Capital & Conflict: Century bonds, life in the stars & why blue diamonds are the rage in Hong Kong

 

Published on Apr 14, 2016

Century bonds, life in the stars, and why blue diamonds are all the rage in Hong Kong. Charlie Morris from the Fleet Street Letter joins the show this week to talk about why the British steel industry isn’t worth saving and why the City has it wrong on bonds. Nick O’Connor from Exponential Investor drops into talk about this week’s big stories from the frontiers of technology. And Alex Williams from MoneyWeek talks about the diamond market and whether it’s safe to buy mining stocks.

Capital & Conflict: Century bonds, life in the stars & why blue diamonds are the rage in Hong Kong

0:00his money money out of social technology I think suffering is generally under
0:09rain it because you suffer for a reason you don’t suffer for no reason that we
0:15were talking about the move towards a cashless society and how you know you
0:19have lots of reasons why is it appropriate for grown men to ride
0:23scooters I thought that gossip line in Germany with going with Bitcoin
0:30alibi saying winter is coming when I was the ice and welcome to this week’s
0:38capital in conflict show I’m Dan Denning your host for the show and it it’s gonna
0:45be a good one
0:45I’m recording this production after I’ve talked to all three guests on the show
0:50and in terms of variety I don’t think we’ve had a better show to be honest I
0:57had our old friend Nick o’connor back on the show opened up and talked about
1:02frontier tech of the project he’s been working on with Owen Morgan and as you
1:08know that project went live but rather than talking about it as a technology
1:12project we just talked about technology in technology businesses and how much
1:18you should pay for and what kind of cool stuff is going on so that was a pretty
1:22interesting conversation and it really there’s been some incredible things that
1:27have happened in for lack of a better word the technology space has been a lot
1:33of well the SpaceX thing went up and then landed on the barge which if you
1:38haven’t seen that I would recommend get on the internet go to YouTube Google
1:43SpaceX just see how I mean in a few years that stuff will be routine but
1:49right now it is incredibly exciting to watch watch that stuff then there are
1:55some other stories that will cover so I won’t steal his thunder but that was the
1:59first guest Charlie Morris from the Fleet Street letter came on Charlie’s in
2:03the office this week to work on the monthly issue of the Fleet Street letter
2:09he writes weekly updates that go out
2:12email but the monthly issue is a bit longer it’s a bit more formal and the
2:18way I’ve described it is that it’s probably charlie is most important and
2:23best investment idea for the month and it’s one where you want to take a bigger
2:29picture you want to take some perspective and you want to look at
2:34everything that’s going on in the world
2:36not all newsletters do that obviously some are just about stock tips summer
2:40specific to a sector like the resources sector or to technology like frontier
2:46tech but after please treat letter what we’ve consciously tried to do is
2:50recreate the spirit in which Patrick Maitland founded that newsletter in 1938
2:58and that is to sort of understand what’s going on in the world and to do that you
3:04have to look at macroeconomics and to do that you have to look at geo politics
3:09and above all to do that well for investors you have to have experience in
3:15many different investment cycles good ones bad ones bull markets bear markets
3:21and you have to know what to do and the more I hope that the more you hear from
3:26Charlie in the more that you read you’ll realize he’s just a gem is an absolute
3:31treasure of experience in identifying what’s going on and then and then
3:37picking the right tactical investments to benefit and if that’s not your thing
3:41sort of short-term tactical investments in a most of Charlie’s work is long term
3:47in on that particular issue I’ll say pay special attention to our conversation
3:51about bonds since he’s left a city Charlie has the freedom to be bearish on
3:58the conventional wisdom with regards to Barnes in an asset allocation strategy
4:03and now that sounds like a mouthful but what it means is that most professional
4:07wealth managers and fund managers will buy government bonds corporate bonds
4:11because their models dictated and because there’s a perception that
4:15government bonds provide you a risk-free rate of return and they will quote
4:18long-term performance statistics that show the performance of
4:23relative to equities but Charlie’s research has shown that their periods
4:27where you will not make money buying government bonds and therefore it is not
4:32at risk for your position and importantly right now he believes that
4:36this is one of those moments where you need to think about the conventional
4:43wisdom and modify your investment strategy so we talked a little bit about
4:48that and we talked about some other stuff is great to have him on and
4:52hopefully I’ll have him on more finely Alex Williams from moneyweek and from
4:58the global mining observer came on to talk about what he talked mostly about
5:04diamonds today which was interesting for me there’s not a lot that I know about
5:09diamonds and Alex you know he spends all of his time and I occasionally get
5:15emails from Alex it’s two or three in the morning where he will have just
5:19finished an email interview or a phone conversation with someone in the mining
5:23industry and he’ll be real aim to me what what he’s learned I don’t know that
5:29anyone else works harder at least anyone that I’m working with us he’s really
5:34well connected in the in the in the resources industry in the mining world
5:38people answer his emails answers phone calls are able to kind of break stories
5:43about what’s going on behind closed doors are perfectly above-board by the
5:48way it’s nothing insider about any of it it’s just Alex as well as guys that he
5:53has the the turpitude 22 just ask people questions when he has them in you know
5:59most of the time you’ll find that people will answer them if you ask nicely so he
6:03asks good questions as well which kind of tell you where we’re at in the
6:07commodity cycle on that issue again I won’t steal his thunder but I think he’s
6:12generally encouraged by the
6:14the momentum in in resource stocks but he remains a bit of a skeptic that we’ve
6:21seen a real liquidation in the bad news that some of the companies with lots of
6:27debt and cash flow problems haven’t dispose of assets they’re benefiting
6:32from a rebound in prices particularly in iron ore which we’ve seen also a little
6:38bit in oil but yeah alex gets into more detail about that but yea technology
6:44bonds asset allocation resources diamonds iron ore little bit of
6:49something for everybody today so I will leave it at that and get straight into
6:54the show if you have questions for me send them to Daniel at moneyweek dot com
6:59and other than that this is the capital and conflict podcast I’m dent in your
7:03host enjoy the show the capital in conflict forecast is brought to you by
7:08moneyweek research for more news analysis and insights from our team of
7:12analysts around the world visit capital and conflict dot com alright welcome to
7:17the show
7:18welcome back to the show the first guests today is your friend a new friend
7:23and an old friend at the same time Nick o’connor from exponential investor how
7:27are you Nikki you finish a marathon on Sunday is that ok all right I’m feeling
7:31a lot better now than I was a couple of days ago when I woke up the morning
7:35after the math and I tell ya what it’s like being beaten all over it it’s it’s
7:44a you know something you can be proud of the fact are you still of the opinion
7:51that suffering is useful
7:54yeah yeah well it’s one of those things where the further away you get from it
7:59probably see a different context but while you’re in the midst of a mile 24
8:05when all you can think of is well doesn’t seem worth it then but it’s you
8:12know I’m of the belief that I don’t know you learn something about yourself by by
8:18train you see where your limits are I quite enjoy things like that when I run
8:24nearly as much as you will I learn as I don’t really enjoy running
8:28enjoy biking hiking mountain biking a lot a lot more but that’s it that’s an
8:33impressive accomplishment you said though earlier in the week he’ll never
8:36do that again I’ll never try and run so my goal was to run as fast as fast as I
8:41could and I would run in three hours and 40 minutes shows pleased with what I i’m
8:46a run another marathon in the future for the fun of it but I wouldn’t try and go
8:54flat out like that so I would like to do
8:58iconic races would like to do the marathon in Greece you know between I
9:05wouldn’t try and do it is just too close to the limits of what your body can do
9:11yeah I don’t have no idea what you feel by the way I haven’t been on the show
9:16probably for two months maybe three months I don’t know if you’ve mentioned
9:21this in the past but the elephant in the room at the moment is Dan’s put an
9:23awfully big American flag of in the video here though really made himself he
9:30made me seeing the stars and strikes before I came in the show but but I was
9:37going to mention that because as you know if your listeners of the show are
9:42you recap of conflict mix next big his other big project in running the
9:47marathon was his project with oh and Tracy where they have been working on
9:51frontier tech investor and that project has gone live in the last week and I
9:57thought to commemorate the fact that we’re talking about it
9:59gonna tell us more about it here and to commemorate the fact that I’ve decorated
10:04the studio you know an American flag impressive I gave Nick my cameras that
10:10take a picture of me with the flag in the background and we’ll post it in on
10:15the Facebook page and put it up so people can see Nick who has just
10:21published his first newsletter on revolutionary innovation in technology
10:27things are changing the world
10:30redefining what it means to be human creating artificial life where none
10:34existed
10:35changing the nature of the entire global County couldn’t even use my phone
10:40pictures so why on earth should people trust you and technology if you can’t
10:45even take a picture with the phone I’m still baffled as to why I couldn’t do it
10:48like i feel like im going to get instruction because I was I was doing
10:52everything right but it just was taking a picture of the floor is embarrassing
10:56although the coolest thing that we did before we came in the studio was we’ve
11:00been messing around in the last couple of days with this thing called deep .
11:04iOS website depart . and what that is
11:09which is cooler than me not being able to take a picture is how would you
11:13describe it down loosely speaking it’s an algorithm that creates pictures for
11:19you
11:19creates is the interesting term because there’s we were debating whether or not
11:24is true creativity or not but essentially what it does is takes for
11:28instance I picture of myself in under under van Gogh painting it combines the
11:35two there’s not really a flash of inspiration and I had to give it that
11:41information but when it comes back with is quite interesting and quite more
11:47original than you would think it was going to be done in what did you put in
11:52yeah well you sent me the link matter partridge mentioned is well I think it
11:57was in exponential first but it takes two images 1 you upload a picture of
12:02yourself can be anything you want you just take a picture of yourself
12:06upload it then you then you can either pick a template that somebody else was
12:11created that says I want to take that picture of me and reproduce it in that
12:16style or you can submit a completely different style but I think from the
12:21idea
12:22point of view view view an idea as a new thing that emerges from an association
12:27between two existing things that’s what was called the planning a party part yes
12:34that’s what departs doing it’s taken two things you’ve given it and then under
12:37whatever parameters it’s been programmed with it it creates something new so it
12:42it takes a min matches in up it’s quite so so for instance
12:47mine with by the way was roy lichtenstein the sort of artists who
12:51looked like you know old comic book portraits and what it did with that was
12:56pretty interesting mister mine was kind of like a reproduction of a picture of
13:01me with a different styling it was likely kind of filter most was down as
13:06one was I don’t know it done something to your face in the pic just as having a
13:11lot more interesting when you see when you start to actually I have spoken to
13:15the guys at deeper and they all want it’s free yourself look it up and also
13:22they kindly allowed me to reproduce some of the images that reproduce them in the
13:29editorial that we send out this week so I can send downs picture of me is
13:33actually quite an interesting what is done is is more innovative the new Nexus
13:38you would think was possible
13:40yeah you know I enjoyed it because for two reasons one he gave me a much
13:45stronger jaw line and actually have so I thought that was a good good good about
13:51that but it gave me the sort of just natural enthusiasm and excitement that I
13:58felt last week when I watched the SpaceX Falcon are actually Falcon is the sort
14:06of orbital pro but the rocket that landed on the on the ocean platform and
14:13watched that on YouTube and they were broadcasting it from their headquarters
14:18and juxtaposed with something from a science fiction movie in the fifties or
14:23sixties where it was a rock at the sort of had thrusters that arrested its
14:27motion and landed on a part in something like that you just get excited about the
14:33future you think well we are we’re living I mean this is ridiculous I said
14:37it this morning cuz it’s always true we’re living in the future but feels
14:41like genuinely a lot of the the things have been promised about the future are
14:47starting to happen and I suppose that’s the point you guys have been making for
14:51a while now that that they’re happening at a faster and faster rate hence the
14:56term ex
14:56financial and some of them will be truly transformative end and also more
15:01importantly for investment publisher they will create real investment
15:06opportunities for people
15:07well that’s the hard part that final point and actually that’s that’s kind of
15:11why we’ve launched front attack investor because we can describe it like this
15:16conversation we just had that’s about D part that’s cool right on the internet
15:24as it’s called
15:26if we want to create something that’s pretty cool about it and it’s a talking
15:33point and lots of the stuff that we look at it like that mean that a SAT there
15:37all day fucking ideas back and forth above then to translate that into
15:45something that is a genuine financial opportunity as well
15:49is it’s far beyond my skill level certainly I wouldn’t be able to do that
15:55I’m not going to be able to yet to turn the tax story into a financial story
16:06that you can invest in like that’s very very difficult for a number of different
16:09reasons mostly because not every cool technology is as commercial potential
16:17and even if it does become central you then get yourself into the whole
16:20situation of well when is the right time to put your money into it thinking about
16:26it which is the technology is governed by kind of two cycles the product cycle
16:31and the financial cycle products cycle is quite predictable you come up with an
16:35idea you tested you develop commercialize it might take fifteen or
16:38twenty years but that’s what happens the financial cycle something totally
16:41different governed by flows of global capital sentiment interest rates all
16:47that sort of stuff so that’s why I hired someone like Tracy because he has done
16:54expertise to turn the technology story into a financial story to translate the
17:00opportunities that we talked about the cost of we talked into something that
17:05you can feel confident investing in and making money from and
17:09that that’s what we’ve been trying to do and that’s the key difference between
17:12something that exponential investor where you know we try to inform and
17:16explore technology front a tech investor we can go the extra step and say okay
17:21well here’s what’s going on but then his way to put your money to take advantage
17:25of it but then there’s a decent description of the problem though the
17:29product so on the difference between the everyday investor which launched just
17:37last week a high level of financial judgment on top of the technological
17:41analysis we do
17:43yeah I think that’s a good distinction because someone like me I’m a lot more
17:48interested really in just how the world is changing so Stephen Hawking in the
17:53Russian billionaire trying to send it probed alpha centauri or wherever it is
17:57that that interest me and there’s been a lot of things like that that are
18:02starting to happen they seem to happen with more and more frequency and I’m
18:06excited about that as an investor you know there aren’t a lot of businesses
18:12that are profitable or that actually have a product in their run by business
18:17people not visionaries that you can buy so that’s why doesn’t interest me yet as
18:24an investor is that this morning didn’t weigh when someone figures out a way to
18:28commercialize the idea of space exploration it will be a massive story
18:33but I can’t foresee a situation where that will happen in the near future
18:37yeah but I think what it does is it confirms that this is what I remember my
18:43my advisor and college professors apopka ranks of packages retrained literature
18:49professor
18:50every time we read stuff he would make the point with pictures and even he
18:57would bring in an old record player from time to time we had CDs back then but we
19:02still had records and he would say when you see a movement in literature like
19:07realism romanticism or classes
19:10more modernism you see it there are examples of it in books there there’s
19:16there’s iconic pieces of Romantic literature like other Sorrows of Young
19:21voter it’s one of the classic pieces of Romantic literature but if you start to
19:25see that everywhere in the culture you see it in inter arts phenomenon so you
19:30see it in architecture and in music and the visual arts and literature so when
19:37when there’s a will there’s a trend or something emerges in the creative world
19:42it it manifests itself everywhere I think the same thing happens in in
19:47technology lol yeah well that’s yeah it’s nice because it’s what it tells you
19:59is it’s not just isolated pie in the sky stuff that in many different fields
20:04whether it’s medicine energy technology or AI advances are being made on an
20:11almost daily basis that gives you the indication that this is a different
20:17things going on and what we’ve seen in the past
20:20well that was a challenge annually to take that world and turn it into
20:24something that you can not only benefit from was interesting change your life in
20:30the future but financially because obviously you get it right in the
20:33technology world probably one of the most profitable industry you can invest
20:39in if you get it right you know is it is risky ever comes with enormous potential
20:45but I mean that’s again that goes back to the real experts often on the phone
20:53to him were talking about so I don’t just calling you know he’s not here to
21:00speak to you know my head to be buzzed in with the things I’ve been reading
21:03about you seen this we see now you know he’s enthusiastic about it as I am but
21:09the day he constantly says analyst be grown ups about this which which which I
21:16take to mean just slow down and think just look at just spend a little bit of
21:20time thinking about the financial
21:22excited about this and I think that’s a very hard thing to do as well because
21:32you don’t want to be too you know you’re trying to be visionary you trying to
21:35invest in things that have the potential to change the world before everyone sees
21:40them as it as a debt is no point now say you know what done I think the Internet
21:44is going to be really quite a big deal that’s not a position that’s gonna be
21:50useful to take like so you have to be ahead of everybody else and you have to
21:54be looking at the future and taking a risk on something that may not come off
21:58but at the same time you can’t get totally carried away I guess that’s well
22:04it’s a different kind of investing discipline to because if you’re talking
22:07about a mature business that had a history of earnings and profits than you
22:14could do a very grand and Warren Buffett style valuation of the book value the
22:22business intrinsic value the return on capital and decide what price you’re
22:26willing to pay with the right discount rate in in but you would be looking
22:30backward more than looking forward i mean you’re obviously because you’re
22:35trying to decide how much money you can make based on what it’s done but that’s
22:39the thing that’s the challenge with the technology growth stuff is generally
22:43speaking with those businesses as a whole lot less operating history and no
22:48one really knows how big the business is going to be whether the industry takes
22:52off whether one company does a lot better than another company and whether
22:58you know there’s other variables there but but that’s why I was reading this
23:02morning the guy back to Facebook he was one of the early venture stage investors
23:07he was speaking at a conference in California in San Francisco it was on
23:12the future of payment technologies but he said look everything is fairly
23:17overvalued right now including tech startups into those unicorns course
23:21that’s true but the same could be said for government bonds the same could be
23:25said for a lot of publicly traded equities in the same could be said for
23:28real estate in many places around the world the difference with the technology
23:32startups and with some of the car
23:34that are already publicly listed is that they put they may be worth paying a
23:39premium for because they will have a lot more growth there’s more potential
23:44upside than there is in SE property like how much higher than that go
23:49realistically order of magnitude only got ten times yeah well I guess it
23:56depends on who you ask someone from the property world they might
23:59London property went up by multiple of 10 that would be the currency collapsing
24:05not the market going on at that point it went up from the average price being
24:09five hundred thousand pound out of 5 million pounds now just inflation
24:13something else would have to be happening
24:15yeah well I thought it was interesting I mean we’ll we’ll wrap it up because I’ve
24:19got outs coming in next in you can I’ll give you the last word before I say this
24:25after I say this when I was going to say I love with now we’re now we’re
24:33listening to Dan think it’s going though it’s now it’s gone well with you there
24:39is one final point so just briefly explain how it’s structured portfolio to
24:44give you a sense of tech so opportunities we’ve broken that
24:50portfolio of recommendations down to four categories energy medicine
24:56technology so those are three big cats with energy is things like battery
25:03technology solar technology is the kind of just clearly technologically focused
25:13software companies things like that
25:15medical is obviously biotechnology from robotics stuff we’ve got in that they
25:20have a fourth category which is moons
25:23we talked about that before thats comes from Google their department the
25:28Department of Justice basically
25:30low probability stuff maybe 200 projects will come up but if they do they could
25:37turn an entire industry in the entire world on its head to have taken that
25:41same principle maybe not 100 or 200 we’ve got an area that stuff this right
25:48out there on the edge of the bell curve with probably more chance of failing
25:53them succeeding but if it succeeds the payoff could be enormous so that’s kind
26:00of how we structured things and if you are interested you should go to
26:04moneyweek dot com forward slash
26:07tea or just interested should take a look and right now you should hope the
26:20dance remembered what it was he will remember but I do remember I was gonna
26:24ask you last time I did a show of all who’s who’s started podcast for
26:32exponential investor he was on and since then he’s has he spoken with Owen as he
26:37hasn’t yet or is it still under wraps it is so what we did was as if your front
26:44attack investors subscriber it doesn’t cost a lot higher level of work involved
26:50on our part so we do charge me she interviewed about the stocks and that’s
27:01something that we’ve yet because it is a detailed analysis of the company’s
27:04however what we then did was we went there is that ok we take the names of
27:08the companies out we can put that out to non-subscribers to give you a sense of
27:13the type of thing that we’re doing in front attack investor so you go to the
27:16exponential investor podcast there’s plenty of notice have gone about that as
27:20well you can look it up on Soundcloud order put it but a little linked into
27:24custody in conflict you’ll hear media basically here an edited version of what
27:29subscribers would get a slightly different type of pocket but the idea
27:34being that you know we can tell you that we think something is valuable in that
27:38we’ve worked hard and we think you’ll be interested in it but really the best way
27:42of you figuring something you want to try is to either try it
27:46and get a refund if you don’t like it also listen to something like that
27:49Pakistan guest sense and see for yourself you should look out because you
27:56might like ok well I’ll let people know where to find it is no thats Charlie
28:02Charlie Morris just looked in the window and eagerly await his opportunities
28:08working on his flagging as well he’s working on his issue of the Fleet Street
28:14letter so is a whirlwind of energy Charlie so I’m gonna have to psyche
28:20myself up to a bit between his teeth
28:27there’s never really worked with anyone like Charlie in terms of just pure
28:31energy when it comes to imagine if you investigate investigative journalist
28:36would want to undertake you would not know like the Terminator thats I don’t
28:43ever remember that quote but his next alex is coming as well and I guess
28:48between our zone and charlie there’s quite a few interesting ideas floating
28:52around right now so if you have a comment or question for our marathon
28:56manic o’connor send him an email to Nick moneyweek dot com and will reply to you
29:04as quickly as you can so good luck with Frontier technician and don’t be a
29:08stranger come back today’s capital and conflict podcast is brought to you by
29:13the price report price report is edited by Tim price is one of London’s most
29:19award-winning defensive hedge fund managers
29:23today’s episode again brought to you by the price report ok I’m back in the room
29:28he is very busy today because he’s writing his monthly issue of the letter
29:34Charlie Morris welcome back to the show
29:37good morning Daniel alright we don’t have a set format because you’re busy
29:41and I’m busy so I’m just going as you like three questions and we’ll just let
29:45this will be spontaneous order hi ekie in version of the podcast where if order
29:51emerges it won’t be because it was designed and I know you’re a big fan so
29:56you liked the script then let me just ask you about it since we’re working on
30:02right now I’ve seen it
30:03other people haven’t seen it yet what are you writing about in your current
30:07newsletter and why did you pick that story about the steel industry and I do
30:11you feel in some ways behind the curve on this because I should have been about
30:15it some months ago it’s been an issue actually for several years now and the
30:19fact that I know prices been falling since 2011 you know why now the major
30:23pages I just feel some of the arguments out there are off track and so have a
30:30look at it really my mind I was once told that you understand something into
30:34you write it
30:35research it and write it down that’s what I’ve done over the last month
30:38looking closely at the steel industry look at facts figures trying to get a
30:42sense of where the world is in a nutshell town in the nineteen nineties
30:47700 million tons of steel in the world today there are 1,600 million tons i
30:53mean huge growth and of course most as Captain China Chinese coming come from
30:57you know below britain’s production a generation ago to 800 million tons
31:02I mean I think he wrote in story that it’s it’s it’s more than current demand
31:08right and it’s more than the combined capacity of the largest economies in the
31:12world so Japan uu the USA Russia I mean it just dwarfs everything else is out
31:18there yes I mean the EU and aggregate numbers in front of me is unscripted to
31:22go to about a hundred America attic with 79 high with those kind of numbers are
31:27we talking about 1,100 from asia which a hundred come from China we should think
31:32that career produced too much under a hundred
31:34yeah just bossed well let me ask you without giving away a lot of what’s in
31:41the story because there’s a lot of analysis of the steel industry as a
31:44business and then I think you made a nice job of transition into industries
31:49especially metals industries where where Britain can compete and shareholders can
31:54make money but one of the aspects of the story that dominated the press is
31:58whether the steel industry is worth preserving because there’s a national
32:02interest in preserving something that people have defined as strategically
32:07important so you took that up in your story but can give people sort of the
32:12the the the boilerplate version of that should we save it because it’s because
32:17without a steel industry Britain isn’t a real global power is its strategic and I
32:23i sposed to make steel he had a blast that s an invite you have a little bit
32:27of limestone find that make sure to do that because we haven’t got much coal
32:31coal is an economic and it’s a low quality compared to the cold required to
32:36make a blast furnace hot enough
32:38secondly since nineteen sixties we haven’t had any domestic iron ore the
32:42last shutdown in Teesside and so when you do the numbers you’re basically
32:48three bulk carriers on their way to Britain from the other side of the world
32:51from places like australia and debate one ship full of steel and an extra
32:59seems slightly crazy now we can’t make it you know it’s not really important
33:04because we call you have to import those and so therefore why not just a bit more
33:10efficient about it
33:12and the steel now they knew at the behest of Johnny Foreigner and we don’t
33:17like back and so what can you do to you from here is the worst of all British
33:27industry that the the the the the point is you can stockpile and I and I’ve come
33:34up with their title of quantitative stealing and and the idea is really that
33:40we print money rather than buying gilts we we buy steel me by chromium nickel
33:44and other high-value industrial metals copper and so on and we have a national
33:48stockpile I mean I think that if every country in the world did this then the
33:52volatility will come right out of the market so right now what you have is
33:56that was also a $5 that went up to about $40 in the late nineties and those kind
34:07of swings are terrible for industry and of course chechyna was the wild card in
34:14that case but had similar moves in lots and lots of different commodity prices
34:18and they go up to imagine they come down to imagine it thrive and then crashing
34:23in it and it’s it’s very vulnerable and I i did some research a few years ago
34:28and I just took a simple idea I looked at Global inventories in the commodity
34:32markets and I looked it natural gas and I think I concluded it was around two
34:37weeks supply maybe three weeks in oil might have been a bit higher on average
34:40and then I get food stop foodstuffs like wheat and soybeans and again that he
34:46added that the supply went into the mouth and when it came to capitol hill
34:51couple years we’re talking silver it was several years we talking cold it with a
34:55hundred years and and and if then if you inverted that they just look at infantry
35:01above ground supply ready to be consumed and then equated to price volatility
35:06they’re investing related to gold is least volatile commodity because it’s
35:11got massive stockpiles and natural gas is the most volatile which got the
35:17lowest industries it then it is one higher
35:20which you can’t store at this stage in any meaningful way in electricity the
35:25volatility which is hidden from the consumer but on the spot grids massive
35:29interesting you mention that because nikal kar who’s just previously that’s
35:34one of the major themes of their technology product is that they’re
35:37looking at ways to store energy whether its solar or battery technology but but
35:42I didn’t know that I don’t know that it does make sense with electricity because
35:45you can store yet you can’t see any meaningful way and of course we have
35:49batteries and big matches but you know industrial-scale can you imagine store
35:53in the kind of energy to smooth out it would change everything suddenly
35:59EastEnders on it what time it’s on the Catalan and all that stuff at the moment
36:03the British priorities EastEnders and the cattle not the steel plant and and
36:08and i think that for both have ample access whenever they wanted it too is
36:12not necessarily production is it keeping that curves and you can do that with
36:15price storage alright lemme shift gears in and ask a question that you your
36:20comments have provoked this morning in couple of conflict Wednesday morning I
36:25wrote about the French selling fifty-year bonds in mexico did it last
36:31year they did the century bond 100 year bond yield to maturity 4.2% this year in
36:36the first quarter European government bonds with maturities longer than 10
36:40years are up an average of 8% guilty to seven moons nine something like that so
36:46I i described it as a solution to the supply demand problem that if no one
36:50wants to buy government bonds with maturities of less than 10 years because
36:54they have a yield of less than 1% or negative yield the government has
36:59decided to issue these long-term bonds so do questions with your with your
37:04stockpiling of steel
37:05why wouldn’t the UK government just issue hundred-year Barnes fifty-year
37:09bonds in use the proceeds to buy steel to stockpile into what’s your view on
37:14this trend in the government bond market of these really long dated maturities of
37:18what’s going on with specially if I could I would do so
37:25be here in a hundred years but no other government so I think that the reason
37:31they can get these away is because they can you know the fact there is this
37:35insatiable demand for anything this risk-free with the yield which require
37:39unquote now it is risk free and you get that yield you will get that your money
37:44back that money be worth questions when I say when I have written about the idea
37:50of being bearish on bonds it it more of a case of you know I see inflation
37:54returning and therefore a fixed return to smithereens know why do you see
38:00inflation returning well we’re getting the green shoots of it right now I mean
38:05the whole policy we’ve got a quantitative easing is designed to
38:09reflate the economy into prices up you know one of the reasons that hasn’t
38:14worked is because you know corporate profit margins have been very very high
38:17as a wage growth hasn’t really come through in the developed world has been
38:22job creation in America like Britain like Northern Europe hasn’t worked
38:27everywhere you Japan to the doctor places where the unemployment very low
38:30wage pressures when he just going to come through I i do think that you know
38:35going back a few years we sort of third world why was the stock market up so
38:40much in 2009 10 when the economy was a week and this time around the stock
38:47market worried about financial I says they just in the online economy to be
38:52more resilient and he’s gonna be one hell of a shock in recent years yeah so
38:56I think that we do tend to overestimate the impact of bad news but actually bad
39:00news has become the norm
39:01yeah and say well he’s not that high for example you know
39:08yield per cent which I’m sure is very favorable compared to your 5200 year
39:16government bond and of course it’s a real asset that will link to inflation
39:21plus a bit over the long term it all to you that’s what they’re the text books a
39:26campaign from those bombs blamed say so I think that you know I can understand
39:32why institutions do it’s not their money they have to balance the books the
39:35reporting requirement and so on
39:37individual investors should not buy these longer doubles so you know it’s
39:41world-class investment intelligence which leads me to one final question for
39:46you
39:46return you to your responsibilities did you see this story last week from the
39:52BBC that where they had uncovered in the stasi files former East Germany a speech
39:59given by kim Philby to east germans by
40:02I had it on the radio and see the program but I’m planning to and how did
40:06that make you feel because it’s we haven’t been able to confirm this
40:10entirely but the late William Lord rees-mogg
40:14has told Bill Bonner told in the past that can be used to be a contributor to
40:19the Fleet Street letter and we you know I’m not sure if he was like he he was an
40:25analyst who was a writer he was in journalism what I found interesting
40:28about this story is that his journalism postings throughout Europe or a cover
40:35for his his by activity that when he was in and out of government employment he
40:41was in the medium I thought that was interesting
40:45also in with the furore surrounding these these Panama papers about offshore
40:51tax havens which is a whole separate can of worms but the latest stories that
40:56that that was leaked by the CIA yeah I mean it’s an interesting I just as an
41:02interesting issue when you try to make heads or tails of what’s going on in the
41:06world the job of the the investment analysts at least in the newsletter
41:12world is is not dissimilar
41:15from the intelligence analyst and it’s not just me say this is our friend Jim
41:21Rickards who works with our colleagues down the street he did work for the CIA
41:26increasing convergence I just thought that was interesting
41:30take me the number of points but when it comes to newsletter writing in in our
41:34business I do think you have to think differently I do you think the financial
41:38institutions are inside the bell curve in their thinking they come out with
41:41normal views you know everything’s normal slightly better slightly worse
41:44you know we have a tendency to more extreme views were so much better and
41:49you know I’m not saying that we’re alarmist that’s that’s not the point at
41:52all but I think we’re we’re paid to think when the institutional world to
41:59maintain the status quo and of course it’s been right to think in recent years
42:02because nothing that’s happened has been has been within bell curve normality
42:08everything is a Black Swan event that we’ve seen from the credit crisis 20
42:13interest rates to the Greek situation to the steel oversupply you name it
42:19crazy crazy things are happening everywhere the production of you exhale
42:22the collapse of it goes on all of these things are mind-boggling events and you
42:28not gonna get him predicted from mainstream advisor so I think that’s why
42:34the news that a business was so attractive to me to join you in a way to
42:37express it going by the question I hope he was a contributor we need to find
42:45some copycatting and can be quite fun and we can reprinted whatever he did
42:49having having a spy on our doorstep isn’t necessary to be proud of but it
42:56does make history more colorful lights are very pleased with it from that point
43:00of view I will watch the program talking of BBC iPlayer last night and he called
43:05the second half
43:06there’s a very good series by the BBC I forget the name but it’s on the history
43:10of the European Union and Britain’s involvement
43:14must watch on the iPlayer when we do the re-edit will put the name in ok I’ll
43:19find it and put it on there in fact I mention that in today’s healer
43:23it well I got in my mail yesterday I love this song on Twitter younger male
43:29or female it’s the pro roast a campaign leaflet put together by the government
43:36and many of the talking points or from the chairman of the European Commission
43:40I think he’s the chairman of the commission but I was looking this
43:48morning on his bond issue with the French fifty-year bonds I was trying to
43:52figure out which Republic France’s on and it’s on the Fifth Republic to go to
43:56Wikipedia Google the French Fifth Republic and you’ll see a chart that’s
44:00designed to make the the layout of the French government easier to understand
44:05and it’s baffling you look at it would look at that and say that’s a that’s a
44:13that’s a testament to how well organized government is but I think in some ways
44:18the EU you know the spirit of the EU is reflected in the French Fifth Republic
44:23but i just want to mention that one comment from that program I did catch
44:27last night which may be rolling in stitches I hope I can repeat it well it
44:32was a French diplomat you know we will probably be having a diplomacy with the
44:37america and he was terrible because in France diplomacy is gastronomic and they
44:43were very much in a hurry then when we saw the British we were the ambassador
44:48was Nicholas Soames we knew we could do business and of course that’s good stuff
45:01on Charlie’s one of Charlie’s points I think you do have to have ideas I think
45:08we’re lucky I’m lucky to have met anyone in London who has a letter readers are
45:17in good hands right now I some of the readers have written to me very good
45:22questions about bombs you know my parish is a long-term strategic very important
45:27the in in the the drive from regulation is is the extrapolation of past returns
45:35as a bit now known that if you look at 20 or 15 years of data had you owned
45:41lots of government bonds which have had roughly the same return to stocks after
45:43the evidence of the last twenty years then than it had that ability and they
45:48protected you during shocks it why wouldn’t you have lots of bombs and said
45:52that’s the financial theory and that’s driven by the regulator has a risk you
45:55know low risk says have lots of bombs and and I totally disagree with this
45:59because you did that in the nineteen fifties as I was shown in some of the
46:02research support you know you’ve lost the best of best part of seventy or
46:05eighty percent of your money in real terms over the next couple of decades by
46:09being importance as opposed to being in equities yeah and I think that the case
46:12for equities now compared to compared to when i join the industry in the late
46:15nineties you know they’re not cheap but there but there somewhere close to
46:18slightly above fair value maybe but not a big deal they were very very expensive
46:22twenty years ago when twenty years getting back towards value of the bond
46:27markets now be like tech stocks in in the late nineties and so I think the
46:31roles are reversed within equities you mustn’t think of a show is a good one
46:36there’s a medium one that isn’t all for one is a huge difference for you know
46:39mine in Chad that may or may not have some deposits and company that sells
46:44high margin washing up or something like that yeah I I and III data really
46:50doesn’t grasp this concept of quality and we have to pay his whiskey and soda
46:54soda really is the good stuff and I and i think its long-term growth of dividend
46:59for our grandchildren that’s really the brief the tactical pool Thursday looking
47:06for good ideas and we just found a new one is going out to date and we did you
47:10did not me and I will let you get to it so you can publish it if you have
47:14questions for Charlie you can send them to me
47:16Daniel @ me.com Charlie has an email address which he makes available to
47:21readers of the Fleet Street letter I won’t give that one out but they don’t
47:24want you to get to lose readers already know what it is please read letter
47:27readers do so anyway thanks for coming in to talk to you and we will have you
47:33back soon
47:33thank you down if you like what you hear in today’s podcast do two things first
47:38of all go to SoundCloud look for Kaplan conflict and then follow us you’ll be
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47:46secondly if you’re downloading us or listening to us on iTunes rate the
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48:01I would have to say so far alexis is the best show yet I say I try to say that
48:06every time I do want but it’s not always true but Nick o’connor was in to talk
48:11about technology Charlie Morrison I just talked about hundred-year Barnes Barnes
48:17yet tough but I’m here with Alex Williams from moneyweek and from the
48:23global mining observer to talk about the world of mining and energy which is kind
48:29of not on the front pages in the last couple weeks has it been actually rally
48:34in mining stocks in the beginning in the mining sector is kind of continues and
48:41is doing quite well and diamonds and oil prices now pushing 2053 $60 we’re here
48:52$59 last night you know this kind of quiet the fuse is beginning to look like
48:59a relatively broad-based recovery but I think we will have to see i mean it
49:05typically the metal prices tend to historically peak round kind of May so
49:11that sort of additive why do you think that is I think there’s anything is iron
49:16ore copper this strong seasonal elements a moment the Chinese Chinese
49:22construction cycle buying tends to be concentrated in the year so but has some
49:30impact
49:33sell in May and go away if you look at this dallas pool gate Bernstein who has
49:42look he’s looked at every single metal over every single month since the LME
49:47house performed each month
49:49founded and there is a very strong correlations may seem a very consistent
50:01for industrial metals and get it doesn’t it sounds like Bologna but if you look
50:10at the biggest IPO is amazing so a temper then maybe a fundamental story
50:24that must be good news though that the rally has continued without making a lot
50:30of headlines that it it’s not news that commodity prices are doing well for five
50:36months ago it was news because everyone thought it was the end of the world
50:41yeah exactly the people said US market is phase is the market’s climb a wall of
50:51worry and and and you know Goldman Sachs take that as contrarian indicator but
51:03for me is definitely too early to turn to shagging I think I wonder if you look
51:08at companies like American which which have leaked Ashley negative have got
51:14huge
51:15depositions talked about selling mind closing mines supply-side industry has
51:25not in my opinion adjusted in a fundamental way we have seen a mass
51:29closure of operations so what’s taking the urgency out of that for them is it
51:33just an improvement in sentiment
51:35Chinese Chinese house prices done a bit better than expected
51:39purchasing products in days in China’s done been expected I think you know sort
51:47of thing in three months kiddies lib but it sounds like from you mentioned
51:55earlier you’re not interested so much and iron ore is really really dance
52:00carbon yes
52:01alright diamonds diamonds very interesting because they have diamond
52:06market went through the end of last year but the Bears had some you’ve been
52:15pointing this has actually done better than people realize basis and they’ve
52:25managed to put there’s not there’s very little transparency so they have a very
52:30close relationship with their largest buyers and there’s no transparency about
52:35either the price they shift gets onto the mat or the quality of goods although
52:43they have very large month and date although the only figure though port is
52:53the total proceeds price increases but you know every diamond is you need every
53:02dime they junkies Danes and things like that said the transparency is minimal
53:12but there is a sense of optimism now that came at the same time you sent me a
53:19story of a diamond that traded hands was it in India Hong Kong yet it was a
53:25record sale in Asia blue 2 I’m and
53:31so I think you saw the be sold in Hong Kong and colored diamond market is
53:36really flying and they were building up there are actually three large blue
53:43diamonds coming onto the market demand and that was the first of the three and
53:47the building up the biggest one main one is going to be the market and then
53:54christie’s is auctioning a fifteen carat blue diamond which is very large for is
54:03going to be so in Geneva in May
54:07yeah I mean I don’t know much about times but it was striking you can look
54:12at it so that I can see why someone would pay a lot of money for that it
54:16yeah I mean that they are extremely rare they created its pretty successful
54:57branding and marketing if you can do that this is a stupid technical question
55:02that may be beyond the scope of of your diamond knowledge which is considerable
55:07how do you cut diamonds is people use diamonds to cut stuff but how they shape
55:12them include the minute he’s incredible Daves well yes it depends on the fence
55:18on quanta done so the demand of the more special prices is really and
55:27cross industry is tends to be in his well and I thought he looked and if you
55:50can if you can correctly
55:52where the sort of invisible fishes are in the time and then you can put spaces
55:58like a matchstick into fast and it will almost effortless along that face and so
56:09then you get that kind of traditional wedding in boston’s in the Boca done
56:17market-based opposing factions they look at the stain
56:23like using lasers and it just wow I was interested but I was thinking about that
56:32my only experience with diamonds have never bought any when I was in college I
56:37used I worked at petrol station which was under renovation so we had to
56:43destroy all the concrete which we did our sledgehammer cut some of the
56:52concrete that was close to the building so we needed carbide ok
57:00diamond diamond coated or diamond plated drill or something like that how weird
57:06is that concrete
57:10yeah and it is a big industrial thats a large industrial market diamonds and
57:18also what I mean it be cutting site is actually very interesting this Julian
57:21London Laurence Graff on Sunday they had they take a risk of these days you might
57:28be biased
57:31and underground twenty million and you then have to make the decision of the
57:35decision that we’re gonna cut into 6 pieces and we think that it stands it
57:43will be worth 40 million or if you take plus you know if you’re taking medal in
57:55ingots cohen’s or bullion bars or whatever
58:02anything that doesn’t fit you can melt down and do something else with what do
58:05they do with although flakes and yes shards in the little and what happens to
58:09that you can’t melted not reverse the waste any of it whether died I’m market
58:20is unique in wonder is it take over which we have picked up on that money
58:27week which is the diamond company in Canada cool mountain provinces go joint
58:33venture with two beers and is developing very large 2012 they spun out their
58:41exploration assets and create a new company called can be done and they’ve
58:45had huge amount of exploration success discovered for new in the area
58:53share prices trip food and very unusually mountain put this isn’t this
58:59hasn’t been formally disclosed by the company but we have put on this
59:05mounting process is basically working on process of buying candy Diamondback
59:11Kennedy sak and and ady and that’s something we’ll probably material things
59:27are happening
59:27yeah yeah well I was going to ask you about something else but last time you
59:33came out we do that I wouldn’t just randomly throws mining stories at you or
59:38energy stories so what else is happening in the energy mining resource world that
59:42people should know about
59:44well I think I know I know stories one Canadian stock which is worth looking at
59:50champion on bases in Australian mining bosko might look if we’re ever magazine
59:55last week and he he was it Glencore he was head of Glencross trailers from
60:01Sydney richly and then he found it is a mining which Mozambique he built up put
60:08into production and then he sold that I think the 3.9 billion dollars to the
60:13very very peak 2011 he managed to pull the Asian steel grid investment company
60:21managed to drama bidding war and it was a great success and he then has
60:37basically and then he has done publicly done very little for the last four years
60:45basis the market and a bit like me Davis who sold it to Glencoe and sort of quiet
60:52and he then became chairman of Australian companies shell company and
61:04in December they bought
61:08very large closed iron ore mining Canada for I think they paid ten million
61:15Canadian dollars and put it into perspective the same same time he was
61:19setting with bloom Lake jaded had four billion dollars say what was a four
61:24billion dollar asset couple years ago he’s picked up ten million and he’s
61:29taken he’s gone I think eight I think he if you look at the kind of broad mining
61:39sector is just so volatile and finding people like him who have consistently
61:46the market is looking top or the market is quite valuable to find people like
61:58that question but that’s my job
62:01show today has called stupid question is why is someone like that other than
62:05experience with what’s the secret to do in that house he able to buy something
62:09that was trading at four billion dollars for ten million and then turn something
62:14news deep into a multi-million dollar payday what’s going on
62:18well I never managed to do that so I don’t know how I don’t know quite how
62:23he’d he’d you know what you look at the mining industry in there just you know
62:27the thousands and thousands hundreds of thousands of finances trained on this
62:32massive global industry and actually when you whittle it down and people who
62:38have made this big cools the right who do you consider putting aside the market
62:45you need a handful of people so is he makes it look so I might like it makes
62:50it easy for billion for coal companies a couple years ago
63:01you take it you know see ya I mean I don’t know the answer either because
63:09it’s not the industry but the people that I’ve talked to you in Australia and
63:13in the USA
63:15rule and Byron came from the guys I’ve known for a while they just seem to be
63:20able to have a larger perspective than just an industry perspective so they
63:25understand the economics of the mining industry what makes a good business what
63:29makes a bad business they have some knowledge of geology but they just
63:33understand the commodities cycle in a way most people and it’s it’s actually
63:38not that complicated when they explain it you know that are cyclical capital
63:43investment creates overcapacity in excess supply in that causes a lot of
63:49people go out of business and that’s when you start looking for us it’s too
63:53by the regime exactly perfect I think so like him or they are as you said they
64:03kind of step back and have a coup trying to time things we do we could get things
64:11right but ironically Mike Lee Keath week he bought this in December and the iron
64:18ore price did that week
64:20$30 per tonne range
64:23and so you know that the time it didn’t feel like news because it was just part
64:27of the iron ore prices been going on for a couple years but now with hindsight
64:33the iron ore prices in our $59 per tonne is basis
64:36nearly doubled since and that would weekly did that deal with hindsight has
64:43turned out to be the library which is quite i mean when he sold with kind of
64:57indicated to market yeah I think that Charlie said when he put out an oil
65:02investment for the Fleet Street letter when oil prices briefly dipped under 20
65:07under $30 it made him nervous which was the first thing he said is it sometimes
65:13it makes you nervous it’s a good sign but also it was more likely that the oil
65:18price was closer to the bottom and the top that it could go lower but it
65:22probably wasn’t gonna go a lot lower so had to write it down a little bit lower
65:26that was ok with the probability was it would go up
65:30yes that’s done well on the oil price yeah I don’t know how that trades
65:36workout I think he last I checked he was up seventy percent on and something like
65:40that but you know he’s he’s another one of those guys to realize part of it is
65:46experienced as part of its just a certain natural aptitude in demeanor for
65:50separating the short-term newsflow longer-term just cool attitude alright
66:00if it’s cheap or if it’s already gone down might be worth buying
66:03but then you have to exercise judgment but that’s good news to hear from the
66:07mining sector so general year kind of positive you think the worst is behind
66:11us or
66:13said in the past like with Anglo they still haven’t sold the assets they have
66:17done a lot of the
66:19dirty work they would need to put the bottom in maybe I’m too apocalyptic I
66:24feel like to be some sort of shape down and that sort of AVG in that some of
66:30these but not enough for the trash has been purged from the industry say maybe
66:38I was thinking I suspect the I think will probably lead test delays and I am
66:47probably the worst I think I think it could be some unpleasantness kind of 244
66:56major commodity producing stocks or 44 actual commodity prices I think I think
67:01copper for example is quite large production increases in copper market we
67:09haven’t seen any significant mine closures really by Glenn cool and free
67:15porn nothing massively material which means that your is a basic coin toss on
67:21demand from China so six months get it bad today in six months is anybody’s
67:32guess
67:32well I’ll close I’ll leave you with this thought about it next time you’re on i’m
67:39open the show talking about fifty years hundred-year government bonds and
67:44Charlie wrote about it in the Fleet Street letter which will be published
67:46later this week but if you’re going to print money or if you’re gonna sell to
67:52buy assets you shouldn’t be buying should be supporting the financial
67:56sector or buying corporate bonds like the ECB is doing to support the quality
68:02and lending and collateralized debt market in the corporate market we gotta
68:06do is just by all that excess metal that’s really cheap and where how’s that
68:10for a long time so that could be that could be the sort of synergy of 22 big
68:16thumbs in the market explosion in government debt and excessive supply the
68:20commodity markets let’s just issue hundred-year Barnes borrow a bunch of
68:24money and buy a bunch of metal
68:26policymakers don’t share the same UID unlikely to make that Chinese
68:36policymakers Pauly D throughout the whole downtown last year in China
68:40Chinese copper imports been unbelievably strong yeah I do have steak houses
68:45yeah so I think you have more influence in beijing than you do
68:55will work on the Westminster lobby later this week so we can bend but I come back
69:05and talk to us next week about it comes from one week and global raining
69:08observer