Finding Niche Investments through Assessing Risk With Tom Holliday
On this episode we are joined by Tom Holliday, Founder & Chief Investment Officer, HIP Investments. Tom is an expert in niche investments. He touches all kinds of topics like the commodity super cycle, green transition, decentralization, deglobalization, and more.
RECORDED FEB 3, 2023
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Paul Barausky: 0:03
Well hello everyone and welcome to this week's edition of the fat pitch Podcast. I'm one of your hosts Paul Borowsky chief distribution Officer of Sealy investment securities and I'm joined by your other co host, Clint Sorenson. Clint, you've got too many companies in too many titles for me to keep track of. For those of you who aren't familiar, every week, we try to bring you an interview with leaders, luminaries, legends, and even some lunatics from across the investment spectrum. I like to say everything from cannabis to cold storage and everything in between. Clint, why don't you tell everybody a little bit more about the fat pitch? I think you'd like to quote Ted Williams and Warren Buffett in the same sentence, then introduce our guests this week.
Clint Sorenson: 0:49
Absolutely. Thanks, Paul. Yeah, you know, fat pitch investing is about trying to find those opportunities that we think present a good risk, reward balance. And we're going to interview people that have subject matter expertise in these areas. We're gonna let them talk about what they think the fat pitch investments are. And hopefully it'll give you something to think about. Again, we're not we're not guaranteeing anything and we're not making investment advice. This is just opinions and good talking points on what our speakers and what our CO sometimes think our fat pitch
Paul Barausky: 1:19
Ted Williams, Ted Williams knew how to wait for it. I think he saw it before it came out of the pitchers hand. And then I think you forwarded me a quote from the legendary Warren Buffett, the Oracle of Omaha who said exactly that way, hopefully you see it. And that's when you take a big swing. So who's our guest this week? Yeah, so
Clint Sorenson: 1:38
we have Tom holiday. So Tom holiday is the founder of hip investments. And his focus is on niche investments, which is really great. So he's here to talk about a lot of things. We're gonna talk about the commodity supercycle, the green transition. And, Tom, I'm really excited to hear what you think are some fat pitch opportunities, given that backdrop, and I hope we go deep. I hope we talk about decentralization. I hope we talk about D globalization. I hope we talk about the new fad regime. We talk about a lot, but we only have a limited time we're gonna start drinking. Talking about some investments to you. Well, well, Tom, I want to just start with you and say, Tom, give us a brief overview. Tell us who you are, tell the audience a little bit about your background. And I might dig deeper into some of those points before we we talk about where you think the opportunities are today.
Tom Holliday: 2:28
Well, listen, fellas, I appreciate you letting me be on your show. And hopefully I'll swing and not miss on on some of these things. But I'm originally from down South Memphis, Tennessee, I've been in the alts business now for Wow. over 34 years kind of crazy. Now, it's not going on the big time. But you know, it's it's also been an amazing journey. I mean, it's I think we all fail to kind of really appreciate the journey and not think about kind of the, you know, what we've been through because sometimes you're so busy dealing with the immediacy of whatever's going on at the time, that you sometimes you don't sit back and take a look at, wow, this has been a hell of a journey along the way. And the different market cycles I've just seen in my career are pretty crazy, but super informative. And hopefully those experiences, you know, lead to better results and helped me to really think about, you know, new opportunity. So I'm very grateful that I've had this, this this opportunity. And I'm super excited about what the next chapter kind of looks like.
Clint Sorenson: 3:39
Awesome. Well, Tom, thanks for coming on. Tell us a little bit about your past investment experience. Yes, some of the firm's you've been with and how you got started in commodities. And I'll go ahead and say you're one of the smartest people I've ever met in my life. So that's a lot coming from you. And other smart people have come from commodities as well. Right. So I think it's, I'm starting to see a trend there. So tell me a little bit about your experience in commodities getting started and walk me through some of your investment experience. You've had some some big titles and big roles and done a lot. And so I think the audience would appreciate that. Yeah,
Tom Holliday: 4:09
sure. So, um, as you mentioned, I started my career in commodities. I'm from Memphis, and a lot of people, you know, think this is all about Elvis and rock and roll, but it's actually not. You know, it was a it is a big commodity hub, obviously, the Mississippi Delta. It was the largest cash cotton market in the world. But the first grain sale to Russia was done out of Memphis, Tennessee, in the early 1970s. I mean, it's it's been a big commodity hub for years. And, you know, just curiosity got me in the business. My dad was a doctor and I knew really nothing about financial markets, but it was curiosity that kind of led me to those and commodities in general, just because of my office's position in that market. You'd watch TV as a kid and you'd see like, the price of corn and beans and this and that and I'm like what it's all about kind of mean, I mean, most people from the big cities don't see that. But if you live in a more rural market, yeah,
Paul Barausky: 5:05
that's a really good point. I grew up east and I moved to Omaha for part of my career. And suddenly, it was all commodities, not equities. So So I understand that,
Tom Holliday: 5:15
right. So you know, and then you live in the big cities, or you're seeing stock prices and market levels, but you live away from the big cities, and you start seeing the price of beans, and corn and wheat and all this other kind of stuff that, like, what is that all about? And, you know, if you just get a little curious and pull in those threads that kind of lead you down a rabbit hole that hopefully you can get out of one day, but that's what kind of led me into the business. And, you know, to your point about, you know, some of the great commodity people out there like Paul Tudor Jones, you know, started his career actually in the chyme business and trading commodities. And I think it's a great training ground, because you learn, really, I think, really three important lessons. Commodities are about fundamental supply demand. At the end of the day, every market, that thing is driven off of supply and demand. Number one, so it's very fundamental. Number two is there's a big technical component of commodities as well as positioning and, and what's driving prices and flows and things of that nature. And then lastly, is leverage, which is probably the most important lesson you need to learn, you know, when you trade futures there, they've embedded leveraged in the contract. And and if you're a speculator in those markets, you really need to learn about, you know, the effects of leverage and how to manage risk really, really quickly, or else you're going to be taken out of the markets. So like, those are really, you know, three great lessons that the commodity investing, you know, teaches you. The other one that probably is one of the best lessons is on the credit side of things, and you know, credit kind of underpins everything as well. But those three lessons in the commodity side, I think are, were fantastic. For me, they were hard lessons to learn along the way, the school of hard knocks definitely applied. But it actually has helped me throughout my career in terms of looking at other opportunities. So fast forward, I got to work for George Soros. And in 2000, so here's this guy from Memphis, who gets to go to New York, and
Clint Sorenson: 7:21
that was right afterwards. Right? Were you with drunk or did you overlap?
Tom Holliday: 7:26
I pushed it. Yeah. Well, that's actually, you know, you know, what happened was obviously, I got there.
Paul Barausky: 7:38
Right? After eight years for you that, yeah, What years were you there?
Tom Holliday: 7:42
I was, I was just there for a year. And it was in April of 2000. Right after the tech wreck, and, and after George and standup, decided to, you know, break the relationship and stand one zone and manage Duquesne capital solely.
Paul Barausky: 7:59
So you came April, you know, what I've right after the NASDAQ had a bloodletting of what 50 odd percent interesting time to join.
Tom Holliday: 8:09
Yeah, I think it was down 25% That month, and they got they got, you know, they had a pretty significant drawdown this month, that month. And I think that's what caused, obviously the relationship to sever. But listen, they both done fine after that.
Paul Barausky: 8:25
No tears.
Tom Holliday: 8:28
There. Now, no, and more importantly, for me, what I realized was where there's volatility, there's opportunity. And what that presented for me, luckily, was was an opportunity to work, you know, you know, closely or more closely with with Jordan and investment committee that was kind of restructuring the firm and what they were doing, which was, which was, you know, pretty fascinating to be quite honest with you, because I got to see how he thinks a little bit more and how he thinks about risk and reward a little bit more and interact with some other legendary investors that had been with him for years and think and see how they thought about investing in hedge funds and different strategies. So it was actually a, you know, a great, very informative period of time for me. But, you know, I was, you know, entrepreneurial, and had this bug to kind of do something on my own. And there's another guy that I've known from down south as well that have been living in New York for a while that we decided to launch a firm together called Titan advisors. So I left Soros to launch Titan and Titan was a was a fun to fund and a hedge fund allocator that did a lot of very, very interesting things as a firm I was at for 19 years and was super proud of the team and the things that we accomplish there. But, you know, if you remember back in, in 2000, you know, obviously technology was was was on fire And, and people were pouring money into technology and nobody ever thought it would go down and then the bubble burst and, and people really got hurt in particular institutions, you know, endowments, foundations and pensions and folks like that. And, and our thesis at the time was people were going to want a more risk managed way to invest in markets. And obviously, hedge funds, we thought, were going to be a big push for a lot of these institutional investors as they look to kind of repair the damage that the tech wreck had done. At that time, I think there was about $800 billion in hedge funds in the marketplace at the time. So it really wasn't that large it was predominantly by high net worth families, the savvier downloads and foundations were the bulk of the marketplace, as well as some smaller institutions. So we started the firm at a time, we thought there was going to be a big push in really capitalized on our expertise in these markets, or expertise in the hedge fund area, and the need and desire for these institutional investors to get into the space. However, we were a new firm, and we had to battle the new firm of problems that everybody has, you know, why would you put money with Titan when you could put money with Goldman Sachs, and and not take that reputational risk. So you had to think about how you did things differently and stay true to your style. And the one thing that, you know, my partner and I loved were more trading oriented strategies, you know, people that really had a great fundamental underpinning, but really were savvy in terms of how to manage the position and manage risk. And then secondarily, we love the new manager hunger element. So this is a big thing for us, which is at that time, you had obviously some some behemoths in the business. But we wanted to find the guy that had been through or the gal that had been through a couple of market cycles. And they were about to embark on their on their investing career in their own fund. And they knew they knew that, you know, they had to be focused 1,000%, they knew they couldn't lose money, they knew they had to manage risk really, really, really well in order to attract capital. And we really wanted to harness that element in what we do and really be differentiated. So the other large allocators that we were competing against, you know, we're going with all the top name people out there, and that's fine. You know, that was their edge. But we wanted to go with the newer guys, the hungry, eager managers, the ones that were just up and coming. And you know, we were invested in them. So phenomenal managers that you read about today. Like for instance, you know, Steve Cohen and SAIC capital was one of our core allocations.
Clint Sorenson: 12:33
Tell us some good lessons he learned during that whole period. I would love to, to hear like what was the most profound lesson you learned both at at Soros? And probably you know, if you can pinpoint one thing tight and I love the emerging manager aspect, yeah,
Paul Barausky: 12:47
you do love emerging managers, I hear Clint talk a lot about that. And I also agree with you in hiring individuals or firms, I look for people that have shrapnel wounds, not mortal wounds, maybe they're self inflicted, sometimes self inflicted, is the most valuable lesson learned. Maybe they're inflicted by the market, but I agree with you, I look for that, because the hunger is there. And then when there's nobody making an auto deposit into your account from a company every two weeks, when it's on you, you better believe you count every dollar of overhead and every dollar of AUM. So I certainly agree with you. But is that always been a belief of yours to look for that emerging manager? And how do you sort of? I mean, how do you find I mean, you know, how do you qualify it? Well, I
Tom Holliday: 13:30
think that, you know, being a trader, you know, early on, you know, where you've kind of taken risk and you've gotten beaten up, and you kind of know, some of the lessons, I think the real differentiation between us, for us at Titan, and in general, for me, has been, you know, that, you know, having some experience in the mortgage, you ask different questions, you know, no disrespect to consultants and other people that focus more on process and process, by the way, is exceptionally important. You got to understand how, you know, people, you know, discover ideas, you know, how creative they are, you know, what's involved in terms of sourcing those things. But as important or more importantly, in our opinion was how do you structure that's right, how do you manage the trade, how you risk manage the trade, because the end of the day, there's a big difference between being smart making money. And, and, you know, bull market can make everybody look really, really smart. And what you want to do is find people that have that unique combination skills, which is great fundamentals, with with great risk management, great credit tray construction and great, great trading. So you know, what I learned at Soros is and he's written about this, and I think you've probably even heard interviews from Stan Druckenmiller about this is, you know, when you have conviction, that big. I mean, when you have conviction on something and you feel like you've got something that the market does pitch,
Paul Barausky: 14:53
silly, big, fancy, the
Tom Holliday: 14:55
big big provided that you know, where your liquidity is. You have an accent Oh, your liquidity is. So the big thing for me in terms of lessons I've learned is, I was always a big guy that was like, okay, understand process, but then understand risk and where your returns are coming from. And if you were an analyst at Titan, and if anybody then watch this this clip, you know, God forbid they do. But if they do, what I'm about to say, is gonna resonate with all these guys, because I hammered it home every single day, there are three sources of risk, with almost every strategy, leverage liquidity, or concentration, one or a combination of those is typically what's driving the returns and the gas portfolio. And it was my job to understand around their process, what was the primary and the secondary risk, they were taking around those three things. So with George Soros, you know, what was great about him as he would go big, but he would knew that he had liquidity he wanted to get out, he's out and on to the next and in order to, you know, reduce his risk to something. And that was that was really interesting. With George, and it tightened to your point. You know, we were, we were a big believer in, in the hedge fund business, that's a talent business, you know, it's kind of like sports, to be quite honest, is that, you know, long only investing, you know, you'd have an index, and you'd have a managers dispersion around that index really be pretty tight. But a long short equity, the dispersion of returns in a year, on average, I haven't looked at the data in a while, it's probably about 40%. From
Paul Barausky: 16:32
first to fourth quartile. Yeah, first
Tom Holliday: 16:34
of all, at least 40%. Now, why does that exist, it's because of the way they take and manage risk. So you've got guys gotta be really net long, you guys mean that short, you guys got to have variable net, guys would be really concentrated in your sector focus funds, you're gonna have all these ways that they can use the tools that are afforded hedge fund managers to take risk. And that leads to this dispersion. So you better be very clear about your understanding of not only their process, but how they construct a portfolio, and then they how they manage risk when things go wrong, because guess what, things are always gonna go wrong. So where's my risk? And what is my expectation around that risk? And when you're looking at a new manager, I'm going to turn my light on, sorry about that. And if I look at a new manager, for me, it's like, what in their experience to your point has led them to this time in their life, and then when start a fund, have they've lived through a couple of cycles, so they've probably been beat up a little bit, hopefully not too bad, nothing mortal, which has gotten to this point. And now what is the market environment look like, relative to their skill set, that I think will lead to future success. So I didn't care where somebody was timber, to, if I heard somebody that I thought was interesting, I'm getting on a plane, or I'm having a phone call, I'm going to go meet with them because it was about the hunt, was about the hunt to find the undiscovered manager. And another one of my favorite books is Moneyball. You know, it's not about the, you know, the guy that's expected to win the guy that's got the, you know, the perfect body type, the perfect resume, the perfect everything. It's about the guy that doesn't have that, that's got the passion and desire to win. That drives him that I want to know that's the person I want to find. And because you know, most other people are going to like forget about that person, because they don't fit the image. I want to find the guy with the weird release that nobody's gonna look at because I don't think he can, like succeed in the pros.
Paul Barausky: 18:42
So a quest but boys got to a point. And then a question for you. One is, I think we could all safely guessed that Michael Lewis who wrote Moneyball is probably off writing a story about crypto right now. Right. High Frequency Trading, he's hit them all. He did The Big Short, that would be the
Tom Holliday: 19:00
I think he already had an interview. I think
Paul Barausky: 19:02
he got the Yeah, I mean, he's gonna write the best the best of it. I mean, every books on my shelf, no doubt. So what are you so HIV? Are you continuing that work right now at hyp? Are you finding those undiscovered?
Clint Sorenson: 19:15
Let me jump in. I want to say one, one important thing too, as it relates to the fact pitch, right. And the fact you mentioned something, I don't want to gloss over the importance of managing risks, the risk, the position, the liquidity, the things you mentioned, managing that risk is super important, even in a fat pitch. Right. So you, you said that George always knew where the liquidity was. So yes, a fat pitch, he's going to take a big swing. And so for our listeners out there, remember, just because it's a fat pitch doesn't mean you have to throw caution to the wind and forget your risk management principles. You always have to manage risk. You're going to be wrong, know what to do when you're wrong and have those decisions to find before Yeah,
Paul Barausky: 19:53
because if you go for foreign the game, you might get sent out of the minors. You do that too many nights in a row and I agree with you said leverage liquidity and concentration, I wrote it down because I think it does come with a little maturity or experience, right? That's what we all guys tell everybody. But you look at different markets from tech to golly, I remember when all the insurers had all the CMOS and their portfolios in the market dried up, remember, you know, when you have no liquidity in the market, you got no market. So,
Tom Holliday: 20:27
well, liquidity rules everything at the end of the day, and if you take the two that you can't take at the same time, is, is leverage and illiquidity. That's usually a game over. So really trying to pull in those threads is really, really important. Appreciate
Paul Barausky: 20:45
you bringing that up. That's what we call a GTZ. Moment go to zero. Sorry, sorry.
Clint Sorenson: 20:53
Go super important. So
Paul Barausky: 20:55
I'll jump into the fat pitch now. Yeah, tell us what you think are the good the fat pitch opportunities today, from your vantage point,
Tom Holliday: 21:02
you know, you guys asked us long ago, you know, I started my career in commodities, and it's hard to kind of get it out of your system at the end of the day. And, you know, I'm always curious and looking at those markets. And, you know, starting about four or five years ago, you know, I started learning a lot more about the the carbon allowance market or the carbon credit market, which are these markets that really underpin the move to renewable energy, they put a price on pollution, in essence, and they they regulate entities that that emit pollutants, and force them then to be a part of these these regulated programs. And you know, the dirty little secret about those programs is that they're they're set up to be instructional short supply, as they meet to their to their goals in the day. So they have fewer allowances available than what's needed, all else being equal, because they want to force the regulated entity to change their behavior. And the only way you do that, obviously, by it, costing a lot of money. And therefore you've got it got to change because you have to buy these credits. And so as a kind of guy, if you ever saw something in structural short supply, you're like, I want to own as much of that as I can. Yeah, right. And it provided you understand, you know, what, what, what could create some bumps along the way. And then as I kind of pulled on that thread a little bit more, I'm like, I need to learn a little bit more about this whole renewable energy movement that's out there. And, you know, as you start to look at that, and you're like, Okay, you look at when you look at solar, and you look at electric vehicles, and batteries, and then the grid, comes pretty quickly apparent that all of those things need electricity, metals, copper, aluminum, nickel, zinc. And if you want to throw in things like cobalt, and lithium and the rare earth metals, those are the tip of the spear, you can't get around using those things. Because the electrification of everything goes through those metals. So then you go, Okay, so what's the supply of those things? And that's where we have a significant problem brewing in the marketplace. So my view is, you know, we have a, we have a commodity supercycle that we're entering in, that is, perhaps maybe going to dwarf the ones that we've seen in the past. So if you look over time, you know, these commodity supercycle are really driven by an industrialization period, or modernization period, where, you know, demand really outpaces supply and supply is, is slow to respond to the demand period. And if you look at this industrialization, America in the 19 century, if you look at the rebuilding of Europe after World War Two in Japan and Europe, if you look at China from 1999, through 2009, you had these huge commodity supercycle dip around these, these industrialization periods. I think the one we're about to embark on, I think is the biggest of all those, and it's basically has to do with the modernization of the energy system. And guys, it's hard to fathom what that means. There are three main things in life, water, food and energy. Okay, energy being one of these things. And if we're moving our energy system from one that was based on fossil fuels, predominantly, or almost entirely to now, almost entirely on renewable energy. I mean, we have to make investments on the order of 120 to $150 trillion with what they're estimating between now and 2050. And those investments by the way, require metal electricity cannot happen without these weren't metals. And then the problem is, is that a mine takes the IAEA states this, by the way, about 16 years for mine to come tomorrow, my goodness, 16 years, and how
Clint Sorenson: 25:13
much supply they have based on that demand. I mean, how under supplied are even $150 trillion, a lot. And I've read articles where it's like 6 trillion a year. And some estimates in order to meet these goals, see this huge wall of demand. And you've talked about the short supply? Let's walk through an example. Give me an example of one of the metals and let's talk about how short supply we are? Well, I
Tom Holliday: 25:35
mean, let's just talk about like copper, for instance. So copper is a, you know, is the most important kind of electricity metal in the in this in this whole exercise. And, you know, there are a few different scenarios that all these research firms kind of point to, which is, you know, kind of a moderate scenario, and then then an accelerated scenario, the accelerated scenario has to do with our net zero goals by 2050, which is limiting the world's temperature increase to one and a half degrees Celsius. Okay, so that's the most, you know, significant one that we have to deal with. And right now, the estimates are by I think it's by 2030, or 2035, that we'll have to produce more copper than we've ever produced in the world up into this point, to meet the demand by 2035.
Clint Sorenson: 26:28
So think about what that means per year.
Paul Barausky: 26:31
And you speak up a little Clint, are you might be a little far from the mic. Yeah.
Clint Sorenson: 26:34
I mean, he think about what that means per year. Yeah,
Paul Barausky: 26:37
massive.
Tom Holliday: 26:39
Well, it's like, for instance, Glencore in their December investor presentation, they see between now and I think it was 2030. A cumulative deficit. So between now and 2030, a cumulative deficit of about 50 million tonnes in copper 50 million tonnes, a cumulative. Now right now We produce about 24 million tons of copper, a year about about by when I'm talking about refined copper, and, you know, back in 2004, through 2006, I think in 2004 2005, we had about a 1.8 million time cumulative deficit. And those two years in copper prices went from about $1, a little bit less than $1, to about almost $4, in, in, in 18 months to two years from from a small deficit and that deficit representative maybe about, you know, slightly less than 10% of production, you know, this 50 million time cumulative deficit, but represent a much larger percentage of production by the end. So you're talking about significant supply demand deficits that exist in these markets, that that that are going to lead to much higher prices. But more importantly, as importantly, the price of copper today is not incentivizing new production. I mean, what you have to have in order to get new production from these miners is an incentive an incentive is price. And due to the huge capex, that's required to create a mine in these really crazy places around the world where you have to deal with all all sorts of other risks. Yeah,
Paul Barausky: 28:21
so the geopolitical influences have to be ever shifting here too, and playing a major impact.
Tom Holliday: 28:30
And particularly in a world where we're de globalizing instead of, you know, we have one big group
Paul Barausky: 28:35
hug now,
Tom Holliday: 28:35
the group hug has gone away outside
Paul Barausky: 28:37
groups that farm and
Tom Holliday: 28:40
resource nationalism, I think they'd be at the center of that group hug. And when you have resource nationalism, you know, like Panama, right now is in a fight with with a large mining company around, you know, royalty streams and permitting and stuff like that. And, you know, what you what it can do is you can nationalize a mine, we now the company loses the asset, because the country takes it over. Which, you know, once again, creates real risk if you want to invest in the commodity equity side of things, right. So, you got these resources and all these crazy places around the world will, what's the risky you lose the asset, because the country goes rogue, and takes what you have along the way, is is a huge risk as well. But what I know on the commodity by by doing a pure play in the future side, is you are truly just focused on the production, you know, the supply of what's out there, and the demand for that product. And, and not directly being associated with you know, a company would with the risk of something like a nationalization happening, but you just dealing with the supply demand dynamics of that every day in a liquid market where you can move your feet when you need to go back to George Soros, which lower your liquidity. These are cyclical commodities are cyclical, and although I think the tailwind is low, At this, you know, supply demand will will will have to balance along the way. And you'll get ahead of the market at some point and you'll probably get a reprieve you're going to have to deal with macro factors like recession, which, which destroy demand along the way. And you have to have people that recognize when the micro and the macro kind of collide with each other. And actually 2022 is a great example of this.
Clint Sorenson: 30:22
Let's say you had growth and inflation starting to slow on the back half of the year, and just it just smoked industrial metal. So a lot of these metals have these baked in supply and demand imbalances long term. You know, they really had a tough time and perform like they typically do during during the growth and inflation slowing.
Paul Barausky: 30:40
Yeah, so So talking about that, Tom, I think we probably got about five minutes left. In today's episode, if we talk about the threats right now, to your investment thesis, what do you identify as you know, you're looking for fastball, and it's really a curveball that might slip out? Pitchers hands?
Tom Holliday: 30:57
Yeah, I think that the the the biggest one is just the macroeconomic environment. I mean, as you guys have talked a little bit about, you know, we're in tricky times. I mean, like, for instance, right now, in the equity markets, you know, that the Fed has stated that they're raising rates, albeit there you got an island market, I think deflation is coming back, you know, the markets have ripped higher, but we're an earnings recession, if you look at a lot of the leading economic indicators, there's pain ahead, if you believe that those indicators, you know, have predicted some of these pain ahead. And you would, you would think that would flow through into some of the commodities as well. So that's one thing. But in the interim, you've got China that just rido open, and we have basically about two to four days physical supply of commodities, on these exchanges around the world. So we basically have none, at a point in time that that China's reopening and Europe by the way, is accelerating their move to renewable energy because of energy security needs, in relation to Russia, and needing allowed this metal for what they're doing it and then obviously, the inflation Reduction Act in the United States and the amount of money that's been committed to and thrown at renewable energy here. So the demand on this renewable energy side is, is still, you know, very, very high. But you have, you know, global economic concerns about recession, and maybe a lot of stuff haven't played out yet. And it's, you know, a lot of these metals are in everything, right? You know, coppers in, is in is in real estate, it's in appliances it's in, it's in everything. So if we do go into recession, you'll probably see some of that ebb and flow around that. But you have to once again, manage those risks along the way and realize, you know, when you're at one of maybe one of those tipping points, where you can manage risk and look to reset and captures opportunities, but all that's being equal. If we're going to meet these, these net zero goals in these renewable energy plans that countries around the world have. Metal metals are the bottleneck. And depending on the scenario, it either is in chat challenging, from a baseline, to almost improbable in terms of the accelerated goals. And what has to happen in order to encourage new supply is prices have to go materially higher, in order to get
Clint Sorenson: 33:22
there. And that's so funny. And so you're really painting the picture into clay, and I love for your thoughts on this just either say, yep, or, you know, add some value to it. But you're really painting the picture, you know, for for a secular regime, that his long term price increases, right, so inflationary, because of all the supply and demand imbalances that you've laid out. And you also start to factor in that D globalization, which I don't think people are really, you know, paying enough attention to, and what that means for just natural price increases as you get resource nationalization, you get less efficiencies in the system, and you get the US stopping to police the shipping routes, right? So you're painting that picture, but you're also painting the picture for a tough growth environment. If you think about it to rising costs, right, you're gonna it's going to come from somewhere and you think demographically. So you're really talking secular stagflation met with maybe some cyclical deflation. Am I off base here? Is that a good summary of really the macro backdrop to the thesis?
Tom Holliday: 34:24
I think that's right. I think the playbook is the 1970s. I think that the last 40 years is is you know, that the hard thing investors is going to be trying to shift their mindset from the last 40 years declining interest rates, you know, marked by in particular the last 10 years of near zero or zero interest rates or negative interest rates as the blow off of this whole cycle. And now we're in a period where commodity inflation and other inflationary pressures are going to be sticky because of lack of resources, significant underinvestment in the supply response. That can't happen quickly, because these investments take too long to get the supply. And therefore, I think you're going to have waves. So as you know, Clint, you're your student of the markets. You know, we had a move up from like, 1968, to 72. And inflation, we had a reprieve and then like, 9076, and we're free. And then we had a blow off and at 81. And I think, you know, a lot of people want to feel like this is 76. I kind of think this is like, 72, I think we're still in the first leg of
Paul Barausky: 35:34
this not see the equity for the entire decade, please. Well, maybe it's good for a guy who camps out in the real estate world like I do.
Tom Holliday: 35:42
But that is the point, though, that that's the important thing, which is, if you look at the equity market, from 68, to 80, you know, obviously, it didn't really do anything and commodities outperformed tremendous, tremendously. Look at look at the equity market from 1999 through 2008. Nine
Clint Sorenson: 35:59
it did 59% and commodities,
Paul Barausky: 36:02
commodities were rockin, yeah, no doubt, yeah, we could have an entire nother podcast with you and talk about water too. You mentioned water or lay on Oh, golly. I mean, there's an entire college curriculum there.
Tom Holliday: 36:15
I completely agree. And I just think that, you know, we're living in a world where, you know, we are resource constrained. and Russia, by the way is taken off about 10% of the world's resources in general, they represent about 10% of the world's resource remarkable. They're offline. And then you had supply constraints before that, which is made things much worse. So we've got issues when we wouldn't have talked about by the way, we're all these things are primarily processed, which is mostly in China. And we have obviously geopolitical CERN's in China. So production is in geopolitically risky places, processing is in a geopolitically risky place. It's gonna be it's gonna be this has
Paul Barausky: 36:56
been really enlightening. For me, it's not, it's not an area, I just think in terms of what it costs to build a warehouse, or I'll think about commodities. And, you know, Clinton, I had an argument leaving the crescent court hotel here. A couple of months ago, it turned out he was right. And I was wrong. Because we were thinking about the bass brothers corner in one of the metals markets here. And one of us said silver and one of us is silver. Copper, so when you started talking about copper, it was it was right, I was wrong. So, Tom, let us know. You know, I want to thank you. This has been terrific for me. I know you and Clint have known each other a long time. But where can people find you do have Twitter? Do you have LinkedIn, anything like that? And anything else you might want to share here?
Tom Holliday: 37:41
Yeah, I'm on LinkedIn. I'm not I'm not on Twitter. The name of the firm is is hip investments. Our website address is www dot HelpNDoc. Dot investments no.com that messes everybody.
Paul Barausky: 37:55
You're out. It's got to be hip, right. Even though you started in Memphis, you and the rest of California and New York all moved out there. And I still it's pretty amazing. It's a remarkable growth story. That's for sure. Clint, any final words?
Clint Sorenson: 38:13
No, just thank you, Tom. And we'll have to have you out to come talk about some other niche investments. Maybe you're gonna create a SPV for egg investments because I've seen eggs nice.
Paul Barausky: 38:25
I looked it so we had a snowstorm in Dallas. I don't know if you know we'll go we get an ice storm every year between end of January beginning of February. I mean, you can set your calendar by it so we just had it. There were no eggs in my local Tom Thumb not even forget cage free fancy shmancy not even the white ones that look like the eggs were being you know, chickens in a gulag in Siberia? Nothing. When I finally went back the other day. I think the ones I bought were over 750 for a dozen.
Tom Holliday: 38:54
Yeah. So once again, I mean, we could talk about agriculture. We could talk about noodles, we could talk about oil, we could talk about just commodities. It's gonna be an interesting I think, I think it's gonna be an interesting 15 to 20 minute conversation
Paul Barausky: 39:07
to talk about commodities. My first exposure you're right is a guy in the city was watching Clarence Beeks on Trading Places. Dan Ackroyd tried to claim the orange juice future mark. I know you
Tom Holliday: 39:25
want to say that originally,
Paul Barausky: 39:26
he makes his hotel and restaurant reservations under Clarence speaks class. I'm gonna check that. Listen. It has been a real pleasure this week for everybody who tuned in to this week's fat pitch podcast. On behalf of Clint and myself. We appreciate your listenership. Don't be afraid to share it with your friends. We'd love grown an audience out there and don't be afraid to share us your ideas for future guests. Tom, thanks so much for joining us. As we Clint as always thanks for keeping me honest and entertaining. And I'm sure appreciate everybody being on this week. Thanks, guys.