We find ourselves in a time of transition, one that may increasingly be later described as upheaval.
In a week, we'll have a new US President, which will bring change both to the US and geopolitical theatres.
We already have a new interest rate regime as the world's major central banks have pivoted back to cutting rates.
And we may be seeing the start of a new era in bond yields, which have been marching higher despite the wishes of the central planners. If this continues as a secular trend, this higher cost of debt could prove destabilizing to the world's hundreds of $trillions in debt and entitlement programs.
To find out where this all is likely headed, and what investors should be tracking most closely right now, we're fortunate to welcome Luke Gromen, founder of macro research firm FFTT, LLC, back to the program.
In a nutshell, Luke sees the central planners as trapped; increasingly forced to cut rates and conduct yield curve control moving forward. As a result, he sees mid- to long-term sovereign bonds (especially of Western countries) as “un-investable”.
Here are my key takeaways from this interview with Luke:
Luke argues the Fed should have kept real interest rates negative for a longer period, at least two additional years, to manage the high debt-to-GDP ratio more sustainably. This would have preserved fiscal independence by allowing inflation to erode debt slowly. Instead, the Fed’s decision to raise rates aggressively back in 2022 increased interest obligations, narrowing policy options.
Mid- to long-term U.S. sovereign bonds are increasingly “uninvestable” on a real basis, as rising inflation and constrained economic growth diminish their purchasing power. Luke points out that these bonds are increasingly unattractive relative to hard assets, as they provide a fixed yield that doesn’t keep pace with inflation, particularly for Western sovereign bonds.
With debt levels at record highs, the Fed must keep interest rates low to sustain debt payments, effectively “engineering” inflation as a tool to manage debt serviceability. Luke sees this as a structural inflationary trend, which will benefit assets like gold, Bitcoin, and stocks over bonds, as they hold intrinsic value that typically rises with inflation.
Luke identifies fiscal dominance, where the government's debt obligations dictate monetary policy, as a primary concern. With U.S. entitlements and interest payments now equaling roughly 100% of tax receipts, the Fed’s ability to raise rates is limited without destabilizing the economy. This dynamic, Luke suggests, may soon force the Fed into yield curve control (artificially keeping rates low across the curve).
An estimated $114 trillion in wealth is held by Americans aged 55+, and its transfer to younger, peak-spending-age individuals could lead to a significant economic multiplier effect. Luke notes that a rapid transfer would stimulate growth and inflation by boosting spending, while a slower transfer would worsen inequality, fiscal deficits, and social strain. So much depends on the rate of this generational wealth transfer.
Both major U.S. political parties favor similar policies, including domestic industrialization and raw material stockpiling. Luke sees these policies increasing the national debt while also pushing inflation higher, as they will require substantial government funding to support manufacturing and energy independence in response to global shifts, such as decoupling from China.
Although technological advances in AI and robotics introduce deflationary pressures by reducing labor costs, Luke argues that high debt obligations make sustained deflation unviable. As debt serviceability relies on rising tax revenues, deflation would push the government to print more currency, ultimately leading to inflationary waves to manage the debt.
Luke advises against long-term bond investments, as he expects persistent inflation and fiscal pressures to erode their value. Instead, he recommends gold, Bitcoin, and certain stocks, which are more likely to retain or increase value amidst currency depreciation and fiscal intervention. He anticipates these assets will rise as central banks intervene to stabilize bond market volatility, further supporting their appeal over bonds.
To watch the full interview with Luke Gromen, watch the below video:
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