TRANSCRIPT: Byron King on Russia, Energy and Gold - Part II

And now for some more Fatal Conceits…

Last week we brought you Part I of our conversation with Harvard trained geologist and natural resources expert, Byron King. There was a lot on the table for discussion.

For instance…

Have you noticed news from the Ukraine seems to have dwindled over recent weeks? What was once non-stop, wall-to-wall coverage now garners comparatively little attention. Of course, there are other issues at hand… like inflation at a four-decade high… the worst start to the year for stock markets in half a century… and for bond markets in over 200 years…

And now, we learn that the US has registered two consecutive quarters of negative GDP… the common definition for a recession, and the one practically everyone who follows the economy at all still uses.

But all that doesn’t mean the impacts of the war – and the west’s response to it – are not working their way through the system. In fact, the knock-on effects for international energy markets, global supply chains and even sovereign currencies could hardly be overstated.

As usual, Byron had plenty of insights on all of the above, and more. (If you missed Part I of our conversation, you can catch up here.)

In Part II of the discussion, we pick up the action with the idea of a “methane-backed ruble.” That is, what happens if and when Mr. Putin decides he wants to back his national currency, which is stronger today than it was before the first tank rolled across the Ukrainian border, with Mother Russia’s vast energy reserves?

What does that do to the heretofore assumed petrodollar hegemony? Might Japan, almost entirely dependent on foreign energy (mostly from Russia), be forced to settle its contracts in Russian rubles? What are the other BRICS nations (Brazil, India, China and South Africa) thinking, as they stand by and watch the weaponization of the US dollar? Might an alternative to the petrodollar begin to look attractive to them?

There’s so much to cover, from the war itself to Russian military supplies, the unipolar verses multipolar political landscape, the philosophy of Eurasianism and much, much more…

You can listen to the entire episode by simply hitting play above or downloading the Substack app (see the little headphones button there to listen in).

Oh, and if you like what you hear, please help us spread the word by sharing this episode with comrades and enemy combatants alike, right here…

For Bonner Private Research members, there’s a full transcript, lightly edited for clarity, below the paywall and on our Substack Page. If you’re not already a subscriber, but would like to enjoy the many benefits that come with membership, you can sort that out right here.

We hope you enjoy the show…

Cheers,

Joel Bowman

Joel Bowman:
Welcome back to another Fatal Conceits Podcast, dear listener. A show about money, markets, mobs, and manias. Not necessarily in that order, of course. If you haven't already done so, please feel free to check us out on Substack. You can find us at bonnerprivateresearch.substack.com. There, you'll find hundreds of articles on everything from high finance to lowly politics, plenty of in-depth research reports, and of course, many more conversations like this under the Fatal Conceits Podcast tab at the top of the page.

In part one of my conversation with Byron King, which we published last week, he and I spoke about the ongoing war in the Ukraine and what that means for international energy markets. Specifically, Germany's coming "energy Stalingrad." We also looked at what a decade or more of under investment in the real, stuff-based economy means for us today. That's everything from a lack of real investment in research and development through to a paucity of human capital. And we spoke about the ongoing financialization of the Western economies and what that might look like in reverse, during a de-globalization phase. If you haven't already done so, you can check out part one of my conversation with Byron King. Again, that's on our Substack page at bonnerprivateresearch.substack.com.

In today's episode, we bring you part two of my conversation with Byron. We pick up the action while we're wondering about the potential of a gold and/or methane backed ruble. What impact might that have on global markets and, of course, the long enjoyed petrodollar hegemony. Might all that be coming to an end? I also ask Byron where he sees markets headed for the back half of the year and ask what he's doing personally with his own investments. There's all that, and plenty more, on the table in today's conversation. I invite you to please enjoy it after the break.

Getting back to the money underpinning all of this, Byron, I asked you back in May about the possibility of a golden/gaseous ruble. You called it a methane-backed ruble, I think. How has that played out now? You mentioned, obviously, Putin playing his hand with the energy markets. What developments are you seeing along the lines of a potential bifurcation of global monetary systems and so forth?

Byron King:
Oh, I think that we are watching a slow unfolding of the next step of de-dollarization. I don't think the Russians perceive any real reason to make it all happen in a hurry. The Russians are still insisting on rubles for natural gas, and so there are countries in Europe that are making these deals. I mean, Hungary is like, "The rest of you guys in the EU, you do what you want, but we're Hungary. We want natural gas. We get cold in the wintertime. We want that Russian natural gas," and the Russians are like, "Yeah, sure. We'll make you a deal, and we'll work it out with you." Serbia is in the same boat.

There are companies in Italy, in fact, that are again talking with the Russians. "Listen, guys. We want to work with you. We want to make a deal with you." You see that, but at the same time, you've got the high level political types. The Northern European political honchos, who are still banging the drum about how we're going to sanction Russia. "We're not going to buy anything from them," and everything else. It doesn't matter to Russia. They're going to sell their oil, their gas, etcetera to China, to India. Russia just fired a huge shot across the bow over in the Far East with the Sakhalin-2 project, where they essentially nationalized it.

They said, "I mean, we know that you foreign companies own sections of this, but we're taking them from you and it's ours now." Now, if you're Japan and you are entirely reliant, 98% reliant on imported energy, much of which is Russian oil, Russian natural gas, you have to be looking at this and thinking, "Oh, my God. Holy smokes. Now, what?" There's so many things going on. There's so many moving parts to it. I mean, the Saudis are talking about not adhering a hundred percent to the old petrodollar idea.

Joel Bowman:
They're in talks with the Chinese, right?

Byron King:
Yeah. They're making deals with the Chinese to sell oil in Yuan. The Saudis, they'll take Chinese Yuan, and then they'll go back to China and buy Chinese things.

Joel Bowman:
And that's 25% of the Saudi total (oil) exports, straight to China, a not insignificant portion. And so, what happens then with Japan? To go back to the Far East, for example. If, let's say, Mr. Putin decides, for his next chessboard move, that he's going to demand gas sold down into Japan – again, another not insignificant market – if he demands that be settled in rubles?

Byron King:
If they want to keep their houses warm, their industry's running, the chemical industry working, they're going to have to make a deal with the Gazprombank. I mean, Gazprombank, the bank owned by Gazprom, is set up to say, "Okay. We will take your Japanese yen," or, "We'll take your dollars. We, the bank, and we'll convert them to rubles. We will be able to say that you are buying gas in rubles." But, what's really going on here is, there's an international currency exchange going on. Yen for dollars, dollars for rubles, however the wiring diagram is on any given transaction.

But what it does, it strengthens the ruble as a currency. I mean, the ruble today is a stronger currency than it was back in February. Again, before the first Russian tank rolled across the border. I mean, when President Biden says, "Oh, we've turned the ruble to rubble," it's like, "Well, that didn't last very long now, did it?" Yeah, sure. In the context of a week or two, you crashed the ruble and things were in turmoil for a little bit, and then the ruble just got stronger and stronger and stronger. We talked about this before. When the Russians said, "We'll pay 5000 rubles per gram of gold." That 5000 has changed since then, but that's still out there.

There is a ruble to gold, ruble to natural gas, hence energy to gold if you do your geometry, your 10th grade geometry. If you start to connect these little angles here, there is a ruble energy gold connection to whatever the price of natural gas is, or gold is, in dollars, that feeds back into the strength of the ruble. I think one of the big issues is not what happens when the dollar collapses. "When the dollar collapses." It's what happens after. What will replace it?

Joel Bowman:
Right. What replaces a petrodollar? What does that look like geopolitically as well, very interestingly, because the US, since the collapse of the Soviet Union back in '89 or '90, has maintained this dollar hedgemony, as a kind of unipolar superpower in the world. As you mentioned at the beginning of our conversation, 30 years of diplomacy that has gotten us essentially to where we are today. Now, it looks like that is being turned to rubble. Just to point out the facts.

Byron King:
Absolutely. I mean, I think most Americans have a sense that, "America, we're a big powerful country," and everything. If you said to them, "Do you understand the concept of a unipower," They would think, "Well..." If you talked it through, they'd be like, "Yeah, okay. That means we're number one," and all this sort of thing. Well, that's a myth. That is a myth. That's mythology, because America is not number one. We are not an energy-dependent country anymore. We have completely mismanaged our own internal energy system. We're having brownouts and blackouts across the country as the summer unfolds. We've mismanaged basic things, like food supply. I mean, what big powerful country doesn't have baby formula for months at a time? It's crazy.

I mean, it's not that America is a weak nation. No, we're not, but the rest of the world, they're coming out of their shells. Industrially, there is simply no competition in basic industry to, say, China. I mean, they pour over a billion tons of steel a year. The United States last year, 2021, poured 85 million. I mean, it was 12 to one. China poured 12 tons of steel for every ton that the US poured. What'd they do with it? Well, they're building China. Building railroads, building cities, building ships, building whatever. Big country, big build out. In terms of Russia and Russian technology, there's this very strange concept in the US and in the West that the Russians are... "They're dumb. They can't do anything right," and all this sort of stuff. I don't know about that.

I mean, if you look at the International Space Station orbiting over the earth, two thirds of that space station was built by Russia. I mean, for 10 years, we couldn't even get our astronauts up there without riding on Russian rockets. When people say, "Well, they're getting their butts kicked in Ukraine." No, they're not. I mean, who says that? They must be reading Western propaganda, because if you actually follow the facts on the ground, the Russians are using maybe 20% of their combat power in Ukraine. They're moving at their own pace. They've got weapons and systems behind the lines that they've never used just because they don't want to show us what they look like, but we suspect we know what they are. We don't ever want our guys to face their guys using those weapons, because it's going to be a mess.

Putin talks about "new physical principles." Well, that gets back to the unipolar/multipolar aspect of the world. The world is going multipolar. The West has a certain philosophy about what life is and what the culture should be, but so does Russia. There's a concept in Russia, and very, very few people talk about it outside of Russia, it's called Eurasianism. There's a whole school of thought around this in Russia now. It's like, "We are not Europeans. Especially, we're not you Western Europeans, with all your decadence and all your weirdness. We are slightly European, but we're really Eurasians because we span the continent. The iron ribbon of the Siberian railroad ties us together." But, there is a whole school of thought in Russia called Eurasianism. That is how they see their future.

That's a whole talk in and of itself. I mean, people write books about it. If anybody's listening to this and they're curious, go to Amazon and dial in "Eurasianism" and you'll find a whole bunch of books all about it written by ivory tower scholars. It's not something that you're going to hear on 60 Minutes, or the nightly news, or something like that, but that philosophically is what's animating a lot of what's going on in Russia, Russia-China, Central Asia with all the 'stans down into India. There is a whole sense that, "Okay. You Westerners, you had your couple of centuries of expansion, colonialism, and all that sort of stuff. You've played a really good game with this petrodollar thing for half a century. You pay us these alleged petrodollars and we send you real tankers full of oil. The dollars never even leave your country, because they wind up back in your banks and your treasury bonds. Somehow or another, we send you stuff, but we don't anything back for it. We're coming to the ending whistle of that game. It's just a question of when, not if.

Joel Bowman:
It does seem ultimately a kind of war of attrition, as you mentioned, with Russia happy to bide its time there on its Western front. It does seem like Putin will be able to go without Netflix and McDonald's for a lot longer than the West will be able to go without titanium and noble gases, for example.

Byron King:
Absolutely. People say these things that are just silly. They say, "Oh, the Russians are running out of ammunition." Every two weeks, there's a headline, but they have another two weeks worth of ammunition. No, they're not. I mean, are you kidding? ILook, I'm an American retired military guy and I know, I absolutely know Russia has entire mountains hollowed out filled with ammunition, with train tracks running right into them. If they need ammo, they just load up another train and off it goes. They have everything they need, whereas in the US... For example, just look at US artillery round production for the last, say, 10 years. If you took every single artillery round that the US Army Marine Corps produced in the last 10 years, and you somehow magically put them in Ukraine and fired them off, you would have about a month's worth of ammunition supply. 10 years would be shot off in about four or five weeks.

Joel Bowman:
That's incredible.

Byron King:
Right. The last three years of ammunition production would probably last about five days. I mean, that's the rate of expenditure. We say, "Well, we'll just buy more ammo." No, we won't. You need an ammunition factory to do that. You need a big plant. You need steel, you need chemicals, you need electronics. You need people who actually know what they're doing. People think, "Oh, yeah. You just crank those ammo rounds out like hot dogs," or something. Actually, no. You don't. I mean, you practically hand build an artillery shell, which means you need hands, which means you need somebody attached to the hands with a brain inside their head who knows what they're doing. Russia has factories for this. Russia has entire cities where they do this stuff. We don't in the United States, nor in the rest of NATO and everywhere else. It's depressing to talk about, except it happens to be true.

Joel Bowman:
Yeah. Again, if it hasn't been clear thus far in the discussion, this is just the facts. This isn't in praise of one side or another. This is just trying to basically get to the bottom of what's going on without any political persuasion here. Just the facts, as I said, but it does appear, when you read the Western media, that the "two weeks to run out of Russian ammunition" is the new "two weeks to flatten the curve." And we know how that claim went. Byron, I know you've got a shoot off for another appointment here. Finally, I've got a quick question from our mutual friend, Bill Bonner, for you. It's going to be a huge, huge achievement for you to condense an answer into the couple of minutes that we've got remaining, but maybe you can give a plug for some of your own writings, let people know where they can find all that good stuff. But to Bill's questions, he wants to know, Byron, what the hell is going on in the markets, and what are you doing with your own money?

Byron King:
Well, I am as worried as anybody else about the markets. The markets have slid down. I think they have further to fall. I mean, I think they could plateau along for a while, but I think they could also fall some more. It's July, and in August, half the world goes on vacation, although that doesn't mean that bad things don't happen in August. Then in the fall, typically... If we're going to have another market crash, why not in the fall? But me? I'm invested in mines and miners. A whole bunch of juniors that I know very well. And when I invest in a junior mining company, it's because I know the people. It's because I've visited the project, the site. It's because I've held the core from the drill rig in my hand. It's because I've looked at what they have. I believe in the asset. I believe in the technical people. I believe in the management. When I'm investing, that is what I do.

I think energy has a nice, long upside to it. We've passed that inflection point where we can just fix it with a quick remedy, or whatever. Standby for energy to be more and more expensive over time. We were talking about Germany, and we were talking about exporting LNG from North America to Europe. Well, if we really do turn natural gas into a global commodity ,as LNG, then we in North America are going to be paying far higher prices. If you heat with natural gas, or you use natural gas for industry, it's going up.

Where I live, I heat our house with natural gas, and I fully expect my natural gas bill to triple this coming winter. Like a lot of other people, I have cut back on things. I mean, I drive less because gasoline is twice the price. I'm a much more discerning shopper in the supermarket. I actually look at the labels and look at the price tags on things before I toss them in the cart. The travel that I'm doing, it's business-oriented travel. If I can get somebody else to pay for it, that's even better. Get the company that I'm going to go visit to pony up. "Okay. I'll come and look at you, but you guys have to share the burden here." Now, I'm not slash-your-wrist depressed, or anything like that. No, I think there's incredible opportunities out there for patient investors who are looking for bargains. But you've gotta be willing to ride the rough waves.

I think gold/silver are wealth preservers over time. It's just a question of when and how long. Other things, like copper and other base metals, they absolutely have to do well because there's not enough out there considering the future demand that's happening as we speak. I mean, the battery metals, the technology metals. We could talk about that all day, but there are some incredible opportunities out there just waiting, which is not to say that in biotech, in robotics, in AI, and in medical system people aren't going to be making huge amounts of money investing in that too. That's just not my strength. If you're looking for the best biomedical ideas, I'm not your guy. But, in terms of what I'm looking at right now? Well, this is the 78th anniversary of the Bretton Woods Conference in New Hampshire, back in 1944. Then, Nixon took the world off of the Bretton Woods standard in 1971, so it's the 51st anniversary of that come August 15th.

I anticipate that there is going to be upheaval in the basic units of currency that we use to denominate everything. I mean, we call them dollars now. A long time ago, people called them seashells, or whatever. For a while, people called them gold. What's going to replace the dollar? I don't know, but something is. Something's going to. I think, on the other side of that event horizon, you want to have real things that will preserve your value in whatever it is that they are denominated in or calculated in. At some point or another, a chunk of copper is always going to be worth something. This copper is from Keweenaw Peninsula, Upper Peninsula of Northern Michigan. This is elemental, native copper. This got pulled out of a rock by a glacier. That's why it's rounded looking. This other one here is from Keweenaw too, but this I chopped this one out of a rock. This was copper. Anyhow. This stuff is future wealth, is preserving your wealth.

Joel Bowman:
Sounds like "stuff" is due for a comeback. And if there's anybody who knows a thing or two about getting stuff out of rocks and from under basins and subterranean, high-pressure deposits, it's Byron King. Mate, thank you so much for giving us the low down on everything from the geopolitics unfolding over in Europe to what we can expect back here in the West, in the Americas. And we didn't even get to South America in this call. We'll have to save that for an entire another discussion.

Byron King:
Another time. Thanks so much, Joel.

Joel Bowman:
And thanks to you, Byron. Thanks so much for your time. Always a pleasure to chat to you. Again, readers please head on over to bonnerprivateresearch.substack.com for many more conversations like this and plenty of articles, reports, and other resources besides. Again, it's been a pleasure. This is Joel Bowman for the Fatal Conceits Podcast.