All right, Brent Johnson, Santiago Capital, otherwise known as the dollar milkshake guy, and if you're on Twitter, one who likes to poke fund and everybody who thinks the death of the dollar is coming anyway, Brent, always a pleasure to.
Catch up with you. Thanks for joining me.
Yeah, yeah, happy to be here. I'm looking forward to talking to you.
Yeah.
So we're framing up sort of twenty twenty four. And you know, it was a year ago. About a year ago, you and I were in Vancouver at a conference together, and I remember you talking about part of the reason why I like to continue to kind of pound on the dollar and sort of go in the face of all these death of the dollar guys, isn't because I believe the dollar goes on forever. It's just that it's not coming as imminent as a lot of people make it sound.
And that was sort of your approach last year.
And here we are another year later, and there's still plenty of people calling for the death of the dollar, and I'm just curious. I want to sort of recap a little bit of twenty twenty three, kind of get your sort of outlook on twenty twenty four, Right, now, and then I want to look at it in light of three big events that I think could potentially shape this year, and so we'll get your opinion on these, and that one is the massive amounts of debt and
deficit spending that we're looking at. Number two being an election year that always sends maybe drives trends, if you will. And then third is wars that seemingly are just continuing to escalate and what that could potentially do in all of this. So that's sort of the framework of this conversation. So let's first just start with the dollar. Everybody's calling the death of the dollar. It's been greatly exaggerated. Bricks came and went seemingly that kind of didn't go anywhere,
and surprise, surprise, the world didn't end. The Marcus didn't crash, the economy didn't crash, and it held up pretty strong. Now i'd like your opinion on this. We'll start with
this question. Mark Twain said that it's not what you don't know that gets you in trouble, it's what you absolutely know for certain, and people were certain as soon as the risk free rate went up, stocks had to they had to have to reprice lower and they were also sure that when mortgage rates went up, they had to had to home prices had to have to have crash. Neither of those things happened. So the dollar made it another year. The markets the economy made in the year.
Like what kind of happened last year? What were you surprised by? And kind of frame that up?
Well, I was not surprised until the last two months. I did not think that. I wasn't shocked by the last two months. I always try to figure out all the different scenarios that could happen, and I knew that a melt up could happen, but I didn't think that it would. And so, you know, up until about September October, you know, I kind of felt like I kind of knew what was going on, and I wasn't in the melt up camp. I understood the arguments they were making.
I didn't think they would come to be but they did. And so, you know, I'd say the last two to three months were somewhat frustrating, not so much much because it ruined our year or anything, but you know, you always like to be right, and it's never fun to be wrong, and that, you know, I was wrong for the last two months. But what I think is kind of interesting to me is that what I would call
the cognitive dissonance of the market. And I feel like oftentimes the market argues with itself and what I mean by that or or or they're kind of they're kind of at odds with what they're saying. And I'll give you an example. So the melt up in many ways took place as a result of the expected FED rate cuts, right, And actually much of last year's whole performance was based
on the idea that the FED was done tightening. It was only a matter of time until they started loosening, and or the only amount of time before they stopped tightening. And then kind of later in the year it became when are they going to cut and now or as of the end of the year, And even now it's kind of priced in that we're going to get seven rate cuts in twenty twenty four. But the thing is, and so as a result, everybody's buying stocks, right, and
equities are back at their all time highs. But if equities are still at their all time highs and markets are still holding up, then they're not going to cut seven times in my opinion, In other words, front running the cuts has somewhat negated the need for the cuts. And secondly is even if we do get seven cuts, it's kind of already priced in. So what happens if we only get four, right, or what happens if we
only get three? And in my opinion, if we do get seven cuts, it's because the market is falling and the economy is not good, not because it's great. And so you know, I think to get seven rate cuts we need the equity markets and economics to be much lower and not at all time high. So so I think there's this kind of disc between what drives FED
policy and what doesn't. So to me, it was kind of an interesting year to watch this take place, and like I said at the end of the year, is kind of frustrating to see this melt up take place, which to be honest, we didn't really participate in. So that was a little frustrating as well.
Couldn't you say with that line of thinking, couldn't you say that we're I mean, maybe what we're seeing right now contradicts that. So like, why is the FED cutting when the economy in the market so well, unemployments holding up, we're still having positive GDP growth, pretty strong positive GDP growth of that matter. And you know a lot of pundits online are saying basically that why are they cutting?
Why are they pivoting when we are so strong?
So I've got a couple of different reasons why I think that could be. And you know, this is probably a good time for me to say, is you know, when I was kind of younger in the business and kind of starting out, I always tried to be right, and I always tried to figure out exactly what was going to happen. And the older I get, the more I realize I just don't know and nobody does. And so rather than always trying to be right about everything,
I now just try to be prepared for anything. So I'll tell you kind of why I think they could be doing this. But I'm the first one to say that I don't really know when neither does anybody else.
So one theory, or one thing that could be is that they have some insight into the trends that are emerging, and the trend of whether it's you know, economic numbers or reserves available in the banking system, or inflationary pressures, and they see us of a bigger slow down coming than is currently being reflected kind of in the data. But they see the data slowing fast, and they think it could slow much faster, and they are trying to
get out in front of it. That's one possibility. Somewhat related to that is that I think and Powell started the hiking cycle two years ago. That's the other interesting thing is literally if you look at a number of different asset classes, they are right now where they were two years ago when the whole hiking cycle started. So it's kind of interesting that everything's back to where it was, except for interest rates are now five percent instead of
zero percent. But I think when he started his hiking cycle, Powell, I mean, I don't think that he believed that he would be able to raise interest rates and slow inflation without causing a hard landing or a recession. And he kind of, you know, he was pretty clear about that. He often said, you know, there needs to be pain. This isn't going to be easy. You know, you know, unemployment will probably lie, you know, profits will probably fall.
Like he was pretty tough about that initially, and I don't think he would have said that if he didn't believe it, you know, and he even said the pain from a recession, we believe that the pain from a recession would be less than the pain from continued inflation. So I think he believed that he was going to have to cause at least a small recession in order to get rates back up and to get inflation under control.
But I think as he went along and got closer and closer, you know, as as equity markets kind of you know, they fell initially, and then they ramped up over the last year, and as they kind of moved back towards their all time highs, and the overall economy held up, and we didn't have you know, a real estate collapse, and you know, inflation, while maybe it didn't crash, it stopped going up as fast and it has started
to come down. I think that maybe he thought, maybe I can pull this off right, maybe I can stick this landing. And as a result, then I think he probably started trying to be taught at least talk a little bit nicer than he had been previously. And then I think, you know, I think there is truth to the idea that at the at the November he said, before we will start to slow before we get to two percent, right, so I think what the readings are
now around four percent, the goal is two percent. It does make sense, you don't if you know, if you're flying a plane, you don't want to land going five hundred miles an hour. It does kind of make sense to kind of slow down into the landing. And so I think kind of related to that, thinking that he can stop or stick this landing, maybe he thinks that, you know, it makes sense to kind of start this glide path to slow down a little bit. And then, which I'm sure is not news to anybody. I think
it's political. You know, I don't think they want a massive recession heading into a presidential election. I think they would prefer that things kind of continue going as they are. I think he likes being the FED chair. I think he would like Biden to reappoint him if Biden gets re elected. And I think, you know, if if Trump gets re elected, maybe he would stay in that job, but maybe he wouldn't. And so I think there's some of that as well. I think the FED it is political.
The people who tell me that the FED is independent, I you know, I understand that that's what's written, you know, in the textbooks, but I just don't think that's the real world. I think they're very political.
Yeah, of course they're political.
I would have a hard time understanding how anybody could think that they're independent. So I would agree with you on that. I think if you look at the PC data, it looks like they're way under shooting their target. Potentially you could reach the end of twenty twenty four goals by like March, and so maybe they're starting to go, oh, shoot, we're breaking too hard.
Like let's let off the brakes a little bit. Yep.
So we'll see. But I guess that sort of takes us into one of the topics I wan't talk about, which was the election cycle. So I think maybe only one president income and president in a reelection year is one during a recession. So if the Democrats want to win again, they're going to do anything they can to make sure we don't have a recession.
And you know, I guess they'll use whatever tools they have at their disposal.
So do you think that's going to be enough to be able to sort of dry markets this year? I mean, do you think that will be the big sort of theme that might prevent any of these. Last year, we still had lot. I think the general consensus was a big recession last year didn't happen. Now the general consensus seems to be no recession in twenty twenty four.
Right, Yeah, And I don't know that we're going to get a recession. My kind of base case is that at some point this year, whether it's in the first half or the second half, we will get a downturn in the economy and in the stock market. So I'm not in the melt up all year camp now. Having been wrong about that last year, I'm the first admit that I can paint a scenario where we do get a melt up all year, but I think that that
is unlikely now. Whether we slow down in the first half and that causes the FED to really pivot and we do get those seven rate cuts as a result of them trying to quote unquote save the market and goose it higher, or if we get into the you know, things kind of stay strong into the summer and then into the fall, we get some volatility. I don't know, but I do not think that we are going to get through twenty twenty four with the vix averaging you know below fifteen, Like like the vixes at the all
time low, equities are at their all time highs. You know, I feel like the market is priced to perfection. But I just feel like we live in a very unperfect world. And as it relates to, you know, politics, I am of the belief and again I don't think this is necessarily a unique view, but I feel very strongly about it that whoever wins, the other side will not accept it.
So while I think the powers that be, whether it's the FED or the Treasury, or the White House or the all working in combination, try to keep things moving smoothly, I don't. I don't think just because my point is just because they want things to go smoothly in a presidential election year, I don't think that they necessarily will, and typically they do go well in a presidential election year. But you know, remember we had COVID in twenty twenty.
That was a presidential election year. The global financial crisis was literally happening right in the middle of the two thousand and eight presidential the run up to the presidential election that there was even a point where John McCain and Barack Obama, you know, suggested suspending their campaigns to go back to Washington and focus on the global financial crisis. So just because you know, monetary authorities and governments don't want bad things to happen, doesn't mean that they won't
happen anyway. So that's kind of where I come down. I think we are going to have high volatility this year. Are much higher volatility this year than last year.
Yeah, that's a really good point that you bring up, and you're absolutely right. I remember in twenty sixteen election there was a lot of all not so much in the markets per se, but certainly throughout the country in the economy. I think there was like six different cities that were on fire that was sort of like BLM was kind of taking over. Riots happening everywhere, and so already the talk of this being the most important election ever.
And so whatever we've seen, everyone is right.
Yeah, well it seems like everyone becomes more and more important. But it seems that maybe some of that disruption we might see might be amplified.
Now if we jumped to a little bit of.
A higher level, maybe sort of maybe Warrior a little bit more better known for at least from what I see on Twitter, sort of looking at the fiscal side of things and the Treasury. It seems like, you know, the Fed sort of got neutered a little bit by trying to bring the pain pain, pain to the point that you said earlier, because they can only make you and I feel pain. But Janet yelling over at the Treasury wants to continue this deficit spending like we're in World War seven or something.
I don't even know who we're at.
Like they spend so much definite spending, and it's like almost no matter how broke Jerome Powell makes you and I, you have the Treasury spending that much and they're continuing to spend that much. The deficit is continuing to grow, and at the same time, we've already started to see it seems like some dysfunction happening in the treasury markets.
You might disagree with that, so I'd like to hear your point, but we've seen some tales happening in some of these auctions, and it seems like, I know a lot of people would say that the foreign governments aren't buying as much treasury debt, and I know you have an answer for that, but when I look at some of the auctions, it looks like they're buying almost as much. It's just there's more supply than there was before. So anyway, what's your outlook on sort of that debt and that fiscal side.
Yeah, so the first thing I'll say is that whatever your projections for the budget deficit and the national debt are, I think they're too low.
And the CBO has are.
Out right, yeah and so and so this this often gets me painted as kind of well, this is why my whole thesis of the dollar getting stronger is often kind of confusing to people, because a lot of people will say, because they're going to spend so much money, because they're borrowing so much that they will never be able to pay back, then therefore that means they're going to have to print a bunch of dollars and the dollar is going to lose value. And in the overall
long scope of history, that is probably true. But if we get back to the whole you know, eminent versus inevitable. You know that you mentioned at the very top of the hour, and the thing that people need to remember, and we don't need to go too far down this path, is that is that currencies trade relative to each other. They didn't always, but they do now. And you know, we're no longer on a gold standard. The whole world
is on a US dollar standard now. Whether you think they should be or whether you think they shouldn't be, that's an entirely different debate. The fact is, as they are.
The whole world uses dollars. And while our budget deficit is enormous and our budget and our national debt is enormous, every other country is running a budget deficit as well, and they're spending a lot of money as well, and they don't have nearly the amount of advantages that the United States does, and so on a relative basis, there is demand for US treasury bonds and US dollars and that sort of gives the the the US government the ability to get away with these ridiculous policies more than
say some other You know, if if Turkey was running these policies, or South Africa or you know, Argentina or whatever it is, then you're going to see their currency falling a lot. But we have, you know, we have, and we have right. But that is there is a difference again, whether you think there should be or not, in the real world, there is a difference between the country issuing the global reserve currency and a periphery country that nobody needs their currency. And so, but what I
think probably happens barring a crisis. So barring a crisis, well, the same thing is is this could even cause the crisis. Is that if we get into some kind of a mass liquidating market like we had in two thousand and eight, like we had in twenty twenty, then I think treasury bonds may very well rally dramatically and interest rates could fall.
But if we don't have that, what I think could also happen is I've been saying for many years that we are headed towards a sovereign debt crisis where countries get into trouble, not just corporations or companies or families, right, And in that scenario, global interest rates rise because nobody wants to buy those bonds or those or those countries have to pay more in order to get people to
buy their bonds. Now, I think that that if the US continues to spend at the rate that they are, and we avoid some kind of a liquidating marker where everybody does a scramble for treasuries, then it would not surprise me at all. To see the ten year back at five percent wouldn't surprise me. To see it go to six or seven percent over the next couple of years. Now, then again people will say, well, this is horrible for the US because then the interest expense is going to
be two trillion a year rather than one whatever. Whatever the number is right, and again in the very long arc of history, I agree. But in the short term, in the short term, I think other currencies and other sovereign bonds will get rejected as well. So, in other words, even though governments around the world are institutions around there, what maybe don't want to buy treasuries at the same rate as they used to. I don't think that they're
going to buy Italian treasuries instead of US treasuries. I don't think they're going to start buying Canadian treasuries instead of US treasuries. In other words, I think we could get into a scenario where all interest rates rise on government bonds and that and if the US Treasury is paying let's call it five or six, six, six or
seven percent on their ten year treasury. To me, this is a nightmare for emerging markets because one of the way that emerging markets gets access to funding, is they pay more than the US Treasury, right if you need if you need dollars to operate on the global stage, but you don't need Turkish lira to operate on those global stage, or you don't need uh, you know, tie bonds ti bot in order to operate on the global stage, and they're both yielding the same, You're going to buy
a US treasury it just makes more sense. And so if we get higher yields in the on the in the US Treasury, this could cause a funding problem for the rest of the world, which could then kind of kick off this global sovereign debt cry basis or currency crisis that I think at some point will happen. So so I'm going to get to your your your your question about the treasury auctions, and this is where the treasury auctions come into hand. I don't think we are
going to have a failed US Treasury auction. And this is probably too long of it that we can get into it if you want to. But there's several operational reasons why I don't think we have one, but the the treasury tails that you mentioned. Oftentimes, these these auctions are usually well they're always over subscribed, right, so if they auction I'm just going to make up a number.
But if they're auctioning off one hundred billion dollars worth of Treasury bonds, there's two to three hundred billion dollars worth of interest on these or or you know, people bidding for these bonds. So we've never been close to a failed auction. But you know, in order to place all those bonds, you know they are asking for a higher yield, or there have been cases where they've asked for a higher yield to finish off the auction, and
therefore you get these tales that you were mentioning. So I think, but I think it's important to remember that it's not a case where nobody's showing up to the auction. All of the auctions are always over subscribed. Could we get into a situation where nobody shows up? Theoretically yes, but again, and it's really hard to see that happen. I do not believe it's possible that we would have
a failed US Treasury auction. But again, France continues to be funded, Italy be's funded, South Africa's funded, Egypt's funded, Australia's funded again, you know, the US dollar kind of says at the base of the pyramid, it's really hard to have the foundation of a house fall and not have the rest of the house go with it. It's possible, but it's very unlikely.
Yeah.
The one thing I learned very or very early on in my investing career was money goes where it's treated best. And I think that's sort of what you're saying. So it's not to go to Turkey or Argentina. So it's gonna go worad's treated best. And so what we'll probably see and to your to your thesis, the milkshake thesis, is that the dollar will continue to be, as most people say, the cleanest shirt in the dirty laundry or
whatever it is. But where it's treated best. I mean, it's probably the safest and best return you when you when you look at both of those, there might be a time when it's not. I saw this chart the other day, and I am going to tell everybody that you haven't had a chance to look at this. So I'm going to kind of spring this on you. If I can pull this up real quick, and it's just a chart, it's not there's not a hole there's not
a whole lot to this. It was just on Twitter, and I don't know, I haven't really even dug into this as much. But it says at the current rate of borrowing of deficit spending, I think the last three quarters we've seen about a trillion dollars added per quarter, and so it's at this rate, we'll be adding a trillion every seventy days, then every fifty days, every twenty days, and this says by twenty twenty five it can be up to a trillion dollars per week if we stay on the trend.
If we stay on the.
Trend, yep, And it's it's it's a what what is it? Is it debt or is it a monetary base?
What?
What is it?
This is debt the amount of debt being added. So we added a trillion dollars in ninety days, and then it says we'll go to a trillion every seventy every fifty days, every twice. So it's the amount of debt that we're adding. So that that would be if we stay on trend, which you know we may or may not.
But you had.
Mentioned when you were saying, you said if the government and the word if if the government continues to spend like they're spending, what are the odds that they decide to not spend like they're spending and go back to austerity. I mean, that's a pretty low base case, wouldn't it be.
I think it's a pretty low base case. Again, not impossible, not impossible, and it and what they could also do is you got to remember they could they could do something like not spend for six months or three months, right, and then spend again. And so but in general, it's very unlikely the government is going to stop spending money. I mean, those odds are very low. But there's something to there's something that people need to remember. And this
sort of gets into the whole MMT thing. And I don't want to lose people on MMT and I don't want to go too far down the rabbit hole on MMT. But I think a lot of times when people hear the this gets I know, I'm jumping around. But yet at the beginning you said one of the Twain quote that it's not what you don't know that gets you in trouble, it's what you're certain about that just ain't so right. And there's a lot of people who are certain that MMT policies will lead to ruin. And it's
not that that's incorrect. If taken to the extreme, I would tend to agree with those, but it doesn't mean it will lead to ruin right away. It's like a little bit of sh exactly. And so you know, if you if you inject yourself with heroin in the heart, you're probably too many times you're probably gonna die. But if you do it once, your probably going to be pretty excited, and you know, you have a lot of energy.
And so you know, I think that you know, the government spending money doesn't necessarily mean that the US fails or loses global reserve currency status overnight. And I know people have been predicting this for fifty years now, and they're saying, well, we're not predicting it's overnight. We've been predicting it for fifty years, and so now's the time. Well, people have been saying now's the time for as long
as I've been in this business. And I'm not saying not to be prepared for now's the time, but just I would highly recommend people don't bet their entire portfolio on now being the time, and The other thing is that, again, because there's so much demand for US dollars and because there's so much demand for US dollar debt, the US government can kind of get away with this for a lot longer than others. The other things that the US could very easily do, they could do things like mandating
banks by treasuries. They could mandate endowments hold ten percent of their portfolio and treasuries. They could mandate that all public pension funds hold ten percent of their you know, of their balance and US treasuries. And they would say it's for your own good, it's to make sure that you don't lose your client's money, right, And it could be bullshit, but it's not going to stop them from
doing it, right. And so there's my point is there's still a number of things that could be done to fund the US treasury if the market didn't want to do it on its own.
Yeah, they could say all stable coin treasuries have to be put into treasuries.
Oh they did that too.
No, But I love I love that point that you made, And this is sort of the point that I always try to hit on. You know, the guy's like Harry Dent, who's been calling the crash for twelve years and eventually we'll get that or Robini or whatever.
I feel.
I've read five of Harry Dent's books. I think his research is great. The assumptions that he draws from the research has been wrong, partly because I think they failed to con they failed to think about how many more
magic tricks the FED may have up their sleeve. And to your point, like they could just mandate that whoever buy strategies, right, they could mandate everything whatever, and so like, there's so many more things that can be done, and it seems like they'll continue to do those things rather than let themselves collapse, and so like then you kind of have to start thinking out of the box, like, oh my gosh, the commercial real estate mortgage market could collapse and sink sink the market.
Yeah, or the FED could just put it on its books.
Sure right, No, exactly and so and this is kind of the key The key thing is, I think any and the reason I say this is because I am guilty of this myself, or I was guilty of this myself several years ago. I was very guilty of this, and it took me along to figure out long time to figure out what I was doing wrong, and once I figured it out, I have it has it has
allowed me to see the world much clearer. And that is, if you analyze the United States in a vacuum, the only possible conclusion that you can come to is that it is a disaster waiting to happen, and it's going to end really, really badly, because the fundamentals are just really, really bad. The problem is is that it's not a very useful exercise to analyze the United States in a
vacuum because the world is not a vacuum. It's a very big world, and it's very interconnected, and when everything trades relative to everything else, and to your point earlier, money goes where it's treated best. In order to get a good understanding of what's going to happen in the US market, you still need to understand what's going to happen in the European market, what's going to happen in the Chinese market, what's going to happen in Japan and
South Africa and India and Brazil. It's important to understand the relative nature of all this stuff. And once you kind of do the same level of analysis on France or India, or Japan or China. You have already done on the United States. You realize that those countries aren't in very good shape either, and it's very hard to come up with a situation where those countries thrive. And so that, in my opinion, is one thing that it's it's not it's it's not that it's a useless exercise
to analyze the United States. It's just not very useful to analyze it all by itself and think that you're coming to the to the correct conclusion of what's going to happen. And like I said, I coming out of the global financial crisis, that's what I did. I did that for about four or five years and just kept banging my head against the table trying to fagil what what am I getting wrong? And once I kind of stepped back and looked at the whole picture, it becomes much more clear.
All right, Let's let's try to dig into a couple of things that might challenge some people's preconceived notions here. So to your point, the clean of shirt and laundry, it's still still treated best here. Lots of tricks up their sleeve to get people to continue the treasuries.
I would agree with that.
You mentioned time frames a couple of times, and let's let's try to frame that up. Let's just say within the next couple of years, let's even even this decade, and it's really more of a trend. So a couple things that I would throw out there, and let's see what you think about this. So, first of all, I don't think there's a lot of people that would argue with you that any government or currency or bond market is better than the dollar. I don't think anyone would
ever make that, not anyone somewhat educated anyway. But like with the rise of the bricks, like they're not creating a new currency or just forget bricks, just any nation. They're not come with their own currency. They're not going to challenge the US dollar, they're not going to challenge the treasury.
But they could just.
Keep their money in the ground in oil or gold or lithium or whatever X y Z. There's no deep liquid bond market like US treasuries, but they could just buy gold or whatever. So something like that seems like it could sort of be a pretty big disruptor. I think I saw twenty percent of oil is now being traded outside of the dollar. That's trading, and I know you probably have that's currency. But couldn't nations just hold their wealth in commodities as opposed to bonds.
Sure, they could absolutely do that, And this kind of goes to what I was talking about earlier. If they do that, if they decide to hold their reserves or you know, their profits in commodities or natural resources or even stocks or whatever it is, rather than bonds, then that would see I would believe that would see yields on sovereign bonds rise. But I don't think it would be a case where only US yields would rise. So again, I think yields would rise in Europe. I think they
would rise in Japan, they would rise in China. So in other words, if governments around the world stop and institutions around the world stop buying you treasuries because they don't want it to get confiscated or they know they're worried about the value of the dollar or whatever it is, and they decide to hold commodities, they are also, in my opinion, going to be shunning all European sovereign bonds and Russian sovereign bonds and Chinese sovereign bonds, and that
is kind of the milkshake theory, where we get into this situation where governments around the world are no longer being funded as easily as they used to be. They're borrowing costco up. It causes them to have enormous fiscal problems internally, they have to print more of their own currency in order to solve these problems, and it kind of starts this vicious loop. So that's a very long way of saying, yes, I think that that is a very what you suggested. I think is a very real scenario.
And not only do I think it's possible, but I think it's probable that that will play out. Now, whether that plays out in the next six months or next six years, I'm not smart enough to know that, but I think that is how it plays out.
Yeah, And so to the point to kind of recap what you were saying, that will probably happen. But people love already stopped buying everybody else's bonds. The US Treasury will be the last one that they stopped buying before they decide to put the rest of their money in commodities. And you know, I think all these things are not and a go ahead.
Yeah, let me just make a point, because I think this is the short answer is yes. But what I think sometimes people, especially retail, because I don't think that they realize because as a retail investor, or, as an individual investor, or as a family, you have the choice of just sitting on the sidelines, putting your cash into the mattress, buying a bunch of gold, and just waiting
this out right. Big global institutions that operate on the global stage, whether it's a corporation, whether it's a hedge fund, whether it's an endowment, whether it's a government agency, they don't have that option. Right. If you are operating on the global stage, if you are trading with one country versus another, and you're importing energy and food and you're exporting you know, goods, all of this takes place in dollars.
And now to your point earlier, there are some little things on the edges that are trying to disrupt this, and you know, and I think those will be continued to be tried and perhaps even grow a little bit. But by and large, if you want to operate on the global stage, you still need dollars. And so while you know, these countries may to your point buy gold or store their excess in gold or oil or whatever, it is, the last currency that they're going to give
up and totally reject is the US dollar. In other words, no country is going to continue using you know, I don't know, South African rand and no longer use the dollar, right, right, Like Turkey or sorry, Brazil and Japan are not going to start using South African rand and not use the dollar, right. I mean, that's just that's just not going to happen, or at least not without enormous chaos between now and then.
Yeah, so I would agree with that, I mean, why would they. I do think about it in a sense of like we've used the Chuck E. Cheese analogy before, but we were talking before that. I'm building the house in Mexico, so I'm going back and forth beween Mexico quite a bit now, and I've been keeping some pesos. I mean, I got to use them when I go down there.
I'm done great, I'm certainly, yeah, it has done great.
Unfortunately, I'm I like it when the dollars are but uh, you know, I'm not really storing my wealth in pesos. I keep some, you know, because this is easy convenient for me, but I'm not really storing my wealth there. But when you when you look at this on the world stage, let's get into kind of kind of transition this into sort of where we're going for the rest
of this year and maybe in the next year. We do have a global stage, and we do have all these nations with their own debt and currency issues, and the dollar can only get so strong or so weak. It sort of has to stay in this range otherwise it causes lots of big problems we've seen that we've seen, I don't know, potentially talks of like a Plaza cord two point zero or something like that, where they devalue the dollar to kind of help some of these nations out.
And if the dollar gets too strong to kind of the dollar milkshake theory, they'd have to do something to try to maybe devalue to at least slow that down. Do you think we see something like that happening this year. Does that start to affect, you know, what the Fed and the Treasury is able to do and really having to try to keep that dollar too low or do you think this is out like a decade from now.
So I think the whole plaza accord, like a serious devalue of the dollar, or the whole kind of a global agreement where the dollar gets devalued. I think that is five to ten years out still, you know, into the decade type stuff. But what I think people two things. You know, part of the reason that the FED would go back to QE or go to easy money would be because dollars are scarce, right. In other words, I think people get this confused a lot of time. They
get the cause and effect messed up. They will say, the Fed is going to do QE, so the dollar is going to fall. Well, actually, the reason that the Fed would have to do qe's because the dollar started to get strong and they need to weaken it in order to provide global liquidity. So the dollar is kind
of the driver. It's the cause. The effect is QE. Now, if we get into a scenario this year where you know, we get this hard landing that so many people have predicted in a hard landing, the dollar starts to rise. That is the definition of a hard land You're not going to have a hard landing where the dollar goes from one O two to ninety. That would be a that would be an immense easing and prove and an enormous liquidity boost to the world if if the dollar
feil that much. But what could happen. What could happen is the dollar could start to strengthen fairly quickly and as a result force the Fed to pivot fully start cutting rates, maybe even go back to QE, in which case we could have the dollar fall let's call it from one O two to ninety, kind of very similar to what happened after COVID. What's kind of interesting now is that the dollar is still higher than it was
at the high of COVID. Right, despite everything that they did after COVID, the dollar is still higher now than it was at the peak of COVID. But what could happen? What could happen? I think many people will say, no, this can't happen. What could happen is we could just kick this can down the road for another five or
ten years, where maybe we get into another global easing cycle. Maybe, you know, the last couple of years, central banks around the world were raising rates and you know, restricting liquidity. Maybe now the FED leads the way. If we get into another loosening cycle, and you know, countries around the world cut interest rates, they go back to QE as well, and maybe markets trend higher for in the next two or three years and we don't get the crisis that
everybody is expecting. You know, the dollar goes back to ninety or eighty eight or whatever it is, and you know gold goes to twenty five hundred, and bitcoin goes to sixty thousand, and you know, stock market goes to the Dow goes to fifty thousand or whatever it is. I can't rule that out. That is kind of the way things typically go. But what I think people need to understand, though, is that in that scenario, that is not the system failing. That's not the dollar failing in
the system failing. That's actually the system perpetuating. And I'll give you a good example. A lot of people will show these like I saw a headline the other day that said, you know, these two kind I don't remember the name of the countries, but you know countries are now doing three to five billion dollars, you know, or three to five billion in local currency transactions to avoid
the dollar another evidence of de dollarsation. But year to date, already emerging market countries have issued like fifty billion dollars of new to US dollar debt, and so as the dollar gets weaker, that's what happens more the system countries, institutions they issue more debt because now the dollar's weaker, right, And so the dollar getting weaker provides that liquidity. But the form of the liquidity comes in it because people
are borrowing. Institutions are borrowing. Now, if everybody stopped borrowing US dollars and started borrowing just in their local currency, or they borrowed in gold, or they borrowed in bitcoin or whatever it was, and they no longer borrowed in dollars, then there wouldn't be any dollar liquidity, right, and there wouldn't be new dollars created, and then all the dollar debt that already exists would have would struggle to have the interest or would it would it would the global
would struggle to service their US dollar debt and and pay off their US dollar debt if there was no US dollar liquidity. So you really get into this. It's kind of a very meta thing, right, It's it's self referential. And so that's why I often will tell in my opinion, the dollar going higher, that signals that the system is
in trouble. Yeah, that's what breaks the system. But my fear, not my fear, but my expectation would be that if the dollar falls, it really just kicks this can down the road another five or ten years.
Yeah.
Side note, somebody in one of my high ticket coaching programs is a pretty high end consultant and one of his clients is the US Treasury, And it was about
a year ago. Now he couldn't come to one of the meetings because he had to go meet with the Treasury and they were in the process of building I want to say, this could be a little bit wrong, but I want to say three or four new printing facilities money printing facilities in the US, and they're building them right next to airports so that they could just print the dollar bills, put them onto planes, and ship
them right out of the country. And he asked them, He's like, whoa, you know, he's into bitcoin and you know the whole CBD thing and all that, and he said, I thought cash was on its way out, And the Treasury guy told him, oh no, oh no, the dollars have never been in more demand. We cannot create these things fast enough. So that was a year ago they were just producing these things. So definitely there is something to that about this international demand or just global demand for dollars overall.
All right, so where are we? Where do we go this year?
It seems like as the dollar rises and falls, it really is starting to sort of offset some of these asset prices and drive that. And then we have obviously these wars escalating. I know you're not a geopolitical analyst, but I know you stay pretty you know, in tune with at least what's going on over there. I mean, closures on the Red Sea and the Suez Canal. It's a pretty big deal potential, you know, pirate attacks going as they get around the Cape of Hope they're in Africa.
If this escalates one, I mean, it could most definitely bring back inflation through supply chains, limiting oil supplies, et cetera, push and at a minimum, pushing the cost of transportation up at a minimum, it could also even escalate potentially a lot of these nations wanting to move away from dollars even more. I don't know whatever that means.
Do you think that over this year?
I mean, is that something that you're really paying attention to, you think that has big potential to sort of move the markets.
Well, geopolitical concerns, in my opinion, have never been higher in the time that I have been in business, since I started in ninety nine, So this is kind of my twenty fifth anniversary of being in this line of work. I couldnot remember a more uncertain time.
Now.
Again, I say uncertain. Maybe things are fine, right I'm not certain that we're going to have volatility. I have never been more uncertain than I am right now. So if anybody's listening to this, thinking Brent's going to give us the silver bullet answer, I unfortunately don't have it for you. But what I do say is that because everything, in my opinion is kind of price to perfection right now.
But we live in a very imperfect world, and a big piece of that imperfection is where geopolitical relations stand and potential military hostilities. I think that could I think
those two things could easily impact markets this year. Again, Remember, typically for the last let's just call it thirty years, every time we've had some kind of a global systemic event over the last thirty years, whether it was the global financial crisis, or whether it was a euro crisis in twenty ten or COVID in twenty twenty, the whole world sort of implemented similar policies and cooperated in order
to pull the global economy out of it. But during that last thirty years, we were in a globalization trend where things were becoming more globalized and people were cooperating more. Now we're kind of in an environment where people are not trusting each other is more. They're not cooperating as much as they used to. They're not globalizing, they're deglobalizing.
They're not centralizing, they're decentralizing. And so as a result, if something shows up in the global economy or in global financial markets, whether it's geopolitical, whether it's financial, whether it's health related, whether it's environment related, you know, I think that the ability to respond in a coordinated fashion is much lower now than it has been in the past, and as a result, I think the potential for contagion that kind of gets away from the powers that be
is higher. So I think this is a year where I think this is a very good time to have a very boring portfolio, because I think at some point this year, it's going to get exciting, and I think if you have some dry powder to take advantage of that excitement, I think you will not only be in a better position mentally, but I think you'll be in a better position financially to take advantage of it.
So what does a boring portfolio look like in twenty twenty three?
Asset categories? Things like that?
And then what are you looking at specifically to make sure you're sort of staying in front of whatever is developing?
Well, I think one of the things you have to be looking at also. So first of all, a boring portfolio. I think everybody should own US equities, but at their all time highs, I think we're going to get a pullback. So if you do own US equities, I think you should have some kind of hedge against them, or only have enough of them in the port you know, you
don't have your whole portfolio in them. Right In another part of your portfolio, I think having short term fixed income, which pays you four to five percent to just sit there and wait, is not a horrible thing. You know. It wasn't that long ago where you had to buy a junk bond to get five percent. Now you can get it in the most liquid thing in the world, which is treasuries. I think everybody should own gold. I
think gold is the foundational, uh, part of every portfolio. Now, having said that it's at its high, I don't necessarily think that gold's going to twenty five hundred over the next couple of weeks or the next couple of months. I think gold to go to five thousand dollars over the next three or four years, five years, but I
don't think it's happening tomorrow. So again, I think that's something that you buy and you put in your portfolio and you kind of just forget about it until you absolutely need it, and it doesn't matter whether it goes up or down, you know, over the next year or two. The other thing that I think people could do is,
you know, I mentioned short term treasuries. If you don't have the ability to you know, to to trade and fixed income, you know, just have I mean just having cash in a bank account I don't think is a horrible idea, or you know, have it in your safe in your house, have some kind of a safety net that if things go south, you're prepared for it. And here's the thing is if you if you and you know bitcoin. A lot of people own bitcoin. I'm I
have clients that own bitcoin. I just talked to a friendly client yesterday and again this morning, and they're they're they you know, they bought it. When did we buy it or you know, we bought it to you know, maybe it was twenty to twenty six thousand between twenty and twenty six and so that's up, but thirty percent since they bought it, or forty percent since they bought it. You know, it's not a big part of their portfolio,
but they do own it. I think having things like that in the portfolio, I you know, again, try to prepared for everything. If you have cash, you're prepared for deflation. If you own bitcoin and gold, you're prepared for inflation. If you own stocks, you know, over the long term, they're probably going to go higher. So I think, I think here's what's interesting to me. I've talked to so many people over the last let's call it two to three months really since q Q three, and I talked
to so many people. Their sure bitcoin is the answer. Other people are sure gold is the answer. Other people are sure that the stock is just going to keep going higher in stocks are the answer. Other people think we're headed for a deflationary collapse and treasuries are the answer. Yeah, I'm just like you know I, and they're so certain of it, And I don't think you should be certain about anything. Have a little bit of everything, be prepared
for everything. Don't try to be right, just try to be prepared because I think, you know, again this year, I think something is going to get dislocated this year, and which asset class reacts I don't know, but you know, if something goes down twenty or thirty percent, then you go buy it, right, But I don't like buying things that they're all time high, with asset valuations stretched and all this uncertainty in the world. So you know. So a boring portfolio to me is one that you'll make
a little bit. If markets do really good this year, you'll make a little bit. But if markets do poorly this year, you're prepared to take advantage of it.
So more of a safety. Lots of volatility, a lot of unknown uncertainty. So rather play this one a little bit safe till you get a bit more, little bit more clarity on what to go or.
What exactly exactly. And this is the thing is in Mark there is always going to be another opportunity of markets, don't you know. It's kind of like if you're playing poker, wait until you get the cards. You don't have to play every hand, and just you know, even if you don't play hand, the other people playing they might make a lot of money. And sometimes it's hard to sit there while everybody else at the table's making a lot
of money. But the worst thing to do is to play a hand just so that you're in the game. To me, that that to me, that's the worst strategy. And I think going all in on you know, one or two asset classes right now is kind of jumping into the game just because you can't take it sitting on the sideline any longer.
Yeah.
Well, I have a lot more i'd like to ask you about, but I know we got a hard stop and we got to run, so I'm gonna let you go with that. Brent Johnson, Santago Capital will link to your stuff down on the show notes down below. Uh, thanks, thanks for jumping on today. Anything else you want to say? Did we cover it all? No?
I just then, you know, thanks for having me on I'm always happy to talk to you, and you know, I wish I had a civil bill at answer for everybody, but I really you know, I think being careful is the best advice I can give to people right now.
All right, thanks Brett. All right, let me hit