1
00:00:10,640 --> 00:00:14,520
Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.

2
00:00:14,600 --> 00:00:19,040
Speaker 1: I'm Joe Wisn'tal And I'm Tracy Halloway. So, Tracy, you see,

3
00:00:19,079 --> 00:00:22,439
Speaker 1: we just got the latest CPI report I did. Indeed,

4
00:00:23,200 --> 00:00:27,760
Speaker 1: looks like cp I came in slightly hotter than expected,

5
00:00:27,880 --> 00:00:30,960
Speaker 1: like not a huge deviation from the forecast. But of

6
00:00:31,000 --> 00:00:33,839
Speaker 1: course everyone's talking about the idea that, well, all of

7
00:00:33,880 --> 00:00:36,640
Speaker 1: this was supposed to be transitory, and yet you know,

8
00:00:36,840 --> 00:00:39,960
Speaker 1: here we are almost two years into the global pandemic

9
00:00:39,960 --> 00:00:43,320
Speaker 1: and it doesn't seem like any of this is going away, right,

10
00:00:43,520 --> 00:00:46,680
Speaker 1: And so of course there's this debate about what transitory means,

11
00:00:46,920 --> 00:00:50,360
Speaker 1: doesn't mean pandemic related or does it mean brief. So

12
00:00:50,400 --> 00:00:53,600
Speaker 1: we're sorry to split hairs on that. And then there's

13
00:00:53,640 --> 00:00:57,200
Speaker 1: also you know, of course, the deviation between headline CPI,

14
00:00:57,320 --> 00:01:02,000
Speaker 1: which includes energy prices core which doesn't. But the degree

15
00:01:02,040 --> 00:01:05,120
Speaker 1: to which you could really ever like separate out commodities

16
00:01:05,200 --> 00:01:07,880
Speaker 1: from the fact that commodity to go into everything is

17
00:01:07,959 --> 00:01:12,360
Speaker 1: kind of impossible. And with the exception of a few things,

18
00:01:12,920 --> 00:01:16,600
Speaker 1: I mean, we are on a massive commodity slash energy

19
00:01:16,600 --> 00:01:20,080
Speaker 1: bull run. Yeah. So the crazy thing here is that

20
00:01:20,160 --> 00:01:25,680
Speaker 1: people were worried about higher inflation, even before the commodities

21
00:01:25,720 --> 00:01:29,479
Speaker 1: market really started going nuts, like just in the past

22
00:01:29,720 --> 00:01:32,160
Speaker 1: month or so. I mean, I'm looking at some of

23
00:01:32,200 --> 00:01:35,959
Speaker 1: the energy headlines that have just come over the Bloomberg today,

24
00:01:36,080 --> 00:01:39,760
Speaker 1: and it's stuff like, you know, European zinc smelters cutting

25
00:01:39,760 --> 00:01:44,480
Speaker 1: production by as much as fifty because of higher energy costs,

26
00:01:44,480 --> 00:01:47,640
Speaker 1: and you know, a flood in a major Chinese mine

27
00:01:47,760 --> 00:01:51,639
Speaker 1: and the Chinese government ending its intervention in the coal market,

28
00:01:51,680 --> 00:01:55,120
Speaker 1: so basically liberalizing that entire market, which isn't something that

29
00:01:55,160 --> 00:01:58,080
Speaker 1: you tend to see that much in China, but is

30
00:01:58,120 --> 00:02:00,680
Speaker 1: something that is sort of needed given the energy pressures

31
00:02:00,800 --> 00:02:03,880
Speaker 1: right now. So things have just gotten like to a

32
00:02:03,880 --> 00:02:07,840
Speaker 1: whole new level when it comes to commodities. Yeah, and

33
00:02:07,880 --> 00:02:10,080
Speaker 1: it's interesting you framed that really well, because you know,

34
00:02:10,120 --> 00:02:13,360
Speaker 1: sometimes we do our logistics episodes and one of the

35
00:02:13,360 --> 00:02:16,960
Speaker 1: themes is the way these sort of pressures compound. Right,

36
00:02:17,280 --> 00:02:19,760
Speaker 1: So something that happens at the Port of Los Angeles

37
00:02:19,840 --> 00:02:22,799
Speaker 1: ends up affecting warehouses, which ends up affecting truckers, which

38
00:02:22,880 --> 00:02:26,839
Speaker 1: ends up affecting rail and Chicago. And it feels like

39
00:02:27,000 --> 00:02:30,760
Speaker 1: on the raw commodities front, you see the same thing

40
00:02:30,880 --> 00:02:34,000
Speaker 1: where it's like, oh, some energy price spikes, and then

41
00:02:34,040 --> 00:02:37,600
Speaker 1: the zinc smelters and the fertilizer companies have to pairback

42
00:02:37,639 --> 00:02:40,640
Speaker 1: production because their production is no longer is profitable, and

43
00:02:40,680 --> 00:02:43,680
Speaker 1: then that feeds into you know, some other, some other

44
00:02:43,720 --> 00:02:46,840
Speaker 1: commodity or something like that. And so it feels like

45
00:02:46,880 --> 00:02:50,600
Speaker 1: there is a similar compounding effect, and it's probably you know,

46
00:02:50,600 --> 00:02:54,560
Speaker 1: it seems like a combination of demand supply obviously, and

47
00:02:54,560 --> 00:02:57,160
Speaker 1: then there's sort of like all kinds of idiosyncratic factors,

48
00:02:57,160 --> 00:02:59,880
Speaker 1: like whether it's droughts or whatever. Yeah. Well, the other

49
00:03:00,120 --> 00:03:02,160
Speaker 1: big thing that people are talking about now is how

50
00:03:02,280 --> 00:03:05,480
Speaker 1: much of this is caused by the transition to clean energy.

51
00:03:05,680 --> 00:03:08,920
Speaker 1: So this idea that we've had years of structural under

52
00:03:08,960 --> 00:03:12,320
Speaker 1: investment in traditional fossil fuels and now we're sort of

53
00:03:12,360 --> 00:03:15,320
Speaker 1: reaping the consequences of all of that. You know, we

54
00:03:15,360 --> 00:03:18,440
Speaker 1: don't have enough renewable energy to satisfy demand just now,

55
00:03:18,480 --> 00:03:22,240
Speaker 1: but we also don't have enough traditional fuel. So there's

56
00:03:22,280 --> 00:03:25,480
Speaker 1: just so much going on in the space. Yeah, and

57
00:03:25,520 --> 00:03:28,200
Speaker 1: that that seems particularly salient in Europe, where they sort

58
00:03:28,240 --> 00:03:32,080
Speaker 1: of pretty aggressively phased down nuclear and now the natural

59
00:03:32,120 --> 00:03:34,560
Speaker 1: gas bills are storing anyway. Wait, wait, I just gotta

60
00:03:34,600 --> 00:03:38,119
Speaker 1: say now, some people are talking about reclassifying nuclear as

61
00:03:38,320 --> 00:03:41,040
Speaker 1: e s G, so something that would fit under the

62
00:03:41,200 --> 00:03:45,120
Speaker 1: Environmental and Social and Governance friendly mantle, which is something

63
00:03:45,160 --> 00:03:47,240
Speaker 1: that you know, if you suggested that a few years ago,

64
00:03:47,280 --> 00:03:51,680
Speaker 1: people would have gone absolutely nuts. Anyway, go ahead, anything

65
00:03:51,760 --> 00:03:55,040
Speaker 1: to fit anything within e s G is probably like

66
00:03:55,080 --> 00:03:58,160
Speaker 1: its own it's own storry. Anyway, we have the perfect

67
00:03:58,160 --> 00:04:00,920
Speaker 1: guest on because not only is he probably the best

68
00:04:00,960 --> 00:04:04,520
Speaker 1: person to um talk about commodities with period, but we've

69
00:04:04,560 --> 00:04:07,240
Speaker 1: had him on before. We had him on earlier this year,

70
00:04:07,280 --> 00:04:11,800
Speaker 1: actually in January, and he was very bullish on commodities then,

71
00:04:11,960 --> 00:04:16,680
Speaker 1: so being very knowledgeable, yes exactly. In addition to be

72
00:04:16,760 --> 00:04:20,440
Speaker 1: extremely knowledgeable, he also has the benefit of having been correct,

73
00:04:20,760 --> 00:04:24,359
Speaker 1: which a lot of people weren't. And so now we

74
00:04:24,440 --> 00:04:27,200
Speaker 1: are we'll see what's next. Excited to bring our guests.

75
00:04:27,200 --> 00:04:29,359
Speaker 1: We're gonna be speaking again with Jeff Curry, here's the

76
00:04:29,360 --> 00:04:33,279
Speaker 1: global head of Commodities research at Goldman Sachs. A real

77
00:04:33,320 --> 00:04:35,320
Speaker 1: treat to have him on. Jeff, thank you so much

78
00:04:35,360 --> 00:04:38,599
Speaker 1: for coming back on odd lots. Great pleasure to be

79
00:04:38,680 --> 00:04:42,200
Speaker 1: here again. So it's been I guess like nine months

80
00:04:42,200 --> 00:04:44,960
Speaker 1: since we had you on in January and you were

81
00:04:45,040 --> 00:04:47,080
Speaker 1: sort of called, you called you were bullish, and you said,

82
00:04:47,080 --> 00:04:49,240
Speaker 1: this is like a big one that used a big

83
00:04:49,279 --> 00:04:52,839
Speaker 1: cycle coming. And obviously if you just look at the Beacon,

84
00:04:53,000 --> 00:04:57,080
Speaker 1: the Bloomberg Commodities Index or numerous you know, other headline measures,

85
00:04:57,640 --> 00:05:00,320
Speaker 1: that was right. And so what what's your take on

86
00:05:00,480 --> 00:05:04,480
Speaker 1: what what happened? What how did How does what happen

87
00:05:04,520 --> 00:05:08,480
Speaker 1: to compare to what you foresaw? It's far more bullersh

88
00:05:08,480 --> 00:05:11,840
Speaker 1: than you know, we could have ever envisioned. Let's take oil.

89
00:05:12,240 --> 00:05:15,919
Speaker 1: The deficit that we can measure at the end of

90
00:05:16,000 --> 00:05:19,840
Speaker 1: last month was running somewhere around four point five million

91
00:05:19,839 --> 00:05:22,640
Speaker 1: barrels per day. That's nearly five percent of the market.

92
00:05:22,720 --> 00:05:26,839
Speaker 1: Isn't a deficit that is such a large hole that OPEQ,

93
00:05:27,200 --> 00:05:30,080
Speaker 1: the US administration, nobody's going to fix this. This is

94
00:05:30,120 --> 00:05:32,240
Speaker 1: like you know, the train is off the track and

95
00:05:32,279 --> 00:05:36,200
Speaker 1: you're watching it in slow motion. But it's not just oil. Uh,

96
00:05:36,279 --> 00:05:40,760
Speaker 1: you see it in copper. Copper inventories dropping eight percent,

97
00:05:40,960 --> 00:05:43,880
Speaker 1: ten percent week after week. These are numbers I have

98
00:05:44,040 --> 00:05:47,200
Speaker 1: never envisioned or never seen before. You know, and you

99
00:05:47,240 --> 00:05:49,600
Speaker 1: can think about what is going on here, and I think,

100
00:05:49,720 --> 00:05:51,720
Speaker 1: you know, it goes back to Tracy's point about that

101
00:05:51,800 --> 00:05:56,640
Speaker 1: zinc smelter shutting down in Europe, that problems in one

102
00:05:56,720 --> 00:05:59,920
Speaker 1: market create problems in the other. So we think about

103
00:06:00,120 --> 00:06:02,640
Speaker 1: you know, you know, first it was coal in China,

104
00:06:02,680 --> 00:06:05,719
Speaker 1: then it became gas in Europe. Um, then it became

105
00:06:05,760 --> 00:06:09,640
Speaker 1: aluminum in China, which then impacts copper elsewhere in the world.

106
00:06:09,680 --> 00:06:12,560
Speaker 1: And it keeps this chain reaction going, and each one

107
00:06:12,600 --> 00:06:14,680
Speaker 1: of these markets get tighter and tighter. So what is

108
00:06:14,720 --> 00:06:18,160
Speaker 1: it about oil that makes this deficit so much larger

109
00:06:18,160 --> 00:06:21,040
Speaker 1: than we could have ever envisioned. It's because you now

110
00:06:21,200 --> 00:06:25,400
Speaker 1: have oil being used in lieu of both coal and

111
00:06:25,560 --> 00:06:28,599
Speaker 1: gas because of the shortages in those markets. So bottom

112
00:06:28,600 --> 00:06:31,560
Speaker 1: line is, you know, we see a lot of upside

113
00:06:31,640 --> 00:06:34,480
Speaker 1: risk from these price levels which are far greater than

114
00:06:34,520 --> 00:06:37,159
Speaker 1: the price levels we were forecasting when we spoke not

115
00:06:37,440 --> 00:06:40,560
Speaker 1: you know, nine months ago. So bottom line, the underlying

116
00:06:40,600 --> 00:06:43,400
Speaker 1: picture is far more bullish than what we had expected

117
00:06:43,480 --> 00:06:46,960
Speaker 1: nine months ago. But the drivers of it are pretty

118
00:06:47,040 --> 00:06:49,960
Speaker 1: much in line exactly what we thought, just in a

119
00:06:50,040 --> 00:06:53,920
Speaker 1: much larger degree than what we thought. Yeah, if I

120
00:06:53,960 --> 00:06:56,280
Speaker 1: could just press on that on this point, So I

121
00:06:56,320 --> 00:07:01,080
Speaker 1: remember when when you unveiled your bullish commodities pieces, UM,

122
00:07:01,080 --> 00:07:02,840
Speaker 1: you know, around the start of the new year or

123
00:07:02,839 --> 00:07:05,719
Speaker 1: at the end of you sort of had like a

124
00:07:05,839 --> 00:07:09,960
Speaker 1: trifecta of reasons UM that you thought were going to

125
00:07:10,080 --> 00:07:12,560
Speaker 1: drive the market. And one was the idea of this

126
00:07:12,880 --> 00:07:17,880
Speaker 1: redistributional demand, so basically, you know, people getting stimulus checks

127
00:07:17,880 --> 00:07:20,680
Speaker 1: and going out and buying new things and buying steak

128
00:07:20,720 --> 00:07:23,240
Speaker 1: dinners and things like that. And the second one was

129
00:07:23,520 --> 00:07:27,440
Speaker 1: I think structural under investment in traditional energy like oil.

130
00:07:27,600 --> 00:07:30,880
Speaker 1: And then the third was this idea of supply chains

131
00:07:30,920 --> 00:07:34,080
Speaker 1: and stockpiling, so people just sort of trying to build

132
00:07:34,120 --> 00:07:38,280
Speaker 1: up their own energy independence or resiliency. And I'm curious,

133
00:07:38,320 --> 00:07:41,720
Speaker 1: just looking back at that framework, is there a particular

134
00:07:41,840 --> 00:07:44,680
Speaker 1: thing that that has surprised you or stood out, Like,

135
00:07:44,840 --> 00:07:49,040
Speaker 1: is there one leg of that sort of tripod analysis

136
00:07:49,160 --> 00:07:53,120
Speaker 1: that has UM really like caused the big spike that

137
00:07:53,160 --> 00:07:59,480
Speaker 1: we're seeing. Actually, all three are far more important than

138
00:07:59,480 --> 00:08:01,280
Speaker 1: what we ever envision, and I actually want to go

139
00:08:01,360 --> 00:08:04,040
Speaker 1: with the one that predates COVID, and the one that

140
00:08:04,120 --> 00:08:08,280
Speaker 1: predates COVID is the under investment thesis. You know, the

141
00:08:08,280 --> 00:08:11,840
Speaker 1: theme that we termed it is the revenge of the

142
00:08:11,880 --> 00:08:16,480
Speaker 1: old economy put bluntly poor returns in the old economy,

143
00:08:16,720 --> 00:08:20,240
Speaker 1: saw a capital redirected away from the old economy and

144
00:08:20,280 --> 00:08:23,480
Speaker 1: towards the new economy, basically taking from the exxons of

145
00:08:23,480 --> 00:08:25,880
Speaker 1: the world and given to the netflix of the world.

146
00:08:26,360 --> 00:08:29,680
Speaker 1: And as a result, you starve the old economy of

147
00:08:29,760 --> 00:08:33,800
Speaker 1: the capital base it needed to grow production and hence

148
00:08:33,840 --> 00:08:36,200
Speaker 1: the problems with today. So if it's trucking in the US,

149
00:08:36,280 --> 00:08:39,839
Speaker 1: which is old economy, chip manufacturers for autos which is

150
00:08:39,880 --> 00:08:44,120
Speaker 1: old economy, energy and gas in Europe, or coal in China,

151
00:08:44,200 --> 00:08:47,040
Speaker 1: they're all the same story. Now you can argue with

152
00:08:47,080 --> 00:08:50,000
Speaker 1: the hydrocarbons, as you pointed out that you know the

153
00:08:50,040 --> 00:08:52,960
Speaker 1: E S G factor turbo charges this story, and it

154
00:08:53,000 --> 00:08:55,680
Speaker 1: clearly has in places like Europe. But I want to

155
00:08:55,720 --> 00:08:59,600
Speaker 1: emphasize at its core is that these companies have failed

156
00:08:59,600 --> 00:09:02,560
Speaker 1: to delt over good returns over the last five to

157
00:09:02,640 --> 00:09:04,640
Speaker 1: ten years and investors have had enough. And I like

158
00:09:04,679 --> 00:09:06,440
Speaker 1: to point out, you know, we got a lot of

159
00:09:06,480 --> 00:09:10,000
Speaker 1: investors back into the commodity and old economy space, you know,

160
00:09:10,040 --> 00:09:12,920
Speaker 1: and when we were talking last January, but prices went

161
00:09:13,000 --> 00:09:16,120
Speaker 1: up to eighty this summer on on oil. I remember

162
00:09:16,120 --> 00:09:18,920
Speaker 1: it was late August, round August there was a Friday

163
00:09:18,960 --> 00:09:21,839
Speaker 1: Oil collapsed back down to six five, and these investors going,

164
00:09:22,200 --> 00:09:24,640
Speaker 1: you lured us back in there, You said the coast

165
00:09:24,720 --> 00:09:27,480
Speaker 1: was clear, We got in here and we just got

166
00:09:27,520 --> 00:09:31,920
Speaker 1: completely hammered in terms of the volatility. They left. Then

167
00:09:31,920 --> 00:09:33,880
Speaker 1: oil prices, where are they getting their back up to

168
00:09:34,240 --> 00:09:36,960
Speaker 1: eighty three? And that there's something inherent about the investments

169
00:09:37,000 --> 00:09:40,040
Speaker 1: in here that make it difficult to attract capital. It's

170
00:09:40,080 --> 00:09:43,240
Speaker 1: not gonna be a smooth ride, you know, like it

171
00:09:43,280 --> 00:09:45,360
Speaker 1: is in tech stocks where you just trended up. Instead,

172
00:09:45,400 --> 00:09:47,360
Speaker 1: it's going to be very volatile. So the bottom line,

173
00:09:47,640 --> 00:09:51,920
Speaker 1: we're sitting there eight four dollar barrel oil um today

174
00:09:52,000 --> 00:09:55,840
Speaker 1: and there's no evidence of big increases in capex drilling,

175
00:09:55,920 --> 00:09:59,920
Speaker 1: greenfield capex in in in metals or you know, new

176
00:10:00,040 --> 00:10:02,600
Speaker 1: eight re gen agriculture. I can keep going down the list.

177
00:10:02,840 --> 00:10:05,120
Speaker 1: So not only are the C suites of the corporates

178
00:10:05,160 --> 00:10:08,400
Speaker 1: not spending on capex, but the investment dollars in this

179
00:10:08,480 --> 00:10:11,360
Speaker 1: space is quite low um. And as a result, if

180
00:10:11,360 --> 00:10:13,560
Speaker 1: you get the investors to come back into space, which

181
00:10:13,559 --> 00:10:15,520
Speaker 1: we think could happen if we go into year end,

182
00:10:15,760 --> 00:10:20,160
Speaker 1: it could catapult the situation on relatively tight fundamentals that

183
00:10:20,200 --> 00:10:22,720
Speaker 1: I started this discussion with. So I would say that's

184
00:10:22,760 --> 00:10:24,240
Speaker 1: the one I want to point out the startk But

185
00:10:24,360 --> 00:10:27,520
Speaker 1: just quickly on the redistribution story that that you bring up.

186
00:10:28,280 --> 00:10:32,120
Speaker 1: The redistribution story is much broad based around the world.

187
00:10:32,520 --> 00:10:35,400
Speaker 1: Then then what we initially thought and if we think

188
00:10:35,480 --> 00:10:37,880
Speaker 1: about you know, in the US when we were talking

189
00:10:37,920 --> 00:10:41,560
Speaker 1: to January, we have ever envisioned the three point five

190
00:10:41,760 --> 00:10:47,600
Speaker 1: trillion dollar US Human Infrastructure Fund. Absolutely it was. I mean,

191
00:10:47,640 --> 00:10:52,400
Speaker 1: it shows you how much larger these redistribution policies have become. Also,

192
00:10:52,559 --> 00:10:55,960
Speaker 1: you know the one point nine trillion dollar Recovery Act

193
00:10:56,000 --> 00:10:58,360
Speaker 1: back in you know, March then we thought it's going

194
00:10:58,400 --> 00:11:00,720
Speaker 1: to be one point one trillion. It shows you just

195
00:11:00,760 --> 00:11:04,720
Speaker 1: how much bigger these redistribution policies. China has its common

196
00:11:04,760 --> 00:11:08,400
Speaker 1: prosperity green leveling. Here in the UK, um, so it's

197
00:11:08,480 --> 00:11:12,319
Speaker 1: very you look at Germany's government um going moving left,

198
00:11:12,360 --> 00:11:14,680
Speaker 1: you know, Latin America's move left since we last talk.

199
00:11:14,800 --> 00:11:18,080
Speaker 1: So the bottom line is, you know, the redistribution policies

200
00:11:18,520 --> 00:11:20,640
Speaker 1: are also bigger than what we thought. And then finally

201
00:11:20,640 --> 00:11:23,360
Speaker 1: just point on you know about the call it deglobalization.

202
00:11:23,840 --> 00:11:26,080
Speaker 1: I'd like to argue the trucking problem in the US

203
00:11:26,160 --> 00:11:30,440
Speaker 1: exemplifies the problems around d globalization. Is because you have

204
00:11:30,720 --> 00:11:34,720
Speaker 1: too much stuff being produced locally at home in the US,

205
00:11:34,880 --> 00:11:40,240
Speaker 1: which overwhelms the transportation, warehousing, trucking, rail system, which has

206
00:11:40,280 --> 00:11:42,040
Speaker 1: helped create some of the problems there. So when we

207
00:11:42,080 --> 00:11:46,960
Speaker 1: can think about United States exemplifies the problems with de globalization.

208
00:11:47,400 --> 00:11:51,040
Speaker 1: Europe exemplifies the problems with de carbonization with what's going

209
00:11:51,080 --> 00:11:53,680
Speaker 1: on in its gas crisis. Anyway, that's a long answer

210
00:11:53,679 --> 00:11:56,199
Speaker 1: to your question about all th surprise to the up side.

211
00:11:56,720 --> 00:11:59,120
Speaker 1: I mean, we want to hit all these topics more,

212
00:11:59,200 --> 00:12:01,440
Speaker 1: but let's go little bit more into this sort of

213
00:12:01,480 --> 00:12:07,200
Speaker 1: like decarbonization E. S G stuff, because I think there

214
00:12:07,240 --> 00:12:09,200
Speaker 1: are a lot of people who are like, ah, we

215
00:12:09,320 --> 00:12:12,439
Speaker 1: told you so. You had your like you politicians had

216
00:12:12,440 --> 00:12:14,880
Speaker 1: your visions of like a green economy where at all

217
00:12:14,960 --> 00:12:18,120
Speaker 1: like how everything with windmills and solar panels and now

218
00:12:18,200 --> 00:12:20,880
Speaker 1: look and now look at the price we're paying and

219
00:12:20,920 --> 00:12:22,720
Speaker 1: maybe we won't even be able to heed our homes.

220
00:12:23,120 --> 00:12:25,000
Speaker 1: But the way you described it as a little bit

221
00:12:25,040 --> 00:12:29,000
Speaker 1: as like maybe some of that, but also like politics society.

222
00:12:29,040 --> 00:12:32,959
Speaker 1: A lot of these traditional fossil fuel investments were not

223
00:12:33,200 --> 00:12:37,760
Speaker 1: great period. So how much is it sort of as

224
00:12:37,800 --> 00:12:42,520
Speaker 1: you say, decarbonization policy, they've contributed to the that's contributing

225
00:12:42,520 --> 00:12:47,760
Speaker 1: to this revenge of the old economy versus decarbonization economics

226
00:12:47,840 --> 00:12:51,040
Speaker 1: where people just weren't making the investments because the numbers

227
00:12:51,040 --> 00:12:55,199
Speaker 1: weren't good. Yeah. That the bottom line is the returns

228
00:12:55,200 --> 00:12:58,440
Speaker 1: in this sector were abysmal. And I don't care if

229
00:12:58,440 --> 00:13:00,880
Speaker 1: it is oil again. When you say this sector, you mean,

230
00:13:01,160 --> 00:13:05,720
Speaker 1: we're just to be clear about oil prices were negative

231
00:13:05,800 --> 00:13:09,439
Speaker 1: last year. You couldn't create a more hostile environment, you know.

232
00:13:09,600 --> 00:13:12,040
Speaker 1: So when you look at the investors that I try

233
00:13:12,080 --> 00:13:14,320
Speaker 1: to get to come back in this space, they're going, no,

234
00:13:14,640 --> 00:13:17,000
Speaker 1: I've been there, I've done that. I know how painful

235
00:13:17,040 --> 00:13:19,480
Speaker 1: this sector is. Um And so the way you could

236
00:13:19,559 --> 00:13:22,920
Speaker 1: argue is E s G. The binding constraint. Show me

237
00:13:23,160 --> 00:13:27,160
Speaker 1: a great company with fantastic returns. It's not getting capital

238
00:13:27,440 --> 00:13:29,360
Speaker 1: due to E s G. Right now, they don't get

239
00:13:29,400 --> 00:13:34,000
Speaker 1: returns because they've demonstrated a very difficult environment to generate

240
00:13:34,040 --> 00:13:36,360
Speaker 1: returns on average. In fact, you know, you look at it,

241
00:13:36,400 --> 00:13:38,720
Speaker 1: they've shrank down to two and a half percent of

242
00:13:38,760 --> 00:13:41,439
Speaker 1: the SMP five, which show to give you an idea,

243
00:13:41,440 --> 00:13:45,120
Speaker 1: in the late seventies they're running around. So it's a

244
00:13:45,160 --> 00:13:47,400
Speaker 1: big shift here. And I think you know so you know,

245
00:13:47,440 --> 00:13:51,520
Speaker 1: I spend time talking to many um, you know, energy specialists,

246
00:13:51,520 --> 00:13:53,120
Speaker 1: and you get C I. O. S of these big

247
00:13:53,120 --> 00:13:56,520
Speaker 1: asset managers on going, hey, I'll listen to him once,

248
00:13:56,600 --> 00:13:58,960
Speaker 1: but I've been there and done that before, and I'm

249
00:13:59,000 --> 00:14:00,880
Speaker 1: just not that interesting. And here's a point when you

250
00:14:00,920 --> 00:14:05,160
Speaker 1: look at the two thousand's um that bull market prices

251
00:14:05,160 --> 00:14:08,520
Speaker 1: spiked in oh three, but it wasn't an until oh

252
00:14:08,800 --> 00:14:11,760
Speaker 1: six that the capex began to flow. Why because they

253
00:14:11,800 --> 00:14:14,080
Speaker 1: had a couple of years of really good returns and

254
00:14:14,120 --> 00:14:16,160
Speaker 1: the and the investors felt really good about it. But

255
00:14:16,160 --> 00:14:18,480
Speaker 1: I think you know the key point here is first

256
00:14:18,480 --> 00:14:21,400
Speaker 1: and foremost it is the revenge of the old economy

257
00:14:21,440 --> 00:14:25,680
Speaker 1: and poor returns why the sector doesn't get money more recently.

258
00:14:25,680 --> 00:14:27,520
Speaker 1: You can say that you know it's likely to be

259
00:14:27,800 --> 00:14:29,360
Speaker 1: E S G. But I'm gonna give you an example

260
00:14:29,400 --> 00:14:31,880
Speaker 1: in Europe where it clearly is E s G. You know,

261
00:14:31,960 --> 00:14:35,760
Speaker 1: the courts in Europe the head ruled against Shell, made

262
00:14:35,880 --> 00:14:39,360
Speaker 1: Shell liable for scope three emissions. That's what the users

263
00:14:39,680 --> 00:14:43,320
Speaker 1: of oil created. You know, that's massive liability. UM. Yes,

264
00:14:43,360 --> 00:14:44,960
Speaker 1: they all appeal. It is going to be you know,

265
00:14:45,120 --> 00:14:47,680
Speaker 1: five ten years from now. I think the key point

266
00:14:47,720 --> 00:14:51,600
Speaker 1: here is that UM with that kind of liability risk,

267
00:14:52,240 --> 00:14:54,840
Speaker 1: nobody in the right mind is gonna make large scale

268
00:14:54,880 --> 00:14:57,800
Speaker 1: investments in places like the North Sea again because they

269
00:14:57,840 --> 00:14:59,800
Speaker 1: don't want to be associated with that kind of live

270
00:15:00,280 --> 00:15:02,840
Speaker 1: So it is beginning to bite. But is that you

271
00:15:02,880 --> 00:15:05,960
Speaker 1: know your standard E s G um investors And I

272
00:15:06,000 --> 00:15:08,160
Speaker 1: do want to say, they've raised the cost of capital

273
00:15:08,240 --> 00:15:10,000
Speaker 1: and we're going to find out. And this is where

274
00:15:10,000 --> 00:15:12,280
Speaker 1: the E s G really comes into play, because we're

275
00:15:12,280 --> 00:15:15,120
Speaker 1: going to find out what price of oil do you

276
00:15:15,200 --> 00:15:17,920
Speaker 1: need to get capital to flow? I like Scott Sheffield

277
00:15:17,960 --> 00:15:20,520
Speaker 1: of Pioneer, he said a few weeks ago. He goes,

278
00:15:20,760 --> 00:15:22,560
Speaker 1: he I don't care if the oil price goes to

279
00:15:22,600 --> 00:15:24,480
Speaker 1: a hundred dollars of barrel. I'm not going to drill.

280
00:15:24,800 --> 00:15:26,880
Speaker 1: What's gonna make me drill? I need my stock price

281
00:15:26,920 --> 00:15:29,400
Speaker 1: to double. And we're going to find out at what

282
00:15:29,560 --> 00:15:32,120
Speaker 1: price of oil these investors will start to buy these

283
00:15:32,160 --> 00:15:35,360
Speaker 1: stocks again. You may be maybe right, Joe, and maybe

284
00:15:35,520 --> 00:15:37,080
Speaker 1: you know that they're just not going to buy it

285
00:15:37,080 --> 00:15:38,920
Speaker 1: because of E s G concerns. I tend to think

286
00:15:38,960 --> 00:15:42,120
Speaker 1: that's not the case. There is a cost of capital

287
00:15:42,120 --> 00:15:45,040
Speaker 1: associated with de carbonization, and we're going to find out

288
00:15:45,080 --> 00:15:49,040
Speaker 1: what that cost is. Just on the topic of oil,

289
00:15:49,080 --> 00:15:52,160
Speaker 1: I mean, how much blame can you lay at OPEC

290
00:15:52,400 --> 00:15:56,680
Speaker 1: for investor unwillingness to put money into stuff like US

291
00:15:56,840 --> 00:15:59,680
Speaker 1: shill So you know, there was always the sense that

292
00:15:59,760 --> 00:16:03,520
Speaker 1: if shale flooded the market, then OPEC would react in

293
00:16:03,560 --> 00:16:06,320
Speaker 1: some way and boost their own production and drive a

294
00:16:06,320 --> 00:16:09,160
Speaker 1: bunch of the shale producers out of business. And then now,

295
00:16:09,720 --> 00:16:12,600
Speaker 1: even as we see oil prices pressured higher, I mean,

296
00:16:12,600 --> 00:16:16,920
Speaker 1: OPEC is still being pretty disciplined in terms of production.

297
00:16:17,000 --> 00:16:19,400
Speaker 1: They haven't said they're going to ramp up output by

298
00:16:19,440 --> 00:16:22,600
Speaker 1: that much. So I guess the question is, like, what

299
00:16:22,880 --> 00:16:28,240
Speaker 1: role does OPEQ play in investors calculations? The current OPEC

300
00:16:28,400 --> 00:16:30,800
Speaker 1: they got religion, they understand it, They've been through a

301
00:16:30,800 --> 00:16:33,480
Speaker 1: lot of pain. They couldn't have a better business model

302
00:16:33,480 --> 00:16:36,480
Speaker 1: than what they have today. They're focused on balance in

303
00:16:36,520 --> 00:16:39,320
Speaker 1: the market on a near term basis, keeping inventory low,

304
00:16:39,680 --> 00:16:42,280
Speaker 1: keeping the forward curve and what we call a backwardations

305
00:16:42,320 --> 00:16:44,480
Speaker 1: are focused on what they can control, which is the

306
00:16:44,640 --> 00:16:47,800
Speaker 1: very near term balance, and then they create a credible

307
00:16:47,840 --> 00:16:50,600
Speaker 1: threat that will bring on in capacity, bring investment on,

308
00:16:50,800 --> 00:16:53,360
Speaker 1: which keeps the back into the curve it depressed, so

309
00:16:53,400 --> 00:16:55,720
Speaker 1: they got what we call a back redated curve. Spot

310
00:16:55,760 --> 00:16:58,960
Speaker 1: prices are high, back end prices are low. But to

311
00:16:59,120 --> 00:17:01,440
Speaker 1: get to that level, well, to get to this great

312
00:17:01,480 --> 00:17:04,399
Speaker 1: discipline and that I would argue, you know, a great

313
00:17:04,920 --> 00:17:07,920
Speaker 1: um policy structure which makes sense of given how much

314
00:17:07,960 --> 00:17:10,600
Speaker 1: share they control in the market. It was a big

315
00:17:10,640 --> 00:17:15,280
Speaker 1: policy mistake, and that policy from November sixteen till March

316
00:17:15,320 --> 00:17:19,199
Speaker 1: of two thousand and twenty was utterly disastrous and created

317
00:17:19,200 --> 00:17:21,679
Speaker 1: a lot of problems we have today. They didn't. They

318
00:17:21,880 --> 00:17:24,520
Speaker 1: not a monopolist. They're not like the Federal Reserve, where

319
00:17:24,560 --> 00:17:26,800
Speaker 1: they have a percent market share over the dollar. They

320
00:17:26,800 --> 00:17:29,800
Speaker 1: don't have. They have, maybe you put them all together,

321
00:17:29,880 --> 00:17:33,399
Speaker 1: a thirty three to market share over the barrels. And

322
00:17:33,400 --> 00:17:36,320
Speaker 1: so for their ability to cut back production and maintain

323
00:17:36,400 --> 00:17:40,840
Speaker 1: prices at six sixty five was always invariably unstable, and

324
00:17:40,880 --> 00:17:44,960
Speaker 1: the investors that got lured into investing in the sector

325
00:17:45,040 --> 00:17:48,440
Speaker 1: based upon that sixty dollar price had a high probability

326
00:17:48,520 --> 00:17:50,720
Speaker 1: of having the problems that they ran into in late

327
00:17:50,800 --> 00:17:54,840
Speaker 1: nineteen in um so, but I do want to say

328
00:17:54,880 --> 00:17:56,800
Speaker 1: I think they've learned from those mistakes. You know that

329
00:17:56,880 --> 00:18:00,119
Speaker 1: the new group of of energy ministers in particular, I

330
00:18:00,160 --> 00:18:03,440
Speaker 1: think they understand all these issues, and so I'd argue

331
00:18:03,480 --> 00:18:06,080
Speaker 1: that they're doing a fantastic job. But they're they're really

332
00:18:06,080 --> 00:18:07,960
Speaker 1: sticking to what they're supposed to do, and what they're

333
00:18:07,960 --> 00:18:11,199
Speaker 1: really good at is managing a near term imbalances in

334
00:18:11,240 --> 00:18:14,400
Speaker 1: the market and focusing on providing capacity on a longer

335
00:18:14,520 --> 00:18:17,159
Speaker 1: term basis, which has left the curve and the forward

336
00:18:17,200 --> 00:18:20,520
Speaker 1: curve and a backgradation which makes it really difficult for

337
00:18:21,119 --> 00:18:23,680
Speaker 1: you know, the e MP producers to hedge. Why because

338
00:18:23,720 --> 00:18:26,560
Speaker 1: prices are a huge discount on the back end relative

339
00:18:26,640 --> 00:18:45,680
Speaker 1: to where they are on the spot. So before we

340
00:18:45,720 --> 00:18:48,320
Speaker 1: move off of oil, I want to talk about US

341
00:18:48,400 --> 00:18:50,600
Speaker 1: oil a little bit more. And you know, I'm thinking

342
00:18:50,600 --> 00:18:55,600
Speaker 1: back to like the good old years, and there was

343
00:18:55,680 --> 00:19:00,320
Speaker 1: this perception, or there was this characterization of US shale

344
00:19:00,520 --> 00:19:03,000
Speaker 1: as the swing producer that sort of kept a lid

345
00:19:03,000 --> 00:19:06,119
Speaker 1: on prices because as soon as prices would rise a

346
00:19:06,160 --> 00:19:10,440
Speaker 1: little bit, they could quickly ramp up production and that

347
00:19:10,480 --> 00:19:13,200
Speaker 1: would bring prices down, and part of it was a

348
00:19:13,359 --> 00:19:17,080
Speaker 1: rate story, maybe part of it was a technology story.

349
00:19:17,119 --> 00:19:20,600
Speaker 1: What is the status of US production now and why

350
00:19:20,720 --> 00:19:24,040
Speaker 1: is it not having that effect of being able to

351
00:19:24,560 --> 00:19:29,000
Speaker 1: ramp up aggressively and sort of smoothly. I mean, I

352
00:19:29,000 --> 00:19:31,400
Speaker 1: think there is some increase in the ring counts, but

353
00:19:31,480 --> 00:19:33,680
Speaker 1: as you as you said, not that much. So why

354
00:19:33,680 --> 00:19:36,399
Speaker 1: are we not seeing something greater out of the U

355
00:19:36,520 --> 00:19:40,200
Speaker 1: s as a stabilizing for US? For one, back then,

356
00:19:40,560 --> 00:19:45,560
Speaker 1: you know the companies were rewarded on volumetric growth, not

357
00:19:45,720 --> 00:19:49,840
Speaker 1: on return on equity. The investors paid a terrible price

358
00:19:49,920 --> 00:19:52,879
Speaker 1: for that period. You look at the industry and you

359
00:19:52,920 --> 00:19:55,280
Speaker 1: know it destroyed a lot of wealth, like ten to

360
00:19:55,359 --> 00:19:57,760
Speaker 1: twenty cents on every single dollar. I think the number

361
00:19:57,840 --> 00:20:00,000
Speaker 1: is actually closer to thirty cents on every day super

362
00:20:00,000 --> 00:20:05,080
Speaker 1: basically like every so basically that aggressive supply response it

363
00:20:05,160 --> 00:20:07,240
Speaker 1: was just a mistake, Like it was just a bad

364
00:20:07,359 --> 00:20:09,560
Speaker 1: it was it was in retrospect, it turned out to

365
00:20:09,600 --> 00:20:12,080
Speaker 1: be a bad approach to business because they were they

366
00:20:12,080 --> 00:20:15,560
Speaker 1: were operating at like a hundred and five hundred and

367
00:20:15,560 --> 00:20:18,960
Speaker 1: fifteen percent of cash flow, So you know what they

368
00:20:19,000 --> 00:20:22,160
Speaker 1: were doing is they're basically growing volumes on the expectation

369
00:20:22,280 --> 00:20:26,120
Speaker 1: of future returns. But obviously when you grew all those volumes,

370
00:20:26,119 --> 00:20:28,640
Speaker 1: you get crushed on the back end in terms of

371
00:20:28,680 --> 00:20:32,200
Speaker 1: what was being delivered, and so the focus left being

372
00:20:32,680 --> 00:20:35,040
Speaker 1: a focus on r o E and instead being a

373
00:20:35,160 --> 00:20:38,879
Speaker 1: focus on growth. Today the focus is on r o E.

374
00:20:39,119 --> 00:20:41,000
Speaker 1: They want to get those return on equity up. And

375
00:20:41,080 --> 00:20:43,320
Speaker 1: by the way, the investors who owned this company, they

376
00:20:43,359 --> 00:20:45,960
Speaker 1: want their money back, you know, the the the OPEC

377
00:20:46,080 --> 00:20:48,880
Speaker 1: ministers want their money back. Everybody wants their money back

378
00:20:48,920 --> 00:20:52,000
Speaker 1: from the disastrous experience over the course of the last

379
00:20:52,040 --> 00:20:54,920
Speaker 1: call it, you know, five to seven years. So at

380
00:20:54,960 --> 00:20:57,720
Speaker 1: this point you look at why aren't they drilling because

381
00:20:57,760 --> 00:21:00,960
Speaker 1: for the first time in nearly a decade, in fact,

382
00:21:01,000 --> 00:21:02,720
Speaker 1: you probably have to go back to oh yeah, you

383
00:21:02,760 --> 00:21:04,800
Speaker 1: got to go back to oh seven oh eight, that

384
00:21:04,920 --> 00:21:08,120
Speaker 1: these companies are finally getting free cash flow going up,

385
00:21:08,280 --> 00:21:12,320
Speaker 1: they're not overspending um, they have returns moving higher, and

386
00:21:12,359 --> 00:21:15,560
Speaker 1: so now they're getting rewarded on return on equity as

387
00:21:15,560 --> 00:21:17,720
Speaker 1: opposed to growth. And it's gonna be a while. They're

388
00:21:17,760 --> 00:21:20,119
Speaker 1: gonna get they want everybody wants to be made whole,

389
00:21:20,480 --> 00:21:22,200
Speaker 1: and then they're going to get the green light to

390
00:21:22,280 --> 00:21:24,120
Speaker 1: go out and invest. It goes kind of the point.

391
00:21:24,160 --> 00:21:27,440
Speaker 1: I think Scott Sheffield got it right. The focus here

392
00:21:27,520 --> 00:21:30,280
Speaker 1: is not on the dollar price of oil, but where

393
00:21:30,359 --> 00:21:32,600
Speaker 1: is their stock price and their access to capital. Now

394
00:21:32,640 --> 00:21:35,080
Speaker 1: here comes the whole E s G issue, which means

395
00:21:35,480 --> 00:21:37,280
Speaker 1: that that hurdle rate is going to be higher and

396
00:21:37,359 --> 00:21:40,119
Speaker 1: higher before that capital is going to come in and

397
00:21:40,160 --> 00:21:42,120
Speaker 1: make that stock price go higher. I tend to think

398
00:21:42,240 --> 00:21:44,639
Speaker 1: there's always somebody in the world out there who's going

399
00:21:44,720 --> 00:21:46,840
Speaker 1: to buy this, which is why when you look at

400
00:21:46,840 --> 00:21:49,520
Speaker 1: the you know, the investors that do pursue, you know,

401
00:21:49,560 --> 00:21:52,000
Speaker 1: these E S G strategies, it's going to be difficult

402
00:21:52,040 --> 00:21:54,320
Speaker 1: because there's gonna be somebody out there in the world

403
00:21:54,400 --> 00:21:56,719
Speaker 1: that's not restricted around these is gonna go out and

404
00:21:56,720 --> 00:21:59,560
Speaker 1: make these investments, which I think, you know makes it.

405
00:21:59,600 --> 00:22:01,960
Speaker 1: You know, it's not a level of playing field right now.

406
00:22:02,920 --> 00:22:04,600
Speaker 1: Since you brought up E S G, I mean, I

407
00:22:04,640 --> 00:22:08,119
Speaker 1: guess the obvious question here, the big question is what

408
00:22:08,200 --> 00:22:10,840
Speaker 1: does all this mean for E S G or green investment.

409
00:22:11,000 --> 00:22:15,600
Speaker 1: Do we start to see a backlash to green investing

410
00:22:15,720 --> 00:22:19,280
Speaker 1: and do investors, you know, maybe start pulling out capital

411
00:22:19,720 --> 00:22:23,679
Speaker 1: or put less capital in or divert some capital to

412
00:22:24,160 --> 00:22:28,480
Speaker 1: you know, older fossil fuel energies things like that. Well, I,

413
00:22:28,720 --> 00:22:30,760
Speaker 1: you know, I have a couple of points on that. One.

414
00:22:30,840 --> 00:22:34,520
Speaker 1: Divestors never solved any problem. And when we think about

415
00:22:34,640 --> 00:22:37,760
Speaker 1: you know, with with you know, e s g in particular,

416
00:22:38,200 --> 00:22:41,760
Speaker 1: it came about originally because the Europeans were getting frustrated

417
00:22:41,800 --> 00:22:44,480
Speaker 1: that the Americans and Chinese were not doing anything on

418
00:22:44,520 --> 00:22:47,879
Speaker 1: the policy side. But why the problem? Why the investors

419
00:22:47,960 --> 00:22:51,760
Speaker 1: drifted into the policymaker lane as the policymakers weren't doing

420
00:22:51,760 --> 00:22:54,760
Speaker 1: their job. And when we think about what job they

421
00:22:54,840 --> 00:22:57,640
Speaker 1: need to do, they need to create you know, rules

422
00:22:57,680 --> 00:23:02,520
Speaker 1: around decarbonization that allowed operators to operate around and gives

423
00:23:02,560 --> 00:23:05,720
Speaker 1: investors the rules of the road in which to invest around.

424
00:23:05,760 --> 00:23:07,760
Speaker 1: And that's kind of the problem, is that there's this

425
00:23:08,040 --> 00:23:10,760
Speaker 1: nether world as occurring. They got these investors just trying

426
00:23:10,800 --> 00:23:14,400
Speaker 1: to invest in our policymakers trying to make these investments

427
00:23:14,560 --> 00:23:17,000
Speaker 1: in things that they don't really understand. And I think

428
00:23:17,000 --> 00:23:19,359
Speaker 1: it's a really risky environment that we're in. And I

429
00:23:19,359 --> 00:23:21,560
Speaker 1: think what's going on in Europe is a testament to

430
00:23:22,040 --> 00:23:25,520
Speaker 1: what the misallocation of capital that it can occur in

431
00:23:25,520 --> 00:23:29,840
Speaker 1: this environment and where you're not let markets dictate and

432
00:23:29,880 --> 00:23:33,320
Speaker 1: policymakers dictate what the rules of the road are and

433
00:23:33,480 --> 00:23:36,320
Speaker 1: what you know, you know investing around those rules of

434
00:23:36,359 --> 00:23:40,080
Speaker 1: those roads. M hmm. Just just on one of those

435
00:23:40,080 --> 00:23:42,879
Speaker 1: points there. I mean, the point about the role of

436
00:23:42,920 --> 00:23:45,080
Speaker 1: the government there is well taken, and that's been one

437
00:23:45,080 --> 00:23:47,760
Speaker 1: of the major criticisms of E s G, that they're

438
00:23:47,760 --> 00:23:50,479
Speaker 1: trying to fulfill something that should actually be done by

439
00:23:50,800 --> 00:23:53,760
Speaker 1: governments and through new laws and things like that. But

440
00:23:53,840 --> 00:23:56,280
Speaker 1: there's also this sort of foundational debate in e s

441
00:23:56,320 --> 00:24:00,160
Speaker 1: G about whether or not it should be investors engageing

442
00:24:00,600 --> 00:24:04,600
Speaker 1: with companies to make them change their behavior. So you

443
00:24:04,680 --> 00:24:07,399
Speaker 1: care about the environment, you're invested in x In or

444
00:24:07,440 --> 00:24:11,680
Speaker 1: Shell or whoever, and you try to encourage them to

445
00:24:11,760 --> 00:24:14,680
Speaker 1: change their behavior by actually being invested in having a

446
00:24:14,720 --> 00:24:18,199
Speaker 1: relationship with the company, or do you ignore them all

447
00:24:18,240 --> 00:24:21,680
Speaker 1: together and invest only in companies that are doing renewable

448
00:24:21,800 --> 00:24:25,560
Speaker 1: energy that have divested all the old traditional dirty stuff

449
00:24:25,600 --> 00:24:28,200
Speaker 1: and you try to increase the cost of capital for

450
00:24:28,240 --> 00:24:32,800
Speaker 1: anyone who is basically in that old energy space. UM,

451
00:24:32,840 --> 00:24:34,479
Speaker 1: I don't know what my question is here, but like

452
00:24:34,560 --> 00:24:37,159
Speaker 1: I guess it's how do you think like E s

453
00:24:37,200 --> 00:24:40,040
Speaker 1: G should function, Like what is E SG trying to do?

454
00:24:41,119 --> 00:24:43,480
Speaker 1: I I think you know your your X on example

455
00:24:43,760 --> 00:24:46,080
Speaker 1: is is spot on. You know, it's it's going there

456
00:24:46,240 --> 00:24:50,360
Speaker 1: and you know, going in there and helping the situation

457
00:24:50,440 --> 00:24:52,600
Speaker 1: and trying to find the solution is the right answer.

458
00:24:52,640 --> 00:24:56,080
Speaker 1: It's the divest your knee jerk reaction that's the dangerous one.

459
00:24:56,760 --> 00:24:59,720
Speaker 1: And I want to really distinguish between that. So when

460
00:24:59,720 --> 00:25:03,240
Speaker 1: we think about you know E s G, that that

461
00:25:03,240 --> 00:25:07,120
Speaker 1: that you know preserves the you know, the market signaling,

462
00:25:07,320 --> 00:25:10,720
Speaker 1: then it's it's working great, it's just there where you go. Okay,

463
00:25:10,760 --> 00:25:13,040
Speaker 1: anything that's hyder carbon is bad. Let's shut down the

464
00:25:13,040 --> 00:25:16,080
Speaker 1: investment because bottom line, India should not have three days

465
00:25:16,080 --> 00:25:18,639
Speaker 1: of coal stocks left right now. Just think about that,

466
00:25:18,720 --> 00:25:21,440
Speaker 1: three days of coal stocks. If all of a sudden

467
00:25:21,480 --> 00:25:23,679
Speaker 1: you had a major disruption, India would be out of

468
00:25:23,720 --> 00:25:27,000
Speaker 1: power in three days. That's a dangerous place to be

469
00:25:27,080 --> 00:25:29,960
Speaker 1: for one of the largest, most populous countries in the world.

470
00:25:30,920 --> 00:25:33,800
Speaker 1: Let's talk about some of this sort of like ongoing

471
00:25:34,000 --> 00:25:37,240
Speaker 1: sort of mechanical disruption issues that we're seeing. And I

472
00:25:37,280 --> 00:25:40,280
Speaker 1: want to actually focus in on what we're seeing in

473
00:25:40,359 --> 00:25:42,720
Speaker 1: China because it seems to be there's a number of

474
00:25:42,760 --> 00:25:47,640
Speaker 1: moving parts. Tracy and you both talked about that earlier. Overall,

475
00:25:47,680 --> 00:25:49,679
Speaker 1: what is your take Let's start a big picture and

476
00:25:49,680 --> 00:25:52,360
Speaker 1: then maybe zoom in on specific commodities, but overall, what's

477
00:25:52,359 --> 00:25:55,840
Speaker 1: your take on sort of like the Chinese energy picture

478
00:25:55,840 --> 00:26:00,720
Speaker 1: because it seems like very extraordinary and unusual. Well, I

479
00:26:00,920 --> 00:26:05,679
Speaker 1: you know, it boils down to um shuttering of you know,

480
00:26:05,880 --> 00:26:08,320
Speaker 1: very toxic cold mines. I like to point out what

481
00:26:08,320 --> 00:26:11,600
Speaker 1: what China is going through today is very similar to

482
00:26:11,640 --> 00:26:14,600
Speaker 1: what the US did in the seventies when you know,

483
00:26:14,760 --> 00:26:18,760
Speaker 1: creation of superfund sites. So it shut these down reasonably.

484
00:26:18,800 --> 00:26:21,520
Speaker 1: These things are very toxic. Then you don't have the

485
00:26:21,600 --> 00:26:25,439
Speaker 1: investment in coal globally, and then you have a foreign

486
00:26:25,480 --> 00:26:30,480
Speaker 1: policy spat between Australia in in China. So you put

487
00:26:30,520 --> 00:26:34,399
Speaker 1: it all together. The access to coal drop tremendously post

488
00:26:34,440 --> 00:26:36,879
Speaker 1: COVID son And by the way, this is all stems

489
00:26:36,880 --> 00:26:40,159
Speaker 1: to the fact that these supply constraints were there. It

490
00:26:40,240 --> 00:26:44,200
Speaker 1: took that post COVID surge in demand that exposed it

491
00:26:44,240 --> 00:26:49,520
Speaker 1: all across you know, metals, oil, gas, coal, trucking, you know,

492
00:26:49,640 --> 00:26:52,320
Speaker 1: whatever picked your industry, it exposed them all in the

493
00:26:52,359 --> 00:26:55,639
Speaker 1: old economy UM, and it had probably have happened to

494
00:26:55,640 --> 00:27:00,359
Speaker 1: be particularly acute in coal in China. So then what

495
00:27:00,480 --> 00:27:03,400
Speaker 1: happened is then they had to replace the lost coal

496
00:27:03,560 --> 00:27:06,399
Speaker 1: with gas, so they started to hoover up the world's

497
00:27:06,520 --> 00:27:09,080
Speaker 1: l n G supplies. Then they replaced the hard to

498
00:27:09,119 --> 00:27:12,320
Speaker 1: replace in it more recently with with oil UM and

499
00:27:12,400 --> 00:27:14,760
Speaker 1: that's what's helped create the big deficit in oil in

500
00:27:14,800 --> 00:27:17,560
Speaker 1: the BID and oil UM. So the bottom line is,

501
00:27:17,640 --> 00:27:21,520
Speaker 1: you know, you put it together, the situation is dire

502
00:27:21,720 --> 00:27:25,280
Speaker 1: enough that are even our economists have trimmed fourth quarter

503
00:27:25,400 --> 00:27:28,720
Speaker 1: GDP to being flat with three quarter and taken down

504
00:27:28,760 --> 00:27:31,879
Speaker 1: first quarter of twenty two. Now there's investments in coal

505
00:27:31,920 --> 00:27:35,200
Speaker 1: and mongolia, and then you know potential increase in exports

506
00:27:35,240 --> 00:27:37,520
Speaker 1: of three hundred thousand tons that many people point to

507
00:27:37,600 --> 00:27:40,399
Speaker 1: that means this problem goes away next year. UM, it

508
00:27:40,520 --> 00:27:43,960
Speaker 1: eases the problem. What about further growth rates in GDP

509
00:27:44,080 --> 00:27:46,520
Speaker 1: and more activity. It just puts more stress on the system.

510
00:27:46,760 --> 00:27:48,960
Speaker 1: That's why we like to argue this thing is a supercycle,

511
00:27:49,400 --> 00:27:51,480
Speaker 1: meaning that and then think about how much stress you

512
00:27:51,560 --> 00:27:55,280
Speaker 1: put into um, aluminium, zinc and all these other industries

513
00:27:55,480 --> 00:27:57,679
Speaker 1: where you've had to shut shut down smelters. So if

514
00:27:57,680 --> 00:28:00,720
Speaker 1: you want to really think about the chain reaction here, Um,

515
00:28:00,800 --> 00:28:03,639
Speaker 1: some people kind of simplify the world, it starts in China,

516
00:28:03,720 --> 00:28:07,080
Speaker 1: coal and China, and then that creates tightness and gas

517
00:28:07,119 --> 00:28:11,040
Speaker 1: that created the problems in Europe. Europe subsidized substitutes into oil,

518
00:28:11,080 --> 00:28:14,200
Speaker 1: creating a problem in oil. You've shut down the alley smelters,

519
00:28:14,280 --> 00:28:16,399
Speaker 1: zinc smelters, and that, you know, so a lot of

520
00:28:16,400 --> 00:28:18,720
Speaker 1: people say, you know that that the ground zero of

521
00:28:18,760 --> 00:28:21,840
Speaker 1: this problem really was coal in China. So I do

522
00:28:21,880 --> 00:28:25,480
Speaker 1: want to say the situation in China is very dire,

523
00:28:25,520 --> 00:28:27,200
Speaker 1: but it's just one power of the world that can

524
00:28:27,240 --> 00:28:29,840
Speaker 1: create a solution to it rather quickly than they're trying

525
00:28:29,880 --> 00:28:32,159
Speaker 1: to with investments in Mongolif I want to be careful

526
00:28:32,200 --> 00:28:35,480
Speaker 1: about restarting a lot of that shuttered coal, for those

527
00:28:35,520 --> 00:28:37,760
Speaker 1: of us that are Americans and know what a super

528
00:28:37,800 --> 00:28:40,960
Speaker 1: fund side is in the US, restarting these facilities is

529
00:28:40,960 --> 00:28:42,920
Speaker 1: going to be a lot more difficult, a lot more

530
00:28:42,960 --> 00:28:45,120
Speaker 1: expensive than I think what people think it will be.

531
00:28:45,400 --> 00:28:48,320
Speaker 1: So you really got to focus on the new, more cleaner,

532
00:28:48,400 --> 00:28:51,440
Speaker 1: sophisticated coal and some of these mines in places like Mongolia.

533
00:28:51,800 --> 00:28:53,920
Speaker 1: So bottom line, it's going to be tight over the

534
00:28:54,000 --> 00:28:57,000
Speaker 1: next three to six months. But once you get that

535
00:28:57,040 --> 00:29:00,360
Speaker 1: Mongolian coal up and running, um the situation at ease.

536
00:29:00,440 --> 00:29:04,680
Speaker 1: But no way doesn't solve it. You mentioned it briefly,

537
00:29:04,800 --> 00:29:07,040
Speaker 1: but you know, when we when we talk about important

538
00:29:07,200 --> 00:29:10,120
Speaker 1: global commodities, obviously the first one that comes to mind

539
00:29:10,240 --> 00:29:13,600
Speaker 1: is probably oiled and I don't know, maybe natural gas.

540
00:29:13,640 --> 00:29:18,760
Speaker 1: Aluminum prices thirteen year high in China, and of course

541
00:29:19,000 --> 00:29:21,520
Speaker 1: aluminium is used in all kinds of just everyday item.

542
00:29:21,600 --> 00:29:25,120
Speaker 1: So for thinking about how commodities bleed into sort of

543
00:29:25,160 --> 00:29:29,480
Speaker 1: normal inflation, that seems like an important one to focus on.

544
00:29:29,920 --> 00:29:32,200
Speaker 1: Can you walk through a little bit more about the

545
00:29:32,200 --> 00:29:35,600
Speaker 1: economics of aluminium in China right now and what you

546
00:29:35,640 --> 00:29:38,440
Speaker 1: see going on sort of like putting this inexorable upward

547
00:29:38,440 --> 00:29:43,440
Speaker 1: pressure upward price pressure there. Aluminium is a unique commodity.

548
00:29:43,640 --> 00:29:46,960
Speaker 1: You know, it's the climate change paradox you needed to

549
00:29:47,000 --> 00:29:50,120
Speaker 1: solve climate change. But it creates a lot of emissions

550
00:29:50,120 --> 00:29:52,960
Speaker 1: in the production of it, so you know it does

551
00:29:53,080 --> 00:29:55,920
Speaker 1: to the same And so when we think about the

552
00:29:56,000 --> 00:29:59,840
Speaker 1: situation in China right now, if you're operating on a

553
00:30:00,320 --> 00:30:02,600
Speaker 1: call it a carbon budget. You know, you're allotted this

554
00:30:02,680 --> 00:30:05,800
Speaker 1: amount of carbon production for your economy. One of the

555
00:30:05,880 --> 00:30:08,960
Speaker 1: most polluting verb you know, commodities, In fact, it is

556
00:30:09,000 --> 00:30:11,920
Speaker 1: the most polluting commodity to produce is aluminum. You're not

557
00:30:11,920 --> 00:30:13,600
Speaker 1: gonna want to produce. It's gonna be the first thing

558
00:30:13,640 --> 00:30:19,080
Speaker 1: you shut down and you think about what really is aluminum?

559
00:30:19,160 --> 00:30:23,600
Speaker 1: It is solid energy. You just take aluminum electricity, you

560
00:30:23,640 --> 00:30:25,320
Speaker 1: put the two together, and now you've got, you know,

561
00:30:25,360 --> 00:30:29,120
Speaker 1: a solid piece of metal there. So if you're trying

562
00:30:29,200 --> 00:30:35,000
Speaker 1: to conserve energy, conserve you know how much carbon you're emitting,

563
00:30:35,400 --> 00:30:37,120
Speaker 1: the first thing you're going to pull the lever on

564
00:30:37,520 --> 00:30:40,200
Speaker 1: is going to be aluminum. Which is why, um, you

565
00:30:40,240 --> 00:30:42,520
Speaker 1: look at you know, just you know, you know it's

566
00:30:42,640 --> 00:30:47,440
Speaker 1: China's get cut two million metric tons of capacity. Now

567
00:30:47,480 --> 00:30:49,640
Speaker 1: that in about a fifty million metric ton market, so

568
00:30:49,680 --> 00:30:52,000
Speaker 1: it's sizeable in terms of what they've what they've taken

569
00:30:52,000 --> 00:30:54,760
Speaker 1: out on top of you know that stuff that's already

570
00:30:54,760 --> 00:30:57,600
Speaker 1: been taken out elsewhere in the world. So that's really

571
00:30:57,640 --> 00:31:00,040
Speaker 1: at the core of what's driving this. By do to

572
00:31:00,120 --> 00:31:03,360
Speaker 1: go back to the point about cost push inflation, the

573
00:31:03,480 --> 00:31:07,160
Speaker 1: commodities being drinken by cost push inflation, there is zero

574
00:31:07,280 --> 00:31:11,640
Speaker 1: evidence of it. It's always demand pull in the sense

575
00:31:11,720 --> 00:31:15,400
Speaker 1: that you know, demand is strong across every single one

576
00:31:15,440 --> 00:31:18,920
Speaker 1: of these commodities, services, and everything else, and it's demand

577
00:31:19,040 --> 00:31:22,280
Speaker 1: pulling everything along against the supply constraints that creates the

578
00:31:22,360 --> 00:31:26,120
Speaker 1: upward pressure around prices. It's not the input costs accelerating

579
00:31:26,600 --> 00:31:28,760
Speaker 1: UM that's driving up the costs in other parts of

580
00:31:28,760 --> 00:31:30,960
Speaker 1: the industry. But if you think about how did it,

581
00:31:30,960 --> 00:31:34,080
Speaker 1: you know, aluminum, how does it create tightness in other markets?

582
00:31:34,080 --> 00:31:37,200
Speaker 1: Because once you lose a supply, let's think about starts

583
00:31:37,240 --> 00:31:39,800
Speaker 1: with coal tightness in coal. It's not that the coal

584
00:31:39,880 --> 00:31:43,640
Speaker 1: price led to higher aluminium prices. What it was was

585
00:31:43,720 --> 00:31:47,600
Speaker 1: a lack of coal led to a shutdown of aluminum

586
00:31:47,640 --> 00:31:51,120
Speaker 1: smelting against strong demand. That drove up the price of aluminum,

587
00:31:51,520 --> 00:31:55,800
Speaker 1: which then feeds into more demand for copper as a

588
00:31:55,840 --> 00:31:58,840
Speaker 1: substitute against aluminum. So you get you know, you can

589
00:31:58,880 --> 00:32:01,080
Speaker 1: think about it as being you know, the supply chain,

590
00:32:01,480 --> 00:32:03,760
Speaker 1: you know working along that way, or you know. So

591
00:32:03,920 --> 00:32:07,040
Speaker 1: it's not that that the cost of um, you know,

592
00:32:07,240 --> 00:32:09,800
Speaker 1: energy is being you know, driving the cost of everything.

593
00:32:09,840 --> 00:32:13,200
Speaker 1: It's demand and pulling everything along. And when you think

594
00:32:13,240 --> 00:32:16,360
Speaker 1: about it that way. Um, you know, that's how you

595
00:32:16,400 --> 00:32:19,760
Speaker 1: get broad based inflation, because it's not just because think

596
00:32:19,760 --> 00:32:23,000
Speaker 1: about if it's isolated in one market, let's say oil prices,

597
00:32:23,240 --> 00:32:25,240
Speaker 1: that's a relative price move. And if you think about

598
00:32:25,240 --> 00:32:28,680
Speaker 1: if money supply stays the same, the price of oil

599
00:32:28,720 --> 00:32:31,240
Speaker 1: goes up, then the price of everything else has to

600
00:32:31,280 --> 00:32:33,840
Speaker 1: go down because there's an adding up constraint with money supply.

601
00:32:34,280 --> 00:32:36,920
Speaker 1: But if you think about a demand is pulling everything along,

602
00:32:37,240 --> 00:32:40,080
Speaker 1: money supply is growing along with it, then the price

603
00:32:40,120 --> 00:32:42,640
Speaker 1: of everything starts to grow as opposed to being a

604
00:32:42,720 --> 00:33:03,000
Speaker 1: supply shock, being you know, derelative price movement. Away. You

605
00:33:03,080 --> 00:33:06,600
Speaker 1: touched on this earlier, but what's the difference between a

606
00:33:06,680 --> 00:33:11,040
Speaker 1: bowl market in commodities versus a supercycle? And like, I

607
00:33:12,160 --> 00:33:14,800
Speaker 1: sometimes get the sense that, like commodities experts are very

608
00:33:14,800 --> 00:33:17,360
Speaker 1: sensitive on this particular topic, mostly because I had an

609
00:33:17,440 --> 00:33:19,560
Speaker 1: argument earlier in the year about whether or not what

610
00:33:19,640 --> 00:33:21,680
Speaker 1: we were seeing was a commodities boom or the start

611
00:33:21,720 --> 00:33:24,719
Speaker 1: of a supercycle, and people got very very pedentic. But like,

612
00:33:24,800 --> 00:33:27,000
Speaker 1: what is the difference and which one are we looking

613
00:33:27,040 --> 00:33:30,600
Speaker 1: at at the moment um? We're looking at a commodity

614
00:33:30,720 --> 00:33:34,400
Speaker 1: supercycle and It goes back to this demand demand story.

615
00:33:34,400 --> 00:33:36,400
Speaker 1: It needs a structural rise in demand. I can get

616
00:33:36,400 --> 00:33:38,960
Speaker 1: a bowl market and oil driven by a supply stock

617
00:33:39,000 --> 00:33:43,200
Speaker 1: in Saudi Arabia, but that's not a supercycle. A supercycle

618
00:33:43,680 --> 00:33:46,600
Speaker 1: is driven by a structural rise in demand. And why

619
00:33:46,600 --> 00:33:49,280
Speaker 1: do we have a structural rise in demand? And give

620
00:33:49,320 --> 00:33:50,720
Speaker 1: me a minute here is I really want to explain

621
00:33:50,800 --> 00:33:52,960
Speaker 1: this point because I think it's critical to understanding the

622
00:33:53,000 --> 00:33:57,120
Speaker 1: difference between physical markets and financial markets. And we think

623
00:33:57,160 --> 00:34:00,960
Speaker 1: of physical markets like oiler our medium there what we

624
00:34:01,080 --> 00:34:05,240
Speaker 1: call volume metric markets. How do you determine if you're

625
00:34:05,280 --> 00:34:09,000
Speaker 1: bullish oil the volume of demand versus the volume of supply?

626
00:34:09,080 --> 00:34:12,120
Speaker 1: If demand is about supply, your bullish. No dollars enter

627
00:34:12,200 --> 00:34:15,960
Speaker 1: into the equation, No growth rates, nothing like that interest.

628
00:34:16,040 --> 00:34:19,440
Speaker 1: So physical markets driven by volume? Now what our finding?

629
00:34:19,640 --> 00:34:23,640
Speaker 1: Financial markets and GDP they're all driven by dollars. How

630
00:34:23,640 --> 00:34:27,560
Speaker 1: many dollars do you pump into those markets? Um that

631
00:34:27,640 --> 00:34:30,279
Speaker 1: determines whether or not they're bullish or not. You know,

632
00:34:30,440 --> 00:34:34,120
Speaker 1: so no volume enters into a financial market. Think about

633
00:34:34,239 --> 00:34:36,560
Speaker 1: equity you quote it in billions of dollars or g

634
00:34:36,680 --> 00:34:38,920
Speaker 1: d P you quote it in trillions of dollars. Volume

635
00:34:38,960 --> 00:34:42,680
Speaker 1: doesn't injure. So let me summarize physical markets driven by volume,

636
00:34:43,040 --> 00:34:46,239
Speaker 1: financial markets, and GDP driven by dollars. Now, let me

637
00:34:46,320 --> 00:34:50,520
Speaker 1: ask you the following. What do the world's rich control dollars?

638
00:34:51,520 --> 00:34:55,520
Speaker 1: They control wealth and income. Can rich create financial inflation?

639
00:34:55,680 --> 00:34:59,720
Speaker 1: Absolutely yes? Can they create GDP? Absolutely yes? And they

640
00:34:59,760 --> 00:35:05,359
Speaker 1: cre eight physical good inflation numerically impossible. There's not enough

641
00:35:05,400 --> 00:35:09,840
Speaker 1: of them. It's a volumetric game. And so only the

642
00:35:09,880 --> 00:35:14,799
Speaker 1: world's low income group can create inflation and um commodity

643
00:35:14,800 --> 00:35:18,080
Speaker 1: bowl markets. And there is no exception that you cannot

644
00:35:18,080 --> 00:35:22,480
Speaker 1: find me an exception. Every commodity supercycle is driven by

645
00:35:22,600 --> 00:35:26,280
Speaker 1: low income groups as well as every bout of inflation.

646
00:35:26,719 --> 00:35:29,279
Speaker 1: In fact, you know, let's start with the seventies. It

647
00:35:29,440 --> 00:35:34,920
Speaker 1: was lb j's um war on poverty. The two thousand's

648
00:35:34,960 --> 00:35:37,400
Speaker 1: when China was admitted to the w t O. It

649
00:35:37,440 --> 00:35:41,200
Speaker 1: was a gigantic wealth transfer rich Americans and rich Europeans

650
00:35:41,520 --> 00:35:44,480
Speaker 1: to low income, rural Chinese, four hundred million of them.

651
00:35:44,520 --> 00:35:47,600
Speaker 1: There was your volume created inflation in China in a

652
00:35:47,640 --> 00:35:51,240
Speaker 1: commodity bowl market. You know, the inflationary episodes in Latin

653
00:35:51,239 --> 00:35:53,759
Speaker 1: America tied to populist policy and the list goes down

654
00:35:53,800 --> 00:35:56,719
Speaker 1: and on. So you come to the conclusion that inflation

655
00:35:56,760 --> 00:36:00,719
Speaker 1: and commodity bowl markets are directly tied to popular policies.

656
00:36:00,760 --> 00:36:03,160
Speaker 1: And I can't find an exception to that. So if

657
00:36:03,160 --> 00:36:06,279
Speaker 1: we argue that we're in an environment in which there's

658
00:36:06,320 --> 00:36:09,120
Speaker 1: a you know, a great focus on low income groups,

659
00:36:09,120 --> 00:36:12,560
Speaker 1: and even think about green capex, as Joe Biden says,

660
00:36:12,840 --> 00:36:16,439
Speaker 1: green capex creates jobs, as Boris Johnson here the UK

661
00:36:16,600 --> 00:36:19,400
Speaker 1: says it calls it green leveling, spending on green capex

662
00:36:19,480 --> 00:36:23,000
Speaker 1: to create jobs. Um So everywhere we look, even the

663
00:36:23,040 --> 00:36:26,600
Speaker 1: green capex is focused on lower income groups. And as

664
00:36:26,600 --> 00:36:30,880
Speaker 1: a result that we look across the demand levels. You know,

665
00:36:31,040 --> 00:36:34,759
Speaker 1: gasoline barrels were at all time high this summer, and

666
00:36:34,800 --> 00:36:36,839
Speaker 1: I can go across the board the volumes, just look

667
00:36:36,840 --> 00:36:39,680
Speaker 1: at the level of demand endurable goods and everything like that,

668
00:36:39,920 --> 00:36:42,319
Speaker 1: it's off the charge. So that's the reason why I

669
00:36:42,320 --> 00:36:45,200
Speaker 1: think we're in a commodity supercycles, not because of anything

670
00:36:45,239 --> 00:36:49,000
Speaker 1: else other than that simple observation that the volumetric demand

671
00:36:49,040 --> 00:36:52,439
Speaker 1: growth we see right now and going forward is not

672
00:36:52,600 --> 00:36:54,440
Speaker 1: just a you know, but you know, it's something that's

673
00:36:54,520 --> 00:36:58,000
Speaker 1: hitting all the markets simultaneously. UM and that's really what

674
00:36:58,160 --> 00:37:01,320
Speaker 1: is at the core of a supercycle. So stody losing

675
00:37:01,320 --> 00:37:03,600
Speaker 1: production create a bowl market in oil, but that's not

676
00:37:03,640 --> 00:37:06,960
Speaker 1: a supercycle. Is that clear? Yeah? That was fantastic. So

677
00:37:07,040 --> 00:37:08,360
Speaker 1: I guess, like you know, I know, we just have

678
00:37:08,640 --> 00:37:11,080
Speaker 1: a couple of minutes left here. But you know, like

679
00:37:11,120 --> 00:37:13,240
Speaker 1: I said, we talked to you in January, I felt

680
00:37:13,239 --> 00:37:16,440
Speaker 1: like you nailed the call, and then some we're in

681
00:37:16,520 --> 00:37:19,839
Speaker 1: the supercycle as you characterize it. I don't know, commodities,

682
00:37:20,200 --> 00:37:24,040
Speaker 1: it's always a cliche innings, so to speak. But what

683
00:37:24,120 --> 00:37:27,080
Speaker 1: are we going to be talking about with you in

684
00:37:27,239 --> 00:37:30,160
Speaker 1: nine months when we rebook you? And how much longer

685
00:37:30,320 --> 00:37:31,920
Speaker 1: is this going to be going on? Like, give us

686
00:37:31,920 --> 00:37:33,680
Speaker 1: your what's it? What's gonna happen in the future, what's

687
00:37:33,680 --> 00:37:37,200
Speaker 1: your crystal balls? Then we're going to be pricing scarcity

688
00:37:37,480 --> 00:37:40,800
Speaker 1: at that point in time across oil, metals and everything

689
00:37:40,840 --> 00:37:43,680
Speaker 1: at that point in time. And when we think about,

690
00:37:43,719 --> 00:37:46,799
Speaker 1: you know, the transitory nature of these events is that

691
00:37:46,840 --> 00:37:49,640
Speaker 1: when the system is so strained like it is right now,

692
00:37:49,680 --> 00:37:52,640
Speaker 1: it just takes a small little problem to create a

693
00:37:53,320 --> 00:37:55,400
Speaker 1: big upward movement in price. Do you think about what

694
00:37:55,520 --> 00:37:57,879
Speaker 1: Europe was created by? It was created by the wind

695
00:37:57,960 --> 00:38:00,680
Speaker 1: quit blowing, the market had to replace that wind power

696
00:38:00,760 --> 00:38:03,600
Speaker 1: generation with natural gas, and there was no gas there

697
00:38:03,600 --> 00:38:06,200
Speaker 1: in a small event like the wind quip point created

698
00:38:06,239 --> 00:38:09,359
Speaker 1: a massive price bike. Um. And these are what it's

699
00:38:09,360 --> 00:38:11,560
Speaker 1: stated before you have to have to draw something out

700
00:38:11,600 --> 00:38:14,279
Speaker 1: of the tails to get a problem. Today you just

701
00:38:14,400 --> 00:38:16,320
Speaker 1: draw something in the middle of the distribution, and you

702
00:38:16,360 --> 00:38:19,920
Speaker 1: get a problem, which means that these transient events are

703
00:38:19,920 --> 00:38:23,440
Speaker 1: going to be their higher probability and more frequent in nature.

704
00:38:23,480 --> 00:38:26,799
Speaker 1: So there becomes a persistency to the transitory events. That's

705
00:38:26,800 --> 00:38:29,759
Speaker 1: what scarcity pricing is all about. It's not like they're

706
00:38:29,760 --> 00:38:31,759
Speaker 1: going to get a big upward training prices, but you're

707
00:38:31,760 --> 00:38:34,880
Speaker 1: gonna continue to get, you know, price spikes. So you know,

708
00:38:34,960 --> 00:38:37,040
Speaker 1: I think that most that you know, if you brought

709
00:38:37,040 --> 00:38:38,759
Speaker 1: me back in six months, I think that's going to

710
00:38:38,840 --> 00:38:41,319
Speaker 1: be the highest pain point. By the time we look

711
00:38:41,520 --> 00:38:43,799
Speaker 1: at nine months, Um, you know, do you have a

712
00:38:43,840 --> 00:38:46,680
Speaker 1: much higher probability of the system trying to find solutions

713
00:38:46,719 --> 00:38:48,839
Speaker 1: to it. So three to six months, I think you're

714
00:38:48,840 --> 00:38:51,000
Speaker 1: gonna that's gonna be your max pain point. On oil,

715
00:38:51,040 --> 00:38:52,960
Speaker 1: we have a ninety dollar target. I want to emphasize

716
00:38:53,040 --> 00:38:55,520
Speaker 1: lots of upside risk to that UM. You know, we

717
00:38:55,600 --> 00:38:57,719
Speaker 1: look out into next year, we're eleven to twelve tho

718
00:38:57,960 --> 00:39:00,239
Speaker 1: dollars a ton on copper, but you know, out of

719
00:39:00,320 --> 00:39:03,000
Speaker 1: upside risk to that UM. So you know, but the

720
00:39:03,080 --> 00:39:06,080
Speaker 1: real upside risk, I would argue, probably happens in that

721
00:39:06,560 --> 00:39:10,439
Speaker 1: UM first quarter of next year. Hopefully when we meet

722
00:39:10,520 --> 00:39:13,239
Speaker 1: nine months from now, we can say, hey, you know

723
00:39:13,520 --> 00:39:16,760
Speaker 1: we see drilling in the US, we see um Iran

724
00:39:16,840 --> 00:39:19,120
Speaker 1: deal has come. You know, there's a higher probability in

725
00:39:19,200 --> 00:39:21,839
Speaker 1: an Iran deal where there's the system begins to ease,

726
00:39:21,840 --> 00:39:25,600
Speaker 1: which is why we see prices moving back into them

727
00:39:25,680 --> 00:39:28,319
Speaker 1: at the nine months Rizon. So if we meet six

728
00:39:28,360 --> 00:39:30,000
Speaker 1: from months from now, I think you're going to be

729
00:39:30,600 --> 00:39:33,920
Speaker 1: peak scarcity pricing, you know, nine months from down on

730
00:39:34,000 --> 00:39:37,000
Speaker 1: to a year, much higher probability that we found some

731
00:39:37,080 --> 00:39:40,600
Speaker 1: type of at least solution. Max Paine is still coming.

732
00:39:42,040 --> 00:39:45,400
Speaker 1: Max Paine is probably coming in the next next three months.

733
00:39:45,960 --> 00:39:50,200
Speaker 1: If not soer, Max Paine is still coming. Jeff Curry,

734
00:39:50,320 --> 00:39:53,520
Speaker 1: thank you so much. Always great to chat with you.

735
00:39:54,040 --> 00:39:56,360
Speaker 1: A real treat And like I said, well, have you

736
00:39:56,640 --> 00:39:58,239
Speaker 1: a six or nine months back and we'll see if

737
00:39:58,239 --> 00:40:01,440
Speaker 1: we're at a if we're truly x pain right. Well,

738
00:40:01,440 --> 00:40:04,200
Speaker 1: thanks for having me. Thanks Jeff, I appreciate it. Take

739
00:40:04,200 --> 00:40:19,120
Speaker 1: care of Jeff. It's always a treat talking to Jeff.

740
00:40:19,160 --> 00:40:21,080
Speaker 1: I just feel like I get like such a big

741
00:40:22,080 --> 00:40:26,600
Speaker 1: such a useful, big picture perspective talking to him totally,

742
00:40:26,640 --> 00:40:28,200
Speaker 1: And I mean I feel like I'm a little bit

743
00:40:28,239 --> 00:40:31,960
Speaker 1: biased because, um, you know, I was a capital markets

744
00:40:32,000 --> 00:40:34,640
Speaker 1: reporter for a long time. I like writing about things

745
00:40:34,680 --> 00:40:38,320
Speaker 1: like corporate bonds. But I you know, I remember writing

746
00:40:38,360 --> 00:40:40,879
Speaker 1: a lot about the show Boom in the US as

747
00:40:41,160 --> 00:40:44,520
Speaker 1: a capital market story, and I think I did a

748
00:40:44,520 --> 00:40:48,680
Speaker 1: fantastic job of like drawing that connection. Once again, You're

749
00:40:48,760 --> 00:40:52,800
Speaker 1: not going to get higher oil production unless investors feel

750
00:40:52,800 --> 00:40:56,000
Speaker 1: comfortable putting money into the company and the company feels

751
00:40:56,080 --> 00:40:59,239
Speaker 1: comfortable actually putting that money to work in terms of

752
00:40:59,320 --> 00:41:03,440
Speaker 1: investment and expanding production. And we're not quite at that point,

753
00:41:03,719 --> 00:41:05,759
Speaker 1: you know what. I love that point because there is

754
00:41:05,800 --> 00:41:08,920
Speaker 1: this sort of very cliche which I've always hated. The

755
00:41:08,920 --> 00:41:11,960
Speaker 1: stock market isn't the economy. Actually, the stock market is

756
00:41:12,000 --> 00:41:16,360
Speaker 1: a very important part of the economy, and sometimes maybe

757
00:41:16,360 --> 00:41:20,800
Speaker 1: it reflects the economy, but sometimes it very much Sometimes

758
00:41:20,800 --> 00:41:23,759
Speaker 1: it doesn't reflect the economy. But sometimes it drives the economy.

759
00:41:23,840 --> 00:41:25,440
Speaker 1: And so when you have a CEO, as he was

760
00:41:25,440 --> 00:41:27,920
Speaker 1: pointing out, and I want to go find that transcript

761
00:41:28,120 --> 00:41:32,600
Speaker 1: where he's like, you know, the determinant now of how

762
00:41:32,680 --> 00:41:37,600
Speaker 1: much US oil will ramp, it's actually the stock market

763
00:41:37,680 --> 00:41:41,560
Speaker 1: itself and the the sort of return expectations of investors.

764
00:41:41,600 --> 00:41:43,960
Speaker 1: And having learned the lesson of these sort of like

765
00:41:44,200 --> 00:41:47,280
Speaker 1: two thousand tends that pure volume is not a great

766
00:41:47,320 --> 00:41:51,440
Speaker 1: long term return on investment is super fascinating to me.

767
00:41:51,480 --> 00:41:53,959
Speaker 1: It's like, will will drill more when the stock price

768
00:41:54,040 --> 00:41:57,040
Speaker 1: goes up? Is sort of like the opposite of how

769
00:41:57,120 --> 00:41:59,600
Speaker 1: people think, like, oh, the stock market is just it's

770
00:41:59,640 --> 00:42:01,799
Speaker 1: just you're to what's happening in the real economy. In

771
00:42:01,800 --> 00:42:05,120
Speaker 1: that case, it is clearly a driver. Oh totally. I mean,

772
00:42:05,200 --> 00:42:07,880
Speaker 1: capital markets matter, and this is a really good example

773
00:42:07,920 --> 00:42:10,160
Speaker 1: of that. The other thing I would say that I

774
00:42:10,440 --> 00:42:14,960
Speaker 1: really appreciated hearing was his differentiation of you know, a

775
00:42:14,960 --> 00:42:17,560
Speaker 1: commodities bowl market. The idea of commodity is just going

776
00:42:17,680 --> 00:42:21,839
Speaker 1: up versus a commodity supercycle, and this idea that ultimately

777
00:42:22,280 --> 00:42:24,920
Speaker 1: a supercycle is something that's going to come down to

778
00:42:25,880 --> 00:42:30,759
Speaker 1: physical volume and scale, and so that scale has to

779
00:42:30,800 --> 00:42:33,480
Speaker 1: come from you know, somewhere, and he sort of pinpointed

780
00:42:33,480 --> 00:42:37,680
Speaker 1: the idea of scale coming from surging demand from this

781
00:42:37,800 --> 00:42:41,000
Speaker 1: sort of what did he say, lower income class, the

782
00:42:41,040 --> 00:42:44,480
Speaker 1: redistributionary impulse. Yeah, for sure, which makes a lot of like,

783
00:42:44,680 --> 00:42:47,680
Speaker 1: you know, it's about scale, and so it kind of

784
00:42:47,719 --> 00:42:50,560
Speaker 1: has to be about consumption from like the biggest proportion

785
00:42:50,640 --> 00:42:54,880
Speaker 1: of the population as possible. So many interesting points. Uh,

786
00:42:54,960 --> 00:42:57,319
Speaker 1: you know, his point about how normally, like you know,

787
00:42:57,360 --> 00:42:59,520
Speaker 1: a few days without wind in the UK wouldn't be

788
00:42:59,560 --> 00:43:02,120
Speaker 1: a big deal, but this time because of the tightness

789
00:43:02,160 --> 00:43:05,120
Speaker 1: of the market, so many comparisons between what's going on

790
00:43:05,160 --> 00:43:08,600
Speaker 1: in logistics. Really great. Getting his perspective on aluminum just

791
00:43:08,960 --> 00:43:11,799
Speaker 1: is a real treat to Chalco Jeff, And again we

792
00:43:11,800 --> 00:43:13,200
Speaker 1: got to get him back on in like six or

793
00:43:13,280 --> 00:43:17,120
Speaker 1: nine months. Yeah, we'll make this like every nine months

794
00:43:17,200 --> 00:43:20,120
Speaker 1: type event. I think that would be good. Sounds good. Okay,

795
00:43:20,120 --> 00:43:22,960
Speaker 1: shall we leave it there, Let's leave it there. Okay.

796
00:43:23,160 --> 00:43:25,880
Speaker 1: This has been another episode of the All Thoughts Podcast.

797
00:43:25,960 --> 00:43:28,480
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at

798
00:43:28,480 --> 00:43:31,640
Speaker 1: Tracy Alloway and I'm Joe Why Isn't All. You can

799
00:43:31,680 --> 00:43:34,960
Speaker 1: follow me on Twitter at the Stalwart. Follow our producer

800
00:43:35,040 --> 00:43:38,439
Speaker 1: on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow

801
00:43:38,480 --> 00:43:41,920
Speaker 1: the Bloomberg head of podcast, Francesco Levie at Francesco Today,

802
00:43:42,360 --> 00:43:45,239
Speaker 1: and check out all of our podcast at Bloomberg under

803
00:43:45,280 --> 00:44:13,640
Speaker 1: the handle at podcasts. Thanks for listening year to