One Asset To Double As Global System Risks Unraveling | Luke Gromen
Summary
- The speaker argues that the US Treasury market is mathematically certain to dysfunction if the US dollar strengthens too much, specifically due to foreign selling of bonds to fund oil imports.
- A "Strait of Hormuz" closure scenario is discussed, implying oil prices could spike significantly, forcing global nations to dump US Treasuries to pay for energy.
- Gromen believes the market is mispricing geopolitical risk, particularly in the NASDAQ, noting that major US tech infrastructure (data centers) located in the Middle East is vulnerable to drone attacks.
- The "Gold to Oil" ratio is highlighted as a health metric for the Petrodollar system; its rise indicates a shift toward settling trade deficits in gold rather than US Treasuries.
- US fiscal dominance is the endgame: Interest on debt and entitlements consume over 100% of tax receipts, ensuring the Fed must eventually print or cap yields, which is bullish for hard assets.
Trade Ideas
Gromen states, "Ultimately, every time the dollar gets too strong, the treasury market is going to dysfunction. It is a mathematical certainty." He explicitly advises to be "short bonds" and "short duration." As oil prices rise (due to Iran/Hormuz conflict), foreign nations (importers) must sell their US Treasury reserves to raise cash to buy expensive oil. This creates a massive "natural seller" of Treasuries, driving prices down and yields up. SHORT long-duration US Treasuries as foreign central banks liquidate holdings to fund energy needs. The Federal Reserve implementing Yield Curve Control (YCC) to cap rates, which would force bond prices up artificially.
When asked about the divergence between oil and yields, Gromen says, "I would be long oil." He notes that oil demand is inelastic ("they'll get their oil from wherever they need it"). The closure or disruption of the Strait of Hormuz restricts supply while global demand remains constant. Nations will bid up the price of available oil regardless of cost, creating a supply-shock price spike. LONG Oil exposure to capture the supply shock premium. Rapid de-escalation of the Iran conflict or immediate reopening of shipping lanes.
When asked if he would be long US oil producers like Exxon Mobil, Gromen replies, "Short answer is yeah... I think that is good all else equal for US domestic oil majors." With Middle Eastern supply chains disrupted (Hormuz closure), secure domestic production becomes a premium asset. US majors benefit from higher global prices without the immediate physical risk of their assets being in the conflict zone. LONG US Energy Majors as a safe-haven play within the energy sector. Windfall profit taxes or export bans implemented by the US government to keep domestic prices low.
Gromen states his portfolio is heavy in gold and he "only added gold" recently. He argues gold is "the cheapest asset on the board" and needs to "double, if not triple." The weaponization of the US dollar (sanctions) and the freezing of Russian assets have destroyed the "risk-free" status of Treasuries for foreign nations. Central banks are now net settling trade deficits in gold rather than dollars. Additionally, US fiscal deficits require inflation, which benefits hard assets. LONG Gold as the primary reserve asset alternative to US Treasuries. A deflationary crash where all assets are sold for cash liquidity (though Gromen views this as unlikely to last due to Fed intervention).
Gromen notes the conflict is "good for them" (defense stocks) and mentions reports of the US government asking for another "$200 billion" in defense spending. The conflict in Iran and the depletion of US stockpiles necessitate a massive replenishment cycle. Government spending on defense is politically guaranteed in this environment. LONG US Defense and Aerospace sectors. Supply chain bottlenecks (China restricting rare earths/components) preventing defense contractors from fulfilling orders.
When told the NASDAQ is up 2% despite the conflict, Gromen says, "Sold to you... That is absolutely the wrong price." He points out that US tech giants have placed data centers in the UAE and Saudi Arabia, which are now vulnerable. The market is ignoring two risks: 1) Physical destruction of tech infrastructure in the Middle East via drones, and 2) Higher interest rates (caused by the bond sell-off mentioned above) which mathematically compress the valuations of long-duration tech growth stocks. SHORT NASDAQ/Tech due to valuation compression from higher rates and ignored geopolitical physical risks. The "AI trade" momentum continues to ignore macro headwinds, or the Fed steps in to cap yields immediately.
Gromen explicitly mentions he has a "very large position in electrical infrastructure equities" and names the "PAVE ETF" and "GRID ETF" as examples of well-positioned assets. Regardless of war or interest rates, the US is forced to modernize its grid and reshore manufacturing. This spending is non-discretionary and structural, providing a floor for these companies even in a recession. LONG US Infrastructure and Grid modernization plays. Supply chain disruptions preventing materials from reaching these projects.
