Jeff Currie on Why Copper Is His Highest-Conviction Trade Ever

Joe Wiesenthal
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Tracy Alloway
Bloomberg Audio Studios podcasts Radio News.

Joe Wiesenthal
Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Wiesenthal. And I'm Tracy Alaway. Tracy Copper has been on Tarragon. Yes, yes it has.

Tracy Alloway
It's kind of weird because I remember recording a number of commodities related podcasts a couple of years ago where everyone was super excited about copper and there was this long term, you know, structural theme about systemic undersupply. So the idea that we hadn't invested in new mines for ages and it took so long for new mines to come on stream that there just wasn't going to be enough copper to power all these new electric vehicles or electrify the grid, all these big things that the world wants to do. And then for a couple of years, copper just kind of went away, the price started dropping, and now it's back. This is the problem, right? And I think that that interim fall, and it did for like 2022 and much of 2023, is sort of back in the basement a little bit.

Joe Wiesenthal
This does seem to be the core problem that people have identified, which is that we can be almost certain that there is a long term huge demand for copper from all the capital spending that's going on for electrification, in particular, EV's, etcetera. And we can also, I think, you know, as many analysts have observed, forecast supply fairly easily because we know what mines are out there. We know that mines have a really long lead time, et cetera, from decision to break new ground to actually producing copper. So like there are these certainties, but then the problem is, like in the meantime, when you have these sort of periods of spot weakness where there isn't a supply shortage where there's plenty of copper. You know, those periods don't exactly, like, encourage companies to, like, get mining or get digging.

And in fact, they could slow down expansion plans even if everyone sort of knows. The long term math checks out. Absolutely. There's that mismatch between the short term and the long term outlook. There's also that tension on the ESG side of things as well.

Tracy Alloway
This idea that you want abundant copper in order to decarbonize the energy system. But at the same time, a lot of people who are ESG minded are going to feel very uncomfortable about encouraging new mines in Chile or something like that. Yeah, yeah, that's right. And, you know, obviously they have big environmental impact, they have big water impact and so forth. But, you know, as we said at the beginning, copper is once again front and center.

Joe Wiesenthal
The price is back on the rise. We're back talking about this long term structural mismatch, et cetera. And so I think it's time to sort of delve deeper into this question and, like, see where the math is today, so to speak. Yeah, I have the Ghostbusters theme in my head, and it's like, whenever you want to talk about copper, who are you going to call? This guy?

We're going to talk to Jeff Curry. So we've had him on the podcast at least a couple of times before, back in 2021, we talked to him and he talked about this idea of, like, a new commodity supercycle. And of course, oil was surging, and all these commodities were surging as the global economy was reopening. Then we talked to him again in 2022, and he said that Hopper specifically may end up being one of the tightest commodity markets he's ever seen. So real issues with supply, and again, looking pretty good these days.

So we are back with Jeff Curry, who is now in a new role. So when we talked to him before, he was the head of commodities research at Goldman Sachs, but today he is the chief strategy officer of energy pathways at the Carlisle group. So, Jeff, thank you so much for coming back on odd lots. Great. It's a pleasure to be here.

Jeff Curry
And hey, copper, 10,000 and odd lots, here I come. There's our headline right there. So, Jeff, why don't you talk to us about the last few years? It's been like over two years since we've talked to you. So what's happened in copper world or commodity world over that time?

Well, let's go back and lay out the super cycles thesis that we put forth back in. It was October of 2020. The bottom line is the story is more compelling today than it was then. So you really have to ask what went wrong? So let's start with the story and then let's go to what went wrong over the last twelve to 18 months.

So if we go back and review the story, there was structural supply constraints, which we called the revenge of the old economy. Put bluntly, poor returns in the old economy saw capital redirected to the new economy, starving the old economy of the investment it needed to grow the supply base. Pretty straightforward story. Still the story in markets like copper, even oil to a lesser extent, but it's pretty much apparent across the old economy. So structural supply story very much intact.

What about demand? If anything, the structural demand stories have been turbocharged. Let's go and review the three big policy initiatives we saw driving demand. The way we talked about them went back then, was redlining commodity demand. Red the r standard for redistribution policies.

Basically, as lower income groups consumed with higher wages, higher income, they consume a greater share of commodities than the higher income groups. Right? That's very much alive and kicking. You look at the low unemployment rate. Who's the biggest benefactor of that?

It is the lower income groups and policies still very much in play all over the world right now, reinforcing these lower income groups in the consumption of commodities. So you had r and then you had e, the environmental policy turbocharged from the last time we talked. You have the IRA, the repower EU, China, part of the reason why copper's rallied recently. China's growth was over 100% in green capex last year, 30% this year. So everywhere you look in the world, we see environmental policy through green capex, stimulating demand for commodities.

And then the third one, which was the D, the dE, globalization again, that's far greater than we ever thought. Look at the potential military spin in the US, $95 billion on munitions. We look at what's going on in places like Germany, $100 billion of military spend. So you've got all three going much stronger than what we would have thought two to three years ago. So what went wrong?

I want to first start with the disinflation story, and then I want to finish by talking about the dollar. The dollar has been a big headwind to commodities. When we think about the disinflation that occurred late last year, in the early part of this year, one thing to keep in mind is that it was globally correlated. It occurred against a backdrop of record commodity demand and incredibly strong GDP growth in us. And even China was plus 5% so what does that tell you?

Was it demand driven, weakness in prices or was it supply driven? It tells you it had to be supply driven. It's the only thing that could give you that pattern of observations. So if it was supply driven, where did they get the supply? I would argue, is through regulatory easing, whether if it was on sanctions, allowing sanctioned oil to flow more freely, particularly in places like us, Iran, Venezuelan.

Obviously that had a cost with iranian hoodies or even the Venezuelans attacking Guyana. But that was a source of supply. The other source of supply was turning a blind eye to environmental policy around the world. We have record coal production out of China, Indonesia and India. Actually that increase in coal production was bigger than Saudi Arabia in backed up gas prices and power prices around the world.

We saw cutting down mangroves in Malaysia or deforestation for more food in places like Latin America. And then the third one, regulatory easing, was through immigration. So you got more energy, more food, and you had more labor, which helped create the disinflationary pressures that we saw the last several years. I'm not going to say it's the only cause, but it put a big headwind to the commodity story. And by the way, that's going to run its course, particularly after the election, because you look at the clamping down on iranian sanctions 180 days from now.

Surprise, surprise, that's after the November election. Now let's turn. Let's talk about the dollar. That's the other big headwind here. Historically, when commodity prices would rise, you would have places like Saudi Arabia become long us dollars.

They would recycle those dollars into us treasuries. Interest rates would go down as they bought treasuries. This would create a weaker dollar that would reinforce higher reflation. If we called it the three r's, you'd start with releveraging in China. So you get growth outside of, outside of the US.

Then you would have convergence in global growth, then you would have the purchases and the stronger growth in the emerging markets by us treasuries and that would create the weaker dollar and hence the deflation. And you were in a virtuous loop. That's how we went to $147 oil in the two thousands. And the same thing happened in the seventies. For the first time ever, that dollar recycling is not occurring.

And what is replacing it? I like to call it gold recycling. It explains a lot why gold prices are as strong as they are. And what is the evidence of that is that the emerging markets, the BRIC countries, all met with Saudi Arabia and other key participants November of last year and discussed how they're going to trade with one another using local currencies. And then whatever it nets out and settling, they would settle in gold.

So you've taken out that dollar recycling. China is not doing it. And think about why would they do it with everything they've seen with Russia over the course of the last several years? So that's an important difference here. It doesn't mean it says it's a very super cycle, but you're unlikely to see that dollar recycling playing out probably ever again.

Which means that what do they do with this? If they're buying physical goods like gold, they could be buying things like oil, copper and other commodities as we look forward. So those are the two big headwinds. Why I'd argue we're wrong, but the fundamental story still very much intact, particularly with copper. Jeff, that was an amazing overview.

Tracy Alloway
I'm just going to say for our listeners that we are talking to Jeff from his office in London. There's a little bit of a sound quality issue. Obviously, we need more transatlantic copper cables running under the ocean. Thank you, Tracy. Thank you.

That was a good segue, right? All right, I have a very important question for Jeff, which is, are you wearing a copper bracelet right now? Absolutely. It is the most compelling a trade I have ever seen in my 30 plus years of doing this. You look at the demand story, it's got green capex, it's got AI.

Jeff Curry
Remember, AI can't happen without the energy demand. And the constraint on the electricity grid is going to be copper. And then you have the military demand. So unprecedented demand growth against unprecedented weakness in supply growth, because we have not been investing. It's teed you up for what I would argue is the most bullish commodity that actually, I just quote many of our clients and other market participants say, you know, it's the highest conviction trade they've ever seen.

As a leading real estate manager, Principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced teams are uniquely positioned to uncover compelling opportunities in today's market, giving our clients an exclusive advantage. Principal asset management actively invested. Learn more@principalam.com Dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors, LLC.

Your industry is unique. It faces its own challenges and risks that set it apart. That means choosing just any insurance company just won't cut it. You need a company with extensive experience in specialized insurance at the Hartford we take pride in knowing the ins and outs of your industry and helping provide coverage that suits your needs. The Hartford offers insurance solutions that help mid to large sized businesses like yours effectively manage risk from liability and property insurance to workers comp and more.

With extensive experience in underwriting risk engineering services and claims, the Hartford goes beyond the expected to deliver innovative, customizable solutions and service that your industry that your business demands. At the Hartford we don't just talk about specialization, we live it. Learn how the Hartford can help your business@theheartford.com. Dot earlier you were talking about the sort of general commodities super cycle and why that didn't necessarily play out in the timeframe that we initially thought it would. But can you dig a little bit more into copper?

Tracy Alloway
Because this is something that I see over and over again. We talked to a lot of commodities experts on the show. Everyone seems to have a high conviction on the copper trade or at a minimum see lots of upside potential. Why didn't that play out in the sort of immediate post pandemic years? Because investors were unwilling to take on blind faith that China property market could sink and you could still be long copper and other base metals because for as long as many of these people had been trading commodities without China you could not be bullish.

Jeff Curry
And what happened in 22 and 23 was the chinese property market started to sink and sink very quickly and that discouraged investors to get long. And I think they have now seen enough evidence. Last year and this year, for example, copper demand so far this year is up 6% year over year despite an incredibly weak property market in China. So I think what has shifted here is confidence from investors in metals that you can buy these markets based upon the green capex story, despite a weak China property story. I think that's what has really changed in the last, let's say six to 18 months.

Joe Wiesenthal
Let's talk more about the long term supply outlook. So the basics yes, it takes a really long time to get a new copper mine online. Maybe it takes even longer than in the past due to local opposition and concerns about the environmental impact. What's happened in terms of planned new mines over the last three years? Are there new projects that are breaking ground or at least pencils down yet that we hadn't seen in 2021?

What's happening in the planning cycle? You don't have to look any further than the anglo american bids. BHP finds it cheaper to buy anglo american than putting a drill into the ground and that's pretty much been the case across the board is that they're finding ways to increase supply, particularly through m and a activity as opposed to having to do it through organic. Let's call it greenfield investment. When we look at the commodity super cycle in the two thousands, how did it start off?

Jeff Curry
Started off with the creation of BHP Rio. Then you had ExxonMobil, BP, shell. All the super majors were all created both in metals and energy at the beginning of that super cycle. Because it was easier to consolidate, to grow your supply than it was to do it through Greenfield investment. And so because we observe that going on, it tells you we're not at the point right now where people are willing to make Greenfield investments because they can buy other companies more cheaply.

Which means prices have got to go higher and the conviction has got to be greater before you start to see that substantial rise in Greenfield investment. So one thing I wanted to ask is what is the impact of price on investment here? This is a kind of a weird question but like does it actually make much of a difference if copper prices start rallying? If we do see another record in the price per ton. Would you expect to see an investment response of some sort?

Joe Wiesenthal
Eventually. Eventually, yeah. Even if it's on a longer term timescale? Yes, eventually you should. We saw it in the two thousands.

Jeff Curry
Let's review what happened in the two thousands because I think it's pretty instructive to right now. That super cycle lasted twelve years from basically zero two to around 13 or 14. And the super cycle in the seventies basically lasted 68 to 80 again. Twelve years. Why the twelve years?

Years one through three are usually higher prices. Creates a confidence that hey, this is real. We're three years into this and the confidence is so, so the die hards that I talked to have a lot of confidence. Which means you probably need more higher prices before people become convicted that it's actually for real. What creates the second big uptick in prices.

Because once these companies start to spend then you get cost inflation and that drives you up to the next level. And if you look at what happened with copper in the two thousands it went from let's say 2000 a ton to 4000 a ton over that first three years. And then around zero six through zero eight it exploded to $8,000 a ton. Because that's when they started to spend. But they had to achieve that confidence.

That still is not apparent in this market. And then let's say the final five to six years is finally when you begin to debottleneck the system and the investment plays out. And it takes another. Let's say, seven years and you get actual supply. So where are we in that process or still in that first three years?

Creating conviction around, is this for real? Our estimates, you need to be above 9000, $10,000 a ton before people really start to be confident that they can make this kind of investment. And I think the other thing, too, is not only does the prices have to reach those levels where the break evens begin to happen, but they got to go above to create some type of confidence that they have some type of cushion, which means, well, we like to see much higher prices. Before you start to see that supply. Response, I have a very oddball question, but I've been wanting to ask this question to someone who knows for a long time.

Joe Wiesenthal
It's a very brief story. Sometimes I take Ubers to work. I haven't in a while, but I used to sometimes take Ubers to work. And when the driver sees I'm working for Bloomberg, they want to bring up something finance. And usually it's like, oh, what do you think about, like, dogecoin or bitcoin or something like that?

But one time I had Newburgh driver, and he's like, I'm really, you know, you're talking about gold. He said, I'm really bullish silver because I believe there's not enough copper mining going on in the world, and silver is often a byproduct of copper mining, and there's a lot of silver content and some of this EV stuff, particularly solar panels, he said, and therefore there's going to be a shortage of silver. And I know this is like a little diversion, but I just had to get this off my head because we're here talking to Jeff Curry. What do you think about my Uber drivers thesis? I like that you're asking questions on behalf of your Uber driver.

Driver, yeah. And I still have his contact, I still have his context to. Two years later, I'm finally going to get a chance to get back to him on this. What do you think about my Uber driver's silver thesis? I definitely think there's legitimate arguments behind his solar thesis, and it's one of the arguments we put forth for prices moving higher.

Jeff Curry
But the one thing that we watched, particularly back in it was in March, April of 2021, when everybody. It was actually during that GameStop era when people were going to move and they were going to try to short squeeze silver. The problem with silver is there's just too much of the stuff around. There's millennia of production sitting above ground like gold. But unlike gold, it is not as rare, so it's more plentiful.

So I think, yeah, it will behave similar to what he said, but I'm never going to be jumping on the super bullish bandwagon on silver just because of the fact that there's just so much of it around the world, and it's not nearly as rare as something like gold. Yeah, even I have a bunch of silver. I think we've talked about this before. My dad keeps giving me silver coins from his collection for my birthday and for Christmas. And so I'm expanding this collection of silver coins to the point where I think I could successfully have one of those silver stacking channels on YouTube at this point.

Tracy Alloway
That would be fun. Jeff, there's one thing I want to ask you. So, you know, we're talking about, like, the price of copper, the futures price. I wanted to ask you about the copper concentrates market and get into, like, a little bit of the discrepancy between, like, maybe the financialized price versus the physical price. Can you walk us through what's been happening there?

Because in some respects, like, this is where the immediate shortage is playing out, even if it hasn't been reflected up until recently in the overall futures price. Very good question, Tracy. When we think about metals, the ore that comes out of the mine that typically gets turned into concentrate and shipped somewhere around the world, where it basically has to be smelted into a refined type of hopper that can be used and sent on into markets like wiring and so forth. But it's there where you saw the very first signs of a shortage. It actually was in SK, in Korea, where there was not enough concentrate to go around to be able to smelt into something that was more useful.

Jeff Curry
And so it's called the TC charges, the concentrate charges, and right now, everybody's, oh, they're negative, which is telling you the shortage is at the mine in that concentrate, not at the end use consumer yet it's going to work its way down there. By the way, it's the same thing happens in refining margins. When you have a real big shortage in oil, it crushes the refining margins. And so the fact that you have zero or negative TC charges right now is an indication that you have shortages at the mine, which says eventually this is going to work further downstream, which as we look out further, particularly towards the end of the year, we'd expect those shortages to work further downstream, more towards this consumer and away from the mine. But absolutely, I think that's a critical.

And it was about two or three weeks ago one morning I was looking at the Koreans and go, wow, here we are finally. Physical shortages happening at the concentrate level, which is telling you just a matter of time before we see it at the end use consumer level. So, Jeff, I just want to nail you down on the price target for copper and the timeframe, just so that when we have you back on in a year or two, we know exactly what our priors were and what our expectations were for the move. But where do you see copper going from here? Where's the sort of upside risk and what timeframe are we talking about?

Our view over, call it a two to three year horizon, is it's got to reach somewhere around $15,000 a ton. Where do we get the $15,000 a ton? As you go back to 1968, the beginning of that super cycle, and it was a big housing boom driven by the war on poverty. Through the great society, we saw copper prices reach the equivalent of $15,000 a ton. We know that demand destruction occurred.

Now, we've never had another opportunity other than that time period to observe demand destruction because that's basically, you know, at the end use consumer level, you're out of supply. Like that korean concentrate situation. You ran out of supply, you're short, and now you have to get the end use consumer to ration their demand out. That's you find out how high these commodity prices can go. And at $15,000 a ton was saying, okay, the only time in history we've observed actual physical demand destruction or rationing of physical supplies was that time period.

Whether or not that holds in the current environment, we'll find out. But that's our best guess of where prices could go because we've seen it before. How long does it take to get to that dynamic? I thought we would have been to that dynamic by now. I would tend to think if we meet back up in the next twelve to 18 months, there's a probability that we're looking at prices and that twelve thousand five hundred dollars to fifteen thousand dollars range.

Because if we know it's happening at the concentrate level, it's just a matter of time before it starts to physically happen at the end use level. And that's where places, you know, the markets like the LME in the Comex are pricing it. And that's where you would see that price flag.

As a leading real estate manager, principal asset management harnesses the power of a 360 degree perspective, delivering local insights and global expertise across public and private equity and debt. Our experienced teams are uniquely positioned to uncover compelling opportunities in today's market, giving our clients an exclusive advantage. Principal asset management actively invested. Learn more@principalam.com Dot investing involves risk, including possible loss of principal. Principal Asset Management SM is a trade name of Principal Global Investors LLC.

Your industry is unique. It faces its own challenges and risks that set it apart. That means choosing just any insurance company just won't cut it. You need a company with extensive experience in specialized insurance. At the Hartford, we take pride in knowing the ins and outs of your industry and helping provide coverage that suits your needs.

The Hartford offers insurance solutions that help mid to large sized businesses like yours effectively manage risk, from liability and property insurance to workers comp and more. With extensive experience in underwriting risk engineering services and claims, the Hartford goes beyond the to deliver innovative, customizable solutions and service that your industry, that your business demands. At the Hartford, we don't just talk about specialization, we live it. Learn how the Hartford can help your business@theheartford.com. Dot last time we talked to you, you were at Goldman.

Joe Wiesenthal
Now you're at Carlisle. What is the energy pathways group at Carlisle? What are you up to these days? Well, the whole idea is to focus on the pathways between the brown and the green. You know, so far, this transition has been, you know, to use a lack of a better word, chaotic.

Jeff Curry
And it's primarily been focused on the green. But you need to be able to think about this transition and manage it. You need to think about moving from the brown to the green. And we talk about pathways. It's those pathways between the brown and the green.

And I have a saying, I like to say it's critical here is if you don't own the emissions, you cannot control the emissions. So you have investors out there, they don't have emissions in their portfolio, but it doesn't mean emissions are going down. In fact, what do they do over the last, every year since started this process, they've gone up. They haven't gone down. And the only way you're gonna make them go down is start concentrating.

Instead of thinking about net zero, think about what happens this year versus next year. And are we gonna get them down, particularly inside of the portfolio, because by taking them completely out of the portfolio, there's no way you can control or say anything that they actually went down. And so when we think about the dynamic here is we don't know the pathway. I like to point out in the war in acid rain during the 1970s and eighties, when we took the sulfur and the aerosols out of the atmosphere, it was a smashing success. They remain technologically agnostic.

And I like to point out, who would have ever thought that if you put platinum and palladium in your tailpipe, you're going to get rid of these aerosols? But it took trial and error trying those different pathways until you found the one that actually worked. Where we're using the term pathways here is to really denote this whole idea that we don't know what the answer is. We're going to be trying these different ones. We may have the one we need right now and we may own it, but finding that exact pathways is really the goal here.

And looking at that connection between the brown and green is going to be central to creating a managed transition that is less chaotic than what we've already seen. So we've obviously been talking a lot about that energy transition and the impact of price on investment and maybe the transition itself. We would be very remiss if we didn't ask you about what's going on with oil prices at the moment. And I think the big story for everyone in the market is probably that non OPEC supply that has really ramped up a lot quicker than a lot of people expected. How much has that changed?

Tracy Alloway
The way you view and analyze the oil market, how big of a difference has that made? Let's start with the big one that everybody's focusing on. Us. Us increased above expectations, 400,000 barrels per day. Last year it was a lot more.

Jeff Curry
Basically, expectations at the end of last year were for 500,000 barrel per day growth. And you got something close to 900, by the way of that, 200 was in Gulf of Mexico, 100 in permian, 100 in Bakken. You're not repeating the bakken in the Gulf of Mexico, which means the only ones that you can repeat are really the Permian. Now, let's take that aside and then let's put this in the context of the supply increases that you saw. Out of Iran, it was 850,000 barrels per day.

Out of Venezuela it was 150,000 barrels per day. So you're well over. You're talking about a surprise. Last year, the surprise out of that sanctioned oil was well in excess of a million barrels per day. More than two x what you got out of the US.

Also remember, natural gas prices were extraordinarily high last year. That reinforced even more us production. So, you know, I mean, we'll see what's happening this year so far. You know, the surprises coming out of the US are nothing like what they were last year. And then when you look at places like Mexico.

If anything, many of those places are struggling to bring on their production. So, yes, it was a factor of the last year. Is it something that we need to be conscious of? Yes. Is it something I'm focused on?

Yes. But is it derailed a story? I would argue that the increases in the sanctioned oil derailed the story far larger than what those other surprises that you're referring to did. And let's think about the cost of allowing that sanctioned oil to come online. You know, it had an impact on the iranian hoodies.

You know, in fact, I thought the one that actually surprised me throughout this whole process was a british flagship carrying russian material owned by Swiss Trapiera shot by an iranian backed hoodie. If that's not, you know, emblematic of the problem, I don't know what it is, then Venezuela, similarly invading Guiana, they clearly are focused on this because they've made the efforts to cut back on those sanctioned oil. But it's not unlikely to take effect until you go after the elections. But the bottom line, that was a lot of supply hitting the market at a time when demand was relatively weak as we were going through what we like to call as a mid cycle pause in the economy, meaning that if you look at that period in 2022 and 2023, it was your classic mid cycle pause. Huge run up in rates, energy prices.

The system had to adjust to the higher rates, higher energy prices, it slows down, and then it begins the second leg of the business cycle, which is where we are right now, by the way. Never in the history of the post war era, as you go into that second half of the business cycle, do commodities not act as the best performing asset class. And there is very little history that OPEC ever tames that price spike. As you go in, they can't bring it on fast enough. So that's why it's not as bullish as copper.

And I'm not going to try to say it's as bullish as copper, but it is part of the overall story here. And we never thought it was going to be as bullish as the base complex. But also, when you look at these commodity super cycles, it's rare whether if it's grain, sauce, oil, base precious, that these markets can get that far away from one another because there's ultimately arbitrages across them. What about on the demand side? Obviously, EV's in theory, over time should cut into oil demand, but in practice, it's hard to see it showing up just yet.

Joe Wiesenthal
And there's still tons and tons of ice cars on the road. What is the, I don't know, medium term prospective for actually reaching peak oil demand or bending that demand curve down. Right now we have used a lot of carrots to try to solve this problem. If it's the IRA repower eu subsidies. When I say carrots, there's no sticks in this.

Jeff Curry
You really want to get oil demand down. And how did we always do these other transition or when we had environmental issues? You use sticks. But attacks on sulfur, as we have in the past and it's not a closed loop. And if you were really serious about getting the demand down, we would create impediments to the demand growing.

I don't want to get into the politics of that because they become relatively sticky. But I think the key point here is we have the tools at our disposal to get that demand down. But nowhere in the world is there the political will. And I think where I was really wrong on all of this is if we go back, let's say 1218 months ago, I fully overestimated the willingness of western governments to pay for their politics. Whether if it was through sanctions, environmental policy, and I don't care which country you want to choose, you can all come up where they loosened it.

I live here in the UK and there's good examples there where they loosened it. But I think the key point here is that when the going got tough and the cost of decarbonization became very apparent and very high, that political will didn't carry through. And if we're serious about getting that demand down, which I firmly believe we should be, and by the way, I'm not going to demean the politics at all whatsoever here because I know they're really difficult, but that needs to be front and center before we're going to start to see a significant decrease in overall demand. And part of the reasons is people I know somebody who, I'm not going to make it a name, they have one of the plugin hybrids, they don't ever plug them in. And that's a very common problem.

If you want people to plug them in, make it expensive for them not to plug it in, then they'll plug it in. So I think we got a ways to go. But I think the key here is I actually point this out historically, I think I made this point when we were on last time, is that historically when you got to get a tipping point where you actually see policy really get serious about the problem. And when we think about the war on acid rain, it was the Lake Erie effect, 1968. Lake Erie caught on fire.

Richard Nixon had to respond. He created the Clean Air act amendment, the EPA. We went to town and we solved the problem. We used tools at our disposal, which we've all learned in econ 101. What do you do with the negative externality?

You tax it. So we know what to do. We just got to get to the point where the political will is there to do what we know how to do. Jeff, I want to go back to what you were talking about with petrodollars and the idea of this being a sort of key difference in the current commodities rally versus commodities rallies in history where the price of oil would go up and then that additional cost would get recycled into us assets like treasuries and that would end up having an impact on the dollar and you would get that sort of self reinforcing cycle. But a lot of commentators tend to be kind of cynical on the idea of dollar diversification.

Tracy Alloway
But it sounds like you think that that's one of the things that's happening here, this idea that there are countries out there who are getting together and saying that we want to trade in our own currencies and diversify away from the dollar. How do you see that playing out? I think it's going to become more and more apparent because owning those dollars, let's take, we know Russia and India do this. They trade oil in INR. And so anything that's left over, they're the ones who can settle this up in gold.

Jeff Curry
And by the way, western governments were very careful in maintaining the integrity of the russian frozen assets, the 400 billion, because they don't want to create that concern. But I think the damage has been done because you don't see these countries are not trading in dollars anymore because of fear of what are they going to do with these dollars. And you don't see the Chinese who actually still get substantial dollars lining up to buy us treasuries anymore. Again, I don't want to get into the politics of this, but the question is, have we passed that point of no return? Are we going to see that recycling play out again?

By the way, I don't think you need it to be bullish commodities because what if they start taking those dollars and those rupees and everything else and just buying raw commodities with them, which is what they're doing with gold. We know they're doing it with gold. What if they start doing it with copper, oil and other commodities and building strategic stockpiles or something like that? It starts to get pretty bullish again. But it's a very different dynamic than what we've seen in the past.

And I would say, if you ask me, really what I got wrong was I don't know why I thought we would keep doing that dollar recycling dynamic, given everything that's happened. But that's one point where I would say that caught me really by surprise. Jeff Curry of the Carlisle Group. So great to have you back on. I always feel like it's such a masterclass and how these commodity markets really work.

Joe Wiesenthal
Great chatting with you. And we'll chat with you again in 18 months or two years and we'll see how this is all playing out. Perfect.

Tracy, I love talking to Jeff so much. I know. I remember when he left Goldman, he published that like ten things I learned in commodities markets. And I encourage everyone to go like, seek it out and read it because even though he was very forthcoming in that conversation just now about what he got wrong. But of course, like anyone who is in this investment world analyzing things, if you do it for long enough, you're going to get some things wrong.

Tracy Alloway
And so it's really useful to go back and look at his lessons and kind of understand the framework for the way he thinks about things. No, totally. He's just so clear. Right. And you know, what I think is interesting because some of this stuff, you know, is like rebuilding on themes we had talked about.

Joe Wiesenthal
But one thing I thought was really interesting is some of the easing that he described that took place over the last couple of years, which is not like the sort of conventional easing as we think about it, but a little bit more stealth and so less sanctions enforcement, a little bit more environmental regulation. Yeah. A little bit more tolerance on environmental restrictions to minings and things like that. Things that don't show up. You know, no one comes out and really makes an announcement, oh, we're going to be lax on sanctioning.

You just hear it and people like sort of deduce it from the data. Oh, there must be this iranian oil getting out or whatever it is, or no one really comes out and says, oh, we don't really care about the environment anymore and we're going to drop all our rules. You know, again, you sort of deduce it from like, what activity is going on. I thought that was a really interesting point. You know, I was thinking the exact same thing.

Tracy Alloway
So I asked him about what's sort of different in the oil market right now and US oil production and non OPEC production, because that tends to get a lot of attention. It gets a lot of headlines. So the SPR release and the Biden administration maybe has a little bit of a unusual relationship with oil drilling at the moment. But like, we do see those headlines that the US is making a difference in world oil markets. But then to Jeff's point, he was saying that he thinks actually the lax enforcement of the sanctions was a bigger factor in all of this.

But it's exactly right that, like, we don't talk about it as much because it's not out in the open. You can't see those official statistics about how much oil supply is getting out of Russia. And same thing with environmental regulation as well. So I thought that was a really good point. His last point about the lack of sticks, I thought was particularly interesting, too.

Joe Wiesenthal
And this idea of like, yeah, carrots are easy, but if you actually, like, there is not a lot of appetite to say just like, you know, raise the gasoline tax in the US or as he put, raise the sulfur tax. Like these are things you could do. People wouldn't like them. But in a world in which practically trade offs exist, it's like, how much political will is there to your point just now? Obviously, we've talked about this a little bit before, but even with Russia's war in Ukraine, the sort of obviously arming Ukraine and backing Ukraine, but not being particularly excited about Ukraine's attacks on russian oil facilities and the cost that that would add to the sort of overall global war effort.

Like, it's sort of interesting to think about him saying he's been a little bit surprised by, I guess, the lack of will to take the painful part of the transition. Yeah. The other thing I was thinking about was the evolution of environmental problems, let's say. And he mentioned acid rain there and the sort of lake eerie moment that led to a lot of additional regulation that made it sort of salient and politically palatable, I guess, so that you could do that. And now there's a tendency to think about all the things going wrong in the environment and focus on everything else that we need to do.

Tracy Alloway
But if you think about acid rain, this was such a big talking point in like, especially the, like, seventies, eighties, maybe even into the nineties. But nowadays, because of those regulations, acid rain has a lot less impact, at least in places like Europe and North America. So, no, when we were kids, or at least when I was a kid, it was acid rain and the ozone layer. That's right. Save the whales, it was.

Yeah. That was the trifecta of environmental concerns. Concerns. It's certainly in my memory yeah. All right.

Well, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me.

Acealaway. And I'm Jill Wiesenthal. You can follow me at the stalwart follow our producers Carmen Rodriguez at Carmen Armon, dash O. Bennett at dashbot, and Cale Brooks at Cal Brooks. Thank you to our producer, Moses Ondam.

Joe Wiesenthal
For more odd lots content, go to bloomberg.com oddlots, where we have transcripts, a blog, and a newsletter, and you can chat about these topics, including commodities 24/7 with fellow listeners in our Discord discord, GG Oddlots. And if you enjoy odd lots, if you like it when we bring on Jeff Curry to explain what he got wrong, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free free. All you need to do is connect your Bloomberg account with Apple Podcasts. You can do that by going to the Bloomberg Channel on Apple Podcasts and follow the instructions there.

Tracy Alloway
Thanks for listening.

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Jeff Currie on Why Copper Is His Highest-Conviction Trade Ever

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