“Mother All Crises” | Luke Gromen on America’s Choice Between AI Dominance and Real Value of Treasury Market

Today's episode is brought to you by Tukurium. Learn more about how agricultural commodities can play a role in your portfolio by clicking the link in the description. - That's gonna be soon. - What's just a press record? What's not well understood, Luke? - I don't think it's well understood that the US faces a choice between losing to China in the AI race and the great power competition and maintaining the real value of the bond market. - You're saying in order to stay ahead of China or to beat China, it would have to devalue the Treasury market, why is that? - Simply because the inflationary costs of trying to keep up on the industrial side, A, that's gonna be inflationary, we're seeing that. And those are due to real supply constraints, right? We're starting to see that in AI where literally in the last month, it's come out, hey, the constraint isn't shipped, the constraint is grid, the constraint is rare earths. And these are not things the Fed can print, they have to actually get them. And getting them, they actually have to pay people to get them and to pay people to get them, you've got to pay a positive real rate. If you pay a positive real rate, you're gonna have wage inflation, you have wage inflation long into the curve's gonna go and at a certain rate, the long into the curve go and creates problems. And so at that point, the problems feedback into the system, hurts receipts. They basically have to do yield curve control in some fashion if they want to resure. And even more fundamentally, the US, the deal is, we offshore our factory base, we offshore our jobs, they send us stuff, they being the rest of the world, it's been heavily chained to the last 20, 25 years practically speaking. We send them dollars for the stuff, they recycle the dollars into our capital markets. So fundamentally, there is, it's, I get accused a lot of being anti-American or non-patriotic. All I'm doing is double entry bookkeeping and double entry bookkeeping doesn't care about your political views. And the double entry bookkeeping is simple. The US can either, if it wants to resure, which I think it should, it cannot have resure, you can't resure and bring the capital back here or have the capital here in your capital markets and resure, that you can't do the two opposite sides of the same balance sheet. You gotta choose one or the other. And if you choose to resure, as you move the capital from one side of your balance sheet, the capital account, to the current account, if you will, side of your balance sheet. Rates are gonna go up, full stop, they will. And the problem is, if US debt to GDP was 20%, like it was in 1980 or 25%, who cares? You're gonna have an economic cycle and whatever, private sector washes out. Where US debt to GDP is 120%. We've seen US equity markets, economy doesn't handle 4.8% in the tenure very well. So, you're gonna have to put a ceiling on that tenure. This is, in essence, we wanna run the World War II playbook, right, we keep hearing, oh, we're just gonna go to wartime footing, we can do this fast. Go to wartime footing. That's balance sheet growth 10X in three years. That US ran 27% of GDP deficits. That's what needs to happen. Yeah, so that's what I'm getting at. - I'm joined by Luke Roman from Forest for the Trees. Luke, you've got two very important tables or diagrams showing one, the rule book, the playbook for the past 50 years, the post 1971 US dollar reserve status structure. And then you have a slightly different table, showing the proposed President Trump, Treasury Secretary, Best and Economic Plan restructuring. What are the subtle but important differences between these flow diagrams and what are the consequences of them for the American economy and capital markets? In the post 71 system, it was, we cut tariffs, we open up our markets, we offshore factory base, the world sends us goods, we send dollars to the rest of the world, world invests in our capital markets, right? So we want a capital account surplus, current account deficit. And then we basically collect income taxes from our citizens and finance those deficits. And the winners in that system are global capital, Washington DC, too big to fail banks. They all get richer on a relative basis over time and the USA and US citizens. And in particular, the US defense industrial base gets hollowed out via debt-based consumption. And the flip side of it is what Trump and Best Center proposing is essentially we increase tariffs, we reduce income taxes. The world sends dollars and pays for tariffs, the US sends dollars to the world for goods, world invests those dollars into US factories as we're hearing proposed in particular with Japan and South Korea to address rising US demand. US in theory gives swap lines, dollar swap lines or has the Fed do QE to both supply dollars to the Japanese or South Koreans to help finance this or to finance existing treasury markets as capital moves out of our capital markets into our real economy. And then the world, he buys gold instead of treasuries with any net surpluses. And so in that world, global capital, Washington DC, the USA and US citizens and the world all get richer on a real basis over time. And the losers in that world are too big to fail banks and long-term US treasury holders on a real basis, via financial oppression and US industrial base gets rebuilt. So those are the two differences and sort of the relative winners and losers. And the boil it down, it's the loses of the last 50 years are the relative winners. And the winners of the last 50 years, which is US deficits, Washington DC and too big to fail banks on a real basis, they're the relative losers. And so in this new world that you see or a world we already may be in, you tell me, the difference is that the world invests US dollars instead of it to US treasury, it invests it directly into US factories. What is the take us from there into gold and the financial consequences? So ultimately, the world, if the world is going to invest in factories in the US, then it doesn't also have the capital to invest in treasuries. In fact, it may set the sell treasuries to invest in capital which puts upward pressure on rates. And we can't afford rates much above where they are. We've seen that empirically over the last two, three years in terms of 10-year treasury yields. That dynamic will require some form of yield curve control de facto. However, that is structured. Whether that's standing repo facility to help fund a hedge fund basis trade that keeps caps on yields, whether that is removing the SLR treasury exemptions as has been being discussed. If not implemented, outright in some way shape or form. It's all some version of the same thing which is QE without calling it QE de facto yield curve. It's a way to keep yields from going up to problematic levels. That's fine. That's what needs to happen. However, the release valve is inflation over time. And it also means that if you are the factory of the world, in the case of China, or if you're a energy or commodity exporter, it means you can't store your finite reserves, your finite production in an asset that is going to be debased by virtue of having the cap yields. It's going to go down in a real basis. And so you need a reserve asset that can serve that function whose value can go up against your finite production. And the only asset big enough, neutral enough, and that serves that role as gold. And that's what we've seen, right? We've seen gold priced in oil has gone from six barrels an ounce in 2007 to 72 barrels an ounce. I think it's going a lot higher over time. The gold to oil ratio. Yeah. And so how do tariffs play into this as well? Tariffs in theory, a restrict US consumption to redirect consumption into productive assets. It also helps to reduce deficits, the amount that you're ultimately going to have to yield curve control. It also in theory provides a price umbrella, under which returns are satisfactory for US producers to actually start producing here again. I don't know that the tariffs have been big enough, not even close to what is needed to create a sort of sustainable mode to produce here. And the other problem is we've got too many policy makers who want to try to set policy for very long-term projects based on a monthly hedge fund trader mentality. And I'm pointing right to Scott Besson when I say this, you can't have tariffs. You can't say tariffs are 100%, another 50%, now they're 5%, now they're 10%, depending on which way the wind blows and what is boss says. Because when you're trying to reshore production as the CFO or CEO of an American company or a global company for that matter, I'm trying to figure out a weighted average cost to capital and an internal rate of return calculation on a factory that is going to last 20, 30, 40 years. And my entire return on investment, at 100% might make sense, 50%, maybe it makes sense, 10%, maybe not. And so at some point you just go, you know what? We are not doing it. And unfortunately, I think when you look at the USISM November number, which is recessionary, new orders recessionary, employment recessionary and manufacturing, despite a boom going on in AI. So if you somehow could strip out the AI-related spending out of manufacturing, out of the November ISM, it has to be a 14-karat disaster. And I understand why. Because look, if I'm sitting in a CFO seat and I'm watching the circus I've watched for the last 10 months about tariffs, I can't plan a long cycle project based on hedge fund manager moving tariff rates around that fast. So that's the theory of I think what they're trying to do with tariffs and the theory of it makes sense. Now, the reason I say it, there weren't nearly big enough is for me, I go back to something I wrote a little over two years ago, which was Josh Wolf gave a testimony to Congress in which he highlighted that the cost per gigawatt of nuclear power in China is 1/6th the price of a gigawatt in the United States. A gigawatt's a gigawatt, right? It's not like there's a magic yuan gigawatt versus a magic dollar gigawatt. It's a gigawatt. And if it's 1/6th the price in China, means the dollar needs to be devalued 87% against the yuan per gigawatt. And then gigawatt's about as fundamental a cost in an economy as you get. You look at GDP growth against electricity consumption on a real basis, it's pretty tight over time. So when I say the tariffs have not been nearly high enough, 50% then really do it. And that then gets us back to our initial problem of do we want to resure or do we want to maintain the real value of the bond market? If 50%, man, I'll pay the 50%, I'll leave the stuff in China. And that's what you hear a lot of manufacturers say. It doesn't make sense here. Okay, what's the price that would do? I need the dollar down 87% against you on, holy cow. You probably need a 500% tariff, 400% tariff. I don't know what the number is, but it ain't 50. It's not 100. Let's say it's 300%. 300% tariffs. Guess what inflation's going to be in this country in a few months. And then when the inflation reading come out, what happens to the long end of the bond market? And so now we're back at 485. We have bond market dysfunction. That creates a risk off amongst the levered hedge fund basis trade that has been responsible per the Fed of 37% of long-term treasury issuance since January 2022. And now we're right back to risk off with yields up. And so everywhere you push on this balloon, it sticks out the other side. It's like, it's the same choice. Hey, boys, the bond market on a real basis, or reshoring. That's it. Those are your choices. Your point is that US treasury assets, US dollar assets are just too high in value relative to the rest of the world. Yeah, this is ultimately exactly. Like at the end of the day, this is the catch 22 of having the reserve currency. This is Triffin's dilemma manifested in the real world. Like we can't compete making real stuff relative to the Chinese. It's not even close, even with a 1,500% tariff. It's not even close. And we can't afford the inflation of a higher tariff. And in the meantime, if we try to block out capital flows, well, that's a violation of the rules. Like US dollar reserve status 101, post 1971, is you've got to have a open capital account. You close it down, guess where the money's going to go. It's going to go into gold. And that's fine. That can work. But you get right back to that decision. What do you want? I feel like it's the scene of, oh, gosh. The one with Ryan Gosling. And big short. No worries. It's where he's in love with the girl. And she's trying to figure out which guy she likes. It's Nicholas Sparks. The notebook. Not Lolo Land. No, notebook. The notebook, right? Oh, yeah, yeah. Look at that. Go on, what do you want? She's like, a bit of a bit of a, a bit of a, what do you want? And I think that's what I would say to Trump. Besson. Let Nick all of them. What do you want? We want to be sure. And we want to have 10-year yields. And I think what do you want? You can have 10-year yields at four. You can have them at three. And you can be sure. Absolutely. Sure. You can do those two things. OK, what are the trade-offs? The trade-off is the dollar is no longer reserve currency gold is. And the Fed's balance sheet is going to go up about 10x in the next five years. What do you want? I don't want, I want the dollar to be reserve currency still. And I don't want the Fed's balance sheet to grow. OK, then call up China and tell him to make more of your missiles for you, because you aren't going to be making any of them in five years. That's it. Why can't the rest of the world finance the growth in this country without the Treasury market rupturing and needing an additional Fed? Because the money's already here, right? We've got 50 years of open capital account. And in particular, for the last 25 years, the U.S. net international investment position in 1984, 1982, 1984, when Soros wrote his famous "The Imperial Dollar Cycle" paper, the U.S. net international investment position was positive 10% of GDP. That means there was more American money overseas than there was foreign money here. 40 years later, the U.S. net international investment position is negative 85% of GDP. In other words, foreigners have $63 trillion gross, $26 trillion net, more here than we have there. And so that money can't be in two plays at once, that capital can own Treasuries and stocks, and stocks are a key driver to our marginal consumption. Or that capital can finance new factories in the U.S. But it can't do both unless the Fed says or changes the rules, right? SLR is just a down payment on it. Hey, Mr. Japan, Mr. Rest of World, we are going to provide you a $26 trillion swap line so that you can have $26 trillion doesn't have to come out of U.S. markets, but you can use it as collateral that will give a zero haircut to also build our factories. And that's fine, like there's no reason conceptually they couldn't do that. But let's be clear about what that is. That is the Fed's balance sheet growing $26 trillion to finance the reshoring of our industrial base, and gold ain't going to be a $4,200 bucks, stocks aren't going to be where they are. And the stocks not being where they are is another tricky part, which is why the hell would I go actually work in a factory or why the heck would I go invest in a factory if the Fed's actions to build the factories are going to send the S&P up three X. I'm going to sit here and get rich and sit on my hands. It's a lot easier. I don't have to get my fingernails dirty at all. I don't think it counts as on my hand. So it's a pickle. Are you a sophisticated investor concerned about today's markets? With the ever present potential for stock market corrections and the risk that bonds won't provide the hedge that they used to, you may want to consider adding an asset class that is historically offered stability when you need it most. 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So, these foreign investment deals where a President Trump is securing what appears to be a very large number of dollars for the rest of the world to invest in the U.S. How much of that is actually going to come to pass? President Trump had been touting a $21 trillion investment boom. I think a lot of people realized that was perhaps an exaggeration. Bloomberg came out and said, "Oh yeah, it's $21 trillion, it's only $7 trillion." To me, I was actually shocked that it would actually be that high. $7 trillion is not $21 trillion, but it still is an enormous amount of money. Do you think that this money is actually going to be coming into the country via four-directed investment? South Korea, India, Saudi Arabia? Is this happening or is this kind of just a, the President is going to secure a headline and then the actual, the bite is a tiny fraction of what the bark was? I think the ultimate amount is going to be way lower, but what we don't know is the term of the deal, right? If this is a 20-year deal, then sure, $7 trillion, yeah, that's possible, but $350 billion a year over 20 years, it's nice, it helps, it's positive, but it isn't, if it's $7 trillion in one year, oh, by the way, if we did $7 trillion over two, three years, number one, it's really inflationary. Go back to everything we said before about those implications. The other side of it is, you know, a friend of mine who's a, you know, a special forces guy is really, really wise, he's really a warrior poet, and he goes, he says something I always think about, Luke, and in a war, the other guy gets, the other guy gets a say, right? The other, at the end of the day, they still can shoot back, they still get a say, the other side gets a say. And my point is that, like consensus to me seems very heavy consensus, all the Japanese have promised $550 billion. And to your point, is that $550 billion over a year, two years, 10 years, 20 years? I don't know. And is it $550 billion that they would have purchased anyway in stocks and bonds? Or is it $550 new incremental dollars that wouldn't be incremental dollars, right? And, and, and yes, and I don't know and I don't know. And then, and the other side guy gets a say part, like, anybody watching what the Japanese bond market's doing, like, it yields their go up big every day, ending and why. And it started at the 10 year, and now it's going up in the two year. The front end is going up, like, rapidly, too. And I'm old enough to remember when Kyle Bass was pointing out, like, hey, if the 10 year goes up, no, one of you, I base his points in Japan, Kaboom. It's over. And his math was dead on. I think, frankly, I'm astonished they haven't gone Kaboom yet. I don't understand why they haven't, but I think part of it is people said they turned it all out. So it's not a big deal. But now if the front end's going up, too, my point is the other guy gets a say, right? So the bond market in Japan, you know, American consensus is the Japanese are going to spend $750 billion in invests into our country. And totally agree, there's how much where would have done anyway, whatever. But no one's having the discussion of the bot, the Japanese bond market's going, no, we ain't. Get out of here. It ain't going to happen. Unless, unless the Japanese do yield curve control again, and hope, by the way, that's going to send the end down the dollar up, and once the dollar gets too strong again, then the rest of the world's going to have dollar issues relative to there. And then they're going to start selling treasuries to raise dollars. They'll start, you know, they'll start selling us stocks, raise dollars, Washington's repeat. And so it keeps going back. No matter where you push on the balloon, it's like, what do you want? You can reshore or you can maintain the real value of the bond market. Those are your choices, boys. That's it. And you better choose soon, because, you know, the interest doesn't sleep and the interest is going up. And the Chinese aren't sleeping. Their AI stuff is, as Jensen said, right behind. And there's more Chinese engineers than we have. Which door do you think President Trump and Treasury Secretary Bessett are going to choose between reshoring and maintaining the value of the US dollar, the US Treasury market? Everything I'm seeing right now, they are acting to concede AI and reshoring in order to try to maintain the real value of the bond market. And it is, as so many policies of the American government over the last 25 years, a penny-wise pound foolish, because it will ultimately, in the short run, preserve the real value of the Treasury market for a cup of coffee, until, you know, the Chinese at some point down the road, we get chippy, too chippy with them and they do to us what we did to the Brits in 1940, which is, you know what, boys, let me know you've been reserve currency for the last 150 years, and the pound is an awesome currency and blah, blah, blah, we don't care. You want stuff from us, you pay in dollars, are you paying gold, or you don't get it. And I'm not saying that would happen next month, next year, but that's where this movie goes, which is either we do everything the Chinese tell us, or we get to lip and they say that's it, we're done. You can pay in gold, or you can pay in yuan, good luck sourcing it, or you're not yet in it. So the government chooses AI over the dollar. I think ultimately yes. I think in the very near term, just to clarify, I think in the very near term, they're basically trying to, like, I think they've realized, like, uh-oh, when you see things like opening up H1Bs, when you see things like the 600,000 Chinese students, I said, like these, while simultaneously extending mortgages out 50 years, right? So, like, you're like, oh, here, have a house, we'll make it more affordable. And then cutting labor costs, while telling the US labor force, like we're going to undercut every time you start to make more money, we're going to undercut you, which is what the H1B and the Chinese student thing, the foreign student thing into colleges, is the message. Like that is, those are both moves of, like, let's try to maintain the real value of the bond market a little longer. That's the very near term. And ultimately, I think we've started to see hints of where this goes, which is David Sacks comes out, the CFO of OpenAI comes out and says, we'd like to maybe like a backstop. And then, oh, Sam Altman said, we're not asking for federal bailout. And then you look at OpenAI's documents, like, maybe we can slide in under a federal grant program. And then David Sacks is like, no, no bailouts for AI. And then last week, David Sacks is like, if we, if it's a big part of spending, and if we go backwards, we're going to have a recession. And I tweeted it. It was, I didn't think it was that big a tweet, but it went viral. I got like millions of views. It was if we keep spending, if AI works, it's going to undercut our industrial base, our workforce, and that's going to go up first. And if we go backwards, we're going to recession, that's going to go up first. And then Sacks came out and said, no, I'm not advocating for bailout. So even in this, you can see the what do you want. We want to bailout, but we don't want to bailout. So I think all of these inconsistencies in their views, while in the short run, they're trying to maintain the real value of the bond market. I think it's actually a manifestation of a shift from the five stages of grief around what do you want, denial, anger, bargaining, depression, acceptance. These are the bargaining stages, right? We were a couple of years ago, we're in denial. Like, oh, China's never going to catch us, blah, blah, blah, blah. And then, you know, we've also been in anger, which is, hey, China's actually doing pretty good. And I can tell you, you say anything positive about China on X or the big following. They're immediately, you know, a communist panda, lover, you know, China, whatever. You're seeing bargaining amongst our policymakers, depression comes next in an acceptance and ultimately acceptance part. Yeah, they're going to give up that. I think they have to give up the dollar in order to reshore and compete in AI. I think that's just the way it's going to go. Luke, you spend a lot of time thinking about the long term consequences of very large fiscal deficits. And you know, the reality is, in nominal terms, in dollar terms, very likely, unlikely for there to be a fiscal crisis because it's just that the government can bail itself out over and over again, real assets, gold, the stock market, maybe Bitcoin goes up and reflects it. But in dollar terms, there's no crisis at all. But when it comes to the private sector, there can be financial crises that sometimes the debt really is not paid back. When you look at the massive sums being spent on AI, particularly opening AI, one private company that, according to one report from the Financial Times and HSBC, HSBC is going to lose half a trillion dollars over the next five years, how does that shake out? And could there be a crisis there that's going to make the dot com bust look like kindergarten? I think the only question you need to answer that question is, will the US government allow itself to lose the AI race or not? And I think that's what we just witnessed with this whole open AI, David Sachs, Altman, back and forth, which is to say, if they have a problem, China wins. And so if they have a problem, we can debate what the stake, what's going to happen to the equity tier of these companies, if slash likely when the federal government comes into bail them out, and to help them continue to invest. But it reminds me a little bit of, I think a good metaphor for it was trading desks, sell side trading desks earlier in my career. So I was in the equity research and sales business set on a sales trading desk for 15 years. And when I came into the business, you know, in the mid 90s, we had, you know, trading desk, direct connection to the New York Stock Exchange floor, executing orders on an agency basis for clients, they were still doing an ace, ace of, ace of a point. And then they went to, you know, 16s and they went to decimals. And at some point in the early 2000s, you started doing computer trading, computer based trading. And that became bigger and bigger. And it got to the point by 040506 were literally the two big to fail banks were dropping hundreds of millions of dollars on the infrastructure of computer based trading. And regional firms or even we were decent size region, we were top 15 regional firm at a lot of places. You can't, we couldn't afford that. You just can't afford that. And so you get out of the trading business. And a lot of people got out of trading and we started getting paid on a, you know, check commission, whatever, you know, basis. And the trading consolidated around a few of the big brokers who could afford the capital commitment of the computerized trading. And I think that's a good metaphor for this, which is the Chinese government's back in this. And open AI, Oracle, the hypers, even Amazon, at least they can't compete with the Chinese government, least of all because the American economy is sending China, you know, China's getting a trillion to in trade surpluses every year from the people that are competing against them. Ultimately, like the US government, if it wants to compete and win, it's going to have to backstop these things. And then we say, okay, so it's the same kind of thing. It's too big to fail. AI is too big to fail. And then the only question is how big a crisis, how much do you things go down? And what's the equity stake? The government ultimately demands to bail them out. And what's that mean for current shareholders? And I don't know the answer to any of those questions, but I do feel very strongly that the answer is not going to be the US government going, AI. I know that you guys took out all this debt and you're losing this money. We're just going to let you go to zero and let the Chinese win. Like I think there's zero chance of that being the answer. And when you look at the AI picture, why do you see China as likely to jump ahead of the US because we have the best chip designers and we have a huge leg up in terms of building the data centers. China, I think China is not building nearly as many data centers as we have built or at least have announced. My view has been China wins if we are forced to A to stop by the finances of this, which is why I don't think we'll stop. Number one, but the other issue is just grid, right? We don't have the grid. And there's some things we're doing that we're doing these things because we don't have the grid, right? When you see a setting, you look at the relative size of data center compute, there's a reason we're going to the UAE. There's a reason we're going to Saudi because they can build it and they can build it fast enough and we can't. I'm hearing very credible rumblings, multiple different sources of land deals getting canceled in very high traffic areas of data centers now. Getting canceled for 2030 and 2031 because they know with a high degree of confidence they will not get a grid hookup by then. And so it doesn't make sense to spend the money. And so I don't, for me, well, is China ahead now? I got to believe when Jensen and everybody else says, yeah, no, we still got all that stuff. And we're building data centers faster in this and that. And I take a step back and go, we don't have the grid. Full stop. We're going to run out of grid. Arguably, we're already doing so when you judge some of the fact that whether it's what satiah at Microsoft said or others, right? I think it's getting to be pretty well known that the bottom like is grid, not, not compute. And then you say, okay, well, what else can we do? And I think we're doing some of those things, putting stuff in Saudi, putting stuff in UAE, et cetera, et cetera. Now, is that smart now? Absolutely. Is that smart five years from now? Are we sure China's not going to get any of that stuff? Seeing as China's Saudis biggest and the UA's biggest trading partner? Don't know. But because we didn't plan ahead of time early enough before and we spent our capital on the wrong things in the past, such as wars and bailouts and things that had no payback, we don't have the capital. We didn't invest the capital in the past to have the grid now. So this is the next best option. And so we roll on from there. And that's just sort of life and humanity what it is. So I have to go with your point that, look, right now, yeah, I hear we're in a better shape. Will we always be in a better shape? I will say this for 20 years, I've been hearing from Americans, oh, China, they'll never catch us and fill in the blank. And that view has consistently been wrong over and over and over and over and over and over and over and over and over again. So I, you know, and then you look at the engineers, they are developing. When you look at Wall Street Journalists, you know, Metta just paid 11 people, some kings ran some of engineers, right? In AI and 7 of the 11 are Chinese fading the Chinese and working to catch up with us has just been a fools errand for my entire career. And so I don't know why that change is now. You're absolutely right. In everything other than the stock market going up, China has outperformed all expectations. No, no doubt about that. Luke, tell us about the grid shortages. You've got these two great charts basically showing that China's electricity generation passed us in 2008, 2009 and it's just skyrocketed since then. And also you show that according to a admittedly a very rosy and bullish outlook that total AI demand in 2030 could be at the level of where all electricity generation is right now. So let me, let me back up one second, just add an adenum to your point about the stock market because it ties right in, right? The Chinese made the tough choice. You can have a choice. You can have asset price inflation and no grid, which is the choice we made. So our stock market looks awesome. Woohoo, we're winning. Are we? It looked like we were, but now we're not. We don't have the grid. The Chinese made the painful choice of, hey, let's invest in the grid and let's invest in our corporations don't make a lot of money. But we have the grid to harness this new technology. And now the Americans don't, right? So it's interesting. The stock, there's our stock market is massively outperform theirs about two years ago and all of a sudden their stock markets outperforming ours. And so let's, I think that might be a very important point and it ties back to what do we want? We want a grid. We got to take all that money out of the stock market and build a grid. But all that money in the stock market is what drives our consumer spending, which drives our leverage, which are, or we print it all and the dollars are released out. What do we want? In terms of that chart, I think it's very powerful. It shows it was from our world and data and then Alia Poldashinbrenner in his 2024 P situational awareness, which I think everyone should read is, it just lays out that yeah, that the Chinese grid passed ours in whatever 0809 and the last 10 years, the Chinese have installed grid capacity equal to the entirety of the US grid. And in the meantime, the US grid hasn't risen at all essentially in the last 20 years. And in part of that's because we've been offshoring our industrial base, we weren't going to need it, et cetera, et cetera. And now we're finding ourselves like oops, we're a little bit like the grasshopper and the ants fable where we're realizing hey, winter's coming and we've been singing away all summer and starting to get cold. So ultimately we can do it, but we can't do it without printing a whole lot of money because we can't take the money out of our asset prices because that creates a crisis. So it really comes down to what do we want? Do we want to grow grid? Or do we want to maintain the real value of the dollar and the US treasury market? That's it. Those are the choices. Do you foresee a large increase in the amount of grid spending? Investment grade bond yields are super low. Why can't these highly rated utility companies just build and do its best to try and cast China? Not saying that we're ever, it's looking like we're going to catch up, but have that chart moving in the right direction once again? I think it is. I think it will. I'm an investor in a electrical infrastructure private equity business. Happened for the last three years. Their order book is every quarterly update I get from the management. It looks like the Chinese grid chart, right? Here's what our order book is doing up and to the right. And so I think they're trying that and they're in a race against time on a couple fronts. There was an article in the journal today talking about data center construction, talking about how construction workers are making 200 grand. And it's not fast enough. And the other issue is because we've had 40 years of financialization, you know, you're six to eight years to a quorum of your skilled trades aging out for retirement or death. And you've got to probably, you've got to shift a bunch of them just in that direction. And then you need the engineers and then and even if you assume we have the labor, which we don't, and we assume the inflation doesn't create a bond market problem as we have higher wage inflation that we need, right? The market signal we need is higher wage inflation in order to get these the market response, right? People going into these trades and mass. Even if we had all those things, it is still a very long term problem because you can't just start like throwing up generation capacity, et cetera, et cetera. The grid is a very complex thing. It needs to be balanced with peak and and off off peak loads and estimates. And it is a very complex thing that you don't just throw up in on a large scale basis in a year, two years. You're probably talking, you know, if we went at warp speed where we literally said the Fed can print whatever you want, we're going to let inflation go, we're going to let the dollar go, we're going to cap yields, it probably take you five, six years. If you do it at sort of fast pace normal time, you're probably looking 10 years plus. And so we're in this really tricky time where a lot of the workforce is aging out in six to eight. If we don't go really fast, it's 10, if we go really fast, then you're going to have it goes right back to what do you want? Do you want a grid or do you want to maintain the real value of the bond market? Choose. So it's in theory we could, but in, you know, in theory is there's theories and there's there's theory and there's practice. And you refer to this as the mother of all crises, how real capital costs are going up, not financial capital costs, but real capital costs, explain that. All the crises in my lifetime have been pretty, pretty simple. It's extended pretend crisis, extended pretend, let's pretend all the stuff that's crap that is illiquid slash and solvent, pretend it's fine, add liquidity and add time, right? Whether it was the Latin American crisis in 82 where like all of the U.S. banks were completely upside down, extended pretend, just just mark the loans apart and grow out of it, great, no problem. 98, same thing, oh one, same thing, 2008, as bad as it was, same thing. Let's just pretend all this crap is actually awesome and print money, grow balance, sheet and jekyllic. The challenge in this one is you need grid, you need rare earths, you need silver, you need all these rare, all these materials and the Fed can't print them. And the Fed can inject liquidity, treasure can inject liquid, there are certain things they can do, but that then gets into this problem of the bond market. At 120 percent that the GDP and Japan wherever they are, you can't maintain a market, a free market in bonds if you are going to address the shortages in real world, labor, engineering, grid, raw materials. And this is where the trippin's dilemma, this is where that you had a great point before about, in nominal terms, the U.S. can't have a fiscal crisis, you're right. This is where it shows up. Once we do this exercise, 82, 87, 94, 98, oh one, oh wait, we do it enough, I've been saying for five, 10 years, we kicked, oh wait, we kicked the problems upstairs a sovereign level. And there's no one else to kick it upstairs to. And the upstairs is now we need physical goods. We can't print those, we can't print those. So that's why it's really the mother of all crises is because now that what do you want? We can get all of those things, we can get enough labor, we can get enough engineering, we can get all those things, we can get really fast if we want. It's just the real value of bonds when we're done with it is going to be, you're going to go from eating steak to eating hamburger to eating dog food. That's it. Or do you want to do that and let the Chinese make it all for you and take take turns down the road. And the channel by which getting it done, building out AI, doing what needs to be done, devalues the dollar and the treasury market. To be clear, which channel is it through all these extremely well capitalized companies, just paying top dollar for things and households and people don't get the copper and food. Instead, it's the AI data centers and electricity prices go up. Or is it that the government itself is investing and therefore the government runs a bigger deficit has greater borrowing needs. And then treasury supply issue goes up. Which channel is it or which one do you see as a bigger channel for dollar devaluation bond market devaluation? Or is it a third channel I missed? They're borrowing more already to invest in these companies. So it's a little bit of selling treasuries to buy rareers. If the US government's doing that, why wouldn't everyone else do that? Or what have you? So there's a little bit of that, but that hasn't been done in size enough to really matter yet. And when they're telling you, we are going to set a floor price for these critical commodities. Like, that's that's that is one side of it. We've seen the sort of transmission mechanism through through what you've highlighted, which is higher electricity costs and higher copper, etc. And that kind of goes through and you start the consumer side. Again, that's it because on one hand, it is inflationary and the inputs. But when you're starving the consumer side, that's deflationary, right? So those people have a lot of debt, consumer debt, etc. in aggregate. And if if consumption goes down, it might be harder to service debt economy wide. That's ultimately deflationary. I think that's the bad as hopefully we can do this now. You throw in the politics of it all. That's where it starts to get tricky. And that's one area where it starts to get tricky. There was a, I can't remember, it was like an energy commissioner election for two seats statewide in the state of Georgia in November, early November on election day. And for the first time since 2006, they went straight Democrat and they both ran on higher energy costs, on higher electricity costs. And lowering energy costs because AI is causing the price of power to go up somewhere. Yes. Yeah. And and oh, by the way, we've seen article since highlighting that the AI guys are spending a lot of money lobbying to basically take states rights away as it relates to AI, which is basically let us starve the people so that we can build our god in a box. It's not financial repression, but it's real resource repression. Real repression. And you know, you can do that, but the release valves are really two things. It's until something in the consumer loan market goes boom, right? Until you start to credit the link with these at banks. And we know how the government relate, you know, and the fed really, you know, react to that, you know, nothing can happen to the banks. And politically, right? So we're already the most politically unstable in this country that we've been in my lifetime. And probably in my parents' lifetime, if you look at some sources like Peter Turchin. And that, that is also, you know, how does, how does that, you know, it pushes you more down the world of populism. And the more populist you get, generally speaking, the more inflationary you get. But that's a soft thing. The biggest thing is ultimately that capital flow dynamic, which is we need high asset prices to maintain consumption, maintain tax receipts, to maintain the debt. But we also need the capital that's in the asset markets that does all those things to invest in all of these. There's a real capital shortage. And ultimately, the only way to address that is basically like I said, the Fed can write a dollar swap line to the tune of the net international investment position. So we can keep asset prices high. And, you know, and we can, and we can invest. And, you know, that's the Fed's, you know, that would be a dollar swap line of 20 something trillion dollars. And that's fine. But that's where you get into the real inflation of this. Until then, it's here and there. But ultimately, what do you want? The what do you want? The decision, my view, is ultimately, like I said, going to be they're going to sacrifice the dollar and the treasury mark the real value of it in order to compete and reshore, I think to have to. And that's where you get into the real inflationary side of it. But we're not very yet. They're still trying to ride two horses with one rear end. And that that real, that that that third channel, Luke, could be what we started a conversation with, which is President Trump controls foreign business leaders and investment titans, such as in Japan, Saudi Arabia, to invest so much money in these money losing private venture capital backed AI companies that that foreign investment dollar goes into those companies instead of into the treasury market. So that could be a force as well, if she talked about. Yeah, that's, that's exactly. And that gets back into the real cost of capital. Because now it's like, okay, well, the capital can go one or the other. It can't go both. And you know, I just saw something this today that I, you know, they're forecasting three trillion dollars of capital going into AI from in the US from 2025 to 2028. So we're almost at the end of 25. But like, that's a lot of capital to compete with Scott Besson who's got to sell a lot of bonds, especially if they take away his tariffs. But even if they don't take away his tariffs and anything that drives rates up drives his deficits up. So it's you know, ultimately like the most simplistic way to look at it is you can buy yourself a lot of room by doing something really simple, which is shift all issuance to the front end, cut rates to zero. That's essentially money printing, right? That's like, you know, the cash is just a 0% yielding note of zero duration, right? And so if you're financing enormous deficits with 0% yielding T bills of three month duration, actually the duration would be less than three months, right? It's effective duration. Anyway, that's the, that's the kissing cousin of money printing, financing is straight money. And that would work. You could do that. The deficit would come down a ton because interest would be diminimous. You know, if you could find a sucker willing to hold that paper, great, enter stable coins. That's maybe I think part of Besson's plan. But the release valve is back to the dollar, right? Anyone who owns any dollar denominated debt, like if you did that, the long end of the curve would go like this. Not like this, like that. And then they're going to have to come in and go, okay, 130 trillion dollar bond market, a lot of it's in dollars. Okay, here's the cut off. Like we're not letting it go above that. What do you want? Real value of the dollar or real value of the bond market? Or reshore? You got to choose. So look, even though that scenario sounds like you could have some severe consequences on the treasury market and dollar assets, dollar government bonds in the medium term. It sounds like in the short term, maybe 2026, 2027, that could be a recipe for giant bubble, giant asset price inflation and a giant nominal boom in, in, in, in GDP because all of these trillions of dollars worth of data centers are being built and videos earnings per share, all these construction companies earnings per share, these grid build out firms earnings per share just skyrocket to the moon. Is that the world you've envisioned over the next year in 2026 and in 2027? I think it'll be a tale of two cities, if you will, in 26. I think the first, I don't know if it's the first quarter 26 first half of 26 based on what we're seeing today. Until they come in and do the capping of the yields, however they do that and there's a number of different ways they could, I think it's going to be a very volatile, ugly environment for pretty much everything except for gold and probably silver, but gold in particular and maybe the dollar, maybe I think the dollar holds in fine. I don't think it's going to skyrocket, but I think it holds in fine and I think everything else is like, ugh, because like AIs trying to borrow a bunch of money. Scott Besson's trying to borrow a bunch of money, which Japan bond yields are rising rapidly, right? So you've got the two biggest carry trades in the world, the dollar carry trade and the yen carry trade and real rates on both of them are going up. And there's some sort of IV liquidity drip, if you will, from the standing repo facility. They're trying to address with it. Others talk about SLR exemptions again, but those SLR exemptions, as I understand them, are more on the margin than they were in, say, April of 2020, when the deal was basically, hey, buy as many treasuries as you can on infinite leverage, go knock yourselves out, right? When you exclude them entirely from capital or from your capital or your capital cost. And we're not seeing that yet. To me, it's next year's a tale of two cities. It is BCAD. The BC is like from now until whenever they, whatever crisis comes because capital costs have gotten too high and then they cap them and then, yeah, I think nominally, wow, you're, I think you're going to, it's, it'd be the biggest nominal boom since World War Two. And I think it's a world where, particularly in the AB portion of that world, stocks go up in dollars a bunch and they go up more, or they go down in gold, excuse me. In other words, in real terms, stocks go down, but in dollar terms, they go up. That's, and I don't, if you said to me, look, when's the eight, you know, when's year zero, right? When we go from BC to AD, my base case right now is probably some time in the second quarter, but that's very loosely held. The way things are going now, it could be February. Maybe, if we, maybe if some of these IV drip solutions buy us more time. Maybe it's June, July, August. I don't feel very strongly on that, but I feel very strongly that what, I don't think we're going to make it through 26 without that sort of year zero liquidity, that decision, right? That what do, you know, what do you want? They're going to have to choose. And I think they're going to choose, all right, throw the real value of the bond market under the bus, throw the dollar under the bus, and let's go. And that's a really good thing for most Americans. It's just not good for people that own a little long-term bonds on a real basis. It might be good, nominally, right? They might, you could, depending on where you set the ceiling, look, 4% out of 10 year, maybe they set it three effectively. Maybe they set it two and a half. That's great. Because gold is going to be 10, $15,000. Yes, and P is going to be frigging 12,000. Bitcoin's probably going to be a lot higher, although I think Bitcoin goes a lot lower first. I want to ask about why Bitcoin's going lower. But yeah, first gold and silver. So gold is up 60% over the past year. Silver's up 80% over the past year. Over the past three years, silver has effectively tripled what's going on here. And why is so much money flooding into precious metals? The short answer is I'm gold. It's central bank buying. And it is the recognition and gold that gold wins an inflation or deflation. And it's the only asset on the board that wins an inflation or deflation. Everything else loses and won or the other. And what I mean by that is, with that, the GDP at 120% in the US, which is the reserve currency issuer. So that's why I focus on it. And with US true interest expense, even with record tariffs, even with record receipts, even with stocks at all time highs, US true interest expense, which is gross interest, plus entitlements, plus veterans affairs, it's still 96% of trailing 12 months receipts. And so if you have deflation, you're going to push receipts below your debt and your interest and interest like obligations. And the US faces a choice. Default on treasuries or entitlements or print them or do something that's functionally equivalent. And we know they're never going to do the first. So it's always a second. So deflation introduces sovereign credit risk around the world, including in the United States. Good for gold. Similarly, if inflation picks up, obviously, good for gold. So I think there's a growing number of investors that realize that. So there's just a capital flow dynamic. There's a central bank side. Silver, I think, is you've seen a lot more electronic usage, you've seen China being a huge buyer. And I think those are really the drivers, you know, and then the monetary side, I think globally as well. I think that's been a driver, but I think those are the reasons why gold and silver are about performed so much. Do you say $10,000, $15,000 gold? Tell us about just how bullish on gold you are under what time horizon? Everyone knows Luke loves gold, but just get a little more specific for us, please. Look, to me, the way gold, the only way gold loses is one or two things either the US stands aside and says, you know what, we're good. We're going to let China make all of our stuff for us. And we're just going to preserve the real value of the bond market. And we're going to we're going to be dependent on China for all of our military and all of our goods, et cetera, et cetera, forever more. And even that only buys them a little bit of time, right? Because that introduces problem and not to do some future for obvious reasons. The other way gold loses is if Russia and China both have their leaders and entire political leadership replaced by their respective equivalents of Boris Yeltsin who proceeds to sell off their country's assets for pennies on the dollar to Western interests. And I think there's zero chance of that happening. And so ultimately, if neither of those two things are going to happen and I scribe a very low probability, then pretty much all roads lead to gold, right? AI works, awesome for gold, because you're going to undermine the tax base of this country. 38 of the 50 states in the US, biggest employer is healthcare. And it's mostly administration, unemployment in the US, under 25 unemployment in the US with a bachelor's degree is already 7%. You take 7% unemployment in this country. Kaboom, the whole thing blows up. Good for gold. So I think AI, I think gold wins if AI works. I think gold wins if AI doesn't work because as David Sacks said last week, we'd have a recession. Last recession, deficits rise, 600 to 800 base points of GDP. You're looking at 13, 14% of GDP deficit, easy. Fed's going to have the print money to finance it. Good for gold. You can see what has happened globally geopolitically, which is NATO essentially lost in Ukraine with China helping Russia. And ultimately, we know what Russia and China want. They want to change the system to a new to reserve asset. They've been saying it for 16 years. They've been buying a lot of gold. I think that's good for gold. I think the US wants this. We want to reassure. We're ultimately going to reassure. I'm very optimistic. Winston Churchill, apocryphalist, said the Americans always do the right thing after they've exhausted all the alternatives. The whole point of what do you want is we're out of alternatives. Do you want to throw the dollar in the bond market under the bus on a real basis? Or do you want to be dependent on China? And we've made our choice. It's clear because it was a Trump decision. It was a Biden decision. It was a Trump decision. It's been through different administrations. And back to the very first point that we let off with, which was you can't use the treasury bond as the world's reserve asset if the Americans are also going to be reassuring. It's a double entry bookkeeping, fundamental violation. It would be like throwing a ball up in the air and it not coming down. It would be a suspension of gravity. You need to use something else. And to the everybody's point, there's no other currency that's as good as or able to be used. They're right. Except gold is the only thing there. This whole central bank is buying gold. I think it's going to keep happening. And right now, if you include gold and global FX reserves, it's 28% of total. The dollar is 46%. You get another 30% up in gold. Maybe another 1000 tons or a year for a year or two in the other two years. Gold is going to be the biggest reserve asset. Above the dollar, it's already bigger than U.S. Treasuries. Are we still in a dollar? Is the dollar still the reserve currency of the world if gold's bigger than dollars? Or is it gold again at a floating price? Currency is what we've been calling for 11 years now. So where could gold go? Where would I sell gold? And that's a great question. I think last time we talked her two times ago, which is where would you be bullish on long-term treasuries? And I answered, it's not a question of where on a yield. It's where on the dollar. And where on the dollar relative to gold? And what I said then, and I still believe now, is when you look historically, U.S. official gold at market value, right now, even with this huge run, it's 12% of the foreign held portion of U.S. debt, U.S. foreign held treasuries. Long-term average is 40%. 1989, when the Berlin Wall came down in our unipolar moment, Starlight, it was 20%. So in an honest-to-goodness dollar crisis in 1980, by the way, it was 130%, 135%. So to me, I think gold's got to go up at least three X from here, if not four X. And then I would start thinking about it, maybe five X. Then I would start thinking about it. But some of it's going to depend on how successfully we do what we need to do over the next five to 10 years in terms of industrializing and reshoring. Look, there's just because America says we're going to put our mind to it, doesn't mean it's going to go well. It should, it should. Look, the South was darn sure they were going to beat us in the Civil War. And it didn't go well. And it would depend at that point. But I think for me, minimum, I think, I think gold, even with this huge run, is still the cheapest asset on the board. It wins an inflation, it wins in deflation. And it is still, it would still have to at least double to get back to its last to its level of 40 years ago. Yeah, so four X. I'm gold would be over 16,000. Five X would be over 20,000. Those are some pretty high numbers. Luke, I've reviewed the numbers, but you have the command of the granularity. So this is an interesting question. I don't think it's the case that the US has bought gold since a very long time, probably since like pre-war pre the 1950s. How is it that the US still normally has the biggest gold reserves if all these other countries have been accumulating for so long? Well, maybe the easiest way to answer it is that the only number that China hawks believe out of China is China's gold reserves. The only number that Russia hawks believe out of Russia are Russia's gold reserves. Both of those numbers are complete. They're they're canards. Russia and China, I would bet a substantial amount of money. And this is not just me talking out the side of my head. I've been told that China's gold holdings, there's the official gold holding and then but they also have other official seat banks. They exactly. And those are not official reserves, but you and I both know push comes to shove. That's official gold. And my guess is that the Chinese probably have 50 to young, annoying ice has done a lot of really good work on that amongst others around. And sorry, I don't know if I pronounced your name your last name wrong, but the the the 14,000, 16,000 tons, they might be 60 to 100 percent more than what we have. The Russians, I think in an unofficial capacity, they probably have more per capita. And I don't know whether that's 4,000 tons, 6,000 tons, it could be more though. But that's why I think ultimately we still have the most is China's still doing hide and buy it as it relates to gold. Russia is too. And so when it comes to gold, it's not looking like looking like the doll, the US is backed all that that well relative to China, other countries maybe, but it does look good for oil. It wasn't looking good for oil in the 2000s, but over the past 10 years, our production of oil has exploded almost entirely more than 100 percent of the growth having come from Texas and shale oil and the Permian basin. That looks pretty good for us. Isn't that a good backing? And also, is President Trump a huge supporter of drill baby drill? He says he is. I think he has been and it has been a huge advantage. I think it has been something that I've been watching with great interest. And it's another one of these inconsistencies from this administration. They say they want drill baby drill. And then your best sense say he wants to get oiled down in price. Look, some 60. It doesn't really make sense for purely oil for purely or more, let me put it for more shale oil wells for the oily wells versus gassy wells, right? There's an argument to be made by that it is made by Bloomberg. I think it's a very valid argument of look, you can in theory if you get gas prices up enough that you go from having oil be the main product and gas being the co-product, they sort of get given away or flared, takes it near zero to a world where we use a lot more of our gas for AI and generation, et cetera. And now you get gas to a break even on a BTU basis. He estimates it's five, six bucks. And I have no reason to doubt him. He's really good on that stuff that all of a sudden you can turn oil into a co-product. And now oil can go lower and volumes will not slough off. Maybe that's possible that we could go lower from here, but the fact is we haven't seen production really rise at all in oil over the last year and a half. And I would think that with oil having consolidated, shale production having consolidated to big, well capitalized multinational players, I don't think they would produce a lot more. Like I was at a dinner in January with the former shale exec friend of mine, somebody else, they were saying, look, there was a major shale property for shale in the US in January this year. And oil was 73. And the majors were looking at it and turning their nose up at it because they couldn't make the math work at 73. And so now we're, whatever, 59, 60, I think as long as we keep oil in the 65 to, we keep oil in the sort of 60, 65 to 75, 80 range, I think oil production can keep growing. I think it will stagnate and maybe even roll a bit if it gets too much cheaper from here. So it is absolutely still an asset. But again, when you go back to the ISM manufacturing from November, we know AI's booming, we know everything related to electrical grids booming. So for ISM the print 47 or wherever we printed today, I think new orders were like 44. There's not a lot happening. And over the last 15 years under shale, ISM and shale and the Baker Hughes Ridge count have been very positively correlated. You know, maybe we're already seeing some signs of slowing activity in the shale patch. Dallas Fed survey would certainly suggest that's maybe the case ensemble. Well, if not quite yet. So it's one of these things. Yes, dependent on price. My base case is they're going to keep the powers of B are going to keep oil at a price level that keeps US shale production flat to rising slightly. Because I agree 100% that it is absolutely, it's a support of the dollar, right? Luke, as promised, I want to ask you about your bearish outlook on Bitcoin. You write in a note that Bitcoin is the last functioning smoke alarm and that Bitcoin's going to continue to get crushed in your view. Why is that the case with Bitcoin now down well over 30%? Yeah, so we went short term, negative on Bitcoin about three weeks ago in our work after being very positive for a very long time after owning it under 30,000 pretty much from late 22 early 23, the bulk of our position all the way up and hadn't really sold hadn't sold any that entire time. Really a function of a couple things. Number one, I had been expecting Bitcoin to separate from tech. I had been expecting Bitcoin has been trading like a tech stock, just a high beta tech stock. And I had been expecting it to trade more like a neutral asset. And I was wrong. It is just continuing to trade that way. So then when I overlay that with what's happening in AI where I look and go, okay, up until about three months ago, yes, there's all this craziness happening in AI and data center spending, but it was all sort of equity based cash flow based who cares. And then they started borrowing money and then they started doing creative financing. And it's and then everyone's admitting that everyone knows that everyone knows that the constraint is grid and that's some account. Bitcoin still a tech stock. That ain't good for tech. It ain't going to be good for Bitcoin. The next issue is this real capital cost issue we highlighted, right, which is Bessent, Japan, AI, oil and gas. They only need to spend a whole ton of capital at a time of relatively constrained balance sheet, certainly relatively constrained relative to the trillions of dollars a year that are going to be needed. And so yes, there's some marginal liquidity coming in standing repo, blah, blah, blah, blah. As we put in the note and question that you got that we sent beforehand, anything, the amount of capital need it means that anything less than nuclear printing is tightening or is in the more, the more the words of Ricky Bobby will feral if you ain't first your last gets a macro version of that. So if real capital costs are rising, if it's still a tech stock, a high beta tech stock, and then the way it trades. And the other thing that's troubled me is that it hasn't broken out versus gold. I've been watching this when you look at the 2014 cycle, I think Bitcoin went to sorry, the two, yeah, we went from point O one ounces of gold at the peak to point to 11 ounces to 35 ounces to 36 ounces over the last however many cycles. And now it's rolling over hard against gold. And I don't know why that is. But then when I see things like tether, which are synonymous with Bitcoin on some level, buying gold miners, hiring gold traders, when their gold position is bigger than their Bitcoin position on their balance sheet based on the attestation I saw this weekend. Again, I don't know why, but I'm trying that to, I just need to respect what the markets are telling me. And when I see this breakdown of Bitcoin against dollars against gold, in light of what we're talking about, that was where the straws have broke the camel's back. And then the last thing that was more recent was really this quantum computing question, which is everybody knows that everybody knows it's a risk and it has been forever. Satoshi was talking about it being a risk someday. But in the last several months, quarters, you had very serious people raising the potential that it could be an issue within two to nine years. And the quantum stuff is way over my head. It's way over my pay grade. I try to read it. And I feel like the dumbest person alive. And I am not in a position to sit here and have any debate with someone who is quantum. Is it a risk? Is it not? What I am in a position to discuss is I've been in markets 30 years. And I'm watching the way Bitcoin is not making a new high against gold. I'm watching what Heather's doing. I'm watching what these people I respect in the space are saying. And I'm saying markets are telling me that's serious. And oh, by the way, the OG whales most selling in a cycle ever. Oh, really? Yeah. Maybe it's nothing. Maybe it's nothing. Now, intuitively, if I was worth 50 hundred, 200, 300 billion, you know, million dollars, billion dollars in Bitcoin is probably mostly in Bitcoin. I've held it for 15 years, 10 years. I would probably be very tight in in that world. And I wouldn't sell unless there was some sort of real, I would start to take some off the table if I thought quantum was a risk I wanted to at least hedge somewhat. And so when I see this whale selling, I can't help but think, you know, maybe there's something there. Given the price action I'm seeing when you're looking at gold versus Bitcoin, not breaking, setting a massive, a new high against gold for the first time in its life. When I see it breaking down on a momentum base, various momentum bases relative to the dollar on long term charts. I don't really look at the chart. Like for me, I just want to see the long term technicals and the long term technicals were really breaking down about three, four weeks ago, six weeks ago. And so that's really where I just say, you know what, I might fully concede, I might be being too cute if I have. And for these technicals, when they broke each of the last three times, as emphatically as they just broke about three weeks ago, four weeks ago, the median decline in Bitcoin was 65, 70 percent each time. And there were, I've only been three triggers in 14 years. And there have been no false triggers. So for me, it's, you know what, especially given the size that it had grown to in my portfolio, you know, as a champagne problem, knock on wood, it was like, it got something right for change. But the, it just to me, it's, it spoke to a need to write size it and substantially reduce positions, because I just think it's going a lot lower. And I guess lastly, a tieback, why is it functioning? I've called it the last functioning smoke alarm for five, six, seven years. Look, it's telling us the first half next year is going to be ugly. All right, let's make no mistakes. Bitcoin, if this Bitcoin sell-off is not just 100 percent tech and quantum computing related, and for you, forget about tech, because tech's liquidity too, if this isn't just a Bitcoin specific quantum computing sell-off, and I don't think it is, then what Bitcoin's telling us is, you know, so we go back to that BC and AD of 2026. Yeah, there's a lot of, basically, everything but gold in the dollar are likely to get way late until we get the year zero is what Bitcoin's saying. And on what time horizon are you bearish Bitcoin? One month, three month, or is this a multi-year negative view you have? Probably a function of more price than time, but there's probably price and time. In other words, look, if I woke up and Bitcoin is 40,000, and a little bit of time has passed, and there's revulsion in any number of technical indices. One of the nice things about having the size following I do on X is, it's a very useful indicator of sentiment. I can just, you know, throw some chum in the water, and the response I get is pretty informative. And then it's also going to be a reevaluation of fundamentals, right? Of, okay, where's price? Probably some time. And then, okay, is this QC thing resolved? Okay, are we seeing the community come together to craft a solution, whatever that looks like, or are we not? And relative to what is happening in QC, is it getting closer? Is it been pushed out? That's the first thing you see what QC. Oh, sorry, quantum computing. Oh, sorry. Yeah. Yeah. So it's quantum getting closer, better, what have you amongst? And again, I'm not smart enough to figure out whether it is or not. There's a quorum of people I'm watching that are, this is their lives. I'm going to trust what they're having to say, but that's for me really more it. Like I, for me, it's a, for at least the next several months, it's negative. Again, if it crashed tomorrow to a level where it's okay, and revulsion, I could revisit that. But it's, I don't think that's going to happen. I don't think it's going to happen that fast. Certainly not the way last, the last three cycles have gone. And I, you know, I've lived through each of those, you know, 13, I owned Bitcoin, 17, I owned Bitcoin, 21, I owned Bitcoin. And it was like the same kind of thing. It felt very similar. The reactions were very similar. I had a tickler on my calendar, literally in September, like, hey, check Bitcoin. It's the fourth year. And I looked at it. It was like 120. I'm like, man, we're fine. And so I finally only went negative at like 95,000. You know, better, you know, good, good is better than, you know, sometimes, you know, good is better than than bad, but it wasn't, it wasn't perfect. Look, I might add, maybe I'm going too far. You tell me, but a key bull argument for Bitcoin is the federal government's not just in the US, but around the world or out of control. Bitcoin is the safe haven. A lot of the Bitcoin that's been bought this year has been bought by MicroStrategy, other Bitcoin holding companies who are issuing like five, six different types of preferred instruments and debt. I think there's a lot more financial engineering going on at MicroStrategy than there is at the US Treasury. It's a, it's a fair point, right? And it's, you're going to get me in trouble with the Bitcoin. I'm just going to tell you, I'm going to get hate mail, but no, and it factors into, it factored into my point, right? Because in any cycle, you've got some, the cycle's done when the forced selling is done, right? And that is, I don't know where that financial engineering is, and I'm not the right person to talk about it. I agree with you. It has occurred on some level. And so I just want to keep it really simple. Like, I'm watching the technicals break down against gold against the dollar on momentum. It's not separating from being a tech stock. And critically, we know, yes, there's been a big marginal buyer from Treasury companies. There's been an element of financial engineering to it. And real capital costs are rising. And I am highly confident that, that ultimately, like I said, this ends with some version of extreme financial repression. It's the only way it can go unless we assume we're just going to let China run away with the game. And that level of financial repression needs, it needs the right pretext. And we're nowhere near the right pretext yet. And so if I've got what I'm seeing in the markets, what I'm seeing in the sentiment, what I'm seeing how it's trading, the technicals, and how I got real capital costs rising, that's, I think you raise a really important point. And I think that's partly why I think it's such a good indicator of why it's the last functioning smoke line, right? It's still a relatively pure market. And so when it's doing what it's doing, the move index is probably quite a bit higher today, I would guess, but it's still relatively low. But that'll get to a number where all of a sudden we start waking up and like, oh my gosh, 10 years up, 15 basis points in the Dow down 600 or the S and P's down 3%. That's a Bitcoin stall. That's common. And then we revisit at that point, but it's Bitcoin's the first one with the financial engineering to hit it. And then you said that various price action in Bitcoin is making you concerned about the stock market in 2026. Tell us about that Luke. And also you've recommended a trade for your subscribers about basically long infrastructure, short semiconductors, and it basically a long pave ETF and short the SOXX ETF. And I like that you didn't choose the VanX semiconductor ETF, which is a sponsor of mine. But tell us what's motivating that short because Luke, if the financing demands for data centers and everything is so extreme that the Federal Reserve, the government's going to get involved, it's going to weaken the treasury market, weaken the dollar. In that world, I see just a tremendous amount of money being spent with NVIDIA and all the semiconductors. I understand the long pave thing. But tell us about why you're short semiconductors, which has kind of been powering this bull market this year and last year. And also your views that about your bearishness on the overall US equity market. It's more a sort of a shorter term sort of way to get in a BC year zero AD world. It's a way I think to lose less money or maybe even make a little money in a BC in the BC regime however long that lasts. And that could be the next month. That could be three months. I don't think it's going to be longer than six months. Where ultimately, the grid's the the grid's the bottleneck. And there's and the chips of the surplus. It's possible you're it's entirely possible. You're right. That depending on the sequencing of events that yeah, if they come in and do the big print sooner than we think, which is entirely possible, then they both could do well, right? They both could do well and actually be in short the one. You get into upside down. So if you say, Hey, where would you want to be short socks over the next 12 months, probably not. Over the next two, three months, what I want to be short socks against pave. Yeah. In that BC world, again, if I have to be short something, especially I generally, and I've told subscribers, it's not in that particular note, but in a world where the most powerful country in the world, there was a currency issue where it needs negative real rates for like the foreseeable future, just to avoid a fiscal crisis. Like shorting assets is a very difficult game, right? Because when the tornado is blowing, even the turkeys fly. So it's not sort of a secular, hey, I want to be long, pave, and short socks for the next two years, even year. It's hey, real capital costs are rising. Things are looking iffy. And when you get things, I got an inbound about five weeks ago from a friend of mine who goes, Hey, I got the weirdest call day. And this is a guy who we've known each other 15, 15 years, he used to run research at a very important institution. And look at that call. He's in the data business now. He's got a call going, Hey, we got extra chips. You need any? And he goes, I'm not in that business. So if they're calling me, like, I'm not the first call. And that was then followed by satiah saying, I got all the chips I need. I don't agree. And then you had, you know, sort of all this other. And so it's really much more about sort of the BC world, if you will, of all right, rising capital cost blah, blah, blah. They're not going to stop working on grid. And so it's entirely possible. Yeah, if you have an asset re-rating down, could pave go down, sure, but I just think it's going to go down less in that world than socks will because it's the constraint versus chips for the moment. That makes sense. Thank you, Luke. And so you're concerned about inflation and the rising cost of capital is about just all this money going to invest in AI and particularly the grid. There's an inflationary story of AI. You've explained it over the past hour. So what about the deflationary story that AI is going to make things so much more productive and either there's going to be fewer workers, which is going to be a giant economic problem, or there's going to be same amount of workers, but they just can do way more either both of which are disinflationary and also the timing between the inflation and the deflation. It's that timing issue that I think is the like the critical thing. And as someone in the Rust Belt, my working mental model of what AI is going to do is what China did, right? China going into the WTO was just AI 1.0. It was a massive productivity boom, lowered costs, let companies do more with less. And that was ultimately managed by, you know, let's talk through what happened. China goes into WTO, no one, from a 1 to 08 manufacturing jobs in the United States, fall 35%. Those are initially papered over by what I have called it private UBI, universal basic income, where the big, too big to fail banks start giving loans to anything that can fogger glass. They take credit standards down to basically nothing. That means that even though you Mr. UAW worker who was making a 1.30 bucks an hour full benefits, lost his job, he's now a Walmart greeter for 12 bucks an hour no benefits, but Goldman will give him a subprime loan and so he can still get his basketball, he can still go to the ballgame, have season tickets, his standard of living, doesn't fall much. And that's all fine as long as the home equity lines that are all running on the subprime home equity lines, etc. As long as home prices rise every year, that whole situation works until home prices roll over and then the home equity lines roll off. And the whole house of cards comes unhinged and ends up on the Fed's balance sheet, right? And the Fed's balance sheet goes from 800 billion to 5.4.6 trillion and from 0.9 to 0.9 to 14. Same dynamic here, AI, I think is we're already seeing the early signs, right? It's unemployment, I'm like, 2024 year old bachelor degree holders, 7%. You're seeing company, Amazon came out and said there's 160,000 people next few years that we were going to hire, we're not going to hire. There's going to be a lot of that. And so you get into where's the UBI going to come from? You can make a case that some of the buy now pay later and the private credit and the non-traditional sources of credit have been that. We're now seeing smoke if not early fires some of the mark downs in some of these books. But we've got Wall Street doing the Wall Street thing trying to, hey, 401Ks, we've got this private credit. You should get involved. This is the best deal ever. We're trying to offload it on the public, which I think is it is what it is. That's what Wall Street does. So like we're early in that process of the home prices peaking and then on the downside of that and through it all, look from 08 to 2022, a million Americans died of drug overdoses. Case in Dayton did really important work, two professors. You can read it in Wall Street Journal 2015. You can read it again, I think in 18 or 20. But when you add up the drug overdose, suicides and death by alcoholism, particularly among middle-aged white men that were at the center of AI productivity miracle 1.0, the guys that lost their manufacturing jobs, their death rates were rivaling what happened to Soviet, Russian men, post Soviet Union in the 1990s in terms of early death, suicide, alcoholism, etc. My view of AI is that it's going to be fairly similar. I've talked about this a few times publicly and you can kind of tell I'm a little bit, it makes me sad. It makes me sad and I think it's already starting. We had, I have a friend that owns a funeral home and recently in one day they had six suicides and that was just one day and we really haven't even gotten into the job losses yet and they're coming. And this is just human toll. If we're already having a problem in the sort of private UBI, I have not seen anything where we've seen a decline in credit, I would not seem like the credit cutoff yet, but we've seen some sort of smoke that we could see clear to credit cutoff sometime in the first half of next year, maybe we'll see in these private credit markets that have been private UBI, then you're going to start to have consumer credit losses rise a lot. And if AI does even close to what it says it's due through 2006, you're going to see rising delinquencies on houses, cars, credit cards, etc. And that's clearly deflationary until the banks have to, until somebody cries uncle, right? And there's a crisis and then the Fed we know will step in because they always step in to save the banks and that's fine, that's what they're there to do. And I think that'll that'll then be inflationary off a lower level. The thing that is different in this cycle versus the 08 cycle of this playing out is policy makers self-fit to regulate the US banking system into holding as their liquid capital and US treasuries. And so what I'm talking about here looks a lot like a weight right up to this point, which is okay, you start to have these credit delinquencies. Now banks are going to join, number one jobs are going to fall, deficits are going to increase credit delinquencies are going to, if deficits go up, treasuries is going to go up to finance the deficits. Banks start to have credit losses, they're going to start at some point to sell treasuries to finance credit losses, at least that's what we're told, right? We started to see it in the signature bank and SAP, we had that mismatch problem that they could have sold treasuries but they didn't want to because they were so far under water. And so we had sort of, you know, BTFP was just yield curve control for the banks to get them liquid on their treasury positions. And you'd have that same kind of issue again. So the deflationary pressures, you see a lot of them, but you think ultimately that will turn into inflation again because of government stimulus, even in a world where AI has automated so much knowledge work, you still see that as inflationary. Yeah, because ultimately AI automating so much information work means AI creating massive amounts of mortgage delinquencies and car loan delinquencies, et cetera, because look, white collar people have no idea what's coming for them. Like one of the nice things about being in the rust belt is like you have a lot more sort of blue collar friends that got eaten by this shark, that 1.0 shark of productivity miracle. White collar people, no idea. And when it comes for them, and what they're going to do, right, they're going to do with the blue collar guys, dude, which is stay up on the car longer than on the house, because they're not going to take the high, you know, the same kind of stuff. And it's absolutely deflationary in the short. Absolutely. But I think there's enough people like myself that are going to go listen. I don't know when this thing really hits a critical tipping point, but once it does, banks are sellers of treasury. There's not going to be a, you know, deficits are going to be increasing treasury supply. Banks are going to be increasing treasury supply. Oh, by the way, the dollar probably go up in this, which means foreigners are going to be selling treasury as well. Deflation with leverage, where it is across the system tells you like ugly things. And that's why I think next year is going to be sort of BC year zero AD with year zero B in the big print. And I think it's what Bitcoin is hinting at, which is, do you see the inflationary pressures of all the AI CapEx that you've talked about? Do you see that happening before the disinflationary things or do you think that the deflation could happen as early as next year? Just want to be clear with the timing. Gotcha. Gotcha. It inflation probably stays in the near term, relatively tame, because you're going to have really high inflation on the production CapEx side because of the shortages that we described. And I think increasingly you're going to see deflationary on the consumer side until it creates a problem. So you probably are, I bet you we just continue to tread water here with inflation, which is a little bit better, a little bit worse, a little bit better with. And gun to my head, I would say it probably trends down slightly. You know, as it's kind of been doing. But ultimately, yeah, so if that makes sense. Yeah, so I guess, you know, gun to my head, I bet you it probably trends a little bit lower in the next three to six months. Okay. That makes sense. So it's not higher inflation. That's a threat to the bond market. It's other things. Oh, yeah. No, the issue, the threat to the bond market is inflation or deflation. That's what either way, there's this very narrow and increasingly shrinking window. Because again, the higher the debt goes, the less deflation, higher the debt goes. And because you've regulated the bond market to being the capital of all these leverage institutions that when they start to suffer deflationary losses, they have to sell rather than buy treasuries. You end up with, you end up with a shrinking, small and shrinking window of inflation's bad for the bond market, deflation's bad for the bond market. Explain that. So banks are levered and own a lot of treasuries. And when there's deflation, there's credit losses. So they have huge losses on the credit side. But they generally interest rates go down. So that helps them and it increases demand for treasuries. A newer player, you've covered this well, I know in your research, is the hedge funds very levered as well. What, why would deflation cause people, cause those leverage players to be a seller of treasuries rather than buy or like it has been normally? Just because deflation increases volatility. You increase volatility on the hedge fund basis trade, right? They've bought almost 40% of long-term issuance since 2022 for the Fed. That white paper about a month ago, right? So they're along a trillionating treasuries, funded in repo, and highly levered. And so if vol goes up anywhere, equities, treasuries, geopolitically, they're going to de-gross. Like that, there's just no question. They're going to be big sellers of cash treasuries. So that's upward pressure. That's one upward pressure factor. The other factor is, you know, as you get deflation, the world's short dollars, right? They've borrowed a bunch of dollars. On one side of their balance sheet, the world's short dollars, right? They have borrowed a bunch of dollar debt. They are, as the dollar goes up, it makes those obligations tougher to repay. They need to sell dollar assets to maintain or sustain that debt. What do they sell? They own eight and a half trillion dollars in treasuries, foreigners, and aggregate, maybe nine trillion, largely against what, 13 trillion in dollar denominated debt. So as dollar debt goes up, the 13 trillion dollar denominated debt gets more onerous. You sell dollar assets in order to pay off that debt. What do you sell? You sell treasuries because you can. So now you've got a huge, 1.8 trillion in selling power from hedge funds. And they'll be the first to go because that's just 2 p.m. risk manager comes and says de-gross now. Then on a bit of a lag, you're going to get a stronger dollar driving foreigners selling to defend currencies, just a slight lag. Then deflation in a highly leveraged system is going to increase credit risks, increased credit risks are going to lead to de-grossing at banks. They own 4 trillion in treasuries, agencies. I don't know who the buyer is other than the Fed, right? So I think you would, I think in, we've seen this and people still don't fully believe it. They've seen it five times now, 2020, 2022, early 23, late 23, 2024, and earlier this year. You've seen it. Okay, six times. You've seen six times. Risk off. 10-year yield initially goes down. This is a, look at the Bitcoiners. They're losing money. And all of a sudden 10-year yield stops going down, starts going up very rapidly as stocks continue going down and Bitcoin keeps going down. Now nobody's laughing because this is the death spiral trade rates up, stocks down, etc. And then some version of liquidity comes in whether it's job owning or BTFP or not QE or rate cuts. However, they do it. They've done any number of it moving to the front end. We've seen it six times and people still don't believe it's going to happen the next time. I, I would bet my house it's going to happen again. 10-year treasury down a little bit and yield and risk off five days, 10 days, maybe 15 days of trading days, maybe if we're lucky. And then it's going to take off higher like a scalded cat because it's just mechanics. It's just double entry bookkeeping. So what you think is going to happen again, what your house is going to happen again is that the bond market is no longer the safe haven. It is for a few days, but ultimately when there's a panic on risk assets such as stocks, Bitcoin, everything that bonds are also a risk asset. Absolutely, effectively. And do you, have you seen that this year in the data? I thought I saw it, Luke, we saw the dollar weakening during the liberation day panic and markets in early April. Later, I learned from you, other interviews and experts that actually a lot of those the dollar weakness then was not from outright sales of foreign holders of dollars, but actually them just increasing their hedging ratio. So they just basically short dollars in the market, but it's not like outright selling. Does that change your thesis at all? Or is it basically the same thing? It's basically the same thing because the price of the hedges, as I understand it, are sensitive to the level of the dollar. So the higher the dollar goes, the more expensive the hedges get and the less likely are to hedge, whereas the cheaper the dollar gets, the cheaper it gets to hedge, and the more sense it makes. And it's away from a decision to hedge or not hedge, my guess is the lower the dollar goes, the cheaper the hedges get, the more the models say hedge. And functionally, there's no difference. That makes sense. We'll leave it there. Luke, thanks so much for coming on. Monetary matters. Really appreciate it. People can find you on Twitter at Luke Groman and your website is fftt-llc.com. Thank you, everyone, for watching. Please leave a rating and review for monetary matters on Apple podcasts and Spotify and subscribe to the Monetary Matters YouTube channel. Thanks for watching. Remember to click the link in the description to learn more about the Tukurium Agricultural Fund Benchmark Index. Until next time.