Evergreen Exchange We're here at the saic 2019 in Dallas put on by John Malden and I'm happy to be here with one of the Rockstar speakers and friend of mine Grant Williams Grant. Thanks for being on the Evergreen exchange podcast. Always a pleasure. I've been waiting for you invite me. Well, you're number three on the list behind a Lillian Dave. So that's pretty good company. It's hot noted expected tell listeners about your newsletter that you write and then also about real Vision your your interview well against Into the plug straight into yeah, most people leave that till the end now, it's just want to give you your platform before please these these people stop listening quick. So if you don't get it now, all right. Well that newsletter is called things that make you go home. It's a it's just a kind of way for me to write about anything in the financial markets that I that I find interesting or any given wake up obviously twice a month and it's really not much more to it than that. It's just stuff that I find interesting. I had a dream or sign up. They TCI. Terrell is plugging stuff you'll watch for a little bit. Well, if you go to TT n YG H.com and take a look at everything you need to have it and if you go to more questions, you can email me at Grant at TT M YG H.com and the other the other project you mentioned they're real vision is again real Vision will come as easy as when you take a look at it. But it's it's a an online subscription based Financial TV station that we interview some of the smartest minds and find us some of them household names and many of them not and you know the fascinating thing for me over the last five years we've been In this is how many of the ones who are not are just supremely supremely bright minds and have a really interesting perspective on stuff. So I've learned more in the last five years that I'm in the previous 30 in this business. I was I would say from from Talking these folks has been it's been fantastic. So since we're down at saic and there's a lot of really really interesting speakers here to you've heard a bunch of the sessions what's kind of stuck out to you who stuck out in what ideas are kind of ones that are capturing your attention, you know, this conference is always fantastic. Fantastic, I mean top to bottom the speaker line-up is always just top-notch. And so, you know, I sit in as many the sessions as I can and and honestly, none of them. None of them have disappointed in David Rosenberg was fantastic as always, you know, he's he remains bearish and always has that data back him back himself up which I love and I'm a big fan of roses. You know, he was he was bullish when a lot of people weren't and he turned bearish he's copped a lot of flack for it. But you know when you make an argument as cogent as he does with with that much data to back it out. It's really hard to kind. Poke holes in it. You know, we've had feelings. Ooh laughs on. I was lucky enough to interview Felix on stage this morning. I mean he is he's a legend in the industry and when you hear him talk and hear him think out loud you can see why I mean the man has a trigger to his process and a level of intelligence that is just so rare these days and it's just a thrill to get a chance to speak to him again. I mean, I've done it before for real vision and we didn't live this time. But you know all the speakers Louis was fantastic as he always is he's the most annoyingly smooth French whenever I mean I can't I am the god of I love it. But the one thing that's kind of stood out is the fact that the vast majority of people here are bearish and you know, we've had that thrown at some real Vision, which is interesting because I know you've got so many bears when you get some balls on it, but the interesting thing is that we don't go out to find bulls or bits we go out to find smart people with experience and someone to say and John's the same with this conference, you know, they find top-drawer speakers and then tell them okay come and tell us what you're thinking about so For me the value is in the fact that so many smart. People are bearish there's Great Value in that now they could all be wrong. Someone asked a question on the panelists. Once that, you know crowds tend to be wrong all together. Is that does that concern you feeling of Felix? They asked question of Felix who left this morning, but the sheer weight of intellect behind the Bears here and the amount of experience they have and the fact that they're across asset classes across disciplines is something that I think everybody here. It needs everyone listening to podcast needs to needs to think about you might not agree them as fine. But at least take on board the fact that so many smart. People are bearish and think. Okay. Does that challenge my bullish narrative? It's actually kind of stole a little bit of my thunder because I was going to go with you know, I would you know, if there was a genre to type of movie to describe just this conference to me. I would pick horror show. Yeah because you know, whether it's talking about Kyle bass talking about China has no rule of law. Why would you ever invest there? There's you know, the left word socialist populist movement that everyone's talking about your on a panel yesterday saying is there Euro going to be around in 20 30 not a lot of optimism and it's sort of interesting what you were saying about the speaker's out. They have a lot of experience and I wonder if some of it is a generational thing because we're we're we're from up in Seattle. I think there's a small company of heard of up there called Amazon and another one called familiar with yeah, I thought so and there's there's but it is a becoming a not just a big Tech scene. There's a there's a movement. Up there. There's a lot of tech. There's a lot of younger people coming their work and frankly when I talk to people that are whether they're, you know working at a tech company or they're running companies that are in their you know in their in their 40s. I don't hear the same type of tone that I hear hear what well it's an interesting point and I think if you talk to people who have spent their life in financial markets then depending on how long they've been doing this for how many cycles they've seen their kind of know what to expect. There's not to say it. And the way you expect it to but this is a movie of sorts that the people who've been around for 25 30 years have seen before only this time it's not playing out exactly as they thought and that's that's confusing. A lot of people on the flip side. If you're an entrepreneur then what a marvelous time to be alive, right zero cost of capital is people throwing money your left right and you don't have to make money, right? You don't have to build a profitable business people will finance you because of that zero cost to Capital people lend money and invest in the stuff, so Both sides have a massively skewed perspective, you know, the entrepreneurs are growing up in an age that at any other time in history that have been out of business twenty or twenty minutes after they opened the business today. They're thriving on paper and the market practitioners are looking at things that ordinarily would have meant markets would have created by now and it just hasn't happened. So everyone's kind of out of kilter. Do you think that when you work in this industry long enough you get a you know, you kind of get gun-shy after just being through enough, you know. Know whether it's Market crashes or economic recessions that eventually it just gets harder to pull the trigger and then you have the other the other and the Spectrum where you've never seen one, right? So you're like, oh markets are stock market goes up on average nine percent a year and that just bet on that in the long run, right? There's a little bit of the perspective of the people that we here talking here. They don't have as long of a Time Horizon know you agree with that. Another is like the time you finish made a great point this morning and he looks at really long-term demographic Trends to build his overall framework and then In those demographic Trends he tries to Overlay the business cycle. But if you want to invest along demographic trend lies, you're Investing For 4050 years and people don't do that right now. Some people do a Tony deed and the guy that I interviewed for real vision and for anyone listening, we actually put this video up on YouTube and this I will plug with abandon if you search for Tony dden, you'll find his interview with me and now is two and a half hours long, but I defy anybody to put it on who's serious about investing and not wish that it was. Longer once they finished it. It's an extraordinary conversation. And he he talks about this exact same thing talks about people being through and building real businesses or real cash flow and you don't see that anymore. And so, you know for me the time you come into this industry dictates how you view it. Like I start in the business right before the 87 crash So within two years of being in the business, I saw the market full 22% in a day, so I know that can happen. So I'm cognizant that that I have Seen that and I've and I've lived through it. So I'm very aware that if you came into the industry 10 years ago, you've just seen a market because I know you can't you can't contemplate a market of felt 22% of the day. So I think I think you're right. I think the people are under 30 have a very skewed have a very skewed perspective and look that might serve them very well. I remember I think I'll Stand rocket melatonin the story of how he came into the business at the low. Oh of the bear Market in the 80s and that I forget the shop. He was working all but they fired all the Traders and put this young kid in charge of it, which is a seem like a ballsy thing to do and then asked him and said what the hell put me in charge for the guy said well, you're not battle-scarred. You haven't been through this grinding Beer Market, you're full of Hope full of optimism. You won't be gun-shy. So I think it is important the time you come into these markets and if you get a long trending bull market like we've had this great, but if you come in at a period of Maximum Mobsters from now and you're in for two years on the market, Cut in half it will color your judgment. And the way you act forever. Certainly the Vintage of the investor does play a role and you just mentioned Stan druckenmiller. And that was it's a great segue to a question that I've been wanting to ask you about people. You've interviewed. You've been on the road for real Vision going out interviewing big names and unknown names and you said that you find them, you know equally fascinating and who are some people that have stuck out in your mind where you're just like wow. This guy's a unique thinker As so many of them, I mean is that that into eternity Dayton was was profound and everywhere I go in the world. You're people ask me about it. I had a conversation with a guy who without any word of exaggeration. I had tears rolling down his cheeks as he was telling me this story of what that interview meant to him and how it changed his life. But you know Felix who love was another one that people always want to talk about and I'll say in front of your dad the piece I did with him was exceptional and I came to Bellevue to talk to David and there were there. There are certain things. I really want to talk to Matt that he and I talked about privately in the past and I was hoping that I'd be able to share the way he sees the one away thinks about the sort of client manager relationship and he did he was sick as a dog blessing when he and he soldiered on but he did such a great job of explaining that Dynamic which is a really complicated but important Dynamic and that's another one that people people really found that to be fast only because no one takes the time to talk about this stuff anymore, right? But they I wanted they want to know what stocks go up on the order know where they should invest but understanding how the relationship between a client and a manager has changed. This sounds like a plug for every time I just realized I wasn't listening to myself. I think people are going to think I'm some sort of stage but it's not in this is this I'm just saying this is as it comes to me, but that that relationship is so important and and to understand how it's changed over the last 10 20 years is important for people to understand because if you can't find someone that you can trust to do the right Seeing a reflection points. It's a big problem. And so you know other people there was a guy I met in Australia called Daniel want that's wa NT and people should Google him. He runs a company called prerequisite Asset Management down in Brisbane has tiny little firm and he's a young guy and I sat down to talk to him. We hadn't met with corresponding A friend of mine has sent me some of his writing and you know, it was like sitting there with a 16 year old kid talking like an eight-year-old. It was it was Extraordinary I mean I didn't expect this and so I've been I've been so lucky. I found so many so many people to talk to us as someone who are household names and they've all been incredibly generous with their time and Incredibly free with sharing their thoughts and experience. And yeah, I think there's something you've learned from everybody. If you take the time to listen and you let them talk about the things that they think are important instead of instead of trying to direct the conversation to where you think is important because They launched their own see if you also questionnaire. I think this is important. What do you think about they'll give you their opinion? But if you say what do you think's important? That's where that's where you'll get the really good stuff. So it's a privilege for me to do these interviews and I've loved every single one of them speaking of really important. You have a really important event coming up in your life after this trip. You're headed to Ireland. Tell the listeners about yeah. We got to play golf. You're gonna go like I'm no I'm gonna to honor for the christening of my first grandchild Grant Williams. Is a God your grandfather can't believe you're saying that out loud or that I'm saying it. Hey, if Bryce it I have a grandfather. I am a I wouldn't call myself a glamorous grandfather, but I'm a grandfather this so you don't know yet and now she's adorable. She's absolutely adorable and I was unprepared for what it would feel like I have to survive it has struck, you know know the quality. It's not even that it doesn't it doesn't feel like a burden. It doesn't feel like I'm getting old. It's just it's just, you know, she's just a little bundle of joy, which is it's fantastic that you look and you I see you brought your golf clubs are Play in Ireland. Is that right? Yes, and have you played golf recently that you're gonna hate me for this. I've played twice recently once at Augusta National and once at something like well, where's that Sunningdale? And what I say goes? Yeah, once all gasp National Grant Williams Golf and Ireland a gust World traveler got a little bit grandfather lucky lucky grandfather when you talk about traveling a lot. Where's your A place to travel when you're like I'm going to this country because you know, this month favorite place in the entire world is Charleston South Carolina, which always catches a lot of people off guard but is there something about that place? It's there's something magical about it. And every time I go there I just I just love it. It's changed in the 25 years. I've been going there but it's been getting better and better and the food culture there is amazing and the the weather's great. The people are fabulous. So I love going there. But yeah, I I love to travel it's exhausting at times but I just came back from Hong Kong and Singapore both places I've lived in so I've Got Friends there. It was great to see them. But you know, it's been lower happy. He's in Australia, which is a fantastic country and the u.s. Obviously so I don't mind where I go. I'll even go to Scotland if the weather is nice because this is great golf up there too. Well, you mentioned Australia as a place that you like to visit but it's definitely not a place that you would invest after the presentation that you gave this morning tell listeners about the outlook for the Australian economy. Well, yeah, I Yeah, I sat at the opening remarks of the conference and just chop Holden got a later point of mentioning earlier 39 Australians. He was the biggest overseas contingent who never come and I was sitting at the back and I said the person next to me said, you know, this is going to go one of two ways a couple of days because I'm going to tell him their country's about to fall into the ocean, but God bless of Aziz the they're good value and they took in the spirit. It was intended as I just spent some time talking about the housing. Getting the economy which it which are intrinsically linked together. And you know, we've got this negative feedback loop where the housing market is coming under pressure and we could talk about why if you like if you want to go into the whole thing, but also the economy on the back of China slowing down is also starting to struggle and the way I look at it either the economy could slow down and trigger a meltdown and housing market is unemployment Rises and people can't pay their mortgages or the housing market could slow down as it's doing now. For various fascinating reasons and that could tip the country into a session. So it's how could this happen mean? It sounds stupid but how could this happen when you just watch the exact same thing happen in the United States as a preview. How could you find yourself as a country having the same types of problems lacks lending standards? Well, you know, I honestly for my money I'd be surprised if you didn't find that in a country because this is human nature right Charlie. Go on said show me the incentive and I'll show you the outcome and and the incentives are clear. Right? I mean, it's the same incentives that we saw in the u.s. You know sell sell sell stuff anything you can in to anybody and take your commission and everybody wins because of because the price of houses keeps going up so nobody gets hurt and that's great until it stops working. And so, you know as bad as things were in the u.s. When you look at your overlay that sort of house price charts of Australia to the US. I mean, it's well, I put that chart up. What I'll show the US and I put Australia and I heard two gas to the row who hadn't seen dr. Charles before I mean, it's extraordinary and so the overvaluation Australia dwarfs that with shuttles are in the US and the big difference here is that in the US Mortgage Debt is non-recourse. Whereas in Australia, these are all recourse loans, and so people have to pay their mortgage and consequently when the house price stops going up and starts going down and people start losing jobs. An immediate effect on consumer spending. We approach our type of discretionary spending versus essential spending and they're both going opposite directions the wrong way and have been for a decade now is a consumerist that wages have stagnated gone sideways, you know savings have plummeted from 11 percent of income to three percent of income in a decade. So everything's been kind of slowly lining up but the house prices have kept going up. So so that's that's been enough for people to say. Well, it doesn't matter mmm, but you know what happened we we finally had a catalyst for this thing, which is really interesting the opposition party in Parliament through a whole set of circumstances, which a comically Australian but we won't need to go into here just at Google Barnaby Joyce if you don't if you want to find out what happened, but the the opposition had an unexpected majority in Parliament for a few months and they used it to force this Royal commission through because they realize that housing affordability was big but Master Nel a flag to in the election campaign, and they Use this this sudden majority to push the Royal commission a royal commission is essentially like a public inquiry the Senate inquiry Congressional inquiry with unlimited powers of subpoena. And so they put this thing together they put in a very Senior High Court Judge to run it and he could subpoena every document every banking executive and what he found was extraordinary it was he and it's exactly the same as we saw in the u.s. It's no doc loans as liar loans. It's it's misleading absolute sales practices. It's everything. Thing we saw in u.s. Everything including masses of interest only loans which are the same as arms in the US which are now starting to convert the principle of interest. And so it's exactly the same only as I said, this is recourse debt and the valuations are so much higher than they were in the US and the economy which has been wholly dependent on China is is struggling and your good friend of mine is a fantastic analyst and Australia Gerald Minnick gave us an interview real Vision recently as you while I was putting this together and I Watch this interview. I didn't have the Good Fortune to interview Gerard, but I watched this and he was talking a lot about the stuff that you know, I called him and said look, I need some of your charts for this presentation because I really hope we tell this story but he said in there, you know, he said look, he doesn't make invest a recession his base case right now. Mmm, he said but we're a couple of months a bad date away from from investors being forced to make the recession their base case. Now if that is your base case is Australia Gerald Gerald ones were this will be bit world's best practice by that image. This will be the mother of what recessions they've gone almost 30 years without one. That's how you talk about people's time in the industry. These are people who've never had to pay a mortgage when they lost their job. Right? So the ramifications are potentially enormous in Australia, and I had to me, it's just being short the Australian dollar being long Australian government bonds being short summer consumer stocks. These are about the bank's right the bank's what the banks will ultimately be where the rubber meets the road, but you're probably going to see I think nationalization of them. Ultimately. They're too big to fail this this for Ozzy banks that have 80 percent of the loans in Australian 70% of their books a Residential Mortgages. I mean, it's every way you slice this thing. It's a there's there's a horror show. It is a horror show. But but a really good friend of mine Michael Schneider has set up a fund. It's called the fire Bell Australia macro fun to try and capture this trade Michael's one of the smartest guys. I know when He walks you through this. I mean there are some complicated trade structures to put in place, but it's it's an incredibly asymmetric payoff if this thing happens and to look at the economy to look at the market to look at housing market and expect that if you if you put this trade on to the short side the things that would have to happen for you to be wrong to any major extent would be I think Lewis called it the the Alice in Wonderland scenario it he wanted it to be guy looks very confined. So it's just it's a fascinating story. It's a fascinating country and it's a fascinating trait. You mentioned in part of your your concerns over the housing bubble Australia a Slowdown coming in China and China's been talked about a lot here because of obviously the recent tariff and trade Wars that are going on talk a little bit about not maybe China's impact on Australia, but just how you see China and its role in the the investors. The impact they could plan investors portfolios who are invested, you know, not just domestically in the US what's been interesting about Charlie. We had a great panel and Sade I Louis was on it along with Kyle bass. Both of whom have very well stated opinions contrary opinions on China. We had a good friend of mine Simon hunt on there as well who spends a lot of time on the ground in China and he is very very bullish and that's the interesting thing about China. These are three guys who are respect tremendously. They all have wildly differing opinions, and that's the Probably Chinese really tough to get a good sense. You kind of unless you're prepared to go to China really do the work yourself. You've got to trust somebody else's figures and I think just the government's figures we can write those off. So you have to find independent researchers to who give you figures that you feel a true and you can find really smart Innovative researchers have completely diametrically opposed views. So for me, you know, I I look at it from a much bigger picture. I look at what even the government figures a bit dirty and to my mind they definitely incentivised to massage the figures to make them as look as good as possible within the Realms of belief. And so if they're telling you that GDP growth is 5.6 percent. I mean, I'm being skepta think that's the best they can get away with hmm, but it's still markedly lower than what they were. No, absolutely. That's my point. So does that mean that some of the guys Right. It's really three. Hmm because if it is three Australia's toast as are a lot of exposure Brazil's going to face major problems if it really is 3 but we have this kind of don't ask don't tell situation with China where people are invested and you know, as long as you tell me it's six and I don't have some a waiver piece of paper my face that proves it's three I can investors if it is 6 and got everyone else is going to investors if it's six it's fine, you know, once you pull the rug out of these things and And people have to confront the fact not necessarily that it is three, but, you know been hunt writes about this a lot less common knowledge game. But once you think everybody else knows it's three then you have to do something about it. So I don't think we're ever going to know the real truth about whether China's doing well or poorly but I think any country that's done when it's done and financed it with this massive credit expansion is going to face problems somewhere down the road. So let's say that real Vision cells and Grant Williams gets handed a check for 50 million dollars. I'm jealous. That's gonna happen. Okay getting away from sort of theoretical practically. What would you do with that money? How would you invest it? Would you would you look around the world and say there's nothing I would invest in so I'm going to buy gold. I've heard from time to time that you like gold a little bit. I'm not did I do I think everyone should own some gold. I mean, I don't get caught up in the price moves. It's not it's not a trading vehicle for me. I'm never gonna try and buy the 1200 sell it 30 times. I just think it's it's a location you should have but you talking to Felix. It's this morning. It's interesting. You know, he was saying this morning. I think he's absolutely right. He said that the the trend to passive is coming to an end. He thinks it's he thinks it's done and it's time to be a market timer once again, and that's a very difficult skill to have and if you're going to be a market timer, you need to be watching the markets the whole time, you know, you need to be able to sit there and pay attention because at these turning points they turn fast and if you you you're trying to trade the market yourself and you put positions on and then you Get drunk one no golf at yesterday. If you could be you could be stopped out in a heartbeat. So for me at this point, you know, I think we've seen a lot of a lot of active managers have had terrible results and they've seen massive outflows and generally speaking whenever you see that it means the bottoms either there or thereabouts our I think you're going to see people lose money and passive structures and you're going to see them looking for active managers again, and for me unless you are going to manage your own money yourself. Self as a full-time job. It's about finding a manager who can look after it for you who you understand their philosophy and it's and it's aligned with yours yet. I look for me. The dream is to find the manager who I can give them some money too and know that I never have to call them because the end of the day, I know that if they underperform it's not because they've made a dumb mistake. I understand their philosophy. And this was this was a look frankly. Your dad will be one of those guys and that's why I wanted to have that conversation with him for real Vision because you know, I know that with your dad Well, I wouldn't need to call him and the returns would come in and if he helpful great as he underperformed, I know it's not good. He's done anything dumb. It's because sometimes you underperform that's just the way of the world but I think what this last decade has done has made everybody expect to outperform has made everybody expect Superior performance and more importantly either complain or switch - when they don't get it to chase that you know, the last guy who had the big out performance last year which is, you know, a catastrophically A foolish thing to do in the long run, you know my my great friend and former boss Steve diggle who runs full Perez Investment Management Singapore. Yeah. He told me a story once when he had a big volatility fund and they had allocators coming in and he had said this young guy come in and you know, you had the fancy suit on and a handkerchief or the other blue suit the brown shoes and the slicked-back hair and everything at any kind of puffed his chest out and said to Steve, you know, what we do every year we take money away from our worst fire performing funds and we give it to our Far before he finds and Steve blessing surely God expression is just like Tim said, you know, that could be the most stupid thing I've ever heard and this guy for having having no doubt had hundreds of meetings or people are desperate to get money allocated to them just it just completely took advantage. Why would you do that? This is the dumbest thing you could do so funny reminder to destroy it a wholesaler come in one day to Evergreen and as you know, we build portfolios internally, so we don't buy mutual funds but a friend of mine asked me to take the meeting so I sat down with the wholesaler. Sure tell me your pets. Just we don't really buy. I funds but I'll listen and sits down and he pulls out his stack of paper and he says, you know, we've been around for 30 years, you know, we're really good. Here's our you know, we do that we have this new growth fund its doing wonderfully. We have this value fun. We have this probably fond and I'm like, do you have any funds that haven't done? Well, he does. Yeah I do and I'm like, can you find that? Can you find that fact sheet in your briefcase? And he's like you're kidding. I didn't know I'm dead serious reach down into his briefcase and I kid you not he pulled it out and it Wrinkled up and he had to straighten it and flatten it on the desk. He's apologizing. You know, I just never thought anyone would want to see this one. So to your point, I mean you show me the incentives and no one's pitching the the but look we all the thing that's remarkable about this is we all know that failure is part of life and we all know Christ. We all know that failure is a big part of investing, you know, the guys who make 6 out of 10 bets right I'm going to do fantastically over the long run. So it's interesting that people's mindset is always this way. It's like if you if I don't help perform all the time. There's something wrong. I mean, it's its I guess that's that's how people have been conditioned and it's even more interesting to me because I can't tell you how many times we sit down with clients and we say, what's your return Target? And they say I'd like to make eight or nine percent you sit down and start going through. When do you want to retire? How much money would you like to have? What would you like to leave to your kids? It turns out that the return needed to me. All their investment goals is five five percent and you're like, why are you trying to earn and they're just like, I don't know nine kind of sounded good and it's like but you that's like double the risk, right? But it is very interesting the way that people think talk. I'll go to a couple of your favorite topics. How about Tesla as my wife doesn't listen to this so you can feel free to her on the leash because it's her favorite car that she's ever owned but I just hate lately. A lot of people say the same thing a lot of people they're all over 2. Hitter you can find them on there. They are in love with this kind of a lot of them will post to say Iran greatest car I've ever driven but I can't get hold of the service center and the roofs leaking and the wheel fell off and the edge of back to Great car and thanks for saving the world. Yeah, it is. This is the most remarkable thing I've ever seen in 35 years in this business. It's an absolute coming together of an ERA. This is it's this is malinvestment is zero cost of capital. It's celebrity culture its corporate fraud. Lord, it's the it's the Green Revolution. I mean, this is extraordinary to me and you know, I'll State quite equivalent. I think this thing is a busted flush. I think it's more like they're not fraud and I think it goes if not to 0 then someone's going to buy it for pennies on the dollar and executives are going to go to jail. I could be proven wrong and I'm willing to be proven wrong. But you know, they're more important to me than the company is actually the community on Twitter that has come. Celeste around this and I think this has ramifications for the entire financial industry going forward and I'll explain why I think as you think it is really important. There's a community on Twitter called Tesla q and and it's a dollar sign or hash tag TSLA q and the reason that's there is because when a stock gets delisted it gets a cute similar fits if it goes bang colic and they stick a cue simple yet. So it kind of started off as a tongue-in-cheek thing, but it's now it's now grown into an online community. And it's been characterized as a group of evil short Service as always happens, right? I mean, I've known a lot of short sellers in my career. I've done a lot of Short Selling in my career and and short sellers for the most part. I'm not saying they're all the same are some of the finest investors. I've met some of the most principled individuals I've met but they get painted with this evil short seller brush that they're just trying to make money and make companies fail. The simple truth is if you're a good company doing a good job and executing and a short. So even if they put you in those short stocks and try to get the stock down it ain't going to work. Right but this community is different and and what's happened here is you've got people who are accountants and Auditors and Rocket scientists and hedge fund managers and people who've run big car production lines. I mean, it's extraordinary the brainpower in this community and and what's coalesced in what's all brought them all together. Is that at some point in this story? Elon Musk has stepped into their world that they have built a career around the built a life around whether it's Academia or whether it's you know how in the world of business and he's made some bold pronouncement that they weren't even paying attention to Tesla and they just gone waiting on it's just a lie that you can't do that. You know, I've I've spoken a lot of people we made a documentary about this for real Vision just a 30-minute documentary and trying to wrap all the threads listing was impossible but through that I've spoken at all kinds of people whose resumes as are ridiculous. I mean the credentials are frightening and you when you talk to tunneling Engineers about what he's saying the boring company's going to and say well he'll never do that. That just is not physically how does this guy think? He is better than all the engineers who spent a hundred years as they dug the first tunnel perfecting this, you know, I've seen cfa's pick the balance sheet apart. I've I mean, it's extraordinary in every way you look at this thing up and down the narrative that's being sold to The public is demonstrable e questionable. Let's let's be generous and says questionable, but why I think this is important. Is that what I think you're going to find when this story plays out fully expect that to end with was Tesla up going bankrupt people will look back on this Tesla Q community and what they were saying all the way through the story once it emerges what happened and they're going to say, you know, these guys had this all along this is exactly what they said was going on and the company was saying, Something different but as it turned out they were dead. Right and I think what we're seeing here is in effect. Something like Enron being live blogged and picked apart. Now, we know one saw anyone coming apart from you know, David ties you to a friend of ours is here at the conference. I saw it coming Jim China saw it coming a few people did but this is happening in lifetime and because of the the Advent of Twitter there is now medium by which people can crowdsource research share that information and and build Like frankly the single best body of research I've ever seen on a stock in my life. I mean, it's extraordinary the lengths people are going to and I'll tell you this because I've spoken to a lot of them. This is not about the money. These guys are angry that someone is torturing billions of dollars. They're angry that the guys who are criticizing them are essentially cultists Fanboys that just believe along can do no wrong and they started off being feeling bad for the people. Who are going to lose money being longer shares? Because a lot of them were just young idealist guys who you know wanted to support someone trying to change the world, which is great. Right? And these guys are not anti electric vehicles at all. A lot of them have bought Chevy volts, right and a lot of them are waiting to buy the new Porsche Tycoon, right? These are not anti EV guys, but they see what they believe to be the biggest corporate fraud of all time taking place not only in our times but with a guy who splashed all over the front page of every newspaper every Mommy says something and people are going to lose a lot of money. And these are people who don't understand Finance, right? The Bulls are not Financial background people for the most part. They are young. They are Robin Hood. There's thousands of holes of Tesla's self on each other because I was going to say that you know, you could say that this is the first you know major company that's going to blow up that has a crowdsourced liveblog all the way charting it. Yeah and yet at the same time what I think is fascinating about it is he's using every tool in the modern Playbook to build the company whether that's Target Millennials who are who like the idea of green Vehicles whether that's used social media whether that's be cool. Go on Joe Rogan and smoke pot. I mean, he's using every every trick in the Playbook that I think it's a fascinating, you know, showdown between it really is but we're now getting to the point where the Catalyst again like Australia that they're starting to occur, you know, they raised some money recently. It's not had a bounce but it's given most of it back. And you know a year ago, the Bears were talking about you know, when the when the Jaguar I Pace comes on the Audi e-tron comes when the Porsche Tycoon comes they're going to eat Tesla's lunch. And that was a year ago, but people saying you're at your minds, they'll be crappy tells us the greatest car ever. Well guess what the sales are here, and these are real cars built by real automobile manufacturers with Decades of experience that know how to build a car and didn't rush to take on Tesla took the time. Build these cars properly and sure enough. The sales numbers are coming through and they're eating Tesla's lunch. And you know, I think if he landed stuck to make it a hundred twenty thousand dollar luxury plaything for wealthy people who want an electric car, but one of the cool one he did I'm fine. It was this it's idea that I'm going to borrow billions of dollars investors money and build a mass market car which plenty of people would have told you who have experienced such things. You can't do that for 35 Grand is just not doable. It's a great. It's a great aim, To have but it's not doable, but he's doubled down every time he doubled down on these lies and and they're starting to unravel as is heat by the look of things. It is absolutely fascinating another topic that that I think that you like to I've followed and you've mentioned the past is the Miss measure of inflation you think that it's under measured and so to somebody like me I look at the world and I see a different but I'm certainly I'm certainly interested to hear your Persuasive argument on the flipside because I think about it. Like I look at the phone that's sitting next to us on the table and I see a camera that was better than ever before a family scrapbook that expands. I see internet that comes faster than ever before. It's an email tool. It's a work tool you can watch movies on it. It's your music device. I mean, there's so much and by the way, every time a new one comes out it's faster and it's cheaper and I look at some like that and I'm like well that is cheaper is it was I saw the iPhone got cheaper. Okay, the same not not more expensive. I don't know. I think I lost three or four iPhone models have been more expensive. I'm not a hundred percent sure on that. You can challenge me on about it, but you would certainly agree that what you can do from a phone now versus 10 years ago is truly light and day I would but what I would say to you is I bought a phone and I needed a phone and it happened to have a camera in it and it happened to have all these other things it great. Okay. Fantastic. Would I have gone out and bought an email machine or another camera and Carlos things around? Probably not my ball camera, but it is anybody listening to this who's who thinks it's cheaper to live now than it was last year never mind six years ago or five years ago. It's like if anyone out there thinks that they're true cost of living is going up one and a half percent then email us, please because I want to go and live there and and I'll retire they're really really happy. It's just not happening, right but it but it doesn't always matter if prices are going up right. It's there's also the effect of what are you getting out of the good right now? Is a floor liner at this hedonic adjustment, you don't agree with that. I agree milk because more money tomorrow than today than yesterday. I get that that seems like inflation. But when I'm getting something more for the same cost that seems like there should be an adjustment for that. I disagree disagree this idea this idea that you know, you know that computer you're buying well, yeah, it was a thousand dollars last year. It's 1,200 this year. It's a 20% increase but the same stuff that it now would have cost you 2 Grand last year. Well, you know what you would the board to recover your lost it we want to know you went out and bought a thousand dollar camera because that's what you were going to afford. So I think telling people hey, you've got great deal here. Therefore we're going to lower the numbers. I just think that's nonsense. Yeah, I like get what they're doing there. But if you look at every single adjustment has ever been made to the CPI bench, but if you can find one that resulted in the number going up, yeah, they'd come show me where it was because the these numbers are these adjustments are made to bring the number down and whoever cut. I think the hedonic suggest was came. During Bill Clinton's term and it's remarkable that that whole idea that hey you got five grams worth of value here for someone that would have cost you you know, whatever seven last year old has been seven on it. So I don't know for people who are trying to live day to day. It's not about the value that it's about what they have to spend to live that life and what you get for it is great. But if you're having to spend more on food and the packaging is getting bigger and there's less food in there and and the fact that companies are using what my friend pepper Melbourne was cause shrink flashin, you know, the the same size packet 20% less infant is the reason that the fact they're trying to hide this from people by not making the package in smaller and making it obvious that you're getting less should tell you all you need to know people people wouldn't buy the stuff if they thought they were getting less. So what did Brock said said something today that I'd be curious to get your opinion. He said, okay, let's take let's take the average forget middle-class American but the average American and you say would they rather go back 20 years in time or would you rather live today? And he said he doesn't think you could find anybody that would say I'd rather go back 20 years, but you're asking the wrong age group. I guess I didn't see what he's what he's presentation. Unfortunately. I was I was out back but he was making the point that the living standards are so much better. Yeah, I think well, yes, but I mean depending on how you define living says if having a phone like that is living standards. Well, there are now six hundred and sixty three thousand homeless people United States. They were nowhere near that many 10 years ago. If you gave them a phone would that make the love it and I wouldn't but I can't afford to have a home. So I look you can there's always there's always an argument with inflation. You could always come at it from a different way and I understand the reasoning for both sides I do but for me when I think of inflation he try and boil it down to something real world that you can you can understand it a personal level it. How much money do I have left over when I've brought my salary home and paid my bills Mmm Yeah, and if you want to include discretionary spending, it's not the splurges. It's the you know, I want to take my wife out for a meal once a week or whatever it is. Right, that's not a necessity but it's a luxury that you should be able to afford to do and and I think the vast majority of people will find that that number is going down. And so I think when you look around the world at populism and you know Louis made this point beautifully yesterday when you went he gave a speech and I agree with him a hundred percent this this his populist Uprising around the world has more to do with inflation and has more to do with people just feeling stressed because they find that they don't have much money left over all there are struggling to pay a mortgage or you know, they can't buy the groceries. They want to buy because everywhere you look, you know inflation that keeps going up and even if we're generous and we use that the official figures wages are not keeping Pace if you If you are not generous when you take Shadow stats, for example, you want to take some some alternative figures that still use the same method of calculating inflation as it did before these adjustments, you know, facials going up six seven percent and wages aren't keeping keeping Pace. It doesn't take many years of that happening before people do feel the stress. So, you know, I think the inflation numbers it is back to Charlie Munger show its Center to show you how companies the government is incentivised because of all the color payments and everything linked to inflation to make sure that number is as low as possible. Possible and that's their incentive. So there's the outcome. I think the question that I want to I want to kind of wrap it up with but it's a big one in like you said, I'll sort of let you go ever you want with it. But I think you know when you look at probably the most disturbing topic that we've heard here is a return or a departure from from capitalism. Yeah, and right now it seems from a lot of the things that have been said here that capitalism is taking the blame for things the wealth Gap. Capitalism's fault everything is sort of being blamed on it's a broken system. And and I guess I'd like to hear you weigh in on. Yes. I mean the economy is changing and the world is changing and I always have argue with my dad that it's a pendulum it swings. You know when Trump won. I was like guess what's going to happen? Laughs that's going to swing back to the left and he says no it can become the pendulum swings too far and then it breaks and so I'd be curious to hear how you view, you know, you spend a lot of time in Europe you see It's going on there. Do you think that we're going to become more socialistic permanently or is this just something how do you see the wealth Gap and all those things? It's a big question. But now I know it is and and I think a lot of the accusations being thrown at capitalism have Merit I really do but you know somewhat so of someone said recently a moment Jim Grant someone said, you know, what do you think about capitalism and he said well, maybe we should try it and I think that's exactly right because We have is not capitalism capitalism involved a bust part of the cycle involves bankruptcies involves letting companies that aren't efficient and don't produce profits. They go bust it's simple we haven't had that for ten years, you know, we have crony capitalism we have we've had a decade of easy money. And if you if you look at what's happened when people talk about capitalism failing that they're largely talking about that the wealth divide between the rich and poor and of course if you if you make Money cheap in a response to a crisis well guess where it goes, right it goes to people who don't need it, but they have assets and they and they have access to it. And what do they do? They use it to buy assets and asset prices go up here. We've seen massive inflation in asset prices whether you want to call the assets to stock market or real estate or a hundred and ten million dollar Mane that sold this week. What we have is inflation in things. You think you need and this idea that capitalism is under threat. I think the u.s. Is hopefully is not ready for socialism yet. I mean I think in principle this is a it's a center-right country and I think it would take something more than this to change that having said that my fear is that having watched ioc and having watched Bernie Sanders Bernie Sanders started this in the last election, right? And what we've seen is the way his message resonated with people surprised a lot of funds and none more so than him I'm sure but it was Clear that he probably would have won against Trump if they hadn't run Hillary I suspect he would have won. Although that would have been more an anti-trump vote that a pro Bernie Vote or certainly at the anti-trump component of that would have been what tipped him over the edge but what's worrying to me is because that message resonated so strongly with people this time around there are people have seen that and said, well, he didn't quite make it so I'm going to do what he said only more something. So you've seen Arc and the really a deal you state you've had this Be a universal basic income is now being talked about everywhere and now upping the ante even more is Liz Warren with the wealth tax and so it becomes a go too far to the point possible. Can they go to possible? It's possible they could but unfortunately if you look back through history socialism is something that doesn't really get disproven to this tried. It seems like a great idea right until they do it and it's never worked. It just hasn't worked and it doesn't work. It won't work. It might seem like a great alternative initially. But over time it isn't the answer that the answer is to fix capitalism in the answer to fix capitalism is is to allow companies to go bankrupt just to withdraw the the state as an artificial prop to asset pricing about the FED right now. Absolutely and and I guess that the part of the government right with tax cuts and all this stuff. They're doing to extend the longest expansion in history is unnecessary because you're just building the problems up for a live down the road, but Meanwhile, the FED is saying in the next Crisis were prepared to go further their knowledge. Of course they are and if you're having if you're forgetting being where who you are as an American what you see in a politically if you're an investor you have to be thinking this is great. They tell you that every time something goes wrong. They're going to step in. I mean to me the easiest trade for the next five years is by every 20% Market dip in the u.s. Because they're going to come charging in. Yep. It might that might be right that might be right but there's one problem with that scenario and that is the Accession scenario, right if the u.s. Goes into recession all bets are off because I think no matter what the FED do they will come out and they will be forced to do something and it'll be drastic. But you know, we've seen negative interest rates in Europe, you know, I think US government bonds are yields on those are going to go lower than people dare dream about at the moment because that's where they're going to have to try and send them but I think the imbalance is built up in this mean that if we do get a recession like a real recession then I think the FED are going to be really really in a tight situation and they'll throw everything at it. They'll buy equities buy more bonds that bike over there by everything that's for sale frankly, but I don't think against the backdrop of a recession. It's going to work because right now you can still say that companies are making profit at some peas. We've got the buyback scenario. It's going to be really difficult to get by back posture shareholders in a recession. So there's gonna be a lot of props to this Market that if the the economy is is demonstrable e weakening then just buying equities because you think they're going up is I think we'll jive with What feelings are at the end of passive and that will be the moment where it does become important to active managers who can Market time Grant we could do this for a long time, but you have a poor date waiting, so I will wrap it up and I want to thank you for spending the time and hope to see you in Seattle soon. I can't wait. Thanks. Thanks.
Evergreen Gavekal CEO, Tyler Hay, interviews Grant Williams, author of Things That Make You Go Hmmm, co-founder of Real Vision TV, and long-time friend of the firm, from the 2019 John Mauldin Strategic Investor Conference in Dallas Texas. Listen to hear his perspective on a broad range of topics about the global economy, as he and Tyler debrief on the most thought-provoking speeches and interviews given at the conference. DISCLOSURE: This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness. Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time. Louis Gave’s has an equity ownership in Evergreen. Louis’ views and opinions are his own, and are not necessarily the views of Evergreen. 