And now for some more Fatal Conceits…
In today’s episode of the Fatal Conceits podcast, we speak with energy and resources expert and Harvard-trained geologist, Mr. Byron King.
In Part I of our conversation, Byron gives us his impressions of the recent PDAC miner’s conference up in Toronto, explains why “revenge travel” is turning airports into zoos and digs into all the resources that you didn’t even know came from Russia… but that the world will have a tough time doing without nevertheless.
We also talk about Russia’s relationship with China, the west’s continuing underinvestment in human capital, the financialization of our once great economies and plenty more besides.
It’s always a pleasure speaking with Byron, a man with a deep understanding of military history, geopolitics and all the various processes that go into inventing, building and transporting the “stuff” we depend on to keep the world’s engines running.
Please enjoy our conversation with Byron King and look out for Part II this time next week.
Cheers,
Joel Bowman
P.S. Members can find a transcript of the show, lightly edited for clarity, below. If you are not already a paid up member of Bonner Private Research, but would like to access the many resources available to subscribers, you can join us today, right here…
Joel Bowman:
Welcome back to another Fatal Conceits Podcast, dear listener, a show about money, markets, mobs and manias, not necessarily in that order. If you haven't already done so, please be sure to head over to our Substack page at bonnerprivateresearch.substack.com. There you'll find plenty of articles numbering now in the hundreds, maybe the thousands on everything from high finance to lowly politics, and of course, many, many more conversations just like this one under the Fatal Conceits Podcast tab.
Today, I'm delighted to welcome back to the program a long-time favorite of the Bonner Private Research readership. He's someone I've known for many, many years: Mr. Byron King. He's a prolific writer, a Harvard-trained geologist, a renowned energy and resources expert, and among the most popularly requested guests on this show. Byron, it's a pleasure to welcome you back to the show.
Byron King:
Well, hello. And it is a pleasure to be with you. Thank you.
Joel Bowman:
Byron, just before we jumped on the recording here, we were talking a little bit about the ease of traveling around the world, flitting from one continent to the other. And I know it's been a lot in the news lately and potentially this ease of travel may become a relic of the past if energy markets continue to go the way that they're going. But before we get to everything that's happening in Europe and everything that's happening globally, I want to just catch up with your travel.
Since we last spoke back in May, you were up at the PDAC miner's conference up in Toronto. You sent us at Bonner Private Research, a couple of choice pics of the place. It looked more like maybe a rock concert than a mining show. It was mobs. Give us your impressions from the front lines of the heavy diggers.
Byron King:
Yes, the Prospectors and Developers Association of Canada, which is PDAC, P-D-A-C, is an annual mining conference. Usually, it's one of the biggest in the world. The last time they had one was in March 2020, literally just days before the world shut down. They did not do it in 2021. In 2022, they were going to schedule it in March, but because of sort of residual COVID reasons, they moved it to June.
Now, there are a couple of interesting points there. Usually, the PDAC Conferences is in March because that's a time of year in the Northern hemisphere when a lot of people are not out in the field exploring. The winter is just ending, snows are melting, things are muddy, mucky, you can't get around. So traditionally, that was when all the miners could come down into the big evil city and get together and have their conference. Well, they moved it to June because of COVID, so that created some issues because a lot of people would rather be out in the field working in June and catching the good weather, the good field season.
So fewer people showed up on the technical end, a lot of the geologists, a lot the engineers and what have you were out in the field. Now management tended to show up and they actually liked it because they said, "It means that my geologists aren't here and nobody can poach them away from us."
Joel Bowman:
Very good.
Byron King:
Because there's a shortage of people in the industry. It's not a COVID thing. It is just a demographic issue that after all these years of under-investment, when you say under-investment, we're not pouring money into new mines and equipment, all that.
It also means you're not hiring people, and so when the young people go to college or university, they say, "Oh, gee, where can I get a job? Well, I'm not going to go into the mining industry because there're no jobs."
Well, here we are now, years later, and we're saying, "Gee, we have a whole bunch of gray-haired, white-haired people, but there's a whole missing cadre of talent there." You really can't do too much without a lot of smart people working together. That's true in mining and it's true and everything else. That's one angle to it.
Now, the good news is, and you mentioned that I had sent you some photos from up there, I was stunned when I showed up. It was Monday, Tuesday, Wednesday conference.
On Monday morning the line was unbelievable just to get into the convention center. It's the Rogers Convention Center in Toronto. Big, huge, sprawling facility. Gigantic. There was a line outside the door and the Toronto police were out there, in a nice way, with sort of crowd control measures, lining everybody up, going through these mazes of rope lines and everything else. They can only feed so many people in at a time. And the fire marshal has his rules and all those sorts of things. So it was absolutely crowded. It was absolutely mobbed. There was a large contingent of presenting companies there, management teams and the investor relations people. Not so much the technical folks, because like I said, they're out in the field.
A lot of people were there, investors, they looked like just sort of retail investors, tire kickers. A lot of people who are just "mining curious." Some of these people were not part of the mining crowd that you would expect to see. They're not part of the gold bug crowd, the gold stacker crowd, that kind of thing that we've seen in the past. I think what we're starting to see, in an investment sense, is that a lot of people, after a couple of decades of go-go, tech-tech, Bitcoin-Bitcoin, all this sort of chasing the vaporware, chasing the ethereal returns, we're coming full circle.
And look, people made money in this stock market, but they made money chasing things that were really hard to put your hands around. I mean, you can't really touch a Bitcoin. It's a little electronic thing. It's not a coin, just in case people don't know that. There is no such thing as "a bitcoin." They try to pretend that there is, but there isn't.
But a lot of people, I think, are looking now saying, "Oh gee, looking at the way the world is and the way that monetary policies are going, where is the dollar headed?" Things like that. They want to get tangible. And so, what can be more tangible than rocks and minerals and ores and mines and big plants that stamp out metals? And so we had the gold/silver aspect, of course, but then it's all the other things too. It's the copper, lead, zinc, that the world needs. It's the battery metals for the battery cars. It's the technology metals for all the tech.
So it was a crowded situation up there. And over and above that, I'll just mention that international travel, it's fun once you get on the airplane and you go wheels up. I mean, once the airplane takes off, it typically flies where it's going and lands where it's supposed to. But it's those stupid airports. Holy smokes. They're awful! I mean, I actually drove to Toronto for that trip, but I've been on some other trips elsewhere in the last couple of months since we've spoken and it's just miserable. The terminals are crowded. The ticket counters are crowded. The baggage area is crowded. The restaurants are crowded.
It's all these people with their revenge travel. "Oh, I didn't travel for two years and I'm going to travel the hell out of it now." And at the same time the airports downsized and the airlines laid off their baggage handlers and they laid off the ground crew, they laid off the gate agents and ticket agents and everything. And so now we have to deal with kind of resurrecting it.
It's what our friend Bill Bonner has said numerous times in his daily essays that, "When you shut off an economy, it's not like you turned off the light switch and now you flick the light switch and it all comes back on and the lights are just as bright." No, once you power down and once things sort of relax and just sort of recalibrate to a certain level, you don't just pump it back up, and up and up it goes again. And so we see that in airlines and we see that everywhere. We could talk about that all day.
Joel Bowman:
Yeah, absolutely. And you put a lot on the table there all the way from under-investment in human capital. There's a whole cohort of students who opted for, let's say, "softer" types of academic pursuits and who forgot how to make stuff and how to build stuff. And actually, that stuff is kind of important in this world if you want to do things like feed people and medicate people and shelter people and move people around. And there's this entire scaffolding that undergirds an economy which you don't get to learning about in gender studies courses, alas.
But just to double down and underline your commentary there on travel. Again, it's something that we just kind of take for granted, whether it's business, pleasure or emergency travel. There're many, many reasons that we are traversing the Atlantic or the Pacific, or what have you.
Over in Europe, where I've just spent the past three weeks, some in Scandinavia - Denmark and Norway - plus Ireland, the UK and a little bit in Spain. Every single one of those countries at various times during the past month has seen pilot shortages, worker protests, canceled flights, the kind of zoo-like atmosphere at the terminals that you described before, where there's not enough people to get too much stuff done.
And a lot of this is the result of so-called supply chain disruptions. But as you alluded to then, it really goes back to turning off the switch of an economy for a couple of years, under-investing for a decade, maybe more before that, and then expecting that we can just resurrect this magical cornucopia, this plentiful energy supply, where things are just there when we need them. But that's, as you said, not exactly how it goes.
Byron King:
Exactly right.
Joel Bowman:
So, I just wanted to bring us back to where the rubber meets the road here. This is a subject that you touched on, or rather a place you touched on at the beginning of our little Bonner Private Research project here, when you wrote some very prescient words on the situation in Germany and their energy... situation. I don't even know what we would call it at this point. It's approaching a full-blown catastrophe. And now seems to have bled over into France and the Netherlands, where other dominoes are falling. Do you want to maybe catch us up to speed on what's going on in Germany and then we can work our way across the continent back to the US?
Byron King:
Oh, sure. Yes. We go back many months to 2021, back to last year. I wrote an article that you were nice enough to publish, titled Germany's Energy Stalingrad. It's a not an unintentional use of a very emotional word, by the way. Stalingrad was the destruction of a German army that was encircled in the Soviet Union in the Second World War. And there were so many ways in a tactical, operational, strategic sense to avoid marching your army to destruction. Obviously, the Soviets are very glad that they destroyed the German army. One side won the war, one side lost the war. Ok. But you would think the side that lost the war, the Germans, would learn something about not losing other wars, not doing stupid things.
Now that is translated into a certain sort of German politics that they have these days. There's a certain intentional, non-martial, unmilitary aspect to Germany now. Most of their combat aircraft are grounded. They don't work. I don't know that they have any working submarines. They have a very small handful of tanks. The army is relatively small. And that's probably fine, in a world at peace. But at the same time, they have done everything in a strategic sense to completely screw up their energy situation. For any country, any group of people anywhere, there are three things you need: you need food, you need water and you need energy. Germany has never been able to grow enough food, which is, with the whole "Lebensraum" thing. That goes back a hundred years. More than that actually.
I guess they have enough water, but Germany's never had enough energy. It became an industrial power based on coal. They have no particular oil or gas resources. By virtue of trading with the world, they've been able to get the energy they need. But then they intentionally, for the last 25 years, adopted this green-ism, green thinking, and it's the noble virtues of green, that we are virtuous because we are green. And it's kind of like, well, you can afford to be virtuous because you are economically privileged. You're a wealthy country... For now. You've got money, you can buy the things you need and you feel good about yourself. So, "We're going to be green."
Now, you go to a place like Germany and you see solar panels everywhere, and you think, "Wait a minute. I understand how the world works in terms of orbiting around the sun and all that. You get a lot of sun in the summertime and you don't get much in the wintertime." And then you have, "Oh, we have windmills and they're doing great." Well, what happens when the wind doesn't blow? Intermittent energy is not a way to run a modern economy. People who say, "Oh, we're going to have renewable energy and run our world." No, you're not. Okay? Don't label me and don't call me names. I'm just telling you that you're wrong. It's not going to happen. But they walked themselves into this.
Now, for better or for worse, they tied themselves to the natural gas system of Russia. Okay, if you're going to do that, then you need to adopt a certain kind of politics between yourself and Russia that will keep the lines pressurized. Maybe it's the US pulling puppet strings or it's the NATO concept or it's the EU concept, that of just, "We want their natural resources, but we don't want to like them. We don't want to deal with them. We don't want to accept them for who they are." And then you get into the whole, "Oh, the Russians are this and the Russians are that." I don't want to go there.
But there is this thing... The Russians are Russians and the Western Europeans are Western Europeans. And yeah, I get it. I'm in North America. I was not part of Napoleon's invasion army, but I understand there is a thing going on there between East and West. We had our window, our 30-year window of post Cold War opportunity to make things work with the Russians.
But here we are today. I mean, I'm not making policy, but here the world is today. The Western world at least is somehow thinking that they can put Russia into a corner and bully them around. And the Russians, of course, have a completely different view of it. The Russians are saying, "If you don't want our natural gas, we've got lines of steel pipe ready to ship it elsewhere. We'll ship it to China. We'll build a pipeline across the Tian Shan mountains and send it down to India. We'll do what we have to do and we don't need you."
Which gets back to your question about Germany. What's going on with Germany? Now they are backed into a corner. They have painted themselves into a corner on energy. I told you so. We wrote about it a year ago, and even earlier in other publications.
But yeah, it's crazy. I suppose the only good news out of this is that Germany has become an energy example for the rest of the world not to emulate. Don't be those guys. Don't do what they just did, which is paint yourself into a corner. So that the newspaper articles in Germany are talking about, "We're not going to have hot water this winter. You're going to have three hours of hot water a day. There'll be three one-hour windows every eight hours that you can wash your dishes or take a shower" or something like that. German industry, which is the backbone of their economy, is chemicals industries, metals industries, manufacturing industries, all of which need natural gas. Or they need some sort of an energy to make it work. And what are you going to do when it's not there?
Now from an American standpoint, I am just appalled at the energy ignorance in America or the energy dissimulation, the idea that, "Oh, don't worry. We have plenty of natural gas here in America and we'll liquefy our natural gas. We'll LNG it and we'll send it over. We're going to have a Berlin airlift to Europe. Except instead of flying coal into Berlin like we did in 1948, we're going to send you LNG." It's kind of like, no we're not. No, we're not. We don't have enough wells. We don't have enough pipelines. We don't have enough LNG capacity. We don't have enough tankers. We don't have enough people. We don't have enough tanker crews. We don't have... And then over in Europe, they don't have enough unloading points to even receive it. So anybody who says, "You don't need that Russian pipeline gas, we'll just send you the LNG." It just strikes me that people are just living the lie.
Joel Bowman:
Right. It shouldn't go without mention the perhaps very not-coincidental timing of the scheduled maintenance on the Nord Stream 1 pipeline that Mr. Putin has conveniently scheduled in. And as you outlined some of the warnings that the German minister of energy is giving, preparing his nation, "We're going to have hot water shortages." They're also talking about closing down public swimming pools. I've seen them even beginning to dim the street lights. This is Germany, a highly industrialized economy in the 21st century that is in many ways kind of a canary down the decommissioned coal mine, a warning of sorts for the rest of us in the West.
And just for a little context for our listeners here, Germany's economy it's a $4 trillion economy. This is a $4 trillion GDP. California, for comparison, is about maybe three and a half; Texas is two. So it's a couple of Texas's worth of industrial output. This is not insignificant.
And energy costs there, I had a look at a couple of scary charts. For the 10 year period from say 2011 to 2020-21, before those prices began shooting up, the Germans were averaging about 50 euros per megawatt hour. That's for base load electricity. It's now about 350 euros an hour. This is a sevenfold increase in the underlying costs of critical energy. Think of all of those inputs, all of those factories, every cog, every widget, every everything.
And the situation is potentially even worse in France, where their underlying base load energy cost has gone up from about the same average, about 50 euros per megawatt hour over that 10 year period, to now closer to 450 euros. So when you put together France with Germany, and let's say we throw in the Netherlands there, that's another trillion dollar economy, we're looking at something approaching a third of the industrial output of all of Europe. Now kind of weighted under these regulations, being hamstrung by green ideology, and are now really, really struggling to keep the lights on. How long until these dominoes fall our way?
Byron King:
Well, oh my gosh. There's about 10 different angles on that one. In one respect, Europe's problems are North America's benefit. People are saying, "Oh, the dollar is getting stronger." And yeah, the dollar is stronger and gold is actually sold down a little bit lately. Dollar up gold down. But gold's still in the $1,700 range. I'm not worried. But one of the reasons for that is that if that money is exiting Europe, it's exiting euros and moving to North America to the dollar, the US dollar, because markets are forward looking entities and markets look ahead and they say, "Huh, I don't know how Europe is going to power its way through this mess. It's July, and what's Europe going to be like in December, January, and February?" Right now, as we speak in the middle of July, Europe should be importing gas from wherever and filling the storage caverns, and they should be importing oil and refining it into fuel, filling the oil tanks and things like that.
They should be doing all those things, storing up the acorns for the winter, like the smart little squirrel, so that when the winter comes, they have something to use. But they're not doing it. And we mentioned the Nord Stream pipeline. There's a pumping system made by Siemens, the German conglomerate company. Every now and then you have to uninstall the turbines and you have to take them and refurbish them and clean them and fix them and replace parts and all sorts of stuff. That's happening in Canada, of all places. They put them on a boat and sent them to Canada. And there's this issue in which Canada didn't send the turbines back because of sanctions on Russia. And so the Russians are using this as, "Okay, well, if we don't have the turbines, what do you want us to do? We can't pressurize the pipe and send the gas."
So the question is, what happens now? Is this just some sort of a political game that the Russians are playing? Like, "If you're going to jerk us around, we're just going to shut your gas off without really saying we're shutting your gas off. We'll blame you for it," which would be a perfectly valid strategy. That's a very Russian way to do it. I mean that as a compliment, frankly.
Joel Bowman:
You play your cards you've got, sure.
Byron King:
Yeah, but meanwhile every day, every single day that those cubic meters of natural gas do not show up in Germany and go down into the storage caverns or whatever, that is going to be a tight day come January and February, when it's cold and dark. What can I say to the German minister of energy? "Good luck, sir. Good luck, my friend."
Joel Bowman:
He's going to need it.
Byron King:
It's been years in the making. It's been years in the making, but it's being made right now. I've used the analogy of the Ukraine conflict. It's Pandora's box and it has opened. We've opened the Pandora's box and a whole lot of bad things have come out of Pandora's box. We call it the Ukraine. The thing is, though, that that box was there long before the first Russian tank ever rolled into Ukraine.
I mean, there were a whole lot of issues, global issues, regional issues, national issues, all stored up in Pandora's box. And when the military operation began and the west immediately defaulted to, "We're going to sanction Russia, we're going to do this, we're going to do that. We're going to send weapons to Ukraine. We're going to fight to the last drop of Ukrainian blood." When all that happened, that opened up the box and all these issues that were frozen issues came out of the box and now they're thawing out; energy issues, food issues, fertilizer issues, manufacturing issues. And it has to do with globalization. It has to do with financialization. It has to do with de-industrialization.
People say, "Well, all that world's fertilizer that we want to trade in the worldwide market, a big chunk of that comes from Russia and Ukraine." Yeah, because elsewhere in the world, like in the United States, we've under-invested in that here.
Or when people say, "Well, we've got a shortage of diesel fuel." Yeah, because in the United States we've been closing down refineries for a long time. We've been converting real refineries, oil refineries, into these biodiesel refineries, where you basically take cooking oil and turn them into diesel. But they're not available anymore to refine diesel, but where were we getting diesel from? We've been importing it from Russia.
It's just amazing. Russia in so many ways is the marginal producer of so many things. And as you learn, everybody learns this in economics 101, the cost of anything is set at the margin. I mean, if the cost of a share of stock is a 100 bucks, well then the whole market cap of that company is based on $100 shares because somebody was willing to pay a $100 for it.
Joel Bowman:
Right, those marginal producers and the price being set at the margin makes me think of swing voters. This is where elections are won and lost. This is where prices are set. At the margins.
Byron King:
Well, yeah. I mean, Russia has the most excess oil beyond its own internal consumption available for export, for example. Russia, I believe, has more oil available to export every day than Saudi Arabia, because Saudi uses a lot of its own oil internally. Look at other things, look at Russian natural gas. Russia is one of the largest natural gas exporters in the world. And because they're a continental power, they can string pipelines and do it. They've got that Power of Siberia pipeline that is sending immense amounts of natural gas to China. And there's a Power of Siberia number two, and even number three on the books.
Look at the minerals that Russia has, and the metals. Russian nickel, Russian copper, Russian titanium. Airbus and Boeing have talked a good fight about, "Okay, we can get by without Russian titanium." Well, yes, you can for six months, eight months, a year, maybe you can stretch it out, whatever, but you're not going to get too far without Russian titanium.
Look at things people don't even think about. They don't even think about noble gases like helium and neon, argon, things like that. You say, "Well, who uses helium? For party balloons?" No. I saw an article. It's in the Harvard Crimson, the school newspaper, not too long ago, about how physics students at Harvard are changing their PhD goals, because they don't have enough helium to do the work that they need to do in particle physics, which requires all sorts of helium-based materials and sources. I think you and I have talked about this, I think was neon gas. Well, who needs neon gas? Well, you need neon gas to make those computer chips that we don't seem to have enough of.
Where does neon gas come from? Well, Ukraine and Russia. How do you get neon? You liquefy air and you bring it down to certain temperatures. And at certain temperatures, you have liquid nitrogen, liquid neon. And then you have to separate it. It's very complex and it's very energy intensive, but I mean, Russia has invested in doing it and in the US, certainly we haven't. So it gets into that whole under-investment thing. We've under-invested in things that we need. We've under-invested in people that we need to do the things we need.
It's easy to say, "Oh, we have too many people majoring in gender studies," or whatever. Yeah. We do, I agree. You know what else we have? We have too many people who major in applied math or physics or something like that. Then they go to Wall Street and write algorithms and trade because they can make more money using their math skills trading on Wall Street.
But of course the good old days of working at the research lab for General Electric or whatever, those are gone because there is no General Electric research lab anymore. Jack Welch made sure of that. And so many other companies are the same. Where corporate America used to invest a huge amount, a large, significant portion of its cashflow into real R&D, the good old days of AT&T, Bell labs, the good old days where oil companies used to do R&D. Oh my goodness, even companies like Boeing, I mean, they have very, very low R&D in terms of what they need to do.
You would think that companies would do that work, but they're not, and they haven't. It's because they've been Wall Street driven. Instead of putting the money into R&D, which might take years to pay off, if ever, they'd rather just buy back shares of their stock or just pay a higher dividend and make the Wall Street analyst happy.
Joel Bowman:
Alrighty. Thank you very much for listening, folks. That will do it for Part One of my conversation with Byron King. As you can probably tell there's lots more left on the table that we discussed, which we'll say for Part Two. You'll be able to find that next week. Byron and I talked about the imminent bifurcation of the global monetary system, what a gold/methane-backed rubble might look like. And we got into a bit of the nitty gritty with regards to the situation over in the Ukraine and had a few prognostications about where that might be headed and what it might mean for energy markets, both over in Europe and back here in the United States. We also spoke about what Byron's doing with his own money and where he sees markets going for the second half of the year.
I hope you'll join us for part two of my discussion with Byron King next week. In the meantime, as always, please head over to our Substack page. You can find us at bonnerprivateresearch.substack.com, We hope to see you there and on our Fatal Conceits podcast next week. Thanks a lot. I'm Joel Bowman. Cheers!
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Byron King on Russia, Energy and Gold - Part I