Chapter 1: What is private credit and why is it gaining attention?
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Chapter 2: How did private credit evolve after the 2008 financial crisis?
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right now you know this phenomenon that we talk about where yeah prices are up but you know by some measures still within some sort of historical range whereas the headlines that you see about rationing etc are like oh this is extremely dire etc give us your lay of the land from the account from the from the asian perspective from the perspective of east asian countries like how dire are things just like right now without that without that flow
terrible, frankly. The challenge right now for Asia is that most of their crude supply does come from the Middle East. Or there are some countries which do have some domestic production, Malaysia, China, of course. But broadly speaking, Asia is a massive crude importer and principally from cheaper shipping distances and costs.
So Asia is very heavily exposed right now and more acutely thinking about what the impacts might be, how they might want to pre-answer than the United States, of course, which produces a lot of oil but still needs Middle Eastern grades for blending and refining. Also Europe, which has access to its quite readily.
How much do the spot prices actually matter at this moment in time? Because, you know, you can look up something like Dubai Oman or some type of oil that you would assume would be maybe flowing into East Asia and you can look at the spot price. But like if it's not actually moving, does that like moving out of the Strait of Hormuz into Asia, does that mean anything?
It does certainly for some grades. So for Omani crude can still be loaded and it's being loaded. Those are real prices. Prompt Brent, uh, of trades are real. So you're often seeing, even for loadings from Yandu and Saudi Arabia, OSPs, which are those indications of price, are anywhere from $20 to $25 above whatever the prevailing rent contract is.
In terms of the knock-on effects on the economy, you mentioned some of the rationing thing. They're highly exposed to it. Is it hitting now? Is the economic destruction already taking place? Talk to us about, I guess, on the ground, figuratively and literally, what are some of the ripple effects that we're seeing?
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Chapter 3: What warning signs are associated with the current private credit landscape?
Certainly there's more or less control on exports of oil products right now, which is not very helpful for the region because they have over time been large exporters. They are clearly doing this in a very targeted fashion and I would assume there's other considerations behind that.
Wait, say more.
For example, China has territorial disputes with the Philippines and Vietnam and the South China Sea, and they've now got something.
Oh, interesting. Okay, that makes sense.
Yeah. Oil as geopolitical tool is a tale as old as... As old as time. I was going to say time, but I guess as old as, what, 200 years or something like that. Okay. So we were talking about the potential for an energy crisis to actually hasten decarbonization efforts in Asia. And this is something that came up before on an episode we did on China's teapot refineries.
Are you seeing rumblings of that at the moment or are people still in sort of wait and see mode?
No, there's definitely been a notable pickup in certain areas where there was already a bit of momentum. So in Japan, they have been undertaking a number of nuclear restarts. They've been moving very tentatively as the public got behind is all apparently accelerating now. So Japan will push very hard on nuclear restarts. And more importantly, the public polling is really strong for it.
So there's not a lot of political risk. And of course, Takeuchi had a massive election win. So she's in favor of it, the public's behind it, and there's a matter of necessity now. So I think that's something one could assume is only going to move faster.
yeah and then in korea there's also more of a push for nuclear restarts so that's that's moving quickly china is doing some very pointed stuff to try to reduce lng burns and use in chemicals it's tricky and tricky to if you've got a plastics plant that's kind of hard to do but they're having a red hot go at it and similarly you're also starting to see a staggering acceleration in ev adoption if you do calls to auto dealers around asia
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Chapter 4: How does private credit impact retirement portfolios?
So if you're anywhere close to the equator or have a good solar resource, solar is crazy cheap. And if you've got to be around, batteries are also pretty cheap. That's hard to beat. If you're somewhere in the Baltic or something, then it's weird, right? So I think the appeal with solar, which is that you can roll it out very quickly, particularly with households.
And it's interesting, you're already starting to see the impacts of Australia's government pushing residential batteries. And that is that the intraday spreads in power in Australia are very subdued and the gas fired generators are not really pricing the market anywhere near as often as they used to. very quick fix and can be rolled out very quickly.
And it seems to be working very well in Australia. The price impact of the shock is vastly less than 2022 already.
This is really interesting. Talk about that spread. So to some extent, would it be fair to say that a proxy or a gauge of how well solar plus batteries is working or affecting a market is not in lower prices per se, but in a diminishing spread between the highest and the lowest price of the day and that you have this growing, that it's a sign of a sort of like pure power stability?
Yeah, I mean, one thing in power marks is a spark spread. So what is the cost to get out of bed for a gas-fired power plant? So you take the heat rate times whatever the gas price is, and you work out how many hours a day over a week are effectively priced by gas. And what happened in Australia was we had a lot of solar and not much storage.
And still, the peaks were still very expensive because the gas plants knew they could set the price. What's happened with this proliferation of storage is that the gas no longer reliably sets the price in those hours. And particularly in Australia, where it's often somewhat oligopolistic market structure, having... on average daily prices.
The problem in places like the UK is there's a lot of renewables, there's really no storage, so they're not getting much benefit out of this because they still get priced on the margin by gas.
Is it just because they have to bite the bullet and buy a lot of batteries from China? Why is there the lack of storage to complement the renewables in the UK?
Market structure design. They're fixing this right now, and I'm sure they'll be in a very different place in two years. But it was something of an oversight, I would say.
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Chapter 5: What role does private credit play in the AI bubble?
And if you're to the west, maybe... the pressures aren't quite as acute just yet. And one of the things we keep hearing from the Trump administration is, well, we have a lot of oil here in the U.S. We are hashtag blessed in carbons and molecules and all of that.
When would you expect or would you expect at all the pressures from the Middle East to start really filtering into the Western part of the world?
Well, I mean, like I said earlier, you've already seen it in LNG. So Asian
buyers outbidding european buyers for now that's obviously pushing up prices for europeans you are seeing more and more tanker traffic from the atlantic basin move towards asia as asia just is happy to there's maybe 10 or 15 more shipping costs but they are willing to bid those barrels at this point they they do not care so the idea that any of these systems are going to be there are friction
in time, but if the pull and the need is that acute in Asia, we'll absolutely find its way to the Western Hemisphere.
So there is this view, and I think it really started with, well, some people have had the dream for a very long time. Some of the great pioneers of the industry. But then in 2022, with Russia's invasion of Ukraine, there's like, okay, the future belongs to US LNG exporters. That this is just, we can keep growing export, adding export terminals forever because there's just going to be all that.
We have all this gas and there's just incredible demand for it. all around the world. Is that story at risk? I mean, again, like if part of the thing that's going to happen is that around the world, there is this and the political appetite for restarting nuclear and so forth is higher. Are there any weaknesses in the U.S. LNG growth straight up line up forever story?
I think there's a lot of problems with it, but they're mostly due to overall problems with gas. First of all, the gas turbines you use to build a power plant in Asia are the same ones you use to build a data center. gas-fired turbines is well noted, I would say. Then you have the issue of, say, your customers have been priced out of using gas for that reason alone.
Then you have this geopolitical risk attached to supply from the Middle East. There is no certainty that if there are The Houthis might say, well, I'd like some of that too, please. And then we have another issue in the Red Sea. So I think while US supply is probably low risk, depending on the actions of the US government, of course, people are overall looking at this market and
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Chapter 6: How is the Strait of Hormuz affecting global energy supply?
How much of the hashtag blessed America story actually is true?
Yeah. No, I mean, like, you know, a lot of things don't seem to be going great. Some things are going better for the U.S. than others these days. Some not so much. I do think a lot is like, well, you know, at least we have energy. At least we're not like it's like relative basis.
Sure.
But like if that were to change. If they were to sort of get a reassessment about America's energy stability or energy independence, that would be a really big story. I also just think it's very interesting that the nuclear reacceleration, et cetera, that's happening. That there's political will now.
There's nothing like an energy crisis to change like political will towards nuclear power.
And on that political will, his last point, which is like, what is the lesson that we keep learning is like strength matters. And, you know, it's like Trump hasn't gone very hard against China because China went very hard against the U.S.
Iran may end up in a situation in which it comes out stronger than it was two months ago, where it actually is collecting a toll, you know, getting a cash cow for the Strait of Hormuz. So it's interesting is his point where it's like, OK, Europe, other parts of Asia, like what is the lesson that they learned from this?
And maybe the lesson is that sort of like biding your time and trying to be friendly and Maybe that's not the answer. Maybe stronger lines are the answer for global diplomacy right now.
Also, the pimps are bad, Joe.
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