The Real War Isn’t in Iran — It’s in the US Treasury Market | Luke Gromen & Lyn Alden

Iran doesn't have to beat the US military. They just have to beat the US Treasury market. It's all fun and games until the cash flows set. Holy cow, the system is collapsing if we take Hormuz closed long enough.

The global economy is an upside-down pyramid, with that little tip on the bottom being raw materials. You take a quarter of that away, and a big chunk of that rest of that pyramid is heavily impaired. You can't print oil.

The happy outcome at this point is we walk away. We let them keep control of the Strait of Hormuz. Gold goes to the moon. The dollar falls sharply. High inflation, probably yield curve control, capital controls in the United States. Gold, silver, Bitcoin, stocks just straight down. And then you had the giga stimulus. So straight up.

In developing countries, it's energy supply chain nuances and food. The military action is literally putting hundreds of millions of lives at risk by Christmas for some starvation. To be blunt, that's what we're looking at here.

In this episode, we sit down with macro legends Luke Grossman and Lin Alden to discuss the latest on the Strait of Hormuz crisis, how we're dangerously close to breaking the US Treasury market, to massive money printing, and to potentially starving millions. I'm Nathan with the BDC Mentor. Let's get into it.

All right, Luke, Lin, thank you so much for joining me today. Very excited to have you guys sit down, especially right now. There seems like there's a ton of confusion and chaos in the markets. Just this morning I was looking, we got WTI is at 112, Brent's at 109. But the futures for September is at 78 a barrel. We got Treasury yields rising. We got the Japanese tenure at a 31-year high. Gold sold off, Dixie's rising, Bitcoin is trading sideways. And this all seems to be currently centered on basically oil supply constraints. What's going on in the Strait of Hormuz?

So to kind of kick things off, Luke, you recently had a phenomenal appearance on the Patrick and David podcast. Highly recommend everybody check that one out. But you said, kind of April 15th, I think, about the end of the month as kind of a deadline that we got to get oil flowing again. We got to get this thing opened up. Over the weekend, just recently had Trump come out and very loudly set a deadline of Tuesday for a deal. So to start the conversation, Luke, I want to ask you, if we got things opened up this week, like we got it settled, done, Strait of Hormuz is open this week. Is it back to business as usual, or what's the extent of the damage that's already been done?

I, I don't think it would be business as usual if that happened. And I should say, I think there's almost zero chance of that happening. That's sort of a sort, as the preface to that. I think there's zero chance of that happening or very close to zero. If it did, I think you're probably still okay where there's going to be some disruption, you're going to have some inflation, and it probably takes three or four or five months to kind of work through supply chains, but it's not a worst-case scenario. Is is based on how I'm looking at it, what I'm hearing from people basically.

That makes Lynn, your thoughts on that?

I would agree. Basically, when you take like how much barrels per day are lost because of this, if you take it over a full year, if those barrels are only lost for two months, it's actually a pretty small percentage of, say, total annual production. So the economy can absorb that. It's the duration that of course matters a lot too. I mean, at bare minimum, a lot of this will take weeks to, to come back online even once the ships can freely pass through. And so there's a gradual ramp-up. I mean, once you, once you fix half the problem, at least you've you've stopped the bleeding. And, you know, the long tail of getting literally back to whatever the exact prior levels, that's less important than getting a, you know, a big chunk of it back. There's also scenarios where, we just see gradually increasing traffic, as more and more entities make deals with Iran. That's certainly no the scenario, and that's, I mean, that's a more bear scenario because it means that that the oil market is, is materially disrupted for a longer period of time. But yeah, even the best-case scenarios, we're not getting back to 100% anytime very soon.

Continuing from that thought, then, Lynn, I'll start with you. Luke's pegged kind of mid-April to end of April as kind of critical for getting this back up and running. And friend of the show, Simon Dixon, has it in his kind of theory of where things are playing out. He has the May 15th, 14th, China summit. He expects there to be a negotiated deal kind of announced then. So if this were to continue on, let's say, just kind of to mid-May, what would be the impact, in your view, Lynn, on the global economy?

I mean, that point gets pretty severe, and I do think it'll still be at least like significantly impacted by then. We'll we'll see how much. I mean, yeah, if you had best-case scenario would start to open it up now, then by mid-May, you're probably looking decent. The economy, especially markets operate on rate of change. So as long as they see the light at the end of the tunnel, they can start adjusting. But I think, I mean, a good example, and it's fine. I'll be, I'll be in Egypt in a month. Of the energy crisis, assuming my flights don't get canceled because a little lack of jet fuel. Yep. And what? And they're actually a good example of what a lot of part of the world could look like because they, already implemented curfews, where cafes, many, many types of stores, public-facing stores have to close by 9:00 at night. And that's, I mean, in a lot of desert countries, they the time that people are active is shift later. So it's actually, I mean, from nine to, like, midnight is like a ton of economic activity happens. And that's very curtailed at the moment because their natural gas bill per month tripled and more than just tripled. It's like they literally just can't they can't secure it at all. Because I mean, they're they're bidding against the Europeans. They're bidding against Southeast Asians. They're not a very wealthy per capita country. They're their currency has weakened pretty materially, something like 10% in a very rapid period of time. And that's, I mean, that's one example, right? So I think, you see, you see scenarios like that every week or every month. And this goes on, you'll see more and more countries that are literally either canceling things, putting curfews, rationing fuel in some way. And that, of course, has very significant effects on just overall, flow of, of just just funds and capital and economic activity. More people are just impaired. I mean, you can imagine all those shopkeepers, I mean, they operate on pretty low margins. You know, they still have to pay their rent. What happens when they when they lose prime hours or at least a big chunk of their business hours? Just kind of like COVID. I mean, it's like, you know, a small percentage of especially a retail operation is just catastrophe. And so I think you'll see that in more and more countries the longer this goes on. And when it happens to places like Egypt, it's mostly a local problem. When it happens to big, creditor nations, it's everyone's problem. Yeah. Which, which Luke covers a lot as well. And I cover that type of thing. So, the worse it is, the more global and more of it impacts financial markets rather than just daily lives of people.

Luke, if this continues on into like mid-May, is that mean that we're reaching the point that Lynn's talking about where this is going to start to hit the creditor nations, start to impact global financial markets as well?

Oh, yeah. Yeah, I would I would be shocked if it if it wasn't at that point. And that's the part that I think a lot of investors, a lot of commentators are missing. You know, and Lynn kind of alluded to this in part is, you know, it's not just financial markets. You know, I've had a lot of people say, well, it's, you know, it's it's worth having, you know, a financial market hit if, you know, if we can stop Iran from getting a nuke, you know, and setting aside that they lied about knocking out the nukes nine months ago. Believing this stuff. Like, let's set that aside. But they're missing an engineering understanding of of supply chains, a real reality-based understanding of supply chains. Right. So I'll, I'll make a really simple example, which is, you know, three years ago, I tried to buy, or two years ago, three years ago, I tried to buy a metal insulated, branded, coffee mug for clients as a, as a corporate gift. And I specified to the, the supplier here in Cleveland who's been doing this for 35 years. Hey, I want an insulated metal coffee mug branded, with 0% Chinese content. And they searched for six months and they couldn't find any such thing. The best they could do was Yeti with 30% Chinese content, 70% American. Great. This is the part, the non-linearity that investors and policymakers are thinking of, which is to say, how many mugs do I buy? You know, people are looking at the gross number. Oh, well, we make 70%. We're 70% self-sufficient in coffee mugs. No, you're not. You are 0% self-sufficient in coffee mugs. If you, you know, it's the old poem, right? For want of a nail, the, you know, the wheel was lost. For lost of the wheel, the cart was lost. Or lost of the cart, you know, and the kingdom was lost for want of a nail. It's that same type of, of, of, of dynamic that people are looking at the gross numbers of supply chains, even in oil. We're fine. We are. We're a net exporter. No, we're not. No, no, not once you dig into the numbers. I mean, yes, at the gross level, sure we are. But that does it. We're still importing 6 million barrels a day or something like that. So that's just like two examples of where you start to see non-linear supply chain breaks, because it doesn't matter that we are self-sufficient and blah, blah, blah, blah, blah. Once Vietnam goes down, guess what? Parts of China are going to go down. Once parts of China and Vietnam go down, factories in America are going to shut down. Once factories in America shut down in Europe, once factories in America and Europe shut down, particularly here in America. You know how many companies have borrowed money to buy back stock, right? A whole bunch of them. What happens when their factories start going down around the world, stop generating cash? They still got to pay the interest on the debt. Their earnings go. They don't decline linearly. They collapse. And so that's where this there's this sort of linear view to everything that is just wrong. And, you know, look, the Trump administration and Bezzant and in particular are doing everything they can to feed this lie because this is their weak point. You know? Right. This is why Bezzant is on sanctioning Russian oil and unsanctioned Iranian oil. Yes. They're doing everything they can to maintain this lie. And I understand why I would be doing the same thing, but I own their shoes. But it's a lie. You know, we are. We are. I don't know if it's if it's two weeks. If it's three weeks, if it's mid. But I think mid-May, it's comfortable. You're going to start getting these non-linear breaks. And once this is almost like any crisis, it's all fun and games until the cash flows set, right? Until the the real physical interaction with the. They can't pretend that when GM comes out and says, we're shutting down all our plants because we can't get this little component out of Vietnam, that, you know, if the market's going to be up that day, I don't think. And look, if it is, then, you know, I'm going to be wrong about a lot and and I'm going to start buying everything because it's telling you we're heading towards hyperinflation. Right. That's what it's telling you. Like, oh my God, the bond markets running into anything. It's a hard ass. But, you know, we'll see.

Lynn, I'd love to get your thoughts on that. I mean, similar examples like during COVID, speaking of like cars and like a minor missing component. I mean, part of why we had so much like temporary inflation and used cars, we had obviously major supply chain disruptions from lockdowns and things like that. And so you can have like a $50,000 vehicle that is 99% complete, but it's missing one little chip for the airbags or something, and they can't sell it because some like tertiary supplier in Taiwan was out of a certain thing that then fed into another company that actually makes the chip, which then and then the shipping company got to whatever, whatever chain along that path makes it for whatever reason, they can't put this chip in this like, nearly completed car. And so it's just sitting there, and you get a million things like that. And another example is, I mean, I, I'm a, a private investor in a consumer products company. They have American and Chinese components. They'd like to be American, wherever possible, especially when tariffs were hitting. When I was having discussions with them, I'm like, okay, so how are you being hit? What do you, you know, what are your, what are your paths of, of resolution here, especially when we were talking about hundreds of tariffs and things like that, when it was kind of like peak peak negotiations and they was like they were looking into reshoring it as much as possible, even though they already kind of had. But they were like, okay, now we have to double down on that. And they're like, so what? Some of the options are in months, we might have to restore some of it at a higher cost, but also we have to re-engineer it to be lower complexity, because people often think that like, you, just you can take the same thing built America or people, you know, a corporations are greedy. And so they put it in China and, and make it there. But it's actually they they have a network effect of manufacturing. They've got the human capital, all the interrelations, all the different manufacturers. Like how in Silicon Valley you got the network effect around startups and all the infrastructure, like all the lawyers that know how to handle that and financiers know how to handle that. All the connections New York has, the, you know, the securities markets network effect. China's got this like very strong manufacturing hub. It's extremely hard to over the long arc of time. You could you could shift it. But it's a it's a network effect. It like any network effect, super hard to chip into. And so they're like, we literally cannot find a U.S. manufacturer that can make the part that China makes for any reasonable price. We would have to literally simplify the design, make a slightly worse product that is also a little bit more expensive, just to restore it. And that, and that, by the way, that'll take months of retooling and all this. And that again, there's like a million examples like that. And so the whole, and then bringing this back to the Strait, I mean, the, the global economy is an upside-down pyramid, with that little tip on the bottom being raw materials, energy, but also, I mean, energy and then put into fertilizer production, all these, like, all sulfur, urea, all these other just components following that process. They're all feedstocks. They're chemicals. Helium for electronics. Helium for medical devices, all those raw inputs. I mean, look at when you add up all all mining companies and all kind of processing companies, refineries together, it's a small percentage of global GDP. But you take a quarter of that away, and a big chunk of that rest of that pyramid is heavily impaired. So it's a disproportionate percentage. It's not like of a little layer, a little 5% layer of GDP on top of all this that we could live without. You know, you can live it out luxury goods. Or if we have some, a, a disruption in to something, you know, optional, that's, you know, that's a, it is like 5% of global GDP. It's like, well, we have to live without that for a period of time. But if the 5% is that bottom of the pyramid, the inverse pyramid, it's a it's a much bigger thing than 5%. It's insane.

I kind of want to tease that out for just a second because I'm curious because we've seen like shortages in Vietnam and Bangladesh. We've got the flights being canceled as well there, too, the shortages of kerosene. Do we have to at some point in time, start to be concerned about fertilizer and actually food supply going offline or having food shortages in areas of the world? Luke, I'll get this. Start with you.

Yeah. Yes. Yes, we do. Okay. I mean, in America, probably not. Latin America, probably not. But, yeah, I mean, that's sort of I'm kind of surprised. And again, I think there's an intentional framing of all this, right? Is, you know, we're we're taking a we're taking a military action because the Iranian government killed 45,000 of its people. And, you know, the military action is literally putting hundreds of millions of lives at risk by Christmas for some starvation. That's just to be blunt. That's what we're looking at here. So, is it worth it? I don't know if it was if it was my kid that was going to starve to death by Christmas if this thing isn't opened in enough time and and maybe that isn't May 15th, but maybe that's June 15th or July 15th. If it's not open by then, you're going to have real shortages of food across parts of the Global South. And who am I going to blame for that? I'm not going to blame Iran. I'm going to blame America. I'm going to blame Israel. And so I, I, you know, again, I don't I don't understand the strategy here. But yeah, absolutely. We're going to see potentially the longer this goes on, catastrophic food shortfalls across parts of the of what's called the global South.

Yeah. Moment, we've already got increased prices of, of many types of fertilizer. It's not yet translated into much higher crop prices, which means at the moment it's actually really impacting farmers because all of their inputs are more expensive, but their outputs are not yet. But of course, though that does that's not a sustainable situation. So the longer that persists, the faster, their, you know, exports have to go up. When, Russia invaded Ukraine in 2022, we had we had a faster food price response because partially that disrupted actual like, say, rice production in, in Ukraine and things like that, which again impacted Egypt because they like, you know, they're a buyer of that type of thing. And of course, that many other countries. Might understand at the current times, like potash seems fine enough, but like other fertilizers where the issue is it's not my area of expertise, but I try to monitor those that, that monitor that situation. But yeah, the longer this goes on, the more disruptions you get in it. You know, the wealthier country is, the much less likely they are to have outright food shortages because they can they can outbid others. So in in the developed country, your main concerns are energy and, and supply chain nuances. In developing countries, it's energy supply chain nuances and food. Now, of course, in a developed country, food inflation is still an issue. Especially in, in the, in the political, you know, highly polarized political environment, you find ourselves in the US and Europe today. So people are, you know, rising grocery bills do impact the economy. But yeah, I wouldn't I wouldn't bet significantly. You'd have like acute food shortages in developed countries, but you would have it in many poorer countries of the world. Unfortunately, if this goes on long enough.

Lynn, kind of continuing with the thought of inflation. When you say inflation, are you specifically referring to like just prices go up in terms of like goods and services, or are you thinking there's actually going to be more money creation throughout this process as well?

The moment it's just it's just the things that are in short supply go up in price due to supply and demand. So it's the it's the inflation of prices in that sense. Now, if, if that is not meant by stimulus, for a period of time, it tends to then reduce demand for other things because there's still the same amount of, say, dollars or other currency floating around there. Now, you know, consumers are paying more for groceries, more for gas. So they're cutting discretionary spending where they can. So you get actually in some ways demand destruction and disinflation in those other categories. Now, because we live in such a leveraged financialized world, as that, as that negative flywheel starts to go, in effect, eventually you get, you know, breakages, you get, scenarios that turn us from a gradual print into a big print. And then you get actually, you've locked in more wider inflation because then you're doing stimulus or some sort. So the basic the main difference between temporary price increases or permanent price increases ultimately comes down to that money supply, growing but but temporary price increases or more debt due to that kind of temporary supply demand mismatch.

Luke, is there anything there you disagree with or what's your outlook kind of on inflation, both from the price perspective as well as the money creation perspective. And it kind of sounds like we're almost setting up for the same sort of thing that happened over COVID.

No, I think I think what Lynn said is right, which is and it's and that's I think it's really important that this is that it's that second derivative that so many people are not watching, which is all of this is happening at a time where through the first five months of fiscal 2026 for the U.S. government, they were already at 100 over 100% of receipts just on interest expense and entitlements. So we we literally need to print money basically to, to cover interest and entitlements through the first five months of the year. Now, it's there's there's some seasonality that, of course, with, April 15th taxes. So, you know, we're going to get that bump back below 100% or we better. I but I think we're I think we will. But the point here is, is that we're in a position whether it's 95% or 100% or 5% doesn't really matter. You have a recession and a deflation, a recession and receipts, which you will, if this goes on long enough, pay for exactly what Lynn said. Right. You're going to see, you're going to see funds, you know, the inflation of energy and food is going to cause deflation in other things, and then you're going to get a decline in receipts. You get a decline in receipts, and now you're into a, you know, the sort of debt death spiral dynamic that we saw during COVID, where it gets 100, 510, 114% of receipts, and you have a decision in the United States of America and everywhere else, which is, you know, U.S. is one of the biggest debtor. So it's going to start, you know, probably here or Japan. But what do you want to do? Do you want to default on entitlements? Do you want to default on Treasuries? Or do you want to print the money to pay the interest and to pay the entitlements? And that's what we're looking at. And that's where you end up with this big print. And it's, you know, I think it's a critical differentiation now versus COVID as in COVID it was a demand-side decline. This is a supply-side decline. Right. So we print and remember we we did the big print or whatever was with the stymies and COVID certainly at least initially oil was negative. They were 20 -30 a barrel. Yeah. We're we talked about doing this at 120. And they're going to have to because the other choice is shrink the military massively. Well, he just told us that he's he's going up to 110, 100 a 1.5 trillion. So that's that's out. He's not gonna shrink the military. There's nothing else he can cut that matters. Military, interest, entitlements. That's it. Everything else is a rounding error. And so he's not he's he's increasing military spending by 40%. Okay. That's out. Well, then if you're going to shrink receipts as a result of the increase, which, which, which are certain to do given, you know, enough, you know, enough of the situation along enough of this time of the situation, they're either going to print the money to pay interest on, on the debt and entitlements, or they're going to default on it. That's it. And we know what they're going to do. So then that gets into a very, very, it's hard to overstate how inflationary that is because again, it's not a demand-side issue. It's a supply-side issue. You can't print oil. I mean, you sort of kind of can actually. I mean, if you print it up the 200 a barrel or whatever you're going to be, you know, drilling for it and, you know, George Washington's nose in the, in, Mount Rushmore. And, you know, we'll have plenty more come online. So you sort of can print it, but that has a very pronounced set of impacts on financial markets, politics, geopolitics, etc.

When you say print the money, do you mean, basically in order because you can only deal with maybe with interest is basically have the Fed monetize the debt and just force short-term interest rates down in order to deal with that expense?

I think they've already started it on some level. Right. Like if you look last week, last week, two weeks ago, two weeks ago, ten-year Treasury yields hit 4.4% three different times that week. It was it was a very it was all right. Almost perfectly timed for Easter. Right. It was denied three times like, like like the biblical Trump comes out and goes, oh, it's all over. 80. Then, you know, ten-year goes down, comes back to 4.4. Then it was Bezzant's turn. Hey, we're almost done. You know, I went back down by Thursday. He did it again and it didn't react. So then last week, we get what we get the single biggest Treasury buyback from Bezzant on record, $15 billion of a Treasury buyback, which you know, the peers like that's not printing. And yes, all right. It's managing the thing. But the Fed is also doing reserve management purchase at the front end. So Bezzant is issuing bills to buy back paper that was both from bills to it was I think it was everything was going to be expiring within three years of what they did. On that at the end of last week, that $15 billion Treasury buyback. So they're presumably issuing bills to buy back bills and other things that are, even probably off-the-run stuff. So who knows what some of that was. Anyway, it's notes, notes and bonds. At the same time, the defense buying bills. So it's like, well, it's not, you know, it's like the gift, right? It's it's not they're not printing money. And to me, you know, again, they separate the, the the cause and the effect. Very well. Nobody talks about it. But do I think it had absolutely something to do with the fact that they were trying they're trying to keep the ten-year below 4.4? You. Yeah, you bet you I do. Yeah. So you know that's sort of soft core. It's not printing, but it's managing liquidity, shall we say. This would have to be full on. You know. And again, they will never call it monetization because that's, that's it's like a religion. But it's monetization of that that that's absolutely what they'll be doing 100, 150%. That's what they'll be doing.

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Lynn, do you think tend to happen in phases? And this particular cycle, the phase started before this. It started in late 2025, which is the the funding mechanisms for entities that buy the Treasuries, those start breaking first. So in 2019 is happened with the the repo spike where to suddenly overnight all the, you know, the interbank lending rate just soared. This is the that the this is what like, you know, hedge funds and others will borrow to then buy Treasury. So obviously, if that spikes, you can't keep borrowing that to buy Treasury. So that's going to, if unaddressed, will impact the Treasury market. So back then the Fed put that fire out, started to, to go back to first they did repo and then they started just buying Treasury. So they are, you know, increasing the monetary base directly. They're, they're monetizing a portion of the debt. And we got a similar but like a us, slightly or muted version this time because you were kind of ready for it. They had the standing facilities in place. So you start to see over the course of, of a handful of months, elevations, in, in that kind of securitized overnight lending market in short-term lending market. And, the Fed's standing facilities in place. So they're kind of providing liquidity on days where it gets a little messy. And then the longer that goes on, the it kind of grows and grows, gets more persistent. So then they announce, you know, we're going to start going to, to gradual balance sheet increases roughly in line with nominal GDP. So increasing the monetary base, and that kind of put out the near-term fire. So is he less so the Fed repo facility uses, slow, lower, yields on that securitized financing spreads versus say, you know, interest rates on bank reserves. You kind of at least mostly put out that fire. And if they didn't, that would translate into Treasuries. And so far in this crisis, I think because they're already providing some liquidity, so far, we're not really seeing usage at the Fed repo facility. We're not really seeing, credit like, swap lines being used, but those are, you know, I would monitor those to see signs that, that that's heating up. So far, it's not. But if this goes on long enough, they they certainly could. And then to this point, the other mechanism is is Treasury buybacks. Now, duration-neutral Treasury buybacks are not, you know, they're more a very minor liquidity boost. You're basically if you're, say, hypothetically, you're issuing five-year notes on the run, five-year notes and you're buying back off-the-run, five-year notes. It's not it's not great optics, but you're basically you're, it's a, quasi-neutral liquidity boost to the Treasury market. But yeah, if you're buying, you know, five and ten-year notes and you're issuing T-bills to do it, you're reducing total duration in the market. You're basically doing the, the emerging market playbook where, nobody wants to buy long-term debt. So you have to issue more of it on the short term. That has other effects. That's part of the reason why the Treasury Journal accounts so big is because they've got to roll over these two-year T-bills so frequently. And, and so that, I mean, that has effects. And so if you, if you reduce and it's funny because of course, percent was critical of Yellen for having, you know, so much kind of shorter-term Treasury exposure, kind of vowed to, to, you know, fix that. But it's, it's like you, you say something and then you do another thing. You also talked about the three, three, three deal, which is not going to happen. And so, yeah, we are kind of entering various phases of, of monetization, starting with the gradual print. They kind of began in late last year. Nothing particularly new at the moment, or rather, the size of the Treasury buyback was, was interesting for sure. The longer this goes on, I would be watching some of these standing facilities, or, you know, the MOVE index and other signs of stress because, you know, if you do get Treasury yields breakout, if you do get a liquid markets, the Fed will step in as needed though. Increase purchases. They'll, you know, they'll they'll expand the size of their, of their standing facilities, whatever it takes to not have a failed Treasury auction, to not have acutely liquid Treasury markets or interbank lending markets.

Two things I just want to quickly touch on there, Lynn. One, does that explain why at the MOVE index they've already been, already had it set up, already kind of been active? That's why MOVE has been pretty much not that it hasn't spiked, it's been MOVE index has been relatively down. Does that also explain why I like the I think about a month ago the front end of the curve, it's still inverted, but it almost looks like we have a proper natural yield curve at this point in time? And then just hanging on to that. Speaking of the Fed, Kevin Warsh coming in, do you think he can actually do it as necessary? He's historically been kind of hawkish. I'm curious your view on him just stepping in.

To me, yeah. So the MOVE index briefly spiked. It has cooled off. I do think, you know, the fact that they are doing net balance sheet increases, that they fact they do have standing facilities. And that now they're doing, you know, unusually large Treasury buybacks. These are all Michigan's. None of them are particularly noteworthy in and of themselves. But they are there. And, you know, we haven't got to the point where creditor nations are like fire selling Treasuries to buy energy yet. We're not at that phase of this, which we could find if the Straits closed for months. You could see Japan selling Treasuries to to make sure they bid for $2 oil equivalent and whatever the equivalent for LNG is. So you certainly could get to these more extreme scenarios. Right now, we're not. I do think, of course, that any Fed chair would, including this one coming in, the most likely, would do what's necessary with the balance sheet. The steps that they talk about are, you know, in theory, if they were to increase the duration of the Treasury market, they could have reduced the TGA, which could then reduce the Treasury balances slightly. I mean, if anything were moving in the opposite direction from that vision, you get slightly reduced bank regulations to let them hold more Treasuries, basically let them lever up on duration a little bit more and not really be punished for it. That's another option. It's liquidity neutral because you take a little bit off the Fed and put a little bit more in the commercial banks. The I mean, those are all minor around the market solutions. There's no Fed chair that's going to say, oh, the Treasury market is illiquid. Tough luck. So kind of like how, you know, Scott percent talked about, you know, we're going to have more reasonable Treasury practices. We're going to increase duration again and then comes into office and is not doing that. You see the same thing with with any Fed chair, any kind of prior statements that they had go out the window when the Treasury market's not liquid.

Luke, your thoughts on Kevin Warsh coming in? And also, I'm curious if you have any, insight into the Japanese bond market and the impacts that might have, if any.

Yeah, I think I agree with Lynn that, you know, Warsh is going to do what he has to do, particularly now that we're in, in wartime. You know, the, the, the, if anything, I think the Fed will become more of a financing arm, more direct financing arm, if they have to. Japanese bond market, I think is I still think it's super important. And, it's it's not, it's, you know, if I came into the year concerned about it, all of this just makes me more concerned about it. I mean, one of the charts I've been following has been if you look at ten-year JGB yields minus or. Sorry. Ten-year ten-year JGB yield minus ten-year Treasury yield versus dollar yen. Right. And so in theory, a rising relative yield on a ten-year Treasury on ten-year JGBs relative to Treasury should be driving capital flows and a stronger yen. And it's not. It's driving a weaker yen against the dollar. And that's emerging market behavior. Classic emerging market behavior, which is just the markets. And you can't afford your interest rate now without printing a lot more money soon. And it's continuing to widen. And so to me, I it's one of these things where I like, I go, I don't know when it's going to be a problem, but it's probably not going to be a war. And it's not going to take a long time. And it's I have a pretty good idea how they're going to deal with it. And, you know, everything that's happening with energy, you know, it's chart of highlight on necks really since this war began. And, you know, at the beginning people were laughing at me and they're not laughing anymore. Is, you know, dollar yen times oil and dollar yuan times oil were both versus the ten-year Treasury. And I mean, I've had discussion with people. The very first weekend, ten-year Treasury yield was at 3.94% that first weekend. And I said, oh, well, that'll that'll do it for that. It's going higher. People like you're crazy. There shouldn't be a bid for safety. It might. It's rated at three, nine, three, maybe, maybe maybe 392 even. But since then, it's, you know, right to four four. And they've been fighting for, for ever since. And, you know, you can mess with the scales a bit. But the bottom line is, is if this continues for long enough, what dollar yen times oil and what dollar yuan times oil relative that ten-year yield are telling you that the the pressure on ten-year yield is going to go higher. Almost. You know, and there's again, there are a lot of things they are doing to mitigate that. As Lynn noted, there's other things they can do to mitigate it. But the release valve is all the same thing, which it's it's the currency. It's the yen and and the dollar. And that's where they are. So I nothing's really changed on that front. I think ultimately the longer this goes on, it's, it's still the Japanese bond market, the, the US Treasury market, the two biggest debtor nations of the world are going to be the first two cracks, you know, in bond markets, whenever, you know, in the developed world, at least whenever this really starts to you know, become an issue, which I think again, next month or so.

For someone in the US or Canada, North America that's listening to this, can you even quickly explain why these currency flows, like why the flows between the Japanese bond market and the US Treasury market impact them? Like why this matters at all, why they should be paying attention to that?

Luke, do you want to take that?

Yeah, I'll take it. I mean, it's at the end of the day, it's a deal for them. It's a piggy bank issue, right? I mean, we have there's something called the Net International Investment Position, which is basically how much foreigners own of our assets versus what we own, minus what we own of theirs. And, the way the systems worked, particularly since the great financial crisis, is we run big deficits and they recycle deficits into our asset markets. And so when you look at who we've been running deficits against, primarily it's Asia, it's Japan and China in particular. And so they own a lot of our assets. And oil is only priced in dollars primarily still, certainly for Japan. And so when oil or the dollar get too strong, and the worst case is when they both strengthen, they have to buy oil. And so what do they sell? They sell dollar assets. And what do they sell first? They sell what they can, not what they want to, which are Treasuries.

Lynn, your thoughts?

Yeah, exactly. I mean, so so Japan, it's funny because, I've been bullish on Japanese equities for a long time, especially Japanese equities that are, they're in debt in yen. And they and they own scarcer assets. So their, their debts are being devalued. And they're, you know, they start at pretty low valuations. So that's kind of been playing out. I never really bet against the Japanese in the strategic sense. They generally make the right decision when they have to. And they have a lot of levers to pull. So when people are talking about, like, massive Japanese blow-ups, and not putting Luke in that camp, but like, when I see people on Twitter like you talk about massive Japanese blow-ups, I tend to think of it more as a series of steps that they take, which they do experience pain when those things happen, but then also because they are a very resourceful and fairly wealthy nation, those those issues get pushed elsewhere because, as Luke mentioned, they have a big piggy bank. So like let's say you go back to the emerging market situation because their currency and bonds are trading like an emerging market, which happens to a developed country once it enters fiscal dominance. And so, you know, that there's two main types of emerging markets. There's ones that have like very little foreign exchange reserves. So when their currency weakens, that's when you get those crazy spirals that you see. And then there are emerging markets that have a ton of reserves. So they have the they have a piggy bank. They've had, you know, current account surpluses in the past, that they've saved up. They might even still have them in a, in that moment. And then they can sell some of their assets, buy back some of their own currency, even as they're increasing their own currency to, say, buy some of their own bonds. So they have levers. They can pull this. Okay. What do we want to happen too fast? We don't want our bond yields to go up too fast. We don't want our currency to devalue too fast. We don't want to sell reserves more than we have to. So whichever one is kind of like on fire at the moment, you can like take one of the other variables and put out that fire. So for example, when the when the yen was like going vertically down versus the dollar, in recent times, not not super recently, but that was happening before, you know, they can come in with like a shock intervention and basically put the fear of God back in the, in the people shorting it. And, and, you know, you kind of blow out some of the leverage, you slow down that process, make them kind of restart their positions. And you, you know, you buy back some of your yen. So if we, you know, we start to see non-linear action in, in, in Japanese, you know, government bond yields, right. So over the past like four years, the Bank of Japan has been, you know, flat to down on their balance sheet. We would we would expect to see a resumption in balance sheet growth at some point. Can I like how we've already seen with the Fed, you see a resumption of balance sheet growth? I mean, it's already kind of flat, it's not really going down the way it was. So you start to see a more inclined upward. That all is being equal is not good for the yen. Especially if they, you know, you know, traders looking at this and saying, well, they're an energy importing nation and there's an energy crisis now they can outbid the Egypts of the world. But it's still not great if you're Japanese and you're paying much higher dollar denominated, in much higher, just raw energy prices and natural inputs. So then they can, you know, they can increase their monetary base, buy back some of their own bonds. Do do kind of soft yield curve control. If the yen gets super weak, then they can sell some of their reserves, which are a large part of that is Treasuries. But it's also other types of assets around the world. Which then it comes and hits US Treasury markets, and then we get weird action. And the Fed has to suddenly say, okay, we were buying this, this many Treasuries a month. We accept it by this many per month. Now, or you see a big spike in the usage of a swap line or a standing repo facility. Something like this provides temporary liquidity until the Fed steps on line. And so that's why these things are

Global markets. When you have China, Japan, the US, parts of Europe. But they're, they're increasingly kind of a smaller part of it. When you have these really big entities run into crises, you tend to get these ripple effects in other markets because they, they have a lot of levers to pull. Luke, do you have anything you want to add or disagree with there?

No, I think that's right. And I think it flags to that sort of this, you know, part of the kind of the great game, which is, you know, on one level, Japan being close to America is very useful. We can supply them energy. We can give them swap lines, etc. The flip side of that is, is, is Japan can't buy energy in anything other than dollars if they want to stay our friend, and the Chinese don't have access as much to the swap lines, etc. But they do have a greater ability, you know, to buy energy outside the dollar and you want and have been doing so. And, and you say, okay, well, you know, two of the three, two of the three biggest oil suppliers have been doing that. One has been taken over by the U.S., the other is currently under attack by the U.S. And, you'd make the case that, you know, the, the third, Russia, has been under proxy attack by the U.S. for the past four years. So, maybe past ten years, arguably really ten, 12 years. If you go all the way back to the, the, the, the, the Maidan, etc. crisis in Ukraine. So, that then gets back to sort of the geopolitics around, okay. Well, you know, it is those are the, those are the levers and, that they're sort of first principal tensions that we're watching play out even as we speak.

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Very interesting. I want to jump back for a second, maybe push back on the theory just a little bit, Luke, and you can tell me where I'm going horribly, horribly wrong. So we had the idea, we even mentioned at the beginning of the hop, the idea of it being like squared off and done this week is not likely, in your estimation. Do you think this is going on for longer? And then additionally, we're talking about like oil hitting like $200 a barrel. I'm looking at crude futures right now, and I'm seeing for June contract $98, July $89. If I go all the way up to December, we're looking at $72.93 a barrel. So my question is, are the futures contracts indicating that they think there's going to be an end to this relatively soon, or is this potentially reflecting something else? Maybe even something worse, like demand destruction causing oil to fall? Or is this just noise?

We don't put any value necessarily on those kind of contracts. It's a little bit of each of them. I think, you know, you need to look at relative trends, right? I, you know, I had a friend of mine who's been in the energy business forever ping me a couple of weeks ago, said, you know, the, the, the December contract had hit $70 for the first time ever, you know, a couple of weeks ago, right? So that number has been rising, been saying, okay, this might last longer. And then you have to look at the liquid, relative liquidity of those contracts. I would think in oil, they are probably pretty liquid. But, that's a quite I think it is partly that there's still not a belief that this thing can go longer. I think there's some real informational value there. And then I think it's the demand destruction, too, right? I mean, there's it is a balancing everything. I'm kind of saying about, look, if, if, if the world's going to start coming unhinged by, you know, two to three weeks from now as a result of this, if Hormuz is still closed, then yeah, you're going to start to have some reflexivity of of trying to do a calculus around, you know, if I can't get oil, it's really expensive today. And then there's a there's a factor in to that. So I think it's a little bit of all of those factors probably playing into that.

Lin. Yeah. Don't screw they that nothing particularly bad either. All right. Beautiful. I'm curious, Dan Lin. In terms of other indicators in the market, what actually has your attention most right now? What are you kind of focusing on the daily that you're using to try to find some signal in all this noise?

Well, so we are unfortunately very headline-driven markets. So there were there period of time where like things tend to lead into the next thing, like monetary and liquidity situation. In the, you know, now we're in a very headline-driven market. So things can just become non-linear very quickly. So one is unfortunately, I have to monitor the news, first and foremost. And then aside from that, I am monitoring, I mean, just, you know, what's happening in the street. Is any energy, you know, you know, are certain deals immediately some energy out? Is it going in the right direction or is it not going in the right direction? I look for things like, what are countries doing about Michigan's? And then, you know, because my, my focus is on markets and finance, you know, as a profession, I'm focusing a significant on liquidity. I'm looking at things like, are are cracks forming or not yet? In liquid situations, I watch things like Japanese treasury yields. I look at things like, are any any Fed kind of liquidity facilities being used and if so, how much? What are what are kind of funding spreads for, for a short term, you know, institutional lending, securitized lending. I look at those move index, of course, you know, are there kind of days we have stocks down, bond yields up and dollar flat to down? And that's kind of emerging market behavior. Do you see things like that in Japan? So kind of like just signs of like how quickly this is playing out versus slower scenarios. There, I mean, there are key analysts that I follow that are specialists in the oil market. So I kind of watch their temperature on any given day, you know, what are they freaking out about or not freaking out about? Are they kind of revise any of their guidance? But, yeah, a lot of it today, of course, is about the strait, about downstream effects from the strait, as well as liquidity, specifically, because that's where ultimately they starts ricocheting back into other things.

Luke, I want to, maybe go down a dangerous path here, but we'll see how it goes. Everything is centered around the strait. That's where all the attention is. That seems to be the main driving factor in markets right now. I'm curious from your perspective, why are we there and who benefits, if anyone? So, for example, I can make a case that maybe Russia benefits from like higher oil prices, but I'm not actually sure. It just seems like everyone's kind of waiting and taking it on the chin a little bit. Is there anybody in the financial landscape or macro landscape that benefits from this? And I'm curious your thoughts as to why we're there to begin with.

There's a school of thought. There's multiple schools of thought on this. There is the school of thought of what I would call Iran jihadis. Right. They're the jihadis against Iran. Right. And so, hey, Iran is going to get a nuke and anything else like, hey, we might crash the economy. It's worth it. Hey, we might, you know, it's worth it. Hey, we might starve a billion people in emerging markets. Hey, it's worth it. That's one school of thought. There's another school of thought that that this is sort of five D chess and that ultimately either five D chess and it's you kind of get the same way. It's either five D chess that we can really squeeze China's oil supplies and thereby increase our leverage vis a vis rare earths, which they've been holding over us or since. Since. Well, you know, certainly since Liberation Day. And there's maybe something to that, or trying to strategically break China's ability to buy oil outside the dollar. Maybe something to that. There's sort of a different version of the same thing, which is sort of bombing in that we're bombing inside the wire. There's a lot to suggest that maybe we're losing the eye, losing an eye to China or very close to it, and certainly losing in other areas. And maybe somebody made a decision that, hey, you know, it's sort of like, you know, we were soldiers once and young, you know, once they were inside the wire, you call Broken Arrow, you call the airstrike inside, inside your own wire, and you kill some of your own people. You kill some of your own people, but you kill everybody. And you hope some of your guys live. And that's there's an element that I think says that that's the case. And that's essentially just saying, hey, we're, we're, we're going to lose this round. Right? So when you were a kid, you know, we're going to lose this Monopoly game. And I'm angry. So before I come back around and have to pay you another $2,000 in rent on your hotels on Boardwalk, I'm going to flip the board, punch you in the face and go back, go outside and play kickball or something. And in that world, like, look, we do that, the rest of the world is going to starve first. That's how it's going to work. And quite frankly, American cities are going to starve right alongside the world. Like, you're not going to want to be an American superpower. Like we're better off. And this is, you know, like this neat part I was talking about earlier, like, yeah, and on a gross base and going to be fine. You're going to be in New York City. If this goes as bad, you know, if we're starving, Asia, if we're starving, you know, a billion people across the global South, you're not going to want to be in cities in America. Not at all. And then there's two other ways. There's two other thoughts. There is a school of thought that I have to phrase this delicately. This one is, as I have from a very credible source. There is a school of thought that it is in the United States' strategic interests to let Iran and Israel beat each other to death in a controlled fight. And if Israel and Iran beat each other to death, that actually helps United States' strategic interests in a number of areas, because both of them become threats to dollar reserve status in different ways. I don't know how I feel about that, but again, I have it on very good account from a very credible source that that might be the case. So that's another school of thought. I've seen that that actually makes some sense because, for the last ten, 12 years, Trump has been, love him or hate him, he's been a very he's had very good political instincts. And this on the surface seems just stupid. So that would actually make some sense. And then the final that is, you know, for me, still the Occam's razor explanation, and therefore my base case is, he kicked a beehive, and they thought it would be easy after Venezuela. And now the beehive is stuck on his foot and he doesn't know what to do. And so he's getting angrier and angrier because he didn't listen to his intelligence. And, there wasn't a plan for what would happen after, if there on the decapitation strike. And that is still my base case. But I'm open to sort of all these other things. And, you know, conveniently, can I conveniently, the longer Hormuz goes, stays closed, the less any of these really matter. As in terms of the why, all that starts to matter is the what. But they'll all they all at some point converge on, holy cow, the system is collapsing if we take Hormuz closed long enough. But those are those are sort of, you know, the, the, the different whys we're there that I have circulating around in my head that as I watch headlines and stories and markets all sort of play this out.

Lin, I'm curious your thoughts. If you have any insight or theories as to why we're in this conflict to begin with, and even if not, if there's any economic and financial benefactors that you see? Is somebody profiting from this, from this outbreak, in this conflict?

Potential inside traders. Yep. That's a good one. And, I mean, basically I side with the Occam's razor as my by far my highest probability case, which is that they thought this would be easy. They kicked the beehive. And now they're scrambling. I think that there are there are always that segment of neocons that pretty much always want to deal with Iran issue. They found the guy that that would do it. I think they were on a high after the efficiency of Venezuela operation. They I think Trump thought he could basically decapitate any kind of secondary or territory country at whim. And I mean, Venezuela is a, you know, a corrupt socialist state. If you take out the top guy, you can you can just negotiate with the second person who just wants to buy luxury stuff and, and keep their job. Whereas in Iran, you're dealing with a lot more hardcore ideologues that you can you can kill layers deep and they're still going to troll you on Twitter and refuse to open the street. And, and I don't and they've also got very good engineers, as we've seen from these, from these drone attacks, and they've also planned for us trying to target their operations and disable their capabilities. And they built clearly a lot of resiliency in this. Despite other criticisms, I would I would, you know, quickly lay at Iran. I'm certainly no fan of their regime. But they in this area, we certainly I think the administration underestimated them. And you I mean, you can you can. It's like you can go downstream as you want. I mean, like, so this administration's not really been strategic to say the least. I mean, I was on the record ahead before Doge. I was like, Doge is not going to work. They're not it's not structurally. They're just they're focusing on the wrong point here. Doge is not going to work. It was a blip in the radar. And then the tariff operation, like it's you do emergency powers to put in tariffs. You claim the rest of the world's paying for 100% of them. Just it's just on the surface, not inaccurate. I do think that that they were correct to focus on the trade deficit for a change, which which administration have not been doing. But then the actual mechanism to do that is messy. If you look at Stephen Myron's paper, which was kind of like the like the Steel Man version of what what the administration wanted to do, they published a paper back in November 24th when he was becoming kind of Trump's like chief economic adviser. They kind of said, if you would restructure trade, here's how you would do it. And, you know, outlines mechanisms and risks. I generally disagree with the paper at the time, but there were parts of it that were logical and you could like I had a more pessimistic snare on the outcomes. But like, I think a large part was that they underestimated things like the net international investment position, the difficulty of reshoring supply chains, the network effects of manufacturing hubs. So they thought that, you know, by hitting hard with these tariffs, the dollar would go up, and that they would then be in a very strong negotiating position to get all these new deals. It didn't work out like that. And then because the tariffs were put in using emergency powers for non-emergency purposes. Yeah, yeah. A conservative leaning court struck down a conservative president's tariffs. It's also complicated because in general, fiscal conservatives are not in favor of tax increases. And that was effectively a tax increase that was at least at least partially on Americans. So that was like an unsound. It's like a short-term focused strategy that's just kind of built on paper. Rather than say, if you want to implement tariffs through Congress that are more persistent, you could, but you didn't build the coalition to do that. Partially because the, you know, and then, you know, then it's like then the whole Epstein fiasco. Right. Forgot about that. Gradually declining poll worse historically, are kind of effective for distracting. You know, I think Trump, obviously, he takes things personally. So, I mean, he didn't like Venezuela and their response. And then that operation happened, and the Special Forces clearly did a very efficient job with that. It was kind of shocking how how just clean that in it being. I think then he was probably riding a high from that and said, well, why not snip my legacy by, you know, ending this 50-year kind of issue with Iran? And it's not the same. And so, you know, maybe there maybe there are scenarios where they could've nailed it, but I it's, it's structurally different. It's if it's geographically different, it's ideologically different. And I think we were replaying why we can't just kind of play God with the rest of the world and assume that we can just keep doing things and just after time that they never have just they never light on fire. They never come back to hit us. So I think we're scrambling. And of course, there are parts of, you know, there are advisors that are trying to play 40 chess. There are, any sort of king's court. There's multiple competing factions, and you'll have dumb ones and smart ones and, you know, all manner around. But I think the actual outcome, the decision-making process here, I it's I think it's the Occam's razor. I think it's just I think it is the mess that it seems to be.

Yeah. I mean, the White House still has up on their website, last I checked, from June of last year, Iran's nuclear capability has been destroyed. Anything else? The claims otherwise is fake news. That's sitting on the White House website while we had to go in here, ostensibly for nukes. It is actually as cartoonish as it looks like. I think that's the we live in a simulation and we're in like the, the crazy version. Well, an ethereal thing to me is, is how many times I hear from, you know, serious investors, people on X. Well, it's all fine as long as, you know, Besson's the adult in the room, right? Like he's the adult in the room. How many times you've heard Besson sit down in the room? I was in Denver at a dinner in January 25th, and with a friend of mine who's an energy, former energy exec, and he goes, I'm hearing that Secretary Chris Wright's trying to sell his oil company, shale company, and he can't find any bids with oil at $73 at that point in time. He no bids because they can't make the math work. All right. So here's our secretary of energy, Chris Wright. Literally that weekend, I was at a conference where I met with somebody else and Chatham House rules. I can tell you what they said, not who it was, but they told me they had just met with Besson. Besson had brought them into wherever New York or Washington to explain sort of the sort of supply demand situation of the United States oil production base. And his person goes, look, if you look at sort of, you know, where we are at the four main, you know, where where the growth of production has come from. In, in, in shale and, and liquids. And if you look at where those are and if you look at the break-even prices, you know, Mr. Secretary or Mr. Secretary-elect, whatever he was at the time. I know you're saying one of your three arrows is increasing production by whatever it was, 3 million barrels a day by 2028. But he was Besson was also saying, we're gonna get oil down to $50. And this, this, this and this goes, Mr. Secretary, you're not gonna be able to do it at $50. The math doesn't math. Well, and this and here's the incredible thing. The adult in the room told this person, I don't believe you. Thanks for coming. Now apply that to this whole Yeah. nonsense. And so if the adult in the room, if that's the thought process of the adult in the room, basically I'm God, it doesn't matter. Well, now he's over three arrows, by the way. Let's start there. But then the other thing they didn't factor in and all this is other great powers get a say. Well, he was just saying Russia and China, Iran is existential for both of them. Two and I'm told and very good account that 2024 when we were shooting helping the Ukrainians shoot missile, not helping. We were shooting missiles. India. We were basically just taking the Ukrainians hand and putting it on the button. Right. Shooting missiles into Russia and high-fiving each other. Chest thumping were awesome. And the Russians wouldn't take the bait. But they did say we reserve the right to respond at a time and place of our choosing. Well, it turns out the time and place of their choosing was about two days into us attacking Iran, because all of a sudden, all of these people who are planning this thing are like, oh my God, how are the Iranians so accurate? Well, it turns out they were using Russian and Chinese satellites. And so this isn't an a war against Iran. This is a war against Iran backed by the Russian industrial base and the Chinese industrial base, because we're everyone's like, oh, we're going to choke out China. What do you think China's going to do? They've already said in Chinese language they're going to support Iran. The Russians are absolutely supporting the Iranians. And so when you have two countries, you know, secretary general of the U.N., Mark Rudy said in January 2025, the Russians have out produced all of NATO, four to one in Ukraine, four to one. So the Russian military industrial base for Ty at least four times the size of Mars, because that's all a NATO. So it's probably more like five times the size of ours. And the Chinese military industrial base is probably ten times, 20 times, 30 times the size of ours. We picked a fight with, with, with and oh, by the way, the Chinese make a quorum of our military for us to, you know, several layers down. So there is just a level of. I'm going to try to be delicate, a lack of second and third derivative thinking, a lack of understanding the first principles in which you are operating, amongst the adults in the room, let alone sort of, you know, the president who this weekend showed he's maybe having a little bit of stress, maybe having a little bit of emotional breakdown, I don't know, but, yeah. So I, I don't know really why we're there. I mean, I, I just think it's, it's, it's gone really pear-shaped. Really. Now, look, are we beating them up badly? Tactically. Absolutely. Are we flattening them? Yes. Can we kill them all? Yes. What does that make us like? You know, not to get all philosophical on a for now, but like, what does that get us? And at what point does that draw in? Again, this is existential for China and for Russia. You know, this whole can we do it just because you can't doesn't mean you should. And certainly you shouldn't if you've already demonstrated you have no ability to think about second and third derivatives, which this administration from the best, from the smartest to the dumbest have all shown. They have no ability to do that.

It seems to me like at Cleveland, in some ways, we actually kind of repeated Russia's mistakes. So Russia, of course, invaded Ukraine. They, they thought it'd be a quicker, more decisive operation. It's now going on for four years. It's one of the situations where, I mean, Russia's not better off, Ukraine's not better off. The number of dead is just off the charts. You know, the number of dead Russian men, Ukrainian men, women, even, just the sheer amount of resources that have gone into that, that could have been going into other things. Like, it's a, you look around and say, who's better off? Right? It's like a lot of these things, it seems that, you know, that we claim to be strategic is often just the hubris of a handful of people, either for legacy or for their own enrichment. And then, you know, the U.S. has been kind of trying to, you know, with some success, some failures, trying to make Russia pay as much as possible by, of course, funding and leaks point. We're providing resources in various ways to make it harder for Russia. And the U.S. then turns around and four years later does. We fall into a similar trap, which is we go in expecting a quick operation, and then Iran's backers are like, well, let's make this as hard as possible for the Americans if we can, rather than just roll over. And, and so we're, we're kind of in an ironically similar situation. I mean, we're, we're only a month in rather than four years, but this one has so far bigger impact for the world because 20% of the world's energy is, you know, two miles from their coast. Did we just did the US potentially idiocracy its way into the the gradually then suddenly moment? Like, if this actually goes on long enough because Luke, I know you mentioned before that basically. So if I understand correctly, the GCC countries are selling oil for dollars, then cycling those dollars back into U.S. treasuries, which is then funneling into the military industrial complex and all the spending that the U.S. does. But I also would imagine, and I suspect, that the GCC countries are also funneling into equities as well, that they might want to go out on the risk curve and might be buying U.S. stocks as well, too. You know, we just talk about the isn't Bitcoin the end of the dollar at some point? If this went on for like a really long time, could that actually be we see like a definitive moment. You can say like that was the end of the U.S. dollar hegemony. Like that would be the point where everybody else would start using barter systems, other currency exchanges, or is it still so entrenched that even if this went on for four years, like Ukraine, that wouldn't happen?

I think you have to define what is end of hegemony or end of dollar hegemony. You know, I think the dollar usage will still be 80, 85%, whatever, 90% payment, because, you know, any Chucky Cheese token will do when you're, you know, when you're looking to get to the prize window. Right. That's it doesn't matter. Look, when I wrote the first, you know, this, the bombs started flying, February 28th, March 3rd. I wrote that Iran doesn't have to beat the U.S. military. They just have to beat the U.S. Treasury market. And in their report, I said, look, this has a potential. If it goes away, I think it's going to go to become a U.S. Suez moment where, you know, for like the UK, it was sort of when it became apparent to everybody that sort of the, the, the, the hegemonic period over the UK was over. And look, I think that's now the best case. I think a Suez moment for the U.S. is now best case. Because we can look and see what are the outs here. The outs here, you know, the most likely outs are we declare victory and go home, in which case, A, the Iranians will have dealt a strategic defeat to the United States of America. Everyone in the world will understand that except for this sort of, you know, Iran jihadis and certain elements of MAGA. Option two is we keep going and look what one of the dogs that is not barking this week. Everyone's like, oh, great rescue. And it was a great rescue. And they're very brave. Why did it have to happen? Our president told us on Wednesday night that their military was destroyed, their army destroyed, navy destroyed, decimated, crushed like never before, blah, blah, blah. And yet next day they shut down an F-15. And then the next day during the rescue, they shut down two sea C-130s and four helicopters. Like so. That that just gives us a little taste of what putting ground troops on the ground is going to do. I've been a new Gallipoli. Luke. Watch the opening scene of Saving Private Ryan, knife fight in a phone booth. Whatever metaphor you want to use, that's going to happen. And that is going to be, you know, look, we got into Vietnam. Yeah, that was the end of the dollar. That was the end of the of Bretton Woods. So it strains credulity to think they won't be, you know, that won't be that outcome. And then I guess the last option is, I guess really one or two options. Number one, like the, the, the Iranians get a say, right? Even if we say declare, break and walk away, they keep shooting. And if I'm them, I'm going to keep shooting. Absolutely. I'm going to, that's it. That's an indictment. And the last one is, look, we do something extreme, like we go in and we nuke 'em. And like every day this goes on, it is not going tactically. It's going fine for us. But strategically, you know, when you run out of interceptor missiles, what do we think Israel's going to do when they completely run out of interceptors? Which, oh, by the way, they probably need Chinese rare earths to maintain supplies of. What do we think they're going to do? I don't know what they do. The Samsung option maybe. Then what? So there's these. And yeah, I guess the last thing is the Iranians are there. They're telling you they'll let it. They'll let oil move for for you on. And people say, well, there's no, you know, you want is is it's a closed capital account, blah, blah, blah. They're missing what the Iranians are doing. It's that's gold for oil. How do you get? You want it's simple. You buy it, you sell dollars, you buy gold, you take the gold to China, you sell the gold to China for yuan. You take the yuan to Iran, you buy the oil, you put it on a boat, you sail it out of there and away you go. And so that option is absolutely the end of the post '71 system. That is a, you know, whether we're allowing it to happen or as some assert or whether we can't do anything about it, you know, like sink the Chinese boats moving the stuff doesn't matter. You've got a yuan oil system parallel running alongside the dollar oil system, and that is de facto the end of the dollar's post '71 status. So yeah, my yeah, my best case. The happy outcome at this point is we walk away, we let them keep control of the Strait of Hormuz. They continue to transact in yuan through gold. Gold goes to the moon. The dollar falls sharply. That facilitates a re-industrialization of the U.S. High inflation, probably yield curve control, capital controls in the United States. That's the good outcome at this point. They all get uglier from here. From that point.

Yeah. I mean, I think there are multiple. I think Luke described it well. I think there are multiple layers. I mean, over time, technology changes. And so what was once dominant, like the, you know, the carrier group, when you have things like hypersonic missiles or very effective one-way drones that cost $40,000, it's just the math changes to some extent. So it's just that you can have company people running things and that still could just chip away at things that of course, we're 50 years into the Triffid dilemma. So the U.S. has to industrialize itself to maintain its global reserve status. It's kind of a it's a natural flywheel that gets an effect. It's not even always a decision. It's just the network effect of of the dollar system. And so we just our ability to replenish things is lower. Our manufacturing hub is weak compared to China's and elsewhere. So those are just kind of like, all the just serious realities that are happening, which then increase the odds. We run into a strategic defeat, like here, which then has downstream implications for the currency, for other things. You know, I, I've argued before that, you know, like most empires, when they could just see that, okay, we've over expanded. We're doing great. But we there's a lot of risks ahead. We can just like rightsize our borders to make sure we're defending the right spots and we're going to focus on inward flourishing. They rarely do that. They try to maintain a reporter they have. They lose all their blood and treasure to try to maintain what they have, because that's what the emperor wants to do. And so far we're on that path instead of kind of retreating from a position of strength gracefully, leaving other people's problems for other people. We've decided to do more boondoggles. And, so but I do think that the dollar system, short of extreme scenarios, has a very long life to it. Because a lot of this goes down to just the, the math of it, which is there's like tens of trillions of dollar-denominated debt in the world. All of that represents inflexible demand for dollars. It's mostly not even owed to the U.S. It's owed to other cross-border entities. That can be chipped away at over time. You can do defaults on it, but then you get very non-linear financial outcomes, both in the U.S. and globally. There's a very complex game theory, but that you don't want to be the first one to default or even the first five to default, usually, unless you're the biggest to default first. Or like restructure is the is the polite term. And so I do think that I was separate the two like the, the risk of a military kind of strategic defeat from the dollar system itself, at least in any sort of like near-term timelines, even though one, of course, can lead to the other over time. And I do think that regardless of this particular scenario playing out, I think we were already headed toward a more multipolar world in terms of of what sovereign saw their reserves in, and then to some extent, even what they denominate payment in so that they can't be like sanctioned or censored, unilaterally. So I think we're already seeing just a natural shift there. And then I'd argue it's even in the U.S.'s interest to let that happen. That would be an example of letting things happen kind of gracefully and kind of focusing on, on inward stuff, rather than trying to maintain that unnecessarily. But this, I think, is an accelerate. There are moments in time where, you know, like the UK losing its reserve status was a process that, you know, there's there's World War One, then there's World War Two, then there's the Suez moment, and then there's, you know, there's there's the rise first of kind of the, the, the in the early stages of that, the German economic power, then the rise of the American economic power. So there was this like gradual handover. And I think this is one particular moment. I think the Iraq War is already an early moment. That was kind of our, let's call it World War One for like, you know, losing status. It's like the earliest the first shot, and then, you know, you have a global financial crisis, then you have COVID, then you like lockdowns and things like that, and then you have and the stimulus and then you have, you know, this rising conflict between the U.S. and China, and then you have this particular moment. I think these are all kind of like flags along the way toward a more multipolar world. And all of that can be true without the Idiocracy component. But then you mentioned Idiocracy. I mean, I do think that it's an oddly prescient movie because it's I mean, that was like a pro wrestler, president. Yep. We were in a situation where we're, like, facing election between us, you know, a guy and a reality star. And and like, when the Keno guy had to drop out, we had a, a person who couldn't win her own primary if she had to. So we skip that. It's just the way the timing like, the silliest timeline. And then we had, you know, like Doge, Epstein, and boondoggle. Is this for in kind of. Yeah. We are. Yeah. That that Idiocracy component's kind of happening alongside it would otherwise could have been these similar things just slightly smarter. I think it's too it's it's it frames y you know, Lin, the point you made about the, the, the entrenched dollar debt is, is I think why what Iran's doing with the yuan and I think gold is so important is that's the one way out of it you can get. That's the escape hatch to it. Is look, if you start using oil to bid up gold, physical gold, you know, the oil market's still nine, nine times the size of the gold market, even at, you know, $5,000 an ounce. So at $45,000 an ounce, sort of the, the, the implied valuation of the dollar and the real burden of that dollar debt start to look very, very different. You can completely, you know, that $40,000 gold, $20,000 gold, you're going to have a lot more collateral around the world with which you can sort of re-denominate the dollar, you know, those Eurodollar claims, without that crisis. And I think that is in no small part, part of the reason why gold has been managed by the United States and the Anglo-Americans more broadly. The City of London more broadly, is to prevent gold from getting big enough to drive that network effect that then allows the world out of the dollar system painlessly. And I think on some level, that's part of what we're watching as is, because it's, it's through oil that that happens. It's through commodities that that happens. And, you know, let's see. And I think that's when you kind of then tie that back to is this going to be a strategic loss? You know, that's I think a very important dynamic to it because that is I think the sort of the one way out of all of that dollar debt is you just devalue the heck out of it. With gold, you replace the dollar collateral with much of a greater increase in the value of your gold collateral, and away you go. And now. And that's not necessarily a worse world for the U.S. It's certainly a much better situation for sort of the part of the U.S. that wants to re-industrialize. There's still sort of this fantasy going on. I see that we can, you know, we can maintain the dollar system as it's been structured for the last 50 years. And we're going to we're going to make all of our own weapons and industrial base and richer. And it's like, no, you're not. Pick one.

Very good. Before I ask a final question here, I did just want to pose to you guys. Lin, do you have anything? Do you want to ask Luke? Or Luke, is there anything that you want to ask Lin?

Probably agree on a lot of That was it. I was like, I was looking for little nuances of where you might disagree. I'm like, no, they're both telling me that if we don't get this open, we're screwed.

Okay. Duly noted. Yeah, I mean, I, look, I, I'm a, I'm a guy. I if I disagree with you, I'll tell you. What I'm sorry.

We're going to say Lin. I was going to say, I guess the question I would, I would try to, drum up is if you were to map out your current, what is your current map for kind of the order break it. So let's say the Strait of Hormuz stays completely closed for six months. What is what is like the your rough order of kind of like who cries uncle first in terms of like major powers?

In terms of Yeah, I think it's going to be. Yeah, I think it's going to be. Like a it's a neck and neck between Australia, UK and like Southeast Asia. So like Vietnam, Thailand, type regional Korea region. And I don't know which of those and then some European countries probably, you know, if they can put down their egos enough to buy energy from Putin, they might be fine. Of course, Ukrainians are now making that worse by blowing up lots more energy. It seems like in Russia. No, but I think that's where you'll see it first, and I think you'll see it. I think the COVID shutdowns are somewhat instructive. Right. Is, is I remember well, the wisest people I know pointed out I think tourism, it's like 8 or 10% of global GDP or something. It's like a staggeringly Wow. Yeah. So like people are like, well, don't worry, it's just them shutting down flights. And you're like, no, no, no, you don't understand. We've already lost 10% of the world's oil. You shut down tourism, it's over, it's over. So and then that might turn, you know, that is where I could see kind of that acceleration. I'm just waiting for. I don't know what the. I saw it phrased as the the Tom Hanks moment for COVID, and I wish I could give whoever coined that phrase credit. I'm sorry if you're watching this, but they call it the Tom Hanks moment where this reminds me so much of COVID. Like, we can all see it's close. We can all do the math. We all know that it's not good. We're all sort of like, well, maybe it'll go away. And admittedly, I was one of those people. I'm like, yeah, it's just a flu, right. And and. And then all of a sudden Tom Hanks got it, right. You remember that Tom Hanks like I have COVID and we're and everyone's like and like that was the freakout moment. Like then we had shutdowns and blah, blah, blah, blah. And I don't know what the Tom Hanks moment will be, but it's coming and that'll be oh, like, they're like sort of. And so but I do think amongst the major powers, that's how I would lay it out. How are you thinking about it?

Similarly, I think probably that I tend to be kind of probably a little more bullish on Asia in the sense that I think they'll be pretty effective at out at pushing a lot of the problem toward the developing world, which is that I think the Taiwan's, the Koreas, the Japans will likely be able to bid enough. I mean, they are I mean, it is already rationing. Yeah. Will show up there. So but I think that they will avoid kind of the worst scenarios, most likely by pushing those on to the Egypt's, the Pakistans, the, you know, the Bangladeshis of the world. You know, that, and I tend to be not very constructive on Europe. So I, I tend to think that Asia, you know, at the end of this, Asia is kind of in a stronger position than Europe. But I think that, like most of these crises, I think the developing world pays the biggest price. They're the ones with the, you know, they get the acute shortages where everything else gets severe inconveniences. And in the U.S., we have this weird situation where you have, like two Americas, right? There's like one America that's like, mostly because, you know, they're kind of the one the last to get hit. And then there's the other part of America that's kind of right alongside the folks in Asia and Europe that are getting hit pretty quickly. As soon as gasoline is like $4 or $5 or $8 if you're in California, you know, it depends on the across the country. And like, they can barely keep food on the table without, you know, cutting health insurance or something. They're kind of right alongside, say, the South Koreans in terms of how impacted they are. But it's, you know, there's always little guideposts. They can happen. They can then rearrange, how things look. So. In Canada, I think the federal government is already floating the idea. Or someone was pushing for the idea of having federal government, federal employees work from home. So I'm fully expecting, like energy lockdowns in UK, Australia, Canada at some point in time. It. I completely agree that this smells a lot like the COVID setup. To me. It seems very, very familiar and I'm kind of watching for that. The last thing that I wanna make sure we touch on gotta.

make sure we touch on it. Luke, I will reluctantly admit that your timing was quite good, despite the fact I don't want it to be. Bitcoin has been for about since February, kind of trading sideways within Rangebound. I'm curious your thoughts on Bitcoin at the moment and how you see things progressing.

I am you know, I actually posted some about this morning about it. I but I've been fascinated to see how it didn't get hit in March and, you know, sort of the trying to ascribe a motive to us like, wow, is this capital flight out of the Middle East bidding it whatever. And then I ran the chart of Bitcoin against iGTV software. And it's it's still the same chart. And so it looks like it was just okay. Bitcoin got killed with software in February. And they've both been kind of hanging out. Maybe because you know software is like all right. Not going to get killed as badly by oil for the moment or as a secondary concern. The concerns that were in February, to what's what's going on elsewhere.

What do I think I'm, I am I still not added back anything I've sold. I, very interest in watching very closely. My view is that this war is going to go a lot longer than people think. And the disruptions are going to go a lot longer than people think. And I think ultimately that's bad for risk assets. And if it's bad for risk assets, it's going to be bad for Bitcoin. So I still think I'm gonna be able to buy bitcoin in the 40s, maybe lower if things really. And but that is a very loosely held view depending on like look we get you know tomorrow wore off I fully expect Bitcoin to be at 7580. And if there's real I you know I might not be able to buy back till you know 90. And then it won't look as smart a trade. So I it's not something I have like super high conviction in how it could go because it's, it is basically beholden to Trump. And the people that got us into this, you know, a decision in a room, right. That's to me, if you think they're going to sort of walk away from this and this thing's going to end in the next couple of weeks. And, you know, Bitcoin is probably a better buy here. But I think there's very little I think there's very little chance of that happening. So I'm still I'm still cautious in the short run. But.

Then Bitcoin. reasonable view. I think, Bitcoin and the software, sector, they tend to be uncannily correlated. I think part of it is that the software sector got so cheap, that just basically like some of them, the value investors are kind of watching that space now. There's like less of an outright sell bid, but it's not it's not casting an upward bid. But the bleeding has slowed. And so I think that that'll probably continue. Callie. Bitcoin I think they'll both kind of find bottoms. Historically Bitcoin tends to find bottoms gradually, because it's not like a stock where it can just have an earnings announcement that describes the upside. And then it's, it's off to the races. It generally, you have to churn out the fast money, all the coins over time slide into the diamond hands. And, you know, Saylor owns a lot of them. And then, you know, people that just never want to sell. And then over time, they're just basically sellers get exhausted. And then we either get a better liquidity environment or something, we start to get a small amount of interest until you kind of eventually relight that fire. The exception, of course, was Covid. We I mean, you had a downward spike from liquidity, where, I mean, gold, silver, Bitcoin stocks just straight down. And then you had the giga stimulus. So straight up. So if we do get outright liquidity problems, where like, the dollar to the Dixie spikes by ten, and, you know, the move index just breaks and, you know, off the run Treasury markets break in is a couple days for the central banks to get their act together before they help with the giga print. We probably see days where, you know, Bitcoin could you could fall five k ten k in a day. And it looks like Covid. I'd be a buyer of those kind of crises. I don't again, they're hard to predict. They're more just like, if this happens, this is likely why it's happening kind of scenario. I think outside of that, I think we probably grind for a little while. And then when you do start to get, say, bigger stimulus or a resolution to this one way or another, I think that, you know, Bitcoin's already gotten a lot of the fast money out. It's already shift a lot of the coins toward the stronger hands. Some of the folks in the 50 K range, like the 58 K gang, I mean, they're still waiting. lower, like, if you get a illiquid kind of, spike down. But I think it's a interesting time to layer in. I'm also I mean, I'm watching other risk assets. I mean, there's like, say, Latin American banks or like some of these airports that are like, obviously not one to jumping in yet, but you kind of watch them. And I think there's like the set of risk assets or these things that are pricing risk as there's at least Bitcoin self-custody or but it's still price like a risk asset by most pools of capital. So you have Bitcoin and a couple of these kind of beaten down areas that I think it's still from a trading perspective too early to say okay, you want to happen now, but it's like you have them on your watch list. If they do get really bad days, you might start layering into them, but that you really want to probably see a light at the tunnel before you make the trading call. That they're that they're going up.

Beautiful. Awesome Lynn Luke this is absolutely phenomenal. Thank you so much for taking the time to sit down today. Before we go Lynn, please tell everybody where they can find your beautiful new book and your newsletter and all that stuff. And then you after. Sure. People can check out linden.com. And I, you know, I have a new sci fi novel out. And part of the reason I wrote it is because we already live in a simulation. Clearly, my way of kind of. It's like, let me just write about sci fi stuff, because that's in some ways more, more normal than what's going on now. Yep. I was like, it's like, fiction, less extreme than than reality. So people can check that out if they want, something fun, That's the the Stuttgart incident. Correct? stall guard incident, they can find that on. They can find that on Amazon, Barnes and Noble, elsewhere. Beautiful look. For elle.com and at Luke Roman on access where people can find me. If you enjoy this episode with Lou Grossman and Lin all in, please do like and subscribe. It really helps us out and check out the previous episode with Professor Saint George.