Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway, Tracy Medals.
Speaker 3: That's it.
Speaker 2: That's that's that's it. It's the title.
Speaker 4: No, there's a lot happening in the metals space. So
Speaker 4: we have gold above five five hundred announce, which is
Speaker 4: a record. We have silver above one hundred and twenty
Speaker 4: dollars announce, also a record, and now we have copper
Speaker 4: at over fourteen four hundred dollars a ton.
Speaker 2: Yeah, so this is something that's super interesting to me,
Speaker 2: and I think it is a very important to mention,
Speaker 2: which is that copper is the ultimate industrial metal, right,
Speaker 2: and for you know, doctor Copper tells us about the
Speaker 2: common probably a little overstated its reputation by just the
Speaker 2: ultimate industrial metal. Gold is the ultimate medal with no
Speaker 2: industrial uses, right, It's primarily a store of value, a
Speaker 2: sort of a form of money that's existing SAE for
Speaker 2: thousands of years. And then silver is a little bit
Speaker 2: in the middle, more of a safe haven. But we
Speaker 2: know it has it's used in solar it's used in photography,
Speaker 2: not that that really exists anymore. But you know what
Speaker 2: I'm saying. So it's like it's interesting to see, like,
Speaker 2: why are they all flying at the exact same time.
Speaker 4: Yeah, I was going to say the exact same thing.
Speaker 4: So each of these medals historically would tell you something
Speaker 4: very specific about the state of the economy. And copper
Speaker 4: certainly would be screaming people are bullish on economic growth. Silver,
Speaker 4: you know, something kind of in the middle. And gold.
Speaker 4: Gold soaring is something that you traditionally associate with stress points,
Speaker 4: either in the financial system or the broader global economy.
Speaker 4: And yet here we are.
Speaker 2: Yeah, it's all happening in once and like you know,
Speaker 2: you know, you could say, like, oh, dollar debasement, right,
Speaker 2: and we know the dollar has been week against other currencies.
Speaker 2: It's not like inflation is measured, you know, is like
Speaker 2: raging hot. So it's not just a simple story of
Speaker 2: like the dollar becoming worthless. So the you know, the
Speaker 2: denominator whatever going up or whatever the other way around is,
Speaker 2: et cetera. There's something going on with metals. Maybe they're
Speaker 2: just the new memestocks, et cetera. But we have to
Speaker 2: dig in.
Speaker 4: Yeah, let's do it all right, Well, I have.
Speaker 2: To say we really do have the perfect guest on
Speaker 2: the perfect day. Again. We're recording this the morning of
Speaker 2: January twenty ninth. We're going to try and get it
Speaker 2: out asap. But there's headline Copper surging ten percent, unbelievable
Speaker 2: headlines We've had them on multiple times in the past.
Speaker 2: A believer in super cycles, a vindicated man in many
Speaker 2: respects with many of his calls, who's like Goldman a
Speaker 2: long time. We're going to be speaking with the one
Speaker 2: and only Jeff Curry, who is now a partner at
Speaker 2: Carlisle Nose Commodities, as well as anyone else we talked to. So, Jeff,
Speaker 2: thank you so much for coming back on the Oud
Speaker 2: Laws podcast.
Speaker 3: Great well, thank you having me. Commodities are up and
Speaker 3: back in favor. It was a rough last couple of years,
Speaker 3: to say the least.
Speaker 4: What do we should just ask? Is this going to
Speaker 4: be the peak?
Speaker 2: Is this the peak? Did we is?
Speaker 3: Uh?
Speaker 2: Yeah, that's the question? Is this the peak?
Speaker 4: You're back on? Everyone's going to ask, is this the did.
Speaker 2: Odd Laws get the peak? Because they called? They ring
Speaker 2: Jeff Curry? So let's just get this out.
Speaker 3: Of the way. By the way, I love that we're
Speaker 3: in the foothills of the Himalayas right now. So we're
Speaker 3: not even close to the real mountain peaks.
Speaker 4: Yeah really yes, Okay, So I'm going to ask the
Speaker 4: obvious question, which we alluded to in the intro, but
Speaker 4: why are all three of these things moving in the
Speaker 4: same direction all at once?
Speaker 3: When you look at the commodity complex, you take anything
Speaker 3: that has an atomic number to it, that's in the
Speaker 3: periodic table, it's going up right now. Even nicol and
Speaker 3: zinc have joined the party. If it is a molecule
Speaker 3: and it has a carbon in it, a carbon hydrogen,
Speaker 3: a CCH in it, it's been struck. So that includes
Speaker 3: hydrocarbons as well as carbon hydrates like corn wheat and
Speaker 3: so forth. So that space, the molecules have been struggling.
Speaker 3: Yet you have the things that are primarily critical minerals,
Speaker 3: things that are in the periodic table. The atomic number
Speaker 3: have all done well, and the fundamentals and copper are
Speaker 3: not that much tighter than what you have in oil.
Speaker 3: So what's going on in the metal space is hoarding
Speaker 3: given the concerns over having availability of these critical minerals,
Speaker 3: And you throw out the idea of debasement, and I
Speaker 3: want to throw in three other d's d dollarization and
Speaker 3: diversity to your debasement. So debasement, de dollarization, and diversity
Speaker 3: is what's driving all of these different metals. And when
Speaker 3: we think about the de dollarization, and that goes back
Speaker 3: to twenty twenty two, when the US and Europeans froze
Speaker 3: the central bank assets of Russia, every emerging market goes uh, oh,
Speaker 3: I don't want to be owning any dollar denominated assets
Speaker 3: because look what happens through the Russians. And as a result,
Speaker 3: they're movement as fast as they can out of dollar
Speaker 3: assets into assets that cannot be seized and precious metals
Speaker 3: and metals are part of that. And then when you
Speaker 3: have the geopolitical risk as high as they are right
Speaker 3: now on a global basis, whether it was US cutting
Speaker 3: off Venezuelan oil supply to China, India and Europe, or
Speaker 3: it was the Chinese cutting off critical mineral supply to
Speaker 3: the US and its allies, or it's Russia cutting off
Speaker 3: supplies and natural gas, it's a dangerous time to be
Speaker 3: dependent upon foreign commodity supply and as a result, we
Speaker 3: have stockpiling and everybody talks about the squeeze in silver,
Speaker 3: running it up to one hundred and twenty dollars an ounce.
Speaker 3: The reality is this is a squeeze by the population
Speaker 3: of the people in China. You know, they're hoarding the
Speaker 3: silver over concerns around export controls and things of that nature.
Speaker 4: So you mentioned China just then, and this is exactly
Speaker 4: what we wanted to ask you about, which is, if
Speaker 4: you've stripped out what's going on in China, how much
Speaker 4: of the rally would disappear in something like gold.
Speaker 3: I mean, the vast majority of it is not just China,
Speaker 3: but emerging market central bank buying basically reduced their holdings
Speaker 3: of Western bonds that can be frozen, similar to what
Speaker 3: happened with the Russian So you know, do not underestimate
Speaker 3: the impact that China's had. In fact, if anything, China
Speaker 3: and the other emerging markets have squeezed other participants in
Speaker 3: the gold market out. And do you still have a
Speaker 3: long ways to go? I like to point out that
Speaker 3: in nineteen seventy, when Nixon took the US off the
Speaker 3: gold standard, central bank reserves and gold stood at around
Speaker 3: forty percent. Last time I calculated late day in the
Speaker 3: last year. Wasn't that twenty seven to twenty eight percent,
Speaker 3: but the run up in the last couple of days
Speaker 3: could be as high as thirty by now. But I
Speaker 3: think the key message is there's still a lot more
Speaker 3: buying by essential banks who diversify themselves out of dollars.
Speaker 2: I'm still a little bit confused. What is it about
Speaker 2: silver particularly that's so desirable right now from the population
Speaker 2: in China, Because just let's talk about hoarding and some
Speaker 2: of these issues. It's totally understandable why China wants to
Speaker 2: hold certain strategic assets, right It wants to accumulate a
Speaker 2: lot of oil in part because of defense purposes, because
Speaker 2: in the event of a war for whatever reason, they
Speaker 2: may get shot out of oil, so they need a lot.
Speaker 2: What is it about silver in the population context that
Speaker 2: makes it so desirable? And by the way, I'm looking
Speaker 2: at a chart is from two days ago. But the
Speaker 2: Shanghai silver premium buyers in China panng more than five
Speaker 2: dollars an ounce versus everyone else in the rest of
Speaker 2: the world. But explain what is it this driving this
Speaker 2: purchase from the public in China.
Speaker 3: Okay, first, let's talk about its role as a critical manalk.
Speaker 3: It goes into the production solar PV and that makes it,
Speaker 3: as you pointed out the beginning, fifty percent an industrial
Speaker 3: metal and then fifty percent of a store value like gold.
Speaker 3: So the fact that it has these dual uses, it's
Speaker 3: a critical mineral and important to the electrification process on
Speaker 3: a global base. Remember, it's a superconductor. Actually, let me
Speaker 3: go back to answer your question. Tracy said, what do gold, silver,
Speaker 3: and copper all have in common? They're superconductors. I know
Speaker 3: people say, well, Jeff, copper isn't exactly a definition of
Speaker 3: a superconductor. It's not as strong as silver and gold,
Speaker 3: but it sits up there in that electrification process. And
Speaker 3: so when we think about silver, it's critical for the
Speaker 3: industrial base of China given the importance of solar panels
Speaker 3: as a part of the industrial manufacturing process in China.
Speaker 3: So you know, when if you're the PBOC or somebody
Speaker 3: like that, you're going to be very focused on making
Speaker 3: sure there's adequate silver supplies inside of China. So the
Speaker 3: fact that it also then has the store of value
Speaker 3: like gold and accessible by many parts of the population.
Speaker 3: Because even at one hundred one hundred dollars an hour,
Speaker 3: one hundred and twenty dollars an ounce as wherever this morning,
Speaker 3: it still makes it a much more affordable a store
Speaker 3: of value. So I think that two key points for
Speaker 3: China and why silver is so important is its role
Speaker 3: as a critical mineral and as a superconductor. And given
Speaker 3: the importance of solar panels and other types of renewable
Speaker 3: investments to the Chinese industrial base, having a secure supply
Speaker 3: of silver is absolutely critical to the Chinese economy. Second
Speaker 3: of all, is when you look at the price of silver,
Speaker 3: even at one hundred and twenty dollars an ounce, it
Speaker 3: is still very affordable to many of the population as
Speaker 3: a store of value similar to gold. And also given
Speaker 3: the recent price trends, people feel comfortable in holding it.
Speaker 3: So it has those two components that make it critical
Speaker 3: to the Chinese economy.
Speaker 4: Some people would say that, like, all right, you can
Speaker 4: look at all these things surging and tell a story
Speaker 4: about debasement and electrification and what the future world is
Speaker 4: going to look like. Some other people would say, well,
Speaker 4: you could tell an even simpler story, which is that
Speaker 4: one of these markets is wrong. Right, So maybe copper
Speaker 4: sees economic growth going to the moon, although it seems
Speaker 4: kind of unlikely to me, maybe silver is somewhere in between.
Speaker 4: Maybe gold is wrong about the debasement thesis. Whatever, how
Speaker 4: do we know that We're just not seeing investors get
Speaker 4: this one wrong. People are just going from a mentoreame.
Speaker 2: Clanification of pressures of metal.
Speaker 3: Well, I do think when we talk about a commodity
Speaker 3: supercycle the s words, which by the way, is nothing
Speaker 3: other than a commodity capac cycle or a big global
Speaker 3: capac cycle, and we're seeing that, you know, whether it's
Speaker 3: an investment in defend, investment into AI data centers. The
Speaker 3: list goes on. This is a world scale capex boom
Speaker 3: we're now entering. And that typically is when you see
Speaker 3: the big commodity supercycles. One in the seventies, one in
Speaker 3: the two thousands, and where I mean, just take the
Speaker 3: defense spending in Europe alone, it's likely to be nine
Speaker 3: trillion euros over the next decade. To put that in perspective,
Speaker 3: the Chinese boom in the two thousands was ten trillion
Speaker 3: US today it's about fifteen. So even just Europe on
Speaker 3: a loan, we haven't even factored in data centers in AI.
Speaker 3: So when that occurs, typically what we see is a
Speaker 3: repricing and rerating towards asset heavy industries in commodities, or
Speaker 3: another way to think about it as short duration. Strangely
Speaker 3: is when interest rates are low, everybody thinks, oh, you
Speaker 3: would be doing capex cycles. No, you do them when
Speaker 3: their interest rates are high. Because the interest rates are high,
Speaker 3: they're telling you you need to put money into the ground.
Speaker 3: And so we're moving into to one of these repricing
Speaker 3: towards asset heavy industries, which is why it will ultimately
Speaker 3: be sustainable across the entire commodity complex. And I just
Speaker 3: want to take a step back and talk about these
Speaker 3: repricings because in my career, I've lived through two. The
Speaker 3: first one was in that call it two through like
Speaker 3: four time period, and that's what we coined the term
Speaker 3: revenge of the old economy. Old economy is asset heavy,
Speaker 3: New economy is asset light. And that asset light in
Speaker 3: the late nineties two thousands was really about the scalability
Speaker 3: of software. You don't need to have put a lot
Speaker 3: of money into the ground to be able to create growth,
Speaker 3: and that was the whole asset light model. But eventually
Speaker 3: we ran out of all of these heavy industries that
Speaker 3: you need to make the investments in and then China
Speaker 3: came on the scene and became clear we need to
Speaker 3: make those investments. And that happened over that decade. But
Speaker 3: that repricing, rerating was a violent process as you moved
Speaker 3: out of new economy or into the old economy. The
Speaker 3: next time we saw that was in fourteen fifteen, where
Speaker 3: we moved out of the old economy and into the
Speaker 3: new economy. Why because it was clear China was at
Speaker 3: the end of the track. And if you remember that
Speaker 3: time period we go through there, the euro went from
Speaker 3: like one point fourd to parody in the course of
Speaker 3: like eighteen months. I remember the period oil was coming
Speaker 3: down seven dollars a barrel, like every other day, everybody,
Speaker 3: what's going on? What's going on? I want to make
Speaker 3: a point here to get to your point about why
Speaker 3: is this sustainable across all these commodities. And when we
Speaker 3: look at I'm going to take a like a private
Speaker 3: equity pitch book in twenty twelve of a Canadian oil asset.
Speaker 3: They value the asset at one hundred and ten dollars
Speaker 3: of barrel. The IRR of that asset that this oil
Speaker 3: field was twenty five percent at one hundred and ten.
Speaker 3: Now fast forward to twenty sixteen, after the macro repricing,
Speaker 3: oil was sitting around forty dollars a barrel. Now, let's
Speaker 3: go reprice the IRR of that asset. What do you
Speaker 3: think it is immediate responsibles? He would go, oh, it
Speaker 3: was negative. Rr. No, it was around eighteen nineteen percent.
Speaker 3: It didn't come down much. Why is because the Canadian
Speaker 3: dollar reprice, so wages went down, you had a repricing
Speaker 3: of the cost of capital, you had a repricing of copper,
Speaker 3: iron ore. They all came down, and so your cost
Speaker 3: bass came down, such as the IRR was far more
Speaker 3: stable over that repricing. And that's ultimately what we're starting
Speaker 3: to see happen across this space right now. And I
Speaker 3: believe we're in one of these repricings. We're going to
Speaker 3: move back into the asset heavy space. I want to
Speaker 3: make one last point before moving on this. During this
Speaker 3: it's going to make this one really different from ones
Speaker 3: in the past. Is I want to go back to
Speaker 3: the nineteen sixties because it's similar to today. And that was that,
Speaker 3: at least in the modern data the first big commodity supercycle,
Speaker 3: the asset light space back in the sixties was companies
Speaker 3: like Coca Cola. In fact, all the nifty to fifty
Speaker 3: were brands. What do brands have similar to Let's say Microsoft,
Speaker 3: infinitely scalable at zero marginal cost. And so Coca Cola
Speaker 3: was the world's darling right now, and all of the
Speaker 3: big commodity producers, the miners, the oil companies were at
Speaker 3: the bottom. And then you had the Arab oil embargo
Speaker 3: create that catalyst to reprice. Now what happened here is
Speaker 3: that that's different today. So you think about that asset
Speaker 3: light space was Coca Cola, and then in two thousand
Speaker 3: it was Microsoft, and today it is Google and the hyperscalers.
Speaker 3: Now here's where it gets really different in the power
Speaker 3: what's going to happen now is the asset light space
Speaker 3: is getting into the asset heavy space, i e. These
Speaker 3: hyperscalers are putting steel into the ground. And by the way,
Speaker 3: you're no longer a asset light infinitely scalable software company,
Speaker 3: You're a you're an oil company, you are a commodity producer,
Speaker 3: You're multiple is going to get rerated. And so what
Speaker 3: we have is the asset light space this time is
Speaker 3: moving into the asset heavy space and putting steel in
Speaker 3: the ground. So this is going to be a real
Speaker 3: violent transitions. To ask about copper and silver and the
Speaker 3: rest of these things. What are the restrictions on their
Speaker 3: big CAPEX budgets? Is the availability of transformers? What are
Speaker 3: transformers big chunks of copper? And so we have a
Speaker 3: difference in this cycle than once in the past is
Speaker 3: the asset light space is colliding in the physical space
Speaker 3: at the exact same time, which is what I thind
Speaker 3: to think that this repricing is going to be more violent,
Speaker 3: more sustainable, and what you're going to see, and it
Speaker 3: goes to a simple point that I observed in the
Speaker 3: two thousands was when oil first went out because oh
Speaker 3: it's a bunch of investors buying oil, it sits at
Speaker 3: sixty dollars a barrel, that supernatural returns. No, you actually
Speaker 3: had capital rotate out of the asset light space and
Speaker 3: into the oil space during four to five such as
Speaker 3: the cost basis actually rose and there was no supernatural return.
Speaker 3: So go, Tracy back to your point, how sustainable is this? Well,
Speaker 3: what we're seeing is all the capital flowing into this
Speaker 3: asset heavy space and it's going to build the ground
Speaker 3: underneath these prices and support them from a relative cost basis.
Speaker 3: And so when we think about fourteen thousand dollars a
Speaker 3: ton comper, doesn't mean these guys are earning supernatural returns
Speaker 3: because we see so much capital movements in the space.
Speaker 2: I absolutely love that comparison of the software companies to
Speaker 2: the Coca Colas and this idea that there are certain
Speaker 2: business models that can scale incredibly with very little physical needs.
Speaker 2: And the way you framed that I thought was very
Speaker 2: helpful to understand. And we've certainly talked a lot on
Speaker 2: the podcast about the hyperscaler is getting into the real
Speaker 2: business of things and you know, going up the chain
Speaker 2: and in some cases getting getting into the power production,
Speaker 2: investing in their own nuclear plants and hiring power traders.
Speaker 2: So all of this feels very real. Let's just like
Speaker 2: you say we're in a super cycle, you say we're
Speaker 2: at the foothills of the Himalayas. What is history or
Speaker 2: your work say about how big and how far this
Speaker 2: can go?
Speaker 3: Well, I mean, historically these cycles last summer around twelve years.
Speaker 3: The one in the seventies did, the one in the
Speaker 3: two thousands did one of the seventies from sixty eight
Speaker 3: to nineteen eighty, the one in the two thousands, from
Speaker 3: essentially two thousand and two to twenty and fourteen. A
Speaker 3: lot of people say, oh, the world's different today than
Speaker 3: in those other points. Time Putting steel in the ground
Speaker 3: still takes about the same amount of time, technology or
Speaker 3: no technology. I like to point out, where do you
Speaker 3: get the twelve years you know, were the first three years,
Speaker 3: or getting people to believe it before they start to
Speaker 3: really invest earnestly. And I would say this one started
Speaker 3: in twenty twenty and so the fact that we lost
Speaker 3: two years in twenty three and twenty five, whether it
Speaker 3: was copper oil and part of the reason for that
Speaker 3: was the rally and prices was so steep after that
Speaker 3: Russian Ukrainian invasion. The policy response globally was incredibly swift.
Speaker 3: I want to point out that policy response in twenty
Speaker 3: two and twenty three was not so much the rise
Speaker 3: in interest rates but the creation of supply. And I
Speaker 3: say that is because you had inflation come down everywhere
Speaker 3: in the world in a synchronous manner, and it did
Speaker 3: it against record commodity demand and really strong GDP growth
Speaker 3: in the United States wasn't I tell you, it simply
Speaker 3: could not have been interest rates in the demand side.
Speaker 3: It had to come from a supply side. Where did
Speaker 3: they get new supply? Russia, Iran, Venezuela, you know, some
Speaker 3: of the issues that are faceing to say. They got
Speaker 3: it through increased immigration on the labor side. There was
Speaker 3: a lot of ways they created supply all over the
Speaker 3: world to be able to deal with that. Now the
Speaker 3: point this time around, and everybody's bought into this oil
Speaker 3: supply lot, we don't have a problem is that those
Speaker 3: easy fixes are not going to be available next time around.
Speaker 3: So this one's going to take longer than normal. But
Speaker 3: I also want to go why I'm comfortable with this
Speaker 3: being a supercycle is all of these things are all
Speaker 3: policy driven. The one in the seventies was due to
Speaker 3: the lbj's War on poverty, the big defense spending sound familiar,
Speaker 3: and then you had the air of oil embargo. If
Speaker 3: you look at what happened in the two thousands, it
Speaker 3: was the decision to admit China, the wto a policy decision.
Speaker 3: Here the policy decisions is the war on free trade,
Speaker 3: and it's not just the US doing everybody's doing it.
Speaker 3: You know, curtailing commodity supply around the world. In fact
Speaker 3: that the three points we laid out in twenty twenty,
Speaker 3: in fact, it was on this show we laid them out.
Speaker 3: There's still very much valid today. And they were all
Speaker 3: policy decisions. One was deglobalization, the war on free trade.
Speaker 3: I mean, if anything, it's been turbo charged now from
Speaker 3: five years ago. And when we think about it, it's
Speaker 3: all policy decisions. It's not just inside the United States
Speaker 3: where we're seeing this. You know, the Chinese cutting critical
Speaker 3: mineral supply. You know, Europeans focused on, you know, protecting themselves,
Speaker 3: defense spending. The list goes on. Let's go to the
Speaker 3: second one at the time, decarbonization or electrification. And I
Speaker 3: know a lot of people are going to look at, oh, well,
Speaker 3: didn't the US backtrack on that with it, you know,
Speaker 3: the recent political shifts. The answer is absolutely not. The
Speaker 3: rest of the world is doubling down on electrification. For
Speaker 3: both when we think about the electrification of the world,
Speaker 3: where it wasn't decarbonization was not the motivator today, it
Speaker 3: wasn't then. And then going back in time, why do
Speaker 3: I say that, why did China build cutting edge technologies
Speaker 3: and nuclear power, solar wind batteries and the rest of it.
Speaker 3: They did it for energy security. Kind of goes into
Speaker 3: the deglobalization point. They want their own secure energy supply.
Speaker 3: In fact, Carter coined the term energy transition and want
Speaker 3: to transition out of oil into renewables in nineteen seventy seven,
Speaker 3: not because they wanted to save the world, but because
Speaker 3: of energy security. One last point on this is France
Speaker 3: lowest carbon footprint in the world. It didn't get there
Speaker 3: because it wanted to save the planet. It got there
Speaker 3: because it wanted nuclear power. So it was Charles de
Speaker 3: gaull decision to rid itself of the oil trade. So
Speaker 3: this story, regardless of what's going on in the political pushback,
Speaker 3: and I don't think green was ever probably the right
Speaker 3: way to phrase this. It's renewable, it's a secure source,
Speaker 3: nuclear powers, a secure source, throw data centers AI all
Speaker 3: on top of it. It's turbocharged. From the last time
Speaker 3: we talked about and then finally the third point was
Speaker 3: redistribution of the war on income inequality kate with the
Speaker 3: k economy. This is alive and kicking.
Speaker 4: Wait say more about that last point.
Speaker 3: Well, when we think about commodities, and actually, Tracy, i've
Speaker 3: seen you even make this point that I made back
Speaker 3: five years ago, was that when you see inflation and
Speaker 3: you see commodity demand, it has to be coming from
Speaker 3: the low income groups. This is the point that people
Speaker 3: get backwards. Inflation is bad for the high income groups.
Speaker 3: And the reason why is because the low.
Speaker 4: This was a great call that you made, by the way, Yeah.
Speaker 3: And the low income groups are the ones that actually
Speaker 3: think about this. In corn, a high income person will
Speaker 3: consume the same amount of corn at any point in time.
Speaker 3: The marginal demand has to come from the low income groups.
Speaker 3: And so when you give them money like fiscal transfers
Speaker 3: and you know, to keep the masses happy in certain situations,
Speaker 3: what are they going to do. They're going to spend it.
Speaker 3: They're going to spend it on commodities and physical goods,
Speaker 3: and that ends up creating that inflation, and then the
Speaker 3: high income people suffer because the the response by policymakers
Speaker 3: to the higher rates is wealth comes down. And another
Speaker 3: way to think about all inflation is as a wealth
Speaker 3: transfer between the high income groups and the low income groups,
Speaker 3: and then they go out and spend it. And so
Speaker 3: when we think about the demand here is that third one,
Speaker 3: which is this war on that income inequality is just
Speaker 3: going to demand more and more types of transfers to
Speaker 3: the lower income groups to be able to deal with
Speaker 3: the silvil unrest. And it's alive and kick in everywhere
Speaker 3: in the world right now. And so I would assume
Speaker 3: you know that, you know, if you liked any of
Speaker 3: these three stories back in twenty twenty, you got to
Speaker 3: love them today.
Speaker 4: Just going back to the supersycle thesis and the role
Speaker 4: of policy, how do we know that the importance of
Speaker 4: a lot of these metals, the strategic importance, How do
Speaker 4: we know that that won't end up increasing supply faster
Speaker 4: than we expect? You know, part of the story, especially
Speaker 4: in copper, is that it's not that many people are
Speaker 4: pulling it out of the ground anymore. It takes forever
Speaker 4: to get a new mind started. How do we know
Speaker 4: that government aren't just going to make it easier to
Speaker 4: get this stuff? And so you'll see a supply response
Speaker 4: faster than perhaps you saw previously.
Speaker 3: Let's go back to my point. You know these are
Speaker 3: twelve years cycles. It's just putting steel in the ground
Speaker 3: takes a long time. Even if you got rid of
Speaker 3: all of the bureaucracy and red tape. It's going to
Speaker 3: take time. But let's go to the critical minerals. Why
Speaker 3: does China dominate these They did it because the Soviets
Speaker 3: and the Americans didn't want to touch the downstream processes
Speaker 3: because of not in my backyard, for nimby reasons. I
Speaker 3: mean even the Soviets. I mean remind I say the Soviets,
Speaker 3: because this decision was made in the seventies. Remember when
Speaker 3: the EPA, the super fun sites and all of that.
Speaker 3: The Americans and the Soviets used to do this, they
Speaker 3: quit doing it and farmed it out to the Chinese
Speaker 3: because they didn't like doing it in their backyards. There's
Speaker 3: are really highly toxic processes, and so if you're going
Speaker 3: to onshore them and bring them back, you've got to
Speaker 3: figure out technology used to do this in a way
Speaker 3: that's going to deal with those nimby problems that people
Speaker 3: didn't want to deal with fifty years ago. So it's
Speaker 3: going to be very time consuming. There's ways to get
Speaker 3: around it. But you know, whether if I heard you know,
Speaker 3: you can build these facilities on army land in the
Speaker 3: United States. You don't get any of the bureaucracy around
Speaker 3: environmental problems. But even so the last thing, you know,
Speaker 3: this stuff you did. You know, if you didn't like
Speaker 3: it in the seventies, you're still not going to like
Speaker 3: it today. So it's not something that can be resolved overnight.
Speaker 3: It's going to take a long time. It's going to
Speaker 3: take an enormous amount of capital, new technologies created, re
Speaker 3: routing supply chains around the world. That's why I say, then,
Speaker 3: where is just the tip of the iceberg on what
Speaker 3: needs to be done here, which is why I think
Speaker 3: is going to go on, you know, for at least
Speaker 3: another decade. And one last point about the super cycle
Speaker 3: the seventies and the one in the in the two thousands,
Speaker 3: they were sequences of price spikes. They weren't a steady
Speaker 3: upward trend. You had one in seventy three, another one
Speaker 3: in seventy seven, seventy eight, and another one in eighty.
Speaker 3: In the two thousands, you have one in four oh five,
Speaker 3: another one in eight, and then the final finale in eleven,
Speaker 3: late ten and eleven it was with Libya and then
Speaker 3: copper top eleven thousand. So everybody thinks they're like the
Speaker 3: steady upward trend in prices and assets the realities there
Speaker 3: sequence of price bikes, and this one will be more
Speaker 3: bubbly in nature. I like to say it's a bubbling
Speaker 3: cauldron of supply and demand imbalances. And part of this
Speaker 3: is because of what happened with the surge in investment
Speaker 3: around let's call it the green investment around net zero
Speaker 3: twenty fifty. I like to say that that investment occurred
Speaker 3: from around twenty fifteen through about twenty one twenty two.
Speaker 3: It created an environment where you have lots of let's say,
Speaker 3: renewable win in places like Germany or Spain, but you
Speaker 3: don't have the batteries, the grid and the rest of it.
Speaker 3: So while that creates is these pockets where you can
Speaker 3: see big shifts where you have negative prices of power
Speaker 3: at some point explosive prices on their side. So the
Speaker 3: one thing about this time around, it's going to create
Speaker 3: much higher levels of volatility across the commodity space. Like silver,
Speaker 3: you can see you get into these pockets were it'll
Speaker 3: go up and down. And you know whether it was
Speaker 3: California power in the two thousands, and that my cycle,
Speaker 3: which sure reminds me what silver's doing today, is you
Speaker 3: end up with an environment in which the volatility gets higher.
Speaker 3: The volatility then scares investors away. The lack of investment
Speaker 3: then reinforces the higher volatility. And I think that that dynamic,
Speaker 3: in this bubbling cauldron of supply and demand imbalances is
Speaker 3: just going to be that much more vicious this time
Speaker 3: around than in the past.
Speaker 2: Jeff, you're my favorite person to talk to about commodities.
Speaker 2: But my second favorite person to talk to about commodities
Speaker 2: is the uber driver that I had in twenty twenty two,
Speaker 2: who when he was dropping me off at Bloomberg and
Speaker 2: I mentioned this on a previous episode, He's like, Oh,
Speaker 2: I have a thesis. I'm really long silver because it
Speaker 2: has all these industrial uses. But silver is frequently mined
Speaker 2: as a byproduct of copper production, and there isn't a
Speaker 2: lot of new copper production happening at this current state. Therefore,
Speaker 2: we're not going to see a big supply response be
Speaker 2: elicited on the silver side, and so you're going to
Speaker 2: get this mega squeeze. So here's my second favorite one
Speaker 2: that was twenty twenty two, now in January twenty twenty six.
Speaker 2: I mean, clearly the price is right, but this phenomenon
Speaker 2: as he described it. Does that sound pretty accurate to you?
Speaker 3: Absolutely? I mean with all of these by the way
Speaker 3: that you can get the supply, it's not a scarcity
Speaker 3: of the commodities, whether if it's critical mental even compar
Speaker 3: it's like, it's the access. It is the political access
Speaker 3: to where the resources. But more importantly, it's the willingness
Speaker 3: of capital to provide the money. I like to say,
Speaker 3: it's not about the supply and demand of the molecules,
Speaker 3: or of the metric tons or the bushels. It's about
Speaker 3: the supply and demand of the capital used to create
Speaker 3: the production. Therein lies the core problem. And the capital
Speaker 3: has not moved in. So Tracy back your point, how
Speaker 3: long is it go? We haven't even moved the capitol
Speaker 3: in yet. The capital is still sitting in the new
Speaker 3: economy or asset light world. And the returns. You know,
Speaker 3: by the way I've asked people, I go like this
Speaker 3: is in like twenty three twenty four, I go, hey,
Speaker 3: why don't you want to put money into these this space?
Speaker 3: The answer was, Jeff, I agree with your story. The
Speaker 3: problem is the tech space is providing such real good
Speaker 3: returns that if I am underweight the space. I got
Speaker 3: a problem, and I'd rather be putting the money into
Speaker 3: what's out before me. That was a case in twenty three,
Speaker 3: twenty four, twenty five.
Speaker 2: Just to be clear, since the last time we talked
Speaker 2: to there has not been a ton of activity in
Speaker 2: terms of let's actually start digging.
Speaker 3: No, because the pullback in late twenty two and early
Speaker 3: twenty three was so vicious across this entire space that
Speaker 3: the money they looked at it go I got beaten up.
Speaker 3: You know, Curry, you told me to go in back
Speaker 3: in twenty and twenty one work for about a year
Speaker 3: and a half. I got absolutely cremated on the backside.
Speaker 3: I'm not going to do that again. And so they
Speaker 3: got beaten up over that time period. Their willingness to
Speaker 3: go back in and believe the story is not that high.
Speaker 3: They're going to have to see it. And now that's
Speaker 3: moved so quick, so fast like it did in twenty two,
Speaker 3: that they're going to look at it and go, oh,
Speaker 3: I missed it. And I think, you know, it's like
Speaker 3: Tracy's point is how much further this go? How sustainable
Speaker 3: is it? And I think the key point there is
Speaker 3: it's that volatility is discouraging them. And that's why I
Speaker 3: tend to think what is going to force the money
Speaker 3: into the space is you're going to have to have
Speaker 3: the returns in the asset light tech or whatever you
Speaker 3: want to call it. World get to a point that
Speaker 3: they're going looking at the old economy going I'm willing
Speaker 3: to take that risk and go in it because that's
Speaker 3: the only place that has returned. And when they do that,
Speaker 3: that's when you're going to end up seeing the rotation.
Speaker 3: And I also want to go back to a point
Speaker 3: here is the market is so severely underweight all of
Speaker 3: this stuff because it's been so hated for so long
Speaker 3: that when the.
Speaker 4: Money rotates, anti goldbug.
Speaker 3: But when the money rotates, it's going to be playing ketchup.
Speaker 3: Whether if it's you know, the two and a half
Speaker 3: percent waiting of energy in the S and P five
Speaker 3: hundred versus what a seven or eight percent waiting on
Speaker 3: revenues the market cap is too small, and what if
Speaker 3: it's in metals and mining and critical money. These things
Speaker 3: are just so tiny. It's like I was talking the
Speaker 3: other day. You take FCX and let's see ivanhoe mines
Speaker 3: and some of the other smaller copper producers, So what
Speaker 3: is their market cap is is all together two hundred
Speaker 3: billion versus Navidia at four and a half trillion. Now,
Speaker 3: all of a sudden, you take that money out there,
Speaker 3: and that has to go chase the space, and so
Speaker 3: you're asking how high can it go? You can go
Speaker 3: really high because you're talking about moving trillions of dollars
Speaker 3: out of asset light into asset heavy when nothing's been
Speaker 3: here for over a decade.
Speaker 4: Jeff, very very quickly. Are there any risks to the
Speaker 4: structural supercycle thesis? Is there any indicator that you're watching
Speaker 4: to suggest that, Okay, maybe it's not going to happen,
Speaker 4: or maybe it's not going to happen at the moment
Speaker 4: that you're currently predicting.
Speaker 3: I first want to talk about the difference between equities
Speaker 3: and commodities. Commodities are driven by the real physical supply
Speaker 3: and demand, and equities and financial markets are driven by expectations.
Speaker 3: Expectations can or cannot happen. Trying to figure out what
Speaker 3: the next person is going to do and what they're
Speaker 3: going to buy actually can be modeled and thought through,
Speaker 3: but it's less predictable long term supply and demand balances
Speaker 3: and commodities. You know, when you have a problem a way,
Speaker 3: people don't push back. I mean when I think I
Speaker 3: said on the last time here, copper is the best
Speaker 3: trade I've seen in terms of fundamentals. Stan Druck of
Speaker 3: Miller recently he made the same comment that hey it's tight,
Speaker 3: Yeah it's really tight, but it may not work today, tomorrow,
Speaker 3: the next day. I know if I sit on the
Speaker 3: position and hold it long enough, eventually you'll get to
Speaker 3: that point where it does pay out. Because you know
Speaker 3: the physical supply and demand, the rubber meets the road
Speaker 3: and you see the rise of prices. Now the question
Speaker 3: is can you stay liquid long enough before that event occurs. So,
Speaker 3: first of all, the reason why I'm so confident in
Speaker 3: these stories is the forward on these markets are incredibly unbalanced,
Speaker 3: whether if it is in copper, you know, the industrial metals,
Speaker 3: you know, the critical minerals, oil, all of them are
Speaker 3: really imbalanced. Because so that's the thesis why my confidence. Now,
Speaker 3: what is the near term risk. It's not that you
Speaker 3: know that you're gonna because we're going to electrify the world.
Speaker 3: You don't have enough copper to electrify the world. The
Speaker 3: risk is like the demand for in housing demand in
Speaker 3: China collapses, but that happened in twenty three and twenty four,
Speaker 3: so you've already paid the price on that one. So
Speaker 3: when I think about these risks that you're talking about,
Speaker 3: they might come from the demand side, because you cannot
Speaker 3: create supply from thin air, so it has to be
Speaker 3: demand coming down. But that demand coming down just ultimately
Speaker 3: delays how long it'll take before you run into the province.
Speaker 3: The main reason why copper didn't perform in that twenty
Speaker 3: three twenty four timeframe is we underestimated the severity of
Speaker 3: the property contraction in China, and part of that was
Speaker 3: the high interest rates. West forced the Chinese to keep
Speaker 3: interest rates too high because they had to prevent capital outflow,
Speaker 3: and as a result, it really hurt that property sector.
Speaker 3: So that would be you know, it's different than the
Speaker 3: financial markets because the expectations can change on a moment
Speaker 3: and they're hard to forecast. Bottom line, you need this investment.
Speaker 2: Jeff Curry, perfect guest, Perfect day. Thank you so much
Speaker 2: for coming back on outline.
Speaker 3: Great, thank you for having me. It's quite enjoyable, truly.
Speaker 4: The perfect guests. Congrats on all your structural thess that
Speaker 4: seem to be playing out great.
Speaker 3: Take care of y'all.
Speaker 2: I love that.
Speaker 3: I think just the best.
Speaker 2: She's so good.
Speaker 4: I'm so glad we could get him on today. In particular,
Speaker 4: I should just mention we're recording on January twenty ninth.
Speaker 4: The price of is going up so quickly. Who knows
Speaker 4: what it's going to be tomorrow.
Speaker 2: I think the most. I mean, there are so many
Speaker 2: powerful ideas and compelling notions. To my mind, one of
Speaker 2: the strongest ideas that I think is sort of under
Speaker 2: discussed in the debate is the intersection of the commodity
Speaker 2: rally and the war on free trade. Right, and you know,
Speaker 2: we look at things they're getting a little bit more
Speaker 2: expensive here, people sort of look like it's the terms
Speaker 2: being passed through, et cetera. But this deeper dynamic that
Speaker 2: if you don't have a world of sort of relatively
Speaker 2: open trade, then that forces everyone to stockpile, and that
Speaker 2: forces everyone to build their own version, and that'll I'm
Speaker 2: going to build a chip plant here, and I'm going
Speaker 2: to build a chip plant there, and I'm going to
Speaker 2: build a chip plant there. Because we're also worried you
Speaker 2: have that duplication. That's the war on free trade that
Speaker 2: whether it's public or private, forces all of this commodity
Speaker 2: intensive spending.
Speaker 4: Yeah, I'm going to say, is it's good to hold
Speaker 4: gold and silver coins in? Well, the problem is it
Speaker 4: feels good. It feels good. But well, that's the thing.
Speaker 4: I don't even know how to sell. Like I would
Speaker 4: have to carry a bunch of gold coins through New
Speaker 4: York and find a dealer or something.
Speaker 2: You know what, We need to take another trip through
Speaker 2: the diamond diustry. There are plenty of signs on their
Speaker 2: windows we buy gold and so forth.
Speaker 4: Well, I would actually do an episode on buying physical gold.
Speaker 2: Let's do an episode on selling physical Yeah, yeah, how.
Speaker 4: Do you actually do that? Are there certain ways to
Speaker 4: do it that are better than others and all of that? Yeah,
Speaker 4: totally do that.
Speaker 2: Let's do it. It sounds like you're great.
Speaker 4: I have a silver bar somewhere too. I need to
Speaker 4: find that. I like, I'm going to bring it in
Speaker 4: and use it as a paperweight just to annoy you.
Speaker 2: Well, I have my I have my what's it called
Speaker 2: not the what's that metal?
Speaker 4: That metal that you are obsessed with?
Speaker 2: And now you forgot I shouldn't have asked if that's
Speaker 2: my one. That's my main exposure to hard ass. It's
Speaker 2: that tungsten cube. That's that copweight. I think so. I mean,
Speaker 2: he said every element in the He said, the story
Speaker 2: is that if it's an element in the periodic table,
Speaker 2: it's gone up in price. And I actually think tungsten
Speaker 2: has gone up quite a bit in that price. But
Speaker 2: I didn't exactly buy in size. I think my cube
Speaker 2: cross about three hundred dollars, just something like that.
Speaker 4: But okay, shall we leave it there.
Speaker 2: Let's leave it there.
Speaker 4: This has been another episode of the Adlots podcast. I'm
Speaker 4: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our producers Kerman Rodriguez at Kerman armand Dashel Bennett
Speaker 2: at Dashbot and kel Brooks at Keil Brooks. For more
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