Speaker 1: All right, Brent Johnson, Santiago Capital, otherwise known as the
Speaker 1: dollar milkshake guy, and if you're on Twitter, one who
Speaker 1: likes to poke fund and everybody who thinks the death
Speaker 1: of the dollar is coming anyway, Brent, always a pleasure to.
Speaker 2: Catch up with you. Thanks for joining me.
Speaker 3: Yeah, yeah, happy to be here. I'm looking forward to
Speaker 3: talking to you.
Speaker 2: Yeah.
Speaker 1: So we're framing up sort of twenty twenty four. And
Speaker 1: you know, it was a year ago. About a year ago,
Speaker 1: you and I were in Vancouver at a conference together,
Speaker 1: and I remember you talking about part of the reason
Speaker 1: why I like to continue to kind of pound on
Speaker 1: the dollar and sort of go in the face of
Speaker 1: all these death of the dollar guys, isn't because I
Speaker 1: believe the dollar goes on forever. It's just that it's
Speaker 1: not coming as imminent as a lot of people make
Speaker 1: it sound.
Speaker 2: And that was sort of your approach last year.
Speaker 1: And here we are another year later, and there's still
Speaker 1: plenty of people calling for the death of the dollar,
Speaker 1: and I'm just curious. I want to sort of recap
Speaker 1: a little bit of twenty twenty three, kind of get
Speaker 1: your sort of outlook on twenty twenty four, Right, now,
Speaker 1: and then I want to look at it in light
Speaker 1: of three big events that I think could potentially shape
Speaker 1: this year, and so we'll get your opinion on these,
Speaker 1: and that one is the massive amounts of debt and
Speaker 1: deficit spending that we're looking at. Number two being an
Speaker 1: election year that always sends maybe drives trends, if you will.
Speaker 1: And then third is wars that seemingly are just continuing
Speaker 1: to escalate and what that could potentially do in all
Speaker 1: of this. So that's sort of the framework of this conversation.
Speaker 1: So let's first just start with the dollar. Everybody's calling
Speaker 1: the death of the dollar. It's been greatly exaggerated. Bricks
Speaker 1: came and went seemingly that kind of didn't go anywhere,
Speaker 1: and surprise, surprise, the world didn't end. The Marcus didn't crash,
Speaker 1: the economy didn't crash, and it held up pretty strong.
Speaker 1: Now i'd like your opinion on this. We'll start with
Speaker 1: this question. Mark Twain said that it's not what you
Speaker 1: don't know that gets you in trouble, it's what you
Speaker 1: absolutely know for certain, and people were certain as soon
Speaker 1: as the risk free rate went up, stocks had to
Speaker 1: they had to have to reprice lower and they were
Speaker 1: also sure that when mortgage rates went up, they had
Speaker 1: to had to home prices had to have to have crash.
Speaker 1: Neither of those things happened. So the dollar made it
Speaker 1: another year. The markets the economy made in the year.
Speaker 1: Like what kind of happened last year? What were you
Speaker 1: surprised by? And kind of frame that up?
Speaker 3: Well, I was not surprised until the last two months.
Speaker 3: I did not think that. I wasn't shocked by the
Speaker 3: last two months. I always try to figure out all
Speaker 3: the different scenarios that could happen, and I knew that
Speaker 3: a melt up could happen, but I didn't think that
Speaker 3: it would. And so, you know, up until about September October,
Speaker 3: you know, I kind of felt like I kind of
Speaker 3: knew what was going on, and I wasn't in the
Speaker 3: melt up camp. I understood the arguments they were making.
Speaker 3: I didn't think they would come to be but they did.
Speaker 3: And so, you know, I'd say the last two to
Speaker 3: three months were somewhat frustrating, not so much much because
Speaker 3: it ruined our year or anything, but you know, you
Speaker 3: always like to be right, and it's never fun to
Speaker 3: be wrong, and that, you know, I was wrong for
Speaker 3: the last two months. But what I think is kind
Speaker 3: of interesting to me is that what I would call
Speaker 3: the cognitive dissonance of the market. And I feel like
Speaker 3: oftentimes the market argues with itself and what I mean
Speaker 3: by that or or or they're kind of they're kind
Speaker 3: of at odds with what they're saying. And I'll give
Speaker 3: you an example. So the melt up in many ways
Speaker 3: took place as a result of the expected FED rate cuts, right,
Speaker 3: And actually much of last year's whole performance was based
Speaker 3: on the idea that the FED was done tightening. It
Speaker 3: was only a matter of time until they started loosening,
Speaker 3: and or the only amount of time before they stopped tightening.
Speaker 3: And then kind of later in the year it became
Speaker 3: when are they going to cut and now or as
Speaker 3: of the end of the year, And even now it's
Speaker 3: kind of priced in that we're going to get seven
Speaker 3: rate cuts in twenty twenty four. But the thing is,
Speaker 3: and so as a result, everybody's buying stocks, right, and
Speaker 3: equities are back at their all time highs. But if
Speaker 3: equities are still at their all time highs and markets
Speaker 3: are still holding up, then they're not going to cut
Speaker 3: seven times in my opinion, In other words, front running
Speaker 3: the cuts has somewhat negated the need for the cuts.
Speaker 3: And secondly is even if we do get seven cuts,
Speaker 3: it's kind of already priced in. So what happens if
Speaker 3: we only get four, right, or what happens if we
Speaker 3: only get three? And in my opinion, if we do
Speaker 3: get seven cuts, it's because the market is falling and
Speaker 3: the economy is not good, not because it's great. And
Speaker 3: so you know, I think to get seven rate cuts
Speaker 3: we need the equity markets and economics to be much
Speaker 3: lower and not at all time high. So so I
Speaker 3: think there's this kind of disc between what drives FED
Speaker 3: policy and what doesn't. So to me, it was kind
Speaker 3: of an interesting year to watch this take place, and
Speaker 3: like I said at the end of the year, is
Speaker 3: kind of frustrating to see this melt up take place,
Speaker 3: which to be honest, we didn't really participate in. So
Speaker 3: that was a little frustrating as well.
Speaker 1: Couldn't you say with that line of thinking, couldn't you
Speaker 1: say that we're I mean, maybe what we're seeing right
Speaker 1: now contradicts that. So like, why is the FED cutting
Speaker 1: when the economy in the market so well, unemployments holding up,
Speaker 1: we're still having positive GDP growth, pretty strong positive GDP
Speaker 1: growth of that matter. And you know a lot of
Speaker 1: pundits online are saying basically that why are they cutting?
Speaker 2: Why are they pivoting when we are so strong?
Speaker 3: So I've got a couple of different reasons why I
Speaker 3: think that could be. And you know, this is probably
Speaker 3: a good time for me to say, is you know,
Speaker 3: when I was kind of younger in the business and
Speaker 3: kind of starting out, I always tried to be right,
Speaker 3: and I always tried to figure out exactly what was
Speaker 3: going to happen. And the older I get, the more
Speaker 3: I realize I just don't know and nobody does. And
Speaker 3: so rather than always trying to be right about everything,
Speaker 3: I now just try to be prepared for anything. So
Speaker 3: I'll tell you kind of why I think they could
Speaker 3: be doing this. But I'm the first one to say
Speaker 3: that I don't really know when neither does anybody else.
Speaker 3: So one theory, or one thing that could be is
Speaker 3: that they have some insight into the trends that are emerging,
Speaker 3: and the trend of whether it's you know, economic numbers
Speaker 3: or reserves available in the banking system, or inflationary pressures,
Speaker 3: and they see us of a bigger slow down coming
Speaker 3: than is currently being reflected kind of in the data.
Speaker 3: But they see the data slowing fast, and they think
Speaker 3: it could slow much faster, and they are trying to
Speaker 3: get out in front of it. That's one possibility. Somewhat
Speaker 3: related to that is that I think and Powell started
Speaker 3: the hiking cycle two years ago. That's the other interesting
Speaker 3: thing is literally if you look at a number of
Speaker 3: different asset classes, they are right now where they were
Speaker 3: two years ago when the whole hiking cycle started. So
Speaker 3: it's kind of interesting that everything's back to where it was,
Speaker 3: except for interest rates are now five percent instead of
Speaker 3: zero percent. But I think when he started his hiking cycle, Powell,
Speaker 3: I mean, I don't think that he believed that he
Speaker 3: would be able to raise interest rates and slow inflation
Speaker 3: without causing a hard landing or a recession. And he
Speaker 3: kind of, you know, he was pretty clear about that.
Speaker 3: He often said, you know, there needs to be pain.
Speaker 3: This isn't going to be easy. You know, you know,
Speaker 3: unemployment will probably lie, you know, profits will probably fall.
Speaker 3: Like he was pretty tough about that initially, and I
Speaker 3: don't think he would have said that if he didn't
Speaker 3: believe it, you know, and he even said the pain
Speaker 3: from a recession, we believe that the pain from a
Speaker 3: recession would be less than the pain from continued inflation.
Speaker 3: So I think he believed that he was going to
Speaker 3: have to cause at least a small recession in order
Speaker 3: to get rates back up and to get inflation under control.
Speaker 3: But I think as he went along and got closer
Speaker 3: and closer, you know, as as equity markets kind of
Speaker 3: you know, they fell initially, and then they ramped up
Speaker 3: over the last year, and as they kind of moved
Speaker 3: back towards their all time highs, and the overall economy
Speaker 3: held up, and we didn't have you know, a real
Speaker 3: estate collapse, and you know, inflation, while maybe it didn't crash,
Speaker 3: it stopped going up as fast and it has started
Speaker 3: to come down. I think that maybe he thought, maybe
Speaker 3: I can pull this off right, maybe I can stick
Speaker 3: this landing. And as a result, then I think he
Speaker 3: probably started trying to be taught at least talk a
Speaker 3: little bit nicer than he had been previously. And then
Speaker 3: I think, you know, I think there is truth to
Speaker 3: the idea that at the at the November he said,
Speaker 3: before we will start to slow before we get to
Speaker 3: two percent, right, so I think what the readings are
Speaker 3: now around four percent, the goal is two percent. It
Speaker 3: does make sense, you don't if you know, if you're
Speaker 3: flying a plane, you don't want to land going five
Speaker 3: hundred miles an hour. It does kind of make sense
Speaker 3: to kind of slow down into the landing. And so
Speaker 3: I think kind of related to that, thinking that he
Speaker 3: can stop or stick this landing, maybe he thinks that,
Speaker 3: you know, it makes sense to kind of start this
Speaker 3: glide path to slow down a little bit. And then,
Speaker 3: which I'm sure is not news to anybody. I think
Speaker 3: it's political. You know, I don't think they want a
Speaker 3: massive recession heading into a presidential election. I think they
Speaker 3: would prefer that things kind of continue going as they are.
Speaker 3: I think he likes being the FED chair. I think
Speaker 3: he would like Biden to reappoint him if Biden gets
Speaker 3: re elected. And I think, you know, if if Trump
Speaker 3: gets re elected, maybe he would stay in that job,
Speaker 3: but maybe he wouldn't. And so I think there's some
Speaker 3: of that as well. I think the FED it is political.
Speaker 3: The people who tell me that the FED is independent,
Speaker 3: I you know, I understand that that's what's written, you know,
Speaker 3: in the textbooks, but I just don't think that's the
Speaker 3: real world. I think they're very political.
Speaker 2: Yeah, of course they're political.
Speaker 1: I would have a hard time understanding how anybody could
Speaker 1: think that they're independent. So I would agree with you
Speaker 1: on that. I think if you look at the PC data,
Speaker 1: it looks like they're way under shooting their target. Potentially
Speaker 1: you could reach the end of twenty twenty four goals
Speaker 1: by like March, and so maybe they're starting to go, oh, shoot,
Speaker 1: we're breaking too hard.
Speaker 2: Like let's let off the brakes a little bit. Yep.
Speaker 1: So we'll see. But I guess that sort of takes
Speaker 1: us into one of the topics I wan't talk about,
Speaker 1: which was the election cycle. So I think maybe only
Speaker 1: one president income and president in a reelection year is
Speaker 1: one during a recession. So if the Democrats want to
Speaker 1: win again, they're going to do anything they can to
Speaker 1: make sure we don't have a recession.
Speaker 2: And you know, I guess they'll use whatever tools they
Speaker 2: have at their disposal.
Speaker 1: So do you think that's going to be enough to
Speaker 1: be able to sort of dry markets this year? I mean,
Speaker 1: do you think that will be the big sort of
Speaker 1: theme that might prevent any of these. Last year, we
Speaker 1: still had lot. I think the general consensus was a
Speaker 1: big recession last year didn't happen. Now the general consensus
Speaker 1: seems to be no recession in twenty twenty four.
Speaker 3: Right, Yeah, And I don't know that we're going to
Speaker 3: get a recession. My kind of base case is that
Speaker 3: at some point this year, whether it's in the first
Speaker 3: half or the second half, we will get a downturn
Speaker 3: in the economy and in the stock market. So I'm
Speaker 3: not in the melt up all year camp now. Having
Speaker 3: been wrong about that last year, I'm the first admit
Speaker 3: that I can paint a scenario where we do get
Speaker 3: a melt up all year, but I think that that
Speaker 3: is unlikely now. Whether we slow down in the first
Speaker 3: half and that causes the FED to really pivot and
Speaker 3: we do get those seven rate cuts as a result
Speaker 3: of them trying to quote unquote save the market and
Speaker 3: goose it higher, or if we get into the you know,
Speaker 3: things kind of stay strong into the summer and then
Speaker 3: into the fall, we get some volatility. I don't know,
Speaker 3: but I do not think that we are going to
Speaker 3: get through twenty twenty four with the vix averaging you
Speaker 3: know below fifteen, Like like the vixes at the all
Speaker 3: time low, equities are at their all time highs. You know,
Speaker 3: I feel like the market is priced to perfection. But
Speaker 3: I just feel like we live in a very unperfect world.
Speaker 3: And as it relates to, you know, politics, I am
Speaker 3: of the belief and again I don't think this is
Speaker 3: necessarily a unique view, but I feel very strongly about
Speaker 3: it that whoever wins, the other side will not accept it.
Speaker 3: So while I think the powers that be, whether it's
Speaker 3: the FED or the Treasury, or the White House or
Speaker 3: the all working in combination, try to keep things moving smoothly,
Speaker 3: I don't. I don't think just because my point is
Speaker 3: just because they want things to go smoothly in a
Speaker 3: presidential election year, I don't think that they necessarily will,
Speaker 3: and typically they do go well in a presidential election year.
Speaker 3: But you know, remember we had COVID in twenty twenty.
Speaker 3: That was a presidential election year. The global financial crisis
Speaker 3: was literally happening right in the middle of the two
Speaker 3: thousand and eight presidential the run up to the presidential
Speaker 3: election that there was even a point where John McCain
Speaker 3: and Barack Obama, you know, suggested suspending their campaigns to
Speaker 3: go back to Washington and focus on the global financial crisis.
Speaker 3: So just because you know, monetary authorities and governments don't
Speaker 3: want bad things to happen, doesn't mean that they won't
Speaker 3: happen anyway. So that's kind of where I come down.
Speaker 3: I think we are going to have high volatility this year.
Speaker 3: Are much higher volatility this year than last year.
Speaker 1: Yeah, that's a really good point that you bring up,
Speaker 1: and you're absolutely right. I remember in twenty sixteen election
Speaker 1: there was a lot of all not so much in
Speaker 1: the markets per se, but certainly throughout the country in
Speaker 1: the economy. I think there was like six different cities
Speaker 1: that were on fire that was sort of like BLM
Speaker 1: was kind of taking over. Riots happening everywhere, and so
Speaker 1: already the talk of this being the most important election ever.
Speaker 3: And so whatever we've seen, everyone is right.
Speaker 1: Yeah, well it seems like everyone becomes more and more important.
Speaker 1: But it seems that maybe some of that disruption we
Speaker 1: might see might be amplified.
Speaker 2: Now if we jumped to a little bit of.
Speaker 1: A higher level, maybe sort of maybe Warrior a little
Speaker 1: bit more better known for at least from what I
Speaker 1: see on Twitter, sort of looking at the fiscal side
Speaker 1: of things and the Treasury. It seems like, you know,
Speaker 1: the Fed sort of got neutered a little bit by
Speaker 1: trying to bring the pain pain, pain to the point
Speaker 1: that you said earlier, because they can only make you
Speaker 1: and I feel pain. But Janet yelling over at the
Speaker 1: Treasury wants to continue this deficit spending like we're in
Speaker 1: World War seven or something.
Speaker 2: I don't even know who we're at.
Speaker 1: Like they spend so much definite spending, and it's like
Speaker 1: almost no matter how broke Jerome Powell makes you and I,
Speaker 1: you have the Treasury spending that much and they're continuing
Speaker 1: to spend that much. The deficit is continuing to grow,
Speaker 1: and at the same time, we've already started to see
Speaker 1: it seems like some dysfunction happening in the treasury markets.
Speaker 1: You might disagree with that, so I'd like to hear
Speaker 1: your point, but we've seen some tales happening in some
Speaker 1: of these auctions, and it seems like, I know a
Speaker 1: lot of people would say that the foreign governments aren't
Speaker 1: buying as much treasury debt, and I know you have
Speaker 1: an answer for that, but when I look at some
Speaker 1: of the auctions, it looks like they're buying almost as much.
Speaker 1: It's just there's more supply than there was before. So anyway,
Speaker 1: what's your outlook on sort of that debt and that
Speaker 1: fiscal side.
Speaker 3: Yeah, so the first thing I'll say is that whatever
Speaker 3: your projections for the budget deficit and the national debt are,
Speaker 3: I think they're too low.
Speaker 2: And the CBO has are.
Speaker 3: Out right, yeah and so and so this this often
Speaker 3: gets me painted as kind of well, this is why
Speaker 3: my whole thesis of the dollar getting stronger is often
Speaker 3: kind of confusing to people, because a lot of people
Speaker 3: will say, because they're going to spend so much money,
Speaker 3: because they're borrowing so much that they will never be
Speaker 3: able to pay back, then therefore that means they're going
Speaker 3: to have to print a bunch of dollars and the
Speaker 3: dollar is going to lose value. And in the overall
Speaker 3: long scope of history, that is probably true. But if
Speaker 3: we get back to the whole you know, eminent versus inevitable.
Speaker 3: You know that you mentioned at the very top of
Speaker 3: the hour, and the thing that people need to remember,
Speaker 3: and we don't need to go too far down this path,
Speaker 3: is that is that currencies trade relative to each other.
Speaker 3: They didn't always, but they do now. And you know,
Speaker 3: we're no longer on a gold standard. The whole world
Speaker 3: is on a US dollar standard now. Whether you think
Speaker 3: they should be or whether you think they shouldn't be,
Speaker 3: that's an entirely different debate. The fact is, as they are.
Speaker 3: The whole world uses dollars. And while our budget deficit
Speaker 3: is enormous and our budget and our national debt is enormous,
Speaker 3: every other country is running a budget deficit as well,
Speaker 3: and they're spending a lot of money as well, and
Speaker 3: they don't have nearly the amount of advantages that the
Speaker 3: United States does, and so on a relative basis, there
Speaker 3: is demand for US treasury bonds and US dollars and
Speaker 3: that sort of gives the the the US government the
Speaker 3: ability to get away with these ridiculous policies more than
Speaker 3: say some other You know, if if Turkey was running
Speaker 3: these policies, or South Africa or you know, Argentina or
Speaker 3: whatever it is, then you're going to see their currency
Speaker 3: falling a lot. But we have, you know, we have,
Speaker 3: and we have right. But that is there is a
Speaker 3: difference again, whether you think there should be or not,
Speaker 3: in the real world, there is a difference between the
Speaker 3: country issuing the global reserve currency and a periphery country
Speaker 3: that nobody needs their currency. And so, but what I
Speaker 3: think probably happens barring a crisis. So barring a crisis, well,
Speaker 3: the same thing is is this could even cause the crisis.
Speaker 3: Is that if we get into some kind of a
Speaker 3: mass liquidating market like we had in two thousand and eight,
Speaker 3: like we had in twenty twenty, then I think treasury
Speaker 3: bonds may very well rally dramatically and interest rates could fall.
Speaker 3: But if we don't have that, what I think could
Speaker 3: also happen is I've been saying for many years that
Speaker 3: we are headed towards a sovereign debt crisis where countries
Speaker 3: get into trouble, not just corporations or companies or families, right,
Speaker 3: And in that scenario, global interest rates rise because nobody
Speaker 3: wants to buy those bonds or those or those countries
Speaker 3: have to pay more in order to get people to
Speaker 3: buy their bonds. Now, I think that that if the
Speaker 3: US continues to spend at the rate that they are,
Speaker 3: and we avoid some kind of a liquidating marker where
Speaker 3: everybody does a scramble for treasuries, then it would not
Speaker 3: surprise me at all. To see the ten year back
Speaker 3: at five percent wouldn't surprise me. To see it go
Speaker 3: to six or seven percent over the next couple of years. Now,
Speaker 3: then again people will say, well, this is horrible for
Speaker 3: the US because then the interest expense is going to
Speaker 3: be two trillion a year rather than one whatever. Whatever
Speaker 3: the number is right, and again in the very long
Speaker 3: arc of history, I agree. But in the short term,
Speaker 3: in the short term, I think other currencies and other
Speaker 3: sovereign bonds will get rejected as well. So, in other words,
Speaker 3: even though governments around the world are institutions around there,
Speaker 3: what maybe don't want to buy treasuries at the same
Speaker 3: rate as they used to. I don't think that they're
Speaker 3: going to buy Italian treasuries instead of US treasuries. I
Speaker 3: don't think they're going to start buying Canadian treasuries instead
Speaker 3: of US treasuries. In other words, I think we could
Speaker 3: get into a scenario where all interest rates rise on
Speaker 3: government bonds and that and if the US Treasury is
Speaker 3: paying let's call it five or six, six, six or
Speaker 3: seven percent on their ten year treasury. To me, this
Speaker 3: is a nightmare for emerging markets because one of the
Speaker 3: way that emerging markets gets access to funding, is they
Speaker 3: pay more than the US Treasury, right if you need
Speaker 3: if you need dollars to operate on the global stage,
Speaker 3: but you don't need Turkish lira to operate on those
Speaker 3: global stage, or you don't need uh, you know, tie
Speaker 3: bonds ti bot in order to operate on the global stage,
Speaker 3: and they're both yielding the same, You're going to buy
Speaker 3: a US treasury it just makes more sense. And so
Speaker 3: if we get higher yields in the on the in
Speaker 3: the US Treasury, this could cause a funding problem for
Speaker 3: the rest of the world, which could then kind of
Speaker 3: kick off this global sovereign debt cry basis or currency
Speaker 3: crisis that I think at some point will happen. So
Speaker 3: so I'm going to get to your your your your
Speaker 3: question about the treasury auctions, and this is where the
Speaker 3: treasury auctions come into hand. I don't think we are
Speaker 3: going to have a failed US Treasury auction. And this
Speaker 3: is probably too long of it that we can get
Speaker 3: into it if you want to. But there's several operational
Speaker 3: reasons why I don't think we have one, but the
Speaker 3: the treasury tails that you mentioned. Oftentimes, these these auctions
Speaker 3: are usually well they're always over subscribed, right, so if
Speaker 3: they auction I'm just going to make up a number.
Speaker 3: But if they're auctioning off one hundred billion dollars worth
Speaker 3: of Treasury bonds, there's two to three hundred billion dollars
Speaker 3: worth of interest on these or or you know, people
Speaker 3: bidding for these bonds. So we've never been close to
Speaker 3: a failed auction. But you know, in order to place
Speaker 3: all those bonds, you know they are asking for a
Speaker 3: higher yield, or there have been cases where they've asked
Speaker 3: for a higher yield to finish off the auction, and
Speaker 3: therefore you get these tales that you were mentioning. So
Speaker 3: I think, but I think it's important to remember that
Speaker 3: it's not a case where nobody's showing up to the auction.
Speaker 3: All of the auctions are always over subscribed. Could we
Speaker 3: get into a situation where nobody shows up? Theoretically yes,
Speaker 3: but again, and it's really hard to see that happen.
Speaker 3: I do not believe it's possible that we would have
Speaker 3: a failed US Treasury auction. But again, France continues to
Speaker 3: be funded, Italy be's funded, South Africa's funded, Egypt's funded,
Speaker 3: Australia's funded again, you know, the US dollar kind of
Speaker 3: says at the base of the pyramid, it's really hard
Speaker 3: to have the foundation of a house fall and not
Speaker 3: have the rest of the house go with it. It's possible,
Speaker 3: but it's very unlikely.
Speaker 2: Yeah.
Speaker 1: The one thing I learned very or very early on
Speaker 1: in my investing career was money goes where it's treated best.
Speaker 1: And I think that's sort of what you're saying. So
Speaker 1: it's not to go to Turkey or Argentina. So it's
Speaker 1: gonna go worad's treated best. And so what we'll probably
Speaker 1: see and to your to your thesis, the milkshake thesis,
Speaker 1: is that the dollar will continue to be, as most
Speaker 1: people say, the cleanest shirt in the dirty laundry or
Speaker 1: whatever it is. But where it's treated best. I mean,
Speaker 1: it's probably the safest and best return you when you
Speaker 1: when you look at both of those, there might be
Speaker 1: a time when it's not. I saw this chart the
Speaker 1: other day, and I am going to tell everybody that
Speaker 1: you haven't had a chance to look at this. So
Speaker 1: I'm going to kind of spring this on you. If
Speaker 1: I can pull this up real quick, and it's just
Speaker 1: a chart, it's not there's not a hole there's not
Speaker 1: a whole lot to this. It was just on Twitter,
Speaker 1: and I don't know, I haven't really even dug into
Speaker 1: this as much. But it says at the current rate
Speaker 1: of borrowing of deficit spending, I think the last three
Speaker 1: quarters we've seen about a trillion dollars added per quarter,
Speaker 1: and so it's at this rate, we'll be adding a
Speaker 1: trillion every seventy days, then every fifty days, every twenty days,
Speaker 1: and this says by twenty twenty five it can be
Speaker 1: up to a trillion dollars per week if we stay
Speaker 1: on the trend.
Speaker 2: If we stay on the.
Speaker 3: Trend, yep, And it's it's it's a what what is it?
Speaker 3: Is it debt or is it a monetary base?
Speaker 1: What?
Speaker 2: What is it?
Speaker 1: This is debt the amount of debt being added. So
Speaker 1: we added a trillion dollars in ninety days, and then
Speaker 1: it says we'll go to a trillion every seventy every
Speaker 1: fifty days, every twice. So it's the amount of debt
Speaker 1: that we're adding. So that that would be if we
Speaker 1: stay on trend, which you know we may or may not.
Speaker 2: But you had.
Speaker 1: Mentioned when you were saying, you said if the government
Speaker 1: and the word if if the government continues to spend
Speaker 1: like they're spending, what are the odds that they decide
Speaker 1: to not spend like they're spending and go back to austerity.
Speaker 1: I mean, that's a pretty low base case, wouldn't it be.
Speaker 3: I think it's a pretty low base case. Again, not impossible,
Speaker 3: not impossible, and it and what they could also do
Speaker 3: is you got to remember they could they could do
Speaker 3: something like not spend for six months or three months, right,
Speaker 3: and then spend again. And so but in general, it's
Speaker 3: very unlikely the government is going to stop spending money.
Speaker 3: I mean, those odds are very low. But there's something
Speaker 3: to there's something that people need to remember. And this
Speaker 3: sort of gets into the whole MMT thing. And I
Speaker 3: don't want to lose people on MMT and I don't
Speaker 3: want to go too far down the rabbit hole on MMT.
Speaker 3: But I think a lot of times when people hear
Speaker 3: the this gets I know, I'm jumping around. But yet
Speaker 3: at the beginning you said one of the Twain quote
Speaker 3: that it's not what you don't know that gets you
Speaker 3: in trouble, it's what you're certain about that just ain't
Speaker 3: so right. And there's a lot of people who are
Speaker 3: certain that MMT policies will lead to ruin. And it's
Speaker 3: not that that's incorrect. If taken to the extreme, I
Speaker 3: would tend to agree with those, but it doesn't mean
Speaker 3: it will lead to ruin right away. It's like a
Speaker 3: little bit of sh exactly. And so you know, if
Speaker 3: you if you inject yourself with heroin in the heart,
Speaker 3: you're probably too many times you're probably gonna die. But
Speaker 3: if you do it once, your probably going to be
Speaker 3: pretty excited, and you know, you have a lot of energy.
Speaker 3: And so you know, I think that you know, the
Speaker 3: government spending money doesn't necessarily mean that the US fails
Speaker 3: or loses global reserve currency status overnight. And I know
Speaker 3: people have been predicting this for fifty years now, and
Speaker 3: they're saying, well, we're not predicting it's overnight. We've been
Speaker 3: predicting it for fifty years, and so now's the time. Well,
Speaker 3: people have been saying now's the time for as long
Speaker 3: as I've been in this business. And I'm not saying
Speaker 3: not to be prepared for now's the time, but just
Speaker 3: I would highly recommend people don't bet their entire portfolio
Speaker 3: on now being the time, and The other thing is that, again,
Speaker 3: because there's so much demand for US dollars and because
Speaker 3: there's so much demand for US dollar debt, the US
Speaker 3: government can kind of get away with this for a
Speaker 3: lot longer than others. The other things that the US
Speaker 3: could very easily do, they could do things like mandating
Speaker 3: banks by treasuries. They could mandate endowments hold ten percent
Speaker 3: of their portfolio and treasuries. They could mandate that all
Speaker 3: public pension funds hold ten percent of their you know,
Speaker 3: of their balance and US treasuries. And they would say
Speaker 3: it's for your own good, it's to make sure that
Speaker 3: you don't lose your client's money, right, And it could
Speaker 3: be bullshit, but it's not going to stop them from
Speaker 3: doing it, right. And so there's my point is there's
Speaker 3: still a number of things that could be done to
Speaker 3: fund the US treasury if the market didn't want to
Speaker 3: do it on its own.
Speaker 1: Yeah, they could say all stable coin treasuries have to
Speaker 1: be put into treasuries.
Speaker 2: Oh they did that too.
Speaker 1: No, But I love I love that point that you made,
Speaker 1: And this is sort of the point that I always
Speaker 1: try to hit on. You know, the guy's like Harry Dent,
Speaker 1: who's been calling the crash for twelve years and eventually
Speaker 1: we'll get that or Robini or whatever.
Speaker 2: I feel.
Speaker 1: I've read five of Harry Dent's books. I think his
Speaker 1: research is great. The assumptions that he draws from the
Speaker 1: research has been wrong, partly because I think they failed
Speaker 1: to con they failed to think about how many more
Speaker 1: magic tricks the FED may have up their sleeve. And
Speaker 1: to your point, like they could just mandate that whoever
Speaker 1: buy strategies, right, they could mandate everything whatever, and so like,
Speaker 1: there's so many more things that can be done, and
Speaker 1: it seems like they'll continue to do those things rather
Speaker 1: than let themselves collapse, and so like then you kind
Speaker 1: of have to start thinking out of the box, like,
Speaker 1: oh my gosh, the commercial real estate mortgage market could
Speaker 1: collapse and sink sink the market.
Speaker 2: Yeah, or the FED could just put it on its books.
Speaker 3: Sure right, No, exactly and so and this is kind
Speaker 3: of the key The key thing is, I think any
Speaker 3: and the reason I say this is because I am
Speaker 3: guilty of this myself, or I was guilty of this
Speaker 3: myself several years ago. I was very guilty of this,
Speaker 3: and it took me along to figure out long time
Speaker 3: to figure out what I was doing wrong, and once
Speaker 3: I figured it out, I have it has it has
Speaker 3: allowed me to see the world much clearer. And that is,
Speaker 3: if you analyze the United States in a vacuum, the
Speaker 3: only possible conclusion that you can come to is that
Speaker 3: it is a disaster waiting to happen, and it's going
Speaker 3: to end really, really badly, because the fundamentals are just really,
Speaker 3: really bad. The problem is is that it's not a
Speaker 3: very useful exercise to analyze the United States in a
Speaker 3: vacuum because the world is not a vacuum. It's a
Speaker 3: very big world, and it's very interconnected, and when everything
Speaker 3: trades relative to everything else, and to your point earlier,
Speaker 3: money goes where it's treated best. In order to get
Speaker 3: a good understanding of what's going to happen in the
Speaker 3: US market, you still need to understand what's going to
Speaker 3: happen in the European market, what's going to happen in
Speaker 3: the Chinese market, what's going to happen in Japan and
Speaker 3: South Africa and India and Brazil. It's important to understand
Speaker 3: the relative nature of all this stuff. And once you
Speaker 3: kind of do the same level of analysis on France
Speaker 3: or India, or Japan or China. You have already done
Speaker 3: on the United States. You realize that those countries aren't
Speaker 3: in very good shape either, and it's very hard to
Speaker 3: come up with a situation where those countries thrive. And
Speaker 3: so that, in my opinion, is one thing that it's
Speaker 3: it's not it's it's not that it's a useless exercise
Speaker 3: to analyze the United States. It's just not very useful
Speaker 3: to analyze it all by itself and think that you're
Speaker 3: coming to the to the correct conclusion of what's going
Speaker 3: to happen. And like I said, I coming out of
Speaker 3: the global financial crisis, that's what I did. I did
Speaker 3: that for about four or five years and just kept
Speaker 3: banging my head against the table trying to fagil what
Speaker 3: what am I getting wrong? And once I kind of
Speaker 3: stepped back and looked at the whole picture, it becomes
Speaker 3: much more clear.
Speaker 1: All right, Let's let's try to dig into a couple
Speaker 1: of things that might challenge some people's preconceived notions here.
Speaker 1: So to your point, the clean of shirt and laundry,
Speaker 1: it's still still treated best here. Lots of tricks up
Speaker 1: their sleeve to get people to continue the treasuries.
Speaker 2: I would agree with that.
Speaker 1: You mentioned time frames a couple of times, and let's
Speaker 1: let's try to frame that up. Let's just say within
Speaker 1: the next couple of years, let's even even this decade,
Speaker 1: and it's really more of a trend. So a couple
Speaker 1: things that I would throw out there, and let's see
Speaker 1: what you think about this. So, first of all, I
Speaker 1: don't think there's a lot of people that would argue
Speaker 1: with you that any government or currency or bond market
Speaker 1: is better than the dollar. I don't think anyone would
Speaker 1: ever make that, not anyone somewhat educated anyway. But like
Speaker 1: with the rise of the bricks, like they're not creating
Speaker 1: a new currency or just forget bricks, just any nation.
Speaker 1: They're not come with their own currency. They're not going
Speaker 1: to challenge the US dollar, they're not going to challenge
Speaker 1: the treasury.
Speaker 2: But they could just.
Speaker 1: Keep their money in the ground in oil or gold
Speaker 1: or lithium or whatever X y Z. There's no deep
Speaker 1: liquid bond market like US treasuries, but they could just
Speaker 1: buy gold or whatever. So something like that seems like
Speaker 1: it could sort of be a pretty big disruptor. I
Speaker 1: think I saw twenty percent of oil is now being
Speaker 1: traded outside of the dollar. That's trading, and I know
Speaker 1: you probably have that's currency. But couldn't nations just hold
Speaker 1: their wealth in commodities as opposed to bonds.
Speaker 3: Sure, they could absolutely do that, And this kind of
Speaker 3: goes to what I was talking about earlier. If they
Speaker 3: do that, if they decide to hold their reserves or
Speaker 3: you know, their profits in commodities or natural resources or
Speaker 3: even stocks or whatever it is, rather than bonds, then
Speaker 3: that would see I would believe that would see yields
Speaker 3: on sovereign bonds rise. But I don't think it would
Speaker 3: be a case where only US yields would rise. So again,
Speaker 3: I think yields would rise in Europe. I think they
Speaker 3: would rise in Japan, they would rise in China. So
Speaker 3: in other words, if governments around the world stop and
Speaker 3: institutions around the world stop buying you treasuries because they
Speaker 3: don't want it to get confiscated or they know they're
Speaker 3: worried about the value of the dollar or whatever it is,
Speaker 3: and they decide to hold commodities, they are also, in
Speaker 3: my opinion, going to be shunning all European sovereign bonds
Speaker 3: and Russian sovereign bonds and Chinese sovereign bonds, and that
Speaker 3: is kind of the milkshake theory, where we get into
Speaker 3: this situation where governments around the world are no longer
Speaker 3: being funded as easily as they used to be. They're
Speaker 3: borrowing costco up. It causes them to have enormous fiscal
Speaker 3: problems internally, they have to print more of their own
Speaker 3: currency in order to solve these problems, and it kind
Speaker 3: of starts this vicious loop. So that's a very long
Speaker 3: way of saying, yes, I think that that is a
Speaker 3: very what you suggested. I think is a very real scenario.
Speaker 3: And not only do I think it's possible, but I
Speaker 3: think it's probable that that will play out. Now, whether
Speaker 3: that plays out in the next six months or next
Speaker 3: six years, I'm not smart enough to know that, but
Speaker 3: I think that is how it plays out.
Speaker 1: Yeah, And so to the point to kind of recap
Speaker 1: what you were saying, that will probably happen. But people
Speaker 1: love already stopped buying everybody else's bonds. The US Treasury
Speaker 1: will be the last one that they stopped buying before
Speaker 1: they decide to put the rest of their money in commodities.
Speaker 1: And you know, I think all these things are not
Speaker 1: and a go ahead.
Speaker 3: Yeah, let me just make a point, because I think
Speaker 3: this is the short answer is yes. But what I
Speaker 3: think sometimes people, especially retail, because I don't think that
Speaker 3: they realize because as a retail investor, or, as an
Speaker 3: individual investor, or as a family, you have the choice
Speaker 3: of just sitting on the sidelines, putting your cash into
Speaker 3: the mattress, buying a bunch of gold, and just waiting
Speaker 3: this out right. Big global institutions that operate on the
Speaker 3: global stage, whether it's a corporation, whether it's a hedge fund,
Speaker 3: whether it's an endowment, whether it's a government agency, they
Speaker 3: don't have that option. Right. If you are operating on
Speaker 3: the global stage, if you are trading with one country
Speaker 3: versus another, and you're importing energy and food and you're
Speaker 3: exporting you know, goods, all of this takes place in dollars.
Speaker 3: And now to your point earlier, there are some little
Speaker 3: things on the edges that are trying to disrupt this,
Speaker 3: and you know, and I think those will be continued
Speaker 3: to be tried and perhaps even grow a little bit.
Speaker 3: But by and large, if you want to operate on
Speaker 3: the global stage, you still need dollars. And so while
Speaker 3: you know, these countries may to your point buy gold
Speaker 3: or store their excess in gold or oil or whatever,
Speaker 3: it is, the last currency that they're going to give
Speaker 3: up and totally reject is the US dollar. In other words,
Speaker 3: no country is going to continue using you know, I
Speaker 3: don't know, South African rand and no longer use the dollar, right, right,
Speaker 3: Like Turkey or sorry, Brazil and Japan are not going
Speaker 3: to start using South African rand and not use the dollar, right.
Speaker 3: I mean, that's just that's just not going to happen,
Speaker 3: or at least not without enormous chaos between now and then.
Speaker 1: Yeah, so I would agree with that, I mean, why
Speaker 1: would they. I do think about it in a sense
Speaker 1: of like we've used the Chuck E. Cheese analogy before,
Speaker 1: but we were talking before that. I'm building the house
Speaker 1: in Mexico, so I'm going back and forth beween Mexico
Speaker 1: quite a bit now, and I've been keeping some pesos.
Speaker 1: I mean, I got to use them when I go
Speaker 1: down there.
Speaker 2: I'm done great, I'm certainly, yeah, it has done great.
Speaker 1: Unfortunately, I'm I like it when the dollars are but uh,
Speaker 1: you know, I'm not really storing my wealth in pesos.
Speaker 1: I keep some, you know, because this is easy convenient
Speaker 1: for me, but I'm not really storing my wealth there.
Speaker 1: But when you when you look at this on the
Speaker 1: world stage, let's get into kind of kind of transition
Speaker 1: this into sort of where we're going for the rest
Speaker 1: of this year and maybe in the next year. We
Speaker 1: do have a global stage, and we do have all
Speaker 1: these nations with their own debt and currency issues, and
Speaker 1: the dollar can only get so strong or so weak.
Speaker 1: It sort of has to stay in this range otherwise
Speaker 1: it causes lots of big problems we've seen that we've seen,
Speaker 1: I don't know, potentially talks of like a Plaza cord
Speaker 1: two point zero or something like that, where they devalue
Speaker 1: the dollar to kind of help some of these nations out.
Speaker 1: And if the dollar gets too strong to kind of
Speaker 1: the dollar milkshake theory, they'd have to do something to
Speaker 1: try to maybe devalue to at least slow that down.
Speaker 1: Do you think we see something like that happening this year.
Speaker 1: Does that start to affect, you know, what the Fed
Speaker 1: and the Treasury is able to do and really having
Speaker 1: to try to keep that dollar too low or do
Speaker 1: you think this is out like a decade from now.
Speaker 3: So I think the whole plaza accord, like a serious
Speaker 3: devalue of the dollar, or the whole kind of a
Speaker 3: global agreement where the dollar gets devalued. I think that
Speaker 3: is five to ten years out still, you know, into
Speaker 3: the decade type stuff. But what I think people two things.
Speaker 3: You know, part of the reason that the FED would
Speaker 3: go back to QE or go to easy money would
Speaker 3: be because dollars are scarce, right. In other words, I
Speaker 3: think people get this confused a lot of time. They
Speaker 3: get the cause and effect messed up. They will say,
Speaker 3: the Fed is going to do QE, so the dollar
Speaker 3: is going to fall. Well, actually, the reason that the
Speaker 3: Fed would have to do qe's because the dollar started
Speaker 3: to get strong and they need to weaken it in
Speaker 3: order to provide global liquidity. So the dollar is kind
Speaker 3: of the driver. It's the cause. The effect is QE. Now,
Speaker 3: if we get into a scenario this year where you know,
Speaker 3: we get this hard landing that so many people have
Speaker 3: predicted in a hard landing, the dollar starts to rise.
Speaker 3: That is the definition of a hard land You're not
Speaker 3: going to have a hard landing where the dollar goes
Speaker 3: from one O two to ninety. That would be a
Speaker 3: that would be an immense easing and prove and an
Speaker 3: enormous liquidity boost to the world if if the dollar
Speaker 3: feil that much. But what could happen. What could happen
Speaker 3: is the dollar could start to strengthen fairly quickly and
Speaker 3: as a result force the Fed to pivot fully start
Speaker 3: cutting rates, maybe even go back to QE, in which
Speaker 3: case we could have the dollar fall let's call it
Speaker 3: from one O two to ninety, kind of very similar
Speaker 3: to what happened after COVID. What's kind of interesting now
Speaker 3: is that the dollar is still higher than it was
Speaker 3: at the high of COVID. Right, despite everything that they
Speaker 3: did after COVID, the dollar is still higher now than
Speaker 3: it was at the peak of COVID. But what could happen?
Speaker 3: What could happen? I think many people will say, no,
Speaker 3: this can't happen. What could happen is we could just
Speaker 3: kick this can down the road for another five or
Speaker 3: ten years, where maybe we get into another global easing cycle. Maybe,
Speaker 3: you know, the last couple of years, central banks around
Speaker 3: the world were raising rates and you know, restricting liquidity.
Speaker 3: Maybe now the FED leads the way. If we get
Speaker 3: into another loosening cycle, and you know, countries around the
Speaker 3: world cut interest rates, they go back to QE as well,
Speaker 3: and maybe markets trend higher for in the next two
Speaker 3: or three years and we don't get the crisis that
Speaker 3: everybody is expecting. You know, the dollar goes back to
Speaker 3: ninety or eighty eight or whatever it is, and you
Speaker 3: know gold goes to twenty five hundred, and bitcoin goes
Speaker 3: to sixty thousand, and you know, stock market goes to
Speaker 3: the Dow goes to fifty thousand or whatever it is.
Speaker 3: I can't rule that out. That is kind of the
Speaker 3: way things typically go. But what I think people need
Speaker 3: to understand, though, is that in that scenario, that is
Speaker 3: not the system failing. That's not the dollar failing in
Speaker 3: the system failing. That's actually the system perpetuating. And I'll
Speaker 3: give you a good example. A lot of people will
Speaker 3: show these like I saw a headline the other day
Speaker 3: that said, you know, these two kind I don't remember
Speaker 3: the name of the countries, but you know countries are
Speaker 3: now doing three to five billion dollars, you know, or
Speaker 3: three to five billion in local currency transactions to avoid
Speaker 3: the dollar another evidence of de dollarsation. But year to date,
Speaker 3: already emerging market countries have issued like fifty billion dollars
Speaker 3: of new to US dollar debt, and so as the
Speaker 3: dollar gets weaker, that's what happens more the system countries,
Speaker 3: institutions they issue more debt because now the dollar's weaker, right,
Speaker 3: And so the dollar getting weaker provides that liquidity. But
Speaker 3: the form of the liquidity comes in it because people
Speaker 3: are borrowing. Institutions are borrowing. Now, if everybody stopped borrowing
Speaker 3: US dollars and started borrowing just in their local currency,
Speaker 3: or they borrowed in gold, or they borrowed in bitcoin
Speaker 3: or whatever it was, and they no longer borrowed in dollars,
Speaker 3: then there wouldn't be any dollar liquidity, right, and there
Speaker 3: wouldn't be new dollars created, and then all the dollar
Speaker 3: debt that already exists would have would struggle to have
Speaker 3: the interest or would it would it would the global
Speaker 3: would struggle to service their US dollar debt and and
Speaker 3: pay off their US dollar debt if there was no
Speaker 3: US dollar liquidity. So you really get into this. It's
Speaker 3: kind of a very meta thing, right, It's it's self referential.
Speaker 3: And so that's why I often will tell in my opinion,
Speaker 3: the dollar going higher, that signals that the system is
Speaker 3: in trouble. Yeah, that's what breaks the system. But my fear,
Speaker 3: not my fear, but my expectation would be that if
Speaker 3: the dollar falls, it really just kicks this can down
Speaker 3: the road another five or ten years.
Speaker 2: Yeah.
Speaker 1: Side note, somebody in one of my high ticket coaching
Speaker 1: programs is a pretty high end consultant and one of
Speaker 1: his clients is the US Treasury, And it was about
Speaker 1: a year ago. Now he couldn't come to one of
Speaker 1: the meetings because he had to go meet with the
Speaker 1: Treasury and they were in the process of building I
Speaker 1: want to say, this could be a little bit wrong,
Speaker 1: but I want to say three or four new printing
Speaker 1: facilities money printing facilities in the US, and they're building
Speaker 1: them right next to airports so that they could just
Speaker 1: print the dollar bills, put them onto planes, and ship
Speaker 1: them right out of the country. And he asked them,
Speaker 1: He's like, whoa, you know, he's into bitcoin and you
Speaker 1: know the whole CBD thing and all that, and he said,
Speaker 1: I thought cash was on its way out, And the
Speaker 1: Treasury guy told him, oh no, oh no, the dollars
Speaker 1: have never been in more demand. We cannot create these
Speaker 1: things fast enough. So that was a year ago they
Speaker 1: were just producing these things. So definitely there is something
Speaker 1: to that about this international demand or just global demand
Speaker 1: for dollars overall.
Speaker 2: All right, so where are we? Where do we go
Speaker 2: this year?
Speaker 1: It seems like as the dollar rises and falls, it
Speaker 1: really is starting to sort of offset some of these
Speaker 1: asset prices and drive that. And then we have obviously
Speaker 1: these wars escalating. I know you're not a geopolitical analyst,
Speaker 1: but I know you stay pretty you know, in tune
Speaker 1: with at least what's going on over there. I mean,
Speaker 1: closures on the Red Sea and the Suez Canal. It's
Speaker 1: a pretty big deal potential, you know, pirate attacks going
Speaker 1: as they get around the Cape of Hope they're in Africa.
Speaker 1: If this escalates one, I mean, it could most definitely
Speaker 1: bring back inflation through supply chains, limiting oil supplies, et cetera,
Speaker 1: push and at a minimum, pushing the cost of transportation
Speaker 1: up at a minimum, it could also even escalate potentially
Speaker 1: a lot of these nations wanting to move away from
Speaker 1: dollars even more. I don't know whatever that means.
Speaker 2: Do you think that over this year?
Speaker 1: I mean, is that something that you're really paying attention to,
Speaker 1: you think that has big potential to sort of move
Speaker 1: the markets.
Speaker 3: Well, geopolitical concerns, in my opinion, have never been higher
Speaker 3: in the time that I have been in business, since
Speaker 3: I started in ninety nine, So this is kind of
Speaker 3: my twenty fifth anniversary of being in this line of work.
Speaker 3: I couldnot remember a more uncertain time.
Speaker 1: Now.
Speaker 3: Again, I say uncertain. Maybe things are fine, right I'm
Speaker 3: not certain that we're going to have volatility. I have
Speaker 3: never been more uncertain than I am right now. So
Speaker 3: if anybody's listening to this, thinking Brent's going to give
Speaker 3: us the silver bullet answer, I unfortunately don't have it
Speaker 3: for you. But what I do say is that because everything,
Speaker 3: in my opinion is kind of price to perfection right now.
Speaker 3: But we live in a very imperfect world, and a
Speaker 3: big piece of that imperfection is where geopolitical relations stand
Speaker 3: and potential military hostilities. I think that could I think
Speaker 3: those two things could easily impact markets this year. Again, Remember,
Speaker 3: typically for the last let's just call it thirty years,
Speaker 3: every time we've had some kind of a global systemic
Speaker 3: event over the last thirty years, whether it was the
Speaker 3: global financial crisis, or whether it was a euro crisis
Speaker 3: in twenty ten or COVID in twenty twenty, the whole
Speaker 3: world sort of implemented similar policies and cooperated in order
Speaker 3: to pull the global economy out of it. But during
Speaker 3: that last thirty years, we were in a globalization trend
Speaker 3: where things were becoming more globalized and people were cooperating more.
Speaker 3: Now we're kind of in an environment where people are
Speaker 3: not trusting each other is more. They're not cooperating as
Speaker 3: much as they used to. They're not globalizing, they're deglobalizing.
Speaker 3: They're not centralizing, they're decentralizing. And so as a result,
Speaker 3: if something shows up in the global economy or in
Speaker 3: global financial markets, whether it's geopolitical, whether it's financial, whether
Speaker 3: it's health related, whether it's environment related, you know, I
Speaker 3: think that the ability to respond in a coordinated fashion
Speaker 3: is much lower now than it has been in the past,
Speaker 3: and as a result, I think the potential for contagion
Speaker 3: that kind of gets away from the powers that be
Speaker 3: is higher. So I think this is a year where
Speaker 3: I think this is a very good time to have
Speaker 3: a very boring portfolio, because I think at some point
Speaker 3: this year, it's going to get exciting, and I think
Speaker 3: if you have some dry powder to take advantage of
Speaker 3: that excitement, I think you will not only be in
Speaker 3: a better position mentally, but I think you'll be in
Speaker 3: a better position financially to take advantage of it.
Speaker 1: So what does a boring portfolio look like in twenty
Speaker 1: twenty three?
Speaker 2: Asset categories? Things like that?
Speaker 1: And then what are you looking at specifically to make
Speaker 1: sure you're sort of staying in front of whatever is developing?
Speaker 3: Well, I think one of the things you have to
Speaker 3: be looking at also. So first of all, a boring portfolio.
Speaker 3: I think everybody should own US equities, but at their
Speaker 3: all time highs, I think we're going to get a pullback.
Speaker 3: So if you do own US equities, I think you
Speaker 3: should have some kind of hedge against them, or only
Speaker 3: have enough of them in the port you know, you
Speaker 3: don't have your whole portfolio in them. Right In another
Speaker 3: part of your portfolio, I think having short term fixed income,
Speaker 3: which pays you four to five percent to just sit
Speaker 3: there and wait, is not a horrible thing. You know.
Speaker 3: It wasn't that long ago where you had to buy
Speaker 3: a junk bond to get five percent. Now you can
Speaker 3: get it in the most liquid thing in the world,
Speaker 3: which is treasuries. I think everybody should own gold. I
Speaker 3: think gold is the foundational, uh, part of every portfolio. Now,
Speaker 3: having said that it's at its high, I don't necessarily
Speaker 3: think that gold's going to twenty five hundred over the
Speaker 3: next couple of weeks or the next couple of months.
Speaker 3: I think gold to go to five thousand dollars over
Speaker 3: the next three or four years, five years, but I
Speaker 3: don't think it's happening tomorrow. So again, I think that's
Speaker 3: something that you buy and you put in your portfolio
Speaker 3: and you kind of just forget about it until you
Speaker 3: absolutely need it, and it doesn't matter whether it goes
Speaker 3: up or down, you know, over the next year or two.
Speaker 3: The other thing that I think people could do is,
Speaker 3: you know, I mentioned short term treasuries. If you don't
Speaker 3: have the ability to you know, to to trade and
Speaker 3: fixed income, you know, just have I mean just having
Speaker 3: cash in a bank account I don't think is a
Speaker 3: horrible idea, or you know, have it in your safe
Speaker 3: in your house, have some kind of a safety net
Speaker 3: that if things go south, you're prepared for it. And
Speaker 3: here's the thing is if you if you and you
Speaker 3: know bitcoin. A lot of people own bitcoin. I'm I
Speaker 3: have clients that own bitcoin. I just talked to a
Speaker 3: friendly client yesterday and again this morning, and they're they're
Speaker 3: they you know, they bought it. When did we buy
Speaker 3: it or you know, we bought it to you know,
Speaker 3: maybe it was twenty to twenty six thousand between twenty
Speaker 3: and twenty six and so that's up, but thirty percent
Speaker 3: since they bought it, or forty percent since they bought it.
Speaker 3: You know, it's not a big part of their portfolio,
Speaker 3: but they do own it. I think having things like
Speaker 3: that in the portfolio, I you know, again, try to
Speaker 3: prepared for everything. If you have cash, you're prepared for deflation.
Speaker 3: If you own bitcoin and gold, you're prepared for inflation.
Speaker 3: If you own stocks, you know, over the long term,
Speaker 3: they're probably going to go higher. So I think, I
Speaker 3: think here's what's interesting to me. I've talked to so
Speaker 3: many people over the last let's call it two to
Speaker 3: three months really since q Q three, and I talked
Speaker 3: to so many people. Their sure bitcoin is the answer.
Speaker 3: Other people are sure gold is the answer. Other people
Speaker 3: are sure that the stock is just going to keep
Speaker 3: going higher in stocks are the answer. Other people think
Speaker 3: we're headed for a deflationary collapse and treasuries are the answer. Yeah,
Speaker 3: I'm just like you know I, and they're so certain
Speaker 3: of it, And I don't think you should be certain
Speaker 3: about anything. Have a little bit of everything, be prepared
Speaker 3: for everything. Don't try to be right, just try to
Speaker 3: be prepared because I think, you know, again this year,
Speaker 3: I think something is going to get dislocated this year,
Speaker 3: and which asset class reacts I don't know, but you know,
Speaker 3: if something goes down twenty or thirty percent, then you
Speaker 3: go buy it, right, But I don't like buying things
Speaker 3: that they're all time high, with asset valuations stretched and
Speaker 3: all this uncertainty in the world. So you know. So
Speaker 3: a boring portfolio to me is one that you'll make
Speaker 3: a little bit. If markets do really good this year,
Speaker 3: you'll make a little bit. But if markets do poorly
Speaker 3: this year, you're prepared to take advantage of it.
Speaker 1: So more of a safety. Lots of volatility, a lot
Speaker 1: of unknown uncertainty. So rather play this one a little
Speaker 1: bit safe till you get a bit more, little bit
Speaker 1: more clarity on what to go or.
Speaker 3: What exactly exactly. And this is the thing is in
Speaker 3: Mark there is always going to be another opportunity of markets,
Speaker 3: don't you know. It's kind of like if you're playing poker,
Speaker 3: wait until you get the cards. You don't have to
Speaker 3: play every hand, and just you know, even if you
Speaker 3: don't play hand, the other people playing they might make
Speaker 3: a lot of money. And sometimes it's hard to sit
Speaker 3: there while everybody else at the table's making a lot
Speaker 3: of money. But the worst thing to do is to
Speaker 3: play a hand just so that you're in the game.
Speaker 3: To me, that that to me, that's the worst strategy.
Speaker 3: And I think going all in on you know, one
Speaker 3: or two asset classes right now is kind of jumping
Speaker 3: into the game just because you can't take it sitting
Speaker 3: on the sideline any longer.
Speaker 2: Yeah.
Speaker 1: Well, I have a lot more i'd like to ask
Speaker 1: you about, but I know we got a hard stop
Speaker 1: and we got to run, so I'm gonna let you
Speaker 1: go with that. Brent Johnson, Santago Capital will link to
Speaker 1: your stuff down on the show notes down below. Uh, thanks,
Speaker 1: thanks for jumping on today. Anything else you want to say?
Speaker 1: Did we cover it all? No?
Speaker 3: I just then, you know, thanks for having me on
Speaker 3: I'm always happy to talk to you, and you know,
Speaker 3: I wish I had a civil bill at answer for everybody,
Speaker 3: but I really you know, I think being careful is
Speaker 3: the best advice I can give to people right now.
Speaker 2: All right, thanks Brett. All right, let me hit