00:00You believe that even if there's a ceasefire, tomorrow, right now, the next five minutes,
00:05the world's changed. The commodities have accrued. What's changed?
00:08For one, you've disrupted global supply chains. This is not just a disruption oil. It's gas,
00:13it's fertilizers, it's metals, it's petrochemicals. The list goes on and on.
00:17And then you've disrupted supply chains in countries all over the world. The ships are
00:21in the wrong places. The insurances have been canceled. You've taken the pressure out of the
00:26fields that you've shut in in places like Saudi Arabia or Iraq or even in the UAE. I can just,
00:34the list goes on and on. The damage is going to take months to unwind. But I want to bring
00:39it to
00:39the immediate. There is no policy response that can stop this ascent accrued. None. And yes,
00:46you've hit this 400 million barrel headline. Flow rate is what matters. You know, the maximum
00:52sustainable flow rate is 2 million barrels per day. So 400, that'll take them 200 days to get
00:59that out. And you put that in the context of a disruption of, you know, let's net it out of
01:05this. You know, it's got to be somewhere around 18 million barrels per day right now. You're just
01:09a minuscule in terms of offsetting it. So again, there's not many options here.
01:14What would you call this then? A PR campaign? In terms of doing this, it's all they have. They're
01:19going to do whatever they can. But I think the key issue here, keep the hoarding down. Because
01:24we know what happened in the 1970s when you got the hoarding. You know, it created an increase of
01:29demand of somewhere around 2 million barrels per day. In the size of this market, try 3 million
01:34barrels per day on top of the disruption of somewhere around 18. That word comes up in your
01:39research repeatedly hoarding. China has been rewarded for doing just that over the last 12
01:46months. Do you think others will follow now? Oh, they already are. You know, whether places like
01:50Japan and Korea, they're hoarding anything they can get their hands on at this point.
01:54And it even happens down to people driving. Keep your tank filled up. By the way,
01:58that's meaningful in terms of the demand pull. You know, most people drive and they take it down to
02:04about a quarter fill and then refill it. Now they're going to be going into the gas station,
02:08filling it back up every time it gets to a half or even three quarters.
02:11So what kind of premium are you talking about longer term? We were just speaking with Steve
02:14Voth, a federated Hermes earlier, saying that if oil prices go above $90 for a prolonged period of
02:19time, that will cause real damage to the underlying economy. Is that a base case for you?
02:24By the way, the one thing, and we're going through a regime change. This is not a trade. This is
02:29a regime
02:30change. We're moving from that world that was defined from 2014 to 2024. You know, is that new
02:37economy boom, you know, driven by Mag 7 is a technology boom, asset light. Similar to what
02:43we saw, the dot-com boom. What came after the dot-com boom? Remember, it was the exact same
02:48thing. You had a geopolitical event, switched you in 2001, and then actually directly connected to
02:54the 9-11 was China's admission to WTO. By the way, they were connected. George Bush Jr. needed to use
03:02force in the Middle East. He needed a vote in the U.N. Security Council. He traded admission of China
03:08into the WTO to get that vote. Boom, you're off to the races. You were in an asset-heavy boom
03:13that
03:13lasted for over a decade of 2014. And then we went into the current light asset one. And look, we're
03:19again in one of these huge geopolitical events. And I think the big thing to watch is when Xi and
03:25President Trump meet at the end of this month. And that's going to be where the negotiation happens.
03:30You could argue that 2020 was the real jumpstart to the re-industrialization of the world because
03:35people realize, oh, wait a second, the physical world actually takes time, unlike sending things
03:40digitally. I just wonder how much still needs to be priced in to the physical world. And we've just
03:45been highlighted, we've just been shown the risk in the oil markets. But more broadly, how much are we
03:50underpricing some of what needs to happen? I don't think we know what can happen here. And what's going
03:54to happen is we're going to reprice everything. I mean, it started, and by the way, metals since 2020 are
03:58just a
03:58straight line going up. Everybody looks at the last couple of months, but it's just, and when,
04:02here's a point I like to say is that you looked at the returns of companies in 2000 when we
04:07were at
04:07$20 oil, they were like 20 or 30%. By the time we were around 2005 or six, you're at 60,
04:13three times
04:13on the oil price. What do you think the returns were? They were going down because the overall cost
04:18structure of the industry was rising. So we ask about how high it can go. Metals are going up,
04:23you know, their cost of capital is going up, the currency is weak and your labor goes up. All of
04:29this begins to happen. You reprice. I don't want to speculate. I like to say, get long, buckle your
04:34seatbelt, hang on for the ride, and we're going to reprice this thing. Where it reprices, I got in
04:38trouble back in, you know, the 2000s with, I'm not going to repeat the numbers again, but I think the
04:43key point here, what do you want to own? Own the hard assets, own the halos, own the anything that,
04:49you know, and I love that two term. The term we called it in the 2000s was the revenge of
04:53the
04:53old economy because it was coming off the back of the dot-com boom. This time around, I love that
04:58term halo, heavy asset, low obsolescence. Own those assets and hang on. And I want to own metal. I want
05:05to own gold. I want to own oil. And by the way, again, this is a huge disruption. It's just
05:10not
05:10isolated to oil. What do you make though about central banks right now, some of the dwindling reserves
05:14and some of their appetite to buy gold? I think what you're going to see is even more demand for
05:21gold out of this because ultimately you're really going to question what, how is the financial
05:26situation in the U.S. I want to go talk about what is really different about this time versus any
05:31other
05:31time in the last 50 years in oil. Anytime the oil price would spike pre-22, before the U.S.
05:38and
05:38Europe froze central bank assets on Russia. Anytime oil prices would spike, you would have capital
05:44rotate into the U.S., the recycling, that was the petrodollars. That would act like QE buffer. It was
05:50called a shock absorber to the rest of the economy. That goes into gold now. So ever since 2022,
05:56commodity prices spike. These emerging markets get money. What do they buy? They buy gold.
06:00They buy anything but dollar-denominated assets because they don't want to get sanctions imposed
06:05on them like what happened to the Russians. And as a result, you don't have that money coming back.
06:10One other point you got to keep in mind is now transfer payments are bigger. The U.S. debt is
06:14bigger. The interest payments are bigger. So when oil prices go up, headline inflation goes up,
06:20that gets much bigger. In fact, we estimate you go to 120 and stay there, you're going to crowd out
06:24$150 billion of private credit because you're going to have to basically issue that in public credit.
06:31Jeff, you think the world is more vulnerable now than they were in 1973, but the U.S. right now
06:34is in net export.
06:35Oh, it's a net exporter at the income cash flow level, meaning they produce as much as they
06:41consume, roughly. And I think you get an excess of around $80 billion on a $30 trillion economy.
06:47But let's say, put it this way, I call it the paradox of energy dominance. Let's go to the
06:51wealth level. Let's look at the equity market. Energy, 3% of the market. Three. How big are the
06:59things that are short? 53%. So you're long three and short 53 at the wealth level. And what is the
07:06multiple on that three? It's like 12 or 13. What is the multiple on the other one? 36.
07:11You're in trouble at the wealth level. You may be safe at the income level, but you're in real trouble
07:16at the wealth level. Then you get at the credit level. Now you've got that. Now you've taken your
07:21shock absorber because of the sanctions you imposed on Russia's central bank and turned it into a shock
07:26amplifier. So again, I agree with you 100% energy dominance at the cash flow level, but not at the
07:31wealth level and not at the credit level. Jeff, final question. It's on Asia. Refiners there have
07:36clearly got a bit of a cushion. Can you tell us how big that cushion is and how quickly before
07:40we
07:40start to see headlines across the Bloomberg on shortages? Oh, you already are. Jet fuel in Singapore
07:45spiked to over $230 a barrel. You're at that point. And the hoarding is only amplifying it. And
07:53you just took out a 900,000 barrel per day refinery that was bombed in there in the Gulf. So
07:58the
07:59situation on refined products is, and I think the key point here is it's Asia is going to be the
08:04one
08:04that's going to be in the deepest problem.
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