MacroVoices #451 Brent Johnson: Macro Drivers of UST’s, PM’s & The Role of The BRICS
Santiago Capital's Brent Johnson discusses his dollar milkshake theory, arguing that foreign holdings of US treasuries remain at all-time highs despite BRICS nations' attempts to challenge dollar dominance. He provides technical analysis suggesting gold may be due for a pullback after reaching cup-and-handle targets, while maintaining long-term bullish views on both the dollar and gold.
Summary
In this comprehensive macro discussion, Brent Johnson addresses several key themes around global currency dynamics and market positioning. He challenges the narrative that BRICS nations pose an immediate threat to the US dollar, noting that while these countries have stated desires to reduce dollar dependence, their own currencies have fallen 50% or more against the dollar, making any transition both economically and potentially militarily volatile. Johnson provides crucial insight into foreign treasury holdings data, explaining that much of what appears to be selling by countries like China actually reflects mark-to-market valuation changes rather than actual sales, as confirmed by his direct communications with the US Treasury. He notes that while central banks have indeed been reducing holdings, this has been offset by increased purchases through tax havens like the Cayman Islands and Belgium, which represent hedge funds and wealthy individuals seeking US market access. On precious metals, Johnson acknowledges gold's strong performance but suggests caution given the textbook cup-and-handle pattern has reached its target around $2,725, with commercial short positions at historically extreme levels. He bought puts on gold while maintaining his core position, viewing it as insurance rather than a get-rich vehicle. For silver, he's waiting for a pullback to around $30 before potentially adding exposure. Johnson reiterates his dollar milkshake theory, arguing that dollar strength creates chaos globally, which paradoxically benefits both the dollar and gold simultaneously. He maintains positions in US equities while preparing for potential drawdowns, expects interest rates to remain elevated given fiscal dynamics, and sees commodities broadly as having underperformed despite inflation fears. Throughout the discussion, he emphasizes the relative nature of currency markets and the continued structural advantages of the US financial system.
Key Insights
- Johnson argues that BRICS currencies have fallen 50% or more versus the US dollar, undermining their ability to challenge dollar dominance despite political rhetoric
- He reveals that much of the apparent Chinese selling of US treasuries actually reflects mark-to-market valuation changes, not actual sales, as confirmed by US Treasury officials
- Johnson explains that increased treasury holdings by tax havens like Cayman Islands and Belgium represent hedge funds and wealthy individuals, not sovereign investment
- He contends that central banks reducing treasury holdings while private entities increase them represents a shift in the type of money flowing into US markets
- Johnson bought puts on gold despite being long-term bullish, arguing the cup-and-handle pattern has reached its $2,725 target and may be due for pullback
- He argues there is nothing more long-term bullish for gold than a strong dollar because dollar strength creates global chaos that benefits gold
- Johnson maintains that every financial crisis of the last 25 years has coincided with the dollar going higher due to unwinding of currency carry trades
- He suggests that fiat versus fiat currency relationships matter more than many realize because dramatic moves between fiat currencies cause capital market disruptions
- Johnson explains that commercial short positions in gold are not primarily producers hedging but represent other entities, with producers only accounting for 20-25% of shorts
- He argues that businesses rather than politicians drive economic transitions, and no business leaders have endorsed BRICS payment systems publicly
- Johnson notes that if foreigners were actively moving from US bonds to other countries' bonds it would be concerning, but the selling is happening globally across many nations
- He maintains his strategy of long US equities with hedges, short-term fixed income, and gold allocation while preparing for potential dramatic drawdowns ahead of the election
Topics
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