Animal Spirits Podcast - Talk Your Book: High Prices Cure High Prices

Episode Date: December 4, 2023

On today's Talk Your Book, Ben Carlson and Michael Batnick are joined again by Sal Gilbertie, CEO of Teucrium to discuss the golden grain cycle, the cost of production and expected long term returns for commodities, how everyone got the oil market wrong, how the US dollar affects the commodity market, and much more! Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Past performance is not indicative of future results. The material discussed has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's episode is brought to you by Tukrium trading. To learn more, visit their site at Tukrium.com. That's Tukriam, T-E-U-C-O-I-U-M dot com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Riddholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Britholt's wealth management may maintain positions in the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. All credit to sell. We sell this after we hung up. I think he's the only person on the show in the history of the show to come on and say that the product that he is, or the market that he's in, has no real long-term expected return. So agricultural commodities, which is the bulk of the discussion that we had today, they're more like a buy-in weight, a buy-in rent, but they're not necessarily buy-and-hold forever.

Well, a lot of commodities are tactical. Like, there's times where you have these huge booms and these huge busts, but like over the course of the product, they don't really go anywhere. So, yeah, it's like a lot, it's a trading vehicle. And yeah, you're right. credit to him for actually putting it that way so people understand it better. So, Ben, you had an interesting comment today that commodities have a good branding message? Yes, they're the only market where you talk about super cycles.

Every time commodities are up like 10%, someone comes on CNBC or Bloomberg and goes, we are setting up for a super cycle or Golden Sack commodities analyst says super cycle is coming. Like, no one just says it's a cycle. It's got to be a super cycle. If you said that for stocks, you would get laughed at. Yeah, so if you said a super cycle for stock, people would say, oh, Dow 36,000 all over again. But yeah, commodities have a good, they have a good PR firm, I guess, because the super cycle thing, you have junior gold miners, you know, if I put my Jerry Scientel voice on, like, never mind. What's the deal?

Yeah, what is the deal with that? So, yeah, no, but I love the way Sal put this is because every time the prices start to go up, you get these crazy price targets that are way, way, way higher. And when they start to go down, you get the crazy price targets that are way way lower. And his point was, listen, high prices, cure high prices, low prices, cure low prices. And the human nature impact of that, like, your brain can't possibly think that way. It's like, no, no, they're going to keep going up. They're going to keep going down. There's no middle ground.

The way that he explains the cycles of commodities, I find really interesting. And you add the technology element to it, and things getting, to your point, like, there's no way food on a real basis costs less than it did back in the 20s or 30s. whatever, but it does, which is like a testament to human ingenuity. That mouth whose guy was full of shit. He sure was. I'm giving him a pass because he, you know, he didn't see what was coming, you know? I'm willing to let it slide, even though people have still thought that that's what was going to happen.

There's going to be billions of people and we're not able to feed them all. And Sal's point was we either have just enough food or we have way too much food. We don't have a shortage of food on this planet. I watched a movie over the weekend for the 14th time that's way, out into the future when mankind the planet can no longer handle us. A little movie called Prometheus. It's a good one. Great one. Better than I remember. Is that why they went to space because we couldn't? I'm guessing. Actually, actually, the truth be told, alien covenant, the sequel, that's the one where they try to colonize other planets. But. Okay. Great. Another great talk

with Sal. He always, he's like a, because there are people in commodity. I think commodities are so extreme and volatile, that you tend to get a lot of volatile people in the space. He's right down the middle. He's very even keel, and that's what I like about him. So here's our talk with Sal Guilberti from Tukrium about the agricultural commodities, oil, all these kind of things. We're joined today by Sal Gilberte. Sal is the CEO, the president, the CIO, and founder of Tukrium.

Sal, welcome back to the show. Pleasure to be here, Michael. It's only fitting that we have you back on post- Thanksgiving. How was your Thanksgiving, which Ben thinks is an overrated holiday? which was nonsensical, how is your Thanksgiving and what do you think about Ben's stance on the greatest holiday ever? Thanksgiving is the greatest secular holiday ever.

Yes, it is. See? Ben? I said it's three or four on the list for me. That's all. It doesn't mean it's bad. Food, family, fun. It's wonderful and you get to overeat and no one cares.

Sal, I have to watch the Lions lose every year on Thanksgiving. Okay, well, when you throw sports in, it changes. I'm just getting for the food and the fun and the family. Thanksgiving has all the commodities and all the fun. Hey, Sal, I wanted to ask you, which, forgive me if we asked you this before, but where does the name two cream come from? Two cream comes from an herb.

My family's a big herb growers, and I thought it was a cool name, two cream trading. It's really, we tell people its lore is from the Greek and Greek god Touser and all that, but really it sounded cool. And it's a useless herb. It's decorative. It grows wild on the whole sides of the Mediterranean. You don't use it for anything. All right, there we go.

All right. So let's start broad. and then we'll drill down a little bit. It's Monday, November 27th, 2023. How would you describe the state of the agricultural commodity world presently? Stable, well-supplied, and headed back towards normalcy, which is cost of production. And that's for the big grains. Now, you know, the couple of outliers, sugar, rice, there's some shortages there because

of weather and really high prices. You've got 12-year highs, I think, in sugar. and multi-year highs and rice, both because of production problems due to weather. You mentioned that we're getting back to a state of normalcy. How abnormal were things? Because they're probably abnormal in both directions, right? After the war, they probably got abnormal, and then the down swing from there. So, like, where are we in that cycle?

Sure. Well, as we've said, there's the golden grain cycle. And normal is stage one. It's three stages. Normal is cost of production. So grains, major grains, corn, soybeans, wheat, in particular. They're subsidized by every country in the world. No one wants to run out of food.

So farmers are used to operating at the cost of production because demand is robust and growing all the time. You have steady demand. So when there's a supply disruption, usually because of weather, once because of war in our lifetimes, we get a disruption. And when you have steady demand and interrupted supply, you get prices coming off that cost of production, sometimes quite dramatically like we saw in wheat. So we had the spike in all commodities due to both COVID and then the war in

Ukraine. War in Ukraine really affected global wheat and major grain markets. And you're headed back down toward your cost of productions as the markets adjusted. The panic went away. And now supplies is coming back on adequately. Is cost of production, and I know this is an investment advice, but generally speaking, is that when you want to be a buyer? Or like, what's a broad framework for thinking about these things? Sure. So let's go back to the golden grain cycle. And people can Google it, there's a good piece on that written by Jake Hanley, our analyst. And stage one is normalcy. So you're just trading flatline at cost of production and how you tell is futures go flat, okay? Every farm's got a different cost, but the futures just go flat because

that's delivery. That's the time to layer in your portfolio. I think we, I've said this to you guys before. The expression advisors have used for us is they wait it, W-E-I-G-H-T, they wait, W-A-I-T for supply disruption, and then it's usually a drought, so it's a wait, wait, drought out. So you layer into your portfolio, in particular the grains, in particular corn, there's great studies on corn when you're flatlined, and then you wait for, you know, statistically, four to seven years. Every four to seven years, there's a major supply disruption somewhere, and you get prices spiking, and that's when you get out.

And so you layer in your portfolio, that's stage one at cost of production. Stage two is when something happens, like a supply disruption, you go up. And stage three is when you're on your way back down, and that's where we are now. Was there anything about this disruption this time around that surprised you? Did it follow the typical course of action? Because there was a lot of dire predictions after the war started about what could happen. And you kind of came on our show, I remember right after it happened and said, well, listen, farmers are going to use every inch of their land when prices sky.

And you kind of were more level-headed about it. But was there anything about this cycle for the past 18 months or so that has surprised you. Yeah, the duration of stage two, the duration of the height of the, of the, of the prices. The fact that we remain this far over cost of production, in particular for corn, soybeans and wheat, to me, for this long, going into year three, basically, because remember, it started with China, with China having a wheat problem and importing all that wheat three years ago now. So that's what kind of put the underpinning on prices of grains. And then you had the war and the panic. And then, you know, like right now, there's plenty of grain. Russia's just

just flooding the rural grain and wheat in particular. And so you just had things stabilized. You don't run out of food. We say this all the time. It gets, there's either enough or there's plenty. When there's only enough, prices go really hot. And there's plenty. You're at cost of production. I saw a chart that really surprised me. This was from Deutsche Bank. And it shows US, this is new to me, the U.S. food stuff. I'm not making that up. U.S. food stuff. price index in real terms. And it goes back to 1947. And of course, when you go back to that long, right, like things could be a little bit distorted. But what it's essentially showing is in real terms, the price of these things has gone down over time. And I think if you ask somebody

in the 1940s, would food get more or less expensive? I don't know. Maybe I'm making this up. But I guess I maybe would have said it would get more expensive over time as as population just continues to grow. But it's done the opposite. And of course, there's been a million buying panics and interruptions over the years. But what are your general thoughts on that? Well, I think we talked about this last time we were together on this venue. And that is you have pretty much no expected return from grains over time.

So because they always go back to their cost of production. That's what they do. And between government subsidies and technology, the use of fertilizer, like synthetic fertilizer made out of natural gas, that's only, what, four decades old, five decades old. So you have these major sea changes in technology and growing techniques. And then the subsidies that allow grains to be produced adequately and very efficiently. And so you're expected real rate of return, like a buy and hold of gold or Bitcoin. or something like that, it doesn't work with grains. With grains, there really is a cycle. You buy when they're flatlined because you have extremely limited downside historically because farmers will just stop producing. So, you know, it's a pretty easy bet to say, if I'm buying it costs to production, something goes below its cost of production, no matter what commodity it is. It's not going to stay there very long because people will stop producing it. So you've got limited downside in those time periods. And again, with demand for exactly the points, Michael, you brought out, you would expect prices to go up because demand's always

rising. But efficiencies in production offset those prices. The fact that demand's always rising again and the fact that you can't help but have supply disruptions, especially because of weather, means that grains will perform for you, but you just can't buy them and hold them on a 20-year expected return. It doesn't work that way. You sent us some talking points ahead of time, and one of them I picked out was you're talking about the Russia-Ukraine war, which we talked to you right after that happened and talked about how people realize, like, how important wheat is for those regions. And you said that there's plenty of wheat for the world, the matter who wins the war. How is that possible? Because we heard all

these, we heard all these dire predictions about, like, there's 30% of wheat produced here, and it's where people are, there's going to be lines in the street for bread. Like, what happened? They kept producing. So, you know, Ukraine's production did, did go down, has gone down again. It will probably go down again. But as the war settles out, and it's going to be a long war. somebody's going to, I don't think there's going to be a winner or a loser. I think Russia can claim a win here in the end if it's three years out or one year out, I don't know. But because Russia's upsetting the apple cart. But in the end, unless somebody uses a nuke, all that farmland is still there and people are still going to grow wheat. And it's like the issue

Russia is selling stolen wheat. Well, okay, but it's still wheat, right? And is it stolen if it's a spoil of war? It's theirs now. Like, there's all kinds of, you know, little nuances you could say. But the wheat is still there. It's going to grow, except where they're actually fighting, or if they nuke it, okay, where you can't use the land for decades, wheat's going to come off that land, and it's going to be available to the world. You mentioned futures or prices flatlining. What do you mean by that exactly? I just want to make sure that we understand. Sure. So if you look back on a corn continuation chart, a corn spot continuation futures chart, you can see it trading over the last 15 years. It goes back down to about 350 and doesn't go

below there. I mean, it'll go below there for a month or two. But it just sits there between $3.50 and $0.50 and $4 a bushel for years. It'll go one, two, seven years was the longest stretch. But three times in those 15 years, it's going above seven. So three times if somebody said to you, look, I've got a commodity or any investment, that it goes to a certain price and sits there for two to seven years, and then it doubles. And then it goes back to that price and sits there. And then it doubles. And it's done that three times the last 15. years, you're going to say, heck, next time that happens, why don't you let me know? I'll throw a little something in there. And that's what advisors are doing. And again, this is not investment advice,

but it's worth looking at what the golden grain cycle is. And when grains are at their cost of production, they are terrific the portfolio diversifier because people eat, if the stock market's going up or down, they still eat. The demand is still there. I like how you talk about these markets, because you talk about them as in a cycle. And I feel like every time commodity prices start to go up, someone has to say super cycle. I feel like commodities are the only places where you put super in commodities have way better branding than anyone because you got like the junior gold miners like there's no we don't call small cap stocks junior large cap stocks uh and we you know you have the super so everyone right when prices go up it's going to be a super cycle but you're talking

about it more as a cycle so maybe it's too early to say but like people were 18 months ago saying this is a super cycle so what did they get wrong if we haven't gone into a super cycle because i i don't know a basket of commodities is probably down what 20% since the highs depending on how you define that basket. Probably around that, maybe even more. I think super cycle, and I don't know the technical definition of or the generally accepted definition is, but I think it has to do with like a decades long thing. Like if you're in a cycle that lasts 10 years or more, and so if commodities are in a sideways to bull market for more than 10 years, I think people assume that's a super cycle. And I think if they think commodities have bottomed enough where they're going to be sideways to maybe

higher, for the next 10 years, they say we're entering a super cycle. You know what? Every commodity is different. We do have a whole lot of issues with a lot of different commodities. I mean, lithium is a great example. Okay, 18 months ago, there wasn't going to be enough lithium. Like, lithium's going to the moon. Well, no market straight lines. We're all experienced enough and not really experienced enough to understand markets don't straight line one direction or another. So when everybody's buying lithium, something might be wrong there. And all of a sudden, lithium prices crash. Now they're panicking that people aren't going to build the mines they need to build because they're not going to make a multi-year investment to have enough

lithium. But then it comes out that sodium batteries, sodium ion batteries are better than lithium batteries. And you don't have to worry about the size if you're storing, say, from a wind farm or solar farm. So all of a sudden, the dialogue goes from there's not enough lithium, everybody needs a lithium battery to now we've got these sodium batteries that it's okay if they're big because all the wind farms and solar farms will use those. And they're cheap. And they're cheap. to make, and we don't have to mine lithium, and now everybody's happy again. And it's like, what happened to lithium? Well, lithium's not going away, but you just busted the lithium super cycle, if you will. So, you know, commodities, they go up and they go down, and nothing

gets producers more excited and more efficient than high prices. So as soon as you get high prices into commodity, your job is not to figure out if they're going down. They're going down. It's to figure out when. It sounds like a weird sort of market where they're structural inefficiencies. And I mentioned that the real cost, the real price of these things has gone down over time. But there are plenty of monster spikes, big, big, big opportunities to make money. I was looking at the total assets of some of your funds. And sure enough, straight up, straight down in a lot of cases, is that, is that good behavior or bad behavior? In other words, as just eyeball, it. It's a possible for me to tell exactly where the flows are coming from.

but do ostensibly advisors are steering most of the flows in your products, do you see them exhibiting good behavior? In other words, taking advantage of opportunities when they price line? Or do you see more of a more of a chasing mentality or maybe a little bit of both? I think it's a lot of both. I think as time goes by, more and more advisors are doing it the right way and they're accumulating when prices are down and waiting for that price spike, as you said. But bottom line, we're a headline-driven market.

If you look at our flows, okay, so mature products like oil ETFs, okay, if you look at when oil breaks below $40 or $50 a barrel, money pours into those ETFs. It's just astounding, and then it just sits there and waits because people understand that. They're just now understanding that about grains. And remember, the grain ETFs, you know, we're basically the only ones that have these big grain ETFs, and they haven't been around that long, basically 12 years or so. And people are just getting used to, all right, same thing works for corn. has worked for oil. If it gets down to its cost of production, I can park some money in there

and wait, okay? And there's no guarantee as to how long or what the ultimate upside will be, but I get it. So we're seeing more and more advisors and money come in that way. But if you look at our flows, when there are headlines, like a war, okay? I mean, our weak fund, you know, as you know, we went above a billion two. The wheat fund went above 800 million in AUM in weeks after Russia invaded Ukraine because of the panic. And then it dribbles out, and I don't know what it's at now. How about your more tactical strategies? Because you have the long, short strategies as well. Do people try to, like, time the tactical strategies as well? We don't see that. They're new. So we basically see inflows there, and they're still small. And we did those for two

reasons. One, there's an ag long, short. And that's because when you're in the stage three of the golden grain cycle and prices are going down, unless you're buying strictly for diversification purposes, you're not going to get the alpha. You know, it's pretty low probability you're going to get alpha. but people still want the grain exposure. So we put up a long short fund that has a very good track history of the index that it follows, the index track history. And so we feel that that's a good alternative for people who want that exposure and want to get some absolute returns when grain markets are more likely to go sideways to down than sideways to up. And two, the metals markets. We see them as really big markets. It also was the best performing index we could find of our index provider. It just has an amazing six-year track. history on that index. So we put that in a long short fund. And that's, again, you know, lithium was a great example. I don't think lithium's in our in our base metals fund. But you just don't know what the headline and the prevailing psychology is going to be. So things are not always buy and hold make money. You've got to look for alpha. And the only way to do that is with a long short fund.

I guess it's sort of like the VIX. You know that you don't know where the floor is, but I don't whatever, 11, 12, you know eventually there will be a spike. You don't know what's going to cause it, but you know it's coming. Exactly. And I'll point out that, you know, nothing's a guarantee. I mean, when we launched, we looked at the ag, our ag long short fund, OAIA is the ticker. And that thing in a six-year track history, it had, I think, 14 down months in its six years. And you can look it up. The monthlies are on the website of the index performance. And we ETF did the darn thing went five months in a row down. Like, like no way you could see that. The second we ETF did, we're going to have T-shirt. We eat FTA. We just tanked it. But, you know,

it's come back. It's finding this way back. And over time, these things have a proven historical history and past, you know, results are not indicative of future performance, all that. But you have to put money to work intelligently. Whether it's going to work or not is always a question. But we think we've hit on some good things with these indexes. You focus mainly on like the the base metals and agricultural commodities, but you mentioned oil, and that's the one that most people think of when they think of commodities. I was looking today, so I think the price is, I don't know, $75, $76 a barrel. I think we first hit that in like 2006, maybe. And so is it the same dynamic there when prices went up to $150 before and then $120 this time around? Like, does the cycle

work there just the same? Because I think most people, if you ask them, they would assume, well, oil prices go up over the long term, when really, for a long time, they haven't really gone anywhere? No, they haven't. And they do go up quite often, but when they're down, that's when you layer in, just like you would do with grains. I think oil, last time oil was above $100 and everybody was predicting, whatever they were predicting, we were all talking on one of your shows. And I said, I don't know why, but I think oil's going down. I can't tell you why, but I'm four decades experience trading and oil's going down. And son of a gun and went down. And then, you know, OPEC made those cuts in July, and oil went back up and got over 90 and everybody.

everybody was talking $100, and it didn't hit that, okay? Now, you can look at all the different reasons why. And we can get into that discussion, probably do a couple of shows on it. But suffice it to say, oil was supposed to go to $100, and it didn't, okay? Oil's back into the 70s now. Oil's going to touch 50 before. A lot of people said 200. Whoa, whoa, whoa.

50 before 100? 50 before 100. Well, it's easy to say now if it's 70-something, right? Well, no, but I'm right in the middle there. I'm sure most people would say 100 just because they have an upward. But, I mean, there was a ton of $200 predictions 18 months ago. Sure, but the commodities just don't work that way. They just don't.

And oil producers are responsive. And let's face it, OPEC, here's a common misnomer that everybody thinks. When OPEC cuts production, people think OPEC is trying to boost the price or keep the price high. OPEC looks at supply and demand balance. They do not look at the price. If they get the supply and demand balance right, the price will be what it will be, and everybody can plan, and the economy is stable, and they can plan their state budgets. That's how it works.

So when OPAC cuts, they are sniffing, and they have brilliant economists, okay, they are sniffing oil demand declines. That's usually mean something bad is going to happen somewhere to the economy. When they held that cut in their last meeting, that was a real signal. They see a recession coming. Well, now, oil keeps going down. That last cut they held, everybody said, oh, we're going to 100, and they went to whatever, 91, 92, and has done nothing but going down since then, even with Russian oil and bargoed

and off the market and all that. Oil is, its natural progression is down, and OPEC now has a problem because the Saudis floated the cuts. And now nobody else wants to cut because they all need the money. OPEC's back in its old tit for tat, who's going to hold the line that's leaving it up to the Saudis. The oil markets are going to be a mess the next six months, and I think they're going down.

Is this more of a, that's really interesting comments. Is this more of a structural thing within the oil market and less of a potential negative warning for demand for oil, which obviously would indicate a recession? Is it less about that and more about other forces? Well, I think you have two things going on. Why OPEC's in trouble? Because demand's going down because for some reason. Now, it's mostly China, okay? But China's not using the oil. Everybody thought they would. But there's still something happening in the global economy where we're not using as much oil. And granted, the U.S. has stepped up. And I think our production is up 15 percent in the last year. I mean, we're rock. And we're back to the world's

number one exporter, number one oil producer, we're, you know, we're doing great. But oil has a demand problem right now because there's plenty of supply. And the OPEC members with their big budgets relying, you know, almost exclusively on oil money, oil revenues, there's going to be some problems there because people are going to produce or cheat beyond whatever they say, you know, whenever their next meeting is in a couple of days here. Sal, when people think about investing in oil, at least, you know, people that aren't using the future. contracts, not the professionals. There's ETFs that use futures contracts. And sometimes they track the spot price better than others. Oftentimes they really, there can be a large divergence,

which is a painful lesson that investors ultimately learn. Can you talk about how that works and why there might be a gap versus the underlying holdings of the ETFs that Tukrium runs? Sure. And so there are some ETFs that hold primarily front month futures or the first couple front months, that's going to track spot in the short term, but you've got to roll out of those futures contracts. And there's an inefficiency because you're not taking deliveries. So you've got to sell the contracts you own, then buy new ones. And so if the market is in its natural state, which is called contango. I was taught in plain English, it's called the cost of carry. So if you buy a barrel of oil and stick it in storage for a month and it costs you, you know, whatever, 50 cents a barrel, the the price of next month's barrel should be 50 cents higher than this month's barrel. That's a cost of carry contango. They both begin with the C, easy way to remember it. It's the way I'd do it. But I don't know where the word contango even came from.

They claim it came out of finance world. I don't know. But the bottom line is if you're selling something at, you know, $70 and $50 and replacing it with $71, you're buying less and less oil, okay? So in a sideways or bull market, that's probably going to hurt you because you own less oil as it goes up. In a down market, it's not going to hurt. So that, remember, it's not always bad. It's just that in an upmarket, you're not going to gain as much.

And remember, if you buy a barrel of oil today, all right, and at the end of the year, people say, well, the oil ETF didn't track spot or whatever ETF it is, didn't track whatever commodity. Well, if you bought the oil today and stored it for a year, those are the economics of that, okay? If the market stay relatively the same, well-supplied, an oil price or whatever commodity price stays the same. The cost of holding that oil for a year is the person who did that is going to lose money. Okay. And so when you're comparing spot to spot, it doesn't work because the ETFs hold futures and futures build in that cost of storage. They're built for people

who are using futures as a tool. So they build all those costs in. So if you've got to continually roll, you're having this, it's a roll cost. Okay. They call it a roll cost. So if it's costing you 50 cents a month, you're selling 70, 50, and mine 71. You do that 12 times. You just lost six bucks a barrel. Right. People who expect the ETFs to track the spot exactly don't understand how these markets actually work. Or anything. The reason gold the ETFs track, number one, they hold physical. Okay. Number two, if you had a futures one, the only difference is the cost of money. That's all it's going to cost you. Because gold, you know, it sits in this gigantic pile and it's really cheap to store because there's just a guy with a good.

Michael stores physical Bitcoin at his house. All right. Well, you know, physical Bitcoin, too. And Bitcoin's interesting. I mean, you know, right now, like I had in my gut this morning because I really like Bitcoin, okay? And everybody thinks Bitcoin's going to the moon for all the obvious reasons. You've got the halving. You've got the first of the year. You may get a spot Bitcoin funds approved. So there's going to be all this demand. So you're looking at it. Well, how can Bitcoin go, well, how can Bitcoin go down? But look at a chart, right? Bitcoin's trend from left to right is up. But it's got monster volatility and that's going to continue. So what do you like about Bitcoin? Is it the supply and demand dynamics? I'm curious just as a commodity guy. Is that it? Supplying demand. I mean, to me, to me, Bitcoin, regardless of any esoteric stuff you want to get into, it's not a currency. It's a store of wealth, just like gold. It is the gold of crypto. And that's how it works. And as long as there's electricity and the internet, it'll work fine. Sal, I'm interested to hear you say that.

I guess it's like two years ago at this point. Bill Miller, who was a Bitcoin Bolt, put it very simply. He said the supply is expanding by, I don't know what the number one is, one to two percent a year. Do you think the demand is increasing faster or slower than that? And I was like, you know what? okay that works I mean okay so that's how my brand

I've told you guys before that's why I'm in commodities I'm not smart enough to be a stock trader I'm not an economist but like there's enough or does not if there's not price goes up in commodities if there's enough it's fine you know stay away from it or do something else with it so I like your comment earlier about like with food you said there was either like too much or just enough correct like what would have to happen for that dynamic to shift

where like okay there's a shortage or whatever because that's like the thing people worried about in the 70s or whatever as the population's growing to, is that just that technology outruns all of that? And it would have to be some sort of breakdown in society for that to hurt us? Yes. And the big breakdown that would hurt us is if people didn't replace one food with another. Like you can run out of rice, people shift to wheat. Okay? But if you run out of both rice and wheat, you're going to have a problem. So that just hasn't happened because humans are omnivores. We can eat all a bunch of different things. And so when you run out of one thing or run low on one thing, it gets too

expensive, they just use something else. And then, of course, the dynamics of commodity cycles come in where nobody's buying it. Price goes down or nobody's using it. You know, so there's no demand. People stop producing it and then the price goes back up. The Malthusian guy. What century was that, by the way? Heck, I don't know. We have to Google that. Is that like, but is that like modern times or is that like the 1200s? I don't, I don't know. Honestly, I don't, I don't remember. What do you think that gentleman got wrong? Like, what about his theory, do you think it was particularly that he couldn't possibly have seen coming? Is it, is it technology?

Is it, what is it exactly? Yeah, probably human ingenuity. Probably, I mean, nobody can predict the technology. Nobody can predict any of that. But humans are really, really intelligent. And we know how to manipulate and do stuff. And we're going to figure out a way to survive. Survival is everything.

Malthus was like late 1700s, early 1800s. And I mean, he was born like before the Industrial Revolution. So I'll be willing to cut him some slack since he didn't see the technology that was about to be unleashed on the world or the growth, I guess. Okay, so you all have a 2024 outlook coming. I'm sure like you've outlined the cycles pretty well here for how they typically work, but that still doesn't make it easy to predict the future. So like how do you think about these outlooks in? in trying to help position people for what's coming in these markets.

All right. So Jake Hanley, who's really good at this, he's our analyst. And he puts that outlook out. In the last couple of years, he's been uncannily accurate. And I talk with him this morning and said, you know, what can I say to Ben and Michael? And he said, well, tell him it's coming out next month. It's coming out next month. You know, he's working on.

He'll do energy. He'll do currencies. He'll do, obviously, ag, so he'll do metals and just give a scenario. And what we try to do is step back and look at the, you know, near-term what's happening. And then long-term, what are the trends that are going to affect everything? And, you know, high prices, get rid of high prices. There's no way around that. Low prices get rid of low prices.

There's no way around that. We look at commodity cycles once they get started, they're hard to stop, okay? In grains are a little easier because generally it only takes one, maybe two years. This time it's been three, it's been unusual. but to stop a grain rally, all right? Because farmers just plant, like you said, Ben. We've talked about that before. Oil producers, you know, they can drill new wells and they can up their production a little bit.

Same with natural gas. Metals are hard, all right? Metals take five to ten years to permit and build a mine. And so metals are a big deal because you would think they'd be easier. You would say when prices are too low and nobody's building mines, it's pretty easy for, you know, Goldman Sachs is out there pounding the table. There's not going to be enough copper for a very long time. So you think, all right, there's not going to be enough copper. I'm going to go long copper. And that may or may not work. The problem is when you put five or ten years into the

mix, you don't know what change is going to happen, like what technology is going to come out? What's going to shift so fundamentally that you just, there's no way that you could have seen coming, but there was plenty of time for it to come. So I think metals, the big mines, things that take 10 years to build out are really, those are hard markets. Sal, last question for me. Where does the U.S. dollar fit into all of this? Because that was a wrecking ball for really all assets in 2022. The U.S. dollar is really important, obviously. A weaker dollar is basically going to have an effect on stock market generally goes up on a weaker dollar.

But commodities are priced in dollars. Many countries like it or not, commodities are priced in dollars. So a weaker dollar is a tail win for commodities. It's very bullish for commodities or at least a bullish tail win. And that really helps. A strong dollar puts a cap on commodities prices. So when you got it, when you see the dollar roll over, that's a tail win for commodities that's good to belong in commodities. It is. That makes sense. Yeah. And that's the same thing with like international stocks and emerging markets and a lot of these different things. The dollar has been strong. I think a lot when people thought. Sal, where do we send people to learn more about your funds? 2gram.com is without a doubt the best place we do. We're on Twitter or X, I guess it's called now, at 2Grium ETFs. And just contact us. Go to our website. We're here to help and answer questions about any commodity, even if we don't offer an ETF on it. We try to help and point you in the right direction.

Appreciate it. Thanks, Sal. Thank you, you guys. Okay, thanks to Sal. Yet again, consummate pro here. Tookrium.com to learn more about his funds and send us an email, Animal Spirits at Compound News.com. Animal spirits at the compound news. Animal spirits at the compound news.

Okay. I always want to put pot in there, but all right. Sorry. See you next time. Thank you.