Transcription
You look at overall CapEx in the sector, it's running around 400 billion a year. It needs to be up in that 750 range. Reserves are going down. So, not only do we have inventories going down, reserves are going down. So, underneath the ground and oil above the ground are being depleted. Prices are not high enough to meet this.
I I think the key message we were saying before the war, we called it the revenge of the old economy. Old economy is under invested and as a result, it doesn't have the capacity to grow production like it used to. And we need to rotate capital out of the new economy into the old economy to the tune of we're talking trillions to get back into the space to be able and it's not just oil and gas, it's metals, which I like to call atoms. Oil and gas are molecules and both atoms and molecules help create electrons in the in the commodity space. And the electrons are the area where it's going to grow. But, I think the key message here is the investment in the commodity space is insufficient to meet future demand. And it's been going on for nearly a decade since 2014.
I like to point out in 2014, you could not give away Microsoft or a tech company. The investors hated it. All they wanted was oil and gas. They wanted the energy guys, the shale boom. That was the technology. And the end of '14, prices collapsed from 110 to 120 all the way down to 33.
>> Do you expect a similar shift of the pendulum back?
>> Yeah, because the tech the telltale sign it was over with is that those oil producers were investing 120% of earnings. And we're getting that close on the tech side. They're burning through the cash. Free cash flow yields are likely even at Google are likely to go negative, which is telling you they're investing too much. So, you look at the free cash flow yields in the energy guys, they're 15 plus percent. Which one's going to have a rising ROC? It's going to be the oil guys, not the not the tech guys. Right now, I go out and say that in public, I'll get booed off the stage. Nobody wants to hear it. But, you couldn't have told anybody that tech was a bad investment back in 2014 cuz they believed in it wholeheartedly. And I think it's the same dynamic in reverse here.
>> When do you expect the world to be forced to wake up to this dynamic?
>> We went through this dynamic once before in '01, '02. The only thing that got them out was that forced the rotation was a collapse in the technology sector, which made the commodity guys start to look more attractive. Again, it's something we were forecasting. We called it the revenge of the old economy cuz it was against the new economy, which was dot com at the time. But the reality was that nobody believed it. I think what's going to happen here is it's a similar dynamic. Once they realize it's time to exit, they're going to run. And the question is who gets to the door?
Get access to my notes with the key takeaways from this interview by visiting my Substack. Link is below.