This Energy Crisis Could Get Ugly (Arrakis Global)

Money miners, JD, an absolutely left-field conversation we're about to bring you with a fund manager who's gonna stay behind a pseudonym although we are calling him Leon, his name is Leon, but you're not gonna be able to see his face and he's a mystery. And all you need to know about Leon is, he's one of the most interesting guys I've spoken to in recent history and his performance is absolutely off the rails. Good. - In a way where it's like, it's up into the right without the drawdown. It's one of those miraculous charts. - Leon is a fantastic thinker. He's pretty introspective as you're kind of in gather from the conversation. He thinks deeply about his sort of process and he shares a heap of that. We have been each and to do this conversation since we spoke to him a little while ago. So I'm very excited to share this one. - Right before we go to our good friend Leon, JD, money miners, many of you probably don't even know we have another medium. It is called the Director Special and it's a daily concise note with all of the news that has happened in the mining markets in the last 24 hours. - You wanna be up to speed just like Leon is? Sign up to the Director Special. - Go to moneyofmine.com, chucking your email, hit subscribe, then go to your email, click the confirmation. - Got to confirm it, you got to confirm it. Here we go. (upbeat music) - Daddy, you know how I am, big fan of Twitter, you know that, right? - You are indeed. - So every now and again, like, come across an account on Twitter that just starts putting some things down to the best that speak a hell of a lot of sense. And I reckon about 18 months ago, an account on the vehicle, a Rackers Global started speaking a hell of a lot of sense, particularly around Glencour. There was a fair bit going on with Glencour at the moment and this account and I, we started talking and we exchanged a few messages. And I realized the person behind the account was a portfolio manager. And we've since come to speak with this portfolio manager a couple of times in the past and he's actually an incredibly interesting, thoughtful, independent thinker when it comes to investing in many, many ways. And in particular, he's definitely does have a bit of a, you know, commodities, real assets bias, but he's a generalist. He thinks, holistically, about a lot of stuff. - 100%. And since we first spoke with a Rackers or Leon as we can recall you, we, I think we turned to each other after that chat and said, "got to get him on the show." This is gonna be a wicked conversation. And since, you know, everything that's unfolded and the world started playing out over the past month or two, Leon has been posting some really interesting stuff, his positioning and how he's invested in the market is fascinating. So, he put us the, you know, the perfect time for us to have him on and speak about some of this. So Leon, we stoked you, you've sort of made the call and come on the podcast and we're very eager to chat about how you're seeing the world. - Gents, absolutely delighted to be on. And I have to again commend both of you. I'm a huge fan of the pod. And, you know, with obviously obvious exception of today, the caliber and quality of your guests is fantastic. And so, yeah, excited to chat. And I think the voice that you guys now have in the Commod Demining Space is really interesting. So, well done to both for building the money at my own pod and delighted to chat. - But as I was up, mate. Well, you know, we're delighted because I think this is your first ever podcast, Leon. And, you know, we're delighted to be part of that experience with you. And I actually, I think the audience will be as delighted to hear your thoughts as we've been speaking because you just have like a very unique lens on the space. You piece together like a lot of different, a lot of different things that aren't just like, you know, the very generic things that you come across and see. So, I hope we get to display your type of thinking on a whole host of things right now. But I'd love to kind of like just zoom out and try and get a picture of your investing philosophy. How you actually think of compounding capital in general. - Yeah, thanks, Travis. So, you mentioned I have a slight commodities buy. So I started off as an investment banker in metals and mining actually at an illustrious Aussie shop called McCory Capital years ago. And so that was what gave me a start in Commod's. But by all intents and purposes, I will effectively trade and buy anything that makes money. So my philosophy is incredibly simple. You know, when I started my fund, I had the guiding principle of don't lose money. And there is something in me physiologically. I don't know what it is, but I absolutely hate losing money. And whilst that maybe sounds very self-obvious as a fund manager, I'm constantly surprised by how Blase and Cavalier many fund managers are about losing money. So my investment philosophy is incredibly simple. I start off with the guiding principle of risk management and don't lose money. And then I will touch everything I like to say. I burn my fingertips on every stove. So I'll trade currencies, commodities, equities, credit. I'll do anything. So my philosophy is a generalist. It's go anywhere. And what I try and really do is I always start with price. So my guiding philosophy is to try and listen to what the market is telling me. And listening to the market, listening to what the whispers are, right? And really understanding that narrative, price action, fundamentals, flows, market structure, these are not sort of linear boxes that add up. They are fluid systems that all interact. And my philosophy has basically been to try and buy things that go up, cut things really quickly. I am a big fan of resetting your book completely. It can sometimes drive some of my investors a bit nuts who are asking me what are your top convictions? Tell them something. And five days later, I flatten the entire book. But it's something that I've learned to do and I do more and more. I also don't believe in having this. This sort of juncture between being a shorten and a long-term investor. This juncture between a trader and an investor. I think that today it is incumbent upon managers to actually exist between. This is going to sound very due now between different inter-temporal spaces as you invest. There can be times when you're thinking long-term, times when you're thinking short-term, parts of the book that you're actually comfortable to sit on. Other times you actually may be a trading incredibly actively. And so what I try and do is I try and maintain maximum cognitive flexibility across asset classes, across geographies to make myself and my investors money. But again, my guiding religion is to not lose money. And as I've grown older, I've become more and more paranoid about risk management, paranoid about cutting stuff. When I started off, I could take drawdowns of 5, 6, 7%. I'm absolutely miserable now. If my book is in a 2% drawdown, it's not good there. And I'm usually cutting everything if that's happening. I can't and I reset. I think what is the market telling me? What am I not listening? What am I not getting? And this is a process I've developed over years. And it's something I always come back to in times where maybe I'm not trading well or I'm not making money or I'm not feeling in sync and in flow with the market. So look, maybe that's going to sound way too wooed. But that is effectively my investment philosophy. That flexibility that you speak about, Leon, is that inherent? Is that natural to you or have you taught yourself that aspect? Yeah, JD, so I started off like many do as a fundamental investor. And for a long time, I used to think charts and all that stuff was just focus-pocus. And the more time I actually spend in the business, the more I actually find myself incorporating lots of different disciplines, technical analysis, momentum, quant stuff. I mean, what was germane to me was the fundamental analysis, right? The sort of steeped in Buffett sort of stuff. But the big problem with a lot of that stuff is that, and I think it's a common mistake that investors make is they onboard investment philosophies that are not in sync with their initial conditions. So it's the largest investor in my fund. And my fee structure is a very eat what you kill structure. I cannot lose money on a short-term basis, because that's what I actually need the money from my fund to subsist. And so for me, it-- The way that I invest money is out of necessity, more than out of anything that's germane or in line with my philosophy, it's that I need my now to grow month on month. And whatever way and whatever method I need to use to achieve that goal I do. So there are times where I'll look at an event type of strategy. There are times where I'm maybe much more momentum based. I do think market structure and flows that has become a really big part of my process. I don't like to fight narratives, that's a big no-no for me. There's a negative narrative in the market and I'm swimming against the tide. We're going to cut that stuff and we're not going to swim against tide. So I'm looking for ideas and themes where there's liquidity, there are lots of different market participants that are going to come into that. The thematic approach is actually a big part of what I do. I'm looking for mega themes, whether that's Commod, European Defence, AI CapEx, whatever it is. I'm really looking to catch those themes and catch all of the upside-fold and try and minimise the downside-fold. But to answer your question, yes, I started off as a fundamental investor and I've now become this, if I'd looked 10 years ago what I do now, I'd probably be horrified. But we've landed where we are and I can't really imagine doing things differently. But the market always humbles you and I will be forced to change style as the market forces us all to do. Tell us more about that thematic piece. I find that super fascinating. Do you find yourself just jumping in and learning everything you can about European Defence, mining commodities, these sorts of things and that sticking for a while? How does that play out? Yeah, it's a really interesting question. We're almost going to get into a bit of a epistemological debate about what initiates a theme. How does a theme begin? I tend to think that you have these, so I like to think a lot in paradigm shifts. So I like to think about when a paradigm actually begins and I'm always really alert to that being the spark that starts a theme off. If we take European Defence maybe as a good example, the very obvious time when European Defence became an incredible trade, ironically, obviously you should have bought all the European Defence names as soon as the war in Ukraine started. But interestingly for me, the paradigm shift really happened after the Trump election and it happened in particular after that. For me, it was several moments. It was one that famous meeting with Zelensky at the White House and it was JD Vance lecturing, Frederick Mertz, the German Chancellor at the Munich Security Conference. I think those two things just signaled such a huge shift in, I just felt that that was going to be something that was going to become immensely tradable. Now previously you'd had Olaf Scholz who talked about Ziton Vendor which is, that was years ago and so some of the names actually did start moving but they really started moving after that Munich Security Conference and Zelensky Trump moment. So for me that's when the paradigm shift started. And then it's a question of, okay, we know this trade is now on. It's being confirmed by price. The fundamentals are moving in the right direction. That's the best way of expressing that trade. So it's almost different phases, right? The first phase is we're looking for the existence of that paradigm. People are talking about the theme, the narrative now starts to exist, right? Then it has to be confirmed in price. Super important that it is confirmed in price. And then it's, okay, what are the positions that we're going to put on that are going to allow us to capture this thing in the most liquid, profitable way. And then the theme evolves, you can start to produce alpha within the theme. Yeah, we could talk about how I think that came about with Commodts. But it's all really about being aware and just listening to the market narratives. Memory in AI, that was a huge one, right? So I remember listening to guys like Gavin Baker and Josh Wolf almost like two years ago talking about memory. So I was in Micron like two years ago, found a way to not make money in it two years ago. But when I really started paying more attention to it, you know, last year, I said, okay, this thing that I knew could become a theme, the memory, the on-device shift, this is now really going to run, right? And so then you have Micron, you have Sandisk, you have SK high nicks. And it's really about identifying that the paradigm shift has happened and then you've got to sort of ride that as hard as you can during the period that it's working, obviously. Is there something like a bad thing that I find so interesting because I noticed this in myself and you know, JD and I do some of us speculating together a fair bit of it. And oftentimes there's a bit of a tussle, I think, like because there's a bias that an event has happened and the event is priced in and it's reflected in the prices now. But you know, but this philosophy that you have, it's clearly based on the fact that even the one event has happened, this paradigm shift takes duration to play out where you're going to ride some sort of wave. And I think just like differentiating between the beginning and you know, like, yeah, prices have already changed, but there's a long way to go. It's a really hard thing to do. You never quite know where you are in the duration of that theme. I'm kind of, I'd love to know how you think about that. Yeah, I mean, it's a great point. So there's a legendary British investor called Anthony Bolton and he actually talked about, he talked about something similar. So he talked about really looking at charts and actually, you know, wanting to buy a little bit after the theme had actually sort of already begun. Now, you know, what's really important, I think what you're touching on their travel is one thing that's really dangerous with thematic investing is you don't want to be a late convert to a theme. That's incredibly dangerous, right? You don't want to fight a theme for two or three years and then finally realize after two, three years, oh, this AI thing's actually real and I'm going to start investing in it. Now, you may still make money doing that, right? Because you may still be able to squeeze out some of the juice, but from a behavioral perspective, and I just know this myself, right? Because I've lost money doing this from a behavioral perspective, when you're a late convert to a theme, you actually tend to get stuck in that what I call broken themes, right? Long after long after the themes actually no longer interesting to invest in, by the way, you have to differentiate when something can continually, can continue to be socially valid, something like GLPs, I think is a great example, right? Like, I totally missed the GLP trade. I was a late convert to it and I looked at no vernodisc maybe last year or two years ago, I thought, oh, this looks quite cheap. But the chart and the price was just screaming that this thing was done, right? So I bought a little bit, saw how it traded, saw that it wasn't trading well, cut immediately. Years ago, I would have lost a lot of money on that, right? And so, the one key thing is you have to try and understand whether you're late or you're early to a theme. And there's no hard or fast way to know whether you're late or early, but you just have to, again, the way that I invest is a very right brain investment philosophy. It's a lot on instinct. And so I look at various indicators to understand if a theme is early or if a theme is late. And by the way, like valuation and flows and all that stuff, that's not going to tell you if a theme is early or late, right? You really want to try and understand there's the social aspect of understanding I might early or late in this theme. There is the fundamental aspect, there is the flows aspect, there is the technical aspect and the chart. But I would say the more open-minded you can be, the earlier you can try and catch these themes, but the most important thing is to not be, you want to avoid being a late convert at all costs. And it's always actually a good thing to visit these themes early, right? And so, like Ryan Mattel, I was messing around in that stock like years ago when the Ukraine War first started. But I missed the first huge move because I punted it because it just wasn't moving enough for me, right? But I had the muscle memory of knowing, oh yeah, this is the company I need to go and buy to benefit off this, right? Now, there'll be people that actually captured the full scope of that move, not me. Yeah, I'm not going to capture the first 20%. I'm ideally not going to. I'm probably not even going to capture the last 20. I'm really looking to capture that middle 60 from these themes. European banks, it's another theme that I completely missed. Right? And so I tried to trade European banks and lost money. So I was like, you know, maybe I'm late to this theme or I'm late convert to this. The trade's been working for years. This is dangerous. I got to just stay out of this. So they're safeguards against being late and losing money. By the way, European defense, when you look at how those stocks are trading now, I could actually make a strong argument to say that theme that may have run its course. And a key thing that you know when a theme has run its course is actually when all the fundamentals are really good, the earnings estimates are going up. The brokers are updating and upgrading their price targets, but the price isn't moving. And it's taking more and more extreme headlines to move the price. And that, to me, telegraphs that, you know, we may be towards the mature end of that theme playing out for EU defense at least. So what about the commodities theme, what we know and what we love, where are we? I mean, I think of this as many different kind of cycles because each commodity has its own element. But I'd love to hear you just sort of riff on how you say that. So I totally agree. I see, you know, to the audience that you have that is sophisticated, incredibly knowledgeable about commodities, you know, it can feel wrong to sort of homogenize the whole space as one theme, right, when there's actually lots of different compartments that exist within that. We're talking about base metals or precious metals or, you know, bulks or the energy complex. I think it is important to understand that, you know, generalists will tend to sort of homogenize commodities when actually, you know, the specialist that listen to your pod will be tearing their hair out and saying these guys have no idea what they're talking about. So I want to be very humble and try not to, you know, educate an audience where many people will actually know more than me. But the way that I've been thinking about commodities is fairly simple. So I think 2022 is an incredibly important year. 2022 was a seminal year, at least for me, because it cemented this notion that I had been thinking about that buying hold is largely dead, OK? And that there would be a generation of fund managers who had, you know, focused on certain factors, certain geographies, a certain style, and that they were going to really struggle. And that they were going to really struggle because they had effectively corned off commodities as something that they didn't need to know about. They weren't interested in finding out about. And, you know, 2022 was this seminal year because you saw a lot of fund managers lose a lot of money. And so for me, ever since '22, commodities have just formed a key part of my investment strategy, how I think about the world. And so, you know, that's sort of the background, right? So coming into more recently, and you guys would have seen the letter I sent out to my investors as we closed last year. We started this year, which is they started to appear different narratives around dollar debatement, XUS. Right? Those were the end of US exceptionalism of some people have referred to it. And I think that, for me, is when I started getting really interesting in really upsizing the commodities trade in my portfolio. And it's interesting, right? Because it can be great when you actually have a theme that's working across several different narratives. Right? So you have XUS, which is, you know, emerging markets is going to be a commodity type of trade. And then you have dollar debatement, which is going to be hard assets. And so you actually have a theme that's working across lots of different narratives. Right? So for me, that was the spark that's really the commodity trade on fire. And that's really when I supersized the trade, you know, in November, December, and coming into January of this year. But I actually think that commodities since '22 have played, will play, and are just an incredibly important arrow in the quiver of generalists. And I'm still shocked by the number of generalists who just say, like, I'm not touching the space, but don't understand the space. And I laugh, I say, what you can understand, the intricacies of like semi-conductors, but you can't understand, like digging coal out the ground and selling it, right? It reminds me of this great quote by the Israeli Prime Minister, Golda Mayer. She said to her cabinet minister, she said, you guys, you shouldn't be so humble, because you're not that great, right? And so I think commodities is something that many generalists can understand. And I think actually it's just going to be a sector that is so important for people to be able to trade, incorporate into their process and just understand that it's really not something that I think people are going to be able to do without from an allocation perspective with the world as it is since-- Well, since 2020, but especially since '22. I want to talk about some very recent themes and just like, based together your thinking of these, the first one is front and center of the news every single day. And that's the oil disruptions from an Iran war. Yeah. So this is maybe a great example that highlights the way that I like to trade and the way that I like to manage risk, but also the way in which I try and interface with the market. So the first thing I do is I don't like calling markets names. I actually never do that, right? Never call markets names, never label markets as complacent, bubble, overvalued. In most cases, there's a very good reason why the market's doing what it's doing. It's just you, meaning me or whoever, you just haven't figured it out yet, right? So I think this oil shock-- energy shock is a really interesting one because I think we've got two separate camps here. We've got one camp that basically says that this is going to be a major bearish event and equity markets need to massively reprise lower. And then we've got another camp that basically says there's going to be over pretty quickly. We as investors can totally afford to look through it. And it's not worth punting your entire book because actually, disconnect is a big clearing event and take us higher. So there's several competing narratives that are emerging around this. My personal take, again, is someone that is hyper attuned to not losing money has been to approach this with a degree of cautiousness and humility. And so my answer to a lot of the questions is probably going to be, I don't know. And the not knowing actually has to be informed in my risk allocation. So the way I'm viewing this oil and energy shock is that the entire topology of the market across rates, currencies, margins, earnings could be shifting under our feet. The tectonic plates of the market and the things that govern market heuristics may be shifting. And so for me to go out then, be adding a lot of risk in this environment is so easy for me to see how I would lose a lot of money doing that. And so at the moment, I've decided to take a really risk off approach and effectively just wait and see. And it's something which can drive people crazy. And it's something I've learned to do in my investing philosophy, which is, I don't really care if I miss a move. I'm happy to buy whatever it is after an initial move. If I'm being overly cautious and something goes up 10%, 20%. I don't care. I'll find a way of making money in that table later. So that's my current view of this oil shock. I mean, going into it, I had been very attuned to the fact that the market just had-- I mean, across different elements, whether that was Commod's SMP tech. I was just very cognizant of that. For several months, basically, since tech since October hasn't really been trending outside of that memory space. And then we had that flush in Commod's in late Jan. And some of the copper names that I've been in just [BLANK_AUDIO] been trading well. So I was very mindful going into this that you know the themes that I've been looking at and wanting to trade hadn't been trading particularly well. So for me it felt like a very easy thing to to go risk off. Now you know the response from US markets actually is pretty logical to me. Right. A lot of people are wondering why is SMP not down 20 or 30 you know because we're going to have this huge inflationary shock. Well if you actually think about positioning going into this like a lot of the Mag 7 were already in a bear down 25 30% right like Microsoft was down like 28% going into this. SAS has the living daylights kicked out of it right. So the stuff that really took it on the chin was like XUS, Europe, Japan, Korea, MSCI world actually to be fair has derated and it is in the middle of like a derating. It has these you know short rallies that it inevitably has been fading and so if you look at MDACs in Germany like that's down 8, 9% right and so in fairness like stuff has derated right. But positioning vis-a-vis the US I think people had been very long you know the XUS hard asset trade very short the dollar and so that the US wouldn't collapse immediately on the back of this is sort of actually logical to me given where positioning was. The big question I have and I'd be interested in how you guys are seeing this is you know whether or not I would feel comfortable attacking the tape on the long side for some areas like fertilizers you know energy refining parts of the commodity space like you know aluminium sulfur tungsten that sort of thing and then on the short side you know I have been playing around in short you know UAE short some European chemical manufacturers that sort of thing but again it's been for quite a small part of the book you know my investment philosophy coming back to that not losing money you've got to earn your way to trading in these tapes so if I can do that and if I can be profitable with 20 to 30% to the book okay we'll start to scale that up but at the moment I'm very cognizant that the spread of outcomes is wide and we've had a good start to the year and I want to be very humble and very very cautious but very open-minded as well so one of the names we traded a few messages on is Glencore within that space and you've you've written about Glencore to name you've had a bit of an association with so let's kick off a bit of a kind of cold chat with hearing your thoughts I think you'd written that it was your your biggest position although that might have since changed but how are you thinking about it right now yeah it is my biggest position and it's one that I actually feel fairly comfortable in holding in reasonable size so I think Glencore is a really interesting one because you know I think the management team has you know had taken quite a lot of criticism including from me in the past a few years over a variety of things but effectively I think what makes Glencore so interesting here is you know there may be a vindication of how the management team has actually wanted to position that company with the cold business the trading business and the copper business I see Glencore is being fairly asymmetric here and it's one of those interesting situations where you know my feeling when the stock goes down is I'm very happy to add it's it's what I call good volatility where you know I'm comfortable adding because if this situation gets resolved I think it can trade much higher on copper beta and at the same time if it wants to go lower because you know the this this sort of inflationary shock continues I think when you look at the cold to gas substitution especially in Asia and you look at where you know Brent has run you look at where European that gas has run but you look where new castle is you you probably think that if this all gets worse and gets you know extended that you know the at least on the thermal side that is room to run right and on the trading side they've been flexing up their energy trading and that gas trading business over the last 12 months which I think is going to prove to be a very very clever decision and you would assume that their marketing business will also print and so I think the management team is aggressive clever and thoughtful they really think like owners and I think the way they position that company in contrast to maybe many of the other majors they are uniquely positioned to actually be a a beneficiary of this type of environment and so I would love for them in April to give us an update on that on those marketing numbers um you know I think by by way of memory they printed something like 22 billion of coal ebit DAW in 2022 something like 7 billion of marketing revenue and the copper price is still higher than where it was back then and so you're looking at an environment where Glencore could really surprise to the upside in this type of tape and it's ironic and funny that you know we may be in the type of tape where the Glencore management just needs to remind everyone that they are also a coal company in addition to a copper company although they went through great great lengths to tell us all that they're a copper company during their investor day but so look so Glencore I feel very good about I think it's of I think it's it's well positioned to do well in many different scenarios and again you know that could change but that was a name that sort of came to mind quite quickly as this scenario started playing out I I personally I'm maybe in the minority here I would love for them to not fold into Rio because I think there's a unique culture and a unique sort of Glencore way of doing things that I think investors like I like owning a pure play into that culture which would I think be diluted if they merge with Rio um so you know I was actually very happy when the the merger got cooled off and actually started adding back to the shares then but again you know I may be well in the minority there but yeah Glencore is a name I feel pretty comfortable owning here you mentioned 2020 till again and I remember 2023 because that was when all of the the private traders had to post their four year results and disclose how many billions in profit they they they made and in the case of some of the traders you know where they're all owned by the traders with the set number of very finite number of traders they just you could you could calculate the on a per head basis what what these businesses were actually they're making and distributing and it's the volatility it's the extreme volatility that that that that just is an absolute gasoline to the profitability of these trading businesses and Glencore to you know one of the best publicly listed exposures to that overlaid with the call I love you thinking on it. Yeah and again I think it's you know there are other ways that you could try and express that view there's a there's a company listed in the US called BGC which I think used to be majority owned by Howard Lutnik and they are one of the if not the largest energy commodities and shipping brokers in the world you know that's another name that I have it in small size but yeah I think you want to own the names that can give you you know upside to the chaos for lack of a better word right and again I want to stress this because we're doing this at a particular moment in time you know I'm unclear whether in a we're in a predator prey dynamic which is sort of where the Glencores can really go up the BGCs can really go up and you know the coal names moon some of the sulfur and fertilizer names do really well while everything else you know may struggle or we're in a more sort of correlation of one type of setup where just everything is going to potentially de-rate so you know I'm still waiting to see what the market is telling me and I'm still waiting to see what market heuristic and what market dynamic we're in but if we are in this sort of predator prey dynamic they're so good we're going to be so much stuff that you can short especially going into the the earning season here in the US I think there's going to be a lot of pre-announcements coming out that are going to be interesting and I think there'll be pain there But as I said at the moment, I'm trying to earn the right to trade big in this tape. And so, you know, I'm seeing how I feel owning the Glencaw's, the BGC's. And then I'm trying to look at names on the short side where I think the names are crowded, complacent, longs that maybe are, you know, not fully internalising some of that shifting market topology that that we spoke about before. You explained that earning the right to trade the tape, is that, is that your parlance for getting a good grip on what this trade is and building your confidence, expressing it and, and subsequently, you know, having more, more positions? That's exactly it, Trav. So, it's really about, so it's, it's several things, it's that sensory feeling of when I wake up in the morning and I look at my book, how do I actually feel owning this stuff? How do I feel when it's moving? How do I feel when it's moving up? How do I feel when it's moving slightly against me? I'm really attuned to what is my instinctive reaction to looking at the tape and am I making money? That's incredibly important. It comes back to, is the allocation that I've built making me money? How am I managing my currency exposure? Right? How am I managing my cash exposure? And if that system is working every day and I'm feeling good about it, then I can size up if it's not working and I'm losing money, then we cut and we go back to what am I not listening to? What is the market telling me that I'm not being receptive to? That's really what I mean. So, you know, when you go through potential paradigm shifts and we may be in one now, you have to be really careful and not be too cavalier about putting on a ton of risk and being a bit of a deer in the headlights and actually finding out like, oh, actually I'm not comfortable with the level of risk I'm running. And by the way, I say all of this because in 2022, I did this all wrong. Okay, so I'm actually giving you the perspective of someone that had a really tough time on the onset of the Russia Ukraine war. I was not receptive. To some really basic market heuristics that in hindsight were really obvious. But you know, I shot my brain off to them and I caused myself more pain than I actually needed to endure and digging myself out of that was painful. So I'm very cognizant that I don't want to repeat the same mistake. And if it means I miss out on some upside by having too much cash on the sidelines so be it. I'm playing an infinite game in the markets and there will always be times and set ups to make money. Right. So I reset my book. I'm earning the right to trade through this tape areas to attack areas. I think you always want to be on the attack in the markets as well. You want to have that aggressive mindset. You never want to be defending parts of your book. You never want to be in a defensive position justifying why I own this name. Now if you're justifying why you're earning a name and you're fighting a narrative the way that I manage money you cut. You cut and then if you want to own that stuff again tomorrow you can. But it's so that's really what I mean. It's um you know in I'm a big fan of tennis and you know when you're playing tennis against an opponent and there is a paradigm shift in the middle of the match. I don't know if you guys are tennis players but you may start to try different things and you don't want to shift your strategy all of a sudden. You want to work your way into the match. Right. Trying certain things seeing how the opponent responds to certain shots, certain you know shifts in pace and I think it's incredibly important to do the same in the markets. Right. Especially when you're in a potentially dangerous setup like like what we may be in now. I think that's a fantastic analogy that that makes so much sensitive and really really speaks to me. Leon I'm really curious when you you measure how you're feeling right now. You mentioned Ukraine Russia but the other big events in recent history uh COVID if we go back a few years and obviously liberation day last year. So how do how do the senses you have right now contrast with those moments? So that there's that similarities and and across across all three JD I think you're you're you're totally right to point them out so I think a big so I think as investors we take on a lot of truisms that are ill fitting for how to trade today. So I think we embody truisms like well it's very hard to time the market right you've all you've heard that right don't try and time the market. It's um it's really hard to do and you just shouldn't do it right but actually in most of the examples that you've just given there the bad event was actually known ahead of time. We were all told about liberation day for weeks and so COVID is similar in that. I remember I was working a mutual fund at a time and I had colleagues around the world who were telling me about stuff that was happening you know New York that mobilized the National Guard in China you know liquor shops had run out of you know bottles of whiskey and vodka you know hospitals in Italy were full but at the same time you know the market was making sort of new highs in the face of all that of all that news and similarly for liberation day and actually similarly in the Russia Ukraine thing something that really got me in trouble was that yeah I think then as that actually rallied into that event and shortly after the first few days of the invasion I think then as that was up and so what you're pointing out is very interesting and it's a question mark rather than any solution I have which is in the face of potentially very negative events there can just be this lag time where the market doesn't react or doesn't decide that it wants to price in the bad event immediately right so it's what I call the sort of don't be a hero face of managing money which is you have a potentially very negative event the market is for one reason or not it's not pricing that negative event and yeah for one that is focused really on don't lose money there was no reason for me to run excess levels of risk now COVID it's very interesting because you know COVID at the time you know I was in a much better position to attack that tape because you know I had spent a lot of time on companies like Zoom Slack Amazon you know you remember actually back when SaaS was actually fashionable back then right and so when that event happened I had a pretty good idea of the type of names that we're going to work well and so I was able to attack that tape and actually trade pretty well through that as I mentioned to you the Ukraine war now I was very ill equipped in that in that particular circumstance and in Liberation Day interestingly enough I was also very heavily cashed up and I say this to other portfolio managers I say you know I didn't buy any of the Liberation Day dips but I still had an incredibly good year last year and it's something that there's a great trader called Michael Platt who runs a fund called um get what the fun is because I think it's called Blue Cress Capital but he basically says that you don't actually make that much money in the crisis you make money as you come out of the crisis so that my learning across COVID Ukraine Liberation Day having traded each one slightly differently some well some not well is the best thing to do is actually to do less and when the tape actually screams this is an obvious buy or this is an obvious sell then I'll get involved and so I think across all three my my guiding philosophy now is I don't try and buy dips I try and wait until the tape is stable I try and wait until the fog of the war is lifted and then I'll get involved because then I still will be able to make money um there's other stuff to do now you know I've been you're getting cash rates in across different currencies that is very attractive right especially as a euro-denominated investor um I found areas to park capital and chill out in for like a better word and actually earn a decent return on cash without having to pull my hair out too much about guessing when the straight of all moves is going to open or not I think I'm really trying to treat this event like you know the the COVID event the Russia War the April Liberation Time as let's just wait until the trade becomes really obvious if I if I pull you towards commodities again you know I'm like how do you think about precious It's history in the last few years and where it is right now. Yes, I was very long the gold streamers. By the way, great what that you guys did with Randy at Weeter. I thought that was a really great conversation. So, you know, I think that the gold and silver trade was really interesting. Last year and especially into the close of last year and coming into January, I was very long names like Franco elemental royalty, royal gold. And traded those pretty well. Where I think and I think we've spoken about this in the past where I've struggled just in terms of conceptualization is the sort of implied market cap of gold. Old versus let's say SMP or versus you know other markets. Now, there have been times in the past where you know the total market cap of gold may have exceeded, you know, US stocks. But as of now, I haven't checked the numbers recently but call it 3540 trillion. And looking at all other US stocks call it 60 trillion if gold were to double here would be worth more than all US stocks. Again, possible and I want to be very open minded to that as an outcome. But to me gold has lost some of the convexity that it had over the last few years. And so whilst I think it's interesting and it plays a role in portfolio construction. The lack of potential convexity just means that you know if I were to revisit I would I would size it's in a in a much smaller portion of my of my wrist buckets. So that's kind of how I think about precious now silver I think is really interesting because one key thing that I do look at when I'm when I'm trading themes as I look at things that are breaking like 30 year price regimes. And that that's sort of something that started to actually happen with silver and so that actually got me really interested. Same kind of reason why I started getting interested in the in the NICK as the years started right I'm looking you know you people say well that what's he talking about is talking about silver and the NICK well the common thing is they're breaking like multi decade pricing regimes. And the charts are actually screaming that there's something fundamentally happening and I want to be involved in those type of trades right now NICK. Again have to be really careful because this energy shock may have actually derailed that right so that's something I don't have on at the moment. So that's a big that's really important if we're in this paradigm shift where you know we're going into this inflationary input cost regime I probably don't want to be long some of those Japanese names anymore so I want to be very attuned to that. But so to answer your question I think the precious thing is very interesting. But I want to see that convexity to get really excited and interested in in the trade draft. You share a chart with us when we were when we were messaging I think over over the weekend it might have been and again pulling the conversation kind of to the nearer term with with commodities. But looking beyond precious. Bulk's these sorts of things where a lot of the metals coming out of Russia Ukraine as you've spoken about they performed very well in the first couple months. And then if you jump forward one year. The all the out performance are dissipated and a lot of them had trended down so how's that kind of informing your your view on commodities right now. Yeah it's a great question you do so. I took off a lot of my commodities trade as I had mentioned to you guys when we spoke in January the the hairs at the back of my neck had started to go up an indicators like how many times are people checking their navs in the fun how many times am I looking my count. That started going up and so I actually started taking off a lot of the commas at that point in time. So it's important and by the way there was that big flush right and some of the names like you know your copper names. Platinum. They'd actually started to trade less well even before. The war started a few weeks ago. So I'm very mindful of the fact that there was a little bit of a shift and these things didn't. That they had actually started to trade a little bit less well. So so then you have this this war and they trade even less well and I think that's that makes a lot of sense you had a lot of hot money that chased commas. So I think that the positioning short term was a little bit fuller. I actually think at the margin I would be a buyer of weakness in some of that stuff here because I think the big difference between now and the Ukraine conflict is yes I mean if we go into this doomsday scenario of huge inflationary market paradigm where central banks are having to raise rates. So I'm not going to be good for some of these metals right. But against that we've had a re confirmation of this recurring problem that nations have which is you know it's less of a it's less of a supply issue but a problem of access and who has the commodity. And this this Iranian war has just highlighted the fact that many countries are just short. Their own sovereignty. And so I actually think we are in a multi year bull market for commodities and if they want a week and significantly on this. And so the Iranian conflict I'd actually be a buyer of a lot of that stuff again whether that's platinum copper gold silver I just buy the whole thing. But I'm also very mindful as you mentioned that they had an initial rally after Ukraine Russian and then they then they then they collapsed I mean you have to also bear in mind we had like 14 rate hikes. And so we have a lot of time. That is something that you know we haven't discussed but I think is going to be very important is looking at central bank reaction functions to this thing. And so you know before I get very aggressive on the metals I'm going to want to look at that right because if look if we're having this conversation about like dollar debatement. So actually central bank start tightening and protecting the currencies I mean let's see how that theme does right. So I stay very open minded I'm long term very bullish on commodities and instinctively are probably want to be a buyer of that stuff if it goes down along. But I do think looking at central bank reaction functions is is going to be pretty important. The part of the equation that you spoke to before of toying around the 2022 playbook you know sets a big part of that like I just remember I remember those stocks just like what do you believe in some instances in 2022 and it it feels like a very realistic possibility I'm just kind of curious what does it take for you to build confidence and express a trade like that what do you have to say to to get comfortable. So I think the one thing that's prevented me from going absolutely huge in this stuff is really the improvisational quality of the US administration. And maybe I'm being generous by saying improvisational quality but it is effectively that. And some of this stuff is not going to some of this stuff is going to trade badly if they find a quick off ramp to this scenario and again you know I'm not a geopolitical expert and so there's no real value add in me. You know waxing lyrical about the different probability trees that could happen with off ramps and on ramps and how they negotiate with Iran and you know what what Nash equilibrium exists or doesn't exist between the US and Iran. But you know what I what I can tell you is if if there is a if there is an off ramp to the conflict and that happens quickly like that diesel refiners the fertilizers the energy names are be very surprised if they trade well into that sort of headline risk. And so the difference between now and that Ukraine 2022 scenario is that you know that just the geopolitical setup of and the more predictive nature of how the Biden administration was approaching the problem. the European response and what was happening with Russia was just felt like something, I can't quite put it into words, but it just felt like the spread of probabilities was more narrow than what we face now, especially from a headline perspective. And again, some of your listeners who are very knowledgeable about the physical side of commodities will say, this is what we're seeing on the physical side is not reflected on screen and my response is, that's fine, but I'm trading the stuff on screen. So if there's a tweet that comes out and I'm long oil and oil goes down 15%, and that's 10% of my nav, that's not good. So I have to respect that, I have to respect the headline risk. And that is the reason why I'm not hugely in that stuff. Now, playing the other side, what is really interesting is if you look at every differential between the crude price on the screen and what you're actually paying at the pump, every single one of those differentials has totally blown out. And I think to me that there is an opportunity there because I think as more generally start to pay attention to the blowout of all of those differentials, because obviously you're not paying, you know, prude futures when you go to the pump, right? It goes without saying. There's a big difference between that and diesel, but I think that as more generalists actually start internalizing that, and as the market may start to internalize that, that 2022 playbook may actually start to, may actually start to be something I feel more comfortable in. So, you know, I have been playing around in, you know, your archer, Daniel Midlands, your sassals, Glenn Cours. You know, there are interesting names that I'm attacking from the long side, but it's, you know, 2, 3, 4% of nav max, right? But again, the reason I'm not maxing out that trade is simply because, you know, I respect the headlines can, can send us much lower. And as I mentioned to you guys at the start of our conversation, I have no appetite to take like an intraday 4% drawdown in nav. And that can happen if you're massively long that stuff. Look, if you're super convicted and you have a very strong view of where this is all going to go, fine, you can run that type of book. I don't have that conviction. And so, for me, it's about getting little wins, earning the right to trade. And if the regime really cement itself that we are in that world, then I will boost position sizes. And I'll go bigger in that stuff. Your comments on diesel there, Leon, they make me think of that fantastic meme of the person at the pump trying to pump paper into the car to get it cranking. It's a it's a real problem. People are facing around around the world right now. As we kind of come to it a bit of a close, certainly. I'm very curious. You wrote this fantastic thread on embracing life as a trader, I think is the best way to kind of encapsulate it. And it might have been nine or ten kind of parts to it. But I'd love to know what kind of spurred you put in pen to paper on encapsulating how you view the world in a sense. Thanks, JD. I'm glad it resonated. It's an interesting one. I think that when you live and breathe markets, the neuroplasticity of your brain actually starts to change when you do this every day for years and years. And you know, I was on a long haul flight. And I just decided I was just thinking about it. And I thought to myself, I'll just write down the various ways that I've noticed that it's actually changed me as a person. And mostly for the better, I'm very, very interested in the inner game of trading and learning how to listen to that inner voice. What is that inner voice actually telling you? Right, you guys know it, right? Because you trade your books and it's something which actually in the investment management business, it's a bit of a taboo subject, I'd say. Like we want to present ourselves in an incredibly sort of, you know, left-brained analytical, cartesian profession. When I actually think a lot of the edge is how we rewire our neuroplasticity, how we lean into our instinctive abilities, our ability to sort of take in all of these empirical data points and then learn how to act on them. And as you live and breathe this stuff as a trader, it affects other areas of your life. It, in my case, it's made me much more open-minded to other ways of thinking, other people's viewpoints, simply because in markets, if I'm not super open-minded, more often than not, I either lose money or I miss out on great trades because I'm close-minded to stuff. And so, you know, if that's happening in markets and I have to force myself to think differently in markets, I actually find that it's reflected in life. You know, the volatility of life and, you know, having been someone that was, you know, earning a salary for many years and now I basically live off of what I make on my P&L. You know, it's allowed me to embrace the volatility and the vicissitudes of life in a much more relaxed way. I think, you know, and you guys are entrepreneurs, so you know this, right? But, you know, I think the various ways that people seek to suppress life volatility and stuff hits them out of nowhere and it can become really traumatic and difficult for them to cope with. I think when you live in the markets as an investor or especially a trader, you develop good muscle memory on how to deal with that stuff. And I think it's something that trading has really taught me is learning how to embrace risks, learning how to be really open-minded, learning how to take chances on stuff. And if you're willing to take chances on the screen and with your book, take chances in your life and try stuff out, right? So my approach to risk, how I deal with people being open-minded, investing and trading has really helped me a lot to deal with that stuff. And that's an ongoing process, by the way. So that thread was really sort of me just putting pen to paper on some of those thoughts that had been bubbling to the surface. Look, it's not a, and again, I say this to be, it was not a life for everyone, right? You have to live and breathe this stuff, but for those of us that do live and breathe this stuff that are never switching off, those are some of the things that actually came to mind. That's one last tweet I wanted to bring out, Leon, because I think you might even be able to tie in some of these reflections. And I want to bring it up because you put this out there and you gave no explanation. You said, "Elumana was the biggest loser of my entire career, cost me seven figures personally." It was one line, no elaboration. So tell me the story. So one thing that I live and breathe by, and it might drive some people nuts when I say this, is a key red flag for me is when I start to learn too much about an industry or a single name. Ideally, I don't, I want to know actually not that much about the name of the industry because that means I'm usually making money and I'm not worried about it. When I start to learn a lot about a name or a particular industry, it's usually because I've had to figure out why I'm losing money. The sad thing about Illumina is I actually know a lot about the business. I know a lot about gene sequencing because I lost so much money on it. So look, I'm probably the worst biotech life scientist investor out there. So anytime I tweet or I talked to you guys about a biotech name, you have a hundred percent guarantee that you guys can go short because I'm the ultra-contra indicator for that industry. But it hasn't stopped me from trying. So Illumina is such a great lesson on many, many fronts. So it's a great lesson in borrowed conviction. It's a great lesson in thesis creep. It's a great lesson in not obeying strong price signals. It's a great lesson in coming back to that Glencore example of actually liking and respecting management. Not paying attention to that stuff. So, yeah, Illumina was an incredibly painful loss. I don't know where you want me to start, but effectively that idea came about through this incredible growth investor called James Anderson, who ran a fund called The Scottish Morgas Trust at Bailey Gifford. I really recommend if you're mining listeners and not familiar with with with him, they should actually go look him up because I think he's an incredible investor, who's made money in everything from Amazon, Tencent, Tesla, SpaceX, Valle, Fiat Chrysler, Barclays, like he's an incredible generalist. And he had started talking about gene sequencing and Illumina as a really interesting company that could cause revolutionary changes to diagnostics for cancer and that would actually start to have this amazing Rubicon crossing of data with synthetic biology and potentially being the first trillion dollar life sciences company. So, he had started talking a lot about the company, I'd started reading about it. And I put the position on, this was in, I think it was in late 2020 or early '21, I started putting the position on. They had an incredibly interesting company called Grail, which was, it's actually a public company now and Grail effectively is what we call a multi-cancer early detection company where you basically take a blood draw and you're able from the blood draw to start to diagnose certain cancers much early on. So things like, you know, pancreas cancer, we don't have standard screens for, but the promise of Grail that, you know, a lot of us got really excited about was that you were actually gonna be able to start detecting some of these cancers much earlier. And if you can detect these cancers at stage one or stage two, it does make a big difference in the survival rate, okay? So, Illumina had spun off Grail and in late '21, I believe they bought that Grail for like four times the amount that they'd spun it off. So, okay, first red flag, not great capital allocation. But this is where the borrowed conviction comes in, which is, you know, James Anderson actually started talking about how promising it would be to mix the cancer detection with all the sequencing data that Illumina gets, right? And Illumina at the time had a global monopoly on gene sequencing. And so it had been this incredible business and the promise of Grail and Illumina was incredibly enticing and appealing to me. So I made that a really big position. And I had outsourced some of my thinking to other very smart investors that I trusted. Big mistake. Then what happened is, you know, the EU commission actually blocked the Grail Illumina deal, right? Another red flag, something that wasn't confirming the thesis and that management team decided to do the deal anyway, despite the fact that the EU had told them were blocking the deal. So then they got involved in a huge amount of regulatory morass. It was a massive distraction to the management team. Then you had the Chinese market that started slowing down a lot for sequencing. And then we collided with sort of the paradigm shift of, you know, an inflationary rate-hiking environment. And that stock went from like $500 to sub-hundred, right? And I think I finally cut the name in the 120s. And, you know, the way that I manage money now is, if I was holding that thing in the $500 and it, you know, and it went to like $450, I would cut that name immediately now. And I'd have it on my radar and I'd be ready to revisit it. But I'd be cutting it aggressively to zero, revisit. Maybe I started again. If it falls down again, I cut it again. As the thesis gets disconfirmed, as the price action screams, as what's happening in the fundamental world is screaming that, you know, you are wrong. If I'm sorry, if you own something at $500 and it goes to sub-hundred, you got it wrong, right? Right. And that company's not actually never come back. So look, it was a painful lesson. Don't borrow conviction. If you instinctively don't trust management and they're doing things that don't make sense, sell, if price is screaming that you're wrong, you're probably wrong. A great exercise if you're long something and the price isn't confirming your thesis is you should just sell and try and go short and see what, see how you feel, see what happens. So all these tools in the toolbox I've developed since then, but yeah, that was my most painful loss and touch wood. We don't repeat that. Again, if I ever pitch you guys a biotech long, you're buying me beers next time I'm in Perth because I would have given you guys a great short candidate. I'm not tempted to buy a biotech, but your heuristics have went to cut. I feel like I've got to cut most of my portfolio now. Lay on a short and see how we feel about some of those names. Leon, this has been fantastic. I really have enjoyed hearing how you see the world, how you trade, how you constantly look to improve. And yeah, thank you for making your podcast debut with us. It's been hugely enjoyable. Jens, thanks so much. Keep up the great work. I think money of mine is going to continue in its ascendancy as more generalist flock to commodities. And I think again, as I say, I think you guys have created a really interesting and exciting platform. Cute osteo both. And yeah, excited for where you guys take this. And again, thanks for having me on absolute pleasure. Big fan of the show. This conversation has been great fun. Thanks so much. Thank you. Thanks Leon. I appreciate it. Huge thank you to Sandvik Ground Support, Nat Jen, Intralinks and Focus the Platform by Market Tech. Hooray. Hooray. Now remember, I'm an idiot. JD's an idiot. If you thought any of this was anything other than entertainment, or an idiot, any idiot right out of disclaimer.