Transcription
We coined the term "the revenge of the old economy" in February of 2002, when the dot-com bubble was crashing. At the time, I thought it was a one-off event. Now I'm starting to realize that it just happens every, basically, 12 years.
My guest today is Jeff Curry, the man who spent 27 years as Goldman Sachs's global head of commodities research and became arguably the most followed commodities analyst on Wall Street. Jeff and I were partners at Goldman. We overlapped but didn't really interact. Different worlds inside the firm, but I've been reading his work and watching his calls for years, and I have a long list of things I want to understand better.
Jeff is now executive co-chairman of AVAC Markets, a Singapore-based commodities future exchange that is trying to build the benchmark contract for the next generation of global commodity trade. He's also the co-founder of 1947 Oil and Gas, a producing oil and gas company in the Gulf of America. He spent 27 years telling the world what commodities were worth. Now he owns a piece of them. That's a different conversation.
So Jeff, uh, I'm sure most people in the Wealthon audience read the paper, see your name, you're quoted quite a bit. Uh, but what they don't know is how you got to the commodities business. You can see from your bio that you're a University of Chicago PhD. Very impressive. Uh, you end up on Wall Street. Most people there end up in the stock business, the bond business, the M&A business. You ended up in the commodity business. Tell us about that.
Um, well, I studied price theory and I was fascinated by prices from day one and how prices are determined in commodities. That's the basis of, you know, all the Marshallian supply and demand curves. But how I really got into this, just to be honest, I came out of school in 1990 in the middle of Gulf War I, oil prices at $40, global economy in a recession. Only thing hiring were the big oil companies, and I was doing price-fixing cases with them. Um, so that's how I ended up with, with the oil side of this. But how I ended up on Wall Street was it was just a confluence of events because it was just right then when the, you know, commodities started becoming a part of, um, you know, the big investment banks and trading and everything like that. So it was just, you know, right time, right place, I guess you could say it.
I, I will say this, when I finished school, um, my PhD, I literally was like the only person on the planet Earth who knew anything about oil because it was just the last thing on. In fact, people were looking at me going, "Jeff, why didn't you go into equities and bonds?" Ugh. But yeah, no, it ended up, man, in the, you know, sweet spot because then you have that, that China super cycle.
>> Well, well, certainly if you're looking to be an expert in something and scarcity matters, that's scarce. There's a lot of equity, uh, analysts, a lot of strategists, but the people with true expertise in, in commodities is, is few and far between. You know, as, as an investor, uh, you know, commodities is not typically front and center. In fact, it's, it's even, even more problematic in some ways. It's almost like ignored for long periods and then it lurches back because of macro events. Uh, is it something that, is it true that as an investor you see it that way, as like there's certain times that are going to be and then it hibernates, or is it just because it's undercovered or the fees are low for Wall Street that it doesn't get more attention? Why, why is it not front and center in investors' brains and front and center in their portfolios?
>> Yeah, I, I think it's that point you're, you're saying is when it, when it moves and it's capturing the headlines, that's when it's in focus. Um, and you, but these super cycles like the ones in the '70s, the one in the 2000s, and I, I argue you're in it right now, another one, it forces it to be front and center again. And I would argue this super cycle started back in October of 2020. And if you just take a, a weighted average of one of these indices, um, it's just a line going straight up over the last six years. It doesn't feel like it because oil went down and then came up, went back down. But if you start looking at the rotation between everything from gold to silver to copper to aluminum to, um, live cattle, coffee, cocoa, it's just each one goes up, but you put the trend over it, it's an upward sloping, um, um, in the overall indices. So yeah, I, I think we're in one of those periods where, um, the world's focused on it.
I will say this, that the greatest amount of focus I've seen to commodities, um, this entire decade started around the, it was late November when silver and gold really started to take off and from that point forward all the way up till the ceasefire on, well, I think it was April 8th, um, that big rotation out of the new economy into the old economy and owning these, um, hard assets was the trade that was working. And then all of a sudden, and ceasefire happens. Um, we went on a tear on the NASDAQ and commodities got crushed.
>> You know, I, I want to talk about that, but let me, let's, let's go backwards first and let's start with the macro context. You said something before. You said 2020 started the super cycle. Didn't necessarily mean that all commodities moved starting in 2020. In fact, that wasn't the case. But what, tell us about the macro factors that started this trend, the super cycle in 2020? Took a minute to take hold for investors and, and then fast forward that clock to nowish and tell us what's accelerating it. So what, what happened in 2020 and then what happened in, in September of 2025?
>> Okay. Um, the, the, there's on the supply side, there's this one big constant theme. It's the revenge of the old economy. And what typically happens is you build, build, build all this, um, old economy, um, production capacity. We did it in the '50s, the '70s, and then again in the 2000s. And every time we ended one of those periods, you ended up with excess production capacity. Think about the most recent one in the 2000s. We finished in the 2010s with enormous amount of shale production, crushed the prices of commodities. You got low and stable inflation, and then what central banks, um, cut interest rates, and then you go into one of these new economy cycles, or it's basically tech and energy. I argue those are the only two sectors that really matter because if you can't turn the lights on, nothing happens, and if you don't innovate, you never progress. And so you think about the '50s, you build, build, build, crushed the prices in the '60s, you got low and stable inflation. Interest rates went to one and a half percent. Boom. You had the Nifty 50. It was all tech like Kodak, IBM, um, and you had some brands in there like Coca-Cola. And then we underbuilt. We choked off the capital to the old economy because prices were low, returns were bad, all the money chased the new economy. You choked it all off, and boom, you ran into problems when you got into the '70s. No, it wasn't the Arab oil embargo that created the '70s super cycle in commodities. Um, it had its seeds sowed back in the early part of the '60s when you stopped investing. So, we just go through these cycles over and over. So, that's the supply side.
We, we coined the term "the revenge of the old economy" in February of 2002 when the dot-com bubble was crashing. Um, at the time I thought it was a one-off event. Now I'm starting to realize that it just happens every, basically, 12 years. You go through these cycles. And so we're in one of those supply side cycles right now. I mean, like right now, you know, the baffling part about the energy markets is, um, the refinery cracks are nearly the same price as the price of oil. Rarely ever happened. Why is that? Because we haven't invested in refineries. And you blew up a couple of them in, in, um, Russia. So oil can't go up because you didn't invest in refineries. And then we'll put, bring some refineries on. But we didn't invest in the oil fields, and we didn't invest in copper mines. We didn't, but we did overinvest in oil, overinvested in copper, everything back in, um, 2014. And by the way, the, the hyperscalers, they are now cyclical industries like commodities. They're old economy now, and they're spending just at the same rate all those miners and all those oil guys did back in, um, 2014. So that's, that's the supply side.
Let's talk a little bit about the demand side. Um, there were three big drivers that we pointed to, um, in, um, in 2020, and they revolved around de-globalization. And you just, in, in 2018, you had Trump really start to push on de-globalization with the first round of, um, of, um, trade wars with China. The second one, we called it back then, decarbonization. Call it, um, electrification in the modern parlance. And then the third one we pointed to was redistribution. Income inequality would force, um, redistribution of funds to lower income groups. They buy a lot more commodities than the high income groups do. Um, so all three of those themes played out in spades in 2020 all the way through about '24. And when oil came off, everybody, by the way, every commodity ripped out of the gate, out of, out of COVID, just went straight up for about two years. And then, and so let's go through each one of those themes.
De-globalization, it's turbocharged right now. Um, so, you know, in, whether if it's defense spending, whether it is re-shoring of industries, things like, like, um, critical minerals, and, and then you have, um, the fact that you just have to build out, um, enormous amount of supply chains. You have to have just-in-case inventories as opposed to just-in-time inventory. So that's a lot of investment. Um, all very commodity intensive that needs to take place. Um, again, if you liked that story in 2020, you got to love it now, and it's just going to get bigger and bigger. Um, and then on, call it decarbonization, electrification, whatever you want to call it, um, you know, their, the view is that the, you know, in 2020, you know, decarbonization was going to drive all this electrification and, you know, what, if you want to call it decarbonization or security, you're still going to go invest in all those same types of renewables, um, and nuclear power. I want to make sure everybody understands renewables and nuclear power were born out of the Arab oil embargo. They are a response to energy security. It was nothing to ever do with the climate. It got hijacked by the climate people around 2010, but actually the term "energy transition" was coined by Jimmy Carter, and that was all about energy security during the '70s. So that story, whether you want to call it decarbonization for an environmental story or, you know, energy, um, security story, let's just call it electrification. Then you throw data centers on top of that. And so if you like that story in 2020, you got to love it now.
And then I, I took the redistribution story and we just, because you got so much debt from all the redistribution, and let's just re-label it debasement. Um, and so the, the reality is, you, so it's de-globalization, now electrification, and debasement. Um, they're all the, you know, the same drivers as, you know, we've laid out in 2020, and now they're all gaining momentum. And so if you liked this story before, you got to love it now. And I, and I do think as we go forward, we need to solve all of these problems, and they're going to require major investments in all of these hard assets. And I like the, the, the acronym HALO: Hard Assets, Local Operations. That's what we're doing here. So anyway, as a long answer to your question, but, um.
>> You know, you, I'd have to say that I, I had had taken some notes and had some questions, and you basically touched on every single one. So thank you for your time, and we'll call it just.
>> So listen, we, you know, I'm not sure you're, you know, super wealthy, uh, super familiar with Wealthon, you know, as a channel. It's really, uh, it caters to investors, uh, you know, usually folks who are self-directed. This is not for the people who have Goldman Sachs accounts. They're trying to figure out how to parse what they're learning on this channel into either portfolio allocations or sometimes the case is a first trade. And so, and forgive my little soliloquy, is it feels like these markets, every time there's the smallest narrative shift, then all of a sudden all investors, the momentum goes like a tidal wave, and then there's an overshoot. Uh, I have another business. I'm in the metals, the precious metals space. You know, the first time there's a macro win behind gold, gold, gold overshoots, it goes to $5,500, and then it comes back down. You know, oil, the Straits of Hormuz, oil, boom, shoots up, up, up, even though, you know, it's going too high, and it goes down. So, you know, the, the, the hard part of this is to translate that macro, and what you said is a lot about what we talk about on this channel. We are a hard assets channel. We, there's more than enough information about stocks in the market. You know, do any Google search, it'll give you a thousand things. So let's try to go about starting about positioning. Let's start with a portfolio. H, how do you think about as an investor about what you should be allocating? What is the framework that the average individual investor, and it could be the average institutional investor who's sophisticated? How do they start thinking about exposing themselves to this asset class, especially understanding that it has a tendency to overshoot? It is cyclical. It has experienced boom busts, and it's undercovered. It's not quite as, the information around it isn't quite as robust as you'll find around Nvidia.
>> Um, one of the reasons why you won't find as much information or focus on this, there, the, these markets are super teeny-tiny. Um, you know, you look at energy as a share of the S&P, it runs around 3%. And by the way, the, the core of the super cycle argument is that that share needs to be closer to 10 to 15, and you got to take it out of the, all of that AI sector. Um, meaning, Nvidia is way overvalued as a market cap relative to everything else, and energy, hard assets, and metals are undervalued. So that's part of the story. Now, if I were looking at, if I were telling you as an institutional investor, I would say somewhere around 3%. And the reason why is because the volatility is, you just pointed out, is so high in these, you don't need that much. Um, and, but if you are not too worried about the volatility, when you go into these periods that are, you know, these super cycles, I'd probably turn that volume up a little bit more. By the way, a straight model will tell you, because of the negative correlation with, um, equities and other, would say go as high as like 20, 30%. That's too high. Now, what vehicles would I use is another question. And here's the point.
>> Next, next on my list.
>> Oh, okay. All right. Um.
>> All right. So if you're saying anywhere between 3 and 10%. And by the way, how we define commodities, I, I almost want to keep, uh, precious metals out of it because I almost think of that as a monetary asset, a little different than what I would call an industrial, something that's feeding the AI super cycle, something that's feeding cars, planes, trains, is a little different than something that's sitting there and protecting you against debasement, dollars, tail risk. It's a little different. And so we sort of tell our audience, you know, anywhere from 3 to 10%, you know, gold, precious metals, and we could talk about cash and stocks and whatnot, but we also are a big believer in the diversification to hard assets. We have not had enough experts on the channel, and that's why we're excited to have you to tell us how to play it. So if we're starting to drill down into that and you want to have exposure to the things that people are inputting in, making sure that when the data center that get plugged in, it actually turns on, what would, what would you buy? Is it, is it an ETF called an, is it an energy ETF? Is it oil futures? Is it, is it, you know, lithium? How do you think about that? And the futures like that I was tied at at Goldman, like the Goldman Sachs Commodity Index and the other futures type products. These things, they, there's a, what we call a roll yield in them. The, for the shape of the forward curve really matters. I like to point out oil is lower today than what it was when we were, um, we started the war. However, a rolling front month is up, I think somewhere around 30 or 40%. Um, why? Because there is some steep backwardation. Now I'm using a term probably many go, "What is that?" It's when the shape of the curve is going down. Think about when you buy a future.
>> When you buy a future.
>> When you buy it, you can't hold on to it for an infinite period. You've got to either take delivery of the commodity or roll it back out. And people don't seem to get this. They go, "Oh, Jeff, he's a permabull. You can't, you just talking, just keep buying this stuff." Because you're buying that curve, and when that, when you get a scarcity in these commodities like we had, like I, I don't know where the fair value of that price of oil was, um, over that time period. I never wanted to get into that debate. I don't need to do it anymore. But all I know is we had a scarcity problem, and we still do in the products right now. And as a result, that backwardation, that scarcity premium, I think it generated like 30% one of those rolls. And so that is where you're picking up the returns. And I, I had so many retail clients would call me up in 2009 and 2020. I went and I bought the USO and I lost my shirt despite the fact the price went up 100%. Yeah, you had a negative carry. The roll was hurting you. Here the price could collapse, the roll was so big, and so I'm out pounding the table about to buy this stuff, and oh, he's crazy, he's on there. No, I'm looking at the roll. The price of oil is only one part of the equation here. And so when you think about those, those products that are, that do the rolls, and by the way, you know, one of the things I'm focused on right now is creating the new, um, the new generation of products because the products I went and did it myself, and I was buying Deutsche Bank and Goldman products created in 2007. Um, you know, it's just nothing is out there. So, we're, I'm in the process of trying to.
>> I'm sorry. I'm sorry to interrupt. Is this, is these products you're developing allowing a retail investor to stay long without having to worry about, you know, rolling futures contracts or having a, you know, in practicality, and I, and I want to, I want to translate this for the audience. You know, the vast majority of people who are investors, even high net worth and some ultra high net worth, do not go into a futures market, and their, their broker dealer or their wealth manager isn't doing it either. What they're looking to do is try to find something that gives them exposure to the, to the, to the theme because they like the theme or the quintessential overweight. If we're in a super cycle, you should overweight. And then it's the question of diversification. What's in the permanent portfolio? And indulge me for a second. In my permanent portfolio, I am exposed to the oil business, and I am doing it through the infrastructure. Shockingly, I'm an, was a former infrastructure person. So, I understood the business. So, I own the pipeline businesses. Some of them come in MLPs, which have K1s, which are a pain, but not all. And some of them have converted, and I own them, and they're part of the permanent portfolio. They pay a dividend. They give me exposure, but they give me some latency, right? If the market goes up or down, the stock doesn't go up so much and down, and I have that, uh, in permanently in the portfolio. And so what you're saying is you're creating that product which is, but it's, it's taking away the operating, uh, taking away the operating exposure and the G&A and the quarterly reports. I'm gonna be able to buy oil without having to worry about being on a Forex exchange, right? Excuse me. On a, on a, on a, on a futures exchange.
>> Yep. Exactly. And, you know, we'll do them through active ETF structures. You can write total return swaps on them and things of that nature. But, um, I mean, like you take, like the GSCI, the Goldman Sachs Commodity Index. It was the very first QIS product ever created. Um, and, you know, the Bloomberg Commodity Index, which is the most popular one now, came in, you know, about a decade later, but they're very ancient, and nobody's really, I mean, there's a couple, um, you know, entities out there that have made efforts to update them, but at the core, it's that scarcity premium, and you got to preserve that. But how you roll it through there, there's lots of ways to do it, and we now know a lot more on how to improve. I mean, put it, put it this way, um, anybody that sat on one of those trading desks for a decade can build an index that can beat the Goldman Sachs Commodity Index by 10%. I'm extremely bullish on, on all of the precious and, um, the core of it really is the debasement, meaning that we, we, fiat currencies have only been around since 1971, and, um, so it's a short experiment in the history of mankind. And you're going to go, "Oh, these central banks are not, they're not going to go back to the gold standard." But what's happening is the gold price goes up, their reserves become all gold-backed.