Last updated on April 18, 2022
Leigh Goehring, managing partner of Goehring & Rozencwajg, joins the podcast to discuss his view that most renewable energies are ineffective at reducing carbon output and pointless as investments.
Content Highlights
- The consensus opinion is that renewable energy will solve many of the problems of CO2 production and energy needs. This is false (3:12);
- The “terrible energy efficiency” associated with renewables will make the world poorer (5:00);
- What is the problem with solar and wind and why are they so inefficient? (7:20);
- It’s no coincidence that the energy crisis started in Germany, which is now forced to import coal (12:20);
- Vaclav Smil and the premise that there has never been a new technology with inferior energy efficiency that displaced the old technology (13:59);
- The ulterior motives behind China’s green energy push (18:33);
- The “great hope” for a Moore’s Law of wind mills and solar panels is a fallacy. Input prices have declined because energy prices have (21:05);
- Where does that leave electric cars? (25:00);
- Background on the guest (33:42);
- What parts of the energy industry are better targets for investment right now? Look to uranium for starters, “the perfect solution to our problems” (37:17);
- Copper is “the quintessential green metal” also facing a supply/demand imbalance. Also agricultural commodities, grains, fertilizers, nitrogen, and potash (41:26);
- Mosaic (MOS) is one of the world’s largest phosphate and potash producers, and a stock the guest is particularly bullish on — it trades at just 5x earnings versus 25x at the peak (47:07);
- An agricultural crisis could soon be upon us, leading to hoarding of supplies (49:58).
More Information About the Guest
- Website: GoRozen.com;
- Twitter: @GoRozen;
- LinkedIn;
- Link to Goehring & Rozencwajg video on the history of energy.
Quick Highlights From Our YouTube Channel
Transcript
Nathaniel E. Baker
Leigh Goehring, Managing Director of Goehring & Rozencwajg Associates in New York City. Joining the contrarian investor podcast today, and we are going to talk about renewable energy. And this is something that has never really been discussed on this podcast, because the general consensus is that it is a good idea, both for the planet and as an investment. But Leigh here has a contrarian viewpoint. And he effectively does not believe this narrative, if I’m not mistaken. So Leigh, take it away. Talk to me about this a little bit and what your, I guess issues are with renewable energy.
Leigh Goehring
Okay. Well, thank you for having me on.
Nathaniel E. Baker
Thank you for coming on
Leigh Goehring
You bring up a very interesting point from a contrarian standpoint, if you’re a contrarian, because obviously, consensus opinion, as you just mentioned, completely believes that renewable power structure today, and that’s would primarily be like wind, solar, and EVs, which be associated with those will somehow solve the dilemma that we are in today. That is we’re producing a huge amount of our energy of which also produce a lot of co2. Well, one of the things you should know about our firm gearing and Rosenzweig is that we do a huge amount of research in various commodity markets and natural resource markets. And obviously, the entire renewable energy field would would fall under something that we would take an intense interest in, for example, we believe that there was a lot of merit to investing in renewable energy, it’s something that we would, we would make very large investments in. However, over time, and we’ve been following this now very intensely for the last four to five years doing a lot of research in it, is that our research basically uncovers a lot of characteristics about renewables, which people really have not focused on at all, which we believe make renewables will that will make them ultimately very, very poor investments. Not only that, but this could be sorts of all sorts of unintended consequences, they’re going to be associated investing in these in Reno renewables, which we could discuss if you’d like later on. But what it means is that we’re about to, to go down the path that is going to ultimately produce two very, very unsatisfactory conditions. First is that all this investment in co2, I’m sorry, in renewables will not wind up reducing the amount of co2 to be put in the atmosphere today. And what’s happening in Europe is a classic example of what I’m just talking about. And second, it’s going to have ultimately a huge impact on our ability to grow as an economy. In fact, if we make this, we make a transition from a hydrocarbon based economy over to a fully renewable based economy, because of the terrible energy efficiency that’s associated with renewables, is they will all going to get poor. Again, Europe is already giving a great example of that, of that what I’m just saying in progress.
Nathaniel E. Baker
Wow. Okay, that is really something. I want to talk through those points. But first, just to make clear, you say renewables to clarify, this is not include nuclear, right?
Leigh Goehring
Yes, in fact, nuclear, we could talk about that today, if you’d like a little bit later on. Nuclear is just the opposite of that. And you can say, why haven’t we focused on nuclear as the solution to our problem? But you know, it’s interesting that, you know, the characteristics of nuclear as far as energy efficiency are off the chart, for example, you know, all these concepts made very popular, or, you know, well known by, you know, economists like that club smell, things like that energy in versus energy out how much energy you have to put in one side to get energy out the other coal, natural gas and oil are very energy efficient. You put one unit of energy in, like to drill for the natural gas, process it transport it, burn it in a big, huge combined cycle plant and produce electricity when you did it in 30 units of energy out the other side. Renewables terrible. You know, in this it’s very controversial thing, and we could talk about how we draw the boundary on that. But we believe that a fully renewable world has an energy in the energy out ratio of somewhere between one to five to one to 10. You know, that’s basically what 70% Less than hydrocarbons. Nuclear is the other side, one unit of energy. And that is one unit of energy to mine, the uranium process turned into a gas into fuel rods, and build a massive nucleus, you know, a steam generating plant to turn that energy from the split atom into electricity. What you did in 100 units of energy out to the side incredibly efficient.
Nathaniel E. Baker
Right? Okay, well, so maybe we’ll get back to that. But for now, so we’re talking about renewables, solar, wind, geothermal. What is the problem with solar and wind? Why are don’t these work?
Leigh Goehring
It’s because it’s, it’s it has a lot to do with their, their energy density is very, very poor relative to hydrocarbons. I mean, for example, you look, look, that gallon of gallon of gasoline that you put into your tank that is hugely laden with energy. However, trying to collect energy from a wind that doesn’t blow or sun that doesn’t shine by the clouds, the energy density of that is very, very low. So what what you have to do is, you somehow have to make up for the lack of energy, energy density, and the resulting intermittency that’s associated with both of them. So that means that you have to put in place a huge redundancy in in the collection of energy from wind and solar. And ultimately, if you want to make it work, you have to put in battery storage as well. And both building all those windmills, all those solar panels, and then ultimately, putting in all that battery storage, in itself is incredibly energy intensive. There’s the intensity of that is just not appreciated by people that are worthy, etc.
Nathaniel E. Baker
Interesting about solar. I was recently in Beacon, New York, and I saw a whole bunch of solar panels there. And I was like, Wait a second, this is upstate New York. I mean, it’s not upstate. Technically. I mean, for New Yorkers it is but whatever. But so is Westchester County, but I was like, ‘Wait a second, why are all these solar panels here? The sun shines like six months a year tops.’ But so I didn’t think that was particularly efficient. But what about in a place like Florida or California, Arizona, the southwest,
Leigh Goehring
it’s better, but you’re still overcoming the idea that, again, just just the idea that, you know, Sun does shine for roughly 12 hours a day? It obviously when it goes behind the cloud, the efficiency of the photovoltaic cells goes down. So you have all these intermittency issues, that that in order to make up for EDI, huge amount of either backup from other sources, or redundancy in some way. Or storage. And so, yes, you’re right. You know, it makes absolutely no sense to build solar panels in upstate New York. I mean, like, why we’re doing that it this stone is a snow belt up there. Why? Because the sun never shines. And so why are you doing this, it makes no sense. But even in even the desert, it’s a terribly inefficient way to try to collect energy because of its low energy density. And its high, high energy input needed to make the whole thing whether it be the copper that goes to the wire, to collect all the electricity for these panels, the energy that’s needed to make the photovoltaic cells themselves all this type of stuff. So
Nathaniel E. Baker
By the way, is Beacon upstate New York?
Leigh Goehring
It’s halfway there.
Nathaniel E. Baker
Like I said, for me, that’s upstate, but all right. Now, so what about if you that now you’re talking about a complete switch? 100% to renewables, which I didn’t even know that that was even feasible, but, but okay, assuming it is, or it isn’t, what if you don’t go the whole 100%? What if you keep like 20 30% in, you know, the the non renewables.
Leigh Goehring
We actually we know what that world looks like today. And that’s Germany. Remember, Germany has been at the forefront of investments in renewables, primarily wind solar, ever since the beginning part, the end of the 2000s decades. And it turns out that over that time period, Germany’s total electric generating capability. That is the old hydrocarbon based thing and nuclear mer. We’ll talk about that a second because that’s a part of their crisis. That generating base plus the new wind farms and solar farms on tapeta. They basically doubled their electricity generating capability. Where did the energy crisis first emerge, Germany, and it turns out that, that what you have to do is that in order for this to work, in order to keep some sort of grid stability, you have to you have to be maintaining two simultaneous energy generating sources at the same time. And basically, you need to put all the capital costs into that traditional backup baseload thing, coal, natural gas, nuclear, Germany’s now decided to go away from. And you have to maintain that and you have to basically what they call spin it, you’ve got to keep it going. So that when it’s needed to be called upon, it can be just, it can be off, it can go. And you’re doing this whole massive investment in the windmills and solar panels on the side. And so you’re paying the capital cost me to two overlapping, energy producing systems, with all the energy that’s required to make all those renewables, the windmills and the solar panels and things like that, and also run the backup system at the same time. So it’s just it turns out the inefficiency of what you’re doing is off the charts. And it’s no coincidence that the energy crisis first began to show up in Europe, in Germany,
Nathaniel E. Baker
and which is why they also have to import Russian gas.
Leigh Goehring
And coal! you know, one of the strange things that going to happen: I mean, in Europe, and Germany as well, is where we have to wait for the BP statistical survey to come out for all the 2021 energy consumption stats. But if anything, we’re gonna find out that Europe made an all time new high in coal consumption last year. Wow, they basically wiped out a decade of Trump trying to reduce carbon emissions. Well, given the the terrible energy efficiency that’s associated with renewables, I could have told you, that’s gonna happen. But no one’s listening. So —
Nathaniel E. Baker
okay. Well, we know one thing about governments, which is that they are not always the most efficient bodies, right? they don’t do everything perfectly efficiently. And so what do you make of the argument that there is, okay, maybe this isn’t the most efficient use of our time and money. But the reality nevertheless, is that governments around the world, at least in the developed world, are moving to renewables. And at a pretty fast pace, and that with that in place, as an investor, it still makes sense to kind of hitch your train to that wagon type of thing, are they subtly around, but to kind of, so the reality of the reality is you have tons of investment going on in this space. And then if you are invested in it, you will profit just based on the momentum that’s going on? Do you not buy that?
Leigh Goehring
No. And I think it’s gonna, it’s gonna be based upon something that Vaclav Smil is talked about, which, again, it’s sort of a very interesting concept that people don’t really understand. Never before in the history of the advancement of humankind, have you ever been able to institute a new technology with inferior energy economics, or inferior energy efficiency, it just plays the old technology. And just hasn’t happened. And I can give you, I could give you an example. Here’s, here’s a great example. You know, 1955 90% of all transatlantic passenger traffic took place on boats, then came a huge technological marvel revolution, it was called the Boeing 707. It basically cut the it basically cut the, the amount of energy required to transport one person across the Atlantic, by by I think is a huge amount like 60%. And you did a lot faster, six hours instead of three and a half days. Well, what happened by 1962 that amount of passenger traffic going across by boat across the Atlantic fell from like, 90 95%, down to about 10%. So that that shows you when you introduce a new technology with better energy efficiency, what happens? Okay, so let’s, let’s go go forward to the late 1960s. You know, by the mid 1960s, everyone had an idea let’s, let’s adopt supersonic plane travel. And of course, Boeing studied it and said, Nope, doesn’t work. I’m gonna drop out the Europeans, Germany, and I’m sorry, France and UK decide to go forward with the development of the of the supersonic plane or the Concorde. Now, the Concorde was a true technological marvel. There’s no choice about it prior to the Concorde, the most you could it people boast a plane could take people above this above the speed of sound was basically two passengers. And now you produce the jet that could take 100 passengers and 10 crew members across the Atlantic flying supersonic the whole way. And you cut the time in half by doing so. A huge technological revolution. However, the Energy Economics surrounding the the Concorde terrible, it requires almost twice as much fuel per person to fly them the same passenger mile as the at the community played the time was 7.7. So what happened to the Concorde had great hopes. But literally 20 years later, it disappeared. It molded, and by the end, it became the plaything of rock stars Hollywood celebrities and investment bankers. No one else used it. Even though we cut the time fly across the Atlantic by half That’s the classic case where an energy new technology with much worse, energy efficiency can’t displace the old technology. And so the idea that we can, we can displace all these hydrocarbon based fuels, with something with much, much worse energy efficiency can never happen except for two things. One is the government outlaw, the old technologies, or they subsidize tremendously new new technologies. Now we’re going down slowly trying to go down those paths that same time, but the end result will be that will ultimately get a lot, lot poor. And we could talk all about that, because that energy efficiency, you know, of windmills and solar is, which is basically best one to 10 is that you’re taking you’re taking us back to a world that we lived in pre 1650, is when we started to burn coal. Does anyone remember what that world was like when everything operated inefficiency would attend, which is basically feeding your farm animals feeding yourself and burning firewood is that for 2000 years, there was zero economic growth, zero. And that would that put a world is plus ramp to get poor to get to that zero economic growth. And for anyone interested in this concept, I aggressively recommend watching Michael Moore’s documentary called Planet of the humans where he discusses all this, except he takes the thing, we can’t solve our co2 problems renewables, so the only way we’re gonna solve it, it’s all going to get a lot poorer, we have to accept that. Now, I don’t accept that. But that’s a solution. This is being honest.
Nathaniel E. Baker
Yeah, I suspect most people won’t accept that either. Now, keep in mind, this is just the West developed world, right, you still have China and India are the biggest polluters in the world. And as far as I mean, they’ve made a lot of noise, especially China has about moving through renewables and such, but they still burn an awful lot.
Leigh Goehring
Got it? Yeah. Be very careful about, you know, be very careful of what China’s up to. And you know, and I don’t agree with like, for example, Thomas Friedman, in his columns, he says, oh, China’s the greatest country in the world, we can only replicate what they’re doing. They’re not doing they don’t I, you know, I’ve been to China a lot in my life. And I I, from an outside, right, I understand a little bit, the Chinese psychology and things like that. And I tell you, they do not care about co2, that is the least of their worries, that they don’t care at all. So why are they building all this renewable stuff? Remember, here’s what they do care about. China, in the last 15 years, has become the world’s largest oil importer. And, you know, the us when we were completely energy, non self sufficient, we picked out importing about nine and a half million barrels of oil a day, back in 2004 2005. And then we swung for being energy, insufficient to be energy, almost completely energy, self reliant. China has gone the opposite way. They’re importing over 9 million barrels of oil a day, they’re almost bigger than we were at our worst. They are incredibly worried you if you listen to all these war strategies were to break out what would be the first in the United States for do they shut down oil shipments going through the Malacca Strait, and try to starve China’s war machine that way. So China is trying desperately to reduce somehow their ability, their reliance on oil, and they’ve gone down the renewable path with huge solar farms and things like that. But you know, I think even we don’t know, because they don’t say it, but maybe even they’re getting discouraged. If you saw the announcement, China is boosting their coal production capability 2022 by 300 million tons. That’s off the charts. I mean, we’re down, we’re down to the United States, we’re only consuming five to 600 million tons. Today, we’re down from 1000 over a over a billion tonnes, and they’re gonna boost it by 300 million tonnes next year. China doesn’t care about co2, Canada’s renewables are part of their strategy to reduce their oil consumption and their need to import oil, which they’re incredibly worried about getting shut off. If they, for example, invade Taiwan. And that’s probably the only thing that’s preventing war with Taiwan.
Nathaniel E. Baker
Yeah, maybe. Yeah. Nuclear aside. Are there any other kind of new technologies here? For renewables that do maybe have some kind of hope that or not?
Leigh Goehring
We don’t see it? You don’t, you know, there’s, you know, what are the things about renewables is that this is great hope that somehow there’s some sort of Moore’s Law embedded in windmills in your windmills and solar panels, that is driving down their efficiency, tremendous exponential basis, that someday are going to push them into the money relative to hydrocarbon based energy solutions. And, you know, we’ve done a lot of research on this and you know, it’s funny, we don’t believe there’s any Moore’s law in, in in windmills and solar panels, but the cost of come down a lot. And over the last decade is your why is the cost come down so much? There’s two reasons. One is that remember before I said how energy intensive it is to make these things, you know, when you think think about a windmill or a soap and like, for example, steel and cement, those two things, and also how it applies to co2 things. Does anyone have an idea, world’s steel steelmaking capability, how much co2 puts the world as percentage of total co2? It’s almost 10%, more more than more than total passenger traffic, car traffic in the world? How much does cement put in as far as co2? Well, again, it’s incredibly energy intensive to make something it’s almost it’s almost at the 10% as well. So the thing is, is that the energy intensity, for still making cement making all that mining all that copper, and all these other metals and things like that, and that’s what we do we invest in mighty Sweden know all about this is that it’s so energy intensive, that energy prices have come down, your your total order operating and your your your capital cost to make this stuff has come down. And you combine that with, with the fact that interest rates have come down tremendously, that we believe that explains close to 80% of the drop in cost for wind and solar renewables over the last decade, his energy prices declined by 80 to 90%. Now the energy prices are going back up. And you know, when we have this idea that, that when you if you say to the average person, you say, oh, what would it what is the biggest or even you know, as a quote unquote, expert? What is the biggest hindrance for the adoption of renewables? They say it’s low hydrocarbon prices, you know, what’s hydrocarbon prices begin to rise dramatically, it will push the economics of wind and solar into the bank. That is they will be competitive for the first time against hydrocarbon based energy sources. It turns out that’s not true at all. They’re out of the money today, they’ve gotten a little bit close to being in the money because of crabby low energy prices. However, energy prices once they go up, gold prices are going to go up if you want, you want proof of that already, look at look at what polysilicon prices have done in China over the last year, because of the the natural gas which has spilled over into the coal market there. In over the last year what a poly silicon price has done, they’ve doubled and tripled because of higher energy prices. So the thing is, is that is that it’s there is nothing that we see doing it, there is a transition. I mean, we shouldn’t know. We shouldn’t be burning coal at all. We shouldn’t have any natural gas, you burn natural gas, you produce half the amount of co2, the electricity comes out the side versus coal. But you know, you know, everyone thinks nitrate, you know, in the United States, we see this trying to stamp out natural gas production. You’re the people that are terrorizing Exxon engine. Number one is trying to use a lot of rumors, they’re going to try to force Exxon to abandon two massive global LNG, natural gas LNG projects, one in Mozambique, right off the coast would over the coast of Vietnam and remind you that Vietnam, both those are very important because that LNG from Mozambique will probably go to India displace coal, natural gas, it’s an off that a huge field in Vietnam is going to try to displace coal within Vietnam. So that would be a solution. But we seem hell bent to extinguish that solution on a short term basis. And then ultimately, nuclear is the solution.
Nathaniel E. Baker
Where does it leave electric cars already make of the whole electrical vehicle thing?
Leigh Goehring
Again, going back to the idea you can’t displace a new technology with an old technology with a fear Energy Economics. Think of it this way. It’s really simple Nissan LEAF, which is Toyota, it’s Nissan’s economy. Evie, you buy that 40 grand. The that’s that’s what that’s what its smallest battery capability. So I think it gets, you know, maybe 160 to 220 miles per charge, things like that. If you want to get it up to like 300 it’s gonna take you throw another $10,000 for that. So $40,000 it’s competing car, the Nissan Sentra Nissan Sentra is about the same size versus on central cost 20,000 You know, you fill that you fill that thing up, you can go almost 360 miles on a tank of gas. So no rains range anxiety, no planning for charging stations, all this type of thing. So what is the person going to do is going to buy the $40,000 leaf with all these limitations? Is he gonna buy the Sentra with 20,000? He’s not, you know, and so the thing is, is that but how are we going to how we’re going to make that happen? You’re going to try to subsidize the Nissan LEAF which of course it’s that all these do. bills come in the Biden’s ration that has a lot to do with it. And you know, for example, in Norway, they heavily heavily subsidized Evie penetrations Evie purchases there so they’ve gotten them up EVs roughly 70% But it doesn’t it’s very weird. Norway also for Example If you buy an EP you get a you get free passage on tolls on bridges and ferries and things like that there’s a huge incentive to use it. So whatever you have whenever you want to avoid the tax of a bridge toll you take the Evie out use it. However as you get to go up to visit, go into your to your cabin up the mountain, you take your internal combustion engine car driving up there. So something very interesting has happened in Norway even though the penetrate a new car sales penetration of almost 80% of gasoline consumption in Norway has only gone down by 20% over the last decade. So the thing is, you’re everyone’s buying an Eevee for tax purposes and subsidies, but they’re not really using them. So the thing is, is that the only way you’re going to displace the, the the internal combustion engine with the Eevee because of EVs, poor energy efficiencies is through either outline the internal combustion engine, or subsidizing the Eevee. I think of it another way back to the Concorde. Who are the people that use the Concorde? Like I said, investment bankers, investment bankers, rockstars in Hollywood celebrities? Doesn’t that sound like the people that are buying the Tesla today? I know where I live, there’s a lot of rich people. Maybe they’re all I don’t know what category, mostly Investment Finance types. But that would be one of the buckets that would buy it. That’s why you see that?
Nathaniel E. Baker
So yeah, that’s interesting. And now what about the actual the use of the energy use of once you do have the electric vehicle, I mean, because then it’s not very expensive to charge it right.
Leigh Goehring
One of the biggest problems is getting back to this, this energy in, energy energy out. Remember, one of the most important and expensive elements in a electric car is the battery. And the making of batteries is incredibly energy intensive. And so it’s funny, we’ve done this study, and it’s been replicated by Jeffrey’s if, for example, that Evie only last, like decade, it turns out, it’s the amount of energy put into make that Evie versus the Eevee that’s put into an internal combustion engine is about the same. So if there is no, if you equate energy input with co2 output, there’s no difference between making the Eevee and driving it versus having them just driving internal combustion engine. If the Evie last longer than that, and we don’t have to see, we don’t have enough data to determine, you know, as you know, with your iPhone, after a couple years, what happens, the batteries degrade rapidly. If you go and buy a new one. We don’t know. Everyone’s talking about the performance of the Tesla battery on a long term basis. We don’t really know what it is. So the but but it’s because there’s so much energy intensity that goes into making that battery that it’s hard to get any see any any sort of co2 savings or cost savings for you as the consumer out the other side, especially if you only last 10 to 12 years. So, Jeff, that’s that, that our studies been replicated by Jeffrey’s Jeffrey’s has a really good study that basically Kurzel what our research framework has told us
Nathaniel E. Baker
hmm that’s weird because I thought that the iPhone battery depletion was due to a conspiracy by Apple and he you buy a new one, but I guess there is but
Leigh Goehring
it is natural, but I agree with you because I had my battery do the same thing. And I think, yeah, I think it was that software upgrade, but, but I bought it. Let’s see, I’m on. I switched over from blackberries to iPhones, probably about six years ago, and I’m on my third life. Yep, you’re late. I’m on my third iPhone already.
Nathaniel E. Baker
So right well, that’s actually not bad. Yeah, every two years, it’s about what Yeah, yep. Yep. Okay, but aren’t aren’t all the automakers kind of phasing out the internal combustion engines
Leigh Goehring
or I think what they do is they’re they’re hedging their bets and they’re very very worried remember I said it’s nothing prevents eight business eight administration like the Biden administration from waking up one day and saying I’m outlawing the internal combustion engine and the thing is all I’m going to subsidize which is it’s in one of those transportation build back better America whenever a huge subsidy to Evie buyers, if it’s comes from a union knife sharp or whatever, which cutting Portman, Mr. Musk out. But the funny thing is, is that, you know, between if they could subsidize it to actually bring it bring the EB into the proverbial into the money, so I think they’re hedging their bets but x outlawing or subsidies, it’s gonna come down to the majority people do I buy the Sentra are divided by the leaf? I tell you what I would do. I buy the Sentra. I’d never buy the leaf. And because she has range anxiety, there’s the Financial Times New York Times have written humorous articles about people. Reporters. One time these two reporters, Los Angeles decided to rent I think it was a a Tesla and drive to Las Vegas. It’s a hilarious story about their range anxiety and How? And you know, the fact is that between the cost of electricity and the fact that you remember it takes a long time to recharge, what are these things so your central server hours, that the time it was cost it was 50% more time to go Las Vegas it costs the same. Another great article in the Financial Times about two reporters try to go from Silicon Valley to Reno. Now they have a full blown crisis because they they they do can’t make Reno and they realize they’re not going to make it because they’re going uphill, they didn’t put that in stuff calculations, and they had to go all the way back someplace and get it recharged or whatever. So it took them twice the time to get there. So it’s so are you gonna buy the Sentra? Are you gonna buy the leaf? I buy the Sentra. Yeah.
Nathaniel E. Baker
Alright, let’s take a quick break here. Very fascinating conversation here. I want to come back and get into the investment case here. And what you think are better uses of investors money, then renewables. But let’s first take a quick break. If you are a premium subscriber, you will not get the break. Don’t go anywhere. We’ll be right back. In fact, we already are.
Nathaniel E. Baker
Welcome back everybody here with Leigh Goehring. And lead. This is the section of the program where we ask our guests to tell us a little bit more about himself or herself, and how he or she came to this station in his her her career. So yeah, take us away. How did you get into this? And that? How did you find yourself now? Obviously, it’s your firm. So you started it. But how long ago was that? Yeah, tell us about it.
Leigh Goehring
Okay. First, if that you’ll step back. I’ve been managing money now in the commodity natural resource area, now, almost 35 years exclusively. How did I get involved in it? It’s kind of interesting. You know, both my parents met at Exxon, they both used to work at Exxon. And they actually met at excellent exons old Bayway refinery, which is now owned by Conoco Phillips. Right west of New York City of New York. The Jersey Turnpike runs basically right through the middle of it. They met there. They bet they’re in World War Two. And so you know, say I have oily gases in my background. It literally is both literally and figuratively. You know, growing up, my parents used to talk all the time, at the dinner table about the oil world. This is a true story. My father used electric my brother back in the mid 1960s. His sons were burning a lot of hydrocarbons. We’re putting a lot of co2 atmosphere co2 in the atmosphere. Someday this may be a problem. Yes. Oh, yeah. Yep. And so oil and gas and all commodities were tabletop conversations growing up. You know, classic example. My father would have his bought his he started his career right before the war working for Chevron in their big El Segundo refinery. We become an aviation fuel expert at that point, obviously very, very important to and his boss, there was a he went off to a head one of the big Saudi exploration and production groups that found a great story. Oh, oilfields, post World War Two. So my father used to tell me all about that and things. So it I became fascinated with the area. And I was lucky enough by the late 90s, that I was able to assume the portfolio manager ship of your two natural resource funds, if the Prudential insurance company and I ran those from tooth out his lead Portfolio Manager from 1991 all the way to 2005. Had a tremendously good good track record during that time period. 2005 I, I got a phone call from Richard Chilton, who runs Chilton investment company here in New York. He said, Would you be willing to come to tilt investment company and start a natural resource fund in the hedge fund format? For firm and I said yes. And, you know, that was wildly successful. At one point, we had over $5 billion of assets there. raisel, that zero, and we became the biggest natural resource hedge fund in the world for a number of years. You know, 2015, I decided to retire from Chilton with a one of my associates for Chilton, edit Rosenzweig, we decided to go out and start getting in Rosenzweig associate a firm that, as I mentioned before, is dedicated to investing, researching and investing in global commodity markets. We’re an SEC registered firm. We run the Gehring and roses wide resources fund in open ended mutual fund that is dedicated to investing in everything I’m talking about today. And we manage money also for institutional clients as well.
Nathaniel E. Baker
So that’s a perfect lead in to what you think are good areas to invest in from an energy standpoint now like where your portfolio is allocated and what you see, as I guess, growth or opportunistic or valuable places now.
Leigh Goehring
Okay, in one of the things To Nathaniel, I want to impress upon your listeners out there is that we don’t we try not to tell you what’s happened today, or what happened yesterday. We actually one of our, our goals Gehring and Rosenzweig is to do research and recognize trends and get them into print. Long before they they actually become headlines in the front pages of Wall Street Journal in the Financial Times. In journal financial journals like that. Good example, this summer of 2020. Oil prices in April had gone to – 37. Unbelievable. We wrote a big it was the our cover essay in our quarter letter. And I recommend everyone out there, if you’re curious about the world of natural resources, you can download our Carter, the letters from our website, everything I’m talking about today is in those letters. And we, we wrote a big essay, lead essay called on the verge of an energy crisis. And we outlined all the factors that are causing the energy crisis today. And we said it’s only a matter of time before it happens, and it’s going to happen faster, and come out of the blue. And just exactly what has happened. So the thing is, is that we’re in the world where the middle of a full blown global energy crisis, it is, I mean, we’re releasing doing some very drastic things, including releasing, you know, basically almost 25% of the Strategic Petroleum Reserve over the next six months. And the the, the question that you might have in your mind is, is how long is this crisis going to go? And is it investable? I would say, yes, it’s been pulled forward. By the whole, everything’s been happening in the Ukraine, it really pulled it four by six months. But all the underlying factors, you know, completely unrecognized, strengthened global oil and natural gas demand. The problems that are existing supply, written extensively about both these subjects over the last five to six years that how they’re going to come home to roost, they’ve come home to roost now, so I still really like investments in the energy area, ISIS, I know if we woke up one day and Putin had been overthrown, or he stepped down, and the new leader said, Oh, we want peace with the West, removing our forces, and oil prices, pull back $20 a barrel, I would say, Buy as much energy as you can, because none of the none of the factors that I that we believe is driving this market today is going to go away. So I still really like energy here. More specifically, I think that we were huge rate uranium bowls, we believe that uranium is part of this, of the of the solution to the world energy crisis, as well as being a solution to the climate change crisis. You know, one of the things about uranium is that not only is it incredibly energy efficient. So you know, it could, it could really fund huge amounts of new sources of growth going forward in the coming decades. But it’s also produces zero co2, it’s the perfect solution to our problem. And we’re beginning to recognize that now, what are the things the underlying fundamentals of the uranium market are incredibly bullish for uranium prices? We think that uranium prices really bottomed at $18 a pound basically two years ago, and we’ve been writing about it since then, we we turned bullish, right the bottom, which is what we like to do, and we’ve been recommending uranium investments ever since. I believe that uranium prices are going much, much higher. So I recommend people to have investments in uranium today, stocks have moved, but a bit but they’re going much, much higher. We like copper, you know, we believe that copper is the quintessential green metal. And you combine that with the fact that India China is still consuming copper tremendously, because it needs to get from $10,000 per capita GDP to $15,000 per capita GDP. If unless they make a huge new investment, copper in their their installed base, they can’t do that. India has just is where China was back in 2000 2000. So India is going to go through a huge cycle growth and copper consumption. And copper supply is relatively going to be very, very hard to grow through this decade for a variety of reasons. If you’re curious about that, check out our letters as a couple big essays on the problems, edited, growing copper supply. And finally, we love agriculture. Now again, to what we do. We don’t want to tell you what happened today.
Leigh Goehring
A year and a half ago, we wrote a big essay called the coming global agricultural crisis. And it was based upon observations that because the world is getting richer, and we we’ve actually measured how that how rich the world is getting that that that richness, that increase in per capita GDP emerging markets is going to overlay overload global grain markets with demand, which has it was only a matter of time before either supply disruption or Some other black swan event through the global agricultural markets into crisis. We’re here now. Now, it’s also been exacerbated by the coming fertilizer crisis. And we love fertilizers always been a big believer that a bull market in grades winds up in a bull market for LEDs. And however, you’ll remember fertilizer production is incredibly energy intensive. I mean, basically, you know, the nitrogen complex, which is one of the three great nutrients needed to improve crop yields, is pure energy, you’re taking natural gas or gas generated from coal and turning it into into nitrogen. And so we’re developing a nitrogen shortage today because of high energy prices. And the fact that both China and Russia and embargoed they’re both among the China’s the largest nitrogen exporter, argued them because they’re using it all internally. And, you know, the other crisis in potash, potash, Russia, Belarus produced 40% of global potash. So that is has the potential to suffering as a supply disruption. So the thing is, everything is lined up for a global agricultural crisis. We’re in one right now. I mean, you punch out Bloomberg every other day in the agricultural pages, crisis, crisis crisis, that’s all you see. And I’m afraid it’s gonna get worse. And what are the reasons is that, you know, back to the fertilizers, you know, the three great fertilizer groups nitrogen, phosphate, and potash, phosphate and potash don’t have to be applied every year, it stays in soil, it doesn’t leach out. It’s not as critical. Nitrogen is critical. Nitrogen evaporates out has to be applied every year. In the US, we apply it twice a year. It’s so in there’s already talk about farmers cutting back nitrogen applications, because of its lack of availability. So we could have a really you can have a immediate impact on on corn wheat yields in 2022. growing season. So again, we love that culture. We love fertilizer stocks. And we like those areas as well.
Nathaniel E. Baker
Don’t farmers already produced too much in the way of grains and stuff?
Leigh Goehring
Well, yeah, well, it’s very interesting. If you go between like 1918 1980 to 2000, global grain consumption grew about 1.3% per year, which is very much in line with with population growth. However, since 2000, today, that trend line has shifted up tremendously. Global grain consumption since then, is up like 60 to 70%, isn’t it? The trend line growth now is about 2.3 to 2.4%. And why is that? Well, as you as it economy gets richer, you know, with your $2,000 per capita GDP, which is poor, a poor economy, you, you most of your food consumption comes in the form of rice and, and bread through wheat. And so however, as you get richer, you decide to increase your animal protein consumption, something that’s better than human nature. So is places like China and huge amounts that emerging market market world has become richer, their their animal protein consumption has ratcheted up hugely. Again, consult our last letter, there’s a big essay with a lot of really neat graphs that show that that intensity of grain consumption as economies get richer, and it’s it’s not going away, it’s something it’s going to be with us all this decade. So so we ratchet upgrade consumption. And over the last 15 years, we’ve had been very, very lucky with great global growing conditions, which is helped crop yields. It’s also aided by do genetics, and by Greek fertilizer applications. But you can something happen, a black swan event to disrupt that precious invasion of the Ukraine, maybe that’s it, because remember, we’re all growing up. Ukraine was what’s called the world’s wheat bread basket, which it is. So are things gonna get disrupted supply disrupted from there? Maybe who knows. But we love agriculture, and we believe the world is in the you know, if you haven’t accepted the world as an agricultural crisis, will in the next couple of years, and there’s huge investment opportunity.
Nathaniel E. Baker
What’s the best way to play that? Can I ask about individual stocks?
Leigh Goehring
Yeah, we, you know, I don’t want to talk about it too much. But think of it this way. I’m not in whether, you know, we do own the stock, a stock called Mosaic (MOS). one of the world’s largest phosphate producers, one of the world’s largest potash producers, and they have a lot of positive operational things happening in their potash business. I’m referring to the the fixing of their Esterhazy mine up in Saskatchewan, which had huge waterfall problems. And many years ago, it got so bad they were threatening to close it. It’s all been fixed or the process being fixed. And the stock basically trades if it basically five times this year’s earnings. It’s grown a lot but it’s only five times earnings. And I should point in the last bull market cycle, which fertilizer cycle which peaked in May 2007 2008 At the peak of earnings of mosaic and traded five times earnings, it traded 25 times earnings peak earnings. So there’s tremendous uptight upside of these stocks. So
Nathaniel E. Baker
what about as far as like, procuring more supply of these resources? Like, you know, miners and such? Is that something that you look at at all?
Leigh Goehring
Yeah, in fact, it’s interesting. Um, as far as you know, the demand for oil is, this is another factor that’s going to start influencing these markets, that no one has any other models, because we’re all too old. Remember the 1970s? You know, which remember, that was a highly inflationary period. It was a it was a period where people were really gripped by inflationary psychology. That is a prevalent belief that, you know, what you bought today was gonna be more expensive for six months, would you do you bought it, you bought more today. And we’re going to go through a period where, where companies are going to end individuals are going to wind up buying a little bit more of everything a commodities, because of the inflationary psychology by steaks has to be more expensive tomorrow. So that’s going to create its its own demand, new source of demand, which no one has in its in anyone models. In fact, you know, it’s interesting how things have changed. Back in the 70s. Companies said, I’d like to have a lot more inventory, I’d like to have a lot more commodities on my balance sheet. Why? Because I, I was actually able to book inventory profit, I bought something one, six months later, I went into my manufacturing process, and I sold it the equivalent of $1.50, I made 50 cents of inventory profit, it got so bad, people don’t remember this, we had to change the accounting system, we would, you know, so much profit was coming from inventories that we had to change the accounting system over from LIFO, to FIFO. To basically so the earnings represented today’s operating earnings and took out inventory profit. So all these things could happen, it’s going to really make you demand inflationary psychology is coming, is going to really boost the demand for commodities. Now, the other thing is like agriculture, this is going to be a real problem, is it once people begin to really worry about agricultural crisis, people are going to people and countries going to start to hoard grain, which is going to tighten this up supply tremendously. So that’s something to really, really watch about watch. And, you know, Russia could play the weak card, you know, Russia and in Ukraine, I believe supply close to 40% of the world’s seaboard wheat. So the thing is, is that is that could they withhold that? Sell it or China? Keep it out of the seaboard market? Something to watch?
Nathaniel E. Baker
Hmm. The first thing I thought about we talked about more consumption was a place like Costco (COST). That’s probably not where you’re going with that.
Leigh Goehring
but what are the reasons you’re back going back to the 70s? What are the reasons why the gasoline crisis got so bad? Is it everyone kept their tankful? Hmm, what do you do now? You know, I suspect the taken my car is probably 65% Empty most of the time. And the funny thing is, is back then, you know, all every car, because you were worried that you couldn’t get the supply. You kept it 100% full, that itself brought forth huge amount of gasoline demand, which kept prices incredibly high and created the shortage. So you know, it can spill to the retail level.
Nathaniel E. Baker
Interesting. Wow. Yeah. Very cool. All right. Recurring. Thank you so much for joining the contrarian investor podcast today. Very interesting conversation. You mentioned your website. Maybe in closing, you can just tell listeners how they can find out more about you more about the firm. Yeah, this show notes as well.
Leigh Goehring
All our all our research that I’ve talked about today, just about everything is on our our website. Contained in our investment letters, we put out a very, very extensive query letter. It’s in the public domain, you can download it. Also, there’s a lot of podcasts webcasts that we’ve done, I recommend everyone look on our website for this. For this sub web podcast webcast we did called the history of energy. It put everything I said into a historical perspective, I recommend everyone watch it, you’ll understand how pernicious and the unintended consequences of investments in renewable energies will be. Because we put them in a historical context. So there’s all sorts of interesting stuff on our website for investors. You know, we like I said, we run the garegin Rosenzweig open ended mutual fund. It’s, it’s, you know, all you need is a $3,000 minimum investment. And it should be available from your brokers. So you can invest with us if you’d like. So, that’s, that’s our pitch for our firm.
Nathaniel E. Baker
So cool. Very nice. Are you on the social media at all?
Leigh Goehring
Sometimes, sometimes I don’t. My partner Adam is I I’m a I’m a technological late, so it’s hard for you to do so.
Nathaniel E. Baker
Cool. All right, maybe I’ll link to that in the show notes as well. Very good. Thank you, Lee, for coming on. Thank you all for watching and listening. And we look forward to speaking to you again next time.