[00:01:37] Luke Gromen: Oh boy. I guess if I had to say, we’re running headlong towards a polycrisis of sorts. There’s a lot of things going on. You know, for starters, the fiscal situation, which was, for all of the hubbub about tax receipts, and they were a record. So we had record tax receipts and we had record all-time high receipts.

[00:01:59] Luke Gromen: Overall, the fact is we’re still at, when you look at true interest expense, which is gross interest expense plus entitlement pay plus veterans benefits, you’re still 96%-ish as a percent of receipts. Those are all-time highs. So we’re still right in that hot zone of if anything slows down, you’re going to be right back over a hundred percent.

[00:02:20] Luke Gromen: You’re right back into, you know, print or default mode. And they always choose print. They have to. Furthermore, we’re now seeing early signs of stress in the overnight funding markets. There’s a variety of views on that. Mine is that it is essentially, we’re now 30 months into the U.S. shifting issuance to the front end because there’s not enough demand at the back end.

[00:02:44] Luke Gromen: And as a result, Bessent has a Red Queen or Axl Rose problem, if you will. “I used to do a little, but a little wouldn’t do it, so the little got more and more,” or the Red Queen: “I’ve got to run faster and faster just to stay in the same spot.” There’s more and more issuance coming, right? So, you know, 2013 we were issuing a hundred billion roll— not issuing, excuse me.

[00:03:04] Luke Gromen: Rolling. Let me be clear with my language. We were rolling about a hundred billion dollars of T-bills a week, per then-Secretary of the Treasury Jack Lew. Now it’s $550 billion per week being rolled, per my friend Andy Constan. And so that requires having a greater level of money in the Treasury General Account, or TGA.

[00:03:23] Luke Gromen: Which Bessent is doing, which is in turn putting strains on overnight funding markets, akin to a little bit like what we saw in 2019. So you’re seeing tightening liquidity there and sort of spot applications of liquidity in terms of the Standing Repo Facility being borrowed against in a bigger way than we have seen ever before.

[00:03:45] Luke Gromen: It’s back to basically nothing. But two weeks ago on Halloween, it was 50 billion overnight. So you’re seeing, you know, that is— that’s not a problem that’s going to go away. That’s going to need, you know, and they’ll continue to put spot applications of liquidity. You’re seeing in Japan, 10-year yields in Japan are at—

[00:04:02] Luke Gromen: The highest levels in, you know, ever.

[00:04:02] Preston Pysh: Yeah, a long time.

[00:04:05] Luke Gromen: Long time, yeah.

[00:04:05] Preston Pysh: Sorry. Long time.

[00:04:06] Luke Gromen: And yeah, we know. And the yen is weakening markedly, which is— when your yields are rising and your currency’s still weakening, that’s like emerging-market type of action. Which is very important because, if you know, for the last five plus years, if you want to know where the 10-year Treasury yield’s going to be in anywhere from a few weeks to a month or two, just look at, you know, the direction of travel of the 10-year JGB.

[00:04:29] Luke Gromen: And the reason that is, is those are the two biggest carry-trade funding currencies in the world, going back 30 years. You know, after ’89 the yen became a carry trade. And then after Bernanke in 2008, the dollar became a carry-trade currency. And we saw in summer 2024 that anytime the yen gets too strong, the yen carry trade blows up.

[00:04:47] Luke Gromen: And anytime the yen gets too weak, dollar gets too strong, the dollar carry trade blows up. So you’re sort of between, you know, Scylla and Charybdis on that front, with Scylla starting to get a little mouthy in terms of the Japanese 10-year bond yields. You’ve got U.S. shale production rolling over and the EIA saying, “Hey, we need to drill faster just to stay flat,” with oil at 59, 60.

[00:05:10] Luke Gromen: We’ve got the IEA coming out saying, “I know we said two years ago that peak oil demand would be here by ’27 or 2030. Oops. It’s actually not peaking at all. Demand’s rising faster than we thought.” So we’ve got U.S. shale, which has been 90% of world supply growth over the last 10, 12 years, per Goehring & Rozencwajg, rolling over while demand that was supposed to be rolling over is not rolling over.

[00:05:35] Luke Gromen: So that is a stress point. You’ve got the geopolitical, where it’s becoming clearer and clearer— you know, we’ve talked about this in the past— Russia won in Ukraine. They beat NATO. That is what it is. That has important implications for macro because, you know, I don’t know how many times in my career I’ve been told, but it’s more than one, that ultimately the U.S. military backs the dollar. If we can’t credibly project power conventionally against a major peer, near-peer power,

[00:06:02] Luke Gromen: That has implications for prospective rule changes to the system. You’ve got Bitcoin, which to me still is the best or the last functioning smoke alarm, starting to cry shrill and issue a very shrill warning of illiquidity. And so, I mean, I could probably— and then let’s, just for giggles, let’s layer on AI, which has gone from funding out of, yes,

[00:06:27] Luke Gromen: Retained earnings and cash flow to they’re now borrowing money and using very creative financing mechanisms. And, you know, I had a good friend of mine point out that credit spreads on Oracle debt are starting to rise. Credit default swaps on Oracle are starting to rise sharply. And the hyperscalers— the hyperscalers, yeah.

[00:06:46] Luke Gromen: Topping it all off, you have an issue where the market leaders, you know, the semiconductors and in particular Nvidia— and I don’t have an opinion on Nvidia one way or another. All I can say is the useful life of these chips are said to be anywhere from three to four years, and you can’t get an electricity hookup in some of the most attractive places in the United States for hyperscalers till 2030.

[00:07:08] Luke Gromen: I’m here. Wow. I got that. So the market, I think, is at some point, probably in the not too distant future, going to ask itself what the value of a chip with a three-year life is if it can’t get electricity to that chip in five to seven years. That’s a pretty important question, and I don’t think they’re going to like the answer when they ask it.

[00:07:24] Luke Gromen: And I guess lastly into all of this, you know, the Fed released a white paper three weeks ago, four weeks ago, noting that not only has the hedge fund basis trade in Treasuries been an important buyer of Treasuries, they have been the biggest marginal buyer of middle- and long-term Treasuries, mid-dated and long-term Treasuries.

[00:07:46] Luke Gromen: Since 2022, they have bought 37% of net issuance of longer-term Treasuries. Wow. They own $1.8 trillion, not out of the Caymans, not $465 billion as the foreign holdings report says for Treasury. And as we’ve talked about many times together, these hedge funds are highly leveraged. So if there’s volatility anywhere, they have to de-risk, and so they will de-risk Treasuries, and so there will be $1.8 trillion of Treasuries selling

[00:08:15] Luke Gromen: If volatility picks up anywhere. And Bitcoin’s telling you volatility’s coming in soon and maybe we’ve already seen it starting. And yeah, that’s, you know, it’s quite the roll-up. That’s what I can think of right there. Right. So like, oh my God. Yeah. You know, by the way, if any of these things goes a little bit wrong, it’s sort of like smoking in, you know, in a nitroglycerin plant.

[00:08:34] Luke Gromen: Yeah. You just need one of them to catch and then they’ll all catch.

[00:08:37] Preston Pysh: Yeah. Just a really— in one sentence, try to summarize. The fiscal issues are: the math ain’t mathing anymore. I mean, it hasn’t for a while, but it’s becoming obvious to everybody on Wall Street that the math just does not work. The liquidity issues is the driving thing.

[00:08:54] Preston Pysh: When people were asking me, “Preston, what’s happening with the price of Bitcoin?” I said, “Well, you know, they’re having liquidity issues right now. It’s very obvious with the repo market.” Luke, do you think that the government shutdown— I saw that the TGA was building, basically the checking account for the government was building during the shutdown.

[00:09:10] Preston Pysh: And it seemed like that was just an added piece to the liquidity challenges that were already there. Just kind of enhanced it a little bit and maybe threw a little bit of extra fuel on the fire with the government being shut down. Is that how you’re seeing that particular piece or is—

[00:09:27] Luke Gromen: Yeah, I think it— the short answer is that it clearly added to it, right?

[00:09:31] Luke Gromen: So we know it added to it. The growth in the TGA, in terms of how much of the growth in the TGA was because of the shutdown, I had thought it was more than it was. Most of it— we put out a report citing work by an analyst named John Comiskey, who’s a Treasury funding analyst, has a Substack. You can find him online.

[00:09:51] Luke Gromen: We had a great interaction two weekends ago where he pointed out to me, surprisingly, “Oh no. This wasn’t shutdown. This is not Bessent playing 4D chess, trying to basically, you know, squeeze funding markets into a crisis so that the Fed has to come back and do ‘not QE’ or whatever.” He’s like, “I was forecasting the TGA was going to go here because there’s a formula. You’ve got to have enough in the TGA relative to, I think it’s like 10 days of outlays or two weeks’ outlays, whatever it is. But the formula is— it’s very formulaic.”

[00:10:35] Luke Gromen: And I said, “So is that current deficits?” He goes, “No. It’s not current deficits. It’s the fact they’re rolling so many bills from the past deficits.” Wow. So that, to me, that really changed my mind on a couple fronts. Number one, it’s, yes, it’s not mostly shutdown-related.

[00:10:55] Luke Gromen: Number one, it’s just 30 months of Yellen and Bessent going, “Oh crap. We don’t have enough buyers for the long end of our market, so we’re just going to shift it to the front end,” and do that enough for 30 months. And pretty soon, you know, you’ve got 550 billion a week you’re re-rolling. And that requires having a big TGA just to make sure you never have a failed auction.

[00:11:13] Luke Gromen: So along with everything else you’re spending money on, you have got to have the cash cushion. So that, in turn, is really important because if that’s the case, if that’s the real driver— like there’s a whole bunch of people out there I’m seeing that think, okay, well the TGA just went to a trillion because of the shutdown and now it’s going back to 300 billion or 400 billion or whatever.

[00:11:28] Luke Gromen: And great, we’re going to get this big liquidity flush into the end of the year and what have you. That increasingly, to me, I’m not sure that’s going to happen. I mean, maybe it’ll go from a trillion to 800 billion or something. Yeah. Which is still kind of helpful, but it’s not— I don’t think it’s going to, if Comiskey is right.

[00:11:38] Luke Gromen: And it makes sense because he’s not the only one saying it. I’ve seen a number of others citing this, guys that are really good in the plumbing, saying that the TGA’s have got to be bigger in a world where you’re rolling 550 billion a week.

[00:11:38] Preston Pysh: That number’s so insane.

[00:11:40] Luke Gromen: Oh, it’s astonishing. Like I said, the growth rate from 2013 to now— a hundred billion to 550 billion—

[00:11:45] Luke Gromen: That’s 15% a week CAGR. And that’s deficit plus shifting to the front end, because you don’t have the demand at the long end after central banks stop growing holdings. Right. So—

[00:11:53] Preston Pysh: And Luke, that is such a huge story that I don’t know a lot of people are talking about, the fact that you have 30 months of the government having to issue just short-duration paper because they can’t go into the mid- to long-duration issuance.

[00:12:07] Preston Pysh: There’s no buyers. To the point that you made in your opening statement about hedge funds basically have been— what did you say the number was? 77% of the buying?

[00:12:18] Luke Gromen: It’s 37. Right, so to be clear, there are buyers, right? Because bills are still only 22% of total outstanding, right? Yeah. But that’s probably up from

[00:12:26] Luke Gromen: 15 or 18%, right? So you’ve got way bigger deficits and you’ve got a shift, you know, of call it 15 or 18% or whatever it was, to 22% of bills as a percent of total. And then, yeah, the kicker is, like, okay, well, of the stuff that you have placed long end, 37% of it, it is with these highly levered basis-trade hedge funds that can’t get more levered.

[00:12:55] Preston Pysh: Yeah.

[00:12:55] Luke Gromen: And, ironically, they fund that trade to buy the 37%

[00:12:55] Preston Pysh: Yeah.

[00:12:55] Luke Gromen: At the same short end that you’re crowding out with the TGA because you’ve placed so much at the front end. So it’s literally a snake eating its own tail. And that’s why I’m not encouraged that there’s going to be this giant liquidity flush out of the TGA— that this was just a shutdown-related thing.

[00:13:12] Luke Gromen: Like they have to do whatever they can to keep repo down, and they have got to keep repo rates calm and they have got to keep the long end calm and they have got to keep equities calm. And they can’t have vol anywhere. They have vol everywhere. And, you know, they’re using standing repo to keep vol down at the front end, which is fine.

[00:13:29] Luke Gromen: That’s what it’s designed for. But the more you tap that, the more there’s going to be an inflationary impulse that’s going to make the long end a little restless. And so then you’ve got to worry about that. And oh, by the way, if these hyperscalers do anything like untoward, that creates a problem, or if private credit does, which I didn’t even touch on, but which is—

[00:13:47] Luke Gromen: You know, there’s smoke and now there’s more smoke and now there’s more smoke there. When equity vol spikes, you’re going to get Treasury vol to spike. They’re going to de-risk their Treasuries holdings. You’re going to get, you know, the 10-year yield goes down for three, four days, five days, seven days, and then it’s going to start spiking just like it did in April.

[00:14:01] Luke Gromen: And then, you know, then comes more liquidity. So it’s tricky, but it’s this snake-eating-its-own-tail dynamic of we had to shift to the front end because we didn’t have the demand at the long end, and the demand we do have at the long end is actually financed at the short end that we’re now crowding out because we have to have a bigger TGA for a liquidity cushion because we’ve been financing so much at the short end.

[00:14:21] Luke Gromen: It’s like everyone’s like, “Oh, look at all these crazy financing schemes that OpenAI and Oracle and Nvidia are doing.” That’s pikers’ stuff compared to— it’s literally the, you know,

[00:14:35] Luke Gromen: Treasury is doing it to the tune of 550 billion a week.

[00:14:35] Preston Pysh: A week. That’s the—

[00:14:36] Luke Gromen: Big boy leagues.

[00:14:37] Preston Pysh: Yeah. So I had an interesting conversation with a friend who’s a real estate agent, and I was just asking him, “Hey, what’s it like in the market right now?”

[00:14:45] Preston Pysh: And I know this is a very localized thing, especially when you get into like retail homes and things like that. But his comment was really fascinating to me. He says, “Preston, it’s really strange right now, like way weirder than it’s ever been.” He’s like, “There’s nothing moving. A lot of people were just used to their low interest rate and they’re like sitting here waiting for that environment to come back.” And he said, “Honestly, the last Fed meeting that happened when they dropped rates, you know, 25 basis points,” he’s like, “Everybody in my community and in my space was like, ‘Okay, here it comes.

[00:15:20] Preston Pysh: Here comes the drop in interest rates.'” And he’s like, “And they went up.” And he’s like, “Everybody was just like looking around like, what in the world is happening? Like, what is this? They just— the Fed just dropped rates, but yet ours are staying the same or going higher.” And he said after that meeting, he’s like, everything has just been dead, completely dead.

[00:15:41] Preston Pysh: So I think it’s a very strange environment. It almost seems like since COVID, you know, we had the 2020— what was it? 2023— contraction, and then the liquidity, you know, came back into the market very heavily. And it seems like this is the second go-around where everybody’s thinking that, “Oh, rates are going to get dropped down to 3% or whatever.

[00:16:05] Preston Pysh: I can refi my house, I can do all these things,” that just persisted for like 40 years straight. And it seems like people are finally coming to this recognition that something’s very different. It doesn’t seem to be changing. It seems to be getting worse and stranger to all these points that you kind of laid out at the start of the show.

[00:16:21] Preston Pysh: I’m just kind of curious if you have any anecdotal stories like that or any comments on that particular real estate, you know, interest rate situation.

[00:16:32] Luke Gromen: You know, in the summer of 2022, if you remember back— and I’m sure we talked then— the consensus on Wall Street was Powell’s going to be Volcker, right?

[00:16:39] Luke Gromen: Inflation’s out of control, but he’s going to be Volcker. He’s going to take pain. And we wrote in the summer of 2022, like, he ain’t going to be Volcker. It is not even a choice for him to be Volcker because of the debt and the deficit situation. Apples and oranges compared to Volcker. He can be Benjamin Strong, who led the U.S. into the Great Depression, or he can be—oh gosh—Burns.

[00:17:02] Luke Gromen: He can be Arthur Burns, who leads the U.S. into the ’70s. Those are his choices. Yeah. And those are, if he’s lucky, the good outcomes for him. And so we assumed it wasn’t going to be, you know, wasn’t going to be Benjamin Strong. And so, you know, probably some version of Burns, and we’re sort of seeing symptoms of that.

[00:17:18] Luke Gromen: But the point in saying that comparison was, when you’re in fiscal dominance, when debt-to-GDP is as high as it is, if you raise rates, you raise deficits, and deficits are stimulative. If you cut rates— well, especially once inflation’s a little elevated—

[00:17:33] Preston Pysh: Yeah.

[00:17:34] Luke Gromen: To lower deficits— to cut interest rates to lower deficits, which is, in theory,

[00:17:38] Luke Gromen: Lower deficits should be non-stimulative or contractionary— you’re still stimulating by cutting rates. So he has a choice of how he wants to inflate, how he wants to be Arthur Burns. And that’s what we said at the time. And it’s starting to play out. And what your anecdote suggests is,

[00:17:58] Luke Gromen: The real estate community doesn’t understand that yet, but they’re going to soon. Yeah. Which is, how do they want rates to go up? Do they want rates to go up with inflation going up? Or do they want rates to go up with inflation going down? Because either way, you know, they’ll go up if he cuts rates and inflation picks up, and they’ll go up if he raises rates because raising rates and, oh, by the way, that makes the debt less sustainable and therefore a higher rate on a less sustainable debt.

[00:18:24] Luke Gromen: So there are still a lot of people, I don’t think, that appreciate that outcome. I agree with you a hundred percent. You said something before that people were finally kind of seeing, you know, the bigger picture. The fact that everyone and their mother in the mainstream media is now talking about the debasement trade, right? Debasement trade. You and I have been talking about this for, what, five years? Seven years? So like, you know, it’s— I feel like Bruce Willis, like, “Come on in. Welcome to the party, pal.” But it’s not a debasement trade. It’s a debasement trend. Yeah. Like this ain’t going to stop.

[00:18:54] Luke Gromen: And oh, by the way, the only way you stop the “rates go up with hikes” or “rates go up with cuts” dynamic is you devalue the heck out of the currency.

[00:18:54] Luke Gromen: And oh, by the way, the only way you stop this is: rates go up with hikes or rates go up with cuts. You devalue the heck out of the currency, and you basically buy down the debt. And, you know, provisionally, we’ve talked about this before. It’s on the books — they could do it with gold. It ain’t going to happen at gold $4,000. It ain’t going to happen with gold $8,000. You know, gold $20,000 is probably the opening bid to have a real effect with that. So, point being is: I think not a lot of people are seeing the symptoms, right? Like your friend saying, “Oh, rates went up when they cut rates. I don’t get it.”

[00:19:31] Luke Gromen: That’s the girl washing up on the beach at the beginning of the movie Jaws, right? Like, “Oh, it’s just a boating accident.”

[00:19:34] Luke Gromen: And then, you know, next comes the poor little boy. And then they’re going to catch a shark, right? And they’re, you know, 50-year mortgages. Or Trump’s going to tweet out the Walmart CEO thing: “Well, Thanksgiving spending’s down,” and then they fact-check them and they’re like, “Well, there’s six fewer items.

[00:19:48] Luke Gromen: There were 21 items on the menu last year. There are 15 this year. And they’re almost all store brands versus brand names last year. But yeah, other than that…” Right? That’s where they catch the shark, and everyone’s like, “Hey, we got it. It’s over.” And the guy’s like, “The bite radius on that animal doesn’t match the bite radius on the victims.

[00:20:04] Luke Gromen: That’s not your shark,” right? Then finally we’re going to see the shark, and when we finally see the shark, everyone in the real estate business is going to go, “Oh my God. If they cut rates, we’re screwed. If they raise rates, we’re screwed. Sell your house now as fast as you can.” And, you know, then what? I don’t know, but people don’t appreciate that they are painted in a corner yet. They know they need to debase, but they don’t really get, like…

[00:20:31] Preston Pysh: Oh yeah. It’s funny you mentioned the 50-year mortgage thing because in my conversation with him, one of the things that I said to him, I says, “Dude, think about this 50-year mortgage thing. Like, just from a first-principles standpoint: imagine I give you tools.

[00:20:45] Preston Pysh: You know, we’re 200 years in the past and I give you some tools to go out, cut down some trees, start building your own house, right? Do you really think it would take you 50 years to build yourself a nice house?” I was like, “No, it’d take you two years or a year or something that’s like way more manageable.”

[00:21:05] Preston Pysh: And I know this isn’t like a perfect example, right? But it does help a person just kind of contemplate, sit down and think: Why would it take me 50 years to pay off something that I can afford? Right? The whole reason they’re going to a 50-year mortgage is to mask the reality of the monthly payment — of what the typical person can afford to pay off 50 years later for a house — and it’s totally insane.

[00:21:31] Preston Pysh: How all of this is just being masked and people aren’t asking the basic questions of, like, Why should it take 50 years to pay? And here’s the irony: if you can get a 50-year mortgage at, call it 5.5–6%, or whatever the yield would be on something like that, it’s actually, in my opinion, probably a screaming deal for the borrower, considering where I think inflation and what the debasement is actually going to be over that same 50-year period in fiat terms.

[00:22:00] Preston Pysh: But it’s just… it’s clown world. It’s totally nuts.

[00:22:05] Luke Gromen: Well, and it’s particularly when you look at what the other hand of the government is doing at the same time, right? They’re like, “We have an affordability problem with housing, so let’s get the mortgage out, right? Cut rates, take the mortgage out.”

[00:22:19] Luke Gromen: Okay. But then, with the other hand, our president comes out and says, “You know what? We are going to let these 600,000 other students in because otherwise our colleges will collapse.” Okay — competition. And he literally told Laura Ingraham, “We can’t build things in America anymore unless we have all these H-1B visa holders in.”

[00:22:37] Luke Gromen: So on one hand you’re saying, “Here, take a 50-year mortgage. We’ll make it more affordable, we’ll cut rates.” And then with the other hand, you’re like, “I’m going to bring in all this labor competition to ensure…” Like, think about the message he just told:

[00:22:51] Preston Pysh: Yeah.

[00:22:51] Luke Gromen: Don’t go into skilled trades — we’re going to let people in to undercut you so you’re never able to afford those houses. Don’t go into engineering because we’re going to let all these H-1B visas in so that the companies don’t have to pay a real wage. So you’re literally undercutting. And, oh by the way, in the grand scheme of what we’re trying to do here, we need to reshore industry so that we can compete with China, so that we’re not relying on the Chinese to build our weapons.

[00:23:14] Luke Gromen: So we’re going to make our houses more expensive, we’re going to make our labor still cheaper so that we have nobody going into these things. We’re going to remain short these things — and then take it back to Nvidia and this AI thing where we can’t build the grid. Yeah, you’ve got chips that are going to expire in three to four years and you can’t get an electricity hookup for five, six years.

[00:23:31] Luke Gromen: You should be, like, literally, “Hey, let’s subsidize electricians to be making what short-term interest-rate traders make on Wall Street. And then, you know what, that hookup will happen in 2027.” But that’s not what we’re doing. We’re extending 50-year mortgages, we’re trying to cut rates, and then we’re bringing in H-1Bs and we’re capping — or bringing more college stuff in — to cap wages in this country as, oh by the way, AI is going to deflationarily crush introductory wages.

[00:24:00] Preston Pysh: We’re not even, like, we’re not even talking that.

[00:24:02] Luke Gromen: Right. Yeah. So, like, literally the point is, from a first-principles standpoint.

[00:24:07] Speaker 5: Yeah.

[00:24:08] Luke Gromen: …people are like, “Well, we’re finally taking action.” Don’t mistake action for progress. This is like, you know, the action we’re taking is we’re punching ourselves in the nuts repeatedly and mistaking that for progress.

[00:24:21] Luke Gromen: You’re like, “What are you doing?” And what they’re missing is that inflation. But you’re punching so hard, Luke, you’re punching so hard.

[00:24:29] Luke Gromen: Yeah. Inflation is the fundamental market signal. Everyone’s like, “We need to get back to free markets.” Great. You know what a free market is? Close the border. Let inflation for skilled trades and engineers explode, so that we can have an explosion of supply to those areas, so we can do all of this. But that’s not what they’re doing. They’re like, “We’re going to manipulate the market with the 50-year mortgage, we’re going to cut rates at the short end, and we’re going to bring in all this labor to crush labor in the U.S.”

[00:24:57] Luke Gromen: And think that’s going to work. Meanwhile, AI is going to do the same thing, by the way. Here’s what I think. It’s so frustrating.

[00:25:00] Preston Pysh: Here’s what I think is really hard for the listener. So they’re hearing all of this, and they’re saying, “Everything you’re saying is making sense, but why is it that when I look at Bitcoin, it’s down so hard right now?” And I know what your answer is, but I think for the listener, they might hear all of this stuff and get really frustrated and say, “I don’t understand why Bitcoin’s, you know, not performing well in this environment with all of these things that are going wrong.”

[00:25:25] Preston Pysh: So how do you respond to that person who’s thinking that right now?

[00:25:29] Luke Gromen: Bitcoin’s just one of your early sources — it’s just the early source of liquidity, right? And so all of these things… when you hear your friend say, “The market is locked up,” when you hear what I just described — which is the market’s going to lock up more, like you can’t extend the term and cut rates, and then you are promising labor you’re going to kill them over the next five to 10 years… you’re promising, essentially, what I just said is the Trump administration acting to maintain the real value of the bond market and not inflating, which is what the country needs…

[00:26:06] Luke Gromen: Yeah — which is what we want strategically. So ultimately, if they’re going to try to act to support the bond market by capping, that’s austerity. Right. So, actually, that’s not going to work. That’s going to tighten liquidity and Bitcoin’s going to be the first thing that warns you of it.

[00:26:23] Preston Pysh: By going down.

[00:26:23] Luke Gromen: By going down, exactly — when that liquidity is tightening, which we’re seeing right now.

[00:26:27] Preston Pysh: Yep. And you call it the canary in the coal mine. Why aren’t you seeing it with gold?

[00:26:33] Luke Gromen: I think you’re not seeing it with gold in part because gold is being… well, I think ultimately gold is being bid on the other side of this as the sovereigns are going, “Holy cow.”

[00:26:48] Luke Gromen: It’s — I think it’s a timing thing, right? Like, the sovereigns… if I’m managing a sovereign fund, A) I don’t try to trade month-to-month, quarter-to-quarter, but B) I run a surplus. I have a choice: I can buy dollars or I can buy gold. That’s it. Those are my choices.

[00:27:05] Luke Gromen: I think the sovereigns — that’s easy. I buy gold.

[00:27:07] Preston Pysh: I think the sovereigns understand gold. They always have understood gold as the debasement trade. And I think prior to 2020, nobody believed… we could get into all of this detail and all this nuance and how all these incentives are broke and how it’s a disaster.

[00:27:24] Preston Pysh: But until you started to see inflation actually manifest itself in everyday prices, and see the long end of the bond yield curve start to sell off in a trend-reversal kind of way — which we had never seen prior to 2020 — then since 2020 we saw it. We saw the first spike, 2022–2023, and then it didn’t go away, and now the yields are still going higher or kind of holding their own.

[00:27:52] Preston Pysh: And it looks like a trend reversal. And I think because the sovereigns understand gold, they see the trend, they see the math, and you ask anybody on Wall Street if the governments — advanced governments — are going to be able to get this under control, and I think every one of them would say, “Hell no.”

[00:28:10] Preston Pysh: Right? And so, where are they going? I think they’re going into gold because they understand it. I think, you know, my conversations with a lot of people on Bitcoin — there’s a lot that get it on Wall Street today, but I don’t know that they trust it like they trust gold, because it’s really easy to understand.

[00:28:28] Preston Pysh: But I think when you get into Bitcoin, I think to trust it requires a lot of technical competence to dig very deep. And I think that a lot of them that are controlling massive flow of funds are just pointing it at gold instead of the risk that’s involved — the technical risk for them to wrap their head around Bitcoin.

[00:28:47] Preston Pysh: I mean, that’s my two cents. I’m curious, do you kind of see it the same way or are there some other factors that you think are playing into this?

[00:28:55] Luke Gromen: I think it’s most of the private sector, particularly in the West — they don’t have the luxury of taking, you know, a 40–50% drawdown, you know, the implied vol of Bitcoin.

[00:29:07] Luke Gromen: And gold simply really hasn’t shown that kind of volatility. I think that’s part of it. And part of it’s been, you know, Bitcoin in the short run has traded like a tech stock, right? And so its technicals look like a tech stock and, you know, think about what we’re talking about: tech — like, ugh.

[00:29:22] Luke Gromen: Like, yeah, if AI breaks, Bitcoin’s probably going to break. And I don’t necessarily… I don’t agree that — I don’t think they… I don’t agree that Bitcoin should break with AI. I had been arguing that point up until very recently — that no, they won’t; there’ll be a recognition. And recently I’m like, “No… yeah, if AI gets totally, you know, taken out back and shot, Bitcoin’s going to get taken out back and shot too.”

[00:29:44] Luke Gromen: And it’s not the right thing to do and it’ll be an opportunity and, you know, I don’t make the rules, right? So I think that’s part of it.

[00:29:50] Preston Pysh: So you’re saying that the correlation in the typical investor’s mind is that, and I would agree with you, Luke — I think you’re right.

[00:29:57] Luke Gromen: Yeah, I think it’s ultimately, yeah, guys who get paid on… you know, they have to put up numbers every month or else they get taken out of their seat every quarter.

[00:30:04] Luke Gromen: Or they get taken out of their seat. These aren’t guys who have the luxury to say, “Well, the market’s wrong and Bitcoin’s ultimately going to be a neutral reserve asset,” because they’re going to have lost, you know, 12 jobs before that’s ever true. And it may — I think it will ultimately be true based on what I know today.

[00:30:17] Luke Gromen: But it’s not true now, and it probably won’t be true for the next six months. And in the meantime, you know, what’s going on in AI and private credit and the fiscal situation — all of that is like, ugh. You know? Yeah, real rates are moving up, and, you know, you sell tech when real rates move up. What else do you sell?

[00:30:33] Luke Gromen: Well, sell the thing trading just like tech — Bitcoin.

[00:30:36] Preston Pysh: Yeah. In your recent report, you talked about this stablecoin contradiction between Warren versus Trump, the Pentagon, the reality of all this. Explain to the listener what you’re talking about here.

[00:30:50] Luke Gromen: Yeah, so we put out in a recent report — I’m going to find it here real quick just to make sure I quote it properly —

[00:30:56] Luke Gromen: Waller — Christopher Waller, Fed governor — came out with a white paper discussing what he called the opportunity to use stablecoins to basically create a global stablecoin glut, which is something we’ve talked about before — not in those terms — but that basically, hey, you know, Bessent has said there could be up to $3 trillion in stablecoins.

[00:31:21] Luke Gromen: And the thought is, you know what? Foreigners would rather hold a dollar than their own currency, and so they can own it in stablecoins on their phone, and that’ll be backed by T-bills, and this will create trillions of dollars of T-bill demand. It’s essentially repressible balance sheet. And what Waller’s white paper talked about was this

[00:31:44] Luke Gromen: “global stablecoin glut,” is what he phrased it, saying it could be like what Ben Bernanke called the global savings glut from 1996 to 2004. So, by way of background, Bernanke did a white paper in ‘05 talking about the global savings glut. He was trying to explain why interest rates in the U.S. — in particular the West more broadly — remained persistently low despite growth, etc.

[00:32:09] Luke Gromen: And he reasoned out that there was this global savings glut. And so Waller’s paper comes out and says, well, if we do this stablecoin thing, we could get $1–3 trillion in stablecoins, and that would lower interest rates, it would pull flows out of foreign currencies into the dollar and strengthen the dollar, and it would widen our current-account deficit in the same way that the savings glut did, right?

[00:32:36] Luke Gromen: So the current-account deficit — basically we import more stuff and foreigners put more money in our markets, right? So the current-account deficit — the stuff we bring in — gets bigger, and then the capital-account surplus — what the foreigners invest in our markets — gets bigger. What confused the heck out of me about this report is that, number one, Waller wrote a white paper, very widely quoted last year, called “Restructuring the Global Trading System,” in which he called for

[00:33:02] Luke Gromen: essentially the exact opposite on all those things: weaker dollar, lower current-account deficit — we make more stuff and send it to the world — and then reducing foreign capital flows in here to weaken the dollar. And now he puts out this white paper and highlights that. That left me very confused, number one.

[00:33:21] Luke Gromen: The second thing was that the stablecoin market cap — you know, for this $3 trillion number — like, I don’t know where they’re going to get them. Maybe they’re going to do bank reserves all at once, but like, it’s $300 billion, and it was $260 billion when they passed the Genius Act four… almost five months ago. So that’s like a $10 billion-a-month growth rate, right?

[00:33:41] Luke Gromen: So if Bessent wants to get to $3 trillion by 2028, like, he better get going. And then if you look back even further to the past peak in stablecoin market cap, in the last, call it, crypto peak, it was like $190 billion in early 2022. That’s like a $5 billion-per-month growth rate in stablecoins, compounded annually.

[00:34:01] Luke Gromen: So, like, at that rate, it would take us like 60 years to get to $3 trillion. Yeah. Yeah. So there’s got to be some sort of, like, forced demand by…

[00:34:11] Preston Pysh: U.S. banks. Is that what you’re…

[00:34:12] Luke Gromen: Some… maybe it’s forced demand by banks. Maybe. To me it’s unclear how they can get to those numbers without Bitcoin being a much bigger number, unless they come out and say, “Look, there’s $3 trillion in bank reserves and we’re going to convert them all into stablecoins.” Like, now that could work, and that opens up some inflationary implications. Maybe that’s what happens. I don’t know. Broader point…

[00:34:35] Preston Pysh: Do you think that this $3 trillion number that he was throwing around was just marketing for the Genius Act?

[00:34:39] Luke Gromen: It might’ve been. It might’ve been. And it’s also — it’s like what we were just talking about with the mortgages, right? Which is, like, “We’re doing what we can to help the American,” right? The American consumer: we’re giving a 50-year mortgage, we’re dropping rates, while we’re literally kneecapping their ability for positive wage growth by bringing in H-1Bs and bringing in foreigners to study here. It’s kind of the same thing where, like, the administration has, like, chapter and verse: “We want to reverse trade flows, get Chinese capital out of here.

[00:35:07] Luke Gromen: “We want people investing in factories here.” Well, how are they going to do that if they’re going to increase the current-account deficit? They literally can’t. It’s an accounting identity. It’s not my opinion — it’s frigging double-entry accounting. So it runs completely in contradiction. You know, “strengthen the dollar.” We want a weaker dollar — they’ve been very clear on that.

[00:35:26] Luke Gromen: So I just don’t… I look at this white paper as it relates to stablecoins and the goals expressed for the stablecoins, and they’re running diametrically opposite of the goals of the administration and of Waller himself literally 12 months ago. And I just, like, I come to two possible conclusions, neither of which I hold a strong opinion on either way.

[00:35:49] Luke Gromen: They’re either throwing stuff against the wall and hoping it sticks, or they’re saying one thing and they’re just kind of doing what they need to do to keep the bond market happy, to keep Wall Street happy — and that, oh by the way, is 180 degrees from what they promised they would do. They are acting in Wall Street’s interest, not Main Street.

[00:36:08] Luke Gromen: But I don’t know. I can’t… it’s one of these things where, like, I don’t know what it means, but I know it doesn’t fit. And, you know, we’ll know soon enough, right? Because there might be… my other point is: there might be something really important they’re leaving out, right?

[00:36:23] Luke Gromen: Like, “Oh, we’re going to convert $3 trillion of bank reserves immediately into stablecoins.”

[00:36:29] Luke Gromen: And you’d be like, “Oh, now that makes sense.” And, you know, the dollar’s going to get waylaid and inflation’s going to pick up, because you’re basically going to be mobilizing sterilized reserves. Yeah, that would make sense.

[00:36:44] Luke Gromen: Growth would pick up, but again, then you go right back to the discussion we started with, which is: if inflation picks up, then money-supply growth picks up — and it’s not that money supply would change, it’s that the velocity of those reserves would rise markedly. Yeah. So the effective supply would increase.

[00:37:00] Luke Gromen: Who wants to own 10-year Treasuries at 4.15? Who wants to own JGBs — 10-year JGBs — at 1.71? They’re going to, like…

[00:37:07] Preston Pysh: Yeah.

[00:37:08] Luke Gromen: So, I don’t know. It’s destabilizing. It doesn’t make sense to me. It’s contradictory to what they said they were going to do — unless there’s a piece that they’re kind of leaving out, you know? And meanwhile it’s just being spun, right?

[00:37:20] Luke Gromen: It’s like, you know, Affordable Care Act or Operation Iraqi Freedom, right? It’s like, “We’re going to bring back dollar dominance.” Like, really? And it’s almost like they just say stuff. If you repeat the lie enough, people will believe it. Right? Which is a proven tactic, but that’s not my job — my job’s to find the truth.

[00:37:36] Luke Gromen: So I don’t know. I’m rambling. I’ll stop there. It’s a little confusing and frustrating to me.

[00:37:41] Preston Pysh: One of the things that I like to take pride in with the show is just trying to give people tools so that if, when they do see a certain thing, they know how to react in the future if it plays out. So one of the most demonstrative things for me participating in markets was during the COVID 2020 liquidity insertion, and just watching the markets when literally nobody was at work.

[00:38:05] Preston Pysh: Everything was shut down, but because they inserted so many trillions of monetary units into the system, we watched stock indices just rip within 30 days to new all-time highs, when — if you were an alien and you came here and landed and said, “Hey, look, nobody on the entire planet is working, they’re all at their houses not buying anything,” you would suspect that you’d be seeing market lows. And we saw the exact opposite. And for me, when I saw that, it was like, “Okay, when they add this much liquidity, this is the reaction that you get.” And that doesn’t mean that they’re ever going to step in at the magnitude that they did during COVID, because that was a very unique scenario.

[00:38:49] Preston Pysh: But when I’m looking at the current setup, I’m saying, “Okay, it looks like we’re having liquidity issues, the dollar getting bid relative to everything else because it’s tightening. What are we going to have to see for that trend to reverse and to say, ‘Okay, I think we’re about to step into the correction of this and we’re going to start to see everything risk-on start to get bid again’?”

[00:39:14] Preston Pysh: What does that look like? Is it tricky for us to do it if they don’t really do anything in size? Like, the COVID example — it was so obvious the amount of trillions of units that they added into it that it’s like, “Okay, game on,” right? But in this setup or this scenario, they could be just kind of slowly trickling the liquidity in. It kind of plateaus, it runs sideways for, call it, six months because they’re not taking any type of decisive liquidity action — which is my biggest… I think that’s the hardest thing to navigate, whenever that’s the response that you’re getting, as they’ve just kind of slowly eased into the expansion of the liquidity in the system, and there was nothing really that broke or that was decisively changed in the trend.

[00:40:01] Preston Pysh: So what are you on the outlook for, as far as something that would maybe define a change in this tightening of the liquidity in the current setup?

[00:40:10] Luke Gromen: Yeah. For me it’s one of two things. Because right now, to your point, they’re trying to ride two horses with one rear end, right? Which is, “We want to maintain the real value of the bond market, and we don’t want a lot of inflation.”

[00:40:22] Luke Gromen: And, you know, they’re fine with that, right? They’re trying to maintain both the bond market and the currency, right? And you have got to choose one, eventually. I would watch… unfortunately, I thought we could do it without a bigger crisis. I think ultimately we’re going to need a huge whoosh down,

[00:40:37] Luke Gromen: probably in the first half of next year. And then they’ll do it — and especially because they’ll do it because of midterms. Because we just got a little tiny glimpse, two weeks ago — what is it, the 17th? Yeah, two weeks ago — of how the midterms are going to go, and it is going to be a butt-kicking.

[00:40:55] Luke Gromen: They are going to go blue if nothing changes, if we just stay in this status quo right now. It’s going to be like a blue wave like you’ve never seen. They don’t want that, because then he’s a lame duck for the next two years, and then it’s… you know, that might… you know. So point being, I think

[00:41:12] Luke Gromen: we either have got to get a huge whoosh down or we have got to get something political — which is that it’s made very apparent to the administration that they have to do something. Now, the problem is, Powell’s not out till May. Right. So…

[00:41:26] Preston Pysh: And I’ve heard he can stay around on the Board too, after he’s done.

[00:41:29] Preston Pysh: Oh, is that right?

[00:41:32] Luke Gromen: Yeah. So even though he might be… you know, if you’re the Fed — forget the Fed. And oh, by the way, most of the Fed — we’ve seen their donation records. Right? There ain’t a lot of them that are hoping that things go really well for the current administration, put it that way, based on their donation records.

[00:41:44] Luke Gromen: So what are the odds they’re going to do it to be nice?

[00:41:49] Preston Pysh: Do they need the Fed, or does Bessent at the Treasury have the capacity to juice the markets from a liquidity standpoint by himself?

[00:41:58] Luke Gromen: Well, and I think that’s part of the reason why we’re seeing the illiquidity now.

[00:42:01] Luke Gromen: He has been… remember in ’24 he was very vocally critical of Yellen for shifting to the front end.

[00:42:08] Luke Gromen: And what did he do meanwhile?

[00:42:09] Preston Pysh: Nothing’s changed.

[00:42:11] Luke Gromen: Yeah, nothing’s changed. He comes in, and not only does he keep up what she was doing, but he literally doubles the run-rate of Treasury buybacks that she was doing

[00:42:18] Luke Gromen: post-May of ’24 in the first half of this year. And it’s very focused on replacing long-end paper with short paper

[00:42:26] Preston Pysh: and announces a $3 trillion stablecoin, which is all on the short end as well, which is…

[00:42:31] Luke Gromen: …all on the short end — which, by the way, I was told was a quote-unquote “Hail Mary” to, quote, “prevent the collapse of the Treasury market,” end quote.

[00:42:37] Luke Gromen: Wow.

[00:42:39] Luke Gromen: Yeah. Oh yeah. From a pretty reliable source — or, yes, extremely. Like, literally their words, not mine. And the context of the call was, like, they reached out and they’re like, “Look, you’ve been writing about this. They’re trying to find a source of repressible balance sheet,” which is, you know, for the audience — they need to find someone that will buy debt at zero when inflation is above zero.

[00:43:02] Luke Gromen: They need to find a sucker at the card table.

[00:43:04] Luke Gromen: And I’m saying they need to find a source of repressible balance sheet, and yeah — what this person said to me is, “Yeah — and the suckers are the stablecoins. You saying you think stablecoins are the source of repressible balance sheet, and you are right.

[00:43:15] Luke Gromen: And this is why they’re doing that now.” Yeah. The challenge for Bessent is, like, I get how you can kind of do it with the eurodollar market in theory, right? “Hey, anything in the eurodollar market is fully backed by the U.S. government if it’s in a stablecoin — and not if it’s not.” And that sounds like a really good plan if you have the attention span of a squirrel.

[00:43:35] Luke Gromen: Because what’s going to happen is: you’re going to flood capital out to Europe, the eurodollar’s going to skyrocket, the dollar skyrockets — that’s going to trigger a crisis, number one. By the way, the Europeans own a ton of dollar assets. Guess what they’re going to sell to raise dollars, because they’re now short dollars? They’re going to dump U.S. stocks, dump dollar stocks, dump Treasury bonds.

[00:43:54] Luke Gromen: Yields are going to go… you’re going to get a replay of what we saw in March and April, where stocks are down, bond yields are up. You might get the dollar up, right? So you’re literally going to have a crisis like a week later if you do it to the Europeans with stablecoins. You know, Bessent cited, “Hey, somebody in Nigeria would rather hold…”

[00:44:11] Luke Gromen: Yeah, but, like, really, how much of the free capital is in Africa right now and in sort of developing rest-of-the-world? It’s not that

[00:44:19] Preston Pysh: much money relative to what we need. So you’re kind of implying that he’s already kind of done what he could do — he’s done what…

[00:44:25] Luke Gromen: …he can do. Yeah.

[00:44:26] Preston Pysh: I mean…

[00:44:26] Luke Gromen: Look, he could do the bank-reserve thing, and I’m not the best guy to talk about that, but my understanding is that bank reserves can be used to back stablecoins — that I do know, for the Genius Act. Then you can get into the question of, A) would they? And some of the plumbing guys say, “Eh, they don’t really want to do that,” and I don’t remember the technical reason why. But in theory he could do that or encourage that — that’s still a banking choice. In theory, he could distribute dollar stablecoins, right,

[00:44:54] Luke Gromen: once those rails are up, to people direct — without the Fed, without the banks. He could do that. But boy, that’s a political issue, right? Like, why do we even have the Fed at that point?

[00:45:23] Luke Gromen: So I don’t know all the things he could or could not do, legally. I think the reserves thing is one where, yeah, you could start to mobilize those reserves into stablecoins, but then again, I’m not sure how motivated the banks would be to do that, relative to some of their capital requirements, etc. I just don’t know. But yes, other than that, absolutely, a lot of what he has done has already… like, he’s played a lot of cards already.

[00:45:33] Luke Gromen: This is not like, “Oh, well now he’s going to start to do it.”

[00:45:33] Preston Pysh: What is the weakest link? So you said maybe first half of next year, 2026, that, you know, something maybe breaks and then they have their excuse to step in with a lot of liquidity.

[00:45:45] Preston Pysh: But what are you seeing right now that is one of those weakest links in the economy that would be something that could break?

[00:45:53] Luke Gromen: So we’ve got what we’ve already seen with repo rates — overnight rates straining a bit. That’s not an accident; that’s going to keep happening. Now, standing repo exists to sort of calm that down,

[00:46:06] Preston Pysh: where before, in 2019, it’s normal…

[00:46:08] Luke Gromen: …where before it didn’t. No, exactly. Exactly. So that one has some runway on it.

[00:46:14] Luke Gromen: So then that leads you to the conclusion, in terms of the other things that could break: number one, something in AI breaks, right? Where there’s a lot of talk…

[00:46:22] Preston Pysh: …on that. Yeah.

[00:46:24] Luke Gromen: Right — where just literally somebody has a problem, Sam Altman does come out and go, “Oops, I am asking for a federal backstop, we can’t make this debt payment,” whatever. And I’m not saying… I don’t want to — that’s hypothetical. You know, I bring that up because they had their whole… his CFO said, “Maybe we’d like a backstop,” then he said, “We wouldn’t like a backstop,” and then he said, “Well, we actually want to access funds as it relates to whatever money that the Trump administration was handing out, whatever, to

[00:46:51] Preston Pysh: rebuild America.”

[00:46:52] Preston Pysh: The numbers there, by the way — I was listening to his show, and they were throwing around some of the numbers with just OpenAI alone, and, I mean, it was so out of touch with reality what they were going to need from a CapEx spend in the coming five years. The number was in the trillions — low trillions — and then you’re looking at the top line of the company, which — and I might be off on these numbers — but if I remember right, it was, like, today is like $20 billion.

[00:47:18] Preston Pysh: And so when you’re looking at the delta between these two numbers, you’re in literally a different universe. And this is just one of the AI… I mean, it is the biggest AI company, but still, these numbers are crazy. Luke, these numbers are crazy.

[00:47:31] Luke Gromen: They’re crazy. And I think it answers why Bitcoin’s going down, right? Because think about what you just said. So if AI needs trillions of dollars, you know who else needs trillions of dollars? Scott Bessent — the U.S. Treasury. So you’ve got two different entities competing for trillions of dollars that really aren’t there. But certainly that puts upward pressure on real rates.

[00:47:50] Luke Gromen: And, oh by the way, the trillions of dollars that AI is trying to fund is actively undermining the tax base of Scott Bessent at an exponential rate. So, to the extent that AI is successful, the trillions that Bessent needs to raise — who’s competing against AI — those trillions are going to go up exponentially as AI takes out white-collar jobs and tax receipts.

[00:48:17] Luke Gromen: So here, too, we have, like, a snake eating its tail. Yeah. So, like, those are the types of situations… it’s hard to predict when it’s going to… you know, what’s the straw that’s going to break the camel’s back, but the camel’s back’s going to break. It’s already bowed pretty badly. But barring something like that in the funding markets, to me, I don’t see something that’s going to snap right away, other than

[00:48:38] Luke Gromen: sort of the inflationary stuff, right? Like, basically a political reaction. And as tense as we are, I don’t see anything that explosive. Now, you can get something where, you know, maybe the markets freak out and that triggers it — who knows? But it would have to be a reaction to inflation, or it’s going to have to be something in the funding markets related to two giant entities trying to access trillions of dollars, with one entity undercutting the other’s funding by accessing those funds.

[00:49:06] Luke Gromen: Oh, by the way, with the biggest marginal suppliers of funds being, you know, a bunch of hedge funds based in the Caymans who are funding at the overnight rate — both of those are squeezing higher.

[00:49:16] Preston Pysh: This is the hardest question I got for you, Luke. So let’s say markets continue to tighten, liquidity-wise, in the coming three to six months — it gets pretty aggressive.

[00:49:25] Preston Pysh: In that environment, typically nothing will outperform the dollar itself. You go back to 2008–2009, during what was a really tight liquidity crunch that occurred, and you watched even gold itself sold off quite a bit against the dollar. The dollar just bid and beat everything. Is this the moment, in this current… and I’m just assuming that tightening continues to happen — it may not — but let’s just assume that it continues to get pretty tight in the next three to six months.

[00:49:55] Preston Pysh: Does gold outperform the dollar in that environment, for what I would say is, like, the first time in many decades?

[00:50:05] Luke Gromen: I think it does.

[00:50:05] Preston Pysh: Interesting.

[00:50:05] Luke Gromen: Yeah, I think it does. Because the part that a lot of people on Wall Street are leaving out about gold — and the rally — because I can say it, I’m Cleveland, I’m not the establishment guy and whatever; they can’t say it yet.

[00:50:17] Luke Gromen: They’ll say it in another two or three years, but here’s what they’re going to say: 2022 — the U.S. government, by sanctioning Russian FX reserves, told the whole world, “Take your money elsewhere. Treasuries are no longer a safe haven.” Then ’22 to ’24, the Russians told the world that U.S. military… and in 2025, the Houthis — a little bit of the same,

[00:50:40] Luke Gromen: in terms of technological change, right? And I would encourage everybody to read Erik Prince — former head of Blackwater — his speech from February on YouTube about what the Houthis and the Russians were doing. Then the technology change — the exponential changes that our friend Jeff Booth talks about — came to the military, and now you’ve got Houthis in the Red Sea, you know,

[00:50:59] Luke Gromen: making aircraft carriers have to evade so hard that F-18s are falling off the ship. Yeah. That wasn’t an accident. And then you have the Chinese make it very clear that the United States can’t go to war — full stop — without Chinese rare earths, full stop. And the last people to admit this is true — these three things are true — are Wall Street.

[00:51:20] Luke Gromen: They’re the last ones to get it. This is blasphemy: A) Treasuries are no longer as safe as gold after 2022 sanctions; B) the Russians outproduced NATO and the Russians beat NATO; C) technology shift has ended 400 years of Mahan Doctrine, right? You control naval checkpoints, you control the world. Naval checkpoints now are death traps — like, you had the Houthis making aircraft carriers of the United States dance so hard that F-18s are falling off the deck.

[00:51:50] Luke Gromen: What do you think the Russians are going to do? What do you think their underwater, unmanned, whatever-the-heck-those-things-are are going to do? You want to be on a ship that’s going through a narrow area like the Red Sea with those things out swimming? I wouldn’t want to. And so checkpoints like that — that reverses the relative power dynamic, which, again, I’m not anti-American.

[00:52:08] Luke Gromen: I am simply telling people how it is and what that implies for the macro situation, which is…

[00:52:12] Preston Pysh: You’re pro-reality, Luke. You’re pro-reality.

[00:52:14] Luke Gromen: I am pro-reality. And then the final part is, like, we can’t make missiles fast enough if the Chinese send us the rare earths. Yeah. And the Chinese are not sending us the rare earths.

[00:52:27] Luke Gromen: And there’s, like… it’s a fascinating study in cognitive dissonance you can see with our Treasury Secretary. It was this week: “We think the deal’s going to be done with magnets by Thanksgiving.” Wait — you said the deal was done a month ago. And then it was done two months before that, and done three months before that.

[00:52:41] Luke Gromen: And I like to try to keep things simple. I know I talk a lot, but I try to keep things simple. Look at it this way: Bessent and Trump, etc., are making the case that the Chinese are going to willingly sell us rare earths that we are telling them we are going to use to make weapons to point at them.

[00:52:55] Luke Gromen: If your neighbor said he wanted to kill you and then also said, “Hey, can I borrow your shotgun?” would you give it to him? And if you did, you deserve to get shot — you’re an idiot.

[00:53:05] Luke Gromen: And the Chinese are the neighbor. So, like, the rare earths aren’t coming. Yeah, they’re not coming.

[00:53:10] Speaker 5: Yeah.

[00:53:10] Luke Gromen: And so we’re in this window of opportunity to tie back to your question.

[00:53:14] Luke Gromen: I think gold will beat the dollar. I think the dollar will go up, but I think gold’s going to go up in dollar terms in a liquidity event, you know? I think, you know…

[00:53:22] Preston Pysh: Yeah. Yeah, I agree with that. I think you’re right. And you know, people — I’m a hardcore Bitcoin [guy]. I think in the long tail, like if you pull out five years, 10 years, I think Bitcoin just outperforms all of it.

[00:53:34] Preston Pysh: But I’m talking specifically if, you know, the dollar liquidity really dries up in the market in the coming three to six months. Because for all intents and purposes, I think Bitcoin is already demonstrating that it’s selling off. If people need liquidity, they’re pulling it from the Bitcoin network

[00:53:52] Preston Pysh: right now — at least that’s what the price is, you know, showing us in dollar terms — where gold is not doing that, and it’s been pretty obvious. So, and to your point that we talked about earlier in the show, it seems to be — in the minds of the market participants — somewhat correlated to risk-on, still tied to tech.

[00:54:10] Preston Pysh: I think that the large billion-dollar tranches on Wall Street that are understanding this debasement trade are going to the thing that they understand. And it’s pretty simple, and so far it appears like it’s gold. So that’s going to be a fun one to track and continue to watch for the next time we talk. I love that you have an opinion on it, so…

[00:54:32] Luke Gromen: I’ll tell you when I don’t have an opinion on something. But when I do have an opinion on something, it tends to be fairly strongly held until facts change.

[00:54:41] Preston Pysh: If you’re right, that’s going to be one hell of a signal.

[00:54:44] Luke Gromen: Oh, absolutely. Yeah. And to me it’s just so clear, right? Even things as simple as, you know, look — I’m excited we’re finally moving towards industrialization again.

[00:54:53] Luke Gromen: I’m excited that we realize we have a grid problem. You know, we’ve been talking about this for years and years. People finally understand. And I’m excited to see new technologies, like small modular reactors, and discussions that, you know, there might be one up and running in Ontario in 2027 or 2029 — and in the last 10 years,

[00:55:10] Luke Gromen: the Chinese have put up electrical capacity equal to the entire United States grid. Yeah — in 10 years.

[00:55:24] Preston Pysh: So insane.

[00:55:24] Luke Gromen: And they’re not standing still. And so when you look at things like that and you go, “Can gold go up above the dollar in the next crisis?” Yeah, absolutely it could.

[00:55:24] Preston Pysh: And this is Jensen’s point from Nvidia — why he thinks China’s going to win the AI race is just because they actually have the energy infrastructure to support all of the hyperscalers

[00:55:37] Preston Pysh: to train the models over there, where in the U.S. we’re going to be limited in our energy capacity, and by the time we get it online, it’s going to be too late. This is the article and, you know, the talking point that’s been kind of going through the news in the last two weeks.

[00:55:52] Luke Gromen: Yeah. And it’s… you know, we’re moving in the right direction, but there’s still far too much hopium and not enough reality. Yeah, and what do I mean by that, right? How many times have you heard, “Well, we just need to go to a wartime footing, like 1940,” right? “We just need to do Operation Warp Speed,” right? Even Scott Bessent said, “We’re going to do Operation Warp Speed,” and I think in rare earths we might be able to do some stuff — maybe, I’m hearing, in the next two years, three years maybe.

[00:56:11] Luke Gromen: But, like, Operation Warp Speed for the shots — they started developing that stuff in the ’60s and ’70s. Like, they started really testing it in the ’90s. They put the first one in place in 2013. And then if you want to go to wartime footing, like, okay…

[00:56:30] Luke Gromen: But again, America needs to decide: does it want to rebuild and compete, or does it want to preserve the real value of its bond market? Because when we went to wartime footing in 1940, the Fed’s balance sheet went up 10x in three years.

[00:56:48] Preston Pysh: We rationed goods.

[00:56:49] Preston Pysh: You also didn’t have the ability for people to tap into the knowledge like you do today, back then. So, like, as they’re capping rates and they’re putting commercials on TV to buy war bonds, and people are like, “Hey, I’m going to do my patriotic duty to go buy the war bonds,” you didn’t have talking heads out there explaining how, in real terms, they were losing X percent on an annualized basis — which is so readily available to anybody today

[00:57:18] Preston Pysh: that has an internet connection and, you know, a Twitter account or whatever. Like, the information is so easily found nowadays.

[00:57:28] Luke Gromen: It’s so easily found. And I would add to that, like, you had in 1933 the commission that Joseph Kennedy led to investigate 1929 — gosh, the name of it — but basically they ran a big review of the Great Crash.

[00:57:42] Luke Gromen: The bankers came out of that as the bad guy. And there was real reform done to the system. And we had eight–10 years of Depression — eight years of Depression after that — of people coming together as a society. And we had 11–15% unemployment, so they were ready, workers ready to go. We do not have the society that is together where we’re like, “Oh, you know what?

[00:58:02] Luke Gromen: So we can make Elon Musk a trillionaire, we’re going to buy bonds, and these tech guys can become hundred-billionaires while our centi-billionaires become centi-billionaires,” whatever. Yeah. Whatever — it’s that big. It’s that big. Like, “Let them buy the bonds.

[00:58:18] Luke Gromen: That’s whatever.” Like, 95% of the country is going to be like, “Let them buy the bonds. Where were you in ’08?” We don’t have the unity in this country that we had then — where people would say, “You know what, I know I’m probably going to lose, but…” A) they can investigate how much they’re going to lose, but B) they’re going to be like, “These people haven’t helped me for 20 years.

[00:58:36] Luke Gromen: Yeah. You know, I’m not going to help them.”

[00:58:39] Preston Pysh: Yeah. Well Luke, you and I could chat literally all day long.

[00:58:44] Luke Gromen: We could.

[00:58:44] Preston Pysh: Thank you so much for always making time, always coming on the show, and just, you know, sharing your deep knowledge. I do not miss a week of your newsletter — I am an avid reader of your Forest for the Trees newsletter.

[00:58:59] Preston Pysh: Give people a handoff if they want to learn more about you or anything else that you want to highlight.

[00:59:03] Luke Gromen: Oh, I appreciate that. Yeah. If they’re interested in learning more about our different mass market and institutional research products, you can check out fftt-llc.com, and obviously, I’ve got a fairly active X feed at Luke Gromen, L-U-K-E-G-R-O-M-E-N.

[00:59:18] Preston Pysh: Luke, as always. Thank you, sir.

[00:59:20] Luke Gromen: Thanks for having me out, my friend. It’s always great catching up with you.

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