One Asset To Double As Global System Risks Unraveling | Luke Gromen

Ultimately, every time the dollar gets too strong, the Treasury market is going to dysfunction.

It is a mathematical certainty.

Based on what I know, that is absolutely the wrong price.

What is a logical move in response to what should be happening in Iran?

Let's not forget, where are we putting our data centers because we don't have the infrastructure here?

Is there a release in the NASDAQ?

Yeah.

UAE, Saudi.

Think about that.

20% of the world's oil flows through the street of Hormuz, and with that close now,

where do the nations around the world that rely on oil imports get their energy next?

What happens to our economy once oil hits $100 if it gets to that?

What asks us are next to move and what happens when we get massive inflation if that were to be the case?

Joining us discuss these topics and answer these questions and more on how to survive the current volatility is

Luke Groman, founder of Forest for the Trees.

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Luke, welcome back to show good to see you again.

Greetings, you too, David.

Thanks for having me back on.

You've been tweeting a lot about the Iran conflict.

I'll just show one on the screen.

Brent Croup prices versus US 10-year Treasury yields since January 1st, 2025.

And the two have moved almost in lockstep, except now there's a bit of a divergence.

And I wonder if you can comment on what this divergence means and whether we should be...

I guess either long bonds or short oil, if it's how I'm interpreting this chart.

You know, for me, I think you should be short bonds.

I think you should be short duration.

Particularly if this conflict goes longer, which my confidence that it is going to go longer than expected rises by the day.

Certainly relative to expectations or relative to what appears to be investor consensus at the moment.

Look, the world holds treasuries and the world needs oil and food.

And one is on some level being disrupted.

And so, you know, is the world going to hold its treasuries and starve itself of food and oil?

Where's it going to sell its treasuries to bid up oil and food?

And to me, it's not a very difficult question to answer.

And so, ultimately, the longer this goes on, I think you will see a huge natural buyer of treasuries turn seller, which is to say the entirety of the oil oil.

Well, not just the oil importing creditors of the United States, which would be China, Japan, Korea, Europe, but arguably also the oil exporting creditors of the United States.

Because they can have treasuries or they can have weapons, but they can't have both.

Unless the Fed prints the difference, in which case I don't want to hold bonds either.

Would you be longed U.S. oil producers right now, ExxonMobil being one of them, for example, as China, Japan, Korea, Thailand, all these countries in Asia, rely heavily on oil coming out of the street of Hormuz, which is now closed.

I believe something like 70% of the oil coming out of the street of Hormuz needs to go to Asia.

And as you've seen earlier this week, Korea's stock markets, Japanese and Chinese stock markets alike have all fallen as oil prices have risen.

So where are they going to get the oil from now?

Sure answers. Yeah, I would be long oil. I would be, I think that is good. All else equal for U.S. domestic oil majors.

I think they'll get the oil from wherever they needed from. Oil is very, very inelastic.

And in terms of its demand. And so where will they get it, wherever they can.

And, you know, if that requires sale, you know, so far they're selling Korean stocks in Korea, right, to get liquid.

It won't be long till they start selling treasury bonds till they sell, you know, other assets.

Ultimately, you've got to have oil. You don't have to have other assets.

Luke, have you repositioned your portfolio or your allocation or your recommendation since the start of the Iran strike last Friday night?

Only added gold in my own personal investments.

I have, I came into this year, you know, we've told clients we are my put more portfolio.

Coming into this year was more than 50% of my liquid net worth was in cash, T bills and gold, gold miners.

I didn't forecast a warning, Ron. I didn't think we would be that foolish to be honest.

I just saw a number of other things where there were problems, potential problems that made me uncomfortable enough to have a very risk off position.

So better lucky than good for now. The only change I've made is I've added to that already very heavy gold position.

Even at what we are now, 51, 50, 200 dollars, it's not overvalued for you, Luke.

Not even close.

Why is that? Just the macro backdrop for gold, Iran wore a side, what drives it higher?

I look at it and say, gosh, there's so many factors that drive it higher.

The valuation, it is still the cheapest asset on the board.

So if you look at US foreign held debt as a percentage of the official US official US gold holdings at market price.

In other words, what percentage of the foreign held treasury bonds outstanding are collateralized by gold at market price by US official gold at market price.

1989, that was 20 percent.

1980, it was 135 percent.

The long-term average is 40 to 60 percent today.

Even with this massive rally, it's at 13, 14 percent.

So gold would have to rally enormously, 50 to 60 percent just to get back to the 1989 levels of gold's price where US official gold would collateralize foreign held debt.

When we then lever layer in levels of global sovereign debt and stress, particularly as I see what I'm seeing out of Japan, where we are seeing emerging market price action in the JGB market, where in the second half of last year, we started to have this very unusual setup of Japanese 10-year government bond spreads over US 10 years.

So US 10-year JGB and then chart that on a second access against dollar yen.

Normally, you would expect rising JGB yields relative to treasuries to drive a stronger yen, not a weaker yen, yet it's driving a weaker yen.

That is emerging market price action in the second biggest bond market in the world and a very important economy.

I don't know how that works out, but I know it's not good for risk either way.

And more importantly, it's a good, really good for gold either way.

Then I look at the geopolitics more recently, you know, everything the United States has done over the last five, six years is telling you that Treasury bonds are not safe for foreigners and they're in what they've just done in the last week, which is kill regardless of how we may feel about

committee. Let's set that aside. He was the sitting leader of a major world country, the record and we just assassinated him and that's okay.

That that's what we did. It is what it is. I'm not judging. However, our foreigners really going to put their money in treasuries.

Are they really going to put their money in stable coins that the United States can just burn up that will. No, the reaction to this is going to be a further acceleration away from treasuries into gold.

As a reserve asset, which is already happening anyway in which on some level is actually in US interests to reshore when I look at the fundamentals right now in 2025, the second biggest export in the United States was non monetary gold.

Out of everything else, the United States makes the only thing goes bigger were pharmaceutical preparations.

We were shipping it to Switzerland, where was Switzerland shipping it China, Hong Kong, UAE.

So America is essentially net settling part of its trade deficit in gold. That's just a fact of the trade flows.

You know, US is running very big trade deficits, even with a much weaker dollar. I think that's supportive of gold. So I think there's a lot of different things.

The valuations cheap, the geopolitics are supportive, the sovereign debt situation is supportive, the trade flows are supportive.

So yeah, I still, I think gold's probably got to at least double if not triple before it actually starts to get to a point where I would start thinking about late letting some of it go.

Okay. Well, let's talk about the dollar and we'll come back to your gold forecast towards the end and how that's going to impact the rest of your portfolio.

The dollar has interestingly risen since the beginning of the year, sorry, beginning of February.

It's come down a little bit from its top just a couple of days ago, just yesterday actually look.

And the question they have for you is how demand for the dollar and treasuries will change specifically as a result of the strike on Iran and the closure of the straight up for moves.

One way to look at it is yes, you're right. There's going to be de-dollarization happening for the reasons you've stated, but perhaps countries may now be forced to buy US oil because of the closure of the straight up for moves, which ironically works in the US's favor, which way, you know, which way do you see this playing out?

They might need to buy it.

I question of I think all of sequel more US exports is good for the dollar, right? You are exporting oil instead of exporting dollars.

You're soaking up global dollar liquidity with oil essentially, you know, dollar out oil out dollars in.

So that is very possible.

The challenge here is the challenge that has continued to exist this whole time that this administration, the administration before the administration before want to pretend like it doesn't exist.

But ultimately every time the dollar gets too strong, the treasury market is going to dysfunction. It is a mathematical certainty.

Every time the dollar gets too strong, US equities are going to sell off. It is a mathematical,

double entry bookkeeping identity. It's a certainty.

And the reason I say that is foreigners have borrowed $13, $14 trillion in US dollars, right?

So they're short, $13, $14 trillion in US dollars.

But they also own $70 trillion gross, $27 trillion net of US dollar assets.

The United States has a negative investment, international investment position or NIP of negative 95% of GDP, maybe a negative 90%.

And so anytime the dollar gets too strong, foreigners are going to get squeezed on their dollar borrowings.

And when they get squeezed on their dollar borrowings, you know, we can go back to what we talked about earlier.

Our foreigners are going to sit there and go, oh no, we're getting squeezed. What do we do? No, they're going to sell what they can.

Now what they want to, they're going to sell what they can. What's the first thing they can sell?

They go nine and a half trillion dollars in treasury bonds, push them out the door.

And so when you look at dollar against 10 year treasury yields over the last five, six years, very positively correlated.

And so all else equal, yeah, more oil exports would in theory support the dollar, help the dollar risk off helps the dollar, but strong dollar doesn't help US risk assets.

It doesn't help treasury markets, especially since the US economy essentially is the S&P 500.

When you look at US tax receipts going back 10, 15 years as we have just net capital gains plus taxable IRA distributions alone is over 200% of the annual growth in US consumer spending.

So US consumer spending mathematically cannot grow if stocks don't rise. And the US's massive net international investment position massively negative makes it a mathematically certain that stocks can't rise if the dollar gets too strong.

So for me, it's not a question of, hey, let's weaponize the dollar or you know, the question is, is when does the dollar get too strong strong enough to break the treasury market like it did last April.

We remember right dollar spike for a second last April was probably a bad example last April dollar wasn't even dollar weakness or wasn't even dollar strength.

But if we go back to 3 Q 23 2 Q 24 1 Q 23 3 Q 22 dollar gets too strong treasury market dysfunctions treasury yields get to 4.6 4.8% on the 10 year we start having a debt spiral we start having risk off problems in equities.

Everything goes pear shape. So to me the dollar is absolutely a key linchpin it can't go it can't be allowed to go too high or at least high enough until it starts creating problems with treasuries. So, you know, I understand why the dollar rally the way it did I understand.

But it's it's a self limiting it's a self limiting rally. You know what's a really good economic contraction indicator since we're talking about both gold and oil is a gold to oil ratio.

Peaked in 1973 followed by gray bars in bird designated recession peaked in 1980 followed by a recession 2008 followed by a recession interestingly didn't really peak in a dot com bubble but anyway there was a spike there followed by a recession no recession now and no talk of a recession in the media at least for now.

But last time this happened was 2020 now oil I don't let's see what happens to oil let's see what happens to this ratio but how are you reading this chart.

I read that chart a little differently which is I go back to that chart to me the gold oil ratio is a measure of the health of the petrodollar system.

Okay, which is which is to say the higher the gold oil ratio the sicker the petrodollar system is the more the more the worse shape it is.

The reason for that is that gold competes with treasuries as primary reserve asset and so higher gold prices all else equal will compete more effectively with treasuries the higher gold price get the more money can go into gold as a reserve asset and the less confidence there is in the dollar.

Similarly though the lower oil prices are relative to gold the less dollar so right up until just recently a few years ago oil was only priced in dollars and so the lower the oil price gets the lower the dollar surpluses that are generated the petrodollar surpluses that are generated and recycled back into US financial markets.

So a high gold oil ratio is a sickly petrodollar system a low gold oil ratio is a healthy petrodollar system and that's what this chart shows when you look at it.

73 it was pretty sickly 85 it was pretty health or it was it was strained a bit I should say there were some deals done there right we had we devalued the dollar significantly in 87 and bought time for that system 2000 99 to 2000 2001 that was a very healthy time for the petrodollar system Russia was very sickly they were dumping oil but gold was very cheap you know who needs gold we have green span.

Green span I look at this chart from 2007 on and I think 2007 is when things really change that's Putin's famous Munich speech where he came out and said listen this isn't working for us and ever since then oil has gone for the gold oil ratio since Putin's I think it was April 2007 Munich speech has gone from roughly six or seven barrels of oil per ounce to nearly 80 and what it Putin do out there.

After that speech shortly thereafter he started buying gold and then in 2013 14 stop buying treasuries and bought more gold and then in 2014 he and China agreed to start transacting energy outside the dollar and net settlement and gold and the reality is the oil market.

In 2014 the oil market was 20 times the size of the gold market 15 times now it's down to six eight 10 times bigger just just oil not gas not copper and and so what I think that chart is telling me is that the world has gone multi polar and that we are now seeing marginal oil and energy and commodity deficits being settled in gold at the central bank level because if you look really after 2020.

It was up to 2022 23 on the gold oil ratio since then it's quadrupled triple to quadrupled after the United States froze Russia's FX reserves in response to the invasion of Ukraine.

That was a declaration that treasuries are no longer safe for foreigners to hold as a reserve asset.

I would argue that it was very good for the United States in the long run but it was bad for treasuries in the short run and it was very very good for the gold oil ratio so that's how I look at that chart.

But isn't the Iran regime change actually a stabilizing factor for the Middle East and perhaps globally which may put downward pressure on the demand for gold is a safe haven asset as a hedge to geopolitical risk can you can you comment on your thoughts there.

That's the 64,000 other question I would say you know was removing Saddam a stabilizer to the Middle East.

Was removing Kedafi a stabilizer in the Middle East.

You know the hubris of angle American foreign policy is I don't know the one it reminds me of I don't know if you're you know the movie Billy Madison from Adam Sandler right where the old man keeps falling for the flaming bag of Patrick you know the kids light the bag of dog poo and put on his porch and then he steps on it and gets pool over his shoe.

It's it's like American foreign policy in the Middle East since since you know my younger days I mean my goodness we've been at this 25 years.

I we what have we done well we we lit the mid east on fire we ran up I don't know when we went into the Middle East I think we had 6 trillion in debt now we've got what 38 trillion you know the highest inflation print when we went into the Middle East in 2001 in the prior 20 years.

I believe was like a prior 10 years excuse me was like 3 3% 2% 3% 4% highest CPI print since we've been there's been over 9% current account deficit or the the excuse me the trade fiscal deficit of the United States 3% when we went in now it's what 6 7% so you know and oh by the way.

How is our position in reverse visa V China was it strengthened or weakened by us going to the Middle East and getting distracted.

You know China was nowhere 25 years ago now we're worried about China so I think you look yes if this thing goes swimmingly and it goes all awesome and we're able to install basically a Boris Yeltson in Iran.

With very little disruption over the next couple of months at most and they get right to selling oil to America in all in dollars and cutting off the Chinese and selling off other parts of their mineral wealth to Western investors like Yeltson did for pennies on the dollar then yeah sure this is going to be unbelievable for America.

I think this Iran situation is so bullish for gold it's it's like I mean I don't think people like I said it's the one thing I've added to this week and again I'm not like a day to day trader but to me it's just so obvious when I saw gold get wack this week I said that's the wrong reaction 100% that's a wrong reaction.

What is the correct reaction or foreseeable reaction from China then given that China has been so far quite muted on the international stage in its response to these to the Iran strikes they've condemned it publicly but beyond that not much action I was expecting at least more expert controls and critical minerals as retaliation I don't think I've seen that in the headlines yet is that a reasonable response to expecting the foreseeable future in the next coming weeks Luke.

Yeah I think it is and I think the Chinese will do it in a very Chinese way I really hope at some point in a look I love America and I don't know how many times our administrations both sides need to bang their heads against the wall before they start realizing they don't really understand China.

Which is to say I think the Chinese are going to respond as the Chinese do which is they're going to condemn it they're going to say everybody should come to the table and talk and they're going to be very passive aggressive and they're not going to do anything boisterous or forceful or react like an American or react like a Brit or react like a German or even like a Russian they're going to say nothing and in about two three four weeks President Trump is going to get on social media.

And start complaining about how none of the rare earth are flowing and that we're suffering shortages and best since going to go on the Sunday morning talk shows or vans or Hegseth they probably won't send Hegseth they'll send one of those three and they'll say hey China's not abiding by their side of the deal we are running into severe constraints blah blah blah blah and then you'll know and that's how China will react or China will do something like take high definition photos of the American bases that have already been destroyed in the Middle East.

And in another couple days after the Americans get out there and say hey it's going great it's going great it's going great and the Chinese will release a photo showing a completely destroyed American base and with the coordinates anyone can call them up pay because there's private private satellites will take the same picture and and discredit the American administration that way that's how they'll do it and that's probably what's going to happen.

And then that will raise questions or reporters will ask Hegseth or Trump hey you said it's going great why is that base a smoking crater over there in you know UAE or in Qatar or at Bahrain.

And you know Trump will say it's you know whatever you'll wave his hands and he'll say whatever he's going to say the Chinese are not going to sort of stand up and and sort of punch back they are going to react in a very Chinese way like they have for 30 years I mean how many times they have to react this way till Western policymakers actually start thinking more along how they're going to react.

Has current have current events changed the way you look at the fence stocks Luke.

Not necessarily I mean I think look it's been good for them very clearly we're going to spend more money there.

I was just seeing someone flagged me earlier I think they're asking for another 200 billion dollars the US government to spend on defense which is good for those stocks it's you know if you're if you're bullish on the deficit you know it's very good for the deficit will push us back over to two trillion probably pretty easily.

Um you know it's not great for long term treasury bonds certainly not on a real basis but yeah I think ultimately.

You know we have we have real constraints and yeah they are you know Trump called the heads in I guess of the defense companies yesterday you know it said hey you need to move faster well it's great but they can't move any faster than China let's.

And that might be how China responses you know Trump calls them in yells and screams at them hey we're running short of intercept their missiles and they call up China and China's like oh.

The dog ate my homework sorry don't know where they are why do you think US equities markets are basically not pricing in any risk of escalation right now and if I mean if if the brought if the conflict in Iran escalates to beyond regional containment.

We should have we should be having a massive sell off and in fact quite the reverse is happening right now the NASA stuff almost 2% on the day on Wednesday.

It's sold to you based on what I'm hearing sold to you.

Look you're seeing force measures in various commodity markets in the Middle East you are seeing Asian stock markets you know Korea in particular tank.

Now it's spiked up but it's tanking off of that spike.

You are seeing Western different multinational companies pulling people out.

Yeah.

When you get oil majors pulling people out.

You really think they're not talking to the defense department.

You've got a headset admitting we're not going to be able to defend against drones.

So that is yeah to up 2% today like who knows but that's that's the wrong price.

Based on what I know that is absolutely the wrong price what what is the correct move in your opinion what what is a logical move in response to what should be happening in Iran for what's going to happen next.

Lower quite a bit.

Well you know you know what's interesting I'm just going to pull up this chart.

The VIX has been steadily rising since the beginning of the year I mean ups and downs every day but the trend has been higher.

Huge uptake on the mood on the day of the strike and the now has come down a bit but it's been trending higher since beginning of the year.

Is this a reflection of anything or has it just been you know as well until he just been oversold what do you think.

Yeah I mean I think it was probably from an oversold position but even where are we trading today is that say 20 like yeah that's that's a joke.

Yeah you know based on what I know that that you know whether I look at that whether I look at credit spreads weather and we wrote this last week and week before and it was around other factors but.

You know whether you look at VIX whether you look at credit spreads whether you look at the move treasury volatility index whether you look at you know things like XL XL Y over XL P right the consumer discretionaries over the over the staples it is just complacency across the board from investors and.

You know I would just say where what do you want to own if we're at war with Iraq in three months or it excuse me with Iran in three months.

And the deficit isn't a trillion seven it's 2.6 trillion and you know what what.

And and there's no of obvious and in insight.

What do you want to own is it NASDAQ maybe balance here with the NASDAQ and you know but you know and oh by the way let's not forget where are we putting our data centers because we don't have the infrastructure here.

Is it releasing the NASDAQ yeah you a Saudi.

Think about that we can't defend against drones and you've gotten major mag seven infrastructure sitting in places we can't defend against drones that's not me saying that that's secretary

Hegseth who is as cheerful and is optimistic of you as you're going to get on what's happening there right now is coming from him and he's telling you we can't defend against drones.

I'm just I'm just going to pauses a theory here so perhaps the S&P 500 being so heavily weighted with tech companies right now which as we know they their primary costs aren't oil.

You know it's not it's not a resource heavy physical kind of company a lot of their software and you know even hardware doesn't doesn't rely on oil for margins.

And so perhaps we're looking at a stock market that is immune up to a certain point of course to hire oil prices that would immediately impact their margins of course we know higher oil prices down the line with impact consumers negatively which may impact negatively discretionary spending which may hurt some tech spending but we are so far witnessing no downturn in the NASDAQ so maybe this time is really different what do you think.

I mean it could it's it's possible it's possible end of the day if rates are going to go up so look if if if real if real rates are going to go up as a result of you know either high you know forced selling of sovereign bonds to buy the world basically to buy oil.

I have a hard time seeing a world where rising real rates are positive for for stocks and particularly for the interest rate sensitive NASDAQ now if you tell me well loop they're already discussing behind the scenes that they will cap yields.

Then that makes sense and then yeah then I say hey buy NASDAQ short dollar and bond yields probably stay where they are and you know if that was happening behind the scenes right if Bessent was in there with the exchange stabilization fund or the plunge protection team we're going to call it and and he was selling dollars and he was capping yields and what would I expect to see I'd expect to see VIX down I'd expect to see yields relatively stable I'd expect to see dollar down I'd expect to see NASDAQ up and.

I'd expect to see gold up so it's really interesting to me that's exactly what we're seeing I'd expect to see a Bitcoin up to by the way right up 7% today that's that's potentially interesting so you know they've got options it's all just what trade off do they want to what trade off do they want to make where do you see this going right now I'm seeing reports that perhaps Trump wants to arm the curds and that we're going to get basically insurgents now putting the money back on the market.

He boots on the ground to fight this regime change and if so we're looking at a prolonged conflict and and so that's that's one possibility and Trump says that this could last possibly weeks he just announced that we're expecting more American casualties as any war would expect.

So he's basically telegraphing that this is not over yet what do you see this headed.

He knows it's a lot worse than that and I mean this is the same man who said anybody who said we had not already destroyed all of nuclear all of Iran's nuclear weapons was fake news that was literally the headline of the White House press release on June 25th 2025.

We have completely obliterated Iran's nuclear weapons anyone that says otherwise is fake news that's the headline from the White House.

You can find it on so what do I I think he do do American troops get put in Iran.

Is this Iraq I hope I know I hope not because and and pull it I think that's why he's talking about the curds right I mean you know there is you can find this online you know a Russian anti Russian anti Soviet freedom fighter leads is army to peace yeah this is a you know the old the old Osama bin Laden right giving giving weapons to

weapons to rebels has not worked out well in the long run for the U.S. I would argue but that's neither here nor there.

Will he do that with the curds I don't know that's out of my valley wick I could certainly see that happening is that going to be stable my understanding is the curds like can't agree with each other let alone right so now we're going to arm them it's destabilizing beyond gold what is an investor do to protect against volatility or more broadly invest in an era of uncertainty with uncertainty being the main theme.

What is the uncertainty play to me the uncertainty plays or you want to go to you know right certainty obviously setting aside gold.

Look I think you want to have an above an above far above normal allocation to cash and T bills.

And I think then from a fundamental standpoint I think you want to own things where you had a pretty strong sense a that the fundamentals are going to be solid and be the valuations aren't that stretch for me that is I still have a very large position in electrical infrastructure equities.

One way or another we're going to be spending a lot on our grid war doesn't change that rates doesn't change that sort of nothing changes that nothing stops that so to me that.

And the valuations on a lot of those industrial related type infrastructure things like the pay VTF P A V E the grid ETF GRID excuse me I don't have any relationship either of those companies that are for those or anything but the companies that make up those ETFs I think are very well position they're not that expensive and I think they're going to have very strong fundamentals.

For the next three to five years at least if not more and so in times of uncertainty like this especially.

You know there's there's uncertainty and then there's when is uncertainty priced in right so there's uncertainty now no question there is no uncertainty priced in very very little uncertainty priced in you know I want to see.

You know I want to see you know is this America Sue as moment on the cover time magazine when I see that that's when I'll that's when uncertainty will start being priced in what what is the major geopolitical ship that comes out of.

Of this conflict are we expecting a shift in the world order following this or is this just a continuation of events that have already unfolded.

I think it's more continuation and I think it's too early to tell.

You know it just we can see what is happening there's a there's a there's a battle for material constraints.

China has spent trillion subsidizing the bill out of made in China 2025 and its production capacity and it's.

You know buying up finite commodity stores around the world with dollars in the Americans subsidized nonsense wars in the Middle East for 20 years and so the Chinese thus far spent their money better and so in response to this.

We are spending more on nonsense wars in the Middle East so we clearly haven't learned the lesson yet I will provide to you if I may a piece of certainty and that is a certainty that the debt is going to go up in the US.

Absolutely agree with that congressional budget office is now projecting that the interest.

On the cost alone the CBO's latest baseline net interest costs are projected more than double again it's currently one trillion close to one trillion it's going to go to 2.1 trillion by 2036 I mean 2036 is the next year but it's going to double from here.

Now that's just net interest alone the actual debts level is well currently at 38.8 trillion it's going to reach 50 trillion I think by 2036 as well.

But anyway that together they were drive net interest cost up by 121% what do we do not just this this is impact the average American who's not an investor and we'll get to investment implications in just a minute but this is impact the regular Joe who's not even in markets how do we feel this.

Absolutely it raises living costs it raises inflation you know regardless of whatever the government says inflation is.

And when the government says inflation is two and it's actually five that erodes confidence in the government and so okay so number one inflation's higher that's not good confidence in the government I saw survey last month that showed that.

In under Ike and JFK and even the early days of LBJ Americans surveyed Americans confidence in their government was 80 to 85% it's now 16 to 19% have faith in the American government and critically that's not a trump thing that's an Obama.

Trump Biden Trump reading it's 16 to 19% it is hit the floor and there's been no dead cat bounce it is just flat lining.

And as you lose faith in your government you're going to have continued internal strains political strains in the US and you know who knows from there but ultimately elevated inflation elevated domestic political strains and you know continuation of the.

The K shaped economy because ultimately we go back to the earlier point they're not going to let the treasury market dysfunction they're not going to let interest rates rise to a level that force whether it's trump or a democratic or any administration be forced to cut entitlements and defense in order to pay the interest right at the end of the day right now as we sit here today.

We're spending 70% of near record receipts on entitlements we're spending another 30% of near record receipts on interest on a gross basis and we're spending another 25 30% on defense and that's going to go up in a war and so we're spending summer between 120 and 130% of record receipts.

Just on entitlements interest in defense that doesn't include national parks education labor roads all the other thing the American government does.

And are we going to you know rates rise to six are we going to say well you know.

You know we're up 400 500 billion dollars in interest pro forma guys we need to cut 400 500 billion out of defense that's not going to happen an entitlements can't be cut politically so I just think it's a it's an emerging market problem in the reserve currency issue in the world which means it will also be referred out to the entire world more inflation less interest in bonds and.

You know it's it's it's a tough situation what do you really not like really like gold you talked about some things you don't like bonds what else you really not like coming out of the situation as it was.

I think relative expectations long bonds I think I mean I just yeah like why you know if you look at if you call up a chart of you know look at you know ZB the US long bond divided by gold.

You know from the first Iraq war from the Ukraine war you know bonds have collapsed in these wars against gold.

They've just been they've been terrible they've been certificates of confiscation and the only way we can make the math work and so if we're we're going to do this we apparently are.

Consensus thinks it's short I have a very very high conviction you know that's something else I really don't like I could short.

The conviction that this is going to be short I would short it all day long all day long.

And how do I express that best way to express that is short long bonds against gold how do you feel about US manufacturing are you seeing evidence of manufacturing being re short yeah.

Yeah I love it and we're seeing a cyclical uptick there when you see you know Chicago PMI when you see.

Flatbed rejection rates right which is kind of a technical term Craig I can't think it was last time I apologize Craig but he does really good work on that on on X.

He's a consultant in that business and but having covered of you know things like land star companies like land star in a former life I understand what that is which is.

A flatbed rejection rate is there's so much freight that the guys with a truck are rejecting tenders in other words they're busy and so you're seeing spiking rejection rates it means you're seeing a cyclical pickup now you always see a cyclical pickup this time of year typically for things like flatbeds because it's construction season picking up et cetera but.

But it looks really strong and we are trying to reassure and of course you know war is very good for manufacturing is offensive as that may be morally from an economic standpoint that tends to be the case so.

You know manufacturing is in very good shape I like manufacturing a lot and that's especially electrical equipment manufacturing like we were talking about before.

Okay look excellent thank you very much for your updates this is what we needed today what can we follow you.

You can find me at our website FFTT-LC.com for more information about both institutional and mass market products and on X at Luke Grohmann L.U.K.E.G.R.O. M.E.N.

And you have a book behind you Mr X interviews I do right there yeah Mr X the fictitious person so we can tell us about a little bit about that book and what we can expect to find there sure yeah I wrote that the two two versions of Mr X's Mr.

interviews with Mr X or Mr X interviews volumes one and two they are a fictional sovereign creditor of the United States the books are written in a Socratic method so question and answer with with me and him and I would say they are influenced by real people I've interacted with which makes it fun but the use of it is trying to talk through in a more narrative way.

The different pressures and puts and takes around different actions by the various players at the table U.S. China Russia major oil players Europe etc.

Okay good we'll put the link down below as well check out that book check out Luke's work thank you so much Luke.

Thanks thanks for watching don't forget to like and subscribe and don't forget to use my code Lynn L.I.N. when you sign up to Kowshi new users will get $10 when you trade $10.

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