Looking at the Next Year from this Past Year's Best Prognosticator
Luke Gromen's Current Outlook and Warnings - Article #93
In this 14-minute article, The X Project will answer these questions:
I. Why this article now?
II. What is the new administration's first and most critically important task?
III. What if our country was a corporation?
IV. What could be the “new oil” in our financial system?
V. What are the risks of tariffs and restoring?
VI. How are BRICS nations shifting global financial dynamics?
VII. What can be expected for sovereign bond markets?
VIII. How could a gold revaluation affect the U.S. fiscal situation?
IX. What does The X Project Guy have to say?
X. Why should you care?
Reminder for readers and listeners: nothing The X Project writes or says should be considered investment advice or recommendations to buy or sell securities or investment products. Everything written and said is for informational purposes only, and you should do your own research and due diligence. It would be best to discuss with an investment advisor before making any investments or changes to your investments based on any information provided by The X Project.
I. Why this article now?
The X Project’s first article was published one year and one week ago, on November 11, 2023. Since then, I have written 92 articles curating, summarizing, distilling, and synthesizing knowledge & learning at the interseXion of economics, geopolitics, money, interest rates, debts, deficits, energy, commodities, demographics, & markets - helping you know what you need to know.
I started by establishing the foundation of my views by sharing my lists of the twenty most influential books I had read, the top twenty additional influencers, and my top ten YouTube channels as of the time of writing those articles a year ago:
Most Influential Books Read in 2022 (or before) - Article #1
Most Influential Books Read in 2023 (And other influencers) - Article #2
In my sixth article, I introduced Luke Gromen:
In that sixth article, I also defined the ten investment themes I subscribe to, which have not changed since then. Of those ten, four were mainly influenced by Luke Gromen. If you do not already know, I will detail which three are for paid subscribers in the final sections of this article. However, these are the returns of those three over the past 52 weeks: 29%, 153%, and 32%.
Here are the other articles in which I specifically highlighted or covered Luke Gromen’s views:
I believe he has been the best overall prognosticator of all of the analysts, traders, commentators, and strategists I follow. It is more than just the percentage return on specific investments he has made, which I have followed. More importantly, his non-consensus views, which eventually become adopted and thus reflected in the markets, make him a valuable and insightful analyst.
So, with the first year of The X Project behind us and a new year ahead, with a new President, a new congress, and a new policy agenda, this is an excellent time to check in with Luke to get his thoughts on what lies ahead. I have synthesized the following from his Tree Rings reports from the past two weeks and the following two YouTube videos:
FACE Interview NOV 11th 2024. Luke made the distinction between Bonds being Uninvestable & Tradable on ForexAnalytix (1,976 views)
What economic advice we would offer Trump on Luke Gromen - FFTT, LLC (November 14, 2024, with 16,828 views)
II. What is the new administration's first and most critically important task?
Luke Gromen's analyses emphasize that the U.S. faces an immediate imperative to either devalue the U.S. dollar or significantly reduce the national debt-to-GDP ratio. Without such actions, the economy risks spiraling into a severe downturn similar to or worse than the conditions of 2022. This dynamic is tied to the high debt levels, with current interest payments exceeding 100% of tax receipts over several months, marking unsustainable fiscal conditions. Gromen suggests this devaluation as an essential precursor to other economic strategies.
The rationale for this recommendation lies in the mechanics of sovereign debt management. By devaluing the USD, the relative weight of debt obligations can decrease, providing fiscal breathing room. Gromen highlights the necessity of adhering to an "order of operations" in economic policy. Actions such as cutting government spending or introducing tariffs without first addressing the debt-to-GDP imbalance could amplify economic instability, leading to a stronger dollar and weaker growth—a repeat of 2022's challenges.
Additionally, Gromen proposes innovative measures such as revaluing gold reserves to fund debt reduction and industrial policy. This approach could inject substantial liquidity into the economy while stabilizing the bond market. These strategies align with his broader argument that resolving the fiscal crisis requires prioritizing stability in debt metrics before tackling structural inefficiencies or implementing protectionist policies.
III. What if our country was a corporation?
Gromen frequently compares the U.S. fiscal crisis to a struggling business requiring debt restructuring. He argues that before trimming "unprofitable" government spending, it is critical to renegotiate or adjust the terms of U.S. debt. Drawing from corporate analogies, he warns that cutting critical cash flow prematurely could lead to an economic collapse akin to corporate bankruptcy.
The restructuring analogy illustrates a broader strategy where stabilizing debt precedes aggressive reforms. For instance, extending maturities on government debt or using proceeds from mechanisms like gold revaluation could stabilize finances. This would allow policymakers to target inefficiencies in federal spending without risking immediate fiscal insolvency.
This framework also addresses political realities, such as ensuring public and market confidence in reforms. Gromen underscores that failure to follow this sequence could lead to severe economic contraction, making debt restructuring a fiscal necessity and a cornerstone for broader economic and political stability.
IV. What could be the “new oil” in our financial system?
Gromen introduces the concept of Bitcoin (BTC) functioning as a strategic reserve asset analogous to oil during the 1970s. He suggests that BTC's rising adoption could create a virtuous cycle of demand for U.S. Treasury Bills (T-Bills) through stablecoins, which are pegged to BTC's market performance. This system could effectively support U.S. deficits while modernizing the fiscal architecture.
The argument draws parallels between oil’s role in stabilizing U.S. fiscal policy during the petrodollar era and BTC's potential to anchor financial flows in the digital economy. Stablecoin demand, correlated with BTC price increases, could bolster liquidity for U.S. debt markets. This would provide an inflationary but manageable solution to persistent deficits.
By leveraging BTC's inherent characteristics—scarcity, network growth, and increasing adoption—Gromen highlights its dual role in stabilizing fiscal policy and enabling innovative financial mechanisms. This perspective positions BTC not just as an investment asset but as a potential pillar in sovereign financial strategies.
V. What are the risks of tariffs and restoring?
Gromen extensively discusses President Trump’s proposed economic policies, including significant tariffs and reshoring initiatives. While these policies aim to bolster domestic industry and address trade imbalances, Gromen warns against their implementation without first stabilizing fiscal metrics. He predicts that premature austerity measures could lead to a stronger USD and global economic dislocations.
The proposed tariffs, designed to protect U.S. industries, could inadvertently raise costs for American consumers and businesses if not coupled with broader fiscal reforms. Moreover, the historical evidence suggests that such measures amplify inflationary pressures domestically while depressing economic activity abroad, particularly in trade-dependent nations like China.
The analysis reinforces the idea that fiscal devaluation and debt stabilization must precede such structural changes. This ensures that the economy can absorb shocks from new trade policies without exacerbating existing vulnerabilities in labor markets or fiscal health.
VI. How are BRICS nations shifting global financial dynamics?
A critical theme for Gromen is the shifting role of BRICS nations (Brazil, Russia, India, China, and South Africa) in challenging the U.S.-led financial order. By advocating for multicurrency commodity pricing and increased gold settlement, these nations aim to reduce dependency on the USD. Gromen highlights this trend as a growing risk to U.S. economic hegemony.
The BRICS strategy focuses on leveraging local currencies and gold to settle trade imbalances, effectively bypassing the USD. This reduces their exposure to dollar-denominated debt and enhances monetary sovereignty. For the U.S., this trend underscores the urgency of maintaining the dollar's attractiveness as a reserve currency.
Gromen's analysis suggests that the U.S. must adapt to these global shifts by modernizing its financial and trade systems. This includes leveraging assets like BTC and gold while fostering domestic productivity to counterbalance the declining influence of the petrodollar system.
That concludes Section VI. I have hit a new paid subscriber threshold, so you must now be a paid subscriber to view the last four sections:
VII. What can be expected for sovereign bond markets?
VIII. How could a gold revaluation affect the U.S. fiscal situation?
IX. What does The X Project Guy have to say?
X. Why should you care?
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