November 29, 2024 • 43 mins
“Capital goes where it’s needed and stays where it’s treated well. That’s not the UK and that’s not Europe: currently, it’s the US and it’s Argentina.”
So says Barry Norris, chief executive of Argonaut Capital Partners, on this week’s episode of Merryn Talks Money. The UK finance veteran decries Labour tax policies in the UK while pointing to opportunities in the Americas. He suggests good places to invest and shares his thoughts on Bitcoin.
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Speaker 1 (00:03):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:18):
Welcome to Meren Talk's Money, the podcasting whish people who
know the markets explain the markets. I'm Maren sum Up Web.
This week Barry Norris, the founder and chief investment officer
of Argonaut Capital Partners, joins me. We discussed what he
calls the failing energy transition, why it looks like the
UK and Europe are continue to go through very tough
times for many years to come, what direction he expects
(00:39):
markets to go in the US and abroad, and why
his strategy is country specific rather than sector specific. We
also talk quite a lot about his portfolio, what he holds,
what he doesn't hold, and why. Barry, thank you so
much for joining us today. HUS really appreciate you coming again.
Speaker 3 (00:57):
Pleasure now, Barry.
Speaker 2 (00:59):
Last time you came on, we had lengthy and fascinating
chats about the energy transition and about the history of
all energy transitions, and I found it absolutely fascinating, very informative.
I don't when we're not going to run through everything
again today, although we are going to talk about the
energy transitions. So I just want to start by saying, listeners,
I want you to go back and listen to the
(01:19):
last podcast with Barry, because we're not going to talk
about everything we talked about them, but it's really useful background,
so please go back and listen to the last one
as well as this one. Right, that's out of the way, Barry.
While I was reading through some of your materials before
we got started, and I was looking at one of
the fact sheets for your Absolute Return Fund, which by
(01:39):
the way, is performing brilliantly, I think, congratulations. One of
the things you say is that you hadn't expected the
labor government to be quite so bad for the UK
quite so quickly. You thought there'd be a bit of
a honeymoon period. That hasn't happened. Has it at.
Speaker 4 (01:57):
Least made some noises about being pro business, So some
of us in the in the equity market were always
a bit more skeptical about them reverting to the true colors.
And I think the first thing they did was to
put taxes up on the productive economy and reallocate that
(02:18):
money to the unproductive economy, giving public sector workers big
pay rises with and demanding nothing in return in terms
of productivity gains. And of course one of the biggest
problems in the UK economy is just the sheer size
of government at forty six percent of GDP, which is
(02:38):
now roughly, of course, the same size as the private sector,
having been well having previously twenty years ago the private
sector being twice the size of government. And so this
lack of productivity growth in the public sector is just
amplified by this kind of behavior and putting up the
tax burden on the diminishing private actor, even though the
(03:01):
government says it's interested in economic growth, tells you all
you need to know about the next five years and
where the UK economy is going, and it is.
Speaker 2 (03:12):
An extraordinary thing. I just want to repeat what you've
just said to everyone genuinely understands that we are at
a point where the public sector in the UK is
as big as the private sector in the UK. So
the private sector finances the public sector, and the private
sector is financing something as large as itself. It's an
extraordinary burden to expect productive employees and productive companies to carry,
(03:35):
isn't it?
Speaker 3 (03:36):
It is?
Speaker 4 (03:37):
And you know, I think a few years ago I
wrote a piece on the nineteen seventies reducs and how Britain,
indeed the global economy was going to relive many of
the problems from the nineteen seventies, and actually, in hindsight,
I was wrong, and I did that generation of in
(03:58):
the seventies of disservice, because what we actually have is
all of the worst things about the nineteen seventies without
one of the crucial things that in the seventies they
actually appreciated, which was the need for cheap and reliable energy.
And I think in the nineteen seventies in the UK
we moved away from imported oil and indigenous coal to
(04:24):
North se oil and gas production, which of course was
one of the main reasons for the subsequent economic boom
in the nineteen eighties and nineteen nineties. And we did
that not because coal was unreliable physically like wind power is,
but actually because the unionized labor that was producing coal
(04:47):
was politically unreliable, and they went on strike in nineteen
seventy four, holding the country to ransom. With the free
day week resulting.
Speaker 2 (04:56):
We're about to redo the seventies in terms of a
lot of policy, but without the one thing that saved
us in the nineteen seventies was a cheap which was
a cheap and easy supply of energy. From an intensely
efficient source.
Speaker 4 (05:12):
Yes, we were at least paving the way for Norse
oil and gas in the nineteen eighties, even if production
was very low in the seventies. But I think what
we have now is, you like, this double whammy of
state socialism and the lip service to capitalism and to
(05:33):
the profit motive. But at the same time we have
this real problem which politicians don't seem to understand. The
energy transition, which transitions away from cheap and reliable fossil
fuels to unreliable and expensive renewables or nuclear has left
(05:54):
us with the highest electricity bowls in the whole of
the world. If you look at electric prices in the
UK at the moment, they are three times what they
are in the US, and they're eighty percent above the
IEE A medium. They're up three hundred percent in the
last five years and five hundred percent over the last
(06:19):
twenty years. And I'm sure you know everybody listening to
this podcast will appreciate how much their electricity bills.
Speaker 3 (06:27):
Have gone up.
Speaker 4 (06:28):
But imagine if you're an industry that needs cheap electricity,
like a steel company or a fertilizer company, or even
an AI data center, and that just makes you tremendously
uncompetitive and perhaps unlike the nineteen seventies where currency devaluation
(06:48):
might help make manufacturing industry competitive again, when your electricity
prices are free times that of the world's economic superpower
in the US, you need an awful lot of currency
depreciation until you become competitive against.
Speaker 2 (07:05):
And just be clear, Barry, you think your analysis suggests
that those rises and electricity prices in the UK are
almost entirely down to our rush to net zero and
the massive subsidies that we are paying out to solar
and to win and the attempt to get our grid
in a state where it can cope with the energy
(07:26):
that comes from those renewable sources.
Speaker 4 (07:28):
Yes, so today we have three times we have. Our
electricity prices are three time those in the US before
we started on this road to net zero, they were
roughly similar. In the UK, we have electricity prices that
are eighty percent above the IEA median And I know
(07:50):
lots of renewable fans out there will say it's all
down to Putin's war and UK and the gas price.
But the gas price is that Britain's gas price is
obviously more expensive, if than it is in the US,
but it's the same price as everywhere else in Europe,
and it's not too much higher than what it is
in the IEA. So that difference between the gas price
and the electricity price is purely down to the amount
(08:13):
of subsidies that the government guarantees WIN projects, as specifically
offshore wind projects to produce their power, and the last award,
for example, was at one hundred pounds per megawatt hour
on average, it's above that gas power in the in
(08:33):
the UK would be about fifty mega mega what hours
pounds per mega what hour, So the cost of producing
all of this win referred to previous podcasts. At the
same time, as we already have low negative power prices
because the wind can't be consumed, stored or exported, and
(08:56):
the fact that the government gets involved in guaranteeing a
price for the users of that wind when its actual
market price is zero is of course leading to lots
of excess capacity in terms of wind that as per
the negative or low power price has no economic value,
so they keep producing it, but because they're being guaranteed
(09:20):
a price, but the UK electricity consumer is paying for it,
so it's total wasteful economic activity. Anybody that calls themselves
an environmentalist should of course be against the production of
wasteful economic activity. But it's the British electricity consumer that
is paying for this, and that's why we have electricity
(09:41):
bills that are three times those in the US and
eighty percent above the I E I EA median and
it's only going to get worse because they plan to
increase production by another three hundred percent of offshore barry.
Speaker 2 (09:54):
When you explain this, it seems perfectly sensible, very straightforward,
totally understandab. Your case is very clear. So when you
look at it, and when you look at what the
new UK government is doing doubling down on that zorem,
and you look at Miliban, for example, saying that we
want to be a leader in this. But you look
at that and you think, why does he see it
(10:15):
so differently? What does he see that we don't see,
or what do you see that he doesn't see? Why
is he doing this? I actually I tweeted it this
morning when there was something about Miliband wanting us to
be the leader and how amazing intention that we are
leading in this space? Looking going might there be a
reason why nobody else wants to lead in this space.
(10:35):
So what do you think he sees.
Speaker 4 (10:37):
We're the global leader in economic euphanasia. And I think
whilst politicians of all political parties have displayed a breathtaking
lack of ignorance in how power grid works, Miliband is
fairly unique in his economic literacy. We've managed to get
into this economic doom loop. Nobody really understands in the
(11:03):
political world how a power grid works and the need
for reliable workers that turn up when you need them.
And at the same time, the debate on why we're
doing it is taboo, so we can't say, well, what's
the cost benefit analysis of doing this? So you get
into this doom loop where any solution is better than nothing,
(11:27):
even though you're committing economic suicide.
Speaker 2 (11:31):
But let's then look at the global economic powerhouse, where
it looks like they are definitely going to be backing
away from discussing this kind of thing, and certainly from
any hint that they might have a go at net
zero America's Trump. What am I trying to say Trump
the second time around? So here we have a totally
(11:52):
different environment coming in the US that makes you very
positive about the US economy.
Speaker 3 (11:58):
Let's put it this way.
Speaker 4 (11:59):
Had Trump of law, the leading capitalist nation in the
world would have been Argentina, so it would have been
fairly bleak. But with Trump winning, it is the worst
nightmare for Europe because actually our failing political system, not
(12:19):
only in the UK and in the EU, will just
be shown up for what it is. And if you
think about what's happened since two thousand and eight, where
GDP per capita in the UK, in the US, in
France and Germany were roughly similar, since then, economic growth
(12:40):
in Europe's been on average fifteen percent, in the US
it's been seventy eight percent. Their GDP per capita has
risen by seventy percent. Ours France's and Germany's roughly stagnant. Now,
I believe that you can probably trace most sources of
political frustration and social unrest to the that GDP capital
(13:01):
living standards have gone nowhere for fifteen years. That's a
source of huge political discontent. And the problem that we've
got in the UK and Europe is our political class
don't seem to realize the two main sources of what's
causing the problem, which is our electricity prices, our lack
(13:26):
of cheap and reliable energy, the fact that there's been
the state has got bigger rather than smaller over the
last fifteen years and is only getting bigger, and the
political class think that the government is the best allocator
of capital rather than all the empirical evidence throughout the
history of human civilization, which is its entrepreneurs. And then
(13:48):
we've got this system. Therefore, where Europe's failing economically, it's deindustrializing,
and Europe can't even defend itself militarily without America's help
against the military power of the Pygmy Russian economy. So
(14:10):
the fact that Trump has been elected and will take
Europe will take American exceptionalism to a different level, and
we can discuss what we think will happen will basically
in Europe and the UK. We can't any longer say
that there isn't a way out of this, that there
(14:32):
isn't an economic model that works. And obviously, you know,
we've saw all these left wing think tanks say before
the election that okay, you know, American GDP per capital's
far outstripped ours over the last fifteen sixty years, but
they've got more inequality as if GDP per capital wasn't
(14:53):
an average. And I think the issue that we've got,
this is why it takes us back to the sort
of war consensus in the seventies, is that our political
class believes in reducing inequality in whatever way you perceive
in equality to exist, and thinks that that's compatible with
(15:15):
economic growth, which it isn't. And that means that under
the society that we currently live in, they'd rather we
all be poorer rather than have economic progress and there
be inequality.
Speaker 2 (15:30):
But going back to energy, there is it. It's interesting,
isn't it to look at what's happening in the US
with data centers and with the big tech companies looking
for steady, reliable energy. They're not all immediately sticking up
their own wind farm, they're all looking to nuclear.
Speaker 3 (15:47):
Right, Well, what AI I mean?
Speaker 4 (15:50):
AI has has highlighted the obviously the need for cheap
and reliable energy, and actually the next generation GPUs are
even more power hungry than the previous lot. And actually
the power, the increase in power demand is actually growing
(16:12):
faster than the efficiency of the chips in analyzing data. So,
if you like, the power is the bottleneck to the
AI revolution. And clearly these data centers need to be
powered twenty four to seven by reliable energy. That rules
out solar and win. You've seen Microsoft do a deal
(16:35):
with Constellation Energy where they've revived production from Free Mile
Island and paid a premium for that. So these big
hyperscalers that have balance sheets bigger than government are making
guess what superior capital allocations to government because they're paying
a premium for reliable power in a way that the
(16:58):
UK government pays discount for reliable power.
Speaker 3 (17:02):
So uh.
Speaker 4 (17:05):
And but of course what the problem with nuclear is
there actually isn't that much nuclear power that isn't already
spoken for and can just be switched on in a
private agreement between a hyperscala and a power generator, and
new sources of economic power, of which the most promising
(17:28):
is as small modular reactors is a proven technology in
nuclear submarines, but it's not necessarily proven yet in terms
of in terms of powering the grid, and the first
ones aren't really going to be available probably for about
five years, and that's too late for the AI arms race.
(17:50):
So what we're instead seeing is AI data centers powered
by gas and the the US has this abundance of cheap,
reliable shale gas and shale and we should probably say
(18:11):
the shale drilling only really started in two thousand and seven,
So exactly at this point that you get the divergence
in GDP per capita between the US and Europe, you
get the birth of this new way of drilling, horizontal
way of drilling for oil and gas. And in fact,
if shale hadn't been invented, US production would have significantly declined.
(18:34):
You probably would have had, you know, one hundred and
fifty dollars a barrel oil now instead of sixty. But
shale now produces what is it, fifty eight percent of
or sixty percent of all US oil production is shale
and seventy eight percent of all US gas. And that
means that Henry hub gas is the cheapest gas, the
(18:56):
cheapest source of energy in the world, trading at roughly
three dollars per killer jaw. That's against gas in Europe
which is at eleven, oil which is at fourteen, and
by the way of comparison, UK offshore win which is
at twenty four. So you see that you know, even
(19:17):
even on cheapness, you can't compete with Henry Harb shale
gas and I think so what we're what we're coming
back to the AI revolution. What we're seeing is an
absolute bonanza in orders for big industrial gas turbines. It's
a duopoly between GE and Siemens. And then those gas
(19:44):
turbines will need to be connected via pipelines which will
need to be built directly to the shale gas fields,
and it helps the shale producers that produce that gas
to monetize that gas, because if you think about gas
in America, America currently produces eleven million barrels of oil
(20:07):
per day, but it produces the equivalent of twenty million
barrels of oil and gas equivalent energy content, but it
can't monetize that because gas is much more difficult to
store and to transport and to use. Now where Trump
is a real help in this is through there's currently
(20:32):
a moratorium on US LNG exports, and there's currently also
very it's very difficult because of the previous administration in
the US to build new pipelines connecting shale gas fields
to where that gas can be economically used. So by
(20:52):
removing the moratorium on USLNG exports and making it easier
for pipeline companies to build their pipes to monetize this gas.
That will be a great benefit to the US economy.
It will also obviously be great for shale gas producers
that will get a higher price for the gas and
(21:15):
be able to shift more volume.
Speaker 2 (21:16):
Okay, So Barry, here's the key question. With all this
in mind, and if you know, all economic activity is
energy transformed, as we always say, right, and it's expensive
in the UK, expensive in Europe, cheap in the US.
And you've got Trump empower, new pipelines, hopefully some deregulation,
possibly even a small fall in the size of the
US date, et cetera. All these things we've been promised
(21:38):
by Trump two point zero. Does that mean that American
exceptionalism continues economically, but in particular, doesn't mean that we
continue to see US exceptionalism in the stock market, which,
as I wrote last week, has only been this expensive
for two percent of its known history. How do we
invest so.
Speaker 3 (21:57):
You don't have to just invest in America?
Speaker 4 (22:00):
But the number of the number of countries which are
welcoming of capital are pretty small. And so you know,
a year ago, on President Millay's election, we started researching Argentina.
And since Millay's election. The stock market in Argentina is
(22:21):
up one hundred percent. It's been the world's best stop market.
But it goes to show it can be done because
Milay has He's cut government spending in real terms by
a third in just twelve months. Argentina has gone from
importing energy to exporting it. It's gone from having a
permanent government deficit to a surplus. And the most incredible
(22:46):
story in Argentina at the moment is that it is
the second country in the world to properly do.
Speaker 3 (22:54):
Fracking, and it should.
Speaker 4 (22:58):
It currently produces about four one hundred thousand barrels a
day of oil and roughly the equivalent in gas as well,
and it should be able to increase production by about
five hundred percent over the next five to ten years. Now,
if it does that, that's going to massively turn around.
(23:19):
It's already turning around the Argentinian economy, which you know
was forecast to grow eight to ten percent next year.
Monetizing those those shale oil and gas reserves and becoming
a big net export will turn the Argentinian economy into
(23:40):
a petro dollar economy. And assuming that it continues to
attract the capital to be able to export that energy,
assuming that it can get currency convertibility at sometime next year,
and assuming that Milay stays incredibly popular, particularly with the
(24:02):
young people in Argentina, which is very encouraging, and that
the mid terms result in him establishing a deeper political mandate,
then the Argentina stock market can to my mind double
again next year because you're basically coming from a base
(24:23):
where there's been so little capitalist activity to one where
the policies well, the country's got incredibly natural resources.
Speaker 3 (24:32):
But once you make.
Speaker 4 (24:35):
Once you allow people to invest and you give them
property rights and inject confidence into capitalism in the economy,
things can be turned around fairly quickly. And I think
that's the lesson that Europe needs to take from what's
gone on in Argentina.
Speaker 2 (24:51):
Barry, do you have exposure to Argentina and if so,
what does that exposure look like?
Speaker 4 (24:55):
Yes, I do, so we have or our biggest position
is in YPF, which is the biggest oil and gas company.
So you know, that's traded at a very low multiple
for a long time, reflecting previously pretty high political risk
(25:17):
and the fact that it wasn't growing production. But you
know its production should increase very dramatically over the next
few years. And you know, the real money in oil
and gas investing is made not when the the energy
price goes up and down five dollars, but when companies
(25:38):
can find and produce oil and gas for pretty competitive
extraction costs of let's say ten dollars a barrel and
then ramp up production by four or five and then
the other The second biggest holding we have is a
what I would loosely term our Continua's blue chip bank,
(26:02):
which is Galicia uh. And you know that when you
have hyper inflation, banks just become a way basically the
the the assets and the balance sheet are Argentinian government
bonds and the liabilities are deposits, and there's hardly any
demand for loans because interest rates are fifty percent. So
(26:28):
so when you get when you when when you remove
hyper inflation and inflation has come down from from what
twenty five monthly to two and a half percent monthly,
you start to get a remanetization of the economy and
suddenly you get demand for loans and you get demand
for mortgages, and that means and if you look, let's
(26:51):
say at the ten year Argentinian dollar debt the yield
on that has come down from twenty percent when Mille
took office, and actually it was still twenty percent six
months ago to just twelve percent now. So that gives
you some idea of how the market is pricing Argentinian
(27:13):
not any inflation, but political risks going forward, and therefore
you know that the banks are another way to.
Speaker 3 (27:20):
Play this turnaround in the Argentinian story.
Speaker 1 (27:23):
Interesting, thank you.
Speaker 2 (27:24):
And what in terms of your portfolio exposure to the US,
how do you invest there? I know that we've been
through a lengthy phase, haven't we, where people always said
that they don't invest in countries, they invest in sectors
and companies, And now is it that's not me? I
know now, as I think we've discussed before, you're back
to thinking a lot about political risk in different countries,
and so when you talk about investing, you're talking about
(27:46):
country specific investing rather than sector specific investing. So I'm
just wondering if your portfolio premely is exposed to the US,
and if so.
Speaker 4 (27:54):
How Yes, so, I think I mean there's not that.
I mean this stop market in the US is very deep.
There almost anything you think about there'll be a way
of playing it. And of course the averages are affected
by these seven megacap companies that have done very well
(28:18):
but may not do very well in the future. So,
you know, one of the things that we we we
really likes as discussed is the whole.
Speaker 3 (28:31):
Chain of monetizing Henry Hub gas.
Speaker 4 (28:35):
So from the producers in the in in that are
producing this this gas and should be able to sell
it for more and sell more of it, to the
oil field service companies that are helping them do that,
to the pipeline companies that are not only manufacturing the
pipe to help them drill, but they're building those pipes
(28:55):
connecting them where the gas can be used to the
data center companies, or or to the pipeline companies that
are most exposed to areas where data centers are being built,
to the companies that are selling the gas turbines that
are going to power the data centers.
Speaker 3 (29:15):
So we think that.
Speaker 4 (29:16):
Is if you're looking for kind of one mega trade
over the next few years, we think that the US
shale gas and the whole value chain from getting it
out of the ground to power in the data center
is going to be a great place to invert. And
then we think, well and one of the.
Speaker 2 (29:34):
One of the names you mentioned then your latest fact
sheep is Gevenovo.
Speaker 4 (29:37):
That's right, And you know that I sometimes get people
people obviously know that as also having a wind business.
Speaker 2 (29:47):
Yeah, it's a gas turbine manufacturer, right, but also has wind. Yeah.
Speaker 4 (29:51):
Unlike let's say Vestas in Europe that only does gas turbines.
Siemens Energy and Jeevanova is are actually being are actually
performing well despite having these pretty pretty crappy wind turbine businesses.
So you know, you could kind of discount that in
(30:12):
terms of investing in them. And if I then think
about how we were positioned pre Trump and how we
were positioned post Trump. Now, obviously we were thinking pretty
early on in the year about how things might change
if Trump was sort of neck and neck in the
polls or slightly leading, and that for probably likely to win.
(30:35):
So so pre Trump, we would have had some investments
in the mag seven companies, particularly Meta and Alphabet, and
we sold we sold those, and we also had investments
in the gold mining stocks, which were of course Canadian
assets we trade on US markets on basically the basis
(30:58):
that the Bibe administration was running these really irresponsible peacetime
deficits of seven eight percent, and then you know we
weren't in COVID, there was no World War. Therefore, you
know that in a historic context, those deficits were really
irresponsible and that was good for gold. But I think
(31:22):
if you think about how things will change with Trump
the Trump administration being in power, I think there's just
many more other things to invest in than megacaptech. And
also you could well see a continuation of some of
the antitrust regulation for Meta and Google. Similarly, Trump coming
(31:47):
in people being more confident in the value of the
US dollar because actually, contrary to what a lot of
people tried to claim that Trump was going to continue
Biden's irrational deficit spending, I think they've got a pretty
good plan to get that deficit back to about three
percent from seven percent where it is currently, and I
(32:10):
think that that will be positive for the dollar. And
of course we can discuss tariffs, but I think that's
also positive for the dollar. And therefore, if you're really
positive about the dollar, it kind of feels unnecessary to
also needing to be really bullish about gold. And then
(32:31):
if we look at areas that might benefit from let's say,
tariffs or a relaxation in regulations. Obviously, the previously American
authorities wouldn't let banks by other banks unless they were
(32:52):
buying banks out of receivership i e. Banks that have
gone bust and failed. So we had previously invested in
a bank called First Citizens that bought Silicon Valley Bank
out of receivership, which was a great deal for it,
and we're still invested in that bank. But in general,
there are three thousand banks in the US. It's probably
(33:14):
too much that needs to consolidate. We think that will happen.
And then another area is just looking at businesses that
if and when Trump puts tariffs come in. These are
businesses that can be transformed by the sort of protectionism
that was commonplace in the US in the nineteenth century.
(33:34):
So Cleveland Cliffs is probably, we think, the best managed
steel company in America. But it's a good company in
a bad industry.
Speaker 2 (33:44):
And what kind of valuation can you buy something like
that on?
Speaker 4 (33:47):
Well, it's almost meaningless to give a pe because the
earnings fluctuate quite a lot.
Speaker 3 (33:54):
But I mean the.
Speaker 4 (33:55):
Share price is what down eighty ninety from peak a
few years ago. It's trading you know, below it's below
its book value, very cheaply on price to sales, and
you know, we'll be on a very low multiple if
if tariff's come in to stop Chinese dumping of steel
(34:16):
in America. And then you've got something like you know, Intel,
which has been obviously a basket case but has the
only foundry production in the US. So if tariffs are
going to come in on semiconductor manufacturing, Intel's struggling to
(34:38):
fill its foundries. Uh, and these foundries are going to
fill up pretty quickly if Intel's semiconductors aren't subject to tariffs,
but but but tsmcs are. So there are lots of
if you like, there are lots There are lots of
different things that we've got in the portfolio. Clearly, not
everything's a macro trade. But I think when we think
(35:00):
think about the world differently, it's all about how things
might change. You need a bit of imagination for that,
to think ahead of what these companies might look like
in two years, not what they're looking like now.
Speaker 2 (35:11):
Yeah, I suppose one of the things I should ask
you is that we've talked about gold a little bit,
but there's been this huge excitement around not just crypto
in general, but specifically bitcoin since since Trump's election. How
do you feel about that?
Speaker 4 (35:26):
Marin the risk of the risk of upsetting many of
your listeners, as you know, I'm not, I'm not. I'm
not particularly advanced in my understanding of of of the.
Speaker 3 (35:39):
Of the intrinsic value of bitcoin.
Speaker 2 (35:41):
I don't say you're not advancing your understanding. Mail get
loads of pets and emails telling you that you should
educate yourself, So me say you understand it completely before.
Speaker 4 (35:54):
I just don't find I think the benefits of bitcoin
and cryptic to currency in general confer to the issuers
of the currency rather than those that have bought the
currency and the secondary market. And in terms of use
(36:15):
of crypto and bitcoin, to date, they have been solely
in the world of outside money, the sorts of money
that you need if you're if you need to be
outside of the Western banking system. So similar to gold,
similar to cash, crypto allows you a degree of independence
(36:37):
from the Western banking sector. Most people who who are
involved in illegal in legal activities don't need that, and
don't find blockchain technology any faster than payment processing that
occurs now. But having said that, you know, if Europe
(37:00):
goes as bad as well. I think it will over
the next five years and we don't learn the lessons
of what's going on in America. I'm beginning to think
that that freedom that we've taken for granted since the
early eighties to be able to invest freely and without
(37:23):
extra cost in the rest of the world could be
taken away because if you think about the types of
people that are in power, certainly in the UK, they
say that they want economic growth, but they don't like competition.
They say they want you know that they want great
British businesses, but they aspire to mediocrity. And the way
(37:47):
that you don't compete against America is that you don't
allow your citizens to invest anywhere other than the UK.
So you end up putting on capital controls to keep
them in the UK that finances their activities at much
lower returns on capital. And I think in that environment
(38:10):
crypto becomes a much more useful I wouldn't call it
an investment, but it becomes a much more useful way
of taking your assets out of a country, rather in
the same way as it's been used in China or
other other economies where they don't have either economic or
(38:36):
political freedom.
Speaker 2 (38:37):
Gosh, to end this podcast on a happy note on
not going well are they?
Speaker 4 (38:42):
I would say that, look, we can spend ages talking
about what's going on in the UK and Europe and
get very depressed about not only where we've come from
and where we are now, but how the political class
and the bnpon opinion just doesn't have a clue.
Speaker 3 (39:05):
Now.
Speaker 4 (39:06):
It's terribly frustrating because we can you know, it's one
person just can't change the political outlook of a country,
and frankly, you know there are more rewarding things personally
to do. But what we can do is make a
(39:27):
decision that until they get their act together, until they
welcome capital and capitalists, we can send our capital to
somewhere where it's needed and where it's valued and where
it's treated well. So that's Risdom's law that capital goes
where it's needed and stays where it's treated well. That's
(39:47):
not the UK, and that's not Europe currently, it's the
US and it's Argentina, and that's where that I think
is the happy no, because the best way to hedge
yourself against the political and economic risk in Europe, which
is only going to get worse when we have stagnant
(40:08):
GDP per capita for two decades, is to actually invest
somewhere better in the world. And that's why I actually
I've always been against this sort of forcible investment in
a domestic market because actually the best thing that most
UK investors have done over the last twenty years or
even fifty years is to invest somewhere else, and that's
(40:31):
what's allowed them to keep hold of their wealth and
their purchasing.
Speaker 2 (40:34):
Pot Listen, I'm going to finish this by asking you
a different question, which is about Christmas. Christmas, if you
were to give a book, a really good book on
something to do with finance or economics, to someone who
wasn't an expert in this stuff for Christmas, what would
you give them?
Speaker 4 (40:54):
I mean, I'm an avid not only reader but consumer
of audio books. I'd sort of read two or three
books a week. And and you know, firstly, if you're
interested in investment, the there are loads of investment books
that you can read. But also if you're interested in
the energy transition and learning about that, there are also
(41:18):
fantastic number of books that you can you can read
which takes you beyond obviously what you're what you'll be
naturally consuming in terms of the mainstream media. So so,
I mean, one author I found I think is is
the the kind of.
Speaker 3 (41:39):
The best, if you like.
Speaker 4 (41:42):
The communicator of the value of energy in the world
is Vaclav Smill, and he's got a number of different
books on energy transition, but there's one book in particular
that that is pretty accessible, which is how the world
really work. So i'd encourage any of your listeners that
(42:03):
are interested in energy or physics or or even you know,
transitioning from a historical background, which was obviously my first
thing that I studied to understanding physics and chemistry of
an energy transition to read that Club Smell.
Speaker 2 (42:23):
I have read that, and I have said it's absolutely brilliant.
Good recommendation. Garry, Thank you so much for joining us today.
It's been brilliant.
Speaker 3 (42:29):
It's a pleasure. Thank you.
Speaker 2 (42:39):
Thanks for listening to this week's Marin Talks Money. If
you like or show, rate, review, and subscribe wherever you
listen to podcasts. Keep sending your questions or comments at
Merriorn Money at Bloomberg dot net. And also please do
follow me in John on Twitter or x. I'm Maren
as w and John is John Underscore Stepic. This episode
was hosted by me Maren Zumset Web. It was produced
by Some Society, Projections by Moses and special thanks to
(43:02):
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(43:22):
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Speaker 2 (00:18):
Welcome to Meren Talk's Money, the podcasting whish people who
know the markets explain the markets. I'm Maren sum Up Web.
This week Barry Norris, the founder and chief investment officer
of Argonaut Capital Partners, joins me. We discussed what he
calls the failing energy transition, why it looks like the
UK and Europe are continue to go through very tough
times for many years to come, what direction he expects
(00:39):
markets to go in the US and abroad, and why
his strategy is country specific rather than sector specific. We
also talk quite a lot about his portfolio, what he holds,
what he doesn't hold, and why. Barry, thank you so
much for joining us today. HUS really appreciate you coming again.
Speaker 3 (00:57):
Pleasure now, Barry.
Speaker 2 (00:59):
Last time you came on, we had lengthy and fascinating
chats about the energy transition and about the history of
all energy transitions, and I found it absolutely fascinating, very informative.
I don't when we're not going to run through everything
again today, although we are going to talk about the
energy transitions. So I just want to start by saying, listeners,
I want you to go back and listen to the
(01:19):
last podcast with Barry, because we're not going to talk
about everything we talked about them, but it's really useful background,
so please go back and listen to the last one
as well as this one. Right, that's out of the way, Barry.
While I was reading through some of your materials before
we got started, and I was looking at one of
the fact sheets for your Absolute Return Fund, which by
(01:39):
the way, is performing brilliantly, I think, congratulations. One of
the things you say is that you hadn't expected the
labor government to be quite so bad for the UK
quite so quickly. You thought there'd be a bit of
a honeymoon period. That hasn't happened. Has it at.
Speaker 4 (01:57):
Least made some noises about being pro business, So some
of us in the in the equity market were always
a bit more skeptical about them reverting to the true colors.
And I think the first thing they did was to
put taxes up on the productive economy and reallocate that
(02:18):
money to the unproductive economy, giving public sector workers big
pay rises with and demanding nothing in return in terms
of productivity gains. And of course one of the biggest
problems in the UK economy is just the sheer size
of government at forty six percent of GDP, which is
(02:38):
now roughly, of course, the same size as the private sector,
having been well having previously twenty years ago the private
sector being twice the size of government. And so this
lack of productivity growth in the public sector is just
amplified by this kind of behavior and putting up the
tax burden on the diminishing private actor, even though the
(03:01):
government says it's interested in economic growth, tells you all
you need to know about the next five years and
where the UK economy is going, and it is.
Speaker 2 (03:12):
An extraordinary thing. I just want to repeat what you've
just said to everyone genuinely understands that we are at
a point where the public sector in the UK is
as big as the private sector in the UK. So
the private sector finances the public sector, and the private
sector is financing something as large as itself. It's an
extraordinary burden to expect productive employees and productive companies to carry,
(03:35):
isn't it?
Speaker 3 (03:36):
It is?
Speaker 4 (03:37):
And you know, I think a few years ago I
wrote a piece on the nineteen seventies reducs and how Britain,
indeed the global economy was going to relive many of
the problems from the nineteen seventies, and actually, in hindsight,
I was wrong, and I did that generation of in
(03:58):
the seventies of disservice, because what we actually have is
all of the worst things about the nineteen seventies without
one of the crucial things that in the seventies they
actually appreciated, which was the need for cheap and reliable energy.
And I think in the nineteen seventies in the UK
we moved away from imported oil and indigenous coal to
(04:24):
North se oil and gas production, which of course was
one of the main reasons for the subsequent economic boom
in the nineteen eighties and nineteen nineties. And we did
that not because coal was unreliable physically like wind power is,
but actually because the unionized labor that was producing coal
(04:47):
was politically unreliable, and they went on strike in nineteen
seventy four, holding the country to ransom. With the free
day week resulting.
Speaker 2 (04:56):
We're about to redo the seventies in terms of a
lot of policy, but without the one thing that saved
us in the nineteen seventies was a cheap which was
a cheap and easy supply of energy. From an intensely
efficient source.
Speaker 4 (05:12):
Yes, we were at least paving the way for Norse
oil and gas in the nineteen eighties, even if production
was very low in the seventies. But I think what
we have now is, you like, this double whammy of
state socialism and the lip service to capitalism and to
(05:33):
the profit motive. But at the same time we have
this real problem which politicians don't seem to understand. The
energy transition, which transitions away from cheap and reliable fossil
fuels to unreliable and expensive renewables or nuclear has left
(05:54):
us with the highest electricity bowls in the whole of
the world. If you look at electric prices in the
UK at the moment, they are three times what they
are in the US, and they're eighty percent above the
IEE A medium. They're up three hundred percent in the
last five years and five hundred percent over the last
(06:19):
twenty years. And I'm sure you know everybody listening to
this podcast will appreciate how much their electricity bills.
Speaker 3 (06:27):
Have gone up.
Speaker 4 (06:28):
But imagine if you're an industry that needs cheap electricity,
like a steel company or a fertilizer company, or even
an AI data center, and that just makes you tremendously
uncompetitive and perhaps unlike the nineteen seventies where currency devaluation
(06:48):
might help make manufacturing industry competitive again, when your electricity
prices are free times that of the world's economic superpower
in the US, you need an awful lot of currency
depreciation until you become competitive against.
Speaker 2 (07:05):
And just be clear, Barry, you think your analysis suggests
that those rises and electricity prices in the UK are
almost entirely down to our rush to net zero and
the massive subsidies that we are paying out to solar
and to win and the attempt to get our grid
in a state where it can cope with the energy
(07:26):
that comes from those renewable sources.
Speaker 4 (07:28):
Yes, so today we have three times we have. Our
electricity prices are three time those in the US before
we started on this road to net zero, they were
roughly similar. In the UK, we have electricity prices that
are eighty percent above the IEA median And I know
(07:50):
lots of renewable fans out there will say it's all
down to Putin's war and UK and the gas price.
But the gas price is that Britain's gas price is
obviously more expensive, if than it is in the US,
but it's the same price as everywhere else in Europe,
and it's not too much higher than what it is
in the IEA. So that difference between the gas price
and the electricity price is purely down to the amount
(08:13):
of subsidies that the government guarantees WIN projects, as specifically
offshore wind projects to produce their power, and the last award,
for example, was at one hundred pounds per megawatt hour
on average, it's above that gas power in the in
(08:33):
the UK would be about fifty mega mega what hours
pounds per mega what hour, So the cost of producing
all of this win referred to previous podcasts. At the
same time, as we already have low negative power prices
because the wind can't be consumed, stored or exported, and
(08:56):
the fact that the government gets involved in guaranteeing a
price for the users of that wind when its actual
market price is zero is of course leading to lots
of excess capacity in terms of wind that as per
the negative or low power price has no economic value,
so they keep producing it, but because they're being guaranteed
(09:20):
a price, but the UK electricity consumer is paying for it,
so it's total wasteful economic activity. Anybody that calls themselves
an environmentalist should of course be against the production of
wasteful economic activity. But it's the British electricity consumer that
is paying for this, and that's why we have electricity
(09:41):
bills that are three times those in the US and
eighty percent above the I E I EA median and
it's only going to get worse because they plan to
increase production by another three hundred percent of offshore barry.
Speaker 2 (09:54):
When you explain this, it seems perfectly sensible, very straightforward,
totally understandab. Your case is very clear. So when you
look at it, and when you look at what the
new UK government is doing doubling down on that zorem,
and you look at Miliban, for example, saying that we
want to be a leader in this. But you look
at that and you think, why does he see it
(10:15):
so differently? What does he see that we don't see,
or what do you see that he doesn't see? Why
is he doing this? I actually I tweeted it this
morning when there was something about Miliband wanting us to
be the leader and how amazing intention that we are
leading in this space? Looking going might there be a
reason why nobody else wants to lead in this space.
(10:35):
So what do you think he sees.
Speaker 4 (10:37):
We're the global leader in economic euphanasia. And I think
whilst politicians of all political parties have displayed a breathtaking
lack of ignorance in how power grid works, Miliband is
fairly unique in his economic literacy. We've managed to get
into this economic doom loop. Nobody really understands in the
(11:03):
political world how a power grid works and the need
for reliable workers that turn up when you need them.
And at the same time, the debate on why we're
doing it is taboo, so we can't say, well, what's
the cost benefit analysis of doing this? So you get
into this doom loop where any solution is better than nothing,
(11:27):
even though you're committing economic suicide.
Speaker 2 (11:31):
But let's then look at the global economic powerhouse, where
it looks like they are definitely going to be backing
away from discussing this kind of thing, and certainly from
any hint that they might have a go at net
zero America's Trump. What am I trying to say Trump
the second time around? So here we have a totally
(11:52):
different environment coming in the US that makes you very
positive about the US economy.
Speaker 3 (11:58):
Let's put it this way.
Speaker 4 (11:59):
Had Trump of law, the leading capitalist nation in the
world would have been Argentina, so it would have been
fairly bleak. But with Trump winning, it is the worst
nightmare for Europe because actually our failing political system, not
(12:19):
only in the UK and in the EU, will just
be shown up for what it is. And if you
think about what's happened since two thousand and eight, where
GDP per capita in the UK, in the US, in
France and Germany were roughly similar, since then, economic growth
(12:40):
in Europe's been on average fifteen percent, in the US
it's been seventy eight percent. Their GDP per capita has
risen by seventy percent. Ours France's and Germany's roughly stagnant. Now,
I believe that you can probably trace most sources of
political frustration and social unrest to the that GDP capital
(13:01):
living standards have gone nowhere for fifteen years. That's a
source of huge political discontent. And the problem that we've
got in the UK and Europe is our political class
don't seem to realize the two main sources of what's
causing the problem, which is our electricity prices, our lack
(13:26):
of cheap and reliable energy, the fact that there's been
the state has got bigger rather than smaller over the
last fifteen years and is only getting bigger, and the
political class think that the government is the best allocator
of capital rather than all the empirical evidence throughout the
history of human civilization, which is its entrepreneurs. And then
(13:48):
we've got this system. Therefore, where Europe's failing economically, it's deindustrializing,
and Europe can't even defend itself militarily without America's help
against the military power of the Pygmy Russian economy. So
(14:10):
the fact that Trump has been elected and will take
Europe will take American exceptionalism to a different level, and
we can discuss what we think will happen will basically
in Europe and the UK. We can't any longer say
that there isn't a way out of this, that there
(14:32):
isn't an economic model that works. And obviously, you know,
we've saw all these left wing think tanks say before
the election that okay, you know, American GDP per capital's
far outstripped ours over the last fifteen sixty years, but
they've got more inequality as if GDP per capital wasn't
(14:53):
an average. And I think the issue that we've got,
this is why it takes us back to the sort
of war consensus in the seventies, is that our political
class believes in reducing inequality in whatever way you perceive
in equality to exist, and thinks that that's compatible with
(15:15):
economic growth, which it isn't. And that means that under
the society that we currently live in, they'd rather we
all be poorer rather than have economic progress and there
be inequality.
Speaker 2 (15:30):
But going back to energy, there is it. It's interesting,
isn't it to look at what's happening in the US
with data centers and with the big tech companies looking
for steady, reliable energy. They're not all immediately sticking up
their own wind farm, they're all looking to nuclear.
Speaker 3 (15:47):
Right, Well, what AI I mean?
Speaker 4 (15:50):
AI has has highlighted the obviously the need for cheap
and reliable energy, and actually the next generation GPUs are
even more power hungry than the previous lot. And actually
the power, the increase in power demand is actually growing
(16:12):
faster than the efficiency of the chips in analyzing data. So,
if you like, the power is the bottleneck to the
AI revolution. And clearly these data centers need to be
powered twenty four to seven by reliable energy. That rules
out solar and win. You've seen Microsoft do a deal
(16:35):
with Constellation Energy where they've revived production from Free Mile
Island and paid a premium for that. So these big
hyperscalers that have balance sheets bigger than government are making
guess what superior capital allocations to government because they're paying
a premium for reliable power in a way that the
(16:58):
UK government pays discount for reliable power.
Speaker 3 (17:02):
So uh.
Speaker 4 (17:05):
And but of course what the problem with nuclear is
there actually isn't that much nuclear power that isn't already
spoken for and can just be switched on in a
private agreement between a hyperscala and a power generator, and
new sources of economic power, of which the most promising
(17:28):
is as small modular reactors is a proven technology in
nuclear submarines, but it's not necessarily proven yet in terms
of in terms of powering the grid, and the first
ones aren't really going to be available probably for about
five years, and that's too late for the AI arms race.
(17:50):
So what we're instead seeing is AI data centers powered
by gas and the the US has this abundance of cheap,
reliable shale gas and shale and we should probably say
(18:11):
the shale drilling only really started in two thousand and seven,
So exactly at this point that you get the divergence
in GDP per capita between the US and Europe, you
get the birth of this new way of drilling, horizontal
way of drilling for oil and gas. And in fact,
if shale hadn't been invented, US production would have significantly declined.
(18:34):
You probably would have had, you know, one hundred and
fifty dollars a barrel oil now instead of sixty. But
shale now produces what is it, fifty eight percent of
or sixty percent of all US oil production is shale
and seventy eight percent of all US gas. And that
means that Henry hub gas is the cheapest gas, the
(18:56):
cheapest source of energy in the world, trading at roughly
three dollars per killer jaw. That's against gas in Europe
which is at eleven, oil which is at fourteen, and
by the way of comparison, UK offshore win which is
at twenty four. So you see that you know, even
(19:17):
even on cheapness, you can't compete with Henry Harb shale
gas and I think so what we're what we're coming
back to the AI revolution. What we're seeing is an
absolute bonanza in orders for big industrial gas turbines. It's
a duopoly between GE and Siemens. And then those gas
(19:44):
turbines will need to be connected via pipelines which will
need to be built directly to the shale gas fields,
and it helps the shale producers that produce that gas
to monetize that gas, because if you think about gas
in America, America currently produces eleven million barrels of oil
(20:07):
per day, but it produces the equivalent of twenty million
barrels of oil and gas equivalent energy content, but it
can't monetize that because gas is much more difficult to
store and to transport and to use. Now where Trump
is a real help in this is through there's currently
(20:32):
a moratorium on US LNG exports, and there's currently also
very it's very difficult because of the previous administration in
the US to build new pipelines connecting shale gas fields
to where that gas can be economically used. So by
(20:52):
removing the moratorium on USLNG exports and making it easier
for pipeline companies to build their pipes to monetize this gas.
That will be a great benefit to the US economy.
It will also obviously be great for shale gas producers
that will get a higher price for the gas and
(21:15):
be able to shift more volume.
Speaker 2 (21:16):
Okay, So Barry, here's the key question. With all this
in mind, and if you know, all economic activity is
energy transformed, as we always say, right, and it's expensive
in the UK, expensive in Europe, cheap in the US.
And you've got Trump empower, new pipelines, hopefully some deregulation,
possibly even a small fall in the size of the
US date, et cetera. All these things we've been promised
(21:38):
by Trump two point zero. Does that mean that American
exceptionalism continues economically, but in particular, doesn't mean that we
continue to see US exceptionalism in the stock market, which,
as I wrote last week, has only been this expensive
for two percent of its known history. How do we
invest so.
Speaker 3 (21:57):
You don't have to just invest in America?
Speaker 4 (22:00):
But the number of the number of countries which are
welcoming of capital are pretty small. And so you know,
a year ago, on President Millay's election, we started researching Argentina.
And since Millay's election. The stock market in Argentina is
(22:21):
up one hundred percent. It's been the world's best stop market.
But it goes to show it can be done because
Milay has He's cut government spending in real terms by
a third in just twelve months. Argentina has gone from
importing energy to exporting it. It's gone from having a
permanent government deficit to a surplus. And the most incredible
(22:46):
story in Argentina at the moment is that it is
the second country in the world to properly do.
Speaker 3 (22:54):
Fracking, and it should.
Speaker 4 (22:58):
It currently produces about four one hundred thousand barrels a
day of oil and roughly the equivalent in gas as well,
and it should be able to increase production by about
five hundred percent over the next five to ten years. Now,
if it does that, that's going to massively turn around.
(23:19):
It's already turning around the Argentinian economy, which you know
was forecast to grow eight to ten percent next year.
Monetizing those those shale oil and gas reserves and becoming
a big net export will turn the Argentinian economy into
(23:40):
a petro dollar economy. And assuming that it continues to
attract the capital to be able to export that energy,
assuming that it can get currency convertibility at sometime next year,
and assuming that Milay stays incredibly popular, particularly with the
(24:02):
young people in Argentina, which is very encouraging, and that
the mid terms result in him establishing a deeper political mandate,
then the Argentina stock market can to my mind double
again next year because you're basically coming from a base
(24:23):
where there's been so little capitalist activity to one where
the policies well, the country's got incredibly natural resources.
Speaker 3 (24:32):
But once you make.
Speaker 4 (24:35):
Once you allow people to invest and you give them
property rights and inject confidence into capitalism in the economy,
things can be turned around fairly quickly. And I think
that's the lesson that Europe needs to take from what's
gone on in Argentina.
Speaker 2 (24:51):
Barry, do you have exposure to Argentina and if so,
what does that exposure look like?
Speaker 4 (24:55):
Yes, I do, so we have or our biggest position
is in YPF, which is the biggest oil and gas company.
So you know, that's traded at a very low multiple
for a long time, reflecting previously pretty high political risk
(25:17):
and the fact that it wasn't growing production. But you
know its production should increase very dramatically over the next
few years. And you know, the real money in oil
and gas investing is made not when the the energy
price goes up and down five dollars, but when companies
(25:38):
can find and produce oil and gas for pretty competitive
extraction costs of let's say ten dollars a barrel and
then ramp up production by four or five and then
the other The second biggest holding we have is a
what I would loosely term our Continua's blue chip bank,
(26:02):
which is Galicia uh. And you know that when you
have hyper inflation, banks just become a way basically the
the the assets and the balance sheet are Argentinian government
bonds and the liabilities are deposits, and there's hardly any
demand for loans because interest rates are fifty percent. So
(26:28):
so when you get when you when when you remove
hyper inflation and inflation has come down from from what
twenty five monthly to two and a half percent monthly,
you start to get a remanetization of the economy and
suddenly you get demand for loans and you get demand
for mortgages, and that means and if you look, let's
(26:51):
say at the ten year Argentinian dollar debt the yield
on that has come down from twenty percent when Mille
took office, and actually it was still twenty percent six
months ago to just twelve percent now. So that gives
you some idea of how the market is pricing Argentinian
(27:13):
not any inflation, but political risks going forward, and therefore
you know that the banks are another way to.
Speaker 3 (27:20):
Play this turnaround in the Argentinian story.
Speaker 1 (27:23):
Interesting, thank you.
Speaker 2 (27:24):
And what in terms of your portfolio exposure to the US,
how do you invest there? I know that we've been
through a lengthy phase, haven't we, where people always said
that they don't invest in countries, they invest in sectors
and companies, And now is it that's not me? I
know now, as I think we've discussed before, you're back
to thinking a lot about political risk in different countries,
and so when you talk about investing, you're talking about
(27:46):
country specific investing rather than sector specific investing. So I'm
just wondering if your portfolio premely is exposed to the US,
and if so.
Speaker 4 (27:54):
How Yes, so, I think I mean there's not that.
I mean this stop market in the US is very deep.
There almost anything you think about there'll be a way
of playing it. And of course the averages are affected
by these seven megacap companies that have done very well
(28:18):
but may not do very well in the future. So,
you know, one of the things that we we we
really likes as discussed is the whole.
Speaker 3 (28:31):
Chain of monetizing Henry Hub gas.
Speaker 4 (28:35):
So from the producers in the in in that are
producing this this gas and should be able to sell
it for more and sell more of it, to the
oil field service companies that are helping them do that,
to the pipeline companies that are not only manufacturing the
pipe to help them drill, but they're building those pipes
(28:55):
connecting them where the gas can be used to the
data center companies, or or to the pipeline companies that
are most exposed to areas where data centers are being built,
to the companies that are selling the gas turbines that
are going to power the data centers.
Speaker 3 (29:15):
So we think that.
Speaker 4 (29:16):
Is if you're looking for kind of one mega trade
over the next few years, we think that the US
shale gas and the whole value chain from getting it
out of the ground to power in the data center
is going to be a great place to invert. And
then we think, well and one of the.
Speaker 2 (29:34):
One of the names you mentioned then your latest fact
sheep is Gevenovo.
Speaker 4 (29:37):
That's right, And you know that I sometimes get people
people obviously know that as also having a wind business.
Speaker 2 (29:47):
Yeah, it's a gas turbine manufacturer, right, but also has wind. Yeah.
Speaker 4 (29:51):
Unlike let's say Vestas in Europe that only does gas turbines.
Siemens Energy and Jeevanova is are actually being are actually
performing well despite having these pretty pretty crappy wind turbine businesses.
So you know, you could kind of discount that in
(30:12):
terms of investing in them. And if I then think
about how we were positioned pre Trump and how we
were positioned post Trump. Now, obviously we were thinking pretty
early on in the year about how things might change
if Trump was sort of neck and neck in the
polls or slightly leading, and that for probably likely to win.
(30:35):
So so pre Trump, we would have had some investments
in the mag seven companies, particularly Meta and Alphabet, and
we sold we sold those, and we also had investments
in the gold mining stocks, which were of course Canadian
assets we trade on US markets on basically the basis
(30:58):
that the Bibe administration was running these really irresponsible peacetime
deficits of seven eight percent, and then you know we
weren't in COVID, there was no World War. Therefore, you
know that in a historic context, those deficits were really
irresponsible and that was good for gold. But I think
(31:22):
if you think about how things will change with Trump
the Trump administration being in power, I think there's just
many more other things to invest in than megacaptech. And
also you could well see a continuation of some of
the antitrust regulation for Meta and Google. Similarly, Trump coming
(31:47):
in people being more confident in the value of the
US dollar because actually, contrary to what a lot of
people tried to claim that Trump was going to continue
Biden's irrational deficit spending, I think they've got a pretty
good plan to get that deficit back to about three
percent from seven percent where it is currently, and I
(32:10):
think that that will be positive for the dollar. And
of course we can discuss tariffs, but I think that's
also positive for the dollar. And therefore, if you're really
positive about the dollar, it kind of feels unnecessary to
also needing to be really bullish about gold. And then
(32:31):
if we look at areas that might benefit from let's say,
tariffs or a relaxation in regulations. Obviously, the previously American
authorities wouldn't let banks by other banks unless they were
(32:52):
buying banks out of receivership i e. Banks that have
gone bust and failed. So we had previously invested in
a bank called First Citizens that bought Silicon Valley Bank
out of receivership, which was a great deal for it,
and we're still invested in that bank. But in general,
there are three thousand banks in the US. It's probably
(33:14):
too much that needs to consolidate. We think that will happen.
And then another area is just looking at businesses that
if and when Trump puts tariffs come in. These are
businesses that can be transformed by the sort of protectionism
that was commonplace in the US in the nineteenth century.
(33:34):
So Cleveland Cliffs is probably, we think, the best managed
steel company in America. But it's a good company in
a bad industry.
Speaker 2 (33:44):
And what kind of valuation can you buy something like
that on?
Speaker 4 (33:47):
Well, it's almost meaningless to give a pe because the
earnings fluctuate quite a lot.
Speaker 3 (33:54):
But I mean the.
Speaker 4 (33:55):
Share price is what down eighty ninety from peak a
few years ago. It's trading you know, below it's below
its book value, very cheaply on price to sales, and
you know, we'll be on a very low multiple if
if tariff's come in to stop Chinese dumping of steel
(34:16):
in America. And then you've got something like you know, Intel,
which has been obviously a basket case but has the
only foundry production in the US. So if tariffs are
going to come in on semiconductor manufacturing, Intel's struggling to
(34:38):
fill its foundries. Uh, and these foundries are going to
fill up pretty quickly if Intel's semiconductors aren't subject to tariffs,
but but but tsmcs are. So there are lots of
if you like, there are lots There are lots of
different things that we've got in the portfolio. Clearly, not
everything's a macro trade. But I think when we think
(35:00):
think about the world differently, it's all about how things
might change. You need a bit of imagination for that,
to think ahead of what these companies might look like
in two years, not what they're looking like now.
Speaker 2 (35:11):
Yeah, I suppose one of the things I should ask
you is that we've talked about gold a little bit,
but there's been this huge excitement around not just crypto
in general, but specifically bitcoin since since Trump's election. How
do you feel about that?
Speaker 4 (35:26):
Marin the risk of the risk of upsetting many of
your listeners, as you know, I'm not, I'm not. I'm
not particularly advanced in my understanding of of of the.
Speaker 3 (35:39):
Of the intrinsic value of bitcoin.
Speaker 2 (35:41):
I don't say you're not advancing your understanding. Mail get
loads of pets and emails telling you that you should
educate yourself, So me say you understand it completely before.
Speaker 4 (35:54):
I just don't find I think the benefits of bitcoin
and cryptic to currency in general confer to the issuers
of the currency rather than those that have bought the
currency and the secondary market. And in terms of use
(36:15):
of crypto and bitcoin, to date, they have been solely
in the world of outside money, the sorts of money
that you need if you're if you need to be
outside of the Western banking system. So similar to gold,
similar to cash, crypto allows you a degree of independence
(36:37):
from the Western banking sector. Most people who who are
involved in illegal in legal activities don't need that, and
don't find blockchain technology any faster than payment processing that
occurs now. But having said that, you know, if Europe
(37:00):
goes as bad as well. I think it will over
the next five years and we don't learn the lessons
of what's going on in America. I'm beginning to think
that that freedom that we've taken for granted since the
early eighties to be able to invest freely and without
(37:23):
extra cost in the rest of the world could be
taken away because if you think about the types of
people that are in power, certainly in the UK, they
say that they want economic growth, but they don't like competition.
They say they want you know that they want great
British businesses, but they aspire to mediocrity. And the way
(37:47):
that you don't compete against America is that you don't
allow your citizens to invest anywhere other than the UK.
So you end up putting on capital controls to keep
them in the UK that finances their activities at much
lower returns on capital. And I think in that environment
(38:10):
crypto becomes a much more useful I wouldn't call it
an investment, but it becomes a much more useful way
of taking your assets out of a country, rather in
the same way as it's been used in China or
other other economies where they don't have either economic or
(38:36):
political freedom.
Speaker 2 (38:37):
Gosh, to end this podcast on a happy note on
not going well are they?
Speaker 4 (38:42):
I would say that, look, we can spend ages talking
about what's going on in the UK and Europe and
get very depressed about not only where we've come from
and where we are now, but how the political class
and the bnpon opinion just doesn't have a clue.
Speaker 3 (39:05):
Now.
Speaker 4 (39:06):
It's terribly frustrating because we can you know, it's one
person just can't change the political outlook of a country,
and frankly, you know there are more rewarding things personally
to do. But what we can do is make a
(39:27):
decision that until they get their act together, until they
welcome capital and capitalists, we can send our capital to
somewhere where it's needed and where it's valued and where
it's treated well. So that's Risdom's law that capital goes
where it's needed and stays where it's treated well. That's
(39:47):
not the UK, and that's not Europe currently, it's the
US and it's Argentina, and that's where that I think
is the happy no, because the best way to hedge
yourself against the political and economic risk in Europe, which
is only going to get worse when we have stagnant
(40:08):
GDP per capita for two decades, is to actually invest
somewhere better in the world. And that's why I actually
I've always been against this sort of forcible investment in
a domestic market because actually the best thing that most
UK investors have done over the last twenty years or
even fifty years is to invest somewhere else, and that's
(40:31):
what's allowed them to keep hold of their wealth and
their purchasing.
Speaker 2 (40:34):
Pot Listen, I'm going to finish this by asking you
a different question, which is about Christmas. Christmas, if you
were to give a book, a really good book on
something to do with finance or economics, to someone who
wasn't an expert in this stuff for Christmas, what would
you give them?
Speaker 4 (40:54):
I mean, I'm an avid not only reader but consumer
of audio books. I'd sort of read two or three
books a week. And and you know, firstly, if you're
interested in investment, the there are loads of investment books
that you can read. But also if you're interested in
the energy transition and learning about that, there are also
(41:18):
fantastic number of books that you can you can read
which takes you beyond obviously what you're what you'll be
naturally consuming in terms of the mainstream media. So so,
I mean, one author I found I think is is
the the kind of.
Speaker 3 (41:39):
The best, if you like.
Speaker 4 (41:42):
The communicator of the value of energy in the world
is Vaclav Smill, and he's got a number of different
books on energy transition, but there's one book in particular
that that is pretty accessible, which is how the world
really work. So i'd encourage any of your listeners that
(42:03):
are interested in energy or physics or or even you know,
transitioning from a historical background, which was obviously my first
thing that I studied to understanding physics and chemistry of
an energy transition to read that Club Smell.
Speaker 2 (42:23):
I have read that, and I have said it's absolutely brilliant.
Good recommendation. Garry, Thank you so much for joining us today.
It's been brilliant.
Speaker 3 (42:29):
It's a pleasure. Thank you.
Speaker 2 (42:39):
Thanks for listening to this week's Marin Talks Money. If
you like or show, rate, review, and subscribe wherever you
listen to podcasts. Keep sending your questions or comments at
Merriorn Money at Bloomberg dot net. And also please do
follow me in John on Twitter or x. I'm Maren
as w and John is John Underscore Stepic. This episode
was hosted by me Maren Zumset Web. It was produced
by Some Society, Projections by Moses and special thanks to
(43:02):
Barry Norris. Want to listen to episodes of Meron Talks
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(43:22):
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