[0:27]Hello everybody, Luke Groman FTT, hope you are well. Thanks as always for joining me. It's uh recording this Wednesday evening and it's already been a heck of a week. So, I'm going to jump right in and uh in the interest of brevity try to get through as many questions as I can. First question from Andre. Big fan of your work, subscribe to your premium newsletter. Thank you very much. How long will markets remain irrational before reality kicks in? How long are you willing to stay out of the markets if that's the case? If the war is resolved in a way that markets are discounting, uh by their price. In other words, markets are basically saying nothing ever happens, then I'm going to be wrong. And I'll have to chase with my cash and uh and I'm fine with that. Because based on what I'm hearing and what I'm reading suggests that the odds of me being wrong on this front relative to what the market's expecting are low. More likely in two to three weeks, I think we get best case a Suez 1956 outcome for the US, um, in which case, um, I think that is really good for, I think it's really good for gold. I think it might be good for stocks, maybe not, it depends. But that's that's the best case at this point for me, and I think there's real chances that we get something worse ahead of time. So I'm not looking at putting uh money to work yet, uh, but I'm I'm I'm keeping uh an open mind. Uh, from Gail, the Western paper gold markets are fakery. Uh, there's no signal in current markets. I think the West will smash paper price to the bitter end of the war until gold's finally valued by its ultimate arbiter. What oil producers say the value is per the gold oil ratio. I do agree with that part. Um thoughts. And then also kind of a sum another question from RN along the same line. What's your take on gold playing not playing its role as a geopolitical hedge, but tanking heavily since the start of the war? Do all roads still lead to gold? You mentioned recently that this conflict would lead to dedollarization. Why? How should we reconcile with the dollar squeeze? So, uh, I'll take all this sort of at once. First, uh, gold getting hit this way down, whatever, 10% since March 3rd, maybe 15% for or so from the highs. Uh, what this is telling you is that if this war is not resolved ASAP, stocks and bonds are going to go down a multiple of that in all likelihood. That's what gold is telling you. So, let's get that out of the way. Um, do all roads still, so why did gold tank? Gold tank because gold is very liquid and can be sold and that's um, you've seen bonds get hit too. Um, not quite as much, but uh, we've seen 10-year yield go from 3.94% to 4.4%, uh, which is, uh, not is a pretty big move in in a benchmark rate like that over, uh, three weeks. So, how would you reconcile this with the dollar squeeze? Here too. We've got the biggest energy problem, oil shock in 50 plus years. Uh, we've got a war that's threatening to spill out of control, and the dollar's gone from 98 to 99. I think there's informational value there, but we'll see. Uh, also said recently think that this conflict would accelerate dedollarization. Yeah, I do think it will ultimately. We're seeing it already on some level. Um, obviously Chinese Yuan being used and allowed to flow through the Gulf. I think that is likely to continue. Ultimately, every day this conflict goes on, every day the Hormuz stays closed and not reopened, um, I think more leverage flows to Iran because the financialized system is going and and global supply chains are going to continue to break down. Uh, until we get a catastrophic break, uh, or some sort of resolution, and I think that resolution is is going to be something that is much more aligned with multipolarity than what I think some people think is going to be the US takes the straight of Hormuz and takes Carg Island and controls all this. I don't think that's going to happen at all. Um, you know, I'll be wrong if we have some sort of special super secret wonder weapon we can bring out and somehow kind of run through there, but I'm skeptical. Let's see. Uh, I do totally agree Gail, the that ultimately, the gold to oil ratio, I think is going to go back higher again. And if I'm wrong there, I think it's ultimately be gold and oil. The gold oil ratio won't rise, but the price of oil and gold will go, but I still think uh ultimately this cycle ends with gold ending up um at the gold oil ratio 100, 200, uh or more barrels per ounce of gold. I would also, I guess sorry, I would last I would lastly add to that. We're in a moment of liquidity that's so desperate. No one's yet thinking about the month or two or even a few weeks that we're going to get to, or is it relates to gold, right? Everyone's like, oh, gold, gold isn't working. It's down 10, 15%. It's it's gold's telling you what's going to happen to everything else in a few weeks or less, if Hormuz stays closed. Except that a multiple, number one, like we said before, but nobody is yet let go of the trapeze of, oh, gold is down on liquidity selling to the trapeze that really matters. The reason I own gold, the reason you should own gold, which is when we shift from liquidity selling to, oh my God, Hormuz is still closed, supply chains are unwinding, every piece of sovereign debt in the world is going to default, unless every central bank in the world prints money into an oil spike in order to make that sovereign debt nominally money good. That's what's going to happen. That's what we're going to be facing in the next two, three, four weeks if Hormuz stays closed. That's that is like a certainty. And so for me, do I like gold being sold off? No. Do did it sell off more than I thought it would in this? Yes. Is 15% a lot in the grand scheme of things? No. Especially when I look at this and go, Iran is getting more and more leverage with each day Hormuz stays closed and whenever this all breaks, which is two, three weeks at the most in my opinion, because you're already seeing supply chains get really, really strained. Um, wow, when they have to print money to keep sovereign debt from defaulting into an energy spike, an energy shock, a supply chain collapse, ooh, doggy. I think gold ends the year at least with a six in front of it, maybe a seven, so let's watch. Uh, from you, FTT customer here. Thank you very much. While I still follow your overall gold argument, I recently developed some doubts. The US is now strong arming a new domestic petro dollar by making Iran blow up the Middle East, and the hands there have been quite loose for a safe for a haven asset. So a lot of people selling gold. Yes, this is often expected at the beginning of major events, but not in that extent and according to your case, they should have liquidated Treasuries first. They did liquidate Treasuries but the maybe not as aggressively or perhaps there's some other things going on there, neither here nor there. Therefore my ask, please bring a major steel manning piece against your own conviction with regard to gold. Not to backpedal but to end up with an even more solid overall case. And then also a similar question in the same vein. Alex, your scenarios resolve bullish for gold. That analytical consistency is either a sign of a deeply robust thesis or a sign that the framework has become unfalsifiable. Can you help me with the falsifiability question specifically? What observable concrete condition would make you say, I was wrong about gold, it's time to sell and actual thesis breaking development because right now gold is down 15% since the war started while Bitcoin's up 3%. The asset that has no sovereign forced sellers is outperforming the asset that does. Your reports note Bitcoin's robustness on yield curve control could make Bitcoin even better than gold. My real question is, is the market telling us in a world where governments can forcibly liquidate physical gold reserves to fund wars, Bitcoin's unseizability is the safe haven property that matters most, and if so, does your gold thesis need updating not on direction but on the instrument? Okay, steel man. If the United States takes control of not just Iran and prices it all in dollars. But then, because let's be clear, if we take control of Iran and Venezuela and set up a new Petro dollar, guess what that means? That means we have to finish hollowing out our industrial base. We have to finish sending our industrial base to China, so they can make all of our military force. Not just the part they're making now, but all of it. That's how the Petro dollar works. That's how it works. So if you think we're setting up a new Petro dollar system and that's bad for gold, and you're selling your gold on that, what you're really saying on the other side of that is, I think the US military and US government wants to get all of its military made by China before it attacks China. Of course that's silly. That's not going to happen. And so ultimately, if you think the US military does not want China to make all of its military for it. The answer's gold. The answer's a neutral reserve asset. Even if we even if we gained control of Iran and gained control of Venezuela, and Venezuela, great, who knows when the production really comes up. Iran, uh, I don't think it's going to happen, but let's see. But even if they did, if you go back to the old Petro dollar system, that makes China, make all of our stuff for us. It's never going to happen. And if it's never going to happen, because we'd have to run all of the deficits to supply the dollars to everybody in the world, which means we have to hollow out our defense base to China, so they make all of our defense base for us. If we're not going to do that, we're going to go back to some sort of neutral reserve asset, gold, so that our deficits can depreciate the dollar, so that that provides liquidity. And so that doesn't change a thing. What would change a thing for gold is if we get Iran, and then we take over Russia and we or or we get a a Yeltsin like a drunk in there who will sell all of Russia's mineral wealth to the US and UK for pennies on the dollar, all in dollars, and then we use that to gain complete control over China and uh China makes basically impoverishes itself to, um, make all of our weapons for us dirt cheap while not taking any of our technology. That's what you need to have happened to be bearish on gold. And it's obviously all like it's never going to happen, it's never going to happen. Now, what else could happen? Well, there could be some sort of, um, productivity miracle that is happens fast enough to drive productivity growth, but not fast enough to drive mass layoffs. That's not happening. We're seeing at the high, layoffs already paired. We had a terrible jobs number last month, so that's not happening. Um, if you had something happened to the baby boom generation all at once, you know, whatever, they all got hit by a meteor. Like, okay, then our entitlements are are going to go to zero overnight, their wealth is going to go to their kids. Voila, that buys time, that's negative for gold. I would sell gold on on the on on the boomer killing meteor, but that's not happening. So that is, um, that is is is the things that would say I need to sell gold. Regarding Bitcoin being up, chart Bitcoin against IGV, the software index. Chart Bitcoin against Nasdaq since the war. They're all the same chart. So it's not been really, oh, Bitcoin outperforming gold, it's been, for whatever reason, and I've been surprised by this, full admission, doesn't make any sense to me. I'd fade the heck out of it. But Nasdaq and and software have bounced in this war, and Bitcoin has as well. Although, of course, if you looked this week, IGV, ooh, doggy, selling off again, which, you know, let's see, that would pretend that, you know, by the end of next week or so, Bitcoin's back down into the mid to low sixties, so let's, let's see if that's correct.
[14:16]Um, and so, yeah, that's, you know, like I said, China and Russia willing to collapse, go back to 1990s, early 2000s, sell your gold. Then if the US rebuilds its industrial base faster than China built it up. Right? So, you know, this is that's number one, China and Russia back to '90s, early 2000s. Number two, US rebuilds its industrial base faster than China built its industrial base, which took 30 years, working at the fastest pace in human history. And the US does this without any inflation that blows up the bond market and requires any kind of yield curve control, given where US debt to GDP is, etc. Then, yeah, sell your gold. But if you think all of that that I just laid out is fantasy land, which I completely do, then gold's a buy here, not a sell, in my opinion. Okay, from David, is it too late for taco? Uh, in my opinion, yes. Uh, Iran gets a say, and they want their pound of flesh and quite honestly, if I was Iran, I would too. And it's not going as well for the US as we're being told. I've been hearing this for two, three weeks, right before I got on, New York Times just reported that, quote, most of the 13 US military bases across the Middle East have gotten hit so badly that they are all but uninhabitable. End quote. I heard that two and a half, three weeks ago. I've been intimating it, trying to intimate it, et cetera. Uh, guess what, folks, just like the last major things in this country and in any country, we've been being lied to about how things are actually going. COVID, doge, Liberation Day, um, you know, fill in the blank, whatever you want. Uh, Iran's going to get a say. And so we can taco all we want, but just if he wants to taco, that doesn't mean they're going to reopen Hormuz. Doesn't mean they're going to stop shooting missiles at Israel, et cetera, especially if they still have them and Israel, et cetera, are running out of interceptors, as they continue to be reportedly doing. And as the statistics are starting to suggest, even Bloomberg today reporting that, hey, Iran's firing fewer missiles, but they're batting average is going up to, you know, 250, 300, you know, they'd be going to the All-star game if this was a baseball game with their hit rate now. So, yeah, I think it's too late for taco. From Ben, can you steel man a scenario where the confluence of Iran, private credit, AI job losses does not create a panic or crisis? You seem to be level-headed and not someone to fear monger, but your tone and concern has shifted. How might I be wrong? I think that's why my tone and concern has shifted. I I don't know. Uh, all the every day, I steel man different scenarios in my head. I write 2,000 pages of research a year. You have to be able to steal man things to talk and write through things, to think through things. And I don't see our way out of this one, beyond some sort of perfectly timed productivity miracle that drives productivity, but it doesn't drive any unemployment, which like I said before isn't happening. And that's why I'm so concerned. I have been doing this for 30 years and I've never seen something this cornered, this multi-layered. It's just, you know, I this is not my first crisis at all. You know, that's I've been to a number of these things and so I've I've seen these things and I've felt these things in my gut before, and this is the worst one I've ever seen. By an order of magnitude. I mean, it is bad and I just, I hope I'm wrong, but, you know, I pretty sure I'm not at least unless something changes soon. Uh, from CQ, seems that Trump has a limited number of we have a deal with Iran bumps left before the market will no longer react to that. If you had to pick a single sign that Trump's ability to move the markets via media was coming to an end, what would it be? Because the day his commentary is no longer effective, the market is melting through the floor. I agree with that and I would say, look, it's Hormuz. Is it open or not? It's the only thing that matters. Everything else is noise and the physical shortages and breakdown of supply chains will will dictate that, um, in terms of when that really matters. It's really a fascinating thing. It it's another one of these moments of collective delusion that we've seen periodically over the last several years, decade or so, where it's observable to everybody in markets. Everybody knows Hormuz is closed. Everybody says we've got the best military in the world. We probably do. But why can't we get it open? No, everybody there's there's a thousand different reasons and 4D chess, 2D chess, 5D chess, why isn't it open? People say some people say, well, we want it closed. Okay, great. Tell me about the second and third derivatives of that. You know what they say? Crickets. Not a freaking word. No one talking about the bond market's going to collapse, stock market's going to collapse. Well, it'll be better for us than for somebody else. It'll be better for us for like 48 hours. What are you talking about? What are you talking about?
[19:48]So, for me, every day that Hormuz stays closed, the closer we get to, and I don't know what it's going to be, but right just saw a video of people walking to work in the Philippines. You've got, um, you know, Australia down to 18 days of diesel supplies. Australia's a barely a very big country, very arid, the food's not going to move around too well there without diesel because there won't be as many truckloads. So then when people start getting hungry there, do you think they go and work on, you know, exporting, go to they don't go to work to export copper to China, who then's got to tear down their copper supply chains and, you know, there's only 11 days of LNG apparently for Taiwan. What's the market cap of the Mag 7 going to do the day Taiwan says, hey, we got to stop making stuff because we're running low on LNG and helium. Everyone just thinks that this is going to be like, hey, it's all going to be fine. Nothing ever happens. But Iran is literally saying their strategy, the former head of the IRGC said two and a half weeks ago, our strategy is to collapse the global economy. That's the strategy, and no one believes it. It is fascinating to me. Okay, enough of Iran. From Alex, you and Dalio both reference the 1956 Suez crisis as the analogy for what's happening. But there's an asymmetry nobody's discussing when Britain had its Suez moment, there was a successor ready to step in. The transition was painful but orderly because the replacement hegemon already had the institutions, the currency, the military and the willingness to lead. Today, who is the successor? China doesn't want the job. The Euro can't even survive a guilt crisis. The Yuan isn't freely convertible. Gold is an asset, not an institution. What does a Suez moment look like when there's no successor waiting in the wings? Does the world get into multipolarity or does it get a vacuum? And historically when hegemonic transitions happen without a clear successor, don't they produce decades of instability rather than orderly rebalancing? Is the correct analogy not Britain 1956 but Rome 476 where the Empire recedes and nothing coherent replaces it for centuries? Um, possibly, possibly. And these are things investors should be asking themselves, where do I live? How are, you know, if do I live in a place? Where does my oil come from? Does it come from a barge that I need to come that that needs to arrive be a boat? And what happens the day it stops coming for two, three weeks? Can I get out of here? Do I have enough money to book a jet? You know, these are the types of, you know, half of this country has moved to places here in the US. People have moved to deserts and swamps with very poor public transportation. They've they've optimized their lives for convenience and efficiency rather than robustness. At a time when robustness, we're seeing it all around the world, robustness is how you should be structuring your life now. So I think it's a very good question. Now, with that said, why do you say China doesn't want the job? Here too is another one of the dogs that aren't barking, or invert, invert, invert, as I've been highlighting. Chinese ships, are they not going through Hormuz, unmolested? They are, aren't they? Why isn't the hegemon sinking them? You got oil moving, Iranian oil moving in Chinese Yuan through a contested straight, and the hegemon's watching them go through. Why? Doesn't that tell us there's some element of Chinese power there? You know, Russia is helping target US assets in Iran very effectively. And I don't like it, but it's happening, and it's it's uh, turn about is fair play for what we've been doing to Russia and Ukraine. And and from Ukraine into Russia. But I think it's an important point here. Everyone is like, well, our 13 carrier battle groups back the dollar. Okay, great. The problem is missiles and drones when paired with satellites are replacing naval assets as effective escorts in choke points like Hormuz. The US aircraft carriers can't even go into the Persian Gulf. They're being stood off by drones and missiles. And it's a huge, huge transition for 400 years naval choke points around the world have been controlled by first the British Navy and then the United States Navy. And in real time, we are watching land powers with missiles, drones and satellites stand off the US Navy. We had three carriers there to start. One of them's back at port after a 30-hour laundry fire. The other two went 750 to 1,000 km out into the Indian Ocean according to satellite photos, when the shooting started. Again. Power is not shouting I'm powerful. Power is demonstrated. Why did they go out deep? Why did we have a laundry fire? Why is the straight of Hormuz still closed? Why are Chinese tankers sailing unmolested through that straight past our boats? When we sank, when we sank an Indian, or excuse me, an Iranian boat coming back from India in those same waters two weeks ago. Maybe there's power there that we're not being told about. It sure seems that way to me. You know, I think there's a huge transition taking place, and I would also say, have you ever been in a town or in a part of town where the mob controls safety?
[26:19]Long when I was growing up, uh, in Little Italy in Cleveland, it's a very bad general neighborhood, but it was the safest place in greater Cleveland. And there were no cops sitting around, and there were no tough guys sitting at the corners threatening everybody. Everybody just knew where you were and you don't mess around. You don't have to brag about how powerful you are. And I that's I that's the metaphor that comes to mind as I watch Chinese tankers sailing by full of Iranian oil priced in Yuan unmolested through a straight that nobody else can get through. Somebody's threatening somebody not to touch those things, and that threat clearly has some teeth. And so, do the Chinese want the job? No, they don't want the job of doing the way we have, which is trying to be the world's policeman. Not at all. Do they want the job of managing it in a less confrontational way, more cheaply, drones, missiles, satellites, et cetera. Rather than a 13 carrier Navy with all of its attendant, uh, uh supporting vessels and a trillion and a half dollar defense budget. Yeah, I think they I think they would do that, and I think the Russians would chip in on that. I don't think the Europeans would be much help. But you never know, you got all of a sudden Volkswagen looking at building, what are they building? Missiles, right? Missiles, uh, in partnership with the Israelis, uh, the world's changing. I think power and managing these choke points is being taken away from naval assets and given to land powers with missiles, drones, satellites, technology, et cetera. And, you know, gold is going to be the world's neutral reserve asset, and I think people will pay in whatever currency they want to pay in and net settle it in gold. And that's a really good outcome for the US. That's a really good outcome for China. That's that's the good outcome for Russia. That's the Nash equilibrium. That's the good outcome. The bad outcome is we all beat each other to death and shoot nukes at each other until there's only a few of us left. We're not quite to that spot yet, but we're getting there. So, anyway, with that happy note, I'm going to finish up if you like these updates. Check out ft-lc.com. More information about our tree rings product, 10 most interesting things, brief synopsis about each, whether we are, it's making us change or reconfirm a way we'd previously been thinking about the world. And with that, everybody have a great rest of your week. Enjoy the rest of your spring, and look forward to chatting with you soon. Take care.
