← Grant's Current Yield Podcast
Grant's Current Yield Podcast
MANIFESTATION OF EARNINGS
00:34:40
With special guest Bob Robotti, president and CIO of Robotti & Company Advisors.
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- [00:00]
A
Foreign. This is current yield, Grant's interest rate, observer of the air. And I, with a scratchy springtime pollen voice. I am Jim Grant, and with me, as always, is the great deputy editor of Grant 7, Lorenz and Henry French at the Engineers panel. And with us today is Bob Robati, who is President and CIO of the eponymous Roboti & Company. And Evan, I want to begin by observing that America is truly exceptional. And I, for example, in what other country could they put the bases apart 90ft and a ball hit deep into the hole short will, if the shortstop has got a good arm, just barely nip the runner at first base? How do they think of that? They did. That's America, baby.
- [01:00]
B
I think Mr. Market agrees with you. I mean, just looking back, since the start of 2023, the S&P 500 is up 41%, whereas the MSCI World Index EX USA is up 13% less. America's beating everybody else.
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A
Which country has Roaring Kitty?
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B
That would be us.
- [01:17]
A
Yeah. Well, I always say that America is indeed exceptional. And sometimes you have to wonder about the expressions of that, of that singularity. The Constitution, the Declaration of Penny. Yep, that's good. That's good. The aforementioned national pastime, excellent. But valuations?
- [01:37]
B
Oh, they're also top of the world too. The S and P on a cyclically adjusted price to earnings ratio that is divided by its inflation adjusted earnings over the last 10 years. It's a way of looking through the cycle because earnings go higher and booms and they go lower and bust. But this evens it out. It's almost 35 times, which is higher than any time in US history except for the dot com boom and BR during the everything bubble in 2021.
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A
So it could go higher.
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B
Oh, definitely, yeah.
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A
And that's concentrated, is it not in one particular sector. You might imagine that. You know already.
- [02:10]
B
Yeah. The other thing that makes America exceptional is artificial intelligence. So as I said, we needed that.
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A
Because the natural kind is failing us.
- [02:19]
B
Yeah, we lack the organic kind. No, but if you look at the S&P 500, so since the start of 2023, it's up 41%. But if you look at the S&P 500X tech, it's up 15%. So almost all outperformance over the last. What is it? We're in June right now. So last 18 months has really been driven by a small group of tech stocks. And nowhere, I mean, just to put this in context, like Nvidia, which is kind of the avatar of AI. It's responsible for 40% of the S&P 500's gains year to date. It's now the second largest stock in the S&P 500, surpassing Apple in terms of weighting in the index. Microsoft's number one. It's Microsoft, Nvidia, then Apple.
- [02:58]
A
All right, I heard of them. I've heard of all three of them. So, Bob Robot, you didn't get into this business yesterday. Have you seen the likes that Evelyn just described with respect to the concentration in a country, concentration in a sector, and concentration within that sector of a particular, very exciting new technology? Has that ever crossed your line of sight before?
- [03:22]
C
I got into investing in 1975, so who knows, if I had dialed back to 72, I might have seen something like that. Similar, a rhyme, but nothing like that. Nope.
- [03:32]
A
Well, certainly 1999 was a little bit like this, was it not?
- [03:36]
C
Well, I guess 1999 seemed to me it was even more so because there really were companies that never were companies that had valuations that were just astronomical. So therefore the speculative aspects to it were even worse than I would guess than kind of where they are. These are great companies. They have done wonderful things. You know, the economics is part of what's happened. So of course those worlds are also worlds in which interest rates were at higher rates and therefore risk free rates of returns were at higher rates. And so therefore the discounting factor, I think is very different than kind of where we are today and where the market's denying, where we should be today. Where the market is denying.
- [04:14]
A
Yes. Well, markets are said to be efficient institutions. Are they just as efficient as the people who operate in them?
- [04:22]
C
Well, that's what it is, you know, security analysis, Graham. It's all about the human emotion, because that's what it is. It's not statistical and it's not numbers. It's something imposed on that. And that's human emotions and fear and greed and all of those things. And so therefore that's a factor that clearly evaluation is relevant to that consideration. And those things are human and humans are flawed. And those flaws then work their way into the system. I do think it's cleared up.
- [04:49]
B
So what flaws predominate today?
- [04:51]
C
The biggest flaw we have, we think about is we think about financial Brigadoon is the phrase we have. So what happened post the financial crisis is the Fed in its attempt to do something and central governments failed in what they attempted to do. And what they attempted to do was to stimulate economic activity. And how did they do that? They made interest rates zero. And so the thought was it was a trickle down theory, right? Ronald Reagan's the modern use by making money cheap that will make money move into the economy, the economy will rebound and therefore it'll be strong. In fact Amanda was post that whole decade was a tepid economic environment that never caused, never resulted in what they wanted. Instead we had the unintended consequence of they suppressed rates and of course they caused huge inflation, financial inflation. And it lasted for as long as it did for a multitude of reasons. And people got used to thinking this is the new norm. So that's what we kind of think is instead what we think is the world in 22 already did a early stage adjustment to reality for a moment and people have forgotten that they put their genie back in the bottle. And I think that's more like the normal course of events. And so we say it's Brigadoon, right? The learner and low play where the two guys wandering across Scotland comes across this idyllic little town in the middle of Scotland and they say this is great. They come back the next day and it's not there because it only shows up one day every hundred years. And so the financial environment nirvana that existed for a long time has permeated investment capital flows and therefore that's what people have today. And people think we're going to go back down to really low inflation rates. And then if low inflation rates then be low interest rates and then cap rates at 35 times earnings are going to be reasonable because it wasn't so unreasonable when you had the 10 year treasury at one and a half that you'd pay 35 times. It kind of in that there was no margin of safety associated with that. But it kind of made some sense and people are thinking and hoping it's going back down to really low inflation, low interest rates and therefore high cap rates.
- [06:50]
A
Well, do you have an opinion on inflation?
- [06:53]
C
So we invest in cyclical commodity businesses and we think those things are raw materials and raw materials are always in scarce supply. Different levels of scarcity exist. And so the way our version of industrials energy and those things we see persistent inflationary pressures from a multitude of reasons that lead us to believe at least in the physical world now maybe AI so wonderful there's all kinds of improvements in efficiencies and productivity that maybe that offsets it. But in the physical world we're in tight supply of many different things that will be an increasing demand in the next decade and therefore persistent higher prices at increasing cost to develop these things. And so we think that there are definitely huge inflationary pressures.
- [07:42]
A
There are instances of flyaway markets seemingly overvalued, objectively so, but relatively speaking, maybe not so much regard to interest rates. 2000, for example, was a time of, of early 2000 type of euphoria. Within that euphoric environment, there were securities that were relatively attractively priced. In fact, some of them were absolutely commandingly priced. Do you see anything that notwithstanding the headline evidence of overdoing it, do you see things to do by.
- [08:23]
C
Yes, that is to say. Yeah, well, if anything, I think that it's even more so today, true of what it was then. And we know it was true then because that's what happened in 2021, 22, 23, 24. I mean, sorry, in 01 and 01, 02, 03, 04, those are years in which we compounded at 22%. So clearly stocks were extremely cheap that we owned in 99 and performed extremely well because the economics really turned and the economic environment for those companies substantially improved. The earnings improved and then capital follows earnings. And so the manifestation of the earnings of those businesses enabled us to clearly have identified companies that had latent earnings that were undervalued by the market and then appreciated when they were fully manifested over that period of time. And we think that's so true today for many different reasons, because we also think there's huge structural changes that are going to give a long Runway of opportunity to not just a cyclical recovery in a lot of businesses, but secular growth because of structural changes and increasing demand for things that are in tight supply.
- [09:26]
A
About it, for instance.
- [09:29]
C
Well, I think that a clear one is copper. The world is in the process of, you know, renewable energy is clearly something that's here. It will continue to gain share, it will continue to be implemented. To do that though, there's a huge physical demand on things like steel, cement, copper, because you're going to electrify everything. You need to build out the infrastructure that we've had that we've neglected for decades. And so therefore, not only do you need to bring it up to where it is, you need to expand it, you need to, to do all of those things. And the identifiable need for copper in 10 years time is going to be substantially more than what it is today. In the meantime, very few people are doing anything about that because the economics aren't there to take a 5, 10 year project. And those projects have gotten more complicated, more difficult, more environmentally sensitive because the world is concerned about the environment. And that's just not CO2. So when you develop a copper mine. So last September I had the good fortune of spending a week in Chile and the first three days were with Finning, the largest caterpillar dealer in the world. And we went through all the copper mines in Antofagasta and the rest of Chile. They talked about, for example, in order to run this project, you can no longer use groundwater, you have to desalinate the water. That's 10 times the cost of groundwater. And of course you're going to do that because we, Chile, are concerned with our environment. You just can't come here and just take our water and do these things. And that's a very water intensive process. And the process that also means the energy intensity of that mining activity is going to be 33% higher than where it was. So it requires more energy, it requires more materials. You have to be more judicious with the materials and governments. For example, Chile is looking at things like lithium and saying, oh yeah, we have the lithium deposits and you want those, how you will develop them? And the economic share we will have in that is substantial. Because we want to move economic activity here so you just don't come in and plunder, pillage, take it away and pay us a little bit of money. You're going to do more here, you're going to build it out here, you're going to build out the refining locally and you're going to include us in that process and we're going to have an economic rent that we're going to charge on that. And we're going to make sure you do environmentally sensitive things, which is going to cost more money and take more time. So these projects, even when they start to happen, will be much more expensive. The delay between the increasing demand and the ability to supply it is going to be delayed. The world's supply chains are so here, I'm in Chile and they mine the copper and you end up at 20, 30% copper concentrate and then you have to ship it someplace else to refine it. And the way you refine it is probably in China. And so China then refines it and converts it into 99% copper, which then sells it to someone else who then puts the copper in the product they're making the wire, the pots, whatever.
- [12:10]
A
So you're bullish on copper, are you?
- [12:12]
C
I think that I can't see how copper over the next decade, is it a great opportunity?
- [12:19]
A
Let me ask you this. So when commodity traders sometimes say if it's obvious, it's obviously wrong, right? That's a byword among the speculative crowd in commodities. So what's the argument against and what part of that argument, if any part, gives you pause?
- [12:38]
C
No, that's a difference in timeframe. A commodity trader is looking at three months, six months, where's it going to be? And in three months, six months, nine months. So energy, oil and gas is the commodity that I am most familiar with and have most experience with. And the thing I will say about it, having been in it for almost 50 years, is I have no idea where the price of oil or gas will be in six months time. Other than then, if there's uniformity of thought on what's going to happen to it, it'll be wrong. So the only thing I know is when there's consensus, it'll be wrong. But I don't really have visibility on that. But These projects are 5, 10 year projects. To commit to a 5 or 10 year project is a very different economic equation. And therefore the timeline is where it is. And that's where I think we've made money over time is in doing things that today there's no visible ability to convert that into earnings. But the demand for that over time is inextricable.
- [13:34]
A
Time is the word isn't. That's a key word because not every investor has earned the patience of his limited partners. Have you?
- [13:47]
C
I think I have.
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A
You run a limited partnership?
- [13:50]
C
We have a limited partnership that we started in 1980 when I worked for Gabelli on the side. He let me do that.
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A
A side hustle.
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C
It was a side hustle. Yes, it was, yes.
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B
In terms of a possible bear case, the bulk case for copper, as you laid out, is not only is green technology remarkably resource intensive, but as we green, it becomes more resource intensive to extract out in energy. After oil crashed from over 100 bucks in 2014 to $26 in 2016 down to negative $37 in. Was it 2021? We massively underinvested in oil in extracting energy from the ground. So we've underinvested in extracting and it's getting more expensive to extract in many things. But at the same time, the bear case I've heard from some people is China is either the absolute largest consumer of most commodities or the largest incremental consumer of commodities. And China's business model of fixed asset investment, fueled by heavy dollops of debt to build large apartment buildings in cities that are now vacant, is kind of hitting a wall. Is China kind of a fly in the ointment and how things might go wrong or is that just there's always going to be some problem in the.
- [14:57]
C
There'S uncertainty that China creates in the short term. So first off, a major topic of conversation for the last year and a half is going to be, do you want to invest in equity markets? Because are we going to have a recession? Soft landing recession, not. And so investing in commodities, I would suggest people, you are looking at the wrong thing. The recession that matters is not America because our intensivity is not that great. It's China because China is 50% of everything in the world. And China's been in a recession for two years. And so we may focus on EVs and solar panels because they're higher profile, but the fact of the matter is steel, chemicals, many different things. They are, that's the Chinese model is we're in a recession, we'll overproduce, we'll produce at full capacity and we'll just dump the stuff around the world wherever we can because we don't really care because we're not economically profit motivated. And therefore that would mean we'll have economic positive results. So they are, they have exported their recession by having nominal numbers that are growth by dumping things around the world. And you know, the, and in my view, the way we see it from the companies we're invested in, right. The main guy who's gotten it on the chin has been Europe. Europe's been asleep at the switch and just letting these things happen come in and killing the economy in Europe because we see the American companies that have European operations, it's the European operations that really are the weak point in the current earnings and that's caused by an overproduction. And you see that the best commodity example in my mind is steel, right? So last year they ramped up steel production which depressed the price of steel. At the same time, they need to import the critical raw materials because they don't have enough when they produce a full capacity. So they got to import all the key variables. Iron ore met coal and energy. And so therefore your iron ore prices went up 30% and your steel prices fell 30%. So that's not an economic motivation that you would overproduce, depress the price and pay more money for your inputs. So therefore that's an example of something. Another one that. So Westlake is a company and Olin are two companies that we think are really interesting, the chloralkali business here in North America. There are three producers of chloralkalide in North America. It's an oligopoly. Those people are Cost advantaged because there's two things you need, salt and electricity. And those are really low cost here in North America. So the lowest cost producers are North American based companies. But they also make epoxy as a byproduct of that process. And epoxy is a clearly more important chemical that is, you know, very significant also when it comes to like new energy and renewables and all of these issues. Epoxy has been dumped all over the United States and the prices have gone from been one in which they've had good returns, in which they can't make any money today. And that's being depressed by overproduction in China. So China is overproducing many different things and therefore already having a depressing effect on economic activity around the world while they try to do something about. Now that's not the new norm for China in my mind, you know. Yes, they're adjusting. And so the way I figure China, China is more like America was 50 years ago. We were competitively disadvantaged then for 40 years or 50 years lost all these businesses to China because they were much more competitive than we were. The fact of the matter is our economy did not implode in the process. It matured, it did something different. The Chinese economy will change and do something different. In the meantime, what China did do is going to migrate to other places. So that's one of our, one of our core ideas. And a secular change that's gone the way is we think it's not deglobalization because the world is flat, but there's a new guy who's competitively advantaged. And it's the evolution of globalization is really what's happening. And therefore things are moving out of China because they are not competitively advantaged or you want to diversify your supply chain. And so therefore where are they moving? They're moving to India and they're moving to Southeast Asia. So you get 2 billion people who are starting the progression up the economic ladder. And when that happens they become very material and energy intensive. And so therefore the process that, you know, that's what you happened post the war, you get this migration. Japan first and then Korea and then China for a long period of time was the low cost place that really did do things and grew out its economy. And of course in the process energy consumption went through the roof and then of course pollution went through the roof. Right. So they passed us a decade ago and they now flapped us and so therefore they produce more CO2 substantially than we do. And so that Process is in the process of migrating. And so the migration of globalization, I think, puts a toll on energy demand, material demand, all of these things.
- [19:33]
B
Can I ask you an energy and inflation question?
- [19:35]
C
Yeah.
- [19:36]
B
So in the US energy prices are very cheap, largely because nat gas is very cheap, largely because it's a byproduct of oil production in the Permian and because the Marcellus is just so marvelously productive. I've talked to some energy investors and they believe that a lot of the energy companies have been high grading their acres and extracting from the best wells and that these basins are going to reach kind of maturity and that going forward it's going to be more expensive to extract and it's going to be less abundant. Do you see natural gas as kind of increasing in price because of this or are those worries just. I've heard them for now, five years running. And nat gas is still cheap.
- [20:13]
C
Yeah. And not, I do think in globalization, that process, in the evolution of globalization, that means the next decade or two are really positive for North America because I fully believe that the overabundance of natural gas in North America is not just in the Marcellus, it's in a whole bunch of other places. And so therefore, the ability to produce more than we can consume here, including what we could export, is, I see for the foreseeable future an energy differential price. Energy intensive businesses in North America are competitively advantaged against the rest of the developed world.
- [20:50]
B
So you don't buy, you don't buy into the argument that there's been too much high grading in like the Permian and that we're going to have higher natural, the.
- [20:55]
C
The natural gas. No. So oil, there's probably some high grading, there's probably some limits in terms of what we can do in terms of oil production, natural gas production and capability. I think we can produce twice as much natural gas in North America is what we do today. And we can do that for an extended amount of time because it's not just the Marcellus and it's not just the Haynesville. It's not just these places that people have identified because even when you talk to the Marcellus, there's multiple benches down below that that also hold multiple amounts of gas. And then of course, if you go to Canada. And so we think that actually Canadian oil and gas is extremely compelling and interesting today because it's gone from being a backwater to a place that is really long in resource, that is in the process of connecting to the rest of the world and not stuck selling at the reduced price to North America, the United States, the only place you can sell. Instead you have an oil pipeline with more oil going to Asia and you have a gas pipeline that connects natural gas out of Canada to Asia. And that's the shortest transit you actually have. So therefore the idea that Canada connects to the world market and therefore the opportunity for uplift in activity, volume production and pricing are really substantial. And it's also an industry in which the valuations today are extremely compellingly modest and the balance sheet is extremely strong. And the inventory of drilling in Canada, you go to a Canadian company, it's not 10 year drilling inventory, it's 20 years, 30 years, and it's really probably 40 or 50. But when it's 30 years, you don't waste the time thinking about the 40th, the 50th year. So there's a huge amount of resource in North America in natural gas that I think means we're disassociated from energy prices around the world for at least the next 10 years and probably much longer than that. And that's why you see right in reshoring or whatever that phrase is, it's really not reshoring. It's people from around the world, including Europe, more than any place else, realizing for a multitude of reasons, lack of availability of resource as well as decarbonization means de industrialization. And so part of that process is the movement of industrial activity out of Europe to the United States because you have that long term low cost competitive advantage. And so therefore building out that infrastructure which then builds out the consumption. But it's okay because you can backfill it with an for a very long period of time, incremental production far below the cost of what it is in the developed world. Of course, Middle east has the same kind of cost structure, but it's not a developed market they list and exist.
- [23:24]
A
In for 10 years, more or less. The Fed suppressed interest rates at one point to zero for many points. And it seems to me that the inevitable consequence of that string of years is a pretty dramatic misallocation of capital. People who believe that these rates. Okay, so part of that misallocation is now manifesting itself in the commercial real estate market, therefore not so indirectly in the world of banking. Do you see any macroeconomic caliber risks emanating from that state of affairs?
- [24:02]
C
I think there are some. I'm actually surprised at how blind to the risk that a number of institutions are. So in was it 22, 23 when Silicon Valley bank went out that weekend? And I'M in Singapore and I'm on a couple of not for profit boards. And one of them, we had a good chance to be able to borrow money at a really low rate from First Republic. So we have our checking accounts at First Republic. So we have emergency telephone calls. Like, what do we do? We have our money at First Republic.
- [24:34]
A
Because wait, you owe them, right?
- [24:38]
C
Deposit. They owe me. We paid off our mortgage that we had gotten from them. So in that process, one of the things they said was, oh, well, it's okay, we have an account at Schwab. It over to Schwab. And so I shockingly looked at Schwab's financials over the weekend and said, oh my God, like Schwab is a long bond levered long bond fund in this great business. Like, why would they do that? How could they possibly have done that? And of course that's what happened, right? In 22, they lost half their state capital. They lost $20 billion after tax provision. And of course there's no way they're going to sell the bonds and take that 6 or $7 billion tax loss. So therefore they lost 27 billion on a $40 billion capital base. How do, how do you do that at an institution like that for whatever incremental return, like before you get into banking 101, they, they, they make sure that, you know, you don't borrow short and lend long. You don't do that. And yet that's, and not only have they, did they do that expose capital, they continue to be in large part exposed on really long dated bonds that are levered to the equity of the business. Why would you do that? Because everyone else, so, so there are, there are institutions like that that, no, I know the nature of their businesses. The cash flows, the earnings over that period of time, you know, they go from four and a half billion to nine billion in those couple of years. So the earnings are expanding. So they'll be able to fill the holes they're making in the balance sheet. But the idea that you would create those kinds of holes at an institution like that, that, you know, that's, that is confusing.
- [26:07]
A
But where is the boom? Where is the crisis that you would expect would be a necessarily necessary byproduct of all this, this judgment?
- [26:17]
C
I, I, I don't know. But, but, but I think, I think the, the banking situation is a perfect. So, so for. You said two things though. One things you said was that commercial real estate is problematic. So I'd go larger than that. I think all real estate's problematic all real estate is a is, it's an income stream and there's cap rates and it is discounting and therefore what's your risk free rate of return. And so the idea that I think inflation is maybe going to be more persistent, it ends up being 4 or 5% in my mind the 10 year treasury is still not at the right rate. And the reason 10 year treasury is not at the right rate, 3 month treasury is at the right rate because there's price discovery. There's no price discovery in the 10 year. Really people don't buy and sell 10 years. And the presumption is the hope is that inflation's coming back down to 2.5% and if it does come down to 2.5% then I have a trade in the long bond, it'll go down to 3.5% and so therefore I'll make money so to speculate in long bonds. And the people who are speculating are that's the ballast in their portfolio. This is the safety piece of it. No, you're not doing something safe. You're speculating that this is going to happen or there will be a recession and therefore bonds will trade up. But that's really not predicated on, I think where the cost of money is and where inflation is and real estate is all that cap rates and real estate price discovery moves slowly. Real estate doesn't turn over like equity markets the next day. You know that you get a reaction of 150% of what you should be. They overreact, but here they don't react and they hold on and they can down the road and defer that. So all real estate in my mind is at risk of being worth less money. Certain real estate assets have real issues because they are assets that potentially don't have a productive economic identifiable use for an extended amount of time or maybe ever in their current form. So therefore it accentuates that all of this is to say the next 10 years is all going to be stock picking. There are financial institutions, banks that I think are great investments today because interest rates are higher, they can charge spreads, they are making money and if their asset allocation is proper, they're in a position to reap really good returns on capital basis that are really strong and probably overstated. If your asset base doesn't cause this big hole to happen. If you pick the right bank, I think you'll do really well if you pick the right Magnificent seven, Is it magnificent six? Is it magnificent five?
- [28:40]
B
It used to be Mag seven but now Tesla's Been falling. So I think it's mag six so all.
- [28:44]
C
And of course, fundamentally those companies are all different businesses, so they're not the homogeneity that you normally get. So when 70s oil stocks all did well, well, if oil went down, they all did poorly. And here in this business there are different drivers of each of those businesses and the future of those businesses. And some of them will end up being kind of like nifty 50. You know, you'll make good money in them, but some of them have all kinds of risks to them. And I don't know which ones those are. And that's not what I'm going to spend my time. But you got to pick the right ones. Picking the right ones will be the differentiator between returns in equity markets over the next day versus you own them all.
- [29:23]
B
Your focus is not on banks per se, even though you're very knowledgeable on it, but you focus on cyclical companies. And you laid out at the beginning of this conversation how a number of cyclical sectors have secular tailwinds. What are you most excited about today?
- [29:35]
C
Energy intensive businesses in North America. The businesses will continue to grow. But I also am looking for things that. So I'm not looking to do, I'm not looking to do a cyclical trade. Right. I'm looking for businesses that are in cyclical businesses that are going through difficult times, that do something different, that have an industry structure that's substantially changed. And so one of the things we talk about was in 22 people talked about the revenge of the old economy. That phrase has kind of gone away. We talk about the metamorphosis of the old economy. So that chloralkalide business that Olin and Westlake and Oxy are in, we think that business is one in which the demands over time will be strong. The competitive advantage of North American companies is great.
- [30:16]
B
And the competitive advantage is that to make chlor alkali, it's incredibly energy intensive.
- [30:20]
C
And we're just cheaper energy intensive and salt intensive. So those are two assets that are really long in North America. So the energy intensive part of it is the real differentiator though. Yes. So that advantage is one in which now you have an industry that really is, is an oligopoly and therefore in a normal economic environment has very strong situation and can export because we have the lowest cost production around the world. So that's a very different industry, I think, than what it has been. And people think about chloralkalide is like, oh, I wouldn't want to invest in that business. And Olin's a terrible company. And presumptions because historical patterns. People have ideas about what that industry is and have they changed? Because are the underlying economics different than they've been? And has the industry structure something different today than what it was?
- [31:05]
A
Did you know, ladies and gentlemen, that Bob Roboti is going to be a speaker at the Grants Conference this fall? It's true, Evan.
- [31:11]
B
It's news to me.
- [31:12]
C
Yeah, well, it's frightening to me because I see. I see a number of your other speakers there and I am like, oh, my goodness, I can't be in the same room as them, let alone actually talking.
- [31:23]
A
Yeah, well, I heard the same thing from those guys.
- [31:26]
C
I don't think so.
- [31:27]
A
It's going to be a. It's gonna be a great event. October 1st, is it? I think.
- [31:30]
B
I think so. The Plaza Hotel.
- [31:32]
A
Correct. All right. So, Bob, thank you for coming.
- [31:35]
C
I have one quote I want to. Before we do. So Bernard Baruch is the guy who I identified. Data and information are no substitute for thinking. The world is in the process of fundamentally changing the underlying economics that we've gotten used to. And think, think are the new norm, and they're not. And therefore it's. Data is a limited and potentially negative value because you're looking at trends in a period of time when the fundamentals are different. So data and information are going to mislead you. You have to have a fresh mind, think about things. What has changed? Who's the new beneficiary and who was the beneficiary and thinking about how to reallocate capital.
- [32:14]
A
So you're not data driven?
- [32:15]
C
I. We are not data driven.
- [32:16]
A
You know who's data driven? Who? The Federal Reserve System.
- [32:20]
C
Well, the. The Fed. I always laugh about, you know, that you. Again, you can't, you know, get away with hearing how many moves of the Fed interest rates up and down. The Fed. The Fed is the tail of the dog. Right. The dog is inflation. So where it goes, the tail goes. So therefore it is data driven because I don't know where the dog's going to go. So I don't know how to move my tail because I don't know where the dog is. And the Fed can't control the dog, and the dog is going to determine. And so therefore people are looking at data points that are responsive to things that you can't predict the future of. And they're making huge mistakes.
- [32:57]
B
In mid-2021, there's, I think it was Mary Daly, who's one of the Fed presidents. She this is in the context of inflation picking up and going to surge up to like almost 10%. She said the Fed is not thinking about talking about raising rates. And then of course they did.
- [33:13]
C
Right. Well, the Fed responds to the world the hand it's dealt and the hand it's dealt. Inflation is definitely one of those key things and it cannot control that, can't contribute to it.
- [33:25]
A
Though I think people have come to believe, because the Fed itself had come to believe, that the Fed is in charge of events, whereas we at Grant's Interest Rate observer propose that events increasingly will be in charge of the Fed.
- [33:38]
C
That's right, yeah. Right.
- [33:39]
A
Agreed.
- [33:40]
C
Absolutely.
- [33:40]
A
All right. That's what I'd like to hear from my speakers at the conference. Bob Roboti, it's been a pleasure to have you here. I'll see you October 1st at the Plaza.
- [33:47]
C
Look forward to it. Thanks so much. All right, thank you.
- [33:50]
A
Talk soon.
- [33:50]
C
Bye bye.
- [33:51]
A
Well, if you want to hear more from Bob Roboti, which you should certainly do, join us at the upcoming Fall Grants conference. That's Tuesday, October 1st, at the Plaza. And now is the time to act. Register by June 28th. We'll get the early bird pricing which entails a discount of 5%. That's in person and webinar and you can find the details the pricing at the our website grantspub.com as in grantspublication.com and see if possible ram.