The Great Simplification with Nate Hagens - The End of Globalization: Why Abundance Is an Illusion with Jeff Currie

Episode Date: July 29, 2026

For three decades, most of Wall Street has treated energy and commodities as a rounding error, or as a small slice of the portfolio rather than the physical foundation everything else runs on. But in mid-2026, with the Strait of Hormuz disrupted, tankers burning in the Red and Black Seas, and nearly half of Russia's refining capacity knocked offline, that complacency is being tested in real time. The noise around increasing crude oil prices is loud, but this week's guest argues that the signal beneath it – the decline of refined products like diesel and jet fuel – is already sounding the alarm bells of a world in crisis. In this episode, Nate is joined by Jeff Currie for a wide-boundary look at what happens when the buffers that have suppressed energy price signals for fifty years finally run dry. Using his decades of experience as a former commodity strategist at Goldman Sachs and as a current senior advisor at The Carlyle Group, Jeff walks through why the "crack spread" between crude and refined products just hit its highest level in three decades. He also describes why draining strategic reserves is, in actuality, simply a bet that scarcity can be avoided rather than solved – in Currie's eyes, the West's refusal to admit scarcity since the 70s has left it structurally unprepared, particularly compared to China's security-driven build-out of nuclear, solar, and battery capacity. He also lays out the "Grand Bargain" underlying the postwar dollar system, wherein the U.S. protects global sea lanes in exchange for global trade running through New York. Jeff explains why a failure to reopen the Strait of Hormuz could unravel this arrangement, bringing forward consequences that would land hardest on middle-class Americans' access to credit and consumption. Is the world entering a new commodity supercycle driven by scarcity and deglobalization, or is the market going to keep shrugging off these shocks? What might it mean for ordinary people if the credit and dollar system that has funded American consumption for eighty years starts to break down? And if, as Jeff argues, we are only in "the foothills of the Himalayas," how much higher does this climb go before societies are forced to reckon with the physical limits behind the price signals? (Conversation recorded on July 23rd, 2026)   About Jeff Currie: Jeff Currie is the Chief Strategy Officer at Altis Partners. Previously, Jeff served as Chief Strategy Officer of Energy Pathways at Carlyle and currently serves as a Senior Advisor to the firm. Jeff's analysis focuses on the energy and commodity markets and the supply chain central to an energy transition. Jeff is the former Global Head of Commodities Research at Goldman Sachs, where he helped to build their commodities business. During his nearly three decades at the firm, he became one of the leading commodity market strategists on Wall Street, known for advising clients through the commodity "super cycle" of the 2000s, the shale supply shock of the 2010s, and most recently the twin shocks of the pandemic and the Russia-Ukraine war.   Show Notes and More   Watch this video episode on YouTube   Want to learn the broad overview of The Great Simplification in 30 minutes? Watch our Animated Movie.   ---   Support The Institute for the Study of Energy and Our Future   Join our Substack newsletter   Join our Hylo channel and connect with other listeners  

the period of globalization is ended. You need to build multiple supply chains, redundancy, new manufacturing systems, and all of that. Why aren't people putting money into it? They won't. It wasn't the great returns in the 70s that got people to put money in the space. It was shortages. It was lines. People don't buy these stories until you run out.

That's going to hit middle class America and change their lifestyles like they've never seen before. And you have the abundance illusion that the Western governments are pursuing that make it more difficult. I think it will take the actual shortage to get people to move and then we get the capital move. It's a different ballgame. You're listening to the great simplification. I'm Nate Hagen's. On this show, we describe how energy, the economy, the environment and human behavior all fit together and what it might mean for our future. By sharing insights from global thinkers, we hope to inform and inspire more humans to play emergent roles in the coming great simplification. Today I'm joined by energy commodity analyst Jeff Curry for a deep look

at the relationship between financial and physical energy and commodity markets and how that informs the energy supply that will be available to us in the coming months, years, and beyond. Jeff Curry is the chief strategy officer at Altus Partners. Previously, Jeff served as chief strategy officer of energy pathways at the Carlisle Group, where he currently serves as as senior advisor to the firm. Jeff is also the former global head of commodities research at Goldman Sachs, where he helped to build their commodities business. During his nearly three decades at the firm,

he became one of the leading commodity market strategists on Wall Street, known for advising clients through the commodity super cycle of the 2000s, the shale supply shock of the 2010s, and most recently the twin shocks of the pandemic and the Russia-Ukraine war. Despite getting our graduate degrees from the same city and starting on Wall Street in the same year and both having an energy systems perspective, this was our very first conversation. We talked about the magnitude of impact the Iran-Hormuz situation will have on the West and on the world that is still mostly being discounted and ignored in financial markets. We talked about the importance of diesel to our economy and how close we are to physical product shortages. we talked about debt and the decline and fragmentation of globalization and an inevitable shift

towards state capitalism to coordinate the needed infrastructure investment. I expect Jeff will be back on TGS. This was a great initial conversation. If you are enjoying this podcast, I invite you to subscribe to our Substack newsletter when my team and I share written content related to the Great Simplification. You can find the link to subscribe in the show description. With that, please welcome Jeff Curry. Jeff Curry, welcome to the program.

Pleasure to be here, Nate, so I'm looking forward to the discussion. We have a lot to talk about. You have spent three decades at Goldman Sachs as one of the leading commodity strategists on Wall Street, advising clients through the super cycle of the 2000s, the shale supply shock of the 2010s, the pandemic, the Russia-Ukraine war, and now, mid-20206, and I will timestamp this, Thursday, July 23rd recording. From your seat at Carlis, you're watching the Iran War, the disruption of the Strait of Hormuz this morning, the Ansar al-A attacks against a Saudi tanker. I have a lot of questions for you, but before we get into the details, from a wide boundary angle, how do you read this moment in the history of energy? and is this another cycle or is it something structurally different?

I mean, there's a cycle going on, and I'm not going to talk about that. We'll spend most of the time talking about the cycle, but I think just from an initial knee-jerk reaction, it's like, okay, macro community, you weren't worried about the straits of hormones. So what did we do? We shut the red seat. We have shut the black seat. We've taken out half of the refinery capacity out of Russia. So if that wasn't good enough for you, is this one good enough for you?

And you still see the market's struggling to hold $100 a barrel this point in time. If you would have given me that scenario two years ago, I'd say, you know, global recession and we're in deep, deep trouble. And by the way, the product prices are telling you're in a deep trouble. But, you know, I like to say crude is the noise. Products are the signal, but their people are not looking at them. But when you look at crude, the reason why every, is convinced that Trump will taco. The problem I have with a taco is what is he going to try, what can he pull out of the hat to taco with?

He had the MOU before he could pull out of the hat to taco with. And at this point right now, the terms of any taco would be far worse than the previous one. And, you know, I view that he's now being driven by his, I don't want to get in the mind of him. That's not where I ever like to go. but I find it really difficult to believe that it could be an easy taco and also the magnitude of this disruption. I mean, it's like you couldn't dream this up. And the market just is again shrugging it off, just like it has the entire time. Well, this is why I've been so looking forward to talking with you because you're one of the few people from back in the day.

By the way, I told a bunch of my remaining Wall Street friends that you were coming on the show, and they were like, oh, my God, he's the king of commodities. And he's often early, but he's always right. So I'm just wondering, what is it that you're always going to be right about and possibly early right now? By the way, I'm going to disagree with that. Commodities are the best performing asset class this decade. You know, you're up over 200%. Crypto on average is 157. I just wrote an op-ed, so I got these on the tip of my tongue.

We called the bullish super cycle in October of 2020 in commodities. That's when we made the call. From that point forward, since October of 2020, commodities barren any other assets the best performing one. And the reason why the bottlenecks may have changed over that time period, but the trend in commodity returns has not. you know, so it was oil earlier this year, and it's diesel today. Because remember, diesel products are up like 81% year to date. The index is up like 34. You know, the second best performing equity group is the, are the energy equities. I think the reason why people believe that is that they look at the price level itself and not the returns generated. And what is different about this cycle, than in the 2000s, is the returns were generated with the price going up like this.

This time, it's that front end of that curve. You're rolling the front end of that curve in generating significant returns. So even before this recent rally and crew, when we were sitting at $75 a barrel or whatever, I think he got it, he got a 60 handle on it. When we're at $60 oil, the investment returns for being long oil, even though it was lower than when the war started during the war. were 40% because you're capturing those spikes going up and down and up and down over that time period. And the point that I made is I don't care, and we'll talk about, this is something I really want

to get is, you know, returns from commodities can come from either the shape of the curve or they come from the price appreciation itself. Think of it, it's either from the dividend or from the role yield is what we call it, or it comes from the price. The bottom, line is generated massive returns for anybody who actually held them. And before oil, it was gold, before copper, before nickel, before silver, keep going down the list, coffee, cocoa, livestock, you know, oil during the Russia, Ukraine. And I think that that's what's being missed. And there's too much of a focus on the price level. By the way, I was super wrong in the 2000s because the price level went up. By the way, the returns were terrible because you had a contango in the front end.

So what happened is the back end drove up the curve. You're rolling that front in and just destroying any return potential. I don't know what it is, but the bottom line, the returns from being, holding hard assets have been absolutely phenomenal this decade. So you and I started on Wall Street. I went to Solomon Brothers. You went to Goldman Sachs the exact same year. I managed money for billionaires back then. That was my job and one of them started trading oil futures. And so as a good broker, I learned the ins and outs and the special qualities of oil and I realized a barrel of oil can do five years of human labor and oh my gosh, this stuff is depleting and it's made from fossils over millions of years. And so I started to view the world from an energy lens thinking

I was a year or two ahead of the pack. And here we are. 30 years later, and I don't think Wall Street still understands that oil, diesel, jet fuel, and the like are the hemoglobin in our global system. And they look at things that can just, oh, we'll print money and it'll be fine or we'll guarantee this. And I don't think there's a plan here. I think we're bombing without any coherent plan. And you're right, there isn't a plan. So to me, I've felt strongly since February that we kind of hit an, our aircraft carrier hit an iceberg and the bottom compartments are filling with water, but the grocery stores are still full and the gas stations are still full. So bring us up to speed on why we've been so complacent about this. And I think some of it is a financial lens with not an energy and material.

lens, and some of it is we've been drawing down storage, both in the U.S. and China and elsewhere, where do we stand today on the oil storage price situation? I think that in products, you're already there. We are at critical levels. If we look at the 3-2-1 crack spread, which gives you a three-weight to gasoline, a two-weight to diesel, and a one-weight to crude oil. I'm thinking about it's the value of the products versus crude oil. $60 a barrel. That's the highest level in the three decades I've been doing this. I've never seen it this high. No one has, which is telling you at $100 a barrel, the products are at 160. And so when we think about what happened to get us to this extreme shortage in products,

it has to do with we've knocked out refineries in the Gulf, in the Arab Gulf, and we did did not send out products when we had the ability to send it out, we sent out crude. You should have been sending out products, but you can't send out the products because the ships are flammable. They blow up. You bomb a crude tanker, as you saw in the videos earlier today with that Saudi tanker. Yeah, it catches fire, but it's not a bomb. The product ones are. And then China, everybody goes, oh, it helped out Trump and kept prices down. Well, they cut refining, refined product exports and they cut refinery runs. They drew down their product stocks. And so when we look at what China's actions did, it made products tighter.

It made it backed up some of the crew, but it made the products tighter. Then we had Ukraine striking 1,300 kilometers into Russia, taking out nearly half of the refining capacity. And now they're importing jet fuel from Japan and diesel from India. They're supposed to be the largest product and crude exporter in the world, and they're importing. And also people go, oh, it's just bullish products. No, when you think about those refineries, these are Soviet era refineries, there's one pipe of crude going in.

You shut the refinery down, you're shutting in the crude. So we've lost the crude as well. And so we think about the U.S. It had the SBR, and basically it was trying to turn product in as fast as they can to send to Europe. And we're now getting the point the draws out of the SPRs are in that three to five million barrel range. per week. So we're in a very different environment on products than we are on crude. We may have a few. Now, if we take out the Red Sea, and by the way, the Ukrainians were also taking out the Black Sea. So Ukrainians taking out Black Sea. The Houdi's taking out Red Sea.

Iran taking out Straits of Hormuz. So we now, and also we have China back to increasing refinery runs to export product because it's $60 a barrel, it's a no-brainer, we're now going to shift that shortage into the barrel of crude as opposed to just the product. So, you know, we may have a few, you know, let's call it 30 to, you know, 60 days of excess oil given this magnitude of these disruptions, but it won't take time before that crude situation evolves into something bigger on, like along on the product side. So your point about, it's like, the Titanic, you know, the iceberg is broken it, we're filling it, and everybody is sitting, you know, and going, oh, nothing to worry about, nothing to worry about. And also, we look at

Western governments, they just reinforce that. And that's part of the reason why the macro community just won't buy this thing here. They're not doing it. I think they may, when they do, this thing, it's going to take an express elevator straight up. Now, I, you know, I think is one way I said it previously, the conditional probability going to 150 once you get over at a is pretty high, unlike it was before. Because at your point, the shelves are empty and fast. There's not a lot out there. And I think at this time, people will look at the probability of a taco is much more difficult.

Because the one thing he could always taco with, he always could pull the rabbit out of the hat, go, hey, here's the MOU. They actually can supply us with crude. They're not going to supply him with crude this time around. I think this is going to be akin to Napoleon's Waterloo in retrospect. because there is no every week that goes by Iran has more leverage in the situation. I just don't see a good outcome here, and I think this is going to reverberate forever. I mean, even if the war ended today and we went back to full peace, which is highly unlikely, what about the damaged wells in the Middle East that have water fill and other things that they're going to have to restart?

What about the negotiated contracts are going to go to the east instead of the West on a lot of these products? What about the instability in the Middle East? What if Saudi and the U.S. attack Yemen and that conflagration starts? Any thoughts on all that? Add in Russia shutting in the wells. There the water cuts are bigger, older. Their ability to restart these things. And from my understanding is the Ukrainians hit,

those CDUs just bang on. It's going to take a year and a half to rebuild these. You shut down that CDU, you're shutting in the production. Roughly 35% of that can be redirected. So everything you just said applies to the Middle East as well as Russia, the two largest oil suppliers on the planet earth. That's why it's just, everybody got bearish after that MOU. I'm going, what planet are you guys living on? Look at the crack spread. $60 a barrel. You were already there. You were already there. So, you know, I am, you know, I'm beyond myself of the complacency. Seriously, I mean, you and I know this stuff quite deeply. And if six months ago in January of 2026, someone had told us this scenario, it would have

been close to an Armageddon scenario. I've been using Hormuz as a graphical example in my presentations on energy as the lightblood of civilization for over a decade. and here we are. And yeah, oil's up 5% today to 80 some dollars. I mean, it's, it's, the complacency is bizarre, which is why it's comforting to talk to someone from Wall Street like yourself that understands what's going on under the hood. So, so let me ask you this. You've described the drawing down of strategic petroleum reserves as liquidating a buffer that's built up over decades in order to suppress the very price signal that would trigger,

the necessary investment response to what the market needs. Can you play that forward for us, Jeff? What actually happens when those buffers are gone and the signal finally comes through? What are the mechanisms? What actually happens? The reason why we have futures markets is so that they can try to buffer us from high-risk environments in that you would have entities going out like airlines, buying, and it would bid it up slowly and buying oil to hedge out the risk of something really bad

happening. In fact, what we find in doing studies is that markets that have futures markets and ones that don't, the futures ones anticipate events, they're driving down, they see the pot hole, they drive around it, and then they don't run into it. The ones who don't end up with huge spikes. And the example we give are onions futures. They were a target of Gerald Ford, the, you know, president back in and he was a I think it was a representative or a senator from Michigan actually your neck of the woods back in and I think the 60s and he banned onion future so we showed what he did it created an environment in which you can't avoid the pothole and the onions we go straight up and it's come spiky and I think the the issue here is that

we're taking out that price signal and that gradual so another one I like to give is Newcastle Coal, which is more in our career, is you remember what happening Newcastle coal right before oil, like it was in late 2008. It sat there and did nothing through that whole super cycle because it couldn't price anything in. It hit the pothole and just went straight up. Absolutely explosive. So there's no anticipation. Let me ask you this, though.

Obviously, there's a long forward futures strip for both natural gas and oil futures. But my understanding is that 98% of the liquidity is in the first six months. And if an investor or a big business wanted to hedge and buy a lot of oil futures 18 months out, there's no liquidity there. So the only way to buy large quantities of oil in the future is to buy an oil company maybe. What are your thoughts on that? 100%. And that was a direct result, a Dodd-Frank.

it take out. So the ability to manage this, in fact, you just reminded me, I wrote this op-ed that was published this morning in CDAM. I called it the physical capital paradox. Best returning asset class and nobody owns it. And I think it's, let's go over a few reasons why. And as you just said, it dawned on me. It was Dodd-Frank. I didn't include it in the list. But one of the one I talked about in there was as a share, it shrank so much because of the sustainability issues. earlier this decade. You look at energy, it's running around, you know, just shy of 4% of the S&P basic materials, put them together, you're under six. It's a third of a long run average. But let's just take the 3% for energy. Let's say energy doubles in value, 100% return. At 3%, that's a 6% return to the portfolio manager. Take tech, 53%. So let's let's just rounded at 50. To equal the return that you would get in energy of the 6%, it only has to go up 12. So you can see, actually I got it backwards, 100% at 3% is a 3% return, 50% of a 6% return is 3%. So you can see the bar for tech is pretty low.

And you wonder why nobody and why everybody's complacent. They don't want this happening because they're so underinvested. Their returns will get demolished like they did in 2022, and they seem to have forgotten that. And I think that that's one of the big issues. But on the going back to your point about, you know, the Dodd-Frank, Dodd-Frank, there's no capability to manage that risk. I mean, the old days that you and I grew up in Wall Street where they were running huge positions in taking proprietary risk.

In fact, the joke that somebody said to banks, to me, you go out for lunch, your quote on copper is no good by the time you come back. In the old days, they would come in because it was execution was the primary focus of these banks, not price. And because it's become price, they can't take that risk out there. There's nobody taking the risk. therefore the ability for people to extend, you know, whether if it's credit or anything out into those further dates are not there. Because remember when I said I was wrong in the 2000s because the curve went up on the back end?

To your point, people had the liquidity out there. They would buy it. And this time around, they're not. So you're foreseeing some potholes ahead. Huge potholes. Massive potholes. You know, again, I'm going to go, people say, you know, I'm wrong. And by the way, I hear that all the time.

So I don't take it offensive. But we are already at, we got to $5,500 gold. And we are at, what, $4,200 this morning. We're at, you know, $160 diesel. We are at $101 a barrel brett. We are at $14,000 a ton copper. The list goes on. We've already hit some pretty major potholes.

But the ones coming up are going to be massively larger than the ones. In fact, the way I said it pretty, previously, we're only in the foothills of the Himalayas at this point. And by the way, the other thing, too, is like, what made that very different in the 2000s is that point you're making. We're buying the back end, so it was much smoother. Because there's nothing on the back end, it's like this, spike after spike after spike. And it doesn't feel like a trendy market so people don't buy into it. But this time around, I think the upside in these spikes when we just hit the potholes and go in and come back out is going to be really significant.

So this is our first conversation ever, even after being in Chicago at the same time in 1992. So I don't think you know a lot about my work. The viewers of this channel are systems literate and understand energy and commodities and materials as fundamental to our way of life. And we're concerned about not investments and returns per se, but how, is society and civilization going to function ahead where we're papering over some of these commodity and energy shortfalls and other things with debt and with credit and such, but we live in a biophysical world. So what do you foresee? I mean, we're talking about diesel and some of the three to one product shortfalls from Hormuz, but map on what you've said so far with a

super cycle and some sort of a structural change in the world, what's the next decade going to look like? You're going to rotate between the thematics of scarcity and debasement. And I think those are the two big themes that are going to, and you got gold as your headline on the debasement, and I would put oil and copper as your headline. Actually, it's throwing an ag like corn or soybeans as the proxies for scarcity. going forward. And I don't see how, at this point, how we avoid it. The underinvestment, you know, it takes 20-some-odd years to bring on a copper mine.

You know, and the oil, we haven't built refineries. One thing I struggle with in my more bullish products or bullish oil, you haven't invested in either one of them. And people go, oh, look at all the Brazilian and Guiana production coming on. Guys, that Brazilian and Guiana production was investment from the previous cycle. They're in the in the in the I've actually Goldman publishes these top projects of all the big projects that that are produced. The last version was the first one ever that didn't have any major new projects because remember sustainability we were done investing in oil. I'm just going back. So the underlying environment on scarcity and it goes across the board because nobody ever thought we needed any of this stuff. And you can also look at the AI buildout.

It's building all of this demand for metal, for energy, and for, you know, turbines, for transformers, which are all metal. Yet, nobody's invested in the raw materials used for all the buildout. So we have the biggest supply, demand shock we've ever seen in commodities of this year, 800 billion, 50, more than 50% of it goes. directly into commodities, but no investment in commodities. Yeah, AI is going to make this stuff worse, although some people think we're headed to the tech singularity,

we won't need all this energy and materials anymore, which is kind of ridiculous. I think you just wrote a piece, something titled like the Abundance Allusion. Abundance Allusion, yeah. What's that about? Basically, we go back to Carter, and Carter made a fatal mistake.

He admitted the scarcity. And he had two speeches. One was in February of 1977 and the other one was in April of 1977. And the first one in 1977, it was the famous sweater speech. He comes in with this tan cardigan and going, burr, you can see the thermostat in the background, kind of like this one. And the response was panic set him. He goes, we need to reduce, we need to conserve, we need to do the right thing here. Okay, that didn't well.

Prices of commodities go up more. People got scared. Then he goes out and he said, he coined the term energy transition in the April one. He goes, we need to invest in non-fossil fuels for security reasons. And so he was the one who brought out solar, wind, nuclear. and by the way, at this point, the French were already gun-gung-ho. Nixon got it all up and started with Project Independence, but he gave the name Energy Transition and we need to do it for security reasons. He called it the moral equivalent of war. What does that stand for? M-E-O-W. Mistake right there. Meow is what they said, and they dismissed him. So what was the takeaway for the Western leaders? Never admit the scarcity. because he got killed. Second takeaway, the Chinese understood,

you need to invest in energy transition for security. Because they did not take the energy transition seriously, and I'm not saying this in a way that's diminishing environmentalists, but the environmentalists were never ones that could take one of these policies and push it through, and we're still struggling. And so when it dropped into the hands of the environmentalists, it took on a political, let's call it, you know, it became, you know, hot potato politically. But I think the key issue is that what did the Americans and the Europeans learned out?

It's this idea of abundance illusion. George Bush Sr. was the first one who actually ran into a war with Gulf War in 1991, Gulf War I with Iraq. And he used the SPR and he talked down. the market. He did exactly what Trump did. That's the abundance illusion. And by the way, you're just playing a game. Can I keep this thing together until that supply comes back? Bush, Bush Sr. did it. Clinton did it. Bush Jr. did it. Obama did it. Biden did it. And Trump did it. Every single one of them has done it. So what Trump is doing, Trump did not have to do it in Trump 1.0,

but he had to do it in Trump 2.0. So that's the abundance illusion. is you're making a big bet. You can avoid the real scarcity and ever having to emit the scarcity because they all know how bad it ended for Carter. But before I continue, I just want to make another point about China. China heated Carter's voice on energy transition.

It didn't become the world's leading expert in nuclear generation capacity technologies in solar, wind, batteries, lithium. The list goes on. It heated that. advice and invested it. It had nothing to do with the environment, but everything for energy security. And it just demonstrated to the world. It can roll with the punch. And I so I think when that there's two aspects. The abundance of illusion was the wrong answer. That's the route the West went,

because it's a political, I got to get reelected and you never admit the scarcity. While the Chinese, which are, you know, an authoritative dictator type of environment, made all the right decisions. And unfortunately, they're in a relatively good place right now. I want to double click on China and electrification in a second. But regarding the abundance illusion, every once in a while, Trump drops a truth bomb that he probably is not supposed to say. But a few weeks ago, he said, if we hadn't done the MOU, we would have been, had massive shortages and we were this close to running out of diesel. I mean, he did say something to that effect, and then it was kind of brushed over.

Any thoughts on that? You notice he's been remarkably quiet this last week. Remarkably quiet. I think, because he's trapped. I mean, by the way, if anybody's looking for somebody's got the best read on this, Robert Pape, Professor Robert Pape at the University of Chicago, he's phenomenal on this. It's the escalation trap. You know, MAGA wants him to finish a job.

you know, they don't like the, you know, that this situation that they're in. Because remember, he made fun of Obama for giving them $1.7 billion, and he's now going to give him $324 billion. Yeah. And by the way, that number just got larger. And by the way, the rest of the world doesn't like us because their products and their energy is a lot more expensive for other reasons as well.

So I actually, again, you don't know my work and I know yours. I liken society to a superorganism, an economic superorganism that has a metabolism, and that we self-organize as small businesses, corporations, nation states to maximize profits, and those profits are based on energy and materials. And I think this Strait of Hormuz situation has splintered the superorganism. And over time, there's going to be an east and a west. and the supply chains and the global system is going to bifurcate to some degree. It's already happening right now. Let me ask you what your thoughts are on that,

and then I'll get back to China and the Jules. I'm going to use a story of actually Robert Pape just public, I think he's publishing this week in foreign affairs, where he talks about, actually, it applies to the abundance illusion that in 1991, when George Bush Sr. did the first abundance illusion, it went into Iraq

1. Two things occurred. The Soviet Union fell almost to that day. At the same time, he went to a war with 10,000 body bags and used 147. The victory was just astounding. The world was in shock and awe, real shock and awe of the power of the United States. it became the global hegeman in that globalization, that that hegemon environment, it flourished. That was when it all took off. Set the stage for China and everything.

At the other end of the book end is what we're going through right now. The opposite. Went in there with a big swagger and coming out in a situation that is not as strong. And this was happening before this everything. this war, but at the same time, China is rising. So before, Soviet Union collapses U.S. dominant victory. Here, China is a sturdy-in-its authority to the world, really aggressively, by the way, and the U.S. had a very poor performance in the Middle East. Actually, the other thing we haven't talked about, at this point, they're burning through missiles. They shouldn't be using missiles anymore.

The missiles should have been retired a long time ago, and they should be using F-15s and F-35, dropping gravity bombs. You cannot fight $40,000 drones with million-dollar Patriot missiles. And the radar systems are taking them out. This is getting dangerous. I'm not a strategistician in military thing, but my understanding, talk to the people that do is we've drained those missiles to such a point. We're in a very dangerous situation. So I'm a big believer that, you know, the period of globalization

is ended. We're looking at a east or west, a China block, a U.S. block. I don't know if it'll be a U.S. block when it's all said and done, but there'll be another block. And when we think about what that requires, and if we go back to the core thesis that we put forward for being bullish commodities, de-globalization in the war on free trade when we launched that, the second super cycle thesis in 2025, was at the core. Because you need to build multiple supply chains, redundancy, new manufacturing systems and all of that. And so this is really at the core of our bullish call on commodities.

Every one of the questions I have for you has so many rabbit holes that it could spend an hour. But let me ask you this. So if there is a splinter in the world alliances and there's an East Block and a U.S. North American Block or whatever, on the one hand, that would be incredibly bullish for commodities. commodities because it's not one cheapest place to deliver global system anymore. And there's going to be some sort of a Liebig's Law of the Limiter on some commodities somewhere. But in the other hand, it's incredibly deflationary because the dollar, the petra dollar, the global credit system, this, if we run out of money, we just vote another increase in the debt ceiling. credit also has a huge role in commodity pricing.

And we just assume that if we run out of stuff, we're going to print more money as a sovereign, but the global economic system has been, you know, a wily coyote climbing higher and higher. So how do you see the relationship between, obviously commodities are getting less quality, further away, more demand, scarcer, therefore the price is going to go up?

up, but our affordability and access to them is also dependent on credit. What are your thoughts there? There's two answers to this. I want to talk about it. What does it do to commodities as a liquidity provider, but also let's talk about the in-use demand. Clearly, when we look at the group that consumes the larger share of commodities, and this was the second big team, it's called redistribution, is the only way you deal with this

is you've got to give money to the lower incomes. They don't have credit. The credit is for the middle to higher income groups. In fact, when you look at the quintiles, the bottom two quintiles have zero, zero credit. And they live paycheck to paycheck. So you hit them with fiscal transfers. And by the way, the U.S.

is a very, very serious situation right now because that K economy is just getting more extreme and more extreme. And when you hit them, with the physical transfers. It is very inflationary. We saw that with Biden. You know, he gave him the $2,000 checks or whatever it was, and boom, the price of commodities exploded.

And this is one thing I realized at this point. Contrary to what anybody will tell you, and the macro guys still argue me on it, inflationary is caused by low-income people, and it's bad to high-income people. Even though 2022 proved that out, the high-income guys lose their wealth. It gets taken from them from the fiscal transfer, and then the inflationary pressures of the physical transfer create end up hitting the high income guy's wealth.

And by the way, everywhere, whether if it's Venezuela, and the thing that I realized, you cut interest rates for 20 years, inflation never materialized. You do physical transfers, and you're off to the races. And I don't care every single environment of inflation since we created fees. biot currencies has occurred via that mechanism. Socialist governments providing big fiscal transfers. Whether it was in Italy in the 80s or Latin America in the 80s, Brazil, in the early 2000, just the list goes on. It's over and over the exact same formula. And I think about this too, is if the price of a commodity goes up, it has to be a low-income player. Because think about some high-income guy, he's going to consume the same amount of corn regardless of where he is in the cycle.

The only guy who will increase his demand for corn is going to be the low income guy when you give him a physical transfer. So when I think about this thing, and everybody goes, oh, that's not true. You know, the low income guys are made worse off by inflation. No, they aren't. They got the refrigerator. Or in 2022, they got their whatever they spent their $2,000 bucks on. They got it. yeah, after the fact it was bad, but the high income guys paid for it, and then they got hit

by Twink, it was a 27% drawdown in the S&P. So, but what did the U.S. do? Print more money to get out of it. And so that's point one. If we think about point two, the liquidity, if you ask me why have commodities not gone up is they don't have any liquidity. It's too hard to get credit to trade. This goes back to your point about, you know, the back end having no liquidity. Back in has no liquidity because Dodd Frank shut them down. You know, it created an environment which it became open interest in a lot of these markets have gone down. So when we think about that price level, your physical consumption, those end-use things can drive up the front end. But the liquidity that creates that price level that clears is a

function of the availability of credit, which while there's a lot of credit for things like AI buildouts right now, there's not a lot of. credit for anything else in the global economy. So thank you for that answer. You looked at within country part of my question. I was more thinking about the U.S. itself with international creditors and the over-leveraged international financial system where currencies are in a race to the bottom against each other, but the real currency that we're measuring them against is net energy or the high-quality energy available after we've spent the cost. cost on energy and mining, et cetera. And if that system is disrupted, that would be the mother

of all deflations, at least temporarily, then followed by hyperinflation because global supply chains would be disrupted. Do you have any view on that broader macro perspective? You mean, actually take me through it again so I understand why, how do you get the deflationary pressures? We need money to pay for things. And sometimes affordability, declines faster than the depletion of the commodity, and then we get deflation. So I'm just saying that right now, Japan and China and others own U.S. debt, we're spending so much on military and helping the bottom two quintiles, and we're printing more and more money. You can print money, but you can't print energy. You can only extract it faster. So at some point, interest

rates will go up to a point that we won't be able to borrow as much. We won't have access to as a country. And I don't even think it's going to happen in the U.S. first. I think it'll happen in Europe first. France and Germany, they're going to have huge import bills because of natural gas and other things. And eventually, we cannot borrow more because we lose our creditworthiness. So I think that becomes deflationary, much the same way that 1929 was. Let's talk about the exorbitant privilege, because that's really what drives that access to credit for the United States. And let's talk about the grand bargain that sits behind it, which is Bretton Woods in

circa, what, 1945. It was, you know, the agreement that the Americans had with not only the allies, but also with the access powers. And it was a deal in which they created the World Bank and IMF. And the World Bank was put in place. We're going to give you money to reconstruct. We're not going to occupy you. And exchange for that money, we expect you to use the U.S. dollar,

funnel it through New York. and we will use our big massive Navy to protect global sea lanes. And still to the day, if China imports copper from Chile into Shanghai, United States is the one that protects the Pacific, protects those global sea lanes. And that has a high cost to it. And that's part of what Trump is complaining about. Remember what he wanted to put the 20% tax on oil going through the, through the strace of horror moves.

Oh, he's nuts. No, it's really expensive to fly all those planes and protect all of that. He wanted to get paid for it, whether or not he did it correctly or that's another question, but it's really expensive. So when the United States came out of the Second World War, it was like 95% of global industrial production. He had it all. It made sense then.

But we're 80 years later and we're still new. So that's the setup. That's called the Grand Bargain. Now, let's apply that to the strength of the dollar in the United States. Because the U.S. is that protector of global sea lanes, free trade and globalization and everything, it gets that exorbitant privilege. And all that money flowing in, chasing AI, and the rest of it allows Americans to consume at a level that's never been achieved in the history of mankind. And that all comes through credit.

That credit is going to dry up if that exorbitant privilege gets broken, which is why it's so important. for Trump to go in there and free that straights of hormones. Because if he doesn't, he loses that exorbitant of privilege because isn't the grand bargain, I will protect global sea lanes for all people if they trade and use the U.S. dollar. So here we are. Now we have three sea lanes blocked. We have Red Sea, Straits of Hormuz, and the Black Sea all blocked. So where is the global protectorate to open up those sea lanes?

By the way, I made the point in a piece we did called a new Marshall Plan, and that's M-A-R-T-I-L Marshall Plan, where it didn't matter who was the president. Once interest rates went higher, it was too expensive to maintain that system. And so when we think about that ability to have that credit, I think we really got to watch what's going in the straits of whore moves. Trump, if he doesn't do, which is part of the reason I think he went back, he goes, he knows he'll break the grand bargain if he doesn't free open that sea lane. But the Iranians also do it. So the importance to this for the United States is let's do Robert Pateswit's two bookends of globalization. But if he cannot protect all those allies and everything like that, he broke the grand bargain. In that last 80 years, we're moving into a

different world. Now let's go back where people start pulling their capital out of the United States because they don't trust them anymore. That's going to hit middle class America and change their lifestyles like they've never seen before. I expect that's reasonably likely. I want to talk to you about different commodities in addition to oil and also get back to China. But since we're on this on the grand bargain, I mean, you're an energy and commodity expert, not a geopolitical expert per se. But paint up me a picture, what is the best case, worst case, and most likely case of this situation?

in the Middle East, but you mentioned three places, you know, resolving in the next year. The situation here is that I don't think is widely said is this is Bricks versus G7, even though the Europeans don't know they're involved. And if you're Bricks, you're going, hey, for the last 400 years, you guys have treated us like dirt. and you know and my way I don't want to get who's right who's wrong in the politics but you know you ask guys who are like CIA experts and stuff they're going to tell you all Putin wanted was respect yeah um by the way the Iranians were never really going to they had 47 years to build a atomic bomb all they wanted was respect I'm just telling what is I don't want to offend anybody here I'm just repeating what any intelligence person will tell me Chinese wanted respect you know what the British did to them, the Americans, they're upset. And from my understanding, those 30 days when that straits was open, there was not oil tankers going back inside there. Those things were caterships of military hardware. The Iranians, they're playing a different ballgame. It's like, I look at this. I go, you take China. China controls the world's critical minerals. Why? Because Americans, Europeans,

and by the way, I learned this from the Soviets. The Soviets told me, yeah, even the Soviet Union didn't want this stuff in their backyard because it's polluting, it's toxic, it's terrible. Let the Chinese do it. Chinese will do anything. That's what the Russians told me. And so the bottom line, Americans, they buy all this stuff from China, and China's producing this stuff making their environment toxic and they don't care.

And by the way, it was like in that whole period with the unsustainability. Nobody changed their behavior. They just dished it all off to China. Let China create the emissions. We feel good about ourselves, but we keep buying the stuff. And so when we look at the situation, they can produce, they process everything. Because the Americans won't. The Europeans won't.

The Russians did it to a lesser extent. But these decisions were made between the 70s and all the way up into the 2000s. Now there's none of it. Okay. So you look at the Chinese, they control the world's critical mineral. Now, who are the two biggest backers of Iran, Russia and China? And we know that by looking at the equipment and the intelligence and everything they're getting on this. And now what did the Chinese control the world's molecules?

So they control the world's atoms that control the world's molecules. And also the straight, Taiwan to get them into Taiwan, then they control the world's chips. So I look at this situation. This is not just what's going on Iran. It's by the way, you have Ukraine striking deep into Russia. I don't want to get in the military things about, you know, or we in the Third World War or whatever. I'm looking at this thing.

We have got fronts all over the world at this point. You weren't making the point that, you know, even some of the people in the intelligence community are back in a way. We didn't tell them to go do this. Well, my understanding is they've told them not to do it. Yeah, that's my understanding too. Yeah.

And what's the worst case? Worst case is one of these actors, meaning either, you know, Putin or even the U.S. uses some, you know, some of the types of weapons we don't want them to use. And because everybody's going to be pushed into a corner. And, but I think let's let's take out the nuclear, the nuclear bomb option. Let's go to what I think is the worst case scenario. And I think this could happen very shortly because Putin's in a really precarious situation right now. I don't know if you've seen those reports about it in that.

Let's say he just goes, I'm done. Let's just shut the world off with all the critical minerals and everything. Remember, they are the world's largest commodity. When you look at all the things, U.S. is the largest energy, but it doesn't have metals. Russia has both metals and energy. China has metals but no energy. So those are your three largest commodity producers. Two of them are Russia and China.

So, you know, their ability to choke off stuff to the West which just shut down big industrial processes. So your worst case scenario is not too far away. And I think it's, you know, I wouldn't say it's a non-trivial probability. One of them does something like that. I agree. let me bring in another commodity that again this is July 23rd. My understanding is that Ukraine, which really means the U.S. and England, are targeting Russian food supplies and wildberry and other things.

My understanding is that Ukraine and Russia together account for 20% of global grain and the Odessa ports are now effectively shut in. irrespective of the fertilizer, which is a 2027 story, I think. What about the imminent impact on grain if, let's just say, half of that comes from Odessa, so 10% of global grain is shut in? I mean, what are we seeing on the food side of things? You forgot the El Niño. Throw that in there, too. Okay, yeah, throw that in too.

My gosh. I was in the Mediterranean yesterday, and it was 46 degrees. In fact, I sent my daughter back to London. And the reality is that this was every climate forecaster was telling you this El Nino is serious. Now, you put that on top, what kind of damage it ends up doing to the crops this summer. And the harvest is, you know, late September or October. And we'll know, you're going into, you know, your hottest period is around the middle of August. we're going into those hottest periods.

And if it's 46 degrees where I was yesterday, you know, you can only imagine how hot, you know, those of you're listening that are in places like Dallas, Texas. You've dealt with the 46, but there's very few people out there who actually deal with 46. So we're moving into some really hot weather. The, and so you combine that with what's going on in the Black Sea, which, you know, at this point, they're hitting them hard,

whether if it's the, you know, the whole port. whether it's oil, grains, or whatever it means. So you're losing that, then you have the fertilizer shock for next time around. You know, that's the reason why I own the indices. Just own, I own the whole kit and kaputal across all the commodities. It's not just an oil story. It's an ag story. That's a metal story.

So, you know, the upside on agriculture, I think, is significant. And then the other thing, too, is when you're in an environment in which you have a strong dollar, which the dollar has been strong over that whole time period, incentivizes all those Latin American countries to grow acreage as fast as they can and export as much as they can. That thing's ran its course, too. By the way, the agriculture markets, they're moving. So it's not like they're being complacent about this.

They took a step back after that MOU, but they've gone right back up. And when you look at the broader agriculture indices. A lot of things we're talking about are the nominal first-order effect of some sort of energy scarcity, that prices go up. Prices like diesel, the crack spread is effectively pricing as if oil was $160 a barrel. But what would be the second, third order effect if there is persistent diesel scarcity? What would that do to food and freight and the productive economy beyond what shows up nominally in the financial prices? Let's go up with, you know, the why every president after Carter, I guess after Carter, actually Reagan didn't do it, but, you know, from

George Bush Sr. onwards did the abundance illusion because what Carter created was hoarding. That's this next round of this. And if I go, what did I get wrong in March when my biggest fear of this thing was hoarding? Because we were seeing it in metals because they were fearful that the Chinese were going to cut. And that's part of the reason why silver, went up as much as it did was hoarding, but actually by the Chinese. So I would argue that if this thing gets to the point, people don't believe the administration has control over it. Horting, I think, could set in. And there's a high level of confidence about how Americans energy dominance.

It's not like it exports because it imports a lot. Let's just look at the numbers. On the oil side. On the oil side. Gas, it's relative. long, but by the way, transportation fuels and gas are not the same thing. They're not even, you know, the fungibility is very, very low. And from an oil perspective, the United States is not that long. In fact, if it didn't have Canada, it would be short, particularly on the black oil

side. So the hoarding effect could become more serious. And are you talking hoarding within countries like the U.S. or globally, internationally between countries? I think it would be internet. SPRs are between countries and individuals are in countries. I think the next response out of the U.S. would be to ban exports a product. Yeah, I think that's coming. And that's another form of hoarding. So we've talked about the U.S., which is where you and I live, and we'll come back to that. But other countries are also in the crosshairs here.

What about Europe? who doesn't have the energy abundance of the United States. They also don't have their own sovereign, per se, to print money because it's a union of different countries. How does Europe look ahead with this energy kerfuffle in the Middle East and beyond? I'm bullish on Europe. And let's just go over, you know, what did the EU achieve? the EU was put in place to avoid any entity having a power over the other one, and it was all about consumer protection.

U.S. and China are about producer protection. The U.S. and China are in debt up to their eyeballs. Take the U.K. out because it's somewhere in between. When we look at the German-speaking northern Europeans, you know, put Europe as a, they're 81% GDP debt-to-GDP ratio. United States is at 125. China is nearly 300. So Europe is not on a debt to GDP ratio is not bad. Income equality. And by way, I live in Europe. I don't live in the United States. I live in Europe. Oh, okay. Let's go back to the debt to GDP ratio. And then the other factor that's really important about Europe is they have much greater income equality. And then they have consumer surplus. They protect it. So their starting base is a very good one. And they have a rule of law, which also capital likes.

Now, let's talk about the, so that's their setup, and they don't have War Kit 1.0. War Kit 1.0 is just proven it doesn't do much. Between Russia had 1.0 and War Kit 2.0, I say War Kit 1.0, that's artificial muscle. That was the oil-based war kit. War Kit 2.0 is artificial intelligence. That's drones and AI. And so when we look at War Kit 2.0, it's very, very significant. And so if I'm Europe, I'm now going to be spending 5% of my GDP on a new war kit. And now let's go, you know, we look at what does Europe have on the energy side?

Massive amounts of actually, the French have the nuclear capacity. The Germans have the renewables. There goes, probably all you guys are selling me, oh, renewables don't work. I agree. Renewables don't work unless you have batteries. Now, what do we learn in Iran and we're learning in Ukraine? The big refuelers, the planes, the boats, they're just a sitting target for drones. They're just too easy to take out.

Remember I was talking about you can't take those petroleum ships through the straight? Now you imagine a plane flying around with jet fuel or diesel or something like that with the drones. drones can take out B-1 bombers. 400,000 drones versus the B-1 bombers. The B-1 bombers are done. And so when we think about Europe, what did we learn from this war? It's battery technology. You have to have battery technology.

And what is Europe missing? Battery technology. And so at this point, the race is on. And people in the environmentalist community, they go, oh, I can't believe the defense guys are getting all the budget and I turn to the environment and I say, go, who created all your technologies?

Defense. They don't ever get, you know, what does that say? Necessity is the great innovator. The mother of all invention. And we're at that point. It's the first one who can get battery technologies. You don't need those big refuelers.

You want small batteries you can conceal from the drone. So the race is on for batteries. And if Europe can get the batteries and also let's go back to AI, which are the three big companies, Navidia, ASML, or TSMC is the most dominant one. Who has the biggest moat?

ASML has it. That's the Europeans. And so even in the AI race, the one with the dominant most biggest moat and powerful company are the Europeans. If they can get battery technology to fuel all of those renewables, because I agree with anybody who's being dismissive of the Europeans with those renewables. but if they have battery technology to go with it, boy, they're in a different, different ballgame. You've brought this up a couple times on electrification and batteries, and you, I believe, wrote a big paper recently called the New Jewel Order.

Yep. And your framework for our era, if I paraphrase, is that a security premium on energy has replaced the green premium. and that electrification is the purchase of optionality, and that China is way decades ahead of the West. And you said that if Europe has batteries to pair with their renewables, that's a game changer. But I want to press a little bit on the core premise, because at the point of consumption,

you argue that a jewel is a jewel, and we both understand how important energy is to our economies, but jewels differ in quality and in density and in storability and transportability and, you know, aviation and shipping and steel and cement and fertilizer all depend on specific hydrocarbons as a fuel and as a feedstock. So how do you account in your framework for a reasonably large share, I believe, around 20% of a global energy use is electricity right now? a reasonably large share of the economy that might not be able to be electrified. And therefore, all of the renewables produce electricity and the stuff coming out of Iran is liquid hydrocarbons. So there's a quality differential.

And I agree with that. But here's a difference is, let's say you get to 80% electrification. That's what you're talking about on there. Well, no, right now we're at 20%. Right, we're at 20. But you can get to 80 if you just leave the stuff like cement and, you know, jet and those things are not that big. The core of this is still transportation fuels and then gas going into turbines and things of that nature and coal. Remember, coal is still the dominant hydrocarbon here.

Now, the point being is coal, gas, and oil have a marginal cost of consumption. renewables, batteries, and nuclear power have zero. And if I'm China, and if I can, in the AI race is really an energy race, and I can dominate all my electricity being produced at zero marginal cost, game over for the rest of the world. Because remember, the stuff you put up front is sunk cost. Somebody else paid it. The guys in the future don't have to pay it because the guys in the past paid it.

And so when we look at, like, you listen to, and there's probably people on the listeners will tell me, but Jeff, the gas fire generation capacity is so much cheaper than the renewables of the battery. Yeah. Maybe it's by factor of seven. I don't know. Does China care? No. They're going to keep going because when they know, once they have it, they may spend tons of money getting there, the marginal cost is zero.

versus the marginal cost to do that coal-fired generation capacity in U.S. is, what, $3 an MNBTO? It's a big difference. And so then everybody's consuming their data centers, their LLM models and the rest of it, and their robots are being driven by zero marginal cost. This is like when the Americans built the railroads between the east and the west, you know, Pacific and the Atlantic. It was game over for the rest of the world. So can you envision a future scenario, given all the constraints we've already discussed, where the peak demand thesis on oil is actually somewhat true that we don't need liquid fuels 10 or 20 years from now because of these other things?

Absolutely, where China is going. And if you look at the, you know, could we end up with a world where we have the petro states and the electric. states, and that's your separation, like the old East-West, yeah, I think we could end up with that way. Actually, watching Ukraine and watching Iran in the last six months, I've come to conclusion, you've got to ditch the petro state. You got to artificial muscle was what oil was. It was artificial muscle. The artificial intelligence is just like, from my understanding, these in the last couple of weeks, you got these drones sitting on these fiber optic cables. I guess there's fiber cable coming out and ran all over the place.

You're not going to win a war where you have a million-dollar Patriot missile used to take out a $40,000 drone that can turn. By the way, the reason why they have it on the fiber optics is because in Russia, they were having to shut down the banks and everything to get the Wi-Fi off because the Ukrainian drones would use the signals off of the Wi-Fi to keep going. And so when you hear these things, they just shut down the Internet, and then the drones come in. and you're getting swarmed. And so the ability to have artificial muscle, you know, something that could smash it all up. That's just that technology is no longer, you know, actually here's a stat for you.

What horsepower, think about that's what artificial muscle was, horsepower, the constraint on automating stuff was never that. It was constraint was cognitive cognition. And so we only automated or, you know, 20 percent. There's another 80 percent left to do now that we've unleashed the constraint from horsepower to cognition. So the amount of things we're going to mechanize and do all this stuff, and that's batteries. That's electricity. And so if you would have asked me that question, Nate, six months ago, I would have had a very different answer. But just in the last four

weeks watching what Ukraine is doing and watching what the Iranians are doing, which is really Russia's learning from the Ukrainians who then bring it into Iran. And, you know, use it against the Americans. So, and so I think the, it's just, it's just, I, I, I, it's just, I, I, it's just different ballgame. And I, and I, and I, and I, and I, and I, and I, and I, and I, and I, it's, of all this. Obviously, you have a lot of contacts and you check in, but it's a whole encyclopedia of topics that are converging here. My wife complains I'm on the phone too much. Literally, the one advantage of sitting at Goldman for three decades was the being able to talk to people. And it's just sitting there talking to people who are sitting in there in Doha,

like on Sunday, telling me about, oh, yeah, I just had one that come from 3D computers, fall through a ceiling one of these drones that the Iranians were, you know, and he's looking at the thing going, okay, yeah, it's got this and that on it and everything like that. But it's, it's, it's, that information flow is just,

it's becoming faster and faster. But to get to the cognitive, uh, helpers, um, we're still going to need the artificial muscle from fossil carbon, uh, to build the data centers at the scale that, is required to keep up with China.

And that itself is going to be a huge demand for commodities, as I think you mentioned earlier. How is that going to play out? Oh, I think we're going to run into real shortages as they try. And here's the point I say, of that $800 billion, all of it's going to go under the price of copper. Not being an executive here is that, you know, as they continue to put more and more pull, and you already see it happening, the human beings are renewable resource. Yeah, I say that too. Copper in energy are not.

And we're going to burn up. We're going to try to turn, change humans into a non-renewable resource base. I just don't see just this simple mass is it's going to be more expensive. So they better be doing some really important tasks that they, because they ultimately are going to end up costing us a loss. And we're going to be more material into them and things of that nature than what we did before. but here's the way I like to think about it. The old technology data stuff, that was infinitely scalable at zero marginal cost.

Like software, I publish it, send it to, you know, I create it and then roll it out all over the world. And that's how those companies became so profitable and so dominant. Now, they're in good old fashion, putting steel in the ground-type businesses, systems that a lot of you guys are probably all very familiar with. It has an upward sloping supply curve. The more you do, the more expensive it becomes. And so I think what's going to happen, and you already hear it and looking at the, my way, I see it on, I use Claude and I use the max version.

My thing spins all the time because I run into the constraints. There in London, it would run into power constraints on a regular basis. But so the, but the reality is that you're already feeling that and you're getting, you're hitting that physical floor on the cost of doing this thing and your tokens and running out. Eventually, people, and ultimately, the fact that it's a physical. fixed fee and not a, you know, pay as you go like your cell phone, which means we're going to quickly move in. They want to get you addicted at the fixed fee. And then they're going to move in and the cost of this thing is going to explode. That's one of the deflationary risks to a bullish commodities scenario is that we're building out all these enormous trillions of dollars of credit

and the hyperscalers and all these things. And if society can't afford what's required to keep those companies profitable, there may be an AI winter sort of scenario. I mean, I don't know that for sure, but I see that as a potential risk. Oh, I think the valuations of these companies, 40% of the S&P, listen to anybody that has been around these markets, this is like a very precarious situation we're in right now. What's going to be bad is for the governments, not for the companies. I think those overvalued companies, that are sitting there that like Google, they're going to experience like what the oil guy is experienced in 2014. Yeah, it's going to hurt. They're going to be painful. We've all seen it.

We're going to get through it. It's not that bad. But let's go back to your point about the U.S. and the sovereign credit. Where is the real imbalance sitting? The real imbalance is sitting on the U.S. government balance sheet. The real balance is sitting in the U.K. balance sheet. The real balance is sitting in the Chinese imbalance.

Blah, blah, blah. List goes on. all of these sovereigns are in a really precarious situation. Yes, Google is not as good as off if it was better. It's going to pay a price to it. All the too much money went in, two investors got too excited about it. I don't want to get into it, but it's not going to be, you've seen it before. I've seen it before. We're going to get through it. It's going to level it out and they'll smooth it out over time. But the, but I think what's what's happening at the sovereign level is very, very, very more dangerous. It's far more dangerous. mentioned earlier about what China's doing and they've been building excess capacity on energy and systems for a long time. And I think you've written that the West may now have to build its version of such a system under duress at a crisis cost and from a depleted diminished strategic position. So what does building under duress actually look like? And what might we have to sacrifice because of that precarious position.

You know, China's cut that cut back all critical minerals and we don't have any access to it. As one example, yeah. You know, we've exhausted the SPR and we need a lot of energy to, and diesel. Back, diesel is where the shortage is. As another example, yeah. Another example. We need to, you know, basically we're out of turbines to be able to get the power generators to really kick up the demand for. the data. I think the other thing, too, about on duress is the technologies, we're making

at one side, one porous pony bet here on the AI is that we look at China. China comes out with, you know, a whole new technology is more energy. Even the consumers go, hey, why am I consuming this one? I can consume that one, you know, a fraction of the cost. There's a lot of pitfalls here that when I talk about duress that can make this a much more difficult. The other one, is what if we're in a full-scale, you know, war or something like that? A lot of your clients and some of the people listening to this program want to know where to invest their money. And obviously you're laying out a case that commodities, especially oil and copper, are going to be going up in the future. Gold.

I'll put gold into that list, too, longer term. But where I was going was, um, we. We live in a society that has governance and innovation and people. So financial predictions aside, what kind of policies and actions are you hoping to see governments, the U.S., the U.K., and leaders pursue as our systems enter this period of recalibration in terms of our expectations for physical goods and the reality of their continued availability of their continued availability. What should we be doing people that are in those spheres watching this show? I'm a Chicago trained economist, you know, very much. I won't hold that against you.

The, and I'm going to say this and I don't want to come across it, but I think state capitalism is back. What does that mean exactly? It means that you're going to have to put a lot of money. States are going to have to back these things. They're 27 year duration projects to really move. And why is China, moving so quickly in doing this is because they just go in there and they do it, they back it, you know. So the fact of having a state sponsored capitalist model where you're going to help finance quickly, because think about what was, what was World War II when the United States could just build all that stuff? It was state capitalism. You know, it was going in there turning, you know, auto plants into weapons plants and things of that nature. I don't know where we're going to have

ago, but here is the core problem. It goes back to where we started this discussion. Nate was, people don't like the space. There's not a lot of money in it. And the reason they don't like it is because it takes so long to build out. And it's not going to give you the home. By the way, it's a relatively stable return once you've built one of these things. It costs billions and billions to build it. And like to take a copper mine. It's going to take you decades to get that thing built. Investors do not have the tolerance for that. long of a duration project. And then the cash that comes out is more short-term yielding.

So it's a very, they're not, they're very difficult for investors to swallow relative to other types of investments. So said differently, the financial market participants are not likely to invest in and build the societal infrastructure that we're going to need in coming decades and the state is going to have to intervene. Unless we can come up with ways to extend the duration. And it goes back to, let's go back to 3% of the S&P is energy three to four somewhere that range. And like one and a half is basic materials.

Too small. And 3% of energy is like 95% of the floor of our economy runs on energy. Anyway, I also want to make it clear to the leaders. Why I think peak oil demand is going to be happening much sooner than I think people have. I think this, once it moved out of, once this discussion moved out of the environmental and went to security, I think it's going to get turbocharged and happen for real. But the, but I think, you know, thinking that this, I'm arguing peak oils tomorrow, no possible way. You still need to invest a lot in oil to keep the system. It's going to, it'll take you years.

But the one thing that will change, I think the battery technology, now it's in the hands of defense players, will get there a lot more quickly. You were referring to the demand for oil, but what about peak oil supply? Oh, that may be already on top of us, which may force this way faster. Exactly. Because we don't know how much damage we've done to Russia. So if you've done damage to Russia, we don't know what's happening in the Middle East at this point in game. If you took out Russia in the Middle East, well, folks, you better learn how to make those batteries really quick. Or plant potatoes.

Yes. So I want to be respectful of your time, and I have a few closing questions. I ask all my guests. But I want to do one more oil question. What's the truth and the reality of the Strategic Petroleum Reserve in the U.S.? And how close is that to being an issue? The numbers I was given before the government published, there are 70 million barrels. And this was done right after the Biden administration drew it down so much.

Was somewhere between 270 and 300 million barrels. And let's remember, as you pointed out in this discussion, Trump himself said we were getting close to the bottom. But the Department of Energy just published, $70 million is where you can take it down to. I'm going to stick with the original 270, 300. And Amos Hochstein, who, you know, was Biden's energy guy during that time period, he said 300. He lived through that and watched it firsthand. So the 270 to 300, you know, engineers have published it. I think we're getting close to that. And that's part of the reason why that MOU was signed so quickly. And so I think, you know, it's something that's coming up close.

But what happens when we get to those numbers or below? Caverns, cave in on them. And so then we're back to whatever we're producing from the wells and being refined mixed with Canadian and Venezuelan crude. So this is the moonshot in product prices where that to happen. Yep, yep. Yeah, yeah. So the risk are quite high when we get to that point.

And that's when you, this thing can go a lot higher. I will make a prediction publicly right now that you are going to be a very busy man the next six months. Yes, I have to agree with that one. So what can someone listening to this episode do now today, this week, this month to help address some of the risks that you discussed in this conversation, or is it all up to politicians and leaders? My guess is most of the people that listen to this understand this and are frustrated as well as I am, the inability. I think it goes back to the point. It's really at the core of this is how do you get somebody to move away from something that of 53% of the S&P that's going in line straight up?

They're all making money and go, hey, go buy this volatile thing that's 3%. That's what needs to happen here. and you have the abundance illusion that the Western governments are pursuing that, you know, make it more difficult. And in the op-ed piece, I said, the, I call it the paradox, the physical capital paradox. And I asked, why won't they? By the way, the free cash flow yielded the energy companies is 15% right now. I call it the munificent. Munificent means gifting lavishly, munificent seven. Why aren't people putting money into it?

They won't. It wasn't the great returns in the 70s that got people to put money in the space. It was shortages. It was lines. In the 2000s, it wasn't people both seeing that, oh, metals are a great thing. By the way, those BHPs, these things went up 50x. It was they saw the shelves of the warehouses get empty. People don't buy these stories until you run out.

And then that capital flow. So I don't know if there's much we can really do and watch it and be frustrated because I think many of you are like myself. And I think it will take the actual shortage to get people to move. And then we get the capital move. And it's a different ballgame. The ex-head of the CIA and Secretary of Energy James Schlesinger, who gave me a hug once after one of my talks, famously said America has two modes, complacency and panic, which is kind of what you just said. So you mentioned you have children. What specific recommendations do you have for young humans in their general?

teens and 20s who become aware of some of these constraints and El Nino and all the things going on. You know, the number one thing is that I tell everybody is just make sure you understand AI and become AI literate and, you know, there's apps, engineers and things of that nature. Because the questions in you can prompt it, you know, I, you know, I catch myself up late at night talking to Claude and learning things and understanding. If I, if you guys are all systems people, I think you're probably guilty of that as well. But I think, you know, the best advice is just be incredibly literate on it. Because if it gets ahead of you, your ability to catch up is, it will be incredibly difficult. And so, and, you know, it's like I deal with

people some of my age, and they, they don't subscribe to the max version of this stuff. Subscribe to the max version of this thing and, and use it and become completely aware of it. And, you know, with my daughters, you know, it's like we sit around, we use. it with them all the time. And, you know, it's just, I think it's, you know, falling behind in this technology will be very dangerous, not only helping out the issues that we're seeing right here, but more broadly. And it's a wonderful tool and we should be using it. I do predict another prediction that there's going to be a bifurcation in society, those people that follow your advice and those people that find that advice abhorrent for whatever reason. And

the people who use AI or can afford to and the people who don't is going to be a bifurcation in society, I think. Yeah. What do you care most about in the world, Jeff Curry? I care most about being connected with other people and making sure we make decisions that are going to make the world better off in the future. If we sit in vacuums and don't communicate with each other and you're asking me, why do I sit on the phone all day and being connected? It's just understanding and helping, you know, bring that information and being aware of what's important and trying to make these right decisions. I love that answer. I'm the same way. And my girlfriend complains all the time that I'm on the phone. I like to hear it. So if you could, this is maybe

an unorthodox question, but if you could wave a magic wand and there was no personal recourse to your decision, what is one thing you would do to improve the future? Yeah, I don't want to sound like like the environmentalist, but I, you know, I look at our planet and, you know, they're all tied to the same situation, is just creating an environment where we live in a way that respects the place that we, everything we're given so that, you know, when my, I look at my, I have a 22-year-old and a three-year-old, and my three-year-old, I look at her every day and I want to make sure she has, you know, a world that's safe and secure. And part of the reason I had to see her, leaves fame. Forty-six degrees is in an environment that's just not healthy for you. She was passed out

on a couch yesterday. So she's back in London where it's cooler. And that's kind of frightening. It makes me happy to hear you as a Wall Street icon say that because I think the planetary boundaries, not just climate, but all of them are not really on the checklist of most people in the financial industry and I fully agree with you. It was great to meet you. Thank you for your time today. Yeah, Nate. It was a pleasure. A lot of fun. Make sure and get some rest in the coming months. We're going to need your brain and heart. Yeah, I'd love to do this again sometime. It was quite a pleasure. If you'd like to learn more about this episode, please visit the great simplification.com for references and show notes. From there, you can also join our high-low community and subscribe to our substack newsletter.

This show is hosted by me, Nate Hagen's, edited by No Troublemakers Media, and produced by Misty Stinnett and Lizzie Siriani. Our production team also includes Leslie Batlutz, Brady Hyann, Julia Maxwell, Gabriella Slaman, and Grace Brunfield. Thank you for listening, and we'll see you on the next episode.