If you can tear yourself away from today’s market bloodbath… Earlier this week we had the great pleasure of being joined by Luke Gromen, founder and president of Forest for the Trees, for an excellent Macro Session.
Sooooo how’s the current macroeconomic landscape looking?
“It's like the movie poster of Jaws of the girls swimming and the sharks coming up underneath her,” Luke said. Oh. Great.
Luke said the United States has entered a narrow "two-to-five-year window" to restructure its national balance sheet before the lack of an industrial base makes a sovereign debt crisis truly catastrophic.
🏠Housekeeping note: The first 15 mins or so and part of this write-up is available to everyone, but the full 70 minute session is reserved for paid-up Market House subscribers. Thank you as ever for your support. And if you’d like to join us, you can do so right here.
UNSEEN MARKET REALITIES
Luke challenged several prevailing market narratives, beginning with the assumption that Kevin Warsh will act as a hawk. “The math simply doesn’t math” for a hawkish policy to work, he said, and reminded investors that in 2018, Warsh “co-wrote an op-ed... begging for Fed liquidity” when bank stocks dropped just 15%. He views the current “hawkish” spin as mere “narrative management” to keep gold from going “asymptotic.”
Elsewhere in the big picture, while many view AI as a productivity miracle, Luke warns it could accelerate a debt crisis because it is “extraordinarily deflationary for... white-collar wages.” Since these workers pay roughly half of US tax receipts, a successful AI boom could “pull the bottom Jenga blocks out of the tax base” while simultaneously making the build-out of AI infrastructure “extraordinarily inflationary for metals.”
ZUGZWANG AND THE FDR SOLUTION
Luke described the US position as “Zugzwang,” a chess term where every move makes the position worse. If the government saves the bond market with high rates, it chokes off the investment needed to win the industrial and AI race; if it devalues the dollar to save industry, it sparks high inflation.
Luke believes the only “policy way out” is a “one-time snap devaluation of the debt” against gold. This transition requires a “great communicator” like FDR, capable of being honest about past policy lies, such as the offshoring of the industrial base and the financialization of the economy. He said that a leader must apologize for the fact that the US has become “capitalists for the poor... [and] socialist for the wealthy.” Without this honesty and a bipartisan effort to reshore industry over the next 10 to 20 years, Luke fears the country is “racing towards a cliff” with an engine on fire. He thinks the financial system will eventually force this hand because “the Treasury market will always blow up in seven to 10 days if we try to do anything extreme without devaluing it first against gold”
