Welcome to Maren Talk's Money the After Show. This is where we unpack all the commentary here in our regular podcast. I'm Maren Sunset Web. This week, John Steppeck, senior reporter at Bloomberg and offered the daily Money to Silve newsletter, which if you haven't subscribed to you by now, you must subscribe to. Joins me to discuss my conversation with Barry Norris, founder, CEO and CIO of Argonaut. John, what did you think?
I thought it was great, Well.
That'll do silence now.
John thought it was great. World done the nice thing. But buddy is he is very street and obviously that's one thing that people in his bottled the can of edge find long short world, do you tend to be a bit more four to R eight and the spoken than your average point manager. But it's just good to hear someone taking in and trying to make some sense of particularly the whole kind of like renewable sector and basically stating the common sense reality, but then backing it up with numbers as well.
One of those sectors, isn't it where there's an awful lot of hope over reality and that we would all absolutely love it who would not love it if when was the answer to everything, and if wind energy was cheap and it could answer all our prayers and get us through the energy transition with no problem. Because so many people want that, they find it quite hard to accept that it might not actually be true.
Yeah, there's also an idea obviously political side to it as well, which makes it hard to have a reasonable conversation about it because you're deemed to be talking something down if you point out issues about it.
I going to say, you're immediately treated as though you know, you don't want to energy transition, or as there in the pocket of big oil if you criticize big wind.
Yeah, exactly what Barry was saying about wind energy is proven like even as we speak to be absolutely correct, because you know, for example, like he was talking about Orsted and obviously it's had some issues. But also I was reading a piece on the Bloomberg Terminal about how Semen's Energy has basically had to get a big credit line that's partly backstopped by the German government in order
to fund fixing it's win turbinds. And it's because it's found that there's basically lots of potential flaws or actual flaws with wind turbines, they need to be sorted out, and that would have, you know, basically just cost an intermountable amount of money for the company to do if it wasn't being subsidized by the government. And people will talk about subsidies for fossil fuels and all the rest
of it. But I think Barrie's getting to the point that we're substituting a kind of superior for the energy for an inferior form. At least that's what we're trying to do, and that is going to go badly.
The problem we've got at the moment if we've got an energy transition where all the products are inferior, so evs are inforior to eternal combustion. I know someone will tell me they like driving their electric car for five miles a day, but evs or are inferior products. Heat
pumps are inferior products. Wind is an inferior product. So in order to get people to use inferior products, you require governments to get involved through subsidies, through banning all the other more useful products, and you require zero interest rates in order for all of these projects to be stacked up with zero cost debt in order for equity of vesters to make a return.
And I also think that what it's amazing that this isn't talk apit very much. But we keep going on a bit of difference between the America and the ist of the world in terms of economic performance, and hardly anyone or no one ever leads on the fact that less than twenty years ago America basically discovered that it was sitting there in Saudi Arabia. You know, they had like tons of oil and gas that they previously couldn't
access that they were suddenly able to access. And we can of all throw our hands up and say, oh, I wonder what America's got going for it? Is it because they're more capitalists?
Well?
Probably? Is it because they dealt with their banks better after two thousand and eight? Yes? Is it anything to do with the fact that they're sitting on an absolutely massive pile of fossil fuels that are not afraid to use? Oh no, surely not. That can't be any to do with it. This is not a topic of conversation that anyone discusses in adult terms anymore.
It's interesting, isn't it? Because There's one thing we know that history tells us is that all great, all great leaps forward are made in times of plentiful, cheap dense energy. And if we purposefully move away from that cheap dnse energy, which we may have to do, do have to do, things change. And we can't deny that making energy expensive makes a difference to the way that.
We grow up exactly. But I mean, to be fair, the other things we do also have an alternative and is nuclear power. And obviously investors have cott and doointed that. And we're having one of the sickly coal excitement moments for danium. I think the Camico is finally back at whatever price it was whenever in twenty eleven when the Fukushima disaster put paid to the last kind of like nuclear excitability face. But again that's because that's kind of not in the same realm as the kind of inverted
commas green stuff. Nobody talks about that seriously either, So we really are kind of shooting ourselves in the foot over a extra and magical thinking in politics and semantics is really a big mistake.
So one of the interesting things about everything that Barry said podcast that we did with them is that only a couple of days later, we're seeing evidence all over the place, not just the Semens thing, but elsewhere that
he's absolutely right. So as we talked in our introduction briefly about this business of the government changing the maximum price that can offer in CFD contracts, which is a direct result of there being no bids for the projects at the last government auction, which was a bit of a blow for the UK, and they're renewable power strategy, so obviously they've had to have a change, and the government has pushed this through saying that this is about
a global rise in inflation impacting supply change and that presented challenges for projects, etc. But various point of course is it's about a lot more than just inflation impacting supply chains. It's about the fact that, as he says, this is simply not an economic sector. And if you look at the things that he said, and then you look at the way that governments are responding, it's beginning to feel like he's the one who's right.
Yeah, I mean I think so, I feel you can. I think the key thing here was Barrie's point that actually, even if we you know, build an awful lot more wind energy, we don't really have the ability to use it because it's only turning up for work because he puts it at certain points, and then you still need
all the backup stuff to back it up. So if we are going to end up having to invest a lot more startup capital basically in getting these things built, then I don't really see why we aren't spending it on nuclear reactors, which have got similar planning issues, you know, because one thing that lots of people are complaining about is that the boomer generation doesn't want to you know, have to have the cables necessary to link wind farms
up to national grid. Well, you know, if we just built you know, that a number of nuclear reactors, which again you know people hate them as well, and go through all the planning pain and getting them done, then we'd have a reliable source of electricity and you know, they kind of back up the back load electricity that we need that's reliable and that you can sweatch on
at any point and get it. So it just seems that there's a lot of capital being misallocated to this sector, which is partly because in the zero interestry era, you know, this all caught on and the capital misallocation didn't wasn't as visible, and now it's becoming incredibly visible.
So one of the most interesting parts of the conversation was about the extent to which even if wind was great,
we would need any more wind energy. So one of the things that Barrier's done is looked at these many discrete periods in which wind has been blowing in the UK and winds not bling blowing in the UK, and what happens, and what he sees is that when the wind is blowing in the UK, we already have very cheap power, very very cheap power, And when the wind is blowing properly, the price of energy in the UK
goes to zero and below. So when things are going well for wind, you actually have a glut of power in the UK for which we have no demand because we can't store it and we can't export it, so it just goes to zero and that's that. So if that is already happening when the wind is blowing, then why would you put out more wind? And I said to him, will I guess maybe the wind blows in different places at different times, and that's not really how
it works. When there's winds wind when there is a wind, there isn't wind, so you can't put out more wind farms. It does not work like that, And I thought that was a very interesting way of looking at We've already got a glut of cheap power when the wind is blowing that we can't store and we can't export it, So why would we build more?
Genuinely? Slightly aid point? And I guess the only way that I can think about it is that in some ways it's a zero interest rate phenomenon, like a lot of other ideas where and obviously it's a very politicized one and therefore the mess allocation of capital, it's kind of done by the government, and so you don't you don't as rapidly get to the point where someone runs out of money, basically, and I think that's basically that
is the best explanation for it. Beyond that, it doesn't make any sense.
We talked a little bit about batteries, because you know, he hears so much about the different types of batteries that are under development, and how that thing that talks about in terms of, you know, let's not put up any more wind farms because we can't store it, et cetera. What if we can store it, What if we can
surely that's the answer. So, you know, Barry and I talked a bit about how we can do that, and what he said was, you know, please, please don't tell me that there's a battery that's just been invented and it's going to start storing loads of have or cheaply for a long period of time, because in the debate, he says, has become very ideological and as far as he can see, well, everybody wants that battery to exist. We want that battery to exist so badly, but it
just it just doesn't. It just doesn't. And until it does, then this is all all about pointless. And he said, you know that the fact that everyone wants this so much, and that the stocks or the companies that are involved in all these things are constantly recapitalized because people want it so badly. That's why so many ESG stocks and particularly renewable energy stocks. Barry says, they're just the gift
that keep on giving because they don't go bankrupt. But you know, they go to the edge of bankruptcy, which is great, great for the shorts, and then they get recapitalized. Here you're going to do it again and again and again, writs issue after right sifty have to rights issue, and he said, it's just this is a conversation we had
not on the podcast. He says, you know, that's just a beautiful thing for a short seller, and of course it's not the kind of thing that people want to hear, but it's been working for Barry whos before once has been spectacular. That one other thing I wanted to say about all the things that we've talked about is a lot of what Barrier says is very controversial, and as I say, it's things that people don't want to be true.
So I would encourage everybody to go to the Argonaut website website and look at the work the Barrier has done on this and look at his data and take it from there. He's written a good piece called Britain is a Gonner with the Wind, which is, oh, you know,
quite clever, and in that is all the data. So you know, if you if you listen to podcasts and feel furious, which I'm sure lots of people will, then it's important that you then go and look at the data and see the modeling Barriers done, and you can try and pit holes in his data rather than disagree on an ideological path.
That fair, that's really sensible, and obviously send in your quibbles to John.
One thing we just say is that Barrier's portfolio is very much much position for inflation. He's expecting a high for longer, long term inflation re environment. Excuse me, Oh, that's what I gathered from what we talked about it. And he's a believer as we are, in the idea that we're at a turning point in the macro and investing regimes.
We're buying it. But now the last couple of years we find that as a result of all of this money printing, which yes did get into the real economy because the liability of those assets that the central backs are buying ended up in terms of expanding bank deposits. That resulted in significant inflation. That means that interest rates have gone up. And I think what we're seeing and.
We are going to see higher rates and inflation going forward, particularly because of the very high levels of dat across the Western world. So if we suddenly find we're moving into a disinflation or deflationary environment, then that may have some impact on some of the stock seaholds.
Yeah, I think that belief and our belief is going to be tested over the next you know, maybe six months, maybe a year, and I you know, I personally I think higher for longer and more inflationary than not. But it's not It's not my strongest conviction I've ever had by a long way. You know. I appreciate the argument that on the one hand, governments are massively indebted, which
points they are more kind of inflationary environment overall. At the same time, the monetarists have been right about Everton, and you know, they're pointing to you know, kind of like deflation coming up. So I just it's I think it's what's being flexible about it.
I suppose the inflationary case is that the second wave hit, any type of deflation or recession in our age of big government, governments won't be able to hold the line and there'll be more printing almost immediately. I think that that's the sort of real case for higher for longer, isn't it. From a matter first point of view.
I think that's a good argument, and I think it's a reasonable argument, But it kind of boils down to what the political environment is like at the time, and you know, like obviously with Paul Volker, he was able to tackle inflation because by then it really was public enemy number one and everyone was you know, I mean, nobody was happy about it. But at the end of the day, if you had to create the economy to get rid of inflation, then it was seen as politically acceptable.
I suspect that you're writ I think that we'd have to go through another cycle of inflation being even worse before we got to that point, because one of the things for central banks this time around is that this is the okay bit. It's like we've got we've still got full employment, Inflation is uncomfortably high, but coming down.
Central banks have kind of been seen to do something, but it hasn't actually really hurt anyone except for you know, some people with mortgages and at the moment, frankly, you know, the addage does that they can afford it. So yeah, so I think we could we all get to a point where we see recessionally data coming in, the central
bank's cut too fire, Stevelson starts taking off again. You know, that's certainly that's certainly possible, and it is I guess can a central case, but it's just not I wouldn't want to bet that. How sot to put it?
Are we we're wearing away from talking about Barry. The after Show is supposed to be about Barry.
Yeah, sorry Bardy, Sorry Barry.
Thanks for listening to this week's Maren Talks Money the after Show. This episode was hosted by Me Maren Sunset Web alongside John Steppe. Could I think I stopped in the nack of time? It was produced by some Sardi additional editing by Blake Maples. Finally, a few of the things that John and I have talked about you can look at and weep yourself if you go to the show notes, we'll have put in a couple of links.