MacroVoices #556 Luke Gromen: US Midterms & Beyond

Capital One Financial

Across the shows: 3 speakers in other episodes, 2 bullish and 0 bearish calls, past 30 days

• Patrick Ceresna · Big Picture TradingBearish

  Capital One is a short on consumer-credit deterioration from AI-driven job losses, with technical weakness confirming it.

  Ceresna argues that if AI displaces workers and cuts their earning power, consumers will struggle to service debt, so productivity gains for businesses could bring deteriorating credit quality at consumer lenders. Capital One, with heavy exposure to credit cards and auto loans, is a candidate to express that view. The technical picture reinforces it: the stock peaked in January, has spent most of the year under pressure, and is pivoting at its 50-day moving average. A failure there would confirm the bear structure. He recommends a January 2027 $200/$175 bear put spread at about $5.96 net debit, with roughly 3:1 reward to risk, and notes implied volatility is near the bottom of its one-year range, which makes owning the $200 put outright reasonable too.

  “We're expressing a specific vulnerability in consumer credit through a stock already showing technical weakness with a defined capital commitment and more than $3 of profit potential for every $1 risked.”at 42:37

Alphabet

Across the shows: 33 speakers in other episodes, 24 bullish and 13 bearish calls, past 30 days

• Patrick Ceresna · Big Picture TradingBearish

  Alphabet's post-earnings gap down confirms a downtrend; it will struggle to recover soon as AI spending outruns cash flow.

  Alphabet fell sharply after earnings while Microsoft rose. Ceresna points to free cash flow as the split: Microsoft's quarterly FCF is about $18bn, while Alphabet's is about minus $9bn. He sees a growing distinction between companies funding the AI build-out and companies delivering returns on it, and the market is now scrutinising AI spending cash flow. The gap down has solidified a clear downtrend, so he thinks Alphabet will find it hard to recover immediately. He treats it as a weak link in the Mag Seven group that is holding up the index.

  “At the same time, Google with this gap down has really solidified a very clear downtrend, and it will be pretty hard for it to recover immediately.”at 43:47

Agriculture & food commodities

• Luke Gromen · Forest for the Trees (FFTT)

  Fertilizer unaffordability will hit food inflation next year; row crop prices may dip at first.

  Gromen hears that in some emerging markets fertilizer is too expensive to order, so demand for it is falling because the marginal farmer, especially in lower-income countries, cannot afford it. That means fertilizer is not bought or applied. The food-inflation problem therefore does not show up this year. It should appear in lower crop yields next year if fertilizer is not applied. Because of the lower demand, row crop prices might be somewhat bearish at first, even though the longer-run effect is very bullish for prices.

  “the first stage of a real problem that will show up in food inflation around the world, it's not gonna show up this year. It's gonna show up in theory in lower yields next year if fertilizer isn't bought and applied”at 3:09

• Patrick Ceresna · Big Picture Trading

  The higher USDA corn crop forecast undermines the scarcity story, and speculators are being shaken out of the trade.

  The USDA raised its corn production forecast to 234 million bushels on higher yields. That is less supportive of the bullish scarcity story. This comes weeks after large speculators had some of their most bullish corn positioning. Roughly 166,000 net contracts were sold over the last two weeks, a mix of long liquidation and fresh shorting. Ceresna sees traders being shaken out of a trade that has turned from very bullish to aggressively washed out, and he will keep watching it.

  “It's a higher yield, less supportive of the bullish scarcity story. This is happening after just a few weeks ago. We saw some of the highest positioning scores for large speculators in terms of being bullishly positioned on corn.”at 53:22

Oil & fuels

• Erik Townsend · MacroVoices

  Refinery damage from strikes may keep refining capacity impaired for years after the war ends.

  Strikes on Russian, Saudi and Iranian refineries are removing refining capacity. Refineries take about ten years to build, so the damage could last well beyond the war. Townsend thinks the news is not picking up on this and that the cracks and product prices could stay tight for years after the conflict ends.

  “If we take refineries out and we reduce the global capacity for refining products, ... Refineries take ten years to build. ... the damage we're doing to refining capacity could be permanent. Not permanent, but persistent for many years after the war finally ends.”at 5:01

• Patrick Ceresna · Big Picture Trading

  Oil is in a decisive uptrend; peace headlines fade, and a post-midterm re-escalation could push WTI back to about $120.

  Each peace headline has produced only a modest price response, and oil has regained its previous highs within a reasonable period every time. Ceresna reads that as an environment where oil keeps trending higher and is probably anticipating a re-escalation in the post-midterm period. Crude is in a decisive bull trend, and only a geopolitical disruption would break it. Technically, the upside target is the previous WTI high of about $120, and Brent could clear its prior highs if that move happens.

  “regains itself back to its previous highs in any reasonable period afterwards. So we continue to have an environment where oil is trending higher and very likely anticipating a re escalation of the situation in the post midterm period.”at 47:48

AI infrastructure & data centers

• Luke Gromen · Forest for the Trees (FFTT)

  AI capex credit is in early stages, and a bust in hyperscaler and neocloud credit could trigger a recession.

  Gromen points to Oracle and other hyperscaler credit default swaps, the pricing of AI-related deals, and circular financing as the visible credit stress. He says this is still early and that the more worrying second-order risk is the consumer side. He compares the potential AI credit bust to the 2000 dot-com bust, and says that if the AI credit mania bursts there will be massive losses and probably a recession, since AI is a large share of marginal growth.

  “I do think the credit side of what we're seeing on AI, and then the secondary credit side, which I think is still very early days”at 19:41

• Luke Gromen · Forest for the Trees (FFTT)

  AI is now too big to fail, so Washington would likely step in if the AI credit mania bursts.

  Gromen hears that Washington discussed contingency plans for a possible AI credit bust over a year ago. AI is a big part of marginal US growth, so a burst would bring large losses and a recession, which would force the government to act. He argues the administration has already intervened to protect the AI sector, for example by banning DeepSeek from government work, which he sees as an industry moat.

  “Yeah, AI is now too big to fail. ... So if the credit mania bursts, then yeah, there's gonna be massive losses. You're gonna have a recession”at 27:54

AI & jobs

• Luke Gromen · Forest for the Trees (FFTT)

  AI-driven white-collar layoffs will be hard to reabsorb, with displaced workers unlikely to find equal-wage jobs.

  Gromen cites recent layoffs: Kroger cutting about 37% of its corporate workforce, American Express and Barclays each firing 5% of workers because of AI, and Microsoft buying out 27% of its workforce. AI is hitting finance, tech and white-collar work at the same time. Laid-off workers are therefore unlikely to find another job easily or at the same wage. He says the job-loss argument has gone from debate to real evidence in the last couple of weeks.

  “the side saying that AI is going to create a lot of white collar job loss has started to strike some serious body blows to the side that everything is gonna be fine for white collar jobs.”at 20:56

• Luke Gromen · Forest for the Trees (FFTT)

  AI job displacement will spark accelerating US and Western political unrest, starting to be litigated in 2027.

  Gromen argues that the US, unlike China, Japan and Korea, has a growing, heterogeneous population. If AI removes large numbers of good jobs (he cites Microsoft's 27% figure) in five to ten years, he expects the strain to produce social unrest. He cites elite overproduction and extreme wealth inequality, drawing on Peter Turchin's work, as the historical pattern. He expects this to start being litigated in 2027 through rising political instability in the West and US as AI displaces work. He acknowledges the view is dark and that it is a judgement about history rather than a forecast with data.

  “if AI does what I think it's gonna do, I think it's gonna start getting litigated in 2027”at 39:01

US stock market outlook

• Luke Gromen · Forest for the Trees (FFTT)

  Gromen is cautious on US stocks, holding 30% of liquid net worth in cash and T-bills.

  Gromen does not like shorting stocks in a rigged market where liquidity is provided to the system whenever the Treasury market needs it, because the US is in fiscal dominance. He therefore holds 30% of his liquid net worth in cash and T-bills. He is cautious because the AI-related credit and consumer-credit problem is not yet being discussed and some names are already weakening.

  “I'm sitting in 30% of my liquid net worth in cash and T bills.”at 25:12

• Patrick Ceresna · Big Picture Trading

  The Nasdaq is in a bear flag and Mag Seven strength is not yet turning the index bullish; key S&P levels matter.

  The Nasdaq has dropped below its 50-day moving average in what Ceresna calls a bear flag, and there is no sign yet that any Mag Seven stock can turn the Nasdaq trend bullish. The S&P 500 is holding above critical levels around 7,600 to 7,700, where systematic sell zones could trigger CTAs and vol-targeting funds to unwind bullish positioning. The Mag Seven are about 35% of the S&P 500 and have been the core support for the bull trend. The Mag Seven basket is now trading at its 50-day moving average, so whether it holds is a key test for the index. Breadth has improved, but he calls this still a Mag Seven story.

  “Now, the S and P 500 continues to trade above the critical levels around 76 to 7,700, where there's a number of systematic sell zones where we would see CTAs and vol targeting funds”at 44:15

US–China AI & chip race

• Luke Gromen · Forest for the Trees (FFTT)

  The administration's DeepSeek ban is a regulatory moat protecting OpenAI and Anthropic's economics.

  Sacks has argued against AI regulation, yet the administration banned DeepSeek from government programs and from companies that sell into them. Gromen accepts there may be a national-security reason to keep Chinese models out, but says the ban also works as a regulatory moat around the economics of OpenAI and Anthropic, and that it makes Sacks look hypocritical.

  “that's a regulation, that's a moat that they helped try to put up around the economics of OpenAI Anthropics.”at 27:25

• Erik Townsend · MacroVoices

  An AI credit bust would let China overtake the US in AI, a real national security risk.

  Credit-financed AI spending is giving US frontier labs their lead, but as Matt Berry has noted, that lead is only about six months, and China is not far behind. A credit bust in AI would stall US progress and could hand China dominance in AI globally, which Townsend sees as a genuine national security risk and as the policy reason Washington would step in to prevent it.

  “if we had a credit bust in AI, it would legitimately risk a... China taking over and basically becoming the dominant power in AI globally, and that really is a genuine national security risk in my opinion.”at 32:57

US dollar

• Luke Gromen · Forest for the Trees (FFTT)

  The dollar will rise in a recession, as it always does, even as foreign central banks sell Treasuries.

  The dollar was already up this year, and foreign central banks are on pace to sell about $600 billion of Treasuries since February. Gromen expects the dollar to strengthen in a recession as it always does, because global deleveraging drives demand for dollar liquidity. He sees this as part of a setup where Treasury supply rises while buyers disappear.

  “Dollar's gonna rise in a recession as it always does.”at 31:08

• Patrick Ceresna · Big Picture Trading

  The dollar bull trend holds; a break of the euro's 1.11 level could drive further dollar strength.

  The dollar's bull trend is intact because the Fed did not pivot dovishly. Sterling, the Canadian dollar and the Aussie have bounced and retraced much of their weakness, but the euro is still near its 52-week lows. If the 1.11 level gives way, the euro may start another leg down. Because the euro is a very large weight in the dollar index, that alone could push the dollar higher even without funding stress lifting it directly. The euro is the pair to watch.

  “if this one eleven level gives out, the euro may be starting another leg down. And because the euro is such a huge weighting in the dollar index, that alone may drive dollar strength”at 47:03

US rates & the Fed

• Luke Gromen · Forest for the Trees (FFTT)

  In a crisis the Fed will have to print money and buy Treasuries, despite denying monetization.

  Treasury supply could reach about $5.2 trillion if deficits, foreign central-bank selling of about $600 billion since February, and hedge-fund deleveraging (hedge funds from the Caymans own about 8% of the market) all hit at once in a recession. Mom and pop and pensions will not be buyers while they lose jobs and take early withdrawals. The only buyer left is the Fed, which will say it is not monetizing the debt, but a policy response is only possible after a crisis.

  “No, there's only one buyer. It's the Fed. The Fed's going have to print money and buy treasuries, and they will say, We're not monetizing the debt.”at 31:56

• Patrick Ceresna · Big Picture Trading

  The Fed's hawkish hold matched expectations; it did not shift short or long yields or the dollar trend.

  Ceresna says the market expected a hawkish hold and got one. Powell's tone was softer, but markets showed no big surprise or repricing across assets. The Fed acknowledged some tightening in financial conditions but stopped short of calling them tight, and did not say bond markets had already tightened enough. SOFR and short-term Treasury yields barely moved, and the 10- and 30-year yields stayed in their recent range. The dollar trend would have reversed on a dovish pivot, and that did not happen, so the Fed gave the market what it had priced in.

  “Well, the market was expecting a hawkish hold, and they got it. It was a bit of a softer press conference in terms of the tone, but overall, when you look at the actual reactions of the market to the FOMC, then pretty much the market got what they were expecting”at 45:24

Middle East & Iran

• Luke Gromen · Forest for the Trees (FFTT)

  Iran has more leverage than the West assumes and can keep the conflict dragging on.

  Iran does not need to defeat the US militarily. It only needs to keep the US burning through air-defense interceptors faster than they can be produced. Illustratively, the US can replace about 100 missiles a month, while sustained Iranian drone and missile salvos force 150 to 300 a month. Once the US runs out, Iran can strike with impunity, and the US cannot put troops into bases it cannot defend or fight without air superiority. Russia and China are resupplying Iran and benefit from the drag, and Israel is not bothered because the US bears the burden. Gromen expects the conflict to keep dragging on and sees the bond market as a second front: the 10-year reached 5.3% in a sell-off that changed sentiment, so Iran's leverage is larger than the Western narrative suggests.

  “Iran has more leverage than the Western narrative suggests because Iran doesn't have to beat The US, it just has to beat the bond market.”at 7:56

US tax & spending policy

• Luke Gromen · Forest for the Trees (FFTT)

  Bessent's planned fiscal consolidation could hit stocks and commodities after the election if Democrats win.

  Bessent has warned that if Democrats win he will be forced to carry out his planned fiscal consolidation within about two months, from November 4 to January 3, 2027. Gromen reads this as a possible rationale for a market sell-off. Stocks and commodities would tank, and bonds would be the place to own. He suggests that a heads-up given to traders may have helped drive the anomalous Thursday bond rally.

  “Bessent has warned that if the Democrats win, he will be forced to do his planned fiscal consolidation in the span of two months, from November 4 through 01/03/2027.”at 16:10

US elections & politics

• Luke Gromen · Forest for the Trees (FFTT)

  A clear Democratic win would help risk assets; a contested or drawn-out election would hurt them.

  Washington insiders say a big Democratic win would be liquidity-positive, because gridlock would mean horse-trading over spending with little actually cut. That would be bad for the dollar and good for gold and stocks. Uncertainty is the risk. If the result is contested or drags on, as serious people are discussing, that would be bad for risk assets.

  “if you get some sort of big blue win, it's actually really good for liquidity because nothing will get done, and everything, it'll be a horse trading ... but if there's uncertainty around the election or if Trump contests the election ... that wouldn't be good for risk.”at 19:06

US consumer

• Luke Gromen · Forest for the Trees (FFTT)

  AI job losses could push about 5% of $19T consumer debt into default, roughly $1 trillion.

  There is about $19 trillion of consumer debt outstanding, mostly mortgages, credit cards and auto loans. If AI displaces many white-collar workers, a 5% default rate on that debt over the next two to three years would be about $1 trillion. Gromen says almost nobody is discussing this second-order credit risk, and that a consumer credit default cycle could make 2008 look tame.

  “let's pretend 5% of those default as a result of AI, just sometime in the next two years, three years. 5%, that's roughly a trillion dollars.”at 22:09

Banks

• Luke Gromen · Forest for the Trees (FFTT)

  Consumer loan losses would wipe out about 40% of bank equity per 5% default increase, forcing selling or issuance.

  The Fed puts US banking-system equity capital at about $2.6 trillion, so a 5% default increase on consumer debt, about $1 trillion, equals roughly 40% of that capital base. To protect capital, banks would stop lending, sell Treasuries (adding supply alongside the Treasury and foreign sellers), or issue equity, which the market would dislike. Gromen notes bank stocks, Blackstone, Blue Owl, American Express and Capital One have badly underperformed the S&P over three to six months, and he asks why if AI works someone would want to own them.

  “every 5% default rate increase on consumer debt as a result of AI unemployment or deflation in wages is equal to 40% of the total equity base of The United States banking system.”at 22:29

US deficit & government debt

• Luke Gromen · Forest for the Trees (FFTT)

  A recession caused by an AI bust would add about $2 trillion to the deficit, forcing more issuance.

  Interest, entitlements and veterans' affairs already run at about 105% of federal receipts. In past downturns the deficit rose by 600 to 800 basis points of GDP, which is about $1.8 to $2.4 trillion. A recession caused by an AI bust would therefore add roughly $2 trillion to a deficit that is already about $2 trillion. Gromen notes that with Treasury issuance already about $2 trillion, a recession would push gross issuance toward $4 trillion, and bank selling and hedge-fund deleveraging would add to supply.

  “So that's how much more the deficit's going to go up in a recession. So we're running $2,000,000,000,000 deficits today in a recession caused by a bursting of the AI mania.”at 29:22

US Treasuries & yields

• Luke Gromen · Forest for the Trees (FFTT)

  Would fade the bond rally because someone must still borrow the money at higher rates.

  Even if an AI slowdown or a recession pushes yields down for a while on sentiment, Treasury will still have to finance a much larger deficit at the next quarterly refunding. Gromen expects issuance to be closer to $3.5 trillion than the $2 trillion previously assumed, so the long end would sell off again. The market has been demanding a higher rate, so he would fade any bond rally unless the Fed or Treasury intervened with buybacks or shifted issuance to the short end.

  “I would fade the bond rally all day long because one way or another, someone's going to borrow that money and the market's been demanding a higher rate.”at 30:16

Gold & precious metals

• Patrick Ceresna · Big Picture Trading

  Gold is in short-term distribution near $4,000 and could fall 5-10% if support breaks, though long-term he is very bullish.

  Gold needed a dovish Fed pivot and a change in the macro backdrop to break higher, and neither happened. It is trading along its $4,000 support, where the summer lows were, and there is no sign of accumulation. Ceresna calls the chart distributive with no visible buyers. The prevailing downtrend is the path of least resistance. A breakdown below that support would leave room for a further 5-10% drawdown. He stays very bullish on gold long term but expects a distribution cycle in the short term, driven by macro catalysts, until an inflection point appears.

  “a key technical breakdown like this would leave room for even a five to 10% further drawdown.”at 49:01

Copper & industrial metals

• Patrick Ceresna · Big Picture Trading

  Copper is neutral: the crowded bullish trade has failed to make higher highs, and a break below $6.50 could squeeze longs.

  Copper was the most bullish commodity in positioning and commitment-of-traders data a month or more ago, and everyone was bullish on a fundamental reason. Over the last three months, though, copper has failed to make a higher high and reward that positioning. It has deteriorated and is now bouncing back to about $6.70, near its 50-day moving average, which is a key test. A breakdown below $6.50 could squeeze the crowded trade. Ceresna stays relatively neutral until price action shows meaningful accumulation.

  “any breakdown below $6.50 could squeeze out the very crowded trade. At this moment, I would remain relatively neutral copper until we see some sort of technical price action showing some meaningful accumulation.”at 50:23

Nuclear energy

• Patrick Ceresna · Big Picture Trading

  Uranium equities are oversold despite spot uranium holding above $90, possibly a buying opportunity.

  Uranium's U3O8 spot price is about $91.30 per pound and holding above $90, but uranium equities remain in a decisive downtrend and have been hit hard. Ceresna attributes that to the broader AI selling, which has dragged them down with it. He sees a disconnect between the physical commodity and its equities. He wants to see when the equities can put in short-term lows, and whether that becomes a critical buying opportunity.

  “Clearly, those uranium equities have been dragged down with a lot of the AI selling that has been going on. It will be interesting to see when these uranium equities finally can start banging out short term lows”at 51:01