Jeff Curry (Interviewer) (2:30)

That word comes up in your research repeatedly. Hoarding.

Nathan Hager (Guest/Expert) (2:33)

Yeah.

Jeff Curry (Interviewer) (2:33)

China has been rewarded for doing absolutely over the last 12 months. Do you think this will follow now?

Nathan Hager (Guest/Expert) (2:39)

They already are. You know, whether it's places like Japan and Korea, they're hoarding anything they can get their hands on at this point. And it even happens down to people driving. Keep your tank filled up by the way, that's meaningful in terms of the demand pull you, you know most people drive and they take it down to about a quarter fill and then refill it. Now they're going to be going into the gas station filling it back up every time it gets to a half or even quarters.

Karen Moscow (3:02)

So what kind of premium you're talking about longer term? We were just speaking with Steve off a federated Hermes earlier saying that if oil prices go above $90 for a prolonged period of time that will cause real damage to the underlying economy. Is that a base case for you?

Nathan Hager (Guest/Expert) (3:15)

By the way, the one thing and we're going through a regime change. This is not a trade, this is a regime change. We're moving from that world that was defined from 2014 to 2024. You know, is that new economy boom, you know, Driven by Mag 7 is a technology boom ass similar to what we saw the dot com boom. What came after the dot com boom? Remember it was the exact same thing. You had a geopolitical event switched you in 2001 and then actually directly connected to the 911 was China's admission to WTO by the way they were connected. George Bush Jr. Needed to use force in the Middle East. He needed a vote in the UN Security Council. He traded admission of China into the WTO to get that vote. Boom. You're off to the races. You were in an asset heavy boom that lasted for over a decade of 2014. And then we went into the current light asset one and look, we're again in one of these huge geopolitical events and I think the big thing to watch is when Xi and President Trump meet at the end of this month and that's going to be where the negotiation happens.

Karen Moscow (4:21)

You could argue that 2020 was the real jumpstart to the re industrialization of the world because people realize oh wait a second, the physical world actually takes time unlike sending things digitally. I just wonder how much still needs to be priced in to the physical world. And we've just been highlighted, we've just been shown the risk in the Oil markets. But more broadly, how much are we underpricing?

Nathan Hager (Guest/Expert) (4:42)

Some of what I don't think we know what can happen here. And what's going to happen is we're going to reprice everything. I mean it started by way metals since 2020 are just a straight line going up. Everybody looks at the last couple of months. But it's just. And when here's a point I like to say is that you looked at the returns of companies in 2000 when we were at $20 oil, they were like 20 or 30%. By the time we were around 2005 or 6, you're at 63 times on the oil price. What do you think? They were going down because the overall cost structure of the industry was rising. So we ask about how high it can go. Metals are going up, their cost of capital is going up, the currencies weaken, your labor goes up. All of this begins to happen. You reprice. I don't want to speculate. I like to say get long, buckle your seat belt, hang on for the ride and we're going to reprice this thing where it reprices. I got in trouble back in the 2000s with. I'm not going to repeat the numbers again, but I think the key point here, what do you want to own? Own the hard assets, own the halos, own the anything that you know. And I love that two term. The term we called it in the 2000s was the revenge of the old economy because it was coming off the back of the dot com boom this time around. I love that term halo, heavy asset, low obsolescence. Own those assets and hang on. And I want to own metal, I want to own gold, I want to own oil. And by the way, again, this is a huge disruption. It's just not isolated to oil.

Karen Moscow (6:02)

What do you, what do you make though about central banks right now? Some of the dwindling reserves and some of their appetite to buy gold.

Nathan Hager (Guest/Expert) (6:08)

I think what you're going to see is even more demand for gold out of this because ultimately you're really going to question how is the financial situation in the U.S. i want to talk about what is really different about this time versus any other time in the last 50 years in oil. Anytime the oil price would spike pre 22 before the US in Europe froze central bank assets on Russia. Anytime oil prices would spike, you would have capital rotate into the U.S. the recycling that was the petrodollars that would act like QE buffer. It was called a shock absorber to the rest of the economy. That goes into gold now. So ever since 2022, commodity prices spike. These emerging markets get money. What do they buy? They buy gold. They buy anything but dollar denominated assets because they don't want to get sanctions imposed on them like what happened to the Russians. And as a result, you don't have that money coming back. One other point you've got to keep in mind is now transfer payments are bigger. The US debt is bigger, the interest payments are bigger. So when oil prices go up, headline inflation goes up. That gets much bigger. In fact, we estimate you go to 120 and stay there. You're going to crowd out $150 billion of private credit because you're going to have to re basically issue that in public credit.

Karen Moscow (7:22)

Jeff, you think the world is more vulnerable now than they were in 1973, but the US right now is a net exporter.

Nathan Hager (Guest/Expert) (7:27)

Oh, it's a net exporter at the income cash flow level, meaning they produce as much as they, they consume roughly. And I think you get an excess of around $80 billion on a $30 trillion economy. But let's say, put it this way, I call it the paradox of energy dominance. Let's go to the wealth level. Let's look at the equity market. Energy, 3% of the market 3. How big are the things that are short 53%. So you're long 3 and short 53 at the wealth level. And what is the multiple on that three? It's like 12 or 13. What is the multiple on the other one? 36. You're in trouble at the wealth level. You may be safe at the income level, but you're in real trouble at the wealth level. Then you get at the credit level. Now you've got that. You've taken your shock absorber because of the sanctions you imposed on Russia's central bank and turned it into a shock amplifier. So again, I agree with you. 100% energy dominance at the cash flow level, but not at the wealth level and not at the credit level.

Jeff Curry (Interviewer) (8:24)

Jeff, final question. It's on Asia. Refiners there have clearly got a bit of a cushion. Can you tell us how big that cushion is and how quickly before we start to see headlines across the Bloomberg on shortages?

Nathan Hager (Guest/Expert) (8:34)

Oh, you already are. Jet fuel in Singapore spiked to over $230 a barrel. You're at that point and that's the hoarding is only amplifying it. And you just took out a 900,000 barrel per day refinery that was bombed in there in the Gulf. So the situation on refined products is. And I think the key point here is it's Asia is going to be the one that's going to be in the deepest problem big time.

Jeff Curry (Interviewer) (8:58)

Jeff is good to see you right. Thanks to all day. Always good. Jeff Curry there of Carlyle on the commodity market with crude this morning around $90 a barrel.

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Nathan Hager (Guest/Expert) (9:43)

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