Deep Dive
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This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna.
Macro Voices Episode 462 was produced on January 9th, 2025. I'm Eric Townsend. Forest for the Trees founder Luke Groman returns as this week's feature interview guest. We'll look ahead to the new year and discuss what it means for macro and markets, from the dollar to treasury yields to Bitcoin to precious metals. Our year-end specials on the future of nuclear energy were well received by our audience. But before we get started, let's take a look at some of the new features of Macro Voices.
But for those who prefer written content over podcast interviews, I also have a new Substack post making my arguments for why thermal spectrum molten salt breeder reactors should do most of the heavy lifting for energy transition and why I think the tech bro's current emphasis on fast reactors is misguided. You can find that post at erictownsend.substack.com.
And I'm Patrick Ceresna with the Macro Scoreboard. Week over week, as of the close of Wednesday, January 8th, 2025, the S&P 500 index up 49 basis points, trading at 59.64. While the index level is flat week over week, the underpinning market breadth continues to deteriorate. We'll take a closer look at that chart and the key technical levels to watch in the postgame segment. The U.S. dollar index up 49 basis points, trading at 109.01.
break out again to new highs for the year. The February WTI crude oil contract up 224 basis points trading at 73.33 bullishly broke out of the three-month trade range but will the bulls be able to follow through?
The February RBOB Gasoline flat on the week at 201. The February Gold Contract up 144 basis points to 2679. Copper up 596 basis points to 427, recovering back to its December highs. Uranium flat on the week at 730.
72.90 and the U.S. 10-year Treasury yield up 11 basis points, trading at 4.68. Yields aggressively pressing the 2023-2024 highs. The key news to watch this week is Friday's jobs numbers. And next week, we have the CPI and PPI inflation numbers and the retail sales.
This week's feature interview guest is Forrest For The Trees founder, Luke Roman. Eric and Luke discuss the U.S. dollar, Treasury's inflation, market expectations, and the Trump administration. Eric's interview with Luke Roman is coming up as Macro Voices continues right here at MacroVoices.com. And now with this week's special guest, here's your host, Eric Townsend.
Joining me now is Forest for the Trees founder, Luke Groman. Luke, we've got a new year. You're the first voice on Macro Voices for 2025. We chose you intentionally because you have such an excellent high-level macro perspective on so many different markets.
So, holy cow, we've got a new year, rapidly changing geopolitics, an incoming presidential administration that couldn't be much different from the outgoing one. Where should we start? How should investors think about the big picture of what 2025 looks like? How's it going to be different from 2024?
Yeah, thanks for having me on, Eric. It's great to be here. Happy New Year to you. I think this year we're entering, exiting 24 and entering 25 with the U.S. dollar as measured by DXY and both that and the 10-year treasury yield basically on Knife's edge.
of a, I won't say a crisis, but I'll say a bumpy period. The dollar is borderline too strong. It's causing treasury yields to go up with the dollar. And so it leads to me to an outlook as I listen to what the incoming administration and its representatives are saying. They're talking about a lot of things that all else equal,
would further strengthen the dollar. Tariffs, Doge, the Fed maybe trying to be a bit more hawkish, geopolitical tensions, all these things, all else equal, are good for the dollar. And anything that's good for the dollar is going to be bad for 10-year treasuries, long-term treasury market. And
Anything that, you know, I think we're at about 4.7% on 10-year treasury yield today as we record this. I think 4.8%, 5% then there or beyond. I think things are going to start to get really sloppy in risk markets and in the economy, et cetera. And then we'll see where we go from there. And so it leads to this.
I think sort of two discrete periods of time as I look out to 2025 for me, it's the next two to three months where I have very little visibility and very little conviction in what's about to happen because I have very little visibility or conviction in the 16 cooks that are in the kitchen of the Trump administration, seemingly. But it seems like a lot of them are wanting policies that all else equal would send the dollar up, which is going to send everything else down from here.
for a period of time. And so I think we're in for a period of bumpiness for the next two, three months. And then I think ultimately 12 months from now, six months from now, later this year, whatever, I think, I think we're going to get policies that weaken the dollar in order to kind of smooth things over and to boost nominal GDP growth. Cause in the end, the only way out of this debt issue that we have is,
is with higher nominal GDP growth. So those are kind of the two discrete periods of time, next two to three months. I have no idea, but I think it's going to be bumpy. And then after that, I think bullish for stocks is bullish, especially industrials. I think it's bullish for gold. I think it's bullish for Bitcoin, as I think the dollar is going to get weakened one way or another.
Let's go a little deeper on each of those subjects. And believe it or not, I'm going to start with Bitcoin, which will probably surprise a lot of our listeners. No, it's not a New Year's resolution. When the facts change, I change my priorities. And the view that I've had on Bitcoin is, look, you know, I see a lot of people really think it's cool.
But this view of the Bitcoin community that it's going to compete with the U.S. dollar for global reserve currency status, I was extremely skeptical that no major government would or central bank would allow that to happen because it does pose an existential threat to their monopoly over coining of money.
It seems that President-elect Trump has a very, very different attitude than any of the standing governments have had for the last several decades. It seems that his administration is going to be very open to allowing for that possibility of maybe even promoting the idea that
private label currencies should compete with government issued currency. And I can extend that view to say that Nigel Farage in the UK seems to be gaining a lot of traction with his populist movement. If you had Nigel Farage leading the UK and the pro crypto Trump that we've been introduced to in the last couple of months running the U.S.,
Hey, even I have to acknowledge that's a complete game changer for the prospect of cryptocurrency competing meaningfully with the U.S. dollar for reserve currency status and potentially giving it a real run for its money over the next several years. Now, I still think that proof of work is a ridiculous way to design a currency. I think Ethereum makes a lot more sense. But, you know, Bitcoin is the...
the first mover and the market leader at the moment. What do you think about all this? Is it actually plausible that we might see central banks kind of standing down and saying, OK, we guess we have to allow private label currency to compete with us? I think I don't think that will happen. I think what is in the process of happening and I think Bitcoin may play a role is the separation between
of the store of value from medium of exchange and unit of account functions of global reserve currency status. So currency's got three functions, right? Store of value, medium of exchange, unit of account. And we've been saying for a long time, the way you cut the Gordian knot of Triffin's dilemma is by separating
these components so that you have a neutral reserve asset whose value floats in all currencies, and then you have the reserve currency. And the reserve currency serves as the unit of account and as the medium of exchange. And then you replace the currency proxy, U.S. Treasury bond, which has been the primary reserve asset in the store of value in the dollar system,
with a neutral reserve asset whose value floats in all currencies. And for a long time, I've thought that's gold. My base case is still that that's gold. And clearly, especially post-Russia FX Reserve sanctions, we've seen central banks accelerate that meaningfully. I do think there is a view in Washington amongst banks
The Trump administration and even others, the Treasury Borrowing Advisory Committee, put out a report at the end of October looking at how digital stable coins in the Bitcoin ecosystem could help finance U.S. deficits. And so I do I don't think Bitcoin is going to replace the dollar economy.
as global reserve currency. I do think there is a possibility that we start seeing Bitcoin replace, join gold in replacing treasuries as the primary reserve asset. I think it's entirely possible we start to see sovereigns other than El Salvador start to stockpile it, perhaps. We'll see. We've seen rumblings of that from one place or another, from
a number of different people. And so it would lead to a interesting situation in terms of implications for the dollar that have been hinted at multiple times by Besant, Scott Besant, incoming Treasury Secretary nominee, that have been kind of ignored, it seems like to me, by a lot of investors, which is Besant has said at least once, if not twice, that
that a stronger dollar system and a weaker dollar are not mutually exclusive and they are what President Trump wants. And so if you move more toward a system with the dollar still global reserve currency, but treasury bonds replaced by gold or Bitcoin that floats in all currencies as neutral reserve asset, then
Over time, you are going to strengthen the dollar system, but you are going to weaken the dollar because when you start settling more and more in a neutral reserve asset, you're ultimately going to move global trade and global currencies towards settling around global trade. In other words,
The currencies with the biggest trade and current account deficits will be the weakest currencies relative to those with the biggest current account and trade surpluses. And so why would we want to do that? Well, in that world, the dollar would fall sharply against the yuan, which is kind of what we've been wanting anyway. We keep telling China that they've been managing their currency too cheaply.
This would do that moving towards a neutral reserve asset, whether that be gold or Bitcoin that floats in all currencies and making that the primary reserve asset over time will weaken the dollar against everything else. The dollar, by virtue of the old system, is is has the biggest current account deficits because we need to supply the dollars to the system.
But that also means that in a neutral reserve asset system, the dollar isn't the cleanest dirty shirt. It's the dirtiest dirty shirt. Now, completely confusing most people is that in the initial moves toward a neutral reserve asset system, the dollar will not fall. It will rise. It will only fall once the Fed or U.S. authorities create enough currency to basically allow
monetize deficits, which they will have to do eventually as they move toward that system. But so I do think Bitcoin appears to be having some version. I think some of it in the short run may be as simple as stable coins represent an easy source of several hundred billion dollars of T-bill demand that can be financially repressed.
to create balance sheet for a U.S. government that desperately needs private sector balance sheet willing to be financially repressed. So let's see. But I do think there seems to be a movement afoot where Bitcoin has a role to play in the short run, helping finance U.S. deficits and in the long run, serving as a pivot around which to reorder global currencies based on balance of payments and current accounts.
Okay, I want to clarify what you mean in your definition of global reserve currency, because you said you don't think Bitcoin would become a global reserve currency, but it might become a global reserve asset. To me, that's almost a contradiction. I guess some people use the phrase global reserve currency to refer to the trade settlement currency. Others use it, and the way that I use it is to say the currency in which central bank reserve assets
assets are denominated. And I think with the introduction of stable coins, this gets a little bit complicated because I would say that if you're saying the global reserve
asset, central bank reserve asset is going to become Bitcoins. Okay, they're not denominated in U.S. dollars, and that would imply that you're moving away from the U.S. dollar as the reserve currency. But if you're saying that stable coins are the central bank reserve asset, well, those are denominated in U.S. dollars, even though they're backed by a Bitcoin. So help me understand exactly what you mean and how you're defining global reserve currency. It's a bit of a Rorschach test for depending on
which side of the de-dollarization argument you highlight, right? So some people will say, look, the dollar is still 87% or 90% of global transactions. It's still dominant. True. And the dollar share of FX reserves is down to 58%. It's down 15 points or so over the last 15, 20 years.
And if you include mark-to-market gold in that, the dollar share of FX reserves is probably getting close to 50% or below. So if you look at it from a usage standpoint, the dollar dominant as ever, and that's sort of the hashtag America side of the de-dollarization argument. And
The other side is if you look at the store of value, the replacement of the treasury bond as primary reserve asset by gold dynamic, you see that the dollar, the treasury's share, treasury bond share of FX reserves has fallen from 71, 72% at the peak to 58% just in FX and probably 50% or below if you include gold in those amounts.
And I think that's instructive for this dynamic, which is to say, yes, the dollar will still be dominant in the medium of exchange and the unit of account. But at the store of value function.
World is de-dollarizing full stop at the FX Reserve. The dollar share, when you include gold, might be a minority already below 50%. And I think that trend is only going to continue were Bitcoin to start to have some role in that. And as I expected, if gold continues to rise in price.
And let's talk about gold rising in price and where that's headed, because I think, as you said, there's a lot of reasons to suspect, at least in the short to intermediate term, that the U.S. dollar continues to appreciate. That historically has been bearish for gold, at least in the short term. But it feels like we're starting to see that trade you and I have talked about for years now, which is gold and the dollar moving up at the same time as we potentially
potentially kind of shift the balance of power here between currencies. What do you think? Yeah, I think ultimately in the short run, I think the dollar probably does get a little bit stronger from a tactical perspective. But the thing I've been watching for, the metric I've been watching for in terms of turning points on the dollar, more sort of intermediate term, has been this metric of true interest expense relative to U.S. receipts. True interest expense being
just gross interest expense plus the current annual portion of entitlement expenditures relative to U.S. receipts. And the higher the dollar goes, the higher interest rates go, the higher interest rates go, the higher interest expense goes, and the higher the dollar goes, generally speaking, the lower stocks go. Once it gets beyond a key point, the lower that stocks go and the lower that U.S. receipts go. And so once...
the dollar hits a level of quote unquote too strong. For me, quote unquote too strong is once true interest expense starts to near or exceed 100% of receipts. In other words, once the U.S.'s gross interest plus its entitlement bill is more than 100%
of tax receipts, that starts to really turbo squeeze the dollar higher as the U.S. government crowds out global dollar markets. But it also starts to touch off a U.S. and global debt spiral where you're going to get a dollar up, rates up, dollar up, rates up, dollar up, rates up, everything else down except for probably gold.
Until either we get what we got in 3Q23 or 3Q22 or 1Q23 where we get treasury market dysfunction, big tails. I mean, ultimately, if policymakers continue to stand aside, you'll see failed treasury auctions. We got close at the end of 2023 with that five basis point tail on a 30-year auction to an effective failure per some of the bond market veterans that I'm friends with. But
I don't think they'll ever allow that an actual nominal treasury auction failure to happen. And so the point is, is that from a positioning standpoint on the dollar in terms of when is too strong, too strong is whenever we get over and near 100% of true interest expense as a percent of U.S. receipts. And if we look back over the last four months, U.S. true interest expense as a percent of receipts is
has been about 103%. So we're there. We're to the point where it's going to cause increasing problems in the treasury market. It's going to cause yields to go up. It's going to cause stocks to go down. And I,
I don't think that's a situation to the incoming administration is going to let go on for very long. And the answer to it, I think, will continue to be the answer to this type of action that we've seen repeatedly for the past five, six years, which is Fed or Treasury are going to do something to weaken the dollar. And so I think, you know, tactically, it could continue to rise in the very short run. But I say that's why I think we're kind of
This dollar rally, I think, is getting long in the tooth. And for the same reason it's gotten long in the tooth every other time for the last five or six years, which is to be a little flip, it's all fun and games until the treasury market loses an eye. And so I think we're getting close to that moment of where the treasury market
is getting a bit, I don't think it's disorderly yet, but I think we can see disorderly from here. And once we get to that point, given the U.S. government's debt load, they'll take what steps they need to do to weaken the dollar.
Let's talk about what happens when we get to that moment where, as you say, the Treasury market loses an eye. We start seeing what could be a fairly sudden decrease in Treasury yields. What happens to inflation at that point? Do we need to worry about secular inflation taking off? Yes. OK, next question. Elaborate.
Look at that. See, I can't answer a question in a single answer, right? Yeah, this has been in the cake forever. This has always been in the cake because the Fed didn't let inflation run higher for longer back in 2022 and 2023. They didn't let inflation work debt to GDP down enough to be sustainable to withstand their interest rate hikes. And so,
Ultimately, you started to see it today. This non-manufacturing ISM prices paid print came in hot, 64 and change. We've seen inflation bottom out and start to tick back up. This was always where the Fed was going to find themselves because they screwed up in 2022 and 2023 by not letting inflation run higher for longer to get that the GDP from 125% down to
70, 80%. And we would have needed to take probably 8% to 10% inflation for a couple of years, and it would have been painful, and it might have caused a crisis. But in the end, it's what was needed, and it was not what was done. And since mid-2022, we've been writing for our clients that because the Fed decided that they wanted to play...
Volcker 1980 with the balance sheet of Argentina 2002, literally in the case of the U.S. government, our debt to GDP and when they started, when the Fed started hiking was the same as Argentina in 2002, roughly. They were going to get to a spot. The U.S. was going to get to a spot. The Fed was going to get to a spot where regardless of whether they tightened or loosened,
the long end of the yield curve was going to go up on them. And I think we might be there. And the reason that is, is if they hike from here, the dollar is going to go to two high levels and foreigners who are short $13 trillion in dollar denominated debt and long eight and a half trillion dollars in treasuries are going to sell treasuries aggressively to raise dollars and service their dollar denominated debt long end up. And if the Fed, uh,
loosens here into bottoming and maybe bouncing inflation, long end up, inflation expectations are going to rise. And so, you know, this is one of these things where, you know,
Like they're this, this was always going to work out this way because they screwed up in 2022 and 2023. Courage was not acting like Volcker with the balance sheet of Argentina. Courage was acting like taking the pain, taking the inflation, acting like, uh,
I don't even know who was Fed governor from 1946 to 51, who got debt to GDP from 110% down to 55% in just five years by taking U.S. real rates to negative 13%. That's what needed to happen. And it didn't happen. So yeah, we're going to get, you know, inflation's already picking back up. I think it's going to pick back up more. I don't think the bond market's going to be, it's going to probably try to throw a fit and it's going to force the policymakers to do something. And,
oh, by the way, we're seeming to try to go through an economic divorce with China. And to me, it strains credulity to think that bringing China into the global economy and offshoring the U.S. factory base to China was disinflationary. It strains credulity to think that bringing it back and divorcing from China will also be disinflationary. I think the restructuring of the
global economic and trade system that appears to be underway and is likely to accelerate under Trump, I think that's going to be inflationary too. So to me, it kind of sets up an interesting overriding view of markets that I think is a variant perception, which is
I think most market participants are still playing by the old rules of the last 40 years, which is whatever is good for the bond market is good for America. And the bond market can push everybody around, as James Carville said in the Clinton administration. And I don't think that's going to happen this time. We can sort of do all these things that Trump wants to do, and we can restructure and reshore, and we can...
you know, build a strong military and support our allies, or we can let the bond market be priced at a market rate, but we can't do both. And consensus is that the bond market's going to be priced at a market rate. I don't think that's right. I think what's going to happen is we're going to get some form of
de facto, I don't think they'll ever do explicit yield curve control, but I think we'll do some form of de facto yield curve control, some sort of cobbled together version of it, regulatory changes with banks, repression, et cetera. And the restructuring of the U.S. economy and global trading system will be paid for by bondholders on a real basis. They'll get every dime in the road. They'll just lose money on a real basis.
Speaking of variant perceptions, Luke, something I'm noticing is I think a lot of market participants are people who like President Trump's policies, even if they don't like Trump personally. They're people who like the idea of lower corporate taxes and things that they perceive would be good for markets. And they seem to be discounting the success of a lot of these policies, the Doge effort, dramatically reducing government budgets and so forth. I'm
It seems to me that they're missing a couple of points. One is just the reality of this. Although President-elect Trump can't be faulted for playing politics, all politicians do that. The reality of this Doge situation is the discretionary U.S. budget, the stuff that they even they cut everything and fired all the employees. The debt service is most of the tax receipts. So
I don't think it's possible to have some of the economic outcomes that are being promised by the Elon Musk and Vivek Ramaswamy team in Doge because there's not enough discretionary budget to cut to achieve what they want to do. And at the same time, I don't think people are –
adequately discounting just how much the people who don't like President Trump are going to try to sabotage whatever he tries to do and fight it. So is there a variant perception trade here which says maybe people are assuming that President Trump is going to be able to be more successful than he really could be given realities of just how big the tax receipts in comparison to the discretionary budget are?
Yeah, in the short run, absolutely. And I think that factors into my initial point of the next two to three months. I just have no conviction in the outlook. I think it's going to be bumpy because of the lack of visibility on the political outcomes and sort of the 16 cooks in the kitchen all pulling in different directions. As it relates to Doge specifically, this is something I've been pretty vocal about, actually, is because I think it's important.
If Elon and Vivek do what they say they want to do in the wrong order, they'll create the worst crisis since 2020 and 2008. It'll be a catastrophe. And it will politically handicap Trump and probably the Republican Party for years. I think Trump will be a lame duck at that point on. What I mean by that is we know...
that the deficit is seven points of GDP roughly today. Let's say they cut four points of GDP quickly. Four points of GDP, that's, what is it, about a trillion dollars, a little more than a trillion dollars. So half, half of the two trillion that Elon threw out there.
let's assume that none of it is interest expense. Because if it's interesting, like that part of it's pretty easy. I had a tongue in cheek post a couple of weeks ago and it was like half tongue in cheek. But like, look, they cut rates to zero and finance it all in the bill markets. I could cut a trillion, two trillion, three out of the deficit today.
Now, the outcome of that is inflation is going to boom and the dollar is going to fall and tax receipts are going to boom and the stock market's going to boom and the economy is going to boom. And maybe that's what they mean. And if that's what they mean, then like that'll work and inflation is going to be the release valve. The dollar is going to be the release valve. And that's that's fine. That's that's been in the cake ever since we started doing dumb stuff and borrowed money 25 years ago in the Mideast. But if they're not talking about slashing rates to slash interest expense to reduce government spending.
Then you're looking at a budget of call it $7 trillion of outlays. You can't touch a trillion three, we'll say, of interest. So we're left with $5.7 trillion of outlays we can touch. If we cut four points of GDP from anywhere on that, four points of GDP would only take the deficit back to 3% of GDP, which is still historically high, by the way.
But it would probably immediately put us at or near a recession. If we go into a recession, the last three recessions in the United States have seen the deficit rise by 600 basis points of GDP, 800 basis points of GDP, and 1,200 basis points of GDP. Let me restate this clearly so people understand what I'm saying. If they doge and cut the deficit from 7% of GDP to 3% of GDP, the resultant deficit
recession will drive the deficit to 9% of GDP, 11% of GDP, or 15% of GDP. The deficit will actually rise because of the counter cyclical payments, the decline in receipts, et cetera. That's bad enough. But then when we layer on top of it, in recessions, the dollar tends to go up. In Doge, the
the dollar would probably go up. And go back to what we started the show with. If the dollar goes up and gets too strong, foreigners, they've borrowed $13 trillion in dollar-denominated debt. It is going to squeeze those foreigners on their debt. It is going to force foreigners to sell dollar assets, and in particular,
The $8.5 trillion of treasuries they own, they are going to sell treasuries as the U.S. deficit rises in a recession or close to a recession. And so the U.S. government's
deficit will be going from, you know, 9% to 15% of GDP, right? And that's just, as I said, we went from 7% to 3% of GDP deficit, but then we go up by 600, 800, 1200 basis points, right? So 300 basis points plus 600, 800, or 1200 is 9% to 15% deficit as a result of Doge, paradoxically. And that's just the net impact. Then you're also going to have foreigners selling
a lot of the eight and a half trillion dollars they have in treasuries alongside the U.S. Treasury to raise dollars. And who's the buyer in that? So you're looking if Elon and Vivek try to cut just four points of GDP, not interest, just and take GDP down to, you know, down by four points immediately. And they're talking about nearly eight points of cuts.
In 12 to 13 months, the deficit will be higher. The U.S. will have a recession. And in that recession, U.S. Treasury yields will rise potentially meaningfully. And that's why I mean it'll be a worse crisis in 2020 or 2008. And that's why I say the order of operations must be respected. And the order of operations that must be respected is if...
They weaken the dollar or devalue U.S. debt to GDP in some way in a major fashion first and then do Doge. Then it can work. It could work because you're going to juice receipts and you've got something to work with. But if they do it Doge first and cutting non-interest, you know, setting interest aside, not cutting interest rates and cutting something else, they will lose.
crush the economy. They will increase the deficit, the GDP 12 months out. They will lose the Republicans, the house. They will lose the Republicans, the Senate. They will make Trump a lame duck pretty much from six months in. And they'll probably handicap Vance's political career too at that point. So I think Musk and Vivek need to be very, very careful about what they're doing and talking about, because I don't get the sense they understand that. And I,
I think that, I mean, that is a big reason why I'm so noncommittal for the first two, three months of this year, because I just don't know how much pull they really have. And if they, if they have the pull that they may have and they try this, like Katie bar, the door, it's going to get ugly. Speaking of ugly Luke, let's go a little deeper into that scenario because look, let's face it. The new Trump administration poses an extremely,
an existential threat to establishment Washington. And that's not my politics speaking. That's stated policy of President-elect Trump. Drain the swamp, fire half of the federal government, end the forever wars, reform the intelligence community, end the dominance of the military-industrial complex in policymaking.
These are existential threats to establishment Washington. And I think it's clear from their messaging. Just the other day, President Biden said that President Trump poses a massive threat to the national security of the nation. You know, you don't see an outgoing president making statements like that about the incoming president ever.
after the election is over, I think it's almost unprecedented. What it says to me is that the people who are threatened by the incoming Trump administration will be willing to do anything, including sacrificing financial markets, sacrificing the economy, in order to sabotage President Trump to make sure that he's not successful and to try to foment that outcome you described
where you get to lame duck status within six months and Vance has no chance of taking it forward and you're going to go back to a Democrat-controlled government as soon as we get through the next four years. Imagine yourself, Luke, if you were a consultant in a war game scenario and you had to advise people
establishment Washington, what could you do in order to sabotage the Trump administration economically? What would you do in financial markets in order to sabotage Trump and Doge and make sure that you have the outcome you just described? What would they do and could it be successful? Are there things that we need to watch for that President Trump's enemies will be doing in order to try to bring about that outcome?
Well, I mean, I think the scenario I laid out is a pretty good one. I would try to – you could doge before you devalue the dollar or the debt. That would do the trick. Trying to term out the debt too much without some sort of concession on the value of the dollar or something, that would do the trick. It's kind of a tough question in terms of some of those – I mean, those –
In terms of what you're looking to do, I mean, it is really something. Doge would absolutely do it. If you doge without devaluing the dollar or reducing the dollar debt first, you'll do it. I'm hard-pressed to come up with a better way of handicapping what President Trump wants to accomplish than pursuing what Elon and Vivek are doing.
If they do it before the dollar is devalued or the debt is devalued, right? If, you know, look, if Besson comes out and says, hey, I've instructed the Fed to revalue Treasury's gold to a bunch and I've got a couple trillion bucks in the TGA and I'm buying down debt to GDP from 125% to $1.
90 percent, 80 percent of GDP, like great. Then Vivek and Elon can doge away and they're not going to sort of blow things up. But failing something drastic like that or a significant weakening of the dollar ahead of that or some sort of use of Bitcoin to basically upsize Bitcoin to,
have tethered by a lot more in T-bills than Elon and Vivek doing what they're doing without any dollar devaluation is about or debt to GDP reduction in a very short order. Doge, those two doing that without devaluing the debt or the dollar first is probably the perfect, like that's how you would red team handicapping the Trump administration as quickly as possible from the very first.
Let's talk about what that would mean for investors. Suppose that you see those warning signs where the new Trump administration really unleashes Elon and Vivek. They're doging away. But at the same time, we're seeing a strengthening of the dollar. We're not going to implement any policies to intentionally weaken it. And it seems like, you know, the risk scenario you're describing is starting to unfold.
What should investors do defensively at that point? Where are the biggest risks in the markets and what do you do to cover yourself? You own the dollar. You buy puts on some portion of your portfolio on the NASDAQ. You buy puts on Bitcoin. You buy puts on the S&P 500. You buy puts on TLT, the long bond. And you probably own a little gold. It's going to be dollar up, everything else down,
And at some point in that, if they continue to stand inside, gold will really start to get a bid because there will start to be concerns about bank solvencies and credit, et cetera. It could get really ugly really fast. Luke, let's take that a little farther. Imagine this is starting to unwind. Things are not looking good. And let's suppose that President Trump's enemies want to see markets crash because they want to sabotage him.
Can it keep going or is there a breaking point where the dollar is going to correct sharply lower no matter what anybody does? My first principle continues to be that ultimately the dollar liquidity needed will be supplied in order to maintain the functioning of treasury markets, the banking system, etc. And so whenever that happens,
If that liquidity crunch, that dollar spike driven crunch were to drive that type of action, I think ultimately it will be attempted to be stemmed with dollar liquidity once it begins to threaten the treasury market and the banking system, which given where we are probably wouldn't take too long. I mean, I envision some sort of scenario where if it were to happen,
I don't think it would be too dissimilar to what we saw in COVID and perhaps even more compressed, which is to say markets peaked, like if I recall correctly, last week of January of 2020 and bottomed second, third week of March. And then the Fed came in with whatever it was, $600 billion a week in QE and away we went. And
I think it could be even more compressed this time. And it was, if you're running a, an institutional portfolio, it's going to be really challenging setup in terms of repositioning wholesale. You can be right before and wrong after, or you can be wrong before and right after and,
Or you can, you know, sort of, I think the right way to manage it is to hedge with options of the potential downside risk and the volatility while ultimately keeping an eye toward the most likely scenario, in my view, which is
Ultimately, that liquidity will once again be provided in whatever amounts required in order to maintain treasury market functioning, which has been and continues to be, in our view, the Fed's shadow third mandate. So that's how I'm thinking about it.
Well, Luke, I can't thank you enough for a terrific interview. As always, it's great to have you back on the show. Before I let you go, though, please tell our listeners a little bit more about what you do at Forest for the Trees, what services you offer and what people can expect to find at fftt-llc.com. Yeah, thanks, Eric. We aggregate a large amount of different publicly available data points in a unique manner trying to do
developing economic bottlenecks, and they can learn more about our different institutional and mass market products at fftt-llc.com. And I've got a pretty active X feed at Luke Groman, L-U-K-E-G-R-O-M-E-N. Patrick Ceresna and I will be back as Macro Voices continues right here at macrovoices.com. Now, back to your hosts, Eric Townsend and Patrick Ceresna.
Great to have Luke back on the show. Now, Eric, let's get to that chart deck. Listeners, you're going to find the download link for the postgame chart deck in your Research Roundup email. If you don't have a Research Roundup email, it means you have not yet registered at Macrovoices.com. Just go to our homepage, Macrovoices.com, and click on that red button over Luke's picture saying, looking for the downloads. Now, Eric, let's start with your thoughts on the equity markets.
Patrick, I think the market has been discounting Trump win equals Trump will succeed at implementing the policies he's promised.
I think a reality check is in the works after he takes office, and it becomes clearer that the so-called swamp isn't going to be drained without a serious fight from the swamp dwellers, meaning establishment Washington bureaucrats, who I predict will unite to do all they possibly can to sabotage and undermine Trump's agenda. If Trump prevails, I definitely think that's very bullish for the stock market.
But if the swamp creatures prevail and undermine Trump's agenda, that's bearish. And I'm with Luke Roman. I have no conviction either way on how this is going to turn out, other than to say that I think too many people are assuming that Trump will face less resistance than I think he actually will. Eric, I agree that Trump will have an influence on the equity markets and how things play
play out, but it's very important for us to frame where the markets are trading going into his presidency. We've had an extraordinary rally. On page two, I have that chart of the S&P 500, where from the October 2023 low to the present highs, we had essentially a 50% rally in the markets in that 14-plus months.
And so we have an environment where the markets are incredibly overbought.
And it was run on a huge AI boom. And NVIDIA has been very toppy in terms of the way it's traded. And I want to put this all in the context. The key, here's the S&P 500, is highly vulnerable for mean reverting correction. Now, the S&P is trading a long as 50-day moving average in this trade range, but that doesn't tell the whole story. On page three, I have...
the market breadth, the S and P 500, the percentage of stocks above their 50 day moving average. And we remain around 24%, which means three out of four stocks on the S and P 500 are in a downtrend and have been selling for over a month. You can see that on page four, where I have the S and P 500 equal weight index, which decisively broke, uh, the bull uptrend, uh,
over the last few weeks. And during these little counter trend rallies that we have seen driven by Nvidia, the equal weight index didn't even budge or move. It's decisively trading below its moving averages. And the price action here on this index looks actually quite bearish.
And so the most immediate risk remains that this market actually has further selling ahead of it here. On page five, I actually have the chart of NVIDIA. And we had Monday the big pop in NVIDIA. And once it had its little product release or we had the distribution cycle kick in as the thing dropped almost 10%.
And so this technically looks like a double top formation. Now, we still have not seen a legitimate breakdown in NVIDIA, but I do believe that these Mag7s are going to decide what happens next. There was this huge AI boom and NVIDIA was the leader in this space.
And if we see that MAG7s in any way start to break, they're just so huge in their market capitalization and their weightings in the main S&P index that it would almost certainly spur a sell cycle irrespective
of whether or not Trump is in office or not in office or what policies he has. I think we're setting up for some sort of a market correction here early in the year. And I think that this is going to be the story of the first quarter. So let's move on to the dollar index. What are your thoughts here?
I don't have any strong directional conviction for the dollar. What I do have conviction about is that if the Dixie continues to rally back up towards its prior highs above 115, that would break a lot of things. So let's see what happens as we approach 110 here.
Well, the thought I have, Eric, is that the U.S. dollar rally is really just signifying the risk-off cycle that we're talking about here with equities. And as the U.S. dollar rallies, it will only support the idea that some sort of a risk-off cycle is well overdue.
So a rally up to 112 to 115 certainly can start to break things, but it would only start breaking things because they were fragile in the first place. And this is really going to be something that puts it together. If the dollar continues to make this advance, to me, that was just going to be a continued indication that the vulnerabilities are here for the first quarter of the year.
Particularly, I wanted to note on that Euro. The Euro had every reason to bounce back towards 105 and failed just after a quick one-day update. It immediately reverses, comes right back to the lows.
If the euro is destined for parity and or the 2022 lows down at 95 cents, that will almost certainly be what fuels that Dixie heading up towards its peak.
previous highs up along that 115 level. Now, moving on to crude oil, we finally got the short squeeze. We talked about that fair value zone on crude oil in the $70 area. And we saw an extended multi-month basing formation while there was always the vulnerability of a short-term breakdown just to wash out stop losses along the previous lows.
It was an area that was establishing a bottom in a very bearish condition. Now, everyone was so bearish. There was a very large amount of short interest. These kind of conditions always create short squeezes. And that's what we're seeing here. In the previous crude oil short squeezes, the average rally was about $9 to $12 in length.
If we got a similar style advance, we'd be approaching the $78 to $80 area in this type of a squeeze. The question becomes, if we have that kind of a rally, do dips get bought and do fundamentals start to shift to start supporting a potentially further continuation of the bull trend? I agree.
At this point, don't have that high of a conviction beyond the short squeeze finishing. And then we'll see whether the bulls can actually hold on to and establish a new bull trend.
All right, Eric, let's move on to gold. What are your thoughts? We're in a triangle pattern with the long-term trend line holding below the market and the 50-day moving average capping the rallies, at least for now. There's also a higher downsloping top of that triangle formation. It's, oh, about 27, 25 or so.
That really would be the number that would absolutely convince me that the move to the upside is on. Now, I definitely think the next big move is going to be to the upside and well above 3,000. But I also still think that a test of 2,500 is entirely possible first,
especially if the dollar rally extends above 110 on the Dixie. Right now, we're fighting that 50-day moving average, which is right about 2471 or so, it looks like. Let's see what happens there. If we get above that and close above it and stay above it for a few days, that would suggest that maybe we've already seen the bottom. I definitely think this is going to depend on what happens with the dollar, though. And I think that as we get past the election and into that reality check phase,
We're going to find out. So let's see what the next few weeks bring. Yeah, I remain big picture, very bullish gold. On the short term, that vulnerability of $2,500 is 100% a possibility. But even if that was, I view it as a buying opportunity. Overall, I drew on page five.
the triangle formation you're referencing. Bottom line is that it's not much different than the consolidation we saw in gold from April all the way through June. The markets naturally do this where they bull advance and then they consolidate. We're seeing this consolidation phase. The question becomes,
Will a bull continuation pattern on the upside of gold start off here in the first quarter of the year? Whether it's the first quarter or not, I think that gold going to $3,000 is a very realistic first half of the year story for gold. All right, let's move on to uranium. What are your thoughts here?
The reason for the sudden trend reversal to the upside beginning last Thursday was news that a major Kazakhstan mine will cease operations temporarily. That's temporarily in air quotes. The press release was unconvincing, frankly. It claimed that they were just pausing to allow regulators to catch up on some paperwork, which frankly sounded like a lame excuse to me and a lot of other people.
The knee-jerk to the upside lasted a few days, but it decisively reversed on Tuesday when selling resumed in the uranium spot market. Our friends over at uraniuminsider.com think the bottom is in for this market, but I don't rule out another leg down, especially if there's a broader market risk event after Inauguration Day.
The long-term fundamentals couldn't possibly be more bullish. But as Jeff Curry reminded us recently, unlike forward-looking stock markets, commodities markets have to balance supply and demand in the here and now. And all of that really massively bullish fundamental news was mostly about reactors that haven't even been built yet and haven't started contracting to buy fuel.
And meanwhile, we still face a conversion in enrichment bottleneck in the fuel supply chain, which I think is going to put a damper on here and now demand for uranium. The bottom line is that this market is certain to move much higher as those bullish fundamentals eventually kick in. But commodity markets can trend lower until present rather than future demand picks up. And so far, spot uranium is still in the doldrums.
Yeah, on page nine, I have that Sprott Physical Uranium Trust. And what we continue to see was that entire 2024 year was one big consolidation. And while we have seen the U308 contract strengthen here in the first few days of January, we still haven't seen bull breakouts to suggest that the next bull phase has started. Overall, this consolidation has gone long enough and deep enough
that it could already be setting up for a bull breakout. But I'm going to be looking for the technical signs that the buyers have come back in and really are starting to move this, which really hasn't shown up yet in the charts.
Finally, I wanted to touch on that 10-year treasury yield. And we have a full breakout that is now testing the 2024 highs around this 470 level. But 5% is 100% on the table. This, I think, is as significant as the U.S. dollar rally. The fact that yields are rising can only cause further stress on equity markets, particularly
Now, overall, when we start seeing the equity markets crack, I think that the bonds offer a reversal point that could actually have a counter trend in bonds as yields may come off and bonds rally in that environment. But there is zero sign of that now. Right now, the yields continue to rise, which are actually creating the stresses that
in the risk assets. And this is something that will contribute to the volatility that we're about to see here in the coming days and weeks.
Patrick, tell them what they can expect to find in this week's Research Roundup. Well, in this week's Research Roundup, you're going to find the transcript for today's interview, as well as a chart book, which is discussed here in the postgame, including a link to a number of articles that we found interesting. You're going to find this and so much more in this week's Research Roundup. That does it for this week's episode. We appreciate all the feedback and support we get from our listeners, and we're always looking for suggestions on how we can make the program even better.
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