Chuck Yates Needs A Job

0:21 Hey everybody, welcome to Chuck Yates needs a job, the podcast, this is kind of cool. Tim, this is the first time I think that I'm actually gonna say stuff that maybe sounds like I've talked to a

0:33 lawyer. The following is not intended as investment by advice and I think I have to disclose. And the Chuck Yates 2008 Family Trust is an owner of Ampt or something like that, I own a hundred

0:47 shares. And we appreciate that, thank you All right, introduce yourself and tell my mother who you are 'cause my mom's watching. Sure, so my name is Tim Kramer and I am the president and CEO of a

0:57 company called CNIC, which stands for Carbon Neutral Investment Company. And what we've done is we've created an ETF and our tagline is the Electrification of America. Cool, so, okay, real quick

1:10 just to make sure I understand ETF publicly traded, New York Stock Exchange somewhere, got it. The easiest way to think about it is most people are familiar with mutual funds and an ETF is just

1:22 simply a mutual fund that trades on the New York Stock Exchange. The reason everything is kind of switching right now over from mutual funds onto ETFs is because mutual funds usually price at the end

1:33 of the day. ETFs are priced throughout the whole day and you also have tighter bid-ask spreads and you've got just less fees. Pretty much everything right now is transitioning from a mutual fund

1:44 over to an ETF. And ETF exchange traded. Exchange traded. Yep, yep, sorry about that. And most of the time as I understand the ETFs trade based on some index, right? Or they can. So you'll

1:60 have two kinds. You've got active and passive and so the active ones, well, let me back it up, the passive ones will almost always be linked to an index. And what they try to do is they try to

2:10 replicate the index and the performance of the index. Active ones, some of them will use an index as a benchmark and they just try to beat that. And so if you just think about, you know, like the

2:21 SP, if you look since we're talking to your mom, you've got people that say, okay, I want this SP fund and it's got low fees and it mirrors the SP, I'm good. And then they'll say, well, look

2:31 at this fund, it's an SP and it's actively managed and it's got some better returns. And so maybe I want that. So there's the passive and the active aspect, two different flavors of the thing.

2:40 Okay, got it And this is kind of cool, I almost feel like I'm taking advantage of my podcast status of, dude, come on to the podcast and all this. Yeah. 'Cause I want to figure out what I bought.

2:53 I bought 100 shares because you and I were introduced by mutual friends and you seem like a really cool guy. Tell me what I bought. Sure, so you bought 100 shares of AMP and AMP is an ETF that is

3:07 linked to electricity futures. So they kind of give you the backstory on this. What happens is electricity is the most consumed commodity on a retail, notional basis in the US. But up until now,

3:20 it wasn't in any mutual fund, it wasn't in an ETF, there was no index, there was nothing. So what we did is we created an index using electricity futures that are traded on ICE, the

3:31 intercontinental exchange. And then we pair those with carbon offsets, which are also traded on ICE, the intercontinental exchange And so the portfolio of electricity futures and the carbon offsets

3:42 is carbon neutral. And we got it certified as carbon neutral and it qualifies for SFDR-8, which is a European standard, et cetera. So we've got these futures that are all paired off. And then

3:54 what happens is those futures are what the underlying asset is for those hundred shares that you bought. Okay, 'cause the thing I found really interesting when we went and got that drink and we got

4:06 interviews we were talking about it is one of the things that became like wildly clear to me and it took getting fired and publicly humiliated and all that good stuff. But, you know, a month or two

4:19 after I'm kind of kicked out of the club out of the game, I'm sitting there going, Okay, if I'm an institution, I want to own some oil because oil is pretty important to the economy. And when you

4:32 think about it, all these institutions were getting their oil exposure through private equity, oil and gas type stuff. And then I would sit there and think about, Okay, well, was I truly just

4:44 delivering commodity exposure to these institutions? No, I was leveraging these portfolios, companies, I was drilling wells, I was doing all this sort of stuff. And I haven't had the heart or

4:59 the

5:02 time to go back and actually kind of measure vis-a-vis versus the commodity, but there seem to be a pretty big disconnect. Oh, huge disconnect because you're talking about these LPs inside of the

5:13 private equity shops, and they're owning these companies just like you talked about. So you got to pay management fees, you've got accounting irregularities, you got equipment, the equipment

5:22 might break. There's all sorts of other things that take away from the direct commodity exposure, and heck, half these guys hedge. So you're thinking, wow, look at this, the price of crude oil

5:31 doubled, I bet this private equity holding doubled. Oh, no, we hedged. We're flat. Yeah. No, that's exactly right And

5:40 the horror stories could probably go on even even longer through that. But you know, kind of peeling it back, then you say, well, gosh, why weren't these folks just trading on the NIMACs and

5:53 getting oil exposure? And then you go talk to a few of them. It's like, well, why were you invested in us instead of just, you know, doing futures for oil? And it's like, oh, my God, you

6:05 want me to have a mark to mark,

6:08 a daily thing to walk in and tell my board that, oh, by the way, I need 10 million because I got a post more margin because we went wrong. But don't worry. Amazon's ripping because of cheap oil.

6:21 And so I don't think I fully appreciated until I was out of the game just how much if you're the CIO, you think you're getting commodity exposure. You're really not. It's a bastardized kind of way

6:35 of doing it. And it's just a different type of investment vehicle. It's not an indictment on the private equity group at all. But what their model is. I'll indict them.

6:45 Maybe just one.

6:48 But what their investment model is, they'll say it's kind of like three sentences. We buy companies, we take them private and make them better. And then we sell them back out again in a profit.

6:58 So that's what they do. So they're not really concerned, overly concerned with the commodity exposure. They're trying to do the whole gamut of getting the exposure, plus fixing the company, plus

7:07 looking for the exit multiple. And so when they're doing that, it's a much different profile than just getting the pure commodity exposure. And I think what happened at least in oil and gas is,

7:19 let's go historically, and let's call it pre-2000, I mean, it really was oil and natural gas or really oil was the input to the economy and when oil prices went up, you hit a recession. So it was

7:33 almost your defensive measure of, I need exposure to this commodity Then, you know, the shale revolution came along and there was an alpha story there. Hey, we can drill horizontally, fracking,

7:45 we can create these outsized returns. Unfortunately, a lot of money went into that as we all know funds flow, the more money that goes in turns usually get reduced. And

7:57 I think we've kind of potentially see people coming back to that So that was one kind of just aha moment I had of being outside going. Oh my gosh, so there's this imperfect alliance, if you will,

8:12 between I need a commodity exposure and how people are actually doing it. The one big glaring hole though, is when you sit around and you talk about artificial intelligence and Bitcoin mining, the

8:23 internet and all this sort of stuff, you're like, well, power's gonna be what oil was. Oh yeah. Yeah. Yeah, so to your direct example here, if we take a look at Texas, right? So they call it

8:35 ERCOT and the power grid. Data centers in '22 were about two to three percent of the overall electrical load in Texas. And by 2030, that prediction is supposed to be up to as high as 40 for the

8:48 reasons that you talked about. But that's just the data centers. If you take a look at electric vehicles, so the US has a stated goal and the manufacturers are all falling in line with this that by

8:58 2030, no new cars can be combustion engine. They want them all to be electric. But then you've got individual states that are taking twists and turns on that. So for instance, California, they

9:08 passed a tighter emission standard recently so that I believe it's by 2026. Jeeps won't meet that. And then if you pick up the paper and you look New York state, no gas stoves. You're not allowed

9:19 to hook up to the gas infrastructure anymore. It'll have to be electric. If you pick up the paper two weeks ago, there was an article about the Colorado River running dry and oh, by the way, that

9:28 affects 7 million people that use hydroelectric power off of that And so there's just so much that's already electric like we talked about. And that's only going to get bigger and better. And then

9:39 to your point about, you know, the crude oil natural gas, uh, BP puts out a really interesting research piece where they talk about what the, and they put it out like once a year and they'd give

9:48 projections for what the consumption is going to be. And they've got natural gas consumption from 22 peaking and dropping off by almost 80 and I think crude oil is about the same. Now they do

9:58 different scenarios and they say this one is. path in that green. This one is the slower path. This one is, oh, if we abandon going green, we increase. But pretty much everyone out there is

10:09 taking a look at, and you don't want to say that crude and natty are going to zero, but their consumption is going to go down drastically, and it's going to be replaced by electricity. Yeah. No,

10:18 that's crazy. And

10:24 this doesn't even get talked about. And I don't know if you and I have talked about it the couple of times we've gotten together. The Xbox network. Yeah. I mean, kids sitting around playing video

10:34 games, that is exponential. I mean, my girlfriend's son, what are you doing? Playing FIFA, you know, and they're all online. They're all talking to, I mean, that consumes a massive amount of

10:45 power. Oh, yeah. And no one talks about it. Right. Yeah. It's just crazy. And if we're going to embed artificial intelligence in everything Oh, yeah. I mean, I think, I think our use of

10:56 power estimates. vastly understated. Exactly. That's part of our whole thesis is that the demand is massively understated for all the reasons we talked about. But we also think that the supply is

11:07 overstated. So think about this for a second. Right now you've got coal plants that are retiring because of emission standards and because there might not be economic. But you've also got groups

11:18 that just won't touch it. So you've got most of your major banks won't do anything with financing a coal plant. They can't get letters of credit. They can't get Dino insurance. They're just pretty

11:27 much dead in the water. So the coal plants are retiring and they're retiring at a faster rate than people thought they were. And so you're replacing that supposed to be replacing that with wind and

11:36 solar. But the first problem with that is the the interconnection queue, the what you had to do to kind of get in and develop these plants that used to take you will say three to five years to get

11:47 something up and running. And now there's such a backlog that it looks more like it's around five to eight years. So it's clogged for the first part. The second problem with it is if you take a

11:55 look, the US. as a stated goal of being. 85 renewable generation by 2030, and 100 renewable by 2035. If everything in the current development queue gets built and gets built on time, we're only

12:08 gonna be like 48 renewable by 2030. So we're nowhere near where we need to be. So we're not gonna catch up. So you're retiring the emitters faster than you thought you were and you're not replacing

12:20 them as fast as you thought you would with the renewable stuff. Interesting. I didn't realize it was that bad Okay. Well, there's another problem with it too. And you're starting to see that here

12:29 in Texas, right? And that is when you replace the colons to some extent these natural gas plants and replace them with a wind and solar, they're not dispatchable. So you can't control the output.

12:39 Like you get the wind and solar when they wanna give it to you, it is what it is. And so you're now seeing some interesting opportunities like yesterday here in Texas. So the hourly power price,

12:51 when you took a look, it was, you know, 20, 30 bucks, which is fine. And then all of a sudden when the wind doesn't show up or the solar doesn't show up, you spiked up to over 1, 000 a

12:60 megawatt hour yesterday in certain hours. That's because you haven't had the ability to, you just can't dispatch it. And there's not enough batteries around to take up the slack. So not only are

13:11 you overstating the supply and understating the demand, but what you're doing is you're increasing the volatility of the underlying. Oh, shoot. Yep Yeah, no, that makes a lot of sense, and I

13:25 don't think I fully grasp that. I mean, Winter Storm Yuri, yeah, hit me in the face, but all that, I don't think I'd grasp that. And so what is actually in the index? So you've got this index

13:42 and tell me what's in there. Sure, so what we do is there, just like there are futures that trade, for all the different months, for like 60 months now, natural gas and. crude oil and wheat and

13:55 corn and soybeans and gold, etc. The Intercontinental Exchange, which owns the New York Stock Exchange, they've got futures on electricity. So for the index, we've taken different spots in the

14:06 country. So we take Nepal, which is New England, and we take New York, and then we take PJM, which stands for Pennsylvania, Jersey, Maryland, and then we take Urquot, which is Texas. We take

14:17 MISO, which is the Midwest of the US, and then we take California. So we take those six different locations, and once a year, what we do is we take what the average annual consumption of

14:30 electricity is, and then we prorata a sign waits to those different hubs. And then we take EPA data, publicly available data, and it tells you what the carbon footprint is for each one of those

14:42 locations, and then we buy the correct amount of carbon offsets and put it together so that the whole thing is carbon neutral. And what we did is we created this index, and then we literally gave

14:51 it to So ICE is the index administrator. And that's because if you got Chuck and Tim's power index, nobody seems to care. But if you have ICE on as the power index administrator and the calculation

15:02 agent, that ends a certain amount of credibility to what you're doing. Gotcha, gotcha. So, okay,

15:09 so those are the points and how long's the contracts? Right, good question. Under the under the - Sure. So we talked about the volatility of this stuff And so what happens is, when you do a

15:23 normal commodity index, we can almost like True Tracker, but not quite. Normal commodity indexes, they'll buy the prompt month. And then as that prompt futures month starts to like roll off or

15:34 expire, they'll roll that to the next month. Well, and if you think back - The big example of that's USO and oil. Oh yeah, yeah, yeah. So they're based, I mean, when they got so much money

15:46 and they could do more things, they started buying further out. But before they got into all that, before minus 37, well, it was basically we just buy the prompt month. Yeah, and so if you

15:56 think back to your B school days or rice, see it's the whole F equals E to the RT, the whole forward spot cash carry thing, right? And so most of the commodities under normal circumstances are in

16:10 Contengo, which is basically the current month is cheaper and the next month is higher and the next month is a little higher, et cetera, et cetera Well, you have problems with electricity or I

16:20 should say opportunities with electricity because electricity is not storeable and it's highly seasonal. So if we look to do in the index and just do in prompt months, the problem is you're gonna

16:31 have, like

16:34 right now, August contract for Texas is trading almost 200 bucks and the September contract is trading, I think it's right now it's about, we'll say 80 bucks, right? And so there's such a

16:46 difference in prices and it's not storeable that if you had to roll these things, you just have these big gaps and just didn't make any sense. So what we're doing is we're doing a 12-month

16:55 continuous strip. So as August of '23 rolls off the board, we take that and buy August 24. So that you really don't have to deal with the seasonality and it eliminates the volatility. And it gives

17:09 you a chance to play the backwardation of the curve because most of the power curves are backwardated. So what happens is you've got to disconnect what we say is between the financial markets and the

17:19 fundamental markets. So financially, you have the private equity guys like we talked about and they're trying to build all this wind and solar that we talked about. And in order to do that and in

17:28 order to get their returns, they have to put leverage on it, not a problem. Leverage gives you returns. The banks that let you leverage this, they say, okay, well, if I'm going to lend you

17:38 money, I want to make sure you can pay me back. So I want you to hedge And so there's artificial pressure on the body. back end of the curve here, because these guys are selling just so they can

17:48 get these deals done. And so what happens is the banks will say, Okay, this is fair market value, but I need to discount that for the volume, and I got to discount that for my cost of capital,

17:57 and I got to discount that for credit charge, and I want to make a price. So the prices at which these guys are transacting, they back-rate the curves. So by doing this 12-month strip, where most

18:08 people with a commodity index have what's called negative role yield, where they lose a little bit of money as they got a role, we've got positive role yield because almost every one of the

18:16 different spots that we talk about in the index is in backwardation. Yeah. That's the one thing I learned when I messed around with the commodity ETFs, is if you're buying it 50 and you're just

18:31 doing prompt month and the next one is 53, well, yeah, they realize 50 and then they buy it 53 So the ETF is flat, yep, even though you're like, no, price went from 50. of 53. I should be up,

18:46 you know, six percent.

18:51 And that's the, so two questions on this. This is interesting. So

18:57 I understand why producers of electricity because of why you laid out. They've got leverage, they've got insurance, they've got private equity guys that are scared to death. I get why they want to,

19:10 why they want to hedge. Who's on the other side of that trade? I mean is a, and we'll just use Google because they're big and they use lots of power. Is Google on the other side of that trade?

19:23 Two years out, three years out. So typically what happens is, and this just goes back to kind of like, you know, textbook economics. So John Maynard Keynes or Holborg workings, the guys that

19:31 you studied again back when you're, you know, getting your MBA or ICE. And they talk about the term structure of these curves. And it's basically the producers are the ones that take action. Okay.

19:42 So they're the ones to sell because they have to build the assets that produce the commodities and they need to get the leverage and they need to sell. So the phenomenon is in the academics back it

19:51 up that the producers are the ones that lead this with the selling. The other side of the transaction is typically right now usually your banks and they'll warehouse the risk and they'll do it two

20:02 ways. Number one is they get it at like such a low price because they put all these discounts in and they compensate themselves for the risk that they're comfortable wearing it And the second thing

20:11 they do is they'll qualitatively hedge it, so like, okay, we got all this power. Maybe I'll sell a basket of crude, naddy and a couple of other things and I'll just kind of warehouse the risk.

20:20 And if I put this hedge on and I made 60 million on the hedge and the dirty hedges don't quite work out so I only made 40 million, well, I made 40 million. So they're okay doing that. And then

20:32 you'll see some of the C9, the commercial industrial guys come out and they'll do like longer-term deals So Google will do them. Um, you know, we've seen some of the airlines will come out and say,

20:43 Hey, I want to buy 10 years worth of power. Different organizations like that will step up and take them off of the banks. And so the bank acts almost like a credit intermediary for this when they

20:54 do that. And my sense is, and I'll make this up because I know nothing about it is that's happening way more today than it was three years ago, way more three years ago than it was six years ago

21:10 and on is this this this feels more way more recent, right? Right. Yeah. So you didn't really have the power market start to trade actively until we'll say late 90s, early 2000s. Okay. And then,

21:21 you know, it took a while for people to kind of get their heads around it because if I say a barrel of crude oil, you kind of know what that looks like. But if I say 500 megawatt hours of

21:29 electricity, you're going to start Google and that and see what that is. So people had to get, you know, kind of an education process about it And once they got that and they saw what, you know,

21:38 how that impacted their with their economics more than they started to pay attention to it a little bit more. Gotcha. Gotcha. Okay. So don't have a lot of people necessarily on the other side of

21:50 the trade, but it's growing.

21:54 I always hate to get too far away from fundamentals. At the end of the day, I get the things spike and their runs and their bubbles and all that sort of stuff But at the end of the day, I truly

22:07 think something has to come back to rational economics. If I'm thinking through your index and you're using kind of year contracts that roll, it's

22:19 a way to grossly simplify it. The longer term contract, the fundamental person is saying, how much power will we need, how much supply do we need, power is going to be 75. And then the front

22:36 month is. gets to the points we've been talking about, how much supply do we have, and it's driven by weather today like never before because it's wind, is it sunny, and you kind of have that

22:52 stuff going on more near term and longer term. If my fundamental view of the world is that the way to think about it? Well, it's pretty accurate. So what we say is this, there's a disconnect on

23:04 the longer dated financial markets and the shorter dated fundamental markets So the longer dated markets that you're describing, that's where the producers are selling and the banks are putting in

23:13 their correct margin and safety margins, et cetera. And so that doesn't really reflect the fundamentals. That just reflects where you can get a transaction done. So that reflects the financials.

23:25 But then at a certain point in time, as you get closer to where the actual electrons need to flow into your house, that's where the fundamentals take over. So what's the weather? What are the

23:34 other unit outages? What are the supply constraints? marginal molecule right now. So we think that there's an arbitrage that exists right now on the longer dated financials versus the shorter dated

23:47 fundamentals. So you've got it pretty much right. Okay, because that's where I was going because I do believe that I get your point that this, you know, producers have to do this. This is where

23:58 you can get a trade done. The banks are stepping in, warehousing it, and they'll make big frothy premiums for, in effect, providing insurance, if you will, at that point. But at some point,

24:11 really smart, sophisticated money gets in and says, it's ridiculous. We should be buying that. And to some degree, it's got to get somewhat close to reality. I mean, we can't have huge

24:22 arbitrage is forever. So you're right about that. But what happens is, if you want to do that, you don't need to pay fair value. You just got to run faster than the cents higher than the other

24:37 guy. And so that I think is going to take a while to kind of work its way out of the marketplace.

24:43 And also too, if you put that position on, you need to warehouse that for a while. So that takes up a lot of credit, and it's going to take time for you to recognize those longer data returns,

24:53 which is kind of why we did the index and spread it out with the different regions and the different tenors. Yeah, because I mean, just to tell the audience just to be transparent about it is, I

25:04 truly believe we're, like I was saying earlier, vastly understating the amount of power we're going to need, because this is being pushed at us by the government. I mean, historically, the

25:15 government used to say things like, we want less emissions, we will incentivize that market, y'all go figure that out. The IRA stepped in and said, we want electric vehicles, period, you know,

25:26 I mean, Chevron, that's great. You guys have figured out lower emission gas, You don't get the credits. Only electric vehicles get the credit. And so I think there is a top-down pressure by the

25:39 government happening for more power than I think we fully appreciate. Oh, yeah. So right now, I think we've spent about 15 billion of the IRA and there's like another 700 billion to go. But the

25:51 silos and the bureaucracy is such that I believe the government had to create its own tiger team inside of the government to get stuff done faster. So it fits exactly with what you're saying. As a

26:02 quick aside, have I told you my tin foil hat thing on electric vehicles? I truly believe this. Okay. So I'm gonna go ahead and say it. You can roll your eyes. I mean, we're getting enough

26:11 friends out. You can roll your eyes and say you're stupid or whatever. I honestly don't because okay, if you go to Volvo's website, they did a detailed study on an electric vehicle. What is the

26:23 carbon footprint of that versus an internal combustion engine? The ice, we know exactly what the internal combustion engine is We've been making them for 125 years. we've got that down, what truly,

26:37 really knows what the carbon footprint of an electric vehicle is. They're relatively new. So Volvo 150 pages. I mean, it's pretty detailed. And the punchline to this, and I tried to read 150

26:51 pages, but I got through most of it. Okay. Basically, what the punchline is, is if the way the world generates electricity today, I think it's about 85, 000 or 90, 000 kilometers that is the

27:07 break over. An electric vehicle is better at 90, 000 kilometers than the internal combustion engine, because they went through, hey, we're mining, we're manufacturing. There are petroleum-based

27:20 products in the electric vehicles, et cetera. We have to charge it, and we burn coal in some places to charge So, you know, they went through, they had, they had a methodology that seemed

27:33 pretty. I don't know if I agree with every little bit of it, but at least they did. If you charge just like Europe generates electricity in Europe, I think the furthest long in terms of the

27:46 renewable path. Yeah. I think it's like 65, 000 kilometers. So at the end of the day, okay, that's good. But 65 kilometers, 65, 000 kilometers is still four years, so five years. I didn't

28:02 read that That's interesting. I'd ask you, did it mention having to replace the battery packs at a certain moment? I'd have to go back and look and see what they did for that. And I think one of

28:13 the criticisms of the study, as I recall, is that they didn't do enough on disposal of batteries. And so there's, you can punch, you can punch around the edges and dig into all that. But at the

28:26 end of the day, I mean, we're still talking breakovers of four to six years. And, you know, okay, most cars run 20 years. Okay, so that is better. We're literally gonna spend trillions and

28:39 trillions of dollars in the United States to be able to do this. We've got to upgrade grids, chargers, all that. Oh yeah. So here's the Tim Foyle hat thing. Okay. I truly believe this. I

28:51 really do, I truly believe this. How do we pay for roads these days? Dollars, cents per gallon of gasoline, right? So you go fill up, I think 50 some odd cents is going to various taxes per

29:06 gallon, something like that, right? So when you're not buying gasoline anymore, it's gonna become very easy to sell. Hey, you need to - Oh, I know where you're going. Yeah, this is genius.

29:20 And I believe this, you need to pay us cents per mile you drive to pay for the roads. And people will go, oh, okay, that makes sense now I get that and. By the way, we need to track you. And

29:33 so I honestly think the government's doing this so they can track our movements because right now we're all tracked by this, right? But at least the government's gotta go get a court order to be

29:45 able to look at this to see where you've been. If they're just, if they normalize, hey, driving along

29:53 you got this thing tracking you and you're paying cents per mile that you drive and all, they're gonna know exactly where we're driving I truly believe this. There's something to be said for that

30:03 revenue gap for the infrastructure maintenance. I think you're all on to it. I'm not quite sure how they're gonna fill that, but I think you, I never thought about that. That's pretty clever.

30:11 Well, and I think it's, I think it's gonna just be normalized. People are gonna go, oh, okay, yeah, that's how we're gonna do it. And the government is suddenly gonna have all this information.

30:20 No, I'm a big libertarian. I really am. And I'd wear a tin foil hat periodically. But I truly think they're gonna be able to track us wherever we drive And that's actually scary to me. Supposedly

30:31 within the IRA, there's a 25 or 30 million pilot program on this for tracking electric vehicles. You signed up for that, right? Yeah, exactly, exactly. So anyway, didn't mean to get us off the

30:44 track. That's actually really interesting. Yeah, so potentially the index, as you've laid it out to me to make sure I understand is, we've basically got different regions of the United States,

30:57 we have longer dated contracts And so potentially if I fundamentally wanted to make a bet that we're gonna be under supplied power in the future, the index in effect kind of tracks that and is not so

31:16 much tracking the day-to-day volatility. Here's what happened in the weather, et cetera. No, no. So before you get into what they call the spot marker or the cash marker, like inside of the

31:26 month, we get out of the contracts the index rolls them before that contract comes up like that. there's none of that volatility, and we spread it out over the six different regions. So, you're

31:36 like, you're really hot right now in Texas and Texas is volatile. But up in the mid-Atlantic right now, the weather is actually very mild. And so, when you average all those things in, you're

31:46 getting the overall fundamental appreciation that we talked about, and it really reduces the volatility. So, right now, this power index is less volatile than the Bloomberg Commodity Index Okay.

31:56 Yep. Oh, interesting. And not only, I mean, if you wanted to express a view, which, you know, the electrification of America, and it's like, here we go, there's a chance to play this

32:04 supply-demand imbalance, but also, too, like CPI came out yesterday, month in and month out, electricity is 25 of CPI. So, I mean, if I'm a pensioner and endowment, why wouldn't I have just,

32:17 you know, 25 of my AUM pegged into this? Because that's where I was, that's where I was, I was going with it. Because if we look back, you know, in history, you want to don't oil. as well as

32:30 the input. I mean, you just said it's two and a half percent. I'm actually surprised it's that low. That's the direct one. So if you take a look and comb for all those pages, right? It's like,

32:39 this is the direct contribution of electricity, because 251, and it varies by like 002 or something. Right. But there's the indirect component which you don't see. So, you know, pick an example.

32:50 Okay, there's the, you know, tomatoes at the grocer, right? Well, that grocer has to use electricity and they miss those things. There's all sorts of other inputs where it's indirect that goes

32:58 through there So it's a lot higher than that direct 25, but the direct one we point to is 25. Okay, yeah, okay. So that makes that seems that, 'cause I would have said directionally, not

33:11 knowing actual numbers. I would have said we're gonna use way more power

33:17 than we think we're gonna use. Supply is gonna be harder to just, it's hard, it's crap to get things permitted. Yeah, exactly It's like back in the dark. calm bubble, these guys would come on

33:32 and say, Oh, we're going to sign up this many people through modems to get our service and we're going to have 20 billion of e-bit die a year and you're like going, that's literally 12 people

33:47 signing up every three seconds. I mean, just plugging it in takes longer than that. So I think being able to buy the, build the supplies just can be hard But manage really, really hard and then -

34:02 Well, I'm not to cut your thought off, but on the supply part, think about this too. So we're like, we talked about what the wind and solar, right? When it doesn't show up and if that's all you

34:11 have, you have a problem and so you need a lot more batteries too, which goes back to the mining and the things that you talked about in the cars and what's the overall footprint with that. But New

34:19 England came out and said, Okay, if we really want to have a reliable grid and it's all renewable, you need to have like 400 more wind and solar lined up. then you actually think your demand is

34:30 going to be so that if it doesn't show up, if it only 10 shows up or whatever the probability weighted numbers are, you still have enough to kind of get by. Yeah. Yeah. I had Campbell Faulkner on

34:43 the podcast a couple of weeks ago, and I just put, he's kind of my Ercoc grid expert, and I love listening to him talk because I don't understand a word

34:54 I kind of got with him, and I said, Hey, Russell Gold, the energy reporter for Texas Monthly, and it came on the podcast, and he was talking about, Why don't we interconnect East and West, and

35:06 let's export power. We export, well, natural gas product, petroleum products, where the world, Texas should be doing that. And I'm like, Yeah, that sounds great, and Campbell's just like,

35:18 Dude, this is going to be an engineering nightmare like you've never seen being able to interconnect and it's going to be hard. And so I think just even within our content. being able to connect

35:30 all these things, it's gonna be a huge problem. But where I guess I was going with that, it's just that imbalance and, you know, how, what solves that? Higher price, right? But, you know,

35:45 it feels like 25 the

35:50 of inflation has just got to be more over time, right? Because the gasoline powered vans Amazon are running around, those are all going to get electrified. Yep. And so it's going to be, if

36:06 you're the institution sitting there going, okay, what are inputs into the economy? Maybe it's not going to be oil, or it's always going to be oil, but not as much oil, it's now going to be

36:18 power, and you got to start thinking about that. Exactly, yeah. So we think we kind of caught lightning in the bottle here, and we think we've got the right index, the right product, And what

36:28 we did actually is we've got a two-year exclusive on the data and on the index with ICE. So we're the only financial product out there that gives you this exposure. Oh, interesting. For two years.

36:39 Interesting. I wanna get a long power. There we go. Oh, very cool. All right, so I think I understand what I bought now. Okay. Sorry to drag you here for 45 minutes for two. That's sold 100

36:54 shares, David. It goes back to the old mantra, invest in that, investigate. Yeah, exactly. We, that was always funny. Whenever you would buy something from the majors, that was always our

37:04 deal. Just go ahead and wire the money. We'll do due diligence later. Could you buy, you're buying something that they don't appreciate what they have, but. Yeah, we call it skid in the game,

37:13 now I'll pay attention. Yeah, yeah, exactly. So, okay, so I think I now understand, I'm glad I made the purchase. This is, this is kinda good Yeah, it's you know, it's it's not something

37:25 that you pick up and if you're gonna double your money in three days. Right. Okay, you're doing this because you believe fundamentally, like we talked about, there's the arbitrage that occurs on

37:34 the long dated financials versus a short dated fundamentals. You pick it up because you think the electrification of America is gonna be massive and the whole supply, demand, and balance, and the

37:44 volatility is going to give you an interesting investment opportunity. You pick it up because, you know, think about the model portfolio, right? So, you know, the guy calls you up, you're an

37:53 investment advisor, and he's like, I want you to be 60 equity, 35 debt, and 5 commots. Well, now it should be, you know, 60, 35, 5, but that 5 should maybe be 2 into electricity because of

38:06 what the overall impact is. And it should be sticky money. You should have that in there for diversification and inflation protection, and you shouldn't be trying to time the market or flip in and

38:15 out. It is a really nice fit for a model portfolio. Yeah, 'cause I mean, walking away, and I totally made this number up, I've set it on the podcast is. I think 85 of the money that's invested

38:30 in energy because they want exposure to oil should be some sort of passive direct commodity-type exposure. And I get the fact you can't go out and trade on the NIMEX and institutions can't do that,

38:44 but there needs to be a vehicle, certainly a better vehicle than the vehicles that exist today. Was that very polite? Is that a plug for True Tracker? Yeah, you know, I don't think I've ever, I

38:55 think I've mentioned True Tracker once on the podcast, but anyway, I'll go ahead and fess up to it. Yeah, so anyway, I had this thought and I kind of had my Jerry McGuire moment sitting there in

39:06 front of the computer and I wrote for 24 hours and I created this entity called True Tracker and it was a better way to get this direct commodity exposure. And then being the cocky little shit that I

39:17 am, I decided I was gonna draft the S1 and not gonna talk to an investment bank So hire lawyers, draft the S-1, I walk into all the investment banks again. Here's the S1, true tracker. This is

39:28 the way to play oil. And all the investment banks basically looked at me and said, you're talking about a flow through entity in the energy business and oil is just at minus 27 and it's at 30 right

39:41 now. And for the last 10 or 15 years, the MLPs have burned the hell out of us. Please go away. So I never got it done, but I have a great doorstop. This

39:52 S1's pretty big. It holds the door open I can't imagine the bandwidth you've burned through trying to write your own S1. That's. Oh, I don't know. I don't wanna say commendable, but it's

40:02 impressive. I'll give a, I'll give a plug to Latham Watkins. They were the legal counsel and they did a really not. That is the finest S1 that no one's ever seen because.

40:14 I guess a couple of people at the SCC saw it. But anyway, yeah, no, but, but, no, the whole things that came out of that, and that's why I appreciate you coming on Let me pick your brain about

40:25 this because. My audience is my LPs and former LPs and the like. And just, I've had discussions with them kind of post, you know, post getting fired. And it's just like, hey, why don't you

40:38 know, just have direct commodity exposure. And so having commodity exposure, having it more long-dated as opposed to the short-term vol as well as just seeing a huge gap because power is emerging.

40:51 I mean, it's just gonna be bigger. Yeah. You know, was really cool. So it was really weird when Doug, who introduced us and Doug and I get a church together, Hey, come grab a beer with this

41:04 guy. It was kind of funny when we got together. So you were kind to come on the podcast and actually actually do this. I appreciate you having me on. Yeah, this, I mean, again, this is an

41:14 interesting thing. And that's why we created the product because we think that there is a need for it. And, you know, we think that we have this right. We're actually getting a lot of inbound

41:23 calls if people want us to take the existing commodity indexes. and take our piece of the electricity and update and come up with a new product now, because the existing commodity index has haven't

41:33 been updated for like 30 years. Yeah. And so it's kind of difficult to say to somebody, hey, you should own this commodity index, BCOM, GSCI, whatever. And oh, by the way, it doesn't hold

41:44 the most important commodity in the US. All right, exactly. And then by the way, it was made before we even had an iPhone. Yeah, yeah, exactly, right? Yeah. And then we've also done some

41:53 work on, you know, you talked about portfolio theory and we've done some work on efficient frontier analysis, et cetera. And because this has good returns over the long term and because it's less

42:02 volatile than the other commodity index, as it gives you a better, you know, risk adjuster or sharp ratio. So when you plot this into like an efficient frontier model, it'll peg you out and say,

42:12 whatever, however much of this you'll let me buy, I want this. Oh, interesting. You know, I didn't, I mean, I'm falling down as my job of CIO of the Yates 2008 family trust, but I'm sitting

42:25 here, It's not, what's it correlated to? I mean, is it one - It's correlated to absolutely no debt, no equity, nothing. Right now, the only commodity it's correlated to is natural gas and that

42:36 correlation is going down over time as you decrease the use of gas for power generation. Okay. Yep. No, that makes sense. But it's less volatile 'cause we're doing 12-month strip. So it's got,

42:47 the correlation right now is, I think we'll say, upper 60s maybe to natural gas and that's been going down over the past few years And so we think that's gonna fall off. And again, you give me

42:59 enough time and some data and I can make it say whatever I want, right? Right, right. But the correlation looks like if you extrapolate kind of what you see and now probably drops down and

43:07 stabilizes it around, we'll say 35 or 40. Gotcha. So what's the name of the index again? The index is called the ICE US carbon neutral power index. And so if you got a Bloomberg, the ticker is

43:20 I-C-E-C-N-P-I-T

43:26 And then the ETF is the CNIC, which is our company. So it's the CNIC, ICE, US. Carbonitral Power ETF.

43:35 Gotcha, gotcha. And you do you have a website? Yeah, the

43:43 website's wwwcnicfundscom. And what we do is we try to publish a white paper once a month that takes whatever, the common questions are that we're getting and puts together a five-pager to explain a

43:53 different topic every month And we keep it at five 'cause that's about my attention span. And we've got, I think, six or seven of those up there right now, put one out again. And then we try to

44:02 do a podcast like yours once a month just to kind of get people comfortable with the idea of what they're looking at. And if you're on that website, there's a little tab up top. It's got AMP to

44:11 AMP-D, which is the ticker and you click on that and it takes you to the prospectus. Cool. Tim, you were awesome to come on. I appreciate you having me. This was fun, Chuck.