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00:00Back in focus, that rally, despite that insatiable appetite for energy, it's still pretty resilient.
00:08Why is that? Why isn't that getting affected by the Iran war?
00:11You know, Selinda, first, thanks for having me.
00:14I go back to our conversation six months ago, and I said it then, I'll say it again.
00:21We are unequivocally in the greatest hardware cycle of all time.
00:25And so it's not to say that market is immune, immune to spasms of volatility.
00:31You certainly got that at points over the last six weeks, particularly three weeks ago or so.
00:40But the cycle is sufficiently strong that it really is seen as an opportunity.
00:50And you either took the opportunity, particularly in the Asian names, which, because of the perceived greater sensitivity to oil
00:56from Taiwan and Korea, they went down the most.
01:00That was the best opportunity, you know, that we saw in the markets over the last month or so.
01:04So you've been buying?
01:06Been buying.
01:06What have you been buying?
01:07Essentially, elements of the semi-supply chain, various choke points within it, memory as well, you know, continues to be
01:20a material focus for us.
01:22And then the base layer, which we've now been involved in, you know, 18 months as either our largest position
01:30or our second largest position related to all things power, you know, conventional power, all the bring-your-own-power
01:37players.
01:38We talked about Bloom and SEI and, you know, still involved in those.
01:43Periodically, the nuclear chain, that's a little bit longer out in terms of delivering actual revenue.
01:49So that is more of a trading position.
01:52But, you know, that whole ecosystem, in my view, has to remain the primary focus of what you're doing in
02:02market.
02:02So what you're saying is that fundamentals are intact, but fundamentals can also change on a dime, right?
02:08I mean, the base case was $80 a barrel starting the year.
02:12Now we're about $100.
02:14And people say it could be $100 in Q4 as well.
02:18That changes the dynamics.
02:20It changes the dynamics.
02:21And it is problematic.
02:24It's just a question of for whom is it problematic and, you know, what sectors are most exposed to it.
02:32So things did change on a dime.
02:34You know, if you go back to, you know, over the last six weeks, there's been an enormous shift, and
02:39there should have been, into the favorability of the U.S. petrochemical space.
02:45Different feedstock supplies available.
02:50And that now is going to be in place for a while.
02:54I mean, I think, you know, probably 18 months at the earliest before you see a shift back to getting
03:03enough Qatari supply back online that, you know, benefits the Asian producers.
03:08Otherwise, it's just a giant margin shift from Asia to the U.S.
03:13And so that created yet another opportunity.
03:15There are a lot, and you see it in the market today, often, very rapid structural shifts that, you know,
03:26you're either going to be hurt by or benefit from.
03:31I guess the discomfort comes from the fact that tech, AI in particular, is so reliant on energy, helium, which
03:40is in short supply.
03:42And the question really, which is the next shoe to drop?
03:45Okay.
03:45So helium is an issue, right?
03:48There's no doubt.
03:50Having said that, there's supply.
03:53You know, the Koreans have inventories.
03:56They don't last forever.
03:58There is helium out there.
03:59It probably needs to be refined materially to be pure enough, but that, too, starts a process.
04:08And so you also get pricing dynamics.
04:12So, you know, if you get shortages, rather, if you get even more pronounced shortages as a function of helium,
04:20let's say, four months from now, right, you'll just have that much higher prices, right?
04:26At the end of the day, our contention is this.
04:31We're in the greatest hardware cycle of all time, right?
04:34You go back to, you know, when this really began, this sort of shift for where chips became the most
04:41important commodity in the world, and, you know, in many respects, call it the late teens.
04:47We're still, we're still today, total investment in, you know, semiconductors at 1% of global GDP, right?
04:56Defense is at three.
05:00Oil or the total energy complex is at five, five and a half percent of global GDP.
05:04Like, it does not require much imagination to see 1% going to two, you know, given the profound cycle
05:13that we're in.
05:14And that's, we're much more in that camp.
05:20So, go ahead.
05:21Even if fundamentals are in place, are we under pricing risk?
05:25We talk about how a billion barrels of oil is already off the market.
05:29I mean, helium is off the market.
05:30They say the next one will be NAFTA, which will affect manufacturing.
05:34Everything is going to be impacted.
05:36It is a global economy.
05:37Yeah.
05:38Is this global market, no matter how the U.S. is prepared?
05:40Yeah, I think we're under pricing risk in certain areas.
05:44Oil, to a degree.
05:48And so, you need to be sensitive to that.
05:50European gas, I think it's obviously underpriced, given where prices are.
05:54That one, for us, where we maintain length in European gas structure, I think is very attractive.
06:04One, because it's almost impossible to fix between now and year-end.
06:08Probably lasts longer than that.
06:10And, you know, at 43, there's a very good likelihood that that ends up closer to 60 or above.
06:21And that sort of propagates through the whole feedstock change, fertilizer.
06:29You know, we control a nitrogen fertilizer facility in the Midwest and the U.S.
06:34And we're going to over-earn this year in that business.
06:37You're getting, you know, fantastic prices for a hydrous ammonia fertilizer.
06:41You know, that stuff can't be fixed in the short term.
06:45So, there are risks to that.
06:47That's one of the reasons why you will have some more persistent inflation impulses.
06:55That has a very good chance of manifesting itself in the back end of the bond market.
07:01If you sort of couple those forces with what, you know, the incoming chairman, Warsh, had
07:08to say in testimony this week, we're going to get rid of the dots.
07:12We're going to get rid of forward guidance, which basically means forward volatility of
07:18bonds and rates is going to go up.
07:21Furthermore, all of this episode in Iran is going to result in sort of reformatting supply
07:31chains further for security, more stockpiling, greater buffers, not to mention a massive defense
07:37rebuild of just material.
07:39So, that's why, you know, again, in our portfolio, we're short rates in the back end because that
07:46hedges out the risks associated with those impulses and allows you to stay in or still participate
07:55more aggressively in the tech hardware cycle.
07:59So, you've been buying the dip and you'll continue to buy the dip.
08:02You like tech, AI in particular as well.
08:05I'm just wondering what your thoughts are on DeepSeek and AI plays in China.
08:11I think we think about the world as having two spheres, and I think there's sort of a
08:18misguided idea that there needs to be a winner.
08:21Basically, there are two AI superpowers in the world, both the U.S. and China.
08:23They will both be winners in their respective spheres.
08:29It's going to be very hard for Western companies, U.S. companies to use China model tokens.
08:36Not impossible in the right circumstances, but for now, that's not the case.
08:40But I think there's still enough interest and demand in the entire Chinese ecosystem as
08:46well.
08:46And we're participating in both as investors.
08:49And everything I said, basically, the stack in the U.S. space and, you know, the Asian supply
08:57chain feeding that, as well as the Chinese supply chain for the indigenized space or the
09:04sinusphere AI.
09:06Do you see more risk in investing in AI plays in China, given what we had from Trump recently,
09:11that he's clamping down on the transference?
09:14I think that you can make the case that there's greater risk there, largely because the profitability
09:24hasn't been there in the same way.
09:27Furthermore, the flows, international flows, really haven't shown up.
09:32Now, that's either an observation that suggests greater risk or it could be an opportunity.
09:39We happen to like China because it hasn't run as much as, you know, the U.S. space.
09:50But I don't think you need to choose.
09:52I think you should be in both and very much with the same thesis.
09:58Hedge your bets.
09:58Well, the power layer, the semi-cap and equipment layer.
10:03So, I mean, just to be clear, AI will continue to party like it's $90.99.
10:07And that $650 billion investment plan is intact.
10:12No concern about it.
10:13I'm not concerned about that now.
10:15You need to be concerned about the downstream, you know, return on investor capital.
10:18There's no doubt that's going to be an issue.
10:20But you think about it as sort of an obstacle course.
10:23You know, we're passing right over that obstacle, you know, given the recent results for now.
10:29I think I'll take one issue with what you just said, Hassan.
10:32If rather than 1999, our argument is you're going to party like 1998.
10:36I think that the 98 is probably a better analog.
10:39You have to be open to the idea that 1998 is a better analog for the world we're in now.
10:44You know, you'll recall we had the Russia default in the summer of 98.
10:48Summarily thereafter, the collapse of long-term capital.
10:51September 98, the sort of massive dollar-yen rinse that was incredibly damaging to hedge funds.
11:00And if you didn't see that as sort of an isolated spasm of volatility, you missed the ensuing four months
11:10was a 60% rally of NASDAQ that then went sideways for much of 99.
11:15Then we did the last big rally.
11:17But we're very open to a scenario where if we don't muddle further or for longer, actually much longer, around
11:30Iran, and you get some MOU related to an agreement, which probably, in our view, requires China to be on
11:42board.
11:43So China will be part of the solution?
11:45I think China's part of the solution.
11:46China's been involved already vis-a-vis Pakistan.
11:50And I think that ultimately, for this to work, China's going to end up being the guarantor of fissile material,
11:59the so-called dust that Trump refers to.
12:04Probably China's the only third party that would be agreeable to act as guarantor for that.
12:11And if that's the case, you can find a very favorable scenario by the time we get to Memorial Day
12:16in the U.S.
12:17And so I'm not saying it's going to happen.
12:21I'm saying you have to be open to a 98-type analog.
12:24So what you're saying is buy the dip or you run the risk of missing on the rally.
12:29Yeah, well, I think it's not an ordinary rally, as I said.
12:32This is unequivocally the greatest hardware cycle of all time we've ever seen.
12:36And so if you're not participating in that, you know, you spend more time working on portfolio construct to allow
12:44you to participate in that rather than, you know, avoiding sort of these little spasms of risk.
12:52You've been buying crypto?
12:53We have, actually.
12:56Less Bitcoin, and that's probably three on our list of three, concentrated in Ethereum and Hyperliquid.
13:03Less Bitcoin, why?
13:05Less Bitcoin, there's nothing wrong with Bitcoin.
13:08In fact, what I've described vis-a-vis the sort of further reformatting of supply chains and the build-out
13:21of defense and mechanisms to circumvent future leverage of Iran, you know, within the Middle East petro producers.
13:34All of that is going to result in no fiscal discipline anywhere.
13:41So basically, it brings you back to the debasement cycle, which is why, you know, crypto has been one of
13:47the leaders since the start of the war.
13:51In our view, it's just that there's a secondary fintech level of real build and deployment in the Ethereum space.
14:01We've been, you know, involved in that for more than a year now.
14:06Right.
14:07On and off.
14:08And so we've come back to it in Ethereum.
14:10And then Hyperliquid's, you know, another story unto itself, but part of a bigger development in financial markets that I
14:16think is going unnoticed by a lot.
14:19And that is these developments of alternative venues that were historically crypto migrating to, you know, conventional products.
14:29So Hyperliquid now is the marketplace for oil, right, in the off hours and on the weekend.
14:37You know, the Hyperliquid's doing, you know, a billion in change, a billion three a day between Brent and TI.
14:43Adam, the problem with crypto right now is still the vulnerabilities.
14:48I mean, crypto wants to be fully integrated into Wall Street, but hacks, repeated hacks, the amount of money, you
14:57know, getting lost out there.
14:59Why are we still seeing these vulnerabilities and when do they get ironed out?
15:03You're seeing them in bridging protocols, you know, in DeFi specifically.
15:08You're not seeing it in the sort of regulated scale entities, a Coinbase, et cetera, Kraken.
15:20And so I think that that's just part of the evolution of it.
15:25What is clear is that there is more and more activity in this sort of connective tissue, what we described
15:34as the connective tissue, between traditional finance and digital finance.
15:38And there remains a lot of opportunities there.
15:41And that's where you're supposed to focus as opposed to, you know, DeFi protocol, exclusive DeFi protocols where, you know,
15:48that are sort of like crypto only, if you will.
15:51Given your background as a macro trader, are there macro signals out there that you're looking out for, for inflection
15:59points in the crypto space?
16:03Crypto specifically, it's more of the continued build that we see and adoption by more conventional players.
16:13And you're seeing that going on to a degree in the Canton network.
16:16As I said, you're seeing it in these markets that go across TradFi and DeFi as people, as these platforms,
16:27these alternative venues start to trade oil and gold, silver.
16:32And eventually this year, you'll see it in tokenized stocks and what have you.
16:38So that's going to happen and sort of Wall Street's going to have to adapt to it or you'll lose
16:45more and more market share to that space.
16:48So I think those forces are in place.
16:50The debasement stuff is a function of, as we talked about, fiscal discipline.
16:54And you're going to see nobody with fiscal discipline.
16:58And that will act as, for a little while, a protector.
17:03You know, everything will be bad, so there won't be any differentiation between them.
17:07But that's the argument for, you know, some forms of debasement trades.
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