YouSaid · the spoken record

Jeff Currie

lines on the record: 53
first: 2022-04-14
most recent: 2022-04-14
sittings or episodes: 1
sources: podcast

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“Price put in place, then solving a lot of these problems and getting the investment to flow becomes much more easy. The other thing that advocates is creating, Tracy came up with a few ideas or some around the SPR or whatever it might be to create that idea of a long-term contract to fake out the volatility that investors would potentially be focused on. So those are the two ways. I think first and foremost is we need a policy around decarbonization. And if you go back to the 70s example that didn't happen until you saw Lake Erie on fire, I don't know what's going to take in the 2020 to get that, but that's first and foremost. We need that policy around decarbonization and a carbon price.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“First and foremost, you need a policy around how we're going to do decarbonization. Right now there's a focus on the demand side, but it's a very asymmetric response in terms. There's no policy around how you're going to wind down the supply side. So first and foremost is create a policy framework around how we're going to actually decarbonize and then create it in such a way that it can be rolled out in US, Europe, and China, because that's two-thirds of the world's emissions right there. The second thing is then create, once you have the rules in place that are enforceable by punishment. And that's the key. They got to be, you know, we saw with Volkswagen with the catalytic converters, they got punished for cheating. If you cheat on this, you got to get punished. Once you have that, then you can now create a cap and trade model, a tax carbon price. And once you have that carbon...”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Big gear which you see the passing of the baton from Chinese property market to the green cape story and by 2023 it's all green capex becomes the dominant force there.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, that's a good question. So if you go back to 2002, 2003, when we first started getting really bullish on oil, and you looked out, you would say peak oil somewhere around 0506. By the way, it rolled over on conventional oil late 04. And then demand with China was going, you would get a deficit of somewhere around 5% of the market. The numbers were coming up with copper are like 15% of the market, three times as tighter than what you would have seen of oil in the 2000s. And part of this point right now, oil is not, or copper is not responding to this because the inventories are going down, but investor interest is very concerned about China. So, you know, despite the fact that fundamentals are getting tighter and tighter, you don't have investors and consumers worried about copper because they're focused on the China property market.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Which is now the SP one, the GSCI is more energy weighted, the BCOM is a more broad-based weighted commodity index. And then you can pick the sub-indices. But the thing that you're capturing here is you're as close to that consumer who has to buy it as possible.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Rolling the front month of these commais that gets you right up as close as you can to that consumer who actually has to buy this commodity because that's where the returns are going to be generated. And given this pullback that we've seen more recently, with oil down below $100 a barrel yesterday, you're in an environment in which that entry point, I'd argue, is relatively good, particularly if you're going to have volatility going forward. Because using too that rolling front month strategy, it's just another way to say your long commodity ball. And if you believe our view that commodity ball is going to be rising over time, being long that kind of product is going to be your best bet here. So, you know, I know what you mean. If you don't even really have to think about trying to choose which sector to own, just go out the overall BCOM index gives you a nice weighting across energy, metals, agriculture, and the rest of the commodity complex. If you want to be more weighted towards energy, the old Goldman Fact commodity index.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“You know the thing that I've really learned in the last six months is nobody has to buy a financial product, but somebody has to buy a commodity. Somebody has to buy oil and somebody has to buy I could say commodities have a captive consumer and a captive producer who can do nothing about their position in the very near term. In contrast, as you know, nobody has to buy an oil equity. We've now learned that. Oil prices can keep going up. The fundamentals of the company can get better and better, but nobody has to buy it. And that's why you have that huge disconnect between commodity prices and the commodity-related financial instruments. So to answer you that question, what do you want to own? You want to get as close to that person who actually has to buy this thing as possible. And these things like the DCOM, you know, the Bloomberg Commodity Index, that rolling front, and I'm not pitching Bloomberg here, but the BCOM index is an excellent product that does this.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Learn from COVID. If that's the case, oil demand probably goes well above those projections near term. Then we hit a wall and we go, hey, time to deal with this. And then it starts to drop precipitously. We showed during COVID that ingenuity was able to come up with a vaccine in six months. If you have to remove this stuff from the sky and figure out how to store it and do removal or capture or something like this to do it on a very rapid basis, that could potentially be a solution here. But I think the key point here is you need investment technology, people, everything directed.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Say that we start to slow demand growth, and this was pre Russia, Ukraine, and invasion. You start to slow demand growth somewhere around 2025, 2026. You hit a peak in the early 2030s, and then you begin to roll over. That's probably optimistic thinking. You're probably going to overshoot to the upside near term. Let's not forget there's also the constraint about the damage we're doing to the environment. Eventually there's going to be a point. Remember the 70s, I said it was we started dealing with the war on acid rain when people started to see fires in on Lake Erie. Are we going to see a similar dynamic where people start to see enough of the damage that's being done by carbon emissions? They go, hey, enough, and we're going to do an about phase and start to deal with this thing in a much more efficient way to try to get results, more likely just watching things historically. You don't deal with the problem until it's knocking on your back door. Think about what do we.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“$5,000 copper 15 is a 3x. If oil was 7x over that time period, the upside potential in copper, I think, is significant. But I think there's a big disconnect here that I think is why people are going, how is this happening? Can't we just invest in green EVs more to solve this problem? Is the scale of EVs? There's maybe 10 million of them on the road today. There's 1.25 billion internal combustion engine cars on the road today. You're going to have to grow those EVs at a very rapid rate to overtake the combustion engines to get to that point you're asking when is the peak oil demand? I'll take our base case which has been generated off of our base case is generated off of announcements and investments and everything which”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, you can think about the hydrocarbon commodities like oil and gas and coal, they face underinvestment and supply constraints that you're referring to, while most of the other non-energy and metal commodities and copper and aluminum in particular are going to see significant increases in their demand. In fact, I would argue copper is likely to be the tightest commodity we'll have ever seen. Now it's much tighter than what oil was during the 2000s. Let me remind you oil went up 7x in the 2000s. Our forecast is 15,000 a ton on copper. But no matter what technology you use, you're going to be using electricity. And the only thing that can conduct electricity given the rules around the periodic table and the rules of chemistry is copper at the rate we need to conduct it, which means that the demand for copper is going to be there. So I think the upside around our 15,000 target, which by the way, if you started this cycle at”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“You got to ask yourself who's going to put money into a $15, $20 billion deep water offshore project that's going to be producing oil 20 years from now? The answer is not very many people, hence why you don't have capital going to places like Nigeria and Angola and why production is starting to decline.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Ask, logistics, transportation, healthcare, all of these things in their own economy. And this is part of this whole idea of deglobalization is that you're going to get a lot of this investment locally. So if the savings glut was able to create a slowdown in growth from higher oil prices, a spending spree is going to do the exact opposite. And if anything, it's going to reduce the available supply of dollars that was being recycled back into the US, run up funding costs in places like the US, but also create more commodity inflation out of spending in places like Saudi Arabia with its Neam City or in China like One Belt, One Road.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“The back end was coming down. Why was the back end coming down? It's because you had all that capital going into those emerging markets that was being recycled back into U.S. treasuries, hence the term the savings clause. Now, the difference between today in the 2000s or the 1970s is you can place $100 billion into some place like China immediately. You can place $100 billion into someplace like Saudi Arabia immediately. So if we could think about if we had a savings glut in the 1970s and in the 2000s, today what we're seeing ourselves up for is a spending spree. And I'm going to say teeing up. You look at an entity like PIF in Saudi Arabia. It was the intention of that investment vehicle is to go out and invest in Saudi Arabia. There's similar entities in places like Aguadabi. They're going to invest in power.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Know why they had to do that, they didn't have anything else to do with those dollars. I remember one time I was in China in 05 and I was talking to Save. They were spending a hundred billion dollars. They needed to place $100 billion per month. That's a huge amount of one of the key reasons you couldn't spend $100 billion inside China in 2005. Guess what? Today you could. You could easily. Same thing with Saudi Arabia. So you have these entities that are developing in places like Saudi Arabia take PIF. The only market that had enough liquidity to absorb that kind of potential investment were U.S. treasuries, which is why we saw that savings glut and saw the capital move into places like U.S. Treasuries. And you can think about that period between June of 2004 and June of 2006 when the Fed was hiking rates.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“They're going to spend it. You're not going to get that savings glut off the higher commodity prices, which is going to reduce the availability of dollars on the global market. In fact, the reason why you had that sharp oil dollar correlation in the 70s as well as in the 2000s is let's think about this. And this was Ben Bernanke was the one who coined the term savings glut is as oil prices went up, the dollars would go to Saudi Arabia. Saudi Arabia take those excess.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“And the reason why everybody thinks that higher commodity prices and oil prices is bad to the economy is because could you think about it, if you just took a closed economy, raised oil prices, let's say the US, let's take the US, produce enough oil, you raise the oil price, all it is is a transfer from Chicago to Houston. It should have no impact on the broader U.S. environment. Maybe they'll spend through the wage increases in Houston may take time. I don't want to get it. You get the exercise I went through. If everybody had the same consumption and savings, it had no impact. The reason why the 70s and the 2000s had such an impact and we saw it was that savings glut. You had a transfer from groups in the US that we consume something, you know, like 92% to groups that were consuming somewhere around 50 to 60 percent. And then so that you created that savings glut. You know what? This time around.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“To make one of these reserve currencies work, you need to have a current account deficit in a very large bond market, of which China does not have. But I think let's go to another point about all this, you know, talking about the demise of the dollar is that everybody's focused on the demand of the dollar. Let's talk about the supply of the dollars. And you look at the commodity bull markets in the 70s and the other in the 2000s, what was associated with both of those was a savings glut.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“The dot com boom did it again in the 2000s, the fangs again this time. That's why you have this, you know, it's a very broad space. But once you broad-based shortage of it, you get this persistency in transitory shocks, meaning that one shock in one market then leads to another shock in another market, which then makes it feel like, you know, the transitory becomes much more persistent. That's what we're seeing. is everything you just listed were poor returning industries that also were very much impacted by decarbonization, which as a result we underestimated.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Revenge of the old economy, my point. Banks are old economy too. It's why they're not providing the capital. They don't have the capacity to do it. We didn't invest in everything you just mentioned plus old economy, banking. I can just give you a list of all the things that were underinvested. Warehouses in the US, port facilities, a trucking chassis. The list goes on and on. And then all of a sudden, we got a pull and demand that stressed the system. And then we find out where all these shortages are. You know, part of the reason why you go back to the 70s and the 2000s, what made it very similar was you had that same dynamic of that revenge of the old economy, meaning the new economy, the nifty 50 sucked all the capital away. It was the...”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Way to make it proper. Absolutely. You would look at some oil companies and you would put their total emissions, you'd know what that number is, you put a cost on it. Then the equity analyst would go, Hey, this is a good company, this is a bad company. And I did it by looking at the economics that they're imposing on society. And then we wouldn't have this blanket under investment that's creating many of the problems we're witnessing today.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Once they saw it, they passed. The other thing to do was Nixon who passed the Clean Air Act. And a packet to somebody pointed this out to me that conservation, conservatives and conservations historically had gone hand in hand. But I think the key point here, it was a sulfur market with a price signal and it was enforceable policy that led to that solution. And we need something similar to that around carbon to deal with this current problem that we're dealing with, call it the war on climate change.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“In there and create the solutions to it, by the way, it ended up solving the sulfur problem was much cheaper than what we had ever envisioned. We're now focused with a very similar part. By the way, the other lesson to learn from the acid rain, when did the Americans get serious about dealing with the acid rain when places like Lake Erie were on fire? They had to see it.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“About the war on acid rain and how we solve the war on acid rain. In fact, the same three big themes we talk about this super cycle about redistribution of policies, environmental policies and deglobalization, they're all the same ones. You had redistribution was the great society or the war on poverty. The environmental was the war on acid rains. And let's talk about how that war on acid rain was solved in the 70s is there was the Soviets and the Americans wrapped up in a nuclear treaty that was enforceable the rules around desulfurization. And in doing that, you had an enforceable rules that then was imposed on NATO countries and Warsaw Pact countries, which is why they were able to enforce them. But you got a functioning sulfur market out of it. Once you have the functioning sulfur market, you were able to let venture capitalists come.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Gas, they have these emissions that we don't like. Let's figure out how to replace them. And the best way to do it, I'm going to go back to my Put the carbon price out there. This is how much it's going to cost to do it. Then let's figure out is nuclear the best way to do it? Is hydrogen the best way to do it? That would be the appropriate way to do is create a market-based solution to find the answer to this. Let me, you know, I want to go back and talk about the 70s because it was very similar to today.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“One is we need to build things and copper is best for things like plumbing, electricity conducting electricity. Then you have, we got to feed ourselves. We figured out using corn, wheat, soybean, which are your workhorse grains to do it were the cheapest to do that. And then you have to cool yourself, heat yourself, which then you look at natural gas and nuclear and those other types of coins. So we chose all these things for that reason. But let me point this out, and this is fairly obvious. We could do all of that with corn. We can drive our cars on corn. We all know that. You can make plastics out of corn. You can build your house out of corn. You obviously can feed yourself with corn and you can use corn to generate electricity, heating, cooling, and all those things. So we would only need one commodity to do that, which is corn, but we don't do it because it's too expensive. And so what you're asking now is, okay, we look at some of these other commodities like oil and”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“It's critical here. And as I like to say, there's BTU convergence across all these commodities. We saw it in the 70s. We saw it in the 2000s, and we're beginning to see it happening again, meaning that if you think about commodities and you rank order them, we chose all these commodities to do what we do for us by their cost basis. Actually, I come to the point there's four things we use commodities for. Obviously, transportation, and we figured out oil is the best cost way to create that transportation. You can do it with electricity, you know, with, let's say, nuclear, but it's got a different cost basis. Actually, it's higher. If you just look at the density of oil and you put it into the car, it's pretty much its lowest cost way to do that. In fact, Ford and Edison had this debate well over 100 years ago about which one was better, and we determined at that point in time that the oil was.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Move the BMW plant to the US and build the BMWs on top of the gas plant and then export the BMWs or build the BMWs in Qatar. Don't move the gas. Move the gas to heat people, but you can't run an industrial base off of liquefied gas. I've never been a fan of that. Think about what this thing is. It's a $300 million floating thermos that is frozen and you pump a bunch of gas into it and you move it around the world. It's a lot easier to move manufactured goods on bolt ship. Containers than it is in LNG tankers. So I'm not a fan of using LNG to run a manufacturing economy, but it does work for heating and things like that. But the question is, is this the most viable solution to this, thinking about it on a longer term basis? It's probably not.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“If you do it with all the permitting it's somewhere around four years, you take out the permitting, you could get it down to 23 months. You do, you know, a defense act production act type. Maybe you can squeeze it down to 12 to 18 months. I don't know what you could do to get it down to. But you get the idea. It's a pretty long drawn out process to create one of these liquefaction terminals. And that's definitely one of the goals in terms of dealing with this geopolitical situation. But I want to emphasize the following. I've talked to many German industrialists that have made this point. The German industrial manufacturing base can't operate off LNG.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Rockies, US, is a relatively well supplied market, but it won't be forever, particularly as you continue to build more LNG terminals and the policy more recently in response to the situation in Russia, Ukraine, is to build more LNG terminals to supply Europe, which will ultimately exhaust that cushion and then push you up into a much more higher ball regime. But I don't think we're going to get there anytime in the next year.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“In the US, yes, in Europe, you're at the demand rationing phase. You're going to have periods, we're going to have more severe shortage, you need more upper price bikes in. Maybe you have periods of less tightness, but you're at that, you can think about a commodity cycle that's going from you draw your inventories down into the price begins to trend up. Once you've exhausted your inventories and have to go into a demand rationing phase because you don't have enough supply, that's when you get the high volatility. Europe is at that phase right now. The US, on the other hand, is not. One, it has the shale production that can be brought online. You can't continuously export it because there's constraints around LNG liquefaction capacity in the US, which means the US is much more immune to this than the rest of the world. I like to say it's east of Rocky U.S. California has a problem similar to the rest of the world.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“China, you get the problems come back again. Once you have to buy back those barrels of oil that go into the SPR, the problems come back again. So we're in a downdraft right now, which is part of this whole idea of higher volatility, but it doesn't mean that any of this is signaling into the longer term problem. I like to point out policy right now is a temporal solution to a structural problem that needs to be readdressed.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, the details on the replenishment rates are not that clear at this point, but it'd be at least a year or two before you'd expect them to come back in. I think the plan right now is that they would go back and buy it. Let's talk about the impact that it has had on prices. There's two factors that have created the recent downdraft in oil prices and commodities more broadly is the SPR announcement, which was a million barrel per day thrown the Europeans, it gets up to around 1.2 million barrels per day release for about six months. And then it's meant to be a bridge the gap until you get the investment that brings on new supply that can be used to refill the SPR. So you can see it's a temporary patch. And then you have the COVID situation in China, which is another 2 million barrel per day demand hit. So you've got a big hit through the situation more near term. Now, I want to emphasize, though, that these are all transient events. A loss in demand, once you normalize.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“You can do that. What you're describing at the farm subsidy programs that the US has with its farm bill with the farmers in terms of giving that kind of basically buying the farmer a put on soybeans in case some bad weather shock or something like that occurs. You don't need the SPR to create that type of dynamic, but what you're talking about is a physical version. The farm bill really is one that the farm subsidies are ones that are more like a financial put. But what you're describing is more like an in-kind physical put. Both are ways to think about solving it. But the one thing I will say about dealing with higher oil prices with an SPR release, like what we're seeing right now, that's crowding out private investment, which doesn't help solve that longer-term problem of getting investment into the right place. So these policies need to be thought through in such a way that they're conducive to creating incentives in place to make these longer-term investments.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Vertical integration conglomerates these longer term contracts that end up in courted laws, not in financial institutions.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Periods like we are right now in that price of that long term contract goes up because it's traded on the market, you get a huge capital call and a margin call, which is what was happening with that case in nickel. Then you need the cash to fund that margin call. You didn't have that back in the 70s. You have it today. So that's, you know, the question is, are we going to gravitate something back closer to the 70s to deal with this problem? Or are we going to try to fix the structure that was created in the 2000s, which means you're going to need different type of lending agreements and people have to be more comfortable in that risk and how much capital these sectors need? Obviously, I think the easiest way to solve with this is create a regulatory framework. Tracy, as you talk about, that would be able to address these issues, take out that volatility, make banks investors and so forth comfortable with that kind of risk. Otherwise, we will go back to the period of the 70s, which is”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“That type of long term contract structure. And actually, if you look at what happened in the 70s, that was when we created many of these long-term contracts around LNG and gas so forth, but there was also conglomerates that were put together to be able to shield the upstream downstream type of volatility. So there's lots of ways. And then we moved into the 2000s to a market base. And this will bring you to the nickel story. Why was this nickel story? The 70s we did this with conglomerates in long-term contracts. If somebody failed a long-term contract, this thing would be resolved in a court of law. So then in the 2000s, the banks got in between these conglomerates, let's say between like a GM and an alcohol, could squeeze in there, provide lower cost of capital, and you had the financial market squeeze in there and then create that new kind of long-term contract that was financially based. Now, the problem with that is that when you go through”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“It goes back to that saying I made before, you know, spot prices, soft surpluses, long-term contracts solve shortages. Why is that the case? It's because if you can take out that volatility and lock in that return through a long-term contract, that investor feels that he is safe to be able to make that investment because there's a minimal rate of return. Because remember, these things are not like tech. Tech is you get you have a low chance of getting it, but you get a big return that lasts over maybe 12 to 18 months, you know, like something like an iPhone. It's very short cycle and it's high returning. These are low returning, very long cycle type of investments. So locking in that rate of return throughout that volatility is really critical. And so when we think about what you need to do to get that, you need to create an environment that's conducive to creating.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Longer term basis, we need to have policy put in place that is creating a framework that's going to be conducive to getting these capital flows coming to the right places. Because even if the private investor tries to do it, he still needs to do this in a way that is environmentally friendly. And I think that, you know, again, you need to have the scale, the policies put in place in such a framework that it's done and that it addresses the need for investment in a very environmentally friendly way.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“And do it. So I think that is one of the real key reasons here. But by the way, I want to point out why are the oil stocks going up? It's because private investors are going around the institutional players in making these investments in these companies. So where it can go around, it is, which is why, you know, ultimately if you're going to solve climate change, I don't want to say I'm dismissive here, but when the Russian army is coming barreling down, you can't have Germany turning back on the coal plants. Historically, when you deal with these problems, you have to have policy rules. These rules need to be enforced and that those rules that they're violated, there has to be punishments and there has to be a price associated with, which is why trying to go down this ESG type path to deal with this is going to miss a lot of these really critical points that are going to be required to solve this problem. So looking at this on a...”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Scale of these industries are unlike anything else on the planet Earth. You take a Kashagan and Caspian. Its nickname was Cash All Gone. Why, you know, it was somewhere around a $60 billion project. I mean, the magnitude in the scale of these investments are unlike anything. And take a company like BP with that horizon spill. It had to write over a check. The fines were something like $38 billion. Tell me another company on the planet Earth who could write over a check for $38 billion. So at first, most important is the scale. Then the access issue is really critical. I like to point out things like copper are very narrowly geographically distributed. So you need to have the scale to be able to get into these places. You have to have the ability to know how to, the technological know-how, the political know-how to go in there.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Contribute all to the rate hikes by the Fed because there was a lot of that investment. That investment's critical. And we're at a junction right now with 8.5% inflation, but we still haven't seen the underlying investment that was already there, let's say, in the 70s that is not here today. We need that investment because the only way out of this is investment in the appropriate ability to grow that supply.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Blame it all on ESG unless we want to be very careful here so it doesn't sound like I'm so anti ESG. This industry had really bad returns. Investors were not interested in it. And if we go back and we look at the previous super cycles, let's say the one in the 2000s, prices started to move up in 03 and it wasn't until 2006 that capital came in. Why they want to see a track record of good returns? That still holds today. So I'm not wanting to blame it all on ESG, all on banking regulations. It's just a combination of many different factors that's created a huge capital deficit. I want to point out it wasn't just all Volcker that solved the 70s. There was a huge amount of investment that went into North Sea, Alaska North Slope, Gulf of Mexico, Mexican production, Brazilian, Norwegian. I can keep on going down the list. That investment that came to fruition did a lot to ease the inflationary pressures as you went into the 80s. So you just can't, you know.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Trade houses in Europe. They went to the regulators asking for more funding. So clearly there's not enough funding. Whether it's coming from the likes of banks, the point is that you're bumping up these constraints. The whole industry was focused on being capitalite. And it goes back to this whole revenge of the old economy because banks are old economy too. In fact, you look at bank price shares and you look at them to metals prices where you are in the CapEx cycle. They're very much correlated because ultimately the banks are the conduit of that CapEx cycle. So they're all really old economy and pretty much more broadly since 0809, old economy was bad. I can just show you pictures at the equity prices of anything that was capital light it went straight up. Anything that was capital heavy, you know, like the big oil companies went down or sideways over the course of the last 10 years. And it's not just, you know, so I'm not going to.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“So, you know, the impacts of ESG in the fact that you're not collecting that tax revenue is significant, but more importantly, creating big distortions in investment. So I'm not, you know, I want to really emphasize I'm very much pro-climate change. It's a problem we need to deal with decarbonization. It's just ESG is not an effective tool at approaching this. Well, there's a more effective tool of doing it. In terms of the question about bank regulation there, the point I'm just going to point out that the energy companies and the”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, one is that the banks, all of them are very much behind the ESG push. And I want to emphasize I am very, very much a pro-climate change and really believe it's a problem that needs to be solved. What I'm arguing is ESG is probably not the best way to go at it. I really believe a carbon tax is the right way to approach this. And most economists would agree with me on that. And the way I could think about ESG is an effective carbon tax on the consumers in places like the United States in Europe and particularly high carbon tax in places like Europe where the tax revenues do not go to the local governments. It's going to places like Russia. You know, in fact, like to point out, the quarter over quarter growth in oil revenues for Russia funded that $62 billion military budget last year.”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“idea that the capital deficit in this market is extreme and now it's kicking off this volatility trap where the underinvestment leads to declining inventories to raise cash liquidation of financial positions to raise cash all of that accentuates the volatility and then scares off further investment so you now are entering this volatility trap you know that we've made the point and i've testified in congress on this point before is the only way out of this is you need somebody to stop that vicious cycle and create some type of stability to it i i say i like to say is spot prices solve surpluses long-term contracts solve shortages”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“And why? Because bond prices are negatively impacted by commodity prices. So essentially, what is that ratio? It is bonds on the top and commodities on the bottom. And what we're seeing is that these leverage ratios are starting to become really binding. You think about how much more capital the market needs today than it did, let's say, you know, a year ago. Oil prices are 2x what they were a year ago. You're going to need two times the amount of working capital out there. And it's in an environment you're already bumping up against those constraints in banking. The other thing about banking, banking's old economy too. Anything that is capital heavy. The world was focused on asset-like, capital light, everything of that investing, but we've now focused on a need for having capital heavy investments, particularly in commodities. At a time, it was already underinvested and at a time that you have ESG constraints. So I think you get the...”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“Really began to focus on over the last, let's say, two to three months. And it really boils down to leverage ratios. And those were put in place back in Dodd-Frank, back after following 0809. Let's think about what that leverage ratio is. It's tier one capital on the top. And the total assets of the bank on the bottom, if you think about what is tier one capital, it's bonds. What are all the assets that go into the economy, all that lendings based off commodities? So it's the real world. And so let me ask you if you have, and most policymakers are going to tell you it's inflation-proof because it's the price level times the bonds and then the price on the numerator and then the price level times the overall assets on the denominator. So the price level drops out. inflation proof the reality it is not”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source
“deficit that led you into this environment. Now why is this one so much more extreme than ones that we've seen in the past is when you have ESG policies overlaid on top of that? I'm not going to belabor those points much further because we've talked about them in the past but it's important to remember that ESG is not a substitute for a carbon tax. It's a blunt instrument that is reducing capital flows into a very critical sector. So if you had a carbon tax you'd put the carbon price into that energy company model, look at its carbon emissions and think, hey, is this a good investment or a bad investment? What we're seeing is entire sectors being shunned. And that's made this one much tighter. And it's not just the oil and gas guys, it's the metals and mining as well as the agriculture sectors. But banking regulation and that's the one that I've”
2022-04-14 · Odd Lots · Jeff Currie on the 'Volatility Trap' Keeping Commodity Prices So High · IDENTIFIED FROM THE TRANSCRIPT · source