We Study Billionaires - The Investor’s Podcast Network - TIP279: Stock Market Melt-up w/ Luke Gromen (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we bring back a fan favorite and macro expert, Mr. Luke Groman. Luke talks about all the crazy things happening in the financial markets, and most importantly, he talks about the aggressive buying and bidding of the stock market that's currently happening at the start of 2020. Luke is the founder of the Forest for the Tree's macrothematic research firm, and as you'll quickly see from our discussion, he's a total force of knowledge when it comes to understanding complex topics and making them accessible to the masses. So without further delay, here's our

Starting point is 00:00:33 conversation 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. Hey, everyone. Welcome to The Investors podcast. I'm your host, Press and Pish, as always, I'm accompanied by my co-host, Stig Broderson. And, man, I'm always so excited to bring Luke Roman back on the show. Luke, welcome back. Thanks for having me back on.

Starting point is 00:01:11 Always a pleasure to be here. So, Luke, we've chatted two times on the show since the summer, the beginning of the summer of 2019. Back at the start of the summer, which was about, you know, seven, eight months ago, you warned our listeners about the concern of the spread inversion on the excess reserves compared to the federal funds rate. Then this fall, you came back. on the show, which was a very valid concern. I'm just going to throw that out there. So then you

Starting point is 00:01:41 came back on the show in the fall time frame, and you talked about this repo blowout. So I'm kind of curious, what's on your radar today at the start of 2020? And maybe it's just those same concerns, but at a larger magnitude, or is there something else that's evolving at this point that you think is an extremely important macro theme and idea? I think the thing I'm probably most focused on at this point is trying to get a sense for, I guess maybe two things, right? So the first is watching for Fed responses to all of this. And then secondarily, and maybe more importantly, the recognition amongst,

Starting point is 00:02:27 when are we going to hit a quorum of investors who realize what the Fed's doing, which is effectively financing U.S. deficits through the banking system, which is effectively what began in September of last year. When you compare the Fed's balance sheet growths in September to the United States federal debt growth since September, they are remarkably close to being the same number. And so, you know, it's this dynamic of understanding, okay, the Fed has effectively been forced into, you know, what we called when we talked last, you know, and control over the quantity of money or the size of their balance sheet in order to control the price of money, which was repo rates. And basically, there's no limit on what they can do

Starting point is 00:03:14 there. Their balance sheet is theoretically infinite. But it's a question of when do more investors start to realize that this can't really stop without very severe consequences until either the dollar falls sharply or unless global central banks start buying a lot more treasuries again, or the Fed slashes spending or excuse me, the federal government slashes spending in an election year, which is probably highly unlikely. So I'm really trying to focus on that. You hear a lot of people saying in our space that countries can make the balance sheet grow because they are countries.

Starting point is 00:03:49 So it's not like you and me. If we go down to the bank, we can't borrow indefinitely. What are your thoughts on how big these balance sheets can grow and what is the relationship to the interest rates? So, John Hussman did some really great work about nine years ago, where he looked at, it was effectively the amount of base money per unit of GDP in the US economy. And it was basically the economy's willingness to absorb base money or for lack of a better word, Fed money printing, right?

Starting point is 00:04:23 If they're going to grow their balance sheet, that's base money. And his point was that there's a very concrete relationship, very solid relationship between interest rates and the amount of base money per unit of GDP the economy is willing to absorb. And basically, the relationship is the lower rates are the more base money per unit of GDP and vice versa. And so back in 2011, when he wrote this, his point was that for the Fed to raise rates, without it touching off a severe bout of inflation, they were going to need to shrink their balance sheet. They were basically going to have to shrink the balance sheet and then they could raise rates. And of course, that's what they did. And that worked for a while. Obviously,

Starting point is 00:05:04 we ran into issues with that. All of that, I say by way of background of the Fed is now growing their balance sheet at a rapid rate and rates are well above zero. And what's interesting is when Husman wrote that in 2011, global central banks were still buying large amounts of treasuries, even China. And so one of the things we've highlighted in our work is that when you look at once China and Global Central Banks in total stop buying U.S. Treasuries in 3Q14, the U.S. went through a series of steps that basically were used as stop gaps to help fund deficits. And the first was, you know, HQLA bank reforms. The bank started buying more treasuries.

Starting point is 00:05:45 And the second of those was arguably money market fund reform, where money market funds were regulated into buying more treasuries. And they did. They bought between treasuries and agencies from 2015 to late 2016. They bought, if I'm quoting the number right, about a trillion three in treasuries and agencies. So that was basically a trillion three in QE that the Fed didn't have to call QE because it was money market funds supplying that liquidity, crowding out other dollar borrowers around the world. We sell LIBOR rising very rapidly in that time frame as a symptom of that. The point is that I think people may be looking at, you know, they may be fighting the last war in that they think they need rates to go to

Starting point is 00:06:27 zero before they really start growing the balance sheet. And this time they've taken rates to one and a half, but they're growing the balance sheet really rapidly. Husman has said that that should be inflationary, very inflationary on a lag. And the relationship there is, is very solid that he lays out. And he's always great with the data. And the last part of that is, is I'm not sure the Fed can cut rates to zero this time or close to it because remember, they used money market funds as a stop gap. And so if you take rates to zero, money's going to flow out of money market funds. They'll have to sell treasuries. And oh, by the way, money market funds are supplying liquidity into repo. And so cutting rates to zero to try to address a liquidity problem through repo may

Starting point is 00:07:08 actually make the problem worse. And so what it suggests to me to answer your original question, which is, you know, is it just take the rates to zero and we get inflation? I think we may actually get the inflation that a lot of people, myself included once upon a time, thought we would have gotten from 2008 to 2013. I think this balance sheet growth with rates well above zero, we may actually start to see it show up in another, you know, three to six to nine months. And that may be a big surprise as we move through this year. But that is probably a longer winded answer than maybe you were looking for, but that's why I mean why it's very, there's a number of different moving parts associated with that question.

Starting point is 00:07:48 So that's really fascinating that you say that because one of the things that I think some folks are starting to see labor rates are creeping up and it's getting much more expensive for businesses to operate and function with that expense. So are we already starting to see some of those signs that you're suggesting might get amplified here in the months ahead? We might be. We might be. I mean, there was a headline towards the end of last year, it was year over year-over-year non-supervisorial wage rates, year-over-year growth was above the mortgage rate in the United States for the first time since I think 1972, which I thought was fascinating, right? Because now you're talking about mortgages

Starting point is 00:08:28 being effectively a negative, a negative real rate instrument. You know, is that a one-off, is that not? But to me, I think these are the types of things anecdotally, I think, will start to see over the coming months. And that's only going to put them more in a box because they're already in a box. They can't raise rates. They probably can't lower rates because, you know, they use money market funds to sort of help paper over deficits five years ago. So, you know, they can grow the balance sheet, but then you're going to get inflation. They're sort of stock. You know, we've seen numerous times since at least 2014 and maybe earlier that, you know, the 10-year yield over three, three and a quarter, the U.S. economy does

Starting point is 00:09:07 doesn't really work with that kind of a rate. That's really the U.S. policy rate, you know, the real for the real economy, right, when you look at mortgages and what have you. And we've seen it over, you know, several times. Ten year gets to three, three and a quarter and the U.S. economy really slows down. And so you can see where I think this is all going is, yeah, I think we're going to see a pickup in inflation. And I think it'll catch them by surprise. And I think the bond market will start to sniff it out. And then, you know, I think I would direct people back to Ben Bernanke's speech of, you know, the famous deflation speech from November of two, making sure it doesn't happen here. And, you know, he cites specifically the example of World War

Starting point is 00:09:43 2 where he said, listen, the Fed bought 90% of short-term issuance and we pin the three-month at three-eighth of a percent. And the middle of the curve, we pinned at seven-eighths of a percent. Ten year, we pinned at two and a half percent. And so you had a positively sloping yield curve. So banks can make money at that. You know, if you went down a little further from here, bondholders would nominally make some money. But, you know, you're talking about what's based a Frankenstein yield curve. I mean, it is not being set by the market at any point along that curve. And, you know, the S&P rose 5x from 1942 to 1951. And so, you know, if you were putting your money in treasuries, you know, you were, you didn't lose anything anomaly, but you fell

Starting point is 00:10:25 behind both inflation, but and you fell way behind equities. Now, with that said, World War, there's nothing more inflationary than World War. So when you're pinning negative, I'm not saying the market would necessarily need to rise 5x, but where I think this is going is, the Fed's going to be forced to turn the yield curve into a Frankenstein yield curve like it did during World War II in some way, shape, or form. It's very fascinating how you see this. So, look, you have this quote, many market participants are beginning to realize the Fed is involved with financing U.S. deficits, but most don't yet realize that the Fed is actually

Starting point is 00:11:00 committed to finance U.S. deficits. So please explain what you mean by that to our listeners. Sure. So we wrote a report about a month ago, and there's a famous saying, or maybe it's pseudo famous, but it's the chicken is involved with breakfast, but the pig is committed. And so, you know, there's starting to be a dawning recognition that the Fed is involved with financing deficits in some way through the banking system. And there have been a number of, you know, very astute analysts highlighting this. But I don't think there is a realization yet, the degree to which they're committed to this. So basically, unless you either get central banks coming back and buying very large amounts of treasuries, which seems very unlikely, you know, if not, even if we set aside geopolitical things that are going on, when you look at that China's trade surplus shrinking, global trade surplus is basically across the world shrinking, maybe with the exception of Germany, maybe. There's not the firepower. They aren't generating the surpluses nowhere near needed in sizes, sizes nowhere near needed to,

Starting point is 00:12:05 to recycle into treasuries. And so unless global central banks start buying again, or unless, you know, the FX hedging costs fall, which would probably require a weaker dollar as more dollar liquidity is supplied or balance sheet is supplied. Then the foreign private sector is, is not going to be able to buy treasuries in the size they had been historically. And then you're left with, okay, is the federal government going to cut treasury supplies? Are we going to cut spending in an election year on what amounts to entitlements, defense or interest expense are sort of the big three that we're spending money on. And I don't think that's going to happen. And so I don't think people realize that sort of, you know, unless you have central banks joining that growing their

Starting point is 00:12:47 balance sheet significantly again, the dollar weakening significantly or the U.S. government slashing spending significantly, the degree to which the Fed is really committed to basically growing their balance sheet on what they call less fallen organic basis. But it's, I think you're going to see them growing their balance sheet, you know, pretty close to the Fed. a dollar for dollar with the size of U.S. debt growth. So how long can that last? Because, I mean, everyone in the market, as far as I'm concerned, understands that. Any person who's managing a large tranche of bonds, they get it. I mean, we see these conversations on Twitter as if they're just a fact. It's not even debatable, right?

Starting point is 00:13:25 But it doesn't seem like you're seeing the dollar losing value relative to the other currencies in any kind of major way or like it's very obvious that that sell-off has occurred. Why now, is it now, what's your thoughts on the timing of some of that? That's a great question. I think some of it is tied into and speaks to, you know, the dynamic of this dollar shortage that exists when you look at that you hear talked about so much in terms of the dollar denominated debt that's outstanding. when you talk about a slowing economy, that when you talk about, you know, Euro dollar markets,

Starting point is 00:14:04 all these things. So there's, it's not as if there's just the Fed doing, you know, what they're doing with one hand, what you're really looking at are, you know, this other hand, which is a dollar shortage pushing the dollar up. And so I would say you have sort of two tectonic forces pushing against each other to a relative standstill at this point. And, you know, at some point, you'll get slippage one way or another. And, you know, you'll get, in my opinion, In our view is that you'll get slippage to, you know, stronger dollar if the Fed backs off too much and, you know, sort of stronger dollar risk off higher short-term rates in the United States.

Starting point is 00:14:38 And, you know, to the other side, I think is the slippage will be caused by, you know, weaker dollar slippage would be caused by, I think, a greater recognition just how long they're on the hook for this, that basically this is going to continue until the dollar is weaker. So keeping that in mind, would you say that? the expectation is that there will be a lot more fiscal spending. So basically, the government spending money on public institutions, would that result in a weaker dollar? It's a great question. I think it's going to have to be just sort of realization. And some of it

Starting point is 00:15:12 could even be a recession, which would throw people for a loop because historically recessions are dollar positive, right? People scramble for safety, dollar rallies. You know, in this case, you'd be looking at issuance rising non-linearly, and the Fed would basically have to sort of take all of that down. And so, you know, the sense I get is there's still a strong belief that, you know, we get to the end of March and, you know, what, we're not going to, they're not going to have to continue this. I mean, I've seen people definitely saying, okay, this is going to have to spread from the bill market to the coupon market. I just don't get the sense of people fully believe that this is going to last. you know, basically, you know, for a long time to come. Now, the question is, is, you know, it's a recurrenties or a relative game. And, you know, what's happening in Europe, what's

Starting point is 00:16:00 happening in China, what's happening with the trade deal, you know, all of these things. I mean, you know, I think I saw an interview of Kirozokov and, you know, when they asked him, he said, well, that's why gold's easy because, you know what, you don't have to, you know, you can tell they're all going down and, you know, fiat currencies are all devaluing and varying rates against each other, but they're all going to have to fall against gold. And I think that that might be the most eloquent way of putting it. 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. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every

Starting point is 00:16:39 conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Free Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures.

Starting point is 00:17:12 These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policy makers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can. attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with the speakers. The Oslo

Starting point is 00:17:59 Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence.

Starting point is 00:18:45 And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at Netsuite.com slash study. The guide is free to you at netsuite.com slash study. NetSuite.com slash study.

Starting point is 00:19:17 When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world, and 10% of all e-commerce in the U.S., from brands just getting started to household names.

Starting point is 00:19:47 It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing sign up for your $1 per month trial today at Shopify.com slash WSB.

Starting point is 00:20:24 Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. So would you, the way I would describe it, I'm kind of curious if you like, this analogy is you have, let's just call it the yen, you have the euro, you have these major currencies, these massive in size currencies that have literally a bond market yielding nothing. And so then they're applying the pressure almost like a pig pile on top of the dollar.

Starting point is 00:20:58 And now you're starting to see just the blood squirt out of the nose, call it the repo market here in the U.S., of being on the bottom of everybody chasing that yield in the U.S. because that's the only place that they can capture it. So you're saying that you're talking to people that are saying that this repo is just going to start solving. It's just going to go away in a couple months. I mean, if anything, it seems like it's accelerating. Yeah, the thing I think, you know, it's almost like if you ask a fish to describe

Starting point is 00:21:28 his environment, the last thing he would list would be the water. And, you know, to me, the thing that jumps out as I'm watching, because I think there's a greater realization, okay, the Fed is buying a lot of this. They're probably going to have to move to coupons. The thing that we refer to as Voldemort, right, the crisis that cannot be named from the Harry Potter series, the thing that I'm still seeing virtually nobody talk about is that the genesis of this is the U.S. fiscal side, that there's just too much treasury issuance that, you know, the U.S. issued 11.5 trillion gross last year in treasuries. 71% of that was issued at six months or less. And when you look at that,

Starting point is 00:22:07 issuance, the thing I think people are missing is that the United States government is issuing 71% of 11.5 trillion gross at six months or less at a time when the bid for duration is the strongest it's been in 5,000 years. And so you can only come to the one of two conclusions, which is, number one, U.S. Treasury doesn't know that the bid for duration is the strongest in 5,000 years. And that's strange credulity. We know that's not true. So the other option is the bid for U.S. duration is not nearly as strong as it needs to be for the U.S. to go out and term all this debt out. And so the reason they are pricing or placing and rolling $11.5 trillion gross with 71% of it six months or less is because, yeah, Austria can do a hundred-year bond and, you know, even Argentina can do a hundred-year bond.

Starting point is 00:22:57 But the United States is placing $40 billion every single trading day. And next year, it'll be $45 billion. And the year after that, it'll be closer to 50 billion, right? So there's this dynamic that is just the side. That's the elephant in the room that I think people are ignoring the data to, which is, why is the U.S. issuing so much at the short end when demand for duration is so good? And the answer is that demand for duration isn't sufficient. And so they're having to roll it at the short end more and more with, you know, there was a BIS report in early December saying that, you know, a lot of what was happening in repo had to

Starting point is 00:23:36 to do with hedge funds, buying, you know, treasuries on a leverage basis. So you think about that, you go, gosh, all right, we've gone from, you know, 3Q14, five years ago, global central banks were buying treasuries. And then they stopped and it was, you know, global private sector was buying treasuries. And that's still a very good creditor, right? You're talking about German and Japanese pension funds. Then, you know, FX hedge treasury yields went negative last year at the end of the third quarter and that forced more of the financing burden of the U.S. government onto the U.S. private sector. Three months after that, we saw Fed funds rates go over IEOER, three, six months after that, we saw repo spike. And that to me is this dynamic. And now you're seeing the BIS

Starting point is 00:24:20 say on the other repo spike was partially due to leverage hedge funds buying treasuries. And you go, all right, we've gone from financing at 10 and 30 years with global central banks who, you know, buy for political reasons, don't mark the market, have infinite balance sheets. And five years later, we're financing at the short term, under six months with leverage hedge funds. And like that's the trend to me that I think continues to be maybe the most important one, that you're not allowed to say that yet. And that is to me that realization of, okay, yes, when the bulge bracket start telling me the U.S. has a balance of payments problem and the Fed is going to have to finance it all until the dollar

Starting point is 00:25:00 falls, then if the dollar still doesn't fall at that point, then we're going to need to, you know, maybe revisit a bit, but I suspect gold will probably be a bit higher when that realization hits. Yeah, I just want people to know when you were here at the beginning of the summer of 2019, one of your only recommendations was gold. I don't know how much it's up since then, but it's done quite well. One of the ideas I want to talk to you about, so with this, all these repo operators, that have been happening that are just accelerating.

Starting point is 00:25:28 The primary lenders are gobbling up all the demand for this. And if it's oversubscribed, lo and behold, the Fed comes out and says, oh, well, we'll just offer you more tomorrow. Where I think the glue separates from what it's trying to hold on to here is when you look at the relationship between the primary lenders and the secondary lenders. because although the primary lenders are getting all they can take or all that they are demanding, that's not necessarily trickling down to where the rubber meets the road for the rest of the economy. And so are we seeing this adhesive slipping away from reality?

Starting point is 00:26:09 I think it's a fair characterization. I mean, I think if you look at the growth of treasury holdings on, you know, primary dealer balance sheets, you know, compare it to loan growth more broadly, you can see that, you know, loan growth to the U.S. government is pretty strong and loan growth to everybody else, not so much. And so that used to be called crowding out and it was never an issue for the U.S. It's an issue for the U.S. now. And some of that's Basel III, you know, regulation, you know, related. And that's probably something I should have listed before is, look, that's another way out of this. If the U.S. either exempts itself from Basel III regulations or somehow does implement some

Starting point is 00:26:48 sort of regulatory fix that, you know, gets them out of having to abide by these, then that too could be a fix. But yeah, when you look at how this is, is basically, you know, the amount of, you know, at some point mathematically, the, if the rest of the world basically stops buying treasuries, there is at some point where the marginal financing capacity within the U.S. economy to finance U.S. deficits, the marginal U.S. deficit, you run out of capacity. And when you then go back and say, okay, theoretically that should happen. That's just math. Where would it show up? You know, where would the release valve happen? And understanding that 11.5 trillion gross issuance, 71 percent, six months and under, the answer is, well, if there's a supply demand mismatch,

Starting point is 00:27:37 it's going to show up at the short end. And, you know, so when you see repo go from two to ten, that was a huge sign that basically is a supply demand mismatch. And when you look at the buyers of treasuries among the banking sector, it's been very unevenly distributed. So you've had, you know, JPMorgan City Group and Bank of America, you know, basically financing, you know, a quarter of the deficit last year effectively. That's just based on numbers as old tampos are highlighted in terms of how many treasuries they've taken down and dividing that by the total debt issue or total debt growth. So it's your point, I think, is right on that there's basically this mismatch between sort of where they're funneling the liquidity in and how it's getting through.

Starting point is 00:28:13 On that idea, Luke, could you please talk to us about the idea of inflation? What most people does whenever they talk about inflation is to look up the definition that is tied to a basket of consumer goods, like groceries, oil, corn, and so on. But if you look at how the average American are allocating his or her expenses, the big ones are medical, housing, education, which is different than the textbook examples. Now, if we turn to financial assets, we're seeing the price of assets and the correlation of the monetary policies is heavily correlated. And I guess you could argue the causality is quite clear there too, because all the money

Starting point is 00:28:56 that's being pumped out might not be reflected in the official inflation numbers. But one could still argue that it's driving up the unofficial inflation that is a gain for the owners of the financial assets, the halves, if you like, but it's still felt by the have-nots in inflation, whether it's recorded officially or not. But what are your thoughts on that and the idea of inflation? So I think, broadly speaking, I think inflation is undermeasured, and I think it's undermeasured on purpose for political reasons. And the reason I said is the United States government's the biggest debtor, particularly when you add up things with a cost of living, you know, attachment or adjustment to them, right? Social Security, et cetera.

Starting point is 00:29:39 So the United States has a very vested interest in understating inflation because the lower inflation is, the lower the interest rate they're going to have to pay to float all that. And we're now at a level where they can't float anything beyond a de minimis rate. And so basically what I think you're seeing is, is, you know, Warren Buffett, there was a great quote he gave in 2012 in his annual report where he said, look, back in the early 80s, treasury bonds are a great deal. But now bonds should come with a warning label. They can't possibly come close. to compensating you with coupon for the amount of monetary, you know, base growth that has to occur. And I think that's exactly right. And so the question is that, you know, A, yeah, I think that that's happening. I think they're wildly understating inflation. You know, B is, why is it happening? And, you know, the answer in my view is it's, you know, in service to the bond market. It's basically in deference to the bond market, broadly speaking, in the U.S. government bond market, specifically, You know, this in turn drives asset inflation because if you're understating inflation, then, you know, your revenues at corporate America look better. Your borrowing costs are low because the government

Starting point is 00:30:45 has to have low borrowing costs. And so what does corporate America do? They go, well, great, we're going to borrow a bunch of money at low rates, and we're going to buy back a bunch of stock. And of course, this is exactly what we've seen over the last, you know, 10 years. I saw a chart, I think it's a Deutsche Bank chart from Torsten Slok showing, you know, basically the only buyer equities over the last 10 years on net has been corporate America of buying back their own shares with borrowed money. And as a shareholder, it makes perfect sense. So it does. So I think what you're seeing is this dynamic where to this point, it is primarily showed up as asset price inflation. Something I've said in the past, I haven't said it recently. But I would say, you know,

Starting point is 00:31:25 when you look at the history books, you know, political populism has historically been driven by inflation, falling standards of living on a real basis. And so when you see power, Populism rising in Western social democracies all over the world, you know, to me, I think that is on some level marking to market of real inflation at the ballot box. People are just, and they're angry because they can say there's no inflation and they get their 2% wage increase, but the reality is is tuition's up nine and health care's up. I mean, my health care premiums when I started FFTT were 450 a month. And last for 2020, the initial quote I got was $1,200 a month, plus a $12,000 deductible, right?

Starting point is 00:32:04 I'm very blessed, but we had no change in health care status, knock on wood. You know, we're young and young family, healthy family, and they've just quadrupled, you know, for, tripled for no reason. So, you know, people are seeing the shrinkflation at the grocery store, you know, a pickup truck, you know, now costs $55,000. You know, they hedonically just that away because it got a softer ride and it's got a really nice screen inside and, and, and, and, and. So I think there's, you know, a number of different ways that they have played this game. But as with all, I don't want to call it a fraud, because it's too strong a word. But any time you sort of play this game where you just basically are,

Starting point is 00:32:40 you know, Robin Peter to pay Paul, sooner or later it catches up to you. And I think that's what we're seeing with political populism. I think that's what you're seeing with some of the frustration. I think, you know, it manifests in wealth discrepancy that we've seen, which are at record levels as well. So there's, you can sort of see it if you know what to look for. But if you don't know what to look for and just take it at face value, you can duration match and, you know, collect your 2%, but you're losing money on a real basis over time. You know, if you look over probably, I would say, five-year stretches, you're going to lose probably a fair amount of purchasing power. For anybody that follows you on Twitter, they probably have seen you say this

Starting point is 00:33:15 or they've seen you reference this. And what I'd like you to do is just explain it as simply as you possibly can, because I know this can get very complex. Here's the question. Explain So dollar shortage, there's, I would say there's two main ways that this occurs. The first is by straight borrowing in dollars. So if you're a foreign, if anybody borrows dollars, but in particular, if you're foreign and borrowed dollars, for whatever reason, you know, there was when the U.S. rates were at zero, it was cheap to borrow dollars. That is great, but you need to pay back dollars. and then if your currency falls against the dollar, as has generally happened since 2011 or 2014, the real value or the currency adjusted value of your debt obligations has risen relative to your

Starting point is 00:34:11 currency. And so there's this, that translational impact, but also just the need to have dollars to pay that back. You've borrowed a bunch of dollars. Now you've got to go earn them to pay that back. You're short the dollars. The other and arguably bigger dynamic is something Jeff Snyder talks a lot about. in the Eurodollar market where you are, you know, again, you're creating dollar loans with no base money to pay it back. And it's sort of something, you know, the bigger version of the same

Starting point is 00:34:37 problem, which is basically, you know, offshore dollar deposits, offshore dollar loans, and you need dollars to pay them back, but the only people that can create dollar base money is the Fed. And so that is ultimately the dollar shortage. And it leads to one of two conclusions, Either the Fed creates all the dollars needed or the global economy implodes. And that's sort of what Jeff talks about a lot and it's what we've seen, you know, the stagnation that we've been battling for a number of years. That's ultimately it. What you described there at the end, the fit is implicitly forced to print more.

Starting point is 00:35:15 Now, when you have that dynamic at play and you consider all the other central banks that are in a similar situation, many would argue that. that you would need to work back to sound money. And when I say sound money, it's money that's not prone to a sudden appreciation or depreciation in purchasing power over the long run. So, for instance, it could be something like Bretton Wood in 1944 that was built around money being packed to gold. Now, the game theory around that, and by game three, I mean that for you as a central banker, you don't just need to think about what you're doing. You also need to understand what other centrals of bankers depending on what you're doing, is the game

Starting point is 00:35:54 theory in place to revert or perhaps never revert to something like sound money? Great question. You know, when you talk about game theory, I think there's been a couple things going on. I think what this system has ultimately resulted in is basically, if you think about many people have criticized the onshore, offshore, China currency relationship and how much leverage the Chinese banking system has. Rightfully so. It's extraordinarily leveraged. That said, virtually nobody ever criticizes the leverage of the Eurodollar system, which is orders of magnitude larger than anything China could ever hope for in their best day. And it's infinitely levered because there's no base money reserves backing it. Basically, onshore dollar, offshore dollar system and the

Starting point is 00:36:40 offshore dollar system is infinitely levered. So with that in mind, when you talk about game theory, it appears by all indications of their actions, the Chinese figured this out a number of years ago and said, well, this is great. The dollar is massively overvalued because basically this Eurodollar system helped support the value of the dollar after we went off the gold standard, right? That's part of what support dollar hegemony. So the Chinese said, okay, great, you want to have dollar hegemony. You've got this offshore euro dollar system that's infinitely levered. And either the world is going to collapse if you don't print all the dollars, or you're going to print just an enormous number of dollars basically to cover that Eurodollar system. Either way, we're

Starting point is 00:37:23 going to borrow as many dollars as we can, and we're going to go buy ports and Greece and gold mines and oil fields and copper mines. And basically, you know, we're going to buy up the rare earth supply around the world. And we know, we're also going to finance one belt, one road. And a lot people say, well, China's not trying to de-dollarize. They're financing one-belt-one road in dollars. So, of course they are. They're borrowing in dollars in the Eurodial market low. They're adding a spread and then they're lending in dollars to these one-belt one-one-road countries as long as they don't default making a positive dollar spread, which makes it harder for them to run out of dollars. And in meantime, they're gaining political favor with these countries. It's actually

Starting point is 00:38:05 probably a wildly positive IRA project when you bring electricity to a village for the first time, the IRS have to be off the charts. And if they default, you end up with a port, or you end up with like an oil field or something, which is what China wants to do anyway, which is what they need anyway. So the game theory to me, I think China sort of caught on pretty quickly. I think Russia figured it out shortly thereafter. We've seen them dumping treasuries and buying gold in their FX reserves. And, you know, gold isn't priced with the right digit in front of it relative to this theory. And, you know, this is another market where, you know, in the same way the Euro dollar market sort of supported dollar hegemony. The LBMA levered as much as it's levered has helped

Starting point is 00:38:44 support dollar hegemony as well. And so, you know, Russia and other central banks have been saying, well, the price of gold is $1,200, okay, great, give us some more because they know the price isn't $1,200. They don't know what the price will eventually be it, but it's not $1,200. And furthermore on the game theory, I thought there was something really interesting, you know, Zero Hedge highlighted it, but it was a Dutch national bank piece where they noted in a presentation that, you know, if the system collapses, gold will be used to reset the system. And so to me, I thought that was an enormous clue that, yeah, the European banking system's got real issues. But at the end of the day, those are the Fed's issues. Like, they wanted, the U.S.

Starting point is 00:39:18 wanted the Eurodollar system and the dollar to be the reserve currency. And, you know, I guess in theory, if the European banking system tipped over, it'd be good for the dollar for like 48 hours. But, you know, that's immediately going to affect the global banking. There's only one banking system globally. It's a dollar-based system. And so the European banking system's problems are really the Fed's problems. So it all keeps coming back to the, this gun to the head of the Fed, you're going to print the money, you're not going to print the money. And I think when we talk about the dollar, you know, it ties back to your earlier question, which is I don't think people realize yet that the Fed's going to have to bail out the Euro

Starting point is 00:39:52 dollar system. They don't believe it. Nobody believes it. But that implies needing to take the Fed's balance sheet to at least 10 trillion. And, you know, people hear this and they'll go, ha, ha, ha, ha. But that's where this movie has to go. Either that or you basically, you know, have some sort of. of currency deal or Brettonwood system where they come out and say, look, you know, we're going to,

Starting point is 00:40:14 you know, the IMF had a proposal in 2011 when they said, let's price oil and gold and SDRs. And that's certainly something or something like that that you could do where you move to a neutral settlement asset where you say, okay, all trade deficits and energy, you know, all current account deficits need to be settled in SDRs. And the IMF values gold at 5,000 SDR. So now you can either buy gold at 5,000 SDR or your currency has to fall. And it would, it would reorder things very quickly. You basically back to a balance of payments type system and you can, you know, sort of rank countries from the current account surplus to the current account deficits, but just in the SDR basket, right? You know, the euro, the yuan, the yen would all rise and the pound would

Starting point is 00:40:57 fall and the dollar would fall sharply in that, you know, if we were to rank them on a balance of payments basis strictly. So I'm not hearing anything that, you know, you're anywhere near a Bretton Woods type scenario. I'm optimistic maybe. Minutian said there are currency components to the phase one deal that are similar to what was in USMCA. We'll see. But in the meantime, global central banks, you know, they're buying the most gold since Nixon was in office and have been since 2010. And that suggests to me, and when it started off, it was just quote unquote rogue nations. And now it's basically everybody except for the Americans and the Canadians and the British. Okay.

Starting point is 00:41:36 So this question comes from somebody on Twitter as well. His name is Will Ray. He said, Luke has been quoted saying that most investors aren't going far enough in their estimates of what the Fed will do to keep the stock market afloat in a crisis. He said, while this is good for gold, why isn't it bullish for treasuries? What mechanics cause yields to rise? When you have the U.S. government as indebted as they are, they cannot afford to pay positive real rates. Once your debt the GDP is over 100 percent, and when your obligations are 500 to 1,000 percent of GDP, they have to pay negative real rates over time. And that's good for stocks and it's bad for bonds,

Starting point is 00:42:17 broadly speaking. That's not to say in any given year. Obviously, last year, you had a monster year at the long end of the curve. And, you know, that certainly can happen in any given year. to me, because the stock market, they have created an economy where offshore manufacturing and we increased financialization, and then there were tax law changes that incented corporate America to take more compensation in equity rather than in cash. And the net of it was we now have the U.S. government. One of the ways we looked at it is net capital gains plus taxable IRA distributions are around 200% of the annual growth, year over your growth in personal consumption and expenditures, which is about two-thirds of GDP. And so whether you look at it that way,

Starting point is 00:43:02 and that's not to say people are selling stocks and buying boats and cars and healthcare services, but just simply that mathematically, PCE or consumer spending can't grow if stocks aren't rising, whether you look at it that way, whether you look at the tax receipt impact, either both directly from net capital gains or taxable IRA or executive comp in options is taxable as ordinary income. So it's tougher to strip out. The bottom line is it's difficult for tax to rise and it's difficult for consumption to rise in the United States if stocks aren't rising. And so they've never explicitly said it like I just said it, but they've said enough about markets, et cetera, where you can infer that they understand this relationship, at least on

Starting point is 00:43:40 some basic level. And I just think that they may not like that reality, but that is the reality that they're operating and I think they understand it. And as such, I'm not saying the stocks can never go down. I just think that you from this point, you get down 10%. You're going to see them get really aggressive. You get down 15% the extraordinarily aggressive. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up

Starting point is 00:44:07 and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI powered platform. So whether you're prepping for a SOC2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

Starting point is 00:44:29 Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vanta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires. That's Vanta.com slash billionaires. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect

Starting point is 00:45:11 place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4x, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account

Starting point is 00:45:43 is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify.

Starting point is 00:46:08 Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings account. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes, thanks to the Fundrise Income Fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years.

Starting point is 00:46:45 Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. You mentioned a really big number there, $10 trillion on the government balance sheet. Do you see that come through monetary policy

Starting point is 00:47:30 or through intensive fiscal spending? You know, it could be both. You know, it's interesting. When we say a fiscal event, we wrote a report, gosh, probably two and a half years ago, about six months after Trump got elected. And, And at that time, if you remember, middle of 17, it was, hey, they're going to, they're going to run the, you know, it was really the Volker playbook or the Drucken Miller playbook, right? We're going to raise rates and have a tight monetary policy and we're going to stimulate and a really loose fiscal policy and the dollar is going to rise. And so you need to own the dollar, you need to own and rates are going up. And something we wrote at the time is, is it continues to be underappreciated that the United States already has a $100 trillion fiscal stimulus. It's already approved and ready to go. Maybe it's $200. But it was approved by Franklin Delano Roosevelt in 1938, Social Security. It was approved by Lyndon Mage Johnson in 1968, Medicare Medicaid. It was approved by President George W. Bush in 2004 with Medicare Part D and the Gulf, you know, the wars we've had over the last 20. We sort of have had, but in particular, the entitlement, you know, we have 100 to 200 trillion dollar in fiscal

Starting point is 00:48:38 stimulus largely unreserved that we're going to have to effectively monetize. I think we could definitely see the fiscal side. You know, there was a great white paper by the BlackRock Investment Institute in August of last year that when I read it, it caused my jaw to drop. And then, you know, these days it takes a bit to make my jaw drop anymore. But it was written by Stan Fisher, former vice chair of the Fed, Jean Boyvin, former Bank of Canada governor, and then Philip Hildebrand, former head of the Swiss National Bank. And it just laid out in the next downturn, we're going to need to do fiscal spending, married with monetary policy. and we will pin yields to make sure that yields don't back up and offset the benefit from the fiscal spending.

Starting point is 00:49:22 And, you know, here by region are the legal implement, you know, legal hurdles we would have to clear to operate in Japan and then the U.S. and in Europe and in Asia. And so is this 20-page document basically saying from three former senior central bank governors saying, here's our version of MMT and here's what we're going to do and get ready for it. So that to me, I think, is sort of fait accompli at this point. I think they're looking for political cover. I think a lot of people thought we needed a recession, a full-on recession to do that. And I think Fed sort of whatever it takes moment came in September when repo rate spiked. I think that they sort of had to address that on the fly and go from there.

Starting point is 00:50:05 So let me play back what I think I heard. I want to get your opinion on this. So if we go the fiscal route, it's going to cause consumer price inflation, which is going to be bad for the bond market. And it's going to be bad for the repayment of all this debt that the U.S. is issuing, right? Because we can't have interest rates go up. If what I just said is true, that means that we're going to get creative with monetary policy for the insertion of this $10 trillion that we're talking about. So now if we're using monetary policy in a creative way in order to do the insertion, and we've already both kind of agreed monetary policy is causing asset inflation,

Starting point is 00:50:48 not necessarily the quote unquote inflation that our textbooks all say there is, that means that you kind of suspect that we're in for even a further meltup in the stock market. Is that how you see it? The short answer is yes. I wouldn't be surprised if we had a month. modest pullback here or some sort of little sort of normal, what we used to call a normal healthy correction, right? You know, five or eight percent, something like that, which will probably feel like death

Starting point is 00:51:15 because it's been nothing but up on absolutely no volatility for, you know, whatever the last four or five months. But the U.S. now has the exact 180 degree opposite problem that Volker had, right? So Volker was trying to defend the dollar and basically was raising rates. And so the more rates, you know, rose, more inflation picked up. That actually helped him. And so it was sort of self-regulating ultimately and accomplish what he needed to accomplish. And now the dollar is too strong, but the Fed and central banks broadly, they're going to have a sort of non-regulating, self-regulating system here where they're going to have to implement some combination of monetary and fiscal policy.

Starting point is 00:51:54 And then the bond market's going to try to stop them. And they're going to have to implement more monetary policy to stop the bond market. and the bond market may then switch from just government bonds, then maybe you see spreads rise and mortgages. Well, that's going to be a problem. So then they're going to have to contain the mortgages. Well, then the corporate market spreads may rise. So then they're going to have to contain the corporate market. So it's, you know, the path matters. But to me, what happened in September, the path got much shorter than anybody thought. And, you know, once repo goes to 10, I keep saying, hey, great, if the Fed falls behind, you should start to see repo rates start to rise.

Starting point is 00:52:29 But listen, if the Fed wants to step aside, let them step aside. Let repo go to 10. And let's see how that plays out. Within a month or two, Treasury will be, you know, trying to issue, a paper at 10%. They can't afford that. Corporate debt issuance will grind to a halt because nobody can afford to roll over corporate debt at 10%. Corporate profits will tank. When you look at the leverage in the corporate market, the stock market will fall by half. And that's probably conservative. I'm very overweight gold. You know, when you get into these situations, ultimately the way these cycles end is the price of everything falls against gold. So if you relate this to the stock market, basically what you're saying is that you can see a

Starting point is 00:53:07 small sell-off, but both the government and the Fed won't allow that to be too much of a sell-off. The short answer is, yeah, I think you could absolutely see, you know, especially with some of the geopolitical tensions, could you see a five or eight, you know, maybe 10% sell-up? Sure. When you look at the levels of debt globally, when you look at the importance of stock, you know, to consumption to tax receipts, given the fiscal situation as precarious as it already is, they just simply aren't going to be able to stand aside and let it go down more than 10%. They are going to have to do whatever it takes as you near that threshold, or maybe less, which is incredible.

Starting point is 00:53:47 Are we talking about hyperinflation here? Hyperinflation is a very, you know, there's a paper I need to read. It's a politically touchy subject. is there's a number of criteria that have to happen. I have to read the IMF paper. Someone put it in front of me, but apparently the U.S. is basically checking, you know, the majority of the boxes typically that you need. That said, we're the global reserve currency. I've been saying, I think you'll see Argentina with U.S. characteristics in the U.S., which is, you know, I think you'll see higher consumer inflation, but I think, you know, we will, CPI will remain firmly pinned

Starting point is 00:54:23 to below 3% or 3.5% because of how it's defined. And they will change that definition as much they have to. You know, I may be eating skittles one at a time, but there will be no inflation. You know, the bag will come with one skittal, but there will be 3.5% CPI inflation. You know, to answer your question, I don't think it'll be in Argentina with U.S. characteristics, right? We have this central bank. We have this reserve currency, and they have an ability to sort of manage perspectives on inflation, pin curves. And so where I think it's going to show up is I think it's going to show up in asset markets. I think that's really where there's really nowhere else you can go to high from. I think it'll show up in gold as well, obviously, but certainly first,

Starting point is 00:55:05 I think you'll see it in an asset markets. I think we'll continue to see that. Global central banks are buying gold and they're not buying treasuries. I mean, that's another wildly underappreciating. And when I first started pointing that out two, three years ago, people looked at me like I was nuts. And now it's interesting. People, you know, it's, hey, well, yeah, central banks are buying 20% of the world's gold supply every year. And what's interesting is kind of everyone's going, eh. And if, you know, if you went and asked, you know, a room of 100 financial professionals, raise your hand if you've ever held a one ounce gold coin in your hand. Maybe five would raise their hand, maybe. And then, you know, you say, okay, tell me how I could buy a physical gold coin. And maybe

Starting point is 00:55:41 would know where to go and how to buy a physical gold coin. It's just, it's so, you know, I can't remember who said it if it was Warren Buffett or somebody else. He said, you want to buy what's hard to buy? So anyone listening to this, Luke Roman, he runs the macroeconomic research firm, the forest for the trees. I want to say something, Luke. So I bought your book, Mr. X interviews. And the reason I bought your book is because every time I talk to you, I just walk away from the conversation saying, I just wish I could tap into his brain to fully extract everything he knows. Truly, like, that's how I look at you is like, thank you. I know there's things that you understand that I just don't have access to or I just haven't had that exposure

Starting point is 00:56:23 or that vantage point. I just wish I could extract all of it. And so I went and I bought your book, The Mr. X interviews. And man, it was, I felt like I was able to get a glimpse of behind the curtain of what goes on in Luke Roman's brain when it comes to understanding finance and economics. So I can't tell the audience enough how awesome your book is. And you know what's great about it is the way that he wrote it. It's just really easy to kind of follow along and really kind of understand what it is the way that the questions are asked because it's a conversation in the book between two people. And it's just such a fascinating book and I can't promote it enough. And so we'll have a link in our show notes for your book.

Starting point is 00:57:04 And we'll also have a link in the show notes for your firm there. And thank you so much for always making time to come on the show. I really enjoy these conversations. Thanks again for having me on. Always great to come on. All right. So at this point in the show, we're going to go ahead and play a question from the audience. And this question comes from Lee.

Starting point is 00:57:22 Preston and Stig. Thank you for your show. I've followed you for over two years now. And with no financial schooling, I feel like your show has been invaluable. I have a multi-part question for you. you. In sticking with the theme of excessive debt and fundamentals that don't seem to add up, I find myself looking for a safe place to keep my money. But with the recent repo market blowup, it seems like it could be a precursor of worse things to come. Since money market funds seem to be

Starting point is 00:57:47 the automatic sweep accounts when selling positions, is that truly a safe place going forward? How does the repo market affect money market funds? And if that's a safe, default place for cash accounts, what happens during another repo blowup or Fed default? Could money be withdrawn or even reinvested into equity markets or is there a safer place to be invested? Thank you for your help. So, Lee, this is such a very difficult question to answer. And to be quite honest with you, I don't even know if I have the right answer for you. All the things that Luke and I were talking about during this past episode really kind of

Starting point is 00:58:28 just shows you how complex, how difficult this is to understand, and how many government decisions can take place that could drastically change the direction that things are going because whether people like to hear this or not, the markets are very

Starting point is 00:58:44 manipulated right now. And what I mean by that is with the repo and with the QE and the insertions, I mean, we, this market's been running for call it 11 years at this point, bull market, and they're aggressively doing repo insertions, and it looks like there's going to be QE on the horizon. There's definitely not going to be any more tightening. So that doesn't make any sense. And do you have to ask yourself, well, how long

Starting point is 00:59:10 is that going to persist? My concern and what I think might be a trigger point for where you'd see the stock market or the equity change, just like Luke and I had discussed, if the insertion point for that liquidity changes from the top of the pyramid, which is what QE and this repo insertions are doing. And it starts to become an insertion of liquidity to the bottom, which would be your universal basic income, where if you're a citizen and you paid your taxes, all of a sudden you're going to get $5,000 back this year straight into your account. That type of action, which is pretty much the same thing as QE, only you're not doing it through the bond market. you're now doing it straight through the citizens, I personally think that that's going to cause

Starting point is 00:59:55 traditional textbook inflation. And if that's true, then I think that you're going to see everything securities-wise get repriced and not in a favorable way. Because when you look at how securities are priced, whether it's bonds or stocks, they're completely dependent on the inflation rate because your interest rates are a premium above that expected inflation rate. So if the expectation of that is going to go up, which very few, pretty much nobody thinks that inflation is going to go up at this point. If you start inserting the liquidity at the bottom, that's when I think that whole dynamic starts to change.

Starting point is 01:00:36 This is so hard to understand. You know, when we go out to the Berkshire Hathaway Shareholders meeting and you listen to Warren and Charlie talk about it, you know, Charlie Munger always makes the comment. And if you find somebody who says that they understand what's going on, they're probably the person you want to listen to the least. But those are some of the dynamics that I'm thinking about. So now where this really gets interesting is when you talk about, how do I go about it in a conservative way?

Starting point is 01:01:04 How do I protect my cash? Do I put it in a money market account? All these things, right? Well, like Luke and I were discussing during this show, what I think you're starting to find is inherently, the problem is with the currency. You've got fiat currency all over the world. There isn't a country out there that has a paid currency. In fact, there's no incentive for a country to have a peg currency at this point. So as long as there's a race to devalue the currency, and that's really the kind of

Starting point is 01:01:34 the fundamental problem, that's where you have to ask yourself, well, how much longer can this go on? And with these bond markets starting to go into the negative yield, the real issue is people are going to equities stock specifically because they're acting as a form of pegged currency is what I'm calling it these days. And so do I keep my money in this Fiat cash in this bank account that's devaluing relative to something that has a scarce or somewhat scarce pegged attribute like a stock? I don't know. That's the really, really tricky question.

Starting point is 01:02:16 And it's all dependent on. and my humble, very, very humble opinion, I think it's highly dependent on where that liquidity of this additional fiat currency is being added. And as long as it keeps being added to the top, you're going to see things continue to get bid on the security side, whether that's stocks or bonds, and therefore that's probably the place that you want to be. Who knows if we're going to see that tide change. If I was going to argue with myself, what I would tell you. you is there's reports that you're starting to see inflation in labor rates throughout the country. Some of these quarterly reports are coming in and there's talk that you're starting to

Starting point is 01:03:00 see inflation in wages. So whether that's all, even though the insertion points at the top, does that mean that some of the inflation starts to creep in and you don't even need UBI to get that? I don't know. So those are some of the thoughts as they're just kind of spewing out of my head and some things to think about. I don't think that I helped you manage your risk any better, but I think what I'm trying to say is, as I completely agree with Luke Groman and his opinion on this might have even more to go, simply because currency is in such a bad position at this point,

Starting point is 01:03:36 fiat currency is in such a bad position at this point, that I think investors are finding stocks and bonds here in the U.S. that still have a positive nominal rate. They're not in the green in real terms, but I think they still see those as being more desirable than cash. So some things to think about. I hope that it helps you think through the risks on all the different angles, but I don't know that I have a good answer for you.

Starting point is 01:04:07 This is a very tricky time, and it's something that is going to require people to be very aware of, what's going on in order to come out on top. So I wish you the best. And thank you so much for listening to the show. It was really fun to answer your question. So Lee, for asking such a great question, we're going to give you free access to our intrinsic value course for anyone wanting to check out the course. Go to tipintrinsicvalue.com. That's tip intrinsic value.com. The course also comes with access to our TIP finance tool, which helps you find and filter undervalued stock picks.

Starting point is 01:04:46 If anyone else wants to get a question played on the show, go to AskTheInvesters.com, and you can record your question there. If it gets played on the show, you get a bunch of free and valuable stuff. For you guys out there, that was all that Preston and I had for this week's episode of The Investors Podcast.

Starting point is 01:05:01 We see each other again next week. Thank you for listening to TIP. To access our show notes, courses, or forums, go to the Investorspodcast.com. This show is for entertainment purposes only. Before making any decisions, consult a professional. This show is copyrighted by the Investors Podcast Network.

Starting point is 01:05:20 Written permissions must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP279: Stock Market Melt-up w/ Luke Gromen (Business Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.