Shownotes
Today Cem Karsan and I are diving into a pretty intense topic today: the looming potential for a monetary regime change that feels like it's right around the corner. We're talking to Adam Rozencwajg about how the shifts in global commodity dynamics, particularly in natural resources like oil and gas, are becoming a lot clearer as supply constraints tighten up. It's all about recognizing the signs, and we believe that the next six to nine months will be crucial for investors looking to ride this wave. We’re also throwing around some serious thoughts on how geopolitical factors are impacting these markets, especially regarding energy security. So grab a seat, because we're about to unpack why you should be paying attention to these developing trends and what they could mean for the future of commodities.
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Episode TimeStamps:
02:32 - A big picture framework - what has changed since our last conversation?
09:32 - Why are commodities so cheap today?
17:03 - Why is now the moment to go long?
31:04 - We are in a huge carry trade
47:04 - Commodities are taking over another role
51:15 - Where are the greatest opportunities in rare metals?
58:40 - It will end badly for millennials
01:04:09 - Conspiracy theories in the gold industry
01:06:55 - The outlook for the U.S energy market
01:14:02 - Europe is in a difficult energy spot
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Transcripts
The equivalent of the doomsday clock of how many minutes we are
Speaker:from a monetary regime change, I would say would be at 11:59. It
Speaker:seems like we're awfully close. So, is it today? Tomorrow?
Speaker:No. Is it in the next six months? Again, I think that for the
Speaker:first time, I see a potential catalyst in the near future, more
Speaker:than I've seen in the past. So again, watch this space.
Speaker:Imagine spending an hour with the world's greatest traders. Imagine
Speaker:learning from their experiences, their successes and
Speaker:their failures. Imagine no more. Welcome to Top Traders Unplugged,
Speaker:the place where you can learn from the best hedge fund managers
Speaker:in the world. So you can take your manager, due diligence or investment
Speaker:career to the next level.
Beforewe begin today's conversation,
Speaker:remember to keep two things in mind. All the discussion we'll have
Speaker:about investment performance is about the past. And past performance
Speaker:does not guarantee or even infer anything about future performance.
Speaker:Also, understand that there's a significant risk of financial loss
Speaker:with all investment strategies. And you need to request
Speaker:and understand the specific risks from the investment manager
Speaker:about their products before you make investment decisions. Here's
Speaker:your host, veteran hedge fund manager Niels Kaastrup-Larsen.
Speaker:Welcome and welcome back to another edition of our global macro
Speaker:series where today, as usual, I'm joined by my co-host, Cem Kassan,
Speaker:as well as a returning guest to the show, namely Adam Rozencwajg,
Speaker:whom we last spoke to about six months ago. Adam, it's always
Speaker:a pleasure to have you back. And Cem, thanks for joining us today
Speaker:as well. I'm sure this will be another fascinating conversation.
Speaker:It'snot like anything is happening in the world right now.
Speaker:But before we get to all of that, how have you been, Adam? Are
Speaker:you doing well?
Speaker:Yes, very good, thank you. Happy to be back. We welcomed our
Speaker:third daughter since I last spoke to you. So, some long nights
Speaker:where I've had lots of time to read in the wee hours of the morning
Speaker:and maybe a new perspective on the world at large. So happy to be
Speaker:here and happy to talk to you again.
Speaker:Yeah. And is the vortex also hitting you, Cem, at the moment?
Speaker:I know it's cold in the US.
Speaker:Yeah, it's currently 3 degrees Fahrenheit outside. So yeah, you
Speaker:could call that a vortex. I mean, Chicago is always cold at this
Speaker:time of year, so it's all 10 degrees one way or another. It doesn't
Speaker:change things too much, but it is cold.
Speaker:Well, we've got a few hot topics to talk about today in the
Speaker:world of natural resources. And I'm sure some global politics
Speaker:will sneak in as well.
So,what I'd love to do, actually,
Speaker:Adam, with you, is to maybe ask you to kind of, before we dive
Speaker:into all the subtopics, maybe give us your view on kind of your
Speaker:big picture framework at the moment, but also perhaps point out
Speaker:some of the things that may have changed from about six months
Speaker:ago when we last spoke.
Speaker:So, I think a lot of things have changed in the last six months
Speaker:since we last spoke. And frankly, pretty much all of them,
Speaker:as far as we can see, have been very bullish for natural resources
Speaker:and real assets in general.
I'llstart very briefly on some of
Speaker:the supply demand trends and then I'll kind of zoom out and discuss
Speaker:a little bit more on the macro, in terms of some of the changes
Speaker:we've seen and some of the catalysts going forward. We're value
Speaker:investors. And for a long, long time we've argued that, with
Speaker:the commodity markets where they are, which is to say very cheap
Speaker:relative to financial assets, and with commodity stocks where they
Speaker:are, energy at 3% of the index versus 15% long term, we've argued
Speaker:that timing really doesn't matter. It doesn't cost you anything
Speaker:to be early on these trades when you get such extreme valuations.
Speaker:Andon the other hand, it costs you quite a bit if you miss
Speaker:that move. You know, it can move quite quickly when it comes
Speaker:off the bottom. And I think now that's evolved a little bit where,
Speaker:I think, the timing is actually coming a little bit more
Speaker:crystal clear in the next six to nine months. And I think you really
Speaker:want to be involved now. So, we'll talk about all of that here
Speaker:today.
Fromthe fundamental perspective, the big thing that has
Speaker:changed since we last talked is that, after years of underinvestment
Speaker:and after years of restricted exploration and development, we're
Speaker:starting to see supply responses in a lot of different commodities
Speaker:across the board. That's certainly true in global oil markets.
Speaker:You'llrecall that the US has been the number one driver, in fact,
Speaker:really the only driver of global oil supply growth in the last
Speaker:15 years. We estimate that about 9/10 of every barrel of new
Speaker:demand has been met by a shale barrel in the last 15 years or so,
Speaker:and that's now over.
Youknow, shale growth has now turned negative.
Speaker:It looks as though on a year-on-year basis, December to December
Speaker:was likely negative in terms of U.S. crude oil production.
Andthe
Speaker:shales, all except the Permian, are in pretty sustained
Speaker:declines. And we can use those as a roadmap to say when will the
Speaker:Permian decline? And it's already basically bouncing along
Speaker:at zero growth. And I suspect that that'll be in outright decline
Speaker:within the next month or so. So, what we've been saying for a
Speaker:long time, look forward to a change in global oil supply dynamics,
Speaker:that's now here, and it's also here in natural gas.
So,the US gas
Speaker:production, which has grown relentlessly since the middle 2000s
Speaker:with the advent of shale gas fields, has now actually turned negative
Speaker:by about 2% to 3% year-on-year. It's a big number.
Speaker:It was as high as, you know, down five Bs at one point. Now it's
Speaker:sort of moderated down three Bs. But we continue to see month
Speaker:on month sustained declines.
Thatchange really has to do with
Speaker:a weak month, a year ago, as opposed to major growth happening
Speaker:today. And that's in the view of or in the face of a massive new
Speaker:demand picture.
So,the fundamentals are looking really,
Speaker:really good in both oil and natural gas. This is what our AI
Speaker:models have been telling us for a few years now. Our AI models,
Speaker:by the way, I don't mean our modeling of AI demand, I mean using
Speaker:AI to actually predict supply, which we've been doing since 2018,
Speaker:always predicted steadfast 2014 would be the year everything
Speaker:rolls over. That has now happened.
Thesame is true in uranium.
Speaker:You know, uranium is starting to see some disappointments coming
Speaker:out of Kazakhstan in terms of production. And Canada had announced
Speaker:about a year ago some problems there. So, we're seeing it across
Speaker:the board, really across a lot of different commodity spaces. And
Speaker:the reason is it's been 15 years of a bear market and it's been
Speaker:15 years of massive, massive underinvestment. And underinvestment
Speaker:always leads to depletion, it always leads to a supply response.
Speaker:Takinga little bit of a step back, looking at more of a macro
Speaker:picture, we've said, for a long time now, that if you look at
Speaker:the ratio of commodity prices to stock prices, that tells a really
Speaker:interesting long term story. We took that ratio back all the way
Speaker:to 1900. And what it shows is that commodities and real assets
Speaker:move in these huge cycles. When they get really cheap, you should
Speaker:buy them. When they get really expensive, you should sell them.
Speaker:Andthe preconditions to both moments of extreme undervaluation,
Speaker:and then the catalyst to make things move into a bull market again,
Speaker:have been remarkably similar over the last 150 years in terms
Speaker:of different commodity cycles and what we're starting to see now…
Speaker:We've been saying that for a long time but in the six months since
Speaker:we last spoke (and I think we discussed this a little bit, maybe,
Speaker:in the last podcast I was on with you guys), but we read a fascinating
Speaker:book by some colleagues of yours, and that would be the Rise
Speaker:of Carry by the two Lees and Coldiron. And what we concluded was
Speaker:these periods of radical real asset undervaluation or commodity
Speaker:undervaluation are actually just symptoms of a bigger cycle.
Speaker:And that would be a carry regime cycle that we're certainly
Speaker:in now.
Andthat has actually meant that several different factors
Speaker:have all taken place very much along the same timeline as these
Speaker:big commodity cycles with major bottoms happening in ‘29, ‘69,
Speaker:‘99 and then today. And so, what that does, we could talk about
Speaker:what those are in a second, but what that does is it suggests
Speaker:to us that this is not just a coincidence. It's not a spurious
Speaker:correlation. We don't just happen to have real assets really
Speaker:cheap. It's actually part of a much bigger causal system.
There'slots
Speaker:of factors in play here that are driving commodity prices lower
Speaker:and that, if you believe that the same systems are in play today
Speaker:as were in play over the last 150 years (which we do), that we're
Speaker:on the verge now of a major, major reset in commodity prices and
Speaker:a huge bull market that will probably last 10 or 15 years. So,
Speaker:I think kind of that (you hate to go down this path) grand unifying
Speaker:view of the universe a little bit. The fact that all these things
Speaker:are slotting in at exactly the same timeline I think is a fascinating
Speaker:development and I'm happy to talk all about it.
Speaker:Yeah, I have a little bit of a follow up because this was on my
Speaker:list to bring up with you. And of course, Coldiron, as you refer
Speaker:to, is also known as Kevin Coldiron who is the host of the Ideas
Speaker:Lab here on the podcast. And it is a great book that everyone
Speaker:should read.
So,I have a couple of questions to that because
Speaker:I do want maybe for you to just briefly mention, in a second,
Speaker:what these triggers were so people can have an idea, and putting
Speaker:it in relation to what's happening now. But the other thing
Speaker:I was thinking about this was in a sense, are commodity prices
Speaker:cheap or is it just financials that have gone crazy and where there's
Speaker:no relationship between price and value anymore, which is kind
Speaker:of what we see in so many cases at the moment.
Butthen the
Speaker:other thing, I heard you on another podcast recently, I think
Speaker:with Grant, where you talked about that you had seen, for example,
Speaker:was it Robert Friedland who developed some kind of way of extracting
Speaker:stones essentially and making them into smaller stones in a much
Speaker:more efficient way. And I imagine, without being an expert,
Speaker:also a lot of the drilling that takes place is happening much
Speaker:more efficiently and so on, and so forth. So maybe there are
Speaker:other reasons why commodities are cheaper. There's kind of a deflationary
Speaker:trend current in there as well. So those were just some thoughts
Speaker:I had when I heard you mention this just now. So, love to hear what
Speaker:you're…
Speaker:Sure. So, look, I'll touch on the second point first because it's
Speaker:a little bit easier to address.
So,on the Grant Williams
Speaker:podcast and in lots of other places, we've talked about some really
Speaker:revolutionary new technologies being put out by a number of people.
Speaker:But I think the most exciting are a suite of technologies being
Speaker:put out by a gentleman named Robert Friedland. And he's the chairman,
Speaker:founder, of Ivanhoe Mines. Before that he was Turquoise Hill,
Speaker:which used to be known as Ivanhoe Mines. And before that, a
Speaker:company up in Canada that discovered the Voisey’s Bay nickel
Speaker:deposit. And together Those are probably three of the most important
Speaker:mining discoveries in the 20th century.
Asa collection, I would
Speaker:say that's probably the best run of any geologist in the last
Speaker:150 years. I should say that he's not a geologist, he's a mining
Speaker:executive. But regardless, that is an unheard of streak. Most
Speaker:mining executives go their whole career without a major discovery.
Speaker:A lucky few get one. You know, the hall of fame is two, three, and
Speaker:now potentially four is almost unheard of. So, I don't think you
Speaker:can dismiss what he's been up to.
Andhe has been working for many
Speaker:years (sort of a 25 year overnight success) on a suite of
Speaker:technologies that uses pulsed power to both explore for minerals
Speaker:much more effectively and then ultimately drill and extract rock,
Speaker:crush and grind rock. And eventually that that will help massively
Speaker:in terms of how we liberate copper, let's say, or gold even from
Speaker:host rock.
So,you asked is this what's driving commodity prices
Speaker:lower, this broad deflationary trend from technology in the resource
Speaker:space? And the answer is no, because none of these things have
Speaker:actually been put to work yet. You know, this is all in the lab.
Speaker:The results that they're seeing are incredible. What it actually
Speaker:does do is it gives us a little bit of concern for copper
Speaker:and copper supply over the medium to long term. So, I'm talking
Speaker:20, 30 and beyond.
Now,none of that's in the market today. Nobody
Speaker:even knows about Ipulse. You know, if you asked a hundred mining
Speaker:executives, thirty might say yes, but probably only five actually
Speaker:know what the hell they're doing over in Toulouse and France.
Speaker:So, I would say the answer, unequivocally, in that particular
Speaker:case is no. We don't see technology that is leading to massive,
Speaker:you know, deflationary forces across the hard rock mining space.
Speaker:Isit true in the oil and gas space? That's a little bit more of
Speaker:an interesting question. I think the answer was yes, and now
Speaker:again is no. And what I mean by that is we did have a disruptive
Speaker:technology there. We brought in horizontal drilling and hydro
Speaker:fracking, and that opened up these massive shale oil and gas deposits
Speaker:that we knew were always there.
Youknow, that's what I think
Speaker:people don't get about the shales. We had drilled for basically
Speaker:a hundred years to find sandstone and carbonate oil and gas
Speaker:reservoirs - standard conventional deposits. And every
Speaker:time we would drill, you would hit one and it was a good day. Probably,
Speaker:you know, you broke open a bottle of champagne when you hit
Speaker:a nice oil pool.
Butthen you always would keep drilling to determine
Speaker:where the bottom extent of that was. And inevitably you would
Speaker:drill into the shales, which is the rock beneath those conventional
Speaker:reservoirs. In fact, that's the rock where the oil and gas itself
Speaker:was created, and then over time migrated into these sandstones
Speaker:and carbonates, which were much, much easier to pump from.
So,you'd
Speaker:hit the shale and you'd say, oh, there's all the oil and gas waiting
Speaker:down there, but it'll take hundreds of millions of years for
Speaker:it to migrate out into the sandstone above where we can then
Speaker:suck it up with a conventional oil well. The big, big, big shift
Speaker:was being able to go into that shale and rubblize it and then be
Speaker:able to produce from it.
So,now you had this unbelievable
Speaker:inventory of oil and gas deposits, shale oil and gas deposits,
Speaker:up to that point unrecoverable, that now were able
Speaker:to be recovered. So, it unleashed this massive, massive flurry
Speaker:of activity.
Andthat's part of the reason (I don't think people
Speaker:quite understand this), that's part of the reason the shale revolution
Speaker:happened so fast was that we knew where they were. We knew where
Speaker:the best ones were. We just didn't know how to get at it. So,
Speaker:once you unlock that part of it, it was very, very quick to lease
Speaker:up the land and go and develop it.
Immenseis not the same as infinite,
Speaker:as we've talked about in the past. You brought on 10 plus million
Speaker:barrels a day of crude oil production from the shales. You brought
Speaker:on 95 billion cubic feet per day of natural gas production from
Speaker:the shales. Massive numbers, each larger than Saudi Arabia. Together,
Speaker:you know, like three, you know, two and a half Saudi Arabias.
Speaker:The biggest development in the oil and gas industry, frankly, in
Speaker:history.
Andyou would be forgiven, for a period of time, for
Speaker:thinking that was a new shift deflationary trend, and forevermore
Speaker:would lower the price. And I guess it kind of did for, basically,
Speaker:a decade or 15 years. But now those fields, as big as they are,
Speaker:are starting to show signs of depletion and we don't have the next
Speaker:shale field waiting in the wings.
Everyonealways asks me, oh,
Speaker:will we just go explore and find another massive one? No, we
Speaker:knew where they were. We went after the big ones. Everything here
Speaker:is incremental and it's not going to be enough to offset declines.
Speaker:Soyes, I do think that there was a technological shift. I do think
Speaker:that's partially responsible for why commodities are so cheap
Speaker:today. That and a massive spending boom in the last cycle.
Speaker:Weuncover this technology and then we raised a ton of capital to
Speaker:get after it. Both of those things were deflationary. That's
Speaker:in the rearview mirror. Copper is a concern for 2030, but for the
Speaker:time being, no, I don't think deflation explains why commodity
Speaker:prices are so cheap.
Speaker:So many big things to discuss. Adam, wonderful seeing you again.
Speaker:Always one of my favorite conversations of the year.
Speaker:Thank you.
Speaker:We talk a lot on this podcast, and for many years now, about these
Speaker:big macro cycles that you referred to. As Neil's mentioned,
Speaker:Rise of Carry is at the core of kind of how we think about markets
Speaker:as well, never mind The Fourth Turning, and some of the insights
Speaker:gained from there.
Theunderstanding that I have, and
Speaker:that we think about when we think about these big cycles, is
Speaker:not just that they're some magical thing that happens, but they're
Speaker:a function of really this push and pull that happens with the natural
Speaker:system of things pushing the world towards more and more inequality,
Speaker:a natural system, everything runs, all the gains go to the top.
Speaker:And, eventually, inequality getting to a point where a whole
Speaker:generation (that's why it's 40 years or two generations) all of
Speaker:a sudden, having experienced that inequality, rebelling against
Speaker:it all of a sudden.
Andthen you enter these periods of populism,
Speaker:and protectionism, and everything goes the other way for
Speaker:20, 30, 40 years. So, this is this generational kind of experience,
Speaker:which The Fourth Turning talks so much, is so important to these
Speaker:cycles. That said, these are big, long cycles. And you can have
Speaker:years within these cycles, sometimes five years, where things
Speaker:within that cycle go the opposite direction.
Andobviously
Speaker:we talk every six months, right? So, people are like, what's
Speaker:happening in the next three months, six months, year? So, I think
Speaker:the timing part is so hard. And we are dealing with a weighing
Speaker:machine, as we talk about in the words of Benjamin Graham versus
Speaker:a voting machine. And I think nowhere is that more prevalent than
Speaker:in commodities because supply and demand in those markets can get
Speaker:imbalanced and things can, as we've seen, be priced incredibly
Speaker:cheaply or incredibly expensive for some periods of time
Speaker:and be so very inefficient.
So,my question is really, at this
Speaker:important point - new administration, new approach. Is
Speaker:this the moment where, in terms of timing, supply and demand
Speaker:(and when I say supply and demand it’s not in the commodities
Speaker:themselves, because I think of that as really the, the weighing
Speaker:machine, yes, that does play into the supply and demand in markets
Speaker:as well), but really, market positioning, market timing, why would
Speaker:this now be the moment, in your thoughts (meaning for the next
Speaker:year or two) to really be getting along fundamentally? Right.
Speaker:We agree there's a big cycle coming, but again, for five years
Speaker:that could not work. I would love to hear your thoughts a little
Speaker:bit about that, you know, why now?
Speaker:Sure. So, I'm going to hedge at the outset and say that when commodities
Speaker:do get this cheap, the timing, as we've shown, actually doesn't
Speaker:matter. And I find, you know, these numbers are staggering. But
Speaker:commodities first became cheap relative to financial assets, stocks,
Speaker:in 2015. It crossed a threshold that was only ever breached
Speaker:three times before – ’29, as I mentioned ‘68, ‘69 and ‘99. And then
Speaker:it first broke that level in 2015.
Andsince then, it's kind of
Speaker:been trading slightly down to sideways, commodities relative to
Speaker:the Dow. (We use the Dow, but if you use the S&P, it's the same
Speaker:thing). And what we notice is, in the past, again, if you bought
Speaker:it when it first got cheap, even if you're timing, you know,
Speaker:even if you were the super value investor, right, you didn't
Speaker:want to market time, anything, you just said, look empirically,
Speaker:it's as cheap as it's been. I Like it here. Now's the time to buy.
Speaker:Wenoticed that first that that occurred also in like ‘53, ‘54,
Speaker:and persisted all the way to ‘68, about 13 years. And if you owned
Speaker:a basket of commodity equities over that period of time, you actually
Speaker:performed in line slightly better than the S&P 500. And, believe
Speaker:it or not, since 2015, you've basically been right in line with
Speaker:the S&P again. Which has been a good run for the S&P. So, it's
Speaker:not like it has been dead money. It's not like it has been…
Speaker:It's been frustrating from an observational perspective, but if
Speaker:you actually kind of look at your numbers since then, it's been
Speaker:okay. And that's where we get this idea of, there's no cost to
Speaker:being early.
Now,of course, we're already 10 years into that
Speaker:period of being radically cheap. So, I suspect it doesn't last
Speaker:another 10 years. We're closer and closer to the ‘68 takeoff point.
Speaker:You know, the 1971 massive rallies in commodities and natural
Speaker:resources. And yet the cost for being patient thus far has been
Speaker:market returns. And so, I think that the risk return is certainly
Speaker:in your favor.
Now,having said all that, I do think that the
Speaker:timing is now. Our new letter is going to be due out in a week
Speaker:or so, and we'll be discussing this in great depth and detail. But
Speaker:it has to do with the fact that every major commodity, real
Speaker:asset, relative market bottom, was ended and a new bull market started
Speaker:based on a change in the monetary regime system. And we've
Speaker:been talking about that since 2020. That's when we first made that
Speaker:observation.
So,it's been five years already, and we weren't
Speaker:calling for a major change just yet, but we were saying, keep
Speaker:your antennas up and look for a change in the monetary regime.
Speaker:Now, what do I mean by that?
Well,if you go back to the 20s,
Speaker:you know, most European countries suspended their gold standard
Speaker:during World War I. Britain, notably, tried desperately to get
Speaker:back on in the interwar years. And through the ‘20s, Benjamin Strong,
Speaker:New York Fed, decided to undertake quantitative easing. We're
Speaker:going to print US Dollars with a strong US economy. It resulted
Speaker:in the massive stock market boom we saw in the ‘20s. You know,
Speaker:Strong called it. He was going to give the market a ‘coup’ of whiskey.
Speaker:And he sure did. And the point was to try to devalue the US Dollar,
Speaker:get the pound revalued so it could go back on gold at its prewar
Speaker:rate.
Strongdies suddenly in ’28 and his controversial policies
Speaker:were completely undone. And what you saw was ultimately the stock
Speaker:market crash in ‘29 and the depression and that was the end of
Speaker:the gold standard.
Iwouldcall that entire experience
Speaker:the last nail in the coffin of the gold standard. Certainly, a monetary
Speaker:regime change. A hard gold standard had been what we had in
Speaker:place since the Napoleonic Wars. So definitely a monetary regime
Speaker:change. You know, ‘68, ‘69, ‘70, when commodities bottomed again
Speaker:and then took off, of course that corresponds to the end of Bretton
Speaker:Woods.
AndI think I probably mentioned this last time. This is
Speaker:like my fun little bit of trivia. Nixon gets blamed for taking
Speaker:the dollar off gold. He definitely closed gold convertibility.
Speaker:He closed the “gold window”. But really it was Johnson who signed
Speaker:a law in ‘68 that said that the dollar didn't need to be backed
Speaker:by gold anymore. It'd be equivalent to banks throwing out
Speaker:any capital requirements.
Theday that you strike those off
Speaker:the rule book, you don't necessarily go broke, but certainly
Speaker:within a couple years you'll have a run on the bank. And that's
Speaker:what happened. And so finally they had to close convertibility
Speaker:in ‘71. That was the end of Bretton Woods, ‘68, ‘71, it's hard
Speaker:to tell on a chart. I would argue ’68, which corresponds exactly
Speaker:to the bottom. Others might say ‘71, which corresponds to the
Speaker:bull market and resources really starting to take off. And
Speaker:in ‘99, it was the fallout of LTCM. All these Asian currencies
Speaker:had pegged themselves to the dollar at a fair value.
Theidea
Speaker:and the understanding was that the IMF and the World Bank would
Speaker:provide liquidity swap lines in the event of a currency hot money
Speaker:flight from the Southeast Asian countries. That happened following
Speaker:LTCM. The World Bank and IMF did not step in.
Andin the aftermath,
Speaker:which saw these currencies, you know, devalue 70% in some cases,
Speaker:massive economic turmoil throughout Asia, the countries all
Speaker:said to themselves, well, to hell with this, we're going to peg
Speaker:below market and we're going to spur exports. We're going to make
Speaker:our economy and our export market super competitive.
Andit
Speaker:resulted in, you know, five, nine, pick the number, pick your
Speaker:timeline, but trillions and trillions of dollars in US Treasuries
Speaker:ultimately flowing east. It created the dollar recycling standard
Speaker:that is in place today, it brought on the GFC, all these types
Speaker:of things. Again, a massive currency monetary regime change.
Speaker:So,when we came away with this conclusion, we said look to
Speaker:these markets, look to these systems, and changes, and fractures
Speaker:therein to give you a sense for when we might get a catalyst
Speaker:to start the new bull market in resources and commodities. And
Speaker:I think we have that now. Now, if you'd asked me two years ago,
Speaker:you know, in full disclosure.
Speaker:I think we did, Adam.
Speaker:Yeah, we felt that the BRICS countries were likely going to be
Speaker:the agents of change here in the sense that Brazil, India, China,
Speaker:several others were coming together and looking to start a potential
Speaker:rival to the US Dollar for international trade settlement. You
Speaker:know, it wasn't clear how it was going to work yet, not all the
Speaker:details.
EveryBRICS conference, they were going to announce
Speaker:this new major currency. Indeed, we did see, I think about
Speaker:upwards of 9% of global commodity trade move away from the
Speaker:dollar, a big number, places like France selling LNG to China
Speaker:settled in renminbi. The big question was, would Saudi Arabia
Speaker:sell its oil into China in renminbi? But lots, and lots, and
Speaker:lots of talks and whispers about a potential challenger to the
Speaker:US Dollar as a global reserve currency. It wasn't clear, again,
Speaker:how you would do that with the renminbi in a closed capital account.
Speaker:But the idea was probably that gold was going to play a role to
Speaker:help balance out any trade settlement and balances. And you
Speaker:saw all these countries buying huge gold reserves.
So,if you'd
Speaker:asked me even a year ago, I would have said, you know, watch
Speaker:this space and monitor what's happening very, very closely. However,
Speaker:I think today, February 20, 2025, the likely change in the global
Speaker:monetary plumbing or system could actually come from the United
Speaker:States itself.
Andwhat I mean by that is, you know, Treasury Secretary
Speaker:Bessent has spoken about several, what I would call, revolutionary
Speaker:or certainly new and different changes to US monetary and international
Speaker:policies.
Probablythe most notable one that people are talking
Speaker:about right now is the idea of ‘monetizing’ the Fed's balance sheet,
Speaker:or the assets of the Fed's balance sheet, by which I think even
Speaker:Bessent has said this and lots of people have been speculating,
Speaker:could that mean revaluing the Treasury's gold holdings, which today
Speaker:are held on the books at $42 an ounce, a far cry from the market
Speaker:price, obviously? You know, even just the tariff systems that
Speaker:are being proposed today are quite different than anything that
Speaker:we've seen.
Sobefore, if you had a sort of US dollar recycling
Speaker:system that had been in place since LTCM, whereby the US was the
Speaker:reserve currency, people had trade imbalances, the trade imbalances
Speaker:resulted in excess Treasury issuance, which then found their
Speaker:way to foreign central banks. That model, I think we can all fairly
Speaker:say, is probably over. And I don't really know what the new model
Speaker:looks like exactly or even broadly.
However,to the extent that
Speaker:it's going to be the catalyst to re-rate real assets, I don't know
Speaker:that it matters what it looks like. Lots of people have asked me,
Speaker:oh, is this the end of the US dollar?
Isaid,listen, if you stood
Speaker:in 1971, and Nixon had just closed the gold window and gold convertibility,
Speaker:and unilaterally taken effectively the world off of Bretton
Speaker:Woods, and you canvassed economists (I have to find this poll.
Speaker:I don't know if one exists, but it'd be fascinating to see),
Speaker:and you said, what is this spell for the US dollar going forward?
Speaker:Everyone would say, well, you know, that's it, say goodbye, not
Speaker:sustainable anymore. And yet the dollar gained relevance in terms
Speaker:of a global reserve currency similar following LTCM. You know,
Speaker:the idea was, oh, we'll trade with you at a par dollar so that
Speaker:you'll bail us out if need be. And whoops, you don't have the central
Speaker:bank put the way you thought you did. What did that do to US dominance
Speaker:on a reserve currency? It became massively more important.
Speaker:So,I don't have nearly enough hubris to predict exactly what this
Speaker:looks like and where the US shakes out. But what I'm hearing
Speaker:either from the BRICs (I mean, those guys haven't gone away), or
Speaker:even internally in the US from Treasury, I would say that, you know,
Speaker:my the equivalent of the doomsday clock of how many minutes
Speaker:we are from a monetary regime change, I would say would be at 11:59.
Speaker:It seems like we're awfully close. And then you start to ask
Speaker:yourself, well, from a timing perspective, what could that look
Speaker:like?
Andyou know, presumably the administration, if they have
Speaker:all these really bold, differentiated visions on how we
Speaker:should operate, you probably want that to be in place decently
Speaker:early, particularly with, you know, midterm elections in 2026.
Speaker:So, is it today? Tomorrow? No. Is it in the next six months? Again,
Speaker:I think that, for the first time, I see a potential catalyst
Speaker:in the near future, more than I've seen in the past. So again,
Speaker:watch this space.
Speaker:Yeah, I couldn't agree more. We've talked here about the parallels
Speaker:between Trump and Nixon. Well before Trump got reelected here,
Speaker:you know, only Nixon could go open up China. Only Trump can have
Speaker:a detente if you will. Only Nixon could take us off the gold
Speaker:standard, right? Only a disruptive figure like Trump can
Speaker:do something similar.
It'snot a coincidence in the arc of history
Speaker:that these things rhyme. People are in the phase of ‘burn
Speaker:it down’, and that brings a disruptive figure that can make change.
Speaker:Now that change may not be the change people want or maybe, much
Speaker:like Nixon in a ‘burn it down’ regime, eventually the hordes come
Speaker:for you as well, as they did for Nixon. So not a political comment,
Speaker:just that people want to burn it down no matter who. Being an incumbent
Speaker:during these periods is not a good thing.
Thatsaid, you know,
Speaker:at the end of the day it is a time of disruption and the overwhelming
Speaker:arc of history shows that is a time that people will, some way or
Speaker:another, at some point force change. And I agree that is the most
Speaker:likely thing when it comes and it will likely happen. I agree with
Speaker:you, before too long, given that the agent of change is now in
Speaker:office, I think that is a major, major issue.
Theone thing
Speaker:I think about when I think about the weighing and voting machine,
Speaker:as we mentioned, is there's this idea that the voting machine
Speaker:supply and demand is like the fuel on an airplane. You can keep
Speaker:going in the wrong direction. Gravity is the valuation, but things
Speaker:coming back in line really happen when that fuel turns off.
Speaker:How far are you off the ground is all that matters at the end of
Speaker:the day when that liquidity gets cut off.
Andthat could happen,
Speaker:as you very astutely mentioned, through an emerging market
Speaker:crisis, through disruption and liquidity getting removed by kind
Speaker:of the dislocation that's happening, which I think is a very
Speaker:high probability in this regime. As you mentioned.
Speaker:You talk about disruption and you know, change and things like
Speaker:that. And obviously you have a lot of echoes of Neil Howe and the
Speaker:Fourth Turning. And, and we, we are big, big fans of Mr. Howe's
Speaker:work.
Hespoke at our conference last year, we know him
Speaker:quite well. And the Fourth Turning has made a huge, huge impression
Speaker:on both Lee and I and his new follow up work, The Fourth Turning
Speaker:is here, which, if people haven't read it, I don't know if
Speaker:this is bad for his book sales, but you probably can read
Speaker:the follow up. It does a good job at summarizing the first volume
Speaker:and then updating it.
Butgetting back to change and the
Speaker:idea of change shocks and things of that nature and The Rise
Speaker:Carry. What I think is really interesting in The Rise Carry, they
Speaker:basically talk about the carry regime that's in place. Basically,
Speaker:pick your timeline, but I would say call it from 1980 to today,
Speaker:but really the last 15, 20 years. And it's been characterized
Speaker:by a number of things. It's been characterized effectively by
Speaker:a levered short volatility trade.
So,the idea that the classic
Speaker:carry trade of borrowing in yen and investing in Australian bonds
Speaker:represents arbitrage, a leverage on the trade to make it
Speaker:work or to produce an acceptable level of return. And you're
Speaker:effectively short volatility. So long as the structure is the same
Speaker:tomorrow as it is today, the trade will work. You're picking up
Speaker:the pennies in front of the steamroller, which is nothing if
Speaker:not being short volatility.
Andthey talk about a number of characteristics
Speaker:that all kind of line up with that, like the outperformance of
Speaker:growth over value and of momentum because, you know, growth…
Speaker:First of all, as you reduce volatility, you reduce interest rates,
Speaker:you suppress risk, you have a convergence in a lot of different
Speaker:costs of capital. What it ends up doing is you end up pricing and
Speaker:more highly valuing farther out cash flows.
Youknow, it doesn't
Speaker:seem quite so scary in a short vol world where you are suppressing
Speaker:volatility by the very trade to all of a sudden look to these
Speaker:big conceptual stocks, and look to things that have, you know,
Speaker:50 times, 60 times multiples. Because, just like bond duration
Speaker:math, when interest rates are low, you know, all of a sudden that
Speaker:works out quite well.
Butyou know, we've seen those trends actually
Speaker:take place a couple other times. And these guys don't really
Speaker:talk about it so much in the book. They allude to some other carry
Speaker:regimes, but they don't study them in depth. And, and you know,
Speaker:their book would probably run to 800 pages if they did. But it
Speaker:turns out the 20s were exactly the same.
Ifyou look at the performance
Speaker:of value or underperformance of value relative to growth, if you
Speaker:look at the concentration, if you look at market cap of the equity
Speaker:markets relative to GDP, you know, the statistically different
Speaker:periods are all 1920 to 1929, 1963 to 1968, and 1992 to 1999, and
Speaker:then today. You start to see all these things repeat themselves
Speaker:and repeat themselves. And so, I would argue that what we're in
Speaker:right now is a huge carry trade, that the real assets lose
Speaker:their luster relative to these big, conceptual, abstract, multiple
Speaker:growth stocks.
Youknow, a company that has a factory that'll
Speaker:generate widgets for 15 years, and you can run that DCF, that maybe
Speaker:will trade at one times nav. Whereas, the company that promises
Speaker:disruption can trade at 60, 70, 80 times earnings and 10 times
Speaker:book value with no problem. And then the catalyst to undo it,
Speaker:in every case, has to be what the authors would call a carry unwind
Speaker:or something that introduces volatility back into the system.
Speaker:A volatility shock that all of a sudden makes people price these
Speaker:two disparate asset classes differently.
Andthat's where you
Speaker:get, I think, these monetary regime changes have to be or that,
Speaker:usually, historically are that agent of change. Certainly, when
Speaker:you took the US dollar off gold in ‘71, that was a volatility
Speaker:shock. That was not the same market going forward as it was before.
Speaker:And if you have this multi, multi trillion dollar lever trade
Speaker:on, that's all betting on suppressed volatility, and tomorrow
Speaker:looking exactly the same as today, you get the unwind of that
Speaker:when you change the underlying system.
That'sreally the only thing,
Speaker:in a lot of cases, I think, that can change it because the trade
Speaker:is so reinforcing. It self-reinforces because more money
Speaker:pours into it, growth does better, and so more money goes into
Speaker:it, and then it does even better, and then they can make acquisitions,
Speaker:and it's the Nifty 50 all over again.
So,I think that the big kind
Speaker:of takeaway, which is a little bit alarming, frankly, for a lot
Speaker:of investors, is that yes, natural resources are super cheap,
Speaker:commodities are super cheap, catalysts are probably here. By the
Speaker:way, the fundamentals, for those who care, the counting of barrels,
Speaker:looking at rig counts, are incredibly bullish and positive.
Speaker:The lack of exploration is super bullish and positive. But not
Speaker:only will that work, the problem is that almost every other
Speaker:investment in the world today is caught up in the carry trade.
Speaker:So,I worry for people whose portfolios, they look at it and they
Speaker:say look, we've diversified, we have a little bit of US, a little
Speaker:bit of Europe, a little emerging markets, and we have some
Speaker:private equity and hedge funds in there as alternatives to really
Speaker:diversify and protect ourselves. You guys. No, I'm sorry,
Speaker:that's all the carry trade right now.
There'snothing that's
Speaker:more carry trade if not private equity, which is effectively
Speaker:just a levered S&P return and a preferential fee to the manager.
Speaker:So,I worry that, in the event we do get a carry unwind, people
Speaker:are going to realize their portfolios are not nearly as diversified
Speaker:as they think they're. In fact, they're what I would call Texas
Speaker:hedged. You think you're hedged, but you really doubled down.
Speaker:Andthat's the state of the world today. And I think it's very
Speaker:precarious. And I think investors need to be looking all
Speaker:across the market for anything just on the margin. Not even to tactically
Speaker:reposition yourself, but just to protect yourself, at the very
Speaker:least, against the fact that we might all be in the same trade
Speaker:in almost everything. And resources, I can definitively say,
Speaker:are not in that basket.
Speaker:Yeah, we 100% agree on that. And the key is the timing, as you've
Speaker:mentioned. And I agree with you. At the end of the day, at this
Speaker:point, you know, the risk/reward is so dramatically in
Speaker:your favor, it's okay to be early because the coming move, when
Speaker:it happens, will be quick and decisive. But again, it could be
Speaker:years.
Speaker:I'm going to say six to nine months. When I come back on in six
Speaker:months, we can, we can do that. I think we're approaching it
Speaker:quite quickly.
Speaker:I think we're six to 18 months away. And I think there's several
Speaker:reasons for that. But I agree it could be… It is closer than people
Speaker:realize.
Giventhat metaphor, I was saying, essentially, that…
Speaker:Liquidity, by the way, is the reason that markets the carry trade
Speaker:across the board. As long as there's liquidity, the carry trade
Speaker:maintains. Carry trade is really a skew trade, whether it's
Speaker:in the S&P, it's downside versus upside. There's a structural
Speaker:phenomenon where vol and skew (we're kind of talking my language
Speaker:here), the vol on the liquidity, can be pinned, but the
Speaker:tail happens once that vol compression is released.
Andso,
Speaker:what we're beginning to see is that vol compression, even though
Speaker:at this very moment it's very well supplied in very short term,
Speaker:but the actual liquidity is reducing dramatically. That fuel
Speaker:in the tank is getting really low.
Andeven though that's the case,
Speaker:we can glide like the plane can glide for awhile, but a little
Speaker:bit of a disruption, a storm, something that then all of a sudden,
Speaker:now that the fuel is gone, kind of forces, some disruption,
Speaker:turbulence. You're too far off the ground, right? The fuel is sputtering.
Speaker:You're too far off the ground. I think we're really heading to a
Speaker:period, in terms of volatility that, we're looking for a catalyst,
Speaker:but the liquidity is coming off the table. I completely agree
Speaker:with you.
Andjust a little bit of an insight here in terms of
Speaker:how these things usually end. It's one of two ways. One, it's a
Speaker:narrative change, you know, which is not something we've talked
Speaker:about here, which I think could be the case here in a Trump
Speaker:administration where people all of a sudden start to say, well,
Speaker:wait a second, all this demand side economics populism we've been
Speaker:seeing, even though he's been talking about rhetoric, he's reaching
Speaker:across to China and there's a detente, he's going to do more supply
Speaker:side economics, all these things, you know, maybe especially
Speaker:after some period here, right.
Peoplebegin to lose faith in the
Speaker:energy trade. People lose faith in the commodity trade. If
Speaker:that happens? It's actually the best thing that can happen in
Speaker:my opinion, given this regime, to actually accelerate a potential
Speaker:move.
Ithinkwe've had this problem and this is why things last
Speaker:longer than you always think, Markets can stay irrational longer
Speaker:than you can say, solve it. Because people see the thing coming.
Speaker:It's pretty obvious to those that are kind of looking at it. You
Speaker:need a loss of faith enough so that the supply and demand, in the
Speaker:short term, can become imbalanced and then the bigger move
Speaker:can happen.
Andso, that's one thing I'm really looking for here,
Speaker:some type of a narrative change where people actually begin
Speaker:to lose faith in the reality, of what we're talking about. That
Speaker:would be great for the trade, candidly.
Andthen two, you know,
Speaker:the other way could happen is sometimes people don't lose faith
Speaker:and it's just such a big shock, as you mentioned. Which I
Speaker:think could be an emerging market crisis in the face of… I was
Speaker:just in Turkey, actually, talking to a lot of big Turkish kind
Speaker:of traders, businessmen, et cetera, people really embedded in
Speaker:the country. And what people don't realize is how fragile some
Speaker:of these emerging markets already are. And that's amidst a
Speaker:global, really not a recession, the economies are doing
Speaker:well. The world is full of, generally, liquidity from markets,
Speaker:etc., in the developed world. What happens if we go into a global
Speaker:slowdown?
Whatif we have some disruptive forces amidst that? That
Speaker:could really cause a big, in a fragile emerging market, a big crisis,
Speaker:especially if that means stronger dollar, especially if there's
Speaker:some disruptive moves by Bessent and the coming new Federal
Speaker:Reserve chair, whoever that is. So, there's really two paths
Speaker:here. And I agree with them, one of the two are likely to unlock
Speaker:this trade we're talking about.
Butthe time is, is coming.
Speaker:No, listen, I agree with that completely. I think I got most of
Speaker:it. I think I agree with all of it.
Butyou know, I'm just going
Speaker:to make it a little simpler, you know, because I'm not an options
Speaker:trader, although I have traded some options, you know, in the past,
Speaker:but I'm not nearly as well versed as you are. But you know,
Speaker:in your short vol, pennies in front of the steamroller, skew type
Speaker:of a model, there's periods of time where the likelihood that tomorrow
Speaker:looks very similar to today's higher and lower.
Infact, most of
Speaker:the time tomorrow does look exactly the same as today. You know,
Speaker:and then there tends to be the days where it's very, very different.
Speaker:You know, tomorrow looks very much like today up until the day
Speaker:you die, I guess. And then it's a very, very different day.
Speaker:Butwhen you go back, let's say a couple years, and we had massive,
Speaker:massive US deficit spending (which obviously we still do), and
Speaker:those excess Treasuries were all being effectively monetized through
Speaker:the banking system, but still being monetized by the Fed and everyone,
Speaker:100 economists and Bloomberg were calling for a recession, and
Speaker:we were never in the recession category.
Andyou looked at it and
Speaker:you're like, why would this change? This isn't going to change
Speaker:so long as the US can run these crazy deficits, and place the
Speaker:bonds, and right now no one's buying the bonds. The foreign central
Speaker:banks were buying bonds, is really being acquired by the Fed,
Speaker:until they lost control of the 10-year and they had to move to bills
Speaker:and all that. And you say, well, tomorrow's going to look a
Speaker:lot like today.
TodayI think is very different. When I look forward
Speaker:and I say, what's the likelihood that a year from now policies
Speaker:across the board here resemble what they resemble today? And these
Speaker:are not little policies, not small tweaks. These are potential
Speaker:big ones. Everyone seems aligned that they want to change
Speaker:things.
Andso, I think it might be just as simple as that.
Speaker:You kind of look at it and you're like, the likelihood that
Speaker:this administration, in a year from now, has everything aligned
Speaker:the same as it did a year ago is pretty low. In fact, I'd say almost
Speaker:zero. And that's, I think, what puts some of the carry trade
Speaker:stuff at risk.
Becauseagain, you start to get the unwind when
Speaker:the volatility picks up, when the regime changes, when things are
Speaker:different. You know, that's when you start to have a forced unwind
Speaker:of a lot of this stuff. And then it could be just self perpetuating.
Speaker:As it starts to unwind, it forces further unwinds which increases
Speaker:change, and shocks, and volatility more. And that's where
Speaker:you get your crises that pops up somewhere. Whether it's emerging
Speaker:markets, whether it's leveraged regional banks in the US,
Speaker:it's hard to say exactly where it's going to be.
Butwith so much
Speaker:leverage in the system and things set to be so different, I
Speaker:think, or the potential for them to be quite different and everyone
Speaker:with a short levered, short vol trade on, that would be the first
Speaker:time in market history that having everyone in a levered trade,
Speaker:in one direction, that the masses are right. I just don't think
Speaker:it's going to happen.
Speaker:We've talked a lot about the changes that the Trump administration
Speaker:is coming. We talked about that we need some kind of catalyst,
Speaker:and we talked about that this would have an impact on commodities.
Speaker:So, I want to try and tie it all together in a sense that from
Speaker:where I sit on the other side of the pond to you guys, it looks
Speaker:to me like the new administration is somehow, you know,
Speaker:it's weaponizing commodities in a sense. It's going after Canada,
Speaker:it's going after Greenland, now it's talking about Ukraine and
Speaker:rare earth has to be part of any peace, et cetera.
So,from your
Speaker:perspective, Adam, when you see these things happening suddenly
Speaker:commodities are, I don't know how to phrase it, but it's taking
Speaker:on another role, suddenly. It's not just something we produce
Speaker:in one place of the world and it's friendly, and sent over to another
Speaker:place of the world, and it's used over there.
Buthow does that
Speaker:change your… And you say that the oil supply is leveling out in
Speaker:the US, and maybe that is why he wants Canada and Greenland for
Speaker:who knows. But how do you think about something like this?
Speaker:Because I don't think this has ever happened before that commodities
Speaker:play like a geopolitical role, or maybe it has, but not that I remember.
Speaker:Well, I mean, certainly In World War II, you know, there are
Speaker:major, major moves that were done to secure energy supplies, particularly
Speaker:by the Japanese and their incursions throughout the South China
Speaker:seas and the broader kind of Asian continent to try to secure
Speaker:supplies. And frankly there were big moves by the British, as
Speaker:well, to have coaling and refueling stations for their blue
Speaker:water navy. So, I think we have seen this. I'm not entirely
Speaker:sure that we're seeing a weaponization of commodities today.
Speaker:WhenI think of a weaponization of commodities, I really
Speaker:think, you know, probably the prime example of that would have
Speaker:been China with rare earth metals back in 2010 or so, where
Speaker:they mined and then processed basically all of the world's rare
Speaker:earth metals that went into all kinds of things like magnets
Speaker:and electronics. And they restricted output to Japan, notably
Speaker:for geopolitical leverage and things of that nature.
Basically,what
Speaker:they wanted was they wanted all the battery technology and magnet
Speaker:making, manufacturing technology to be brought into China
Speaker:so they could steal the intellectual property. And when Japan
Speaker:didn't want to do that and they said, no, no, just you give
Speaker:us the rare earths and we'll make the stuff here, they said no.
Speaker:And,you know, that forced a pretty big realignment in a lot of
Speaker:those trade routes. That was pretty mercantilist and pretty, you
Speaker:know, aggressive. Are we seeing that today? I think that it’s
Speaker:a little early to say that.
Ithinkcertainly what we're seeing
Speaker:today is a renewed appreciation for some of the fragility
Speaker:of the supply lines in the raw material space. Lee and I were talking
Speaker:about this just last night, that through the Cold war and into
Speaker:the early 1990s, the US maintained strategic stockpiles of
Speaker:lots of different things. Those were all thought to be redundant
Speaker:and superfluous and were liquidated.
Andwhen you look at
Speaker:anything from, antimony is a big one where, you know, the US Is
Speaker:now providing loans to US antimony potential mines that we
Speaker:can have domestic supply; uranium, where we used to be both
Speaker:the world's largest producer of mined uranium, and then importantly
Speaker:had a huge enrichment facility here as well. Now we basically don't
Speaker:register on either of those things.
Thoseare trying to be moved
Speaker:back into security of supply, lots of different things like that.
Speaker:So, I don't know that we're quite at the weaponizing phase. Certainly
Speaker:not in the US. I don't think that's a fair assessment yet. But
Speaker:I think there's a renewed appreciation for security of supply
Speaker:and the idea that it could be a strategic vulnerability, you know,
Speaker:in a little bit more of a hostile world going forward.
Speaker:We talked kind of bigger picture for the last bit here. I
Speaker:would really love to kind of get more specific to different commodities.
Speaker:Imean,you mentioned yourself that copper and uranium are going
Speaker:in different, likely, going different directions. So, we have
Speaker:a universal view of things with fundamental hard value and their
Speaker:importance. But I would love to drill down a little bit and talk
Speaker:about, you know, we have very disparate things like gold and precious
Speaker:metals, and uranium and copper. Where do you see the greatest
Speaker:opportunities currently?
Andspecifically, I would love to
Speaker:focus on uranium and also gold and hear your about precious metals
Speaker:as well. And then also maybe energy writ large. We've talked about,
Speaker:a little bit of, the supply and demand amounts there. But let
Speaker:me get a little bit more specific and particularly as we sit
Speaker:here.
Speaker:And look, you're absolutely right. You know, if you look at commodities
Speaker:in general, they tend to move in these big cycles. However, within
Speaker:that there's certainly ability, and not even trading, you
Speaker:know, investing over multiyear timeline, there are definitely returns,
Speaker:excess returns to be generated by picking the right places at the
Speaker:right time. And we spend a lot of time doing that.
So,if I'm talking
Speaker:to somebody about an asset allocation in their portfolio, I
Speaker:might talk about the asset class and commodities and resources
Speaker:in general. If I'm talking to someone who buys the story and wants
Speaker:to know where we're thinking, there are times where copper becomes
Speaker:radically undervalued relative to energy, relative to itself, whatever
Speaker:the case may be. I think right now the biggest dislocations are
Speaker:likely in US natural gas where US gas today remains 80% below the
Speaker:world price.
Andthere's a good reason for that. It's been that
Speaker:cheap for a long time. And the reason is we've had just so much
Speaker:supply from the shales.
Youknow, we've shut down most of
Speaker:our coal fired power. We've gone from being a big LNG importer
Speaker:to big exporter. We built all these petrochemical facilities, we've
Speaker:done a lot to soak up that gas and there has still been too much.
Speaker:So, that's why it's dislocated from the rest of the world.
Ourcontention
Speaker:though, is that in a period like we have now, and upcoming, where
Speaker:electricity demand is set to go through a huge shift higher because
Speaker:of AI data centers and things of that nature. And US LNG exports
Speaker:are coming online, 78 BCF a day in the next two years or so -
Speaker:big, big, big numbers. At the same time as production is now declining
Speaker:for the first time in 15 years, that disparity with world
Speaker:prices could be closed quite quickly.
We'vebeen early on this
Speaker:trade, you know, for anyone that's followed us. We've been basically
Speaker:two years early because of two back to back mild winters that we
Speaker:had that eviscerated natural gas heating demand. This winter has
Speaker:been more seasonable. It's actually been a bit colder in parts.
Speaker:But we're now starting to see the impact.
We'restarting to see
Speaker:inventories that decline quite sharply. Production continues to
Speaker:be really, really weak. It's down 3 plus percent year on year.
Speaker:It's not going to get better anytime soon. And I think now we're
Speaker:at massive risk of pegging that US gas price to the world price.
Speaker:That could be like a three to four fold move in gas quite quickly
Speaker:depending on weather in the short term.
Sothat's probably the
Speaker:biggest dislocation in commodity markets today. Uranium
Speaker:is also in a really bullish situation and it's a very interesting
Speaker:and kind of opaque market. I'm sure we've talked about it in the
Speaker:past here too. The idea is that with uranium things don't develop
Speaker:on a week-to-week basis the same as they do in the oil markets
Speaker:or the gas markets.
Youdon't get weekly inventory numbers, the
Speaker:market moving data coming out every week. You have to take a little
Speaker:bit of a bigger picture view. And where we are today is the market's
Speaker:in pretty sharp deficit. We have not brought on enough new capacity
Speaker:in the last 15 years. Partially that was due to expectations
Speaker:that we would continue to retire nukes around the world. That
Speaker:didn't happen.
Infact, now we're giving them life extensions.
Speaker:We're bringing back on shuttered plants and of course we
Speaker:do have new build programs in places like China and Korea as well.
Speaker:So, reactor demand today outstrips mine supply. Inventories
Speaker:are basically almost zero.
Youknow, post Fukushima we had built
Speaker:up all these excess Japanese commercial stockpiles that could
Speaker:be fed into the market when supply was less than demand. That's
Speaker:not true today. And, for the most part, the term uranium price,
Speaker:which is to say where fuel fabricators contract with miners
Speaker:and stuff like that, that's been going up and up and up. That's
Speaker:90% of the market.
Whathas been a little bit weak peak has been
Speaker:the spot uranium price which fell last year. Even though the term
Speaker:price went up about 20%, the spot price came down by about a comparable
Speaker:amount. And that's because a year prior to that a whole bunch
Speaker:of speculative money came in and was playing spot uranium from
Speaker:the long side.
Ithinkthat's all gone now and that's obscured
Speaker:the narrative a little bit. But the fundamentals remain super
Speaker:positive there. There's no real major new mine supply coming
Speaker:online until the Rook Arrow deposit, up in Canada, comes online
Speaker:in ’27, ‘28. And the big question mark there is, can that
Speaker:come on in time?
AndI suspect the answer is no, we own the stock
Speaker:because I think if they say they can't come online, probably
Speaker:uranium prices and all the uranium stocks go up a lot. But you
Speaker:know that's an aggressive timeline. It's debated in the industry
Speaker:whether they can make it. Who knows, we'll have to wait and see.
Speaker:But the market looks quite tight physically and demand is very,
Speaker:very strong.
Gold,you wanted to talk about the gold market. You
Speaker:know, gold is a super interesting market. Obviously gold
Speaker:price is making new all-time highs every day. And that still,
Speaker:today, is basically with almost no Western participation in
Speaker:the gold market. We have no big Western buying of gold. In fact,
Speaker:shares in the GLD are flat to down and the GDX, which is the gold
Speaker:shares, is seeing outflows every day.
So,it has basically been
Speaker:central banks. We had a little bit of time of Western buying, along
Speaker:with central banks, that took gold prices up another leg. But right
Speaker:now it's the central banks buying and it is the western retail
Speaker:investor, I would say, neutral. That leaves a huge amount
Speaker:of buying power left to go and I suspect that that will continue
Speaker:as gold prices move higher.
TheWestern investor or the Western
Speaker:speculator, whether it's retail, institutional, what have
Speaker:you, they are pro-cyclical. They chase price. If you put $4,000
Speaker:on gold in the next two months, there would be more demand
Speaker:for gold investment, not less.
Theeastern physical buyer is the
Speaker:opposite. They're super price sensitive. If prices go up, you see
Speaker:them step out of the market. The western guys, when prices go
Speaker:up, they come in with more force. And the central banks, of
Speaker:course, are completely price agnostic. They don't say, oh I think
Speaker:gold's a good buy here, let's go buy some ounces. What they say
Speaker:is, we're going to change our policy and hold more gold and then
Speaker:they go and do that.
So,I think you have two potentially, you
Speaker:know, very bullish buyers on the horizon that would be the central
Speaker:banks and the Western investors. And so, I suspect the
Speaker:prices will move quite a bit higher from here.
Speaker:Related to gold, I have a couple questions, actually. So one,
Speaker:we don't really talk that much about bitcoin, you know, that's not
Speaker:a commodity, obviously, but I do think that, obviously, gold is
Speaker:not an industrial commodity as much that the value is more like
Speaker:a currency. And so, you know, akin to bitcoin in that way. There
Speaker:are some that have argued that, this time around, gold will
Speaker:have less demand because you have a bitcoin kind of alternative
Speaker:in that particularly certain part of the generation that's out
Speaker:there, at this point, driving some of these changes. Millennials
Speaker:on down see that as a store of wealth, maybe more than gold. Do
Speaker:you have any views on how this time it might be different in terms
Speaker:of gold on this cycle?
Speaker:I think that's going to end badly for millennials. I'm not a
Speaker:believer in bitcoin, and I have some fundamental reasons, and
Speaker:then I'll tell you, kind of a markets-based reason. So, first off,
Speaker:I do appreciate that Bitcoin is an asset that's outside of the
Speaker:financial system. It's an asset that you can own sort of independently.
Speaker:And that's always been a big benefit of gold. It's an asset that's
Speaker:no one's liability. Obviously, gold has served as a store of value
Speaker:in a much better way for much longer than bitcoin has.
Nowone
Speaker:of the interesting reasons as to why that is, and some people make
Speaker:the case that if you look at the long run increase in the supply
Speaker:of gold, for whatever reason… There are short-term dislocations
Speaker:if you come up with the gold rush in San Francisco, and in the
Speaker:Yukon, and stuff like that.
Butif you look over thousands and
Speaker:thousands of years, the increase in supply of gold, above
Speaker:ground gold, of which 99% of all the gold that's ever been mined
Speaker:is still accessible, has basically mirrored the long-term
Speaker:real GDP rate, including preindustrial revolution, it was
Speaker:lower. GDP was lower. And then industrial revolution both helped
Speaker:GDP start to grow and helped gold miners, effectively, bring out
Speaker:more gold. So, really kind of interesting. And they've moved in
Speaker:lockstep.
Andso, that argument says, look, you know, if
Speaker:you started out with four different economies, societies, one
Speaker:that used seashells, one that used pine cones, one that used gold,
Speaker:you know, the seashells, the rate of seashell growth would be
Speaker:above GDP growth and you'd have inflation and there would be
Speaker:turmoil, and as you talked about before, you know, that would
Speaker:lead to inequalities and ultimately revolution.
Pinecones
Speaker:won't grow fast enough and pine cones probably would. But you
Speaker:know, pick one that wouldn't grow - diamonds. Diamonds wouldn't
Speaker:grow fast enough, you'd have deflation, there'd be equal imbalances
Speaker:and the society that picked gold would kind of self-reinforce
Speaker:over time.
So,you compare and contrast that. It's hard to test
Speaker:the counterfactual, but you compare and contrast that with Bitcoin,
Speaker:where we know that its supply is not going to grow properly or
Speaker:not going to grow in line with… it's going to asymptote, it's
Speaker:not going to grow in line with GDP. And you wonder if that's going
Speaker:to serve as the right, long-term, real store of value.
Theother
Speaker:thing of course, even simpler than all that, is just it's a huge
Speaker:energy hog. It's massive and the more you use it, the more energy
Speaker:it's going to require. So, if you start to look at what these hashes
Speaker:will require as computing power gets thrown at it, and as the
Speaker:value of Bitcoin were to go up, you'd end up consuming huge,
Speaker:huge, huge quantums of energy.
Andif you think, as I do, that energy
Speaker:is ultimately the lifeblood of the economy, at a certain point the
Speaker:economy will collapse under the weight of all the energy being
Speaker:used to mine Bitcoin. And I don't think that's sustainable long
Speaker:term. So those are my reasons for that.
Ifyou look at a market
Speaker:from a more markets perspective, I think the question
Speaker:you have to ask yourself, getting back to the conversation
Speaker:we had before, is Bitcoin a carry trade asset or not? And that's
Speaker:a really interesting question because one of the nice things about
Speaker:gold here is that it is an anti-carry trade asset. And I would
Speaker:argue that Bitcoin has traded more like a tech stock, like a high
Speaker:duration bond, or like a high multiple valuation company. Now is
Speaker:that fair? Is it not fair? I don't know, but I think that's who's
Speaker:buying it.
Andso, I think there's a big risk nearer term with
Speaker:Bitcoin, particularly if we have some of the events unfold, and
Speaker:when people say oh, you know, won't Bitcoin take away all the demand
Speaker:from gold? I mean, certainly not if Bitcoin ends up trading like
Speaker:Microsoft, Meta, Google, then no, I think that's going to have
Speaker:a huge inflow of bitcoin investors dumping Bitcoin and saying
Speaker:we should probably have some of this back in gold. If that's not
Speaker:the case then you know, it's an open question.
ButI think just
Speaker:look back at 2022. 2022 is a really seminal year because it showed
Speaker:what the real carry trade unwind look looked like, and it showed
Speaker:that a lot of assets that should have behaved differently,
Speaker:stocks, bonds, what have you, didn't. Incidentally, we had a good
Speaker:year that year and Bitcoin had a terrible year that year.
Andso,
Speaker:I would look to that, and that would be a big kind of canary in
Speaker:the coal mine that if you do have regime change, or you do have
Speaker:a shift, or you know, a dislocation, will bitcoin give you
Speaker:that exposure? And I think the jury is out. And if you had to ask
Speaker:me to put my dollars at work, I think you probably know where they
Speaker:are. Like there's so much unknown. And on a risk adjusted basis,
Speaker:it does seem like gold is probably a better bet. Last thing
Speaker:related to gold, what do you think about the rumors of Fort Knox
Speaker:kind of gold not being as much as people think it is? There's a
Speaker:lot of things swirling around about there's no audit of that gold.
Speaker:Is it really the gold now, as gold's importance increases, as the
Speaker:talk about revaluing kind of the gold reserves, as you mentioned,
Speaker:comes up, there's conversations about that. Do you
Speaker:have any thoughts on the US gold reserves? I do think that there
Speaker:are often conspiracies around gold holdings. I think gold lends
Speaker:itself to conspiracies because that's part of its appeal and allure
Speaker:is that it's not, you know, infinitely trackable in the same
Speaker:way that registered stock certificates are; things of that
Speaker:nature. So, I think probably, frankly, having a little bit of conspiracy
Speaker:swirl around gold is probably good for gold in general.
It'sa
Speaker:little bit like, you know, when you watch the Crown, and they
Speaker:say all the pomp and circumstance and all the mythology
Speaker:around it is what gives it its power. I mean, part of it is that
Speaker:gold is anonymous. And so, I think there's always a lot of conspiracies
Speaker:around gold.
Idon'thave any reason to think that all the gold
Speaker:in Fort Knox is there. I think that it is. And I think that, in
Speaker:general, sometimes these conspiracy theories, when they come
Speaker:out, a great one was kind of in the silver market back in 2021,
Speaker:I think it was. And that's when the Reddit crowd got into silver.
Speaker:And this big rumor, forever, was that JP Morgan had this massive
Speaker:short silver position. None of the silver was where they said it
Speaker:was. It was all uncovered, and naked, and goes unreported to try
Speaker:to keep silver and gold prices down, to keep the dollar looking
Speaker:good and stuff like this. And they said, let's squeeze JP Morgan
Speaker:the same as we did Gamestop. And it very clearly didn't work.
Speaker:Youknow, it lasted about two days and then it came back down.
Speaker:So, is that signs of even more market manipulation or is it signs
Speaker:that maybe the imbalance is not there? I think it's the latter.
Speaker:I think everything's kind of fine. As ymentioned,the short-termnarrativecanbe
Speaker:incrediblypowerfulandeventuallycaneffectuatea realbigchangeinrevaluation,even
Speaker:thoughthatmaynotbetherealcause.ButIwillsay,youknow,I'mnotaconspiracytheorist byany
Speaker:means,but wedoliveatimewhereconspiracyismorelikely to
Speaker:bereal than maybe othertimes.Goingbacktonuclear,realquick,athoughtI'vehad,which Ithinkisreallyinteresting,isthelasttimewewerelikeningthis,amongother
Speaker:periods,tothe‘60sand‘70s, wedrewthoseparallelsbetweenTrumpandNixon.Andobviouslyoneofthebig thingsforcommoditieswastheOPECcrisisin
Speaker:the70s.
Iseethat asvery connectedtoboththeVietnamWar,whichwasinflationary,andthefiscalspending, andthe
Speaker:Great Societyprogram.All thesethingsareconnectedinaway topopulism,and
Speaker:Iwon'tgothroughallthosedetails.Butit'satimeofdeglobalization,globalconflict,andentitieswhohavepowerovercommoditieswillusethatasa bludgeonandyougetdisruptionbecauseofthat.That's
Speaker:whattheOPECcrisisinmymindwasabout.Idon'tthinkthatenergyisaslikelytoexperiencethatbecausetheUShassomuchnow,Canada,etc,allies,OPEChaslesscontrol,Iwouldsay.I'dbe,A,curioustohearyourthoughtsaboutthat.ButI'dbecurioustoheariftherewasacommoditythatisverycontrolled,potentiallybycertainentitiesglobally,andproneto,inaworldofglobalconflict,supplyconstraints,artificialsupplyconstraints,whichonewouldyouthinkitwouldbe?Andby extension,youknow,doyouthinkthereareoddsof,inthenextfiveyearsorso,sometypeofbigsupplydisruptioninthatcommodity?Iseethatasincreasingprobabilityandagain,awaytomaybeteaseoutwhatcommoditymighthaveaparabolicmoveinthenextseveralyears.
Speaker:As you mentioned in the short term narrative can be incredibly
Speaker:powerful and eventually can effectuate a real big change in revaluation,
Speaker:even though that may not be the real cause.
Speaker:So.
Speaker:But I will say, you know, I'm not a conspiracy theorist by any
Speaker:means, but we do live a time where conspiracy is more likely to
Speaker:be real than maybe other times. Going back to nuclear. Real
Speaker:quick, a thought I've had, which I think is really interesting,
Speaker:is the last time we're likening this, among other periods
Speaker:to the 60s and 70s, we drew those parallels between Trump and
Speaker:Nixon. And obviously one of the big things for commodities was
Speaker:the OPEC crisis in the 70s. I see that as very connected to both
Speaker:the Vietnam War, which was inflationary, and the fiscal spending
Speaker:and the Great Society program. All these things are connected in
Speaker:a way to populism. And I won't go through all those details. But
Speaker:it's a time of deglobalization, global conflict
Speaker:and entities who have power over commodities will use that as
Speaker:a bludgeon and you get disruption because of that. That's
Speaker:what the OPEC crisis in my mind was about. I don't think that's
Speaker:that energy is as likely to experience that because the US has
Speaker:so much now, Canada, etc, allies, OPEC has less control. I
Speaker:would say I'd be a curious to hear your thoughts about that. But
Speaker:I'd be curious to hear if there was a commodity that is very
Speaker:controlled potentially by certain entities globally and prone
Speaker:in a world of global conflict to supply constraints, artificial
Speaker:supply constraints, which one would you think it would be? And
Speaker:by extension, you know, do you think there's an odds of a, you know,
Speaker:in the next five years or so, some type of big supply disruption
Speaker:in that commodity? I see that as increasing probability and again,
Speaker:a way to maybe tease out what commodity might have a parabolic
Speaker:move in the next several years.
Speaker:Well, look, it's interesting, I wouldn't write off energy and oil
Speaker:just yet. You know, what's kind of fascinating is that remember
Speaker:from Colonel Drake to 1970, the US was a behemoth in terms of
Speaker:oil production. And nobody in 1970, 1971 expected the United States
Speaker:to roll over and suffer declines. It was a huge player in
Speaker:the global oil markets.
AndKing Hubbert, the Shell geologist,
Speaker:predicted in the late ‘50s or mid-‘50s that by 1970, 1971, US oil
Speaker:production would roll over. And it did. And that's what gave
Speaker:OPEC incremental pricing power market share, and like you said,
Speaker:allows them to use oil as a weapon. Throughout the 1970s, twice,
Speaker:once after the Yom Kippur was where the US supported Israel. One
Speaker:is after the Iranian revolution.
TheUS today looks just
Speaker:as precarious as it did then. Again, you had years of million barrel
Speaker:plus, year on year, growth in the lead up to 1970 and then that
Speaker:stopped. You've had here years of growth, million and 2 million
Speaker:barrels, and now that's stopped. And so, I don't think that
Speaker:we're immune from such a dynamic today at all.
Andremember,
Speaker:you know, Nixon back following the Arab oil embargo, the first one,
Speaker:put in place Project Independence, where he said, look,
Speaker:very similar to the Three Arrows. He said, look, enough's enough.
Speaker:You know, we haven't tended to our garden enough here. We haven't
Speaker:made sure that our domestic supply is robust.
Andnow production's
Speaker:falling and we're beholden to potentially hostile countries. So,
Speaker:we're going to encourage guys to drop drill. We're going to deregulate.
Speaker:We're going to raise the oil price. Because back then it wasn't
Speaker:so much a price issue, it was a security of supply issue. So, let's
Speaker:help raise the oil price, give these guys the incentive to drill.
Speaker:And they did. They drilled huge.
Theyincreased the rig count
Speaker:fourfold in the next 10 years, and production continued to fall,
Speaker:and OPEC just gained more, and more, and more power and more, and
Speaker:more, and more market share. So, they thought that they were fine.
Speaker:Justlike today, production's falling. And, I think not, to paint
Speaker:you with the consensus brush because you're quite differentiated
Speaker:and quite contrarian, I would say. But in this case, I do think
Speaker:the consensus view is that we'll be fine because we have so
Speaker:much.
Yeah,fine, maybe production is declining a little
Speaker:bit now, but that's not really symptomatic of anything because we're
Speaker:so well endowed. And the question is, you know, we were well
Speaker:endowed then too but after you produce about 50% of your reserves,
Speaker:production falls.
Thinkabout it a different way. You still have
Speaker:everything that you've already produced to date sitting in front
Speaker:of you. It seems like a pretty good spot. And yet production, daily
Speaker:rates, tend to fall around that time. With shale could be even
Speaker:earlier because they have long tails. So, it means that production
Speaker:peaks when less of the total reserve is produced. It could be
Speaker:as low as 38%, we've seen in a lot of the shale basins. We're there
Speaker:now.
So,it's not really clear that we're out of the woods. I think
Speaker:that oil is probably still our biggest vulnerability. Yes, we're
Speaker:“energy independent” today, but everything matters on the margin.
Speaker:If you go from energy independent to needing to import
Speaker:again, then you're susceptible again. I mean, I think it all matters
Speaker:on the margin.
Uraniumis the other one that jumps to mind because
Speaker:the US is not a major producer of uranium. Canada is. It's an allied
Speaker:nation. Of course, Kazakhstan is. That is questionable. It's not
Speaker:a hostile nation by any means. I think people paint it with the
Speaker:Russian brush. I think it's a little premature. I mean, yes, it
Speaker:had Russian troops and Almaty to help settle dissent about a year
Speaker:ago or two years ago now. So, a little bit of a shot across the
Speaker:bow, but you know, it's, I would say, gray. Yeah. And, and so
Speaker:that's vulnerable.
However,longer term, uranium is
Speaker:not the world's rarest element. And I think, given enough
Speaker:time and enough capital, we ought to be able to bring on enough
Speaker:uranium production in domestic allied countries - domestic or allied
Speaker:countries to make that be okay.
Butthere'll be huge dislocations
Speaker:in the middle. So, I think oil is a little bit more structural and
Speaker:uranium will be in a big bear bubble market. Where big bulls on
Speaker:it with big core position in uranium producers. However, longer
Speaker:term, price will take care of that market target.
Speaker:Yeah, I think a strategic, some type of strategic move by Russia
Speaker:in Kazakhstan could be something, that black swan that nobody's
Speaker:talking about, and we'll certainly hear if something happens.
Speaker:But I do think it's something that not many people think about,
Speaker:but is, I would say, something that is, given how concentrated uranium
Speaker:is in Kazakhstan, a huge potential upside, potential tail.
Speaker:I heard another one of our previous guests, Jeff Currie, talk
Speaker:about that, in his mind, natural gas has kind of changed its
Speaker:role a bit. It's become sort of more the marginal price setter
Speaker:of some sort, that's how I remember his argumentation. Obviously,
Speaker:we know gas, you said there's a lot of LNG coming on stream, so,
Speaker:I'm just curious about your… And maybe this is also why, I don't
Speaker:know, oil prices seem fairly stable compared to what's going on
Speaker:in the world. I don't know, I'm just curious about it.
Andthen
Speaker:my final question would be, do you know anything about Nord Stream?
Speaker:Is that more or less coming back online? I mean, as a Dane, I'm
Speaker:a little bit interested whether, under the radar, they've
Speaker:kind of begun to fix the Nord Stream pipe and maybe with a deal
Speaker:with Russia soon, the Germans will be enjoying Russian gas again.
Speaker:I'm just curious.
Speaker:It's really difficult to say. I don't know and I don't think anyone
Speaker:knows. I think progress has been made. Look, I think that Europe
Speaker:is in a very difficult energy spot and I don't think that's a big
Speaker:surprise. You know, Germany is in the process of de-industrializing
Speaker:itself as we speak because of mistakes they've made in their energy
Speaker:program.
Rightnow, it's all being made up with relatively cheap,
Speaker:sustainable, and by sustainable, I mean like stable,
Speaker:geopolitically stable, US gas. Then that could be at risk. You know,
Speaker:if we start to see major… You know, again, just think, okay, the
Speaker:gas market in the US today is in deficit. We are taking gas out
Speaker:of inventory. This is not dissimilar from uranium a couple
Speaker:years ago. Okay, we had the gas in inventory, so it's not an
Speaker:acute shortage or crisis just yet, but we're taking gas out of
Speaker:storage at a pretty good clip.
Productionis falling year on year,
Speaker:and we are set to increase LNG export, not keep it flat, which would
Speaker:be a problem too, but increase it by as much as seven Bs a day.
Speaker:And then we need another 7 to 10 BCF a day for domestic AI needs,
Speaker:which is obviously becoming, you know, a huge focus of everybody.
Speaker:So,I don't think the US will be overly keen to sacrifice its AI
Speaker:industry on the altar of cheap European gas. Nor do I think production
Speaker:is set to increase in anytime soon because of the geological reasons
Speaker:we've talked about.
So,I think there's a big risk that the
Speaker:US is not the supplier of LNG that everyone hopes it is. That becomes
Speaker:kind of the swing factor, particularly with an administration
Speaker:like we have today.
TheUS consumes almost as much, on a BTU
Speaker:basis, in gas as we do in crude oil. And we have a price that's
Speaker:80% below the world's price. That would be like… It's not dissimilar
Speaker:from Saudi Arabia, where they have $10 oil price gasoline equivalents
Speaker:and the rest of the world's at $70 to $80. Why? Because they produce
Speaker:the oil. You know, we produce the gas, so we get cheap natural
Speaker:gas.
Thedifference, that I tell everybody, is that in Saudi
Speaker:Arabia, everyone's aware of it. And if something were to happen
Speaker:and they were to lose that, they'd be pissed. And here, nobody
Speaker:even realizes it. You know, no one realizes that we train our models
Speaker:for much cheaper than anywhere else in the world, our computer models,
Speaker:because we have cheap natural gas.
And,you know, we just had our
Speaker:building's annual general meeting. I promise you, none of the
Speaker:residents in my apartment building realize that we pay next
Speaker:to nothing to heat our hot water and apartments because of very
Speaker:cheap US Natural gas. If we were to lose that, I could see the
Speaker:administration curtailing US exports very, very seriously.
So,Europe's
Speaker:in a tough spot, and I don't know what they're going to do. And
Speaker:I suspect that under the right scenario, you could see a crazy thing
Speaker:like Russian gas flowing back to Europe again. I mean, I don't
Speaker:think there's a resolve within Europe to tough it out. And I don't
Speaker:know where you're going to get the gas from. So, yeah, I think anything
Speaker:can happen. I think we're in uncharted territories here.
Speaker:Yeah, I mean, on that cliffhanger, I think it's a good
Speaker:time to say, once again, thank you so much for a delightful, insightful
Speaker:conversation on so many important topics.
Andno doubt when
Speaker:we speak again in a few months, there'll be some new ones,
Speaker:but there'll also be some developments in the ones you've laid
Speaker:out so beautifully today. I want to encourage everyone to go
Speaker:and sign up for Adam's reports, and especially now that
Speaker:there's a new one coming out.
Youcan find that on the Goehring
Speaker:& Rozencwajg website and we'll of course also link to that in the
Speaker:show notes. They're always incredibly fascinating and insightful,
Speaker:so not to be missed.
Andas I told you before, Cem and I do these
Speaker:conversations because we really do feel that we are living
Speaker:in a global macro, but also in an energy driven world. And it is
Speaker:possibly more important today to be up to date on these things
Speaker:than ever before. So, stay well informed.
FromCem and me, thanks
Speaker:ever so much for listening. We look forward to being back with you
Speaker:as we continue our global macro series. And in the meantime,
Speaker:take care yourself and take care of each other.
Speaker:Thanks for listening to Top Traders Unplugged. If you feel you
Speaker:learned something of value from today's episode, the best way
Speaker:to stay updated is to go on over to iTunes and subscribe to the
Speaker:show so that you'll be sure to get all the new episodes as they're
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Speaker:our show continues to grow, please leave us an honest rating
Speaker:and review in iTunes. It only takes a minute and it's the best
Speaker:way to show us you love the podcast. We'll see you next time
Speaker:on Top Traders Unplugged.
