Burbank Spells Out Conviction on Saudi Story

Featuring John Burbank

In an additional interview to his presentation on Saudi Arabia – ‘The Least Crowded Trade in the World’, Grant Williams goes one-on-one with John Burbank of Passport Capital. As John sets out the story of his journey that led him to focus on this region and invest in 2008, the discussion delves into the relationship between the Saudi economy and the oil price, while looking in detail at the scale of the changes to come in the Kingdom, under the rule of millennial Mohammad bin Salman.

Published on
15 December, 2016
Topic
Energy Commodities, Global Investment, Middle East
Duration
44 minutes
Asset class
Bonds/Rates/Credit, Equities, Commodities
Rating
47

Comments

  • RA

    Robert A.

    13 11 2017 00:08

    0       0

    Well Boys and Girls.....this is what the RV “Watch Again” button is for! I was interested the first watch and hit the button just because I’m a John Burbank fan and this was the FIRST I’d heard about even the remote possibility of Saudi investments making sense. So...fast forward to MBS’s “purge” last week. I’m struck after today’s watch by John’s comment—”consider...a Millenial running a Country of Millenials in an Internet Millenial using World”. Three years go I would never have considered buying Bitcoin...and yet I’m glad I did. A year ago I would never have considered investing in the Kingdom....yet now in light of MBS’s “purge” (school is still out on whether he will be successful—the old Royal guard ain’t going down without a fight) it seems Saudi and MBS may indeed be crossing the Rubicon. Plenty of risk in this one, but I think I faintly the hear the “All Aboard” announcement and I think it’s time to buy a ticket and board the Saudi train.

    The KSA ETF, although with serious liquidity problems, seems to be the easiest way to get involved.....at least to this novice and via John Burbank recent converted believer. Hopefully this sharp RV crowd will chime in with some other investment options and vehicles. I’m all ears.

  • GR

    Guido R.

    13 8 2017 19:00

    0       0

    Ceci expliquant cela....
    .
    http://www.zerohedge.com/news/2017-08-13/passport-global-slammed-over-60-redemptions-q2#comments
    .

  • AG

    Alex G.

    12 6 2017 05:34

    0       0

    I went to school and just graduated with many Saudi's (In California to be exact). They do seem to enjoy Western Culture, I wouldn't be surprised if SA liberalizes in some small ways simply because the public demands it. In regards to the work ethic comments. I agree , the way the Saudi's approached their studies was all over the place and they loved to cheat.

  • KR

    Kenneth R.

    3 1 2017 01:19

    3       3

    Very disappointing that you would not ask about Wahhabis and The Islamic issue. I will never invest in a belief system that feeds that hatred and demands conversion.

  • JF

    John F.

    25 12 2016 14:05

    2       0

    In contrast to my caveats, I have met many professional Saudis who are articulate, polite, well groomed and friendly. I have flown commercially with them. I admire their pride in their children and in their parental obligations.

  • JF

    John F.

    25 12 2016 13:04

    4       0

    Having lived and worked in Saudi Arabia for 4 years I can tell you that you are missing the transparency of the two layers below the upper class. They hire middle managers (generally Lebanese) to deal with the labor force. The labor force is uneducated and imported from other muslin countries. Friendship in business, is widespread, however, pride of competency is not a cultural standard. A soldier kisses his commander rather than stand at attention and wait to follow direction. The subjectivity of one's own narcissistic needs wins over professionalism. The male bonding time of prayer, drinking tea, and grooming, lowers the productivity of a day. Foreign companies must hire a percentage of male Saudis’ who may not believe in your Western-Work-Ethic (productivity). A contract is impossible to enforce or obtain recourse for. You need to speak with foreigners who have worked within the Saudi framework before you leap. All that glitters is not gold. If the commodity cycle is 32 years, how old will you be when it once again go logarithmic in 2040 - 2044?

  • MS

    Matt S.

    24 12 2016 08:36

    2       2

    "3-4 months ago all your guys were saying buy gold...very unfortunate for those that did😂 still no answer on how to invest in SA?? " - you need to stop taking tips my friend and start thinking for yourself.

  • PG

    Pavel G.

    22 12 2016 12:01

    3       0

    Think the main point John is missing is cultural differences and long term habit of dependence on the government, also education. These things take a generation to change

  • CC

    Charles C.

    21 12 2016 00:52

    3       0

    Absolutely fascinating. Only Real Vision has the platform to deliver insightful ideas like this. Thanks RV.

  • TT

    Tim T.

    20 12 2016 01:52

    3       0

    SA? No thanks. Gimme Iran over SA 10-1 and I'm speaking from the perspective of the average citizen of each country. Burbank is reaching. There's a reason they are trying to take Saudi Aramco public. Oil is becoming less and less relevant with each passing year...

  • GR

    Guido R.

    18 12 2016 13:43

    23       0

    The only game changer that I was not aware of, is that Saudi now allows FDI and foreign ownership. If that is true, there may indeed be light at the end of the tunnel for Saudi. From where I stand and from my experience of the past 20 years however, Saudi is not, otherwise, a desirable place to do business in. I'll summarize in bullet points:
    Saudi population may have degrees but they are thoroughly useless at work. Decision making skills are poor as are delegation skills. The concept of personal responsibility is alien and goes against the entire Arab cultural construct. Ideological commitment is non existent and is hampered by tribal dynamics that supersede everything. Society is highly fragmented, fractious and horrendously venal. Once again, tribal dynamics also hamper inter-employee relations as well as relations with employees or owners of other companies making alliances and cooperation virtually impossible.

    Finally, expediency permeates all facets of business in Saudi Arabia making it difficult to establish a solid foundation for profitable, quality oriented business.

    Saudi businesses and industries "work" because of exogenous circumstance not related to efficiency and quality.

    But above all! It is very difficult to get paid in Saudi Arabia. More often than not, creditors are left to hang dry for years and, if/when payments are finally made, they may amount to less than half of the due. Legal recourse is strictly useless and skewed to uphold the interests of the locals over that of foreigners.

    Most businesses worth anything are directly or indirectly owned by the royal family making legal recourse a moot proposition.

    The legal framework is nonexistent. What little exists, is a farce and evidence and contracts mean nothing at all.

    Finally, as not necessarily relevant but nonetheless interesting bits of information there is this. Saudi still beheads warlocks and witches as they do heretics. Saudi is allowed to officially export a virulent and aggressive form of Islam across the world.

    Despite an expatriate population that is half the entire population of the country, Saudi does not allow the establishment of temples and they most certainly do not allow worship of anything other than Islam. Once again, being caught worshiping anything other than the Sunni Allah, may result in beheading. Adultery still commands death by stoning for the woman and the man may fare not much better especially if a foreigner.

    In 2005 the authorities deliberately locked the exits of a burning school because they deemed the death of the girl students to be more honorable than having them run out into the street in their nighties.

    There is good reason why Saudi is not on anyone's radar.

  • MA

    Meshari A.

    18 12 2016 09:07

    11       0

    As a GCC citizen, just want to drop 2 comments. As for investing with Saudi as a retail foreigner, i'm not entirely sure if its possible just yet but your best bet is asking a brokerage arm of one of the banks in GCC such as Rajhi Capital (Rajhi bank) http://www.alrajhi-capital.com/en/Pages/default.aspx Its the way most people trade in the region.

    My 2nd comment is on John Burbank's analysis on the market. As a local citizen, Market risk manager, with an economics degree, I was a HEAVY bear on GCC/Saudi because I thought political risk was still underpriced but John Burbank has actually changed my entire framework. I've noticed a few comments noting his so-called "lack of knowledge" on Saudi/GCC markets and this cant be more far from the truth and frankly quite disrespectful/ignorant of your own ignorance. Saudi fundamentals are undoubtedly quite strong as he noted but the region was heavily mismanaged. When first announced, I personally was of the opinion that MBS's plan was too little too late to do any meaningful change in Saudi's oil-based model and his 2030plan was likely to infuriate royals enough to create significant political risk or at the very least cause them to hinder the 2030plan. But if its one thing I learned from 2009-2016, is that governments can buy themselves time. Look at the EU, i thought it'd blow up in 2013, but here we are and I can proudly say I was wrong, not because I dont think it will blow up now, but rather because of my underestimation of how much time governments can buy themselves. As far as MBS and the political risk, Burbank dropped an important comment.... he's a populist. As a populist, its hard to go against him when he has the people's backing and he has only consolidated his popularity/power as time has passed.

    John Burbank has been comparing Saudi to the Berlin wall or China, but I think the real comparison to Saudi today is Germany Pre-WW1 industrialization. Saudi is under imminent threat and its citizens know it, from domestic and external threats (terror internally, externally mostly Iran and its proxies) which usually gives a huge boost to motivation/production/industrialization of a country. Recent laws which they are implementing clearly point to a nation which is reducing inefficiency at a massive scale and at record pace. My final opinion on Saudi, or GCC's direction for that matter after listening to John Burbank is a period of massive change/industrialization and growth for the next 5-10 years as tension builds up with Iran each and every year, and I expect a direct confrontational war for regional supremacy sooner or later. The regional war is the big risk anyone investing in the GCC has to be always be on the lookout for. Looking for early signs when to get out is going to be the magic of this trade in my opinion.

  • NR

    Nuno R.

    18 12 2016 07:55

    4       0

    The thesis has merit, Saudi is a very interesting opportunity... not only Saudi NEEDS to diversify away from oil, they also have a young (western) educated population willing to change the status quo of the country and to move away from the very closed society that it has been in the last decades. The challenge for MBS is whether he will be able to bring change to Saudi without major social disruption.

  • SD

    Salvatore D.

    18 12 2016 05:01

    2       2

    Clearly John Burbank must have Saudi money under management or other arrangements. The most naive interview on RV, John should speak of you what he knows and clearly the Middle East is not one.

  • CH

    Calvin H.

    17 12 2016 20:17

    1       4

    E.B - thanks, I thought it was just me. This was really weak. Besides the whole avoidance of major human rights issues, it was very Short on specifics and sounded like a PR job for the KSA. What killed it for me in his remark the oil and gas industry is not high tech. ?? Really? How can the USA develop its Shale reserves, or drill and produce in 10,000' of water in hurricane conditions without developing new technology?
    Very poor piece and I think there is a better than even chance, the monarchy gets overturned.

  • HJ

    Harry J.

    17 12 2016 19:48

    1       0

    Ok if your 30 yrs old but not so great if your starring retirement in it's ugly face!

  • EB

    E B.

    17 12 2016 16:08

    11       2

    Grant, you're great, but... THIS time, you let him off easy. It was not the quality RVTV we are used to. It was almost like "John Burbank is God, let's let him talk about Saudi". Should have asked about several risks: (1) geopolitics. Does this Crown Prince able to and does he want to modify Saudi's political image, compensate victims of terror, renounce and totally discontinue relationships with questionable groups (2) religion within Saudi: what does this Crown Prince think about the specific brands of Islam that are present on its territory, the separation of church and state, and its role as a risk to the thesis (3) the peg, the connection between oil and currency, and the process of transition from oil-based to diversified.

  • IM

    Iyngaran M.

    17 12 2016 06:52

    0       0

    http://www.pbs.org/video/2365704222/

    watch this video abt saudi and decide. hope john burbank would have seen it...

  • TW

    Tom W.

    17 12 2016 02:55

    2       0

    iShares MSCI Saudi Arabia Capped, ticker KSA:
    http://www.morningstar.com/etfs/arcx/ksa/quote.html
    Very small average daily volume, and currently trading a 2+% premium over NAV.

  • TW

    Tom W.

    17 12 2016 02:50

    1       0

    A little research using Google brought up this broker that seems to provide access to Saudi Arabia and GCC markets:
    http://www.jadwa.com/en/brokerageproducts/brokerage/online-trading.html

  • rm

    richard m.

    16 12 2016 23:39

    3       3

    3-4 months ago all your guys were saying buy gold...very unfortunate for those that did😂 still no answer on how to invest in SA??

  • Sv

    Sid v.

    16 12 2016 21:19

    4       4

    Hmmm.... Saudi Royals have stolen all the country's wealth for themselves, they have funded all the terrorists that have ever attacked America, they teach their kids to hate and kill Jews, they cut heads off daily, and arms, they have no movies, no parks, they treat their women as property, and foregners that work there as dogs. They formed a cartel and generated monopoly profits that they then used to fund terrorists throughout the world...... but hey, they got the money so lets go!

  • GA

    Giedrius A.

    16 12 2016 18:44

    1       0

    Fantastic interview, thank you so much to bring on the show such a great mind.

  • SD

    Steve D.

    16 12 2016 17:52

    1       0

    Specifically, how does one invest in Saudi as an average person? What do you buy?

  • TA

    Tommaso A.

    16 12 2016 16:29

    4       0

    yes but what about the currency? they have a very shaky peg vs usd in place and reserves are plunging..their fiscal spending is crazy, and they will continue to have budget deficits in a low oil price environment.. the main reason they didn t have an arab spring is because they subsidize their citizens to keep them t fed and happy

  • SS

    Sam S.

    16 12 2016 15:37

    4       0

    North Korea insight by Jim Rodgers is similar as they're beginning to open up and Un was educated in
    the west. Risk is high. Press informs us how horrible these places are while the big tuna gobble up the action. I've always wondered why so much long term war destruction--------huge capital investment and control when the war ends and the rebuilding begins. Just look at before and after images of Vietnam, Berlin, Japan, etc. When Buffet takes a risk---everyone jumps in. Should be a lesson to us. Thanks everyone, great insight.

  • AA

    Ali A.

    16 12 2016 08:46

    3       0

    Other than a couple of crude ETFs, there are many of actively managed funds managed by the likes of HSBC, Morgan Stanley and a broader Middle East fund run by Ashmore (all have local Saudi offices). Enjoy

  • AA

    Ali A.

    16 12 2016 08:43

    28       0

    For those that need the glossary: GCC stands for Gulf Cooperation Council (the 6 gulf states). MBS stands for Mohammed Bin Salman the young Deputy Crown Prince (son of the King) who is leading a lot of the changes. NTP is the 2030 National Transformation Plan (hugely influenced by BCG and McKinsey). John mentions that a lot of Saudis are foreign educated (60,000 enrolled in secondary education in the US alone over 2015) and travel abroad, however I would stress that it's likely his interaction with Saudi nationals is subject to selection bias - not a true reflection of the majority. The conservatism of the country is still deep-rooted. Three big risks to Saudi today are the potential for a rift between the Deputy Crown Prince MBN and the Deputy, MBS with regard to succession (King is 80 and has health issues). The cultural/social resistance to change pushed down from above, and their ongoing conflict in Yemen (potentially their Vietnam). That being said, plenty of opportunity among the risks.

  • ag

    amin g.

    16 12 2016 08:33

    2       0

    Ishares KSA for the retail guy?

  • CS

    Chuck S.

    16 12 2016 00:38

    16       0

    Great investment thesis. Burbank never disappoints. But, would like to have heard his evaluation of risks, like regional rivalry with Iran, involvement in wars in Yemen, Syria, Iraq, the future of US protection and the petrodollar. Grant, you let him off easy!

  • Sv

    Sid v.

    15 12 2016 23:25

    10       0

    How does a small fry participate in Saudi and the Monsoon region in general?

  • BL

    Bruce L.

    15 12 2016 23:03

    1       0

    Love realvision and think the single most valuable thing anyone has said is "markets undervalue things that have never happened before"

  • db

    don b.

    15 12 2016 22:14

    1       5

    Pleased to see that he doesn't think oil will ever be $100 again. I like investing in things that other people don't think are going to happen.

  • DF

    Dan F.

    15 12 2016 21:27

    1       0

    Burbank doesn't talk like other managers and that's a very good thing.

  • DL

    Derek L.

    15 12 2016 21:26

    12       0

    Very interesting. John is always interesting and a very deep thinker. How would a small investor (So not one of John's..) invest in Saudi?

  • MG

    Morgan G.

    15 12 2016 21:14

    33       1

    As an individual investor, I feel like a minnow in a sea of big fish and sometimes feel lost when trying to discover an actionable investment path. RVTV is full of amazing theses but then I find myself asking, ok, this is something I agree with ...now let's execute. I'm especially lost in this case, how to trade the K.S.A. I am super pumped about the democratization of the amazing investment minds brought to RVTV but perhaps some trades are reserved for the big tunas! :-D