MacroVoices #499 Has The Luke Gromen Moment Arrived?

Key Concepts

The Luke Groman Moment: A coined phrase by Eric Townsend, analogous to the Minsky Moment, signifying a period of gradual shifts culminating in a sudden, significant change, particularly concerning the US dollar's global prominence.
Gradually Then Suddenly: A phenomenon where significant changes occur slowly over time before accelerating rapidly.
Financial Repression: A policy of keeping interest rates artificially low to reduce the real burden of debt, often leading to inflation.
De-dollarization: The process of reducing reliance on the US dollar as the primary global reserve currency.
Shanghai Cooperation Organization (SCO): A geopolitical bloc whose recent meetings are seen as a significant geopolitical event.
Fourth Turning: A concept from Strauss-Howe generational theory, referring to a period of societal upheaval and crisis.
Yield Curve Control (YCC): A monetary policy where a central bank targets a specific yield for government bonds.
Supply Chain Vulnerabilities: The risks and dependencies inherent in globalized supply chains, particularly concerning China's role.
Defense Industrial Base: The capacity of a nation to produce military equipment and supplies.
Intermarket Analysis: The study of how different financial markets influence each other.

Main Topics and Key Points

The Luke Groman Moment and the Shift from Gradual to Sudden

Eric Townsend introduces Luke Groman, highlighting his consistent bearish call on the US dollar since 2017, a period when he was considered early. Townsend believes the "Luke Groman Moment" is now occurring, signifying a transition from a gradual decline of the dollar's prominence to a sudden acceleration. Groman elaborates that this shift is characterized by a "gradually then suddenly" phenomenon, akin to how one goes bankrupt. He notes that his first appearance on Macrovoices was in September 2017, with the title "The Biggest Mean Reversion in 50+ Years is Underway," focusing on a bearish outlook for the dollar when most were bullish.

Key Points:

Dollar Bearishness: Groman has been bearish on the dollar since late 2016/early 2017, predicting its decline from prominence.
"Gradually Then Suddenly": This is the core of Groman's thesis, suggesting that significant economic and geopolitical shifts unfold slowly before rapidly accelerating.
Historical Context: Groman's initial call was based on widening US deficits and the cessation of foreign central bank purchases of Treasuries in Q3 2014, which forced domestic investors to buy them or led to Fed balance sheet expansion.
Market Performance Since 2017:
- Fed Balance Sheet: Increased from $4.4 trillion to $6.6 trillion despite quantitative tightening.
- Gold to Oil Ratio: Increased from 22 to 61, with gold miners (GDX) tripling in value.
- Long-Term Treasuries (TLT): Declined 35% from 125 to 88.
- S&P 500 over TLT: Increased 4x from 20 to 75x.
Current Transition: Groman believes the "suddenly" phase is beginning, citing the Shanghai Cooperation Organization (SCO) meeting as a potentially pivotal geopolitical week.

The Drivers of the "Suddenly" Phase: Geopolitical and Economic Realities

Groman argues that the acceleration is driven by a growing recognition of the US's diminished leverage in trade and its reliance on China for critical components, including those for its military. The failure of trade war tactics and the dysfunction of the US Treasury market after "Liberation Day" (likely referring to a specific trade-related event) are key indicators. He also points to China's ability to source essential goods like soybeans from alternative suppliers (Brazil) and the critical role of rare earths, many of which are processed in China, in US military hardware.

Key Arguments and Evidence:

Loss of Trade Leverage: The US cannot starve China by cutting off food supplies, as China has diversified sourcing.
Treasury Market Dysfunction: The US Treasury market showed severe dysfunction following trade war actions, indicating a lack of control.
Rare Earth Dependency: The US military's reliance on Chinese-processed rare earths highlights a critical vulnerability.
Shifting Global Order: China, Russia, and India are actively restructuring the global order, potentially reintroducing gold as a primary reserve asset.
Russia's Industrial Base: Contrary to initial narratives, Russia's industrial base appears to be in better shape than the US's, which has been hollowed out by offshoring.
Stages of Grief: Groman likens the US response to trade war setbacks to the stages of grief: denial, anger, bargaining, depression, and acceptance. He believes the US is still in the bargaining stage, attempting to form alliances to counter China, which he believes will fail.

The Significance of the Shanghai Cooperation Organization (SCO) Meeting

Groman emphasizes the geopolitical importance of the SCO meeting, viewing it as potentially the most significant geopolitical week since the fall of the Berlin Wall. He highlights several key events from that week:

Putin, Modi, and Xi Jinping Photo: This image, intended for public consumption, suggested a strengthening alliance between these leaders, discrediting Western think tanks that predicted division.
Russia-China Gas Deal: A major deal priced in rubles and foreign currency, not dollars, signaling a shift away from dollar dominance in energy markets.
Military Parade: Showcasing new weapons, it sent a clear message of military cooperation and deterrence.
President Trump's Statements: His comments about China, Russia, and Kim Jong-un "conspiring against the United States" and his concession that "we've lost India and Russia to deepest darkest China" are seen as candid admissions of geopolitical shifts.
US Pentagon's National Defense Strategy: A pivot away from China and a focus on a more "Monroe Doctrine-like policy" in the Western Hemisphere, suggesting a retrenchment.

Groman's Interpretation: These events collectively indicate that China, Russia, and India are leveraging their economic and demographic power to restructure the rules-based global order, pushing gold back into the system as a neutral reserve asset and potentially forcing Western central banks into yield curve control.

The "Defeat of the West" and Anthropological Insights

Groman discusses the work of French anthropologist Emmanuel Todd, who has a remarkable track record of geopolitical predictions based on anthropological data.

Emmanuel Todd's Geopolitical Essays:

"The Final Fall" (1976): Predicted the collapse of communism based on declining Russian female fertility rates and rising infant mortality. The Soviet Union collapsed in 1989.
"After the Empire" (2002): Argued that the US would not enjoy an indefinite unipolar era due to its shrinking relative economic size. This was published when there was a strong consensus of US unipolarity.
"The Defeat of the West" (2024): States that the West has been defeated industrially and economically, citing US infant mortality rates, falling female fertility rates, a hollowed-out industrial base, and declining numbers of graduating engineers. Todd made these observations before the full extent of the Ukraine proxy war's outcome was apparent.

Todd's Current Assessment: In April 2025, Todd stated, "We're past the turning point. We're moving from defeat to dislocation." He expressed concern about the potential for widespread suffering during this dislocation, drawing parallels to the collapse of the Soviet system.

Supporting Perspectives:

Bliasan: A technologist who also concluded that "we're past the point of no return," arguing that China has disintermediated "red America" (manufacturing/military) and the internet/Bitcoin have disintermediated "blue America" (media/money).
Chinese People's Liberation Army General (2015): Warned of similar dynamics to Western investors who initially dismissed his insights.
US Military Leadership (2011): In Edward Luce's book "Time to Start Thinking," senior military leaders warned that the "window on America's hegemony is closing" and that by 2021, the US would no longer have choices. They recommended reducing the global footprint and prioritizing economic vitality.

Groman's Conclusion: These converging perspectives suggest a fundamental shift where the US is losing its economic and industrial dominance, leading to a potential period of significant dislocation.

Market Implications: Winners and Losers in a Financial Repression Environment

Groman outlines the potential market consequences of the current economic and geopolitical landscape, characterized by financial repression and the need to run the economy "hot."

Key Arguments and Predictions:

"Never Short America" is a Platitude: Groman dismisses this as a comforting but unhelpful statement. He distinguishes between different eras of American economic dominance (e.g., "What was good for GM was good for America" vs. "What was good for Goldman Sachs and the Treasury market"). He believes we are entering a new 40-year stretch where "what's good for the defense industrial base, the working class, the middle class" will define American success.
Shorting Real Value of Long-Term Treasuries and the Dollar: Groman advocates for shorting the real value of long-term Treasuries and the dollar against gold, Bitcoin, and stocks.
Running the Economy Hot: To manage high debt levels and fund entitlements, the US will likely resort to higher inflation. This was demonstrated post-COVID with 8% CPI, Fed QE, and rapidly rising asset prices.
Optimistic Case: Higher inflation will reduce debt-to-GDP ratios, boost nominal GDP, and potentially raise wages. The dollar's real value will be the release valve.
- Stocks: Expected to soar in dollar terms, though they may fall in gold and Bitcoin terms.
- Home Prices: Expected to rise in dollar terms but fall in gold and Bitcoin terms.
Pessimistic Case (Domestic Political Convulsion): If the US cannot hold together politically, the consequences could be severe. This could lead to stocks, bonds, and the dollar all falling significantly, creating a nightmare scenario for the Fed.
Foreign Investor Exposure: Foreigners hold $62 trillion gross and $27 trillion net in dollar assets. Any significant outflow due to domestic political instability would be highly disruptive.
The "Easy Way" (Relative): The "easier" path involves running inflation hotter for longer to manage debt, but it's not truly easy.
The "Fourth Turning" Dynamic: Groman sees the current period as aligning with the tail end of a "Fourth Turning," a period of societal crisis that historically culminates in major conflict. He believes this turning will end between 2029 and 2034.
Winners: Gold, Bitcoin, and stocks (in dollar terms).
Losers: Long-term bonds, and potentially dollar-denominated assets relative to gold and Bitcoin.

The Transition to "Suddenly All At Once" and Market Signals

Groman and Townsend discuss the analogy of the COVID-19 pandemic to illustrate the transition from gradual awareness to sudden realization.

Pandemic Analogy:

Early Awareness (2019): A few individuals (like Dr. Chris Martinson) recognized the threat.
Second Tier Awareness (Late Jan/Early Feb 2020): Smart individuals in finance (like Jim Bianco) understood the scope but were ridiculed as alarmists.
Sudden Realization (March 2020): The pandemic became undeniable, leading to widespread panic.

Application to US Dollar Decline:

Early Awareness (Luke Groman since 2017): Groman was writing about the dollar's decline when few listened.
Second Tier Awareness (Current): A growing number of smart investors (like Jim Bianco) now understand the implications, but the mainstream hasn't fully grasped it.
Impending Sudden Realization: Groman believes this "sudden" moment is approaching, driven by cross-disciplinary factors that are becoming undeniable.

Reasons for Mainstream Lag:

Distraction: Corporate media often prioritizes less significant news (e.g., celebrity gossip) over critical geopolitical and economic developments.
Cross-Disciplinary Nature: The issues are complex, involving economics, geopolitics, and industrial policy, which are not always integrated in mainstream analysis.
Stages of Grief: The US is still in denial or bargaining regarding its loss of leverage and economic standing.

Key Indicators of the Approaching Shift:

Supply Chain Analysis: A deeper look at supply chains reveals a profound dependence on China, even for critical military components.
Bond Market Vulnerability: The sheer size of US debt makes the bond market highly susceptible to inflation and rising rates, necessitating interventions like Yield Curve Control.
Geopolitical Triggers: Events like the SCO meeting and potential domestic political convulsions could act as catalysts.
Foreign Investor Sentiment: A shift in foreign investor confidence could trigger significant capital outflows.

Groman estimates this shift could occur within 6-9 months, driven by fiscal constraints, slowing consumer spending, and potential geopolitical or domestic political triggers.

The Role of the Bond Market and Financial Repression

Groman emphasizes the critical role of the bond market in the current economic paradigm.

Key Points:

Bond Market as Elephant in the Room: The global bond market, particularly US Treasuries, is central to the current system.
Inflationary Reshoring: Any attempt to reshore manufacturing and industrial capacity will be inherently inflationary due to the scale and time required.
Debt Death Spiral: High debt levels in Western nations mean that even small increases in interest rates can trigger a debt death spiral, leading to rising rates, falling stocks, and economic collapse.
Yield Curve Control (YCC): Groman believes YCC or a similar mechanism is inevitable to prevent the bond market from collapsing. This is a form of financial repression.
Fed Independence is Noise: The debate around Fed independence is irrelevant. The Fed is compelled to act to support the bond market and prevent a collapse, which requires anesthetizing the bond market.
Choices: The US faces a stark choice:
1. Bring back industrial capacity, which will blow up the bond market on a real basis.
2. Do nothing and lose the economic competition.
Inflation as a Tool: The US government has historically used inflation to manage debt. This will likely be employed again, running the economy "hotter for longer."

Postgame Trade of the Week: Financial Repression Thesis

Patrick Serzna outlines an actionable trade based on Groman's financial repression thesis: long gold and Bitcoin, short long-duration Treasuries.

Trade Structure:

Long Gold: December 2025 Gold Futures (GC).
Long Bitcoin: December 2025 Bitcoin Futures (BRR).
Short Long-Duration Treasuries: December 2025 Ultra Treasury Bond Futures (UB).

Sizing and Risk Management:

Notional vs. Volatility Adjustment: The trade can be sized by notional exposure or a volatility-adjusted risk parity framework.
Bitcoin Volatility: Bitcoin's volatility is significantly higher than gold and long bonds, requiring a smaller position in a risk parity framework.
Example Sizing (Risk Parity): For a $1 million long exposure, approximately $250,000 in Bitcoin (2 BRR contracts) and $750,000 in gold (2 GC contracts). The hedge would be approximately $1.75 million short in Treasuries (3 UB contracts).
Leveraged Traders: May consider tail risk hedges (options, overlays) to manage drawdowns.
Retail Investors: Options can be used to replicate positions synthetically with less capital and without traditional short-selling headaches. Deep in-the-money options can serve as a synthetic short.

Key Considerations:

Contract Mechanics: Understanding expiration cycles, roll costs, and liquidity is crucial for futures trading.
Quarterly Rebalancing: With ~90 days to expiration, traders need to plan for quarterly rolls and rebalancing.
Volatility Risk: The pairing is inherently volatile.

Market Analysis: Equities, Dollar, Crude Oil, Gold, Uranium, Copper, Treasuries

Equities:

Overextended and Overbought: The market is technically overextended and ripe for a correction.
"Run it Hot" Thesis: Policymakers are likely to continue financial repression and secular inflation, supporting the market.
Low Directional Conviction: Difficult to trade directionally, but volatility is expected to increase.
Market Breadth Deterioration: While the S&P 500 hits highs, market breadth has weakened, with many stocks downtrending.
MAG7 and Financials: A rollover in MAG7 stocks and a breakdown in financials (XLF) would signal a significant correction.
Technical Levels: Watching the 50-day moving average and Fibonacci retracements for signs of distribution.

US Dollar:

Secular Decline Expected: Groman's bearish dollar view is expected to play out, with a target of 89 for the Dixie.
Oversold Conditions: The dollar is oversold, and a short squeeze is possible.
Key Technical Level: Sustained price action above 98 is critical to neutralize the sell cycle.

Crude Oil:

Bullish Backdrop: Oil has been left for dead, with little interest despite positive price action.
Support Holding: Oil has held support around $61-$63, forming a base.
Potential Breakout: A move above $66 would be technically significant.
Asymmetry: Low interest and bullish price behavior suggest potential for asymmetric returns.

Gold:

Extraordinary Bull Market: Every dip is being bought, with long-term fundamentals remaining bullish.
Overbought Short-Term: Technically overbought, but long-term targets (3900-4000) remain in play.
Geopolitical Risk: The primary driver of the gold rally is the increasing geopolitical and financial risk in the system.
Risk of Intermarket Forces: Gold's ability to remain isolated from broader market corrections is a key question.
Strategy: Buy dips, don't chase rips. Use option overlays to secure gains.
Second American Civil War: Eric Townsend believes September 2025 marks the beginning of the Second American Civil War, driven by reactions to violence and political division, which is massively bullish for gold long-term.

Uranium:

Rotation into Spot: A rotation from speculative uranium miners into spot uranium (SPUT) is recommended as spot is still cheap.
Virtuous Cycle: SPUT's performance is beginning to catch up to term prices and prior highs.
Long-Term Trade: The uranium and nuclear trade is seen as just beginning, despite recent strong performance.
Correlation with AI: Potential for uranium stocks to be influenced by corrections in the AI space due to shared themes of energy consumption.

Copper:

Bullish View Confirmed: Expert opinions and recent news (Freeport-McMoRan accident) confirm a long copper view.
Technical Breakout Potential: A sustained move above $4.90 (December 2025 contract) could signal a long-overdue recovery.
Inflationary Driver: Copper's strength aligns with the expectation of running the economy hot.

10-Year Treasury Note:

Yields Testing Resistance: Yields are testing key resistance levels around 4.20-4.25%.
Anticipated Failure: The expectation is that yields will fail at this resistance and weaken, aligning with Groman's thesis of lower real yields.
Market Shift: A sustained strengthening of yields above these levels would indicate a significant change in the rates market.

Conclusion and Synthesis

The interview with Luke Groman presents a compelling argument that the global financial and geopolitical landscape is undergoing a fundamental, accelerating shift. The era of US dollar dominance and predictable economic stability is giving way to a period of financial repression, higher inflation, and increased geopolitical tension. Groman's "gradually then suddenly" thesis suggests that the subtle changes observed over the past decade are now culminating in rapid, impactful events.

Key takeaways include:

The US dollar's global prominence is in secular decline. This is driven by a loss of economic and trade leverage, coupled with critical supply chain vulnerabilities and a hollowed-out industrial base.
Financial repression and higher inflation are inevitable. Governments will likely resort to these measures to manage high debt levels and fund entitlements, leading to a significant devaluation of long-term bonds.
Geopolitical alliances are shifting. The SCO and other blocs are actively challenging the existing world order, potentially reintroducing gold as a primary reserve asset.
Market participants need to adapt. Investors should consider shorting the real value of long-term Treasuries and the dollar, while being long assets like gold, Bitcoin, and potentially stocks that can benefit from inflation.
The transition will be volatile. The move from gradual to sudden will likely be accompanied by significant market turbulence, geopolitical instability, and potentially domestic political upheaval.
The "Second American Civil War" is a real possibility. The increasing political polarization and the reactions to violence suggest a deepening societal divide that could have profound economic and market consequences.

The interview provides a framework for understanding these complex dynamics, emphasizing the need to look beyond traditional market analysis and consider the interplay of geopolitics, industrial capacity, and monetary policy. The actionable trade recommendation of long gold and Bitcoin against short Treasuries, along with the detailed market analysis, offers listeners a roadmap for navigating this uncertain but potentially transformative period. The overarching message is one of profound change, where the old rules no longer apply, and a new economic and geopolitical order is emerging.