Transcripts
Erik: Joining me now is Phil Verleger, founder of PKVerleger LLC, and also editor and author of Notes at the Margin. Phil, I've really been looking forward to getting you on the show because you have been analyzing the oil business literally for 55 years. So you're a veteran of this business. Let's start with our really big picture of hey, they're people telling us that this entire industry is going away. There are people that have been saying for decades, of course, there's problems with fossil fuels. But now we've actually gotten to the point where the IEA, the International Energy Association, which is supposed to be our own industry body to promote this industry is telling the world that the entire industry needs to for ever stop looking for new oil. Just keep the wells we've got and then we're going to shut. I guess the idea is a suicide, shut down the entire industry and make it go away in favor of something else. I do think Phil, we've got to get eventually off of fossil fuels. But I don't think it's going to go down the way a lot of people seem to be talking. How do you assess this? Is the industry really coming to a slow motion end or what's happening here?
Philip: No. The industry, well, the industry is probably past its peak. I don't think we will see oil consumption ever get back to the levels we saw, say in 2019. The International Energy Agency is an intergovernmental organization that Henry Kissinger formed, and I actually I was working at the Council of Economic Advisers under Jerry Ford, when it was formed. So it was designed to deal with energy shocks. And what they have done is been following the oil market and energy markets for 50 years. They came out with this net zero 2050 forecast. I don't know why and I've done a lot of forecasts. And you know, one of the things I was taught when I started looking at economics after doing my economics degree, was if you're gonna forecast, forecast often. Well, this is just kind of a one time forecast, which is a mistake.
The other thing we always teach students is never put a number and a date on the same piece of paper, and they really blew it here. Now, if you read through it in the back, they also have a scenario where we get to net zero, maybe by 2100, which is probably more likely. But it's a disconcerting projection. It is knock people off, it's really affected the industry. I think it's going to make it harder to raise capital when capital is going to be needed and it's just wrong. Oil use is going to go down. It won't go down as rapidly as they think it will. The economic assumptions they have in it are probably wrong. Because you can't forecast out 30 years with any accuracy. And there's probably going to be a good deal more carbon capture because if oil prices keep going up as they are right now, it will become more and more profitable to sequester oil, the way Occidental Petroleum wants to do in the ground. That's we've been doing with enhanced oil recovery for as long as I've been around. And so what the IEA said is a distraction, I guess is the way I see it. A real distraction.
Erik: Joining me now is Professor Steve Keen, formerly a professor from a university in London. Now, professor at large teaching economics on the internet via Patreon. Steve, it's been way too long. It's great to have you back on the show. But you know, you have been one of the most outspoken guys talking about why too much debt really leads to a macroeconomic prognostication or diagnosis or forecast, whatever you want to call it of ongoing deflation.
My big question to you is, boy, it seems to me like the politics have changed and we maybe are back to the late 1960s and facing and incipient not just little whiff of inflation. But I think secular shift to a really big inflation, that's going to be a big deal. Am I crazy? What do you think?
Steve: Well we suddenly got a shock coming through from the supply side of things. I mean, COVID has obviously disturbed global production chains around the planet. We're seeing signs of that as well with climate change, with Taiwan running out of water and therefore not able to supply the chips to the world. So if you've got big increase in, you know, their essential, highly transformed manufacturing input. then you have a range of other commodities, I believe copper and nickel. The two that are showing signs of supply disruptions. So all this stuff meant you're going to get a supply kick, cost of production kick coming through. Which, you could actually like into what happened back in 1973-74, with The Yom Kippur War, the OPEC blockade, and the increase in oil prices from $2.50 a barrel to $10. And then the same in 1979-80, when they went from $10 to $40.
So definitely there's a price hit coming through from the supply side of the economy. But what is different this time around is that when that happened in the 70s. You had an absolute mother of all booms on, which was credit finance. And you also had unemployment so low. I mean, it was an insensitive recorded level in America is running at about of the order of 4%, 3% to 4%, which is comparable to what they are calling the unemployment numbers these days. But frankly, the numbers were more honest back then. There has been so much hiding of unemployment in the not looking for work section of the statistics I think you've pretty much got a double the unemployment rate to make it comparable to what was actually being properly recorded back in the 70s.
Erik: Joining me now is Katusa Research founder Marin Katusa. Marin, it's great to have you back on the show. I know that you've got a brand new book out, which just hit the number one bestseller list on Amazon. I want to talk to you about that before this interview is over. But what I really want to dive into because people have asked for it is to talk about the options that exist for accredited investors in the gold market, precious metals market, and let's expand that to natural resources generally uranium and other kinds of mining. Where those opportunities exist, because what I do when I'm buying gold is I do it in the futures market if I want the bullion and if I want the mining shares. Frankly, and I want to make sure that we are fully disclosing this to our listeners, we do have a business relationship.
What I do when I buy the mining shares is I am a subscriber to your newsletter, and I participate in a lot of your recommendations. You do recommend buying stock on the open market and I've done that on your recommendation from time to time. But mostly what I've participated in is special opportunities that are only offered to accredited investors. So I want to educate anyone who is accredited, but might not understand what the options are about the marketplace and talk about what's possible. So give us the background in this market. Why accredited investors? Why is the deal different for accredited investors? And why does this industry in particular seem to do so many financings that are offered only to accredited investors?
Marin: Thanks Erik. Let's go back when I started out about 20 years ago, you know, I knew nobody in the business. You know, I grew up in East Vancouver and by total fluke, Vancouver is the epicenter for resource and commodity capital. That's where things get financed. That goes back almost 100 years why. But when I started out right at the beginning of the big, you know, BRICS growth, China growth, the commodity bull market, gold started at 350 and outs, and, you know, you go through the CFA program, and they don't even talk about private placements or warrants. And I'm sitting there, you know, at these investment conferences and listening to the big players at the time, and they would talk about, you know, just passively Oh, yeah, you know, I did that financing at 25 cents, the stock went to five bucks, I blew out the shares. And, you know, I ride the warrants, and I was like, What the hell are they talking about? You know, I was just a young kid at the time and going, Oh, when I go on to E-trade, I don't get any access to this. How do I participate in these financings that the biggest names in the business are doing? So as I built my way up, you know, walked up the ladder in the industry, little by little.
Erik: Joining me now is Larry McDonald, the man who wrote the New York Times best selling book on the collapse of Lehman Brothers. These days, Larry writes The Bear Traps Report. Larry, it's great to have you with us. Let's start with a question I've been asking just about everyone because everybody's changing their story, which is inflation versus deflation. So many of our formerly devout deflationists have turned inflationista on us. Where do you stand? What do you see on the horizon?
Larry: Yeah, I'm in the inflation camp as well. It's, you know if you think about the previous decade, and the investment community globally. I think that, you know, we're looking at $100 trillion of bonds there below 2% in yield, and close to $17 trillion in the NASDAQ 100. And so net, net, net the entire investment community of the planet Earth is essentially in a 2010-2020 portfolio allocation. And I think what's been happening over the last like 60 days to 90 days is we've had these tremors. These growth-to-value tremors in the market, and they've been just like tremors before quake, they've been picking up with intensity. And it's clear that to me that there's just literally trillions of dollars that's misallocated, that's going to have to migrate. And right now, there's probably already a trillion that's already moved. But you know, three, four, maybe five more trillion has to move in the next six months. And so that's where, you know, the system is buckling a little bit.
So now as we look forward, we're looking at a Biden administration that is so determined. I mean, they lost the 2010 midterms by 63 seats. Obama-Biden and they're going to spend, like there's no tomorrow, especially in the third, fourth quarter of this year with the new, you know, enhanced powers of reconciliation, which you only need 50 votes. And at the same time there's just more fiscal largest around the world. And so the pressures on inflation are substantial, much more substantial than they were 10 years ago and then especially if you look at the Fed as well.
But what we were looking at is the previous decade, we had Brexit, trade wars, obviously COVID, austerity in Europe, austerity because of obviously, Greece. We had a Grexit and a Brexit. Massive austerity in Germany, you know, with incredible surpluses, and austerity in the United States. We had a sequester that took the deficit from 1.1 trillion to 500 billion over three years between 2011 to 2014 or so. So I mean, this is just, we have supply chains that were as smooth as silk. And so we have like 10 or 20 things from 2010 to 2020 that foster this incredible deflationary period is just mind boggling bull market and bonds to the point where in the fourth quarter 2019 bonds were bid without in September, October no offer. I mean just an incredible that was before COVID.
Erik: Joining me now is David Rosenberg, founder of Rosenberg Research. David, I've really been looking forward to this interview with you specifically because all of our best macro experts that used to be devout deflationists have turned inflationists. To the point that we literally have to go looking to find a deflationist left. Tell us your view, is the world changed? Is at all inflation from here?
David: Well, I mean, that certainly has become the narrative in the markets and in the media. I personally find it difficult to believe that the first global pandemic in over a century managed to unleash the inflationary forces that we couldn't generate over the course of the past four decades. That somehow it's the pandemic and the policy response to that pandemic, which has been to basically try and fill a leaky boat and preserve social stability. That we somehow now have in our hands a sustained inflationary experience to deal with. I think that we've just swung the pendulum the other direction. This time last year, we had three months in a row of negative CPI readings. We had three months in a row of declines in producer prices. Commodity prices across the board were plunging more than 20%. And if you remember, there was a day where the front month contract on WTI actually went negative.
So did we get an outright pernicious, sustainable deflationary experience? The answer is no. What we had was we had a global shock, the pandemic, and the shock created, the conditions where initially the plunge in demand more than offset the reduction in supply and that created the conditions for several months of negative pricing. We fast forward to the current environment and we have the situation now where you know, courtesy of the economy reopening, the vaccinations, all the fiscal juice that's in the system, demand has come back vigorously. And at the same time, the supply side has lagged behind. So we have this disconnect right now in the opposite direction between supply chains and demand. And it is creating I mean, nobody in their right mind can tell you that we don't have inflation right now. Inflation in the sense that we do have a temporary period where pricing is accelerating in several of the COVID related sectors. And in parts of durable consumer goods, where there are shortages.
To me, it is borderline disingenuous to say, well, the vaccinations and the re-openings are going to create the conditions for a surge in demand. But somehow the supply side will come back. The supply side will come back, all you have to do is take a look at the dramatic increase we're seeing in shipments and exports out of Korea and Taiwan. And all they really do is make semiconductors. So with a lag that's going to help ease the pressures everybody's talking about in the chip industry. And you just have to take a look at the container ships that are filled to the brim outside the ports of LA and Long Beach, which are the two busiest ports in the United States. They haven't been unloaded yet, and partly because of the lingering impacts of the COVID.
But to suggests that the supply will not come back to me is ridiculous. To start talking about labor shortages. Indeed, because you do have some people that that do fear going back to work because the pandemic is not over not even in the United States. And I say that, you know, with over 40% of the population having been fully vaccinated, you know, we will get there in probably four months if you're talking about herd immunity. But the lingering impacts of the pandemic, the variants are keeping people at the margin, reticent to going back to work. And of course, we have these extended extremely generous jobless benefits that are paying people more to stay at home than to go back to the real job.
This will all fall out of the data come September, October where I expect the supply side is going to play catch up to the demand side. And we have to keep in mind what is the story on the demand side outside of the vaccines is fiscal stimulus. But all the fiscal stimulus is just all very temporary. As we saw, with the April retail sales data, everybody blew their brains out on the spending in March. So we have a stop and go economy on our hands. The fiscal policy and the short term nature of the stimulus has just accentuated the volatility in the data. So I actually believe that come the fall, we will start to see the reopenings having a positive impact on aggregate supply at a time when we're gonna see fiscal withdrawal having a downward impact on demand. And so a lot of the inflation we're seeing today is going to reverse course I expect either by late summer or early fall.
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