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.
About this episode
MacroVoices Erik Townsend & Patrick Ceresna welcome back, Brent Johnson. They’ll discuss foreign demand for U.S. Treasuries, Brent’s outlook for the dollar, equities, precious metals, energy, and much more. https://bit.ly/48B8uWt ⚫ Follow Brent Johnson on X: https://www.x.com/SantiagoAuFund🔻Download Big Picture Trading Chartbook: 📈📉: https://bit.ly/3BYjfG1 ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/3WbYmgH 🔴 Subscribe to Patrick’s Youtube Channel: https://www.youtube.com/@Patrick_Ceresna 🔴 Subscribe to Erik's Substack: https://eriktownsend.substack.com/ 🔴 Check out Energy Transition Crisis on YouTube: https://www.youtube.com/@EnergyTransitionCrisis1 Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
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
Transcript
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices episode 451 was produced on October 24th, 2024. I'm Eric Townsend. Santiago Capital founder Brent Johnson returns as this week's feature interview guest. We'll discuss foreign demand for US treasuries, Brent's outlook for the dollar, equities, precious metals, energy, and much more. And I'm Patrick Ceresna with the Macro Scoreboard. Week over week as of the close of Wednesday, October…
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.