Brent Johnson: The Investing Rules Have Changed — Power Now Matters More Than Economics
Summary
Capital Preservation: He prioritizes protecting capital into the midterms, favoring short-term T-bills, cash equivalents, and measured risk-taking.
US Equities: Maintains a heavy allocation to US stocks due to superior liquidity and resilience, preferring them over emerging markets across most macro scenarios.
Gold: Endorses gold as a strategic, long-term allocation and barometer of stress, with potential tactical adds on pullbacks toward longer-term support.
Strong Dollar: Reaffirms the Dollar Milkshake framework—higher rates, global uncertainty, and capital inflows support a stronger USD alongside rising US equities and gold.
Energy Security: Highlights the Strait of Hormuz as a pivotal risk; disruptions could create regional price divergences, impact diesel, fertilizers, food prices, and policy responses.
US-China Competition: Frames markets through power politics; the tech/AI race and supply chain control (chips, energy, rare earths) define the strategic contest.
Stablecoins: Sees dollar stablecoins as a powerful geopolitical tool that deepens dollarization globally and potentially circumvents traditional banking rails.
Market Outlook: Expects a sideways-to-lower US market into elections amid high uncertainty; no specific tickers were pitched, with emphasis on macro positioning and risk management.
Transcript
The thing that I find most surprising is the certainty with which people talk now. I actually feel like I have a pretty good understanding of what's going on cuz it's kind of related to what things I've been talking about for the last couple years. People speak with like such certainty of this is what's going to happen and then this is going to happen and there's no way that this can happen and I'm like how calm down everybody just take a calm down step back. Like I think we're in a world where anything can happen. Like literally anything can happen. Nothing's off the table. Hey everyone, welcome to another special in-person episode of the Julia Larose show with someone who has not been on the show in a while. We're joined today by Brent Johnson. He is the founder and CEO of Santiago Capital, a wealth management firm headquartered in Puerto Rico, host of the Milkshakes Markets and Madness podcast and founder of Santiago Capital Research. Brent, it's been way too long. It's so good to see you. >> It's great to be here. Thank you for the invite. Oh my gosh, you are one of the fan favorites of the show and I cannot believe we let it go this long without having you on. The last conversation we had was in 2024, so it's been a long time. >> Um, and since so much has happened and gosh, I feel like today we're recording the last day of the first quarter. A lot's happened in this quarter. The world maybe the world's completely changed. So, let's start big picture macro view for you today. The framework in which you're looking at the world, where are we? What's your assessment of the global economy, the domestic economy, markets? Um, what's been on your radar of late? And you can take all the time you need to set the table, Brent. >> Well, it's a it's it's a big question and it's a big it's an important one. And unfortunately, I feel like we're in a place where everything is changing and I think everybody kind of sens that. That's not some great insight of mine. Um, I think everybody now, you know, 10 or 15 years ago, you talked about the fourth turning and people say, "What do you mean?" And now you say the fourth turning, everybody's like, "Oh, yeah, of course." Right. And but that is kind of where I think we're at. And I think the world that I grew up in is over. And I hate saying that because I grew up in during a pretty good time, you know. But I think that world is over. I think in many ways, uh, you know, when I do these interviews and when I'm on social media and when I uh go to conferences, it's all finance related, right? Oops. Sorry. It's always always finance related. And you know, someone in my profession for the last 30 years, if you lived in the West, for the most part, you could take a look at an investment, do a spreadsheet, pencil it out, and if it made sense from an economic perspective, you could either invest in it or reject it. And I think those days are over. I don't think it's that simple anymore. You still have to do that but that's almost a secondary function at this point because I think now power matters more than economics and you know uh sustainability or uh national security matters more than efficiency and where you used to just search for whoever could produce the most important widget at the cheapest price and get it to you in the shortest period of time. Now you have to think about supply chains that are more secure. um trade deals that are with your allies as opposed to a potential foe and I think that changes everything and it makes it harder. Um it also creates incredible opportunity but I think that's where we're at from a very big perspective. >> Wow. Okay, you got my attention. You just said power matters more than economics. Can you explain that elaborate on that idea? >> Sure. So I've I've kind of jokingly but the great thing about jokes is when they have a little bit of the truth to them. But for the last several years, I've said that, you know, if you want to understand what's going on in the world, you're better off watching Game of Thrones than, you know, going to an economics class or getting your MBA. And I really do mean that. Um, you know, we are at a point in time where for 30 or 40 years, 50 years, the world was moving towards cooperation. It was globalizing, right? When I went to business school almost uh 25 years ago, that was the everybody wanted to do global business, international business because everybody was working together for the most part. There's always little regional skirmishes, but for the most part, the world was cooperating. Um, and that's a big that was a big trend, right? And that was a 30 40 year pendulum swing in one direction. But I think the pendulum has started to swing the other direction. And there will be, you know, periods of time where it maybe it goes back. But I think that by and large is going to swing the other way for several decades. And where it ends, I don't know for sure. But I know that when it moves that way and the world doesn't cooperate, even the smallest little problems become bigger problems. You know, when everybody's making money and cooperating, little problems, you just kind of push them aside. But when things get hard, the even the small problems turn into bigger problems. What are the signposts that you're seeing that are reinforcing this thesis for you? >> Well, I think today is a perfect example when, you know, President Trump goes on uh TV and says, you know, Europe, if you're not going to help us, then maybe we don't have to help you. Now, you know, 20 or 30 years ago, that was unheard of, right? But that's the world we live in now. It's very uh transactional. And some people blame this on Trump. I think Trump is a symptom. I don't think he's the cause. I I think he uh came to power because many people felt this way. Um and so, you know, things that you used to take for granted, you really can't take for granted anymore. I mean, my god, we're having, you know, verbal conflicts with Canada. I mean, Canada, right? Like, why are we arguing with Canada? But we are, right? And so, I but but I think that's I I think that's just an indication of a of a bigger swing. And I think many people like it, many people don't like it. Right? And that's what causes the conflict. Some people are trying to hold on to the world that was. Other people are trying to create a new world. And that creates tension. >> Okay? There's a tension. There's a conflict between the way the world was, the way it's becoming now. From an investor perspective, I imagine people probably get caught up in like the paradigm that they're used to, like what's worked before. Can you kind of take us inside like what that's like from the investing lens? Um what does that mean for investors like this change that's happening? >> Well, I'll give you a really simple example and this I say it's simple, it's actually very complicated, but one of the things that I am currently trying to think through is the fact that I believe that in the years ahead the the the the law of one price is gone. So the law of one price is a you know a commodity in Asia should trade at approximately the same price as it trades in Europe and as it trades in the United States. Now there is always going to be small differences but I think those differences are getting much bigger and I think they will continue to get much bigger. So when as I said earlier when you're looking at a project or looking at a potential investment and you're trying to pencil it out you do the cash flows or looking at the balance sheet and trying to make sense of it all. It used to be that you could just look at okay this is the price of the input how does that affect the bottom line but now it's not only what is the price of the input but where am I going to get that input and if I can't get it from the first place how much is it going to cost if I have to get it from the second place right and what happens if there's a tariff on the second place or there's a war with the second place right and so that's that's what I mean and it it just it it creates it creates uncertainty >> and markets don't like uncertainty >> and complexity itself >> and complexities right and and market you know markets will often climb a wall a wall of worry but they also don't like uncertainty and right now there's just great uncertainty and I I think you can see it in the markets and what I mean by that is the markets have kind of gone sideways for five months six months right um you know they had a huge runup last year they pulled back they went back up hit the ceiling again they pulled back and you know they rally again today and you know markets are down 10% for the year, something like that. But you would think it was down 30 the way people >> are reacting to it. And >> and I just feel like it's they they know there's uncertainty. They know something bad could happen, but they're also kind of preconditioned to buy the dip, right? Because there will be a reaction from central banks, there will be a reaction from governments, or at least they believe there will be. And um and so you know I I kind of find it odd that everybody is so bearish but the market's only down 10%. Or that the the the angst is so high and the market's only down 10%. >> That is kind of an interesting observation. The angst is so high the market's only down about 10%. It's been going sideways. So I guess my question is is there is that dangerous setup then that it's >> well this is the big conundrum, right? Um, I think that it's going to be very hard for the market to break through that ceiling between now and the midterms. Um, wouldn't shock me at all if we go back up to kind of those highs or or if we just go sideways for a while. But I think it's going to be very hard to break out of that, you know, sideways channel uh between now and the election. There's just too much stuff I think going on that can potentially send it lower. Um and so I would wait the market going sideways to low or higher than breaking out go to the upside. Now having said that I don't know for sure and I think so many people this is the other thing that I find I know I'm rambling a little bit. >> No you have to think about this show Britain is you can go as long as you like. >> Yeah. Well the thing that I find most surprising is the certainty with which people talk now. Um I actually feel like I have a pretty good understanding of what's going on because it's kind of related to what things I've been talking about for the last couple years. But I the last thing I have is certainty, right? Conviction and certainty are two totally different things. But I watch people go on other podcasts or your podcasts or I read stuff online and you know people speak with like such certainty of this is what's going to happen and then this is going to happen and there's no way that this can happen and I'm like how calm down everybody just take a calm down step back. Like I think we're in a world where anything can happen. Like literally anything can happen. Nothing's off the table. And as a result um you know I think uh that that that's my observation of the market is is the the high level of angst but combined with the high level of certainty >> is that >> those two shouldn't go together >> is that the conviction versus confliction that you write about >> that's related to that. Yeah. Yeah. >> Wait explain that. >> Okay. So this is the the conviction versus confliction is more of a personal thing but I guess you could also relate it to the market. So for me, I kind of view myself as a libertarian-minded person. I believe in the rights of the individual. I believe in small government. I'm to the certain extent, you know, I don't uh I I think people need to take personal responsibility and not, you know, have somebody else, you know, be responsible for them. But that's not the world I live in, right? And as an investor, I have to fight what I would like to see happen versus what I think is going to happen all the time. And that's hard, especially in in today's day and age where literally lives are on the line, right? Um, you know, I hate uh I hate violence. I hate war. Um, I think too often that's the method that governments use to try to solve things. Um, but it's also a fact of life and it's been going on for thousands of years. And so the idea that I'm going to write a blog post and everybody's going to read it and we're not going to have any more war and it's going to be peaceful and we're going to solve things nonviolently, that kind of flies in the face of historical record, right? So when I see stuff that's going on now, there's what I would like to see happen, especially for the world that I want my son to grow up in versus what I think's going to happen. And then how do I position um you know my own life and my own portfolio and my clients portfolios for that. And the other part of the confliction is if I was just managing my own money, it would be easier. But I manage money for other people and I have a fiduciary duty to try to grow their portfolio, protect their portfolio and grow it. And my clients don't necessarily have the same political views as me. they don't necessarily have the same um uh ethical constraints or what, however you want to define this, right? And they didn't hire me for my social views. They didn't hire me for my political views. They didn't hire me for, you know, trying to change the world. They hired me to protect their portfolio and try to grow it. And so the minute if I were to start putting my own, I don't know, let's just call it my own libertarian ideals into their portfolio despite the fact that I think those libertarian ideals are not going to play out, then I'm sherking my fiduciary responsibility to protect and grow their portfolio. So that's the conviction versus confliction, right? There's things I'm pretty sure are going to happen and I can position portfolios for that, but it doesn't mean I like it. I have to say though, I think it's quite refreshing to hear that because there's times where there's going to be trades that are going to pay that will be they might offend the way you want the world to be, right? >> Absolutely. >> So, it's refreshing to hear like I think sometimes people get so tied up with their individual politics and frameworks and they invest around like you said the way they think the world should be versus the way it is. I I think the perfect example of that right now and I've had a lot of discussions over the last week both personally uh you know in I'm sorry both in person and online of the whole thing with Iran right um you know I don't condone it. I would not have given the order to go. Um I think there's many many downsides that need to be considered but it's not but I I'm not the president. I don't give the order to go and the fact is the order was given to go. So, it's my job to kind of sit back and say, "Okay, what are the potential outcomes of this?" Right? And if you say these are the outcomes, and they're in any way positive, you immediately get attacked as a wararmonger or someone who supports genocide or someone who thinks, you know, bombs solve things. And my point is is that's that's the confliction versus the conviction, right? I mean the short answer is violence does solve problems sometimes. I don't like it but that's the history of the world. Like governments do attack other countries and governments do things that as an individual you might not like and that is how things get solved. And so if I analyze what's going on in Iran right now, I don't know how it's going to end. What the the the the big the big issue that I've tried to get people to think about is this goes back to the certainty. >> There are so many people that are certain that this is going to go horribly, that there was no plan, that these guys have no idea what they're doing. They have no idea what they're getting into. And I just think that that's kind of ridiculous that there is a plan. I actually know for a fact that there's a plan. That doesn't mean that the plan is going to go well. It doesn't mean there's not downsides. doesn't mean I agree with it. It doesn't mean that it can't blow up spectacularly in, you know, the US's face, but there is a plan. And the idea that uh, you know, you and I or people on Twitter, on social media understand that it's going to be really hard to invade Iran, but the people who have been studying this for 30 years don't understand this. It's it's it's arrogant to think that they don't understand this. And and so I think but it gets back to the certainty, right? They're just so certain that this is how it's going to end up. Um and the bottom line is like I said, I don't know what's going to happen, but I'm open to either side. Either I I'm open to their potentially it works out, right? Potentially it doesn't. It probably end up somewhere in between. Um but even that I think has ramifications portfolios because the bottom line is this has happened, right? The straight of hormones that everybody for a long time has known is a big issue is now the biggest issue in the world. And if it stays open, if it closes, if it stays partially open, if it partially closes, who controls it? That is literally the biggest issue in the world right now. >> Mhm. You have to think through those probabilities. What are the potential outcomes? It sounds like it might be hard. Is it hard to find conviction right now or do you have things that you do have some conviction on? So, I have some conviction in that I don't think and that I I already know how this is going to come across and that's why I'm kind of smiling. But the US is still the most powerful country in the world. Some people like that, some people don't like that. For the people who don't like it, if you say it, they immediately start arguing against it. Right? And I would say that regardless of what you think about the United States, who do you think is stronger, right? And it gets down to this relative game. And it doesn't put put the moral aspect aside because they're there. If you think they shouldn't have gone there, well, too bad. They did, right? And so I think that it will work out better than many people I interact with seems to think. Now, that doesn't mean it works out good. That doesn't mean that people don't get hurt. It doesn't mean that lives aren't lost. >> But I just think that the people um who say it can't possibly work out well are too certain in that view. I don't know whether it'll work out well, but I give it a higher degree of possibility than most people I interact with. >> Hey everyone, I hope you are enjoying this interview. If you can take a quick moment and hit that subscribe button, we are on a mission to hit our next goal of 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. >> You mentioned like ramifications for portfolios and construction like >> what do you can you share some >> Okay, so so here's an example. Um perhaps this all ends peacefully going forward. No, it it hasn't been peaceful, but perhaps they come to some kind of a stalemate. Um they come to an agreement. Um and Trump says because you we've we've taken out your missile program, we've taken out your nuclear program, we're going to stop now, right? And as a result, the the straight opens back up and energy flows and uh fertilizer and chemicals, all that stuff starts flowing again. Well, even if it starts flowing right now, there's already going to be ramifications because a lot of the a lot of the um you know, a lot of time it takes 20 30 days for stuff that gets shipped through the hor the straight to get to where it's going. That is just now going to start happening, right? Because the it's been going on for almost 30 days. And so, as an example, Australia's having trouble getting diesel. their farmers are going to have trouble planting if they can't get diesel. So then that has effect on the the food prices. Not today, but six months from now when the crops didn't get planted or if they did get planted but now they can't get fertilizer, >> right? And so then six months from now when the crops don't come in to the same level as we're expecting, then potentially prices of food goes up, right? So that that's one example. Another example would be um perhaps it stays uh um the way it is now where certain tankers get through and certain tankers don't and as a result maybe the US says you know what we are not going to export anymore we are going to keep all of our energy for the United States in which case the price of energy in the United States goes down a lot because now we've got plenty yep >> because it's all staying internal but the price in Europe goes through the roof >> right okay so now the price in Europe goes through the roof What does that mean? Well, it means the governments in Europe are going to have to print more money to to to to buy that energy at a higher price. Well, what does that mean for the currency, right? Or maybe So, that's that's one implication. The other implication is maybe, you know, this ends up in a big uh uh maybe the war continues. Uh maybe other countries get drugged into it. Maybe the US has to do an emergency rate cut and start doing QE. And what does that mean, right? Um, I don't think that they would have to do that in isolation, but you know, who knows? But my point is is the every it's amazing what a little strip of land and ocean, you know, can affect every place on the world. And I don't think I I have conviction that this will work out better for the US than most people that I interact with, but it's not certainty. So you have to be prepared for all of the scenarios while having a bigger bet on one of them. Does that make sense? >> That makes sense. Let me ask a follow on then. Better for the US, but that makes me think like relative to the rest of the world. Yeah. Because I I mean that could impact relationships that we have or >> Yeah. >> Okay. This is interesting because this ties back probably to the big theme of looking at the world through power, right? Not economics. When I hear you talk about power, it makes me think of US China. >> Is there a US China story here with what's happening? >> Oh, it's all about US China. It's all about US China. It's that's what ultimately this is. So, at a very simple level, everybody knows there's this great power competition between China and the United States, right? The United States is a global hegeimon. China wants to become the global hedgeimon or at least an equal. um and um doesn't want to live under the US quote unquote system, global system. And right now there are things that they need from the United States and there's things that the United States needs from them. And so there's the probably the best way to explain is there's this uh prisoner exchange going on, right? We need rare earths and pharmaceuticals, which they've agreed to send to us. they need energy and they need uh you know high-tech uh chips and and and other systems and so we're exchanging those. But behind the scenes, everybody is furiously or each side is furiously working to become independent of the other. And once that happens, once one side becomes independent of the other, then they're going to stop the hostage exchange or the or the or the prisoner exchange. And then kind of all bets are off. And a big part of this is the technology race, you know, the AI. And there's a there's a belief that whoever wins the technology race wins the overall competition. And whoever wins the technology race in that overall competition then gets to you know design implement and run the the global technological architecture for the next I don't know 50 60 100 years right so it's a very very big deal but you cannot win the technology race without energy to power the technology right >> fascinating yeah we have energy independence >> we we are closer to being energy independent than probably anybody Russia obviously has has has pretty good energy and independence. Um but but but from the western perspective, clearly the United States is the most self-sufficient and by taking Venezuela offline, shipping oil to China and now potentially uh at least at a minimum um you know inhibiting the flow of energy through the state of Hormuz that goes to China. it that helps us in that China United States power competition. >> H it's kind of interesting. Yeah. >> There's a there's a there's a caveat here that I think is very important to understand is I think there's a when when you say there's this power competition between the United States and China. I think a lot of people interpret that to mean that one side wants to crush the other. But that's neither side wants to crush the other side. And and this is where it gets really interesting because if one side wanted to crush the other side, it would probably be easier to do than what they're trying to do. What they're trying to do is each side is trying to become dominant while letting the other one still um uh what's the right word to say? And not just survive, but uh but do well because and I'll use I'll just use Trump as an example, right? And but it actually works in reverse, too. The two things that Trump wants more than anything in the world is his face on Mount Rushmore and to be viewed as the, you know, architect of this global economic, you know, golden age. Well, you can't get your face on Mount Rushmore if China surpasses the United States under your watch, right? So, he doesn't want China to surpass the United States. But you also don't get your face on the front of the Wall Street Journal or the New York Times overlooking this great trade deal and and booming economy if there's a global financial crisis and the whole world is burning, right? And if China collapsed, that's horrible for the United States. And if the US collapsed, that's horrible for China. So essentially what they're trying to do is keep China in a box. They're trying to keep them successful, growing, contributing to the global economy without getting too big and without getting too dominant. That's actually much harder to do than to just crush them, right? Um and vice versa. You know, again, they don't want the United States to collapse because if the United States collapsed, their biggest customer goes away, but they would like to, you know, continue to rise, be a be an equal peer, and eventually surpass the United States. And so that I mean, that's essentially what's going on. And energy is a big part of that. Technology is a big part of that. And Iran is is a big part of that. >> Wow. It's so interesting to think about like the different chess moves, if you will, and how the board set. Um, >> can I just touch on that really quick because I I think >> the the famous saying over the last call it five years or 10 years is that China plays chess and the United States plays checkers. And then over the last month as this has gone on, there's a lot of people who have said, you know, explained that this is kind of the the goal of what the United States is trying to to achieve. And people say, well, Trump is not smart enough to play checkers or to play he's not he's not smart enough to play checkers, let alone play chess, right? So that that's a popular meme. And what I would say is from Trump's this is I mean he has basically said this for 40 years. This is not really chess. I mean he's he said 40 years ago that you know the straight of Hormuz is one of the most important places and if it was up to him he would you know take the oil back when they did the first Gulf War. Um he also said you know 30 years ago he never let Iran have a bomb and he would think that. So, and then in the national security document, national security strategy document that was released last November, um they specifically said in there that we are not going to let Iran, you know, achieve their goals of of of having, you know, nuclear power and and it's it's literally written in there. So the idea that this is like some 3D it's it's pretty it's pretty black and white really once you understand what's happening and the the idea again it goes back to the idea that there's not a plan. I mean this has been planned for 30 or 40 years. It goes all the way back to the you know Islamic revolution in the 70s. Um you know they and when that happened they took hostages >> and there was plans then how do we go in and get them? you know, they ended up using like a fake movie to get them out. The, you know, the movie Argo won the Oscar for telling this story, you know, 10 or 15 years ago. Um, and for a long time since then, this has been analyzed and planned and how would we do it? And it's really, really hard. And that's why it's never been attempted. They're attempting it now. Um, do they continue? Do they pull back? You know, I don't know. But the the idea that they just did this willy-nilly overnight and said, "Oh, let's just go try this." I mean, it's just it's it's it's naive. >> Like there's a lot of armchair quarterbacking on X. Like whenever there's a major event, you have a lot of people who are suddenly experts in the space. >> Well, then the other thing is like people will say, well, you know, they shouldn't be so cavalier with people's lives. So again, I agree. >> Mhm. >> But they are. >> That's the way the world is. as you power is the paradigm to look at and like >> it's just how it is. Yeah. Even though you can have the humanity be like that that those aren't my values but we're not the ones in charge. >> That's right. That's right. And you can work to make the world a better place. I'm not saying that you just have to accept the world as it is and you can never try to make it better. But the point I also like to make to people is that's if if you are trying to change the world. That's absolutely a fantastic goal and you have my admiration and my respect. But that's not the same as putting your hard-earned money that you've worked so hard for, slaved away at a job maybe you don't like to save for retirement, and then go make a bet that is very unlikely to pay off just because that's the way you want it to be. >> Okay. give me some insight without giving away everything like where where are you putting money? >> Well, >> I mean, you could give me everything, but I know you have a business to run, Brent. >> So, no, I'm being very careful, right? I think there's times to try to make money and there's times not to lose it. >> And which is also important to talk about, too. Yeah. >> I think like between now and the and the midterms, I think it's don't lose it. >> Capital preservation. >> Capital preservation. That's what Gunlock said when he was I think is very very important. Um, so we have a lot of short-term uh, T bills, um, you know, cash uh, substitute for lack of a better word. >> We still own gold. U, we've always owned gold. We think gold is very important. We think gold probably goes down and touches its 200 day moving average. Probably the same with silver, but that might actually present an opportunity to buy some, um, add some. >> What level would that be? >> I think that's around 4500 on gold. And I think silver it's around 57 or 58 >> where I don't know where we are. I know. So, I thought we were like 4,300 recently. Maybe I'm not. >> Yeah, we were. We went We went got down pretty close to it and then it bounced >> bounced back up. See, I stopped looking every day cuz you know I own gold, too. >> So, that's the thing is like we I mean I the first thing I do when I wake up in the morning is look at gold. That's been that way for 15 years. Just because to me that's a barometer. Yeah. If you wake up and gold's up 30 bucks, something's going on, right? And and vice versa. A little bit harder these days because the price has been fluctuating so much. But I don't really even though I look at it every I don't think about the gold price that much because gold's a strategic allocation. Um you know we own it for kind of long-term safety security. We will trade a uh in another part of the portfolio just from a tactical perspective. We'll trade it every now and then if we see an opportunity but the strategic gold holding doesn't really change that much. >> Um so you know having cash having gold uh short uh we do still have equities US equities. >> Okay. And I think everybody should have some US equities. I don't think you should just sell everything and just go sit on the sideline. Um, >> you're not buying into the rotation. Everyone is talking about this rotation out of US equities into non- US emerging market. >> To me to me that is it's not necessary. But it it also that's based on what my mandate is. So and and it's important to understand like when you see people debating what's the better thing, it it you need to understand what their mandate is and who they're investing for. So, most of my clients, uh, you know, they've been very successful. They've made a lot of money. Um, they're either in retirement or moving towards retirement. They've kind of won, for lack of a better way of saying it. They just don't want to give it all away. So, capital preservation is first, and then growth at at a respectable level of risk-taking is second, right? >> Makes a lot of sense. Yeah. >> And so, with that in mind, I think there's like four things that could happen in in the years ahead. The whole world could go down together. just disaster, right? In which case, doesn't matter if you're in the US or China or Africa, everybody's getting hurt. Um, and so I might as well just be in the US because it has more liquidity. >> The other thing that could happen is maybe this all gets better. Maybe, you know, peace breaks out in the Middle East and and in Europe and the technological revolution of AI, you know, is an innovation that allows us to grow greater than anybody thought and we grow out of this debt problem, in which case the whole world grows together. And in that scenario, maybe the rest of the world grows more than the United States. Uh but if the United States is growing too and if the you know if if emerging markets go up 20% and the US goes up 15 I can live with being up 15 and giving the five extra percent to somebody else. Um the other thing that could happen is the United States could do okay and the rest of the world could could do poorly or on a relative basis the United States outperforms the rest of the world. The other thing that could happen is the United States could go into a nasty recession and the rest of the world does okay. I think that last one is not impossible, but it's very very very close. >> So very, very low probability, >> low probability loss, >> very low probability that the United States goes into a big recession and the rest of the world does well. >> And so in three out of those four, I would prefer to be in the United States versus being in the rest of the world. And the fourth one, I think, is such a low probability that if I get it wrong, I'm willing to be wrong about it. And so all of our not I shouldn't say all 95% of our equity exposure as US equity because I think that is has the most liquidity. It's the most prepared to deal with some kind of a negative shock and I think it probably still has as good a growth potential as as anywhere else. >> Mhm. >> So I I I continue to subscribe to the whole, you know, you've heard me say the milkshake theory. >> Oh, we made it 30 minutes now. Talked about the dollar milkshake. But I do still think that that's where the capital will come. I do think that the United States will outperform the rest of the world. >> Um, and I don't I don't think it's over yet. >> Okay, this is amazing. I think this is probably the longest we've gone without someone asking. >> Thank god. Right. I shouldn't even have brought it up. >> Stop. Stop. Stop. That was my next question. Anyway, so the dollar milkshake theory. Um, >> for anyone who's new to the show because we've grown a lot. >> I need you to give it a quick recap on like what it is in plain terms and then I want you to tell us how it's held up. >> Yep. um in 2025 2026 especially since now we're 39 trillion in debt here in the US um >> yeah let's go so I started talking about this in kind of 2018 2019 time frame >> and at the time the dollar index was like 89 90 level and a lot of people were saying that the dollar as they always say you know the United States is going to fall versus the rest of the world all of this debt it can't continue you know we're going to have going to a to great depression etc etc and my thesis was there is a lot of debt in the world it's a problem it's probably going to lead to a sovereign debt crisis and what will happen is interest rates will rise um because of all the debt as interest rates rise the dollar will get stronger versus foreign currencies not get weaker um as capital flows into the United States dollar it won't just want to sit in the cash it will then find its way into the US stock market the US stock market will go higher And but we're also going to be in a great time of uncertainty and countries around the world are going to be printing more money. So gold will go up as well. Um so if you look back from 2018 till now um interest rates have gone up which was part of it. Bonds would go down which was part of it. US equities have gone up tremendously which was part of it. Gold has gone up even more which was part of it. And the dollar is 10% higher than it was at that time. I mean the the DXY is over 100 right now or at 100. And so it has the the thing that didn't happen is we did not get the sovereign debt crisis. So it's funny it was kind of predicated on a sovereign debt crisis would cause all these things to happen. And we got really close in 2022. Um and we've gotten you know a couple other you know Japan's having trouble right now. Uh you know some peripheral you know European countries are having trouble but we haven't had the fullon sovereign debt crisis >> yet though. I think it is a yet but in that time period massive amounts of capital have flown in from around the world in the United States and it's not even close. Uh it it's received much more capital than the rest of the world. So the framework has helped me incredibly understand what's going on in the world and why it's happening. Is it perfect? No, it's not perfect. But I think it does as good a job as anything else of explaining the last five or six years. >> Yeah. Okay. The name um I started watching the movie where the guy takes the he's going to take the straw drink that Okay. That's where it comes from. The newbies who don't know the name. >> Yeah. Sorry, I I should have said. >> Oh my gosh. I should I can't remember the name of the movie. >> So, the name is There Will Be Blood. Yes. >> It's about this ruthless oil executive who's, you know, buying up all this oil land. And this one person is trying to get the oil baron to buy his land. And he says, "If you buy my land, you can have all the oil underneath it." And he says,"I don't really need to buy your land because I have a straw that I can stick down on my side of the fence and I can suck up all the oil that's on your side of the fence through the straw that's on my side of the fence." And he says, "I'll drink your milkshake." And that's kind of how I that's that's the analogy I used for the United States is the United States has the biggest straw. The whole world's going to print more money and the United States is going to end up sucking that money up into the United States. And while these things might seem I don't know if I want to say good but like you know decent for the United States I guess it's not a happy story per se. >> Well I think it ends badly. Okay. >> Um we have a lot of debt. The United States has a lot of debt. The whole world has a lot of debt. Um, and here's here's the funny thing is despite all the problems the United States has, it still attracts the capital from the rest of the world. Um, and that's a good thing. You want money to flow toward you. Whether you're an individual, whether you're a company, whether you're a country, you want capital to flow toward the the nightmare happens when capital leaves. Yeah. And you have no liquidity. So the idea that you would prefer capital to be leaving than coming in is it's just ridiculous, right? So, of course, you want the capital going in. I think what probably ends up happening is that this ends in some kind of a big blowoff top where, you know, equities go much higher, gold goes much higher, the dollar goes much higher. Um, and eventually something will have to be reset. Maybe it breaks. And when it breaks or when it gets reset, then all that capital will leave and go back to the rest of the world. And that's probably not a good thing when that happens. Hopefully that doesn't happen for a long time. >> Hope it doesn't happen. But yeah, I mean >> 39 trillion, we're going to be at 40 trillion soon. >> So it's funny whenever I see these numbers and people say this is a, you know, it's projected to go to 100red trillion or two. I always say I'm going to take the over. It's going to go higher than everybody thinks. >> Yeah. >> And I happen to believe it's not that I don't think it's a problem. I think it is a problem. But I think it's going to be able to go higher for longer than most people >> before it becomes like a real problem. So that doesn't mean you should ignore it. It doesn't mean it's not an issue. It doesn't mean I can't be wrong. But I just think that that number can get a lot bigger than many people think. >> Is that another reason why you want to own gold is because >> Yeah. Yeah. Absolutely. >> You know, gold seems like years ago was a bit of like a fringe thing and now it's like much more widely accepted. I've owned gold since 2011, which is not the best time to get in. I'm not going to lie, but I didn't sell it. So now I'm happy. >> You were two years too early, right? August of 2011 was like, "Oops, that was a >> Yeah. Yeah. It's all right. We all did that. >> It's all right. I just, you know, don't look at your statements. That's what I would say." Um, okay. There's a topic I need to cover with you because we get a lot of questions on this and I I put this in my two hard pile for me personally. So, stable coins, they've been exploding globally, dollarizing large parts of the world. You talk a lot about stable coins. Um, what is your take there? And does this also tie back into the dollar milkshake theory? >> It it does. Um, and stable coins are a great topic for a couple of reasons. One is uh it shows how I totally missed it. >> What >> and I'm I'm I'm happy to tell people how I got it wrong. >> Um, and I think there's a lesson that I've I've learned in getting it wrong. Um, and I think too many people are overlooking their potential. So, let me unpack all of that. So stable coins are not really new. They've been around for 10 years, nine years, somewhere nine or 10 years. And the original stable coin, I think it was the original coin. It was called Tether, right? And it's now it's the by far the biggest. And when it first started off, I had people showing it to me and say, "Hey, this is pretty cool. It's kind of, you know, it's kind of like a Euro dollar, but it's in the digital form." And I took a look at it and, you know, took a look at the company and I just didn't really like the company, right? and the people running it I thought uh were less than ideal. Um went down the rabbit hole a few different times and just ultimately decided that you know oh and then I also thought at the time that if the US government wanted to squash it >> they could they could do a good job of they couldn't necessarily kill it but they had a lot of tools that they could use to to keep it from growing. Um, and so I kind of just kind of put it aside and I I always knew it was there and I always kind of looked at it but I didn't focus on it. And then a couple years ago it started getting more um news about it and they started talking about this genius act and it came out that the United States passed this genius act where they for the most part blessed stable coins. I was like why the why are they blessing stable coins? So then I had to go back down the rabbit hole again. And what I realized was that I had done a good job of understanding the company, but the conclusion I came to about the people running it clouded my vision. I got emotional about the company and that affected my ability to think rationally about the technology. And so whereas I dismissed the whole company, I should have said, "Wow, that's a pretty cool technology. It's pretty it's pretty uh robust. It's pretty uh efficient." And so what has happened is the I think that the United States government has said, "You know what? We can co-opt this private market innovation into our official way that we use dollars and we can use it as a geopolitical tool." And so what I think's going to happen is essentially stable coins are a way to electronically send dollars, you know, outside the traditional banking system. And so I think what's going to happen is as that market grows, the United States is going to essentially control that new market more than any other regulatory body. And I think at some point they will start wanting to get paid do, you know. So, as an example, I know I'm kind of rambling. >> No, no, keep going because I I'm a newbie here. >> If if if you do business with the US government, they you know, they send you a payment by a Fed wire. Well, what if they sent you a stable coin instead? Now, you have a US dollar stable coin. What are you going to do with it? Well, you're going to spend it or you're going to send it to somebody else that will accept a US dollar stable coin. And that doesn't take too long before everybody now starts using stable coins because the US government is the biggest spender in the world, right? And if you get paid in those stable coins rather than Fed wire or rather rather than a check or whatever it is, and and it's simple, it's fast, it's efficient, it's cheap, I think it's a way for this new system to um entrench the dollar more than it ever has been before. And this becomes espec this isn't so important in the United States. We don't really worry about the dollar in the United States. Now I know people are saying oh but inflation the dollar is losing value. Yes fiat currency is designed to lose value. Yes. Why you own gold? That's why you invest. It's why you don't just put your money under the mattress. But aside from that the US dollar is the strongest fiat in the world is what we just talked about how the dollar has gone up against all the other fiat currencies. And so countries, citizens in other countries would love to hold dollars versus holding their local currencies. You know, whether it's Egypt, whether it's Turkey, whether it's Australia or Argentina, Brazil. Um, you know, much of Venezuela's economy was already dollarized using Tether um over over the last couple years. And so, here's the thing is once a government loses control of the money, they tend to lose total control. I mean, that's why governments control money is it's the biggest tool that they can use to control the populace. If the populace rejects the local currency, the government typically is close behind as far as being rejected. And so, as this dollar stable coins proliferate around the world, it starts to steal sovereignty from the local governments and it gives the United States a way almost to apply sanctions on a voluntary basis. on a voluntary basis. What do you mean by that? >> What I mean is that the citizens around the world will voluntarily choose dollars over their local currencies. Okay. Yeah. >> And it's a way to circumvent the traditional banking system because let's just use Turkey as an example. >> Let's say that you're a Turkish merchant and you want to hold dollars. >> Well, you have to find a bank in Turkey that will allow you to hold dollars and then you have to hold most of the dollars in the bank. If there starts to be a crisis, you now have to get in line to get your dollars out of the bank. Or maybe they just turn it off and say you can't get your dollars out of the bank. Maybe they take the dollars for themselves. But if you have a stable coin, you just push a few buttons and you've got you've got it, right? >> Oh, that's so interesting. Okay. >> You don't have to go stand in line to get the to get the cash. >> Okay. Is there any possibility because this has happened during this administration. Um, can it is there a risk it can get reversed as administrations change? I'm talking about like a new poly in power or something. >> I think it can. It could. Um, and I think this administration for the most part has embraced them more than the previous administration. But I would also say that there's a deep state aspect to this as well that doesn't change all the time, right? And the U, regardless of whether you're a Democrat or a Republican, you want to have the strongest tools in order to govern. And I think when it doesn't matter who's in power, when they realize the power of stable coins, the last thing they would want to do is give that power away. So I they might not embrace it to the same extent that the current administration is, but I don't think they would give it away. >> Does this also get confused with CBDC's? >> I think that's what it is. I mean, it's it's essentially a CBDC. Yeah. And this is okay. So, this this brings up another thing that the the thing I've been looking at a lot is >> and I've said this I might have said this on your your show a couple years ago, >> and it's amazing how long it takes for these things to play out, but it's it's starting to play out a little bit is that uh I felt for a long time that the Treasury and the Fed were going to come into conflict >> and and I thought there would be some kind of a merger between the two or the or some kind of the the Treasury would get greater control over over the Fed. And I think to a certain extent that has started to happen. Um, with Worsh coming in, maybe they're going to cooperate a little bit more. But, you know, for the last several years, the Fed and the Treasury have kind of been in conflict as opposed to working handinand glove. And from an from a nonofficial perspective, central banks are there to support the government at the end of the day. That's why they were created. Um, and so the idea that central banks are independent, I think, is >> a farce. >> It's a farce, right? Um, now, do they have autonomy? Yes. Do they can they operate on their own and make their own decisions? Yes. But if things get really serious, the government can write a new law and they're gone, right? And so I think with the the reason the reason that the the the Fed has had a pretty good track record in their opposition to the government o over the years is because they are the distribution arm. The banking system and the Fed is the distribution arm for the US government. In other words, to sell bonds, you need banks to sell them to the clients, right? And the United States doesn't have its own bank. So when you send checks to the Treasury, you're essentially sending them to an account at the Fed that the Treasury has. So they need the banking system and they need the Fed. The government does. But with a CBDC or with a stable coin, you don't really need the Fed anymore because you can just distribute to people individually. You don't need to you don't need to go through the institution of a bank to do it. >> Fascinating. So, it gives the government uh another arrow in their quiver. >> Yeah. >> This is so interesting. Again, >> it's fas honestly, it's fascinating. >> You can go down a real rabbit hole in this one. >> Yeah. And the other thing I'll say, too, is like I love this stuff and I'm interested. I I don't have it completely figured out, right? like I I find it really interesting and I'm doing my best to kind of, >> you know, >> well, you're helping >> go through the weeds and figure out, but there there are so many little intricacies of this >> that it's it you can kind of get lost sometimes. >> Yeah. Okay. Um, speaking of the Fed, um, any I mean, how much does the Fed matter to you? Do you have I mean, we're have a Fed meeting at the end of the month. Are you expecting a cut, a hike? Like I've heard divergent views from guests or hold steady. I it's a I think it really a lot of it will I think will relate to what goes on over the next couple weeks with with Iran. Um if we see I mean here's the here's the here's the problem is some of the things some of the problems as a result of Iran could they be exacerbated by a Fed cut. Some of them could be helped by a Fed cut. So they're kind of in this place where so as an example I'll just give if if if we're starting to see higher prices in energy and food and they cut interest as a result of the horror moves and then they cut interest rates which should provide more liquidity. You could see those prices rise even more right. But the flip side is that if energy prices are high that actually starts to create demand destruction and the inputs are so high these companies start to fail in which case liquidity disappears in which a rate cut would be helpful because it would provide more liquidity. >> Yeah. >> So I'm not sure what they will do. I my guess is I think they're just going to stay. I don't think they're going to cut or raise. Some people have actually started to talk about raising. >> Oh Jeffrey Gunllock said that Yeah. He said uh the Fed follows the two-year >> Yeah. and the two-year yield and um he said looks like maybe a rate hike. >> Yeah. I don't think that they were gonna hike. >> Yeah. >> Um but the you know somewhat related to this is I've I've been doing this for how long have I been doing this for now? long think 25 years, 26 years. And every new central banker, every Fed chairman that has come in since I've been in business. Well, first of all, Greenspan was already there, but he had a crisis to deal with. But then every subsequent Fed chair, Bernaki, Yellen, Powell, they all had to deal with a crisis within their first year. >> And so now we have Worsher who, you know, maybe Wars won't even get in, right? you know, Trump's even dropping a few, you know, but >> I I think it's very possible that whoever ends up getting into that chair in May has to deal with a crisis by, you know, November or December. >> Okay, wait a second. I'm not letting you go before that. What do you mean? Like, what kind of crisis are you thinking? >> Well, I mean, there's so many things, right? I mean, maybe Iran continues uh to last and maybe maybe that lasts a year or two. Um, you know, we've still got a war in in in Europe that they're having to deal with. The yen is at 160 and potentially going higher. they they I mean that can lead to many many problems and China continues to you know struggle with their deflationary pressures. I mean and the thing is once one thing happens it can domino into something else. >> Okay. What's the deal with Japan? Like what why does that this comes up sometimes on the show but like is that like the canary in a coal mine? Like what is it seems like important but what's Yeah. >> So the the the yen I mean they've got so many problems over there. So essentially what's happening is the yen has lost 60% of its value versus the dollar in the last three years. That's or four years. Three or four years. >> Yeah. So I think it was at >> I guess it's four years. At the beginning of 2022 the yen was like at 100 and now it's at 160. So it's lost 60% of its value versus the dollar in the last four. And that's an enormous move for a currency any currency let alone the second or third biggest currency in the world however you want to measure that. The reason it's lost so much values is they have had to they've had to continue doing QE, right? And they've put more and more yen into the system. The reason they have to do that is because they issued so much debt when interest rates were zero that if interest rates rise the bonds lose value and their whole banking system, insurance companies, pension funds that bought all these JGBs, all of a sudden their uh >> oh their their their balance sheets are upside down. But they're also having uh but if you don't raise rates then the currency loses value, right? And so they can't really raise rates too much because then the the Japanese government bonds collapse. >> But if they don't raise rates, then the yen collapses and so we're seeing the real trap there. >> So So they're in a real trap. Yeah. >> Huh. >> Okay. >> Yeah. >> Interesting. Um >> and that has ramifications because if the yen gets really weak, then that puts pressure on the yuan because it's a competing currency. It's a regional comp, you know, uh they compete regionally for for products and if the yen goes down, the Japanese products become cheaper and so then they people buy Japanese goods instead of Chinese goods and so then it it it's all interconnected. >> Okay. Very interconnected. Okay, final few questions here. Um you host a podcast, so like >> I do. >> What's a question that interviewers don't often ask you, but they probably should. Like what would that question be? >> Ah, that's a good one. Um, probably the question that people should ask that they don't is what do I want to see happen? And and so and and the reason I ask that is I think people have a very big misunderstanding of what I want to see happen. >> Okay. What do you want to see happen? >> I I want peace and love and harmony, right? But and what and while I also want uh you know smaller government, I want uh more more individual liberty. But I think I get painted as this jingoistic American exceptionalist who um thinks the United States can only succeed and can never fail and that we're going to be this bright shining city on a hill forever. And I would like for us to be that. Um that's the ideal. Um, but I don't consider myself a jingoist. I don't consider myself an American exceptionalist. Um, I think the United States has many advantages. Some of them deserved, some of them undeserved. But the way the system is set up, I think, um, the United States just has a better hand than the rest of the world. And while I would like to see them play that out in a friendly way, I think they will do whatever they have to to stay there. And that's the difference between what I want to see happen and what will probably happen. >> Good question, Brent. All right. Um, what is something that's keeping you up at night that worries you? And then what's something that's making you hopeful or optimistic? >> Yeah. Okay. So, these are these are kind of both related. Um, so we talked about the fourth turning earlier. >> Yes. >> And I believe in the fourth turning. I think that is I was going to ask you that. Yeah. And and I think that that book and that concept has probably influenced my thinking as much as anything else. So um you know to the author I think he's a genius. He wrote Yeah. He wrote that almost 30 years ago >> 1997 >> and it's played out >> Yeah. >> amazingly accurate. So um you know big thank you to them for writ for writing that book. >> Um and I think the the the accepted no maybe that is I shouldn't say that. Maybe that's a little strong. But I think a lot of people view the fourth turning as is going to be the fall of the United States. They're going through their fourth turning and then it's either going to be the rise of China or the bricks or the global south and the United States is going to fall and they're going to rise. And I don't think that's what's going to happen. I think what's going to happen is more likely than not. I think what's going to come after the fourth turning is I think we're seeing the fall of the American republic and I think we're seeing the rise of the American Empire. >> Oh, okay. Big idea there. Wait, wait, wait. I'm not letting you go elaborate on that. On that. >> Yeah. So, you know, for a long time when I talked about the dollar milkshake there, I thought we were going to have this kind of grand conclusion and that would be really bad for the US or it would go good for the United States for a while and then it would go really badly and maybe the rest of the world would would do good. Um, I I it's not that that can't happen. Um but the evidence is starting to show me that what's more likely to happen is that what comes after that big whatever you want to call it um uh endgame is that the US probably remains in charge but it won't be the same type of a US. I think it will be more authoritarian. I think it will be more uh transactional. I think uh and and I I I will I've said this many times but people have heard me say this before but for people who have not heard me say this. There's a book called The Storm Before the Storm and Mike Green is the guy that got me to read this and I know you I know you've interviewed Mike Green. So ask him about this if if you talk to him again. So the book The Storm Before the Storm covers uh uh Rome from the year let's call it 130 to 60 BC. So about a 60 70 year period and the similarities between Rome during that time in the United States are it's just uncanny. They had political infighting, cult of personality, inflation, foreign wars, um >> currency debas, >> you know, currency all all of the everything that you see today in the world that the United States is dealing with, Rome was dealing with during that 60 or 70 year period. And so when I point this out to people, people, oh yeah, see, so that's in the United that's the United States is just like Rome and they're going to fall just like Rome. But the lesson from that book is it ends around 60 BC. But that's not when Rome fell. That's when the Roman Republic fell. But what came after was the Roman Empire. And the Roman Empire lasted for a long time. And so when I this gets back to kind of just hardcore real politic uh you know Game of Thrones power. Um the United States I believe has more resources than any other country in the world both economically and militarily. And I do not think that they will surrender their place in the world easily. And if it comes to that, I think they will use every tool in their whatever you know toolbox to stay there. And I think it's more likely that they get more power through all of this what's going on in the world than get less power. >> Do you think authoritarian on like a global stage or like authoritarian like our individual liberties here in the United States? >> Probably a little bit of both. Um that's what and now I don't like that right don't like that but you ask me what am I optimistic about I do think it's possible that even though this happens we see a period of great growth and and what I would the other thing I would say about that that book is it shows that that 60 to 70 year period there's definitely an arc that it's traveling but it goes like this right and there's pendulums there's periods within that overall time period where things go really well >> and I think maybe my prayer is that as this whole you know global competition starts to play out maybe there will be periods of time in there where great things happen and if if enough good things happen maybe it can keep the bad things from happening >> Brent let folks know where they can find and support your work and any parting thoughts and yeah I think follow you on social as well. >> Yeah so I'm pretty active on social media I'm on I'm on Twitter uh if you go to Sant if you type Santiago Capital and look for a white sea shell that's me um Santiago AU fund is the is the handle I do the milkshakes markets and madness um podcast on YouTube and then we have a research service where we put out a lot of different uh writings and thoughts and uh if you go to research.santiago Santiago Capitalap.com. You can find that there. And I think the the the the final parting thought I would give people, and I I've been saying this for a couple years, and I think the time period to do this is fastly disappearing. So do it sooner rather than later, is you got to find a community of people that you can trust and listen to and talk to about things that you disagree about. because if you try to figure this stuff out in the midst of the chaos, you're going to you're not going to be able to do it. But you're going to need to understand both sides of the issues in order to I think to understand what's really going on and to keep your sanity. So if you if if you don't have a community of people that you respect and like who disagree with you, I would try to figure out how to get one of those. >> Brent Johnson, founder and CEO of Santiago Capital, thank you so much for coming and doing this in person. This was awesome. So much fun. >> Thanks for having
Brent Johnson: The Investing Rules Have Changed — Power Now Matters More Than Economics
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Transcript
The thing that I find most surprising is the certainty with which people talk now. I actually feel like I have a pretty good understanding of what's going on cuz it's kind of related to what things I've been talking about for the last couple years. People speak with like such certainty of this is what's going to happen and then this is going to happen and there's no way that this can happen and I'm like how calm down everybody just take a calm down step back. Like I think we're in a world where anything can happen. Like literally anything can happen. Nothing's off the table. Hey everyone, welcome to another special in-person episode of the Julia Larose show with someone who has not been on the show in a while. We're joined today by Brent Johnson. He is the founder and CEO of Santiago Capital, a wealth management firm headquartered in Puerto Rico, host of the Milkshakes Markets and Madness podcast and founder of Santiago Capital Research. Brent, it's been way too long. It's so good to see you. >> It's great to be here. Thank you for the invite. Oh my gosh, you are one of the fan favorites of the show and I cannot believe we let it go this long without having you on. The last conversation we had was in 2024, so it's been a long time. >> Um, and since so much has happened and gosh, I feel like today we're recording the last day of the first quarter. A lot's happened in this quarter. The world maybe the world's completely changed. So, let's start big picture macro view for you today. The framework in which you're looking at the world, where are we? What's your assessment of the global economy, the domestic economy, markets? Um, what's been on your radar of late? And you can take all the time you need to set the table, Brent. >> Well, it's a it's it's a big question and it's a big it's an important one. And unfortunately, I feel like we're in a place where everything is changing and I think everybody kind of sens that. That's not some great insight of mine. Um, I think everybody now, you know, 10 or 15 years ago, you talked about the fourth turning and people say, "What do you mean?" And now you say the fourth turning, everybody's like, "Oh, yeah, of course." Right. And but that is kind of where I think we're at. And I think the world that I grew up in is over. And I hate saying that because I grew up in during a pretty good time, you know. But I think that world is over. I think in many ways, uh, you know, when I do these interviews and when I'm on social media and when I uh go to conferences, it's all finance related, right? Oops. Sorry. It's always always finance related. And you know, someone in my profession for the last 30 years, if you lived in the West, for the most part, you could take a look at an investment, do a spreadsheet, pencil it out, and if it made sense from an economic perspective, you could either invest in it or reject it. And I think those days are over. I don't think it's that simple anymore. You still have to do that but that's almost a secondary function at this point because I think now power matters more than economics and you know uh sustainability or uh national security matters more than efficiency and where you used to just search for whoever could produce the most important widget at the cheapest price and get it to you in the shortest period of time. Now you have to think about supply chains that are more secure. um trade deals that are with your allies as opposed to a potential foe and I think that changes everything and it makes it harder. Um it also creates incredible opportunity but I think that's where we're at from a very big perspective. >> Wow. Okay, you got my attention. You just said power matters more than economics. Can you explain that elaborate on that idea? >> Sure. So I've I've kind of jokingly but the great thing about jokes is when they have a little bit of the truth to them. But for the last several years, I've said that, you know, if you want to understand what's going on in the world, you're better off watching Game of Thrones than, you know, going to an economics class or getting your MBA. And I really do mean that. Um, you know, we are at a point in time where for 30 or 40 years, 50 years, the world was moving towards cooperation. It was globalizing, right? When I went to business school almost uh 25 years ago, that was the everybody wanted to do global business, international business because everybody was working together for the most part. There's always little regional skirmishes, but for the most part, the world was cooperating. Um, and that's a big that was a big trend, right? And that was a 30 40 year pendulum swing in one direction. But I think the pendulum has started to swing the other direction. And there will be, you know, periods of time where it maybe it goes back. But I think that by and large is going to swing the other way for several decades. And where it ends, I don't know for sure. But I know that when it moves that way and the world doesn't cooperate, even the smallest little problems become bigger problems. You know, when everybody's making money and cooperating, little problems, you just kind of push them aside. But when things get hard, the even the small problems turn into bigger problems. What are the signposts that you're seeing that are reinforcing this thesis for you? >> Well, I think today is a perfect example when, you know, President Trump goes on uh TV and says, you know, Europe, if you're not going to help us, then maybe we don't have to help you. Now, you know, 20 or 30 years ago, that was unheard of, right? But that's the world we live in now. It's very uh transactional. And some people blame this on Trump. I think Trump is a symptom. I don't think he's the cause. I I think he uh came to power because many people felt this way. Um and so, you know, things that you used to take for granted, you really can't take for granted anymore. I mean, my god, we're having, you know, verbal conflicts with Canada. I mean, Canada, right? Like, why are we arguing with Canada? But we are, right? And so, I but but I think that's I I think that's just an indication of a of a bigger swing. And I think many people like it, many people don't like it. Right? And that's what causes the conflict. Some people are trying to hold on to the world that was. Other people are trying to create a new world. And that creates tension. >> Okay? There's a tension. There's a conflict between the way the world was, the way it's becoming now. From an investor perspective, I imagine people probably get caught up in like the paradigm that they're used to, like what's worked before. Can you kind of take us inside like what that's like from the investing lens? Um what does that mean for investors like this change that's happening? >> Well, I'll give you a really simple example and this I say it's simple, it's actually very complicated, but one of the things that I am currently trying to think through is the fact that I believe that in the years ahead the the the the law of one price is gone. So the law of one price is a you know a commodity in Asia should trade at approximately the same price as it trades in Europe and as it trades in the United States. Now there is always going to be small differences but I think those differences are getting much bigger and I think they will continue to get much bigger. So when as I said earlier when you're looking at a project or looking at a potential investment and you're trying to pencil it out you do the cash flows or looking at the balance sheet and trying to make sense of it all. It used to be that you could just look at okay this is the price of the input how does that affect the bottom line but now it's not only what is the price of the input but where am I going to get that input and if I can't get it from the first place how much is it going to cost if I have to get it from the second place right and what happens if there's a tariff on the second place or there's a war with the second place right and so that's that's what I mean and it it just it it creates it creates uncertainty >> and markets don't like uncertainty >> and complexity itself >> and complexities right and and market you know markets will often climb a wall a wall of worry but they also don't like uncertainty and right now there's just great uncertainty and I I think you can see it in the markets and what I mean by that is the markets have kind of gone sideways for five months six months right um you know they had a huge runup last year they pulled back they went back up hit the ceiling again they pulled back and you know they rally again today and you know markets are down 10% for the year, something like that. But you would think it was down 30 the way people >> are reacting to it. And >> and I just feel like it's they they know there's uncertainty. They know something bad could happen, but they're also kind of preconditioned to buy the dip, right? Because there will be a reaction from central banks, there will be a reaction from governments, or at least they believe there will be. And um and so you know I I kind of find it odd that everybody is so bearish but the market's only down 10%. Or that the the the angst is so high and the market's only down 10%. >> That is kind of an interesting observation. The angst is so high the market's only down about 10%. It's been going sideways. So I guess my question is is there is that dangerous setup then that it's >> well this is the big conundrum, right? Um, I think that it's going to be very hard for the market to break through that ceiling between now and the midterms. Um, wouldn't shock me at all if we go back up to kind of those highs or or if we just go sideways for a while. But I think it's going to be very hard to break out of that, you know, sideways channel uh between now and the election. There's just too much stuff I think going on that can potentially send it lower. Um and so I would wait the market going sideways to low or higher than breaking out go to the upside. Now having said that I don't know for sure and I think so many people this is the other thing that I find I know I'm rambling a little bit. >> No you have to think about this show Britain is you can go as long as you like. >> Yeah. Well the thing that I find most surprising is the certainty with which people talk now. Um I actually feel like I have a pretty good understanding of what's going on because it's kind of related to what things I've been talking about for the last couple years. But I the last thing I have is certainty, right? Conviction and certainty are two totally different things. But I watch people go on other podcasts or your podcasts or I read stuff online and you know people speak with like such certainty of this is what's going to happen and then this is going to happen and there's no way that this can happen and I'm like how calm down everybody just take a calm down step back. Like I think we're in a world where anything can happen. Like literally anything can happen. Nothing's off the table. And as a result um you know I think uh that that that's my observation of the market is is the the high level of angst but combined with the high level of certainty >> is that >> those two shouldn't go together >> is that the conviction versus confliction that you write about >> that's related to that. Yeah. Yeah. >> Wait explain that. >> Okay. So this is the the conviction versus confliction is more of a personal thing but I guess you could also relate it to the market. So for me, I kind of view myself as a libertarian-minded person. I believe in the rights of the individual. I believe in small government. I'm to the certain extent, you know, I don't uh I I think people need to take personal responsibility and not, you know, have somebody else, you know, be responsible for them. But that's not the world I live in, right? And as an investor, I have to fight what I would like to see happen versus what I think is going to happen all the time. And that's hard, especially in in today's day and age where literally lives are on the line, right? Um, you know, I hate uh I hate violence. I hate war. Um, I think too often that's the method that governments use to try to solve things. Um, but it's also a fact of life and it's been going on for thousands of years. And so the idea that I'm going to write a blog post and everybody's going to read it and we're not going to have any more war and it's going to be peaceful and we're going to solve things nonviolently, that kind of flies in the face of historical record, right? So when I see stuff that's going on now, there's what I would like to see happen, especially for the world that I want my son to grow up in versus what I think's going to happen. And then how do I position um you know my own life and my own portfolio and my clients portfolios for that. And the other part of the confliction is if I was just managing my own money, it would be easier. But I manage money for other people and I have a fiduciary duty to try to grow their portfolio, protect their portfolio and grow it. And my clients don't necessarily have the same political views as me. they don't necessarily have the same um uh ethical constraints or what, however you want to define this, right? And they didn't hire me for my social views. They didn't hire me for my political views. They didn't hire me for, you know, trying to change the world. They hired me to protect their portfolio and try to grow it. And so the minute if I were to start putting my own, I don't know, let's just call it my own libertarian ideals into their portfolio despite the fact that I think those libertarian ideals are not going to play out, then I'm sherking my fiduciary responsibility to protect and grow their portfolio. So that's the conviction versus confliction, right? There's things I'm pretty sure are going to happen and I can position portfolios for that, but it doesn't mean I like it. I have to say though, I think it's quite refreshing to hear that because there's times where there's going to be trades that are going to pay that will be they might offend the way you want the world to be, right? >> Absolutely. >> So, it's refreshing to hear like I think sometimes people get so tied up with their individual politics and frameworks and they invest around like you said the way they think the world should be versus the way it is. I I think the perfect example of that right now and I've had a lot of discussions over the last week both personally uh you know in I'm sorry both in person and online of the whole thing with Iran right um you know I don't condone it. I would not have given the order to go. Um I think there's many many downsides that need to be considered but it's not but I I'm not the president. I don't give the order to go and the fact is the order was given to go. So, it's my job to kind of sit back and say, "Okay, what are the potential outcomes of this?" Right? And if you say these are the outcomes, and they're in any way positive, you immediately get attacked as a wararmonger or someone who supports genocide or someone who thinks, you know, bombs solve things. And my point is is that's that's the confliction versus the conviction, right? I mean the short answer is violence does solve problems sometimes. I don't like it but that's the history of the world. Like governments do attack other countries and governments do things that as an individual you might not like and that is how things get solved. And so if I analyze what's going on in Iran right now, I don't know how it's going to end. What the the the the big the big issue that I've tried to get people to think about is this goes back to the certainty. >> There are so many people that are certain that this is going to go horribly, that there was no plan, that these guys have no idea what they're doing. They have no idea what they're getting into. And I just think that that's kind of ridiculous that there is a plan. I actually know for a fact that there's a plan. That doesn't mean that the plan is going to go well. It doesn't mean there's not downsides. doesn't mean I agree with it. It doesn't mean that it can't blow up spectacularly in, you know, the US's face, but there is a plan. And the idea that uh, you know, you and I or people on Twitter, on social media understand that it's going to be really hard to invade Iran, but the people who have been studying this for 30 years don't understand this. It's it's it's arrogant to think that they don't understand this. And and so I think but it gets back to the certainty, right? They're just so certain that this is how it's going to end up. Um and the bottom line is like I said, I don't know what's going to happen, but I'm open to either side. Either I I'm open to their potentially it works out, right? Potentially it doesn't. It probably end up somewhere in between. Um but even that I think has ramifications portfolios because the bottom line is this has happened, right? The straight of hormones that everybody for a long time has known is a big issue is now the biggest issue in the world. And if it stays open, if it closes, if it stays partially open, if it partially closes, who controls it? That is literally the biggest issue in the world right now. >> Mhm. You have to think through those probabilities. What are the potential outcomes? It sounds like it might be hard. Is it hard to find conviction right now or do you have things that you do have some conviction on? So, I have some conviction in that I don't think and that I I already know how this is going to come across and that's why I'm kind of smiling. But the US is still the most powerful country in the world. Some people like that, some people don't like that. For the people who don't like it, if you say it, they immediately start arguing against it. Right? And I would say that regardless of what you think about the United States, who do you think is stronger, right? And it gets down to this relative game. And it doesn't put put the moral aspect aside because they're there. If you think they shouldn't have gone there, well, too bad. They did, right? And so I think that it will work out better than many people I interact with seems to think. Now, that doesn't mean it works out good. That doesn't mean that people don't get hurt. It doesn't mean that lives aren't lost. >> But I just think that the people um who say it can't possibly work out well are too certain in that view. I don't know whether it'll work out well, but I give it a higher degree of possibility than most people I interact with. >> Hey everyone, I hope you are enjoying this interview. If you can take a quick moment and hit that subscribe button, we are on a mission to hit our next goal of 100,000 subscribers and your support could really help us get there. Thank you so much and enjoy the rest of the interview. >> You mentioned like ramifications for portfolios and construction like >> what do you can you share some >> Okay, so so here's an example. Um perhaps this all ends peacefully going forward. No, it it hasn't been peaceful, but perhaps they come to some kind of a stalemate. Um they come to an agreement. Um and Trump says because you we've we've taken out your missile program, we've taken out your nuclear program, we're going to stop now, right? And as a result, the the straight opens back up and energy flows and uh fertilizer and chemicals, all that stuff starts flowing again. Well, even if it starts flowing right now, there's already going to be ramifications because a lot of the a lot of the um you know, a lot of time it takes 20 30 days for stuff that gets shipped through the hor the straight to get to where it's going. That is just now going to start happening, right? Because the it's been going on for almost 30 days. And so, as an example, Australia's having trouble getting diesel. their farmers are going to have trouble planting if they can't get diesel. So then that has effect on the the food prices. Not today, but six months from now when the crops didn't get planted or if they did get planted but now they can't get fertilizer, >> right? And so then six months from now when the crops don't come in to the same level as we're expecting, then potentially prices of food goes up, right? So that that's one example. Another example would be um perhaps it stays uh um the way it is now where certain tankers get through and certain tankers don't and as a result maybe the US says you know what we are not going to export anymore we are going to keep all of our energy for the United States in which case the price of energy in the United States goes down a lot because now we've got plenty yep >> because it's all staying internal but the price in Europe goes through the roof >> right okay so now the price in Europe goes through the roof What does that mean? Well, it means the governments in Europe are going to have to print more money to to to to buy that energy at a higher price. Well, what does that mean for the currency, right? Or maybe So, that's that's one implication. The other implication is maybe, you know, this ends up in a big uh uh maybe the war continues. Uh maybe other countries get drugged into it. Maybe the US has to do an emergency rate cut and start doing QE. And what does that mean, right? Um, I don't think that they would have to do that in isolation, but you know, who knows? But my point is is the every it's amazing what a little strip of land and ocean, you know, can affect every place on the world. And I don't think I I have conviction that this will work out better for the US than most people that I interact with, but it's not certainty. So you have to be prepared for all of the scenarios while having a bigger bet on one of them. Does that make sense? >> That makes sense. Let me ask a follow on then. Better for the US, but that makes me think like relative to the rest of the world. Yeah. Because I I mean that could impact relationships that we have or >> Yeah. >> Okay. This is interesting because this ties back probably to the big theme of looking at the world through power, right? Not economics. When I hear you talk about power, it makes me think of US China. >> Is there a US China story here with what's happening? >> Oh, it's all about US China. It's all about US China. It's that's what ultimately this is. So, at a very simple level, everybody knows there's this great power competition between China and the United States, right? The United States is a global hegeimon. China wants to become the global hedgeimon or at least an equal. um and um doesn't want to live under the US quote unquote system, global system. And right now there are things that they need from the United States and there's things that the United States needs from them. And so there's the probably the best way to explain is there's this uh prisoner exchange going on, right? We need rare earths and pharmaceuticals, which they've agreed to send to us. they need energy and they need uh you know high-tech uh chips and and and other systems and so we're exchanging those. But behind the scenes, everybody is furiously or each side is furiously working to become independent of the other. And once that happens, once one side becomes independent of the other, then they're going to stop the hostage exchange or the or the or the prisoner exchange. And then kind of all bets are off. And a big part of this is the technology race, you know, the AI. And there's a there's a belief that whoever wins the technology race wins the overall competition. And whoever wins the technology race in that overall competition then gets to you know design implement and run the the global technological architecture for the next I don't know 50 60 100 years right so it's a very very big deal but you cannot win the technology race without energy to power the technology right >> fascinating yeah we have energy independence >> we we are closer to being energy independent than probably anybody Russia obviously has has has pretty good energy and independence. Um but but but from the western perspective, clearly the United States is the most self-sufficient and by taking Venezuela offline, shipping oil to China and now potentially uh at least at a minimum um you know inhibiting the flow of energy through the state of Hormuz that goes to China. it that helps us in that China United States power competition. >> H it's kind of interesting. Yeah. >> There's a there's a there's a caveat here that I think is very important to understand is I think there's a when when you say there's this power competition between the United States and China. I think a lot of people interpret that to mean that one side wants to crush the other. But that's neither side wants to crush the other side. And and this is where it gets really interesting because if one side wanted to crush the other side, it would probably be easier to do than what they're trying to do. What they're trying to do is each side is trying to become dominant while letting the other one still um uh what's the right word to say? And not just survive, but uh but do well because and I'll use I'll just use Trump as an example, right? And but it actually works in reverse, too. The two things that Trump wants more than anything in the world is his face on Mount Rushmore and to be viewed as the, you know, architect of this global economic, you know, golden age. Well, you can't get your face on Mount Rushmore if China surpasses the United States under your watch, right? So, he doesn't want China to surpass the United States. But you also don't get your face on the front of the Wall Street Journal or the New York Times overlooking this great trade deal and and booming economy if there's a global financial crisis and the whole world is burning, right? And if China collapsed, that's horrible for the United States. And if the US collapsed, that's horrible for China. So essentially what they're trying to do is keep China in a box. They're trying to keep them successful, growing, contributing to the global economy without getting too big and without getting too dominant. That's actually much harder to do than to just crush them, right? Um and vice versa. You know, again, they don't want the United States to collapse because if the United States collapsed, their biggest customer goes away, but they would like to, you know, continue to rise, be a be an equal peer, and eventually surpass the United States. And so that I mean, that's essentially what's going on. And energy is a big part of that. Technology is a big part of that. And Iran is is a big part of that. >> Wow. It's so interesting to think about like the different chess moves, if you will, and how the board set. Um, >> can I just touch on that really quick because I I think >> the the famous saying over the last call it five years or 10 years is that China plays chess and the United States plays checkers. And then over the last month as this has gone on, there's a lot of people who have said, you know, explained that this is kind of the the goal of what the United States is trying to to achieve. And people say, well, Trump is not smart enough to play checkers or to play he's not he's not smart enough to play checkers, let alone play chess, right? So that that's a popular meme. And what I would say is from Trump's this is I mean he has basically said this for 40 years. This is not really chess. I mean he's he said 40 years ago that you know the straight of Hormuz is one of the most important places and if it was up to him he would you know take the oil back when they did the first Gulf War. Um he also said you know 30 years ago he never let Iran have a bomb and he would think that. So, and then in the national security document, national security strategy document that was released last November, um they specifically said in there that we are not going to let Iran, you know, achieve their goals of of of having, you know, nuclear power and and it's it's literally written in there. So the idea that this is like some 3D it's it's pretty it's pretty black and white really once you understand what's happening and the the idea again it goes back to the idea that there's not a plan. I mean this has been planned for 30 or 40 years. It goes all the way back to the you know Islamic revolution in the 70s. Um you know they and when that happened they took hostages >> and there was plans then how do we go in and get them? you know, they ended up using like a fake movie to get them out. The, you know, the movie Argo won the Oscar for telling this story, you know, 10 or 15 years ago. Um, and for a long time since then, this has been analyzed and planned and how would we do it? And it's really, really hard. And that's why it's never been attempted. They're attempting it now. Um, do they continue? Do they pull back? You know, I don't know. But the the idea that they just did this willy-nilly overnight and said, "Oh, let's just go try this." I mean, it's just it's it's it's naive. >> Like there's a lot of armchair quarterbacking on X. Like whenever there's a major event, you have a lot of people who are suddenly experts in the space. >> Well, then the other thing is like people will say, well, you know, they shouldn't be so cavalier with people's lives. So again, I agree. >> Mhm. >> But they are. >> That's the way the world is. as you power is the paradigm to look at and like >> it's just how it is. Yeah. Even though you can have the humanity be like that that those aren't my values but we're not the ones in charge. >> That's right. That's right. And you can work to make the world a better place. I'm not saying that you just have to accept the world as it is and you can never try to make it better. But the point I also like to make to people is that's if if you are trying to change the world. That's absolutely a fantastic goal and you have my admiration and my respect. But that's not the same as putting your hard-earned money that you've worked so hard for, slaved away at a job maybe you don't like to save for retirement, and then go make a bet that is very unlikely to pay off just because that's the way you want it to be. >> Okay. give me some insight without giving away everything like where where are you putting money? >> Well, >> I mean, you could give me everything, but I know you have a business to run, Brent. >> So, no, I'm being very careful, right? I think there's times to try to make money and there's times not to lose it. >> And which is also important to talk about, too. Yeah. >> I think like between now and the and the midterms, I think it's don't lose it. >> Capital preservation. >> Capital preservation. That's what Gunlock said when he was I think is very very important. Um, so we have a lot of short-term uh, T bills, um, you know, cash uh, substitute for lack of a better word. >> We still own gold. U, we've always owned gold. We think gold is very important. We think gold probably goes down and touches its 200 day moving average. Probably the same with silver, but that might actually present an opportunity to buy some, um, add some. >> What level would that be? >> I think that's around 4500 on gold. And I think silver it's around 57 or 58 >> where I don't know where we are. I know. So, I thought we were like 4,300 recently. Maybe I'm not. >> Yeah, we were. We went We went got down pretty close to it and then it bounced >> bounced back up. See, I stopped looking every day cuz you know I own gold, too. >> So, that's the thing is like we I mean I the first thing I do when I wake up in the morning is look at gold. That's been that way for 15 years. Just because to me that's a barometer. Yeah. If you wake up and gold's up 30 bucks, something's going on, right? And and vice versa. A little bit harder these days because the price has been fluctuating so much. But I don't really even though I look at it every I don't think about the gold price that much because gold's a strategic allocation. Um you know we own it for kind of long-term safety security. We will trade a uh in another part of the portfolio just from a tactical perspective. We'll trade it every now and then if we see an opportunity but the strategic gold holding doesn't really change that much. >> Um so you know having cash having gold uh short uh we do still have equities US equities. >> Okay. And I think everybody should have some US equities. I don't think you should just sell everything and just go sit on the sideline. Um, >> you're not buying into the rotation. Everyone is talking about this rotation out of US equities into non- US emerging market. >> To me to me that is it's not necessary. But it it also that's based on what my mandate is. So and and it's important to understand like when you see people debating what's the better thing, it it you need to understand what their mandate is and who they're investing for. So, most of my clients, uh, you know, they've been very successful. They've made a lot of money. Um, they're either in retirement or moving towards retirement. They've kind of won, for lack of a better way of saying it. They just don't want to give it all away. So, capital preservation is first, and then growth at at a respectable level of risk-taking is second, right? >> Makes a lot of sense. Yeah. >> And so, with that in mind, I think there's like four things that could happen in in the years ahead. The whole world could go down together. just disaster, right? In which case, doesn't matter if you're in the US or China or Africa, everybody's getting hurt. Um, and so I might as well just be in the US because it has more liquidity. >> The other thing that could happen is maybe this all gets better. Maybe, you know, peace breaks out in the Middle East and and in Europe and the technological revolution of AI, you know, is an innovation that allows us to grow greater than anybody thought and we grow out of this debt problem, in which case the whole world grows together. And in that scenario, maybe the rest of the world grows more than the United States. Uh but if the United States is growing too and if the you know if if emerging markets go up 20% and the US goes up 15 I can live with being up 15 and giving the five extra percent to somebody else. Um the other thing that could happen is the United States could do okay and the rest of the world could could do poorly or on a relative basis the United States outperforms the rest of the world. The other thing that could happen is the United States could go into a nasty recession and the rest of the world does okay. I think that last one is not impossible, but it's very very very close. >> So very, very low probability, >> low probability loss, >> very low probability that the United States goes into a big recession and the rest of the world does well. >> And so in three out of those four, I would prefer to be in the United States versus being in the rest of the world. And the fourth one, I think, is such a low probability that if I get it wrong, I'm willing to be wrong about it. And so all of our not I shouldn't say all 95% of our equity exposure as US equity because I think that is has the most liquidity. It's the most prepared to deal with some kind of a negative shock and I think it probably still has as good a growth potential as as anywhere else. >> Mhm. >> So I I I continue to subscribe to the whole, you know, you've heard me say the milkshake theory. >> Oh, we made it 30 minutes now. Talked about the dollar milkshake. But I do still think that that's where the capital will come. I do think that the United States will outperform the rest of the world. >> Um, and I don't I don't think it's over yet. >> Okay, this is amazing. I think this is probably the longest we've gone without someone asking. >> Thank god. Right. I shouldn't even have brought it up. >> Stop. Stop. Stop. That was my next question. Anyway, so the dollar milkshake theory. Um, >> for anyone who's new to the show because we've grown a lot. >> I need you to give it a quick recap on like what it is in plain terms and then I want you to tell us how it's held up. >> Yep. um in 2025 2026 especially since now we're 39 trillion in debt here in the US um >> yeah let's go so I started talking about this in kind of 2018 2019 time frame >> and at the time the dollar index was like 89 90 level and a lot of people were saying that the dollar as they always say you know the United States is going to fall versus the rest of the world all of this debt it can't continue you know we're going to have going to a to great depression etc etc and my thesis was there is a lot of debt in the world it's a problem it's probably going to lead to a sovereign debt crisis and what will happen is interest rates will rise um because of all the debt as interest rates rise the dollar will get stronger versus foreign currencies not get weaker um as capital flows into the United States dollar it won't just want to sit in the cash it will then find its way into the US stock market the US stock market will go higher And but we're also going to be in a great time of uncertainty and countries around the world are going to be printing more money. So gold will go up as well. Um so if you look back from 2018 till now um interest rates have gone up which was part of it. Bonds would go down which was part of it. US equities have gone up tremendously which was part of it. Gold has gone up even more which was part of it. And the dollar is 10% higher than it was at that time. I mean the the DXY is over 100 right now or at 100. And so it has the the thing that didn't happen is we did not get the sovereign debt crisis. So it's funny it was kind of predicated on a sovereign debt crisis would cause all these things to happen. And we got really close in 2022. Um and we've gotten you know a couple other you know Japan's having trouble right now. Uh you know some peripheral you know European countries are having trouble but we haven't had the fullon sovereign debt crisis >> yet though. I think it is a yet but in that time period massive amounts of capital have flown in from around the world in the United States and it's not even close. Uh it it's received much more capital than the rest of the world. So the framework has helped me incredibly understand what's going on in the world and why it's happening. Is it perfect? No, it's not perfect. But I think it does as good a job as anything else of explaining the last five or six years. >> Yeah. Okay. The name um I started watching the movie where the guy takes the he's going to take the straw drink that Okay. That's where it comes from. The newbies who don't know the name. >> Yeah. Sorry, I I should have said. >> Oh my gosh. I should I can't remember the name of the movie. >> So, the name is There Will Be Blood. Yes. >> It's about this ruthless oil executive who's, you know, buying up all this oil land. And this one person is trying to get the oil baron to buy his land. And he says, "If you buy my land, you can have all the oil underneath it." And he says,"I don't really need to buy your land because I have a straw that I can stick down on my side of the fence and I can suck up all the oil that's on your side of the fence through the straw that's on my side of the fence." And he says, "I'll drink your milkshake." And that's kind of how I that's that's the analogy I used for the United States is the United States has the biggest straw. The whole world's going to print more money and the United States is going to end up sucking that money up into the United States. And while these things might seem I don't know if I want to say good but like you know decent for the United States I guess it's not a happy story per se. >> Well I think it ends badly. Okay. >> Um we have a lot of debt. The United States has a lot of debt. The whole world has a lot of debt. Um, and here's here's the funny thing is despite all the problems the United States has, it still attracts the capital from the rest of the world. Um, and that's a good thing. You want money to flow toward you. Whether you're an individual, whether you're a company, whether you're a country, you want capital to flow toward the the nightmare happens when capital leaves. Yeah. And you have no liquidity. So the idea that you would prefer capital to be leaving than coming in is it's just ridiculous, right? So, of course, you want the capital going in. I think what probably ends up happening is that this ends in some kind of a big blowoff top where, you know, equities go much higher, gold goes much higher, the dollar goes much higher. Um, and eventually something will have to be reset. Maybe it breaks. And when it breaks or when it gets reset, then all that capital will leave and go back to the rest of the world. And that's probably not a good thing when that happens. Hopefully that doesn't happen for a long time. >> Hope it doesn't happen. But yeah, I mean >> 39 trillion, we're going to be at 40 trillion soon. >> So it's funny whenever I see these numbers and people say this is a, you know, it's projected to go to 100red trillion or two. I always say I'm going to take the over. It's going to go higher than everybody thinks. >> Yeah. >> And I happen to believe it's not that I don't think it's a problem. I think it is a problem. But I think it's going to be able to go higher for longer than most people >> before it becomes like a real problem. So that doesn't mean you should ignore it. It doesn't mean it's not an issue. It doesn't mean I can't be wrong. But I just think that that number can get a lot bigger than many people think. >> Is that another reason why you want to own gold is because >> Yeah. Yeah. Absolutely. >> You know, gold seems like years ago was a bit of like a fringe thing and now it's like much more widely accepted. I've owned gold since 2011, which is not the best time to get in. I'm not going to lie, but I didn't sell it. So now I'm happy. >> You were two years too early, right? August of 2011 was like, "Oops, that was a >> Yeah. Yeah. It's all right. We all did that. >> It's all right. I just, you know, don't look at your statements. That's what I would say." Um, okay. There's a topic I need to cover with you because we get a lot of questions on this and I I put this in my two hard pile for me personally. So, stable coins, they've been exploding globally, dollarizing large parts of the world. You talk a lot about stable coins. Um, what is your take there? And does this also tie back into the dollar milkshake theory? >> It it does. Um, and stable coins are a great topic for a couple of reasons. One is uh it shows how I totally missed it. >> What >> and I'm I'm I'm happy to tell people how I got it wrong. >> Um, and I think there's a lesson that I've I've learned in getting it wrong. Um, and I think too many people are overlooking their potential. So, let me unpack all of that. So stable coins are not really new. They've been around for 10 years, nine years, somewhere nine or 10 years. And the original stable coin, I think it was the original coin. It was called Tether, right? And it's now it's the by far the biggest. And when it first started off, I had people showing it to me and say, "Hey, this is pretty cool. It's kind of, you know, it's kind of like a Euro dollar, but it's in the digital form." And I took a look at it and, you know, took a look at the company and I just didn't really like the company, right? and the people running it I thought uh were less than ideal. Um went down the rabbit hole a few different times and just ultimately decided that you know oh and then I also thought at the time that if the US government wanted to squash it >> they could they could do a good job of they couldn't necessarily kill it but they had a lot of tools that they could use to to keep it from growing. Um, and so I kind of just kind of put it aside and I I always knew it was there and I always kind of looked at it but I didn't focus on it. And then a couple years ago it started getting more um news about it and they started talking about this genius act and it came out that the United States passed this genius act where they for the most part blessed stable coins. I was like why the why are they blessing stable coins? So then I had to go back down the rabbit hole again. And what I realized was that I had done a good job of understanding the company, but the conclusion I came to about the people running it clouded my vision. I got emotional about the company and that affected my ability to think rationally about the technology. And so whereas I dismissed the whole company, I should have said, "Wow, that's a pretty cool technology. It's pretty it's pretty uh robust. It's pretty uh efficient." And so what has happened is the I think that the United States government has said, "You know what? We can co-opt this private market innovation into our official way that we use dollars and we can use it as a geopolitical tool." And so what I think's going to happen is essentially stable coins are a way to electronically send dollars, you know, outside the traditional banking system. And so I think what's going to happen is as that market grows, the United States is going to essentially control that new market more than any other regulatory body. And I think at some point they will start wanting to get paid do, you know. So, as an example, I know I'm kind of rambling. >> No, no, keep going because I I'm a newbie here. >> If if if you do business with the US government, they you know, they send you a payment by a Fed wire. Well, what if they sent you a stable coin instead? Now, you have a US dollar stable coin. What are you going to do with it? Well, you're going to spend it or you're going to send it to somebody else that will accept a US dollar stable coin. And that doesn't take too long before everybody now starts using stable coins because the US government is the biggest spender in the world, right? And if you get paid in those stable coins rather than Fed wire or rather rather than a check or whatever it is, and and it's simple, it's fast, it's efficient, it's cheap, I think it's a way for this new system to um entrench the dollar more than it ever has been before. And this becomes espec this isn't so important in the United States. We don't really worry about the dollar in the United States. Now I know people are saying oh but inflation the dollar is losing value. Yes fiat currency is designed to lose value. Yes. Why you own gold? That's why you invest. It's why you don't just put your money under the mattress. But aside from that the US dollar is the strongest fiat in the world is what we just talked about how the dollar has gone up against all the other fiat currencies. And so countries, citizens in other countries would love to hold dollars versus holding their local currencies. You know, whether it's Egypt, whether it's Turkey, whether it's Australia or Argentina, Brazil. Um, you know, much of Venezuela's economy was already dollarized using Tether um over over the last couple years. And so, here's the thing is once a government loses control of the money, they tend to lose total control. I mean, that's why governments control money is it's the biggest tool that they can use to control the populace. If the populace rejects the local currency, the government typically is close behind as far as being rejected. And so, as this dollar stable coins proliferate around the world, it starts to steal sovereignty from the local governments and it gives the United States a way almost to apply sanctions on a voluntary basis. on a voluntary basis. What do you mean by that? >> What I mean is that the citizens around the world will voluntarily choose dollars over their local currencies. Okay. Yeah. >> And it's a way to circumvent the traditional banking system because let's just use Turkey as an example. >> Let's say that you're a Turkish merchant and you want to hold dollars. >> Well, you have to find a bank in Turkey that will allow you to hold dollars and then you have to hold most of the dollars in the bank. If there starts to be a crisis, you now have to get in line to get your dollars out of the bank. Or maybe they just turn it off and say you can't get your dollars out of the bank. Maybe they take the dollars for themselves. But if you have a stable coin, you just push a few buttons and you've got you've got it, right? >> Oh, that's so interesting. Okay. >> You don't have to go stand in line to get the to get the cash. >> Okay. Is there any possibility because this has happened during this administration. Um, can it is there a risk it can get reversed as administrations change? I'm talking about like a new poly in power or something. >> I think it can. It could. Um, and I think this administration for the most part has embraced them more than the previous administration. But I would also say that there's a deep state aspect to this as well that doesn't change all the time, right? And the U, regardless of whether you're a Democrat or a Republican, you want to have the strongest tools in order to govern. And I think when it doesn't matter who's in power, when they realize the power of stable coins, the last thing they would want to do is give that power away. So I they might not embrace it to the same extent that the current administration is, but I don't think they would give it away. >> Does this also get confused with CBDC's? >> I think that's what it is. I mean, it's it's essentially a CBDC. Yeah. And this is okay. So, this this brings up another thing that the the thing I've been looking at a lot is >> and I've said this I might have said this on your your show a couple years ago, >> and it's amazing how long it takes for these things to play out, but it's it's starting to play out a little bit is that uh I felt for a long time that the Treasury and the Fed were going to come into conflict >> and and I thought there would be some kind of a merger between the two or the or some kind of the the Treasury would get greater control over over the Fed. And I think to a certain extent that has started to happen. Um, with Worsh coming in, maybe they're going to cooperate a little bit more. But, you know, for the last several years, the Fed and the Treasury have kind of been in conflict as opposed to working handinand glove. And from an from a nonofficial perspective, central banks are there to support the government at the end of the day. That's why they were created. Um, and so the idea that central banks are independent, I think, is >> a farce. >> It's a farce, right? Um, now, do they have autonomy? Yes. Do they can they operate on their own and make their own decisions? Yes. But if things get really serious, the government can write a new law and they're gone, right? And so I think with the the reason the reason that the the the Fed has had a pretty good track record in their opposition to the government o over the years is because they are the distribution arm. The banking system and the Fed is the distribution arm for the US government. In other words, to sell bonds, you need banks to sell them to the clients, right? And the United States doesn't have its own bank. So when you send checks to the Treasury, you're essentially sending them to an account at the Fed that the Treasury has. So they need the banking system and they need the Fed. The government does. But with a CBDC or with a stable coin, you don't really need the Fed anymore because you can just distribute to people individually. You don't need to you don't need to go through the institution of a bank to do it. >> Fascinating. So, it gives the government uh another arrow in their quiver. >> Yeah. >> This is so interesting. Again, >> it's fas honestly, it's fascinating. >> You can go down a real rabbit hole in this one. >> Yeah. And the other thing I'll say, too, is like I love this stuff and I'm interested. I I don't have it completely figured out, right? like I I find it really interesting and I'm doing my best to kind of, >> you know, >> well, you're helping >> go through the weeds and figure out, but there there are so many little intricacies of this >> that it's it you can kind of get lost sometimes. >> Yeah. Okay. Um, speaking of the Fed, um, any I mean, how much does the Fed matter to you? Do you have I mean, we're have a Fed meeting at the end of the month. Are you expecting a cut, a hike? Like I've heard divergent views from guests or hold steady. I it's a I think it really a lot of it will I think will relate to what goes on over the next couple weeks with with Iran. Um if we see I mean here's the here's the here's the problem is some of the things some of the problems as a result of Iran could they be exacerbated by a Fed cut. Some of them could be helped by a Fed cut. So they're kind of in this place where so as an example I'll just give if if if we're starting to see higher prices in energy and food and they cut interest as a result of the horror moves and then they cut interest rates which should provide more liquidity. You could see those prices rise even more right. But the flip side is that if energy prices are high that actually starts to create demand destruction and the inputs are so high these companies start to fail in which case liquidity disappears in which a rate cut would be helpful because it would provide more liquidity. >> Yeah. >> So I'm not sure what they will do. I my guess is I think they're just going to stay. I don't think they're going to cut or raise. Some people have actually started to talk about raising. >> Oh Jeffrey Gunllock said that Yeah. He said uh the Fed follows the two-year >> Yeah. and the two-year yield and um he said looks like maybe a rate hike. >> Yeah. I don't think that they were gonna hike. >> Yeah. >> Um but the you know somewhat related to this is I've I've been doing this for how long have I been doing this for now? long think 25 years, 26 years. And every new central banker, every Fed chairman that has come in since I've been in business. Well, first of all, Greenspan was already there, but he had a crisis to deal with. But then every subsequent Fed chair, Bernaki, Yellen, Powell, they all had to deal with a crisis within their first year. >> And so now we have Worsher who, you know, maybe Wars won't even get in, right? you know, Trump's even dropping a few, you know, but >> I I think it's very possible that whoever ends up getting into that chair in May has to deal with a crisis by, you know, November or December. >> Okay, wait a second. I'm not letting you go before that. What do you mean? Like, what kind of crisis are you thinking? >> Well, I mean, there's so many things, right? I mean, maybe Iran continues uh to last and maybe maybe that lasts a year or two. Um, you know, we've still got a war in in in Europe that they're having to deal with. The yen is at 160 and potentially going higher. they they I mean that can lead to many many problems and China continues to you know struggle with their deflationary pressures. I mean and the thing is once one thing happens it can domino into something else. >> Okay. What's the deal with Japan? Like what why does that this comes up sometimes on the show but like is that like the canary in a coal mine? Like what is it seems like important but what's Yeah. >> So the the the yen I mean they've got so many problems over there. So essentially what's happening is the yen has lost 60% of its value versus the dollar in the last three years. That's or four years. Three or four years. >> Yeah. So I think it was at >> I guess it's four years. At the beginning of 2022 the yen was like at 100 and now it's at 160. So it's lost 60% of its value versus the dollar in the last four. And that's an enormous move for a currency any currency let alone the second or third biggest currency in the world however you want to measure that. The reason it's lost so much values is they have had to they've had to continue doing QE, right? And they've put more and more yen into the system. The reason they have to do that is because they issued so much debt when interest rates were zero that if interest rates rise the bonds lose value and their whole banking system, insurance companies, pension funds that bought all these JGBs, all of a sudden their uh >> oh their their their balance sheets are upside down. But they're also having uh but if you don't raise rates then the currency loses value, right? And so they can't really raise rates too much because then the the Japanese government bonds collapse. >> But if they don't raise rates, then the yen collapses and so we're seeing the real trap there. >> So So they're in a real trap. Yeah. >> Huh. >> Okay. >> Yeah. >> Interesting. Um >> and that has ramifications because if the yen gets really weak, then that puts pressure on the yuan because it's a competing currency. It's a regional comp, you know, uh they compete regionally for for products and if the yen goes down, the Japanese products become cheaper and so then they people buy Japanese goods instead of Chinese goods and so then it it it's all interconnected. >> Okay. Very interconnected. Okay, final few questions here. Um you host a podcast, so like >> I do. >> What's a question that interviewers don't often ask you, but they probably should. Like what would that question be? >> Ah, that's a good one. Um, probably the question that people should ask that they don't is what do I want to see happen? And and so and and the reason I ask that is I think people have a very big misunderstanding of what I want to see happen. >> Okay. What do you want to see happen? >> I I want peace and love and harmony, right? But and what and while I also want uh you know smaller government, I want uh more more individual liberty. But I think I get painted as this jingoistic American exceptionalist who um thinks the United States can only succeed and can never fail and that we're going to be this bright shining city on a hill forever. And I would like for us to be that. Um that's the ideal. Um, but I don't consider myself a jingoist. I don't consider myself an American exceptionalist. Um, I think the United States has many advantages. Some of them deserved, some of them undeserved. But the way the system is set up, I think, um, the United States just has a better hand than the rest of the world. And while I would like to see them play that out in a friendly way, I think they will do whatever they have to to stay there. And that's the difference between what I want to see happen and what will probably happen. >> Good question, Brent. All right. Um, what is something that's keeping you up at night that worries you? And then what's something that's making you hopeful or optimistic? >> Yeah. Okay. So, these are these are kind of both related. Um, so we talked about the fourth turning earlier. >> Yes. >> And I believe in the fourth turning. I think that is I was going to ask you that. Yeah. And and I think that that book and that concept has probably influenced my thinking as much as anything else. So um you know to the author I think he's a genius. He wrote Yeah. He wrote that almost 30 years ago >> 1997 >> and it's played out >> Yeah. >> amazingly accurate. So um you know big thank you to them for writ for writing that book. >> Um and I think the the the accepted no maybe that is I shouldn't say that. Maybe that's a little strong. But I think a lot of people view the fourth turning as is going to be the fall of the United States. They're going through their fourth turning and then it's either going to be the rise of China or the bricks or the global south and the United States is going to fall and they're going to rise. And I don't think that's what's going to happen. I think what's going to happen is more likely than not. I think what's going to come after the fourth turning is I think we're seeing the fall of the American republic and I think we're seeing the rise of the American Empire. >> Oh, okay. Big idea there. Wait, wait, wait. I'm not letting you go elaborate on that. On that. >> Yeah. So, you know, for a long time when I talked about the dollar milkshake there, I thought we were going to have this kind of grand conclusion and that would be really bad for the US or it would go good for the United States for a while and then it would go really badly and maybe the rest of the world would would do good. Um, I I it's not that that can't happen. Um but the evidence is starting to show me that what's more likely to happen is that what comes after that big whatever you want to call it um uh endgame is that the US probably remains in charge but it won't be the same type of a US. I think it will be more authoritarian. I think it will be more uh transactional. I think uh and and I I I will I've said this many times but people have heard me say this before but for people who have not heard me say this. There's a book called The Storm Before the Storm and Mike Green is the guy that got me to read this and I know you I know you've interviewed Mike Green. So ask him about this if if you talk to him again. So the book The Storm Before the Storm covers uh uh Rome from the year let's call it 130 to 60 BC. So about a 60 70 year period and the similarities between Rome during that time in the United States are it's just uncanny. They had political infighting, cult of personality, inflation, foreign wars, um >> currency debas, >> you know, currency all all of the everything that you see today in the world that the United States is dealing with, Rome was dealing with during that 60 or 70 year period. And so when I point this out to people, people, oh yeah, see, so that's in the United that's the United States is just like Rome and they're going to fall just like Rome. But the lesson from that book is it ends around 60 BC. But that's not when Rome fell. That's when the Roman Republic fell. But what came after was the Roman Empire. And the Roman Empire lasted for a long time. And so when I this gets back to kind of just hardcore real politic uh you know Game of Thrones power. Um the United States I believe has more resources than any other country in the world both economically and militarily. And I do not think that they will surrender their place in the world easily. And if it comes to that, I think they will use every tool in their whatever you know toolbox to stay there. And I think it's more likely that they get more power through all of this what's going on in the world than get less power. >> Do you think authoritarian on like a global stage or like authoritarian like our individual liberties here in the United States? >> Probably a little bit of both. Um that's what and now I don't like that right don't like that but you ask me what am I optimistic about I do think it's possible that even though this happens we see a period of great growth and and what I would the other thing I would say about that that book is it shows that that 60 to 70 year period there's definitely an arc that it's traveling but it goes like this right and there's pendulums there's periods within that overall time period where things go really well >> and I think maybe my prayer is that as this whole you know global competition starts to play out maybe there will be periods of time in there where great things happen and if if enough good things happen maybe it can keep the bad things from happening >> Brent let folks know where they can find and support your work and any parting thoughts and yeah I think follow you on social as well. >> Yeah so I'm pretty active on social media I'm on I'm on Twitter uh if you go to Sant if you type Santiago Capital and look for a white sea shell that's me um Santiago AU fund is the is the handle I do the milkshakes markets and madness um podcast on YouTube and then we have a research service where we put out a lot of different uh writings and thoughts and uh if you go to research.santiago Santiago Capitalap.com. You can find that there. And I think the the the the final parting thought I would give people, and I I've been saying this for a couple years, and I think the time period to do this is fastly disappearing. So do it sooner rather than later, is you got to find a community of people that you can trust and listen to and talk to about things that you disagree about. because if you try to figure this stuff out in the midst of the chaos, you're going to you're not going to be able to do it. But you're going to need to understand both sides of the issues in order to I think to understand what's really going on and to keep your sanity. So if you if if you don't have a community of people that you respect and like who disagree with you, I would try to figure out how to get one of those. >> Brent Johnson, founder and CEO of Santiago Capital, thank you so much for coming and doing this in person. This was awesome. So much fun. >> Thanks for having