1 00:00:10,920 --> 00:00:15,200 Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast. 2 00:00:15,280 --> 00:00:19,520 Speaker 1: I'm Joe Wisn't and I'm Tracy Alloway. Tracy, we got 3 00:00:19,560 --> 00:00:23,639 Speaker 1: the latest inflation data this morning. We're recording this on 4 00:00:23,800 --> 00:00:26,479 Speaker 1: April twelve, and it was interesting. I mean, it showed 5 00:00:26,520 --> 00:00:31,040 Speaker 1: there's some easing perhaps in sort of core goods core 6 00:00:31,120 --> 00:00:35,040 Speaker 1: inflation on that side, but the headline, which of course 7 00:00:35,080 --> 00:00:39,680 Speaker 1: includes energy and food continuing to continuing to move higher 8 00:00:39,680 --> 00:00:42,600 Speaker 1: at least as of March. Yeah, that's certainly right. And 9 00:00:42,840 --> 00:00:46,280 Speaker 1: last month would have captured the worst of the energy spikes. 10 00:00:46,320 --> 00:00:48,520 Speaker 1: So a lot of commodities prices have come down ever 11 00:00:48,640 --> 00:00:52,320 Speaker 1: so slightly. But it does feel like there's just generally 12 00:00:52,360 --> 00:00:54,800 Speaker 1: a lot of angst and concern about what's happening with 13 00:00:54,840 --> 00:00:57,160 Speaker 1: commodity prices at the moment. And I have to say, 14 00:00:57,240 --> 00:00:59,680 Speaker 1: I just realized the last time we spoke to our 15 00:00:59,680 --> 00:01:03,440 Speaker 1: guests it was also cp I Day and we started 16 00:01:03,440 --> 00:01:06,440 Speaker 1: out the discussion basically in exactly the same way. Okay, 17 00:01:06,480 --> 00:01:09,039 Speaker 1: so in a year from now, some good news here, 18 00:01:09,120 --> 00:01:14,199 Speaker 1: but OI. But yes, oil and other food related commodities, energy, 19 00:01:14,400 --> 00:01:17,160 Speaker 1: natural gas is very expensive. There is, of course. I 20 00:01:17,200 --> 00:01:20,240 Speaker 1: think two dimensions. One is like pure price, and then 21 00:01:20,280 --> 00:01:22,880 Speaker 1: the other is availability. Ya as we've been talking about 22 00:01:23,319 --> 00:01:26,319 Speaker 1: with some recent guests, including up here on Grand like 23 00:01:26,360 --> 00:01:29,319 Speaker 1: those have become two separate things. Also, Salton Post are 24 00:01:29,400 --> 00:01:32,360 Speaker 1: like there's this fracturing of global commodity supply chains. Were 25 00:01:32,760 --> 00:01:37,000 Speaker 1: absolutely right, and even financial exposure to commodities, you might 26 00:01:37,040 --> 00:01:38,840 Speaker 1: make a lot of money at the moment, but you're 27 00:01:38,880 --> 00:01:42,399 Speaker 1: not necessarily guaranteed to take delivery. There seems to be 28 00:01:42,720 --> 00:01:47,160 Speaker 1: a chasm opening up between financial commodities exposure versus the 29 00:01:47,160 --> 00:01:50,040 Speaker 1: physical and we saw that very dramatically with Nicol and 30 00:01:50,120 --> 00:01:53,160 Speaker 1: some of the dislocations there. Well, no more, no more intro. 31 00:01:53,280 --> 00:01:55,120 Speaker 1: I want to get right into our guests because we've 32 00:01:55,160 --> 00:01:58,000 Speaker 1: had him on twice before, and I would say, of 33 00:01:58,040 --> 00:02:01,240 Speaker 1: all the people you talked to, he's probably called this 34 00:02:01,320 --> 00:02:05,160 Speaker 1: commodity cycle. Maybe it's a supercycle as well or better 35 00:02:05,200 --> 00:02:08,720 Speaker 1: than anyone we're going to be speaking with. Jeff Curry, 36 00:02:08,760 --> 00:02:11,920 Speaker 1: he's a Goldman, he's the global head of Commodities Research. 37 00:02:12,080 --> 00:02:14,040 Speaker 1: We had him last on in the middle of October 38 00:02:14,320 --> 00:02:16,320 Speaker 1: and he said there was more pain ahead in this 39 00:02:16,360 --> 00:02:20,640 Speaker 1: commodity supercycle, and that has proven clearly to be true. Jeff, 40 00:02:21,000 --> 00:02:24,200 Speaker 1: thank you. So much for coming back on oddlines. Great, 41 00:02:24,200 --> 00:02:26,680 Speaker 1: it's a pleasure to be here. Let's just didn't realize 42 00:02:26,680 --> 00:02:30,079 Speaker 1: it was CPI weekly. Well, let's just start it off 43 00:02:30,160 --> 00:02:33,200 Speaker 1: like really simple, Like is there you know, in in 44 00:02:33,240 --> 00:02:35,079 Speaker 1: the middle of October you said there was still more 45 00:02:35,160 --> 00:02:38,840 Speaker 1: pain ahead. That clearly proved to be true. Start really general, 46 00:02:39,400 --> 00:02:44,120 Speaker 1: is there more pain ahead? It's a different kind of pain. 47 00:02:44,360 --> 00:02:48,079 Speaker 1: We like to argue we're entering a volatility trap where 48 00:02:48,400 --> 00:02:54,440 Speaker 1: higher of all discourages UM investment, which then reinforces higher ball. 49 00:02:55,080 --> 00:02:59,320 Speaker 1: And to think about what ends a supercycle, there's only 50 00:02:59,360 --> 00:03:02,600 Speaker 1: one thing that And in a supercycle investment you've got 51 00:03:02,600 --> 00:03:05,600 Speaker 1: to grow supply and deep bottleneck the system so that 52 00:03:05,639 --> 00:03:09,080 Speaker 1: you can accommodate more demand growth on a forward going basis. 53 00:03:09,160 --> 00:03:11,639 Speaker 1: And that's how you ended the seventies, how you ended 54 00:03:11,639 --> 00:03:14,000 Speaker 1: the two thousands, and that's how we're gonna end this one. 55 00:03:14,320 --> 00:03:17,960 Speaker 1: But at this point right now, UM investment, whether it's 56 00:03:18,000 --> 00:03:22,320 Speaker 1: investment and through capital markets, through banking, you know, in 57 00:03:22,360 --> 00:03:25,560 Speaker 1: the commodity markets themselves, it's all declining right now in 58 00:03:25,560 --> 00:03:28,160 Speaker 1: an environment in which it needs capital more than ever. 59 00:03:28,320 --> 00:03:30,840 Speaker 1: So you know, it's I like to say, we're in 60 00:03:30,840 --> 00:03:33,280 Speaker 1: the early inning. Still maybe it's the second or third 61 00:03:33,280 --> 00:03:36,960 Speaker 1: inning of the supercycle. But we're just getting going now. Well, 62 00:03:37,080 --> 00:03:39,360 Speaker 1: why don't we just jump into that point then, because 63 00:03:39,360 --> 00:03:41,320 Speaker 1: this is something that has come up quite a lot 64 00:03:41,400 --> 00:03:45,880 Speaker 1: on recent episodes, this capital investment point. What is it 65 00:03:45,920 --> 00:03:49,560 Speaker 1: in your opinion that's holding back that investment and when 66 00:03:49,640 --> 00:03:53,920 Speaker 1: would we perhaps expect that to change as higher prices 67 00:03:53,960 --> 00:03:59,360 Speaker 1: start to incentivize more producers. Well, this one is a 68 00:03:59,360 --> 00:04:01,760 Speaker 1: little bit ferent than the other cycles, But why don't 69 00:04:01,760 --> 00:04:05,240 Speaker 1: we start with the other cycles and then talk about 70 00:04:05,240 --> 00:04:07,840 Speaker 1: how this one is different. The way this one is 71 00:04:07,880 --> 00:04:12,440 Speaker 1: different is through e s g. In banking regulation following 72 00:04:12,520 --> 00:04:15,400 Speaker 1: the financial crisis in the way oh nine, So let's 73 00:04:15,400 --> 00:04:18,279 Speaker 1: go back to the nineteen sixties. You had the nifty 74 00:04:18,360 --> 00:04:22,360 Speaker 1: fifty that was your new economy booming along UM, absorbing 75 00:04:22,680 --> 00:04:25,200 Speaker 1: much of the capital from the old economy and starving 76 00:04:25,240 --> 00:04:27,880 Speaker 1: the old economy of the capital that needed to grow 77 00:04:27,920 --> 00:04:30,680 Speaker 1: the supply base, which set you up for a very 78 00:04:30,720 --> 00:04:33,800 Speaker 1: tight supply environment when you got the big uptick in 79 00:04:33,880 --> 00:04:37,080 Speaker 1: demand off the Great Society UM in the late sixties. 80 00:04:37,120 --> 00:04:39,880 Speaker 1: In the early seventies, similar dynamic that happened in the 81 00:04:39,920 --> 00:04:42,960 Speaker 1: two thousands as well as today. You think about in 82 00:04:43,080 --> 00:04:47,159 Speaker 1: the two thousand's you had the the dot com boom, 83 00:04:47,279 --> 00:04:50,679 Speaker 1: and in the two thousand tents you had the bag boom, 84 00:04:50,720 --> 00:04:53,960 Speaker 1: so it was a very similar dynamic um and you 85 00:04:54,040 --> 00:04:56,600 Speaker 1: saw that. You know, basically it was this whole idea, 86 00:04:56,640 --> 00:04:59,880 Speaker 1: the revenge of the old economy is investors preferred growth 87 00:05:00,160 --> 00:05:05,240 Speaker 1: names like Netflix to old economy names like Exxon Um. 88 00:05:05,320 --> 00:05:10,839 Speaker 1: That created the capital deficit that led you into this environment. Now, 89 00:05:10,880 --> 00:05:13,640 Speaker 1: why is this one so much more extreme than ones 90 00:05:13,720 --> 00:05:16,160 Speaker 1: that we've seen in the past, is when you have 91 00:05:16,240 --> 00:05:19,120 Speaker 1: E s G policies overlaid on top of that. I'm 92 00:05:19,160 --> 00:05:22,000 Speaker 1: not gonna be labored those points much further because we've 93 00:05:22,040 --> 00:05:24,400 Speaker 1: talked about them in the past. But it's important to 94 00:05:24,440 --> 00:05:29,039 Speaker 1: remember that E s G is not a substitute for 95 00:05:29,279 --> 00:05:34,000 Speaker 1: a a carbon tax um. It's a blunt instrument that 96 00:05:34,120 --> 00:05:37,800 Speaker 1: is reducing capital flows into a very critical sector. So 97 00:05:38,040 --> 00:05:40,440 Speaker 1: if you had a carbon tax, you put the carbon 98 00:05:40,480 --> 00:05:43,880 Speaker 1: price into that energy company model, look at its carbon 99 00:05:43,920 --> 00:05:46,040 Speaker 1: emissions and think, hey, is this a good investment or 100 00:05:46,120 --> 00:05:50,000 Speaker 1: that investment. What we're seeing is entire sectors being shunned, 101 00:05:50,400 --> 00:05:53,040 Speaker 1: and that's made this one much tighter and it's not 102 00:05:53,120 --> 00:05:56,719 Speaker 1: just the oil gas guys, it's the metals and mining 103 00:05:56,760 --> 00:06:00,800 Speaker 1: as well as the agriculture sectors. But banking regulation, and 104 00:06:00,839 --> 00:06:03,400 Speaker 1: that's the one that I've really began to focus on 105 00:06:03,800 --> 00:06:06,719 Speaker 1: over the last let's say two to three months. And 106 00:06:06,760 --> 00:06:11,760 Speaker 1: it really boils down to leverage ratios and those were 107 00:06:11,760 --> 00:06:14,880 Speaker 1: put in place back in you know, Dodd Frank back 108 00:06:14,960 --> 00:06:17,480 Speaker 1: after following oh eight o nine. And let's think about 109 00:06:17,520 --> 00:06:21,400 Speaker 1: what that leverage ratio is. It's tier one capital on 110 00:06:21,520 --> 00:06:24,680 Speaker 1: the top and the total assets of the bank on 111 00:06:24,800 --> 00:06:26,479 Speaker 1: the bottom. If you think about what are two what 112 00:06:26,560 --> 00:06:29,560 Speaker 1: is tier one capital? It's bonds? What are all the 113 00:06:29,640 --> 00:06:32,160 Speaker 1: assets that go into the economy. All that lending is 114 00:06:32,200 --> 00:06:36,160 Speaker 1: based off commodities, So it's things the real world. And 115 00:06:36,200 --> 00:06:38,640 Speaker 1: so let me ask you if if you have and 116 00:06:38,880 --> 00:06:42,160 Speaker 1: most policymakers are gonna tell you it's inflation proof because 117 00:06:42,240 --> 00:06:44,640 Speaker 1: it's the price level times the bonds and then the 118 00:06:44,680 --> 00:06:47,200 Speaker 1: price on the numerator, and then the price level times 119 00:06:47,480 --> 00:06:50,000 Speaker 1: the overall assets on the denominators. So the price level 120 00:06:50,080 --> 00:06:53,359 Speaker 1: drops out, it's you know, inflation proof. The reality it 121 00:06:53,520 --> 00:06:58,680 Speaker 1: is not, and why because bond prices are negatively impacted 122 00:06:58,680 --> 00:07:01,839 Speaker 1: by commodity prices. So essentially, what is that ratio. It 123 00:07:01,960 --> 00:07:05,520 Speaker 1: is bonds on the top and commodities on the bottom. 124 00:07:05,800 --> 00:07:08,120 Speaker 1: And what we're seeing is that these leverage ratios are 125 00:07:08,120 --> 00:07:10,720 Speaker 1: starting to become really binding. You think about how much 126 00:07:10,760 --> 00:07:13,680 Speaker 1: more capital of the market needs today than it did. 127 00:07:14,200 --> 00:07:17,520 Speaker 1: Let's say, you know a year ago, we have oil 128 00:07:17,560 --> 00:07:19,480 Speaker 1: prices are two x what they were a year ago. 129 00:07:19,520 --> 00:07:21,880 Speaker 1: You're gonna need two times the amount of working capital 130 00:07:21,920 --> 00:07:24,800 Speaker 1: out there. And it's in an environment you're are already 131 00:07:24,880 --> 00:07:27,440 Speaker 1: bumping up against those constraints and banking. Do you think 132 00:07:27,480 --> 00:07:31,640 Speaker 1: about banking. Banking's old economy too, it's you know, anything 133 00:07:31,680 --> 00:07:34,680 Speaker 1: that is at you know, capital heavy. The world was 134 00:07:34,760 --> 00:07:38,800 Speaker 1: focused on asset like, capital light, everything of that investing. 135 00:07:39,040 --> 00:07:42,120 Speaker 1: But we've now focused on the need for having capital 136 00:07:42,160 --> 00:07:44,680 Speaker 1: heavy investments, particularly in commodities at a time and it 137 00:07:44,760 --> 00:07:47,720 Speaker 1: was already under invested and at a time that you 138 00:07:47,800 --> 00:07:49,560 Speaker 1: have E. S G constraints. So I think you get 139 00:07:49,560 --> 00:07:52,800 Speaker 1: the idea that the capital deficit in this market is 140 00:07:52,880 --> 00:07:56,480 Speaker 1: extreme and now it's kicking off this volatility trap where 141 00:07:56,480 --> 00:08:00,800 Speaker 1: the under investment um leads to decline in inventories to 142 00:08:00,920 --> 00:08:05,080 Speaker 1: raise cash, liquidation of financial positions to raise cash. All 143 00:08:05,120 --> 00:08:08,880 Speaker 1: of that accentuates the volatility and then scares off further investment. 144 00:08:08,920 --> 00:08:12,120 Speaker 1: So you now are entering this volatility trap. You know 145 00:08:12,200 --> 00:08:14,600 Speaker 1: that we've made the point I've testified in Congress on 146 00:08:14,640 --> 00:08:17,120 Speaker 1: this point before, is the only way out of this 147 00:08:17,280 --> 00:08:20,560 Speaker 1: is you need somebody to stop that vicious cycle and 148 00:08:20,640 --> 00:08:24,240 Speaker 1: create some type of stability to I saying, I like 149 00:08:24,320 --> 00:08:31,360 Speaker 1: to say, is spot prices, solve surpluses, long term contracts 150 00:08:31,400 --> 00:08:36,000 Speaker 1: solved shortages. Can I just ask, because I know we'll 151 00:08:36,120 --> 00:08:38,920 Speaker 1: have people who listen to this and they'll hear someone 152 00:08:39,080 --> 00:08:43,400 Speaker 1: from Goldman Sachs, you know, a big bank cell side analysts. 153 00:08:43,520 --> 00:08:46,800 Speaker 1: They'll go, oh wait, it's someone from Goldman complaining about 154 00:08:46,840 --> 00:08:52,120 Speaker 1: bank leverage ratios and E s G and regulatory um 155 00:08:52,320 --> 00:08:56,120 Speaker 1: capital requirements. Can you just can you flush that argument 156 00:08:56,120 --> 00:08:57,600 Speaker 1: out a little bit? Or what would you say to 157 00:08:57,640 --> 00:09:01,400 Speaker 1: the critics who are immediately going to well, this is 158 00:09:01,480 --> 00:09:04,160 Speaker 1: just you know, a bank talking its own book. Obviously 159 00:09:04,200 --> 00:09:10,360 Speaker 1: a bank would like to lend more to the energy sector. Well, um, 160 00:09:10,880 --> 00:09:14,480 Speaker 1: one is that the banks, um, you know, all of them, 161 00:09:14,800 --> 00:09:17,520 Speaker 1: are are very much behind the the the E S 162 00:09:17,559 --> 00:09:20,720 Speaker 1: G push. And I want to emphasize I am very 163 00:09:20,920 --> 00:09:23,800 Speaker 1: very much a pro climate change and really believe it's 164 00:09:23,800 --> 00:09:26,840 Speaker 1: a problem that needs to be solved. What I'm arguing 165 00:09:26,880 --> 00:09:28,880 Speaker 1: at E s G is probably not the best way 166 00:09:28,920 --> 00:09:31,280 Speaker 1: to go at it, you know, as I really believe 167 00:09:31,320 --> 00:09:34,360 Speaker 1: a carbon tax is the right way to approach this, 168 00:09:34,760 --> 00:09:37,080 Speaker 1: you know, and most economists would agree with me on that. 169 00:09:37,480 --> 00:09:39,440 Speaker 1: And the you know, the way I could think about 170 00:09:39,800 --> 00:09:43,400 Speaker 1: e s G is an effective carbon tax on the 171 00:09:43,440 --> 00:09:46,160 Speaker 1: consumers in places like the United States, in Europe, and 172 00:09:46,280 --> 00:09:49,800 Speaker 1: preticularly high carbon tax in places like Europe where the 173 00:09:49,880 --> 00:09:53,240 Speaker 1: tax revenues do not go to the local governments, is 174 00:09:53,280 --> 00:09:55,760 Speaker 1: going to places like Russia. Um. You know, in fact, 175 00:09:55,800 --> 00:09:58,120 Speaker 1: like to point out, you know, the quarter over quarter 176 00:09:58,280 --> 00:10:02,080 Speaker 1: growth in oil revenue for Russia funded its sixty two 177 00:10:02,120 --> 00:10:05,440 Speaker 1: billion dollar military budget last year. UM. So you know, 178 00:10:05,480 --> 00:10:07,920 Speaker 1: the impacts of e s G in the fact that 179 00:10:07,960 --> 00:10:11,319 Speaker 1: you're not collecting that tax revenue is significant, but more 180 00:10:11,360 --> 00:10:15,640 Speaker 1: importantly creating big distortions and investment. So you know, I'm 181 00:10:15,679 --> 00:10:18,480 Speaker 1: not you know, you know, I want to really emphasize 182 00:10:18,480 --> 00:10:21,120 Speaker 1: I'm very much pro climate change. It's a problem we 183 00:10:21,160 --> 00:10:23,599 Speaker 1: need to deal with decarbonization. It's just E s G 184 00:10:23,880 --> 00:10:27,480 Speaker 1: is not affected tool and approaching this um, well, there's 185 00:10:27,520 --> 00:10:29,840 Speaker 1: a more effective tool of doing it. In terms of 186 00:10:29,880 --> 00:10:34,360 Speaker 1: the question about about bank bank regulation there, um, you know, 187 00:10:34,400 --> 00:10:36,240 Speaker 1: at the point, I'm just going to point out that 188 00:10:36,559 --> 00:10:44,000 Speaker 1: the energy companies and the and the the the trade 189 00:10:44,040 --> 00:10:47,520 Speaker 1: houses in Europe, they went to the regulators asking for 190 00:10:47,679 --> 00:10:50,600 Speaker 1: more funding. So clearly there's not enough funding. And whether 191 00:10:50,600 --> 00:10:53,959 Speaker 1: if it's coming from the likes of banks, there's the 192 00:10:54,040 --> 00:10:56,679 Speaker 1: point is that that you're bumping up at these constraints. 193 00:10:56,720 --> 00:11:00,160 Speaker 1: The whole industry was focused on being capped at a 194 00:11:00,280 --> 00:11:02,520 Speaker 1: light and it was all It goes back to this 195 00:11:02,520 --> 00:11:04,520 Speaker 1: whole revenge of the old economy because banks are old 196 00:11:04,520 --> 00:11:08,040 Speaker 1: economy to in fact, you look at banks price shares 197 00:11:08,120 --> 00:11:10,240 Speaker 1: and you look at them to metals prices where you 198 00:11:10,320 --> 00:11:13,040 Speaker 1: are in the capex cycle. They're very much correlated because 199 00:11:13,120 --> 00:11:16,800 Speaker 1: ultimately the banks of the conduit of that capex cycle. 200 00:11:17,160 --> 00:11:20,200 Speaker 1: So they're all really old economy and pretty much more 201 00:11:20,280 --> 00:11:23,480 Speaker 1: broadly since oh eight oh nine, old economy was bad. 202 00:11:23,600 --> 00:11:25,840 Speaker 1: If I could just show you pictures at the equity 203 00:11:25,840 --> 00:11:29,320 Speaker 1: prices of anything that was capital light, it went straight up. 204 00:11:29,640 --> 00:11:32,400 Speaker 1: Anything that was capital heavy, you know, like the big 205 00:11:32,400 --> 00:11:35,440 Speaker 1: oil companies went down or sideways over the course of 206 00:11:35,480 --> 00:11:37,960 Speaker 1: the last ten years. And it's not just you know, 207 00:11:38,000 --> 00:11:39,520 Speaker 1: so I'm not gonna blame it all on E. S G. 208 00:11:39,600 --> 00:11:41,160 Speaker 1: And let's be only be very careful here so it 209 00:11:41,200 --> 00:11:43,760 Speaker 1: doesn't sound like I'm so anti EU s G. This 210 00:11:43,840 --> 00:11:47,640 Speaker 1: industry had really bad returns, investors were not interested in it. 211 00:11:47,640 --> 00:11:49,160 Speaker 1: And if we go back and we look at the 212 00:11:49,200 --> 00:11:53,440 Speaker 1: previous supercycles, let's say the one in the in the 213 00:11:53,520 --> 00:11:56,199 Speaker 1: two thousand's, prices started to move up in oh three 214 00:11:56,200 --> 00:11:59,080 Speaker 1: and it wasn't until oh six that that capital came in. 215 00:11:59,160 --> 00:12:01,000 Speaker 1: Why they want to see a track record of good 216 00:12:01,000 --> 00:12:03,839 Speaker 1: returns that still holds today. So I'm not want to 217 00:12:03,880 --> 00:12:06,040 Speaker 1: blame it all on E S G, all on banking 218 00:12:06,080 --> 00:12:08,600 Speaker 1: regulations and say it's just a combination of many different 219 00:12:08,600 --> 00:12:11,600 Speaker 1: factors that's created a huge capital deficit. And I want 220 00:12:11,640 --> 00:12:14,480 Speaker 1: to point out it wasn't just all vulgar that solved 221 00:12:14,480 --> 00:12:17,360 Speaker 1: the seventies. There was a huge amount of investment that 222 00:12:17,400 --> 00:12:21,760 Speaker 1: went into North Sea Alaska, North Slope, Gulf of Mexico, 223 00:12:22,320 --> 00:12:26,040 Speaker 1: Mexican production, Brazilian, Norwegian. I can keep going going down 224 00:12:26,120 --> 00:12:28,960 Speaker 1: the list. That investment that came to fruition did a 225 00:12:29,000 --> 00:12:31,840 Speaker 1: lot to ease the inflationary pressures if you went into 226 00:12:31,880 --> 00:12:33,920 Speaker 1: the eighties, so you can just get you know, contribute 227 00:12:33,960 --> 00:12:36,360 Speaker 1: all to the rate hikes by the Fed, because there 228 00:12:36,400 --> 00:12:38,640 Speaker 1: was a lot of that investments. That investment is critical, 229 00:12:38,880 --> 00:12:40,839 Speaker 1: and we're at a junction right now with eight and 230 00:12:40,840 --> 00:12:44,240 Speaker 1: a half percent inflation, but we still haven't seen the 231 00:12:44,320 --> 00:12:47,960 Speaker 1: underlying investment that was already there, let's say in the seventies, 232 00:12:47,960 --> 00:12:50,600 Speaker 1: that is not here today. We need that investment because 233 00:12:50,640 --> 00:12:53,040 Speaker 1: the only way out of this is investment in the 234 00:12:53,080 --> 00:12:56,720 Speaker 1: appropriate ability to grow that supply. You know, you hear 235 00:12:56,800 --> 00:12:59,840 Speaker 1: from say the CEOs of independent oil companies and they 236 00:13:00,000 --> 00:13:04,120 Speaker 1: talk about the demand among investors for returning cash and 237 00:13:04,200 --> 00:13:08,319 Speaker 1: that's totally understandable because after a decade of the industry 238 00:13:08,360 --> 00:13:11,280 Speaker 1: having lost half a trillion or whatever the numbers are, 239 00:13:11,520 --> 00:13:15,400 Speaker 1: you can understand investors who want to optimize for cash flow. 240 00:13:15,440 --> 00:13:18,000 Speaker 1: And you can also understand, as you've been pointing out, 241 00:13:18,240 --> 00:13:21,360 Speaker 1: the reluctance of banks to you know, bump up against 242 00:13:21,400 --> 00:13:24,920 Speaker 1: their capital requirements by lending further. Why not the more 243 00:13:25,000 --> 00:13:28,160 Speaker 1: opportunities on the private side, or why not you know, 244 00:13:28,200 --> 00:13:31,000 Speaker 1: why haven't we seen you know, me and Tracy just 245 00:13:31,000 --> 00:13:35,160 Speaker 1: start a private h private oil company, and forget about 246 00:13:35,160 --> 00:13:38,720 Speaker 1: the public markets, forget about borrowing from banks, and uh, 247 00:13:38,760 --> 00:13:41,240 Speaker 1: you know, borrow money in the bond market and return 248 00:13:41,280 --> 00:13:45,319 Speaker 1: money to our investors privately without some of these outside 249 00:13:45,800 --> 00:13:50,600 Speaker 1: financing considerations. Why why aren't more players taking advantage of 250 00:13:50,880 --> 00:13:53,320 Speaker 1: seeming like you know, with oil, where it is roughly 251 00:13:53,320 --> 00:14:00,360 Speaker 1: a hundred dollars opportunities around that scale, the alee of 252 00:14:00,440 --> 00:14:03,880 Speaker 1: these industries are unlike anything else on the planet Earth. 253 00:14:04,000 --> 00:14:07,520 Speaker 1: You take a Cashigan and and caspping its nickname was 254 00:14:07,600 --> 00:14:10,480 Speaker 1: cash All Gone, why you know, was somewhere around a 255 00:14:10,559 --> 00:14:14,319 Speaker 1: sixty billion dollar project. I mean the magnitude in the 256 00:14:14,360 --> 00:14:17,760 Speaker 1: scale of these investments or unlike anything. And take a 257 00:14:17,800 --> 00:14:21,480 Speaker 1: company like VP with that that horizon spill. It had 258 00:14:21,520 --> 00:14:24,240 Speaker 1: to write over a check the fines for something like 259 00:14:24,280 --> 00:14:27,160 Speaker 1: thirty eight billion dollars. Tell me another company on the 260 00:14:27,200 --> 00:14:29,440 Speaker 1: planet Earth who could write over a check for thirty 261 00:14:29,440 --> 00:14:33,120 Speaker 1: eight billion dollars. So the first and most important is 262 00:14:33,480 --> 00:14:36,480 Speaker 1: the scale, and then the access issues really critical. I 263 00:14:36,520 --> 00:14:39,720 Speaker 1: like to point out things like copper are very narrowly 264 00:14:39,840 --> 00:14:43,760 Speaker 1: geographically distributed, so that you need to have the scale 265 00:14:43,800 --> 00:14:46,080 Speaker 1: to be able to get into these places, and you 266 00:14:46,160 --> 00:14:48,120 Speaker 1: have to have the ability to know how to the 267 00:14:48,200 --> 00:14:51,680 Speaker 1: technological know how, the political know how um to go 268 00:14:51,920 --> 00:14:54,120 Speaker 1: in there and do it. So I think that is 269 00:14:54,120 --> 00:14:56,400 Speaker 1: one of the real key reasons here. But by the way, 270 00:14:56,400 --> 00:14:59,240 Speaker 1: I want to point out, why are the oil stocks 271 00:14:59,240 --> 00:15:02,120 Speaker 1: going up. It's because private investors are going around the 272 00:15:02,160 --> 00:15:06,800 Speaker 1: institutional players and making these investments in these companies. So 273 00:15:07,040 --> 00:15:09,200 Speaker 1: where it can go around it it is, which is 274 00:15:09,240 --> 00:15:12,400 Speaker 1: why you know, ultimately, if you're going to solve climate change. 275 00:15:12,840 --> 00:15:16,560 Speaker 1: You know, I don't want to you know, sound dismissing here, 276 00:15:16,600 --> 00:15:19,800 Speaker 1: but when you know the Russian army is coming barreling down, 277 00:15:19,920 --> 00:15:22,400 Speaker 1: you can't have Germany turning back on the coal plants. 278 00:15:22,600 --> 00:15:25,680 Speaker 1: You know, Historically, when you deal with these problems, you 279 00:15:25,720 --> 00:15:28,640 Speaker 1: have to have policy, create rules. These rules need to 280 00:15:28,680 --> 00:15:32,400 Speaker 1: be enforced and that those rules that they're violated, there 281 00:15:32,440 --> 00:15:34,320 Speaker 1: has to be punishments and there has to be a 282 00:15:34,360 --> 00:15:37,040 Speaker 1: price associated with There's why you know, trying to go 283 00:15:37,120 --> 00:15:39,480 Speaker 1: down this E. S G type path to deal with 284 00:15:39,520 --> 00:15:42,040 Speaker 1: this is gonna miss a lot of these really critical points. 285 00:15:42,240 --> 00:15:44,560 Speaker 1: They are going to be required to solve this problem. 286 00:15:44,640 --> 00:15:46,920 Speaker 1: So point you know, looking at this on a you know, 287 00:15:46,960 --> 00:15:50,040 Speaker 1: a longer term basis, we need to have policy put 288 00:15:50,080 --> 00:15:52,280 Speaker 1: in place that is created a framework that's gonna be 289 00:15:52,280 --> 00:15:55,400 Speaker 1: conducive to getting these capital flows coming to the right places, 290 00:15:55,520 --> 00:15:58,200 Speaker 1: because even if the private investor probably has to do it, 291 00:15:58,240 --> 00:15:59,760 Speaker 1: he still needs to do this in a way that 292 00:16:00,480 --> 00:16:03,240 Speaker 1: environmentally friendly. And I think that you know, again, you 293 00:16:03,280 --> 00:16:06,000 Speaker 1: need to have this scale the policies put in place 294 00:16:06,400 --> 00:16:09,600 Speaker 1: in a such a framework that it's done and that 295 00:16:09,720 --> 00:16:13,440 Speaker 1: it addresses the unique for investment in a very environmentally 296 00:16:13,480 --> 00:16:17,920 Speaker 1: friendly way. So you're talking about this this volatility trap, 297 00:16:18,080 --> 00:16:21,560 Speaker 1: and I think you briefly mentioned this earlier, but there 298 00:16:21,640 --> 00:16:24,240 Speaker 1: has been talk of maybe there is a role for 299 00:16:24,280 --> 00:16:27,920 Speaker 1: either governments or central banks to play in this space 300 00:16:28,040 --> 00:16:31,960 Speaker 1: to make things smoother, maybe smooth out price volatility, or 301 00:16:32,120 --> 00:16:35,880 Speaker 1: provide financing or funding for energy firms or energy traders 302 00:16:35,920 --> 00:16:38,760 Speaker 1: that need it. First of all, is that required in 303 00:16:38,800 --> 00:16:41,960 Speaker 1: your view? And secondly, what is the best way to 304 00:16:42,000 --> 00:16:45,000 Speaker 1: try to smooth out volatility to give players in the 305 00:16:45,000 --> 00:16:49,000 Speaker 1: commodity space confidence to actually invest and produce. Well, it 306 00:16:49,040 --> 00:16:52,280 Speaker 1: goes back to that that saying I've made before. You know, 307 00:16:52,680 --> 00:16:58,960 Speaker 1: spot prices, salt surpluses, long term contracts, solved shortages. Why 308 00:16:59,080 --> 00:17:01,960 Speaker 1: is that the case is because if you can take 309 00:17:02,000 --> 00:17:04,679 Speaker 1: out that volatility and lock in that return through a 310 00:17:04,720 --> 00:17:08,399 Speaker 1: long term contract. That investor feels, you know that he 311 00:17:09,040 --> 00:17:11,399 Speaker 1: is safe to be able to make that investment because 312 00:17:11,440 --> 00:17:13,840 Speaker 1: there's a minimal rate of return because remember these things 313 00:17:13,840 --> 00:17:16,480 Speaker 1: are these things are not like tech tech is you 314 00:17:16,520 --> 00:17:18,359 Speaker 1: get you have a low chance of getting it, but 315 00:17:18,440 --> 00:17:20,879 Speaker 1: you have get a big return that lasts over maybe 316 00:17:20,920 --> 00:17:22,800 Speaker 1: twelve to eighteen months. You know, it's something like an 317 00:17:22,800 --> 00:17:27,520 Speaker 1: iPhone is very short cycle and it's high returning. These 318 00:17:27,520 --> 00:17:32,400 Speaker 1: are low returning, very long cycle type of investments. So 319 00:17:32,840 --> 00:17:36,879 Speaker 1: locking in that rate to return throughout that volatility is 320 00:17:36,920 --> 00:17:39,679 Speaker 1: really critical. And so when we think about you know, 321 00:17:39,720 --> 00:17:41,480 Speaker 1: what you need to do to get that, you need 322 00:17:41,520 --> 00:17:44,320 Speaker 1: to create an environment that's conducing to creating that type 323 00:17:44,320 --> 00:17:47,439 Speaker 1: of long term contract structure. You know, actually, if you 324 00:17:47,480 --> 00:17:49,920 Speaker 1: look at what happened in the seventies, that was when 325 00:17:49,920 --> 00:17:52,960 Speaker 1: we created many of these long term contracts around l 326 00:17:53,080 --> 00:17:55,240 Speaker 1: en G and gas and so forth. But there was 327 00:17:55,280 --> 00:17:58,440 Speaker 1: also conglomerates that were put together to be able to 328 00:17:58,440 --> 00:18:02,640 Speaker 1: to shield the upstream, downstream type of volatilities. There's lots 329 00:18:02,640 --> 00:18:04,919 Speaker 1: of ways. And then we moved into two thousands to 330 00:18:05,000 --> 00:18:06,560 Speaker 1: a market based and This will bring you to the 331 00:18:06,600 --> 00:18:10,359 Speaker 1: Nickel story. Why was this Nickel story because the seventies 332 00:18:10,400 --> 00:18:13,280 Speaker 1: we did this with like conglomerates in long term contracts. 333 00:18:13,440 --> 00:18:16,320 Speaker 1: If somebody failed a long term contract, this thing would 334 00:18:16,320 --> 00:18:18,679 Speaker 1: be resolved in a court of law. So then in 335 00:18:18,720 --> 00:18:21,920 Speaker 1: the two thousands, the banks got in between these conglomerates. 336 00:18:22,000 --> 00:18:24,680 Speaker 1: Let's say between like a a GM and an al 337 00:18:24,800 --> 00:18:28,919 Speaker 1: COHA could squeeze in there, um provide lower cost of capital, 338 00:18:28,960 --> 00:18:31,680 Speaker 1: and you had the financial market squeeze in there, and 339 00:18:31,720 --> 00:18:34,560 Speaker 1: then create that new kind of long term contract that 340 00:18:34,680 --> 00:18:38,240 Speaker 1: was financially based. Now, the problem with that is that 341 00:18:38,280 --> 00:18:40,440 Speaker 1: when you go through periods like we are right now 342 00:18:41,000 --> 00:18:43,600 Speaker 1: in that price of that long term contract goes up 343 00:18:43,640 --> 00:18:46,320 Speaker 1: because it's traded on the market. You get a huge 344 00:18:46,760 --> 00:18:49,439 Speaker 1: capital call and our margin call, which is what was 345 00:18:49,480 --> 00:18:52,320 Speaker 1: happening with that case in Nickel. Then you need the 346 00:18:52,400 --> 00:18:55,440 Speaker 1: cash to fund that that that margin call. You didn't 347 00:18:55,480 --> 00:18:58,119 Speaker 1: have that back in the seventies, you have it today. 348 00:18:58,240 --> 00:19:00,359 Speaker 1: So that's can we all The question is are we 349 00:19:00,440 --> 00:19:03,480 Speaker 1: gonna gravitate something back closer to the seventies to deal 350 00:19:03,520 --> 00:19:05,800 Speaker 1: with this problem, or we're gonna try to fix the 351 00:19:06,280 --> 00:19:08,880 Speaker 1: structure that was created in the two thousands, which means 352 00:19:08,920 --> 00:19:11,359 Speaker 1: you're gonna need different type of lending too, agreements and 353 00:19:11,680 --> 00:19:14,679 Speaker 1: people have to be more comfortable in that risk and 354 00:19:14,720 --> 00:19:17,720 Speaker 1: how much capital these sectors needs, you know, obviously, I 355 00:19:17,760 --> 00:19:19,800 Speaker 1: think the easiest way to solve with this is create 356 00:19:19,840 --> 00:19:22,960 Speaker 1: a regulatory framework, you know, Tracy, as you talk about 357 00:19:23,280 --> 00:19:25,760 Speaker 1: that would be able to address these issues, take out 358 00:19:25,800 --> 00:19:29,359 Speaker 1: that volatility, make banks, investors and so forth comfortable with 359 00:19:29,400 --> 00:19:31,840 Speaker 1: that kind of risk. Otherwise we will go back to 360 00:19:31,920 --> 00:19:35,800 Speaker 1: the period of the seventies, which is vertical integration conglomerates 361 00:19:35,840 --> 00:19:38,640 Speaker 1: and these longer term contracts that end up in court 362 00:19:38,680 --> 00:19:42,760 Speaker 1: of laws, not in in financial institutions. Is there more 363 00:19:42,960 --> 00:19:45,879 Speaker 1: so one proposal that's floating out there would be to 364 00:19:45,960 --> 00:19:49,480 Speaker 1: be more creative with this would be oil specific, of course, 365 00:19:49,600 --> 00:19:52,440 Speaker 1: with the spr and so we know that the administration 366 00:19:52,880 --> 00:19:58,120 Speaker 1: has authorized daily sale of oil included. Solve the long 367 00:19:58,240 --> 00:20:02,719 Speaker 1: term contracts problem or the challenge by pairing that with 368 00:20:02,800 --> 00:20:05,879 Speaker 1: more robust commitments to buy back at a certain price. 369 00:20:06,320 --> 00:20:08,520 Speaker 1: We have seen this sort of flattened a little bit, 370 00:20:08,560 --> 00:20:13,040 Speaker 1: but it's heavy backwardated oil futures curve, essentially putting a 371 00:20:13,160 --> 00:20:16,040 Speaker 1: floor underneath the longer term prices, and could it use 372 00:20:16,320 --> 00:20:21,080 Speaker 1: the SPR to sort of create more domestic supply in 373 00:20:21,080 --> 00:20:24,119 Speaker 1: investment right now. I mean you can do that what 374 00:20:24,160 --> 00:20:27,360 Speaker 1: you're describing at the farm subsidy programs that the US 375 00:20:27,520 --> 00:20:29,680 Speaker 1: has with you know, it's farm Bill with the farmers 376 00:20:29,720 --> 00:20:32,399 Speaker 1: in terms of giving that kind of basically buying the 377 00:20:32,400 --> 00:20:35,680 Speaker 1: farmer put on soybees in case some bad weather shock 378 00:20:35,800 --> 00:20:38,600 Speaker 1: or something like that occurs. You don't need the SPR 379 00:20:38,800 --> 00:20:41,560 Speaker 1: to create that type that type of dynamic. But what 380 00:20:41,640 --> 00:20:44,800 Speaker 1: you're talking about is a physical version of the you know, 381 00:20:44,840 --> 00:20:47,480 Speaker 1: the farm bill really is one that the farm subsidies 382 00:20:47,480 --> 00:20:50,199 Speaker 1: are ones that are more like a financial put, but 383 00:20:50,240 --> 00:20:53,120 Speaker 1: what you're describing is more like an in kind physical put. 384 00:20:53,200 --> 00:20:55,480 Speaker 1: Both our ways to think about solving it. But the 385 00:20:55,480 --> 00:20:58,600 Speaker 1: one thing I will say about dealing with higher oil 386 00:20:58,720 --> 00:21:01,399 Speaker 1: prices with an sp our release like what we're seeing 387 00:21:01,480 --> 00:21:05,200 Speaker 1: right now, that's crowding out private investment, which doesn't help 388 00:21:05,280 --> 00:21:08,359 Speaker 1: solve that longer term problem of getting investment into the 389 00:21:08,440 --> 00:21:11,040 Speaker 1: right place. So these policies need to be thought through 390 00:21:11,080 --> 00:21:14,200 Speaker 1: in such a way that they're conducive to creating decentis 391 00:21:14,240 --> 00:21:17,560 Speaker 1: in place to make the longer term investments. I wondered 392 00:21:17,560 --> 00:21:20,480 Speaker 1: if I can ask something I've been wondering about when 393 00:21:20,520 --> 00:21:22,600 Speaker 1: it comes to the SPR release, and I'm sure a 394 00:21:22,640 --> 00:21:24,760 Speaker 1: lot of people have been asking this as well. But 395 00:21:25,040 --> 00:21:27,600 Speaker 1: you know, it's a pretty big release, and we saw 396 00:21:27,960 --> 00:21:31,159 Speaker 1: a very immediate impact on prices, and I think Goldman 397 00:21:31,240 --> 00:21:34,959 Speaker 1: also cut its price target on oil because of the release. 398 00:21:35,359 --> 00:21:38,000 Speaker 1: What happens after this, like, how does that actually get 399 00:21:38,000 --> 00:21:40,520 Speaker 1: topped up in the future, and how does the US 400 00:21:40,800 --> 00:21:44,199 Speaker 1: source that oil? And at what pace would you expect 401 00:21:44,280 --> 00:21:48,840 Speaker 1: it to replenish that stockpile. I mean, the details on 402 00:21:48,960 --> 00:21:51,760 Speaker 1: the replenishment rates are not that clear at this point, 403 00:21:51,760 --> 00:21:53,040 Speaker 1: but you know it would be at least a year 404 00:21:53,119 --> 00:21:55,280 Speaker 1: or two before you expect them to come back and by, 405 00:21:55,320 --> 00:21:56,840 Speaker 1: And I think the plan right now is that they 406 00:21:56,880 --> 00:21:59,639 Speaker 1: would go back and by. Let's talk about the impact 407 00:21:59,720 --> 00:22:02,679 Speaker 1: that it has had on prices. There's two factors that 408 00:22:02,720 --> 00:22:06,000 Speaker 1: have created the recent downdraft in oil prices and commodities. 409 00:22:06,000 --> 00:22:10,479 Speaker 1: More broadly, is the SPR announcement, which was a you know, 410 00:22:10,520 --> 00:22:12,680 Speaker 1: a million barrel per day throwing the Europeans. It gets 411 00:22:12,760 --> 00:22:14,800 Speaker 1: up to around one point two million barrels per day 412 00:22:14,880 --> 00:22:18,480 Speaker 1: release for about six months, and then you know, it's 413 00:22:18,480 --> 00:22:21,120 Speaker 1: meant to be a bridge the gap until you get 414 00:22:21,160 --> 00:22:23,639 Speaker 1: the investment that brings on new supply that can be 415 00:22:23,760 --> 00:22:25,880 Speaker 1: used to refill the the SPR. So you can see 416 00:22:25,880 --> 00:22:29,080 Speaker 1: it's a temporary patch. And then you have the COVID 417 00:22:29,640 --> 00:22:32,480 Speaker 1: situation in China, which is another two million barrel per 418 00:22:32,600 --> 00:22:34,320 Speaker 1: day to man H so you've had a big hit 419 00:22:34,520 --> 00:22:37,399 Speaker 1: to the situation more near term. Now, I want to 420 00:22:37,440 --> 00:22:40,720 Speaker 1: emphasize that that you know, these are all transient events, 421 00:22:40,880 --> 00:22:43,440 Speaker 1: a loss in demand. Once you normalize China, you get 422 00:22:43,440 --> 00:22:45,639 Speaker 1: the problems come back back again. Once you have to 423 00:22:45,680 --> 00:22:48,040 Speaker 1: buy back those barrels of oil that go into the SPR, 424 00:22:48,160 --> 00:22:50,679 Speaker 1: the problems come back again, you know. So we're in 425 00:22:50,720 --> 00:22:52,439 Speaker 1: a down draft right now, which is part of this 426 00:22:52,520 --> 00:22:55,679 Speaker 1: whole idea of higher volatility. But it doesn't mean that 427 00:22:55,800 --> 00:22:58,800 Speaker 1: any of this is signaling into the longer term problem 428 00:22:58,840 --> 00:23:01,520 Speaker 1: you like to point out. Let's see right now is 429 00:23:01,560 --> 00:23:04,960 Speaker 1: a temporal solution into a structural problem that needs to 430 00:23:05,000 --> 00:23:21,720 Speaker 1: be readdressing. I wanted to pivot. Actually, you know, so 431 00:23:21,840 --> 00:23:23,960 Speaker 1: much of our conversations and I think like over the 432 00:23:24,040 --> 00:23:28,200 Speaker 1: last several years, most commodity conversations, including this one and 433 00:23:28,200 --> 00:23:30,800 Speaker 1: stuff farther there's obviously a high emphasis on oil, but 434 00:23:31,280 --> 00:23:35,080 Speaker 1: natural gas is also really at the forefront of mine. 435 00:23:35,160 --> 00:23:38,320 Speaker 1: We see prices they were already surging in Europe even 436 00:23:38,400 --> 00:23:43,320 Speaker 1: prior to the invasion. Obviously the politics of Germany and 437 00:23:43,359 --> 00:23:46,080 Speaker 1: other countries cutting such a big check to Russia every 438 00:23:46,080 --> 00:23:50,760 Speaker 1: month is incredibly uncomfortable. And we've seen prices rising here 439 00:23:50,880 --> 00:23:53,720 Speaker 1: in the US. I think it's like a multi decade 440 00:23:53,800 --> 00:23:58,199 Speaker 1: high at the Henry Hub prices for natural gas. What 441 00:23:58,440 --> 00:24:02,160 Speaker 1: is the where is the how much further? Let's start 442 00:24:02,200 --> 00:24:04,600 Speaker 1: just simply does that? Do prices there have a lot 443 00:24:04,680 --> 00:24:09,159 Speaker 1: further to run? Uh? In the US and Europe. In 444 00:24:09,200 --> 00:24:13,480 Speaker 1: the US, yes, in Europe you're at the demand rationing phase. 445 00:24:13,480 --> 00:24:16,040 Speaker 1: You're gonna have periods, We're gonna have more severe shortage, 446 00:24:16,040 --> 00:24:18,399 Speaker 1: you need more upper price bikes, and maybe you have 447 00:24:18,480 --> 00:24:21,400 Speaker 1: periods that less tightness. But you're at that. You're at 448 00:24:21,440 --> 00:24:24,760 Speaker 1: that you can think about a commodity cycle that's going 449 00:24:25,200 --> 00:24:27,639 Speaker 1: you know, from you draw your inventories down in the 450 00:24:27,680 --> 00:24:30,679 Speaker 1: price begin to trend up. Once you've exhaust your inventories 451 00:24:30,720 --> 00:24:33,040 Speaker 1: and have to go into demand rationing phase because you 452 00:24:33,040 --> 00:24:36,320 Speaker 1: don't have enough supply. Um, that's when you know you 453 00:24:36,359 --> 00:24:39,119 Speaker 1: get the high volatility. Europe is at that phase right 454 00:24:39,200 --> 00:24:42,080 Speaker 1: right now. The US, on the other hand, is not one. 455 00:24:42,119 --> 00:24:45,040 Speaker 1: It has the shale production that can be brought online, 456 00:24:45,680 --> 00:24:50,040 Speaker 1: you can't continuously export it because there's constraints around l 457 00:24:50,160 --> 00:24:53,760 Speaker 1: en G liquid liquid faction capacity in the US, which 458 00:24:53,760 --> 00:24:56,640 Speaker 1: means the US is is much more immune to this 459 00:24:56,760 --> 00:24:58,400 Speaker 1: than the rest of the world. I'd like to say 460 00:24:58,440 --> 00:25:01,560 Speaker 1: it's East of Rocky US California has that has a 461 00:25:01,600 --> 00:25:04,120 Speaker 1: problem similar to the rest of the world. But East 462 00:25:04,359 --> 00:25:08,679 Speaker 1: Rockies US is is a relatively well supplied market, but 463 00:25:08,760 --> 00:25:11,960 Speaker 1: it won't be forever, particularly as you continue to build 464 00:25:12,000 --> 00:25:15,720 Speaker 1: more llergy terminals, and the policy more recently in response 465 00:25:15,760 --> 00:25:18,600 Speaker 1: to the situation in Russia Ukraine is you know, to 466 00:25:18,640 --> 00:25:22,280 Speaker 1: build more llergy terminals to supply Europe, which will ultimately 467 00:25:22,280 --> 00:25:24,840 Speaker 1: exhaust that cushion and then push you up into a 468 00:25:24,960 --> 00:25:27,280 Speaker 1: much more higher ball regime. But I don't think we're 469 00:25:27,280 --> 00:25:29,320 Speaker 1: going to get there any time in the next year. 470 00:25:29,400 --> 00:25:33,080 Speaker 1: So this is something that's curious about, is expanding llenergy 471 00:25:33,280 --> 00:25:36,520 Speaker 1: export capacity, Like how should we think about it from 472 00:25:36,560 --> 00:25:39,720 Speaker 1: the perspective of US national interests, because it does seem 473 00:25:39,760 --> 00:25:43,440 Speaker 1: like a more globalized llergy market would cause prices to 474 00:25:43,480 --> 00:25:45,640 Speaker 1: go up. On the other hand, we would have more 475 00:25:46,200 --> 00:25:48,359 Speaker 1: export revenue. So how should we think about like from 476 00:25:48,400 --> 00:25:52,840 Speaker 1: the policymakers, is an unellied good to continue to build 477 00:25:52,840 --> 00:25:56,479 Speaker 1: out llergy export terminals and so forth. You know, if 478 00:25:56,480 --> 00:25:59,320 Speaker 1: you do it with all the permitting suwhere around four years, 479 00:25:59,359 --> 00:26:01,160 Speaker 1: you take out the hermitting, you can get it down 480 00:26:01,160 --> 00:26:03,960 Speaker 1: to twenty three months, you do you know, a Defense 481 00:26:04,000 --> 00:26:07,280 Speaker 1: Act Production Act type, maybe you can squeeze it down 482 00:26:07,320 --> 00:26:10,040 Speaker 1: to you know, twelve to eighteen months. I don't know 483 00:26:10,080 --> 00:26:11,840 Speaker 1: what you could do get it down to, but you 484 00:26:11,880 --> 00:26:15,320 Speaker 1: get the idea. It's a pretty long drawn out process 485 00:26:15,440 --> 00:26:18,399 Speaker 1: to create one of these liquid faction terminals, and you know, 486 00:26:18,480 --> 00:26:20,639 Speaker 1: that's definitely one of the goals in terms of dealing 487 00:26:20,720 --> 00:26:24,560 Speaker 1: with this geopolitical situation. But I want to emphasize the following. 488 00:26:24,760 --> 00:26:27,480 Speaker 1: You know, I've talked to many German industrials that made 489 00:26:27,480 --> 00:26:32,920 Speaker 1: this point. The German industrial manufacturing base can't operate off 490 00:26:33,240 --> 00:26:37,879 Speaker 1: leg Move the BMW plant to the US and build 491 00:26:37,920 --> 00:26:40,960 Speaker 1: the BMW's on top of the gas plant and then 492 00:26:40,960 --> 00:26:44,560 Speaker 1: export the BMW's or build the BMW's and Qatar don't 493 00:26:44,560 --> 00:26:46,800 Speaker 1: move the gas to you know, move the gas to 494 00:26:46,880 --> 00:26:51,439 Speaker 1: heat people. But you can't run a an industrial base 495 00:26:51,800 --> 00:26:54,760 Speaker 1: off of, you know, liquefied gas. You know, I've never 496 00:26:54,800 --> 00:26:56,520 Speaker 1: been a fan of that. You know, think about what 497 00:26:56,640 --> 00:26:59,960 Speaker 1: this thing. It's a three hundred million dollar floating third, 498 00:27:00,000 --> 00:27:02,320 Speaker 1: a mess that is frozen, and you pump a bunch 499 00:27:02,320 --> 00:27:04,760 Speaker 1: of of gas into it and you move it around 500 00:27:04,800 --> 00:27:07,760 Speaker 1: the world. It's a lot easier to move manufactured goods 501 00:27:07,960 --> 00:27:12,919 Speaker 1: on bolt ship containers and it is in lergy tankers. 502 00:27:12,920 --> 00:27:16,200 Speaker 1: So I'm not a fan of using lergy to run 503 00:27:16,320 --> 00:27:20,119 Speaker 1: a manufacturing economy, but it does work for heating and 504 00:27:20,160 --> 00:27:23,000 Speaker 1: things like that. But you know, the question is, um, 505 00:27:23,040 --> 00:27:25,320 Speaker 1: you know, is this the most viable solution to this? 506 00:27:25,440 --> 00:27:28,480 Speaker 1: Thinking about it on a longer term basis, it's probably not. 507 00:27:29,040 --> 00:27:32,480 Speaker 1: So this actually leads into my next question quite well, 508 00:27:32,520 --> 00:27:35,159 Speaker 1: which is how should we think about the fungibility of 509 00:27:35,240 --> 00:27:38,240 Speaker 1: commodities in this situation, Because it seems like one thing 510 00:27:38,320 --> 00:27:41,080 Speaker 1: we are learning over the past couple of years is 511 00:27:41,119 --> 00:27:45,480 Speaker 1: that if there's a crunch on coal in China, it's 512 00:27:45,560 --> 00:27:49,600 Speaker 1: not that easy to source alternates. If Russian gas is 513 00:27:49,640 --> 00:27:54,240 Speaker 1: suddenly taken out of Europe, it's difficult to source replacement supplies. 514 00:27:54,280 --> 00:27:56,600 Speaker 1: As well. So how are you thinking about that and 515 00:27:56,640 --> 00:28:00,560 Speaker 1: how does that inform your overall supercycle commodity East thesis. 516 00:28:02,680 --> 00:28:05,600 Speaker 1: It's it's critical here. And you know, as I like 517 00:28:05,680 --> 00:28:09,199 Speaker 1: to say, there's BTU conversions across all these commodities. We 518 00:28:09,240 --> 00:28:11,199 Speaker 1: saw it in the seventies, we saw it in the 519 00:28:11,440 --> 00:28:13,520 Speaker 1: in the two thousand's, and we're beginning to see it 520 00:28:13,600 --> 00:28:16,920 Speaker 1: happening again. I mean that if you think about commodities 521 00:28:16,960 --> 00:28:19,920 Speaker 1: and you you rank order them. We chose all these 522 00:28:19,920 --> 00:28:23,280 Speaker 1: commodities to do what they do for us by their 523 00:28:23,280 --> 00:28:25,359 Speaker 1: cost basis, and you know, I actually I've come to 524 00:28:25,400 --> 00:28:28,560 Speaker 1: the point there's there's four things we use use commodities for. 525 00:28:28,680 --> 00:28:31,879 Speaker 1: Obviously transportation, and we figured out oil is the best 526 00:28:32,119 --> 00:28:35,080 Speaker 1: to the lowest cost way to create that transportation. You 527 00:28:35,080 --> 00:28:37,880 Speaker 1: can do it with electricity, um, you know with us 528 00:28:37,920 --> 00:28:40,760 Speaker 1: a nuclear, but it's a it's got a different cost basis, 529 00:28:40,760 --> 00:28:42,320 Speaker 1: and actually it's higher. If you just look at the 530 00:28:42,360 --> 00:28:44,520 Speaker 1: density of oil and you put it into the car, 531 00:28:44,800 --> 00:28:46,960 Speaker 1: it's pretty much the it's the lowest cost way to 532 00:28:47,000 --> 00:28:50,760 Speaker 1: do that. In fact, Ford and Edison had this debate 533 00:28:50,920 --> 00:28:53,840 Speaker 1: well over a hundred years ago about which one was better, 534 00:28:53,840 --> 00:28:56,480 Speaker 1: and we determined at that point in time that the 535 00:28:56,480 --> 00:28:58,800 Speaker 1: the oil was. Then the other one is we need 536 00:28:58,800 --> 00:29:01,920 Speaker 1: to build things, and you know copper is best for 537 00:29:02,280 --> 00:29:07,840 Speaker 1: things like plumbing, electricity, conducting, conducting electricity, UM. And then 538 00:29:07,880 --> 00:29:10,400 Speaker 1: you have we got to feed ourselves, and we figured 539 00:29:10,440 --> 00:29:13,720 Speaker 1: out using corn, wheat, soybean, which are your workhorse grains 540 00:29:13,760 --> 00:29:15,600 Speaker 1: to do it. We're the cheapest to do that. And 541 00:29:15,600 --> 00:29:18,280 Speaker 1: then you have to cool yourself, heat yourself, which then 542 00:29:18,400 --> 00:29:21,080 Speaker 1: you know you look at natural gas and nuclear and 543 00:29:21,120 --> 00:29:22,960 Speaker 1: those other types of com mine. So we chose all 544 00:29:22,960 --> 00:29:25,960 Speaker 1: these things for that reason. But let me point this out, 545 00:29:26,000 --> 00:29:28,440 Speaker 1: and this is fairly obvious. We could do all of 546 00:29:28,480 --> 00:29:30,520 Speaker 1: that with corn. We can drive our cars on corn. 547 00:29:30,640 --> 00:29:32,960 Speaker 1: We all know that. You know, you can make plastics 548 00:29:32,960 --> 00:29:35,040 Speaker 1: out of corn, you can build your house out of corn. 549 00:29:35,440 --> 00:29:38,280 Speaker 1: You obviously can feed yourself with corn, and you can 550 00:29:38,400 --> 00:29:41,920 Speaker 1: use corn to generate electricity, heating, cooling and all those things. 551 00:29:41,920 --> 00:29:44,680 Speaker 1: So we would only need one commodity to do that, 552 00:29:44,800 --> 00:29:46,840 Speaker 1: which is corn. But we don't do it because it's 553 00:29:46,880 --> 00:29:50,000 Speaker 1: too expensive. And so what you're asking now is, okay, 554 00:29:50,000 --> 00:29:52,560 Speaker 1: we look at some of these other commodities like oil 555 00:29:52,600 --> 00:29:54,719 Speaker 1: and gas. They have these admissions that we don't like, 556 00:29:54,840 --> 00:29:58,160 Speaker 1: Let's figure out how to replace them and the best 557 00:29:58,160 --> 00:29:59,800 Speaker 1: way to do it. I'm gonna go back to my 558 00:30:00,000 --> 00:30:03,040 Speaker 1: carbon price, carbon price. Put the carbon price out there, 559 00:30:03,120 --> 00:30:04,880 Speaker 1: this is how much it's gonna cost, and do it. 560 00:30:04,960 --> 00:30:07,040 Speaker 1: Then let's sit and let's figure out is nuclear the 561 00:30:07,040 --> 00:30:08,840 Speaker 1: best way to do it? Is hydrogen the best way 562 00:30:08,880 --> 00:30:11,640 Speaker 1: to do it? Um that would be the appropriate way 563 00:30:11,640 --> 00:30:13,880 Speaker 1: to do is create a market based solution to find 564 00:30:13,920 --> 00:30:16,040 Speaker 1: the answer to this. Let me, you know, I want 565 00:30:16,040 --> 00:30:18,760 Speaker 1: to go back and talk about, you know, the seventies 566 00:30:18,800 --> 00:30:22,200 Speaker 1: because it was very similar to today about the war 567 00:30:22,240 --> 00:30:24,280 Speaker 1: on acid rain and how we solve the war on 568 00:30:24,360 --> 00:30:27,640 Speaker 1: acid right. In fact, the same three big themes we 569 00:30:27,720 --> 00:30:32,160 Speaker 1: talked about the supercycle, about redistribution of policies, environmental policies, 570 00:30:32,160 --> 00:30:36,000 Speaker 1: and deglobalization. They're all the same ones you had. Reistribution 571 00:30:36,160 --> 00:30:38,960 Speaker 1: was the Great Society of the War on poverty, the 572 00:30:39,080 --> 00:30:43,680 Speaker 1: environmental was the was the war on acid rains. And 573 00:30:43,800 --> 00:30:46,959 Speaker 1: let's talk about how that war on acid rain was 574 00:30:47,480 --> 00:30:51,480 Speaker 1: solved in the seventies. Is there was the Soviets and 575 00:30:51,520 --> 00:30:56,200 Speaker 1: the Americans wrapped up in a nuclear treaty that was enforceable. 576 00:30:56,680 --> 00:31:00,280 Speaker 1: The rules around desilpization, and in doing that, they had 577 00:31:00,320 --> 00:31:04,560 Speaker 1: an enforceable rules that then was imposed on NATO countries 578 00:31:04,600 --> 00:31:07,239 Speaker 1: and Warsaw Pact countries, which is, you know why they 579 00:31:07,240 --> 00:31:09,720 Speaker 1: were able to enforce them, but you got a functioning 580 00:31:09,800 --> 00:31:12,320 Speaker 1: sulfur market at it. Once you have the soul functioning 581 00:31:12,360 --> 00:31:15,560 Speaker 1: soulfer market, you were able to, let you know, venture 582 00:31:15,600 --> 00:31:17,880 Speaker 1: capitalists come in there and create the solutions to it. 583 00:31:17,920 --> 00:31:20,600 Speaker 1: By way, ended up solving the soulfur problem was much 584 00:31:20,680 --> 00:31:24,120 Speaker 1: cheaper than what we had ever envisioned. We're now focused 585 00:31:24,120 --> 00:31:25,760 Speaker 1: with a very similar part. By the way, the other 586 00:31:25,920 --> 00:31:28,200 Speaker 1: lesson to learn from the Acid Raine. When did the 587 00:31:28,200 --> 00:31:31,920 Speaker 1: Americans get serious about dealing with the the acid rain? 588 00:31:32,000 --> 00:31:34,720 Speaker 1: When places like Lake Erie were on fire. They had 589 00:31:34,760 --> 00:31:37,040 Speaker 1: to see it, and once they saw it, they passed 590 00:31:37,080 --> 00:31:38,960 Speaker 1: the other thing to do. It was Nixon who passed 591 00:31:38,960 --> 00:31:41,400 Speaker 1: the Clean Air Act, and you know, a pact hat to. 592 00:31:41,520 --> 00:31:44,920 Speaker 1: Somebody pointed this out to me that you know, conservation 593 00:31:45,080 --> 00:31:48,440 Speaker 1: conservatives and conservations historically had gone hand in hand. But 594 00:31:48,440 --> 00:31:50,640 Speaker 1: I think the key point here it was a sulfur 595 00:31:50,680 --> 00:31:55,160 Speaker 1: market with a price signal, and it was enforceable policy 596 00:31:55,560 --> 00:31:58,400 Speaker 1: that led to that solution, and we need something similar 597 00:31:58,440 --> 00:32:01,280 Speaker 1: to that around carbon to deal with this current problem 598 00:32:01,280 --> 00:32:03,560 Speaker 1: that we're dealing with, call it the war on climate change. 599 00:32:04,080 --> 00:32:07,880 Speaker 1: So just to put all together, you know E. S. G. 600 00:32:08,080 --> 00:32:12,320 Speaker 1: And your view discourages investment. What we need is a 601 00:32:12,400 --> 00:32:15,560 Speaker 1: price on carbon, some sort of tax. But then that 602 00:32:15,600 --> 00:32:18,560 Speaker 1: would in theory create the encouragement of investment because okay, 603 00:32:18,600 --> 00:32:20,880 Speaker 1: you know the rules, you know the cost that any 604 00:32:20,960 --> 00:32:24,040 Speaker 1: given entity is going to bear, and then the challenge 605 00:32:24,080 --> 00:32:27,520 Speaker 1: is out there to to do better, to find a 606 00:32:27,520 --> 00:32:31,000 Speaker 1: way to make it problems. And then you you would 607 00:32:31,000 --> 00:32:33,080 Speaker 1: look at some oil companies and you would put their 608 00:32:33,120 --> 00:32:35,160 Speaker 1: total emissions and you know what that number is. You 609 00:32:35,200 --> 00:32:37,240 Speaker 1: put a cost on it, and then the equity analyst 610 00:32:37,320 --> 00:32:39,040 Speaker 1: may go, hey, this is a good company. This is 611 00:32:39,040 --> 00:32:41,520 Speaker 1: a bad company, And I did it was like looking 612 00:32:41,560 --> 00:32:44,560 Speaker 1: at the economics that they're imposing on society, and then 613 00:32:44,600 --> 00:32:47,480 Speaker 1: we wouldn't have this blanket under investment that's creating many 614 00:32:47,520 --> 00:32:50,880 Speaker 1: of the problems we're witnessing today. Can I ask you know, 615 00:32:51,040 --> 00:32:54,440 Speaker 1: how do you see like these various shortages and tightness 616 00:32:54,520 --> 00:32:57,280 Speaker 1: is in markets affecting all the other ones? Because it's interesting, 617 00:32:57,280 --> 00:33:00,440 Speaker 1: you know, one of the reasons cited for the slow 618 00:33:00,560 --> 00:33:04,640 Speaker 1: ramp up of US production is shortages in metal pipes 619 00:33:04,680 --> 00:33:07,680 Speaker 1: and shortage well, shortages in labor as well, and other 620 00:33:07,760 --> 00:33:12,200 Speaker 1: commodities sand as well that are needed to expand domestic production. 621 00:33:12,720 --> 00:33:16,000 Speaker 1: How much is essentially the shortage and the tightness of 622 00:33:16,080 --> 00:33:20,520 Speaker 1: every commodity at the same time contributing to slowness in 623 00:33:20,560 --> 00:33:23,960 Speaker 1: the ramp up of of of new production and new investment. 624 00:33:25,360 --> 00:33:27,880 Speaker 1: The revenge of the old economy. Like my point, banks 625 00:33:27,880 --> 00:33:30,560 Speaker 1: are old economy too. It's why they're not providing the capital. 626 00:33:30,560 --> 00:33:32,960 Speaker 1: They don't have the capacity to it. We didn't invest 627 00:33:33,040 --> 00:33:36,719 Speaker 1: in everything you just mentioned. Plus you know old economy banking. 628 00:33:37,080 --> 00:33:38,440 Speaker 1: I can just give you a list of all the 629 00:33:38,480 --> 00:33:41,200 Speaker 1: things that were under invested, you know, warehouses in the 630 00:33:41,280 --> 00:33:46,040 Speaker 1: US ports facilities, you know, the trucking chassis. The list 631 00:33:46,040 --> 00:33:48,320 Speaker 1: goes on and on, and then all of a sudden 632 00:33:48,320 --> 00:33:50,720 Speaker 1: we gotta pull in demand that stressed the system, and 633 00:33:50,720 --> 00:33:53,520 Speaker 1: then we find out where all these shortages are. Um. 634 00:33:53,560 --> 00:33:55,480 Speaker 1: You know that part of the reason why you know, 635 00:33:55,560 --> 00:33:57,520 Speaker 1: you go back to you know, the seventies and the 636 00:33:57,560 --> 00:33:59,840 Speaker 1: two thousand's what made it very similar was you had 637 00:33:59,840 --> 00:34:02,960 Speaker 1: that same dynamic of that you know, revenge of the 638 00:34:02,960 --> 00:34:05,160 Speaker 1: old time. I mean the new economy, the nifty fifty 639 00:34:05,200 --> 00:34:08,160 Speaker 1: sucked all the capital way it was, the dot com 640 00:34:08,200 --> 00:34:10,360 Speaker 1: bom did it again in the two thousands, and the 641 00:34:10,440 --> 00:34:12,840 Speaker 1: things again this time. That's why you have this. You know, 642 00:34:12,920 --> 00:34:16,360 Speaker 1: it's a very broad space. But once you broad based 643 00:34:16,760 --> 00:34:21,920 Speaker 1: shortage that you get this persistency in transitory shocks, meaning 644 00:34:21,960 --> 00:34:24,560 Speaker 1: that one shock in one market then leads to another 645 00:34:24,560 --> 00:34:27,040 Speaker 1: shock in another market, which then makes it feel like, 646 00:34:27,120 --> 00:34:30,080 Speaker 1: you know, the transitory becomes much more persistent. That's what 647 00:34:30,080 --> 00:34:33,719 Speaker 1: we've seeing. But the core reason is the everything you 648 00:34:33,840 --> 00:34:38,640 Speaker 1: just listed were poor returning industries also were very much 649 00:34:38,680 --> 00:34:42,279 Speaker 1: impacted by m de carbonization, which as a result we 650 00:34:42,400 --> 00:35:01,480 Speaker 1: under new lesson. Can I ask another question on a 651 00:35:01,560 --> 00:35:04,200 Speaker 1: topic that has been coming up quite a lot recently, 652 00:35:04,280 --> 00:35:07,760 Speaker 1: which is this idea of the demise of the dollar 653 00:35:08,000 --> 00:35:10,320 Speaker 1: or the long term decline of the dollar, And maybe 654 00:35:10,360 --> 00:35:14,480 Speaker 1: that starts with certain commodities producers asking to be paid 655 00:35:14,800 --> 00:35:18,480 Speaker 1: in something other than US currency. So we've seen Russia 656 00:35:18,560 --> 00:35:22,080 Speaker 1: talk about getting net gas payments and rubles, for instance, 657 00:35:22,120 --> 00:35:26,720 Speaker 1: and they've long been rumors and speculation about China taking 658 00:35:27,040 --> 00:35:29,759 Speaker 1: un payments and things like that. How do you see 659 00:35:29,800 --> 00:35:34,399 Speaker 1: that playing out? In the commodity space. I wanted to make. 660 00:35:34,560 --> 00:35:37,719 Speaker 1: To make a one of these reserve currencies work, you 661 00:35:37,760 --> 00:35:40,640 Speaker 1: need to have a current account deficit in a very 662 00:35:40,719 --> 00:35:45,600 Speaker 1: large bond mark, of which China does not have. But 663 00:35:45,640 --> 00:35:48,640 Speaker 1: I think, you know, let's go to another point about 664 00:35:48,680 --> 00:35:51,000 Speaker 1: you know all this, you know talking about the demise 665 00:35:51,200 --> 00:35:54,440 Speaker 1: of the of the dollar is you know that everybody's 666 00:35:54,440 --> 00:35:56,520 Speaker 1: focused on the demand of the dollar. Let's talk about 667 00:35:56,520 --> 00:35:58,920 Speaker 1: the supply of the dollars. And you look at the 668 00:35:59,000 --> 00:36:02,400 Speaker 1: commodity bullmark, it's in the seventies nearther in the two thousand's. 669 00:36:02,440 --> 00:36:05,400 Speaker 1: What was associated with both of those was a savings glut. 670 00:36:06,280 --> 00:36:11,320 Speaker 1: And the reason why everybody thinks that that higher commodity 671 00:36:11,320 --> 00:36:15,440 Speaker 1: prices and oil prices is bad to the the economy 672 00:36:15,560 --> 00:36:17,719 Speaker 1: is because when could you think about if you just 673 00:36:17,719 --> 00:36:20,640 Speaker 1: took a close economy raised oil prices. Let's say the US. 674 00:36:20,719 --> 00:36:22,919 Speaker 1: Let's take the US and produced enough oil, you raised 675 00:36:22,960 --> 00:36:24,920 Speaker 1: the oil price. All it is is a transfer from 676 00:36:25,040 --> 00:36:28,759 Speaker 1: Chicago to to Houston. It should have no impact on 677 00:36:28,800 --> 00:36:32,560 Speaker 1: the broader US environment. Maybe then they'll spend, you know, 678 00:36:33,040 --> 00:36:35,320 Speaker 1: through the wage increases in Houston. May take time. I 679 00:36:35,320 --> 00:36:37,400 Speaker 1: don't want to get it you get the exercise I 680 00:36:37,440 --> 00:36:40,480 Speaker 1: went through, if everybody had the same consumption and savings 681 00:36:40,680 --> 00:36:43,080 Speaker 1: and have no impact. The reason why the seventies and 682 00:36:43,120 --> 00:36:45,319 Speaker 1: the two thousands had such an impact and we saw 683 00:36:45,360 --> 00:36:48,759 Speaker 1: it was that savings glut. You had a transfer from 684 00:36:49,120 --> 00:36:51,359 Speaker 1: groups in the U s that would consume something, you know, 685 00:36:51,400 --> 00:36:55,640 Speaker 1: like two groups that were consuming somewhere around fifty to 686 00:36:55,760 --> 00:36:59,000 Speaker 1: six and then so that you created that savings glut. 687 00:36:59,400 --> 00:37:02,440 Speaker 1: You know what, this time around, they're going to spend it. 688 00:37:03,120 --> 00:37:05,520 Speaker 1: You're not gonna get that savings glut off the higher 689 00:37:05,520 --> 00:37:09,239 Speaker 1: commodity prices, which is going to reduce the availability of 690 00:37:09,320 --> 00:37:12,239 Speaker 1: dollars on the global market. In fact, the reason why 691 00:37:12,280 --> 00:37:15,800 Speaker 1: you had that sharp oil dollar correlation in the seventies 692 00:37:15,840 --> 00:37:18,640 Speaker 1: as well as in the two thousand's is let's think 693 00:37:18,640 --> 00:37:20,480 Speaker 1: about this, and this was you know, you know, Ben 694 00:37:20,520 --> 00:37:22,719 Speaker 1: Berniki was the one who coined the terms, you know, 695 00:37:22,800 --> 00:37:26,000 Speaker 1: savings glut is as oil prices went up, the dollars 696 00:37:26,040 --> 00:37:29,920 Speaker 1: would go to Saudi Arabia, Saudio Atavia take those access 697 00:37:30,000 --> 00:37:32,880 Speaker 1: dollars and then by US treasuries. In fact, when they 698 00:37:32,880 --> 00:37:36,240 Speaker 1: were hiking rates between Juno BO four in Juno BO six, 699 00:37:36,520 --> 00:37:38,319 Speaker 1: the front of that curve was going up in the 700 00:37:38,320 --> 00:37:40,920 Speaker 1: back end was going down because you had such higher 701 00:37:40,920 --> 00:37:44,279 Speaker 1: commanding prices going in and buying US treasuries on the 702 00:37:44,280 --> 00:37:47,440 Speaker 1: back end. That was the recycling. You know why they 703 00:37:47,440 --> 00:37:49,640 Speaker 1: had to do that. They didn't have anything else to 704 00:37:49,680 --> 00:37:51,560 Speaker 1: do with those dollars. I remember one time I was 705 00:37:51,600 --> 00:37:56,399 Speaker 1: in in China in oh five, I was talking to save. 706 00:37:56,760 --> 00:38:01,160 Speaker 1: They were spending a hundred billion dollars. They needed to 707 00:38:01,160 --> 00:38:04,160 Speaker 1: place a hundred billion dollars per month. That's a huge 708 00:38:04,200 --> 00:38:07,320 Speaker 1: amount of amoe of the key reasons you couldn't spend 709 00:38:07,320 --> 00:38:10,520 Speaker 1: a hundred billion dollars inside China in two thousand five. 710 00:38:10,760 --> 00:38:13,759 Speaker 1: Guess what today you could. You could easily same thing 711 00:38:13,800 --> 00:38:16,600 Speaker 1: with Saudi Arabia. And so you have these entities that 712 00:38:16,640 --> 00:38:19,600 Speaker 1: are developing in places like Saudi Arabia take p I F. 713 00:38:20,000 --> 00:38:23,120 Speaker 1: The only market that had enough liquidity to absorb that 714 00:38:23,280 --> 00:38:26,680 Speaker 1: kind of potential investment were U s treasuries, which is 715 00:38:26,680 --> 00:38:29,880 Speaker 1: why we saw that savings glut and saw the capital 716 00:38:30,320 --> 00:38:35,120 Speaker 1: move into places like um you know, US treasuries. And 717 00:38:35,280 --> 00:38:38,200 Speaker 1: you can think about that period between June of BO 718 00:38:38,360 --> 00:38:40,560 Speaker 1: four and June a BOE six, when the FED was 719 00:38:40,719 --> 00:38:43,640 Speaker 1: high team rates, the back end was coming down. Why 720 00:38:43,760 --> 00:38:46,000 Speaker 1: was the back end coming down. It's because you had 721 00:38:46,320 --> 00:38:49,279 Speaker 1: all of that capital going into the emerging market that 722 00:38:49,360 --> 00:38:53,600 Speaker 1: was being recycled back into US treasuries. Hence the term 723 00:38:53,640 --> 00:38:58,000 Speaker 1: the savings gluts. Now, the difference between today in the 724 00:38:58,080 --> 00:39:01,160 Speaker 1: two thousands of the nineteen seventies is you can place 725 00:39:01,200 --> 00:39:04,440 Speaker 1: a hundred billion dollars into some place like China immediately. 726 00:39:04,760 --> 00:39:07,160 Speaker 1: You can place a hundred billion dollars into some place 727 00:39:07,200 --> 00:39:10,279 Speaker 1: like Saudi Arabia immediately. So if you could think about 728 00:39:10,320 --> 00:39:14,600 Speaker 1: if we had a savings glut in the nineteen seventies 729 00:39:14,719 --> 00:39:17,440 Speaker 1: and in the in the two thousands, today what we're 730 00:39:17,520 --> 00:39:19,719 Speaker 1: seeing ourselves up for is the spending spree. And I 731 00:39:19,840 --> 00:39:22,720 Speaker 1: even say team up. You look at a an entity 732 00:39:22,800 --> 00:39:26,200 Speaker 1: like p I up in Saudia Arabia. It was the 733 00:39:26,280 --> 00:39:29,400 Speaker 1: intention of that investment vehicle is to go out and 734 00:39:29,480 --> 00:39:33,239 Speaker 1: invest in Saudi Arabia. Um there's similar entiticent places like 735 00:39:33,280 --> 00:39:37,040 Speaker 1: agu Dhabi. They're going to invest in power, gas, but 736 00:39:37,200 --> 00:39:40,799 Speaker 1: just the ex transportation, healthcare, all these things in their 737 00:39:40,800 --> 00:39:43,000 Speaker 1: own economy. And this is part of this whole idea 738 00:39:43,000 --> 00:39:45,480 Speaker 1: of the globalization, is that you're going to get a 739 00:39:45,520 --> 00:39:48,360 Speaker 1: lot of this investment locally, So if the savings glut 740 00:39:48,840 --> 00:39:52,560 Speaker 1: was able to um you know, create a slow down 741 00:39:52,560 --> 00:39:55,239 Speaker 1: and growth from higher oil prices, as spending spree is 742 00:39:55,239 --> 00:39:57,680 Speaker 1: going to do the exact opposite, and if anything, it's 743 00:39:57,719 --> 00:40:01,120 Speaker 1: going to reduce the available supply of dollars being recycled 744 00:40:01,160 --> 00:40:04,520 Speaker 1: back into the US, run up funding costs in places 745 00:40:04,560 --> 00:40:08,239 Speaker 1: like the US, but also create more commodity inflation out 746 00:40:08,239 --> 00:40:11,760 Speaker 1: of spending in places like Saudi Arabia with a NEOM 747 00:40:11,800 --> 00:40:15,160 Speaker 1: city or in China like one Belt, one Road. Can 748 00:40:15,200 --> 00:40:19,240 Speaker 1: I just ask where is the production response from OPEC, 749 00:40:19,360 --> 00:40:22,120 Speaker 1: because again, you know, traditionally in a situation like this, 750 00:40:22,200 --> 00:40:25,279 Speaker 1: you would expect OPEC to start ramping up production, but 751 00:40:26,040 --> 00:40:28,360 Speaker 1: it hasn't really happened, or at least not to the 752 00:40:28,360 --> 00:40:30,759 Speaker 1: scale that people have anticipated. And one of the things 753 00:40:30,840 --> 00:40:33,000 Speaker 1: that comes up is that some of the smaller OPEC 754 00:40:33,080 --> 00:40:37,560 Speaker 1: members actually have trouble increasing production. They have under investment 755 00:40:37,600 --> 00:40:40,640 Speaker 1: in their own oil sectors, and so they can't you know, 756 00:40:40,760 --> 00:40:44,440 Speaker 1: immediately press a button and satisfy the world's energy needs. 757 00:40:45,560 --> 00:40:48,320 Speaker 1: You gotta ask yourself, who's going to put money into 758 00:40:48,400 --> 00:40:52,080 Speaker 1: a billion dollar deep water offshore project going to be 759 00:40:52,120 --> 00:40:55,359 Speaker 1: producing oil twenty years from now. Answer is not very 760 00:40:55,360 --> 00:40:58,280 Speaker 1: many people. Hence why you don't you don't have capital 761 00:40:58,560 --> 00:41:01,279 Speaker 1: going to places like now Gerry and Angola, and why 762 00:41:01,320 --> 00:41:04,440 Speaker 1: production is starting to decline. I wanna you know, speaking 763 00:41:04,440 --> 00:41:08,279 Speaker 1: of oil, obviously, the surgeon gasoline prices has talked people 764 00:41:08,320 --> 00:41:12,719 Speaker 1: about upping e V production, and so you know that 765 00:41:12,760 --> 00:41:15,200 Speaker 1: does seem to be happening. Demand for electric vehicles seems 766 00:41:15,239 --> 00:41:17,920 Speaker 1: to be growing pretty rapidly in the U S and elsewhere. 767 00:41:18,239 --> 00:41:20,839 Speaker 1: I guess they have two questions like when, in your view, 768 00:41:20,880 --> 00:41:24,400 Speaker 1: do we see the peak of petroleum demand as a 769 00:41:24,440 --> 00:41:27,520 Speaker 1: result of this shift? But then related to that, what 770 00:41:27,680 --> 00:41:31,000 Speaker 1: kind of deficit do you think we're facing for the 771 00:41:31,080 --> 00:41:34,600 Speaker 1: other commodities that go into evs, such as all the 772 00:41:34,640 --> 00:41:37,520 Speaker 1: different metals and chemicals that go into batteries. How are 773 00:41:37,520 --> 00:41:40,759 Speaker 1: you thinking about that? Yeah, you can think about the 774 00:41:40,840 --> 00:41:44,720 Speaker 1: hydrocarbon commodities like oil and gas and coal. They face 775 00:41:44,880 --> 00:41:48,040 Speaker 1: under investment and supply constraints that that that you're referring to, 776 00:41:48,239 --> 00:41:51,200 Speaker 1: while most of the other non energy and metal commodities 777 00:41:51,200 --> 00:41:53,640 Speaker 1: can copper and aluminum in particular, are going to see 778 00:41:53,920 --> 00:41:57,160 Speaker 1: significant increases in the demand. In fact, I would argue 779 00:41:57,239 --> 00:41:59,680 Speaker 1: copper is likely to be the tightest commodity will have 780 00:41:59,760 --> 00:42:02,719 Speaker 1: ever seen. You. It's much tighter than what oil was 781 00:42:03,040 --> 00:42:05,719 Speaker 1: during the two thousand Let me remind you oil went 782 00:42:05,840 --> 00:42:08,480 Speaker 1: up seven x in the two thousand's. You know, our 783 00:42:08,560 --> 00:42:12,239 Speaker 1: forecast is fifteen thousand a time on copper. But no 784 00:42:12,280 --> 00:42:17,399 Speaker 1: matter what technology you use, you're gonna be using electric electricity, 785 00:42:17,480 --> 00:42:20,520 Speaker 1: And the only thing that can conduct electricity, given the 786 00:42:20,640 --> 00:42:23,560 Speaker 1: rules around the periodic table and the rules of chemistry, 787 00:42:24,200 --> 00:42:26,160 Speaker 1: is copper at the rate we need to conduct it, 788 00:42:26,200 --> 00:42:28,360 Speaker 1: which means that the demand for copper is going to 789 00:42:28,440 --> 00:42:30,960 Speaker 1: be there. So, you know, I think the upside around 790 00:42:30,960 --> 00:42:33,759 Speaker 1: our fifteen thousand target, which by the way, if you 791 00:42:33,800 --> 00:42:37,080 Speaker 1: started this cycle at five thousand dollar copper fifteen is 792 00:42:37,160 --> 00:42:40,000 Speaker 1: a three x if oil was seven x over that 793 00:42:40,080 --> 00:42:43,600 Speaker 1: time period. The upside potential and copper, I think it's significant. 794 00:42:43,800 --> 00:42:46,680 Speaker 1: But I think there's the big disconnect here that I 795 00:42:46,719 --> 00:42:49,520 Speaker 1: think is why people are going, you know, how is 796 00:42:49,560 --> 00:42:54,440 Speaker 1: this happening? Get we just invest in in green um 797 00:42:54,440 --> 00:42:57,400 Speaker 1: e v S more to solve this problem. Is the 798 00:42:57,480 --> 00:43:01,239 Speaker 1: scale of evs. There's maybe ten million of them on 799 00:43:01,320 --> 00:43:05,000 Speaker 1: the road today. Uh, there's one point to five billion 800 00:43:05,280 --> 00:43:09,640 Speaker 1: internal combustion engine cars on the road today. You're gonna 801 00:43:09,640 --> 00:43:13,320 Speaker 1: have to grow those eases very rapid rate to overtake 802 00:43:13,360 --> 00:43:15,600 Speaker 1: the combustion engines to get to that point. You're asking, 803 00:43:16,000 --> 00:43:19,160 Speaker 1: when is the you know, peak oil demand and you know, 804 00:43:19,200 --> 00:43:22,879 Speaker 1: I'll take our base case, which has been generated off 805 00:43:22,920 --> 00:43:27,120 Speaker 1: of our base case is generated off of uh, you know, 806 00:43:27,600 --> 00:43:30,839 Speaker 1: announcements and investments and everything, would say that, you know, 807 00:43:31,040 --> 00:43:33,520 Speaker 1: we start to slow demand growth. And this was pre 808 00:43:33,680 --> 00:43:37,560 Speaker 1: rushing Ukraine and invasion. You start to slow demand growth 809 00:43:37,640 --> 00:43:41,920 Speaker 1: somewhere around six you hit a peak in the early 810 00:43:42,000 --> 00:43:45,040 Speaker 1: twenty thirties, and then you begin to roll over. That's 811 00:43:45,080 --> 00:43:49,520 Speaker 1: probably optimistic thinking you're probably gonna overshoot to the upside 812 00:43:49,600 --> 00:43:52,439 Speaker 1: near term. Let's not forget there's also the constraint about 813 00:43:52,480 --> 00:43:55,040 Speaker 1: the damage we're doing to the environment. Eventually, there's going 814 00:43:55,080 --> 00:43:56,680 Speaker 1: to be a point. Remember the seventies, I said it 815 00:43:56,719 --> 00:43:59,879 Speaker 1: was we started dealing with the war on acid rain 816 00:44:00,000 --> 00:44:03,239 Speaker 1: when people started to see you know, fires in on 817 00:44:03,360 --> 00:44:05,720 Speaker 1: Lake Erie. Um, are we going to see a similar 818 00:44:05,800 --> 00:44:08,600 Speaker 1: dynamic where people start to see enough of the damage 819 00:44:08,680 --> 00:44:11,799 Speaker 1: is being done by carbon emissions, they go, hey, not enough, 820 00:44:11,840 --> 00:44:14,200 Speaker 1: and we're gonna do an about phase and start to 821 00:44:14,239 --> 00:44:16,719 Speaker 1: deal with this thing in a much more efficient way. 822 00:44:17,000 --> 00:44:20,560 Speaker 1: They try to get results more likely just watching things. Historically, 823 00:44:21,080 --> 00:44:23,200 Speaker 1: you don't deal with the problem until it's knocking on 824 00:44:23,239 --> 00:44:25,680 Speaker 1: your back door. We think about what we learned from COVID. 825 00:44:26,120 --> 00:44:28,520 Speaker 1: If that's the case, oil demand probably goes well about 826 00:44:28,560 --> 00:44:31,319 Speaker 1: those projections near term. Then we hit a wall and 827 00:44:31,360 --> 00:44:33,120 Speaker 1: they go, hey, time to deal with this, and then 828 00:44:33,120 --> 00:44:36,480 Speaker 1: it starts to drop. Precipitously, we showed dear in COVID 829 00:44:36,640 --> 00:44:39,400 Speaker 1: that you know, ingenuity was able to come up with 830 00:44:39,400 --> 00:44:42,000 Speaker 1: the vaccine in six months. Now, if you have to 831 00:44:42,040 --> 00:44:45,279 Speaker 1: remove this stuff from the sky and figure out how 832 00:44:45,320 --> 00:44:48,320 Speaker 1: to you know, store it and do you know, removal 833 00:44:48,440 --> 00:44:50,080 Speaker 1: or capture or something like this to do it on 834 00:44:50,239 --> 00:44:53,600 Speaker 1: that very rapid basis, that could potentially be a solution here. 835 00:44:53,640 --> 00:44:58,480 Speaker 1: But I think the key point here if you need investment, technology, people, 836 00:44:58,600 --> 00:45:02,160 Speaker 1: everything directed solving this problem. Like I said, don't ever 837 00:45:02,200 --> 00:45:04,640 Speaker 1: bet against an engineer. You give them enough time and money, 838 00:45:04,640 --> 00:45:07,239 Speaker 1: they will solve the problem. The problem with the organization, 839 00:45:07,560 --> 00:45:09,759 Speaker 1: we just haven't given them enough time and money to 840 00:45:09,800 --> 00:45:13,719 Speaker 1: solve the problem. So, if you're an investor and you're 841 00:45:13,800 --> 00:45:16,560 Speaker 1: bullish on the commodity cycle, How do you actually go 842 00:45:16,600 --> 00:45:19,520 Speaker 1: out and play that at the moment, because you know, 843 00:45:19,520 --> 00:45:23,319 Speaker 1: I feel like we talked conceptually about, for instance, the 844 00:45:23,320 --> 00:45:26,080 Speaker 1: copper price going up, but as we've seen over the 845 00:45:26,080 --> 00:45:29,240 Speaker 1: past six weeks or so, there can be a difference 846 00:45:29,320 --> 00:45:33,719 Speaker 1: between financial exposure to commodities and the physical So how 847 00:45:33,800 --> 00:45:36,680 Speaker 1: do you, you know, just bought a wheat et f 848 00:45:36,760 --> 00:45:39,640 Speaker 1: for instance, you might have experienced problems in the past 849 00:45:39,680 --> 00:45:41,960 Speaker 1: couple of weeks or so, So how would you recommend 850 00:45:42,000 --> 00:45:46,560 Speaker 1: people actually get commodities exposure at the moment? By the way, 851 00:45:46,600 --> 00:45:48,279 Speaker 1: you know, the thing that I've really learned in the 852 00:45:48,320 --> 00:45:53,040 Speaker 1: last six months is nobody has to buy a financial problem, 853 00:45:53,920 --> 00:45:57,000 Speaker 1: but somebody has to buy a commodity. Somebody has to 854 00:45:57,000 --> 00:46:01,200 Speaker 1: buy oil, and somebody has to buy We say, commodities 855 00:46:01,239 --> 00:46:04,359 Speaker 1: have a captive consumer and a captive producer who can 856 00:46:04,360 --> 00:46:06,799 Speaker 1: do nothing about their position in the very near term. 857 00:46:07,080 --> 00:46:09,640 Speaker 1: In contrast, is you know, nobody has to buy an 858 00:46:09,640 --> 00:46:11,920 Speaker 1: oil equity. We now learned that oil prices you can 859 00:46:12,000 --> 00:46:14,120 Speaker 1: keep going up, the fundamentals of the company can get 860 00:46:14,239 --> 00:46:16,799 Speaker 1: better and better, but nobody has to buy it. And 861 00:46:16,840 --> 00:46:20,239 Speaker 1: that's why you have that huge disconnect between commodity prices 862 00:46:20,320 --> 00:46:24,920 Speaker 1: and the commodity related financial instruments. So to answer that question, 863 00:46:25,320 --> 00:46:27,160 Speaker 1: what do you want to own? You want to get 864 00:46:27,200 --> 00:46:29,520 Speaker 1: as close as to that person who actually has to 865 00:46:29,600 --> 00:46:33,080 Speaker 1: buy this thing as possible. And these things like the 866 00:46:33,160 --> 00:46:36,480 Speaker 1: b Commune, the Bloomberg Commodity Index that rolling front month, 867 00:46:36,520 --> 00:46:39,800 Speaker 1: and I'm not pitching Bloomberg here. The b comm Index 868 00:46:39,920 --> 00:46:43,080 Speaker 1: is an excellent product that does this. It's rolling the 869 00:46:43,120 --> 00:46:46,000 Speaker 1: front month of these commodities. It gets you right up 870 00:46:46,040 --> 00:46:48,760 Speaker 1: as close as you can to that consumer who actually 871 00:46:48,760 --> 00:46:51,520 Speaker 1: has to buy this commodity, because that's where the returns 872 00:46:51,520 --> 00:46:54,080 Speaker 1: are going to be generated. And given this pullback that 873 00:46:54,160 --> 00:46:56,879 Speaker 1: we've see more recently, you know, with oil down below 874 00:46:56,920 --> 00:47:00,080 Speaker 1: a hundred dollars apparel yesterday, you're you're in an envirn 875 00:47:00,320 --> 00:47:03,120 Speaker 1: in which that entry point, i'd argue is is relatively good. 876 00:47:03,120 --> 00:47:05,840 Speaker 1: Particularly you're going to have volatility going forward because a 877 00:47:05,920 --> 00:47:09,319 Speaker 1: new thing too, that rolling front month strategy. It's just 878 00:47:09,360 --> 00:47:12,160 Speaker 1: another way to say your long commodity ball. And if 879 00:47:12,160 --> 00:47:14,480 Speaker 1: you believe our view that commodity ball is going to 880 00:47:14,560 --> 00:47:17,480 Speaker 1: be rising over time, being along that kind of product, 881 00:47:17,520 --> 00:47:19,480 Speaker 1: you're going to be your best bet here. So you know, 882 00:47:19,560 --> 00:47:21,120 Speaker 1: I don't know you if you don't even really have 883 00:47:21,200 --> 00:47:24,040 Speaker 1: to think about trying to too which sector to own, 884 00:47:24,400 --> 00:47:27,279 Speaker 1: just go out the overall d common that gives you 885 00:47:27,320 --> 00:47:30,839 Speaker 1: a nice waiting across energy, metals, agriculture, and the rest 886 00:47:30,880 --> 00:47:33,319 Speaker 1: of the commodity complex. If you want to be more 887 00:47:33,400 --> 00:47:37,440 Speaker 1: weighted towards energy, um the old Goldman Fact Comodity Index 888 00:47:37,560 --> 00:47:40,120 Speaker 1: which is now the B S and P one um, 889 00:47:40,120 --> 00:47:42,719 Speaker 1: the G S c I is more energy weighted. The 890 00:47:42,800 --> 00:47:45,840 Speaker 1: b COM is a more uh you know, broad based 891 00:47:45,840 --> 00:47:48,640 Speaker 1: weighted commodity index, and then you can pick the sub industries. 892 00:47:48,640 --> 00:47:50,720 Speaker 1: But I know the thing that you're that you're capturing 893 00:47:50,760 --> 00:47:53,160 Speaker 1: here is you're as close to that consumer who have 894 00:47:53,320 --> 00:47:55,160 Speaker 1: to buy it as possible. I will just want to 895 00:47:55,160 --> 00:47:57,680 Speaker 1: ask a quick question about copper again, real quickly, and 896 00:47:57,680 --> 00:48:01,440 Speaker 1: you talked about dollars a ton of plausible where I 897 00:48:01,480 --> 00:48:06,120 Speaker 1: think roughly we also said the tightness that we're seeing 898 00:48:06,160 --> 00:48:09,600 Speaker 1: in copper rivals or perhaps exceeds even what we sell 899 00:48:09,680 --> 00:48:12,399 Speaker 1: with oil in the sort of earlier two thousands during 900 00:48:12,480 --> 00:48:14,960 Speaker 1: that cycle, what are the numbers like how much what's 901 00:48:15,000 --> 00:48:17,719 Speaker 1: the potential deficit we're looking at given word demand is 902 00:48:17,760 --> 00:48:21,480 Speaker 1: going and how much new production needs to come online, 903 00:48:21,520 --> 00:48:24,399 Speaker 1: like quantify the tightness beyond just the sort of word 904 00:48:24,440 --> 00:48:27,520 Speaker 1: the dollar worth the press. Okay, good question. So if 905 00:48:27,560 --> 00:48:30,680 Speaker 1: you go back to two thousand to two thousand and three, 906 00:48:30,719 --> 00:48:34,319 Speaker 1: when we first started getting really bullish on oil, and 907 00:48:34,360 --> 00:48:36,880 Speaker 1: you looked out, you would say peak oil, you know, 908 00:48:36,960 --> 00:48:39,640 Speaker 1: somewhere around on oh five oh six it will by 909 00:48:39,640 --> 00:48:42,520 Speaker 1: the way it rolled over on conventional oil late oh 910 00:48:42,680 --> 00:48:46,359 Speaker 1: four UM. And then demand with China was going um, 911 00:48:46,400 --> 00:48:48,440 Speaker 1: you know, you would get a deficit of somewhere around 912 00:48:48,480 --> 00:48:51,000 Speaker 1: five of the market. The numbers were coming up with 913 00:48:51,080 --> 00:48:54,400 Speaker 1: copper or like pent of the market three times is 914 00:48:54,440 --> 00:48:57,880 Speaker 1: tighter than what you would have seen oil the two thousand's. 915 00:48:58,160 --> 00:49:00,399 Speaker 1: And you know, part of the you know this point 916 00:49:00,480 --> 00:49:03,799 Speaker 1: right now, oil is not our copper is not responding 917 00:49:03,840 --> 00:49:06,759 Speaker 1: this because you have the inventories are going down. But 918 00:49:06,880 --> 00:49:10,880 Speaker 1: investor interest is very concerned about China. So you know 919 00:49:10,960 --> 00:49:13,280 Speaker 1: the site the fact that pundamentals are getting tighter and tighter. 920 00:49:13,600 --> 00:49:17,719 Speaker 1: You don't have investors and consumers worried about copper because 921 00:49:17,760 --> 00:49:20,279 Speaker 1: they're focused on the China property market. But this is 922 00:49:20,320 --> 00:49:22,719 Speaker 1: the main gear which you see the passing as the 923 00:49:22,760 --> 00:49:27,320 Speaker 1: baton from Chinese property market to the green cafex story 924 00:49:27,360 --> 00:49:31,000 Speaker 1: and by three it's a green cafe X becomes the 925 00:49:31,080 --> 00:49:35,480 Speaker 1: dominant force there. You talked about we need to create 926 00:49:35,680 --> 00:49:41,400 Speaker 1: sort of a regulatory structure that encourages long term investment, 927 00:49:41,520 --> 00:49:43,239 Speaker 1: and that's really the only thing that's going to solve this. 928 00:49:43,400 --> 00:49:45,720 Speaker 1: So the White House calls you up and says, Jeff, 929 00:49:45,760 --> 00:49:48,040 Speaker 1: we need to craft a plan and anything you say 930 00:49:48,120 --> 00:49:51,200 Speaker 1: will get implemented. What are the basic ideas of what 931 00:49:51,320 --> 00:49:54,040 Speaker 1: the ideal policy response, at least just let's just say 932 00:49:54,120 --> 00:49:56,520 Speaker 1: in the US, what would what is the ideal policy 933 00:49:56,560 --> 00:50:01,760 Speaker 1: response look like to to induce that increase in the investment? 934 00:50:01,800 --> 00:50:05,160 Speaker 1: What are the components of it? First, first and foremost, 935 00:50:05,280 --> 00:50:10,879 Speaker 1: you need a policy around how we're going to do decarbonization. Um. 936 00:50:11,080 --> 00:50:13,560 Speaker 1: Whether it's right now there's a focus on the demand side, 937 00:50:14,080 --> 00:50:16,920 Speaker 1: but it's a very asymmetric response in term, there's no 938 00:50:17,000 --> 00:50:20,919 Speaker 1: policy around how you're gonna wind down the supply side. UM. 939 00:50:20,960 --> 00:50:25,440 Speaker 1: So first and foremost is create a policy framework around 940 00:50:25,520 --> 00:50:28,400 Speaker 1: how we're going to actually decarbonize, and then create it 941 00:50:28,400 --> 00:50:30,560 Speaker 1: in such a way that it can be rolled out 942 00:50:30,600 --> 00:50:33,680 Speaker 1: in US, Europe and Chronic because that's two thirds of 943 00:50:33,760 --> 00:50:36,960 Speaker 1: the world emissions right there. The second thing is then 944 00:50:37,120 --> 00:50:39,520 Speaker 1: create once you have the rules in place that are 945 00:50:39,640 --> 00:50:42,320 Speaker 1: enforceable by punishment, and that's the key. They got to 946 00:50:42,320 --> 00:50:46,400 Speaker 1: be punished. We saw with Volkswagon with the catalytic converters 947 00:50:46,680 --> 00:50:49,279 Speaker 1: UM they got punished for cheating. If you cheat on this, 948 00:50:49,480 --> 00:50:52,080 Speaker 1: you've got to get punished. Once you have that, then 949 00:50:52,160 --> 00:50:55,600 Speaker 1: you can now create the cap and trade Marvel attacks 950 00:50:56,040 --> 00:50:59,040 Speaker 1: carbon price and once you have that carbon price but 951 00:50:59,160 --> 00:51:01,360 Speaker 1: in place, this solving a lot of these problems and 952 00:51:01,400 --> 00:51:05,120 Speaker 1: getting the investment to flow becomes much more easy. The 953 00:51:05,160 --> 00:51:08,080 Speaker 1: other thing that that you know advocate is creating. You know, 954 00:51:08,160 --> 00:51:10,320 Speaker 1: Tracy came up with a few ideas or something around 955 00:51:10,320 --> 00:51:12,839 Speaker 1: the str or whatever it might be, to create that 956 00:51:12,960 --> 00:51:15,239 Speaker 1: idea of a long term contract to take out the 957 00:51:15,320 --> 00:51:19,440 Speaker 1: volatility that investors would potentially be focused on. So, I mean, 958 00:51:19,440 --> 00:51:22,000 Speaker 1: those are the two ways. I think first and foremost 959 00:51:22,480 --> 00:51:26,840 Speaker 1: is we need a policy around decarbonization. And if you 960 00:51:26,880 --> 00:51:29,759 Speaker 1: go back to the seventies example, that didn't happen until 961 00:51:29,800 --> 00:51:31,759 Speaker 1: you saw a lake erie on fire, I don't know 962 00:51:31,800 --> 00:51:34,360 Speaker 1: what's going to take um in the two thousand and 963 00:51:34,400 --> 00:51:37,360 Speaker 1: twenties to get that. That's first and foremost, we need 964 00:51:37,360 --> 00:51:42,480 Speaker 1: that policy around decarbonization and a carbon price. Well, Jeff, 965 00:51:42,640 --> 00:51:46,520 Speaker 1: always fantastic to talk to you, this question how we're 966 00:51:46,600 --> 00:51:50,120 Speaker 1: going to finance and crease that abstraction of udities, musique 967 00:51:50,160 --> 00:51:53,520 Speaker 1: question and fantastic perspective. So thank you for coming back 968 00:51:53,560 --> 00:51:57,799 Speaker 1: on a great Thanks for having me. Thanks, thanks, Yeah, 969 00:51:58,200 --> 00:52:15,920 Speaker 1: that was really good, Trazy. I obviously I love talking 970 00:52:16,000 --> 00:52:18,600 Speaker 1: to Jeff. I mean, that really does seem to be 971 00:52:18,680 --> 00:52:22,080 Speaker 1: the fundamental challenge that we face right now. It really 972 00:52:22,120 --> 00:52:24,840 Speaker 1: does seem to be on the investment side. However you 973 00:52:24,840 --> 00:52:26,040 Speaker 1: want to slice it, like what do you want to 974 00:52:26,080 --> 00:52:30,640 Speaker 1: talk about moving away from fossil fuels and the copper deficit? 975 00:52:30,760 --> 00:52:33,120 Speaker 1: What you're talking about just what do we need to 976 00:52:33,160 --> 00:52:36,360 Speaker 1: bring balance to the oil market right now? Solving this 977 00:52:36,480 --> 00:52:38,440 Speaker 1: sort of like long term it's kind of like a 978 00:52:38,440 --> 00:52:41,800 Speaker 1: game theory problem. How do people to commit to investment 979 00:52:42,000 --> 00:52:44,360 Speaker 1: seems like a huge is the huge challenge at the moment. 980 00:52:44,480 --> 00:52:47,520 Speaker 1: It is weird to think. I mean, if you think 981 00:52:47,520 --> 00:52:50,400 Speaker 1: about what human beings need on a day to day basis, 982 00:52:50,440 --> 00:52:53,160 Speaker 1: it's basically food and energy. And you could argue that 983 00:52:53,200 --> 00:52:56,760 Speaker 1: the entire role of the state is basically to ensure 984 00:52:56,880 --> 00:52:59,919 Speaker 1: those two things, um maybe as well as social order 985 00:53:00,200 --> 00:53:03,640 Speaker 1: security and things like that, but clearly too vital things. 986 00:53:03,719 --> 00:53:08,200 Speaker 1: And yet it seems like structurally there have been years 987 00:53:08,200 --> 00:53:11,040 Speaker 1: and years of under investment now. And this is something 988 00:53:11,080 --> 00:53:14,640 Speaker 1: that's come up both from from Jeff as we just heard, 989 00:53:14,680 --> 00:53:18,759 Speaker 1: but also Salton Posar's idea that a you have previous 990 00:53:18,840 --> 00:53:22,759 Speaker 1: under investment, but now you have the cycle of volatility, 991 00:53:22,960 --> 00:53:26,440 Speaker 1: increased transport costs, things like that. That just means you 992 00:53:26,480 --> 00:53:31,040 Speaker 1: need even more capital to support commodities trading and production. 993 00:53:31,480 --> 00:53:35,400 Speaker 1: I love Jeff that the volatility trapp Yeah, that's a 994 00:53:35,440 --> 00:53:37,640 Speaker 1: really good one, and I think you know, it speaks 995 00:53:37,680 --> 00:53:41,200 Speaker 1: to obviously, look, the job I guess of the capitalists 996 00:53:41,200 --> 00:53:44,960 Speaker 1: of capitalists is to take risks and including price volatility. 997 00:53:45,000 --> 00:53:47,480 Speaker 1: But if you have this sort of like volatility that 998 00:53:47,640 --> 00:53:51,279 Speaker 1: feeds volatility overall, you can create this situation which you 999 00:53:51,320 --> 00:53:54,480 Speaker 1: have this dearth of investment. And it's interesting too because 1000 00:53:54,640 --> 00:53:59,040 Speaker 1: so Jeff talked about obviously bank capital requirements and the 1001 00:53:59,080 --> 00:54:02,359 Speaker 1: discouragement air and then the E. S G overlay on 1002 00:54:02,400 --> 00:54:06,160 Speaker 1: top of that, and then also this extraordinary tech boom 1003 00:54:06,360 --> 00:54:08,359 Speaker 1: that we saw, and so the rise of like the 1004 00:54:08,400 --> 00:54:10,880 Speaker 1: Netflix is in our life and the rise of the 1005 00:54:10,920 --> 00:54:14,520 Speaker 1: iPhone and the rise of Facebook and social media. You 1006 00:54:14,640 --> 00:54:16,920 Speaker 1: just like, in an environment like that, you could just 1007 00:54:16,960 --> 00:54:21,239 Speaker 1: see like who wants to invest in digging up you know, fossils, 1008 00:54:21,480 --> 00:54:24,680 Speaker 1: you know, dead animals that turn into liquid out of 1009 00:54:24,719 --> 00:54:27,120 Speaker 1: the ground. It's just in in that in that period 1010 00:54:27,160 --> 00:54:29,000 Speaker 1: you can just see why there had been such a 1011 00:54:29,680 --> 00:54:32,000 Speaker 1: dearth of interest in this, right. Well, this is also 1012 00:54:32,120 --> 00:54:34,480 Speaker 1: just I guess the sort of headspace that a lot 1013 00:54:34,480 --> 00:54:36,840 Speaker 1: of investors tend to be in, which is you're always 1014 00:54:36,840 --> 00:54:40,239 Speaker 1: looking for the next big thing, and oil has never 1015 00:54:40,320 --> 00:54:42,920 Speaker 1: been or you know, for a very very long time, 1016 00:54:43,040 --> 00:54:46,080 Speaker 1: it has not been considered the next big thing, and 1017 00:54:46,160 --> 00:54:48,919 Speaker 1: so it just doesn't have a good story behind it. Well, 1018 00:54:48,960 --> 00:54:50,879 Speaker 1: and I think there's another thing. You know, we talked 1019 00:54:50,880 --> 00:54:54,440 Speaker 1: about normalization all the time, right and so normalization I 1020 00:54:54,480 --> 00:54:57,200 Speaker 1: think of the very sort of crude senses all the 1021 00:54:57,239 --> 00:55:01,879 Speaker 1: restrictions from COVID slowly getting lifted and we go back 1022 00:55:01,920 --> 00:55:05,680 Speaker 1: to services. But I think that, like implied, is just 1023 00:55:05,760 --> 00:55:08,520 Speaker 1: the idea that like, yeah, and then oil prices are 1024 00:55:08,520 --> 00:55:10,320 Speaker 1: going to go back down, and then everyone's going to 1025 00:55:10,400 --> 00:55:13,520 Speaker 1: invest in tech and web three, in crypto, etcetera. But 1026 00:55:13,600 --> 00:55:16,280 Speaker 1: I feel like as long as we have that mentality, 1027 00:55:16,520 --> 00:55:19,719 Speaker 1: or as long as everyone sort of has this feeling like, well, yeah, 1028 00:55:19,840 --> 00:55:22,440 Speaker 1: we're having this like temporary surge because it's weird, like 1029 00:55:22,680 --> 00:55:24,920 Speaker 1: you're not going to actually get there. It's almost like 1030 00:55:25,000 --> 00:55:27,000 Speaker 1: in order to get you know, in order to get 1031 00:55:27,000 --> 00:55:29,440 Speaker 1: prices down, people have to believe the prices will never 1032 00:55:29,440 --> 00:55:34,799 Speaker 1: come down, which is very tricky from a narrative perspective. 1033 00:55:35,000 --> 00:55:36,279 Speaker 1: I mean, I think like if you you know, you 1034 00:55:36,320 --> 00:55:38,520 Speaker 1: think like back to two thousand and four, two thousand 1035 00:55:38,480 --> 00:55:42,000 Speaker 1: and five, we thought that the prices were that that 1036 00:55:42,040 --> 00:55:44,239 Speaker 1: was the exact opposite. I think people thought there's this 1037 00:55:44,239 --> 00:55:48,480 Speaker 1: big oil boom that's happening, China's usually got an infinite 1038 00:55:48,520 --> 00:55:50,879 Speaker 1: amount of oil, will never catch up, and that then 1039 00:55:50,920 --> 00:55:53,160 Speaker 1: you would get the investment. We have the peak oil 1040 00:55:53,239 --> 00:55:56,960 Speaker 1: narratives exactly right. And so now it's like, well we 1041 00:55:57,040 --> 00:56:00,000 Speaker 1: are still in the opposite where these sort of conditions 1042 00:56:00,000 --> 00:56:02,840 Speaker 1: it seemed temporary and we're going to move to e 1043 00:56:02,920 --> 00:56:05,319 Speaker 1: VS and we're going to normalize and everything we'll bring 1044 00:56:05,360 --> 00:56:08,160 Speaker 1: back into balance. And that's not a sort of it's 1045 00:56:08,160 --> 00:56:10,400 Speaker 1: not a great headspace for actually bringing stuff into balance. 1046 00:56:10,480 --> 00:56:14,480 Speaker 1: We need to think of a good story for like wheat, right, 1047 00:56:14,680 --> 00:56:17,960 Speaker 1: what is But you know, in all seriousness though, like 1048 00:56:18,000 --> 00:56:20,319 Speaker 1: the copper thing, I think is really interesting and I 1049 00:56:20,360 --> 00:56:23,800 Speaker 1: hadn't thought about that that people may be associated copper 1050 00:56:23,960 --> 00:56:28,640 Speaker 1: as largely a Chinese construction Chinese real estate story. But 1051 00:56:29,239 --> 00:56:32,239 Speaker 1: if we're going to electrify everything in the world, that 1052 00:56:32,400 --> 00:56:34,759 Speaker 1: creates a lot of copper demand and so then it's 1053 00:56:34,800 --> 00:56:36,799 Speaker 1: just a matter of like, well, what's the psycho for 1054 00:56:36,920 --> 00:56:39,200 Speaker 1: building that out? Well, this is another thing that we 1055 00:56:39,239 --> 00:56:42,640 Speaker 1: are discovering on these episodes, which is that you actually 1056 00:56:42,640 --> 00:56:46,240 Speaker 1: need a lot of these old economy metals or dirty 1057 00:56:46,280 --> 00:56:49,279 Speaker 1: fuels or whatever in order to get off the other 1058 00:56:49,280 --> 00:56:53,680 Speaker 1: dirty fuels. Yeah, exactly, yeah, exactly. Alright, shall we leave 1059 00:56:53,719 --> 00:56:55,759 Speaker 1: it there, Let's leave it there. Okay. This has been 1060 00:56:55,800 --> 00:56:58,920 Speaker 1: another episode of the ad Thoughts podcast. I'm Tracy Allowaite. 1061 00:56:58,960 --> 00:57:01,600 Speaker 1: You can follow me onto at Tracy Alloway and I'm 1062 00:57:01,680 --> 00:57:03,920 Speaker 1: Joe Why Isn't All? You can follow me on Twitter 1063 00:57:04,080 --> 00:57:07,640 Speaker 1: at The Stalwart. Follow our producer Carmen Rodriguez on Twitter 1064 00:57:07,760 --> 00:57:11,279 Speaker 1: at Carmen Arman. Follow the Bloomberg head of podcast, Francesca 1065 00:57:11,360 --> 00:57:14,279 Speaker 1: Levi at Francesco Today, and check out all of our 1066 00:57:14,320 --> 00:57:20,480 Speaker 1: Podcasts at Bloomberg under the handle at podcasts. Thanks for listening. Hey, 1067 00:57:20,480 --> 00:57:23,520 Speaker 1: there are odd Lots listeners. We are very happy to 1068 00:57:23,720 --> 00:57:27,919 Speaker 1: let you know that we've been nominated for a Webby Award. Yeah. 1069 00:57:28,120 --> 00:57:30,640 Speaker 1: I'm not you know, Tracy, I'm not normally like a 1070 00:57:30,640 --> 00:57:33,600 Speaker 1: big awards person, but now that we're nominated for one, 1071 00:57:33,680 --> 00:57:35,640 Speaker 1: I'm really excited. You really wanted Yeah, I kind of 1072 00:57:35,680 --> 00:57:38,080 Speaker 1: really want to win. Okay, Well, on that note, we 1073 00:57:38,120 --> 00:57:40,680 Speaker 1: would very much appreciate if you can take two minutes 1074 00:57:40,720 --> 00:57:43,960 Speaker 1: of your time and head over to vote dot Webby 1075 00:57:44,080 --> 00:57:48,240 Speaker 1: Awards dot com and vote for us. You'll find us 1076 00:57:48,400 --> 00:57:51,720 Speaker 1: nominated in the Business podcast category. And be sure to 1077 00:57:51,800 --> 00:57:54,280 Speaker 1: check out Odd Lots on the I Heart radio app 1078 00:57:54,560 --> 00:58:21,320 Speaker 1: wherever you listen to Things to To