Transcript: Luke Gromen: The Bond Market Says Tick-Tock

Marty Bent [0:01] Mr. Gromen, where do we even start? We had a big meeting in China last week. have yield curves blowing out in Japan, in the UK, even here in the United States. we have this backdrop of this reindustrialization and AI build out. And it's kind of hard to grasp what's going on at the same time you have this supply chain disruption because of what's going on in Iran. been harder than ever for me to figure out where the signal is because I've been playing with AI. It's incredibly powerful, maybe way more productive. We're looking at yield curves. We've got a new Fed chairman transitioning in and you're looking at the yield curves. It's like there's so much potential here, but it feels like the bogeyman of sovereign debt is going to throw a wrench in the plans of this build out.

Luke Gromen [1:00] Yeah, it's, if you ignore what's going on with Sovereign Dead, everything looks pretty good, which is sort of like, other than that, how was the play, Mrs. That really, I think, is the economic question of the moment, which is when are they going to start printing money into an inflation spike to cap bond yields? They're gonna. They're gonna have to. I think there is zero chance that that Warsh, et cetera, Trump et al are gonna come in and go, you know what? Ten-year yield and the bond market, you know, they're, they're. They're Liz Trumping us, right? Liz trusting us. And so we need to go, we said we're gonna do a trillion and a half in defense and we're gonna cut it to 800 billion.

Luke Gromen ⋮ And this year we're set to spend almost 5 trillion in interest and entitlements alone, which is nearly all of receipts. Boomers, sorry, you lose. We're gonna cut it by 30 % so that we can pay our interest to foreigners. Good luck. That's never gonna happen. 8 trillion and entitlements health and human services plus social security annualized. And you're looking at about a trillion four interest annualized. So you're over 100 % of receipts. 1 trillion annualized right now. To get down below, if you look at, just call it a 3 % deficit of GDP deficit from 6%, then you gotta cut 3 % of GDP, right?

Luke Gromen ⋮ So you gotta cut.

Luke Gromen [3:03] 4 840 billion, excuse me. So right. yeah, I think that's 840 billion. So you got to cut 840 billion out of the budget to get to a 3 % deficit can't cut interest without cutting rates, which will make inflation worse. So the only thing's big enough to cut a defense and entitlement. 9 trillion, you got to cut 840 billion out of that. it's just short of 20%, 20 % cuts of defense, 20 % cut to entitlements, and you can do it permanently and immediately. And then you gotta basically suffer through the pain of the recession slash depression that follows and hope that it doesn't lead to the deficit going right back to 6 % because your receipts are gonna decline because government spending is 25 % plus of the people cut back on spending because they're not getting entitlements anymore, defense.

Luke Gromen ⋮ lays people off, et cetera. you're going to have a recession and deficits blow out by 600 to 1,000 basis points typically in a recession. So it's very possible you could, even if you went through all of the political pain of that, the math strongly, strongly, strongly suggests that if you even could do that politically, which you probably can't, you would end up cutting 3 % to try to get the 3 % and you would end up 12 months later with your deficit at somewhere between 9 and 13%. Thank you for playing, game over. So when you run through that mental exercise, it leads you to explain, okay, they are going to cap yields.

Luke Gromen ⋮ And that's why I think this Iran thing was such a bad idea is, and why I don't think it was thought through from the stab, from the point of the bond market in particular, which is you were gonna have to do that at some point. And prior to this, you were able to, you know, forecasting rate cuts and inflation had fallen back down and now like you're gonna have to cut rates so you're gonna have to print money to cap yields into an inflation spike. look maybe this is what needed to happen I could argue that it does but people need to be ready for double digit inflation and then the question is is when do they do that right?

Luke Gromen ⋮ They're gonna do it when and if I'm them

Luke Gromen [5:26] I probably do prefer doing it after a bit of a twist in the wind, right? After you take the air out of some sales. when you get to your 10, 12, 15 % inflation, maybe it doesn't get there in two months' time because you've sort of let risk assets twist in the wind. Maybe I'm wrong. Maybe they'll do it faster than that. that's the question of the day is this Iran war has brought forward this bond market problem. now.

Marty Bent [5:57] That I think that's a big question for me is how are they gonna cap yields because as we saw in like September 24 They lowered rates 10 year 30 year jumped on that and that's right. That's what I worry about is Their ability to cap yields Limited obviously without going to yield curve control, which I think you've been saying for for many years is what they're gonna have to do and then that begs the question is it going to be Viable is it actually going to work or people? just calling BS on sovereign debt markets in general looking at what's happening in Japan and playing out that process happening in other countries forward and pulling the the pricing of that forward by Calling BS on just sovereign debt in general

Luke Gromen [6:47] There's ways you can do it. I don't think they would ever want to do explicit yield curve control. They may not ultimately have a choice, but that's sort of the hotel California. Once you check in, you can't check out. But you know, the one way that I think is being discussed and like Wall Street sort of loves, because it's their guy doing it is, you know, Kevin Warsh, Warsh cuts rates, Warsh shrinks the balance sheet. which means he's selling bond, right? So the long end will rise further. So you're to get a steepening in the yield curve and then war changes the regulations for banks.

Luke Gromen ⋮ So banks can buy more treasuries and that without reducing lending to main street, right? And so that is like the grand, you know, that's the, that's the macro fed, you know, These are not the droids you're looking for. It's the Jedi mind trick, right? Like, hey, look, we're shrinking the balance sheet. Well, not really, because you're the regulator of the banks. You're cutting rates. You're shrinking your balance sheet, but then you're just moving it over to their balance sheet and taking the regulations off so they can still lend to the federal government by treasuries and lend to Main Street at the same time. That's inflationary.

Luke Gromen ⋮ That's basically just QE through the banks. with better marketing and that's fine. Like that's probably what needs to happen. That's one way you could do it. Cause the banks ultimately don't care about real returns. They just care about spread, at least until inflation really gets extreme. At that point, they might start to care. you know, if the government tells the fed, it tells the US banks that, you know, listen, inflation is 4%, right? When it's actually 12, as long as they can make their 200 basis points, 250 basis points, front to back, they don't care. Now, if inflation is frigging 20 or 25, not that I think that's what it's going to get, that's where you get into questions of, listen, guys, we're not going to make a 30-year mortgage with inflation at 20 % because it's gone in frigging five years, six years on a real basis.

Luke Gromen ⋮ So there's ways you can do it that aren't explicit yield curve control.

Luke Gromen [8:59] Markets won't care. And that's, you at end of the day, you know, and inflation won't care. Like that will show up as what it is. So, you know, and in the meantime, like you said, we've got this, you know, emergent reindustrialization happening, this build out of AI, which is both very aggressive, but also I think fragile. You know, look, you know, China could come out tomorrow and have a really attractive offering. that blows up the economics of that. And now a lot of this stuff is debt financed and that could be problematic. with valuations of it trading where they are, not necessarily individual stocks, but look, tech is like the record high percentage of the equity market.

Luke Gromen ⋮ US equity market is record high percentage of the world market. US equity market is record high percentage of the GDP. So on sort of these big picture valuations, like we're in frigging La La Land. picturing and like no bad news, nothing's ever gonna go wrong and the economics of the model is gonna make sense no matter what. Maybe, I don't know. But for the moment, it looks pretty good.

Marty Bent [10:09] Well does well that's I wonder at the wrench is being thrown in the the reindustrialization cog as we speak again because of Iran if you look at the Supply chain disruption for things like helium specialty gases chemicals motor oil. I mean, I think you were tweeting about it We covered it as well and they have Warnings going out that there's gonna be a 40 % supply reduction and more motor oil by the middle of the summer We got sulfur Shortage is which is big for fertilizer production freight brokers are having a liability shock with the insurance or the ambiguity of How to actually navigate the straight-o her moves and then on top of that it looks like we have Mother Nature Beginning to step in with it with a massive El Nino like so which hasn't been seen in the century and a half which will just exacerbate the supply side so no matter Matter or not if the will to do this build out exists.

Marty Bent ⋮ The supply side may temporarily at least, or maybe it's more medium term, slow that down as well. What does that do for all of this as well?

Luke Gromen [11:20] Yeah. And I think there's. real key question around that, I think, sort of two things. The longer it lasts, the more these second derivatives happen, right? Random idiots on the internet are like, who cares about a 40 % shortfall of motor oil? And you're like, dude. You understand like 70 % of the dollar value of goods in this country move via truck. If you just start randomly taking out sort of the ability of the reliability of internal combustion engines, be they, and I'm no expert on, know, what, you know, diesel uses this motor oil. So just broadly speaking though, I didn't realize it was as narrowly sourced motor oil it is from one part of the world, but apparently it is.

Luke Gromen ⋮ And that is there. Um, so there's that sort of second derivative dynamics where there's a, something called Liebig's law of the minimum, which is if you're short one part, you know, it's, it's, it's a matter of scarcity. It's not a matter of, this screws Europe before it screws America, or this screws Southeast Asia for it screws America. It doesn't matter. Like one part it goes down and then things start going on here. So that's sort of one of the questions around that. The other thing that I think is one of the most epic I know whether it's denial or propaganda about this all, but part of the reason Hormuz isn't open still is because Iran has more fire control over the Gulf than anyone wants to friggin' admit.

Luke Gromen ⋮ And when I first started saying this two months ago, people get crazy. And here we are, it's gonna still be closed on June 1st.

Luke Gromen [13:00] Like I had a conference call with Institutional Investor Prospect back like March 6th. And I said, listen, based on what I'm hearing, if I'm you, I would start stress testing your portfolio for hormones to still be closed on July 4th. And it looked like I pissed in their Cheerios. It was like, wait, what? Like you understand you're saying hundreds of millions of people around the world would starve to death later in the year. I said, yeah, I understand exactly what I'm saying. But I'm telling you based on what I'm hearing, there's a very good likelihood that's the case. And at the time, no, nothing. but there's still this sort of denial around, it's just insurance.

Luke Gromen ⋮ Well, yeah, it's insurance, because insurance companies don't like their boats going kaboom. And so I think that's kind of the, to me, as I look at... Is it gonna reopen? Is it not gonna reopen? I still see a lot, at least here in the Western media and certainly on X, that gets our decision, like Liberation Day, right? Like, hey, when's things gonna flow again? When's Trump gonna change his mind? And he snapped his fingers after the Chinese did the rare earth thing and, you know, the several big retailers went to the White House in April or early May of last year and said, dude, you're gonna have frigging empty shelves by Christmas, knock it off.

Luke Gromen ⋮ And he changed his mind. He started a fight, he and the Israelis started a fight and they don't get to walk away from the street fight by going, okay, we're good now. New York Times report 90 % of the missile locations along Hormuz are still active. And you've got the Russians resupplying them via the Caspian Sea and you get the Chinese are probably resupplying them on some level, if only humanitarian, but probably some other mixed use or dual use goods. you know, through these rail lines. And it's not enough to sort of replace what they're having taken out, but it's enough to buy time at a time where we don't have time.

Luke Gromen ⋮ You know, the bond market's saying, hey, you know, it's the Samuel Jackson meme, right? Tick tock, MF'er, right? Like, here we are. So that to me is the wild card, is...

Luke Gromen [15:06] I think in the next month, there's a moment that's common where Western markets can go, Iran actually does have a say in this. The Hormuz is still closed in part because Iran still does have a very notable measure of fire control over the Strait of Hormuz. And then people, think, you know, that's going to be an interesting moment, right? And, you know, you've seen us by time, right? We're talking about taking Russian oil sanctions off again today. There was a story that we maybe going to take Iranian oil sanctions back off, you know, reported in Iran, denied here, who knows? It's fascinating. Maybe we're taking Iranian oil sanctions off on Monday and then we're talking about maybe bombing them over Memorial Day weekend so we can, you know, we can do it with a three-day weekend so the markets are closed.

Luke Gromen ⋮ the tenure doesn't sell off any worse than it already has. But anyway, I'm rambling a bit, but I really think this important, within that hay, the supply chain, the supply side, there's a day coming where markets are go, Iran actually has a say in this. And it's a not significant say. And the Iranians know from here on out, every day that follows, they've taken all their pain up front. Their pain is gonna be sort of linear, especially getting supplied through the back door by a couple of allies. Western markets, we're on the clock.

Marty Bent [16:37] Well, that's what I mean. I think it's becoming clear because just observing it, it was like whenever the 30 year was getting around 5%, you'd have a true social posts like, ceasefire. It's all going to be over. Don't worry. And that's happened like two or three times. 127 on the 30 year. And there hasn't been any announcements. think it'd be interesting to get your thoughts on the big meeting in China last week. think many people. We're thinking that maybe the US would go and talk to President Xi and say, convince them to open up the strait. We'll make some concessions on our end. I think my read on it is not much was accomplished there.

Marty Bent ⋮ Maybe some chip deals, some more clarity on Taiwan, whether or not we like that clarity, I think is another question. But I think it's pretty clear that Taiwan is a red line. In fact, that's the first thing they talked about. But yeah, what are your thoughts on China as it relates to not only the straight of her moves, but this time that we find ourselves in with this geopolitical fraying and the multipolar world expanding?

Luke Gromen [17:48] Yeah, my understanding is that the meeting was a much bigger deal or spun as a much bigger deal in the American press by the administration than it was to the Chinese. You know, the Chinese, you know, Trump, I didn't realize this till over the weekend, but Trump was just the latest leader of a parade that's gone through there. You've had Starmer, you've had Macron, you've had Merz. Trump, you've got literally apparently Trump was like wheels up barely and it was announced that Putin's coming either this week or next week. And my understanding is, that meetings in China don't get scheduled. Like, you know, it wasn't like she got off the phone with Trump and called Putin.

Luke Gromen ⋮ Like that was already on the books. Pakistan is going there as well in the next couple of weeks. And that I think is noteworthy even that Pakistan is said to be the mediator to this whole thing. So, I'm sure they probably discussed the Iranian situation. I don't think it's as desperate a situation for China as it has been made out here by some people in the US. Not least of which, which is I think everyone and their mother is going, okay, we're done with this whole, you know. The US has been dicking around in the Middle East for 25 years. Like, I don't know what their infatuation is with it, but this is nonsense.

Luke Gromen ⋮ We're moving away from it and we're gonna move to more EV, solar, battery, like get away from fossil fuels. And who's that benefit? China, plays right into China's hands. Nobody has the supply chain in EV. batteries, solar, the China does. So when Europe's like fine, you want to try to choke us out? Great. They pick up the phone, they call China and you I wouldn't be surprised to see some massive trade deals around, you know, solar EV battery stuff into Europe. You know, they can figure out the latency issues and the intermittency issues, not latency, but intermittency issues around, you know.

Luke Gromen [19:56] EV or around the sorry solar and battery storage and balancing out grids like it's that's, know, that's just an engineering problem. And that engineering problem is getting much, much easier to your point earlier about AI. You know, you plug those problems into AI and let it run and it'll figure it out much faster than it used to right then it's just a matter of pick up the phone call China, say we need this many solar panels, we need this many batteries, we need this many, you know, transformers, you know, And here, we'll sell you a bunch of airbots, jets, or whatever the hell is on the other side of it, whatever.

Luke Gromen ⋮ And I think you're going to see that around the world. think India. India's got a fossil fuel problem. So much so that they're talking about cutting fuel. Modi, right? Got on the wires last week and said, hey, please stop buying so much fuel, and please stop buying gold, which are their two biggest import issues, putting them into a trade deficit. Well, you can fix the oil thing really quickly. know, ring ring, hey China, we want to buy a bunch of, you know, solar and battery stuff from you. And we're going to mandate, you know, that that India go 80 % EV or something like now.

Luke Gromen ⋮ Okay, great. Where they going to buy the EVs from? I'll give you two, two, two guesses. First one doesn't count. They're going to call China. No one else has the has the manufacturing capacity. And by the way, you know, the BYD etc. of the world are so dirt cheap, no one else can make them that cheap. So I'm coming around to the view that contrary to this, you the initial view in the West at all, we've choked off China's oil. I think all we've done is like push the world into China's arms as it relates to the entire EV slash solar slash, you know, battery grid dynamic.

Luke Gromen ⋮ And so I'm not sure China's in a great hurry to open this thing. Number one. And I think that might have been a bit of a miscalculation in the West. Now, China is not. the economy is like just treading water. So this just, you know, this just sort of keeps them afloat. But again, it keeps them afloat. you know, let's see.

Marty Bent [22:02] Yeah, and I discussed this last week on a show on Thursday, but again, talking about the Western press coverage of this like massive meeting, Jensen Huang calling it probably the biggest meeting of two nation states and civilizational history. And just thinking of the optics again, I think the Trump administration was trying to show a strong hand with a lot of their cabinet heads and Obviously CEOs of many of largest businesses in the US showing up, but I'm reading that I'm like you're trying to flex hard going all the way across the world and it doesn't seem like you have the leverage here is the way I read that it's like you feel compelled to Put on a big horse and pony show on on Chinese soil to try to project strength it's not I don't know if you caught if you read it that way too, but Everybody in the media was rah-rah on it, but I'm like if we have all the leverage, why do we need to do this?

Luke Gromen [23:03] That's kind of where I'm at. I've got a good relationship who made the point to me, this is years ago, that I guess back in the original Gulf War, the US had the Saudis fly all the way here to basically sort of press the flesh to sort of thank and help pay for the war. So contrast that. They couldn't just wire the money. They wanted them to fly here for the optics. with this which is by the way the second straight time we've gone there right we went to we went to Seoul South Korea in October if I recall correctly nine months ago eight months ago and now we're going there again that's not an easy flight right so if we've got all the cards my view of it was in agreement with you if we have all the cards why are we going there

Marty Bent [23:57] Yeah.

Luke Gromen [23:58] everyone by the way everyone's going there UK France Russia Germany Pakistan

Marty Bent [24:11] Yeah, which So I think the last time we talked I think AI was becoming much clearer and it was The six months prior when we had last caught up then That this is this is real. It's happening. It's going to lead to a ton of reinvestment On American soil, it's deemed existential And one way that people were positioning it six months ago, and I think still today is if you're looking at the sovereign debt crisis and you're looking at all of our spending that we're doing, I think that the one sort of potential positive externality special variable is basically the ability to grow our way out of it with AI.

Marty Bent ⋮ And I think over the last three months specifically, or actually since the turn of the year when agents really took off, becoming clear that yes, there's a real there there. But as we just mentioned, like the supply side could could throw wrench in the growth and the build out of the infrastructure. But then on top of that, like the effect on the jobs market, I think is becoming clearer to the point where you Ken Griffin on stage last week, who was a bear on AI in January, saying that they're doing work that would take months. on the research side at Citadel in a couple of days and he was actually a little depressed learning about this, thinking about how many people are going to be necessary to run his business in the future.

Marty Bent ⋮ And so then you have that factor as well, the labor side of things come into the picture. You can paint a really grim picture in the next two years with all these things coalescing together.

Luke Gromen [26:03] I found the, I saw the clip, I thought it was a hugely important clip. I don't know if you saw it, Dan Loeb, Third Point, basically echoed the clip, he quote tweeted, he's like, yeah, we've been doing it too, right? So. There seems, you know, there's, there's, there's AI, do-mers and there's AI sort of champions, I guess, if you will, you know, that we've seen out there. And, know, one, one I saw recently, and it was actually Mark Andreessen, who's a brilliant guy and obviously a champion of it. And he's been pounding the table that it's not going to disrupt the labor market. And I think he's a brilliant guy and I think he's talking his book and, and, and wrong.

Luke Gromen ⋮ Somebody made the point and he quote tweeted it showing new slide rules, 1952, know, IBM engineers, the advertisement. Look, each one of these is like increases the number of engineers by like 50 because they can work so much faster with the new slide rule. And people like, it didn't destroy, you know, engineering. didn't this. it was kind of like, yes. And let's put this in its appropriate context. 1952 was just seven years after the end of a 30-year period where literally 10 to 15 percent of the people alive in Eurasia in 1913 were dead. So you killed 10 to 15 percent of population in Eurasia from 1914 to 1945.

Luke Gromen ⋮ Two world wars, a variety of political revolutions, famines, etc. And you completely destroyed the industrial base of anybody who was competing with the Americans. across Eurasia. And by the way, much of those 10 to 15 percent that were killed were working-age men.

Luke Gromen [27:55] So, yes, you introduced a slide rule in 1952 and it was all after you killed 10 to 15 percent of working age men or of overall population, it was probably closer to 20 percent of working age men across Eurasia, Eurasia, excuse me, and destroyed all the factories and industrial base except for in America. Now, tell me how relevant that comparison is now versus then. Like, and this isn't like doomers and this is just realism. And so now you're gonna introduce something way more productive, productivity driving than a slide rule. And to everybody, by the way. And like, yet everyone has the industrial base. China's got too much industrial.

Luke Gromen ⋮ We're trying to build industrial base. Europe has an industrial base that's being hollowed out as we speak. You know, I look at this and go. Like yes, you are going to drive massive productivity, but the amount of unemployment you're going to drive, right? Same argument, you can be mad like, well, you know, gosh, we, you know, the industrial revolution drove people off farms in the 18, you know, from 1850 to 1900 and they were fine. Like, yeah, because 10 to, ultimately 10 to 15 % of them were killed in the wars because they were trying to like adjust the economics of that world. It was so, technology was so disruptive.

Luke Gromen ⋮ It blew up. empires right there were four empires in 1913 by 1918 three of them were gone they were dead one was mortally wounded that we took over for the UK and so like I look at this and go I think AI is ultimately it I think it is massively productivity traffic I think it is massively changing

Luke Gromen [29:45] and living in the Rust Belt, I think Mark Andreessen and these others are smoothing over and I think they're smoothing it over. I don't think. I think they're being cynical in the way they're smoothing it over. They're way too smart not to understand this. And so if they come out and tell the truth about what's about to happen, guess what's going to happen? The politicians are going to get involved. They're going to actually have to pay some sort of tax into some sort of sovereign wealth fund or fund. And they don't want to do that. They want to put all the money in their pocket. look, I suppose I get it. If I was them, actually wouldn't support that. I would support putting the money in a fund because I don't want a bunch of white collar workers outside my gated house with pitchforks and guns in two or three years, which has already started with Sam Altman, OpenAI out in San Francisco, by the way.

Luke Gromen [30:44] But like they're way too smart not to know that that's the case. And so I think they're cynically talking about, there's not gonna be a big job apocalypse. And because they don't want the politicians vote, there's gonna be a, like, come on. And well, people will just retrain. No, they won't. No, they won't. Million Americans killed themselves with opiates. That's what they do. And I don't wanna get too like doomer, like depressing, because it really is. But like, look, that's. It was one thing when Luke Gromman says, Luke's just a doomer. Well, is Ken Griffin a doomer too? Cause guess what? He sounds a lot like Luke Gromman four months ago.

Luke Gromen ⋮ And now he's like sort of catching up to what this is going to do. You know, I don't, I don't know the right answer, but that to me again, I always take it back to the sovereign debt side. If we were an equity based system, no debt, not debt based. And if debt was really low, who cares? You know, it's a issue to be dealt with, but it's not systemic. But with debt levels where they are, sovereign debt levels where they are, 50 % of receipts coming from employment, heavily in the services type stuff that this is going to disintermediate, this being AI, it's absolutely a systemic threat.

Luke Gromen ⋮ And like to continue pretending it's not gonna, it isn't doing anybody any good.

Marty Bent [32:05] I think it's already manifesting in many ways the k-shaped economy meme that people have talked about To your point about some like Marc Andreessen sort of glossing over it You do have the Elon out there saying we need universal high income, which is an oxymoron, but we don't to get into that

Luke Gromen [32:23] Yeah, I haven't figured out what he means by that, but at least he gets the problem. Like I actually think he really does care or tries to care. I really do. But yeah, what is that universal high income, right? take it to me, all I need to know about universal high income is you go back to the show, The Incredibles. I know if your kids have watched The Incredibles yet, right? Where the guy's like, if everybody's a super, then nobody is, right? So if everybody's ultra high income, great, why not just do that now?

Marty Bent [32:26] in Mm-hmm.

Luke Gromen [32:52] If that's the solution, just do it now. And the answer is, it ain't the solution.

Marty Bent [32:57] No, that's what I think there nobody really has one right now, but again like the exacerbation of the inflation Reemergence is I think it's gonna force people to figure this out rather quickly. We're gonna head into Memorial Day weekend with the highest price per gallon in recorded history Again, I think you've covered it well, but the food inflation is beginning to creep up but is the brunt of that will not be felt into the fall of this year when you have a full crop cycle come and go and the sort of effects that it has on spending and then you look at the financialized side of it like the market, you look at where margin trading is, how much leverage is in the system, where things are trading.

Marty Bent ⋮ It looks like we're not at dot com. bubble levels yet in terms of multiples, but if you look at some some ratios, I think like the Schiller Ratio is pretty pretty inflated and obviously there is some dislocation between the whole of the S &P 500 and the The few stocks that are actually tied to AI and the infrastructure build out. There's a dislocation there and it's It makes you wonder and again, then you have Kevin Warsh coming in saying I want to lower rates, but not expand the balance sheet and it's just finding it really hard to see how he's not forced to do that and If inflation is creeping up and you have all these job market disruptions hitting at the same time I think what does that scenario look like?

Marty Bent ⋮ Is it the 1970s eco inflation with a different flavor and put on crack because of the speed of AI.

Luke Gromen [34:52] I think it's Brazil 2000. That's what I think it is. Or maybe UK, you know, 1956, you know, Suez moment where, you know, inflation for the UK from 56 to 76. Kager was almost 7 % a year. That's what I think is right because You know, the other crazy thing about AI is look, this is no longer just an American tool, right? This isn't the 1990s where America's got all this technology. And then like everyone else is just trying to like survive in Eastern Europe and in the former Soviet Union. you know, China's still, you know, coming out of being a backwater and, you know, Southeast Asia is just starting to really rip and grow with the tigers or what have you.

Luke Gromen ⋮ Like Japan was on its keister still like South America was still, you know, come, you know, third world, fully third world, AI is like, everyone can use it, it's distributed, right? So now you're competing around the world for the first time. So this isn't just gonna be like, well, so what does this mean? Well, I think the deep seek moment of January, 2025 is a perfect example is like, what happens if any day you could wake up and be like, China just rolled this out. It's way better and it's cheaper and it blows up the economics of sort of everything they're doing over on this side of the world with AI.

Luke Gromen ⋮ There's nothing, no reason that can't happen. Now the people in that world know much better how close they are to that. Assuming none of it's been classified by China, right? Like we're, you know, and who knows? We may have stuff that's way better than we have classified. I strongly suspect that's the case.

Luke Gromen [36:48] But that's like the, that's, that's when you look at the valuations of tech today versus tech 2000, I agree with people saying, yeah, hey, these things are generating cash. They're not that expensive. The margins are enormous. You can justify the multiples for that. I agree. If you look at it in isolation. But take a look at employment in the 90s versus employment now, which is to say in the 90s, these were truly productivity drivers. You were seeing productivity grow and employment grow. You're not seeing that now, you're not. And so it's a crew into the K shape. And so essentially, like the difference this time or the bubble this time, A, US federal debt to GDP in the 90s was maybe 40%, 50%.

Luke Gromen ⋮ And the tech boom into the bubble was driving a productivity gain and an employment gain and supporting the tax receipts of the United States government. This is a bubble where the participants are not expensive, right? Like we just said, mean, slightly, but not like nearly as like stupid expensive as some of the, Cisco's and Sun Microsystems of the world so I'll call it from you know 96 to 2000 levels, but

Luke Gromen [38:10] These tech companies are actively borrowing money on net, right? Some of them are still cash flowing, but more and more, they're all getting close to having to borrow the money to spend on this stuff, the hyperscalers. And they're borrowing money to undermine the tax base of the United States government. and doing that at a time where debt to GDP is 120 percent, where true interest expense is 100 percent of receipts. That's where the bubble is this time. And the strains when that bubble starts to strain, what are you going to see first? Are you going to see crashing stocks first? Are you going to see spiking sovereign yields across the West?

Luke Gromen ⋮ I would argue you're going to see the latter. You're going to see spiking sovereign yields. Now what do you do? take us back to our first discussion. You're going to cap yields, print money to cap yields and new inflation spike? Or are going to let yields rip? Because I don't know what the number is on the 10-year in the US, but there's a 10-year number on the US where everyone in tech is going to be like, I'm out. Why take all this risk when I can, know, that China's going to interdict or mediate me or that, you know, these guys can't refinance at 7 % because, you know, the 10-year is up to five and a half.

Luke Gromen ⋮ I'm out. I'll just buy the 10-year at five and a half. And so to me, That's where the risk is in this. And that's where people that are having this debate, well, it's not like the bubble last time. Well, yeah, I know it's not. And it doesn't mean it's not a bubble. It just means to me it's almost like a second derivative bubble.

Luke Gromen [39:44] If we saw job growth, we saw tax receipts benefiting from this, it'd be one thing. You're talking about taking jobs that are paying multiple hundreds of thousands of dollars a year and replacing them with something that you can subscribe to for 20 bucks a month. Like, you're undermining the tax base of the United States at a time when the United States can not afford to have its tax base eroded at all. And that to me is like the... That's where the bubble's gonna break. That's where we're seeing the strains already, in my opinion.

Marty Bent [40:18] Do you think Bascent has a grasp on all this?

Luke Gromen [40:27] I would guess he's an extremely frustrated man right now because they were, you know, he laid out very clearly what he wanted to do as treasury secretary. Both from sort of like three arrows, right? 3 % real growth, 3 % deficit, 3 million barrels a day of more oil production to bring oil prices down. He said, judge me by the 10 year, right? February last year, I just put a tweet up earlier today about that. February 25, judge us by, judge our economic policies by the 10 year yield, not by the front end of the curve, not by anything else. Well, the three arrows is now the O for three arrows and they're gonna be the O for three arrows.

Luke Gromen ⋮ Inflation's ripping. 10 year yield is to what, five year highs or near it? Fail, fail, fail, fail. And this Iran war has completely taken the initiative out of his hands. for a lot of different things. Number one, he talked about the possibility of a grand currency deal with the Chinese and others. And now we're not in the driver's seat anymore on that. We've given away the initiative on a currency deal to pursue. this nonsense. And so I suspect he's extremely frustrated. He's a brilliant man. There's no question about that. He's also shown a tendency to get hyper focused on a single thing to the detriment of all others.

Luke Gromen ⋮ And then being wrong because he was so focused on that one thing, whether that be

Luke Gromen [42:13] You know, China, I mean, he's been a China bear for a long time. Whether that be some of the things we just discussed, whether that be energy, some of these other things like. So I. I think he knows this. But I also think he's probably frustrated because, of, you know, I think the Iran war throws a spanner in the works of all of what he was hoping to do. But I also think he's come to realize like Washington is not Wall Street. You know, make a decision as a hedge fund manager, boom, you put it on, you take the position. It's just, you know, it chews up everybody, right?

Luke Gromen ⋮ It chewed up Elon, right? How often did we hear, well, it's going to get fixed because Elon's going there. He's our best guy. You know, and Elon's friggin brilliant. Like nothing stops that dude. And Washington chewed him up and spit him out in what? Two months, three months, four months maybe? That's. So like I suspect Besant knows a lot of this. And I suspect there's not a darn thing he can do about most of it. They're getting overtaken by events as a result of the ill-fated decision to go into Iran.

Marty Bent [43:22] Yeah, no, I think that's one of the one of the things that many people are hoping for a wash getting into position that at the Fed is that it's a Drucken Miller's good old boys are back together. They're going to be able to work together to to navigate these tumultuous times. And I don't know, it's just it's a to your point. I think Iran was a was a Mist step, but then there's others of a point at like, oh, look at all the oil that's. The oil deals that we're making and reinvigorating the American oil industry and we're setting up all these deals that are making the Middle East less systemically important than it was in the past.

Marty Bent ⋮ have the UAE leaving OPEC a few weeks ago basically signaling that they want to let people drill more to help bring down oil prices, which should be good for the US. But it seems like there's a lot of balls in the air in trying to. juggle them perfectly is getting harder and harder as each day passes.

Luke Gromen [44:23] Yeah, and for me, again, you always take it back to the bond market. Like, if we tried to do this 30 years ago, low debt, we have the leeway. You know, are we gonna, you know, are we gonna give swap lines to everybody? Like, I thought that was a huge moment. UAE coming out and saying, look, either you give us swap lines, or we're gonna move over to China. We're gonna start pricing oil and gas in Yuan. And boy, know, Bess and the team jumped right to that, right? Hey, swap lines. done. which I thought was an interesting read on leverage. I think it's also an interesting read on the sensitive US asset markets.

Luke Gromen ⋮ Look, the UAE is rich. They could sell dollar assets for a long time to finance their income shortfalls. Where do think the tenure would be if UAE and others started really dumping Treasuries? mean, already people are like, look at the dominance. Everyone flocked to Treasuries. I don't know if you saw the chart. Japan sold more Treasuries in the first quarter than they've sold in like four years. Which, by the way, was the last time oil spiked because of the Ukraine War. Alright, so I think we're about to get, what's today, the 18th? It'll probably come out today at the end of the market, at the close of the market, the foreign holdings of treasuries for March.

Luke Gromen ⋮ That's gonna be real interesting number. I would bet you... couple of my cars, my wife's car, my car, that it's going to show foreigners sold a lot of treasuries. They have to, they have to, right? It's, it's, people say, well, we'll sell them the oil. Well, yeah, but still, the double entry bookkeeping reality. Great. They need oil. We sell them oil. What do they buy it with? Dollars. Okay, great. Well, they're giving us the dollars for the oil. Where are they getting the dollars? Well,

Marty Bent [45:50] depends being forced to, to simply buy energy, right?

Luke Gromen [46:11] They have to sell something. They sell treasuries. They sell dollar assets. It's just a double entry bookkeeping reality. That has a policy trade off to your prior point is yes, we will send a lot more oil to other places and foreigners who, know, foreigners, oil importing creditors of the United States will sell treasuries to buy oil. And that's fine. But it also means there's gonna be $9 trillion worldwide of foreign held treasuries bidding for American oil. And what happens when that happens? So simple, you pay $7 a gallon for gasoline, maybe eight and not in California. California, we might be double digits. Now, is that the right thing to do?

Luke Gromen ⋮ It's good for energy. It's good for stimulus of look, more EVs, more solar panels, all that good stuff. Sure. Where's that going to come from? America ain't making that stuff. on. Tesla just got out of the frigging EV business. All but the little one, right? They're moving on to robots, where most of the components are made in China. But we'll set that aside. China's going to do all that business. How's that hurting China? I don't know. But it sounds good, right? It's not true, but it sounds good. it's just such a...

Luke Gromen [47:34] I think there are less chaotic ways it could have been done, but that's why I sit in the seat I sit in.

Marty Bent [47:40] I mean this begs the point like What What do these nation states do for for reserve assets moving forward obviously we had gold spike into the end of last year go above 5,000 I think it's sitting at four five five right now It looks like it's it's sort of consolidating after after coming off all-time highs obviously silver ran bitcoin ran At the end the last year, it's down. I think anywhere between 35 and 40 percent right now from its all-time high. Do you think there is going to be a recognition that sovereign debt as reserve assets is, I mean there already has been if you look at the to your point, foreign nations selling US Treasuries, what that's out to on an ongoing basis but is the... mind share around alternative reserve assets going to get stronger moving forward? And if so, what does that mean for gold, Bitcoin, silver even moving forward?

Luke Gromen [48:43] I think... I think it's going to start at gold. Silver, because it's needed, ultimately it's counterproductive if you really bid up silver. I mean, I silver's going higher, don't get me wrong. But half of it's used being industrial use. It starts to be counterproductive if silver's used as reserve asset. So I don't think silver's going to be a reserve asset in any real way. I think it's going start with gold. And I think it's... I think it's started, I think it's accelerating. Obviously, gold's higher than treasuries and global FX reserves as we speak. That surpassed that last year. I think it's gonna continue. Simply because there's just...

Luke Gromen ⋮ Trust is breaking down. And if you don't hold it, you don't own it. And the repeated weaponization of the dollar and treasuries and FX reserves, et cetera. So I think it'll start with gold. And I think you'll see trade, net settle in gold. think China has that framework completely set up. It continues to boggle my mind. It's like hiding in plain sight. There's a offshore Yuan clearing bank in every single major gold hub. London, Switzerland, Singapore, UAE, Hong Kong, and of course in Shanghai.

Luke Gromen [50:12] Why? Well, because if China's paying more with yuan, particularly in commodities, there's going to be commodity producers ending up with some excess yuan, and they're going to need to do something with it other than buy Chinese goods with it, solar panels and batteries and BYD, et cetera. And they're recycling into gold. You can see it clear as day. If you look at Switzerland's gold exports to Saudi Arabia, it's astonishing chart. Right, so there's an offshore Yuan clearing bank in Switzerland and Swiss gold exports to China, they are like this over the last four years since we sanctioned Russian FX reserves. Which is interesting because I had two different people that don't know each other that are long time veterans in the oil market say to me and I quote, the Saudis were horrified, quote horrified by the US sanctions of Russian FX reserves.

Luke Gromen ⋮ And so now it looks like you've got Saudi net settling some portion of their oil sales in gold. That's just a fact. You if you look at the trade flows, if Saudi purchases of gold from so you'll say Swiss exports of gold from Switzerland to Saudi are like that some portion of Saudis goal oil exports are getting settled in gold. Why? Well, they're either converting dollars or you want it doesn't really matter. You know, it's which Chuck E. Cheese token you use to buy the gold doesn't really matter. But my point is the Chinese have facilitated to make it very easy to do that. And so that to me is the roadmap.

Luke Gromen ⋮ think that's going to continue. I think the Chinese are going to continue to do that. I think others in Asia will do that. And I think what we're seeing in you know, if you call up a chart of the two year Japanese government bond yield against gold over five years, like they're the same chart. Japanese people are very monetarily sophisticated. They're smart people. They know where this is going. They did the same math Kyle Bass did on Japan 15 years ago. Once it gets to a certain number, they're screwed. There's no way out. So what do you buy when you buy gold? now, Bitcoin, think, is ultimately going to serve that role as starting with the people, if you will.

Luke Gromen [52:29] rather than sort of the official dumb. But in the short run, it trades as sort of high beta tech. And if rates are going up on high beta tech, they're not good. Rates are going up on Bitcoin, it's not good for now. Now, ultimately, it's gonna be really, really good because there's nothing more bullish for a neutral reserve asset than sovereign insolvency. But between here and there is the $64,000 question.

Marty Bent [52:58] Yeah, right. And to the point about weaponization of treasury assets against your geopolitical adversaries. I mean, we're seeing the headline over the weekend out of Iran was that they're going to use Bitcoin to settle this Hermes safe insurance. Has it researched on them? Yeah, I'm pretty sure it's legit. And this is two weeks after OFAC.

Luke Gromen [53:19] is that right? I didn't see that.

Marty Bent [53:26] coordinated with tether to freeze three hundred forty four million dollars of tether That was believed to be the IRG sees and I think the point It's like a double whammy of a known goal Because I think the genius act and this leaning into stablecoin infrastructure by the current administration and the US banking system Is with the hope of like hey we need to drive demand for these these treasuries at least on the front end of the yield curve and they're already weaponizing their ability to freeze these assets and you're like pushing people outside of the US border away from it almost immediately.

Luke Gromen [54:08] J. Simpson, what have you. Yeah, and there's another sort of contradiction in there that people aren't talking about yet, right? Which is on one hand, stable coins are gonna save us because we're gonna be able to get all this demand. And on the other hand, Warsh is gonna save us because he's gonna cut rates at the front end and he's gonna sell off the balance sheets to drive up the long end and then he's gonna remove regulations on banks and banks are gonna buy a bunch of treasuries, okay? But now with clarity, we're trying to also undermine the United States banking system by being able to pay interest on stable coins, which I had a very veteran banking analyst last week be like, dude, if they do this, you could see bank runs in places like this is, you know, as people take their money out of banks and put them in stable coins to get paid because it's backed by the guard, like you don't know what you're creating.

Luke Gromen ⋮ like, what do you want? Do you want stable coins to buy treasuries and T bills? And or do you want banks to buy treasuries and T bills, because right now you're two different hands in the same administration are sort of working at cross purposes to do that. And I don't know the right answer. And by the way, let me layer another one on there. All of the emerging market people are going to buy stable coins on their phones, right? And those are going be back. No, they're not. Because you want to know what? Because in four months, they're not going be able to afford frigging food because you invaded Iran, you moron.

Luke Gromen ⋮ And so now you attack Iran. now food costs are up, energy costs are up. you're, you're undermining the emerging market people that are supposed to be like stockpiling dollars to buy T-bills. They don't have any savings. It's going to go to buying them wheat. It's going to go to be buying them soybeans across the developing world that these were going to be the people buying hundreds of billions of treasuries through stable coin. Cause they want the American dollar. Yeah. They want the American dollar. You know what they want more than the American dollar frigging bread.

Luke Gromen [56:12] friggin gasoline, friggin diesel. there's, I'm getting worked up because I just watched the commentary relative to the actions of the government and they're not equating to like, okay, see how these things interact with each other. like the Trump administration says they want this and then yeah, you sanction tether and then you invade it or you attack Iran. You hurt your buyers of T-bills throughout the emerging world because they can't afford food. Thanks. Nice job, guys. Heck of a job, Brownie. And then, you you've got you're trying to undermine the banks with clarity on one hand, while also getting the banks to buy more treasuries with what Warsh is doing.

Luke Gromen ⋮ What? Like, what's the plan here? Right. We love modern family. Right. What's the plan, Phil? What's the plan? What are we doing? Because it looks to me like you're just effing it up as you're going along. and just making it up and fly into sound. What's the strategy? I don't know. It doesn't make sense to me. I can't. And in the meantime, what's the Chinese plan? Trade whatever you want. Settling in gold here. Take the gold home. Says to me, like, I'm like, all right, yeah, I'll just do the gold for now. You know, America, call me when you're sober.

Marty Bent [57:29] Well, to that point, how do we get sober in your mind? What needs to be done?

Luke Gromen [57:31] Yeah.

Marty Bent [57:37] What can we do to dry out here?

Luke Gromen [57:44] here too. It's cross purposes, right? people like, look at how much China is producing. Yeah. What did China do to do that? Well, they crush their housing market to drive speculative housing capital into manufacturing more. They crush the consumer. Stock market's done crap. Like, well, great. So all we have to do is crush housing and crush the stock market. And then we can actually have non inflationary reshoring of the American industrial base. And you're like, Stock market backs the treasury market. Wrong. Next answer. Yeah, well, we can crush housing. Banks blow up. Now what? Wrong answer. Next answer. so I... I think the answer is ultimately.

Luke Gromen [58:39] We. effectively cap yields. Like we just like just keep going. Like okay, like if you're going through hell, keep going. You know, all right, fine. The beautiful, that's all right. you have worse come in, have worse cut rates. Here's what's probably gonna happen. This'll piss off everybody. Warsh is going to come in. He's going to cut rates. Inflation is going to soar, but they're going to lie about it. Inflation will be running 12 to 15 percent easy, but they're going to tell you it's four, four and a half. Warsh is going to sell bonds into that. So the long end will rise. Banks will step in and buy those. He'll pull the regulations on.

Luke Gromen [59:31] Besant etc. Will try to cap gold and Bitcoin despite them being pro Bitcoin administration We're the most pro Bitcoin administration history and they are except they won't be because they'll be capping it in price because they're gonna want the funds to flow into the tech bubble to keep that going, to try to drive that. Unemployment is, you we will go from a no hire, no fire market to a no hire and fire market in the job market. Gold will be capped where it is. The Chinese will just keep waving it in. Bitcoin will actually not rise despite the inflation. will, you know, we'll have, we'll have, and remember we had the 58K crowd, whatever it was for like two years. We'll have the, whatever. 58 to 72 K crowd for the next two to three years while they do this.

Marty Bent [1:00:27] How will they cap Bitcoin prices?

Luke Gromen [1:00:29] I have no idea, but they will. Gold will trade 45 to 47, 42 to five, whatever. Trying to drive the capital all in there. Meanwhile industrial production will hum in this country inflation will rip in this country The 10-year will trade no higher than four point seven percent four point seven five percent, Now that's, that's, could see something like that happening. My base case is that what we're going to get is stocks up huge in dollars and stocks down in Bitcoin and stocks down in gold. I don't think they'll be able to control Bitcoin or gold ultimately. I think there's been some version of what I just described already sort of been happening slash underway. Can they continue to do that forever? No, because they don't control the supply chains China does.

Marty Bent [1:01:42] out of all your years of analysis and following markets, how would you describe this environment right now?

Luke Gromen [1:01:54] Unique. There are elements that rhyme with the first quarter of 2000, absolutely, around some of the tech stuff and the breadth and what have you. But remember, we were very low debt, we were at peace. I've told my boys, Muldin, my boys are 20, 25, 23, and 21 this year, 20 this year. That was peak America like 95 to like 01. It was like that was peak America. Not to say we'll never get back there, but like that was, you just one darn thing after another since then, right? 9-11 and then, you know, bond crisis and stock crisis and the war and the great financial crisis and Syria and like just one.

Luke Gromen ⋮ darn thing after another. And so this is happening. This this bubble esque type environment is happening into very different geopolitical. We are no longer the only game in town. We were the only game in town in 2000. Like Russia was on its ass. China was still nothing. You know, still coming back. Europe was like, eh, right. They just formed the euro. They were figuring out what they wanted to do when they grew up or what they want to be when they grew up.

Luke Gromen [1:03:27] The boomers hadn't sort of, the entitlements hadn't sort of blown up the fiscal side yet. The serial, we still had free markets. The markets aren't free. Come on, we still had democracy. People are like, well, we're democratic, so we're going to win this great power competition. Are we? Are we really democratic? Do democracies have foreign powers dropping tens of millions of dollars into a House vote in Kentucky? It's we're a democracy asterisk. That's what I would say. You know, we're democracy esque. All these things are different. That's why it's so unique. We've never had this transformational technology, which is both exciting and horrifying at the same time.

Luke Gromen ⋮ We've never had the geopolitical sort of balance. We haven't had a great power competition, a real great power competition. Like, and don't tell me about Japan. Like we were militarily occupying Japan. China and Japan are apples and oranges. Soviet Union in some ways, yes, but here too. The Chinese against the Soviets, it's not even close. The Soviet economy was never on a purchasing power parity basis close to the size of ours. The Chinese have already vastly surpassed on a PPP basis. You've got the entitlement side, which is leading to generational warfare. We've got the biggest, richest generation in human history is getting 80 % of federal government spending to them, even though they're already the richest generation.

Luke Gromen ⋮ Um, you know, we've got the first American generation where the kids are less going to be less well off than their parents. Um, there's all of these things that are, that are different and unique in, into this high debt situation. America's never had 120 % debt to GDP after world war two, we're 110 and we got it down to 55 in five years. Um, so it is, it is historically unique.

Marty Bent [1:05:34] Well, to your point, know you were discussing your oldest son before we had recorded and you don't have to expand on what we were talking about specifically, but I'm just curious because it's something I think about a lot with Gen Z. Like what are their views on his life coming out of college, being in college? How are they viewing things? I mean, I'm sure because they're your sons, they're a bit more optimistic because I trust that you raised them the right way to think the right way to approach stuff, but do they have commentary on? their generation and what the vibe is.

Luke Gromen [1:06:07] Yeah. You know, and it's hard to tell, right? Because a 25 year old, there's always some element of nihilism, right? And you know, at that age, no matter what. So it's hard to tell like how much of it is that age versus this generation. They're acutely aware of sort of the relative, the generational stuff. Their grandparents are rich and they're poor, to be blunt. And the internet is so powerful in that they can sort of like look up and say like, okay, how were you doing when I was this age and what have you? And yeah, every generation has its challenges for sure. I will tell you, I think there is a growing understanding and fear of AI. They understand that it's there. They understand it's coming. It's almost like, you know, like Jaws where you haven't seen the shark yet, but you've starting to see the bodies wash up on the beaches and like, you know, that ain't a motorboating accident.

Luke Gromen [1:07:35] Yeah, I mean, it's, I don't want to put words in their mouth. We talk about a lot of these serious things, I have three draft age boys. They've been concerned all year. Do you think they could possibly do a draft? That kind of thing. I don't think they would. It's just, I think, pretty weird time for them because there's just, it's a period for that generation. It's just such rapid change. You've got a lot of kids that went to college and are coming out. We know somebody, they got an economics degree at Yale and then they got an advanced degree in Yale, speak three or four different languages.

Luke Gromen ⋮ They can't find a job. That has never happened in the history of America. I would be willing to bet good money that somebody with two advanced degrees from Yale University, multilingual, three or four different languages, and they can't find a job. And there's a lot of them of their friends can't find jobs. Why? There's a whole bunch of what the American economy is. AI does better. Administration, math, science, it does a lot of it better, a lot of it cheaper. And so like, yeah, eventually it's gonna be great for everybody. But like between here and there, you know, it's like Lord Farquaad, right? Some of you may have to die and that's a sacrifice I'm willing to make.

Marty Bent [1:09:06] No, that's why I love talking to you, especially about the kids, I'm going to be closer to the beginning of my journey with raising children. My oldest is six now, youngest is eight months. So I've got some time to figure it out. But it's something I think about constantly. It's like, OK, what should you even be learning to be prepared for this world when you go out on your own 12 years from now?

Luke Gromen [1:09:30] I think it's all about just maintaining lines of communication with them. know, when it was funny because right, like when my, when my oldest was seven, we moved into this house and this was our pine box house and I signed the mortgage the week Lehman went under and I didn't know I was gonna have a job in six months. And so like they're running around loving the house. The second one was so seven, five and two. And they look back and they're like, God, the world was insane, dad. How did you like, we didn't know that. I said, I know. your mom and I, you know, we didn't talk about it around you.

Luke Gromen ⋮ I wasn't sure. I thought I just signed a mortgage. I wasn't able to pay back. I was not going to have a job. Who knows? World's crazy. But they never knew. So like there are things that kids need to know and things that kids don't need to know. So like that was one thing we did. And then as they got older, we started having more of these conversations. Hey, do you remember this? That vacation we went to in, you know, when I was getting ready to start FFTT, we went to this vacation up in Niagara Falls, which for us is like a three hour drive and we rented this house on and it was like $92 a night.

Luke Gromen ⋮ And it was like, that's what fit in the budget because we were saving money. Cause I was not going to take outside money from investors. I wanted to be able to write what I wanted to write. And I said, remember that vacation? We did it cause we were literally like scraping money together, putting it all away to get ready for me to leave my job, have my salary go to zero without taking you boys out of school, without taking money out of your college fund. And they're like, We didn't know that's why you did that. We just thought the arcade was awesome. And then there's like this shitty little arcade in this house with like two video games.

Luke Gromen ⋮ And they thought it was like the greatest vacation in history. So that's another thing I would tell parents is like, what you view as like good or bad is not what they do. Like what they, they just want to feel loved. They want to be with you. They want to enjoy an experience and it doesn't have to cost a gazillion dollars. So. And then as they continue to get older, just tell them like, look, like the only thing I ask of you, you just keep getting up. Like you're going to get knocked down. Well, now we're just brutally honest about like, listen, AI this, that, the other.

Luke Gromen ⋮ And, and like, and honest, like, I don't know. This could, I could be totally wrong. And this is all going to be awesome. And, and, and, but I'm going to tell you what I think. And all I'm asking is just get up. You're going to get knocked down. Get up. You'll be fine. And if you can't get up, you call me and I'll help you get up.

Luke Gromen [1:11:56] Like that's, that's about it. it's, think just tell them what they need to know and then start telling them things and then openly share. You develop that relationship. You support it. You show it. You model it with your, with your wife and your spouse, whoever that might be. And you know what communication looks like, what a good relationship looks like, you know, with your parents, you know, with them and You teach them to empathize and you teach them to be flexible. You teach them to critically think. And then like, you hope for the best. It's scary as hell.

Marty Bent [1:12:36] Yeah, it's scary. is fun. There's a lot of fun. think that's a good,

Luke Gromen [1:12:40] my God, it's amazing. It's the best thing, like it is, it's the best thing I will have ever done. It's the greatest honor of my life. And it's just like, you're like, well, when they're older, then I won't worry. Like people ask, someone asked me one time, when do you stop worrying about you? Cause I had, we had kids relatively young. When do you stop worrying about them? I said, you'll stop worrying about them when you're in your grave. That's it. Maybe. That's it. The worries change. That's all, you know.

Marty Bent [1:13:05] I think this is a good grounding topic to end the conversation on because that's really what matters at the end. and trying to just keep your sanity and anchor back to family, make sure that you're being a good present father or mother and doing your best to make sure that you steward them in the right direction as we go through these crazy changes in the world. The world's gonna change. It always has changed and will always change. I think understanding how it's changing is important. That's why I love catching up with you.

Luke Gromen [1:13:27] for sure. Well, as soon as you figure it out, you let me know. I'm just like trying to hang on.

Marty Bent [1:13:42] I will, I will. This was great. Thank you again for your time. always appreciate it,

Luke Gromen [1:13:50] Thanks for having me on. great great chat with you as always.

Marty Bent [1:13:53] Alright, peace and love freaks.