Goldman’s Jeff Currie: It’s a Commodities Supercycle, and We Still Haven’t Hit Max Pain

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

So Tracy, you see we just got the latest CPI report?

Tracy Alloway (0:21)

I did indeed.

Looks like CPI came in slightly hotter than expected. Like not a huge deviation from the forecast, but of course, everyone's talking about the idea that, well, all of this was supposed to be transitory, and yet, you know, here we are almost two years into the global pandemic, and it doesn't seem like any of this is going away.

Joe Weisenthal (0:43)

Right, and so of course, there's this debate about what transitory means. Does it mean pandemic-related or does it mean brief? So we're starting to split hairs on that.

And then there's also, you know, of course, the deviation between headline CPI, which includes energy prices at core, which doesn't, but the degree to which you could really ever like separate out commodities from the fact that commodities go into everything is kind of impossible. And with the exception of a few things, I mean, we are on a massive commodity slash energy bull run.

Tracy Alloway (1:18)

Yeah, so the crazy thing here is that people were worried about higher inflation even before the commodities market really started going nuts, like just in the past month or so. I mean, I'm looking at some of the energy headlines that have just come over the Bloomberg today and it's stuff like European zinc smelters cutting production by as much as 50% because of higher energy costs and a flood in a major Chinese mine and the Chinese government ending its intervention in the coal market. So basically liberalizing that entire market, which isn't something that you tend to see that much in China, but is something that is sort of needed given the energy pressures right now. So things have just gotten to a whole new level when it comes to commodities.

Joe Weisenthal (2:07)

Yeah, and it's interesting. You framed that really well, because sometimes we do our logistics episodes, and one of the themes is the way these sort of pressures compound, right? So something that happens at the Port of Los Angeles ends up affecting warehouses, which ends up affecting truckers, which ends up affecting rail in Chicago.

And it feels like on the raw commodities front, you see the same thing where it's like, oh, some energy price spikes, and then the zinc smelters and the fertilizer companies have to pare back production because their production is no longer profitable, and then that feeds into some other commodity or something like that. And so it feels like there is a similar compounding effect, and it seems like a combination of demand, supply, obviously, and then there's sort of like all kinds of idiosyncratic factors, like whether it's droughts or whatever.

Tracy Alloway (2:59)

Yeah, well, the other big thing that people are talking about now is how much of this is caused by the transition to clean energy. So this idea that we've had years of structural underinvestment in traditional fossil fuels, and now we're sort of reaping the consequences of all of that.

We don't have enough renewable energy to satisfy demand just now, but we also don't have enough traditional fuel. So there is just so much going on in the space.

Joe Weisenthal (3:25)

Yeah, and that seems particularly salient in Europe, where they sort of pretty aggressively phase down nuclear, and now the natural gas bills are soaring. Anyway.

Tracy Alloway (3:33)

Wait, wait, I just got to say, now some people are talking about reclassifying nuclear as ESG, so something that would fit under the environmental and social and governance friendly mantle, which is something that if you suggested that a few years ago, people would have gone absolutely nuts. Anyway, go ahead.

Joe Weisenthal (3:51)

Anything to fit anything within ESG is probably like its own story. Anyway, we have the perfect guest on, because not only is he probably the best person to talk about commodities with, period, but we've had him on before. We had him on earlier this year, actually, in January, and he was very bullish on commodities then, so in addition to being very knowledgeable.

Yes, exactly. In addition to being extremely knowledgeable, he also has the benefit of having been correct, which a lot of people weren't. And so now we'll see what's next. Excited to bring in our guest. We're going to be speaking again with Jeff Currie. He's the Global Head of Commodities Research at Goldman Sachs.

A real treat to have him on. Jeff, thank you so much for coming back on Odd Lots.