Transcripts
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.
Erik: Joining me now is commoditycontext.com founder Rory Johnston. Rory, it's great to get you back on the show. It's been too long since we talked about crude oil, which is your specialty. Let's start with the big picture. Before we dive into the alphabet soup of of Middle East and various other geopolitical risk factors, let's just talk about supply and demand OPEC’s participation of Chinese economic recovery and what that means for demand and so forth.
Rory: Thanks for having me back, Erik. Obviously, this year has been, it took a little while to get started. But it's become a very bullish first half of the year, with prices rising from the kind of mid 70s up towards $90 a barrel, Brent. So I think that is, by all intents and purposes, kind of a very strong crude number in this current environment. And that's been driven by kind of developments over the first half of the year, mainly around declines in inventories. So we've had this kind of realized tightening of the fundamental side of the market. At the same time, as those realized fundamentals or kind of inventory drawers have occurred, you've also seen a gradual tightening of the outlook for the rest of the year, mostly on this idea that demand is starting to look a little bit better than it did a couple months ago. And the fact that I think now the expectation is that OPEC will keep these cuts in place for longer and kind of defend higher prices. So I think that combination of factors has allowed the market, you know, it reflects the market has already tightened and expects a further tightening of the market.
So on top of that, as these prices have kind of rallied higher, you've also begun to bring in a lot of speculative and kind of momentum driven trading, that further push those prices up. So right now, just to kind of give a complete lay of the land, we have reasonably decent inventory positions or reasonably bullish inventory positions, globally are visible inventories, we have a reasonably tight outlook for the market, assuming that demand doesn't falter on some broader macro pullback, and OPEC remains disciplined in its cuts. At the same time, right now at around $90, we do have a lot of speculative or hot monies further supporting these prices. So I think on a fundamentals basis, I've been saying that we've been fundamentally supported, but speculatively driven in this rally. And I stand by that, I think that the immediate near term risk is a kind of a sudden pullback in these prices as that momentum wanes, and as those speculative dollars have inevitably begin to take profits. So I see that we could pull back there. But then after that, we're left probably still in the mid 80s, on a Brent basis with this kind of fundamental backdrop. So I think that's probably where we're standing. And on top of all of this, as we'll talk about at length I’m sure, is all of these varied and very, very difficult to quantify and kind of wrap your head around geopolitical challenges from Iran to Russia and everything in between.
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