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- [00:04]
A
Markets and geopolitics continue to be all over the place. So today we're going to focus heavily on the dollar. We have a very special guest, Brent Johnson from Santiago Capital, famous for the dollar milkshake theory. You know, I drink your milkshake. You guys have seen that movie, right? And we're going to talk about what's likely to come for the dollar in context of everything in markets. We've got him, Mike and Dave joining today. Let's go. Let'. Good morning everybody. Happy Monday. We've got Mike and Brent here. Dave will be joining soon from the sunny shores of Las Vegas where he's playing in the World Series of Poker. But Brent, thank you for joining. Very excited to have you again. I think it's been a really long time since we did our last podcast.
- [01:01]
B
Yeah, yeah, thanks for having me. This should be a, this should be a fun hour.
- [01:04]
A
Yeah, absolutely. All right, Mike, let's start where we always start. What's everybody talking about at Bloomberg today on the morning meeting?
- [01:09]
C
It was the first time they asked me to go first. So I'll save my comments to last, which is kind of shock. I'll bought crude oil, obviously you know my bias in crude oil think it's going to 50 by the end of the year, but I'll save that for later. Anna Wong first mentioned that she expects course PCE to move up to 3.35%, could run up to 4% year over year is likely to be 3.4 to 3.3%. What's driving it is mainly airfares, health care costs and portfolio management. That's part of the stock market going up, creating actual inflation. Pce she pointed out Warsh was very hawkish, which one thing she noticed he focused on price stability, not talking about full employment and she said they may abandon that second leg employment right now because it focuses on price stability. Half of the committee want hikes and half unstable. So the focus is towards hikes. Doesn't make sense. Her view to cut rate to hike rates at all certainly in October because her normal projection for CPI core would get to near 2% in April of 2027 and below 2% at some point next year. And she said if the Fed does hike, she's going to revise upward her unemployment rate outlooks. Ira Jersey, our interest rate strategist, said the market was surprised by war hawkish comments. He said sulfur's kind of oddly priced for more hikes and then cuts next year, which he thinks he's kind of leaning towards the Fed being slower which is on his same view. How the market will shift its communication policy was his key question things it probably means more volatility, less communication, twos tens flattening expects that to continue. And you think sofr's actually just a little bit out of whack at the moment. Chris Kane, our equity strategist point out how bullish everything is. You point he's a major he's a major factor guy. He pointed out the number one factor winning by far is momentum but he says it's typically not as extreme as it often time gets extreme versus low momentum. Right now he says momentum premium and high high momentum stocks is about 18% above low momentum so that can get extreme is 60% he says one key thing extreme is ROE. Lower profitability in the high momentum stocks is quite extreme. Audrey chilled Freeman said yeah this is quite bullish for the dollar from Chairman Warsh expects the euro to continue shifting lower and the yen now is above below in its value above the intervention level 160. That's a problem. Expect dollar strength to continue particularly if the worse comments and with the economy doing better. And then I just tilt over to my economists. I started out with the key focus I'm enjoying in crude oils and still a lot of analysis I see is people are system missing. What matters the 10 on a 1 to 10 basis is what does the leader of the world's largest energy producer net exporter want. Sure Mr. Trump did not get his surrender out of Iran, but that doesn't matter now. He needs lower energy prices for midterms. He needs lower inflation worse gets that and then I pumped. I pointed out the pumped and dumped contagion is just gaining momentum. First in the beginning there was just bitcoin and US natural gas. Now it's gold, silver, platinum and palladium, iron ore and corn. Expect that continue I came up my outlook. I still expect crude oil to be down on the year just like natural gas by the end of the year. That would be below $57 a barrel. Right now it's 74 the December contract 71. And I think we've put in pretty enduring peaks in gold and silver. One fact I pointed out 60 day correlation between gold and S&P 500 is the highest ever about 0.7 certainly since we came off the gold standard. 180 day volatility between gold and S&P 500 debt disparity about 2.2 times is the highest since 2007. So I just pointed out the bottom line for all these commodities which are leaking. I'll end with this. The commodity market was up 28% at the beginning of the year. At the peak. That's a Bloomberg commodity index. Now it's 12%. And I fully expect it to do 2008 type scenario and head lower, particularly if the stock market heads lower.
- [05:10]
A
Back to you, two things. One is that you've been telling us about the December contracts on oil being in the 70s for weeks, and it seemed to have gotten there in a few hours. So good call there. Second, I'm surprised that people are viewing Warsh as so hawkish. That's not how I read it at all. And I watched him. I thought he was just kind of purposefully ambiguous and refused to give information. But I don't think at any point he gave the indication that hikes were on the table beyond the fact that you saw obviously that, you know, nine out of 18 said that that's how they were kind of handicapping the dot plot. He didn't even give a dot plot. I mean, Brent, I see you're kind of taking notes. I mean, how did you read Warsh when you watched that? I just thought that it was a kind of total change. Not Hawkish.
- [05:56]
B
Well, I thought he played it pretty cool for his first meeting. I don't think he wanted to give too much away, and I don't think he did. I think the lack of dovish ness was interpreted as hawkishness. And I would say he kind of hit it pretty, pretty much down the middle of the fairway without going too far in either direction. I think the real tell is going to. And I don't think he was going to make a big move in his first meeting. Right. I think the last thing he wanted to do was come out in the first meeting and either raise rates and piss Trump off or cut rates and be seen as a, you know, a puppet. So I think the real meeting is going to be, you know, four weeks from now or six weeks from now, whenever, you know, end of July, that we'll get more of a good read on what he believes.
- [06:36]
A
I, I just don't see. I mean, Dave, I know we're in the same camp. Just don't see a rate hike.
- [06:42]
D
I think that James's newsletter this past weekend was, was literally spot on. He's obviously not here this week morning. But, you know, his point is that War has always been a critic of the notion of the Fed jawboning and leading and giving this forward guidance. And he basically is telling people, screw it. That's not what we're doing, you know, we're going to study it, we're going to figure it out and he's going to make sure that whatever he does, he has academic or whatever air cover to do it. But what you really need to do is watch the Fed's balance sheet. You're talking about a person who's one of the biggest outspoken critics when it happened, of QE now inheriting a process where if he tries to unwind, it could cause global depression. And I did use the D word, I didn't use the R word because at the end of the day, asset prices are what's kept the economy up. It's the one thing that Mike and I agree with completely. The difference is Mike and I don't agree on the denominator and how you value asset prices because frankly, as long as we make more dollars, as long as we make more yen, as long as we make more euros, then everything denominated in those things is going to look higher, even if it isn't. In fact, it has to be higher just to stand still. And Warsh understands all this. I mean, he's a smart dude. As you said many times, Scott, his job is an impossible one. So what can he do? There's only one way out. There is only one way out and there's no necessarily, it's not that easy. In fact, it's unlikely. But the only way out is to engineer hyper growth, to be able to get out of budget deficits and everything that we have. And so nothing he says or does is going to contradict what I just said. But the best single way to be able to start moving and doing what he's going to need to do is not to be saying words that he contradicts himself. Because the worst thing he can do is contradict himself. And so that's why what Brent said is right. I mean, yeah, it's exactly like trying to hit it down the Fairway, you know, 3/4 speed. Don't try to over swing, just, you know, keep it simple and keep things moving. Now when you talk about commodities, I mean, I listen to Mike and I just scratch my head. I don't understand if you believe that oil prices and I, by the way, agree. I mean, I think that, you know, I've been saying it for a while now that, you know, as long as the cost of production is 55, I mean, temporary supply disruptions notwithstanding, it's going to be very hard to engineer oil prices at ridiculous levels, you know, just because of the windfall and the way capitalism actually works. So if oil prices do in fact keep coming down in today's futures markets, you know, now below 75 kind of indicate that that's going to give plenty of air cover from a consumer inflation point of view. And remember, I don't look at inflation the way all the other economists seem to. They always say, well, inflation, inflation is all one thing. It isn't. It's consumer inflation and it's asset inflation. They are different things. There is a loose correlation between them, actually very loose if you take a few percentage points out and you look at where you talk about really what's going on. So yeah, I look at this as an environment where that is likely to be constructive for asset prices going forward. At a wash Fed with this administration, as long as we don't see a major supply disruption in the Middle east which causes oil to do what all the pundits were saying it was going to do and it never did, which
- [10:12]
A
is spiked towards 150, there's no more bad news. They can send oil to those prices after what we've already seen.
- [10:19]
D
That's not true. I mean, Carg island gets destroyed. You know, there are things that could happen. They're just unlikely things.
- [10:28]
C
I got a piggyback on that. First of all, there was some key substantial statements last week, obviously from Wars. It's not so much what he said is what he, some of us hear. This is what I heard. Number one, he, I think he's got a very easy job, probably not going to hike rates, but he's jawboning, he's warning and I guarantee our treasury sector is talking to him and Trump and saying, oh by the way sir, what's changed is inflation is the problem. We need to get that under control. The Fed can do that. And Mr. Warsh is probably think the easiest thing for him to do is just have a little backup in the stock market that alleviates all the problems, that takes away the inflation, the key factor in cpi, the wealth effect and he doesn't have to hike. And by the way, if that happens, it backs up the next cut and the next move will be a 50 basis cut, not 25, almost guaranteed. If we drop say 10, 20%, I think he gets it. Also at the same time we had a major statement from Iran. Everything on those port 14 points. I said everything to me, I read it. What I heard was Trump needs lower oil prices and he's going to get that. But I do agree with Dave that oil prices going lower is decent. It's kind of Fuel
- [11:37]
B
up.
- [11:38]
D
Is it me or him? So I can never tell for sure.
- [11:43]
A
Yeah, my. Yeah, Mike, Mike, you froze there.
- [11:46]
C
Sorry about that. I had to shut off some of my backgrounds. That's amazing. We're supposed to have better systems here in Bloomberg. But so, but so first of all
- [11:56]
A
it's a thousand dollar a year terminal but we can't get Internet.
- [12:00]
C
Well, this is our office in Miami. I guess New York's get better technology. But the, the key theme about oil is it's very rare for now here's the way I look at is we just proved that oil, oil is the most elastic commodity in the planet. And it was very uncomfortable for me, like for me, for people like me to see it above 100 because it breaks things. It put that bond yield above 5%. Now we're starting to roll over and it's very unusual to go back and stay up that level the normal cycles. Now you go back down to lower in this scale because what's happened, what's changed is the Middle east has proved it's just become less significant in terms of oil, most notably OPEC for the last 30 years. And it's continuing to climb as the Western hemisphere kicks in. Now we have pretty substantial surplus of supply increasing from us, Canada, Venezuela, Argentina, Guyana, Brazil, all kicking in. That's the stuff that mattered before. So that's going to matter. It's going to pressure prices and typically have to get below that. So I fully expect still the normal pendulum swing is toward $40 a barrel. Now if Mr. Warsh gets what he wants, maybe we can get a little 10% drop in the stock market which is never going to happen. It's almost unimaginable. That is a pretty severe post inflation deflation pattern. I want to point out this is just what happened in 2008. In a similar way we pumped up inflation, we pumped up CPI, pumped up crude oil, the 147 and then the year was $30 a barrel. I fully expect a similar cycle. The key theme I point out for all commodities now which are starting to melt, they are melting. The stock market has to stay elevated. What's happening with SpaceX potentially melting? This is just getting in stick. This is going to be a fun summer. And I stick with that main theme. The best leading indicator for all this is bitcoin cryptos.
- [13:36]
A
All right, I want to jump to. Okay Dave, you can wrap it quick but I want to jump to Brent on the dollar.
- [13:41]
D
No, I want to honestly since my company in argumentation when someone ignores the premise, you just Ignore the argument. I mean, the premise that inflation is monolithic is wrong and it's just not worth legislating it. I actually would rather listen to Brent and hear about this point of view.
- [14:02]
A
Yeah, Brent, well, I would love that you jump in because I think what you wrote this week, I've got the paper here. Obviously this is a continuation of things you've been saying for a very long time. But I love this paper and I like the Rolling Stones. So you know, to me, yeah, I'd love you to dive into this and put this all in context.
- [14:22]
B
Yeah. Well, it's funny that this is how the conversation kicked off because it perfectly relates to the paper. We called it the Band for a couple of reasons. Number one, you know, we like you just referenced, we referenced the Rolling Stones throughout it, but really it was a play on the band that oil needs to stay within in order for the global economy to function. And this was mentioned on a TV show called Landman with Billy Bob Thornton where he talks about if oil price gets too low, then the producers profits get squeezed, production shuts down and then when the demand eventually comes back, the supply is not there and it causes all kind of problems. The flip side is that if oil gets too high, then the input costs for the global economy become too high, profits get squeezed and the global economy turns down. He explains that it has to stay within a band. And I don't remember what he says. I think he says something like 65 to 90 bucks or something or 65 to 85. And within that band everybody can deal with the price and everybody can make money. That is really the same thing with the dollar index and the dollar itself. Because the entire world uses the dollar in the Eurodollar market to operate on the global stage. And because at least as of today, global commodities are still priced in US dollars, the dollar has to remain within a band. If it gets too weak, it sets up a huge carry trade problem for the rest of the world where they take on too much US dollar debt and then when it eventually starts to rise again, they get squeezed really hard. But if the DXY gets too high, their input costs because now they're having to pay more for the needed commodities. Whether it's oil or natural gas or food, they get squeezed from that side. And so as long as the DXY stays within this band, and I estimated it at 85 to 105, I'm not stuck on that particular number. But as long as it stays within that band, the global economy can function. But if it gets outside of that band on either side, bad things start to happen pretty quickly. And so right now the dollar's near the top end of that. So I think we have the setup for it to get bad later this year, early next year. Now maybe we won't. Maybe, you know, maybe the US can kind of thread this needle and keep the, keep the dollar within a band that everybody can live with. But as of right now, we're near the top end of the band and more damage is done at the top end of the band than the bottom.
- [16:55]
D
So. So if that's true, and by the way, I actually agree, but just carrying out the logical, the two logical conclusion, if policymakers agree, and that's really the important thing, if Washington Besant agree with you, then it would sound to me that the obvious solution for them is create relatively more dollar debt and dollar denominated debt and dollars, you know, AKA liquidity than not in order to weaken the dollar vis a vis the other pieces of trash fiat paper that are around the world. And that's really what we're talking about here. But I don't see any alternative to that. Effectively the only time where they would be hiking rates is if the dollar perversely weakens too much. And by the way, you're saying it's too strong. And I think that that's what the Dixie is showing, right? Am I getting this right? I just want to understand, Brent.
- [17:50]
B
No, you're getting it exactly right. I think what I would point out is I think the reason I wrote this paper is I wanted to explain why all the evergreen predictions of the dollar's death and it's going to get inflated away to zero and nobody's going to use it anymore are perpetually wrong is because they don't understand the fact that you just pointed out to get more dollars in the system, you need to get more US dollar debt in the system. That is how dollars are created by extending US dollar credit. The simple fact of creating more supply also creates more demand. The supply shows up quicker than the demand does because the demand is on a lag because the credit could be six months, a year, six years, 10 years, 20 years. But eventually that demand is going to come due and that is why the dollar ends up going higher at some point. Now the other thing I would say is the fact that it's up to Besant and Warsh whether or not there's plenty of dollars in the system means the US has the leverage and can use the dollar as a weapon if and when they choose to do so, so we put another chapter in there called Paint it Black. And it's basically saying if the United States were to take off the white hat and cease being the bright shining city on a hill and put on the black hat and make it America first and say the dollar has been a global good and we're going to start treating it as such and they are now going to come with strings. The US can weaponize it against the rest of the world. Now, that doesn't mean that the United States is immune to the weaponization. It doesn't mean the United States can't get hurt along the way. But I think on a relative basis, they don't get hurt as much as the rest of the world. And I think energy now being the biggest producer or one of the top two biggest producers of energy in the world and no longer having to import as much from the Middle east as we had to 20 or 30 years ago is a big part of being able to weaponize that. And I think anybody who doubts their ability to do this should just go back and look at 2022. You know, when they raised rates in 2022, the dollar got strong, put incredible pressure on the rest of the world. We had sovereign crisis in Japan, England. Italian spreads started to blow out and Chinese real estate started to take a precipitous decline. And then, you know, and then the US Backed off because it had gotten way above the band. They don't want a crisis, but they are able to put the rest of the world under pressure if they choose to do so. Besant did the same thing with Iran late last year. Early this year he came out and basically said we engineered the dollar supply shortage in Iran. They did the same thing with Argentina by extending a US Dollar swap line and making them give up their yuan swap line. So I think it's a pretty interesting time because we have a guy at the US treasury who probably understands currencies and way to use currencies better than anybody in history or better than any other treasury secretary in history. And you have to remember that it was Bessens choice to pick warship. Trump wasn't thrilled with the idea of picking Warsh. So I have to believe that Besant and Warsh have had many conversations behind the scenes about how we are going to work together to keep enough dollar liquidity in the system so that we don't have a crisis, but also use it to our advantage if and when we need to do so. Now, how that exactly plays out, I don't know for sure. I'm not smart enough to know that. But what I do know is we probably have the most capable two guys sitting at the top to use the dollar to the US's advantage that we've had in a very long time.
- [21:39]
A
Mike, I have a quick question because it speaks a little bit to this. I don't know if you saw that this article itself is not specifically about this, but just as another headwind gathers strength here, this is for bitcoin, but in general, I don't know if you saw but obviously oil is crashing but the 2 year yield is way up and that's being described across sort of financial media as a major decoupling because obviously the two year yield is more sensitive I think to a hawkish Fed, but it should be sensitive to oil crashing. Right. So that's a major decoupling for that to be going up and oil to be going down. I mean what does that mean in this context?
- [22:14]
C
Well, right now the key theme, it just brings back a memory. I remember being in the trading pits, trading long bonds in the 80s and we always watch crude oil because that's what matters for the longer end it's that inflation and the key thing you want for a bond market is a vill. So that's what's making bond yields go lower. And the bottom line, if they're raising short rates, two year yield is a shorter rate. So that yield's going to go up. But it's a shorter term thing that I think really matters. The bottom line is what Brent said makes a lot of sense. Let's also point out facts. When people talk about the Fed in the dollar, there's never I would like to see one example in history of the Fed mentioning the dollar in their minutes. This is just a lesson. I haven't been trading markets and being a primary dealer for decades now, obviously the treasury now they might be working together, but that' I think Brent nails is Mr. Besant and Mr. Warsh knew exactly what they need. They need lower bond yields. Not only wash can buy those from The Fed, obviously Mr. Bessant issues those, they can happen but the best way to have that happen to help the mortgage market lighten up, to help the average person who voted for Trump have a better person to actually vote for Republicans is they need those bond yields lower. And what I heard from them was a good strategy to do that. Now we actually might hear they're going to be lightening up on bond yields, yields or whatever. That's why my still my main call this year is for bond Yields to drop and for the bond market to take alpha. Like my main call last year was for gold to take alpha. Hasn't happened yet, but we're having a very similar situation as we did in 2008. But the key thing to think about with what's happened is what Brent said. These are some of the best financial professionals on the planet, and they know what needs to happen. They know they need to get inflation down. And talking it down is the best way to do it. Like I said, if we just get a little drop in the stock market, everybody's gonna be happy.
- [23:59]
D
So I do want to say one thing that I just find interesting. So, look, I actually agree with you on the sense that they want yields to come down across the curve. They obviously need it for business investment. They need it for budget deficit reduction because of how much we're paying. That is true. But there's two ways that could happen, that could happen for the world. Things were going into recession, depression, whatever, and yields will come down because they're going to be able to cut to zero and everything is collapsing. In which case bonds outperform everything. That is a case. Another way is generically engineering asset prices going up. Bonds being one of those asset prices which feeds in with the rest of business investment, stock market, speculative investments, et cetera. In that scenario, gold and Bitcoin perform extraordinarily well. Those two scenarios are different. Both, however, kind of start with the notion that the dollar is high and they're going to be able to bring yields down, but the way they want to do so is more organic. That's just the way that I look at it. I think that it really matters. I mean, your point is true, though. One thing that is true is if. Forget 10%, but if you saw a 20% major stock market implosion and things started to really unravel, yeah, they would panic. There would be panic maneuvers. And it may not be cutting rates per se, but they would certainly inject liquidity. They can't afford it because the wealth effect is what's sustaining the economy, which is something that is relevant. And so, yeah, I don't disagree with you there. So it's actually interesting, the tidbits. Now, you're new to this particular debate, Brett, I'm curious, you know, you know, what your thoughts are on these cross currents. Because to me, that is your hand.
- [25:46]
A
When Mike made that comment about the Fed and the dollar, I saw that.
- [25:49]
B
Yeah, well, so, yeah, yeah. So I find this time period to be absolutely fascinating. And part of the reason is we're getting a confluence of a bunch of different events all at once. And I think, I think part of the dynamic that isn't properly understood is that the treasury has always been in charge of dollar policy. Dollar policy is not the Fed's mandate, but the Fed isn't in charge of monetary policy. Now, obviously, monetary policy affects the dollar, right? But I think what's happening now, the United States has changed the way they are dealing with the rest of the world post World War II. You know, from the, from the Bretton woods agreement, even, and even up until after they broke the peg to gold. And up until now, it was a greater good way of dealing with the world. There was this thing called the rules based order, which was a real thing that used the imf, they used the World bank, they used the United nations, there was the wto, they negotiated things on a multilateral basis. It was a greater good, and for lack of a better way of saying that Keynesian system of all working together. Now, that system was set up to benefit the west, the United States specifically, but it was still a greater good scenario with Trump coming to power and this could change. But as long as he's in there, and as long as his way of thinking is in there, this is a much different way of working with the United or the rest of the world. This is an America first. We're no longer doing it for the greater good. We are no longer doing it just because the rest of the world needs it. If it's good for the United States, we'll do it. And if it's not, we won't. And that means that in that scenario, the Fed no longer has to act for the greater good. And I think they can work with the treasury to set up policies that will benefit the United States, even if it hurts the rest of the world or, you know, I don't think they will come to the rescue of the rest of the world as quickly as they have in the past by using monetary policy. And when I talk about that, I'm talking about whether it's the extension of swap lines, whether it's, you know, again, multilateral negotiations. And I, and I think Besant and Warsh are at the top of that. And I think you're going to see the Fed and the treasury work closer together than you have in the past. Now, I have always maintained that the Fed is not independent. They have a lot of autonomy and have historically kind of won many battles when the Fed and the treasury came into battle with each other. But I think you're going to see more coordination going forward than you have in the past. I don't know exactly how that's going to work because we've never really seen it before, but I think based on the way the United States is dealing with the rest of the world right now, I think you're going to see the Fed act differently than you've historically seen them act.
- [28:54]
C
Exactly. I have to completely agree with that. And what's changed is the old mantra of President Nixon pushing back on Arthur Burns and trying to get him to cut rates to get elected. That's what's changed. Wars gets it. Bassett gets it. Bassett, like you mentioned, probably encourage Mr. Trump to appoint Warsh because he's a hawk. That's what we need right now to get inflation down. If you want to get elected Republicans, if you want the next president not to be a almost guaranteed number one thing you have to do is get inflation down. But the number one way to cause recession now is stock market at $81 trillion, which is two times our debt and 2.6 times our GDP is. That's the number one way to get a recession. Just have that go down and stay down a little while. They have to be careful navigating that.
- [29:38]
D
Yeah, but that's not. Look, I am a monetarist. If I were in Warshaw's shoes, I would be perceived by people as a hawk. Hawk. I would not be a hawk, but I would be perceived that way. I mean, there is a question of what you believe. If you believe that inflation is always a monetary phenomena and that consumer inflation and asset inflation are different based upon investment flows, productivity, the very fact. All I can say is I find it pretty easy for me to predict what war will do. Only because his point of view is so goddamn similar to mine, even down to the fact that he points out, and I haven't heard a Fed do this before, that he points out inherently, as Jeff Booth does, you always give him credit. I think that's fine. About how productivity is a direct result of technology and productivity is deflationary from a consumer point of view. He gets these dynamics and understands it. So this notion that you need to. It's like all I'll say is the monetary policy view that you have to kill the stock market to suppress aggregate demand to hurt consumer inflation is more or less the medical view of leeches to pull bad humors out of the blood system. I mean, it's not what needs to be done. I mean, there's no need here. The reason we had the Burst of inflation that we did two different bursts of inflation that we've seen. We've seen two, right? One of them was monumental stupidity at the policy level. I mean literal monumental stupidity at a time when supply chains were being destroyed and handing cash to people to buy things. That was monumentally stupid. And so of course consumer inflation was going to rampage in that scenario. And the second is an oil shock. Oil underneath, whether it's the cost of goods and services because you have to transport it or the cost of taking a car, et cetera, that oil shock is what caused the last bout of inflation. There's no question about it. If you look at truflation and you take oil out of it, it's basically been flatlined ever since we, for the better part of a couple of years, for several years since the last ebbs of the stupidity in the pandemic response happened. And that matters. The reason for that is productivity and measurement. Now by the way, there's tons of biases in those numbers because when you talk, when I talk about consumer inflation it has to be X things like health insurance. And somehow the BLS thinks health insurance costs have gone down. I don't know what the hell they're looking at when they see that. But you know, at the end of the day it is the measurements that we're stuck with, right? You know, it's like tuition, medical insurance, those things have not gone down even slightly. But sure, you know, food and everything that we consume locally, electronics, obviously that, that has gone down. So it really does matter. But the point is that this notion the stock market has to go down in order to control inflation, that's not true. The notion that if the stock market goes down they will respond. Yeah, that I think is absolutely true.
- [32:50]
B
I'm not sure that they respond as quickly as many other people think though. I think there's this popular view that Trump cannot stand the slightest move down in the stock market and yet he started both a tariff war and a real war in the last 18 months. Now, kicking off a religious war in the Middle east is not the best way in the world to keep the stock market its all time high.
- [33:11]
C
Right?
- [33:11]
B
So I think the idea that they have no tolerance for pain is incorrect. But to your point, if the market goes down a lot and it starts to get serious, they will without question cut rates, do qe, whatever they have to do. That is literally why central banks were created in the first place, is to keep the system afloat. So the idea that they're not going to keep the system afloat if and when it is necessary. Of course they will. But I think again, I think we're in a new era. I don't think we're necessarily just going to go back to zero rates and QE for the whole world the way we have in the past. I think it's more likely to be much more targeted. I think if swap lines are extended to the rest of the world, they will come with significant strings attached to. And I think it's going to be much more transactional in the same way that Trump is much more transactional than, you know, the greater good that we talked about earlier. And listen, Besant has been pretty clear on this himself. He has, I mean, he, he's one of the tougher guys in the administration and he has publicly rebuked, you know, not only enemies but also allies. And so I think the idea that the Fed is just going to turn around after, you know, after Besant picked Warsh. I think the idea that the Fed is going to just turn around and supply dollars to everybody is mistaken. And I think if Warsh does that, I think he will come into conflict with the executive branch very quickly.
- [34:44]
D
No, it's pretty clear that, I mean, like you mentioned Argentina, I mean, Besant was very happy to publicly talk about this. The fact they made money on the deal with the swap lines for Meatle. And I find what Milei has done in Argentina so far as the most baffling lack of economic press coverage of anything that I've seen in my entire lifetime. I mean, the fact that here we are with domestic political. I mean, I know why. I mean, it's obviously cynicism, right? But here we have this domestic notion of socialists gaining power in America. Meanwhile, one of the greatest laboratory experiments in, in trying to unravel socialism and what could it do. And, and what Milei has achieved so far has, has completely contradicted role the same mainstream economist said would happen. You know, I find that amazing. But of course, the swap line there, he, that's a perfect example of a transaction that makes sense. You know, I think that if Japan particularly where with the new prime minister and new government there, needs a little bit of help to get to do what they're doing so as not to pop the top off the yen and unwind the carry trade, I think they'll get that, they will get that help as well, which is why you've seen 160 be such a strongly defended level. I'm not sure there are many other countries that qualify for that kind of unconditioned support. I mean, Europe is, there've been a lot of fight. I mean, a lot of fights. You know, even his best friend Merlonian Trump are fighting now in the press. I mean, you know, I don't know.
- [36:19]
B
I mean, you think, you think Spain's going to get a swap line when, when they wouldn't let us use their, their, the Air Force bases there?
- [36:25]
D
No, frankly, you know, frankly, I actually agree with, with, with the administration on that one. I think that, you know, they could do whatever the hell they want. I mean, but they're, they're going to do it on their own. And you're right, it's going to be, it's become more political. I mean, the funniest part about the whole thing is people don't understand just how important stable coins are. People do not understand. And this is one where all three of us agree. Mike called this one out before any of us. He calls them crypto dollars, which I think is fine. I mean, I like the expression. But the culture of being able to use dollars to buy stuff even in Europe as stablecoins take off is something that is obviously to our interests, not necessarily to their interest, but they don't really have a great way of stopping it because it's underlying plastic, etc. But I do think that that is interesting. But I think stablecoins are an instrument of policy at this point and I don't think that people properly appreciate just how important that is and why it gives reason to why crypto regulation matters to those in power. And honestly, the Genius act is much more important than clarity for that. Right? I mean, the banks, the banks woke up to this late and now they're kind of in a bind. And so that, that's another big piece of it.
- [37:49]
A
I just want to show one very quick story that kind of aligns with what you're saying here and then we can go on. But I don't know if you saw this, but the bank of England softened stablecoin rules and final policy draft. This was today. So the bank of England was under major heat because if you recall, they were saying individuals would only be allowed to hold £20,000 of any stablecoin business. 10 million. Well, they completely retracted that. Now seeing how unpopular sterling back stable coins are. And I think they're doing $40 billion per issuer is the new proposal. So England obviously was kind of the most contentious place for stablecoin development. And now I've gone completely the opposite way with their, their new proposal. So they're probably seeing what you're saying.
- [38:30]
B
Yeah, you know, Scott. Oh, go ahead, go ahead.
- [38:32]
D
No, no, go ahead, Brent. I was going to go off.
- [38:34]
B
The point I was going to make was I think first of all, I totally agree on stablecoins. I think stablecoins have the potential to be as transformational to the monetary system as when the United States left the gold standard 50 years ago. I think they are an incredibly big deal now. I think it also plays into the interest rate theme that we were talking about earlier. Besant and Warsh want interest rates lower. Right. I don't think that's a big secret. And I think there's been a lot of focus that, you know, stablecoins are going to be a new place to dump U.S. debt. And I think that's true. But I think that misses, I think that sort of misses the bigger picture. But what it does do is because stable coins will be bigger buyers of the short end than the long end. It will allow them, the US to issue at the short end for a longer period of time than I think otherwise would be if stablecoins didn't issue. And what I think that does is I think it gives the US Runway to wait for interest, longer term interest rates to come down before they start issuing at the long end. And I just think that, you know, these stable coins, the demand for stablecoins is going to come from, I believe the individuals and the small businesses overseas as opposed to inside the United States. A lot of times I'll talk to people and they'll say, well, why should I own a stablecoin? I can just use my Visa, my MasterCard, my, you know, my, my debit card. And the point is, it's not really for you. You know, the Venezuela's economy was running like 70% of their domestic GDP on stablecoins. Same with Argentina. You know, Turkish citizens would much rather hold a US Dollar stablecoin than hold a lira. And this then has geopolitical implications because what it does is when, when things foreign citizens start holding a foreign currency, it strips the monetary sovereignty away from the local authority and that decreases their power. It decreases their ability to set economic policy internally. And it ends up being a stealth weapon that again that the United States can deploy on the other side of the world without putting anybody at risk or at least any US Assets at risk.
- [40:52]
A
Yeah, Brett, the guard said it, has been saying it. And last week, I don't know if you saw the story, but Binance was effectively block from their fast track for mica in Greece where They thought they had a layup. And it came out that the guard personally stepped in and basically blocked Binance's approval. And Binance, if you look or listen to them, 90% of the activity on Binance is people using stablecoins, using it as their wallet and sending these hundreds of millions of people who view it as their wallet. And it's very clear this is the opportunity for them to block hyper dollarization across Europe.
- [41:29]
C
Yeah.
- [41:29]
B
And if you look, there's been numerous headlines, policy papers put out by central banks all over the world saying, holy cow, we need to get to figure out this dollar. We've got to figure out this stablecoin issue. Because, I mean, they're terrified, and they should be, because. Because it is a huge thing.
- [41:47]
A
Yeah. Quickly, Mike, I know you have a suit on, which means that you have to leave us to go on TV very soon, so I want to get you in your last thoughts.
- [41:54]
C
Thanks for asking. They actually just canceled because of Chairman Greenspan's passing, so. But since I'm on, I just want to mention one thing. Stable coins from Mickey Reagan.
- [42:03]
B
I didn't hear that.
- [42:04]
C
Yeah. 100 years. He just died. Chairman Greenspan just died this morning.
- [42:07]
A
Yeah.
- [42:08]
C
So for me, he was. He was a meister. I just remember those years being in trading pits, and when he spoke, everybody just bowed in his general direction. Plus, he created his great bull markets. He helped me get promoted from the trading pits to New York trading desk just by saying, oh, green Spencer's gonna make yields go lower. I got that one right. But the key thing I want to point about, stablecoins, it was the key. The main reason I was 2018, it really hit me. I was in Hong Kong, and it just pointed at what Brent said. And what you were saying, David, is the whole world just found this great new technology to go to one currency. 99% of all cryptocurrencies went to the dollar organically. To me, that was the most bullish thing I've ever seen for all cryptos. I decided I didn't really get bullish Bitcoin till 2019. And then my focus was, okay, I'll get off that horse. Once ETFs were launched. So that happened, went to the mainstream was a little bit Trump was launched. And now my key theme is still tether will continue to flip and everything. And when it gets to the top, maybe that's time to buy some cryptocurrencies. Because what it's doing is pointing out that on chain number one is part of reason. I've Been very hard time being bearish the dollar because the world just got a way to get to one currency and chose the dollar, nothing else. It's not even close. It's the 10 in terms of cryptos I mean so that's part of the theme. I mean a dollar fluctuate in certain ways but in the macro big picture it's going to one currency. And also the key theme is we have to then so it's tokenization of assets which to me it's just like futures coming from the futures bit. That's just the process that's happening. It's a much better way to transact, transmit and transport or mitigate risk overall. Certainly dollars people are finding out in stable coins and to me that's going to continue and continue to migrate. But then you have all these other millions of cryptos track nothing. A lot of that's still in the purge stage. So I still look at Doge and you'll start beating out one of 60, 60 billion. Now it's 13. I fully expected to go $13. In terms we get through that we'll be fine. But it's the pattern, it's the pattern recognition analysis. Crypto dollars still appreciating most versus anything. That's a normal bear market. I fully expect for, for, for toca, for, for cryptos including Bitcoin. And I don't think that's anywhere near the end part of these because this is happening with the strong a record setting stock market. Now when we stop at that, I'm not saying a crash, just stop that a normal 20% drop then we're going to get the whole flush. It'll be time to buy. And I still think that's me closer to 10,000 in Bitcoin and dogecoin near zero. It's just a normal cycle. The problem is when we get tokenized assets on chain and you can buy something that has actual value, you can arbit versus something has earnings versus something else that tracks nothing as launched as a joke which one you're going to buy, which one you're going to sell.
- [44:46]
D
So you talked about pattern recognition. I mean I'm very tired of this argument because it's just, I think there's silliness here. The pattern recognition is people. The reason history doesn't repeat but it rhymes is people do learn lessons. So when the Internet bubble happened there were a bunch of companies that actually had real business models that had you bought them at the, at the. At basically anytime you could have bought them at the peak of the Internet bubble wouldn't have mattered. But if you certainly bought them at the depth, you did phenomenally well. Amazon being, being clear. And then there were hundreds of others that were pets, that were sock puppets, you know, pets.com etcetera that are absolutely useless. Much of the same is happening in crypto. Bitcoin has its use case. Bitcoin will either be the newer digital version of the store of value that gold is. And Peter Schiff and I had an aha moment when Peter Schiff was on Crypto Town Hall a few weeks ago because he answered the question the only way he could answer it, which was what percentage of gold supply market cap do you contribute to monetary value versus utility? And he said almost nothing. And that's very, very telling, by the way. It's completely wrong. The math actually doesn't math if you say that. But the. But, but that is exactly his problem. The problem is gold. $35 trillion worth at least 28 trillion is, is monetary value. And you know this by comparing gold to platinum and gold to silver. You can kind of triangulate around it based on its rareness in the earth, based on its jewelry value, based on, et cetera. And so if you understand that pure monetary value, for people who want to understand or want to hold something that has monetary value, it is something as a tail as old as time. The difference today is that the two people who are leading the US economy both believe that Bitcoin has a place but care about maintaining dollar supremacy. And honestly, you have to worry more about the dollar being too strong than they do about it being too weak. Which means that they could potentially have some levers to play with bitcoin in terms of accumulating. The US owns 300,000 that we know of, that they admit to. We have no idea how much mining, et cetera, et cetera, is there. And geopolitically, whether or not any of Jason Lowry's stuff is true, the software thesis seems a bit stretched to me. But the idea of bitcoin becoming a strategic asset, Trump did that almost immediately in his term. And if you think Besson wasn't on board with that, then you're nuts. Of course he is. I mean, he told people that. So understanding that bitcoin is different than, you know, dogecoin matters. Now, do I think that the Trump meme coin, Melania meme coin killed a lot of the crypto industry? I do for a lot of reasons. But that has nothing to do with, with, with anything else. I tend to agree with you that there's a lot of crap in crypto, just like there's a lot of crap crap in the stock market. And at times of peaks, like in the Internet bubble, there was so much crap, you know, there were thousands of OTC companies. There still are, by the way, boiler room things. So I just hate the argument that says that, that because there's crap that that means things that actually have value won't matter. And if you look at the sheer amount of effort going into tokenization, that doesn't mean buy every crypto that's in the coin market. Cap top 20. It doesn't mean that at all. But it does mean that the technology matters because once you're tokenized, you have a 24 hour, seven day a week, frictionless method of being able to trade in and out of any asset. And that has lots of implications, many of which like it's just, it's a big deal. And to go back to T. Brent up the biggest difference in terms of it. You talk about crypto dollars flipping as being, you know, I don't know what you, what you mean exactly. Buy it. I think it's a good thing. But understand that the reason it matters is because stablecoins don't require fractional reserve banking. Fractional reserve banking is only necessary, was necessary because there was no availability of credit. There's no availability of capital locally because capital was local. Right.
- [48:52]
A
Yeah, I want Brent. Well, you could run anywhere you want with that. But I would actually love your take on Bitcoin. We have this extremely hyperbolic and, and admittedly ridiculous title why Bitcoin Needs the dollar to die. But obviously you've kind of pointed out the fact that through dollar strength is the way the dollar would theoretically collapse if ever it was going to move to another system. Right. And that's sort of the premise of that. So I would love to know where you kind of stand.
- [49:17]
B
So a couple of comments I'll make here is I don't claim to be a bitcoin expert. There's many people who understand it much better than I do. My view on bitcoin Bitcoin is that, is that it is a pure play on global liquidity. I don't think it is in any way a dollar substitute, but it is a way to hold collateral or to hold an asset that can be very quickly sent around the world, easily transferred. And if we get into this debasement trade where all fiat loses value, it wouldn't shock me to see bitcoin go higher on that. And I think if we get back into situation where there is a lot of quote unquote money printing going on, then I would expect bitcoin to do very well. But I also think that for the same reasons that you've seen gold fall in the last, call it two or three months is part of the reason you've seen the bitcoin fall over the last six months is that as it became a bigger and bigger holding and then as the dollar starts to get stronger or when uncertainty starts to pick up, what do you sell? You sell the thing that is liquid. And so I think they've sold gold as a result of that, and they've sold bitcoin as a result of that. Because ultimately, to operate on the global stage, you need dollars. Now, having said all that, I also think that tokenization that kind of goes along with stablecoins, in my opinion is going to be incredibly large and it is going to be a huge theme going forward. And the part of the reason I think it is so important to understand this is I think it drains liquidity from the rest of the world and it gives it to the United States. And what I mean by that is, first of all, we've already talked about how stable coins are becoming a preferred way of holding quote unquote money overnight by, by foreigners. But if you are a trader or if you're allocating capital and when the US markets are closed, where do you go? You go trade Thailand, you go trade Japan, you go trade Australia, you go trade South Africa. But if the US markets are never closed because they're now going to 23 hour a day Nasdaq, or if it's tokenization, which can trade on the weekends, why are you going to go trade Thailand when you can trade the Nasdaq? Why are you going to go park your money overnight in South Africa when you can trade the S and P Mini with superior liquidity and better companies behind it, what that does is it provides liquidity to the United States and it drains liquidity from the rest of the world. And that ends up affecting currencies and currencies end up affecting governments. Again, I don't know exactly how this is all going to play out, but when I look and I think about who is in charge of the Fed and who is in charge of the treasury, and I see this technology that's ramping up very quickly and that technology favors the United States over the rest of the world. It just makes me want to. I don't see the point in going and allocating assets abroad when you can get the same upside in the US and greater liquidity. I think that ends up having huge consequences for all kinds of assets around the world. I think it allows the US to finance these massive deficits for a lot longer than people think is possible. And I think it ends up causing problems overseas, especially for countries that are not aligned with US Policy. I don't know if that answers your question or not, but that's why I think it's important.
- [53:00]
A
Mike or Dave, either of you can follow up there.
- [53:02]
C
Well, I think it's important to point out the power of market wizards and Charlie D. In the statement. This is where, Dave, I really appreciate your views about the dollar, but what you're getting wrong is the power of the statement. The Bloomberg Galaxy index is down 62% from its heights. In a bear market. It's heading lower despite the stock market. Still in the bull market, Bitcoin's down 50% from its high despite the same thing. And what you pointed out, Brett, is the key thing. At some point, that's all great stuff until you get to too high of a level. That' happened in cryptos. That's all that happened in gold and silver and platinum and plating and corn and crude oil. They just got too high. The difference is we have a defined bear market in cryptos. We have a defined bear market in energy. People just caught up, got long at the upper end of the range. They should have got short. Some of us were able to keep that bias. And we haven't shifted over in metals yet. I think they're shifting now. And that's where the dependency is. There's. I've never seen so much dependency my whole life. And the stock market to continue to go up, yet it's gone up too much. That's part of the number one reason. We have inflation. We have a hawkish Fed now that's telling us that we have. The President is finally realizing, yeah, I'm not getting elective. Inflation stays sticky. This is the end game. Bitcoin's ahead of the game. I say respect the bear. Stop fighting it.
- [54:16]
A
I know you want to talk, Dave.
- [54:19]
D
I do, I do, I do. I mean, I think that, look, it's the going lower part that is a problem. Yes. Bitcoin is off 50%. Bitcoin and in, in gold terms is off 64% or so, give or take. I mean, the problem is that the denominator has changed, etc. There's very good reason to believe that we're in this bottoming process from a cycle that's running separately. My mental model, by the way Brent and I've written about this is that Bitcoin trades like an option on its own adoption. And so it's a speculative asset because it's an option if it actually achieves the kind of value that we're talking about. We're talking about 15 to 20 times this price. And that kind of option is a long dated option. Whether it will get to that kind of monetary digital value, you know, we, we don't know. It's obviously unknown. The market is saying that it's less than a 5% chance, etc. So when you're talking about things down, you know, it's yeah, say whatever you want. But Bitcoin has, has tried. Its correlations have been loose, they have been different. I actually said on this show months ago that I thought bitcoin and silver would be far more correlated going forward. That's actually come true and makes sense for a bunch of reasons why the, the thing that I think is most important when, if you're looking at all of this is what are people's belief and, and because it is all about adoption for bitcoin when it comes to, you know, you just start looking at the math. You know, like gold for example, like gold is, is basically what is it down 3%, you know, year to date? I mean it's basically flat. You know, on a, on a rolling year basis it's up like 25% or so. Silver once again down small amounts year to date from its highs. You know we got it, it got into, you know, 70ish was where the CME did their whole margin thing was between 7 and 80. It broke that down to 60s. It's now still pushing towards, you know, was it 65, 66, something like that, but you know, still up 75% on a year on year basis. And so why, what's the reason for it? Well, the reason is because supply, demand constraints and the denominator that affects a lot of assets. You talk about SpaceX rolling over. I mean honestly I think one of the most obvious trades in history is that SpaceX's peak post within a day or two of the IPO is truly saleable. I mean it's hard to do because it's not easy to borrow and options volatility being what it is, but because of the unlocks, right, it is there. Now the real interesting question is post unlocks, when it finds its bottom, wherever that is, how long does it take to get back to its all time high which was whatever the 48 hours after the IPO, that'll be the real interesting question and real interesting health in the market and what's going on elsewhere. But the stock market is obviously doing well. We understand that. And as a result, don't expect to see policies that are going to be overtly stimulated, you know, because there's no need to from that perspective. But what do they care about? They want business investment. What do they care about? They want US Dollar financing costs to go down. Those are the things that they actually care about. And so if we're talking about, you know, what policies, whether those policies, what assets will those benefit? Well, those will benefit companies that are producing things that need business investment. And it will benefit liquidity assets like, you know, like bitcoin. Will it benefit Dogecoin? I mean, honestly, I hope not, but who knows? You know, it's look, if you look today, like today is one of those days, oh, the world did end over the weekend. You know, Gary Cardone's comment, oh, well, you know, bitcoin might break 60 this weekend. Well, it didn't happen. So you look at crypto, but it's almost uniform. I mean, Bitcoin up three and a half percent. Ether up four. Binance, Coin up three. Hell, Cardano up four. Solana. You know, it's like with no reasons. I mean, you could just go up and down the line. They're all the correlations are crazy high. And so when you see correlations being crazy high, you know, it's more of a macro trade than anything fundamental going on. And the macro trade is, okay, Iran left, do I care anymore? At. And there are theorists out there that said Trump signed the MoU fully expecting Iran to blow apart because they can't get themselves to agree. And for him to be able to use this. And so you see, I tried as a justification, there's all sorts of theories going on out there. Notably, the markets don't seem to give a crap.
- [59:07]
A
Well, yeah, Brent, you get the final words here. Kind of coming into the conclusion, you get the honor of wrapping us up as the very special guest.
- [59:15]
B
Well, first of all, thanks for having me on. This is fun. I always like talking about this type of stuff. And what I always tell people is, listen, I, I don't know what's going to happen. I've done a lot of work to try to figure out how the system works so that I can be prepared for anything to happen. And that, that if, if I was going to leave with anything, I would tell people rather than trying to predict what's going to be happening. Just try to be ready for anything to happen and think through the different, different scenarios. That's what I always try to do. I think the constant predictions of the dollar's doom and the failure of the American system and the fall of the American empire are vastly overblown. I think the United States is still the far and away the driver for the global economy. And I think that in the years ahead, that will remain the case. Doesn't mean it's going to be easy, doesn't mean there won't be bumps along the way. But I just don't see a big reason to be allocating assets to the other side of the world when you can still allocate them here in the United States. And the last thing I'll say is for anybody that wants to read the paper that I wrote, if you go to just research.santiagocapital.com it will help explain the mechanics of why I think this is going to take a lot longer to play out than many people think it will. And you don't need to worry about the dollar going lower. If the dollar goes lower, the world tends to be in a good place. It's when the dollar goes higher that you need to start to worry. Yeah.
- [60:40]
A
Really appreciate it, Brett. I highly suggest everybody give it a read. It's great and really good follow up on all of your obviously kind of thinking and research from the past. And so I think it's just really instructive obviously in the current environment, which has Dave, you sort of pointed out like nobody really cares about the headlines anymore. So I think it's time to think bigger and actually start to focus on those possibilities, you know, by zooming out. Mike, Dave, Brent, thank you so much for joining. Appreciate all of you sending your time. Brent, you're welcome back anytime. By the way, you know, get you regularly in the rotation. Thank you so much.
- [61:17]
B
Thanks for having me.
- [61:20]
D
That's dope.
- [61:33]
C
That's dope.