HEDGE CRUDE TAIL

“I think the best investments right now remain in the oil equities, believe it or not, because many of them have moved, but they've moved, like, 30 or 40%. They haven't had the kinda two to three x move that the spot price of oil has had. I think you can buy oil stocks, and you can get that same exposure, essentially, the same type of exposure as trying to play for a move higher in the $75 December dated contract. You know, if December contract goes from 75 up to 100, a basket of oil stocks, certainly offshore drilling stocks, will do very, very, very well.”

“But we've had so far what has been called the debasement trade. I think the next shoe to drop, which to be clear, I don't think is gonna happen for a year or two or three, will be the insolvency trade, the fact that a lot of these governments are in really, really tough shape. That hasn't happened yet. We've had a debasement trade. I think the next step is the insolvency trade, and that'll be good for gold.”

“The reason everyone was so pessimistic on the oil markets right up until this conflict started, was that people like the IEA and others, but most notably the International Energy Agency or the IEA, were saying that the global crude market was in the biggest surplus in oil market history. It had never been in a bigger surplus. And in fact, they were saying that supply was running about two and a half to 3,000,000 barrels ahead of demand. There's only one problem. We weren't seeing any evidence of that surplus. Notably, if in fact supply was running so much ahead of demand, inventories around the world should be surging.”

“The reason I chose the September contract rather than June is I think that the excessive backwardation that we've seen so far during this crisis has been rooted in the market's assumption that this would be a short lived conflict. My view is that it's likely to drag on longer than most people think. So I have a 15 to one maximum payoff for my entry price below $2. I was looking for an extreme right tail risk hedge. And while it sounds like a speculation on oil prices, it's actually much more of a risk hedge for my equity and gold portfolio.”

“Gone are the days where we look at the chairman's words, parse every comma and every syllable that the chairman says to divine what policy is gonna be. Chairman is now one of 12 voters. And right now, what you're seeing out of this is confusion as to what this means in terms of whether or not the Fed should be cutting rates because it might be slowing down the real economy or they should be raising rates because it might be adding to inflation.”

“And so today, we approach every year, every growing season, almost like we're going down this razor's edge. On the one hand, demand is off the charts. On the other hand, yields are off the charts. And we said to ourselves every year, if anything happens to disrupt that growing season, if anything happens to impact the yields, this market will be very tight in a hurry. And I think that this fertilizer issue could be that. You've needed perfection in your crop year in and year out to meet demand. And I'm worried that finally, with this impact on fertilizer supply, we're not going to be able to get another record yield.”

“So first of all, you're absolutely right that from a physical dislocation perspective, what we're seeing right now is pretty clearly the largest disruption in the global energy markets that we've ever seen. But we're not necessarily feeling or experiencing all of that dislocation just yet. As everyone now knows, about 20% of the world's crude market passes through the Strait Of Hormuz and about 20% of the LNG trade as well. By most estimates, you're talking about somewhere between at the absolute low end, 10,000,000 and the absolute high end, 15. Split the difference, call it 12,000,000 barrels a day of impacted oil that's essentially not making it to market, which is huge.”

“People ask me all the time, you know, when does this really become a problem? How many years out until you really hit a severe deficit in the world's uranium market? And I tell people it's here already. It has been largely obfuscated by these massive Japanese stockpiles that were accumulated post Fukushima. Those are now gone. Those are all into the market. And so the market is trading pretty much heads up supply and demand. That's why prices just keep creeping higher and higher and higher.”

“Back late last year, NATO had some exercises. They were called Operation Hedgehog. It was with UK and Estonia. And they were simulations of two brigades. That's 2,000 soldiers. They invited 10 Ukrainian drone operators to simulate battle against 2,000 NATO soldiers using NATO techniques, which is the same techniques The US uses. The 10 Ukrainian soldiers wiped them all out. They're killing about 30 to 35,000 Russians a month this year. 90% of the casualties are being caused by drones right now. The war has changed.”

“We are five years without the Fed hitting their 2% inflation target. So I've been of the case of the opinion that we're not in a 2% inflation world. We're in a three ish percent inflation world. As I like to joke with you and others, I like to say, I didn't say eight times in Zimbabwe. I don't think I'm saying it's gonna be runaway inflation. But if we're in a three ish percent inflation world and a world of greater uncertainty, I would still argue that interest rates are probably going to go higher just to hit their fair value, maybe closer to 5%.”