The Fed to the Rescue

Published on
June 6th, 2019
35 minutes

The Fed to the Rescue

Investment Ideas ·
Featuring Luke Gromen

Published on: June 6th, 2019 • Duration: 35 minutes

Luke Gromen, founder and president of Forest for the Trees, sees an investment opportunity in rising U.S. government deficits. He believes the Fed will be forced to step in with interest rate cuts and quantitative easing, and that this will drive the investment cycle over the medium term. He warns, however, that if the Fed abrogates its duty in the Treasury market as a buyer of last resort, the implications would be profound. Filmed on June 3, 2019 in New York.



  • JE
    J E.
    21 March 2020 @ 09:55
    "Unless something happens to 75 million baby boomers.... " Interesting.
  • JK
    Jonas K.
    2 February 2020 @ 15:51
    Luke called it, the Repo intervention by the Fed came just a few months after this conversation.
  • HW
    Henry W.
    8 October 2019 @ 17:44
    this host needs to screw his face on right
  • TB
    Teacher B.
    25 August 2019 @ 03:38
    Wow, Luke Gromen, some of the most astute observations and insights I've heard in any financial interview, anywhere -- thank you so much for sharing these thoughts and views. Indeed, these deficits (and the attitudes that have allowed them to accumulate) are the downfall of the dollar and even basic respect for the US and its ideas -- unsure how much longer its rank as reserve currency remains, but ultimately the dollar becomes valueless.
  • JP
    Jerome P.
    21 August 2019 @ 20:12
    For 2018 The US government's expense for defense, entitlement programs, and interest on our debt came to 103% of tax receipts. So, which would you be willing to cut? Can't cut expense for interest on the debt with some form of bankruptcy. That leave defense and entitlements? Entitlement cost will begin to rise dramatically around 2024....This can't go on forever....much longer? Time to inflate away our debt?
  • WG
    Wade G.
    7 June 2019 @ 21:10
    Really fascinating and I think I followed almost all of it. Strangely I'm hung up on Luke's remark on market valuation using Mkt Cap to GDP. He stated he nets out 10 year treasuries. I just don't follow the logic at all, so I'm not even sure exactly what is netted from what, and on what rationale. This might be one of the simpler concepts discussed, but I'm just not following it. Anyone wanna throw me a bone? What's the math and why is that a better measure of market valuation? More broadly, I really like both Luke and Ed. Really good convo.
    • JD
      James D.
      20 July 2019 @ 21:15
      Gromen skipped some gears here. Prima facie makes no sense what he said unless he forgot to explain he has improved on Buffet's ratio by using "U.S. Enterprise Value" (incl. debt) to measure equity over/under-valuation - still many holes hear.
  • JL
    J L.
    6 June 2019 @ 11:44
    cut the music during the summary at the end, it's not even funny anymore
    • AF
      Andre F.
      9 July 2019 @ 05:41
      I agree, The summary is a last chance to pay attention and focus on condensed points. The music is noise while I'm trying to listen (to the person summarizing, in this case Ed) and think.
  • lp
    larry p.
    7 June 2019 @ 21:31
    Have you ever considered Nassim Taleb for an interview?
    • RH
      Rob H.
      8 June 2019 @ 11:50
      He’s a great author but did you see he last interview on Bloomberg, he basically said people should Stay out of financial assets. Yet I still think a in-depth interview would be great to see but I don’t think he’s going to give us much insight on how to invest.
    • AF
      Andre F.
      9 July 2019 @ 05:22
      Wasn't he more nuanced? I believe he said people should stay out of risk assets because most people don't evaluate risk properly or well.
  • ah
    ahmed h.
    10 June 2019 @ 04:44
    Big fan of luke's so really enjoyed this interview. One question I had was regarding appetite there is in society now to see continually higher asset prices, esp if FED is seen as reason behind rally in assets. Shouldnt the populist movements/anger limit how openly fed can buy assets and push up asset prices?
    • AF
      Andre F.
      9 July 2019 @ 05:18
      I've been wondering about this too. The only controlling factor I can see on the anger/populism is the following dynamic: Yes, the rich are getting richer from the asset inflation caused by The Fed's cutting BUT recession/joblessness is also staved off, with grudging credit being given again to the Fed. It's the best answer I can come up with.
  • FS
    Franz S.
    16 June 2019 @ 21:04
    I must say it's very distracting to see these fellows neglect the delicious coffee cake between them.
  • BS
    Bradley S.
    14 June 2019 @ 02:21
    Gromen> in 2018, the United States government issued gross $10 trillion with about 70% of that less than a year of maturities. This year, they're gone on pace to issue 11.5 trillion in US Treasuries, again, 70%, less than one-year maturities. I am confused to hear the figure of $10 trillion gross USA government debt issuance in CY 2018. Was it not more like $1 trillion? Can someone please fact-check this, for the record?
    • MP
      Mayank P.
      14 June 2019 @ 20:19
      $1 trillion is new debt. US government still has to rollover the existing debt that is maturing.
  • SW
    Scott W.
    12 June 2019 @ 13:31
    I'm reminded of the old joke about an economist escaping a hole by assuming a ladder. Luke asserts that once unassailable underlying assumptions to major narrative(s) are being challenged by global actors. Whether Luke is right or wrong on nearer-term outcomes, it's worth contemplating the ramifications from this piece and his observations.
  • JB
    Jon B.
    12 June 2019 @ 11:56
    I've watched this three times and still trying to figure this out. The IOR and IOER were relatively easy finds but the concept that US dollar FX hedging cost is no longer attractive took several takes. this document helped me understand a bit better.
  • MN
    Michael N.
    9 June 2019 @ 23:47
    most excellent. nice job with the flow ed, and luke killed it.
  • BE
    B E.
    9 June 2019 @ 16:04
    Excellent interview...D/GDP at 105% and counting we always knew it would come to this. Love the comment that the Fed wants Gold to rise this time!
  • DS
    David S.
    8 June 2019 @ 22:30
    It is the market that hates the 10-year bond over 3 %, not the economy. Banks would start to normalize again. Zombie companies might go under, but the normal economy would slowly grow. It would be hard on the market built on leverage. DLS
  • DS
    David S.
    7 June 2019 @ 04:40
    The Fed's major influence is on the short end of the curve. Wouldn't higher long-term rates attract more foreign investors? It would make their trade more profitable vis-a-vis German negative rates. Classically that would be the response. If not, the US may follow Japan and buy up its own debt. DLS
    • DS
      David S.
      8 June 2019 @ 22:24
      The Fed may be forced to hold or raise rates to attract investors – Mr. Gromen’s alternative case. The current US interest rate on long-term bonds is low compared to history and corporate hurdle rates. Slow growth in the economy seems reasonable for now, not recession. Mr. Gromen can certainly be correct, but for me the bet is 50/50. Too early for me to jump. DLS
  • DS
    David S.
    8 June 2019 @ 18:22
    The market wants the Fed to lower rates just to inflate stock prices in the short run – it is built into the algos to day trading. Fed cuts no longer stimulate the real economy. No one wants to invest in their business when one political move from either side could sink the ship. The political Euro is destroying the economic union of the EEC. From an economic standpoint I do not see the market moving up. Several bright presenters on RVTV believe that the market is going to melt up. They may be correct, but it is not based on improvements in the underlying economy. DLS
  • DK
    Dennis K.
    8 June 2019 @ 08:40
    Can’t you have a debate between Kyle Bass and Luke Gromen. Would be interesting to see those two debate. Bringing their different graphsheets. Because they are worlds apart
  • MK
    Manoj K.
    8 June 2019 @ 07:40
    Great Interview. Luke always make sense for me.
  • DS
    David S.
    6 June 2019 @ 20:30
    I like how adroitly Mr. Harrison injects caveats without interfering with his guest’s argument. Mr. Gromen is rational, but I do not see a 15% jump in the market anytime soon. I have thought for a long time that the administration is using tariffs as a surrogate for a border tax along with negotiating tactic. It was also interesting that Mr. Druckenmiller was out of stocks about a month ago. If the market goes up per Mr. Gromen, I will not benefit, but I will preserve my capital. Good luck to all you professionals who must invest other-people's money. I am sure that you are doing a great job in hedging your risks. DLS
    • DS
      David S.
      7 June 2019 @ 18:19
      Correction: I saw a new interview with Mr. Druckenmiller today and he said that he was misquoted. He actually said that he sold stocks to reach a net neutral position. Sorry. DLS
  • SA
    Stephen A.
    6 June 2019 @ 16:05
    One problem with Luke's thesis. The US government can raise taxes to plug the deficit.
    • CD
      Conor D.
      6 June 2019 @ 20:08
      No they can't. Practically speaking, the Fed monitization option is much easier than the raise taxes option. Also, higher taxes would hurt growth so they'd be shooting themselves in the foot with that choice...
    • SB
      Stephen B.
      6 June 2019 @ 21:45
      The one things that you can be 100% certain of is that there will be no tax increases ahead of November 2020.
    • DR
      David R.
      7 June 2019 @ 15:01
      Conor, they've already raised taxes because the big tariffs are a tax hike. And it's a regressive tax. The tax cuts benefitted corps and the rich, while tariffs kill the lower & middle class. Stats who they are now paying $1487 more in tax due to tariffs, which is waaaay more than the tax cut and likely to steepen to over $2000 per family per year soon. Watch how badly that kills the US economy, which is falling faster than any major economy in the world now and has the worst outlook among all major regions in the world for the rest of the year.
  • DR
    David R.
    6 June 2019 @ 16:31
    Interestingly, Luke has the same, non-consensus investment thesis (per my last post below) as do researchers from Hedgeye. You can see one of their daily Macro Shows (good stuff) taped & posted yesterday for FREE (a rarity) - enjoy here:
    • TM
      Timothy M.
      6 June 2019 @ 23:01
      I follow hedgeye too. have they made you money? I like all the peeps there, but only Jay has made me money.
    • RP
      Ryan P.
      7 June 2019 @ 03:48
      @Timothy Yes, their pivot to long bonds has made many people including myself lots of money.
    • DR
      David R.
      7 June 2019 @ 14:54
      Timothy & Ryan, their timely calls in and then out of energy were good too. Same for gold. Dsagree with their bullish dollar, but that's just a short-term trade not a trend as their trend for dollar and the US economy is bearish. I agree on that too. The dollar has been smashed to bits this month, and puked back 6-12 months gains against many currencies, and sitting almost 1000 pips below where it was 29 months ago. Dollar turning bad, if not now, then during or after summer.
  • MP
    Mate P.
    7 June 2019 @ 14:36
    Luke is always interesting to listen to, however I think he is grossly over focused on US deficits, while his entire thesis misses such tiny factors as the real economy, the private sector and the rest of the world. All while basing his opinion on the behaviour of foreign investors? I respect his opinion, but bizarrely, I think he is missing the forest for the trees here.
  • SS
    S S.
    6 June 2019 @ 21:39
    Trump has been banging on for a long time that he wants The Fed to cut rates. The increase in trade tensions with China and now Mexico will create some market turmoil which will lead to The Fed cutting rates which is exactly what he wants. (When they do, he will of course take credit for it). Markets then rally on The Fed cutting rates, later down the line he then makes a trade deal with China and markets rally even further going into the 2020 election which he will win by a landslide. EM will significantly outperform and a lot of their stocks are very appealing at current levels.
    • SB
      Stephen B.
      7 June 2019 @ 00:12
      Precisely. He can ratchet up or down trade tensions, almost on a daily basis, in line with his re-election strategy. The trade disputes are red meat for his base, so good for his re-election bid. He can afford the markets to be spooked by trade tensions (a little) during 2019, provided they roar back in 2020, on the back of FED rate cuts and a supposed breakthrough with the trade negotiations.
    • DH
      Daniel H.
      7 June 2019 @ 05:59
      1. Not enough time to crash the markets and pump them back up in 2020. 2. Equities usually continue to go down when the fed starts rate reductions.
    • SS
      S S.
      7 June 2019 @ 10:29
      @Daniel. Not enough time to crash the markets? The S&P 500 dropped 15% in 3 weeks in December and then rallied 20% up to now. So there is enough time. As Luke said, when the Fed starts cutting rates, expect equities to rise especially value stocks vs growth.
  • AM
    Andrew M.
    6 June 2019 @ 12:26
    1. Rate cuts are not about the economy? The last 3.2% print was grossly inflated by inventory front running tariffs, which won't be repeated. Housing, autos, and capex - three leading indicators - are rolling over badly, US ISM is collapsing, fiscal stimulus is wearing off, and the Atlanta GDP Now is at 1.2%. What's more, 3m-10yr spread (the Fed's preferred indicator) is predicting a ~30% chance of a recession in the next 12 months, while Lacy Hunt and others are predicting a zero GDP print later this year. Given this, and the time it takes for rates to feed into the economy, the Fed would be foolish not to cut in June. You could make the case that multiple cuts are coming based on fundamentals too. 2. USTs being heavily bid is also a function of the wider global malaise. Global PMIs are terrible, global trade is contracting (bad for $ liquidity) Europe is flirting with recession, China is slowing and has major banking problems, and the world is synchronising lower after the 2016-2017 aberration (driven by China's massive stimulus). China's stimulus wont be the same size. So growing fears are also reflected in Bunds (500 yr lows), JGBs, metals (copper and others collapsing), Eurodollars, inflation breakevens etc. etc. 3. The trade war is compounding these issues, and people have come to realize that the US and China are likely locked into a multi-decade Cold War. How do you price that? It's impossible of course, but bidding USTs and getting out of risk assets that are highly susceptible to supply disruptiions and tariffs is one way. 4. GIven all this, I don't think fed funds is driving rates atm. It's one factor. Yes, fiscal is having an impact, but it doesn't mean that the Fed is doomed. A lot of it is to do with the collapse of interbank lending iand banks lending on repo markets. What can policymakers do? They can abandon the floor system (go back to corridor), restart QE (and bid up front end), or suggest to the Treasury that perhaps it's time they changed tack and started issuing longer-dated bills (this makes sense since 1. shorter dated cost more in the long-term; 2. real yields on the long bond are now 0.8%, with inflation VERY low. that's not bad at all). 5. Buying risk assets into a slowdown and Fed rate cutting cycle is dangerous, if not silly. In past crisis Fed cuts have done nothing, while you only need to look at Japan to see the feedbleness of CBs to jumpstart risk assets. Moreover, risk assets are at near record highs, corporate leverage (sans banks) is higher than 07-08 and share buybacks have been the major buyer of this cycle. That all comes to a head if risk assets collapse (credit dries up and share buybacks evaporate as markets fall). 6. US investors will have to liquidate assets to buy USTs, I agree. But what's to say that emerging markets (going into a trade war and deglobalisation) won't get liquidated before US risk assets? That would be good US assets, good for the dollar, very bad for EM and other markets.
    • AM
      Andrew M.
      6 June 2019 @ 12:29
      *cut in July * fed fund concerns we really need an edit function!
    • AM
      Andrew M.
      6 June 2019 @ 12:44
      Also, did he say the Fed would buy all USTs? I don't understand how that works and it's not explained. Even BOJ only owns about half of all JGBs and they've KILLED their banks. they are dead. Why would the Fed, which is owned by private banks, follow suit absent MMT or something. I don't doubt QE4 is coming, but this is unrealistic and would instantly spell the end of US reserve fx. if so, just buy gold. Very weird assumption to get to his 30-100% rise in equities.
    • DH
      Daniel H.
      7 June 2019 @ 06:12
      It would just be QE forever. $10T balance sheet, or more.
    • AM
      Andrew M.
      7 June 2019 @ 10:20
      Then the trade would be gold (miners particularly) as real rates collapse. I think that's the better trade. Still, the implications of the global risk-free rate going to zero would be profound (basically killing the global yield curve), and you also run the risk of having no HQLA or collateral out there for the financial system to operate. Banks and insurance would die, and the economy would become more zombified as cheap money allows failing businesses to roll debt and survive. Anyway, I think "The Fed is losing control of money" narrative is a bit overblown. But the Fed did make a BIG mistake, and I'm not sure they really realise the damaging effect of QT ('like watching paint dry'). From Zoltan's April Gloabl Money Notes: 'the Fed should not taper into a curve inversion [3s-10s inverted in October on FX hedged basis], because the marginal buyers of Treasuries in such an environment are dealers and hedge funds. Dealers buy because they have to, not because they want to, and hedge funds buy because they think the Fed will soon cut rates. It is their funding needs that pressure o/n repo rates and the o/n fed funds rate outside the target band, and if rate cuts do not materialize, pressures can ricochet to the long-end of the curve.' So it's a combination of huge UST bill issuance (which is set to slow between now and Q4 btw), QT (monetary policy error imo), and Basel III regulations on reserves and funding. The Fed will probably cut hard and do QE this year, but fed funds is just one issue. The economy is genuinely rolling over. Will be interesting to see what effect Fed easing has on fed funds. And they are likely (hopefully) getting some arrangements prepped for Q4 bill issuance - be it a new reverse repo, bidding up front end (which would steepen the curve), or telling Treasury that they need to fund on longer end (also steepen). Or some combination thereof.
  • NO
    Neil O.
    7 June 2019 @ 09:35
  • TE
    Tim E.
    7 June 2019 @ 06:36
    Love this guy!
  • SA
    Stephen A.
    6 June 2019 @ 16:28
    I think there is a lack of understand of what the Federal Reserve is. The FED is a place where bank reserves are held - a combination of private banks and the US treasury. The decision of the FED to buy US treasury debt (QE) is a highly political decision. In 2008 the case was made to Congress that banks didn't have enough reserves - which was a plausible argument and thus politics were largely avoided. However, I don't think there is a general agreement in the US population that the FED should finance the US government. So the type of purchases he envisions will in no way happen in the next 6 months. Instead, Pelosi would rather do it the old fashioned way - raise taxes. I understand Trump wants to fire off the printing press, but he is not the only game in town anymore and in a deadlock scenario between Trump and Pelosi, the FED's hands are tied to what it has right now. They can end QT and use the existing monetization capacity of about 1.2 trillion dollars but don't have mandate to go much further than that.
    • DR
      David R.
      6 June 2019 @ 16:42
      But funny what they can do in a crisis and how fast change happens then. And their idea of a "crisis" now is stocks down 10%, long bonds near 3% or high-yield spreads more than little above IG. US currency destruction is inevitable in time.
    • CD
      Conor D.
      6 June 2019 @ 20:06
      I'm not sure how you can see the likelihood of taxes being raised as higher than likelihood fed resumes QE/cuts rates. One of Luke's central premises is that there is no political constituency for spending cuts, or higher taxes. Therefore, the only outlet... and a MUCH easier one because of lack of need for elections or voters to decide on it, is Fed monetization. If you think the political solution (fiscal) is easier than the monetary I'd like to understand how...
    • DH
      Daniel H.
      7 June 2019 @ 06:11
      The public does not understand that bonds sitting on the fed balance sheet have gone to bond heaven and that debt is effectively monetized. I was more shocked at Luke's statement that the fed's job is to control the price of money. That is not their mandate -- it is their tool at the short end to execute part of their mandate. This other stuff (QE, yield control, etc.) is all an expansion of their power, and a mistake in my view.
  • DH
    Daniel H.
    7 June 2019 @ 05:54
    Great interview. Two of my favorite people on RV TV.
  • BA
    Bob A.
    7 June 2019 @ 04:55
    Luke is an excellent interview as always and I enjoyed Ed's style of letting Luke talk. Thanks and I look forward to Luke coming back soon.
  • BH
    Bin H.
    7 June 2019 @ 02:48
    Clearly Ed Harrison disagrees with Luke Gromen. IMO, Luke uses long term reasoning to make short and mid term predictions. Dollar will for sure go down because of large debt. But next year? probably not. Also, the short term dollar pullback recently is pretty weak not strong
    • MM
      Madison M.
      7 June 2019 @ 03:34
      he wants the market to rally 30% to a 2007 level of overvaluation.. that valuation caused a 50% drop and 17 month bear market. seems unlikely but we will see.
    • BH
      Bin H.
      7 June 2019 @ 04:44
      Why do you think today is more like 2007 instead of 2000?
  • RA
    Robert A.
    7 June 2019 @ 04:04
    Ed’s interviews are becoming exceptional and it has been a pleasure to watch his efforts seamlessly evolve. Agree or disagree with Luke’s points this was an excellent piece. Brent Johnson and Luke had a very civilized spirited debate on the US $ about a year ago and it would be nice to see them Tee it up once more on Brent’s response to Luke’s points and the sure to come rebuttal by Luke to follow. Will definitely watch this one again. Thanks Ed and RV.
  • AW
    Austin W.
    7 June 2019 @ 04:03
    Great interview, great follow up questions.
  • mb
    michael b.
    6 June 2019 @ 08:31
    Luke, who is brilliant, makes a point that is confusing to me. He seems to say that Japan and Europe have deflation in the midst of heavy debt loads, but the USA has an Achilles Heel, namely we maintain the world’s reserve currency, and as such there are $7 trillion USD sitting abroad that will come home to roost causing INFLATION should the Fed start monetizing the federal debt. Disclaimer here: I’m an idiot. Isn’t the world awash in USD denominated debt? Seems as if there will be a need for dollars to service that, esp emerging markets. And aren’t relatively massive amounts of USD needed every day to transact business globally (thus the eurodollar system)? Jeff Snider (whose IQ minus mine is still a big number) seems to think people are having trouble getting access to USD. Why do we tend to think that our future selves will be both illuminated and simultaneously irrational? I see no future event where the world is collectively awoken to the fact that the Fed is monetizing the debt (aren’t they basically already) and then they rush to cash in their rapidly deteriorating dollars for goods, services, and assets, thus facilitating their own demise. I’m interested in Luke’s play-by-play on this. I’ll accept that in graphic novel form or get with Ray Dalio’s people to make a cute video. There must be a point where debt accumulation and monetization by the government issuing the world’s reserve currency leads to a loss of confidence AND the adoption of a replacement RC out of sheer necessity, but what factors would drive that necessity? And certainly that debt breaking point would have to be significantly greater than what Japan and Europe are still able to tread water with, right? Any answers or insights would be great. Explain it to me like I’m a 5 year old, though.
    • GH
      Garrett H.
      6 June 2019 @ 13:26
      One thing Luke didn't bring up that he usually does is that dedollarization is happening in some of the largest markets. China is working on paying for oil in CNY and EU is working on paying for oil/gas in Euros. Once large consumers can effectively print money for imports they don’t need to hold as many USDs. Furthermore, regardless if trade is settled in USD or CNY or gold, what actually matters to USD value is whether it is held as a reserve asset by central banks and private investors/institutions. If the Fed starts monetizing US gov debt, investors/CBs will start trading their dollars for other assets, leading to a rise in stocks/commodities (possibly other fiat currencies as well). The loss of reserve currency doesn't happen overnight and there doesn't have to be a replacement in order for the USD to significantly weaken. When will the Fed monetize and how much monetization will be needed to offset deflationary pressures (weakening growth, USD-denominated debt, etc) is the real question here. Jeff Snider studies non-US banks that create the majority of "US dollars" by lending against collateral. He suggests we are seeing stresses on the Eurodollar system as FFR goes above IOER, indicating banks balance sheets are too tight to take advantage of the arbitrage opportunity that presents. Snider and Luke agree on this point, but Luke is theorizing about what the Fed will do next, whereas Snider focuses more on what is happening now.
    • DR
      David R.
      6 June 2019 @ 16:20
      Anyone working in real international markets daily can see how US dollars are in massive supply and surplus globally. Nobody wants to hold US debt for long and it's collapsing. The notion of a dollar shortage seems laughable, especially with an uber-dovish Fed and the US talk of MMT.. US dollars and debt are fast becoming the "hot potato" that everyone is trying to unload. US will have a huge problem on its hands when all those unwanted dollars abroad flood back to US in a rush to try to convert them to anything of real value. As for Mr Snider, you might check out and compare his market track record at alhambra. Theories don't always translate to winning market strategies. Dollar is going to dump before long, big time! And US is in for a world of hurt next decade and thereafter as the bills & chickens come home to roost and the country collpases. The question is, will behave civilized and go quietly into the night like the Brits did? Alas, it seems not.
    • GF
      Gordon F.
      7 June 2019 @ 03:06
      One thing Luke did not mention, but that may well happen in a financial crisis, is that the IMF will produce massive quantities of SDRs (Special Drawing Rights) which will become the new reserve currency between nations. If that happens, then other countries will no longer want to hold dollars, which will likely come flooding back to the US (the only place where they are still legal currency) to buy whatever real assets they can. This could produce catastrophic inflation. In such a case, I could also envision the US implementing currency controls to block dollars from coming back INTO the US. I'm probably totally off-base on this idea, but why not. Once dollars are not wanted overseas, why would we want them back? They would represent nothing but the obligation to sell stuff we value to foreigners we don't like.
  • MM
    Madison M.
    7 June 2019 @ 01:28
    good stuff. the trade breaks down when inflation arrives. there is no appetite for 3% inflation long term nor a mandate for it. rates rise and growth stocks falter. rinse prob works no matter..
  • SB
    Stephen B.
    7 June 2019 @ 00:46
    Luke is the ultimate big picture analyst and always thought provoking. However, i am not 100% convinced that the dominoes will fall in the sequence he presumes. Firstly, his analysis doesn't embrace the possibility that Europe and/or China are also headed into recession, which, if true means funds will flow into the US (the least dirty shirt scenario); Secondly, he presumes that the world will "wake up" and view a rate cut as necessitated by funding rather than a response to a stalling economy. Sure, the world will one day will become acutely anxious about growing US deficits but whose to say it will be this particular time around?
  • TM
    Tom M.
    6 June 2019 @ 23:11
    Border Adjustment Tax - private investment up, government deficit spending down, US growth up, interests rates up, Dollar up, energy and commodities down, etc. The only possible problem being supply of dollars to the outside. I know it's free money but US should start considering if the having the reserve currently is more trouble than it's worth. After all, US was doing just fine long before the Dollar became the reserve currency, in fact the US economy and financial markets were more healthy and rational than today. It's not perfect but it beats socialism, because that is the alternative if American workers get no relief from the policies of the last 30 years.
  • JB
    Joe B.
    6 June 2019 @ 07:46
    I don't always agree with Luke Gromen's ideas but WOW do I ever appreciate his original thinking and well articulated thesis. Watching this interview was time well spent. Please have more guests on like Mr. Gromen.
    • SB
      Stephen B.
      6 June 2019 @ 21:53
      Luke Gromen is a real gem.
  • OT
    O T.
    6 June 2019 @ 13:49
    One of the main arguments that Luke made is that the foreign buyers of treasuries are absent today because the FX hedge got more expensive than the "carry" from the coupon difference between the local and US gov bonds. That is probably correct (I do not have the data but I think Luke has it right). My problem is I cannot make the connection how this hedge will become cheaper if the Fed starts employing policy that would deliberately bring the dollar lower. It might be simplistic, but if I am a seller of this FX hedge I would demand more in such a market where the dollar is expected to fall, and I would demand less if the dollar is expected to rise. What am I missing?
    • CD
      Conor D.
      6 June 2019 @ 20:10
      I think the assumption is the likelihood of the dollar falling is much higher *before it has fallen* than after... In a Plaza Accord type of scenario it could be viewed as a one-time large devaluation afterwards markets don't see more.. but before, the expectation of devaluation is higher.
  • RM
    Russell M.
    6 June 2019 @ 08:44
    Ed is doing a great job as an interviewer. He asks the right questions and interjects and holds back his own view in the right measure. Let him do anything that interests him, and his interviews should be used as instruction for the rookies.
    • FC
      Frank C.
      6 June 2019 @ 15:45
      Completely agree. Ed’s timing and questions are spot on!
    • JG
      John G.
      6 June 2019 @ 18:08
      could not help but think the same as I watched. excellent interviewer.
  • MN
    Maverick N.
    6 June 2019 @ 16:54
    Great conversation! Luke is an original thinker and you get him in an interview with Ed - there can't be a better one except Sokoloff interviewing Druck / Mike Green interviewing Chris Cole. See how at the 6:00' mark, Ed stops him and counters with his own framework and Luke counter-explains his view brilliantly. There cannot be a better place than RV for the ones who sincerely wish to learn and unlearn. Via negativa!
    • DR
      David R.
      6 June 2019 @ 17:32
      Agreed, this and those other two were among the best. Luke Gromen is a great macro analyst and I appreciate the excellent job by the interviewer, Ed, to make this video shine.
  • SS
    Socrates S.
    6 June 2019 @ 09:56
    When Luke speaks of the USD falling in value, does he really mean that he thinks it will fall relative to EUR, JPY, GBP, CAD, etc.? Surely, these currencies have serious problems of their own. It seems more likely that the USD will decline in its purchasing power, which is to say that it will experience price inflation, but that other currencies will follow suit.
    • DR
      David R.
      6 June 2019 @ 16:50
      No, I think he means what he says - USD will underperform most FX. Altho charts show one last USD bounce this summer is quite possible before the probable USD carnage later. No guarantee, of course
  • DR
    David R.
    6 June 2019 @ 16:05
    Spot on, Luke... Weak USD and weak US economy ahead, underperformance in US stocks. outperformance in EM (Asia), gold will have its day again. Outstanding interview by Ed. RV please keep him. Unless he runs for prez!
  • RK
    Robert K.
    6 June 2019 @ 15:58
    Case for gold getting stronger every day.
  • GR
    Garey R.
    6 June 2019 @ 13:49
    Always appreciate Luke's perspectives and hearing what could be called a "counter intuitive" projection. However, in his thesis there are a significant quantity of direct line or correlary assumptions which would not only need to occur in a certain order but would need to happen within a specified time frame for the thesis to materialize as projected. Simply put...that's a lot of dots to connect via the actions of people in roles with interests that may run contrary to or independent of other market participants or countries. My caution awareness goes up when I hear such projections presented in a manner of "inevitable" versus a tone of ""possible". While I admire his conviction and passion, my observation and challenge back would be that his response to the question "What would derail your thesis?" should have many more facets and considerations than simply two conditions.
    • AM
      Andrew M.
      6 June 2019 @ 14:20
      What would make you rethink your thesis? 1. Fed losing control of money 2. Mad Max world Okay...
  • Nv
    Nick v.
    6 June 2019 @ 11:54
    The S&P500 is 3% below ALL TIME HIGHS. Everyone is bearish? really? Geopolitical risk is at a multi-decade high, volatility is well below long term averages and we are 3% from all time highs.
  • BA
    Bruce A.
    6 June 2019 @ 10:11
    Wow! Outstanding
  • PB
    Pieter B.
    6 June 2019 @ 07:57
    Brilliant! Massive thanks!
  • YU
    Yoni U.
    6 June 2019 @ 07:00
    Bring Luke on once a month.
  • MR
    Mahesh R.
    6 June 2019 @ 06:04
    Love Luke’s insight !