Brent Johnson: The Demise Of The Dollar Will Take Longer & More Surprising Turns Than Many Expect
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According to Truflation, the US dollar has lost nearly 25% of its purchasing power since January of 2020.
Many everyday Americans struggling to pay their monthly bills may argue that's an understatement.
What the US dollar does, vs real things as well as vs other national currencies, has very real implications -- economically, financially & geopolitically -- for everyone watching this video, regardless of where you live.
For a better sense of what it's likely to do from here, we're fortunate to speak today with Brent Johnson, CEO & Portfolio Manager at Santiago Capital, and developer of the Dollar Milkshake Theory.
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The dollar milkshake theory predicts a multi-year crisis transition driven by global dollar debt dynamics, where the US dollar initially strengthens relative to other currencies as capital flees to the safest option, before an eventual monetary system transition that will likely be economically volatile and potentially militarily violent, requiring investors to focus on risk management rather than betting on extreme outcomes.
- Rest of world owes more dollars than the US does, and lacks ability to print dollars to service that debt, making dollar strength deflationary for them during crises
- Transition from current monetary system to new system will not be peaceful or happen quickly, likely occurring over years to decades rather than months
- Current market extremes (all-time highs in stocks, gold, Bitcoin, near-zero VIX, tight credit spreads) combined with multiple geopolitical and political triggers create conditions for sharp drawdowns despite near-term strength
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Asset prices rise over time for two primary reasons: humans are innovative and develop better ways to do things (productivity growth), and fiat currencies lose value (debasement), so even without productivity gains, asset prices denominated in depreciating currency would rise.
“one of the reason people invest is over time you know humans are typically Innovative and come up with better way to do things and and that produces economic growth and and as as a result asset prices rise but the other reason asset prices tend to rise is because current fiat currency tends to lose value and that includes the US dollar”
If you are participating in markets and want to profit from different asset classes, you must understand the relative levels of fiat versus fiat currencies, as this is probably the single most important variable in global finance—getting it wrong makes it hard to get the rest of your portfolio right.
“currency versus currency or Fiat versus Fiat is probably the single most important variable in global Finance if you get the dollar versus other Fiat wrong it's hard to get the rest of your portfolio right it's not impossible but it's hard”
The dollar milkshake theory is a framework for understanding how a sovereign debt and currency crisis will play out, not a prediction that everything will collapse in 6-12 months, but rather a multi-year or decade-long process where interest rates rise, bond prices fall, the dollar strengthens relative to other currencies, US equities outperform global markets, and gold rises—all driven by the mechanics of a debt-based monetary system and relative currency movements.
“the dollar milkshake is essentially a framework for how I see a sovereign debt and currency crisis playing out”
The rest of the world owes more US dollar-denominated debt than the US does, and unlike the US, most countries cannot print dollars to service that debt, which means when the dollar strengthens, it makes their debt burden heavier and creates deflationary crises in those economies while the US has relative advantage.
“what most people don't know is that the rest of the world owes even more than that in dollars and and they don't owe it to the United States they owe it to each other so the debt problem that the United States is facing is also being faced by the rest of the world the difference and often times are worse right because they and often times worse they don't have the ability to print dollarss and E their debt burden”
The biggest mistake investors make is allocating their portfolio based on what they want to see happen in the world rather than what they objectively believe will actually happen, leading to poor outcomes when reality diverges from hopes
“I think it's important to understand you know an analyzing something doesn't mean that you agree with something or disagree with it it just means you recognize it for what it is and again I I think it's important to understand you know an analyzing something doesn't mean that you agree with something or disagree with it it just means you recognize it for what it is and again I I think a lot of times this this is this is one of the bigger mistakes that I see people make is they will allocate their portfolio in a way based on what they want to see happen rather than just being really ruthlessly you know objective about it and figuring out what's actually going to happen”
In a debt-based monetary system, money supply must grow to function, and as money supply grows, fiat currency loses purchasing power over time—this is inherent to fiat systems and not unique to the US, but occurs everywhere fiat currency is used.
“the monetary system is a debt based system and so in a debt based system it has to grow and as the money supply grows typically fiat currency loses value that's kind of a Harbinger harbinger of of fiat currency and that's not unique to the United States”
Johnson's biggest lesson from his career is the distinction between trying to change the world (which may require taking on risks and positions based on what you want to happen) and making money in a portfolio (which requires ruthless objectivity about what will actually happen, not what you want to happen).
“if you're trying to change the world and I think that's a hugely you know important and you know honorable goal to have but if you're trying to make money in your portfolio I think the goals are a little different and what I mean by that is if you're trying to change the world then you have to do and maybe take some risks and do some things that are are not uh or what you want to see happen as opposed to what maybe you think is going to happen and you're trying to change things but when you're betting your hard-earned Capital you have to kind of remove your personal wants and desires out of it and just try to analyze it and figure out what's actually going to happen”
Rick Rule taught that in the natural resources space, one will either be a contrarian or a victim; this means being contrarian not just versus the world but within the natural resource industry itself, selling when sentiment is extreme and positioning gets one-sided, even if the overall thesis will eventually be right.
“he said if you're going to invest in the natural resource space you will either be a contrarian or you will be a victim and what it took what it took me long and that that's a pretty easy to understand concept and and I thought because I was invested in natural resources and the typical person isn't that I was being a contrarian it took me a long time to realize that it didn't just mean a contrarian versus the rest of the world it meant a contrarian [1:00:49] within the natural resource World itself”
COVID kicked the can down the road on debt problems because countries were cooperating globally and willing to coordinate policy responses, but this coordination is no longer happening as geopolitical confrontation increases, globalization retreats, supply chains separate into two blocs, and trade lines are drawn—making future debt problems harder to resolve through coordinated action.
“I think it's because at the time the US was still largely not as much as maybe five or six years prior to that but at the time was still cooperating there wasn't as much geopolitical um confrontation uh there wasn't as much uh domestic uh confrontation and the world was in general a a a nicer and happier place and a and as a result as they were faced with this Global pandemic they largely cooperated and worked together to try to solve the problems”
The transition from the current monetary system to a new one will not happen peacefully—it will likely be economically volatile and possibly militarily violent, as power systems and regimes typically do not willingly give up power and will use all available tools to protect their interests.
“I think this transition that many people foresee from the current monetary system to another monetary system will be not only economically V volatile I I think it will probably be militarily violent because that's typically what happens”
People without professional help making investment decisions should work with a professional financial adviser, and advisers should take macro considerations (like geopolitical risks and system-level dynamics) and risk management techniques (like hedging) into account when constructing portfolios.
“the vast majority of people watching these videos unless you've got a a really good track record of being a successful do-it-yourself investor already uh you should work under the guidance of a good professional financial adviser but really importantly one that takes into account all the macro issues that Brent and I and the other guests on this channel and I talk about um and um uh you know employs a lot of the the um risk management elements that that Mike and I have referred to here”
Central banks and governments are extremely powerful and can do many things to prevent crises, but they are not infallible—just because they don't want a crisis to happen doesn't mean it won't happen, as demonstrated by the 2008 financial crisis occurring right before the election.
“central banks monetary authorities governments they're extremely powerful and they they can do a lot of things but they are not infallible and just because they don't want something to happen doesn't mean that it won't”
Having a long-term time horizon and liquidity from sources outside your portfolio can allow you to ride out hard asset price declines and benefit from long-term appreciation, but this doesn't mean you won't experience severe temporary drawdowns along the way—and many people don't have the discipline to stay the course during those drawdowns.
“if you have a long-term time Horizon and if you have liquidity from another source other than your portfolio that is true but that also but that doesn't mean you won't experience very hard draw Downs along the way”
The US has geographic advantages that make it more self-sufficient than any other region in the world: it's not currently self-sufficient but has the potential to be more so than any other country, with abundant natural resources per capita, two major oceans for protection, and friendly neighbors, giving it an 'attractive attribute' in the coming transition period.
“because the system is designed the way it is and because the United States for whatever reason whether it's again Manifest Destiny or just luck of the draw from a geographic perspective um you know it is it it can be largely self-sufficient it's not [16:08] currently self-sufficient but it has the potential to be more self-sufficient than any other region in the world”
You can move from inflationary conditions to deflationary conditions very quickly (described as the difference between climbing stairs up and falling down an elevator shaft), and this speed of transition is partly due to the design of the monetary system itself.
“that is why you can go from a situation that is inflationary and fine to a situation that is deflationary and not fine very very quickly it's the whole you know elevator up or or or or you know stairs up and Elevator Shaft down right you climb you climb you climb you climb and then all of a sudden you give away all the gains in three days or whatever it is um that's partly due to the design of the monetary system”
People expecting a single catastrophic event within 6-12 months are wrong; this will be a process unfolding over years, with multiple market cycles, pullbacks, consolidations, and eventual hard drawdowns, analogous to Game of Thrones running for 7-8 seasons rather than a single climactic episode.
“many people think we're going to have this really big event sometime in the next six months to a year and then it's all going to be over and we're going to be on to the next thing Y and just so you know that's exactly why I'm asking this question is to give you a chance to dispel that if that's true yeah so I think that's totally wrong I I think what I am describing again when I first started talking about this I said I thought in the next three to five years it would happen and it didn't and and I'm now saying I think it's going to happen in the next three to five years”
The primary goal for Johnson and his clients, and what he thinks should be the goal for most people, is to 'survive and advance'—get on base, don't strike out, make progress—rather than hitting home runs every at-bat, because those who swing for the fences every time will eventually strike out badly while steady performers will accumulate over time.
“the number one goal for me and my clients and what I think should be the goal for most people is survive in advance again I don't think you need to hit a home run every time you step up to the plate just get on base just don't strike out just kind of make progress”
Human beings almost never have the emotional fortitude to sell on the way down during a crash; instead, they hope for a rebound, stop looking at statements, and suffer maximum losses; this is why selling into strength on the way up is a more realistic strategy than trying to exit at the right time during a crisis.
“what makes you think what makes anyone think that they've got the emotional fortitude to sell on the way down I'll tell you nobody does almost nobody in my [1:12:40] experience”
Many people have 60-70% of their portfolio concentrated in gold or hard assets, which is a huge position that, while it may work out, is also very risky because of concentration risk regardless of how much conviction you have in the thesis.
“I talked to a lot of people who you know they understand this about Fiat currencies they understand it Lo loses value and IAL and they've got 60 70% of their portfolio in gold or you know hard assets of some kind and that is a huge position you know I'm not I'm not saying it won't work out but it's very risky as well any kind of concentration in any one thing is risky regardless of how much conviction you have”
The dollar milkshake thesis was never meant to imply the US dollar is a good currency or that the transition would be good for the United States; rather, it argues the dollar will be relatively better than other currencies, and the US will outperform globally, but the story ends very badly for everyone including the US.
“I never said that the US dollar was a good currency in fact I pretty sure I said it was a pretty bad story or a pretty bad currency and I never said that this would be good for the United States I just said it would be better for the United States than the rest of the world it's always been a relative uh argument”
People who understand fiat devaluation should dollar-cost-average into selling their equity positions (sell gradually on the way up, not all at once) rather than trying to time the market, while simultaneously accumulating hard assets like gold and silver mining shares.
“start selling start selling into this because you will never have the psychological strength to sell on the way down almost always I know there's exceptions but I'm just going from from experience start selling on the way up if you're watching this program if you believe that there's too much risk in the market if you believe what we've been saying about value ations being Skyhigh and never before higher and that won't last forever if nothing else dollar cost average sell into this”
The US dollar has lost nearly 25% of its purchasing power since January 2020 according to inflation measures.
“according to tration the US dollar has lost nearly 25% of its purchasing power since January anuary of 2020”
The current state of the economy is 'fine' from a high level—stocks at highs, unemployment low, volatility low, inflation coming down—but when you dig deeper things look less good; complacency and lack of fear in the market is precisely when one should step back and reduce risk via hedges, taking profits, or holding cash rather than deploying aggressively.
“the state of the economy right now is I guess I [40:06] the right word I would use is fine I mean you know stocks are at their highs unemployment is low um the volatility is low uh inflation is coming down or it's at least it's not Rising as fast as it used to be things are on the right track on the on from a high level right now when you start to dig in a little deeper maybe everything doesn't look as good but I'm just saying in general things are fine right now”
The market has not experienced a significant correction in a long time, with the last major drops being COVID (fast recovery) and October 2023, and markets have been in 'simulation mode' since 2009 with central bank rescue of every dip, creating psychological conditioning where almost no investors have the emotional fortitude to sell on the way down during a real crash
“this Market has transitioned in my opinion post tech tech bubble actually this doesn't even go back to the tech this is the housing bubble uh 20 years now doesn't even cover the tech bubble...ever since then we kind of went on simulation mode where the government came in and fed central banks printed money and every single little dip has been rescued”
Preston's study of the S&P 500 since the tech bubble shows 64% declines in the 2000-2003 period and housing bubble period, and he expects the market could eventually decline 60-66% back to equilibrium yields around 8-10%, suggesting current valuations are extremely stretched historically.
“this one includes the tech bubble so this was a drop of 60% the housing bubble was 64% or so and then ever since then we kind of went on simulation mode where the government came in and fed central banks printed money and every single little dip has been rescued”
The fourth turning concept suggests we're probably more than halfway through a generational crisis period that will likely end in some kind of climactic crisis event, making the next 1-2 years difficult and requiring defensive positioning.
“I think that's where we are in the story this fourth turning that we're living through and we're probably more than halfway through it by the way”
According to Mike Preston (New Harbor Financial), the US dollar will probably strengthen in the near term or medium term but enter a long-term downtrend, contrasting with Johnson's framework which focuses more on relative dollar strength rather than absolute long-term direction.
“I think that's where we are in the story this fourth turning that we're living through and we're probably more than halfway through it by the way ends in some some type of crisis in that crisis at least in the early days the world probably flocks to Dollars and so I think Brent's absolutely right there um so the dollar will actually probably get stronger particularly in the early days long term though the dollar will probably be in a downtrend”
Johnson holds substantial real estate for his clients but thinks real estate is somewhat overpriced now and will likely see prices decline as rates stay higher and resets continue, though he's not a huge real estate bear and doesn't expect 2008-level resets in residential real estate, though commercial real estate will likely see significant pain.
“all of our clients we have pretty substantial Holdings in real estate I kind of feel like real estate's a little overpriced now and would probably as resets continue to happen and and interest rates are higher I think it's likely that real estate prices come down but I'm not a huge real estate Bearer and I think in some CA other than commercial real estate I think commercial real estate there there's a lot of reason to be concerned and I think we will see a lot more I think we will see a lot more pain in the commercial uh real estate area and as a result the banks will suffer um especially the regional Banks but as far as home prices themselves I think they're likely to come down but I'm not anticipating a you know a 2008 type reset in housing prices”
Preston increased the firm's position in long-term bonds (TLT) from 7.5% to 10% after the 10-year yield broke through a key technical trend line and started moving lower, expecting yields could fall to 3% or below when the economic crisis hits, providing significant appreciation opportunity from current levels around 93.
“on this break of the this trend line on the 10-year bond we increased our position from 7.5 to 10% for most accounts so it's not a huge bet Adam but I want to point it out that I think this is a good opportunity if rates go down to the low threes on the 10y year then TLT which is presently at around 93 it'll probably be 115 120 something maybe 115 would be my my best guess so there's a really good opportunity and you're getting paid about 4% annually while you're waiting in that trade”
In summer 2018, Brent Johnson predicted that the 40-year trend of declining interest rates would reverse, bond prices would fall, interest rates would rise, and this would be bullish for the dollar by making dollar cash more attractive due to higher yields and interest rate differentials
“I said there was a couple specific things I said back in in that initial interview and that was from a market perspective I thought that the 40-year uh trend of interest rates going lower would end so I said the interest rates would head higher so that long-term chart of the you know the 10year bond interest rate going lower and lower and lower we would break out to the top side of that and when that happened then bond prices would break so bond prices would fall and when bond prices fell and interest rates rose that would actually be good for the dollar because now you would get paid more to sit in the cash of the country that had the global Reserve currency”
Markets are currently at extremes: stocks at or near all-time highs, gold at or near all-time highs, Bitcoin at or near all-time highs, silver at near 5-year highs, put/call ratios near historic lows (no one buying puts), credit spreads near historic lows, and VIX near all-time lows—these conditions are consistent with high risk of repricing if even a small unexpected event occurs.
“Bitcoin is near its all-time high or at alltime High equities are at or near their all-time high gold is at or near its all-time high silver is at or near the highest level in five years um and when I look at you know the put call ratio as an example nobody's buying puts everybody's buying calls it's it's not at its low but it's it's near its low right credit y spreads are are near historic load right that that's right credit spreads are very tight”
You can buy a one- to two-percent out-of-the-money put on the S&P 500 with a 9-12 month expiration for approximately 2% of portfolio value, which provides downside protection at current pricing (though this is not a recommendation and carries its own risks).
“I think you can buy a onee 1% out of the money put maybe it's two one to to 2% out of the money put on the S&P 500 for like one and a half% of your overall portfolio so in other words if you spent one and a half% of your portfolio on puts on the S&P you know a year out nine to nine months to a year out one or two% below these current levels”
New Harbor uses options strategies (calls and puts at various strikes and durations) to continuously manage portfolio exposure, raising protective floors (moving puts higher) as markets move higher, adjusting net equity exposure dynamically.
“we keep riding up this Market with puts right now we've got 4950 puts right here with this purple line is on 15% of the portfolio so we've got Net stock we got stocks of around 40% 10% of that is a call option on the equal weighted S&P that goes away on a little bit of a dip”
A real-world example: in April 2024, speakers predicted fiat would die and hard assets would rise due to central bank printing, so many bought gold, silver, oil, copper. Over the next week, that bet looked good, but over the next 2-3 weeks those assets pulled back 5-20%, nothing had changed fundamentally, but investors who followed the advice were significantly underwater.
“let's pretend that we you and I were at a conference in April and at this conference several speakers got up and said you know the age of Fiat is over the central banks are going to have to print like crazy to solve all these problems as a result the Fiat currencies are going to continue to lose value and your best bet is to go buy gold silver oil copper you know and many other of these hard assets and and and just let them inflate away the Deb so if we did that towards the end of April or middle of April we'd probably be pretty happy because over the next week or so those would have gone up in price but then over the last two or three weeks we would have gotten our head smashed in because each of those have pulled back anywhere from 5 to 20% and and over over a week to two week period and again nothing has really changed other from a month ago we're still in the same type of environment”
Johnson initially predicted the sovereign debt and currency crisis would occur within three to five years of 2018 (by ~2021-2023), but it did not materialize; he now predicts it could occur in the next three to five years from the interview date (2024), while acknowledging the same uncertainty and willingness to admit if wrong again.
“I thought that would potentially be the trigger that would cause um This Global sovereign debt and currency crisis sub but subsequently as I look back and figure out why that wasn't the [7:16] case I think it's because at the time the US was still largely not as much as maybe five or six years prior to that but at the time was still cooperating”
Johnson is bullish on soft commodities (wheat, corn, soybeans) due to potential lower crop yields from weather patterns, geopolitical issues with grain from the Black Sea and Ukraine, and ongoing demand as people are born and have to eat; he began buying agriculture ETFs in August-September and has recovered losses as prices have risen.
“the one area of Commodities that I am fairly bullish on is uh the the soft Commodities wheat corn soybeans um we've seen like things like Coco this year kind of got into a supply Crunch and you know the price has gone up a lot I started buying the AGS last August September and you know for the first six months they were below water they've now kind of risen back up to kind of where I bought them but I think that's an area where we could see uh uh some significant price appreciation”
New Harbor Financial maintained its India position despite a 6-7% market decline the day after the Indian election because India's technical chart levels were not breached and their hedges (in-the-money call options) protected the position
“India by the way just had a an election the day after India was down 6 or 7% yesterday but um we were pretty well hedged on that within the money call options and so we're going to leave that position on because we believe in the India story and more importantly India didn't break any technical levels so our rules weren't breached”
Johnson is long equities for his clients (most of whom he's had for 10-20 years and never sold) but controls exposure through options: buying calls when prices are low to get leverage to the upside, and buying puts when prices are overpriced to protect from pullbacks, rather than moving in and out of equities themselves.
“I'm long a bunch of equities for my clients because I've had many of my clients I have a few that are you know a couple years old but most of my clients I've had for 10 15 20 years and so we've owned equities and many times the same equities for literally almost all of that time period and so we don't sell we we don't go we don't move in and out of the market that often if if ever but what we will do is from time to time if we think prices are really low we'll buy calls try to get some leverage to the upside if we think they're overpriced and do for a pullback we'll buy some puts for the downside”
Preston exited positions in Brazil and Mexico after technical breakdowns (Mexico down 11% in one day after presidential election, Brazil breaking technical support) and traded calls against those positions to break even overall, following rules-based stop loss discipline rather than emotional decision-making.
“we just took off our position in Brazil and in Mexico um unfortunately there was a big one-day drop in Mexico the first female president was elected in Mexico in fact both candidates were females and I thought that was great but the market didn't like the one that was picked apparently because uh the market sold off close to 11% in one day and uh we have strict rules in place we did not sell that same day into what we thought was a panic but the charts were broken we breached our stop limit level and we got out”
Brent does not expect a meltup into the end of 2024 before the election, but acknowledges it is not impossible to happen, and is currently positioned more conservatively than he has been in a long time
“my guess would be that we are either at or near the highs for asset prices for the year um it would not surprise me at all to see them trade sideways going into election or even trade down into election I do not think we are going to have a melt up into the election but I will also say that is not impossible to happen I could make an argument for that to happen um I'm not positioned for a melt up into the end of the year but I'm also not 100% in cash waiting for a big crash”
Johnson has a fixed income allocation that is very short duration (longest bonds 2-3 years, mostly T-bills and money market funds) paying close to 5%, and does not believe in long duration bonds given current rate environment.
“we also have a fixed income allocation which is very short duration I think the longest bonds we have are maybe two to three years but even that is pretty small most of our we have so we have a fairly High allocation to T bills right now um and I the other thing I need to and I need to say this because I'm regulated by the way I'm not saying this to try to be you know hute or funny like I I I I have to be careful what I say because I am regulated and I have to say not all of my clients have the exact same portfolio I customize all of my portfolios to them specifically so I'm kind of speaking in general terms here but for a lot of our clients we have either money market funds which are now paying close to 5% or short from T bills that are playing five or 5% or more”
Adam Tagert and Mike Preston plan to release a video featuring Mike and his partner John Loer discussing foundational strategies for hedging portfolios, to be released on June 23rd, to address audience demand for more detailed hedging education
“we pulled the audience a few weeks ago if you remember Mike about um doing a uh a video uh with you and your partner John loer there um going back over sort of um foundational strategies for how investors can hedge their portfolios um we had a lot of strong interest in that so you John and I have picked a date to record and right now folks uh I've got it on my calendar to release on this channel on Sunday June 23rd”
Gold and silver are currently consolidating and have experienced recent pullbacks; Preston expects silver to pull back further to possibly 2850-2950 before resuming uptrend to 3450-3500, and gold to consolidate around 2350 before breaking above recent highs toward 2500+.
“silver have been looking great silver hit 3250 I wasn't happy to see it pull back to 30 it pulled back further to 2950 I think it could have downside even to 2850 it's really volatile but it's it's above 30 right now I think next stop on Silver 3450 to35 I think that could happen in a matter of weeks”