The equivalent of the doomsday clock of how many minutes we are

from a monetary regime change, I would say would be at 11:59. It

seems like we're awfully close. So, is it today? Tomorrow?

No. Is it in the next six months? Again, I think that for the

first time, I see a potential catalyst in the near future, more

than I've seen in the past. So again, watch this space.

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and understand the specific risks from the investment manager

about their products before you make investment decisions. Here's

your host, veteran hedge fund manager Niels Kaastrup-Larsen.

Welcome and welcome back to another edition of our global macro

series where today, as usual, I'm joined by my co-host, Cem Kassan,

as well as a returning guest to the show, namely Adam Rozencwajg,

whom we last spoke to about six months ago. Adam, it's always

a pleasure to have you back. And Cem, thanks for joining us today

as well. I'm sure this will be another fascinating conversation.

It'snot like anything is happening in the world right now.

But before we get to all of that, how have you been, Adam? Are

you doing well?

Yes, very good, thank you. Happy to be back. We welcomed our

third daughter since I last spoke to you. So, some long nights

where I've had lots of time to read in the wee hours of the morning

and maybe a new perspective on the world at large. So happy to be

here and happy to talk to you again.

Yeah. And is the vortex also hitting you, Cem, at the moment?

I know it's cold in the US.

Yeah, it's currently 3 degrees Fahrenheit outside. So yeah, you

could call that a vortex. I mean, Chicago is always cold at this

time of year, so it's all 10 degrees one way or another. It doesn't

change things too much, but it is cold.

Well, we've got a few hot topics to talk about today in the

world of natural resources. And I'm sure some global politics

will sneak in as well.

So,what I'd love to do, actually,

Adam, with you, is to maybe ask you to kind of, before we dive

into all the subtopics, maybe give us your view on kind of your

big picture framework at the moment, but also perhaps point out

some of the things that may have changed from about six months

ago when we last spoke.

So, I think a lot of things have changed in the last six months

since we last spoke. And frankly, pretty much all of them,

as far as we can see, have been very bullish for natural resources

and real assets in general.

I'llstart very briefly on some of

the supply demand trends and then I'll kind of zoom out and discuss

a little bit more on the macro, in terms of some of the changes

we've seen and some of the catalysts going forward. We're value

investors. And for a long, long time we've argued that, with

the commodity markets where they are, which is to say very cheap

relative to financial assets, and with commodity stocks where they

are, energy at 3% of the index versus 15% long term, we've argued

that timing really doesn't matter. It doesn't cost you anything

to be early on these trades when you get such extreme valuations.

Andon the other hand, it costs you quite a bit if you miss

that move. You know, it can move quite quickly when it comes

off the bottom. And I think now that's evolved a little bit where,

I think, the timing is actually coming a little bit more

crystal clear in the next six to nine months. And I think you really

want to be involved now. So, we'll talk about all of that here

today.

Fromthe fundamental perspective, the big thing that has

changed since we last talked is that, after years of underinvestment

and after years of restricted exploration and development, we're

starting to see supply responses in a lot of different commodities

across the board. That's certainly true in global oil markets.

You'llrecall that the US has been the number one driver, in fact,

really the only driver of global oil supply growth in the last

15 years. We estimate that about 9/10 of every barrel of new

demand has been met by a shale barrel in the last 15 years or so,

and that's now over.

Youknow, shale growth has now turned negative.

It looks as though on a year-on-year basis, December to December

was likely negative in terms of U.S. crude oil production.

Andthe

shales, all except the Permian, are in pretty sustained

declines. And we can use those as a roadmap to say when will the

Permian decline? And it's already basically bouncing along

at zero growth. And I suspect that that'll be in outright decline

within the next month or so. So, what we've been saying for a

long time, look forward to a change in global oil supply dynamics,

that's now here, and it's also here in natural gas.

So,the US gas

production, which has grown relentlessly since the middle 2000s

with the advent of shale gas fields, has now actually turned negative

by about 2% to 3% year-on-year. It's a big number.

It was as high as, you know, down five Bs at one point. Now it's

sort of moderated down three Bs. But we continue to see month

on month sustained declines.

Thatchange really has to do with

a weak month, a year ago, as opposed to major growth happening

today. And that's in the view of or in the face of a massive new

demand picture.

So,the fundamentals are looking really,

really good in both oil and natural gas. This is what our AI

models have been telling us for a few years now. Our AI models,

by the way, I don't mean our modeling of AI demand, I mean using

AI to actually predict supply, which we've been doing since 2018,

always predicted steadfast 2014 would be the year everything

rolls over. That has now happened.

Thesame is true in uranium.

You know, uranium is starting to see some disappointments coming

out of Kazakhstan in terms of production. And Canada had announced

about a year ago some problems there. So, we're seeing it across

the board, really across a lot of different commodity spaces. And

the reason is it's been 15 years of a bear market and it's been

15 years of massive, massive underinvestment. And underinvestment

always leads to depletion, it always leads to a supply response.

Takinga little bit of a step back, looking at more of a macro

picture, we've said, for a long time now, that if you look at

the ratio of commodity prices to stock prices, that tells a really

interesting long term story. We took that ratio back all the way

to 1900. And what it shows is that commodities and real assets

move in these huge cycles. When they get really cheap, you should

buy them. When they get really expensive, you should sell them.

Andthe preconditions to both moments of extreme undervaluation,

and then the catalyst to make things move into a bull market again,

have been remarkably similar over the last 150 years in terms

of different commodity cycles and what we're starting to see now…

We've been saying that for a long time but in the six months since

we last spoke (and I think we discussed this a little bit, maybe,

in the last podcast I was on with you guys), but we read a fascinating

book by some colleagues of yours, and that would be the Rise

of Carry by the two Lees and Coldiron. And what we concluded was

these periods of radical real asset undervaluation or commodity

undervaluation are actually just symptoms of a bigger cycle.

And that would be a carry regime cycle that we're certainly

in now.

Andthat has actually meant that several different factors

have all taken place very much along the same timeline as these

big commodity cycles with major bottoms happening in ‘29, ‘69,

‘99 and then today. And so, what that does, we could talk about

what those are in a second, but what that does is it suggests

to us that this is not just a coincidence. It's not a spurious

correlation. We don't just happen to have real assets really

cheap. It's actually part of a much bigger causal system.

There'slots

of factors in play here that are driving commodity prices lower

and that, if you believe that the same systems are in play today

as were in play over the last 150 years (which we do), that we're

on the verge now of a major, major reset in commodity prices and

a huge bull market that will probably last 10 or 15 years. So,

I think kind of that (you hate to go down this path) grand unifying

view of the universe a little bit. The fact that all these things

are slotting in at exactly the same timeline I think is a fascinating

development and I'm happy to talk all about it.

Yeah, I have a little bit of a follow up because this was on my

list to bring up with you. And of course, Coldiron, as you refer

to, is also known as Kevin Coldiron who is the host of the Ideas

Lab here on the podcast. And it is a great book that everyone

should read.

So,I have a couple of questions to that because

I do want maybe for you to just briefly mention, in a second,

what these triggers were so people can have an idea, and putting

it in relation to what's happening now. But the other thing

I was thinking about this was in a sense, are commodity prices

cheap or is it just financials that have gone crazy and where there's

no relationship between price and value anymore, which is kind

of what we see in so many cases at the moment.

Butthen the

other thing, I heard you on another podcast recently, I think

with Grant, where you talked about that you had seen, for example,

was it Robert Friedland who developed some kind of way of extracting

stones essentially and making them into smaller stones in a much

more efficient way. And I imagine, without being an expert,

also a lot of the drilling that takes place is happening much

more efficiently and so on, and so forth. So maybe there are

other reasons why commodities are cheaper. There's kind of a deflationary

trend current in there as well. So those were just some thoughts

I had when I heard you mention this just now. So, love to hear what

you're…

Sure. So, look, I'll touch on the second point first because it's

a little bit easier to address.

So,on the Grant Williams

podcast and in lots of other places, we've talked about some really

revolutionary new technologies being put out by a number of people.

But I think the most exciting are a suite of technologies being

put out by a gentleman named Robert Friedland. And he's the chairman,

founder, of Ivanhoe Mines. Before that he was Turquoise Hill,

which used to be known as Ivanhoe Mines. And before that, a

company up in Canada that discovered the Voisey’s Bay nickel

deposit. And together Those are probably three of the most important

mining discoveries in the 20th century.

Asa collection, I would

say that's probably the best run of any geologist in the last

150 years. I should say that he's not a geologist, he's a mining

executive. But regardless, that is an unheard of streak. Most

mining executives go their whole career without a major discovery.

A lucky few get one. You know, the hall of fame is two, three, and

now potentially four is almost unheard of. So, I don't think you

can dismiss what he's been up to.

Andhe has been working for many

years (sort of a 25 year overnight success) on a suite of

technologies that uses pulsed power to both explore for minerals

much more effectively and then ultimately drill and extract rock,

crush and grind rock. And eventually that that will help massively

in terms of how we liberate copper, let's say, or gold even from

host rock.

So,you asked is this what's driving commodity prices

lower, this broad deflationary trend from technology in the resource

space? And the answer is no, because none of these things have

actually been put to work yet. You know, this is all in the lab.

The results that they're seeing are incredible. What it actually

does do is it gives us a little bit of concern for copper

and copper supply over the medium to long term. So, I'm talking

20, 30 and beyond.

Now,none of that's in the market today. Nobody

even knows about Ipulse. You know, if you asked a hundred mining

executives, thirty might say yes, but probably only five actually

know what the hell they're doing over in Toulouse and France.

So, I would say the answer, unequivocally, in that particular

case is no. We don't see technology that is leading to massive,

you know, deflationary forces across the hard rock mining space.

Isit true in the oil and gas space? That's a little bit more of

an interesting question. I think the answer was yes, and now

again is no. And what I mean by that is we did have a disruptive

technology there. We brought in horizontal drilling and hydro

fracking, and that opened up these massive shale oil and gas deposits

that we knew were always there.

Youknow, that's what I think

people don't get about the shales. We had drilled for basically

a hundred years to find sandstone and carbonate oil and gas

reservoirs - standard conventional deposits. And every

time we would drill, you would hit one and it was a good day. Probably,

you know, you broke open a bottle of champagne when you hit

a nice oil pool.

Butthen you always would keep drilling to determine

where the bottom extent of that was. And inevitably you would

drill into the shales, which is the rock beneath those conventional

reservoirs. In fact, that's the rock where the oil and gas itself

was created, and then over time migrated into these sandstones

and carbonates, which were much, much easier to pump from.

So,you'd

hit the shale and you'd say, oh, there's all the oil and gas waiting

down there, but it'll take hundreds of millions of years for

it to migrate out into the sandstone above where we can then

suck it up with a conventional oil well. The big, big, big shift

was being able to go into that shale and rubblize it and then be

able to produce from it.

So,now you had this unbelievable

inventory of oil and gas deposits, shale oil and gas deposits,

up to that point unrecoverable, that now were able

to be recovered. So, it unleashed this massive, massive flurry

of activity.

Andthat's part of the reason (I don't think people

quite understand this), that's part of the reason the shale revolution

happened so fast was that we knew where they were. We knew where

the best ones were. We just didn't know how to get at it. So,

once you unlock that part of it, it was very, very quick to lease

up the land and go and develop it.

Immenseis not the same as infinite,

as we've talked about in the past. You brought on 10 plus million

barrels a day of crude oil production from the shales. You brought

on 95 billion cubic feet per day of natural gas production from

the shales. Massive numbers, each larger than Saudi Arabia. Together,

you know, like three, you know, two and a half Saudi Arabias.

The biggest development in the oil and gas industry, frankly, in

history.

Andyou would be forgiven, for a period of time, for

thinking that was a new shift deflationary trend, and forevermore

would lower the price. And I guess it kind of did for, basically,

a decade or 15 years. But now those fields, as big as they are,

are starting to show signs of depletion and we don't have the next

shale field waiting in the wings.

Everyonealways asks me, oh,

will we just go explore and find another massive one? No, we

knew where they were. We went after the big ones. Everything here

is incremental and it's not going to be enough to offset declines.

Soyes, I do think that there was a technological shift. I do think

that's partially responsible for why commodities are so cheap

today. That and a massive spending boom in the last cycle.

Weuncover this technology and then we raised a ton of capital to

get after it. Both of those things were deflationary. That's

in the rearview mirror. Copper is a concern for 2030, but for the

time being, no, I don't think deflation explains why commodity

prices are so cheap.

So many big things to discuss. Adam, wonderful seeing you again.

Always one of my favorite conversations of the year.

Thank you.

We talk a lot on this podcast, and for many years now, about these

big macro cycles that you referred to. As Neil's mentioned,

Rise of Carry is at the core of kind of how we think about markets

as well, never mind The Fourth Turning, and some of the insights

gained from there.

Theunderstanding that I have, and

that we think about when we think about these big cycles, is

not just that they're some magical thing that happens, but they're

a function of really this push and pull that happens with the natural

system of things pushing the world towards more and more inequality,

a natural system, everything runs, all the gains go to the top.

And, eventually, inequality getting to a point where a whole

generation (that's why it's 40 years or two generations) all of

a sudden, having experienced that inequality, rebelling against

it all of a sudden.

Andthen you enter these periods of populism,

and protectionism, and everything goes the other way for

20, 30, 40 years. So, this is this generational kind of experience,

which The Fourth Turning talks so much, is so important to these

cycles. That said, these are big, long cycles. And you can have

years within these cycles, sometimes five years, where things

within that cycle go the opposite direction.

Andobviously

we talk every six months, right? So, people are like, what's

happening in the next three months, six months, year? So, I think

the timing part is so hard. And we are dealing with a weighing

machine, as we talk about in the words of Benjamin Graham versus

a voting machine. And I think nowhere is that more prevalent than

in commodities because supply and demand in those markets can get

imbalanced and things can, as we've seen, be priced incredibly

cheaply or incredibly expensive for some periods of time

and be so very inefficient.

So,my question is really, at this

important point - new administration, new approach. Is

this the moment where, in terms of timing, supply and demand

(and when I say supply and demand it’s not in the commodities

themselves, because I think of that as really the, the weighing

machine, yes, that does play into the supply and demand in markets

as well), but really, market positioning, market timing, why would

this now be the moment, in your thoughts (meaning for the next

year or two) to really be getting along fundamentally? Right.

We agree there's a big cycle coming, but again, for five years

that could not work. I would love to hear your thoughts a little

bit about that, you know, why now?

Sure. So, I'm going to hedge at the outset and say that when commodities

do get this cheap, the timing, as we've shown, actually doesn't

matter. And I find, you know, these numbers are staggering. But

commodities first became cheap relative to financial assets, stocks,

in 2015. It crossed a threshold that was only ever breached

three times before – ’29, as I mentioned ‘68, ‘69 and ‘99. And then

it first broke that level in 2015.

Andsince then, it's kind of

been trading slightly down to sideways, commodities relative to

the Dow. (We use the Dow, but if you use the S&P, it's the same

thing). And what we notice is, in the past, again, if you bought

it when it first got cheap, even if you're timing, you know,

even if you were the super value investor, right, you didn't

want to market time, anything, you just said, look empirically,

it's as cheap as it's been. I Like it here. Now's the time to buy.

Wenoticed that first that that occurred also in like ‘53, ‘54,

and persisted all the way to ‘68, about 13 years. And if you owned

a basket of commodity equities over that period of time, you actually

performed in line slightly better than the S&P 500. And, believe

it or not, since 2015, you've basically been right in line with

the S&P again. Which has been a good run for the S&P. So, it's

not like it has been dead money. It's not like it has been…

It's been frustrating from an observational perspective, but if

you actually kind of look at your numbers since then, it's been

okay. And that's where we get this idea of, there's no cost to

being early.

Now,of course, we're already 10 years into that

period of being radically cheap. So, I suspect it doesn't last

another 10 years. We're closer and closer to the ‘68 takeoff point.

You know, the 1971 massive rallies in commodities and natural

resources. And yet the cost for being patient thus far has been

market returns. And so, I think that the risk return is certainly

in your favor.

Now,having said all that, I do think that the

timing is now. Our new letter is going to be due out in a week

or so, and we'll be discussing this in great depth and detail. But

it has to do with the fact that every major commodity, real

asset, relative market bottom, was ended and a new bull market started

based on a change in the monetary regime system. And we've

been talking about that since 2020. That's when we first made that

observation.

So,it's been five years already, and we weren't

calling for a major change just yet, but we were saying, keep

your antennas up and look for a change in the monetary regime.

Now, what do I mean by that?

Well,if you go back to the 20s,

you know, most European countries suspended their gold standard

during World War I. Britain, notably, tried desperately to get

back on in the interwar years. And through the ‘20s, Benjamin Strong,

New York Fed, decided to undertake quantitative easing. We're

going to print US Dollars with a strong US economy. It resulted

in the massive stock market boom we saw in the ‘20s. You know,

Strong called it. He was going to give the market a ‘coup’ of whiskey.

And he sure did. And the point was to try to devalue the US Dollar,

get the pound revalued so it could go back on gold at its prewar

rate.

Strongdies suddenly in ’28 and his controversial policies

were completely undone. And what you saw was ultimately the stock

market crash in ‘29 and the depression and that was the end of

the gold standard.

Iwouldcall that entire experience

the last nail in the coffin of the gold standard. Certainly, a monetary

regime change. A hard gold standard had been what we had in

place since the Napoleonic Wars. So definitely a monetary regime

change. You know, ‘68, ‘69, ‘70, when commodities bottomed again

and then took off, of course that corresponds to the end of Bretton

Woods.

AndI think I probably mentioned this last time. This is

like my fun little bit of trivia. Nixon gets blamed for taking

the dollar off gold. He definitely closed gold convertibility.

He closed the “gold window”. But really it was Johnson who signed

a law in ‘68 that said that the dollar didn't need to be backed

by gold anymore. It'd be equivalent to banks throwing out

any capital requirements.

Theday that you strike those off

the rule book, you don't necessarily go broke, but certainly

within a couple years you'll have a run on the bank. And that's

what happened. And so finally they had to close convertibility

in ‘71. That was the end of Bretton Woods, ‘68, ‘71, it's hard

to tell on a chart. I would argue ’68, which corresponds exactly

to the bottom. Others might say ‘71, which corresponds to the

bull market and resources really starting to take off. And

in ‘99, it was the fallout of LTCM. All these Asian currencies

had pegged themselves to the dollar at a fair value.

Theidea

and the understanding was that the IMF and the World Bank would

provide liquidity swap lines in the event of a currency hot money

flight from the Southeast Asian countries. That happened following

LTCM. The World Bank and IMF did not step in.

Andin the aftermath,

which saw these currencies, you know, devalue 70% in some cases,

massive economic turmoil throughout Asia, the countries all

said to themselves, well, to hell with this, we're going to peg

below market and we're going to spur exports. We're going to make

our economy and our export market super competitive.

Andit

resulted in, you know, five, nine, pick the number, pick your

timeline, but trillions and trillions of dollars in US Treasuries

ultimately flowing east. It created the dollar recycling standard

that is in place today, it brought on the GFC, all these types

of things. Again, a massive currency monetary regime change.

So,when we came away with this conclusion, we said look to

these markets, look to these systems, and changes, and fractures

therein to give you a sense for when we might get a catalyst

to start the new bull market in resources and commodities. And

I think we have that now. Now, if you'd asked me two years ago,

you know, in full disclosure.

I think we did, Adam.

Yeah, we felt that the BRICS countries were likely going to be

the agents of change here in the sense that Brazil, India, China,

several others were coming together and looking to start a potential

rival to the US Dollar for international trade settlement. You

know, it wasn't clear how it was going to work yet, not all the

details.

EveryBRICS conference, they were going to announce

this new major currency. Indeed, we did see, I think about

upwards of 9% of global commodity trade move away from the

dollar, a big number, places like France selling LNG to China

settled in renminbi. The big question was, would Saudi Arabia

sell its oil into China in renminbi? But lots, and lots, and

lots of talks and whispers about a potential challenger to the

US Dollar as a global reserve currency. It wasn't clear, again,

how you would do that with the renminbi in a closed capital account.

But the idea was probably that gold was going to play a role to

help balance out any trade settlement and balances. And you

saw all these countries buying huge gold reserves.

So,if you'd

asked me even a year ago, I would have said, you know, watch

this space and monitor what's happening very, very closely. However,

I think today, February 20, 2025, the likely change in the global

monetary plumbing or system could actually come from the United

States itself.

Andwhat I mean by that is, you know, Treasury Secretary

Bessent has spoken about several, what I would call, revolutionary

or certainly new and different changes to US monetary and international

policies.

Probablythe most notable one that people are talking

about right now is the idea of ‘monetizing’ the Fed's balance sheet,

or the assets of the Fed's balance sheet, by which I think even

Bessent has said this and lots of people have been speculating,

could that mean revaluing the Treasury's gold holdings, which today

are held on the books at $42 an ounce, a far cry from the market

price, obviously? You know, even just the tariff systems that

are being proposed today are quite different than anything that

we've seen.

Sobefore, if you had a sort of US dollar recycling

system that had been in place since LTCM, whereby the US was the

reserve currency, people had trade imbalances, the trade imbalances

resulted in excess Treasury issuance, which then found their

way to foreign central banks. That model, I think we can all fairly

say, is probably over. And I don't really know what the new model

looks like exactly or even broadly.

However,to the extent that

it's going to be the catalyst to re-rate real assets, I don't know

that it matters what it looks like. Lots of people have asked me,

oh, is this the end of the US dollar?

Isaid,listen, if you stood

in 1971, and Nixon had just closed the gold window and gold convertibility,

and unilaterally taken effectively the world off of Bretton

Woods, and you canvassed economists (I have to find this poll.

I don't know if one exists, but it'd be fascinating to see),

and you said, what is this spell for the US dollar going forward?

Everyone would say, well, you know, that's it, say goodbye, not

sustainable anymore. And yet the dollar gained relevance in terms

of a global reserve currency similar following LTCM. You know,

the idea was, oh, we'll trade with you at a par dollar so that

you'll bail us out if need be. And whoops, you don't have the central

bank put the way you thought you did. What did that do to US dominance

on a reserve currency? It became massively more important.

So,I don't have nearly enough hubris to predict exactly what this

looks like and where the US shakes out. But what I'm hearing

either from the BRICs (I mean, those guys haven't gone away), or

even internally in the US from Treasury, I would say that, you know,

my the equivalent of the doomsday clock of how many minutes

we are from a monetary regime change, I would say would be at 11:59.

It seems like we're awfully close. And then you start to ask

yourself, well, from a timing perspective, what could that look

like?

Andyou know, presumably the administration, if they have

all these really bold, differentiated visions on how we

should operate, you probably want that to be in place decently

early, particularly with, you know, midterm elections in 2026.

So, is it today? Tomorrow? No. Is it in the next six months? Again,

I think that, for the first time, I see a potential catalyst

in the near future, more than I've seen in the past. So again,

watch this space.

Yeah, I couldn't agree more. We've talked here about the parallels

between Trump and Nixon. Well before Trump got reelected here,

you know, only Nixon could go open up China. Only Trump can have

a detente if you will. Only Nixon could take us off the gold

standard, right? Only a disruptive figure like Trump can

do something similar.

It'snot a coincidence in the arc of history

that these things rhyme. People are in the phase of ‘burn

it down’, and that brings a disruptive figure that can make change.

Now that change may not be the change people want or maybe, much

like Nixon in a ‘burn it down’ regime, eventually the hordes come

for you as well, as they did for Nixon. So not a political comment,

just that people want to burn it down no matter who. Being an incumbent

during these periods is not a good thing.

Thatsaid, you know,

at the end of the day it is a time of disruption and the overwhelming

arc of history shows that is a time that people will, some way or

another, at some point force change. And I agree that is the most

likely thing when it comes and it will likely happen. I agree with

you, before too long, given that the agent of change is now in

office, I think that is a major, major issue.

Theone thing

I think about when I think about the weighing and voting machine,

as we mentioned, is there's this idea that the voting machine

supply and demand is like the fuel on an airplane. You can keep

going in the wrong direction. Gravity is the valuation, but things

coming back in line really happen when that fuel turns off.

How far are you off the ground is all that matters at the end of

the day when that liquidity gets cut off.

Andthat could happen,

as you very astutely mentioned, through an emerging market

crisis, through disruption and liquidity getting removed by kind

of the dislocation that's happening, which I think is a very

high probability in this regime. As you mentioned.

You talk about disruption and you know, change and things like

that. And obviously you have a lot of echoes of Neil Howe and the

Fourth Turning. And, and we, we are big, big fans of Mr. Howe's

work.

Hespoke at our conference last year, we know him

quite well. And the Fourth Turning has made a huge, huge impression

on both Lee and I and his new follow up work, The Fourth Turning

is here, which, if people haven't read it, I don't know if

this is bad for his book sales, but you probably can read

the follow up. It does a good job at summarizing the first volume

and then updating it.

Butgetting back to change and the

idea of change shocks and things of that nature and The Rise

Carry. What I think is really interesting in The Rise Carry, they

basically talk about the carry regime that's in place. Basically,

pick your timeline, but I would say call it from 1980 to today,

but really the last 15, 20 years. And it's been characterized

by a number of things. It's been characterized effectively by

a levered short volatility trade.

So,the idea that the classic

carry trade of borrowing in yen and investing in Australian bonds

represents arbitrage, a leverage on the trade to make it

work or to produce an acceptable level of return. And you're

effectively short volatility. So long as the structure is the same

tomorrow as it is today, the trade will work. You're picking up

the pennies in front of the steamroller, which is nothing if

not being short volatility.

Andthey talk about a number of characteristics

that all kind of line up with that, like the outperformance of

growth over value and of momentum because, you know, growth…

First of all, as you reduce volatility, you reduce interest rates,

you suppress risk, you have a convergence in a lot of different

costs of capital. What it ends up doing is you end up pricing and

more highly valuing farther out cash flows.

Youknow, it doesn't

seem quite so scary in a short vol world where you are suppressing

volatility by the very trade to all of a sudden look to these

big conceptual stocks, and look to things that have, you know,

50 times, 60 times multiples. Because, just like bond duration

math, when interest rates are low, you know, all of a sudden that

works out quite well.

Butyou know, we've seen those trends actually

take place a couple other times. And these guys don't really

talk about it so much in the book. They allude to some other carry

regimes, but they don't study them in depth. And, and you know,

their book would probably run to 800 pages if they did. But it

turns out the 20s were exactly the same.

Ifyou look at the performance

of value or underperformance of value relative to growth, if you

look at the concentration, if you look at market cap of the equity

markets relative to GDP, you know, the statistically different

periods are all 1920 to 1929, 1963 to 1968, and 1992 to 1999, and

then today. You start to see all these things repeat themselves

and repeat themselves. And so, I would argue that what we're in

right now is a huge carry trade, that the real assets lose

their luster relative to these big, conceptual, abstract, multiple

growth stocks.

Youknow, a company that has a factory that'll

generate widgets for 15 years, and you can run that DCF, that maybe

will trade at one times nav. Whereas, the company that promises

disruption can trade at 60, 70, 80 times earnings and 10 times

book value with no problem. And then the catalyst to undo it,

in every case, has to be what the authors would call a carry unwind

or something that introduces volatility back into the system.

A volatility shock that all of a sudden makes people price these

two disparate asset classes differently.

Andthat's where you

get, I think, these monetary regime changes have to be or that,

usually, historically are that agent of change. Certainly, when

you took the US dollar off gold in ‘71, that was a volatility

shock. That was not the same market going forward as it was before.

And if you have this multi, multi trillion dollar lever trade

on, that's all betting on suppressed volatility, and tomorrow

looking exactly the same as today, you get the unwind of that

when you change the underlying system.

That'sreally the only thing,

in a lot of cases, I think, that can change it because the trade

is so reinforcing. It self-reinforces because more money

pours into it, growth does better, and so more money goes into

it, and then it does even better, and then they can make acquisitions,

and it's the Nifty 50 all over again.

So,I think that the big kind

of takeaway, which is a little bit alarming, frankly, for a lot

of investors, is that yes, natural resources are super cheap,

commodities are super cheap, catalysts are probably here. By the

way, the fundamentals, for those who care, the counting of barrels,

looking at rig counts, are incredibly bullish and positive.

The lack of exploration is super bullish and positive. But not

only will that work, the problem is that almost every other

investment in the world today is caught up in the carry trade.

So,I worry for people whose portfolios, they look at it and they

say look, we've diversified, we have a little bit of US, a little

bit of Europe, a little emerging markets, and we have some

private equity and hedge funds in there as alternatives to really

diversify and protect ourselves. You guys. No, I'm sorry,

that's all the carry trade right now.

There'snothing that's

more carry trade if not private equity, which is effectively

just a levered S&P return and a preferential fee to the manager.

So,I worry that, in the event we do get a carry unwind, people

are going to realize their portfolios are not nearly as diversified

as they think they're. In fact, they're what I would call Texas

hedged. You think you're hedged, but you really doubled down.

Andthat's the state of the world today. And I think it's very

precarious. And I think investors need to be looking all

across the market for anything just on the margin. Not even to tactically

reposition yourself, but just to protect yourself, at the very

least, against the fact that we might all be in the same trade

in almost everything. And resources, I can definitively say,

are not in that basket.

Yeah, we 100% agree on that. And the key is the timing, as you've

mentioned. And I agree with you. At the end of the day, at this

point, you know, the risk/reward is so dramatically in

your favor, it's okay to be early because the coming move, when

it happens, will be quick and decisive. But again, it could be

years.

I'm going to say six to nine months. When I come back on in six

months, we can, we can do that. I think we're approaching it

quite quickly.

I think we're six to 18 months away. And I think there's several

reasons for that. But I agree it could be… It is closer than people

realize.

Giventhat metaphor, I was saying, essentially, that…

Liquidity, by the way, is the reason that markets the carry trade

across the board. As long as there's liquidity, the carry trade

maintains. Carry trade is really a skew trade, whether it's

in the S&P, it's downside versus upside. There's a structural

phenomenon where vol and skew (we're kind of talking my language

here), the vol on the liquidity, can be pinned, but the

tail happens once that vol compression is released.

Andso,

what we're beginning to see is that vol compression, even though

at this very moment it's very well supplied in very short term,

but the actual liquidity is reducing dramatically. That fuel

in the tank is getting really low.

Andeven though that's the case,

we can glide like the plane can glide for awhile, but a little

bit of a disruption, a storm, something that then all of a sudden,

now that the fuel is gone, kind of forces, some disruption,

turbulence. You're too far off the ground, right? The fuel is sputtering.

You're too far off the ground. I think we're really heading to a

period, in terms of volatility that, we're looking for a catalyst,

but the liquidity is coming off the table. I completely agree

with you.

Andjust a little bit of an insight here in terms of

how these things usually end. It's one of two ways. One, it's a

narrative change, you know, which is not something we've talked

about here, which I think could be the case here in a Trump

administration where people all of a sudden start to say, well,

wait a second, all this demand side economics populism we've been

seeing, even though he's been talking about rhetoric, he's reaching

across to China and there's a detente, he's going to do more supply

side economics, all these things, you know, maybe especially

after some period here, right.

Peoplebegin to lose faith in the

energy trade. People lose faith in the commodity trade. If

that happens? It's actually the best thing that can happen in

my opinion, given this regime, to actually accelerate a potential

move.

Ithinkwe've had this problem and this is why things last

longer than you always think, Markets can stay irrational longer

than you can say, solve it. Because people see the thing coming.

It's pretty obvious to those that are kind of looking at it. You

need a loss of faith enough so that the supply and demand, in the

short term, can become imbalanced and then the bigger move

can happen.

Andso, that's one thing I'm really looking for here,

some type of a narrative change where people actually begin

to lose faith in the reality, of what we're talking about. That

would be great for the trade, candidly.

Andthen two, you know,

the other way could happen is sometimes people don't lose faith

and it's just such a big shock, as you mentioned. Which I

think could be an emerging market crisis in the face of… I was

just in Turkey, actually, talking to a lot of big Turkish kind

of traders, businessmen, et cetera, people really embedded in

the country. And what people don't realize is how fragile some

of these emerging markets already are. And that's amidst a

global, really not a recession, the economies are doing

well. The world is full of, generally, liquidity from markets,

etc., in the developed world. What happens if we go into a global

slowdown?

Whatif we have some disruptive forces amidst that? That

could really cause a big, in a fragile emerging market, a big crisis,

especially if that means stronger dollar, especially if there's

some disruptive moves by Bessent and the coming new Federal

Reserve chair, whoever that is. So, there's really two paths

here. And I agree with them, one of the two are likely to unlock

this trade we're talking about.

Butthe time is, is coming.

No, listen, I agree with that completely. I think I got most of

it. I think I agree with all of it.

Butyou know, I'm just going

to make it a little simpler, you know, because I'm not an options

trader, although I have traded some options, you know, in the past,

but I'm not nearly as well versed as you are. But you know,

in your short vol, pennies in front of the steamroller, skew type

of a model, there's periods of time where the likelihood that tomorrow

looks very similar to today's higher and lower.

Infact, most of

the time tomorrow does look exactly the same as today. You know,

and then there tends to be the days where it's very, very different.

You know, tomorrow looks very much like today up until the day

you die, I guess. And then it's a very, very different day.

Butwhen you go back, let's say a couple years, and we had massive,

massive US deficit spending (which obviously we still do), and

those excess Treasuries were all being effectively monetized through

the banking system, but still being monetized by the Fed and everyone,

100 economists and Bloomberg were calling for a recession, and

we were never in the recession category.

Andyou looked at it and

you're like, why would this change? This isn't going to change

so long as the US can run these crazy deficits, and place the

bonds, and right now no one's buying the bonds. The foreign central

banks were buying bonds, is really being acquired by the Fed,

until they lost control of the 10-year and they had to move to bills

and all that. And you say, well, tomorrow's going to look a

lot like today.

TodayI think is very different. When I look forward

and I say, what's the likelihood that a year from now policies

across the board here resemble what they resemble today? And these

are not little policies, not small tweaks. These are potential

big ones. Everyone seems aligned that they want to change

things.

Andso, I think it might be just as simple as that.

You kind of look at it and you're like, the likelihood that

this administration, in a year from now, has everything aligned

the same as it did a year ago is pretty low. In fact, I'd say almost

zero. And that's, I think, what puts some of the carry trade

stuff at risk.

Becauseagain, you start to get the unwind when

the volatility picks up, when the regime changes, when things are

different. You know, that's when you start to have a forced unwind

of a lot of this stuff. And then it could be just self perpetuating.

As it starts to unwind, it forces further unwinds which increases

change, and shocks, and volatility more. And that's where

you get your crises that pops up somewhere. Whether it's emerging

markets, whether it's leveraged regional banks in the US,

it's hard to say exactly where it's going to be.

Butwith so much

leverage in the system and things set to be so different, I

think, or the potential for them to be quite different and everyone

with a short levered, short vol trade on, that would be the first

time in market history that having everyone in a levered trade,

in one direction, that the masses are right. I just don't think

it's going to happen.

We've talked a lot about the changes that the Trump administration

is coming. We talked about that we need some kind of catalyst,

and we talked about that this would have an impact on commodities.

So, I want to try and tie it all together in a sense that from

where I sit on the other side of the pond to you guys, it looks

to me like the new administration is somehow, you know,

it's weaponizing commodities in a sense. It's going after Canada,

it's going after Greenland, now it's talking about Ukraine and

rare earth has to be part of any peace, et cetera.

So,from your

perspective, Adam, when you see these things happening suddenly

commodities are, I don't know how to phrase it, but it's taking

on another role, suddenly. It's not just something we produce

in one place of the world and it's friendly, and sent over to another

place of the world, and it's used over there.

Buthow does that

change your… And you say that the oil supply is leveling out in

the US, and maybe that is why he wants Canada and Greenland for

who knows. But how do you think about something like this?

Because I don't think this has ever happened before that commodities

play like a geopolitical role, or maybe it has, but not that I remember.

Well, I mean, certainly In World War II, you know, there are

major, major moves that were done to secure energy supplies, particularly

by the Japanese and their incursions throughout the South China

seas and the broader kind of Asian continent to try to secure

supplies. And frankly there were big moves by the British, as

well, to have coaling and refueling stations for their blue

water navy. So, I think we have seen this. I'm not entirely

sure that we're seeing a weaponization of commodities today.

WhenI think of a weaponization of commodities, I really

think, you know, probably the prime example of that would have

been China with rare earth metals back in 2010 or so, where

they mined and then processed basically all of the world's rare

earth metals that went into all kinds of things like magnets

and electronics. And they restricted output to Japan, notably

for geopolitical leverage and things of that nature.

Basically,what

they wanted was they wanted all the battery technology and magnet

making, manufacturing technology to be brought into China

so they could steal the intellectual property. And when Japan

didn't want to do that and they said, no, no, just you give

us the rare earths and we'll make the stuff here, they said no.

And,you know, that forced a pretty big realignment in a lot of

those trade routes. That was pretty mercantilist and pretty, you

know, aggressive. Are we seeing that today? I think that it’s

a little early to say that.

Ithinkcertainly what we're seeing

today is a renewed appreciation for some of the fragility

of the supply lines in the raw material space. Lee and I were talking

about this just last night, that through the Cold war and into

the early 1990s, the US maintained strategic stockpiles of

lots of different things. Those were all thought to be redundant

and superfluous and were liquidated.

Andwhen you look at

anything from, antimony is a big one where, you know, the US Is

now providing loans to US antimony potential mines that we

can have domestic supply; uranium, where we used to be both

the world's largest producer of mined uranium, and then importantly

had a huge enrichment facility here as well. Now we basically don't

register on either of those things.

Thoseare trying to be moved

back into security of supply, lots of different things like that.

So, I don't know that we're quite at the weaponizing phase. Certainly

not in the US. I don't think that's a fair assessment yet. But

I think there's a renewed appreciation for security of supply

and the idea that it could be a strategic vulnerability, you know,

in a little bit more of a hostile world going forward.

We talked kind of bigger picture for the last bit here. I

would really love to kind of get more specific to different commodities.

Imean,you mentioned yourself that copper and uranium are going

in different, likely, going different directions. So, we have

a universal view of things with fundamental hard value and their

importance. But I would love to drill down a little bit and talk

about, you know, we have very disparate things like gold and precious

metals, and uranium and copper. Where do you see the greatest

opportunities currently?

Andspecifically, I would love to

focus on uranium and also gold and hear your about precious metals

as well. And then also maybe energy writ large. We've talked about,

a little bit of, the supply and demand amounts there. But let

me get a little bit more specific and particularly as we sit

here.

And look, you're absolutely right. You know, if you look at commodities

in general, they tend to move in these big cycles. However, within

that there's certainly ability, and not even trading, you

know, investing over multiyear timeline, there are definitely returns,

excess returns to be generated by picking the right places at the

right time. And we spend a lot of time doing that.

So,if I'm talking

to somebody about an asset allocation in their portfolio, I

might talk about the asset class and commodities and resources

in general. If I'm talking to someone who buys the story and wants

to know where we're thinking, there are times where copper becomes

radically undervalued relative to energy, relative to itself, whatever

the case may be. I think right now the biggest dislocations are

likely in US natural gas where US gas today remains 80% below the

world price.

Andthere's a good reason for that. It's been that

cheap for a long time. And the reason is we've had just so much

supply from the shales.

Youknow, we've shut down most of

our coal fired power. We've gone from being a big LNG importer

to big exporter. We built all these petrochemical facilities, we've

done a lot to soak up that gas and there has still been too much.

So, that's why it's dislocated from the rest of the world.

Ourcontention

though, is that in a period like we have now, and upcoming, where

electricity demand is set to go through a huge shift higher because

of AI data centers and things of that nature. And US LNG exports

are coming online, 78 BCF a day in the next two years or so -

big, big, big numbers. At the same time as production is now declining

for the first time in 15 years, that disparity with world

prices could be closed quite quickly.

We'vebeen early on this

trade, you know, for anyone that's followed us. We've been basically

two years early because of two back to back mild winters that we

had that eviscerated natural gas heating demand. This winter has

been more seasonable. It's actually been a bit colder in parts.

But we're now starting to see the impact.

We'restarting to see

inventories that decline quite sharply. Production continues to

be really, really weak. It's down 3 plus percent year on year.

It's not going to get better anytime soon. And I think now we're

at massive risk of pegging that US gas price to the world price.

That could be like a three to four fold move in gas quite quickly

depending on weather in the short term.

Sothat's probably the

biggest dislocation in commodity markets today. Uranium

is also in a really bullish situation and it's a very interesting

and kind of opaque market. I'm sure we've talked about it in the

past here too. The idea is that with uranium things don't develop

on a week-to-week basis the same as they do in the oil markets

or the gas markets.

Youdon't get weekly inventory numbers, the

market moving data coming out every week. You have to take a little

bit of a bigger picture view. And where we are today is the market's

in pretty sharp deficit. We have not brought on enough new capacity

in the last 15 years. Partially that was due to expectations

that we would continue to retire nukes around the world. That

didn't happen.

Infact, now we're giving them life extensions.

We're bringing back on shuttered plants and of course we

do have new build programs in places like China and Korea as well.

So, reactor demand today outstrips mine supply. Inventories

are basically almost zero.

Youknow, post Fukushima we had built

up all these excess Japanese commercial stockpiles that could

be fed into the market when supply was less than demand. That's

not true today. And, for the most part, the term uranium price,

which is to say where fuel fabricators contract with miners

and stuff like that, that's been going up and up and up. That's

90% of the market.

Whathas been a little bit weak peak has been

the spot uranium price which fell last year. Even though the term

price went up about 20%, the spot price came down by about a comparable

amount. And that's because a year prior to that a whole bunch

of speculative money came in and was playing spot uranium from

the long side.

Ithinkthat's all gone now and that's obscured

the narrative a little bit. But the fundamentals remain super

positive there. There's no real major new mine supply coming

online until the Rook Arrow deposit, up in Canada, comes online

in ’27, ‘28. And the big question mark there is, can that

come on in time?

AndI suspect the answer is no, we own the stock

because I think if they say they can't come online, probably

uranium prices and all the uranium stocks go up a lot. But you

know that's an aggressive timeline. It's debated in the industry

whether they can make it. Who knows, we'll have to wait and see.

But the market looks quite tight physically and demand is very,

very strong.

Gold,you wanted to talk about the gold market. You

know, gold is a super interesting market. Obviously gold

price is making new all-time highs every day. And that still,

today, is basically with almost no Western participation in

the gold market. We have no big Western buying of gold. In fact,

shares in the GLD are flat to down and the GDX, which is the gold

shares, is seeing outflows every day.

So,it has basically been

central banks. We had a little bit of time of Western buying, along

with central banks, that took gold prices up another leg. But right

now it's the central banks buying and it is the western retail

investor, I would say, neutral. That leaves a huge amount

of buying power left to go and I suspect that that will continue

as gold prices move higher.

TheWestern investor or the Western

speculator, whether it's retail, institutional, what have

you, they are pro-cyclical. They chase price. If you put $4,000

on gold in the next two months, there would be more demand

for gold investment, not less.

Theeastern physical buyer is the

opposite. They're super price sensitive. If prices go up, you see

them step out of the market. The western guys, when prices go

up, they come in with more force. And the central banks, of

course, are completely price agnostic. They don't say, oh I think

gold's a good buy here, let's go buy some ounces. What they say

is, we're going to change our policy and hold more gold and then

they go and do that.

So,I think you have two potentially, you

know, very bullish buyers on the horizon that would be the central

banks and the Western investors. And so, I suspect the

prices will move quite a bit higher from here.

Related to gold, I have a couple questions, actually. So one,

we don't really talk that much about bitcoin, you know, that's not

a commodity, obviously, but I do think that, obviously, gold is

not an industrial commodity as much that the value is more like

a currency. And so, you know, akin to bitcoin in that way. There

are some that have argued that, this time around, gold will

have less demand because you have a bitcoin kind of alternative

in that particularly certain part of the generation that's out

there, at this point, driving some of these changes. Millennials

on down see that as a store of wealth, maybe more than gold. Do

you have any views on how this time it might be different in terms

of gold on this cycle?

I think that's going to end badly for millennials. I'm not a

believer in bitcoin, and I have some fundamental reasons, and

then I'll tell you, kind of a markets-based reason. So, first off,

I do appreciate that Bitcoin is an asset that's outside of the

financial system. It's an asset that you can own sort of independently.

And that's always been a big benefit of gold. It's an asset that's

no one's liability. Obviously, gold has served as a store of value

in a much better way for much longer than bitcoin has.

Nowone

of the interesting reasons as to why that is, and some people make

the case that if you look at the long run increase in the supply

of gold, for whatever reason… There are short-term dislocations

if you come up with the gold rush in San Francisco, and in the

Yukon, and stuff like that.

Butif you look over thousands and

thousands of years, the increase in supply of gold, above

ground gold, of which 99% of all the gold that's ever been mined

is still accessible, has basically mirrored the long-term

real GDP rate, including preindustrial revolution, it was

lower. GDP was lower. And then industrial revolution both helped

GDP start to grow and helped gold miners, effectively, bring out

more gold. So, really kind of interesting. And they've moved in

lockstep.

Andso, that argument says, look, you know, if

you started out with four different economies, societies, one

that used seashells, one that used pine cones, one that used gold,

you know, the seashells, the rate of seashell growth would be

above GDP growth and you'd have inflation and there would be

turmoil, and as you talked about before, you know, that would

lead to inequalities and ultimately revolution.

Pinecones

won't grow fast enough and pine cones probably would. But you

know, pick one that wouldn't grow - diamonds. Diamonds wouldn't

grow fast enough, you'd have deflation, there'd be equal imbalances

and the society that picked gold would kind of self-reinforce

over time.

So,you compare and contrast that. It's hard to test

the counterfactual, but you compare and contrast that with Bitcoin,

where we know that its supply is not going to grow properly or

not going to grow in line with… it's going to asymptote, it's

not going to grow in line with GDP. And you wonder if that's going

to serve as the right, long-term, real store of value.

Theother

thing of course, even simpler than all that, is just it's a huge

energy hog. It's massive and the more you use it, the more energy

it's going to require. So, if you start to look at what these hashes

will require as computing power gets thrown at it, and as the

value of Bitcoin were to go up, you'd end up consuming huge,

huge, huge quantums of energy.

Andif you think, as I do, that energy

is ultimately the lifeblood of the economy, at a certain point the

economy will collapse under the weight of all the energy being

used to mine Bitcoin. And I don't think that's sustainable long

term. So those are my reasons for that.

Ifyou look at a market

from a more markets perspective, I think the question

you have to ask yourself, getting back to the conversation

we had before, is Bitcoin a carry trade asset or not? And that's

a really interesting question because one of the nice things about

gold here is that it is an anti-carry trade asset. And I would

argue that Bitcoin has traded more like a tech stock, like a high

duration bond, or like a high multiple valuation company. Now is

that fair? Is it not fair? I don't know, but I think that's who's

buying it.

Andso, I think there's a big risk nearer term with

Bitcoin, particularly if we have some of the events unfold, and

when people say oh, you know, won't Bitcoin take away all the demand

from gold? I mean, certainly not if Bitcoin ends up trading like

Microsoft, Meta, Google, then no, I think that's going to have

a huge inflow of bitcoin investors dumping Bitcoin and saying

we should probably have some of this back in gold. If that's not

the case then you know, it's an open question.

ButI think just

look back at 2022. 2022 is a really seminal year because it showed

what the real carry trade unwind look looked like, and it showed

that a lot of assets that should have behaved differently,

stocks, bonds, what have you, didn't. Incidentally, we had a good

year that year and Bitcoin had a terrible year that year.

Andso,

I would look to that, and that would be a big kind of canary in

the coal mine that if you do have regime change, or you do have

a shift, or you know, a dislocation, will bitcoin give you

that exposure? And I think the jury is out. And if you had to ask

me to put my dollars at work, I think you probably know where they

are. Like there's so much unknown. And on a risk adjusted basis,

it does seem like gold is probably a better bet. Last thing

related to gold, what do you think about the rumors of Fort Knox

kind of gold not being as much as people think it is? There's a

lot of things swirling around about there's no audit of that gold.

Is it really the gold now, as gold's importance increases, as the

talk about revaluing kind of the gold reserves, as you mentioned,

comes up, there's conversations about that. Do you

have any thoughts on the US gold reserves? I do think that there

are often conspiracies around gold holdings. I think gold lends

itself to conspiracies because that's part of its appeal and allure

is that it's not, you know, infinitely trackable in the same

way that registered stock certificates are; things of that

nature. So, I think probably, frankly, having a little bit of conspiracy

swirl around gold is probably good for gold in general.

It'sa

little bit like, you know, when you watch the Crown, and they

say all the pomp and circumstance and all the mythology

around it is what gives it its power. I mean, part of it is that

gold is anonymous. And so, I think there's always a lot of conspiracies

around gold.

Idon'thave any reason to think that all the gold

in Fort Knox is there. I think that it is. And I think that, in

general, sometimes these conspiracy theories, when they come

out, a great one was kind of in the silver market back in 2021,

I think it was. And that's when the Reddit crowd got into silver.

And this big rumor, forever, was that JP Morgan had this massive

short silver position. None of the silver was where they said it

was. It was all uncovered, and naked, and goes unreported to try

to keep silver and gold prices down, to keep the dollar looking

good and stuff like this. And they said, let's squeeze JP Morgan

the same as we did Gamestop. And it very clearly didn't work.

Youknow, it lasted about two days and then it came back down.

So, is that signs of even more market manipulation or is it signs

that maybe the imbalance is not there? I think it's the latter.

I think everything's kind of fine. As ymentioned,the short-termnarrativecanbe

incrediblypowerfulandeventuallycaneffectuatea realbigchangeinrevaluation,even

thoughthatmaynotbetherealcause.ButIwillsay,youknow,I'mnotaconspiracytheorist byany

means,but wedoliveatimewhereconspiracyismorelikely to

bereal than maybe othertimes.Goingbacktonuclear,realquick,athoughtI'vehad,which Ithinkisreallyinteresting,isthelasttimewewerelikeningthis,amongother

periods,tothe‘60sand‘70s, wedrewthoseparallelsbetweenTrumpandNixon.Andobviouslyoneofthebig thingsforcommoditieswastheOPECcrisisin

the70s.

Iseethat asvery connectedtoboththeVietnamWar,whichwasinflationary,andthefiscalspending, andthe

Great Societyprogram.All thesethingsareconnectedinaway topopulism,and

Iwon'tgothroughallthosedetails.Butit'satimeofdeglobalization,globalconflict,andentitieswhohavepowerovercommoditieswillusethatasa bludgeonandyougetdisruptionbecauseofthat.That's

whattheOPECcrisisinmymindwasabout.Idon'tthinkthatenergyisaslikelytoexperiencethatbecausetheUShassomuchnow,Canada,etc,allies,OPEChaslesscontrol,Iwouldsay.I'dbe,A,curioustohearyourthoughtsaboutthat.ButI'dbecurioustoheariftherewasacommoditythatisverycontrolled,potentiallybycertainentitiesglobally,andproneto,inaworldofglobalconflict,supplyconstraints,artificialsupplyconstraints,whichonewouldyouthinkitwouldbe?Andby extension,youknow,doyouthinkthereareoddsof,inthenextfiveyearsorso,sometypeofbigsupplydisruptioninthatcommodity?Iseethatasincreasingprobabilityandagain,awaytomaybeteaseoutwhatcommoditymighthaveaparabolicmoveinthenextseveralyears.

As you mentioned in the short term narrative can be incredibly

powerful and eventually can effectuate a real big change in revaluation,

even though that may not be the real cause.

So.

But I will say, you know, I'm not a conspiracy theorist by any

means, but we do live a time where conspiracy is more likely to

be real than maybe other times. Going back to nuclear. Real

quick, a thought I've had, which I think is really interesting,

is the last time we're likening this, among other periods

to the 60s and 70s, we drew those parallels between Trump and

Nixon. And obviously one of the big things for commodities was

the OPEC crisis in the 70s. I see that as very connected to both

the Vietnam War, which was inflationary, and the fiscal spending

and the Great Society program. All these things are connected in

a way to populism. And I won't go through all those details. But

it's a time of deglobalization, global conflict

and entities who have power over commodities will use that as

a bludgeon and you get disruption because of that. That's

what the OPEC crisis in my mind was about. I don't think that's

that energy is as likely to experience that because the US has

so much now, Canada, etc, allies, OPEC has less control. I

would say I'd be a curious to hear your thoughts about that. But

I'd be curious to hear if there was a commodity that is very

controlled potentially by certain entities globally and prone

in a world of global conflict to supply constraints, artificial

supply constraints, which one would you think it would be? And

by extension, you know, do you think there's an odds of a, you know,

in the next five years or so, some type of big supply disruption

in that commodity? I see that as increasing probability and again,

a way to maybe tease out what commodity might have a parabolic

move in the next several years.

Well, look, it's interesting, I wouldn't write off energy and oil

just yet. You know, what's kind of fascinating is that remember

from Colonel Drake to 1970, the US was a behemoth in terms of

oil production. And nobody in 1970, 1971 expected the United States

to roll over and suffer declines. It was a huge player in

the global oil markets.

AndKing Hubbert, the Shell geologist,

predicted in the late ‘50s or mid-‘50s that by 1970, 1971, US oil

production would roll over. And it did. And that's what gave

OPEC incremental pricing power market share, and like you said,

allows them to use oil as a weapon. Throughout the 1970s, twice,

once after the Yom Kippur was where the US supported Israel. One

is after the Iranian revolution.

TheUS today looks just

as precarious as it did then. Again, you had years of million barrel

plus, year on year, growth in the lead up to 1970 and then that

stopped. You've had here years of growth, million and 2 million

barrels, and now that's stopped. And so, I don't think that

we're immune from such a dynamic today at all.

Andremember,

you know, Nixon back following the Arab oil embargo, the first one,

put in place Project Independence, where he said, look,

very similar to the Three Arrows. He said, look, enough's enough.

You know, we haven't tended to our garden enough here. We haven't

made sure that our domestic supply is robust.

Andnow production's

falling and we're beholden to potentially hostile countries. So,

we're going to encourage guys to drop drill. We're going to deregulate.

We're going to raise the oil price. Because back then it wasn't

so much a price issue, it was a security of supply issue. So, let's

help raise the oil price, give these guys the incentive to drill.

And they did. They drilled huge.

Theyincreased the rig count

fourfold in the next 10 years, and production continued to fall,

and OPEC just gained more, and more, and more power and more, and

more, and more market share. So, they thought that they were fine.

Justlike today, production's falling. And, I think not, to paint

you with the consensus brush because you're quite differentiated

and quite contrarian, I would say. But in this case, I do think

the consensus view is that we'll be fine because we have so

much.

Yeah,fine, maybe production is declining a little

bit now, but that's not really symptomatic of anything because we're

so well endowed. And the question is, you know, we were well

endowed then too but after you produce about 50% of your reserves,

production falls.

Thinkabout it a different way. You still have

everything that you've already produced to date sitting in front

of you. It seems like a pretty good spot. And yet production, daily

rates, tend to fall around that time. With shale could be even

earlier because they have long tails. So, it means that production

peaks when less of the total reserve is produced. It could be

as low as 38%, we've seen in a lot of the shale basins. We're there

now.

So,it's not really clear that we're out of the woods. I think

that oil is probably still our biggest vulnerability. Yes, we're

“energy independent” today, but everything matters on the margin.

If you go from energy independent to needing to import

again, then you're susceptible again. I mean, I think it all matters

on the margin.

Uraniumis the other one that jumps to mind because

the US is not a major producer of uranium. Canada is. It's an allied

nation. Of course, Kazakhstan is. That is questionable. It's not

a hostile nation by any means. I think people paint it with the

Russian brush. I think it's a little premature. I mean, yes, it

had Russian troops and Almaty to help settle dissent about a year

ago or two years ago now. So, a little bit of a shot across the

bow, but you know, it's, I would say, gray. Yeah. And, and so

that's vulnerable.

However,longer term, uranium is

not the world's rarest element. And I think, given enough

time and enough capital, we ought to be able to bring on enough

uranium production in domestic allied countries - domestic or allied

countries to make that be okay.

Butthere'll be huge dislocations

in the middle. So, I think oil is a little bit more structural and

uranium will be in a big bear bubble market. Where big bulls on

it with big core position in uranium producers. However, longer

term, price will take care of that market target.

Yeah, I think a strategic, some type of strategic move by Russia

in Kazakhstan could be something, that black swan that nobody's

talking about, and we'll certainly hear if something happens.

But I do think it's something that not many people think about,

but is, I would say, something that is, given how concentrated uranium

is in Kazakhstan, a huge potential upside, potential tail.

I heard another one of our previous guests, Jeff Currie, talk

about that, in his mind, natural gas has kind of changed its

role a bit. It's become sort of more the marginal price setter

of some sort, that's how I remember his argumentation. Obviously,

we know gas, you said there's a lot of LNG coming on stream, so,

I'm just curious about your… And maybe this is also why, I don't

know, oil prices seem fairly stable compared to what's going on

in the world. I don't know, I'm just curious about it.

Andthen

my final question would be, do you know anything about Nord Stream?

Is that more or less coming back online? I mean, as a Dane, I'm

a little bit interested whether, under the radar, they've

kind of begun to fix the Nord Stream pipe and maybe with a deal

with Russia soon, the Germans will be enjoying Russian gas again.

I'm just curious.

It's really difficult to say. I don't know and I don't think anyone

knows. I think progress has been made. Look, I think that Europe

is in a very difficult energy spot and I don't think that's a big

surprise. You know, Germany is in the process of de-industrializing

itself as we speak because of mistakes they've made in their energy

program.

Rightnow, it's all being made up with relatively cheap,

sustainable, and by sustainable, I mean like stable,

geopolitically stable, US gas. Then that could be at risk. You know,

if we start to see major… You know, again, just think, okay, the

gas market in the US today is in deficit. We are taking gas out

of inventory. This is not dissimilar from uranium a couple

years ago. Okay, we had the gas in inventory, so it's not an

acute shortage or crisis just yet, but we're taking gas out of

storage at a pretty good clip.

Productionis falling year on year,

and we are set to increase LNG export, not keep it flat, which would

be a problem too, but increase it by as much as seven Bs a day.

And then we need another 7 to 10 BCF a day for domestic AI needs,

which is obviously becoming, you know, a huge focus of everybody.

So,I don't think the US will be overly keen to sacrifice its AI

industry on the altar of cheap European gas. Nor do I think production

is set to increase in anytime soon because of the geological reasons

we've talked about.

So,I think there's a big risk that the

US is not the supplier of LNG that everyone hopes it is. That becomes

kind of the swing factor, particularly with an administration

like we have today.

TheUS consumes almost as much, on a BTU

basis, in gas as we do in crude oil. And we have a price that's

80% below the world's price. That would be like… It's not dissimilar

from Saudi Arabia, where they have $10 oil price gasoline equivalents

and the rest of the world's at $70 to $80. Why? Because they produce

the oil. You know, we produce the gas, so we get cheap natural

gas.

Thedifference, that I tell everybody, is that in Saudi

Arabia, everyone's aware of it. And if something were to happen

and they were to lose that, they'd be pissed. And here, nobody

even realizes it. You know, no one realizes that we train our models

for much cheaper than anywhere else in the world, our computer models,

because we have cheap natural gas.

And,you know, we just had our

building's annual general meeting. I promise you, none of the

residents in my apartment building realize that we pay next

to nothing to heat our hot water and apartments because of very

cheap US Natural gas. If we were to lose that, I could see the

administration curtailing US exports very, very seriously.

So,Europe's

in a tough spot, and I don't know what they're going to do. And

I suspect that under the right scenario, you could see a crazy thing

like Russian gas flowing back to Europe again. I mean, I don't

think there's a resolve within Europe to tough it out. And I don't

know where you're going to get the gas from. So, yeah, I think anything

can happen. I think we're in uncharted territories here.

Yeah, I mean, on that cliffhanger, I think it's a good

time to say, once again, thank you so much for a delightful, insightful

conversation on so many important topics.

Andno doubt when

we speak again in a few months, there'll be some new ones,

but there'll also be some developments in the ones you've laid

out so beautifully today. I want to encourage everyone to go

and sign up for Adam's reports, and especially now that

there's a new one coming out.

Youcan find that on the Goehring

& Rozencwajg website and we'll of course also link to that in the

show notes. They're always incredibly fascinating and insightful,

so not to be missed.

Andas I told you before, Cem and I do these

conversations because we really do feel that we are living

in a global macro, but also in an energy driven world. And it is

possibly more important today to be up to date on these things

than ever before. So, stay well informed.

FromCem and me, thanks

ever so much for listening. We look forward to being back with you

as we continue our global macro series. And in the meantime,

take care yourself and take care of each other.

Thanks for listening to Top Traders Unplugged. If you feel you

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