MacroVoices #499 Has The Luke Gromen Moment Arrived
00:02:
(Eric Townsend)
And now with this week's special guest, here's your host, Eric Townsend.
00:08:
(Eric Townsend)
Joining me now is Forrest for the Trees founder, Luke Groman.
00:12:
(Eric Townsend)
Luke, to my thinking, there could not be a better time for you to be acknowledged as our second most popular Macro Voices guest ever.
00:20:
(Eric Townsend)
The reason I say that is nearly a decade ago, I coined the phrase, the Luke Groman moment, inspired by the Minsky moment.
00:28:
(Eric Townsend)
And what I mean by that is,
00:30:
(Eric Townsend)
is when we first started talking nine years ago or ever since then i have been absolutely convinced that you would be proven right in the end on your bold calls that the us dollar was eventually going to fall into decline fall out of prominence not be the us or not be the world's reserve currency anymore just as the pound sterling fell out of popularity 100 years earlier but i also said at the time i thought you were early i thought it was several years away and i knew you'd be proven right and of course you got ridiculed along the way and so forth
00:59:
(Eric Townsend)
let's start just by making sure I'm not overreacting here because I don't think you're early anymore, Luke.
01:05:
(Eric Townsend)
I think the Luke Groman moment is happening right now.
01:08:
(Eric Townsend)
Kind of scares the shit out of me.
01:09:
(Eric Townsend)
And then I read your last three writings, frankly, over the weekend, and that scared the shit out of me even more.
01:14:
(Eric Townsend)
So is the Luke Groman moment that I describe actually happening the way that I think it is?
01:20:
(Eric Townsend)
Am I being too dramatic or is the shit really hitting the fan in a bigger way than most people seem to be talking about?
01:26:
(Luke Groman)
Well, first, thanks for having me back on and congratulations to you and Patrick.
01:30:
(Luke Groman)
I'm honored to have been a part of your guys' amazing success and wish you all the best and continued success from here.
01:36:
(Luke Groman)
So to answer the question, you know, I've always thought of, I guess, the quote unquote Luke Groman moment was sort of a
01:44:
(Luke Groman)
a gradually then suddenly phenomenon, right?
01:46:
(Luke Groman)
Like how'd you go bankrupt little by little than all at once?
01:49:
(Luke Groman)
And you having me on for this actually caused me to search for my first appearance.
01:53:
(Luke Groman)
I wanted to see when it was on Macro Voice, isn't it?
01:56:
(Luke Groman)
It was September 8th, 2017.
01:58:
(Luke Groman)
And the title of that episode was Luke Grumman, the biggest mean reversion in 50 plus years is underway.
02:03:
(Luke Groman)
And
02:03:
(Luke Groman)
So at that point, we had been bearish on the dollar beginning late 2016, at a time when most were pretty bullish on the dollar.
02:09:
(Luke Groman)
In fact, he led off by saying that, you know, we had so many secular dollar bulls, we wanted to bring listeners a credible secular dollar bear.
02:16:
(Luke Groman)
So here's Luke.
02:18:
(Luke Groman)
And so...
02:19:
(Luke Groman)
At that point, the dollar had already fallen that year in 2017 from 101 to 94 by the time we did that first interview.
02:25:
(Luke Groman)
And, you know, we said, look, the de-dollarization transit had kicked off the dollar bull market in earnest in the third quarter of 14 had gone too far.
02:32:
(Luke Groman)
And you'd start to see the deficit in the U.S. as a percent of GDP back then in 2017 rewidened for the first time since 2009 and only the seventh time since 1969.
02:44:
(Luke Groman)
And basically every other time we had a recession or one time we didn't,
02:48:
(Luke Groman)
We got the dollar devalued at the Plaza Accordance.
02:50:
(Luke Groman)
What we said was like, look, if you look at the debt levels, a recession isn't a policy option.
02:55:
(Luke Groman)
And so we think that the government's going to weaken the dollar.
02:58:
(Luke Groman)
And so we did see that.
03:01:
(Luke Groman)
And the key thing within that was that was the first time in our career in any dollar at that point, up until that point, we'd been a bull in 16, up until early 17.
03:10:
(Luke Groman)
We had never seen the U.S. fiscal situation, the deficit widen or the fiscal deficit sort of break out.
03:16:
(Luke Groman)
before you had an EM crisis.
03:18:
(Luke Groman)
But that's exactly what happened.
03:20:
(Luke Groman)
And so what we said at the bottom line was, look,
03:23:
(Luke Groman)
Because foreign central banks stopped buying treasuries back in 3Q14 on net, either the Fed's going to have to raise rates.
03:29:
(Luke Groman)
They tried to.
03:30:
(Luke Groman)
It didn't work because the fiscal situation broke before emerging markets.
03:34:
(Luke Groman)
They're going to have to force U.S. domestic investors to buy treasuries.
03:37:
(Luke Groman)
They did.
03:38:
(Luke Groman)
Or the Fed's going to have to grow their balance sheet.
03:40:
(Luke Groman)
And so we kind of saw that.
03:42:
(Luke Groman)
And so when you when you look back to that, it's pretty amazing as, you know, from the date of our first show with you, you know, Fed balance sheet was four point four trillion dollars.
03:50:
(Luke Groman)
It's 6.6 trillion now after nearly four years of QT.
03:55:
(Luke Groman)
You know, on that show, you asked us, hey, what's the trade?
03:57:
(Luke Groman)
And we said, look, in a nutshell, the trade's long gold, short oil.
04:00:
(Luke Groman)
You know, that day, gold to oil ratio was 22 barrels an ounce.
04:03:
(Luke Groman)
Today, it's 61 barrels an ounce, all-time high.
04:06:
(Luke Groman)
GDX gold miners, which is a proxy for gold to oil ratio, was 22 bucks at 73 today.
04:11:
(Luke Groman)
So you got a couple triples in eight years, 15, 16% keggers for both.
04:15:
(Luke Groman)
And we also warned on that show about long term treasuries.
04:18:
(Luke Groman)
We said, look, something that jumps out at me as I try to look at the forest for the trees is U.S. retirees, commercial banks and pension funds are all the biggest bid for long term treasuries.
04:28:
(Luke Groman)
And if those groups are on the right the right side of a major macro trade well ahead of time, it would probably be the first time I can remember.
04:35:
(Luke Groman)
in my 22 plus year career on Wall Street.
04:37:
(Luke Groman)
And so when we said that that day, the TLT long-term treasury ETF was 125, today it's 88.
04:44:
(Luke Groman)
So down 35% in risk-free long bonds when long-term treasuries had basically been a one-way trade for the prior 35 years up to that point.
04:52:
(Luke Groman)
And obviously, some pretty well-known long-term treasury bulls were sure that deflation was going to drive ETF, you know, the TLT ETF higher and higher and higher.
05:01:
(Luke Groman)
And then finally, on that first show, you know, we said, look, I think the overriding message of the political populism that is broken out in the U.S. and in Western social democracies.
05:11:
(Luke Groman)
over the last six to 12 months, is that all U.S. entitlements are going to get paid with printed money.
05:17:
(Luke Groman)
And I think that's what maybe Mr. Market is starting to discount.
05:19:
(Luke Groman)
I said on the show, you've seen a breakout in the S&P 500 over the TLT, the long bond ETF, a very pronounced breakout in a 25-year chart.
05:27:
(Luke Groman)
So I went back and looked at it today.
05:29:
(Luke Groman)
And that day, the S&P over TLT ETF was 20.
05:33:
(Luke Groman)
And today, it had recently broken out over 15 for the first time in at least 15, 20 years.
05:38:
(Luke Groman)
Today, up from 20, the S&P over TLT is 75x, so nearly quadruple in eight years.
05:44:
(Luke Groman)
And so all of which I bring up by way of background to the question regarding the Luke Groman moment is that I never really saw it as a moment.
05:51:
(Luke Groman)
I saw it as more gradually than suddenly.
05:54:
(Luke Groman)
And gradually was gold to oil ratio up 3x in eight years.
05:58:
(Luke Groman)
It says 15, 16% CAGR.
06:00:
(Luke Groman)
TLT down 33% in eight years.
06:03:
(Luke Groman)
GLD over TLT up 4x in eight years.
06:05:
(Luke Groman)
S&P over TLT up 4x in eight years.
06:08:
(Luke Groman)
You know, the dollar's been 94.
06:10:
(Luke Groman)
It was 94 then.
06:11:
(Luke Groman)
It's 96, 97 today.
06:12:
(Luke Groman)
You know, we've been tactically bullish and bearish a few times in this show.
06:15:
(Luke Groman)
But, you know, I think overall pretty good calls, pretty good positioning early.
06:19:
(Luke Groman)
Yeah, I think probably maybe, but, you know.
06:21:
(Luke Groman)
we should all get 15 to 20% CAGR on levered returns on our early calls, right.
06:27:
(Luke Groman)
In terms of what we were saying.
06:28:
(Luke Groman)
So that was the gradually part, you know, worked out pretty well for FFTT clients worked out pretty well for my own portfolio.
06:34:
(Luke Groman)
And so with, as by way of background, as that context is the Luke Groman moment, I think, are we, I think it's really about, are we going from gradually to suddenly?
06:44:
(Luke Groman)
And, and to your point,
06:46:
(Luke Groman)
I think we are.
06:47:
(Luke Groman)
I think the suddenly portion is beginning.
06:50:
(Luke Groman)
You know, we wrote two weeks ago, we thought the fall of the or the excuse me, we thought the week of the SCO, the Shanghai Cooperation Organization meeting was might have been the most important geopolitical week since the fall of the Berlin Wall in 1989.
07:02:
(Luke Groman)
And if that's right, and I think it is, then I think we're likely to see things accelerate further.
07:07:
(Eric Townsend)
Well, Luke, I want to congratulate you.
07:09:
(Eric Townsend)
I think you've made some brilliant calls over the years.
07:11:
(Eric Townsend)
And I want to be clear, when I've said you were early, I meant the part about the U.S. dollar falling out of prominence and not being the reserve currency.
07:17:
(Eric Townsend)
I thought that was early.
07:19:
(Eric Townsend)
You've certainly been very timely in a lot of your past calls.
07:23:
(Eric Townsend)
Luke, I think what we need to get to is what causes the state transition from slowly to suddenly.
07:30:
(Eric Townsend)
What is it that causes that to happen?
07:32:
(Eric Townsend)
And I think it's the recognition by all the people that were in denial that, oh, he was right.
07:38:
(Eric Townsend)
You know, think about the pandemic.
07:40:
(Eric Townsend)
All of us who called the pandemic early were being ridiculed.
07:43:
(Eric Townsend)
We were being called alarmists.
07:45:
(Eric Townsend)
We were, you know, all kinds of stuff.
07:46:
(Eric Townsend)
And then one day it's like, well, duh, everybody knows there's a pandemic.
07:49:
(Eric Townsend)
You know, what do you think you're smart?
07:51:
(Eric Townsend)
And I think all of the sudden...
07:53:
(Eric Townsend)
The Luke Groman thinks the U.S. dollar is falling out of, you know, reserve currency status.
08:00:
(Eric Townsend)
That means Luke has to be a conspiracy theory nutcase.
08:03:
(Eric Townsend)
No, I don't think anybody thinks that anymore.
08:05:
(Eric Townsend)
I think it's pretty darn clear.
08:07:
(Eric Townsend)
Is that what's going on?
08:08:
(Eric Townsend)
Is everybody else is waking up to it or is it something else that's causing that sudden acceleration?
08:13:
(Luke Groman)
I think it's a gradual awakening, I guess, on multiple fronts, right?
08:20:
(Luke Groman)
So when you highlight that, you can look at things objectively, right?
08:27:
(Luke Groman)
So all of a sudden, gold is now bigger than the euro in global FX reserves.
08:33:
(Luke Groman)
And after another two or three years, if we assume another two or three years of, call it, 800 to 1,000 tons of central bank gold buying, we assume modest gold price appreciation for the next two, three years, gold is going to be the biggest global reserve asset.
08:48:
(Luke Groman)
And then that just gets into a question of semantics.
08:51:
(Luke Groman)
If gold is the biggest reserve asset, it's bigger than the dollar, what's the primary reserve asset, the dollar or gold?
08:59:
(Luke Groman)
And that, I think, is part of it.
09:02:
(Luke Groman)
I think the other thing and maybe the biggest thing that is really starting to drive a recognition is the reaction to the trade war and in particular post-Liberation Day.
09:19:
(Luke Groman)
Remember, we came into Trump's administration and, you know, it was, hey, we're going to doge.
09:25:
(Luke Groman)
We're going to cut and we're going to strengthen the dollar.
09:27:
(Luke Groman)
And OK.
09:28:
(Luke Groman)
And we tried to doge and we couldn't.
09:30:
(Luke Groman)
You know, we saw very quickly, oh, we're going to take pain.
09:33:
(Luke Groman)
Well, we took pain for like 10 days.
09:35:
(Luke Groman)
And then the treasury market started dysfunctioning.
09:38:
(Luke Groman)
We weren't able to scare money out of stocks into bonds.
09:41:
(Luke Groman)
Yields went up, not down, as Besant and a lot of others thought.
09:45:
(Luke Groman)
And I think that was sort of strike one, right, to the recognition.
09:48:
(Luke Groman)
Then, more specifically, you know, April 7th, I think it was, Besant, who on Wall Street, I think, was seen by sort of the adult in the room, if you will, within the Trump administration, right?
10:03:
(Luke Groman)
He's our guy.
10:04:
(Luke Groman)
He's the adult in the room.
10:05:
(Luke Groman)
And the adult in the room, Besant, said on April 7th, Tucker Carlson, as the debtor, as the trade debtor, we have all the leverage with China.
10:13:
(Luke Groman)
They're going to do what we tell them to do.
10:16:
(Luke Groman)
And on April 9th, the U.S. Treasury market dysfunctioned severely, very badly.
10:22:
(Luke Groman)
The move volatility index hit 175 or something intraday, which it had only done like when Lehman, 9-11, the 87 crash, like all it was, the Treasury market was breaking.
10:33:
(Luke Groman)
And Trump, that led to the phrase taco, right?
10:35:
(Luke Groman)
Trump always chickens out.
10:36:
(Luke Groman)
That led to the first taco instance.
10:38:
(Luke Groman)
We've also, you know, I think people said, well, we don't need the Chinese to supply us.
10:44:
(Luke Groman)
We can get it from somewhere else.
10:45:
(Luke Groman)
And then, you know, major U.S. retailers went to the White House, I hear, in either late April or early May and said, well, not really, actually.
10:53:
(Luke Groman)
We can't do this without China.
10:55:
(Luke Groman)
And we taco'd again.
10:56:
(Luke Groman)
And so I think there has been a recognition, even most recently, how many times have you and I, Eric, heard from China hawks that, look, if we cut off food to China, China will starve.
11:08:
(Luke Groman)
I mean, I've heard it so many times in my career, too many times they count.
11:11:
(Luke Groman)
And yet the Chinese have not bought a single new crop soybean or a single new crop corn.
11:16:
(Luke Groman)
from the United States this year.
11:18:
(Luke Groman)
The Chinese aren't starving.
11:19:
(Luke Groman)
Why?
11:20:
(Luke Groman)
They're getting it all from Brazil.
11:21:
(Luke Groman)
They're getting it from elsewhere.
11:22:
(Luke Groman)
So they don't need us on food either.
11:24:
(Luke Groman)
So we have no leverage on trade.
11:25:
(Luke Groman)
Our treasury market broke in five, seven trading days after Liberation Day, which yes, China would have been hurt, but they weren't gonna be hurt in seven days.
11:33:
(Luke Groman)
They probably weren't gonna be hurt in seven months.
11:35:
(Luke Groman)
So I think that was, you know, we didn't have leverage on food.
11:38:
(Luke Groman)
We didn't have leverage on trade.
11:40:
(Luke Groman)
We didn't have leverage on the treasury market.
11:42:
(Luke Groman)
And then the rare earth situation got layered on as well, which was, as it turns out, again, something else we've been highlighting for a long time was ultimately.
11:51:
(Luke Groman)
you know, key parts of the U.S. military are made in China and particularly around rare earths.
11:56:
(Luke Groman)
And the information was all out there.
11:58:
(Luke Groman)
But again, I don't know if it was confusion or busyness or hubris or what, but U.S. policymakers seem to think we have all the leverage.
12:07:
(Luke Groman)
We literally can't go to war without China on the conventional side.
12:11:
(Luke Groman)
And so then you layer that on.
12:13:
(Luke Groman)
And so I think as you kind of layer these things out, that leads to
12:17:
(Luke Groman)
Two things, at least the recognition on the trade side that we don't have all the leverage.
12:22:
(Luke Groman)
And you start looking at some of the stuff that actually the biggest export market for Chinese exporters relative to the U.S. is actually is actually consumer electronics.
12:32:
(Luke Groman)
And that for a lot of other stuff, the Chinese consume a lot of their own stuff.
12:36:
(Luke Groman)
And then I think the final sort of reason why we're seeing this acceleration now is because rightfully, you know, something we've heard.
12:45:
(Luke Groman)
And like I said, I think it's rightfully that anytime someone says, well, ultimately, the U.S. military backs the U.S. dollar.
12:52:
(Luke Groman)
True.
12:53:
(Luke Groman)
But we just had it demonstrated that the Chinese rare earths and Chinese factories backed the U.S. military.
13:00:
(Luke Groman)
So what actually backs the U.S. dollar?
13:02:
(Luke Groman)
And I think there is this growing recognition.
13:06:
(Luke Groman)
We saw it even again this week.
13:07:
(Luke Groman)
Critical shortages in germanium.
13:09:
(Luke Groman)
We've seen it in a number of other different key raw materials, mostly around rare earths, but elsewhere as well.
13:15:
(Luke Groman)
The Chinese have just stopped sending the stuff as it relates to the U.S. military.
13:19:
(Luke Groman)
And so...
13:21:
(Luke Groman)
When you layer all those things on, you realize the U.S. doesn't really have the leverage we thought we had.
13:27:
(Luke Groman)
So when you look at the reaction to post-liberation day along the five stages of grief, right, denial, anger, bargaining, depression, and acceptance, there's still a lot of investors that are just now getting out of denial, out of this, hey, we have all the leverage.
13:46:
(Luke Groman)
And that was pretty obvious from like before it started.
13:49:
(Luke Groman)
You're getting into some of the anger, right, when you hear things like Secretary Besant telling Pulte that he's going to punch him in his effing face at Chamath's birthday party at the White House a couple of weeks ago.
13:59:
(Luke Groman)
I think that's anger.
14:00:
(Luke Groman)
I think he's under a lot of stress.
14:01:
(Luke Groman)
I would be, too.
14:02:
(Luke Groman)
And now we're kind of starting to get, I think, mainstream into this bargaining.
14:05:
(Luke Groman)
Well, like maybe if we sort of cobble together the Europeans and the Argentinians and we can create this buying group and we can cut out China and like it's bargaining, it's it's it ain't going to work.
14:16:
(Luke Groman)
And so we still have to get through bargaining and then into depression and then into acceptance of all of this.
14:23:
(Luke Groman)
So I guess I would say the last thing is sort of why it's accelerating is in the first half of this year, it has become very apparent and obvious that another thing that was said by the establishment was wrong, which is that Russia was, you know, the ruble was rubble.
14:40:
(Luke Groman)
Russia was a gas station with nukes, blah, blah, blah, blah, blah.
14:44:
(Luke Groman)
They're fighting the US military with tanks that they had to put chips in from washing machines.
14:50:
(Luke Groman)
That was US official government saying that three years ago.
14:53:
(Luke Groman)
Either our military couldn't beat a bunch of guys who had washing machine ships in their weapons systems, which would be very disturbing or more likely.
15:01:
(Luke Groman)
And the truth, Russia's industrial base is in better shape than ours because we've been offshoring it to support the dollar system for 45 years and they've outproduced us.
15:11:
(Luke Groman)
And so I think there's this reason why I think we're watching this quickening is this sequence of
15:17:
(Luke Groman)
of demonstrable, empirically demonstrated facts that we don't have the leverage that we thought we did to support the dollar system.
15:27:
(Luke Groman)
And ultimately, if we can't go to war to support the dollar system from China and Russia trying to change the dollar system because China makes key parts of said military, then we're going to get a change to the system.
15:41:
(Luke Groman)
And that's where we are.
15:42:
(Luke Groman)
And that's why I think we're seeing the quickening.
15:43:
(Eric Townsend)
I want to go back to something that you said earlier, Luke, the Shanghai Cooperative Organization meetings that were held recently.
15:50:
(Eric Townsend)
You follow much more closely than I do.
15:52:
(Eric Townsend)
All I know about it is I was taken aback by a photo I saw of Vladimir Putin, Narendra Modi and Xi Jinping, obviously, you know, made for the press for public consumption photo, intending to show, at least the way I interpreted it, that Modi or that India has pivoted
16:12:
(Eric Townsend)
to China and Russia or is in the process of doing so.
16:15:
(Eric Townsend)
It's like two or three days later, you know, wash, rinse, repeat.
16:18:
(Eric Townsend)
I see another photo this time.
16:20:
(Eric Townsend)
It's Putin standing shoulder to shoulder with Xi Jinping and Kim Jong-un, North Korean head of state.
16:28:
(Eric Townsend)
And I that was at a military parade.
16:30:
(Eric Townsend)
I mean, that's a pretty unmistakable message.
16:33:
(Eric Townsend)
The guys that are in charge of most of the nuclear warheads on this planet are working together and they don't want to be messed with.
16:41:
(Eric Townsend)
So I look at this and I think, oh, my gosh, that's like really big.
16:45:
(Eric Townsend)
I got to get on this.
16:46:
(Eric Townsend)
I Google Google.
16:47:
(Eric Townsend)
iconic photo news coverage.
16:49:
(Eric Townsend)
And sure enough, it's the biggest thing.
16:50:
(Eric Townsend)
Well, the biggest thing in the United States was the photo where Sidney Sweeney apparently put on some blue jeans and that's created an ideological, I don't really get what the battle's about anyway.
17:00:
(Eric Townsend)
Luke, I don't think we're paying attention to the most important stuff.
17:05:
(Eric Townsend)
So obviously I brought that up to point out the irony of the corporate media's priorities, but I really think there's an important and serious issue here.
17:14:
(Eric Townsend)
You're saying, okay, we're just,
17:17:
(Eric Townsend)
At maybe the denial stage.
17:19:
(Eric Townsend)
Why?
17:20:
(Eric Townsend)
Or some people are.
17:21:
(Eric Townsend)
Why would you expect anyone to ever come out of the denial stage if the news coverage about the things that are like really, really important signals are being replaced with Sidney Sweeney's blue jeans?
17:35:
(Eric Townsend)
Help me with this.
17:36:
(Eric Townsend)
I mean, I'm not just ridiculing them.
17:38:
(Eric Townsend)
I'm saying, seriously, until this gets fixed, why would you expect, you know, the mainstream to ever come around and see what you see if what they're paying attention to in the news is very different than what you're paying attention to?
17:51:
(Luke Groman)
Look, I think part of the media strategy is to distract.
17:56:
(Luke Groman)
And without getting myself totally in trouble, I will tell you, my sons certainly noticed it.
18:00:
(Luke Groman)
They're all young adult men.
18:03:
(Luke Groman)
And yes, they absolutely know it.
18:05:
(Eric Townsend)
Luke, you had the opportunity.
18:07:
(Eric Townsend)
All you had to do.
18:08:
(Eric Townsend)
was to just run with the Sweeney story, figure out how to pull Taylor Swift into it, and you could have totally leapfrogged next week's mystery guest and locked in more downloads than anybody else.
18:20:
(Eric Townsend)
But you want to talk about little stuff like, you know, the future of humanity and how it's going to play out in financial markets.
18:25:
(Eric Townsend)
Fine.
18:25:
(Eric Townsend)
We'll do it your way.
18:26:
(Eric Townsend)
Go ahead.
18:27:
(Eric Townsend)
What did you write about on the 9th of September?
18:29:
(Luke Groman)
On the 9th of September, I said I thought what had just happened the week before at this Shanghai Cooperation Organization meeting or SEO meeting was
18:36:
(Luke Groman)
Might have been the biggest geopolitical week since the fall of the Berlin Wall.
18:40:
(Luke Groman)
And what we pointed out was you had this meeting, which you saw the pictures with with Putin, Modi and Xi, which to me, I think discredited an army of think tankers in Washington.
18:53:
(Luke Groman)
Right.
18:53:
(Luke Groman)
Because we were supposed to be sort of splitting those three any number of different ways against each other.
18:58:
(Luke Groman)
We used the media or excuse me, the picture you referenced to the parade.
19:02:
(Luke Groman)
We had Russia and China signing a major gas deal that could reshape global energy markets, according to the FT, in which the head of Gazprom said it was likely going to be priced the same way the other gas deals were between them, which was to say in rubles and in foreign currency, which is to say not the dollar.
19:20:
(Luke Groman)
It highlighted, of course, the military parade unveiling new weapons.
19:25:
(Luke Groman)
It was followed by President Trump accusing Xi, Putin and Kim of, quote unquote, conspiring against the United States of America, which one of the charms about President Trump is that he will several times a year actually tell you what's going on by virtue of sort of some sort of
19:43:
(Luke Groman)
impulsive ex post or true social posts.
19:46:
(Luke Groman)
And I think these were one of these.
19:47:
(Luke Groman)
I think he got a briefing about like, sir, this is happening.
19:51:
(Luke Groman)
And he immediately took to his phone and then he followed that up.
19:55:
(Luke Groman)
even more tellingly by conceding, it seemed like to me, to the BRICS saying, it looks like we've lost India and Russia to deepest, darkest China.
20:03:
(Luke Groman)
May they have a long and prosperous future together.
20:07:
(Luke Groman)
Which to me, like I said, read as a concession post on Truth Social after him getting a briefing about what was decided there.
20:16:
(Luke Groman)
And then finally, all in the same week over that weekend, the U.S. Pentagon said,
20:22:
(Luke Groman)
released the new National Defense Strategy Report, or at least drafts of it, to the Washington media.
20:28:
(Luke Groman)
And they said it was going to be pivoting away from China in a much more realist view and focusing on a more sort of Monroe Doctrine-like policy in our own hemisphere.
20:39:
(Luke Groman)
And so to me, I thought that was an enormous set of events.
20:45:
(Luke Groman)
And what I think it meant was that, you know, sort of this this daisy chain of things we highlighted, started highlighting back in 17.
20:52:
(Luke Groman)
And we've talked through the years that to your point, they were still early.
20:57:
(Luke Groman)
We were still describing things.
20:59:
(Luke Groman)
They stop buying treasuries on net.
21:01:
(Luke Groman)
They start shifting commodities outside the dollar with net gold settlement.
21:05:
(Luke Groman)
They do China 2025, et cetera.
21:07:
(Luke Groman)
They've now reached this point where they are comfortable sort of coming out on the town, on the grand promenade, and
21:14:
(Luke Groman)
China, Russia and India are using their real economic cloud in manufacturing, in energy, commodities and in population.
21:21:
(Luke Groman)
They're essentially restructuring the rules based global order.
21:25:
(Luke Groman)
They're going to force gold back into the system as a neutral primary reserve asset to replace treasuries, to replace Western sovereign debt.
21:32:
(Luke Groman)
And ultimately, over time, that means Western central banks are probably going to have to engage in some form of
21:40:
(Luke Groman)
yield curve control or its proxy through, you know, the Genius X stable coins, however they want to do it.
21:46:
(Luke Groman)
And I think that was, I think that week was, we're going to look back in five years, 10 years.
21:53:
(Luke Groman)
And at the same way we look back at when the Berlin wall came down, like everything changed.
21:58:
(Eric Townsend)
Luke, when I read that September 9th piece, I was extremely impressed.
22:01:
(Eric Townsend)
Listeners, we do have it for you.
22:03:
(Eric Townsend)
It's linked in your Research Roundup email.
22:04:
(Eric Townsend)
If you don't have a Research Roundup email, just go to our homepage, macrovoices.com.
22:07:
(Eric Townsend)
Click the red button above Luke's picture that says looking for the downloads.
22:11:
(Eric Townsend)
Luke, wow, it was a doozy.
22:12:
(Eric Townsend)
I thought it's going to be a long time before Luke comes up with another tree rings report that matches this one.
22:17:
(Eric Townsend)
You actually outdid it three days later on September 12th.
22:22:
(Eric Townsend)
And I'll tell you, I just had a really strong reaction to that.
22:25:
(Eric Townsend)
I've been reading your stuff for years.
22:26:
(Eric Townsend)
And the way I read it, Luke, is Luke's a smart guy forecasting some long-term trends that haven't happened yet.
22:32:
(Eric Townsend)
It feels to me like you're reading color commentary on really big stuff as it's going down.
22:39:
(Eric Townsend)
to me seems like a really big change from the way you used to write and report on things.
22:44:
(Eric Townsend)
And it sounds to me like it's a very direct reflection of what you described earlier, which is we're going from the slowly at first to the all at once.
22:52:
(Eric Townsend)
So am I right?
22:53:
(Eric Townsend)
I mean, is that how you perceive what's going on?
22:56:
(Eric Townsend)
And obviously we've teased the listeners.
22:57:
(Eric Townsend)
Now you've got to tell them all about what's in the September 12th report.
23:00:
(Luke Groman)
I always say it, and so people will laugh when I say it here, is what's normal for the spiders?
23:06:
(Luke Groman)
Chaos for the fly, right?
23:07:
(Luke Groman)
You're long gold with all this happening today.
23:09:
(Luke Groman)
You're not unhappy.
23:10:
(Luke Groman)
If you own Bitcoin, I think if you own stocks, you're not going to be unhappy.
23:13:
(Luke Groman)
You own long-term bonds?
23:14:
(Luke Groman)
I think you're going to be fine, but
23:16:
(Luke Groman)
I think you're going to go from, you know, eating steak to eating hamburger, to eating dog food, to eating kibbles and bits.
23:21:
(Luke Groman)
So that's okay.
23:23:
(Luke Groman)
What really has gotten, why I was so, you know, really focused on the pace of events and highlighted in that piece was, you know, look, three weeks ago, we had this SEO in the China parade, right?
23:35:
(Luke Groman)
And that effectively...
23:37:
(Luke Groman)
threatened, you know, mutually assured destruction, you know, with a demonstration.
23:41:
(Luke Groman)
Essentially what they said in plain English, a conventional war with China and Russia is going to lead to mass casualty events in major Western European cities, major U.S. coastal cities.
23:49:
(Luke Groman)
That was the message of that parade, in my opinion.
23:52:
(Luke Groman)
And I think you've got to take a step back within that and why it got me so, you know, why what happened that week was so big is if you go to three months before that,
24:00:
(Luke Groman)
It was reported that the U.S. ran down 15% of its TAAD, T-H-A-A-D, air defense missiles in just 11 days of medium-intensity combat defending Israel.
24:10:
(Luke Groman)
Israel ran out of their air defense missiles even faster.
24:13:
(Luke Groman)
And it was a supply chain issue.
24:14:
(Luke Groman)
We simply can't make them fast enough because...
24:17:
(Luke Groman)
we've offshored too much of our industrial base to China.
24:19:
(Luke Groman)
So basically, we need to ask China nicely to send us the stuff.
24:23:
(Luke Groman)
And China keeps saying no, because we keep telling them we're going to use them to point it at them.
24:27:
(Luke Groman)
Understandably so.
24:28:
(Luke Groman)
And then if you even take a step back from there, over the past three years, NATO supplied intel, surveillance, reconnaissance, weapons, tactics, strategies to Ukraine versus Russia.
24:36:
(Luke Groman)
And Ukrainians were very good.
24:38:
(Luke Groman)
And Russia won with China's support.
24:40:
(Luke Groman)
And so when we saw
24:42:
(Luke Groman)
Partly of that was due to the nature of war changing to drones and missiles, partly because NATO got outproduced by Russia, because we, again, we had to get out of the industrial production business to support the dollar system over the last 40 years.
24:55:
(Luke Groman)
But I don't think investors recognize what has just transpired here, which is that the last three years, and especially the last month, the last three months, excuse me, proved
25:06:
(Luke Groman)
To a lot of the world, what a lot of people at high levels in finance and in military intelligence had already known, which is that the U.S. defense industrial base has been too hollowed out by the structure of post-$71 hegemony to be able to sustain a conventional war versus the BRICS for more than just a few weeks.
25:23:
(Luke Groman)
And certainly not without severe casualties.
25:24:
(Luke Groman)
And certainly, by the way, not without the Fed essentially buying the entire $130 trillion bond market with printed money to prevent it from crashing, which it would on open war with any of these guys.
25:36:
(Luke Groman)
We highlighted, you know, in running through those military things, and then in this report, what we really, of the 12th, what we really highlighted was that a combination of softening U.S. consumer sentiment.
25:51:
(Luke Groman)
We then highlighted that ultimately there's a fundamental misunderstanding between how much China can outproduce, that actually that the United Nations has understated Chinese
26:06:
(Luke Groman)
production and consumption and economic, that China's real purchasing power parity economic growth.
26:12:
(Luke Groman)
We highlighted that there's starting to be an awakening around, hey, these raw materials that we've been, we have for 40 years said all we need are dollars.
26:23:
(Luke Groman)
And so let them produce everything.
26:25:
(Luke Groman)
There's starting to be a recognition around that by the International Energy Agency, the U.S. administration, the West more broadly.
26:33:
(Luke Groman)
What we point out is that's great, and the bond market is the elephant in the room.
26:41:
(Luke Groman)
We can't just run industrial policy to start producing a bunch of this stuff for multiple reasons.
26:48:
(Luke Groman)
We don't have the skilled trades, and from the bond market perspective—
26:53:
(Luke Groman)
you know, we could get the skilled trades if we're willing to let inflation really, really rip.
26:57:
(Luke Groman)
But if inflation really, really rips because our debt is already so high from the things we've done, you end up in a position where the debt will create more of a problem than it solves.
27:07:
(Luke Groman)
So basically, what the report lays out is that there is no way this works unless we get into some form of yield curve control, whether that's via the Fed, whether that's via Treasury, whether
27:24:
(Luke Groman)
There's a lot of different ways to try to do that, but that's what has to happen.
27:29:
(Luke Groman)
And I think we're watching in markets a growing recognition of exactly that.
27:33:
(Luke Groman)
When you talk about gold, you talk about Bitcoin, you talk about stocks, et cetera.
27:37:
(Eric Townsend)
Luke, that was the September 12th missive.
27:39:
(Eric Townsend)
And listeners, that one too is linked in your research roundup email.
27:43:
(Eric Townsend)
Luke, I do want to respect our standing policy that we never ask you to share your latest current writings with our listeners out of respect for your paying subscribers.
27:53:
(Eric Townsend)
I'm going to break the rules on this one at least a little bit.
27:56:
(Eric Townsend)
And I certainly understand we cannot share the full September 16th PDF with our listeners.
28:01:
(Eric Townsend)
But how about at least giving us a sense of who is Emmanuel Todd and what's he writing about and why is that kind of important in your mind?
28:10:
(Luke Groman)
Emmanuel Todd is a French anthropologist who is...
28:15:
(Luke Groman)
Famous for having written three different geopolitical essays over the past 50 years.
28:19:
(Luke Groman)
So he spends most of his time studying anthropology, the study of human family systems and organizations.
28:27:
(Luke Groman)
The first geopolitical essay he wrote was called The Final Fall.
28:31:
(Luke Groman)
He published it in 1976 and he predicted the collapse of communism based on the anthropological concepts of declining Russian female fertility rates and rising Russian infant mortality because infants are the most sensitive indicator of a society that is starting to fail.
28:50:
(Luke Groman)
He wrote his second essay.
28:52:
(Luke Groman)
geopolitical essay.
28:54:
(Luke Groman)
And of course, it goes without saying, you know, he had to wait 14 years or 13 years, but he was right.
28:58:
(Luke Groman)
He published The Final Fall in 1976, Soviet Union Collapses 1989.
29:02:
(Luke Groman)
He writes his second geopolitical essay.
29:05:
(Luke Groman)
It was called After the Empire.
29:07:
(Luke Groman)
It was published in 2002.
29:08:
(Luke Groman)
And it was published at a time in which he said, or excuse me, in it, he said that the United States would not enjoy an indefinite unipolar era because the world was too big.
29:17:
(Luke Groman)
The relative size of America is shrinking economically.
29:20:
(Luke Groman)
And America will not be able to control this world.
29:22:
(Luke Groman)
And this happened at a time, if you recall, where there was great consensus that the United States was in the very early days of a generational unipolar power moment.
29:34:
(Luke Groman)
And once again, he was right, based again on strictly on anthropological inputs.
29:42:
(Luke Groman)
And then that brings us to the third geopolitical essay that he has written in his life.
29:48:
(Luke Groman)
Todd is now an old man, of course, and he published in January of 2024 what he thinks will be his last geopolitical essay, which is written in French, still not translated to English, interestingly.
30:01:
(Luke Groman)
It's titled The Defeat of the West.
30:03:
(Luke Groman)
And in the defeat of the West, he states that as a result of many of the same dynamics that led him to predict the collapse of the USSR in 1976, he says, quote, the West has been defeated industrially and economically, citing U.S. infant mortality, which is above Russian infant mortality, U.S. for female fertility rates falling, U.S. industrial base having been hollowed out by offshoring in a manner reminiscent of what happened to the Soviet Union when he wrote his first essay.
30:29:
(Luke Groman)
newly graduating engineer numbers in the U.S. and educational attainment more broadly in the U.S., falling for decades.
30:36:
(Luke Groman)
So he wrote that in early 2024, before it was obvious that the U.S. or that the proxy war in Ukraine was not going for NATO.
30:45:
(Luke Groman)
In April of 2025, he gave a public speech discussing the defeat of the West, in which he said, we're past the turning point.
30:54:
(Luke Groman)
We're moving from defeat to dislocation.
30:57:
(Luke Groman)
And what makes me cautious is
30:59:
(Luke Groman)
is my past experience of the moment of the collapse of the Soviet system.
31:02:
(Luke Groman)
I predicted this collapse, but I must admit that when the Soviet system actually collapsed, I was not able to foresee the extent of the dislocation and the level of suffering that this dislocation would bring to Russia.
31:13:
(Luke Groman)
He published it publicly at the end of May.
31:16:
(Luke Groman)
We read it then.
31:17:
(Luke Groman)
We kind of set it aside in our cutting room because it didn't feel like it made sense yet.
31:23:
(Luke Groman)
And we pulled it out as part of
31:25:
(Luke Groman)
the report of September 16th after the events of a few weeks ago, because it's starting to feel like it makes sense.
31:32:
(Luke Groman)
Now, our friend Balaji Srinivasan came at this exact same issue from a completely different angle in conversation with our friend Peter McCormick a couple of months ago in July.
31:42:
(Luke Groman)
Balaji came at it from a technologist, but he came to the same conclusion, which is essentially we're past the point of no return.
31:48:
(Luke Groman)
China has disintermediated Red America.
31:51:
(Luke Groman)
The Internet and Bitcoin have disintermediated blue America, right?
31:55:
(Luke Groman)
They control media and they control the money and they're being disintermediated in the same way that China disintermediated red America with manufacturing, the military.
32:03:
(Luke Groman)
And so we're getting this dynamic that we're watching every day in our lives now, just everywhere.
32:10:
(Luke Groman)
Blue fights with red, red fights with blue, red fights with China, blue fights with Bitcoin and the Internet.
32:15:
(Luke Groman)
And the U.S. as a nation pulls back because it's getting beaten in its own open global capitalist competition game that it created.
32:23:
(Luke Groman)
And it's getting beaten by the global south.
32:25:
(Luke Groman)
Right.
32:25:
(Luke Groman)
How often do we hear Chinese China China's outproducing us?
32:29:
(Luke Groman)
We've got to get them to like slow down.
32:31:
(Luke Groman)
They're producing so much that they're beating us at our own game.
32:34:
(Luke Groman)
That's highly inflationary over time.
32:35:
(Luke Groman)
Best case.
32:37:
(Luke Groman)
In this report, in addition to what Emmanuel Todd said in May of this year, or excuse me, he wrote the book in January, but he said this in April and May of this year.
32:46:
(Luke Groman)
In addition to what Balaji and Peter McCormick said in July of this year, we highlighted a Chinese People's Liberation Army general who gave a speech in 2015 to the CCP senior leadership.
32:58:
(Luke Groman)
He warned of some of the very same things.
33:00:
(Luke Groman)
Most Western investors either never even saw it or those that did kind of laughed at it.
33:05:
(Luke Groman)
You know, they're not laughing anymore.
33:07:
(Luke Groman)
And, you know, I don't want to take things away from our own our own folks here.
33:10:
(Luke Groman)
Like the U.S. military was ahead of this more than any of the above, as were some major U.S. industrial titans from GE, Google, Intel.
33:19:
(Luke Groman)
But most Western investors ignored her to laugh.
33:20:
(Luke Groman)
I'm going to read a brief passage from top U.S. military leadership in 2011.
33:26:
(Luke Groman)
In Edward Luce's 2012 book, Time to Start Thinking, quote, senior U.S. military leadership 2011 said this, quote, the window on America's hegemony is closing.
33:35:
(Luke Groman)
We are at a point right now where we still have choices.
33:39:
(Luke Groman)
By 2021, we will no longer have choices.
33:41:
(Luke Groman)
The U.S. is way too dependent on its military, should sharply reduce its global footprint,
33:45:
(Luke Groman)
By winding up all wars, notably in Afghanistan and by closing peacetime military bases in Germany, South Korea, the UK and elsewhere.
33:52:
(Luke Groman)
All this is a means to an end, which is to restore America's economic vitality.
33:57:
(Luke Groman)
Our number one goal should be to restore American prosperity as such.
34:01:
(Luke Groman)
We recommend the Pentagon shrink its budget by at least 20 percent.
34:04:
(Luke Groman)
Most of the savings would be spent on civilian priorities such as infrastructure, education, foreign aid.
34:10:
(Luke Groman)
Nobody here thinks the politics in this town are going to change overnight.
34:13:
(Luke Groman)
All we're saying is that we're in trouble if they don't.
34:16:
(Luke Groman)
This is not about ideology.
34:17:
(Luke Groman)
This is about understanding where we are as a country.
34:20:
(Luke Groman)
So the U.S. military has been warning about this for 14 years.
34:24:
(Luke Groman)
Of course, they said we're going to be out of time in 2021.
34:26:
(Luke Groman)
And the problem, of course, is that 2021 is almost five years in the rearview mirror now.
34:31:
(Luke Groman)
And so when you then layer that with what the Chinese general highlighted, some of the same dynamics,
34:36:
(Luke Groman)
What an anthropologist who in his speech actually apologizes said, this is not what I want.
34:42:
(Luke Groman)
This is not what I wanted to come up with this data.
34:43:
(Luke Groman)
The data are the data.
34:44:
(Luke Groman)
You can't lie about the fertility rates and the infant mortality rates.
34:49:
(Luke Groman)
They are what they are.
34:50:
(Luke Groman)
And here's what they're saying.
34:51:
(Luke Groman)
And I'm sorry, America.
34:53:
(Luke Groman)
And so that's what we highlighted.
34:56:
(Luke Groman)
And I it didn't make me happy to highlight it, but it is what it is.
35:01:
(Luke Groman)
Right.
35:02:
(Luke Groman)
I don't it's it was hard to write.
35:04:
(Luke Groman)
It was harder for me to write than it was for you to read, if you can believe that.
35:08:
(Eric Townsend)
Well.
35:08:
(Eric Townsend)
Well, Luke, if I had to write the executive summary of Todd's writings, I could do it in six words.
35:14:
(Eric Townsend)
The Luke Groman moment is upon us.
35:16:
(Eric Townsend)
Or I guess I should probably translate that to your frame of reference, which is the phase of the Luke Groman, I don't know, evolution.
35:25:
(Eric Townsend)
We're hitting the acceleration point.
35:27:
(Eric Townsend)
We're going from the happens slowly at first to the then all at once.
35:32:
(Eric Townsend)
We know that Emmanuel Todd, who has a pretty darn impressive track record, basically thinks that this is a very pivotal moment in history.
35:42:
(Eric Townsend)
I want to know what Luke Groman thinks this moment is going to mean.
35:46:
(Eric Townsend)
How turbulent could things get in financial markets?
35:49:
(Eric Townsend)
And most importantly for this audience...
35:51:
(Eric Townsend)
You know, who are going to be the winners and losers?
35:53:
(Eric Townsend)
Obviously, gold has been a big winner here.
35:56:
(Eric Townsend)
I think we're headed into, you know, the famous line about inflation is investors always forget that inflation is really, really good for the stock market in the beginning, at the beginning of the inflation.
36:07:
(Eric Townsend)
Is that what's driving this stock market?
36:09:
(Eric Townsend)
And how long until we get to the bad part of the inflation as far as the stock market?
36:13:
(Eric Townsend)
And for that matter, any other markets that come to mind?
36:16:
(Luke Groman)
Yeah, you know, I think there's probably some investors that will listen to this and say, well, you know, never short America.
36:21:
(Luke Groman)
Right.
36:21:
(Luke Groman)
And look, I agree with that.
36:23:
(Luke Groman)
And that's also just a comforting platitude.
36:25:
(Luke Groman)
It's a cop out.
36:26:
(Luke Groman)
It doesn't do anything to fix the problem.
36:28:
(Luke Groman)
And I would also say, like, which America from 1940 to 1980, what was good for GM was good for America.
36:36:
(Luke Groman)
And from 1980 to 2020, what was good for Goldman Sachs and what's good for the Treasury market is good for America.
36:43:
(Luke Groman)
And now what's good for the defense industrial base, the working class, the middle class is I think we're I think we're like two years into that is 40 year stretch of that.
36:54:
(Luke Groman)
What's being good for America.
36:56:
(Luke Groman)
So, you know, I think we're going through this phase change.
36:59:
(Luke Groman)
I think it's an early I think we're early in it.
37:02:
(Luke Groman)
And I think it's important to say, look, we're not saying short America.
37:05:
(Luke Groman)
What we're saying is short the real value of long term treasuries and short the dollar against gold, Bitcoin and stocks, because the U.S.'s own military is saying the U.S. is four years past the we're out of options date.
37:18:
(Luke Groman)
And so I think what's going to happen is we are going to run this economy so hot.
37:23:
(Luke Groman)
And I think we're going to repress the real value of long term treasuries so much versus gold and Bitcoin and stocks.
37:31:
(Luke Groman)
And that will ultimately fix the problem.
37:35:
(Luke Groman)
It might create some others that we can touch on in a second.
37:37:
(Luke Groman)
But I think it's really important that.
37:39:
(Luke Groman)
You know, recalling COVID, the U.S. got debt to GDP, you know, after after the stimmies and everything initially and the economy was shut down, debt to GDP blew out to one hundred thirty percent, if I recall correctly.
37:50:
(Luke Groman)
And the U.S. got that right back down to one hundred and eighteen or one hundred seventeen percent in just a couple of years.
37:55:
(Luke Groman)
And recall that at the peak in COVID, I think the 12 trailing 12 month deficit was running at three point three trillion dollars.
38:01:
(Luke Groman)
They got it down to one point four trillion dollars or so in I want to say like 18 months.
38:06:
(Luke Groman)
And how did they do it?
38:09:
(Luke Groman)
Simple.
38:09:
(Luke Groman)
8% CPI, Fed QE with rates at zero into rapidly rising home prices, 50 to 70% year-over-year gains in the S&P, which gooses consumer spending, it gooses tax returns.
38:21:
(Luke Groman)
So all they're going to have to do is run inflation hotter for longer, and the deficit will quickly fall to something sustainable that
38:29:
(Luke Groman)
U.S. nominal GDP is going to soar.
38:31:
(Luke Groman)
We'll be able to reshore.
38:33:
(Luke Groman)
Wages will be able to rise.
38:37:
(Luke Groman)
The release valve will be the dollar, the real value of long-term treasuries.
38:40:
(Luke Groman)
I would think that stocks, I think stocks will soar in dollar terms.
38:44:
(Luke Groman)
They've already started to fall in gold and Bitcoin terms, and I think that's going to continue.
38:48:
(Luke Groman)
Same thing with home prices.
38:49:
(Luke Groman)
You know, since COVID, home prices, I think, are up like 65% in dollars.
38:53:
(Luke Groman)
They're down like 40% in gold terms and down like 95% in Bitcoin terms since COVID.
38:59:
(Luke Groman)
So now what I'll say about all that is what I just laid out, that they are going to run this thing so much hotter than anybody realizes.
39:07:
(Luke Groman)
That's the optimistic case.
39:09:
(Luke Groman)
And that's why I say what's normal for the spiders, chaos for the fly.
39:11:
(Luke Groman)
Look, if you're a boomer and you got 80% of your money in long-term treasury bonds, like,
39:18:
(Luke Groman)
You're going to go from eating steak to hamburger to, you know, kibbles and bits.
39:22:
(Luke Groman)
And that's sorry.
39:24:
(Luke Groman)
And to be honest, that makes some sense, right?
39:27:
(Luke Groman)
Boomers are getting 70 percent of all time record tax receipts.
39:32:
(Luke Groman)
The elderly boomers in silent generation are getting 70 percent of all time tax receipts.
39:36:
(Luke Groman)
for entitlements.
39:39:
(Luke Groman)
We can't raise taxes, so we're gonna inflate them.
39:40:
(Luke Groman)
We're gonna inflate them.
39:41:
(Luke Groman)
So that's the optimistic case.
39:43:
(Luke Groman)
I hope we can get through this without a real domestic political convulsion.
39:48:
(Luke Groman)
I am admittedly less confident about that after the assassination of Charlie Kirk, after the assassination of the United Healthcare CEO, Brian Thompson.
39:57:
(Luke Groman)
And maybe more importantly,
39:58:
(Luke Groman)
the polarized political reaction to those assassinations.
40:01:
(Luke Groman)
That really, as shocking as those were, those were like a double dose of shock was the reaction and the polarized reaction.
40:07:
(Luke Groman)
So look, if I'm wrong and we can't hold it together as a nation, and I don't know exactly what that means, but if we can't, then I'm gonna be dead wrong about stocks going up in this.
40:17:
(Luke Groman)
I'll be really right on gold and Bitcoin, but I'm gonna be dead wrong on stocks because I think right now we have a moment to try to gather ourselves and come together.
40:27:
(Luke Groman)
But the longer we don't do that, I would, again, really reiterate that foreigners have $62 trillion gross and $27 trillion net in dollar assets.
40:38:
(Luke Groman)
They are so long dollar assets.
40:41:
(Luke Groman)
We saw post-Liberation Day what happens when just a little bit of money leaves the United States.
40:49:
(Luke Groman)
Stocks down big.
40:51:
(Luke Groman)
Ten-year treasury yields up big.
40:52:
(Luke Groman)
Bonds down big.
40:53:
(Luke Groman)
dollar down big, right?
40:55:
(Luke Groman)
So that was just a little bit of money that moved out of the U.S. post-liberation day.
41:00:
(Luke Groman)
If we get an honest-to-goodness political convulsion here, wow, that is going to be, that's the Fed's worst nightmare.
41:07:
(Luke Groman)
You're going to get stocks down big, bonds down big, dollar down big, and then what do you do?
41:11:
(Luke Groman)
You raise rates?
41:12:
(Luke Groman)
Ugh.
41:13:
(Luke Groman)
You cut rates?
41:14:
(Luke Groman)
Ugh.
41:14:
(Luke Groman)
And
41:15:
(Luke Groman)
So that is, to me, something I'm watching very closely for signs, hopefully, that we calm things down or if we don't.
41:23:
(Luke Groman)
But I'm hopeful we can get this, you know, sort of the easy way.
41:27:
(Luke Groman)
Right.
41:27:
(Luke Groman)
Which is I put easy way in quotes on my notes here because it's look, it's it's not going to be easy, but it's the easier way when you make really bad long term decisions for 40 straight years.
41:41:
(Luke Groman)
Sooner or later, you run out of room to kick the can.
41:44:
(Luke Groman)
And we're there, right?
41:46:
(Luke Groman)
For a number of different reasons, we're there.
41:48:
(Luke Groman)
I think ultimately what it means for markets is I think inflation is going to run so much hotter than consensus thinks.
41:54:
(Luke Groman)
I think it's entirely possible that it's reported as sort of slightly elevated.
41:58:
(Luke Groman)
And frighteningly, the release valve, if they do that, will be more domestic political tensions.
42:05:
(Luke Groman)
And so...
42:06:
(Luke Groman)
I think, you know, I think we're in for a bit of a bumpy stretch here within sort of this fourth turning dynamic.
42:12:
(Eric Townsend)
Luke, as you've been describing all of this, it's basically forming an analog in my mind that I'd like to run past you.
42:18:
(Eric Townsend)
And this pertains specifically to this question of the state transition.
42:22:
(Eric Townsend)
From, you know, slowly at first until suddenly all at once.
42:27:
(Eric Townsend)
And I guess I'll draw an analogy to the pandemic.
42:30:
(Eric Townsend)
Back into the end of 2019, there were plenty of people on the Internet that, you know, know about these things that were starting to talk about something's going on in China.
42:38:
(Eric Townsend)
The rest of us didn't understand that significance and couldn't possibly be expected to.
42:43:
(Eric Townsend)
Then there's a state transition that happens next where, okay, Jim Bianco was probably the first guy in finance to really understand the scope of this with other people in other fields.
42:54:
(Eric Townsend)
But right around the end of January 2020, it was January 30th of 2020 that we dropped everything and replanned Macro Voices in order to get Dr. Chris Martinson on to talk.
43:05:
(Eric Townsend)
He was one of the people who had been talking about it since 2019.
43:09:
(Eric Townsend)
But
43:10:
(Eric Townsend)
It wasn't really any kind of wake up to what I'll call the second tier of people.
43:14:
(Eric Townsend)
You know, at first it was just the Luke Groman writing about this stuff 10 years ago.
43:18:
(Eric Townsend)
That's like Martinson writing about the pandemic in 2019.
43:21:
(Eric Townsend)
Nobody paid attention.
43:22:
(Eric Townsend)
Nobody cared.
43:23:
(Eric Townsend)
Nobody got it because it just wasn't registering yet.
43:26:
(Eric Townsend)
Then in somewhere around the beginning of February, there was this middle period where it wasn't just one or two guys.
43:34:
(Eric Townsend)
It's like 20 guys now.
43:35:
(Eric Townsend)
It's the smartest guys in finance like Bianco that are all over it.
43:39:
(Eric Townsend)
But they're being ridiculed left, right and center as alarmists.
43:43:
(Eric Townsend)
You know, I was I had all kinds of hate mail for doing that that show on January 30th saying that we were irresponsible fear mongers and, you know, yada, yada, yada.
43:52:
(Eric Townsend)
And then that went on for a few months.
43:55:
(Eric Townsend)
And one day, snap, everybody knew that it's a global pandemic.
43:59:
(Eric Townsend)
Nobody questioned it.
44:00:
(Eric Townsend)
And it's like, oh, my gosh, everybody's panicking.
44:03:
(Eric Townsend)
I feel like this U.S. dollar secular decline thing.
44:07:
(Eric Townsend)
I think we went from the only people like Luca writing about it to the 20 guys like as smart as Jim Bianco have figured it all out now.
44:15:
(Eric Townsend)
And I don't think we've yet gotten to that sudden everybody gets it moment.
44:20:
(Eric Townsend)
Does that resonate for you?
44:21:
(Eric Townsend)
Am I on the right track?
44:22:
(Eric Townsend)
And what could happen when we get to that moment?
44:25:
(Luke Groman)
No, I think that I think it's exactly right.
44:27:
(Luke Groman)
And the reason I think people aren't there yet is it's a little bit cross discipline, right?
44:31:
(Luke Groman)
When you're in our business, you're focused on markets and that and doing what I do, owning my own business, I have the luxury to write about what I think is interesting.
44:42:
(Luke Groman)
And so I have a bit of a cross disciplinal approach that I think is somewhat unique.
44:46:
(Luke Groman)
And the reason I bring that up for this is
44:49:
(Luke Groman)
I think there's still a lot of of like I think we're no longer in the denial stage of China 2025.
44:56:
(Luke Groman)
You know, when they roll that out.
44:58:
(Luke Groman)
Right.
44:58:
(Luke Groman)
People are like, oh, ha ha ha.
44:59:
(Luke Groman)
Like no one's laughing about that anymore.
45:00:
(Luke Groman)
They're not in denial.
45:02:
(Luke Groman)
They're a little bit angry still.
45:03:
(Luke Groman)
Right.
45:03:
(Luke Groman)
Oh, they're cheating and they're they're overproducing and manipulating their currency and like boohoo, you know, compete.
45:09:
(Luke Groman)
I think we're really in this bargaining stage and that's to your point, like there's a recognition, but it's not the bargaining stage is still around.
45:19:
(Luke Groman)
Well, we can get a, we can get the Europeans and we can sort of block out China and the bricks and, and, and, and we're, we're only looking at it from one side and nobody is really doing the,
45:33:
(Luke Groman)
sort of the deep look of supply chains to go, okay, break your supply chains down, break your trade balances down and see how much of it ever touched China.
45:42:
(Luke Groman)
And if they, at some point they're going to do that and they're going to go, oh my God, oh my God.
45:48:
(Luke Groman)
Like there, that, and that will be sort of that moment.
45:52:
(Luke Groman)
And I, the sense I get is the old, the old famous saw, right?
45:58:
(Luke Groman)
Amateur study tactics, professional study logistics is,
46:01:
(Luke Groman)
You know, the bargaining stage was talking tactics, right?
46:04:
(Luke Groman)
You know, Besson's talking tactics around, well, we're just going to get this group and we're going to isolate China.
46:10:
(Luke Groman)
The logistics are the guys within the U.S. military and intelligence communities.
46:15:
(Luke Groman)
And I just get the sense...
46:17:
(Luke Groman)
that they've done the digging on the supply chains and like, they know we don't have the leverage they know.
46:25:
(Luke Groman)
And whenever that common knowledge goes from the, the special knowledge, like you were talking about sort of the isolated, you know, 20 guys to, Oh my gosh.
46:37:
(Luke Groman)
Yeah.
46:37:
(Luke Groman)
Then I think it's going to, things are going to happen really fast because, you know, to me, the conclusion is just so crystal clear.
46:43:
(Luke Groman)
Look,
46:43:
(Luke Groman)
We cannot win this trade war.
46:48:
(Luke Groman)
The Treasury market will blow up first every time.
46:51:
(Luke Groman)
You can game it out however many times you want it.
46:54:
(Luke Groman)
In the end, the only way it works is if the Fed or the Treasury basically buy much of the bond market and yield curve control it.
47:02:
(Luke Groman)
And historically, when we've gotten in these tense situations, as the military warned about in 2012, right, we rely too much on our military.
47:11:
(Luke Groman)
Historically, geopolitics since the year 2000 has been like, don't do anything to mess with the rules based global order because the American military will show up and kick your head in.
47:20:
(Luke Groman)
That's geopolitics since the year 2000 in 10 seconds.
47:24:
(Luke Groman)
Well, U.S. military critical components are now made in China.
47:27:
(Luke Groman)
So that, too, there's still denial or, you know, some some anger, not even really bargaining yet.
47:34:
(Luke Groman)
When you put those two cross discipline things together, which is our debts too high, our supply chains are all touching China, even if we want to pretend that they don't.
47:45:
(Luke Groman)
And our military critical components can't.
47:48:
(Luke Groman)
We don't have the industrial base anymore.
47:49:
(Luke Groman)
Those three things together lead you to a conclusion either or.
47:53:
(Luke Groman)
We're going to go to nuclear war and there's no winners there.
47:55:
(Luke Groman)
I think it's uninvestable.
47:56:
(Luke Groman)
I hope that's not how it's going to go.
47:58:
(Luke Groman)
But let's set that aside.
48:00:
(Luke Groman)
Or we're going to run this super hot and the market's going to wake up and go, oh, my God, I can't own bonds.
48:07:
(Luke Groman)
I can't own long term bonds.
48:09:
(Luke Groman)
I need to own gold.
48:09:
(Luke Groman)
I need to own stocks.
48:10:
(Luke Groman)
I need to own Bitcoin.
48:11:
(Luke Groman)
I need to own anything but bonds, anything but dollars.
48:15:
(Luke Groman)
And that's not even anything but dollars, not even really fair, right?
48:18:
(Luke Groman)
Anything but bonds, because I think dollar stocks, I think you're going to be fine.
48:22:
(Luke Groman)
I don't know when that moment's coming, but like, I don't think it's years away anymore.
48:28:
(Luke Groman)
I think we're I think that's, you know, I think it's six to nine months away because then I can overlay that with the fiscal situation and look like.
48:36:
(Luke Groman)
I can overlay that, you know, the fiscal situation.
48:38:
(Luke Groman)
We're right now with receipts at all time highs.
48:40:
(Luke Groman)
We have true interest expense, which is interest plus entitlements, plus Veterans Affairs.
48:44:
(Luke Groman)
It's 100 percent receipts and receipts are highly sensitive to the stock market.
48:47:
(Luke Groman)
So that like we're to the wall there.
48:50:
(Luke Groman)
We're seeing the U.S. economy on the consumer side actually slow, which is
48:56:
(Luke Groman)
really weird because it's really bifurcating, right?
48:58:
(Luke Groman)
The bottom 50 percent are really suffering and the top 10 percent are, you know, it's, you know, party on Wayne, party on Garth.
49:05:
(Luke Groman)
And that then reverberates into the geopolitical side, right?
49:09:
(Luke Groman)
You're starting to see people writing articles like what is going on in America after the last two, three weeks?
49:13:
(Luke Groman)
And so it could be a geopolitical trigger.
49:15:
(Luke Groman)
I don't know.
49:15:
(Luke Groman)
Or not a geopolitical, but a domestic political trigger.
49:17:
(Luke Groman)
I don't know.
49:18:
(Luke Groman)
Or simply just a
49:19:
(Luke Groman)
a spooking of foreign investors, right?
49:21:
(Luke Groman)
We have so much foreign money here, 62 trillion gross, 27 trillion net.
49:25:
(Luke Groman)
If they start to get spooked about the domestic political situation, do they take five, 10% of their money home?
49:30:
(Luke Groman)
Then what happens?
49:32:
(Luke Groman)
So yeah, I think we are like right on the cusp of exactly what you describe.
49:36:
(Luke Groman)
And there can be domestic political, there could be market, there could be trade, there could be geopolitical, there could be any number of things that could spark it.
49:44:
(Eric Townsend)
Luke, I was fascinated by your mention of military and digging into supply chains and so forth.
49:49:
(Eric Townsend)
I want to share a quick story with you.
49:51:
(Eric Townsend)
I was recently surprised to be invited to speak at a supply chain conference.
49:56:
(Eric Townsend)
So I do a Zoom call with the organizers.
49:58:
(Eric Townsend)
I say, guys, I'm really flattered.
49:59:
(Eric Townsend)
You know, thank you.
50:00:
(Eric Townsend)
But you've misunderstood.
50:01:
(Eric Townsend)
I'm not a supply chain expert.
50:02:
(Eric Townsend)
I really don't know very much.
50:04:
(Eric Townsend)
about it at all I'm not qualified to speak at that kind of conference but boy I would love an invitation because I'm very curious to learn more about the people who do the things that you describe the people who are analyzing things like hey we're about to start a war with China but we get we're completely dependent on them for rare earth elements and for almost all of our medications and for all these other things I would really be fascinated to attend that and learn from the experts
50:31:
(Eric Townsend)
Who is analyzing these things?
50:32:
(Eric Townsend)
Because I don't know that much about it.
50:34:
(Eric Townsend)
And they just looked at me like, Eric, you don't get it.
50:37:
(Eric Townsend)
We do know exactly what your qualifications are.
50:40:
(Eric Townsend)
The answer is nobody that goes to our supply chain conference is looking at any of those things.
50:45:
(Eric Townsend)
And we want you to come and point out that they should be.
50:48:
(Eric Townsend)
And I'm like, wait a minute.
50:50:
(Eric Townsend)
What?
50:50:
(Eric Townsend)
Supply chain people are not focused on that.
50:53:
(Eric Townsend)
Well, I got to believe they are in the military.
50:55:
(Eric Townsend)
But, you know, that would be classified and so forth.
50:57:
(Eric Townsend)
It sounds to me like most of the people in the commercial supply chain industry are not really focused on the things that you're talking about.
51:06:
(Eric Townsend)
And boy, I agree with you that they should be.
51:08:
(Luke Groman)
I mean, you know, it's one of these things like I have a good friend who worked for a major global international freight forwarder.
51:16:
(Luke Groman)
And so someone in that seat is going to know.
51:19:
(Luke Groman)
And, you know, when you talk to folks like that, it's, you know, what what they highlight or some of just, you know, what I would highlight are some of the like seven or eight of the 10 biggest container ports in the world or in China.
51:34:
(Luke Groman)
And it took them 30 years working at the fastest pace in human history to build them.
51:39:
(Luke Groman)
And then there's a whole scale and network around engineers and factories and roads and infrastructure.
51:48:
(Luke Groman)
And it's simply world class across the board.
51:50:
(Luke Groman)
And they've, again, 30 years working the hardest, fastest pace in human history.
51:56:
(Luke Groman)
And that's kind of where I say sort of like the bargaining side, right?
51:59:
(Luke Groman)
When I hear those things, I say, well, we're going to move it all to Vietnam.
52:01:
(Luke Groman)
Well, sure, you're going to move some to Vietnam.
52:02:
(Luke Groman)
You can move some to India.
52:04:
(Luke Groman)
You can't move it all.
52:05:
(Luke Groman)
Well, why not?
52:05:
(Luke Groman)
Because literally you can't fit it.
52:08:
(Luke Groman)
And even if you could fit it, which you can't, it's going to take you.
52:13:
(Luke Groman)
Do you think the Indians are going to work faster than the Chinese did?
52:18:
(Luke Groman)
Like I remember being an investor in a Chinese SPAG, where the Indian management team come in, they go, Luke, you have to understand in India, you know, the British...
52:25:
(Luke Groman)
invented administrative stuff.
52:30:
(Luke Groman)
And the Indians perfected it.
52:32:
(Luke Groman)
Like it is just, you know, it takes longer to get stuff done there.
52:35:
(Luke Groman)
So you're like best case you're talking, if you did it as fast as the Chinese, you're talking about 30 years.
52:41:
(Luke Groman)
You're not going to do it that fast.
52:42:
(Luke Groman)
And even if you could fit it, which you can't, and even if you get it in half the time of the Chinese, which is still put us 15 years, which you can't, you still have the elephant in the room, which is the global bond market, which is like all this stuff is in China and optimized the way it is.
52:58:
(Luke Groman)
to keep inflation down to support the bond market.
53:03:
(Luke Groman)
That's why we did this.
53:04:
(Luke Groman)
That's why we did this at the end of the day.
53:06:
(Luke Groman)
So if you want to do it, it's going to be inflationary and probably wildly so, which wouldn't be a problem except the debt levels in the West in particular are so high that 10, 20, 30 basis points from where we are today, maybe in some case, you know, the U.S., maybe 60 basis points,
53:25:
(Luke Groman)
on the 10 year starts to trigger a debt death spiral rates up stocks down and that we've seen happen multiple times in the last five years japan same story europe same story uk so that's where i kind of look at this you know and i think it's a great summary you highlight of just like there's still this bargaining phase of well we just need to work really hard and we can move stuff out of china we can cut china off you know like you know
53:53:
(Luke Groman)
Now without a frigging 83 DeLorean and a flux capacitor that goes 88 and you go back in time 40 years and you undo the stupid stuff, the short term focused corporate profit maximizing stuff that you did to break unions and support the bond market for 40 years under the guise of neoliberal economics.
54:13:
(Luke Groman)
You do that.
54:14:
(Luke Groman)
Hey, if you've got a time machine, let me know.
54:16:
(Luke Groman)
We can have this thing fixed, you know, six months.
54:19:
(Luke Groman)
But failing that there's like it can't happen.
54:23:
(Luke Groman)
And so I think once we go from bargaining to the depression of like, oh, God, then you're going to realize like, OK, well, they're either going to let everything collapse.
54:31:
(Luke Groman)
They're not going to do that.
54:32:
(Luke Groman)
They're going to print money, you know, and they can't go to war.
54:34:
(Luke Groman)
Right.
54:35:
(Luke Groman)
That's another way out.
54:35:
(Luke Groman)
They can't do that conventional.
54:37:
(Luke Groman)
Hopefully they're not going to go nuclear.
54:38:
(Luke Groman)
They're going to run this thing so hot.
54:41:
(Luke Groman)
They have to.
54:42:
(Luke Groman)
That's the only choice.
54:43:
(Luke Groman)
And I think I guess I would just finish by saying, like, I think the whole discussion around Fed independence and Stephen Myron, I think is totally off base with like most U.S. investors are playing by the old rules.
54:56:
(Luke Groman)
You know, I've been doing this 30, 32 years.
54:58:
(Luke Groman)
Most people that have been doing as long as I have, they're playing by the wrong rules.
55:01:
(Luke Groman)
They're playing by the old rules.
55:02:
(Luke Groman)
They don't understand.
55:03:
(Luke Groman)
Like, is inflation too high?
55:05:
(Luke Groman)
It doesn't matter.
55:07:
(Luke Groman)
The choice is bring this stuff back and blow up the bond market on a real basis.
55:11:
(Luke Groman)
Or don't and lose.
55:14:
(Luke Groman)
Like those are your choice.
55:15:
(Luke Groman)
This whole debate around should the Fed cut?
55:17:
(Luke Groman)
Should they raise?
55:18:
(Luke Groman)
Are they independent?
55:19:
(Luke Groman)
It's noise.
55:20:
(Luke Groman)
It's noise.
55:21:
(Luke Groman)
The variant perception is they are doing to the Fed what they are doing because they have to because of what we just laid on the supply chain front.
55:30:
(Luke Groman)
The bond market has to be anesthetized for the U.S. to get back on the right track again.
55:38:
(Eric Townsend)
Luke, I can't thank you enough for another brilliant interview.
55:41:
(Eric Townsend)
It comes as no surprise that you're right at the top of our listener rankings for top guest of all time in terms of total downloads.
55:49:
(Eric Townsend)
Frankly, I think your writing in your Tree Rings report pretty much speaks for itself.
55:53:
(Eric Townsend)
We've got two examples of that linked in the Research Roundup email from September 9th and September 12th.
56:00:
(Eric Townsend)
For people who want to find out more about what you do or are interested in subscribing and so forth, tell us what you do at Forest for the Trees.
56:06:
(Eric Townsend)
How do people sign up?
56:07:
(Luke Groman)
Sure, absolutely.
56:07:
(Luke Groman)
You can find out more about what we do at fftt-llc.com or for institutional and mass market products and on x at Luke Grohman, all one word.
56:19:
(Eric Townsend)
And don't miss the two samples that are linked in the Research Roundup email.
56:23:
(Eric Townsend)
Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com.