Stock Market Quakes in Dollar Milkshake’s Wake

Featuring Brent Johnson

Brent Johnson, CEO of Santiago Capital, updates his popular “Dollar Milkshake Theory.” In this follow-up piece, Johnson covers his call for a strengthening dollar, his pessimism for global bond markets, the risks to U.S. equity markets, and his view on gold. Filmed on October 12, 2018 in New York.

Published on
17 October, 2018
Topic
Gold, US Economy, US Dollar
Duration
30 minutes
Asset class
Equities, Currencies
Rating
52

Comments

  • CP

    Christopher P.

    7 11 2018 22:03

    0       0

    Thank you Brent for your continued contribution to Real Vision and FinTwit. Your enthusiasm for debate and discussion is something we can all learn from.
    I, 110%, agree with your views on US Dollar strength.
    The shortage of US Dollars and the impending explosion in demand will cause a face melting rally that will, to your point, end the current monetary system and usher in a new one.

    Although your thesis on global liquidity being sucked into the US makes perfect sense, I would subscribe to Raoul and Jeff Snyder’s views that the global economy is headed toward a period of deflation (coincidentally brought about by a “dollar shortage”) and that liquidity will be battling for the relative safety provided by the two deepest, most liquid markets. Namely US Treasuries and US Dollars.
    COT positioning, market sentiment, and the technicals on both point to a much higher US Dollar and much higher treasury prices.
    In addition, the leading indicators on housing, auto, and retails sales all show potential for a US slowdown.

    Could be worthwhile having a small allocation to equities as a “hedge” however this is how I see things playing out.

    Longer term, precious metals go much, much higher as they do what they’ve always done. Account for the excess currency in the world to preserve the holder’s purchasing power.

    Having lived in Australia for the last 5 years (and working in one of the Big 4 banks over that time), I can tell you they don’t think there is a problem.
    There is a broad disbelief that anything bad could happen in the “Lucky Country” because no one has seen it happen for generations!
    Add to that the political corruption, regulatory capture, and general “gamblers” mentality and you have a perfect environment in which to be a contrarian as these banks are regarded as “safe as houses”.

    The way I will be positioned for the above?
    With my reference currency in AUD:
    Short CBA (most egregious of the banks) via long term OTM Puts;
    Long TLT (long US long dated treasuries and long US Dollars via the denomination).

    Might add a small position going long on US equities - still mulling it over :)

    Waiting for technicals to guide the trade entries.

    As always, your views and the discussion is greatly appreciated.
    Would love to buy you a cup of coffee if you’re ever in Melbourne.

    Cheers,
    Chris

  • DR

    David R.

    1 11 2018 20:08

    0       0

    Enjoyable. Sounds like Martin Armstrong's playbook (or vice versa) since years ago. I guess that's a good thing. Wonder if there's any technicals/charts to validate the talk.

  • bf

    bart f.

    31 10 2018 13:11

    0       0

    Very valid and open for discussion points. The equity bit seems quite controversial tho. Stock prices are now purely function of flows. If there is an $ squeeze due to some offshore panic/crisis one would think the flows will go to UST rather than US stocks (and that’s why the FED will be able to continue rolling down B/S).

  • VC

    V C.

    27 10 2018 03:27

    0       0

    Hey, love the discussion on US dollar and gold. however, i find your comparison of the Australian housing market to the American housing market during the great recession a little misleading. Speaking as an Australian, and having worked in one of the big 4 bank's CIO's office during the 2008-2009 period, I don't believe we will have an 'American-style' crash.

    In Australia, we have no option to 'throw the keys bank to the bank' should the mortgagee go into negative equity. If the collateral is insufficient to pay off the outstanding debt the banks will force sale all other assets until the customer declares bankruptcy or the debt is paid off. During our last 'true' recession in the 90s caused by commercial property lending, net charge off on mortgages was 11 bps. In America, the liability stops at the housing collateral level. Secondly, Australia mortgage origination has a hurdle interest rate of 7% at origination (current market rate is 3-4%). This means, loan serviceability is assessed assuming the mortgage interest rate is at 7% for the life of the loan. This hurdle rate has not changed since the great recession and lately has actually increased to 7.25% (despite no sign of any RBA cash rate increase on the cards until ~2020). Thirdly, 70% of Australian mortgages are on variable rates, which means the banks can flex some pricing power should funding costs escalate (even remember the hurdle rate used so there is currently a ~4% interest rate gap before systemic mortgages are stressed). In America ~70% are on fixed rates. Fourthly, all loans need to have income verified (compare to UK where 50% of loans have 'self declared' income protocols during the great recession). Finally a Royal Commission does not mean automatic legislation. It's a crown-sponsored legal look-in on public issues and makes recommendations to parliament, which then choose to legislate or not.

    I think the greater shock to the system would be a mass exit of overseas (chinese) capital out of the housing market and/or the opposition gets in power (think Bernie Sanders policies).

    Shorting the big 4 Australian banks was in vogue twice in the last 10 years. The first was during the 2008-2009 period and the government lent their AAA credit rating to the banks to ensure liquidity and lower rates. The second was the end of the mining boom, but this was helped by our bifurcation economy (West = resources; East = commerce/services/construction boom). Keep in mind, these banks are paying out dividends of ~7% and, as part of our superannuation system, 9.5% of every Australian's wage is set aside for retirement. A lot of that money will be allocated to equities, and by proxy, the big 4 banks.

  • @F

    @HoodRichFABIO F.

    26 10 2018 06:52

    0       0

    excellent interview. I actually understood what he was saying. no complicated jargon like anti-bubble etc bring him back! I want a 1-2 hrs interview where he can elaborate on everything he said.

  • BJ

    Brent J.

    22 10 2018 23:23

    3       0

    Hi...for everyone interested in hearing more about Michael Schneider's Australian thesis and how to potentially get involved please contact Paul Thomas at the email below. Thanks!

    paulthomas@vantagepointam.com

  • BJ

    Brent J.

    22 10 2018 19:08

    8       0

    THanks to everyone who watched/commented. I appreciate you taking the time for the dialog. Best of luck to all.

  • AH

    Ahmed H.

    22 10 2018 06:46

    2       0

    great interview - and i love the milkshake - and i buy all the usd bull arguements. One thing i think missing from all these is the actions of the NON-US actors - the russians, the chinese, the indians, the indonesians who all have pretty good economies but are all strait jacketed by the use of USD - to assume that they dont have any viable alternatives in the near future is abit naive imo. I dont think one can assume that these economic actors will be sitting idle - esp as the usd short squeeze movie has re-run over and over in the recent past and has painted what are what are otherwise healthy growing economies into $ liqudity crises.

  • GS

    Gordon S.

    21 10 2018 21:18

    0       2

    In ‘08 the world found out, that it was highly interconnected; since then, the interconnectedness has only increased. As an avid follower of the $TSLAQ and $BABAQ saga, I wonder what would happen (as Stan Druckenmiller suggested in his RV interview) if Tesla goes bankrupt. Most Tesla longs are also long Netflix, would that get dragged down too? What about the suit of other money-losing companies? May they be able to achieve profitability soon in the current environment? In any case, I have deep respect for people currently piling into the Nasdaq bubble... (funny follow here @JTSEO9). On the China front, it looks like things are going from bad to worse. The “good news” (as per https://deep-throat-ipo.blogspot.com/), is that China has offloaded probably over $2 trillion in Chinese fraud stocks and bonds to US investors (e.g. $BABA is traded on the NYSE and US investors now hold 64% of this magnificent company). Wonder what would happen once these, priced in USD, become black-holes if China breaks? Then, $AAPL being at the center of all of this, what if China says enough is enough and tries a “no Apple products are to be produced in China anymore, unless XYZ happens” “bluff”. Add to this record margin debt and I guess vol spikes could shake out quite a few weak and leveraged hands? Since high inflation (to hyperinflation?) is the end-game, I guess holding the right stocks may be the good trade after all, but at what cost? I know Brent said the road will be painful, but I’m not sure many are in for such a path? Would be interested in what kind of vol number Brent thinks will be printed in the near future and what number he would be willing to stomach? Or maybe long VIX + long stocks as has been suggested by many? In any case, we live in interesting times!

  • SS

    Steven S.

    21 10 2018 18:50

    0       0

    it's all happened before - build that wall you say....climate change by SUV driving Hittites?............ever hear about the late bronze age? you should listen to Eric Cline PhD - it's really worth your time:
    https://www.youtube.com/watch?v=bRcu-ysocX4

  • SA

    Scott A.

    21 10 2018 15:17

    0       0

    Enjoyed this. There is a contradiction of sorts where on one hand the dollar is supported by flows in the US and on the other Brent feels capital controls are coming.

  • ph

    peter h.

    20 10 2018 18:02

    1       0

    Brent: Great stuff! If your dollar theory is correct, why not short emerging markets like Brazil (I use Brazil given the recent rally)? Won't all EMs get slaughtered given the level of USD debt they hold.... not to mention the knock on effect the EM resource countries will feel as China falls apart? Thanks!

  • T~

    Tshort63 ~.

    20 10 2018 17:21

    0       0

    Great dive into ideas behind the theories. I agree about 85%, the only delta is I think that the US has offended the world. Countries and people will hold onto their money for patriotic reasons meaning less than expected money will convert to dollars and boost the markets meaning Gold will become the safe haven trade rather than the dollar and our market. My thesis and I have been wrong so far. :-( Great interview, thanks, Brent.

  • SS

    Sam S.

    20 10 2018 14:08

    3       0

    Brent, you mentioned you're happy to comment----so owning some gold for insurance, I get that, but how are you playing: 1. the move higher in equities and 2. it ending badly? Know you can't give investment advice but you can enlighten on sectors, ETF's, industries, currencies, etc. Money has to flow somewhere, good times or bad, so what's your capital portfolio positioning over your time frame within this conversation? You also mentioned so many disagree with you, but I don't. I think equities are a safe haven away from government, as big business controls government, not the other way around. The Socialists want to stop big business but only to profit from it and tax the world. Confidence is KING. Please some thoughts on your road map for the ending of these cycles. Excellent conversation!

  • BM

    Beat M.

    20 10 2018 12:19

    1       0

    Interesting Interview. Will this Dollar flood lift all boats? Sure FANGs. Jesse Felders Fantastic4 (MCD CAT BA MMM)? I don't expect the housing market to do better with higher rates. Retail? Lot of 52w lows lately.

  • JH

    Joel H.

    19 10 2018 22:55

    1       0

    Good interview, thx RV

  • OS

    Oliver S.

    19 10 2018 19:53

    1       0

    A really interesting view. I just question the speed/timeframe of accommodation if we do see a much higher $. I would also be interested in hearing the 'not going to end well' narrative. Eventually a $ collapse and reversion to SDRs?

  • RC

    Ryan C.

    19 10 2018 05:14

    1       0

    Brent, thank you for the presentation. I agree with your thought process but have the following question: If the dollar continues to rise, how do you reconcile further dollar strength lasting a few more years before something breaks? Even though a poor proxy given EUR weighting, it’a challenging to see the DXY going to 110, 120 or higher and how quickly that would break things before we had Plaza Accord 2.0. I think we have ill equipped leaders to handle such a crisis as few politicians today are focused on solutions, but in a bad crisis, I think they will be forced to act. I just can’t see how this lasts that long if the dollar does move significantly higher. How do you reconcile the time frame lasting so long?

  • MS

    Mitchell S.

    19 10 2018 01:58

    1       0

    Excellent presentation. My question for Brent is as follows:
    There is some evidence that the US economy may be in a slower growth period in the next quarters. Housing and auto stocks are falling. Housing finance is slowing. ECRI’s leading indicators suggest a slowdown by Q2. Does this in anyway affect your hypothesis? Or is the US still relatively stronger than Euroland and EM? What changes /indicators are you looking at that might cause you to reverse your position?

    Thanks again. Most entertaining and though provoking.

    Mitch

  • DS

    David S.

    19 10 2018 00:38

    1       0

    Great discussion. Thanks. Investors may wish that the future would be the same for continuity, but it is not. I need to start with a narrative from somewhere to invest. The following quote is cute, but more importantly it may be fundamental to economics.

    “In final examinations {this economics} professor always posed the same questions. When he was asked how his students could possibly fail the test, he replied simply ‘Well it is true that the questions do not change, but the answers do.’— From a speech by Fed Chairman William McChesney Martin Jr., 19 October 1955.

    The answer changes daily because no one knows what issues drive the market equilibrium each day. I like the “Milk Shake Theory” as an investment background for today. Mr. Johnson is smart and will change if the facts change. I still like $US cash and cash equivalents as stocks gets more and more risky. What the government gives in tax breaks can be taken back as deficits blossom and interest rates rise. Where have all the profits gone? DLS

  • JS

    James S.

    18 10 2018 21:12

    3       0

    Interest only loans in Australia are flipping to principal and interest but not from $1k per month to $3-4K! The economy isn’t that bad - we still have China buying ridiculous amounts of iron ore.

  • PM

    Paul M.

    18 10 2018 11:47

    2       3

    Liquidity is not going to US - $DXY is only up 3,6% on the year, 10yr USTs -5%, Ultra USTs -10,4% and S&P is up only 4,5%. So where is all this super-liquidity going into $ and US assets from abroad you are talking about? It's just not there. We all know that all the extra bond issuance by US government is consumed by local US demand, fuelled by tax cuts and high equity valuations. The problem with your thesis is that it is different this time in the sense that the world does not see US markets as a safe haven no more despite positive IR differentials. What happens if US equities tank alongside bonds? Won't liquidity go the other way? There are cheaper places on a relative basis in the world for sure.

  • CD

    Chris D.

    18 10 2018 11:40

    1       0

    Really interesting presentation. It feels "common sense" as well. If there is a large migration (of capital) to the US from EM/Europe.. then what will this capital do? Of course, it will not just sit in the bank; but rather be invested in stocks, bonds and real estate.

    However, I believe that deficits do matter.. at the end. The US is currently running trillion dollar deficits (on a cash accounting basis) and the implications of baby boomers retiring will be immense. SocSec, Medicare/Medicaid are depleeting their pools.. At some point there will be a evaporation of CONfidence.

    No easy trade here. I think. Perhaps long Au/Ag, not paper promises in an economy that has outsourced its productive capacity overseas. And the US equities.. Buybacks with Swiss-cheese balance sheets? Well, not for me ;)

    In addition.. Don't forget that Apple has 20 percent of their revenue in China..

    But who knows?

  • SZ

    SALEH Z.

    18 10 2018 10:28

    2       0

    So saying AUD can go to 35/40 handle from 7000?..wow..

  • SR

    Steve R.

    18 10 2018 09:20

    0       0

    I would argue that if the Markets have taken back control from the Central Banks, then I'd view the recent equity weakness as a shot across the bows from the Markets aimed squarely at Central Banks. I would further argue that another rate rise in December and all hell could ensure in January next year as the Markets finally reassert their authority. The Markets know that QE infinity is the only outcome to prevent the next financial crisis turning into a global crisis, and Markets have a habit of testing the resolve of the Central Banks. IMHO, a fall in equity markets is what will end the current cycle. I don't believe the US or the rest of the world can sustain interest rates at much higher levels than today. I'm not sure why Brent you think global interest rates will go much higher, as we appear to almost be at the limit before that one final rise triggers a major global crisis - and then in comes QE infinity to the rescue - perhaps that's when we get the blow-off top? Not sure myself, just can't see interest rates going much higher - plus its becoming a political issue for Trump. It will certainly be interesting to see how it all pans out.

  • MV

    Mark V.

    18 10 2018 08:22

    1       0

    Good luck with that AUD trade.

  • LD

    Lyman D.

    18 10 2018 06:44

    3       0

    Great contrarian view on things! Maybe right, maybe not, but a very good interview nonetheless. Keep up the good work!

  • MG

    Matteo G.

    18 10 2018 05:51

    5       0

    in 30 years in the market I have never seen an ugly general picture lead to higher equity prices. if you are right I think US equities will join the other makets in their down move.

  • TS

    Terence S.

    18 10 2018 05:39

    4       0

    Agree with strong USD theme but disagree on how the flight to safety trade will cause US equities to rally further. The missing link in the presentation is new run T-bills and T-bonds held to maturity will not result in capital loss. In fact, the strong USD makes the trade more attractive vs. buying US equities where earnings are inversely correlated to the strength of the USD. The flight to safety trade is as old as dirt and interest rate hiking cycles are more aligned to economic cycles rather than fund flows.

  • DH

    Daniel H.

    18 10 2018 03:54

    2       0

    Really thought provoking interview. Please continue to bring Brent back regularly.

  • sT

    sid T.

    18 10 2018 02:59

    7       0

    Really appreciate your thoughts Brent. I live in Australia and I am quite keen to express my opinions on the housing market, but there is no proper vehicle for retail investors. Can you please let us know how we can get it touch with Mr. Schneider? Browsing through the other comments, many others are interested. Thanks in advance.

  • AD

    Anthony D.

    18 10 2018 02:44

    1       0

    Brent,
    Can't you envisage a little 15% down move in the US markets over the next year? Historically that's nothing.
    The Fed doesn't have the testicular fortitude to refrain from easing in such a environment.

  • ZJ

    Zhaozhe J.

    18 10 2018 01:59

    4       0

    I'm just wondering if Canada would be in the same situation as Australia? The two countries are almost identical, does the proximity to the US help the Canadian situation?

  • RP

    Ryan P.

    18 10 2018 01:27

    1       0

    Brent where do the flow of funds come? (EU ? EM counties where they can actually move funds out of their countries? )
    How much political risk do you think is actually gaged when making the decision to buy US?
    More importantly , does I really matter in the case you present ?

    thanks

  • TW

    Travis W.

    17 10 2018 22:36

    8       0

    Reporting from the ground in Australia. The sentiment here matches what I'm seeing generally. To add more to the housing situation...

    The pullback at the moment is in capital cities on the east coast, particularly Sydney and Melbourne which were dramatically overheated. What we call regional areas, similar to flyerovers in the US, did not overheat as much and there is huge disparity between prices in Syd/Mel and regional areas. The crash looks like it will flatten this disparity, maybe quite a bit. Syd/Mel could be a painful crash, regional areas will deflate a little and more softly. There are some regional areas that may go sideways or even up through this due to expanding military or industrial projects setting up with sustainable export potential.

    Generally though, many people here are of the mindset that property always goes up and cannot comprehend otherwise. I don't personally know many people who have money in anything except property and the banks. The crash will be socially ugly in the suburbs of the cities.

    Pete Wargent on Twitter is a good source to follow for more.

  • DF

    Dominic F.

    17 10 2018 22:35

    5       0

    I think Brent has a great attitude.
    What I like is that he seems positive despite the negative message. That is important.
    As an Australian I agree with his analysis. Where is Mr. Snyder??? :-)
    Understanding is the opposite of fear. If you can let go of your dogma and try to understand what is going on you don't have to be afraid. Brent is doing just this.
    I follow him on twitter and sometimes ask questions. He always answers respectfully even if its a basic question.
    That openness to discussion is very cool for those of us learning. Oh, thats everyone :-)
    Like he says, you may not agree and the future is uncertain by definition. But he has very clear reasoning and explanations.
    The rest is up to you ;-)
    Thanks Brent and thanks RV.

  • jy

    john y.

    17 10 2018 22:22

    6       0

    Hi Brent
    I live in Australia but the only Michael Schneider I can find works for Bunnings.Can you please provide details/ Spelling of name /web site/fund name/ANYTHING please

  • CC

    Christopher C.

    17 10 2018 21:06

    6       0

    Thanks Brent. Great update. It seems to me that nearly everyone agrees about pieces on the board. Trouble in China and knock ons in the periphery there, trouble in the EU and its possible implications, Powell raising rates and general effects of QT, and US bond market, etc. Overpriced equities in US given what appears to be a looming slowdown (Auto's, housing, etc.), and gold. The debate seems to center around the difference in definitions between folks as to which pieces are pawns, knights, bishops, etc. and what their movement will have on the others. Lots of really smart, successful folks talking about what might happen. Lots of differing views. Your position seems to be very well informed, and thought out. Will be interesting to see things unfold. Hard to predict where things will go from here when we are all standing in a place of very limited historical analog and so much volatility creeping in from everywhere at once.

  • JB

    Jason B.

    17 10 2018 20:53

    1       0

    We can look into the past for clues about the future because while history does not repeat, it does tend to rhyme. And looking back through financial history, what I am seeing now in US stock markets is very similar to the 2 years prior to the October 1929 crash how a lot of capital from all the other major economies was still flowing into the US stock markets back then. I would be curious to hear Brent's thoughts on this...

  • BR

    Boyd R.

    17 10 2018 20:00

    2       0

    Australian has not had a recession for 25 years not 30-40 as mentioned

  • SS

    Steven S.

    17 10 2018 19:48

    0       0

    Brent - okay so we have record public debt + institutional /government debt exposure to the power of leveraged derivative bets in their insane race for minuscule alpha plus the historical clarity that for any late-stage bubble to exist & bear in mind -this is the McD's "Royale with Cheese" size of global bubbles fuelled by CB tribalistic hubris - can we agree that for bubbles to exist in the first place, they all rest on a bed of hidden fraud & criminality at best....willful ignorance by the system authorities at worse (eg: the missing $21 trillion via Dr. Mark Skidmore).

    When markets really start to roll - many incubated crimes hatch into the light for all to see- who can you trust? -counter-party risk fear, especially for investors outside US markets maybe too great a leap of faith to babysit during the volatility -what if capital flow is halted by protectionist governments early on? - using you're same logic to me would also suggest an equal or greater risk that physical tangible asset hoarding from toilet paper to bullion within domestic markets may trump overseas US equity investment for non-institutional investors -for the institutional - will /can foreign Governments act on milkshaking capital flight? maybe this is part of your theory late stage? / cheers.

  • CD

    Cheryl D.

    17 10 2018 19:04

    2       0

    I agree with your USD theory but not the US equity theory. I think the US economy is going to start to slow which will be negative for the equity markets.

  • CS

    Christopher S.

    17 10 2018 19:00

    1       0

    I believe Hugh Hendry recommended something somewhat similar; Harry Browne's Permanent Portfolio, minus the treasury bond component. That means a third gold, a third US Stocks, a third USDs. More or less. That seems a bit gold heavy. For the brave I'd say 45% US Stocks, 45% USDs, 10% Gold...Then look to convert profits into more gold in 2-3 years sometime around when the US might acquiesce to weakening the dollar/changing the world monetary system. If the theory continues to play out, you'll do very very well. However, as Brent said it'll be a heck of a ride getting there. Of course it's possible you do well on only two out of the three components - or even one for example if there's a stock market crash where the dollar falls (Peter Schiff type scenario), but in that case Gold might go bananas. The only way I see the whole portfolio failing is if there's another big leg down in interest rates or the US ceases to be the worlds strongest economy. And I very much doubt both are happening any time soon, personally.

  • DL

    David L.

    17 10 2018 17:58

    4       0

    Great Piece. Well thought out. Still think the equity markets will struggle in an environment where the dollar strengthens, rates globally go higher and China is slowing. A global slow down and higher rates hurt Corp. Earnings. Inflationary pressures (if any) will hurt earnings. Thus, there's an argument to be made that we've seen peak earnings. I think we may be in the beginning stages of an environment where Risk Parity models suffer and investors lose money on both sides of their book (stock and bonds).

  • KJ

    Kulbir J.

    17 10 2018 17:43

    4       0

    Having spoken with numerous friends in Sydney, Australia, the alarm bells are seriously ringing for The Australian Housing Market. Check out the below article for more details:

    https://www.theguardian.com/business/grogonomics/2018/oct/16/australias-housing-boom-is-not-heading-for-a-soft-landing-how-did-we-get-here

  • WM

    William M.

    17 10 2018 17:11

    1       1

    I was hoping that Brent would say that he thinks we're much further along in his $ Milkshake scenario. It does seem like many parts of the world's economy are already in serious trouble, and even in the US (as others have noted) real estate and other interest sensitive sectors seem to be slumping. Also inflationary pressures combined with higher borrowing costs could squeeze profit margin for many companies. But maybe this will be like the Internet bubble and continue on for longer than any sane, value-oriented, investor would ever have imagined.

  • RA

    Robert A.

    17 10 2018 17:05

    1       5

    Thanks for the “Milkshake” follow up. Having watched Brent’s other presentations in real time, I think he has become a much better Speaker/Presenter. Now....if he could just cut down on the repetition a bit more.

  • VS

    Victor S.

    17 10 2018 17:03

    6       0

    Fyi i know you must have read “Fiat Money Inflation in France” just a reminder to people who think like us see the quote of the appreciation in Gold 1790-95 ...”Shortly afterward a report by Camus was made to the Assembly that the entire amount of paper money issued in less than six years by the Revolutionary Government of France had been over forty-five thousand millions of francs—that over six thousand millions had been annulled and burned and that at the final catastrophe there were in circulation close upon forty thousand millions. It will be readily seen that it was fully time to put an end to the system, for the gold "louis" of twenty-five francs in specie had, in February, 1796, as we have seen, become worth 7,200 francs, and, at the latest quotation of all, no less than 15,000 francs in
    paper money—that is, one franc in gold was nominally worth 600 francs in paper.
    Such were the results of allowing dreamers, schemers, phrase-mongers, declaimers and strong men subservient to these to control a government.”
    Gold went up 600 x’s ?! $5000 gold is a walk in the park 4.07 X’s .
    Victor Sperandeo

  • MS

    Marcio S.

    17 10 2018 16:55

    3       0

    Great Candid interview, but don’t agree with continues USD buyers.... In fact, Chinas has put on hold the USD purchases.
    Agree on the call for Gold.
    Thought in my mind is when US Equities actually start going south and momentum breaks, sellers of equities will move this money somewhere... Gold will be a winner, and Em.mkts will also see this flow. Maybe not at the first step, but USD strength and devaluation of Em.Mkts currencies will make these economies more competitive,

  • bm

    brian m.

    17 10 2018 16:41

    2       0

    So maybe ....Australian gold mining companies..(which are well managed)..could benefit from a low Aussie dollar and high US dollar.
    Now is not the time but when the US dollar peaks..The expenses of these companies could be very low ..Thoughts?..
    Anyone know a good stock analyst for Aussie gold mining companies?

  • jm

    joeri m.

    17 10 2018 16:34

    3       0

    I'm not so sure that other countries will run to the us because they want to hold us assets, see this research:
    "Contrary to a now popular opinion, demand for U.S. financial assets didn’t soar in the crisis.
    The dollar rallied in large part because American funds that had moved abroad in search of higher returns came home, not because foreign investors wanted to hold more U.S. financial assets. The core financial inflow into the United States after the crisis—as before the crisis—came from foreign central banks that had to buy dollars and ultimately U.S. bonds so long as they resisted letting their currencies appreciate against the dollar, not private investors.

    Take a four quarter average to smooth out some of the lumps and I think private inflows into U.S. debt swung from a peak inflow of 10 percent of GDP to an outflow of 5 percent of GDP (one note: I assume that all Treasury and Agency purchases are official).
    That’s the kind of swing that you see in the most brutal emerging market crises. Or in the euro area back when it was on the edge of breaking apart."
    source: https://www.cfr.org/blog/three-sudden-stops-and-surge

  • ng

    nathan g.

    17 10 2018 16:33

    9       0

    RealVision, Please please please have Brent as at least a monthly contributor!!!

  • LV

    Liam V.

    17 10 2018 15:45

    10       0

    Replace Australia with Canada and everything Brent said is also true. Housing market becoming political, banks = fixed income proxy b/c of dividends and they never go down, private debt out of control, median home price/income massively high, gov cracking down on foreign money flows and looking into money laundering. the list goes on. Great interview.

  • MF

    Marc F.

    17 10 2018 15:39

    5       0

    my Merlot went down so smoothly. really enjoyed this insights from Brett! Wonderful interview.

  • RS

    Ruben S.

    17 10 2018 15:03

    1       1

    Brett, dont you think that your milkshake theory misses a bit on the growth picture and focuses to much on monetary pipes?
    i ll explain the question :
    So while the fed reduces liquidity, investors rush into the us dollar assets that are viewed as safe (stocks - because us economy is doing great). and if US economy does bad at some point then safe haven flows wil continue to favor USD. but What about the positive beta here? the rest of the world cant benefit from US growth anymore? and hence compensate the liquidity withdraw the fed is doing with additional growth?

  • WB

    Wes B.

    17 10 2018 14:13

    13       0

    Brent is one of my favorite contributors. I love how open he is to debate on Twitter. I do question whether rates in the US have much further runway though. We are already starting to see cracks in many US RE mkts. Anecdotally, some agent friends have said they have never seen a fall mkt as slow as this current one. I think any further rate increases crushes housing. Homebuilder stocks have been crucified this year as evidence of this. Rise in mortgage rates over the past 12 months has hit housing affordability around 16%. I guess is my question is do you think the Dollar Milkshake theory has legs if US rates top out here? US economy is very leveraged and I personally don't think it can stomach much higher rates regardless of liquidity from abroad.

  • CR

    Carmen R.

    17 10 2018 14:10

    4       0

    Brent,
    I would like to know what if any theory ,comment and/or chart or anything else for that matter has given you any pause to this outlook? Great explanation but would love to hear the doubts you have if any.

  • AS

    Andrew S.

    17 10 2018 14:02

    11       0

    Very good interview. If the Aussie dollar is headed lower and gold is eventually headed higher, the trade while we wait might be
    accumulating Australian gold miners with large reserves of gold in the ground. They are making great profits right now and paying dividends with gold currently over A$1700..... an insurance policy with dividends and leverage.

  • SP

    Sat P.

    17 10 2018 12:44

    7       0

    The comment about AUD potentially being $0.40 USD in a couple of years was pretty eye opening for me. I recently converted most of my Australian savings into USD. This was partly because others on RV have also predicted that the USD will strengthen but also from what I have been observing in the markets. This comment of $0.40 took things to the next level though because that would be very bad based on what we in Australia have become used to in terms of purchasing power. This is the kind of content I love on RV, many opinions expressed here were not really ones I have thought of at all, so it has given me a lot to evaluate.

  • MM

    Michael M.

    17 10 2018 12:37

    11       2

    Have to agree to disagree on this one.

    Brett mentions missing the FED pivot of ending QE and moving to rate hikes. Sadly his milkshake theory misses that the FED will pivot back to QE and rate cuts(at least real rate cuts), once the stock market cries uncle.

    As Luke Gromen points out, the stock market is too correlated to US Federal tax receipts for FED to ignore, due to how large a component of tax receipts capital gains and taxable IRA distributions represent. Stock market doesn’t need to go down, but simply stop going up, to become significant issue for budget deficit.

    As Druckenmiller pointed out, that’s likely to happen soon, due to the 3 ingredient cocktail coming for corporate earnings he described in his favorite 2000 trade(higher dollar, oil, and interest rates). Oh and there’s a fourth ingredient that will pile onto this margin squeeze- tariffs.

    My thought? We’re within six months of the record liquidity drain starting to matter in a big way for credit and equity markets. When that happens, investors will quickly remember that gold is the liability of no one, and a 10 trillion dollar liquid market.

  • DH

    Daniel H.

    17 10 2018 12:00

    7       4

    Excellent interview. Very informative. One question, did you ever think for the same reason why you own car insurance and life insurance you should possibly own a small amount of bitcoin? When you were describing at the end of interview an alternative payment system does not yet exist / needs to be built, makes me think long bitcoin could really be an asymmetric trade as well as long gold.

  • DH

    Dean H.

    17 10 2018 11:50

    4       0

    Thanks Brent, love your work. What's the name of the Mike Schneider's fund?

  • GH

    Gary H.

    17 10 2018 11:32

    13       0

    Thanks for the update. Agree with most of the thoughts. Still torn on the equity call as I can easily see equities move lower in a risk off phase driven by dollar strength creating problems in rest of the world