MacroVoices #542 Luke Gromen: As The Conflict Turns

Overview

MacroVoices #542 discusses how the Iran conflict—and broader geopolitical re-escalation—is reshaping energy dynamics, inflation expectations, bond markets, and gold. The episode also argues that China has greater leverage, potentially steering outcomes toward a long-term restructuring of the monetary system.

Main arguments / analyses

1) Iran / Strait of Hormuz: long duration happened, but markets didn’t react as expected

• The host and guest (Luke Groman) revisit a prior bearish/expectations call:
  • They believed the conflict would last much longer than consensus.
  • They expected the Strait of Hormuz to remain closed through roughly May/June, potentially into early July.
• Their timing call is framed as correct in hindsight (Hormuz closure recurred again as of late July).
• Their price/market reaction call is described as wrong:
  • Despite prolonged closure, equity indices didn’t fall as sharply as expected.
  • Inflation and oil didn’t behave in a simple, direct way.
• The key miss: China’s response to oil supply risk.

2) China’s energy strategy reduced the damage—and surprised the market

Groman argues China materially shifted demand:

• EV demand substitution and reduced oil demand helped prevent an extreme oil price dislocation.
• China absorbed the shock better than expected:
  • exports rose strongly
  • corporate profits improved

He frames this as both:

• Pragmatic risk management
  • using reserves
  • rerouting demand away from oil
• Geopolitical leverage
  • by cutting oil dependence, China gains optionality against U.S. “oil policy” and wider foreign-policy pressure.

3) Bond markets as the “real battleground”: possible move toward financial repression

A core theme is that sustained war/inflation pressure threatens global bond markets.

• Groman claims most non-China bond markets are “straining on the upside” (rates rising under pressure), while China’s are not.
• He argues China’s long-term objective (≈ 15–20 years) is to change the global currency system, including:
  • moving toward settlement using gold as a neutral asset
  • internationalizing the yuan
  • expanding yuan oil/gas trade and gold settlement mechanics

Mechanism he suggests China could use:

• keep oil prices low enough to avoid a catastrophic crisis
• but keep inflation and disruptions high enough to stress Western bond markets

Outcome he contends is possible:

• Western authorities could be pushed toward yield curve control and/or explicit or implicit financial repression.

4) “The longer the U.S. stays at war, the better it is for China”

Groman argues that historically, protracted conflict has tended to benefit China relative to the West. He suggests China may prefer the conflict to continue because it:

• damages the U.S. industrial base, bond conditions, and inflation outlook
• sustains global disruption markets interpret as persistent inflationary impulse
• reduces U.S. relative competitiveness over time

5) Energy-price range uncertainty: $150 vs $200 vs “gold-only” as the hedge

On oil’s next direction, multiple outcomes are possible:

• China could tighten/loosen the shock via SPR usage and demand management.

Because oil is difficult to time precisely, the guest argues for a hedge approach:

• own gold
  • gold relative to oil should improve as the war persists and alternative settlement arrangements grow

Gold responsiveness signals mentioned:

• in renewed escalation episodes, gold has sometimes risen alongside rates and oil, which he suggests is behaving differently from prior war regimes.

6) Supply-chain / industrial-capex trades: power infrastructure and Japan

Beyond gold and macro hedging, Groman highlights real-economy bottlenecks:

• The U.S. is short on electrical generation capacity after decades of underinvestment.
• Result: long lead times and strong demand for grid/electrical buildout.

He favors:

• U.S. electrical infrastructure equities / related ETFs (including PAVE; a “grid ETF” is referenced)
• Japanese industrial equities, framed as important for resupply/reshoring given U.S. manufacturing lag

7) Semiconductors / AI: “Chinese are getting better and cheaper,” affecting equity multiples

Discussion shifts to semiconductors:

• Near-term: U.S. AI/semis could be dragged down if AI expectations soften.
• Longer-term: competition could force repricing, and China may catch up with differentiated AI supply—potentially benefiting the sector.

Positioning on export restrictions:

• restrictions historically didn’t stop Chinese progress; China tends to innovate around constraints.

Evidence cited:

• a reported large Chinese data center using Chinese semiconductors (no Nvidia), as proof of growing substitution capacity.

MacroVoices Trading Desk segment (key actionable points)

Trade of the week: tactical gold long with an option “risk corridor”

Strategy

• Buy GLD around $376
• Use a corridor hedge with:
  • downside protection beginning around $370
  • effective down to approximately $350
  • upside capped around $415

Rationale

• gold has already corrected heavily (~30% from peak)
• positioning suggests room for upside
• the hedge is meant to protect against a fragile bottoming process

Market conditions to watch

Equities

• MAG 7 earnings and semiconductor momentum are highlighted as central.
• Market vulnerability is noted if the S&P 500 drops meaningfully (levels cited around 7,400, with potential 7,000 downside).

FX

• The dollar is potentially forming a bullish breakout; euro weakness is emphasized.
• USD/JPY strength and extreme short positioning in major pairs are mentioned.
• Canadian dollar shorts are described as extreme (about 48% of open interest).

Crude

• A sharp rebound after a prior sell-off (“June massacre”).
• Short-squeeze dynamics once price reclaimed key moving averages.
• Volatility not spiking as dramatically as earlier in the cycle:
  • suggests options can be structured effectively
  • but oil “fair value” remains uncertain.

Gold technicals

• Gold rally attempts are characterized as historically failing/reversing.
• Bottoming formations are described as not confirmed yet.

Copper positioning lesson

• Crowded positioning can “resolve” via time (digesting), not just an immediate price break.
• Fundamentals (Chinese inventories falling, premiums rising) can keep a crowded market from collapsing.
• Desk framing: positioning indicates who’s “in the boat,” while price and fundamentals determine whether the boat is in trouble.

Presenters / contributors

• Eric Townsend (host)
• Patrick Szna (host)
• Luke Groman (Forest for the Trees founder; guest interview)
• Miss Begnan (MacroVoices Trading Desk contributor / co-presenter)