Macro Outlook Q2 2024 w/ Luke Gromen (BTC184)

Luke Gromen discusses the macroeconomic outlook for the upcoming year. We cover the Fed/Treasury cap on USD, UST yields, potential changes in housing inflation metrics, and the significant backlog in transmission interconnections. Additionally, Luke explores the implications of a $1.8 trillion housing stimulus, key commodities like copper and uranium, the Japan treasury market, and how these factors could impact Bitcoin.

IN THIS EPISODE, YOU’LL LEARN:
00:00:00 – Intro
00:04:24 – The current Fed/Treasury cap on USD and UST yields
00:08:19 – The implications of a $1.8 trillion housing stimulus
00:14:24 – Potential changes in how housing inflation is measured
00:21:58 – The backlog in transmission interconnections and its impact
00:24:01 – Key trends in commodities like copper and uranium
00:39:16 – Insights into the Japan treasury market
00:51:30 – The effects of stablecoins on the dollar’s utility
01:01:14 – How these macroeconomic factors could impact Bitcoin

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▶️ RELATED EPISODES:
– Bitcoin Mastermind Q2 2024 w/ Joe Carlasare, Jeff Ross, & HODL: https://youtu.be/xrNwmw54SV8
– Macro Outlook Q1 2024 w/ Luke Gromen: https://youtu.be/DWsUM2f6GrA
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(00:00) hey everyone this episode is brought to you by river the place that I personally go to securely invest in Bitcoin with confidence and with zero fees if you said Luke what is one of the shest signs of where the bubble is throughout your career I’ve been doing this almost 30 years every time retail and banks have been like flooding into something it’s usually a sign that that’s the B guess what retail and banks have been flooding into for the last 3 to 5 years treasury bonds long-term Treasury bonds are the bubble and if (00:31) long-term treasury bonds of the bubble and as you just showed 5% is the rate they’re not going to let it go over then we should see what we’ve been seeing in markets which is everything over long Bond takes off I want to start off where we always start off which is kind of your overall big picture I don’t think too much has changed since the last time we talked because when we talked last you were suggesting that maybe by early summer that were going to have to really kind of devalue the dollar and that was going (01:03) to be the big play to kind of keep liquidity in the system I don’t think CU I read your your weekly reports I don’t think too much has changed from that thesis I’m just kind of curious if you have anything that’s additive or if I am off off base let me know I think we saw um it’s still I think you’re gonna have to continue to add dollar liquidity I think it as you know as we’ve been writing for you know probably a couple quarters now that not looking for some big devaluation but rather orderly (01:32) weakness really in the dollar and maybe we’ started to see it uh we saw in April I guess it was the second week of April we had um really bad 10-year auction and the and the 10-year yield got pretty sloppy 475 up near 48 and uh I believe if I recall correctly cuz I was just writing about it recently it was like April 15th or so um and we’re now you know in the ensuing month we saw the dxy index from the high to the low moved down about 2. (02:11) 2 or 2.4% which doesn’t sound like a lot but in the dollar that is significant that is a significant increase in overall liquidity and so we’ve seen that the Dollar’s kind of bounced off the lows a little you know 10 104 flat maybe it traded under 104 for a cup of coffee but um I think that’s going to be continue ultimately the problem is global central banks aren’t buying enough treasuries the supply of treasuries is growing exponentially and you know we’re seeing you know the the the qra the quarterly (02:50) refunding announcement um I think was another sort of you know another turn of of the cards right another another flip of the cards in terms of the Trend which is to say last November we needed dollar liquidity yelling moved issuance surprised people to the front end basically tapped the reverse repo in a way where the effects of what she did matched QE to the to a t but it wasn’t QE the purists will tell you it wasn’t QE I’m kind of like Tommy Lee Jones and the fugitive where like when when Richard Kimble’s pointing my (03:23) own gun at me I don’t care right I don’t care if what you call it stocks up Bitcoin up you know gold up since they did it liquidity was injected same thing with this may qra u she did not move any issuance to the front end but the FED did cut long-term issuance right QT if you look at these two together as we increasingly should the fed and treasury uh the treasury cut long-term issuance in November and the FED cut long-term issuance issuance in May and so I think they’re it’s a nod toward this view of (04:04) they’re going to continue supplying whatever dollar liquidity is needed to keep the treasury market functioning to keep rates at politically and economically sustainable palatable levels and so I don’t think a whole lot’s changed on that front it’s it’s sort of Steady As She Goes if you will yeah I I briefly brought up the treasury chart there and I also have a a dollar chart that I might bring up here um when you’re looking at the treasury uh yield the bond yield curve of of the treasury (04:29) market here let me bring it back up again um I’m just I’m wondering how high are they going to let yields go how far are they going to let it sell off before they just cannot let it sell off any further and so here’s the chart again for people that uh are curious that are maybe watching this on video um are are we looking at this 5% level kind of really being the threshold that they just cannot allow it to go back through where it you know it looked like the the selloff kind of peaked in October of 20 (05:00) 23 and I’m just I’m looking at that level and I’m I’m I’m saying to myself I just don’t think that they can afford to allow it to sell off Beyond uh that threshold um going into the summer I’m I’m curious if you would agree with that I do agree with that and I think there is a ace to be made that that number moves down over time which I think makes you know as you can see in that chart right so we saw the the April Peak and we saw you know that was right around the time when we saw seven fed (05:30) Governor’s jaw bone the dollar down and then yell followed up on November one with what she did which I just described but now we fast forward and we have sort of similar action if you go to this latest Peak at you know whatever uh yeah there it is in yield yeah in yield exactly yeah and uh yeah we can yeah we can see sort of the what I was just describing there we’ve seen so there’s a case to be made that the red line of five maybe coming down over time is it coming is it coming down that fast I probably not I would (06:09) say I would agree with your view that that that five is a red line is probably pretty safe to say the only way they don’t let that yield go higher really plays into the thesis that you’ve been saying for a very long time which is they have to weaken the dollar in order for that to to not make a new high because the rest of the world has to sell their treasuries in order to uh defend their currencies and um and I’m going to pull up the dollar chart here uh while we have this this selloff that you’re (06:37) talking about is right here in April in in the dxy uh and you can see for a month and a half now it has the dollar has weakened which has you know helped keep the the yields in the treasury market where they’re at not not putting in uh new highs with respect to the yield so um I when I’m looking at this I’m not seeing anything definitive that’s showing a momentum shift or a change based off of the the volatility I mean there’s a lot of volatility in both of these charts and so I guess for me when I’m when I’m (07:12) talking to an expert like yourself I’m thinking so why what is different right now that you think that this trend is going to really that the dollar is going to get weaker and that they’re going to be able to cap the yields on treasuries what is that key thing that you’re seeing right now that that you’re not seeing in the price action of these charts that you think is is changing that so I think it’s um I think it’s the prospective possible slash likely liquidity yet to come right so it’s (07:46) that’s what we have to watch for is when you see these news stories go by they’re not and they have not they’re not going to say we’re doing this to cap yields it’s going to be every other excuse in the book The purists are going to say it’s not QE uh blah blah they’re not doing this to finance deficits same thing they’ve been saying for 15 years uh it’s just happening a lot more frequently I know it’s a lot more urgent um because of of of what we described before the fiscal situation and the lack (08:16) of Central Bank buying on net uh so what are those things as I look out over the next six months uh I see Freddy Mack uh guaranteeing second mortgages which the comment period ends today it was. trillion is this is the 1.8 trillion as much as 1.8 trillion in liquidity right so when you hear so Freddy Mack is a government mortgage company yeah right so what what I forget exactly even know what they’re called we know what they do right so it’s the government it’s the government so by way of background about (08:57) 30 days ago uh it was has put up uh for comment on the Federal Register the idea the proposal for Freddy Mack to guarantee second mortgages when you hear Freddy Mack guarantee second mortgages you should hear government guaranteeing consumer spending when people take out a second mortgage they tend to go on vacation buy a car uh put in a pool put in a deck this windfall it’s a windfall it’s co stemy 2.0 what was Co stimy 1. (09:31) 0 it was a government backed consumer spending boom yeah it weakened the dollar it was in liquidity it’s the same thing now interestingly people I’ve talked to said that number one almost no one’s noticed this the Wall Street Journal editorial board wrote something about it in May one their at tagline was what could possibly go wrong um and they’re exactly right um and the people I’ve talked to said it’s very unusual this thing only had a 30-day comment period it was like here it is anyone El I put it up for proposal second it (10:05) second it any objections tap there was less than 200 people that that viewed this file according to your report correct yeah it was I think it was like 900 as of a week ago I think it’ss up to like 1300 right so we’re talking about something that could ostensibly inject hundreds of billions of dollars of liquidity then and ultimately trillions and the consumer especially if they if they do the same thing for Fanny May and I don’t know why they wouldn’t uh eventually and no one’s paying attention (10:34) to it and and so the the comment period ends today I don’t know if that’s a midnight or if it’s already over and so okay step one that’s you know this is when I say we have to watch for these liquidity injections um okay let’s go to number two number two last weekend there were articles about how the US Banks had successfully pushed back on regulatory reforms led by Jamie Diamond at AP Morgan well that sounds good and and you know the article talked about how Banks um were running the Bank lobby (11:08) particularly in the financial Market markets uh were running advertisements I believe during the Super Bowl uh the article said talking about how these regulatory reforms were bad for American growth okay these are bad call your Congressman the regulatory reforms are essentially uh designed to turn the banks into monetary utilities to finance the government basically treasury bonds are going to count against Capital treasury bonds count against their Capital ratios then when they buy treasury bonds they have to not make a loan somewhere else (11:46) um and this is vastly oversimplifying but this is this is the key thrust of it these banks are fighting these regulatory reform so that the treasury bonds do not count against Capital which means they can buy infinite amounts of Treasury bonds and if they buy infinite amount of Treasury bonds with no Capital that’s QE through the banks yeah more liquidity uh it’s really good for growth it’s really good for nominal GDP it’s good for employ like and that’s the sort of you have to understand what you’re seeing (12:19) and kind of translate it the banks aren’t wrong this would be bad for growth right so if if these regulations as they are written stand government keeps running deficits deficits will crowd out private lending by the Banks the banks will buy the treasuries risk adjusted it’s very attractive blah blah blah and they’ll stop making loans to what the bank said would happen in the advertising small businesses industrial commercial industrial loans Etc and the economy will slow they’re right so the (12:47) choice is do that and work down inflation or suspend the regulations as it relates to treasury so treasuries do not crowd out the private sector when the banks buy them and the government runs deficits the banks still make loans to the government by treasuries and the banks still have the balance sheet room to make loans to the private sector dollar liquidity QE without calling it QE so those are the next two things I’m watching for and again this is not catastrophe this is not it just is what it is this is how when (13:24) governments have a fiscal problem they don’t just go oh I give up we’re going to cut entitlements and defense by the amounts we need to cut them so that we can it’s not what they do especially not in the geopolitical environment we’re in so what we’re seeing is just this steady creeping changing of the rules moving of the goalposts not QE dollar and let me tell you you tell certain people on Wall Street that they are financing the deficit they will lose their minds and maybe technically they’re not because (13:56) they’re going through the primary dealers and as I asked someone the other day okay yes we’re not a Banana Republic this is not a Banana Republic move because they’re going through the primary dealers but answer me this we know the primary dealers are backed by the government they’re too big to fail right yes okay so if a government-backed institution is the intermediary intermediary to between the fed and the government what’s that’s semantics it’s semantics and here’s where I would push (14:26) back on the per On The Wall Street person that says that they’re not you know doing that there’s already a massive divide between Boomers and younger Generations right massive divide um when we look at what we’re talking about we’re effectively talking about a $ 1. (14:47) 8 trillion doll stimulus to who a person that owns a house already fre and clear yes right yep if you don’t own a house do you get to participate in this $1.8 trillion stimulus that potentially is going to happen of course not right no not not to your parents die yeah but yeah so so when you yeah so when you when you pull back the thread and you look at who is this actually impacting inside of society right and you say how is it how is it benefiting them who is it hurting who’s who’s at the disadvantage of these policies that are being rolled out and (15:23) this isn’t a Banana Republic well actually it is it is this is this is total Market manipulation where you’re choosing winners and losers and what’s fascinating to me is the same set of people continue to be the winners on this on these decisions these policy decisions as they continue to roll them out and so the more that they double down on the manipulation of the markets the more that they’re just ticking off and and creating social unrest with a a really interesting demographic which is everybody that’s young because of these (15:56) decisions that they’re making and it’s it’s we can caught up in all the terminology and all the hoopla and describe how the banks are doing this and they’re doing that but at the end of the day like the end user the person is being impacted in these decisions are the people that own the equity or they own nothing and if you own nothing you’re going to even own less than than the nothing you already have because anything that’s being printed is being jammed into the hands of the people that (16:22) actually hold the equity and that divide and that that obliteration of the middle class just continues to accelerate it’s totally crazy but curious if you have any additive sorry to well it’s interesting right because the you know if the real reason we’re doing this is because we’re running these big deficits that’s that’s right so but then you look at why are we running these big deficits it’s entitlements it’s so there’s there’s three things we spend our money on that (16:48) matter there’s we bring in 4.8 trillion in tax receipts roughly 4.6 I think last year uh we’re going to spend 3.2 trillion this year on entitlements Health and Human Services and Social Security so that’s Medicare Medicaid and and that primarily goes to the Boomers uh and the silence generation so about 70% of tax receipts is going to entitles the next the biggest line item is of course interest expense uh which is only going up which is going up and that’s about a trillion two on a gross basis trillion 1 trillion (17:24) 2 on a gross basis um certainly Prof Forma um so which is more than military spending oh it’s 50% more than military spending yeah um and oh by the way every hamon who’s Debt Service has gone over its defense spending doesn’t stay hegemonic for very long separate discussion which is a massive foot stop it’s a very yeah it’s a very big thing so but so This 1. (17:49) 2 trilon who’s the biggest buyers of who’s been the biggest buyers of treasuries over the last 10 years the biggest marginal buyer other than the fed and the banks has been the Boomers right it’s been us retail particularly since they began raising interest rates so they’re getting more the boomers are also getting more interest too and then we’ve got def fense that call it 900 billion so the point here is is that the reason we have to do this in terms of this liquidity injection to finance these deficits which are heavily (18:21) driven by money that’s ending up in the Boomer’s hands to pay for services that the boomers are ultimately consuming um and but the Boomers own the bonds and so who’s really losing in all of this the Boomers right so basically there’s two ways you could structure this I’ve got to pay this this entitlement I can do two things I can be overt about it I can put it up for a vote which will never pass or it might pass now actually because but forever it wouldn’t pass right when you look at the demographics (18:56) the boomers are not going to vote for this but now they’re not the biggest generation anymore they might pass but um I can put up for a vote like we would do in a democracy or I could just do it the easier way the governments always do and here raise rates hey Boomers you can get four or five% oh great I’m gonna have four or five per. (19:19) all right jack inflation to eight and like these boomers are going to sell their bond funds like you know my dad last well was like when’s my bond fund going to start going back up up it just goes down every year yeah I said it’s probably going to stop going down on a nominal basis now comes the fun part where it goes from buying you you know a house to a cottage to a tent and that’s how the Boomers will pay for their own entitlements yeah and the collateral damage to that is what you talked about is the people who don’t own houses the (19:55) people who don’t own assets um and I think we’re watching all of this happen we I think we’re we’re watching markets recognize this start to recognize this in real time when you look at which is the $130 trillion bond market recognizing it’s the sucker at the card table I mean if if you said Luke what is one of the shest signs of where the bubble is throughout your career I’ve been doing this almost 30 years every time retail and banks have been like flooding into something it’s usually a sign (20:28) that’s that’s the bow yeah guess what retail and banks have been flooding into for the last three to five years treasury bonds long-term treasury bonds are the bubble and if long-term treasury bonds are the bubble and as you just showed 5% is the rate they’re not going to let it go over then we should see what we’ve been seeing in markets which is S&P over long Bond boom NASDAQ over long Bond boom gold over long Bond boom Bitcoin over long Bond boom everything over long Bond takes off and because (20:58) there’s a ref flexibity markets are forward looking they’re not going to go oh rates are at five sell no they’re starting to go oh rates are at five here comes the next application of sugar that’s sweet sweet liquidity from Howell or Yellen or whoever is going to generate it but they’re not you know they’re not going to eat less because rates are at five and if they’re not going to eat less because rates are at five then the right thing to do is sell long bonds and buy stuff that goes up (21:24) when when they have to apply the latest round of liquidity something that’s desirable and scary that’s exactly right yeah uh you had a comment that you think that they’re going to remove potentially remove Shelter From the CPI index were you serious about that it was n it was that was more tongue and cheek uh more than anything else in terms of their inability to get housing down um it was probably too cynical but maybe not as cynical as it would have been five years ago I read it that way I read it as you (21:55) being a little cynical so um this was a really interesting comment and uh I I would love to get into this especially because I think it has ties to bitcoin and uh AI um you said there’s currently a backlog in transmission inter interconnections of 2,600 GW that is larger than the installed capacity of all power plants currently operating in the United States what are you talking about here so one of my biggest Investments or one of my bigger Investments personally is a private Equity investment in in an electrical infrastructure equipment (22:31) company and one of the executives of that company uh here in Rust Bel USA sent out that update after being at a trade show and what I’m saying is that the amount of requested permitted grid buildout basically right um is bigger than the entire installed base of current generation in the United States and so when I see people be like short copper I’m like good luck have fun storm in the castle right from from uh Princess Bride um and that’s not to say it can’t go down but like there is such a gross (23:18) mismatch between the stated policies of our country and basically every country right which is we’re going to Electrify everything and the available capacity today and then the perspective capacity when you look at all right how we doing on copper Supply how are we doing with aluminum how we doing with the industrial production capacity to make this stuff like the execs at this private in electrical infrastructure company they think they’ve got 10 to 20 years of open field running like just as much business (23:54) as they could do and so when you then translate that to things like AI and we’re starting to see this a little bit in in the headlines is the bottleneck energy the bottleneck copper the bottleneck is all this stuff so it’s a very it introduces this really interesting potential Paradox which is for the year and my entire professional lives you roll out a new technology it’s disinflationary it’s a massive productivity enhancement and it’s deflationary for the first time that I can recall in my career this new (24:28) technology is so powerful that the bottleneck are these industrial components and the the raw Commodities like copper and uh uranium and uh the industrial components and infrastructure to make this stuff which introduces this really interesting Paradox which is for the first time in our lives technology the latest technology productivity Miracle might be inflationary not disinflationary because then when you follow up a call up a chart you know they they call Copper the you know the the the metal with a PhD in economics (25:04) for a reason uh correlation between GDP and electrical consumption is like nearly perfect and electricity doesn’t move without copper so when copper prices start going up a lot you can run a correlation with copper with inflation expectations in the US copper with inflation break evens AI is going to make rates go up because they’re short the copper and the electrical infrastructure and energy it’s going to be so that’s and you would think it’s completely the opposite U so I think that that me or excuse me gigawatt (25:43) comment really was like sometimes you just hear these comments that just smack you across the face the last time I recall hearing one like that was we used to cover in in a former life we used to cover a coal mining company called Joy Global um they they did drag lines and um I forget what the other kind of giant coal mining Machinery was but these are like at the time they were like 20 to$ 100 million a rattle machines huge huge metal machines and we went and met with them in like 2002 or 2003 or something and (26:18) they’re like our order book is extended out like years the Chinese are buying everything we can make I’m like okay and the stock just went for the like the next six seven years yeah that’s the that’s the last time I remember hearing something like this with that gigawatt Comet right where you’re just like there’s two choices we don’t have the grid to do what we want to do with electrification full stop yeah and so then your answers are do we not do it or do we do industrial policy and the FED cap yields (26:57) ultimately one way or another to do it and you’re seeing scientist the ladder is AI the thing that’s driving this this massive increase in energy it’s a part of it it’s a big part of it but it’s it’s I mean that’s still early days um I think it’s it’s more just the data center there are things it’s the data centers it’s the you know it’s it’s the the EVS like even the small amount of EVS people again these this doomberg did a great piece uh about a year ago where he said these the average (27:37) Transformer that we use in sort of you know and and I apologize to any any people who really understand the electrical grid stuff because I’m not that guy I I know like not even enough to be dangerous I’m just dangerous uh so I don’t know what size of Transformer this is whatever size you use you kind of see on the poles that’s sort of for like a neighborhood or whatever at any rate doomberg pointed out that these Transformers are designed to run on a cycle so they’re supposed to last 30 years and the way they last 30 years (28:10) is during peak hours like you have in a grid right max power used to get really hot and then at night when when when the when use is much lower they cool down and so they cycle down they cool down and it’s that cooling period that allows them to last 30 years what doomberg pointed out was the just running hot well yeah when does everybody plug in their cars at night yeah when we never used a stuff before okay that takes the temperature of these things and let runs them hot 24/7 okay what happens to the useful life of a (28:45) transformer how far does it fall from 30 years driven by just a token amount you know not not nowhere near our goals for Ev penetration but just once you hit sort of some threshold on EV penetration how far does it go from 30 years it goes to 3 years they cut the useful life of Transformers by 90% by plugging in your cars at night really and I run this by you know these these these friends of mine at this electrical and they’re like yeah that’s really Direction insane so there’s a degree of reflexivity yeah in this That Wall (29:20) Street is not thinking about they are just not thinking about the average investor is well let’s just plug it all in I cars electrification no no no there’s an order of operations fellas and it all runs through copper all got to go through copper then it’s got to go through the US industrial base and electrical infrastructure and aluminum and like like copper is probably not pricing the right freaking zip code if we want to achieve what we want to achieve and again that’s fine that implies some massive secular (29:55) investment shifts in terms of you know look if if Copper’s the bottleneck for AI Copper’s an AI play Baby if the price of copper is you know going to 10 from five like it’s not like you’re not going to buy the copper yeah and so I you know people say why is China buying up all this copper and why is China buying up all this nickel why is China buying up all these Metals they’re getting ready for war maybe or more likely in my opinion data centers yeah they just they know like if you knew something if you if you didn’t have (30:33) to Market to Market China doesn’t for two years if you knew in two years copper is going to be 15 and today it’s five how much copper do you buy if you don’t have to market the market because maybe it goes to four first and of course the American way of doing it is oh well I’m not going to buy it if it’s at five because it might go to four or 350 before it goes to 15 because we all have to mark our books to Market monthly or quarterly and China’s like okay I’ll take it a five and if it goes to four (30:59) I’ll buy more if it goes to 350 I’ll buy more and like I don’t know why these people keep selling me all this stuff because it’s going to be 15 in 2 years or three years if they look at their own plans for Ev and and the 15’s a random number maybe it’s eight maybe it’s nine maybe it’s 10 maybe it’s 20 I don’t know but it’s higher like it’s it is so obviously higher barring some sort of catastrophic or some sort of productivity thing right we we have some hey we have a way to to not you we can (31:29) do this wirelessly we can transmit electricity wirelessly and we don’t need the coover okay that changes everything but like the people that are building the grid if we have this and we’re going to use it you probably ought to inform them because they got 2600 gws of sort of stuff to build which is bigger the entire grid and no one’s let them know like hey don’t worry about the wire yet because we we we can do it wirelessly right now unless it’s class ifed it doesn’t exist so uh just for folks listening (32:03) three tickers uh for companies that have a market capitalization that deal in Copper in exess of a billion you got FCX IE and [Music] bvn uh that first one FCX uh Freeport um this is a$ 67 billion company I don’t I haven’t dug into any of those tickers I’m just did a quick Google search and just you know throwing out a couple names of companies that deal in Copper so um and is that how you would play this Luke I’m assuming you would buy the companies that are mining it or are you like actually going into (32:38) the Futures market and trying to own copper how how how do you play this I for me and and I can’t make individual Securities recommendations but from a trade structure standpoint if I was an average investor yeah I wouldn’t get involved in the Futures that’s a tricky game that’s better served for professionals given the leverage involved I would be more inclined to own copper producing companies with good balance sheets you know low Deb low debt to cap because it is I don’t think it’s (33:03) going be a cyclical business for a few years but it it is in the long run a cyclical business uh yeah so yeah that that to me is uh I think the safest and best way to play for for most people but I would think if the dollar does weaken like we talked about earlier these are going to rip I would think yeah yeah yeah how about on the uranium front because you had quite a bit that you were talking with respect to that as well and this is again another energ uh Centric type uh position based on the increasing expectation for energy (33:35) demands all around the world I also read that Japan was starting up one of their nuclear reactors uh what are some of your thoughts on this I’m not dug in as deep to it other than tangentially but to me I I look around and I see a lot of countries coming to the recognition that they’re short electricity relative to their plans and goals and that nuclear is the best way to implement large amounts of Base load capacity um and the supply side of it again by what I can tell is is also relatively tight you saw last week the US (34:18) government is basic not even basically they just implemented uh in the aftermath of sanctioning Russian uranium they implemented a program where they’re basically going to uh spend $3.4 billion doar to sort of buy up uranium and try to stimulate the domestic uranium industry which is fine it’s the right thing to do it’s a good strategy but that yields conclusions which is that’s industrial policy the American government is selling treasuries to buy uranium why wouldn’t I sell treasuries to buy uranium why should many investors (34:50) sell treasuries to buy uranium I think you should um so I think I think the outlook for Uranium is very good I I look at I think it was Amazon uh few months ago I think dropped several hundred million dollars to buy a nuclear power plant to for themselves to help run so we’ve got this technology company with all this amazing you know they run web services they’ve got you know all the all of this Tech and they’re buying a nuclear power plant why you know I’ll tell you why because they see what I was just talking (35:23) about in terms of the mismatch between inter connection applications and the lead times and the existing capacity and so they’re dropping several hundred million dollars on a nuclear power plant because they think that’s it’s getting to the point where it’s not what’s the cost it’s what’s the availability you know what’s the value of Amazon if they don’t have enough electricity yeah it’s I don’t know what it is but it’s hundreds of billions of dollars Less in market cap so who cares (35:55) drop several hundred million dollars on a n power plant make sure your uptime doesn’t go down as a result of your electricity hookup uh Microsoft has talked about buying nuclear power plants for their AI type stuff so I think you’re going to see more of this which again breeds this interesting question which is if I take a look at the multiples on copper and uranium and I I electrical infrastructure and I and I contrast it with multiples on a true AI stocks and if the former if the latter if the AI stocks don’t hit their goals (36:38) without the former then the multiples should probably at least be a little closer together on the stocks and the earnings multiples right so I’m not saying they should trade at a you know some insane you know High multiple but they probably should get a little bit of a pickup from being stocks that the AI stocks can’t live without so that’s how I’m thinking about at the moment uh I think it’s kind of interesting um but yeah one of the most common questions I get asked from family and friends is Preston where do (37:12) you personally buy your Bitcoin from and the answer is really simple I buy it on river.com not only can you easily buy Bitcoin with zero fees on recurring orders you can have peace of mind knowing Bitcoin on river is held one to one in multisig Cold Storage all while being being fully licensed and regulated in the United States plus their relationship managers are us-based and available by phone for you or your business additionally River has built their own infrastructure from the ground up which means they don’t rely on third (37:42) parties to function like other Bitcoin exchanges River also just created a new feature not found anywhere else called River link it allows you to send Bitcoin over a text message to 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(39:01) com stip to schedule your free consultation call don’t delay in securing your generational wealth the right way opt in for security overc convenience and protect your future your family line will thank you I’ve got a chart I’ve got to bring up here uh this is such a blood bath look at this look at this Whopper Japanese bond yield curve Luke yeah I mean this is crazy this this selloff is totally insane like we’re back to yields in Japan that were there during the great financial crisis um and I mean it just it looks (39:43) like it is just going to continue to fall apart so um when I think about uh where this is in relation to all the other yields around the world this really kind of seems to be the canary and the coal mine and I’m curious if you would agree with that uh with respect to just there is a Brisk change uh playing out in fixed income do you have any other thoughts or like opinions when you’re looking at this and I can also uh show the the Japanese Yen which we’re seeing uh against the dollar at levels that it hasn’t hit since (40:22) 1990 uh which I also think is incredible um what are your thoughts Luke when you when you think about Japan and some of these charts I I think it is a canary in the coine um Japan is one of the world’s biggest creditors right they have been they’ve been running surpluses against the West certainly against the United States certainly uh for I don’t know 60 years and what do they do with those surpluses they reinvest them into American assets so uh ultim Ely we can see that those yields and we can then Game Theory or g game out what (41:08) the possible options are for them right so that goes up that that puts pressure on everything that puts pressure on in Japan um what does Japan want to do uh they’ve got3 trillion do in dollars nominated assets sitting in America they could say listen we’re going to finance our deficit to defend our currency for you know we’re going to sell 5% of that every year we’re going to sell 10% of that every year you know so we’ll sell $300 billion worth a dollar assets a year for the next 10 years and it probably go longer than but (41:48) on that front they just opened up swap lines to them so why if if I’m Japan why don’t I just beg for mercy and say open up the swap lines uh I’m not going to uh sell my my treasuries just like just help help a brother out would basically be my strategy and it seems like that’s the strategy that they’re taking uh is that it or well that goes right back to our initial discussion right which is that’s not QE those are just swap lines they have to be bought back yeah but if the alternative was them selling treasuries (42:23) what are those swap lines financing us deficits right financing net us Yellen would had to sell her trilon the F would had to S their and Japan going be going you know what you take these I I need the dollars so the punchline is is the treasury yield would start to look like that you know that would be you know that’s what it would start that the 10 10e treasur would start to look like that and we can see that if you chart you know I you know i’ I’ve it’s it’s a two AIS charart so take with a (42:52) grain of salt but you run the Yen against the uh the 10e treasury you know so the the weaker the Yen gets the higher you know the higher the uh the dollar Yen goes the weaker the Yen gets the higher the tenure treasury goes for the last five years it’s like a very tight correlation and so in all in all of this just so people can can understand like so what’s the impact when they open these swap lines and they allow this to take place Japan benefits before the United States benefits but if the if the US didn’t (43:28) open these swap lines we would have total dysfunction in the treasury market and everything would go chaotic globally so it’s kind of like you and I are in line to to go on a ride or something like that and I put you in front of me even know it it doesn’t benefit me for you to go first but if I don’t go first we basically both die or or we both fall apart so like we’re here helping out like all these countries around the world by opening these swap lines just so we can keep the dollar stable and and (44:01) uh normally functioning at the expense of every US citizen and their purchasing power and their ability to buy Equity around the world because they’ve basically given that liquidity to somebody else first is this is this a correct description generally yeah uh yeah it it and it speaks to when you’re highly levered there typically aren’t linear gentle soft bling outcomes they get very very binary right so okay we don’t open the swap lines the Japanese sell treasuries the yield goes up the dollar (44:38) goes up as the dollar goes up Global growth slows AS Global growth slows and treasury yields go up the amount of global selling of treasuries accelerates the net effective supply of treasuries accelerates yelling plus everybody in the whole world right so Yellen sells 2 trillion the FED sells whatever they’re still selling and the world sells the world could sell a trillion a year for the next eight years central banks could sell a trillion a year for the next three and a half four years so okay and we know that that Market’s not (45:10) very liquid it’s it’s not certainly not that liquid because we’ve seen it dysfunction three times in the last two and a half years so that we go into a death death spiral globally right because oh by the way treasuries are the collateral underpinning the whole system and we saw started to see the impact of that last spring it wasn’t a banking crisis last spring that was a treasury problem the collateral underpinning those Banks had fallen too far and so the FED wrote the collateral up via btfp (45:37) swaps to keep those banks in a decent position that’s option one that’s extreme option one we started to see us go into that in 3 q23 when we saw the long-term treasury market Fall 20% in a quarter option number two is not like well let’s just do Goldilocks option number two is okay do the swap line do whatever liquidity you need to do to keep treasury yields from going too high to keep the dollar stable to moving down and to kind of keep but the release valve then is S&P up vers you know like this versus (46:12) the long Bond NASDAQ spiking versus a long Bond gold spiking versus a long Bond Bitcoin spiking versus a long Bond those are the two op it’s fire it’s ice or fire that’s it there’s not like hey can we make like a nice warm tea out of the ice and fire it’s ice or fire until you write the debt down significantly that’s and and we’ve seen ourselves going back and forth and sometimes we spend a little time between the two but it’s not like Hey we’re going to spend the next two years sipping a nice cup of (46:40) tea Blended of Ice and Fire it’s going to ice fire ice fire ice fire I don’t think that even writing it down solves the the issue at hand which is that you have uh productivity through about to be Ai and what that’s going to do and you’re and you’re trying to measure all of this with a fractional Reserve System that has to keep expanding and so I just don’t see them writing quote unquote writing it down being anything other than yet another Band-Aid on a on a wound that is bleeding out (47:14) aggressively you have to get to some type of sound money in order to have the the quote unquote write down in a way that the world can move forward uh in a in a in a way that incent IES cooperation as opposed to incentivizing uh everybody at each other’s throats no that’s exactly right and it and it’s as you know our friend Jeff Booth wrote it the the Great Book price at tomorrow and that’s the that’s absolutely correct it’s absolutely and that’s something again Wall Street in by and large is not (47:49) paying a lot of attention to which is I don’t think Wall Street understands that that it’s it’s difficult to get a man to understand something when his salary depends on his not understanding it yes which is to say the a debt backed system a debt based system is fundamentally incompatible with a deflationary technology like AI yes they would they people aren’t getting that yeah setting aside how AI might actually inflate Commodities like we just said yes set that aside as a trigger of inflation (48:22) let’s say AI arrives too fast or just at a reasonable Pace it doesn’t arrive it arrives too fast relative to the PACE not needed to do this you’re going to create wage deflation right there was a a great paper on humanoid AI robotics right and the paper on it a couple weeks ago we wrote about it U and it’s um something that that again Jeff Booth introduced me to as as a concept uh about a year ago they think AI human robots could send the median wage in the world down to a dollar an hour by 2034 let’s say they’re wrong it’s only (49:07) $10 an hour by 2034 still who pays the Consumer loans right so the wage the wage level is going to drop pretty much every consumer loan out there will defa yeah okay are they going to let the banks blow up we know they’re not going to do that what are they going to do they’re going to print the money to save the banks because guess what the banks are going to sell to get liquidity as their Consumer loans default from this deflationary wage the $4. (49:38) 2 trillion in treasuries and mortgage backs they own as high quality liquid assets just like they did last spring for Silicon Valley and and and Signature Bank well that’s not good because now it’s a treasury market problem again and we know they’re not going to so AI means the the end point of AI to your point in the presence of a debt back system means central banks are going to have to fully Reserve all the debt or the substantial majority of the debt that’s where AI leads us and I don’t think that’s understood (50:18) yet and so like you know the way I’ve been positioning for it is keep my own balance sheet load do not take on Consumer Debt I don’t need and from an investing standpoint understand that neutral Reserve assets will outperform everything else as the deflation of Technology forces Central Bankers over time at an accelerating Pace to fully Reserve everything all the debt and the price level will adjust and like that’s there’s like an easy way to do this in a hard way but it ends up the same way either way and and this this (50:55) part is not understood but when I I see all the stuff about Ai and it’s almost I don’t know if they’re just not thinking that far ahead or if it’s one of these things where like it’s the Boogeyman in the closet like you can’t like if I worked at a big Wall Street fway you can’t do that the consumer loan guys will come over and kick your head in right what are you talking about stop um I don’t so I can when I’m looking at this and I’m looking at it picking up and accelerating and who knows what that (51:20) timeline is and there needing to be some type of buyer for all of this issuance that’s that we know is coming that has to come um we I think you and I have talked about this very briefly Luke about stable coins effectively being the transmission mechanism for them to have a to have a buyer for all this garbage and short it’s going to have to be short duration garbage um I was blown away when I saw the former speaker of the house uh he ran as a vice president you saw this clip as well I can see you’re nodding your head (51:55) Paul Ryan uh talking about how important stable coins are moving forward and basically getting literally getting into this argument of them being buyers of treasuries and when I watched this clip I was like oh my God they meaning Washington have finally figured out what’s happening here and like where this is all going and uh I just I was little uh taken taken aback by all of this because in my in my mind they they are totally missing like how this transmission mechanism is going to take place for the buyer of all this garbage (52:35) and now it seems like they’re figuring it out it looks like they’re implementing policy to embrace this and you know you and I have had this opinion for a while nobody needs this more than Washington these stable coins it’s just taking them a long time to figure out would you argue that they that they uh all these politicians on on on Capitol Hill have started to actually figure this out or is that Paul Ryan clip just kind of like a one-off thing I think the Paul Ryan is an interesting because I think it’s a (53:08) signpost on timing in other words that they’re talking about it now because over the last call it six months or so I’ve had a couple of conversations where it was made apparent to me I love you’re trying to like make sure you don’t dox anybody go ahead go ahead I will not interrupt you Luke go ahead you get it um in the aftermath of World War II think about where we were on Whatever May 10th 1945 Europe flattened Russia flattened Japan flattened England the industrialized the world was looking at (54:01) a period now from a classical economics standpoint what that means is the capital of the world was destroyed it was gone the retained earnings of 2,000 years gone obliterated obliterated that leaves one of two paths we spend the next 60 40 40 years to Generations maybe 60 years slowly rebuilding the capital obliterated over you know 200 2,000 years of capital obliterated little by little right so we we eat hand to mouth and we try to save a little bit we take the retained earnings we put it over here in a pile (54:46) and we fold it there someday and then we add the next year and the next year and someday we have enough to rebuild the roads and then someday we have enough to once we rebuild the roads to rebuild this and rebuild that okay that’s option one option two is you move to a system that you know you’ll have to move back away from at some point where debt becomes an asset I will go into debt to rebuild you you will hold the debt as your asset and by doing this we can pull forward the 40 Years of rebuilding to a much (55:30) shorter period of time in reality rebuilt it over 10 years probably much longer than 40 years right it probably take you hundred years to rebuild from that using the first way but we’ve always known it’s a problem triffin Delma told us it becomes a problem at some point you cannot and this is the first time in human history as far as I’m aware of where the debt where it became so widespread that the debt became the asset of another such a large way ultimately it’s my understanding that they it’s always been (56:06) known that at some point you’ve got to go back to a more Equity based system something that is not a debt-based system yeah the fact that you’re seeing people like Paul Ryan say these things the fact that you’re seeing central banks buy gold not treasuries for going on 10 years now is a hugely important message when central banks buy gold and not treasuries in the context of what this 80-year process of rebuilding from the you know the 1913 to 1945 period that’s telling you the Central Bank saying that system’s done we are (56:47) starting the transition to a neutral BAS system and so when I see Paul Ryan say things like that it’s really interesting to me when I see Janet Yellen say I for my entire career she’s a 76 year old woman for my entire career I thought that if someone wanted to send you cheap Goods you should send them a thank you note I would never again say send China a thank you not she’s throwing 40 Years of economic Orthodoxy in the trash National Security adviser Jake Sullivan getting in front of the Brookings Institute and saying the last (57:23) 40 Years of US economic policy has been wrong so there this building theme of a move toward this equity-based system now like what tactically when no one’s talking about yet I I suspect you probably have but not a lot of people is if you stable coins you’re not going to be putting 10year treasury bonds and 30-year mortgages and these things because of the duration mismatch be all T bills and so if you which works for both parties which works for both parties it works for yeah it works for everyone it works (57:58) for everyone except the retail we’ve plugged with all these long-term bonds remember what I said before long-term treasury bound yeah if if if if we use some version of stable coins backed by T bills to sort of redo this the release Bell is inflation it’s going to go wonkers you’re going to have like very high rates of inflation which is fine you’re going to very high rates of nominal growth in fact I suspect it will be spun as uh preparing ing the dollar and the US for growth or something like (58:29) that right that it’s who can be opposed to growth well don’t tell the Boomers who Bond holding are about to go from buying them a house to buying them a tent like it’s mine who is buying that garbage who’s buying anything that’s long duration bonds of any country right now who who’s the buyer of all that I think it’s dur Pension funds duration matching like if you you can you they’re yes is the short answer but like look the the dog that doesn’t bark in that whole equation is if that market (59:02) is so deep and liquid relative to the size of our deficit why isn’t yelling termin it out and the answer is either a she’s stupid she’s not or B the Market’s not that deep and liquid out that far relative to the size of our deficit so you know they can place a certain amount of it with Organic buyers of you know of it but they could just roll it too couldn’t they just uh couldn’t they just gobble it up and then reissue it as short duration well they could but that’s you know and they’ve done that to a certain degree (59:30) they’ve talked about doing earlier this year you know when we talk about those dollar liquidity injections Waller at the FED came out I think on March one and said you know what we have historically had a order of our Holdings of our balance sheet in t- bills and it’s like 3% now we want to move back towards a historical amount great and think about it I’m trying to break it that so the shorter the duration of paper you issue the more it’s like money printing right think of I hold my money in cash right what’s cash cash or t (1:00:05) bills cash T bills cash T bills if the government is running massive deficits and issuing it more and more in t bills the government is more and more printing Straight Cash to finance its deficits it’s inflationary overtime very inflationary yeah which is again that’s in the cake like if we didn’t want this we shouldn’t have done a lot the dumb stuff we did for the last 20 30 40 years it’s already I tell people all the it’s already all been printed it’s all out there they just got to convert the (1:00:30) duration into something short duration and then have a bunch of stable coin people buy it up over the next 10 years no it’s it’s yeah it’s the $130 trillion going wait a second I’m the sucker at the card table oh God the $130 trillion bond market and yeah ex said you can see it happening in markets in front of us and it’s going to continue to happen because again to believe it isn’t going to happen requires either a productivity Miracle or a believe that the United States government is tomorrow going to (1:00:59) cut entitlements and defense by 25 to 30% meaning you know immediately permanently and then stand aside as those cuts lead to a financial crisis and a depression worse than the great financial crisis there’s zero chance that’s going to happen last last question I got for you is what are you hearing on bitcoin from Wall Street um I’m hearing just demand is really good I’m hearing demand’s really good I’m hearing uh I mean you can see that in some of the um you know some of the filings with (1:01:31) that we saw last week uh if everything we have said is even directionally true hang on we know yeah we like right like it is the common knowledge game is such that it is is I think everybody knows that everybody knows that sort of the the cleanest one of the clean easiest ways to play that is on bitcoin the one of the most leveraged ways to play what’s happening is Bitcoin and so I think there is a growing recognition of that uh on Wall Street it’s not even two trillion no I know it’s it’s it’s I mean yeah I mean it’s (1:02:16) what trillion four right now tril trillion 4 five something like that yeah yeah yeah it’s still very early days in my opinion yeah uh I could talk to you all day brother I really could I love these chats um likewise yeah thanks for making time and coming on uh for people that are listening I’m a massive fan of Luke’s uh report that he writes I am a subscriber of his report I read it every Friday as soon as it hits my inbox uh religiously and um I just you know I love having you on Luke and uh anything (1:02:52) else that you want to you want to highlight to the audience no I uh I appreciate you having me on um and I always enjoy our conversations immensely as well likewise sir all right well uh thanks for joining me Luke thanks inflation’s going to pick back up I think stock prices are going to pick back up I think you will get talk of rate Cuts going away and possibly even rate hikes and I think the surprise will come around mid year when the rate hikes don’t come everyone that is like okay they’re man maning this thing for (1:03:27) inflation that will be the moment where they go oh my God they’re managing this thing for deficit they’re managing this thing for treasury functioning that’s when you’re going to see fireworks