Commodities with Carry and Convexity – Robert Mullin

Summary

• Oil Market Structure: Argues the oil market has shifted to a firm floor with no clear ceiling due to underinvestment, limited OPEC spare capacity, and changing policy dynamics.
• Fertilizers: Bullish on nitrogen fertilizers as European gas shocks, secular demand growth, reduced application, and policy-driven restrictions tighten supply-demand.
• Grains: Expects tighter grain balances as fertilizer cutbacks and weather lower yields; warns markets are complacent and grains are less GDP-sensitive than investors assume.
• Refining & Grades: Highlights refining capacity constraints and U.S. crude grade mismatches driving high crack spreads and nuanced “energy independence.”
• Lithium: Sees opportunity in conventional lithium production while remaining skeptical of high-multiple DLE technologies not yet fully commercialized.
• Hedging & Shorts: Uses an asymmetric short in Canadian housing as a macro hedge against aggressive rate hikes, complementing long-vol overlays.
• Resource Nationalism: Notes rising export controls and hoarding amplify tightness across agriculture and energy, with China’s policy actions modulating demand.
• Equity Selection & Yield: Prefers mature, free-cash-flowing resource equities with clear dividend policies, buybacks, and balance-sheet strength to build convexity through cycles.

Transcript

[Music] hello and welcome this is the Mutiny investing podcast this podcast features long-form conversations on topics relating to investing markets risk volatility and complex systems [Music] so I swear I'm not doing this on purpose but I figured out I think my last three out of four guests have been University of Colorado at Boulder alumni so that's fantastic you've got another one here but just please tell me you didn't major in philosophy like the other two I I did not I was an economics and business major but uh you know regardless the the buffalo herd runs uh runs very strong in finance so uh you know glad glad to hear that you're you're taking care of the bus yeah so what why did you end up going there because didn't you grew up in the the Bay Area like the South Peninsula is that right of San Francisco or I did I did I grew up in the Bay Area but actually my my parents uh went to and met at Boulder um and my dad had actually seen it as as a young guy his family had moved uh from uh sort of the Lake Michigan area um took Boulder for a year um because my uncle had some asthma issues and so they moved there the whole family fell in love with it they went back to you know just outside of Chicago but all three of the brothers including my dad ended up going to Baltimore School my grandmother actually got a masters in music from Boulder back in the 1950s when they were there so you're a commodity of research Equity investor so and most people if you hear Colorado they would think Colorado School of Mines but you went to Boulder for business so like what was the uh your kind of trajectory until you found your way into the kind of resource or commodity equities yeah it was it was a little circuitous we've got you know family background and that my mom grew up on me paddle Ranch in West Texas just outside of the town of marathon hence the name of my firm um so there was always a little bit of that we don't have a bunch of oil wells it's not that Alice by any stretch of the imagination uh but but that's so there's a little bit of resourciness in my family background uh but I started off with the Franklin Templeton group covering um consumer products uh and uh you know that was back out of out of college I'd always been interested in Securities in history uh and buying and selling stocks but uh you know with a sector that I started with again who is the CEO of Colgate Palmolive and so I covered consumer products and cable for a year but then actually started gravitating towards energy uh and then you know so from there it was uh you know I I found it actually worked really well with my natural kind of and inclination of analyticals skills that you know I'm not good at guessing put multiple goes on a consumer product a process by which I can try and buy a dollar's worth of assets for something less than that that was kind of music to my ears so you know Franklin I helped launch the natural resource fund back in the kind of late 90s and then have been doing kind of stuff more or less on my own ever since got it so we've I know we've kind of discussed before privately but like you think like the seminal moment for you is 2008 and what you learned about like resource and commodity equities in 2008 so can you kind of dive into that a little bit of like what your kind Epiphany was from the 2007-2008 great financial crisis absolutely uh so it was a sort of a revelation via a two by four to the Head um you know it was a wonderful setup for resources that was a really good decade for resource basically 2002 to 2007 was kind of Glory Days kind of across all of energy and Mining um you know the underlying demand poll was was really great because of the you know Chinese industrialization and you know expansion of uh of demand there um you know you started to see additional Supply come in but you know look the stocks were cheap inflation was picking up uh the world looked pretty good and then all of a sudden the 2008 uh you know Global financial crisis came in and swept the legs out from under it and in fact the resource stocks went down more than everything else uh despite the fact that they were the cheapest things going in um and so you know the Epiphany there was that that the environment which is good for natural resource equities which is rising commodity prices rising inflationary backdrop um is inherently really destabilizing to broader markets and can bring about levels of volatility that leave nothing unscathed including resource equities so um you know it's it's it was a tough lesson to learn uh but it sort of shaped the way I thought about resource investing after that so the first step you know beyond that was to sort of focus my efforts within the resource sector on a more stable group of companies if we're going to have a you know really super volatile sector you know let's invest in companies that are more stable free cash flow generating good balance sheets and that sort of thing as opposed to exploration companies or you know over levered companies that you know are going to go up huge if commodity prices go up but probably go bankrupt if they don't um so that was really the thing that I changed in 2010 with the current strategy that we're running and then on top of that we started to do a lot more and this is where you and I started talking a lot more the way of risk management and kind of blaring in Long volatility on top of that um you know starting in kind of 2019. yeah we'll get into that like unique hedging structure that you have within your portfolio but I was thinking I was uh you know I love your your quarterly newsletters even your monthly updates uh because I have a general Romanticism I think for like real assets and commodities I don't know if it comes from like reading Mark Rich's books or t-boon Pickens or like I just think about the you know swashbuckling Canadians you know going around the worlds to mines to to to check out you know fertilizer crops Etc and like it might be it's very different for you though in a sense that maybe with resource equities um is it a lot of travel or is it be or is it more computerized these days where everything you can be kind of kind of done from home so I did a lot of travel earlier in my career you know visited a bunch of Mines did the helicopters out to the offshore drilling rigs you know I've had all the tchotchkes to to show for it you know boots and hard hats and all that kind of stuff um you know at some point you see a bunch of mines and you've kind of seen most of what you need to see and if you're gonna do a lot of early stage um investing in companies that are very much in that kind of pre-production phase then you still have to do that due dillions or you have to have someone do that for you and I've had geologists on retainer and you know people who kind of spend their lives bouncing around between these different projects around the world um but I will say the focus on more mature companies you know ultimately the Arbiter of whether you know a deposit is uh you know profitable or not is the cash flow statement uh and so I it's nice to be able to not have to make sure that you know they're building in the right place or they've got room for a tailing scam or you know they're not going to be too close to a watershed or it's you know seems to be too far away from a certain facet of what they need to support the mine you know by the time I'm investing in companies typically all that stuff's been kind of sorted out so it's less travel than it was and certainly the post-pandemic world where you can kind of get Management on a you know half hour 45 minute Zoom anytime you want has also made that to some degree easier as well do you think it's a it's a certain kind of like young man that that appeals to like I just think about maybe it's my love of James Bond films or I'm a sucker for any film that takes place in at least like five countries so like if I was in my 20s and found like resource equities or mining I would have been one of those guys like traveling to third world countries like you said looking at a hole in the ground but like thinking it was the greatest thing ever until like you said maybe you get a hard and Grizzle veteran and then you know you've seen one hole you've seen them all kind of thing but like it may I think it appeals to like certain people or like you were saying even like things saying things like cash flow and real assets uh appeal to a very narrow segment of the populace I feel like sometimes yeah I mean look there's there's certainly a romantic tangibility to everything that goes on here and you know if I was just in you know Morocco a couple of weeks ago and sitting in one of their Central Plains where a great Roman Outpost was built uh at the center of their olive oil industry it was the only major Roman Outpost that was away from the Mediterranean Sea um and it was because of the incredible Lush uh you know agriculture that was going on there so this is the stuff that's been building the building blocks of humanity for you know 2 000 plus years uh and so I think inherently it has to appeal to you from a you know kind of base level um you know but that said uh you know I'm not going to go out and visit the you know Nigerian oil fields anytime soon I'll leave that to somebody else you're not going you're not going up the uh to the heart of the Congo but the um I think about you know when you talked about the the resource equities the first thing that always comes to my mind and I'm I'm sure I'm probably not unusual is this is like gold mining stocks right and people yoloing you know Canadian gold miners because that's where they think they can get unbelievable leverage for like a gold price play um but that's not what you're talking about you're talking about like looking for actually like mature companies that have broad diversification and just I just wanted to like clarify that difference a little bit yeah so you know look gold stocks were gold stocks or Internet stocks before internet stocks so you know the the amount of ranked speculation you see in a great resource cycle can be really intoxicating um you know that said it's it's a really hard way to build a business over Cycles because most of that stuff goes out of business in the down cycle um and so what I have found and this was really again this is the outshoot of 2008. the lesson there was if you looked at a short list of resource companies that were flat or even up a little bit in 2008 they had a pretty common set of characteristics good balance sheets High free cash flow generation flexibility to the point where they could actually buy back their own stock or buy back their debt opportunistically or even make Acquisitions without the assistance of outside Capital markets without the banks and the equity markets opening up to them they were they were there organically and so you know concentrating on those types of companies gives you a lot of margin of safety in an industry that typically doesn't give you much so it is not perfect in any way shape or form um but it's to me it's really interesting in that people are like oh you know so those are the boring companies that you don't want to own in the upcycle the the truth is is that these types of companies can actually build convexity through the down cycle by retiring their debate discount by buying that stock by buying out competitors who might have complementary lands buying them out on the cheap because their competitors got over their skis flip side of that is that the companies that you think you want to own in the upcycle oftentimes have to give away a lot of that convexity with diluted financings in the down cycle so what we've found is that you know we do a really good job of keeping up with the markets on the upside we just end up protecting capital a ton better on the downside over the course of cycles that really makes a difference man you just I'm gonna steal that and use that for a pitch deck for for what we do so like when you and I are so philosophically aligned it's it's pretty ridiculous and then what's it even more interesting on the upside too is like if you have a highly volatile like gold miner on the upside you have to monetize perfectly right like and that's what people miss a lot is like you have to really um there's a lot of luck involved there where like you said if you're if you're riding these more um you know large conglomerates with diversification during that upcycle um you don't have to be as perfect with your timing for rebalances or readjusting your portfolio and I think that's what people miss a lot of time too is not only mitigating that downside but like people forget that you know the upside creates problems too especially like people maybe getting later it's like optionality right if you have convex put options and they're you know deep out of the money you better monetize those perfectly or else you know you you may have missed the whole convexity party in protecting the rest of your portfolio so it's exceedingly difficult you know normally I like these conversations to be Evergreen but I do want to time stamp this just because we're going to talk about different sectors and everything so we are recording this August 23rd 2022 and so I was going to talk about grains first but I think to talk about grains you have to talk about fertilizer and uh you know part of fertilizer is obviously you know synthetic fertilizer in the Haber Bosch process um but kind of tell us what you're seeing across like fertilizer markets around the world especially with what's uh you know went on in the Ukraine what was publicized in Ukraine versus what maybe reality on the ground is kind of maybe a bit different yeah so it's a really interesting really multifaceted environment I just think there's a lot of misconceptions about it and and I think there's a lot of complacency about it right now people got really concerned right after uh Russia invaded Ukraine um and so there was a lot of pension in here but quite honestly the the groundwork for the fertilizer bull market this was ongoing for a year before Russia invaded Ukraine um and the the the basically that was driven by longer term decline in Grain inventories which are effectively that is driven by an acceleration of grain demand from the pre-2000 levels of like 1.2 1.3 a year to something more like 2 2.3 2.4 2.5 percent that's really a complexity of diets the more animal protein you put into your diet the more grain that requires as opposed to just eating the grain itself to be able to to feed you um and so you started to see fertilizer markets tighten up post 2020 there was not a lot of incremental capacity put in um you know hydrocarbons that go into the process particularly natural gas were super cheap so you know you had this kind of excessive Supply then all of a sudden the grain markets start to tighten up fertilizer starts to tighten up as well and then you have the European gas crisis here again the European gas crisis predated and in many ways kind of I I think we're we're the birthing parents of the Russian invasion of Ukraine that's what gave Putin The Leverage that he had but this European gas crisis that came about in kind of September October November of 2021 um all of a sudden you had the entire European fertilizer complex that takes European natural gas to make nitrogen fertilizer went uneconomic you know when nitrogen or local gas prices went up by two three four fold all of a sudden they had to shut down because it was uneconomic for them to produce fertilizer because their input costs had gone up so much so all of a sudden the global fertilizer markets tightened out so you know then all of a sudden you start to have these follow-on effects where farmers are going to apply a little bit less fertilizer because it's so expensive but that's going to make yields drop and so you're you're basically you're you're putting off some expenses today that likely leads to even tighter grain prices happening in you know in six to nine months once we get through another Harvest cycle so you've got you know so that's kind of the basis of what we see in the fertilizer Market we're primarily disposed towards the nitrogen fertilizers but I think there's a reasonably good story for uh for you know potash and some of the other things that are the other nutrients as well um but you know then you have these other things coming in which are you know really accelerates you have this sort of I think really maybe well-intentioned but utterly uh disastrous move towards reducing or Banning synthetic fertilizers uh that and using organic fertilizers that has a disastrous impact on yield so that's Sri Lanka that's a number of places where you've seen it lead to actually political overthrows because it blows up the balance of payments because all of a sudden you don't have enough rice to support your uh you know your population and all your export crops you don't have enough of them to sell because all of a sudden your land isn't as productive as it used to be so you've got that larion then you've got resource protectionism resource nationalism where as grain inventory started to tighten up the countries that have the ability to have surpluses and they're terrifically the exporters for the world are saying well you know maybe I'll export a little less or maybe I won't export at all so you've got this reflexis George Soros reflexive brains are tights so people get more protective so they hoard more inventory so prices go up even more this is the story you know again I haven't mentioned Russian Ukraine yet this is all has been going on um and and and that's what we all of a sudden throw Russian Ukraine into the middle of so it's a it's a really um I think very complex multifaceted Market but to me it's one of the most convex opportunities in resources right now because I just think there's just enormous amount of complacency around it yeah before we get the Russia Ukraine yeah there's so many things I want to pull on that you that you just talked about one is um you have serendipitously I was actually just watching a video last week on the potash pools in southern Utah have you ever seen those things like from aerial view they're amazing because like as the water evaporates over weeks it creates these really vibrant colors so if you look on it like a Google aerial map it's like it's just this beautiful thing in the middle of the desert in southern Utah I think that's like uh 400 Acres I want to say that like some of these these potash Farms are basically you know bringing it up from underground and I think you can look at it I think the town's actually called like potash Utah or something like that but it's you're trying to trying to have some trying to have some domestic sources too because it's a it's a very volatile compound too so you have to be very careful and people have died in the past you know trying to you know harvest the different different combinations with potassium but like you brought up the nitrogen fertilizers you know my my understanding please correct me up I'm wrong is part of the the the protests in in the Netherlands coming from those Farmers is the idea is that nitrogen-based fertilizers create like ammonia round and after it was at two to three days that becomes a volatile carcinogen but the way that the Dutch farmers use it they don't they're not using ammonia in that sense but so there that's what they're kind of fighting against but is that kind of like the thesis or process of why they're trying to restrict their abilities to use nitrogen-based fertilizers yeah I mean I think at the root of it I mean it's it's it is it is a global movement um that is wholly political um I would argue anti-human um but it is it is based on both the toxicity of its uh when it's applied but also the fact that it's fossil fuel based and therefore has a carbon footprint that goes along with it that is higher than using natural animal manure to be able to to do the same thing so that is all well and good it is true the fact of the matter is is that the Dutch Farmers with no regulation whatsoever have actually reduced the amount of nitrogen toxicity that they they've been emitting by 30 percent over the last four or five years without any regulation without any movement so significant progress has been made uh and yet you have this again we're seeing the same thing in Canada this this desire to kind of jump the shark and say we are going to righteously do this and we're just going to you know eliminate this industry you know the Netherlands is the second largest food yet exporter in the world outside of the U.S um so this is not you know this is not you know taking a little a little player off the table it is significant you know you talk about throwing Canada into that mix you know that's again that's another top five food exporter um the fact of the matter is without synthetic fertilizers that have many many you know that they have quantifiable detrimental impacts on the environment um that have been lessening over time and clearly you've been used in many parts of the country for 50 years or more um so they have issues associated with them that we seem to be able to manage but the fact of the matter is we can't feed over half the people in this world without synthetic fertilizers you just can't the map is is not there um and so trying to to pretend that um it's a viable solution to just go cold turkey on this stuff is just it's it it doesn't work uh and so I think the conversation needs to be a lot more sophisticated to be able to figure out the right balance and that seems to be lacking from the dialogue today yeah Nuance is always lacking from any dialogue understandably today and part of that is you know that yeah realism is the way you're you're kind of talking about it but I wonder almost if you if you take off your investor hat for a second right both of us live in Northern California which you know is frequently accused of very hippie Tendencies I think that's a historical lag it's not quite like that anymore especially with Silicon Valley but one of the things I always you know we we have some of the best produce in the world right and so I always go to the farms and and visit and see how any you know the crops are grown to how the room in the animals graze and all that that stuff so what do you think about well if you take your investor hat off for a second though the trade-offs have you know you by using synthetic foot fertilizers right you might uh increase the cyclical yield of that crop but you may be destroying the permaculture for the secular yield of that long term and I think that's potentially maybe the argument Sri Lanka is trying to make but I'm just curious like you know taking off of both of our investor hats just how do you think about that in general yeah I mean look I've I've got three kids I'm I'm all for making sure that the world that they deal with over the next 50 or 75 years um is when it's a habitable as habitable as we have right now we're better I think evidence of you know the Central Valley of California is the most fertile productive place in the world and you know has people traded supporting all the way through it all the time um and has been using fertilizer one of the you know the original places where fertilizers can utilize extensively since you know again since like the man 1950s so I I think the the argument that you know some um now that there or haven't seen them yet maybe they will come uh and so you know I think we have to be cognizant of that um but to me I the the benefits outweigh the risks particularly when you know look we as a wealthier society you know if we want to pay you know three dollars for a tomato uh as opposed to you know a buck or whatever we can do that and that's you know that's that's a choice that we make um and I'm a okay with that that is not a uh you know a something that one can impose upon 75 of the global population they don't have that luxury they really just want to make sure that the tomato or whatever it is additional synthetic fertilizer is Elemental in making that actually show up and so you know I think I think different parts of society have to make different choices and probably will make different choices but at the end of the day if we're going to look at this globally holistically world population wise we just have to have just a a much more balanced conversation about the path that we take as opposed to saying you know we don't like what this might look like in 50 years so let's cut it all out right now and then all of a sudden the daisy chain of side effects comes along and the next thing you know you've got governments collapsing all around the world because they can't feed their people yeah I mean there's nuanced trade-offs all the way down I usually bring up in the early 1900s a lot of farmers used to raise pigeons so they could harvest the pigeons for their bones crunch them up and distribute them fields and a lot of people don't want to live like that anymore either and they would think that's a torturous process but then also like you were referenced earlier is like the the history of of Natural Resources is fascinating if anybody wants to study like as I'm sure you're aware is like the guano Wars of South America between Chile and Peru is the reason why Bolivia still no longer has a port you know because we were fighting for these abilities to grow crops I mean it's that malthusian bargain from I think it was 1799 his mouth is and we're still always debating it to this day and like you're saying without Haber Bosch and all these other synthetics we wouldn't be able to grow the food to increase the carrying capacity and people can argue on either side of that or whether that's good or bad but this is the world we live in so there's there's a certain amount of pragmatism to it but I want to go back to before I get to a field in my my ramblings I want to go back to grains and and because that's what we're talking about fertilizer first and how that affects grains but the way I want to use maybe grains in this scenario that you started to hint on already is everything that I don't think it gets talked about enough but everything in investing is expectations what are the current expectations right and did the numbers come in to uh go above or below expectations and so it's that tertiary effect of what really moves markets and so you're already referencing about like the Ukraine is all we saw across the news media was Ukraine is the breadbasket of Europe and if those grains get destroyed everybody's screwed so then it just because of that news cycle and expectations it seems like grain prices skyrocketed and then the news comes in it's not as bad as we thought so then they tank so I'm just wondering like how you like talk me through like Ukraine grains and then therefore how we think about expectations within the commodity markets yeah so I mean look most grains are actually down year to date and they were up before Ukraine happened so again the market is more complacent today than it was in mid-February before the tank started rolling which to me is is pretty remarkable I think the expectation said again people there aren't a lot of folks left who play the common of the game and so when Ukraine happened and broader Market weakness was happening all of a sudden you kind of had to be had to have exposure to resources nothing else was working um so you know energy and Grains and all that stuff was so you had a lot of people who I I think investors bought it because they felt like they had to be there they rolled into DBA the agriculture ETF they rolled into um you know nutrient and Mosaic and all of these companies uh with the expectation that you know it's just I I kind of have to be here it's not because they had a really firm view of the long-term secular bull case for cranes it was got I'm getting killed everywhere else if this Ukraine thing really goes sideways I need to have exposure that's going to work so the the what came out of that was you know look the market system is or the world the global food system is very sophisticated we pulled down inventories elsewhere that we you know to be able to cover the balance of what was supposed to come out of Ukraine but really the impacts are are really you need six to nine months to really figure out the impacts because that's a typical you know kind of crop season and so we haven't seen the impact of reduced fertilizer usage we have not seen the impact of what looks like now pretty difficult growing conditions in China and India in parts of the U.S Midwest all of these things are coming together and when you know when you get crop estimates or uh how how what yields are going to look like they're pretty good at adjusting for weather um although they tend to be kind of their momentum Chasers in some ways you know they're high high until the numbers get marked down and then they Rush down and meet them what they are not very good at doing because it's been a long time since the fertilizer prices were really this high is adjusting for the impact of reduced fertilizer application and I think we just need to go through a growing season to see that so that's where I think the expectation set is missed I think people are still looking at you know 170 bushes and acre corn you know I think we might come in at 160 maybe even lower and if that's the case uh you know then all of a sudden uh you know the market goes from you know tight-ish to really type and you compound that with what I foresee as the resource nationalism and hoarding at the government level um you know then all of a sudden you've got a market that goes you know commodity markets are commodity markets you got a little bit extra you know pricing is you know kind of goes along and is okay the moment you get short um you know things start to get a little wonky and go to the upside and that that's where I think grains sit people are also trading grains from a economic Outlook much like they kind of trade oil and copper where typically if you look at the correlation of grains to Globe changes in global GDP as you would expect it's much less stable you know bull markets we believe you know in Bear markets people eat they may eat different things they may eat a little bit less but you know really you know this secular change of people having slightly more sophisticated diets and requiring more grain to to support that that's an ongoing kind of steady up into the right kind of trend so I think you're absolutely right people rushed in because the potential impact on agriculture was bigger than energy which it was um you know all of a sudden you had a bunch of people in the market who aren't typically there and don't have long-term conviction and when the inflation expectations start to come down all of a sudden the cell programs are like sell anything economically sensitive energy oil you know all the whatever it is it all gets blown out and so that's what we saw in really kind of I guess June July and maybe even the league of August the broader Market loved it because all of a sudden you know that's their cue that inflation is not a problem anymore had nothing to do with underlying Supply demand you know we're still liquidating Global oil inventories but oil inventories went from 100 oil prices went from 120 to 90 in kind of a straight line um on the concern that demand will slow so I think a lot of it has been sort of positioning driven for slower economy I think that's particularly misplaced when it comes to agriculture which is very much less economically sensitive you know you made me think about um in the last few years what I've really learned you know especially with this one is what that everybody's different the definition of transitory is um and the other one is that what I think is a lot of times in the financialized markets or or hedge funds Etc is I don't think any of these people have really um dealt with real assets or commodity resources and or um ever ran a company that had physical inventory and understand lagging effects because like that's what you're describing like even right now with uh CPI print and oer being a third of that and how much that's going to lead to a lag you know 12-month lag in prints and people are like like you're saying they just look at today and time oh inflation's over let me sell out of all my natural resources and so there's like these really lagging effects that people don't realize when you start dealing with bull whips and Supply chains and all these sorts of things like these are really slow moving you know cargo ships but they're but they have like volatility in between so I can't really mix metaphors there but like that's the difficult part about it and maybe that will help because you started initially to talk about it but the the trial office has transitioned to like energy and specifically I mean we talked a little bit about Nat gas obviously but with oil I thought was a great quote in your latest uh quarterly newsletter that it's uh it's a previously it was a market that had a ceiling but no floor but you feel that's changed now yeah yeah I think that's and that's something that is not priced into energy equities um what I think is and and the way I sort of put it is we've got a pivoting convection in in the oil markets for the better part of the last 40 years you had some very firm things that that sort of put a ceiling on crude oil whether it was excess OPEC capacity that they were there to be able to kind of make sure that the market was adequately supplied and didn't get out of hand on the upside whether it was industry who had responded to higher prices by ramping up capital investment and therefore having the ability to add additional barrels oftentimes near the end of the cycle which was absolutely you know the worst time to do so um and then you also had demand destruction so all of those things were there to kind of keep to some degree a lid on oil prices uh in the past now of those three things two of them are kind of gone Opex got a little excess capacity You could argue Saudi and UAE maybe a million million barrels but in a hundred plus million Barrel a day Market that's not a lot industry is not responding to higher prices and is in the midst of a 10-year decline in capital spending that's effectively put us kind of a trillion dollars plus behind the ball the money that should have been spent to increase production in 2023 in 2024 and 2025 needed to be spent in 2016 2017 2018 and it wasn't so even if we pivoted even if you know the the you know current Administration and the oil patch you know grabbed hands and sang Kumbaya and said let's get after this um it's five to seven years until you get really incremental significant oil supply from the globe you get some Shale faster but you know the problem is that's and that's something that I've done a couple of different videos on um that's an that's a place where we kind of mistakenly blew through all of our good inventory really fast and really early there is still legs to Shale but it comes incrementally more expensive and it comes incrementally more difficult we're not going to add another three to five million pairs a day out of shale that doesn't exist can we add another million barrels yeah but then just because of the decline rates you know then you know Shale goes to you know seven eight million barrels a day all of a sudden you know you're losing a million and a million and a half barrels you've got to drill just to keep that going so that's the nature of really high decline stuff so um so that's the upside is that so the upside is no longer capped ice you still have demand destruction as a potential cap but what we've seen in a couple of different markets is prices go up really high and kind of stretch the consumer's mindset as to how to think about it you know diesel prices went to six or seven bucks European natural gas prices are going to the equivalent of 300 a barrel uh a WTI oil prices um a lot of those prices are more expensive in other parts of the world because the Dollar's been so strong so again you're kind of stretching what the consumer is good now that we've come back off of it you know the next time you go up to levels like that or even close you're like yeah it sucks but we've kind of been there before so I think I think consumer abilities to withstand higher energy prices at least on an emotional basis we're going to stretch so so again most of these upside caps are now gone um industry is not there OPEC is not there in terms of the ability to bring on additional volumes quickly and easily but to me it's actually the more interesting part is the floor uh is is that you know you've often had an industry typically invested a ton at the peak of these cycles and they're not going to turn off stuff once they turn it on so you kind of film and Louise your way over the end of these cycles that happened in 1998 it happened in 2008 where everyone's like oh yeah great upcycle you know all of a sudden let's add a million two million three million barrels a day all of a sudden they're like oh no prices are going to be crashing and uh you know I I did this at you know a hundred dollars a barrel and now oil prices are 30. but I still got to run it because it doesn't pay to shut it in I mean I at least get some kind of cash generation to cover my debt so that's how the typical down cycle has went the additional facet that I think people don't really understand particularly though is that OPEC was always there to kind of help that along because it was in their interest if you look at the big declines in oil prices over the last 25 years that were associated with economic attractions OPEC increased production into every one of them so everything from you know 1998 to um you know that was what blue oil negative was the Saudi threat to add an additional 2 million bills of ageism already over supplied it was in their interest because when what you do with that is you stunt Western capital investment foreign you throw a big downside volatility at the market and that kind of stunts the capital expenditure cycle and it was successful it really worked but the question is do they need that anymore yeah Western governments and politics and ESG and decarbonization goals are doing that for them now they don't need to discourage Western investment you know we're doing it ourselves by saying hey you can't loan these companies any money you can't get insurance for any of this stuff if you're an oil company you know we're gonna basically make it really hard for pensions and endowments to own you and you're going to get no shelf space and Generals portfolios so so we're doing their dirty work we're there um so all of a sudden this uh you know this guy who used to kind of when we were teetering on the edge push us over you know they don't need that downside convexity anymore to achieve their goal and in fact the flip side of it you just saw Saudi come out yesterday saying that you know look if if Iran is allowed back in and the volumes are we'll make room for it we will support oil prices in uh you know 70 80 90 range so if I'm right about all this which I think I am you've gone from a market that had you know sort of this firm cap and virtually no downside uh to a convexity profile it's totally pivoted and now has a pretty firm floor and very little oh okay we can get a little geeky on option progress but you're radically changing the skew in what the underlying commodity can do at the same time your realizations that decarbonization and Renewables will be more slow anyway if people were valuing energy stocks like energy was going to be unusable like traditional hydrocarbons really unusable after you know 2030 or 2035. I think people are starting to understand that that's not really a feasible outcome so if you are shifting the SKU higher at the same time that all of a sudden you're going to have to give these oil companies value for a longer duration of assets that they will actually be viable companies selling hydrocarbons at 2030 to 2035. all of a sudden your implied option value should be skyrocketed and yet all these companies are still trading at you know 25 free cash flow yields and um so that to me is the biggest Market the market has not shared my view as of yet I think they might over the course of the next couple of years yeah that's a great way of putting it that you took an asset class probably from a negative skew to a positive SKU uh but said more colloquially or succinctly like you said maybe previously the market had a ceiling and no floor and now the market has a floor but no ceiling there's no way to look at it but then you brought up Shale prices too which made me think about um the other even thing on top of that if we start lingering in more complex complexity is a refining capacity and that's another capex problem that we ran into and it right now we're dealing with crack spreads which is the difference between you know that that price of per barrel crude that you see and then price you pay a prompt and depending on what region you're in those crack spreads exploded and that's why people are paying you know a lot more at the pump is a lot of that that Delta that expanded between there but I think I may have stolen this from you it's hard to remember I've been reading your work for a while it's like you know everybody says that the US is energy independent but it really depends on the quality of crude and the quality of the refining facilities so we actually have to import more of like the higher grade stuff is that correct Yeah we actually we have a grade mismatch we have apparently very complex Refinery so we actually have to import the lower grade stuff we want excuse me we want kind of junkier crudes because we've got the biggest expensive most about because that's the stuff that we needed to run when we were you know importing a lot from Mexico and uh you know uh South America and places like that um and uh and all of a sudden we've got all this domestic production which is really light and sweet and you know Shea oil which has lots of you know high-end uh liquids and things like that associated with them so we need to bring in some of the heavier stuff Canadian oil sands and things like that or other you know South American Crew it's mine and blends and things like that to be able to make our Refinery system so yes technically we're still not there yet by the way technically we are getting closer to energy Independence but there is a mismatch in that that which we have is not which processes well through the system that we have so we're still reliant on you know again we got a bunch of that stuff from Russia too you know heavier grades coming out of the Euros um which was part of what you know was able to run our system well yeah Europe is the same thing they've got pretty complex requirements as well and then there's uh there's two random questions I had when we were talking about agricultures and Grains and fertilizer is one I don't I'm sure you followed Peter's eye hand but like you know one of his thesis is that you know in the when the USSR broke up we had this unbelievable flood to the world of almost like Commodities or resources and capacity and you know we're seeing kind of like the Tailwind of that and then when you know with the crane like when it comes to like nitrogen-based fertilizers potash that sort of thing um do you have any pushback or do you kind of agree with his thesis about you know that we had a flood and that's what actually gave incredible Tailwinds to places like Brazil where they could import you know cheap fertilizer and led to that unbelievable growth boom in Brazil and in the natural resource side I think you can actually make an argument that's even bigger than that I totally agree with Peter I think is his writing is um is brilliant um I think it's not hard to draw a direct line between the lowest interest rates in modern history and the excess of commodity inputs that were created not only by the breakup of the pharmaceutical Union but also by the over investment in jail patch uh and you know the the half a trillion dollars that went in Via private equity and got virtually no return um on that you know on that sector um you know so what you had was a very extended period over the course of a decade and a half two decades of really low commodity prices which enabled growth in many ways um did you say development of Brazil and a lot of things emerging economies who were consumers of those Commodities benefited considerably but it's fed this entire cycle of sort of lower cost of capital because your energy and raw inputs had all fallen so much in price because of temporary periods of oversupply either because you unleash the kind of Russian beast on the World by the excess supply of air or you just over funded things uh like you did the U.S Shale patch um and I think now we're seeing the flip side of that is that if that led to a very low cost Capital very low inflation um you know inspired a lot of speculation uh you know a lot of things that drove down the cost of many things you know when money was effectively free now we get the other side of that because we don't have another Russian in fact the Russia we've got may go away uh in terms of their ability to supply us with the Commodities we want we've kind of run through the chief naive Capital that gave us jail um and now the capital is much more skeptical and even deterred for political reasons so all of a sudden this is this is this is fundamental not just to the Condi markets but this drives this drives everything right um so that's the way I view it the second question was um do you follow any of like hackett's research about Oceanic and sun cycles and and different weather patterns as far as on the agricultural side at all you know I that's not something that I have used I'm cognizant of it but it doesn't tend to and I've seen it every once in a while but it's not it's not part of what I I think is is what I use as being investable um kind of incremental information that'd be interesting because uh the one thing I think about I I don't know if it's correct or not but I do I find it interesting and and part of it is like if we go through these 40-year kind of slightly warming slightly cooling Cycles it's at the flip of those where you have the highest volatility kind of in weather patterns that can obviously dramatically affect their culturals which we could be going through right now but I'll get to it later it's like that kind of like Perfect Storm of cat-backs weather I mean everything's kind of like converging to like kind of maybe lead us to this maybe thesis of a secular bull market in natural resources um the other one I would touch yeah I think you know the guys at Gary and Rose has tried to do really really good yes around some of this and Lee Gehring was on a a podcast recently where he was he was talking about that and we really have had 10 years or more of a really benevolent very friendly harvesting weather in most of the major agricultural centers around the world um and it now looks like that may not be the case when the world becomes dependent upon a continuation of you know really you know easy growing conditions and and optimal growing conditions you know when systems break down are tend to be when they're tight and things matter I mean who had would have had on their bingo card that you know I would be checking the water levels in the Rhine and the Yangtze River every day now to help understand my Agricultural and energy outputs but that's where we are and that's what that's a that's a symptom of systems running tight so the marginal sort of inputs around them becomes significantly more important and things that were taken for granted are all of a sudden you know kind of Paramount and speaking like the Ryan and Yangtze like how do you how are you thinking about uh China's second wave of shutdowns from covid and everything like how is that affecting um your ability to allocate resources or think about how the weather is the secondary and tertiary effects of those shutdowns yeah I mean I I would say this is this is bordering on a conspiracy theory um but I think it's fundamentally sound for whatever reason China for the last year and a half has imposed a number of different measures that may have had a different primary driver but their end result of them were to constrict resource consumption in every single one of them Banning Bitcoin money you know slowing down the amount of video games that you can play that impacts all the server Farms that support those 3D virtual reality Games the allowance of the property sector to really kind of radically deteriorate so that I think there were a lot of reasons to do that but certainly a byproduct of that is you slow down resource consumption um you know the the sort of shutdowns over very very modest illness or infection levels and almost no deaths the shutting down of multi-million person you know areas yeah all of this may be done for other reasons but the end result of all of that is to cons to constrict resource consumption and I think in many ways China may have seen this resource scarcity issue coming a lot earlier than the rest of the world did and so my base case is that they continue to kind of fluctuate in and out of their own shutdowns because that serves their purpose you know their their biggest concern is people come out of lockdown and can't get their vegetables um or all of a sudden can't fuel their cars or you know can't you can't run the factories because you don't have sufficient power because your hydro is down because the river levels are too low so so so I think they're they're trying to build cushion into their system through these actions I think they will continue to do so that's my base case if they come out and say all right we're open for business again I'm not sure the resource markets can handle that quite honestly and then I was thinking about when you're you know domestic hedge fund manager investor you're not really concerned about US dollar in general but as soon as you become Global macro or you're looking at natural resources and Supply chains that are you know around the globe now the dollar can be dramatically effective portfolio especially if you're investing in um you know certain equities that are you know outside the US I'm curious do you try to isolate the dollar or you try to ride the wave of the dollar or do you think it all kind of works out in the wash across you know multiple regions and sectors so so I will answer that a number of ways I I even when I was just running a mostly domestic Resource One The One Singular thing that I could pull up in the morning before the market opened it would tell me what direction my portfolio was trading in was the dollar so it's it's always been something that you have to pay attention to the strangest thing is that I came into this year you know and several of the larger macro trades that I put on to try and you know capture volatility in the areas where I think if they do well um that resources will be poorly well vice versa um was being long a dollar so I was long dollar calls coming into this year um thinking that that was good hedge for my portfolio they both worked so that's not usual so for the better part of this year you had dollar stronger resources stronger which was a very odd beast in the world of global macro correlations so you saw that correlation reassert itself um you know as kind of you know after the kind of April top where dollar continued to Rally all of a sudden economic concerns to Senator sage and you know that's sold off so um from a broader standpoint I always pay attention to it you know and and and you have to pay attention to it in terms of like Global affordability of Commodities and and things like that um in terms of trying to wean it out from my specific Commodities being long and short Global resource equities I have a tendency to sort of leave it alone um and and the reason I do so is particularly like I have a lot of exposure in Canada a lot of exposure in Australia for those companies they are selling products on a global stage at dollar values typically and their local costs are denominated in their local currencies so all of a sudden you get this benefit of expanded margins from a strong dollar so it's somewhat offsets what might be the pressure on commodity prices that a stronger dollar a month desert so you know I tend not to mess around with it too much unless I have a very specific situation where I'm very concerned about a current city for one reason quite honestly I'm I'm relatively bearish Canadian dollar right now I think there's a perception that it is a resource economy um that's really a de minimis part of what drives Canada these days it's really a leveraged real estate financialized economy and that I think is going in the wrong direction so if there was a place where I was I would kind of say let's let's hedge out our risk it's probably 10 today now you said when we personally perfectly is like what I love about your portfolio is not only do you have um these natural resources or commodity equities but you also hedge the portfolio too because of that that volatility inherent in those markets and so like you're saying that was interesting the US dollar calls um is a way to hedge the portfolio but maybe not so much now and then I'll think about some of your other Hedges and you brought up a perfect one because when I was reading your stuff is like you're short Canadian housing and I'm like how does that have anything to do with what we're talking about on the natural resource side but you just I think eloquently kind of stated your thesis on that but it's like is that we have to do sometimes is maybe move farther afield from when you're looking at the hedges and sticking thinking about the secondary tertiary effects of like how do you hedge maybe a long play on certain Canadian minds or natural resources like you're actually at that do you have to short their housing market as a hedge yeah well I think I think that is true absolutely um I think it's even a little bit if you if you pull it up a level um in terms of macro but um you know what is right now my biggest vulnerability as a um switch manager it's that Global central banks particularly North American central banks are more aggressive than the market currently expects that's where people get concerned that you know we don't have a dovish pivot you know we don't have this decline in rates that starts next year um and so that and and that impacts people's concerns about growth so who would be the Biggest Loser from you know the Bank of Canada going 75 and maybe another 50 or another 75 by far the Biggest Loser there is the Canadian housing market I think the impact there is way worse than it would be for energy or you know or copper or anything else conception so to me that's a much more asymmetric way to look at it I you know I I'm short some energy select energy stocks you know short some things in the you know kind of lithium space I'm sure so I have some some kind of classic in within the silo resource shorts but to me to the real vulnerabilities of my portfolio from the macro basis I think that the asymmetry on the being short Canadian housing right now is just so much better you know it's Wiley Coyote has left the edge of the cliff his legs are in midair and the cloud is dissipating and he's about to look down and say uh-oh um that's what Canadian housing looks like to me because prices have already broken you know you're already seeing the credit distress and you know the personal bankruptcies and the the resetting they reset their uh mortgages every one to five years so no one turns out for 30 in Canada you roll at one to five years and that stuff's all resetting 100 200 300 base points higher it's a huge impact on consumer spending so the only way that I think the Canadian housing short doesn't work is if all of a sudden you see Western central banks and particularly the fed and the Bank of Canada immediately pivot and start cutting rates today which would be hugely bullish for the rest of my portfolio as well so you know from that standpoint I just think there's there's there's more convexity in being short on Canadian housing then there would be an adding more uh short resource exposure so you know the old Trope is like you can get your thesis right or your timing right you never can get both and so there's been a graveyard of people trying to short the Canadian housing market but did you wait till the Catalyst like you said where it's actually starting to roll over before you put those positions on yeah it's an area that I've studied for gosh almost 10 years now and I've got a couple of different consulting firms that I use up there to really give me the on-the-ground data that I feel like I need and so I looked at it God six or seven years ago um you know back in 2014 2015. looked at it you know shorted a little bit in it didn't do much but really have just been patiently waiting that's something that you know age uh you know kind of gives you is the ability to say I don't have to be there today so I really just started started shorting the Canadian housing stuff in the last three months and that's really when the fever started breaking where rate Rises started to impact the ability of these people at 10 movies where you started to see um people you know trying to sell their old house buying a new house trying to sell their old house and then all of a sudden not being able to sell their old house for what they needed to be able to pay up for the new house so you had all these um you know sales breaking down and you know people having to go towards Alternative forms of financing they're super expensive so that was really the catalyst to get in and I just I think we're there I don't know the pace at which it will progress from here but if I had to have a Rip Van Winkle short for the next six to nine months um Canadian housing would be it so you know we started off talking about like uh nuances and and everything's much more difficult or has you know reality has a surprising amount of detail and when you're talking about these Hedges I'm curious how you think about the trade-offs from you know shorting single name equities to shorting indices to buying put options maybe on indices is like there's trade-offs right like if you're shorting single names like a lot of times you can get your face ripped off right and then your borrow costs can be high if it's a low liquidity single name so maybe then you move to index but the index may not have quite the volatility you're looking for there's a single name has but you have a little bit better liquidity maybe a little bit better borrow costs and then buying the puts you know then you have to get your your tenor or your duration right so like tell me about like how you think about the trade-offs between those kind of three ways of hedging and and how you think about that across the book yeah so I mean great great questions and it's uh it's it's it's utterly Dynamic to me it's how do we achieve our end goal of being able to hedge out some sector risk some broader Market risk um some you know country risk Etc via our short and hedge book at any given time and so you know you look at sort of fourth quarter of last year it was still really inexpensive to express that through put options um implied ball was cheap so you know I didn't have a huge short book but I did you know have you know rolling you know pretty heavy option positions over the course of you know kind of that Q4 and actually quite frankly into q1 which was part of the way that we we made some pretty good money um as we've kind of worked our way through q1 and into Q2 and ball picked up considerably that's where I expanded the short book because the put you know options started to get so expensive and when you go from using puts to put spreads you know you just you understand you're cutting off part of your your convexity there um so you can you can offset some of the incremental spend for higher option prices but you're losing that there's a cost to that so that's why the short book um that we use has expanded so much not only because that seemed like a more efficient way to do it but because in some of these areas they're very specific themes that we can play on again Canadian housing and one of them um to me another one has been the rise of the uh sort of some of the lithium companies that rely on directly within extraction which is a chemical technology that is I think really really complicated and the market on the multiples that it's giving some of the companies in that space the market is giving them credit for processes that haven't been totally vetted or commercialized yet so um you know again I have a long lithium exposure that I really like that is not that technology it's very you know classic uh kind of spot Jimmy mining um and so so so again back to your question Shifting the character of the book it's all about efficiency it's how do I create the best profile for you know protecting my long book from the risks that I see evolving out there in a way that I think the potential rewards outweigh the risks of it the other thing I think about because you brought up lithium is as you know we run a commodity Trend following uh portfolio and you know obviously I love commodity Trend followers I love access to these real assets and a lot of them can trade 60 to 80 markets but as a lot of them have gone for higher AUM there's a lot of smaller more illiquid markets that don't have the capacity for them to trade so we don't get exposure to it I'll use like Lumber as example very few people trade Lumber everybody's excited about Lumber you know a year ago and they're talking about it was lock limit up and I'm like yeah because nobody trades it but do you think like through your uh single name equities like you can get broader exposure to things like lithium Rare Earth access to Canadian Timber markets like so some of those things that like a lot of people are trading but you can get access to single names and then once again the Nuance or the trade-off is that now you're getting access to those natural resources but now you have a government so governance overlay we have to pick the right company yep absolutely um and so for us that's the way that we use and again our my specialty has always been analyzing companies so if I can get Commodities generally right what I'm really good is find at good at is finding or at least hopefully good at is finding ways to express that via equities so I mean our quintessential uh kind of example of that was tin you know so we were very long 10 stocks for the better part of the last almost two years very niche market almost impossible to do uh in actual futures um but an area where there were some really inexpensive equities that if the tin price doubled they would go up you know they'd quadruple um and that happened and then all of a sudden people that you know you built a little bit of excess inventory in the 10 markets and all both the stocks fell by 50 or 60 so you know that's life in the in the resource sector um but yeah I totally agree it's it that trying to trying to understand the relationship between where do I find the most efficient way to express a you about Commodities via equities you know that's that's the bread and butter that you know I've been developing over the last 30 years and then to me the most important important or exciting part of your book is your yield side to the book and so over the past I've always looked at you know positive ways to carry like say gold with like the royalty companies like the Franco Nevadas of this world or or uh lending it out um to the manufacturers like monetary metals does you know everybody's trying to look for like a positive carry convexity as you've called it um but I think that's what's most interesting about is like not only are you getting all these price appreciations and this expansion in the space but the yield book keeps increasing but once again talking about trade-offs and Nuance again there's a trade-off between you know capex spending paying down debt you know doing stock BuyBacks versus increasing their dividend yield and so you constantly have to be looking at what they're doing and and it's interesting you always talk about how they kind of feed each other if right now they're paying down debt that means in the future if prices stay high sustained or increase they might be increasing their dividend yield in the future so how do you like really think about predicting that dividend yield and then thinking that yield is covering maybe the downside of the price prices that you're also hedging with your Hedges part of the side of your book so you're trying to get to that as close as you can to this you know positive carry convexity component yeah yeah so I mean that's the essence of what I've been trying to do with what you know we've done with this fund for the last 12 and a half years um is find assets where we think there they can do all of those things that they can grow modestly over time that they can potentially improve their balance sheet and they can also pay out an income generation to the shareholders um that you know can potentially go up if you have a rise in commodity prices so that that's the that's the essence of what of what we've been looking at and so it's a very unique conversation because every company has a different asset profile everyone has a different kind of reinvestment intensity that that they have to do to make sure that you maintain that and you need to put different discount rates on different assets you know I've got companies that are probably going to be out of inventory in 10 years so clearly a 10 yield is not sufficient on stuff like that so you got to believe that there's either more in the kitty that they can bring in um or you know you need a 20 youth so you get all your money back in five years and you know the tail end of it you got you know a little bit of a call option on that um and so you know it it also comes down a lot to management and how they communicate their dividend policy because you know some have gone to very regimented ways we will pay out 30 or 40 or 50 of free cash flow over a certain level what we have found is that the companies that get rewarded for Dividends are the ones who are clearest in the way that they articulate how that that's going to be paid out and why you know look you have 50 of free cash flow over you know base Capital expenditures which is going to be this um you know things like that and then all of a sudden people say all right I get it I get the mechanics behind it it's not a you know random what the board decide this quarter or this half uh and then and then and then you get a little bit better feel for it but you know the beauty of it is is that it it shrinks the number of companies if that's your focus which is it is ours it shrinks the number of companies that I have to pay attention to you know let's if they're you know 2 000 resource companies globally the ones who are really in a position to give significant pay back to shareholders and can do so on a sustained basis maybe 10 percent of it you know maybe 200 maybe less you know at any given time I might own 15 or 20. and I have big positions in maybe half a dozen so that that to me is the kind of magic of what we're trying to do uh and it's just you know a lot of times it's a matter of good understanding these businesses over the course of many years and really understanding that the message that management is giving you is one that is is actually that they can deliver on that do you think that's the biggest differentiator between you and like the commodity turn following space where they're obviously dealing with just raw Commodities and prices is like not only using the equities but then you're using that dividend yield and and that really separates the ability to carry this over the longer term versus the way the other you know the other way people try to play the commodity markets yeah I mean again you go back to a thing like 2008 where you had resource companies that were flat in a year that was disastrous for Commodities um and so and that was because of their corporate structure because of their pre-catchable generation because of their ability to improve the underlying asset value of the company opportunistically um in downturns and so so that I do think is a big differentiator you know look it's a lot harder to analyze companies than it is too well I won't say nothing in Universal markets is easy but there's a lot more work involved with really understanding the underlying assets and cash flow characteristics and durability and sustainability of those cash flows and Management's willing is to be able to share that with shareholders it's a lot of work and quite honestly the number of people who really pay attention in the resource space has atrophied in such a way that it's you know it's de minimis these days you know it used to be you know 15 or 20 years ago every big hedge fund you know had three or four commodity cyclical folks you know now they have you know 25 people in Tech and Healthcare uh and you know maybe someone who covers something like sickness um yeah if you think about the big funds out there there were some really big resource managers out there in 2007 2008 even through the kind of echo boom into 2010-2011 but you look at the kind of atrophy of the entire sector you know you got someone like Pierre onderon who's now running you know he may be running a couple billion but it's only because he's doubled every year for the last three years right you know that's really 500 million dollars under management that's just doubled a couple of times no one's allocating to this space and so the the skill set to really understand what's going on with the underlying companies is just it's it's it's it's it's it's it's just atrophy to the point where you know there's just there's not a lot of competition which is just the way I like it you know good news is I was stubborn enough to kind of stick out through a decade long downturn where it would have been a lot more fun to do other things yeah now it's now it's a little bit more fun to do this stuff exactly and then the other place where we're uh two pizzas in the pods is with ergodicity and the idea of especially with your yield book is by having Hedges on when those equities start to crash and you have these convex Hedges that give you a lot of cash on your books now you're able to buy back those equities for pennies on the like Pennies on the dollar or lower NAB Point let's call it but even more importantly with your book that is actually increasing the yield and I don't think people are thinking about that a lot it's like so do you almost get excited about these pullbacks because you know your incline investor done well well it doesn't it doesn't matter about the time on I mean the actual Ensemble average is when they're rebalancing due to your Hedges they're going to increase their yield book over time and I mean there's gonna be a point almost where they yield book kind of subsums the actual like other side of the book in in a way yeah it's it's so so to me if defending against downturns well is the most gratifying part of of what I do because it gives you that opportunity set um you know I just I don't want to make that called it's like yeah you look markets kind of fell apart you know they're down 30 we're only down 20 be a great time to invest more money what I really want to do is you know look we've we've increased the organic yield of the fund you know from eight percent to 13 because stuff went on sale um you know and we defended Capital relatively well that that to me is enormously gratifying I wrote in what kind of my original big macro piece um I wrote about Frank Lloyd Wright and Tokyo uh Imperial Hotel um and and the feeling that again I won't go through the whole story but he effectively built something in a way that no one thought he should in an earthquake prone area that survived an earthquake that no many modern structures did not and it was because of the thoughtfulness of design it was designed for where it was and the the the natural environment that it was sitting in um getting that telegram that said you know hey your uh Hotel survived an earthquake that leveled two-thirds of Tokyo um thank you um you know it sheltered many of the people in the surrounding areas Etc that you know that that moment was very visceral to me as a fund manager because that's the role that I want to play for my investors to be able to preserve capital in an inhospitable environment is um you know that's that that that's where we should earn our jobs that's perfect actually I should end there if I was a good podcast host but I I just had like one other question for you because you know your your newsletter highlighted to me this idea I think about all the time in that if we get much more philosophical about the Mind Body problem what people are really saying like not the actual mechanics of it but the idea is like we have a human animal nature to ourselves that's obvious that people tend to run away from but then we have the societal nature and that's like to me the Mind Body problem is those are always in conflicts with themselves and related to almost do you have this bifurcation in investing where you know you have these long risk on Cycles where us living here in the Bay Area is like um Tech does incredibly well so I think about you know during those times those bull markets are risk on we can get much more um digital and ephemeral in the way we invest but then nature always kicks back in and takes us back to real assets and being able to eat at the end of the day and that's when the Commodities kind of jump out from behind the curtain so I'm curious about like how you think about that trade-off is like we live in this fictitious World during risk on and then almost during risk off we go back to like Maslow's hierarchy of needs and so building maybe an Investment Portfolio that has a little bit of both like this kind of emerging metaverse combined with real assets is maybe the way to think about your portfolio moving forward so what are the earliest things that I kind of remember writing when I started my hedge fund back in the late 90s was I I wrote something in like 99 or 2000 it said I think we are evolving from a decade of fluff to a decade of stuff um and and and that is actually you you can you can chart that um uh where you have physical assets and financial assets doing this periodic dance and look Financial assets the trend is up and to the right so over long periods of time Financial assets will outperform physical assets and that's just the way the world is but you get these you know 12 to 14 year outperformance of financial assets and then you get these stretches of six to eight years where physical assets are where you want to be um and and I think that's it's it's a byproduct of where does Capital flow when risk premiums are really low and you are being encouraged to really you know get over your skis and take a lot of risk you know that's when capacity in those areas gets overbuilt and the stuff that you need suffers and you know atrophies that that's the you know money is not spent on the boring stuff it's spent on the inside and stuff uh and that match has a natural cycle to it um you know I put out a chart a few months ago that show the percent of s p capex done by you know metals and Mining versus the tech sector and it's it's this beautiful inverse correlation of tops and bottoms and when you know s p when technology you know Tech capex gets to you know 35 percent of the s p or whatever it is and and resource capex gets down to like four percent you know it's time to go the other way um and I think what people are missing here is that this is the most extreme example of that cycle because it's been augmented by ESG and decarbonation decarbonization concerns and other things where you know man the the the movements on that physical versus Financial has been so you know three or four standard deviations that we're very early in the you know reversion of that process uh and I just don't think many people are positioned for it um I think people want to very much you can see it in the flows this year people are still wanting to you know buy the dip in Ark I put out something a little while ago that Arc took in more money uh you know a couple of months ago Arc took more in more money in a week than all of the resource ETFs had taken in all year so you know clearly people are people are not buying that this is a reversion um I think time will probably tell us something different man unfortunately we both have a hard time stop because there's so many other things I want to talk to you about it with your you know secular bull thesis whether it's that perfect storm of cat-backs and Supply chains everything we've been talking about but we didn't even get to touch on is like these negative feedback loops between rates releasing reserves helping people out on their gas pump prices and how that almost like bolsters even more inflation and it has the negative effects that people wouldn't even think about in the feedback loop but that just means I'm gonna have to have you on again in the near-term future so I always enjoy our conversations and Ivan thank you for coming on the podcast I really appreciate it hey Jason you know anytime love your stuff and yeah you know you're the work you do out here is great for us as investors I always learn something new about expressing volatility or what's going on in various asset markets so um you know again I I'm at your disposal and uh let's do it again soon thanks Robert thanks for listening if you enjoyed Today's Show we'd appreciate if you would share this show with friends and leave us a review on iTunes as it helps more listeners find the show and join our amazing Community to those of you who already shared or left to review thank you very sincerely it does mean a lot to us if you'd like more information about Mutiny fund you can go to mutinyfund.com for any thoughts on how we can improve the show or questions about anything we've talked about here on the podcast today drop us a message via email I'm Taylor at mutinyfund.com and Jason is jason.com or you can reach us on Twitter I'm at Taylor Pearson in E and Jason is at Jason Mutiny to hear about new episodes or get our monthly newsletter with reading recommendations sign up at mutinyfund.com newsletter foreign [Music] for informational purposes only and should not be relied upon as legal business investment or tax advice all opinions expressed by podcast participants or certainly their own opinions and do not necessarily reflect the opinions of mutual fund their Affiliates or companies featured due to Industry regulations participants of this podcast are instructed to not make specific trade recommendations nor reference best or potential profits listeners are reminded that managed features commodity trading Forex Trading and other alternative Investments are complex and carry a risk of substantial losses as such they're not suitable for all investors and you should not rely on any of the information as a 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