Transcripts
Erik: Joining me now is Energy Outlook Advisors founder Dr. Anas Alhajji. Anas, it's great to get you back on the show. There's so much going on in energy markets, let's start by revisiting, your calls from the past have been incredibly precious. What you've told us in the past is basically, look, there's plenty of room for geopolitical friction in the system to cause price increases, but we're not headed back towards more than 100 bucks a barrel until we get more demand, which you thought would be coming at some point in the future. And or we get a reduction in the amount of spare capacity that exists within OPEC. So let's start with an update. And an outlook on where we stand for the second half of the year. Is that demand that you were looking for going to come back in the second half?
Anas: Absolutely, based on our view, our view has not changed for the year, we still predict growth in the oil demand in the amount of 1.48 million barrels a day. But here's the problem that we have. If you look at the latest report of the International Energy Agency, the IEA and OPEC, you see a very large differences. OPEC thinks that growth in 2024 and global oil demand will be 2.2 million barrels a day. But the IEA thinks it's only 1.1 million, so literally half. And when you look at those differences coming from the two largest organizations in the oil business, you start asking questions, what's going on? And as you know, we talked about this before, we have major deterioration in the data quality since 2017. It got really worse with COVID. And then with the invasion of Ukraine, the grey fleet or the ghost ships, Russian, whether Iranian or the Venezuelan. So, we have serious problems. But the biggest problem we have this year, in addition to all the data deterioration, what we've seen is media reports and stories from the oil market, are either fake news, or they are tilted toward kind of supporting the Biden administration in the United States or the Modi administration in India, in a way that we've never seen before. Both of them are running for election. And you will see a story, for example, without mentioning the names of the organizations, a story about India's imports from Russia, and all of a sudden really tried to show that the sanctions are working on Russia and the price cap is working. And the government of Modi is cooperating with Europe and the United States. All of this is literally fake news. I can go on and on mentioning actual stories on this. But the idea here is, with all the data problems, the data quality problems with all the misreporting by the media, we should not be surprised that if OPEC and the IEA basically are added to the mix, by giving us two completely different outlooks for demand in 2024.
Our outlook is still the same, a 1.4 8 million barrels a day increase in 2024. The second half is usually better than the first half, this is kind of attained growth, no matter what China did not deliver the expected growth. Most of the information about India, unfortunately, is absolutely not correct. The Indian growth is still weak. We still have some serious issues in the market when it comes to oil demand. Because, for example, you look at prices, we've seen the medium sour crude in Asia getting a premium over light, which is rarely for this to happen, but all of a sudden had been happening several times in 2024. And I think the media and many analysts missed the point about the medium sour. They missed the point because of the following. We have two new major refineries that been commissioned, one in Kuwait and one in Oman. And both of them are designed to use medium sour, which means that all of a sudden, we lost a very large amount of medium sour to those refineries, while the Asian refineries are starved because of this change. At the same time, Mexico reduces exports of medium sour by 400,000 barrels a day since the beginning of the year. So ,it's really a defining issue by having this change in the market and this is a permanent change by the way, permanent change in the market. While the Asia refineries are still waiting for the medium sour to arrive, and that increased prices, some people thought, oh, that's because of the increase in demand. And therefore, we have strong demand. It has nothing to do with demand. Literally. It is a change in the refining system, the global refining system. And that's why prices went up of medium sour crude.
Erik: Joining me now is Goehring & Rozencwajg co-founder Adam Rozencwajg. Adam, it's great to have you back on the show. I want to start with energy, which I know is the commodity that you focus on. Let's talk about just big picture energy markets, how they've evolved. What are you looking at between the oil market, coal, natural gas and uranium for that matter?
Adam: Well, thank you, Erik. It's great to be back on your show. Nice to talk with you again. I think there are so many interesting things taking place in the energy market, that it's almost difficult to choose where to begin. But I'll tell you, I think the area of the markets today that I think are the most certainly asymmetric and potentially most exciting for the rest of this year, are the US natural gas market. And, I suspect that a number of your listeners will probably lose their lunch when I say that. And that's usually a good sign if you want to be a good contrarian value investor like we try to be. But I do think that both the fundamentals, certainly the price level, which is as depressed as we've almost ever seen it in recent weeks, it's now performing a little bit better in the last couple of months, or in the last couple of weeks, rather, and then the outlook to the end of this year. This is a market where we think that the upside potential could be easily three to four fold, with fairly limited risk of downside, at least on any kind of a long term basis going forward. So I think that's the most exciting market today from just as asymmetry perspective. And I think that that's where, if it's alright with you, I would like to start.
Erik: Joining me now is Copenhagen Atomics founder Thomas Jam Pedersen. Thomas Jam prepared a slide deck to accompany this week's interview, you'll find the download link in your Research Roundup email. If you don't have a Research Roundup email, it means you haven't registered yet at macrovoices.com. Just go to our homepage macrovoices.com and click the red button above Thomas Jam’s picture that says “looking for the downloads.” Thomas Jam it's great to get you on. This is a little bit unusual because our listeners are not used to entrepreneur interviews, we usually talk to finance guys. But since Patrick's off this week, I wanted to dive into your company, which is very interesting to me, I think you're going to play an important part in energy transition. The cover page of your slide deck says your goal is mass producing or mass manufacturing thorium reactors. So why don't we start there with the obvious questions. What's a thorium reactor? How is it different or better than a uranium nuclear reactor that burns uranium, like almost all the other ones do? And why is it important, specifically that they be mass produced?
Thomas Jam: Hi, Erik, Thank you for having me. Yes, that's a good place to start. We have a lot of energy production in this world. And energy is a very essential part of everything, all products and everything we do, the economy. And, of course, we want to sort of eventually get away from our reliance on fossil fuels. Today, 80% of all energy production in the whole world is coming from fossil fuels. And I think everybody expects that to disappear at some point, or at least a smaller amount or a smaller percentage. And one of the ways to get away from fossil fuels is of course, nuclear energy. But the problem with nuclear energy, or the traditional type of nuclear energy is that it's very expensive, and it's slow to build. And so, we've come up with a new way of making nuclear energy, or what's called fission energy, a completely new way of making that and in order to make that sort of scale, we want to mass manufacture these reactors. And the picture on that first slide sort of shows that the reactors we have invented are roughly the same size as a 40-foot ISO shipping container. And it can be transported on a truck. And they can be mass manufactured in a factory or assembly line, similar to how we manufacture cars or airplanes or other things like that. And this means that we can easily make one nuclear reactor every day. And that's what’s in our roadmap to do that. But of course, we currently are sort of developing the technology and make sure that it works before we can even start to run the first commercial reactor. And only after we have sort of proven that the first commercial reactors work, can we start to mass manufacture and so it's still some years away, maybe 10 years away before we can start mass manufacturing these reactors. But the reason for this goal is because this world needs a lot of energy, and just making 100 reactors would not make any difference at all, in the global energy system. We need 10s of 1000s, or maybe even a million of these reactors before it really makes a difference.
Erik: Joining me now is Santiago Capital founder Brent Johnson, who is also the author of the Dollar Milkshake Theory, Brent prepared a slide deck to accompany today's interview, registered users will find the download link in your Research Roundup email. If you don't have a Research Roundup email, just go to our homepage macrovoices.com, look for the red button above Brent's picture that says “looking for the downloads.” I strongly encourage you also to go to macrovoices.com if you are a new listener and are not already familiar with Brent's Dollar Milkshake Theory, we've done a couple of episodes where we went into much deeper detail on the Dollar Milkshake Theory specifically, I think that content is more relevant today than it was on the day it was recorded several years ago. So for full context on Dollar Milkshake, go there. Brent, why don't we start with just for our newer listeners a quick summary of what the Dollar Milkshake Theory is, people who want more detail can go back to the prior episodes.
Brent: First of all, let me just say thanks for having me back on here, Erik. It's always fun to talk to you, especially about this topic and just macro in general, because you and I have been talking about this a couple of times a year, every year since I first started talking about the US dollar. And the reason I talk about the US dollar and the reason I focus on the US dollar is in my opinion, it's the single most important factor in getting the overall macro picture right, I think it's very difficult for your portfolio to do well. It's not impossible, nothing's ever impossible. But I think it's very difficult for your portfolio to do well if you don't understand what's going on with the dollar and especially if you get it wrong.
And so essentially, what the dollar milkshake theory is, is really just a framework and a way for me to look at kind of an event driven thesis that's based on the fact that I believe that we have too much debt in the world. And I believe that debt has consequences. And I think what we're going to see in the years ahead is the consequences of all that debt that we've taken out, both in the United States and outside the United States, play out in the markets. And I don't think I'm unique in this, I think everybody sees the problem of having too much debt. But in my opinion, many people seem to get the knock-on effects of having all this debt wrong. And so, I kind of came up with this theory, and I call it a theory because I think it's right, I think it'll be right. So far, it's been right. Well, I guess we kind of have to wait and see ultimately, whether it's right. But I had to come up with a way to explain to my clients who are very smart, very successful, very wealthy, but aren't necessarily versed in traditional financial lingo, and they don't study monetary history or monetary policy.
So, I had to come up with a way to explain to them what I thought was going to happen. And essentially, what I was saying, what I thought was going to happen was that there would be kind of six main things that I wanted to get across to them. One is that we'd had this 40-year bond bull market. And I was of the opinion that I didn't know exactly when but I thought as a consequent of taking on all this debt, interest rates would eventually have to rise and they would break out of this long term 40-year descent towards zero. And I thought that when bond, you know, when interest rates go higher, then bonds break, bonds go lower. And when bonds go lower, then interest rates rise, when interest rates rise in the United States, that typically pulls the dollar higher, the dollar going higher versus other fiat currencies creates all kinds of problems for the global markets. And I think a lot of people thought that that might happen, but that that would cause this huge bear market, another Great Depression, however you want to describe that. And while I thought that was possible, I didn't think it was necessarily going to happen right away. And I didn't think those would be the first steps. And what I actually thought would happen was that we would have a rise in equities alongside the dollar. And I thought we would have a rise in gold alongside the dollar. And just really, in general, I thought the United States would far outperform the rest of the world. And so that's really the thesis. And you know, over the last six years, five, six years, that's for the most part, played out. Now. It's not perfect, and it hasn't always worked that way. And, of course, there's been times where things have gone against it. And you know, markets don't move in straight lines. But as I look back, and for people who think that I'm just making this up, I did an interview in the summer of 2018 and this interview is online and the transcript is online, and it's all right there. And then I did a very short presentation of it in October of 2018, where I talked about it a little bit more, but the very first time I talked about it to a kind of a captive audience and really went into detail was at your MacroVoices conference in January of 2019. And so it's been kind of fun for me to kind of track and see how this has gone. And I have to say, it hasn't been perfect, but for the most part, I think it's been right. And it's allowed me to manage my client portfolios without suffering in significant drawdowns and participated in the upside along the way.
Erik: Joining me now is Alex Gurevich, founder and CIO at HonTe Investments. Alex has prepared a slide deck to accompany today's interview, registered users will find the download link in your Research Roundup email. If you don't have a Research roundup email, just go to our homepage macrovoices.com, click the red button above Alex's picture that says “looking for the downloads.” Alex, last time we had you on the show, you expressed a more disinflationary to deflationary view somewhat out of consensus with a few of our other guests. Any change in that view? And what is your outlook in terms of inflation versus deflation looking forward?
Alex: Well, Erik, first, thank you for having me back. It's always good to have an ongoing discussion and kind of compare the views. Last time, several months ago, we've had a little discussion about what seemed transitory and got wrong. And I was trying to analyze me being on team transitory, in which ways some things were correct, but which were fundamental errors, and don't want to repeat that. But I'm just saying it's kind of good to have those every several months check-ins and see what happened, what are we wrong about? Not just, I-told-you-so’s, but also what were on the ballot and how do we take in new information. I will say, compare it to a few months ago, there were probably more challenges than confirmations to my view that I’ve had, however, not a huge change. And I will explain why the change is not huge. But I will, as a brief summary, I will say that the time is getting closer to the point that my view will be seriously challenged. So, the timelines have to be moved a little further. And if that certain timelines will not be met, in I would say, half a year to a year, I will be under pressure to keep saying, yes, it's all going according to my big problem. That's how I would summarize it. So the core of my view, behind deflationary view was policy lag. And the fact that everything that happens with rates works with a huge lag. And the core of my position in the end of 2023, was that it is too early to say until second half of 2024. And that's when that was the timeline I pointed out back then, it's not the timeline I'm creating now, that in second half of 2024, it will be too hard to say what effect real rates could even have had yet. So what I see in the narrative so far, I see the disinflationary narrative to me is clear. I think the high inflation period is over. I see no new inflation spiral or anything like this. I know that some people disagree with me, but I see no signs of that. I don't want to get worked up over inflation ticking down 0.1% as people were in 2023, or being like 0.05%, higher than projected for a couple of months. That does not mean there is no inflationary crisis going. But there is no deflationary bust going on.
Also, as I wrote in my quarterly report to investors, it's currently hard to say that the economy is weak. You could squint to look for signs of economic weakness. But overall, the numbers are pretty solid this quarter. What I feel is there is a strong discrepancy. I'm just doing right now an overview to show how complex the landscape is. I feel majority of top-down numbers are fairly robust. You're seeing whatever like GDP type numbers, or anything looking from the employment numbers, though, like any aggregate numbers, look good. There are some bottom-up numbers that certain analysts point out certain areas of weakness, like restaurant occupancy, or amount of delinquencies, amount of bankruptcies, or even late in people showing the new rounds of layoffs. It's not so fine filtering into top-down numbers. And since I'm not a bottom-up person, I really cannot speak to that. All I'm saying is that I'm seeing some serious disagreements between analysts. I am not the person who crunches original economic numbers. I'm a consumer of that research. And what I'm seeing is opposing pieces of research on what is the level of economic health.
Now, inflation and rates and stock market and economic health, all of those things are not the same thing. They're related, but they're not the same thing. For example, we can see deflation and really low interest rates and a robust stock market. We can see a recession and stock market making new highs, on contrary, we can see really weak stock market and really strong and hard running economy. All of those situations, which I think people had difficulty imagining educated goal are possible in the new regimes and regimes of fiscal dominance and the regime of really aggressively reacting Fed. That's what I think blindsided a lot of people in 2020. The fact that while the economy was still weak, stock markets started to run up. Because the influx of cash was just so huge that the buying power was there. It was less challenging for me back then, because I was already thinking about those things a lot by, before the year 2020. Things like why does stock market not go down during a recession? Or does inflation have to go hard during growth period, which people are trained to use, interlinked? I actually just tended to be concurrent, but a lot of concurrency is broken now. So we're navigating this complicated landscape.
Now, my fundamental thesis is that, the most important input for future inflation is current inflation, that inflation leads to more inflation, less inflation leads to less inflation, because there is a certain zone in which not much spiraling is happening. And right now, I think we're at a moment in that zone of inflation. But fundamentally, if you said, inflation was so high during COVID bump, that it created this post COVID wave, then we'll have the bull-whip of coming off post COVID when inflation came down, and that led to patch of low inflation. Now it has bull-whipped, the more like normal post COVID environment. And now the question is, will interest rates do the work to bring inflation down? Now, in my thesis, is that higher real rates are deflationary. Because higher real rates force increasing productivity, higher real rates, cause people to be careful with their balance sheet, cause to draw down inventories, cause to be really careful with their money, and that's the opposite of inflation. And furthermore, currently the yield on, say, something like 2030 year inflation index bonds, which by the way, I think among the best assets out there, right now, it's close to 2.5%. Now with that yield, how can it be even wrong for people to put bonds in their retirement account? And inflation plus 2.5%, you're guaranteed for 30 or 40 years to make positive real yield? That's to reach a proposition, historically. I don't think those things are trading anywhere at the right level, I think they're catastrophically cheap. They're like, default level cheap, the long date, this type of assets. I think real rates on Treasury bonds should shoot and will converge to zero in the long run, there will be periods of negative real rates and positive real rates on Treasury bonds, but risk-free bonds make sense for me that they ran roughly at inflation. So which means that the real yield on TIPS should be close to zero. And right now, they're way undervalued, especially in the long end. So that's kind of the big sin. Now, if you're okay with this, I'm going to move to some charts to see how I’m thinking about that.
MACRO VOICES is presented for informational and entertainment purposes only. The information presented in MACRO VOICES should NOT be construed as investment advice. Always consult a licensed investment professional before making important investment decisions. The opinions expressed on MACRO VOICES are those of the participants. MACRO VOICES, its producers, and hosts Erik Townsend and Patrick Ceresna shall NOT be liable for losses resulting from investment decisions based on information or viewpoints presented on MACRO VOICES.
