MacroVoices #556 Luke Gromen: US Midterms & Beyond

Luke Gromen argued that Iran’s leverage lies in outlasting U.S. munitions stocks and political patience, not defeating the United States militarily. He estimated U.S. air-defense missiles were being used at 150–300 per month, against replenishment of about 100–120, and said production could not quickly close the gap. He described serious damage to U.S. bases in the Middle East and said an invasion of Iran would require air superiority, which the United States has not lacked in a war for 80 years. Gromen said Russia and/or China were resupplying Iran and could benefit from a prolonged conflict; he expected the fighting to continue, while suggesting Israel might tolerate that outcome if the United States bears the burden. Eric Townsend saw signs that U.S. escalation might be deferred until after the November 3 midterms, and Gromen said the conflict could help cost Trump the election.

The Strait of Hormuz disruption had lasted longer than Gromen’s April 16 forecast of a closure through early July, but its economic and market effects had emerged more slowly than feared. He credited coordinated strategic-reserve releases and reduced demand, particularly in China, with delaying the impact of constrained oil supply. Diesel prices in some parts of the world were approaching $200 a barrel, though Gromen said he could not explain why oil remained high given refinery outages and reported Hormuz volumes, and wondered whether China was buying surplus supply. Townsend warned that refinery strikes in Russia, Saudi Arabia and Iran could damage capacity for years, noting that refineries take about 10 years to build. Gromen also warned that some emerging-market farmers could not afford fertilizer and were cutting purchases, potentially lowering yields and raising food prices next year, although weaker fertilizer demand could initially pressure crop prices.

The election could produce sharply different market outcomes. Gromen said Trump had repeatedly warned that a Democratic victory would bring a 1929-style depression, while Scott Bessent had warned of fiscal consolidation between November 4 and January 3, 2027. Rapid consolidation, Gromen said, could push stocks and commodities down and bonds up, although he only speculated that markets might have received advance notice. A large Democratic win could preserve spending through political horse-trading, supporting liquidity but weakening the dollar and benefiting gold and stocks. A contested or prolonged election, with the vote then a week away, could instead weigh on risk assets.

Gromen identified AI-related white-collar job losses as a threat to consumer credit, beyond the funding required for AI capital spending. He cited Kroger discussing cuts to about 37% of its corporate workforce, American Express and Barclays each attributing 5% workforce reductions to AI, and Microsoft offering buyouts to 27% of its workforce. With U.S. consumer debt around $19 trillion, defaults of 5% over two to three years would imply roughly $1 trillion in losses, about 40% of the $2.6 trillion in U.S. banking-system equity capital. Banks could respond by restricting lending, selling Treasuries or issuing equity. Gromen noted that bank stocks and consumer-credit companies, as well as Blackstone, Blue Owl, American Express and Capital One, had underperformed the S&P over the prior three to six months; he held 30% of his liquid net worth in cash and Treasury bills.

A recession could compound federal financing pressures. The discussion described interest, entitlements and veterans’ affairs spending as equal to 105% of government receipts, and cited past recessions as adding roughly 600–800 basis points of GDP to deficits. Starting from deficits of about $2 trillion, that scenario would add another $2 trillion and take annual deficits near $4 trillion. With Treasury issuance around $4 trillion, plus possible sales by banks, foreign central banks and hedge funds, effective supply could reach $5.1–$5.2 trillion. Gromen said the Fed would ultimately have to print money to buy Treasuries, even while saying it was not monetizing the debt. He also said government support for AI investment could become politically attractive on national-security grounds if private financing weakened, but warned that AI-driven displacement could bring political conflict in 2027 and become a major issue in the 2028 presidential debate. He presented those outcomes as conditional on job losses unfolding as he expects.

Patrick’s market outlook was mixed. He described the Fed’s decision as a hawkish hold, with little immediate repricing, and said the dollar’s bull trend remained intact; a euro break below 1.11 could strengthen the dollar further. Oil had regained prior highs, and he saw a possible post-midterm re-escalation taking WTI toward $120 and Brent above its previous highs. Gold was near $4,000 support but showed little accumulation; despite his long-term bullish view, he allowed for another 5%–10% decline without an immediate catalyst. Copper near 670 was vulnerable below 650, while uranium equities remained in a downtrend despite U-308 near $91.30 per pound. He said the Nasdaq remained below its 50-day moving average in a bear flag, with Amazon and Apple earnings and support for Microsoft and Alphabet important tests; he also pointed to AI-related credit risk at Capital One. Brazil’s election result surprised markets that had priced in a Bolsonaro win, producing a 20%–30% downside gap in EWZ, with 37–38 a possible recovery area but no clear evidence yet that the decline was a buying opportunity.