Warsh Must Choose The Dollar Or The Bond Market | Luke Gromen

**Luke Gromen** (0:00)
He's gonna have to show us our cards, and there's a consensus on Wall Street that he's going to be hawkish. There's a possibility that he will try to ride two horses with one ass next week by rolling out this same fairy tale that we can have disinflationary growth. The debt is too high, and there isn't enough balance sheet to finance it without the Fed's help, that's it. Everybody wanna have an independent Fed, nobody wanna cut deficits. If you're gonna spend three years, two and a half years, shifting issuance to the front end because the back end is blowing out, you can't be stupid and start an inflationary war that sends a front end up. I think the physical world is gonna start kicking the financial world in the head sometime in the next one to two months. That's not good for anything. It's just, it's bad for bonds, it's bad for stocks, it's bad for risk, it's bad for gold, it's bad for Bitcoin. I think gold and Bitcoin are telling us something wicked this way comes. It's a very simple choice, the dollar or the bond market. They're gonna have to sacrifice one.

**Felix** (0:56)
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All right, everybody, welcome back to another episode of Forward Guidance. And joining me this week is repeat guest, Luke Gromen, founder and president of Forest For The Trees. Luke, always great to have you on the show. No shortage of things to talk about once again, compared to our last time that we got together, I think around eight months ago. So it's been wildly overdue, but good to have you back on the show, Luke.

**Luke Gromen** (1:48)
Thanks for having me back on. It's great to be here, Felix.

**Felix** (1:50)
Yeah, yeah, likewise.
Wanna start the conversation with, we're recording June 10th today. We're one week out from the first Fed meeting led by Kevin Warsh. He's been nominated, and he has been handed quite an interesting proposition of how to navigate the economy. We just had the CPI print today. Obviously, headline was above 4 percent, largely driven from what's been going on in the Iran war, which you've been talking plenty about. But overall, just seems like a very different mix of factors going into this meeting versus when he was first nominated to be Fed chair a few months ago. Back then, the curve was pricing in rate cuts, now we're pricing in rate hikes. Curious how you're thinking this is all going to pan out next week.

**Luke Gromen** (2:35)
I think next week is going to be a big card flop, if you will, to use poker term.
He's going to have to show us our cards. And there's a consensus on Wall Street that he's going to be hawkish. And certainly when he was at the Fed in 10 and 11, what have you, he was very hawkish. What I find it's not as well known is that he co-authored an op-ed in the Journal in December of 2018, essentially begging the Fed to stop hiking rates. People don't seem to remember that as much, with the S&P down 10% off the highs, and please stop hiking rates. Now is not the time. So I think we're going to get a big card flop in terms of getting his view. Now, that big card flop might be, he wrote in another op-ed in the Journal about the Fed last fall that I think was kind of his job interview, so to speak, for Trump, in which he said, essentially, one of the things, he criticized the Fed, but from an economic policy standpoint, one of the things he said that I thought might be important as it relates to next week is, essentially, we can grow out of this in a disinflationary manner. And he basically said, if we invest in AI and technology, that will drive growth up and growth that will not... It will be disinflationary like the 1990s. And that way, that's the way we can sort of square the circle between what otherwise seems to be a completely untenable need to either sacrifice the dollar, inflation, or the bond market, higher rates. And so, I think there's a possibility that he will try to ride two horses with one ass, again, as Powell did, in a different manner next week by rolling out this same fairytale that we can have disinflationary growth, that we can have higher growth, but that the higher growth won't necessarily drive higher rates. I think it's total BS. I think it's a fairytale.