STEVE DIGGLE: Hello? GRANT WILLIAMS: Steve, it's Grant.
How are you, mate?
STEVE DIGGLE: I'm really well, Grant.
How are you doing?
GRANT WILLIAMS: Not too bad.
Listen, I'm trying to get my head around what's happening in Italy.
Now I know you spend a lot of time there.
What's the story?
STEVE DIGGLE: Ah, well, I think it's really important.
And I think it's a lot more complex than you might imagine from reading the newspapers.
I think it's about a lot more than just contemporary politics.
I think it's about Italian culture, I think it's about Italian identity, and I think it's
a lot about history.
GRANT WILLIAMS: Eh, what are we talking here?
STEVE DIGGLE: Well, at least a couple of thousand years, I'd say.
But hey, what you should do is you should actually come over here and have a look for
yourself.
I'm going to be in Italy next week.
Why don't you get on a plane, and I'll show you around.
And then you'll see what you make of it, and you can draw your own conclusions.
GRANT WILLIAMS: With every passing day, the world of finance seemingly becomes more complex
and harder to figure out.
Financial information is distilled into soundbites for an increasingly time-poor audience, when
more than ever before, a deeper, less superficial understanding of the many factors affecting
the global economy is required in order to fully understand both the risks and opportunities.
In this series, my goal is to travel with people whose understanding of a set of financial
situations dwarfs my own, and to take the time needed to dig beneath the headlines and
improve my knowledge of both the situations in question and the investment implications
that surround them.
And the best way I know of doing that properly is by going on the road.
Italy is a spectacular country, rich in history and culture.
But its economy is struggling, and its place at the heart of the European Union is under
threat.
Between the current populist uprising and the country's fragile banking system, that
threat suddenly looks very real.
To try and get a better understanding of the situation, I've traveled to the home of my
friend Steve Diggle, founder of Vulpes Investment Management, so he can help me understand the
history and the investment implications behind the situation unfolding here.
This is such a beautiful part of the world you've found for yourself here.
I mean, it's spectacular.
There is so much going on in this part of the world right now.
And it feels as though it, again, has reached some kind of tipping point.
STEVE DIGGLE: I think what's happening in Italy is probably not widely understood.
It's a complicated story.
It comes directly out of a lot of history.
And this is something you and I have talked about a lot, which is that the short-termism
in markets means that people very often ignore these very long-term historical situations.
You know, I've always been fascinated by history.
And a lot of what I have done in my career as both an investor and a trader is look at
these long-term patterns, much deeper, longer-term context than what's happening in the next
30 seconds, what's the euro going to be tomorrow, where is the S&P going to be in three weeks'
time.
I mean, that's important from a trading perspective.
But unless you really understand where something has come from, which means you really have
to look at its long-term history, you really can't understand what's going on.
And I think very often you can use history to teach you an awful lot of things about
the current situation, particularly where people have made horrible mistakes.
And I think one of the mistakes people are making now is they just assume Italy is a
bit of a basket case, and that none of this really matters.
They'll roll over as they always do, and everything will roll on.
It might be different this time.
So I'd like to take you to a few of my favorite places.
You've never been to Florence, which I find amazing.
You have to go to Florence, which is where it all began, the center of Italian banking
in the 14th, 15th, 16th centuries, and also one of most beautiful cities on earth.
We'll go to Siena, their ancient rival, also somewhat contemporary.
GRANT WILLIAMS: There I have been before.
STEVE DIGGLE: And then we'll come back and I'll show you Cortona, which is just over
the hills here.
It's a complicated place.
You just wonder, why doesn't it work better.
Why isn't it wildly successful?
Some of the most talented people in the world, some of the best brands in the world.
Why is it such a perpetual mess?
And I've got my own theories, and we'll talk a bit about that when we're on the road.
GRANT WILLIAMS: All right, well, let's go see some of it, shall we?
STEVE DIGGLE: OK.
GRANT WILLIAMS: All right.
The first leg of our journey will take us to the spectacular city of Florence, where
modern-day banking began some seven centuries ago.
But on the way, I wanted to find out how Steve's love affair with this wonderful country began.
STEVE DIGGLE: I've been coming to Italy since I was a teenager.
And I've loved this part of the world ever since.
I was a real fan of Renaissance history, which I studied for both O and E level.
So when I was 16, 17, came back here to look at the stuff on a Eurorail.
GRANT WILLIAMS: One of those Eurorail passes?
You can go everywhere in Europe for like, what was it, 40 quid or something?
STEVE DIGGLE: And I literally was breathless when I saw the Duomo for the first time.
It was just the most amazing thing when you've walked three days through the countryside.
Anyway, so I just loved it.
People were so nice to you when you're just walking along.
Someone gave me some tomatoes out of a garden.
GRANT WILLIAMS: They gave them or threw them at you?
STEVE DIGGLE: Yeah, she just gave them to me.
It was very nice of her.
And you know, people offered me drinks.
It was just an incredible warmth of the people, excellent food, beautiful countryside, and
even more beautiful cities, with all of this extraordinary profundity of ancient art, architecture.
GRANT WILLIAMS: Well that's always what strikes me, on my rare trips back to Europe.
You forget, living in Asia, where everything is either 1,000 years old or it was built
yesterday.
There's nothing in that-- And I went see my dad in Paris a few years
ago.
Of course, I hadn't been to Paris in forever.
And I was just staring at the architecture.
Because I hadn't seen anything like it.
You don't see it in the US.
STEVE DIGGLE: Well, I think France and Italy are totally blessed in that they have this
beautiful, gentle, bucolic countryside-- look at that-- and also this incredible beauty
by man.
So here we are in Florence.
And there's Brunelleschi's masterpiece, Il Duomo, Giotto Tower to the left, the river
Arno.
And there's the Ponte Vecchio, the Ponte Vecchio being where all the gold sellers are.
So you'll like that.
GRANT WILLIAMS: Yes.
STEVE DIGGLE: So the Ponte Vecchio used to-- the reason why the gold sellers are there
is because if you had your business on the bridge, you didn't have to pay your full municipal
taxes because you weren't actually inside the city walls.
So the reason why London Bridge and these ancient medieval bridges used to be full of
merchants is because they were actually avoiding paying tax.
GRANT WILLIAMS: But this is such a cradle of finance, this city.
I mean, just so many things happened here that have shaped everything we know today.
STEVE DIGGLE: Yeah, it was the financial center of the Italian state for centuries, and now
synonymous with the Medici.
But before the Medici, the richest family in Europe were the Bardis.
And they were based here.
And they were the people who initially set up an Italian banking network that went across
all of Europe, the first people to really internationalize banking.
And it's interesting that in Italy-- unlike, say, much of the rest of Europe, where the
idea of lending for interest and profit was banned by the church, so principally an area
that the only minorities, especially the Jewish, were involved in-- but in Italy, it was a
respectable profession, wealthy families, international organizations.
So the Bardi established this international, pan-European network, which was their downfall.
Because they lent an awful lot of money to Edward III, King of England, who spent it
on building a huge army, and then decided not to pay it back.
So that bankrupted the Bardi.
And that was the end of them.
And into that vacuum came the Medici, who increasingly became the most powerful people
in this town, with their new innovation, double-entry bookkeeping.
Double-entry bookkeeping-- that was the financial revolution of the 15th century that allowed
them to continue to control this vast empire.