America’s Geopolitical Strategy is Completely Failing

Added: 2026-05-07

[00:00:04]Hello everyone, welcome to the Vancouver Resource Investment Conference. How you all doing today?

[00:00:13]Hello everyone, welcome to VRIC Media, your most trusted voice in metals and mining. I'm your host, Daryl Thomas, and today we have the pleasure of interviewing a titan in the se in this sector, Luke Groman of Forest for the Trees. How you doing, Luke?

[00:00:28]>> I'm doing well, Darl. Thanks for having me on.

[00:00:30]>> Yes, I say a titan. You know, I've been listening to you for a while. So, every time I get in front of, you know, some of my favorite uh analysts, I always have to pump y'all up and everything, right? Uh so, so u obviously the signal right now is straight her moose is still close. Uh it's, you know, there's been some noise here and there, you know, regarding the blockade or and then I think President Trump um said, "Oh, we're not doing any more attacks cuz I think there's like a 60-day window where Congress has to approve like a war and such." And so there's all this all this noise that's happening, but the straight is still closed. And so I'm curious in your thoughts on uh do you see anything breaking? Uh do you what cracks are you seeing? Obviously, we see that in the energy sector and just want to get your thoughts on on any other sectors or uh commodities that you're seeing that are impacted from this.

[00:01:23]>> Yeah, it's been um it's it's it's been a case of based on what we had heard 3 4 days into the war, we said, look, I think it's going to horm is going to be closed a lot longer than we think. And and to me, it's it's it's really the only factor that matters in the market right now. Um and you're starting to see the um it's slow but accelerating cracks in supply chains. Uh it's shown up as um significant inflation that is just now starting to be passed through 20 30 50 100% price increases I've been hearing about from people in that the the um petroleum uh based supply chains. Um, we've seen it show up in inflation for fertilizer and fertilizer availability in some parts of the world. That will ultimately result in lower crop plantings around the world, higher crop prices around the world. Um, unfortunately in some places of the world, poorer parts of the world, probably outright food shortages. Um, you're starting to now see it for the first time in developed world airline.

[00:02:38]Obviously, we had Spirit Airlines file bankruptcy, which is to me sort of a uh, you know, or close down, not even file bankruptcy, close down over the weekend.

[00:02:46]Uh, to me, that's almost like uh the 2007, you know, when you started having some of these sort of, you know, crappy fly by night mortgage companies, you know, closing down and going bankrupt.

[00:02:55]That was kind of, you know, your leading indicator of a problem. And I I I there's lots of great people who work at Spirit Air. I don't want to denigrate them in any way. Uh I'm just saying from a financial position um Spirit Airlines was one of the weaker players in the industry. And so uh you're seeing that you're seeing so far I saw just this morning Financial Times uh 2 million seats uh about uh several hundred th couple hundred thousand flights maybe 100,000 flights have been cancelled beginning in May by global airlines. Uh and here too when you look sort of top to bottom uh it is starting with Asian and near east airlines you know Turkish airlines some Asian airlines uh actually British Airways is pretty far up the list as apparently Britain imports a great deal of its uh jet fuel uh but it's in the grand scheme of things it's you know the the flip side of this hey it's only you know 50 basis points or 100 basis points of total global seat capacity. Yes, but that number isn't going to go up linearly come June when if Hormuz is still closed. It's going to go from, you know, 50 base points, 100 base points to 500 basis points or or something like that. And then that starts to break. And that's really an important one because u as as I didn't know until co but I learned in co travel is about 10% of global GDP and so when you start interrupting travel it starts having these second third. So, we're seeing uh the early stages of this breakdown occur. You're seeing global bond markets um respond to rising inflation and you know, so that's kind of where we are as as it as it relates to the second derivative implications beyond just oil prices.

[00:04:48]>> Yeah. Um, I mean, for me it's it's pretty astounding just looking at this whole thing and and I know that, you know, we don't have to get, you know, too political, but Donald Trump did run on, uh, blaming inflation on Biden, right? And and and in this in this scenario, uh, in this situation, uh, I mean, technically, the straight of her moose was not broke. We went we went in and wanted to fix it, right? and um and the administration is doubling down on like the uh them having access to to nukes and such and so and and that's kind of the the main theme that that I've been seeing and such and so yeah I mean how is this going to look I mean you have midterm implications here in the US um you have you know the average person that's still struggling uh I've been reading a lot of articles that have been coming out about um you know people's um affordability issues and such and so It seems like it's going to make that issue even worse.

[00:05:48]>> Yeah, I think that's right. And for me, it's been something I've been pretty confused about. Um, you know, there's a view that this is sort of a, you know, 2D, 3D, 4D chess move to sort of shut down the straight and attack, you know, attack China's, you know, supply chains and, you know, but again, it's like to me that's like the the scene in the Simpsons, right?

[00:06:11]There's a from this way back. I'm dating myself, but like Homer's driving through this dense fog and he can't see anything, but he's just driving on away and then all of a sudden there's a car in front of him stopped and and he rear ends the car in front of him. He's like, you know, gets out and he looks at the other car's bumper and he goes, "Well, at least I got him as good as he got me." And then he walks a little further and he sees it's Marge's car parked in front of his own house. He's like, you know, so it is where I keep coming back to, and I've probably not vocalize this or or or or express this as well as maybe um I should up to this point, which is when you look at the debt um when you look at the debt dynamics that the United States is in and went into this war in, um there have basically been you can go back in history uh there have been no countries going back 150 years that have had debt to GDP hit 130% 125% like like we did during co and not have a debt crisis of sorts a severe inflation usually is how it's worked out with severe financial repression there was one example really in the last 200 years that I'm aware of where a country was able to do that. And it was Great Britain after the Napoleonic Wars, I want to say like 1815. And so they had the reserve currency, uh, it was goldbacked and they were able to not have to devalue their currency to get out of their debt issue. How did they do it?

[00:07:54]They cut government spending drastically. They had a some of it probably by luck of the draw. you were at the very beginning of the uh industrial boom right industrialization etc for the next hundred years uh but you know then you steam engines and then you get into commercialization of fossil fuels etc. Um and by virtue of of growth, cutting government spending and avoiding, you know, they didn't go back to war um in in any real way. Um they were able to get out of it. And you contrast that with what Trump just did, which is okay, we have a debt problem.

[00:08:35]We had a debt problem. We had an inflation problem that yes, it was an inflation problem under Biden and it was ultimately an inflation problem that was a manifestation of a debt problem because part of the reason we ran the additional stimulus is if you that that we that we probably not even probably we absolutely didn't need on the surface um in 21 uh we didn't need the second and third rounds of stmmies but if you go back to August of 2019 there was a black rock white paper called um oh gosh it like navigating the next crisis uh uh wrote about it at the time.

[00:09:14]But at any rate, the point was is it was four former uh three former central bankers including uh uh Stan Fischer, former vice chair of the United States and the uh the gist of it was look in the next crisis we're out of firepower.

[00:09:28]And so what's going to have to happen is we're going have to do a lot of fiscal spending and central banks are going to have to monetize that fiscal spending to keep interest rates well below the rate of inflation to grow out of the debt to set us up. And so the Biden inflation that Trump criticized that you were noting was really, in my opinion, a policy response that was laid out in 2019, which was, hey, in the next crisis, we're going to uh spend a bunch of fiscal and we're going to have inflation and we're going to keep bond yields low and we are going to grow our way out of it. We're going to inflate our way out of it. And that's what I think 2021 was about. You get to 2022, of course, it starts to become a political issue.

[00:10:07]Uh, and to your point, like now gasoline prices where I'm sitting in Ohio, they're higher than they were in 2022. I just saw 599 diesel in Cleveland, Ohio yet last night.

[00:10:19]>> Um, that's going to filter through to all sorts of supply chains >> and it's higher than it's higher than it was under Biden. And uh, and and and incredibly, we haven't even gotten to the really painful part of this yet. So, like you've got inflation baked in the cake um across necessities that is going to be very meaningful for the next 6 to 12 months. And it sets up a real interesting dynamic of, you know, are we going to save the currency, right? Are we going to essentially let bond yields go to where they need to go? Is the Fed going to hike rates um to defend the currency or are they going to cut rates into accelerating inflation and really let the currency go uh and let inflation go? And we're in this interesting moment in time right now where the stock market and even Bitcoin a little bit seem to be thinking over the last 3 to four weeks that they're going to let the currency go and the bond market with it with the 30-year you know breaking five the 10ear back to its 4.4 over 4.4% which has been a problem area that we've seen uh various jaw boning tacos etc since this war started. the bond market's saying, "No, no, no. We're we're we're going to defend the currency. They're going to save the bond market, not the currency. They're going to let everything just, you know, come unwound because and let rates go as high as they need to go to stop the inflation." And only one of those two could be right. So, uh, >> yeah, it is a very interesting time from that standpoint because I just look, if the 5D chess people are right, you know, maybe this could all work out, but generally speaking, disrupting supply chains is a really bad way to try to, you know, win a game, right? It's almost like the street of Hormuse. It's like, okay, well, it's, you know, Alabama against Ohio State and, you know, it's halftime and Ohio State's down 28 to7 to Alabama, you know, and Ryan Day is like, "Okay, here's what we're going to do, guys. I know our quarterback is not playing well. I know our running back's not playing well. I know our line isn't blocking at all, but what we're going to do is we're going to have the quarterback go and he's going to throw footballs and knock over Alabama's Gatorade so they don't have as much Gatorade cuz that's why they're beating us." Like, "No, no, no, no. It's cuz your quarterback's not playing well.

[00:12:44]It's cuz your line's not blocking. It's cuz your running back, you know, has a busted leg. Like, and so sort of throwing a football at the other team's Gatorade supply is is how I think the Hormuz strategy is. And like it might make you feel better. Maybe it'll work.

[00:13:00]Maybe Alabama's entire team will get cramps and and and you know, not be able to play and then we can run, you know, run against him in the second half. But boy, maybe we should just draw better plays.

[00:13:12]maybe maybe we should, you know, see if the second, you know, if there's some, you know, some freshman running back or, you know, quarterback who can play a little bit or something like that. So, >> yeah, >> it's a really interesting time. I think it's coming to a head very rapidly. Uh and I think every day now that Hormuz stays closed is worth like three days that Hormuz was closed, you know, two months ago in terms of because we've run down energy inventories, oil inventories. We've run down other inventories. Uh companies are now starting to see difficult. They're actually getting out and sending reps around. Hey, we're raising prices 40%.

[00:13:48]Effective today, boom. You don't like it? You're not getting allocation. These conversations are happening now. So, you know, let's see.

[00:13:56]>> We got all of the boxes ticked and now we have one of the only shovel ready permitted projects in the US.

[00:14:03]>> It'll be Wyoming's first peritted mine.

[00:14:06]Is this correct?

[00:14:07]>> It'll be the first one in 100 years. US Gold Corp is a near-term lowcost gold producer in Wyoming. To learn more, go to us goldcp.com.

[00:14:19]>> Yeah. Earlier you mentioned the gas prices. I was thinking about uh just where I live in in uh the Seattle, Washington area, it's it's been getting uh re really expensive. And I I I keep recalling these these kind of uh stickers that people would put on the gas pump where it would say like it would show >> this, right? The buying stickers.

[00:14:39]>> Yeah. Yeah. It's uh it's kind of interesting. I wonder if the reverse is going to happen. Uh so uh just curious uh you know from an investment standpoint you know who wins in this inflationary environment. Um so obviously we we see you know fertilizer energy and such and and many many people have been talking about energy sector.

[00:14:59]Uh we've had many talk about the energy sector. So just curious if there's any other winners in this particular environment.

[00:15:07]Yeah, I think I think the energy the the you know XOP type names, ENTP names uh should do well uh particularly if they get a if they get convinced that these prices are staying here and b um they're forced to do it. You know, Trump implemented the uh Defense Production Act as it relates to petroleum production two weeks ago or 10 days ago.

[00:15:27]I think that potentially could come to be pretty important. Uh, you know, I I am not a lawyer, so take this with a block of salt. But when Obama signed um an updated version of this in 2012, um there were a whole bunch of people at the time going, "Oh my gosh, you know, this could actually they could just force people to do things." Um and so I I think we're going to see that in the energy space where the US government is going to buy, you know, carrot and stick, right? Hey, listen, produce more.

[00:16:02]And there's ways you can do that, right?

[00:16:04]A the break evens now you can make money doing that. Um, we've seen some comments out of energy execs in recent days saying, "Look, we're still I believe it was um Kico Phillips saying we're still going to run this as as to maximize cash flow and to maximize margins. We're not going to do that run this to maximize volume."

[00:16:25]You know, there's ways you can, you know, Trump can come and say things that make them do that or incent them to do that. Something they could do incentive wise would be, listen, we'll we'll cut all your taxes on anything you produce.

[00:16:37]So produce more, your profits will be the same. Your your production will increase. You could do that. That's going to be a political issue. that you throw that on the pile of growing you growing pile of political issues that that Republicans are going to have in the midterms if you know you and I are paying six bucks at the pump and and oil companies have had their taxes cut to zero so they can produce more. Um it's it's I could absolutely see that happening. Uh something like that, right? So there's ways you could do that. There's there's more draconian ways that the Trump administration could do it, which is just, you know, produce more. Uh and you know, if you need workers, we will send, you know, guys from, you know, the first infantry division to go work in the fields. then you know there's a ramp up time to that but that's you know if you need labor we will supply you the labor with the US military or with we'll call up parts of the national guard reserves in your area and they will go to work for you something like that is something you could conceivably see with that DPA involved >> that would suck getting military wages you know going and working in the oil field >> yeah that would be a kick in the shorts right you're making you know whatever an infantry and enlisted guy makes now which is not nearly enough you know, the uh the guy next to you who's, you know, the rough neck's probably going to make 200 220 grand. Yeah, that's a little that's a little unfair, but that's that's the way the cookie crumbles, I suppose, and the DPA, they can do that.

[00:18:01]Defense Production Act. Uh I think another thing that Trump invoked the Defense Production Act, US electrical infrastructure, something we've harped on a lot, and everything that feeds into that. So um you know things that that companies that occupy the ETFs like the PAVE ETF PAVE or the grid grid you look at the companies in those ETFs and uh I think that sector is going to do very well. We are short electricity um a lot of the manufacturing boom that we are having as it's being called it's mostly an AI right now. there's actually not that much else uh really ramping that might be changing on the margin. Um I you know I and it's interesting I I have a private equity investment in electrical infrastructure. I was talking with um uh someone close to the management team uh two weeks ago and and he goes look my you know the management team's saying you know the Trump administration doesn't seem to understand that the bottleneck's labor the biggest bottleneck is labor for so he can tell us hey we're going to give you full full force of the US government behind making more electrical grid stuff but like until you can get us workers in the plants um then we're going to be flow limited and that's inflationary it's inflationary pay for wages, which then goes back to the whole bond question, which is are we going to let rates rise or are we going to have a Fed chair when Wor comes in who's just going to cap yields and equities are saying yes, he's going to cap yields. The dollar is sort of like eh and the bond market's like no, he's not going to cap yields. Um I think nuclear that supply chain broadly speaking uh structurally is in a very good position. I think the world you you saw Vander Lion in Europe come out and like you 10 years too late go well maybe we shouldn't have closed all our nuke plants it's like really you think um >> so there's there is a an awakening around uh of realism around nuclear uh and that's something I think that will last you know that that's a very long cycle business you know in the beginning and or or in normal times I think it's going to continue to be so but I think there's a secular tailwind in there as well within the nuclear supply chains.

[00:20:12]Um and I think those are you know for me those are you know I mean copper obviously and and that's when when you talk about the commodity side you know electrical infrastructure you know copper uh nickel uh those types of things rare earths they all sort of fit the critical minerals that fit into that I would define very broadly.

[00:20:32]>> Yeah. Yeah. I want to come back to those uh rare earths and and uh other critical minerals. Uh so uh the UAE um decided to leave OPEC. Uh does this position the West in any type of way? Um with uh as far as like energy production or you know whatnot? I know OPEC has always been kind of like the the group that everybody has would do business with.

[00:20:58]And so what does this mean? You know, is this significant in any type of way?

[00:21:04]>> It might be. I don't know. Uh I've seen a lot of different takes on that. I am not an expert on the inter the intricacies of you know intra GCC rivalries right so I was reading from a friend of mine that you know the UA or the there's rivalries between say you know Saudi and Abu Dhabi and and and what have you and and that are very sort of subtle to the western we just kind of look at it all as like hey you know the Gulf is shut and they're mad at Iran and so you know they're going to all side with us that's kind of like the western view of what's happening here and it's not nearly that black and white is is everything I hear. So within that with UAE it's interesting you know I think the outcomes razor explanation I think is is that a they leveraged what the position they had I guess they've got decent size investments in US infrastructure on on gas export um and so they're less hurt by what is going on than those um also trapped behind or more trapped behind the uh um the first blockade uh or both blockades.

[00:22:16]Um so I I I think they are probably doing a pretty decent job of um is is probably doing a pretty decent job of of playing both sides, which is to say um they a couple weeks ago the UAE went and and announced that look, we'll we'll we need a swap line. we need a dollar swap line or else we'll start pricing some of our oil and gas in in Chinese yuan.

[00:22:46]And that was a pretty it was an interesting statement. Um and shortly thereafter Besson came out and said, "Yeah, we're going to give them a swap line." And now over last weekend you had, you know, different people uh in either the CFR magazine or the journal saying, "Well, we shouldn't give them." Brad Settzer, uh, who's an expert on supply chain or on on on, uh, pipelines, say, "Well, we shouldn't give them a a, um, or at least tweeting it out." Sets did we shouldn't give them these swap lines cuz they're rich and they don't really need it, but their wealth is likely tied up in dollar assets heavily, right? So essentially for them to you know they have a business they sell energy in dollars uh their ability to raise you know to to create dollars or to uh via energy production has been impaired um and that leaves them with a choice. Do I sell dollar assets or do I um do I borrow more money? Do I get a dollar swap line? And when push came to shove, they said, "Look, we're, you know, either give us the dollar swap line or we'll start moving some of our business over to the yuan." And I think they leveraged that position. And I think it's possible, if not likely, that part and parcel to Bessant saying that is the condition that they leave OPEC.

[00:24:05]And you know, it's possible that it's just as simple as they want to leave OPEC now because they can they can, you know, run up production, you know, and and at higher prices. uh possibly um and and maximize whatever they get out. So, you know, I I think it's too soon to tell uh what it I think it could be significant. It might not be. I'm not I'm not quite sure. I mean, bigger picture, it's interesting to me because OPEC was in a was in a is was in some way really gained a lot in power and really became necess much more necessary after the dollar went off gold in 71, which is to say, if you are going to if the the US going off gold is basically, hey, you know, we're just going to create dollars willy-nilly. Um if that's the case, if if dollar supply is going to grow significantly, then if you're have a finite oil production in your country and the others do in that region and and then it suddenly becomes important to manage the price of oil, to create a cartel, to really enforce a cartel. The cartel was already created at that point, but to really enforce a pricing cartel to make sure that you manage the purchasing power of your oil in dollar terms over time, right? And so you you can see from 73 to 03 significantly contributed to by OPEC um the OPEC cartel management of the oil price.

[00:25:48]uh dollar oil, you know, oil the dollar price of oil traded between $15 and $25 for the vast majority of the time from 1973 to 2003. I mean, that's 30 years.

[00:26:02]That's a long time in markets especially. So, when I just take the step back and look at it from that big picture of the UAE leaving OPEC, is that is OPEC breaking up? Um maybe if that happens that potentially says something about the post71 system whereby OPEC was managing oil prices um in support of the post $71 system whether it was intentional or not. I it was intentional obviously with certainly as it relates to Saudi in that arrangement as the big swing producer.

[00:26:39]Uh what does that mean going forward? It might mean nothing. It might just mean that it's breaking up and that Bessant and Trump see this as a way for OPEC to basically everyone for themselves and then oil prices are going to fall and that hurts Russia possible. Or it could be part of some broader deal where essentially look we're we're moving away from the post $71 system which you kind of have to when we're such a big energy producer, right? like um and if that's the case, this might be advanced warning of that. So there's to me it's too early to make a concrete conclusion, but those are the things as I watched it that are sort of rattling around in my head both tactically and then bigger picture strategically.

[00:27:20]>> Yeah. Yeah. Yeah. Thanks for sharing that. Uh so uh just looking at China uh so the yuan keeps coming up. Uh I think even Iran uh mentioned uh trading oil in in yuan. uh the UAE came out and threatened to sell oil in yuan if they don't get the dollar swap lines and such. And so I do want to talk a little bit about China. So, China recently um said they were doing a export ban on sulfuric acid u which is uh used in um nickel mining, copper mining, zinc mining, uranium, all of those and it has u you know this has impacts on fertilizers as well. And so just curious in your thoughts on on this uh particular move and then um yeah we we'll focus on just that first and then I I have another part I want to piggyback on that on that one.

[00:28:17]Yeah, I suspect it's probably some sort of leverage, right? Because one area, you know, everyone is so focused on China's energy um vulnerabilities. And while they are there, uh there's a pretty long list of US quote unquote allies that are going to go sort of over the cliff well before China because China has one of the biggest s if not the biggest strategic petroleum reserve in the world. So, but one area I think that seems like China is potentially vulnerable is helium. Uh, they've been trying to increase helium production domestically and they're sort of getting there, but it's it's not ramped up nearly to what they need. And in the meantime, uh, the the Middle East is a big producer of helium and the United States is is the world's biggest producer of helium. And so I can't help but think, you know, obviously we've heard a lot about the rare earth situation now. And there's a view that part of what we're doing with oil is trying to choke China's oil to get access to rare earths. Um the Chinese holding off sulfuric acid is going to choke off um the production of sort of everything we need.

[00:29:30]um not choke off but but uh flow restrict is a more accurate term. Flow restrict copper, nickel, you know, all of these sort of metals that go into the electrical infrastructure that we need in order to um build out our grid, build out AI, not just in the US, but globally. Um, and so I I think it might be sort of a a tit for tat for tit fortat respon, you know, rare earth oil, helium, sulfuric acid. Um, and ultimately that is um I think it's very possible and I think it's really bad for global trade. I think it's really good for inflation. I think it's really good for it's really bad for global bonds either, you know, nominally or but on a real basis certainly. Um, so that's, you know, and it's something where, uh, Craig Tindell, my friend Craig, my friend Craig Tinddale did a great piece on sulfuric acid specifically on X, I don't know, probably three, four weeks ago, shortly after China announced it, and I'd encourage everyone to go find it. T I N D- A L E.

[00:30:42]>> I think I bookmarked it. I I got to go.

[00:30:44]>> It's really good. It's really good. and and it just lays like the complacency around it in markets is still pretty astonishing to me. There's still the view that hey this is all going to be over soon. I'm not sure it is. And the importance of of Craig's thread is that it just chapter and verse pulls thread pulls a thread pulls a thread of okay, you know, a month in, you know, sulfuric acid supplies down this much, you're going to see here, and then it's going to fall to here and then it's going to hit here and just right on down through the supply chains around the world. And it just it really is like the old poem. You for want of a nail, you know, the shoe was lost. For want of a shoe, the horse was lost. For want of a horse, the rider was lost. For want of the rider, the battle was lost. for lost for for want of the battle the kingdom was lost and so the whole kingdom was lost for want of a nail and that's kind of the dynamic that's kind of the power of what suluric acid is it's not that we'll be there won't be any and this is something I think people are really really missing still you know there's this you know oh it's not like there's going to be widespread shortages no they're like well demand will be rationed by price yes and that's where they stop the thought process but there's another part which is the price that this stuff, whether it's sulfuric acid, whether it's helium, whether it's oil, whether it's gas, whether it's copper, the price, food, whether the price that this stuff will go to to ration demand appropriately is or will blow up the global financialized markets and economy. the bonds, the bond yields you need to maintain real bond yields relative to the price that prices will go on a a basket of this stuff uh in order to ration demand. Uh the bond yields there the western governments can't afford to pay. You know, Russia can afford to pay it. China can afford to pay it because China's yields are going down in all of this. Uh they're in they're in deflation. So that's the d and and that's that's the dynamic the third the third derivative dynamic of all this that is still to me not being focused on enough.

[00:32:53]>> Yeah. Yeah. That's uh that's very very interesting especially you know just thinking about the uh the coverups. It seems like uh you know this tit for tat like you mentioned but you know China could could say oh well you know the the closing of the straight of her moose you know c is leading us to uh secure our our uh domestic supplies or something you know that there's always some type of face you can you can kind of you can put all type >> the Chinese are famous for that people this whole war have been like oh the Chinese haven't done nothing to to you know to fight back. It's like that's not what the Chinese do. Like the chi like the Chinese you punch the Chinese in the head and they're kind of like oh and they turn around and then you're like okay hey where's my rare earth? They're like oh well we produced it but this is substandard and so we can't ship it and we need to have 14 more layers of of bureaucracy before it can leave. So you're going to have to wait. And that's how the Chinese respond to this kind of stuff. It's like you know the dog ate my homework. the dog ate the rare earth, the dog, right?

[00:33:57]Like, >> and that's how they get back. And then they just let compounding interest and your your bond, you know, the bond market do to you what it's going to do to you. You know, empires are are, you know, are are are sorry, winless. So, so, uh, compounding interest is is undefeated all time against empires.

[00:34:16]Empires are winless all time against compounding interest.

[00:34:20]>> Mhm. The US empire >> has a compounding interest problem and the Chinese know this and they just keep weaponizing it >> and we keep doing nothing about it.

[00:34:29]>> Mhm. Yeah. Yeah, definitely. So, uh with this uh ban on sulfuric acid, I'm thinking about silver cuz silver is a byproduct out of many of these copper mines, uh you know, zinc mines, nickel mines, and such. And silver's already been uh has tight supply. uh it's been in a deficit for multiple years. Uh even China had their highest level of silver inputs imports in uh eight years. Then they also have some um limitations on um exporting refined silver and such. And so curious uh if you if you see uh silver in a certain light with this type of ban or these dynamics.

[00:35:13]Yeah, it it is. Um I had a a friend of mine sent me a fascinating write up. This was probably in December maybe from uh a retired longtime I think he was a CME guy. But at any rate, it was one of the more fascinating emails I've ever read because it just went chapter and verse on um the supply deficit that you discussed, right? like here's where the US Geological Survey is saying supplies are. Here's where they're saying what um recycling is and here's the balance they're getting to.

[00:35:50]But their numbers are highly suspect because if you the the the solar panel industry puts out very detailed here's how many installs you have in the US around the world. We know with pretty high degree of certainty how much silver is in each solar panel. And when you do that math and then you throw that in there like and then you throw in some EVs and you know those numbers roughly and then you throw in some cell phones and some of these other things of silver are used in and you come up with this demand number that is like I mean the the the number that the the the geological survey was coming to it's you almost can't get to their number. In other words, demand was just so much higher than supplies and has been for years and you've got this ramping in EV etc. And then you layer a war on top of it where um silver is in some measure used in a lot of these weapons that we've been using. Um and that just adds to the issue and and this was right around the time silver went from whatever 70 or 80 up to you know 125 uh pretty quickly and came back down. So I've not spent a lot of time on silver since. I I I didn't you know I have always had a small position. I didn't sell any up there. It's physical. I just sit tight basically with it until I really feel like it's more fully priced, I suppose. Um, but I go back to that writeup and I kind of go, okay, well, what's changed? Well, if anything, everything that has happened in in the straits, we're seeing worldwide stories of EV adoption rising rapidly. Okay, well, that's a greater call on on supplies or on on supplies.

[00:37:32]uh solar, you're seeing more more installs there.

[00:37:36]Okay. Weapons, everything that was sort of contributing to this strong demand picture is increased in the last four months. And so, you know, to me, you know, what what is silver going to do in the next couple of months? I don't know. Uh what do I think it's going to do in the next couple of years? I think it's probably going to go higher and and and quite possibly quite a bit higher because I just look at this and go I don't see you know the math ain't math as as they say. Um, >> so that's that's how I think about silver and and then yeah to your point the sulfuric acid now you're talking about the demand side has risen but now you're talking about quite possibly the supplies right it's a byproduct silver is a byproduct of some of these other processes which are being flow restricted by the lack of sulfuric acid you know copper mining for example okay you start restricting copper mining around the world you're going to start restricting silver output into a demand situation that's accelerating into a supply demand balance that was already skewed in favor of demand four months ago when this all started. So to me um you know I think silver probably is a lot higher in a couple years in the short run. It's also a critical mineral.

[00:38:50]You know it was designated as such by the US government whenever uh October of last year I think maybe maybe in November. Um, and we're in the fog of war and prices convey information and and I have seen things that I have thought have been the management of price information during wartime in the last several months. I've I know of several instances where that is absolutely happening. Um, and that's just the nature of the game and that's that is what it is. Um, and that's fine. That's I think just needs to inform investors of like, hey, you know, there I'm not saying that price is completely disconnected at all times.

[00:39:37]I'm saying you should as an investor expect the disconnection of price and value um to occur at times and to adjust how you buy et, sell uh, etc. accordingly.

[00:39:54]>> Yeah. Yeah, for sure. Uh what are the risks to some of these metals? Uh so I've I've been in position in copper for a while as well as silver and some of these other commodities. Uh but the risk of like uh global slowdown, recession and such that still kind of looms over my investment thesis. That's like the dark cloud that's still there. And so curious in your thoughts on that.

[00:40:20]Yeah, you know, I was was listening to something uh Grant Williams interviewed Simon Hunt uh last weekend and and Simon said, "Look, you know, with Hormuse being closed, even would open up tomorrow, we're at risk of a global recession. And if this thing stays closed for too long, it's not too strong a phrase to consider a global depression." And I think he's right. Uh you know, Craig Tinddale's work suggests the same in terms of supply chain implications. the longer this drags on.

[00:40:46]Uh and that is I think the big risk for commodity bowls which is um this does lead to some sort of nonlinear breakdown. Um and and it doesn't take much. You get a global recession, you're going to get something similar to what we saw in COVID, I think, in a lot of prices. um you know and that's going to be a super tricky time because the debt position of these governments is you can't have a recession if you have a global recession.

[00:41:19]US, UK, Japan, um Europe, they are all in a position of they would be they would have to print or they would have to cut all their entitlements and defense spending or they would have to um print the money.

[00:41:38]>> You know, China has a little bit more leeway, but not much. And at the end of the day, they're tied at the hip. So, um that's The reason why I think it's tricky is I do think you're setting up the risk of every day this goes on of of demand destruction as as something to sort of keep I wouldn't sell commodities here and that because ultimately there I think there's zero chance that these countries are not going to print money um into that. I think it's more a position management slash um you know don't you know sometimes I'll get hey why would you want to be all in silver or all in copper it's like well like just you know be you know be be cognizant of exactly what you're describing which is every day that goes by and more mus are still closed a global recession if not worse becomes more and more and more likely and that's just that's just reality. And I think people looking at nominal GDP numbers going, "Oh, no, it's fine." Like, no. If you can't get the product, your factory starts slowing production and that factory slows production. The next one, there's a daisy chain into a highly leveraged system. That's the dynamic I think that people are I think are are underweaiting at this point.

[00:42:55]>> Yeah. Yeah, for sure. Okay. So, uh lastly, I want to get your thoughts on gold. uh in Gold's uh performance or lack thereof in this particular uh scenario.

[00:43:08]>> Yeah, I think Gold warned us ahead of time on some level um in sort of the runup ahead. Um, tactically, you know, the technicians that that I watch and respect saying you could you could have gold pull back into the, you know, the high 3s and everything still be totally fine, even in the mid-3s, 3500, something like that, and still be totally fine from a longer term perspective. I personally, I'd be surprised if it got too that low. Um, but, you know, I' I'd be buying a lot more if I if I woke up one day and found it there. uh given sort of the outlook for global sovereign debt and what's happening. So I think we're getting some of this um you know the it's been interesting to me article just came out this week global central banks bought more gold last month than they have um I think in several quarters. So on net global central bank buying is really really strong and yet the price fell. Well, I think you're having some selling throughout the developed world. GCC nations are big gold holders. Um, and so there's probably some selling there. Uh, and so I think you're in kind of a no man's land right now of just waiting for the same waiting for the same dynamic that I was talking about before, which is this war is going to force us to either force Western policy makers save the currency or save the bond market.

[00:44:35]And you know, stocks are trading like they're going to save the bond market.

[00:44:42]Um, Bitcoin's a little bit trading like they're going to save the bond market.

[00:44:47]Bond market is trading like they're going to save the currency. And gold's a little bit trading like they're going to save the currency.

[00:44:53]And I I think it's really just an order of operations. I think there's zero chance they're going to save the currencies. I think they're going to, you know, print as much as they need.

[00:45:02]And that's really good for uh the real value of it's it's good for stocks, it's good for Bitcoin, it's good for gold. Um it's bad for bonds on real basis. I think they'll basically be capping yields uh to do that. Um, but until that decision is made, really made, then gold is like it's kind of in the same, you know, I think it's going to continue to kind of be in this sort of, you know, uh, no man's land until it goes ultimately, in my opinion, much higher, I think later this year, uh, when it becomes clear that the only answer is is is save the bond market and, you know, throw the currency under the bus.

[00:45:44]>> Yeah. Yeah. We've definitely seen gold just hang out in no man's land for a number of months, then makes a significant move one way or the other.

[00:45:52]Uh the last couple of years has been a significant moves upward and so uh it's definitely going to be interesting to see that. Uh so I'm interested in your thoughts on you know gold uh as a long-term you know asset and you you mentioned this quite a bit on your ex account where when people uh quote the S&P's performance uh and then you measure that in gold and and you see that the S&P isn't isn't performing uh very well when you measured it against hard money hard asset and so curious your thoughts on gold longer term.

[00:46:28]I think we're into a stage where the only when we just take a step back uh from hey are we, you know, are we in a a are they going to save the currency or the bond? Like we know what they're going to save, right? They're going to save the bond market and throw the currency under the bus. So to me, the only way out of this is severe financial repression, much higher gold price. Uh and I think ultimately we're in one of these cycles that we've seen several of. We saw in the 30s, we saw in the 70s, uh we saw in the 2000s a little bit um less than in the 70s, but uh where you get 10 12 years where gold just really outperforms and I think ultimately uh gold probably on the S&P I think it's what point uh it's point6 now something like that point I think it goes you know in in generational lows um gold the S&P P uh has gone S&P to gold excuse me has gone to 0.1 2 you know so I to me I think that at S&P to gold at 02 gold to S&P at 02 I guess is the right one yes no uh S&P to gold at 02 >> I think is that's that's kind of I think that's where it's it's going to go and the reason I think that is is ultimately Not only do we need to devalue the debt, but when we talk about when we look at what the Trump administration is doing, defense production act for petroleum and infrastructure, um you're basically printing money to reshore that is a fundamental change of flows of the global trading system.

[00:48:18]That means you you cannot use US Treasury bonds as your primary reserve asset going forward. You have to use something else. And the only other thing that is big enough to run the deficits is gold.

[00:48:30]So people always ask, well, what's going to run the deficits if America's not running the deficits? And I point them to it's not even speculative. It's a fact. Uh gold's going to run the deficits. Gold is running the deficits.

[00:48:42]We can see this. Gold's share of global FX reserve is now bigger than US Treasury bonds. And these, you know, critics will say, "Oh, it's all just gold price." I say, "Exactly. That's the point." You know, the same person says, "Well, it's just gold's price. It's not gold tongue." It's like, "Do these people count their their 401k and number of shares they hold?" No, of course they don't. They count it in what the money they put in and what's the S&P done?

[00:49:06]That's how they count it. But for some reason, some people go, "Oh, well, it's just it's just all because of gold's price." No, no. Exactly right. gold's price is going to go up, run the deficits basically, uh, basically become big enough to be the reserve asset as the US reshores. That's a really good outcome for America, as a really good outcome for the world. Um, you know, let's see if we can continue on the path. Um, you know, maybe this whole Iran thing is just political cover for it. I I don't know. I I tend to not give them that much credit in terms of trying to plan the unplannable, but >> Yeah. Yeah, for sure. So, uh, Luke, would you would you be interested in, um, so if the S&P to gold ratio went down to 0.1, would you trade some gold for the S&P?

[00:49:51]>> Oh, yeah. Oh, yeah. Yeah. Yeah. For sure. I would I would I would be trading it before then. Um, I would I would, you know, it'd probably be scaling. Gold's an overweight for me. Um, uh, and has been for a long long time, a significant overweight. Um, and so yeah, I would be scaling some in at probably 3, probably at, you know, a lot at 0 2 just because I I'd be surprised if it actually got to 0.1. Um, >> but I I would never sell all my gold just because what would Ray Alio say? If you don't own gold, you you you know neither money nor history or you don't understand economics or history. And I think that's right is ultimately >> um >> you know for me it's all about what's the price of things >> um you know in gold and and you know to a certain extent in Bitcoin if it ever you know as volatility in bitcoin comes down over time you can have that same discussion about bitcoin um you know people have asked me the same about treasury bonds at what you know what yield would you buy 10-year treasury bonds for me it has nothing to do with the yield u the US government can't afford over 4.8% 8%. So, it's a it's a it's like, you know, how many, you know, whatever can you stand on? How many camels can you stand on the, you know, the eye of a eye or on the on the head of a pin or whatever, right? How many angels on the head of a pin? Um, who cares? Doesn't matter. It's it's it's a silly discussion. Now, what's a good discussion, my opinion, is is at what price of the dollar would I buy 10ear treasuries? Look, gold at 15,000, $20,000 an ounce. I will happily buy 10-year Treasury yields at 3%. I'll sell gold and buy 10 year because the dollars that I will be receiving in interest and and holding in that bond will be properly valued relative to the amount of debt and and what have you out there.

[00:51:41]Um that's that's how I think about that.

[00:51:45]And from the S&P standpoint, given that, you know, everything's kind of a derivative of Treasury markets and same kind of dynamic. I will happily sell gold by S&P when S&P is more appropriately valuing uh the dollar relative to gold given the fiscal situation of the US and the west more broadly.

[00:52:10]>> Yes. Yes. Thank thank you for your thoughts on that. And then just uh one last thing uh what's your thought on um being liquid right now? like are you holding liquidity as well or >> Yeah, very I I I have now caveat I have com I I've been underweight equities for this runup for the last month. So that's been wrong. Um I'm losing no sleep about that though. Um a I still have a little bit of Bitcoin. So that's you know that has helped um respond to that. But yeah, I am still significantly overweight cash, T bills, uh, and gold bullion, which is ultimately very liquid. Um, so I I am between Hormuz being closed longer than expected, right? And and to me, it's f it's been fascinating to watch the uh the narrative creep on this, right? It's like, well, this it's not going to be closed for long. Well, it's not going to be closed for much longer. Well, even if it's closed, it's actually good for us because it hurts China.

[00:53:16]Well, actually, we're going to close it, too. And so, like, that to me is like, you know, so let's just stick with the facts. Hormuz is closed way longer than anybody thinks. It's going to have a real economic problem. Um, then I look at where valuations are, and I'm not a huge valuation guy except at extremes.

[00:53:34]And you know for example in 2018 people were pointing out the Warren Buffett metric um which is total equity market cap as a percent of US GDP. He famously said 99 I think it's the best you know one metric to sort of manage to to to uh view where equity valuations are at any given point in time and he was dead right. Um, in 2018, the Warren Buffett metric, total equity market cap over GDP, hit the same level as 1Q2000. And a number of people said, "Oh, that's it. It's over. You got to be bearish." And I actually wrote at the time, "No, no, no.

[00:54:08]You got to stay bullish because we're now in the QE era. We weren't there in 99200, which is to say the US has a debt problem. And anytime the stock market goes down, the debt problem starts to spiral." And so the fact is my view at the time it's become empirical facts.

[00:54:26]We've seen it happen and play out correctly a number of times is the Fed will monetize or support the Treasury market as much as they need to in order to that's it's kind of become their shadow third mandate. And so my point was in 2018 was you you can't look at the unadjusted Warren Buffett metric of total equity market cap divided by GDP. You have to look at total equity market cap minus federal debt all over GDP. And by doing that, you're basically saying, okay, well, they're going to buy at least some of the of the debt in a downturn anyway. And so, let's just set that aside and see where we are. And in 2018, what the adjusted Warren Buffett metrics said, we still had 60% upside to get back to 1Q2000 levels. I guess guess on aggregate the S&P 500's gone up 60% since since 2018.

[00:55:18]>> So here we are exiting 4Q and into 1Q26.

[00:55:23]4Q25 into 1Q26.

[00:55:26]The adjusted Warren Buffett metric reached an all-time high. It's higher than 1Q2000.

[00:55:32]And the only other time in at least I think since the great depression 1929 that it hit this level was in 4q21 and the S&P had a terrible 2022 certainly for the first 3 months of the year. So I just look at okay Hermuz is still closed.

[00:55:52]The adjusted Warren Buffet metric is telling us we are in La La Land bubble land that we've only seen two times in the prior 80 years. And both prior times have been terrible times to to own risk.

[00:56:03]And three, I keep hearing from highly credible sources that the war is not going as well as we think. And as a result, poor moose is going to stay closed longer than we think and supply chains are going to start breaking down more than is being reflected by all this. So to me, I look at all this and say I want to continue liquidity. That's why I say I slept just fine as I watch this r whatever I think 12% off the bottom S&P rally, which is not not nothing.

[00:56:29]But I look at sort of the underpinnings of it and go and I'm not that, you know, there's areas I I'm still very excited about with it. But from a headline perspective of equities, I I'm I'm still very very liquid.

[00:56:41]>> Yeah. Yeah. Yeah. Appreciate those thoughts and everything. Uh well, Luke, uh where can folks uh go subscribe to you and and where you where you publishing and and all of that? Plug the audience.

[00:56:52]>> No, I appreciate it. Uh uh if you're interested in hearing more about our institutional and uh high net or uh high net worth and mass market product, try check out fftt-lc.com for more information. And then I'm on X as well at Luke Groman lg gr.

[00:57:11]>> All right. Appreciate you Luke for coming on the show. You all be sure to hit the subscribe button if you haven't subscribed yet. Love to have your support there. And thank you for watching.