MacroVoices #462 Luke Gromen: 2025 Outlook

Episode Summary

Executive Summary: Macro Voices kicks off 2025 with Luke Gromen arguing the dollar and Treasury market are near a stress point that could force policy changes: short-term dollar strength, higher yields, and risk-asset volatility first, followed by eventual dollar weakening to support nominal GDP. The post-game emphasizes fragile equity breadth, a topping NVIDIA-led AI trade, a strong dollar, rising yields, and constructive but still technical setups in gold and crude oil.

Main Topics: 2025 macro regime: dollar, yields, and policy tension (Priority: 5/5): Luke Gromen says the U.S. dollar and Treasury yields are at a critical juncture. Incoming Trump-era policies may initially strengthen the dollar and pressure risk assets, but eventually policymakers will likely need to weaken the dollar to sustain growth and manage debt dynamics. Bitcoin, gold, and the evolving reserve asset system (Priority: 5/5): Gromen argues Bitcoin is unlikely to replace the dollar as a reserve currency, but it may join gold as a neutral reserve asset while the dollar remains the unit of account/medium of exchange. He sees de-dollarization happening most clearly in the store-of-value function. Debt, inflation, and the limits of policy tightening (Priority: 5/5): The discussion centers on how high interest rates and a strong dollar worsen Treasury-market stress, while a failure to allow inflation to run hotter in 2022-2023 left the U.S. vulnerable. Both speakers see inflation risks re-emerging as a likely consequence of eventual policy response. DOGE, fiscal cuts, and the risk of self-inflicted recession (Priority: 5/5): Gromen warns that aggressive deficit cutting without first devaluing the dollar or debt could trigger recession, higher deficits, and market disruption. He argues the order of operations matters and that cutting non-interest spending first could backfire politically and economically. Equities: weak breadth, AI concentration, and correction risk (Priority: 4/5): Patrick Ceresna says the S&P 500 is vulnerable because breadth has deteriorated sharply and the market remains dependent on a narrow group of large-cap leaders, especially NVIDIA and the Mag 7. He sees early-2025 correction risk despite the longer-term Trump-policy narrative. Commodities and rates: gold, crude oil, uranium (Priority: 4/5): Gold remains structurally bullish but may retest support near $2,500 if the dollar keeps rising. Crude oil is in a short-squeeze phase from bearish positioning. Uranium fundamentals are bullish long term, but spot prices still lack a confirmed breakout.

Key Arguments: A stronger dollar and higher Treasury yields are likely the first-order market reaction to Trump-era policy uncertainty, tariffs, geopolitics, and fiscal/monetary tensions. Eventually, policymakers will need to weaken the dollar to protect Treasury-market functioning and support nominal GDP growth amid unsustainable debt dynamics. Bitcoin is more plausibly a neutral reserve asset or adjunct to gold than a direct replacement for the dollar as global reserve currency. Store-of-value function is where de-dollarization is most advanced; the dollar remains dominant in payments and unit of account, but its reserve-asset share has eroded. DOGE-style spending cuts, if done before currency/debt devaluation, could trigger recession, a higher deficit via countercyclical effects, and stronger financial stress rather than fiscal improvement. The Fed and Treasury will not allow an outright Treasury-market failure; liquidity support and de facto yield-curve control are likely backstops. Market breadth in equities is deteriorating, making the S&P 500 vulnerable even if headline index levels look stable. Gold remains a bullish longer-term hedge against dollar weakness and policy-induced inflation, but short-term pullbacks remain possible. Crude’s rally is currently driven by a squeeze after excessive bearish positioning rather than a clear structural trend reversal. Uranium remains fundamentally constructive over the longer term, but present-day supply/demand and fuel-cycle bottlenecks can keep spot prices weak until actual demand materializes.

Data Points: Macro Voices episode: 462 - Episode identifier stated at the open Production date: January 9, 2025 - Episode production date S&P 500 weekly change: +49 bps - Macro scoreboard as of Jan. 8, 2025 S&P 500 level: 59.64 - As stated in the transcript's scoreboard segment U.S. dollar index weekly change: +49 bps - Macro scoreboard U.S. dollar index level: 109.01 - Dollar at new highs for the year WTI crude weekly change: +224 bps - February WTI crude contract in scoreboard WTI crude price: 73.33 - February WTI crude contract RBOB gasoline weekly change: 0 bps - February RBOB gasoline contract RBOB gasoline price: 201 - February RBOB gasoline contract Gold weekly change: +144 bps - February gold contract in scoreboard Gold price: 2679 - February gold contract Copper weekly change: +596 bps - Copper contract in scoreboard Copper price: 427 - Copper recovering toward December highs Uranium weekly change: 0 bps - Uranium was flat on the week Uranium price: 72.90 - Uranium spot/contract level in scoreboard U.S. 10-year Treasury yield weekly change: +11 bps - Treasury yield in scoreboard U.S. 10-year Treasury yield: 4.68% - Market closing level; challenging 2023-2024 highs S&P 500 above 50-day MA: ~24% - Patrick cites deteriorating breadth; three out of four stocks below the 50-day moving average S&P 500 rally since Oct. 2023 low: ~50% - Patrick notes the extraordinary rally into 2025 Potential dollar stress threshold: ~115 on DXY - Patrick says a move above prior highs could break things Potential gold support test: ~$2,500 - Patrick sees possible retest if dollar strengthens Gold upside trigger: ~$2,725 - Patrick identifies a breakout level above the triangle Potential crude squeeze target: $78-$80 - Patrick estimates based on prior short squeezes of $9-$12

Pivotal Quotes: "I think we're in for a period of bumpiness. Two to three months, and then I think ultimately, 12 months from now, six months from now, later this year, whatever, I think we're going to get policies that weaken the dollar in order to kind of smooth things over and to boost nominal GDP growth." — Luke Gromen: His base-case macro outlook for 2025 "I think what is in the process of happening... is the separation of the store of value from medium of exchange and unit of account functions of global reserve currency status." — Luke Gromen: Explaining why Bitcoin may matter without replacing the dollar outright "If Elon and Vivek do what they say they want to do in the wrong order, they'll create the worst crisis since 2020 and 2008." — Luke Gromen: Warning that DOGE-style cuts before devaluation could trigger recession and market stress

Implications: Expect volatility first: stronger dollar, rising yields, weaker breadth, and correction risk. Longer term, policy likely pivots toward dollar weakness, favoring gold, Bitcoin, and industrials while keeping Treasury-market support central.