Luke Gromen
@LukeGromen
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Founder & President, Forest for the Trees (FFTT). Author of "The Mr. X Interviews, Volumes I & II.” I never solicit via DM's. RT not endorsements.
Joined December 2014
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As investors – path matters!
Download this in-depth free PDF to see why:
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Yes, the unemployment rate is still low.
But what if US disability rolls spiked by 1.3 million people in just the last 2 months, instead unemployment rolls?
What if US disability rolls spiked by 5m people in the past 3 yrs, instead of unemployment rolls?
I ask b/c it happened:
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Tonight we are taking a big step closer to the US Fed being forced to reverse course and accelerate QE into a commodity spike given world events in the context of the worst US fiscal situation in 80+ years.
Let’s watch.
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Powell's speech, in plain English:
"There is too much debt in the US & globally. It's hurting growth. This can be resolved 1 of 2 ways:
1) Widespread defaults (including on sovereign debt)
2) Inflate it away
Today we are accelerating Option
#2
."
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Russia's currency is nominally the RUB, but Russia's currency functionally is oil and gas, and this currency is rising against every other currency in the world.
This seems like a subtle but important nuance many are ignoring but which gives Russia some unappreciated options.
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The way the 2008 & 2020 crises were handled means the next recession likely will be signaled by FX markets rather than by the signals most investors have relied upon from 1983-2020.
FX markets are presently screaming global depression, not recession.
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This opened a Pandora's Box that cannot be re-shut.
Most investors do not seem to fully grasp yet the implications of what just happened.
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This ceases to be an intellectual exercise once you realize:
a) US min. wage was 5 silver quarters ($1.25) in 1963
b) Those 5 silver qtrs are worth $25 now
c) US CPI calculations say that $1.25 is only worth $10.81 now
d) The $14.19 difference☝️has gone to the US top 10%
e)…
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$4B in notional gold contracts for sale on a Sunday night is not a market, it is a currency intervention.
Most private traders would lose their clients and/or their jobs for executing an order in such a fashion.
So the questions are “Why?” & “Why now”?
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It gives me no joy to read this, but as an objective analyst, it is fascinating to watch western leaders (long accustomed to printing infinite fiat for finite commodities) begin to realize that the hardest currencies are not USD or EUR, but rather oil, gas, wheat, and gold.
Today Putin is blocking hundreds of ships filled with wheat in the Black Sea.
I call on Putin to let these ships go.
Europe must step up to this challenge.
We have assigned at least €2.5 billion until 2024 to help those regions most affected by food insecurity.
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Called the local coin dealer today.
Him: “Silver spreads are up; 1 oz silver Eagles are $31/oz. We are really busy, lots of people in here we have never seen before, buying silver.”
Me: “Are they old or young?”
Him: “They’re like 30 yrs old.”
This might get interesting.
Reddit Preparing To Unleash "World's Biggest Short Squeeze" In Silver
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The amount of rate hikes or demand destruction needed to stop inflation will bankrupt most sovereigns.
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Gold going to $50,000 or BTC going to $1m is not a threat to the USD...it’s the only way the US can win the so-called “Great Power Competition.”
If gold or BTC don’t go to the moon, the US loses to China, full stop.
🤯🤯🤯
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When policymakers pretended that inflation was transitory, BTC was calling “bullsh*t.”
Now we find policymakers pretending they can fight inflation like Volcker did, & once again, BTC is calling “bullsh*t.”
It ain’t a bubble, it’s simply the last fully-functioning smoke alarm.
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A country where people cannot choose how they store their personal wealth is not a democracy; best case, it is an oligarchy...best case.
A global economic system where one can only buy commodities in one currency is not capitalism; best case, it is a "company town"...best case.
"I've always been deeply opposed to crypto, bitcoin, etc. [Senator Warren] pointed out the only true use case for it is criminals," says JPMorgan Chase CEO Jamie Dimon. "If I were the government I'd close it down."
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I'm old enough to remember that 6 months ago, these same satellites were unable to detect that the Taliban were only 72 hours from taking Kabul, rather than 90 days from taking Kabul as the Administration asserted.
SATELLITE IMAGES SHOW RUSSIAN TROOPS LEAVING ASSEMBLY POINTS AND MOVING TO ATTACK POSITIONS, U.S. OFFICIAL SAYS -CBS NEWS
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Plot twist:
One month on from the Russian invasion of Ukraine, Russia is not selling its Central Bank gold reserves, but the US is selling SPR oil reserves. 🤔
Let’s watch.
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Signpost 👇
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As an Ohioan that is just a prevailing wind shift from being within range of a carcinogenic fallout plume, I for one am just glad we spent $6 trillion on wars in Iraq and Afghanistan instead of upgrading our domestic rail infrastructure.
Heckuva job guys
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A local bank I have used for years told me they are no longer allowing BTC transactions (on-ramp from my account there to an exchange), and no longer doing business with anyone that accepts BTC as payment.
Bank says it’s voluntary, not regulator mandated.
#OperationChokepoint
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Just got my healthcare renewal. No change in coverage, no change in HC status (knock on wood.)
Premiums up ~20% to $1286/mth, w a $12,500 deductible.
This was ~$450/mth in 2014, w/a lower deductible.
19% CAGR cost inflation at a time when there’s no inflation, LOL
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If Russia was moving toward a gold-for-oil arrangement as Zoltan hypothesized, you'd expect to see 3 key reactions fr the US govt:
1. Support a war on Russia's border
2. Fastest rate hikes in 40 yrs, seemingly trying "break" the world by doing so
3. Fastest SPR drain in 40 yrs
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The first bursting global sovereign debt bubble in 100 years is accelerating. The outcome below is still inconceivable to most market participants.
A few more weeks like the last few and it will go from inconceivable to inevitable to imminent, shockingly fast. Let's watch.
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Thanks for having me on to talk economics,
@TuckerCarlson
! Really enjoyed the conversation.
I’m told clips of the interview will air tomorrow night at 8p, full interview streams Thursday on Fox Nation.
@TuckerToday
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Putin causing US inflation was bad, but the really dastardly thing Putin did was forcing the US govt into 28 yrs of disastrous foreign, economic, & trade policies that ran US debt/GDP up to 130% & deficits to 10% of GDP, leaving the UST market vulnerable to high inflation prints.
NOW - White House warns of "extraordinarily elevated" inflation data.
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Having a cheaper currency is only an advantage in trade if that nation has adequate supplies of cheap energy.
In plain English? You can't make sh*t if you have no gas.
This lesson, long-ago forgotten by today's western senior policymakers, is being re-learned in real time.
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27 years ago, Zbig Brzezinski warned "the most dangerous scenario would be a grand coalition of China, Russia, & perhaps Iran."
Out of hubris, US policymakers spent the last 20-25 years pursuing policies that [wait for it]... pushed China, Russia, & Iran closer together.
1/
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By banning BTC, China just broadcast to the world that it is afraid of BTC.
Are US leaders smart enough to use that knowledge and use BTC to America’s advantage, or are our leaders too dogmatic/conflicted/unimaginative?
#BTC
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Last August, I told my oldest son (19 yrs old) to take the $3,000 he had saved from working his summer landscaping job, open a Coinbase account, and put it all in BTC.
The “My dad is an idiot” phase that most sons go through has officially ended (for him at least 😂)
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Global sovereign debt is so high that a recession that would normally resolve commodity shortages will also trigger western sovereign defaults without more Central Bank balance sheet growth.
We may be about to experience an incredible paradox: Printing into inflation.
#Gold
#BTC
Central banks and monetary policy have no recourse on the impending commodity shortage problem. This is a HUGE dilemma.
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IMO it increasingly looks like the public’s understanding of how the money system works may have crossed the Rubicon as a result of the US government’s response to COVID.
Henry Ford once warned what would happen if the public ever understood it...
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Fiat currency is backed by debt.
Debt is backed by energy.
We just removed one of the biggest energy "jenga blocks" underpinning the entire debt "tower."
#Gold
#BTC
#Inflation
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People stop dining out, restaurants will go under. As restaurants go under, commercial property owners will follow. As comm’l ppty owners go under, so will lenders. As lenders collapse, so will sovereigns.
A cheap & plentiful supply of energy underpins every asset but phys gold
Spoke to a friend in Germany.
In 21, his gas bill was €2,800.
22: he is on track for €24,500.
Private residence. A consultant come over. They will shut down 3 rooms in the house & switch providers. Hope to bring the run rate down to €11,000 in the last months of the the year.
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"Economists say we can fight inflation with US debt/GDP at 122% & deficits at 7% of GDP the same way Volcker did with US debt/GDP at 30% & deficits at 2% of GDP" is IMO this cycle's version of "Ratings agencies say those subprime mortgages are AAA-rated."
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If tasked with collapsing global bond markets & economies as quickly as possible, I'd do the following:
1. Have the Fed tighten with US debt/GDP >120% & deficits/GDP at 7%+.
2. Impede flows of energy & commodities out of Russia.
3. Impede flows of goods into & out of China.
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If only there was a technology that consumes electricity when electricity demand is weak & shuts off when demand is high so that utilities can better balance loads & better address peak loads.
Oh wait...there is. Another way that BTC consuming energy is a good thing.
Texans are being urged to limit power use amid searing heat that’s projected to send electricity demand to an all-time high
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Big signpost 👇
BRAZIL CENTRAL BANK TO KEEP REDUCING EUROS AND DOLLARS AS RESERVES; WILL KEEP ON INCREASING CHINESE YUAN AS RESERVES
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1/ “The EU is nearing VERY dangerous territory here.
Attempts to embargo Russian energy followed by likely fiscal stimulus to paper over the resulting economic losses and/or prop up EU banks and bond markets would be akin to what Weimar Germany did in the 1920s…”
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Humanity trying to transition from a higher EROIE energy source to a lower EROIE energy source for the first time in recorded economic history while in the midst of the biggest global sovereign debt bubble in history remains a grossly underappreciated risk IMO.
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Paradoxically, a key reason DXY is strong is because the US fiscal gap is over 3x worse than “the poster child for social welfare”, France:
DRUCKENMILLER: "And I learned something when I was preparing the speech for USC because I knew we were in bad shape. Economists have…
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Signpost 👇
*RUSSIAN RUBLE RALLIES BACK TO LEVEL SEEN BEFORE UKRAINE WAR
When push comes to shove, the real value in the Petrodollar system is the "Petro-" portion, not the "-dollar" portion.
Feel free to get on your bicycle & pedal to Cleveland to discuss w/me over beers 🍻
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Also, Iraq has WMD, home prices have never fallen nationally, if you like your doctor you can keep your doctor, Trump has zero chance of winning, & all you’ll need is one jab to stop the spread.
Treasury Secretary Janet Yellen said the surge in longer-term bond yields reflects a strong US economy, not the jump in government borrowing
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Wait till Reddit figures out what happens to the price of gold if they all just buy 2-3 physical oz’s... 🍿🍺
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"There is no military on earth that can beat the US!"
True...but compounding interest is undefeated all-time against empires.
Remaining choices = Cut rates, cut DoD spending, cut Entitlements, or print whatever's needed.
U.S. Interest payment is now equal to Defense spending
And 30% of the debt has to be refinanced in the next 12 months at todays higher rates!!
Hang on! 🚀
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20-year old son last night: "Dad, the fraternity is accepting BTC as payment for dues."
Me: "Don't pay with BTC. Pay with USDs, keep your BTC."
#GreshamsLawTeachableMoment
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Some money managers see BTC volatility as a bigger risk than the fact that US Federal debt has grown 8% CAGR for 15 years while USTs have yielded 0-5% that entire time🤦♂️
IN PLAIN ENGLISH: They'd rather have negative real returns on low vol than positive real returns on high vol.
Hearing from multiple people that their broker has not yet allowed them access to the
#Bitcoin
ETFs, including Merrill Lynch and Vanguard. And others demanding clients sign volatility liability waivers before 'unlocking' access.
Have any of you experienced this?
Still. Early.
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We're only 28 days into 2021 and we've already checked two boxes on our "Weimar with US Characteristics" Bingo card (from "When Money Dies"):
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When gold rises in your currency DESPITE positive real rates, the gold market is saying “Your government will have a debt spiral if real rates remain positive.”
Gold began warning of this in late 2022; numerous other markets have since begun playing by this "new set of rules."…
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The inconvenient truth those citing Russia's GDP size fail to grasp:
If we subtract Russian energy from the mix of global energy supplies, global oil & gas prices will quickly spike to levels that collapse the entire global economy, & USD-centric debt markets & financial system.
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A study in contrasts:
Overlevered, energy-short Western nations are raising rates massively & still seeing their currencies fall v. USD.
Last Friday, Russia cut rates again, and yet the RUB rose against the USD again.
Energy is the master resource.
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Signpost 👇
For context, the oil market is ~20x the size of the physical gold market in annual USD production terms.
RUSSIA WILL ALLOW "UNFRIENDLY COUNTRIES" TO PAY FOR NATURAL GAS IN GOLD
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Interesting body language...again
Russian President Vladimir Putin and Saudi Arabia Crown Prince Mohammed bin Salman |
#OOTT
🇸🇦 ⛽️ 🇷🇺
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US policymakers: "China, you are short USDs. We are going to weaponize the USD against you."
China: "You're right. In response, we are putting in a price floor on lithium. Your lithium costs just rose by 10x; please pay in USD. Now we are no longer short USDs."
Where are lithium ion batteries made?
79% in China 🇨🇳
8% Asia (ex China)
7% Europe
5% USA
The 10 year trajectory has started to shift towards more
#EV
battery capacity in Us and Europe, but not by much
China still on track to dominate battery manufacturing (~70%) in 2031
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Whoa. If you haven’t watched this 4-minute video yet, you might want to.
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US policymakers: "We seized the assets of the Russian CB held in our countries."
Western analysts: "I can't believe the EU let themselves become so reliant on Russian energy."
US companies, looking at the $-value of Property, Plant, & Equipment they have sitting in China:
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Central Bankers now face a choice:
The economy can collapse on a real basis because prices are too high (inflation), or the economy can collapse nominally because CB’s raised rates to combat inflation.
Every other fiat monetary system in history has reached this point.
DUTCH ALUMINIUM PRODUCER ALDEL TO HALT PRODUCTION DUE TO HIGH ELECTRICITY PRICES -CEO
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Silver traded today like somebody big finally figured out that there will be not be nearly enough physical silver to support a sustainable energy transition unless the price of silver is re-rated a lot higher.
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A reminder that NO ONE has more USD-denominated debt coming due in the next 12 mths than Uncle Sam (37% of ~$20T = $7.4T due w/in 12 mths).
Uncle Sam has 3 options:
1. Default.
2. Crowd out global USD borrowings & crash his own stock market & economy.
3. Print the money.
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In grade school, I had a friend that did my homework for me.
One day, I started punching him in the face whenever I saw him.
For some reason, my homework supply chain started breaking down shortly thereafter. My grades suffered until I did my own homework. The End.
#ChinaUS
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120+ yrs of history suggest w/120% Federal debt/GDP, one cannot avoid a hard landing, only choose where the hard landing occurs:
a) The economy
b) The currency (ie inflation)
Unless Congress cuts 5-6% of GDP in spending immediately & permanently, "b" is more likely, but path…
Quick search for "soft landing" stories on Bloomberg Terminal this am, here's the first page.
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I would pay good money to see a debate between 1970 Neil Young (protest the government narrative about Vietnam) and 2022 Neil Young (censor anyone that questions the government narrative about COVID.)
Canadian singer-songwriter Neil Young accused Spotify of spreading fake information about vaccines, citing the immensely popular “Joe Rogan Experience” podcast.
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1/ "If you look at all of the personal income tax returns that were filed in California in the year 2020, just 1% of the total number of income tax returns that were filed were responsible for more than 49% of all of the personal income tax that was paid in that year."
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1/ WSJ discussing a 10% COLA increase for Social Security for 2023.
A 10% increase for all US Entitlements (SSA & HHS, not just SSA) combined w/just a plain vanilla recession decline in tax receipts (down 20%) would leave Entitlements representing ~90% of US tax receipts. 😳
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At some point, western leaders will realize that pursuing regime change in the world's biggest energy & commodity producer will only result in "regime change" in western countries b/c voters care more about cheap electricity & heat than virtue signaling ...but not yet apparently.
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Irony: People that were not long ago telling blue collar workers “learn to code” may soon be told “learn to be a plumber.”
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US SENATOR CORNYN: FOREIGN CENTRAL BANKS SHOULD REMOVE ALL THEIR GOLD FROM THE NY FED AS SOON AS POSSIBLE BEFORE WE SANCTION OR SEIZE IT.
Via
@AfurKnox
US SENATOR CORNYN: I MET WITH US TREASURY SECRETARY YELLEN TO DISCUSS RUSSIAN GOLD SANCTIONS.
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🧵1/ Boomers have ~$25T in net assets & have been convinced they're going to die far sooner than they thought just 3 years ago.
The interest rate required to stop the Boomers' resulting "YOLO" consumption binge would bankrupt the US govt well before it slowed Boomer spending.
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The world has not seen volatility in an energy-linked neutral reserve asset like we continue to see in BTC since gold traded like this in the biggest debtor nation's currency, during the last bursting global sovereign debt bubble 100 years ago.
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1. Western consensus: "China needs to devalue CNY"
2. China devalues CNY v. gold; western consensus laughs at "Chinese capital flight" into gold
3. CNY oil allows China to influence gold prices
4. USD begins devaluing v. gold
5. Western consensus stops laughing. 👈We are here
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The US government is selling USTs and buying oil 👇
BREAKING: In an effort to refill the SPR faster, the DOE has announced monthly solicitations to buy crude at $79 per barrel going out to May 2024, with hopes of buying up to 6 million barrels for Dec & Jan delivery.
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I haven't seen a doom loop as obvious as the energy doom loop in the EU since the US banking system doom loop that began spinning in September 2008 after LEH filed bankruptcy...
...and then the SEC changed the rules overnight & banned short selling of the banks.
Let's watch.
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Coming soon:
Markets begin to realize and then discount that western sovereigns cannot afford their interest expense, Entitlements, & Defense budgets at either current interest rates OR a recession without a lot more Central Bank QE.
#NotEnoughPrivateSectorBalanceSheet
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US govt hands USDs to Americans.
Americans hand USDs to China.
China uses those USDs to increase their global influence by buying hard assets & lending USDs to foreigners against hard asset collateral.
Wash/Rinse/Repeat until either USD rsv status is changed or China wins.
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“A surprisingly large % of US income tax receipts are tied to a rise in US stock prices. When the US stock market just stops rising…not falls, but just stops rising, that will put pressure on the receipt side of the US fiscal picture."
-Greenspan, 2015
US stocks = the economy
*CALIFORNIA'S NEWSOM SEES $32 BILLION BUDGET DEFICIT IN 2023-24
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Shouldn't airlines go to Warren Buffett 1st? I mean, he already owns a big chunk & we've repeatedly heard how big his $120B war chest is?
Why are they not selling equity to him at whatever price is needed to raise the money?
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This is not the Argentine stock market in USD terms.
This is the UK FTSE (which just hit "record highs" yesterday) ... in gold terms, 1989-present.
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Fascinating to watch the Fed (& many market participants) engage in the collective delusion that they can run the “Volcker 1979 playbook” with US debt, deficits, & Balance of Pmts akin to 1920 Europe.
When this collective delusion shatters, it will be spectacular.
#Gold
#BTC
BRAINARD: FED IS PREPARED TO TAKE STRONGER ACTION IF INFLATION AND INFLATION EXPECTATION INDICATORS SUGGEST NEED FOR SUCH ACTION
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BTC has the power to weaken countries in the same way that thermometers have the power to make Phoenix, AZ hot in the summertime.
BTC is merely a functioning "thermometer" on a nation's fiscal policies and leadership that can't be disabled like policymakers have done to gold.
Hillary Clinton says cryptocurrencies have the power to weaken entire countries eventually
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Central Bank Digital Currency implications, simplified:
Democrats, imagine the Trump Admin having the ability to completely control what you spend money on.
Republicans, imagine the Biden Admin having the ability to completely control what you spend money on.
Via
@JeffBooth
“Let’s do a central bank digital currency … I think it’s time for us to move in that direction.”
Amid Sen. Warren’s moralizing on crypto money laundering, never forget what her ultimate goal is: the destruction of Bitcoin to make way for a CBDC.
Warren is usually effective at…
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Have you ever seen people running into a burning building for safety?
You have now.
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1/ Another big signpost this morning that the post-71 structure of USD reserve status reserve status is changing rapidly.
The model of "the world exports us stuff and we export the world USDs" is ending👇
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De-dollarization of global energy flows
INDIA, SAUDI ARABIA DISCUSS RUPEE-RIYAL TRADE, UPI PAYMENT SYSTEM
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Banks were regulated into buying all those USTs b/c:
1. US govt deficits were blowing out (blue)
2. Foreigners stopped buying enough USTs (inverted, red)
Banks buying USTs meant the Fed didn't have to QE, but now banks aren't buying anymore while the US deficit is rising again.
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Today we got more evidence that the Fed is no longer operating a dial, it is operating a switch: "Global economy on" & "Global economy off."
If the Fed keeps this up, Dem strategists may want to start asking what polls better in November mid-terms: 6% inflation or US recession?
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A recession with US debt/GDP at 125% and deficits at 6%/GDP will absolutely, 100% be calamitous.
FED'S BARKIN: A RECESSION DOES NOT HAVE TO BE CALAMITOUS
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The US won WW2 not because it was the US, but because it was the wartime economy with capital controls (as all combatant economies were) that outproduced all other economies.
It was made clear to me multiple times this week that some in the US have forgotten this lesson.
Via…
In China this would have been expressed in numbers of days, not years.
We need to re-figure out how to make physical things with haste if we want to be a competitive society.
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1. Facilitating the de-dollarization of global energy flows is likely Putin’s real crime in certain Wash DC circles.
2. Don’t be surprised if US begins voicing concerns about some sort of Indian human rights violations soon.
Via
@WeekendInvestng
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“A surprisingly large % of US income tax receipts are tied to a rise in US stock prices. When the US stock market just stops rising…not falls, but just stops rising, that will put pressure on the receipt side of the US fiscal picture, which no one is talking about.” -Greenspan
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US & China have debt bubbles.
The difference is China got infrastructure, while we took Afghanistan from the Taliban & then gave it back to them, secured Iraq's oil for China, sent a quorum of our defense ind'l base to China, & also drove our life expectancy down dramatically.🤦♂️
If we had spent 1/10th of the Forever Wars' $8 trillion on high-tech R&D, infrastructure and worker training, we wouldn't be in a panic over China. We're the most powerful country in the world. We're the only ones who can defeat us, and we're doing a damn good job of it.
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Seems like the number of people on my FinTwit feed marveling at RUB falling 25% v. USD today outnumbered the number of people marveling at USD falling 18% v. BTC today. 🤔
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Signpost 👇
48 hours since the US 8.5% CPI print and I still have not seen a single FinTwit post about what 8.5% rates would do to interest expense on $30 trillion in debt and to US tax receipts.
Lots of posts on the relentless TLT sell-off though...🤔
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Stan Druckenmiller is doing a Balance of Payments analysis on the US. The Fed is not.
Akin to when the Fed was not analyzing mortgage derivatives but declaring "Subprime is contained" while investors that WERE analyzing mortgage derivatives were horrified.
Who was right then?
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If gold was a "useless pet rock", western G7 policymakers wouldn't be putting (futile) capital controls on it.
U.S. PRESIDENT BIDEN AND G7 LEADERS TO AGREE TO IMPORT BAN ON NEW GOLD FROM RUSSIA -SOURCE FAMILIAR
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911
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In plain English: There isn’t enough oil at prices that don’t blow up the economy to fund the level of GDP growth needed so that the debt doesn’t blow up the economy but if prices rise enough to get enough oil without blowing up the economy it will blow up the debt.
Got that? 😳
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One of the most sensitive measures of liquidity & one of the last actual free markets standing (BTC) crashing 18% is IMO a sign the Fed is misreading their situation as badly as they misread supply chain problems & inflation.
The Fed is walking into a buzzsaw.
#PolicyError
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