MacroVoices #391 Brent Johnson: The Dollar Is Not Done
Brent Johnson argues the U.S. dollar bull market isn't over, expecting new highs above 114 despite a year-long pullback. He views geopolitical tensions, Japan's currency crisis, and the massive eurodollar debt market as key drivers that will strengthen the dollar against foreign currencies, even as he expects both dollars and gold to rise together against other fiat currencies.
Summary
Brent Johnson returns to MacroVoices to discuss why he believes the U.S. dollar's strength is far from over, despite a significant pullback from 114 to 99 over the past year. Johnson argues that the dollar hit a blow-off top in September 2022 when multiple foreign central banks intervened simultaneously, but maintains his long-term bullish view. He emphasizes the critical role of the eurodollar market, pointing out that over $30 trillion in U.S. dollar debt exists outside America, making dedollarization equivalent to deleveraging - a process that typically strengthens the underlying currency. Regarding BRICS challenges to dollar hegemony, Johnson acknowledges the bloc's significance but questions their ability to implement alternatives and expects U.S. pushback through diplomatic pressure and sanctions. On geopolitics, he sees escalating tensions between the U.S., Russia, and China as dollar-positive until the U.S. clearly loses military hegemony. Johnson identifies Japan as crucial, arguing the Bank of Japan faces an impossible choice between saving their currency or bond market, likely choosing bonds and sacrificing the yen. This weakness pressures China and could trigger yuan devaluation. He expects the euro to fail at resistance around current levels due to European economic weakness and banking vulnerabilities from holding negative-yielding bonds. Johnson sees potential for both dollars and gold to rise together as all fiat currencies face debasement, and expresses bullishness on agricultural commodities like wheat and corn due to geopolitical supply risks and weather concerns.
About this episode
MacroVoices Erik Townsend and Patrick Ceresna welcome Santiago Capital founder Brent Johnson to the show. They discuss the reasons Brent thinks the U.S. Dollar bull market isn’t over yet, and why Brent thinks new highs for the dollar index are still to come. https://bit.ly/3EjuaYB Download Brent’s charts: https://bit.ly/44xYY2r Download Big Picture Trading chartbook 📈📉 https://bit.ly/3sEGm3s ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/2JjZR7J Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- Johnson argues the dollar index will reach new highs above 114, driven by geopolitical tensions and structural factors in the eurodollar market
- The eurodollar market contains over $30 trillion in U.S. dollar debt owed by entities outside America to themselves, making dedollarization equivalent to deleveraging
- Johnson believes BRICS countries lack the ability to successfully implement dollar alternatives and expects U.S. retaliation through diplomatic and economic pressure
- Geopolitical escalation involving Ukraine-Russia or China-Taiwan conflicts would be dollar-positive until the U.S. clearly loses military hegemony
- The Bank of Japan faces an impossible choice between saving their currency or bond market, with Johnson expecting they'll sacrifice the yen to prevent banking system collapse
- Japanese yen weakness puts pressure on China as cheaper Japanese goods compete with Chinese exports during China's deflationary real estate crisis
- Johnson expects the euro to fail at current resistance levels due to European economic weakness and banks holding negative-yielding sovereign bonds
- Both dollars and gold can rise simultaneously as the dollar strengthens against foreign fiat while all fiat currencies weaken against real assets
- Johnson is bullish on agricultural commodities, particularly wheat and corn, due to beaten-down sentiment, geopolitical supply risks, and El Niño weather patterns
- Rising dollar strength historically coincides with global crises, as shown by correlations over the past 25 years
- The mild winter and Putin's grain export allowances in 2022 created favorable crop conditions that may not repeat this year
- Johnson argues that while politicians want to dedollarize, foreign business leaders generally prefer conducting business in U.S. dollars over their home currencies
Topics
Transcript
Thank you. Eric Townsend and Patrick Ceresna. Macro Voices Episode 391 was produced on August 31st, 2023. I'm Eric Townsend. Brent Johnson returns as this week's feature interview guest. We'll discuss the reasons Brent thinks the U.S. dollar bull market is not over yet and why Brent thinks new highs for the dollar index are still to come. And I'm Patrick Ceresna with the Macro Scoreboard week over week as of the close of Wednesday, August 30th, 2021. 2023, the S&P 500 S&P futures were up 235 basis points to 4524. We'll take a closer look at that chart and the key technical levels to watch in our postgame segment. The U.S. dollar index down 26 basis points, closing at…
Full transcript available for MurmurCast members
Sign Up to AccessMore from Macro Voices
MacroVoices #547 Daniel Lacalle: The Future of Reserve Currency
Daniel Lacalle argues that governments have exceeded the three limits (economic, fiscal, and inflationary) that maintain currency credibility, threatening the U.S. dollar's reserve currency status. He contends that stablecoins and decentralized currencies will eventually replace centralized fiat systems, with the Trump administration's pro-crypto stance potentially either cementing or disrupting dollar dominance depending on fiscal prudence.
MacroVoices #546 Darius Dale: Darius Dale for POTUS 2028
In MacroVoices #546, Darius Dale discusses the current state of economic policies, financial markets, and geopolitical risks while emphasizing the significance of evolving market dynamics influenced by federal interventions. Dale's analysis highlights the potential implications for growth, inflation, and asset performance amid increasing government debt and intervention strategies.
MacroVoices #545 Michael Howell: Warsh vs. The Markets
Michael Howell discusses global liquidity cycles and their impact on asset markets, arguing that the liquidity peak in late 2025 has begun rolling over and will likely bottom in mid-to-late 2027. He contends that gold has likely bottomed and should rally significantly due to Chinese monetary expansion and Western debt monetization, while warning that equities face headwinds as bond yields rise and the Fed may need to tighten despite political pressure.
MacroVoices #544 Viktor Shvets: How Markets Survive Disruption
Viktor Shvets discusses the paradox of disinflation as the dominant long-term trend while near-term inflationary spikes persist from policy decisions, the deterioration of the Federal Reserve's independence and cohesion under Chair Kevin Warsh, escalating geopolitical conflicts with no clear resolution, and the K-shaped economy driven by AI-induced wealth concentration that is fueling dangerous levels of political polarization.
MacroVoices #543 Jim Bianco: Who Solves Inflation The FED or The Market?
In the latest Macro Voices episode, Jim Bianco discusses the Fed's recent decisions and their implications for inflation and long-term bond yields, highlighting the independence of Fed voters in the decision-making process. He argues that the bond market's reaction indicates persistent inflation concerns and that either the Fed must raise rates or the market will force higher yields.