MacroVoices #542 Luke Gromen: As The Conflict Turns

In this MacroVoices episode from July 2026, Luke Gromen returns to discuss the unexpected dynamics of the Iran conflict and subsequent geopolitical realignment. Gromen and host Eric Townsend originally predicted the Strait of Hormuz closure would extend into July—a call that proved accurate. However, they were wrong about the price impact, expecting higher inflation and oil prices. Instead, China dramatically reduced oil demand by 3-4 million barrels per day in the first half of 2026 by shifting to EVs and drawing down strategic reserves, while maintaining 27% year-over-year export growth and 19-20% corporate profit growth. This demonstrated China's unexpected economic resilience and geopolitical leverage.

Gromen argues that China is deliberately managing the conflict to its strategic advantage. Rather than seeking resolution, China appears content to let the U.S. remain entangled in prolonged warfare while China sells weapons components to all sides, dominates EV and battery production, and expands yuan-denominated trade. China has explicitly pursued a 15-year strategic goal of replacing the U.S. Treasury bond with gold as a neutral reserve asset and internationalizing the yuan. Recent developments support this trajectory: yuan swap lines are established with most countries, CIPS payment volumes hit record highs ($2 trillion in May 2026), and Chinese AI is now competitive with U.S. models. Gromen views China's helium export ban and restrictions on rare earth shipments as signals that conflict will extend longer than expected.

On the Western side, Gromen identifies what he calls a 'Hamiltonian' economic shift supported by Trump, Treasury Secretary Bessent, and Trade Representative Greer—characterized by high tariffs, neutral reserve assets (implicitly gold), and domestic industrial focus. However, he argues the tactical execution remains disastrous, with the Iran conflict producing unintended consequences. The U.S. and allies (UK, Germany, Japan, Korea) have shifted from creditor to debtor nations, collectively pursuing 'defense stimulus' through deficit spending into supply chain constraints and conflict-driven inflation. This will eventually force yield curve control and financial repression, weakening all major currencies together against gold and the yuan.

Gromen's investment thesis centers on gold as the primary beneficiary of prolonged conflict and monetary system transition. He notes gold's inverse correlation with conflict appears to be reversing—this week oil, rates, and gold all rose together, signaling the market is pricing longer-term war-driven inflation rather than short-term risk-off dynamics. He also recommends U.S. electrical infrastructure equities, Japanese industrial equities (essential for U.S. reshoring given China is unavailable as a production partner), and expresses caution on semiconductor valuations given Chinese AI advances. He argues the 'cheaper but worse' narrative about Chinese technology has repeatedly given way to 'cheaper and better,' and this cycle is repeating in AI and semiconductors.

The trading desk segment features Patrick Ceresna's trade of the week: a collar strategy on GLD (gold ETF) at $376, with downside protection at $370-$350 and upside capped at $415, costing $1.75 per share. This reflects conviction that gold has completed a 30% correction but may face residual volatility. The markets analysis highlights vulnerability in equities as MAG7 earnings disappoint, positioning crowding in S&P 500 small specs reaches extremes, and technical sell triggers loom near 7,400. Crude oil has rallied 35% in three weeks but remains below prior highs, with speculators notably absent from the move—suggesting fundamentals, not positioning, are driving prices. Copper positioning data is used as an example of how corrections resolve through time rather than price crashes.