Odd Lots - Jeff Currie on Why Copper Is His Highest-Conviction Trade Ever

Episode Date: May 17, 2024

Copper has long been touted as a big winner from the world's drive towards electrification. All those electric vehicles and new grids need lots of the metal to work. At the same time, since it takes years for new copper mining capacity to actually come on stream, many people expect a long-term shortage of the metal to materialize. But despite all that excitement, copper prices actually fell over the past few years. Now, copper bulls are getting another chance as the metal surges towards a new record. So why didn't the thesis play out before? And what does the mismatch between short-term prices and long-term supply actually mean for the world? In this episode, we speak to Jeff Currie, a long-time copper bull and commodities veteran who's now at Carlyle Group. We talk to him about why copper is his highest-conviction trade ever, plus the outlook for oil and big changes in petrodollars.See omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lods podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, Copper has been on a tear again. Yes. Yes, it has.

It's kind of weird because I remember recording a number of commodities-related podcasts a couple of years ago where everyone was super excited about copper. And there was this long-term, you know, structural. theme about systemic under supply. So the idea that we hadn't invested in new mines for ages, and it took so long for new mines to come on stream that there just wasn't going to be enough copper to power all these new electric vehicles or electrify the grid, all these big things that the world wants to do. And then for a couple of years, copper just kind of went away. The price started dropping, and now it's back.

But this is the problem, right? And I think that that interim fall, and it did for like 2022 and much of 23 is sort of back in the basement a little bit, this does seem to be the core problem that people have identified, which is that we can be almost certain that there is a long term huge demand for copper from all the capital spending that's going on for electrification in particular, EVs, etc. And we can also, I think, as many analysts have observed, forecast supply fairly easily because we know what mines are out there. We know that mines have a really long lead time, et cetera, from decision to break new ground to actually producing copper.

So like there are these certainties. But then the problem is, like in the meantime, when you have these sort of periods of spot weakness where there isn't a supply shortage where there's plenty of copper, you know, those periods don't exactly like encourage companies to like get mining or get digging. And in fact, they could slow down. expansion plans, even if everyone sort of knows the long-term math checks out. Absolutely. There's that mismatch between the short-term and the long-term outlook. There's also that tension on the ESG side of things as well, this idea that you want

abundant copper in order to decarbonize the energy system. But at the same time, a lot of people who are ESG-minded are going to feel very uncomfortable about encouraging new mines in Chile or something like that. Yeah, yeah, that's right. And, you know, obviously they have big environmental impact. They have big water impact and so forth. But, you know, as we said at the beginning, copper is once again front and center. The price is back on the rise. We're back talking about this long-term structural mismatch, et cetera. And so I think it's time to sort of delve deeper into this question and like see where the math is today, so to speak. Yeah. I have the Ghostbusters theme in my head, and it's like whenever you want to talk about copper, who are you going to call?

This guy. We're going to talk to Jeff Curry. So we've had him on the podcast at least a couple of times before. Back in 2021, we talked to him, and he talked about this idea of like a new commodity supercycled. Of course, oil was surging and all these commodities were surging as the global economy was reopening. Then we talked to him again in 2022. And he said that copper specifically may end up being one of the tightest commodity markets. markets he's ever seen. So real, real issues with supply and, again, looking pretty good these days.

So we are back with Jeff Curry, who is now in a new role. So when we talked to him before, he was the head of commodities research at Goldman Sachs, but today he is the chief strategy officer of energy pathways at the Carlisle Group. So, Jeff, thank you so much for coming back on Odd Lots. Great. It's a pleasure to be here. And, hey, copper 10,000 and oddlots, here I come. So let's go. There's our headline right there. So, Jeff, why don't you talk to us about the last few years. It's been like over two years since we've talked to you.

So what's happening in copper world or commodity world over that time? Well, let's go back and lay out the super cycle thesis that we put forth back in. It was October of 2020. The bottom line is the stories more compelling today than it was then. So you really have to ask what went wrong. So let's start with the story, and then let's go to what went wrong over the last 12 to 18 months. So if we go back and review the story, there was structural supply constraints, which we called the revenge of the old economy, put bluntly, poor returns in the old economy, saw capital redirected

to the new economy, starving the old economy of the investment. It needed to grow the supply base. Pretty straightforward story. Still is a story in markets like copper, even oil to a lesser-eastern. extent, but it's pretty much apparent across the old economy. So structural supply story, very much intact. What about demand? If anything, the structural demand stories have been turbocharged. Let's go and review the three big policy initiatives we saw driving demand. The way we talked about them back then was redlining commodity demand, RED. The R-E-D-R-Sand-Sanded standard for redistribution

policies. Basically, as lower income groups consumed with higher wages, higher income, they consume a greater share of commodities than the higher income groups. That's very much alive and kicking. You look at the low unemployment rate. Who's the biggest benefactor of that? It is the lower income groups. And, you know, policies still very much in play all over the world right now, reinforcing these lower income groups in the consumption of commodities. So you have R, and then you had E, the environmental policy, turbocharged from the last time we talked. You have the IRA, the repower EU, China. Now, part of the reason why copper's rally recently China's growth was over 100% in green cap X last year, 30% this year. So everywhere you look in the world, we see environmental policy through

green cap X stimulating demand for commodities. And then the third one, which was the D, the D globalization. Again, that's far greater than we ever thought. Look at the potential military spin in the U.S. $95 billion on munitions. We look at what's going on in places like Germany, $100 billion of military spend. So you've got all three going much stronger than what we would have thought two to three years ago. So what went wrong? I want to first start with the disinflation story. And then I want to finish by talking about the dollar. The dollar has been a big headwind to commodities.

When we think about the disinflation that occurred late last year in the early part of this year, one thing to keep in mind is that it was globally correlated. It occurred against the backdrop of record commodity demand, an incredibly strong GDP growth in US, and even China was plus 5%. So what does that tell you? Was it demand-driven weakness in prices, or was it supply-driven? It tells you it had to be supply-driven. It's the only thing that could give you that pattern of observations.

So if it's supply-driven, where did they get the supply? I would argue it was through regulatory easing, whether if it was on sanctions, but allowing sanction oil to flow more freely, particularly in places like U.S., Iran, Venezuelan, obviously that had a cost with Iranian hoodies or even the Venezuelan, Venezuelans attacking Guiana, but that was a source of supply. The other source of supply was turning a blind eye to environmental policy around the world. We have record coal production out of China, Indonesia, and India. Actually, that increase in coal production was bigger than Saudi Arabia in backed up gas prices and power prices around the world. We saw, you know, cutting down

mangroves in Malaysia or deforestation for more food in places like Latin America. And then the third one, regulatory easing, was through immigration. So you got more energy, more food, and you had more labor, which helped create the disinflationary pressures that we saw the last Soviet Union. I'm not going to say it's the only cause, but it put, you know, a big headwind to the commodity story. And by the way, that's going to run its course, particularly after the election, because you look at, you know, the clamping down on Iranian sanctions 180 days from now, right? Surprise, surprise, that's after the November election. Now, let's turn and let's talk about the dollar. That's the other big headwin

here. Historically, when commodity prices would rise, you would have places like Saudi Arabia become long U.S. dollars. They would recycle those dollars into U.S. treasuries. Interest rates would go down as they bought treasuries. This would create a weaker dollar that would reinforce higher reflation. If we called it the three R's, it start with re-leveraging in China, So you get growth outside of the U.S., and then you would have convergence in global growth, and then you would have the purchases and the stronger growth in the emerging markets by U.S. Treasuries, and that would create the weaker dollar, and hence the reflation. And you were in a virtuous loop.

That's how we went to a $147 oil in the 2000s, and the same thing happened in the 70s. For the first time ever, that dollar recycling is not occurring in what is replaced, in it, I like to call it gold recycling. It explains a lot why gold prices are as strong as they are. And what is the evidence of that? Is that the emerging markets, the brick countries all met with Saudi Arabia and other key participants November of last year and discuss how they're going to trade with one another using local currencies and then whatever it nets out and settling, they would settle in gold. So you've taken out that dollar recycling. China's not doing it. And think about why would they do it with everything they've seen with Russia over the

the course of the last several years. So that's an important difference here. It doesn't mean it says it's a very super cycle, but you're unlikely to see that dollar recycling playing out probably ever again, which means that what do they do with this? If they're buying physical goods like gold, they could be buying things like oil, copper, and other commodities as we look forward. So those are the two big head ones why I'd argue we're wrong, but the fundamental story still very much intact, particularly with copper. Jeff, that was an amazing overview. I'm just going to say, our listeners that we are talking to Jeff from his office in London, there's a little bit of a sound quality issue. Obviously, we need more transatlantic copper cables running under the ocean.

Thank you. Well done, Tracy. Thank you. That was a good seg, right? All right, I have a very important question for Jeff, which is, are you wearing a copper bracelet right now? Absolutely. It is the most compelling a trade I have ever seen in my 30 plus years of doing this. You look at the demand story. It's got green cap acts. It's got AI. Remember, AI can't happen without the energy demand. And the constraint on the electricity grid is going to be copper.

And then you have the military demand. So unprecedented demand growth against an unprecedented weakness in supply growth, because we have not been investing. It's teed you up for what I would argue is the most bullish commodity that actually, I just quote many of our clients and other market participants say, you know, it's the highest conviction trade they've ever seen. Earlier, you were talking about the sort of general commodities super cycle and why that didn't necessarily play out in the time frame that we initially thought it would.

But can you dig a little bit more into copper? Because this is something that I see over and over again. We talk to a lot of commodities experts on the show, everyone seems to have a high conviction on the copper trade or at a minimum see lots of upside potential. why didn't that play out in the sort of immediate post-pandemic years? Because investors were unwilling to take on blind faith that China property market could sink and you could still be in long, copper, and other base metals. Because for as long as many of these people had been trading commodities, without China,

you could not be bullish. And what happened in 22 and 23 was the Chinese property market started to sink and sink very, sink very quickly. And that discouraged investors to get long. And I think they have now seen enough evidence last year and this year. For example, copper demand so far this year is up 6% year over year despite an incredibly weak property market in China. So I think what has shifted here is confidence from investors in metals that you can buy these markets based upon the green cap back story despite a weak China property store. And I think that's what has really changed in the last, let's say, six to 18 months.

Let's talk more about the long-term supply outlook. So the basics, yes, it takes a really long time to get a new copper mine online. Maybe it takes even longer than in the past due to local opposition and concerns about the environmental impact. What's happened in terms of planned new mines over the last three years? Are there new projects that are breaking ground or at least pencils down yet that we hadn't seen in 2021? What's happening in the planning cycle? You don't have to look any further than the Anglo-American bids. BHP finds it cheaper to buy Anglo-American bin than putting a drill into the ground.

And that's pretty much been the case across the board is that they're finding ways to increase supply, particularly through M&A activity as opposed to having to do it through organic, let's call it greenfield investment. When we look at the commodity super cycle in the 2000s, how did it start off? Started off with the creation of BHP Rio. Then you had Exxon Mobil, BP, Shell, all the supermajors were all created, both in metals and energy at the beginning of that super cycle, because it was easier to consolidate to grow your supply than it was to do it through greenfield investment. And so because we observe that going on, it tells you we're not at the point right now where people are willing to make greenfield investments because they can buy other companies more cheaply, which means prices have got to go higher and the conviction has got to be greater before you start to see that substantial rise in greenfield investment. So one thing I wanted to ask is what is the impact of price on investment here?

This is kind of a weird question, but does it actually make much of a difference if copper prices start rallying? if we do see another record in the price per ton, would you expect to see an investment response of some sort? Eventually. Eventually, yeah, even if it's on a longer term time scale. Yes, eventually, you should. We saw it in the 2000s, but let's review what happened in the 2000s because I think it's pretty instructive to right now. That super cycle lasted 12 years, from basically 02 to around 13 or 14. And the super cycle in the 70s basically lasted 16. 68 to 80, again 12 years. Why the 12 years? Years one through three are usually higher prices, creates a confidence that, hey, this is real. We're three years into this, and the confidence is

so-so. You know, the die-hards that I talk to have a lot of confidence, which means you probably need more higher prices for people become convicted that it's actually for real. What creates the second big uptick in prices? Because once these companies, start to spend, then you get cost inflation. And that drives you up to the next level. And if you look at what happened with copper in the 2000s, it went from, let's say, 2,000 a ton to 4,000 a ton over that first three years. And then around 06 through 08, it exploded to $8,000 a ton because that's when they started to spend. But they had to achieve that confidence that still is not apparent in this market. And then let's say, you know, the final five to six years is finally when you begin to deboddle-necked the system and the investment plays out.

And, you know, it takes another, let's say, seven years and you get actual supply. So where are we in that process? We're still in that first three years creating conviction around, is this for real? Our estimates, you need to be above $9,000, $10,000 a ton before people really start to be confident that they can make this kind of investment. And I think the other thing, too, is not only does their prices have to reach those levels where the break-evens begin to happen, but they got to go above to create some type of confidence that they have some type of cushion, which means, well, we like to see much higher prices before you start to see that supply response. I have a very oddball question, but I've been wanting to ask this question to someone who knows for a long time. It's a very brief story. Sometimes they take Ubers to work.

I haven't in a while, but I used to sometimes take Ubers to work. And when the driver sees I'm working for Bloomberg, they want to bring up something finance. And usually it's like, oh, what do you think about like Dogecoin or Bitcoin or something like that? But one time I had an Uber driver. He's like, I'm really, you know, you're talking about gold. He said, I'm really bullish silver because I believe. there's not enough copper mining going on in the world, and silver is often a byproduct of copper mining, and there's a lot of silver content and some of this EV stuff, particularly

solar panels, he said, and therefore there's going to be a shortage of silver. And I know this is like a little diversion, but I just had to get this off my head because we're here talking to Jeff Curry. What do you think about my Uber driver's thesis? I like that you're asking questions on behalf of your Uber driver. Yeah, and I still have his context. I still have his context. So two years later, I'm finally going to get a chance to get back to him on this. What do you think about my Uber driver's silver thesis? I definitely think there's legitimate arguments behind his solar thesis. And, you know, it's one of the arguments we put forth for prices moving higher. But the one thing that we watched, you know, particularly back in, you know, it was in March, April of 2021 when everybody,

it was actually during that game stop era, when people were, they were going to move and they were going to try to short squeeze silver. The problem with silver, is there's just too much of the stuff around. There's millennia of production of sitting above ground like gold, but unlike gold, it is not as rare, so it's more plentiful. So I think, yeah, it will behave similar to what he said, but I'm never going to be jumping on the super bullish bandwagon on silver just because of the fact that there's just so much of it around the world

and it's not nearly as rare as something like gold. Yeah, even I have a bunch of silver. I think we've talked about this before. My dad keeps giving me silver coins from his collection for my birthday and for Christmas. And so I'm expanding this collection of silver coins to the point where I think I could successfully have one of those silver stacking channels on YouTube at this point. That would be fun. Jeff, there's one other thing I wanted to ask you. So, you know, we're talking about like the price of copper, the futures price.

I wanted to ask you about the copper concentrates market and get into like a little bit of the discreet. between like maybe the financialized price versus the physical price. Can you walk us through what's been happening there? Because in some respects, like this is where the immediate shortage is playing out, even if it hasn't been reflected up until recently in the overall futures price. Very good question, Tracy. You know, when we think about metals, the ore that comes out of the mine, that typically gets turned into concentrate and ship, you know, somewhere around the world where it basically has to be smelted into, you know, a refined type of hopper that can be used and sent on into, you know, markets like wiring and so forth.

But it's there where you saw the very first signs of a shortage. It actually was in SK, in Korea, where there was not enough concentrate to go around to be able to smelt into something that was more useful. And so it's called the, you know, the TC charges. the concentrate charges. And right now, everybody's, oh, they're negative, which is telling you the shortage is at the mine in that concentrate, not at the in-use consumer yet. It's going to work its way down there.

By the way, it's the same thing happens in refining margins. When you have a real big shortage in oil, it crushes the refining margins. And so the fact that you have zero or negative TC charges right now is an indication that you have shortages at the mine, which says eventually this is going to, work further downstream, which is we look out further, particularly towards the end of the year, we'd expect those shortages to work further downstream more towards the consumer and away from the mind. But absolutely, I think that's a critical, and it was about two or three weeks ago, one morning I was looking at the Koreans and go, wow, here we are. Finally, physical shortages

happening at the concentrate level, which is telling you, just a matter of time before we see it at the in-use consumer level. So, Jeff, I just want to nail you down on the price chart. for copper and the timeframe, just so that, you know, when we have you back on in a year or two, we know exactly what our priors were and what our expectations were for the move. But where do you see copper going from here? Where's the sort of upside risk and what time frame are we talking about? You know, our view over, you know, call it a two to three year horizon, is it's got to reach somewhere around $15,000 a ton. Where do we get the $15,000 a ton? Is you go? back to 1968, the beginning of that super cycle, and it was a big housing boom driven by the war on poverty

through the great society, we saw copper prices reached the equivalent of $15,000 a time. We know that demand destruction occurred. Now, we'd never had another opportunity other than that time period to observe demand destruction. Because that's basically, you know at the in-use consumer level, you're out of supply like that, Korean concentrate situation, you ran out of supply. You ran out of supply, you're short, and now you have to get the in-use consumer to ration their demand out. That's, you find out how high these commodity prices can go. And that $15,000 a ton was saying, okay, the only time in history we've observed actual physical demand destruction or rationing of physical supplies was that time period. Whether or not that holds in the current environment,

we'll find out. But that's our best guess of where prices could go, because we've seen it before. How long does it take to get to that dynamic? You know, I thought we would have been to that dynamic by now. I would tend to think, you know, if we meet back up in the next 12 to 18 months, there's a probability that we're looking at prices in that $12,500 to $15,000 range. Because if we know it's happening at the concentrate level, it's just a matter of time before it starts to physically happen at the in-use level. And that's where places, you know, the markets like the LME and the Comax are pricing it, and that's where you would see that price like. Last time we talked to you, you were at Goldman, now you're at Carlis.

What is the energy pathways group at Carlisle? What are you up to these days? Well, the whole idea is to focus on the pathways between the brown and the green. So far, this transition has been, you know, to use a lack of a better word, chaotic. And it's primarily been focused on the green. But you need to be able to think about this transition and manage it. You need to think about moving from the brown to the green. And we talk about pathways.

It's those pathways between the brown and the green. And I have a saying, I like to say it's critical here, is if you don't own the emissions, you cannot control the emissions. So you have investors out there, you know, they don't have emissions in their portfolio, but it doesn't mean emissions are going down. In fact, what do they do of the last every year since started this process? They've gone up. They haven't gone down.

And the only way you're going to make them go down is start concentrating instead of thinking about net zero. Think about what happens this year versus next year and are we going to get them down, particularly inside of the portfolio. Because by taking them completely out of the portfolio, there's no way you can control or say anything that they actually went down. And so when we think about the dynamic here is we don't know the pathway. I like to point out in the war and acid rain during the 1970s and 80s when we took the sulfur in the aerosols out of the atmosphere, it was a smashing success. They remained technologically agnostic. And I'd like to point out, who would have ever thunk that if you put platinum and

platingium in your tailpipe, you're going to get rid of these aerosols? But it took trial and error trying those different pathways until you found the one that actually worked. And so what we're using the term pathways here is to really denote this whole idea that we don't know what the answer is. we're going to be trying these different ones. We may have the one we need right now and we may own it, but finding that exact pathways is really the goal here. And looking at that connection between the brown and green is going to be central to creating a managed transition that is less chaotic than what we've already seen. So we've obviously been talking a lot about that energy transition and the impact of price on investment and maybe the transition itself. We would be very remiss if we didn't ask

you about what's going on with oil prices at the moment. And I think the big story for everyone in the market is probably that non-OPEC supply that has really ramped up a lot quicker than a lot of people expected. How much has that changed the way you view and analyze the oil market? How big of a difference has that made? Let's start with the big one that everybody's focusing on U.S. U.S. increased above expectations 400,000 barrels per day last year. It was a lot more. are basically expectations at the end of last year were 500,000 barrel per day growth and you got something close to 900. By the way, of that 200 was in Gulf of Mexico, 100 in Permian, 100 in Bakken. You're not repeating the Bakken and the Gulf of Mexico, which means the only ones that

you can repeat are really the Permian. Now, let's take that aside, and then let's put this in the context of the supply increases that you saw out of Iran. It was 850,000 barrels per day. Out of Venezuela, it was 150,000 barrels per day. So you're well over, talking about a surprise last year, the surprise out of that sanctioned oil was well in excess of a million barrels per day, more than 2x what you got out of the US. Also, remember, natural gas prices were extraordinarily high last year that reinforced even more U.S. production. So, you know, I mean, we'll see what's happening this year. So far, you know, the surprise is coming out of the U.S. or nothing like what they were last year. And then when you look at places like Mexico, if anything, many of those

places are struggling to bring on their production. So yes, it was a factor of the last year. Is it something that we need to be conscious of? Yes. Is it something I'm focused on? Yes. But is it derailed a story? I would argue that the increases in the sanctioned oil derailed the story far larger than what those other surprises that you're referred to did. And let's think about the cost of allowing that sanctioned oil to come online. You know, it had an impact on the Iranian hoodies. You know, in fact, I thought the one that actually surprised me throughout this whole process was a British flagged ship carrying Russian material owned by Swiss trappier, shot by an Iranian-backed hooty. If that's not, you know, emblematic of the problem, I don't know why it is. And then, you know, Venezuela,

similarly, you know, invading Guyana. They clearly are focused on this because they've made the efforts to cut back on those sanctioned oil, but it's not unlikely to take effect until you go after the elections. But the bottom line, that was a lot of supply hitting the market at a time when demand was relatively weak as we were going to, what we like to call is a mid-cycle pause in the economy, meaning that if you look at that period in 2022 and 2023, it was your classic mid-cycle pause, huge run-up in rates, energy prices, the system had to adjust to the higher rates, higher energy prices. slows down and then it begins the second leg of the business cycle, which is where we are right now. By the way, never in the history of the post-war era as you go into that second half of the business

cycle, do commodities not act as the best performing asset class? And there is very little history that OPEC ever tames that price spike as you go in. They can't bring it on fast enough. So that's why it's not as bullish as copper. And I'm not going to try to say it's as bullish as copper, but it is part of the overall story here. And we never thought it was going to be as bullish as the base complex. But also, when you look at these commodity super cycle, it's rare, whether if it's grains, softs, oil, base, precious, that these markets can get that far away from one another because there's ultimately arbitrages across them.

What about on the demand side? You know, obviously EVs, in theory over time should cut into oil demand, but in practice, It's hard to see it showing up just yet. And, you know, there's still tons and tons of ice cars on the road. What is the sort of, I don't know, medium-term prospect for actually reaching peak oil demand or bending that demand curve down? Right now, we have used a lot of carrots to try to solve this problem. You know, it's the IRA repower EU subsidies when I say carrots.

There's no sticks in this. Yeah. You really want to get oil demand down. And how did we always do these other transition or when we're, we had to, you know, environmental issues, you use sticks, but attacks on sulfur as we have in the past. And it's not a closed loop. And if we're really serious about getting the demand down, we would create impediments to the demand growing. I don't want to get into the politics of that because they become relatively sticky. But I think the key point here is we have the tools at our disposal to get that

demand down, but nowhere in the world is there the political will. And I think, Where I was really wrong on all of this is if we go back, let's say, 12, 18 months ago, I fully overestimated the willingness of Western governments to pay for their politics. Well, if it was through sanctions, environmental policy, and I don't care which country you want to use, you can all come up where they loosened it. I live here in the UK, and there's good examples there where they loosened it. But I think the key point here is that when the going got tough, the cost of decarbonization became very apparent and very high that political will didn't carry

through. And if we're serious about getting that demand down, which I firmly believe we should be, and by the way, I'm not going to demean the politics at all whatsoever here, because I know they're really difficult. But that needs to be front and center before we're going to start to see a significant decrease in overall demand. And part of the, you know, the reasons is people, I know somebody who I'm not going to make of the name, they have one of the plug-in. hybrid. They don't ever plug them in. And that's a very common problem. If you want people to plug them in, make it expensive for them not to plug it in. Then they'll plug it in. So I think we got a ways to go. But I think the key here is, you know, I actually point this

out historically, I think I made this point when we were on last time, is that historically, when you've got to get a tipping point where you actually see policy really get serious about the problem. And when we think about the war on acid rain, it was. was the Lake Erie effect. 1968, Lake Erie caught on fire. Richard Nixon had to respond. He created the Clean Air Act Amendment, the EPA. We went to town and we solved the problem.

We used the tools at our disposal, which we've all learned in Econ 101. What do you do with the negative externality? You tax it. So we know what to do. We just got to get to the point where the political will is there to do what we know how to do. Jeff, I want to go back to what you were talking about with PetroDollars and the idea of this being a sort of key difference in the current commodities rally versus commodities rallies in history where, you know, the price of oil would go up and then that additional cost would get recycled

into U.S. assets like treasuries and that would end up having an impact on the dollar and you would get that sort of self-reinforcing cycle. But, you know, a lot of commentators tend to be kind of cynical on the idea of dollar diversification. But it sounds like you think that that's one of the things that's happening here, this idea that there are countries out there who are getting together and saying that we want to trade in our own currencies and diversify away from the dollar. How do you see that playing out? I think it's going to become more and more apparent because owning those dollars, let's take, we know Russia and India do this, when they trade oil in INR.

And so anything that's left over, they're the ones who can settle this up in gold. And by the way, Western governments were very careful in maintaining the integrity, of the Russian frozen assets, the $400 billion, because they don't want to create that concern. But I think the damage has been done because you don't see, you know, these countries are not trading in dollars anymore because of fear, what are they going to do with these dollars? And you don't see the Chinese who actually still get substantial dollars lining up to buy U.S. treasuries anymore. So, again, I don't want to get in the politics of this.

But the question is, have we passed that point of no return? Are we going to see that recycling play out again? By the way, I don't think you need it to be bullish commodities because what if they start taking those dollars and those rupees and everything else and just buying raw commodities with them, which is what they're doing with gold. We know they're doing it with gold. You know, what if they start doing it with copper, oil, and other commodities

in building strategic stockpiles or something like that, starts to get pretty bullish again. But it's a very different dynamic than what we've seen in the past. And I would say if you asked me really what I got wrong was, I don't know why I thought we would keep doing that dollar recycling dynamic, be given everything that's happened. But that's one point where I would say that caught me really by surprise. Jeff Curry of the Carlisle Group, so great to have you back on. I always feel like it's such a masterclass and how these commodity markets really work.

Great chatting with you. And we'll chat with you again in 18 months or two years and we'll see how this is all playing out. Perfect. Tracey, I love talking to Jeff so much. I know. I remember when he left Goldman, he published that like 10 things I learned in commodities markets. And I encourage everyone to go like seek it out and read it because even though he was very forthcoming in that conversation just now about what he got wrong, but of course, like anyone who is in this investment world analyzing things, if you do it for long enough,

you're going to get some things wrong. And so it's really useful to go back and look at his lessons and kind of understand the framework for the way he thinks about things? No, totally. He's just so clear, right? And you know what I think is interesting? Because some of this stuff, you know, is like rebuilding on themes we had talked about. But one thing I thought was really interesting is some of the easing that he described that took place over the last couple years, which is not like the sort of conventional

easing as we think about it, but a little bit more stealth. And so less sanctions enforcement, a little bit more. Environmental regulation. Yeah, a little bit more tolerance on environmental restrictions to mining and things like that. Things that don't show up, you know, no one comes out and really makes an announcement, oh, we're going to be laxon sanctioning. You just hear it and people like sort of deduce it from the data. Oh, there must be this Iranian oil getting out or whatever it is.

Or no one really comes out and says, oh, we don't really care about the environment anymore. And we're going to drop all our rules. You know, again, you sort of deduce it from like what activity is going on. I thought that was a really interesting point. You know, I was thinking the exact same thing. So I asked him about what's sort of different in the oil market right now and U.S. oil production and non-OPEC production because that tends to get a lot of attention. It gets a lot of headlines. So the SPR release and the Biden administration maybe has a little bit of a unusual relationship with oil drilling at the moment. But like we do see those headlines that the U.S. is making a difference in world oil markets. But then to Jeff's point, he was saying that he thinks actually the lax enforcement of the sanctions was a bigger factor in all of this. But it's exactly right that like we don't talk about it as much because it's not out in the open. You can't see those official statistics about how much oil supply is getting out of Russia.

And same thing with environmental regulation as well. So I thought that was a really good point. His last point about the lack of sticks I thought was particularly interesting too. And this idea of like, yeah, carrots are eating. easy, but if you actually, like, there is not a lot of appetite to say just like, you know, raise the gasoline tax in the U.S. or as he put, raise the sulfur tax. Like, these are things you could do. People wouldn't like them, but, you know, in a world in which practically tradeoffs exist, it's like how much political will is there? To your point just now, obviously, we've talked about

this a little bit before, but even with Russia's war in Ukraine, the sort of obviously arming Ukraine and backing Ukraine, but not being particularly excited about Ukraine's attacks on Russian oil facilities and the cost that that would add to the sort of overall global war effort. Like, it's sort of interesting to think about him saying he's been a little bit surprised by, I guess, the lack of will to take the painful part of the transition. Yeah. The other thing I was thinking about was the evolution of environmental problems, let's say. And he mentioned acid rain there and the sort of Lake Erie moment that,

led to a lot of additional regulation that made it sort of salient and politically palatable, I guess, so that you could do that. And now there's a tendency to think about like all the things going wrong in the environment and focus on everything else that we need to do. But if you think about acid rain, this was such a big talking point in like, especially the like 70s, 80s, maybe even into the 90s. But nowadays, because of those regulations, acid rain has a lot less impact, at least in places like Europe and North America. So. No, when we were kids, or at least when I was a kid, it was acid rain and the ozone layer.

That's right. And save the whales. It was like, yeah, that was the trifecta of environmental concerns. It's certainly in my memory. Yeah. All right. Well, shall we leave it there? Let's leave it there.

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Wisenthal. You can follow me at the stalwart. follow our producers, Carmen Rodriguez, at Carmen Armin, Dashel Bennett at Dashbot, and Kel Brooks at Cal Brooks. Thank you to our producer, Moses Andam. For more Oddlots content, go to Bloomberg.com slash Oddlots, where we have transcripts, a blog, and a newsletter.

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