Walker (2:48)

Luke, thank you for coming on here. I'm glad, Glad to see you again. Wish it was in the flesh over a nice steak like it was the last time, but this will have to do for now.

Luke Groman (3:01)

Likewise. Thanks for having me. Thanks for having me here. And yeah, that steak would. It does sound nice, actually.

Walker (3:08)

It. Sure. It sure does. It's never too early for one either. I've found steak and eggs is a great way to start the day. But I'm absolutely excited to have you, excited to have you here at Luke, just because I think you're one of the people that folks really turn to when it comes to macro. Now, I know there's a lot of folks out there that also think there's maybe two, you know, there, there's always so much macro talk in bitcoin, but I find these conversations to be really fascinating because I think that they give people a better broad outlook on what we should actually be paying attention to. There's a lot of nitty gritty that you can get into on any given subject. But a person like yourself, what I appreciate about you is you look at the broad strokes of things and, and also try to put them in historical context, kind of tell us what's happening next. But I'd love if we could just start out a little bit because I actually don't know the full story of just who are you? How did you get here today? And how did you kind of get into bitcoin as part of this larger.

Unknown (4:06)

Thesis that you have?

Luke Groman (4:08)

Sure. So I've been in finance for, gosh, 30 years now, which is surprising when I say it, but it's like it's just yesterday. Been in finance for 30 years. I started off in equity research, institutional equity research at an old line Cleveland money management firm that also had a small money manager, or, excuse me, a small equity research business called Ralston & Co. Back in the mid-90s and was an early employee slash intern and then, or an intern slash employee at a company called Midwest Research, which was a split off from Ralston. And we were early pioneers in institutional bottoms up, fundamental channel check research. And one of the things that I did was I was a junkie for reading all the research. I would read everything I could get my hands on and then I would, you know, my brain wanted more, so I would read, you know, supplement that with macro and thematic Type reading on my own. And I started marrying those two in terms of just putting the pieces together into themes that we were seeing in our research. Every Friday in an email, I started sending out the clients that I was calling on for the firm and it organically grew to be so that every salesperson was sending it out and every, every Friday put this thing out, connect the dots. And it ended up helping clients of the firm quite a bit. In 2006, myself and about 20 other partners formed Cleveland Research Company again doing bottoms up fundamental channel check based research. I reprised my role as sort of this bottoms up macro dot connector guy editor on this Friday piece. And I really enjoyed doing that and helped clients of the firm and myself positioned very well for what happened in 2008 and thereafter. And in the aftermath of 08, I was spending more and more of my time doing macro and thematic type work because I was on straight commission. I've always been on straight commission or own my own business in the case of fftt. And so the clients were, you know, it's. People always say, well you trade the market you have, not the market you want. Well, I wanted to be a fundamental bottom up channel check sales guy and I was on straight commission and you know, nobody gives a crap if sales are getting a little better, a little worse when the Fed's printing a trillion dollars a year. So I was spending more and more of my time on the macro and thematic and by 2013 decided I wanted to do that full time and went to my partner, said hey, I'd love to do this full time. They said hey, great, yeah, let's figure out a seat for that. And I said one caveat. I want to have complete creative control to write whatever I want to write. Because I felt like that was going to be important. I felt like as crazy as things had gotten from 07 through 1314, I felt like they were going to get crazier before they got less crazy. And so we parted ways amicably. We had a hard, you know, kind of tough figuring out how to position, you know me, I love me, but I'm, you know, I'm, I can be pretty contrarian at times and I'm not everybody's cup of tea all the time. So the hung out my own shingle as FFT didn't take any outside investors because I wanted the ability to have complete creative control over what I felt like, what we were seeing. And so started FFT in 2014. And I aggregate large amounts of data points from everywhere. I don't start With a thesis I just read and read and read. And I think one of the things that makes me me is for whatever reason, when I see something of interest, it kind of puts a splinter in my brain and I take it and I put it to the side and then I put, you know, it's a periodically look at everything that has all the splinters in my brain and they start to paint a picture. And what I'm looking for are developing economic bottlenecks. And what I mean by that is where, you know, in my experience doing this for 30 years, where the real money's made is when you get to some sort of economic bottleneck. A perfect example is, you know, in the 2005-08 Great Financial Crisis, you could have bought the most high quality home builder with the best balance sheet and it only went down 90% instead of 100%. Like the, like the worst ones. And that's really what I'm looking for are those types of things up and down of, okay, where's a bottleneck developing? And when there's bottlenecks, they tend to be thematic, they tend to be investable. And so that's. Those are the types of things I do. I read a lot and I write a lot and it's, I connect a lot of dots and it's a lot of fun.

Walker (9:20)

And you, you certainly do write a lot. So I can only imagine how much you end up reading to produce that writing.

Unknown (9:27)

How, how did you end up, how'd you end up getting into bitcoin though?

Walker (9:30)

Like, was, was this kind of part of a. One of these larger, you know, thematic elements that you identified where you said, okay, this is something that I need to be paying attention to right now because it's, you know, kind of, it's a mispriced opportunity essentially.

Luke Groman (9:46)

So in my former seat, I had a really good relationship. One of my best relationships on Wall street was a. He was a senior level portfolio manager at one of the biggest hedge funds in the world. And he introduced me to two people who were actually in the book the Big Short, not the movie, but the book, and had made a bunch of money putting on the big short trade, right? The creditor hold swaps on various subprime mortgages. And I got to know these guys a little bit and would visit when I was in New York from time to time and talk to them from time to time. And around 2011, these guys started, my buddy told me, hey, these guys are buying bitcoin. And so I had been aware of, hey, there's this digital gold thing. And you know, because post 2008 I was buying gold, a lot of gold. I had never bought gold in my life and I bought a lot of gold, you know, 800, 900,000 bucks. Because that's what you do when they start printing money, right? I think I did what a lot of people did, which is like, oh God, they're printing money. Go buy a book on Weimar Germany. And what do I do? And then what? Objectively, if you read the books, okay, well, this is similar, this is similar, this is similar, but this is different, this is different. And the monetary system's a little different this way. So I've been buying a lot of gold. My buddy knew I'd been buying a lot of gold. My buddy was buying a lot of gold. And so this sort of new digital bitcoin thing, he said, hey, these two guys are buying a lot of bitcoin. And so I met with them and talked to them about it. And you know, it's one of these things, of course, 2011, 2012 timeframe, you know, it was very, very, very cheap. And a lot of people say, oh, if I could have only known and bought it then. Well, I did know about it then. And it's easy to say, but like these guys were like going down to like friggin like El Salvador and like, like buying bitcoin off of pen drives from like video gamers and stuff. Like it was the wild west. And I'm not sure they even, I think they were looking at it from the blockchain perspective of some of the things we're seeing different app and, and, and, and, and developers use it for now, I think is how they were originally looking at rather than just straight, hey, I want to own bitcoin. I first bought bitcoin in like early 13, maybe mid 13. And that was I, you know, after finally hearing about it, seeing it, by this point it was probably 5 or $600, $800, something like that. And I asked one of these gentlemen, like, okay, how do I buy it? He's like, oh, go on Coinbase. So this I. Whenever Coinbase launched and was up and running and functional on your phone, like not too long after was when I bought my first bitcoin. And it's funny, I even go back on my history on Coinbase. Me and a couple guys on the sales desk were like, hey, here's 10 Bitcoin, here's 10 Bitcoin. We're sending it around to each other and everything. And it was, you know, it Was funny. It was neat, right? It was like five grand or ten grand. It was in the grand scheme, I think, not a lot of money. So we're just sending it back and back and forth. And so I bought, you know, a bit. And then like I said, in early 2014 I started FFT and I had a bunch of stuff. I had a, you know, I had a bunch of gold, I owned 100 acre farm, I had a bunch of Bitcoin stocks, etc. And so I sold a lot of the bitcoin. I sold the farm as kind of my startup capital for FTT because again, I didn't want to take any, any outside money to have complete creative control. In hindsight, I wish I wouldn't have sold as much bitcoin as I did. With that said, like, it's been the great, like, I have no regrets over starting FFT for sure. And I always kept some of the bitcoin because again, if you remember, Coinbase launched, it took off, it went to like, I want to say like fourteen hundred dollars, thirteen hundred dollars, something like that. And then it kind of crashed back down to like for like a while and did nothing. And I owned enough where it was like, okay, I'll watch it. And you know, it was small enough where it was like, okay, well I need every dime I have because I'm trying to start this business. And so I just had it and watched it, watching. Then all of a sudden in 2017, it was like, oh my God, this is actually worth a decent chunk of money again. And I saw it. You know, you can find old tweets of me saying this is having been familiar with gold and watching how gold was managed at times, or diluted, shall we say, with paper, you know, less futures than the unallocated market centered in London. But futures could certainly be used at key trading point. They were starting to launch the bitcoin futures in January 2018, I think, February 2018, something like that. And I. You can find old tweets of me saying it like, hey, don't be surprised if bitcoin gets creamed here because this is how they've used it to manage gold. And I said that because in sort of as bitcoin was doing its thing in the second half of the 17, I had a relationship with one of the biggest physical gold traders in the world at the time. And where Evan at Drinke goes, bitcoin's just doing what gold would be doing if it didn't have the big unallocated gold market attached to it. In London. It's kind of. Oh, that's interesting. Right. So that was kind of my first. That was my entree into bitcoin. And then it sort of planted the seed, because that's what I've been thinking. But to hear him say it, it's like, oh, okay. So then they launched the futures goal. And whether it was the futures, whether it was not, who knows? I don't know. Correlation is not causation. But bitcoin, of course, did peak tank through 18, sort of do nothing. And so I kind of, for a while, from 18 and 19, when again, I should have been buying hand over fist. And I did buy some, but again, no one's ever bought. You know, nobody is ever going to say I bought enough, you know, in 2018, 2019, there's, there's. There. There isn't enough. So I bought a little bit, but again, it wasn't like, oh, my God, it wasn't like I had this. Oh, this is what this is. It's like, okay, this is kind of interesting and what have you. And at that point, my other way, based on my work on gold, based on how gold had been managed, and based on that conversation with this gold trader, it's like, okay, well, they're going to try to control gold the way they've tried to control, or, excuse me, bitcoin the way they've tried to control gold. All right, I watch. And it kind of picked back up through 19, and I actually got, you know, decent position through 19 and even into 20. And then it tanked on Covid and kind of came back. And again, even then, it was like, it was. It was a. It was a decent position, but it was not, like, huge.

Walker (17:18)

Right?

Luke Groman (17:19)

I mean, it's like, you know, in the money management world, it's like 5% of my assets. Okay, like, whatever. Like, it's. It's a big position for that. But it wasn't a big position. But I was still thinking about it as, okay, it's a bubble that's bouncing, right? This was. I've seen this before. I. What happened in 17, I've seen before. Solid NASDAQ saw with gold in 2011. It's just going to take a long time back. But this is a. And what really, I think got me going were a couple things. First was that the bitcoin community had started to sort of reach out to me and want to talk to me and be on different podcasts and. And et cetera. And I would summarize those as. Luke, what you're Seeing in the macro is like you running the ball down to the five yard line on Bitcoin and then just like know, bringing somebody else in to like, run the ball into the end zone. Like, why don't you just go into the end zone and get much bigger in Bitcoin? And so it's, it's, it kind of planted that seed, so to speak. But the real tipping point for me where it became a very big position, personally and I think ultimately based on belief. Right, right. What gave me that conviction was whenever it was in November or December of 20 where it broke out above the prior high with authority, I looked at my wife and I said, this is going to be a big position for us now because this is not bubble behavior. This is currency problem behavior. This is how the Venezuelan escape my mind. Right. So what the Argentine peso looks like in dollar terms, right. Goes up, comes back when they. And then it goes back to a new high. Okay. I had seen nasdaq, I had seen gold, I'd seen all these historical bubbles, et cetera, et cetera, et cetera. They take forever to come back to prior highs. And this one, you know, this bubble, what they might function, my operative thought was, this is a bubble, has now break into new highs in under three years. Like I said, that's not bubble. It's a currency problem. And so, you know, one of the things one of my mentors said in my former life, he says, something you've always had an ability to do, Luke, is you hold a thought, you hold it strongly, and once there's some sort of significant evidence that says you're wrong, like you just wad that up, throw it in the trash, and go with what the facts say they're saying. And I did that in this case. It's been something that's been very good for my career and, and, you know, for our, for my own investments. And in this case, it's obviously been very good. Where that was to me, like, oh, this thing's not active. This isn't a bubble. This is a currency problem. This thing is the last functioning smoke detector of all of the stuff. And, and that's, you know, I'm, I'm under, I think, emphasizing to this point all of the work I had done on the fiscal and debt side that pointed to the problem being increasingly acute. And we can talk about the reasons of why I thought it was acute and the metrics, why I was sure it was acute. Now I know it's acute. The US Fiscal debt problem. And I'm Seeing this thing act like a currency, a hard currency does. A hard neutral asset does in a country with a fiscal and debt problem. And so that was really. Then I got much bigger. I've generally been. It's been a good chunk of my holdings. I sold a bunch in summer of 21. As I've told other people, it was to pay off my house, to be blunt. And, you know, when you've been on straight commission for 20 years and then starting a business and you get down to your last few bucks, you know, being able to get completely debt free feels pretty good, I'd love to say, like, oh, I thought, you know, it was probably $50,000 at that point, right. So that wasn't any great technical. It was just, you know what? Pigs get fat, hogs get slaughtered. I'm going to take some off the table here. I'm going to get, you know, out of debt completely and I'm going to buy it back. And I was buying it back. I was buying it back at 60 and 65 and 55 and 50 and 40 and, and got really big with the whole, you know, having done this for 30 years, the 20, 22 time frame where, you know, it's dead, and the FTX thing in particular, right when you get an exchange to fail or you get some sort of thing like that. Everyone says they want to wait till there's blood in the street, even if it's their own, to start buying a lot, but it's hard to know. At the time, to me, it was very, very clear. There's the blood, some of it's mine, I don't care. I've got some cash, I'm putting it to work. So anyway, that's the long winded story, but I would say it's really, I think it's important to kind of build through that evolution because I think probably everyone involved with Bitcoin went through some version of that of like, you know, skepticism. You know, it's kind of the tech adoption, you know, curve on some level.

Walker (22:46)

Now, I, I appreciate the background a lot and I think it's interesting that what was kind of that clicking moment for you was really flipping the script in your own mind and saying, this isn't bubble behavior. This is actually an expression of underlying currency debasement, of fragility in the existing system. This is just the last measuring stick that appears to not be elastic, basically. Is that a fair, fair kind of summary there of the switch?

Luke Groman (23:12)

Yep.

Walker (23:12)

And I'm cur. I'm, I'm curious too, because I want to dig into a little bit more just kind of building off of that. Where you think we're at right now in that cycle, you know, I know. You know, Lynn Alden I think has really made famous the nothing stops this train meme when it comes to fiscal dominance. And you have talked extensively about just the instability and kind of the uns. We should say unsustainability like this can't go on forever. You know, if a system, something can't go on forever, it's going to stop. Right? And is, where do you think we're at right now in this cycle? Obviously we have massive amounts of debt. We have massive amounts of, you know, unfunded liabilities. The interest expense on the national debt is what, 1.3, something like that at current times, maybe it's even a little bit more. But like these are huge numbers we're talking about and this is just talking about America. How do you look at this right now? Where do you think we're at? Is Bitcoin still serving as the best ruler to measure this? Or you know, is. And is. Is there?

Unknown (24:18)

Is.

Walker (24:19)

Is Bitcoin even mispriced compared to what you see as happening next?

Unknown (24:23)

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Walker (25:23)

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Unknown (25:24)

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Luke Groman (25:29)

So yes, I think it's the best ruler. I focus on the US because the US dollar is the center of the system, right? It's A reserve currency. Is Bitcoin the best? You know, what does it mean for Bitcoin going forward? Some of that depends on path. I think ultimately, yes, it is, I think going to be the best metric, you know, unless. Yeah, I mean, yes, is. Is how I would, I would. But the path, some of that is, is path centric. And I agree 100 with Lynn on there's nothing stops this train. The way I've looked at it is that it is a, you know, it's. It's almost like a pot of water that you're taking on and off the boil. And the water is always hot. And when certain metrics hit, you know, boiling, the whistle's going off. And that's, you know, great times to own Bitcoin. And when they take the water off the boil, any number then bitcoin underperforms. And we've seen those periods of time and I think trading them is increasingly going to be difficult. I'm not sure I would try to wholesale trade up and down. The thing I've watched has been what we've called true interest expense as a percent of U.S. tax receipts. And true interest expense is not just the interest number, which is a trillion, 3 trillion, 4, something like that, pro forma on a gross basis, but a couple different graybeards in the business. Highlighted to me six, seven years ago, Luke, fiscal problems really only go acute once you have to print the interest. Once you have to print the interest, you're done. And on a gross interest basis, right? So trillion, 3 trillion, 4 is relative to tax receipts of about 5 trillion. I mean it's 29, 28, 9% of tax receipts already, which is, you know, the only other time it's been anywhere near that was in the mid-80s, shortly before the Plaza Accord where the US dollar was significantly devalued. However, the true interest expense metric was something I came up with in 20. Call it 20, probably 18, 2016, maybe 2016. I guess it was 2016. At any rate, the point is it's gross interest plus the current pay as you go portion of entitlements. Because ultimately in a Moneyball like fashion, right, the movie Moneyball, a single and a hit or a single and a walk is the same thing in baseball. But guys that were hitting a lot of singles were getting paid way more than guys that walked a lot, even though there was functionally no difference. And in the same way markets were completely ignoring in call it 2016, 17, 18, the entitlement side, even though it had already gone cash flow negative to A large extent five years, six years earlier. Even though functionally there's no difference between interest and the current portion of entitlements. It's the same thing. It's just that the entitlement is off balance sheet debt and the, the interest is obviously on balance sheet debt. So back in 2016, I think was the first time I took a cut at it. It was the big three, right? The big three expenditures, not just the entitlements plus interest, but it was entitlements, interest and defense. And those big three in 2016 were like 65% of receipts. So that includes defense. And I ran it out under a couple different scenarios, you know, recession, rate hikes, et cetera, and said, okay, well maybe by 2020 the big three would be 100% of receipts. And then things are going to start to get weird and the Fed hiked rates and things slowed down. And the punchline is by 3q18, the big three were over 100% two years earlier than I thought they'd be. And that kind of got me going on this whole, you know, okay. And then 2018 was when these gray hair said, no, no, no. Defense is interesting, but it's really ultimately only a problem when the true interest expense, when it, you know, when you got to print the vid, when you print the interest and so kept watching that number, it kept going up. And in the COVID crisis receipts plummeted. Interest and debt entitlement payments went up. And in 2020 they were true interest was 105% of receipts. You got to print 5% of the interest and 5%. And if you don't do that, and this is why they said it's so critical in the short run of what does it mean for Bitcoin's path if US true interest expense is 105% of receipts and we don't print the money, the dollar is going to go up and up and up and up and up and up and rates are going to go up and up and up and up and up, and stocks are going to go down and down and down and down, and bitcoin's probably going to go down and down and down until the system implodes. And now somewhere on that path people go, oh God, they're not going to save the banks. I need to put my money in Bitcoin. And so bitcoin probably sort of pulls out of that and then goes to new highs. But that's why I say the importance is, is, is the path. And this sort of on the boil, off the boil. Anytime we get near 100% true interest expense of receipts, the water's on the boil. And so we saw that in 2020 into 21 they printed a bunch of money. They did QE, they did all. And, and so the punchline to all that was receipts exploded higher rates were pinned very low by QE and by 2020, late 2021, early 2022, we were back like 85%. Okay, water's off the boil. Now the Fed can try to raise rates. It was the wrong thing to do, but they did. And bitcoin does what it does, right? 2022 is a very bad year for bitcoin and but that sort of creates plants the seeds for the next boil, basically by raising rates. With debt to GDP that high. Here we are again. Now bring that all forward to today. True interest expenses in the last four months has been 103% of tax receipts. And tax receipts like tax receipts that are inflated by fartcoin, that has a billion market cap, right? Like, like financial like, which I bring up is insanity. And I don't think people are as freaked out about this enough as they are. Which is to say in a world where private liquidity is so high that fart coin has a billion dollar market cap, the US government is not covering tax or not covering interest, expense, gross interest plus entitlements out of receipts. Now remember what I just said, if any time you get to that, if they don't weaken the dollar print money cap yields however they want to do it, there's a lot of different ways they can do it. What's going to happen? The dollar is going to go up and up and up and yields are going to go up and up and up. So far, check and check, right? We got DXY at 109 going up and up and up and we got 10 year yields going up and up and up and up, which a lot of market participants are going. Don't worry if they strengthen the dollar, enough money will flow to bonds. No they won't. They won't. They're going to crash the treasury market. When they crash the treasury market if they let the dollar keep rising, which will happen because true interest expense is crowding out the global dollar system because we can't even afford true interest expense without printing the money. That's the decision point, right? Okay, we're at 4, 6, 5, 4.65% on the 10 year. As you and I are sitting down to do this conversation, I don't know if that number's 4.8%. I don't know if that number's 5%. It's probably not much beyond 5% on the 10 year. They will crash stocks. They will probably start to weigh on Bitcoin. But are they going to let the treasury market fail? Are they going to let treasury auctions fail? Which is what will start to happen. And in my opinion, there is zero chance of that. And how do they prevent that from happening? Go back to 2020, they're going to do some sort of massive liquidity injection. Now what's really interesting to me in all this, this time around, Bitcoin should be getting killed with the 10 year, doing what it's doing, with the 10 year yield, doing what it's doing with the dollar doing what it's doing. It should be getting killed and it's not. So why, I think there's some element where people said, well, oh, bitcoin's just a beta play on Nasdaq and the chart says that's true. So far my working hypothesis has been there's going to come a day where Bitcoin's going to separate from the Nasdaq. Where it's going, the Nasdaq's gonna go down and Bitcoin's going to not go down and then go up. Is it this time? Is it this iteration of this fiscal crisis that is now on the boil again because we're 103% of interest, expense or receipts so far. Maybe, maybe Bitcoin's, you know, crushing the NASDAQ over the last two, three months, you know, since Trump got elected. So we'll see. You know, it's, I don't want to play 5 minute macro, but maybe, maybe. So that's, I think, answers some of the, you know, there is no stopping this train. And I think ultimately Lyn's point, it's a great meme. I wish I'd have thought of it myself. All credit to her. It's, it's, it's an awesome, it's an awesome meme. And it's, and it's right because it is to stop this train, all they have to do is either slash entitlements. It's not going to happen. Okay. Or, and, or either slash entitlements and then let the resulting recession drive the dollar up and again, treasury yields up, bank failures, treasury auction failures, that's how this train will stop. And in that world, bitcoin is not going to do well. Bitcoin's going to go down a lot. And in my view, the odds of that world happening, particularly in light of the craziness we're already seeing in this country in the last two, three months. What's happened on the streets of New York, what's happened in New Orleans, what's happened elsewhere, I think there's zero chance of that happening politically, and I think there's zero chance that happening financially. So then there is no stopping this train. If you're not going to slash entitlements and you're not going to let banks fail and you're not going to let treasury auctions fail, there's no stopping this train.

Walker (36:50)

Ultimately, it really is a great meme, and I appreciate the context on that. I'm curious. So then what I'm hearing is basically the they, yes, they do have, quote, options, but one of the options is not at all a real option, which is basically create absolute chaos, massive destruction of capital and general probably unrest that would likely follow, which would be on the heels of unrest that is happening during, you know, everything's going kind of okay time. So basically is there their only path forward is we just need to keep like, we need to devalue the currency, we need to slash rates more. I'm sure that Trump is going to be pushing for that, I would assume. We know that Trump very much likes to have the stock market doing well when he's in office. And I think it's also going to be something that he is, you know, judged on by certainly the media and his opponents. It's going to be, you know, if the market's going down, it's going to be, see, we told you Trump would be bad for this. And if it's going up, Trump's going to say, see, I told you I'd.

Unknown (37:56)

Be good for this.

Walker (37:57)

So basically, the only path forward is massive amounts of liquidity injection, devaluing the dollar and trying to just keep this ship afloat, kicking this can down the road. Is that fair?

Luke Groman (38:10)

Yeah, it's fair because ultimately they've allowed this system to evolve to a system where foreigners have borrowed 13 trillion in dollars in dollar debt. And so as a dollar goes up, their dollar debt gets more expensive. And we have provided for the recycling of U.S. deficits, trade and fiscal into U.S. stocks. And so the aggregated surpluses of decades is foreigners own $57 trillion gross, $22 trillion net, and 8.5 trillion of that in Treasuries. And so as the dollar goes up, they're going to sell US Assets and they're going to sell Treasuries first. Which means you will have economic weakness with rising rates and crashing stocks. And if they try to actually do some sort of austerity, and that's not speculative, I've seen it happen five times now in the last five years, six years, and it's not what I think should happen. This is not more complex than double entry bookkeeping. Foreigners have 13 trillion in liabilities and $57 trillion in assets. And if the dollar goes up, they're not going to have enough money for their economies and they're not going to sit there and starve to maintain the value of US asset prices. They're going to sell US assets to get dollars to service their debt, to buy oil dollar related commodities and that's that. And so yeah, the only option is yeah, they're going to have to weaken the currency and reinvest. You got to drive nominal GDP growth, real GDP plus inflation and inflation to be a decent chunk of that. And that's, you know, that's just the way it is.

Walker (40:01)

And so then I'm kind of curious, just building off of that a little bit. So this idea of this strategic bitcoin reserve has obviously been amongst bitcoiners and now very much in the wider, the, you know, the blown wide open Overton window of the discussion. This is something that's out there, right? Whether or not Trump, I know you, you'd previously said, I think on, on Preston show, you know, you don't think that this is going to happen by executive order, just be, you know, on day one or something like that. Basically, you know, wait until an act of Congress. There's obviously bills that have been proposed like by Senator Cynthia Lummis, things like that. But, but I'm curious how bitcoin fits into this because one thing I've been kind of struggling with is this idea of okay, let's say a bitcoin strategic reserve is established. Now there are multiple ways they can do that. Obviously they can just hold on to the bitcoin that they already have, that they confiscated from Bitfinex. The morality of that is, you know, put that aside. They can just choose to do that. Right. They can also sell off, you know, some gold reserves, buy bitcoin, they can.

Unknown (41:08)

Print dollars to buy bitcoin.

Walker (41:09)

There are multiple tools available to them. But I'm curious what your outlook is as far as what does the establishment of a strategic bitcoin reserve actually mean for the dollar, for the dollar system? Is this something that ends up actually strengthening the dollar system perhaps while weakening the dollar itself? Does it Reinforce the dollar as the world's reserve currency for trade while acknowledging that there is a new neutral reserve asset. Or what's your outlook on that as we go forward? How do you think this actually begins to affect the larger dollar system and then also just the, you know, the global monetary system.

Luke Groman (41:50)

Yeah, so I do, you know, if you want, if you watch and listen to a number of Scott Besson's conversations throughout last year, something he said multiple times, is it's not mutually exclusive that we strengthen the dollar system and weaken the dollar. And I think consensus at this point is that they are mutually exclusive. And I don't think they are. And one way you do that is by implementing a new neutral reserve asset any number of ways that you've highlighted. And I think bitcoin could absolutely serve in that role. It mechanically can do that by look, if, if through some of the, the, the stablecoin, you know, tether interactions, right. Where you can regulate, you can regulate that the stablecoin market has to hold Treasury T bills and Treasury T bills at some percentage of backing, right. At some collateral value. So I don't know, whatever. And if you do that and Bitcoin's price goes up, you know, so say, you know, whatever. Let's say bitcoin market cap today is 2 trillion goes to 4 trillion in market cap and right now it's call it a 10% of stablecoin collateral relative to that. Let's say it goes to 20%, let's say it goes to 15% kind of bank, right. So there's in theory that's 400 or 4 trillion times 15%. That's what is that, 600 billion, 600 billion. And 600 billion is relative to 200 say it's all got to go into T bills, right. So there's an incremental to the extent that the 200 billion stablecoin market cap today is all in T bills, which I don't think it is, but say 100% extra $400 billion has to go into T bills. Great. Boom. You just found yourself $400 billion worth of t bill demand that is more than happy to be financially repressed at negative 5% rates are rounding up to 5% tether paying zero and boom, that's what you need that helps restructure the U.S. now that's also, that's going to strengthen the credibility of the dollar system that's going to weaken the dollar right to you come out and say, listen, we're going to have negative real rates and we're going to have, we're going to finance a lot more of these big deficits in T bill markets at very low rates. That's ultimately more secularly inflationary. And, you know, if the Fed's cutting rates into this, that'll get the dollar down. I mean, it's not going to crash the dollar, but it's going to get the dollar down, which is what needs to happen per earlier for systemic stability. This is going to drive nominal growth, real plus gdp, and then you layer on top of that some reshoring tariffs. There's a whole lot of other things you can do, but it could absolutely be part of the solution. And I think there are elements around the incoming Trump administration that favor this, that see this, that understand this. There's elements of the political establishment that do. And it could work. It could work.

Walker (45:21)

Yeah. It's interesting too, because looking at this, obviously in terms of other neutral reserve assets, central banks around the world have been buying a lot of gold in recent years. Obviously they've been buying gold for a while, but specifically in recent years, I think just since the, the Russian sanctions that kicked off kind of a larger wave of more intense gold buying by central banks. And the interesting thing for me about, about that is, okay, if you're just talking about kind of the strategic advantage and game theory of all this when it comes to a neutral reserve asset, obviously if everybody owns a neutral reserve asset like gold, and it's just a matter of what marginal amount more, more does one central bank own than another, there's not a massive kind of asymmetric strategic advantage there. But then if you look at a neutral reserve asset like Bitcoin, where purportedly none of the G7s have a massive stack of Bitcoin that they've begun acquiring, yes, the US has the confiscated Bitcoin, okay. But they, there seems to be a huge, especially among the G7s, the, you know, a massive first mover advantage here. If one of them, you know, as an American, I would say hopefully the US Decides to just start acquiring Bitcoin in whatever means they can, whether that's, you know, getting rid of gold or whether that's printing your own currency, whatever it is, you are going to obviously significantly impact the price with any sort of sizable buy, even if you try to do it fairly sneakily. But it seems that other nations are also kind of thinking the same way that the US Is right now. Just from the way that, and there was a few headlines I saw, you know, Russia's been using Bitcoin in Some, you know, foreign trade transactions you have. I mean even Putin's been talking more publicly about bitcoin. You know, who can stop bitcoin? Nobody. It seems to be that this is kind of like it's this thing that is out there that everyone is very much aware of now. Like it's not a matter of you haven't heard of bitcoin. If you're one of these leaders, you know that bitcoin's there and it's a matter of who is going to be able to move first. Do you think that this is that any of these sovereigns are already kind of acquiring in secret in nations where they may have the political capital to do so? I think it'd be maybe a little trickier in the US to do that just because of the checks and balances we have. But maybe some of these other nations can. I mean, do you think this ends up just becoming a, like a, a bidding war at a certain point where they realize, guys, there's only 21 million of these things. All of us can print our own currency. Like we gotta get there first. Is that what you're seeing think might play out or do you have a different outlook on this?

Luke Groman (48:15)

I think it's very possible. I think it's very possible. I think some of the geopolitics of it all, you know, to your point, I think incent that on some level, I thought the Putin comments were very significant. It was essentially a blessing and ultimately in an energy linked neutral reserve asset as Bitcoin is world's biggest energy producer. That's, you know, it would only take one, right? It would only take one. As, as we like to say in all right, is it possible? Some of them are sure, I suppose it is. I don't have any view strongly on that. And then you kind of get into things around, you know, carrot and stick around negotiations around, you know, because, you know, part of the thought is okay, well you can go back to 2015. The former chief economist the IMF Ken Rogoff, said emerging markets should go for the gold. Basically said, listen, there's a shortage of risk free assets. And the problem is, is the risk free asset to date has been western sovereign bonds and there's now so much debt that further debt to create more risk free assets is calling into question the solvency of these very sovereigns and these very bonds themselves, which mathematically which we just ran through earlier in the show, can't be made nominally money. Good. Unless they print the money to do that. And so this whole Regime of sovereign bond, Western sovereign bond as risk free asset underpinning everything else. It's over is debt. It's just that future hasn't been evenly distributed yet. And Rogoff's solution was like look, buy gold, the price will go up and western central banks have a lot of it. And so it's not like we'd be disadvantaged. Let's do that. And to your point, we've obviously seen that accelerate meaningfully since 2022 with the sanctions regime in Russia. But in theory with gold it was on everybody's balance sheet to a certain extent. There was in theory some level of quant coordination that is possible. Right. Where you know, I think a lot of people look at this interest sovereign relations as in the same way they look at, you know, a guy sort of day trading. It's like, well if gold's going up, I want to own the most. And it's. Yes, but the whole point of central banking is systemic stability, right? It, they're, they have a money printer, they are not trying to make a profit, they can make as much profit profit in dollar terms as they want. They're trying to manage towards a political outcome. And so what I mean is it wasn't about hey, let's buy all the gold and then revalue gold. It's okay, well the system needs to change because the Western sovereign debt as risk free asset is no longer risk free on a real basis because they'll go broke unless they print enough money. In that case they have to steal the reserves purchasing power of the creditors of the system. And so the creditors like well screw that, I'm not doing that, I'm putting my money in gold. So the system has started to kind of wobble. And so in theory a coordinated effort would be okay, well China, you are X percent of global gdp. US you're this and you're, you're different debt metrics and everyone, and everyone has something that approximates a representative pile of gold in front of them relative to their importance of the global economy. Before some sort of revaluation were to happen, if it were to be with gold. Now fast forward we've got the geopolitical situation being what it's being. We've got new Russia who's being difficult in some level. There's some value to that, right? Because it's a little bit of a, it's a question of politics, right? Like what's where American GDP is 10 times Russia's GDP. So we said we should have 10 times the gold. Okay, we'll take away Russia's oil. What's the value of US gdp? It's like zero. Because world short oil, the bond market crashes. And, you know, bond market crashes. Housing's worth very little. Commercial real estate's worth very little. All our bankrupts, I don't. Blah, blah, blah, blah. Okay, so Russia's got a point like, hey, we should get our oil and materials. We want to be paid. This is worth something. Point being that you're seeing the breakdown of negotiated settlement, I think, and in that world, then you start to get into, okay, the game theory of what you were describing. Of. All right, well, let's start doing this. And let's. Particularly as the tensions ramp up and the geopolitical sanctions regimes ramp up. And so it's not my base case that that's what's going to happen in terms of, hey, there just going to be a scramble for bitcoin. My base case is still some sort of negotiated settlement. But if you'd asked me that a year and a half ago, two years ago, I would have said it was higher. Negotiated settlement, lower, sort of, you know, starting gun bitcoin. And I think the odds are that, you know, hey, fire starting gun, bitcoin's the deal and or something, the bitcoin's a supplement. However they do it, I still think that's a tail outcome, a tail risk, a tail opportunity, I guess, depending on how you're sitting. But it's getting fatter. The tail's getting fatter, in my opinion, based on what's happening geopolitically and from a sanctions standpoint. So it's kind of not an answer, but kind of an answer. It's. I don't have a strong feeling about it, but.

Walker (54:19)

No, no, I appreciate that. And just kind of speaking of oil, one thing you've talked about a decent amount, I know, at least on Natalie Brunel show back in early December, and then just through some subsequent tweets and appearances, this idea of bitcoin as the new oil, you know, we're mentioning Russia's oil. So I couldn't help but bring this up a little bit. Can you? You've said previously that that's kind of your base case of bitcoin functioning as the new oil. Can you unpack that a little bit? And then is that still your base case?

Luke Groman (54:54)

So the bitcoin is a new oil thing was something that actually Peter McCormick brought up with Preston and I and Danny Knowles in conversation down in Nashville on a podcast we recorded. And by way of background Peter said look, we were at a party last night and somebody who's famous dad had been orange pilled by Trump who told them that bitcoin is the new oil. And at first I kind of thought oh that's interesting, it makes sense, it's energy linked neutral reserve asset. Okay, I kind of get it. And the more I thought about it, particularly in the aftermath of a, you know, someone putting the Paul Ryan Wall Street Journal op ed in front of me about hey, we have a fiscal problem and stablecoins backed by T bills could help us fix that problem. And then more powerfully, the Treasury Borrowing Advisory Committee report that came out I think at the end of October had two supplements to it which are unusual but not highly so. But one of the supplements was, you know, digital digital currencies, how they can support the treasury market. I said like whoa, maybe digital stablecoins and how they could, how they could support the treasury market, whoa. Treasury Borrowing Advisory Committee is like the Wall street biggest banks and sort of the, the sort of the who's who and they kind of lay out some of the same stuff was like look, the crypto keeps getting bigger, they're going to have more stablecoins and more stable coins means more T bill demand and you know, we should look at issuing more T bills. So when I started thinking of it that way, it brought to mind this esoteric interview given by a guy named Sheikh Yaman who was the former Saudi oil minister back in the 70s and 80s. And he gave an interview to multiple different people in which he said that there was a meeting of the Bilderberg Committee in Sweden in 73 in which Kissinger came in, said look, the price of oil's going up 400%. Get on board. And October 73 to April 74 oil went up 400%. And that did two things that a made oil sort of big enough to back the dollar to basically recycle US deficits into. And it also, as Yamani put it, robbed OPEC of its strategic power. And what he said is by the price of oil going up 400%, the United States went from basically increasingly too highly sourced to opec, some of whom were friendly, some of whom were not. But when it was becoming a strategic threat to the United States to making economic the oil basins in Alaska, Deepwater, Gulf of Mexico, uk, North Sea. So all of a sudden the political makeup of the United States oil supply became much more favorably disposed, much more friendly. And the last thing that it reminded me of is there's a declassified state Department document of a meeting between Kissinger, I think Volcker and one of Volcker's undersecretaries from 74, I think 1974, in which they talked about how the Europeans were looking to use gold to revalue gold to settle oil deficits, that they were suddenly in a position, right? Oil went up 400%. Now the Europeans like oh crap, we're importing all this oil. We don't have Alaska, we don't have the Gulf of Mexico, we've got UK North Sea, but that's not going to really ramp yet. We're running all these deficits now. How can we pay for this? Because we're gonna have a currency crisis. We can revalue gold higher. And one of the things that one of the speakers, whether it was Kissinger or Volker or the other guy was that if you, if they used gold and reef basically oil, bidding up the price of gold is what they're saying a lot. That one of the benefits was that it would remove the challenges essentially of increased Arab ownership of American industry and Western European industry in other and would allow the Arabs absolute control over their reserves. Right. The Arabs would have their gold there. Okay. In the same way that Russia, we couldn't take Russia's gold reserves and the air and it was just a flow issue. Right. Oil went up 400%. All of a sudden the Arabs have nothing but money and they start showing up and buying up Western Europe and, and, and America economically that was an issue. Oil becomes so much bigger relative to where it had been historically. And if you just let a neutral reserve asset take those flows, it's sort of a win win. And so when I understanding those not that well known historical data points and again they're publicly available and overlaying all of that with Trump's comments and the TBAC and Paul Ryan, to me it increased the possibility that that's what they're talking about. Basically let's just let bitcoin go. Let it go. Let's say bitcoin goes up 400% six months just like oil did from April 73 to or October 73 to April 74. Oh by the way, undercover of a brief Mideast war, what's going to happen? Well, Bitcoin goes up 4x5x over a six month period of time. That stablecoin number is going to go up a ton, dollar is going to go down. The dollar system is going to be stronger. The whole Chinese recycling, you know, we want a divorce from China, we don't want Too much Chinese ownership of American industry, just like we didn't want too much Arab ownership of American Industry in 1974. Great. Now we've strengthened the dollar system, we've weakened the dollar, we've made American industry more competitive, we've driven inflation and nominal growth, and we have provided the world a neutral reserve asset that is now big enough to recycle their dollar surpluses into where they stop buying all of our stuff, which everyone, you know, we're seeing signs of this everywhere. I mean, last week, Biden wouldn't let the Japanese, our friends, buy nip and steel or. Excuse me. Yeah, yeah, right. So we're seeing these. So it's a very elegant solution with a historical analog. Was kind of my point. Same kind of thing. It's. We are. My base case is we are moving to a neutral reserve asset. I would have said two years ago the odds of that being bitcoin are tiny and the odds of that being gold are high. I would say I still think it's probably more likely gold just given the central bank control. But the actions of the last four to six months, with what Trump has said, what Ryan has said, TBA has said, the actions of this administration post election, in terms of who they've appointed to where they've appointed them, like if two years ago, gold's the new. A neutral reserve asset must have, or else the system's going to break. Gold here, Bitcoin, like way down here, is your odds. I would say they're doing this at a fairly rapid pace, all else equal. So that's sort of the whole background on that and how I thought about it.

Walker (63:22)

I think that's really fascinating. And it's maybe a little bit counterintuitive that the US Would want a neutral reserve asset, because I think for a lot of people, we have this idea that, okay, the U.S. wants to control all of this. We want to have the US Dollar and US Treasuries function in that way. But obviously, are you of the opinion that generally the US Dollar being the world reserve currency and the US Treasuries being basically ubiquitous, has that been. I mean, where do you fall. And like, has that been positive for America as a nation, but maybe bad for the people? Like, this gets back to kind of Triffin's Dilemma, right? Where. Where do you stand on that? And is that kind of what. What's informing this base case of why a neutral reserve asset needs. Needs to happen, whether it's gold or bitcoin, sooner rather than later?

Luke Groman (64:19)

Yes. With it broken down into two discrete periods of time. So when we did this, 73, 74, we weren't exactly winning the Cold War. We just lost in Vietnam. The Soviets were seemingly on the rise. And so I think the dollar as reserve currency with treasury as primary reserve asset made a ton of sense. It, I think, was arguably the most important factor in winning the Cold War for a simple reason. And Bitcoiners will understand this intuitively for proof of work. The Soviets had to raise every barrel of oil they put on the market, and that was their hard currency. And we just had to print the money because the Saudis were essentially backing the dollar with their oil. We won. 89. Soviet Union collapses. In a perfect world, there is a new monetary conference a la Bretton woods, and we move back to a neutral reserve asset and we go on from there. We don't have a perfect world. The end of history. FUKUYAMA the boomers, boomer politicians, new world order, whatever you want to call it. Corporate America played a big role in this of like, hey, let's press our advantage. We're going to sort of colonize the world with American products and culture and blah, blah, blah. And so practically what happened is we had nafta, you know, get rid of the factories, get rid of the jobs. We can, we can control domestic labor, we can lower costs, maximize corporate profits. You know, we start sending the stuff to Mexico for a few years and then we send it to China. And this second discrete period of time, it's no longer in our interest. Essentially we are eating our seed corn. We are hawking control of America to the Chinese for cheap goods. And that, in the short run, feels like a cocaine and booze fueled party. It's not like I have a lot of experience with that. I'm a bit of a nerd, but you get the point. It sounds like a lot of fun. And the longer and later the party goes on, worse and worse it gets for more and more of the people. Especially if it's your house, right? You're holding to your house. You know, it gets sloppy. And that's kind of where we are. We have now. And the first people to realize this were the people who care most about supply chains, right? There's a great quote by former Marine Corps General Barrow, which is, amateurs study tactics, professionals study logistics. And the guys who study logistics are going, hey, we're borrowing money from China to build weapons to face down China using increasingly Chinese components. And they started saying this over a decade ago, almost 15 years ago, and nobody was listening because, you know, what the cocaine and booze fueled, you know, free money, you know, dollar party great. Who cares? The S and P is at all time high. Who cares if we. Well Covid, I think, you know, Trump started to wake people up to this. Covid completely woke people up to this. From the standpoint of, of even the most dogmatic American policymaker around the dollar system as dollar reserve currency, treasury bond, primary reserve asset was saying, why can't I get PPE and masks for my kids? Oh, because the Chinese make it all. Wait, that's not good. And then I think sort of the cherry on top of that or the was what just happened in Ukraine, which is a country with, you know, that's a glorified gas station with 1/10th our GDP and the ruble rubble currency. They just beat NATO in Ukraine. They did, they outproduced us. We couldn't produce enough shells, we couldn't produce enough missiles and certainly not enough to supply both they and the Israelis in the Middle East. And that I think was sort of the final straw of this dollar reserve currency, primary reserve asset treasury system is now hurting America. It is now an acute threat to US national security. Because the question the guys who study logistics are going, if we could now produce the Russians in Ukraine, how can we credibly threaten to supply and support Taiwan 6,000 miles away when the supplies to do so are like 30 miles away on the Chinese mainland? The answer is we can't. And so that I think is the two discrete periods of time and why we are now post. I think we're going to be post Ukraine soon. I think that something will get worked out there that is accelerating the restructuring. This is going to force some sort of monetary realignment, monetary system realignment that features a neutral reserve asset. Because the guys with haircuts like mine and, and big weapons systems that are getting too much, too much source from China are going to go, that's it guys, we're done, we're done.

Walker (69:46)

You had a, you had a great tweet about this. There was essentially the debate around a U.S. neutral reserve asset is misframed. The question is not why do we need it? It's without a neutral reserve asset based system, China will be our biggest defense based supplier in five to 10 years. Is that what we want? And I thought that was just like such a good framing of it to put it that way. And you followed up that with, without this neutral reserve asset, America's role is emit the USDs and USTs the world needs to trade. And then that really means send China USDs. It needs to build the US defense industrial base, which is just kind of like, kind of insane when you think about it that way. It's like, well, that just leaves us with our pants down. Right? That's, that's not a situation we want to be in practically.

Luke Groman (70:37)

No, no. And, and buying up control. Buying up control and influence. Right, Right.

Walker (70:43)

Well, I mean, yeah, if you look at even just like the amount of, the amount of, whether it be farmland or actual, you know, US Companies or whatever that's owned by China, it's like, it's kind of staggering. Right. And that seems to just put us in a really disadvantageous position if we want to continue to posture the way that we have, if we want to, you know, have any sort of credible threat on our side. And then you also, I think you had another tweet about China was, this was just a one off here, but, but China like hacked the U.S. treasury system somehow or the, the U.S. treasury's computer. And I think you, you, you brought it up with a nice quip about it's weird they haven't been able to hack bitcoin yet. But I, I thought that was, that was an interesting one.

Luke Groman (71:25)

It's.

Walker (71:28)

I don't know. And while I'm on the subject of your tweets, another one I wanted to ask you about was you had talked about, you know, basically, why do a bitcoin strategic reserve when you can basically just begin redirecting part of the US NIIP and then which is already buying up US equities and into direct this into BDC by getting MSTR into qqq, which it is now, and then let large passive flows and sailor buying do the rest. Can you, can you expand on that a little bit? And if that's something that you actually think is like, I couldn't tell if it was a little bit tongue in cheek or if there was a bit of a, a grain of truth to it. So I'd love you to shed some light.

Luke Groman (72:16)

Yeah, look, so that NIIP is a net international investment position. So that is essentially just what we own, their assets versus what they own of us. And they being all foreigners, by virtue of our trade balance, you can see where a lot of that is, which is China. The NIIP chart is, it's an asymptotic. You know, it's an exponential curve up. I mean, it was, you know, and it's especially post 2015. And that NIIP chart is, is up huge. Foreign ownership of equities is up asymptotically exponentially in that same time horizon. And so are the Qs. And so like it sounds a lot nicer coming off the tongue saying milkshake, but what it really is is eating our seed corn, hawking our family silver to China for cheap goods today to keep inflation down somewhat. And it fundamentally, it was a little tongue in cheek, but not that much of this. Yeah, there it is right there. Right. So the green is the net international investment position on the left hand scale. The red is the NASDAQ 100 index on the right hand scale. And the blue line is the foreign investment, foreign direct investment in U.S. equities. And so you can see like 2015 foreigners had like 201415 had like $4 trillion in U.S. equities 10 years ago, not that long, and now it's 16 trillion. So they bought 12 trillion of U.S. equities. Right. And, and a lot of that's China. Right. It's not the Europeans. Right. It was like, oh, the Europeans and the Japanese are in such trouble. Yeah. And great. That's not them buying, right. If they're in such trouble, they ain't buying all that stuff. So this chart fundamentally gets back to what I talked about earlier around in 74, around the question of, you know, again, I'm not picking on Arabs, I'm just quoting the historical document. Just to be clear, the US and Western Europeans had an issue around Arab ownership of US and Western European industry after oil was revalued so much. They were just buying it all up politically. They weren't sure that was the right thing to do. Fast forward to today, what we are seeing right here in this chart, the Chinese buying up American equities. And corporate America's got a lot of pull in Washington. So the more that China controls US equities, the more it's the way capitalism works. You own the equity, you make the call. And in America the way it works is you own the equities. You make the call in Washington too. So this, you need a way to shift to a neutral reserve asset. Now we can see all of the contentiousness around gold, around the strategic Bitcoin reserve. Right. It's, it's a political harangue in this country because of, you know, the checks and balances, whatever. There's no check and balance needed for this. This is just microstrategies in the queues. There is going to be, as you can see in that red chart, which is the NASDAQ 100, there is a mindless flow. And so now if China buys the queues Recycles into the queues with an ip, they're going to be buying a little sliver of bitcoin. They're going to be bidding up bitcoin, which is going to be making bitcoin big enough to be a neutral reserve asset, which is sort of moving us in that direction. I'm not saying it is the sbr, but it's a move in that direction. It is absolutely a move in that direction. From a flow perspective, you want to know what else will be interesting? Let's watch. I bet you Palantir goes into the queues. In fact, I think they just did. So now China's mindlessly bidding the Qs with NIIP bids up Palantir, which is making helping United States reshore and provide capital to them. Watch. I bet you whenever the other. What's the other big private, the new defense guy. I bet you whenever they go public, I bet you they go into the queues remarkably fast. So it's a way. It is somewhat tongue in cheek. It's not the SBR from a pure standpoint, but I try to keep my. I still try to respect the 280 character because I feel like people won't read it if it goes on. And so sometimes I need to be more flip than I otherwise would be or less nuanced. But from a flow perspective, there's no denying that's. Now we can get into a debate around oh, are the convert markets Getting saturated by MicroStrategy? Convert issuance, there's some signs of that. Is that switch to other parts of the capital stack but ultimately at the right earnings, multiple bid up by mindless passive flows, just grinding, grinding, grind. Microstrategy is issue common, common equity. Do a secondary buy Bitcoin and at some point they'll have enough bitcoin. We're actually diluting the equity by doing a secondary and then using it to buy bitcoin will drive the stock up, not down. Right. It'll actually be accretive. And so there's. To me, I just felt like in the same, the same feeling I had in 2020, November 2020, December, that I started off with of like, oh my God, like this realization of like I'm wrong, this isn't a bubble, this is a currency issue. Right. With bitcoin, I had that same sort of holy cow moment, the splinter in my brain moment of when MicroStrategy went into the queues and people weren't expecting it. It was like a coin toss chance. I think in the betting markets, if I Recall correctly. And it went in. If I was in the intelligence community and someone said, luke, find a way to backdoor Bitcoin into as a neutral reserve asset so we don't have to go through all these frigging politicians, which are a pain in our ass, like, oh, dude, that's easy. Get Microstrategy into a major passive fund. Markets will do the rest. Is that what happened? I don't know, but if I could think of it. Come on, I'm not the only guy.

Walker (79:03)

I mean, it's fascinating and I appreciate you walking through that a little bit. It's really, it's like the sly, roundabout way, right, of bidding up Bitcoin via a proxy to give it a more advantageous position as a neutral reserve asset, but doing it in a way where it's not, you know, immediately evident to everybody that, hey, this is exactly what I'm doing right now. It's, I mean, it be kind of brilliant. And you know, it's, it's interesting to see, just to your point about Palantir as well, because, yeah, they made it in, I think it was Palantir, Microstrategy and Axon, I believe, at the, at the same time in that same announcement. And so, you know, it's going to be interesting to see what happens there. Axon probably less strategically advantageous because I believe they make like, they make non, non lethal, nonlethal weapons, right? Like tasers and whatnot, but for power and mstr. That's, that's an interesting one. I'm, I'm curious too, because you mentioned some just like reshoring generally. And I'm curious of where you stand on that because I think a lot of people think that, you know, this like, reshoring is something that we can just snap our fingers and if we just spend enough money, we'll just have.

Unknown (80:17)

A huge industrial base again.

Walker (80:18)

But obviously it's not that simple and there's going to be a massive amount of inflationary pain to get there, which I think people don't understand. Pair that with the tariffs that Trump's, Trump has talked about. Like, I think he even went so far as to mention like a 100% tariff if a country moves away from the dollar or something like that. Where, where do you, where do you stand on that? And the overall, first of all, I guess the, the viability of reshoring, or maybe a better question is what does it take for America to actually meaningfully reshore and then secondarily on the tariff side of things, do you think this is ultimately. Do you think it will have the intended effect or did he start to play his hand a little bit too much in the last administration? Trump, that is in his last time in office where someone like China is already expecting these tariffs to happen and so are preparing accordingly.

Luke Groman (81:14)

We can reshore. There's two bottlenecks, the bond market, the real value of the bond market and three bottlenecks, the real value of the bond market, number one. Number two, we can't make a lot of this stuff we would need to make to reshore without China or maybe Japan. And number three, we're on the clock because you look around the skilled trades in this country like it's, it's, you know, they're on average 55, 60 years old and they're retiring en masse. And there's a surprising, I keep hearing story after story after story, small business, medium sized business of like one guy knows how like all the crap works and if a bus hits that dude, like, like good small and mid sized companies, like they're screwed because there's like nobody else to go hire to do this stuff. And Yep, you know, so it's got to happen fast. And that's the challenge in it. And that's like that old saw right there. You can have it, it can be well done, it can be fast or it can be cheap. Right. But you can only, you can only pick two of the three. You know, we can do it well, we can do it fast, but it ain't going to be cheap. And if it ain't going to be cheap, this is where the Fed screwed up in 21 or 22 and 23 by raising rates, thinking that they were Paul Volcker, 1980, when the US had the balance sheet, literally of Argentina in 2002, they needed to get debt to GDP down a lot more. They needed to let inflation run a lot hotter before any of this, before they raised rates. That's water under the bridge. What does this mean now is we can reshore, but someone's going to have to anesthetize the bond market. The $130 trillion global bond market. What does I mean, it means like hold it down in the crib and put a pillow over its face. Like, you know, let it breathe every now and then. But like, you know, don't kill it. But basically, you know, hold it still, hold it very still. It's like anyway, yeah, let's not get too morbid. The. And also I was going to use a, I was going to use a Yellowstone thing, but I don't know if everyone's seen the new season of Yellowstone, so I don't know if you're a Yellowstone guy or saw, but there's a.

Walker (83:35)

Yes, save the spoilers if possible.

Luke Groman (83:37)

Yeah, I didn't want to spoil. Yeah, I didn't want to. I didn't want to spoil something. That's where I was going with that. Not something with babies, God forbid. Yeah, no, they're gonna have to hold it down. You have to. You know, we should probably just edit that whole frigging part out. No, they're gonna have to anesthetize the bond market.

Walker (83:51)

It was with good intentions.

Luke Groman (83:53)

It was. Yeah. That got messy fast, didn't it?

Walker (83:57)

That's okay. Won't hold the density.

Luke Groman (83:59)

Reset. We're reset. Yeah. So yeah, they're going to have to basically do some version of yield curve control. Some way shape or form. You have the negative real rates and significantly negative real rates. Not 5, 6%, like 10, 15, 20% negative real rates. And that's just kind like that is going to be the price of admission. If you want to reshore because we waited too long. As far as the Trump tariffs go. I mean, as we sit down to this, this morning, Trump came out and said, look, okay, well, they're not going to be as aggressive in certain areas. Dollar was down big to start today. It's rallying back a little bit here, too. You know, the bigger the tariff again, the way this system has worked, we send our factories and jobs to them. They send us the stuff, we send them the dollars, they send the dollars back into our capital markets. And if we're trying to stop that, it's not that you can't you break all those flows. Not just the, oh, we're going to bring the jobs back. Well, then they're going to take the dollars out and they're going to take and do something else with the dollars. Unless you let them invest alongside you, in which case, you know, and that's another challenge. People say, well, it's just like Japan. Yes, there are some things that rhyme with Japan, but we weren't military. We're not militarily occupying China like we were and still are Japan de facto. So there was a unspoken, impolite leverage point with Japan that didn't exist, that doesn't exist with China. Similarly, Japan's long been an ally. We could say, hey, you, Honda, you need to build a factory in Marysville, Ohio, and start making some of this stuff here. And you need to have UAW labor. Japan said, okay, we'll do it. Chinese, maybe they will. But even if they do, there's not a lot of people in Washington that want CCP control over factories in the US and so it's tricky. It's likely to be highly disruptive and it has to be highly inflationary and it has to be highly inflationary in a way that the bond market does not. Because again, we have 36 trillion in debt. We cannot afford more than 4.85% on the 10 year treasury yield. We're at 4.65 as we talk, as we sit here today. And we haven't even, like Trump's not even in office yet. So, you know, someone's going to have to cap yields with printed money. And I don't know when that's going to happen, how that's going to happen. But if we start from a first principle of the United States is not just going to sit there and twiddle its thumbs and just let this go on, then there's like only one release valve and it's like they're going to print the money to cap yields at some point and then it's just about, okay, how do I allocate my chips or which assets are going to be best for inflation? You know, how much downside is there, if any, first before they get to capping the yields? Those are all portfolio decisions around that. But to me, everything I hear from Trump on tariffs is more we're restructuring the deal. The deal has changed.

Walker (87:29)

I mean, we know that he loves the art of the deal, so it'll be interesting to see how things shake out. Luke, I want to be conscious of your time here because we're running up. The time has flown. Picking your brain, just wondering if there's anything here that you want to leave with and anything that we didn't cover. Maybe if there's something that you're really paying attention to right now that you think a lot of folks are missing or if we covered things fairly well here today.

Luke Groman (87:57)

No, I think, I think we've covered things fairly well here. I mean, I think ultimately things I would leave people with is just understanding, you know, this dynamic we talked about to start, which is we're now, you know, the pot is on the boil in terms of that true interest expense being over 100% of receipts in the last four months. That is paradoxically dollar positive. It's bad for bonds, it will eventually be bad for risk assets of all stripes and possibly, possibly, possibly bitcoin. It hasn't been today, which is very interesting. But Ultimately, there's only one, you know, there's no stopping the straight, as Lyn says, and there will have to be. Unless, you know, unless they are willing to stand aside and let treasury auctions fail and banks fail and et cetera, et cetera, et cetera, I think there's zero chance any of that stuff happening. So ultimately more dollar liquidity will be supplied. The fact that the water is on the boil, the pots on the boil with true interest expense to receipts. So that's probably not that far away. And so to me, it's just really important to understand the binary nature of what we're talking about and to keep your leverage low. Don't, don't be leveraged. The average person should have no leverage in this environment. It is so tricky. And you know, buy the play for the end game. If you're an individual, you have the ability to play, play for the end game in a way that somebody doing this professionally, a lot of them can't. And so paradoxically, this period of time, there's an advantage to the small guy. Use it, stay unlevered. And you know, I think, I think bitcoin does very well in the end.

Walker (89:42)

Amen to that. Luke, where do you want to send people? I'll link, link your X account, your website as well, I assume. Anywhere else you want to send folks.

Luke Groman (89:51)

No, that's it. It's. Yeah, you know, where I am on x&fftt-llc.com for, for any more information about our mass, mass market and institutional research products.

Walker (90:02)

Awesome. Well, Luke, thank you so much for sharing your time and your knowledge with me. It has been a learning experience, very much so. And looking forward to seeing again in person so we can hopefully grab another steak.

Luke Groman (90:13)

That sounds excellent. I look forward to it. Thanks for having me on.

Unknown (90:21)

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