debt spiral. Bessent has a debt spiral

problem today. That's why he acted. It's

why he acted two weeks ago. It's why he

acted yesterday. It's why he's going to

keep acting going forward.

>> Today's episode is brought to you by the

Tukrium Corn Fund, ticker C O R N. Let's

get into it. Got a very important

conversation today. I'm joined once

again by Luke Groman of Forest for the

Trees Research. Luke, welcome back to

Monetary Matters.

>> Thanks for having me back on, Jack. It's

great to be here. Luke, last time we

spoke in December, you had a thesis that

AI and the AI capex buildout would cause

borrowing costs on the long end to rise.

That was a pretty contrarian theory, but

here we stand right now and the

hyperscaler issuance for this year is

probably going to be about 500 billion.

And the long-end yields have risen a

lot, about 50 basis points since we last

spoke. So, the 30-year yield well over

5% and this this rise in yields has

caused market angst and so much so that

we actually had a news item from the

Treasury Secretary today. So, I sort of

set the stage for you today. So, why

have yields risen so much since we last

spoke and what is kind of the bombshell

that has hit markets um very recently?

>> A lot of demand for capital uh has been

driving it, right? You've got uh

essentially AI uh bidding for capital.

Uh Secretary

Bessant bidding for capital. The two of

them are competing with each other.

We're getting to the point, I don't

think we're fully there yet, where it's

a bit of a paradox because AI is bidding

for capital and bidding up the cost of

capital against a government who is

dependent on receipts, half of the

receipts from employment. and AI in the

short run I think is going to hurt

employment receipts. Uh it has to for

the AI case to make sense uh because

that's what productivity is in the short

run. And so uh that was it was really

two things. It was AI three things AI

bigger than expected government deficits

especially after the uh the tariff thing

was was was knocked down by the Supreme

Court and then the stupid Iran war. Like

if I wanted to if I wanted to do the

dumbest possible thing as the Trump

administration, I would have been I

would have attacked Iran and they did

it. So, uh we were showing people at the

time the day we attacked Iran, the

tenure was 3.94%.

You know, went out yesterday before

today's news at almost 4.74%. So, uh

that makes perfect sense why rates went

up. It was a very bad idea to do what

they did. They thought it would be over

fast. It wasn't. It isn't going to be.

And then that brings us to today where

uh Bessant came out and announced that

he's doubling the size of Treasury

buybacks which uh it makes perfect

sense. He needed to. People are saying,

"Oh, he he it looks like he panicked."

They said he should be panicking. The

the latest third quarter Treasury

borrowing advisory committee report.

We literally report wrote a report for

clients yesterday. Uh the title was 3Q26

TBAC report says that Bessant has an

emerging market hard currency debt

spiral problem today. And we underline

today. That was the morning of August

18th. August 19th. There we go. Um he's

managing managing uh long rates via

upsizing Treasury buybacks.

>> Treasury Secretary Bessant just did

literally today, August 19th, raise the

buyback level. So it's increasing by at

least double the size of liquidity

support of buyback operations for

Treasury securities, government bonds

from the 10-year to the 30-year sector.

So the long end support. So what what is

this program and how do you think it is

going to work or not work?

>> It's essentially

a version of depending on how you want

to spin it, operation twist. It's a soft

another soft form of yield curve

control. And you know, we were the

report we wrote for clients last uh the

the full report we wrote for clients

last week on August 11th, we highlighted

that that Bessence uh yen interventions

were a soft form of yield curve control.

And his uh admonishment to upsize the

FEMA swap lines so that Japan could use

them were a form of uh soft form yield

curve control. And we'd highlighted that

for eight his 18-month tenure, that's

all he's done is move down the path

towards yield curve control. The title

of that report was Secretary Besson

accelerates towards yield curve control

further down the road to yield curve

control. Whether it's the UAE swap

lines, whether it's the Japan swap

lines, whether it's the stable coin

thing, whether it's Treasury buybacks,

which he's now upsized, he's it's all

the same. It's all in the same

direction, which is

managing the long end uh by issuing more

at the short end. And that's fine. Um

that's totally fine. That's essentially

what he has to do. The trade-off to that

is that it's going to be inflationary.

>> I think part of the reason yields have

risen so much is Kevin Worsh has came in

and and when Kevin Worsh took over the

Federal Reserve, there was a time where

people thought he's so strong. He's so

hawkish. So, we've got to buy longdated

deal yields because he's going to have

inflation under control. What did you

make of that then and what do you make

of that now?

>> I thought it was then and I

think it's now.

And I wrote as much to clients. You

know, Kevin Worsh, people said Kevin

Worsh is a hawk.

Go read his December 2018 op-ed that he

co-authored with Dr. Miller. They were

begging

begging for the Fed to cut rates because

bank stocks were down 15% off the highs.

He's no hawk. And that's what he said at

the time. Everyone wanted to believe,

and this is the tricky part of markets,

right? The math was Crystal. A his own

record. He wasn't a hawk. be the math.

In the same way that the math suggested

that there was no way that Elon could

doge 200 or 500 billion or a trillion,

there's no way Wars could be a hawk. It

is mathematically impossible. And yet

for four months, you get these stretches

in markets where like everybody in New

York, you know, they all repeat the same

himnil. It's like, oh yeah, he's a hawk

and yes, sell gold, buy bonds, and what?

And and it's a frustrating time when

you're sort of sitting out here away

from Wall Street going what are you guys

smoking like do the math like no no no

he's going to get the math he's Kevin

Worsh he's he's not Powell and here we

are so it's it is you can sense the

frustration on my voice a little bit

because you just look at his math the

whole time the math hasn't changed now

the one thing that did change is this

dumb war in Iran like like if wars had

like even that much of a chance to be a

hawk and have it work out.

You couldn't you couldn't attack Iran.

That died on February 27th, his his

ability to be a hawk. And so here we

are.

>> What is the math?

>> The math is straightforward. Uh

entitlements plus interest plus veterans

benefits are right now through fiscal

third quarter 105% of receipts.

Receipts are near all-time highs. The

economy is good. You could argue

receipts are bloated by an AI

boom slashbubble that I don't know when

it's going to burst, but it will burst

at some point because every capex boom

smaller than this one in US history

going back 200 years have all burst.

And when that happens, receipts will

fall a lot because it has been a huge

driver to GDP.

And here's the kicker.

the the entitlements, interest, and

veterans affairs uh benefits, which are

all interestike obligations, they're

growing 7 and a half% year-to date.

Receipts are only growing four.

And the more you print, these are

essentially hard currency,

right? The Bessant doesn't owe boomers

dollars.

He owes them inflation adjusted dollars

and social security. He owes them hips,

knees, pharmaceuticals, doctor's time in

Medicare, Medicaid. And he owes veterans

pharmaceuticals, hips, knees, doctor's

time in veterans affairs.

So the more he prints, the more he

liquefies, the more doubbish he and

Worsh are, which they have to be,

the price of those things are going to

run away from them. Just as if Argentina

owed dollars. Just as if Venezuela owed

dollars. Bassin owes 100 to20 trillion

dollars worth of hips, knees, but it's

100 to20 trillion. Today, tomorrow it'll

be 120. Next week it'll be, you know,

next year it'll be 140. The year after

that it'll be 150. And this is the pinch

they're in. That's the math. That is

just the math. And, you know, part of

the problem is not their fault, right?

Like who's to blame? I had a discussion

about this the other day. Well, Trump's

to blame. No, he's not. If you look at,

right, I just said 105% of receipts are

entitlements, interest, and veterans

affairs.

Well, uh, of 80% of that of that receipt

number, right? So, $4 trillion a year

now

are

Medicare, Medicaid, Social Security or

Medicare, uh, Medicare, Medicaid, Social

Security.

Well, who who who approved those?

FDR,

LBJ

in 1935 and 1968.

And then you had 50 years of political

cowardice

cowardice

by every politician since because any

idiot with a calculator could go, "Wow,

75 billion 70 million boomers born.

Someday they're going to turn 65. What

do we do?" Well, Luke, it's a it's a

good thing that the population in the

United States is getting younger,

healthier, and that medical care is

getting cheaper,

right? Like,

so the math that they're facing, you

know, it didn't change because Wars is

younger and handsomemer and has better

hair. It didn't change because Secretary

Bassant ran a hedge fund and Janet

Yellen was an academic. The math is a

math. And I think today is the first

down payment on the recognition of in

the same way that I had to listen to how

well it's Elon. Elon's going to figure

out how to cut a trillion dollars. I'm

like, good luck with that. And I have

had to for the last four or five months

listen to oh well Wars is going to be a

hawk and Bessent ran a hedge fund and

Yellen was an academic so they're going

to figure it out. I'm like good luck

with that. Like today's the first day

where everyone's like oh god the math is

the math. There's the math of the US

government owes all of these all of

these things, all these off offbalance

sheet liabilities. There's also the math

of

Kevin Worsh has talked about inflation

and he says he's going to slay

inflation, but he keeps on referring to

this trimmed mean inflation and other

various measures of inflation that are

lower than actual inflation is. So, he

keeps on kind of laying doubbish

breadcrumbs that the market didn't

really pay attention to. uh for for a

while. But I I think he is and and

literally in the first press conference,

he said that maybe after we do all these

task forces, we'll you know there

doesn't have to be a zero at the end of

the inflation thing. It doesn't have to

be 2.0% inflation target, Luke. It could

be 2.1 or 2.9. Like how is that not

ridiculously doubbish? Like JPAL would

never say that.

I think like a lot of these guys around

this administration and and look to be

clear a lot of the problem was waiting

for them when they got in and they you

know we can see that in Bess's

pronouncements right how critical was he

of yelling

>> in 23 24 right

and then he gets in the seat

he does all the same things except

bigger and faster and and and harder and

you're like

and that just tells you right because

he's a very smart man obviously. So he's

not he's not making himself a hypocrite

>> for giggles.

>> He's not making himself a meme for

giggles. Like I got people with his face

on Yellen's hair on my X feed today,

right?

>> So like he's not doing that because he

likes that. He's doing that because he

has no other choice. And so

that is really and and that's you know

the correlary to all this that again

we've been writing for clients people

just didn't believe which is or

consensus didn't believe our clients

believed it I think but uh consensus

believe that once you get to a certain

point if he raises rates if if wars was

hawkish the long was going to run away

from him and if he was dovish the long

was going to run away from him. He

didn't have a choice. He his he didn't

have a choice about I want to contain

the long end. The only way to contain

the long end is how they're now starting

to contain the long end which is buying

it themselves. Yeah. The the Treasury

buying back. Well, Luke, it is funny

that Kevin Worsh's philosophy is I don't

want to influence markets. I don't want

the short-term or long-term interest

rate market, the Treasury market to

react to me. I want it to react to the

economy and how it's perceiving. And I

think he has this like 1970 view of how

the bond market is sniffs out all these

amazing things in the economy. But

literally Treasury Secretary Scott

Bessant who you know is pretty close to

the Federal Reserve is now doing actions

to contain long-end yields by by d more

than doubling the Treasury buyback. So

Kevin Worsh is saying I'm paying

attention to the market. I'm paying

attention to the market but the market

is being influenced by the Treasury.

>> Yes. And I would even add to that of if

you go back, Greg Gip at the journal

wrote an article two three weeks ago and

he was he pulled one of um it was after

I think Wars's congressional testimony,

whatever that whatever that was and Wars

is like we are going to stand aside. I'm

not going to be the referee. And then he

leaves a qualifier of unless we're in a

crisis and then I'm going to make sure

there's a fair price for assets, which

translates to I'm gonna make sure

Treasury bonds are low yields are low

enough so that the US government can

afford to make its interest payment.

That's like that's like I'm going to let

you know the Browns,

you know, win the Super Bowl or you know

I'm going to let the Browns go by their

own. It's silly, right? It's like

literally

other than that, Mrs. Lincoln, how was

the play? Right? Like if you if you're

not going to let bonds

settle find their level in a crisis,

then you're you're manipulating markets,

which is fine. Again, they don't have a

choice because we have 90 years dating

back to FDR

of these programs

and the demographics and the political

cowardice of our political class. And

then the again, you know, I don't want

to let the Trump administration escape.

This Iran war was so galactically

stupid. I can't even I just remember

watching going, "Okay, good luck, guys.

Have fun."

And it was the straw that broke the

camel's back. Really, when you look

back, it's going to be seen as the straw

that broke the camel's back. That's why

I bring it up.

>> Yes. You know, Luke, to to be honest

with you, I had on a lot of guests,

economists who when this you we attacked

Iran,

they said that this would be a a

disaster. And I think there was a lot of

push back to some of those economists

and those views may um and I think they

their predictions have been accurate.

Like it's it's tough to conquer a nation

that has 90 million people and um you

know has some of the biggest mountain

ranges in the world. like it's it's not

going to it's not going to happen. And I

think that miraculously like a lot of

oil the oil disaster has not been nearly

as bad as many people including myself

believed.

>> Myself too. Yeah.

>> It's not looking good. I mean

>> no it's it's it is uh

you know the Iran war was something that

I got three out of four things perfectly

right and the fourth was a a flaming

dumpster fire which is said it's going

to last longer than expected. Said

Hormuz is going to be closed longer than

expected. it's going to drive uh the I

said that the Treasury market will break

way before the Iranians or the Chinese.

Check, check, check. Which all three of

those were varying degrees of

contrarian. And then I said, "Look, I

think that you're going to have a

significant global supply chain

implosion as a result of A, B, and C."

And I couldn't have been more wrong. And

I think the things I got wrong on it was

number one there was some leakage

clearly, but the biggest swing factor is

that China took down demand by 3 to four

million barrels a day.

>> Some of that was running down a bunch of

it was running down their supplies, but

a bunch of it was also switching over to

EVs. Like they have gotten rid of like a

million barrels a day on EV demand. And

so it's ironic. I got that totally wrong

or paradoxical. I got that totally

wrong. And at the same time, me getting

that totally wrong also made the people

saying that the Chinese were most

screwed by this and were we were totally

going to have control of their oil.

Those people were galactically wrong.

They were told like like China now

controls the oil market as a result of

this action that was said to grab

control of China's oil.

You can't make this stuff up.

>> Yeah. And and actually the the chemical

products, refined products that human

beings and consumers and companies

interact with like jet fuel or gasoline,

they actually are stubbornly high, but

the price of oil has just been lower. So

the the refining margins have been

really really high. So like very high

>> marathon petroleum corp. Luke, how do

you think that this war impacts the

economy over the next six months? like

the economy in America is in some sense

because of AI booming and so it's been

very resilient to the high price of oil

but what is the impact on asset markets

whether it's oil or gold or bonds or

stocks the consumer just over the next 6

to 12 months how do you think the impact

is

>> I'll talk through sort of the different

factors as I'm thinking about them so

all else equal oil prices and and

commodity inflation would be higher

all else equal bond yields would be

higher now we're moving to contain bond

yields which is probably even more

inflationary for commodities uh but

doesn't necessarily negatively impact

bond yields. Uh containing bond yields

is also going to be good for nominal GDP

growth um and for financing for things

like AI etc. Um so it's probably good

for those things. And so when I sort of

like blend all of this and and when I

blend all of this together, I think the

war ends up being positive for stocks in

dollar terms and negative for stocks in

gold terms. Basically a continuation of

what we've seen.

>> So the the war is bullish for gold. That

is interesting. I I think that the top

in gold was actually right before the

war. Like normally when you see these

market like geopolitical um spasms, you

have gold rallies as a as a geopolitical

hedge, a flight to safety. But gold

often, unless you know, correct me if

I'm wrong, like was selling off on the

like the escalation news of of of the

war. And I wonder is it a degree that

literally like Iran is selling its gold

to fund its operations or something

else? Well, it's overall bullish goal

because the only way the US is able to

stop itself from a debt death spiral and

with it the West more broadly is by

keeping real rates negative. That's what

we're talking about here ultimately.

Today's move is ultimately just the

latest down payment in moving towards

significantly negative real interest

rates. And I what by mean significantly

significantly and that's good for gold.

Uh in terms of the war

the

yes the the price of gold peaked right I

think on the day that wars was appointed

or was announced by Trump right as I

think right at the end of January and

then sold off with the war.

I think gold was acting in through this

war like a reserve is supposed to. I

think it's actually interesting, right?

Historically, when gold was not part of

the system, gold got bid on wars. People

like, "Oh, I need to hedge something

bad." Gold's now part of the system

again.

It's it's a bigger share of FX reserves

than dollars are

than treasuries are. And so, because

it's rallied so much,

>> the S&P is at five is at 77,800.

Share count's down. How do we count the

S&P?

>> Yeah. Yeah.

>> Right. gold gold's point gold's price

rallying so much to make it the biggest

part of reserves is the whole point

that's the whole point

right in the same way that you don't say

hey I have this many shares of S&P in

your 401k what do you say what's my my

401k is worth this in dollars true so

gold's back in the system and so when

you're back in the system as a reserve

when it rains you got to sell and so you

can see gold was sold treasury bond were

sold. Uh both were sold um

by some parties. Now, China, who was

supposed to be being choked out of oil

and you know, their economy falling

apart did sort of the old take and bid

it. You know, hey, gold's down. Great.

Give me give me 10 tons this month. Next

month 12 tons, next month 14 tons, next

month 19 tons, next month 26 tons. Just

waving it in. So, and not everybody, but

yeah, central banks overall sold gold.

Um, they a bunch of central banks sold

gold. Central banks bought by just like

a little bit on a net basis in in the

calendar first quarter, but in the

calendar second quarter, gold buying

went back to basically all-time highs by

central banks. So, I think that's why

gold got sold off was exactly people

sold it because they needed dollars or

they needed uh or they needed oil. And

that also is a support for gold's now

back in the system. And and it and by

the way, it worked. Notice nobody needed

to do gold swap lines. Nobody needed to

intervene in the yen because people were

selling too much gold. It just worked.

And they didn't need Besson's permission

to sell gold

like US allies need reportedly

permission to sell treasuries.

>> Well, gold doesn't have a CEO. It

doesn't have uh you know, someone in

charge of running the gold.

>> No, that's exactly right. And and you

know, you don't need the the banking

pipelines to sell your gold unlike you.

Look, I I like Bitcoin long term, but

Besson's been talking about controlling

the pipelines and the and the uh um the

on andoff ramps to this. And purists

know you don't need on and off ramps for

Bitcoin. Um but I think probably at

sovereign levels, that's a that's a bit

much. But the gold is pretty easy to see

and it's you don't need anybody's

permission. So gold did what it was

supposed to do

in the war. If gold is moving back into

the system, if gold is now more

important a more important FX reserve

than treasuries are, which it it is that

is that's just a fact now. And I think

they're only going to go they're only

going to get more important going

forward with all the actions the US are

taking, which are effectively

communicating that treasuries are only

good for certain things if we say so at

certain times. And oh, by the way, we're

going to be we're going to be managing

the yield curve to to erode the real

value of your Treasury holdings. If I'm

a sovereign, I'm just saying, "All

right, fine. I'm done. I'll buy

whatever, you know, just gold." One of

those actions that Treasury has taken,

of course, is interfering, intervening

with the yen. tell us exactly what

Bessant did first with I think

interviewing you instructing European

countries to to interfere and then the

FIMO swap line which Timos Nick Timos of

the Lost Journal who you know we both

know is said um said it it wasn't in the

true spirit of the Federal Reserve

policy and then Treasury Secretary

Besson said some pretty nasty things.

Tell us uh your your view of what that

happened and where it stands now with

yen intervention. My understanding was

that the United States did not let the

Europeans know which apparently was a

violation of of international protocol.

Basically, Bessant came out and sold

euro. We've got I I think it was 11

billion euro uh in reserves uh on our on

our balance sheet and he sold those to

buy yen famously with the you know the

stylized Instagram you know sell yen

thing.

And I think the reason he did the

stylized, you know, thing was

essentially to try to get a bunch of

friends in the hedge fund community to

frontr run him and do the heavy lifting

for him. Hey, I'm going to sell 11

billion in euro and if you frontr run

it, you can, you know, he could get a

lot more bang for his buck. And I think

that's probably why we saw this little

stylized Instagram thing to let all

these guys know before he actually did

it. And

That's fine. It bounced back pretty

quickly, right? I haven't checked

levels, but it was it's already retraced

over half of of that that full

intervention if I'm not mistaken. Uh,

and then he talked about these these

FEMA swap lines. I don't know enough to

know about whether they're in the true

spirit or not. I would probably take

Nick Timouse's word on it. He's he he

knows that. Um, Bessant was honked off,

you know, with the nasty Graham about

about Nick

and I think we are getting into, you

know, this sort of infighting between

these two gentlemen or you know Bessant

saying that I think smacks of the

desperation that Bessant feels

which is the end of the day the Fed's

job is one thing finance the US

government and the Fed likes to play all

koi and we're independent and blah blah.

blah blah blah. At the end of the day,

that's their job. And the problem is is

they never thought it would happen

again. Happened in World War II. It's

happening again. And I don't think the

Fed likes that or certain certain

interests around the Fed certainly don't

like that. But that's their job. That's

always been their job. That's why

they're there. That's what Wars said

when I said, "I'm going to set a fair

price for bonds." And so I think Bessant

was just pushing him on it. And how much

of the intervention is when the yen is

super strong, it makes yen exports very

competitive and US exports which we want

you know in America manufacturing less

competitive. How much of it is that? How

much of it is a potential weakening of

the yen would force Japan to sell its

treasury holdings to defend the yen

which Besson doesn't want?

>> I think it's much more the latter. Uh we

wrote a report for clients in August of

2024.

If you remember late July, early August

of that year, um the yen strengthened a

bunch and it started to trigger an

unwind of the yen carry trade.

And I wrote that report because that had

caught me kind of by surprise because

I'd kind of forgotten about it. It spent

so much time

focused on the dollar carry trade that

has been created after Bernani cut rates

to zero. So everyone been highlighting

for for and and I've been talking about

forever

there's 13 to 14 trillion a dollar

borrowing offshore.

Foreigners own $22 trillion net $65

trillion gross of dollar assets

including nine and a half trillion of US

treasuries. And anytime the dollar gets

too strong, they are going to sell

bonds, treasuries and stocks to raise

dollars

to cover their dollar short to support

their currency, right? Because they've

borrowed 13 to 14 trillion in dollars.

And I've been focused on that leg of it.

And what caught me by surprise and what

generated that report in August of 204

2024 was oh my god I forgot there's also

a yen carry trade and if the yen gets

too strong it triggers

forced selling of stocks bonds around

the world

and that was the moment where I

>> if yen gets too weak

>> no no too strong

>> oh

>> because they borrowed in yen too there's

a yen carry trade too

>> oh okay yeah

>> and so but that highlights your point

which And that's why I wrote the report.

That's where I knew like they're done.

Like now we know they're done

because if the yen gets too strong,

they're screwed. You have a crisis. If

the dollar gets too strong,

you're screwed. They have a crisis. And

dollar on opposite sides of each other.

And so at the time, what I said was

tactically what they're probably going

to have to do

is cut interest rates. This is August of

2024. September 2024. They cut rates 50

basis points in a surprise. Everyone's

like, "Oh, he's doing it to move the

election." I don't know. I think it was

because of this.

Um, and then they're going to have to

inject liquidity, sort of break and spur

yen and dollar, they the US and Japan to

keep the dollar yen in rangebound where

it doesn't blow up the yen carry trade

and doesn't blow up the dollar carry

trade, which are just two opposite sides

of the same coin.

I said it's probably going to be really

good for gold. It's going to be really

good for Bitcoin. Be good for

industrials. Check, check, check. I said

it'd be good for emerging markets

through the end of the year of 2024 and

that was good through like October and

then Trump won and it was terrible for

emerging markets. So, you can't win them

all. Gold has since ripped huge. But you

fast forward to today

when the yen thing happened. It carried

so much more weight for me because it

wasn't, oh, this is just a one-off. This

is they were screwed two years ago. It

was over. Now you're just sort of moving

pieces around the chessboard, playing

for time before you're checkmated.

They're in time trouble.

The yen thing was the stupid Iran war.

Like what?

What are you doing? What are you doing?

You literally you you have this very

You're screwed in August of 24. Yen gets

too strong, you have a crisis. Dollar

gets too strong, you have a crisis. you

need to not create any ripples. And Mr.

Bull in a China shop, Trump comes in

and does a trade war. And then he starts

a real war when he said he wasn't going

to start any real wars. And so guess

what happens? The yen gets killed.

Energy costs go up on the yen. So now

the yen So now the yen b JGB markets

sell. So it completely destabilizes the

whole thing. And so like I wrote last

week for clients in one of the reports

essentially if the goal of the Iran war

was to basically completely undermine

the US's position and clear the decks

and create a crisis that then gives you

a way for a reset of the system where

gold comes back into the system as a

neutral reserve asset at a much bigger

number, then this Iran war has been a

smashing success.

But if that wasn't the goal,

either Trump needs better advisers or he

needs to listen to him better. So that

to me when I saw the yen thing, this yen

thing was really, oh wow, it's going

acute again. This has been a two-year

story at least.

And he's Yeah, he's basically trying to

prevent the net international investment

position unwind. You know, if the yen

gets too weak, dollar gets too strong,

the Japanese sell bonds. That's what

they're going to sell. They sell what

they can, not what they want to. And

they're going to sell bonds into an

environment where AI needs to sell a

bunch of bonds. And they're going to do

that into an environment where the

projected net borrowing for Bessant for

the next two quart next two quarters 1.4

trillion net net debt spiral. He was as

I said at this the report yesterday.

He has a debt spiral problem today.

That's why he acted. It's why he acted

two weeks ago. It's why he acted

yesterday. It's why he's going to keep

acting going forward.

>> Hope you're enjoying today's interview.

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results. Thanks for listening. Let's get

back to today's interview. What do you

think is a greater risk to Treasury

Secretary Bessin? rising Treasury yields

in dollar terms or a weakening dollar

against other currencies because today

the dollar is weakening a and yields are

actually falling back on this buyback

announcement.

>> And that's exactly what you'd expect.

The weaker the dollar gets, the lower

yield should go. Um hedging costs for

the dollar go down. Um global economic

growth picks up, global balance sheet

capacity, right? that that but up to a

point because at some point the dollar

gets weak enough inflation expectations

start picking up and now your long end

is going to go ah that's too weak and so

he's been he and Yellen have been trying

to manage us between these two you know

dollar gets too strong treasury market

gets hit gets too weak treasury market

gets hit and the problem is the more you

keep adding debt you know those two live

wires that they're ow

they keep narrowing

and so if you wanted to like main like

kick this can as far as you could the

last thing you would do is start a dumb

war in Iran because when you did that

this gap which was closing slowly as

debt grew

we're going over 40 trillion what today

tomorrow next week something like that

um you know I talked to somebody this

week like I used to work in Treasury not

that long ago like like eight years ago

six years ago and like we thought 19

trillion was a problem like it's doubled

So

he is now stuck between these two live

wires. Dollar gets too strong, treasury

market's going to sell off hard. Dollar

gets too weak, treasury market is going

to sell off hard. All else equals a

modestly weaker dollar helps him. Uh it

buys him time, but ultimately he's going

to have to do something very drastic

because

again,

where's he spending his money? 15% of

it's discretionary. 80% of it's going

to, you know, going to boomers and going

to uh interest. And the weaker the

dollar gets, the more expensive those

services get because docs aren't going

to work for free.

>> What is your outlook on, let's say, the

10-year, which is now roughly 4.7%.

Where is the line in the sand at which

it has to go low? It it cannot go above

that in your view. and the the

government is going to act very very

strongly to to prevent it getting to

those levels. So clearly you're bearish

on on treasuries. I I I presume. But at

at is there a limit to it? Cuz I I don't

think you're a guy saying the tenure is

going to go to 8%. Cuz if the tenure

goes to 8%. Yeah. You exactly you're not

you're shaking your head. Then you think

there's you know all sorts of

consequences that we've been talking

about so far. So where where is this

line in the sand? And you know we we

know you're bearish on treasuries but

just how bearish?

>> I'm bearish on a real basis, right? Yes.

And that's kind of where I've always

been. I mean, not always, but but for

probably the last

two years, it's really been on a real

basis, maybe almost three years, which

is

over 48 on the 10-year,

bad things.

And look, if it goes over 48 and goes

into a debt spiral, you want to own

gold. And if they inject liquidity to

stop it at 48, you want to own gold. And

so to me,

I I I don't know that I'm not that

really nominally bearish on on the long

bond here on treasuries here for very

simple reason as you just said, which is

they can't afford it. You know, what are

the odds? What odds would I ascribe to

the United States government nominally

defaulting on its treasuries on its

entitlements or veterans benefits? Zero.

That's never going to happen. And that

makes this a really on one level easy

trade, easy macro trade. Okay, then

what's the level where you start to have

problems? Well, we can see that 47, 48,

46. Depends on what's where's oil at,

depends where the dollar is. Um,

but end of the day, 4748,

here we are. They got to do more and

they won't let it go beyond that. And if

it does, they'll have to do more. And so

I go, well, do I want to buy the long

bond? No, I want to buy gold on that.

you know, and and that's, you know,

since 2014 when global central banks

stopped buying uh treasury bonds on net

uh in gold terms, the treasury, the TLT

is down 90 or 95%.

I think it's got another 90 to 95% to go

against gold and I don't think it's

going to move that much.

>> And and so that 95% move, you're

absolutely right. Part of that was gold

going up. Part of that was bonds selling

off in value, aka the yields were were

rising. So, but you think that the next

90% move is mostly going to be gold

going up, not

>> all gold.

>> Yep.

>> Yeah.

>> Um, so if you're like bearish on on

treasuries, but you think it has to be

pinned pretty close, would you actually

say you're kind of a, you know, a bear

on fixed income volatility, like you you

you'd actually be a seller of uh

straddles on TLT rather than a buyer? I

I think I I think treasuries are going

to stay more volatile simply because,

you know, there was an article last week

in the FT that hedge funds are now 8 and

a half% of the of the of of the treasury

market. They own eight and a half%.

They're bigger than Saudi, they're

bigger than Japan, they're bigger than

China, they're bigger than all these

guys. And a lot of that's the highly

levered basis trade, right? So Treasury

Vault, I think, has been elevated. I

think it probably stays elevated. I

don't know. going to get a lot more

elevated from where it is um

sustainably, right? I I think they'll

this part of what we're doing, right?

This isn't a volatility dampening

exercise. I would rather I'd rather own

gold. I I think it's I'd rather I'd

rather own US equities, right? Is

>> um in dollar terms, right? Short

>> shorting Argentina stocks in Argentine

peso terms is a stupid thing. It's had

been a stupid thing for a long time.

Shorting American stocks in dollar terms

is not a good idea. Shorting them in

gold has been a great idea. I mean, you

you know, since since Powell raised

started raising rates in early 2022, you

S&P total return in a very good market,

it's down almost 30% against gold. Um,

you know, since 2000, it's down 50%

against gold still. So, especially given

the La La Land valuations in in anything

related to AI and tech, certainly as a

percent of the economy, I think we're

going to I think gold's going to

continue to outperform equities over the

next two to five years. You know that

now on volatility, right? I do think

you'll have volatility, probably more

volatility there. Um because people

still don't believe this is what's going

to happen. What that this is this is

what the math says has to happen. I have

extraordinary conviction of that. Now,

the path speaks to your volatility,

right? We had a four months where where

people that went to the best schools in

this country believe that wars had the

flexibility to be a hawk.

It's sixth grade math, guys. Come on.

But this narrative game, that's part of

the game. I get it. It's frustrating to

me, but I get it. So, these narratives,

these narratives are where the

volatility will come. And that's, you

know, that's why gold's up 120 bucks. We

got on this call, right? people people

actually believed people went to Yale

and Penn and Wharton and Harvard that

he's going to be a hawk. Come on.

>> Yeah, I I uh I I agree with you and it

it's looking like the evidence supports

our view. And also, Luke, I think

there's a tremendous amount of evidence

that President Trump, Treasury,

Secretary Scott Bessant

want lower yields. whether or not it's

for Luke's reasons of of debt to GDP uh

um you know tax receipts and stuff or

it's just because they want a a stronger

housing market. It doesn't matter like

they all three of you are on the same

page. They want lower yields. Definitely

>> you got to have lower yields. I mean it

just the math is the math on on the

fiscal side. They've just you the last

time debt to GDP was here 110% debt to

GDP was 1946 and we got it to 55% in

five years. And so I hear all these I

hear I just laugh. Um you're going it's

like Morning in America like Reagan.

Well, Reagan did this. Reagan did that.

I'm like guys

Reagan had debt to GDP of 30%. Because

they had run debt to GDP from 110 down

to 25% from 1946 to 1970. How did they

do that? They killed bond holders on a

real basis between 46 and 51. Right.

We've heard the the Fed Treasury Accords

come back out. We're going to have some

new version, guys. Real rates bottomed

from 46 to 51 at -3%.

Bond holders lost all their money on a

real basis basically from 46 to 51.

All's too strong. They lost probably

half to twothirds of their money on a

real basis in five years.

That's what has to happen. You want

Reagan? Great. Clear the decks, guys.

Now,

I think the most interesting question

maybe is is this the down payment on

that? You know, is this this this uh

Treasury buyback upsizing? I I think it

probably is.

But again, it's a political game, right?

You know, if it was me, I could have

this thing done by the end of the month.

It's like the easiest thing in the world

mechanically,

but you know, you have people chirping

in Besson's ears. He's got to go to the

dinner parties and listen to all his New

York buddies go, "Oh, you're killing the

bond market, dude." Like, yeah, that's

what has to happen.

>> You could You could get it done in a

month. What What What has to happen?

>> Oh, that's simple. I um I take the

exchange stabilization fund.

>> Okay.

>> I start bidding gold. Aggressive.

Aggressive.

And then I also announced that from now

on all deficits with China, all trade

deficits will be settled in gold. We've

kind of been de facto doing that. I

essentially once gold's run up to a

really big number, I instruct Worsh to

revalue the gold and I do that that in

doing that that creates a deposit free

and clear of dollars into the TGA.

That's just money creation using the

gold. That's like the the MMT platinum

coin trip except it's actually on the

books in the Federal Reserve manual f

>> but it's real. Yeah. The US has tons of

gold that is on it's valued at an

absurdly low level from when we bought

it at like4 $40 or something,

>> right? So, say gold goes to I don't

know, let's take it at 20,000 for easy

math.

>> Yeah.

>> The TGA deposit is going to create $4

trillion. You know that the the that

that coin trick four trillion into the

TGA

now I'm best and I can buy back

everything

in cash beyond probably five years. Then

I roll out the Clarity Act

and stick the rest of it into stable

coins.

And then the my last little special

surprise for everybody is hey a stable

coin T bill doesn't yield three and a

half yields 60 basis points. Have a good

day.

Done.

Now who wins? Who loses?

Treasury holders get killed. Inflation

goes nuts. Wages go nuts. Nominal GDP

growth goes nuts.

Great. It's what we need.

Bond. Who who who holds all the bonds?

Banks

>> who got bailed out and never paid for it

really. and

boomers.

>> Mhm.

>> Who are the richest generation in

history and are consuming 80% of the

budget and not paying for it. You just

paid for it, guys. Thank you for your

donation. Thank you for your service.

Done. It's that easy. Now, politically,

you're going to have inflation. You're

going to lose the midterms. You're

But it's easy mechanical fix. It's like

the easiest thing in the world. Stock

market goes nuts, by the way. Nuts. Dow

probably goes from 50,000 to 100,000.

Corporate earnings go nuts. Hiring goes

nuts. The debt's the problem.

>> How high do you think inflation goes in

in this Luke Roman scenario?

>> 10 15% for a couple years.

>> The revaluation of the gold, how does

that create 4 trillion in the TGA?

Um, tell us about that. Like, is it is

it on whose balance sheet exactly is the

gold now? I know the the Fed's probably

involved. They have certificates and

then like yeah where's that where's that

TGA come from?

>> So if you go to the Federal Reserve

manual for um financial accounting

manual excuse me for Federal Reserve

banks it's a public document it's

published at least once a year section

2.10 says that the gold is held at 42

the Treasury Secretary at his sole

discretion can instruct the Fed to

revalue it. It's basically and by

revaluing it from 42 to whatever that

market price is, which you could get it

up there. I could get it up there, I

think. Um,

especially if the Chinese are on board,

which I think they would be. And

that would that mechanically creates a

uh a deposit of of cash into the

Treasury General account at the Fed.

It's basically just debit gold, credit

cash, right? It's, you know, you're

increasing the value from 42 to 20,000.

You have to have an offsetting at

journal entry. It's

>> four, it's uh uh um 261 million ounces

times 4,000 every $4,000 is roughly a

trillion. And so five,

you know, 20,000 up from here from 42

that's uh basically five fours. So five

fours. So uh yeah, five trillion, right?

Every 4,000 is a trillion. Five of those

is 5 trillion. this just mechanically

gets deposited into the TGA. That's that

might be one of their only ways out of

this actually now that we're into this

period where your interest and interest

like obligations are growing nearly

twice your receipts and your receipts

are inflated by AI which isn't going to

keep bubbling forever.

>> Well, we'll get to AI in a moment. Yeah,

Luke, when you said I do it in a month,

I was like, okay, I'm going to challenge

Luke because how can he do 1946 to 1951

in a month? But I see you're going

you're taking to the next level.

>> I I could do it in a month. I mean look

there there we are now at the point

where there are no pleasant ways out of

this you know we are now into a you know

dancing along the edge of a debt spiral

and it's it's the entire west and you

know China ain't going to end up great

in that outcome either so

once you get to here the w the the

Overton window of possibilities

starts to blow out immensely right uh in

terms of policy options

This is a policy option and it's it

would work. I mean, inflation's in the

cake. Like, don't kid yourself. We're

going to hear every apologist on X

telling us this isn't money printing and

it's not inflationary and it's

You're taking longend bonds and you're

moving them to the front end and you're

going to cut rates. That's inflationary.

You are money financing stuff. Stop.

Stop. Don't Don't lie to people. It's

inflationary. Luke, if in this scenario

where you're doing this in a month,

wouldn't you kind of have to lie to

people and you you know, you you'd be

like one of those guys who used to talk

so tough on the outside, but now then

when you get to the inside, you're like,

it's actually um Jack, it's actually not

funny printing.

>> No, I would be honest. Actually, I would

do the FDR thing. I would sit down with

the American people like a fireside chat

and I would say, "Listen,

something that is extraordinary is going

to happen over the next month."

And the reason it's happening is because

your leaders have been lying to you for

80 years, 90 years. They told you you

could have free stuff and never pay the

cost.

And that's a lie. We all know you're

you're all adults. There's no such thing

as free stuff forever.

And I'd run through I'd say what I said

to you. 70 million baby boomers were

born from 1946 to 64. And yet your

leaders pretended like they were never

going to turn 65.

They were always more interested in

themselves than in doing what is best

for the country. And as a result of

their lack of courage followed by the

lack of explanation and courage around

Medicare, Medicaid, the lack of courage

around Vietnam, the lack of courage

around the the the Iraq war, the lack of

courage

around the bailouts and how they were

handled politically, the lack of courage

around COVID, which we're seeing in a

big way. those people lie to you. I'm

not going to need a lot of uh help

convincing people that their government

has been lying to them badly for 90

years. Here's what's going to happen,

American people, as a result of the lies

your government has told you for the

last 90 years.

We're going to get rid of the debt.

Doing so is going to be inflationary.

The effects of this are going to be very

inflationary. However, the inflation is

not going to be evenly distributed. It

is going to be most painful to those

areas of the US economy and world that

benefited most from this arrangement.

Washington,

Wall Street, and retirees.

And it is going to be least painful for

those who were hurt most by this

arrangement,

the working class, the middle class,

wages.

And then I stand aside because I don't

want to run again. Why would I ever run

again? I wouldn't want to be in that

cesspool for more than five minutes if I

could avoid it.

>> Luke, in that environment, don't long

yields rise a lot?

>> No, because the Fed's going to buy them

all.

>> Okay.

>> There are no long yields. It's not a

market.

>> No long yields. I also was thinking,

Luke, if long end yields do rise, maybe

you as the zar, the monetary zar,

actually want that because then you

could buy them at higher yields, aka

lower prices, which I actually think is

kind of like what Germany did. You could

do that. I mean, yeah, you could do

that. And and look, because oh, by the

way, the gold holders, I would, and I I

said this to you at the end of uh maybe

not last time, but two times ago where

you asked me, "What yield would you buy

10 years at?" And I no yield. It's not

about the yield. It's about the price of

the dollar. At $20,000 gold, I would buy

10-year paper at

it's fascinating. We're watching in real

time the more the yuan collapses against

gold and it has collapsed. Everyone's

been w waiting for it to collapse

against dollar. The yuan's collapse

against gold. What's happened to Chinese

yields? Down, down, down, down, down.

At the right price of gold, you're

basically going to have a gold

collateralized deacto treasury market.

And in a gold collateralized bond, and

Judy Shelton's work has done a lot of

groundwork around this, and

2% interest rates for the long term, if

it's gold collateralized, maybe three.

That's the part people are missing. Gold

at a high enough rate doesn't destroy

the Treasury market. It collateralizes

it. Now, on a real value, yeah, it it

it's it's it's a restructuring, no

question. But these people need to be

restructured. That it's it's an

insolvent market. And the there's enough

gold at at $20,000 gold. There's enough

gold to back the treasury market.

>> No. No. Uh I think the market's what 30

trillion today?

>> Yeah.

>> $20,000 gold is going to be worth

officially 5 trillion, right? So that's

but

if you look at the treasury market and I

don't know these now I want to say the

five trillion probably takes you it's

probably 100% of everything over

at least seven years and maybe over five

years

and you can buy it all back

and then you know you want to reissue it

bills you want to resize that however

you want to do that you can certainly do

that but That's

that is that it's a paradox. You would

think that with inflation ripping and

gold at 20,000 as you know gold at

20,000 inflation ripping in the short

run it would be terrible but you're

basically restructuring it on the other

side you're going to have lower yields.

>> What about though when debt grows faster

than gold supply as has happened before?

>> Right. Remember what you said before

gold gold need another revaluation,

another another revaluation of gold

higher, aka another deval dollar

valuation.

>> You would need to you would need some

sort of agreement where the problem with

gold is when you peg it to some to a

currency.

>> Okay. So, you're not you're not

suggesting a peg?

>> No, not at all.

>> Okay. Okay. Got it.

>> No. No.

>> Yeah. I I'm with you.

>> No. What you would do is essentially

you're going to settle in gold now,

right? And I think that you would

probably have some sort of agreement

where you would say, "Look, if you're

going to peg anything to anything,

you're going to pay gold to oil at a,000

barrels an ounce." And oil doesn't move

a lot.

>> Right? So, or say 500 for easy math. Um,

you know, $40,000 gold, $800 or $80 oil,

excuse me.

And that you could do something like

that. You could, you know, you don't

have to do this through Bessant. could

do this through agreement with between

China, Russia, and the Arabs. Hey, we're

going to sit down. We're going to do a

conference, and from now on, oil is or

gold is is is

500 barrels

for an ounce of gold, and we will have

devalued oil, which backed the dollar

for 50 years, deacto, against gold,

which backed the dollar for pretty much

the rest of American history.

And in so doing, we will have created an

economic marketbased incentive

Now, if America wants to have a lot of

oil for national security reasons,

great. We all know we need $70, $80.

Maybe we need $60, right? We can't do

less than 60. Okay, 60. 500. Boom.

30,000. You got to have $30,000 gold.

So, the whole exorbitant privilege goes

away. We can't we can't print dollars

for oil anymore. That's fine. The

Chinese, they want cheap oil because

they don't have any oil. Not Not enough,

certainly. Right. as as we've all been

that's they don't have nearly enough oil

relative to to what they consume great

they need cheap oil that's fine but if

you have cheap oil then you have cheap

gold and so cheap gold in yuan expensive

gold in dollar what's going to happen to

the currency yuan's going to strengthen

a lot against the dollar China's ability

to be mercante list will also be

hamstrung or limited by that arrangement

by pegging gold or oil to gold the

Europe Europeans, same thing. Hey, we we

don't have really oil resources and you

know, so we need to incentivize EV, so

we want relatively expensive oil. So So

EVs make sense. Okay, 100 barrel, 100

euro, boom, 50,000 euro gold. That's I

think that is ultimately where we'll end

up. I don't know if we'll end up there

without a war or not, or if we'll end up

there, but that's that's another way you

could do it. And then if we did it that

way, then boom, then you can revalue the

gold using that. That probably requires

some sort of international agreement.

Um,

probably just between the US and China

and, you know, a couple of the Arab

countries would be more than enough. You

know, strongarm everybody else.

>> So, I'm going to read you a quote. Gold

can't have a fiscal problem. Gold cannot

have a giant budget deficit. Gold cannot

have a war. That's what Treasury

Secretary Scott Bessant said to Tucker

Carlson on April 7th, 2025.

Um, what did he mean by that? And I

presume there are elements of that that

you agree with, but how is it that he's

saying that? Because he's he doesn't

he's not the treasur treasury secretary

of gold. He's the treasur secretary of

the United States.

>> Tucker asked him about it. Um it's you

can find that quote on um you know

online and and and you know I think

there's a treasury transcript of it as

well um last April when he was on with

Tucker Carlson April of 2025 and he said

it and I think Tucker asked him about

gold and and

Bessin said hey look I would probably be

considered a gold bug when I ran my

fund. Um, and that's when he laid out

that that math uh or that those quotes.

>> Is he and is that philosophy, do you

think, going to be affecting his views?

Like, is he going to be doing the Luke

Roman playbook or even the Luke Roman

playbook?

>> I hope so. It would be the best thing

for America. People say gold's

anti-American yet the best parts of the

best times in this country have been

when we've been, you know, we we've had

a neutral reserve asset. And and

>> when were the best times in in the the

country?

>> Oh, I would say from uh Hamiltonian

through, you know, uh 1971.

>> Mhm. Okay. Um

and you know critically

he updated his thoughts I in my opinion

as it relates to that which is in June

of this year he gave a speech at the New

York Economic Club where about

Hamiltonian economics and in case

anybody thought he was speaking out of

turn he wrote an op-ed in the Wall

Street Journal that same day. It said

Trump's economic state craft is based on

Hamiltonian economics. What's

Hamiltonian economics?

neutral reserve asset, high tariffs,

tax foreigners to pay for America rather

than tax Americans to pay for

foreigners.

Trump in in uh early 2025 said, "I want

to take us back to when America was

wealthier and more powerful than ever,

1870 to 1913, we were taxing foreigners

to pay for Americans rather than taxing

Americans to pay for foreigners." uh at

Davos earlier this year, US trade

representative Jameson Greer came out

and gave a speech about Hamiltonian

economics, got lost in the shuffle of

Carney and his elbows up and the world

order's over and all this crap and he

said, "Listen, we're moving back to

Hamiltonian economics and he

specifically called out that Keynes's

neutral reserve asset proposal at

Bretton Woods was a better idea." So I I

think Bessant is absolutely on board.

And you know, you can say, okay, well,

is some of what we're seeing today,

could this all be sort of a 5D chess

move in that direction? Possibly. He's a

very smart man. It's very possible. You

know, he's smart. I am. But I hope we're

getting in that direction. But yeah, I

absolutely think he he he would it would

be a good thing for the United States.

It' be a great thing for the United

States.

>> Very smart man and has read, you know,

many of the same books about Hamiltonian

economics that you have read that that

to be honest, I have not read. But Luke,

here's what I do know is that Hamilton

could fund the the tiny US government

spending that we had by like taxing

whiskey and taxing imports. We can't do

that. Okay. There's tariffs would have

to be 10,000% to fund social security

with with tariffs. And we've seen the

challenges that tariffs have had over

the past 18 months. What does this

Hamiltonian philosophy really mean in a

world that's, you know, 2026 and not

1826?

Well, I think it's it's important to

overlay a part that I left out, which is

you become self-sufficient. That's the

key. You know, that's the why of the

tariffs, which is it's almost a Henry

Ford type of economy, right? The Model

T. Hey, why do you overpay your workers?

Why do you pay your workers above a

market rate, Henry? Well, because I want

them to be able to afford the cars

coming off the line because that's a

sustainable business model. what we have

done through neoliberalism and free

trade, which is too, because

we don't actually engage in free trade.

We engage in free trade in things we

want to. There's no free market in the

dollar. Come on. Um, you know, as as

we've been seeing, right, we're

intervening in the Treasury market

repeating.

>> I don't think that was particularly free

market.

>> No. So

the goal here is to get back to instead

of the Chinese making the US military

for us because we can save 40% on labor

and we can have all-time record

corporate profit margins.

We get back to making a lot more of our

own stuff.

Corporate profit dollars go to all-time

highs, but corporate profit margins are

lower,

which is also, by the way, what you need

to narrow the gap between the top end of

the K economy and the bottom end of the

K economy. Because if we don't do this,

we're going to go back to 1855, 1856,

1861. That's where this is going.

There's going to be a lot more manonies.

There's going to be a lot more Charlie

Kirks. There's going to be a lot more.

If we don't narrow this Hamiltonian

economics or an economic policy that can

narrow the K, the legs of the K, they

can drive massive growth, a renaissance

because we've spent 40 years hauling out

our industrial base. I mean, perfect

example.

Any economist will tell you one of the

easiest ways to look at the real

economic growth and power of a country

is to look at its electricity

generation. How much energy is it

generating? United States has not

generated did not generate any more

electricity from 2004 to 2024 flat for

20 years.

Most of the growth of the US economy

from 2004 to 2024 was inflation

price

fine

but we're the exciting thing about it

is we're now moving in that other

direction. We're building our own

electrical grid. much more of it. We're

going to try to catch the Chinese on

electric. The Chinese when this started

had less than half our grid in 2004.

They now have over 2x our grid. We're

chasing them.

But do we want the Chinese to make the

grid for us? Or do we want to make it

ourselves? And if we want to make it

ourselves, we need to put up tariffs

because I'm not going to invest in a

metals factory in America that has to

compete against the Chinese.

>> No businessman is. You're not going to

put your capital that. That's that's the

other side of of Hamiltonian economics

of self-sufficiency or a much greater

degree of self-sufficiency. And people

say we don't want that. We you know

did you like having to wait for the

Chinese from COVID? Do you like having

the Chinese make your military? If the

answer to those questions are no, then

you're in favor of terrorists. You just

don't know it yet.

>> Luke, tell us about the AI boom we're

having. You know, as a result of the AI

capex, real GDP forecasted to be 4%

which is just huge. So we're because of

AI having an industrial boom. You've

you've showed us a chart showing how

over the next six years the AI buildout

is going to be as a percentage of GDP 3

and a half% so multiples higher than

telecom than highways electrification

canals even higher than rail roads which

was previously the high I believe in

percentage of GDP capex.

What what is your outlook here on the

spending? are, you know, are you a a

bull on semiconductors, a bear on

semiconductors?

Uh are you a uh you know, do do you

think this revenue that we've had from

anthropic and open AI, this revenue

growth that has been tremendously high

is is sustainable? What's what's your

outlook here? Are you using it? I want

to know your thoughts.

>> I think AI is going to be revolutionary.

I think it will drive a productivity

miracle uh eventually. But before it

does, I think it is going to undermine

the tax base of the United States that

already has a fiscal problem because

half of the tax base comes from jobs and

a lot of those jobs are white collar

service jobs, you know. So, the biggest

employer in I think 39 US states. Um,

this was the New York Times a year ago.

Uh, 39 US states is healthcare

administration,

uniquely suited to being

disintermediated massively by AI.

And all those people have mortgages,

they all have cars, they all have

student and consumer loans that they

will then default on. Right? So I I

think for me AI is a case of the early

bird gets the worm, but the second mouse

gets the cheese. I think it's going to

be massively productivity enhancing and

I think a lot of these current companies

are going to be bought out of bankruptcy

by somebody um that then gets really

rich on their business model. Uh like we

saw with telecom, right? All the telecom

guys laid a bunch of fiber. Massive

productivity enhancer. Oops, bankruptcy.

People buy it out of bankruptcy. We're

still using that. Railroads. Massive

productivity enhancer. Massive capacity

increase.

Oops, bankruptcy. People bought them out

of bankruptcy. They are still valuable

assets 150, 160 years later.

That's that's what I think we're looking

at with AI. Now, that then begs a

question and and by the way, that that

chart you mentioned is a Bloomberg chart

to give them credit for it, but it shows

the prior five capex booms uh as a

percent of GDP going back to 1840 to the

canal boom. You know, there were several

US states that defaulted, went bankrupt

in after the canal boom. And

my point in highlighting that was

every single one of those prior five

booms ended in a bust.

And this one will end in a bust too.

And when it does, it's going to make the

fiscal situation that much worse because

it is so has been so additive to GDP,

etc.

And that means that Besson's 4 billion

in Treasury buybacks will probably turn

to 40 or 400 billion in Treasury

buybacks when that happens. Uh, and the

Fed will probably be helping with that

at that point. Um

but as it relates to the AI I to me

it is my view of it is is make sure to

take profits

and what we highlight in the report is

look I don't think I don't think the

bubble has peaked you are seeing signs

of um yeah I recently read um a very

English deceit by um Balen I can't think

of his first name uh and the point it

goes over the south sea bubble and John

Law's Mississippi bubble. And what you

take from that is when these things

happen, you have to keep applying new

credit. You have to keep supplying new

credit to keep the thing going. And so

when I see headlines last week where the

SEC is changing the rules around

securizations for anything related to

AI, where you're getting all the big

private equity guys in a room to

securitize and you know, you got Nvidia,

you know, Jensen bragging about creating

a compute, you know, security

derivative, whatever. Like that's fine.

No judgment. I know what that is. That's

making it easier to get more credit to

them. So, the bubble's not over yet.

>> I I agree with you and I think that peop

I Yes, take taking profits is is

healthy, but I would very strongly urge

people against like shorting

semiconductors or something like that. I

I think that all like the the rail to

use railroads the track has been laid

for, you know, Nvidia to make $300

billion in operating profits. No

accounting nonsense. pure profit,

operating profit because of Yeah.$500

billion dollars of creating Larry Frink

said we're gonna create these AI

securities. I don't know what that

means, but he's going to do it. Like,

are you are you doubting Larry Frink's

ability to raise money? I'm not. He was

He didn't even go to that CNBC studio.

He probably was in, you know, Saudi

Arabia raising billions of dollars. I

don't know. Or maybe he was on vacation.

I don't know. But I I I and I I think

that um you know I mean Google as as uh

you know I reported FT Wall Street

Journal reported they have 800 billion

dollars in forward purchase commitments

like this stuff is going to happen. So I

think like my my confidence that in Q4

all the when these semiconductor

companies or the power electrical

companies report like it's going to

reflect kind of the reality that we

already see in these offbalance sheet

agreements. So yeah, I I agree with you

that um that it's it's it's going

higher. The bub the bubble hasn't popped

yet, you know, if if it's a bubble. I

also think that you're right that

everything always pops and like yeah of

these of these uh canals, railroads,

telecom, it it's very frequent that

genuine technological booms get

overextended and then pop that, you

know, I think Howard Mark said that if

if AI isn't a bubble and it doesn't pop,

it will be the first technological

revolution that doesn't create a bubble.

>> Yeah. And I I think there's an important

point you make there about where you

said, "Hey, they're going to he's

probably over in Saudi Arabia getting

money." And I would say from who? This

is the galactic stupidity part d or trey

or you know

say of of the Iran war. What money?

>> Yeah.

>> What money do the Middle East have to

invest now?

Especially if it continues. And I think

this is a part that people aren't paying

enough attention to. And I'm not saying

this is again I agree with you. I

wouldn't short them here. When I say

take profits, the analysis I in that

report that you have shows that once you

were two to three years into any of

those other bubbles,

you did better if you were a long-term

investor, you did better by signing

selling most of the bubble and buying

gold. Gold outperformed over the full

cycle, right? The bubbles might have

continued, but by the time five years

was out, 10 years was out, gold had

massively outperformed the bubble in

question. Every other one of them. And I

don't think this is going to be any

different.

And

within that you have like when you look

at the financing side I think they will

get the money and

from the UAE. Who's giving them the

money? Scott Besson is, isn't he?

>> Yeah.

>> Because we got into this stupid war.

What did the UAE do? We need swap lines.

We're illquid. And if you don't give

them to us, we're going to go to the

Chinese. Scott Besson was like, whoa,

whoa, whoa. I'll give them to you. So

now think about that AI. And this is

there's all the the circular reference

stuff and I think I think there's some

truth to it. And the one that I've not

seen anyone put is if Bessant's given

swap lines to the UAE to invest in us,

who's actually investing in it? He's

just creating the money, right? It's

which again is fine. I know what to do

with that. But that then goes to this

point of it will eventually bust. And

once you're two, three years into it,

every other one of these capex booms

that turned to bust,

two, three years in, like you were

better off buying gold. You know, you

were better off buying gold in 1920, you

outperformed stocks. You know, if you

bought gold in May of 1929, I looked at

this the other day, this blew my mind.

If you bought gold, sold all your

stocks, sold, you own the Dow Jones

Industrial Average in May of 1929 and

you sold it and bought gold,

you are still up 15%

103 years later.

That blew my mind.

>> Yeah. And that's the benefit of

survivorship bias in the Dow. That's a

completely different Dow. That's get rid

of the dogs, bring in the good guys, and

gold. Like it just shows how important

it is as an investor when you're in

these frothy periods of like that's

fine, they're fun,

don't forget to take some off the table

before the party ends because when the

party ends,

it ends.