Resurgence of the Energy Sector

Today we were delighted to welcome Michael Kao, Private Investor at Kao Family Office and CEO & Portfolio Manager of Akanthos Capital Management. Michael founded Akanthos in 2002 and transitioned to focus on his family office in 2019. Michael is also the author of "Kaoboy Musings” on Substack (linked here). Previously, he was a Portfolio Manager at Canyon Capital Advisors, where he co-founded the Canyon Arbitrage Fund. Michael started his career in the commodities unit at J.Aron/Goldman Sachs and has over 30 years of experience across commodities, credit, convertible arbitrage, and distressed investing.

As we approach what President Trump has coined “Liberation Day” on April 2nd, we were eager to find someone who could help us all better understand the rationale behind these developments and their implications. In recent Substack posts, Michael has shared some of his interesting theories and makes a case that what appears chaotic and unpredictable might actually be part of an audacious but coordinated plan. We were thrilled to hear Michael’s latest insights on market volatility, energy dynamics, the evolving investment landscape, and why April 2nd might just be another stop on the way to (hopefully) something better.

In our conversation, we first ask Michael for his view on the complexities surrounding the Trump Administration’s actions and how to interpret the end goals of their policies. He shares an analogy comparing the current U.S. economic environment to navigating an asteroid field (like Han Solo’s decision to fly the Millennium Falcon directly into an asteroid field when being chased by the Empire in Star Wars), highlighting several key economic challenges to manage including the current 7% non-wartime deficit, short-term debt reliance, geopolitical tensions, and the need for broader economic recalibration. We explore various ways to manage the U.S. debt including the possibility of terming out debt and reshoring manufacturing, the impact of oil prices on the broader economy, the weakening U.S. dollar, and how the Trump Administration’s shift from a “carrot” to “stick” approach in policy negotiations may affect market dynamics. We discuss potential scenarios for a U.S. recession or economic slowdown, the growth of the private equity market, the increasing role of private credit in financing private equity-backed companies, and the role of the Federal Reserve in the broader economic picture. Michael provides insights on how sovereign wealth funds could help manage the U.S. national balance sheet by leveraging geographic assets, his experience in transitioning to managing his family office and focusing more on uncorrelated private investments, the potential for a black swan event, the risk of ongoing geopolitical tensions escalating, the importance of thinking outside the box, and much more. We greatly appreciate Michael joining and sharing his expertise and insights with us all.

As you’ll hear, we discuss some of Michael’s recent posts. His piece entitled “Mental Models – Navigating The Asteroid Field With Trump 2.0” is linked here and the Kaos Theory podcast episode featuring Michael Every is linked here.
 
Mike Bradley kicked off the show by noting that markets are in a “Calm Before the Storm” mode with investors awaiting the impact of Trump’s April 2nd reciprocal tariffs. Rather than focusing on how markets might react post-reciprocal tariffs, Mike reviewed how markets performed in Q1’25 with the “Trumpatility” overhang. In bonds, the 10yr fell in Q1 by ~35bps to ~4.20%. WTI price ($71.50/bbl) ended Q1 relatively unchanged, which was a big surprise given the bearish oil sentiment that had built throu