Luke Gromen: Bonds Are Now "Un-investable"

**Luke Gromen** (0:00)
It's in my view of it is on a real basis at least, mid to long term sovereign bonds, particularly western sovereign bonds, are uninvestable.

**Adam Taggart** (0:16)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. We find ourselves in a time of transition, one that may increasingly be later described as upheaval. In a week, we'll have a new US president, which will bring change to both the US landscape and to the geopolitical one. We already have a new interest rate regime, as the world's major central banks have pivoted back to cutting rates. And we may be seeing the start of a new era in bond yields, which have been marching higher despite the wishes of the central planners. If this continues as a secular trend, this higher cost of debt could prove destabilizing to the world's hundreds of trillions of dollars worth of debt and entitlement programs. To find out where all this is likely headed and what investors should be tracking most right now, we're fortunate to welcome Luke Gromen, founder of macro research firm Fftt, Llc, back to the program. Luke, thanks so much for joining us today.

**Luke Gromen** (1:10)
Thanks for having me back on. It's great to be here, Adam.

**Adam Taggart** (1:13)
All right, Luke. Well, look, I've got a lot of specific questions for you, like I said in the intro, lots of big topics to dig our arms into. But before we get to them, if I can just ask you the general question, I like to kick these interviews off with. What's your current assessment of the global economy and financial markets?

**Luke Gromen** (1:31)
My current assessment is that we're reaching a critical point that we've been talking about for some time, which is the Fed and global central banks screwed up two years ago, two and a half years ago, by not letting real rates stay negative for long enough to get that to GDP down to levels from which they could manage policy independently without threatening the fiscal position of their sovereigns, and specifically the Fed did this. In other words, the Fed should have kept interest rates at zero for at least another two years before they started raising rates. Politics got involved, and what we've been saying that entire time is, by virtue of that, a day was coming where the Fed was going to have a choice about how they lose the long end of the curve for a moment, and then have to move into some version of de facto yield curve control. And it appears that we are reaching that moment. And so, to me, we're seeing symptoms of it in markets, and my view of it is, on a real basis at least, mid to long term sovereign bonds, particularly western sovereign bonds, are uninvestable, which is, we've been hearing over and over, well, China's uninvestable, China's uninvestable, China's uninvestable. And that might be the case, I don't know. But mid to long term treasury bonds are uninvestable on a real basis. And we can see this. And so, we're coming to a really key moment, I think. I think the first trigger point was the 50 basis point rate cut last month. The Fed blinked, the Fed chose. They could lose the long end via cutting, or they could lose the long end via raising. And they lose, they look like they've chosen to lose the long end for the moment via cutting. And I think after the election, we're going to see them probably cut again, or at least promise to cut again. And I don't think the long end is going to like it a whole lot. I think they're going to cut again with nominal GDP growing 5 to 6 percent, with unemployment still at near the lows. And ultimately, I think we'll continue to see what we've been seeing, which is gold outperforming long-term treasuries, Bitcoin outperforming long-term treasuries, stocks outperforming long-term treasuries, as we move through the rest of this year and into next year.

**Adam Taggart** (4:02)
Okay. All right. Well, I think you maybe pulled the punchline of the whole conversation right up to the front here. Okay. So mid to long-term sovereigns, uninvestable and stocks and hard assets, even though Bitcoin is not a hard asset.

**Luke Gromen** (4:19)
Now, uninvestable on a real basis, to be clear, right? Like the 10-year might go 4.3 to 4 Hey, great, I made money. But I think if the 10-year goes 4.3 to 4, you're going to have gold go from 2,700 to 3,500 or 4,000.
You might have stocks go up a bunch, in my opinion. It's really uninvestable on a real basis for the mid-to-long-term sovereigns.