Dr. Pippa Malmgren

Erik:     Joining me now is Dr. Pippa Malmgren, independent economist, best selling author, and author of Pippa's Pen and Podcast. Absolutely outstanding content on the podcast. Pippa I have to tell you, I always knew that you were a super smart woman. It wasn't until recently that I really started reading your blog, that I've come to understand the breadth of your knowledge of so many things. So congratulations on your new blog and listeners. That's at drpippa.substack.com. Welcome back, Pippa.

Pippa:     It is great to be here! Thank you.

Erik:     I want to dive right in. You were the second person after Mike Green to tell me that World War Three had already begun. I interviewed Mike Green and got his update on that last week. I really want to come back to this because something that happened for me when I had that conversation with you and also with Mike, is I was conflating World War Three to mean that you and Mike were predicting a certain nuclear Armageddon that was coming any day. That's not what you meant. So let's start with what did you mean more precisely, then? And how is the story evolved from then to now?

Pippa:     Yeah, well exactly. So I wrote a piece, I put out my launch piece for purpose pen and podcast on October 29 last year, and I argued World War Three is already started. But the thing is, World War Three doesn't need to be like World War One and World War Two. World War One, it was humans fighting hand combat in trenches, machine guns. World War Two is about airpower. World war three, I believe, started in space. So kind of the ultimate altitude airpower, and we had a lot of incidents between particularly the Russians, the Chinese, and the Americans. A lot of attacks on satellites and, you know, blowing up your own satellite to create a debris field that would knock the other guy's satellites out of the orbits. And I think that the view was the superpowers could face off up there. And, look, there are no journalists. And there's nobody to talk about it, because anybody who's involved is under an NDA and classified information is involved. So I understood, there's something going on that's really big. And I saw it was starting to spill over into more hostile relations between the superpowers in other domains. And then I felt just people needed to be forewarned that the temperature level is rising to the point that we're going to have real live incidents. And then the next thing I knew on January 6, which is when I date, the beginning of the earth based elements of this war that we're now in, which was on a tiny little island in the Arctic Circle, is part of Norway, it's called Svalbard. And it has the fastest internet connection in the world. And people were like, well, why does it have that? Well, because virtually every commercial and military satellite plus the International Space Station connect to Earth at Svalbard. So there was this fascinating incident, which appears in retrospect that one of the Russian oligarchs took their massive yacht and placed it over the top of that cable, and submarines went underneath and cut it. And they didn't just cut it in one spot, they cut it in two, and took away like six and a half kilometers of cable, so nobody could say it was like an accident. And it was meant to send a signal. And the British Chief of the Defense Forces came out and said, under normal circumstances, this would be considered an act of war. And so it put NATO on high alert. That was, you know, what, the 6 to 8 weeks before the tanks rolled into Ukraine.

So that was what I meant is that we're beginning a process of confrontation, which is not just what we're looking at most of the time, which is Ukraine, and in fact, the many, many other physical locations involved. And if I update it to today. There are more countries now involved in this superpower confrontation, then there were in World War Two. The good news is that the standoff is happening mainly through technology rather than through humans fighting each other. Of course, in Ukraine, there's been a terrible loss of life. So that's the one exception, but there's been all kinds of other stuff going on, you know, internet cable cuts and sabotage. And then, ultimately, what's really been happening in recent weeks, in my opinion, is we have indeed, gotten very, very close to an actual nuclear event. And that's been reflected by the way, I'm not, you know, so far out there. The head of the UN said we're hair's breadth away from a nuclear event. We've had many leaders refer to this near Cuban Missile Crisis. And I think that is exactly what is happened. And it explains a lot about how things are unfolding now. So why is it that all of a sudden out of the blue, the chief of the British defense forces jumped on a plane and ran to Washington completely unscheduled, and unexpected? Why is it that all of a sudden the US has agreed to direct nuclear negotiations with Russia nothing to do with Ukraine. Just to talk about nuclear and I think it's going to include weapons of mass destruction. Why is it President Xi has suddenly been like hey truce and negotiations are a good idea. I think it's because the Russians got a lot closer than anybody realized they were going to get to actually doing something with a nuclear weapon. And for a while everybody thought well President Putin might want to do that, but his military won't execute it for him, they'll find excuses. It'll just not happen. But as soon as reported in the press, there started to be indications that his military was aligned with him on that. And I think that scared everybody. And we've ended up exactly where you'd expect, which is, you get a real threat of a nuclear weapon and suddenly, everyone agrees to go back to the negotiating table.

Mike Green

Erik:  Joining me now is Mike Green, chief strategist and portfolio manager for Simplify Asset Management. Mike, it's great to get you on the show. I want to dive right in because it was boy, next month, I think or in January, it will have been two years since you first told me off the air in a private phone call that World War Three had begun a year prior to that. And at the time, I have to admit, I was completely dismissive. I thought you were off your rocker. But in hindsight, what I recognize is, the reason I wasn't listening as I should have been, is the phrase World War Three, to me really equated to certain and impending imminent nuclear Armageddon. And I thought you were crazy to think that. That's not really what you thought that's not what you meant. So let's start by clarifying what did you mean, when you told me almost two years ago now that a major new war cycle had begun?

Mike:   Well, first of all, thank you for having me back. And your initial assessment that perhaps I'm off my rocker was the right one. But what I meant by World War Three was effectively we were moving into a regime in which, the frenemy coopetition dynamic between China and the United States in particular, had degenerated and had really begun to generate starting in 2013, into a next phase of competition, where we were really focused on effectively carving up the rest of the world into spheres of influence. And that we were going to engage in a series of competitive trading dynamics, competitive financial market manipulation dynamics, and proxy wars, that could under bad circumstances escalate out of the cold war type framework that we were familiar in the Soviet Union, and potentially turn hot.

Now unfortunately, I think that as time has passed, things have gotten hotter. And the question now is, can we avoid an escalation? That takes it much further, but it does, I think most people would acknowledge, as you kind of have, that we've begun to very clearly move into a competitive mode that often involves degrees of violence, that feels very different than the coopetition that we were engaged in for the better part of 30 years following the fall of the Soviet Union.

Rory Johnston

Erik:    Joining me now is Rory Johnston, founder of commoditycontexts.com. Rory has been an oil analyst in Canada for many years. Rory, it's great to have you on MacroVoices as a first time guest. Thanks for joining us.

Rory:  Thanks for having me, Erik.

Erik:    I want to start by asking you to critique my thesis or my bold call, if you will, which our regular listeners are already familiar with. Which is I contend that the world is unable to return to pre-pandemic normal in terms of the overall global economy, for the simple reason that we don't have enough energy supply. And my argument is, it was proven actually in 2021 before there was any Russian invasion. If you look at the explosion of time spreads, that happened in 2021, we had an incredibly, incredibly tight physical market. And that was before any discussion of China coming back online. My contention is that once China does come back online, we're going to have more demand than we can ramp supply up to meet, and it's going to create a global energy crisis. Please tell me why I've got that wrong, because you know the physical market very, very well. And I'm dying to have somebody sent me straight if I've got this wrong.

Rory:  I will say, I don't think you have the kind of broad contours wrong. I think that I share the view that over the next at least half decade, the supply demand balance looks tremendously bullish for all the reasons that you mentioned. We're still decently below pre-pandemic production levels, and demand is there as well. And as you mentioned, with China one day, eventually coming back to full production, you know, we're still down somewhere in the ballpark of 2 million barrels a day under where peak Chinese consumption was prior to the COVID zero lock downs. So, I think that will definitely have a tremendously kind of price positive and bullish effect. I think the challenge is that we're still I would contend very new into this, you know, latest regime of the oil market. If you can think about the last regime, kind of starting around 2014, when you had that massive buildup of shale production growing at any price level, cratered prices, the new the new normal for, you know, as far as anyone was looking forward was in that kind of $40 to $60, shale band range. And that lasted, basically from 2014 right up until 2020 and I think a lot of people expected it to last longer. And a lot of the things that people said were inevitably kind of flawed or couldn't continue about shale really that point got punctuated and fast forwarded by the pandemic shock. But I think now, a lot of the reasons that we're still talking about the US shale can't produce faster, for instance, I think as well, we're still in a relatively new period of US shale producers finding this cashflow positive kind of religion. And I think it's still too early to say if that's going to be a permanent feature.

I think the other thing that's important here is that when people think about US shale growing slowly. I think they think about it actually growing slowly, and it's still going to grow faster than any other producing jurisdiction on the planet. It's just probably going to grow at somewhere in the ballpark of half the speed that it was growing prior to the pandemic. And I think, just for context, you know in 2018 when Brent prices were around $60 bucks a barrel on average for the year. US shale or us total liquids production growth grew by something like 2 million barrels a day or more than the entirety of global demand during that period. That was an insurmountable wave of supply that the market could never work through in a way that, you got three digit oil prices, but now it's going to grow more in the ballpark of 500,000 to a million barrels a day, which I think is both a more sustainably kind of healthy pace of growth for the global oil market. But I think it's also still extraordinarily fast relative to what most other jurisdictions historically have ever seen. So, I think that would be my point is that I'm less certain whether or not this will be the permanent new normal, or if this is just another phase. And after a period of high prices, and after some of these supply chain bottlenecks in the US begin to unwind, we couldn't begin to see some of that appetite for growth at any cost again. I think it's, the oil market is cyclical, psychology is cyclical, and I and I'm not yet convinced that this is the final end of history chapter of US shale.

Eric Peters

Erik:     Joining me now is Eric Peters, Founder and Chief Investment Officer for One River Asset Management and One River Digital. Eric, it's great to have you back. It's been way too long. You know, I really enjoy reading your weekend notes email that I get every single Saturday. I particularly was interested in a comment that you made saying that the strongest or best I think the way you phrased it was the best armed military powers in the world are suddenly at odds with each other or in direct conflict. Tell us a little bit more about how you see this geopolitical situation. What's driving it and what it means for markets?

Eric Peters:     Sure. Erik, great to be back. It's, it has been a while actually. And boy a lot a lot happen in the world. It feels like we have new things to talk about every time we get together. So yeah, what I referenced was, it seems apparent that we are. We're in a period of rising conflict and it's becoming more explicit. So this past week, I was referring specifically to the Russians claiming that the UK Ministry of Defense or defense ministry had been intervening in the drone attack on the Black Sea Fleet. And then I think what really caught my eye as well, is that we had the last week we had a Senate report that came out that actually said it was I don't know the exact terms, but reasonably likely that COVID came from a lab. And you know, that comes after a couple of years of strong statements in opposition to that theory. And I think that, you know, there are plenty people who looked at the original COVID leak and had observed that there was at least a reasonable probability or possibility that it come from a lab. And, you know yet I think, probably for political reasons, the government pushed back hard on that. So it's just interesting that that all of a sudden, it seems to be the opposite is true.

Ole Hansen

Erik:     Joining me now is Ole Hanson, head of commodity strategy for Saxo Bank. Ole has prepared a terrific 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, it means you're not registered, just go to our homepage, macrovoices.com. Click the red button above Ole's picture that says looking for the downloads.

Ole, it's great to have you back on the program. Let's go ahead and dive into the slide deck as we get into page three here you talk about commodities in general,. Give me the big picture of where we are in the cycle because my feeling has been the 2020s are going to be the decade you want to be long commodities. But I also felt like we kind of got ahead of ourselves a little bit in the recovery from COVID. I was thinking there's got to be a big pullback. I know that a recession is coming. At some point there's that buy the dip moment where if you could somehow magically have a crystal ball and know where that bottom point is. That's where you want to go long commodities and stay long for the next decade or so. At least that's been my view. Well, first question is do you agree generally with that view, but the next one is what's your crystal ball say? Are we there yet or should we wait for a recession?

Ole:     Well, I wish life was that easy, Eric, and thank you very much for having me back. It is a very interesting time in in commodities and you're absolutely right, we probably ran ahead of ourselves a bit, just not only from the COVID outbreaks, which just triggered this massive surge in demand for raw materials, but also the war breaking out in Ukraine which added some additional rocket fuels to some of these individual markets. But we have been trading somewhat lower since then we are stabilizing, I would say at this point in time. But the long term outlook I think, is still one where we were we're looking at scarcity of supply of several key commodities where the upside potentials are still there. But it's also difficult for investors right now to navigate this market because we got quite a few contradictions going on. Right now. We have the dollar, which has been strengthening all year, it's creating some headwinds.

We got demand which, which is softening especially in China, but whether it's obviously worries about the recession incoming and the extent to which that will have an impact. And then we got supply also, several key commodities being challenged. We obviously all know the situation right now in the gas market, especially in Europe, but also energy supplies in general. And some of the metals. So timing wise, I think the everyone is right now looking for the rollover in the Federal Reserve's approach to interest rate hikes. And I think that will be a key moment for the commodity sector as well because the market needs some more clarity on the trajectory of the dollar. And if we do see a rollover, that potentially could be quite a quite an event that the market will respond to in a positive way when it comes to the commodity space. But I think what we're finding as well, and what has changed since the outbreak, and then that's some of the themes we're picking up here on page 3 is basically that the world has changed.

The world is... we're seeing breakdowns in trade relationships. We have a new geopolitical situation and it basically means that some of the themes that we like from an equity investment perspective are also themes that really spills into the into the commodity space. We like to use equity themes as our guide to what moves markets here at Saxo Bank and we made these different equity themes, and those are highlight are the ones that we like. And we can also see they are the ones that have been on top in terms of performance, so far to this year, which obviously has been a year with dismal performances across many different themes. But it is the commodity space, it is defense, its nuclear power, its renewable energy, it's probably India sitting nicely in between East and West. And it's obviously cybersecurity. These are all themes that we would like. But our main thesis is basically that demand will potentially slow a bit, but supply will remain tight.

Inflation is going to be higher than we anticipated in the past simply because and I'm referring also to some of the latest update that we had from sultanates at Credit Suisse, basically, he's using these reshoring and rewiring. The reshoring due to globalization, rewiring of the grid, the energy transition. These are real and these will really be quite commodity intensive and over the coming years. And we basically believe that that will drive inflation to a higher level than where we have seen in the past. I think the underlying inflation in the US for the past 20 years has been in the region of 2% We could easily see that at least twice, twice as high over the next decade so four plus and that is something that is not priced into the market at this point. And that could potentially create a revaluation of some of these markets if the market joins us in that in that belief.

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