Episode #214 - Brent Johnson and Facing the Dollar's Dominance

Santiago Capital's Brent Johnson comes back to the podcast to discuss the current state of the Dollar Milkshake in the context of Donald Trump's upending the old global financial business model.  It's a sober look at how and why today's turmoil is not tomorrow's dollar crisis.  

Show Notes:
Brent on X
Santiago Capital


Tom on X
Gold, Goats 'n Guns Patreon

Episode Transcript

Speaker 1 (00:20):
Hello, and welcome to the Gold Coats and Guns Podcast
for April eighteenth, twenty twenty five and Ams Tom Luongo.
We've got a lot to talk about and it is
episode two fourteen, and I have with me a returning guest,
so we haven't had a chance to just talking about
it before we hit record that we haven't spoken it
over a year, and it's good to catch up with
Brent Johnson of Santiago Capital and we're gonna to the

(00:42):
last two dollar bulls on the planet. Are going to
sit around and have a chat today and it's gonna
be hilarious and it's gonna be fun. Brent, how you been,
How are things going on? Good?

Speaker 2 (00:51):
Yeah, yeah, things are good. Things have it's been a
crazy year so far, but luckily we were anticipating a
crazy year, so we've actually done pretty well and have
enjoyed the volatility, so to speak. So but that doesn't
mean it's going to be fun going forward. There's there's
a lot of you know, balls in the air and
how they come down as uh, you know, is anybody's
guess at this point.

Speaker 1 (01:12):
It is And for everybody who's you know, who's not
aware of this brand is famous for the dollar milkshake theory,
and as i've and I do a version, I guess
I think I do a version of this the same
thing in terms of how I discuss it, in terms
of the ear dollar markets and some other things. And
but I don't know. I'm not sure where you want
to start this morning. To be honest with you, I've

(01:34):
got about a thousand things floating through my head. And
I warned you about this before I hit record, that
I could be able to scatter brain today. So I
will try and back off and just let you talk.
Caitlin Long, I had her on yesterday and she interviewed
me on my own podcast, and like it was, it
was insane. So because she wanted me to clarify all
the crap that I've been talking about recently. So here
we are. The dollar has been week recently. It looks

(01:56):
like them, you know, I mean the dollar. The anti
milkshake guys are out there in circling the circling the
corpse of of the anti dollar milkshake vultures. What's that way,
are circling the corpse of Brent Johnson. So now you
tell me why you're not dead yet, and we'll make
a money python joke.

Speaker 2 (02:13):
Well, you know, so the first thing to understand is
I think and who It's hard to put it's hard
to really know what other people are thinking. But I
always try to put myself in other people's shoes and
understand where they're coming from. And I think part of
the problem is many people have equated the quote unquote
dollar milkshake theory with the end of the dollar milkshake theory.

(02:36):
In other words, there's this big blow up, the d
XY goes to one point fifty, we have a monetary reset,
probably a war, and after that the United States is
a you know, a pile of ashes and ruin. And
the reality is it's the milkshake is not a one
time event. It's it's a process. And when I first

(02:56):
started talking about this in twenty eighteen, you know, I
put a timeline on it that I thought it would
play out over, you know, probably five years, and about
halfway through that I said, well, at the beginning, I said,
if I'm wrong, it'll probably take much longer to play
out than the five years. So I don't think i'm early,
or I mean, I don't think i'm late, but I

(03:17):
might be early. And the interesting thing is that the
further we get into, the longer I think it may
take to ultimately play out. And what I mean by
that is I sent out a tweet the other day
and I think this explains it pretty well. I don't
know if you watched the Game of Thrones series or not,
but in the very first episode, you knew three things.

(03:40):
One you knew winter was coming. Two, you knew that
West Ross was a really messed up place. And number three,
you knew there was going to be a huge battle
between these two families, right. You knew that like literally
within the first hour, right, But there was eight seasons
for it to fully play out. And I kind of
feel like we're maybe in season and two or three

(04:00):
right now, you know, So, yes, we knew, right, we
know already there's a big battle between the United States
and China. We know the world is really messed up
right now, right, And we know that we're probably going
to have a winter before we have the summer.

Speaker 1 (04:15):
Right.

Speaker 2 (04:16):
I mean, I don't know, but those are not too
those are not too far of a leaps to make, right,
But these things just don't happen right away. And I
think many people who either don't like the milkshake, or
don't understand the milkshake, or don't want it to play out.
It's because they want that final episode to happen tomorrow.

(04:38):
They don't want to they don't want to go through
the eight seasons to see all the twists and the turns.
And my belief is that there will be twists and turns.
You know, there will be times where China looks like
they're winning the game. There will be time where it
looks like the United States is winning the game. There
may even be a few episodes where Europe makes a
little charge and you know, looks for at least a

(04:59):
sea An episode that they might actually have a chance
when we all know they're gonna be the ultimate loser.

Speaker 1 (05:05):
When they're ultimately Stantus Barathian.

Speaker 2 (05:06):
Yes, all right, no, exactly. That's a good there you go.
It's a good analogy that they're they're Stance Barathian, that
they feel like they should inherit the kingdom, but yet
nobody really gives them much attention. And that's really where
I think that that we're at. But there's no question
things are heating up. There's no question that Trump is

(05:27):
a big reason why it's heating up. But I largely
believe that what is happening now would have happened whether
Trump was elected or not. But I think he is
accelerating the game and making it much more obvious what
is happening, Whereas I think the same things would have happened,
but with much better cloaking and much better you know,

(05:49):
pr and more diplomacy. But I largely think this whole
thing would have played out anyway. So I kind of
rambled on there for a little while, But that's kind
of where I think we're at right now. And and
I think the people who think that because the dollars
down this year, that the whole season and the whole

(06:09):
series is over again just don't understand how the system
is designed. And I don't think they. I don't think
they understand how the system works.

Speaker 1 (06:16):
Yeah, I agree with you. And the funny thing is
that no matter how this thing plays out, as long
as we don't get another we don't get season eight
of Game of Thrones, in terms of quality and how
those thing plays out, I'll be very happy. So because
I mean, or season seven, the season seven wasn't break
it either, But well, I think those first three seasons

(06:36):
are probably the best because that's where the that's where
the that's where the story was strongest, and for a
variety of reasons. But yeah, so let's let's talk about that.
I you know, the issue that everybody has is that
they when the market moves their way, everybody does this.
I do it. We all do it a little a
little bit because we're all selling a little bit when
we're especially when we're on Twitter land that you know, Okay,

(07:00):
so the market's moving or I see everything is proceding
as I ever seen. Everybody puts on their Emperor Palpatine
cloak and they do the thing right, right, but in
the reality, the but the it is, you're right, the
longer game that you really have to look at. And
this is part of the reason why, you know, for example,
with my people, my patrons, I update them with the
state of these all these markets on Wednesdays and Sundays.

(07:21):
But then at the end of every month, I back
out stop. I don't look at just weekly charts and
then look at the monthly chart. Then I go at
the end of the quarter, look at the quarterly charts,
and then there's a big market report at the end
of the year or I take where I can look
at all the annual charts, and then you ask yourself
the question, does any of this stuff, did any of
the stuff that we discussed during the year, even change
the fundamental thesis? And generally the answer is no, if

(07:43):
you've got the right thesis, and if you've got the
wrong thesis, then you have to make a big, a
big thing, a big correction. And I haven't had to
make a big correction since I first embraced really going
back around twenty fifteen, where I said, yeah, no, the
euro is not going to replace the dollar at all,
it's not going to happen. And then everything else since

(08:03):
then has just been playing out, as you know, similar
to the way you've talked about it. So maybe for
those who I mean, I don't know, I hate to
hate for you to like go over the basics of
the dollar milkshake theory for the fourteen thousandth time, but
even just a small brief introduction to those who don't
quite get it, because the truth of the matter is
is that no matter how much we think people have

(08:25):
heard this stuff a billion times, sometimes even it never
hurts us go back over some of the primitives so
that we can then establish where we are at this
point in the game or you know, in the in
the show's lifes. So let's just start there. Well, so.

Speaker 2 (08:41):
Let me just give a quick explanation of what the
milkshake theory is, and then I'll give a quick explanation
of how I came up with it and why I
came up with it, and then I'll just give a
quick you know, how we got to where we're right now.
So post two thousand and eight, I was what I
would classify now as ifinancial justice warrior. I thought that

(09:03):
I was very upset with the way things went down.
I didn't think it was fair. I didn't think it
was right. I didn't think it was what a free
and fair society should do. I didn't think the rich
should be bailed out at the expense of the poor.
And I thought there's no way the government could get
away with printing all this money, and the dollar was
going to fall and gold was going to go to
the moon, and that was the way it should be,

(09:26):
because that's what the US deserved to happen.

Speaker 1 (09:30):
Right, And I was in the same mindset back then
as well, FYI, And so.

Speaker 2 (09:39):
You know, I probably remained that way for the next
two or three years, and then there was probably a
period of two or three years where I was kind
of in neutral zone. I had gotten over my anger.
I didn't quite have the dark cloud circling over my
head that you know, followed me around wherever I went.
And it was really the summer of twenty fourteen where

(09:59):
I started to things. And if people go back and look,
in the summer of twenty fourteen, the dollar went on
a six to eight month run, or I think it
went up like fifteen percent in six months, I mean,
some ridiculous move. And one of my friends had made
this call. And my friend is a big believer in gold,

(10:21):
as I've always been a big believer in gold, and
I should say now I've said forever that I think
gold will be the ultimate winner, and I still believe
the gold will be the ultimate winner, but I'm also
interested in the path to that destination.

Speaker 1 (10:35):
Right.

Speaker 2 (10:37):
So, in twenty fourteen, the dollar when unless you dur,
my friend had called it, and I was kind of thinking, well,
he's smart, he believes in gold too, so how can
he possibly believe the dollars going higher? But then it did.
It was an amazing call. One of the best calls
I've ever seen, and so that kind of made me
start thinking about things a little bit differently. And so
for the next couple of years, you know, I tried

(10:59):
to keep more of an open mind. I wasn't mas
mad about things. And at the time gold had started
this you know, five or six year bear market, and
it was still down. And finally I just said, you know,
I have to figure out why gold is not going
higher and why the dollar is remaining stronger than I expected.

(11:20):
And when I talked to anybody in the gold community,
and I have a lot of friends in the gold community,
nobody wanted to talk about it. The answer was just wait,
it'll happen. You know, the dollar's trash and gold will
go higher, and that's listen, that's fine, that's fine. But
I at least wanted to examine it, and nobody in
the gold world wanted to examine it. So that's when

(11:43):
I just kind of doubled down on my old stuff.
And what I realized, probably in the twenty sixteen timeframe
seventeen timeframe, was that the issue that I was having
was that I was focusing all of my energy on
the United States, and I was analyzing the United States
and isolation, and I think I did pretty good work
on the United States. And I think if you focus

(12:04):
on the United States, the only possible conclusion that you
can come to is that this is a disaster waiting
to happen. The problem is, if you just focus on
the United States, you don't realize that the same thing
exists in every other country, and in many cases they
have even worse problems, and they don't have nearly the

(12:25):
number of advantages the United States have. So yeah, if
you just focus on the US, it's it's going to
end badly. But if you zoom out and you realize
it's a relative game and if you're allocating capital, you
have to allocate it somewhere, the US starts to look
pretty good. And that's when I and then I, you know,
when I start studying the monetary system more and I

(12:45):
understand the plumbing of the monetary system, and I understand
what kind of what's going on behind the scenes, And
when you just think of the real politic of it,
like how the world actually works, it's you know, it's
governments are basically mafia's right, right, I mean, that's behind
the scenes, that's pretty much how it is now. Maybe
they wear nicer clothes, and maybe they speak a little

(13:07):
bit nicer, and they you know, they dress it up
in altruistic belief systems, but at the end of the day,
it's about power. I mean that, that's reality. And once
I came to grips with that, and once I decided
to start focus focusing on what was actually going to
happen as opposed to what I wanted to see happen,

(13:28):
everything became pretty clear to me, or at least much
more clear than it had been before. Right, I'm not
going to sit here and say I'm clairvoyant by any means.
And so it was around twenty eighteen, summer of twenty
eighteen where I it's the first time I ever said
the word milkshake publicly. And the idea was that we

(13:48):
had been in this forty year bullmarket in bonds, but
now the debts in the United States and the debts
and the rest of the world had gotten to a
level that I thought the bond bullmarket was going to end.
Many places around the world not only had interest rates
at zero, but many places that have them negative. You know,

(14:08):
people had had thirty year careers on Wall Street made
tons of money, you know, made a ton of months
of money for themselves, their families, their friends, but had
never seen a bond bear market. And I just thought,
you know what, that can't go on forever, and there's
a lot Eventually debt has consequences, and when that debt
has consequences, there will be a sovereign debt crisis. And

(14:30):
the reason there would be a sovereign debt crisis is
from twenty the dot com boom and then the global
financial crisis and then the crisis in Europe in the
early twenty tens. Everything had been kicked up to the
country balance sheets. It no longer sat on the corporate
bolence sheets, and no longer sat on the bank balance sheets.
Now it was sitting on the government balance sheets. And

(14:51):
so when I thought, when the next crisis shows up,
it will be a sovereign debt crisis. And in a
sovereign debt crisis, sovereign bonds are not bought to the
same level that they had been bought previously. They may
even be rejected outright, and that capital has to flow
somewhere else. And so I thought that capital would flow
to the United States still, and so even though they

(15:12):
may not buy Treasury bonds to the same extent they
had been, they'll still buy those before they will buy
Chinese bonds, or Japanese bonds, or European bonds, or Egyptian bonds.
So interest rates would rise in the United States, interestrates
would rise around the world. But the interest rates rising
in the world would pull the dollar higher. For many reasons,
you get paid more to sit in dollars. You have

(15:33):
to have dollars anyway to operate on the global stage.
And then I thought some of that money would also
flow into gold, so gold would go higher. But to
buy and I thought a lot of it would flow
into US assets, meaning mainly US equities. But to buy
US equities you first have to buy US dollars. So
the thesis said in the years ahead, interest rates would rise,

(15:55):
bond prices would fall, US assets would rise, the dollar
would rise in gold with rise. So now if you
look and from that said that in twenty eighteen, Now
if you look at a chart from now and from
twenty eighteen until now, all of those things have come true.
But the point I made also was at number one,
I don't know the exact progression that these will happen.

(16:19):
I said at the time, I'm going to in a
linear fashion, but I'm not smart to know because I'm
trying to. I want it to make sense. But it
very possible that chapter five comes before chapter three, maybe
chapter six comes before chapter nine. But these are the
events that I think will happen. And so that has
largely played out. And then the last thing I said

(16:41):
was that there would be terrible drawdowns along the way,
and I'll explain why that is here in a second.
And ultimately it would end really, really badly for the
United States. It just wouldn't end yet. So that was
the thesis, and that has allowed me over the last
six years to really understand what has happened, to understand

(17:04):
why it's happened, to be prepared for the draw downs,
and to participate in the in the runs higher. And
so whether that continues to be the case, I don't
know for sure. Oh, but I should say the where
I got the name the milkshake theory was from a
movie called There Will Be Blood. In this movie, there

(17:27):
will be Blood, It's about an oil baron who you know,
has all this this oil business and a neighbor's trying
to sell him his land, and the neighbor says, if
you buy my land, you can have all the oil
underneath it. And the oil guy says, I don't really
need to buy your land because I have a straw.
I stick the straw down into the ground, and it

(17:47):
sucks up your oil, even though the straws on my
side of the fence. And that's kind of how what
I equated to the milkshake theory.

Speaker 1 (17:56):
I said.

Speaker 2 (17:56):
Every time there's a crisis, every time there's some kind
of an echinodownturn, central banks, monetary authorities, governments around the
world all go into the same mode. They bail out,
they provide stimulus, they do QE. They inject new liquidity
into the system. But it doesn't really matter who injects
the liquidity. What really matters is who captures the liquidity.

(18:17):
Just like in the movie, it only really matters who
pulls that oil out of the ground, right, And that
for many reasons, some of them fair, many of them
not fair. But this is again reality. The US has
the biggest straw, and so when that liquidity gets injected,
the US will suck all that liquidity up. Part of
the thing that helped me understand that was if you

(18:37):
look at the United States stock market relative to other
countries over the last twenty five years, every time there
has been especially since two thousand and eight, but even
going back to two thousand. In two thousand and eight,
that's when all of the really big stimulus que bailouts.
That's when it really kind of went on steroids. So

(18:59):
if you go back to two that eight and you look,
you'll see that the whole world mixes this milkshake. They
provide stimulus. But then over the next two or three years,
the United States dramatically outperformed. And then in like twenty
twelve and thirteen, Europe because they were in the euro crisis,
they mixed a whole bunch of a new milkshake. In

(19:19):
Japan was mixing it too because they were decades into deflation.
And then the US sucked up that as well, and
that took us into twenty eighteen or nineteen, and then
we have a downturn in twenty twenty due to COVID,
and then everybody mixes the milkshake again, and then the
US sucks it all up. And so the point is
is that when the crisis initially hits, everybody around the

(19:46):
world sells their US assets because that's where most of
their assets sit. Because everybody wants to be invested in
the US. So it's not surprising that when a the
US is the piggy bank for the rest of the world.
So it's not surprising when A when a downturn comes along,
that they sell those US dollars assets and they repatriate

(20:08):
their capital home. But then when the bailouts come and
the inevitable upturn comes back, all that capital comes flowing
back into the United States again. And then we get
to the next crisis. You get a short term drawdown
because everybody's raiding the piggy bank again, and then you
turn around and you go higher. And I have a
slide that I posted on Twitter a couple weeks that
shows this pretty clearly. And so what's pretty interesting to

(20:32):
me is now everybody thinks this is really the end.
Everybody is selling their US dollar assets. The US is finished.
This time it really is different. But this exact same
dynamic has played out in two thousand and eight, it
played out a little bit in twenty thirteen, twenty twelve,
twenty thirteen, it played out in twenty twenty, It played
out in twenty twenty two, and it's playing out again now.

(20:54):
And I don't think it's going to be different this time.

Speaker 1 (20:57):
A lot of people do.

Speaker 2 (20:57):
Maybe it will be, but that's that's kind of where
we're at. And I know I'm rambling on, but.

Speaker 1 (21:04):
You're doing great.

Speaker 2 (21:07):
Let me make this point before I forget. The dollar
has had a pretty big down move this year, especially
in the last two weeks. It's down like five percent
in the last two weeks. That has actually happened before.
It happened in March of twenty. It happened in February
of twenty twenty. Anybody remember what happened in March of
twenty twenty. It happened in September of two thousand and eight.

(21:30):
Anybody remember what happened in October of two thousand and eight. So,
and the re it's again. When you get into a crisis,
you have to pay off either your local debts, your
local margin calls. You have to put some you know
capital on the side for you know, whatever, the uncertainty
of whatever comes next. And so when when when a

(21:51):
foreigner or a foreign entity sells their US assets, then
they have dollars and then when they send it back home,
they sell those dollars and they buy their local currency.
That pushes the price of US assets down. It pushes
the price of the US dollar down, and it pushes
the price of the local currency up. That's usually what

(22:12):
happens at the beginning of a drawdown. It happens all
the time. But if the draw down continues and it
becomes a crisis rather than just a draw down, then
the dollar reverses because now it becomes a scramble for
global liquidity rather than just local liquidity, and the world's money,

(22:36):
the money that the world chows, not that the US enforced,
is the euro dollar or the dollar that sits outside
the United States. And so when people are making their
own decisions of what to sell and where to put it,
they'll sell their US assets and put it in local currency.
But once those dollar margin calls start coming in, they

(22:56):
don't have a choice whether they buy dollars or not.
That's what happens. And so whether we're going to have
another dollar squeeze, I don't know. But what I do
know is that the last couple of times this exact
thing has played out, that's what came next. And so
that's that that's what we've got to now wait and see. Anyway,
That's that's kind of my current setup, and that's kind

(23:18):
of where I think we are right now.

Speaker 1 (23:20):
And It's what's funny, Brent, is I'm listening to all
of that and I'm going, uh huh, uh huh, and
here's it, and here's your and here's your their confirmatory
data point for during the height of the crisis last week,
the height of the of all the recent unpleasantness, we
had the long end of the deal, Kurt blowing out,
we had blow up, and so for three year swaps wet,

(23:43):
all this stuff going on. It's it's something I talked
with kateln Long about Gyuess in episode two thirteen of
this podcast. What happened At the same time there was
a stellar US ten year auction, then two days later
there was a stellar thirty year US Treasury auction, and
then on Monday or Tuesday of this week that we're

(24:05):
doing this, there was a stellar twenty year US Treasure
action goes what happens when stuff like that, when when
you have a forty point basis point draw down in
the sell off in the US belong under the US
Treasury curve guess what treasuries are on sale. Don't you
buy things when they're on sale, or you're trying to
tell me that people don't want them now if they're so,

(24:26):
if you're attempting to engender. In my mind, what I
saw last week was a particular group of people trying
to engender a sovereign a crisis in the United States
in order to punish the demon Trump for putting tariffs
on their exports. And I think that was coming from Europe,
and we have plenty of prime of facial evidence to

(24:48):
that to that effect, because the currencies that rose were
not the Chinese yuan or the Japanese end. The Japanese
en has gone up a little bit since then, but
it was in the height of the crisis. It was
the euro, the Canadian dollar, in the British pound.

Speaker 2 (25:02):
Well, and think about this. I'm sorry to cut you off.
I just want to know what before I forget it.
Before I forget everybody will say selling US dollars because
they're going to have to print a bunch of money
because nobody's going to buy their bonds. Okay, So they're
buying euros even though Europe is headed into a depression,

(25:22):
and the ECB is going to have to print money
to pay for the bonds because now they're going to
have to pay for their own defense and they now
have an appreciating currency in export countries. Yes, so again,
I understand where people get their negative views of the dollar,
but the things that they will overlook going on in

(25:44):
other countries in order to express their their their hatred
of the US and the US dollar, in my opinion,
is just pretty hypocritical. Now, I'm the first to say
the US has enormous problems, enormous problems, and those prices
will eventually have to be paid. I just happen to
believe that everybody else has to pay the price first. Now,

(26:07):
if I end up being wrong, I'll hold up my
hand and say, you know what, I got it wrong.
But so far I haven't been proven wrong, and as
a result, I don't say the need to change my
point of view.

Speaker 1 (26:17):
Well, it's funny, you have two guys right. I hate
hate to do this, but it's like, I think you've
been right about everything, and in many ways I've been
saying all of this for a while now, and all
I've dug into is the incentive structure as to why
the United States people, the people who run the United
States financial system, the Drone Palels and now Scott Bessett
and others, and the big commercial banks on Wall Street

(26:40):
and that are that are that that's see the see
where we're going technology wise in terms of money and
what and what the other currency blocks around the world
are attempting the governments are trying to do around the world.
It makes perfect sense to me that they would in
their in their way, engender the crisis on their foreign adversaries.
It makes per sense for me for me to say,

(27:02):
they're going to defend themselves. If the European Union wants
to go to a digital euro and default on their
debt and genderous sovereign deback crisis and everything else, and
do away with commercial banking as the intermediary between the
user of money and the central bank, who's the issue
of money, then it makes perfect sense for me to
see Jamie Diamond over JP Morgan stand up and goes yeah,

(27:24):
fuck you, like you know, no, I mean, that's just
the way that's going to work, because that's reality. As
you pointed out at the beginning of the podcast, it's
not about what we want. It's not the world we want,
it's the world we've got in the world we've got,
And this has been a phrase of mind for seventy
eight years now is like, look, my libertarian Austrian fiefees

(27:45):
don't do not matter. What matters in the world is
what's going on in the world. And those guys are
sitting around smoke a cigars, well maybe not Diamond's case,
but smoking cigars, drinking whiskey and saying, how are we
going to deal with these people over in Europe? And
can we actually get out from underneath them pricing our
dollars for us? Because you made the very important point
that the euro dollar market is the what is the

(28:07):
ultimate controller of the price of dollars in many ways.
But now that we are on a different system where
they can't price those dollars for us, I e. No
more libor. Now we're on sofa. Now it's a different
dyamic and it's a different freaking world. And now we
get to turn around and go, oh yeah, by the way,
and you're paying four and a half percent for those
dollars and you can't infinitely really apothecate them because you

(28:29):
got to go get them in New York. Well, we're
not allowed to do that. And now City of London
is now trying to figure out how they're going to
continue to lever up the money machine, and they're trying
to force the United States at every turn to go
back to the zero bound, to turn the FED from
a real, honest to God's central bank into just another
euro dollar issuer. No different than you know than some

(28:50):
than some billionaire with a couple hundred with a couple
hundred million dollars sitting in a bank account in Santander
over in Spain, lending money out in the shadow banking world. Like,
it's a different different We're in a different dynamic than
we've been in in every in every previous iteration is
and what I'm gonna and what I mean by all
that is not to invalidate your point. It's to support

(29:11):
your point because now we're in a stronger dollar based
US based system than we were then. And so I
think the milkshake theory is only going to accelerate from
here not And that's my that's my opinion.

Speaker 2 (29:29):
You can well, so I think, no, no, no, all
good points. I'm going to make two points. One is
the strategy that all countries are employing and then the
point that you just made about everybody trying to blame
the United States. So, first of all, the strategy that
is being employed by not just the United States but
literally every other country in the world right now is

(29:51):
a strategy that goes back as far in history as
you can find. And that is when things start to
go bad domestically, the easy person to blame is the
evil foreigner. And that is exactly what every country is
doing right now. Every other country is blaming the evil
United States, and the United States is blaming the evil
foreigners who have cheated us for so many years now

(30:15):
it doesn't matter whether it's complete bullshit, it's reality. That
is what they are doing again. You have to strip
away what is right, what is moral, what is ethical,
and just be a mercenary about this, because the people
that sit on the thrones, they are freaking mercenaries. They
do not care about the individual. They just don't. I

(30:36):
wish they did, but they don't. And so when you're
putting yourself in the shoes or in the seats of
these other entities or you know, presidents or governments around
the world, you can't get in their shoes. And then
still think like a libertarian or an Austrian an economist.
When you get in their shoes, you have to think

(30:57):
like a psychopath because that's what they are.

Speaker 1 (31:00):
Are we And what I the funny thing is is
that I've found about being an Austrian is that I
think like a psychopath and I analyze like an Austrian.
And then what do we wind up with? We wind
up with exactly where we are, Like, it's it's actually

(31:20):
quite easy to predict what's going to happen. And actually,
because they're going to do these things that they're going
to alter the structural production, they're going to do this
they're gonna and and actually is like it's the cheap code, Like.

Speaker 2 (31:30):
They're going to cheat. Knowing that they are going to cheat.
Is the cheat code.

Speaker 1 (31:35):
Yeah.

Speaker 2 (31:35):
So now then the other point that I want to
make before I forget, is that all of the reasons
that people are now saying it's over for the United States,
I believe are the reasons that it ultimately will be
over for the United States. If you discourage capital from
coming here, then it eventually won't come here. Exactly if

(31:57):
you treat the rest of the world like a vapp,
and they will eventually no longer want to be your vassal.
If you put up barriers to do business with the
United States, then business will ultimately fall. So I do
think that is why, and that's why I have always
said that this is a story that ends badly. I

(32:18):
just happen to think we're in season two or three
and we've got five, six, seven more seasons to go.
So it's not that I don't want people to think
that I'm pollyannish about the United States and I don't
recognize the damage that is being done. Believe me, I
fully recognize the damage that's being done. But as somebody
who manage other people's capital, and we don't have the

(32:39):
option to just put it all in gold and sit
on the sidelines for ten years and see what happens
down you know along the way, Like we have to
actively manage capital because they're running businesses, they have individual needs,
they have other portfolio goals, So you know, just sitting
in bitcoin or just sitting in gold, it's that's just

(33:00):
what I do. I manage a portfolio of assets, and
and that's why all of this stuff. The milkshake theory,
the different idea is understanding monetary policy. All of this
is not so that I can stand up and say
that I'm right, it's all. All of it is so
that I can make money for my clients. That's the

(33:21):
ultimate goal. And I would much rather make money and
be wrong then be right and lose all our capital,
because ultimately that was my job.

Speaker 1 (33:32):
Is the funny part about it is is that you know,
time is everything right, this is this is the point
that Martin Armstrong. You know, I take this, I take credit.
I give Marty tremendous credit for teaching me just over
the years and getting me out of that financial justice
for your mindset. That he was helpful to.

Speaker 2 (33:51):
Me too, Like reading his stuff was helped just just
so you know that he was helpful to me too.

Speaker 1 (33:54):
Yeah, I wouldn't doubt it. But if you had come across,
if you had figured all this out on your own,
and I've been like, ow you, sister, that's like, that's
phenomenal because I couldn't figure this up out on my
own device. If I'm not going to cop to being
that African wise and suscient, smart or anything like, No,
you stand on the shoulders of the giants who got
you where you where you are today. It's it's and

(34:16):
you always give credit where credit is due, is I
firmly believe that. So, but this this idea that ultimately,
you know, it doesn't necessarily have to end badly if
we I The way I look at this and what
I say to people is, Okay, this is the state
of the world as it is. Now here is a
potential path for the United States to fix some of

(34:36):
its ills, while it's also and in many ways, also
trying to figure out how to you know, deal with
the the ramra that are you know, scraping that are
hanging on to the to the underbelly of it, or
however you want to put it, the little futures that
are trying to bind it down. And I think that,
you know, just looking at any one of Donald Trump's

(34:56):
policies like tariffs and then focusing on that, and as
far as that is, it's only one phase of the plan,
I think that only focusing on that is wrong because
she's also at the same time doing trying to do
other things to improve the way to your point, to
prove the way we handle capital within the US in
order to turn this ship around. So yes, we're gonna

(35:17):
We're going to make the dollar more expensive to use,
or at the very least, we're going to make it
more expensive for you to import into the United States
and dump your stuff into the US because we're going
to be spending We're going to be sending a lot
fewer treasuries out over the course of the next ten
years because we're going to try and balance a budget.
And then so that whole shift in dynamic. You know,
everybody's behavior has to change, and everybody's and the rules

(35:40):
of the game that we've all lived under our entire
lives have to change. And much the same way as
listening to you to say, hey, we got an entire
generation of guys who are trading bonds and you know,
make money in bonds, and they've never experienced a bond
bear market. I used to make that same point seven.
I used to make that point all the time, Like
they're guys sixty years old in this country who've never

(36:00):
you know, traded a be a bond bear market. Like
you know, they're retiring when they started under Reagan, right,
and they're retiring in you know, twenty sixteen, twenty eighteen.

Speaker 2 (36:09):
And they're considered bond geniuses, right and right, and look
of this guy, he never had a down year. Yeah exactly, Like, well,
it's easy.

Speaker 1 (36:16):
It's easy to be a genius when the market when
it's a one way trade, right, and everybody is a
genius in a bull market. Yeah, so so so Actually,
maybe we should shift the conversation now to let's what
do you think? What do you say as to you know,
or I don't care if you talk about in terms
of probabilities of it happening or whatever. I mean, I

(36:38):
look at the totality of what Trump is trying to accomplish,
what Scott Besson, I think what I've gleaned from what
I think Scott Beston is trying to do in order
to try and save the ship, and not just save
the shift for the United States, but also by then
extension actually the entire world, because there's there has to
be a way to deleverage the world without it without

(36:59):
you know, turning in a man Max. Yeah, which is
which is the standard you know, endgame analysis for a
lot of us.

Speaker 2 (37:06):
So let me give you the big picture and then
I'll break it down into like current reality. So even
since you know, five or six years when I started
talking about my whole framework, I said there was four
things that could happen. Number One, the whole world could
go down together in some kind of a just disaster, right.
Number two, the whole world could go up together and
everything's fine. You know, maybe that's a low probability event,

(37:28):
but it's possible. The other thing was that the US
could hang on and do okay and the rest of
the world would go down, or the rest of the
world could go down, or the U s could go
down and the rest of the world could rise. Now,
I have to admit that anything is possible. There's always
some probability, but I think that last one, where the
US goes down and the rest of the world thrives,

(37:49):
I think is an extremely low likelihood event, and the
probability is not zero but very close to it, just
because of the way the system is designed. And even
if we could ultimately get to that, I think the
transition would just be a disaster. And so now let's
bring it down. And I don't I don't think the
whole world is going to rise together right now. There's

(38:09):
just too many problems in the world. So that either
leaves the whole world going down together, or the war
or the US doing okay and the rest of the
world falling. So let's let's focus on those two things
and bring it into the to where we're at right now.
I think Trump's first term let the cat out of

(38:31):
the bag that the current status quo was no longer
going to be acceptable. I think he was a very
smart and I know people think that there's no way
that you could ever requate Trump and smart in the
same sentence, But I think he was very smart about
the way he criticized the rest of the world. And
he's what he said was, I don't blame China, I
don't blame Europe, I don't blame any they if they

(38:52):
did a great job, it's our leaders who really screwed
up and made all these bad deals. Right and by
him fra mean it that way, I think it gave
the rest of the people in the US on his
side cover to continue making that point, and it forced
the other side, meaning the Democrats and Biden that came

(39:14):
after him, to use that same thing. And if you
look at Biden's policies are each China. He basically continued
everything that Trump started to put in place, and he
maybe he didn't do it as forcefully as Trump is
doing now. But it's not like he reversed course.

Speaker 1 (39:32):
And so.

Speaker 2 (39:35):
The point is is we are going to have this
come to Jesus, this global reckoning, this rebalancing. Now, how
we get there and how quickly get there? You know,
I don't know, but it's not going to be smooth.

Speaker 1 (39:47):
And so.

Speaker 2 (39:49):
Because of what's going on domestically in the United States,
I don't think that we could continue on with the
way with the business model of the United States. I
don't think the domestic politics of the United States allowed
to continue the global business plan. For the United States
to continue, I think they had to change course. I

(40:11):
think politics force them to change course. And so when
your go and make no mistake, what Trump is trying
to do is absolutely a revolutionary move. It is it
is completely changing the business model of how the US
is operated for the last forty or fifty years. There
is not a business in the world that can completely

(40:32):
change their business model that has been in place for
fifty years and not have some unintended consequences, some unfortunate events,
some downsides. While you even under the best circumstances, you're
going to have some bad things happen while you're making
that transition, and I think we can all agreed we're
not in the best case scenario right now. Okay, So
now that we understand that this transition is going to

(40:54):
take place whether we like it or not, And I
don't think Trump can back down. If Trump backs down,
I think it's it's it's political suicide for him. So
I think he has to keep I think he has
to keep the pressure on. I don't know how you
would go about transitioning from the type of economy we
have now and a government spending the way we are

(41:18):
spending now to a leaner government which spends less and
with the private economy that makes more stuff rather than
just importing everything other than the way he is doing it.
So maybe there's another way that could go about, but
I can't figure out how else you could even try

(41:39):
to accomplish those things. And so that is why I
think it's going to continue whether we like it or not.
And while I don't think it's going to be easy
and I don't think it is going to be smooth
by any means, I'm not as apocoplectic about it as
many other people seem to be. And I actually think

(42:02):
there's a chance or I think I think the probability
of it ultimately working is higher than many people that
I interact with think it's possible. I do think companies
around the world will choose to invest in the United
States and build plants here. I do think the rest
of the world in most cases will either drop their

(42:25):
tariffs on US or continue to do business with US
even if we put tariffs on them. And the reason
is because we are the biggest consumer market in the world.
And if you don't think the consumer is important, I
don't know what you're doing in business. Because if you
don't have clients, you don't have a business, right, And

(42:46):
so yeah, you might not like it. I mean, we
all have a few clients that we just don't like.
We all have them. Every business that has ever existed
has a client that is not the most pleasant to
work with. But you just deal with it because it's
a good client, right. That's that's and not everybody's always
going to agree with you, But you know, if they're

(43:08):
if they're big enough and they and they provide you
enough revenue, you make allowances for them. And that's kind
of the US. For most most exporting countries, the US
is either their number one or number two biggest client.
If they stopped selling to the United States, they would
have to find someplace else to sell it to. Now,
could they sell it someplace else, maybe, but they wouldn't

(43:29):
be selling it at the same price that they can
sell it in the United States. And all the money
that they borrowed to finance the production of those goods
that they wanted to sell in the United States would
get crushed when they have to now sell that inventory
at dramatically reduced prices. So this is and I think

(43:53):
the rest of the world knows this, and they don't
like what's happening, but they're kind of stuck, right They've
got this big client who is treating them well, but god,
they really need that revenue. And so and I think
that's what's happening right now.

Speaker 1 (44:07):
I agree, and thank you for that, because that's that's
a nice, sober, succinct way of putting it. And I
would be a little bit more historic about it, because
while in Italian, but what I would but I'll well,
I'll say in service of that. Now you understand why
Jijimpang over in China was trying to transition to the
Chinese market. The Chinese economy to a consumer market in

(44:31):
order to get that that pricing leverage ultimately, and he's
struggling to do so. And but that's fine. They can
pursue that policy as much as they want. It's ultimately,
by the way, why I think the United States and
China will eventually come to some kind of negotiate, negotiated
settlement on this the But you're correct that at this

(44:53):
point in time, you couldn't this. What if Trump was
trying to do this four years from now, say this
is twenty twenty eight, he had another four years of
hollowing out and destroy the destruction of the borders and
the political system and the rule of law and contract
law and everything that did Democrats, there's democratic vandals and
traders did under Obama and Biden. If they had four

(45:14):
more years of that, just you and I would not
be having this conversation. We would have the conversation of
when is all the capital going to finally leave the
United States to go to China. But that's not what's happening,
or the or the European Union. Potentially, it's twenty twenty five,
and it's happening now, and timing matters, and exactly what
Trump is attempting to do, and the way he's and

(45:37):
all the carrots and sticks that he's putting in he's
putting in place, I think make it a very make
it a very compelling argument that he can that if
given the political capital to get this done and the
forbearance to get it done, if he and then he
will get a lot of it done. And even if
only gets half of it done, that's fine. The United

(45:57):
States doesn't have to be the world's most domin hedgemen
to come out of this and survive. China can take
some of this load off of them, because you know,
at a certain point, rebalancing the world means rebalancing the world,
and in order for the United States to survive, it's
going to have to take a haircut in terms of
global market share. But that's okay because at that point,

(46:22):
if we're in my mind, if we're if we break
the old colonial European mindset and we break that model
and we break those those forces that are that are
still exit, they're still deeply embedded in the entire market.
We're talking about the four x trade out of the
City of London, and we're talking about all that stuff.
If that breaks and you break the European Union. That

(46:46):
allows for a realignment of the world where everybody is
empowered in a way that we haven't we haven't seen
because now we get to something close to I think,
you know, in a long term sense, that kind of
live that that kind of us in libertarian utopia, which is, oh, look,
we don't need the central banks and at the same
way that we needed them previously. That the era of

(47:08):
central banks is dominant players over monetary over over the
price of money goes away and they just become, you know,
effectively what the But Martin Armstrong's marking for a long
time and I finally came around on this that the
original conception of the FED wasn't a bad idea to
be just a lender of last resort and in a
regional seenter of that's it's the lender of last resort

(47:28):
in the commercial paper market. That's the most important thing
that the FED could could do, which is to stave
off liquidity crises domestically. Right, If that's what we wind
up with, If we wind up with a FED that
looks like that ten to fifteen years from now, I
think the whole world would joyce I know, I know
I would if I'm so around. You know, God's forbid,

(47:50):
you know, I think.

Speaker 2 (47:53):
I think.

Speaker 1 (47:55):
So.

Speaker 2 (47:55):
I think I think you're right on that, and I
think I think what most I don't know if the
right way it calls them retail but just individual investors
or people who are interested in global finance, but they
don't necessarily work for a big bank or a hedge
fund or something, but it's just something that they're interested.

(48:16):
I don't think that they quite understand the structure of
how the system works and the pressures that those in
positions of power are under to keep the system going,
and that it's not so easy just to transform back

(48:40):
from the current system we have back to a hard
money system, and the outrage that would come from the
citizenry if we moved from an easy money system or
a fiat system back to a hard money system. I
think there's this possible. There's this paw popular idea that

(49:02):
fiacht has been forced on the individuals and all of
the individuals hate it. But that's what we have anyway,
and there's some truth to that. I'm not saying that
that does not exist, right, but the reality is is
that one hundred years ago one hundred and fifty years.
When was this, I think it was the late eighteen hundreds,

(49:22):
early nineteen hundreds, there was this famous speech. It was
called the cross of Gold speech, and it was given
by William Jennings Bryan, who was a congressman from Nebraska,
and he, you know, he basically said, you will not
crucify mankind on a cross of gold. And what was
happening at the time. We were on a gold standard,

(49:43):
and because the globally, the domestic economy was not growing,
credit was not available, because we were on a hard
money system, and farmers could not get extensions on their
loans or could not get new loans to keep their
farms in business while the prices were down. And so

(50:03):
you had prices staying down, and you had farms going bankrupt,
and you had the individual farmer losing his farm to
the big bank and then the big rich guy would
come in and buy the farm pennies on the dollar.
And so that was a case where not having liquidity

(50:24):
and not having the ability to have the lender of
last resort and not having the ability to get liquidity
into the system when the gold standard didn't allow it
to hurt the little guy and so again, And I'm
not saying that there shouldn't be a hard money system,
and I'm not saying that I'm not in favor of

(50:46):
a hard money system. I'm just saying it's not quite
as simple as I think many people think it would be.
And immediately, just going back to a hard money system
does not necessarily cure all the evils that exists as
a result of fiat currency. Now, there are a lot
of evils that exist as a result of Fiedo current.
This is not a defensive fiot. I'm just explaining that

(51:09):
the alternative does not fix everything, and moving from this
system to that system would also be met with popular
citizenry outrage as a result. If you think about PPP
loans that everybody took back in twenty twenty, that's the
opposite of a gold standard, yes, right right. That shows

(51:34):
you how many people wanted that bail out from the government.
That shows you how many of the little guys took
the bailout from the government rather than going to a
hard money system and not having that credit to be available.
And so maybe we got a little bit off topic here,
but I think it's important to understand that as we

(51:54):
move forward because we are transitioning to something new. Yes,
and what that thing is going to look like, I
don't know, but it's not. I don't think it's as
simple as going from our current system to a gold
standard and everything is automatically fixed.

Speaker 1 (52:09):
No. I I agree with you. It's interesting, and it's
one of the things that it's been very interesting. It's
one of the reasons why I initially became very interested
in bitcoin when it first hit the world, because I
think it's the what I've always argued, you know, I
really start to think about this, Why did the gold
standard fail? Why did the hard Why did the gold

(52:31):
coin standard fail? It's failed because it was incapable of
keeping up with the resolution of the payment system that
was necessary because the free market was actually doing such
a great job of creating new and more uh new
and more nuanced comparisons between goods because it's all money,
is right, It's just a comparator between the value of

(52:51):
this thing versus the value of that thing. Well, when
you can produce things for less than a penny, or
for less than the ability the the the amount of gold,
that you can sub divide it and still have it
be like recognizable as a gold coin stamp from a government.
At some point there's not enough resolution in the monetary
system to liquify trades, to liquefy the trades that the

(53:12):
market wants to produce. So what happens, I mean, even
means just talked about this. What happens credit shows up
and people start using credit money, they start the demand
for money goes up. As so the you know, Martin
Arfrow is not wrong when he says that the problem
with a lot of you know analysis is that people
are are the quantity theory of money, that people only
focus on the supply of money and they never focus

(53:33):
on the demand side of money. Well, Martin, what I've
always said, you know, in response to that, was about
if you look at the quantity theory of money Wikipedia page,
you'll see the exact criticism of the quantity theory of
owning by little What Bond messes himself as like, one
of the first things quoted, right is that this is
the part of the problem. So what I'm getting out
here is that the technology of money itself wasn't wasn't

(53:58):
couldn't keep up with the demand for a new form
of money, and so the technology that money of money
itself has had to evolve, and we're now at a
moment in time I think that we could start to
transition back to a hard money standard or a bear
asset standard with much lower leverage in the system, the

(54:18):
total system, because we now have monetary technology that allows
for the movement of capital when it's needed, when it's needed,
because when money gets to where it needs to go
is as important as how much money is available. I
had this conversation again talking with Caitlin Along yesterday. She
was great making a great argument when she was working

(54:40):
with Seagate and they were trying to figure out how
to get their money out of Thailand and back to
Seattle or back to Silicon Valley, and it would take
them six days to move their money from Thailand through
a series of for X transactions to get it to Seattle. Well,
that's indicative of a monetary system that doesn't have enough
technology to move the money where it needs to go.

(55:01):
And we're at a moment in time. But we were
talking in context of stable coins and other things. So
this is where the like the bitcoin guys are both
are are interesting and correct, where the gold guys are
also interesting and correct. Because now we have the ability
or we're getting close to the ability of being able
to move money when where and when it needs to

(55:23):
be when it's demanded, and that is the key to
minimizing liquidity shocks as we all talk about on a
regular basis, which again goes back to your original point
as to why when the crisis emerges, what happens. Because
we don't know how long it's going to take for
us to get our money out of the United States

(55:44):
and back to Germany to take care of our debts
over in Germany. We need some moving money now because
we might not be able to get it in three days,
right or when it went because we can't get So
it's just it's a very subtle point, I think it's
but it's again, Brent, it undergirds everything we've talked about
in this podcast so far, and I just want to
make sure that I'm making sure that I'm.

Speaker 2 (56:04):
Clear here that we can actually use we can use
this topic that you're talking about about the difficulty to
move and settle money and how it's it's becoming better,
but there's many places and institutions that are still let's
just say, stuck in the past as a general general statement. Sure,

(56:24):
that is why currently the US has the advantage when
it comes to the monetary system, because it is not
easy to move and settle for most companies, institutions, banks,
non bank entities, and the US controls the gateway for most,

(56:48):
not all, but most of global commerce. And to your
point about how we're you know, we're entering this new paradigm,
you know, Trump investment at all. They're willing to do
things in a way that previous administrations were not willing
to do. In the previous times that we have had

(57:10):
global liquidity shocks, the FED has been more than happy
to extend swap lines, flood the system with dollar liquidity,
and keep the whole thing going. I don't think that
those swap lines will be extended as easily and as
with fuse, And if they are extended without more strenuent

(57:32):
strings attached than they have been in the past.

Speaker 1 (57:36):
I agree.

Speaker 2 (57:37):
And and as a result, if the US, if things
get let's just say, let's just work in this out.
Things keep getting worse and worse and worse, and the
US keeps using all the tools to their availability. They
at some point could say a couple of different things.
One we're no longer sending dollars outside the United States,
either through trade or through swap lines or whatever it is.

(58:00):
And you know, we will provide liquidity to our local banks,
we will provide liquidity to our local industries. We will
provide PPP type loans to domestic small business. But none
of it is leaving the US borders. Now, if you
want to move here, or you want to move your

(58:21):
business here, you want to move your whatever factor here,
you will have access to this dollar liquidity, but nobody
outside the US gets it. And as a result, what
and by the way, this would probably be bad for everybody,
including the US. But if you have somebody providing you
a PPP type short term liquidity, you can survive for

(58:44):
longer than the guy in France or the guy in Brazil,
or the guy in Australia or Taiwan or China or
wherever it is. Because all of that, and this is
where it's crucial to understand the euro dollar market. The
amount of creddit that has been extended between countries outside

(59:06):
the United States to each other with the US not
even being involved, is as big, if not bigger, than
the amount of death that the United States owes. So
if they default on it because they can't get the
liquidity to pay it, they're defaulting on each other. They're
not defaulting on the United States. And that it has

(59:26):
real consequences. Now, if you say, yeah, but that will
blow back and hit the United States, You're absolutely right.
It will blow back, and it will hurt the United
States as well. Nobody goes into a fight without expecting
to get hit. But you know, the point is is
if we have the ability to provide the domestic funding
or liquidity, and the rest of the world does not

(59:49):
have the ability to provide new funding in dollars unless
they risk their own balance sheet, and if they do
it by risking their own balance sheet, then their own
currencies are going to collapse.

Speaker 1 (01:00:00):
Yep.

Speaker 2 (01:00:01):
And so that and and that is why I say,
maybe we will get to this new system where you're
talking about, where we get immediate settlement and we get
a hard money component to it. But the US will
do everything in its power to protect its dominancy before
we get to that new system, of course, of course,

(01:00:23):
and so in that transition, if you take it to
its worst possible conclusion, I don't see how the dollar
does not eventually squeeze higher on supply concerns. And this
is so I'm gonna make one more point, then I'll
shut up.

Speaker 1 (01:00:38):
Sure.

Speaker 2 (01:00:39):
I tweeted something out the other day that showed it
the chart of the d x Y, and it basically said,
if the chart goes higher, in other words, if the
dollar index goes higher, that's de dollarization, that's supply getting squeezed,
and we're moving towards a system that the dollars no
longer use because the debt's being canceled out. If the
d XY goes lower. The only way the DXY goes

(01:01:01):
lower is if more liquidity is being provided of the
dollar and more credit is being extended for the dollar,
and as that supply increases, the price falls. But the
way that you increase dollar supply in the short term
is that you also increase US dollar debt in the
medium to long term, and that US dollar debt in
the medium to long term is demand for dollars. So

(01:01:24):
as the price goes down, the long term demand increases.
That's right, And and so I think that's kind of
where we're at. Can the dollar go to ninety and yeah,
of course it can, But that's that doesn't change the system.
That reinforces the system. What brings down the current system
and transitions us to this new one is the dollar
going higher, the dollarization actually takes place.

Speaker 1 (01:01:48):
So anyway, I know you're absolutely correct. And what's interesting
if you bring all that up. In a couple of
weeks ago, I was chatting with a friend of mine
over in Italy and we were talking about the end
of synthetic libor talking about how we've now fully now
transitioned over to a sofa based dollar system and that
there's no more there's no more zero collateral swapping of dollar,

(01:02:13):
a lilyboard based dollar contracts. Now, you gotta you gotta,
you gotta post collateral in order to get access to dollars.
To your point about what you just said, well, will
provide liquidity to you. Well, if you've got two domestic concerns,
will also provide liquidity through the Federal Reserve, who has
set things up over the last three years with the
facilities necessary for those who are on board with what

(01:02:37):
we're doing. So, if you're Italy and you're George Maloney
and you show up at the White House and you
say beautiful, you say lovely things about Donald Trump in
the US and the US Italian relationship, and you want
to do a bilateral trade deal with the United States, Well,
do you think Stilantis or you know, or whomever is
going to get a preferential treatment by the Federal Reserve

(01:02:58):
and the US banking system versus credit agricola. Why do
you think Emmanuel Macron is all of a sudden talking about, Oh, yeah,
it's fine for Trump to negotiate the end of the
Ukraine War because they finally began to look at Oh,
we don't have any leverage over you anymore. We have
to go for you to get We have to go

(01:03:19):
to you to get dollars, and we can't go to
this withst National Bank anymore. We can't go to this
one and find them in other places. We have to
go and grab them whenever. Old system of flooding the
world with dollar liquidity, that system is drying up and
you're seeing pockets of It's like as the tide flows out,
there's title pools out there were this sole liquidity, but
there's no absolutely blood on the beach and there's a

(01:03:42):
whole lot of people who were swimming freaking naked, and
I don't imagine this.

Speaker 2 (01:03:46):
I don't want to look at.

Speaker 1 (01:03:47):
I don't want to look at Klas swap in a
banana hammock.

Speaker 2 (01:03:49):
I'm like, I'm you know, imagine the scenario where the
Bank of Italy gets a dollar swap line but the
ECB doesn't.

Speaker 1 (01:03:56):
That's exactly what's going to happen. I've been I've been
for the for the last sense, literally since about the
middle of March, when we started talking, when I started
talking about this with people, when were starting to game,
We're starting to war gain this out. I've been war
gaming this out for about a month now. I'm like, oh, yeah,
Italy is going to get swap lines, Greece is going
to get swap lines, maybe even Spain or Portugal because

(01:04:16):
I can start this dude though, now I can. Now
I's just shift over to my geopolitical hat and I
think to myself, Okay, now, what if Brussels is the target,
what do you actually want to do? Well, you want
to create rump Europe. You want to get you want
to take access to the Mediterranean away from you want
to take just like you want to take take access.
That's why Putin wants to take access to the Black

(01:04:37):
Sea away from Ukraine, same thing.

Speaker 2 (01:04:40):
What happens in the world, happens if what happens if
an individual corporate entity in Sweden gets a swap line,
but the Bank of Sweden doesn't, does not exactly, and
that that is increasing in my opinion, that isn't now.
Is that dramatic. Of course, that's dramatic. Does it cause
all kinds of other problems? Absolutely, this, But that's kind

(01:05:00):
of the world where we're headed into, and those I
think those are the types of things you have to
start thinking about. Do I know that's gonna happen. No,
I don't know for sure that's gonna happen, But those
are the types of things I think about because I
think that's the type of a world that we're moving
moving into. I don't see I don't see an off
ramp right now. I think we could potentially get to

(01:05:22):
an off ramp in six to nine months, but I
don't see an off ramp right now, And so I
think I think these pinnings probably accelerate rather than probably decelerate.

Speaker 1 (01:05:32):
Yeah, And the final point is just the throw it
out there. The the crisis that we saw last week,
which I think we can pretty much say now was
a manufactured crisis was unable to take down the sofa market,
and it tried hard. And so that tells us to

(01:05:55):
that that at least with one of two scenarios. And
I'll leave this. I'll leave this the idea with you
and then you comment on it and we'll close the
podcast out, which is this is this September. What we
saw last week is that September twenty nineteen with the
sofa slash rebot crisis, which then led directly to March
of twenty twenty, or more appropriately, let's go, let's use

(01:06:19):
the rebo crisis is September two thousand and seven, which
l led eventually to the bear Stearns of vaporization in
March of two thousand and eight. Are we there or
are we in? Or because the system did not need
a bailout last week that the market absorbed it, do we?
Are we not staring at something six months from now?

(01:06:40):
It's it's an open question. I'll leave it to you.
You can, you don't. You can say I don't know,
you can, you can do whatever you want, but I'm
gonna leave that. I'm gonna leave you, and I'm going
to leave you the last word on that.

Speaker 2 (01:06:48):
So I'm gonna I'm gonna I'm gonna answer this with
three points. I'll try to make it quick, but sure.
I think a big part of what happened last week
in the treasury market was two extremely large, extremely leveraged
treasury type treasury based trades by big banks, insurance companies,

(01:07:09):
and hedge funds had to get unwound, and they had
to get unwound during all the other chaos. And that
was both the treasury basis trade and the Treasury SLR trade.
And you can go look those up and see what
those two things are, but those were Those were two
treasury based trades that were done with huge leverage on

(01:07:31):
the anticipation that spreads would tighten because of some regulatory
things were going to happen. And then with the chaos
of Trump's tariffs, instead of tightening, those spreads widened and
those banks, hedge funds, and insurance companies with these huge
positions on had to unwind them. And as part of

(01:07:52):
unwinding them, they had to sell treasuries as they unwinded them.
I think that contributed to the treasury prices falling while
the yields went higher. That's number one, number two, I
would suggest to anybody who thinks that ten year US
yields going higher is singularly bad for the United States

(01:08:14):
should go and understand how global corporates and other sovereigns
priced their treasuries and what they priced them off of
m that's number two, and then number three. It kind
of gets to your point on Sofa and why I
think it didn't become a crisis. And this is another

(01:08:38):
way that the US has systematically put the ball into
their court. Was that to your point earlier, when it
was a libor based rate, the rest of the world,
basically a group of bankers in London could decide what
the price of money was. One of the reasons that

(01:09:01):
swap lines were extended in times of crisis was because
the way that libor was set was that a group
of bankers would pull all the other bankers. At what
rate you are offered funding? That's the London Interbank offered rate, yep,

(01:09:21):
And if they were all getting quotes at four percent,
that was the rate. But a swap line comes in
and now all of a sudden, these banks can get
funding at one percent. So it was a way for
a swap line not just to give dollars to other entities,
but to lower interest rates overseas.

Speaker 1 (01:09:41):
Yep.

Speaker 2 (01:09:43):
If now it is SOFA is set in the United States,
and if those SOFA rates are only offered to US institutions,
interest rates in financing can stay low in the United States.
Guess what happens to the rates offered to entities outside
the United States.

Speaker 1 (01:10:02):
Who are more levered than they are.

Speaker 2 (01:10:03):
Who are more ready more levered and can't create the
base money the way the FED can. Exactly, it's it's
a it's a problem for everybody, But there's one entity
that has their finger on the button, and you you
can choose to to to decide whether you think that's
an advantage or not. But that that's just reality. And

(01:10:25):
so I go back to the four things I said.
The whole world can rise together, the whole world can
fall together, the US can rise and the rest of
the world can fall. Or the US can fall and
the rest of the world can rise. And I will
I see no reason to allocate my assets overseas right now.

Speaker 1 (01:10:44):
Me either. Thank you, Brent, it's been great, Thank you
so lovely to catch up with you, and we'll definitely
do too. Well, let's let's make sure that we don't
let this go for more than the ear. I think
the next time we we chat it's gonna be a
very interesting world. We should try. I'll make a point
of putting on the calendar for three to five three
to five months from now, we'll do it again. Okay,
absolutely happy straight here man, take care of bye bye

(01:11:06):
yeah M