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We've got Dan Drifus on the show. He's with Fortnite Capital. >> We're going to be measuring human
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progress by how much electricity we consume. The semiconductor industry, I view that as an industrial or
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infrastructure company. I mean, it's effectively a factory. We try to figure
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out where the world is going and then we try to figure out what we're going to
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need to get there. In the next 10 minutes, I am going to try to teach you about critical
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minerals, commodities, our incredibly fragile infrastructure here in the US that is going to require trillions and
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trillions of dollars of investment if we want to achieve our technological objectives, our reshoring,
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re-industrialization objectives, and our national security and military objectives. news. But first, a little
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bit of history. We are at a very significant inflection point right now in US economic growth
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and what it's going to look like. really from the early 2000s until just a few
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years ago, the US went through effectively what I think was an economic miracle where we created so much growth,
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so much market cap, so much value without really having to invest any capital at all. I mean, think of all the
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companies that were created with no capital. You had Google with the search engine. You had Meta with social media.
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They bought WhatsApp for $30 billion with 12 employees, you know, no capital whatsoever. You had the streaming
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platforms. You had the food delivery platforms. You had Apple computer which was Capital Light created trillions of
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market cap. You had software as a service. Absolutely no capital required to create all that value. And at the
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same time we were creating these companies, at the same time we were doing that, we were literally tearing
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down all of our critical infrastructure and moving it overseas to China. So we were really doubling down on that
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capital light mentality. But then it sort of started to come back to bite us, right? We had COVID, we had the Russia
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Ukraine conflict, we had the tariffs, now we have the Iranian conflict. And every time we had one of these
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geopolitical flare-ups, inflation spiked like a rocket. You need a telescope to see how high inflation
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went. And it never came down. And the reason for that is we let our supply chains get way too fragile and way too
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weak. And there's no resiliency in the supply chains. And now we're at this
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inflection point where we want to reshore everything that we tore down and moved to China. We want to
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re-industrialize. We have this technological compute revolution that is infinitely more infrastructure intensive
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than compute was in the last generations. And this is creating this really wild demand shock for
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infrastructural critical minerals commodities at the same time where there's a supply shock because we just
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haven't invested in this stuff for so long now. There are so many capital cycles going
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on at the same time. I've never seen this many going on at the same time in my career. We have the aerospace cycle.
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Boing and Airbus have a trillion dollars of backlog over the next 10 years. Now throw in the space economy which is
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going to compete for the exact same materials and backlog that Boeing and Airbus are trying to source. We have the
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grid right anytime it gets a little bit cold in Texas. The Eurot the Texas grid's not connected not connected to
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the rest of the US grid. Every time it gets a little bit cold that grid shuts down and they're freezing in the dark.
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Then we've got, you know, here in California, Paradise, California, that power line
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that caught on fire and killed 300 people. Did you know that that power line was over 106 years old? There's
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parts of the grid in this country that are over 106 years old. And here in California, if half the people buy
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electric cars or there's robo taxis and we all go and plug them in at 6:00 p.m.
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after work and turn up the air conditioning, we're just going to kill the grid. Boom. We're going to kill it.
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We're all going to be sitting in the dark. So, the grid barely works for what
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we need it for right now. And we haven't even started talking about the tsunami
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of demand, electricity demand that AI is going to bring. And there's power generation. You know, we've let China go
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and build multiples more power generation than what we have here. And this is a trillion dollar plus capital
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cycle. That's probably going to be a trillion dollars every 10 years for the
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next 30 years. data centers. This is now a trillion dollars per year. Per year, all infrastructure, all all commodities.
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Then there's semifabs. Um the CPU is making a huge resurgence. CPU intensity
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is is going up like a rocket. And and I I bet you this number is way too low. $750 billion. I bet you that's going to
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be measured in the trillions. And then there's defense, right? Everybody, you
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know, Taiwan's turned into a porcupine. Japan's raising their defense budgets.
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Europe's raising their defense budgets, the US raising their defense budgets.
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What the similarity is amongst all of these end markets is none of them will work without critical minerals. None of
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it. None of this can happen. And so here's the problem. Last April, China announced that they were going to
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cut off exports of some critical materials to the US. Samarium, Gandelinium, Turbium, Dprosium, Lutium,
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Scandium, Yitriium, herbium, silver, just cut it off. And we're close to a lot of big
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industrial supply chains. and the cut off of Samrium cobalt magnets, we learned that the Ford Motor
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Company was within days, literally days of their entire production line shutting
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down, the whole Ford Motor Company. And same with McDonald Douglas, too, by the way. And this put people in the
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Department of War, Department of Energy into a panic. And to their credit, they're doing something really
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aggressive and really important. They are now going around to small resource owners across the US and into Canada and
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they're knocking on the doors of these companies that were left for dead in the
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last 20 years and they're saying here is three pieces of paper. The first piece
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of paper is an equity check that we're investing into your company so that you
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can go and start converting your resource into a mine. And then the company says, "Oh, that's
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great. Wow, that's that's that's a shock. But you know, the problem is I've
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been waiting on my permit for the last 20 years. Nobody wants to give me a permit. They say, "Oh, look at the
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second piece of paper. There's your permit. Go and start building right now." And then they show them a third
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piece of paper and then the company says, "What's this?" And they say, "This
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is an offtake agreement. Take or pay with a minimum floor price that's going
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to guarantee you a very high internal rate of return on your project where you can keep all the upside above the
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minimum price. But here's a minimum price that you can go out and raise a bunch of capital to get this thing
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fasttracked and up and running. Now, China has an absolute grip. It's absolute on all of these critical
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minerals. And it's going to take at least 10 years, probably 20 to catch up. But we
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got to start somewhere because we just can't have China leading over us and squeezing our testicles every time that
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we don't do something that they don't like and say, "We're going to cut off
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your exports. So, we're going to cough our exports of critical minerals and you
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guys are going to freeze in the dark. So, I give a lot of credit to the administration for doing this. And
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really, you know, I've done commodities now for 25 years and I've never seen
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something like this happen before. It's truly what I call a vuja day moment,
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which is the overwhelming feeling that none of this has ever happened before. So, here's copper. This is the king of
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metals. This is just one example. We need copper for everything. You know, if we want clean energy, you know, solar
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power per megawatt takes five amounts five times the amount of copper than a typical base load CCGT gas fired
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turbine. Same with wind, seven times the copper uh data centers for a 1 gawatt AI
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factory. Now, you need 50,000 tons of copper per gawatt. And we're going to start building 15 gawatts of these
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things per year. Per year. So 50,000 tons per gigawatt and 15 gawatt is 750,000 tons of copper that we're going
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to need for these things. Do you know what the copper supply was last year? It grew only 500,000 tons. And this is just
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the data centers. Then electric cars, you know, if we're going to have robo taxis everywhere, an electric car
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consumes five or six times the copper than a traditional internal combustion engine. And then there's the military.
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In the Ukraine Russia conflict, did you know that we used more explosives than in all of World War II? Did you know
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that? And the artillery shells of these explosives, guess what they're made of?
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One of them's called the copper head. Very cleverly named after a poisonous snake. They're all made of copper. Do
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you think we go into the battlefield and recycle that copper? No. That copper's
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gone. So, we need this these metals for everything that we do. Now, where are we
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going to get it? Going back in human history to Mohenjo Daro, we have mined 700 million tons of
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copper. 700 million tons of copper over the past 10,000 years. Now, 80% of that copper, we could probably get it all
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back if we wanted, but what we'd have to do is we'd have to tear down this
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building. We'd have to rip up the grid. We'd have to tear down the buildings in
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Europe, in Japan, in China. And we could get all that copper back. Sure. Then we'd be doing this conference in a tent.
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So how are we going to get it? Well, right now copper demand is 30 million tons per year. About 4 million of that
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supply comes from recycled copper. Copper the rest of it is 26 million tons is mined. And if we just grow in line
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with GDP, so forgetting about data center upside, forgetting about green energy, solar upside, just growing at
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GDP like we used to. Now listen carefully. That means over the next 18 years, we're going to need 700 million tons of
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copper. Over the next 18 years, we're going to need as much copper as we mined
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in the last 10,000 years. That means we're going to need five worldclass mega
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tier one mines coming online every single year. And you can go and gro this or chat GPT this. You can count on one
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hand and have some fingers left over uh the number of tier one mines that are coming on between now and the end of the
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decade. So I don't know what they're going to do because it takes 7 to 12
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years to build a copper mine. The existing copper mines are dying. You know, the big mines in Chile over a
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hundred years old. The grades are depleting. And um this is going to be a major major
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challenge and an upcoming bottleneck right today. All the rage is in memory and HBM and NAND prices are going
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vertical because that's the bottleneck. Now if you want to look around the corner and see the next bottleneck
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coming, I strongly urge you to look at copper. And so um here we are. A supply shock
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meets a demand shock. Commodity cycles typically last 15 years. and have multiple hundreds% of upside. We're only
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a few years into this. This is just really getting started. And I want to say one more thing, right? We spoke
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about demand. We're having this demand shock. We spoke about supply. But what we haven't spoken
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about is how we're destroying the value of the US dollar. Since co we have absolutely destroyed the value of our
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fiat currencies. Today we have $40 trillion of government debt that's growing at $2 and a half trillion
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dollars every year. On top of that we have a hundred trillion dollars of discounted present value of the future
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social liabilities. So Medicare, Medicaid, Social Security, pensions that's also growing by $2.5 trillion a
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year. So you have two half trillion of growth on the federal debt, $2.5 trillion of growth on the social
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liabilities. The US government only has $5.5 trillion of tax receipts every year. And so what's going to happen the
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next time we have a recession where tax receipts go down and spending has to go up, we're going to print giga dollars.
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And in the 1970s, we had this problem as well. And the way we did it is we just debased the currency through some
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inflation, through some growth. And the currency lost 70% of its purchasing power. And commodities and hard assets
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and infrastructure will protect your purchasing power in that kind of environment. Go and look it up in the
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1970s. What was the best performing asset class by a mile? That's your homework. So with that, uh,
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thank you and, uh, look forward to chatting with you guys. >> Shabbat, I think on the prediction show
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you, um, did was your call I forget which category it was, but you definitely had
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>> I thought the best performing asset was going to be copper. Yeah. >> Yeah. Pretty
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>> And that's before I talked to Dan. >> That's right. >> Which is saying something. Well, you
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know, I I think the copper price is easily going to double from here. I mean, I've seen I've seen malibdinum go
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from a dollar a pound to $33 a pound. So, a double is no big deal. >> Yeah.
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>> And so, >> take a take a step back. You said something really interesting backstage,
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which is if you look at everything that we're doing right now, we're barely
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going to keep up with just the natural energy demands of of humanity, right? just explain that thesis the way that
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you framed it in the back. >> So, here's the issue. We have not invested
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in upgrading and modernizing and hardening the electric grid since post World War II. We just let it go. You
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know, the last two, three, four administrations were sleepwalking and haven't done anything to harden this
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infrastructure. Now, if we simply just want to achieve our objectives to re-industrialize,
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reshore, electrify, when I say electrify, that just means replacing your old gas boilers in these buildings
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with heat pumps, which every commercial building is doing. It means, you know, electric car penetration going up. It
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means using your your your electronic devices more. Not even talking about AI. Not even talking about AI. We're going
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to have shortfalls. just from that. >> Just from living our life. >> Just from living our lives.
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>> So, what happens? Blackouts, brownouts, >> blackouts, brownouts, and we're going to
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have to >> rising electricity prices. >> Rising electricity prices. But, you
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know, you brought up a really great point I thought on one of your shows where you were talking about how the
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utilities are just really gooseing up the cost to do everything so that they can report to their regulator and earn
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that ROE on the higher capital base. What's really interesting I think is really underappreciated
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is that's where all the inflation is coming from. It's from the transmission
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and distribution from the utility because power prices over the last 20 years, even after the rise we've just
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had, power prices are still down. They're definitely down in real terms, >> but they haven't really gone up much in
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absolute terms. And so when you're talking about going up, >> making it is still cheap. It's getting
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expensive. You're getting it to people because you know the labor the labor by far in a way
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is the biggest bottleneck. Craft labor, right? What do we tell all our kids to do
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>> you know in in the last 10 or 15 years they liber the northeast? Yeah. Big mistake. And so
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I'm curious um from the audience in your homes how many people have put up solar
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andor power walls? How many people have actually done that? So that's about half
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the crowd. How many people, second question, are planning to do that in the next year or two. Okay. So that's
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another 20%. So it's pretty obvious this is obviously a fluent crowd. They are
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routing around the grid. Is the solution to this energy independence in the >> great you know the home in the business?
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Businesses are not waiting for the government. So maybe the grid is going to be like this weird archaic
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infrastructure and it's just going to be a groundup solution. >> Well, you're going to need the grid no
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matter what for industrial use. I mean, that's that that's the foundation of
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industrial use. I mean, the scale of what we have to do just for industrial use. Here's a good stat for you. So, a 1
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gawatt AI factory if you wanted to do all solar, right? And I'm a big solar bull, okay? If you want to do all solar,
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because solar's capacity factor is 20% because the sun doesn't shine all the
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time. With a capacity factor at 20%, a 1 gawatt data center needs 5 gawatts of solar. Each gawatt of solar takes up
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7,000 acres. So at 5 gawatt, that's 35,000 acres. That's bigger than San
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Francisco. So where are you going to find the people? You know, where you going to find that's that's the biggest
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bottleneck we have, by the way, is craft labor. >> Yeah. What about generally scarcity
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breeds innovation? there's been a conversation or I've seen some startups
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that are talking about new technology and mining to access I think traditionally rare earth uh is kind of
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the pitch but everything we need is in the earth below us it's just that we only mine the stuff that's on the
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surface is the the general thesis is there a set of innovations that you think are coming to market that are
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going to ultimately unleash more productivity than we see because we're still using the same technology we did
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100 years ago to get this stuff out of the ground >> for for some commodities. Yes. You you
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brought up rare earths. So So coming out of the 14th century, there were these guys called alchemists. Remember then
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they said they could turn lead into gold. And back then the periodic table was just four elements. There was water,
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there was fire, there was air, and there was earth. Now fire, you could figure out what it was. The air was pretty
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pure. The water was pure. But every time they saw something in the earth, they didn't know what it was. They called it
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a rare earth. And so rare earths are everywhere and the technology to extract rare earths is going to allow us to have
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a huge abundance of them. But the problem is processing them. That's the problem. The Chinese have all the
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technological knowhow to convert what you take out of the ground and convert it into something that we can use. And
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so there's always going to be, you know, some element of conversion that you're
00:19:02
going to need with something like copper. the market is so big that it's really difficult to find a technology
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that could solve that problem overnight. >> And if we are having just to thread a
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couple of topics we've been talking about on the pod incessantly about if we
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do have uh this rivalry with China and they are the provider and that's the brittle part of the supply chain we can
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solve the problem of job displacement not apocalypse displacement. people in America who want jobs. These
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are going to be incredibly high-paying jobs. And we can start bringing the fabs from Taiwan here, which we're doing. And
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we're going to bring both to North America and I understand South America from a friend of mine who's got an
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automated um mining um system. Uh Adams Travis, we're going to be able to just
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create a large number of jobs here. So maybe you could talk a little bit about what impact we keep talking about how
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behind America is, but what happens to China if we stop buying >> here and we start
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>> building what you said is is is very important for this whole jobs debate.
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The craft labor that we're going to need is going to be almost limitless for what we have to
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build. And there's really no other way around it, right? The the you know, in
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many ways, like look what happened in the 2000s, right? We tore down all our factories and moved them to China. And
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who got killed by that? It was the blue collar craft labor. It created all kinds
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of unintended consequences. Fentanel, uh, you know, wealth gaps. >> Pennsylvania.
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You know, the coasts were making all the money in the heart of the country. the salt of the earth was was getting
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killed. What's ironic today is that same part of the middle country, those people
00:20:58
that got displaced are now getting entry level salaries. You know, if you go to Quana University and you're top of your
00:21:05
class, you're starting out at 150 grand right out of high school. And the jobs
00:21:09
that they're doing, ironically, are the jobs that may or may not be displacing
00:21:15
some of the early, you know, lower level white collar labor. And so, so the tables the tables have totally turned.
00:21:20
And so look, it's it's an it's an efficient market. The jobs are going to
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flow where the money is and the money right now is is really coming into this area.
00:21:28
>> Can we talk about a couple of other areas? What's your take on uh other forms of energy? Not gas, coal,
00:21:35
nuclear, hydrocarbons. I mean the demand pool seem like if just based on this maybe the most reductive
00:21:43
takeaway is everything. But then how do you Dan differentiate like why were you why did you say for
00:21:51
example you're super bullish solar? What are your thoughts on nuclear? How do you
00:21:54
trade all these off these different sources of energy? >> So we're we're swimming in natural gas
00:21:59
in this country. We can build solar uh you know that's that's not the bottleneck and nuclear you know we we
00:22:08
can't really build it. We can't even build the containment vessels in this
00:22:11
country. The Koreans can do it but we can't do that here. So there's always
00:22:15
going to be these big bottlenecks in the system. And whether you're talking about
00:22:18
solar, whether you're talking about NAT gas, whether you're talking about
00:22:21
uranium, we're going to have the raw inputs like the natural gas that we drill from the ground. But what we're
00:22:27
going to be short of is the critical minerals to build the nuclear power plants. We're going to be short the
00:22:33
silver, for example, to build these solar panels, especially if we start launching data centers in space, right?
00:22:40
These are going to consume incredible amounts of silver. But right now the silver supply demand dynamic is we
00:22:45
consume a billion2 ounces a year. We supply a billion ounces a year. So there's a 200 million ton deficit per
00:22:50
year and we only have 600 million of above ground inventory left. So the clock's ticking. We got three years left
00:22:55
guys before we just stock out. And then the solar story is where do you get the silver for the photovoltaic cells? So
00:23:02
for our kids and for the country generation tool belt for us allocating get some exposure to copper silver
00:23:10
minerals and then there's a bunch of service providers in and around that area that we should be investigating
00:23:15
over the next year. >> Don't forget the labor the service providers that's a big one.
00:23:19
>> Okay. How do you allocate capital? You're at the front end of owning what
00:23:23
mines and production but then also the end use cases. Like how do you decide where to not play? Because a lot of
00:23:29
these things, it looks like these are incredible end markets, but you can get run over. Like if you're in the wrong
00:23:34
part of the market, there's supply shocks, there's supply shaping by China, there's price dumping.
00:23:40
It can be all obvious and you could make you could lose a lot of money, too. >> Yeah. Look, you really have to
00:23:45
understand supply chains. And I think I think to a lot of people out there, the supply chains are this sort of weird
00:23:51
mystical concept. And I still think a lot of urban Americans still think a ham sandwich comes from the refrigerator.
00:23:57
and they don't think about the 30 million pigs every month that are getting slaughtered outside of Chicago.
00:24:01
>> Don't get free started. >> But, you know, you got to understand
00:24:05
where the pinch points are in the supply chain, number one. And number two, I think you have to really make sure that
00:24:10
you're not going to get technologically disrupted where you can find, you know,
00:24:14
I think this was to Freeberg's point where you can find something that's
00:24:16
going to replace that tightness in the supply chain. >> Give it up for Dan.
00:24:20
>> Well done. Very, very informative. Thanks, bro.