Transcription
That's like the the the movie poster of Jaws of the girls swimming and the sharks coming up underneath her. Look, 40% of the Bitcoin earned in America, you know, as of late last year at least. You know, if people are taking money out of America and going elsewhere, a it's selling NASDAQ, but then it's also probably selling Bitcoin. We want to go to a wartime footing to compete, which everyone says we want to do. No one wants to do the hard part, which is you got to kill the bond market on a real basis. The Treasury market will always blow up in 7 to 10 days if we try to do anything extreme without devaluing it first against gold and that's what needs to happen.
>> Hi everyone, welcome to the market house. Joining me for this macro session is Luke Grman, founder and president of Forest for the Trees. Hi Luke, it's great to have you on.
>> Thanks for having me on Maggie. It's great to be here.
>> Uh it's it's a a really interesting time to catch up with you. Gosh, it's been one heck of a year so far. We're only 30 days in and so much has already happened. Uh so just want to get your thoughts on the most recent drama and uh everyone's still kind of coming to terms with that massive sell-off we saw in metals. Silver down uh hugely on the last trading day of January. Gold also down though not as much. It seems like things are still kind of rocky as we record this. What what's your view of what's happening? Is that connected to some larger macroeconomic issue or is this just sort of an air pocket for uh an asset class that just went straight to the moon?
>> You know, I I think it is a little bit of both. I I mean, it was getting pretty frothy of course. Um and um so you were kind of due for a pullback. Uh with that said, the violence of the pullback, people have noted how historic those levels were. Um, I think it is with, you know, Wars nomination, which I think surprised a lot of people, uh, and the speculation that he is a hawk, which I think is way too early to to make that assumption. Um, was sort of the nominal reason for the sell-off, but I think it was ultimately sort of, you know, the pin that that that pricked a frothy situation. Now, with that said, I don't think a whole lot has really changed fundamentally for metals, gold, silver. I mean, we come in today, Trump just announced a 12 billion uh critical minerals stockpile, unprecedented in US history. So, let's let's talk through the accounting of what that is. The United States is going to print dollars or sell bonds to buy metals because we're short. So like um I I think the situation in the short run had got a little too frothy, but you know, and let's be clear, silver is on the list of those critical minerals. So I don't know if the United States will be explicitly buying silver or not. Um, but boy oh boy, it's what I would be doing if I was them, right? I we're short silver. We declared it a critical metal. Oops. You run it up, you run it down. Now they can wave it in and and you know, who knows if that's the plan. And I'm that it's completely speculative on my part, but you know, if if they came to me two months ago and said, "Okay, Luke, we're short silver in a bad way." Which I hear they are short a lot of critical minerals in a bad way. And we've been saying that for some time. Um, Luke, what would you do? Like, oh, okay. Well, it's kind of a standard practice, you know, Wall Street pump and dump that appears it just ran, right? Is like you run it up, you crash it, and then you wave in what you need at the lower price. And so, you know, everyone keeps saying Bessant is a Wall Street guy. Well, it it to me perhaps that's some of what we just watched, but it doesn't change the fundamentals of we're short metal. A lot of different critical minerals uh and metals and for gold, I think hasn't changed anything for gold. um you know the the crosswinds we came into the year with uh are all still there and getting worse and quite possibly last week and and certainly month to date has made those crosswinds much more acute much worse and and and I think that's very bullish for gold.
>> Yeah. So, what do you So, first of all, really interesting theory. Um, and I think that everyone that loves to think the Trump administration is scattered and all over the place, and maybe they are, but what you just described was, you know, catching the market off sides in a in a in a in a large way. Well, we we'll talk a little bit more about sort of just the policy risk of a sort of interventionist government all around, but that's super interesting if that's the case. Um, is the issue with minerals, so they're doing this stockpile or so they say they will. Again, we got to see it, right? Like they say a lot of things. Is the issue the the supply of them or is the issue the um getting getting the refining and getting the that that the rest of that supply chain? Like where's the bottleneck? Because I thought it was the the the latter.
>> No, you're right. It it is absolutely the refining. It's the as it relates to the national security side and it sounds like that's where it is in silver at the moment too by the way but that that's the the national security critical mineral side is absolutely the refining and that's kind of par for the course a little bit with this administration right like you just said which is they say a lot of things and they're always always positive and sort of superlative and that's sort of Trump's way and I get it And end of the day, a lot of this stuff still still got to get shipped to China to get refined. And if you want to bring the refining here,
>> my understanding is you got to go to China and buy the refining technology. And so we're frantically trying to do that at some sort of scale. There's some signs you of real progress, right? Elon has just uh opened a lithium uh refinery in Texas. uh took him three years and it took him and and that's Elon, right? Elon sort of is the opposite of of of government. It's just like you know no regard for you know regulations. And it's not that he doesn't have no regard for regulation. He is uniquely gifted at finding at at finding cracks in the regulation, right? where he'll put a refinery in between on a property line where like sort of it's under nobody's jurisdiction and so he can get through faster. Yeah. You know, can play the two off against each other. So, well, fine, we'll just move it here and give them all the jobs back and forth. So, my point being is that
>> if it takes Elon three years to have a, you know, it's a great, it's an additive, no question. Is it a positive? Absolutely. Is it enough to cover our lithium needs? Not really. uh and it took him three years and that was starting from three years ago where of course he wasn't competing with the AI boom, metal shortages, trade war where China's holding stuff back. Um point being is you know the refining to bring it back your best case best case is probably 3 to 5 years. There's maybe some small stuff you can do in certain critical mineral certain rare earths maybe, you know, on military bases you could probably do faster. Not that I'd want to be living on that base or downwind of it, but that's neither here nor there.
>> Yeah. Well, that's the problem that right that that you know in this country people who live in those neighborhoods are sort of letting their voice be known. But why wouldn't the Trump administration I mean this is supposed to be the dere you know the administration that was on favor of deregulation of fasttracking drill baby drill. Um, okay. It's not oil, but why why wouldn't the announcement be about that?
>> Um,
>> because it's harder.
>> I, you know, it's it's one of these things, right? And I'm not an attorney, but I got attorney friends. It's, you know, never ask a question in a courtroom that you don't know the answer to, right? And and we don't have a lot of engineers, but we got a lot of attorneys in the administration. And so, why wouldn't they? They know the answer. And you when you're an attorney, you don't ask a question in a courtroom that you don't want the answer to. And I think that's what's happening, which is if they start talking about that, that changes the discussion entirely from, hey, you know, chess thumping America to, oh my god, we're dependent. We are so dependent on the Chinese, it's not even funny. they have us by the shorthairs uh to be polite on all of this stuff and it's going to take at least 10 to 20 years to get there. That is not the message and I would argue that if the public I would argue that the public markets would not take that news well and I think that's kind of right like um that would have serious implications I think for markets for the dollar and I think that's why they're not doing it.
>> Yeah. So the the spin around Walsh is that he's someone that is you mentioned hawk that he's going to ensure the Fed remains independent. He's going to steer policy based on market conditions, not what the president wants. Maybe a reformer uh as well. Is is that an accurate read? You seemed skeptical about the hawkish part.
>> Yeah, I'm 100% skeptical for numerous reasons, right? So, number one, like I remember sitting in the seat I'm sitting in here today and people saying, "Well, Doge, Elon's going to come in and do Doge, and nobody's really tried to cut spending, and no one's as good as it at Elon, and they're going to cut a trillion,$2 trillion dollars." And I just remember like going, "Yeah, and you can find me chapter and verse or just saying like like there's no freaking way." And of course, there was no freaking way because the math is the math. And I feel kind of the same way about the warish hawk thing. It's like great and the sixth grade math tells me there's no freaking way. Number one, but then number two, people want to see what they want to see, which is, you know, he's a hawk. And I think that narrative is very useful to this administration for the moment, right? We were seeing the dollar really sell off. We were seeing, you know, gold starting to go asmmptotic and short-term chart. Like I I think there are elements in the administration that see that narrative as useful. But the reality is is that Worsh wrote co-wrote an op-ed in the Wall Street Journal with Stan Ducken Miller who was another one held out as hey this we're finally going to have market discipline. You can go to the Wall Street Journal December 2018 and the two of them co-wrote an an op-ed begging like begging for Fed liquidity because bank stocks were 15% off the highs and credit markets were tightening up a little bit. Um, and with with their by their admission the economy is still doing fine and sure enough the Fed you know Powell famously pivoted and away we went. So and and six months later Fed was cutting rates. So I I really push back a bit on wars as a hawk because like the the math you know the math simply doesn't math. He can't be a hawk. And so, you know, I think it'll, you know, I equated it for clients last week to you, I was during my workouts last week, I was watching um the Turning Point Vietnam movie on Netflix or or or documentary. And it's really good if you But the one thing I equated it to was in 1968, uh, Nixon, excuse me, Johnson replaced, uh, General William West Morland with General Kraton Abrams. And like it changed the narrative for a second, but the reality was was that two years later in the Pentagon papers, we found out that the United States government knew that they could not win Vietnam in 1965 or 1966. And so it was kind of like, okay, we're going to replace West Morland and we'll get new blood and then we're going to fight, you know, different and we'll move toward. We still lost and more boys had to die and it was all kind of a waste. And so I kind of look at this in the same light of like Worsh Powell, you know, saying to bring it forward to today, remember a year ago we were hearing, well Besson's going to term out the debt. Yellen was irresponsible by issuing all those bonds at the short end and Bessant got into his seat and Deacto went not only did he not term it out, but he accelerated by uh he he doubled the pace of of uh Treasury buybacks mostly at the front end. So again, it's one of these things where, you know, narrative management is super important in the short run. And I think as investors, it's important if you're a short-term trader to not get caught positioning wise. But if you're somebody who's got a longer term view, like it's just, you know, go make another bowl of popcorn, you know, go buy another six-pack, you know, crack one open and watch because the math is the math.
>> You know, one of the things we saw and and for the reasons you just stated, I sort of made me scratch my head a little bit. Although the the debasement trade is is off the table.
>> Um
>> it's paused for a moment. It's going to be back on.
>> Yeah,
>> it has to be. Yeah.
>> There. What are you saying? I know you get this question all the time. First of all, does it feel How are you feeling in this moment? because so much of what you and you know those of you who've been warning about this for a long time um it's sort of happening now um or you're sort of starting to see those warnings and those concerns show up in real life in real time. How do how do how are you feeling about that?
>> Alarmed on some level. Um we have a we have a we have a very small window in this country. Um we can do the debasement trade and we can we can significantly devalue the real value of our debt, restructure our balance sheet, and we've probably got maybe a couple year window to do it. Um, and if we don't do that, you know, if we decide to try to bring in a hawk who's gonna like, you know, maintain Fed independence, then look, China's going to win. They are they're going to And when I say what does that look like, what I mean is they already make way too much of our military for us. They're going to make it all in 5 10 years. Uh, we are like the Fed independence thing. Look, I Why would I Why would I invest in capacity here in the United States with a dollar that is wildly uncompetitive? Right now, the Chinese can make a nuclear power plant for 87% cheaper than the Americans can make it. And that's a gigawatt to a gigawatt. Um, we're going to lose the AI race to the Chinese if we don't do this in the next two years. and that do this is significantly devalue the debt by basically some version of writing down the debt probably against gold in my opinion that has a weak much weaker dollar and people say well we've got the better technology great we don't have the grid and you're seeing that everywhere you know um it it's you can have the awesomest chip in the world and the best IP in the world if you don't have the power you got nothing you got nothing and the Chinese in the last four years have built more electric electric grid capacity than we have in this country in total.
>> Um, and it's newer grid. And so they've got,
>> you know, at the end of the day, they're not that far behind us. Our top guys all say they're not that far behind us. And if I'm the Chinese, this is how I'm playing it. Just keep doing what I'm doing. Don't do anything dumb. Don't get anything involved in Taiwan. Don't And just wait.