Germany Economy Shutdown, China falling Apart ,Putin, Energy & More | Peter Zeihan Full Interview

we all have 2 years of entertainment budget saved up sorry I couldn't join you last night but look at this from my point of view you guys are the 167th presentation I've given this year and because of that two years of entertainment budget I have been to a 158 open bars this is the ninth presentation I've given this year sober whether that's going to make it better or worse I have no idea uh we have to start of course with the war can we go ahead and get the slides up on the sides that'll really help everybody uh what we've got here is a map of the Russian space uh this is population density map and it's on its side so if you have to tilt that's totally fine uh the orange wedge the light orange wedge that goes from roughly Central Europe down into Central Siberia that's where most of the people live over here here we have a climate and economic map and the green zone that roughly overlaps is the Russian wheat belt now that light orange color that's roughly the population density of Nebraska if you melon scoop out Lincoln and Omaha so you have neighbors you know their names you probably haven't seen them this year the orange I'm sorry the the green zone the Russian wheat belt that is the lowest productivity agricultural zone of the major zones in the world short growing season you can get one crop of wheat it's short season wheat that's it lowest amount of income per acre of the major a zones the income is so low that the Russians have never been able to build a National Road Network you want to move something in Russia at scale you must use rail it's your only option you go to the right to the blue to the north you end up with Tundra and Tei no one lives there if you go to the left to the South to the yellow you are desert and no one lives there but what really depresses the Russians is the beige territories on the shoulders of their good land that even by their definition are completely economically nonviable but they're flat and they're open and you can run a Mongol horde through that the Russians have been invaded 50 odd times anytime their foe has made it to the green the Russians have not been the ones to drive them out the weather has because the Russians can't move even in their own space but whoever The Invader was had to move to get there so they can operate just fine they have to wait for the weather to drive it out so the Russian strategy going back 350 years has always been the same Advance out of the green through the beige and reach a series of geographic blocking points that you can't run a Panzer Division through and then forward position your very slow moving rail supplied troops in the access points between those gateways if they can do that forward position defense they can hold and this is what they had in the Soviet period they controlled every single one of those access points but post Soviet Russia only controlled one everything that Putin has done in the 23 years that he's been Premier has been about reestablishing those military Footprints this is the kazak intervention the caraba war the Georgia War the Donas War we're on stage roughly five of eight so it's not that the Russians were never going to stop until they had all of Ukraine because Ukraine doesn't control those gateways the gateways are past Ukraine it's that the Russians were never going to stop when they got all of Ukraine there's more steps to come and the next series of steps involve countries like Estonia Romania and Poland which are all NATO allies where are my non Texans it's not as big as they think the scale of what the Russians are trying to do here we have a hard time wrapping our minds around they're trying to secure a border system that's three times the length of the American borders with half the population okay now if you take Russia Ukraine bellarus the combatants of this war you put them into a bucket collectively they are the world's largest supplier of the First Column second largest for the second and so on now I was in Langley about a month ago basically just doing this slide the 64 words on this slide for four and a half hours yeah yeah that wasn't intimidating at all uh we're going to talk about a few of these in peel outs that are relevant for you guys but there's just one that I want to kind of draw special attention to Neon is used in the cartridges that Focus the apertures of semiconductor fusing lasers that's how we etch the semiconductors you produce neon in a two-part process first you have a steel mill that has an air separation unit and the the air separation unit pulls out the oxygen and n of the air floods it into the uh combustion chamber in order to generate the heat quotient that you're after and then everything else is put into an extra canister which is sent to a more advanced facility where they pull out and purify all the trace gases you know the Argon the carbon dioxide and the neon the first stage for air separation that steel mill is traditionally done in the Russian space in Russian steel mills which are all under sanction and which are shutting down the second stage the purification was done in marle which is gone that was 80% of global neon Supply which means at some point in the next 12 months we get to figure out what goes back to analog because building out a replacement neon system is a minimum of a 2 to threee Commitment just file that in the back of your minds you want to give up your cell phone your dig ized car your computer your airplanes your servers Big Data what what can you do without we're going to have that conversation next year we'll have other conversations next year what we have here is a pipeline map we're looking specifically at the green lines those are the oil lines and specifically we're interested in these terminal ports in the north on the Baltic you've got pror in the south on the black you've got Nova AIS and the reason that these matter is insurance I know I know guys it's 9:00 in the morning we just had breakfast there was biscuits and gravy and you're going to talk to us about insurance work with me this will get sexy fast you cannot enter a port or leave a port or go into a constrained Waterway like say Panama without an insurance policy on Your Vessel and the Japanese Americans and Europeans now have a sanctions regime on Maritime insurance so that no Russian tanker of or no Russian ship of any type can get an insurance policy the way that the Russians and the Chinese are collaborating to get around this is the Chinese have rented a half a dozen super tankers that they've lashed together into a ra and have parked off Portugal and the Russians are renting shuttle tankers because super tankers can't sail into these ports anyway it's got to be small tankers to make the run from these two ports to Portugal to do a ctoc transfer to the the raft and then the raft is a CTO SE transfer to a super tanker that can make the long run around the continents to the Chinese Coast there's no end of ways that this can go delightfully wrong in a short period of time CTO SE transfers in the best of conditions and calm Waters just outside of ports are already among the more dangerous things that Pilots can do and to do them on the high seas wow uh or you may have noticed there's a lot of countries along these routes that don't like the Russians very much the Russians are offering Sovereign and Demon ifications for those shuttle tankers and it comes out to about a payout of about a billion dollars each if something goes wrong so can you imagine laia just waking up like one idle Tuesday I think I'm going to cause the billion dollars of worth of damage to the Kremlin yeah that sounds like a fun Tuesday if there's any Interruption to the flows no one is going to let their ships go into these ports and if that happens we get a problem with oil overnight because this is not Texas if these ports cannot discarge cargo disgorge cargo pressure will build up in the pipes all the way back to the Wellhead and unlike West Texas the well heads in Russia are in Siberia and they're in permafrost where are my Northerners there's got to be a few of you here you came where it's warm one northerner okay he knows what's up when it's cold in the north as long as you keep moving you're fine if you stop you freeze today death same with oil as it comes through the that as the oil comes up through the subsurface Frozen layer it would turn to gel if it stops and the water that comes up as a byproduct of all oil production would freeze into ice and when water freezes it expands and it cracks the pipe from the inside we know this will happen because it's happened already in 1992 when the Soviet system collapsed shut the entire system down for a while they didn't repair all the damage for 30 years and wasn't the Russians that repaired the damage it was the Western Services firms which are for the most part gone so we're looking at 4 million barrels of crew that will fall offline and oil is not like other products Energy Products have inelastic demand so if you need a gallon of gas to get to work and you can't get that you can only get 9/10 of a gallon that last tenth whatever you have to pay to get that and you will pay anything that determines the price for the entire Market so we can easily have $150 to $180 a barrel crude when will it happen well when the Lans do something when we have an accident on the raft or maybe January because on January 1 the sanctions regime expands and goes from any Russian vessel to any vessel carrying any Russian cargo January 1 same map we're now looking at the red lines the natural gas lines and and this is the one that matters this is nordstream this is a subsea pipe from the Russian Mainland direct to the German Coast it provided 40% of Germany's total demand so it was not a marginal supplier it was their Baseline supplier the Germans are attempting to replace it with seven different marginal suppliers and so of course natural gas prices in Germany are seven times what they are here and they're never going down and somebody blew it up about two months ago the Germans don't think of energy the way we do we are very agnostic about our energy we take oil from Canada from Mexico we make a bunch our cells we get some from Saudi Arabia if we don't think anyone is looking we'll take some from Venezuela that's not how it works in Germany Germany's in a tough spot it's in a difficult neighborhood from a strategic point of view disruptions are common so they prefer to do locked in contracts over longterm at fixed prices with State companies because they need the reliability day by day they don't have that anymore and they don't just use natural gas as the base for their electricity system they also use it as the base for their petrochemical system and the petrochemical outputs are not exported they then form the base of their manufacturing system well that first link has been cut and the rest of it is now falling apart BASF their chemicals major is in the Pro is in the process of physically dismantling a lot of their industrial chemical producing facilities in Germany and shipping the components to the US Gulf Coast in a desperate attempt to establish an alternate Supply system they hope that within two years they can build out sufficient processing capacity in North America and then ship those intermediate products back to Germany to save their system but that would require a buildout that is faster than what the Nazis did at home during World War II color Mak skeptical more likely the entire German manufacturing model is going to collapse within 24 months if you want a BMW I suggest you buy the current model it's probably the last one be sure to get 10 years of Parts too those are going to be hard to come by it's going to get so much worse because this is the backup plan Pipelines that go through the conflict Zone in an artillery War yeah that's not going to work okay one more small issue before we get to the big stuff chairman G has Consolidated power unto himself more than any other human in history he now has a cult of personality tighter than the Kim Dynasty in North Korea tighter than Nero of Rome and he's ruling like Caligula he hasn't intimidated into silence or exiled or imprisoned or just Flatout executed everyone in the PRC who is capable of independent thought he has become everything that Donald Trump always dreamed of it's the voices it's worship and there's nothing in between and so we are seeing cascading policy disasters you guys remember last May when we saw rolling blackouts in the Chinese system G didn't find out until September because nobody wanted to tell him you know who ultimately informed him of it Joe Biden now I'm going to go out on a limb and guess lots of people have lots of opinions about Uncle Joe but I don't think there's a person here who turns to him for breaking news it's not that people don't want to bring him bad news it's people don't want to bring him any news cuz they never know what the status of the conversation in his head is and how he's going to take it and he literally kills people so another good example February of this year Putin and G had their T AET just before the war and Putin lied to to G's face like oh yeah no we're not going to invade Ukraine that would be crazy why would we do that can you imagine the Intel people and the military people in the back of the room like tell him he like no you tell him and so was the only world leader who was caught with his pants down the topic of the day of course is co now I'm going to guess that there's a diversity of opinions that we've been exposed to on that as well we are in Texas some of us are like vaccines are the way out of this others are natural immunity is the only way we can get through but I think if we're all being honest with ourselves not other people ourselves at home with the doors locked in the dark with the blinds pulled with ourselves we'll admit that the other side has a couple of points that are probably worthy of consideration is that fair okay thank you audience participation I appreciate that these aren't options in China and not just because it's an information controlled State the Chinese vaccine does not work and because the VAC the virus has not gotten fast and loose in the population no one has natural immunity now the current strain what are we up to Omron Theta QX threatcon fuchia 7 I I've lost track but I know that it's got more communicability than the measles and at least five times the fatality rate you release that into the general population that is unprotected and you will have two to five million dead Chinese citizens a month for a minimum of six months and in a cult of personality government system that is a regime ending experience their only options are lockdowns now they have stolen the technology that is necessary to try to make their own domestic mRNA vaccine vector and they've launched their first two but they don't really understand the technology they have very low hopes for them they have deployed those to Indonesia and the UAE for testing they're not going great but they're hoping to learn enough that they can then do a second and a third and a fourth round and they're hoping to have a domestically generated vaccine in Mass application sometime in 2026 so the disruptions we have seen out of China to this point this is the new normal for a minimum of another three years assuming nothing else goes wrong so many other things are going wrong let's start with oil that raft is going to go away soon that's a million to a million and a half barrels a day that the Chinese get right now that they won't they get another about a million and a half barrels a day from Eastern Siberia which are fields that the Russians didn't develop that was all BP and the services firms they're all gone we've never had this sort of technical pullback from projects before so we don't know how long the Russians can keep them running but we know the Russians don't have the technical skill to maintain those Wells so is it going to be 2 months 4 months 8 months 2 years we don't know but we know the are all going to zero and the Chinese have to suck up the near entirety of that shortage too meaning that China will be the economy that suffers more from the Ukraine war than anyone other than Ukraine itself and then there's the minor little detail that about two three weeks ago the Biden Administration killed the entire Chinese Tech sector there's there's this weird delusion in the west especially in the United States that China is a technological peer and that is not true they cannot make the highquality chips they cannot make the mid quality chips they can only make the lowquality chips and only with imported equipment with imported tools to operate that equipment with imported software to run the equipment and with imported management staff to oversee the entire process within the last month the bid Administration has said no importing of the higher the mid-quality chips no importing of the equipment or the tools or the software and if you're an American citizen employed in this sector in China you know how to choose between your job and your citizenship and within 24 hours every American in the sector was either transferred abroad or quit it's over and anything that comes from any of those steps is also over because without those high-end chips the Chinese don't have servers they don't have a social management system they don't have the great firewall they don't have an AI program they don't have a Hypersonic program they don't have a big data program it's over they can assemble with imported components that they're allowed to import and that's it all right oil back in 2014 a narrative took hold what we're looking at here is total investment from all government and all private into all oil and all gas back in 2014 a narrative took hold that oil was done from a financial point of view if by 2040 we are going to keep us below that 2° centigrate threshold that everyone keeps talking about we need to purge carbon from our systems it takes three to eight years from first investment for an oil or gas project to reach first production and then another five to 15 years for it to break even that's already past 2040 so why would you put your money into a project that you will never get paid back for that's the logic now there's a freight train of logistical flaws in that argument but it took hold in the financial sectors in New York and London and the rest and we got something called ESG investment to the space dropped by 70% in seven years so if we triple from 2019 I'm sorry from 2020 levels today we should not expect first largescale commercial flows before 2026 just kind of keep that in the back of your mind now luckily what is true for the average is not true for each individual piece thank God uh this is my favorite graphic sequence I like to call this the checkbook map because everyone up there has paid their power bill here are the world's conventional oil and natural gas producing zones in a snapshot this is the agony of globalization bringing the energy from where it is produced to where we actually use it but here is the world's commercially viable shale there are a dozen 20 things about the American Energy complex that are fundamentally different from everyone else's I think this is the most important at least for Today We Live where we produce and we're the only ones who do that so we've got options when things like Russian crude fall off the line all right same map we only have one person from the north are you from the Upper Midwest Minneapolis okay he he gets it what we're looking at here is the Upper Midwest and as he knows he'll tell you later this is the most important city in the history of human civilization it's Marshall Town Iowa it's where I'm from this is bismar North Dakota if you find yourself in bismar you're going to have to sit down and ask yourself a very serious question how the hell did that happen and this is not a party Western North Dakota population four it's lit up because of a problem with transport oil is a liquid it conforms to the shape of its container you can put it into a rail car tank or truck whatever but natural gas disperses and you have to have a system to gather it to transport it to distribute it and to use it and that all has to happen at more or less the same rate because storage is very difficult and expensive now we've got the world's largest and most Diversified natural gas system but we can't keep up with what is bubbling up as a byproduct from our Shale oil pre yields and you're going to see things like this in all of the Shale projects that produce oil so that's the peran that's the eagleford or in this case the backen we have to flare it until we can build out the infrastructure which means in the United States only in the United States natural gas has been priced as a waste product and that's changed everything here's Henry Hub our primary natural gas pricing facility for those of you on the Gulf Coast you of course know what these are those are hurricanes storm comes through the gulf they shut everything down they go back out the next day they spend weeks if not months repairing the damage you get an elevated price situation that lasts a while but by 2009 the majority of natural gas consumed in North America came from the Shale projects and every Shale well is on Shore so weather ceases to matter from a production point of view all right where are my Texans Texans well shy this morning usually there's like whoops you of course know what this is this is last January when Texas got cold got down to 25 and everything stopped working oil natural gas solar wind nuclear coal it just all stopped there were there were there were snowmen in San Antonio they were sad snowmen but they were there for a week and here's here's what we're all bitching about right now back in September we hit $9 with natural gas double what we had been used to for 15 years $9 in inflation adjusted terms is right at the 50-year average we are bitching about average Energy prices you guys want to see what the Asians and the Europeans have to deal with because of the Ukraine war disruptions three years minimum to bring new Supply online assuming the war in Ukraine stops tomorrow the infrastructure's already been destroyed this is the new price level for them it can get a lot worse it will get a lot worse there's a fun Al break that's already happened world hasn't processed it yet the Europeans are already in an energy induced recession many of the countries in Europe will not recover from this the only way that the Germans have kept the lights on is by shutting down industrial production completely I would say that the Chinese are in an energy induced recession already but they were already in a recession because of Co they're not coming back people we are losing German and Chinese manufacturing at the same time and it will not recover and we just have to deal with that now this matters Beyond manufacturing because part of the industrial output that has been shut down in Europe is anything that has to do with say nitrogen type fertilizers we're also losing potach type fertilizers because of what's going on in the Ukraine war and because of Chinese mismanagement we're also losing phosphate type fertilizers let me give you an idea of where that little nightmare goes this is the us fertilizer system that first line of really big numbers is the percentage of each nutrient that is imported and then the pie chart shows where we pull it from you'll notice that for the United States for nitrogen and for phosphate we are mostly self-sufficient it's only potash where we have an exposure internationally and we get almost all of that from Canada so you know they are good for something this sliver is the only part that we used to to get from the conflict Zone and we are the world's largest agricultural producer and exporter the world's second largest exporter is Brazil we were very lucky this year everyone had a fertilizer reserve and the weather was perfect in almost every agricultural Zone on the planet the reserve is now gone the disruptions are at the base so a replacement system is 3 to 10 years away basing on nutrient and mother nature is never kind for 24 months in a row we start food shortages next year I hate this graphic the blue and the green are the world's major sources and exporters of calories in forms of grain and soy blue and dark green everyone else is n importer you disrupt the fertilizer flows and these are the countries facing at least a 40% reduction in their ability to grow the crop in the first place assuming nothing else goes wrong and so many other things are going wrong this triggers a multi-continental famine that will start by the third quarter of next year okay let's get to your business model let's talk Finance this is net worth by decades every year you are in your job you get better at it you get raises your skill increases you become more productive you get wealthier as you go but the real magic happens when you turn about 50 because that's when your biggest expense your last kid leaves home and is someone else's problem a lot of people just turned 50 noted and with those expenses gone but your income still Rising you have extra cash to throw around and when you turn 55 on average that change means you've probably paid down your second expense your house and from 55 to 65 you're typically debt free your income keeps going up your expenses are lower and you're the wealthiest you will ever be in your life from 55 to 65 that's Surplus Capital that is 70% of global private Capital that's where the money is now normally when you turn 65 the picture changes because if there is a currency crash if there is a market crash you no longer have income because you're retiring and so what you do when you turn 65 is you liquidate your more prospective Holdings you go out of stocks and bonds into T bills and cash so you can weather any sort of financial crisis and be fine because God forbid you have to go back to work when you're 74 normally this doesn't doesn't matter because normally we have a demographic structure that looks like this this is a standard profile you got children at the bottom young adults mature adults retirees at the top men on one side women on the other normally the thin sliver of people who turn 65 year old 65 years every year is a small group and there's more people 64 below that and 63 below that and this proportion has largely held true for 4,000 years of recorded human history until recently because at the end of World War II the Americans changed the way the global econom economic system worked we enabled globalization we patrolled the Waters of the world so that anyone could go anywhere and interface with any partner and that changed National economics it used to be if you had oil and coal and food you could make something of yourselves throw iron ore in that too but if you didn't have those four things you were probably a colony with globalization you no longer needed all four you just needed one and you could trade internationally for the other three and so the entire planet started to industrialize and move up the value added scale and that changed Regional economics because now that there were there industrialization going on we started taking industrial and services jobs and that moved us off the farm and into the town and that changed family economics because when you live on on the farm kids are free labor you have as many as you can everyone loves free when you move into an urban condo however kids are no longer free they are very expensive very loud very mobile very dirty pieces of furniture and adults are not stupid so we had fewer 75 years on that changed our demographic from something like this to this and suddenly it matters when people turn 65 the Baby Boomers are the single largest demographic we've ever had obviously that's important for Social Security and Medicare and Medicaid not going to try to talk you out of that but think about what it means for finance because they're all turning 65 they're liquidating everything and on average America's Baby Boomers turn 65 this quarter we are here we have known since the 60s that between January of last year and December of next year the cost of capital in the United States has to go up by at least a factor of five independent of anything the Federal Reserve does that the FED is locked in a death battle with inflation and the business cycle might be turning at the same time that's just bad luck that's on top of the demographic change in capital Supply the other problem problem of course is that the baby boomers are our largest generation ever which means they're our largest worker group ever on average they're retiring right now energy inflation food inflation housing inflation these are all real things but I'd argue that labor inflation is feeding through and is more important than all the others put together and there's nothing that policy can do about this if you want more 40y old workers you are 41 years too late the replacement generation are the Zoomers they're the smallest generation we've ever had they've all already been born we know exactly what the feed in is to the labor market for the next 20 years they're already here between the largest generation ever leaving and the smallest generation ever entering we have a worker shortage of 400,000 workers this year it's just math that number will increase for each year for the next 12 before peaking in 2034 at a shortage of 1 million annually it's hardwired in and it's so much worse everywhere else in the United States we have these guys the Millennials who will save us all they're a large generation they're providing consumption today and when they enter their 50s in the 2040s they're going to be 50 in the 2040s it's not that far away midlife crisis here they come they will be providing Capital so if I was to give you any advice today if you're only going to remember one thing higher and borrow higher and borrow higher and borrow because the labor situation today is the best it's going to be for 20 years and the capital situation today is the best it's going to be for at least 10 don't wait three months don't wait six months don't wait nine months don't wait 90 months do it now it's only going to go down from here because of demographics until the 2040s and 20 or 2030s and 2040s

Channel: BEC Finance

Views: 180,473

Keywords: peter zeihan full interview 2024, peter zeihan, zeihan, peter zeihan presentation, china, china collapse, russia ukraine, economy rise, inflation

Id: BpLRSeJ2EXs

Length: 34min 57sec (2097 seconds)

Published: Wed Apr 24 2024