Lights, Camera... Action!

Doug Casey, Federico Tessore and Chris Mayer share their thoughts...

(Source: Getty Images)

Joel Bowman, musing today from Buenos Aires, Argentina...

Welcome back to another Sunday Session, dear reader, when we take the time to reckon over the events of the recent past and, with the aid of a glass (or two...) of high altitude Malbec, bring the world to right.

We jest, of course. What your editor doesn’t know about “fixing” the planet and its myriad problems could fill a library. And that’s exactly the point of the quip, to poke fun at those who suffer from what the great thinker, Friedrich Hayek, cheekily referred to as “the fatal conceit.”

“The curious task of economics,” Hayek wrote in his essay The Fatal Conceit, “is to demonstrate to men how little they really know about what they imagine they can design.”

One would think even a cursory glance around any university campus would suffice to prove what Hayek lay at the feet of economics and yet, he generously devoted 140 pages to developing his claim in detail. 

“The creation of wealth is not simply a physical process and cannot be explained by a chain of cause and effect,” he wrote. “It is determined not by objective physical facts known to any one mind but by the separate, differing, information of millions, which is precipitated in prices that serve to guide further decisions.”

Among other ideas likely to bristle mainstream economists, Hayek argued for private property as a fundamental basis for modern civilization and (trigger warning) free market capitalism as the appropriate, logical and moral form of its natural, “extended order.” 

(For those of you still with us...) Economies grow organically, Hayek observed, based on the voluntary actions of individuals within them following their own self interest. Such “dispersed knowledge” was far superior to anything that could be imagined, much less designed, by those claiming or affecting to know what everyone else wants and needs. 

And so, it was with a healthy supply of vital ignorance that your weekend correspondent set about creating the Fatal Conceits Podcast, way back when the Bonner Private Research project was still a twinkle in Bill’s eye. 

Through a show about “money, markets, mobs and manias,” we hoped to learn a little along the way by speaking with people who have probably forgotten more about their given area of expertise than we’ll ever know. Our guests help us better understand the world around us, connecting one dot at a time. Over the course of seventy or so episodes we’ve discovered that, in the age of high and fatal conceit, a little ignorance goes a long way. 

Last week, we began uploading some of these conversations to our long neglected (and still “under construction”) YouTube channel. In addition to our audio recordings and written transcripts, we aim to make these videos available to you as often as we can. 

To help get you started, we’ve included three videos – with Messers Doug Casey, Federico Tessore and Christopher Mayer – below, along with an excerpt from the respective transcripts of those conversations. As you’ll see, each of these gentlemen bring different expertise to their chosen fields of interest and, whether you agree with them or not, we trust you’ll find their observations thought provoking. 

Simply click on any of the videos below to view them either in your browser or on the Substack platform itself. You can also subscribe to our channel – don’t worry, it’s free and always will be – to ensure you keep up to date with our latest videos. Don’t forget to “like” the videos (it helps with visibility) and to share them with anyone you think might enjoy them. We’ve also left the comments section wide open, so feel free to exercise your free speech as you see fit.

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First up, here’s Doug Casey on investing in energy...

From the Transcript:

Doug Casey: Nothing wrong with green stuff, a windmill, or some solar. Sometimes in some places it can make sense. But, it's not the basis for mass power generation for an industrial society, at least not yet. These things should not be centrally directed by government to start with. It's not going to work, and it's going to be a total and complete disaster. If they wanted to do anything, it would be to build lots of nuclear power plants. And nuclear power, even though it's been promoted as the enemy of everything, is actually the cleanest, and the cheapest, and the safest form of mass power generation by far. But, that's not happening. It'll start happening, but it's going to take years to start building these nuclear power plants. And then they'll be generation four.

We should already, or would already be, at the stage, where they're small. And by small I mean the size of a large room. Nuclear power plants that are buried, to be dug up 10 years later and replaced, for every town in the country. But, that is not going to happen because of political reasons. So what should you do? I guess we're getting back to this subject that you brought up earlier. What should the average guy do at this point? Well, even though the price of oil stocks and natural gas stocks have doubled in the last year I'd say, they're still real cheap. Why do I say that? If you go back to 1980 when oil was the big thing, 30% of the value of the S&P was oil stocks and oil related stocks. As of last year, it was only 3%.

It has dropped 90%. Now it's gone up to maybe 5% now, but they're still really cheap. And oil is much more important now than it has been in the past. And I'd throw coal and nuclear into this mix, those four things. So, I'd say that these things are still real cheap and a lot of these things have good dividend yields or low price to earnings ratios. Like Petrobras, the Brazilian national oil company, selling at four times earnings last year, it kicked off a dividend of 25%. That's pretty good. That shows how cheap these things are. So, I think, people should be looking to buy these stocks. Why are they so cheap? Because the institutions are all into ESG, environmental social governance, and DIE, diversity [inclusion and equity]... It's all destructive, stupid nonsense. So, BlackRock, and Vanguard, and all these big mutual funds and hedge funds, they all talk to each other, they all have the same background, they go to the same clubs, they all want to be invited to the World Economic Forum.

So, they don't own any of these oil stocks. And the oil companies have been thoroughly intimidated at this point. They're not going to invest in something in this political environment. So, oil's going to stay here and go higher. Natural gas is going to stay here and go higher. You should buy those stocks, I think. I've been doing it for years and selling... selling naked puts against them actually is what I've been doing more than anything else. So, that's one thing you should be doing for sure, investment wise. Most other stuff, even with the stock market coming down, I think we're heading for a long term bear market. I don't want to own Amazon, or Google, or any of that crap. I really don't. These are just ephemeral digits quite frankly. I like the idea of owning real stuff.

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Next up…

Federico Tessore talks us through the banking crisis in 2002 here in Argentina, as a cautionary tale for people who might be tempted to think, “Well that happens in Argentina. It can't possibly happen wherever I am... in the US or the UK or Australia.” Not so, says Fede...

From the Transcript:

Federico Tessore

Well, in the case of Argentina, during the nineties, the local currency was backed to the dollar. So one Argentina peso represented one dollar. So there were a lot of people who deposited Argentinian pesos in the banks, and they thought those Argentinian pesos represented one dollar. So for example, they put 10,000 pesos in a savings account and they thought they were worth $10,000. And at the same time, there were a lot of people who were buying houses with borrowed dollars. So they bought a house here in Buenos Aires and they owed $100,000. Suddenly, the economy collapsed. Why? Because the deficit was huge and suddenly nobody wanted to lend to Argentina, as a country. In the past, we used to pay that fiscal deficit with debt from abroad, from the US and Europe. And suddenly the debtors from outside decided not to loan more money to Argentina. So they decided to destroy that pact, and “one peso, one dollar,” disappeared. And suddenly one peso was, I don't know, was three to one or four to one. And this happened overnight.

Joel Bowman

So depositors woke up one morning, they thought they had $10,000 equivalent, and then they discover that when they go to the ATM in the morning, if it's not a bank holiday, that although they still have 10,000 pesos, it's only worth $3,000 or $2,000?

Federico Tessore

Yes. And not only that, they couldn't take that money out of the bank because the problem was that Argentina didn't have dollars. The reserves went out, disappeared, from paying all these fiscal deficits that the government had. So you could only take out the equivalent of $200 per week. So it was totally messed up. Many people were crying. I was in the bank, in the branch and on the streets, and people were hysterical. The streets were full of police. One of the alerts that the people had before this happened was huge government fiscal deficits, huge money printing, many things...

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And last but not least…

Chris Mayer thumbed through his investing library and gave us his take on a recent book he read that dispels some of the myths surrounding M&A investing...

From the Transcript:

Chris Mayer: It's called Deals from Hell: M&A lessons that rise above the ashes, by Robert Bruner. This book was sent to me by a fellow money manager. And well, most of the book is case studies of M&A deals. I would recommend at least just reading the first three or four chapters, because what it really does is that it kills this myth that M&A, mergers and acquisitions, is a bad thing. There's a prevalent negative view among people, even professional investors, they don't like acquisitions. And their view is, when you do an acquisition, most of the time it destroys value for shareholders. And in this book, he goes through a lot of research and studies that have been done in M&A and he comes to the opposite conclusion, that M&A does pay.

And it's interesting why that is the case. So he says, an objective reading of more than 130 studies supports the conclusion that M&A pays. And one of the reasons why the conventional wisdom fails, as he says here, people generalized too readily from the findings of a single study. So there are some very high profile disasters, right, in mergers. And that's what gets all the attention versus all the little deals that get done along the way that worked out perfectly well. So the tendency is to exaggerate the failures and the key line here that I double starred, he says: "All M&A is local," which I really like. You really have to look at it on a case by case, deal by deal basis. And it took me a while to get over that hurdle, but now I've found some companies that are really great acquirers of other businesses, just systematically are able to add and plug in businesses to their growing little empire and do very, very, very well.

People now call them "serial acquirers" and they have done very, very well. There's a number of them in Sweden. There's a couple in the UK. In the U.S., there are several as well that just continued to acquire companies as their main avenue of growth. And they've been wonderful investments. So what makes those successful versus the failures? This book helps highlight that too. You've got greater propensity of failing if it's a very large deal, if it's very complicated, versus smaller deals, or if you're doing something that's in a business unrelated to yours. There are a number of things he goes through. But I think the value in this book is really busting that general myth and forcing you to think more nuanced about the topic of mergers and acquisitions.

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And that will do for another Sunday Session. We’ll be back next week with a regular, old-school, written word column. Meanwhile, please feel free to share any of the above content with friend and foe alike and to hit like and comment below. We don’t always get back to the old laptop after an unhurried Sunday lunch (probably a good thing)... but we do check in during the week and always read through your remarks.

Also, if you have anyone in mind you’d like us to invite on the Fatal Conceits podcast, let us know and we’ll see about getting them on for a chinwag. 

Right now, we’re off to Don Julio’s to enjoy a rare cut of Argentina’s finest, grass-fed ribeye. When we arrived down here over a decade ago, “Don’s” was still a local secret, the kind of neighborhood joint where you could sit for long enough that lunch sometimes rolled over into dinner. A “double Dons,” we used to call it in those days. Now, thanks to write ups in various “best eats” magazines, it’s almost impossible to get a reservation. Still, the quality of the cuts is terrific and the ambience recalls that of another, bygone era, where gentlemen wore hats and held the door for their ladies, so we cherish moments there when we can. Scarcity creates value and all that. Anyway...

Bill will return with your regular daily missives tomorrow. Whatever you’re up to this weekend, enjoy the time you have and the people with whom you share it. 

Until next week...

Cheers,

Joel Bowman