WEBVTT - The Mark Moss Show 2-2-24 0:00:00.080 --> 0:00:04.280 All right, Brent Johnson, Santiago Capital, otherwise known as the 0:00:04.480 --> 0:00:08.039 dollar milkshake guy, and if you're on Twitter, one who 0:00:08.119 --> 0:00:10.520 likes to poke fund and everybody who thinks the death 0:00:10.560 --> 0:00:13.880 of the dollar is coming anyway, Brent, always a pleasure to. 0:00:13.800 --> 0:00:14.960 Catch up with you. Thanks for joining me. 0:00:16.560 --> 0:00:18.680 Yeah, yeah, happy to be here. I'm looking forward to 0:00:18.720 --> 0:00:19.040 talking to you. 0:00:19.200 --> 0:00:19.360 Yeah. 0:00:19.400 --> 0:00:22.800 So we're framing up sort of twenty twenty four. And 0:00:23.200 --> 0:00:26.239 you know, it was a year ago. About a year ago, 0:00:26.280 --> 0:00:28.200 you and I were in Vancouver at a conference together, 0:00:28.280 --> 0:00:31.200 and I remember you talking about part of the reason 0:00:31.200 --> 0:00:33.559 why I like to continue to kind of pound on 0:00:33.600 --> 0:00:35.760 the dollar and sort of go in the face of 0:00:35.800 --> 0:00:38.280 all these death of the dollar guys, isn't because I 0:00:38.320 --> 0:00:40.199 believe the dollar goes on forever. It's just that it's 0:00:40.240 --> 0:00:42.680 not coming as imminent as a lot of people make 0:00:42.720 --> 0:00:43.040 it sound. 0:00:43.040 --> 0:00:44.560 And that was sort of your approach last year. 0:00:46.520 --> 0:00:50.080 And here we are another year later, and there's still 0:00:50.080 --> 0:00:51.560 plenty of people calling for the death of the dollar, 0:00:51.720 --> 0:00:53.800 and I'm just curious. I want to sort of recap 0:00:53.800 --> 0:00:56.200 a little bit of twenty twenty three, kind of get 0:00:56.200 --> 0:00:59.000 your sort of outlook on twenty twenty four, Right, now, 0:00:59.360 --> 0:01:01.400 and then I want to look at it in light 0:01:01.480 --> 0:01:04.080 of three big events that I think could potentially shape 0:01:04.080 --> 0:01:06.039 this year, and so we'll get your opinion on these, 0:01:06.040 --> 0:01:09.039 and that one is the massive amounts of debt and 0:01:09.080 --> 0:01:12.800 deficit spending that we're looking at. Number two being an 0:01:12.800 --> 0:01:17.240 election year that always sends maybe drives trends, if you will. 0:01:17.480 --> 0:01:21.200 And then third is wars that seemingly are just continuing 0:01:21.240 --> 0:01:24.160 to escalate and what that could potentially do in all 0:01:24.200 --> 0:01:27.640 of this. So that's sort of the framework of this conversation. 0:01:29.520 --> 0:01:33.480 So let's first just start with the dollar. Everybody's calling 0:01:33.600 --> 0:01:36.679 the death of the dollar. It's been greatly exaggerated. Bricks 0:01:36.720 --> 0:01:39.440 came and went seemingly that kind of didn't go anywhere, 0:01:40.240 --> 0:01:43.839 and surprise, surprise, the world didn't end. The Marcus didn't crash, 0:01:44.040 --> 0:01:46.760 the economy didn't crash, and it held up pretty strong. 0:01:46.920 --> 0:01:49.360 Now i'd like your opinion on this. We'll start with 0:01:49.400 --> 0:01:52.440 this question. Mark Twain said that it's not what you 0:01:52.520 --> 0:01:53.720 don't know that gets you in trouble, it's what you 0:01:53.720 --> 0:01:57.840 absolutely know for certain, and people were certain as soon 0:01:57.880 --> 0:02:00.680 as the risk free rate went up, stocks had to 0:02:01.040 --> 0:02:04.000 they had to have to reprice lower and they were 0:02:04.040 --> 0:02:05.960 also sure that when mortgage rates went up, they had 0:02:06.360 --> 0:02:08.840 to had to home prices had to have to have crash. 0:02:09.400 --> 0:02:12.679 Neither of those things happened. So the dollar made it 0:02:12.720 --> 0:02:15.239 another year. The markets the economy made in the year. 0:02:15.280 --> 0:02:17.240 Like what kind of happened last year? What were you 0:02:17.280 --> 0:02:19.160 surprised by? And kind of frame that up? 0:02:20.680 --> 0:02:24.520 Well, I was not surprised until the last two months. 0:02:24.600 --> 0:02:28.160 I did not think that. I wasn't shocked by the 0:02:28.200 --> 0:02:31.399 last two months. I always try to figure out all 0:02:31.440 --> 0:02:35.200 the different scenarios that could happen, and I knew that 0:02:35.280 --> 0:02:37.360 a melt up could happen, but I didn't think that 0:02:37.440 --> 0:02:42.239 it would. And so, you know, up until about September October, 0:02:43.480 --> 0:02:46.560 you know, I kind of felt like I kind of 0:02:46.639 --> 0:02:49.600 knew what was going on, and I wasn't in the 0:02:49.639 --> 0:02:52.080 melt up camp. I understood the arguments they were making. 0:02:52.200 --> 0:02:54.040 I didn't think they would come to be but they did. 0:02:54.240 --> 0:02:56.440 And so, you know, I'd say the last two to 0:02:56.520 --> 0:03:00.760 three months were somewhat frustrating, not so much much because 0:03:01.200 --> 0:03:03.400 it ruined our year or anything, but you know, you 0:03:03.520 --> 0:03:05.600 always like to be right, and it's never fun to 0:03:05.639 --> 0:03:08.400 be wrong, and that, you know, I was wrong for 0:03:08.440 --> 0:03:11.880 the last two months. But what I think is kind 0:03:11.880 --> 0:03:17.239 of interesting to me is that what I would call 0:03:17.320 --> 0:03:20.360 the cognitive dissonance of the market. And I feel like 0:03:20.480 --> 0:03:23.919 oftentimes the market argues with itself and what I mean 0:03:23.960 --> 0:03:27.960 by that or or or they're kind of they're kind 0:03:28.000 --> 0:03:30.280 of at odds with what they're saying. And I'll give 0:03:30.280 --> 0:03:33.000 you an example. So the melt up in many ways 0:03:33.240 --> 0:03:38.680 took place as a result of the expected FED rate cuts, right, 0:03:39.520 --> 0:03:43.320 And actually much of last year's whole performance was based 0:03:43.360 --> 0:03:47.640 on the idea that the FED was done tightening. It 0:03:47.640 --> 0:03:49.920 was only a matter of time until they started loosening, 0:03:50.480 --> 0:03:53.560 and or the only amount of time before they stopped tightening. 0:03:53.640 --> 0:03:55.560 And then kind of later in the year it became 0:03:56.160 --> 0:04:00.400 when are they going to cut and now or as 0:04:00.400 --> 0:04:02.040 of the end of the year, And even now it's 0:04:02.160 --> 0:04:04.000 kind of priced in that we're going to get seven 0:04:04.080 --> 0:04:07.720 rate cuts in twenty twenty four. But the thing is, 0:04:07.880 --> 0:04:10.520 and so as a result, everybody's buying stocks, right, and 0:04:10.960 --> 0:04:14.080 equities are back at their all time highs. But if 0:04:14.160 --> 0:04:18.080 equities are still at their all time highs and markets 0:04:18.120 --> 0:04:20.039 are still holding up, then they're not going to cut 0:04:20.080 --> 0:04:24.960 seven times in my opinion, In other words, front running 0:04:25.080 --> 0:04:28.640 the cuts has somewhat negated the need for the cuts. 0:04:29.640 --> 0:04:32.599 And secondly is even if we do get seven cuts, 0:04:32.640 --> 0:04:34.760 it's kind of already priced in. So what happens if 0:04:34.760 --> 0:04:36.839 we only get four, right, or what happens if we 0:04:36.880 --> 0:04:41.600 only get three? And in my opinion, if we do 0:04:41.720 --> 0:04:44.640 get seven cuts, it's because the market is falling and 0:04:44.680 --> 0:04:48.120 the economy is not good, not because it's great. And 0:04:48.200 --> 0:04:52.200 so you know, I think to get seven rate cuts 0:04:52.200 --> 0:04:55.200 we need the equity markets and economics to be much 0:04:55.279 --> 0:04:58.680 lower and not at all time high. So so I 0:04:58.720 --> 0:05:02.359 think there's this kind of disc between what drives FED 0:05:02.400 --> 0:05:06.440 policy and what doesn't. So to me, it was kind 0:05:06.440 --> 0:05:10.240 of an interesting year to watch this take place, and 0:05:10.440 --> 0:05:11.480 like I said at the end of the year, is 0:05:11.520 --> 0:05:13.559 kind of frustrating to see this melt up take place, 0:05:13.640 --> 0:05:15.880 which to be honest, we didn't really participate in. So 0:05:15.920 --> 0:05:17.240 that was a little frustrating as well. 0:05:17.640 --> 0:05:19.960 Couldn't you say with that line of thinking, couldn't you 0:05:20.000 --> 0:05:23.560 say that we're I mean, maybe what we're seeing right 0:05:23.600 --> 0:05:27.000 now contradicts that. So like, why is the FED cutting 0:05:27.040 --> 0:05:30.320 when the economy in the market so well, unemployments holding up, 0:05:30.880 --> 0:05:34.360 we're still having positive GDP growth, pretty strong positive GDP 0:05:34.560 --> 0:05:37.440 growth of that matter. And you know a lot of 0:05:37.760 --> 0:05:41.440 pundits online are saying basically that why are they cutting? 0:05:41.440 --> 0:05:43.680 Why are they pivoting when we are so strong? 0:05:45.520 --> 0:05:47.960 So I've got a couple of different reasons why I 0:05:48.000 --> 0:05:51.239 think that could be. And you know, this is probably 0:05:51.240 --> 0:05:52.560 a good time for me to say, is you know, 0:05:52.600 --> 0:05:55.719 when I was kind of younger in the business and 0:05:55.800 --> 0:05:58.920 kind of starting out, I always tried to be right, 0:05:59.480 --> 0:06:01.360 and I always tried to figure out exactly what was 0:06:01.400 --> 0:06:03.560 going to happen. And the older I get, the more 0:06:03.600 --> 0:06:06.400 I realize I just don't know and nobody does. And 0:06:06.480 --> 0:06:09.120 so rather than always trying to be right about everything, 0:06:09.200 --> 0:06:12.440 I now just try to be prepared for anything. So 0:06:12.480 --> 0:06:16.000 I'll tell you kind of why I think they could 0:06:16.279 --> 0:06:19.400 be doing this. But I'm the first one to say 0:06:19.400 --> 0:06:21.680 that I don't really know when neither does anybody else. 0:06:21.720 --> 0:06:25.640 So one theory, or one thing that could be is 0:06:25.680 --> 0:06:30.680 that they have some insight into the trends that are emerging, 0:06:31.200 --> 0:06:36.240 and the trend of whether it's you know, economic numbers 0:06:36.360 --> 0:06:40.360 or reserves available in the banking system, or inflationary pressures, 0:06:41.000 --> 0:06:44.920 and they see us of a bigger slow down coming 0:06:45.160 --> 0:06:48.039 than is currently being reflected kind of in the data. 0:06:48.400 --> 0:06:50.720 But they see the data slowing fast, and they think 0:06:50.760 --> 0:06:53.640 it could slow much faster, and they are trying to 0:06:53.680 --> 0:06:57.800 get out in front of it. That's one possibility. Somewhat 0:06:57.839 --> 0:07:01.440 related to that is that I think and Powell started 0:07:01.480 --> 0:07:04.360 the hiking cycle two years ago. That's the other interesting 0:07:04.400 --> 0:07:06.120 thing is literally if you look at a number of 0:07:06.160 --> 0:07:09.039 different asset classes, they are right now where they were 0:07:09.040 --> 0:07:11.480 two years ago when the whole hiking cycle started. So 0:07:11.480 --> 0:07:14.280 it's kind of interesting that everything's back to where it was, 0:07:14.320 --> 0:07:17.120 except for interest rates are now five percent instead of 0:07:17.200 --> 0:07:21.960 zero percent. But I think when he started his hiking cycle, Powell, 0:07:22.040 --> 0:07:25.000 I mean, I don't think that he believed that he 0:07:25.040 --> 0:07:29.120 would be able to raise interest rates and slow inflation 0:07:29.360 --> 0:07:34.800 without causing a hard landing or a recession. And he 0:07:34.880 --> 0:07:38.080 kind of, you know, he was pretty clear about that. 0:07:38.200 --> 0:07:41.080 He often said, you know, there needs to be pain. 0:07:41.600 --> 0:07:43.960 This isn't going to be easy. You know, you know, 0:07:44.040 --> 0:07:47.280 unemployment will probably lie, you know, profits will probably fall. 0:07:47.520 --> 0:07:51.200 Like he was pretty tough about that initially, and I 0:07:51.240 --> 0:07:53.480 don't think he would have said that if he didn't 0:07:53.480 --> 0:07:55.200 believe it, you know, and he even said the pain 0:07:55.280 --> 0:07:57.720 from a recession, we believe that the pain from a 0:07:57.800 --> 0:08:01.720 recession would be less than the pain from continued inflation. 0:08:02.080 --> 0:08:04.080 So I think he believed that he was going to 0:08:04.080 --> 0:08:06.480 have to cause at least a small recession in order 0:08:06.520 --> 0:08:10.320 to get rates back up and to get inflation under control. 0:08:10.640 --> 0:08:14.000 But I think as he went along and got closer 0:08:14.040 --> 0:08:17.760 and closer, you know, as as equity markets kind of 0:08:18.280 --> 0:08:20.280 you know, they fell initially, and then they ramped up 0:08:20.280 --> 0:08:22.240 over the last year, and as they kind of moved 0:08:22.360 --> 0:08:26.400 back towards their all time highs, and the overall economy 0:08:26.440 --> 0:08:28.760 held up, and we didn't have you know, a real 0:08:28.840 --> 0:08:33.560 estate collapse, and you know, inflation, while maybe it didn't crash, 0:08:33.800 --> 0:08:36.200 it stopped going up as fast and it has started 0:08:36.240 --> 0:08:40.720 to come down. I think that maybe he thought, maybe 0:08:40.800 --> 0:08:43.439 I can pull this off right, maybe I can stick 0:08:43.480 --> 0:08:46.400 this landing. And as a result, then I think he 0:08:46.600 --> 0:08:50.120 probably started trying to be taught at least talk a 0:08:50.160 --> 0:08:54.760 little bit nicer than he had been previously. And then 0:08:54.800 --> 0:08:57.840 I think, you know, I think there is truth to 0:08:57.920 --> 0:09:01.760 the idea that at the at the November he said, 0:09:01.880 --> 0:09:06.040 before we will start to slow before we get to 0:09:06.080 --> 0:09:09.760 two percent, right, so I think what the readings are 0:09:09.760 --> 0:09:12.640 now around four percent, the goal is two percent. It 0:09:12.679 --> 0:09:14.360 does make sense, you don't if you know, if you're 0:09:14.360 --> 0:09:16.480 flying a plane, you don't want to land going five 0:09:16.559 --> 0:09:19.240 hundred miles an hour. It does kind of make sense 0:09:19.280 --> 0:09:22.000 to kind of slow down into the landing. And so 0:09:22.040 --> 0:09:24.440 I think kind of related to that, thinking that he 0:09:24.480 --> 0:09:27.240 can stop or stick this landing, maybe he thinks that, 0:09:27.520 --> 0:09:29.200 you know, it makes sense to kind of start this 0:09:29.320 --> 0:09:32.720 glide path to slow down a little bit. And then, 0:09:33.040 --> 0:09:35.640 which I'm sure is not news to anybody. I think 0:09:35.920 --> 0:09:38.080 it's political. You know, I don't think they want a 0:09:38.120 --> 0:09:41.640 massive recession heading into a presidential election. I think they 0:09:41.640 --> 0:09:44.560 would prefer that things kind of continue going as they are. 0:09:45.160 --> 0:09:47.040 I think he likes being the FED chair. I think 0:09:47.080 --> 0:09:49.360 he would like Biden to reappoint him if Biden gets 0:09:49.360 --> 0:09:52.640 re elected. And I think, you know, if if Trump 0:09:52.640 --> 0:09:55.200 gets re elected, maybe he would stay in that job, 0:09:55.200 --> 0:09:58.800 but maybe he wouldn't. And so I think there's some 0:09:58.840 --> 0:10:00.720 of that as well. I think the FED it is political. 0:10:00.840 --> 0:10:03.720 The people who tell me that the FED is independent, 0:10:04.480 --> 0:10:07.360 I you know, I understand that that's what's written, you know, 0:10:07.600 --> 0:10:09.600 in the textbooks, but I just don't think that's the 0:10:09.640 --> 0:10:11.600 real world. I think they're very political. 0:10:11.679 --> 0:10:12.960 Yeah, of course they're political. 0:10:13.160 --> 0:10:15.640 I would have a hard time understanding how anybody could 0:10:15.640 --> 0:10:17.720 think that they're independent. So I would agree with you 0:10:17.880 --> 0:10:20.560 on that. I think if you look at the PC data, 0:10:20.640 --> 0:10:23.640 it looks like they're way under shooting their target. Potentially 0:10:23.640 --> 0:10:25.800 you could reach the end of twenty twenty four goals 0:10:25.840 --> 0:10:28.200 by like March, and so maybe they're starting to go, oh, shoot, 0:10:28.240 --> 0:10:29.480 we're breaking too hard. 0:10:29.240 --> 0:10:30.960 Like let's let off the brakes a little bit. Yep. 0:10:31.360 --> 0:10:33.880 So we'll see. But I guess that sort of takes 0:10:33.960 --> 0:10:37.560 us into one of the topics I wan't talk about, 0:10:37.559 --> 0:10:41.200 which was the election cycle. So I think maybe only 0:10:41.240 --> 0:10:43.760 one president income and president in a reelection year is 0:10:43.800 --> 0:10:46.920 one during a recession. So if the Democrats want to 0:10:46.920 --> 0:10:48.840 win again, they're going to do anything they can to 0:10:49.040 --> 0:10:50.320 make sure we don't have a recession. 0:10:53.400 --> 0:10:55.320 And you know, I guess they'll use whatever tools they 0:10:55.320 --> 0:10:56.160 have at their disposal. 0:10:56.280 --> 0:10:58.600 So do you think that's going to be enough to 0:10:58.679 --> 0:11:02.160 be able to sort of dry markets this year? I mean, 0:11:02.200 --> 0:11:03.880 do you think that will be the big sort of 0:11:03.920 --> 0:11:07.800 theme that might prevent any of these. Last year, we 0:11:07.880 --> 0:11:10.560 still had lot. I think the general consensus was a 0:11:10.559 --> 0:11:13.840 big recession last year didn't happen. Now the general consensus 0:11:13.840 --> 0:11:15.880 seems to be no recession in twenty twenty four. 0:11:16.320 --> 0:11:21.360 Right, Yeah, And I don't know that we're going to 0:11:21.360 --> 0:11:24.720 get a recession. My kind of base case is that 0:11:24.800 --> 0:11:26.920 at some point this year, whether it's in the first 0:11:26.960 --> 0:11:31.080 half or the second half, we will get a downturn 0:11:31.200 --> 0:11:34.439 in the economy and in the stock market. So I'm 0:11:34.520 --> 0:11:38.880 not in the melt up all year camp now. Having 0:11:38.920 --> 0:11:40.959 been wrong about that last year, I'm the first admit 0:11:41.000 --> 0:11:43.719 that I can paint a scenario where we do get 0:11:43.720 --> 0:11:45.640 a melt up all year, but I think that that 0:11:45.760 --> 0:11:50.040 is unlikely now. Whether we slow down in the first 0:11:50.120 --> 0:11:53.640 half and that causes the FED to really pivot and 0:11:53.679 --> 0:11:56.400 we do get those seven rate cuts as a result 0:11:56.440 --> 0:11:59.200 of them trying to quote unquote save the market and 0:11:59.240 --> 0:12:03.400 goose it higher, or if we get into the you know, 0:12:03.480 --> 0:12:06.000 things kind of stay strong into the summer and then 0:12:06.040 --> 0:12:09.920 into the fall, we get some volatility. I don't know, 0:12:10.000 --> 0:12:12.199 but I do not think that we are going to 0:12:12.280 --> 0:12:16.880 get through twenty twenty four with the vix averaging you 0:12:16.920 --> 0:12:20.959 know below fifteen, Like like the vixes at the all 0:12:21.000 --> 0:12:23.719 time low, equities are at their all time highs. You know, 0:12:23.760 --> 0:12:26.920 I feel like the market is priced to perfection. But 0:12:27.000 --> 0:12:29.600 I just feel like we live in a very unperfect world. 0:12:30.240 --> 0:12:35.679 And as it relates to, you know, politics, I am 0:12:35.760 --> 0:12:38.160 of the belief and again I don't think this is 0:12:38.240 --> 0:12:41.680 necessarily a unique view, but I feel very strongly about 0:12:41.720 --> 0:12:46.199 it that whoever wins, the other side will not accept it. 0:12:47.280 --> 0:12:50.480 So while I think the powers that be, whether it's 0:12:50.480 --> 0:12:53.200 the FED or the Treasury, or the White House or 0:12:53.240 --> 0:12:57.960 the all working in combination, try to keep things moving smoothly, 0:12:59.040 --> 0:13:02.360 I don't. I don't think just because my point is 0:13:02.440 --> 0:13:04.360 just because they want things to go smoothly in a 0:13:04.400 --> 0:13:08.040 presidential election year, I don't think that they necessarily will, 0:13:08.120 --> 0:13:11.800 and typically they do go well in a presidential election year. 0:13:11.840 --> 0:13:13.960 But you know, remember we had COVID in twenty twenty. 0:13:13.960 --> 0:13:17.360 That was a presidential election year. The global financial crisis 0:13:17.480 --> 0:13:21.480 was literally happening right in the middle of the two 0:13:21.520 --> 0:13:25.240 thousand and eight presidential the run up to the presidential 0:13:25.280 --> 0:13:28.120 election that there was even a point where John McCain 0:13:28.160 --> 0:13:32.040 and Barack Obama, you know, suggested suspending their campaigns to 0:13:32.080 --> 0:13:36.199 go back to Washington and focus on the global financial crisis. 0:13:36.240 --> 0:13:40.720 So just because you know, monetary authorities and governments don't 0:13:40.720 --> 0:13:43.360 want bad things to happen, doesn't mean that they won't 0:13:43.400 --> 0:13:46.839 happen anyway. So that's kind of where I come down. 0:13:46.920 --> 0:13:51.160 I think we are going to have high volatility this year. 0:13:51.200 --> 0:13:53.640 Are much higher volatility this year than last year. 0:13:53.720 --> 0:13:55.840 Yeah, that's a really good point that you bring up, 0:13:55.880 --> 0:13:58.640 and you're absolutely right. I remember in twenty sixteen election 0:14:00.160 --> 0:14:01.880 there was a lot of all not so much in 0:14:01.920 --> 0:14:05.720 the markets per se, but certainly throughout the country in 0:14:05.760 --> 0:14:07.920 the economy. I think there was like six different cities 0:14:07.960 --> 0:14:10.520 that were on fire that was sort of like BLM 0:14:10.640 --> 0:14:13.640 was kind of taking over. Riots happening everywhere, and so 0:14:15.040 --> 0:14:18.400 already the talk of this being the most important election ever. 0:14:18.240 --> 0:14:21.080 And so whatever we've seen, everyone is right. 0:14:21.200 --> 0:14:24.200 Yeah, well it seems like everyone becomes more and more important. 0:14:24.760 --> 0:14:27.560 But it seems that maybe some of that disruption we 0:14:27.640 --> 0:14:29.520 might see might be amplified. 0:14:30.440 --> 0:14:32.480 Now if we jumped to a little bit of. 0:14:32.480 --> 0:14:35.480 A higher level, maybe sort of maybe Warrior a little 0:14:35.520 --> 0:14:37.040 bit more better known for at least from what I 0:14:37.120 --> 0:14:40.680 see on Twitter, sort of looking at the fiscal side 0:14:40.720 --> 0:14:44.560 of things and the Treasury. It seems like, you know, 0:14:44.640 --> 0:14:46.880 the Fed sort of got neutered a little bit by 0:14:46.920 --> 0:14:49.000 trying to bring the pain pain, pain to the point 0:14:49.080 --> 0:14:51.320 that you said earlier, because they can only make you 0:14:51.360 --> 0:14:54.000 and I feel pain. But Janet yelling over at the 0:14:54.000 --> 0:14:58.360 Treasury wants to continue this deficit spending like we're in 0:14:58.400 --> 0:15:00.280 World War seven or something. 0:15:00.720 --> 0:15:01.640 I don't even know who we're at. 0:15:01.680 --> 0:15:03.840 Like they spend so much definite spending, and it's like 0:15:03.880 --> 0:15:07.600 almost no matter how broke Jerome Powell makes you and I, 0:15:07.720 --> 0:15:11.680 you have the Treasury spending that much and they're continuing 0:15:11.720 --> 0:15:14.040 to spend that much. The deficit is continuing to grow, 0:15:15.520 --> 0:15:18.200 and at the same time, we've already started to see 0:15:18.360 --> 0:15:21.360 it seems like some dysfunction happening in the treasury markets. 0:15:21.680 --> 0:15:23.160 You might disagree with that, so I'd like to hear 0:15:23.200 --> 0:15:25.200 your point, but we've seen some tales happening in some 0:15:25.240 --> 0:15:27.640 of these auctions, and it seems like, I know a 0:15:27.640 --> 0:15:32.480 lot of people would say that the foreign governments aren't 0:15:32.520 --> 0:15:34.440 buying as much treasury debt, and I know you have 0:15:34.480 --> 0:15:36.280 an answer for that, but when I look at some 0:15:36.320 --> 0:15:39.000 of the auctions, it looks like they're buying almost as much. 0:15:39.080 --> 0:15:42.360 It's just there's more supply than there was before. So anyway, 0:15:42.360 --> 0:15:44.480 what's your outlook on sort of that debt and that 0:15:44.480 --> 0:15:45.400 fiscal side. 0:15:47.160 --> 0:15:51.160 Yeah, so the first thing I'll say is that whatever 0:15:51.440 --> 0:15:56.160 your projections for the budget deficit and the national debt are, 0:15:56.200 --> 0:15:57.480 I think they're too low. 0:15:58.840 --> 0:16:01.080 And the CBO has are. 0:16:01.120 --> 0:16:05.240 Out right, yeah and so and so this this often 0:16:05.280 --> 0:16:08.200 gets me painted as kind of well, this is why 0:16:08.400 --> 0:16:11.320 my whole thesis of the dollar getting stronger is often 0:16:11.440 --> 0:16:14.720 kind of confusing to people, because a lot of people 0:16:14.800 --> 0:16:17.720 will say, because they're going to spend so much money, 0:16:18.160 --> 0:16:21.360 because they're borrowing so much that they will never be 0:16:21.400 --> 0:16:24.240 able to pay back, then therefore that means they're going 0:16:24.280 --> 0:16:26.640 to have to print a bunch of dollars and the 0:16:26.680 --> 0:16:30.120 dollar is going to lose value. And in the overall 0:16:30.280 --> 0:16:33.880 long scope of history, that is probably true. But if 0:16:33.920 --> 0:16:38.240 we get back to the whole you know, eminent versus inevitable. 0:16:38.400 --> 0:16:40.840 You know that you mentioned at the very top of 0:16:40.880 --> 0:16:44.320 the hour, and the thing that people need to remember, 0:16:44.440 --> 0:16:46.280 and we don't need to go too far down this path, 0:16:46.360 --> 0:16:49.120 is that is that currencies trade relative to each other. 0:16:49.160 --> 0:16:51.960 They didn't always, but they do now. And you know, 0:16:51.960 --> 0:16:54.560 we're no longer on a gold standard. The whole world 0:16:54.600 --> 0:16:57.120 is on a US dollar standard now. Whether you think 0:16:57.160 --> 0:16:58.960 they should be or whether you think they shouldn't be, 0:16:59.400 --> 0:17:01.920 that's an entirely different debate. The fact is, as they are. 0:17:02.280 --> 0:17:06.200 The whole world uses dollars. And while our budget deficit 0:17:06.320 --> 0:17:10.760 is enormous and our budget and our national debt is enormous, 0:17:11.520 --> 0:17:13.800 every other country is running a budget deficit as well, 0:17:13.880 --> 0:17:16.360 and they're spending a lot of money as well, and 0:17:16.760 --> 0:17:19.359 they don't have nearly the amount of advantages that the 0:17:19.440 --> 0:17:22.200 United States does, and so on a relative basis, there 0:17:22.320 --> 0:17:26.320 is demand for US treasury bonds and US dollars and 0:17:26.400 --> 0:17:31.720 that sort of gives the the the US government the 0:17:31.800 --> 0:17:37.360 ability to get away with these ridiculous policies more than 0:17:37.400 --> 0:17:39.560 say some other You know, if if Turkey was running 0:17:39.560 --> 0:17:43.040 these policies, or South Africa or you know, Argentina or 0:17:43.080 --> 0:17:45.000 whatever it is, then you're going to see their currency 0:17:45.000 --> 0:17:47.399 falling a lot. But we have, you know, we have, 0:17:47.760 --> 0:17:50.720 and we have right. But that is there is a 0:17:50.800 --> 0:17:53.119 difference again, whether you think there should be or not, 0:17:54.440 --> 0:17:57.119 in the real world, there is a difference between the 0:17:57.160 --> 0:18:00.359 country issuing the global reserve currency and a periphery country 0:18:00.359 --> 0:18:05.479 that nobody needs their currency. And so, but what I 0:18:05.560 --> 0:18:10.680 think probably happens barring a crisis. So barring a crisis, well, 0:18:10.720 --> 0:18:13.960 the same thing is is this could even cause the crisis. 0:18:14.760 --> 0:18:17.639 Is that if we get into some kind of a 0:18:18.160 --> 0:18:21.280 mass liquidating market like we had in two thousand and eight, 0:18:21.400 --> 0:18:26.400 like we had in twenty twenty, then I think treasury 0:18:26.400 --> 0:18:30.000 bonds may very well rally dramatically and interest rates could fall. 0:18:31.680 --> 0:18:34.560 But if we don't have that, what I think could 0:18:34.600 --> 0:18:38.000 also happen is I've been saying for many years that 0:18:38.080 --> 0:18:43.600 we are headed towards a sovereign debt crisis where countries 0:18:43.840 --> 0:18:47.880 get into trouble, not just corporations or companies or families, right, 0:18:48.440 --> 0:18:54.560 And in that scenario, global interest rates rise because nobody 0:18:54.600 --> 0:18:57.040 wants to buy those bonds or those or those countries 0:18:57.080 --> 0:18:59.399 have to pay more in order to get people to 0:18:59.400 --> 0:19:02.280 buy their bonds. Now, I think that that if the 0:19:02.400 --> 0:19:05.040 US continues to spend at the rate that they are, 0:19:05.680 --> 0:19:08.400 and we avoid some kind of a liquidating marker where 0:19:08.440 --> 0:19:11.800 everybody does a scramble for treasuries, then it would not 0:19:11.880 --> 0:19:13.720 surprise me at all. To see the ten year back 0:19:13.760 --> 0:19:16.080 at five percent wouldn't surprise me. To see it go 0:19:16.119 --> 0:19:19.600 to six or seven percent over the next couple of years. Now, 0:19:19.680 --> 0:19:21.960 then again people will say, well, this is horrible for 0:19:22.000 --> 0:19:24.600 the US because then the interest expense is going to 0:19:24.640 --> 0:19:27.119 be two trillion a year rather than one whatever. Whatever 0:19:27.119 --> 0:19:29.960 the number is right, and again in the very long 0:19:30.080 --> 0:19:32.679 arc of history, I agree. But in the short term, 0:19:34.040 --> 0:19:38.240 in the short term, I think other currencies and other 0:19:38.320 --> 0:19:40.800 sovereign bonds will get rejected as well. So, in other words, 0:19:40.920 --> 0:19:45.080 even though governments around the world are institutions around there, 0:19:45.240 --> 0:19:48.080 what maybe don't want to buy treasuries at the same 0:19:48.160 --> 0:19:51.040 rate as they used to. I don't think that they're 0:19:51.040 --> 0:19:54.399 going to buy Italian treasuries instead of US treasuries. I 0:19:54.400 --> 0:19:57.040 don't think they're going to start buying Canadian treasuries instead 0:19:57.040 --> 0:19:59.520 of US treasuries. In other words, I think we could 0:19:59.520 --> 0:20:02.199 get into a scenario where all interest rates rise on 0:20:02.320 --> 0:20:06.760 government bonds and that and if the US Treasury is 0:20:06.840 --> 0:20:09.760 paying let's call it five or six, six, six or 0:20:09.760 --> 0:20:13.440 seven percent on their ten year treasury. To me, this 0:20:13.520 --> 0:20:17.639 is a nightmare for emerging markets because one of the 0:20:17.680 --> 0:20:21.680 way that emerging markets gets access to funding, is they 0:20:21.720 --> 0:20:25.760 pay more than the US Treasury, right if you need 0:20:25.880 --> 0:20:28.479 if you need dollars to operate on the global stage, 0:20:29.000 --> 0:20:31.760 but you don't need Turkish lira to operate on those 0:20:31.800 --> 0:20:35.040 global stage, or you don't need uh, you know, tie 0:20:35.080 --> 0:20:38.679 bonds ti bot in order to operate on the global stage, 0:20:39.359 --> 0:20:41.680 and they're both yielding the same, You're going to buy 0:20:41.680 --> 0:20:45.480 a US treasury it just makes more sense. And so 0:20:46.320 --> 0:20:48.760 if we get higher yields in the on the in 0:20:48.840 --> 0:20:53.199 the US Treasury, this could cause a funding problem for 0:20:53.320 --> 0:20:57.080 the rest of the world, which could then kind of 0:20:57.160 --> 0:21:02.000 kick off this global sovereign debt cry basis or currency 0:21:02.040 --> 0:21:06.440 crisis that I think at some point will happen. So 0:21:06.040 --> 0:21:09.000