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Season 2, Episode 8, Transcribed: Assessing Economic Damage From Coronavirus With Political Economist Marc Chandler

Moderator 0:02
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge a prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. Guests were not compensated for their appearance, nor do they supply payment in order to appear. Individuals on this podcast may hold positions in the securities that are discussed. Listeners are urged to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E Baker,

Nathaniel E. Baker 0:35
Marc Chandler, you are an economist, and you have a website, mark with a “c.” And I want to talk about your background later. But the first the thing that is kind of vexing everybody, obviously, these days is this Corona virus. And of course we hope everybody stays healthy. But beyond that, what people are trying to figure out now is the economic and earnings impact that is coronavirus is going to have in the US and across and across the globe. And so I’m very pleased to have you on the podcast to hopefully put into context a little bit, what types of things we’re seeing economically. how bad the damage you expect to be, how quickly we should rebound or could rebound. And yeah, just your general take on things from an economic perspective.

Marc Chandler 1:33
Sure, thanks. Yeah, what a shocker. Hmm, you know, all the things that we thought about, like what could hurt us. Many people, I mean, pandemics, Sandys, viruses. Of course, this is like, they make great Netflix series. But at the end of the day, I think that I’m hesitant to call it a black swan event. Because it’s like the third or fourth kind of virus we’ve gotten in recent years, I think about SARS. I think about MERS, even, you know, so. So on one hand, I think we’re ill prepared for this kind of shock. And ill prepared socially, institutionally and psychologically, I think that this is this is the real thing. I mean, if we’ve been saving money for a rainy day, this is a rainy day. This is the emergency that we’ve that we probably haven’t seen so much in our lifetimes. I know people talk about some man, some very clearly man made and specifically man made disasters like World War One, World War Two. in our lifetimes, you think about these other big events, maybe 9/11 here in the US, but this and maybe even some of us still have a scar tissue from the global from the great financial crisis. Well, we don’t know nine, but this is bigger and bigger than bigger than these bigger than these kind of events that we’re familiar with. I think the closest thing can be the Spanish flu, early part of the century. So so the First thing I’d make is that a lot of people I think are confused, because we kind of talk ourselves into this into these like myths. And one of these myths is that the Fed kills economic recoveries. And that that’s the cause of the last few sessions we’ve had. And I look at those other recessions, great financial crisis, the tech bubble, and it seems that loan crisis earlier in my career, these are financial crises that lead over to an economic crisis and have a business cycle. But this what we’re dealing with now, this is an economic crisis, it’s going to spill over and hitting the financial sector. So what we’ve seen around the world but also in the US, central bank’s ease monetary policy, so they cut interest rates, buying assets, like the QE versions that we saw before, but other countries are doing their own versions of it. And we’ve got the federal the federal government, slowly responding. I think at first the US was very far behind the curve still in denial. I think we were in denial up to about two days ago. So until like March 13 or so. And I think that I think that sort of now I think we’re getting more serious. And, you know, a couple weeks ago when Congress was proposing about an $8 billion spending package, it was criticized for having a lot of ideological goodies in it. And now, as of this morning, the White House to Treasury Secretary Mnuchin is talking about an 850 billion dollar package. So this is like we’re going on to war footing.

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Season 2, Episode 5: Global Crisis Investing With Philip Reade — Transcribed

Moderator 0:01
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge the prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. Guets were not compensated for their appearancce, nor were they supplied payment in order to appear. Individuals on this podcast may hold positions in the securities that are discussed. Listeners are urged to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E. Baker,

Nathaniel E. Baker 0:35
your investing strategy effectively is on a global basis. You buy stocks, public equities, in companies where there is a severe dislocation. So why don’t you start off by telling our listeners a little bit about that. And then let’s talk a little bit about specific opportunities now.

Philip Reade 0:58
Sure, thanks. for having me. It’s a pleasure to be talking to you and you and your listeners. What we do is is we understand it’s not very unusual right? But we think it’s very effective in the sense that you know, in value investing, right, everyone is just trying to buy obviously good assets at big discounts. Frankly, in what we call normal conditional investing in the States, for example, just try to buy a deeply discounted company, for example,. Or a stock,. Two things almost invariably must happen: either the company’s going through some sort of problem, or there is a perception of the company going through some sort of problem.

What we do is we buy great businesses at enormous discounts: 70, 80, 90% discount, right, not because of anything that is happening. Or is perceived as happening with the business but simply because these good businesses that we buy which are large underleveraged, liquid capital generating, they happen to be in a, in a bad neighborhood. We basically find these really out of favor countries, right? To define great businesses and there is a very important nuance, which is companies go out of business, right? If you buy a 90% discounted stock in the United States, the odds are the company’s not going to turn around, you know, turn around, sell them. Whereas, you know, we basically realized that countries don’t go out of business and countries don’t write countries don’t disappear. Of course, you have, you know, once in a blue moon, something like Venezuela or Cuba or Syria taking place, but you know, these are not, not just very, very rare events but also very easy to avoid events. So, okay, basically will, you know, we rely on the fact that countries will stick around good good businesses in these countries, you know, there will be a much more dependable reversion to the me. Right? Okay. So very important nuance, and that’s is that, you know, we’re interested in capturing these very, very specific parts of the psychological cycle, so to speak, you know, we’re trying to invest, for example, in Greece, or in Turkey, or in Argentina, but let’s say Greece, when Greece is is absolutely out of favor, right. And people hate Greece for many reasons. And then we’re trying to capture this shift in perception. Right, when Greece goes from everyone hates Greece, to a point that you know, people still think very, very, you know, unfading Greece where they they can sort of live with Greece. So that’s why we call it you know, this shift this delta in perception, a psychological arbitrage because this shift in perception is what drives these massive post crises, post crisis rallies, right that actually have nothing to do with with the with the economic cycle. It doesn’t have anything to do with the economy picking up, they actually happen two or three years before the economy starts picking up and they’re basically psychology driven. And And finally, what’s interesting about those moments is the fact that, you know, the local dedicated managers normally tend to do very poorly very badly in those instances, right. I mean, the industry is structured in a way that local managers specialized with you know, large teams to cover to cover one specific market, they tend to do well, you know, he called normal conditionally family call it 98% of the days of the year. But in the 2% of, you know, of the days of the in which we invest, which are crises days, they are just too close to the action, they are normally fully invested. They take big hits, and they’re psychologically impaired. So you know, just look at the numbers, you know, don’t take my word for it. And, you know, you see managers that are dedicated to specific markets doing really poorly and really badly during crisis. We’re not like these local managers that actually have an informational edge. These are the these are in normal conditions, but in crises, they tend to be handicap

Nathaniel E. Baker 5:35
How do you identify the turnaround point where you will invest, okay? Because you say that it’s two or three years before the actual economy turns, what kind of signals data or other indicators Do you guys look for in determining whether you’re going to pull the trigger and go in and buy in a certain market?

Philip Reade 6:03
we look at this right, we say that, you know, there’s, there’s obviously two sins, right? In the in the asset management industry. One is losing money. The other one is dead money, right? So it’s no good buying something just because something’s really cheap and having to wait out, you know, two or three years, right? That wouldn’t, that wouldn’t necessarily obviously generate anything in install returns. So, what do we do? We won, we completely separate our our deep fundamental analysis to the actual risk management and capital allocation. So, you know, I tell the fundamental analysis, we basically follow three steps we look at, we look at markets that have, you know, gone down at least 50% in dollars, five, zero, right? And that basically means that, you know, we look in, you know, good, large liquid companies that, you know, have gone down 7080 90% So, that’s one of one that is very easy to do, anybody, anybody that, you know, the But capital can do that. Secondly, and that is the more better and more difficult bit. You know, we look at what we say it we look for a narrative of change, and it’s a narrative of change in perception, right? So basically, why is Greece or turkey Argentina going to go from being completely hated, totally out of favor, to 80% out of favor, because that’s what’s going to drive the rally right and that is, this, this narrative of changing perception is normally associated to, you know, to a situation in which you know, a country has been so mismanaged for so long, that whoever is in power or whoever comes into power, will be forced to do a few good things for the economy. And these few good things will be enough to you know, to to drastically you know, to to actually create this change in perception, right. I can use many different examples that despite the leader incharge you know, you can take Argentina doesn’t 13 right when Christina kishna, who was, you know, obviously a very, very questionable, you know, leader, right, tried to change the constitution to allow for a third mandate. And she lost that. Right. And she lost that in Congress, she couldn’t change the constitution. And the market interpreted that, as that was the bottom of the market rather, you know, the market sort of concluded that whoever came along to replace Christina was going to be forced, was going to have to do a few good things. And that’s exactly what happened right? In the market rally, a lot of the names in Argentina went up 1015 times some of the utilities, even though Christina was still in power for another year and a half before market came along. Right. Because the you know, the example in Greece, Greece is you know, Alex sleep at us, you know, comes along in January 15 with the plan of getting grease out of the office. The Euro, right going back to the drachma, the market, obviously, you know, gets terrified. In nine months, you know, the country hits the wall in sipa, despite being who he is, right, ie a very, you know, very strong. So Left, left ideology. He’s forced in the bail out program. He’s forced, you know, to become Three years later, the biggest liberal reformers in the history of modern Europe, right, he actually had to implement 452 reforms, because there was the, those were the terms of the bailout they had with Germany and the European Union, basically. So, okay, that’s the narrative, right? We look for a narrative that is compelling enough, that tells us that because of circumstances, there will be some good things happening and that will change perception. And the thing is, is, you know, one of the assets that we buy, and that is basically, you know, that basically leverages are, you know, over two and a half decades of experience of looking at And we basically, you know, instead of trying to do what most of the industry does in 90% of the days, which is, you know, I need to find the next Google or I’m going to try to find the next Facebook, we don’t need to do that all we do is start with the most liquid largest companies in a certain country, right, because liquidity matters, forest management, and we basically, you know, exclude companies that are commodities, or commodity related, because we want to be exposed to the EEOC krag story of the country, we normally get rid of companies that have, you know, too much leverage or a poor balance sheet. You don’t want to have a poor balance sheet in the middle of a crisis, because you’re probably not going to be able to refinance that. And we normally also exclude businesses that, you know, because of the nature of the business, they also need to raise capital on an ongoing basis, such as real estate development or infrastructure development. By the time we’ve done that, we’ve apply those three filters Normally 20 large companies in a country, they come down to about six or eight. And they are normally, you know, consumer retail power telecom and banks. And then we go to these countries, you know, I’ve been to Greece, you know, about eight times in the last two years, you know, we normally have two or three local brokers and we do a lot of boots on the ground, a lot of due diligence locally, in those six to eight companies, and we tend to buy a basket of those, you know, six to eight companies. So, so that is what we call our Fender fundamental work. Once we’ve done that, and we conclude, let’s say, you know, I want to be involved in Turkey. And these are the five companies that you know, that I want to buy. We literally put that away, and then we put our risk management job, our hats and because then once again, right, when to buy, we’re not at all trying to pick the bottom right? On the country. We know that in the markets in which we we vest, right? Draw downs can be 90% down, not. Now you’re not talking about 9% down or 10% down, which is what people encounter. Normally, in normal conditional investor, we’re talking about massive, massive drawdown. So once again, a very much sentiment driven, right. So you do that, you know, just trying to buy on the way down and pick the bottom, which you know, a lot of vilely investors tend to do and can be successfully doing a normal conditional investing. We don’t do so basically, we do we do two things

Nathaniel E. Baker 12:34
before you get into all that. But I want to go back here to the to the the entry points and choosing the entry points and the change in perception that you talked about. Yeah, and the two examples you mentioned Argentina and Greece. It sounds like a lot of this has to do with changes in political leadership. Is that correct?

Philip Reade 12:52
Well, yes or no Right. I mean, in the sense that in Argentina, you know the market bottom in rallied with Christina kisner still being power, right, she only have at the end of 14 and the market bottom, you know, in November 13. So the market rallied for another year and a half, she was doing power, right, the only thing that actually changed was the perception that she wasn’t going to stay on forever, she was eventually going to have to leave. And whoever came along was going to be forced to do a few things, you know, cheaper, as, you know, the same thing when he actually came into power and 15. Right, that basically meant that, you know, the market, you know, sold off dramatically, right, because, you know, he is who he is. And he came along with a, with a very market and friendly speech, and only after he hit a wall, you know, nine months later, and he had to be bailed out by the European Union and comply to the European Union’s demands, you know, the market once again, stop reacting well, so ironically, none of those instances there was actually a changing leadership. Gambia changing leadership, but but it’s more forces of circumstances that, you know, create this, you know, basically conditions for better policy, better policy to be implemented bit from the current government or from a new government.

Nathaniel E. Baker 14:16
Got it. Okay, cool. But okay, going back to Greece, then at what point did you find that it was safe? To start looking a little bit more seriously and investing?

Philip Reade 14:26
I’ll go back to you know, I wants to know, two questions at the same time, because, you know, we’ve done our fundamental work in Greece, everything, check the boxes, right. You know, the market was incredibly cheap. The narrative was there several years, it’s now 2015. No, no, there was, you know, we got involved in 18 and 19.

Nathaniel E. Baker 14:43
Okay, so much. Okay. Wow.

Philip Reade 14:44
Okay. Go ahead. Quite a bit later. Yeah. I’ll tell you the story about about about, you know, Greece, but we didn’t get involved in too much later. And the reason being right, we’ve done a fundamental work resource super cheap, which was, you know, the narrative was that we knew the assets that we want To buy in the mostly the banks but not only, you know, some other assets, but you know, we wait for prices to confirm that our fundamental thesis is, you know, has some confirmation from market right once again, it doesn’t matter how good we think our investment thesis is and how thorough and deep our due diligence work is, unless we receive confirmation in the form of price action, not again, we do not get involved. So, you know, back to your point, when you decide to buy we decide to buy when we see price breakouts on the way we see price going up through certain predefined breakouts, and then we get it we start getting involved, we build our positions in several different tranches normally four or five trenches. You know, as the market goes up, we keep adding to them, we raise our stop losses that is very important. We keep building up we raise our stop losses, so at one point in time We’re not going to tolerate more than a certain metric of volatility, but call it about eight to 12% call it 10% just for all intensive purposes here. So, there is a maximum drawdown that we will tolerate for each one of our investments, right? That is obviously assets specific so we only buy on strength, because once again, we’re trying to avoid dead money. I don’t want to arriving in Turkey a year before I need to. So I will do my fundamental work I put that away. And then I look at I look at basically price action guide me on building my position. And I use stop losses and price also to get out of positions when when I need to.

Nathaniel E. Baker 16:46
That’s an important distinction between you and the traditional contrarian investing style or what we would consider or think of the to be the contrary investing style, which is for First of all, like you said, you don’t try to pick bottoms. So when everybody hates something, you are okay with that with also hating it and not investing. You wait and for the story to change, and more importantly, wait for the prices to change. And you give up some of the potential upside, because you don’t buy the dips. You buy on the on the way up. How do you? So I imagine there’s some complicated math involved there with figuring out when something is actually trending upwards, and it’s safe for you guys to buy versus sell.

Philip Reade 17:43
Yeah, no, i think i think i think you know, you, you absolutely nailed it. Right. I think frankly, you know, the math, the mathematics around it, you know, it’s actually not that complicated. What’s much more complicated is is our psychological disciplined, implemented and not overrule our system. Right and that comes from a very strong conviction and past experience that there’s no way around it right I mean, we are being contrarian simply by going to the places that we go to remember when we go to Greece we go to Turk we go to Brazil, we go to Argentina, we go to Nigeria, go to Qatar, nobody is there people have left, right, a year, two years, you know, prior no one is willing to touch those markets zero nobody, right. So that is contrarian enough. Of course, what any other fundamental analyst or investor will do we do thorough work, but we combine that with our risk management process, which you know, once again, maybe normal conditional investing, you bonus you might not need as much you can get away without it in our, in our in our environments. It is probably more important than anything else, you know. We do wait for prices to give us confirmation. We buy it on the We up, we, you know, we get out, you know, when when we need to get out. And that’s really and that’s really, you know, what what’s protected as last year, for example, have a few, you know, examples, right. I mean, Argentina and Turkey were incredibly volatile markets. They didn’t they didn’t necessarily follow a an upward trend the same way that Greece for example did. Right. So we had to get in and out of the markets in Argentina and in Turkey several times before making money. Right. So, you know, we had done a fundamental work, but, you know, we basically try to be humble to you know, if we don’t get the confirmation that we, you know, that we need, we don’t try to be heroes, you know, we get out and then we, you know, we humble enough to get back on again, because we’ve done the work, right. And that and that, you know, we think that more more than not, you know, he pays off and remember, because we go into these these places, right? And that I think is the more contrarian part of what we do. Yeah. buying things who Literally at, you know, 90 95% discount, right? We bought, we bought banks in Greece from five 6% value, it doesn’t matter if you like 50% right front of the bottom, right, still, it’s still the cheapest asset in the world to buy and frankly, considering that there is a 345 times upside or somewhat some of those investments, you know, we think that is, you know, that is the that is the that is the battle proven that a risk with dumping to do

Nathaniel E. Baker 20:30
you have exit points, just like you have entry points, right, when you’re when you will, like we did last year in Argentina and Turkey, sell these positions off entirely, right.

Philip Reade 20:41
Yeah. But But the interesting thing is, right, I mean, once again, just going back to, you know, humility is very important for us, right, especially, because, you know, these these markets can be so, you know, so so volatize so assertive, right that the same way that we don’t second guess the market on the way down many would never going to try to pick the bottom right, because the bottom line might be 90% down, we cannot afford to keep going to keep buying on the way down. We also don’t second guess the market on the way up, you know, the market on the way up, you know, a lot of times goes up more than five times, right? We have, you know, one Greek bank last year, they went up five and a half times, right. So we don’t we know that the markets in these sentiment driven environments, they overshoot on the way down they overshoot on the way up so you know to avoid second guessing the market on the way up. We never sell our positions on strength as a typical value investor will do. We totally we wait for our stop loss limits to be hit in we get stopped out or the game collide. So we can’t stop gain or you know, whatever you want to call it. But the idea is, you know, we refrain from second guessing the market is How we let our profits run, we’re trying to generate what we call positive kurtosis. Right? Whereas we like to have gains on larger amounts of capital and, and, and losses on smaller amounts of capital.

Nathaniel E. Baker 22:15
Right. So won’t be like put you you won’t put in a limit order that okay, when this reaches 50% 50% gain or whatever, we’re out?

Philip Reade 22:22
No, because in a lot of instances, you know, you know, things are fun hundred percent up. Yeah, to go another 500%. So, once again, right, I mean, we’ve done everything that we could have done in terms of fundamental work from the app from bet on, you know, we once again you know, we let prices be absolutely the drivers of our decision. And we have, you know, protection on way down, it will have leeway on the way up.

Nathaniel E. Baker 22:48
Mm hmm. Okay, a lot of really interesting stuff there. Philip read. I want to come back and I want to ask you about what’s going on in today’s markets and where you might potentially see opportunities, but I first want to ask you more about your background. But before before we do any of that I want to take a short break starting now.

Moderator 23:10
You’re listening to the Contrarian Investor Podcast. You’re on iTunes, Spotify, Stitcher, and other platforms where podcasts are found. Subscribe and supply and almost rating you on social media search for Contrarian Investor Podcast on Twitter, and Instagram. You can find us on LinkedIn as well go to forward slash Contrarian podcast. We want to hear from our listeners, email your thoughts to feedback at constrain a repository of all podcast episodes and materials is available on our website Contrarian Now back to the program. Here’s Mr. Baker.

Nathaniel E. Baker 23:52
Okay, welcome back. We are back. Philip Reed. This is the portion of the podcast where we get into the guests origin story as an engineer Vester you’ve been doing this for a while. You set up Helm Investment Partners a little bit more recently, but why don’t you tell our listeners about your background and how you got involved with investing?

Philip Reade 24:10
Sure. Well, you know, I’m half English and half Brazilian, I, you know, I live in the UK, I live in the States, but mostly I was brought up in Brazil. And I think that is very much part of the DNA of my investment philosophy. Right, by, you know, by being Brazilian, basically, you know, I got used and I was, I was, you know, basically I grew up and I was brought up, you know, through or in volatility, right. I you know, in Brazil, you know, as a kid even before start work, you know, we saw presidents being ousted, we saw currencies being replaced maybe three times in a year. moratoriums, defaults, right, there was very much part of our of our, you know, upbringing, part of our culture hyperinflation in the 80s, you know, so and I stopped My career out of college and is that is at this bank that was called bank got an idea. It was actually founded by the founder of 3g capital, you know, the sherea Brazilian trio that actually consolidator the beer market in the world, Mr. George Apollo lemon, who was presented Swiss. So he basically, you know, made his money at the outset, you know, in this bank, and that was a very active, emerging market, basically, investor, right. So, I got to see as a very junior, you know, analyst, right out of college, but I got to see the bank making very successful investments in all these, you know, the Latin American crisis of the 90s in Mexico, in Brazil, Venezuela and Argentina. You know, I got I got the bank getting involved in the South Asian crisis in of Korea and Thailand and out of seven, Russia 98. So, that was obviously you know, a very much part of part of You know, of the seat of our investment philosophy. I then went on to McKinsey and Company, which was a great, you know, great, great learning to really read it. And I think really helped me understand companies from the inside and bottoms up, ended up going to Stanford, Business School, and then eventually to Goldman Sachs math on asset management, I, you know, I ran their, their Brazilian operations here and then and then I spent many years at one of Brazil and leading, try to invest in companies called tarpon in some power. And then, you know, I decided to leave about and set up Helm about about three and a half years ago in June, July 16. Because, you know, once again, right, throughout my career in a lot of the companies that I I worked at, and, you know, I was part of, I saw these opportunities in many different markets bit in Brazil or in Argentina or in Greece. And frankly, you know, those opportunities were not part of it. mandate or the strategy. So, you know, I decided that you know, just, you know, show me how to do exclusively that on no men a lot of sense right in, in a very convinced because not only for the reasons I’ve described in terms of, you know, the investment philosophy and then there was management but but also because that you know, there isn’t actually any institutional investor doing that, right. We actually, we look, right we look, we look for people that do what we do in a way to learn and exchange ideas and frankly, so far, we have found some families around the world actually do that are their own capital, people that came to Brazil in the 90s and bought you know, the telcos and the power companies, people that went to, you know, to Russia in 94. But we know we haven’t really been able to find funds that Do exclusively that in equities, right, folks that do some of that sometimes in debt. But by No, you know, not very many in equities. And you know, we like to think that having a exclusive fully dedicated focus to do what we do. You know, also also helps us being be being disciplined in the way that we approach things.

Nathaniel E. Baker 28:24
Interesting. English and Brazilian is an interesting background, I have to ask who you support in soccer based on that.

Philip Reade 28:31
Man, you know, you want to be right or you want to be happy, as well. That’s Yeah, that’s

Nathaniel E. Baker 28:35
my question. Do

you know,

Philip Reade 28:38
I’ve seen better days but I mean, obviously, by being being you know, wanting to be happy, I definitely support Brazil.

Nathaniel E. Baker 28:44
Okay, which is Yeah, which has not been very good recently, but okay. It’s not

Philip Reade 28:47
it has not but it gave me gave me damn happiness throughout the years.

Nathaniel E. Baker 28:51
I do love the Indeed, indeed. Yes, true. Whereas England has of course, had to wait since 1966. As we all know, yeah. Anyway, back on topic. You touched on it before you guys buy equities only now when you do that do you buy the local locally traded shares or the ad ours or

Philip Reade 29:10
both? We buy wherever there’s you know, there’s there’s most liquidity because it’s paramount for what we do in terms of risk management choose the most liquid market and that actually varies right i mean you have Greece for example there’s more liquidity locally so a trade in euros in Turkey there’s more liquidity locally so in trading leader in Argentina, there’s more liquidity in the US in ADR so that’s what we do. In Brazil, it doesn’t really matter have a very liquid market. You know, both both both locally and in us. So you know, and go for liquidity every and every night.

Nathaniel E. Baker 29:49
Will you have any of your positions at all?

Philip Reade 29:51
We never do it because we know wedding if we get our our our equity seizes, right I definition you’re going By the equities in local currencies very, very cheaply, the currency is going to be very, very depreciated as well. So it ends up being a double double whammy, you actually you know, you actually have returns on both ends and the FX knows a big contributor of that as well.

Nathaniel E. Baker 30:15
Yeah, that’s actually pretty refreshing take I can’t tell you how many people I speak to on this podcast and elsewhere who claim that they had everything and everything is hedged. Which is frankly not even possible and if it were you’d probably be getting exactly zero percent but anyway, okay, let’s talk now about these current situations. The world is obviously an interesting places as you know, better than probably just about anybody and coronavirus. Maybe we can talk about that in a little bit. But where are you right now seeing opportunities to buy equities.

Philip Reade 30:48
So, you know, maybe I’ll tell you about our portfolio first, you know, we’re not about you know, 45 50% in Greece still, I still that the narrative is Tremendous, the new the new the new Prime Minister, Mr. kannapolis Mitsotakis, who we actually met last year couple times is is, is, you know, really means business. Western educated Harvard, Stanford, McKinsey, you know, has been accelerating privatization, reducing the size of the state, cleaning up, you know, helping the banks clean up the balance sheets, very rational, reasonable, market friendly person and a very, very good team really getting things done already. And in in Greece, we have, you know, have the banks we have, we have a large position in the, in the power monopoly, cloud public park cooperation with you know, we think it’s a it’s a great story. It’s a great turn around story. The company had been used by the private government as a, you know, in a way a public policy company, employment generation so so far, and it’s now being being turned into a you know, Normal value creating company and is in this tremendous upside the company has about 70% of market share in the power market in Greece, we have about 25% of the portfolio in Turkey. Turkey in multiple terms. It’s still one of the cheapest markets in the world tonight. 6.3 6.4 times price to earnings. thousand 20. That is a you know, it’s a it’s a it’s a much deeper diversified market visa v. Greece. We own we own telcos, your airlines, we own retail companies. So you know, banks. Right, this is there’s an interesting, interesting market, you know, albeit more volatile, right? The the narrative is not as necessarily as linear. And Turkey, you know, oftentimes finds itself involved in a lot of geopolitical conflicts. And, you know, it’s the case now in Syria. Right, you know, and doggone and putting has been, you know, having sort of, you know, weekly dialogues around bad so so No, there’s a little bit more, more volatility but once again we think that, you know, rates came down tremendously a little bit a little bit too much and too quickly and that actually, you know scared everyone but I think because inflation has been surprising to the downside and the economy has been picking up in a way investors have been willing to willing to ride the market and that’s create really, really, really positive momentum in the in the Turkish market as well. We’re excited about Chile, okay, is a it’s about 10% of our portfolio right now. Chile is a one of a kind in, in in Latin America, right? It’s significantly more solid institutions. Much more organized country doesn’t have a lot of the vulnerabilities that the other countries have in terms of balance of payments. And pensions and so forth. So, you know, it is a it is an OECD country that, you know, went through a, you know, sort of confidence, social unrest driven crisis in October, the market sold off significantly, you know, we believe that there, you know, there is, you know, the, the actual economic crisis is not really going to be to be very significant. Okay. You know, there has been a dent in confidence, and that will show up in the numbers but not in the magnitude that are reflected in evaluations, in our opinion.

And I think there’s a path, you know, the country is going to hold a referendum in April, to decide how enough to, you know, to rewrite a constitution to address some of the some of the social concerns that that a population has right now. It You know, there’s also it’s also a market that is, you know, you have quite a bit of liquidity in some of the names as well. You know, we have a brewery company that We have a lithium company there as well. And banks, we have we have a smaller part of our of our portfolio about five and a half 6%. In Pakistan. Okay. Pakistan has done, you know, dozens of IMF programs in the last 50 years. It’s been, you know, it’s been in, you know, in the IMF program since 2018. Right things are things are potentially happening there. Right. There’s been basically the country’s trying to address a current account deficit problem or more specifically a trade balance problems. So there’s been a lot of initiatives around boosting exports and textiles and tech technology. so on so forth, and restricting somewhat imports, right, the government increase interest rates to slow down the economy as a way to also decrease imports. So far, it’s been successful the market bottom the last August after going down 75 percent in two years, and I’m talking about the the the the US listed. P AK, right? Yeah. Yeah. Right, they went down 70% 75%. So massive. So right up our alley. You know, that is a that is a smaller, a smaller part of our portfolio. So, you know, there’s, there’s plenty of interesting opportunities. And frankly, you know, that without any potential adjustment, right there might might definitely take place given where the, you know, US equities market is trading right now. Right, right. So if something were to happen, we like to think that we would suddenly be stopped out of men of opposition, but we will be liquid. And we have, you know, potentially very interesting opportunities to try to capture

Nathaniel E. Baker 36:48
Yeah, with cheela aren’t a big supplier of commodities to China, copper and lithium and etc.

Philip Reade 36:58
Yes, the ID, the ID and then And,

Nathaniel E. Baker 37:01
in fact, I think the markets sold off a little bit like over the last couple of last couple weeks due to the coronavirus fear. So

Philip Reade 37:09
yeah, no, absolutely, I think I think, you know, if you look at you know, two or three years of the time horizon, you see that because copper have been going down right for a long time. The Chilean market, you know, has also been selling off for a long time even even before the October crisis, right. And since then, obviously, you know, the, the sell off has been has been amplified. And then even though copper, IB, IB proving, you know, the market still kept selling off, right. So that’s why we think there’s you know, even taking the copper in coronavirus trajectory into account that the the Chilean market is is cheaper than it should be, you know, that that that that has been volatility, you know, brought about by China and by the commodity cycle in general.

Nathaniel E. Baker 37:57
Yes. Which is all this of course begs a question that with China specifically, have you looked at that at all over the last couple of weeks? Because the, you know, they are too There’s been quite a bit of selling.

Philip Reade 38:09
You know, and if any of you know this once again, right, I mean, in, you know, this this, I could spend a lot of time trying to understand what’s taking place in the corners of China. I am not qualified the least to get any any reasonable conclusion instead, and that goes for everything that we do, you know, instead of trying to predict new crises or trying to short a market that should be going down but it’s not we didn’t do anything of that. For prices to tell us what to do if the coronavirus is, you know, happens to be a problem that is not priced in or is bigger than what people anticipate. We’re going to we’re going to hit our stops and we’re going to have a fun that is 95% cash. I think that is the beauty of it. Because you know once again Right. Even if that were to happen in some on Stein, there will be there will be a bounce back because it’s happened for the last 2000 years. And then we would, you know, keep our fundamental work current, we would be traveling to these places would keep speaking to management teams. And when time is ripe, we will get back on the different investment thesis and the narrative children.

Nathaniel E. Baker 39:25
Okay, what about potential future areas? Are there any places that you’re watching maybe where there’s an election and interesting election this year? or other

Philip Reade 39:34
areas with besides you know, we’re going to visit Pakistan in March and we also going to, you know, we are We also going to visit Egypt, okay. The same, you know, in the same trip, right, it, you know, can definitely be, you know, an area of interest for us as well. You know, we’re looking at we’re looking at Mexico, Mexico is is not nearly as cheap. I think the narrative is It’s not great in the sense that, you know, we speak to a lot of people in Mexico for a long time and I think people are starting to become pretty concerned about about about President Obama other sort of measures and outlook. But still once again, you know, that hasn’t been reflected in prices. Yeah, right. Right. Right. resue is always always an interesting place but but once again, right a thing you know, we feel pretty constructive in terms of the narrative in Brazil, which you know, means that the market should you know, should keep go up, you know, should keep going up. So, it’s not cheap, but you know, it’s always on the radar. Argentina is definitely a place that we span still quite a bit of time looking at right. I personally go to Argentina three or four times a year. You know, it’s been historically a you know, great, a great crisis market to to, even though a very volatile Taiwan and I think once again, our risk management process is crucial. Argentina, Argentina, you know, we think that the jury is out. The narrative and the government’s sort of speech hasn’t been very market friendly, the last few weeks, and, and the market has been selling off, I think some of the Argentina banks are about, you know, five to 8% down today. So, you know, at some point in time, it can be, it can be cheap enough, and eventually, once again, the country might be forced to do a few good things. And when it happens, you know, prices will, will, will will, you know, we’ll have that as a reflection and eventually it’s time to get back on again. But I mean, we don’t see, once again, we don’t see that happening yet. And we’re not in the business of predicting any of that God guy happened to react, leave, eventually a significant amount of money on the table on the way up and capture what in our opinion is a much better risk return profile.

Nathaniel E. Baker 41:58
You mentioned Greece and your portfolio 50% is increase. How much of those are legacy positions? And how much of it is stuff that you added over the last say year?

Philip Reade 42:09
Oh, you know, we’ve had pretty much every single position for the last year. Oh,

Nathaniel E. Baker 42:13
really? So it was it’s all recent trades.

Philip Reade 42:15
It’s Yeah, it’s been, you know, it’s been it’s been, you know, it’s been working out pretty well. Right. It’s been, it’s been a textbook solution in terms of in terms of fundamental fundamentals, and prices, you know, have been having, you know, reflecting that fppc you know, the public power company is a little bit a little bit younger as a position. Okay. But not dramatically.

Nathaniel E. Baker 42:42
You still see upside in Greece.

Philip Reade 42:44
I see. We see tremendous upside in Greece. Tremendous upside in Greece, we see. You know, the banks in Greece are trading between 2020 and 33% book value, right a thing we think prices can easily you know, go up, you know, 50 to 100% Doesn’t it? It doesn’t excuse. You know, we see PPC, as you know, more than doubling in thousand and 20 as well, just because fundamentals, there’s a company, he should be going from 300 million in thousand in 19 to about eight to 900 million in 20. So, three times as much abida in a year. Right. You know, 40% of that is simply because the government decided to increase our electricity tariffs by 70%. Right. So we have a very clear, big move, leave us. Welcome to the company. So yeah, we see we see a lot of upside in Greece. And frankly, the current leadership, you know, is that is a big part of why there’s some

Nathaniel E. Baker 43:46
pretty remarkable we’re having this conversation about Greece considering where the country was, you know, eight years ago, I did not think that it would turn around in my lifetime, but there you go. That’s okay. Wonderful. Well, feel free. Thank you so much for joining us today. And we look forward to speaking to your all again next month.

Moderator 44:07
Thank you for listening to the Contrarian Investor Podcast. We hope you enjoyed this episode. To subscribe to this podcast. Simply open your favorite podcast software and search for Contrarian Investor. Podcast us on social media by searching for contrarian investor and Instagram. Send us your thoughts on feedback at country We look forward to speaking to you again next time.

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The Case for Mining Stocks, with Matt Zabloski, Delbrook Capital — Transcribed

Below is a transcript of the Season 1, Episode 3 podcast, which can be listened to here.

NB: Welcome to the Contrarian Investor Podcast, where we give voice to those challenging a prevailing view in financial markets. I’m your host, Nathaniel E. Baker. On this podcast we discuss the metals and mining sector of the equities market. Now this is a sector that has not been very interesting at all lately. In fact, it’s been one big disappointment going back about ten years or more. But therein lies, the opportunity, or so says our guest, Matt Zabloski of Delbrook Capital in Vancouver, British Columbia. Matt manages a long short equity fund focused on this very sector, and he has some very interesting things to say about the supply demand imbalance, in particular as it affects certain industrials metals. Before I roll the tape, a disclaimer that nothing we say should be taken as investment advice. This podcast is for entertainment purposes only. Lastly, what you’re about to hear is a recorded phone conversation from Friday May 3 and while Matt comes through loud and clear. I am once again a bit muffled and maybe even a little bit difficult to understand at certain points. But luckily it’s Matt speaking more than me. Like I said, He has a lot of interesting things to say, So let’s get to it. Here you go. Enjoy.

NB: You know, if I look at the chart here of one of the ETFs which tracks the, um, metals and mining sector, XME is I believe the oldest one. And this goes back to, um I think that it launched in 2006. So if you look at the chart, like there it peaked in early. It looks like, you know, second quarter of 2008, and then fell off of a cliff along with everything else later that year and then had a brief recovery into what looks like early 2011 and then kind of started a long downdraft. That probably coincided with the whole commodities sell off, but the point is that, if took your money and put it in Call it 2009, Um, I wouldn’t say your returns matched the S&P. Much less the tech sector or anything like that. So the question there is, you know why now, Um, what do you like about this? Where the opportunity. So, yeah, maybe can probably through that, though.

MZ: Sure, you know. So for us, the very important thing to realize is we’re obviously an equity long short fund. So when you look at something like the XME and you commented, it’s not been a great place to be on the long side. We we concur. However, it’s important, you know, from our strategy standpoint, that we are actually long/short. We see opportunities in both directions.But for us, really, if you wanted to effect what’s happened to the sector in the last decade and it’s important to realize that the crash of 2008, 2009 coincided with with obviously a commodities meltdown, everything the entire asset class meltdown. But, you know, that was after five or six years of very strong commodities markets on the back of the Chinese sort of super cycle, if you will, Um what what happened prior to 2008 and the commodities face through that supercycle was, you know, massive expansion across the board for most metals. Which involved allocation of capital in a, you know, very inefficient manner. I’m talking about, you know, projects that were built by major mining companies globally, Basically, with the belief the commodities would continue to go higher. Ah, they obviously did not. So we ended up with massive excess capacity, uh, and projects that had subpar return on invested capital. Um, the result of which was was a complete, uh, meltdown of the equity evaluation of most major mining companies. And the resulting, um, halting of all development and capital expenditures in the space. So you know that that’s really what we’ve actually been eating through in the last ten to twelve years is that access? What that means, though, is in the near term, as we get through, um, the depletion of those resources that were built a decade or two ago. We spend no money, uh, no capital exploration for additional pounds of copper around gold, um, building new mines. You know, the reason we’re bullish on select areas within the space right now is the


has occurred, and this money companies have not reinvested in greenfield exploration. and quite honestly, what’s happening is we’re getting a squeeze in certain commodity prices where supply has dried up. You have demand that for certain thematic reasons is beginning to accelerate and I’ll discuss that in a second. But really what we’re really looking at right now is the perfect storm of ten plus years of underinvestment. As you know, a mine is a depleting resource with when you pull copper out of the ground, it doesn’t regenerate itself. It’s gone. So, yes, we we’ve had an atrocious time on the long side in the space in the last ten years. But certain events, including underinvestment in the space are going to lead to, in our belief, the perfect storm for certain commodities. You know, one thing that really gets us excited at the moment is the acceleration of the electric vehicle or the electrification thesis. Electric vehicles require four to five times more base metals in the car, in terms of not only storage of energy but the transmission of energy, than the typical combustion engine. So we could really paint a picture here of supply shortages and certain commodities like copper. And if you sort of apply the electrification, this is not only to the vehicle itself, but also to the infrastructure that’s out there for distribution of power. Not just in the U.S. but globally. You know, certain commodities we think are primed for much higher prices. And as you and I both know, when certain commodities move, they don’t just do so at a slow pace, you know, five or six percent a year, these things go parabolic. So I mean, for us that, you know, in essence, demand is much stronger than the market is. More importantly, we’ve depleted a lot of the supply. And any additional supply that may be able to come online requires much higher prices to make an economic impact.

NB: Okay, I’m curious about the demand picture, especially for copper. And you mentioned electronic cars. Do you know how that breaks down as far as electric car demand for copper versus good old traditional construction? And where most of that’s coming from?

MZ: Yeah. So if you look at the demand for copper right now, electric vehicles are still very much a low single digit demand component for that to be honest. The majority of copper demand right now still does come from Asia. However, I think what’s important to realize it’s a second derivative, which is the accelerating pace of electric vehicle consumption of copper within thi. So, you know, if we look at five years ago, it wasn’t even on the radar screen. Now we can point to ten to fifteen percent, um, sort of electrification demand for copper. But that’s accelerating, right? In terms of market share for electric vehicles is very small right now, but growing in a very, very quick pace. So, by 2025, 2030, it’s going to be a significant, um, component of copper demand. Now you say, Well, 2030 that’s a long time from now. The average within the money space from discovery of a resource, through permitting development in commercial production just now takes seventeen plus years. You know, we’re at a critical time for the space. Resources that we found are much lower grade and in areas of the world that you typically don’t necessarily want to deploy a lot of capital for geopolitical reasons. So this is critical phase where copper, we’ll begin to be seeing prices that should reflect that. We can paint a picture in the short term of, you know, 350 copper without much difficulty. And I’m talking about 350 copper into the end of this year.

NB: We’re talking about them upside of about, uh, 25 percent, right?

MZ: Right. So for us, you got to realize the nature of where we play as a long/short fund. We’re playing in the equities. The underlying companies with exposure to [inaudible]. So how we generate our returns here, um, both long short. But you know, is is within the equity spectrum where we’re also picking up the financial leverage of that company and the operating leverage of that company. So when comparable, it’s twenty five percent. That could be, you know, a hundred percent in in an equity valuations. In terms of supply. There’s very little a very limited number of new greenfield project coming online within the next. Call it five to seven years, you know, will point to the Cobra Panama project that is being developed right now in Panama. That’s sort of the biggest one that’s out there. We are seeing a lot of green field exploration into areas like central Africa. Specifically the Congo. We also have, uh, situations in Zambia where, you know, phenomenal resource belt, um, and great potential. So when I make the comment that you know what is being found now is much lower grade and or they carry an entirely different geopolitical risk. Which is fine. You know, we can get comfortable with that. However, what it requires for us, it’s just a different, you know, risk metric within the matrix of judging long positions for us. [Inaudible] Well, basically saying we got to get paid for that additional risk through the upside and evaluation.

NB: Very interesting. Okay, are there any other areas, other metals that you’re particularly bullish on or do you think this is more about copper?

MZ: Our overriding approach is to take each and every metal in the universe. Develop a demand supply analysis, Come up with the thesis. Bullish, bearish, neutral and then implement allocation of capital based on, you know, high level use of the commodity. But then, based on fundamental analysis of the under lying equities, um, places that we’re bullish at the moment, You know, we find a lot of value right now in trading pairs. So relative value trading within the industrial metals complex. We are, you know, for most high level. We’re pretty neutral on gold. We’re not gold bugs. Um, gold does make up about forty percent of the gross exposure within our funds. But the net exposure is very low. So you know, we’re we’re bullish on the prospects for some of the relative value trade within the space, you know, And that’s something where we’re running very low net. But just given, you know, the inefficiency in the market at the moment, you know, generating some very significant alpha on the relative value book.

NB: Interesting.

MZ: And we’ve begun to see certain other themes play out that we’ve been writing about for, you know, twelve to eighteen months, things that consolidation, right, we turn an acceleration of consolidation within the space. Something we believe is driven by one of my previous points, which was depleting resources, needing to be back in the field, uh, not being able to do it with exploration. So the majors are now going to have to go and acquire resources. That is the most efficient, both in terms of time, but also in terms of risk. The most efficient way to backfill a declining reserve base in declining production in the future. So that we’ve been on for call it, you know, twelve to eighteen months. Our fund has had six take outs in the last six months. So we’ve been very good at identifying those opportunities that’s generated significant offer for our LPs.

NB: You mentioned the short side and that you have an active short book. Where? Where are some of those opportunities? How do you how you trade that?

MZ: Yeah. So we we basically divide the short book, if you will, into two categories. One is the short leg of relative value pairs trade. What we’re looking for there is based on valuation, or we’re very active shorting some of the ETFs, basically to generate also based purely on security selection. So we’ll sort of basket gold ETFs for a certain equities, for example, and then go long a small basket of higher quality companies. And the trade there for us is simply security selection. Any other side of the short trade for us is what we call alpha generating shorts.

NB: Yeah.

MZ: You know, where we’ve identified one of two things. Either a fatal flaw in the project. We have a very strong technical team internally here. Geologists, engineers, etcetera. So we’ve identified a fatal flaw in a project that we think the market has not come around to yet. It’s a great place to go hunting. The market is inefficient but it’s very much so, um, even more inefficient. On the short side, we’ve been running [inaudible] at twelve months. Plus net net long and that for us, has been anywhere from sort of twenty five to sixty percent net long. The opportunities that we see there is, You know, the high over arching thesis has been that squeeze within certain commodities we talked about previously. And also the fact that equity evaluations in the space, even at spot pricing, are at, you know, generational lows. This space has been ignored by institutions in the last decade. But we all know, you know, the [inaudible] very cyclical, and it’s our belief that that cycle is turning.

NB: Yeah, I think that’s a good place to, uh, pause and take a short break. We’re going to come back and I want to drill down a little bit, if you’ll pardon the pun, and ask you about some very some specific ideas that you have on the long side, I think that’ll be really interesting. So more on that when we come back. You are listening to contrarian investor podcast. We are on itunes, and anywhere else you can find podcasts pretty much: Sticher, Spotify um what are the other ones Google play now? So yeah, check it out. We’re on the social media as well. Um, Twitter’s the most active: podcontrarian is the handle there. Matt, what about you where we can we find you?

MZ: If folks are interested in learning more about Delbrook, you can look for us And you can just do go out or you can email us at

NB: Right on. So, yes, how about a little more about you and your background?

MZ: Yeah, sure. So, you know, starting with I I suppose my background ah launched Delbrook in 2011. Prior to that, I was based in Boston. I was a portfolio manager for Fidelity Management Research Company. For a good chunk of the 2000s. Then came out to Vancouver, originally Canadian. My background, Um, Vancouver is the mecca, if you will, of the metals and mining world, Very much probably is for for technology. So I saw an opportunity in a specific sector that we thought was, um, mispriced at the time. But also, sitting in Vancouver, you know, the ability to have a first mover advantage in the ability to have sort of unfettered access to the large caps that are in the city. You know, we are the only [inaudible] hedge fund, um, in in the city, probably one of the only ones in North America. Uh, that’s truly a hedge fund, not private equity. So for us, the competitive advantage being in Vancouver. Not only the corporates, but also to the banking teams and everything else that goes on. And they’re in the city. So, you know, it’s a great place for us to run the middle of the money. Not a lot of guys in the space and go back to what I’ve been saying. It’s completely inefficient. We’re making, you know, some some good money in the space at the moment. We think over time, market given the cyclicality. Capital will come back, but we definitely have a great first mover advantage in this. Most of our process very much starts with a top down Look at the quantity. Um, in in particular, we keep the man supply models. I’m probably two thousand different metals globally. Um, from that it sort of points in the direction of what we think of the commodity I am. We get to work on the underlying fundamentals Ah, of of, of businesses, of of operating companies within the space. And, you know, we’re not a c t a. So we we don’t trade the actual commodity. But what we enjoy doing and what we think we’re good at is identify opportunities and the underlying equity or credit rating companies in the space. And by doing so, we pick up, you know, not only a movement in the commodity price. But we pick up the operating leverage in the financial leverage of the company. So for us, we think it’s, you know, the best place to the point capital in the space. Um, and as mentioned, where one of the only friends doing it at the moment.

NB: Interesting. Okay. Give us one important lesson. Maybe that you could identify that you’ve learned in your investing career.

MZ: The most important one. If you had to pick one. Sure. I mean, and it applies to this basically managing right now. We never get emotional. Never, you know, gets fixated on any of these ideas. As I try to practice and I preach to all of our investment teams and analysts, it’s, you know, be flexible with your views and I realize that that circumstances change and if you’re good at your job, you’Ll change with them. You’LL adapt your, um, your outlook accordingly. Those who don’t do that are the guys who who, you know get run over by these markets, especially when we’re managing equities in a thirty or forty vol universe.

NB: Okay, favorite long idea. Before we go there, I just want to play Devil’s Advocate for a minute here on the whole commodity thing, especially when it relates to copper. And a lot of this is so cyclical. I mean, okay, you mentioned the secular trends specifically the electronification of cars and how that’s causing more demand for copper. But by your own admission it is still a relatively small, though growing part of the demand picture. And with all this boils down to demand still coming from, you know, people building stuff specifically China and with that part of the world economy, kind of, uh, you know, slowing down a little bit. And with the US probably closer to a recession than anything else with all that going on on the demand side doesn’t that really the one driver of demand for copper. And isn’t it? Couldn’t it be a little bit, uh, you know, naive to pick stocks within that area when with the demand picture is so uncertain for the near and medium term.

MZ: Yeah, So I touch two points there, first of all, I mean, yes, we’re sort of mid long term bullish on copper, but you know, the opportunities that we have in the space right now, it’s both long and short, you know? That is, you know, an equity pair where we go long a quality copper company and short another one.

NB: Right.

MZ: [Inaudible] From the higher level standpoint. I mean, the current status quo in the world economy. Right now we’re in deficit for copper. So we’re in a copper deficit going to 2020. [Inaudible] Now, if we overlay prices needed to bring new production online they must that be much higher. Combined with that is the fact that certain macro sorry certain demand things are beginning to accelerate just beginning right now. You know, things like New Mexico


replacement in first big infrastructure bill, which we think the Trump administration will try to play out in the next call it, uh, six to twelve months in anticipation of election. So these are all big demand drivers for copper, which really aren’t priced in right now. On the supply side, we have mines depleting and mines coming off line. But we also have large things like labor unrest in South America that pops its head up every once in a while and shuts down large mines. So, you know, for us, we’ve you copper. We’re bullish on copper in simply in the context of current macro environment. In addition to that we are finding now ridiculously lower grades than it used to be even ten years ago. So you still got to move the same tunnel rock. But if you’re getting how the copper out of that rock that you, you know versus ten years ago, you’re wondering where the margins are going. And the fact of the matter is these companies are now very much focused on generating cash flow, not just building for the sake of building. [inaudible] You probably have some of the higher cost mines come off line. And that’s that’s just going to help on the supply side. So, you know. Yes, we’re pushing copper for the right reason. Also bullish on certain other, uh, metals, you know, things like nickel class one nickel. But it’s always sort of very hard for us to model and analyze demand, right? I mean, you agree on the supply side modeling and understanding cash costs occurs. We always sort of look and say, Look, within the context of the current global demand where are we at and can we identify black swan events that would seriously inhibit that demand?

NB: Yeah, absolutely.

MZ: Can we you know, risk those accordingly. However, within the context of the world economy right now, which is relatively healthy. We see there being a shortage of copper. That’s only going to accelerate.

NB: Okay, good. Excellent lead in to the next question. Stock picks.

MZ: Within the large gas space, you know, we like names like teck, teck resources. That’s a company where we see probably fifty percent upside from current levels. It’s a mining company focused on unmet call, uh, copper and zinc with a little bit of oil and gas exposure. And there is a diversified minor which, you know we believe is generate significant free cash flow and is in a position to, uh, buy back in material amount of their float in the next year. A great balance sheet, cash building. And that’s what we like to see any space.

NB: Um, cool. Sorry to interrupt. Stock picker T-E-C-K.

MZ: Yeah, so that’s, you know, one of the larger cap ones that we like. Ah, we we managed across, you know, the gamut in terms of market caps, you know, from the fifty billion dollar companies down to the five hundred million dollar companies. On a liquidity risk basis, we think TECK is a great investment right now. We think the real focus, we had some acquisitions in the last call it twelve months. [inaudible] We believe that the next wave of consolidation is going to be within sort of the mid cap space in the mining sector. We position our fund to take advantage of on the long side of sort of our top top five ideas within that space.

NB: Okay. Wonderful Matt Zabloski. Thank you so much for joining us. That’s all for this week’s program. Thank you for listening. And we look forward to speaking with you again next week.

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