Dollar & Gold (Uncut) 04-16-2025

Dollar & Gold: The Most Important Interview in 2025 I Brent Johnson

I think that the United States, despite all the problems, the whole world still needs dollars until they reconcile all the US dollar debt. The world still needs dollars. The whole world doesn’t need euros.

My belief that bonds would no longer be safe. I do not think bonds are safe anymore. Hello, and welcome to soar financially a channel where we discuss the macro to understand the micro.

My name is Kai Hoffman. I’m the HR mining guy over on x and of course, your host of this channel. And I’m looking forward to it.

I’d almost say first time guest Brent Johnson, he hasn’t been on in forever. He’s the head of Santiago capital, the brains behind Santiago capital. And we have an interesting discussion lined up.

We’re going to talk about the US dollar tariffs and overall game plan what what is happening. And of course, we’ll approach this from a currency aspect because my guest is the author of the US dollar milkshake theory. We’ll run through that is the milkshake theory still intact? What’s the role of the US dollar going forward? So lots to discuss here.

Lots that we’re trying to squeeze into about a 40 minute conversation. If you haven’t done so hit that like and subscribe button. It helps us bring guests like brand onto the channel and we tremendously appreciate it.

And of course, it’s free. So why wouldn’t you hit that subscribe button? Right? Thank you so much for doing that. Now, Brent, it is great to welcome you back on the program.

It’s good to see you. Thank you so much for joining us. Yeah, thanks for having me.

This should be a fun conversation. Absolutely. Yeah, it feels like your first time guest because we haven’t chatted in a long time.

I actually forgot to look when the last time was we chatted, but it’s good to have you on. I think it’s really, really timely to have you jump on here. Before we dive into any of the discussion, maybe we’ll set the what you call the mindset maybe a little bit and remind us what the milkshake theory is.

So people can understand where we’re coming from here. Yes, so the milkshake theory is really a framework that has helped me think about the way markets might react and the world may play out if and when the world ever entered a sovereign debt crisis. And the interesting thing is that we have not had the sovereign debt crisis, but all of the dynamics that were laid out in the thesis have largely played out.

And I believe that if we were to enter a sovereign debt crisis, which I still think we will, I think the thesis will continue to hold. And essentially what I first started talking about this in 2018, kind of really picked up speed in 2019. But what the thesis said was that I thought that the 40-year bond bull market was coming to an end.

I thought all the debt in the world would have consequences. I thought when the consequences of all that debt started to play out, interest rates would rise. As interest rates would rise, even if it was due to problems in the United States, I thought that would cause the US dollar to rise because when interest rates in the US go up, they kind of go up on the whole world.

The reason they go up on the whole world is the existence of this very large euro-dollar market that exists outside the United States. And while I thought that would cause a lot of problems in the world, I actually thought it would lead to capital flowing to the United States, which would push up US equity prices and would push up gold. And that’s largely what we’ve seen happen since 2008.

Since 2018, the dollar index has risen versus all its fiat peers. Gold has gone up tremendously. US equities have gone up tremendously and largely outpaced the rest of the world.

Interest rates have gone up. And as a result, bond prices have fallen. And we had a couple of scares along the way.

COVID was obviously a big contributor. And then in 2022, we had, when the Fed started raising interest rates, some more excitement. And now we’re getting more excitement again now.

And the milkshake comes from the idea that when you get into a crisis, fiscal authorities, monetary authorities, central banks, governments, however you want to define the powers that be, typically respond to a crisis by injecting more liquidity, doing stimulus, bailouts, quantitative easing. Again, however you want to describe these extraordinary monetary policies to counteract the crisis that we’re in. That’s the mixing of the milkshake.

But for various reasons that I’ve laid out over time, I thought the US has the biggest straw. And so that milkshake gets mixed. The US sucks that capital up into the United States.

And the United States drinks the that the world has mixed. So that’s a summary of the thesis. And it’s kind of a silly way to explain the mechanics of the monetary system.

But it’s really helped me and my clients navigate the last five or six years. And it’s kept us from getting hurt along the way and making money when things are good. And at the end of the day, that’s what it’s about.

The dollar milkshake theory is not about me being right. It’s about me understanding the world so that I can make money for my clients. I mean, that’s the bottom line.

I would rather be wrong and make money than be right and lose money. So that’s probably the best way to describe it. Yeah, no, I absolutely appreciate that, Brandon.

This is really, really insightful, because it really takes us to where we’re at right now. And maybe we’ll jump in there. Before I get to that, though, have you ever thought about using AI to generate a video to describe your milkshake theory? It would lend perfectly.

I actually have a video. I actually have a little five-minute video that I had made back in 2019, 2020. Yeah, I was thinking of these weird AI videos that are circling the internet right now.

I think your milkshake theory would perfectly lend to it. A little over the top, but it would perfectly explain it with a catchy tune underneath it, right? Sure. No, absolutely.

No, Brent, as I said, we’ve got to talk about the here and now. What’s the current situation? I hate asking the question, but what’s the state of the economy? What’s the state of the financial system right now? Where are we at? Well, the interesting thing is that all of the volatility that’s happening in the world right now is very much self-inflicted by Trump trying to realign the world order and the rest of the world’s reaction to Trump trying to realign the world order. And I would say that it’s a really interesting time for me right now, because when I went through grad school, I went to a school called Thunderbirds.

It was the number one ranked international business school in the world at the time I went there in the mid-90s. And everything that we studied there was based on the international implications of things. So if we studied marketing, it was about international marketing.

If we studied finance, it was about cross-border finance. It wasn’t just hardcore business. It all had an international slant to it.

But the most important thing that they taught us was how the world is structured and how it was set up post-World War II. And so a lot of the stuff that I used to study and that I’ve always thought about just from an interest standpoint is now actually extremely important. And it’s kind of one of those things when you’re a kid and you’re learning that you don’t know if you’re ever actually going to use it.

But lo and behold, here we are 25 years later, and it’s really helped me navigate what’s going on for the last couple of years. I’ve actually been writing about this a little bit on our substack. I’ll do a cheap plug here while I have the opportunity.

It’s just SantiagoCapital.substack.com. I’ve written about this and I’m going to continue writing about it because it’s really fundamental to understand the wholesale sea change that Trump is trying to implement. Now, I’m also going to say, and people who have heard me say this before, it’s going to sound repetitive, but I think it’s important to repeat is I try not to get bogged down into whether I like what the powers that be are doing or whether I think what they’re doing is the right thing or not. I just try to analyze what they’re doing and figure out what the markets are going to do in return.

So I try not to put my own wants and desires onto my analysis and I try to just figure out what’s actually going to happen. And what Trump is trying to do from a very simple perspective is change the way the United States has done business for the last 50 or 60 years. And I think even under the best case scenario, if you have a really successful business or even a struggling business, and you decide to change your business model and you decide to go in a pivot and go with a new strategy, even under the best case circumstances, there’s going to be unintended consequences that are going to come up.

There’s going to be things that you think about. There’s going to be reactions that you weren’t anticipating. And even under the best circumstances, I think it would be a very volatile and uncertain time period.

But I think we can also agree that this is not the ideal circumstance to be doing this in. We already have a number of problems. We already have a number of challenges.

And for Trump to try to do it now, it just makes it even more complicated than it otherwise would be. And so what I would say is prior to Trump getting elected, everything on the surface was in a pretty good spot. But the reason that he’s trying to change things is because under the surface, it wasn’t.

And what I mean by that is if you zoom out and you look at the United States and you look at its trajectory, asset prices were still rising and the economy was still growing. But it was largely based on the stock market and asset prices. It wasn’t necessarily Main Street and Joe Sixpack, for lack of a better word.

Inequality was continuing to grow. The trade deficit was continuing to grow. The budget deficit was continuing to grow.

And I’ve been doing this for 25 years now. And from the moment I started in this business until now, every year the knock on the United States has been that they run these dual deficits and the inequality problem is getting worse. And, you know, the Main Street’s getting been left behind.

I mean, literally every year for as long as I’ve been in business, I’ve heard that. And so if Trump got elected, largely because a large part of the population wanted to change that. So Trump is very much doing what he campaigned on.

Nobody should be surprised by what he’s doing, other than the fact that it’s a politician doing what he said he was going to do. Right. And so and I don’t really know if you were going to solve those problems, if you were going to solve the problems of the good manufacturing jobs leaving the United States and wages getting depressed and inequality growing and the middle and lower class getting left behind.

If you if you are going to solve those problems, I don’t really know how else you do it other than what’s being done. And so, again, I try not to put my own wants and desires on it. And I just try to figure out what’s happening.

And I think that’s what’s happening. Trump is trying to fundamentally change the way the United States does business. And even under the best of circumstances, that’s going to be a very volatile process.

And I think we’ve only you know, I by no means do I think we’re at the end. It may be the end of the beginning, but but I think it’s really just getting started. Yeah.

Baseball terms, I’d say we’re in the second inning at best here. First inning was the election and the result. Right.

Right. So we’re just in the implementation phase. Brenda, I warned you, I really want to figure out what the game plan is here, because it feels like they’re just winging it.

But I also like way too pragmatic in thinking that there has to be like a five page document. And I keep coming back to a PowerPoint or so that must be circulating the White House, at least between Ludnick, Besant and Trump or so that says, OK, this is what we’re trying to achieve. This is how we’re going to do it.

Do they have that plan? And what does it look like, Brent? So I think the plan is even shorter than five pages, and I don’t think it’s a secret and I don’t think it’s 3D chess. I think it’s actually what he says it is. And I think the plan is America first.

Now, again, put aside whether you think that’s the good goal or not. It doesn’t matter whether we think that’s the good goal or not. That is the goal.

But what’s a little different now as opposed to before, you could say, sure, the United States always wanted to put America first. And perhaps that’s true, even though they were doing it under a different strategy. But it was never all coordinated by all different factions within the government at the same time.

And what I mean by that is perhaps the military had one goal and perhaps the State Department had a little bit different strategy that they were implementing. And perhaps the Commerce Secretary had a little different idea what they were going to do. And perhaps the Treasury and the Fed weren’t doing everything in lockstep.

And perhaps the social policies weren’t all geared towards the exact same thing. And with Trump coming in, he’s kind of consolidating all of these different departments, all these different agencies, all these different arms of the government into pulling towards the exact same goal. And I think that goal is exactly what he says it is.

The reestablishment or the reinvention or the, you know, put putting American interests before global interests. And whereas for, you know, again, this kind of goes back to the way the system was set up post World War Two, whereas it used to be done in conjunction and in cooperation with our allies. And, you know, seeking their input on how best to accomplish all of these, you know, global goals.

And that now it’s the U.S. saying, listen, we’re the biggest guy on the block. I know you might not like that, but this is how we’re going to do business going forward. And you can either get on board or get out of the way.

Now, there’s obviously that hasn’t resonated well with the rest of the world. You know, I think there’d be an understatement to say that that wasn’t exactly a welcomed departure from the diplomatic norms that had existed before. But I think in many ways, this is real life.

This is, you know, behind the scenes. This is the this is the head global hegemon saying we’re no longer going to hold this veil of altruism that it’s for the greater good. From now on, if it’s not for the betterment of the United States, we’re not doing it.

We’re not paying for it. And if that hurts you too bad. Now, I know that sounds even harsh me saying it.

So so I know it sounds even more harsh when Trump says it. Right. But that’s the reality that I have to deal with.

And I think that’s the reality that the rest of the world is slowly coming to grips with. And as a result, I think it’s going to cause a realignment. And in some ways, it’s going to cause countries to actually cooperate more with the United States.

It will cause other countries who used to cooperate with the United States not to cooperate with the United States. And it will cause those who were an enemy of the United States to probably entrench themselves even more on the other side, which is a very long way of saying I think volatility is kind of here to stay for a while. No, definitely.

Lots going on. So maybe the macro slide, the number for the first slide on the five page deck here is really make America number one again or keep it number one. Right.

But then on slide two and three, four, maybe he’s like gold’s ways to get there. And I should have brainstormed this beforehand. But my point is like bond market and U.S. dollar, like what sort of it’s more of a granular goal, sort of results of the policy here, because he needs it.

He needs a strong brand of the U.S. dollar, but also a weaker U.S. dollar. I think there’s a clear distinction here. And then, of course, he wants lower bond prices because he needs to refinance.

Right. How would you what pages of the slide deck would you put that on and under what maybe headline? So I think they’re probably all on page two or three. But I would say it’s all of those tools are what Trump is trying to coordinate or trying to use in a coordinated fashion to get what he wants.

So let’s talk about let’s talk about the bond market and the dollar to start. Now, the U.S. dollar has been very strong and when he got elected, the dollar rallied a lot based on here’s what’s kind of funny. On the one hand, the currency markets rallied or the U.S. dollar rallied in currency markets reacted to Trump in a somewhat negative way right away after he got elected and the dollar rose in foreign currency stuff.

But the equity markets priced in super good times and no risk. What’s interesting to me is that once he actually got inaugurated, the equity market kind of realized, holy cow, if he’s going to go through with everything he said, that’s going to be very volatile and it may choke off the dollar supply to the rest of the world. And it caused a lot of volatility to pick up.

And so since then, markets have sold off. What’s interesting is over the last two weeks, the U.S. dollar has sold off about five to seven percent in the last two weeks alone. Part of the reason of that is it kind of goes back to the milkshake that I said earlier.

Over the last five years, six years, a lot of foreign capital has flowed into the United States as that liquidity got sucked up into the United States. So the U.S. markets are a big source of liquidity for the rest of the world. And when uncertainty starts to pick up and people and foreign markets have started to fall as, you know, Trump’s policies come into play, they’ve sold U.S. assets in order to take that capital back home, pay off their local debts that are coming to bear because their markets are falling and they want to get the money in a safe place while they figure out what the heck Trump is doing.

And so I think that’s why we’ve seen the dollar fall. And the interesting thing is that exact same thing happened in February of 2020, right in the middle of Covid. If you look at February 20th of 2020, the DXY index was around 99 and 12 days later, it was at 94.

For a lot of the same reasons, foreigners started selling U.S. assets and repatriating back home. But over the next 10 days after that, the dollar went from 94 to 103. And that’s because that’s when it went from being very concerning and people being worried to a crisis.

So in other words, in initial uncertainty and volatility, U.S. assets in the U.S. dollar often fall because it’s a source of liquidity. But when it be when and if it becomes a crisis, then the U.S. dollar usually rises. And I would say that, right, I don’t know whether Trump and Besant and I don’t think that they want a crisis.

I think they’re OK with everything that has happened so far, but they don’t want a global depression. They don’t want a global crisis because then lots of things happen that may be out of their control. But what they do want, what they do want is the rest of the world under pressure as they negotiate these new tariffs.

So I think the plan, if there is a plan, the plan is largely geared towards this big battle between the United States and China. In order for the United States to stay the global hegemon and to stay the sole superpower, it has to stop China’s ascendancy. Right.

And I think Trump and I don’t think I know because he tells everybody that he will he thinks he’s the greatest president of all time. And you can’t go down in history as the greatest president of all time if your country falls and China rises under your presidency. Right.

Those two things just don’t go together. So I think, you know, he wants to contain China. And I should say, I don’t think it really matters that Trump is president.

I think this stuff would be going on, maybe not to the same extent, and it wouldn’t be necessarily going on in the same way if Trump wasn’t president. But I think a lot of these dynamics would be playing out regardless of who is president. And again, it all goes back to all the debt in the world.

And this is why I started thinking about this stuff back in late 2000 teens, because debt has consequences. And it’s not just the United States who has a lot of debt. Germany has a lot of debt.

France has a lot of debt. Italy has a lot of debt. Australia has a lot of debt.

Canada has a lot of debt. China, Japan, you go on and on and on. And one of the ways that countries have always dealed with internal debt problems for time immemorial is to blame the bad foreigner who caused this to happen to us.

Right. And that’s the way they rally domestic support against the evil guy over there. And I think that’s those dynamics are in many ways playing out.

I’m not familiar. I’m not sure if you’re familiar with the idea of the fourth turning or not, but, you know, it’s Neil Howe on the program here. Yeah, perfect.

Yeah. And I think that’s what’s going on here. I think Neil Howard is or Neil Howe is a genius.

You know, his writings have greatly influenced my thinking. And I think a lot of those dynamics that he highlights in his book are playing out today, not just in the United States, but in Europe and China and Japan. And I think it’s kind of a global turning, for lack of a better way of saying it.

And I think that I think that Trump and Besant and Hegseth and his whole team knows that there’s a battle coming. And I think they know that in order to be ready for that battle, they need to make sure their homeland and their home base is secure before any of that stuff starts to happen. And so I think they’re trying to get their house in order so that they can withstand any future battle that comes.

And I think that has to do and I think that’s part of the reason you’re seeing, you know, them talk about Greenland. You’re seeing them talk about the Panama Canal. You’ve seen great overtures to partner with El Salvador.

They’ve even started talking to Venezuela about potentially lightening up some sanctions there in order to get the oil flowing. I think in many ways, it’s if you’re not familiar with the Monroe Doctrine, that’s about 100 years old. And it basically said, anything that happens in the Western Hemisphere, the United States is going to be involved in it.

So I kind of feel like this is, you know, Fortress America, for lack of a better word, and they’re trying to get their whole homeland and the whole Western Hemisphere kind of under their influence in a very strong way so that they can counteract any overtures from China, Russia and its allies. And I think this is the first time that I can remember where you have the U.S. kind of proactively realigning things in a very coordinated manner from trade, monetary policy, fiscal policy, military strategy, trade strategy. I can’t remember a time where everything was as coordinated as it is now.

I’ve talked to other people about this, and they said, well, Brent, you’re giving them too much credit. Trump is not this smart. Well, I would say, if you believe that, I think you’re doing yourself a disservice, because I think this is what they’re doing.

And whether you like them or not, Hegseth is a smart guy. And, you know, he’s in a very powerful position. And Besant is a very smart guy.

And he knows finance and he knows global finance. And believe me, it’s not a surprise to them that the stock market is down. And it’s not a surprise to them that volatility has risen.

I think the volatility rising is part of their strategy. But this isn’t, again, this isn’t some super secret, complicated strategy. I think it really is as simple as what Trump says and trying to keep America at the top.

I just think the way he’s going about it is being done in a way that people just automatically dismiss it because it is so kind of over the top. Right. But I think that’s largely what’s happening.

And I think a lot of the trade deals, especially with China and Mexico, are not really about China and Mexico. It’s really I’m sorry, Canada and Mexico. The trade deals with Canada and Mexico are not really about Canada and Mexico.

That’s really about China. You know, for you know, China will send a lot of goods to Canada and Mexico, which then get forwarded on to the United States. And the United States doesn’t want that to happen anymore.

So I think what they’re trying to do is they’re trying to as part of these renegotiations individually with Mexico and Canada, I think they’re also trying to get Mexico and Canada to help them contain China. And because Canada has huge exposure to China, that’s really tough for Canada. Right.

But I think ultimately, Canada is going to have to choose. And initially, all of these countries are saying, no, we’re our own sovereign country. We’re not going to bend the knee of the United States.

And I get it. And, you know, in a perfect world, that wouldn’t even, you know, come up. But at the end of the day, the United States is still the big guy on the block.

And they have a lot of power and they have a lot of negotiating tools that they can use to pressure these other countries. And I think ultimately, though, what we’re going to see is a realignment with countries picking sides, either China or the United States. And I know I’m kind of rambling on a little bit.

No, no, it’s great. I would have interrupted you. No, that is what I think is happening.

Yeah. You know, maybe to follow up on this, because you laid it out clearly, but one thing we haven’t talked about is leverage. What does the U.S. have? Yes, they’re the big boy on the block.

But how much on steroids is the U.S. perhaps? You know, they’re the big guy, the bully. You know, they got the muscle. But how much of that is, you know, fake muscle to a degree? And I don’t want to, you know, belittle the U.S. here.

I’m just trying to draw a picture here. No, no, no. Listen, it’s a fantastic question.

And I don’t want people to think that I think that the United States can just snap their fingers and do this. I mean, what Trump is trying to do, I don’t know if you’re a golfer, but I’m going to give you a quick story. And I’m going to relate it back to this.

I was at a professional golf tournament in San Francisco about 10 years ago, and there was a professional golfer who hit the ball into the trees near where I was standing. And he had no shot. And he gets up there next to the tree and finds his ball.

And then he starts looking at the green and he starts looking up in the trees, looks down at his ball, takes another angle, keeps looking up in the trees. And I keep thinking, what is this guy doing? There is no shot. All he has to do is hit back out into the fairway, take his medicine and then go for the green.

But he kept studying. And then you know what? There was a little hole in the trees where the branches were not covering the sky. And I’ll be darned if he did not hit that ball right through that tiny little hole and the ball landed on the green.

I kind of feel like that’s what Trump and Besant are trying to do. And I think they’re going to hit some branches. I don’t think that they can pull it off without any pain.

But that’s what they’re trying to do. They are trying to hit an incredibly difficult shot. And while they have a lot of skill and a lot of tools and a lot of advantages, it doesn’t mean that some branches aren’t going to get in their way.

So even if they’re successful, even if they’re ultimately successful, I think there’s going to be a lot of branches hitting a lot of penalty shots taken along the way. But one thing I would say, and I’m going to get back to the leverage thing here in a point that’s out, is one thing to remember is when you go into a fight, I don’t know if anybody’s ever been in a fight before, but if you ever go in, if you ever willingly go into a fight, you know you’re going to get hit. If you get hit, that doesn’t mean you lose.

It’s whoever’s standing last, despite all the bruises and cuts and scrapes, that’s who wins. But nobody goes into a fight expecting to get out scot-free. At least nobody should do that.

And I don’t think the U.S. is going in thinking that we won’t get hit. And I think the hits that it’s already have taken are expected. But it’s not like the United States is the only one that’s taking the hit.

You know, Germany’s markets are down like 10 percent in the last month. So is France’s, so is Italy’s, so is Japan’s, so is China’s, so is Hong Kong’s. And this is where the leverage comes in, which I think nobody in negotiation has ever been trying to leverage the consumer market of the United States before.

But the United States is either the number one or two biggest client for every exporting country in the world. And I don’t know who, I don’t know any businesses in the world, whether they’re American businesses or European business or Chinese businesses, that if they lose their one or two biggest client, their revenue isn’t severely impacted. So the U.S. knows that all the global exporters are trying to sell into the United States market because we pay the most and we buy the most.

And we send them dollars which they need to service their U.S. dollar debt that they have. There’s a huge U.S. dollar debt outside the United States. And so with the reciprocal tariffs, there’s a reason why he used reciprocal tariffs rather than just saying we’re going to put a flat tariff rate on the rest of the world.

And the reason is because for the most important countries, putting reciprocal tariffs on is a leveraged way to hit back at them. And so I’m going to use an example of Vietnam. Now, unfortunately, I don’t have the exact numbers right in front of me.

So I’m going to just make up some numbers, but the math will work. But I don’t know that these exact numbers are correct. So Vietnam had tariffs on us of around 45 percent.

So Trump said, OK, we’ll put 45 percent tariffs back on you. Sounds fair, right? Well, it’s not fair. It’s it’s actually a huge it’s a it’s a much bigger tariff on Vietnam than it is on the United States.

So not only is the United States hitting back, they’re hitting back tenfold. And I’ll tell you how, because Vietnam sends a billion dollars worth or, you know, like one hundred billion dollars worth of goods to the United States every year. The United States sends like four billion dollars worth of goods to Vietnam.

So if you got 45 percent on each one of them, that’s two billion dollars that’s now put on the United States. That’s a lot of money. But in the overall scheme of things for the United States, two billion isn’t that big a deal.

But that’s forty five billion that Vietnam has to eat. Forty five billion dollars for Vietnam is a huge astronomical number. There is if those tariffs were to stay like that, it would put Vietnam into a depression.

There’s no way they could absorb forty five billion dollars worth of losses a year. And that is why within a couple days of these being announced, Vietnam said, hey, we want to do a trade deal with you. We want to figure something out because that is a death blow.

Now, two billion dollars would it’s like a punch in the nose of the United States. It’s not that it doesn’t hurt. It’s not that it isn’t meaningful, but it’s not cutting your head off the way it would be for Vietnam.

And so that’s the type of leverage that the United States consumer markets have against businesses around the world that are trying to sell into it. And it’s a real thing. And if if you think this is just kind of pie in the sky or or I’m just making stuff up, call some global businesses that do business with the United States and ask them what percent of their revenue goes to the United States and what effect these tariffs would have on their businesses if they happened.

And I can pretty much guarantee you they will say it’s devastating. There may be exceptions here and there, but in general, it’s a big deal. Now, is it a big deal for the U.S. and U.S. consumers? Well, absolutely.

It’s going to hurt. Absolutely. It will hurt.

But it’s not just going to hurt the United States. No, I think that picture is very clear. It makes a lot of sense.

I appreciate you explaining that. We need to come back to capital flows. I think it’s a big, big, big topic.

And you brought up money flowing out of the U.S. And, you know, one thing the whole discussion triggered and, you know, the pressures and the JD Vance’s speech in Munich, for example, just triggered the U.S. sorry, the EU to start opening its wallets. And by the way, I have to correct you on one thing. Germany is not overly indebted.

We only have a 60 percent debt to GDP ratio. We’re actually way better than France and Italy, who are about 115 percent. So I have to correct you on that.

We can actually afford what we’re doing now, what we’ll discuss. But like Germany, for example, said, OK, screw it. We’ll get rid of the debt break and we’ll invest a trillion euros into whatever is necessary.

My point is, though, a lot of the capital might be moved now from the U.S., the bond market, for example, but also the stock market back to Europe, because that’s where capital is probably being treated maybe a little better than in the U.S. What do you make of that move? Is it just temporary? Do you see a longer trend? And what are the effects? I think it’s I think it’s a legitimate move. I mean, you can see it. It’s happening.

So I’m not going to sit here and deny that it’s happening, because right now there’s great uncertainty about how capital will be treated in the United States. Now, having said that, I wouldn’t say that Europe has been a great treater of capital. So it’s not like Europe is a fantasy land where it’s a picnic in the United States is a smoldering heap of ashes.

I think there’s challenges in both sides. And so you’ve got to remember this is a relative game. Right.

But if it’s a German business or if it’s an Italian business and there’s a lot of uncertainty, they’re probably going to prefer to have their capital back home where they have a little bit better control over it than in the United States. So I so I absolutely give you that. I largely think that these tariff deals are going to be worked out.

There’s going to be some hurt feelings along the way, but I ultimately think it will get worked out. And then what I also think is perhaps the capital that has already left. Will not come back, but what I would say is that if these tariffs continue to get put in place and if the geopolitical tensions continue to rise, it’s very possible that markets continue lower, the VIX continues higher and then central banks have to start up again and start doing stimulus again, QE again, injection of new liquidity.

And I’m not sure that new liquidity that gets generated in Europe or Japan or China or wherever it is stays there. In fact, I think that new liquidity that is printed would probably prefer to come back to the United States. Now, I fully expect countries around the world to put up barriers to keep that from happening.

And so I think while on a relative basis, the United States will still be the best preferred choice, it won’t be the only place and it won’t be as easy as it has been in the past to send the liquidity here. But here’s where the here’s the here’s where the interesting thing gets in that I don’t think the rest of the world has quite figured out yet is that let’s say that the U.S. goes back to QE and has to print dollars. What if this time they don’t open swap lines? What if they don’t bail out Europe and Japan and Canada and Mexico with swap lines like they did in 2008 or in 2020? What if this time the United States says, OK, you guys are keeping your capital at home? Fine.

We’ll give our companies capital, but we’re not giving it to you. There’s no swap lines. No foreign banks can step up to the Fed window.

And as a result, what happens to all the dollar debt and all the dollar credit that’s been extended in the euro dollar market now that it no longer has access to it through the Fed? I think it gets pretty tough for the rest of the world pretty quickly in that scenario. And when things get bad outside the United States while there’s still liquidity inside of the United States, I think that could draw more capital back as well. I mean, we’ll see.

This is pure speculation on my point, on my part. I’m just I’m just trying to think through all the different variables and how it could go as I have a hard time seeing. And listen, I understand how it may be very difficult for a foreign company or a foreign investor to send new money to the United States right now.

I totally get it. I think it would be even I think it would be even more difficult for a United States investor or a United States asset allocator to send money to China or to send money to Europe or to send money to Africa or South Africa, South America. I think, if anything, those asset allocators who have allocated capital to the rest of the world, they’re going to bring back that back to America in the same way that Europe and Japan have taken capital from America back to their home markets.

Capital controls, I think, is the buzzword we need to throw in here. Yeah, I think that’s I think that is inevitable. I don’t know if it happens six months from now or six years from now, but that’s where it’s headed.

No, absolutely. I think we’re pension funds will be demanded or forced to invest locally or domestically. And I don’t think there’s anything wrong with that personally, but it’s just I think that’s where I have you.

Have you ever spoken to Russell Napier? No, I haven’t. No. I’ll try to make an introduction for you.

Russell Napier, he’s an Irish guy, lives in Scotland now, but he’s fantastic. He’s been writing about this stuff for years, and he’s written a lot about what we’re talking about right now. And he’s a great historian, financial historian.

I think you’d enjoy talking to him. That’d be awesome. No, I really appreciate that.

Brent, for some reason, I put a time mark of 40 minutes on this, and we only have like two and a half minutes left. We have so many topics still to cover. You touched on BRICS and the de-dollarization topic and potential alternative currency.

Let’s quickly talk about that. How do you see that developing? Because you brought up Trump threatening the BRICS pretty much wherever things about an alternative currency to the US will get heavily tariffed was something he said a while ago. I haven’t heard him say anything in that regard again since.

So I’m curious what your take on that is. I’ve been very critical of the whole BRICS currency idea. And to be clear, I’m not critical of the countries themselves.

The countries themselves are big, important, powerful countries. But the idea that this handful of countries are going to form this super cohesive union and going to issue a common currency that they all agree to use, and then they’re going to be able to enforce that on all of their subjects and companies. I think people who believe that don’t understand how currency markets work.

So money in the financial system that we have now, money is loaned into existence. So the way the US dollar has spread throughout the world is by the extension of credit. So if you are going to reverse that and de-dollarize, what that means is you are going to de-leverage.

So that means you are either going to pay off all those debts that you have, or you’re going to default on all those debts that you have. One way or the other, de-dollarization is de-leveraging. And in a de-leveraging, the currency involved typically rises.

So I think that we are headed towards some kind of an event which forces some kind of a new system or a reset or a debt jubilee or some kind of event that deals with all the debt. But I don’t think that that process happens with the dollar going lower. I think that process happens with the dollar going higher.

And in fact, I think it’s the dollar going higher that forces that to happen. If the dollar falls, that means it’s getting cheaper. And it means it’s in high supply.

If there’s no supply of dollars, then the dollar would rise. But if there’s plenty of supply of dollars, that means more dollars are being created. But more dollars being created means more dollar loans are being created.

And so while in the short term, it provides relief, in the medium to long term, it just creates more demand for dollars. And I think this whole euro dollar system is a monster that got away from all the central banks. And it’s grown to such a problem that it is now a Gordian knot that they just don’t know how to solve.

And in my opinion, in the same way that the only way the Gordian knot got broken apart was Alexander the Great cut it in half and kind of blew it up. I kind of think that’s the only way to solve this Gordian knot as well. And I think in that big explosion, I think the dollar probably goes higher before it goes lower.

Do you think the US will have a problem to refinance itself? No. And so let me tell you why. The reason they won’t have trouble financing themselves is if they have to, they can just have the Fed do it.

Right? Now, does that contribute to inflationary pressures? Yeah, it contributes to inflationary pressures, but it contributes problems to the whole world as well. This isn’t a uniquely an American system. And so let’s say that interest rates on US treasuries goes higher.

Let’s say that they don’t do QE. Nobody buys the bonds and interest rates go from 4% to 6%. Okay, so now, you have to remember that all the financial institutions in the world, all the central banks, all the insurance companies, as a core piece of their balance sheet, they own US treasuries.

So their assets are now impaired on their balance sheet. So the US treasury prices going down and interest rates going higher affects the global banking system. That’s number one.

The other thing is that if you can get paid 6% for holding a treasury, which the entire world needs, because it’s the basis of the entire monetary system, why would you buy an Italian treasury paying 6%? Or why would you buy an Egyptian treasury paying 8%? The point I’m getting to is if you can get 6% for owning a treasury, it forces the rest of the world to pay even more to compete for that liquidity. And so the US interest rates going higher, while definitely a problem for the United States, it eventually becomes an even bigger problem for the rest of the world as they have to refinance at higher rates as well. The other thing I would say, just to make this point before I forget, and this kind of goes back to Trump too, with Trump and Vance and Hexeth all saying that the NATO countries have to start paying for more of their own defense and they’re going to have to help pay for the Ukraine war with Russia.

That’s going to cause budget deficits in Europe to explode. And maybe not Germany so much because they’re in better situation than Portugal, Italy, Spain, Greece. A lot of European countries, Lagarde is going to have to buy those bonds.

Or those interest rates are going to rise quite a bit. So I don’t think that this is a situation. And I want to make this very clear.

I’m not saying the US is in great shape. And I’m not saying the US doesn’t have tremendous problems. They have incredible problems and incredible challenges.

But I don’t think that they’re uniquely American. I think the world is struggling with all this stuff. I just happen to think that while the world, including the United States, struggles with all this stuff, the United States has some advantages and some tools the rest of the world just doesn’t have.

Yeah, I just hope we don’t become a debt union because I’m sick and tired of paying for others here. Yeah. Well, so it is interesting that you bring that up, because a lot of people have talked about the potential social issues in the United States causing disruption socially in the United States, and that would be bad for the United States.

But I think that same thing could happen in Europe for much of the same reasons that you just said. And I think the same thing can happen in other countries. In Canada, there’s great dissension between Western Canada and Eastern Canada.

Albertans don’t feel like they’ve been treated particularly great by the government in Eastern Canada. So I think this is all part of the fourth turning. Again, it’s not uniquely American.

It’s kind of happening all over the world. Brent, I need to bite my lip now with any other questions I have. I have one last one.

Go ahead. U.S. dollar, gold and bonds seem to be the only tier one assets left standing. Last week, that was put into doubt a little bit because bonds went down, meaning bond yields shot up, and the U.S. dollar declined massively.

Gold was the only one left standing here. The question is now, it used to be the stable pillars of safe haven investing, as is these three assets here. What should the common investor do now moving forward? What can we trust in? Well, I would say that I do not think bonds are safe anymore.

And this was the genesis. My belief that bonds would no longer be safe was the genesis of the dollar milkshake theory. Remember, the whole genesis of the milkshake theory was that I thought the 40 year bond bull market was coming to an end and interest rates would rise.

Now, I don’t think that the U.S. is going to have trouble selling bonds, but it doesn’t mean they might not have to have higher interest rates to sell them. But what I don’t think will happen, I don’t think we would have a situation where nobody would fund the United States government, but they would still continue to fund Canada or Mexico or France or Italy or Japan or wherever it was. So I think a sovereign debt crisis becomes a global sovereign debt crisis very quickly.

I don’t think it will just be one country. So that leaves gold, right? And I think everybody should absolutely own gold. That was always kind of one of the things I said during the initial part of the milkshake theory was gold would be the ultimate winner and the gold would outperform fiat currencies.

Now, having said all that, if I was in Europe and I saw the rally in the euro over the last month or two, I would see that as a gift because I would get out of the euro and I would be holding either dollars or Swiss francs. Now, I’m not telling people that’s what they should do. I’m just telling you what I would do because I think that the United States, despite all the problems, the whole world still needs dollars until they reconcile all the U.S. dollar debt.

The world still needs dollars. The whole world doesn’t need euros. The whole world doesn’t need yen.

The whole world doesn’t need yuan or rubles or lira, but they do need dollars. So and that’s why I always said that we would eventually get to a point in the milkshake where the dollar would rise and gold would rise together versus all the other currencies. And I think we’re probably there now.

I think if I was going to own gold now, I still own gold. I think everybody should own gold. If you don’t own any gold, you should probably go buy some gold.

I think gold will perform better in other currencies than it will in the dollar. But I think even if you’re a U.S. dollar investor, you should still own gold. Yeah, absolutely.

It should definitely be a part. It’s a nice hedge. And as we’ve seen last week, it was the only hedge that you had, despite it going down a little bit, but it was the only hedge that was left standing and wasn’t demolished like other asset classes.

Brent, what a wonderful conversation. Can’t believe it’s been like 47 minutes here. I could go on forever.

It was really insightful. Where can we send our audience? You mentioned it earlier, but let’s make sure. Yeah.

So the best place to follow me is if you go to SantiagoCapital.Substack.com. That’s where I do most of my writing. We also have a premium option on Substack, and that premium option also has its own website called MacroAlchemist.com. And then I’m also very active on Twitter. You can find me there, SantiagoAUFund, or you can just look up Santiago Capital.

The symbol is a black background with a white seashell on it. Fantastic. Brent, wonderful conversation.

Thank you so much for coming on. It’s a true pleasure. We’ll have to do this again soon because there’s so much going on.

We should almost do this daily. It’s insane how fast things move these days. So, Brent, thank you so much for coming on.

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