[00:02:48] Luke Gromen: Two months later, three months later, it was like the generational bottom and risk. We were going to win the war. It’s just a question of how long. Up until, okay, setting that aside. He fails to ever mention what happened to stocks and financial assets from 1914 or 1900 or through 1942. And if he would have, if he ever mentioned that, he would have to say.

[00:03:15] Luke Gromen: I need to own some gold, or I need to own some bitcoin, or I need to own, I need, there’s, the currencies and financial paper assets can decline massively on a real basis, and of course he knows this, if you read some of his letters from the 70s, maybe the 60s, probably the 70s, talking about how there was a 10 year span where the book value of Berkshire Hathaway went up X percent and the price of gold went up X percent, which means we have created no value in real terms.

[00:03:41] Luke Gromen: It’s all been inflation. So he clearly understands these concepts, but I think for the average investor, yes, I understand his message and I think it’s important for the average investor to understand there’s a long cycle. And he happened to have bottom ticked the long cycle with his first purchase of stock, and congratulations to him.

[00:04:04] Luke Gromen: That’s great. Doesn’t necessarily mean the next 77 years are going to go like the last 77 years. And so that’s, broadly speaking, those are my thoughts. There’s a lot of corporations with a lot of cash that is part of a broader theme. I look at that cash as tinder for a risk economy. I look at that as, as, as tinder, as fuel for, for or a rally in risk, risk assets, broadly speaking. Obviously, you know, I like Bitcoin. I, you know, I still like gold as well, but that’s how I think about that corporate cash.

[00:04:34] Preston Pysh: Well, so I agree. I think that, that when we’re looking at the amount and what he’s squatting on, it’s basically signaling that he is waiting for equity to become much cheaper price than where it’s at right now.

[00:04:46] Preston Pysh: And he’s gonna swoop in and, and buy and gobble it all up. I mean, he’s been squatting on a pretty. He’s been squatting on over a hundred billion for what feels like a decade at this point, by the way.

[00:04:56] Luke Gromen: Yeah, he’s had a record high cash every year. Yeah. Other than like 21 and 22 for like 10 or 12 years. And it’s, it highlights the advantage of his structure, right?

[00:05:06] Luke Gromen: Because the reality is, is that if he was an investment manager sitting on record cash every year for the last 10 years, he’d have been out of a job like seven years ago. And that’s the advantage of what he does. You know, I think it’s also really interesting that He’s playing for a correction, clearly. I agree with you on that.

[00:05:25] Luke Gromen: And he testified or talked about, I don’t think he testified. He talked about in 2020 that the Fed acted so fast because the treasury market broke so fast. that he didn’t have time to deploy that cash. And like, that’s the guy who’s getting the first call from everybody. Yeah. But like, he didn’t have time to do it and has the mandate where he can be like, oh yeah, that’s a good deal.

[00:05:53] Luke Gromen: Here’s 20 billion. And he didn’t have time to do that last time. And so I question, A, will he have time and B, will sort of the average investor. Have the time to do it knowing again. I think it’s super critical because there’s another way. Let’s turn. Let’s turn the cash around the other way corporations have you know Buffett’s got whatever 167 billion.

[00:06:15] Luke Gromen: I one of my one of my dear friends in the business highlighted to me last week I didn’t realize this number. He said that corporations in aggregate are sitting on somewhere between four and five trillion dollars in cash I think and I suspect it’s highly concentrated at the top, but here’s the point.

[00:06:32] Luke Gromen: If there’s a downturn of any real magnitude or severity, corporations are sitting on somewhere between 4 and they termed out all their debt. So, in the downturn, corporations are fine. They can go for a while. Mom and Pop are fine. They can go for a while. They termed out, you know, 60 percent of the mortgages have no mortgage.

[00:06:54] Luke Gromen: 60 percent of houses have a mortgage or 40 percent or whatever. And then, you know, another 60 percent with mortgages or under three and a half or something. So they turned out their debt. So who’s the sucker at the card table? Who’s going to go broke first? Treasury market’s going to break first.

[00:07:08] Luke Gromen: Mortgage backs might break first. Duration as a, as a duration problem. This is a day where we’re sitting here as we’re doing this. The treasury just issued 127 billion in treasuries. Today, both auctions were sloppy at the short end, two and, at the belly really, two and five year, after a ugly 20 year, which is again a bit of a wonky duration last week, but still, it was fugly in terms of an auction.

[00:07:31] Luke Gromen: Yeah. So the last three auctions have been bad. Oh, by the way, the last three auctions, when you total them up, are equal to about the annual deficit that the U. S. ran in 2002, the year before we invented Iraq, and in 2007, after a five year housing bubble. So like 15 years ago, 17 years ago, this was what we’ve issued in the last three trading days and four trading days, has been the size of the annual deficit.

[00:07:55] Luke Gromen: So the point is that corporations have staying power. They’re not going to go bust first. Households have staying power. They’re not going to go bust first. Treasuries are where we’re already seeing the dysfunction. We haven’t even gotten into a slowdown, a real slowdown, and they have a printing press.

[00:08:08] Luke Gromen: They have a print loop. They’re not going to nominally default. They can print the money. I say, exactly.

[00:08:13] Preston Pysh: So this gets at the exact heart of why I’m asking this question. Okay, because what, what you’re talking about is the speed at which they’re going to respond and the magnitude that they’re going to have to respond because, and these are your words from multiple times, you’ve said that each time they’re intervening, they’re turning it into an on off switch and not like this 2000, well, 2008 isn’t even a good, a good example, but all the bubbles that burst that took years to kind of play out that the impairment that took place, took place over a year, two years.

[00:08:46] Preston Pysh: And you got this reset and then they reflated it, but in, in 2020 with COVID, the response was so fast. And I think it had to be that fast. For them to deal with the unprecedented amount of impairment that they have created through all these years of manipulation and how fragile the whole thing has this next, call it cascading impairment that was trying to manifest itself with the Silicon Valley bank crisis that they completely plugged with the backstop facility and said, oh, that’s not going to happen, right?

[00:09:21] Preston Pysh: As soon as that tries to happen again, why would they do anything different? Luke? At this point, they have to plug these holes immediately. They have to flood this system with more and more fiat at like in days, because they know how fragile this system is. So if I’m Buffett and I’m sitting here on 167 billion of cash.

[00:09:46] Preston Pysh: Isn’t he the patsy at the table? Cause I think he is.

[00:09:50] Luke Gromen: I would argue with cash, he’s okay. Right. He’s getting paid five and a quarter, right? Whatever he’s getting five, five. And he’s taking no duration risks, so for me-

[00:09:59] Preston Pysh: True, that’s very true.

[00:10:01] Luke Gromen: I don’t think holding 5 percent treasury is a bad, like if I’m him, that’s exactly what I’m doing.

[00:10:06] Luke Gromen: Now whoever’s holding whatever it is in duration, they’re the patsy, right? Yeah, yeah. They’ve been on for 7 years and out, they’re the suckers at the card table. Yeah! You know, it’s really interesting, on day we had a, Larry McDonald pointed 20 year treasury auction that was fugly, and there was a Cisco bond auction, I don’t think it was a 20 year, I don’t know what the duration was, but the point is it was 6 times oversubscribed, so it’s not a, it’s a sovereign issue, it is a, we don’t want infinite long term paper, so to answer your question, yeah, I, that to me, the variant perception is that the sucker at the card table is the long term treasury market.

[00:10:46] Preston Pysh: Yes.

[00:10:47] Luke Gromen: And I think the other variant perception is that the bear case, a lot of things, we’ll just say that, the bear case on stocks in particular. But Bitcoin goal, blah, blah, is that we get a downturn in the economy. We quickly get another episode of treasury dysfunction and instead of BTFP in one Q 23, instead of yell, switching duration issuance up to the front end to tap the reverse repo and what was essentially synthetic QE in three Q, we the, the Treasury and Fed let a treasury auction fail.

[00:11:25] Luke Gromen: And they stand aside, and they let another one fail, and they stand aside. People say, oh, they’ll never happen. Well, we had a five basis point tail on a 30 year in November. James Lavish has talked about that and highlighted how bad and inconceivable that was at the time. We just had in a really good liquidity environment, 3. 3 basis point tail on a 20 year. You know, I don’t think you need to get, I mean, we’re not that far from that point. So you, to me, the bear case on risk assets broadly is you start getting a series of failed treasure auctions and they stand aside and then that illiquidity starts to cascade and that starts to leave him some bank failures and they stand aside.

[00:12:02] Luke Gromen: And when I take a step back and say, okay, what are the odds that happens, you know, it’s, it’s like, it’s like, like Mark Baum or Steve Carell as, as, as Mark Baum, right? Steve Heisman in, in, in Big Short, right? Like, zero, that’s the odds of that happening. Yeah. And so then if we work backward from that, you go, huh.

[00:12:20] Preston Pysh: Isn’t it interesting that we saw Jamie Dimon say today that they should be allowed to buy some of the smaller banks or to merge the smaller banks? Literally today. Oh really? I didn’t see that. Yes. Yeah. JP Morgan CEO says should allow some of the smaller banks to merge. I like your point though, and I like your framing that he is in like very short duration cash position.

[00:12:42] Preston Pysh: So he’s, he’s collecting his 5%. I would argue that any developed currency M2 is growing at 7 to 8 to 10 percent on an annualized basis. So if he’s collecting 5%, he’s only getting chewed up by let’s say 200 to 400 bips. And that’s obviously smoothed out over the long haul, but it’s almost like, well, what are you going to do with this?

[00:13:04] Preston Pysh: And so like, I guess people are looking at the markets, right? And they’re looking at the index and they’re saying that this is the market, but the indexes are being driven by 10 companies. 10 companies are driving those indices. But if you look at like the Russell 2000, and you look at the rest of the market, it’s still down from the high from two years ago, right?

[00:13:25] Preston Pysh: Like it’s still like, and so I think there’s this, there’s this talking point. That, Oh, everything’s just booming along. And it’s like, no, everything’s being consolidated into like 10 companies. And they’re just gobbling up everything. Everybody else is pretty much struggling. You got, you know, legacy people just squatting on cash, thinking that there’s going to be some type of correction.

[00:13:48] Preston Pysh: And I think that the string pullers, the 10 people sitting in the room. are going to continue to just swoop in, in the snap of a finger, they’re going to flood the liquidity, they might let something play out over a weekend, right, like similar to the Silicon Valley Bank. Are they going to save them or not?

[00:14:03] Preston Pysh: Well, they did save them on Sunday night. From Friday, Saturday, when the markets were closed, they let everybody think that there was going to be this free and open market, only to find out Sunday that, oh, nope, we’re going to save them after all. And there’s, you know, Yellen keeps running out there and saying that there’s not going to be any more crashes anymore, Luke. It’s just going to be up and right forever for-

[00:14:25] Luke Gromen: Maybe, maybe there will be nominally.

[00:14:27] Preston Pysh: Yeah, I think that that’s, that’s the point, right? So if you’re sitting on cash and you’re watching all of this and you’re saying, I’m going to get a chance to. Like, maybe you won’t. Maybe it is just up you-

[00:14:36] Luke Gromen: You have to at least consider that.

[00:14:37] Luke Gromen: I mean, I know I’m absolutely considering that because you get into this.

[00:14:41] Luke Gromen: We’re into this really weird time where you can start gaming things out, right? So let’s, you know, inflation is picking back up. You can see the super core has risen three straight months in a row. I have people trying to say, oh, hire for longer.

[00:14:53] Luke Gromen: Okay. Well, yeah, let’s do hire for longer. What does that do? Hire for longer, starting from a point of five, five and a quarter, the average interest rate on the U. S. government’s only 3. 1 percent right now. That’ll reset over the course of this year to call it four, four on 35 trillions, trillion four, which is real money.

[00:15:12] Luke Gromen: No, trillion four. So that’s a trillion four in increase in deficit. Now, is the U. S. government going to cut the combination of defense and entitlement spending by a trillion four to offset the, you know, to offset the interest? And if they were obviously able to cut it by a trillion four, they’d have to cut it by, I don’t know, it’s up from 600 billion a couple years ago, right?

[00:15:32] Luke Gromen: So say it was 2 percent then, okay. So, 600 billion when they started, and now it’s, it’ll, you see you’re up 800 billion, so I got to cut it. 800 billion cut the defense and entitlements. That’s 20 percent cut forever to entitlements and defense. Well, that ain’t going to happen. So now your deficits are going up.

[00:15:49] Luke Gromen: Your deficits are going up, but your private sector is very sensitive to interest rates. It has been kind of masked for the moment, right? We’re doing extended and pretend in commercial real estate. We can see the markdowns happening, but there’s sort of this, you know, workout. Hey, don’t take the banks.

[00:16:06] Luke Gromen: Okay. Great. Housing, we have this gigantic bid ask spread that has opened up nationally between what people can afford and what people want to sell for. And so what that does when you raise higher for longer to fight inflation on the private sector is the private sector income falls. So now we’re in a situation where deficits go up, private sector income comes down, nominal GDP stays flat or rises to some degree.

[00:16:31] Luke Gromen: And like, that’s the exact same thing we did in COVID. Deficits up. You know, this is just an interest stimmy, trillion four interest stimmy every year at 4%. You know, raise rates to 6. Eventually you’ll get, I don’t know, assuming the curve isn’t like wildly inverted or wildly inverted, excuse me. So you just go flat curve at 6.

[00:16:50] Luke Gromen: Flat curve at 6 on 35 trillion in debt, trillion aid, 2. 1 trillion. That’s a lot of money over here. 2. 1 trillion on today’s GDP is like 8 percent of GDP. Stimming. That’s just cash out. And yes, it’s not to everybody, it’s just to wealthy asset holders, but they’ll spend it eventually, especially the boomers, because they’re not getting any younger.

[00:17:09] Luke Gromen: It gets out in the economy. Meanwhile, the private sector that’s interest rate sensitive is going to reprice slowly, slowly, slowly all at once. But if so, my point here is that higher for longer is not really going to fight inflation, not going to really slow the economy. At the same time, if you’re Warren Buffett.

[00:17:28] Luke Gromen: If you’re corporate America with four or five trillion cash, what’s Warren Buffett’s pre tax operating margin? Let’s say they go to six, seven percent. Let’s say rates go to six. Let’s say it’s, I don’t know what his pre tax is. I have no idea. I’m assuming across a lot of his portfolio, it’s probably ten, twelve, right?

[00:17:44] Luke Gromen: A bunch of insurance companies, building products, oil companies, you know, this ain’t friggin Apple and Google. If I’m Warren Buffett and rates are six because I hire for longer, And my pre tax operating margin is 10%. And then I have to deal with if I want to invest in CapEx, I’ve got to do the planning. I need to do the politics.

[00:18:03] Luke Gromen: I’ve got to do the, why would you ever spend capital spending risk adjusted 10 percent pre tax margin when the government’s paying you 6 percent to sit still? I wouldn’t. And I don’t think anyone else is. I think corporate America will sit there and clip the coupon from the government. Now you’re in real trouble, because now your capacity is not going to grow, your interest expense, your deficits are going to grow, your private sector capacity to address those deficits is not going to rise.

[00:18:31] Luke Gromen: It’s very secularly inflationary. And this all gets into what I’ve been kind of talking about for a long time, which is the Fed screwed GDP down. Because now, great, go higher for longer. We’re going to get more inflation. Don’t go higher for longer. We’re going to get more inflation. And that’s why I think the long end is the sucker at the card table.

[00:18:53] Preston Pysh: One of the most interesting Berkshire shareholder letters that I’ve ever read. That I think is actually more pertinent than the one he just wrote is the one from 1984. And when you look at the timing of this, this is like three years after we literally peaked out at interest rates here in the US, which peaked out in like 1981, he writes this, this shareholder’s letter.

[00:19:16] Preston Pysh: And one of the things in this, this has stayed with me for a very long time. One of the things he talks about, about how do you deal with inflation? What’s the most opportunistic way that a company can deal with inflation. And he talks about having as much intangible assets as possible on your balance sheet, as opposed to tangible assets.

[00:19:38] Preston Pysh: And the reason why he’s saying this is because he’s saying the replenishment and the, and the working capital and the CapEx of replacing physical things on your balance sheet get really expensive when you’re being, when the inflation just keeps running, right? But if you have, let’s say, and I don’t remember what example he used, cause this was quite a few years ago that I read this, but like as an example, let’s say you have a Disney DVD and you have like the Disney brand, right?

[00:20:03] Preston Pysh: It’s a very powerful brand. The person goes to you know, they’re in Walmart and they’re looking at movies that they want to buy, or they’re surfing online to purchase a movie, they see Disney, they’re like, okay, so that’s probably a decent movie and not some, like, off the shelf, like, movie I’ve never heard of, so it has that intangibleness of the brand and the digital file that you can download off of the internet, right?

[00:20:28] Preston Pysh: You can adjust the price of that, and there’s nothing physical that you have to do to have the person download that movie for all intents and purposes, right? But let’s say you’re an apartment building owner, and you gotta replace the shingles on the roof every so many years, or you gotta put in new steps, or you gotta do all these It’s very capital intensive, and as the prices are going higher and higher, the price that you used to own it at is drastically different when you’re dealing with inflation.

[00:20:55] Preston Pysh: So the one, when you look at the composition of the balance sheet, and I’m saying all of this as I’m comparing and contrasting Berkshire Hathaway versus MicroStrategy. One has a ton of intangible assets on their balance sheet, probably the most intangible asset a person could ever hold. Warren’s trying to do it with, I guess, short duration treasuries is his play in contrast to what we think the new settlement layer might be.

[00:21:22] Preston Pysh: And everybody has their opinion on how this is going to shake out. But I find it really fascinating that when you’re thinking about how to navigate this as best you can, because it’s, it is going to be, I think this coming 10 years is going to be wild from what we see from an inflation standpoint. I just find that that shareholder letter is just so, such good guidance if you employ it correctly.

[00:21:48] Preston Pysh: Sorry, I just, I, there were, there was no question there. I’m just saying something that, yeah.

[00:21:51] Luke Gromen: No, no, no, it’s interesting too, right? Because if you think about, like this one blew me away. I remember being in a meeting with a a company up from Brazil. This is quite a while ago. And I remember it was after it was after the 08 crisis, right?

[00:22:01] Luke Gromen: We had started QE and it’s like, okay, well, help us understand inflation. And I said, well, you probably want to own buildings. And he goes, no, no, no, actually, there’s a point after which they actually fall rapidly in price. If inflation gets too high, and I’m like, wait, why? And he goes, because they are based, the marginal buyer is based on credit.

[00:22:21] Luke Gromen: And at some point, the bank stopped lending against it. If the inflation gets too high, right? You know, no bank is going to give you a 30 year loan on a building or on your house when inflation’s 20. Bingo. Because that’s so. Things start falling to cash value. Now, we’ve not seen that, but what’s really interesting is how much the whole housing market has like gone to a cash market.

[00:22:42] Luke Gromen: I don’t think that’s why it’s happened, but it’s just, it’s interesting to me, but it’s, I don’t, it’s, but it speaks to the point of, the initial point speaks to the point of what Buffett talked about, which is if you’ve got a bunch of hard assets on the balance sheet that are where the marginal cost of replacement is based on a 11 price, right?

[00:23:03] Luke Gromen: You’ve got to borrow the money to buy it. If inflation gets too high, the value of that falls sharply because you won’t, the credit markets won’t issue the credit any further than two years, five years, whatever.

[00:23:16] Preston Pysh: And we’re talking about developed economies where most global citizens. are dealing with exactly what we’re describing because they, they don’t have, they’re not living in the United States or Europe or wherever they’re dealing with this up close and personal.

[00:23:29] Preston Pysh: If you’re in Argentina or you’re wherever, right? Like you are dealing with these ramifications up close and personal. Before we started recording, you made the comment, the last three treasury auctions were a disaster. And I’m shocked at how well Bitcoin has just been ripping in the face of that, because it normally you would think that it wouldn’t explain what you mean by that.

[00:23:52] Preston Pysh: I know we’re pivoting away from the conversation, but this was such a fascinating comment that you made early.

[00:23:57] Luke Gromen: So the 20 year was really bad. Today’s were, they weren’t great. They weren’t terrible. They were, I wouldn’t, I wouldn’t call them disastrous, but they weren’t great, particularly given where the dollar is.

[00:24:07] Luke Gromen: Right? So the, the DXY, you tell me where the dollar is, I’ll tell you how weak the auctions will be. The stronger the dollar, the weaker the auction. So the dollar basically hasn’t moved in 3, 4 months, and yet the auctions keep getting weaker and weaker and weaker, which tells you if at some point we’re going to get a really weak one, they’re going to need a weaker dollar to speak directly to the question.

[00:24:27] Luke Gromen: Historically, you get an ugly auction like you had Thursday and these two today that are, that are sought, very clear reaction, dollar up, gold flat, everything else down, and Bitcoin sort of being like a, you know, a beta, a beta to the NASDAQ, and instead, we’re starting to see. Bad auctions, dollar flat, stocks flat, to up, gold up, or certainly outperforming the treasury, and Bitcoin up, up.

[00:25:00] Luke Gromen: Which is, I want to be careful not to play 5 minute macro, if we see this continue though, this is the market beginning to recognize, Oh, long term treasuries and cash are melting ice cubes. I have to go into every bad, you know, historically, bad auction, bad for stocks. There is a point where you’re going to go, bad auction, oh god.

[00:25:26] Luke Gromen: Bad auction means much weaker dollar. It’s, they’re not going to let auctions get too bad. I need to own stocks, I need to own Bitcoin, I need to own these, you know, I need to own all these. And your my view on what I, what I meant when I said that is it’s early days, like very early days, but we’re starting to see markets react like this.

[00:25:47] Luke Gromen: And this is, you know, the guy in Cleveland can kind of figure this out. It’s probably the market’s priority there on some level.

[00:25:56] Preston Pysh: So does this keep playing out into into the end of the year? Do you think that that, that that scenario is going to continue to replicate itself or do we get a little bit of a lull and then maybe later on it, it picks back up again? Where are we there?

[00:26:10] Luke Gromen: It’s such a political process, right? So, like, like, let’s caveat it with that. You know, I think we have a government possible shutdown coming up, right? In the next few weeks or something, don’t we? Do we have a death ceiling or some sort of thing coming up in the next few?

[00:26:23] Preston Pysh: You know, I don’t know, but that wouldn’t surprise me.

[00:26:26] Luke Gromen: Maybe I’m mistaken. At any rate, I’ll put it this way. I think the trend is in that direction now. Why wouldn’t it be? The government has made it crystal clear Fed and Treasury made it crystal clear that treasury dysfunction will not be tolerated for very long. Full stop. And if that’s the case, I just think it’s, I think, you know, markets are forward looking, and so I think we’re, it may be, it may be an interesting inflection point of exactly that, where you move toward this bad auctions have been bad for everything, treasury dysfunction has been bad for everything.

[00:27:00] Luke Gromen: There will come a point maybe where bad auctions start to, it’s like Pavlov’s dinner bell, where it’s like, okay, comes liquidity because they’re not going to stay on this for very long. And so it’s, it definitely caught my attention to see Bitcoin up, you know, my jumped on it. It was up 4 or 5 percent on, on a day where you had two auctions following an ugly auction last week.

[00:27:21] Preston Pysh: Today, we are seeing and this is a month and a half after the Bitcoin ETFs launched. iBit, which is the BlackRock ETF, has done over a billion in volume just today and we haven’t even closed out the market today. What is the conversation that’s happening inside of large banks and institutions on something like that?

[00:27:43] Preston Pysh: Is it even talked about? Is it the top talking point within institutions? Help us understand, for people that aren’t, that have never set foot in one of these large banks on Wall Street, what does that conversation look like or sound like? Or is there no conversation whatsoever?

[00:27:59] Luke Gromen: I talk about it a lot, so I’m probably not the best gauge of that, right?

[00:28:03] Luke Gromen: I talk about Bitcoin a lot, right? So it was certainly relative to most strategists. So I might not be the best reader, but my sense of it is. I don’t think it’s much of a conversation yet, even, you know, in the same way that the gold isn’t much of a conversation. So they’re just most of Wall Street. I think still looks is the volatility of Bitcoin make it almost and make it very difficult to own or even those investors that could own it.

[00:28:33] Luke Gromen: And there’s a lot of them that can’t own it. And so I think the ETFs probably are an important step in terms of making that easier to do. I’ll phrase it as how somebody said it to me a few months ago as it relates to gold, which is, you know, what if I’m, you know, if I own X percent of my portfolio in long term treasuries and I lose 30%. Oh, well, so did everybody else. And if I put 30, you know, I put that same percent goal, and I lose 30%, I get fired. And so my guess is, it’s probably a pretty similar view, at least yet, as it relates to Bitcoin in terms of. If I put 5 percent of my client’s portfolio or if I own here and it’s, there’s, I think still a lot of career risk probably associated with being an early adopter on that front.

[00:29:23] Luke Gromen: And so I would be surprised if it’s, if there’s a lot going on in terms of, of, hey, okay, we need to own. Other than sort of, you know, forward thinking people with a mandate that allows them to go into the asset class and further with a mandate that allows them to absorb the type of volatility that Bitcoin has historically had, right?

[00:29:45] Luke Gromen: And it just is what it is. It’s whatever, 80 percent annualized volatility. So whatever it is, it’s going to go down over time. It has gone down over time, but for most people, that’s still too way too high. So, it’s kind of stream of consciousness. I hadn’t thought too much about it to this point, but that, I think it gives some framework around how I’m thinking of a stream of consciousness.

[00:30:03] Preston Pysh: There was a person on Twitter. I opened up questions on Twitter. There was a ton of responses of people wanting to ask you questions. There was a person who said in early 2023, what flipped you from a bear to a bull while the, the perma doomers were out and completely missed probably one of the best market moves in this, in, in 2023, what were you seeing at that moment that made you say the liquidity is coming back on?

[00:30:29] Luke Gromen: So it started in October of 2022. You could clearly see the treasury auctions not doing well, treasury volatility up, blah, blah, blah. There was an IMF meeting the dollar was discussed for numerous media sources. Yellen runs down the TGA, the dollar starts weakening rapidly, risk takes off. And I saw, like, late October, mid to late October and into early November, I was watching the dollar trade, markets trade, going, okay, something happened here.

[00:30:59] Luke Gromen: What was it and how significant, how long lasting is it? That increase in liquidity, you know, the dollar weakening is basically a de facto increase in liquidity. I think into like February of last year was probably the first time I saw Warren Mosler, MMT. Really MMT guru, you know, I don’t call a lot of people gurus.

[00:31:22] Luke Gromen: He’s the guru. He’s highlighting the dynamic that the rules are different for monetary policy when debt to GDP is over a hundred percent and I sort of had noticed those Dynamics I’d written a lot about those dynamics, right? I spent over and over hate true interest expense of raising rates are gonna send interest and entitlements over receipt that the work and blah blah And I had never thought about the opposite side of the same coin until he had started saying a few things and kind of highlighting that there’s a stimulative aspect to that as well.

[00:31:54] Luke Gromen: And it was like a light bulb went off for me and I kind of started, I basically red teamed my own case and went, okay, we’ll do this and this and this. And then so that kind of started the thought process. We’re like, wait a second. This is important. Then, March, we had that sort of, it was a treasury crisis disguised as a bank crisis.

[00:32:13] Luke Gromen: What did they do? Treasury liquidity now. Did they let any depositors take a hit? No, nobody took a hit. So that kind of highlight, and then Dan Oliver at Mermacant Capital had a really good missive in May, highlighting from a different angle. But directionally similar to what Warren Mosler was kind of highlighting in terms of the rules are different when you raise rates really aggressively on debt to GDP this high.

[00:32:41] Luke Gromen: And it was really, I think, just kind of that process of, okay, yes, that makes sense to me. I’m seeing something in the markets. I don’t know what I’m seeing, but something might have changed. I don’t. And then, okay. February, March, when they reacted the way they reacted in March was like, okay, it’s just, you know, I felt like Dennis Green, like, they are who we thought they were.

[00:33:01] Luke Gromen: And, you know, you can kind of continue to see that and see it play out in markets. And so that, at least up until the August timeframe, that really was what drove those changes was just, you know, it was kind of like a punch to the chin of like, wait a second. Oh, yeah, that actually makes sense. And then red teaming that case, you know, red teaming my own case and just look when I’m wrong, I just, I don’t dilly dally.

[00:33:31] Preston Pysh: So the backstop facility, the BTF, the what is it? BTFD, is that right?

[00:33:37] Luke Gromen: BTFP.

[00:33:38] Preston Pysh: Yeah. Sorry. So it’s getting turned off here in March. When we look at the maneuver that they did last month, they basically closed the spread that the banks were basically getting this amazing free, free money out of the facility.

[00:33:53] Preston Pysh: They closed that window because I think as it was getting ready to close, the amount of participation in it was like starting to skyrocket. And I think they were like, all right, these last two months, like let’s cut off the gravy train so it doesn’t look like the thing goes parabolic into the close.

[00:34:08] Preston Pysh: And so they’ve done that and surprise, it just like, like flatlined, like a dead patient as far as the use kind of ramping from, from here till the close of March. My question is, is it seems like that was a major source of how liquidity was getting into the system to reflate at least the top 10 performing equities in the equity market.

[00:34:29] Preston Pysh: But once this thing closed down in March, what mechanism are they going to use in order to keep this liquidity flowing into the market? Because there’s no way that they can prevent that or cut it off at this point, especially with everything else that’s brewing in the background. So what becomes that transmission mechanism for them to continue to apply liquidity into the system moving forward?

[00:34:50] Luke Gromen: I think of BTFP as almost like a counterfactual liquidity driver in some way, right? So like, we know what it was. It was basically yield curve control for banks. Yep. All right. So instead of you having to sell your treasury down 20%, you can flip it to us at par for, you know, and so, all right. So that’s going away.

[00:35:11] Luke Gromen: I don’t know what bank securities books have done to reposition. That’s probably something to know. I think the bigger liquidity drivers. In the last year, BTFP helped on the margin, but I think the biggest drivers are what the dollar did, right? So it went from 115 in fall of 22 to. Gosh, 101 02 by like January, February of 23.

[00:35:39] Luke Gromen: That’s a huge, I mean, a 5% move in a major currency is enormous. Like that was a 35% annualized move in like three, four months in the global funding currency. So I think that had shoe that was just like a bolus of liquidity to kinda work through in fits and starts unevenly through last year. I think also it was then aided by this shift in liquidity.

[00:36:05] Luke Gromen: It was effectively QE, synthetic QE, what Yellen did, right? When you do QE, the Fed, there’s a reduced supply of duration, long term bonds, increased or loosening financial conditions, dollar goes down, stock prices go up. When Yellen shifted issuance from the long end to the front end, sorry, and bank reserves go up too, right?

[00:36:26] Luke Gromen: Bank reserves go up, they’re created through QE. Those are the mechanical outcomes of QE. When Yellen did what she did, duration of supplies were reduced, financial conditions loosened, bank reserves went up, stock prices went up, and the dollar got weaker. So the reverse, the drain of the reverse repo, it was just going from one pocket to the other, right?

[00:36:45] Luke Gromen: The reverse repo was just, QE we did and we sterilized. And then we brought it back and we needed it in the 4th quarter. I think that’s gotten us to here. I mean, I, you know, we’ve got whatever 400, 500Billion left on that. I think that gets you there, you know, that gets you several months at least. You can run TGA down.

[00:37:06] Luke Gromen: I think the TGA last I checked was still, I don’t know, 6,700 Billion dollars, something like that. So, right, so you can kind of run, you can run reverse repo down through the end of April. Then you can run TGA down through the end of third quarter. Then you can get an election and then you can figure it out that they like, basically, you can sort of glide it through maybe a week in the dollar, you know, from 104 down to 102.

[00:37:31] Luke Gromen: Those are all stopgaps.

[00:37:32] Preston Pysh: Now, so that’s really, that’s why you’re saying you think the dollar is going to go down and into the dollar.

[00:37:39] Luke Gromen: I think the dollar is going to be, they’re going to continue to decline in an orderly basis through the course of this year. The big kahuna to me for liquidity is a dollar devaluation.

[00:37:49] Luke Gromen: If you can get the dollar from 104 to 92 by mid 2025. Right? So you’ve got these stopgaps you can get you through the election. On the other side of the election, let’s say the dollars at 1 0 2 on on election day. Mm-hmm. , if you can get that from 102 down to 92 by 4th of July, 2025, 3Q 2025. You’re going to get a turbocharging liquidity.

[00:38:12] Luke Gromen: That will help a lot. That will help stabilize treasury auctions. It will send inflation back higher again, but that’s like, that’s what you need. That’s what I think is the next step. And what I think is so interesting as it relates to this, like, A, it needs to happen. Treasury needs it to happen. The economy needs it to happen.

[00:38:28] Luke Gromen: The world needs it to happen. China needs it to happen. Everybody needs it to happen. Is that we’ve had Biden and Xi meet in November.

[00:38:40] Luke Gromen: We’ve had two or three, we’ve had two treasury meetings in Beijing, which is a pain in the rear end to fly to, two treasury meetings, high level in the last four weeks, no comment on what they’re talking about, other than sort of the generalities, with one exception that I thought was really interesting, which is they want, they wanted to talk to China about making sure they do not dump product onto global markets.

[00:39:05] Luke Gromen: That’s what they said after the first meeting. And then last week, Treasury openly warned China again, do not dump product on global markets. So everybody thinks the dollar is going a lot higher. But Treasuries warn in China not to dump product on global markets. That’s not higher dollar action. That’s lower dollar action.

[00:39:25] Luke Gromen: They don’t want deflation, right? If they don’t want you dumping product on markets, that’s, that would be higher dollar policy. Higher dollar against the yuan. That’s literally what Treasury is saying. Don’t do that. When we were warning the Japanese in the 80s, Stop dumping in dollar markets in 1984 and 5 DXY was at 166.

[00:39:49] Luke Gromen: Two years later, after the Plaza Accord, it was at 85, and so I think there’s a real shot that Yellen and Treasury are negotiating right now an orderly weakening in the dollar between now and mid to late 2025. And if you do that You have all the liquidity you would need. That’s not a, you know, we know that because we sell the dollar around 20 30 percent on an annualized basis, 10 percent practically speaking, not even 8%.

[00:40:20] Luke Gromen: 115 to 104, 4Q into 1Q, 4Q22 into 1Q23, and you got what we got in 2023, which is like.

[00:40:30] Preston Pysh: So what does that conversation sound like? Hey, if you help us out and just let us debase the dollar here, let it go down to a DXY of call it 90, then you’re not going to have to deal with the president that was in office prior to the current president. Is that like what the conversation sounds like to them to try to get them to buy in?

[00:40:47] Luke Gromen: I think the conversation is you let us weaken the dollar to 90. You help us. You buy some treasuries. We let you buy oil from the Saudis in Yuan because that way Reality is if the dollar weakens to 90 and oil goes to 120 that screws China too And right so they’re like a strong dollar a strong oil when you’re short oil if you can only buy the oil in dollars scrooge Either way, it’s six of one half dozen to the other.

[00:41:17] Luke Gromen: So I think the deal is Help us weaken the dollar. You’ll buy more treasuries And help us stabilize the treasury market, and we’ll let you buy oil from the Saudis in yuan, as long as they do not recycle the yuan they end up with into Chinese government bonds. That’s a no no, in my opinion, because that’s effectively financing the Chinese military.

[00:41:40] Luke Gromen: Semantics, but I think, I, I, that’s, I, that’s just, I just think that. So, it’ll get recycled into Chinese goods, it’ll get recycled into gold. Maybe someday it’ll get recycled into Bitcoin. I think that’s, you know, that would be down the road, but that’s what I think. Again, if you think of no inside government sources, this is speculation, informed speculation, but that’s what I think the deal is.

[00:42:01] Luke Gromen: Weaken the dollar, you buy more treasuries, you get to buy oil and you won’t. Don’t recycle it, don’t recycle it into CGBs.

[00:42:08] Preston Pysh: So they won’t have to start weakening the dollar until they, they kind of run out of these other mechanisms that they’ve been using to, to date. And so you’re thinking around maybe early summer is when the, that the dollar weakening would really kind of start kicking into high gear or what?

[00:42:23] Luke Gromen: All of SQL wants to go higher, right? So they’re kind of fighting it now. Yeah. And so it’s, it’s a little bit of like how much, how quickly, you know, they’ve got. They were in a firefight against the dollar and they’ve got 400 billion in bullets for 500 billion in bullets in the reverse repo. And they’ve got 6, 700 billion in bullets in TGA.

[00:42:43] Luke Gromen: You total those up a trillion, trillion, 2 in bullets.

[00:42:48] Preston Pysh: It’s not much.

[00:42:51] Luke Gromen: It’s got to be close, right? Because you look at whatever they’re running a trillion, 7 deficit annualized rate now. I think tax receipts are probably going to be pretty good in April because the market was so good last year. So again, if you get good tax receipts, that buys them a little more time.

[00:43:06] Luke Gromen: So it like, my view of Janet Yellen has changed radically in the last, call it 18 to 24 months. She’s just very good. Like she’s she has demonstrated away from, she’s very good at the real politic, that she just seems to be, she seems to understand these dynamics of, okay, this lever here, I need to get the dollar down to make this auction work over here, and then if I pull this, and the Chinese want this, and the Russians, like, she seems to be.

[00:43:39] Preston Pysh: She understands what the transmission mechanisms are.

[00:43:42] Luke Gromen: Exactly. And that’s, that’s, I mean, I, and, like, I think her, what she did in November was shifting issuance forward, I think was a clear indication of that, right? It was like, okay, the treasury market is, like, the way she was able to offset what Powell was doing.

[00:43:57] Luke Gromen: 3Q22. Everyone’s like, ha ha, look at Powell, he’s the man, he’s the man. And she’s like, yeah, watch this with the TGA. Yeah, run down the dollar. Okay, so then she comes in, you know, BTF payment. I think she’s very good in terms of understanding the real politic in the letter. The levers that she has available to herself.

[00:44:15] Preston Pysh: You heard it here first, folks. We break news all the time. Luke Gromen really likes Janet Yellen.

[00:44:21] Luke Gromen: I gotta give props to her. Props to her, dude. She’s been very impressive. I mean, I mean, she is like juggling like 16 chainsaws, you know what I’m saying? And She’s so far so good.

[00:44:32] Preston Pysh: I get your point. I, I, I think she does understand the, the levers, but let’s talk about like, so what really performs as Janet continues to pull all these levers and manipulate the legacy economy so well.

[00:44:46] Preston Pysh: And by so well, I’m using air quotes here. So what performs into the end of the year?

[00:44:52] Luke Gromen: I think…

[00:44:53] Preston Pysh: Say the obvious one.

[00:44:54] Luke Gromen: Bitcoin. I love it. I like Bitcoin. I said, I said to somebody who asked the question on the day and you know, Bitcoin’s by one of my biggest positions and I think it Bitcoin over TLT, gold over TLT, S&P over TLT, S&P industrials in particular.

[00:45:09] Luke Gromen: I prefer the industrials over, over the broader index for the reasons you cited earlier. It’s, do you have a ticker for that? I think it’s S5 INDU maybe or S yeah, S5 INDU, something like that. And the reason I’m going over TLT, I mean, if you look at since 2014, when global central banks stopped growing their holdings of treasuries, you stopped growing FX reserves.

[00:45:33] Luke Gromen: S&P over TLT, gold over TLT, Bitcoin, Bitcoin over TLT has been more volatile, but it’s so it’s the same trend, just way more volatile. It looks like that gold and Weimar German Reichsmarks chart month to month.

[00:45:47] Preston Pysh: Which is really interesting because I think most would agree that the bedrock of the legacy system is long duration U. S. treasuries. And that’s what TLT.

[00:45:55] Luke Gromen: Yeah, and the TLT 20 plus, but, but it’s, exactly. Yes. That’s how I think about it. And it is, to me, and you’ve seen it, we’ve had three days, three soft auctions, gold has gone down less than treasuries, every single one of them, for example, Bitcoin has actually gone up, you know, so stocks have actually gone, you know, they’ve done well relative to them.

[00:46:17] Luke Gromen: So you can just see that to me, those are like the The gauges. Those are the, those are sort of the, the, the position. I don’t necessarily, other than trading like I do, I think that the 10 year yield is going higher. I do, I don’t know how much higher, but to me, I think the better plays on this. Our understanding that liquidity has or will continue to be applied to manage the treasury market and keep it stable.

[00:46:45] Luke Gromen: That that is the bottleneck, right? Treasury market stability is. Job 1 and job 2 and job 3 in the bottleneck. And as a result, the release valves will be those other things going up. Yeah. You can see. Yeah.

[00:47:02] Preston Pysh: While Luke was talking, I pulled up the chart of the S&P 500 industrials. I have the chart, the timeline starting at the top, right before COVID happened.

[00:47:12] Preston Pysh: And I’m comparing it to just the basic S& P 500. You can see that the performance over that period of time is about 6 percent higher for the industrials over just the S& P 500 which I think is pretty interesting.

[00:47:26] Luke Gromen: About, yeah, 7 percent lower, actually. The green is the S& P industrials there.

[00:47:30] Preston Pysh: Oh, I’m sorry.

[00:47:30] Preston Pysh: Yeah, yeah, yeah.

[00:47:31] Luke Gromen: Oh, it’s okay. Yeah, yeah.

[00:47:32] Preston Pysh: Now, I’m just fast forwarding through time so people can kind of see how the performance It seems like right in here it started to Turnaround the other way over.

[00:47:41] Luke Gromen: Yeah. Which is really interesting, right? Because you think about what we talked about before of higher, for longer more inflation, that’s exactly what you’d expect to see.

[00:47:51] Luke Gromen: You should start to see stocks flat to up with the industrials, outperforming angle, prior leaders that we, that we had. That’s also a weak dollar regime, right? Yeah. If, if, as people get the sense that dollar’s gonna weaken. You’re going to see industrials go up and you’re going to see big tech, maybe not as strong relative to those industrials.

[00:48:12] Preston Pysh: Luke, if you were going to some, cause I think for a lot of people that maybe listen to this conversation and maybe aren’t intimately familiar with, with finance and the jargon and stuff, what would be your really simplified overview of what they can kind of expect point now till maybe the end of the year that just kind of provides just a general overview and really layman’s terms.

[00:48:33] Preston Pysh: And feel free to make it really layman, like really step it down.

[00:48:38] Luke Gromen: I think inflation is going to pick back up. I think stock prices are going to pick back up. I think you will get talk of rate cuts going away and possibly even rate hikes. And I think the surprise will come around mid year when the rate hikes don’t come.

[00:48:56] Preston Pysh: Boy, isn’t that very contrarian.

[00:48:57] Luke Gromen: Even with inflation picking up.

[00:48:58] Preston Pysh: That is super contrarian to what everybody’s expectation is right now.

[00:49:03] Luke Gromen: Agreed. Everyone that is like, okay, they are my, they’re managing this thing for inflation. That will be the moment where they go, Oh my God, they’re managing this thing for deficit.

[00:49:12] Luke Gromen: They’re managing this thing for treasury functioning. Holy cow. That’s when you’re going to see fireworks. And then I think you actually get a really good back half of the year in terms of risk assets. Right? Because there’s a whole lot of money in acquisitions for them.

[00:49:25] Preston Pysh: You know, it’s funny, Larry Summers, everybody’s favorite person.

[00:49:28] Preston Pysh: Recently had a very similar tweet that he said that he thinks that they need to be looking at hiking and not lowering interest rates, which when I saw that it was like coming from this guy and the fact that he’s saying it tells me that there is some major cognitive dissidence between what everybody on Wall Street is saying is coming next versus what some of the elite politicians, and I’ll leave it at that, are saying or muttering, so it seems like you have a very similar opinion to what Larry, or yeah, Larry was throwing out.

[00:50:00] Luke Gromen: Yes and no. I mean, he’s talking about that, and I think markets are taking away the price, the rate markets are pricing that away. I don’t think they’re going to do it, though. I don’t think, and that to me is the big surprise, is that like, they should do it, but they won’t do it. But they won’t do it. And when they don’t do it, when they should do it, to me is, I think, going to be an aha moment for people, a lot of people that are positioned in terms of like.

[00:50:22] Preston Pysh: Like sitting on 167 billion in cash, those people.

[00:50:26] Luke Gromen: And 45 trillion elsewhere and 6 trillion in money market funds, like, you know, I think there’s what, 6 7 trillion in money market funds. The fiscal situation is such, so different than most of our careers that people are just having a really hard time factoring in that it is dominating the dynamic.

[00:50:45] Preston Pysh: Because the long duration so like let’s say that that scenario that you just described plays out Anybody who’s sitting in long duration is just going to be murdered like on the spot.

[00:50:56] Luke Gromen: And this is the other side of the argument and it’s a very valid argument Which is the long and yeah, it takes off like a scalded cat and now what do you do?

[00:51:04] Luke Gromen: And I think that’s what Powell’s worried about rightfully so but again, like, okay, raise rates, take them up to six, take them, take them up to six, raise them, raise rates, 300 basis, you know, 75 basis points. Now you’re going to reprice more that like, you’re going to drive a private sector. You’re going to have a private sector sharp falls.

[00:51:26] Luke Gromen: When it falls off, it isn’t going to be like, Oh, it’s going to go down 5, 10%. Again, because we’ve got this bid ask spread in commercial real estate. We’ve got this bid ask spread in, in housing. You’re going to go from the offer side to the bid side on a lot of stuff. When you do that, your receipts are going to drop non linearly.

[00:51:44] Luke Gromen: Yes. When your receipts non linear drop non linearly. As your interest expense is repricing up non linearly, Yellen’s going to come back for the, you know, they could try to raise rates. Maybe they do, right? Okay, whatever. She’s going to come back for the July and go, Ooh, receipts were way below expected.

[00:52:03] Luke Gromen: Expenses are way above expected. The deficit for the third quarter, calendar third quarter is not 425 billion. It’s 900 billion. And guess what’s going to happen to the long end then? It’s going to take off like a scalded cat.

[00:52:20] Preston Pysh: It doesn’t matter what, it’s going to happen, yeah.

[00:52:22] Luke Gromen: So, like, that to me is really the very perception, which is Powell’s choice is not inflation or deflation, it’s how does he want to make the long and take off like a scalded cat and sort of what timing and what sequence of events?

[00:52:36] Luke Gromen: Ultimately, I think you you move to some sort of new QE or yield curve control or four letter thing that isn’t QE injection But what you got to get the dollar weaker you the liquidity’s got to come one way or another but that to me is really the variant perception.

[00:52:53] Preston Pysh: The patient’s dying. It’s just the pace at which we kill the patient is really kind of the…

[00:52:57] Luke Gromen: Yeah, like this whole, the patient, you say patient, it brings to mind, I keep hearing, we need to tighten and fight, you know, get, get, finish the job on deflation, or we need to, or on inflate, and to me it’s like a bunch of docs sitting around an 85 year old, 500 pounds, lifelong smoker, stage four pancreatic cancer, and one doc’s going, we need to, you know.

[00:53:18] Preston Pysh: We can save them.

[00:53:19] Luke Gromen: We can save them. We need it. We just need to get them on a treadmill. And the other one’s like, no, no, no. Put them straight to CrossFit. And you’re like, no, that’s neither of those is the right answer. The right answer is you put the morphine in and you push the button and you let him keep pushing the button until he’s dead.

[00:53:35] Luke Gromen: Like, that’s it. And until he’s dead in this case is now, you know, you got to inflate the debt away. Cap yields, basically get debt to GDP back to 70 to 80 percent so that you can then run in the monetary policy. Without doing what they’re going to do by raising rates with that the GDP at 120.

[00:53:55] Preston Pysh: Do you think that this and I’m sorry to keep going on because we’re kind of at our hour But do you think that these Bitcoin ETFs are somewhat of a saving grace and maybe?

[00:54:03] Preston Pysh: something that can help this transition of this dying patient over to something that gives us hope and prosperity and actually solves this problem like This is my biggest frustration, Luke. You can listen to nearly any macro conversation and everybody is an expert at identifying the problem, but literally nobody can, can identify the solution to the problem, right?

[00:54:27] Preston Pysh: When I look at the, the ETFs, sure, you’re not holding the keys and sure the government could step in there and see that as a honeypot and take a 6102 like they did with gold back in the, in the thirties, right? With all of that said, those are the risks, obviously, with the ETF and not self custody in your coins, but there’s a lot of people that just can’t figure out the tech to hold their coins or whatever, and there’s tons of arguments, but when I’m looking at this, it’s providing something that can actually provide a store of value to this patient that’s just dying, that you can port over to something else to try to bring sanity back to the world, because it’s not just the U. S., every central bank is dealing with this exact problem. That’s why they’re so coordinated is because they’re all collectively together all over the world trying to manage the death of this patient that they all know so well and can define so properly. But until now, there hasn’t even been anything for them to port it over to at least from a wall street.

[00:55:22] Preston Pysh: Like I guess I’m envisioning sitting there, I trade a $5 billion bond tranche. And like, what do I do to protect that buying power that’s jammed into that $5 billion melting ice cube, right? Especially if it’s long duration. Like what, what can they possibly do? And it seems like we have some hope and that at least some of this stuff is getting approved and hopefully there’s competition globally for this.

[00:55:48] Preston Pysh: Is that how you see it? Is that, is this hope and salvation for this dying system? that appears to not have a solution according to so many?

[00:55:56] Luke Gromen: There’s a solution. Like, the solution is, it’s pretty straightforward. Just inflate the shit out of the system, cap rates for a little bit, and like, that’s it. But it’s a political question, right?

[00:56:05] Luke Gromen: Bondholders have controlled this system for the last 40 years, and they don’t want to get screwed on a real basis.

[00:56:11] Preston Pysh: But Luke, so I want to push back on that. Okay. So when it’s an individual country and they’re having issues, like if you’re, if you’re not a G7, right? Like that’s the playbook that you just described, but what happens when it’s literally every single country on the planet to include the G7s that are all trying to implement that playbook.

[00:56:36] Preston Pysh: It’s a competition to the death and there’s, and at the end, there’s no solution. Like what’s the solution for them?

[00:56:42] Luke Gromen: I do think it’s a possible solution. I have found it very interesting that number one, I know for a fact, I don’t know how widespread it is, but I know there are contingents in Washington who understand the math as you and I have discussed the math.

[00:56:58] Luke Gromen: In other words, like maybe it’s six months, maybe it’s two years, maybe it’s five years, but it ain’t. It ain’t 20. I don’t know how big that contingent is. I suspect over the last two years, the contingent has gotten notably bigger for a number of different reasons. I also believe that push comes to shove.

[00:57:18] Luke Gromen: America will want to do the best thing for its citizens. It’s in America’s interest to do that. I’m also very interested in the timing of. What I’ve seen transpire when I look at, I’ll start again with gold, JP Morgan for 18 years, the GLD had a single custodian HSBC. And at the end of 2022, all of a sudden, JP Morgan says, we’re going to be the second custodian.

[00:57:48] Luke Gromen: And then in the first half of 23, JP Morgan says, we’re going to move some of the gold out of London for the first time. 18 years this thing’s been around. Never had any interest before. Never out of London before. And then in the first half of 23, over half of the golden GLD goes from HSBC’s custodial vault to J. P. Morgan’s. Now, maybe he just want, I mean, Does he, like, why bother? Why bother? To me, at the very least, the rake on the fees are going to be, is going to be better, right? As price goes up, right? They’re getting a fixed price on a bigger number. Okay. So that was sort of strike one, if you will, in my mind of like, okay, why now?

[00:58:30] Luke Gromen: Why? That was just odd to me. Then forever, they’ve been fighting these, I mean, you know better than me, chapter verse, they’ve been fighting these Bitcoin ETFs over and over and over and over. And to me, at least, as sort of, you know, I like Bitcoin. I’m involved with Bitcoin. It’s an important position for me.

[00:58:45] Luke Gromen: I’m not as in deep with all of the machinations in terms of getting these things approved as you were to me as sort of a tourist. It was like, no, no, no, no, no. And then all of a sudden it was like, yes, yes, yes, yes, yes, yes, yes. And again, as a tourist, it seemed. rushed. Why now? Why finally? Why, like, what changed?

[00:59:06] Luke Gromen: Maybe nothing. Maybe it’s all lawyers. I think part of it might be like, okay, we know the dollar’s got to be weakened because, oh, by the way, this is all happening in the context of what I laid out before, which is. Look, if the dollar goes up, the treasury market is going to break. Full stop. Like it is not, it’s like barring like Martians coming down in some miracle.

[00:59:27] Luke Gromen: Like it is going to happen. It is a matter of national security for the U. S. dollar to go down quite a bit, 10 15 percent, in a, you know, in an orderly manner, but in a fairly compressed time. If I told you the dollar is going to go down 10 15 percent, you’re running a bank. What are the first two assets you put a, you want, you know, access to?

[00:59:48] Luke Gromen: No opposition. They’re the two assets I just said. Yeah. You know, there’s been a lot written about, okay, they’re just going to grab the coins and blah, blah, blah, blah, blah. Good luck. And, yeah, maybe, maybe, but, you know, we know, right, Jason Lowery, we know there has been at least a conversation with his book, Software.

[01:00:05] Luke Gromen: There has been a conversation in Washington amongst the defense establishment about Bitcoin as a reserve asset. We know that. I don’t know if that was like two guys in a room like you and I talking about it or there were others. I don’t know. I don’t know. Yeah. I also know that if we like…

[01:00:21] Preston Pysh: And I can just tell you like my, my experience with DOD is that it’s just all funny money.

[01:00:25] Preston Pysh: Like, Hey, I need another billion to go buy this other toy that I’m working on. Like, and it’s just like magic. It’s just like magic. They’re like Mario coins. Like it’s not right.

[01:00:34] Luke Gromen: So like I can fix the debt problem tomorrow. Like it’s, it’s pretty easy, which is. Every 4, 000 of gold, so Yellen can go to Fed and say hey, re monetize the gold.

[01:00:44] Luke Gromen: Every 4, 000 of trillion bucks in Yellen’s TGA, no debt attached to it. Okay, 20, 000 will give me 5,000,000, I go into the market as Yellen, I go buy back 5,000,000 in debt. That takes debt to GDP from 120, 000 to about 75,000 overnight. Thank you, have a good day. Fed, you’re separate again. You can take rates up to 8,000,000, you’re not going to blow up the treasury market.

[01:01:04] Luke Gromen: You can let the private sector do what it’s going to do. Voila. Yeah. Easy peasy. Now that has geopolitical implications. ’cause guess who’s sitting on a lot of gold, China, Russia. Do we wanna do that? Do we have the gold? We say we, I don’t know what, what is, okay. I don’t know. Now if I wanted to really be, like, if I wanted to play 40 chess do with Bitcoin, you got what?

[01:01:27] Luke Gromen: 120,000 Bitcoin sitting in the you know, the dark silk road or whatever the hell it is. You know, that they, that they grab. Add a zero to the back, add two zeros to the back. Say we’re going to now, us and the Canadians and the Saudis are now going to accept, you know, we’re now going to settle in Bitcoin.

[01:01:42] Luke Gromen: It’s the platinum coin trick except sustainably going forward with a neutral settlement mechanism. The Bitcoin thing would be a lot, but the goal thing, like everybody just, everyone just writes down re recaps through the goal.

[01:01:54] Preston Pysh: I don’t think that that actually poses a long-term solution.

[01:01:57] Preston Pysh: What I, what I think is playing out, and I, and I know you’ve, you’re Jeff Booth’s thesis about deflation, technological deflation. And we look at all this printing for all of these decades is just preventing this thing that’s trying to birth itself, which is technological deflation that they’ve been able to hide and mask because of all the printing collectively across the G7 and beyond.

[01:02:19] Preston Pysh: And I think that the more that they try to double down on gold or the platinum coin or whatever, right? It’s still a mechanism that requires human trust to manage a ledger to some paper that rides on top of it. that never allows technological deflation to actually manifest itself. And it’s desperately trying to get out, like a monster that’s locked in a cage.

[01:02:45] Preston Pysh: Like, it’s trying to get out. And I think the only thing that allows it to get out is something that’s truly decentralized, that does not have a human in the loop to manage the ledger.

[01:02:56] Luke Gromen: And it’s tied to energy, right? Yes. If you if you came out, if Russia and China came out and said, hey. We now value gold at 1,000 barrels of an ounce and every nation around the world and 1,000 barrels of oil per ounce of gold.

[01:03:09] Luke Gromen: Every nation can figure out how they want to manage their energy policy. Great! The price of gold is going to be X here, it’s going to be cheaper there, it’s going to be expensive here, whatever. Based on your energy policy, your natural endowment, blah, blah, blah, blah. That will incent the proper behaviors.

[01:03:24] Luke Gromen: Other than that, I agree with you. Just printing it up and papering it over, yeah, it’s simply kicking the can. Now, doing, you know, that gets into the, okay, well, how do you settle it? Well, it’s sort of a no ticky, no washy kind of thing, right? Like, if you don’t settle in gold quarterly, and oh, by the way, we used to send a flight of planes to Riyadh, either monthly or quarterly, full of bullion, you know, back in I think the 40s or 50s, maybe even into the 60s wildly inefficient, you know, not more inefficient than shipping this stuff around, you know, water on, you know, on trucks, but, but Bitcoin does the same thing, like, and, and it’s much more efficient to do it. 10 minutes. Sense the right behaviors.

[01:04:00] Preston Pysh: 10 minutes. I saw this just this past week, somebody sent 1. 2 billion on chain.

[01:04:05] Preston Pysh: Cleared in 10 minutes, and I think they paid 2 in fees, and they overpaid. They could have paid way less than 2 if they wanted to. I don’t know how you, from a tech standpoint.

[01:04:17] Luke Gromen: It doesn’t compete. And it’s that energy tie that is so big, because that’s going to compensate for and incent the right behaviors.

[01:04:27] Luke Gromen: And when I say the right, I have no moral to it. The humanity advancing energy efficiency behavior. So it’s nothing to do with it. That’s, you know, nature wants to get more energy efficient. That’s how it evolves. And that’s why I’m what I mean by right. I’m not vocalizing on anything other than that or hiding on anything other than that.

[01:04:46] Luke Gromen: Just talking about nature, man.

[01:04:50] Preston Pysh: Luke, this is, this is always a blast. You know, my wife, if she was here, she could attest to the fact that I have the FFTT weekly newsletter. Printed in just sporadically all over the house. If you came into my house, you’d find all these like reports all over the place.

[01:05:06] Preston Pysh: And you know I read them because I text you sometimes on Saturday when I’m sitting in a swim meet reading my FFTT weekly report. Cannot speak highly enough. I mean, it is, it is my go to reading every week for sure. I always appreciate you making time and coming on. You’re just a wealth. I learned so much from you.

[01:05:26] Preston Pysh: I don’t know how you’re able to parse all this together, but it is quite miraculous to just be a friend of yours and to be able to have these conversations with you. And I just want to truly thank you for, for always making time.

[01:05:37] Luke Gromen: Oh, thank you. I, I feel the same way about you. So it’s there’s times where I’ll ping you where I’m learning something about Bitcoin or whatever.

[01:05:44] Luke Gromen: And it’s like, Hey, you know, I am a toddler and in my understanding of it, and I’m really curious and really dumb. So it’s a good way to learn. So I appreciate you always humoring me. I’m sure some pretty basic question, but at any rate, I appreciate, I really enjoy it.

[01:06:02] Preston Pysh: Anything else? We’ll have links to your books.

[01:06:04] Preston Pysh: We’ll have links to the FFTT website and your Twitter. Anything else that you want to highlight?

[01:06:08] Luke Gromen: No. I had it. No, that’s perfect. People over to find me. That’s yeah, that’s, I appreciate you having me on. I really enjoy our conversations.

[01:06:18] Preston Pysh: Thanks again, Luke.

[01:06:19] Luke Gromen: Absolutely. Thank you, my friend.

[01:06:22] Preston Pysh: If you guys enjoyed this conversation, be sure to follow the show on whatever podcast application you use. Just search for, We Study Billionaires. The Bitcoin specific shows come out every Wednesday, and I’d love to have you as a regular listener. If you enjoyed the show or you learned something new or you found it valuable, if you can leave a review, we would really appreciate that. And it’s something that helps others find the interview in the search algorithm. So anything you can do to help out with a review, we would just greatly appreciate. And with that, thanks for listening and I’ll catch you again next week.

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