WBD646 Audio Transcription

The Sovereign Debt Bubble with Luke Gromen

Release date: Monday 17th April

Note: the following is a transcription of my interview with Luke Gromen. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

Luke Gromen is the Founder and President of Forest for the Trees (FFTT). In this interview, we discuss how governments can navigate the first busting global debt bubble in 100 years. We talk about historical precedents: namely the Weimar Republic in the 1930s and Israel in the 1980s, and how governments may be forced to allow for a compressed period of triple-digit inflation.

“We know where we are in the debt cycle, we know where we are with energy. And so then it comes down to the key points: when there is tension in the market, when there’s volatility in treasuries - okay, we’ve come to a point: they either have to let the debt default, or they have to print. The chance that they’re going to let it default is like zero.”

— Luke Gromen

Interview Transcription

Peter McCormack: Luke, good to see you, man.  It's been a while.

Luke Gromen: It has, but thanks for having me back on, Peter.  I'm looking forward to our conversation.

Peter McCormack: Yeah, listen, we'd have you on any time and would love to do one in person at some point and really grill you, but there's been so much going on.  Danny here has been bugging me to get you back on, so we broke our rule; we'll do a remote show just because you have so much value to add. 

Luke Gromen: Thank you.

Peter McCormack: A lot's happened since we last spoke; the whole world has gone completely fucking mad!

Luke Gromen: In a nutshell, yes, exactly.

Peter McCormack: But we're both huge fans of yours; we've been following your updates, your macro updates.

Luke Gromen: Thank you.

Peter McCormack: And yeah, we've got a whole bunch of questions for you, but just to kick off with, last time we spoke, you said your allocation to Bitcoin was about 2%, and we're intrigued to see if it's grown.

Luke Gromen: The short answer is yes, quite a bit.  So, I think the last time we spoke probably would have been, what like 2020, maybe something like that?

Peter McCormack: September 2020.

Luke Gromen: Yeah, so you said September 2020?

Peter McCormack: Yeah, I think we've made 400 episodes since then.

Luke Gromen: So, September 2020, shortly after we spoke, I ratcheted up my allocation pretty meaningfully actually.  When it broke over $20,000, November 2020 if you remember, it was Thanksgiving weekend here, and I looked at my wife and I said, "It went through $20,000 with such authority".  Having been in markets a long time, I just said, "That's meaningful".

So, I ratcheted up my allocation; I bet at peak I was probably, in 2021, I don't know, I was probably 40% at one point of my liquid net worth between what I bought in 4Q 2020 and 1Q 2021, early 1Q 2021, and then what it ran to that summer, June 2021, I actually sold most of it.  To be blunt, I paid off my house; I just figured, "You know what, worst case, I'm going to get debt free on this".

Peter McCormack: Love it.

Luke Gromen: And again, having been around markets, the pace at which it had grown, you were seeing the Fed start to talk about tightening, so it was just like, "Okay, you know what, worst case, I'm out of debt".  So, I did that, still owned like 5% of my liquid net worth.  Began adding back at the end of 2021, too early of course, but it is what it is.

Then have actually, again having been around markets long enough, people always say, what is it, the famous Rothchild, "You want to buy when there's blood in the streets, even if it's yours", having been around markets enough, watching what happened with the exchanges last year in the fall, that to me was sort of a classic, "Okay, this is a liquidation, and yes, some of the blood is mine"; so I actually ratcheted it back up pretty meaningfully really sub-$20,000 again, so back to full circle.

Peter McCormack: Love it.

Luke Gromen: So, here we go.

Peter McCormack: Gone full circle but with no mortgage now.

Luke Gromen: That's exactly it, and yeah, my guess is now we'll probably have a little bit more discipline or more holding power because I won't have that temptation of like, "Hey, well, I could just get completely out of debt", because I'm largely completely out of debt already.

Peter McCormack: Nice, love it.  So, is this just you realising this is an asset you can trade or have you become more bullish on the asset and its role now?

Luke Gromen: I have become more bullish on the asset and its role as a neutral reserve asset for the people, and maybe at some point down the road it can become a reserve asset at the sovereign level; I don't think we're there yet.  I think there's been some interesting work done on that in that vein, most notably by Jason Lowery, his new book, Softwar; it's his PhD thesis at MIT. 

I had been aware, and a key underlying dynamic to the way my research is suggesting I need to think about the world is that we are in this unique period of time where we have our bursting global sovereign debt bubble in 100 years, and at the same time we've got a peak cheap energy, I won't call it a crisis, but it's a dynamic; it's not that we're running out of oil and gas and energy, it's that the stuff we use most of is getting more and more expensive to replace. 

So, there is sort of this secularly inflationary dynamic to just replace and keep our energy production flat of fossil fuels broadly speaking, which is fine when you have a low debt-backed economy but's not fine when you have a high debt-backed economy, debt-backed currency; they're fundamentally incompatible.  So, when you have a combination of a bursting global sovereign debt bubble overlaid with a peak cheap energy dynamic, that's an ideal setup for what you want to own, what you want to be overweight, are neutral reserve assets with an energy tied to them. 

Basically, you want to own assets with no counterparty risk, that hedge inflation and have an energy tie.  And historically, that was basically gold, silver sort of because silver's kind of an industrial metal too, and I would also argue that if you can't own an oilfield, which is easier said than done, literally own the oilfield or the oil assets, they are reserve assets of sorts, but there are a whole number of reasons why that's inefficient, etc; they will do well in that environment that I just talked about, peak cheap energy plus this global sovereign debt bubble.

I think, between our conversation and some other conversations I've had with others in the Bitcoin world, that really over the course of 2020, I think went from zero to 60, because I'd owned 2 Bitcoin since 2013; I actually owned 25 Bitcoin back in 2013, and I sold it, unfortunately, all but 2 of it, to help fund FFTT.  So, not unfortunately because I started my business, it's a great business and I do what I love, but all else equal, I would have sold something else, not the 23 Bitcoin I sold; c'est la vie.

So, over the course of 2020, my understanding ramped to say, "Okay, gosh, if I look at this objectively, this is an energy-tied reserve asset you've got through my lens of what the research is telling me", and just began digging into it more, talking more, and so that I think has really been the key tipping point of there are elements where it does a lot of what gold does, better than gold does, but it's really about having a neutral reserve asset with an energy tied to it. 

To me, it's that proof of work dynamic, that energy tie that is so critical because there's this inflationary impulse to peak cheap energy, they need energy prices to rise, and so you want to maintain your purchasing power and energy terms.  And there is this dynamic of first bursting global sovereign debt bubble in 100 years where they either have to let the debt default, which is counterparty risk, so you won't own an asset, a neutral reserve asset, no counterparty risk; or more likely they're going to print the money to keep the debt nominally solvent, but risk on a real basis and we saw that in spades last year.  So, that's a long-winded answer I think, but I wanted to give sort of the background of the thought process of how that evolved from there to here.

Peter McCormack: No, I love it, man.  Do you have a gold allocation?  Peter Schiff is listening!

Luke Gromen: I do.

Peter McCormack: Oh, you do?

Luke Gromen: I do.

Peter McCormack: Yeah.  I haven't yet, and I've considered it a couple of times, but every time I just buy more Bitcoin, which hasn't always worked out to be the right decision.  So, this sovereign debt bubble you're talking about, and you say it's bursting and then you say they will print to keep it going, but I've had a few conversations with Lyn Alden, who I know you know well, and I feel like we're yo-yoing towards possibly even much higher inflation.  What's your read on the sovereign debt bubble; how do you think it's escaped, and can it even be escaped?

Luke Gromen: Well, it can't be escaped, it can only be worked through, and there are only two ways to work through it once the debt levels get high enough, and that is you default/restructure or you inflate it away, you basically cap yields, central bank buys the debt-capped yields, lets inflation go, and you inflate it away so your debt-to-GDP is back down to a low enough level. 

So basically, bondholders lose money on a nominal basis or on a real basis basically are the two ways to work through it.  I guess there's a third way, which is energy productivity miracle; you can get out of it, in fact the UK got out of one, I want to say it was after the Napoleonic War, so like 1850-ish.  You had a productivity boom, you just happened to discover fossil fuels and commercialised them and you had this massive, unprecedented historical boom in productivity that actually allowed the UK to earn its way out of it without really having to repress, without having to go off the gold standard.  So, it is possible, but you're talking about, because the debt levels' as high as they are, the commercialisation of nuclear fusion on a compressed timescale type of productivity enhancement. 

So, if you say we're not going to get this productivity enhancement, and who knows, maybe AI can help with that too, I don't know, let's set that aside; if you set that aside, you either have to restructure/default on the debt or you have to print the money to keep the debt nominally money good but declining on a real basis to basically inflate it away.

Peter McCormack: And is the print the most popular option because a traditional default is much more damaging to the currency; is it that when you print it away and there's a nominal loss to the bondholders, is that a more subtle way of hiding it?

Luke Gromen: Yeah, it's a more subtle way of hiding it.  These days, when you talk about a lot of this debt being the underlying collateral of a lot of other assets, it almost becomes impossible to default on it.  You hear all the time people say, "Well, Treasuries are the collateral", and they are.  That basically precludes the "let it default" option, which is actually really helpful from an analytical standpoint because we know where we are in the debt cycle, we know where we are with energy.  So, then it comes down to the key points when there is tension in the market, when there's volatility in Treasuries.  Okay, we're coming to point, they either have to let the debt default or they have to print.  The chance that they're going to let it default is like zero, so then you can sort of scale your positioning and make your decisions based on that.

So I think not just politically, it's always been easier, but practically speaking, from the actual underlying structure of the markets now, there's just no chance they can let it default really; I can't say that there's no chance, but the chance is so de minimis as to be I think meaningless.

Peter McCormack: So, do you think we're at risk of going through a decade of inflationary issues?  It's something Lyn has talked about; she said to me the story of the next decade is going to be inflation.

Luke Gromen: Absolutely.  I think we are going through -- and the length of time is somewhat dependant on the rate of inflation and the ability to keep the population docile, tricked for lack of a better word, about what the actual rate of inflation is.  But ultimately, back in 2021, April 2021 I would say, we did a report for clients and we said, "Okay, the last time debt-to-GDP in America was as high as it is after COVID was after World War II", and what we did was pretty straightforward; we capped yields at 2.5% at the ten-year, the Fed did, with yield curve control, and they let inflation, they let real rates go to negative.  I think the United States, I think they went to -13%.  So basically, your inflation rate was 13 points over the yield on whatever they were using, whether it was the front end of the curve or the back end of the curve, it doesn't really matter much, it was a pretty flat curve. 

The point is, from 1945 to 1951, US debt-to-GDP went from 110% down to 55%, and then they did this thing called the Treasury-Fed Accord, where basically at that point they said, "Okay, now we're going to go back to being separate entities, the Fed's independent again, they're going to set policy based on what's best for the currency and not what's best for the government, and away we go".  So, we said, "Let's use that analogue for now; we're at 130% debt-to-GDP as of April 2021".  Our view was that they needed to get that number to 70% to 80% debt-to-GDP because that was, in my view, the last time the Fed was able to run a pseudo-normal Fed-tightening cycle without really blowing something up remarkably fast.  And so we said, "Okay, we need to take debt-to-GDP down by 50 to 60 percentage points, and let's say they do it over five years, like they did after World War II, what would that entail holding everything else constant in this relatively simple model?" 

What we found was that you needed four to five years of call it 12% to 18% annual inflation just to get it there.  So, that implies two things: (1) that level of money printing; (2) that level of keeping the bond markets still.  Basically you're holding the bond market down and euthanising, you're putting the bond market to sleep, you're killing the bond market in real terms.  There are a number of reasons why, from a capital control perspective in particular, that was much easier to do from 1945 to 1951 than it would be to do now.  So, when you lay it out that way, it gives you two conclusions: (1) inflation's the way out, and that gives you a sense of scale of the amount of inflation for the period of time that would be needed; but then (2) it highlights the difficulty of actually doing that and the extremity of the policies that would have to be put in place to make that happen. 

So, where do you go with that?  Some people say, "Well, we can just do -5% real rates for 5 years".  No, you can't do a 5-year rate; -5% needs to be like 20 years, 15 years, and you say, "Okay, well, can we do it faster?"  That's probably what this conclusion tells you, is it's going to be a surprise; it's not going to be 12% to 18% inflation for five years, it's going to be the Israeli situation in the early 1980s, which is 100% to 300% inflation for two to three years and voila, you're done.

I increasingly think that's where this is all heading toward where they're just going to have to compress it, they're going to have to do a real short-term basically reset, jack up the monetary basis, let inflation absolutely rip for a bit; because without capital controls, you can't screw the bond market in real terms for very long before you lose control of it, so you kind of get to the same spot either way.  You can't sit there and go, "We're going to take 10% of your money, Mr Bond Market, for 5 years", it doesn't work that way; they will instantly make that adjustment if they get the sense that's how it's going to go, so that it becomes self-referential.

Peter McCormack: So, hold on, you're saying perhaps in the US, even in the UK and Europe, we could see 100% to 300% inflation?

Luke Gromen: Please don't make that the title of this one!

Peter McCormack: No, I won't; "Luke Gromen says…"

Luke Gromen: Right, exactly, yeah.

Peter McCormack: Are you saying that's the risk, that's a potential?

Luke Gromen: Absolutely it's a risk, yeah, it's absolutely a risk, and it's one of these things where people say, "Oh, if we had that kind of inflation there'll be zombies, you're going to need shotguns and spam and it's an apocalypse", and you kind of go, "Israel did it for three years".  You can call up a man named Stan Fischer, who was a former Fed Vice Chair, he wrote one of the authoritative papers on how to manage the process, and he was the Fed Vice Chair as recently as 2017, 2018.  He wrote a BlackRock whitepaper in 2019 about how to inflate your way out of the next crisis, you cap yields and let inflation rip, with the head of the Swiss National Bank and the former Head of the Swiss National Bank and a Bank of Canada Governor.

So, the point is that it happened in Israel.  Israel is not the United States, obviously, for a number of different reasons, from a size and from an economic complexity dynamic, but from a standpoint of a first world nation where they did it for two, three years and like a pretty nice place to go visit, it's like the world didn't end; bondholders got screwed for three years and then you move on.  And we are getting to that point of the movie where bondholders get screwed on a real basis in a short period of time and we move on.  And that to me, yeah, I think it's possible and I think it's important to say that the longer they delay getting to the inflating it away part, the more likely that becomes.

So in other words, if we go back to 2021, I wrote that piece, I said it looked like they were doing what they said they were going to do in 2019, which is cap yields, let the debt go, or let the inflation go, get debt-to-GDP back down.  It looked like they were doing what they did post-World War II, and then all of a sudden, 2022, here in the States in particular, it became a political problem; it was an election year, "Oh, inflation", no one cared about COVID anymore, it was all about inflation, and so suddenly it started to become problematic and they started fighting it, which is on one hand fine but once the debt is there, once the deficits are there, you don't have the option of like, "Well, I'm going to fight inflation now". 

No, your options are inflate it away or default, and the more you try to fight the inflation, the inflation was the only thing keeping the government solvent, it was only thing keeping tax receipts above where they needed to be to prevent really a debt death spiral in the Western world.  So, when you fight the inflation, what you're really doing is increasing the strains so that the only outcome then, the only possible way to get out of it at some point, becomes 100% inflation for two years, for three years.  It's like you're sick, you delay, you delay, you delay, you get to a certain point and it's like, okay, well if you have gangrene in your toes and you treat it early, great, but if you wait too long, at some point the only thing to do is chop off your leg, and they keep delaying because of politics.

Danny Knowles: So, I'm curious, when that happened in Israel, what happened to the markets?  I would assume that a lot of the money kind of fled the country, but if that happened in somewhere like the US, that money can't flee the country; what happens in the markets in that situation?

Luke Gromen: If you look at the Israeli stock market it was like…

Danny Knowles: Really?

Luke Gromen: It looked like the Venezuelan, Argentinian stock market, which is up in local terms.  I don't know if they had capital controls on at that time; I should be more well-versed in that.  If we look at it today through this lens, then all of a sudden when you start hearing things like Operation Choke Point 2.0, that starts to look -- to me, Operation Choke Point 2.0, there's a political angle which I'm not in favour of them doing that but I don't want to talk politics; I just put on my objective, historical hat, it starts to look like…

Look, if I was in charge of the US economic policy and they came and they said, "Luke, we're going to have to inflate 100% a year for two years.  We tried to inflate a little, inflation got to be a political problem, then we went the other way, now we're having these Treasury market problems, we're going to have to inflate it, but we can't put in capital controls but we also want to control things in a way so that we don't look too bad.  We don't want things going up that make us look bad".  So, if the stock market goes up a ton, there aren't going to be Americans going, "Oh, you guys are terrible, the stock market's up 100% a year for three years", people will love that, they won't ask a lot of questions.  If Bitcoin goes up 500% a year for three years, or if gold goes up 200% a year for three years, there starts to be more questions.

So, when I think about where they are and when I think about this framework of they need to inflate away, and by delaying the inflating away as much as they already have, they're increasing the odds they need to do a really compressed period, and then I look at Operation Choke Point 2.0 of, gosh, it sure looks like they're trying to chain the theatre doors before they lit the joint on fire, to me I think there might be some informational value about where they are starting to see the inevitability of where policy's going to have to go, which is a compressed period of high rates of inflation. 

I don't know if that's 100% or if that's 20%; again, for me, 100% a year is still a tail risk, but that tail has got meaningly fatter over the last two, three years.  For me, Choke Point 2.0 within this starts to look like a capital control of an asset class that certain elements of the government would not want going up as a result of what they're doing, or what they're going to do.

Peter McCormack: Yeah, because I've considered Operation Choke Point 2.0 more of a control but I didn't think it so much in terms of a capital control; that's fascinating.  Okay, so we've experienced quoted inflation; in the UK, it's up to about 10%, 11%, I think the US reached close to 10%, didn't it?

Danny Knowles: I think it got into double digits for a while.

Peter McCormack: Did it go into double digits?  We all know realistically, it's been higher; energy in the UK has been, well, up to 100%, 200% energy price inflation.  We've seen people have their energy prices double or triple.  So, we've seen high inflation here, we've seen it in the US, we know it is much higher, so is it what you're saying is that this 10% to 20% could continue for a few years but there's a chance they might squeeze in some high double digit, potentially triple digit; and what you're saying, could that happen in the next two, three years, or do you think it's a bit further down the line?

Luke Gromen: My base case is that they are going to try to keep it in the double-digit range without letting it get away from them, but I think that is an increasing risk.  I think it's going to be over the next two or three years really, and we may get this sort of deflationary whoosh in the very short term, I think you're seeing symptoms of it from a credits and lending standpoint.  But if you read the history books on a lot of the great inflations, they almost all -- there's a quote, I wish I know who said to me, it's not one of these famous ones that you can sort of google and find who said it, but I had it said to me a couple of times, but it's, "Deflation is the midwife of hyperinflation".  That's not to say I think we're going to hyperinflate, but these great inflations are ultimately driven by sovereign insolvency, and deflation and sovereign insolvency are fundamentally incompatible.

So, they want to get inflation down, but they're not going to be able to get it down enough.  If they get it down too far then they can't pay their interest, their entitlements and their defence bill out of tax receipts.  Then, given the choice between defaulting on Treasuries, in the case of the US, slashing defence spending in the US or slashing entitlements in the US, which right now are already at -- the three of them are like 110% of receipts and rising, then they have to print the difference. 

They can try to crowd out the banking system, they can regulate the banks into buying Treasuries, which they did, until that blows up, "Oops, that's already blown up"; they can regulate the domestic sector into doing it, but here too that simply increases the deflation because I can buy a car or I can buy a Treasury bond portfolio, I can't buy both.  And so, if buy those from the government, I start detracting from consumption; I detract from consumption, I detract from tax receipts; that means the amount the government needs to either borrow from me or print over rises not falls. 

So they're into this loop, and in this conversation of inflation/deflation, inflation's been the only thing keeping receipts high enough so that they don't have to print.  Now, with inflation coming down, you can see it in the numbers and the receipts, the receipts are falling below these things, these uncuttable things, and that's why I say deflation is the midwife of, I won't say hyper, but high rates of inflation.  Now they face a choice, you want to call up Zelenskyy and say, "Hey, sorry, our tax receipts stink, we're pulling out.  Have fun with the Russians", and, "By the way, Taiwan, we're going to pull back there too because we can't afford it", or is the Fed going to print the money?  It's going to print the money, ultimately. 

Right now, we're in this sort of stage of, the American people and the American banks, well, we're starting to realise the American banks aren't going to finance the government anymore; that was sort of 2013 to about two months ago.  The folly of that is suddenly beginning to be realised that that was not a permanent solution.  So, now it is American people or the Fed financing US deficits.  So, this deflationary impulse just accelerates this whole gig.

Peter McCormack: So, do you think they're going to end the hikes and do you think we're going back into QE then?

Luke Gromen: Yes, I think ultimately the US fiscal situation is going to force them to end hikes first, and in some way, shape or form you can already see the BTFP programme; that is essentially a yield curve control light for banks.  So, the banks had these Treasuries, they were trading at 70, 80 cents on the dollar, and the Fed came in and said, "No, that's not the price, the price is par and we'll lend you the money at 5% and we'll value that collateral at par"; that is essentially bringing down the effective yield on those bonds, that's a yield curve control soft for the banks. 

The US Treasury has quietly been spending a lot of time looking at a Treasury buyback programme, and so it was really interesting.  I pay very close attention to every quarterly release of the Treasury Borrowing Advisory Committee report, so there's a TBAC, Treasury Borrowing Advisory Committee report.  A group of market participants meets quarterly and they make recommendations about all kinds of things to Treasury, issuance, long-dated, short-dated expenditures, what the market's thinking, etc; it's a very useful document, gives you tax receipts, it gives you what they're spending, how auctions have gone, etc.

So, the calendar 1Q TBAC report, kind of standard thing, and there was nothing at the back, but recently, there was an update someone pointed out to me, I didn't see on 31 January because it wasn't there; they amended it after the fact.  There's a 38-page addendum that they amended after the fact of the 1Q TBAC looking at, what did they call it, it was a clear and regular Treasury buyback programme benefits or something like that.  It basically hereto is, "We're not doing this fund the Treasury, we're doing this to maintain high-functioning Treasury markets, and what we'll do is we'll issue new Treasuries that are more liquid and we'll buy back off the run Treasuries a little more illiquid and that'll bring the yield down a little bit"; that's the dog whistle, they can say whatever they want to say, it's a soft form of yield curve control, it is a soft form of QE.

Basically, there's plenty of demand for the very front-end stuff because that stuff's being used as collateral by the markets which, as you add leverage to markets there's more demand for collateral, etc, so they've got no problem with that.  Where they have a problem is sort of everything beyond seven years, which is where they should have been terming it out a couple of years ago but that's because they probably couldn't, there wasn't the demand and the size they needed.

My point in highlighting the BTFP and the Treasury buyback is I think they know they have a problem; they're not spending 38 pages and sticking it in after the fact for shits and giggles, this is not some academic exercise, these are not academics, these are people at BlackRock and Goldman and these are market participants, and so they know they have a financing problem.  This is a balance of payments problem in the United States and the reserve currency issue of the world, and they're trying to address this while not going straight to QE.  It's the old, what I've called, trying to ride two horses with one ass, which is they want to maintain their creditability as inflation fighters but they also need to finance the government, and those two things with debt and deficits levels here are fundamentally incompatible.  The only thing keeping the government financed is the inflation they claim they need to fight.

I do think they will stop raising rates, maybe they do one more and then stop regardless of where inflation is, and then I don't know that they go straight to QE, but I do think we will get increasing liquidity injections in the manner we've seen, which is, "It's not QE, it's BTFP; it's not QE, they're regular Treasury buybacks, they'll smooth the functioning of the Treasury market", or something like that.  They're liquidity injections, right.  I'm reminded of the movie, The Fugitive, where Harrison Ford's like, "I didn't kill my wife", and Tommy Lee Jones says, "I don't care".  I see all these economists saying, "This isn't QE", and I say, "I don't care".  It's inflationary, they're injecting liquidity, trying to preserve the functioning of the Treasury market.

Peter McCormack: So, just thinking back to what happened with Israel, because we often think of high inflation as being catastrophic to people living there.  I've spoken to people who live in Lebanon, I've been to Venezuela, I've seen the impact on people; it's catastrophic.  But as you've said, with Israel, it's a great country to visit, it's a got a successful economy, it seems a fairly wealthy nation, is there a way of running high inflation but consumer prices and wages are able to keep up with inflation, and therefore most people, outside of people who hold large savings, most people are able to kind of ride through it and it really is just the bondholders that get screwed; or did anyone else get screwed in Israel?  It doesn't seem to have been as catastrophic for Israel as I've heard it is in other countries, say for example, Argentina; their inflation levels have been catastrophic to people.

Luke Gromen: It was sort of the denouement, and again I'm not as well-versed in it as I should be.  There was a long period of time leading up to this compressed period of very high rates of inflation, where very consistently you had deficit spending, you had unions with a lot of power, public unions with a lot of power so that you had sort of this inflation wage spiral dynamic.  And I think this was finally just sort of the ultimate denouement to that sort of span of 20 years, not that different than what we went through in the US, just less extreme, where we sort of went through the 1960s, 1970s and there was sort of the spasm of last little inflation finally Volcker was like, "Enough, I'm taking it to 15% and we're going to stomp it out", and that's what they did there too. 

In terms of the social impacts, I would have to say it would probably be much more akin to the Argentinian and Venezuelan experience in America and in a lot of Europe than in Israel.  Israel's a smaller economy, it is more monocultural than the United States or than the UK or than Western Europe.  I think there is a greater sense of togetherness; everyone has to serve in the military in Israel, so there is a sense of togetherness and commitment there, in a smaller country that is more monocultural than I think we would see in Western Europe and in the US.  So, I'm not sure we could do it without some fallout politically from a domestic standpoint like you get the sense happened there.

Peter McCormack: Yeah, so it's a really interesting time because what it is is, based on the things you're saying, I'm able to start connecting some dots here.  Anecdotally, I just bought a bar and I've gone in and given all the staff a 20% pay rise; I think they're underpaid and I'm able to do that, and I'm also able then to raise the price of the drinks which pays for it and also raise the price of the drinks to cover our new energy costs.  So, we're able to swallow our increase in prices and we're also able to cover that by raising our prices, and it all just kind of works out.  But I also know that it becomes a lot more difficult, say for the government, when they're getting wage demands from certain unions.

So, we're seeing a lot of strikes now from the ambulance workers, we're seeing it with UK doctors, we're seeing it with people who work on the trains, and these are brutal negotiations with massive strikes, so the kind of strikes we've not seen before.  UK junior doctors at the moment have demanded a 30% increase in their wages; that's a massive increase.  But in fairness to them, they've probably experienced close to that level of inflation over the last two years, and I don't know where their increase will come out.  I think the nurses just got, was it about 11% and they got some backdated pay, but we're starting to see massive pay rises from people who work within the government sector.  We're also seeing a massive increase in prices.  So, that why I was kind of asking the question because we're starting to see that.

Now, it will never be an even pattern, Luke, through everything; certain companies can raise their prices, certain companies can't, certain people can have an increase in their pay, but I wonder how it nets out.  My suspicion is that it will all eventually net out but those who hold assets will benefit more and we will see an increase in the wealth divide, and that will put a lot of pressure on families, but that will also put a lot of pressure on government to support those at the lower end, which probably means more printing.

Luke Gromen: There are two things I would say; so here, most of our mortgages are fixed rate, so it's an interesting dynamic of a debt jubilee.  So, if doctors go up 15% here, get a 15% wage hike, their mortgage doesn't move, so they're still paying 3% mortgages, so they've literally just gotten a huge debt jubilee on their biggest expense throughout most of this country, and they're 30-year fixed in America, most mortgages are 30-year fixed.  My understanding is that it's not the case in the UK where there are five-year fixed and then things could reset.

Peter McCormack: Even lower, Luke; I'm on a two-year fixed.

Luke Gromen: On a two-year?  Yeah, so that makes it trickier, and that ties into the second point which is we frequently hear this case, "Well, America can't have an inflation spiral or a period of really high inflation because it owes its debt in its own currency, and it can always print that".  And for the debt portion, that's absolutely true, but social security, we're paying a 10% cost-of-living adjustment, I want to say it's 9.7% for 2022; that has a cost-of-living side to it but even then we can understate that.

The Medicare and Medicaid side of the US entitlements, those are not owed in dollars, those are owed in healthcare goods and services; that is no different than a foreign currency effectively.  So, the US Government does not owe -- so between social security and Medicare, all entitlements, social security, Medicare, Medicaid, some of the other stuff, this year it will be $3 trillion or about 65% of tax receipts.

Peter McCormack: Wow!

Luke Gromen: So, yeah, a huge number, and the healthcare side of it is not owed in dollars, it's owed in doctors' time.  And to your point, you start getting doctors' time, the dollar's collapsing against doctors' time, the dollar is falling sharply against hips and knees and medical centres, etc, in the West.  So that's where, when I say whatever these 100% odds were, these odds of really high inflation for a compressed period of time, whatever they were 2 years ago, they've gone up.

There was a very far-out tail risk, that tail risk is getting fatter because you can see clearly how this could happen where you get another 8% cost of living increase, boom, and oh, by the way, the government's interest expense is going up because the Fed, paradoxically, by raising rates, is actually -- there's no functional difference between the US Government printing up $500 billion in stimulus and handing it out to the people and the Fed raising the US Government's interest expense by $500 billion and paying that out.  The only difference is who it goes to; the $500 billion stimi to everybody, the $500 billion interest goes to the wealthy.

So, it's very nonprogressive, it increases the wealth divide, but you can see how this can happen.  It is very much, and I say this with a big asterisk because this is not my base case, but people say, "Well, yeah, the Weimar Republic in Germany hyperinflated because they had these war reparations".  And the war reparations were not in Reichsmarks, they were tied to gold.  And so the more Reichsmarks they printed, the more the Reichsmark fell against gold, the more they went up, and wash, rinse, repeat until it became obvious they could never pay it.

We're in sort of that same position where we don't owe dollars, we owe healthcare goods and services, and the  more inflation goes up to address the debt, the part that we will print because we want to avoid defaulting on it, that leads to higher inflation.  But that then leads to higher cost-of-living adjustments and these things that are not denominated in dollars; they're either cost-of-living adjusted, or they're denominated in healthcare goods and services, and that gets into this very, for lack of a better word, dangerous dynamic.  In this case, the doctors have a lot of leverage, doctors just say, "Fine, screw it, I'll go work at Peter's bar". 

Here in the US, after the last 30 years, what's happened to healthcare, we've got plumbers making $350,000 and I have a friend of mine who's an oncologist and haematologist with 25 years of experience and he's probably not making that much money.  That's not to say I devalue plumbers relative to oncologists and haematologists, all I'm saying is that there's a lot of runway, there's been a misallocation of capital for so long and to different trades, labour markets, etc, across the government spending, now you're sort of stuck; you need to reallocate stuff and there are no easy answers.

Peter McCormack: God, so I'm now starting to think any cash I'm holding in savings in the bank, I need to find another use for that money because that's going to inflate away.  But I think having a house, or maybe if I could afford a second house, that might be a good thing because with inflation, the value of the house will rise.  But then I'm also like, what happened with interest rates in Israel during that period; do we know?

Luke Gromen: I don't know.  I'm assuming they were capped in some way, shape or form, but I don't know.

Peter McCormack: Yeah, because otherwise people wouldn't be able to pay their mortgages.  I'm partially protected against inflation I consider, because I have a significant holding of Bitcoin, but I'm not protected against inflation with savings.  I'm asking this about me, but I'm really saying, Luke, with your experience as somebody who understands markets, what you do for work, how are you preparing yourself for a potential world of high double-digit inflation for a couple of years; how are you protecting what you have?

Luke Gromen: So, when I first started thinking about some of these types of issues, gosh, probably a decade or so ago with the first rounds of QE, etc, you go right to the most famous example of Weimar, Germany, currency goes to zero, and you start reading about it, and you quickly realise it's not exactly the same.  There are political differences and there's the diversity of the economy; America, in particular, can produce pretty much everything we need at the right price.  So, oil prices in America went up 10X from 2000 to 2008, and voila, we're the biggest oil producer in the world a few years later; the dollar collapsed against oil and then we produced a lot more oil.  If the dollar collapses against something in America, we're probably going to produce a lot more of it by virtue of our diversified economy, our landmass, natural resource and diamonds, etc. 

So, that's something in the UK to think about is, okay, you don't have the landmass, you don't have the natural endowments, there is more of a risk of where the inflation won't spur production, it will simply spur an inflation spiral, and there are a lot of other countries that you'd expect that to happen versus in the UK before, but it's really a statement of diversified economy versus non-diversified.

The other sort of thing that I've learned more recently as it relates to this, and particularly in the context of bursting global sovereign debt bubble and then the overlay of this peak cheap energy dynamic, is you frequently see these great inflations, and again I'm going use the Weimar, Germany one because it's well-known and it's so extreme and it wasn't a developed economy, and you see the turn.  It's like, okay, in 1918, the Reichsmark was at 100 Reichsmarks per ounce of gold, and by 1923 it was at 1 trillion Reichsmark; the currency just went away.  You say, "Oh, well that's easy.  I want to borrow a bunch of money and I want to buy a bunch of gold, and then in 1923, I want to make sure that when a city block in Berlin is going for one ounce of gold, I pay off my debt and then I start swapping gold for city blocks in Berlin and voila, I win".  The reality is not that easy; what really happens is face-peeling volatility.

So, these this great chart I've shown in our research before, it's been on Twitter before, it's by Dan Oliver at Myrmikan Capital, and it shows that classic, "Hey, here's gold in German Reichsmarks", and it's this beautiful hyperbolic asymptotic line to 1 trillion Reichsmarks in five years.  And then he overlays the month-over-month price of gold in German Reichsmarks from 1918, 1923; that is an absolute bloodbath where literally it's up 50, down 50, up 50.  And if you borrowed a bunch of money and bought gold hoping the gold was going to get rid of your debt, the reality was you lost all of your money probably four or five times, you got margin-called out, gone, all your capital's gone before you got to that endgame payoff; why did that happen?

When you read the history books of it, it's such a political process of, "Okay, they owe this money.  Okay, there's a negotiation, the allies are going to write it down.  Oh yeah, buy the Reichsmark, okay", or, "The Reichsbank is going to raise rates and defend the Reichsmark".  "Okay, I want to sell gold and buy Reichsmarks".  So, I bring this up by way of saying I think it's really important that this volatility we've been seeing in things we're not used to seeing it in in the developed markets; FX, rates.  I mean, last summer, we saw the British pound trade like a Latin American currency, we saw the euro do the same, we saw the yen do the same, and then it was the dollar's turn in the fourth quarter, falling 11% in the quarter.  We're going to see this type of FX volatility; we obviously saw it in Bitcoin and that type of volatility.  And then in rates as well, I think you're going to see that.

So, the point here is that I think it's critical to understand it's going to be face-peeling volatility and so you need to be diversified, understanding that there is a path, and the path doesn't look like this, the path looks like this, to these high rates of inflation.  And number two, you want to be under-levered because you don't want to be wrong for the right reason, you don't want to get carried out on your shield because you borrowed too much money; pigs get fat, hogs get slaughtered is something my dad always tells me. 

Peter McCormack: Yeah.

Luke Gromen: So for me, the way I'm playing it, we came to the year and told clients we have 25% to 30% of our net liquid worth, my liquid net worth, in US dollar cash and short-term Treasury bonds.  I had probably I think I've said 30% to 45% in a combination of gold, Bitcoin and some gold miners.  We own industrial equities, we own some energy-related commodities, but we own some real estate.  Again, here in the US, it's residential; I bought a vacation place after I paid off my house, and that is a low-levered -- basically, thanks to what the Fed did with mortgages, I've got a 2.9% mortgage on it, I can make 5% right now in money market funds, so I'm a bank, I'm making positive carry on a second home.

So, conservative leverage, diversified cash, Bitcoin/gold, neutral reserve asset, energy, industrial equities, and when you have a peak cheap economy dynamic, you're going to move away from discretionaries towards needed things, so it's in the companies you own, it's going to be things you need over things that are discretionary, and then good balance sheets over bad balance sheets I think is the way to get through this.  And to be clear, when the liquidity's there, good balance sheets are going to underperform bad balance sheets, and vice versa, but what you're trying to do is avoid getting carried out.  The bad balance sheets might not survive; we've now seen that, like SVB and Signature Bank, they got carried out like, "Sorry, you got zeroed out, have a good day".

Peter McCormack: Danny, who was the guy we had in that came in from San Diego into New York?

Danny Knowles: Talking about what?

Peter McCormack: So he said, I think it's a bit similar to you, but I think his was like a third cash, a third equities and a third, what was it, was it even property?

Danny Knowles: Possibly; I don't know who you're talking about.

Peter McCormack: Yeah, he said the same, I can't remember who it was, but remember the New York run we did?

Danny Knowles: Yeah.

Peter McCormack: Not that last one, the previous one?  I can't even remember if you were --

Danny Knowles: Not Peter Doyle?

Peter McCormack: No, not Peter Doyle.  I can't remember his name, you might find him, but yeah, he said the best way is not to try and trade through these times, it's just to have a diversified portfolio and just make sure that if a market moves in one way, you've got a bit of that; if cash increases, you've got a bit of that.  It's not something I've done; look, Luke, I'm balls deep in Bitcoin, fingers crossed, but it is something I'm starting to think a lot more now, just starting to protect myself into far riskier times.  So, it's definitely something I'm going to need to think about, but I'll probably have a bit of US dollar cash, a bit of British pound thrown in there, a bit of Bitcoin.  I think it's time to get some gold, Danny.

Danny Knowles: Yeah.

Peter McCormack: I've never bought equities in my life and it's possibly a time to get some equities.

Luke Gromen: Yeah.  One of the wealthiest men in history, by percent of the economy at the time, was a man named Jakob Fugger; I think he was Dutch.  Anyway, the point is that he had an allocation where it was 25% cash, 25% gold, 25% stocks, 25% real estate and then just reallocate, and through tumultuous times, you sort of recover, everything is covered.

No one alive has ever seen what we're going through, the combination of what we're going through plus the scale of what we're going through.  Energy availability has historically, for the last 150 years, been a story of more at a cheaper price, and now we're getting more at a more expensive price, and that changes everything, that is nature's discount rate effectively, so that's your true cost of capital.  They can tell you rates are what they are, but the real cost of capital's what your energy costs, and you're seeing that there in the UK where, if your energy bill doubles, that changes behaviours, that discounts other economic activities in a way that have nothing to do with the Bank of England.

So, I think it's really important to have that balance and just balance some leverage but not a lot, and fixed rate because it can act as an inflation hedge, particularly in areas like here.  To me, terming out a mortgage 30 years at 2.9%, that's a layup, especially if they're going to pay me 5% on my cash now; it's great for me, and it wasn't great for Silicon Valley Bank or Signature Bank, but it's great for me.

Peter McCormack: It was Cullen Roche.

Danny Knowles: Okay.

Peter McCormack: I think it was exactly what you just said there, 25% real estate, 25% cash, 25% equities and what was the last one, commodities?

Luke Gromen: I said 25% gold, and when I say gold, I would --

Peter McCormack: Bitcoin?

Luke Gromen: -- personal preference gold, Bitcoin, but yeah, it's some sort of blend in there.

Peter McCormack: Well, I'm not going to reallocate while Bitcoin's on the rise right now, but maybe I'll call the top like you did and sell a bit off.  Okay, so thinking about this, this situation that potentially becomes catastrophic, I know you follow geopolitics, is this related to the kind of de-dollarisation, this move away from the dollar as the global reserve currency that we're seeing from the likes of China and Russia?  I know there's some Ukraine war stuff that can probably be thrown into that as well anyway, but is this just basically smarter people in the room who need to understand this at the sovereign level within these nations who've realised what's happening, and that's why they're exiting the dollar?

Luke Gromen: Yeah, the de-dollarisation of commodities is largely defensive in nature, it is an existential threat to them to get away from the dollar monopoly in commodities, and the reason we say that can be laid out most easily -- Kyle Bass gave an interview, I don't know, about four years ago in which he said, "Listen, the Chinese, they're buying more and more oil, they're importing more and more oil, they're consuming more and more oil every year, and that oil's only priced in dollars.  So, as oil gets more expensive and they consume more of it, they're going to need to have more dollars every year just to keep their economy going or else all the debt they have, their economy will implode, the debt will implode, you'll have a huge crisis".

Kyle went on to say, "But they only have a finite number of dollar reserves.  And so, as oil rises and the consumption rises, at some point they're going to run out of dollar reserves and then they're going to have a 1997 South East Asia crisis where they run out of reserves to buy oil and either they have to shrink their economy and they have an economic crisis or they devalue the yuan, or whatever, then you have inflation, and it's crisis". 

So ultimately, for China in particular on one side of it and some others, it is a matter of national security for them to gain the ability to import their energy, at least partially, in their own currency and they have done that; they've done that with Russia, they've done it with Venezuela, they've done it with a number of other nations.  This was back in 2018 data, and that's the IIF's data.  If China had bought all of their commodities in yuan in 2018, their trade surplus in dollars would have risen by $800 billion, so $800 billion they wouldn't have had to put out in commodities because they were printing up yuan. 

Now, there's a recycling issue, we've highlighted it a number of times that we think they're recycling it into goods and gold, but the point here is that that $800 billion is probably $1 trillion or $1.5 trillion now given more volumes they're importing in commodities and higher prices.  So, China cannot have the dollar crisis that a lot of yuan bearers are saying if they just moving some of their oil, their commodity import bill into yuan.  If it's $1 trillion, $1.5 trillion in aggregate, every 10% that they shift their commodity bill out of dollars into yuan increases their annual dollar liquidity every year permanently by $100 billion to $150 billion; they're not going to run out of dollars.  So, if they're not going to run out of dollars, that means they're not going to have those crises, and the flipside of that means they don't need to buy as many Treasuries, it means the intensity of their FX reserves for dollars goes down.

So, in 2013, China's FX reserves as a percent of China's GDP was 46%.  By 2018, that number was 26%.  That number's now 18%, and it's going lower because again, they can buy marginal tonnage of commodities in yuan, not dollars.  That turns around and puts pressure on the US in terms of just the Treasury market of foreigners don't need to buy as much.  On the flipside of that same coin, Russia, Putin said this in June of last year in his speech that was of course ignored across most of the US, he highlighted that the US, the real rate on Treasury debt is -8%, and where did he get that number?  If you look back from 2008 to present, US Treasury issuance has rose by 8% per year, has risen 8% CAGR; the yield on the ten-year Treasury's barely ever been above 3%.

So, basically, I would love that deal, like if you guys want to give me that deal let me know.  I will issue you 8% more IOUs every year and I'll pay you 3% and I'll use part of the 8% more that I borrow every single year from you to pay you back yours; it's a Ponzi scheme.  And he has finite oil production, we don't know what the number is but it's finite; we heard that when people said, "Well, if he doesn't reinvest, oil production's going to fall".  Exactly, he has finite oil production at some level.  He cannot afford to stockpile his wealth in a reserve asset like Treasuries, where the supply rise is 8% and the coupon's 3%; he would have to be an idiot, and he's a lot of things but an idiot isn't one of them. 

So, he started buying gold as his primary reserve asset 10 years ago, 15 years ago.  Some of that was in response post-2013 in response to the original sanctions, etc, but the point stands, which is this de-dollarisation dynamic from both sides of this coin are really the sovereign version of what we led off talking about, which is peak cheap energy and global sovereign debt crisis.  They are addressing this by shifting to multicurrency energy pricing settling in goods and then settling net deficits and physical gold whose price floats in all currencies.

Now, could Bitcoin be that reserve asset at some point down the road?  Yes, it could.  Is it there yet?  In my opinion, no, because you've got this status quo system, and if there's going to be a transition in the system, it's probably going to go through gold first, which requires a number higher price of gold; that's a separate discussion.  But yeah, this whole de-dollarisation thing is ultimately all about sovereigns making a decision in their own enlightened self-interest, and it's basically a matter of acute national security that they get away from pricing their commodities, because otherwise their commodity bills go up 100%, 200% and they have the same problem except, in those places, the political outcomes are more extreme, shall we say.

Peter McCormack: So, obviously this movement away from the dollar being a global reserve currency is going to exacerbate issues for the US for their own currency, but is there an argument this is net good for the world because it takes the pressure off other nations with the rising value of the dollar, it makes all imports a lot more expensive, especially for smaller countries?  We've made shows discussing this.  When the US, for example, during COVID printed stimulus cheques, none of those reached people in El Salvador who are a dollarised nation, but you don't even have to be a dollarised nation; with everything priced in dollars, it makes it difficult for other countries.  So, can you make an argument that a de-dollarisation, yes, bad for the US, but good for the world?

Luke Gromen: I would even go one further.

Peter McCormack: Okay.

Luke Gromen: It's good for the world, when we talk about all the debt is owed in dollars, if you want to stimulate growth, the easiest way to do it is reduce the debt burden, give the world a debt break.  How do you give the world a debt break?  You reduce the value of the dollar, so the dollar falls, the debt burden of the world falls.  I would go one further and say it's good for the US, it's just not good for the part of the US that has won the last 20 years, the last 30 years.  Who's won the last 20, 30 years in the US?  It hasn't been the US; it's been China, it's been Wall Street and it's been Washington DC, certain interests in Washington DC.  Those have been the winners in the US, everyone else has lost on a net basis.  It's Washington's world, and seven of the ten wealthiest counties in America are around Washington DC.  What does Washington DC export to make all that money?  Simple, Treasuries, they export dollars; they don't make anything.

So, if you look at the winners in the US over the last 20, 25 years in particular, you can make the case even stretch out the last 35, 40 years, the weaker dollar and the loss of Treasuries, I think the dollar's going to stay the reserve currency, but I think we are 10 years into the Treasury bond losing its status as the primary reserve asset to gold de facto; we can see it in the data.  Central banks have bought $300 billion in gold, they've sold $400 billion in Treasuries in the last 8 years.  That switch is already well underway; it accelerated meaningfully last year. 

That is a world where, if gold at a floating rate is the neutral reserve asset again, then suddenly currencies will trade on a balance of payments basis around gold.  Basically, if you are net settling in gold, then you're going to run deficits like the US, and the US and UK run the biggest deficits, the US first, the UK second; your currencies are going to fall sharply against gold.  At the same time, China, who has been sort of manipulating this dollar system in a mercantile way, they're running this big surplus, their currency's going to strengthen meaningfully through the gold link.  So, the price of gold will fall in China because gold's going to flow in that direction. 

Gold falls in China, the yuan rises against the dollar, China suddenly has to consume more their own production.  They've been talking about becoming more consumption-orientated forever, well, to become more consumption-orientated, you have to be able to print your currency for energy, check, and then you just need your currency to strengthen relative to your imports, check.  Same side here is, if we need a rebalancing in America, what does it take?  Set up a neutral reserve asset, the dollar needs to fall dramatically, that's going to increase inflation in the US dramatically but it's going to increase production at the expense of consumption and it's going to rebalance the economy away from Washington and Wall Street towards more productive enterprises.  And at the same time, that falling dollar, remember, like we just said, reduces the debt burden globally, so there's going to be more global demand as the global debt dollar debt burden falls. 

So literally, the falling dollar is great for everybody except for certain Washington interests, certain Wall Street interests and certain Chinese interests.  So, I think we're moving in that direction because people say, "Well, we couldn't afford the wars, we couldn't afford the military", well, yeah, not at $850 billion a year, but if you talk to most US military officers on down, for 10 years they've been telling you this is unsustainable, we need to get out of this, we need to reinvest into more productive enterprises, such as infrastructure, education, etc.

So, I would argue a much weaker dollar, and the process that is already under way, or a much weaker dollar by moving from Treasuries being our primary reserve asset to gold at a floating rate and all currencies being our reserve asset, it's really good for the USA, it's just not really good for the USA that are whispering into the anchors, years at CNN and MNSBC and Fox and what have you. 

Yeah, it's a monumental time and there are a lot of different ways this can play out.  This can end really, really happily; this can end really, really painfully; and it can end sort of a whole range of outcomes in between those two extremes, which unfortunately both have fat tails based on debt, geopolitics, etc.  So, no, I feel like we've had a pretty wide-ranging conversation to highlight that.

Peter McCormack: Yeah, it's absolutely fascinating, Luke; I'm really, really glad we did this, so good man, Danny.  I still want to interview you one day in person; we will find a time somehow, we'll come to you.

Luke Gromen: Yeah, once my last kid's out of school.  I used to get over to the UK twice a year, pre-COVID, and my wife and I do absolutely love London and outside of London, and we've never made it up north so we want to get over there and spend some time, so we will be over there at some point.

Peter McCormack: We're only 40 minutes north of London, so it's not too far.

Luke Gromen: Oh, beautiful.

Peter McCormack: And we've got a football team you can come and watch over here.

Luke Gromen: We would love that; they do serve pints there, right, in the stadium?

Peter McCormack: Of course.  The stadium is a stretch, I mean we're a non-league team.  We won the league yesterday so we sold a lot of beer.

Luke Gromen: Congratulations, that's terrific.

Peter McCormack: Yeah, so we sold a lot of beer; me and Danny, our heads were a bit sore this morning.

Danny Knowles: Most of the day was sore to me!

Peter McCormack: Yeah.  All right, Luke, where do you want to send people; where can we help you?

Luke Gromen: You can find us at fftt-llc.com, our website on information about mass market and institutional product offerings, and people can always find me on Twitter, I'm @LukeGromen, pretty active feed, as you guys both know.

Peter McCormack: Yeah, a definite follow.  Really appreciate your time, thank you so much, Luke.

Luke Gromen: Well, thanks for having me on again; I really enjoyed our conversation.