Peak Prosperity - Adam Rozencwajg: The Stage Is Set for Commodities to Shine

Episode Date: April 30, 2025

Commodities are poised for a significant rise due to macroeconomic shifts, potential monetary regime changes, and the depletion paradox is now patrolling the US shale oil patch.Mentioned:Peak Oil Arrives in the US Shale Patch

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. Obviously, there's been a huge amount of uncertainty in the administration. There's been tariffs and not tariffs and things like that. But I'm thinking more and more that what we're seeing the U.S. go through now is this monetary regime change that we've been expecting for quite some time. and exclusive subscriber only content. Hello everyone, Chris Martinson of FinanceU here with an explosive, amazing, astonishing interview we're going to do today. Again, we're talking with Adam Rosentrag of Gehring and Rosentrag. Look here's what's about to happen. The thesis is, is that it's time for commodities to have their day in the sun. And it's a very fundamental analysis.

We're going to have to talk about some big macro things like, oh, this whole giant realignment that Trump and Bissent seem to be taking the United States and the world through. It involves tariffs. It involves dollar realignments, it involves this thing called the Mar-a-Lago Accords, and against all of that, of course, we're gonna have to revisit the depletion paradox, which if you didn't see it, Adam and I talked about last time, which relates to oil and oil production. Well, we have some big news there, too. The EIA is now projecting that the US shale output and therefore US oil output will peak in

2027 it's a lot sooner than they were saying just last year or the year before that so this seems like big news as well Adam welcome back to the program Yeah, hi Chris happy to be back nice to talk to you again. Well the pleasure is all ours and I want to start Here with this which I'm calling it. huge, okay, Adam, this is huge. And this is your fourth quarter, 24 came out in March. Just again, a beautiful commentary. The quarterly commentaries are amazing. And this one, if I had it right, tell me, tell me if I've got any of this wrong, but it sort of went along these lines.

That we're about to undergo one of the most radical shifts in the world monetary system since 1971, when we came off the gold standard. In fact, we have to go back even further than that. That Trump and Bascent are seeking some sort of a re-dollarization with vastly altered incentives. This is gonna shake up the landscape enormously. And that when I said we go back a little further there's the Mar-a-Lago accords

which I don't I got to be honest they're speculative I haven't actually got my hands on a document I've just read a lot about what they might say but anyway they will represent the most profound shift in the global monetary order since Bretton Woods in 44 and against all that we have to understand something called the carry trade. So why don't we start with, start at the top of that thesis. What what do you see in here? Where do we start on this big story? So look you know I think it's important to appreciate that for a number of years we have been predicting that we were going to get a big shift years, we have been predicting that we were going

to get a big shift in what we've been calling the global monetary regime. Sometimes we call it the monetary plumbing, the monetary system. And what does any of that mean, and why did we kind of come to that? Well, we've been looking at commodity markets and commodity cycles going back about 130 years or so. And frankly, we've looked a little further than that, but no one cares about the 19th century. I don't think anyone really cares about the early 20th century either.

And what we noticed was that they move in these huge cycles. And there's periods of time where commodities relative to stocks or other financial assets become really overvalued and times where they become really, really cheap. And we're in a moment where they're really cheap. And we have been, you know, we first crossed the cheap threshold and all the way back 10 years ago in 2015. And we made the low in COVID. We probably would have made a low, let's say, in 2016, I suspect, when oil hit $27 in February of 2016. But of course, COVID came along. It's impossible to know whether we would have had another low without that. But the low is put in in COVID.

And since then, we've been coming back. However, we're still at a 98th percentile record of cheapness when you just divide the stock commodity prices by stock prices. And one of our early observations was that- And if I could, I'm just going to throw this picture up. There you go. Figure one. And yeah, just what we're looking at here is a relative weighting of commodities to stocks, right? That's all it is. It's the Goldman, effectively the Goldman Sachs commodity total return index divided by the Dow. Now,

I say it's basically that because the GSCI only started in 1970, so we had to recompute it going back before 1970. But it's effectively our version of the GSCI total return, the Goldman Sachs Commodity Index total return, divided by the stock prices. And you can see that it's as cheap as it's ever been. And we've only had three comparably cheap periods, nothing quite as bad as now, but three that got close. And that would have been in 29, 69, and 99. And this led us to sort of ask ourselves, were there any commonalities and similarities

in this period? And there's tons. Commodity prices went through a really big bear market in each of those periods. There had been a huge supply boom 10-ish years before each of these periods, and that's what moved those markets into surplus. The market was helped along by cheap credit and easy money and usually a boom in technology, radio in the 20s, semiconductors in the 60s, dot coms in the 90s, and then AI today. And what that did is it helped, you know, obviously bid up another part of the market.

The stock component of this ratio went up and the commodity part went down, and cheap money stretched it farther than it would normally. And then people started asking, well, what was the catalyst to end it in each of these periods? And the catalyst to end each bear market was always a change in the global monetary system. And so you talked about Bretton Woods. But really, what ended it with Bretton Woods really began in 1929, and that was the end of the classical gold standard that England had been on, really from the Napoleonic Wars,

100-odd years earlier than that. And they tried desperately—they suspended the gold standard during World War I. They tried desperately to go back on gold in the 20s. They ultimately failed to do that. And they sort of—the last nail in the coffin of the classic gold standard was 1929. And that corresponded exactly—that huge monetary regime change corresponded exactly to the end of the bear market and the start of the new bull market. In 1968 to 71, that was really the last gasp of Brenton Woods.

And Nixon closed the U.S. gold window in 71, but Johnson actually took the U.S. off gold in 69. There was a law that said every dollar needed to be backed by 25 cents of gold. As more dollars were being printed through guns and butter throughout the 60s, that looked less tenable. And so Johnson repealed that law, or had Congress repeal that law in 1969. So officially, the U.S. no longer had a gold standard in 1969, but it still had gold in the coffers, and it still allowed gold in the coffers and it still

allowed it to be convertible into gold until, of course, it would be like a bank saying that there's no more reserve requirements at the bank. It doesn't go broke the day they make that announcement, but it goes broke shortly thereafter. In the case of the U.S., they had to stop allowing redemption of dollars into gold by 71. So, take your pick. 69.71. When you zoom out, certainly right at the very, very bottom

of that commodity bear market. And commodities had a bang up 70s as a result. And then in 1999, it's not quite as clear what the major change was. But what it really was was all the Asian currencies, which were growing in importance throughout the 1990s, pegged their currency to the dollar at a fair market rate. And they worried at that point that if they had big capital outflow from all the hot money

that was going into EM, they would have a liquidity issue. And so the IMF and the World Bank said not to worry. If that happens, we'll provide you emergency swap lines. And then when it happened in the Asian currency crisis, the IMF and the World Bank said, well, I think you guys need to show more austerity and change your plans and stuff like that. And so all those currencies abandoned the old regime, and they decided to peg below market with the dollar to spur exports. And that's what led to, you know, it doesn't have as catchy a name as, you know, the Nixon

Gold Shock or the end of the gold standard, but it ended up with, you know, $9 trillion making its way into foreign treasury, foreign central bank coffers. So, you know, it was a huge, huge deal, on par with the other ones. So, we said for years, when do you know when this bear market is ending in commodities and resources? It's going to be when we have a monetary regime change. As of a couple years ago, we thought it was going to come from China and the BRICS countries and stuff like that. And we still hear about that.

There's talks today in the latest issue of grants, there's talks of how much gold China would need to have a gold-backed renminbi, and that very well might play part of it. But I do think more and more that the regime change that we're seeing is going to come from the US itself. And we've often warned people, look, we're not macroeconomists. I don't know the exact form that it's going to take. But from my little perch in my corner of the world, I don't think it matters. What matters historically is that we get one of these changes.

So that's what we've been talking about for a long time. I think we're seeing it now. Certainly this administration is committed to changing the order of things. You know, I would say that Trump in general, leaving all opinions of him aside, he definitely represents a huge amount of change in the underlying establishment, both Republican and Democratic establishments, obviously. And Besant and Stephen Mirren, who's the chairman of the Council of Economic Advisers, have both articulated over the last several months, you know, a very, very different world order, with the U.S. dollar playing a very, very

different role. So, I don't know what form it's going to take precisely. Obviously, there's been a huge amount of uncertainty in the administration. There's been tariffs and not tariffs and things like that. But I'm thinking more and more that what we're seeing the administration. There's been tariffs and not tariffs and things like that. But I'm thinking more and more that what we're seeing the US go through now is this monetary regime change that we've been expecting for quite some time. I would agree. And of course, you know, we have the canary singing loudly, which is gold. We'll get to that.

But you know, Adam, this is something I've talked about for a long time, which is, this is simple math, right? You can't have your debts compounding at twice the rate of your underlying economy forever, right? It's just, you have a math problem baked in there. I believe that what I've heard Scott Bessent say, not once, not twice, but maybe five times now is, look, that was unsustainable, and we had to do something about it.

I feel like they're trying to do something about that now whether that succeeds or not or but it's very ambitious what they're trying to do here it strikes me as as ambitious as 1929 coming off the gold standard 44 we enshrined the dollar in as the world's de facto reserve currency with gold backing we abandoned that officially 1971 but you say unofficially 69. And here we are. So this is a new thing coming out and it's as big as any of those prior events. Is that fair? I think that's absolutely fair. And I think, you know, with that as a context,

I don't think it's, you know, shortcoming to say I don't know exactly the form it's going to take. Right. Because these are definitely not unprecedented, because they have happened, but certainly unusual times. You know, to happen sort of three or four times in 120 years is not common. That's for sure. Not unprecedented, but very unusual. What I can tell you for sure is that every period in the past has corresponded with a massive devaluation of the dollar relative to gold. What I can tell you for sure is that every period in the past has corresponded with a massive devaluation of the dollar relative to gold. So not

necessarily relative to other currencies. That's a trickier pairs trade, if you will, but relative to gold, you know, 1932 when Roosevelt repriced gold, you know, went up 60% or the dollar devalued by the inverse. In the 1970s, gold went from 42 to 800, a 20-fold increase, and then from 1999 to 2011, or today, whichever pick your time frame, bottomed at 275. And here we are today pushing 3,500, depending on what day you look at it. So I think that we're about to have another move like that in gold. I think it's already happening.

Like you said, it's the canary in the coal mine. But something that I would like to kind of talk about here, because one of the things that have always sort of stuck in the back of my mind is you say, OK, fine, you have these big commodity cycles, and you end up with a monetary regime change. But is it really the case that the commodity markets are the ones that upended Bretton Woods and they upended the gold standard? And is it as simple as that? And I think what we've come to appreciate is that there's a much larger cycle at play

here. And that's what we're calling the carry trade. And there's a great book by Lee Lee and Cold Iron called The Rise of Carry, and it helped inform some of our views. And from there, we researched other cycles because they really kind of focus on more recent times sort of since the GFC.

And what we found was that there is a very, very predictable cycle at work. And I think we're seeing it exactly. And so what is the carry trade cycle and how does it apply to what we're talking about today? And I think we understand that carry trade cycle and how huge and pervasive and how much capital it's sucking into this one trade, you begin to understand why it has to end with a major realignment of how we conduct our affairs. Can you please explain a carry

trade quickly? Sure. So look, the classic carry trade that most people think about is what's known as a currency carry trade and it's a really simple premise. You borrow in a really low interest rate currency and you invest in a higher yielding economy. So the classic quintessential carry trade that many of us are taught is you use yen, you borrow in yen, and you convert them into Australian dollars, and you buy high-yielding Australian infrastructure assets, let's say. And that's a classic carry trade. And so long as the currency pair, the Australian dollar-yen pair, doesn't move dramatically

against you, you have effectively locked in an almost risk-free trade. And that is the carry trade at its most simple. But what the authors, I think, very correctly point out is that the carry trade—that's just one implementation of the carry trade. But what the carry trade is at its core—and I don't want to get too, you know, jargon filled, but I think it'll make sense here in a second, it's a levered short volatility trade. So what does that mean? It means you're borrowing money, there's debt in the trade, there's debt in the system,

and you're betting on volatility being low. You're betting on tomorrow looking like today. So again, go back to that Japanese yen Australian asset example. So long as there's not a major shock to Japanese monetary policy or Australian monetary policy, the currency should stay in a band, you know, and you will earn your return. You'll earn a positive expected return, which, you know, finance theory says you shouldn't have a persistent positive expected return. That should be arbitraged away. But it isn't. And the reason it isn't is because you are taking on exposure. You just don't realize you

are. You're taking on a short volatility exposure. You're making a bet that tomorrow looks the same as yesterday. And there's periods of time where that's a good bet to make, and there's periods of time where it's a very, very, very bad bet to make. But there's some interesting characteristics about that bet. It tends to work until it doesn't, which is maybe a dumb thing to say, right? But it's not as though you go gradually from a period of low volatility to gradually a period of high volatility.

It tends to go lower, lower, lower, lower, lower, lower, lower, lower, in which case the trade continues to work, and then you have a shock, and you have a big volatility spike, and then it kind of comes back down. So you have this sawtooth patterned a little bit. And people call the carry trade picking up pennies in front of the steamroller. And that, you know, I think is a very elegant image. That's your quintessential short volatility trade. So long as you don't trip, you'll get that penny. And you can pretty much be guaranteed to get it most days, except if something goes terribly wrong.

And if something goes terribly wrong, you don't just lose the penny. You lose the whole arm. And that's a levered short volatility trade. And what the authors have come to realize is that in these periods, you start to see lots of different asset classes take on a similar characteristic. And so, like, what does that mean? Well, first of all, you know, imagine value investing. We all know from, you know, our investing in economics textbooks that over the long

term value investing, buying cheap stocks beats every strategy, right? It's not even a contest. Value is one of the only factors that's shown to work. However, in a carried trade regime, value doesn't work. Why? Well, if we think about it, for value to work, you have to buy a stock today that's cheaper than it ought to be, and then tomorrow has to be different.

It has to rerate to reflect that value. If tomorrow is the same as today, it doesn't rerate, and value really underperforms. And as all this money comes into the carry trade, which is short volatility, it in itself suppresses volatility. So think about that for a second. What do I mean by that? Imagine if money poured into the S&P. Well, the S&P is going to go up. If money pours out,

the S&P is going to go down. If money pours into being long volatility, then volatility itself will go up. And if money pours into being short volatility, that in and of itself suppresses volatility. That's a bit of a simplification. There's a lot of options traders and dealers that that force that to happen. But that's basically the crux of it. All this money chasing short volatility itself suppresses volatility, which means that what does work? Well, growth works. Momentum certainly works.

Momentum is the lifeblood of the carry trade. Momentum means what worked yesterday is going to work tomorrow. So obviously, in this type of an environment, the momentum factor starts to do very, very well. The value factor does very poorly. And the growth factor does really, really well. What does that do?

Well, a couple things. But first of all, it means that the winners get bigger. There's no mean reversion. There's no realization or rationalization of the underlying fundamentals. And so big, the winners get bigger. What happens when the winners get bigger? Well, first of all, large cap outperforms small cap. That's also a huge deviation to 150 years of empirical data. Over the long term,

value is supposed to outperform and small cap is supposed to outperform. In these carry bubbles, exactly the opposite happens. Growth outperforms and large cap. And I think also the rise of ETF and passive investing has been a byproduct of this, because what do the passive ETFs own? Well, they own the index. What do the index own? It's all market cap weighted. So if your best stocks are the ones that are big and getting bigger, then the passive strategy

is the right strategy to use. Active management doesn't have a chance. Active management is betting on tomorrow looking different from today, being able to make a stock pick and be right and have that realized. And we have not been in that environment. And so we've seen this departure. And this has all been well documented in that book that I mentioned, The Rise of Kerry. But what we did is we said, well, you know, that corresponds really nicely to these periods of commodity undervaluation. And it makes sense, because in one of these worlds where you have cheap interest rate to help fund the debt side of this equation and low volatility, what do I want?

I probably want a stock that has huge long-dated cash flows, unbelievable growth stories, stuff that seems like so abstract and ephemeral because I have no volatility, so I don't mind projecting out 30 years, and I have no cost of capital. So that long-dated cash flow is going to be worth a lot. I don't want a 15-year copper mine that can pass on rising inflation. That means nothing to me. And so you see money just sucked out of the resource space and into tech, which we saw

in the 20s, 70s, and today, into large cap, which we've seen in those other periods. And we went back and we looked at the other commodity bear markets. They exhibit all of these peculiarities of these carry bubbles. So I think that what you're seeing is sort of the fourth carry bubble of the last 150 years. What it ends up with is it ends up with a hyperfinancialization, if you will, of stocks, of the economy. So if you look at the total stock, the S&P, or the total US market cap versus its GDP,

it's normally about 70 to 85% of GDP. In these carry bubbles, it becomes 200 plus percent. That's what we're seeing today. Private equity proliferates, all these things. So I think what you're seeing here is a manifestation of a much larger cycle that's all coming undone as we speak. Well it's a fabulous summary and I want to take people through this because it's so important and you noted here in your commentary the fourth quarter commentary that came out of March 7th you said as we reflected on the rise of carry became

evident that the commodity bear market as you just said is just one facet of this broader cycle, the carry regime. But they show how it, the bubbles permeate everything, right? Every asset class creates its own self-reinforcing, I put words in there, but a false sense of diversification. In reality, you say here, most investors have unwittingly doubled down on exposure unwittingly, because most people I don't think know they're exposed to it to the degree they are. No, I don't think anybody has a carry trade factor when they think through their portfolio.

They say, oh, I have stocks in Europe, Canada, I have private equity, I have different sectors. No one realizes that they all have the same exposure. So light bulbs went off, because I've been asking one question for over a year, and I ask it of a lot of people and Here in volatility was systematically suppressed. But what you just said this has bothered me to no end Adam This is the Russell 2000 small caps the Dow Jones, you know

industrials in the US S&P 500 which is the largest 500 companies the NASDAQ which is technologies the Nikkei which is Japan euro stocks 50 and then the German decks and they're almost identical They're almost identical. Does this explain this finally? Oh, I think I think I think it certainly does I think it certainly does we have you know an Unbelievable, you know to borrow kind of a trader's term We have an unbelievable common factor and you you know what's even scarier? Is that it's also in the bond market. You know, as interest rates went down and duration of bonds went up, it's also in the bond market. And that's why, you know, you go back to 2022,

the 60-40 portfolio did really badly, to put it mildly. You know, your expectations that bonds work when stocks don't, that doesn't work in a carry bubble because they're both being permeated by exactly the same trends and forces. And so I think that it's really, you know, been difficult for investors that think, again, that they're diversified. Look at the 2022, look at the first quarter of this year, you know, all the protection, the hedge funds that are supposed to offer this unbelievable, you know, holy grail of protection. You know, private equity, none of the things work because they all have latent, what I

would call latent carry exposure to them. The markets are unraveling and the stakes could not be higher. If you're relying on passive strategies or so-called diversification, or perhaps using an advisor who was, I don't know, maybe in elementary school during the great financial crisis, you could be on a collision course with staggering portfolio losses. Peak financial investing is your lifeline. We handpick wealth managers who will actively manage your portfolio with proven, market-savvy strategies, not the tired, modern

portfolio theory that could crumble under pressure. The unprepared will not just lose this time, but lose big. The future that I see consists of both winners and losers, but many more losers this time than last time. Go to peakfinancialinvesting.com today and schedule your free consultation. This is your chance to protect your wealth. Again, that's peakfinancialinvesting.com and I'm Dr. Chris Martenson urging you, please don't wait another day. Things do go to extremes and so you mentioned, you know, the Buffett indicator last I checked, it was 208%. Right. And so that's GDP into stock market value total capitalization.

But to put it in context, in 2000, that was 140%. Everybody agrees that was a ridiculous moment. Stocks didn't really have a huge bubble in 07. But I'm putting it out there right before the great financial crisis peaked out at just a little over 100% and about 105, but now it's at 208%. So this time has to be different, right? No, look, you know, again, it's a very unusual thing to have stocks be such a large percentage of GDP, but it happened in exactly these same moments, you know, 2969.99. And part of our keen, I think, interest in these larger macro long cycles was that we

had read how I think it was the, I think it's the Case-Schiller cyclically adjusted P-E ratio, or the earnings yield, the excess earnings yield, which is effectively just the inverse of that. And that made extremes in 29, 69, 99. And I think it was Jim Bianco who was reporting that. I said, it's not a coincidence that all of these things occur, these seminal moments of 29, 69, and 99. It's a feedback loop, as you put it.

And you begin to understand why it's a feedback loop because you know when you start to actually suppress the volatility of the market what you create is a very very strong feedback loop because of all those things that happen like big gets bigger right so if big outperforms it's hard to undo that it's hard to undo large cap outperforming if small cap outperformed it's somewhat self. If small cap outperformed, it's somewhat self-reinforcing because small cap stops being small cap at a certain point, right? If value outperforms, it has a natural limiter because it stops being value at some point. But if large cap and growth continue to outperform, it's effectively a feedback loop that can go on without end. And that's what happens in these periods because of cheap cost to capital and suppressed volatility.

And that's why I think of essentially, if you think about the trade, you say, well, what ends it? Well, if it's short volatility, if it works so long as yesterday looks like tomorrow, what ends it? Well, in a really dumb way, it ends when tomorrow doesn't look the same as yesterday. And that's the moment that we face today. Tomorrow doesn't look the same as yesterday. And that's the moment that we face today. Tomorrow is not looking the same as yesterday. I don't know exactly what form it takes.

But that trade, I think, is over. And that's why I think you see some fairly large investors that say, look, I don't think this might not be a buy the dip situation. I mean, look, it might be in the short term. I have no idea what happens in the short term. But it does strike me like when these things happen, you accrue a ton of debt in the system, you hyperfinancialize the economy, meaning pieces of paper representing value relative to GDP, which is the true economy, becomes really bloated.

And the only way to usually remedy that is by restructuring, restructuring the superstructure, which is what you did in 29, it's what you did in 69, 99. And it's what you're doing today. It's what the administration is looking to do today. And, frankly, it's what they've committed to saying they want to do today. So I think people definitely need to pay attention. In the last five or six years, we've been saying we're in the right zip code for one

of these changes, we're in the right kind of place on the map, the financial map for one of these major, major shocks and changes. But I think the difference is that we're seeing it as we speak. Well, look, the Trump administration did not create the carry trade and all these imbalances and these self-reinforcing cycles that perpetuated. And as a backdrop to that, Adam, one of my models is we had 1987 Greenspan says oh that's terrible let me put the Greenspan put under this then we had this 1994 corporate bond hiccup that was kind of light but it caused the Fed to really freak out and they did something wonky called the sweeps program which effectively

removed reserve requirements for banks and now they can make loans we get the roaring 90s long-term capital management okay it's a five billion bailout oh no two thousand Bernanke comes in. Next thing you know, we're at 880 billion, great financial crisis. Now we go to 2.4 trillion. And then there's this repo crisis in 2019. Thankfully for the Fed's purposes,

COVID came along, I hate to put it that way, but allowed them to now print 5 trillion on top of the 4.5. And so my sense of that, Adam, is that the Fed is steering a car in the slew I mean we're just like the wheels like we're really every turn of the wheel is larger and my question is doesn't it seem likely the next crisis the Fed's gonna have to double or triple its balance sheet again and I think that's what the by the dippers are hoping for yeah look you know again that's that's a the buy the dippers are hoping for. Yeah, look, you know

Again, that's that's a little bit of a you know, even and this is gonna get way too in the weeds likely for your listeners But even the buy the dip is effectively short volatility, right? Buy the dip right assumes that when you get a vault of vol move It's gonna revert back. You know, you're gonna get what you had again We know a couple weeks ago back and so then you want to buy that dip So I think that you know all that's really true in the regime the carry regime that we've had You're going to get what you had, again, a couple weeks ago back. And so then you want to buy that dip. So I think that all that's really true in the carry regime that we've had. The question is, is that what it looks like going forward? You certainly didn't want to buy the dips in 29.

You didn't want to buy the dips in the broad market from 68 all the way to 72, 73. The stock market went up through the 70s, but it didn't keep pace with inflation. You know, did you want to buy the dip in the 2000 bubbles? I mean, the 2000s are actually, I think, a really underappreciatedly complicated decade, because you had the dot-com collapse, 9-11 recession. You're coming just up from that in 2007. You had the GFC.

And so, like, it wasn't until, you know... And an activist Fed that's really starting to step in. Yeah, exactly. So it was a very complicated year. It sort of seems like it was a good decade, but there was a lot of turmoil throughout that decade as well. So, you know, will they have to raise a huge amount? Look, we're getting to the point, you could have made the case, you could have made the case from the 1990s, but certainly from the GFC, that all of this was unsustainable. And certainly lots of people, yourself, ourselves, you know, Jim Grant, Edward Chancellor and others have, you know, spent the better part of the last 15 years saying, this is crazy

and unsustainable, and yet on and on and on it went. Does that make them or us all wrong? I guess on some level, maybe yes on the timing. In practice, no. I think it's all we all know how it's going to end. But I think there's certain signs and indications that we're actually really getting to those last innings of that trade. And it comes from the idea like, go back kind of two years ago.

And you know, obviously, inflation expectations starting in 22 became a thing again for the first time in a long time. And Yellen and Frost had a huge amount of debt that they needed to place into the market. And they started to see the 10 and 30-year getaway from them. And so what did they do? I said, well, it's an easy fix. We're just going to issue only bills, and we're not going to issue any bonds anymore. So they stopped issuing 10 in 30 years and moved everything

to really short-dated maturities. It inverted the yield curve. I think that frankly explains why, like, everyone freaked out and panicked that we're going to have a recession that never really came is because it wasn't a yield curve inversion from normal market forces. It was a yield curve inversion because they just stopped issuing anything 10 years plus and just moved way, way, way short on the duration curve. So of course, that's going to invert the curve. But what it means is that you have a tremendous, a tremendous amount of debt that needs to be issued and rolled over on a much tighter timeline. And who's been buying that?

It's a very different buyer. And I'm not the first person to comment on these, but when you look at the longer end, that was traditionally the Fed and foreign central banks that were buying that and potentially immobilized capital like pension plans looking to offset long-term liabilities and things of that nature. And the short end of the curve is typically these money market

funds and retail money and and all of that the way that they put that trade on is the money market actually buys T-bill futures and then a hedge fund a relative value hedge fund that you might have read about in the press recently will will buy the Treasury they'll short the future to the money market fund, and they'll buy the physical treasury. They'll harvest a basis trade. They'll harvest a couple points off that basis trade. I mean, that is a quintessential carry trade. That is almost the definition of a carry trade, highly levered, like 40 to 50 times leverage

in those hedge funds in order to harvest a few basis points of difference between a physical treasury and a treasury futures. And that's where a lot of the action on the curve is happening. That's sucking up a huge amount of liquidity out of the banks, because they have to fund all the leverage for these hedge funds to do that trade. And that's why you saw, when Trump announced his tariffs more recently, that's why you saw that kind of basis trade unwind, because those guys started getting margin calls pretty severely. So look, all this to say, you are really out there.

You have broken the plumbing in this entire system because you are just issuing so much debt, not only so much debt because the deficits and debts are so long, but then you've compressed that, you're just rolling it all the time. It's like taking one credit card to pay off the other. So this is all getting, seems to be in its kind of last throes, and then you have an administration that's committed to changing things,

and I suspect, you know, one way or another, they're gonna get it done. I don't know if it's gonna be good or bad or otherwise, but I suspect they're gonna get it done. So let's turn to it's gonna be good or bad or otherwise, but I suspect they're gonna get it done. So let's turn to that, because I think setting this up is really important, and with all of that as background, this is what I've managed to harvest so far

about what I think the Mar-a-Lago Accords are, but please correct me if you have a different understanding or add to it. So A, they speak to some economic realignment, right? So tariffs are gonna be used as leverage. The tariffs, everything I'm some economic realignment, right? So tariffs are going to be used as leverage. The tariffs, everything I'm hearing about the tariffs, I'm interpreting them as pressure points to get what they really want out of this. Currency pegging, I've heard talk about that.

So that's going to be, the U.S. dollar is going to weaken. Now, the U.S. dollar is down close to 9% this year already, which is an effective off the books tariff, if you will, as far as I'm concerned. And then there's this debt swap mechanism. I've heard everything from maybe 100 year, 50 year paper, whatever. It's non marketable paper. It's offshore.

So these are other sovereign nations. They have these treasuries, zero coupon. These are huge changes right here, aren't they? Did I miss anything here? No, I think, look, I think those are basically, I suppose the other thing that's been bandied about is the idea of revaluing the Federal Reserve's gold holdings, which are now held on the books

and $42 an ounce. But no, these make up the broad strokes of what people are calling the Marilago Accords. I like what you put underneath that. This is all complete speculation. Now, it's almost double speculation, because the first speculation is whether this is what the administration wants.

And we've heard lots of people come out and say that Besson and Mirren sort of form this view. We've never heard from Besson and Mirren, of course, ourselves explicitly. But so there's the chance that the message is being muddied there. But I tend to think that this is largely close to what their desires are. Then, of course, they're... They mentioned the security payments. They want to have NATO and the rest of the world pay its fair share of keeping the trade lanes open. And then there's this global economic restructuring which is important to put in this context.

So the status quo gets replaced, a US-centric framework, and it's part of a fourth turning realignment. It looks like they understand that that's, like that we're at this moment, and you either steer it or it steers you. And I'm gonna call that the fourth turning, which I know you know plenty about. Yeah, I know look the fourth turning says that there are these moments in US history and English history before that where you

reestablished the order you kind of burned down the old institutions and you rebuild them typically as part of a crisis you obviously wouldn't do that when everything's going well and so the classic fourth turnings are the American Revolution the Civil War, World War II. And then, you know, Neil Howe and Strauss, when he was alive, said that starting in 2010 or so, you know, you would probably be in another one. It was 2005 or 2010.

I can't remember. But they wrote it in the early 90s. So it was a pretty good call. And that that would last sort of a generation. So to the late 20s, early 30s. Strauss is now dead. But Neil Howe has since said maybe cycles are getting longer than you would have expected.

So maybe it's the mid-2030s. And there's a reason for that, actually, is that a big part of it—and it's all kind of theories and stuff, but I tend to ascribe to it—is that part of the reason we keep making the same mistakes is that everyone with the collective memory dies. And so, you know, it's very uncommon to have octogenarian pluses in the Congress and Senate, whereas, you know, today that's not quite so rare. And so you have more of that collective wisdom. So perhaps the cycle got stretched a little bit. Whatever, 2005, 2010, 2025, 2035 ending, we're in a fourth turning now. It certainly seems that way in terms of looking at how people are looking to realign a lot

of these old established orders. So I think that that's a fairly good summary. Of course, we don't know for sure if that's what people—if that's what the administration is looking for. And we also don't know if Bessent and Mirren's views are what has the president's attention right now. You know, I think certainly, if you think about that Mar-a-Lago accord, tariffs play a role, and they play a role effectively at delineating who's in that accord and who's

out of it, right? So they're not punitive, they're just—they're a border. And so I think, you know—obviously, I wasn't in the room, but if I was pitching that to Donald Trump, I'd say, look, tariffs and borders, you know, these are stuff—these are things that really you like. And so here's this kind of US-centric view of the world. Again, reading the tea leaves, I have no idea. But it seems as though Navarro and Letnik took more of a tariffs-first approach, tariffs

for tariffs' sake, and really kind of took the oxygen out of the room in the sort of days leading up to the tariffs announcements. And, you know, there's all kinds of speculation as to, you know, in photographs, who is positioned next to who and stuff like that. So I don't know any of that, and I don't pretend to invest on the back of that or have it factor into my analysis. However, I do think it raises a true second speculation, which is, even if that is the view of a lot of people in the administration, is that what's driving the president right now?

So there's two areas. But again, that's where I try to step back and say, the details don't matter. What matters is that we're probably not going back to a period of low volatility. The genie is out of the bottle, I think, a little bit. What does the world look like? I don't know. But I suspect that if what you're looking for are those moments, those bottoms, those shifts, that we've just seen one. And I think it's early days now coming out. I'll tell you one thing that I wish we had done a better job at, or I had done a better job at in that essay. We spent a lot of time talking about changes in the monetary plumbing, monetary regime,

stuff like that. And if I had stopped to think about it, money in monetary plumbing is really just one half of a transaction. Money doesn't just flow around the world for nothing. It flows around the world as payment for what? For goods and services and securities, I suppose, but good stuff. And so a change in the monetary system necessarily involves a change in the trading system. And sure enough, if you go back to those seminal points, 29, 69 and 99, 29, 31 was Smooth You know, late 60s was the repeal of all those tariffs put

in place in the Depression and the Kennedy tariff reduction acts. And then 99 to 2001 was everyone joining the WTO. So if you look at kind of major changes in global trade policies and global trade alignments, you know, the three biggest changes corresponded to the three biggest changes in the monetary system, and they corresponded with the three biggest changes in Kerry regimes. And from where I'm perched, they coincided perfectly with the beginnings of commodity bull markets.

This is age of empires, right? Like things come, things go, regimes rise, they fall. You know, the dollar is dead, long live the dollar, is where we're at. So you said each of these proposed measures is designed to do one thing, it's reassert the dollar's dominance as the undisputed global reserve currency. And I heard privately that maybe Scott Bissett thinks that China was not as powerful as maybe I happen to think they are. And in response to all this, I wake up today, and so China just unveils a plan to promote

the use of the yuan in its own payment systems. I assume this is all in the context of sort of like tit for tat, you do this, we do that, but this seems like reactive territory. But the idea is to reassert the dollar's dominance in some way and really centralize it even if it's in a weaker state. China's saying maybe not so fast. How do you interpret that? China has a fundamental problem with its reserve, with its currency, is that it's a closed capital system. And you know China's

incredibly worried that if they open the renminbi and make it an open capital system you're gonna have huge capital flight out of the country. And I suspect you would. And quite honestly I think that kind of tells you all you need to know, right? I mean, you can't be the world reserve currency that everyone is happy to hold and transact in. If you open it up, and the first thing that everyone immediately does is flee your currency, that's not going to work. And I don't think that's a problem with how it's valued or its dynamics. I think that speaks to a more fundamental issue of control, command and control and things of that nature, is that if given the choice, you know, people wouldn't move to China and if given the choice, people wouldn't sell their dollars and hold renminbi.

They want to do exactly the opposite. And I think that's what a recentralization of the dollar really plays on. And you know, I'm Canadian by birth, but I lived here for a very, very long time. And I like that's what a recentralization of the dollar really plays on. And I'm Canadian by birth, but I've lived here for a very, very long time. And I like the United States. I don't think it's perfect by any means. But the truth of the matter is that the world does enjoy a lot of benefit from a U.S. hegemony and a U.S.-centric worldview. It enjoys open shipping lanes.

It enjoys sanctity of payment systems through Swift and through the U.S. dollar, and it basically enjoys a strong, stable central currency. Of course, you could say, well, it's so debt-fueled. It absolutely is. But if you look, the dollar has been very helpful to global trade. I don't think anyone can argue with that. There's problems on the horizon. And so I think taking a very, very, very kind view on some of these things, it's like saying, look, you know, you get all your allies together, you're like, you can't have it both ways. You can't enjoy all the benefits of the U.S. and then also sort of support some of some

of our challenges. And frankly, we're in a tough spot now from our balance sheet, and we need help. And if you said that, then perhaps everyone would go back and form committees and pontificate and think about it. But I don't know that you'd get any effective change. Instead, the strategy has been just

to pull the rug out from absolutely everyone and have everyone come to the table and negotiate deals. And if the deals involve, you know, terming out all your sovereign-held debt to 100-year zero coupon bond, which is effectively a default, right, if we go down that path, I mean, if you had to mark that to market, it's 10 cents on the dollar, probably less than that, frankly, but I read somewhere 10 cents on the dollar. So, you know, you'd buy that bond at 100.10 today that would pay off at par in 2021-25 in order to get a comparable return to a sovereign bond today, but you're going to sell it for

$0.00 on the dollar. So you're basically taking a 90% debt relief on all that. And of course, you pay no cash interest along the way, no refinancing risk. So, you know, it's the same system that we had several years ago. It's just requiring people to pay to play a little bit. Now, is that right? Is it wrong? Is it fly in the face of lots of years of global trade?

Yeah, absolutely. Will it work? I have absolutely no idea. Is it a change? Yeah, for sure it's a change. Well then, help me understand this. I'm a long time gold investor. I bought my first gold in 2001 at $301.05 ask me how I know because it used to go up and down by a nickel a day and I in the blue box

is from 2020 through 2024 gold's range bound you know basically 1600 and poking up at the 2000 mark but look what's been happening since 2024 early. That is a massive, massive increase from $2,000 to $3,300. This feels to me like a repricing. It's been as extreme as that is, Adam. It still feels fairly orderly. We're not moving up and down by $400 or $500 a day or anything like that. How are you interpreting this in the backdrop of what we're talking about?

Yeah, so look, I think what's been driving gold in the last couple of years has been mostly the central banks, central banks around the world, notably the BRICS countries. And that's why I started this by saying a couple of years back, we thought perhaps the BRICS countries would be the catalyst for monetary regime change. There's a lot of speculation that that that what they were looking to do was, again, getting back to that renminbi question, what do you do with a non-convertible currency that you want to be the global reserve currency? One idea was that you could sell your renminbi for gold.

So Chinese citizens couldn't do it, but foreign holders of renminbi could go to the Shanghai International Gold Exchange and buy gold. And, you know, ideally, China would price that so that you would first be incentivized to buy more Chinese goods and recycle those renminbi back into China, maybe weapons, who knows. And then if that doesn't work and there's still an imbalance, which there would be, you know, Brazil selling iron ore into China, there'd be an imbalance, You could net that out by going to the Shanghai International Gold Exchange.

And so the central banks are buying it. It started to happen right around the Russian invasion of Ukraine, and the US started to use the dollar system to freeze Russian assets and things like that. And I think there were certain countries adversarial to the US that said, well, this is the writings on the wall. I think there were some countries that weren't adversarial, but said, oh, on the margin, perhaps we should start to maybe diversify a little bit. And they started to do that.

So from 22 to 24, when real rates were rising in the West, Western investors played no part of it. In fact, they sold most of the gold to the central banks. It was all retail and institutional selling of gold out of the GDX and on the COMEX. You could watch the trends pretty clearly. And all of that flowed to the central banks around the world. And then starting in 2024, pretty recent, yeah, like the third quarter of 24, that's when we really started to see a bit of a change in the Western psyche and they started buying gold but they've been buying mostly the gold like the GDX, they have not, sorry, the GLD,

the gold physical ETF, they have not been buying the shares and the shares have been mostly orphaned for the last two or three years. And that's why a big gap has opened up between gold mining shares and gold price itself, which is now starting to come back, starting to close. You know, gold shares are done quite well this year. They still haven't caught up to where the gold price is on a couple of, you know, a two-year basis. But what's amazing is that investors are still liquidating all those gold share ETFs. Money is still flowing out of that, and yet the stocks are now going up and up. So yeah, I think it's been pretty orderly so far.

And I suspect, look, you know, gold will trade with tariff announcements in the short term, and if there's, you know, everyone's waiting for these 90 days to end. So if you ask me in the next 90 days, who knows? But if you look at longer term, you know, I think that people are realizing the benefit of gold, which is that it's an asset that sits kind of outside of the financial system. Yeah. Well, on April 1st this year, somebody opened and then stood for delivery for 46,365 futures contracts on comics. I heard it was you.

It might have been. I can't confirm or deny. But that's 11 billion. It was at that time, it was 10.9 billion. That's a whale. I mean, come on. I don't, you know, from the cheap seats, I have no other insights, but I will tell you that made my eyebrows shoot up because I have never seen a move like that before.

And that just told me that big money is moving around. It is and it is and you know there are some concerns also over tariffs and how gold would gold would fare during tariffs and there's a sort of elaborate thing where people you know big financial players were short gold in New York and long gold in London playing again kind of a carry trade. And they realized that tariffs might really make that trade difficult to settle or close out. And so they said, well, we'd better get gold into the U.S.

Now, it turns out that in order to take gold, physical gold that's being warehoused in London, and get it ready to be sold in the United States, it needs to pass through Switzerland to be smelted and reconverted into a different form. And in normal markets, it's not a difficult thing to do. It's pretty seamless. However, you know, when everyone tries to do it, there became a long lag, and it wasn't clear that you could get your gold through from London to Switzerland to New York before

the tariffs would come on. And so, you know, there's all kinds of, you kinds of crazy panics that sort of developed and stuff. Over time, that's all going to work itself out. But I think we're reasserting gold's role as a monetary asset to the largest extent it's been in some time. And gold's been a big stealth winner. I mean, gold's been the best performing asset class the last 20 years, and no one's really cared about it. And so this millennium, that's how i like to put it yeah exactly this is the gold millennium yes but but with that it seems like okay so there's so much is changing right now right so we have this carry trade the over hyper financialization all sort of at the tail ends of some policies and

and pressures and momentum trades. And there was this long period of deep stability that maybe is getting a little unstable. And so, as you said, you know, the carry regimes have a way of sustaining themselves. Well, until they don't, right? Okay. And then we also have this larger sweep of the United States was sort of at it, the some sort of a fiscal denouement. We couldn't, you know, everybody's starting to get uncomfortable that maybe you can't just

deficits don't matter debts don't matter as Cheney famously said maybe they do so maybe that's coming into the consciousness now and then Trump and company come along and say time for a global realignment all of that happens Adam I have to revisit this with you because to me it seems like there is a fly I'm not saying this is the only fly in the ointment. There's a fly in the ointment here. I want to revisit the depletion paradox which came out in your third quarter 2024. Everybody should read this. The headline buries the lead, you know copper and uranium, the coming divergence. The lead is down there as far as I'm concerned was the depletion paradox. You and I discussed this back in January.

I called it the US shale growth story is over. Very quickly, we're talking about oil. We're talking about US shale oil. You had a great piece in here which talked about the depletion paradox. Can you just take us through what is the depletion paradox? Sure, so the depletion paradox? Sure. So the depletion

paradox in short is that an oil field is going to roll over and hit its maximum sustained production rate when a lot of the remaining oil is still available in situ. That's the paradox part of it. And the reason it's a paradox is that everybody looks at an oil field and it starts to slow and roll over. First, its growth starts to slow, then it plateaus entirely, and then it begins to roll over. And people say, well, we want it to grow again. And the companies and the investors

and even the administrations that are all involved say, well, that shouldn't be a problem. Look, there's lots of great stuff out there. In some cases, they roll over 50%. We argue in the shales actually roll over closer to like 35% to 40%. So that means that, you know, for every well you've drilled, you have another well ready to go. And you've just drilled the first set of wells, the first half, if you will,

you know, and enjoyed unbelievable growth. So why would drilling the second half not provide a comparable amount of unbelievable growth? You have long runway to go. And the paradox comes from the fact that even when you have all that available inventory production rolls over. And of course, the reason is fairly intuitive when you think about it. It's that when you first start drilling the first batch of wells, there's no depletion, there's no underlying production. So everything that you drill is just new production. And the minute that a new well comes online,

it starts to decline. And so in the second year, you're gonna drill the same number of wells as in the first year. Let's say you get the same amount of new flush production from the new wells, right? But at the basin level, you're not going to have quite the same amount of growth because the year before, those wells have now declined, and so you have to offset this base decline.

And eventually, what begins to happen, and you can show this mathematically, if you had an unlimited number of wells and every well was the same as every other well, no changes in productivity, and you drilled a constant number of them every month, that production would peak. It would peak and it would sustain at a level. Why would it peak? Well, because if every month you're bringing on more than last month's decline, it would grow and then the decline would grow.

And if it still is bringing on more than last month's decline, it would grow until and then the decline would grow. And if it still is bringing on more than last month's decline, it would grow until eventually it's gonna hit an equilibrium and peak. Now what happens in a real oil field, of course, is that you don't have an unlimited number of wells, you have a certain number of wells, and not every well is as productive as every other well. And so what ends up happening more often than not

is you drill your best wells first, and then you start to move out to less good wells. And instead of hitting a sustainable peak forever, what you end up with is it peaks, plateaus, and rolls over. And it does that at a moment in time when there's actually still a lot of remaining inventory. And that's the paradox part of it. And so you can start to make some really good predictions as to when that's going to happen. It's a little bit of dark art and a lot of science, if you will. King Hubbard, who's a big shell geologist back in the 50s, used it to happen. It's a little bit of dark art and a lot of science, if you will. King Hubbard, who's a big shell geologist back in the 50s, used it to predict, he was the first,

he developed these tools and used them to predict that conventional US production would roll over 1970. It did. By 1971, 72, the administration said, well, this is enough, we're just going to incentivize the industry to drill more. They're going to get after it. They told us they have lots of good locations left to go.

They did have lots of good locations left to go. They increased their drilling by fourfold over the next eight years. And what did production do? It fell. It fell every year. And so the great project independence didn't come to pass and became a little bit of a laughing stock all the way till 2010 when the shale started to come online. The shales came online, delivered this huge abundant resource, really amazing.

No one had it in their models. It went from making the US this sort of declining, fading light in the global oil markets to the number one oil producer by a decent margin. And it created a decade of abundant, cheap, reliable energy in friendly hands, obviously. And that's all well and good, but no one stopped to say, well, wait a sec, are the shales at risk of doing the same thing? And it turns out that they are. And so we applied all the same tools.

We used our own deep neural networks to solve for a few pieces of key information in the analysis that were necessary to make an informed estimate, notably how big, what the total recoverable reserves of the shales were. And when we ran these deep neural networks, we got a number, we plugged it in, we made a few other interesting adjustments that are probably beyond the scope of this podcast, and we concluded that the problems that the different shale basins are experiencing today, they're not because of regulations, they're not because of prices even, they're because—they're

capital availability, they're because of geology. And that's really important, because here we are, and the administration has again called for, you know, drill-baby-drill, which is not really coming to pass, as we're, you know, only a few months in, but I don't think it will, because the issues are not political. They're geological. Nixon got it wrong in the early 70s, and I think Trump's getting it wrong today. And so that's where we are.

And what I think you're going to potentially allude to is some recent news developments now that seem to be on to this. Let me build that story, because this is important to me. So in 2020, the EIA does its annual energy outlook, EEO, and also does something called the short-term energy outlook, the STEO. I live by them. 2024, we didn't have one, so we have a gap in it.

But at any rate, they said in 2020, like, oh, by 2050, we're gonna have 13 million barrels a day, right? And they break it down by Gulf of Mexico, Alaska, and all the various shale basins and benches and all that. So that was cool. But basically they said, you know, it kind of hits a nominal peak in 2035 and then almost

barely wobbles down. That's all right. In the 2023 STEO, short-term energy energy outlook the reference case there in the center now This is a problem for me because I hate this when they do this They lumped everything in this is petroleum and other liquids and they didn't break out petroleum that year which bothers me So other liquids includes natural gas plant liquids Which is a big thing and it's associated with a name and butane and all that other stuff for anybody It's a weird thing because it's the only thing that's been growing recently.

Yeah, but even here, so with that it goes to 20 million barrels, that's why we're looking at 13 versus 20, because there's about seven of those things coming out of the ground, the natural gas plant liquids, blah blah. 2050, the reference case is flat, this is just flat, right? And then they've got some other scenarios in there, but their reference case is flat. This is just flat, right? And then they've got some other scenarios in there, but their reference case is flat. Oh, what a difference a couple of years makes. Now it's being reported that the STEO from this year, 2025, Reuters saying, U.S. oil production to peak,

let's not call that peak oil, that would be gauche. We'll call it a peak in production, I'm okay with that. 2027, as shale boom fades, they say, and then they said, oh, here's some bullet points, right? It's gonna, you know, the shale boom's over after 20 years, it peaks at 14 million barrels a day, they think, in 2027. Production's gonna fall rapidly, they say what does rapidly mean, 2030 to 2050?

Not really, they say it goes from 13 to about 11 That doesn't seem too rapid to me and oil demand is not going to surpass 2019 levels or 2005 levels, okay? That's what they say I Don't know what they're looking at because what I'm looking at and this is from HFI research We've had dead flat growth for two years Already We've had dead flat growth for two years already. Do we have to wait for 2027? Or can we say that two years is enough to say for some reason, maybe a depletion paradox kind of reason, we're already there. Yeah I think we are.

All of our models pointed to 2024 as being both the peak month and the peak year of production. I've grown very tired in recent years of people saying, you know, we've been saying since 2019 that 2024 would be the year. Okay, so we've never said that every year would be the year. We've said from then that 2024 would be the year. Between 2019 and 2024, every time we've had a new high, I get emails from people saying, well, I thought you said productions were only over.

I said, in 2024. Then 2024 comes and like April makes a new high by 20,000 barrels and people say, oh, I thought it was supposed to peak. It's like, guys, your chart I think shows it brilliantly. Production has stopped growing. We were used to getting a million and a half to as much as two million in one of the peak years, barrels per day, year on year growth. We haven't

had any crude oil growth now in basically two and a half, three years. And then obviously if you take the low point and the high point, but that is as clearly range bound to me as I can imagine. And oil prices have kind of been okay during that period of time too. You know, they've been volatile, but you didn't have, you know, 30, 40 dollar oil. You have basically kind of 60, 70 dollar oil. And again, if we didn't have a geological explanation for it, I might be less certain. But I always like predictions when they're made in advance. Everyone can attribute and make predictions after the fact. I like them when they're made in advance.

And so to sit in 2020 and say, based on all these differential equations and deep neural network models of reserve estimations, we expect that this whole thing is gonna flip from growth engine to plateau to rollover in 2023, and then plateau in four and rollover in five. And to see that happen gives me a lot of confidence that the model's right.

It doesn't mean the model's right. It could be lucky. But I think the more things that begin to happen. So I suspect it's going to be very, very difficult to grow. And I suspect that we're now seeing declines. So they say 2027, here we are in 2025. I don't know. I mean, I think that fundamentally,

we have a major, major change that's taking place imminently. I think it's been taking place for the last year, and I think it's taking place more aggressively now. What has changed a little bit is that investors would have used to care about stuff like this. And now I think it has to kind of hit them over the head before anyone seems to wake up and notice. That's my larger pointer because you made the point earlier on that growth takes precedence

over value. There's nothing more fundamentally valuable to me than money that comes out of the ground oil. And part of the reason for that, Adam, is that make of it what you will, but oil consumption and GDP are inextricably linked, right? And they have a very very high correlation And with 0.95 are squared so so guess what if you want more economic activity You're consuming more oil now which causes which and which is correlated with which I think I can make a case that if you're gonna

If you want your economy to be bigger You're gonna be having more trucks coming around and you're gonna be manufacturing more things and you're gonna be Making more fertilizer and doing sort of fossil fuel the intensive things so it makes sense to me intuitively But here's the data this is across every country out there that's consuming oil and it makes a very Decent line fact in terms of economic statistics doesn't get a lot better than this. No, it doesn't all the energy statistics actually No, it doesn't. All the energy statistics actually make economists very spoiled. There's very little else in the dismal science that has as strong correlations. And I really do think that GDP is energy in a different name. It's embodied energy. What is anything that we do? It's effectively converting energy. I mean, even the service economy, what we do is on some level, ingest energy, convert

it, move our, ingest energy, get fuel, move ourselves around, and then effectively run our brains to solve other issues. But everything is energy conversion of one form to another. Well, it is. And if you scratch at the AI story Which is a whole other thing out of the scope of this podcast, but you hit energy right away Like just as far as there's energy, right? so so in the reason I care about this though, I called it the fly in the ointment because

We have been net energy exporters for a little while mostly because of butaneane, ethane, and those natural gas plant liquids. Fine, China loves butane, so does Asia get it. But this looks to me like we're talking about this becoming actually part of contributing to the trade deficit, not minimizing it going forward. And I don't, from a narrative structure, I don't know who's ready for that. Well, I don't think anybody's ready for it. I mean, look, the administration, you know, this is one of the things that I find kind of interesting. Everyone talks about the trade deficit with Canada, and ex oil and gas, the US has a trade

surplus with Canada. And presumably, the United States wants Canada's oil and gas to keep oil and gas prices low. So yes, I think there's a lot of knock-on effects that people are not fully pricing in. You know, so so yes, I think there's a lot of knock-on effects that people are not fully pricing in and I think that you know the The switch particularly, you know, like you said on some of the liquids and then on the lng side You know, it's been a big change in the balance of payments for the united states and there's big expectations that lng exports ramp from here Although I think it's gonna be difficult to see where those molecules come from because shale gas is suffering exactly the same if not

worse problems than shale oil. Well, is it time, I want to ask you about Nat gas too because this is really important so when I look this is from April 1 but when I look at this chart I see that actually it looks like Nat gas is only 0.6 billion cubic feet per day higher than a year ago. Yeah, I mean I... And LNG exports are going like crazy and the Trump administration just like slapped on all Yeah, we're gonna just like we're gonna do a lot of LNG exports. These are billions of cubic feet per day

But if we're only adding point six per year No, exactly. Look you have two major sources of growth going forward here. You have new Gas-fired electricity demand in the United States, and you have LNG exports. Both of them are very, very audacious plans. They're very robust growth profiles. Both are effectively the fastest period, will be the fastest period of growth in their respective categories in U.S. history. Now, if you went back to the best shale years, then shale production growth could have met

that. OK? Year-on-year growth in shale could have met the year-on-year growth in AI data center, effectively demand, or gas-fired power demand and LNG demand. But we're not in that period anymore. We haven't grown in a number of years, and in fact, we're now declining. And that fact has been obscured for two years by warm winters. We didn't have a warm winter this year, an average winter.

And inventories are now low. So we had a bit of a buffer with high inventories, but those are low because demand is picking up. It's really, really strong. And if you talk to these guys, none of them are really concerned about where they're going to source the gas. You know, the list of their concern is a lot of things, but it's not where they're going to source the gas, including the only LNG export terminal that actually hedged their gas by buying assets in the Haynesville was Tallurian. And they fired the CEO of Tallurian, the guy who founded the company. And the first thing they did was to sell the Haynesville asset to get rid of that hedge.

So no one cares. No one cares. No one cares. And I don't know if those are the wet gas numbers or the dry gas numbers, but the dry gas numbers are even more stark. They show, you know, pretty sharp declines. And what's remarkable yet is that the individual shale basins, which of course we all know, that's the only thing that's been growing, the shale basins are all showing even bigger

growth. So I suspect that actually the gas production picture looks worse than it is now. Inventories are right and production's worse than it is. It's possible that demand's a little bit weaker than people have expected, right? Just to get those numbers to balance, I'll give you that. But if that's the case, we know demand's about to grow because they're adding all this new capacity.

So I think the whole thing is extremely bullish. And remember, U.S. natural gas today trades, let's see, it moves around so much, but it trades with a two-handle, down 12.5 cents today. It was a three-handle yesterday. So we're in the shoulder season. It's a time that's weak, but global prices are $13, and we pay here less than $3. So I think there's a lot of difficulty facing the American economy because of the energy situation going forward. In some ways, I suppose, we're better off than other countries that really don't have any resource. But is an aging resource that's now in the process of rolling over better than no resource at all?

Yeah, it probably is, but it's certainly not a growing asset anymore. Well, the United States is still a net importer of oil, right? So they've murked it up with petroleum and petroleum products, right? Which I don't agree with because they're not fungible, right? I'm not going to fill up my tank with butane this week and gasoline or diesel next week, right? So I don't't I object is an analyst but what I'm interested in Adam to round this out then so commodities commodities deeply undervalued so two things we're mentioning all these big pressures if

it's true that the United States wants to devalue the dollar as part of its redollar redollar ization program that would make all things equal commodities more expensive in dollars and then the second thing is if it turns out that the United States finds out oops we're short of oil and the depletion paradox is true and we're drilling like crazy but for weird reasons less is coming out of the ground not more this feels like a setup to me for a shock of some kind how How does that shock play? Against this chart would you suggest?

If that's a decent thesis Yeah, look, I think you're absolutely right and you know, certainly there were shocks in these other periods of time as well the 1970s were definitely a shock as an inflationary shock that lasted a decade. And people became absolutely enamored with commodities over that period of time. They went up a lot in price. The companies had a huge amount of earnings power because all that commodity price rise just fell straight to the bottom line. And so they were the only place to hide. Incidentally, what's really interesting, they were the only place to hide. Incidentally, what's really interesting, they were the only place to hide during the Depression

also. And part of the reason for that, obviously, gold stocks did well because Roosevelt revalued gold, but even copper and oil stocks did quite well because they were able to take lower operating costs with all the deflation, and then the raw material price held up better than you would expect because so little had been invested in it before. And so I think those are kind of the key takeaways, right, is that raw materials go through these cycles because they take a long time to come online and they have the price is set on the marginal unit.

So a small imbalance means a huge move in the price. So you have a small deficit, the price runs tenfold, companies have unbelievable profitability, it attracts investors and too much money comes in because it takes 10 years from when the investor comes in and gives the company money through a secondary or what have you until that mine comes online. So what does it mean? It means you overshoot the mark and then you have too much supply and prices collapse and the whole thing resets down to another low. So that's exactly, you know, we've been talking a lot about the macro and kind of the winds

of change and stuff like that. But from a fundamental basis, I mean, we're in that in spades. No one's invested in anything new for a really long time. Even the shales, no one's invested. You know, the heyday of the shale, shale spending remains far below its 2014 highs. That's 10 years ago, 11 years ago. We haven't been exploring for any new fields anywhere in the world. You know, there's been some work offshore, but the offshore assets are trading as though

offshore is going out of business. So we really like the offshore, incidentally, because of that. So yeah, we need to recapitalize this industry. We need to get money back in. We need to build out the next generation of that. So yeah, we need to recapitalize this industry. We need to get money back in. Now, we need to build out the next generation of projects. We have more people on the planet, not fewer. We're bringing people up their development curve at a pace that we've never done in human history. You know, we have—if you think about it, when a country is poor, less affluent, it doesn't consume a lot in the way of commodities. And when a country is very, very rich, it consumes a lot, but changes in the economy don't have a big impact because they're kind of saturated, if you will, although less than people expect, but still somewhat true.

And then in the middle, that's like, that's the sweet spot. So how many people are in the middle? More than have ever been by a factor of anywhere between 6 to 10. You know, normally you have 500 people in that middle part, the way we measure it. Today you have close to four billion people in the middle part. So demand is not going anywhere. In fact, it's going to continue to surprise to the upside. People that say 2019 was the high water mark in oil demand, I mean, that has already been shown to be complete bunk,

and I think will continue to surprise on a global basis. So you have this period where we need more stuff. We want to do AI so that we can all be more productive at work. That's going to require a tremendous amount of energy. And we're not investing enough in the supply base for any of these things. So the fundamental setup has been there. I mean, it's been there since we started the firm in 2016.

That's why we founded the firm, because we saw this huge, huge trough and an unbelievable dearth of capital spending, even at that point, and we saw a cycle that was setting up in front of us. Here we are 10 years on, no one seems to have gotten the message, no one has increased their capital spending,

energy is still 3% of the S&P. It used to be 15%. Bull markets used to end at 30%. We're not caring or intending for our natural resources base. We brought on a lot of stuff in the early part of the 2000s. And that has weighed on things. But that doesn't last forever. Depletion has taken hold across the board. So we need to recapitalize this industry.

And that's always been our view, and I think it's very true today. What's going to be the catalyst? Well, that's where you get into the macro. The catalyst tends to be these major shifts, and I think we're in one right now. So I think you have the setup, I think you have the catalyst,

and you certainly have the value. So I think it's going to be a very good time. And most importantly, again, you know, when people look at their brokerage statements, and they realize that all these assets that they thought were diversifying themselves that didn't, you know, this should be a space that exists a little bit outside the fray. You know, this has not been part of the carry trade. So I think there'll be some protection. You know, what causes what? Is it first people running for safety is it first people chasing

momentum and this I don't know, but I think this is something that will do very well through this new realignment. Very well said. Now I would encourage everybody please go and read this fourth quarter and the third quarter. I mean, just just bang up jobs. Really, Adam, a fantastic job there. So garing and Rosenweig, go check it out. And this one is on commodities, carry regimes and global changes in global monetary regimes. I think that's what we're in the midst of is a giant realignment. People have been smelling it. It creates a lot of nervousness.

I hear it's hard to get our arms around because nobody really quite knows what's happening. But hey, welcome to the world of complex systems. Things are going to merge. We're going to have to hedge our bets a little bit. But it makes a good thesis to me at least that the pendulum does swing from paper to things, right? So financialization to what I could call hard assets, right? Gold, oil, copper, uranium, two things you and I

didn't talk about today, but every time I dig at one of these stories, Adam, I find the same story. Like, we forgot to invest in this, didn't we? It's astonishing. I think there's a lot of truth to that, and I think that you're right, it creates a lot of nervousness with people, but the key is you gotta protect yourself a little bit.

And that way you can sleep well at night. You can either make it a tactical decision and kind of bet the farm. And I think that's probably a good decision too, honestly. But at the very least, you just need to protect yourself because there's a non-zero chance that we're in something that's a little bit more fundamental and structural in terms of a change. And a lot of the things that you think are going to help you might not. And so you need to think outside the box a little bit and hopefully this should be a space, this sector anyway, that can provide that.

That's right and if people want to find out more about you, your firm, your analysis, your fund, they go to gorosen.com, g-o-r-o-z-e-n.com. That's right. Excellent. Well, Adam, thank you so much for your time today. Awesome. This was really great. Yeah, wonderful talking to you as always. Hope to see you soon.