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- [00:00]
A
Did you know that every single American president since World War II has had a Strait of Hormuz strategy ever since the Americans took the front seat as the world's dominant superpower? Republican, Democrat, it didn't matter. Every leader had a strategy for the Strait of Hormuz because as we're seeing today, if you can control the Strait of Hormuz, you have the ability to hold the entire world hostage. So I have one more question for you. If America is the most powerful country on the planet and has the most dominant military that the world has ever seen, how come they can't open that straight back up? My guests today are the crowd favorites, both Luke Groman and Grant Williams. And today we go deep into all of the things that media and politicians are not saying. Now, Luke and Grant are two of the most respected macro analyst and investment strategist in the business. And today we go deep phenomenal conversation. I know you're going to enjoy this one. There is links to both gentlemen's newsletters beneath this episode. I strongly encourage you to check them out. But here is Luke Grohman and Grant Williams on the J. Martin Show. Enjoy.
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B
This is Jay Martin.
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A
Well, here I am with Luke Groman and Grant Williams. Gentlemen, it's a pleasure to have you both on the show. I'm looking forward to this.
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B
Like I say, thanks for having us.
- [01:25]
A
Yeah, my pleasure. So lots going on and lots to talk about. And, you know, the two of you, you both publish with consistency. Luke, you know, at least every week, Grant every month and whenever. And I get asked a lot, you know, from a new investor in the sector, where should I go? What resources should I turn to to get, you know, to begin my journey in this industry. I always point to your two letters first, and I never miss them. And I was just sharing with Grant, before we hit record here, that I got into this industry, you know, metals and mining, in 2011 when everybody else was leaving and all anybody did was leave for the next 10 years. And many times during that decade, I found myself wondering, am I just in the wrong industry? Maybe everybody else is right and this industry is done. And quite frankly, it was, it was research like yours, both of you, that maintained my conviction that this was a cycle that things would turn and allowed me to, like, remain steadfast in my business plan and my, my portfolio. And obviously today we're reaping the benefits of that. But it's really tough in years like 2014, 2017, 2018, when there was nobody covering our industry whatsoever. And you're wondering like, am I just spinning my tires and wasting a decade of my life building a platform that no one is ever going to care about anyway? So thank you for that. Thank you for your commitment to the sector and the work that you do. So I want to begin today by talking about staying a bit tactical, unpacking the geopolitical conflicts that we're watching. We'll focus on the Middle east and then get into some of the root causes, the true root causes, and then obviously the impacts that investors might feel and how they should navigate. And I want to begin with you, Luke, and just ask you if I think about the main headlines that I'm reading and the statements from the American administration when it comes to covering the Iran conflict, there's a lot of consistent words, words like temporary and short term, short term pain for long term gain. We're winning. We've already won. We've heard all these statements from the administration. So how do you interpret that? What are people misunderstanding? What's your take, Luke?
- [03:38]
C
I think right now is both the easiest and hardest time for macro. Maybe in my career, but certainly in a while. And that is because all you have to do, the only thing that matters, is the Strait of Hormuz open, yes or no. And as long as that answer is no, we're not winning. We can count up 10,000 targets we've hit in Iran. Counting targets is just geopolitical speak. It's a geopolitical equivalent of every kid gets a trophy. It doesn't matter, because the world economy, if Hormuzis closed, the world economy's on the clock. And right now we've probably got two or three weeks. We're already seeing supply chains start to really break down non linearly. Non linearly. Two to three weeks from now, it's over. The west loses, the world economy loses. And so to me, that's the really easy part. Every day I get up, I check my data feed, I've got something that gives me a daily update on transits. Hormuz, is it still on the floor? Yes. Okay. We're one day closer to the worst possible crisis in my 30 years in investment research, where it's also the hardest at the same time is exactly what you just said. It's so political, the fog of war, these pronouncements. But it's a really fascinating thing for investors, this sort of collective delusion. It reminds me a bit of COVID Right? It was like, we're just all going to get one shot and we'll be fine. We're all Just gonna get two shots, we'll be fine. We're all just gonna get three shots. And no one ever was. The people were like, what are we doing here? Same kind of collective group think where there's something right out in the open of is Hormuz open or not? If it's not open, we're not winning. And we're moving closer to a really bad crisis. And it's there, it's observable for anyone who wants to see it. And there's oceans of ink being spilt, sort of talking about everything other than that. And that's the only thing that matters right now, in my op opinion.
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A
Let me ask you a follow up question then, because another collection of statements we keep hearing from Marco Rubio and the President and, and more is that United States has the most powerful, most innovative military in the world. And that's probably true. So therefore, why can't they get the straight back open again?
- [06:06]
C
Exactly right. Like we dropped more bombs on Vietnam than we dropped on Germany and Japan combined 20 years earlier. I think morbidly we killed more Vietnamese than we killed Germans and Japanese in six years of war. And yet we lost. And so exactly why isn't the strait open yet? If all of those other things are true, and on some level I'm sure they are, but, but there are dynamics. Something I've been talking about all year with clients and even before is this is going to be a super important year to look for the dogs that don't bark. Right? As the old sir. The old Sherlock Holmes.
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B
Right.
- [06:57]
C
Sir Arthur Conan Doyle. The dog that doesn't bark. Look for the dogs that don't bark. And as Charlie Munger said, invert, always inverted. So I would ask you to invert and look at the dog that doesn't bark. We're the most powerful military in the world. We can do whatever we want, whenever we want. Why isn't it open? And there's a number of different potential reasons for that, ranging from the relatively benign to the fairly serious to the potentially existential for the global economy, US dollar, hegemony and other things.
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A
So Grant, I'll pass it over to you if you have any things to expand, any statements to expand on there. And you know, one thing we are hearing from both sides is that the other side is almost out. Right. And it seems to be a bit of a race. Are we going to run out of missiles from Iran or interceptors in the west? And both are making the claim that the other will run out first. What's your Take Grant.
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B
Well, I think we're all trying to boil this down to the simplest thing we can because there's just so much noise. And I think what Luke said is absolutely right. The Straits of Hormuz is the most important thing to focus on now. But I think for those of us in the west, what we're getting here is a crash course in understanding that propaganda is something that every government uses. We used to believe that it was a Russian thing or it was an Eastern European thing, that propaganda was what these evil governments use to try and, you know, sell messages to the, to their people. And, you know, today with, with the, with the alternative media and social media and all the other things, stuff's getting called out in real time. And I think the struggle that I think a lot of people are having is this realization, this dawning awareness that, well, hang on a second. The things that we're being told from the White House now and from 10 Downing street and from wherever else is actually in real time being debunked. You know, this thing Trump said, we're having talks with the Iranians and the Iranians are out saying we're not talking to anyone now, the Iranians could be lying.
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A
Right.
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B
But what I think we realize now is that we can't just go ahead and believe everything we're told from the guys on our side, the good guys. And that's a really difficult realization to come to because it used to be that you felt like you could rely on one source of information and that source of information was the reality. And everything else you could discount. Once you don't have that luxury, once you can't discount anything, it becomes a real problem. And, you know, for me, what I found helpful through this whole process, which is not easy to do, but that is to somehow keep a completely open mind about what's going on and not fall into the US Is definitely winning camp or the Iran is definitely winning camp. It's okay to lean, but you have to listen to the people who contradict that and you have to hear the other side of these stories. To your point, Jay, in the question about we're almost out, we're out of interceptors, we're out of missiles, both could be true. Neither could be true. We will never, ever know until the missiles stop and the incoming missiles keep going and the missiles don't go back the other way. That's the only way we'll know. So it's a really difficult time. And so to focus on the short term fluctuations in prices in all kinds of things that are being moved around by. This is the purview of a very experienced trader and nobody else. Like if you are not an experienced and highly competent trader, you shouldn't be anywhere near markets right now. You really shouldn't. You should have your long term investments or cash. If you really don't feel like you can look through this. Because the one thing we know is this will be resolved. Because this one, this fight is way too important to everybody and it does affect everybody. So that if you're going to shut the global economy down, everybody is a stakeholder in getting that sorted out. And yes, the Japanese have been saying how they've got 200 odd days of oil in their SPR, so they're okay if the straight doesn't get home for nine months. I promise you, if it's close for another two, the Japanese are going to start getting antsy, as will the Chinese, as will everybody. So for me it's a case of okay, oil is spiking. Is it going to stay at 100, whatever for six months? It can't. Doomberg's written a lot about this and he's right, it can't. Because the world doesn't work like that. So if you're a really good trader, this is heaven for you. If you're not, try and stay as far away from it as you possibly can and be in things that you either have a very secure long term roadmap for or cash. I mean, between the two of those lies an awful lot of pits full of crocodiles.
- [12:01]
A
Yeah, right. That's interesting. And let me, I just have to ask then because yeah, this conflict does hold the entire world hostage. So everybody has a dog in this fight, right? Whether or not you're able to do much about it is another question. But it impacts.
- [12:16]
B
Well, Jay, actually, interestingly. Sorry to interrupt, but interestingly, the, the, the only stakeholder who's probably least affected by this, ironically is the us. I was talking to Marvin Barth yesterday about this exact thing and he was saying that, you know, it used to be that we all understood what victory was in a war like this. You go in regime change stable, pro Western democracy, you leave. That was always the goal. It hasn't worked out so well in many of these adventures, but that was the goal. It was very clear we all knew what we were aiming for. And Marvis Bartholomew said this time around, they go into Iran, they cut the head off the snake. If they leave chaos in their wake, that's not necessarily the US's problem. They are Energy independent. They don't need to worry about the chaos they leave behind. They get rid of the regime that was so anti them and it's somebody else's problem. And based on missile range and all kinds of other things, this is a major problem for Europe more than it is the United States. So whilst everybody does have a stake in it, the one who can ironically walk away, probably the cleanest is now America.
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A
Yeah, energy independence, lots of fertilizer inputs coming down from Canada. If you're going to be trapped on a continent, it's probably the best one to be trapped on, I suppose. Do either of you have a take on what the initial intention might have been was this. There's a lot of hot takes in media. US was coming off a quick win in Venezuela and maybe made some assumptions about how fast a similar goal could have been accomplished in Iran. Obviously very different picture, bigger country, bigger population, different ideology. Most importantly, you've got kind of a cartel versus ideology ideological government. But you know, I feel like I'm seeing some backpedaling from the American administration leading with the President and maybe looking for an escape route. I don't know if there is one at this point or any good ones. But Luke, maybe back to you. Do you think there was a misunderstanding when the first step was taken, that this could be a short term win, another celebration? What's your take? Or was there? Is there? Has there always been a bigger game at play here? And if so, what the heck is it?
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C
Yes, I think they absolutely miscalculated. And the reason I think that is I've been getting pinged by guys on the ground in the Middle east that are getting communiques from the US military saying bear with us while we try to build the plane and repair the plane while it is flying and as events unfold.
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B
So
- [14:56]
C
yeah, that's right. When I hear widespread evacuations of US personnel two weeks ago from everywhere from Cairo to Jordan to Adana, Turkey, friends, families, loved ones of different personnel. When I hear evacuation of US security services across the Middle east, there is a situation there. And when I say, well, why is that happening if this is going to be over quickly? And the first question is, wait, you guys aren't hearing how bad we've been hit. And my reply is no, no. Like I hear the 5th Fleet base at Bahrain has been very heavily damaged, very heavily damaged. Not a word about it here. That's just one example. And so when I hear these things on the ground from people that are there, I've got 30 years experience in investment research. And it reminds me so much of 4Q07 where we were doing survey work. Bottoms up from these, you know, any given one of these contact points, Wall street would have laughed at us who we were talking to. You talk bad debt collectors. And yet they were the ones who absolutely saw it first. And if you waited their pronouncements over Goldman, JP Morgan, Deutsche Bank, Fed Chair, Bernanke, the President, everybody, they had it right first. And the S and P was still at an all time high when they were saying these things. And yet the banking system was collapsing within three to six months. It's very similar. Guys on the ground, and there aren't that many of them. Guys on the ground in the war zones are going, this ain't going as well as we're saying. The planning that they are now ascribing or trying to ascribe after the fact that oh yeah, this was going to be eight weeks, six months, two years. Yeah, we were always going to have boots on the ground. Yeah, we had all these. No, they didn't, they didn't. And markets are completely, markets are completely complacent to this. You know, they're completely complacent to the fact that a vast amount of our strategic radars have been blinded, have been destroyed. They're completely complacent to the fact that the Russians are in the fight, that, that apparently three days after we started hitting them, the Russians who had missiles lobbed at them by the Ukrainians that we were helping target in 2024, if you recall, we were, we were bragging about how we were helping the Ukrainians target Russian targets inside Russia. The Russians wouldn't take the bait. Instead they essentially said, we reserve the right to respond when and where and how we see fit.
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B
Well,
- [17:58]
C
once we and the Israelis attacked Iran, they started responding. And so again, between the lines, you can see these things. If you read the mainstream media, you've heard surprisingly accurate. The Iranians have been surprisingly accurate. Look at all the things around the Gulf the Iranians have hit. This has surprised analysts. Yeah, it surprised them. And you want to know what surprised them? The Iranians apparently only have two satellites, but the Russians have been using their satellites which are very accurate to the point where they're flying drones into Western Western agency people's windows and killing them as we were doing to them. And so when I back up and I, you know, the question is, was it a miscalculation? Yeah, they thought we could go in, do a Venezuela and away we go. And what markets don't seem to realize yet is the Russians are involved. Like Grant said before, this is too big for everybody to just walk away from. And so look, the Russians have outproduced all of NATO 4 to 1 in Ukraine on an absolute basis. Not. Not relative, absolute basis. So every day this goes on and Hormuz stays closed. Japan gets weaker. That's one of our industrial base. Europe gets weaker. Our industrial base, we don't have an industrial base to replenish. We're going to run out. Meanwhile, the Iranians, who are running out as well, the Russians are getting stronger, they're getting more money. Our Treasury Secretary has had to unsanction Russian oil as we are admittedly writing that.
- [19:35]
B
He's Jiu jitsuing him, Luke. He's jiu jitsu?
- [19:37]
C
Yeah, he's. Yeah. If you want proof that this was not planned for, look at Scott Bessen's interviews over the last three weeks. The Treasury Secretary of the United States unsanctioned Russian oil and then he unsanctioned Iranian oil in a war against Iran that is being backed by Russia. And he's trying, you know, this is what I mean, like they're pissing down our backs, trying to tell us it's raining. Just like they've done with Doge, just like they did with Liberation Day, just like they did with COVID And so again, now look, if the S and p was down 50% and US 10 year treasury yields were 5.5%, I'd be like, hey, this is all priced great. Let's start, let's go shopping. Markets are in frigging la la land for what I know relative to what they think is happening. And so yeah, no, they absolutely did not plan for any of this to go the way it's going.
- [20:31]
A
There's a quote at the top of Grant's most recent newsletter that says a fanatic is one who redoubles his efforts when he has forgotten his aim. And I kept on coming back to that as you were speaking there. Perfect. Hits the nail on the head. So, you know, and as, as I'm listening, Luke, and you mentioned the biggest winner or the safest country I guess in this conflict might be the U.S. just given their resource abundance and geographic location. But the next two, could, could that be Russia and Iran? I think Russia's like doubled their oil revenue since this conflict began. They've gotten a lot of sanction relief. Iran as well, I believe is exporting more oil them before the conflict from like 1.1 million barrels a day to 1.5 and selling it nearly double the price. And those seem like number two and three in terms of like coming out on top in this conflict, which is kind of ironic. What's your take?
- [21:22]
C
I would say Russia. Absolutely. But I wouldn't say Iran. I would say China. You know, again, another one of these dogs that doesn't bark. You know, how many times have we read in the last three, four weeks that, you know, this chest thumping, we now control China's oil, we control the Strait of Hormuz, we control China. Yeah. China's the only nation that's sailing boats in and out of there. And so let me offer another dog that doesn't bark. If we're so powerful, why aren't we shooting at the Chinese? Why are we letting them through? You know, we shot in an Iranian ship as it was coming back from this Indian military exercise three weeks ago. Right. We sunk it. So presumably these Chinese oil tankers are sailing right by. And I can't imagine, I mean, I've never been a submariner, but I can't imagine hitting a VLCC with a torpedo is very hard to do. And so if China's losing and we are the best, we have all the power in this relationship, why aren't we sinking Chinese ships that were going number one and oh, by the way, in Chinese yuan? So we're helping them set up a petro yuan, which is really a petro gold system, which the petro gold might be in our interest. We can touch on that later. But now I just saw today, Cosco, China Container Shipping has reopened shipping into the Persian Gulf. So now they're shipping stuff into every port in the Middle East. Now, do you think there's any chance there could be weapons in those containers? Any at all? I bet there would be. So again, why would the Americans let that happen? I don't know. But the answers range from inconvenient to the narrative to existential for a number of different things.
- [23:12]
A
Yeah, okay, we've gone back to the benign to existential. I want to maybe push that question to you, Grant. And my knee jerk reaction response would be like, if I've got a gun pointed at you, you're not going to sell me the bullets. That's why the US can't get into a direct conflict with China. But Grant, what's your take?
- [23:32]
B
Well, look, we know that there is tension between the US and China. This is probably not the right place to let it manifest. I mean, Luke's right. The questions Luke asked are absolutely the right ones. But. Right, I mean, we're not going to get the answers to those questions. I think the point about the miscalculation is absolutely correct. I think Trump is a gambler and he's been on a real hot streak recently and I think he's pushed his luck. I think he, I think Venezuela went better than anybody could have thought. I mean, that was extraordinary the way that, the way that went down. But, you know, you just have to look at, if you look at a topographical map of Iran and you realize the impediments to, to any kind of incursion into Iran, look at where the, where the mountainous regions are, where the borders are, it's basically an impossible place. How big it is compared to it's an impossible place. This idea of boots on the ground is a farce, frankly. That's not to say they won't do it, but it would be, I mean, you know, the old thing about never invade Russia in the winter, never invade ran Iran ever would be, would be close behind that. But the problem with having a gambler at the helm, particularly one who has been on a lucky streak, is he pushes it too far and hasn't had a loss for a while. And so I just need to double down to your point about that quote. So we're in a dangerous place here. And I think the big problem for Trump, as I look at it, is that if he is trying to find this off ramp, if he is floating all this stuff out, well, we're talking to them and there's a 15 point peace plan that we put to them and the Iranians do turn around and say to hell with you and your peace plan. What's your next move at that point? What do you actually do? How do you punish them for not coming to the table? It's a tricky one because any punishment you level at Iran now, given what you've done already, if you elevate that punishment, it is going to affect the rest of the world. And realistically, it plays into Iran's hands, particularly across the region with the amount of damage being done to the UAE and Saudi and these other places that are getting to getting punished. You're going to start to get Europe, I suspect, are going to get very kind of squeaky at what's going on there because they've now seen after that attack on Diego Garcia that they are well within the range of Iranian ballistic missiles and their defense is shot. And they and Trump aren't on the same page at the moment. So it's, that's what, as I see it that's the biggest problem. If Trump is looking for an off ramp and the Iranians decide, you know what, we're going to make him sweat a little bit longer, that's the point in this conflict that worries me the most, is what happens if the Iranians don't come to the table and they decide to force Trump into showing how big and tough he is. That's the bit that scares me. There is a chance that we do get negotiations, we do get a ceasefire, we do get this Pakistani moderated peace talks, which would be great for everybody. But until we know that's going to take place, I think we're in a very, very dangerous part of the process. And I'm certainly not expert enough to call it. There are plenty of experts on Twitter. Just Google hashtag Iran and you'll find them all. But, but I think we're in a very dangerous moment right now, you know,
- [27:04]
A
and I, I see that off ramp is, is tough. When you look at the demands made from either side, the non negotiable peace demands, I think from Iran, they want reparations, right, for the war thus far and I can't imagine the US conceding that. But simultaneously the US wants a full stop on arms production for five years. Now, if you attacked me and tried to overthrow me as the head of my household and the only reason you hadn't was because I still have bullets in the chamber and you say, okay, look, look, look, I'll back off, I'll leave you alone on one condition. You give me all of your bullets. Obviously I'm not doing that right. That's a terrible idea. So they both seem like non starters to me, which puts us in this weird situation where I agree because every global economy has a dog in this race or fight, everybody's impacted, therefore it will resolve. Yet the two main stakeholders are at this point, point of irreconcilable differences, you know. So where are the biggest fractures right now? You mentioned a handful of economies that would be probably the quickest hit, right? Japan, Europe, maybe the Gulf countries themselves. I think, you know, we look at the, the strait being closed. They can't export oil. That also means they can't import food. They import about 80% of their food. The Gulf countries, Kuwait, UAE, Saudis, Oman and treat 60% of their water. So very insecure location, but also a crazy high amount of foreign nationals. Like Dubai is 92% foreign nationals. And if you look at all the Gulf countries combined, it's like 56% foreign nationals. As the population and that's not somebody in Oman who's from Kuwait, that, that's outside of the GCC countries, which means more than half the population of the Gulf have somewhere else they can go. And if you're getting bombed, that's one thing. But if you're running out of food and water, that's a totally different situation. And you wonder about the population instability that in that region as well. But when you look at the most vulnerable economies, the quickest to be hit. Luke, I'll pass back to you. What's, what's like front and center for you right now.
- [29:10]
C
Well, I think we're already starting to see it, right. I think, you know, Australia's down to what, 18 days of diesel. You know, you're already seeing restrictions on, Right. So you're in a, you know, my understanding is Australia is a very big country with a very dry climate and you need diesel to move the, the food. And right now you're to replenish the stockpiles. I think the nearest stores are Vladivostok, I think I read, which is a 10 day sale. So the Australian government is roughly at eight days until they start running out of diesel. And once they start running out of diesel, people who are starving don't go to work and export the iron ore and the copper and everything that they export into global markets which by the way are already starting to be restricted by the collapse in sulfur coming out of the Gulf because you need sulfur to refine copper. So you know, I would start Australia. Yikes. I would totally agree gcc and that's if we don't get an escalation that hits desalination. Because the sort of dirty little secret is Iran has escalation dominance on desalination. You know, they only get 3% of their water from desalination. The rest of the Gulf I believe is north of 60 or 70%. So if Israel, the US pushed them too far and they follow through and they hit desalination, you're going to be having, I don't know, 100 million people in a part of the world that's going to be hitting 100, 100 degrees Fahrenheit during the day. You're talking about a humanitarian crisis. It'll be one of the worst in us, in America, in, in world history. I mean you can go without water in those types of temperatures without dying. I don't know, a day and a half, two. So gcc, Australia, Southeast Asia, I think I saw something earlier today. Taiwan's down to 17 days of LNG something like that. So guess what, you know, what's the market cap of Nvidia the day TSMC shuts down for lack of helium, for lack of lng? I don't know, but it's lower than it is today. What's the valuation of the nasdaq? And so, like, we're in this moment in time, it is very surreal. We can all look and see Hormuz is closed. We can all look and see that our government is lying about their ability to reopen it. And there's different theories why that is. Some of them say there's some 4D chess play, some of it says they can't. The guys on the ground laugh when they talk about what reopening it would entail, that it's that the reason there's no navy destroyers there is because they would be sunk if they went in. But we can see Hormuz is closed. We can see these shortages beginning to break out. Southeast Asia, you know, fuel rationing, Slovenia, et cetera. And yet there is still this complacency that it's going to get resolved when, number one, they're both very far apart on a negotiating standpoint. But I would point out we got into this war because I am told uniformly by everyone in the west that Iran is irrational, a suicide death cult, that death to America, death to Israel. There's no negotiating with them, you have to kill them. And then they turn around and go, well, I'm buying stocks because they're going to negotiate, they're going to sit down. They, you know, it's not in their interest to, you know, lose a lot of money or lose their oil revenues. And you're like, wait, wait, wait, wait. You just got us into this war because you said they're completely irrational death cult, blah, blah, blah. And now you're saying the irrational death cult that wants to kill us all is not going to kill us all because they're worried about losing oil revenues. One of those two is true. And so I look at it as, yeah, there are some very clear immediate order of operations. Australia, Southeast Asia, gcc, and really gcc, Australia, Southeast Asia. And then from there, it's going to go like this. Shortages in Europe, bond markets collapse, stock markets collapse, bank runs. That's how fast it's going to go. And it. Two, three weeks. Two, three weeks should do it. And if I'm the Iranians, because, oh, by the way, no one's looking. Everyone's like, you know, you talk about propaganda before the former head commander in chief of the IRGC got on Iranian state TV two weeks ago and said they made a mistake. We can see their logistics. When we look at their logistics, we can see they planned on a short war. But now Trump and Netanyahu are stuck in a slaughterhouse in the Persian Gulf. His words, not mine. Our plan for this whole thing is we're going to collapse the global economy. We're going to send oil to 120 and we're going to wait and the whole global economy will collapse. And then we'll see how much everyone supports Trump the warmonger. They're his again. Those are basically his words verbatim, not mine. So, you know, for me, I get a little worked up on it because, yeah, there are very clearly some, yeah, those guys are going to go down first and it's going to be like 72 hours before we go down. I don't, you know, it doesn't really matter. And like, that's. We are on the clock. And people think, well, don't worry, once Australia goes down, it'll start being nonlinear. No, the second they shut down Southeast Asia and no one goes to work, however they do it, like they did in Covid s and P goes no, no bid, right? It goes limit down. NASDAQ goes limit down. Bond market goes, you know, limit down. Then, then what do you do? You're going to print money to bail out the bus stock into a good shortage. And if I'm Iran, every day this goes longer the better. They're the best deal Trump's going to get is today, tomorrow it'll be worse, the next day, it'll be worse, the next day it'll be worse. I just am very, very concerned. I want you to.
- [35:17]
A
And Grant, maybe I'll go to you next, unpack that a bit more. And so I understand the supply chain constraints that would occur, right. If Australia goes down, it's not Australia's problem because no one's getting any iron ore. Right? Like every. We're too interconnected for any major economy to go down and not have the next one affected, which affects the next one, and the next one and the next one, et cetera, et cetera. What, simultaneously? And why does this matter so much? Would the impact be on the US Financial market? Right. When you look at these economies that will suddenly be struggling and need to raise cash to get another day out of their, their energy, keep their lights on, keep the food supply coming, and their wealth is stored in US financial assets, bonds and equities. And so that's probably a trigger moment that we could look for. Is this correct?
- [36:09]
B
Well, I mean, there are two components to this, right? There's the domestic component and the import export component. Take your example of Australia. If Australia has to start rationing fuel internally in Australia, that's a massive problem. Moment one, and it changes the calculus inside Australia. That's before you get to the import export part. And every decision that's being made by that government is going to be driven by domestic issues. They are going to make export import decisions based on the anger that the public are feeling because they can't get gasoline for their cars. Suddenly, it becomes a political crisis at home. And domestic politics always trumps international politics at times like that. So you have to factor that in, that all these countries are going to be forced to think internally, outwards, rather than what's our part as a good global citizen? Which side do we need to be on in this to maintain our place in the global pecking order? That changes overnight when people can't fill their cars up with gasoline. So I think that's important to understand. And as far as the rest of it goes, we've had a clue. Jay, the answer to your question in terms of financial markets, gold has given you a clue. Gold's the most liquid asset. Look what's happened to gold. Everyone's focusing on the gold price. Oh, my God, the gold price. Look at what it's done. It's gone. Worst month in history. It's down 10%. Blah, blah, blah, blah, blah, blah, blah. No, it's liquid. You're looking to raise cash. You sell the gold first because it's a really easy thing to do. Despite all the people telling you that owning gold's a really tricky, complicated thing to do. It's been liquidated to raise cash. And once the gold's gone, once the loose gold has gone, and obviously there's a lot of loose gold that accumulates in a move from 2,000 to 5,500. There's an awful lot of loosely held gold there. But don't forget, a lot of that was bought by central banks who are going to have to find sources of revenue, sources of money to bail things out, to pay for things, who knows what. So gold has given you a very, very good insight as to what will happen to financial markets at the point where people realize, okay, we need to go to cash now. And that looks right. I mean, the complacency, look, it's nothing new. And that complacency has been reinforced over and over and over again by policymakers and regulators. For 25, 40 years. You go back to Greenspan post'87 crash and look what he did in the aftermath of that. This buy the dip. The Fed put whatever you want to call it, it's been reinforced over and over and over again that the government, the Fed, the central bank will come to the rescue. But none of those previous issues have been in a crisis like this. When the last time this all happened, US debt was 60% of GDP. Now it's double that. So what's going to happen? We've seen it, you've seen it in the gold markets. But everyone's looking at the price, not the speed with which people needed to raise liquidity and the degree to which they were happy to just hit the bid to access it. That is going to come to an asset market near you soon if this carries on.
- [39:26]
C
Yeah and I would add to that just if you went back to Friday night when the bombing started. The 10 year U.S. treasury yield went out at 3.94%. There was all sort of damage Lansing going on around hey we're, we're back under four. The bond bears were wrong. And through that weekend everyone was sure there was going to be a bid for, for long term Treasuries. Right. Risk off. We're going to buy duration. And that's been the case even over the last five, six, five, six, eight years is initially in these crises you've had.
- [39:54]
A
Yeah.
- [39:55]
C
Yields drop and then you know that's been the Surprise the last five years, six years has been yields drop at the 10 year long term for a bit and then they take off in a crisis. But as gold got sold which was it's been surprising relative to the amount And I totally agree with everything Grant just said there. And the other thing I think that doubles there is there was never even a bid for 10 year treasury paper. It went from 3.94, it's now at 4.4. It's hit 44 twice and each time it hits 4 4. Trump gives us some BS deal that he has struck. It's happened twice in the last five days. 4.4% on the 10 year overnight Sunday to Monday hey we got a deal ceasefire and then comes back goes back to 4.4 Tuesday night. Hey do you right. So the bond market is also telling us it's a very shrill warning. It never got a bid in risk off. It was straight selling. And yeah, I mean gold is telling you there's no bottom for stocks. The longer once we get to a certain point, I mean this thing has to be resolved because you have to source commodities, food are above stocks and bonds on Maslow's hierarchy of needs.
- [41:16]
A
Yeah, it wasn't.
- [41:17]
B
The other part of this, obviously, is just the correlation issue.
- [41:20]
C
Right.
- [41:20]
B
There's a correlation of one with everything in this situation, which, if you go back to 0809, your equity portfolio got crushed, but your duration worked very, very well for you. If you'd had those bonds, you were fine. So the days of 60, 40 working out okay are over. And we've had hints of this. We've had the Morgan Stanley reallocation to include 20% gold. Over the last six months, we've had these shifts in portfolios. But you're seeing that now. You're seeing what that might look like in real time. You're seeing commodities get sold, bonds get sold, equities not getting sold yet, which is kind of the opposite of how these things normally happen. But people have to recognize that this idea that you always need to be long of something, and as long as you're long of something, it'll rotate and one thing will go down, but you'll be saved by the other thing. In a correlation, one episode, you need hedges, right? You need to be long. Volatility. You need to be long puts. You need to be long. All things that people have been 100% unwilling to pay for because they've had it reinforced over now. Well, you don't really need the puts because equities go down, our bonds will bail us out. I don't think that's going to work out so well. And so people are going to have to learn very quickly to handle an environment that goes against everything they've had reinforced for many people over their entire investment careers. That's not going to be an easy thing to do.
- [42:54]
A
Trump, probably more than any other president in my lifetime, gets markets or it seems, to a degree. I always watch the timing of these statements. And it wasn't lost on me that the first, we're in deep discussions, we're close to a deal. It was 7am Eastern time on Monday morning. It's like, okay, just look at that. It's a bit of a smoke signal right there. I want to ask you guys a more specific question about a concept that you two have been speaking about for quite a while. But more recently, I'm now seeing more mainstream journalists begin to throw it out. And that's the parallel between what's happening in the Strait of Hormuz and what happened in 1956 in the Suez Canal. And people are now Using the phrase, oh, this might be a Suez moment. And I think people kind of nod their heads like, oh, yeah, Suez moment. But they don't really, you know, it hasn't been explained YouTube and covering this for a lot longer than other people have been talking about it. So could you bring this concept back to first principles and maybe, Grant, I'll kick it over to you first and then over to you, Luke. Why are people drawing that parallel? What is that parallel all about? And what do people need to understand about the suez crisis in 1956 and how it may relate to today?
- [44:09]
B
How do we give you the kind of the TLDR on this thing? Look, it's a fascinating chapter of history and people will enjoy going back and actually reading about it because it was a fascinating time. But I guess the short way of outlining its importance was at the time, Great Britain was still the global reserve currency. It was still a very important global power, or at least on the surface beneath it. Its finances were under pressure. It wasn't in a great situation post World War II, obviously, with the. With the damage done to the economy, damage done to the infrastructure, et cetera. And at 1956, the Egyptians decided that Britain was weak enough that they would try and take the Suez Canal. And between them, France and the uk, who had obviously colonized a great deal of North Africa, kind of went in to try and wrestle the canal, control of the canal back from the Egyptians and struggled to do so. And the Brits went to America with a special relationship, their partner across the Atlantic, and said, hey, look, we need you to say that the pound is good and strong and you support the pound. And the Americans, sensing opportunity, said, hey, you know what? We're not going to do that. And unless you pull out, we're going to do the opposite. And we're going to say that the pound, we don't trust the pound, and we're not going to back the pound. We're not going to stand behind you. And that was it. That was all it took. The Brits had to pull out. Sterling was kind of exposed as a weak currency. It wasn't in a position that it had been before as the global reserve currency and the dollar became the dominant currency. I won't say overnight, but that was the turning point that led to the dollar being the hegemonic reserve currency in the world. And it was a time where America, as Britain's greatest ally, saw an opportunity to take advantage of weakness on the part of Britain. Financial and fiscal weakness, I should point out. And they didn't think twice. They took that opportunity, they threw the Brits under the bus. And look, anybody would have done the same. This is not a criticism of what America did. If any of us were in that situation, we'd probably do the same thing. It worked out pretty well for America in the 70 odd years that followed. So you can't blame them. But it was a really important time, mostly because it exposed a quote, unquote, superpower that had kind of eaten its foundations from a financial standpoint for what it was. And you can make the parallels with the United States are very easy to make. They're not the same, but they're very similar. And you can make the same parallels. And as an object lesson in the things to be worried about for the United States, let's put it that way, it's a really important chapter.
- [46:53]
A
So when we reflect on that period of history, people often make the assumption that World War II was the moment when the world shifted from pound sterling to US Dollars. But if you look at percent of central bank treasuries, that wasn't really. It maybe just precedent or patterns, but it was this moment in 1956 where Egypt made the assessment that the United Kingdom was too weak to hold onto the Suez Canal. And so they moved in and took it. And in response, the British Navy showed up and said, we're going to take this back. But they couldn't do it without the help of the United States. And the US Response was effectively, you don't need to be there, you don't need to do this. Right. What. You know, so those are some of the parallels that I think people are drawing today. Right. Luke, what would you, what would you add to that?
- [47:43]
C
Yeah, I think it's. For me, when this war first happened, what I wrote to clients was I thought the worst case was a Suez 1956 moment. I thought that was the potential worst case that this could go, because I immediately was hearing it was gonna last longer than what consensus was saying. But it was a base case, was like, okay, everything's whatever. Now my best case is that it's gonna be a suez moment of 19. Suez 1956 moment for the US of sorts, because of the things we've talked about before where there's just this, I think, recognition, and some of it depends on what we get in the next week or two. If we, if these, if, if we actually try to send ground troops into the Persian Gulf, into Hormuz, you know, through Hormuz, that's, you know, I'm concerned About that, I don't think that's going to go very well, you know, unless we've got some sort of, you know, super special weapon and we can just sort of, you know, discombobulate the entire country of Iran and waltz in there. Maybe that's how it'll go. And if that has happened, then absolutely straight, you know, 1956 is not the right metaphor. If anything, that'll strengthen the dollar, strengthen dollar system, all of those things. But failing that sort of special super weapon that allows us to sort of take the untakeable. Right, Because I think Grant's exactly right. Invading Iran is like invading Russia in the wintertime. It's a bad idea. It's not going to go well. Failing our ability to do that, then. Yeah, I think the best case at this point is a 1956 moment, because again, Hormuz is still closed, the Iranians still control it. We have gone from we're gonna take it, we are gonna overthrow you and we're gonna run it to, well, maybe we'll share it with you, to, well, we'll put someone that we like in charge, that you manage it responsibly. Like, that's, you know, Trump's, you know, asking, you know, he's famous for if you want a dog for Christmas, asks for a pony. And so he asked for a pony and then he asked for a dog, and now he's asking for like, you know, a mouse and, you know, then a cricket. And pretty soon he's like, you know, please kick my ass. And like, that's, that's how this negotiation has gone with the Iranians, you know, even as they've had a bunch of other stuff blown up without question,
- [50:16]
A
what's the risk? Let me just ask you, because, you know, President Trump is a very effective marketer, right? And, you know, evidence of this would be, six months ago, we eviscerated Iran's nuclear competency, right? Everything, all the equipment was decimated for a long period of time, right? That was the message that was, was sent home. And six months later, it's suddenly, there's an imminent threat. And where that threat came from, when we decimated all the material only six months ago, doesn't matter, because a new narrative came out, people have short memories and new headlines just dominated the day. And so there's an element here where the US could withdraw, ugly as it may be, but focus entirely on the messaging at home and kind of get away with it from a domestic standpoint, is there not? And if that was the attempt, what's the bigger picture implication there is that the Suez moment where the rest of the world says, I know what you told your folks at home, but we saw what really happened. You got caught over your skis and yet you had to run away. You know, this is, this is the reality of what occurred. Is that kind of the parallel when you say the Suez Canal is now the best case scenario?
- [51:30]
C
Absolutely, because the real message of that. Yeah, and I think, you know, Americans will believe whatever they're told. Like after five years ago, like you could tell them the sky's green and the moon's made of cheese and 80% of the country will believe that. And that's fine, whatever. The bigger issue is that we will have seen a shift from naval powers to land powers as it relates to mayhem doctrine for the first time in 400 years. So for 400 years, give or take, British Navy, you control mayhem doctrine. You control naval choke points, you control the world. Brits controlled it with their navy, then we took it over. We control with our navy. How often have you heard in discussions around the dollar and hegemony and power, well, the American dollar is ultimately backed by these 13 aircraft carriers. Well, when the shooting started, you know what those three aircraft carriers did? They all turned and ran to 750 to 1,000 kilometers into the Indian Ocean. When there's a fire, do firefighters run away from the fire? When there's shooting, do the police run away from the shooting? From the trouble? It's a huge moment the world hasn't grasped yet. And that is, and it's something that, that various commentators on weapons systems, et cetera, have been commenting on for 4, 5, 6 years, which is missiles and drones change. They shift the balance of power from naval powers back to land powers. Erik Prince said this a year ago in a speech. The former head of Blackwater said the tactics being used in Ukraine mark the biggest shift in military power since Genghis Khan put stirrups on horses 800 years ago. And so, yes, internally, Americans will believe whatever they're told. The rest of the world will go, holy cow. You don't need aircraft carriers to control choke points. You need satellites, missiles and drones. And you can stand off the most powerful carriers in the right. What happened? We have three carriers there. One of them is now back at Greece getting repairs for a 30 hour long laundry fire. Maybe it was, maybe it was, maybe it wasn't. I don't know. It doesn't matter. It's not there. But that's why I think it's a Suez moment that will be absolutely appreciated by the entire world, which is, you know, think about it. We're going to stick up for Taiwan by doing what? Sailing carriers. And Erik Prince specifically said that in his speech, if we sail carriers to try to stop a blockade of Taiwan, they will get very badly damaged or worse. His words, not mine. You will see a smoking US Carrier on television. If we tried to do that, this was our test case. What do we have? A smoking carrier that's back in base due to a laundry fire, and two of them that, when the shooting started, got as far away as they could. Right. Yesterday, even Trump. Trump. One of Trump's charms is he hints, he tells you what's really happening, sometimes without telling you because he's so boisterous. Yesterday he gave a press conference where he said one of our carriers had 100 missiles shot at it and they shot them all down. Well, number one, I thought Iran was out of missiles or just about. Number two, I'm sure they did shoot them all down. But number three, and this is why I would never, ever get invited, you know, a but invited once, but. But definitely not invited twice to a presidential briefing. Mr. President, where. How far away were. From the. From the launch points? Were those missiles. Were they 750 to 1,000 kilometers, as the satellite data would suggest? And if so, how much less reaction time would US Destroyers and aircraft carriers have if they were in the Persian Gulf 100 kilometers away, 50 kilometers away? If that time is measured in minutes versus seconds, what would the hit ratio be on those hundred missiles coming at you, sir? And that's what no one wants to answer. That's the Suez moment. Missiles, drones, Satellites. I think this is why the US Opened a space force everyone laughed at at the time. They shouldn't be laughing anymore after this. Satellites, missiles, drones, our 13 carriers are obsolete. They're great for humanitarian. They're great for projecting power against, you know, goat herders and sort of, you know, Taliban, you know, with no sophistication, but against, I mean, Iran. You know, there's Iran, Russia, China. So that's why I think that's the base case, that the Suez 56 is now our base case. The whole world knows missiles, drones, satellites beat carriers.
- [56:22]
A
Yeah, yeah, and you wrote about that, you know, and I've had Eric on the show a couple times, but he made that parallel, that the drone warfare revolution, if you want to call it that, is the biggest disruption to warfare since Genghis Khan put stirrups attached to saddles and just swept through Central Asia. That's okay. So if that's the best case scenario, that the US withdraws, runs back home tail between the legs, but manages the narrative at home to spin some kind of a we did it scenario. But the rest of the world sees very clearly what actually happened and that impacts their confidence in the US on a go forward basis. That's the Suez situation. The rest of the world watched the Suez crisis. UK went home with tail between the legs, maybe spun a narrative at home, but it didn't matter because everybody else saw what really happened. But the key thing is they had somewhere else to go. Right? The Dutch Gilder, in order to fall, needed the pound sterling to step up and say we're a safer home for your capital. And the pound needed the dollar. The dollar therefore needs blank, right? So two things have to happen, am I right? Number one is the world has to plainly see the emperor has no clothes. But also there has to be a second place you can go, a replacement that's stepping up, waving their hand. And where do we begin that conversation? Where would you begin? There, because you can get to petro gold. We talked about this. Iran is now letting ships through, I believe if they're selling their oil in yuan, which as you've written about, is the equivalent of selling your oil and gold. When you look at how that transaction and the mechanics of it have to complete. Could you walk us through that, Luke? I'll stick with you then. Pass back to you, Grant.
- [58:09]
C
Yeah, I think it's been fascinating. Ships that are pricing in yuan or transacting in yuan are coming and going.
- [58:18]
A
Right.
- [58:20]
C
I thought it was an underreported or underappreciated dynamic. When you were hearing about these other nations ships identifying as Chinese to get through safely. When was the last time we heard that? Like, as an American, I just kind of look at that and go, wow, right? Like, that's really interesting. And I think ultimately what you're going to go to is like the dollar's fine for transacting in, right? It's sort of like, you know, if you're Chuck E. Cheese, I use Chuck E. Cheese tokens to go play skeeball. And you know, I play skeeball and I win a bunch of tickets, I take them over and I get a prize at the counter and I walk out of there with the prize. And so like, people are so focused on the Chuck E. Cheese token when it's really the prize that you're after. Right? The token is just the way of the prize. Token, ticket, prize. We can go to Multi currency energy pricing. Right. Price in yuan. Chinese are not going to open their capital account on a full basis, but their capital account is open through gold on a limited basis. And the Chinese are happy to transact in yuan for Chinese goods. Right. So everyone's like, oh, they're overproducing electric cars and they're overproducing everything. Well, not anymore are they byd, they're flying off shelves. All done in yuan, I'm sure. Right. So I think the system we are going to go to is the system that you back into that will be dictated by the factory power. Right? The producing power, the power, the factory, factory power of the world is China, not the United States. And that's been true for at least 10 years and maybe longer. And the way that system looks is hey, transact to whatever currency you want to transact in and settle in gold. And you're seeing that already. Gold already overtake dollars in global FX reserves. And I think it's only a matter of time. Do you see it start overtaking it in more collateral markets? You're seeing some innovative products like Abax in Singapore where they're effectively using gold collateral for sort of immediate settlement for energy and other commodities. So I think that's where we're going, which is effectively use whatever Chuck E. Cheese token to buy that you want and settle any surpluses, net surpluses in gold. You're going to basically cram commodity markets into the gold market. And the commodity markets are still 12, 15 times bigger than the gold market. So that's, that's the dollar is not going to be replaced by anything. It's going to be replaced by this multi currency payment gold settlement system which is kind of going back to the future by the way. Right. Like Putin and Xi in 2023 were caught on a live mic saying we're making changes to the system that haven't happened in 100 years. We'll go back 100 years. It was Genoa Conference, 1922. That's what Jacques Ruev called the original monetary sin of the West. That's where the US and UK said back up. Before then the only thing in reserves was gold. And that's when the US and UK said, well, we can still have gold reserves and we can have dollar reserves and pound sterling are both equal to gold in reserves. And that started this whole currency as reserves, double counting fraud essentially. But so people are like, oh, we've got to have something replace it. No we don't. We just got to go back to 1921 and where gold's the only reserve. And I think that's where we're going.
- [62:10]
A
You know it. And so China doesn't have open capital markets or on their currency. Right. So this hinders the use of yuan in global trade, except for that there's a gold transaction. Effectively, you can buy yuan for gold, right? This is it. This is how you participate.
- [62:33]
C
Yuan and oil. My understanding is you can buy, if you trade on the yuan, oil markets, you can take your profits out in any currency you want.
- [62:42]
A
Okay. You know, it's an interesting repetition of history to a degree, in that China has a bunch of stuff the world wants, and the world doesn't have a lot of stuff that China wants except gold and silver. Right. And, you know, this is like, we all know the story of the Opium wars now where silver was the place. China was the place where silver goes to die. UK's addiction to Chinese tea just, you know, drained their treasuries of silver. Bigger story than that. I'm oversimplifying. But similar scenario in the Roman Empire 2000 years ago when they discovered silk and porcelain. And, you know, those two empires ruled the world when they bumped up against each other. Rome's appetite for silk, most importantly, sort of draining their treasury to a crazy extent. And, you know, China was like, we'll take the gold and silver, but we don't want anything else. You have, you love our silk, you love our porcelain. And Europeans couldn't figure out how those things were made. Grant, like, what's your, what's your take on what Luke just shared? And, and, you know, what are you watching in terms of replacement alternatives? What has validity at this point and where, like, on the margin, are you seeing meaningful growth?
- [63:53]
B
Well, I think, you know, Jay, when you framed the question, you said, how does this conversation begin? The conversation began a few years ago. You know, the conversation's being had, and it does involve gold, and it involves gold becoming a bigger portion of reserves. But the reality is, when it comes down to trade, once people decide that we're not comfortable with the dollar, every trade becomes a negotiation. Okay, how are we going to settle this? How are we going to sell this? And then it becomes a question of, okay, once we decide, do we have the rails to make settlement? And that's what's been put in place over the last 15 years. Quietly, in the background is a set of alternative payment rails that just give people options. And so, as you say, the world wants to buy things from China. And if China says to them, you know what, we're only going to accept yuan. Well, guess what's going to happen? I mean, people are not going to say, well, we refuse to trade to you unless we can pay for it in dollars. It's not going to happen. We are moving. If you step back from this, we've lived in this extraordinary age of abundance for some 30, 40 years, and we are going into an age of scarcity. And that makes commodities that much more important. That makes the securing of strategic national security assets that much more important. And they are scarce. Despite what you've been led to believe, they're abundant in a world where they flow freely between countries, flow freely across seas and across borders, and payment is seamless. They're abundant. But when it comes to every country with natural resources saying, well, I need to make sure we're secure first, abundance turns to scarcity. And a world of scarcity is a completely different environment. And the people who get to make the rules are completely different. Right? It's not the buyers that get to make the rules anymore. It's the owners of real things, the people who are willing to exchange them. They're willing to exchange things that other people need in return for. Insert choice here. Gold is the most neutral thing of all. That if people start to argue the toss over which currency are going to settle in one that says, well, how about we do it in gold? The next thing that happens is a handshake. Because everybody understands gold. It's not something that is manipulated by the other side if there's a lack of trust. And that's another change in our environment. We've gone from a very high trust environment to a very low trust environment. And guess what happens when you trust everybody? It's very easy to make deals and strike trade deals and agree on currency swaps and do all these things when you trust everybody. But I don't see an awful lot of trust looking around the world right now. I don't see that much trust at the international leadership level. I don't see it local level, upwards to politicians. I don't see it from neighbor to neighbor. So the world we knew is gone. It's over, it's finished. This age of abundance, high trust, low regulation, low friction, globalization, it's gone. And the sooner people realize that, the better. Will it come back? Maybe, but not in the timeframe that we're sitting here talking about and trying to navigate our way through. And so unless you want to think 40, 50 years down the line and position yourself accordingly and then sit there quietly in a dark cupboard for 40, 50 years, and hope you're right, which I don't think anybody watching your show is really going to want to do. It's time to completely rethink how you look at the world. Completely rethink the power structures of the world, completely rethink alliances and. And that's playing out on the news every single day. And really it's only by stepping back that far and completely re imagining and retesting all the first principles that are the bedrock that we build our entire society upon. It sounds very dramatic. I'm not an overly dramatic person, but this is a period where you have to go and do that. You have to completely reimagine and rethink and re examine how society functions on a local level, on a national level, on an international level. And I think if you do that, you will come to some conclusions that are quite frightening at first in terms of the scope of change that we're going to have to navigate and will make you have to rethink the way you do everything from manage your own resources on a monthly, weekly, yearly basis to managing your capital to managing your vulnerabilities, all of it. And if you haven't figured out that things have changed on a hugely macro level, I think you've been missing the message for the best part of a decade now, and it's time to kind of wake up and pay attention.
- [69:09]
A
You know, you kind of circled this question in that answer, but I'm just going to ask it regardless. It's actually from one of our Commodity University members. It was a question for the both of you, but I'll stick with you here, Grant. So shout out to Rebecca. Thanks for the submission. Foreign central banks now hold more gold than US Treasuries. Her question is, is this a durable structural shift or is it something that could quickly reverse? Right. And I think the reason I wanted to bring that question up, we got a lot of great submissions, but this one I do get a lot from folks that say, you know, the gold market's back, but they're also conditioned to think about financial markets as rallies. Right. Like, what's the current rally? And that's how a lot of people are interpreting the gold movement. Right. It's the next rally. Okay. What's after that one? You know what I mean?
- [70:00]
B
Completely understand. And it falls into what I just spoke about. The idea of questioning the durability of gold, I think is a clue in and of itself. There is nothing more durable than gold. And don't forget the fact that it's overtaken treasuries as a reserve asset. A big part of that is because of the rise in price. It's not that there's a massive amount of buying going on and they're swapping out their Treasuries for dollars. The price. Right. They are doing that, but not at that kind of level. A big part of it is the price. But it comes back to what I just spoke about. Is it durable? Well, in the system that we've been living under for the last 40, 50 years, you would argue it's not durable because gold wasn't at the center of the financial system. It was an afterthought, it was a curiosity, it was investment at various points in the cycle. It was a trade. It wasn't needed because Treasuries were risk free. I don't think that's the case any longer. They were completely trusted. Back to my point earlier, I don't think that's the case any longer. And so again, it's a question of a change in the system. Not that's making this evolutionary change that we've never seen before, but to Luke's point, is going back to how things used to work. And for 200 years, the world was on a gold standard or bimetallic standard of some sort, far more than it was on a fiat standard, far more. We just happen to have lived through this 50 year fiat experiment. And so it's all anybody knows. So, of course people question if gold's durable because they've never experienced it before, unless they've read history books. So, yeah, I think it's a good question. I think people will find out that gold is arguably one of the only durable, truly, truly durable assets there is in this world. And if we are, as I suspect, going into a different environment where we're talking about scarcity, we're talking about durability, we're talking about low trust, Gold is the answer to all those questions. And people need to somehow disassociate that with the price because as we said before, you and I were chatting off air before we talked about Jay and I was saying how everyone's marveling over the fact that gold's fallen 10%. It's been the worst month for gold, et cetera, et cetera, in 100 years or whatever. It may be the real crazy move, the one that everyone should be scratching their heads going, oh my God, I can't believe this was the move from 2000 to 5500 like that. It took 2000 plus years to breach 2000 bucks. And then a few months to go from 2000 to 5500. But the price was going up, so no one was asking those questions. No one's going, this is ridiculous. Everyone was cheering it on. Now it's fallen to $4,000 an ounce, a number which was preposterous just a couple of years ago. And everyone's rattling their heads. But the world has changed. And I think the world has changed in ways that you can't necessarily tell. If you spend all your time looking at Bloomberg screens, you have to step back and you have to take time to sit and think about the things that Luke thinks about and think about these massive structural changes that don't show up on terminals, but their echoes and their fingerprints can be seen on some really inexplicable moves in assets that we've become used to examining through a certain microscope. And once you examine them through structural change, they become a lot more understandable. So long answer to a short question. But yes, I think it's durable. But take away this idea that it's all about the price, right? If it's a 4000, does that mean the durability of the idea is gone? No, I don't think it does.
- [73:49]
A
Yeah, a few things I'll just pull on there. Yes, it's wild that after, what did you say, the worst month performance of gold in 100 years and golds of $4,000. Had you predicted that statement three years ago? Two years ago. Hilarious. And as we were again sharing before we hit play here, when the silver price corrected in February, I had a handful of people almost like check in with me. They're like, man, silver crashed. Like, you all right? And it's like, yeah, I guess it did. It did. Correct. But if I had told you even six months ago that silver was going to hit $65, you would have rolled your eyes at me and said, oh yeah, one of you guys, right? And then we correct to 75 and the market's crashed. Has it? It's, it's crazy but, you know, but it speaks more to like people's interpretation of markets, I think, and that we have been, a lot of people have been conditioned to think in terms of short term rallies, of course. Right. Like, of course that's the markets kind of served that up. And you know, my question there was a bit layered because I work in the mining equity space. And so when we see a pullback like we've seen in the last couple of months, people do revisit their thesis, question their conviction and think, you Know, maybe that was it, maybe that was the market that we were waiting for, you know, and, and as the market began to heat up last year, you know, we have a handful of platforms, a couple podcasts, a conference, and an education platform where we educate new commodity investors. Because there's a ton of people coming to the sector, and we want to make sure they're thinking long term, building coherent theses behind anything they're putting cash into. And every conversation begins with, I have high conviction in this, you know, maybe next five, 10 years. But within that, this is a crazy volatile sector, and you're going to see 40% drawdowns along the way. And so if you don't have conviction in your time horizon, this isn't this, this isn't the sector for you. Don't even think about it. But now that we're in one, right. Those questions resurface very quickly, and I find myself often defending the longer term thesis. Luke, what, what Would you expand on what Grant shared there? You know, the question was, you know, is this truly a structural, Structural and durable shift, or is it something that could be reversed with maybe a peaceful resolution to this current conflict and all of a sudden things go back to normal? What, what tells you. There's no, I mean, obvious question, but what would you say to somebody that asked that question?
- [76:17]
C
Well, I think it's important to understand the nature of the old system and the nature of the new system and the goals of the United States. And what I mean by that is, look, is that durable? In my opinion, yes, very highly likely. Now, there's a view out there that what the United States is doing in Iran is trying to, in the aftermath of Venezuela, we're going to grab Venezuela, we're going to grab Iran. We're going to control, as Lindsey Graham said, 31% of the world's oil, plus ours. We're going to shore up the petrodollar system. Okay? And what that means is the United States has to hollow out its defense industrial base. That's what the petrodollar did. Right? People are like, well, we're going to shore up the petrodollar system. Okay, Great. Petrodollar system, 73 to 22. What happened to U.S. industrial base gone. Sitting in China now. And so there's this cognitive dissonance and people making this argument about controlling oil. You're going to control oil. You're not going to have an industrial base to support the dollar. You're not going to have an industrial base, which means China's going to make the entirety of your military for you in five to 10 years. And that's why I say it's probably and highly likely durable. If the United States government decides it is in its interest to have China make all of its military for it, then, yeah, then let's go, you know, use the military we have left before China makes it all and seize Iran and take God knows how many losses and spend God knows how much money maybe doing it and let's grab Venezuela and let's price oil only in dollars and then we can use our Chinese made military to force China to buy oil only in dollars. Hoorah. And you kind of quickly go, doesn't make sense. And so as long as that doesn't make sense, as long as it's in the United States interest to not have a foreign country make its entire military for it, then I think gold has surpassed Treasuries in FX reserves for good. Because Grant's right, it's mostly price driven. And that's the whole frigging point, right? Like you don't hear people, people say, well, yeah, but gold's a, supplies Treasuries, but it's mostly price driven. And I go, shares outstanding in the S and P haven't really changed over the last 30 years. It's mostly price driven. They look at you like, what are you stupid? And so like, but it's this, they then turn around, make the argument, well, yeah, gold's not, you know, gold's not really replacing Treasuries that much. Just price, like price is the whole point. Gold is going up in price because the Americans are inflating. Other central banks are inflating to try to keep their sovereign debt sustainable, which makes sovereign debt unattractive. That's the whole point. So between this dynamic of. I framed it earlier this year as the scene from the notebook with Rachel McAdams and Ryan Gosling. What do you want? What do you want? If you want China to not build your military for you in five years, the entirety of it, rather than just a bunch of it now, then gold has to be bigger than Treasuries. That's the only way it works. Because if we go back to a petrodollar system, we go back. You can't do both because otherwise we're not generating the dollars to supply the dollars for the world and the world economy collapses. That's the deal. Petrodollar deal is we generate the surplus or the deficits and those deficits hollow out our industrial base to supply the dollars for the world. That's not in our interest anymore. So as long as that's not in our interest anymore, Gold, I think, is going to keep gaining in volume and price versus Treasuries and global reserves. I think that's a done deal.
- [80:07]
A
Did you have something to add there? No, I'm hearing things.
- [80:10]
B
No, no, I'm just, I'm just, I'm just enjoying watching your face and all these deep breaths you're taking.
- [80:15]
A
I. I love it. No, I mean, I'm sincere. Like, it's, it's. The best part about having a podcast is that you get to sit down with, you know, authors and analysts that you read on a frequent basis that you deeply respect and, and have for a very long, long time. And, you know, I want to thank you both for coming on the show today. But I also want to restate how I opened this because everybody watching this should please go to. It's grant-williams.com and fftt-treerings.com the link's going to be down there. We'll have them up on screen here. But, you know, the impact of both of your work on my business, my portfolio and my personal life has been very long in that, as mentioned, there were many years as somebody who works in the metal sector, mainly the equities that you really questioned your entire existence, mainly that last decade. Right. And. But, you know, you stick to voices that you trust, voices that use history as precedent, not current events as prediction tools. And that gave me the conviction to stick with my business in this industry. And sure, that's great. You know, you get into silver at 25 bucks and gold at 1400. But more importantly, that's the reason, even as a mining investor today, that I'm not sitting on a giant portfolio of speculative exploration stocks, which is how a lot of mining investors get in the game. Instead, we teach a very thoughtful approach that is incredibly barbelled. Begin with the physical. That's the ballast. You start there before you dare touch anything else. And then you maybe get into the biggest producers and healthy business models in the industry. And after that, then you can dip your toe into the more volatile asymmetric upside. But it's, you know, it's you two and a handful others that kind of stewarded my investment career and entrepreneurial career in this industry. So I thank you for that, you know, and then it's like an absolute pleasure. I get to sit down here and just like jam with you guys for an hour and a half. It's the best. I love it. So thank you both for your time today.
- [82:18]
B
Thanks, Jake. Good to see you, Luke.
- [82:20]
C
Likewise.
- [82:21]
A
Everybody make sure you hit up both of these gentlemen's newsletters. We're going to put links right beneath this episode, and I guarantee you'll thank me for it later. All right, thanks again, guys, and I look forward to next time.
- [82:34]
B
Thanks, guys. See you soon.
- [82:35]
C
Thank you very much. Thanks.