WEBVTT - Inflation Isn’t Done: Why the Next Shock Could Be Worse 0:00:02.720 --> 0:00:07.640 Bloomberg Audio Studios, Podcasts, radio news. 0:00:08.080 --> 0:00:09.640 Hey Marin Talks Money listeners. 0:00:09.720 --> 0:00:11.959 Earlier this week, we had our subscriber event in the 0:00:12.000 --> 0:00:14.960 Bloomberg offices in London. It was so wonderful to see 0:00:15.040 --> 0:00:17.400 so many listeners and so many readerserves, so thank you 0:00:17.600 --> 0:00:18.520 so much. 0:00:18.320 --> 0:00:20.119 To all of you who came, and to those of 0:00:20.160 --> 0:00:21.119 you who couldn't come. 0:00:21.360 --> 0:00:23.680 We are bringing you some of the conversations we had 0:00:23.680 --> 0:00:26.040 that evening to the podcast feed. So first up we 0:00:26.079 --> 0:00:29.760 have my conversation with Sebastian Lion of Troy Asset Management. Enjoy. 0:00:33.880 --> 0:00:36.520 Welcome everybody, and thank you for coming to Marrin Talks Money, 0:00:36.640 --> 0:00:39.199 the podcast in which people who know the markets explain 0:00:39.280 --> 0:00:41.879 the markets. Now we are recording this episode with those 0:00:41.920 --> 0:00:44.080 of you aren't here, do come next time in front 0:00:44.120 --> 0:00:47.920 of an audience of subscribers at the Bloomberg London offices. 0:00:48.120 --> 0:00:49.640 Now there'sill be three sections to it. 0:00:49.640 --> 0:00:51.440 There's gonna be this bit where I talked to Sebastian, 0:00:51.720 --> 0:00:54.120 and then we'll do some more personal finance stuff and 0:00:54.120 --> 0:00:56.520 we'll take lots of questions. Do use that QR code 0:00:56.680 --> 0:00:58.840 to ask questions, but you will also be able to 0:00:58.840 --> 0:01:00.480 ask for the mic at the end, I don't feel 0:01:00.480 --> 0:01:02.680 you have to use the QR code. Now we're going 0:01:02.680 --> 0:01:04.399 to start all this with Sebastian. 0:01:03.960 --> 0:01:06.160 Who's a long term friend of the show and mine. 0:01:06.160 --> 0:01:08.800 We were just saying earlier we started our businesses around 0:01:08.800 --> 0:01:11.640 the same time twenty five twenty five years ago, and 0:01:11.680 --> 0:01:13.640 I think we've been talking about the gold price pretty 0:01:13.720 --> 0:01:15.880 much ever since, ever since. 0:01:15.640 --> 0:01:19.200 Without without break, we've aged well, we have, we have 0:01:19.240 --> 0:01:21.080 and serves the gold price certainly has. 0:01:21.160 --> 0:01:24.399 Yep, right by Sebastian, thank you for coming and doing this. 0:01:24.520 --> 0:01:28.039 Then let's start with the general miseries, shall we. 0:01:28.319 --> 0:01:30.679 I mean listening how many are there? So many listening 0:01:30.680 --> 0:01:31.920 to that list of sigmons. 0:01:31.920 --> 0:01:34.000 The first thing that I think strikes you is how 0:01:34.040 --> 0:01:37.920 extraordinarily calm markets are in the wake of that sort 0:01:37.920 --> 0:01:41.440 of bizarrely unexpected list of things that have happened in 0:01:41.480 --> 0:01:43.400 the last two and a half three months, on two 0:01:43.400 --> 0:01:43.520 and a. 0:01:43.480 --> 0:01:45.959 Half weeks, let alone two and a half weeks. I mean, 0:01:46.040 --> 0:01:48.280 people have forgotten about the fed appointment. Really that happened 0:01:48.280 --> 0:01:49.880 at the end of January, and it's just sort of 0:01:49.920 --> 0:01:51.640 in the midst of time. But actually so much has 0:01:51.640 --> 0:01:54.080 happened since then, so I'm having to deal with that, 0:01:54.280 --> 0:01:57.040 having to keep your focus, are having to be consistent 0:01:57.080 --> 0:01:59.320 as a fun manager with all of that. I mean, 0:01:59.360 --> 0:02:03.080 the noise level are off the scale, but consistency, as 0:02:03.120 --> 0:02:06.320 you're the seers are, yes, absolutely what we do try, 0:02:06.480 --> 0:02:07.840 That's what we are there for. 0:02:08.360 --> 0:02:10.480 So I think what we really want to talk about 0:02:10.560 --> 0:02:13.440 this evening is how exactly you manage money and construct 0:02:13.440 --> 0:02:16.560 a portfolio in this kind of environment, because really the 0:02:16.639 --> 0:02:18.480 style that you use was really. 0:02:18.240 --> 0:02:20.040 Designed for this kind of environment, right. 0:02:20.080 --> 0:02:21.959 I mean, there are a period in the markets when 0:02:22.000 --> 0:02:24.680 you want to be in expensive growth dove and where 0:02:24.680 --> 0:02:26.280 you want to be thinking mainly about how do I 0:02:26.320 --> 0:02:28.040 grow my capital, how do I make more money all 0:02:28.040 --> 0:02:30.200 the time, And then there are berriers such as this 0:02:30.639 --> 0:02:32.920 when mainly you're thinking about how on earth do I 0:02:32.960 --> 0:02:33.920 protect what I already have. 0:02:34.960 --> 0:02:38.920 It's about preparing for dislocations basically, because dislocations happen, whether 0:02:38.960 --> 0:02:41.760 it be COVID, whether it be the financial crisis, whether 0:02:41.800 --> 0:02:44.600 it be the dot com bust another instance, whether it 0:02:44.680 --> 0:02:48.400 be the Gulf Wall, the invasion of or not the 0:02:48.440 --> 0:02:50.520 invasion of Iran yet, but we'll see about that maybe 0:02:50.560 --> 0:02:53.760 in a few weeks time. So we are waiting for those. 0:02:54.800 --> 0:02:57.240 Those events give us opportunities, but we also know that 0:02:57.280 --> 0:02:59.520 we need to be ready for them. We were ready 0:02:59.560 --> 0:03:04.240 for COVID, although COVID came totally out of the blue, 0:03:04.720 --> 0:03:06.280 we were prepared for the point of view, our act 0:03:06.360 --> 0:03:09.440 allocation was relatively low because xtually markets were high going 0:03:09.480 --> 0:03:11.760 into COVID. There was a lot of vulnerability. There's a 0:03:11.760 --> 0:03:13.480 lot of fragility within XIT markets. 0:03:14.320 --> 0:03:15.360 So when ready for COVID. 0:03:15.600 --> 0:03:17.560 So we weren't ready for COVID because no, absolutely not. 0:03:17.639 --> 0:03:19.360 But you've got to be ready for these instances and 0:03:19.360 --> 0:03:20.919 they come from left field. I mean, if you think 0:03:20.919 --> 0:03:26.280 about even three weeks ago, markets were very abulliant. People 0:03:26.280 --> 0:03:31.200 were talking very positive about ciclicality, about bank stocks, about 0:03:31.360 --> 0:03:35.920 house builders, all those areas of the market. Heavily cynical 0:03:35.960 --> 0:03:40.160 businesses which we tend to steer clear of. Those businesses 0:03:40.200 --> 0:03:43.000 now are down fifteen to twenty five percent just in 0:03:43.040 --> 0:03:46.080 the last two and a half weeks, with the your 0:03:46.160 --> 0:03:48.800 price going up. All you've got to do is be 0:03:49.680 --> 0:03:51.840 prepared to say, actually, those are not the kind of 0:03:51.840 --> 0:03:54.320 companies that I want to be in, because you know 0:03:54.360 --> 0:03:57.160 that those sort of instances can happen and do happen, 0:03:57.480 --> 0:04:01.240 and those businesses are more fragile, moreulnerable. I was with 0:04:01.280 --> 0:04:04.400 a property agent, a West End property agent this afternoon. 0:04:04.480 --> 0:04:07.920 He said that all transactions are just stopped literally on 0:04:07.960 --> 0:04:11.520 a pin, just until this situation is resolved, which may 0:04:11.520 --> 0:04:15.240 be weeks, it might be months. Transactions have just finished. 0:04:15.800 --> 0:04:20.320 So one has to be ready for events such as that. 0:04:21.240 --> 0:04:24.360 What they actually bring is opportunity. So as a long 0:04:24.440 --> 0:04:30.119 term investor, one can actually take opportunities when one sees 0:04:30.480 --> 0:04:32.600 huge risk a version. And we haven't seen that yet, 0:04:32.640 --> 0:04:34.960 by the way, But if and when we see huge 0:04:35.040 --> 0:04:37.120 risk of version, we see markets full as we did 0:04:37.200 --> 0:04:39.520 during COVID markets fell thirty five percent within the space 0:04:39.560 --> 0:04:42.359 of nine weeks, then you've got to be ready to 0:04:42.400 --> 0:04:44.760 act and lean in and take more riskers you're paid 0:04:44.800 --> 0:04:47.280 to take more risk. That's how you generate long term 0:04:47.320 --> 0:04:50.039 returns but also protect the downside. And the key thing 0:04:50.080 --> 0:04:52.240 for us, for personal assets or for the Trojan Fund, 0:04:52.680 --> 0:04:55.000 is that we want to give our investors a more 0:04:55.040 --> 0:04:59.040 comfortable ride that they sleep at night, that we're consistent, 0:04:59.080 --> 0:05:01.320 that they know they can run on us. So if 0:05:01.440 --> 0:05:05.760 markets do suddenly fall twenty five or thirty percent, that 0:05:05.760 --> 0:05:07.960 that they know that the Trajuy fund or personal asets 0:05:08.000 --> 0:05:10.400 would have fallen considerably less than the market a couple 0:05:10.440 --> 0:05:12.680 of percent. Well it could be a couple of percent. 0:05:14.440 --> 0:05:17.560 And when you when you look at their portfolio, you 0:05:17.600 --> 0:05:21.240 are not measuring yourself relative to a benchmark. You're always 0:05:21.240 --> 0:05:24.920 thinking about inflation. And that's it about first maintaining the 0:05:24.960 --> 0:05:27.840 real value of the assets before you think about growing them. 0:05:27.880 --> 0:05:29.599 Absolutely not about how it's perfect you're doing. 0:05:29.680 --> 0:05:31.840 It's not about absolutely not. I mean, obviously we look 0:05:31.839 --> 0:05:34.000 at the foot see obviously we look at the MSCI, 0:05:35.040 --> 0:05:37.280 the long term track record of the Trojan fun which 0:05:37.240 --> 0:05:38.960 is the longest track recording in back twenty five years. 0:05:38.960 --> 0:05:42.400 You mentioned, we've generated the equity type returns seven percentage, 0:05:42.800 --> 0:05:46.080 about the same as the UK stock market, but with 0:05:46.360 --> 0:05:48.719 less than half of volatility, so about six percent per 0:05:48.800 --> 0:05:51.000 year volatility rather than the market being thirty and. 0:05:50.960 --> 0:05:53.160 Measuring yourself against RPI rather than the CPI. 0:05:54.040 --> 0:05:56.159 Well that's going to change, but I don't want to 0:05:56.160 --> 0:05:59.520 give any too many surprises away because of the change 0:05:59.520 --> 0:06:02.200 in the RPI that will ultimately change. We need to 0:06:02.200 --> 0:06:04.520 review that. But yes, it has always been the RPI. 0:06:05.480 --> 0:06:08.800 We are trying to protect the real value of people's 0:06:08.800 --> 0:06:12.360 capital income helpful though it is is a residual. We 0:06:12.440 --> 0:06:14.480 never reach for income. It's one of the pluses of 0:06:14.520 --> 0:06:16.240 the whether we do it. Some of the people who 0:06:16.240 --> 0:06:21.560 invest for capital preservation have the tendency to reach for yield, 0:06:22.480 --> 0:06:24.480 and we actually do the opposite. 0:06:25.040 --> 0:06:30.960 Okay, let's start the next bit by talking about your 0:06:30.960 --> 0:06:33.440 inflation expectations, because I know a lot of the portfolio 0:06:33.760 --> 0:06:38.000 has historically been designed around your expectation of fast rising inflation, 0:06:38.520 --> 0:06:41.440 and obviously the war is going to feed into that absolutely. 0:06:41.600 --> 0:06:43.440 Yeah. So I mean, with the your price up but 0:06:43.480 --> 0:06:46.120 one hundred dollars and it my spike further, I wouldn't 0:06:46.120 --> 0:06:48.400 be surprised if it sprites further. Then obviously we're going 0:06:48.400 --> 0:06:52.240 to see an inflation shock to the RPI, so that 0:06:52.360 --> 0:06:55.040 none of those numbers have gone in we think. I mean, 0:06:55.080 --> 0:06:57.880 it's very interested listening to your podcast two weeks ago 0:06:57.920 --> 0:07:02.560 with Edward Chancellor. That book The Price Time We've given 0:07:02.640 --> 0:07:07.159 its clients. It's a remarkably well timed, brilliant book. But 0:07:07.279 --> 0:07:10.880 what he is effectively saying, what we have recognized as 0:07:10.920 --> 0:07:14.400 investors over the last five six years, is that in 0:07:14.440 --> 0:07:18.120 twenty twenty with COVID. Things changed, and things were going 0:07:18.160 --> 0:07:21.840 to change anyway when an event happened, whether it be 0:07:21.880 --> 0:07:24.680 a recession or or whether it be a pandemic, as 0:07:24.680 --> 0:07:28.600 it happened, but interest rates basically bottomed, and we had 0:07:28.640 --> 0:07:32.120 this extraordinary period of a decade where interest rates were 0:07:32.360 --> 0:07:35.280 at zero and nailed to the floor, and we recognized 0:07:35.320 --> 0:07:36.720 that we were going to go into a world of 0:07:36.920 --> 0:07:42.160 rising rates and probably as a result, higher inflation all 0:07:42.160 --> 0:07:45.400 the other way around. We saw those inflationary pressures build up, 0:07:45.440 --> 0:07:49.560 which we saw with the war in Ukraine. RPI went 0:07:49.600 --> 0:07:52.080 to thirteen percent CPI and the US went to nine. 0:07:52.840 --> 0:07:57.040 It has been above target since then, so central backs 0:07:57.040 --> 0:08:00.400 have failed to get it below target. We think we 0:08:00.440 --> 0:08:04.040 are in a world obviously clearly helped by the old 0:08:04.040 --> 0:08:08.000 price going out to two hundred dollars, where the surprise will 0:08:08.040 --> 0:08:10.640 be on the upside for inflation rather than downside. Twenty 0:08:10.640 --> 0:08:13.600 ten to twenty twenty one, the surprise was permanently on 0:08:13.640 --> 0:08:16.800 the downside. The centerprise was struggling as hard as they 0:08:16.840 --> 0:08:20.800 could to get actually inflation up. Now we're in a 0:08:20.920 --> 0:08:22.040 very different world. 0:08:21.960 --> 0:08:24.160 Okay, but you know this was very much the case. 0:08:24.160 --> 0:08:26.200 But before the oil preach started to move. 0:08:26.680 --> 0:08:30.400 Yes, well, we yeah, absolutely, we believe that we're in 0:08:30.440 --> 0:08:35.840 a secular period whereby as Edward is, where yields are rising, 0:08:36.760 --> 0:08:40.880 where the bond market, bond market yields bottoms in August 0:08:40.920 --> 0:08:44.520 July August of twenty twenty, yields have been rising since then. Yes, 0:08:44.559 --> 0:08:48.000 there will be downward moves. What's very interesting about this period, 0:08:48.400 --> 0:08:51.120 the last few weeks is that actually, although the expectation 0:08:51.160 --> 0:08:54.520 would be with the rising oil price of flight to quality, 0:08:55.120 --> 0:08:58.160 yields would actually fall, they haven't. In fact, they've risen. 0:08:58.559 --> 0:09:02.199 So there isn't that protection, that natural protection of the 0:09:02.280 --> 0:09:06.160 sixty forty sixty equity forty bonds. And we knew that 0:09:06.200 --> 0:09:09.480 we were in a different world where sixty forty type 0:09:09.960 --> 0:09:12.120 structure of a portfolio. You asked me about the structure 0:09:12.120 --> 0:09:14.520 of the portfolio. We moved from a world where you 0:09:14.559 --> 0:09:16.760 do not want to have sixty forty because actually equities 0:09:16.760 --> 0:09:18.400 and bonds can go down at the same time within 0:09:18.480 --> 0:09:19.560 an inflationary world. 0:09:20.240 --> 0:09:23.760 Stick with inflation. What are the drivers of this change? 0:09:23.920 --> 0:09:25.800 I mean, I think we can probably list them all 0:09:26.400 --> 0:09:28.199 in geopolitics supply. 0:09:28.040 --> 0:09:37.160 Chaine, well geopology, but in particular tariffs, the world getting larger, 0:09:37.240 --> 0:09:42.960 rather so the world was always getting smaller with global 0:09:42.960 --> 0:09:47.440 lotation that really has been reversing for quite a long 0:09:47.480 --> 0:09:51.560 time now. That has meant that there's a greater fragility 0:09:51.600 --> 0:09:54.240 in supply chains. And that is meant when we've seen 0:09:54.320 --> 0:09:57.120 these crisis, whether it be Ukraine, whether it be Iran, 0:09:58.240 --> 0:10:02.440 that the response is higher prices, whereas we've been used 0:10:02.440 --> 0:10:05.120 to lower and lower and lower prices, and it takes 0:10:05.160 --> 0:10:08.959 these shocks where there's a very oh okay, we're back 0:10:09.000 --> 0:10:10.959 in this world again. We're back in this world of 0:10:11.040 --> 0:10:15.079 higher prices. The old price. You know, there is a 0:10:15.200 --> 0:10:18.000 higher prices are deflationary. Well, yes, if the price goes 0:10:18.040 --> 0:10:21.760 to one hundred and fifty dollars, suddenly demand disappears because 0:10:21.760 --> 0:10:25.559 people can't afford the old price at that level. So 0:10:25.640 --> 0:10:28.120 that that's when we get the risk. I think there 0:10:28.200 --> 0:10:30.120 is a risk which I don't think is being discounted 0:10:30.120 --> 0:10:32.600 at the moment of recessionary courses. 0:10:33.000 --> 0:10:35.800 And you would you also think that the public debt 0:10:35.800 --> 0:10:37.640 problem feeds into the inflationary environment. 0:10:38.080 --> 0:10:42.600 The public debt problem doesn't help, doesn't help at all. No, 0:10:42.679 --> 0:10:46.760 it's because effectively policy makers are stuck as stuck in 0:10:47.160 --> 0:10:50.040 this period whereby they have to consequently out of the debt. 0:10:50.040 --> 0:10:54.400 I mean in the UK the interest bills now weout 0:10:54.400 --> 0:10:56.640 one hundred and ten billion pounds. In the US it's 0:10:56.679 --> 0:11:00.800 one point one trillion, So that desperately trying to keep 0:11:00.840 --> 0:11:04.000 the interest rates down, but clearly at the moment that's 0:11:04.040 --> 0:11:06.760 not necessarily likely to be the case. If anything, interest 0:11:06.840 --> 0:11:09.440 rates are going to be on hold. As central banks 0:11:09.440 --> 0:11:12.360 try and work out could there be a policy error 0:11:12.360 --> 0:11:15.160 of putting rates up or keeping rates on hold when 0:11:15.240 --> 0:11:18.080 actually demand falls off due to a high old price, 0:11:18.720 --> 0:11:21.040 or should they be cutting because it's that we're into 0:11:21.120 --> 0:11:22.319 a recession and you. 0:11:22.280 --> 0:11:27.040 Think recession risks in the US everywhere globally. 0:11:27.280 --> 0:11:34.080 Yes, absolutely so that I'm not predicting a recession, but 0:11:34.320 --> 0:11:37.040 there is far more of a risk recession than markets 0:11:37.080 --> 0:11:38.960 are discounting. After two and a half weeks of this. 0:11:39.240 --> 0:11:42.760 If this carries on and the gover of Homers stays 0:11:42.800 --> 0:11:45.840 shut for a prolonged period of time, call it three 0:11:45.840 --> 0:11:49.120 to six months rather than three to six weeks, then 0:11:49.280 --> 0:11:52.120 you could have real issues. And you know, I do 0:11:52.200 --> 0:11:56.679 see the lightly of the downtown and the downturn. There 0:11:56.679 --> 0:11:58.679 were risks of a downtime back in twenty twenty two 0:11:58.800 --> 0:12:02.680 twenty twenty three with with the invasion of Ukraine. But 0:12:03.000 --> 0:12:07.360 fortunately in that situation there were huge pent up savings 0:12:07.440 --> 0:12:10.040 from consumers, so consumers were actually in a very good 0:12:10.040 --> 0:12:12.200 place back in twenty twenty two twenty three they could 0:12:12.200 --> 0:12:15.480 withstand the higher prices to some extent. This time around, 0:12:15.640 --> 0:12:19.240 you've got a K shape recovery. I a mismatch between 0:12:19.320 --> 0:12:21.840 the haves and the have not have not You've got 0:12:21.880 --> 0:12:24.640 in the UK, you've basically, as you know, married very well. 0:12:24.679 --> 0:12:28.280 You've got zero growth as of the quarter to the 0:12:28.360 --> 0:12:32.880 end of January before this happened. And in the US 0:12:32.920 --> 0:12:36.080 actually growth has been not as strong as as many 0:12:36.120 --> 0:12:38.240 have expected, you know, sort of two percent, but by 0:12:38.400 --> 0:12:41.520 US standards actually relatively modest. So it's coming at a 0:12:41.559 --> 0:12:42.280 difficult time. 0:12:53.840 --> 0:12:58.000 The challenge to your moving away from recession, the it 0:12:58.120 --> 0:13:03.600 challenged your view on inflation, is that the technological progress 0:13:03.640 --> 0:13:05.920 that we're making at the moment is very deflationary. That 0:13:06.000 --> 0:13:09.720 the combination of AI, robotics, all these things coming together 0:13:10.120 --> 0:13:14.800 is a huge deflationary impulse across the global economy. 0:13:15.400 --> 0:13:18.160 Technology always has been a deflationary impasse. But I think 0:13:18.240 --> 0:13:21.640 that what's happening in terms of the reversal of globaliza. 0:13:22.040 --> 0:13:24.600 Globalization makes it, I think, much more difficult. That's why 0:13:24.960 --> 0:13:30.199 I mean, technological gains have been been made over the 0:13:30.280 --> 0:13:34.160 last five years, have been made materially since twenty twenty, 0:13:34.720 --> 0:13:37.760 since twenty twenty two. Yet we're in a position where 0:13:37.880 --> 0:13:42.600 inflation is above and sticky and above targets. So I 0:13:42.640 --> 0:13:49.840 think the technological revolution view of keeping inflation down yes, 0:13:49.880 --> 0:13:51.840 at the margin, but I think there are other factors 0:13:51.840 --> 0:13:56.000 at play which are frankly more important, that are sort 0:13:56.000 --> 0:14:02.640 of overruling the factors of of technology. Just at the moment. 0:14:02.679 --> 0:14:06.520 We will see maybe that will evolve, But so far 0:14:07.040 --> 0:14:09.840 that technological argument over the last five years hasn't really worked. 0:14:10.760 --> 0:14:14.520 Okay, let's go back to the conversation we started about 0:14:14.559 --> 0:14:17.160 bond and the sixty to forty portfolio. 0:14:17.200 --> 0:14:18.480 That really doesn't work anymore. 0:14:19.120 --> 0:14:22.080 But that doesn't mean there aren't fixed income holdings in 0:14:22.120 --> 0:14:22.680 your portfolio. 0:14:22.760 --> 0:14:26.200 No, But they're very very short duration, so we're just 0:14:26.280 --> 0:14:28.440 not taking any duration risk at all, and we haven't 0:14:28.440 --> 0:14:30.560 taken any duration risk for a very long time. So 0:14:31.320 --> 0:14:34.200 with a very long bond, clearly you're taking a lot 0:14:34.200 --> 0:14:36.480 of duration risks. A lot of the value of that 0:14:36.520 --> 0:14:40.200 bond is out into the twenty thirties, twenty forties, twenty fifties. 0:14:40.480 --> 0:14:43.880 The capital value to that bond is at risk if 0:14:43.960 --> 0:14:47.520 yields rise, as we expect yields to be sticky and 0:14:47.560 --> 0:14:51.800 continue to rise over time until governments ultimately intervene, which 0:14:51.840 --> 0:14:53.560 I expect them to do at some stage in the 0:14:53.600 --> 0:14:56.400 next four or five years, because this whole situation is 0:14:56.600 --> 0:15:00.840 ultimately unsustainable. Intervene now intervene in possible two ways. One 0:15:00.840 --> 0:15:03.840 would be your curve control because the interest is just 0:15:03.880 --> 0:15:07.600 not affordable. Well, the tried and tested ways are either 0:15:07.600 --> 0:15:10.520 the your curve control or actually a cutting of the coupon, 0:15:11.040 --> 0:15:13.160 which has been done in the past as well. If 0:15:13.160 --> 0:15:15.680 you remember but Warlane, which I used to own in 0:15:15.720 --> 0:15:19.360 the fact, remember, which is a very very long dated 0:15:19.480 --> 0:15:22.360 UK government bond, in fact about the longest dated that 0:15:22.440 --> 0:15:24.280 the yield was cut of seven percent to three and 0:15:24.320 --> 0:15:28.240 a half percent between the wars, So yields coupons have 0:15:28.320 --> 0:15:31.480 been cut, but yu curve to control is probably the 0:15:31.480 --> 0:15:33.560 most likely that was used in the US after the war. 0:15:33.600 --> 0:15:36.280 But there are tried and tested They're not very pleasant 0:15:36.600 --> 0:15:38.640 and clearly they are default and clear they have implications 0:15:38.680 --> 0:15:44.880 for currencies, but the unsustainable nature of sovereign government bonds 0:15:45.960 --> 0:15:49.880 higher yields than today are very material. That is why 0:15:50.680 --> 0:15:53.720 the UK government is subsessed by the guilt market because 0:15:55.120 --> 0:15:57.920 you know that has huge ramifications for them. 0:15:58.080 --> 0:16:01.640 Okay, so what replaces the traditional bond part of a 0:16:01.720 --> 0:16:06.119 portfolio so effectively it's liquidity, and we've got liquidity. 0:16:06.160 --> 0:16:10.080 We've got index linked so for example, we'd benefit from 0:16:10.080 --> 0:16:13.120 that inflation. If you look at what index link bonds 0:16:13.120 --> 0:16:16.280 have done since twenty twenty since inflation started to pick up, 0:16:16.680 --> 0:16:19.600 and what conventional bonds have done, Index lenth bonds have 0:16:19.640 --> 0:16:23.760 done much better because we've been taking that inflation every month. 0:16:24.120 --> 0:16:28.520 So we've got short but short dated index link. The 0:16:28.640 --> 0:16:31.640 longer dated index link bonds were very, very badly hit 0:16:31.720 --> 0:16:33.640 in twenty twenty two where we saw that inflation, but 0:16:33.680 --> 0:16:37.280 ironically people had long duration indexcellent bonds thinking that they 0:16:37.280 --> 0:16:39.480 were going to get the outside and actually the duration 0:16:39.640 --> 0:16:42.200 killed them even though they got they got the inflation. 0:16:42.520 --> 0:16:45.000 The shorter dated index links, which we had, got the 0:16:45.040 --> 0:16:47.520 inflation without the risk of the duration, so we didn't 0:16:47.520 --> 0:16:51.160 get hurt nearly as badly in twenty twenty two as 0:16:51.320 --> 0:16:54.840 a sum. But I think the key thing is is liquidity, 0:16:55.080 --> 0:16:57.120 and then you've got the greater flexibility as well. So 0:16:57.680 --> 0:16:59.600 our bonds are less than two years in duration. We 0:16:59.600 --> 0:17:02.320 could look don't very very quickly and move into other 0:17:02.320 --> 0:17:04.560 asset class if need be. And the other thing obviously 0:17:04.600 --> 0:17:09.360 within equities forty percent in equities and gold as well, 0:17:09.359 --> 0:17:11.000 which is ten percent of the portfolio. 0:17:11.160 --> 0:17:14.880 Let's talk gold last we yes, I think we must 0:17:14.880 --> 0:17:15.040 say it. 0:17:15.040 --> 0:17:17.119 Everyone expects us to talk about gold, right like it 0:17:17.160 --> 0:17:18.920 if we didn't yet, everyone wants justus talk about gold. 0:17:19.680 --> 0:17:21.920 Tis end of the portfolio. Still it's the biggest holding. 0:17:22.359 --> 0:17:23.640 But you have sold down quite a lot. 0:17:23.800 --> 0:17:26.560 We have sold down quite a lot. I think it's 0:17:26.640 --> 0:17:31.160 more a question of tempering our enthusiasm. We have done 0:17:31.280 --> 0:17:32.720 very well in gold, going right the way back to 0:17:32.760 --> 0:17:34.919 when we met. I think we first bought gold for 0:17:34.960 --> 0:17:38.480 the Trojan found back in twenty two thousand and four, 0:17:38.560 --> 0:17:41.120 so over twenty years ago. Gold price was four hundred 0:17:41.160 --> 0:17:43.960 and twenty four dollars back then. We've held it uninterrupted 0:17:44.000 --> 0:17:45.360 all of that time. We haven't been in and out 0:17:45.400 --> 0:17:47.320 and in and outs. We held it a long time 0:17:47.600 --> 0:17:50.439 and since after the financial crisis. We've in between about 0:17:50.600 --> 0:17:56.040 ten and twelve percent. But when I met you three 0:17:56.119 --> 0:17:59.240 years ago sitting on the stage, I think the price 0:17:59.400 --> 0:18:01.960 was around just over two thousand, two thousand, two hundred 0:18:01.960 --> 0:18:04.639 dollars something like that. Today it's five thousand dollars plus 0:18:04.640 --> 0:18:07.600 on minus. It's been a hell of a run. We 0:18:07.680 --> 0:18:11.679 know the reasons as to why that has been the 0:18:11.680 --> 0:18:15.560 A well exercise particularly interesting and not about consumers or 0:18:15.600 --> 0:18:19.280 institutional investors particularly adding to gold. Be much more about 0:18:19.280 --> 0:18:23.320 central banks diversifying their portfolios, and that has continued and 0:18:23.320 --> 0:18:25.960 that's been of great support to the market. So I'm 0:18:25.960 --> 0:18:29.800 not overly pessimistic about gold at these levels. However, they 0:18:29.800 --> 0:18:31.320 have had a great run and we need to get 0:18:31.359 --> 0:18:35.399 our risks proportionately correct. We allowed gold to run out 0:18:35.560 --> 0:18:38.600 fourteen percent at the end of last year within the portfolio. 0:18:39.119 --> 0:18:42.960 In January, the price spiked above five thousand, five hundred dollars. 0:18:43.400 --> 0:18:46.680 We sold some just over about five thousand, one hundred, 0:18:46.760 --> 0:18:49.560 five thousand, two hundred dollars, and we brought it down 0:18:49.600 --> 0:18:51.640 to ten percent. So it's a very bitch. We've cut 0:18:51.680 --> 0:18:53.600 our goal hold in about thirty percent in a day. 0:18:53.920 --> 0:18:55.040 Shows how liquid it is. 0:18:55.880 --> 0:18:56.480 A ten percent. 0:18:57.400 --> 0:19:01.159 At ten percent, I think expresses low long term confidence. 0:19:02.000 --> 0:19:03.520 In the short term, I think it's going to be 0:19:03.600 --> 0:19:07.919 quite bumpy. It's traveled a long way very quickly, and 0:19:07.960 --> 0:19:11.840 I think it's not necessarily going to protect in a 0:19:11.880 --> 0:19:15.480 way that it has done in the past from volatility 0:19:15.480 --> 0:19:20.199 within markets because of that high level. So it's just 0:19:20.320 --> 0:19:23.080 not going to be that necessarily that portfol insurance. And 0:19:23.080 --> 0:19:25.280 we've seen that in the last two to three weeks. 0:19:25.760 --> 0:19:28.399 We've seen the bomby of Iran at a time the 0:19:28.440 --> 0:19:31.720 gold prize actually hasn't done anything in Sterling. It's up 0:19:31.720 --> 0:19:34.440 a little bit because the dollars strengthened, but really it's 0:19:34.440 --> 0:19:36.280 done nothing. And you would have expected it if you 0:19:36.320 --> 0:19:38.880 were to say to me, right lo Gate, the US 0:19:38.920 --> 0:19:41.879 is going to bomb Iran with Israel tomorrow morning, what 0:19:41.920 --> 0:19:44.080 do you expect the gold price to do? You would 0:19:44.160 --> 0:19:46.560 naturally expect it as a flight to quality, for the 0:19:46.560 --> 0:19:48.920 gold price to go up. It hasn't, and I think 0:19:48.920 --> 0:19:55.160 that and when, when, eventually, whenever it is, the US 0:19:54.840 --> 0:19:59.480 steps back from the war, then it would be interesting 0:19:59.480 --> 0:20:02.160 to see what happen the gold price. Then I wouldn't 0:20:02.160 --> 0:20:06.720 be surprised if it has a correction, but that I 0:20:06.760 --> 0:20:08.560 would view that as a long term opportunity. I think 0:20:08.600 --> 0:20:11.680 with everything we've talked about in terms of sovereign debt risk, 0:20:12.119 --> 0:20:14.960 that is not going away, and that will be very 0:20:15.000 --> 0:20:16.800 positive gold, both from the point of view of weak 0:20:16.800 --> 0:20:19.280 ocurrencies and debasement, but also from the point of view 0:20:19.320 --> 0:20:22.919 of owning another asset other than fixed income. So so 0:20:23.720 --> 0:20:27.159 I don't think the bull market is over, but I 0:20:27.160 --> 0:20:29.680 think we have had a very strong run, and I 0:20:29.680 --> 0:20:32.320 think there's reason to be a little bit more circumspect 0:20:32.359 --> 0:20:36.080 from these levels. And just there is no right answer 0:20:36.359 --> 0:20:39.960 about how to size this thing. I've got friends who've 0:20:40.000 --> 0:20:42.280 got fifty percent in gold. I've got friends who've got 0:20:42.320 --> 0:20:44.560 one percent in goals. I've got friends who've got no gold. 0:20:45.320 --> 0:20:49.320 So it is not necessarily to size. What I've always 0:20:49.320 --> 0:20:51.840 felt is that you've got to have enough to make 0:20:51.880 --> 0:20:55.280 a difference, but not so much that the tailwork's dog. 0:20:55.720 --> 0:20:58.840 So I've always felt between eight and twelve percent about right. 0:20:58.880 --> 0:21:01.960 Were allowed to get to fourteen, we came back to ten, 0:21:02.080 --> 0:21:04.000