MacroVoices #421 Luke Gromen: More Dollar Liquidity To Come…

Episode Summary

Executive Summary: Macro Voices 421 centers on Luke Gromen’s thesis that Treasury dysfunction, Fed/Treasury liquidity support, and a weakening dollar are converging into a managed-dollar decline that favors gold, Bitcoin, equities, and selected commodities. The hosts and guest see fiscal dominance returning, geopolitical risk as a secondary but inflationary overlay, and a likely policy path that keeps supporting risk assets while eroding dollar strength gradually.

Main Topics: Dollar decline and reserve-currency challenge (Priority: 5/5): Luke Gromen argues the dollar is entering a managed, orderly downtrend as the U.S. and potentially China/Japan adapt to fiscal dominance and Treasury-market stress. Treasury market dysfunction and liquidity response (Priority: 5/5): Repeated Treasury market stress events have prompted Fed jawboning and Treasury issuance shifts, effectively creating liquidity injections similar to QE through different channels. Gold and Bitcoin as beneficiaries of regime change (Priority: 5/5): Gold and Bitcoin are framed as the clearest beneficiaries of a weaker dollar, looser financial conditions, and banks being encouraged to hold more Treasuries. Equities, industrial policy, and nominal growth (Priority: 4/5): The discussion links weaker-dollar policy, industrial policy, and higher nominal GDP to continued support for U.S. equities, especially industrials and infrastructure. Oil, energy, and geopolitical constraints (Priority: 4/5): Oil is seen as range-bound but politically managed, with $70-$90/barrel framing the zone policymakers may try to maintain to protect the U.S. and global system. Precious metals, bank regulation, and QE through banks (Priority: 4/5): Gold’s breakout is tied not just to Fed commentary but also to potential SLR/basel relief that would let banks absorb more Treasuries with minimal capital constraints. Technical market setup in major assets (Priority: 3/5): The post-game segment reviews SPX, QQQ, VIX, DXY, gold, silver, and uranium levels, emphasizing strong equity momentum, a possible DXY breakout, and bullish gold despite dollar strength.

Key Arguments: The Fed/Treasury will need to keep injecting dollar liquidity to finance elevated deficits, which is effectively QE even if rebranded. The U.S. entered fiscal dominance because rate hikes were applied against a debt-heavy economy, making future inflation more likely, not less. Dollar weakness is broadly beneficial globally because it eases dollar debt servicing and expands balance-sheet capacity to buy Treasuries. Gold and Bitcoin are likely to outperform because they sit at the center of the new liquidity regime and serve as alternative reserve assets. Bank SLR relief for Treasuries would amount to QE through the banking system by allowing banks to buy large amounts of Treasuries with low capital cost. Geopolitical conflicts are generally dollar-positive in theory, but Treasury dysfunction and policy responses have dominated that effect this cycle. Oil is unlikely to break sustainably below $70 or above $90 because both levels would trigger U.S. policy responses through shale economics or Treasury liquidity stress. Both major U.S. political paths imply more industrial policy and therefore continue the broader trend toward a weaker dollar over time. Gold is increasingly behaving like a monetary commodity/reserve asset for the BRICS and may rise faster than the broader commodity complex over time.

Data Points: SP 500 June futures: Up 42 bps to 5308 - Macro scoreboard week over week as of March 28, 2024. U.S. Dollar Index (DXY): Up 89 bps to 104.29 - Breaking out toward February highs in the macro scoreboard. WTI crude oil (May): Up 10 bps to 81.35 - Holding near multi-month highs. Gold (June): Up 137 bps to 22.12 - Breaking back toward all-time highs; likely a formatting/decimal issue in transcript but stated as such. Copper: Down 123 bps to $4.00 - Macro scoreboard close on March 28, 2024. Uranium: Up 6 bps to $88.55 - Macro scoreboard close on March 28, 2024. U.S. 10-year Treasury yield: Down 8 bps to 4.19% - Macro scoreboard close on March 28, 2024. MOVE index threshold: Above 135 - Luke cited this as a sign of Treasury market dysfunction in October. TLT drawdown: Down 20%+ - Luke described the long bond ETF’s fall by Oct. 6, 2023 as a Treasury market crash. Yuan/sanctions diplomacy: Nov. 15, 2023 - Luke flagged the Xi-Biden San Francisco meeting as potentially important for dollar policy. SPX spot price in post-game: ~5,250 - Used to frame near-term technical levels and options-implied range. SPX April 19 implied move: 110 points - Upper/lower range discussed in the post-game. SPX resistance/support: 5,250 / 5,200 - Nick’s short-term trading levels. QQQ spot price: ~445 - Used with April monthly options implied move. QQQ April implied move: 13 points - Upper/lower range discussed in the post-game. VIX: ~12 handle - Indicates complacency and low realized intraday movement. Oil inventory build: Crude +3.2M bbl; Cushing +2.1M; gasoline +1.3M; distillates -1.2M; net petroleum +3.3M - EIA inventory discussion in the post-game. U.S. crude production: 13.1 million bpd - Held steady in the weekly inventory discussion. Oil range (view): $70-$90 per barrel - Luke’s expected politically managed range over the next 6-9 months. Gold target: $2,300 near-term; $2,725 long-term - Post-game technical discussion and Cup-and-Handle projection. Dollar technical level: 104 to 104.5 - Key breakout/consolidation level on DXY in the post-game. Uranium spot/physical trust breakout level: $30 - Nick said a break above this would confirm a new bull sequence. Bitcoin market cap: ~$1.4 trillion - Used to explain why Bitcoin’s percentage moves can exceed gold’s. Gold market cap: Nearly 10x Bitcoin’s - Used to frame relative move magnitudes.

Pivotal Quotes: "I think the Luke Groman moment is finally approaching." — Eric Townsend: Eric introduces the interview and says the dollar thesis may finally be starting to play out. "Once they do that, I'd encourage people to call it the stock chart of the Argentine stock market." — Luke Groman: Luke describes how dollar weakness and liquidity injections could boost U.S. asset prices in dollar terms. "QE through the banks. That's it." — Luke Groman: Luke characterizes permanent SLR relief for Treasuries as a bank-channel form of quantitative easing.

Implications: Listeners should expect continued policy support for liquidity, risk assets, gold, and Bitcoin, while the dollar likely grinds lower rather than crashes. Watch Treasury-market stress, bank regulatory changes, and geopolitical flare-ups as catalysts for sharper moves.