Speaker 4: Right.
Speaker 3: The man's system is often so enamored with the supposed
Speaker 3: beauty of his own ideal plan of government that he
Speaker 3: cannot suffer the smallest deviation from any part of it.
Speaker 3: He goes on to establishment establish it completely and in
Speaker 3: all its parts, without any regard either to the great
Speaker 3: interests or the strong prejudices which may oppose it.
Speaker 2: He seems to.
Speaker 3: Imagine that he can arrange the different members of a
Speaker 3: great society with as much ease as the hand arranges
Speaker 3: the different pieces upon a chess board. He does not
Speaker 3: consider that the pieces upon the chess board have any
Speaker 3: other principle emotion beside that which the hand impresses upon them,
Speaker 3: but that in the great chess board the human society,
Speaker 3: every single piece is a principle of motion of its own,
Speaker 3: altogether different from that which the legislature might choose to
Speaker 3: impress upon it.
Speaker 2: One of Seth's relation and happy ones is nearly there.
Speaker 3: Nearly there, hang in, hang in, there's not as long
Speaker 3: as we go. If those two principles coincide and act
Speaker 3: in the same direction, the game of human society will
Speaker 3: go on easily and harmoniously, and it's very likely to
Speaker 3: be happy and successful. If they are opposite or different,
Speaker 3: the game will go on miserably, and the society must
Speaker 3: be at all times in the highest degree of disorder.
Speaker 2: We're going to have a new role form.
Speaker 3: I'll make it a.
Speaker 2: Short one tomorrow.
Speaker 3: This is a quote from the Theory of Moral Sentiments,
Speaker 3: which was Adam Smith's first book, and I sort of
Speaker 3: think it as been the first self help book of
Speaker 3: a published really, because it's all about human psychology and
Speaker 3: why we are the way we are and how we
Speaker 3: think and what that means about how we should say,
Speaker 3: shape society. And the thing I think is important about
Speaker 3: this quote particularly is that it sums up his approach
Speaker 3: to economics and why personally speaking, I think it's superior
Speaker 3: to the other kind of big names. So I would
Speaker 3: say that both Marx and Kanes, who are probably two
Speaker 3: other major economy economic schools are thinking. They take a
Speaker 3: very top down view. So Marx is very much the
Speaker 3: kind of grand scale of history, class war. It's not
Speaker 3: really about people, it's about what group you are in.
Speaker 3: And Cain's is kind of thinking about society and the
Speaker 3: economy as a machine with inputs and outputs, and you
Speaker 3: can tweak this and you can tweak that. But Smith
Speaker 3: isn't doing any of that. He's actually starting from individuals
Speaker 3: and what they want and understanding that everyone who's got
Speaker 3: their own desires, everyone's got their own motivation, and so
Speaker 3: the best thing you can do is to kind of
Speaker 3: just provide an environment that just basically lets people get
Speaker 3: on with it. So that's an argument for a kind
Speaker 3: of it's not an argument for no government at all,
Speaker 3: absolutely not, He's not a radical libertarian at all, but
Speaker 3: as an argument for a smallish and simple state, one
Speaker 3: that we can all understand, and I think more than
Speaker 3: anything else. That's second bit. And obviously we've got a
Speaker 3: massive state. But I think the real problem is that
Speaker 3: we now have governments that are full of people. We
Speaker 3: are surrounded by men and women of system. Now everybody
Speaker 3: wants to dictate what everyone else can do. I mean
Speaker 3: one reason that I mean, one of the biggest kind
Speaker 3: of employment areas of growth in the UK over the
Speaker 3: past twenty years has been in HR. The proportion of
Speaker 3: workers in the UK who work in HR has quadrupled
Speaker 3: in the last twenty years, and the UK now has
Speaker 3: more HR people per head of staff than anywhere except
Speaker 3: for the Netherlands. So you've got all these people. And
Speaker 3: then this is before we get to the legal profession.
Speaker 3: And this is before we get to i f as
Speaker 3: and tax advisors. Yeah no, I'm just thinking, I mean,
Speaker 3: how many HR people are in the room. But yeah,
Speaker 3: and this this is all part partly because we've made
Speaker 3: the system so complicated because of a desire to dictate
Speaker 3: and push people into doing various ways of behavior, rather
Speaker 3: than stepping back and saying, actually, you know, things could
Speaker 3: be much better if we just within a narrow framework
Speaker 3: of defending property rights and you know, preventing kind of
Speaker 3: you know, violence in the streets. We just let everyone
Speaker 3: get on with what they wanted to do and make
Speaker 3: the best of their own lives without trying to dictate everything.
Speaker 3: And so I think that's where we kind of need
Speaker 3: to get back to. I mean, I saw sort of
Speaker 3: that nice Rachel Raves.
Speaker 2: I think.
Speaker 3: I think Adam Smith would see it as a kind
Speaker 3: of final boss of a kind of gradual deterioration over
Speaker 3: a long period of time that probably started with Gordon
Speaker 3: Brown is the one who I blame most for the
Speaker 3: way the governance and the kind of budget side of
Speaker 3: things has deteriorated into a steady stream of stealth taxes
Speaker 3: with the kind of aim of socially engineered and different
Speaker 3: chunks of society and you know little boxes.
Speaker 1: I mean, we were talking earlier in saying that Adam
Speaker 1: Smith would simply not have been able to conceive of
Speaker 1: a world filled with this much debt, of a state
Speaker 1: that took up forty percent plus of GDP, with debt
Speaker 1: to gypay one hundred percent, with a yet another black
Speaker 1: hole of fifty our billion coming up in ten minutes.
Speaker 2: Et cetera.
Speaker 1: This is he couldn't have understood it so far removed
Speaker 1: from the world in which he left that we have
Speaker 1: no quotes for levels have stated it.
Speaker 3: Well, that's to be fair, we do because he does.
Speaker 2: That was the test.
Speaker 3: There's a point, isn't that what he talks about how
Speaker 3: France and England both at one hundred percent to GDP thing.
Speaker 2: About it in seventeen, Yeah, it was.
Speaker 3: It was war related. But and his point about that was, Look,
Speaker 3: when a state gets that indebted, it never ever pays
Speaker 3: it back. They either default on it overtly or the
Speaker 3: default on it by debasing the currency. And the funny thing.
Speaker 2: Is that's basically what we still do.
Speaker 3: It's much easier now because we don't have gold and
Speaker 3: silver underpinning the you know, the monetary system. And it
Speaker 3: used to be that if you wanted to debase the currency,
Speaker 3: you had to tell everyone to bring their coins back
Speaker 3: to the Mints. The Mints would then stamp them and
Speaker 3: say they're only worth this now and then give you
Speaker 3: back you know, maybe like one in one in kind
Speaker 3: of one in thirteen or one in twelve. We kept
Speaker 3: back the king and that's how he would make the
Speaker 3: money from everyone kind of you know, from deep in
Speaker 3: the currency but just now you can just you know,
Speaker 3: do it by printing more money and interest rates and
Speaker 3: you can keep it going as well. You can extend
Speaker 3: and pretend for longer.
Speaker 1: John, I know we're having a chat at breakfast this
Speaker 1: morning that you two would have loved this.
Speaker 2: I'm sorry weren't there.
Speaker 1: We're having a chat about how Rachel Reeves could raise
Speaker 1: more money and we're trying to think of things in
Speaker 1: the UK that are not yet taxed. I can't tell
Speaker 1: you how hard it is. Don't have any ideas. Anyone
Speaker 1: can think of.
Speaker 2: Anything anything you want to do public We figured she's
Speaker 2: she's going to get there anyway. She's going to get
Speaker 2: there anyway. From the podcast, you know, thinking guilt, but
Speaker 2: she can't go for that.
Speaker 1: Anyone got any ideas there's something you can think of
Speaker 1: that isn't yet taxed at all. I'm not saying I advocated.
Speaker 2: But they are.
Speaker 1: Every single financial transaction is tax we have every now
Speaker 1: we have we have that the highest stamp duty in
Speaker 1: the world apart from Ireland, had fifty basis points and everything.
Speaker 2: But a transaction that's megatax. I mean that's a wealth tax.
Speaker 1: That's an actual wealth tax in action.
Speaker 2: Every single time you buy us all shares. So yeah, nope,
Speaker 2: not that anything else.
Speaker 4: If you think, if you think about the government particularly,
Speaker 4: I don't know, can I say this government will always
Speaker 4: endeavor to shoot themselves in the foot. They can tax childbirth.
Speaker 2: We haven't got very much of that. We need more
Speaker 2: of that.
Speaker 4: No, well we'll get less, of course, we don't want less.
Speaker 1: We are.
Speaker 4: I just you told me to find something.
Speaker 1: That we could catch, although we've further do contact child
Speaker 1: because everything round.
Speaker 2: That's a great idea. Everyone's got one of those. But
Speaker 2: isn't that council tax? Well yeah it is, it is.
Speaker 1: I mean one of the things that that we that
Speaker 1: you and I have discussed and we discussed for is
Speaker 1: that you know, every mistake in the UK is effectively
Speaker 1: policy driven.
Speaker 2: We can fix it all.
Speaker 1: We get very doom story about it, but absolutely everything
Speaker 1: is fixable, and we get this vague when we took that.
Speaker 1: We're getting close to the bit where there is no
Speaker 1: longer a choice but to change policy so as to
Speaker 1: fix it.
Speaker 2: There we have a massive crisis, or we have massive
Speaker 2: crisis and then we fix it. We're getting quite close
Speaker 2: to that.
Speaker 3: Then, yeah, well I suppose it's because that the whole
Speaker 3: thing about the Laugher cuve, and I know that people
Speaker 3: obviously there's a kind of backlash against.
Speaker 2: The ideas doing what the leve a cove is.
Speaker 3: So laugher cuve is basically, see, if you put a
Speaker 3: tax it's zero percent, obviously you'll collect no money. But
Speaker 3: if you put it at one hundred percent, you'll also
Speaker 3: collect no money because nobody will do the thing that
Speaker 3: you're taxing one hundred percent. So basically, logically there must
Speaker 3: be a peak point somewhere between those rates that collects
Speaker 3: more revenue. And it might be at forty, it may
Speaker 3: be at sixty. If you go above that, the amount
Speaker 3: you get will start going down, even though the tax
Speaker 3: rate is higher. And it sort of feels as if
Speaker 3: Britain as a whole is that the peak of its
Speaker 3: laugher cuve, because the tax take is a percentage of
Speaker 3: GDP is what with thout eight percent?
Speaker 2: Now, why has this ever been?
Speaker 1: Every time we've nudged up to thirty eight percent historically
Speaker 1: we immediately.
Speaker 2: Sort of collapsed back down again.
Speaker 1: There's a sort of weird dynamic globally where every country
Speaker 1: seems to have its own level of tax relative to
Speaker 1: GDP that it's prepared to pay. So Scandinavian countries are
Speaker 1: prepared to pay more than we are. Generally, it doesn't
Speaker 1: matter what you do to tax rates. In the UK,
Speaker 1: you can't get it above thirty eight percent, So we're.
Speaker 2: Hitting it as much lower in the US, isn't it. Well, yeah,
Speaker 2: you've got your own level lower.
Speaker 1: It's lower than us, and you know, Germany are happy
Speaker 1: with forty four percent.
Speaker 2: You know.
Speaker 3: I think that's part of the way that you pay
Speaker 3: for public services as well, because obviously one reason the
Speaker 3: Americans tax takers are percentage of GDP is so low
Speaker 3: is because the medical course is so high in the
Speaker 3: coverupment privately. And I think one of the people always
Speaker 3: say that, oh yeah, but Britain doesn't have a high
Speaker 3: tax take compared to other European countries. But state pension
Speaker 3: is very different to most countries. A lot of people
Speaker 3: keep saying it's very it's very low.
Speaker 1: It's not.
Speaker 3: And it's also it's consistent as a whole. It's everyone
Speaker 3: gets the same state pension basically, assuming you know you've
Speaker 3: paid in the sort of paid in is the wrong word,
Speaker 3: assuming you have ticked the n I box enough. But
Speaker 3: you know, in Frans you don't automatically get a specific
Speaker 3: amount of state pension, and I think in most Eurozone
Speaker 3: countries it's graded based on you know, what you got
Speaker 3: paid when you were working in various other measures. So
Speaker 3: all of these things are really hard to compare. But
Speaker 3: I actually don't think the British taxpayers or even American
Speaker 3: taxpayers are that different to European ones. It's just to
Speaker 3: pay for more stuff out of fair enough.
Speaker 1: Tom, what's you then investing at the moment. What's your
Speaker 1: favorite stock on your portfolio?
Speaker 5: Well, they're all my favorites.
Speaker 2: No, no, no, that's not true. I know that's not true. Okay,
Speaker 2: let me help you.
Speaker 1: Let me have you what did you most recently buy
Speaker 1: for the portfolio?
Speaker 5: So my most recent spreending expree was in private companies,
Speaker 5: which is not particularly helpful. But I guess on the
Speaker 5: public side, one of the things that I think is
Speaker 5: really quite exciting, and it's a trend that has been
Speaker 5: going for twenty years now, which is that we've been
Speaker 5: spending more and more and more of our money online.
Speaker 5: And I think that trend is far from exhausted, and
Speaker 5: there are companies in lots of different parts of the
Speaker 5: world where they're not replacing established formal retail, but they're
Speaker 5: giving the consumers their first opportunities to get access to
Speaker 5: goods and services at reasonable prices. So see Limited in
Speaker 5: Southeast Asia, Coupang in South Korea, Mercado Libre in Latin America.
Speaker 5: But they are also moving from just providing goods and
Speaker 5: services online to providing financial services online. And these consumers
Speaker 5: have never had access the high quality financial services. The
Speaker 5: banking sectors in their respective countries were not set up
Speaker 5: to serve individuals, and so the opportunity is not just
Speaker 5: in retail, but it's all the financial services. So there's
Speaker 5: there's three fee that I think have these opportunities that
Speaker 5: will run for at least the next three decades.
Speaker 2: Excellent, Thank you. See that's the kind of question. Look
Speaker 2: what you got.
Speaker 4: I can't think in decades as a contrarian inventor, but
Speaker 4: UK industrials in midcaps back yourselves and you get paid
Speaker 4: absolutely all right.
Speaker 1: I really hope you caught that old video the still
Speaker 1: of that letter.
Speaker 4: So we drove from the ilsky down to here and
Speaker 4: we stopped at tracks Crew Chin Crooking Pumped hydro Station,
Speaker 4: a marvel of British Engineering built in commission in nineteen
Speaker 4: sixty five, a great year it. Laura and I were
Speaker 4: born in nineteen sixty five and then arrived and walked
Speaker 4: up to go to see the tattoo and went by Balfour.
Speaker 4: Bad signs everywhere because stuff's going wrong here in the
Speaker 4: city and it needs to get fixed. Any kind of
Speaker 4: foundation work that's done in the world usually a thirty
Speaker 4: percent chance. So you're going to use Keller, which are
Speaker 4: the companies that build the foundations for any project. And
Speaker 4: the cool thing about Keller is they get paid first,
Speaker 4: so we all know that every major development goes busted.
Speaker 4: You want to invest in the foundation company because the
Speaker 4: PowerPoint financing scheme works really well and at least until
Speaker 4: the foundation guy gets paid. But Keller sells for seven
Speaker 4: times earnings and a four percent of a an yield.
Speaker 4: This is an amazing company that's lasted forever. And if
Speaker 4: you believe in AI, if you believe in onshoring reshoring,
Speaker 4: if you believe in that we're in a cold war
Speaker 4: and that AI is the new arms race, you're going
Speaker 4: to build a lot of infrastructure. So why is there
Speaker 4: a company in the UK selling it seven times earnings
Speaker 4: that's involved in every one of those sink things. You
Speaker 4: can't build a single thing without a foundation, and here's
Speaker 4: a company that leads in the world in that. And
Speaker 4: part of it is that it just happens to be
Speaker 4: on the London Stock Exchange and no one wants to
Speaker 4: own it because it's there and the money keeps flowing out.
Speaker 4: But we'll just keep buying it and buying or buying
Speaker 4: it today. We were buying it a year ago, we
Speaker 4: were buying it two years ago, we were buying it
Speaker 4: three years ago.
Speaker 2: One day it'll come good.
Speaker 4: One day it'll come good for a buds up in
Speaker 4: three years and we'll just keep plugging away at these
Speaker 4: British midcaps that are really cheap and oh really well.
Speaker 2: Man, we appreciate it.
Speaker 1: Thank you, Alec John, you've got anything to add quickly?
Speaker 1: Two seconds, gold gold, gold, gold, gold mine has been
Speaker 1: the real.
Speaker 3: Have been stunning this after that very very long periods of.
Speaker 2: Intail, and we did tell you so, didn't.
Speaker 3: We much doubled this ship?
Speaker 2: Did?
Speaker 5: Okay?
Speaker 1: I think we have to stop and this is anything
Speaker 1: absolutely urgent from you, and beyond that, just say thank
Speaker 1: you so much to my wonderful panel. Listen to all
Speaker 1: of you for helping us sell out this huge room
Speaker 1: over and over. Thank you, thanks for listening to this
Speaker 1: week's Marin Dogs Money. If you like our show, rate review,
Speaker 1: and subscribe wherever you listen to podcasts, I keep sending
Speaker 1: questions or comments to Marrior Money at Bloomberg dot net.
Speaker 1: You can also follow me in John on Twitter or
Speaker 1: x I'm at Mariness w and John is John Underscore STEPEC.
Speaker 1: This episode was hosted by me Marin Zumset Web was
Speaker 1: produced by some Sidi sound designed by Blake Maple's Special
Speaker 1: thanks to my guests, to Blairbarrows and to all the
Speaker 1: rest of the team at Paniel House.