This podcast is brought to you by Absa, a member of Barclays. David McWilliams is with Biznews’ Alec Hogg at the Absa Investment Conference. David I see that you weren’t on the program a couple of weeks ago. Did you get a late call?
No, I got a late call. I was like the man with the tracksuit on. I had the tracksuit on, the zip up and down, on the sideline, waiting to go and one of the main players got injured, so I took my place in the centre.
It was awesome. It was a fantastic presentation.
Thank you.
Very fresh and very different, you’re a man of the current times – Twitter followers.
Yeah, well I think that social media has really revolutionalised what we do (you and I), which is communications of ideas. Maybe, in a way sort of putting certain things out there that might not always be able to get out there. There’s an enormous amount of, unbelievable, propaganda in economics, and economics just deploys too, I always think, narrow down arguments.
For example, it’s like invoking the Bible in the old days. If you invoked the Bible 100 years ago in South Africa, or in Ireland, you shut down the opposition. Now economists are like, sort of priests or pastors, from the old days. If you evoke economics you can shut down oppositional ideas and I believe it’s our role (people like you and me) to ventilate ideas that are not necessarily mainstream.
And you are you certainly are doing that. Is this a little bit like the undercover economist, a little bit like Freakonomics?
Well, we’ve come up with this thing on YouTube, called Punk Economics, which is a series of cartoons, to try and explain to people how the world works, via cartoons, and it’s interesting because peoples’ heads – you wonder why, as kids, are we obsessed by cartoons? What is it in animation that sparks something in our heads, and the interesting thing is you don’t lose that, as you get older – as you get older, you still find cartoons interesting. In a way, I suppose it’s trying to offer an alternative and it seems to be something that people demand.
This country has a high level of ignorance about economics, you can see it in the economic policies of the country and the friends that we have around the world, and how do you tackle that?
Well, I think I wouldn’t be so harsh on South Africa. I think you’re dealing with… This is an abnormal country. I think you have gone through, in a generation, what most countries couldn’t dream of going through in five generations. You’ve done it peacefully. You’ve done it by keeping the economy growing. You haven’t made any massive mistakes, in terms of what could have happened, so I think that the entree of politicians from or a policy maker from South Africa, is a lot more complicated than the entree of a politician or a policy maker from Britain or Ireland, or even the European Union.
You have a massively growing population, with very high expectations about what can be delivered and that’s the sort of irresistible force, and you have this unbelievably immutable object called the global economy, which narrows your options. They smash into each other all the time here, and I think that if I were a South African, I’d be quite proud of what you’ve achieved actually.
We’re hard on ourselves. We like to be better, although there are some of us who aren’t too excited about some of our friends, like the guy who’s fighting in the Ukraine at the moment. You did mention a little bit about Mr Putin.
Yes, who’s on your side, the Ukrainian side?
Unfortunately, we’re on the Putin side, or our President, rather, is on the Putin side.
Well, I wouldn’t be – you know, all politics is local, as I think it was Teddy Kennedy, who once said, and local politics in Russia are the politics of nationalism, and don’t forget that the European Union and the United States financed a coup d’état in Ukraine, we kind of forget that. That whether he was a nice man or not the last president was democratically elected, and he was deposed of a coup d’état, which was financed by us. Then when we won, in other words, he left. We thought ‘oh, what do we do now’? Naturally, if I were Putin, I would have taken Crimea (if I were him), and I would have fermented nationalist problems in Western Ukraine. I don’t see why we are in anyway surprised by what Putin is doing.
Are you in anyway surprised by what’s happening with Greece?
Yes, I think Greece has been treated abominably by the European Union. I think Germans should go back to their history book. In 1948, they were given the opportunity to introduce new currency, the Deutschmark. Financed entirely by the United States, entirely, and that allowed them to default on all their domestic debts, and in 1953, they were given the opportunity to wipe out half their international debts and their interest payments, which they did.
The Americans also, together with the British, who were almost bankrupt at the time, said that no debt payments from Germany should come out of anything, other than their trade surplus, and that nations were obliged to buy German goods, in order to give them the hard currency, to pay their debts and they were given four decades to pay them. So that is generous farsighted, creditor policies. What we have with Germany now is pathetic, narrow gauge parochial politics and I think Greece has no money. It’s bust. You can’t get blood out of a stone. Leave them alone.
But your own country, Ireland, has managed to, somehow claw its way from a similar type situation as the Greeks.
Yes, we have. We did, not so much default but we postponed a large payment, called a Promissory Note, which was going to cost us three billion a year. The thing about Ireland is Ireland is not a European economy. Ireland is part of the Anglo-American world, and we were very fortunate that the Anglo-American world took off between 2010 and now, so Britain has been going very strongly. America has been growing much stronger than people think, and that drags us out because we are really… Ireland is really part of the American economy, grafted on to the European Union, using the German currency. So we’ve been lucky, in the sense that our major trading partners, the Anglo-World, are doing quite well and that has allowed us the growth rate, and it also helps that Mr Draghi, the Italian, Central Bank Governor is buying everything that isn’t nailed down in Europe. So Irish bond yields have gone from eight or nine percent to one – not reflective of a change in the risk in Ireland, but a reflective more of the fact that the Central Bank is buying up paper.
Again a lucky country.
You’ve got to live in a lucky country. That’s the Aussies. The Aussies call their country ‘the lucky country’ and if you think about it, you know… Look whether it’s in careers or peoples’ lives or the corporate world. Luck plays an enormous part. We also live in a nice neighbourhood. We’ve got the sea on one side and Britain on the other, not bad neighbours to have.
The Greeks have Turkey, Serbia, Bulgaria, and they’ve got to deal with all these immigrants coming from – these desperate refugees coming from Syria, so you know, when you live in a nice neighbourhood and South Africans will understand this, life is easy.
David, what about this investment conference. What about the way that the investment world is going and that inter-connection between economics and investments – many people are finding it hard to understand. Would you remain heavily invested?
I think we all are.
In equities, in particular.
Well, equities now, I mean I think emerging market equities but South Africa has had such a torrid time that if you’re a value investor there is definitely more value in the emerging markets, than there are in the developing markets. But you know it’s very hard to go against – that’s the whole thing, don’t fight the fed, and when the European Central Bank is buying everything. It’s a big equity play. They’re basically, underwriting the whole thing. The Japanese are doing the same, I suspect. What will happen in China is some version of Kiwi, so as long as the world is hostage to unorthodox economics – it’s very hard not to be in and play the game. You just hope to God that when the music stops and you’ve got to sit down and find yourself a chair, in musical chairs, that you’ll find a chair.
Because this is unprecedented. There is nothing in history quite like this. The Americans appear to have pulled it off. Maybe the others will too.
They might, we don’t know, but what we do know is that the Europeans will throw the kitchen sink at trying to pull it off. Not least because the alternative is apocalyptic for Europe and that means that, there’ll be constant rerating down of debt, rerating up of equities, and its underpinning markets all around the world.
So that’s the place to be right now, European equities, perhaps not the Euro.
Well, I wouldn’t, the Euro itself is obviously falling as a result, which gives an enormous boost to European exporters (an enormous boost). It would seem to me, to be a logical place to be but emerging markets, some of the emerging markets are quite undervalued now as well. I mean the Rand is what? It’s gone down 30 percent.
The Rand continues to slide but primarily, against the U.S. Dollar, we’ve lost nearly ten percent this year, and if you want to go over a period of time, it’s considerably more than that. Just to close off with, I loved your definition of the difference between value investors and momentum investors.
Well, I just think that humans are momentum investors. It’s in our nature. Why do you get up in the morning? Why do you get out of bed? Why do you send your kids off to school, and hopefully they’ll do well, it’s because you believe that tomorrow is going to be better than today. That’s really a momentum investor, and that’s really people. It’s human nature to be a momentum investor.
A value investor is a very strange fish. He’s a totally different beast. He’s the one who stands out from the herd. Who is unencumbered by other people’s ideas, who can be rather autistic in his outlook, in terms of that – by that I mean, quite aggressively focussed, and they’re unusual people.
Everybody claims to be a value investor today.
No, they’re not. That’s nonsense. It’s because it sounds good.
And because Warren Buffett is perhaps?
Because Warren Buffett is, you know, there’s the cult á voir and all that, but there’s lots of room in the world for those of us who aren’t Warren Buffet actually.
David McWilliams is at the Absa Investment Conference. This podcast was brought to you by Absa, a member of Barclays.
