Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Welcome to Merin Talks Money,
Speaker 1: the podcast in which people who know the markets explain
Speaker 1: the markets. I'm Maren zum Zett Web and this week
Speaker 1: I am speaking with Merrin Talks Money regular Alec Cutler,
Speaker 1: manager of the August Global Balanced and Cautious Funds Always Investments,
Speaker 1: is a global contrarian as a manager, focusing on long
Speaker 1: term capital by investing in under valued stocks. Now this
Speaker 1: is paying off big time. If you have a look
Speaker 1: at the performance of Alex funds recently, they are really
Speaker 1: very impressive, beating pretty much every competitor in every index
Speaker 1: over the short and the long term. So Alec, welcome
Speaker 1: back to Marion Talks Money.
Speaker 2: Thank you, nice to be back. And I hope you
Speaker 2: didn't jinx me.
Speaker 1: I didn't jinx you. That's not a jinxing because that's
Speaker 1: not what we do. We leave the witchcraft to other podcasts. Okay, good,
Speaker 1: It's a big market out there. Everyone can have their specialism, Alec.
Speaker 1: Quite a lot has changed since we lost spoke, but
Speaker 1: nothing that I think your portfolio isn't already organized around.
Speaker 3: Last time we.
Speaker 1: Spoke about energy, we spoke about infrastructure, we spoke about
Speaker 1: the return of value investing, and in general, we framed
Speaker 1: the conversation inside the pyramid of need. I'll tell you what,
Speaker 1: Rather than me explain your own idea to you, you
Speaker 1: explained to us about your pyramid of need idea and
Speaker 1: how it is central to your current investing process.
Speaker 4: Sure Maslow came up with this thing called the pyramidive
Speaker 4: need for a human and the concept was that you
Speaker 4: needed to take care of your physiological needs, your shelter
Speaker 4: and housing and warmth and food, and then you needed
Speaker 4: to deal with your safety. Once you had your food
Speaker 4: and your shelter set, you needed to keep people from
Speaker 4: taking that from you, whether it be a saber tooth
Speaker 4: tiger or your neighbor. Then you could afford to need
Speaker 4: things like social belonging. And once you got that, once
Speaker 4: you got your crowd, your tribe, or whatever, you then
Speaker 4: could think about things like self esteem and self actualization
Speaker 4: the top of the pyramid. And our thinking was and
Speaker 4: has been and is that this also applies to countries
Speaker 4: and nations, and that if you think about it, some
Speaker 4: investment ideas pop out. But if you think about that
Speaker 4: base layer, the foundational layer of a nation's pyramid of needs.
Speaker 4: It's things like national security, food security, energy security, and
Speaker 4: right above that, if you take care of those things,
Speaker 4: then you can think about industrial security, and then above
Speaker 4: that financial security. And at the top of the pyramid
Speaker 4: the wants, the entertainment, popularity, and again self esteem. And
Speaker 4: we came up with this towards the tail end of
Speaker 4: the ESG movements like geist whatever you wanted to call it,
Speaker 4: because it struck us that things have been so good
Speaker 4: for so long we were living in a land of
Speaker 4: plenty with no danger. That nations became super focused on
Speaker 4: the top of the pyramid the wants and completely forgot
Speaker 4: about the foundational layers and took them for granted, like
Speaker 4: where does electricity come from? It comes from the switch
Speaker 4: on the wall. No understanding of how that foundation was
Speaker 4: built over decades and decades to allow you to have
Speaker 4: this high standard of living in abundance, and that it
Speaker 4: shouldn't be taken for granted. And if we've learned anything
Speaker 4: in the last five six years, it's that from the
Speaker 4: pandemic one that this stuff isn't guaranteed and needs to
Speaker 4: be focused on and lo and behold a lot of
Speaker 4: the performance that we've achieved some from the world start
Speaker 4: to understand that.
Speaker 1: Yeah, it's interesting, isn't it, And that even now when
Speaker 1: we're in an environment where we really need to be
Speaker 1: thinking about national security, about food security, about energy security,
Speaker 1: all the things at the bottom of your pyramid, and
Speaker 1: industrial security obviously is actually part of national security, isn't it,
Speaker 1: Because that's how you win wars, by having a strong
Speaker 1: industrial base that you can keep churning out the stuff
Speaker 1: you need during a war. So stea, Yeah, all these
Speaker 1: things are connected. But yet across Europe and certainly in
Speaker 1: the UK, we continue to talk about it, expanding the
Speaker 1: things at the top without really focusing on the bottom.
Speaker 1: You know, it takes a long time for people to
Speaker 1: realize that they've neglected the base of a successful society.
Speaker 4: Yeap, it can take a long time. It can happen
Speaker 4: all at once, too.
Speaker 3: Yes, And is it slightly about to happen all at once?
Speaker 2: Maybe we'll see maybe.
Speaker 1: Okay, So let's look at the environment where we're in now,
Speaker 1: the war with Iran has I keep getting bits of
Speaker 1: research from people alec and they all say there are
Speaker 1: three part possible scenarios here, and every single one of
Speaker 1: those three scenarios is different in every note I get,
Speaker 1: so there will probably be at this point about fifty
Speaker 1: possible scenarios, but they come down to war over quickly
Speaker 1: war dragging out for a long time.
Speaker 3: Both have slightly different results.
Speaker 1: In terms of microeconomics, but possibly they have the same
Speaker 1: result in terms of the way people think about their
Speaker 1: investments in that however long the war goes on, everyone
Speaker 1: in the investment world is still going to be looking
Speaker 1: at the bottom of this pyramid and saying, what's been neglected,
Speaker 1: what is less expensive than it should be? And I
Speaker 1: think last time you came on, we talked about the
Speaker 1: price people are willing to pay for a company involved
Speaker 1: in in AI, and that price people are willing to
Speaker 1: pay for a company that digs out of the ground
Speaker 1: all of the things that are absolutely necessary for that
Speaker 1: technology to even.
Speaker 3: Begin to exist.
Speaker 1: And as some price, we were to find that people
Speaker 1: will pay five, six, seven times the price for the
Speaker 1: uncertain technology, then they will pay for the underpinning of
Speaker 1: that technology. Now that I think is the shift that
Speaker 1: is now underway. People are beginning to care less about
Speaker 1: the top of the pyramid and are a lot more
Speaker 1: about the bottom, and they're going to start paying off
Speaker 1: for the bottom. And when we framed this John and
Speaker 1: I and we were talking about it the other day,
Speaker 1: as people are now going to pay an awful lot
Speaker 1: less for hope and an awful lot more for the
Speaker 1: avoidance of despair.
Speaker 4: Yeah, we're seeing that and it does fill us with
Speaker 4: joy to see the world starting to figure out that
Speaker 4: who's actually making money on AI. It isn't clear that
Speaker 4: it's going to be Meta or Amazon or Microsoft. It's
Speaker 4: very clear that it's going to be and is Taiwan
Speaker 4: Semiconductor and Demon's Energy and the Marcellus oil producers, gas producers,
Speaker 4: and you're starting to see investment capital shift from the
Speaker 4: former to the latter, going for the sure thing.
Speaker 1: Given that you've just mentioned Taiwan, let's just stop there
Speaker 1: for a minute and talk about the energy construction that
Speaker 1: people are now working under. And this is quite a
Speaker 1: big deal, right. So a lot of these Asian economies
Speaker 1: and Japan, which we've talked about a lot over the years,
Speaker 1: and many of the other economies in that region, are
Speaker 1: dependent fifty percent plus on their energy coming in from
Speaker 1: the Middle East. So it may be that we're getting
Speaker 1: to a point where maybe those aren't the places where
Speaker 1: you want to be investing.
Speaker 3: We've seen a lot of volatility. For example, in the
Speaker 3: Korean market.
Speaker 4: There is gas around. There's an incredible amount of gas around.
Speaker 4: It just you may have to get it from Canada
Speaker 4: or the US, but you do need to. Every country
Speaker 4: needs to focus on its own controllable energy resource. Korea
Speaker 4: and Japan are not well endout with energy resources, so
Speaker 4: something like nuclear is obvious for them, and they do
Speaker 4: push pretty hard on that. Japan took a bit of
Speaker 4: a hiatus for a good reason, but they're coming flying
Speaker 4: back with an emphasis on nuclear. Hopefully we can leverage
Speaker 4: that in our investments.
Speaker 1: Resent in your investments, I know that you've been heavily
Speaker 1: invested across the energy area for a while now, and
Speaker 1: you're also heavily invested in the UK now. Interestingly, last
Speaker 1: week's guest talked about the UK and he said he'd
Speaker 1: be loath to invest in the UK because of the
Speaker 1: self destructive energy policies in place here, and if you
Speaker 1: were looking for somewhere to invest in, you were doing
Speaker 1: it by region. In an ideal world, you'd start by saying,
Speaker 1: if all economic activity is energy transformed, does this region
Speaker 1: or this country provide its industry with the route to
Speaker 1: inexpensive energy, and the answer to that question in the
Speaker 1: UK is absolutely not.
Speaker 3: But your take is different, right.
Speaker 4: I think our takes very different in that that's a problem,
Speaker 4: but we can invest in the solutions and when need
Speaker 4: to take into account valuation, as we've been very overweight
Speaker 4: the UK for a very long time, and even though
Speaker 4: the names have done very well, we're still thirteen percent
Speaker 4: weighted in the Balance Fund and eight percent weighted in
Speaker 4: the Global Costious Fund in UK equities which is three,
Speaker 4: four or five, I don't know, six seven times at
Speaker 4: the global waiting and we're invested in those providing the
Speaker 4: solutions to that problem.
Speaker 1: Had some of those extraordinary performers Rolls Royce, Hunting, Balfa
Speaker 1: Bet etc.
Speaker 4: They've been wonderful stocks that because we've been able to
Speaker 4: hold them for a very long time because we bought
Speaker 4: them at four or five and six times earnings and
Speaker 4: they've produced a lot of earnings despite the people being
Speaker 4: down in the UK. Balfour BET's earnings are up I
Speaker 4: think four or five fold, and we were buying Balfour
Speaker 4: Bet when it was selling at a fraction of the
Speaker 4: value of their infrastructure investments plus cash. It's still Balfour's
Speaker 4: up four x and it's still just at a premium
Speaker 4: to net cash plus their infrastructure investments. This is the
Speaker 4: largest invest managed, insurance, construction engineering company in the world
Speaker 4: that's making and solving the problems that we've just stated
Speaker 4: about energy security and energy supply.
Speaker 1: Yeah, and infrastructure in general across the western world. We're
Speaker 1: moving right into an infrastructure replacement cycle, right, and we
Speaker 1: have to. We talk about the grid a lot, but
Speaker 1: it's not just a grid. It's pretty much every other
Speaker 1: part of infrastructure. Definitely, if you drive around the US,
Speaker 1: you drive around the UK, you can look at that
Speaker 1: and go time once in a generational refit.
Speaker 4: The thing that's driving the pyramidive needs is also a
Speaker 4: realization that countries are on their own, that they have
Speaker 4: to operate in their own self interest because the other
Speaker 4: countries are operating their own self interest. So the UK
Speaker 4: can't rely on the United States to provide its natural
Speaker 4: gas and oil, which it largely is dependent on. You
Speaker 4: have for the rumor yesterday or the day before, was
Speaker 4: that Trump was going to stop all oil and gas exports.
Speaker 4: That's where Europe and UK gets the cask, which.
Speaker 3: He easily could.
Speaker 1: And in a period of shortage, why should did each
Speaker 1: country not limit their own exports. There's a long history
Speaker 1: of this happening in times of conflict, right countries just
Speaker 1: saying do you know what this is on? And we're
Speaker 1: going to hang on to it for now, and you
Speaker 1: guys can take care of yourself. And the UK, having
Speaker 1: shown itself as the US says, to be a relatively
Speaker 1: unreliable partner to the US, isn't necessarily always going to
Speaker 1: be in receipt of American lodgess.
Speaker 4: Global cooperation is an incredibly recent phenomenon that's very short lived.
Speaker 4: And for people our age growing up in a period
Speaker 4: of global cooperation and globalization, that's what we knew, that's
Speaker 4: what we've known, and that's what we think is always
Speaker 4: going to be the case. But we've lived in just
Speaker 4: a fraction of the history of the world, in history
Speaker 4: of humanity, and that will wind up being a very
Speaker 4: unusual time in the world's history.
Speaker 3: Okay, So let's stick with the UK.
Speaker 1: So just bigle, you're going to hang on to all
Speaker 1: those big names, hang on to Belford, Beattie, hang on
Speaker 1: to drags.
Speaker 3: Not always a popular holding shell.
Speaker 1: You've got rolls Royceness it said earlier hunting, you'll be
Speaker 1: hanging on too.
Speaker 3: All those we.
Speaker 2: Shuffle them around a little bit.
Speaker 4: We do focus on risk and control, so we can't
Speaker 4: just let things go to go to the sky.
Speaker 2: And we keep finding new names.
Speaker 4: So the UK is just a is a wonderful hunting
Speaker 4: ground for contrarian, super cheap names that no one wants,
Speaker 4: and we get laughed at when we buy and then
Speaker 4: five six, seven years later people begin to understand why
Speaker 4: we were happy to own them.
Speaker 1: No, well, we might come back to some more of those,
Speaker 1: but you have you tell me being building a bit
Speaker 1: of a position in companies operating in the North Sea
Speaker 1: Explanation and production Serica Ethaka Harbor Energy.
Speaker 4: Tell us about that, Serica and Ithaca. It's just what
Speaker 4: we've been talking about. You need energy security. Every nation
Speaker 4: that wants to be a nation and be a prosperous
Speaker 4: nation needs energy security, and energy security does not come
Speaker 4: from someone else. Definitionally, the UK is lucky. It's not
Speaker 4: like Korea or Japan. The UK has indigenous secure energy supply.
Speaker 4: It just has to want to have it, knowing that
Speaker 4: eventually the pendulum swings back and forth, and politicians are
Speaker 4: incredible at without flinching, going from being incredibly anti something
Speaker 4: to incredibly pro that same thing.
Speaker 1: It'll just interrupt you that to say that you sent
Speaker 1: me a tweet earlier by us live on the lend
Speaker 1: saying Europe needs homegrown low carbon energy sources. Nuclear renewables
Speaker 1: together have a key role to pay. Nuclear energy is
Speaker 1: available around the club.
Speaker 3: We're writing electricty all year. Europe has been.
Speaker 1: A pioneer in nuclear technology and can lead again to
Speaker 1: which pretty much everyone pointed out that she was instrumental
Speaker 1: in the shutting down of all of Germany's nuclear plants.
Speaker 1: And I look at that, and you think one can
Speaker 1: right now not even begin to imagine the likes of
Speaker 1: Ed Miliband suddenly saying the UK has always had its
Speaker 1: own oil and gas supplies and it's very important that
Speaker 1: we hang on to them for purposes of national security.
Speaker 3: Drill, baby, drill. But actually, as you say, it's perfectly plausible.
Speaker 4: Politicians being unabashedly willing to flip on a dime without
Speaker 4: any memory of what they said the day before is
Speaker 4: a big strength, right, because if they really want to
Speaker 4: dig their heels in, it just takes longer to get
Speaker 4: to the right answer. Germany will be a nuclear power
Speaker 4: again from zero at some point in the future. And
Speaker 4: one of the big challenges for us in contrarian investing,
Speaker 4: where you are constantly looking at what the market thinks
Speaker 4: is important that you know is not and you have
Speaker 4: to wait for the physics and chemistry and economics to
Speaker 4: drive the right solution is how long it will take.
Speaker 4: And you look at the situation in the UK. Miliban
Speaker 4: has said, over my dead body, and that means it'll
Speaker 4: take longer. But economics will eventually win out, and the
Speaker 4: need for the foundation of your nation's pyramidive needs to
Speaker 4: be solid, will win out. So we know what the
Speaker 4: answer is and we just don't know how long it
Speaker 4: will take. And the longer it takes, the more saraca
Speaker 4: ithaca we can accumulate, as.
Speaker 3: Long as they can hang on through this period. Where
Speaker 3: else is it interesting?
Speaker 4: At the moment, Japan looks really interesting, and I know
Speaker 4: you've just been there and you wrote about it and
Speaker 4: you hit on some of the same things that we've
Speaker 4: been thinking about. But the investor's perception of Japan is
Speaker 4: that it's a dead economy, and we think it couldn't
Speaker 4: be further from the truth in there might be some
Speaker 4: reinvigoration going on there, and if you look at stars aligning,
Speaker 4: the stars could really be lying.
Speaker 1: For Japan, let's talk about AIS as an investment theme,
Speaker 1: TSMC and Samsung for a while.
Speaker 3: There's no AI without those still holding those.
Speaker 2: Yeah.
Speaker 4: We in fact, we've owned I as an investor, have
Speaker 4: owned TSMC since it's USADR launch in the mid nineties.
Speaker 4: And Orbis has had a position in Samsung probably since
Speaker 4: the mid nineties, and they're just fantastic companies. Taiwan Semiconductor
Speaker 4: is the most important company in the world. Have been
Speaker 4: saying this for a long time, and I think people
Speaker 4: are starting to agree with that. And yet it sells
Speaker 4: at seventeen eighteen times forward because it's in Taiwan. Samsung
Speaker 4: right now is selling it a mid single digit PE
Speaker 4: because one it sells it doesn't have an ADR, so
Speaker 4: the Americans lemmings can't easily buy it, and it's not
Speaker 4: sitting in Internet ETFs and AI ETFs. And it's still
Speaker 4: perceived to be a hyper cyclical memory manufacturer. But memory
Speaker 4: maybe following in foundry footsteps where it's no longer going
Speaker 4: to be a hyper cyclical thing that twenty or thirty
Speaker 4: companies can do. There's only three companies in the world
Speaker 4: that can do it now. It's incredibly difficult, incredibly capital intensive,
Speaker 4: incredibly R and D and know how intensive, just as
Speaker 4: foundry is the making of semiconductors for others, and that
Speaker 4: six multiple could be a sixteen or twenty multiple at
Speaker 4: some point in the future.
Speaker 1: And the other thing that you're invested in is the
Speaker 1: US natural gas sector, which I imagine was pretty ignored
Speaker 1: but probably isn't anymore.
Speaker 4: We've shifted our AI investments a bit over the last
Speaker 4: year from those making and providing the infrastructure, so the
Speaker 4: Zeman's energies and the Prismians of the world. We've been
Speaker 4: top slicing those positions as they've become popular, and we
Speaker 4: haven't dropped the overall AI related waiting. It's shifted more
Speaker 4: into the consumables, and you can't have AI without natural gas.
Speaker 4: People are starting to figure out that natural gas, especially
Speaker 4: in the US, is where you're going to get your
Speaker 4: electricity to run your AI data centers, to create your agentics,
Speaker 4: and your ability to create a cartoon yourself. We've been
Speaker 4: focused on finding cheap inexpensive, low p high free cash
Speaker 4: flow yielding natural gas producers to add to our natural
Speaker 4: gas distributors and transportation companies pipeline companies because that is
Speaker 4: the easiest to see. Consumable required for AI and semiconductors
Speaker 4: are consumables as well, because these chipsets only last three
Speaker 4: to five years, so you're going to this is not
Speaker 4: like the Internet where you put fiber optics into the ground.
Speaker 4: Those fiber optics are still there today. The big infrastructure
Speaker 4: for AI is chipsets that are obsolete after three to
Speaker 4: five years. So that's these chips are consumables for the
Speaker 4: first time in technology. Super excited about the consumable aspect.
Speaker 4: The prime mover of AI, if you will, being something
Speaker 4: as simple as natural gas or semiconductors, how.
Speaker 3: Do you invest in natural gas? What do you buy?
Speaker 4: Can buy the EMPs, the explorers and producers, and we're
Speaker 4: trying to find the best ones that are in the
Speaker 4: best place.
Speaker 1: Okay, interthing, let me move you on to the other
Speaker 1: thing that our listeners are always fascinated by.
Speaker 3: I look at this wall, for example, they'll think.
Speaker 1: To themselves as two things I'm going to use to hedge.
Speaker 1: This one is going to be energy one way or another.
Speaker 1: We've talked about that, and the other may well be gold.
Speaker 1: And I know that your funds have always held a
Speaker 1: reasonable amount of gold. What are you doing with that
Speaker 1: at the moment.
Speaker 4: We've top sliced the gold many times. We didn't hold
Speaker 4: gold until twenty eighteen, when it was clear to us
Speaker 4: that negative interest rates weren't going to last forever and
Speaker 4: governments were going to continue to spend like crazy. Became
Speaker 4: an obvious place to hide that. That's appreciated wildly since
Speaker 4: that time, and we've cut that position back in the
Speaker 4: portfolios from ten to twelve percent holding it there to
Speaker 4: now we're in the eight to nine percent. Because it's
Speaker 4: not a it's not a completely contrarian thing anymore. It's
Speaker 4: really now become a pure hedge. And we like to
Speaker 4: buy insurance when it's cheap, and gold as an insurance
Speaker 4: policy isn't as cheap as it used to be, so
Speaker 4: we're not going to hold as much.
Speaker 1: When I've written about gold recently, I've said, well, you know,
Speaker 1: maybe a little expensive on sometimes it's exc but you
Speaker 1: have the backstop of central bank buying. But it maybe
Speaker 1: as we move into the next part of this new era.
Speaker 1: Perhaps in particular at least in central banks may not
Speaker 1: have the available cash to be buying more gold than
Speaker 1: maybe things they feel it's more appropriate to buying the circumstances,
Speaker 1: So perhaps that backstop buyer might not be quite as
Speaker 1: firm as it was as they were.
Speaker 4: That's true. In that would be that would be a negative,
Speaker 4: that would be something that cann't get any better. We
Speaker 4: don't think central buying, central bank buying can get much better,
Speaker 4: although there is unlimited firepower there. But the last shoe
Speaker 4: that we're waiting to drop on the gold cycle, if
Speaker 4: you will, is if you remember back in then you're
Speaker 4: too young to remember, But in the seventies, coming out
Speaker 4: of the seventies, the standard investment portfolio there weren't mutual
Speaker 4: funds back then, but a standard investment portfolio was advised
Speaker 4: to hold ten to fifteen percent in gold, and even
Speaker 4: into the late eighties when I was graduated from college
Speaker 4: and into the nineties, that sort of has wandered down
Speaker 4: from fifteen percent as standard to when I started in
Speaker 4: this business, it was still ten percent. Everyone held ten
Speaker 4: percent in gold in the mid nineties and then as
Speaker 4: as the internet kind of took off, and low roik
Speaker 4: wasn't a great thing, and gold became boring and wasn't
Speaker 4: going anywhere. That went to zero, maybe back three four,
Speaker 4: five years zero.
Speaker 3: For most people, nobody had gold as an investment.
Speaker 4: Yeah, standard equity portfolio would have zero. And if you said,
Speaker 4: why aren't you only gold, it would say, this is
Speaker 4: an equity portfolio, it's not a gold portfolio. It's not
Speaker 4: a that's a resource, that's a commodity. We don't hold commodities.
Speaker 4: And now an average equity fund might have two to
Speaker 4: three percent, a pension plan or a sovereign well fund
Speaker 4: might have two to three percent. If that were to
Speaker 4: go standard to five to seven, you're talking about a
Speaker 4: doubling in the amount of gold that would have to
Speaker 4: be purchased on the investment side, and there just isn't
Speaker 4: that much gold. The only way you're going to get
Speaker 4: to that would be for the price to double. If
Speaker 4: you have three percent in your portfolio now and the
Speaker 4: price doubles and everything else is held constant, now you
Speaker 4: have six, you could see gold going up quite a
Speaker 4: bit as as that pendulum swings back to You can't
Speaker 4: just invest in the in US Internet and AI stocks.
Speaker 2: Well, then what am I going to invest in?
Speaker 4: Gold is at the top of the list now and
Speaker 4: selling out completely now would be could be premature.
Speaker 3: Okay, so we wait.
Speaker 1: We wait until all the wealth managers are telling my
Speaker 1: clients they need to have seven to eight percent. That'll
Speaker 1: be a final signal.
Speaker 4: And if we've been as high as fifteen in the past,
Speaker 4: wealth managers saying seven eight is not outrageous, is it.
Speaker 1: The other thing that one tends to put them on's
Speaker 1: portfolio to hedge things is sovereign bonds. But you look
Speaker 1: around the Western nations and the almost certainty of stagflation
Speaker 1: and who wants a guilt treasury.
Speaker 4: One of the themes that we're thinking about this year is
Speaker 4: dms are developed markets acting like ems, emerging markets and
Speaker 4: emerging markets acting like developed markets from a financial probity standpoint,
Speaker 4: And we found really attractive investment opportunities in some sovereigns
Speaker 4: that used to be basket cases and now and have
Speaker 4: been behaving properly for quite a while. Now, says the
Speaker 4: developed markets are behaving more and more inappropriately with regard
Speaker 4: to their nation's finances.
Speaker 2: So Iceland.
Speaker 4: Iceland is still considered a frontier market because of what
Speaker 4: they did during the global financial crisis.
Speaker 3: Career is still being called an emerging market. Nuts.
Speaker 4: Yeah, yeah, But Iceland, I guess if you screw every
Speaker 4: banker in Europe, you're going to get relegated to being
Speaker 4: a frontier market. They've been behaving very properly and have
Speaker 4: incredible natural resources. They have unlimited supply of electricity, they
Speaker 4: have unlimited supply of geothermal heat. Every company should have
Speaker 4: a data center in Iceland, especially if you care about
Speaker 4: the environment and you want zero carbon electricity. But it's
Speaker 4: a country that is producing a surplus, and yet we
Speaker 4: started buying the bonds when they were yielding ten to
Speaker 4: eleven percent. Now they're yielding seven eight percent, but that's
Speaker 4: still twice the yield of a US sovereign and the
Speaker 4: currency is cheap. Brazil, Brazil, we're getting thirteen fourteen percent
Speaker 4: yields eight percent real, eight percent higher than inflation yields.
Speaker 4: We like the real the country. Maybe if they were
Speaker 4: allowed to, they would behave inappropriately with their finances, but
Speaker 4: they can't and they're not. They're running a much lower deficit.
Speaker 2: Than the United States.
Speaker 4: They've got a similar level of inflation as the United States,
Speaker 4: and yet you're getting a double digit yield, so some of.
Speaker 2: The money's gone there.
Speaker 4: Australia, it's not a frontier market or an em but
Speaker 4: they are running their finances more appropriately. All three of
Speaker 4: these countries have mentioned are resource rich. I like that
Speaker 4: thinking about the bottom of the pyramid. They actually make
Speaker 4: things that others want to buy. Norway, the yields on
Speaker 4: the Norwegian debt. We've been long the Norwegian currency for
Speaker 4: seven or eight years and it's finally starting to work.
Speaker 4: It should be the most secure currency in the world,
Speaker 4: should be very sought after.
Speaker 1: The regions have never behaved badly. They don't quite fit
Speaker 1: into this group.
Speaker 4: No, they haven't, but the currency has been treated like
Speaker 4: they have and we scratch our heads wondering why. And
Speaker 4: the only thing we can come up with is they're
Speaker 4: being tarred by the European feather. They're closely associated with
Speaker 4: Europe's their customer. They sell natural gas and oil to Europe.
Speaker 4: They sell electricity to Europe, and don't see what's wrong
Speaker 4: with that. Europe's going to continue to have to buy
Speaker 4: that stuff. They have a massive surplus every year. They've
Speaker 4: got a tremendous two trillion dollars sovereign wealth fund and
Speaker 4: virtually no debt that currency. If you're worried about the
Speaker 4: security of your buying, your purchasing power, the Norwegian kroner
Speaker 4: is the ultimate in security. It's not the Swiss franc
Speaker 4: it's the It's Norway. So we've been a lot of
Speaker 4: that gold as we've been top slicing. Gold has gone
Speaker 4: into these sovereign bonds that we believe are way undervalued.
Speaker 4: Rates an interest too high, interest rates too high, and
Speaker 4: we like the currencies.
Speaker 3: Well, let's talk a little bit about Iran.
Speaker 1: Is there anything and we've talked about it might be
Speaker 1: a short Wilman to be a long what are endless scenarios?
Speaker 1: But is there anything in what's happening in the Middle
Speaker 1: East that might maybe change the way you invest the fund?
Speaker 1: I suspect you're going to say that, No, this is
Speaker 1: a resilient fund built for exactly this environment. But is
Speaker 1: there any shift happening as a result.
Speaker 2: No.
Speaker 4: I don't think any fund can raise a resilient flag
Speaker 4: and say this fund is going to outperform in every environment.
Speaker 4: That's just not real. But increased global conflict has been
Speaker 4: something we've thought a lot about. Countries focusing on their
Speaker 4: self interest. The focusing on the bottom of the pyramid
Speaker 4: needs it kind of accelerates and highlights all those things.
Speaker 4: Is you pointed out that you know that what's going
Speaker 4: on in Iran should be a another wake up call
Speaker 4: to the British government, to the UK government. That would
Speaker 4: accelerate our realizing some gains from playing that bottom of
Speaker 4: the pyramid. As a portfolio manager, I'm waking up in
Speaker 4: the middle of the night fretting about the Iranians mining
Speaker 4: the Strait of Hormuz. What's going to be the US response?
Speaker 4: But it really can't take an investment make changes in
Speaker 4: the portfolio based on that because the uncertainty is just
Speaker 4: so high and the market reaction is so unpredictable. Who
Speaker 4: would have thought that gold isn't supposed to sell off,
Speaker 4: but gold is sold off during this period. Why is
Speaker 4: gold sold off? It should be more it should be held,
Speaker 4: it should be more valuable in a conflict like this.
Speaker 2: But too many.
Speaker 4: People own gold and they're getting margin calls, so they're
Speaker 4: selling their gold because it's the only thing that's up,
Speaker 4: and that's just the dollars strong. Even though the US
Speaker 4: is the one driving this, there are a lot of contradictions,
Speaker 4: and you just can't predict the market response these things.
Speaker 2: I put it in the two.
Speaker 4: Difficult pile to try and play these short term geopolitical things,
Speaker 4: even though we're very focused on geopolitical events.
Speaker 1: Okay, so I didn't jink to you at the beginning
Speaker 1: of Hope, but just to say that your expectations of
Speaker 1: app performance from here rest on the idea that we
Speaker 1: are beginning to see the return of value. After there's
Speaker 1: a long wage of saying markets provert to the meme
Speaker 1: this stuff happens, it will happen, it does. Now feel
Speaker 1: like this really is happening, that there's a general shift
Speaker 1: across the investment environment back away from growth, away from
Speaker 1: expensive things, and back towards what is really going to
Speaker 1: offer me value.
Speaker 2: It does.
Speaker 4: It feels like valuation is starting to matter again, after
Speaker 4: literally people going on CNBC and Bloomberg and saying valuation
Speaker 4: doesn't matter. We're starting to see rotation, which is a
Speaker 4: key element of a value cycle, where industries are falling
Speaker 4: out of favor, industries are coming into favor. Who would
Speaker 4: have thought three years ago that software and biotech would
Speaker 4: be su per week industries that no one wants to
Speaker 4: own and who would have thought three years ago that
Speaker 4: critical energy infrastructure would be incredibly popular places. So these
Speaker 4: rotations are critical and an element of value cycle. We're
Speaker 4: starting to see them. So we're increasingly optimistic that we're
Speaker 4: seeing the pendulum swing back from growth and momentum and
Speaker 4: valuation not mattering to valuation becoming important again, and that
Speaker 4: would be a very welcome thing for us and our clients.
Speaker 3: Brilliant, Alec, thank you so much for coming on today.
Speaker 3: Really really appresure it.
Speaker 1: Aron, Thanks for.
Speaker 3: Listening to this week's Marrin Talks Money.
Speaker 1: If you like ours, show, rate, review, and subscribe wherever
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Speaker 1: Mariness w and John is John Underscore Steppe. This episode
Speaker 1: was posted by me Maren Sums. That web was produced
Speaker 1: by Samasadi and Moses and sound designed by Blake Maple's
Speaker 1: and Nick Johnson. Special thanks, of course to Alec Cutler