We Study Billionaires - The Investor’s Podcast Network - TIP219: US & China - Stocks, Bonds, Currencies, & Commodities w/ Luke Gromen (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we bring back a guest by popular demand, Mr. Luke Groman. Luke is the founder of the research firm, Forest for the Trees, and it's a macro research firm that caters to institutional and private investors. In our previous conversation with Luke at the beginning of 2018, we talked about China and its interactions in the oil market. And on today's show, we pick up on some of those ideas and much, much more. We talk stocks, we talk bonds, we talk currencies and commodities.

Starting point is 00:00:30 So I think you're really going to enjoy this big picture conversation and it's all relevant to where the market is today. So without further delay, here's our chat with Luke Roman. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right. So welcome to the Investors podcast.

Starting point is 00:01:05 I'm your host, Prest, and Pish, and as always, I'm accompanied by my co-host. Stig Broderson. And today we are really excited to bring back Luke Roman, as you heard in the introduction. After our first interview with Luke, I just was thinking, when's the next time we can bring Luke back on and how fast can we do it? And so, Luke, I'm really excited to have you back here on the show with us. Thanks for having me back on. I'm excited to be back.

Starting point is 00:01:27 Luke, the first thing I want to ask you, because we were exchanging a couple comments on Twitter, that just kind of sparked. We just need to have a conversation here and stop the tweeting at each other and really kind of get into the crux of where the economy's at right now. And so my first question for you is, what's the narrative that you think the market is missing today? Because everyone's got their position, everyone's got their narrative that they're spreading. But what is the narrative that you're spreading? And what's the one that you think everyone in the market's missing? I think it's a terrific question. And I think by far the biggest narrative that people are missing

Starting point is 00:02:00 are really the implications of something that happened in late September, which was that the way that FX swaps are priced meant that FX hedged treasury yields went negative on a nominal basis. These FX hedge treasury yields went negative in late September. Basically, what that means is that if you are a foreign investor and you want to buy treasuries to pick up the spread difference that, you know, we know is at record wides or certainly 30, 35 year wides, transatlantic and etc. typically you will buy these on a hedged basis. So you'll sell local, you'll buy a treasury bond, and then you'll hedge out the currency risk with an FX swap. The problem is that late September,

Starting point is 00:02:48 the pricing of these swaps got to the point where you can no longer hedge in a positive carry and hedge out the FX risk. And quite frankly, it was a moment where I was talking about it with somebody, it felt like a punch in the gut in a manner that I hadn't really felt since probably October of 07 in terms of the importance of it. And I don't want to make too much of it, but I think it could be that big a deal. The United States needs to roll $7 to $8 trillion of treasuries over the next 12 months. The narrative on the $7 to $8 trillion roll is, well, the U.S. is going to run a $1.3 trillion deficit or whatever the number is. And yeah, that's going to put stress on the treasury market. And, you know, you've seen yields rise, you've seen bid to

Starting point is 00:03:28 covers fall a little bit, but we'll be able to cover that. And I agree with that. And the thing that people are missing is that no one is thinking about this $7 to $8 trillion roll because it's just taken as a given, it's going to get rolled. And I'm not saying it's not going to get rolled, but what this negative nominal yields on an FX hedge basis means that the insurers in Japan and pensions in Germany, all of a sudden, it's not an automatic decision. You know, before it was just buy the treasury, hedge the FX, roll it, no problem. And now it's, boy, do I lock in a negative nominal yield for the next three months, six months a year? Or do I go FX unhed, which, you know, we've heard some people doing. But again, that works unless we have a year like 2017 in the

Starting point is 00:04:14 dollar, in which case you lose four or five years a coupon and the move down in the dollar. Or do you just not roll the treasuries and buy local, you buy JGBs, or you buy, you know, boons? So, we're, whatever the case may be because in the local terms, the yield is actually better. That is a huge problem because basically it's almost like a setup in 0708 where we had these huge numbers and derivatives where it didn't matter because it was all notional until one guy went bankrupt and then notional started to become net. It's the same type of dynamic here where no one's worried about the $7 to $8 trillion roll because it'll just get rolled. And again, most of it will. But the real number we need to place this year isn't $1.3 trillion. It's $1.3 trillion plus some percentage

Starting point is 00:04:57 of the foreign-held portion of $7 to $8 trillion that doesn't get rolled. So that, to me, it's a terrible setup for risk. Basically, it sets up a market where, you know, I'm sure you've heard, you know, the beatings will continue until morale improves. It's, you know, the risk beatings will continue until the dollar gets weakened, basically. So, Luke, this is very fascinating. And you're throwing out some really big numbers there. You're talking about trillions of dollars.

Starting point is 00:05:21 Could you give some context to this here, also perhaps looking back in history, How much money I'm we talking about now and how much money have we talked about in the past? I've been talking about some of these fiscal issues for the U.S. for a while. And I had a friend of mine who's a grizzled veteran who was trading bonds in the 70s, right? And so he's been around a long time. And we've come to know each other. And he reached out to me, I don't know, probably about four months ago. He goes, hey, have you seen what treasury issuance is this year on a gross basis?

Starting point is 00:05:50 He said, well, take a guess how much it is? I said, I don't know. $3 trillion. He goes, you're not even close. I said how much it? He goes, it's $10 trillion. And I go, oh my God. He goes, he's like, I didn't believe it myself. I just started looking at Barron's. It was like, wow, 800. You know, they used to do a quarterly refundings and then, you know, the new issuance. He goes, and the quarterly refundings are now monthly refundings. And he says, so I started tolling them up. And consistently all year, 800 billion, 800 billion. So sure enough, I went and I looked at the Treasury Borrowing Advisory Committee report from the 3Q18. And so you had the three quarters of the year. And sure enough, there it was. The U.S. government had issued on a gross basis through three quarters, $7.1 trillion. Of that $7.1 trillion, 5.5 of it is under 12 months duration.

Starting point is 00:06:37 It's a story that's starting to get a little press, but it's still no one's really talking about it for what it is, which is the United States is in a situation where we are rolling. Central Bank stopped funding us on a net basis four years ago. So we moved from central banks to the private sector globally. So we're moving from a less finicky creditor who really doesn't, you know, they don't mark to market and they have an infinite balance sheet in theory to a somebody who does mark to market and does not have an infinite balance sheet. So a more finicky creditor at shorter and shorter durations. And so, you know, 70% of it in under 12 months, which means this problem is going to come, is basically a continuously rolling problem. Ironically, what this does is this will drive, this will drive the dollar and rates higher and higher until, left untouched, if authorities don't do anything, you're basically going to go back to September

Starting point is 00:07:28 08, except everyone stands aside and does nothing. Trade will break down, credit lines will break down. I'm not saying that's going to happen in the next month, next two months. That's the vortex that is now at work here. That is what a big deal this is. I was just recently reading Ray Dalio's new book, The Big Debt Crisis, and one of the key words that he says in his write-up about how credit cycles work is that once the credit cycle reaches its peak and it starts to go the other way, it is self-reinforcing is the exact phrase that he uses. And I think a lot of what you're describing is why he says it's self-reinforcing is because some of these things start compounding on themselves. And then as one company fails and the assets and the liabilities on that balance sheet

Starting point is 00:08:13 that was marked to market at a certain price, all of a sudden isn't marked the same. And that compounds and then you got the yields raising and all these things that happen during this kind of period where we're hitting a topping process. It's a process that we're going through. I guess my question for you is this, when you look at this process and you look at all the things that you were describing, how much longer can the Fed keep raising rates? Because typically, when you look back at all the other credit cycles that have happened, the Fed usually gets to a point where then they say, we're just going to hold Pat where we're at. We're going to stop raising the federal funds rate. The quantitative tightening, I would imagine they would stop doing that at the same time that they

Starting point is 00:08:56 would stop raising the federal funds rate. How much more time, and I know this is the million dollar question, heck, this is the billion dollar question. How much more time do you think that they have before they do this? I'm here in June. What are you hearing and what do you think is realistic? I would take the under on June. And I would probably take the under on June by three months. And the reason I say that is, you know, if you, if we would have had this show six weeks ago, I would probably say, yeah, June's probably the right number. We were seeing some signs of slowing, et cetera. I think October opened some eyes. And even, you know, that some of it is now spilled into November, you know, today notwithstanding, of course, but, you know, last week, we had

Starting point is 00:09:36 the worst week in eight months or what have you. I think there, you know, October was sort of an awakening of, oh my gosh, you know, this problem, right? Because you're starting to see inequities. You're starting to see it in credit spreads. This problem is just this vortex is so big. It's so fundamental. And it is so like you said, self-reinforcing is the perfect word for it. It's not going to be a linear deterioration. It is going to deteriorate non-linearly for exactly the reasons you were laying out. And so my expectation, and we took sort of a tackle more bullish position coming out of March and kind of held that through the end of August. And we were starting to see some weakening in the economy. And we thought we would see it. We were starting to see it. And so we wanted

Starting point is 00:10:17 to kind of stick with that process. Quite frankly, we were too early in terms of, you know, turning negative or negative again on the dollar and wanting to start to transition into some of the more beat down risk asset names. But ultimately, I think we're much closer than anybody thinks, simply because this vortex is so powerful, so big, so self-reinforcing. And some of it, the visibility is just so So, you know, when we're talking about, we're talking about what we've been saying to some of our customers, or to our customers and our reports has been the metric to watch on the Fed are not the traditional metrics, because this is not a traditional credit cycle. This is not, you know, we had a stock bubble.

Starting point is 00:10:53 We kicked upstairs, a banking and housing bubble. We kicked it upstairs to the sovereign level. The sovereign crisis, the risk metrics are not the same. We're looking at, you know, bid to covers and treasury auctions, which have gotten very weak, very quickly. And you just need one or two really bad ones. and the Fed's going to go, okay, that's enough because they're going to get a call, you know, the bat phone's going to ring in Treasury or at the White House and go, stop. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer.

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Starting point is 00:15:18 That's Shopify. All right, back to the show. So when I go back to before the financial crisis and whenever the Fed talked about holding the rate steady, I think the 10-year treasury went up to 5, 5.5% of the time. And then the Fed said, we're done. We're not going to raise any more rates. And just quickly after that, all asset classes just went down. But the story repeat itself if the Fed would come out and say something similar today?

Starting point is 00:15:50 I think both from a trade perspective, I think that makes sense. And I think from a bigger cycle perspective, it makes sense. You know, commodities are at 100-year lows relative to financial assets. And you're at levels now that you've only seen twice in the prior 48 years. And, you know, it was 1970 and 1999, after which we saw massive commodity outperformance in a relatively short period of time, like you were saying. You know, and it's easy to look back and say, well, I'll just get on late. But, you know, after commodities have doubled and then you go, I missed it and then they, you know, they doubled two more times in the next eight months or 12 or 14 months. That's the type of moves that you saw in those instances. And what really grabbed me about 1970, 1999, were that they were both periods of time that were tied to major changes in the U.S. dollars global role, right? So in 1970, you had, of course, Bretton Woods ended the next year. Nixon closed a gold window and, you know, that was a chaotic period of time, but commodities did extraordinarily well, both near and for the near term and for the ensuing, you know, intermediate term. And then 99, it's not remember about, but the euro was launched.

Starting point is 00:16:56 That created a real viable European competitor on the reserve currency basis. And it sort of created some dislocations. You know, the bottom line is particularly if I'm looking at, you know, a year out and it's money I want to hold, you know, a two year, two year money, I love commodities. The one risk to me, again, is that point that, you know, that we start. with, which is if there is a political element to what the Fed is doing. In other words, and we can talk about this later, that the Fed's effectively been weaponized in the trade war against China, etc. That's the risk to commodities that they are willing to really just keep doing what they're

Starting point is 00:17:33 doing. Bottom line, yeah, I like commodities here. All right, Luke, so let's look into commodities here. Which type of commodities are especially undervalued? I'm a better buyer here of energy and oil and those types of names. I think in particular, if you're feeling very bold that you think the dollars, you know, status could change or the dollar could be weakened, you know, if you would buy, you know, Russian energy companies, whether it's a gas prom or a Rossneft, where, you know, not only do you, in theory, get a higher price of oil, but you could pick up on the currency side as well, you know, if the ruble goes from whatever,

Starting point is 00:18:07 you know, 6570 to 5560, that to me would be a high, you know, a high beta way to play it. But yeah, I think I'm a better buyer of oil here. I mean, you saw the Dallas Fed today, surprised on the downside. If you look at the setup for energy, back in 1415, when we saw the sharp drop in the price of oil, the biggest field in the U.S. was the Permian. It's bigger now as a percentage of total. And the decline rates then were one third of what they are now. So you shut the Permian down. You're going to, you know, right now the decline rate in the permion is about a quarter million barrels a day per month. So pretty much if you get oil down another 10 or 12 bucks from here, you're going to have to start shutting in production. And with those kind of

Starting point is 00:18:47 decline rates, you're pretty much putting a top in U.S. oil production probably for at least another two, three years and maybe, you know, for longer than that. And I think strategically, that's not something Washington wants. And my guess is those kind of conversations are probably happening. Interesting. All right. Last commodity question for you. I'm curious, your thoughts on gold. Still like gold, you know, physical flows, though, are still moving from west to east. I still think China is using gold to gain the ability to print yuan for oil. And it's working. You know, you look to the yuan oil contract in December.

Starting point is 00:19:23 The first settlement month was September. The minimis amount settled, I want to say six, five, six hundred thousand barrels. It's a bit awkward to settle, but it is settling physically. Front month open interest volume in their first four or five months, they did as much share of the world based on front month volume as the Brent contract did it took the Brent contract 20 years to do the same amount and so it's been more successful than people thought that was a low bar but looking forward December's open interest as of last week on the Yuan oil contract was 42 million barrels it's a real number I think the usage of gold to gain the ability to print yuan for oil is working

Starting point is 00:20:03 ultimately the reason I like gold as much as I do is the fix to everything regardless of when we get to that fix, you know, hopefully it's not after a catastrophe, but the world needs to move towards a neutral settlement asset. And, you know, gold could fulfill that role entirely or in part, but if it's any part of the solution, you know, it can't happen with gold prices priced anywhere near here. They will have to probably be multiples of what they are now. They're probably not probably not going to happen until there's a political decision somewhere. So, you know, we've been saying gold is the credit default swap of this cycle is that's, I really think is, you know, it's going to go up an awful lot in a short period of time when it's more.

Starting point is 00:20:39 fully moved back into the system. Interestingly, more people are noticing global central banks are buying gold. Just last month, the Hungarian central bank increased gold holdings tenfold, now from one ton to ten tons, but they said something really interesting, which was part of the reason we're doing this is hedging against changes in the global currency system. When you look back over the last five years, global central banks on net have bought, they've sold about $30 billion worth of treasury bonds, and they have bought about $130 billion worth of physical gold. The way out of this is a change in the structure of the dollar's reserve status. And somebody, you know, I thought made a very astute observation. It's already been changing. Like global central banks are reserving gold

Starting point is 00:21:18 and not treasuries. And it's being led by Eurasia, whether that's, you know, the Germans or the Dutch or the Austrians repatriating gold, the French auditing gold. You've got, of course, Russia buying lots and lots of gold. We talked about Hungary, Kazakhstan, out to China. India, of course, you know, just bought, their central bank just bought gold for the first time in a decade. So you're looking at this Eurasian currency block where gold is being reserved in lieu of treasuries. And, you know, it started off with being one or two rogue nations. And now it's sort of the rogue world island is buying gold instead of treasuries. And so to me, I'm watching what the central banks are doing, the physical flows are doing and understanding the structure of the gold

Starting point is 00:21:56 market, paper leverage keeps rising and rising. And so I understand like what we're watching is basically a modern day London gold pool where physical is moving, something's happening. You know, the U.S. is quickly heading towards a fiscal problem like it was in the late 60s, and none of that mattered until it mattered. And then when it mattered, gold outperformed everything for five to 10 years. And I think with a lot of that move happening very quickly. When you look at Jeff Gunlock's comments that he's saying, and for people who don't know, Jeff Gunlock's a really famous bond trader. He's also at a billionaire level of net worth. And one of the things that he keeps bringing up is that he thinks that the bond market should have much higher yields in it.

Starting point is 00:22:35 and it probably needs to sell off a lot more than where it's at right now. Based on your comments, what you just said there, I kind of get the impression that you have the same opinion. I do. And I think bond yields will continue backing up until they create a problem for fiscal solvency for sovereigns. Sovereigns can't go broke. But what ends up happening is they're going to have to do some version of the Bank of Japan,

Starting point is 00:22:58 where the way I think this cycle goes is, you know, when we talk about that vortex that we let off with, yields are going to go up, dollars are going to go up. dollar's going to go up up and up and up. And at some point, I don't know if it is 3.5% in the 10 year or if it's 4 or 4 or 5 or 5. I don't think it's that high. But whatever that number is, something really big is going to break. And it's interesting if the Fed backs off, my guess is the long end of the curve actually takes off at that point. Because that will be everyone in their mother's going to know, oh my God, they're done. I've got to get out of treasuries and into, you know, I've got to get out of long dated paper. And but at that point, you're actually, you know, going to that's the policy rate for the U.S. So actually the Fed's stopping will put more pressure on housing, for example. The out for them, I think, is going to be what the BOJ has done. And, you know, I think it was something that touched off this conversation with you and me, which is what the United States did, the last time global central banks were not funding, we're not buying treasuries on net. And the debt was doing what it's doing. Deficit was doing what was doing was during World War II.

Starting point is 00:24:00 And the Fed came out and said, we will buy every 10-year treasury you offer at two and a and a half percent, no questions asked. And from 1942 to 1951, 10-year treasury holders clipped a two and a half percent coupon and didn't lose a dime. And in fact, they probably made some money from where it had been bid up to to get to that two and a half yield. Now, that's all Namo, because if you look against the S&P 500, it lost 85 percent. If you look against CPI, it lost 75 percent. And I think some element of that, I mean, that's, we're just describing financial repression writ large or with extreme prejudice. I think some level of that has happened. But it has not been that explicit where you basically have the central bank doing what Japan did, which is we are letting go of control of the volume of money, of the size of our balance sheet in order to control the price of money or the interest rate.

Starting point is 00:24:47 And I think that's where we go by the end of this cycle. And I think, you know, that is, you know, if I'm right, I believe Jeff Gunk has had positive things to say about gold. My guess is that's probably part of what he's seeing is, all right, you know, I don't know when that's going to happen because to know when that's going to happen. and I got to know what the magic number is in the 10 year or the 30 year that makes something important go boom. If you look at, you know, what's happening, you know, there are a lot of things now that are a little bit reminiscent of the late 90s, right? You've got emerging markets have sold off. You've had a tech bubble that's maybe starting to deflate to some degree. It's been led by sort of a nifty 50.

Starting point is 00:25:22 But there's some things that are very different. Back then, we were running surpluses as a country. Our debt was much lower. We were much younger. In 98, I bought my wife's wedding or engagement ring, a very nice wing for dirt cheap. because the Russians were flooding the world market with diamonds to get hard currency, to get dollars. So basically, they were dumping commodities to get dollars. They sold their official gold to get dollars.

Starting point is 00:25:44 This time, they are dumping dollars and buying gold. There was just an article two weeks ago in a defense magazine, actually, noting that starting in August through the end of the year, China, which supplies 80% of the world's rare earths, is starting to cut production of rare earths, whittle them down such that basically they're going to stop exporting them. Now, for a country that if you talk to pretty, you know, if you had, you know, a hundred other guys on the show, probably 95 to 99 of them would tell you there's this dollar shortage, which I agree with, and that China is in dire trouble. And I think China's economy is slowing notably. That said, when you're in a dollar shortage and you're feeling desperate, you don't buy gold. You don't cut production of exports of rare

Starting point is 00:26:30 earths that you would be selling in dollars. You would be doing the exact opposite. So there's some, there's some behaviors by people who are in theory and by the sort of old roadmap, if you will, that worked for the last 40 years that are doing not just something a little different. They are doing the 180 degree different thing. And that goes up to and including my central bank point from earlier, which is they haven't bought a single treasury on net in five years. And they're buying gold and they're repatriating gold. Let's take a quick break and hear from today's sponsors. No, it's not your imagination.

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Starting point is 00:30:20 All right, back to the show. So let's shift gears here and talk about this trade war we have between the U.S. and China that's been going on for quite some time. How do you see the trade war right now and who has the upper hand? It's going to get worse before it gets worse. And the reason I think that is because it's a matter of Chinese national security. to gain the ability to price commodities in yuan. It's a matter of U.S. national security to not let China gain the ability to price commodities in Yuan.

Starting point is 00:30:55 And so if China succeeds in doing this in a meaningful way, you know, it's fascinating. Everyone's focused on China's balance of payments and what that could mean for the yuan. A number I saw a couple weeks ago, I think it's a critically important number, it was from the IIF. they estimated China's non-commodity goods trade surplus at $700 billion. If they can print yuan for commodities, they're not going to have a balance of payments problem anytime soon. If they can grow that number, they're going to give themselves. And quite frankly, this drop in oil helps them tremendously.

Starting point is 00:31:28 Their oil is not all priced in yuan. It's probably not even half-priced yuan yet. So they still need dollars for it. So now they need fewer dollars for it. So that's if they gain the ability to price yuan or commodity, these in yuan and print you on for what they need. They're not going to have a balance of payments problem. They're going to be running a $700 billion good surplus, their service deficit because a tourism will net against that, but they're going to be in good shape. In contrast, the U.S.

Starting point is 00:31:50 will have a huge problem because suddenly, multi-currency oil pricing means you don't need to hold dollar reserves. And quite frankly, if you look at what global actors are doing, I think in the near term, I think China is probably taking the worst of it. Let's play devil's advocate. Let's say that, you know, China understands this. They need a little bit of time to stand that up in order to grow that market to then be able to control their destiny by putting a global currency on the stage or at least trying to get to something that's at parity with the U.S. So why not just do some deal to appease the U.S. to kind of bridge that gap as they're

Starting point is 00:32:26 trying to stand all that up? I think they're probably trying to do that. But I think ultimately this is a little bit like, you know, trying to be half pregnant. Like you're either pregnant or you're not. There's either going to be a monopoly for the dollar in commodities or there's not. And so I think ultimately it really comes down to one or the other of these countries is going to have a balance of payments problem soon depending on how the other gets their way. I suspect some of what the U.S. is trying to do is say, all right, well, let's just mess up

Starting point is 00:32:59 the global training system with tariffs and they'll break first. And I don't necessarily get it's a terrible strategy. I think there are some elements of that that make a lot of sense because I think the Chinese strategy has been just stopped buying treasuries and the combination of rising deficits and rising interest rates will do what no military could ever do to the U.S. And this is something that Chairman of the Joint Chiefs of Staff for the United States said, you know, seven or eight years ago, I Admiral Michael Mullen, he said, we are borrowing money from China to build weapons to face down China.

Starting point is 00:33:31 Now, this is not sustainable. It's that our biggest threat is not ISIS. It's not weapons of mass destruction. It's not climate change. It's our own federal debt because it's not too far from now. It's going to start removing our ability to do things. And so this year, you saw interest expense surpassed the defense budget for the first time in a very, very long time. And so China's strategy, you know, they, hey, let's just play short game or a long game.

Starting point is 00:33:55 We don't have to be bad guys. We just don't have to buy treasuries. We will trade treasury or dollars for commodities all around the world, re-denominate them. However, that said, China has recently moved towards a current account deficit. And so that, too, has instituted an element of urgency for China. To me, I look back to something that I think the history books are going to look back on probably pretty unfavorably was the U.S.'s move to use the Swiss system against Iran back in 2012. You could make the case, you know, hey, 2008, you know, the U.S. really cemented the dollars reserve status after we went off the gold standard is by what Volker did, right? Volker came in. He just said, listen, we're raising rates. We're going to stamp out inflation.

Starting point is 00:34:35 That really, you know, stamp out inflation was just code for stop and insipient dollar hyperinflation. We are going to manage the dollar for the good of the world and to the detriment of the domestic U.S. economy. And by doing that, he put us in the catbird seat for 35 years. 2008 happened. You can make the case okay. It was out of nowhere. We were really at the center of that crisis as opposed to the periphery as we'd been in the past. but I think most people in the world can understand, hey, this stuff happens. I think some people didn't like the way we handled that where, you know, historically, if this happened in other places, the IMF would come in, austerity, break up, you know, monopolies, reform political party, et cetera, et cetera.

Starting point is 00:35:11 We didn't do those things. Okay, whatever, you're the Americans. We get it. 2012, we come in and we cut off Iran from the Swift system. We hyperinflate their economy, essentially overnight. We're starving them, basically. I think what we did with Swift, open people's, eyes elsewhere in the world, you know, potential adversaries like China, like Russia,

Starting point is 00:35:32 to, oh my gosh, they've already got the best military. We know what they could do there, but they wouldn't even need to use it. They can use the Swift system and the dollar to choke us off in a week. That's why I say, I think ultimately we look back. I think that was a very pennywise, pound foolish strategy. That, I think, really started this, you know, less than, well, less than 18 months later, China came out and said it's no longer in our interest to stockpile treasuries and you've basically seen central banks stop buying treasuries ever since. And so things are coming to a head pretty quickly because of because China's current account says a deficit or close to a deficit for the first time in 20 years means they've got it, you know,

Starting point is 00:36:10 they've got to get that import bill down. So we've got to get more price than yuan. And our fiscal situation is quickly getting uglier by the minute. So we need to basically get people to buy dollars in treasuries as much as we can. So continuing here on the more. negative news. You've seen the big tech stocks out there, you know, the Amazon, Google, Apple, Facebook, you name it. They're all taking a serious beating these days. And a lot of that has to do with the way that the public is starting to react against them using the data that they have about us. And first it was Facebook. Recently, it has been Google also. I'm curious to hear how do you see the future of these big tech stocks? I'm almost of two minds on them, right? So to the positive

Starting point is 00:36:57 side of it, if you said, Luke, I want you to buy me a portfolio of names that is a reasonable proxy for owning the CIA and the U.S. quote unquote deep state in a public manner, I would buy you Facebook, I would buy you Google, I would buy you Amazon, right? And I don't say that necessarily derogatory or conspiratorial way. I just think it sort of is what it is. I think they're doing fascinating work. I have no doubt they're partnering with people like DARPA and things like that in terms of AI. I mean, these guys, you know, Google in particular, I suspect, are going to be, you know, at the forefront of AI and some of these types of things that we're going to need to develop as a country to compete globally. And so I really like those names. From that perspective, the flip side is

Starting point is 00:37:45 the current setup does remind me a bit of 99. a bit, right, where you've got sort of this nifty 50. It's a new economy. We're not going to need commodities anymore because we're going to have all this digital. And that's the, you know, information is the new oil. Data is the new oil. At the meantime, you can't sort of give away the commodity names or emerging markets. And you have a potential, you know, systemic catalyst. You know, in 1970, it was the Bretton Woods. In 99, it was euro. Now you've got this yuan oil contract where I think is a very potential huge systemic currency system shifts. So I look at it and say, all right, well, particularly the more expensive names in the fang still, you know, if we get a weaker

Starting point is 00:38:20 dollar or a systemic change, I think there's going to be easier places to make money, particularly, you know, like we talked about before. And then if we don't get change, if we, if we don't get a change to the dollar-centric system, that vortex is going to pull everything down. As long as that vortex is running, you're going to want to own cash and maybe some gold and sort of like nothing else. I wanted to tell you, I just read this book, AI Superpowers. It's the subtitle was China, Silicon Valley in the New World Order. This is by Kai Fu Lee. This was exceptional. One of the things that he talks about in this book is he's one of these guys who thinks that the companies that have a big leading start on AI are going to be very, very difficult to uproot as time continues to march on,

Starting point is 00:39:06 simply because all the network effects that basically compound the AI algorithms that they're using and that they're using all that data for, it's going to be very hard to uproot that. So I find that interesting because in your narrative there that you were saying, you kind of feel like maybe these companies aren't something you want to throw away, but maybe you might want to look at a better market timing or credit cycle timing in order to maybe enter the position. Is that how am I describing that correctly? I would rather own Amazon and Google within that. And throw Apple in there too. probably go Google 1, Amazon, two, Apple 3, or maybe Apple Amazon.

Starting point is 00:39:47 But to your point, if you're a leader in AI now, I'm probably never going to catch you just by virtue of the nature of that business. All right. Well, Luke, if people want to learn more about you, where can they find you? I know you got an active Twitter account. Give people a hand off to your website and other things. Absolutely.

Starting point is 00:40:06 So very active on Twitter. At Luke Gromman, go to our website, which is FFTT, Frank Frank Tom Tom, which is Forced for the Trees. FFTT-LLC.com. A couple different prizes. We have institutional product. We have a new product called Tree Rings, which is sort of a top 10 list. I used to do a tight relationships in the business and industry.

Starting point is 00:40:26 I would have articles that I thought were interesting over the course of a week, and I would send that to this sort of small group of people every week. And at any rate, earlier this year, also have a book actually coming out, hopefully soon, not hopefully, it will be coming out soon. If you go on our website, there's a free report. called an interview with Mr. X, which is a fictional foreign creditor of the United States. And it gave us, it's an interview conducted in Socratic Method, and it kind of helps talk through a number of different issues.

Starting point is 00:40:53 It was a report we issued. At any rate, it was so popular with our customers, we decided to do a whole book, a series of interviews. And so volume one of the Mr. X interviews is coming out soon. And so there'll be more information about that on our website as well. So, but yeah, check out FFTT-LLC.com, you know, for either tree rings, our tree rings product, which top 10 most interesting things list, or the book coming out, information about the book coming out soon. That sounds amazing, Luke. And thank you so much for coming here on The Investors podcast. We'll definitely link to all the resources you just mentioned in our show notes.

Starting point is 00:41:28 Absolutely. Thanks for having me on again. It was great catching up, as always. All right, guys. That was all the Preston and I had for this week's episode of The Investors podcast. We'll see each other again next week. Thanks for listening to TIP. To access the show notes, courses or forums, go to The Investorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only.

Starting point is 00:41:57 Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting. I don't know.

We Study Billionaires - The Investor’s Podcast Network - TIP219: US & China - Stocks, Bonds, Currencies, & Commodities w/ Luke Gromen (Business Podcast)

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