The Compound and Friends - Worse Than Enron

Episode Date: November 18, 2022

On episode 71 of The Compound and Friends, Gregor Macdonald joins Michael Batnick and Downtown Josh Brown to discuss the latest on the Sam Bankman-Fried saga, the inverted yield curve, electrification of the power grid, the growth of electric vehicles, peak oil, and much more! Today's podcast is presented by Liftoff® (liftoffinvest.com), an automated investment advisory service that is powered by Betterment. Liftoff® is a wholly owned entity of Ritholtz Wealth Management LLC. Ritholtz Wealth Management is a Registered Investment Advisor who receives fees from clients who invest in their Liftoff proprietary portfolios, which are not necessarily discussed in the commentary. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

That's baby making music. Okay. What are you listening to? It's the Ron Burns new line. Oh. Right? He said that. Yeah.

Yaz flute. It's been a while. You know, one of the biggest L's in my life, I didn't like Anchorman the first time I saw it. Seriously? Seriously. I didn't like Austin Powers the first time I saw it. Big, big L.

I didn't understand. But sometimes comedy, you have to watch it a second time. You know what I mean? I also think it could depend on how you watch it or where you watch it. Gregor has family in Park Slope. That's one of the things he's doing while he's here. Oh, nice. Very nice.

I'll tell you a funny story. My sister married an Israeli-American guy who grew up in both Israel and Manhattan. And he was just so anchored to Manhattan. Just his mentality was like... And when they got married, it was like 25 years ago, they were like, we need more space. Let's go to Brooklyn. And for him, it was this big come down, right? Yeah, yeah, yeah.

Right? And I toured their neighborhood. This was like in 1998. And I said, you two hit the jackpot. They're in Prospect Park West. Okay. Right. With like an old-

Brownstone? Oh. They had babies at the time? They were about to. About to. They're in Prospect Park West. Right. Like an old brownstone. They had babies at the time. They were about to. I said, you hit the jackpot and you are going to be so happy in 20 years. And he was like, rah, rah, rah. How did you know that? I wouldn't have guessed that. I wouldn't have guessed that Brooklyn would become

what it became. Because I'd been watching New York City real estate go through those cycles. I'd watched watching New York City real estate go through those cycles. I'd watched the – I mean people had already started. This is like – Boy, you're 35. Thank you. That's very kind of you.

Let's keep it that way. So you knew that Brooklyn was going to become like capital B Brooklyn? It was so obvious. It's right there. There's multiple subway lines and the housing stock was incredible. Brooklyn, if it were its own city, I guess only in the NBA do we consider it its own city. Yeah. But if it really were its own city, I think it would be like in the top 10 most populous.

How many people? Two million? Fourth. It would be the fourth largest city. Fourth? I believe so. That's incredible. Yeah.

Is it more people than Manhattan? No, no way. It's sort of like when you see the map of L.A. County. Two points. More people live in L.A. County. 2.6 million. More people live in L.A. County than like 28 states. Well, that I would believe because L.A. County is sprawling. 2.6 million people. Also, there are things being considered L.A. County that are not really in L.A.

Like I think Calabasas is considered Los Angeles. Okay, so Gregor's right. New York, 8.5. Los Angeles, 3.9. Chicago's right. New York, 8.5. Los Angeles, 3.9. Chicago, 2.7. Then Brooklyn. Then Houston, Texas. That's wild.

That's crazy. That's wild. I'm right on something. Let's remember this. I won't fact check you all episode, I promise. You can. You can. Dude, you have amazing stuff.

You have amazing stuff. So this is not the normal show that we do. You know shit that we don't, which is not saying much, but you really do. Well, we probably don't want to grind away at the listeners with dry numbers and so forth. And, of course, I work with this stuff so often, ironically, I can barely remember it. But I'll speak generally, and I do have some facts and figures. I've got my reading glasses on just because there are some charts. I was learning about the oil market and energy from you like 11 and 12 years ago.

I know. So I didn't really know. I still don't know anything, but I really didn't understand that market well at all. I always traded the stocks, but never really understood like the reality. And now it feels like this is probably going to be one of the biggest driving forces of the global economy over the next, over the rest of this decade

is like, who has energy? Where is it coming from? How will the transition impact every industry? Like, I really feel like your stuff is going to become way more important to people than it already has. So yeah, I think that there's been a whole bunch of people like me who were independent voices. And you see this in other areas too, right?

The independent voices sort and you see this in other areas too, right? The independent voices sort of made reporting better. And I think what you see now, the mainstream media covers energy so much better than it used to. I mean, the level of competence. Why do you think that is? Because they're listening to independent writers, researchers? Yes. It's because I think blogging, you know, starting a decade ago, just basically attracted a bunch of nerds and geeks to every topic under the sun. That makes sense because we saw that happen in technology. There are so many technology industry insiders writing blogs. So if you're a reporter, you have a lot of sources that you didn't used to have.

That's right. You know the clip where I think it was like Good Morning America or something, where the internet was being explained for the first time on television? It's still one of the most hilarious things you can watch. Nobody can really explain it. Yeah. So I think that really doesn't go on anymore, that kind of thing. So ironically, thanks to the internet.

Yep. So all right. Awesome. So I've been looking forward to this for a while. I am too. Yeah, man. And thanks for coming in. How long is that flight?

Thank you for having me. Short when you've got the wind behind you. OK. Four and three quarters. That's it? So yeah. Got into Newark at 630. Oh, wow.

And I took public transportation to my Airbnb. And people were like, Gregor, don't do that. And I said, well, I write about these things, so I try to take public transportation wherever I go. How did you take public transportation from Newark Airport to Brooklyn? Yes. You buy a single-ticket air train ticket to Newark's Penn Station. Then you switch to PATH.

to Newark's Penn Station. Then you switch to PATH. Okay. PATH to the WTC and Califia's wild white building there. Okay. And then the three to Grand Army Plaza, Brooklyn. Is your NAP involved at any point in the way

or are you on your guard the whole time? What's that like? Oh, you mean in terms of safety? I don't know. Yeah. Oh, it's totally fine. Yeah, all right. Totally fine.

I stopped taking subways a couple years ago. Did you? Yep. That surprises me. I won't go down. Did you experience something? No, I think it's just mainly reading about murders and assaults and random pushings. And I just said, you know what?

I don't statistically think this is going to happen to me. And maybe I'm probably not the most likely target of the people doing this, but I don't even want to think about it. So I do a lot of walking now instead. No, I mean, things have gotten a little dicey again. I mean, when we moved to Portland, it was a very sleepy place, and it's a little rougher around the edge at the moment.

I'll leave it at that. But you're smiling, so something tells me that you kind of like that edginess. Well, I sort of do, but I also think it's overstated, right? Of course it is. Everything's overstated. Everything's overstated, right? We live in click world now. Yeah, but I mean, I lived in Los Angeles during the Rodney King riots, and it was bad, but

it wasn't nearly as bad as the New York press made it out to be. You know, everyone's sitting over here looking 3,000 miles away. Wait a minute. Are you saying the New York press has an agenda? We live in click world, so almost everything sounds worse than it really is. True. So. The subway is pretty bad, though.

It is, right? I hate it. But doesn't Eric Adams, when he's finished with his nightclub tour Around 2am ride the subways for photo ops? Sure That's not helping? That's not making things a little safer? One day

Sunday Duncan how are we looking? We're good Alright Two What episode is this Nicole? Alright We're good. We're okay? All right. Two. Do it. What episode is this, Nicole? All right.

Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's podcast is presented by Liftoff, an automated investment advisory service that Josh, you know what I do every two weeks? Tell me what you do. I invest money into my account, my Liftoff account.

I buy index funds. I set it. I forget money into my account, my Liftoff account. I buy index funds. I set it. I forget it. I also do it for my two sons. So I was the first account on Liftoff set up for my kids and we're still adding to it every month. And I have to be honest, I do change the amounts

every month. I'm not always putting the same amount on. Wait, what? That makes no sense. You're not automated? I am automated, and then I go in there and I'll be like... Like if Justin was a dick, you'd take it down a little bit? No, I just feel like sometimes I feel like the market's come down a lot, and I'm like, maybe let me try

to put on more this month, that kind of thing. Well, when the market falls, not to brag, I just do an additional deposit. Anyway, we're talking about liftoffinvest.com, which is the platform that we built with Betterment that enables us to take on investments from anyone regardless of where they are in life.

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and Michael created these portfolios specifically for different goals. Listen, I make these portfolios for the American working man because that's what I am. Wait, what is that from? Tommy Boy. Okay. Oh, that's right.

Is that Callahan? Callahan Auto Parts. My God. So very much like Tommy Boy, we stand by our product. Nicole's rubbing her forehead. Do you have a lift-off account yet, Nicole? You're the target demo.

Come on, Tommy Boy before your time? Anyway, listen, if you're a fan of the show and you've wanted to invest alongside us and you said to yourself, well, I don't have a million bucks yet. That's okay. Go to liftoffinvest.com and get started or check it out for yourself.

And if you like what we've built and it's helping you plan out how you want to invest, why you're investing. It's getting long. Is it too long? All right. Cut his mic. Longest ad read ever. This is getting long. Is it too long? All right. Cut his mic. Longest ad read ever.

Liftoff, how do people get there? Liftoffinvest.com. Ladies and gentlemen, welcome to episode 71 of the best podcast in all of investing. Do I have that right, Duncan? Yeah. That's accurate? I think that's accurate. Good answer.

The best podcast in all of investing, The Compound and Friends. I've been looking forward to this particular episode for months now. I think that's accurate. and Gregor McDonald has been writing and researching on this topic for quite a while. We're so happy to have you. I wrote you an official intro. Can I read it? Go for it. Okay. Gregor McDonald is a journalist who covers climate and energy, has appeared in the Financial Times, Harvard Business Review, Business Insider, and many others. Gregor also releases a biweekly substack called The Gregor Letter that covers the economics of the global energy transition.

Gregor McDonald, welcome to the show. It is so great to be here. Very exciting. You see the crowd is going nuts already. I can hear that. I can feel it in my bones. So let me start with this. What is it like putting out research on Substack

versus the way that, I guess when I first became aware of your stuff, you were blogging like the rest of us. And now you're still blogging, but Substack is I guess the platform that everyone uses these days. I just have to tip my cap to the clever kids of Silicon Valley who have made publishing and monetizing publishing for people like me so much easier. Rewind the clock 10 years. for people like me, so much easier. Rewind the clock 10 years,

I was literally sending out individual emails with PDFs that people had purchased from me on PayPal, right? Yeah. And then there's a startup called Gumroad that basically would wrap that whole thing for you. You just upload the document, and while you're sleeping, the sales come in. And now Substack, I think, is really the next iteration of that and has made that even easier. Funny little background.

I actually found out about Substack because I interviewed the founder of Substack after he had shortly left Tesla. And I was working on an article about— Is that where he came from? Yes. I'd worked on an article about—he's a New Zealander. Did you know that? Yeah, he's a New Zealander. Yeah, he's a New Zealander. He'd been in marketing at Tesla. And I was getting background from him about autonomous vehicles, and what he thought about the progress of the technology was. And then about two

years later, three years later, he called me up. He said, Look, I'm thinking of starting this web publishing. And I was skeptical. And he said, I want to know what your experience is. What would your needs be? And so forth. How much did he invest? Yeah, he didn't offer that. He gave you a URL, though. Yeah, he did. Well, we're really lucky to have you here today. And I know we're going to get into a lot of energy stuff, and I'm really excited about that. But there's this obligatory thing that we have to do negative energy at the start of the podcast which is uh just to i think get ourselves up to speed with the latest on sam bankman freed and the bomb that keeps detonating uh i don't how much how closely are you paying attention to any of this stuff i know you're aware of it but like well you feel you feel that it's meaningful? My general view is I kind of hoped for crypto that it would merge this decade with use cases.

Like all the interest and the inflows and so forth, it seemed to be cresting at a time where if there was just a wide universe of use cases, you could finally have, you know, sort of a deliverance. Are you not familiar with Bored Apes? Yeah. The use case seems to be theft, but maybe that won't always be the case. There's Strike, right, which was the international, you know, money payments and so forth. That seemed kind of interesting to me. And now all I can really say is it seems to have missed its opportunity, unfortunately. Yeah.

I'm sure that every new industry historically at its dawn, there was so much potential opportunity that it attracted a lot of scam artists. I mean we know the history of like railroad bonds and the building of the canals and the way that was financed. We know there were manias and bubbles and crooks. So this is actually not that novel. I think what makes it novel is that it's all happening right before our eyes on the internet as opposed to in smoky back rooms.

Michael, what's the latest on whatever the hell is going on here? I don't know what time it is. I'm sure we're not up to speed on the latest by the time this comes out. This will have been stale, but this mother******'s still tweeting. Which is really remarkable. Do we have this tweet? Duncan, throw this up.

So he said, I mean, he's saying a lot of things, but one of the things that he said was roughly 25% of customer assets were withdrawn each day, around $4 billion. As it turned out, I was wrong. Leverage wasn't $5 billion.

Oh, my mistake. It was $13 billion. $13 billion leverage, total run of the bank, total collapse in asset value all at once, which is why you don't want that leverage. Somebody was tweeting about this. This guy is making it out to be a over-leveraged collapse a la LTCM when in reality, this is not leverage. You're Madoff. You're f***ing stealing people's money.

That's it. This is not leverage. It's theft. He needed 25 tweets to say all this stuff about, oh, I'm bad at math, blah, blah, blah. You took the money. Just say it. So you took the money. You used some of it.

You were giving people houses. I think what people want to – where's the money, Lebaska? Well, so what's new is he has a new term sheet. So he's trying to raise more money, which is inexplicable. He's not even at the company anymore. And FT wrote – because they were the ones that got their hands on this, they wrote, similar to the ad hoc FTX balance sheet revealed earlier this week,

the letter speaks of a shambolic attempt to save Sam Beckman for his empire. We're not going to go through everything in here, but it's just total inexplicable. It looks like he's on drugs. It's absolutely crazy. Last night, he's DMing a reporter from Vox, which it turns out today, he goes, those were off the record or whatever.

He's like, I thought I was DMing your friends. Like, dude, it's a journalist. What do you think? The only thing I could think of is this is setting up an insanity defense because he's saying like F the regulators and I didn't believe in altruism at all. And the Vox article, this guy who got the scoop, who was DMing with Sam wrote last night, Sam Bankman free DM me on Twitter. I think it's a lady. Okay. I'm sorry. Uh, typically people under investigation by both the securities and exchange commission and the department of justice don't return requests for comments, but Sam did. And she wrote

quote, the grief and pain he has caused is immense. And I came away from our conversation, conversation appalled by much of what he said. But if these mistakes haunted him, he largely didn't show it. So let's get into the conversation. She said, you said a lot of stuff about how you wanted to make regulations, just good ones. Was that pretty much just PR too? Sam said, there's no one really out there making sure good things happen and bad things don't. Usually there's only one toggle to do more or do less.

Yeah, just PR. F*** regulators. They make everything worse. They don't protect customers at all. Gregor, you have any thoughts? Gregor, what drugs do you think he's using? This sounds meth-y to me. My only thought is that I know we're not the only culture that does this, but we seem to be really good at creating spectacles like this.

It's sort of this rocket ship storyline to stardom and then the other – Like desperate for heroes. Oh, we made him – we turned him into something – I don't – yeah, it's not conscious. It's not conscious, but we have this – we have all the apparatus to convert what is maybe a startup into like the biggest thing ever and look at the celebrities and the stadium naming rights and so forth. If he was walking around in a suit and tie and glasses and was like very buttoned up, it would never have gone this far. I feel like the image was an image that everybody could agree on. Yeah, it was a counter.

It was interesting. Yes. To other Gen Z, Gen Y people, he looked like one of their friends. To the editors of Fortune and Forbes magazine, he looked like their grandson. And their grandsons were trading crypto. He looked like their grandson. And their grandsons were trading crypto. So I almost feel like the image was really perfect of like here's this guy who shakes in his chair and he hums and he's like not fully in control of his social – adapting to social cues.

But he's a genius and the story just gets repeated enough. They brought in this guy, John Ray. Wait, Josh, before we get there, just one last DM that I want to highlight. She said, you were really good at talking about ethics

for someone who kind of saw it all as a game with winners and losers. And he said, yeah, he, he. I had to be. It's what reputations are made of to some extent.

I feel bad for those who get f***ed by it. By this dumb game we woke Westerners play where we say all the right shibboleths and so everyone likes us. What? What? Yeah. So- Yeah, he, he, like he, he seems to not really give a shit at all that he robbed millions of customers of billions of dollars. He doesn't care at all.

Isn't it more likely that he's like having a psychic breakdown and like everything's out the window? It's very hard to wear a mask for long when you're under that amount of pressure. He took it off. He took off the mask. Duncan, are we over our F-bomb limit today? Not quite. Okay. Is it interesting that it's Michael and not me this time?

I kind of like that. Yeah. I like that energy Michael came into the room with. Yeah. This guy, John Ray, was brought into restructure. And John is the guy who was brought in in the Enron situation. And he actually – this is his quote. He wrote this.

I have over 40 years of legal and restructuring experience. I have been the chief restructuring officer or CEO in several of the largest corporate failures in history. in several of the largest corporate failures in history. I have supervised situations involving allegations of criminal activity and malfeasance, Enron in parentheses, blah, blah, blah, blah, blah. The point is, he said, this is the worst thing I've ever seen. It's worse than Enron.

And he then goes on to detail just the way money was haphazardly leaving accounts and there's no records. They didn't even know who really worked there. There was like real estate bought in the names of employees. So it's amazing how big it was and how easily it was able to fly under the radar of its investors and everyone else. Are you not that surprised by the fact that this was able to take place?

You know, I lived in London for about three years. And I would describe the culture of Britain as being much more perma-skeptical about everything, about everything under the sun. Versus America. America is really willing to, you know, let's take a ride. There's sort of a, let's take a joyride. We like cowboys. Yeah. Yeah. Yeah. Okay. Look at this org chart. It's very straightforward.

What's on this org chart? It's very straightforward. Boxes upon boxes upon boxes. Just what are these? All right, go on. I just, I think one of the differences though between not Sam Bankman Freed, but this moment compared to say like the dot dot-com era is that at least in the dot-com era, you were on the front edge of use cases, right, of something that was actually happening.

Yes. What's kind of interesting about this moment is what does FTX have or what does – they just have units. They just have units of account called coins. Where is the business opportunity? It's a wazzy. It's a woozy. The business opportunity is to take some of your coins and use them to get more coins. To get other coins.

Yeah, right. That's right. There's no point. It's too mindless for me. Yeah. So I'm one of these people that spent the last five years since I bought my first Bitcoin saying, somebody's going to figure something cool out with this tech. Okay, still, I still don't know what that might be.

Well, you could say the blockchain itself is pretty cool. Bitcoin never stopped functioning. For what is it cool for? For owning your own money. Like, not all of us have access to American dollars. So for people in foreign countries, it does make sense. Oh, I agree with that. That's a really tiny use case.

And that's not why venture capitalists are pouring billions of dollars. They also would have never had NBA Top Shot. That's true. What venture capitalist is sitting there saying, I can't wait to make so much money off Venezuelan emigres. 100%. Like that is not – I get that it works for them, but that's not what's going on.

I've never been dismissive about all the theorizing about what the use cases would be. Especially, you know, complicated contracts, right, that get rolled out with stages and series and so forth. I'm interested. I'm not close-minded. Okay. But as I was saying, we just, like, those things never landed. And I really thought they would, and they didn't.

Well, do you agree with me that this probably pushes any of that stuff back several years? It's really hard for me to picture talented people who are in college who might have a year ago been like, I can't wait to go into crypto. That's right. Now maybe applying for a job at Apple instead. Especially if you insert a recession or an extended period of weak growth into this, that just creates this valley, right? This valley where crypto won't be able to get out of its way. And then we'll see. It'll be more like emerging from the rubble situation, say, in 2024. I totally agree that they will have massive difficulty attracting new talent at this point. However, it's also true that they raised a lot of capital and there's still a lot of people that are very well-funded that are going to be –

You think so? Yeah. A lot of people who are very well-funded or a few? No, dude. There was – how many billions of dollars did VCs point to venture into crypto in the last two years? 40 billion? I'm making up. It was a big number.

I know, but how many hundreds of billions have we seen come out of the collective market cap of all of these protocols? That doesn't mean that the people aren't still building whatever they're building. The operative part being whatever they're building. Whatever they're building. All right, Gregor, I want to get your opinion on this as a journalist. People were really harsh on the New York Times

for a, I'm using air quotes, puff piece. Yeah, I saw that. I read the post, and I was kind of surprised by the reaction. First of all, the headline is how Sam Bankman Freed's crypto empire collapsed. That's a headline. What a puff piece. The first paragraph is this. In less than a week, the cryptocurrency billionaire Sam Bankman Freed went from industry leader to industry villain, lost most of his fortune, saw his $32 billion company plunge into bankruptcy and become the target investigations by the SEC and the Justice Department. And that's the opening. I mean, I read the rest.

It doesn't seem like a puff. I mean. People hate the New York Times, number one. Number two, people are mad because there were conspiracies that, oh, the only reason they're taking it easy on SBF is because he's going to appear at Andrew Ross Sorkin's deal book conference. Like some of the silliest thing. I didn't read it as being a puff piece. Maybe it just wasn't harsh enough given what was unfolding. Perhaps. However, however, so I was sort of surprised that people are piling on because I guess

the Times have been very critical of crypto and maybe they weren't harsh enough on Sam. I didn't read it that way. However, the Washington Post, the Washington Post wrote an article that was totally f***ing bizarre. The headline was, before FTX collapse, founder poured millions into pandemic prevention. I read the entire thing and it was beyond tone deaf. It focused all on his pandemic efforts in terms of raising money. It was so weird. That was a total – I don't know if puff piece is the right word.

It was so weird. What's the right way for the mainstream media to cover this? Well, so there was an idea gaining traction within the journalist community in the last month. The idea was that the New York Times historically has always taken a hostile posture towards the coverage of technology, sort of like overly skeptical and over-eager to find weaknesses and perhaps fraud or just BS and so forth. And then this article comes out, right, which seems to cut against that idea. I didn't read this. I didn't read this piece.

against that idea. I didn't read this piece. What I think is that I still think that some domain expertise is still needed in American journalism around a number of areas, energy being one of them. And as we, when we were talking before, I think the coverage of energy is vastly improved over the past 10 years, But there are still some domain expertise issues. One example that I think has been one of the biggest failures of the business and technology press is covering autonomous vehicles because I've covered autonomous vehicles. I've spoken to AV engineers who are in their labs at the University of Michigan and so forth

and Tesla people who had been at Tesla beforehand. And I've just concluded for several years now something very different than what the business press has concluded. The business press has been very sort of star-searching within autonomous vehicle technology, always dangling, always going along with the promise of. But I don't think the evidence has been there that full AV was anywhere close whether it was five years ago or two years ago or one year ago. And so whenever I see the listicle about who's going to get to AV first, I know that the journalist just isn't being serious with us. So it seems like the journalists, though, are very happy to be skeptical about anything Elon Musk does. Because full self-driving, I would say every week you read another article about how it's

never going to work. Oh, OK. That's good. So they do seem to be skeptical enough about certain people's efforts, I guess. Before we go into energy, one last thing that happened this week that I think is notable. Duncan, can we put this chart up? We had an inversion in the 10-year treasury and the three-month treasury. And this is the pair that Campbell Harvey looks at for his research.

This is the yield differential between the three-month and 10-year US treasury. The light gray shadings are recessions. As you can see, anytime we've gone below the zero point in this particular pair, a recession was not far into the future. This is from Axios. This part of the yield curve, the difference between yields on 10-year Treasuries and three-month bills has accurately predicted every U.S. recession since 1955. When it has gone below zero, you had a recession in the next two years. It actually went negative in 2019. And then you did have a recession in 2020, but mostly because of COVID. So we'll never know if we were actually going to have one.

I think it's, you know, it's one indicator. It's not the kind of thing that you want to bet your life on. However, it's never been wrong. So when you see something like that, what are your thoughts? Well, I've been concerned for renewable energy with the increase in interest rates because renewable energy has thrived for many reasons. But one of the ways in which it's thrived is in the low interest rate environment of the last 10 years. You can not only fund stuff, but the yield that you're offering, right? It's funny we're talking about yield after talking about crypto. The yield that renewable energy can offer to institutional investors or bundled up and so forth in investment products has been competitive in a low interest rate environment. And through this very difficult cycle,

not knowing myself quite how it turns out, I've been concerned about where interest rates are going. I'm less concerned now. I mean, my view, I was in team transitory last year. I raised my hand. I was wrong. But I'm still very skeptical about any sort of secular change to a higher interest rate world because I take the view that there are bigger wheels that have been turning for a long time in demographics and technology, automation, and now energy. Those things are disinflationary. They are. They are disinflationary. If you believe that their impact will be as great as some. Yes. And what we just showed is we can fight off those big wheels for a year or two, maybe another year.

I don't think we can fight them off for a decade. So you think it's inevitable that we'll return back to the path of disinflationary pressure coming from – I do. I'm very firm on that. So let's set the table. This is you. Quote, we're in the third historic energy transition of the past 250 years. They're all unique with different implications, but our current transition breaks with the past in that it breaks with combustion.

Coal, oil, natural gas, all very powerful but not so efficient. All transitions have something in common, however. The world chooses better, faster, cheaper every time. This time is no different. Tell me, tell me what you, tell me what you perceive as where we are and where we're going. Yeah. So, um, so combustion is very powerful, uh, liquid energy, which comes in the form of oil, uh, transform the world. Uh, it, it oil, the oil age essentially starts oil age essentially starts, I place it start right after the Great Depression. As a sign for how dependent the world was on coal, coal was the energy source that got the biggest smackdown in the Great Depression. It got smacked down for 9%. In fact, oil smacked down during the

pandemic got smacked down for 9%. So now you're in the oil age, right? So what's unique about this particular energy transition is that the other energy transitions were about going to ever more powerful energy resources. So when you went from wood or biomass to coal, you got like a 3x or a 4x multiplier. That's how you get the industrial revolution. Exactly, exactly. And let me just put a sticky note here. We might want to talk about this further.

No coal, no industrial revolution. Intellectual revolutions, academic revolutions, social revolutions. You can have all the revolutions you want, but not an industrial revolution without coal okay okay what's unique about this is that wind and solar are not powerful energy resources like coal and oil are what do you mean by define powerful powerful is energy density being contained within you know a unit of oil like a barrel or a box full of coal. That contains very dense energy, right? Wind and solar are not like that. You can't capture wind.

You can utilize it, but you can't put it in a barrel. Well, what solar technology is and what wind technology are, are in fact capturing devices. They're just capturing devices. That's all they are. They basically are erected so that you can grab the energy and convert it to electricity. Again, each individual windmill, each individual solar panel is not powerful. The thing is, is that we can manufacture them, and we can manufacture them at scale. And every time you start manufacturing something, its cost goes down.

My 16-year-old son is taking AP Economics, and I joke with him. I said, the first gasoline-powered lawnmower is the most expensive lawnmower that was ever developed. You know, and 50 years later, your dad goes out and gets a new Toro push mower for 225 bucks, and it's like a miracle, right? So that's what's happening with wind and solar. The other unique thing about wind and solar is that once you erect the energy capturing devices, you're done. So in wind and solar, your capex is huge. But it should fall. But your opex is minuscule. In coal, your capex is notable, but your opex is crushing. And so right now, one of the problems that coal is facing globally is not the price of coal, the actual chunks of coal.

It's the cost of the infrastructure. It's trying to like build it and maintain it. So, you know, we'll get into this a little bit more. But between the lines here, the eradication of global energy poverty, you know, is a lot of it is done through electricity rather than petrol. And wind and solar are now the cheapest ways to get – to go from zero to one. If you've got nothing. If you just have a completely undeveloped country, you can get going with solar panels. So I'm invested in a company called NextEra Energy.

Sure. So NextEra Energy is Sure. So NextEra Energy is like two companies in one. It owns Florida Power and Light, which is one of the largest utilities in the country. But then the other half of the business, they are the biggest generator of wind energy in the world. And I think one of the biggest generators of solar energy in the world. And they are not only generating that for their own sales, but I think they're also helping other companies develop. But they're not, I don't think that that is a story that's repeated all over the stock.

There are very few profitable large-scale generators of, and I know Berkshire Hathaway is on the list, and I know several of the other utilities are a little bit more forward-leaning. But the argument is always like, okay, but this isn't going to move the needle. Like we still are going to need fossil fuels for the foreseeable future no matter what happens. So just on NEE, is it New Era Energy? Should I sell it?

I'm not making it. Okay, all right. I own it too. No, you got it. NEE. You should. I own it, too. No, you got it. N-E-E. You should. I own it, too. Yeah.

I own it, too, but I'm not expecting huge future capital gains on it. I'm looking – it's more of a stability part of my portfolio. It's a 2% yield. They're growing the dividend every year for 26 years. What interests me is their forays into storage. They've got the biggest battery storage in Florida, And I think the more that they do that, the more they leverage their resources. Because remember, the way to leverage your wind assets

or your solar assets is through storage. So you're banking that electricity. Now, you did just raise probably the biggest question of all about even though we're scaling wind and solar, we still need fossil fuel energy. That tension, if we talked for five hours today, that tension would keep coming up over and over again. No matter how bullish you are on renewables, they can't be center stage in this decade.

Well, center stage is sort of a— Duncan's going to get upset. He's a serious tree hugger. Yeah. Center stage is a tricky idea. I think, Josh, what we want to focus on is growth. Okay. Okay. Let's focus on growth because what's happening with fossil fuels right now is that they're in the process of converting to the demand for fossil fuels. Well, the IEA says that demand for fossil fuels is going to peak this decade. Based on what? Demographics? Or renewables? Yes, it's based on renewables, and it's based on efficiency, and it's based on technology and so

forth. Well, the cars are way more efficient than they were 30 years ago. That's right. But as I've sent you guys some of the material, the word peak is generally misunderstood as implying decline. And that's not what I'm calling for. I'm calling for more of an oscillating plateau, for example, in oil, for example. But all the growth is going to be in renewables. Now, we could get into other areas and talk about areas where renewables aren't going to make as much progress. Like what? Industrial processes, steelmaking, things of that kind. It's going to be very difficult to

get renewables to make progress in those areas. That's more of a job for hydrogen, and that gets into a very complicated... I have a question about energy storage that you mentioned. Do you have a grid-level solution you think is most promising right now? Like, I've read about vanadium, zinc, kinetic batteries. Right. So, the grid-level standard right now in storage is about four hours, four-hour lithium-ion batteries. These are big boxes of lithium ion batteries, and you would get about four hours out of them. If you want eight hours, you build two of them. If you want 12, you build three of them. But people are searching for other

types of low-cost solutions like iron oxide. Okay, maybe you've heard of that, right? So we're not at the point where storage is the limiting factor on the growth of renewables. And Josh, one way to really clean up a lot of the thinking about this is renewables have their biggest use case within electricity. Right. Within electricity. Once you step outside of the world of electricity, renewables face myriad challenges. So like a hydroelectric dam you're talking about. Correct. That's a great use case.

You set up your situation where there's, what, a river? Right. Or a waterfall? That's right. And you generate electricity, and the water keeps coming, and the electricity continues to generate. And you put the electricity into electric vehicles, not just passenger vehicles, but

FedEx delivery vans and trucks and London buses and New York City buses. And you can see now you've got this very smooth distribution channel by which to distribute clean energy. Where things get stickier and where things are not going to make as much progress is in international aviation and so forth and other, the petrochemical complex. So petrochemical complex would be a good example of where oil use is just going to extend out beyond the end of our lives. And in fact, the petrochemical complex is going to wind up serving the clean energy world. So, material science is-

Gregor, if you take 20% of all of the energy use of the utilities and the industrial processes that you talked about, and if you took like 20% of that, let's just say, and had that coming from renewables, would that move the needle in terms of what we think petrochemicals and fossil fuels are doing to the ecology, the environment, or not really? Would that be enough? No. Let me tell you why I asked that question,

because I think you'd be a good person, maybe make me feel better about all of this. Sure. I was listening to a podcast and he's not an energy expert. Like Carlson? No, close. Actually close. This kid, Ben Shapiro, who's like – he's kind of like an alt-right guy but he was on the Lex Friedman show, which is one of my favorite podcasts.

favorite podcasts. And Lex was asking about like his views on the environment and why he's so stridently opposed to, you know, anything that seems like it wants to help. And his answer is we can't prevent anthropogenic global warming no matter what. So what we really should be doing is trying to figure out a solution for when, for when it's, it's, you know, because it's already too late. Okay. That sounds very nihilistic to me, but I've never really read anything that would convince me that we can really do anything about it. Unless we like all agree to just freeze our economy and not drive anymore. No one's going to do that.

Yeah, so the inventory of emissions that began with the Industrial Revolution, we can't do much about that. That's something that happened. So the question is what can we do going forward? The first task is to get the consumption of fossil fuels to stop growing. The second task is to get the consumption of fossil fuels into decline. In many domains around the world, the use of fossil fuels in electricity is now declining.

So there is a model for how we proceed. So don't lose heart. It's also the case that even if we do really well on our current course, we're still going to experience the damaging effects of rising temperatures and rising sea levels. No matter what. That's already baked in the cake. It's just not quite baked in the cake to the extent that Ben Shapiro might be suggesting. Okay. It's not quite that.

But it's interesting. I'm amazed that talk radio is now talking about renewable energy and electric vehicles and electrification. Why? Well, I just never thought these fairly dry issues would come down to, you know, would come down to that level. But, you know, when you had the blackouts in California, which echo the blackouts in Texas, right, which echo, you know, I think that's how it gets into the bloodstream of the conversation and so forth. And we should talk today a little bit about, you know, some of those facts and realities around EV and electricity and so forth. You know, I sent you a chart, you know, one of the points I want to make today is that we're, whether it's China or Europe or the United States, all those three domains are creating new electricity on an annual basis from new wind and solar on an annual basis.

This is electricity that didn't exist before that far outpaces the amount of new demand coming onto the grid from electric vehicles. Now, that's not saying much about the United States where our electric vehicle adoption isn't that great yet. But China, which is going to put about six and a half million electric vehicles on the road this year out of a 25 million unit vehicle market, that's huge. But they're creating so much new wind and solar, it completely dwarfs, you know, this new demand that's coming onto the grid. But that will have other uses. It will have other uses, but I just want to make a point. It looks to me as though we can create power for electric vehicles faster than we can develop the marginal barrel of oil anywhere in the world to fund a whole bunch of new internal

combustion engine vehicles coming on, you engine vehicles coming onto the road. I said to someone the other day, imagine if instead of putting six new million EV on the road this year in China's 25 million unit market, it was putting none. It was just straight internal combustion engine vehicles on the road this year. You're just locking in future oil demand every time you do that. So I really encourage people to take seriously the electricity, transportation, EV portion of this. And yes, in a general sense, Josh, those other energy uses that will be harder to dislodge. That's a problem. There are theorized and working solutions for them. The problem is scaling those solutions. The Chinese EV market is going to be much bigger than our EV market eventually. And in terms of like the share of vehicles sold,

it's already way ahead of us. That's right. Do you think it was brilliant of Elon Musk to come out as a Republican and maybe stoke interest in places like Texas in his electric cars? Like, is that a thing that could, is that a thing that could actually work? So we've seen a couple of examples of what I call this playing against type. Cause you know, everyone knows that Texas is an oil and gas giant of the world. Actually, Texas is a wind giant of the world. Texas is on the global scale of wind. Texas now gets 28% of its electricity from wind and solar. It's really mostly wind with a little solar on the side. California is similar, about 28 heading to 30%. it's mostly solar with some wind wind on the side and you know we may talk about this today that too changes the efficiency of electric vehicles if you have an

electric vehicle that's plugging in in houston versus an electric vehicle that's plugging in in cleveland on a systemic analysis basis that electric electric vehicle is significantly more efficient than the one up in Cleveland because the grid it's plugging into is also getting rid of combustion. Right. So you're getting it both ways. Correct. This is you. You said you can't do energy transition by just going to war against the incumbent energy

sources. Instead, you have to build new. Buckminster Fuller was credited with this basic idea. I personally waste no time fighting pipelines, big oil, or trying to find out, quote, what Exxon knew. Sure, I want to do something about the existing car fleet, but that's different. And you've been saying this for a long time

because we've got a tweet from you back to 2010. We're going to need a lot of oil to get off oil. Talk a little bit about that idea and why maybe some of the war over current use of oil is unproductive energy. Exactly. Exactly. So renewable energy and fighting climate change is an infrastructure project, right? This is why you're actually seeing a clash. I grew up in New England, right? So you've got, well, I go to a cocktail party. Where'd you go? You're from Maine?

I'm from Duxbury, Massachusetts. Oh, Massachusetts. Yeah, so I go to a cocktail party in Duxbury, Massachusetts. Everyone's been a Democrat their entire lives. They all want to do something about climate change. They all are angry at Republicans and blah, blah, blah, blah, blah.

I'm like, great. Let's build some transmission lines. Let's build some offshore. Let's build some offshore wind. Let's build some solar. Oh, but, you know, the hemming and the hawing starts, right? So, you know, back to the idea there is because energy transition is an infrastructure project, it means that environmentalists who cut their teeth during the 1960s and 1970s who got used to the idea of build nothing. That's the way to help the environment. If you're an environmentalist today, build a lot is what you should be saying.

And what is the construction fuel for building a lot of infrastructure? Still oil. Oil. Yeah. Still oil. Oil. Yeah. Petroleum. Right. Caterpillar. Caterpillar, you know, steel.

Right. In fact, within wind and solar industries, they talk about it as putting steel in the ground. And that gets back to what I was saying before. Your capex is huge because you're putting all this steel in the ground. Then your oPEX drops. So who are the ones that are funding these projects?

Are these like profitable, productive investments for the end dollar? Of course. Of course, because let's say you're LA Department of Water and Power, and you say we've got a projection for population growth for Los Angeles County, and we need this amount of more terawatt hours of power over the next 30 years. Let's consider, should we build a new natural gas plant, a new coal plant? Should we pipe in natural gas fired power from a neighbor, or should we build wind and solar? And invariably, whether it's LA Department of Water and Power, or whether it's other entities around the world, governments, they're just building wind and solar. And part of the reason why you've had this cost crash in solar in particular is how fast it gets built.

I mean, as you guys know, the faster you can make a machine that's going to make you money, then you start getting paid back. That just completely transforms your ROI calculations. What's the part that they sped up? The solar cell itself or the infrastructure around it? It's actually deploying. So I think we got to – there's a utility-scale solar project in India called Kamuthi. And it was one of the big ones that was built when Modi came to power. And Modi – remember, Modi pledged – I know he's controversial, but he pledged to do something about India's energy poverty and getting Indians connected to the power grid.

And when Kamuthi was built, big utility-scale solar plant, it was erected in less than a year. And a light bulb went off for me, and I said, holy crap. off for me. And I said, holy crap, this completely changes the traditional equation of building expensive infrastructure in emerging markets or developing countries, because now you can actually use a resource that they have, which is a lot of people. You get a lot of people, labor, to build that. So that's what's happened. I've sat in on corporate presentations for utility companies in the Pacific Northwest. They're running sophisticated Monte Carlo software simulations, right? And it's like, should we stick with all our coal? Should we mix in natural gas?

Should we close our coal? Should we add some wind and solar? And as the cost of wind and solar went down, every time they ran the model, you know what the answer was. Gregor, have you heard of this company? Uh, Helium? Helion. No. So we had, uh, we had the chief business officer on, he's a finance guy, but he happens to work in this, at this company and they're building fusion, uh, which I'm not quite sure exactly what that means, but they're doing it. What are your thoughts?

They're pushing atoms together to create electricity. He says that they're going to be able to plug a light bulb – power a light bulb for 14 seconds or something with their latest whatever. I don't know anything about the science. I'll take it from there. I'm not ignoring fusion, but I'm not spending time on it until I need to. Okay. Okay. I think that's – It's too far out.

Yeah. Okay. Yeah. When you hear the debates on Wall Street, and increasingly it's a regulatory debate about ESG and greenwashing, a regulatory debate about ESG and greenwashing. Is this a good use of time and energy on the part of investors to try to figure out what to put their money into and what not because it's going to have an impact? Or is this more about people making themselves feel better

but not really accomplishing a lot? What's your view on the worthwhile, like whether or not any of this is worthwhile thinking about as an investor? I had a girlfriend 30 years ago, and she was investing in a socially conscious fund, right? This is like in the 90s or something. Sure. And what I noticed about the fund is mostly just technology. Before ESG, we had SRI, which is socially responsible investing.

It's technology. Yeah. Right. I just think that you have to be – I don't think you can just wrap this stuff up in a manila envelope and put a letter on it and call it something. I think you have to pick stocks within these sectors. I actually think it's worse than that, though. You look at the degree to which we underinvested in energy because of flows.

These stocks became less than 1% of the S&P 500. And part of the reason for that is they were being excluded from the portfolios, institutional portfolios, just refused to own these companies. And there was very little investment being done. And then we come to a point where it's like, oh, my God, we really need to have been investing in much more of this. So I kind of have a different view. I kind of have a different view. I kind of have a different view. The storyline for me starts in a different place and it cuts a different path through all this. To me, ESG is more noise. Not that it is noise, but to me, it's more noise. What I see is that the super

majors began to think about the future growth prospects of oil as early as 2013, 14, 15. And what's quantifiable is that the supermajors – and I'm referring to BP and Exxon and so forth. They really slowed down their investing. And in my view, the reason they did that was they noticed that the rate of annual consumption growth in oil was much slower this century than it was in the 20th century. In the 20th century, you want a new unit of global GDP, you got to use a new unit of oil, right? I mean, it just, the linkage was so strong. And it's not that anymore. It's not that anymore. What was investing in oil and gas companies like between 2014 and 2020?

Terrible. It was terrible. But it's not just because of ESG. It's because there wasn't that much growth. And the price wasn't great. Why wasn't there growth? Well, because the rate of what was happening was the rate of demand growth had slowed enough that the industry could easily meet that demand growth on an annual basis. In the 20th century, you've got growth is leaping, spiking,

you know, it's always surprising you to the upside. Not this century. So it took the pandemic for the independents to join in with this idea. And in this update that I've done to my little ebook called Oil Fall, I've said that oil is now somewhat in a standoff. It's somewhat in a trap. You've got slow growth and lots of knowledge about slow growth in the future. And the industry sees that too. And the industry is like, I'm no fool. I'm not going to go create 10x, you know, the number of marginal barrels that may be needed. I'm going to keep it closer. I'm going to keep it much closer. So I don't, you could just erase ESG today and forget about Greta Thunberg. And we're not going back to a time when the oil industry is going to overproduce and overinvest and make sure that we have the cheapest possible barrel of oil.

That's not going to happen. Here in 2022, so we get the Russian invasion of Ukraine in February combined with all of these issues with supply chains, et cetera. And the whole world comes back online at once. Exactly. And you've got people traveling. Exactly. Okay. So that all happens at once. And the price of oil back online at once. Exactly. And you've got people traveling. Exactly. Okay.

So that all happens at once and the price of oil spikes and stays high. And all of a sudden, the S&P 500 components that are energy start to outperform everything else. And I think the oil sector is up 65% on the year and no other sector is positive this year. And you've got CEOs at these companies and CFOs looking at each other and saying, let's just, let's just rake this in.

Like, why would we want to ruin our margins by starting to drill again? Exactly. Why would we do that? And look at Saudi Arabia. Saudi Arabia. By the way, they haven't had a higher, they haven't had rising stock prices in seven years. They're like, let's just enjoy the moment. XLE is still below 2014 levels. It's kind of crazy.

Right. I'm so glad you brought that up. Even after this one. I'm so glad you brought that up. Now, I don't think MBS is as smart and sophisticated as his predecessors. MBS is Malcolm Jamal Warner from The Cosby Show, right? Who are we talking about? MBS is Saudi Arabia. Oh, the- The prince.

The prince, yeah. I don't think he's as sophisticated as his predecessors. I think that Saudi Arabia both created itself as a central bank and enjoyed its role as a central bank of oil. And during this pandemic and during the recovery, al-Naimi would have been easing. He wouldn't have been tightening. He wouldn't have been easing. So this whole theater we had with Biden and MBS and OPEC and so forth, I think that OPEC understands this as well. You've got to lean towards keeping it in the ground rather than leaning towards getting it out of the ground and monetizing it and then going and doing something else with the money. I think the whole posture of whether it's OPEC or the Western oil companies has changed, and I think it's changed permanently. During the last decade, there was a substantial crash in the price of oil, 2015, 2016.

Right. And that looked like a standoff. That looked like it was, let's say, OPEC versus the shell frackers in the United States. And they basically said, we're going to bankrupt these guys. And they seem to have succeeded. Maybe not bankrupting everyone, but certainly stopping that oversupply from hitting the market. It was like a financial war a little bit, right? Okay. But you're saying that now things are the other way around. Okay. And how long will they stay that way? I mean, surely someone will come along and say, I am happy to supply this market with as much oil as it wants.

Right, there's sort of a game theory about that. You sneak, right? You're always sneaking. Who would that have been? Like maybe Venezuela? It would have been an OPEC member who would have said, okay, yeah, I agree, guys. It's all great to see you here in Vienna at this OPEC meeting. Then they run back home and overproduce to take care of the – to take advantage of the higher prices.

I really think that that's – I really think that that's over now. It must be pointed out that global oil demand is still sitting below the 2019 high. Not a lot below the 2019 high, but it's still sitting there. How is that measured? How is it measured? Barrels. Barrels purchased. It can be measured in barrels or it can be measured in exajoules

or any other heat unit like BTU and so forth. And the forecast is that maybe it gets a little closer to the 2019 high next year. But as I've said, my forecast is we have entered what would be called an oscillating plateau. And we've got an array of forces that keep the world dependent on oil. And we have an array of forces that are eroding the future, any future growth possibility. So it's not a seesaw where all of a sudden one group is up. It's more like, we keep saying standoff, but that's really what it sounds like. That's right. How long could that persist for?

Could that go on for a decade? Well, look, so I like coal as a model. So coal peak, global coal demand peaked in 2013, 2014. I'll never forget that. All right. All right. A lot of the coal industry went bankrupt. Right.

How many times has Peabody gone bankrupt? I've lost count. I remember like James River. Those stocks were tradable in like 05, 06. And then they were all zero. Remember the ETF KOL? Yes.

We all do. So global coal consumption peaked in 2013, 2014. You're going to like this model. And then it gently drifted down over the next seven years. And during that time, there were price spikes. For coal. For coal.

Like periodic bursts. Of course. Why? Because no one's – who wants to invest? That's right. Right? So it wasn't – Greta Thunberg didn't do that. And ESG didn't do that.

That was just plain old – Natural gas is better. Yeah, natural gas is better. Cheaper. And so is wind and solar. Yeah. Right. And then last year when we had the, or this year, last year and this year, when we had the problems with energy spikes and so forth, when people couldn't get natural gas or they couldn't get enough LNG, they went back to coal, and 2021 global coal demand almost got back to 2014.

But it was so situational. It was situational, but that's my model. That is the phase that I believe oil has now entered. So what makes that precipitous decline start? It's got to be the amount of battery-powered cars on the road that are being powered by utilities that are electrified from vehicles. Cars are the biggest source of – I like to think of it as like a disease that's growing within a tree and the tree is still standing. It just keeps on standing.

Even the disease keeps growing inside the tree. But to Michael's point, it's cars though, right? Yeah, it's cars and electrification. Okay. That's right. Okay. But you do foresee a time where we actually start to fall off and not just stay at that plateau. It's just not right away.

It's not right away. I give it at least five years. Why is China so far ahead of us in terms of their electric vehicles? Because they had a social event in the early part of last decade where the populace became extremely angry about air pollution. And the leadership took that very seriously and said, we're going to do something about air pollution. And they started – they didn't cancel their existing coal plants and they didn't tear them down, but they stopped using them as much, and they went berserk into wind and solar and berserk into electric vehicles. Right. Right.

and berserk into electric vehicles. Right. Right. And they're even like, they're hosting Elon Musk and the Shanghai plant. And I think they're half of Tesla's profits. Sure. Are coming from there.

It's a really important market. Do you take what Mary Barra at GM and what Ford Motors and all of the other big OEMs, do you take them at their word that by 2030, they will not be selling any internal combustion engines? No. They're all saying that though, right? No. And I think they mean well, but I've looked very carefully at the big picture and the intricate picture of how difficult it is for an existing automobile maker that has all of its memory, industrial memory with the ICE platform, trying to get to the EV platform.

Let me just tell you a little story about that. So in early 2021, Volkswagen, we woke up one day and Volkswagen had gone to a Swedish battery maker called Northvolt. They basically bought out all their current production, all their future production, gave them a ton of money to build even more capacity, and bought that out as well. In other words- Who did this? Volkswagen. Oh, the Germans are crazy.

Volkswagen, sorry, I mentioned. So Volkswagen went to Northvolt. So essentially what Volkswagen did is they basically subsumed the near future of Northvolt into themselves. Yeah. Okay. In the history of automaking, the burden or the responsibility of the automaker was simply to provide an empty fuel tank and the proper gas lines that would go to the engine. The burden and the responsibility has shifted enormously. Now you actually have to install a power plant inside of the vehicle before you roll it off the lot. That basically shifts an enormous amount of intellectual property, manufacturing capacity, and so forth. And so I think that Mary Barra means well, but GM has only done a little bit of what Volkswagen did. Volkswagen showed you,

if you're going to do this, you have to be so bold and so aggressive, right, you know, to get there. Again, in this little e-book that I just updated called Oil Fall, I have a chapter in this e-book. I have a section in each chapter called What Could Go Wrong. All right. Here's my greatest concern about what could go wrong about everything that we're talking about. It's not lithium supply. It's battery production capacity. I'm just not convinced that we're going to be able to keep scaling on the current course that we're on. Like gigafactories. Yes, after 2025 because it's not just the automobile industry that wants batteries. It's the home market wants batteries.

Commercial buildings want batteries. We need grid batteries. Why isn't that a bullish opportunity? Don't you think we'll build batteries? Oh, it's a bullish opportunity on the investment side. And who's got the battery capacity? China has a ton. Tesla has a ton. Yeah. All right. Is that a big part of the valuation of Tesla? Yeah. I don't like to comment about Tesla's share price or its valuation. You're worried about your mentions? I'm worried about my mentions.

I don't blame you. Yeah. Yeah. A couple of years ago, I suggested Tesla might be better off if Musk stepped back and they got a new CEO. I know what happened. Somebody threatened to kidnap you. Yeah, pretty much. Yeah. So yeah, I think Tesla, people should recognize that Tesla is important in this regard for the capacity that it's built up because Tesla wasns already have into internal combustion, it's not the kind of thing that you could just flip a switch and turn it off, even if you want to. But are you generally bullish that a lot of these automakers, not like individual stocks per se,

but we have had a bunch of electric vehicle companies come public. Is there going to be room for the new companies and the old companies that are transitioning? Do we have too many people working on this and not enough concentration into the best ideas? What's your sense? Because 2020 and 2021 were incredible years for capital formation. A lot of people got money. Well, as you previously pointed out, with every new technology wave, we sort of have to overdo it in order to get it right. You can't underdo it and get it right. Because you don't know who's going to get it right.

Yeah, exactly. Okay. Yeah, so I do think that there's room. I also think that the curve or the ramp that you're going to see Ford and GM go through is just a lot slower. GM go through is just a lot slower. Ford's kind of interesting because I actually think Ford held back and waited much longer to see what everyone else would do. And then they did a clever thing. They said, look, let's think about taking our most popular vehicle, which is America's most popular vehicle. Ford F-150. That's right. And let's think about making that electric. So in a way, instead of like going all electric or saying by 2030, blah, blah, blah,

blah, blah, they just went, you know, the product route. And that looks kind of clever. It looks clever to me. Yeah. They don't have enough battery production capacity to fulfill demand. Gregor, what are some of like the political ramifications of all of this? Because I know there's like a political hot topic. Are there rebates or incentives or like what goes on there? Yeah. So can I answer your question from the biggest level? No. Yes. First? Of course. So the 20th century was very much about creating global supply chains and sourcing the cheapest thing or the best thing from someplace else and then shipping it elsewhere. And energy was a big part of that. I mean, the global trade in oil was an interesting way to define the 20th century. Renewable energy is, you know, inherently, intrinsically—

It's local. It's local. You're not moving solar power. Right. No. So I think that that's one thing that everyone should really, you know, should really think about. I mean, here in the United States, if you look at the data on the amount of energy we export, because we're an energy exporter now on a net. Which only really happened in the last 10 years, right? That's right. It happened in the last 10 years. And

some things we export a lot of and some things we don't export a lot of. But because the United States now gets 12% of its electricity from wind and solar, that means natural gas and coal that we used to use to make electricity, it frees that up for export. So you've had – the energy balance of the United States has changed radically since 2000. Let me hit you with another stock then. I'm in Chenier Energy, LNG. Right. And they are the – I think there's two or three companies that are publicly traded, but they're the big one that are – they're basically turning natural gas into a liquid, loading it up on a barge, sending it to Asia, sending it to now Europe. Europe doesn't have the terminals to take a lot of it in.

So a lot of these – They're building more terminals. But that takes like a decade, right? Is that ever going to be a bigger business do you think? Oh, no. I don't want to interrupt you, but it's happening faster than I would have thought. Like we've got terminals coming online I think in southern Europe and northern Europe pretty quickly now. So it leaves Louisiana, right?

It leaves out of the Gulf of Mexico from the terminal and it goes to Spain. Like where does it, where do the Europeans take that liquid natural gas from? I haven't looked at a map recently, but it's UK, Spain, Portugal, Poland, the North coast, Germany, and so forth. If this thing with Russia becomes another cold war, then that becomes something that we're going to need to do a lot more of. Absolutely. In fact, when Australia was the first to dump a lot of money into LNG export capacity and then we got going during the Obama administration, 2013, 2014, and we're really ramping. And there's a lot of criticism about how expensive LNG is

and you can never make money off of it. Well, look, here we are, man. That's right. I saw that natural gas prices have fallen back below where they were prior to the invasion of Ukraine in Europe. So everyone filled up their reserves. Everyone knew that this was going to be a winter where they couldn't rely on those pipelines. And so they're like fully supplied for at least this

winter. But that's probably not sustainable if we have to go into another winter this way. I agree. So you think this is a theme that if you're thinking about investing, this is a theme that has legs beyond just the current situation. So there's natural gas growth opportunities in this situation and in other situations, especially in emerging markets. Yeah. Because remember when I said that solar is the fastest way to go from zero to one, to go from no electricity to some electricity?

Yeah. As you develop, though, you're going to need a couple of natural gas plants, right, to stabilize that grid so that you can mount a grid so that you have something to work, you know, so that you have something to work with. I would be careful about making a big natural gas, global natural gas growth story based on Europe because what Europe will do is they will start taking other actions like deploying storage and heat pumps to more permanently reduce their overall energy consumption. Right.

Okay. I wanted to ask you, so this is, you wrote this, many people have wrapped energy transition in political butcher paper, but don't do that to yourself. Just face up to the facts. An EV takes 70 percent less energy to go one mile down the road versus an internal combustion engine vehicle. Solar is the cheapest new power on the planet, and part of what makes it cheap is speed of construction. cheapest speed of construction. Stop shouting at the clouds. The learning rate marches onward and now has even reached offshore wind power, which even the optimists didn't see coming. Is your message that we'll be fine on electricity? The real argument is like where it's going to come

from. And most people are underestimating our ability to drive costs lower. Yes. our ability to drive costs lower? Yes. To my mind, as someone who's followed this so intensely for a decade, it feels weird because I look at the data and I look at the growth rates. Internal combustion engine growth is over. It ended in 2017 globally, that ice sales peak. We're not going back to ice. We will still sell ice, right?

China's going to sell 20 million units this year. They're going to sell less next year and less the year after that. There isn't going to be a comeback. And so it's kind of eerie to me because it's so clear that we're – it's not that we're going to do it. It's that we're already doing it. I mean the world is getting almost 10 percent of its electricity now from wind and solar. It came up from nothing, you know, like not that long ago. And domains like California, UK, and so forth are all at 30 percent.

So, yeah, that's why I say stop arguing with the facts. If you're arguing against renewable energy today, it's sort of like you're standing in Manchester, England in the 1800s, saying the coal age will never happen. Yeah, we're going to have oxes. Yeah, we're going to have oxes and wood chips to run everything forever.

They had steam maybe back then too. Yes. I want to do some of your charts. Michael, Duncan, you have these charts? And wood chips to run everything forever. They had steam maybe back then too. Yes. Right. I want to do some of your charts. Michael, you have – Duncan, you have these charts? All right. Let's go to wind and solar electricity generation growth in China versus demand growth from new on-road EV. Oh, this is so important.

So tell us what you're showing us here. First, I'll give you the big picture. Tell us what you're showing us here. First, I'll give you the big picture. What you're seeing here is that a country called China every year is able to create so much new electricity from wind and solar that it completely drowns out the new demand that comes on to Chinese roads from the vehicles that came on those roads that year. So in 2017, they sold X number of vehicles that represented 2.72 new terawatt hours of electricity that was needed, and China created 115 terawatts just from wind and solar, okay? And you just go right down the chart to 2021. The exact same chart, it looks roughly like this for Europe, and it looks like this for us now because we're not selling as many electric vehicles. Now, when the United States starts to sell electric vehicles, we better get our ass in gear.

It seems as though we're selling as many as can be made. Yes, exactly. This is not the Nissan Leaf. When they make a Ford F-150 electric, they can't keep them in stock. They're gone. So it is happening. We just can't do it fast enough. That's right. You know what I think they should do?

Bigger cup holders. Maybe like Yosemite sand mud flaps. Stuff Americans really like. So I want to look at this next one. Global light-duty vehicle sales in millions. Yep. Internal combustion engine versus plug-in. My projections here are really not far off what you'll hear from other researchers like Bloomberg, New Energy Finance, and so forth.

I think something that's kind of interesting to talk about here is for venture capitalists, understand this. Once your new technology or product gets 5% market share, you take off. Before 5%, you're just in a valley of slow growth and things are plodding along very slowly. But look at what happens globally in 2020, 2019, 2020, and 2021. We crossed the 5% share level and now we're taking off. And again, you can see the peak in ice sales in 2017. What is that? Somewhere around 88 million units.

You have to give all of the credit for this to Elon Musk, right? No, we don't need to give all of the credit. No, no, no, no. I'm saying the 2020, 2021, 2022, they're buying Teslas. Oh, yeah, they're buying Teslas, but it's China. That's really, it's really China. China's in the pandemic. China's got slow growth and they're still buying electric vehicles in China.

So that's how you can get the share price up. Let's do one more. You mentioned that you're a nuclear proponent. I am. I don't, my personal opinion, I don't think it's ever going to take off in the country because I think it's just a pun intended nuclear topic. And it's hard to imagine any politician having the will to make this something that they want to seriously carry as a banner. I could be wrong. I'm just giving you the layperson's take. Let me say two things. Tell us what's in here. Let me say two things.

The first will be supportive of the idea that nuclear doesn't have much of a future. The second thing will be, let's consider about changing that a little bit. Okay. Nuclear has a social safety perception problem. Big time. That problem translates into costs. Okay? The higher your society perceives that the thing you want to build is dangerous or unsafe, you're basically adding years and millions, if not billions of dollars and time to try to get something off the ground. Lobbying, research studies. Delays, permitting, community feedback, and so forth. That's why you see that global nuclear power has not grown in 20 years. Look at that. 2,581 terawatt hours in 2000, 2,800 terawatt hours in 2021.

France built them, then they stopped. The US built them, then they stopped. Other parts of Europe built them. Then they stopped. Right. All right. Let me ask you a question. Would you move to a town that had a nuclear power plant in it? No.

Okay. Michael, would you move to a town that had a nuclear power plant in it? No. I saw Chernobyl. Even if it was Springfield from the Simpsons? Like probably none of us would. So not existing nuclear power that was built in the 70s. Like probably none of us would.

So not existing nuclear power that was built in the 70s. Now you show me some newer innovative nuclear power and I might reconsider. Can it be powered by the blockchain? Wait, does the town have a Wendy's? Yeah, is there a Wendy's in the town? From a cost standpoint, isn't nuclear way more expensive than solar and wind to bring online? It is. I want to get – can I put a sticky note on that? So now let's just go to the other part? It is. I want to get, can I? Yes. Can I put a sticky note on that? So now let's just go to the other part of the chart.

So now here's a technology where you don't have social friction and where you have costs coming down. Everybody's cool with wind as long as they don't have to look at the propeller. That's right. And everybody's cool with solar as long as they don't have to put it on their own roof.

Right, exactly. Right. So look at that. Look at the grand upsweep, right? So wind and solar have a positive learning rate. In other words, the costs come down over the years. Nuclear can never get its costs down. And that's to Duncan's, and that's to Duncan's point. Right. All right. Why should we as a society change our mind about that? Because think about how much you could leverage and maximize the success we had with wind and solar and that we're having if you would just build a little bit of nuclear.

Just build some, right? You don't have to plaster the place with nuclear the way France did when they started out or the way we did. Just build some new nuclear. So here's a typical American attitude. But where? I'm fine with nuclear. Just do it in Georgia. Don't do it in New York. So why don't we?

Well, because Georgia says no. But there are other parts of the country that are not as populated. What part of the country do you think nuclear has the best chance of seeing a new plant being built? Wyoming strikes me as a possibility. Maybe parts of Wyoming and Utah. Because it's like more cows than people. Yeah. I mean, I just drove through the Southwest, as I was telling you, on a bike trip. I mean, Nevada would certainly be a possibility because you see all those states are actually getting into gear to build the latest and greatest transmission lines to send wind power to Los Angeles and the population centers. So they're already saying, hey, we're a sparsely populated state.

You can build a crap ton of wind power here. So why not some nuclear? If you put a nuclear power plant, how far can it be from population that it powers? Can it be 10 miles away, 20 miles away? Yeah, so it can actually be some distance. And then the question are the line losses as you transmit the electricity. But we're already transmitting electricity over long distances. Yes, there are losses, which is a hit to efficiency.

But we can deploy new high-voltage transmission technology, which is in development. We're getting a high-transmission voltage line from wind power sources up on the eastern part of the Columbia River down to Portland. So the farther away you are, the less power? The more line losses you have. So does the blockchain fix this? No. It does the blockchain fix this? No. What the blockchain would fix is it could distribute the dividends from some of these projects and make sure everyone gets their check correctly. So if you – all right. But we both agree it's probably unlikely that there's going to be a huge shift in public perception anytime soon, at least in America.

That's right. And with the wind and solar going the way it is, it's just going to keep, it's just going to ease off any pressure that people are going to feel for that. In fact, I think, in fact, I think big box storage has a much better chance of being built near population centers than, than nuclear. Big box storage, meaning big batteries. Yep. Big batteries for a big four-hour facility and then another four-hour facility. Everybody likes batteries. I like big batteries and I cannot lie. Just the word battery sounds better than nuclear. But by the way, like when you see – you turn on the news and you see the invasion of Ukraine and you see that Russia is basically indiscriminately bombing things from the sky or sending missiles from the ground.

And there is concern that they're going to hit, quote, hit the largest nuclear power plant in Europe, which happens to be in Ukraine. This is where the power, not that we think Russia is going to start bombing us, but that's where the paranoia comes from, is if you live near that, you're not just under a normal threat of terrorism or something, but you're like facing down a nuclear bomb nearby. So you can actually quantify these risks. I think there's a guy named Charles Perrault who wrote a book called Normal Accidents or

something. He has a nice matrix in which he puts all sorts of industrial accidents on this, like airplane crashes, chemical spills, nuclear stuff. And unfortunately for nuclear, nuclear really does have this wide boundary risk, this boundary that extends out much farther. We saw that with Chernobyl. Exactly. And it's just very challenging and difficult to bring the boundary of that risk in. If we could bring the boundary in, then maybe we might get some perception changes. But the social hurdle – Fukushima.

This is just like – it makes it very tough. There's a stock, Cameco. You probably know it. Sure. It's a CJ. That's like the nuclear play. And if and when this ever were to change, that would be the way to play it. But it just seems like it's not.

But just back to Duncan's point, yes, Duncan, you just run a standard investment return on building a new solar plant versus building a new nuclear plant. And it's just going to be really tough to get the kind of payback that you would get from the solar plant with the nuclear plant because of that upfront cost. So that's a tough thing. See, like, as I said before, solar has a big upfront cost, but then the OPEX, you know, crashes. Nuclear has a big upfront cost, and then it still has a big, you know, OPEX cost, you know, going forward. But if you think about nuclear as like one nuclear plant nested in this vast inventory of wind and solar, right, you know, you can start to say, okay, now we've got, you know, some versatility in the system, right? Now we've got like a little

nuclear plant in the, you know, nested in there. And now you've got some reliability and you're getting some value for how you invest it. Gregor McDonald, ladies and gentlemen. Did you have fun today? I had a great time. Yeah? All right. We're going to do this thing? I had a great time. Yeah? All right. We're going to do this thing where we always end the show with favorites. All right. And I know you gave us a good one, and I want to get into that.

So you want to talk about Vikings, which I also watched. And is that over? They had a spinoff of it? Okay. It ended. Like how many seasons was that? Five? At least five.

Yeah. I loved it. I did too. Okay. What did you like about it i thought it was a very stoic uh depiction of pre-industrial life and it showed what it was like for people who don't have vast energy resources they've just got you know wood and so forth it showed what it was like for them to go and encounter other cultures. And, you know, of course, in the case of the Vikings, they brutalized early Anglo-Saxon culture. But I

loved seeing what the limitations were. You're in a world of wind. You're in a world of wood. You're in a world of bravery in many respects. But they still found a way to kill. So that's the important thing. They still found a way to kill. Despite all of those challenges, they were still able to – fathers could kill their sons. Yes, exactly. Wives could kill their husbands.

It was great. Exactly. I watched that. So they made that for the History Channel originally. Yes. I think it was the first thing that the History Channel did to try to actually entertain people beyond conspiracy theory shows and alien shows. I thought it was pretty good.

You ever watch that? Could I just say one more thing about it? Yeah. You see, before fossil fuel energy, you've got to – conquest is about getting land. You've got to go conquer soil to get productivity because you can't get productivity from some other place. That's what happened with the Industrial Revolution.

There's no machinery that you can run in that world. You just have to grow more food to feed more people. That's right. So that was a big change. I thought that was a good show. What do you got for favorites for us this week? I listened to a really good podcast this week called The Compound of Friends with Warren Pies.

Oh, you liked that one? It was great. It was a pretty good show. Yeah. Okay. That's all you got for us? Michael does our show every week. It's his favorite. You had a tough week. I've been off the TV. Let's be honest. You were in Vegas. Have you recovered yet from Vegas? Mostly. You want to give us any spots

in Vegas? What a city. Are you a Vegas guy? Could you see yourself going there from Vegas? Mostly. You want to give us any spots in Vegas that – What a city. Are you a Vegas guy? Could you see yourself going there every year? Yeah. Really? Yeah, because I love betting. I love sports.

I love gambling. The sports book. Okay. Where did you stay this time? I'm Jam Park. Was it good? Yeah, it was great. Okay.

Eat anywhere good? Did you sleep at all? Yeah. Okay. All right. Michael's able to go on trips without his wife. I don't really know what that's like. That's my first one ever.

Really? Yeah. Okay. I don't really know what that's like. I wanted to mention Chamath on the Lex. I talked about Lex Friedman before. For whatever reason, I end up listening to all of his shows now. Do you know who he is?

Chamath? Lex Friedman. Do you know that podcast shows now do you know who he is? Shamath Lex Friedman do you know that podcast? I think I know who he is he's really he's really good so he had Shamath on and Shamath became

in the last year I think he became somewhat reclusive after all the SPACs blew up and I understand that no he just he just stopped tweeting

he's still doing his podcast I understand but in 2020 he was the king of Twitter. Yeah. And it no longer makes sense to do that when a lot of the investments that you were involved with crater. Yeah.

So I probably would have done the same thing. But he starts off talking about his childhood and gets into a lot of stuff about just anything but, let's say – Did he brain f**k you? No. He's very persuasive. He is. Listen, I think he's somebody that I don't want to invest with,

but I think everyone could learn a lot listening to what he has to say because whether you love him or hate him, the stuff that they did at Facebook is, like, to this day, pretty incredible, like the product they built and how they thought about it. And, uh, I just thought it was a really good interview and it stayed far away from a lot of the controversial topics that Chamath has been involved with and it stayed on personal stuff. And that was, that was interesting to listen to. And like most of Lex's shows, it's about six or seven hours long. So, it works from a lot of uh a lot of levels uh

also let's mention new nas record king's disease three gregor you hear that yet yeah me either duncan i know you're listening duncan i know you're listening to it around the clock i didn't i haven't heard this one just hear it so nas did it this is the last on ilmatic you know okay this is the last record in the in the trilogy and for hip-hop people I think it's one of the best releases to come out this year. All right, we're going to wrap up here. Do we have any – are we doing a comment today? Anything we want to finish with? Okay.

All right. So, hey, guys, thank you so much for listening. I want to remind you all, if you haven't yet left us a review on your favorite podcast platform, that is the best way to tell people that this is a show worth them listening to. It's all for the algorithms. Gregor McDonald, where can people follow you? Follow me on Twitter at Gregor McDonald and come see me at my newsletter, The Gregor Letter. The Gregor Letter. So we're going to have links to all of that in the show notes. And your book, Oil Fall, it's an e-book that people can download. It's an e-book that people, it goes on sale next week,

but everyone who's a subscriber to my newsletter gets a free copy. I just updated it with some of the data and trends that we talked about today. How long is the book? It's about 130 pages. Oh, wow. Okay, cool. So people can download, where can they get that, from your website? It's not on sale yet.

So I'm going to release it on Twitter next week when I get back to Portland. All right. So follow Gregor McDonald on Twitter. Look for the newest version of Oil Fall. Thank you so much for coming here and doing this with us. Thank you, Josh. Thank you, Michael. We really appreciate it.

Thank you. I think we all learned a lot today about the energy transition. I think you learned a lot from us. Yeah. I think we've used several permutations of the F word that maybe you don't hear on an everyday basis. So you're welcome. Yeah.

Your questions tell me a lot about where, you know, where the conversation is. I mean, it's good to, it's good to talk to you guys because you're more generalist. So I like to get it. That's for sure. Absolutely. All right. Gregor McDonald, ladies and gentlemen, thanks for listening. We'll see you next week. Okay. All right. Gregor McDonald, ladies and gentlemen, thanks for listening. We'll see you next week.

Okay. All right. So that was the warm-up. Yeah, we weren't actually recording. We just wanted to see if you could.