Chuck Yates Needs A Job

0:20 Hey everybody, welcome to Chuck Yates needs a job, the podcast, I always wear a hoodie, I normally wear a hoodie, but when I have a badass hedge fund dude coming on, I got the hoodie so I can go

0:31 all Bobby Axelrod on this. It's really cool today, I've got Harris-Cupperman, Kuppie, and is

0:40 it Praetorian capital - Yes it is - Well welcome on and tell me what the hell a Praetorian is - Oh yeah, well hey, thanks for having me on, Praetorian, this goes back a long time actually, but I

0:52 had this view, and I'm a Roman history major actually, I'm not a business major, I just found that no one really wanted a higher Roman history major, so I had to get a second job. It turned out I

1:02 was better at this than history, but I had this view that we would invest in a lot of small caps, I still do a lot of small cap investing. If you go back in time, the Praetorian guard was there to

1:12 help the emperor and make sure that no one came at the emperor and try to lop off his head. and they did some of the dirty work for the emperor. And that's kind of how we see ourselves. We're there

1:22 to help small companies succeed and mainly keep them safe from their own investment bankers. And at the same time, the Praetorian guards sometimes get sick of an emperor and kill them and put the

1:36 new emperor in place. And they always have this sort of latent fear that the emperor's had that the Praetorian guard would turn on them. And I think we have a very good relationship with the

1:46 companies we invest in But I don't want them to get too comfortable, you know? And if they do something that's immoral or something that hurts my personal interests or the interests of my clients,

1:57 we're gonna take them out and shoot them and put new guys in place. And we're not afraid to have an activist fight. I'm not here looking for a fight, but I'm not scared of it either. And so,

2:07 that's kind of how we saw ourselves when we first started the fun. We're here to help, but don't screw us.

2:14 That's awesome. I actually liked that. That was one of the hardest things we had to do every time we would start a small oil and gas company was to go find a name. 'Cause literally every name has

2:25 been taken. And I never, I never, ever vetoed a name except once when a CEO wanted to name his company, Diablo Energy, and I'm like, we're gonna go to Farmer Bob and say, Can we lease your

2:39 ranch for the devil? You know, and so we're not doing that We're not doing that. We'll do this really short, kinda, you know, 30 seconds a minute. Tell me life before you start Praetorian.

2:52 'Cause then

2:54 I really wanna jump into Praetorian and geek out on hedge fund stuff - Oh, my life. I went to boarding school at Phillips Andover in Massachusetts. My parents told me that I could be emancipated

3:07 and freed at age 15 from Long Island, which is by the worst place on earth. If I can get myself into a boarding school, so I studied real hard, probably the only time my life I ever studied for

3:16 anything. And I got into Phillips and over and made them pay for it. And I learned that when I escaped my parents, I kind of basically traded one form of oversight for a much more authoritative

3:29 institutionalized oversight that had no, you know, there were rules based oversight. And so I went to Phillips and over, I went to Tulane afterwards, where, you know, I was really the greatest

3:40 experience in my lives, I just partied for five years. And while at Tulane, I really started focusing on investing in stocks. Turned out, I was really good at it. And my senior year of college,

3:51 I started a hedge fund, which turned out to be reasonably successful, somewhat bumpy, but successful. Along the way, I've done some other business enterprises, and I find myself in 2019

4:03 restarting a hedge fund. And that's where I am today. We're almost 200 million of assets Is there a fifth year of running it? I think my track record is one of the best in the world - Yeah, no, I

4:15 was sitting there looking at it and the first thing that came to my mind is, oh my God, he's a fraud, but dude, you've crushed it. I mean, first year, 12, couple of years above, call it 130

4:28 and 15 this, last year, that's pretty amazing stuff - I mean, tell me how you do it - Yeah, tell me how you do it. How do you guys look at, well, let me start here Let's talk the structure. I

4:41 think maybe this is a backdrop that will help. I'm really, really old. And back in the day, a hedge fund actually meant you were hedged. So you went out, you told your investors, I'm gonna get

4:52 you absolute return, no matter what the market does, 'cause we're gonna pick our best ideas, but we're gonna go be market neutral. So the market moves up, market moves down. You're betting on us

5:05 to pick the right stocks, it that's why was called hedged fund and that used to be how these things operated. And of course, a hedge fund became a grab bag for whatever an investor wanted to do.

5:18 So when that is a backdrop, kind of what are you guys doing? How do you look at the world? What's your philosophy, that sort of stuff - Well, I mean, we're sort of hedge, but not in the

5:28 traditional sense. I mean, I'd say we're mostly just a long fund. We're hedged and they allow the positions offset themselves. But I'm playing alongside it because most you can make on a short as

5:40 100 And most things don't go to zero. It's just a miserable way to try to make some money. And I see the world and say that there's these things that I call inflections. It's a situation where it's

5:52 been forgotten by the industry, it's been forgotten about finance. It's usually been a pretty sad and miserable experience for many years. It's been started with capital, starved of investor

6:02 interest. And then there's something that inflex the business and it gets better. The most obvious one or cyclical industry is they just go on a sign curve. Wall Street is really good

6:15 at taking Apple earnings and extrapolating it for the next 10 years. They're really miserable at taking a cyclical industry that may only be profitable two or three years every decade. They'll lose

6:25 money two or three years every decade. It breaks even the rest of the year. Wall Street does a terrible job of trying to figure out what the right price for that business is Whereas, the private

6:34 markets are very good at valuing these sort of assets in their sign curve, Wall Street's terrible. That's what gives someone like me an advantage. But I'm not usually looking at these cyclical

6:44 industries while I do some of that. A lot of what we're looking at is stuff that's truly inflecting dramatically better. The word dramatic is the important point. We're looking for multi-baggers.

6:56 I don't show up to work unless it's going to be a five-bagger at least We're trying to do this in a situation where if we get it wrong and we get a lot of them wrong.

7:06 I, you know, when expectations are very low and things get better. You make five, 10 times your money. And when things stay where expectations are, which is pretty shitty, you get your money

7:19 back after a year. And you say, you know, this thing didn't work like I thought it would. Some other, you know, some other factor that I didn't anticipate came in and whoops, I got my money

7:29 back. And if you show up to every investment with a worst case scenario is whoops, I got my money back and the best case is you make five or 10 times and your batting average is pretty good. Like

7:39 mine is. Well, then you end up having, you know, some big, big returns. And you, know, that's really the core of what we do. We do some other things in the side, but that's really the core

7:47 of it is finding these trends with long tailwinds that give you multi-baggers. And so how many of those investments will you have at a time? A hundred to what's kind of, what does the fun kind of

8:00 look like on any given day? Oh, we're concentrated. I mean, look, there's not a lot of great opportunities out there. I mean, Wall Street has a bunch of guys who are much smarter than me that

8:10 probably work harder than me. And they're gonna figure this out. Most things are sort of fairly priced. Give or take 20, 50, whatever. You know, so I wish we could be more diversified, but you

8:22 just don't find that many opportunities. We tend to be six to eight thematic ideas. Sometimes we'll play a theme with one name Oftentimes, the basket approach with two or three names, just because

8:36 I'm trying to play the theme and I don't wanna bet on anyone's CEO. What I've learned is that race horses just do their own thing. You ever watch the horse race? Sometimes the horse just stops and

8:46 takes a piss. And I wanna be betting on my theme, not the race horse and the jockey. And so we'll use a basket approach sometimes we'll have 80 of the same kratics, single ideas on. It's a

8:55 combination, but right now we have four core themes on the buck.

9:02 It's expressed through about a dozen tickers that are substantial. We have a bunch of other little pitifully possessions that don't really move the needle, but we just keep them on as tracking

9:14 possessions. But the core of what we do is four themes right now. And so can you throw one of those things out? Are you okay discussing one? Yeah, absolutely. I mean, my favorite theme right

9:24 now is uranium. I think that we're going to have a massive short squeeze in uranium You have an industry that is almost 15 of global electricity consumption. You have these facilities. They're

9:40 multi-billion dollar facilities and they need uranium to run. And we've had a deficit globally since 2019. That deficit has expanded over the last few years, particularly with the Russian invasion.

9:54 You've seen a lot of Russian enrichment that came offline and you need enrichment to make your uranium usable I think we're gonna have a. So the sort of crisis in the next year or two, where the

10:05 world sort of runs out of uranium. And I think the price of uranium is gonna go higher. I mean, I do a lot of supply and demand investing because it's very simplistic, I guess. You have the

10:16 supply, you have the demand. The price goes down, you have too much supply and companies go bankrupt, they produce the stuff. And then the supply cuts off and the price goes up and it goes to

10:28 some crazy number as is a shortage And then more things come online and they produce more. It's a sign curve. What I found with commodities is that the amplitude of these sign curves can be insane.

10:40 Particularly when you have a small-ish market, in the case of uranium, you really have two major global producers. And you've seen a lot of little guys go out of business and say to take them a few

10:49 years to come back online, yet demand for nuclear power grows every year as more reactors come online. And that's a. deficit is expanding, particularly like I said with Russian enrichment, but

11:03 the final point I'd make on uranium is that this is entity called Sprott Physical Uranium Trust. We own a lot of shares. It has a facility in place that issues shares and purchases uranium.

11:16 Since the guys in Canada took it over Sprott, it's purchased about 40 million pounds of uranium, which is very, very material in a world where demand is about 185 million pounds a year.

11:30 So it's basically taken 20-25 of global uranium out of the market. That's accentuated the deficit. I think it will continue to accentuate the deficit. As the price of uranium starts rallying, I

11:45 would expect that it will issue a lot more shares. I expect it will acquire a lot more uranium pounds and push the price higher. It reflects the feedback loop because the thing that Wall Street

11:54 likes the most is when something goes up and as it starts going up and it's more people learn about the magnitude of the deficits globally. I think they'll buy uranium because they're going to front

12:04 run the utilities. As they buy uranium in front run the utilities, it's going to sequester pounds and make the price go up. It's very reflexive. And I like these situations. I think it's going to

12:14 work fabulously well. And you probably have a heavy duty dose of the world's going to get rid of all of its nuclear stuff in the next 27 minutes. That kind of holding over its head So maybe it's a

12:29 little bit out of favor too. I like that. It's very out of favor. I mean, it's one of those situations where five years ago nuclear power was terribly out of favor. A lot of nuclear power plants

12:42 were scheduled to be shut down. You had a net gas in the US at 2. So it was cheaper than nuclear power. And I think the world thought nuclear power was going to get phased out. And what we've

12:54 learned is that nuclear power is not getting phased out. Intermittent power from solar and wind is you know fine and good be any base load and Nuclear is the low cost non carbon base load solution

13:06 that everyone's been looking for. I mean if the technology was invented yesterday Everyone would be super excited about it But it comes we say that we say that every day on the podcast it feels like

13:17 if we invented it today We'd all be high-fiving yeah, yeah, but it comes with all this legacy baggage from 60 years and as a result People thought these plants were getting phased out. So if you

13:27 were a minor have you heard have you heard Joe Rogan's take on a nuclear? No Joe Rogan's take on nuclear to your point is it's not nuclear per se It's that all these plants that had problems

13:40 Chernobyl the one in Japan Three mile island they were all built in the 70s and we just sucked at building shit in the 70s It's like have you ever driven a car from the 70s? It stinks and so he's

13:53 always He's always saying it's US manufacturing capability of the 70s problem, not a nuclear problem. He's probably right - Yeah, there's probably a lot of that, but look, even when the

14:04 technology was terrible, no one really got killed by it. It's, I mean, a lot more people have been killed in net gas plants and coal plants and all the other plants, but they don't make the news

14:14 and no one's terrified of them. But you had this situation where if you ran a uranium mine, you thought the demand was gonna decline And so you said, why am I reinvesting this business, especially

14:24 when it's losing money? 'Cause, you know, the price of a uranium got into 20 a pound range, and the cost produced, it stayed at 60. So everyone just said, you know, what the hell with this?

14:35 And what turned out was that the demand was a lot more robust than anyone expected, and suddenly there's no uranium to be had. And I think the price is gonna go to some insane level. You know,

14:46 we've just seen this before, you know, if the price is 60 to break even on it. and you need a much higher price to incentivize someone to start a new mine. You know, it's 80, but it doesn't just

14:57 go to 80 and stop. Because you have these reactors, you have this 10 billion piece of industrial equipment, and they say, if we run out, we don't produce any electricity. So they pay a higher

15:06 price, 100, 200, 500. It doesn't really matter to them. It's not their money, it's the rate payers. They just pass it on, and we're talking about 1 of the cost of the electricity anyway. So I

15:16 think they're just going to chase the price higher and pay whatever the price is And as a result, I think you have some super spike here. So two kind of wonky kind of investor type topics on this.

15:30 Where did the idea come from? Where you read in Fortune Magazine, watching TV, whatever. And then tell me kind of workflow around your shop on how you work the idea to move it forward And then

15:47 when you tell me that, I'll hit you with the - How are you playing it and how you playing it versus how I used to play things like that in private equity? Yeah, sure. So I mean, look, I've known

15:59 about this thesis for a very long time. In 2004 and

16:06 2005, I bought a bunch of Uranium miners back then. It was a pretty similar scenario. I made amazing amounts of money. Some of these things were 50 and 100 baggers. I wish I had held them the

16:18 whole way. I'd be retired now I sold too soon. I was a little kid back then, but I cut the theme and it was great. And when you make a lot of money on something, you kind of follow it because

16:30 these cycles repeat. This is my second Uranium cycle. A lot of these industries, this is my third or fourth cycle now. And so I've just loosely followed it, but not closely because what happened

16:40 is the price went really high. The price went from 12 to 130 and they built a bunch of mines and then there was a glut. It was terrible and everyone bankrupted. That's how this industry works. But

16:53 I followed it. And in 2019, it caught my attention that a number of very large minds went out of business. They tried as hard as they could to keep the lights on, but you can't produce something

17:04 at a loss forever. And eventually they shut the minds. And I know that when you shut a mind, it takes a couple of years to turn it back on. And so it got me interested, but there was this glut.

17:14 And it was a big glut, you know? The Japanese after Fukushima, they turned off most of their nuclear power plants, but they had purchase commitments. So they're buying this stuff and just dumping

17:23 it into a warehouse. And, you know, so all those pounds were getting sold back into the market at a loss by the Japanese. And you had all these other pounds just sitting in warehouses. So you

17:33 finally went into a deficit situation in 2019 as these minds shut. I looked at it and I was like, okay, that's interesting. I'm gonna come back to it in a while, you know? It's not like let's do

17:42 something. It's, that's interesting. And we waited for that uranium to get chewed through. The deficit was 30, 40 million pounds a year. And so 2019 was 30 or 40, 2020 was 20, you watch it and

17:58 you're like, that's interesting. And after you chew through over 100 million pounds, you go, okay, I wonder how much more is left in the warehouse? And then you start doing work. But I was

18:09 seeing on Twitter, these guys are like, wow, look, now's the time for uranium Like, it's not time yet. Like, this warehouse in Japan is just full of stuff. You know, it's just obvious it

18:19 wasn't time yet - Yeah, now I used to tell investors, I hate to sound like I'm on Sesame Street, but nothing cures low oil prices like low oil prices and nothing cures high oil prices like high oil

18:32 prices. And it's the same in every commodity - Exactly, it's all fun flows. I mean, I wish the Bitcoin miners would realize that too Guess what, guys?

18:44 So the way you play it from your hedge fund is you go, okay, I've got this macro event. I think we're short Uranium, it's time to go. So you're buying one, two, three of the publicly traded

18:57 miners. Are you doing any kind of private transactions - Not as any privates. I just own a physical Uranium - Okay - Look, oil is different from mining Mining, if you have a producing mine, you

19:14 have cash flow, it's like oil. A lot of these assets, they're not producing mines. They have a hole in the ground and they need money to turn it on. It's never gonna be on budget, it's never

19:23 gonna be on time, there's always gonna be permitting issues. And if you actually get it to work, they're gonna tax you and probably try to steal it from you. It's in some funny country. You know,

19:32 the less cycling Uranium, I made a lot of money 'cause I was buying these assets at 10 and 20 million dollar evaluations. A lot of them were past producing mines that a billion dollars went into the

19:41 ground

19:44 But it was still in the ground. The facility was still there, and it's rusting away slowly, but it's not really just vaporizing. So you look at it and you're like, okay, I'm gonna pay 10 million,

19:55 but this thing that they spent 500 million on drilling and 500 million on equipment, like sure, whatever. And maybe the equipment's a little rusty and they need 100 million to turn it on, but I

20:05 know it's real, it's produced before I have numbers. Now those sort of assets are a billion dollars. And so a billion dollars went in, it's worth a billion It doesn't make any sense, it's not

20:14 cheap to me. And you turn it on, you do the numbers, and it's just like, so you think the price of uranium is gonna be 100. I'm paying 15 times what I think that the number will be if the mine

20:26 starts on time and it's on budget and they don't dilute me anymore and they don't change the tax rules. And I mean, the price of uranium isn't 100 today, it's 50. You kind of like work backwards,

20:37 you discount all the probabilities, and you're like, man, this thing is really overvalued. And I've been through all the mining assets and these people, friends of mine who will tell me I'm wrong

20:46 and that's fine, that's what makes a market. But I am a curmudgeon value investor and I don't like taking risks. And I think one of the unique things that I try to do is not take risks but have

20:58 huge upside. And so I'm very disciplined and I look at these assets. I just don't like them. And instead I own fiscal uranium. I think there's a very good chance that the price of fiscal uranium

21:09 goes to some crazy number for some short period of time. And I can exit it at that crazy number. What I know is that if you have a mine, especially a startup mine, you have to contract with an

21:20 off-take. And the off-take's going to give you a little piece of that spike. But mostly that piece, it's going to go to the off-take guy. It's going to go to your Glencore, your Trafigura, or

21:33 it's going to go to someone else in the middle or it's going to go to the end user who's locked in a price It's not going to go to your little minor in Africa. That's just not how this game works.

21:41 And so I want to capture that super spike. And these miners aren't going to capture the super spike. Doesn't mean that the share price can't capture the super spike because shares can do anything.

21:52 But they're not going to get that super spike to 500 or 1, 000 that lasts for a few months while some utility panics and just buys uranium at any quotes. Like, I'm going to get that. They won't.

22:04 So I just own the physical And I can sleep well at night, known in that I own a commodity for less than the cost of producing it. And there's a huge deficit. And historically, good things happen

22:15 to me when I'm in that situation. And I don't have to quantify what price. I'm going to sell it way too soon. I always sell it way too soon and it doubles again. But then three months later, I

22:23 look brilliant because it collapses. So that's my trade. And that's my biggest trade, actually. You just laid out the thesis that - so I got fired We're coming up on three years now. April of

22:41 2020 and you know shortly thereafter I'm not that smarter guy but you know shortly thereafter you know one of the things that hit me just square in the face thinking about energy is you know the beta

22:56 oil price just so dominates the performance of the assets that I'm

23:03 making this up 90 of the money that's invested in energy should just focus on the beta just on a low price because if you're a cab you own a cab company in Vegas your inputs gasoline you should

23:15 probably be long oil because if gasoline prices go up your business is gonna suffer somewhat conversely if you're a home builder in Houston Texas probably ought to be short oil because when oil

23:27 crashes you're not gonna be building a lot of houses and it just seemed to me that we we should be focused on price as investors And maybe a small amount of money can go chase alpha, to your point,

23:41 if somebody's drilling better wells than somebody else, they should do it. And I looked around for a way to do that. And the only thing out there is USO, which is, I don't know if you've ever

23:53 messed. What - There's a lot of ways to play it. I mean, what - Well, you can play it on the NIMEX.

23:59 This was sort of crazy. I mean, I'm a high net worth guy over, Morgan Stanley, I ran a private equity oil and gas phone for 20 years. And it took me six months to talk them into giving me a NIMEX

24:11 trading account. But for most people, it's really USO. And USO is just horrible in terms of having its tracking error because it's rolling the contracts, et cetera. So I actually messed around.

24:24 I drafted an S1 for an entity called True Tracker. I think I quote unquote, solved how to do it And I was an arrogant little prick. I drafted it with - you know, two of the big law firms and I

24:38 didn't bring in a bank, right? 'Cause I don't want them stealing my idea. And so we get this S1 drafted file, we get comments back, it's in pretty good shape. And I take it to all the investment

24:50 banks. And I got this look of you're offering me a flow through entity in the energy business. I've burned my retail chain too often on that, get out of here. So I never got it done, but yeah

25:05 Anyway, I don't, I think that was ultimate narcissism. Me just wanting to tell that story, but it was also a semi transition over to what are you thinking about oil and energy - I mean, I'm very

25:19 bullish oil. It's going higher because if you consume more of it, then you produce, the price goes up until you produce more. Or you consume less. I mean, it's supply demand and the imbalance is

25:33 gonna be very high for the next couple of years

25:37 had minimal CapEx spending for seven years now. And it's not like you can just flip on a switch. A lot of the services companies, they don't have the capacity to start drilling today, even if you

25:51 ask them to. We've also seen massive inflation in oil field services, which means you break evens are going up, which means that a lot of guys aren't even there well in Santa Vise to start drilling

26:02 right now. Especially 'cause if you look at the curb out to 2025, it's sitting there at 68 and that's below their breaky evens in a lot of cases, especially when you add financing costs, which has

26:13 just gone up a lot. And the net result is I think you're not gonna see much spend on production growth at a time when demand is growing. We've deferred this for a year really because

26:29 Biden liquidated the SPR, a couple other countries did similar things and trying to shut themselves down. And both of those go in the other direction. The SPRs are running on empty. They can go a

26:40 little longer, but we're talking months, not years. And China seems like they're rebooting with a lot of stimulus. And I think the net result is a multi-million barrel swing on the demand side.

26:54 And I think you're also on the supply side. I see a bit of supply growth out of the US and some other places offset by supply declines from Russia I think you might see no net supply growth in 2023,

27:07 which I know is a contrarian view. But I think you're going to see four, five, six million barrel deficits this year by the end of the year. And my favorite trade, honestly, is just go buy the

27:21 December 23 future and close your brokerage account down and spend the rest of the year configuring your jet. I just think that's a - Well, actually, I said that wrong by the call options on the

27:34 DS23. and then spend the rest of your configuring your job - There you go, I like that. And in fact, we'll go grab a beer at some point and I'll tell you about True Tracker, but in effect, that

27:47 was the simplified trade. It literally really was embedding DS2030, DS24, wherever you wanted to go into a unit. And then the unit price would in effect replicate whatever the market was quoting

28:02 for DS23 or DS24 And that way it could be arbitraged and ultimately it would track that price, 'cause you weren't rolling contracts. But I'll throw some stats at you too, 'cause I have a tendency

28:18 to agree with you.

28:20 And these numbers are never right 'cause you can't get good data out of Saudi Arabia, but directionally, I think they're right. If you looked at like 2005 to 2015

28:32 or 2000 to 2012,

28:36 Saudi Arabia ran about 50 rigs a year or 75 rigs a year. And that made sense. You had maintenance on your fields, whatever. During the shale revolution in the United States and the oil price

28:50 collapse, which was Thanksgiving of 2014. And we touched, we touched, call it, 30 oil in there. We probably averaged like 40. I mean, Saudi amped it up And at one point, I think they had 200

29:06 rigs running. And so, I mean, if they have this excess capacity that they talk about, why are they running that many rigs when oil prices that far down? So I don't think Saudi Arabia has it.

29:18 Russia, war, embargo, all that stuff. I think you're right. They ultimate. They've been the surprising one through the years of being able to maintain and grow production. You gotta feel like

29:30 that's gonna stop. And one of the craziest stats, and I'm going to get it wrong because it's been years since I quoted it, but it's something like 2005 to

29:42 2015 if you took Saudi US and Russia out of the equation You looked at the whole rest of the world and we had during that period really high oil Prices and we had all the capital you could ever spend

29:56 and we had the most amazing technology everywhere the rest of the world was actually down In production it was very small it was like down half a percent or something Which means if if it was there to

30:08 be found or got out of the ground they would have done it then and they didn't so I think you're right. I think the world's kind of tapped out and you know what what's gonna cause demand to fall I

30:19 mean, I guess I Think almost a European recessions off the table. I think the warm winter saved them

30:29 You know, we'll see what happens in in kind of future years, but I just don't know what's gonna hit the man - All these countries will just print money again, but give STEMIs to people. Like, I'm

30:40 not really worried. I mean, like I got money, so maybe I'm a little different, but if the price of oil goes up, I don't stop going places. And I don't think in America, people stop doing stuff

30:52 and going places. I mean, when oil went crazy and crack spreads, absolutely blew out a year ago, gasoline consumption barely dropped to the US. It dropped a little bit, it barely dropped. And

31:04 people in the end, they just want to go on with life. I mean, look what's happening in India where demand's going parabolic. I mean, it's from, you know, look what's happening in Africa demands

31:15 exploding. I just think that in the end, countries hit their S curve and demand explodes and population keeps growing and six billion people that don't have microwaves and air conditioners and all

31:28 this other stuff the same standard of living that I have. And I believe in human progress. And eventually they're gonna buy all the same toys and they're gonna need energy. And energy takes many

31:38 forms, but one of them is petroleum liquids. And I just think you're gonna continue to see demand growth at a time where you're not gonna see any supply growth. I mean, you could look around the

31:49 world at where supply comes from. I mean, Iran has a bit of extra supply, Venezuela, but I mean, are you gonna make a five year CAPX investment in Venezuela? And then the Chevron's gonna take

32:01 her around the edges, but do you wanna put real capital into that place? I mean, they change the rules every weekend. And you start looking around the world. I think you're gonna see a lot of

32:09 growth in offshore. It's the one place that really you haven't seen a lot of spending yet, especially in some of these frontier markets, the Guiana's, the Surinam's, the world. I think you're

32:20 gonna see net growth, but that's long cycle and that's five years out. I don't know what solves the problem in 24 - Now, I think you're right Let me throw one kind of curve ball at you a little.

32:31 get your take on. Because I agree with you. I think most people should be playing the commodity. So let's do, you know, Dece 23 or Dece 24. And I remember, just remember my mom listens to

32:43 podcast. So mom Dece is December. So December 23, December 24, when the contract matures. But here's my thing is if we look at publicly traded oil and gas companies, let's say they traded three

32:59 or four times EBITDA. I mean, at those type multiples, I am not in Senate to give you more EBITDA. You know, I was talking to one of the CFOs of one of the big independents. I go, how's life?

33:12 He goes, man, it's great. I send out dividend checks and nobody bitches at me. And the thing though that I want to get your take on is at three to four times EBITDA, I don't think America has the

33:24 incentive to grow. But if we see a big need and prices ramp up.

33:31 I think the one, I don't think this play happens in 23 or 24 to your point, but the play could happen that all of a sudden we're valuing these companies at 10 times even time. We throw a lot of

33:42 rigs at it and then does that cause a lot more oil prices drop? So I'm not, so I'm wondering if on your trade, we need to go D23, D24 and at least have a basket of independent producers in case we

33:58 see multiple expansion there What do you think of that or is my career as a hedge fund guy over? No, look, there's a lot of ways to play a bull market and I don't know if anyone knows the right way

34:09 to play a bull market. I'm a conservative guy, I'm playing in my way. I'm not going to say that owning producers is the wrong way to play it, I own one producer. But most of what I own in oil is

34:22 just physical oil. I own futures options in massive size. I own December 25. massive size and futures options. I own the front of the curve. I own BNO, which is the ETF. And I feel pretty

34:37 strongly that I'll be earning some role yield starting next month again, which is great. 'Cause for a very long time, last year, you were earning 2 to 3 a month role yield, which really amplifies

34:48 your returns. That's really how

34:51 I'm playing it. You know, in one leg, I own some, you know, the DS23 too. So don't think I'm not, you know, putting my money where my mouth is But I own a lot more front of the curve and I own

35:01 a lot more, at least, notional value of those futures call options. 'Cause it's just a really cheap right tail. But the other way I'm playing is oil field services. You know, you asked me at the

35:12 very beginning, hedge fund, what does that mean? Well, I like to hedge on the long side. Put it this way, one of these trades has to work. Either the price of oil screams out of control, or

35:24 hundreds of billions of dollars get spent on oil field services And maybe the price of oil does not scream out of control. all my OFLT services do. I think it's a very good chance they both work.

35:34 But there's also a good chance that one really dramatically works and one doesn't. But I don't see a scenario where neither works. And I like trades like that come very well-hinged. I don't know

35:44 which one's gonna work better, but I don't see a scenario where neither one works. And like I said, I think there's a very good chance they both work. So I don't know OFLT services, particularly

35:53 offshore, because I think onshore there's legacy supply, there's legacy infrastructure, there's frack stacks, there's drill rigs, maybe they're older, maybe they're sitting at a warehouse for

36:05 five years and no one's looked at the thing. But you could bring supply online at a certain price. When it comes to offshore, a lot of this stuff's been scrapped. The technology's really changed a

36:15 lot. You can use a fifth gen rig, but no one's going to. They're barely gonna use the sixth gen, everyone wants the seventh. And so when it comes to

36:29 you know, OSVs, the offshore supply equipment. If you don't have dynamic positioning, no one wants you near their rig because you might crash into the rig and have a health safety accident. So

36:39 the equipment's become legacy, and I bought a lot of this equipment at 10 cents in the dollar of the original cost. And remember a lot of this stuff was paid for in 2006 to 2014 dollars. And I

36:53 don't think you could build an offshore rig for the same price as it cost in 2006 And as a result, I think your replacement cost this stuff is a lot higher. And I don't think anyone's gonna replace

37:03 it 'cause you can go out there and buy Valeris at 20 cents in the dollar of replacement cost, or you can go spend a billion dollars on an eighth gen. I think you're just gonna buy Valeris. Or maybe

37:14 not by Valeris 'cause they're the biggest, but you're gonna buy one of the little guys that technically is for sale. I mean, that's their exit. They have three rigs, they're subscaled, they have

37:21 to be sold to someone. So I think that's really the way to play it. what's happening in Guyana and Suriname and Namibia and some of these other offshore jurisdictions with huge discoveries.

37:34 I think you're gonna see just a lot more capital expenditure. You don't have to worry, the US onshore, you take a lot of risk here from a political standpoint. I mean, we're first world, but I

37:44 don't think we're any safer than third world. They could have a carbon tax on you, they could have an excess profits tax. I mean, the UK just did it. If Britain does it, anyone can do it - They

37:55 can tell you you can't build a pipeline here - Yes - I mean, that's the biggie - Yeah - And you end up with stranded equipment and stranded resource, whereas if Guyana changes the rules on you, and

38:07 I'm sure they will, they'll raise the taxes. That's the history. They'll raise the tax a bit, and then everyone will complain, they'll stop drilling, and then they'll lower the tax. It'll just

38:15 be the cycle. But in the end, if Guyana gets really hard to operate in, you pick up your drill ship and you float it to Suriname I mean, those guys are gonna fight for the equipment. or you take

38:28 it down to Brazil, like you get this mobile piece of equipment, I think that's just a much better place to be. I'd much rather that than a frack stack in Oklahoma. Plus you'd have to get an

38:36 Oklahoma, that sucks. The, I didn't say that - Yeah, that was me, that was me, I'll take it. If we're right I'm 'cause, this about wrong there with

38:48 you on the super cycle, super cycle for oil, if we're wrong, why are we wrong? What did we miss? What do you think happens - The only way you end up being wrong is if they lock the world down

39:02 again, I mean, we saw them take 10 million barrels out of demand in March of 2020, they took 30 million barrels out of demand.

39:13 They could do that again. They could lock us down for anything, 'cause they've already proven they're willing and able. That's the thing that really scares me, but that just defers the thesis out

39:23 to more years. My drill ships will still be there. Maybe my DS23 is gonna hurt, but my drill ships are still there, and that's why I say I have this barbell approach. 'Cause if that really does

39:36 happen, my DS23 is losing me some money. Man, they're gonna be really hurting for oil in '25

39:47 and '26 and '27 - I've always told people that follow the industry, I've always said, that is the single greatest event, 'cause we were able to run the experiment. We literally shut down the world,

39:58 and we were still using Pollot 65, 70 million barrels of oil a day. I mean, and that is a shut down world. So if you're telling me that we're gonna get rid of oil anytime soon, we've got data to

40:11 show otherwise, 'cause yeah, that was your right - And I think 2008's a great example. I mean, you had the greatest economic crisis, really, since 1929 or, you know, the Great Depression, 29

40:26 to 34. What did oil demand do? In Q1 of 2009, it was down a few million barrels by year end. It had almost fully recovered. For the year, it was down 2, 15. It was like

40:41 800, 000 barrels. Yeah, it wasn't a lot that whatever that year was. Yeah. But I mean, think about it, you know, a couple countries that truly went bankrupt as in, like their currency was

40:51 zero. They couldn't buy oil. They couldn't, you know, bring supplies in, like everything that could go wrong went wrong. And demand barely dropped. I mean, it fully recovered. It was a six,

41:04 nine month thing, and it was over. And that was it. And a year later, it got back to 90. Yeah. No, I think you're right. You know, the history of my career, so I joined out of business

41:18 school, Stevens, and started doing energy. Let's call that 90, fall of 94. I mean. Literally my whole career oil demand's up one, one and a half percent a year - Except for your 0809 and it

41:32 wasn't down much to your point, you know, outside of the pandemic year. So, so let's look at a bad scenario. Oil demand drops 2. So that's two million barrels, but you still have a three

41:46 million deficit. I mean, you're just gonna keep draining and draining this year You know, like oil demand's down too, that's just global SPR. That doesn't even add China in. And yeah, we were

41:58 marginally oversupplied for the back half of the year. That's why the price of oil dropped into the 70s. But I don't know, I'm just really, really bullish on this. And I know that there's some

42:08 supply common in places and there's a lot of wild cards out there, but I'm not particularly worried. Maybe I'm just due to get hurt -

42:17 There we go. There we go I'm right there with you and I actually feel like I have some distance from it, not. managing money every day like I

42:26 used to. I could actually think about it and have some distance. But it's, 'cause I think what's underappreciated too is, and it'll be more pronounced going forward, is you look at CapEx numbers,

42:40 they've been lower, like you said for the last seven years, start taking CapEx numbers that are flat from the previous year and add some inflation into it. It's actually worse. And we're seeing

42:52 ridiculous shit out in the oil field We have a buddy that does electronics-type stuff in a little sensor that he used to pay 250 for. He had to pay 5, 000 for him recently. So it's not just your 7

43:08 inflation. There's some real stuff going out there - Oh, well, the inflation's gone crazy. I mean, and it's everything from drill bits, to drill fluid, to, you know, downhole steel, to

43:21 fracksacks. I mean, even sand is going up What does Sandever go up in? like everything's going up in price. And I mean, labor's going up, but that's probably the piece that's going up the

43:29 slowest. I mean, oil-fuel inflation might be running 50. I mean, I'm really focused on what's happening offshore. I mean, a modern OSV. Last year, it was 9, 000. The OPEX was 9, 000, it

43:43 cost you 9, 000 a day. No, it's 40, 000. I mean, what is that gonna do to your budget? I mean, you designed your project and you said, okay, 9, 000, maybe it's gonna be 11, 000 next year

43:53 No one thought it was going to 40, but you try to get a large deck OSV or you try to get an anchor handler, you try to get any of this piece of equipment that was all scrap, they don't exist. I

44:04 talked to, I went on another guy's podcast yesterday. He's an oil-filled service guy. And we talked about it. There isn't really a technology out there that in hindsight, you'd be able to say,

44:19 okay, we were able to grow supply because of this.

44:24 '05, '07, we were doing some great things with natural gas, horizontal drilling, fracking. It was a disaster to try it on an oil well, but you could see, hey, if we figure out how to keep the

44:36 formation open with the right kind of sand, et cetera, if we replicate this on oil, okay, maybe we can double production in the United States. You at least had a hope. There's not a hope

44:47 technology out there. I think we've hit everything we can with the big hammer and if

44:54 we double production in the United States over the next 10 years, I literally think the only way we can do it is price and way more rigs. There's not a technology that's gonna be a panacea to do

45:05 that - No, the only place I think you've seen real advancement is ultra deep water. We're the last cycle in 2005 to '07, they really couldn't get some of this really, really deep stuff and the

45:17 technology's gotten better, but even then it's just on the margin It's not really, you know, like opening up the Fermi. talking about. We're talking about a couple million barrels maybe, but it

45:28 takes five, ten years to build it all out. Like this isn't fast cycle at all. This isn't going to move the needle. Yeah. Well, Kuppy, you were cool to come on. This has been a blast. How do

45:39 people find you? If you want people to find you. How's that? Well, you could go find me on Twitter. I think that's a starting point at each Kuppy. I have a blog. It's called Adventures in

45:52 Capitalism. It's free So you get what you pay for. I write when I have something to say and often I have nothing to say. But you know, you should sign up for that. Give me your email. I won't

46:01 spam you. I promise. And then if you want to learn more about my fun, go to PrayCapcom. But I only do that if you're accredited. Gotcha. Gotcha. Well, this has been really cool. I appreciate

46:13 you having me on. It's