➡ The article discusses the impact of Yellen’s shift to the front end in 2023, which was beneficial for stocks, gold, and bitcoin, but not for the dollar. It also mentions potential risks such as secondary sanctions on Russian oil and bond market crises in the UK or Japan. The article further explores the dynamics between the US and China, highlighting China’s ability to replace lost demand from America and the importance of rare earths. It concludes by suggesting that gold may become the new reserve asset as the dollar’s reserve status weakens.

➡ The text discusses the shift in global economic power, with countries like China and Russia investing in valuable assets instead of holding US dollars. This has led to a decrease in the value of the US dollar and an increase in interest rates. The text also suggests that gold may become a more significant reserve asset, with its value potentially increasing relative to oil. The US government is believed to be managing the decline of the dollar to avoid economic crises, and there’s speculation that gold could be revalued to cover deficits.

➡ The speaker believes that a financial reset is coming, but it won’t be a dramatic event like many expect. Instead, it will be a subtle shift that most people won’t notice. This reset could involve increasing the value of gold, which could help stabilize the economy. However, those who own gold in paper form could face losses if this happens.

➡ The text discusses the potential for economic changes, including the devaluation of the dollar and a shift towards domestic investment. It suggests that these changes could lead to increased wages for skilled trades, such as welders and electricians, and a stronger American economy. However, it also notes that these changes could lead to higher prices for goods and services. The text also shares a personal story about investing in silver, which was used to fund a startup.

➡ The speaker believes that gold, not silver, will be used to stabilize central bank balance sheets due to the ongoing sovereign debt issue. He argues that increasing the value of gold won’t disrupt the economy, unlike oil or silver, which are integral to various industries. However, he also thinks that silver will still perform well and increase in value, especially as an industrial commodity and monetary metal. He advises owning physical silver over paper representations, as in a crisis, physical assets are more likely to be bought at a higher price.

➡ The speaker expresses gratitude for a conversation with Luke Grohman, praising his financial expertise and character. They hope that officials from the Trump administration are listening and wish for someone like Luke to make important decisions. The speaker also mentions how listening to Luke’s audio column for a year has significantly impacted their understanding of financial matters. They encourage listeners to check out Luke’s column on fftt-llc.com and express hope that the audience enjoyed the conversation as much as they did.

Because the structure of the post $71 reserve, you don’t get to do that. You don’t get to print money and invest into your own domestic industries. And so it’s the right thing to do. And it implies, I think, really good thing, the rest of the world’s gonna look around and go, well, I’m running surpluses with the Americans. I’m competing with the Americans. In some cases, I’m an adversary the Americans, and they’re printing dollars and investing, essentially, it’s oversimplification, but into their own industries to compete with. Fine. Am I going to buy their Treasuries? Hell, no. No.

What am I going to buy? But I don’t want my bonds to be the reserve asset because that means I have to hollow out my manufacturing. So the Chinese aren’t going to, you know, Yuan’s not going to be the new reserve currency, but the new reserve asset is going to be gold, in my opinion. And you’re seeing that central banks are going, okay, well, makes no sense to buy Treasuries for a math or geopolitical perspective or, you know, structural perspective with industrial policy. I can’t buy Chinese. I don’t want to buy the Europeans. And the Europeans don’t want that anyway.

For the same reason the Chinese don’t. The Brits, come on, Japanese, they don’t want it either. So all that’s left is gold. And you’re seeing that. And I think that’s going to continue. Well, hello there, my friends. Chris Marcus here with you for Arcadia Economics. And as you may have heard, I mentioned I had a surprise coming up, something I’m really quite excited about. And this is actually a true honor for me because as many of you have heard, Luke said this, Luke said that. And you should take a listen to what Luke is saying and really has become one of the top voice, at least in terms of understanding these things that are going on and does a great job of explaining all of it.

So, Luke, it sure is a pleasure to have you here today. And welcome on in. And how are you, my friend? I’m doing well. Thanks. For me on. I’m excited to be here and thank you for that very kind introduction. Yeah, well, I mean, certainly it’s quite a time in the world. I don’t. Would you say this is the most eventful year of your career? Looking back, have we taught this before? It feels like when I started this year, I had hair and now I look like this. So. No. It’s funny you say that because I’ve remarked to my wife a number of times this year I feel like I’m aging in dog ears where like, you know, normally you can kind of just sort of like, okay, work your day for whatever eight or 10 hours and be like, okay, I’m, I’m putting it away, maybe check, check the phone once or twice and then that’s it.

And for a long stretch of this year, it feels like, you know, the days have been 12 and 14 hours and checking the phone constantly and replying and reading and just there’s been a lot going on. Well, there sure has. And I think one of the things that has been so helpful to me in the time I been a proud subscriber to Forest for the Trees is you’ve done a great job of laying out a what you thought the Trump administration would have been wise to do when they came in, be trying to unravel what it is they’re actually doing, which I think often there’s what they tell us and then what might be happening behind the scenes and also explaining why you feel we’re kind of getting to the point where there’s some things in the way that we may be coming up against a boundary here.

So maybe you could put that into perspective for people who are trying to understand all that. Sure. So when, when we came into the year, I think plan A that they vocalized was, if you remember Scott Besson said, hey, we’re going to take pain and you sort of undo some of the, the, the, the, the sugar high of the prior administration and that might drive stocks down. And if that does, you know, that should drive a bid into Treasuries for safety and that should drop low end you 10 year treasury yields and judges by what happens.

The 10 year yield. Right. They said that that will be our metric. And then when that happens and we’re going to also overlay Doge cuts with that and that should further reduce deficits and further lower rates. And then we’re going to term out the debt and that’s what we’re going to do. And I remember at the time saying, as you know, like that’s not going to work. Like it might work for a couple of weeks or a couple of days getting yields down. But ultimately all they’re going to do is trigger a crisis and it’ll be a crisis where yields drop for a second, then start going up and then you’ll have this toxic, you know, stocks down, bond yields up dynamic we’ve seen at times throughout this year.

And then they overlaid something I Didn’t fully expect in terms of how they executed it in February, but flagged it very vocally. That basically, with the, you know, the America first investment policy, they basically, in not so many words, telling China, take your money and get out of here. And so then we had this brief moment of price action that was emerging market in a, you know, a sudden stop, balance of payments crisis of dollar down, bonds down, stocks down. And we knew that it was not, could not last. And ultimately, you know, post Liberation Day, you know, we saw the bond market, as Trump, say, got queasy.

And that was sort of our base case all along, which is you had to run the proper order of operations, because with debt and deficits where they are, if you start trying to, you know, you start pulling out Jenga blocks from the bottom of the tower, the tower is going to fall, and the tower is the treasury market. And the tower started to fall. You saw intraday volatility levels in the treasury market on par with like, the collapse of Lehman and other sort of really big, notable crises. And the Trump administration backed off. And, you know, had I been the perfect analyst, like, I probably would have written a piece that week said buy everything, and then like, gone to the beach and been drinking my ties ever since.

And I did flag certainly that it was a big change and that we thought that could be, you know, a major change in policy. In hindsight, it has been. But since then, it seems like they’ve moved towards sort of their Plan B, which was really our Plan A all along, which is all right, you got to juice nominal growth and effectively start to try to anesthetize the long end of the treasury market so that yields don’t run away from you as growth comes in better than expected. And so I think we’re now in a spot where there are some things going on in some foreign bond markets that are a bit troubling in terms of uk, Japan, that could have issues for volatility.

But I think on net, as I sit here today, whatever, July 23rd, I think the markets probably finished the year up from here on net because we’ve got, you know, the benefit of a weaker dollar. You know, we had the worst start to the year for the dollar since, I think, 1973. And historically, you get weak dollar, you have a lagged response in terms of better global growth, better global liquidity. So I think, I think that will help. All else equal, I think it’s underappreciated. I think we’re going to have peace over the next six to 12 to 18 months, if for no other reason than the last two months have demonstrated the United States cannot go to war with a near peer or peer power without Chinese rare earths.

And the Chinese, you know, the CCP is a lot of things, but one of the things they are, is one of the things they aren’t is stupid. And so they’re not going to sell us the rare earths. It’s like, hey, please send us military grade rare earths and Amer. And then China says, okay, great, what are you going to use them for? And America’s like, we’re going to use them to surround you and point weapons at you. And the Chinese are going no. And so we can watch that conversation happening in real time. You just call up the news wires.

And so I think we’re going to have peace, which is good for asset prices and growth. And then I think this sort of active treasury issuance through stablecoins is, and the genius act I think is ultimately about trying to anesthetize the long end of the treasury market. Basically finance more in T bill markets at 0 globally rather than in 10 year yields at 4.4% wherever they are today. And ultimately we know if they’re successful in that, which there is some question around, we know what to do with that. We saw Yellen do it. We saw Yellen shift to the front end at the end of 23.

And that was really good for stocks, it was really good for gold, it was really not great for the dollar, it was good for lots of things. And so I think when you look at weaker dollar impacts, lagged impacts, peace and active treasury issuance to the front end via stablecoin dynamic, I think it’s going to be good for stocks, I think it’s going to be good for gold and I think it’s good for bitcoin. I think it’s going to be good for global growth. And so, you know, we’ll see if something interrupts that. There’s still obviously huge headline risk.

Right. When you talk about secondary sanctions on Russian oil, that’s maybe one of the biggest. But I think the more likely ones, you know, I think that’s more of a black swan to me. Even though they’re threatening it, like I actually don’t think they can credibly do that. But let’s see, I think the more, the more realistic ones are bond market crises in the UK or in Japan, which would, in my opinion, those are our top two foreign creditors. So they would spill into treasury markets really fast. Yeah. And I thought it was interesting how it was about two months ago, there was a Reuters article where the Japanese finance minister, they were saying, well, last month he said we’re not going to use Treasuries as leverage in a trade deal.

And this month he’s saying we’re not so sure. Seems like despite Trump saying if you de$ize, we’re going to kick you out, they’re kicking out a lot of their customers when they need more of them than ever. Also the, the tether and stable coins. We’ll come back to that because I, I’m either missing something or not sure how that works. Although, Luke, you touched on the dynamics with China. I also found it interesting when you, you mentioned in your column that you felt China actually stepped in between the Israel and Iran truce. And, but along with that, obviously there’s some people believe, well, China needs the US More than we need them because who else is going to buy their, their things? Yet I think that dynamic you pointed out, where there’s, it’s not as simple as, like, hey, we can show up with our military.

They’re going to do what I want. So anything you could touch on there to expand on that? For me, it’s all about, you know, in the end, if you start breaking world trade and their existing patterns, eventually given debt levels, everything would break, right? I think prices of everything would go to zero if you just started breaking stuff and stood aside and did nothing to intervene. The $64,000 question is, is what breaks first and what do they do to respond? And my case all along had really been that China had better leverage sooner than the Americans had, which is to say, yes, do they need us? Yes, they do.

Not nearly as badly as Washington was saying, though. And at any rate, I was saying very credibly that, you know, by mid last year, it was pretty obvious to a lot of people in China that Trump was going to win. And if Trump was going to win, you know, it stands to reason that the trade policies were coming back. And so I was hearing that a lot of exporters in China were stockpiling six to 12 months of cash. So right off the bat, that tells you they’ve got, you know, it ain’t good for them, but that’s a lot of staying power, right? That’s an oxygen tank.

They’ve also been able to find a lot of replacement codes. I think I saw something the other day that they’ve been able to replace 85% of the lost demand in, in from America with other customers throughout sort of Southeast Asia and elsewhere. It creates some issues there and those again, that’s not a permanent fix per se. But again, it’s a fix. Much sooner than, you know, two things in America will have a problem. Number one, the treasury market, which we were saying all along was absolutely, to us, by far the biggest leverage point that would break first.

And so we did. Liberation Day and the treasury market dysfunction in seven trading days. And the Trump administration blinked. That was all pretty much like kind of how we thought it would go, to be honest. The other thing that people didn’t pay as much attention to, they’re certainly paying attention to now, is the rare earth situation. And I thought it was a big deal. And admittedly I didn’t even know how big a deal was, as I’ve learned more and seen the reactions. But I’m astonished that it seems like a lot of the Trump administration didn’t really understand how big a card rare earths were until it was played.

And it’s a little bit of one of these Pandora’s boxes that once you open it, you can’t close it. You know, vis a vis was saying before, we’re like, we’re begging them to send more military rare earths, and they’re just telling us no, and there’s not a darn thing we can do about it. What, are we going to go to war with them? With the rare earths we don’t have? Like. Like there’s nothing we can do. So the only thing we can do is sort of move to industrial policy and sort of give Defense Department more control of the process.

And guess what we’re starting to see, right? A lot of people were really surprised by that. MP materials acquisition or investment by the Pentagon. But if that surprised you, you’re going to want to pace yourself because there’s going to be more of those. There’s me a lot more of those, I think. And really, even that one was the second one. I would argue that the Nippon Steel acquisition of United Steel, there was the golden share dynamic, right, where we have sort of the controlling golden share still within all of that. That’s like a China 101 textbook move that the Wall Street Journal was criticizing in an op ed literally two years ago.

So I think, you know, strike one was that and not even strike, but just sort of instance, one of that of more industrial policy in the United States. That was the first instance. The second was empty materials. And I think you’re going to see a lot more. Well, what does that imply? Well, if we’re going to get into Chinese, like industrial policy, which I think is the right thing to do, it means that the old system is dying. It means the dollar’s reserve status as it has been structured for 50 years is ending. Because the structure of the post $71 reserve stuff, you don’t get to do that.

You don’t get to, you know, print money and invest into your own domestic industries. And so it’s the right thing to do. And it implies, I think, really good thing. You know, the rest of the world’s gonna look around and go, well, I’m running surpluses with the Americans. I’m competing with the Americans. In some cases, I’m an adversary the Americans, and they’re printing dollars and investing essentially, it’s oversimplification, but into their own industries to compete with me. Fine. Am I going to buy their Treasuries? Hell, no. No. What am I going to buy? But I don’t want my bonds to be the reserve asset because that means I have to hollow out my manufacturing.

So the Chinese aren’t going to, you know, Yuan’s not going to be the new reserve currency, but the new reserve asset is going to be gold, in my opinion. And you’re seeing that central banks are going, okay, well, makes no sense to buy Treasuries from a math or geopolitical perspective or structural perspective with industrial policy. I can’t buy Chinese. I don’t want to buy the Europeans. And the Europeans don’t want that anyway. For the same reason the Chinese don’t. The Brits, come on, Japanese, they don’t want it either. So all that’s left is gold. And you’re seeing that.

And I think that’s going to continue. And that ultimately will be great for gold. I think it will continue to secularly weaken the dollar over time. I think it’ll be. And kind of rebalance things. But that’s, you know, that’s how I kind of see it. Yeah. And you’ve given this example before that maybe you could share, because I think it puts it in perspective if some country is an oil exporter and traditionally they would dig the oil out if they didn’t need all of it, then they converted to Treasuries. But what the problem is, and because I think, you know, there’s.

We have a gold and silver audience. So obviously for decades, we’ve been talking about one day. Yet it feels to me that we’re at that point now, and you started describing it where the treasury is in terms of its viability to be used for the purposes it’s supposed to be used for, it seems to be at or nearing that break point and perhaps you could go through that. Yeah, I think from a reserve standpoint, I think the breakpoint was 11 years ago global central banks stopped buying Treasuries on net led by the Chinese, Russians and others.

I mean even now you look around, there isn’t an OPEC member or Russia in the top 15 or 20. I think in the top 15, I think Saudi’s 16 or 17 and they own like one third or one quarter of what the Brits do. Right. Think about that. Brits are a twin deficit nation. So I think from an reserve standpoint we reached the breaking point on treasuries 11 years ago and it led to this sort of weird time where people like China were going around taking their surplus dollars and buying up really valuable assets on the cheap.

Oil fields, farmland, ports, copper mines, gold mines. You Google China buys over the last 15 years you just see them going around on a shopping spree and the American government was sort of asleep at the switch because they were dogmatic like well, the king dollar and we need to keep this system. And yeah, we started well, they’re breaking the rules based global order. Well maybe the Chinese would say, well when you printed money to get out of 08, you broke the rules based global order. So I’m not an idiot, I’m not going to hold your paper.

You know, if you’re going to print money to get out every crisis, that’s stupid, I’m not stupid. So they started putting it in stuff that’ll go up when they print money to get out of crises. But that started to defund the U.S. government. And so we’ve seen this sort of secular rise in interest rates. Paradoxically, a secular rise in the dollar began in 2014. Right. You went from 70 to 70, 71, maybe 74. And the DXY it’s risen as high as 114 back to 97 or something today. But ultimately that was I think triggered by a couple different things.

But ultimately the weaponization of the dollar. When you put repeated sanctions on important economic players and you print money to get out of crises, you can’t use that as your reserve asset anymore. And for the same reasons I highlighted before, the only asset that can take its place. And I think things were clearly moving that direction. The 2022 sanctions on Russia and FX reserves I think turbocharged that. And I think the Chinese de dollarization of their commodity markets have also turbocharged that over time. And so you get to a spot where you look back 15 or 11 years, global central bank holdings of Treasuries is down $200 billion and their holdings of Gold’s up $800 billion, both at market prices.

So I think that process is underway. And then there’s sort of fits and starts within that because paradoxically, it leads to a stronger dollar and higher rates that, given the structure of the system, that leads to, you know, crises that require more dollar, you know, liquidity to be injected, etc. But that’s ultimately simply a. You know, I think these are the things we’re, we’re moving through on that front. And you can see as it relates to oil, right. You know, oil has gone from 8 barrels an ounce of gold in 2 to 60 barrels in 2024 earlier this year.

60 barrels an ounce. And I think when you talk about this shift away from Treasuries and sovereign debt more broadly as reserve assets, given that most of the world’s surpluses and deficits tend to be generated around energy, what you’re talking about essentially is increasingly oil and commodities bidding for gold. And the oil and commodity markets are multiple of the gold markets in physical terms only. And So I think eight barrels an ounce to 60 barrels an ounce over 15 years or 17 years, I think is sort of the first entree. It’s the first chapter or maybe the first couple innings.

But I think ultimately we’re going to get to a world where gold trades at 100, 200, 300 barrels of oil per ounce. And I don’t think oil’s going down a whole lot because the biggest marginal 90% of the growth of marginal supply over the last 10 years has come from shale, and shale doesn’t work much below 60. So I think most of that gold oil ratio going to 100 or 200 or 300 over time is going to be on the price of gold. Yeah. And we’ve certainly, as you pointed out, already seen that begin to happen.

Although in terms of another thing that has gone down, which I this was at the top of my list of things that I was looking forward to ask you today because you’ve talked about this plenty. Here we are. Back in September, it was interesting when Jerome Powell said, 25 is not enough. We have to do 50, even though inflation’s still above their mandate. And he said the economy was strong, which I’m still not sure I fully get. But you had that reaction where the dollar sword was 110. I think that was the week before Trump came into office.

Maybe two weeks before. And as you’ve pointed out, you highlighted that great research by Michael McNair where he said he’s seeing signs that government may be intervening. Stephen Myron wrote a 41 page paper, I might add, in November of 2024 where if you wanted to summarize it into one sentence, the dollar is overvalued. Anything bad that’s ever happened since the history of the world is due to that economic imbalance. We’ve heard JD Vance Besson, one after another talk about the overvalued dollar and then we saw it collapse, basically. I think it’s about 12, 13% now since Trump came in.

Do you think that the reason we’ve seen the dollar index go down so much is because they’re already in there doing whatever they’re doing to bring about that lower dollar that they’ve all talked about how much they want? Short answer is, yeah, I think they are. I think they’re doing what they need to do to manage it. I mean, it’s been, you look at that chart, right, it’s been a very managed decline right there. You had that little brief stint in March where it got a little disorderly. But by and large, I mean, that’s sort of a beautiful trend line of, you know, down and to the right at 45 degrees, right? Like, hey, we’re going to weaken the dollar.

And then you just sort of tick, tick, tick, tick, because it’s a tricky dynamic. If you, if you let it fall too far, too fast, you’re going to create probably a crisis just by virtue of positioning, particularly vis a vis Japan, right? We saw that last year. The dollar got weak last summer in that August time frame over to the left of that chart and the yen got too strong and it started touching off a crisis of the, of the yen carry trade. So the dollar gets too weak too fast, you have a crisis. Dollar gets too strong too, too strong, period.

But certainly too strong too fast, you get a crisis. So they are managing within a set of know they’re not just a set of barriers, but they’re, they’re converging big as debt levels go up in Japan and up in the US over time. So you’ve got to manage that really by getting the dollar down in a linear, managed fashion. And then you need to anesthetize the long into the bond market because it’s sort of the frog in the pot. And I think, you know, you’ve talked about, you know, I think part of the reason they’re beating on Powell, the way they are is they want to get rates down to try to get long and down, to get front end down so they can shift to the front end and reduce interest and reduce deficits, which will help manage the long end.

I think gold doing what it has done, it’s also had a record first half of the year that ultimately does give Benson some optionality where if things get really ugly, look at $3,400 an ounce, he can revalue the gold and come up with probably close to trillion, 2 trillion 3 deposited into the TGA without selling an ounce of gold. And that’ll cover the deficit. You know, you probably can do a $2 trillion deficit. You probably do 700 billion in bills easily if you had to, maybe a trillion in bills. But you could probably do a year, year and a half worth of long issuance and basically just skip it by revaluing the gold.

So paradoxically, I think if you revalued gold in the TGA, you’d probably actually have 10 year yields go down because the message would be there isn’t going to be any issuance at the long end. So yeah, I think they’re doing it. I think that’s, that’s part of the goal, I think. And it all sort of fits together with commentary. We’ve seen the political pressure on the Fed, all of it, which is we need the dollar down. Yeah. And I guess since you touched on it, as I mentioned before, we have a lot of gold and silver investors so you kind of tease their sweet spot there.

And you’ve talked about the idea of revaluing gold. I’ve sat here for the last 15 years thinking is there some other way in a longer term perspective that that’s avoided? Curious, any thoughts on where you think they might be at and in terms of are we headed towards a reset of some sort? I think we are rum, you know, and I, but I don’t think it’s necessarily the, you know, sort of, you know, zombies on the street kind of stuff. Right. Like if you’d ask somebody 10 years ago, gold’s at 3, 500. You’d have sort of a lot of people in Wall street go, oh my God, the economy’s collapsing and there’s gonna be zombies in the street and there’s gonna be like militias and firefights and like gold’s at 3,500 bucks and it’s like Wednesday, like nobody cares.

And in sort of that same way. Yeah, I do think this is going to be a reset and I don’t think anyone’s going to care really. Like I think, I mean financial market participants I think will but in the real economy I don’t think anyone will really notice. Certainly initially over time maybe. But what I think the reset ultimately is is, is you know, around that, you know, in extreme I think all else equal plan A was doge term out the debt, take pain, boom. That didn’t work. Plan B is nominal GDP growth and still try to cut spending or drive tariffs, rebalance things go.

That’s going to drive gold a bit higher. I think plan C is ultimately pursuing if plan B really doesn’t work, is to pursue things to drive gold much higher. And there’s things you could probably do, including them buying it themselves, who knows surreptitiously, but get gold to 5,000, 10,000, 12,000 and then revalue it. And if you do that now you’re talking about three, four trillion dollars into the TGA and now you can go to defend the treasury market be like I got 3 trillion in the TGA, I got 800 billion a year in T bills I can do no problem, especially if the Fed cuts rates, you know, to make that easier.

And then I’ve got 3 trillion. Like I literally don’t have to issue a long term Treasury Bond for 4 years. Check to you market 10 year old probably goes to 2 and a half, 3. Paradoxically on a gold move to 5, 610000 if Besant revalues it. I don’t think that’s what they want to do. But you know, if you remember Besant was on the all in podcast. We said yeah, the gold bugs thought I was going to, you know, revalue gold. I can tell you today we’re not thinking about revaluing gold. Right. And that was very much to me a Rorschach test of sorts where everybody who hates gold like see they’re never going to use a gold.

And I thought that the word today was doing an awful lot of heavy lifting. You know I think what he was saying is like today we’re not going to revalue the gold. Because if, you know, if I was doing that interview, and this is why I’m not asked to host interviews is I would have said wait one second Secretary Bessant, you said today we’re not thinking about revaluing the gold. Is there a circumstance under which you would considering do so and what do those circumstances look like? But because they, you know, you know, they’re Washington guys and this shamath and they all kind of, you know, poo Poo on gold, like whatever, that’s fine, I get it.

They didn’t ask that question. But so I, I think that’s what a reset would look like now that world. Like, is it bad if the 10 year goes from 4.2 to 3.2 because gold’s at 6,000, 10,000. No. You know, is it really inflationary if they revalue the gold, put that money in the TGA marginally, but not a lot. You know, are the riots in the streets are this, you know, people say, well, like I hear all the time of gold to 10,000, that means that oil is, you know, 200. No, no, no. We just said we went.

Gold went from eight barrels an ounce to 60 barrels an ounce. Gold that over the last 15 years. Price of oil doesn’t mean anything for the price of oil. It depends, right? You think Russia is going to be unhappy with their pile of gold if the, if gold is revalued higher relative to their oil reserves? No, it’s been great for them. They’ve been able to fight a war and their FX reserves are higher now than when the war started and when we grabbed their board of their stuff because gold went up. So I think that’s what like, I think there’s this view of like the reset is like this sort of financial apocalypse.

And I think it’ll just be like a Sunday night and it’s just like, like, like with Nixon, hey, they just preempted. I don’t even know what’s on TV Sunday nights anymore. But you know, they preempted Bonanza or whatever bonanza is today. And hey, so here’s some change and it’ll be spun as you know, it’s make America great again and it’s going to be the best deal ever and it’s going to be awesome. And we’re going to. They make so much money and like they’re going to take paper gold now. I think the people that, I think at the biggest risk of having a dislocation from such a reset are people who own gold in paper form of any sort.

I think definitely, if you want unallocated gold centered in London, I think there’s a real good chance you get zero. You know, you get cash settled at Friday’s close, right? If that happens on a Sunday night, gold goes out at 4,000 on, you know that on a Friday night you’re gonna get 4,000 bucks in your account on Monday morning. And gold physical will be trading at 10 and it’s up to you to go Buy the gold. Like, that’s those people, I think. And like, sorry. And how far down, sort of the paper world that goes. I don’t know.

I’m asked that question a lot. I don’t know the answer to that. That’s where I think the biggest dislocation of the reset could be, paradoxically, would be people who think they own gold that actually, as it turns out, when they need gold, don’t they own claims on gold that isn’t there? Yeah, it’s like the old saying, you don’t get your wife GLD for Christmas. And I saw a good one, too. Rudy Havenstein, the guy who posts like that, until he goes, having GLD as a whole, holding golden GLD forms, like having a picture of a gun to defend your house.

And I’m like, yes, I. Pretty. Yeah. And I, I love what you said about, you know, Nixon’s speech. I. I was giggling while you were saying it. I wonder if they just dust off the, you know, the script and let Trump read the same thing, blame it on the speculators, see if anyone even notices. And. But it’s a great point, what you said. And I know I, in my early days especially, have been guilty of this. I think I’ve changed it in recent years. But it’s like I was thinking, well, when Silver went to 50 bucks in 2011, I mean, how many people even knew that it happened, let alone we’re sitting there worried? And one other thing you mentioned in there that just would like to make sure is clear for people.

You mentioned that now Trump administration is either on plan B or maybe they’ve already moved to plan C. But just because we hear every day, whether him or his speaker is saying, you know, this is the greatest success of any American president, everything we did crushed it in the first six months, yet doesn’t seem like it went according to their plan. So there’s a little contrast in that. Yes. Yeah. Oh, absolutely. I, I think they were, I think they were surprised by what the treasury market did. I think they were shocked by the whole rare earth thing, which they shouldn’t have been, by the way.

Like, like China weaponized rares against China in 2010 or against Japan in 2010. Hillary Clinton gave a speech where he said, hey, all of our bombs are made with Chinese rare earths. This doesn’t make sense in, like, 2011. And then she was secretary of state for another five years and didn’t do anything about it. So, like, I think there were some things that caught them by surprise. I think they Are course correcting. I think they are still in a lot of initiatives trying to ride two horses with one rear end. Right. Like in the end you don’t get to keep, you know, you hear Trump, you know, dollar reserve status.

I’m not going to do anything to end dollar reserve status. Okay, fine, but everything you’re doing ends the dollar’s reserve status as it’s been structured since 71. So what, you know, what does he mean by that? Right. You know, best sent that where the, you know, stable coins will reinforce the dominance of the dollar. Okay, what about the price of the dollar? What are they going to do to that? You know, so there’s, I think they are course adjusting. You know, I would have liked to them have started earlier, you know, because to me just the things that got screwed up were so obvious.

I mean, so, I mean, we were writing about it like they’re going to blow themselves up, they’re going to blow up the treasury market. And then we started writing, hey, the Chinese are going to weaponize rare earths, I almost guarantee it. And sure enough, like, I barely got the words to paper and the Chinese started weaponizing rare earth. So it’s a little, it was a little discouraging that it took them a bit to get going. But I guess, you know, democracy is messy. So it feels like they are sort of lurching in the correct direction. But there’s still a lot of what I hear that are sort of wishes rather than actual plans in terms of like, like I think they’re moving the right direction and like, hey, we’re not going to let the dollar go.

Yeah, you are. Yeah, you are. You have to. If, if. And you’re going to let one of those two things go. You’re either going to let your plans go or you’re going to let the dollar go. But you’re not going to do both of those things. You’re just not. You can’t. They’re mutually exclusive. Especially if they don’t. The other thing that struck me is that through all these plans we’re hearing, it seems like saying, all right, if this goes perfectly, we can make it through the next four years. But I haven’t heard anything about, well, there’s also this outstanding amount.

Is that your opinion too, that we’re still not in the territory of where anyone’s working on a long term plan is just getting us till tomorrow? Yeah, I think by and large, I mean, if done well, unless the long term plan is basically devalue the dollar. Yeah, I think, yeah, I think ultimately, you know, you weaken the dollar, you get rates down to zero. You know, one way or another, you shift to the front end, you bolster tariffs, you begin to reinvest domestically, you incentivize some investments into this country that’s going to be inflationary. You know, I hear a lot of people say we’re able to do it.

I think we will. And I’ll really believe it when I start seeing articles in the Journal about, you know, welders making 600 grand, 800 grand, electricians making 600 grand, 800 grand. Like, you know, if you remember back when, you know, the Bakken in North Dakota really started taking off with shale, there were stories in the Journal about, you know, truck drivers making 120, 180, 200, when like the median wage in this country was like 40. That’s what you need to hear to really, you’ll know we’re humming when you, when you’re, you know, you get the picture of the welder, right? And the guys, you know, some, there’s gonna be some like tatted up welder with a neck like a dinner plate and he’s like, you know, Joe Smith in Pittsburgh was a welder and he made $650,000 last year, right? And it’s going to list, you know, all of his buddies that are doing great and, and like, I want that, I’m not.

But that’s when we’ll know like, hey, all of these $500 billion Trump pronouncements are more than pronouncements because the bottleneck, you know, like I said, I’m very focused on where bottlenecks are. The bottleneck, absolutely in this country is the grid and it’s the skilled trades. And what are we seeing right now? I mean, we can get off this podcast and go Google Bloomberg PJM rate hike. Like PJM is the biggest grid of the regional grids. And they’re, they are up like 23% for their wattage, wattage auction or whatever, you know, electricity auction prices are like, you know, 20 years they’ve kind of done nothing.

And like the last two years is like boom. And it’s AI related stuff. It’s, it’s. And so you’re seeing the price response there. The next price response will be, hey, don’t go to college, come go to trade school, be a welder. You’re going to make 250 grand as a 20 year, as a, as a 19 year old, 18 months out of high school, because we need them. That’s how Bad. And so I think that’s where this is going. That’s a pretty good world. Like, that’s great. That guy’s going to buy a house, he’s going buy a truck, he’s going to buy.

And oh, by the way, there should be more American components. And like, you know, is that good for, not good for bondholders? Because, hey, great. That’s just kind of how it has to happen. So I feel like they’re lurching in that direction. But there is still sort of the. And when I say let the dollar go, I think they’ll maintain reserve status. Look, the dollar was a reserve currency 46 to 71. Right. But it was gold. And you’re seeing that it’s gold again. You know, there’s the dominance of the dollar and there’s the price of the dollar.

Those are two very different things. And Besant referred to that last October. So look, the dollar can still be reserve currency and DXY can trade at 50. No reason that can’t be the case. And I think, you know, 50 is probably aggressive, but I think we see DXY and you know, in the 60s over the next five years and the dollar’s still the reserve currency and people won’t say, oh God, the world’s over. They’ll be like, holy cow, the American economy is so strong and the deficit’s so low and tax receipts are so high and rates will be manageable because they won’t be issuing anything at the long end.

And there’s four or five hundred billion dollars a year of mindless bids that have to buy long end bonds no matter what. Yeah, I wonder what the price of a hamburger will be that day when we get there. But I think Myron also talked about that specific point too, where there’s a framework where you can still be the reserve currency just at a lower valuation. Yeah. Although, Luke, since we’re coming up on our time here, I somehow made it 40 minutes without getting to my silver question. New record for me. But I was thrilled a couple months ago when I sent in, you know, to get your opinion of what you thought you saw happening with silver.

And you laid out some great dynamics that I had not heard anywhere else. And I think you’ve mentioned you have a great silver investing story from back in the day. I don’t know if that’s private or not, but if you’d like to share anything, anything for the silver investors out there of what you see happening on that side. Yeah, I was once upon a time I had a pretty big Silver position. I, I think I ended up buying I don’t know I bet you it was 3 or 4,000 ounces all physical, you know big monster boxes stacked up at the bank you know and I can’t remember how safety deposit box it was anyway and you know I probably bought it all it was after a weight so I want to say, I want to say it traded as low as like 8 or 10, maybe 12 bucks something like that and I bought a lot so then I held it back in September ish of 2008.

Yeah down to nine bucks then. So yeah, yeah so I bought a lot there and I took deliver of it all and I held it and held it, held it and then I actually sold all of it in April of 2011. I think I sold it at about 40, 42 with the. Wow. And yeah, I wish I’d been reading your newsletter then. I’m sorry to interrupt. Although this was back in my option trading days and somehow I’d taken most of what I had and put it into GLD and SLV options which was more fun. On the way up I missed that.

42. Yeah I, I, I and I, I, I didn’t sell for any reason other just like it seemed frothy to me and so I actually had you know I had some, some private equity losses to offset all my gains which was really nice and I ended up buying a farm with it and So I bought 100 acre farm and then I rented that out for a couple of years and I ended up selling the farm as the startup capital for FFTT because I didn’t want to take, I wasn’t writing my newsletter back then. I didn’t want, you know, I wanted to have complete creative freedom so I didn’t take any outside investors I saw self funded so yeah but it was funny with the silver I mean the funniest thing was like going to the bank, getting the stuff out of the safety deposit box, putting in the back of my car like it was like I had Jimmy Hoffa in the trunk taking it to the friggin you know to mail it in to sell it.

It was you know riding on the axles and you know I’m surprised he gets stopped for being a drug dealer or something but you know, you know 3 or 4,000 ounces, that’s a lot of, that’s a lot of silver. It’s a lot of weight so. But yeah so and I, you know I bought some back in like 18 a little bit. I have a small position and I’ve not really added to it, not for any reason other than ultimately my view has been that, you know, gold is on central bank’s balance sheets and silver isn’t. And we’re now firmly into the sovereign debt part of this.

And so we need to recollater one way or another, central bank balance sheets are going to get re collateralized. And so they need to write up something, right? They’re not going to write, they have a printing press. They don’t need to write anything down. They need to write something up to re collateralize themselves in the system. And the only thing there is gold. And so paradoxically, you know, the, you know, the ding against gold for most of the long cycle that’s not used for anything is actually the one thing that you want. Because if you write gold up to $100,000 an ounce, I don’t think it’s going there.

But crazy number for illustration sake, nothing changes. A bunch of Indian housewives are rich. But there’s no real economy impact directly where somebody’s production, you know, somebody’s margin collapses to zero, right? If you write oil up the way we wrote it up in the petrodollar, we wrote oil up 400%. We know what happened throughout the 70s. If you write oil up enough to back the debt like we did in the 70s, you’d probably have to write oil to thousand a barrel. Thousand a barrel. The whole world ends, right? Like the bond market’s going to crash gas lines.

Like, you know, you’re gonna have a bunch of very wealthy people in the Middle east but ultimately their bonds are going to go to zero and it’s just a mess, right? And the whole world can’t function with oil at a fraction of that price. So you’ve got to write something up that isn’t used for anything. Gold. If you write up silver a whole ton on one hand, silver holders will be happy. But on the other hand, like your iPhone is going to cost like, you know, $15,000 and they’re not going to sell any of them. And solar panels like as we’re trying to make an energy transition, you’re not going to make any.

Silver’s the industrial component side, you’re going to need to find replacements and it’s going to be very disruptive of the real economy. So my view is ultimately that by the end of this cycle the gold to silver ratio will continue to rise. I think it’ll continue to rise with the gold oil ratio, gold to commodity ratio. I think silver probably outperforms other commodities within that And I think silver does really well. I think silver ultimately is extraordinarily valuable as an industrial commodity and a monetary metal and that ultimately the supply demand dynamics of it will be measured in.

So like I think the silver to oil ratio probably goes up. I think the silver to lots of other stuff goes up. I think the gold silver ratio probably stays at highs or ultimately finishes the cycle higher. Yeah, well I appreciate you mentioned that last part. So the silver investors listening are able to breathe again now. It’s okay. Still thinks it’s going to go well. Direct all hate mail to Chris for that by the way, all the silver guys. Well, I think it’s well put. And I guess the other thing as I’ve thought about your answer to that that I’ve added on my internally is that also most governments don’t own any silver.

So even if you did put it at a high number now I know Russia said in their draft budget last year they were picking some up. So I think that’s. That that’s been really helpful for me that explanation. Last one as I know we’re about running out here, we have Silver Institute reporting that if you include the ETFs that silver market has been in a deficit for the last five years. Now we talk here plenty about how it’s not like even if you get a hundred dollars silver, you’re years to decades away from getting incremental new production.

As I know you’ve talked about. Anyone invested in the mining stocks knows we don’t have all hands on deck right now. It’s been a tough bear market. I’m wondering if you think there’s any chance, do we see something like here’s what happened in the cocoa market when they finally reached a supply issue. I’m guessing that somewhere along the lines that, you know, if we get $50 silver, there’s about 3 billion ounces or so in retail hands. We’ve seen a lot come back after 30. We probably see more. But any thoughts or even a framework of what you would look out for in a situation like that? Yeah.

So if I own silver, you want to own silver. Not slv, not paper, not anything. Because think about what we’re we’re in a great power competition with the Chinese. We’ve already been strangled by rare earths and we’re seeing increasing signs that the Defense Department is directing the economy, not the Fed, not the Treasury. If something like that has occurred in cocoa, it happens in silver. Knowing that DOD needs silver amongst other things. What are the odds that if you own a paper representation of silver, and the DOD needs silver, that they’re not going to effectively point a gun at the paper custodian and say, that’s ours now, here’s your cash.

Have a good day. You deal with your shareholders. And so that’s exactly what I think would happen. And so what I think would happen is, is basically you’d get cash settled at some number if you own paper. Now, if you own physical, then I think you’re going to get the price. I think the DoD will pay you for your physical. But I don’t think if you, you know, because otherwise it’s just going to go into hiding, right? They got to pay, you know, if they want to attract physical, they got to pay for physical. But if it’s all sitting in a vault with some company and we’re in a great power competition, like, like they’re gonna take it, and they’re gonna take it at yesterday’s closing price, and only they really know what that number is.

And ultimately, if it’s a really urgent situation, there is no limit on the price. You know, think about what MP Materials. You know, I think MP Materials is a really good case. They are promising the DoD, they DoD is promising to buy everything they put out for the next 10 years at 100 bucks. And the market price is like 50, right? And. And like, watch the Chinese own like 5% of that company. They might cram the Chinese down. We are buying you out. Here’s the price. Take it or leave it. And they may cram down other shareholders.

We don’t know. So, you know, do you want to own, you know, the MP materials of silver or do you want to own silver? I think if you own silver, you’re going to get paid. I think if mp. If you own the MP materials of silver, it depends on the situation, the urgency. But like, DoD is not, you know, DoD is not going to say we can’t build our latest newfangled weapon because we can’t get the silver, because the guys who own the MP materials of silver or the, you know, unallocated, you know, the paper derivative fund of silver won’t give us the silver.

That ain’t gonna happen. What’ll happen is you’re gonna give it to us, and here’s the price you’re gonna give it to us at. Have a good day. And as a silver guy, you’re like, hey, great, I would you go, here’s all mine. You can have mine at that price too, by the way. Right? Because that number, for those people For a silver holder, I think it’s gonna be way higher. But that’s. And look, I could be totally wrong. Maybe they will pay everybody out at, you know, whatever it implies for all of the paper derivatives. But in these kind of situations, you don’t want to be wrong for the right reason.

Right. You want to, you know, you’ve done the work on the silver. On the silver, own it. Yeah. I think very well said because it’s classic example of there’s what’s fair and then there’s what happens. And if we can integrate those two together. And just one note because I had pulled that MP story up here about the rare earths and I remember what struck me was China’s grip on materials used to build weapons, electric vehicles and many electronics. And I’m thinking, well, that sure sounds a lot like silver. So if this can happen one area, can it happen in another? Although, Luke, I really can’t thank you enough for making some time to do this.

This was really special for me and I hope, I would imagine a lot of people at home are enjoying it too. And fortunately, in terms of if I want to know what’s going to happen in rare earths or anything else, the place that I will be going and continue to go. And I’ll tell people that your Luke subscription a little more than the average one. Although what else can I say except it’s worth it. And I thank you really meant what I said how like there was a couple of months ago sitting around when I’m like really stunning.

What a year of going through it. I actually do the podcast version that you put out so I can listen, which thank you for doing that and perhaps just if you could tell people I have your Twitter page where you can find Luke at. But anything that you’d like to share or any final thoughts before we wrap up? No, I think, you know, I appreciate you sharing those and yeah, if people are more interested in learning more about our, our different mass market institutional research products, they can, they can find us there at that website or on X.

And no, I appreciate you having me on. I’ve really enjoyed the conversation. Well, thank you so much. Hopefully we have some Trump administration officials listening. And I remember it was interesting you’ve had a couple people asking you if they’ve contacted you. I would certainly feel a lot safer with you on that hill than who we have there. But until then, just thank you so much. This was really wonderful and we’ll hopefully do this again soon one day. Sounds great. Thank you so much for Having me on. I really enjoyed it. Well, and there you have it, ladies and gentlemen, Luke Grohman.

Goodness. Feel just grateful to have been able to have a chance to talk with that man and hear all the things that he shared because I, I really do genuinely mean that. Where especially in these last couple of years, if there’s one person that whose opinion holds a higher weight in my mind in these financial matters, it really is Luke and I. And I did notice a couple months ago where it’s like, wow, I’ve been listening to his the audio version of his column for about a year now and I really feel the difference in a way unlike anything I’ve experienced before.

So really was quite an honor and a pleasure to talk with him also because he just seems like a really genuinely good man. And especially at a time when there’s tons of less than ideal things happening in the world, I have often sat there and thought hopefully one day we’ll have someone like Luke making some of these decisions. Certainly he is brilliant financial but something I appreciate and certainly just getting to talk with him today, it was really an honor and again seemed the same that he just seems like a really genuinely good man. So I sure hope you enjoy that.

I’ve been quite excited. Wanted to keep it a surprise until today, but either case I will mention again that you can find his column at fftt-llc.com I can. I can’t recommend it highly enough. I’m not getting paid anything to say that other than I just been huge in my life and certainly my career and understanding the financial market. So thank you so much to Luke. Thank you for watching at home. Sure hope you enjoyed it as much as I enjoyed being a part of it. And I really just hope you go out there and enjoy the rest of your day.

And thanks for tuning in. Sam.
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