US Debt Crisis At A Fork In The Road Luke Gromen On What Happens Next

Summary

• Market Outlook: Rising JGB yields, creeping dollar funding costs, and potential carry-trade unwinds signal a return of volatility with a “flashing yellow” risk regime.
• AI Sector: The guest flags an AI bubble as hyperscale players shift from cash to debt-funded capex, with GOOGL TPUs pressuring NVDA and massive depreciation cycles threatening returns.
• Data Centers & Power: AI data centers strain the electric grid and natural gas supply, with multi-year waits for generators/transformers and rising electricity costs creating inflationary pressure.
• Gold & Silver: Bullish on gold as a settlement asset amid de-dollarization and on silver as industrial demand approaches/exceeds mine supply, with market stress hinted by CME outage and SLV borrow/fails data.
• Bitcoin: Bitcoin is framed as a liquidity “smoke alarm”; long-term momentum breaks suggest a bumpy liquidity patch ahead unless policymakers add aggressive liquidity.
• China Competitiveness: China manufacturing shows structural cost/scale advantages (e.g., BYD autos, nuclear buildouts) and fast AI progress, eroding the U.S. technology lead.
• Japan & Carry: A rising JGB yield with a weakening yen resembles EM-type stress, raising global volatility risk from a potential yen carry unwind.
• Policy & Portfolio: The fork is yield-curve control vs. currency risk; K-shaped outcomes and political strain favor resilience via gold, cash, land, and quality equities, with caution on long-duration bonds.

Transcript

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. You know, now after years of pull up, pull up, pull up, pull up, pull up, like, oh, look, there's mountains there. That's why. And we're trying to pull up. But, you know, the question, I guess, to continue the metaphor is, can the airframe handle it? I don't know. Welcome to this episode of FinanceU. I'm your host, Chris Martinson, and today I am genuinely honored to bring you one of the clearest, most courageous voices in macroeconomics today, Luke Groman, founder and CEO of Forest for the Trees, or FFTT. You can see it in his background there. And Luke is the analyst who saw the weaponization of the dollar coming years before Russia got kicked out of Swift. who's been relentlessly documenting the US debt spiral. We'll get into that today. The rise of ddollarization, so many things coming to a head, and the return of gold as money, while most of Wall Street was still chanting transitory inflation, our favorite word, transitory, his weekly research notes are legendary. They move billions in institutional money. They make Treasury officials sweat, and they've been dead right on the biggest trends of the last decade. Now, I've been reading Luke's work for a decade or so, and every single year I think, "Okay, this is the year the mainstream finally catches up." Spoiler, they still haven't. So, buckle up. Luke Growman is here for the next hour or so. No spin, no sacred cows, just unvarnished truth about where the financial system is actually headed. Luke, welcome back to the show. >> Thanks for having me back on. It's great to be here, Chris. >> Well, let's let's start um from the outside in. Um you've been talking about how you think volatility is going to be coming back. Uh which is code speak for sometimes stocks go down not up number up to the right. Um but let's what's the vibe right now? You you work with a lot of people who are um we'll say financially well-connected if not titans in some cases. So what's the vibe out there right now you would say in terms of confidence in where things are headed? I I I think there's there's some uh cautiousness just some some some flashing yellow signs if not outright flashing red signs and whether that is um I think sort of first and foremost that has people's attention is what's happening in the bond market particularly uh in in Japan um where we're seeing yields that you know go that those are going up and to the right every day ending in Y lately uh and that is that is something that that veterans um are are very focused on uh simply because there is um there have been really over the last gosh 30 years, 30 plus years, there have been basically two big carry trade funding currencies and it was the yen from call it 1990 through you know probably still ongoing to a certain level but but certainly 1990 to call it 2010 and then 2010 since the dollar and so what that means as a as a as a carry trade is that ultimately if those currencies get people have borrowed in those currencies and so if those currencies get too strong it begins to create forced unwinds of carried trade you know borrow short lend long borrow short invest long uh and so historically speaking when we see uh interest rates on the yen on or on on JGBs 10ear JGBs um rise u we usually get some period of volatility in part because it starts to force yields else up elsewhere around the world and we're we're seeing that maybe a little bit on the margin as it relates to Treasury bonds in the last you know even week to 10 days not even um and so I think people are focused on that I think people are focused on the front end uh of what we've been seeing there and some of the strains in US funding markets which I still what we're seeing in terms of those strains and stresses they're not uh huge and and and problematic instantaneously like they were say back in 2019 when we saw the spike in repo rates or overnight funding rates in the US. Uh but the veterans are all looking at the it's as a pressure gauge and if you look at slowly but steadily rising overnight funding rates here too these are in very important to funding broadly speaking you know global dollar carry trade and so the cost of borrowing dollars is creeping higher in overnight markets. It's not problematic yet, but it's one of these things where, you know, little by little and then all at once and no one really knows where sort of the the trigger point is where that's problematic. Uh you layer in geopolitics, you layer in the which which is uncertain. You lay in the fiscal side, you layer in what's happening with AI, and there's a robust debate around um the is it a bubble? Is it bursting? Uh I can tell you people in in you know again market veterans are are paying very close attention to the fact that the AI and data center world have begun borrowing money uh to make these investments really in in in size only in the last 3 4 months. Uh up until that point they'd largely been funding out of cash flows retained earnings which is is not as big a deal. Um but now that they're starting to borrow money a it's raising questions around AI and B it's it's competing with the US Treasury and the Japanese for capital globally which puts further upward pressure on rates. So there's a lot of uh I would say people are paying attention to all of this dynamic in a world that has you know people understand how levered the system is and it's making people nervous and that's why I say I think ultimately it's it's a flashing yellow. It's not red light yet but it's one of these things where they don't give you sort of the sound tone at the beginning of a car race right where it's a beep beep beep beep beep. It's just you know beep beep you don't you don't know right and it's like oh gosh I got to hit the gas. So um yeah, I think there is a you know when we look at it tactically there's a degree of um major factors that are making investors um I think tactically uncomfortable cautious. So let's begin with this then because this feels almost what you're talking about is a regime change. Okay. So we had 2008 GFC lessons went unlearned and and I score that because I say too big to fail became bigger and the derivatives that were the cornerstone of that um doubled in size, right? So so I'm going to sort of score that as lesson unlearned. But what the Fed and other central banks seem to carry into that was liquidity fixes all ills. A major source of that liquidity was the Japanese carry trade which I know about but Luka I don't actually know how big it is and I haven't found anybody who can really put their arms around that number but we know it's big. So a if do you know how big it is but b weirdly I'm watching these uh JGBs the Japanese government bonds rise in yield and I'm not watching the yen strengthen all that much. Um how do we interpret that? Yeah, I I have no idea how big it is to answer the first part of that question other than you know what we can point to empirically in markets which is you know summer of 2024 when the yen got too strong it was bad for basically everything except except gold and that's paradoxically when the yen gets too strong another way of saying that is is if the dollar gets too weak and so par and the flip side if the dollar gets too strong we've seen that multiple times empirically over the last several years or the yen gets too weak Uh that's also bad for risk markets. And so you're you're increasingly trapped between Siller and Caribbdus, if you will, of too strong a yen, too strong a dollar, too. And and as debt levels rise, the gap between Sila and Caribus narrows just by virtue of of of the math and the leverage. Uh in terms of of the message of rising Japanese bond yields and the yen still falling, that's troubling. that is uh that is de that is emerging market uh type price action when your yields are rising and your currency is still falling. Uh that's a that's a fiscal crisis. That's a currency crisis precursor uh a warning sign. And so normally when you start to see those types of things in emerging markets once they get to a critical point what happens is um you get some sort of crisis and then some sort of multilateral like the IMF comes in and says you guys can't run your own show and you need to you know implement austerity. You need to hike rates a lot. You need to cut government spending and starve the you know starve the economy of capital. there's a severe recession and that finally stops the currency from going down and stabilizes things at the cost of a very severe real decline in output in the country and a lot of human human suffering for lack of a better word. Uh Greece is a perfect example um for maybe the most recent. Uh the challenge in this case is it's Japan which is um the second or third biggest bond market in the world a developed economy. uh it is somebody that if you talk to most investors or certainly many investors in the US there's a almost uh dogmatic faith that Japan is going to be the uh play a major role in reassuring and re-industrializing the US and in investing to do that and that might be the case but they can't do that if they're having to be implemented austerity uh to to support their currency and so uh when we see when we see the yields rising and the currency falling uh in a place like Japan uh it is it's it's troubling but it's also something we've never really seen in 40 plus years. We've seen it in developing markets over and over and over and over. We saw it in in Greece and in sort of the the pigs trade, I guess, if you will. It's a it's kind of a derogatory name I never particularly cared for, but that's what it was known as, right? uh Portugal, Ireland, Italy, Greece, Spain uh back in the call it 2010s 2011 Euro crisis. So we have seen it within a developed market the EU but it was kind of the more EM like and uh and certainly EM finance like U pigs that were suffering these issues and primarily this is Japan like this is a different animal altogether. So, you know, it's one of these things where we don't know how we don't know exactly how it's going to play out yet, but we know it's we know it's not sustainable. We know it's not good and sort of, you know, no matter which path you choose, um, you know, are they going to choose the bond market? Are they going to choose a currency? It really comes down to to that question. Well, it that sounds vaguely Austrian to, you know, misquote Ludvan Mises badly, but he said, you know, at the end of a credit expansion, your options are voluntarial voluntary abandonment of that, which is austerity that hurts, or the complete collapse of the currency system involved. Is that what we're talking about here? That's where this is pushing to. That's when you see yields rising and you don't see current, you see currencies falling as well. That's, you know, that is the sort of the jumping off point, right? You know, the old uh uh Yogi Barra when you come to a fork in the road take it. you know that's that's the fork that's the fork in the road that we're heading towards which you know we're not there yet but that's what the price action is saying is hey we are going down this path and you know I don't who which which um >> you know what old adage where it's from but it's you know if you start on a path going somewhere don't be surprised when you arrive at your destination and so I don't know how many steps between here and our destination but I can tell you that price action >> is heading us toward that fork in the road >> well sort of the the sense that um there's rising uh pressures on the system and sometimes they can resolve peacefully uh but sometimes they create a situation where the cornice just gives way and and then you have to deal with that. Um I'm wondering if we could put this in context because there's another pair trade that that is I think giving us a signal. I'd love to get your view on it. Gold just rising rising small attempts to Mr. Slammy to take it down. Not very effective. Obviously, a lot of buying pressure, but my ultimate liquidity gauge for the past four years has been Bitcoin. It is no longer behaving as it has in the past. And and I'm is it wrong to maybe connect that to what we're talking about with Japan that somehow it just tells me that liquidity is not as abundant in the system as it once was >> with Japan being a source. >> No, I agree. I agree. Uh and I apologize for interrupting you. Uh I agree. It's uh um it for me, you know, something I started calling it probably 2019, 2020, maybe maybe even earlier was I saw Bitcoin as the last functioning smoke alarm of liquidity uh within the system, which is because especially back then, a little less so now. There's more derivatives attached to Bitcoin than there were then, but it's still uh it's still a relatively pure market. the derivatives markets aren't that big attached to it and there's still an element of the technology itself where it's it's pretty hard to create unallocated Bitcoin derivatives certainly in the size that uh that has been done in gold and silver um historically over the last 40 50 years and so when when Bitcoin falls sharply for me it is absolutely um you know a warning sign and so when I was watching what we kind of talked about in terms of, you know, these rising yields in Japan, rising 10-year yields in the US a little bit. You know, more importantly, the short-term funding strains in the US, concerns about an AI bubble, competition for capital between the Japanese and the Americans and the AI, etc. uh when you then see Bitcoin break down the way it broke down u it is absolutely to me a potential uh warning signal particularly then when you know I don't spend a lot of time in the technicals um in terms of technical analysis uh because I'm not very good at and the guys that do that are really good at it and so it's important for me you know I don't go out and try to play linebacker for for a professional football team and I don't try to do technicals right I'm going to get hurt but I do watch some certain long-term momentum indicators and I put be because that's what we try to do. We're trying to look for these big shifts as in in in at FFTT and in light of all of what we just described. Uh Bitcoin uh on various long-term momentum indicators uh broke down forcefully multiple different indicators, you know, in the last call it month or two. And uh these momentum indicators by virtue of being monthly monthly uh reads uh they've only broken down four prior times or three prior times. It was you know the bit end of the Bitcoin cycle in 14, the end of the Bitcoin cycle in 18, the end of the Bitcoin cycle in early 22 and now. And every other time these various momentum indicators have tripped on the downside. A, it's been a sign of of the Bitcoin cycle is over, but B, kind of a bumpy stretch of illiquidity coming, and I don't know what the magic is of the of the of the four-year cycle. I think some of it has to do with how, you know, the Bitcoin mining and the difficulty adjustments, etc. Uh, but boy, it's it has been it's happened three prior times in 12 prior years, and it has never had a false trigger at the monthly levels. And you know the median decline um after the signal's been tricked is 60 70% on the downside for Bitcoin. And so okay I take that and I overlay that message of okay what's happening here? Is this Bitcoin specific or is this liquidity? My working assumption is that it's it's probably liquidity related and it's giving us a warning sign the first half of next year is going to be pretty bumpy unless the the authorities policy makers get really aggressive with liquidity and you know is there a is there a possibility that it's a Bitcoin specific thing around uh AI or around quantum computing? Sure, it's possible but it's not my base case just given everything else. It's something I'm keeping an eye on. Hey, maybe everything's fine and all these, you know, all it's just related to quantum or it's just related to AI, but I don't know. So, for me, the Bitcoin is another thing where I take and I lay around what's happening in Bitcoin to what we were describing before uh and it leads me feeling more cautious still uh in terms of the first the first half of next year. Mhm. Now, if I could lift one eyebrow like John Belalushi, I I would right now um because uh that happened for me also when I noticed uh there were some OG wallets from Satoshi era that dumped or disorded a pretty significant stakes in in Bitcoin. And to your point, um those wallets sat there through successive and they have stronger um trading balls than I do. successive 90% decline, 70% like some super volatility. And you know, I don't know how they held on, but they did. And so to me, that was just kind of like, is that insider selling? Is that somebody who's been there from the beginning recognizing something that maybe I don't because I'm out here in the cheap seats? >> Thoughts? >> You know, it's it to me that strikes me as possible. And it's one of these things where, you know, a man's got to know his limitations, right? like I don't have the education to know the math around the quantum and the and sort of the the block there there's people that I respect greatly in the Bitcoin community they have pointed to different people in various mathematical communities and you know anytime you want to feel stupid like like pick up something that a quantum mathematician is writing and like explaining and it's it's the easiest way to feel like the dumbest person alive because you just but the point is is that while I have no I don't have the pedigree. I don't have the experience in those things. I do have 30 years in markets. I have 30 years in finance. And when I and and when I see things like those technical indicators breaking down on a long-term basis, number one, and then overlay it with, you know, something else I've been doing for nearly 30 years, which is fundamental bottoms up research and just seeing different, you know, the old Jeff Bezos, when when the data and the anecdotes disagree, I've I've found the anecdotes are usually right. There's usually something wrong with the way you're measuring it. uh 20 to 30 years of my career was in bottoms up fundamental research where we were just talking we were just out doing int real intelligence work we were talking to suppliers of various industry verticals and it was amazing we I was in 100% cash by by October of07 personally I was like anyone I could tell certainly for clients we had a position like this is going to get so bad and that was simply by bottoming up the the anecdotes and so this strikes me as one of these and I'm not saying that's what's on coming for Bitcoin. What I'm saying is is that I I have a lot of experience dealing with anecdotes like this and marrying them with what you're seeing in price action, which is simply information being conveyed. And it's entirely possible, you know, and that's why I say it's entirely possible it is a Bitcoin thing. I don't know. Um I saw the same thing as you and I did the, you know, the exact same, you know, eyebrow of that because I owned a little Bitcoin 13 or 14. Not nobody owned enough. I certainly didn't. Uh I owned it through the 1819. I owned it through the 22 and and yeah, it is painful. You know, in 21 20, you know, 21, I did sell quite a bit of it and I started buying it back too early. So I I've seen three of these cycles and these people presumably with large amounts of wealth tied up in it are very tied in with it and doing this. You know, it's possible there isformational value there. visav expectations around the timing of things like quantum computing which you know would in theory have a chance I just don't know but for me personally it was the champagne problem of my position had gotten hey I've owned it you know I bought a lot under under 30,000 uh um starting in I guess that was late 22 and early 23 and I let it ride and I didn't trim it at all and it gets to a point where you have this uptown problem of okay now I'm looking at what markets are telling me. I'm looking at these inconsistencies of what you described with these, you know, OG whales selling large amounts in a way they hadn't before. And the and then the liquidity side of the fundamentals of the broader macro, I just go, you know, a man's got to know his limitations. It doesn't make sense to be as overweight as I am. And so yeah, I think from a macro perspective, you know, it is possible it is a Bitcoin specific issue, but I just don't know. And look, the Bitcoin community is very dynamic. There's a lot of extremely smart people and there's a way that they can get around this thing. And so, you know, in terms of the the the quantum computing risk, um, so that's why I say my base case is that what we're watching in Bitcoin is more about more about a liquidity warning than it is a Bitcoin specific warning. >> Yeah. Um, and to your point, I I love anecdotes, especially at turning points. That's how I um went really short things in 20078 was was just those anecdotes just like in the big short like you know you walk in and the strippers telling you about in you know Mark Bound's case that she's on her 19th home and you're like short everything right like but but you know that like the data was was not telling me the same story that I was getting from other sources. Okay. So, here we are. And um uh I I feel stupid around Bitcoin a lot also for not getting into it uh early on even though um I had plenty of opportunities. But just because for me, I need to understand something fully. I can speculate. I'll I I'll invest in something I understand. I'll speculate in things I don't understand. That's sort of my my my thing. I can't tell you the number of times I've had people tell me, "Chris, you just haven't read enough, studied enough, watched it enough hours of of Bitcoin stuff, but even when I do, I still can't totally get around." The number one issue for me for money is trust. The more trust you have, the more it operates like money. So, gold coin in my hand has I have a lot of trust because I can assess that that's real. But you mentioned like the big wild card which is what is going on with quantum computing and and what kind of a risk is is the 256 sha you know algorithm under we don't know we just don't know but I do know that that things are developing more rapidly technically than I can possibly get my head around including in AI. So there has to be a little caution just because we don't know what we don't know. >> I think that's right. Yeah. with someone with your educational pedigree, right? Like you are not a dumb man. So, um, >> but I can't get it. I was like, whoa, way over my head. >> For me, it's all, you know, for me personally and and for my clients as as a, you know, I I take great pride in in, you know, advising what I taking a fiduciary responsibility around what is prudent and for me um, you know, I have to understand that that's just a positioning issue for me, right? It's around, you know, how, you know, there are risks there. That's fine. There's always risk everywhere. Then it just becomes, you know, a sizing issue ultimately. What's the right position size as a percentage of your liquid net worth in order to mitigate that risk to get yourself comfortable with that whatever that risk is. And you know the beautiful thing about markets is that that number can vary. It does should vary for basically every person on the planet depending on their wealth on their disposable income on their age on their you know health on their their you know all these types of all these types of factors and so ultimately I'm I'm like you at this point on it I don't know what I don't know my base case is that it is more liquidity uh driven than not and importantly these these momentum indicators they that I watched they didn't they didn't trip in uh uh March uh February March of LA of earlier this year we had a pretty big selloff right we went from whatever 104 or something 104,000 down to if I remember right maybe 78,000 or so on Bitcoin and uh these momentum indicators you know they didn't you know they are very very powerful long-term indicators they didn't they didn't they didn't trip off in that case they never said hey there's a problem here they started to sort of move in that action, but ultimately that was, you know, they were not tripped until, like I said, about a month, month about four four or five weeks ago. 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I'm Dr. Chris Martinson, proud to work with Peak Financial Investing and my support reflects my professional views. I encourage you to take control of your financial future by making informed decisions. So, let me connect a couple dots then um from our conversation here. So, my working definition of a bubble is when asset prices rise beyond what incomes can sustain. So, we all know that AI has an income problem at this point in time, and people are starting to get that math, but I just read a statistic that said that Nvidia's market cap is now more than all of Japan's stock market. Um, that may or may not be true. I didn't verify that for myself, but it's sort of directionally correct, right? And then I wake up one day and I read that Google's developed tensor processing units, TPUs, which directly compete for a big portion of the AI chain with what Nvidia is coming up with. And the market hasn't reacted at all yet. And and everybody's aware that there's a capex, you know, they're going to spend 1 point whatever trillion on capex and they're just it's just a money furnace in for for five six years. But these things have a these data center core units have a depreciation cycle that might be measured in 18 months, 36 months, something like that. Not my first rodeo, Luke. This doesn't square, does it? So from from the AI side, no. Um, no. And I that's why, you know, before when I mentioned that I think the the sort of the the old the old hands, the gray beards, if you will, are once they start, right? I' I'd be if I grew it out, I'd be I'd be nearly that gray, but not quite. I'm I'm more I'm still salt and pepper there. But, uh, us gray beards, this isn't our first rodeo. And when you, for me, one of the things I was watching for specifically was, you know, if you want to throw money in a furnace and you're just taking it out of cash flow and then throwing it in a furnace, that's your business. At the end of the day, that's a franchise issue. That's, you know, it's a management issue. It's not it's not a a macro issue as much. >> Interesting. once you start borrowing money to throw in the furnace is when my attention really got peaked for for that. And that really has only started in the last like literally September. You can start finding the articles um in a big way. Uh and it's and it reminded me of two prior times in my in my career. The first being uh the telecom boom bubble in uh call it early 2000s that busted in early O2 late 01 depending on when you want to kind of uh talk about it. Uh and same kind of dynamic. They were borrowing gobs and gobs of money to lay as much fiber as they could in the ground because there was going to be all this traffic and the internet was taking off and the old economy was dead and the new economy was going to be all online and there were they were in a large part right like that's the important thing right they a lot of what they were saying about the internet and the dominance of this new economy and then the use of all this fiber was 100% true ultimately or or very, you know, way more true than not. The challenge with debt and any investment is that it shrinks the time you have to be right. Like they needed to you need to be right much faster. If you're borrowing money and if any little thing goes wrong, if some butterfly flaps its wings and creates a hurricane somewhere, uh, you've got a problem. And you know, some have said I I have no way of verifying the actual math of this, but some have pointed to Metallica winning their Napster song swapping case in I think it was April of 01 as being the butterfly that flapped its wings because so much of the traffic in in the fiber was song swapping. And as soon as that happened, you went from having, you know, hey, we've got we keep laying fiber, keep laying fiber, we've got, you know, we've got this demand and all of a sudden like, hey, where'll demand go? What? and and so they were still borrowing money to to lay uh to to to lay more fiber and ultimately, you know, boom. Uh the second time I saw it in my career was in the shale boom, the shale boom, the early days where you especially had a lot of independents borrowing a lot of money. uh and uh even if they may have been uh below break even costs, once you have debt, you have to keep drilling because your decline rates are so fast and because uh cash is cash, right? You you might be losing money on every barrel, but you have cash flow coming in on every barrel that you can use to service your debt from before. And it gets to what you you you and your your audience know well, the Red Queen problem or the treadmill problem. And same type of thing. Now, what's really interesting to me is the a how much this is starting to the AI borrow money to build these data centers uh is is starting to look like these two things. Um you know, burn a lot of cash, build the data centers because the opportunity is so great. The area that is troublingly different or the way that it's troublingly different also catches my attention which is what you just alluded to which is even after the the the the various bankruptcies and in telecom and amongst independent shale producers the fiber in the ground was still worth a lot of money and for a long time >> and the oil in the ground setting aside the initial you know rise and decline there's a long tale on these shale production that goes on for years and years at sort of very manageable predictable decline rates, slow decline rates. There's value in the ground here. I don't know that we have I I am unfamiliar with any situation in my career certainly where the useful life is so short because the technology is moving so fast. And I would layer on one more that the tech guys are very unfamiliar with, but I think we're seeing hints of them being familiar with it based on some of their actions. Uh, which is, you know, but but that we here in Rusbelt USA are very familiar with, which is the Chinese are really good competitors and they don't necessarily need to make a lot of money when they compete. and they will compete and they will be not good competitors early and then they learn really fast and then they get better than you and 80% cheaper than you and then you're screwed. And so when we see things earlier this year like deepseek when you see you know I have people in that world that have pointed out to me the AI data center world that have said hey take a look at this um it's basically a scoreboard of like here's the current you know according to at least one or two different measuring of AI effectiveness for sort of broad topics right they they measure it by math they can measure by different what you're trying to use it for but just broad effectiveness and five of the top 10 are Chinese today and you know we know what they have in terms of engineering we know what they've done so that when I look at AI and I say okay this reminds me of of oil and telecoms except the useful life you know the recoverable asset might be way lower whenever the debt starts to have a problem and then I look at the tech guys who are not used to competing against the Chinese they aren't they just aren't they've never they've never seen it we have been so dominant in for so long and we can have a debate about and and I'm not the right guy to have that debate, but we can have a debate around well at the leading edge the bleeding edge America is still ahead of China. That could very well be true. I don't know. Again, I don't have the education to know, but I would push anyone who says that if they said it to me, say, "Okay, well great. Let's assume that's true. Where is that lead uh where does that lead today versus two years ago, four years ago, six years ago?" Hey, and and they I think they would all say, "Oh my god, that lead is shrinking rapidly." And so you've got a situation where the recoverable, you know, the useful life is way shorter. The recoverable asset underneath it is is probably would have to at the very least get marked down way more in recovery um whenever something on the debt side goes boom. And you get the Chinese competing like the Chinese weren't here competing in shale. they weren't here competing in in fiber. Uh I've seen them compete in industrials. Uh I wouldn't want to compete against them. So I look at what's happening AI and I just think when you look at the valuations too hard like it to me it just is uh you know it's it's it it's tricky. Well, now we're combining some of my very favorite topics and so I'd love to get your your point of view on this. And by the way, I loved all of that. And and it's almost every week I read about something in China editorially very lulisack, but just yesterday I read that they're producing hypersonic missiles for 100 grand that use cement as part I just crazy like off the reservation. We're still hand building. We don't even make hypersonic missiles, but if we did, it'd be in Huntsville with guys with white gloves turning them out one at a copy for 4 million a piece, right? Um so very difficult to compete against somebody who has an integrated supply chain. And as I understand it, China is using AI principally to help tune up to be even better at what they do, which is outmanufacture everybody. Um, and so I think that, you know, this whole I think there's still people like Scott Bent, just to pick on him a little, who says he has an antiquated view of China. Oh, they make inferior copies and they just copy us. I think if I could sort of paraphrase how he's he's talked about them. I don't see them that way anymore, Luke. I see evidence every day that that their cars, if we could buy BYD cars here, they would crush the competition cuz they're that good, right? Compared on a cost basis on and on and on. I see them as actual legit serious competitors across every dimension. Military, tech, you name it. And maybe I'm just misreading it and I'm falling for some propaganda, but I don't know. What do you see? >> I agree. and and I see it multiple different ways, multiple different people, you know, all that don't know each other, all without an axe to grind to me. People that are there, people that are, you know, that work with them. Um, you know, my own experience, uh, it is, you know, I I've I've seen them compete over the last, you know, again, I've been in bottoms up research, you know, for the 15 20 years before I started FFTT was in bottoms up fundamental research. And so China was a huge story from you know 95 to 2015 part of my career. Huge huge story. Um and they just kept getting better and now you hear from people in manufacturing their ability to just you know how quickly they turn around samples how quick how good it is how they there we simply you know even you know Josh Wolf uh testified to Congress two years ago investor um and you know we wrote about it at the time in our work pointed out to Congress in testimony that the Chinese can build a one gig nuclear power plant for one sixth the cost of the That was then, that was before they've improved it with AI manufacturing. You know, my point at the time was, okay, well, a gig is a gig, right? There's no magic gig in China versus the US. It it it's the same unit. If it's the same unit, what that tells us is that the dollar is overvalued versus the yuan by 83%, right? One six the cost. 56 is is 83%. the dollar would have to fall 83% against the yuan to be able to make a a a a gig of electricity in a nuclear power plant in the US cost competitively. Well, 83% devaluation of the dollar. Inflation will go nuts here. Bond market will go nut. It's it's simply we simply can't compete. What's interesting is BYD apples to apples 83% cheaper. uh industrial components Apple I hear from people in Europe and in in the US apples to apples 83% cheaper 80% 60% whatever the number is uh and that number is going down because of AI and and then you say okay well once you get to a certain point in terms of improving the efficiency even more with how they're implementing and integrating AI there's no amount that you can devalue the dollar against that you want against to compete you just can't and that's I I don't know that we're there yet, but I think we're a lot closer to there than consensus thinks. And I I don't even It's another one of these things where I look and go, I don't know how this plays out, but I know it's not good. And I know, you know, it makes me want to own gold, right? Because I know they're settling on a net basis in gold, right? So, it's it goes to okay, well, if this is how this game is going, then like, you know, buy what they're settling in, uh, because they value it. >> Yeah. So, so for anybody who wants to, you know, battle test this yourself at home, go to the Chinese uh site called Teeu, timu.com, pick something you know about. So, Luke, I was just putting up um a a building and I needed 8 by8 post bases, right? And so, you go to Simpson, which is a US manufacturer. They make a galvanized steel thing. It rusts out eventually, but you know, $94 each just for the post base. No hardware, no inst. >> What's that? for the Simpson strong tie thing. Yeah. Yeah. >> Yeah. Yeah. It's just it's a post space that sits down in the concrete, you know. Um it's got these two little flanges. Anyway, so I go to timu.com and I buy 8 by8 stainless steel >> post spaces with all the fittings, all stainless steel as well for $23 each. And I couldn't even have bought the the by stainless steel fittings, I mean they had expansion bolts, through bolts, screws, whatever you needed. Didn't matter. Whatever. So I looked at that. I'm like, okay, it's not even close. It's not even remotely close at this point. I did the same thing for lithium batteries, DeWalt knockoffs, you name it. I've been buying them and testing them and they work great. I don't, Luke, I don't even know how they get them here at the price they're selling them for, let alone manufacture them. I don't understand this. Something's very off in the story, which you can detect at the retail level. Yeah. No. And that's, you know, $23 divided by $94. What's that get us rounds to 80% or close to it, right? 60 to 80%. And that's I hear this story over and over and over and from wholesale suppliers what I hear is oh by the way when I want a model I call the American and it takes you know it takes you know 3 weeks and somehow I'll call the Chinese and like literally they'll have it here the next day somehow like it's maybe a day after but you like what like h how and so some of it is a currency some of it's a currency issue clearly and a lot of it's not a currency issue anymore. Um, and that's the part where, you know, to your point about I think, you know, Bethan has in some ways a very outdated view of China. I still think he does. Um, I agree with that statement and that's part of is they're competing. They're competing. They're competing very effectively. Yes, the currency, yes, they get subsidies. Of course, they get subsidies. And that's another part that sort of cracks me up, which is, oh, well, the Chinese subsidize their industry. So do we. It's just they're subsidizing productive output and we're subsidizing too big to fail banks. We're subsidizing student loans. We're subsidizing $8 trillion in wars where literally you want to talk about throwing money in a furnace. How we spent $8 trillion in the Middle East from 2003 through debt and so they're just spending their money smarter, right? It's like, well, I don't know, a guy with a, you know, a guy with a coke habit runs out of money versus a guy who's investing in some business comparing the two and like like it, you know, we subsidize all kinds of stuff. We just subsidize, in my opinion, the wrong stuff if we want to compete. And I think that's what we're seeing bear out now 10 years later, 15 years later, 20 years down the road where the Chinese have the patience to do this. Yeah, of course they subsidize their industry. They subsidize it a lot and so do we, you know. Yep. Healthc care stocks heavily subsidized. Y >> um all of that. So, all right. So, so but I want to connect back after that. Thanks for engaging in the culde-sac. Um >> so I I'm a fundamental analyst and and investor, right? So it would you know I've been in silver for a long time for strictly fundamental reasons, just supply and demand and I know the shenanigans that go on. I want to ask you about that in a second, but first, could the butterfly flapping the wings here be AI's demand for power that doesn't actually exist? And another fundamental area that I'm deeply involved in both as a as a LP investor at the well level, uh, but more generally as an analyst is natural gas. I feel like nobody's looking at this like like how am I looking at this and and the DOE isn't, but we have so much stuff coming out of the ground. We have we're past peak on multiple shale fields. We've got two that can still have some runway but not a lot. And we're just putting all these new LG terminals in which are big investments with big multi-year downstream commitments, right? And we've got data centers going in where the numbers are staggering. There was just one meta center down in Alabama I think or Mississippi 2.2 gawatt combined cycle plant. that plant alone for that one meta center data center is going to consume 0.5% of US natural gas output if it runs 24/7. So just that one, right? That's just the numbers. So I'm like that and that's just one. We know these data centers are being slammed in uh willy-nilly all over the place. I feel like is has somebody forgotten to look at the actual supply demand of natural gas here or is there something I'm missing or is this just another case where the US consumer is going to eat it in massively higher electricity costs and we're going to pretend like that's normal? >> Uh yes. Yes. Next question. No. Um it it's I have a I have a very a very good friend of mine who calls uh what we're watching in the energy and data center buildup uh I think what's he call he calls it idea machine and and idea and and it's a derogatory term meant to you know you get the consultants in there and they go we're going to build all these data centers and we're going to build all these pipelines and we're going to build you know these LG terminals and and there's nobody doing what you just did which is it's 0.5% of the supply as we stand here today and there it's it's it's almost you know the old economist joke right assuma assume a can opener right the old economist two you know three scientists on a on a desert island right a physicist chemist and they're trying to figure out they're stranded no food trying to figure out how to get food and the chemist offers his the physicist offers his and the econ economist says, "Oh, assume a can opener, right?" And so, you know, for for the can of food that's washed ashore. So, you know, idea machine is like, "Okay, great. We we do have more supplies available in places out west like Utah, etc." Some federal lands we've never tapped. Great. They're like, "Well, all we have to do is tap that and we'll get that gas and then we get that gas, we'll pipe that in." They're like, "Whoa, whoa, whoa, whoa." Idea machine. You're going to have to get rails in there. Who's laying those? You know, by the way, before you get rails in there, you got to lay, you know, you got to get the electricity in there. You know, these these mining machines don't just run on sunlight. Okay? So, you got to run the cable. Who's doing that? No. By the way, what's generating at the end of that? You know, where's the generator? And by the way, uh generators, on-site generators, uh um uh uh are now 5 years out according to GE Vernova last quarter. >> So, like we're going to do this on five years. like you can't even get a generator for five, you know, you know, for 5 years. Um, so how are you going to do it in 5 years? Like, well, and that's my my buddy goes idea machine. It sounds really good. And then it's it's something we've done as a country for the last I don't know much of my adult lifetime, but certainly since the great financial crisis, which is manage to optics rather than to outcomes. And if you're doing any sort of engineering, you've got to manage to outcomes and you know logistics, right? The the So when you to answer your question, I I'm not sure they have sat down and looked at the order of operations. I mean, I think the mining guys probably have and the electricity guys have, but you know, I heard a couple weeks ago that a major data center land deal was cancelled in a very high important data, sorry, in a part of the world uh in 2030 or 2031 because they know with certainty today, there's no point in signing a land deal because they know they're not going to get an electricity hookup before then. And so it's one of these things where you know you've heard the industry people starting to talk about it with Sataya that Microsoft has said you know the issue isn't compute the issue is grid. Um I've not seen people talking about on the gas side. Like I think everything I've seen on the gas side is you know own gas because the price is going to go up. That makes sense to me. Um, I've seen interesting cases that, hey, in the same way that gas was a co-product cost, you know, basically when we were drilling shale or fracking shale, gas was coming out and it took gas to near free because we it was a co-product. We had nothing to do with it. We're flaring it. Wherever we could use it, we use it, what have you. Uh I've seen interesting cases that oil could become more of a co-product cost as we go into more gassy areas of various shale basins and oil becomes tra you know let's see so maybe there's some some some you know uh uh some some relief for consumers from lower oil prices maybe but then you you know LG terminal like you said very expensive very long cycle Um, and obviously the world price of natural gas is well above the domestic price. So that's more upward price pressure on it. And so then you I don't think people have done the the some of the logistics of it and the investing world. You know, I think there's a very small community of people in the sort of the physical production side of it that are kind of going, "Guys, guys." Um, financial iss like, "Hey, great. This is we're we're going to rebuild a whole grid." And it took the Chinese 30 years, but we're America, so we'll do it in three. Um, good luck with that. But yeah, the cost side is another side of sort of idea machine that people aren't talking about. Let's say gas goes to six, seven, eight bucks, nine bucks. Now you're going to have electricity bills, heating bills going up a lot, consumer inflation, and and now I know exactly what's going to happen is they're going to just exit out, right? Oh, it's just X. It's X energy. It's transitory. And so we're not going to include that in CPI. Well, it ain't going to help your political stability, number one. But number two, I don't care. I have to pay health. I have to pay this. And so to me, it suggests why do I want to be in long-term bonds? Like, you know, you can tell me whatever CPI is, but if it's if if it's not including energy costs that are going up a lot secularly by what for the reasons we just described, my purchasing power is going down of my bonds. And so, and we know the government can't afford much higher interest rates. And so, it creates a problem over there, too. Do we yield curve control it? Where, you know, at what point do the higher energy costs, inflation drive rates to a point that we can't afford? What do we do? I This is what happens when you when you do you know when you fly a plane by looking at the ground as it goes whizzing by you for the past 30 years like we have sooner or later if you're heading west you're going to run into the Rocky Mountains and if you're looking down you know you're going to get a really nasty surprise and I think we're sort of like you know now after years of pull up pull up pull up pull up pull up like oh look there's mountains there that's why and we're trying to pull up but you know the question I guess continue the metaphor is can the airframe handle it? I don't know. Well, was that an idea machine? Well, um I'm thinking of these as almost like unforced errors. So, I I live in a blue state and I live blue state adjacent out here in the New England area. You know, New York and also Massachusetts have have made it illegal or they've regulated out of existence putting in any new gas um appliances. All has to be electric, right? So, they're trying to force everybody into electric, but they haven't done the most obvious thing, which is where's that electricity coming from? Because we're also decommissioning our electrical infrastructure here, nuclear plants, coal, whatever. It's just going to come from somewhere, you know, >> the market the market will determine it. The market will will fix this for us. >> Yeah, it will, you know, in the same way as, you know, 2x4 over your head will fix your consciousness. You know, I Well said. Well, it's like, you know, if gasoline goes to $10 a gallon, people can voluntarily trim that back. Supply, demand price are supposed to come together. So, if gas price, natural gas prices go higher, people will trim their demand. No, they won't. Electricity is a much stickier, harder, it's harder not to have your house use electricity than it is to not drive your car. It's just it's not a comparable outcome. So, I've seen people Luke posting electricity bills that kind of look like my first mortgage payments, you know? 11 12,300 bucks a month, right? It's and that's, you know, that becomes Yeah. I I think that's it's an issue. It's a the political issue. It's I mean, and it comes back to you have to have an order of operations of engineers. And when you have a country that is run by lawyers, as ours is, regardless of whether they're red or blue, they're lawyers versus a country who is largely run by engineers in the case of a lot of Southeast Asia and certainly China. And then you look at a chart. There's a there's a great chart um and you can find it online. I saw it replicated in um Leopold Ashen Brener's situational awareness report last year as it relates to uh artificial intelligence and it shows US electrical grid capacity and Chinese and the US since 2000 is basically flat. We have basically not grown our electricity capacity. And the Chinese went ahead of us in '08 and in the last 10 years they've added an entire US grid in just the last decade. And so there's this and I think it it really is a function of when you've got when you're run by lawyers they're really good at lawyering but they're not very good at sort of first principles dynamics of you know it's it's assume a can opener assume you know electricity comes from the wall and you know you know food comes from the grocery and water comes from the faucet and excuse me again you can do that for a while. you do for a long while, but sooner or later, you know, in the case of Metall, you know, in the case of of the the the the debtfueled uh binge in telecom earlier, Metallica won against Napster and suddenly no one was allowed to swap songs and that was a temporary issue. Here it's AI like in this Ashen Brener chart, it shows that the amount of electricity being consumed or forecast to be consumed u globally. So it's it's a bit of an apples and oranges comparison, but I think still relevant. It's forecast to be 100% of US grid by like 2028, 2029 or it was 2030. 2030 I think it was. And you go 2030 like that's tomorrow. Basically markets are going to start looking at that within a you think they're starting to a little bit now in terms of the like where's where's the grid going to come from? We don't we don't have the grid but wow um it's a forcing factor in you know idea machine in reality in like you know the universe doesn't care whether you stay warm or not right it's it's you have to take care of that what did Dan Ran say you can ignore reality but you can't ignore the consequences of ignoring reality perfect quote that's exactly what's happening here >> yeah very well said I agree with all that so um uh I have to ask though um Thanksgiving happens we come through the weekend. Sunday night, the Chicago Merkantile Exchange, the CME, has a a data center outage that lasts 10 hours. And I know a lot of people who who I've talked to a lot of people who actually program these things, build them, run them to get my heads head around this because I run a website based business. If it's down for five minutes, I'm yelling like a, you know, it just doesn't happen. What's your take on what happened? >> It is It's very curious. Uh I I'm I'm like I didn't get into the depth you did of but I was sending it around to just different people in the markets world and then trying to find different people in that engineering slash um you know guys that build redundancy in that world you know for a living and they were all kind of saying the same thing which is doesn't make sense doesn't make sense um you know and there's I think there's has been, you know, a conspiracy theory around what was going on in silver markets. Uh I think there, you know, I it's entirely possible there's something to that. We we clear and the reason I say that is we can see in the weeks up though, you can go to my um um uh my X feed, gentleman named Bob Coleman was highlighting the level of fails to deliver in the SLV silver. Um and they were rising. the cost of borrow was rising. Um, look, we know that when push comes to shove, the rules get changed. Um, and so who who knows? Um, I I have no ability to say, well, yes, for sure it was because of silver. It was because I I I try to stay when I highlight for for clients. What can I defend, right? What statements can I try not to make? Statements I can't defend. Maybe they'll be proven wrong later, but as I sit here today, the statements I can defend are, it's very curious. It's very curious it took that long to come back up. We know there is increasing tightness in silver markets from multiple different financial sources, etc., etc. And to me, I just look at it as as a not as a thing. itself, but as part of a mosaic of a building stress strain in the underlying, you know, physical world of and it kind of ties back to the energy side, but it ties into the geopolitical side, it ties into the trade war, which is you're seeing the global south, the global east ex Japan uh basically saying fine, give us gold, give us silver, give fine, we'll give us physical and even the US is doing that too, Right. I mean, we're running around buying up critical minerals. You know, we're selling treasuries, buying critical minerals, and I got people telling me what a great deal long-term treasury bonds are here. Like, maybe, but you know, they're telling you what they're doing. Like, they're selling to buy critical minerals. >> I don't know. I I I want to go alongside them. >> Hey folks, Chris Martinson here. 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Don't wait for the system to fail you any further. Head over to peak.fban/goldcore. That's peak.fban/goldcore right now and claim that free storage. You won't regret it. I sure don't. Gold and silver are two words to me. They're not the same. Like often they they come not even hyphenated, crammed together, gold and silver. Um silver is an industrial metal. The the thing that caught me is I've been watching this for years, but looks like 2025 is going to be the first year that 100% of mine output goes towards industrial demand. >> Wow. >> What happens next year if that goes to 104 105%. Right. It has to come out of investment. And that's just sorry that's about as big a supply demand mismatch as you could hope for. That's and and you know to your point like if it doesn't go to 104 everything on the AI side the solar side all of that can't happen. The industrialization of the world you you have the only way it doesn't go to 104 is if you have another co you probably know the numbers better than me but like where literally you're shutting down a third of the planet or else it's going to 104 and then it's going to 108 and then it's going >> and yeah I you know kudos to the silver people. I've been I I've been saying I think the gold to silver ratio I was saying you know it would go secondly higher. It did. I stayed with that too long. They the silver people have been right. And not to say I don't like silver. I do like silver. I think it's you know I I'm probably being too hard on myself. I own silver. Uh I I don't own it big enough. Um but yeah, you look at that dynamic and again especially I always try to look at the other side of something, right? To be able to argue both sides, right? is like, okay, well, your your math says, all right, it's going to be 100 industrial demand be 104%. Mine supply. Well, we know how long it takes mines to come up, right? So, mines aren't coming up. I don't know if there's anything coming up or not anytime soon, but I know multiple different sources. If you wanted to if you wanted more mine supply and you started today, it's probably you're probably looking at 10 years. >> U just broadly, that's not silver specific. That's just mining something uh is what I've been told. and say okay well if the supply is not coming from there and then the other side of it is is okay well how do we reduce demand again you have to crush global industrial output that's not going to happen I mean it could it could but that's the only other way out of it otherwise it's price so you either have another co to shut down the economy or it's price that's it >> yep yep and again it's that latency that lag between oh we should get more and by the way 70% comes from base metal mining, most of that from copper and pfery um mines. So, uh copper mines take a decade or two to open up because like you said, you have to put the roads in. Oh, we're going to need water, power, you know, all kinds of stuff. It you don't just decide that's what you're going to do. Um, so in I'd like to um finish up by asking your uh I I can't wait to get your views on this which was um so professor plum Michael Green puts out this view of poverty line at 140k for a family creates a little bit of a brewhaha you know people thinking about it but how do we define poverty but back to your earlier point the stock market tells us right now everything's fine um but those anecdotes and also some of the base data right small business bankruptcies have just hit a record uh the non-farmms payroll all extremely weak, right? Conference board reading is like some of the worst on on on record, right? So, the consumers are not feeling good. Um, on and on. When we add all this up, is this I hate to even call it a K-shaped economy because it sounds like there's an even stick going up and down. It's like the top x%, let's call it 10, are doing very well, but it feels like the bottom 90 are doing very poorly. And we could look at insurance rates, um, uh, property taxes, actual inflation, D. What's your view on on have we decoupled? Is is this does the consumer no longer matter? Have we gotten that financialized or what's happening here? >> No, it's um it's problematic and I agree. We're in this sort of K-shaped economy. I have, you know, good friend of mine owns a a higherend landscaping business. We were at dinner about a month month and a half ago. He goes, Luke, he goes, you know, here in in the greater Cleveland area, you're either rich or you're poor. That's it. like there's no there's no in between and I think we're getting to you know it's another one of these when you start down a road towards a destination don't be surprised when you arrive there and sort of the MMT crowd the you know just paper over extended pretend you know uh you know financial financialized dynamics we've seen particular since GFC, but really since at least 87, you know, with the 87 crash, 94, 98, 01, 08. Uh the challenge is that when you spend 40 years hollowing out your middle and working class as economic policy and then that economic policy fails, which is what happened in '08, and instead of marking that to market properly, which would have basically moved away from the sort of the neoliberal Keynesian policies and and sort Freema. Basically, economic policy in the United States starting shortly after Vulkar became de facto subjugate the US middle and working class in order to support the Treasury market, the dollar, Washington deficits and Wall Street. And that worked fine and and that model blew up in08. and it should have blown up and and it should have but instead of marking that to market and starting to do a lot of the things we're hearing now reshoring and and and investing and grid and all these things we papered over it we extend and pretended and the problem with that decision that's that's fine and it could work the release valves were going to be the physical world and the release valve was going to be political stability in the United States because basically you were running towards a sort of um you know as my friend the copy he calls it a feudalistic uh outcome increasingly feudalistic out and so here we are we've got an increasingly feudalistic outcome you've got the worst political stability issues in America in at least 60 years Peter Turin asserts that you know some of the political violence is reaching levels last seen in the 1850s um and you've got physical world problems and that's what is so disconcerting. I think, you know, we were talking before we jumped on the air, a lot of gray beards, I think, are increasingly concerned about what what they're watching. In investing gray beards are concerned about what they're watching. And I think part of that reason is, excuse me, part of the reason is is these aren't printable problems. You know, you've got a K-shaped feudalistic economy. Printing is going to make it worse. You can't paper over this anymore. You need to invest it. create real supplies, real standard of living growth. And that's on the other hand because you've run up debt so much that's inflationary in the short run. And so you have to you are now coming to the bond market or the currency the ultimate question you know because you start investing to improve real living standards putting in grid putting in factories you know all these things they're very inflationary and with 120% that to GDP really inflationary is not in the menu. you either yield curve control and blow up your currency or the bond market is going to restrict your ability to invest. And that so on from that fundamental standpoint and then the political stability st well I touched on political stability that also touches on the real the real world if and it res cycles back to political stability because if you want to be able to invest to have the bond market not stop you, you have to cap bond yields. But if you cap bond yields, inflation's going to lot worse and and because they're printing money to get to basically keep a ceiling on bond yields and that's going to make the inflation worse. And if the inflation gets worse, then the political stability is going to get worse. The upward pressure on the bond bar. So you're very quickly getting to this moment that is not fixable in the way that has been problems have been fixed for 40 years in this country which is eh extend and pretend and send the factories to a lowerc cost country to you know reduce the inflation and then you know give the you know give the hoy ployoy you know cheap loans when they lose their jobs that we're at the end of the road there that's it you can have real austerity or you can have, you know, nominal austerity or you can have real austerity which is high inflation and and as you rebuild, but that's where we are. And so, yeah, I I I thought Mike Green's piece was excellent. I thought um you know, I jumped into that fray for a second with a couple of the uh the uh um think tankers uh in in Washington. And to me, to me, the mo I'm a simple I'm a simple guy. I like to try to boil things down. And to me, you know, I put this on my feet over the weekend. In 1964, federal minimum wage was a$125. That's five silver quarters. The quarterback then was 90% silver if I'm not mistaken. And today, the value of five silver quarters, today one silver quarter is worth uh that 58 bucks uh $10.60. 60. And so five silver quarters that were a buck 25 minimum wage in 1964 are today 53 bucks. Um >> Mhm. And the gap between 53 bucks today and a buck 25 in 1964. When you see those charts showing, you know, the top 1% has done this after 1971 and the and worker all the all of the efficiency and productivity gains we have seen have largely acrewed to the top 1% top 5% since 71 and certainly since 80. The gap between $53 of five quarters what they're worth today versus 125. That's what that's measuring. And so to me, you know, is, you know, is is 140,000 number of of what Mike was measuring is in his initial piece, is that the right number? I don't know. Is it 120? Maybe. Is it is it 30 like these think tankers are thinking? Like you could only live in Washington and think that. Like, oh my god. Like, come on. May is it 80? Like, is Mike wrong if it's only 80 or 90? No, he's not wrong. So, um, I thought it was very well done. And I think it identifies a critical issue and to me as an investor for me it's always about okay so how do we make money how do we make money with this how do we make money with this for our clients how do we help our clients how do we help our clients understand what's happening and for me I've increasingly again and it ties back to what we're seeing JGBs ties back interest rates ties back bit Bitcoin all these we're now at this point I there's we've let it go too long there are no happy answers we are very quickly getting to that fork in the code, kill the currency, kill the bond market. Like that's it. And kill the bond market is let rates spike and bonds plummet and the economy collapses. And that's not really an option in a debt back system because as the bonds fall, they back the currency and at some point it goes from being deflationary to hyperinflationary as people people don't understand that very much. Uh or you have to kill the currency. You've got to you know, and I use kill the currency. You've got to do some sort of yield curve control. And people say, "Well, the Japanese did it." Well, the Japanese are net international investment position positive. They run a surplus. They're domestic. They were in def. There's a whole boundary. When we do it, and I think it is a when some form of yield control, it's not going to feel like Japan with deflation. It's going to feel like Argentina. And I would argue we're already in the early stages. When you see S&P priced in gold doing what it's doing, which is declining, um, that's the early stages of US with Argentine outcomes. So anyway, that's a long-winded answer. I apologize for rambling on, but it's it's such an important issue and it's so interesting to me that when Mike raised it the way he did, the response he got. This wasn't, "Hey, let me think about this or maybe something to think about what Mike said. This was what was what was it was like the single dumbest like like wealth study I've ever seen or something like that." It was like, "Oo, somebody's somebody's getting flat because he's over the target." Yeah, that's such a great answer. And you know, it reminds me, I put this in the original crash course in ' 08, you know, so long ago now, but the quote from Plutarch who said, "The oldest and most fatal ailment of all republics is a gap between the rich and the poor." And it just happens when when when the rich get so disconnected and they get in their little bubble thing and the world just works, you know, and and ultimately revolutions start at the bottom with the young. And so when I talk to young people, I get out of that think tank world and I actually, Luke, I talk to young people, they're pissed. A lot of them realize that not only have they sort of been rugged at the beginning of their life, but they have no reasonable path to participating in it unless your parents were wealthy, right? Like for a lot of them there's like there's no realistic path. And so that this is the dumbest study ever is I feel like it's boomers and exers pulling up the moat and saying we got ours, you know, good luck, you know, eat cake. It it feels like I'm not sure they're really reading the room on this one. Oh, 100%. And you know I'm here in Rusbelt, Ohio, right? So you I was at a conference uh four years ago. Um actually it was at Bretton Woods New Hampshire, right? It was a new we were talking about monetary issues as it was at it was at the at the same hotel and you know I said something on stage which elicited some smirks and some discomfort but I said listen consensus in the west now this is summer 21 consensus in the west the Chinese cannot win the great power competition. I'm from Cleveland. I've lived in the rust belt my whole life. Let me assure you, they can absolutely win because I've seen it happen for the last 20 years. And in the last four years, there's been this recognition amongst sort of the the beltway class of like, oh, China is a competitor. They can compete. The tech guys are going, oh my gosh, like we actually have to we have foreigners competing within tech for the first time in our entire lives. What do we do? Help Washington. Defend us. Put up barriers. Right? Like just like the automakers did, by the way. Right. um >> didn't work for them, right? You know, >> so I, you know, I have three boys. They are 24, you know, 23, 21, no, 24, 22, and and 19. And I they, you know, my wife and I have been very blessed and so we have been able to give them some options that aren't available to a lot. And we also have very honest conversations and I see with their friends and etc. There is absolutely a a feeling um you know Peter Teal wrote about it like very preciently like 15 years ago about the coming generational gap in war and yeah I think there is absolutely that feeling and I think one of the sparks that really lit it was uh the way CO was dealt with which was you know you boys you can't do any of your activities you need to sit at home for something that has dimminimous impact to you, you know, so that you can keep the boomers safe. And I'm not saying the boomers shouldn't have been safe. I all I'm saying is I don't think the policy makers have understood the latent frustration that that layered on to a situation around already sort of this unclear path to you know what the boomers had when they were 22. And yes, yes, I know you guys all paid 10 15% mortgages and like it was literally a meme. You know, Senator Blutski had a zero per 0.0 zero GPA and ended up being a senator. And that's, you know, hyperbolic, but sort of like like literally as a boomer, you know, you could sort of fall out of a truck, you know, get arrested a few times and like boom, like within 5 years, you're great. Um, um, yeah, you paid a high mortgage, but you were making good money. It was a different world. Um, these kids, they don't have that. And it's there's a level of frustration. Um, there's a level of frustration there. And and increasingly too, and this has nothing to do with the boomers, but this AI thing, they're seeing it firsthand, and it is, you know, it's hard to get hired. Um, it is much harder to get hired. I'm hearing this over and over. Um, you know, friends of ours at, you know, graduated Yale, economics, honors, multilingual, uh, amazingly talented, couldn't find a job. Like, like, come on. And so they went back to grad school and that's fine but there's this AI layered on top of it I think is going to be another forcing function because it's going to start with the kids right like this the AI has a harder time replicating what I might do or what you might do or somebody who's in their 50s and 60s it has a very easy time you know unemploying or just leading to the non-hiring of a 22-y old I tell my boys this all the time like listen you guys don't know anything like just be a sponge Yes, sir. Do what you got to do. Compete. But like, you know, my wife and I, we've already been preparing them for that world. Uh, but I get the sense not that we're probably not, you know, we're not in the majority of of of parents kind of listen, have you thought about this as a career? Have you thought about this or if this happens then you're going to do this or you should do one of these? We have very open conversations about that that need to be happening. They're not happening. It's only going to add to the frustration. >> Well, it is. And so, you know, we outshored, offshored, outsourced our manufacturing jobs and basically told the affected people, pound sand, learn to code, or whatever the dismissive things were. And then now AI is about to gobble up some significant fraction of our so-called service economy jobs, right? CPAs, lawyers, you know, hospital administrators. I think AI does a great job. Um, I I would really look forward, in fact, one of the areas that's going to really hopefully get pounded is um government factoms, right? you work at the DMV, you work at the DHS or someplace, AI can take your job over and do it way better, right? So, you know, with one in six people working for government on some level, I think we could trim that back a little and maybe that's a positive in this story. But again, there's like no larger cultural conversation, which is like sitting your kids down and going, "Wow, a I don't even know what you're going through because it's not what I went through and I have no experience with it. It looks kind of weird, but to your point, the trauma of CO, one of the last universities to drop their COVID shot mandate was Harvard. And there was no rational basis for it, right? It didn't stop transmission. It didn't help the people who are actually taking the shots. All it did was make the boomer, you know, uh, professors feel a little safer in the classroom or something like that. think of the Trump like there's certain things like if your dad this didn't happen to me but I could imagine if your dad looks you in the eye and says I've never loved you and I hate you like that's going to have a lasting impact right it's going to take a little while to maybe you never actually repair that fracture co fractured something in the social contract it said >> you have to sacrifice for us and we're going to leave you not even breadcrumbs to follow in your own path you know >> yeah and it's one of these things where I think ultimately the devil will take the highmost. In other words, >> who's who owns all the bonds that are going to get repressed? It's the boomers, right? Ultimately, like they can pay for their healthcare with more taxes or they can pay for their, you know, their entitlements with more taxes or if they don't and they then they're not, they'll pay for what they use via inflation and they will their bonds, you know, will, you know, they'll go from eating steak to eating hamburger to eating dog food in their retirement. And that's it's not what I'm hoping for. I'm just looking at the math and the, you know, the double entry bookkeeping of it. It's like, okay, those are your those are your choices. And yes, they paid into it, but the nominal expenses of sort of what they paid in versus some assumption of return relative to what they're taking out. Oh, by the way, all that money was spent as it went in. Let's let's be honest. Um, and that wasn't necessarily their fault, right? They didn't, you know, they got screwed over by Vietnam. Um, you know, and and sort of the the economic outcome of that, the real life cost of that. But so this is like a long this is not just a boomer story. This is you know arguably it's you know 50 60 70 years of just chronic short- termism and at some point you just run out of road and you got to choose the bond market or the currency. given that I'm really out of ideas. As I as I mentioned before we began this, I have I have a the three legs of my investing stool are gold and silver. Um is uh our financial assets because I'm I I have every confidence that when we we get to that fork in the road, the Fed's going to print, but maybe I have that wrong, but I pretty sure about that. Um but that's my view. and um and then my farm just ultimately one of these three is going to hit you know and I really hope it's not the farm but it could because this is pretty legendary mismanagement we're up against right now and um you know it if we get to the point Luke I think where we get to the crisis stage we're like oh okay let's get serious about putting in more energy infrastructure and then you grow up and you suddenly discover that there's a fiveyear wait for generators or two-year weight for transformers and you can't it just gets hard to try and repair things in the midst of a crisis, you know? It's harder. >> Yeah. It's like trying to fix an airplane, right, while you're flying. It's >> how do you do that? >> And that's that's the challenge. And you can think about the debt as sort of your velocity, right? Like the more the debt there is, the faster you're moving, right? You know, you want, you know, less complicated fixing a car. Well, it you fix a car, it's hard while it's moving, but you could do it conceivably at 5 mph, 10 mph. At 90, 100, it starts to become physically impossible because every time you reach outside and you know, you get blown away. So, and the the velocity is the debt, right? So, the to me there's two big elephants in the room. It is the physical infrastructure and the the physical constraints that we're talking about, right, of hey, it's five years for a generator and what have you and especially relative to the the the calls of the demand on that on that current and prospective generation. And then there's the debt, which is anytime you act too quickly here that it generates inflation is going to want to rise in yield and create financial market problems that then completely undermine your ability to invest to fix the first problem. And then there might even be the third, which is AI is now moving so fast on borrowed money. What you're really doing is borrowing money competing with the borrowing of to try to invest in the grid to invest in something that is undermining your tax base at an accelerating rate because half of you know employment is half of the tax base. So you're it's like this multipleheaded snake eating its own tail. Um, I don't I don't know how they don't know how they I It's It sets up for a very difficult best case. Like we're now into the point where people like, "Well, it's going to be fine." Like maybe maybe, but it's going to be fine is in my opinion now a tail outcome. Uh, and and maybe a fate fat tail outcome. So that then now you're into okay, how ugly can it get? And it can get really ugly. That's not my base case, but like I think the next three, four, five, six years, like we're going to get our our money's worth in the fourth turning. Like we're going to in in sort of the climax and day numa of this whole fourth turning, I think we're going to get our money's worth. And you know, to your point, you know, I wasn't there, of course, but in the Great Depression, one of the things that FDR did so well was he was a great communicator. He sat down and was just honest with people and you know they did commissions you know the peer pecker commission right to look into who went after you know to you know what the improprieties that were done by Wall Street that led to the losses and right so there was some he did some accountability he did some communications he did a bunch of stuff where he was just throwing crap against the wall and hope it stuck right in terms of trying to figure out and and and I just don't see not even just the leader to communicate that but I don't even see if we had that leader if they would be able to do it like I think Vance actually could communicate in that way but he can't in his current role because he's the vice president not the president um just based on and this is not saying right or left but just his ability to communicate concepts like how the dollar has driven wealth inequality and is in a in a questioning Powell and discussing in very plain language with the Europeans earlier this year of like listen guys like what are we here. Um, he could possibly, but we don't have that communicator. We don't have the ability, if we have that communicator to sit down and say, if it was me, I'd sit down and say, "Listen, America, I'm not going to run again because after I'm done saying what I'm saying here, none of you are going to elect me." Here's the truth. Your leaders have been lying to you for 60 years. We have been living a debtfueled party ever since 71. And we've made mistakes. The offshoring was a mistake. The bailing outs were a mistake. The wars were a mistake. And when you make a mistake, you have to take your medicine. And when here's what taking the medicine looks like. It's going to be inflationary. It's going to be, you know, real living standards are going to fall. Um, inflation is going to be high. We're going to need to work together and stop fighting with each other and allowing ourselves to be divided. We've got to stop going to prospective wars. We don't get to tell the Chinese and the Russians what to do. We can't even, you know, we can't even put a grid together. Like we need to retrain. And so that's a very difficult conversation into an America that has, to be blunt, not been in enough pain in their lifetimes to understand that conversation. Right? You've got the boomers who are just, you know, the children who never want to grow up. You know, I mean, I got I go I see protests. People we go, "Granny's holding signs like, you know, no kings." I'm like, "You guys are the kings. You're the kings." Um, >> I see kids who are like, "Oh, I've worked three days. This is so hard. I have to work 40 hours for the next 30 years." Like, they're not, you know, is this what happens when you give them all trophies? And us in Gen X are kind of like, you know, who are like freerange chickens for our We're like, what is going on here with you people? Like, come on. So, I'm not that optimistic that you know there has to be some sort of catalyst around okay because that's a conversation whether it happens or just h you know whether the conversation happens or whether we just set about doing that something has to catalyze that and that that that that catalyst has to be fairly dramatic and eyeopening and the odds of that being something really pleasant is in my opinion slim and none and I don't know what that is But like that's where we are. It's um you know it's it's yeah being a Gen Xer looking up at the boomers looking down at at millennials and Gen Z you're just like okay well that's so well said and really brilliant and um and I agree with all of it. I I it was 2018 Bridgewwater Associates put out an IOU plus debt to GDP chart and it was 1,200%. It's probably worse. And I looked at that chart and I realized there's only one question that has to be nationally addressed and advertised hopefully with a great communicator, which is somebody. It's like that last scene in National Treasure. Harvey Catel says, "Somebody's got to go to jail, Ben." You know, so what we're at is like the only question to answer is who's going to eat the losses, right? That's it. And of course the K Street, you know, banker, they they don't want it to be them. But if that turns into everybody else, you don't just get a mumami in New York. You get a Mundami as president, right? You you get something very redistributive is a sort of a euphemism I might use. That's going to be exceedingly unpleasant. And I don't want to go there. I'd rather not. I'd rather that we have the rip the band-aid off conversation. So, thank you for saying that. No, I I appreciate and I I agree people, you know, when when I think it was right around this time last year, tragically, right, when Brian Thompson, the United Healthcare president or CEO, gets shot in the streets of Manhattan, like what? Obviously, the Charlie Kirk situation, the the the Mandani, these these are not is you know, these are no longer isolated incidences. These, you know, uh there is a rising political anger here and I understand why. Mhm. >> And without that great communicator, without that kind of reset of, you know, the loss has to fall on somebody's head and it either falls in real terms or it falls in nominal terms. You know, you can look where the spending is happening is very very obvious if you want to try austerity, but that's, you know, a political non-starter. And and you know, if you inflate, that's also an issue. And that's why we're really to this it it's we're now to this we're not quite to the fork in the road, but like the fork in the road is is is pretty, you know, it's not that far from here. >> So So um how do you help people navigate this then? So let's imagine that there are people with 401ks, portfolios, investment decisions to be made like like how how do you begin parsing something this tricky? I think you start by having the um humility to recognize exactly how big it is, how generational it is, try to avoid, hey, it's that group's fault or this group's fault. It's it's it's it's nobody's fault and it's everybody's fault. This is, you know, we are living just it is our fate to live through this part of the long cycle that has been repeated over and over. and then to have the humility around like I've got a portfolio and to your point of a third a third a third right like I'm gonna lose some soldiers here right I'm going to and and what I've advised um you know people that have asked me that question knowing what I think I know and the sort of potential paths for me I advise breaking down a portfolio portfolio excuse me into um what a guy named Jacob Fuger did f u g- r was one of the wealthiest men as a percent of economic output in all of history I think he was a Dutch merchant I I should know it's probably 1400s or 15 1600s at any rate he advised quarter of quarter of your uh money in gold quarter your money in land quarter of your money he said in in basically in government bonds but I think the right way to think about that are are high dividend and paying or blue chip equities and then a quarter of your money in cash and then just rebalance because now we're in an environment where you know if we look at on a on a normal distribution curve the tails are very fat at both ends and so there's a very fat tail risk of some sort of very deflationary austerity you know in that world cash is going to do well gold is going to do well because there's huge huge huge default risk and gold has no counterparty risk. Your stocks are going to get killed and your land is probably if it's productive land, you're going to still have a yield, but the land prices are probably going to fall broadly in that world. That's your right tail. But you survive, you survive that your your wealth because your gold's going to go up a ton. Your cash is fine. Gives you some optionality. You survive. The other side is the you know, again, I don't think this is going to happen. some sort of brief period of hyperinflation where your cash goes to zero. Your stocks probably keep up with it. Your land actually probably falls in value to cash value because at some point of hyperinflation, mortgages stop being made and all land starts transacting in cash because banks will take a while, but they don't make 30-year mortgage or 5-year mortgages, much less 30-year mortgages and hyperinflation. They're they're not dumb. and your gold does great. But here too, you survive and everything in between. If you can survive those two, if you have a portfolio that that survives and does fine through those two extremes, you know, then your last one that is you have to figure out how to manage is your sort of, you know, your political risk, your domestic political risk. And that's based on, you know, your locality of where you live, your nation of where you live, the risks of war, these sort of extremes. But if you think of this is, you know, if I was just the average person right now, the average investor, if I was the average RAIA, I'd be thinking about this. If I was the average billionaire, I would be thinking like this. And that's that's what you know, I don't say it lightly. And by the way, this is a model for what Ray Dallio has run his all-weather portfolio on some version of this Jacob Fuger portfolio. So for me it's really about having the humility to understand like we really haven't seen this in a very long time. None of us alive have lived this. And I would argue that maybe no human alive has ever lived it at this scale. You know we've had breakdowns in globalism and 1910 124 through 45 and that was probably the biggest instance there. You know we're we're none of us were around then. And this is bigger. The derivatives are bigger. that's bigger, the globalism, everything's faster, right? Because we're all connected, we don't have to wait for letters, etc. So, that's how I would answer the question is just that, you know, take away the tails, you know, where you are, you know, they, you know, make make your portfolio impossible to kill at the two big tail risks and then, you know, rebalance as you need to. >> Brilliant. Oh, I just that's absolutely well said. So, um, thank you for your time today and, um, you're very generous with with your time and and your insight. So, I want to thank you for that. And, um, I know that people can find you on Twitter, Luke Groman. Um, and also they can find you at ftt.com. Is that correct? >> FFT. Yeah. FFTTL. Yeah. FFT-lc.com. Yep. >> FFTT-lc.com. Okay. Thanks. Um, and I do know people who who um who recently subscribed to your newsletter and um at first they're like, "Ah, can I afford this?" And now they're saying best investment they've ever made. So, um, >> thank you, >> good feedback from within my circle. So, >> I appreciate that. It's uh it is it's it's my life's work. It's a joy. Um, that'll work a day in my life. I'm very blessed. >> Oh, that's wonderful. Well, thank you and and and um listen, best of luck going into the new year and um let's do this again at some point. likewise to you and I'd love to. So, thank you very much. Thanks for having me on. It's great to be here and uh have have a have a very happy holiday, merry Christmas and happy new year.