Goldman’s Jeff Currie: It’s a Commodities Supercycle, and We Still Haven’t Hit Max Pain

like not a huge deviation from the forecast. But of course everyone's talking about the idea that, well, all of this was supposed to be transitory, and yet you know, here we are almost two years into the global pandemic and it doesn't seem like any of this is going away, right, And so of course there's this debate about what transitory means, doesn't mean pandemic related or does it mean brief. So

we're sorry to split hairs on that. And then there's also you know, of course, the deviation between headline CPI, which includes energy prices core which doesn't. But the degree to which you could really ever like separate out commodities from the fact that commodity to go into everything is kind of impossible. And with the exception of a few things, I mean, we are on a massive commodity slash energy

bull run. Yeah. So the crazy thing here is that people were worried about higher inflation, even before the commodities market really started going nuts, like just in the past

month or so. I mean, I'm looking at some of the energy headlines that have just come over the Bloomberg today, and it's stuff like, you know, European zinc smelters cutting production by as much as fifty because of higher energy costs, and you know, a flood in a major Chinese mine and the Chinese government ending its intervention in the coal market, so basically liberalizing that entire market, which isn't something that you tend to see that much in China, but is

something that is sort of needed given the energy pressures right now. So things have just gotten like to a whole new level when it comes to commodities. Yeah, and it's interesting you framed that really well, because you know, sometimes we do our logistics episodes and one of the themes is the way these sort of pressures compound. Right, So something that happens at the Port of Los Angeles ends up affecting warehouses, which ends up affecting truckers, which

ends up affecting rail and Chicago. And it feels like on the raw commodities front, you see the same thing where it's like, oh, some energy price spikes, and then the zinc smelters and the fertilizer companies have to pairback production because their production is no longer is profitable, and then that feeds into you know, some other, some other

commodity or something like that. And so it feels like there is a similar compounding effect, and it's probably you know, it seems like a combination of demand supply obviously, and then there's sort of like all kinds of idiosyncratic factors, like whether it's droughts or whatever. Yeah. Well, the other big thing that people are talking about now is how much of this is caused by the transition to clean energy.

So this idea that we've had years of structural under investment in traditional fossil fuels and now we're sort of reaping the consequences of all of that. You know, we don't have enough renewable energy to satisfy demand just now, but we also don't have enough traditional fuel. So there's just so much going on in the space. Yeah, and that that seems particularly salient in Europe, where they sort of pretty aggressively phased down nuclear and now the natural

gas bills are storing anyway. Wait, wait, I just gotta say now, some people are talking about reclassifying nuclear as e s G, so something that would fit under the Environmental and Social and Governance friendly mantle, which is something that you know, if you suggested that a few years ago, people would have gone absolutely nuts. Anyway, go ahead, anything to fit anything within e s G is probably like

its own it's own storry. Anyway, we have the perfect guest on because not only is he probably the best person to um talk about commodities with period, but we've had him on before. We had him on earlier this year, actually in January, and he was very bullish on commodities then, so being very knowledgeable, yes exactly. In addition to be extremely knowledgeable, he also has the benefit of having been correct, which a lot of people weren't. And so now we

are we'll see what's next. Excited to bring our guests. We're gonna be speaking again with Jeff Curry, here's the global head of Commodities research at Goldman Sachs. A real treat to have him on. Jeff, thank you so much for coming back on odd lots. Great pleasure to be here again. So it's been I guess like nine months since we had you on in January and you were sort of called, you called you were bullish, and you said, this is like a big one that used a big

cycle coming. And obviously if you just look at the Beacon, the Bloomberg Commodities Index or numerous you know, other headline measures, that was right. And so what what's your take on what what happened? What how did How does what happen to compare to what you foresaw? It's far more bullersh than you know, we could have ever envisioned. Let's take oil. The deficit that we can measure at the end of last month was running somewhere around four point five million

barrels per day. That's nearly five percent of the market. Isn't a deficit that is such a large hole that OPEQ, the US administration, nobody's going to fix this. This is like you know, the train is off the track and you're watching it in slow motion. But it's not just oil. Uh, you see it in copper. Copper inventories dropping eight percent, ten percent week after week. These are numbers I have

never envisioned or never seen before. You know, and you can think about what is going on here, and I think, you know, it goes back to Tracy's point about that zinc smelter shutting down in Europe, that problems in one market create problems in the other. So we think about you know, you know, first it was coal in China, then it became gas in Europe. Um, then it became aluminum in China, which then impacts copper elsewhere in the world. And it keeps this chain reaction going, and each one

of these markets get tighter and tighter. So what is it about oil that makes this deficit so much larger than we could have ever envisioned. It's because you now have oil being used in lieu of both coal and gas because of the shortages in those markets. So bottom line is, you know, we see a lot of upside risk from these price levels which are far greater than the price levels we were forecasting when we spoke not

you know, nine months ago. So bottom line, the underlying picture is far more bullish than what we had expected nine months ago. But the drivers of it are pretty much in line exactly what we thought, just in a

much larger degree than what we thought. Yeah, if I could just press on that on this point, So I remember when when you unveiled your bullish commodities pieces, UM, you know, around the start of the new year or at the end of you sort of had like a trifecta of reasons UM that you thought were going to drive the market. And one was the idea of this redistributional demand, so basically, you know, people getting stimulus checks and going out and buying new things and buying steak

dinners and things like that. And the second one was I think structural under investment in traditional energy like oil. And then the third was this idea of supply chains and stockpiling, so people just sort of trying to build

up their own energy independence or resiliency. And I'm curious, just looking back at that framework, is there a particular thing that that has surprised you or stood out, Like, is there one leg of that sort of tripod analysis that has UM really like caused the big spike that we're seeing. Actually, all three are far more important than what we ever envision, and I actually want to go with the one that predates COVID, and the one that

predates COVID is the under investment thesis. You know, the theme that we termed it is the revenge of the old economy put bluntly poor returns in the old economy, saw a capital redirected away from the old economy and towards the new economy, basically taking from the exxons of the world and given to the netflix of the world. And as a result, you starve the old economy of the capital base it needed to grow production and hence

the problems with today. So if it's trucking in the US, which is old economy, chip manufacturers for autos which is old economy, energy and gas in Europe, or coal in China, they're all the same story. Now you can argue with the hydrocarbons, as you pointed out that you know the E S G factor turbo charges this story, and it clearly has in places like Europe. But I want to emphasize at its core is that these companies have failed to delt over good returns over the last five to

ten years and investors have had enough. And I like to point out, you know, we got a lot of investors back into the commodity and old economy space, you know, and when we were talking last January, but prices went up to eighty this summer on on oil. I remember it was late August, round August there was a Friday Oil collapsed back down to six five, and these investors going, you lured us back in there, You said the coast was clear, We got in here and we just got

completely hammered in terms of the volatility. They left. Then oil prices, where are they getting their back up to eighty three? And that there's something inherent about the investments in here that make it difficult to attract capital. It's not gonna be a smooth ride, you know, like it is in tech stocks where you just trended up. Instead,

it's going to be very volatile. So the bottom line, we're sitting there eight four dollar barrel oil um today and there's no evidence of big increases in capex drilling, greenfield capex in in in metals or you know, new eight re gen agriculture. I can keep going down the list. So not only are the C suites of the corporates not spending on capex, but the investment dollars in this

space is quite low um. And as a result, if you get the investors to come back into space, which we think could happen if we go into year end, it could catapult the situation on relatively tight fundamentals that I started this discussion with. So I would say that's the one I want to point out the startk But just quickly on the redistribution story that that you bring up. The redistribution story is much broad based around the world.

Then then what we initially thought and if we think about you know, in the US when we were talking to January, we have ever envisioned the three point five trillion dollar US Human Infrastructure Fund. Absolutely it was. I mean, it shows you how much larger these redistribution policies have become. Also, you know the one point nine trillion dollar Recovery Act back in you know, March then we thought it's going to be one point one trillion. It shows you just

how much bigger these redistribution policies. China has its common prosperity green leveling. Here in the UK, um, so it's very you look at Germany's government um going moving left, you know, Latin America's move left since we last talk. So the bottom line is, you know, the redistribution policies are also bigger than what we thought. And then finally just point on you know about the call it deglobalization. I'd like to argue the trucking problem in the US

exemplifies the problems around d globalization. Is because you have too much stuff being produced locally at home in the US, which overwhelms the transportation, warehousing, trucking, rail system, which has helped create some of the problems there. So when we can think about United States exemplifies the problems with de globalization. Europe exemplifies the problems with de carbonization with what's going

on in its gas crisis. Anyway, that's a long answer to your question about all th surprise to the up side. I mean, we want to hit all these topics more, but let's go little bit more into this sort of like decarbonization E. S G stuff, because I think there are a lot of people who are like, ah, we

told you so. You had your like you politicians had your visions of like a green economy where at all like how everything with windmills and solar panels and now look and now look at the price we're paying and maybe we won't even be able to heed our homes. But the way you described it as a little bit as like maybe some of that, but also like politics society. A lot of these traditional fossil fuel investments were not

great period. So how much is it sort of as you say, decarbonization policy, they've contributed to the that's contributing to this revenge of the old economy versus decarbonization economics where people just weren't making the investments because the numbers weren't good. Yeah. That the bottom line is the returns in this sector were abysmal. And I don't care if it is oil again. When you say this sector, you mean, we're just to be clear about oil prices were negative

last year. You couldn't create a more hostile environment, you know. So when you look at the investors that I try to get to come back in this space, they're going, no, I've been there, I've done that. I know how painful this sector is. Um And so the way you could argue is E s G. The binding constraint. Show me a great company with fantastic returns. It's not getting capital due to E s G. Right now, they don't get returns because they've demonstrated a very difficult environment to generate

returns on average. In fact, you know, you look at it, they've shrank down to two and a half percent of the SMP five, which show to give you an idea, in the late seventies they're running around. So it's a big shift here. And I think you know so you know, I spend time talking to many um, you know, energy specialists, and you get C I. O. S of these big asset managers on going, hey, I'll listen to him once, but I've been there and done that before, and I'm

just not that interesting. And here's a point when you look at the two thousand's um that bull market prices spiked in oh three, but it wasn't an until oh six that the capex began to flow. Why because they had a couple of years of really good returns and the and the investors felt really good about it. But I think you know the key point here is first and foremost it is the revenge of the old economy and poor returns why the sector doesn't get money more recently.

You can say that you know it's likely to be E S G. But I'm gonna give you an example in Europe where it clearly is E s G. You know, the courts in Europe the head ruled against Shell, made Shell liable for scope three emissions. That's what the users of oil created. You know, that's massive liability. UM. Yes, they all appeal. It is going to be you know,

five ten years from now. I think the key point here is that UM with that kind of liability risk, nobody in the right mind is gonna make large scale investments in places like the North Sea again because they don't want to be associated with that kind of live So it is beginning to bite. But is that you know your standard E s G um investors And I do want to say, they've raised the cost of capital

and we're going to find out. And this is where the E s G really comes into play, because we're going to find out what price of oil do you need to get capital to flow? I like Scott Sheffield of Pioneer, he said a few weeks ago. He goes, he I don't care if the oil price goes to a hundred dollars of barrel. I'm not going to drill. What's gonna make me drill? I need my stock price to double. And we're going to find out at what price of oil these investors will start to buy these

stocks again. You may be maybe right, Joe, and maybe you know that they're just not going to buy it because of E s G concerns. I tend to think that's not the case. There is a cost of capital associated with de carbonization, and we're going to find out

what that cost is. Just on the topic of oil, I mean, how much blame can you lay at OPEC for investor unwillingness to put money into stuff like US shill So you know, there was always the sense that if shale flooded the market, then OPEC would react in some way and boost their own production and drive a bunch of the shale producers out of business. And then now, even as we see oil prices pressured higher, I mean, OPEC is still being pretty disciplined in terms of production.

They haven't said they're going to ramp up output by that much. So I guess the question is, like, what role does OPEQ play in investors calculations? The current OPEC they got religion, they understand it, They've been through a lot of pain. They couldn't have a better business model

than what they have today. They're focused on balance in the market on a near term basis, keeping inventory low, keeping the forward curve and what we call a backwardations are focused on what they can control, which is the very near term balance, and then they create a credible threat that will bring on in capacity, bring investment on, which keeps the back into the curve it depressed, so they got what we call a back redated curve. Spot

prices are high, back end prices are low. But to get to that level, well, to get to this great discipline and that I would argue, you know, a great um policy structure which makes sense of given how much share they control in the market. It was a big policy mistake, and that policy from November sixteen till March of two thousand and twenty was utterly disastrous and created a lot of problems we have today. They didn't. They not a monopolist. They're not like the Federal Reserve, where

they have a percent market share over the dollar. They don't have. They have, maybe you put them all together, a thirty three to market share over the barrels. And so for their ability to cut back production and maintain prices at six sixty five was always invariably unstable, and the investors that got lured into investing in the sector based upon that sixty dollar price had a high probability of having the problems that they ran into in late nineteen in um so, but I do want to say

I think they've learned from those mistakes. You know that the new group of of energy ministers in particular, I think they understand all these issues, and so I'd argue

that they're doing a fantastic job. But they're they're really sticking to what they're supposed to do, and what they're really good at is managing a near term imbalances in the market and focusing on providing capacity on a longer term basis, which has left the curve and the forward curve and a backgradation which makes it really difficult for you know, the e MP producers to hedge. Why because prices are a huge discount on the back end relative

to where they are on the spot. So before we move off of oil, I want to talk about US oil a little bit more. And you know, I'm thinking back to like the good old years, and there was this perception, or there was this characterization of US shale as the swing producer that sort of kept a lid on prices because as soon as prices would rise a little bit, they could quickly ramp up production and that would bring prices down, and part of it was a rate story, maybe part of it was a technology story.

What is the status of US production now and why is it not having that effect of being able to ramp up aggressively and sort of smoothly. I mean, I think there is some increase in the ring counts, but as you as you said, not that much. So why are we not seeing something greater out of the U s as a stabilizing for US? For one, back then, you know the companies were rewarded on volumetric growth, not on return on equity. The investors paid a terrible price

for that period. You look at the industry and you know it destroyed a lot of wealth, like ten to

twenty cents on every single dollar. I think the number is actually closer to thirty cents on every day super basically like every so basically that aggressive supply response it was just a mistake, Like it was just a bad it was it was in retrospect, it turned out to be a bad approach to business because they were they were operating at like a hundred and five hundred and fifteen percent of cash flow, So you know what they were doing is they're basically growing volumes on the expectation

of future returns. But obviously when you grew all those volumes, you get crushed on the back end in terms of what was being delivered, and so the focus left being a focus on r o E and instead being a focus on growth. Today the focus is on r o E. They want to get those return on equity up. And by the way, the investors who owned this company, they want their money back, you know, the the the OPEC

ministers want their money back. Everybody wants their money back from the disastrous experience over the course of the last

call it, you know, five to seven years. So at this point you look at why aren't they drilling because for the first time in nearly a decade, in fact, you probably have to go back to oh yeah, you got to go back to oh seven oh eight, that these companies are finally getting free cash flow going up, they're not overspending um, they have returns moving higher, and so now they're getting rewarded on return on equity as

opposed to growth. And it's gonna be a while. They're gonna get they want everybody wants to be made whole, and then they're going to get the green light to go out and invest. It goes kind of the point. I think Scott Sheffield got it right. The focus here is not on the dollar price of oil, but where is their stock price and their access to capital. Now here comes the whole E s G issue, which means that that hurdle rate is going to be higher and higher before that capital is going to come in and

make that stock price go higher. I tend to think there's always somebody in the world out there who's going to buy this, which is why when you look at the you know, the investors that do pursue, you know, these E S G strategies, it's going to be difficult because there's gonna be somebody out there in the world that's not restricted around these is gonna go out and make these investments, which I think, you know makes it. You know, it's not a level of playing field right now.

Since you brought up E S G, I mean, I guess the obvious question here, the big question is what does all this mean for E S G or green investment. Do we start to see a backlash to green investing and do investors, you know, maybe start pulling out capital or put less capital in or divert some capital to you know, older fossil fuel energies things like that. Well, I, you know, I have a couple of points on that. One.

Divestors never solved any problem. And when we think about you know, with with you know, e s g in particular, it came about originally because the Europeans were getting frustrated that the Americans and Chinese were not doing anything on the policy side. But why the problem? Why the investors drifted into the policymaker lane as the policymakers weren't doing

their job. And when we think about what job they need to do, they need to create you know, rules around decarbonization that allowed operators to operate around and gives investors the rules of the road in which to invest around. And that's kind of the problem, is that there's this nether world as occurring. They got these investors just trying to invest in our policymakers trying to make these investments in things that they don't really understand. And I think

it's a really risky environment that we're in. And I think what's going on in Europe is a testament to what the misallocation of capital that it can occur in this environment and where you're not let markets dictate and policymakers dictate what the rules of the road are and what you know, you know investing around those rules of those roads. M hmm. Just just on one of those

points there. I mean, the point about the role of the government there is well taken, and that's been one of the major criticisms of E s G, that they're trying to fulfill something that should actually be done by governments and through new laws and things like that. But there's also this sort of foundational debate in e s G about whether or not it should be investors engageing

with companies to make them change their behavior. So you care about the environment, you're invested in x In or Shell or whoever, and you try to encourage them to change their behavior by actually being invested in having a relationship with the company, or do you ignore them all together and invest only in companies that are doing renewable energy that have divested all the old traditional dirty stuff and you try to increase the cost of capital for

anyone who is basically in that old energy space. UM, I don't know what my question is here, but like I guess it's how do you think like E s G should function, Like what is E SG trying to do? I I think you know your your X on example is is spot on. You know, it's it's going there and you know, going in there and helping the situation and trying to find the solution is the right answer. It's the divest your knee jerk reaction that's the dangerous one.

And I want to really distinguish between that. So when we think about you know E s G, that that that you know preserves the you know, the market signaling, then it's it's working great, it's just there where you go. Okay, anything that's hyder carbon is bad. Let's shut down the investment because bottom line, India should not have three days of coal stocks left right now. Just think about that, three days of coal stocks. If all of a sudden you had a major disruption, India would be out of

power in three days. That's a dangerous place to be for one of the largest, most populous countries in the world. Let's talk about some of this sort of like ongoing sort of mechanical disruption issues that we're seeing. And I want to actually focus in on what we're seeing in China because it seems to be there's a number of

moving parts. Tracy and you both talked about that earlier. Overall, what is your take Let's start a big picture and then maybe zoom in on specific commodities, but overall, what's your take on sort of like the Chinese energy picture because it seems like very extraordinary and unusual. Well, I you know, it boils down to um shuttering of you know, very toxic cold mines. I like to point out what what China is going through today is very similar to what the US did in the seventies when you know,

creation of superfund sites. So it shut these down reasonably. These things are very toxic. Then you don't have the investment in coal globally, and then you have a foreign policy spat between Australia in in China. So you put it all together. The access to coal drop tremendously post COVID son And by the way, this is all stems

to the fact that these supply constraints were there. It took that post COVID surge in demand that exposed it all across you know, metals, oil, gas, coal, trucking, you know, whatever picked your industry, it exposed them all in the old economy UM, and it had probably have happened to be particularly acute in coal in China. So then what happened is then they had to replace the lost coal with gas, so they started to hoover up the world's

l n G supplies. Then they replaced the hard to replace in it more recently with with oil UM and that's what's helped create the big deficit in oil in the BID and oil UM. So the bottom line is, you know, you put it together, the situation is dire enough that are even our economists have trimmed fourth quarter GDP to being flat with three quarter and taken down

first quarter of twenty two. Now there's investments in coal and mongolia, and then you know potential increase in exports of three hundred thousand tons that many people point to that means this problem goes away next year. UM, it eases the problem. What about further growth rates in GDP and more activity. It just puts more stress on the system.

That's why we like to argue this thing is a supercycle, meaning that and then think about how much stress you put into um, aluminium, zinc and all these other industries where you've had to shut shut down smelters. So if you want to really think about the chain reaction here, Um, some people kind of simplify the world, it starts in China, coal and China, and then that creates tightness and gas that created the problems in Europe. Europe subsidized substitutes into oil,

creating a problem in oil. You've shut down the alley smelters, zinc smelters, and that, you know, so a lot of people say, you know that that the ground zero of

this problem really was coal in China. So I do want to say the situation in China is very dire, but it's just one power of the world that can create a solution to it rather quickly than they're trying to with investments in Mongolif I want to be careful about restarting a lot of that shuttered coal, for those of us that are Americans and know what a super fund side is in the US, restarting these facilities is going to be a lot more difficult, a lot more

expensive than I think what people think it will be. So you really got to focus on the new, more cleaner, sophisticated coal and some of these mines in places like Mongolia. So bottom line, it's going to be tight over the next three to six months. But once you get that Mongolian coal up and running, um the situation at ease.

But no way doesn't solve it. You mentioned it briefly, but you know, when we when we talk about important global commodities, obviously the first one that comes to mind is probably oiled and I don't know, maybe natural gas. Aluminum prices thirteen year high in China, and of course aluminium is used in all kinds of just everyday item. So for thinking about how commodities bleed into sort of normal inflation, that seems like an important one to focus on.

Can you walk through a little bit more about the economics of aluminium in China right now and what you see going on sort of like putting this inexorable upward pressure upward price pressure there. Aluminium is a unique commodity. You know, it's the climate change paradox you needed to solve climate change. But it creates a lot of emissions in the production of it, so you know it does to the same And so when we think about the situation in China right now, if you're operating on a

call it a carbon budget. You know, you're allotted this amount of carbon production for your economy. One of the most polluting verb you know, commodities, In fact, it is the most polluting commodity to produce is aluminum. You're not gonna want to produce. It's gonna be the first thing you shut down and you think about what really is aluminum? It is solid energy. You just take aluminum electricity, you put the two together, and now you've got, you know,

a solid piece of metal there. So if you're trying to conserve energy, conserve you know how much carbon you're emitting, the first thing you're going to pull the lever on is going to be aluminum. Which is why, um, you look at you know, just you know, you know it's China's get cut two million metric tons of capacity. Now that in about a fifty million metric ton market, so it's sizeable in terms of what they've what they've taken out on top of you know that stuff that's already

been taken out elsewhere in the world. So that's really at the core of what's driving this. By do to go back to the point about cost push inflation, the commodities being drinken by cost push inflation, there is zero evidence of it. It's always demand pull in the sense that you know, demand is strong across every single one of these commodities, services, and everything else, and it's demand pulling everything along against the supply constraints that creates the

upward pressure around prices. It's not the input costs accelerating UM that's driving up the costs in other parts of the industry. But if you think about how did it, you know, aluminum, how does it create tightness in other markets? Because once you lose a supply, let's think about starts with coal tightness in coal. It's not that the coal price led to higher aluminium prices. What it was was a lack of coal led to a shutdown of aluminum

smelting against strong demand. That drove up the price of aluminum, which then feeds into more demand for copper as a substitute against aluminum. So you get you know, you can think about it as being you know, the supply chain, you know working along that way, or you know. So it's not that that the cost of um, you know, energy is being you know, driving the cost of everything. It's demand and pulling everything along. And when you think

about it that way. Um, you know, that's how you get broad based inflation, because it's not just because think about if it's isolated in one market, let's say oil prices, that's a relative price move. And if you think about if money supply stays the same, the price of oil goes up, then the price of everything else has to go down because there's an adding up constraint with money supply.

But if you think about a demand is pulling everything along, money supply is growing along with it, then the price of everything starts to grow as opposed to being a supply shock, being you know, derelative price movement. Away. You touched on this earlier, but what's the difference between a

bowl market in commodities versus a supercycle? And like, I sometimes get the sense that, like commodities experts are very sensitive on this particular topic, mostly because I had an argument earlier in the year about whether or not what we were seeing was a commodities boom or the start of a supercycle, and people got very very pedentic. But like, what is the difference and which one are we looking

at at the moment um? We're looking at a commodity supercycle and It goes back to this demand demand story. It needs a structural rise in demand. I can get a bowl market and oil driven by a supply stock in Saudi Arabia, but that's not a supercycle. A supercycle is driven by a structural rise in demand. And why do we have a structural rise in demand? And give me a minute here is I really want to explain this point because I think it's critical to understanding the

difference between physical markets and financial markets. And we think of physical markets like oiler our medium there what we call volume metric markets. How do you determine if you're bullish oil the volume of demand versus the volume of supply? If demand is about supply, your bullish. No dollars enter into the equation, No growth rates, nothing like that interest. So physical markets driven by volume? Now what our finding? Financial markets and GDP they're all driven by dollars. How

many dollars do you pump into those markets? Um that determines whether or not they're bullish or not. You know, so no volume enters into a financial market. Think about equity you quote it in billions of dollars or g d P you quote it in trillions of dollars. Volume doesn't injure. So let me summarize physical markets driven by volume, financial markets, and GDP driven by dollars. Now, let me ask you the following. What do the world's rich control dollars?

They control wealth and income. Can rich create financial inflation? Absolutely yes? Can they create GDP? Absolutely yes? And they cre eight physical good inflation numerically impossible. There's not enough of them. It's a volumetric game. And so only the world's low income group can create inflation and um commodity bowl markets. And there is no exception that you cannot find me an exception. Every commodity supercycle is driven by low income groups as well as every bout of inflation.

In fact, you know, let's start with the seventies. It was lb j's um war on poverty. The two thousand's when China was admitted to the w t O. It was a gigantic wealth transfer rich Americans and rich Europeans to low income, rural Chinese, four hundred million of them. There was your volume created inflation in China in a commodity bowl market. You know, the inflationary episodes in Latin America tied to populist policy and the list goes down

and on. So you come to the conclusion that inflation and commodity bowl markets are directly tied to popular policies. And I can't find an exception to that. So if we argue that we're in an environment in which there's a you know, a great focus on low income groups, and even think about green capex, as Joe Biden says, green capex creates jobs, as Boris Johnson here the UK says it calls it green leveling, spending on green capex to create jobs. Um So everywhere we look, even the

green capex is focused on lower income groups. And as a result that we look across the demand levels. You know, gasoline barrels were at all time high this summer, and I can go across the board the volumes, just look at the level of demand endurable goods and everything like that,

it's off the charge. So that's the reason why I think we're in a commodity supercycles, not because of anything else other than that simple observation that the volumetric demand growth we see right now and going forward is not just a you know, but you know, it's something that's hitting all the markets simultaneously. UM and that's really what is at the core of a supercycle. So stody losing production create a bowl market in oil, but that's not

a supercycle. Is that clear? Yeah? That was fantastic. So I guess, like you know, I know, we just have a couple of minutes left here. But you know, like I said, we talked to you in January, I felt like you nailed the call, and then some we're in the supercycle as you characterize it. I don't know, commodities, it's always a cliche innings, so to speak. But what are we going to be talking about with you in nine months when we rebook you? And how much longer

is this going to be going on? Like, give us your what's it? What's gonna happen in the future, what's your crystal balls? Then we're going to be pricing scarcity at that point in time across oil, metals and everything at that point in time. And when we think about, you know, the transitory nature of these events is that when the system is so strained like it is right now, it just takes a small little problem to create a big upward movement in price. Do you think about what

Europe was created by? It was created by the wind quit blowing, the market had to replace that wind power generation with natural gas, and there was no gas there in a small event like the wind quip point created a massive price bike. Um. And these are what it's stated before you have to have to draw something out

of the tails to get a problem. Today you just draw something in the middle of the distribution, and you get a problem, which means that these transient events are going to be their higher probability and more frequent in nature. So there becomes a persistency to the transitory events. That's what scarcity pricing is all about. It's not like they're going to get a big upward training prices, but you're

gonna continue to get, you know, price spikes. So you know, I think that most that you know, if you brought me back in six months, I think that's going to be the highest pain point. By the time we look at nine months, Um, you know, do you have a much higher probability of the system trying to find solutions to it. So three to six months, I think you're gonna that's gonna be your max pain point. On oil, we have a ninety dollar target. I want to emphasize

lots of upside risk to that UM. You know, we look out into next year, we're eleven to twelve tho dollars a ton on copper, but you know, out of upside risk to that UM. So you know, but the real upside risk, I would argue, probably happens in that UM first quarter of next year. Hopefully when we meet nine months from now, we can say, hey, you know we see drilling in the US, we see um Iran

deal has come. You know, there's a higher probability in an Iran deal where there's the system begins to ease, which is why we see prices moving back into them at the nine months Rizon. So if we meet six from months from now, I think you're going to be peak scarcity pricing, you know, nine months from down on to a year, much higher probability that we found some type of at least solution. Max Paine is still coming. Max Paine is probably coming in the next next three months.

If not soer, Max Paine is still coming. Jeff Curry, thank you so much. Always great to chat with you. A real treat And like I said, well, have you a six or nine months back and we'll see if we're at a if we're truly x pain right. Well, thanks for having me. Thanks Jeff, I appreciate it. Take care of Jeff. It's always a treat talking to Jeff.

I just feel like I get like such a big such a useful, big picture perspective talking to him totally, And I mean I feel like I'm a little bit biased because, um, you know, I was a capital markets reporter for a long time. I like writing about things like corporate bonds. But I you know, I remember writing a lot about the show Boom in the US as a capital market story, and I think I did a

fantastic job of like drawing that connection. Once again, You're not going to get higher oil production unless investors feel comfortable putting money into the company and the company feels comfortable actually putting that money to work in terms of investment and expanding production. And we're not quite at that point, you know what. I love that point because there is this sort of very cliche which I've always hated. The

stock market isn't the economy. Actually, the stock market is a very important part of the economy, and sometimes maybe it reflects the economy, but sometimes it very much Sometimes it doesn't reflect the economy. But sometimes it drives the economy.

And so when you have a CEO, as he was pointing out, and I want to go find that transcript where he's like, you know, the determinant now of how much US oil will ramp, it's actually the stock market itself and the the sort of return expectations of investors. And having learned the lesson of these sort of like two thousand tends that pure volume is not a great long term return on investment is super fascinating to me. It's like, will will drill more when the stock price

goes up? Is sort of like the opposite of how people think, like, oh, the stock market is just it's just you're to what's happening in the real economy. In that case, it is clearly a driver. Oh totally. I mean, capital markets matter, and this is a really good example of that. The other thing I would say that I really appreciated hearing was his differentiation of you know, a

commodities bowl market. The idea of commodity is just going up versus a commodity supercycle, and this idea that ultimately a supercycle is something that's going to come down to physical volume and scale, and so that scale has to come from you know, somewhere, and he sort of pinpointed the idea of scale coming from surging demand from this sort of what did he say, lower income class, the

redistributionary impulse. Yeah, for sure, which makes a lot of like, you know, it's about scale, and so it kind of has to be about consumption from like the biggest proportion of the population as possible. So many interesting points. Uh, you know, his point about how normally, like you know, a few days without wind in the UK wouldn't be a big deal, but this time because of the tightness of the market, so many comparisons between what's going on

in logistics. Really great. Getting his perspective on aluminum just is a real treat to Chalco Jeff, And again we got to get him back on in like six or nine months. Yeah, we'll make this like every nine months type event. I think that would be good. Sounds good. Okay, shall we leave it there, Let's leave it there. Okay. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All. You can

follow me on Twitter at the Stalwart. Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesco Levie at Francesco Today, and check out all of our podcast at Bloomberg under the handle at podcasts. Thanks for listening year to