Adam Rozencwajg: Oil Back in Focus, Stocks Due for Catch-Up Trade
Summary
Oil Shock & Energy Security: The Strait of Hormuz disruption is framed as the largest short-term oil shock ever, highlighting fragility in global energy logistics and likely inflationary spillovers.
Oil Producers: He argues the best near-term opportunity is in oil producers, with equities still pricing ~$70–$75 oil despite tighter fundamentals and likely longer-dated curve rerating.
Offshore Drilling: Prefers offshore drillers as shale growth slows and majors revisit shelved offshore projects; post-restructuring balance sheets and low valuations offer leverage to a multi-year upcycle.
Uranium: Maintains a bullish multi-year view given constrained mine supply, reactors’ inelastic demand, and potential SMR timing; sees an orderly bull market into the early 2030s.
Coal: Despite being capital-starved and unpopular, global coal demand is growing; he expects strong returns as the most hated commodity often rebounds most within cycles.
Fertilizers: Likes the space structurally and has held sizable allocations; near-term logistics risks (phosphate/urea) and potential grain price impacts reinforce the setup.
Precious Metals Positioning: Reduced gold/silver exposure near term despite long-term bullish targets; favors PGMs on stronger-than-expected ICE/catalytic converter demand.
Market Indicators: Notes ETFs like XOP/XLE have only modestly moved versus spot, suggesting energy equities may have significant catch-up potential as fundamentals bite.
Transcript
I'm Charlotte Mloud with investingnews.com and here today with me is Adam Rosenwag, managing partner at Gary and Rosenwag. Thank you so much for being here. Always great to have you. >> Yeah, great to be back and nice to chat. >> Of course. Really good to have you as always and it's not long after you release your latest quarterly commentary. So, we've got a lot to go over. I think it came out at a pretty tricky time given the situation that's unfolding in the Middle East and we've got to go into what's happening there, but it's pretty tough to say anything right now, I think, with certainty. I thought what would make sense to talk about is the the scale of impact on the oil market. You mentioned this could end up ranking as the largest shock the industry has ever experienced. So, could you expand on that and what you're seeing there? >> Sure. Sure. And look, you know, we're not trying to be alarmists when it comes to this. And people that have followed us and know our research and our writing know that we were very very bullish on energy in the leadup to uh the events that took place uh in Iran and what's happening today. And quite frankly, if you look forward through this whole cycle and you take a long-term investors mindset, um the events of the last couple weeks really shouldn't have a long-term impact on the global oil market. That'll depend on supply and demand. And what we're dealing with now are very, very acute, very impactful u short-term issues. How short is what nobody knows. Uh we know that the magnitude of the oil being blocked through the streets of Hormuz is very material. Certainly anyone that's covered the energy markets has known that this has been a global choke point. In fact, if you look at any war games involving China and Taiwan say or several others, they always involve you know getting control or closing off the straits of Hormuz as well as the straits of Malaa to be able to control the flow of oil uh in to China. So, we all know sort of the numbers. People are saying 20 million barrels pass through there uh on a daily basis. Some of that has been rerouted in Saudi Arabia through their east west bypath pipeline out to the Red Sea. Some of it remains Iranian crude that's making its way out, but for the most part, uh a huge volume of oil, likely on the order of 10 to 15 million barrels a day, uh is is being impacted in one way or another. And that that's day in and day out. So, here we are sort of two weeks in. Um, and it looks as though you could have impacted 230 million barrels, something in that magnitude. And of course, the straits are not open as we speak now, which is uh the 16th of March, a Monday. And so we'll have to see how much longer this this lasts. But just on a barrels per day basis, this is by far the largest shock that the oil market has ever uh dealt with. um much bigger let's say than you know what took place in the 1970s in terms of the dual OPEC oil embargos uh much bigger than the swings when oil went negative during COVID all that we had to deal with that that was a glut not a deficit uh but nevertheless this is the biggest um imbalance that we've seen in global oil markets and so already we've seen the IEA the international energy agency which many of you might know from the reports that they put But what they actually are is they're the advocacy group for all the OECD countries on a coordinated basis have agreed to release 400 million barrels from the strategic petroleum reserves. Um now there's a problem there. They're talking about doing that over 100 days because obviously a strategic petroleum reserve is a quantity of oil but it also depends how big the pipe coming out of that is. You know that determines your flow rate. Um, so it's unlikely that even if you were willing to release all the SPR, which no one's talked about, admittedly, uh, you still wouldn't be able to get it much up above uh, you know, 4 million barrels a day. So that leaves a huge hole day in and day out. And already we're starting to see refiners that have been forced to slow their runs. We've seen countries like China um, announce that they won't export any refined product. Uh and so right now kind of 10 12 days in the biggest impact, you know, sorry, most of the refiners haven't felt the impact yet because they're running through the crude slates that they have already uh in their uh in their refining system, but they're unable to get more in. And so we're starting to see impacts happen, but only now. That that's why you haven't necessarily seen the physical shortages, but they're developing and they're starting to happen as we speak. We spoke with somebody uh last weekend who already that was you know a week ago who was having difficulty finding bunkering fuel for vessels shipping coal throughout the Pacific basin and couldn't find bunkering fuel in Singapore for for a while. So you're already starting to see physical shortages here. So that's kind of the the immediate term. Um, over the medium and longer term, I think what the events will likely do is cast a a bit of a lens back on the energy industry. Because remember, we went into this year, in fact, we went into the Iranian attacks with absolutely no investor interest in the space whatsoever. Oil had been the forgotten commodity uh for the last 3 years. Gold and uranium and PGMs had been where all the action was. And believe it or not, the Friday before the US and and Israel launched their attacks on Iran, uh speculative positioning amongst traders on a on a gross short basis was at a nearrecord high and on a net long basis was at a nearrecord low. Meaning people were as positioned as pessimistically almost as they could have been. Um which is shocking. I think that could change when this all when the streets open up. uh I suspect when that's announced at some point you know oil will sell down that day but I think some damage has been done here in the sense that I think people are now looking at the space again and the idea that you can just take the oil market for granted uh could be behind us. M >> that's exactly the direction I was hoping to go in because I noticed in your commentary you talk about how at the beginning of the year oil was arguably the most out of favor major asset class and certainly I I can see that as well. So we could we could have that renewed interest picking up. I wonder how that could could look because I think also among our audience we're seeing people thinking all right well maybe I should have exposure to this space but clearly I would think right now isn't the time to start getting into oil. So any comments on that? >> You know you you could argue it either way because what's interesting is that the spot price in crude uh has gone up you know substantially. It started the year about 59 it got up to about 120. was already sort of pushing the high 60s low 70s before the uh before the US and Israel launched their attack. So that's moved up sharply. uh the farther out part of the curve 6 12 months and beyond uh is again up a little bit but it's gone up from like 60 to 70 you know so nothing that seems crazy and frankly I would say maybe even a little you know benign uh on the farther end uh of the curve and that I think is just showing that traders whether they're physical traders whether it's refiners who actually need to buy oil everyone is scrambling for crude today but But no one is willing to lock in the longer dated curve, you know, and bid that price up and they're effectively signaling that they expect some of this situation to resolve itself. I can tell you in a second why I think even if the situation does resolve itself, that might be a poor strategy. Uh, and in fact, I think you probably are better suited right now to betting that that longer end of the curve rates higher. And that's really where the stocks have been uh pricing off of. And so the stocks are up, you know, the XOP and the XLE are both up since since the attack started, but they're up like 10 or 15%. Granted, against the weak tape, but they're not up 50%, they're not up 70%, they're not up, you know, anything like that. So, I think they've caught a little bit of a bid, but if you don't have exposure, I think the risk here is that you look back and you didn't buy now. Um, if you have exposure and you're saying, should I double down? I mean, I guess that's individual up to everybody, but I don't think that you've missed this trade. And if you look where you know most of the stocks are pricing in probably 70 or $75 oil and I suspect if if we're right in our analysis and the longer term supply and demand supply and demand fundamentals uh and what's happened in the last two weeks has just been the catalyst to get people to pay attention to that then it's entirely possible that oil moves well in excess of $75 long term and the stock should do well in the back of that. >> Great great insight there. So this is an area oil and gas that you have been rotating into although it's it's been hated in the wider market. Can you talk a little bit about when you started making that transition and where you've been focusing so far when it comes to the equities? >> Sure. So we you know had been essentially carrying a very full precious metal equity portfolio through most of 23 24 uh and part of 25 and before that you know coming out of co when oils went negative in April of 2020 we had a full boat in energy uh coming out of that and that drove really good returns for us in the latter half of 2021 and 22 and then we started to look at some of ratios between gold and oil and we said you know and at that point gold really hadn't done much and oil had run sharply after Russia invaded Ukraine and the shales didn't come back as quickly as everyone thought and they still aren't and we thought that the relative valuation had really swung in gold's favor and so we made a you know large for us reallocation of capital uh really across the board of the portfolio it wasn't coming directly out of oil but oil being our biggest exposure you know saw the most amount of dollars get rotated it uh and and we took our gold exposure all the way up about 25% I think intraday might have even hit 27% or something like that and to us a full position is about 20 to 25%. So that was that was a full position. And in October of last year, we made the decision to do our first sale of gold stocks. And it was really the idea of let's say okay, let's take it from 25 back down to 19, something like that. It's still a core position, maybe from a little bit on the heavy end of a core position down to a little bit light of a core position, right? So, it gave us a little bit of um capital and uh and profits that we booked to be able to rotate into what we thought was really undervalued at the time, which was oil and natural gas. We wanted to sort of leave a second slice in the event that gold had another rally because we said, look, we still like the gold fundamentals. The central banks were still buying, the speculators were still enthusiastic in the United States, and obviously the deficits and debts haven't gone away. So, we left sort of another slice down in the event that you get a big rally. We'll be able to participate and then use that as the opportunity to kind of take a second uh a second branch off and we certainly got that in spades in January. And so, we were glad that we carried that position into January. I guess wished that it had been higher, but I think we did the right thing. And what we saw was was pretty impressive in terms of gold and silver's performance in January. And it's particularly the latter, silver, that made us decide to kind of take another leg down in our in our precious metals exposure. And you should note here that we also have PGMs. And we don't really count PGMs and precious metals. People could argue with me in the comments if they want, but for us, it's a it's a distinct thesis. It's really predicated on the very bearish long-term view that most people have towards internal combustion engines and we think is misplaced. And if that's the case, then catalytic converter demand is going to be higher than expected. And if that's the case, then PGM prices are way too low. So, so that kind of backs up that. Um but as far as our gold and our silver uh what we have noticed over time really ever since the two metals traded freely beginning in the 1970s was that in a in a strong gold bull market there's always this uh rumor or this legend that says to have a strong global market silver needs to outperform and what we noticed was that that was not really true. what what you saw more often than not was uh silver lag for many years sometimes behind gold and then it staged this huge catch-up rally and everyone remembered that huge catch-up rally and they said okay you know silver is gold on steroids but when you look at the whole move gold and silver tended to kind of move in line with each other just in a very very different profile one kind of moving steadily up and to the right and the other lagging and then catching up all at once and historically When silver does stage that catch-up rally, that's when you typically see both of them begin to take a little bit of a step back. And that can be trading sideways for a while, that can be an outright, you know, sell-off, consolidation. We've seen examples of of all three. And so with gold at the prices it was, particularly price relative to oil on a relative valuation basis, very very expensive. when we saw silver staging the catch-up rally um and when we saw the attractive nature of of energy still at that point even more so we said look I think it's now time to get a little bit more active here so instead of going from 27 down to 18 you know high end of a full position to a low end of a full position we actually cut it all the way down to 10 or 11% which is a half position for us um and you know longterm for those that have gold allocations I suspect that gold moves higher from here and you know my long-term price target or our long-term price target for gold uh still probably has five figures in it. Um and that's really based on you looking at how much paper asset has been produced in the world whether it's currencies currencies in debt currencies debt and equity what have you. Uh if you look for instance at all the gold that's ever been mined, it's worth about $30 trillion, which is about half the S&P. And big gold bull markets end somewhere between one and a half to two times the S&P, you know. So that's a doubling of gold from here on a flat S&P um which would take it to $10,000. If you look at how much every US dollar is covered by gold today, it's about 25 cents on the dollar. Historically, gold bull markets end with over 100% coverage uh of gold to the currency. So again, you know, that would argue for a higher price. But if you look at it relative to housing, let's say, or if you look at it relative to things like oil barrels or the CPI basket or how much a house costs, then gold is as expensive as it's ever been. And what that's really showing you is it showing you the split between financial assets which are extremely expensive and real assets of all stripes which are relatively you know more moderately priced. It's the hyper financialization of our whole economy that's taken the S&P up from 75% of GDP to 250% of GDP. That's what you're seeing in that divergence of gold between rel relative to things versus gold relative to paper. And I think that resolved over time with higher inflation, with monetary regime changes, and probably with a higher gold price. But the question we had to ask ourselves as we came into this year, oil at 50 bucks and gold at 5,000, was will gold go from 5,000 to 10,000 before oil goes from 50 to 100? And our answer was no. And obviously now in retrospect, it only took us two and a half months to to realize that that was correct. But I think the argument still holds, right? I think that oil has room to rerate higher quicker than than gold does. But I think by the end of this cycle, both will be up from here. It's just do you want to take a path dependent view or do you want to take a static allocation? So if you own your gold, if it's in a taxable account, if you like it, you probably won't be disappointed in 10 years time. If on the other hand, you would like to see where the best opportunity is, I think right now the best opportunity remains in energy. I think it makes a lot of sense how you lay it out there, just weighing which opportunity works best in the nearer term. Right now, going back to what's coming for gold and silver. So, you have your much higher price targets further into the future, but it looks like for the next couple of years or few years, we're going to go lower. Is there anything you can say based on what we've seen historically about what that might mean for gold and silver prices in the next couple of years? just I think people always wonder all right where might the bottom be so any thoughts >> look you know you you could look historically right in the 19 the mid1 1970s again there's sort of a a cadence to gold uh to resource bull markets gold and silver with it tends to lead early in the cycle and then you sort of seed leadership in the middle and then gold has this blowoff at the end and I think there's some reasons for that at the beginning of the cycle you have these huge huge financial imbalances, these monetary systems imbalances where you've been favoring financial assets, you've been starving real assets for capital, right? And the canary in the coal mine, so to speak, is the gold price. That tells you that that trade is really stretched and it can't kind of go on. The hyper financialization is maybe coming under strain. I think that's what we've seen in the last couple years. Talks of the debasement trade and stuff like that, what we call monetary regime change. Then in the middle parts of the commodity bull market, what you tend to have is those underlying areas that were starved for capital. There's supply demand fundamentals come to the four, right? So gold's kind of signaling to you that we haven't invested in enough oil uh upstream oil facilities and offer rigs and things like that and then that begins to bite and and that's what drives kind of the middle legs and so you see rallying in in other parts of the commodity sector and then after four, five, six years of that you've embedded so many inflationary expectations into the system that gold kind of catches a bit at the end right trying to show that the inflation is persistent has to be stamped out. That was sort of the model in the 1970s. Honestly, it fits the 2000s as well. Prior to the 1970s, it's trickier because the gold price was fixed and so you need to look a little bit more in relative terms. But nevertheless, I think that the the general trend uh holds and I suspect it'll hold uh this time too. So the real question then I suppose is does gold just lag on a relative basis or does it actually sell off? And in that sense, if you look in the mid 1970s and you look in um the, you know, mid 2000s as well, you know, in the 1970s, gold pulled back by like about 35 or 40%. Uh before going on to huge new highs. Um so is something like that possible? I mean, yeah, certainly it's possible. I mean, it's entirely possible. It'll it'll depend a little bit on the central bank buying cadence. And then the thing that's you know interesting and something to watch is that the uh total metals being held by speculative uh western investors through the ETFs like GLD and others uh is back up to pretty high level and those are pretty fast money momentum kind of buyers and unfortunately that can turn into momentum uh type selling as well. So if you started to see I think some come off the gold price you could and I wouldn't be surprised if if it moved quickly if some of that metal was liquidated. That wasn't true like 69 12 months ago. There wasn't nearly as much metal in those vehicles and so the selling pressure that they could exert might not be as great. They're there now. So I think you could see a pullback certainly the catalyst to it. What's interesting is that in every case that we can see, gold runs end with threats of higher interest rates. And what's so interesting is that part of the mania back in January in the gold price and the silver price stemmed around uh President Trump's pick for new Fed chairman and the likelihood that that would be doubbish. Uh but you know his choice is um has a history of being rather hawkish actually. Uh and so there's always been a question of his worst just telling people uh what they want to hear and telling the president what he wants to hear. And certainly now if the situation in Iran continues and we get a dislocation in oil prices uh for any or in oil flows rather which will then flow into prices for any period of time. um I would expect inflation numbers to move up a lot and people will do all kinds of adjustments to that, right? In order to show that it's core versus versus whatever. Uh but the truth of the matter is that when energy prices rise, it works its way into pricing across the uh whole system and across the whole spectrum. And when when shipping gets as disrupted as it is right now, things start to spill out past just the crude and LG that is sort of the first order impacts of the straits. So already people are talking about fertilizers which could potentially put a a bid under grain prices later this year because we won't be able to apply the right fertilizers because a lot of phosphate and ura comes out of um out of the straits of Hormuz. Uh, you're also, like I said, you know, you have people with coal vessels taking Indonesian coal to China that's sitting in the streets of Mala that can't bunker and can't refuel. So, it's going to have I think it has the potential to have a impact just as large as the supply chain issues coming out of CO and uh obviously that had a big inflationary impact and I suspect this could as well. So if all that happens, you might not get all those rate cuts. And in fact, you might get rate hikes, which certainly no gold investor, I don't think, is pricing in right now. So I see the recipe for a lower gold price in the near and medium term. Again, longer term, I think that gold responds to all this paper that's been printed and price is probably higher 10 years from now. But could it go down 30 or 40% between now and then? I don't see why not. Well, and I think maybe now is a good time to bring up one of the most common questions I'm seeing from our audience right now, which is if gold is a safe haven asset that is supposed to do well in times of volatility, people are generally flocking toward it, how come this war in Iran hasn't had more of an upward price momentum impact for gold. So, anything further you would add on that note? Well, I guess the only thing I would say there, you know, so the dollar's been catching some strength and I think that's kind of taken a little bit off the gold price, but I mean, I don't know, gold investors are never happy. It's had a it's had a pretty good good solid run over the last 12 months. And uh so, you know, you're you're off of a high from the daily high iss 5,400 down to 5,10 right now. Uh but up from a low of 4,600 bucks a couple weeks ago. So, I don't know. I I I think it's kind of doing what it does. I I I don't think that the uh price action in gold can be viewed as evidence that it's no longer a safe haven asset. I think it had caught a pretty good run leading up into Iran. Um I think there's been some dollar strength. I think there's some risk on interest rates and and people are feeling that and on inflation and I think it's doing just fine to be honest. Just because you mentioned the impact on fertilizers, I did want to bring up of course oil is the market that's seeing the most impact right now from tensions in the Middle East, but there are things like fertilizers, there's aluminum. I've heard even about helium as markets that are feeling impact, and they're areas that I think investors don't think about very often, but now they're really coming to the four. So, is there anything really key in those arenas, those those niche areas that you're watching right now? >> I I think so. I think fertilizers are one. You know, we we invest in the fertilizer space. We like the a space. We don't carry very much in the way right now just because, you know, traditionally this isn't such an impactful time of the year for crop prices and fertilizer prices because um you you're in that period before planting before the crops in. No one's looking at weather to see how big the yields are going to be and stuff like that. So, this is typically a quiet time of the year. obviously less so this year uh but in general relatively quiet cotton in fertilizer markets but but in general we do like fertilizers and we sometimes hold as much as 10 or 15% uh in fertilizer stocks um so I think that's a natural one but you know really if you look at all the different markets so so I agree that people are now looking farther a field from oil and natural gas trying to say what other areas will be severely impacted I I think that of the two things that people are missing, you know, number one is that you can start to track exactly what goes through the streets of Hormuz and say, "Okay, well, the next one is going to be sulfur. I've referred to aluminum, like you said, helium, etc." Um, but this is a much bigger potentially if it stays closed for any length of time now, this is has the risk of being a much bigger and more widespread problem. It's like we're not thinking about it properly. Like people aren't thinking about the coal cape size vessels that that are having difficulty finding fuel. They're not talking about the cargo ships that could potentially be impacted here again by not finding fuel uh and flights that could potentially be diverted um because of major impact on jet fuel. So I think that those are kind of the second order impacts that I would look at as opposed to trying to find the most esoteric tiny markets that have to pass through through these waterways. Uh the second thing is that you know for all the talk of like what's next? Let's find you know this in the weeds trade uh so that we can show how clever we are in Alpha Generative uh the oil trade hasn't really happened yet. You know the oil stocks still represent the clearest most direct way to play um the events of the last 3 weeks. And so for people that are trying to say well I missed that. What can I get next? I don't think that you really have. You know, we just finished a call this morning with some people that said, you know, how can it be that the oil stocks really aren't reflecting any of this? I don't know. Either we're going to look back and say this was a really short-term disruption and they were seeing through it and realized everything would be fine, or we're going to look back and say, "Well, that was pretty dumb." Um, and we'll we'll have to wait and see. But look, you know, the streets will reopen. Oil will flow again. Uh, but the volumes are pretty big. And so if you're talking about three or 400 million barrels that has essentially just not been put into the market, if you open up the straits again, everyone's going to turn their oil wells back on again and you'll get to the old rates, barrels per day, but you still have to replace that quantum, that 400 million barrel quantum, right? That's just that just never got produced. You're not going to produce the the wells in excess of their old rates to get back to that. That's not how it works. they'll come back on at that same rate that they were on before most likely. Um, and you're just going to be sort of 400 million barrels uh less oil in the world than than we had been expecting. And I don't think that the economy has slowed by 400 million barrels worth. And so inventories, whether we call them SPRs or commercial inventories or hidden tank or whatever, right, almost by definition, just the amount of available oil to the market will be ratcheted lower and there will be an attempt to try to build that back up in the coming months. And that I think should be a tailwind to oil prices. So I think regardless of of when this current bottleneck is alleviated, this will have some lingering impacts. And I don't think as a as a as a world we're in a position to accelerate daily oil production above where it was in January. And that's a big part of why we were bullish in the first place. OPEC is producing all out. Obviously not right now, but they were producing all out in January. The shales have just been slowing their growth year on year quite substantially and consistently for the last three or four years. So I don't see them as being a big growth driver. A lot of Brazil and Guyana and Cernin are now online. So there's not a huge trunch to come there. And so like where do you replace all this oil that just was never produced that the world was expecting? I think that's going to be kind of the story for the next 6 months. >> Makes a lot of sense. And so you mentioned we don't really need to get too fancy right now with these niche markets. We can focus on oil. When it comes to the oil stocks, does it also make sense for investors to focus on the producers at the moment versus moving further down the food chain? >> I think the producers are a great place to focus. Yeah, I think absolutely. I think it's a clear uh earnings story for some of the producers. If you raise oil prices, you're going to have more earnings in cash flow. You discount that back and that's a higher net asset value. So I think that obviously there's a very direct benefit to oil companies from having oil higher oil prices. I mean it I shouldn't have to say that that that that's good for them the same way as it is for a gold company when when uh when gold prices go up. And it's funny because I remember probably in talking to you in late 2024 and then everyone was saying well yeah gold prices are going up but maybe it's not going to impact cash flows. you're like guys just just give it a quarter or two and you'll start to see them flow through and that certainly has been the case and that's what's really driven the gold stock performance ever since. I think the same will be true here for the energy producers. We also like to favor um the offshore drilling stocks. That's not really so much of a straits of horm type of a direct read through here. Uh that's just the idea that as the shales have been coming down in terms of growth importance uh to the world oil markets, we expected to see the large oil companies go back to the projects they had on the shelf just pre-shale. Remember shale kind of surprised everyone. It left the line a little bit and um you know was brought online very quickly and very profitably. And so a lot of projects were sort of put on the back burner and most of them at the time were offshore. And so it's been our contention that as the shells sort of slow in importance and slow in growth, you start to see a migration back to shale uh offshore projects and the drilling vessel companies in particular who most of whom have gone through restructurings during co now have good balance sheets and such uh are trading at really really really depressed cheap prices. So we have about 10 or 12% of the portfolio in them as well. Um, I think that's a nice, you know, a little bit of a different um, motivation between each of those. One's a little bit cleaner and more direct. The other is a little bit of a special situation. >> I want to stick with the energy theme a little bit. I know from our previous conversations that you're bullish on uranium. In the recent commentary, you also mentioned coal and you know, if oil has been hated, I think coal even more. So I wondered if there was anything you would say about your exposure to other areas of the energy sector including those two. >> Well, so our uranium thesis, you know, we've been big uranium bulls since the absolute bottom back in 19. And you know, we we caught the bottom there and we were super early and people looked at us like we had three heads for for saying that we wanted to invest in uranium. Uh and today it's rallied from 20 bucks all the way back up to 100. The stocks have been uh very good performers the last five years. longer now, I guess, the last seven years. Uh, but what's amazing is that even at today's prices, you're just barely getting to the incentive price needed to bring on a new mine. And so, we're we have a big supply problem. You know, the 2030s is going to be a tug-of-war between new mines and SMRs and seeing the cadence of each of those come on. If if more mines come on faster and the SMRs are delayed, prices could sell off. if the SMRs roll out quickly, um you could have a persistent deficit through the 2030s, but between now and then, it's just really a case of what reactors are on today and what mines are available today or in the near term, right? Line of sight out to 2030. And that paints a very bullish picture. There's not much in the way of new mine supply. Uh uranium um rather nuclear power plants will pay almost any price to keep fueled once you built it. you really can't let that thing uh run out of fuel. Um and so that spells a really bullish story for the next couple years, punctuated only by hot money coming in and out. There'll be waves of hot money chasing it, get a little bit too expensive. It'll pull back as they leave. We saw that over the last couple years. I think for the most part, the hedge funds are now ignoring uranium, which is good. Um so I hope they don't listen to this podcast. Uh but you know, that that's a that's a really orderly, I think, bull market for the next 5 years. Uh after that we'll we'll have to see what the cadence of the mines coming on in the 2030s uh is going to be. So we've liked that. We continue to like it and and honestly the story just gets better and better because some of the existing mines are suffering a little bit of depletion problems. It's certainly true in Kazakhstan. Uh and some of the new projects look like they'll have some delays in first production again making for a very bullish uh story. Coal, you're absolutely right. No one has had it coal exposure. You know, you talk about being starved for capital. forget having access to capital markets. Uh I don't think coal companies even have access just like regular checking accounts at at a big American bank. I think they they've all been debanked and they go and you know find credit councils that that'll be willing to offer them just regular wire transfer services and stuff like that. These are hated hated companies and yet you know cold demand on a global basis is growing. um it it continues to be a very important fuel in a lot of the world and it's very difficult to justify the coal prices that you have now. It's really hard to make an investment decision in coal and bring on a new coal mine. Now coal has some drawbacks too. Um first of all obviously it emits CO2. Uh it's also I think more importantly than that it's less efficient than natural gas. So where natural gas is available, you should use gas. Even if you don't care about the environment, you should use gas. That's a better converter of energy. And that's really what we've seen in a lot of countries, most notably the United States, move away from coal because they had a huge ample gas reserve. Gas, on the other hand, the the problem with it is that it's difficult to get into certain places. So, you know, tell Europe that in 2022, for instance, that the solution to all of their um problems was just to burn more gas. And they would have said, "No, no, that is our problem is that we don't have any gas to burn." Right? So, it can be a very difficult fuel to get your hands on. The infrastructure to transport it and liquefy it uh is is tricky. Takes time. And so, coal uh is a very necessary part of the energy mix. So, where you can move away from it, I think probably should from an economic perspective. where you can move away from it, you probably should from an environmental perspective. That doesn't mean that coal is worthless. And right now, it's being priced as though it's worthless. So, I think that those stocks will do quite well. And in every commodity bull market, coal at one point ends up being the most hated asset is down the most. And from its own trough within the cycle to its own peak within the cycle, uh, is usually the commodity that goes up by the most. And I think it's because it just gets so hated at the bottom. And this time's no different. So I I suspect that coal investments will do very well. Um we don't have you know huge coal investments. We have about I think 7% or so six or 7%. >> Well and I'll ask because it may be a market that people are less familiar with. Is this another one where you would look at the producers? I have to think that maybe there aren't really a lot of smaller companies at this point to choose from. >> No, there's not much. Most of the industry's gone and consolidated. So there's not a huge amount to look at. And yeah, we like the upstream the producers. Yeah, I think that makes a lot of sense. And with coal, so you know, it's a source of energy that we continue to need, although we hear about it being phased out. And it just reminds me of going back to what you were saying about the platinum group metals where the story about how they were not going to do so well was relating to how they were going to be phased out as well, which is happening slower than expected. So just an interesting connection there perhaps. >> I think so. you know, different markets, different um nuances, but yeah, in general, I think the trend is similar. Um, look, you know, I I think if you really have to kind of take a 30,000 foot view, commodity markets move in these huge cycles and they move in these huge cycles because there's this big delay from capital investment to production. And so, since you if those all happened on the same day, you had a supply demand imbalance, prices moved, capital came in or out, supply responded, it would all be very clear. But it doesn't. It happens in a 10 or 15 year delay. And that's almost a generation. So people don't even know the signals they're looking at. And if you go all the way back, you know, the 1990s were a big bare market in commodities for a whole variety of reasons. That led to um no capital being invested in a huge bull market in the 2000s. People will say it was the rise of China. It was the rise of China. That certainly added to it, but it was also the fact that we had taken spending uh in the energy complex and the commodity mining business down by 70%. It was the fact that all those areas their waiting in the S&P was at all-time lows, meaning investors weren't giving them any money and stuff like that. And that created a real shortage and prices surged. It became the investment fad of the 2000s. um money just really flowed in and all of a sudden was was put to work. New projects came online and then we had a period as you'd expect of relative abundance in the 2010s. And it was in that period of relative abundance that I think we developed these ideas that we could do a lot of things like we could build a lot of very inefficient energy sources like wind and solar or that we could build uh you know switch from the internal combustion engine to the EV. you know, you have to ask yourself a little bit or I do anyway. Um, Mercedes and BMW and Audi, forget the American car companies, like you know, people with real engineers, Toyota, you know, they had all agreed that hybrid was the likely path forward. And it was only uh Elon Musk and Tesla that said, "No, I think it's going to be EVs." You know, you have to ask yourself, why did all these engineers think that hybrids or straight IC was the way to go and that EVs weren't going to work very well? Because from an engineering perspective, they're not a very efficient way to transport people around. The batteries are just so costly. And if you look, you know, even today, obviously, there's been some improvement in batteries and stuff, but you can't say, you know, like Steve Jobs looked ahead and said, "Oh, well, you know, we're all going to have a miniaturaturized computer, so let me try to design that product." He saw in front of that. I mean, the battery technology in Tesla is not particularly revolutionary. That's not what their secret sauce is. in making an EV marketable to an affluent group of people that wants to show their commitment to environmental betterment, I guess, if you will, right? Um, and that was allowed to happen because we had so much surplus energy that you could kind of squander it doing a lot of these things. And that's where I think, you know, kind of coal um got pushed to the wayside. Said we don't need these other things. We don't need the platinum because we're not going to need ICEs. we don't need the coal because everyone should be enlightened enough at the at the very least to be using gas. You go tell that to people in India and people in Africa where you know the cost of infrastructure for natural gas is quite high. You still need coal to bring you through that part of your development cycle and there's still more people going through that today than there have ever been uh in history. And so yeah, I don't think the US will be a huge growth driver for domestic coal burn. you know, I don't think if you went and tried to build a new data center and, you know, permitted it through a huge coal fired power plant, you're probably going to get opposition. Uh, so it will be a shrinking share of a growing pie, but I think coal demand is going to continue to grow from here. >> The global perspective definitely helps to contextualize these things. And this has been very educational as always, but I will I will let you go unless you had any final thoughts that you would want to leave investors with at this time. No, I think we covered quite a bit. You know, I think the next uh the next weeks will be quite telling and we'll be able to check back here in in a few months and see where we're at because I I suspect I mean obviously things will look different one way or another. And I I suspect what's going to happen again is an increased attention being paid back to our energy um fragility and and our energy systems uh which which frankly we had in 2022 as well. So, I'm not saying that that will last forever either, but I think the path forward is is that people can't ignore the energy markets for too much longer. >> Well, thank you as always for coming on to share your insights. This was great. >> Thank you. >> Once again, I'm Charlotte Mloud with investingnews.com and this is Adam Rosenwag with Garing and Rosenwag. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below.
Adam Rozencwajg: Oil Back in Focus, Stocks Due for Catch-Up Trade
Summary
Transcript
I'm Charlotte Mloud with investingnews.com and here today with me is Adam Rosenwag, managing partner at Gary and Rosenwag. Thank you so much for being here. Always great to have you. >> Yeah, great to be back and nice to chat. >> Of course. Really good to have you as always and it's not long after you release your latest quarterly commentary. So, we've got a lot to go over. I think it came out at a pretty tricky time given the situation that's unfolding in the Middle East and we've got to go into what's happening there, but it's pretty tough to say anything right now, I think, with certainty. I thought what would make sense to talk about is the the scale of impact on the oil market. You mentioned this could end up ranking as the largest shock the industry has ever experienced. So, could you expand on that and what you're seeing there? >> Sure. Sure. And look, you know, we're not trying to be alarmists when it comes to this. And people that have followed us and know our research and our writing know that we were very very bullish on energy in the leadup to uh the events that took place uh in Iran and what's happening today. And quite frankly, if you look forward through this whole cycle and you take a long-term investors mindset, um the events of the last couple weeks really shouldn't have a long-term impact on the global oil market. That'll depend on supply and demand. And what we're dealing with now are very, very acute, very impactful u short-term issues. How short is what nobody knows. Uh we know that the magnitude of the oil being blocked through the streets of Hormuz is very material. Certainly anyone that's covered the energy markets has known that this has been a global choke point. In fact, if you look at any war games involving China and Taiwan say or several others, they always involve you know getting control or closing off the straits of Hormuz as well as the straits of Malaa to be able to control the flow of oil uh in to China. So, we all know sort of the numbers. People are saying 20 million barrels pass through there uh on a daily basis. Some of that has been rerouted in Saudi Arabia through their east west bypath pipeline out to the Red Sea. Some of it remains Iranian crude that's making its way out, but for the most part, uh a huge volume of oil, likely on the order of 10 to 15 million barrels a day, uh is is being impacted in one way or another. And that that's day in and day out. So, here we are sort of two weeks in. Um, and it looks as though you could have impacted 230 million barrels, something in that magnitude. And of course, the straits are not open as we speak now, which is uh the 16th of March, a Monday. And so we'll have to see how much longer this this lasts. But just on a barrels per day basis, this is by far the largest shock that the oil market has ever uh dealt with. um much bigger let's say than you know what took place in the 1970s in terms of the dual OPEC oil embargos uh much bigger than the swings when oil went negative during COVID all that we had to deal with that that was a glut not a deficit uh but nevertheless this is the biggest um imbalance that we've seen in global oil markets and so already we've seen the IEA the international energy agency which many of you might know from the reports that they put But what they actually are is they're the advocacy group for all the OECD countries on a coordinated basis have agreed to release 400 million barrels from the strategic petroleum reserves. Um now there's a problem there. They're talking about doing that over 100 days because obviously a strategic petroleum reserve is a quantity of oil but it also depends how big the pipe coming out of that is. You know that determines your flow rate. Um, so it's unlikely that even if you were willing to release all the SPR, which no one's talked about, admittedly, uh, you still wouldn't be able to get it much up above uh, you know, 4 million barrels a day. So that leaves a huge hole day in and day out. And already we're starting to see refiners that have been forced to slow their runs. We've seen countries like China um, announce that they won't export any refined product. Uh and so right now kind of 10 12 days in the biggest impact, you know, sorry, most of the refiners haven't felt the impact yet because they're running through the crude slates that they have already uh in their uh in their refining system, but they're unable to get more in. And so we're starting to see impacts happen, but only now. That that's why you haven't necessarily seen the physical shortages, but they're developing and they're starting to happen as we speak. We spoke with somebody uh last weekend who already that was you know a week ago who was having difficulty finding bunkering fuel for vessels shipping coal throughout the Pacific basin and couldn't find bunkering fuel in Singapore for for a while. So you're already starting to see physical shortages here. So that's kind of the the immediate term. Um, over the medium and longer term, I think what the events will likely do is cast a a bit of a lens back on the energy industry. Because remember, we went into this year, in fact, we went into the Iranian attacks with absolutely no investor interest in the space whatsoever. Oil had been the forgotten commodity uh for the last 3 years. Gold and uranium and PGMs had been where all the action was. And believe it or not, the Friday before the US and and Israel launched their attacks on Iran, uh speculative positioning amongst traders on a on a gross short basis was at a nearrecord high and on a net long basis was at a nearrecord low. Meaning people were as positioned as pessimistically almost as they could have been. Um which is shocking. I think that could change when this all when the streets open up. uh I suspect when that's announced at some point you know oil will sell down that day but I think some damage has been done here in the sense that I think people are now looking at the space again and the idea that you can just take the oil market for granted uh could be behind us. M >> that's exactly the direction I was hoping to go in because I noticed in your commentary you talk about how at the beginning of the year oil was arguably the most out of favor major asset class and certainly I I can see that as well. So we could we could have that renewed interest picking up. I wonder how that could could look because I think also among our audience we're seeing people thinking all right well maybe I should have exposure to this space but clearly I would think right now isn't the time to start getting into oil. So any comments on that? >> You know you you could argue it either way because what's interesting is that the spot price in crude uh has gone up you know substantially. It started the year about 59 it got up to about 120. was already sort of pushing the high 60s low 70s before the uh before the US and Israel launched their attack. So that's moved up sharply. uh the farther out part of the curve 6 12 months and beyond uh is again up a little bit but it's gone up from like 60 to 70 you know so nothing that seems crazy and frankly I would say maybe even a little you know benign uh on the farther end uh of the curve and that I think is just showing that traders whether they're physical traders whether it's refiners who actually need to buy oil everyone is scrambling for crude today but But no one is willing to lock in the longer dated curve, you know, and bid that price up and they're effectively signaling that they expect some of this situation to resolve itself. I can tell you in a second why I think even if the situation does resolve itself, that might be a poor strategy. Uh, and in fact, I think you probably are better suited right now to betting that that longer end of the curve rates higher. And that's really where the stocks have been uh pricing off of. And so the stocks are up, you know, the XOP and the XLE are both up since since the attack started, but they're up like 10 or 15%. Granted, against the weak tape, but they're not up 50%, they're not up 70%, they're not up, you know, anything like that. So, I think they've caught a little bit of a bid, but if you don't have exposure, I think the risk here is that you look back and you didn't buy now. Um, if you have exposure and you're saying, should I double down? I mean, I guess that's individual up to everybody, but I don't think that you've missed this trade. And if you look where you know most of the stocks are pricing in probably 70 or $75 oil and I suspect if if we're right in our analysis and the longer term supply and demand supply and demand fundamentals uh and what's happened in the last two weeks has just been the catalyst to get people to pay attention to that then it's entirely possible that oil moves well in excess of $75 long term and the stock should do well in the back of that. >> Great great insight there. So this is an area oil and gas that you have been rotating into although it's it's been hated in the wider market. Can you talk a little bit about when you started making that transition and where you've been focusing so far when it comes to the equities? >> Sure. So we you know had been essentially carrying a very full precious metal equity portfolio through most of 23 24 uh and part of 25 and before that you know coming out of co when oils went negative in April of 2020 we had a full boat in energy uh coming out of that and that drove really good returns for us in the latter half of 2021 and 22 and then we started to look at some of ratios between gold and oil and we said you know and at that point gold really hadn't done much and oil had run sharply after Russia invaded Ukraine and the shales didn't come back as quickly as everyone thought and they still aren't and we thought that the relative valuation had really swung in gold's favor and so we made a you know large for us reallocation of capital uh really across the board of the portfolio it wasn't coming directly out of oil but oil being our biggest exposure you know saw the most amount of dollars get rotated it uh and and we took our gold exposure all the way up about 25% I think intraday might have even hit 27% or something like that and to us a full position is about 20 to 25%. So that was that was a full position. And in October of last year, we made the decision to do our first sale of gold stocks. And it was really the idea of let's say okay, let's take it from 25 back down to 19, something like that. It's still a core position, maybe from a little bit on the heavy end of a core position down to a little bit light of a core position, right? So, it gave us a little bit of um capital and uh and profits that we booked to be able to rotate into what we thought was really undervalued at the time, which was oil and natural gas. We wanted to sort of leave a second slice in the event that gold had another rally because we said, look, we still like the gold fundamentals. The central banks were still buying, the speculators were still enthusiastic in the United States, and obviously the deficits and debts haven't gone away. So, we left sort of another slice down in the event that you get a big rally. We'll be able to participate and then use that as the opportunity to kind of take a second uh a second branch off and we certainly got that in spades in January. And so, we were glad that we carried that position into January. I guess wished that it had been higher, but I think we did the right thing. And what we saw was was pretty impressive in terms of gold and silver's performance in January. And it's particularly the latter, silver, that made us decide to kind of take another leg down in our in our precious metals exposure. And you should note here that we also have PGMs. And we don't really count PGMs and precious metals. People could argue with me in the comments if they want, but for us, it's a it's a distinct thesis. It's really predicated on the very bearish long-term view that most people have towards internal combustion engines and we think is misplaced. And if that's the case, then catalytic converter demand is going to be higher than expected. And if that's the case, then PGM prices are way too low. So, so that kind of backs up that. Um but as far as our gold and our silver uh what we have noticed over time really ever since the two metals traded freely beginning in the 1970s was that in a in a strong gold bull market there's always this uh rumor or this legend that says to have a strong global market silver needs to outperform and what we noticed was that that was not really true. what what you saw more often than not was uh silver lag for many years sometimes behind gold and then it staged this huge catch-up rally and everyone remembered that huge catch-up rally and they said okay you know silver is gold on steroids but when you look at the whole move gold and silver tended to kind of move in line with each other just in a very very different profile one kind of moving steadily up and to the right and the other lagging and then catching up all at once and historically When silver does stage that catch-up rally, that's when you typically see both of them begin to take a little bit of a step back. And that can be trading sideways for a while, that can be an outright, you know, sell-off, consolidation. We've seen examples of of all three. And so with gold at the prices it was, particularly price relative to oil on a relative valuation basis, very very expensive. when we saw silver staging the catch-up rally um and when we saw the attractive nature of of energy still at that point even more so we said look I think it's now time to get a little bit more active here so instead of going from 27 down to 18 you know high end of a full position to a low end of a full position we actually cut it all the way down to 10 or 11% which is a half position for us um and you know longterm for those that have gold allocations I suspect that gold moves higher from here and you know my long-term price target or our long-term price target for gold uh still probably has five figures in it. Um and that's really based on you looking at how much paper asset has been produced in the world whether it's currencies currencies in debt currencies debt and equity what have you. Uh if you look for instance at all the gold that's ever been mined, it's worth about $30 trillion, which is about half the S&P. And big gold bull markets end somewhere between one and a half to two times the S&P, you know. So that's a doubling of gold from here on a flat S&P um which would take it to $10,000. If you look at how much every US dollar is covered by gold today, it's about 25 cents on the dollar. Historically, gold bull markets end with over 100% coverage uh of gold to the currency. So again, you know, that would argue for a higher price. But if you look at it relative to housing, let's say, or if you look at it relative to things like oil barrels or the CPI basket or how much a house costs, then gold is as expensive as it's ever been. And what that's really showing you is it showing you the split between financial assets which are extremely expensive and real assets of all stripes which are relatively you know more moderately priced. It's the hyper financialization of our whole economy that's taken the S&P up from 75% of GDP to 250% of GDP. That's what you're seeing in that divergence of gold between rel relative to things versus gold relative to paper. And I think that resolved over time with higher inflation, with monetary regime changes, and probably with a higher gold price. But the question we had to ask ourselves as we came into this year, oil at 50 bucks and gold at 5,000, was will gold go from 5,000 to 10,000 before oil goes from 50 to 100? And our answer was no. And obviously now in retrospect, it only took us two and a half months to to realize that that was correct. But I think the argument still holds, right? I think that oil has room to rerate higher quicker than than gold does. But I think by the end of this cycle, both will be up from here. It's just do you want to take a path dependent view or do you want to take a static allocation? So if you own your gold, if it's in a taxable account, if you like it, you probably won't be disappointed in 10 years time. If on the other hand, you would like to see where the best opportunity is, I think right now the best opportunity remains in energy. I think it makes a lot of sense how you lay it out there, just weighing which opportunity works best in the nearer term. Right now, going back to what's coming for gold and silver. So, you have your much higher price targets further into the future, but it looks like for the next couple of years or few years, we're going to go lower. Is there anything you can say based on what we've seen historically about what that might mean for gold and silver prices in the next couple of years? just I think people always wonder all right where might the bottom be so any thoughts >> look you know you you could look historically right in the 19 the mid1 1970s again there's sort of a a cadence to gold uh to resource bull markets gold and silver with it tends to lead early in the cycle and then you sort of seed leadership in the middle and then gold has this blowoff at the end and I think there's some reasons for that at the beginning of the cycle you have these huge huge financial imbalances, these monetary systems imbalances where you've been favoring financial assets, you've been starving real assets for capital, right? And the canary in the coal mine, so to speak, is the gold price. That tells you that that trade is really stretched and it can't kind of go on. The hyper financialization is maybe coming under strain. I think that's what we've seen in the last couple years. Talks of the debasement trade and stuff like that, what we call monetary regime change. Then in the middle parts of the commodity bull market, what you tend to have is those underlying areas that were starved for capital. There's supply demand fundamentals come to the four, right? So gold's kind of signaling to you that we haven't invested in enough oil uh upstream oil facilities and offer rigs and things like that and then that begins to bite and and that's what drives kind of the middle legs and so you see rallying in in other parts of the commodity sector and then after four, five, six years of that you've embedded so many inflationary expectations into the system that gold kind of catches a bit at the end right trying to show that the inflation is persistent has to be stamped out. That was sort of the model in the 1970s. Honestly, it fits the 2000s as well. Prior to the 1970s, it's trickier because the gold price was fixed and so you need to look a little bit more in relative terms. But nevertheless, I think that the the general trend uh holds and I suspect it'll hold uh this time too. So the real question then I suppose is does gold just lag on a relative basis or does it actually sell off? And in that sense, if you look in the mid 1970s and you look in um the, you know, mid 2000s as well, you know, in the 1970s, gold pulled back by like about 35 or 40%. Uh before going on to huge new highs. Um so is something like that possible? I mean, yeah, certainly it's possible. I mean, it's entirely possible. It'll it'll depend a little bit on the central bank buying cadence. And then the thing that's you know interesting and something to watch is that the uh total metals being held by speculative uh western investors through the ETFs like GLD and others uh is back up to pretty high level and those are pretty fast money momentum kind of buyers and unfortunately that can turn into momentum uh type selling as well. So if you started to see I think some come off the gold price you could and I wouldn't be surprised if if it moved quickly if some of that metal was liquidated. That wasn't true like 69 12 months ago. There wasn't nearly as much metal in those vehicles and so the selling pressure that they could exert might not be as great. They're there now. So I think you could see a pullback certainly the catalyst to it. What's interesting is that in every case that we can see, gold runs end with threats of higher interest rates. And what's so interesting is that part of the mania back in January in the gold price and the silver price stemmed around uh President Trump's pick for new Fed chairman and the likelihood that that would be doubbish. Uh but you know his choice is um has a history of being rather hawkish actually. Uh and so there's always been a question of his worst just telling people uh what they want to hear and telling the president what he wants to hear. And certainly now if the situation in Iran continues and we get a dislocation in oil prices uh for any or in oil flows rather which will then flow into prices for any period of time. um I would expect inflation numbers to move up a lot and people will do all kinds of adjustments to that, right? In order to show that it's core versus versus whatever. Uh but the truth of the matter is that when energy prices rise, it works its way into pricing across the uh whole system and across the whole spectrum. And when when shipping gets as disrupted as it is right now, things start to spill out past just the crude and LG that is sort of the first order impacts of the straits. So already people are talking about fertilizers which could potentially put a a bid under grain prices later this year because we won't be able to apply the right fertilizers because a lot of phosphate and ura comes out of um out of the straits of Hormuz. Uh, you're also, like I said, you know, you have people with coal vessels taking Indonesian coal to China that's sitting in the streets of Mala that can't bunker and can't refuel. So, it's going to have I think it has the potential to have a impact just as large as the supply chain issues coming out of CO and uh obviously that had a big inflationary impact and I suspect this could as well. So if all that happens, you might not get all those rate cuts. And in fact, you might get rate hikes, which certainly no gold investor, I don't think, is pricing in right now. So I see the recipe for a lower gold price in the near and medium term. Again, longer term, I think that gold responds to all this paper that's been printed and price is probably higher 10 years from now. But could it go down 30 or 40% between now and then? I don't see why not. Well, and I think maybe now is a good time to bring up one of the most common questions I'm seeing from our audience right now, which is if gold is a safe haven asset that is supposed to do well in times of volatility, people are generally flocking toward it, how come this war in Iran hasn't had more of an upward price momentum impact for gold. So, anything further you would add on that note? Well, I guess the only thing I would say there, you know, so the dollar's been catching some strength and I think that's kind of taken a little bit off the gold price, but I mean, I don't know, gold investors are never happy. It's had a it's had a pretty good good solid run over the last 12 months. And uh so, you know, you're you're off of a high from the daily high iss 5,400 down to 5,10 right now. Uh but up from a low of 4,600 bucks a couple weeks ago. So, I don't know. I I I think it's kind of doing what it does. I I I don't think that the uh price action in gold can be viewed as evidence that it's no longer a safe haven asset. I think it had caught a pretty good run leading up into Iran. Um I think there's been some dollar strength. I think there's some risk on interest rates and and people are feeling that and on inflation and I think it's doing just fine to be honest. Just because you mentioned the impact on fertilizers, I did want to bring up of course oil is the market that's seeing the most impact right now from tensions in the Middle East, but there are things like fertilizers, there's aluminum. I've heard even about helium as markets that are feeling impact, and they're areas that I think investors don't think about very often, but now they're really coming to the four. So, is there anything really key in those arenas, those those niche areas that you're watching right now? >> I I think so. I think fertilizers are one. You know, we we invest in the fertilizer space. We like the a space. We don't carry very much in the way right now just because, you know, traditionally this isn't such an impactful time of the year for crop prices and fertilizer prices because um you you're in that period before planting before the crops in. No one's looking at weather to see how big the yields are going to be and stuff like that. So, this is typically a quiet time of the year. obviously less so this year uh but in general relatively quiet cotton in fertilizer markets but but in general we do like fertilizers and we sometimes hold as much as 10 or 15% uh in fertilizer stocks um so I think that's a natural one but you know really if you look at all the different markets so so I agree that people are now looking farther a field from oil and natural gas trying to say what other areas will be severely impacted I I think that of the two things that people are missing, you know, number one is that you can start to track exactly what goes through the streets of Hormuz and say, "Okay, well, the next one is going to be sulfur. I've referred to aluminum, like you said, helium, etc." Um, but this is a much bigger potentially if it stays closed for any length of time now, this is has the risk of being a much bigger and more widespread problem. It's like we're not thinking about it properly. Like people aren't thinking about the coal cape size vessels that that are having difficulty finding fuel. They're not talking about the cargo ships that could potentially be impacted here again by not finding fuel uh and flights that could potentially be diverted um because of major impact on jet fuel. So I think that those are kind of the second order impacts that I would look at as opposed to trying to find the most esoteric tiny markets that have to pass through through these waterways. Uh the second thing is that you know for all the talk of like what's next? Let's find you know this in the weeds trade uh so that we can show how clever we are in Alpha Generative uh the oil trade hasn't really happened yet. You know the oil stocks still represent the clearest most direct way to play um the events of the last 3 weeks. And so for people that are trying to say well I missed that. What can I get next? I don't think that you really have. You know, we just finished a call this morning with some people that said, you know, how can it be that the oil stocks really aren't reflecting any of this? I don't know. Either we're going to look back and say this was a really short-term disruption and they were seeing through it and realized everything would be fine, or we're going to look back and say, "Well, that was pretty dumb." Um, and we'll we'll have to wait and see. But look, you know, the streets will reopen. Oil will flow again. Uh, but the volumes are pretty big. And so if you're talking about three or 400 million barrels that has essentially just not been put into the market, if you open up the straits again, everyone's going to turn their oil wells back on again and you'll get to the old rates, barrels per day, but you still have to replace that quantum, that 400 million barrel quantum, right? That's just that just never got produced. You're not going to produce the the wells in excess of their old rates to get back to that. That's not how it works. they'll come back on at that same rate that they were on before most likely. Um, and you're just going to be sort of 400 million barrels uh less oil in the world than than we had been expecting. And I don't think that the economy has slowed by 400 million barrels worth. And so inventories, whether we call them SPRs or commercial inventories or hidden tank or whatever, right, almost by definition, just the amount of available oil to the market will be ratcheted lower and there will be an attempt to try to build that back up in the coming months. And that I think should be a tailwind to oil prices. So I think regardless of of when this current bottleneck is alleviated, this will have some lingering impacts. And I don't think as a as a as a world we're in a position to accelerate daily oil production above where it was in January. And that's a big part of why we were bullish in the first place. OPEC is producing all out. Obviously not right now, but they were producing all out in January. The shales have just been slowing their growth year on year quite substantially and consistently for the last three or four years. So I don't see them as being a big growth driver. A lot of Brazil and Guyana and Cernin are now online. So there's not a huge trunch to come there. And so like where do you replace all this oil that just was never produced that the world was expecting? I think that's going to be kind of the story for the next 6 months. >> Makes a lot of sense. And so you mentioned we don't really need to get too fancy right now with these niche markets. We can focus on oil. When it comes to the oil stocks, does it also make sense for investors to focus on the producers at the moment versus moving further down the food chain? >> I think the producers are a great place to focus. Yeah, I think absolutely. I think it's a clear uh earnings story for some of the producers. If you raise oil prices, you're going to have more earnings in cash flow. You discount that back and that's a higher net asset value. So I think that obviously there's a very direct benefit to oil companies from having oil higher oil prices. I mean it I shouldn't have to say that that that that's good for them the same way as it is for a gold company when when uh when gold prices go up. And it's funny because I remember probably in talking to you in late 2024 and then everyone was saying well yeah gold prices are going up but maybe it's not going to impact cash flows. you're like guys just just give it a quarter or two and you'll start to see them flow through and that certainly has been the case and that's what's really driven the gold stock performance ever since. I think the same will be true here for the energy producers. We also like to favor um the offshore drilling stocks. That's not really so much of a straits of horm type of a direct read through here. Uh that's just the idea that as the shales have been coming down in terms of growth importance uh to the world oil markets, we expected to see the large oil companies go back to the projects they had on the shelf just pre-shale. Remember shale kind of surprised everyone. It left the line a little bit and um you know was brought online very quickly and very profitably. And so a lot of projects were sort of put on the back burner and most of them at the time were offshore. And so it's been our contention that as the shells sort of slow in importance and slow in growth, you start to see a migration back to shale uh offshore projects and the drilling vessel companies in particular who most of whom have gone through restructurings during co now have good balance sheets and such uh are trading at really really really depressed cheap prices. So we have about 10 or 12% of the portfolio in them as well. Um, I think that's a nice, you know, a little bit of a different um, motivation between each of those. One's a little bit cleaner and more direct. The other is a little bit of a special situation. >> I want to stick with the energy theme a little bit. I know from our previous conversations that you're bullish on uranium. In the recent commentary, you also mentioned coal and you know, if oil has been hated, I think coal even more. So I wondered if there was anything you would say about your exposure to other areas of the energy sector including those two. >> Well, so our uranium thesis, you know, we've been big uranium bulls since the absolute bottom back in 19. And you know, we we caught the bottom there and we were super early and people looked at us like we had three heads for for saying that we wanted to invest in uranium. Uh and today it's rallied from 20 bucks all the way back up to 100. The stocks have been uh very good performers the last five years. longer now, I guess, the last seven years. Uh, but what's amazing is that even at today's prices, you're just barely getting to the incentive price needed to bring on a new mine. And so, we're we have a big supply problem. You know, the 2030s is going to be a tug-of-war between new mines and SMRs and seeing the cadence of each of those come on. If if more mines come on faster and the SMRs are delayed, prices could sell off. if the SMRs roll out quickly, um you could have a persistent deficit through the 2030s, but between now and then, it's just really a case of what reactors are on today and what mines are available today or in the near term, right? Line of sight out to 2030. And that paints a very bullish picture. There's not much in the way of new mine supply. Uh uranium um rather nuclear power plants will pay almost any price to keep fueled once you built it. you really can't let that thing uh run out of fuel. Um and so that spells a really bullish story for the next couple years, punctuated only by hot money coming in and out. There'll be waves of hot money chasing it, get a little bit too expensive. It'll pull back as they leave. We saw that over the last couple years. I think for the most part, the hedge funds are now ignoring uranium, which is good. Um so I hope they don't listen to this podcast. Uh but you know, that that's a that's a really orderly, I think, bull market for the next 5 years. Uh after that we'll we'll have to see what the cadence of the mines coming on in the 2030s uh is going to be. So we've liked that. We continue to like it and and honestly the story just gets better and better because some of the existing mines are suffering a little bit of depletion problems. It's certainly true in Kazakhstan. Uh and some of the new projects look like they'll have some delays in first production again making for a very bullish uh story. Coal, you're absolutely right. No one has had it coal exposure. You know, you talk about being starved for capital. forget having access to capital markets. Uh I don't think coal companies even have access just like regular checking accounts at at a big American bank. I think they they've all been debanked and they go and you know find credit councils that that'll be willing to offer them just regular wire transfer services and stuff like that. These are hated hated companies and yet you know cold demand on a global basis is growing. um it it continues to be a very important fuel in a lot of the world and it's very difficult to justify the coal prices that you have now. It's really hard to make an investment decision in coal and bring on a new coal mine. Now coal has some drawbacks too. Um first of all obviously it emits CO2. Uh it's also I think more importantly than that it's less efficient than natural gas. So where natural gas is available, you should use gas. Even if you don't care about the environment, you should use gas. That's a better converter of energy. And that's really what we've seen in a lot of countries, most notably the United States, move away from coal because they had a huge ample gas reserve. Gas, on the other hand, the the problem with it is that it's difficult to get into certain places. So, you know, tell Europe that in 2022, for instance, that the solution to all of their um problems was just to burn more gas. And they would have said, "No, no, that is our problem is that we don't have any gas to burn." Right? So, it can be a very difficult fuel to get your hands on. The infrastructure to transport it and liquefy it uh is is tricky. Takes time. And so, coal uh is a very necessary part of the energy mix. So, where you can move away from it, I think probably should from an economic perspective. where you can move away from it, you probably should from an environmental perspective. That doesn't mean that coal is worthless. And right now, it's being priced as though it's worthless. So, I think that those stocks will do quite well. And in every commodity bull market, coal at one point ends up being the most hated asset is down the most. And from its own trough within the cycle to its own peak within the cycle, uh, is usually the commodity that goes up by the most. And I think it's because it just gets so hated at the bottom. And this time's no different. So I I suspect that coal investments will do very well. Um we don't have you know huge coal investments. We have about I think 7% or so six or 7%. >> Well and I'll ask because it may be a market that people are less familiar with. Is this another one where you would look at the producers? I have to think that maybe there aren't really a lot of smaller companies at this point to choose from. >> No, there's not much. Most of the industry's gone and consolidated. So there's not a huge amount to look at. And yeah, we like the upstream the producers. Yeah, I think that makes a lot of sense. And with coal, so you know, it's a source of energy that we continue to need, although we hear about it being phased out. And it just reminds me of going back to what you were saying about the platinum group metals where the story about how they were not going to do so well was relating to how they were going to be phased out as well, which is happening slower than expected. So just an interesting connection there perhaps. >> I think so. you know, different markets, different um nuances, but yeah, in general, I think the trend is similar. Um, look, you know, I I think if you really have to kind of take a 30,000 foot view, commodity markets move in these huge cycles and they move in these huge cycles because there's this big delay from capital investment to production. And so, since you if those all happened on the same day, you had a supply demand imbalance, prices moved, capital came in or out, supply responded, it would all be very clear. But it doesn't. It happens in a 10 or 15 year delay. And that's almost a generation. So people don't even know the signals they're looking at. And if you go all the way back, you know, the 1990s were a big bare market in commodities for a whole variety of reasons. That led to um no capital being invested in a huge bull market in the 2000s. People will say it was the rise of China. It was the rise of China. That certainly added to it, but it was also the fact that we had taken spending uh in the energy complex and the commodity mining business down by 70%. It was the fact that all those areas their waiting in the S&P was at all-time lows, meaning investors weren't giving them any money and stuff like that. And that created a real shortage and prices surged. It became the investment fad of the 2000s. um money just really flowed in and all of a sudden was was put to work. New projects came online and then we had a period as you'd expect of relative abundance in the 2010s. And it was in that period of relative abundance that I think we developed these ideas that we could do a lot of things like we could build a lot of very inefficient energy sources like wind and solar or that we could build uh you know switch from the internal combustion engine to the EV. you know, you have to ask yourself a little bit or I do anyway. Um, Mercedes and BMW and Audi, forget the American car companies, like you know, people with real engineers, Toyota, you know, they had all agreed that hybrid was the likely path forward. And it was only uh Elon Musk and Tesla that said, "No, I think it's going to be EVs." You know, you have to ask yourself, why did all these engineers think that hybrids or straight IC was the way to go and that EVs weren't going to work very well? Because from an engineering perspective, they're not a very efficient way to transport people around. The batteries are just so costly. And if you look, you know, even today, obviously, there's been some improvement in batteries and stuff, but you can't say, you know, like Steve Jobs looked ahead and said, "Oh, well, you know, we're all going to have a miniaturaturized computer, so let me try to design that product." He saw in front of that. I mean, the battery technology in Tesla is not particularly revolutionary. That's not what their secret sauce is. in making an EV marketable to an affluent group of people that wants to show their commitment to environmental betterment, I guess, if you will, right? Um, and that was allowed to happen because we had so much surplus energy that you could kind of squander it doing a lot of these things. And that's where I think, you know, kind of coal um got pushed to the wayside. Said we don't need these other things. We don't need the platinum because we're not going to need ICEs. we don't need the coal because everyone should be enlightened enough at the at the very least to be using gas. You go tell that to people in India and people in Africa where you know the cost of infrastructure for natural gas is quite high. You still need coal to bring you through that part of your development cycle and there's still more people going through that today than there have ever been uh in history. And so yeah, I don't think the US will be a huge growth driver for domestic coal burn. you know, I don't think if you went and tried to build a new data center and, you know, permitted it through a huge coal fired power plant, you're probably going to get opposition. Uh, so it will be a shrinking share of a growing pie, but I think coal demand is going to continue to grow from here. >> The global perspective definitely helps to contextualize these things. And this has been very educational as always, but I will I will let you go unless you had any final thoughts that you would want to leave investors with at this time. No, I think we covered quite a bit. You know, I think the next uh the next weeks will be quite telling and we'll be able to check back here in in a few months and see where we're at because I I suspect I mean obviously things will look different one way or another. And I I suspect what's going to happen again is an increased attention being paid back to our energy um fragility and and our energy systems uh which which frankly we had in 2022 as well. So, I'm not saying that that will last forever either, but I think the path forward is is that people can't ignore the energy markets for too much longer. >> Well, thank you as always for coming on to share your insights. This was great. >> Thank you. >> Once again, I'm Charlotte Mloud with investingnews.com and this is Adam Rosenwag with Garing and Rosenwag. Thank you for watching. If you like this video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your thoughts, so leave us a comment below.