Why You Should Listen And Read This Grant Williams Interview
Grant Williams, a man with more than 30 years in finance and tons of wisdom, not only in the investing world but in life, shares with us his knowledge.
We talk about the industry, the Federal Reserve policy, inflation, QE, wealth inequality, social unrest, and how this can affect our world today.
He takes the time to explain, especially that last topic, where he dives deep and explains how “the whole social order is built on a foundation of finance”.
This is, by far, a great interview.
Thanks to all my guests in The 2020 Hmmminar Series.
I'll post all the conversations as podcasts shortly. If you haven't registered already for the series, click below to receive a notification when they're published.
— Grant Williams (@ttmygh) April 17, 2020
Grant Williams is also an industry veteran writer of “Things That Make You Go Hmmm”, one of the sharpest minds in macro, and co-founder of Real Vision TV.
The Background And Expertise
George: It gives me a great deal of pleasure to bring someone to The Rebel Capitalist Show that I have a tremendous amount of respect for.
He is in charge or a co-founder of one of my favorite places to actually watch Econ videos in finance. That is Real Vision.
His name is Grant Williams, and he's here today. I am super excited.
Grant, Welcome to The Rebel Capital Show.
Grant Williams: George. That's an overly kind introduction. Thanks. It's great to be here.
George: Okay, let's start off for the few of my viewers who might not know your background, can you get them up to speed on that?
Grant Williams: Yeah. That shouldn't take long.
I was an equity and convertible bond guy for 30 plus years, working all over the world, Japan and Hong Kong, New York, Singapore, Sydney, and London.
And about, where are we? 10 years ago, I started writing a note called Things That Make You Go Hmmm, which turned into a newsletter, which I still write every month.
As part of that, I met a whole bunch of fascinating people in finance all around the world. And about five or six years ago, myself, Raul Powell and a couple of other guys, Remy, Tito and Damian Horner, co-founded Real Vision.
And that's consumed our lives for the last five or six years, I guess.
The Big Difference Between Today Vs. 2008
George: Yeah, I could imagine.
We're just talking right now, for the viewers who don't know this, we're talking on Friday, the market is just whipsawed back and forth.
It's gone down, it's the worst week, I think since 2008.
I read a report from Deutsche Bank that CNBC highlighted, that showed that the market's got from the peak of a market, it's dropped more rapidly than at any time in history.
So as far as comparing this to 2008, do you think this could potentially be one of those types of scenarios worse or maybe not this time?
Grant Williams: Well, it's a great question, and I think that's the question that everybody's wrestling with.
You've got the market split into really two camps and that is, those with experience of '08 and those without it.
The longer we've gone on since that turmoil, which really began like '06, early '07, the longer we've gone and the further removed we've become from that, the fewer people there are with the experience of it.
I think that's going to be a very, very important thing over the coming months.
There is a huge cohort in the financial industry that really have begun their careers post '08 and have only experienced markets that kind of go up.
Again, it's worth pointing out that, all the algorithms which obviously are trading more and more as a percentage share of the turnover '08. Again, they really came of age post '08.
So they've grown up also in this one-way market.
So what we're seeing now is familiar to a bunch of people and painfully so, and completely unfamiliar to a lot of people, and really unfamiliar to the algorithmic auto artificial intelligence trading machines.
So we're really are in uncharted territory here and the analogs are very clear. People are comparing it to 2000.
They're comparing it to 2008, but we really don't have any understanding of what's going to happen yet.
It's been curious to me when this virus came out and Twitter, you've got to love Twitter.
It instantly filled out with all these kinds of financial experts who suddenly actually also have a degree in biology, the only one I know is Chris Martenson. But everybody's got an opinion on this.
But the one thing that was clear though, forget the fatality rates. Forget whether it was some flu-like thing that we shouldn't worry about.
Forget all that, the important thing to understand right at the outset was how quickly China was shutting down because of this.
And of course with China being the workshop of the world still, even though people have outsourced from China to other parts of Asia, it was clear this was to have a material effect on supply chains and disrupt the global economy.
That was clear from day one. When you have guesses range between 50 and 400 million people under some kind of quarantine, that's a problem.
Yet equity markets particularly were whistling past the graveyard. So it shouldn't come as a surprise to anybody that we're at the levels we're at.
What should have come as a surprise was the fact that the markets went up essentially for a month in the face of this potential problem to the economy.
Now, where we stand today is at Friday, the 28th of recording this.
I was chatting with a very smart friend of mine who's a credit guy and we were both speculating that the Fed would actually come in this morning with an emergency easing pre-market to translate.
I haven't done that, which I'm actually pleased that they haven't at this point because I think the problem we're seeing here is not solvable by a 50 basis rate cut.
And I think if you see a bounce from that, and I'm sure they are going to be forced into doing something because they can’t do anything, they've put themselves in that position.
Grant Williams: And I think if you see them do something and you see a bounce in the market, I think that will be a great selling opportunity because the global economy is grinding to a halt.
The fear that I've had about this market for some time was just a common or garden recession with 150 basis points in the tank for the fed to cut and far less than other parts of the world.
If we get a coordinated global recession, then all bets are off. I think it's going to be very very painful to unwind the overvaluations you've seen, which have been predicated on the fed put.
That's a very long-winded answer to a short question, which I apologize.
George: No, but that I could go off on a million different tangents there.
So I'm going to go ahead and put the questions I had written out on the side. That's incredible insight.
It makes me think that the whole entire system, and I'm talking about the global economy, is so over-leveraged. How does that really play out?
To your point, where does the ECB go? Where does the bank of Japan go? And even the fed they're only at 150 basis points.
And even by their own writing, they say that they have to have at least 500 basis points to ease off a recession or make it a little more digestible.
So if rates are already this low and they've done quantitative easing, the balance sheets are already at, call it four-plus trillion, because of the repo market, then what do they do?
It just really at the end of the day, boils down to a game of confidence?
And that's what it seems to me, especially after I've had the opportunity to talk so much with Jeff Snyder.
He really opened my eyes to the Eurodollar system and that maybe QE really didn't work and the fed funds rate, maybe they lose control of that a lot more than people realize.
So I did a video this morning and it outlined how I see it, and then it's this game of confidence that the fed and the government are playing, versus the game of reality and it's at what time does reality take over that placebo?
Grant Williams: I think that's exactly it. And it's been that for a number of years now.
It's really been a confidence game, purely and simply a confidence game since Druggie in 2012 and whatever it takes it.
Because at that point, Europe was melting down and I think if you read Tim Guidance book, there's a fantastic piece in there where he talks about the fact that Druggie told him that he scribbled those words on a napkin.
Literally before he went out and gave that speech. It was desperation times. It was that wasn't some great plan. It wasn't some tactic. It was, listen, trust us we'll fix this.
And they've managed to pull seven years out of that. I think it was maybe in 2011. I forget now.
There's been so much happening. But they've dragged on for nearly a decade on the back of their confidence.
The fed put has been in various guises for almost 30 years now. It began in the Greenspan back in 87. It's been underpinning markets for quite some time.
Every time the fed have needed to step in, they've stepped in.
But what's happened over that decade is more and more of the times they've stepped in have not necessarily been because of economic weakness, it's been because of stock market weakness.
And let's face it, the economy, no matter what anybody tries to tell you, is a cyclical beast. Everything that involves human beings.
George: That's okay.
Grant Williams: Yeah.
Everything that involves humans is cyclical. We are cyclical by nature and the business cycle is cyclical. Humanity is cyclical.
And what the central banks have tried to do is soften initially the downward part of the business cycle and then essentially try and get rid of it.
They had the hubris to believe that they could actually achieve that.
They can't, they are never going to be able to, and no matter what they said or however they feel like they've fooled themselves into believing they have because they've extended this business cycle.
Anyone that looks at it could see there was no real coordinated organic growth underneath this.
This was was margin expansion backed up by abundant liquidity.
The economy, no matter what the headlines, Trump was out there talking about the lowest unemployment, but if you dig into the unemployment figures in any number of ways about discouraged workers and people dropped out.
You know that the fastest-growing cohort is the over 55s. This economy is built on sand and frankly…
George: It's more like a CPI.
Grant Williams: Yeah, exactly right. It needs that back burning. It needs to have the overground brush cleared if it's going to be able to grow again.
And, instead of allowing a recession to happen, and then picking up the pieces and trying to help the recovery take hold much quicker, which is probably the more sensible form of stewardship.
The fed has tried to jump in front of the recession and stop it happening in the first place. At some point your kids are going touch the stove and they only learn their lesson when they touch the stove.
You can tell them, don't touch it, it's hot as many times as you want to tell, you can tell them 100 times.
But they've only got touch it once and they'll never do it again. And so you need these recessions. These recessions have to come.
And so here we are, we're now on the precipice of what looks to me, given what's happened in China.
Then what I suspect will happen in the next three or four weeks, maybe an extra month or two, is a global recession.
That is not going to be solved by 150 basis points of easing by the fed and concomitant moves by the bank of Japan, you've got no bullets left. ECP are already at negative rates.
Bank of England, they're irrelevant. The bank of Canada irrelevant. So the PVOC obviously, no matter what they do, they're going to be pushing against the wind.
So this is a real problem for people and they need to understand that.
Inflation or deflation?
George: Yeah, I think that's such a good analogy that people use of a forest fire.
They try to get around that and prevent these forest fires, but what ends up happening is in doing so, all this brush grows that shouldn't be there in the first place.
And then when they do have that fire, it just makes it exponentially worse.
It's just the exact same thing that they've done with not only the stock market, but with pretty much all asset bubbles that we now have in the United States.
I want to circle back quickly to China.
I know you spent a lot of time in Asia, and when you talk about those supply chains and most people know, okay, I get it, there's a lot of the supply chains that start in China.
But I don't think they truly understand how many parts in your Ford pickup truck or that Tylenol that you just swallowed or that coffee or whatever, come from Japan.
If you could touch on that and then maybe expand on your thoughts as to whether or not you think this is going to lead to inflation or deflation.
Grant Williams: Yeah, look, I mean, the world goes through China now and it's fascinating.
South Korea, the largest plant in the world is the Hyundai Kia Automotive manufacturing plant, a plant down in Korea.
That was shut down two weeks after the first case of coronavirus, two weeks because they couldn't get the parts they needed from China.
And it's a ripple effect that's going to hit Europe probably in March. They have long supply chains there.
So we're going to see that ripple through the global economy over the next couple of months. And it's a major problem, whether it's car parts, whether it's machine parts.
In the case of pharmaceuticals someone pointed out to me in an article a couple of weeks ago, something like 80 to 90% of a lot of the pharmaceutical ingredients come from China now.
So we have created this through every attempt to minimize costs and maximize margins. And we've done so against a consumer who cannot afford to pay rising prices.
So everything is being forced to be cut back to the bone. I was thinking about this in an Uber the other day.
Join @AshBennington, Nick Correa & Roger Hirst on today’s Daily Briefing as they jump into everything from the latest happenings in Europe, to oil prices & the levels you should be watching.
Tune in here: https://t.co/v8GSLF15LQ
— Real Vision (@RealVision) May 20, 2020
That everything, if you look at what's happened since '08 with interest rates to zero and abundant capital for people that, which has enabled all these billion-dollar unicorns to burn money.
And I don't want to get talking about Tesla, but it's the perfect example. It's lost money 17 years in a row, and obviously we've seen what's happened in that recently.
There is no company in history that would have 60, 70, 80, 90 100 billion dollar valuation that had not made money for 17 years in a row.
It's only been afforded that luxury by zero cost of capital. So here we are, we've created this world around us.
The consumer needs these companies to lose money because if Uber was a moneymaking enterprise, for example, some people wouldn't be able to afford to pay for an Uber.
And so here we are, you're getting cost pressures on the consumer side, you're getting demand pressures. And none of this works right?
In the fundamental principles of economics nothing that we have built around us works.
There's a perfect example of this, Louis Vuitton LVMH recently wanted to buy Tiffany. And they issued $10 billion of bonds in order to fund the acquisition of Tiffany.
A large proportion of which we don't know for certain because they don't release their holdings, but a large proportion of which you can very safely assume was purchased by the ECB.
They've placed that bond at negative interest rates.
Grant Williams: So Louis Vuitton has been funded by the ECB, has been paid to borrow the money to buy Tiffany.
At what point does the madness stop? And I think a lot of people, like myself, who've been pointing out and screaming into the void about this insanity.
I don't think anyone takes any great pleasure in what's happening now in these markets.
Even if you're sure and making money on this, is not a good time to be sitting there looking at what's around you and looking at what potentially would be the kind damage we face.
But this insanity had to stop somewhere. And unfortunately, something like a global pandemic is something which I think central banks probably realize that they don't control this.
This is not a liquidity issue. This is in fact about how do you persuade people to go out, congregate, spend money, enter the global economy when either hundreds of millions are under quarantine.
I guess some people will argue will be great for Amazon and Netflix, but how do you persuade them to go out and keep the economic engine going? I think it's going to be very difficult.
Especially how do you solve a problem of short supply?
So fewer goods and services with more liquidity, more money. It's like the definition of inflation.
Grant Williams: Yeah. And make no mistake about it. The big problem here is inflation.
That's the problem that will upend this whole thing. And as much as the fed will, and the other central banks, I always use the fed as a proxy for all of them.
As much as they will rail against the problems of deflation. Deflation is a huge problem when you have the situation we've got around us.
Sorry, inflation is a huge problem. You have this much debt overhanging the world.
Inflation is the problem, and the world cannot stomach the kind of rates you would need to have the inflation genie be let out of the bottle.
You only have to look at Chinese food prices, for example, in the last three months the increase in percentage terms has been 100% give or take for three, four straight months.
And this is pork prices, food inflation is running at about between five and six percent area.
That's pre the last month. So I don't know what that's going to change. But pork prices are up and they're going up 100% year on year on every month for the last four months.
That sounds sustainable. The Achilles heel of the CCP in China is food price inflation. That's the point.
If you can't feed the people in China, they very quickly get unhappy and that's what they have to guard against. Everything else is manageable.
So as that situation ripples through the system you're going to see defaults, you're going to see companies go out of business, you're going to see companies who aren't able to roll over debt.
We're going to see exactly what we saw in this cascade effect we saw in 2008, except we're seeing it from much more extended levels in equity markets.
We're seeing much more fragile bond markets, the kind of 5,000-year highs.
There's only one way to go there. And the problem is now, instead of on the corporate balance sheet it's on the sovereign balance sheet.
And of course once the sovereign balance sheets get impaired, the currencies become a problem.
And this is why I think gold it's down today, and the gold miners as always, again shall act in all this.
But ultimately this was always my rationale for at least having an allocation to gold.
And I think people should be looking very seriously about the gold in their portfolio, for if they don't have any, they should have some.
If they have some, they should probably have more at this point because all the roads as I see it lead to gold right now.
I think currency is going to come under pressure. I think sovereign bonds are going to come under pressure.
And to your point about what the central banks can do to mitigate this, I suspect we're going to wander very quickly into uncharted territory in terms of yield caps.
In terms of mandated holdings of sovereign bonds and pension funds to try and place this stuff to outright monetization.
Grant Williams: Of course, all this is happening against the backdrop of a U.S election in which one of the contending parties is likely to be an outright socialist who's promising free everything for everybody.
So we're in a very different time now. It's a very dangerous time. And everything is pushed very precariously.
I think having had 10 years of, it'll be okay, they'll figure out how to get around this. If you go into this with that mindset, I think you're being very foolish.
Is the U.S. similar to Japan, and are we able to make QE infinity?
George: Yeah. Every single time I bring up one of these issues on a video, I'll always get comments, well, this is no big deal, we shouldn't worry about it because the fed can just drop interest rates.
They can just print money and we'll be just like Japan. In fact, that's probably a good question.
So many people say… And I like the people that always use this as a rebuttal that… Well, we can just be like Japan.
Look at Japan, they've done QE forever. They've had zero percent interest rates or negative for 20, 30 years, whatever it's been.
But they always point out that fact. But then they always forget to point out the fact that the Japanese stock market fell by 50% and it's never recovered.
Same thing with the housing markets. Its like they cherry pick what they want to choose with Japan.
Why can't we be Japan, meaning the United States?
Why can't we do QE for the next 30 years?
Why can't we keep interest rates at say negative 50 basis points, for the next 20 years?
Why is there a difference between those two fundamentally that wouldn't allow the United States to replicate that?
Grant Williams: Well, I think there are many reasons for that.
And I was living in Japan back when the equity market peaked there in 99. I spent almost four years there around that time.
So I saw the blow off in the equity markets from a seat on a trading desk in Tokyo. And then I watched the next three and a half years, the market go down.
I talk about this a lot because I think it's really important. People forget, Japan never crashed.
The Nikkei didn't crash. It stopped going up on the 31st of December, 1989, and it started going down on January the first 1990, and it went down basically for 20 years.
Yeah, there were some bear market rallies and obviously they weren't immune from '08 and they weren't immune from 2001, but it never had a crash that was caused by extended valuations like we saw in, for example, the NASDAQ in 2000.
Japan at the time was the second-largest economy in the world.
And people will talk about, well, okay, U.S has the biggest economy in the world but Japan was number two.
There are a couple of things that are very important to understand. One is the nature of the Japanese bond market, which is where they've targeted most of their efforts in terms of QE.
It's largely domestic it's really not held by [inaudible 00:21:48]. In fact, in my first trading job, I was an assistant JGB trader when these things actually had yields.
People won't believe me about that, but it's true. But I think the important thing to understand is that as Japan went into reverse, the rest of the world was growing. And so we had growth.
We had double-digit growth in places like China and India. We had the U.S grind pretty well.
We had Europe, obviously in 99 was when the Euro came into being. So we had a big surge in Europe.
So the world could carry Japan. It didn't really matter. Their bond market wasn't a global problem.
And what we're seeing now is we've got China supposedly at six percent growth down from 12 a few years ago, and they've managed that actually very well.
But India doesn't have the growth they've had, the only growth you're really getting, any real organic, solid growth is in Sub-Saharan Africa, parts of the Middle East, countries that are doing really well, but they're too small, they don't matter on a global scale.
If you've got Europe with very anemic growth, you've got China, which there's really no wind here for Chinese with the Q one numbers when they come out.
I've seen very credible estimates that it should be zero. I think if they print it zero it's be pandemonium. If they print a four, no one's going to believe them.
So there's really no way out for the Chinese now, the numbers are going to be horrendous.
Grant Williams: That might be a buying opportunity, it depends on how this virus spreads.
But when you start reading about them quarantining dogs because dogs are testing positive for them, then who knows how this is going to end.
But now, U.S growth is really not strong enough to carry the world on its shoulders.
So why can't we be Japan?
- Because there's no one to pick up the slack right now knowing the consequences. And that's the main problem.
- Plus of course, back when Japan started going, there was no four and a half trillion dollar balance sheet of the fed, the ECB didn't have a similar amount. China an irrelevance back then.
It really didn't become relevant to the global economy till WTO entry in 2000. So the world is completely different now.
So Japan is absolutely not, I don't think a viable comparison. It's apples and oranges.
Quarantine, potential inflation, and social unrest
George: Right. And you talked about how it's completely different right now.
And I want to go back to an interview that I heard with you, and I believe it was Eric, on Macro Voices, and you guys really took a deep dive into the social unrest.
The history, social unrest, and where it is today. And I think that we've been talking about all this stuff going on with the financial economy, but then in the real economy, things are much different now than they have been in the past, or maybe even more of a powder keg than they have been in the past.
And you really went into that in great detail and I know you've done a ton of research on that.
So can you explain that to the viewers of mine that didn't have the opportunity to watch or listen to that podcast?
Grant Williams: Sure, yeah.
I wrote a piece back in January called the year of living dangerously, and just talking about this social unrest, and it's important to understand that Trump wasn't a one-off, Brexit wasn't a one-off.
This is a rising stress on the consumer. This is inflation being way higher than headline inflation. And it's college tuition and healthcare in the U.S and its food in China.
It's the important things that people are struggling to make ends meet. But this is a global problem and we do live in an interconnected world now.
Wherever you look, no matter which part of the world you go to, I started off that piece talking about the Gilets Jaunes protest in France, which have been going now for almost 18 months solidly.
You won't see anything about them in the news. The news cycle has moved on and people are not really interested anymore, but they still happen every weekend.
And every now and again they get violent and you'll see bits on social media about them.
But this is a nationwide protest that was sparked by an increase in tax on diesel fuel by President Macron.
It's now morphed, that protest has gone on, and now with the French economy struggling to make the numbers work, they've talked about reducing pension benefits and boom, the whole thing is flared up again.
If you go to the Middle East we used to strive there, but you're seeing street protests in places like Iran and Iraq.
Again, about the rising cost of living. We saw South America, Bolivia, Colombia, Venezuela.
We're seeing massive protests over there. And then Chile, which has been kind of a bastion for political stability in South America for decades now. We've seen massive social unrest there.
And again, what sparked that? Well it was sparked by an increase of four cents U.S in rush hour subway fares.
Of course it was the students that started this as it tends to be. And the response from the ministry of transport in Chile was, well you should just get up earlier and go to school before the rush hour and then you'll save the four cents.
Talk about an insensitive response. But it just shows you how fragile the social order is when you start raising costs.
What I identify throughout these various examples of this was that the trigger is invariably one of two things. It's either inflation, or it is the removal of some kind of subsidy.
So wherever you look things are the same, people are struggling to make ends meet.
We're seeing increased political polarity. In the U.S there's some fantastic work being done I think by the peer research center. I'm not sure about that.
But in terms of looking at the polarity of politics in American it's never ever been this wide. And this election looks through all the world, like it's going to drive it further and further apart.
You're going to have Trump on one end.
And at the moment, things can change obviously, but it's looking very strongly that you're going to have Sanders on the right side if the democratic national convention can't find a way of robbing him of the nomination.
Wherever you get polarity, the further apart two ends go, the bigger the space in the middle for chaos to fill.
That's again, it's a real problem and everything we're seeing around the world now, in terms of quarantines, in terms of potential inflation due to shortage of supplies you quite rightly pointed out on your own.
I flew to Los Angeles yesterday and I was amazed at two things. One, the scarcity of people wearing face masks, I would have put it at one in 50, maybe people who were wearing masks in an incredibly crowded Los Angeles Airport.
It's really not here in the U.S as a clear and present danger in people's minds. And also you can sense that…And I've read reports about this.
You can sense this feeling that when you see people who've obviously gotten off a plane from Asia and they're wearing masks because it is a clear and present danger that you can feel the people kind of leaving a space around the Asian people at the baggage claim.
Grant Williams: So you can feel this tension starting to build, and people are going to become, I suspect, increasingly more frightened by this.
I have a really dear friend of mine who lives in Italy, and he saw what happened in Italy this week and he made the great point that, Italians are by nature hypochondriacs that's part of the Italian psyche.
So the Italians tested much more rigorously, much earlier, and obviously they found a lot more cases. U.S isn't really testing people, so they're not really finding cases yet.
And just to watch that mindset in Italy when they blocked the roads going into Milan. They called off and quarantined whole regions.
And to hear a friend of mine who lives in there talk about the panic and seeing the supermarkets get cleaned out in two days. You can see how this thing can take hold.
It won't be a surprise to see fingers being pointed at people from Asia or Italian people because they are bringing the virus in here.
The social fabric is incredibly fragile right now, and it doesn't take much. People are scared, they're nervous, they're looking for people to blame for things they don't quite understand.
I think, what you do in trying to get this message out about finance to people, is incredibly important because at the end of the day, all this stuff, few people realize that it comes back to money.
It comes back to finance ultimately.
The whole social construct or the whole social order is built on a foundation of finance.
That's what makes it flow. That's what makes it work.
Then finance gets gummed up, the knock-on effects, the ripples that causes, that manifest themselves in ways that people can't easily trace back to finance.
People who don't have a working knowledge of central bank policy don't understand what negative interest rates, and what constantly juicing asset prices has done to their lives because they have not invested in the stock market.
But it has a very real effect. So kudos to you and guys like you that try and make this information accessible to people that don't spend their lives immersing it like myself and some of your other guests.
George: Yeah. Well, I appreciate that first and foremost Grant.
But I want to take it back to the LA airport and exactly what you were saying that people don't understand the unintended consequences of what the fed does by inflating all of these asset bubbles.
I personally would argue that the reason those people weren't wearing masks when they probably should be, is because the media and the World Health Organization has downplayed this.
I think the reason they have, is because we have all these asset bubbles. So in their mind they've got choices to make. It's a tight rope.
The virus, the panic that comes with it, and a fragile system that can’t hold it
Do we want to tell the truth but then affect the economy so dramatically that it would probably be worse than the virus itself?
Or do we want to downplay it just to protect the economy?
My point is that if the fed would not have blown all these bubbles in asset prices with the stock market, the housing market, you can go down the list…
That the World Health Organization and the media would be able to explain this and explain how dangerous this is and actually tell the truth.
All those people at LAX most likely would have been wearing face masks. Do you see how I'm connecting the dots there?
Grant Williams: I'm not sure I agree with it wholly to be honest with you.
But what I do know is that we find ourselves in a time where not scaring the horses becomes more and more important every passing day because of this fragility that we've been talking about.
So the world is fragile because of these asset bubbles I think is absolutely right.
But I think at any point in time, the chance of an administration or someone like the WHO telling the truth in cold, no holds barred terms, is very minimal because people do tend to panic.
We spend our lives between greed and fear. So they're always going to try and keep coming.
You hit the nail on the head at the very beginning. Everything is a confidence game.
I think by telling people, look this could be a serious problem, you do risk confidence being lost not just in asset prices and financial markets, but in governments, in supernational bodies, in the health care authorities, in everybody.
And so I understand the need to try and maintain that. My problem in this particular case is that it's being done at the expense of public safety.
My friend Ben Hunt, who writes fantastic, excellent theory, that as long as Rusty Glenn, has done some incredible work on this.
A truth that’s told with bad intent
Beats all the lies you can invent.
– William Blake
Our narratives of COVID-19 are all lies.
They are political narratives with a nugget of truth, told with bad intent. Because the nugget of truth hides a Big Lie.https://t.co/uOsFTzAWbL
— Ben Hunt (@EpsilonTheory) May 14, 2020
People should seek out Ben, I've read the stuff he's written. He wrote the piece called The Fall of Wuhan, which was remarkable.
He wrote a piece called Body Count, which I thought was essential reading, just in terms of understanding the narrative of the numbers that are passed out to the public and trying to understand.
He took himself back to being a child during the Vietnam war and remembering every night, Walter Cronkite talking about the 307 American casualties and 150 South Vietnamese casualties, but 1,007 North Vietnamese casualties.
And Ben's point was, look, they probably knew exactly how many Americans died that day and probably under-reported it.
They probably had a pretty good handle on the South Vietnamese. They had no idea how many North Vietnamese casualties they were, but they reported those numbers every night.
So those numbers became the truth and the reality to people. And that's the parallel he made with the coronavirus.
And I think it's an incredibly important one to understand. If you look at the numbers that are being reported, they have to be believable enough that they feel like they're true.
But I think the likelihood of the numbers being accurate is as close to zero as it can be while still leaving room for doubt.
Anthony Deden’s Philosophy And Investing Framework
George: Yeah. When half the politicians in Iran, you see them on TV and they're coughing and sweating and next thing they have it.
Yeah, there's only 200 cases or 300 cases. It makes you very skeptical. I want to transition, we've been talking about this coronavirus, it's incredible.
The ramifications are just really mind-boggling.
But taking this back to an investment point of view, and like what do you do if you're the average type of person?
To highlight that, I want to go back to an interview that you did or a documentary with Anthony Deden.
I hope I'm pronouncing his last name correctly.
Grant Williams: Right? Absolutely. Tony Deden. Yeah.
George: This was possibly one of my favorites. It's definitely one of my favorite Real Vision videos, possibly my favorite documentary of all time.
I remember when it came out, my sister's a huge fan of Real Vision as well. And she called me and she said, I just watched that documentary. I was literally crying at the end of it.
I mean, it was so amazingly done. But my point is that this is a gentleman that is the complete antithesis of Wall Street and money printing and the federal reserve.
If you could walk us through number one, that documentary for people who didn't see it and then discuss his philosophy and his framework for investing.
Because I think if people understand that better and can maybe implement that in their own investment portfolio, especially in today's times when everything is dangerous and who knows what's going to happen next, I think it would be hugely beneficial.
Grant Williams: There are a few things in this world I like talking about more than Tony Deden.
He's a remarkable man. And that interview is up on YouTube. People can watch it if you just search for my name and Tony Deden, which is D-E-D-E-N.
It's a remarkable conversation with a remarkable man. And it's two and a half hours long, which is daunting to some people.
But I'm so happy to hear that response of your sister because I have too many stories to bore you with of the responses people have had to that piece.
I myself found myself in a bar in New York City with three other grown men, all of us in tears talking about this piece. It's truly a remarkable conversation.
George: Yeah it is.
Grant Williams: But Tony's become a dear friend and a mentor to me and I'm incredibly blessed to have his presence in my life because he's been a fantastic sounding board for me, for many many things.
But Tony is a throwback. Tony is someone who doesn't really immerse himself in the financial markets, but he's an investment manager.
And it's kind of a weird thing to try and see how that works. But Tony thinks of things in terms of stability, in terms of permanence.
Tony looks on capitalists as savings and how should those savings be deployed? He thinks about things in terms of ownership, in terms of owning a piece of a company.
In terms of owning a piece of cash flow, not just an equity that is inflated by stock market value.
And some of the stories he told in the interview were remarkable about the guys he's met who have 150-year-old businesses that 100 years ago they sold a bond to raise the money to build a new cowshed somewhere.
And Tony's tracked this bond down and very patiently over a number of years, bought what equals a participation in the company.
And by removing himself from the financial markets, removing himself from the day to day marks up and down and the swings in financial markets and owning shares in companies that he wants to own for 100 years, is a very different way of thinking about this.
Yet it's how markets used to be. It's how people used to become wealthy was either by building a successful business or investing in a business, not buying a share.
People in today's times, we kind of fixate on the stock market and we assume that Apple and Microsoft and Netflix are the things we should be buying.
People forget about either building a business or investing in a business.
Tony told a great story about a guy who would often come to him for stock tips and he was a casual acquaintance and he talks about this in the interview.
And the guy would sell your house I've got a stock tip and I put $10000 in this, and I did that.
He came Tony one day and he asked him about dry cleaning, what he knew about a dry cleaning business. And this guy had been asked to invest in a dry cleaning business, actually bricks and mortar.
A friend of his was starting a dry cleaning business and he had gone out and he gave Tony all the information about how many dry cleaners there were in a 12-mile radius and the profit margins, all this.
The work this guy had done because he was thinking about investing money into a business that wasn't listed on the stock exchange was extraordinary.
But it was because he felt like he was going to become an owner of this business. And people today have become renters. We rent ownership in businesses.
We buy a share and if we don't like something, we sell it.
Tony tends to buy companies that have principals that match his own, that have goals that match his aims, that have most importantly, perhaps an identical time preference to Tony.
I know much of his investing is an infinite time preference. He wants to buy companies that he can hold for 100 years because he understands how the management things, he understands how they build their business.
The share price is of no concern to him. They're listed for one reason or another, but their focus is not on the ship.
Grant Williams: He told another great story about a guy who ran a business that Tony went and spent the day with.
At some point late in the day, this is the CEO, it was a family business. He was the third generation of the family who had run the business.
The share price came up in conversation, and the guy said to tony, “what is our share price these days?”
These days, if you can imagine the CEO of an S and P 500 company that didn't have a little window in his laptop or on his desktop and his office that had the share price constantly being updated, that mindset is very different.
And it's a throwback to a different time as is Tony. And perhaps the markets will find themselves being taken back to times before financialization if the markets seize up, if we get a thinning out of the financial hurdle.
I did a presentation which your viewers might find interesting called Grey Wolf.
Talks about the history of the gold stamp using a parallel of the reintroduction of the Grey Wolf into Yellowstone National Park.
It's really interesting to understand the role of gold in the financial system.
But for the purposes of this particular presentation, just how the financial sector and the number of bankers have multiplied precipitously over the last 30 years.
We now have people who make their money from money, they don't make their money from creating a product or servicing a need.
And there's a very strong chance that financialization reaches its limits, the same way people will perhaps argue that free-market capitalism has reached its limits.
Which is why we're now entertaining socialism and communism all around the world.
I would argue that we haven't had free-market capitalism for perhaps 25, 30 years. We have some form of state capitalism.
Grant Williams: But these citizens, again, we get back to cyclicality, we get back Tony being a product and a representation of a wholly different time that too many would be an anachronism.
But those things also become cyclical.
And what Tony does and the way he does it with principle and integrity and ethics, it's a remarkable philosophy that I think stands the test of time and it may have been out of fashion than out of favor.
Which is why you see so few people like Tony in the world today. But I suspect that philosophy and those principles will once again have their time in the sun.
I suspect that day is probably approaching us fairly rapidly.
George: Yeah. And I want to be clear for those viewers who might be listening to this saying, oh, well he sounds like Warren Buffet.
No, you don't understand. He's a whole another level to Warren Buffet.
Do you just tell that story really quick? I think he met with a business CEO that he had an investment with.
He owned shares or something like that. And they came into a board meeting and the guy said, “Oh, let's do a stock split or some financial engineering type thing.
And Anthony looked at him like he was insane. I don't know what he did, but I know the net result when he left the meeting, is he sold everything that he owned in the company, I don't think Warren Buffett would do that.
Grant Williams: No, it was a Brazilian chicken producer, and he went to see them.
He'd had shares in it for a long time and you really liked the company and he went to see them and he spent some time talking to the new CEO.
The guy mentioned to him that if they could do something in the foreign exchange forward market, it could smooth out their cash flows.
And this prick Tony's ears, he's like, you know, you shouldn't really be in the foreign exchange forward business.
A few months later, or maybe 18 months later he read somewhere that this company, this chicken farm had bought a stake in a Brazilian bank.
And that day, as soon as he saw that he sold every share he had in the company because he realized that they getting over their skis and ultimately the company went bankrupt.
But that was really just a testament to Tony's principles and how he views these things.
That I bought you because you were a company that did this, I understood your business, I understood how you saw your business and how you conducted it.
You've changed. And he's right, if they change the way they do business, it becomes a different business.
There is a strong possibility that may not be a business you want to own but few people I think, have the courage to just sell a business because they can't really work out what it is.
The numbers might look okay, for the next time and the CEO might sell the story really, really well about how great this is going to be going forward.
But you fundamentally alter the business, and to Tony that was a big red flag and he was exactly right in selling every share he owned.
What to ask yourself before buying any type of asset
George: Yeah, I think it goes back to the first question that most people ask themselves when they're considering buying a stock or any type of asset.
I talk about this all the time on my channel, and it's just in my opinion, and I'd love to get your opinion on this as well.
It's just they start with the wrong question.
The question they always start with is, is this going to go up in price or down in price?
And I just tell people to ignore that question. Ignore it. If you're looking at an investment, ask yourself first and foremost:
How much am I going to get paid to own this stock?
How much money are they going to make now or in the future? Is it cheap?
Start with those questions, especially is it cheap when you're looking at the cash flow.
But if you start with the question of is it going up or down in price? You're just doomed right from the get-go.
I think that again, going back to Anthony, he's such a great representation of that.
Grant Williams: Yeah, I mean, it's probably not fair. There are people that just want to trade the price, right?
People want to trade the price and you think Apple's going up and you want to buy shares because the chart looks good or you've read or whatever, that's fine.
If we're talking about investing, they're two completely different mindsets, and if you are naturally one, you've going to have a hell of a time trying to beat the other, I promise you.
But you're actually right. If you are an investor, then, first of all, the question is:
Is this a business I would want to own?
I think that's the first question, and the second question is then…
Are the people managing the business and responsible for the stewardship of that business?
Are their principles and their ideas for what this business should be, are they aligned with my own?
This idea of being in alignment is so incredibly important, and that was, going back to that chicken story, their alignment changed.
Tony and the company were aligned. They changed, they were no longer aligned.
Tony, told me another story the way he thinks of it is, he's the captain of a ship and the passengers are welcome on the ship, but he's going to that port and if you don't want to go to that port, you shouldn't be on the ship.
Because I'm not going to deviate from the course I set out with. I'm not going to see something sparkly and shiny over there and change the course of the ship.
The ship is going where the ship is going.
If you're on that ship and you're not going to the same destination, no one's going to be happy, the investors aren't going to be happy.
Tony's not going to be happy as a captain. And so people have to really think about their ends.
Think about the reasons why they're making these decisions. And if it is purely the price, that's absolutely fine, speculate on the price all you want.
But I think if you have the mindset that this is a business that I want to own indefinitely, you read the news flow very differently.
You read the fluctuations in the market very differently. And you don't get fixated on price because you understand the business, you understand what they're doing.
You understand how the business is being managed. And yes, you may have days when the stock price falls 10% because of the Coronavirus, that's happened.
There are some fantastic businesses that have been sold down 15, 20% in the last week, and present tremendous buying opportunities.
But you're only going to really know from a structural business standpoint, if you understand the business prior to the fall.
So by all means speculate on the price, but if you want to invest in something you want to be an owner, then understand the business and the management.
If either of those changes, then you do need to be strong enough, mentally, to sell them even if the price isn't where you thought the price might be or you're underwater on your investment.
Grant, why do you think gold is so in sync with that type of investment strategy?
Grant Williams: It's the 6000-year asset right. And people have held gold for eternity.
This is not something… I talk about this a lot. The difference between the gold price and the price of gold.
People fixate on the gold price, which is a futures contract quoted in New York 24 hours a day, give or take around the world but it's a paid piece of paper that conveys upon the ability to own gold.
The price of gold is a wholly different thing. What does it cost me to get an ounce of the metal in my hand?
Whether it's through a coin or a bar or whatever it may be, that's wholly different.
It trades at a premium to the futures price or discount sometimes if there's oversupply.
So I think gold lends itself to this kind of conversation very, very well. Tony, a significant part of his portfolio is in gold.
But he thinks of it as a way to hold his reserves. His liquidity is held in gold, he doesn't want to hold it in a fiat currency.
He would rather hold it in gold and if he finds a company that he likes, he'll exchange his gold for participation in that company, which I think is a very sensible way to do it.
Stan Druckenmiller talks about gold as his single best currency position right now. And people need to think of gold as a currency, I mean it's many things.
But I think if you think of it as a currency, then you tend not to get caught up in this whole gold price nonsense, because the gold price at 1660, or wherever we've reached in the last few weeks, is still below quote-unquote, its all-time high.
That's a purely dollar representation. Gold is at or through all-time highs in just about every major currency anywhere in the world.
So the gold price beginning in 1660 is wholly misleading.
Going Long On One Country
George: The next question I'd like to ask you is:
If you had to go long, one country right now, which one would it be? And why?
Grant Williams: Boy, boy, boy, one country? Jeez. Well, you know what?
Again, the first question I asked you was the timeframe. How long would I need to be in this country for?
George: For me it'd be like 10 years plus.
Grant Williams: Well, I think if you're going to do that, you have to look in places like Sub-Saharan Africa, you have to look at places like Namibia and Ethiopia, places with strong demographics, that's going to be incredibly important.
You can still find places in Asia, maybe Vietnam or Cambodia where you can probably buy into a country and forget it.
But I think if you really want a 10 year, look at the potential for true growth, then I think you have to go off the beaten track.
I think you have to go places that really haven't seen globalization take hold yet. And for me, that's probably Sub-Saharan Africa.
George: Okay. And it all starts with demographics from the way your framework, the way you look at it.
Grant Williams: I think even more so now, because the demographics in the developed world are so poor, right across the world, essentially.
I think demographics are going to become more and more important, and really the countries that have the right shape population pyramids are the ones who are, hopefully, if they can weed out the corruption, which is always the problem.
But again, I think if you want to go and buy a Namibian or an Ethiopian ETF, I'm sure that [inaudible 00:52:54].
But realistically, the way to make money in these places is to go, again, and invest in businesses on the ground in these countries.
Because they are going to hopefully become more prosperous, and they have the right kind of demographics.
And if you've got a strong 20, 30-year-old population, who are all going to start having kids and needing stupid things like diapers and toothbrushes and stuff that we take for granted.
That to me, if you're going to buy a country on a 10-year basis, it needs to be one with strong demographics. That'd be the first thing I look for.
Top Lessons From Grant Williams
George: Okay, fantastic. And last question here.
I know you've had the opportunity to just interview some amazing people, incredible thinkers in the macro space, and in finance.
So what would be the top three things, or the top three lessons that you've learned personally, and maybe implemented in your own investment strategy from all those people you've interviewed?
Grant Williams: I think the most important one, I didn't learn, but I had confirmed hundreds of times over.
Every time I sat in the interviewer’s chair I had it confirmed and that is assuming you're the dumbest guy in every conversation you have shut up and listen.
I've never learned anything by listening to myself talk. But I've learned an extraordinary amount from listening to people.
I think today everybody is very happy to talk he said after pontificating on your show for an hour, but I think when you have the chance to sit down and talk with people…
Listen, ask a question and then listen.
I always figured that if I was interviewing someone for an hour, and I was speaking for any more than five minutes of that hour, then I was doing the viewers disservice.
They'd seen me plenty of times they knew my kind of views on things, but, asking people questions and allowing them the room to talk was confirmed to me but it's been confirmed in spades every time I've sat down.
I think the other thing is I've learned, really, in terms of investment advice from people.
I actually think that the lessons you learn from a human perspective are far more important to learn, because I think they become applicable in every aspect of your life, and that includes finance.
And a lot of them are seemingly kind of trite lessons:
- The value of humility: I've learned from speaking to some of these extraordinary investors, and the ability to be humble, and to understand that getting things right 55% of the time, you'll do very, very well over your career.
- Not getting wedded to your ego and hubris: and assuming that you're right, everybody else is wrong.
- Have to have the ability to admit you're wrong and change your mind: Every single great investor that I've interviewed, has that ability. And it's very near the surface, they're very willing to change their mind.
They're not always ready to change it because they've done the work. And there are times when you are the one guy who's right.
Tony told a story about that, when he went away for a weekend and came out that weekend in the knowledge that he was right and the rest of the world was wrong.
And that's okay, providing you entertain the thought that you might be wrong, and if you were, you're willing to change, right?
This was right before 1999 and 2000 the dot com, bubble burst.
- Respect: If you want to engage with people, you have to treat them with respect, even if you disagree, particularly if you disagree.
- Challenge your ideas:
Seek out people you disagree with and get them to challenge your assumptions.
The assumption that is thrown around on Twitter, particularly all the time is someone who doesn't disagree with you is an idiot and a moron and shouldn't be listened to, and you know, it's just a pointless exercise and being like that.
Other than those kinds of human lessons that I learned from people, the rest of it is really, I found based in history.
The biggest single thing that I've done and I've noticed this common thread with very smart, experienced investors is:
- Read and understand history:
In Ecclesiastes wrote there's nothing new under the sun several thousand years ago, and he's absolutely right.
But all of the stuff we're seeing now, it's not new, the virus isn't new. The plague of locusts in Pakistan isn't new. Asset bubbles, aren't new.
All this stuff has happened before. And if you read history, if you read books, like Extraordinary Delusions, and The Madness Of Crowds by Charles Mackay.
He talks about things like the South Sea bubble and read the history of John Law.
You'll see all the things that we're seeing now, have happened before.
And all the clues as to how they'll play out are there, so I mean, that for me has been a wonderful gift in the fact that I actually love reading about history and I've learned so much from it.
I'd like to think it's helped me in terms of figuring out the present by just understanding the past.
George: Yeah. Wow, incredible words of wisdom there, Grant, I can't thank you enough for your time.
I really appreciate you being on the show for those viewers and listeners, which I'm assuming are all of them who want to find out more about what you do, and Real Vision.
Where should they go?
Grant Williams: Yeah, my website is TTMYGH.com, and it's an acronym for things that make you go hmmm, which is my letter.
Yeah, and by all means check out realvision.com, there's extraordinary financial times out there, and getting the chance to listen to them is a true gift.
George: All right, Grant. Well, I sure appreciate it. Let's definitely do it again soon.
Grant Williams: Anytime. Feels great to be on. Thanks for having me.